This story was originally posted at Jacobin magazine.
Two hundred years ago, Alexander Hamilton was mortally wounded by then Vice President
Aaron Burr
in a duel at Weehawken, New Jersey. Their conflict, stemming from
essays Hamilton had penned against Burr, was an episode in a larger
clash between two political ideologies: that of Thomas Jefferson and the
anti-Federalists, who argued for an agrarian economy and a weak central government, versus that of Hamilton and the
Federalists, who championed a strong central state and an industrial economy.
In
the American political imagination, Jefferson is rural, idealistic, and
democratic, while Hamilton is urban, pessimistic, and authoritarian.
So, too, on the US left, where Jefferson gets the better billing.
Michael Hardt recently edited
a sheaf of Jefferson’s writings for the left publisher Verso.
Reading “Jefferson beyond Jefferson,” Hardt casts him as a theorist
of “revolutionary transition.” We like Jefferson’s stirring words about
“the tree of liberty” occasionally needing “the blood of patriots and
tyrants,” and his worldview fits comfortably with a “small is beautiful”
style localism. We recall Jefferson as a great democrat. When Tea
Partiers echo his rhetoric, we dismiss it as a lamentable
misunderstanding.
But in reality, Jefferson represented the most
backward and fundamentally reactionary sector of the economy: large,
patrimonial, slave-owning, agrarian elites who exported primary
commodities and imported finished manufactured goods from Europe. He was
a fabulously wealthy planter who lived in luxury paid for by slave
labor. Worse yet, he raised slaves
specifically for sale.
“I
consider the labor of a breeding woman,” Jefferson wrote, “as no
object, and that a child raised every 2 years is of more profit than the
crop of the best laboring man.”
Even if it could somehow be
dislodged from the institution of slavery, Jefferson’s vision of a weak
government and an export-based agrarian economy would have been the path
of political fragmentation and economic underdevelopment. His romantic
notions were a veil behind which lay ossified privilege.
Hamilton
was alone among the “founding fathers” in understanding that the world
was witnessing two revolutions simultaneously. One was the political
transformation, embodied in the rise of republican government. The other
was the economic rise of modern capitalism, with its globalizing
networks of production, trade, and finance. Hamilton grasped the epochal
importance of applied science and machinery as forces of production.
In
the face of these changes, Hamilton created (and largely executed) a
plan for government-led economic development along lines that would be
followed in more recent times by many countries (particularly in East
Asia) that have undergone rapid industrialization. His political mission
was to create a state that could facilitate, encourage, and guide the
process of economic change — a policy also known as
dirigisme, although the expression never entered the American political lexicon the way its antonym,
laissez-faire, did.
To
be sure, Hamilton was living in the era of “bourgeois” revolutions and
the state he was building was a capitalist state, complete with the
oppressive apparatus that always involves. Hamilton did not oppose
exploitation. Like most people of his age, he saw child labor as normal
and defended the rights of creditors over debtors. But regarding
slavery, he firmly and consistently opposed it and was a founder of the
Society for Manumission of Slaves. It was Hamilton — not Jefferson — who had the more progressive vision.
Even
today, Hamilton’s ideas about state-led industrialization offer much.
Consider the crisis of climate change. Alas, we do not have the luxury
of making this an agenda item for our future post-capitalist assembly.
Facing up to it demands getting off fossil fuels in a
very
short time frame. That requires a massive and immediate industrial
transformation, which must be undertaken using the actually existing
states and economies currently on hand. Such a project can only be led
by the state — an institution that Hamilton’s writing and life’s work
helps us to rethink.
Unfortunately, many environmental activists
today instinctively avoid the state. They see government as part of the
problem — as it undoubtedly is — but never as part of the solution. They
do not seek to confront, reshape, and use state power; the idea of
calling for regulation and public ownership, makes them uncomfortable.
And
so green activism too often embodies the legacy of Jefferson’s
antigovernment politics. It hinges on transforming individual behavior,
or on making appeals to “
corporate social responsibility.”
