The Elbert Files: Hamilton had it right
Alexander Hamilton believed in government intervention.
His 1791 “Report on the Subject of Manufactures” was a 32,000-word argument for state-led economic planning, according to the 2020 book “Radical Hamilton; Economic Lessons from a Misunderstood Founder” by City University of New York economics professor Christian Parenti.
I wrote about the book last week, noting that Hamilton wanted to jump-start the new nation’s struggling economy and believed the best way was through government intervention.
“Hamilton wanted neither to suppress competition nor to let markets run wild; rather he sought to manage and use creative destruction as a means toward the political project of building an autonomous and sovereign state,” Parenti wrote.
The government, Hamilton argued, could provide the private sector with tools to compete on the world stage, where economic rivals (England, France and Spain) had head starts in developing the technology and systems (banking and insurance) that could spur industrialization.
To catch up, Hamilton advocated a number of practices, including two that are frowned on today, government-sponsored industrial espionage and child labor.
He also believed in the power of central government planning.
When people today hear the words “central planning,” images that come to mind include the 20th century failures of government planning by the Soviet Union and Communist China.
But that’s a narrow view.
If we step back a little, a more varied panorama emerges.
During Hamilton’s life, much of the central planning he advocated was for what we call infrastructure. He wanted to build new roads and canals to boost commerce.
He also wanted to encourage industrialization by bringing in immigrants who knew how to build and operate developing technology, which in those days consisted mostly of printing presses and machines for turning wool and cotton into fabric that could be made into clothing, blankets, sails and other 18th century essentials.
While treasury secretary, Hamilton was instrumental in creating the Society for Establishing Useful Manufactures and obtaining a charter from New Jersey to build an entire town (Patterson, N.Y.) at the Great Falls of the Passaic River, where abundant water power could drive machinery.
According to biographer Ron Chernow, Hamilton recruited a man who had “plundered British secrets for flax-spinning machinery,” and used Treasury funds to subsidize his living expenses. Hamilton also brought in “British textile refugees” to operate the equipment.
Hamilton’s Report on Manufactures, which Chernow said “prophesied much of post-Civil War America,” was written simultaneously with the establishment of the Patterson operations.
Aside from Patterson, N.J., however, little came of Hamilton’s Report on Manufactures before his premature death following an 1804 duel with Vice President Aaron Burr.
In the decades that followed, however, New York Gov. DeWitt Clinton, among others, used the report’s premise to create the Erie Canal, which historian Daniel Walker Howe described as “the first step in the transportation revolution that would turn an aggregate of local economies into a nationwide market economy.”
During the 1840s, Whigs, including a young Abraham Lincoln, used Hamilton’s logic to justify their call for state-financed “internal improvements,” which was the 19th century euphemism for infrastructure.
During the 1870s, Prussian leader Otto Von Bismark adopted many of the central planning features advocated by Hamilton to create a “whole new level of state support for industry,” effectively creating the modern state of Germany, Parenti wrote.
Much the same thing happened in Japan where “numerous Japanese writers advocated a Hamiltonian agenda of wholesale economic transformation” during the late 19th and early 20th centuries.
Another example is modern-day China, where the economic development of recent decades aligns with recommendations Hamilton made in his Report on Manufactures.
Parenti even goes so far as to apply Hamilton’s principles of central planning to climate change, writing: “The unprecedented challenge of climate change requires, at a minimum, that we euthanize the fossil-fuel industry and build out a vast clean-energy sector.”
That’s not going to happen on its own, but with the proper incentives from the government, a clean path to the future is more likely to emerge.