Debating Alexander Hamilton’s Case for American Manufacturing Greatness

Aug 9, 2017 by

by Carson Holloway –

Thanks to Broadway, Alexander Hamilton is famous once again. One might wonder whether his unexpected stage stardom would lead at least some Americans to turn to his most important state paper, the Report on the Subject of Manufactures, which contributed so much to the Hamiltonian profile as one of the preeminent Founders of the United States. Maybe not too many did—but solid substantive reasons call us, especially now, to a reconsideration of this greatest state paper of our greatest Secretary of the Treasury.

Presented to the Congress on December 5, 1791, the Report on Manufactures, as it is more commonly known, enacts an 18th century version of an important debate that Americans are having today. Its being 226 years old does nothing to diminish the relevance of its central arguments. Such a distance in time may even offer an advantage: the possibility of understanding those arguments with a clarity undistorted by the ideological zeal and partisan anger that roil our politics today.

The Report defends a position that is still politically powerful: that American prosperity and greatness require a vibrant domestic manufacturing sector, and that government policy should be crafted to promote this end. It also acknowledges and responds to the still relevant and still potent objections that could be raised to such a policy. Finally, it sets forth the prerequisites of a pro-manufacturing policy that is moderate and sensible. By doing all these things, Hamilton’s Report on Manufactures can help us to conduct our own debate more thoughtfully, whatever side we may take on the issues it raises.

Hamilton’s Pro-Manufacturing Policy

As a statesman, Hamilton found himself entrusted with the care of a country whose economy was primarily agricultural. He believed, though, that proper care for that country impelled the government to take steps to encourage the economy to grow beyond agriculture. America’s independence and security depended on its prosperity, and that prosperity would be enhanced by the development of its manufacturing sector.

Hamilton went out of his way to assure his 18th century readers that his argument was not intended to belittle the value or the productivity of the agricultural way of life.  Rather, his point was that a national economy that included both agriculture and manufacturing would be more productive than one that was merely agricultural. The growth of manufacturing, Hamilton believed, would add a diversity to America’s domestic economy that would bring great benefits: A nation that produced a wider variety of goods for export would be protected against fluctuations in foreign demand.  Moreover, a more diverse economy would call forth more productive energy from the American people.

The farming way of life is gratifying to some but stultifying to others, and human beings tend to “fall below the level of mediocrity and labor without effect” when “confined to uncongenial pursuits,” Hamilton wrote. In contrast, when a variety of jobs are available, “each individual can find his proper element” and thus “call into activity the whole vigor of his nature.” As a result, the entire “community is benefitted by the services of its members, in the manner in which each can serve it with most effect.”

Because he regarded this kind of economic development as beneficial for the country, he recommended in his Report that the government take measures that would encourage it. To be clear, Hamilton was not a socialist or a statist. He did not call for a planned economy. He did, however, believe that there were certain relatively non-intrusive but helpful measures the government could pursue to encourage U.S. manufacturing. The most obvious of these was protective tariffs on foreign manufactured goods. More controversially (both politically and constitutionally), he suggested that the government pay “bounties”—we might say subsidies—to budding manufacturers.

Hamilton on the Limits of Laissez-Faire

This line of policy elicited strong objections then as it does now. In the first place, why should the government interfere in the nation’s economy in the ways Hamilton wanted, which would force it in an artificial direction different from its natural inclinations? Why not let the operations of the free market take their course and permit American manufacturing to develop as quickly as, and to the extent that, its spontaneous impulses would dictate?  Surely, as Hamilton stated the objection, “the quick-sighted guidance of private interest” would, “if left to itself, infallibly find its own way to the most profitable employment.”

Moreover, if it turned out that America were to develop no manufacturing base of its own, why could it not, in that event, rely on international trade for its manufactured goods? The country, after all, was not isolated from foreign commerce. It could purchase the manufactures it needed from abroad. Indeed, doing so would seem to involve an efficient international division of labor, with each country producing the goods to which it was best suited, to the mutual advantage of all.

To use Hamilton’s word, indeed there was “solidity” in such arguments. He regarded them, however, as more true in theory than in practice—at least as far as international politics and commerce were concerned. “If the system of perfect liberty to industry and commerce were the prevailing system of nations,” he contended, then America need not do anything to promote its own manufacturing. Under such conditions, each nation would indeed produce what it could best produce and could therefore enjoy a reciprocally beneficial trade with others.

In the real world, however, nations seldom pursued such a policy. Most governments moved to exclude or discourage the importation of goods produced in foreign lands, even as they also provided bounties/subsidies to their own manufacturers so that they could “undersell and supplant all competitors in the countries to which” their products were sent. In sum, the general tendency of governments was not to seek an efficient international division of labor with a view to the most prosperous global economy, but to promote their own economic development, even if that meant imposing on the interests of foreigners. Accordingly, in protecting and promoting its own manufacturers, America would only be doing what most nations do, and indeed what it would have to do if it was to grow its own industrial capacity.

Justice to American Manufacturers

Here we might ask why the government of the United States should care if other governments provided artificial support to their own industries. In some, perhaps even in many, cases their doing so might not harm but help Americans. To say, as Hamilton did, that other nations provided assistance to their own manufacturers so they could “undersell and supplant all competitors” in the country to which their wares are sent seemed to imply that these nations were pulling a fast one and should not be permitted to get away with it. In practice, though, this “underselling” simply meant that American consumers could get goods that they want at a cheaper price—a cheaper price made possible by the expenditures of a foreign government. What’s wrong with that?

Source: Debating Alexander Hamilton’s Case for American Manufacturing Greatness – Online Library of Law & Liberty

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