In Federalist Paper 11, Alexander Hamilton argued that one of the benefits of the proposed Constitution was the strengthening of the economy and ensuring the nation’s economic independence.[1] Hamilton closed by calling for the states to come together “in a strict and indissoluble union,” and creating a “great American system” of economy.[2] As a leading Federalist, Hamilton not only helped with the ratification of the Constitution, but he was selected by President George Washington to serve as the first Secretary of the Treasury. Hamilton is credited for being the “father of American capitalism” and he was the architect of President Washington’s economic policies.
The economic policies were outlined in a series of reports to Congress, which centered on public credit, the creation of a national bank, and manufacturing. Each report created considerable political debate, especially the Report on the Subject of Manufactures. Hamilton’s Report on the Subject of Manufactures argued for a diversified economy, the use of tariffs to protect industry and to raise revenue, subsidies to support manufacturing, and the funding of internal improvements. Hamilton’s Report, as controversial as it was, created the foundation for the American System of economics and his ideas had lasting impact. Even in 2024 the nation continues to debate the economic policies outlined by Hamilton in his Report on the Subject of Manufactures.
Published in 1776, Adam Smith’s The Wealth of Nations was viewed as guidepost for economic policy.[3] Smith’s ideas became the foundation for classical liberal economics, which remains influential. The Wealth of Nations argued that free trade was beneficial and even addressed an early interpretation of David Ricardo’s theory of comparative advantage. Smith’s “invisible hand” of the economy became a pillar of classical liberal thought. Alexander Hamilton would directly challenge the classical liberal tradition of economic thought. Hamilton was a strong capitalist, and he found agreement with Smith in many areas, but his economic theory centered more on the ideas of mercantilism and national economic independence.
Hamilton’s mercantilism or economic nationalism was based on his view that the United States, while being a free market internally, needed to be unified economically and protected against the predatory trade practices of European powers. For Hamilton, and even President Washington, this was personal because both understood the hardships of the Revolutionary War and the dependence on France in order to keep the patriot cause alive and to eventually win the war. Hamilton argued that it was dangerous for the United States to be dependent on a foreign power, especially for national security. Further, Hamilton argued that the national economy should be diverse, that is, not dependent upon agriculture and the development and encouragement of manufacturing was essential for national economic success.
In 1791, Hamilton submitted his Report on the Subject of Manufactures to the Congress. The Report outlined Hamilton’s economic nationalism. The essential objective for Hamilton’s economic policy was not just manufacturing but promoting the means “to render the United States, independent on foreign nations, for military and other essential supplies.”[4] President Washington had made a similar argument in his first message to Congress when he argued that the national goal “should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.”[5]
Hamilton argued that the overall economic goal should be to ensure “national independence and safety,” and achieving this objective required the encouragement of manufacturing.[6] The importance of manufacturing, Hamilton argued, should not be controversial and developing the national economy would make the United States less dependent upon Europe, while also creating a larger home market.[7] This would also benefit agriculture, which was the leading driver of the economy, and a larger home market would lessen the stress of American agriculture depending on Europe for market access.[8]
Before Hamilton outlined his economic policy to encourage manufacturing, he addressed several arguments that were being made against a diversified economy. This was especially the case with Hamilton’s chief political opponent, Thomas Jefferson, who advocated for not only free trade, but a national economy based on agriculture and small independent farms. The proponents of agriculture, Hamilton wrote, argue that this is the “most beneficial and productive object of human industry.”[9] The reason for this line of thought was the vast lands of the United States, which contained “immense tracts of fertile territory, uninhabited and unimproved.”[10] This was Jefferson’s “empire of liberty” and the vast unsettled land openings provide opportunities to not only “cultivate farms,” but also “contribute to the population” and increase the “real riches of the country.”[11] This argument believed that national economic prosperity and even independence would be achieved based upon the agrarian economy. This debate between a diversified or agriculturally based economy would actually surpass Hamilton and Jefferson.