Hamilton’s
work, by contrast, reveals the truth that for capital, there is no
“outside of the state.” The state is the necessary but not sufficient
pre-condition for capitalism’s development. There is no creative
destruction, competition, innovation, and accumulation without the
“shadow socialism” of the public sector and state planning. We may soon
find that there is no potable water or breathable air without them,
either.
At the heart of Hamilton’s thinking was a stark political
fact — one that is now sometimes hard to recall. The newly created
United States was a mess. Politically disorganized, economically
underdeveloped, and militarily weak, its survival was in no way
guaranteed.
All the more alarming was the international context.
The world was dominated by the immense power of the British, French, and
(admittedly declining) Spanish Empires. Hamilton saw that the
colonists’ victory over Britain, won by the direct military intervention
of France, would only be secured if the new nation built up its
economy.
Hamilton learned the danger of weakness early on. Born of
humble origins in the Caribbean, he was an “illegitimate” child and
then orphaned at age thirteen. Taken in by friends, he found work as a
shipping clerk. Having a prodigious intellectual talent, Hamilton also
applied himself to study with fanatical discipline. Soon he was penning
essays for the local press. One piece caught the attention of St. Croix
notables, who in 1772 sent the young Hamilton to preparatory school in
New Jersey and then to Kings College, now Columbia University.
In
1775, as conflict between British soldiers and colonial irregulars
began, Hamilton joined the newly formed New York militia. Hamilton began
studying artillery and then formed the New York Provincial Company of
Artillery. Before long, Hamilton became Washington’s most important
aide-de-camp
and artillery, Hamilton’s forte, became crucial to Washington’s
strategy. (Even then, the American style of warfare was capital
intensive.)
Hamilton wanted to command troops in the field and
disliked Washington, whom he found crass and dull. Washington
nonetheless kept the young savant on as part of “the family,” as the
general called his staff.
Hamilton’s time in the Continental Army
included wintering at Valley Forge. It was an object lesson in the
dangers of political decentralization and economic underdevelopment.
The
Continental Congress, operating under the loose Articles of
Confederation, would levy taxes on the states; only a fraction of the
resources would be delivered, but Congress had little power to compel
payment. As a result, soldiers died and went hungry, territory was lost,
and the new nation gave signs of fragmenting when prominent leaders
(including Jefferson) deserted Congress and Washington’s army for their
respective state governments and militias.
All this shaped
Hamilton’s politics. He saw his adopted nation as being in a similar
position to himself — in search of strength, but profoundly weak — and
he had a firm grasp on economic realities. Because Jefferson had slaves
and a plantation, he could maintain the illusion of independence and
write fetishistic peaens to the yeoman farmer while enjoying the luxury
to which he had become accustomed. Hamilton operated with an acute sense
of his own vulnerability. He depended on patrons throughout his career;
he appreciated structures of power for what they were, and what they
made possible, and developed the ability to adapt and graft himself on
to them. Even his attraction to artillery (the mechanization of war)
seems like a comment on the utility of power.
At the war’s end,
Hamilton resigned his commission and studied law. Meanwhile, the
country’s economy was in shambles. Officers and farmers were growing
restive. Parts of the backcountry of North Carolina declared themselves
an independent state, and a similar attempt at secession was made in
Pennsylvania’s Wyoming Valley. By 1786-87, class tensions in western
Massachusetts had boiled over in the form of Shays’ Rebellion: Armed and
indebted farmers marched on the state government and were violently
crushed by the militia.
In moments of despair, Hamilton predicted a
future of interstate warfare and re-colonization.“A man must be far
gone in Utopian speculations,” Hamilton wrote in
Federalist No. 6,
who
can seriously doubt, that if these States should either be wholly
disunited, or only united in partial confederacies, the subdivisions
into which they might be thrown would have frequent and violent contests
with each other. To presume a want of motives for such contests, as an
argument against their existence, would be to forget that men are
ambitious, vindictive and rapacious.
