Hamilton versus Jefferson: Commentary, Part 9

Part 8

Part 7

Part 6

Part 5

Part 4

Part 3

Part 2

Part 1

In Chapter 7 Holloway transitions to Hamilton’s Report on Manufactures. What I find most striking is Hamilton’s repudiation of authentic capitalism – partially defined by a true free market as the determiner of the value of goods and services and operating as the engine of economics and industry. In an age when the United States is shifting further left politically, when one of the two major political parties of the country openly advocates policies and politicians that would stand them in anathema even as recently as ten, fifteen years ago for their socialist-like overtones, Hamilton’s Report is as pertinent today as it was in the early 1790s.

Holloway summarizes how the first portion of Alexander Hamilton’s Report on Manufactures is essentially a defense of the misunderstood concept of laissez-faire. Hamilton very much advocated for “natural processes,” i.e., a free and open market, to carry on without artificial interference. “‘Quick-sighted guidance of private interest’ would, ‘if left to itself, infallibly find its own way to the most profitable employment,’ which would also turn out to be the employment most conducive to the ‘public prosperity’” (p. 120). Thus, to have government, or any other outside entity meddling in the market would “shift ‘industry’ from its ‘natural current’” (p. 120). This reads very much like a conservative or libertarian position today.

That said, Hamilton conceded while authentic capitalism was in the best interest of Man, it also worked against Man’s nature and thus did require external intrusion unfortunately. This is again related to Hamilton’s Augustinian conception of humanity – that left to its own devices, humanity does not orient itself toward the Good and True, and instead orients toward, in this context, the path of least resistance. “‘Experience teaches that men are often so governed by what they are accustomed to see and practice’ that they they will only with ‘reluctance’ adopt ‘the simplest and most obvious improvements’ in their ‘ordinary occupations’” (p. 121); in other words, the risk taking authentic capitalism requires is contrary to human nature. Parsing through Hamilton’s words, Hamilton scholars have therefore suggested “Hamilton did not believe that the desire to better our condition was a natural and spontaneous growth” and some outside agency was necessary to spur such innovation (p. 121).

Part of Hamilton’s explanation for observing “experience” demonstrates people will invariably take the path of least resistance, ergo snuffing out creativity and innovation, is the “fear of failure” (p. 121). Sure, there will be the occasional individual that rises above his nature, as Hamilton accepted was possible vis-à-vis morality and virtue (see here once more), but such rarity fails to sufficiently develop the economy as a whole (p. 121). This was Hamilton’s way of saying that such individual creativity and innovation has limited effect unless it is part of a much larger system of creativity and innovation that is society-wide. Further, because risk taking required “not so much the energy of the impulsive” but the virtue of “‘cautious,’ ‘sagacious capitalists,’” Hamilton argued government was necessary to instill confidence in the sorts of individuals Hamilton envisioned as the risk takers because their very virtue would make them wary of “experimenting” (pp. 121-122). In short, government needed to interfere in the market – the “natural currents” – to encourage sufficient numbers of virtuous individuals to take creative, innovative, entrepreneurial risks in the marketplace, in business, in industry, to engender a societal growth that would be lacking without such collective action.

A third reason why the government has to obstruct a free and open market is that the deck is stacked against some players – the playing field isn’t equal. In the context of the Early Republic, Hamilton was specifically referring to established Old World industries that would obviously put nascent American industries at a severe disadvantage. Therefore, the government would have to level this playing field to some extent for the parties involved until there was some semblance of an equal footing (p. 122). Another way to examine this: in the 21st Century no one from Alexander Hamilton’s day or the most ardent capitalist could have ever envisioned globalization – it’s even unfathomable to many people today living it. But globalization, free and open markets on a global scale, can only have exclusively positive benefits when everyone is playing by the same rules and adhering to the same worldview. This was Hamilton’s point in his Report.

Relatedly, Hamilton’s final contention is that other countries enact various protectionist policies for their own industries, putting American industry and manufacturing at an even greater disadvantage. Government has to respond, not necessarily in kind, but government has to disrupt natural processes insofar as to ensure the goods and services of one’s country are viable (p. 122). Both reasons three and four relate to Hamilton’s understanding of human nature because we can see the provincial outlook of nations – their concern is for the industries and services within their own borders at the expense of industries and services beyond their borders.

Hamilton’s conclusion is that while authentic capitalism would be the best and soundest economic system for humanity, it is also a fallen world and we live in this fallen world and have to make compromises as a result. Henceforth, sound theory does not translate to sound practice, and Hamilton, concerned very much with prudence, was ever cognizant of when to make the compromises, based on reason, observation, and judgment. I think we could learn from Hamilton today, both sides of the political aisle, in order to have a rational and intelligent discussion about our nation’s finances and economy, just as Alexander Hamilton was able to do in his Report on Manufactures.

**3/23/16**

I’ve changed the title and ceased referring to these posts as “reviews” because they aren’t properly reviews. Instead, I am now calling them “Commentaries.” I will write up a more traditional, summative review once I’ve finished the book.

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