Posted on by rjonakait

Hamilton, Morgan, and Adam Smith

Our 250th anniversary has been used by various individuals and organizations to promote ideas and policies other than the celebration of our founding. For example, a recent piece in the Financial Times points out that since Adam Smith’s The Wealth of Nations was also published in 1776, this is time to honor Smith’s ideas. Michael Strain, the author of “On America’s 250th, remember your Adam Smith,” maintains that both the Declaration of Independence and Wealth “prioritise liberty. In the Declaration,” he writes, “Jefferson argues that individual liberty is an inalienable right. Smith argues that prosperity is advanced when market activity is free and not unnecessarily constrained by big government, powerful monopolies, trade barriers or other limits on market competition.” Both, he asserts, have profoundly influenced the United States. “The ideas animating those documents — the importance of free people and free markets to human flourishing — have profoundly shaped America and the modern world.” The author is concerned that commitment to these ideas is now under “direct assault” in America.

The author misleads. While the Declaration has been a grand, aspirational document, Adam Smith’s ideas of free markets and the “invisible hand,” while often given token obeisance, have never been the driving force of the economy or of freedom in this country.

At the country’s inception, Alexander Hamilton laid out his economic ideas in his 1791 Report on Manufactures. His proposals, not Smith’s, became the driving economic philosophy for the United States both in the Eighteenth Century and well beyond the Civil War.

Hamilton was familiar with Adam Smith’s notions of free markets and the invisible hand, but Hamilton rejected them, at least for America. Smith encouraged free international trade. Hamilton, on the other hand, sought tariffs to raise government revenue but also to protect infant American industry. Hamilton also diverged from Smith by advocating government subsidies to industry. In addition, Hamilton encouraged what were then called “internal improvements,” what today would be labeled government spending on infrastructure. Hamilton favored not lesser government but a more powerful national state that would operate to give as much favoritism to businesses as it could.

In the Nineteenth Century, Hamilton’s ideas were incorporated into Henry Clay’s “American system,” although Clay sought even higher protective tariffs than Hamilton did. Abraham Lincoln admired and followed Clay, and Clay’s principles became founding principles of the Republican party. Its 1860 platform, in addition to opposing the extension of slavery, promised to increase tariffs, pass homestead laws (which, in effect, gave away federal land), and build a transcontinental railroad that depended on federal subsidies. These were not consistent with the ideas of Adam Smith.

More crucial to the country’s early economic growth than free markets were the internal improvements of the government. The prime early example was the Erie Canal, which transformed the American economic landscape. The goods and produce of heartland America now had an international outlet through the port of New York, making New York City the economic center of the country. triumphing over Boston, Philadelphia, Baltimore, and Charleston. The canal, of course, was not the product of free enterprise, but of government, in this case New York State government. Railroads later became an economic engine, but the tracks for the intercontinental road, a product of Lincoln’s presidency, and other train routes were laid with federal government subsidies. After the Civil War, many tariffs increased to protect American industries, despite what Adam Smith wrote as desirable in Wealth of Nations.

The federal government interfered with free markets in another significant way in the decades before and after the turn of the Twentieth Century. Adam Smith believed that there should be a free market in labor. Whether that was achievable in his day is not clear, but it became increasingly difficult in the Gilded Age with the rise of massive corporations. These companies did not have to bargain with workers; they could dictate wages and working conditions — well, they could at least until the rise of labor unions, which put labor on a more equal bargaining footing with management. However, time and again, in a part of our history seldom taught, the government interfered in these “free” markets with military force suppressing unions and strikes.

A hundred years after Hamilton, another American economic giant rejected Adam Smith, the invisible hand, and free markets. Smith wrote before the industrial revolution. He posited that while companies would try to make more money than their rivals, competition would ensure that firms would level out and none would dominate the market. His ideas were formed when comparatively little capital was needed to enter a market, but his model of perfect competition did not exist with the rise of large-scale, capital-intensive enterprises after the Civil War. Then it became possible for a few giant firms to overcome competitive restraints and control significant portions of their markets. As Jean Strouse indicates in her massive and masterful biography Morgan: American Financier, J.P. Morgan, who helped shepherd the United States through several severe economic crises, saw competitive markets as inefficient and wasteful driving down the profits needed for necessary capital formation. In a process that came to be known as “morganisation,” Morgan eliminated “ruinous” price wars by combining rival companies into monopolies or cartels that controlled both prices, which could be increased, and wages, which could be reduced. Morgan insisted that the result produced greater industrial efficiency which led to greater national prosperity while leading–by coincidence, of course–to vast wealth for Morgan and other plutocrats. (Adam Smith did not foresee the vast power of the trusts and monopolies, but he did acknowledge, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”)

Any Smithian idea of a small government was destroyed in the Twentieth and Twenty-First centuries as the American state grew and then grew some more. And the notion that free markets unencumbered by government have been our primary economic driving force is indefensible. There are legions of examples, but it is clear, for example, that special tax provisions for oil and real estate industries alone, but also for many other enterprises, have tilted capital markets. Many corporate and personal fortunes have been made or increased by government contracts in “markets” that would not exist without the large, modern state. And so on, and so on.

Indeed, it is striking that it is not Adam Smith but Alexander Hamilton who is again being invoked by present conservatives. J.D. Vance recently said, “American economic policy on the right is now much more Alexnder Hamilton that it is Milton Friedman.” Axios translates this to mean that “Vance believes the GOP’s intellectual center of gravity is shifting away from free markets to a more interventionist government that promotes domestic industry.” Welcome back Hamilton

Our 250th anniversary is not a time to bring back Adam Smith. Adam Smith has never been here.