The second argument Hamilton raised by critics of manufacturing dealt specifically with government support or subsidies for industry. This was a classical liberal argument that it would be “unwise” for government to provide subsidies to encourage the growth of manufacturing.[12] This argument, which is still used today, argues that it is better “to leave industry to itself,” and the “private interest” will result in “public prosperity” being promoted.[13] Another classical liberal argument that Hamilton listed, which is also used today, argues that tariffs in support of manufacturing distort the market and increase prices for consumers.[14] This would also lead to distortions in labor and the creation of monopolies.[15] This approach believed that it was better and more efficient to depend on a foreign supplier. “It is far preferable, that those persons should be engaged in the cultivation of the earth, and that we should procure, in exchange for its productions, the commodities, with which foreigners are able to supply us in greater perfection, and upon better terms,” wrote Hamilton in describing the classical liberal view.[16]
Other arguments that Hamilton listed included the nation’s population was not large enough to support both manufacturing and agriculture, and in terms of labor, the farmer is more independent.[17] This was an argument used by Jefferson and other agrarians that a farmer would be independent and self-sufficient, while a laborer in manufacturing is dependent upon the factory. Both Jefferson and Madison argued that agriculture was closely tied to republicanism.
Hamilton dismissed these arguments as just theories that were not necessarily rooted in reality.[18] “Most general theories, however, admit of numerous exceptions, and there are few, if any, of the political kind, which do not blend a considerable portion of error, with the truths they inculcate,” wrote Hamilton.[19] Further, Hamilton argued that is was wrong to consider agriculture to not only be economically superior, but to be the only source of independence. As Hamilton wrote:
But, that it has a title to anything like an exclusive predilection, in any country, ought to be admitted with great caution. That it is even more productive than every other branch of Industry requires more evidence than has yet been given in support of the position. That its real interests, precious and important as without the help of exaggeration, they truly are, will be advanced, rather than injured by the due encouragement of manufactures, may, it is believed, be satisfactorily demonstrated. And it is also believed that the expediency of such encouragement in a general view may be shewn [shown] to be recommended by the most cogent and persuasive motives of national policy.[20]
Hamilton is not just critical of this economic argument, but he was also arguing that its defenders were ideological in their belief.
After outlining the arguments against a manufacturing or industrial policy, Hamilton argued that manufacturing was both a source of economic growth and it benefited labor.[21] Manufacturing in some circumstances was even better for labor than agriculture. Hamilton wrote that workers in agriculture are confronted with seasonal changes, which result in “various and long intermissions.”[22] The manufacturer, Hamilton argued, is employed in a more “constant and regular, extending through the year, embracing in some instances night as well as day.”[23] Manufacturing also led to innovation and productivity, which would benefit both the economy and workers.[24] Hamilton in his Report was not attacking agriculture or dismissing the importance of its contribution to the economy, but rather demonstrating that manufacturing would be just as valuable for the economy and for labor, while ensuring the economic independence of the nation.[25] As Hamilton noted:
The foregoing suggestions are not designed to inculcate an opinion that manufacturing industry is more productive than that of Agriculture. They are intended rather to shew that the reverse of this proposition is not ascertained; that the general arguments which are brought to establish it are not satisfactory; and consequently that a supposition of the superior productiveness of Tillage ought to be no obstacle to listening to any substantial inducements to the encouragement of manufactures, which may be otherwise perceived to exist, through an apprehension, that they may have a tendency to divert labour [labor] from a more to a less profitable employment.[26]
Hamilton would close by stating that it could even “be discovered that there is no material difference between the aggregate productiveness of the one, and of the other kind of industry…”[27]
Hamilton spent considerable time addressing the economic debate surrounding agriculture and manufacturing. In this regard his main argument was that not only would both benefit the economy, but manufacturing would strengthen the nation. Hamilton provided seven reasons why this would occur:
These reasons supported Hamilton’s argument for a diversified economy. Manufacturing would provide stability, encourage innovation and growth, improve labor, establish a middle class, strengthen the home market, and make it less dependent upon Europe.
