Excerpt: 'Radical Hamilton: Economic Lessons From A Misunderstood Founder'

Excerpt: 'Radical Hamilton: Economic Lessons From A Misunderstood Founder'

Engraving of Treasury Secretary Alexander Hamilton on the ten-dollar bill


What follows is an excerpt fromRadical Hamilton: Economic Lessons From A Misunderstood Founder, a fresh look by Christian Parenti at one of the most important but least discussed works by the American founder and first Treasury Secretary. It is offered with the permission of Verso Books.

The modern United States has a strange relationship with Alexander Hamilton.

We recognize him as the architect of our financial system, but we ignore what he wrote about manufacturing and the real economy in which goods and services are actually produced and consumed.

In particular, Hamilton's magnum opus, his 1791 Report on the Subject of Manufactures, is almost totally ignored by economists, historians, development specialists, and biographers. Though it is rarely studied in the United States, the Report's influence is appreciated throughout the developmentalist states of East Asia. Fittingly, the Report also contains the earliest published use of the word "capitalist."

Far from being a free marketeer, Hamilton favored a strong federal government that taxed, spent, borrowed, invested, and most of all planned. For Hamilton, a secure future depended on an activist government, powerful military, and robust, nationally integrated economy based on manufacturing. In place of Smith's "invisible hand," Hamilton saw the hand of government. The economy would not, in fact, develop all on its own "as if guided by an invisible hand." Rather, it had to be clearly and deliberately guided.

Government economic activity would provide "the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies." Hamilton called his specific recommendations for government economic action to jump-start and assist development of manufacturing "the Means proper." That phrase should be as ubiquitous in American history as "checks and balances," yet it has remained obscure.

Hamilton's ideas would be called the "American School." Then, in the 1820s under the leadership of the Kentuckian Henry Clay, they came to be known as the "American System." Taken up by the economist Friedrich List and brought to Germany, they morphed into the "National System." These ideas helped shape the late-19th -century industrialization of Germany and then Japan, and a century later the industrialization of South Korea, Hong Kong, and Taiwan. Today, they guide the world-transforming rise of China. Indeed, Hamilton's Report on Manufactures is the basic policy blueprint followed by most other successfully industrialized countries.

Hamilton's defensive developmentalism, though in no way socialist, nonetheless had an anti-imperialist or at least post-colonial tinge, and in that regard anticipated some of the challenges later faced by the socialist experiments of the 20th century.

A more symmetrical comparison can be drawn between Hamilton's project and that of the 19th-century South American revolutionary leader Simón Bolívar. Like Hamilton, Bolívar was a liberal nationalist with a political vision of continental scale, rooted in the quest for development, sovereignty, and a strong central government. As Joshua Simon put it, "Bolívar's constitutional thought, especially his views on the separation of powers and on the role of the executive in a republic ... compare well with those of the early American republic's High Federalists, especially Alexander Hamilton." Bolívar's project fragmented, and in Latin America economic development was delayed and distorted by outside powers.

There is a perception, a latent, often unspoken assumption, that the United States was inevitably bound for high standards of living and political stability, while the states of Latin America were always and only destined for instability and underdevelopment. That perception not only smacks of racism, it is wrong on both counts. There was nothing inevitable about the formation of the United States. The pessimistic warnings of The Federalist Papers could have become reality.

Hamilton's dirigiste economic theories emerged first from his experiences in the Revolutionary War. As a member of Washington's staff, Hamilton got a bird's-eye view of the new nation's poverty, corruption, and near-catastrophic disorganization. Then during the "Critical Period," the postwar economic slump and political crisis of the 1780s, Hamilton saw the new nation sliding toward civil war, fragmentation, foreign invasion, and re-colonization.

As a man of the state—soldier, politician, then bureaucrat—he was materially bound to it and thus worked to create a political structure that tied various economic interests to the new government. His fortune was linked to that of the state: call him homo publicus. National survival was his desideratum.

The tripartite circuitry of Hamilton's nationalism cast sovereignty as dependent on national defense. National defense was dependent on the capacities of a professional standing army, which was, in turn, dependent on the wealth and technological sophistication of a manufacturing-based national economy. And that sort of economy, which did not yet exist in 1790, could only be created with the active guidance and support of a powerful central state. Thus, the state was both means and end. A weak state, in this logic, is the path toward economic underdevelopment and permanent dependence.

Or as Hamilton put it in Federalist 11: "If we continue united, we may counteract a policy so unfriendly to our prosperity in a variety of ways. By prohibitory regulations, extending, at the same time, throughout the States, we may oblige foreign countries to bid against each other, for the privileges of our markets." Here, Hamilton illustrates the essence of economic nationalism: The state does not merely react to economic conditions; it creates them. Hamilton's political economy was a defense against European imperialism, a form of postcolonial pragmatism. The young nation's choice was to either build a strong manufacturing-based economy or face disintegration. The mission was, in short, development or death.

Although our current world bears little resemblance to the 18th century, some parallels exist. After the Revolution the new nation slipped into a dangerous, multifaceted crisis. Political and economic collapse seemed imminent. Yet the framers managed to produce significant political and economic transformations that stabilized the situation, and the early republic avoided social breakdown, political fragmentation, and foreign domination. The society produced by the Constitution and the developmentalist state it empowered was never fair, or just, or ideal. But it was relatively stable and capable. If its mission was expansionist, racist, exploitative, its methods were at least functional and effective in their own terms. Many states are born of hierarchical and bigoted agendas. But not all succeed.

Like that first generation of Americans, we contemporary Americans also face a multi-faceted crisis. Ours takes the form of massive and growing class inequality, a pandemic, anthropogenic climate change, and the inability of laissez-faire ideology to address them. Failure to face these realities will, in the long run, mean almost certain violent social breakdown. Addressing climate change hinges upon, among other things, a total transformation of the world's energy sector. We must euthanize the fossil fuel industry and build out clean energy technologies and infrastructure. This means fossil fuel sector deindustrialization coupled with a simultaneous green re-industrialization and progressive re-regulation of the economy.

In short, we must execute a radical and sweeping economic transformation. In facing that task, we could do worse than to consult our own history. Hamilton's Report on the Subject of Manufactures, born in the shadow of an impending crisis, was, after all, a plan for radical and rapid economic transition. If we must now re-industrialize, then let us consider how America first industrialized. What forces drove the transition from an agrarian to a manufacturing economy? The actual historical record reveals surprising facts, central among these the very active role of government in guiding economic change. Indeed, the developmental state begins to appear not as something new and foreign, but rather as something old and indigenous.

Christian Parenti is Associate Professor of Economics at John Jay College, CUNY. His latest book Radical Hamilton: Economic Lessons from a Misunderstood Founder, from which this essay is excerpted, has just been published by Verso.


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