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

Sweet Home, Ashland, Alabama

The spouse and I differ on the route we took on my first trip to Ashland, the tiny town in Alabama where the spouse’s grandmother, “Mom,” lived and where the spouse spent childhood summers. (See post by spouse on January 15, 2021.) I thought we had driven through the Midwest visiting friends in Columbus, Ohio, and Peoria, Illinois, and then headed south. The spouse remembers heading south first down the eastern seaboard and heading west after camping in Georgia, on what we refer to as the “demented locals” experience, but that is another story. Part of the reason our memories don’t coincide is that we went to Ashland several times and did not always take the same route.

 Similarly, I can’t say on what trip certain impressions and experiences occurred, but on each and every trip to Ashland, I felt that I was in the South, capital S. Before going to Alabama, I had only been south of Washington, D.C., to Miami, and while that felt different from what I had experienced in Illinois and Wisconsin, it was not The South that had resonated in my mind. Ashland, however, was in that region I had read about in William Faulkner, Carson McCullers, and Eudora Welty. It was the South I had seen on television when watching scenes of Selma and Greensboro. It was the South of broadcast televangelists.

Ashland physically fit my image of a small southern town. Its population was about 2,000, and I gather that it remains about that size. There was a town square, and a courthouse was at the center of that square, and that courthouse itself was a square. When I first went there, after going up a few steps to an entrance, I had to step over a dog sleeping in the sun on the landing outside the door, and I had to walk past a Dr. Pepper machine to get in. I almost laughed. I thought maybe the southerners were laying on the clichés to play with this northern boy. I took a picture of the courthouse because it looked just like an old southern courthouse ought to look. I enlarged and framed the picture, and for a long time it hung at the top of the steps in my house, but somehow I have lost it.

I think of that building as the courthouse, but it was probably more than that. Ashland is the county seat, and no doubt the structure held county offices in addition to courtrooms and judicial chambers. The jurisdiction is Clay County, and I was struck driving into town by the red clay landscape. For a moment I wondered if that gave the county its name, but then I put Clay and Ashland together and realized that the county was named after Henry Clay and the town after his Kentucky home, Ashland. But if there is a memorial to that early American leader in Ashland, Alabama, I never saw it.

I never saw a memorial either to the town’s most famous native son, Hugo Black, the Supreme Court Justice. Born just outside of town, Black was raised in Ashland and had his first law office on the town square before moving to Birmingham. But at least during his lifetime, Ashland did not want to claim the justice. Hugo Black wrote Court decision after Court decision upholding civil liberties and equal rights and most important to many Alabamans is that Black was on the Supreme Court that ordered the desegregation of public schools and other public facilities. The spouse’s grandmother told us years after Brown v. Board of Education that Hugo Black on a visit to Alabama picked a flight that had a layover in Birmingham so that he could see his son who lived and practiced law there. The son got word to his father, “Don’t even get off the plane; it will be too dangerous for you.” (A famous KKK leader of the 1920s and 1930s was born in Ashland, but as far as I know, there is no memorial to him either.)

The spouse, however, noted some racial changes since her childhood days. We spotted a Black state trooper, Blacks at the public swimming pool, and a Black man in a spirited tennis game against a white opponent. The spouse said these sightings would not have occurred in the Clay County of her youth.

Signs of the old South, however, still lingered. Looking out the window early one morning, I saw a wagon being pulled by a mule as a Black man was going to tend fields. I felt as if I had seen this scene before in a picture from the South of the 1920s or 1930s. And then there was the time that we stopped to get gas at a one-pump station and waited for someone to come to fill the tank. I had only seen Stepin Fetchit’s shuffle in the movies, but now I saw it for myself as it seemed to take five minutes for an old Black man to make it from the building to our Dodge Dart twenty feet away. I understood the walk’s origins, but I wanted to shout, “You don’t have to do that. We are white, but we aren’t from here.” However, some remnants of the old South benefited us. The wife’s metal leg brace had cracked, and we asked the gas station attendant if he knew of a welder and explained the problem. He immediately said that the blacksmith could help and told us where the smithy was. We went there, and the man in an old, old shop did a creditable repair, not charging us much money.

Ashland was also different from other places I had known. This was hammered home when we were driving into the town with the spouse’s mother in the back seat (why we had the mother-in-law with us remains a mystery to me). She commanded, with an uncharacteristic urgency, that we pull over to a small store. It was the last place to get alcohol before arriving in Ashland. Clay County was dry.

(concluded Feb. 5)