Sunday, May 15, 2016

Jefferson's Republican Virtues: Wrong in 1804, Wrong Today.

Brad DeLong has a new book out with Steven Cohen, Concrete Economics: the Hamilton Approach to Economic Growth and Policy. From the Harvard Business Review:
"Concrete Economics" shows how government has repeatedly reshaped the American economy ever since Alexander Hamilton's first, foundational redesign. ... Steve Cohen and Brad DeLong (show) ... how our economy has ... grown and the role government has played in redesigning and reinvigorating it throughout our history. The government not only sets the ground rules for entrepreneurial activity but directs the surges of energy that mark a vibrant economy. This is as true for present-day Silicon Valley as it was for New England manufacturing at the dawn of the nineteenth century. 
The practical technocratic approach to economics that represents the best of today's Democratic Party traces back to Alexander Hamilton. The Republican party's distrust of a powerful central government, its exaltation of the small entrepreneurs and private initiative, it's emphasis on individual hard-work, on private generosity, and on individual (economic) liberty traces back to Thomas Jefferson. In hindsight, we know Hamilton had it right at the nation's founding, and Jefferson had it wrong. The lesson applies to today's politics.

Cardiff Garcia at the Financial Times recently interviewed DeLong about the legacy of Hamiltonian and Jeffersonian economics and politics. The following is an edited version of Brad's comments in the first portion of the interview.  Listen to the whole interview HERE. It's excellent. 

Thomas Jefferson’s Losing Legacy

Jefferson was an ideologue, an agrarian. Above all else, he was scared of corrupt imperial, monarchical, authoritarian, and autocratic London. Although Jefferson was very forward-looking, he viewed London through a particular lens of ancient history—the republican virtues tradition. The republican virtues tradition holds that once upon a time there was a Roman Republic and it was virtuous because it was composed of small farmers who plowed their own land and lived simply and loved freedom and would rebel against kings or foreigners or anyone else who tried to take control of their lives. These small farmers really didn't want to be in government. If the Republic called one of them to command the armies of Rome, he would come and he would command the armies of Rome, but as soon as possible he would return to his farm because that's what he really wanted to do.

This image of republican virtues had a huge influence on America in the generation of it’s founding. George Washington's army officers corps embraced the belief that the revolutionary war was fought to preserve these republican virtues in America by throwing off the yoke of Imperial Britain and to preserve the land for smallholding farmers.

Jefferson looked at 18th century London and he saw Imperial Rome. He looked at London and its growing trade, commerce, and manufacturing, and he saw growing corruption. That is why, in response to relatively minor insults and actions from the British mother country, Jefferson and his co-revolutionaries thought it was a matter of life and death to get out from under this growing imperial structure.

But no sooner did they win independence, Jefferson turns around and looks at New York and Philadelphia, and he looks at Alexander Hamilton, and he perceives that Hamilton is trying to steer the country towards the same growing trade, commerce, manufacturing and high finance that Jefferson thought the revolution was fought to get away from. Jefferson looked at Hamilton and thought: if Hamilton has his way, Philadelphia and New York will be the new London and the revolution will have been for naught. That was his very simple vision of how the world worked.

It is possible this explains why Jefferson was so opposed to the federal government assuming the war debts that were incurred by the states. By assuming those debts the federal government gained prominence and power. Jefferson opposed the formation of a national bank to handle the assumption of those debts. He was opposed to Hamilton’s encouragement of manufacturers, and he was opposed  to Hamilton's plans for a standing army large enough to defend the United States from Britain marching down from Canada. 

With his small landholding republican virtues vision, Jefferson perceived the growth of finance, and especially the growth of banks, as an enormous danger. He viewed the growth of manufacturing and urban workers concentrated in cities working for masters as a great danger. It went contrary to his vision of small self-reliant farmers practicing their republican virtues by working the soil.

With those republican virtues as his lodestone, Jefferson knew exactly what to do in response to every political question that came up: at each turn he exalted the yeoman farmer and challenged the threatened dominance of capital, commerce, manufacturing, and banking interests. 

Alexander Hamilton's Prevailing Legacy

By contrast, Hamilton felt that the federal government had a role to play in bringing about sensible burden sharing. Fair burden sharing suggested the federal government should repay individuals who purchased bonds to support the revolutionary war effort.  Moreover, by demonstrating that the federal government would take on the debts that have been incurred for the common good of the country, even if there was no fundamental legal principle saying that it had to assume these debts, this would reassure investors in the United States and elsewhere that the United States was a good place to invest. This would reassure investors in the United States and elsewhere that the government and the country would stand by promises both explicit and implicit.

In addition, the federal government's assumption of debts assured that the holders of that debt had an interest in the economic success of the country as a whole. It made the upper class of New York who held a lot of this war debt loyal to the American democratic venture. The prospects of the King of England resuming his dominion over the colonies threatened that all of these loans would immediately be repudiated by the King. The United States assumption of this debt automatically made these influential, rich, largely Tory elites into the most aggressively solid advocates of American independence possible.

Hamilton’s economic arguments were also practical.  His favoritism towards manufacturing, by supporting high tariffs to protect the infant manufacturing industry in the US, was simply that it seemed to work out. If you looked around at the world, you found that it was not the case that all virtue came from the countryside. Even leaving aside Monticello and other large-scale slave plantations to one side, all virtue did not come from yeoman farmers. If you looked around, Hamilton saw that an enormous amount of value was created by manufacturing. The commercial operations that he saw in London, that he saw growing in Manchester, that he saw elsewhere seemed to create virtuous economic growth.

Hamilton’s policies, in other words, were based not in small republican virtues, but in the practical realization that if you want to have a prosperous country, people have to be making stuff in a productive way. People have to make stuff valuable. And so Hamilton looked around at what people were doing in the world, not just in the United States, and it seemed to him that rich countries, productive countries, all seemed to have a substantial manufacturing sector. Secondarily, he saw that powerful countries needed to be able to make their own industrial age weapons, and that it was therefore necessary to have iron foundries in order to actually make guns. And, of course, you need guns. And so, as a result, you should look around and say, is there a way we can encourage Americans to enter these particular lines of business that appear to be very necessary for a country to be successful, and that appear to be very valuable, and quite probably more valuable than growing corn and raising pigs on their own farms.

For these reasons, Hamilton felt it was the job of government to support these activities in such a way that they'll succeed. It led him to advocate that government money spent on encouraging manufacturing, and banking, and commerce will actually pay off. Such investments, he felt, will not be poured down some rat hole where it goes to the friends of the politically powerful and then is embezzled away. Hamilton's conclusion was, yes, there are strategic interventions the government can make that will very much pass the cost-benefit test.
Alexander Hamilton (Sec of Treasury) and Aaron Burr (VP)
duel, July 11, 1804


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2 comments:

  1. Had to laugh upon reading this oft-repeated line from the Preface of the book referenced: "It is doing so consciously. And it is doing so pragmatically - not ideologically".

    The most unconsciously ideological of ideologies is the one that dare not speak its name. That is why Americans have always been the ideological of peoples in modern times.

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  2. Thanks Kumiko. What would you call this "most ideological of ideologies" that manifested in serial pragmatic adjustments in economic policies from Hamilton to Lincoln, to Teddy Roosevelt, Franklin Roosevelt, and Dwight Eisenhower?

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