The month of December should not come to a close without manufacturing folks across America taking a moment to raise a toast to Alexander Hamilton. It was 214 years ago – in December of 1791 – that he wrote his Report on the Subject of Manufactures, which laid out the framework for the modern American manufacturing economy. The enormous social, economic and national benefits that all of us in manufacturing provide to the U.S. and the rest of the world are spelled out in this remarkable document.
In the adulation for Thomas Jefferson instilled in all of us from birth, it is little known that he vehemently opposed Hamilton and the idea of America becoming a manufacturing country. He was adamant about our remaining an agrarian nation. Thanks to Hamilton and his great vision, Jefferson lost the debate. They put the wrong guy on Mount Rushmore, as far as I am concerned. Perhaps the selection committee was put off by minor character flaws like Hamilton’s inability to keep his hands off of other men’s wives and a penchant for instigating duels. Its a shame to hold such trivial shortcomings against the man from who every manufacturing genius from Henry Ford to Taichi Ohno is descended, don’t you think?
The few of you who, like me, suffer from an absence of a social life may want to read Hamilton’s magnificent work. The more normal among you can simply take my word for it – December is the anniversary of a great event in American history. When the glasses are lifted at parties across the land this weekend – and every New Year’s Eve – all of us who make a living in manufacturing ought to remember to toss one down for Alex, the true founder of our national feast.
Eric H says
Sorry, Bill, but we owe little to Alex for this amazing success story. In fact, if we owe anything to him, it’s the idea that we need to nurture latent industries from foreign competition and the protectionist shenanigans that have endured since then (especially in the name of steel). Jefferson was wrong about what we *should be*, but he was right about abandoning mercantilism, which was essentially what Hamilton was arguing. Mercantilism had effectively been disputed by David Hume, mentor of the Scot who produced the other incredible tract of 1776 (Adam Smith’s _An Inquiry into the Nature and Causes of the Wealth of Nations_). It is the fact of being open to foreign competition and the ability to respond with little bureaucratic interference that has kept American industry strong.
Bill Waddell says
Eric, I think you are being a little bit harsh on Hamilton. You should judge the merit of his principles by the standards of 1791, not the economic and social environment 200 years down the road. The real gist of Hamilton’s efforts was the creatiion of a national bank and the establishment of capital markets, which made capital intensive manufacturing possible; and which Jefferson and the Republicans vehemently opposed. Sure he was overly protectionist by today’s standards, but the infant U.S. economy needed all the protection it could get in the 1790’s. And Adam Smith is losing a bit – not much, but a bit – of his luster as history progresses.
Eric H says
In what way is Smith “losing luster”? If anything, it is amazing how much that he wrote remains unreproachable today.
Much of the capital that fueled the 19th century IR in America came from England, and Hamilton’s National Bank went away for most of that period. And The Fed hasn’t done any better if this is anything to go by: http://bigpicture.typepad.com/comments/2006/01/has_the_fed_kep.html
Finally, we always hear that this or that industry “needs” to be protected for a while. That’s marketing PR from the protected industries that not even Paul Krugman (well, the old Krugman) would agree with. They either need to get it together in the context of full competition or not survive. Society loses when capital is wastefully put to use (capital used either to produce goods that can’t compete, i.e. are more expensive than the competition ceteris parebus, or capital used to produce goods at a loss). The foreign competition is not going to sit idly by and wait for them to catch up under the shadow of protectionist measures. The competition is going forward, and no amount of protectionism is going to help if the “fledgling” industry isn’t prepared to compete from the get-go. And rarely does an industry agree that they are now ready for protection to be lifted; only Harley-Davidson comes to mind. Producers who become rent-seekers rarely decide to return to producing when rent-seeking works so well.
If anything, credit Hamilton with devising a credible way to pay off the war debt. But leave the mercantilism back in the 18th century where it belongs.