“For the purpose of this vent, a domestic market is greatly to be preferred to a foreign one; because it is in the nature of things, far more to be relied upon,” stated Hamilton.[29] The United States could not always rely on European markets to purchase our commodities and an extensive domestic market would ensure an outlet for any agricultural surplus.[30] In the Report, Hamilton also reminded Congress that the national economy was in fact already developing a manufacturing based economy that included numerous products and industries that were flourishing.[31] This also included “a vast scene of household manufacturing, which contributes more largely to the supply of the community…,” noted Hamilton.[32] Hamilton, in foreshadowing an argument used today, stated that it is in the interest of a community to “encourage the growth of manufactures.”[33]
A diversified economy, which included both agriculture and manufacturing, would create the foundation for Hamilton’s American System. The American System referred to a national economy that was interconnected and each region of the country would benefit. Both manufacturing and agricultural would work together to benefit the entire economy. This diversified economy would also lead to a better balance of trade. Hamilton argued that a “favorable balance of trade” existed with countries that had both manufacturing and agriculture, while this would not be the case for a single sector agriculture economy.[34] Hamilton was worried about a trade deficit, and he used the West India Islands as an example. The West India Islands, Hamilton noted, had some of the most fertile soil, which supplied agricultural goods to numerous nations and was in a “loss with almost every other country.”[35]
The balance of trade argument was important for Hamilton because it was tied directly to national economic independence. He argued that the “United States cannot exchange with Europe on equal terms.”[36] This was controversial because Hamilton’s critics argued that free trade and cheaper imports of foreign manufactured goods benefited the farmer by not only creating an open market but getting a lower priced good in exchange. Hamilton argued that “the importation of manufactured supplies seems invariably to drain the agricultural people of their wealth.”[37] Having balanced trade and economic independence was paramount for Hamilton and it was a recurring argument throughout his Report.[38] “Not only wealth; but the independence and security of a country, appear to be materially connected with the prosperity of manufactures,” stated Hamilton.[39] It was in the national interest for a nation to “endeavor to possess within itself all the essentials of national supply.”[40] In this regard, Hamilton specifically mentioned clothing and defense as national necessities.[41]
To demonstrate this point Hamilton specifically reminded the Congress of the inability of the Americans to provide even the necessities for themselves during the Revolutionary War. As Hamilton wrote:
The possession of these is necessary to the perfection of the body politic, to the safety as well as to the welfare of the society; the want of either, is the want of an important organ of political life and Motion; and in the various crises which await a state, it must severely feel the effects of any such deficiency. The extreme embarrassments of the United States during the late War, from an incapacity of supplying themselves, are still matter of keen recollection: A future war might be expected again to exemplify the mischiefs and dangers of a situation, to which that incapacity is still in too great a degree applicable, unless changed by timely and vigorous exertion. To effect this change as fast as shall be prudent, merits all the attention and all the Zeal of our Public Councils; ’tis the next great work to be accomplished.[42]
Hamilton argued that United States should not place itself in a position to be dependent on foreign sources of necessities, especially in time of war.
After making the case for why a diversified economy was necessary and how the nation would benefit from encouraging manufacturing, Hamilton recommended the Congress adopt several policies that would help fulfill his economic vision. Hamilton’s policy recommendations were the most controversial aspect of his Report, and they would become the foundation for the American form of mercantilism or economic nationalism.
The first policy recommendation was the use of tariffs, or duties, that would be used to raise revenue for the government, but also protect manufacturers from Europe flooding the American market with cheaper goods.[43] The benefit of a tariff, Hamilton argued, would allow “national manufacturers to undersell all their foreign competitors.”[44] Congress also had the power to establish a tariff under Article 1, Section 8 of the Constitution. The tariff would be a source of revenue for the federal government.[45] Revenue was important because another focus for Hamilton was the payment of the Revolutionary War debt and establishing a solid financial foundation for the nation. This was related to his reports on public credit and his support for a national bank. Once again, Hamilton looked back and reminded Congress that the Articles of Confederation had failed to secure revenue for the government, which was a direct weakness.
