First it is worth noting that the American School came to transcend simple international trade; it was very much the ideal of the Federalist Party and its descendants: a strong central power with the powers to restrain naïve or damaging state or individual actions and to invest and develop the nation economically. The instruments of this power would vary from public banking to federal standards and from industrial “bounties” to tariffs. Economic development would not necessarily come simply by leaving the government’s hands off society, and if it did, often it would do so more slowly than if policies had nudged or aided enterprise to realize development.
Now any forthcoming discussion and exploration of these ideas of the American School must inevitably begin with Alexander Hamilton, and in some way, stay with his the whole course, for his thoughts are reflected repeatedly during American history.
The Hamiltonian Inception
In the entranceway to Thomas Jefferson’s Monticello, two busts, one of himself and one of Alexander Hamilton, stand facing each other with an engraving stating “opposed in death as in life.” The ideological disputes between the two have been fundamental for the American story and reflect entirely different goals for the nascent state. Jefferson’s vision of American society was one in which its citizens were largely self-sufficient farmers and artisans, leaving a strong sense of self-determination and small and localized government. Hamilton’s view, strongly molded by his readings of Adam Smith, would suggest the building of a state in which Americans are inter-reliant and wealthy through the fruits of the division of labor. He would however additionally propose a mighty federal government constantly looking for news ways to improve the material standard of living of the American populace. Whilst Jefferson’s policy recommendations (or lack thereof) were stationed on a certain moral appeals to personal liberty, Hamilton remained an aura of economic pragmatism and eclectic complexity.
Bounties and Tariffs
To take advantage of production of higher aggregate value, as well as to realize a degree of autarky, Hamilton essentially suggested that Ricardian comparative advantage be temporarily ignored and that the government should work to stimulate fledgling industries. If the American proto-state were to simply operate entirely on the precepts of free trade, economic agents in the United States would only be best to eternally specialize in agriculture to compliment the heavy industry of Europe. Due to the undifferentiated produce of agriculture and the high standard of competition in its market, the aggregate value of agrarian labor would be quite minimal and thus the profits useful for economic expansion, leisure, and reinvestment would be dangerously scarce. This allots little surplus for development, not to mention total economic nudity in times of war.
This was the main argument of Hamilton’s Report on Manufactures presented to Congress in 1791. Hamilton suggested slight tariffs to raise revenue, but the primary brunt of his recommendation would be what he called “bounties” or subsidies on new manufacturing enterprises. Congress seemed to widely agree on the necessity of industrial stimulus and would follow most of Hamilton’s suggestions, but the Jeffersonian democrats would block the issuing of subsidies citing possible favoritism or perhaps regulatory capture. Several state governments would heed his dicta more completely, with the state of New Jersey spending a full million dollars to establish a “Society of Useful Manufactures.” Of course similar subsidies would come and pass in the future of industry with Hamilton’s presentation in Congress as a steppingstone.
Public Finance, the National Bank
Besides outright industry aid, Hamilton ignited a tradition of support for the establishment of a state bank. Hamilton’s rationale for a public finance and a nation bank was both similar and different from Smith’s; he was of accord with Smith in the fact that banking greased the wheels of the economic machine in allowing “saved” financial capital to be recycled via a fractional reserve system. Both additionally understood the flaws fundamental intellectual lapse of mercantilism: that gold was equivalent of wealth; but Hamilton at times went even further to say that in some cases the quantity of currency and capital had an influence on currency itself. In this somewhat modern idea, the government could assure a high rate of exchange in assuring that financial capital is flowing and abundant.
Needless to say, Hamilton died untimely and unnecessarily, but fortunately for the United States, he would be intellectually reincarnated multiple times in the history of the country. The story of Hamilton’s thought is very much the story of the American School of economics itself as it is taken up and reinterpreted by generations of coming Americans.