Hamilton knew that economic recovery was the key to peace. In the same
Federalist paper, he wrote:“If SHAYS had not been a
desperate debtor
it is much to be doubted whether Massachusetts would have been plunged
into a civil war.” To prevent national disintegration and push the
economy back into action, Hamilton sought to control the centrifugal
forces of “faction” — a term which referred to both class and geographic
conflict. He labored hard to draft and ratify a new Constitution and
create a strong central government.
Recall the Supremacy Clause:
“This Constitution, and the Laws of the United States… shall be the
supreme law of the land; and the judges in every state shall be bound
thereby, anything in the constitution or laws of any state to the
contrary notwithstanding.” In other words, federal law always trumps
state and local laws.
In
Federalist 11, Hamilton laid out the economic logic of a strong central state in terms of a defense against European imperialism:
If
we continue united, we may counteract a policy so unfriendly to our
prosperity in a variety of ways. By [creating] 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 is outlining the central mechanism of economic nationalism:
the state creates economic conditions; it does not merely react to them.
Before the Revolution, Britain’s mercantilist policies sought to
maintain captive markets and thereby enforced under-development on its
American colonies. Britain had banned export to America “of any tools
that might assist in manufacture of cotton, linen, wool, and silk.” None
of that changed with independence. And Britain was soon harassing
American trade, stopping and searching ships at sea, seizing American
sailors as alleged deserters.
For Hamilton, the crucial components
of real independence were industrialization led by a strong federal
government, combined with a permanent military that could serve both
political and economic functions — defending the new nation while
driving and absorbing the output of a new manufacturing sector. (It was,
in effect, military Keynesianism before the fact.)
After
ratification of the Constitution in 1790, Hamilton was recruited by the
Washington administration to be the nation’s first Secretary of the
Treasury. In this capacity, he issued a series of detailed economic
reports to Congress outlining a program for the development of the US
economy that rested on three core policies: federal assumption of state
debts, creation of a national bank, and direct government support for
domestic manufacturing.
The linchpin of his economic proposal was a
system of public credit and a national money system with a government
supported Bank of the United States at its center. “Public utility,”
wrote Hamilton, “is more truly the object of public banks than private
profit.” In 1790, three new bond issues backed by the Federal Government
replaced the miscellany of various state and federal bonds that had
structured the new nation’s debt. Early the following year, Congress
chartered the Bank of the United States for twenty years. With that, the
first two pieces of his system were in place.
But in all this,
Hamilton faced the opposition of Jefferson and the Southern planter
class. Comparative economic history shows that semi-feudal agricultural
elites, like Jefferson’s Virginia squirearchy, hold back political and
economic development. To paraphrase Perry Anderson, semi-feudal elites
extract economic surplus from the immediate producers by customary forms
of extra-economic violence and coercion; they do so by demanding labor
services, deliveries in kind, or rents in cash, and preside over areas
where free commodity exchange and labor mobility are relatively rare.
They prefer stasis to change.
For Jefferson, this was expressed in
his romantic praise of rural life: “Corruption of morals in the mass of
cultivators is a phenomenon of which no age nor nation has furnished an
example.” He condemned manufacturing as morally and politically
corrosive:
While we have land to labor then, let us
never wish to see our citizens occupied at a work bench… let our work
shops remain in Europe. It is better to carry provisions and materials
to workmen there, than bring them to the provisions and materials, and
with them their manners and principles … The mobs of great cities add
just so much to the support of pure government as sores do to the
strength of the human body.
Put differently, Jefferson feared the proletariat.
For
Hamilton, conversely, national survival depended on industrialization.
He pushed Congress to foster domestic manufacturing with a program known
as “the American School” that had four central policies: 1) tariffs on
imports; 2) direct subsidies, or “bounties,” for domestic manufacturers;
3) a partially public-owned national bank; 4) broad public investments
in infrastructure, or “internal improvements,” like roads, canals, and
ports.
The young Treasury Secretary’s most famous statement of his analysis is
The Report on the Subject of Manufactures,
submitted to Congress on December 5, 1791. It begins with a critique of
the Physiocrats — a school of thought in France that Karl Marx would
call “the true fathers of modern political economy.” They established a
labor theory of value, but restricted its realm to agriculture. In their
view, all other labor and economic activity was parasitic upon farming.