The tariff would also serve to protect manufacturers that were still developing. This has been referred to Hamilton’s “infant industry” protection. European nations had existing manufacturing facilities and the developing manufactures in the United States could not compete on “reasonable terms.”[46] Hamilton also argued that the tariff would benefit American labor. An “extensive domestic market” would allow manufacturers to secure “a cheap and plentiful supply” of goods for the consumer, which meant that the home market should come first.[47] The tariff would also protect the wages of Americans, which would be higher than cheaper wages of Europe.[48] “There are grounds to include that undertakers of manufactures in this country can at this time afford to pay higher wages to the workmen they may employ than are paid to similar workmen in Europe,” argued Hamilton.[49]
Related to tariffs, Hamilton next argued for Congress to levy bounties or subsidies to encourage manufacturing. Bounties, Hamilton argued, have “been found one of the most effective means of encouraging manufactures, and it is in some views, the best.”[50] The bounties would be funded by the revenue raised from tariffs and Hamilton argued that this would “stimulate and uphold new enterprises, increasing the chances of profit, and diminishing the risks of loss, in the first attempts.”[51] Hamilton was arguing for what today would be called government subsidy of research and development. “The encouragement of new inventions and discoveries” is a direct benefit, argued Hamilton.[52]
Hamilton’s defense of bounties resulted in a contradiction to a prior argument, because he argued that these subsidies would not impact the price “on the rival foreign article,” while protective tariffs would slightly increase the cost.[53] In regard to the tariff, Hamilton seemed to downplay increasing costs next to the benefits of protecting manufactures and wages from foreign competition. Hamilton argued that a bounty would actually “introduce more competition” within the market and thus lowering the price.[54] In addition, bounties do not “produce scarcity” as protective tariffs.[55] Finally, Hamilton justified duties as being beneficial to both agriculture and manufacturing. “Bounties are sometimes not only the best, but the only proper expedient, for uniting the encouragement of a new object of agriculture, with that of a new object of manufacture,” wrote Hamilton.[56] Bounties would also help protect and foster “infant industries” in the United States.[57]
Hamilton also responded to his critics who would, using today’s language, describe bounties as “crony capitalism.” “The continuance of bounties on manufactures long established must almost always be questionable policy…,” noted Hamilton.[58] The bounty, or subsidy, should only be temporary, but as Hamilton argued, “in new undertakings, they are justifiable, as they are oftentimes necessary.”[59] A contemporary example of this debate would be over industrial policy and whether or not the federal government should subsidize the production of semiconductors.
Critics argued that Hamilton’s tariffs and bounties would result in higher costs for consumers. This is an argument that is still used today by opponents of protective tariffs and subsidies. In response, Hamilton argued that it is the “interest of society in each case, to submit to a temporary expense, which is more than compensated, by an increase of industry and wealth, by an augmentation of resources and independence; and by the circumstances of eventual cheapness, which have been noticed in another place.”[60] Once again, Hamilton circled back to the importance of economic independence and that in the end economic nationalism would benefit all Americans.
In his advocacy of tariffs and duties, Hamilton also argued that they were constitutional. This was a major debate within the Washington administration. Thomas Jefferson and James Madison, who were leaders of the Democratic-Republicans argued that many of Hamilton’s ideas, including the Bank of the United States, were unconstitutional. Hamilton argued that Congress had the power based on the implied powers of Article 1, Section 8. Hamilton argued:
A Question has been made concerning the Constitutional right of the Government of the United States to apply this species of encouragement, but there is certainly no good foundation for such a question. The National Legislature has express authority “To lay and Collect taxes, duties, imposts and excises, to pay the debts and provide for the Common defense and general welfare.”[61]
Hamilton argued in favor of the doctrine of implied powers. As Hamilton explained:
The terms “general Welfare” were doubtless intended to signify more than was expressed or imported in those which Preceded; otherwise, numerous exigencies incident to the affairs of a Nation would have been left without a provision. The phrase is as comprehensive as any that could have been used; because it was not fit that the constitutional authority of the Union, to appropriate its revenues shou’d have been restricted within narrower limits than the “General Welfare” and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition. It is therefore of necessity left to the discretion of the National Legislature, to pronounce, upon the objects, which concern the general Welfare, and for which under that description, an appropriation of money is requisite and proper. And there seems to be no room for a doubt that whatever concerns the general Interests of learning of Agriculture of Manufactures and of Commerce are within the sphere of the national Councils as far as regards an application of Money.[62]
This was the direct opposite of Jefferson or Madison’s strict constructionist view of the Constitution. Nevertheless, Hamilton’s notion of implied powers or constitutional nationalism was embraced by both President Washington and Supreme Court Chief Justice John Marshall.
