Wednesday, April 2, 2008

Hamilton's Legacy (Dennis)

I just finished Ron Chernow's biography of Alexander Hamilton. It was an excellent book, and I would certainly recommend reading it if you are either interested in the early history of the United States or if you have little knowledge of said early history. Hamilton's life has made me reflect on two issues regarding the early history of the United States and its effect on us today.

On the economy, Hamilton was an unquestioned visionary. While Adam Smith and many economists of the day said that America should focus on agriculture given its large tracts of land, Hamilton saw a different destiny. America, he thought, would be a place where commerce would enrich the country, where industry would flourish, and where the opportunities created by both would attract immigrants from Europe to build the population and settle the continent.

He didn't just predict it, though; he crafted policy and institutions that made it possible. The Bank of the United States was his idea, and he outlined the world's first infant industry strategy to encourage what he, with his 18th century vocabulary, called "manufactures." Perhaps most importantly he bound the country together in a single financial and economic system through his assumption of state debts by the federal government, and through his overall promotion of a stronger federal branch of government.

While reading the book, I couldn't help but wonder where we would be without Hamilton. Was our eventual development inevitable? Were our natural advantages so great that we were destined to develop industry so quickly? Certainly, we would not have so quickly become an industrial nation, and that time lost would have changed the country's history.

But I think a more concrete point worth noting is that, well, Alexander Hamilton was one of those finance ministers who definitely wouldn't have gotten a loan from the IMF. I know that there is much theory to back up the proposition that countries develop best when allowed to exploit their comparative advantage, but I think the fact that virtually every industrialized country, from the United States all the way to Korea and Japan, became what it was today in part because of an infant industry strategy.

I know the world is vastly different than it was when Hamilton was forming his plans, but even today one of the more successful developing countries, China, is using a modified version of the Hamiltonian strategy to succeed rather than the IMF model. Given this information, is it really wise to pursue such a high handed approach toward developing countries when it comes to opening up their markets? Shouldn't we allow that, at least some of the time, the free trade and free capital market strategy just doesn't work for some countries? (For an excellent discussion of this, I suggest Globalization and Its Discontents by Joseph Stiglitz.)

As much of a visionary as Hamilton was on the economy, the book convinced me, despite the pro-Hamilton leaning of the author (no criticism on Chernow, once you get to know a subject so intimately, it is hard to not feel sympathy for them), that it was a good thing that he never became president and that his faction eventually lost to the Jefferson's in 1800.

Hamilton certainly comes across as one of the more principled characters in early American history, and he sincerely believed in a republican form of government. However, he had a deep distrust in democracy, and seemed perfectly willing, once things began to move against him, to use un-democratic means, like the Alien and Sedition Acts, to quash the "mob." His disregard for public opinion (he was faithful to his beliefs in a way that was admirable but stubborn) combined with that willingness, might have led to a civil war years before the country had become powerful enough to endure it, and before the North had gained an insurmountable advantage over the South. Even worse, he may have enshrined greater executive powers that, while good when entrusted to Washington and Hamilton, would be totally ruinous when given to crass men like Aaron Burr or Richard Nixon.

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