The triumph of the nationalism of Alexander Hamilton was the triumph of the unification of capitalism with nationalism, the unification of economics with statecraft. The trials of history have proven his system of nationalism to be the greatest of any competitor from the 19th century to today because it answered the question of how the prosperity of modern nations may exist harmoniously with the exercise of national political power.
In the pitiful debate between what is left and right; what qualifies in the vision of Hamilton as a proper balance of power between the national state and economic activity, and under what circumstances, has been entirely lost to confusion. Libertarians often wrongly condemn Hamilton for being a crypto-leftist who founded the instruments of a national government which are today wielded by corrupt progressives. Leftists accuse all defenders of capitalism, who would be recognizable to Hamilton as capitalists, of wanting to eliminate the role of government entirely and enrich an undeserving commercial class; the very class whom Hamilton envisioned as the natural American governing class.
A proper state-economy model of capitalism is called for. The question such a model must answer, when is state intervention justifiable in a free market, has confused even great men like Theodore Roosevelt. His policies often seemed to stumble back and forth between free market and progressive without indicating which he preferred. For example, the monopoly busting of Roosevelt has sometimes been labeled as progressive by libertarians because it involved an exercise of state power. But was his monopoly breaking liberal?
To resolve this confusion, we introduce what we will call the Hamiltonian model, or Federalist model, of economics. We introduce it with the objective of providing conservatives with a way to determine when state activity is appropriate, while seamlessly keeping in sight what is rightfully the sphere of the free market and what is the sphere of government. We hope to win over libertarians, especially anarcho-libertarians, away from a libertarian philosophy which, though it makes interesting points, is incomplete and insufficient in numerous respects; and to distinguish a moderate state role in capitalism from the grossly excessive one given to it by the left.
The Federalist model is as follows:
There are three major economic ideologies: Capitalism, libertarianism and liberalism.
The economic systems of all three deal with each of these following economic components:
1) Competitive Conditions – political conditions which are under the control of governments, such as regulations and taxes; or naturally occurring competitive conditions beyond the control of governments, such as natural resources and geographic constraints.
2) Private Actors – those in the private sector who make decisions within the system.
3) Government/Public Actors – those in the public sector who make decisions within the system.
4) Actions – decisions made by government or private actors about allocating resources .
5) Economic/Price signals – signals which suggest to both private and public actors which actions, rightly or wrongly, are most valuable.
The difference between the three political systems -capitalism, libertarianism, and liberalism – rests on what economic roles and activities they permit their private and public actors to engage in:
1) Capitalism – The political actor fashions the political competitive boundary conditions and remedies any violations of the conditions; the private sector actor using price signals decides on which actions are most valuable within the boundary conditions established by the governmental actor (they do not violate laws) and naturally occurring conditions.
2) Libertarianism – The private sector actor fashions the political competitive conditions; the private sector actor decides on which actions are most valuable based on price signals within the system boundary conditions.
3) Liberalism – The public sector actor fashions the political competitive conditions; the public sector actor decides on economic actions within the system.
The reader should note here that the relationships in each system can be made more complex by breaking down the various components into subgroups, e.g., divide private actors into businesses and individual citizens; divide public actors into local and national governments; divide price signals into monetary signals and resource price signals; &c. But the basic relationships hold true as the complexity of the question the model answers increases – and it is this flexibility across questions and scenarios that is the greatest proof of a good economic model.
The standard critique of both capitalists and libertarians against liberal economics is that liberalism fails in the marketplace because the public sector actor is too far removed, relative to a private actor, from the pricing and value information needed to judge what economic action has optimal value given the alternatives.
The public actor’s general failure to anticipate and act on value leads to what is known as malinvestment, or misallocation of capital, which is the over or under-investing of resources into an activity that is not as optimal as alternative activities. Developed economies which enjoy the highest growth rates are those that minimize malinvestment by giving private actors freedom to act in a relatively accurate (if imperfect) price signalling system. The more accurate the value signalling for a private actor, the fewer resources are misallocated into less valuable activities, and the higher the nation’s growth rate.
A liberal might offer the counter point that malinvestment will also occur in either a libertarian or capitalistic environment. This is true, but does not save their case. Even if the private actor malinvests , as long as the private actor under a free market malinvests less over time than the public actor in a liberal system, the GDP value of the market economy will compound at a higher rate over time and eventually overtake the liberal one.
In this regard, the assessment of both capitalists and libertarians is absolutely correct: the public actor cannot, on average, as competently determine what is a valuable activity relative to a private actor.
