How Alexander Hamilton Bet against Canada's Colonial Economics

New book chronicles policy that made (and unmade) our modern world.

By Crawford Kilian 4 Mar 2016 | TheTyee.ca

Crawford Kilian is a contributing editor of The Tyee.

This short, witty book is a well-written history of the American economy, but it also throws a bright light over our own economic history. In the process, it raises some uncomfortable questions about the toxic legacy of imperialism -- and about the kind of economic policy the authors argue saved America from the neocolonial fate of Canada and Australia.

Authors Stephen S. Cohen and J. Bradford DeLong say that America's rise is largely owing to Alexander Hamilton's outsmarting of Thomas Jefferson. Jefferson, a slave-owning Virginian planter, imagined a United States based on yeoman farmers, free whites feeding their families from the produce of their own land. Hamilton, a New Yorker, looked at the colonial farmers who'd just liberated themselves from Britain, and saw them dragged inexorably back into the Empire unless they had something to sell the world (and themselves) besides tobacco and cotton.

Hamilton promoted a wildly different approach from Jefferson. He wanted (and got) high tariffs to block cheap British goods and encourage local industry. The tariffs would pay for infrastructure to improve internal trade and industry: roads, canals, and eventually railways and telegraph systems.

He also got the federal government to assume states' debts. If he hadn't, Florida in 2008 would have been like Greece -- underwater, and ruining millions more Floridians. Instead, Washington bailed it out.

And Hamilton wanted a central bank, which absorbed the states' debts from the American Revolution: "both strengthening the central government (central to Hamilton's plans) and also paying off very, very handsomely the 18th-century version of today's vulture funds, the rich financiers who bought the state debts for pennies on the dollar -- and these were, after all, Hamilton's friends." But the central bank also controlled the "wildcat" banks that issued their own doubtful currencies and put the national economy at risk.

Cohen and DeLong see Hamilton's economic policy as so effective at creating powerful interest groups that even its enemies like the populist Andrew Jackson couldn't overthrow it. The Brits couldn't flood the American market with their own cheap goods. Local business, given roads and canals, swarmed into new economic opportunities, followed by Jeffersonian yeoman farmers who could sell their wheat and corn at prices allowing them to buy locally-made goods. The harm done to aboriginal and African peoples was of little concern to white Americans.

The triumph of Hamiltonian policies

Alexander Hamilton's policies turned a colonial population of slave owners and yokels into a regional and then a world power. American-made military technology could be felt from the halls of Montezuma to the shores of Tripoli, and eventually to Commodore Perry and his fleet of warships, dragging Japan into trade and communication with the rest of the world.

The modern world took note. Cohen and DeLong argue that other rising countries adopted Hamilton's pragmatism. This included imperial Germany and Japan, which rose to power (and respect) on similar policies. China has now taken Hamilton perhaps too far.

Countries that did not follow Hamilton were the "economies of temperate European settlement." Cohen and DeLong observe: "Those other countries -- Australia, Argentina, Canada, and even the Ukraine -- became the great granaries and ranches for industrial Europe... When commodity prices turned against them, they lost relative ground. By contrast, the 20th century became an American century precisely because America by 1880 was not a gigantic Australia."

Northrop Frye once defined Canadians as "Americans who reject the Revolution," and we certainly rejected Alexander Hamilton's aggressive self-sufficiency. We went on trapping furs, catching fish, cutting timber and digging minerals for British industry. As recently as 1970, British-made cars like Rover sedans and Cambridge station wagons were everywhere on Vancouver streets.

From British dominion to American client

We certainly made an effort to build all-Canadian cars like the Russell (and jet fighters like the Avro Arrow), but by the middle of the 20th century we had already gone from British dominion to American client -- like Britain itself.

Hamiltonian powers support free trade because it opens new markets for themselves. But free trade made it impossible to nurture a competitive auto or aerospace industry in such a market. The best we could do was to sell commodities and niche products to industrial powers like the U.S., Japan, and then China, so that they could sell us Fords, Toshibas, and fast fashions.

Cohen and DeLong demolish the "conservative" conviction that big government and high taxes are harmful to economic growth. On the contrary, they say, it was "big-government" policy to open up the West to settlement, to create financing for railways, and to protect struggling industries from cheap imports. After World War II, big-government military spending created spinoffs like jet airliners and personal computers. Without those billions invested by military venture capital, Steve Jobs and Bill Gates would be unknown (and websites like The Tyee would be as nonexistent as the web itself).

In the imperial 19th and 20th centuries, the non-imperial countries that stayed independent adopted Hamilton's policy: Bismarck's Germany, Meiji Japan, and eventually Deng's China. Force-marching their economies into modern industrialism, at a brutal cost to their own people, they earned the respect (and enmity) of the old empires.

The countries that remained hewers of wood and shearers of sheep got little notice. They provided cannon fodder for imperial wars, like Australia in Vietnam and Canada in Afghanistan. Or they could be used as punching bags, like Argentina in the Falklands War and Ukraine in Putin's current bullying of that former Russian colony.

Canadian nationalism expired around 1970, but by then we had been a branch-plant economy since the founding of the Hudson's Bay Company 300 years before. The signing of the first free trade deal made it a done deal indeed. Later free-trade agreements have only limited our freedom still further.

A pragmatic flurry of experiments

Cohen and DeLong argue persuasively that the New Deal was just Hamilton for the 20th century -- a pragmatic flurry of experiments to get the U.S. economy out of the Great Depression. No ideology was involved, then or after World War II, just an opening up of territory for private enterprise. It was soon labelled what it wasn't: liberalism. And it worked.

Not until the late 1970s, the authors say, did ideology begin to undercut pragmatism, first under Jimmy Carter and then under Ronald Reagan. "Deregulation" became the buzzword, and when applied to finance it led to repeated economic collapses culminating in 2008. Yet ideology strengthened, resisting horrors like deficit spending. Each recession added to the stagnation of income and enrichment of the one per cent that has now persisted for decades.

Cohen and DeLong make a brilliant case against conservative ideology, the mindless cant of "smaller government and lower taxes" when bigger government and higher taxes have actually enriched far more Americans. But they don't address a key question: Is Hamilton's economic policy the only alternative to being the colony of some Hamiltonian superpower?

Hamilton wanted a strong, self-sufficient national economy to prevent future imperial meddling in American affairs, and he certainly succeeded. Even at the height of its power, the British Empire strenuously avoided any risk of armed conflict with the United States.

But American success led to expansion, and then to its own imperial meddling from Cuba to the Philippines, and then to violent wars with other Hamiltonian economies like Germany and Japan. Two centuries after Hamilton's death, those economies are trapped in long-term stagnation, their prosperity going only to a few.

The task for a client state like Canada is to outgrow dreams of wealth from LNG and bitumen, and to develop a post-petroleum energy technology that will give us something sustainable to sell the world -- including the Hamiltonian powers that now look less and less sustainable.  [Tyee]

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