In the Report, Hamilton argued that manufacturing and his economic policies would also strengthen the Union. This also included the ease of sectional tensions between the North and the South. “It is not uncommon to meet with an opinion that though the promoting of manufacturing may be the interest of a part of the Union, it is contrary to that of another part,” wrote Hamilton.[63] Further, Hamilton wrote that “the Northern and Southern regions are sometimes represented as having adverse interests in this respect.”[64] Nevertheless, Hamilton dismissed arguments that the encouragement of manufacturing and the associated policies would generate further sectional tensions. “This idea of an opposition between those two interests is the common error of the early periods of every country, but experience gradually dissipates it,” stated Hamilton.[65] Hamilton argued that eventually the sections would “befriend each other.”[66] Further, he argued that the prosperity of manufacturers and the prosperity of agriculture were connected.[67]
Hamilton believed that even if industry developed more in the Northern states, it would still benefit the South, as he wrote:
But there are more particular considerations which serve to fortify the idea, that the encouragement of manufactures is the interest of all parts of the Union. If the Northern and middle states should be the principal scene of such establishments, they would immediately benefit the more southern, by creating a demand for productions; some of which they have in common with the other states, and others of which are either peculiar to them, or more abundant, or of better quality, than elsewhere.[68]
Hamilton argued that the natural resources of each region of the country would benefit each other by taking the form of new markets. Timber and iron from the Northern states and cotton, tobacco, and other commodities from the South would all contribute to the betterment of the national economy.[69] As an example, Southern cotton would fuel Northern textiles, while iron, timber, and other natural resources from the North would be used to make manufactured goods for the South.
In his Report, Hamilton was specifically attempting to address the concerns of agricultural interests and Southerners who were suspicious of not only manufacturing, but Hamilton’s policy agenda which advocated for a more powerful central government. This was a concern for Jefferson and Madison. It would only be in the aftermath of the War of 1812, and only briefly, would Southerners support Hamiltonian policies such as the protective tariff. Otherwise, Southerners would become deeply opposed to the Hamiltonian economic program. Southerners were not along, but other Democrats from the North and West would also join in opposition. During the administration of President Andrew Jackson, South Carolian would even nullify the “Tariff of Abominations” and threaten secession in opposition to high tariffs. Tariffs, national banking, and funding of internal improvements were all controversial issues and tensions increased as both the Southern plantation and Northern manufacturing economies both continued to develop. When the South seceded and formed the Confederate States of America, the Constitution specifically prohibited tariffs and limited the funding of internal improvements, both were Hamiltonian policies.
Hamilton raised other policy ideas to help promote manufacturing such as the need for “judicious regulations for the inspection of manufacturing commodities,” which would serve as a form of consumer protection against “fraud” and other dishonesties.[70] Hamilton’s Report was not just a reflection upon economic policy. It also was a statement on human nature. Hamilton understood that any political and economic system is vulnerable to corruption. This even included the ideas that he was advocating for, and this was one reason he advocated for regulation and oversight. In this regard, Hamilton reflected his conservatism, which was different from the classical liberal ideology that worshiped the “invisible hand” of the market.
