Alexander Hamilton's Advice To The Obama Administration

Alexander Hamilton, in 1791, proposed to the United States our first true industrial policy. We adopted it over the next few years, Abraham Lincoln reaffirmed it fourscore years later, and it was again affirmed by every President of the United States until Reagan began his now-28-year "Reagan Revolution" which has disassembled America's industrial base and impoverished our nation.

For over 200 years, Hamilton's policy made America the most powerful industrial nation in the world; now – after just 28 years of Reagonomics and Clinton/Rubinomics – we are the largest importer of other people's industry, and the most indebted nation in the world.

The entirety of Hamilton's paper is easily found on the web. The first third of it deals with Jefferson's objections to it (which Jefferson withdrew later in his life), as Jefferson favored America being an agricultural rather than an industrial power in 1791. Once you cut past that, though, Hamilton gets right to the rationale for, and the details of, his 11-point plan to turn America into an industrial power and build a strong manufacturing-based middle class. Ironically, his policies are exactly – EXACTLY – what Japan, South Korea, and China are doing today. And what we have ceased to do.

Hamilton had it right. We must reject Reagon/Bush/Clinton/Bush-onomics and return to what the Founders knew worked. Here are selected excerpts from Hamilton's 1791 Report on Manufactures to Congress:

First, Hamilton points out that real wealth doesn't exist until somebody makes something. A "service economy" is an oxymoron – if I wash your car in exchange for your mowing my lawn, money is moving around, it's a service economy, but no real and lasting wealth is created. Only through manufacturing, when $5 worth of iron ore is converted into a $2000 car door, or $1 worth of raw wool is converted into a $1000 Calvin Klein suit, is real wealth created. He also notes that people being paid for creating wealth (manufacturing) creates wages, which are the principal engine of demand, which drives an economy. And both come from a foreign trade policy.

"The expediency of encouraging manufactures in the United States," Hamilton started out, "which was not long since deemed very questionable, appears at this time to be pretty generally admitted."

Explaining why manufacturing was importing to America, he continued: "It merits particular observation, that the multiplication of manufactories not only furnishes a Market for those articles, which have been accustomed to be produced in abundance, in a country; but it likewise creates a demand for such as were either unknown or produced in inconsiderable quantities."

In addition, Hamilton noted, an industrial policy should be interwoven with foreign policy, for to have a foreign policy that doesn't consider its own impact on manufacturing enterprises is useless. "'Tis for the United States to consider by what means they can render themselves least dependent," of other nation's manufactures, Hamilton wrote, "on the combinations, right or wrong of foreign policy."

But there were many voices – the loudest from Thomas Jefferson – who objected to Hamilton's 11-point plan. They saw the widespread poverty in the United Kingdom and all the corruption attendant to a wealthy nation, and argued that instead of becoming an industrial power we should remain an agricultural nation. Hamilton said that both were possible, and there would even be a desirable synergy between the two.

"The remaining objections to a particular encouragement of manufactures in the United States now require to be examined," he wrote, and then first took on the Adam Smith school of thought, that industry shouldn't be encouraged because a "free market" will eventually work itself out.

"One of these turns on the proposition, that Industry, if left to itself, will naturally find its way to the most useful and profitable employment: whence it is inferred, that manufactures without the aid of government will grow up as soon and as fast, as the natural state of things and the interest of the community may require.

"Against the solidity of this hypothesis, in the full latitude of the terms, very cogent reasons may be offered. These have relation to the strong influence of habit and the spirit of imitation -- the fear of want of success in untried enterprises -- the intrinsic difficulties incident to first essays towards a competition with those who have previously attained to perfection in the business to be attempted -- the bounties premiums and other artificial encouragements, with which foreign nations second the exertions of their own Citizens in the branches, in which they are to be rivaled.

"To produce the desirable changes, as early as may be expedient, may therefore require the incitement and patronage of government."

Government, Hamilton held, shouldn't just be the igniter of an industrial state. Indeed, it would be impossible to truy and successfully build an industrial nation without the help of government.

"To be enabled to contend with success, it is evident, that the interference and aid of their own government are indispensable."

The reasons were pretty straightforward, Hamilton wrote: it would take government's power to set up a playing field for the game of business where investors who would otherwise be able to make more money overseas would keep their money in the United States.