Friday, January 9, 2009

Hamilton's Nationalist Economics

While familiar with liberal ideology of limited government intervention it is notable that Hamilton – like Smith – did not expect free commerce to erase dangers to the United States in the international arena. Contrary to liberal thinkers such as Montesquieu, Hamilton believed that “commerce was [actually] more likely to be the cause of recurring wars” (p. 240) He asks “Is not the love of wealth as domineering and enterprising a passion as that of power or glory?” (p.240). Therefore, Hamilton advocated a balance between liberal economic theory and mercantilist realities. Essentially, free-commerce between the states would be used to ensure healthy domestic trade; while protectionist policies would be used to ensure that the infantile manufacturing capabilities of the US could develop without being put out of business by state sponsored monopolies existing in Great Britain and other mercantilist nations (p. 234). Hamilton says, “To maintain, between the recent establishments of one country, and the long matured establishments of another country, a competition upon equal terms… is in most cases impracticable" (p. 234). Hamilton wanted to create an insular economic cocoon from within which the US economy could develop until it was ready to emerge a great and powerful nation, because for Hamilton as Smith the key to a powerful military nation was a strong economy capable of producing heaps of consumables goods (p. 229). Furthermore, by using economic policies to protect citizens’ interests, Hamilton hoped to foster national unity and love of country.

Hamilton also hoped this economic policy would foster national unity through trade. Rather than trading overseas, Hamilton expected the manufacturing North and the agricultural South to become interdependent. The South could market its raw materials to the North, and The West would serve as a market for the both; and overall the nation’s productive capabilities would grow aggrandizing national strength (p.235). Earle writes, “The aggregate strength of a nation thus united by a common economic interest would be increased in every essential respect” (p. 235). With national unity there comes an advantage in foreign relations and military readiness, because people have a shared stake in the success of every of the country – as opposed to just their region (p. 235). Also regional economic diversity strengthened the war-making capabilities of the country. In these ways, economic policy was considered key to military policy.

Hamilton even went so far as to advocate the illiberal idea of government control of manufacturing, in order to build “essential implements of national defense… not being objects of ordinary and indispensible private consumption or use (p. 234).” Market forces of supply and demand don’t work for war materials. The government must do its all to ensure production so that the US would not fall behind its competitors in military technology.

However, for Hamilton the real danger was not external, but internal. If citizens relied primarily on other nations for economic stability and were largely responsible for their own defense, cross-regional disunity and distrust would be sure to foment. Hamilton’s economic policy aimed at creating “an exemption from the necessary broils and wars between the [several] parts, which if disunited, their own rivalships, fomented by foreign intrigue… would inevitably produce (p. 235).” Thus, Hamilton, following the political theories of Machiavelli, believed the national government must rely on its “own arms” for production of defense materials. Hamilton says “As a general rule, manufactories on the immediate account of government are to be avoided; but this seems to be one of the few exceptions which that rule admits.” Hamilton believed that the US had to take it upon itself to the care of military readiness to ensure that lack of security would not constantly undermine US liberty (p. 235); thereby linking political economy with the development of national military power.

Hamilton justification for the assumption of the national debt is a similar attempt to promote national strength through economic policy. Hamilton wanted to ensure that the US was not perceived as a bad investment in the future by faithfully executing all debts – domestic and foreign. For Hamilton, establishing and keeping good national credit was critical to security (p. 237). He writes, “war, without credit, would be more than a great calamity – [it] would be ruin” (p. 237). Fulfillment of the Revolutionary debt is thus an example of the connection between economic policy and commerce with the development of national power. In order to protect the nation and effectively wage war Hamilton relied on sound economic policy.

While security was a significant concern, by assuming the several states debt Hamilton also believed he would be linking “the interests of the State in an intimate connection with those of the rich individuals belonging to it,” and turning “the wealth and influence of both into a commercial channel, for mutual benefit (p.237).” In other words, if the US owes you money, then you’re going to have a real strong incentive to ensure that it doesn’t tank, because that would render you’re investment worthless. Faithfully, executing these fiscal agreements gave people a real stake in the success of the Federal government. Thus, Hamilton sought to increase national unity.

The creation of a navy for Hamilton is another example of policy aimed at promoting national unity, independence and security. A navy, a source of national power – which opponents such as Jefferson feared would give the Federal government too much power in peace time – was according to Hamilton essential to the success of US commerce. Hamilton believed secure waters were essential to commerce both among the states and among nations. He was confident that this point was well accepted: “The necessity of naval protection to external or maritime commerce does not require a particular elucidation (p. 237).” By establishing a navy Hamilton hoped to give the US independence from other nations who might seek to interfere in her affairs. Furthermore, like his policy of protectionism, a strong naval policy which guarantees protection to US citizens would help unite the US creates safe channels for trade he hoped to further unite the disparate regions of the country through intercourse and trade.

Also Hamilton’s advocacy for the Navy evinces the reciprocal relationship between commerce and defense. Commerce is key to defense, the byproduct of a strong national defense is security, which is itself key to successful commerce. Thus the two constantly reinforce one another.

In Washington’s farewell address – authored in part by Hamilton – several of the elements of Hamilton’s political philosophy are discussed. The first of these is the idea of the value of energetic government used to unite and protect. “This government… completely free in its principles, in the distribution of its powers, uniting security with energy… has just claim to your confidence and support (p. 518).” Washington supports Hamilton in his attempts to secure the country both from both physical violence and from the structural violence of mercantilism. The Federal government is the perfect entity to perform this function because it can rise above local issues and serve the common interest of the nation as a whole. Washington would limit the “vigour” of the national government just as much “is consistent with Liberty” (p. 519). However we soon learn that at the time of writing this address, this implied expansion rather than limiting, because “Liberty itself will find in such a [vigorous] Government, with powers properly distributed and adjusted, its surest Gaurdian (p. 519).” The bigger the national government the more effectively it can protect peoples rights and liberties. Unlike Jefferson, Washington feared the national government would be too “feeble to withstand the enterprises of faction, confine each member of the Society within the limits prescribed by the laws and to maintain all in the secure and tranquil enjoyment of the rights of person and property (p. 519).”

A second element of Hamilton’s economic philosophy espoused by Washington in his farewell address is the assumption of state war debt. First Washington says “As the structure of government gives force to public opinion, it is essential that public opinion should be enlightened (p. 522).” This statement is Washington’s segue way into his discussion of public credit. Clearly he means to enlighten us. He says “As a very important source of security, cherish public credit (p. 525).” In order to cherish credit, one must honor one’s obligations. Washington, not so subtly, calls upon the nation to see reason and support a not-so-popular policy. He appeals to the common interest of security – just as Hamilton would.

Finally, Washington speaks out against geographic discriminations in economic policy. He says, “Designing men may endeavor to excite a belief that there is a real difference of local interests and views (p. 519).” Washington encourages them to continue in free intercourse with one another and to avoid “the insidious wiles of foreign influence” (p. 524); thereby, encouraging – as Hamilton would – national unity and independence.

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