The Whigs and the Republicans
During the Federalist Party’s gradual political decline, the enclave of skepticism of the coming Jacksonian democrats and of industrial support would become manifest in the Whig Party, whose Henry Clay who would perhaps be the most vocal supporter of the American Economic System. Clay, a political juggernaut serving thrice as Speaker of the House smithed his industrialist ideas most concretely into the Tariff of 1816. Although the United States had enjoyed a significant global manufacturing position whilst Europe had been engaged in the Napoleonic Wars, the closure of warfare in 1815 meant more international industrial competition for the still fledgling American manufacturing sector. The Tariff of 1816 was a broad set of duties on imported manufacturing products and whose proceeds were utilized to construct further American infrastructure. The goal, political and economic, was to attract the support of the mostly preindustrial west and south by guiding the building of roads and eventually rails and other stimulating utilities in rural areas.
Still the political successes of the Whig Party would gradually diminish in the same way the Federalists had: via a total inundation of the Democratic-Republican appeal. Even though some of the pillars of the American School were implemented successfully into policy, others, such as Clay’s proposed extension of the charter of the Second National Bank in 1832 based on arguments similar to Hamilton’s, did not.
The elements composing the Whigs did not fizzle away with the party itself, but were quickly re-coalesced with the rising Abolitionist movement into the Republican Party. Abraham Lincoln, as the first Republican to achieve the presidency, did additionally illustrate well the Federalist-Whig-American tradition of economic and political thought. Lincoln was not as much of a writer, but he was indeed a prolific speaker who would recommend the consumption of the staples of the American System at all moments possible. Needless to say, Lincoln was a firm proponent of a capable and solvent federal government; as president on Independence Day 1861, shortly after the avalanche of state secessions had begun, he presented a speech bluntly entitled “The Myth of State Sovereignty” to congress, affirming the right and necessity of a sovereign and guiding federal lead. He was a proponent of a national bank and in various speeches and debates with Stephen Douglas and others, made constitutional and practical arguments for its existence, not to mention considerable usage of public finance to maintain the Union advantage in the Civil War after his election.
Slavery
The issue of slavery in itself was in some sense a viable microcosm of the Jefferson-Hamilton debate. A totalistic Jeffersonian democracy would afford to people a lack of state intervention, and in this case the lack of regulations on the institution of slavery, whilst the Hamiltonian state, built in the tradition of the American School of Economic Thought highlighted the subtle dangers of fetishized individual “freedom.” Because of slavery, non-enslaved southern farmers were forced by slave competition to a nigh subsistence wage while the vested interest of politically potent plantation owners prevented development in non-agrarian measures or in infrastructure. Because of this, the south remained a thoroughly unattractive destination for immigrants and entrepreneurs. The “violation” of individual rights implied by the legal manumission of slaves and the “usurpation” of states’ rights in a federal ban on slavery created a vivid example of the utility and efficacy of federal control exceeding the Democratic-Republican tradition.
The Progressive Era to the New Deal
After the Civil War, the Hamiltonian-American School seemed victorious; the federal government seemed to have proven its worth and Republicans had the political capital to implement industrial and expansionist policies. Yet over the years, perhaps with the increasing disenchantment of independently-minded Americans of the west and south, personified by the quintessential Jeffersonian William Jennings Bryan, the tradition needed to expand its image and reach to appeal to the new needs of society. This gradually became the progressive movement.
Perhaps the single most important intellectual at the dawning of the progressive era was the thinker Herbert Croly. Croly was an interesting figure; he had managed to drop out of Harvard University thrice (the institution would later compensate him with an honorary degree), but worked gradually on what would become the Promise of American Life, a book to be published in 1909. In said volume, Croly characterized American intellectual history as above, as two opposing yet similar political strands stemming from Jefferson and Hamilton. In his measurement, it was those policies of Hamilton and the American System which had led the United States into industrial competency whilst the ideology of Jefferson had led to an environment without respect for the “positive rights” of individuals where the government was often neglectful of the wellbeing of its people and even itself.
“Reform is both meaningless and powerless unless the Jeffersonian principle of non-interference is abandoned. The experience of the last generation plainly shows that the American economic and social system cannot be allowed to take care of itself, and that the automatic harmony of the individual and the public interest, which is the essence of Jeffersonian democratic creed, has proved to be an illusion.” –Herbert Croly The Promise of American Life
Croly succeeded in expanding the points of contention of the American School of thought from their traditional interpretations into a progressive framework. Hamilton’s strong federal government capable of public works and public finance became an instrument of social insurance and public conservation as well. It should be no surprise that Croly maintained close intellectual relations with Theodore Roosevelt, even aiding him in speech-writing at times. Much of the Square Deal consisted of said restraints on the excesses of non-interference.