They were pioneering but myopic. In their analysis, Marx said,
“bourgeois society is given a feudal semblance.”
Hamilton’s
critique of the Physiocrats was sharp and devastating. “It has been
maintained, that Agriculture is, not only, the most productive, but the
only productive species of industry,” he wrote.
The
reality of this suggestion in either aspect, has, however, not been
verified… It is very conceivable, that the labor of man alone laid out
upon a work, requiring great skill and art to bring it to perfection,
may be more productive, in value, than the labour of nature and man combined, when directed towards more simple operations and objects.
In
dismantling the Physiocrats’ fixation with agriculture, Hamilton was
also taking aim at slavery and the self-delusions of the plantation
elite. The Southern elites were increasingly defensive of their
“peculiar institution.” Vermont outlawed slavery when it broke away from
New York in 1777. Pennsylvania severely restricted slavery in 1780,
while Massachusetts abolished it outright in 1783.
In reaction,
Southern politicians and writers concocted a series of elaborate but
inconsistent defenses. They went from arguing that slavery was a
necessary evil to proclaiming it as a positive good, with Southern
agrarian society as the highest form of civilization. (From this
unhinged doctrine would eventually flow the South’s suicidal project of
secession and offensive war against the North.)
Next,
The Report
addressed the laissez-faire line associated with Adam Smith. “Industry,
if left to itself, will naturally find its way to the most useful and
profitable employment, ” wrote Hamilton in a summary of this then-new
doctrine; “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.”
He
countered this with demands for protectionist policy, couched in
arguments about what we would now call “uneven development”: “To
maintain between the recent [industrial] establishments of one country
and the long matured establishments of another country, a competition
upon equal terms, both as to quality and price, is in most cases
impracticable.”
To level the playing field, the weaker economy had
to rely on“the extraordinary aid and protection of government.” And he
pointed out that other governments aided their manufacturing sectors —
the doctrines of British political economy notwithstanding.
Perhaps
his most contemporary sounding defenses of an activist government had
to do with failure and innovation. Hamilton argued that “it is of
importance that the confidence of cautious sagacious capitalists both
citizens and foreigners, should be excited,” and their fear of risk
allayed by “a degree of countenance and support from government” so they
might “be capable of overcoming the obstacles inseperable from first
experiments.”
Deeper in
The Report, Hamilton made a
number of detailed policy recommendations. They included higher import
duties on some finished products (and even, if necessary, the outright
prohibition of some imports); lowering or removing duties and taxes on
key raw materials; subsidies paid to whole sectors of industry;
government-paid premiums for specific firms that excel at innovation and
production; government assistance for the immigration of skilled
workers; an almost patent–like style of artificial monopoly for the
inventors and importers of new technology; the creation of national
regulations for, and the regular inspection of, manufactured goods so as
to improve quality; government facilitation of a single national money
system; and public investment in roads and canals.
Pretty much all
of this was achieved, despite Southern opposition — and it remains the
basis for the growth of American capitalism.
Throughout
The Report,
Hamilton tried to assuage Southern fears by arguing that a rising tide
lifts all boats. “If the Northern and middle states should be the
principal scenes of such [manufacturing] establishments, they would
immediately benefit the more southern [states], by creating a demand
for… Timber, flax, Hemp, Cotton, Wool, raw silk, Indigo, iron, lead,
furs, hides, skins and coals.”
And in time, his proposed tariffs
would help pay for publicly funded infrastructure that would expand
internal markets and lower the cost of exporting. “Good roads, canals,
and navigable rivers,” Hamilton wrote “by diminishing the expense of
carriage, put the remote parts of a country more nearly upon a level
with those in the neighborhood of a town.”
If the private sector
could not consume enough to drive rapid industrialization, the public
sector would. Since few export markets could absorb American
manufactured goods, military procurement would created an artificial
internal market for them. America’s nascent manufacturing sector relied
heavily on military consumption — products associated with shipbuilding,
weapons, munitions, uniforms, and food rations. This socialized demand
would drive private sector accumulation, investment, wages, and thus
consumption.