I will expand on this point on how unsatisfactory liberal economics is by pointing out that liberal theories are still operating, in a certain sense, under assumptions from a 19th century Newtonian reductionist view of price and value. This reductionist perspective holds that exact economic value can be determined by a scientific, liberal government given enough information.
Liberals have not updated these “Newtonian” sentiments about price signalling for the 20th century.
In reality, rather than following a Newtonian “billiard ball”/derivative model that can, with enough information, be projected with perfect accuracy ahead of time, in markets the true behavior of price and value fluctuations resembles “Heisenbergian” uncertainty no matter how much information any type of actor has: The exact value (position) of any economic activity (particle) engaged in by a private or public actor is unknowable until the activity is complete and results judged (the particle is “observed”).
The best any economic actor can hope for is that their actions result in an acceptable range of profitable outcomes beforehand, rather meet exact numeric value because true value is inherently unknowable.
Take the following scenario: In the first quarter of the business year, a manufacturer planned to produce x amount of their most profitable product in the third quarter. The production plan assumed the availability of a key supply input from a supplier at an anticipated price. However, in the second quarter that supplier goes out of business and the remaining suppliers all offer the same supplies at a price so high that the production planned is cancelled and whatever capital the business has left is reallocated to a new activity.
In this scenario, the true value of the activity was wrongly judged at the planning stage because of a purely random event. And even if the production had gone as planned, there would be no scientifically provable certainty that the chosen economic activity was better than other activities the company could have invested in.
All economies must operate in a maze of probabilities, time dependencies, and uncertainty which cannot be fully anticipated by any actor, private or public ahead of time. Therefore the liberal assumption that central management of economic activity can be made omniscient enough to determine which economic activity to engage in is false because the laws of statistics will not allow them to ever have perfect information,. And since they are further removed from the point of decision than a private actor, liberal economics will be relatively non-competitive.
This explains why economic systems under capitalism and libertarianism are economically superior to liberal systems.
But how do we go about determining whether capitalism is superior or inferior to libertarianism?
We defined a capitalistic economy as one where public actors create the boundary conditions which are controllable by the government (regulations, tax rates, &c.), and where private actors are free to decide on what activity to engage in as long as their actions stay within the boundary conditions.
A pure libertarian, anarcho-libertarian economy is one where the private actor controls both the competitive boundary conditions and decides on economic activity.
While liberalism fails because the public actor is unsuitable as a private actor, an anarcho-libertarianism economy would fail for the opposite reason – the private actor is unsuitable to take up the role of the public actor.
The reason this is so is because private actors under anarcho-libertarian theory would in practice encounter an insurmountable conflict of interest between their responsibilities to both design common rules for other businesses and the great temptation to twist the rules to hide the true value of their individual businesses.
Consider situations in an anarcho-libertarian condition where rules common to all private actors, such as accounting regulations, were the province of private actors instead of the government. In practice, private businesses would be tempted to rig accounting regulations in favor of their immediate business interests by, for example, making accounting rules that would make their businesses appear more valuable to investors than they really were. Ironically, this would select for businesses to become more corrupt over time as honest businesses would be run out of the market by unscrupulous ones who would rig every regulation to their advantage.
Over time, trust in publicly available information about pricing would decrease as a result of having no state under anarcho-libertarianism. Eventually there would be a complete breakdown in price signalling and a halt to economic activity due to great uncertainty and mistrust over what actual valuations truly were.
With this model, we can now answer whether the monopoly breaking of Theodore Roosevelt was progressive or capitalistic: it was capitalistic because it preserved a common competitive environment by preventing monopolies from pushing competitors out of the market, or keeping competitors from entering.
As a capitalist, Alexander Hamilton came to understand the need for the federal government to act as a public arbiter of common policies during his experience with the closest America has ever been to an an anarcho-libertarian state, the period of the Articles of Confederation.
This era exemplifies why anarcho-libertarianism will fail: There was little to no power at the federal level to create preconditions for business activity across the country because states had no obligations to act in the common national interest. There was no common trade policy between and among states, the currency was crumbling due to poor credit and the inability of the national government to tax, national funds for needed infrastructure were inadequate, the court system was not appropriate to resolve business cases, the military was unfunded, and there were insufficient means to manage foreign policy.
Hamiltonian economic statecraft remedied this situation with some of these policies.
* The assumption of state debt improved the credit rating of America to the point where , during the Napoleonic wars, we were as attractive an investment to foreign investors as Great Britain. These investments were used by American business as seed money for our earliest factories.