One final policy recommendation Hamilton raised was the physical development of infrastructure within the United States. Internal improvements, such as the building of roads, bridges, and later canals and railroads was a controversial issue. The funding of internal improvements was a main pillar of the American System. Hamilton argued that the “facilitating of the transportation of commodities” is a chief concern.[71] “Improvements favoring this object intimately concern all the domestic interests of a community…,” wrote Hamilton.[72] This included both agriculture and manufactures. As an example, Hamilton wrote that “there is perhaps scarcely anything, which has been better calculated to assist the manufactures of Great Britain, than the ameliorations” of roads and canals.[73] The United States, Hamilton argued, “stand much in need” in the development of internal improvements.[74] Hamilton argued that it was not only constitutional for Congress to aid in the development of internal improvements, but it would also benefit the national economy. As Hamilton wrote:
The symptoms of attention to the improvement of inland Navigation, which have lately appeared in some quarters, must fill with pleasure every breast warmed with a true Zeal for the prosperity of the Country. These examples, it is to be hoped, will stimulate the exertions of the Government and the Citizens of every state. There can certainly be no object more worthy of the cares of the local administrations; and it were to be wished, that there was no doubt of the power of the national Government to lend its direct aid, on a comprehensive plan. This is one of those improvements, which could be prosecuted with more efficacy by the whole, than by any part or parts of the Union. There are cases in which the general interest will be in danger to be sacrificed to the collision of some supposed local interests. Jealousies, in matters of this kind, are as apt to exist, as they are apt to be erroneous.[75]
The development of internal improvements was foundational to Hamilton’s economic nationalism. Roads, canals, and later the railroad would connect the American economy and manufacturers and agriculture could market their products across the nation.
As Hamilton argued:
Good roads, canals, and navigable rivers, by diminishing the expense of carriage, put the remote parts of a country more nearly upon a level with those in the neighborhood of the town. They are upon that account the greatest of all improvements. They encourage the cultivation of the remote, which must always be the most extensive circle of the country. They are advantageous to the Town by breaking down the monopoly of the country in its neighborhood.[76]
Internal improvements, just as with the tariff and bounties, would be controversial. Jefferson, Madison, and later President Andrew Jackson would question the constitutionality of Congress funding internal improvements. The veto was used several times by both Madison and Jackson to destroy internal improvement bills.
In his Report,Hamilton warned Congress about harmful taxes that would hurt manufacturing. “There are certain species of taxes, which are apt to be oppressive to different parts of the community, and among other ill effects have a very unfriendly aspect towards manufactures,” wrote Hamilton.[77] Some of these included poll or capitation taxes.[78] “They [poll tax]either proceed, according to a fixed rate, which operates unequally, and injuriously to the industrious poor; or they vest a discretion in certain officers, to make estimates and assessments which are necessarily vague, conjectural and liable to abuse,” noted Hamilton.[79] Hamilton also included taxes on occupations and taxes on capital and profits.[80] This is one reason why Hamilton favored the tariff, because it would not only generate revenue, but also protect manufacturing. Hamilton would also support excise taxes. Hamilton argued that if the government wants to promote manufacturing, then it must be prudent when it comes to taxation and avoid taxes that would result in harm.[81]
Hamilton concludes his Report by examining several important natural resources that fueled manufacturing. Most, if not all, warranted protections to help foster manufacturing. One notable example was iron. “The manufactures of this article are entitled to preeminent rank,” wrote Hamilton.[82] Hamilton argued that encouraging the development of iron and early steel manufacturing was essential for the economy. Iron and steel are essential for not only domestic products such as tools, nails, spikes, among others, but also military necessities.[83] Hamilton argued that tariffs were needed to limit the import of foreign iron and steel products.[84] From Hamilton’s perspective the iron and steel industries were crucial to the nation’s economic independence.
Iron and steel were just one of many natural resources that Hamilton highlighted that deserved additional protections. Even today, a debate is occurring over tariffs on steel and aluminum. President Donald J. Trump initiated sweeping tariffs on steel and aluminum using some of the same arguments as Hamilton. The industry is vital to national security and a healthy national economy is dependent upon a strong steel industry. Further, it provides high paying jobs to Americans. President Trump, just as with Hamilton, was concerned about foreign nations flooding the market with cheap steel, which undermined the American market.