Hamilton drew up the blueprints for a planned economy
— a capitalist economy, to be sure, but one that would be guided by a
long-range sense of the country’s problems and potentials. And that was
just what worried the reactionaries of his day. The line of development
that Hamilton envisioned spelled the doom of a political economy based
on slavery.
One of the few who was honest about this was North
Carolina’s Nathaniel Macon, who a decade after Hamilton’s death,
explained to a confused, young, canal-loving Southern politician: “If
Congress can make canals, they can with more propriety emancipate.”
In
the decades after Hamilton, the struggle between the forces of
pro-industrial modernization and the forces of agrarian underdevelopment
continued. Hamilton’s “American School” of economics had it successor
in the “American System” of Henry Clay of Kentucky, with its package of
policy ideas drawn from
The Report: a high tariff, a national bank, public funding of infrastructure or “internal improvements.”
Clay
and his supporters added a commitment to maintaining artificially high
public land prices. This boosted the government revenue needed to fund
land surveys, roads, canals, ports, and later railroads. High public
land prices also benefitted eastern manufacturing, since cheap land
would draw off labor and force up wages.
Ultimately, the American
System was only partially realized and more often than not at the state
level, as in the famous New York state-built Erie Canal. The
developmentalist camp — the largely northern, urban, manufacturing and
financially-oriented interests that followed Clay — ultimately coalesced
into the Whigs, and then Lincoln and the Republican Party.
Only
with war and the secession of southern states did the
Hamiltonian-inspired agenda make real headway with passage of the
Homestead Act, opening western lands to small farmers, and the Railroad
Acts which, at government expense, set off construction of the
transcontinental railroad.
This American
dirigiste model
has had a major impact on global history. As the South Korean economist
Ha-Joon Chang has pointed out, every successful case of
industrialization has used some version of the Hamiltonian model. A line
runs directly from it to the postwar rise of the developmental states
of East Asia. During Henry Clay’s heyday as John Quincy Adams’s
Secretary of State, the German political economist Fredrich List — who
would formulate the developmentalist theory of “infant industry”
protection — moved to Pennsylvania where he soaked up the statist ideas
of Hamilton and Clay.
Now Clay’s “American System” morphed into
List’s more detailed “National System.” When he finally returned to
Germany in the 1830s, List and others associated with the German
“Historical School” of Economics rejected Adam Smith’s fixation on the
individual as a category of analysis; they held that economies were
based on nations and states.
In place of classical political
economy’s “general laws,” the Historical School sought a theory based on
national and historical specificity. (At the level of applied policy,
this meant pushing for government support for railway construction and
industrialization.) Their ideas were studied closely in Meji Japan,
where a state-led project of land reform and industrialization began in
the early 1870s. The other classic
dirigiste economies of East
Asian — Taiwan, Singapore, South Korea, and now China — have also relied
heavily on List and the German Historical School.
In most of the
world, the real story of capitalism is not the story of laissez-faire — a
doctrine the strong impose upon the weak — nor a quaint story about
egalitarian local economies, but the story of the state presiding over a
mixed economy. Hamiltonian developmentalism — the unnamed ideology — is
amoral, pragmatic, instrumentalist, and flexible.
So what is the lesson of this attenuated tale?
Like Hamilton, we face a profound crisis rooted in an economy that demands to be
remade.
The old redistributive agenda is not enough. Due to its dependence on
the environmental curse of fossil fuels, the economy must also be
significantly
rebuilt around a clean energy sector. And history
is very clear on the implications: In capitalist society, moments of
crisis and transformation have always involved an increased economic
role for the state. We are entering one of those periods.
As the
waters rise and the storms grow more intense, the state and the public
sector will be called forth. What the state can or will become as it
“returns” is an open question — or rather, open to being reshaped by
pressure from social movements.
Unfortunately, American society is
very far from facing the crisis. And a huge part of the problem is the
Jeffersonian notion that “the government that governs best is the one
that governs least.” While that is true as regards individual liberty,
it is absolutely dangerous to think that way as regards the economy.