Posted on by rjonakait

Seeking Inspiration

          I interrupted my self-imposed blogging schedule because I lost home internet service for a week. I posted a brief message of the forthcoming hiatus by taking my iPad to a public wi-fi place.

          Losing home internet for a while can hardly count among life’s tragedies, but its loss highlighted how much I use it. I am not an online game player or a browser, stalker, or contributor to chat rooms. Nevertheless, I use the internet many, many times throughout the day. Its loss disrupted my rhythms, and that included my rhythms of writing.

          As a student, as a lawyer, as a legal academic, and now as a blogger, I have written frequently, but the rhythms of my writing have varied. I grew up before computers and my childhood home did not have a typewriter. I did not learn to type until I taught myself out of necessity in college. Papers needed to be typed, and I could not afford to pay a typist. My parents gave me a typewriter—an extravagant gift for them. I bought a how-to-type manual and practiced on the Remington every day until I had achieved the barest modicum of proficiency. But the typing itself took such concentration that I found I could not compose on a keyboard. For years, I wrote a first draft in longhand using—I admit somewhat pretentiously–a purple-ink-filled fountain pen. I almost always got stains on my hand, but I was almost proud of the marks because they signified to me that I was a writer of some sort. I typed the second draft, and then via pen made additions and corrections to that draft and then typed it again, and so on. I wrote my first “book” this way—it was really a monograph about the military chaplaincy—and this rhythm continued for quite a while.

          Of course, the typewriter gave way to word processing, but even after Wordperfect was initially installed on my computer, I continued to write the first draft with a pen. I told myself that it made me careful because in inputting the second draft from a longhand version I had to consider every word that I had written, but I knew that this was inefficient. Eventually, however, from editing and rewriting on a computer, I found that I could compose directly on a keyboard, and the purple-inked-filled fountain pens have been consigned to stray drawers.

          Thus, a major rhythm of my writing changed, but another one did not. I have always been a drib-and-drab writer. I have read many times about what I think of as real writers who closet themselves somewhere and stay at their desk for four, six, or eight hours writing. I have never done that. I write until I complete a thought, or I get stuck as to what comes next—seldom more than a half hour and often less. I then distract myself with some other project hoping that the next writing thought will come. Often the distraction has been some household chore—cleaning dishes, snapping beans, raking leaves, brushing a stripper or varnish on wainscoting or an old desk. When I have been really stuck, I have taken walks, gone for a run, or played tennis. When I was writing my many unread law review articles, I would start writing at daybreak and be at the keyboard well after dark, but the composing would only come in those small spurts.

          I write about different things now than I did as a lawyer or an academic, but I still seldom write for an hour or even a half hour in an uninterrupted stretch. I almost never produce even a page in a sitting. A paragraph, maybe two, and then a break. The nature of the breaks, however, has changed from years ago. Increasingly, I turn to the internet for the interlude. I don’t play games online; I don’t search for YouTube videos. But I do go frequently to news websites because I continue to be a news junky.

I grew up in a household where I read two newspapers seven days a week as well as a weekly paper and various magazines. I have maintained that news-reading habit, but how I read the news has changed. Of course, in those dark ages before the internet, I would read a physical newspaper, the kind where the ink comes off and hands have to be washed after the reading. For a long time, I thought the only valid way to read the news was through a physical newspaper, but in the backwater where I started spending summers decades ago, it was difficult getting the New York Times or other big city newspaper, and I began to read the paper online. Since both the Times and my writing were on the same computer, I began to go frequently back and forth between them.

Since then internet news sources have proliferated. I now distract myself not just with the online paper but also with a New York Times briefing, a New York Times digest, news summaries from Axios and Skimm, and the websites of Politico, RealClearPolitics, FiveThirtyEight, and TalkingPointsMemo.

Of course, when I was deprived of the internet recently, these rhythms were interrupted, and I found it difficult to write, but the deprivation did more than disrupt writing patterns. It made me feel isolated, and that too made it harder to write. This blog does not have a theme other than stuff that interests me, which I hope on occasion interests some readers. I have no grand scheme other than to be original and not simply to repeat others. When I finish a piece, I await inspiration for something new, but those triggers come much more readily when I am having a myriad of experiences. Travel almost always opens my mind. A museum visit, a play, a movie may make me think new thoughts, but often the inspirations have been quite mundane—a sign in a shop window, an overheard conversation at an intersection or in a restaurant, a food display, a doctor’s visit. I only sometimes directly write about these things, but often one thing stimulates thoughts about other experiences or ideas that I want to write about—a snowfall today may make me think about snowballing as a kid; a comment about the electoral college may make me want to delve into the formation of the Constitution; passing a coffee shop may set me ruminating about my caffeine addiction.

Covid-19, however, has confined my life and blighted others. I have fewer experiences, big or small, than before the coronavirus, and it has been harder to write as a result. The loss of the internet may have bothered me at any time, but now it was added onto the socially distant life that had already made me feel isolated. The internet did come back, and it will be with me, but it made me think hard about when, if ever, we will be able to freely partake in the life that we had before the pandemic. It may be a long time before I will again have the life of regular large and small stimulations that I have enjoyed. It’s a depressing thought.

Emotional states—anger, nostalgia, feeling cute or pedagogical—have helped me to write. Feeling down has not. I need some inspirations. What should I write about?