Alexander Hamilton’s Report on the Subject of Manufactures was a defining document in the history of American economic thought. Congress would not approve of all of Hamilton’s policy recommendations to encourage manufacturing, but his ideas would have lasting significance. President Washington agreed with Hamilton and signed a tariff bill into law. Hamilton’s economic ideas became the basis of the American System. The American System was based upon mercantilism or economic nationalism. Protective tariffs, subsidies for industry, the funding for internal improvements, and national banking were pillars of the American System.
Politically, Hamilton’s economic ideas would be supported by the Federalists and opposed by Jefferson, Madison, and the Democratic-Republicans. As President, Jefferson and later Madison would work to undermine many of Hamilton’s economic policies. The aftermath of the War of 1812, and the resulting unpreparedness of the United States, resurrected many of Hamilton’s ideas. With the demise of the Federalists, Hamilton’s American System would be championed by the Whig Party under the leadership of Henry Clay and Daniel Webster. The Whigs in turn would influence the Republican Party.
The Republican Party from President Abraham Lincoln through President Herbert Hoover embraced Hamiltonian economics, including the protective tariff. Many Republicans praised Alexander Hamilton including Presidents Theodore Roosevelt, Warren G. Harding, Calvin Coolidge, and Herbert Hoover. Several Republicans even wrote biographies of Hamilton. Henry Cabot Lodge and Arthur Vandenberg both wrote sympathetic biographies of Hamilton. Harding, before his election to the presidency, traveled the lecture circuit speaking about the virtues of Hamilton. Andrew Mellon, who served as Secretary of Treasury under Harding, Coolidge, and Hoover, praised Hamilton, and was viewed as the best Secretary of the Treasury since Hamilton.
The Democrat Party supported the tariff but tended to support a lower tariff for the purpose of generating revenue. The Democrats would not embrace free trade until President Woodrow Wilson and President Franklin D. Roosevelt. It was after World War II when the Republican Party abandoned Hamiltonian economics and embraced free trade.
Hamilton’s ideas also had an intellectual influence. Neo-mercantilist economists such as Frederick List and Henry C. Carey, who was nicknamed the “high priest of protectionism” and an economic adviser to President Abraham Lincoln, were notable economists who were influenced by Hamilton’s philosophy. Hamilton’s philosophy also spread to other nations who followed his ideas of economic nationalism.
The Report on the Subject of Manufactures is still relevant to today. Hamilton’s arguments for protective tariffs, subsidies, and supporting internal improvements are all ideas that are being debated today. Industrial policy and support for research and development is a major issue before Congress. Further, Hamilton’s chief concern of becoming too dependent on foreign nations for national necessities is a major issue today, especially in regard to the rise of China. The COVID-19 pandemic also exposed how dependent the United States was on foreign supply chains for necessities such as pharmaceuticals. The massive trade deficits, the resulting loss in manufacturing, and middle-class jobs would be a major concern for Hamilton. In 2016, President Trump resurrected Hamiltonian economics and as a result reminded it reminded Republicans of their economic heritage. Robert Lighthizer, who served as a senior trade official in President Ronald Reagan’s administration and served as United States Trade Ambassador in President Trump’s administration, recently wrote No Trade is Free: Changing Course, Taking on China, and Helping America’s Workers. Ambassador Lighthizer’s book reflects Hamilton’s economic philosophy, and it could be argued that it represents an updated version of Hamilton’s Report.[85]
Hamilton’s economic ideas might be more popular today, but just as in his own time, critics are still challenging his philosophy. The classical liberal approach to economic policy as advocated by the late economist Milton Friedman and others argue that Hamilton’s mercantilism not only leads to “crony capitalism,” but it punishes consumers with higher prices as a result of tariffs. Also, tariffs and subsidies result in the federal government “picking winners and losers,” and many argue that trade deficits do not matter and are insignificant. In the aftermath of World War II both Democrats and Republicans embraced more free trade and globalization. The argument was that free trade, and the free market (invisible hand) actually serves the national interest by increasing the wealth of both individuals and businesses. This same view dismisses the opinion that massive trade deficits are detrimental to the economic health of the nation.