Then strangely enough, it was Jefferson’s own modified Democratic Party which formed the prime support for the permanent national bank of the Hamiltonians’ dreams in 1913. After a series of uncontrollable panics, the Hamiltonian argument seems to have been properly vindicated and the need for such an organization to regulate both the money supply and other banks seemed obvious. Politically speaking, the traditional dichotomy between Hamilton and Jefferson appeared to become muddy and at times inverted; Democrats seemed more apt to support industrialist policies than the more relaxed and conservative Coolidge Republicans.
Franklin Delano Roosevelt himself did not offer open praise for Hamiltonian thought, opting instead for the more populist and demagogic tones of the democrat Jefferson. This tone needless to say did not prevent him from creating one of the most expansive series of federal programs, regulations, industrial stimuli, and reform packages in the history of the United States in the form of the New Deal, a somewhat clumsy but immense attempt at semi-Hamiltonian domestic construction and consolidation.
The Post War Period
Historian Michael Lind notes that in the concurrent American political milieu presents an awkward lack of an unabashedly Hamiltonian element. Neither primary American political party could (politically speaking) afford to implement explicit industrial growth as the median populace seems to have suspicion of interventionist policies to stimulate business directly. Mistrust of a Hamiltonian government is immense; public loathing of the Federal Reserve may be at an all-time high; government is consistently viewed as irreparable and eternally dysfunctional; the American System of Economic Thought seems, strangely enough, insufficiently American.
Doubtlessly there have been strides that would comfort the Hamiltonians of days passed even after the New Deal. In the fifties, the United States created one of the greatest and most overlooked public works in its history: the Eisenhower Interstate Highway System; although overtly for public defense, it has certainly facilitated the improvement of commerce about the entire nation. Afterwards the Great Society programs were amongst other additions to the New Deal repertoire by America’s last openly Hamiltonian president. Still these seem to be breaks in a long-term quasi-Jeffersonian pattern; presidents such as Jimmy Carter received nothing but backlash in pining for new industrial policy.
The American System has not however become completely defunct; if anything developing nations are latching onto the ideas of Lincoln, Hamilton, Clay, and Croly with surprising tenacity. The bizarrely optimistic development stories of East Asia are often unavoidably linked to an endorsement of the preaching of Hamilton. The strong government roles of South Korea and Japan in their economic nepotism of the Chaebol and the Zaibatsu respectively have allowed even markets with little competition to produce enormous spillover effects in societal development contributing to the almost unbelievable growth of the Asian Tigers. Export-led growth, industrial investment, and infrastructure have proven as valuable as the American System posited to these developing nations and such occurrences have been facilitated complimented by industrial policy in, for example, the Japanese Ministry of International Trade and Industry (MITI). It seems that the Hamiltonian path to development it quite more direct than that of Smith, if these cases are properly taken into account.
The American School in Closing
The subtle consensus of the Anglophonic world is that economic thinkers need not ever look further than Smith to find sufficient intuitions of how to create a developed nation. This leads invariably to repetitious calls to restrict international tariffs and borders to trade and to reduce the involvement of meddling government projects. This is the working assumption of many international trade organizations and most of the English-speaking academia. It is however worth it to note that more and more development theorists are looking to the writings of Hamilton and Friedrich List even if they are unheeded in the States.
The American School of economics may simply be in a dormant state in its home country for the time being; perhaps new necessities may push policy makers to re-examine this hidden foundation of American thought and of the very economic engine of the United States. The current administration at times whispers in Hamiltonian overtones, especially in regards to the stimulation of domestic manufacturing, but for politics’ sake Hamilton’s “bounties” and the subsidies of old must be reformulated into the more comestible and fervently beloved tax-break. This said, it remains difficult to discount the effects of the American School from Hamilton onwards on the political economy of the United States in terms of theory, policy, and result. Had the vision of Jefferson dominated the budding political environment of the United States, one would be hard pressed to imagine a United States with central banking, heavy industry, unity after the Civil War, and such aspects of pragmatism in law, all of which have defined the strength of the American industrial state.