Alexander Hamilton Did too Believe in "Industrial Policy"!!

An annoyance crossing my desk this morning. I mean, this is an easy thing to get right…

An annoyance crossing my desk this morning. I mean, this is an easy thing to get right…

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I see this morning Richard Sylla writing in the Journal of Economic Perspectives, and my first reaction is that he has not read Alexander Hamilton’s Report on Manufactures with sufficient care.

He writes things that are not true.

Richard Sylla writes:

Richard Sylla: Alexander Hamilton’s Report on Manufactures & Industrial Policy: ‘Hamilton did not espouse state-directed economic development, contrary to the views sometimes attributed to him positively (Cohen and DeLong 2016; Parenti 2020) or negatively (DiLorenzo 2009; Hogeland 2024). He favored tariffs as the most practical way of raising government revenue in the 1790s. But he opposed raising those tariffs to truly protective levels… <https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.38.4.111>

All I can day is: Oh dear!

In his Report on Manufactures of 1791, Alexander Hamilton writes:

Alexander Hamilton (1791): Report on Manufactures: ‘There remains to be noticed an objection to the encouragement of manufactures, of a nature different from those which question the probability of success. This is derived from its supposed tendency to give a monopoly of advantages to particular classes at the expence of the rest of the community, who, it is affirmed, would be able to procure the requisite supplies of manufactured articles on better terms from foreigners, than from our own Citizens, and who it is alledged, are reduced to a necessity of paying an enhanced price for whatever they want, by every measure, which obstructs the free competition of foreign commodities.

It is not an unreasonable supposition, that measures, which serve to abridge the free competition of foreign Articles, have a tendency to occasion an enhancement of prices and it is not to be denied that such is the effect in a number of Cases; but the fact does not uniformly correspond with the theory. A reduction of prices has in several instances immediately succeeded the establishment of a domestic manufacture. Whether it be that foreign Manufacturers endeavour to supplant by underselling our own, or whatever else be the cause, the effect has been such as is stated, and the reverse of what might have been expected.

But though it were true, that the immediate and certain effect of regulations controuling the competition of foreign with domestic fabrics was an increase of price, it is universally true, that the contrary is the ultimate effect with every successful manufacture. When a domestic manufacture has attained to perfection, and has engaged in the prosecution of it a competent number of Persons, it invariably becomes cheaper. Being free from the heavy charges, which attend the importation of foreign commodities, it can be afforded, and accordingly seldom or never fails to be sold Cheaper, in process of time, than was the foreign Article for which it is a substitute. The internal competition, which takes place, soon does away every thing like Monopoly, and by degrees reduces the price of the Article to the minimum of a reasonable profit on the Capital employed. This accords with the reason of the thing and with experience.

Whence it follows, that it is the interest of a community with a view to eventual and permanent economy, to encourage the growth of manufactures. In a national view, a temporary enhancement of price must always be well compensated by a permanent reduction of it. It is a reflection, which may with propriety be indulged here, that this eventual diminution of the prices of manufactured Articles; which is the result of internal manufacturing establishments, has a direct and very important tendency to benefit agriculture. It enables the farmer, to procure with a smaller quantity of his labour, the manufactured produce of which he stands in need, and consequently increases the value of his income and property… <https://www.constitution.org/2-Authors/ah/rpt_manufactures.pdf>

Hamilton, in the plainest of plain readings, clearly:

• considers: “measures, which serve to abridge the free competition of foreign Articles…”,

• that: “have a tendency to occasion an enhancement of their prices…”.

• speaks of a possible “immediate and certain effect of regulations controuling the competition of foreign with domestic fabrics…”,

• and does indeed espouse such measures, claiming that in the long run, with proper support, for a suitable infant industry, “when a domestic manufacture has attained to perfection, and has engaged in the prosecution of it a competent number of Persons, it invariably becomes cheaper… than was the foreign Article for which it is a substitute…”.

If “abridging” and “controlling” imports with an idea of then nurturing the development of particular industries is not “state-directed economic development”, then I have no idea what state-directed economic development might be.

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References:

• Cohen, Stephen S., & J. Bradford DeLong. 2016. Concrete Economics: The Hamilton Approach to Economic Growth and Policy. Boston: Harvard Business Review Press. <https://archive.org/details/isbn_9789933896959>.

• DiLorenzo, Thomas J. 2009. Hamilton’s Curse: How Jefferson’s Arch Enemy Betrayed the American Revolution—& What It Means for Americans Today. New York: Three Rivers Press. <https://archive.org/details/hamiltonscurseho0000dilo>.

• Hamilton, Alexander. 1791. Report on Manufactures. Communicated to the House of Representatives, December 5. <https://www.constitution.org/2-Authors/ah/rpt_manufactures.pdf>.

• Hogeland, William. 2024. The Hamilton’s Scheme: An Epic Tale of Money & Power in the American Founding. New York: Farrar, Straus and Giroux. <https://us.macmillan.com/books/9780374167837/thehamiltonscheme>.

• Sylla, Richard. 2024. “Alexander Hamilton’s Report on Manufactures and Industrial Policy”. Journal of Economic Perspectives 38 (4): 111–30. <https://doi.org/10.1257/jep.38.4.111>.