The bipartisan Disneyfication of America’s first Treasury secretary began in earnest last fall when President Barack Obama spoke at a fundraising performance of the hit musical Hamilton and said it “happens to be the only thing Dick Cheney and I agree on.” The real Alexander Hamilton made no effort to be loved by all, as Lin-Manuel Miranda’s brilliant, rap-infused musical makes clear. He was vain and opinionated. He was also usually right. No libertarian, he believed the federal government could and should play a central role in economic development. His arguments deserve fresh consideration for today’s problems—even if taking them seriously will make it harder for everyone to agree on his wonderfulness.
For starters, Hamilton rejected Scottish economist Adam Smith’s then-novel doctrine of laissez-faire. He feared that pure free trade would trap the U.S. into remaining an economic colony supplying cotton, tobacco, food, and raw materials to Britain. He wanted the federal government to have the power to tax and spend, giving it real agency. “Power without revenue is a bubble,” he wrote.
Hamilton advocated building a strong industrial base “to render the United States independent [of] foreign nations for military and other essential supplies.” His groundbreaking Report on the Subject of Manufactures in 1791 invented the idea of moderate tariffs to protect infant industries. It also called for investment in roads and canals; strong banking and patent systems; and boards for promoting arts, agriculture, manufacturing, and commerce. “In other words,” writes Ha-Joon Chang, a development economist at the University of Cambridge, in an e-mail, “all the key elements of the economic system that have made the U.S. one of the most successful economies in human history.”
History shows that Hamilton bested his rival Thomas Jefferson, who wanted the nation to be a loose confederation of yeoman farmers. “The 20th century became an American century precisely because America by 1880 was not a gigantic Australia,” Stephen Cohen and Bradford DeLong wrote in a new book, Concrete Economics: The Hamilton Approach to Economic Growth and Policy. The U.S. today has a big federal government, a strong central bank, and the world’s most powerful military. Since World War II, the federal government has helped finance the computer, the semiconductor, the Internet, aircraft, and biotechnology.
In recent years, though, the economic tide has turned. Manufacturing, which Hamilton considered vital to security and prosperity, has shrunk to 12 percent of the economy from 21 percent in 1980, according to United Nations data. (To be sure, the same has happened in other industrialized nations.) At the same time, the federal government is becoming less ambitious. More tax dollars that were spent on doing stuff are being diverted to supporting people, mostly through Social Security and Medicare. The White House’s Office of Management and Budget projects that outlays excluding transfer payments, grants, and interest—in other words, spending on everything from the Pentagon to the National Institutes of Health to the U.S. Patent and Trademark Office—will fall to 3.8 percent of gross domestic product by 2021. That would be the lowest level since the government began tracking this in 1940.
Politically, too, Hamilton’s ideas have been in retreat. Democratic President Jimmy Carter deregulated airlines, trucking, and railroads. Republican President Ronald Reagan declared in his first inaugural address, “Government is not the solution to our problem; government is the problem.” Democratic President Bill Clinton presided over financial deregulation after promising in his 1996 State of the Union address that “the era of big government is over.” And so on up through today’s Republican majorities in the House and Senate, which resist stepping up spending on what Hamilton would have called “internal improvements,” despite historically low borrowing costs. The result is crumbling infrastructure and dwindling economic competitiveness. As former Treasury Secretary Larry Summers likes to ask: “Is anyone proud of Kennedy airport?”
Hamilton, in short, is getting more respect on Broadway than inside the Beltway—and less respect at home than he’s gotten abroad. The economist Friedrich List introduced Hamiltonian ideas to Germany in the 1840s, before German unification, as journalist James Fallows described in a 1993 article in the Atlantic. Japan imported List’s brand of nation-building from Germany during the Meiji Restoration of 1868 to 1912. Japan in turn spread its thinking to Korea and Taiwan, which it occupied until the end of World War II. “You can even say that he [Hamilton] is the man who had the biggest influence on the way in which capitalism has developed,” argues Cambridge’s Chang, a native of South Korea.
Advocates for measures to bolster U.S. manufacturing say Hamilton, were he alive today, would be on their side. “He certainly recognized that the full development of a national economy required a very strong government hand,” says Alan Tonelson, a trade expert whose blog is called RealityChek. “He was an economic nationalist,” says Scott Paul, president of the Alliance for American Manufacturing. In Hamilton’s worldview, says Paul, “there’s a role for government to develop smart public policies to spur economic growth.”
There is no real successor to Hamilton on the political scene today, says Michael Lind, author of the 2012 book Land of Promise: An Economic History of the United States. “What you have is a kind of Jeffersonian populist opposition to trade,” says Lind, who is co-founder of New America, a public policy institute. The right, he says, is nativist, and the left is antibusiness. “I really don’t see anybody having this strategic, Hamiltonian view.” (Certainly not Donald Trump and Bernie Sanders, anyway.)
Hamilton, having fought alongside Washington in the Revolutionary War, was acutely sensitive to the military importance of having one’s own arms manufacturing capacity. Says Lind: “He wouldn’t do what the U.S. has done, which is to simultaneously extend defense commitments, cut the defense budget, and offshore much of our defense industrial base to our most likely military rivals.” The U.S. gets rare earths for night-vision gear from China and rockets for satellite launches from Russia. “It just seems crazy,” he says.
The economic nationalism of Hamilton, Henry Clay, Abraham Lincoln, Teddy Roosevelt, Franklin Roosevelt, and Dwight Eisenhower was a pragmatic search for policies that worked, regardless of ideology, says author DeLong, an economist at the University of California at Berkeley. “Sometime around 1980 we very much lost that sense of pragmatism.” The financial sector “hypertrophied,” DeLong says, inequality grew, and antitrust laws fell into disuse.
Hamilton had some deeply undemocratic ideas. At the Constitutional Convention he recommended that the president serve for life on condition of good behavior, appoint all the governors, and have veto power over state legislation. He wanted something like an American king. He was also energized by the thought of copying the Brits in using children in the mills, “many of them of a very tender age,” as he put it. What’s more, when he died in 1804, the U.S. was an economic backwater. Tariffs for infant industries made more sense then than now. The young nation could go far simply by mimicking (or stealing) British machine designs. “Hamiltonianism is for a particular historical stage with particular preconditions,” DeLong says.
For all that, Hamilton’s economic nationalism has enduring appeal—tailored, of course, to a new age, as Hamilton himself would have advocated: “I hold with Montesquieu that a government must be fitted to a nation as much as a Coat to the Individual,” he once wrote. The slapdash, overextended system the U.S. has now is serving Americans poorly. A Hamilton for the 21st century could be just what the country needs.