* A stable currency under a national bank
* Infrastructure upgrades began which would facilitate our early industrialization. All of his heirs continued to be advocates of infrastructure development, from Quincy Adams who tried to fund scientific research, to Lincoln who invested in the railway system, even to the hero of limited government, Coolidge who invested in our early telecommunications system.
* Nationalization of trade policy and a national tariff policy acted as the key spur to our industrialization for over a century.
* Suitable funding for the military.
* A common foreign policy.
By creating a common capitalistic environment through the federal government, America was ultimately able to completely harness the natural resources of the whole North American continent, sans Canada.
Other competitors had similar advantages, but were unable to harness them for reasons of policy error and natural disadvantages:
Like America, the advantages at the disposal of Russia were tremendous natural resources, vast geography, a rapidly growing white population, and the ability to trade between Europe and Asia. These advantages were never realized because of a lack of anything resembling the Angl0-Saxon tradition of property rights – which led to every ethnic group in the Russian Empire agitating to free themselves of the Romanovs for most of the 19th century, a late transition from serfdom to industrialization, and the fact bordering Europe and Asia is an invitation to destabilizing wars if the border is a great landmass instead of the Atlantic and Pacific Oceans.
They founded the Anglo-Saxon property rights that gave British citizens the highest economic mobility of any European monarchy, they were the first nation to industrialize, enjoyed long-standing political stability brought about by the English Channel acting as a barrier to invasion, and held abundant natural resources in their overseas colonies.
Disadvantages: Compared to America, America’s natural barriers to invasion, the Atlantic and Pacific Oceans, English Channel did not provide as surmountable a defense, modest resources on the homeland which forced military resources to be diverted to managing resource-rich colonies instead of investing at home, their population was surpassed by America.
Industrialized soon after Britain did, had a rapidly growing white population, advanced infrastructure, and a powerful military. Disadvantages compared to America, Germany was surrounded by powerful military opponents while no other power in the Western Hemisphere was a serious military match for the United States after the war of 1812, they lacked natural resources comparable to America and were without a resource-rich overseas Empire like the British, Germany was too militarily threatening when it should have been building up its economic base peacefully as America did after the Civil War.
Generally at peace with its neighbors after Napoleon’s defeat, Napoleon III provided much need political stability, he successfully industrialized France soon after the British industrialized, moderate resource wealth, moderately populated.
Disadvantages, experienced a low white birth rate after the Napoleonic wars which persisted into the early 20th century, Overseas empires did not bring in the great riches they brought to Britain, Often Politically unstable because of leftist radicalism during the Restoration, reign of the Duc D’Orleans, and after the fall of Napoleon III up to WWI.
Only America had all of the three’s advantages without their deficits. And Hamilton was the man who ensured the right mix of free market enterprise with centralized policies.
But without Hamilton and his heirs, Americas many natural advantages may never have been fully exploited.
The United States did not have to be a unified state that could only be threatened by a Great Civil War- America could have splintered apart into different countries in the first few decades due to economic mismanagement, petty bickering between states, and incompetence. If trade policy were left to states as under the Articles, the development of American industry would have been undermined by cheap goods, and America, even if it had stayed united, would never have become the greatest economic and world power of all time.
I finally want to address a another, common, libertarian criticism of Hamilton. They argue Hamilton created the national state that was used by the Wilsonians and their descendants to wield power. But Hamilton and Wilson’s visions were different characters. While it is true Hamilton was more nationalistic than Jefferson, his vision was to give the branches of government sufficient power to craft national policies through legislation and the executive.
Metternich noted the difference between real reform and radicalism:
Those who were always crying out for liberty, he said, wanted exemption from control, a general licence to gratify their individual desires and passions, and moreover power to tyrannize over others; but the plural sense, liberties, did not exclude that protection which good laws and wise social arrangements afforded to every virtuous citizen. ‘ I have a respect,’ he added, ‘ for a man who comes to me with concrete propositions for reforms or liberties; at I thoroughly despise our advocates of ‘reform and liberty in the abstract.’
We Hamiltonians, modifying the remark of Metternich and applying it to an American context, would say in our defense to those who still see no difference between Hamiltonian capitalists and liberals that Hamiltonians advance reform through normal legislative and executive mechanisms, whereas when progressives cry “Rights” and “Reform” what they mean is that they wish to demolish anything that stands in the way of their winning more power to tyrannize others, including the legislative and executive branches empowered by Hamilton, and will only appeal to legislation when convenient.
With our record of accomplishment, Hamiltonians have been quite comfortable not to reach for any measure outside the normal legislative and executive powers Hamilton did so much to establish.