Alexander Hamilton’s Report on the Subject of Manufactures is one of the most consequential documents to emerge in the aftermath of the ratification of the Constitution. Hamilton’s economic ideas created debate within the Washington administration and even helped fuel tensions that led to the American Civil War. As a nation we are still wrestling with Hamilton’s economic philosophy. The issues are just as relevant today as they were in 1791.
Bibliography
Hamilton, Alexander. Hamilton: Writings. New York: The Library of America, 2001.
Lighthizer, Robert. No Trade is Free: Changing Course, Taking on China, and Helping America’s Workers. New York: Broadside Books, 2023.
Liu, Glory M. Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism. Princeton, New Jersey: Princeton University Press, 2022.
Washington, Goerge. “First Annual Address to Congress, January 8, 1790.” Online by Gerhard Peters and John T. Woolley. The American Presidency Project. <https://www.presidency.ucsb.edu/node/203158> accessed on February 23, 2024.
[1]Alexander Hamilton, “The Federalist No. 11,” in Hamilton: Writings, New York: The Library of America, 2001, 208.
[2]Ibid.
[3]Glory M. Liu, Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism, Princeton, New Jersey: Princeton University Press, 2022, 1.
[4]Alexander Hamilton, “Report on the Subject of Manufactures, December 5, 1791,” in Hamilton: Writings, New York: The Library of America, 2001, 647.
[5] George Washington, “First Annual Address to Congress, January 8, 1790,” Online by Gerhard Peters and John T. Woolley, The American Presidency Project, <https://www.presidency.ucsb.edu/node/203158> accessed on February 23, 2024.
[6]Hamilton, “Report on the Subject of Manufactures,” 647.
[7]Ibid.
[8]Ibid.
[9]Ibid.
[10]Ibid., 647-648.
[11]Ibid., 648.
[12]Ibid.
[13]Ibid.
[14]Ibid., 648-649.
[15]Ibid.
[16]Ibid., 649.
[17]Ibid., 648.
[18]Ibid., 649.
[19]Ibid.
[20]Ibid., 649-650.
[21]Ibid., 650.
[22]Ibid., 652.
[23]Ibid.
[24]Ibid., 653.
[25]Ibid., 652-653.
[26]Ibid., 655.
[27]Ibid., 656.
[28]Ibid., 658-659.
[29]Ibid., 664.
[30]Ibid., 665-666.
[31]Ibid., 685-686.
[32]Ibid., 686.
[33]Ibid., 688.
[34]Ibid., 690.
[35]Ibid., 691.
[36]Ibid.
[37]Ibid., 690.
[38]Ibid., 690.
[39]Ibid., 691-692.
[40]Ibid., 692.
[41]Ibid.
[42]Ibid.
[43]Ibid., 697.
[44]Ibid.
[45]Ibid.
[46]Ibid., 697-698.
[47]Ibid., 698.
[48]Ibid., 698 and 675.
[49]Ibid., 675.
[50]Ibid., 698.
[51]Ibid., 699.
[52]Ibid., 704
[53]Ibid., 699.
[54]Ibid.
[55]Ibid.
[56]Ibid.
[57]Ibid., 701.
[58]Ibid., 701.
[59]Ibid.
[60]Ibid.
[61]Ibid., 702.
[62] Ibid., 702-703.
[63]Ibid., 694.
[64]Ibid.
[65]Ibid.
[66]Ibid.
[67]Ibid.
[68]Ibid., 695.
[69]Ibid.
[70]Ibid., 706.
[71]Ibid., 707.
[72]Ibid.
[73]Ibid.
[74]Ibid.
[75]Ibid.
[76]Ibid., 708.
[77]Ibid., 709.
[78]Ibid.
[79]Ibid.
[80]Ibid.
[81]Ibid., 710.
[82]Ibid., 711.
[83]Ibid., 712-713.
[84]Ibid.
[85]Robert Lighthizer, No Trade is Free: Changing Course, Taking on China, and Helping America’s Workers, New York: Broadside Books, 2023.
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