Alexander Hamilton was a Founding Father, Revolutionary War soldier, economist, political philosopher, one of our first Constitutional lawyers and the first Secretary of the Treasury.
His 1791 Report on Manufactures made the case for the critical nature of manufacturing to the American economy. It met stiff resistance from the likes of Thomas Jefferson who believedagriculture alone would build the nation.
Thankfully, Hamilton’s thinking eventually won out and while he and Jefferson never got along, Jefferson became a manufacturing believer.
A couple of passages from the report are more relevant today than ever:
“Not only the wealth; but the independence and security of a Country, appear to be materially connected with the prosperity of manufactures. Every nation, with a view to those great objects, ought to endeavour to possess within itself all the essentials of national supply. These comprise the means of Subsistence habitation clothing and defence.”
“Hence the undertakers of a new manufacture have to contend not only with the natural disadvantages of a new undertaking, but with the gratuities and remunerations which other governments bestow. To be enabled to contend with success, it is evident, that the interference and aid of their own government are indispensable.”
“But though it were true, that the immediate and certain effect of regulations controuling the competition of foreign with domestic fabrics was an increase of price, it is universally true, that the contrary is the ultimate effect with every successful manufacture. When a domestic manufacture has attained to perfection, and has engaged in the prosecution of it a competent number of
Persons, it invariably becomes cheaper. Being free from the heavy charges, which attend the importation of foreign commodities, it can be afforded, and accordingly seldom or never fails to be sold Cheaper, in process of time, than was the foreign Article for which it is a substitute. The internal competition, which takes place, soon does away every thing like Monopoly, and by degrees
reduces the price of the Article to the minimum of a reasonable profit on the Capital employed. This accords with the reason of the thing and with experience.”
“Neither will it follow, that an accumulation of debt is desireable, because a certain degree of it operates as capital. There may be a plethora in the political, as in the Natural body; There may be a state of things in which any such artificial capital is unnecessary. The debt too may be swelled to such a size, as that the greatest part of it may cease to be useful as a Capital, serving only to pamper the dissipation of idle and dissolute individuals: as that the sums required to pay the Interest upon it may become oppressive, and beyond the means, which a government can employ, consistently with its tranquility, to raise them, as that the resources of taxation, to face the debt, may have been strained too far to admit of extensions adequate to exigencies, which regard the public safety.”
Any economic theory based on massive government debt, or the benefit of letting other countries buy our manufacturing with tarrif imbalances or currency manipulation hinges on an assumption that the proponent of the theory is smarter than Alexander Hamilton. What are the odds of that?
Happy Independence Day!