As the twenty-first century approaches, many American policymakers and scholars believe they have learned the lessons of nineteenth and twentieth-century history for U.S. foreign policy. Three such "lessons" dominate discussion: the Lesson of American Development; the Lesson of the Pax Britannica; and the Lesson of Smoot-Hawley.
The Lesson of American Development is that the United States became the leading economic power in the world by following laissez-faire economic theories, and that American economic policy only became "statist" with F.D.R. and the New Deal. The Lesson of the Pax Britannica teaches that world peace and world economic development requires a benign hegemon like nineteenth-century Britain that is willing to police the world and promote global free trade. The Lesson of Smoot-Hawley holds that misguided American politicians in the 1920s and 1930s, by raising tariffs, caused, or significantly aggravated, the Great Depression, and thus were indirectly responsible for fascism and World War II, both of which, ultimately, had economic causes.
These three lessons are routinely invoked by American government officials, media commentators, and even academics (who ought to know better). They are staples of what might be called Op-Ed History. Each one, however, is a myth. Perhaps it would be more accurate to say, each is historical fiction. As in costume drama, each of these narratives contains enough historical detail to give a sense of authenticity to what is, in essence, an anachronistic contemporary tale.
The modern American understanding of world economic history linking global free trade with world peace and universal democracy has its origins in the propaganda of mid-twentieth-century Wilsonians. "Toward 1916 I embraced the philosophy I carried throughout my twelve years as Secretary of State," Cordell Hull recalled in his 1948 memoirs (like many free-traders, he was a Southerner--a former Senator from agrarian, export-oriented Tennessee). "From then on, to me unhampered trade dovetailed with peace; high tariffs, trade barriers, and unfair economic competition with war." Note that the "lesson" which today is attributed to the events of the Thirties and Forties had actually been "learned" by Hull and like-minded Wilsonians before the U.S. entered World War I; Free Trade was one of Wilson's Fourteen Points. (The idea of global peace through free trade, of course, was even older, going back through the English radicals of the nineteenth century like Cobden and Bright to eighteenth-century French physiocrats.)
After World War II, American and world history were rewritten, for American public consumption, by liberal Democrats and internationalist Republicans to serve the purposes of the new, bipartisan liberal internationalism based on multinational organizations like the un, peacetime alliances like nato, and the ideal of global free trade. Suddenly nineteenth-century Britain became the precursor of post-1945 America; the Concert of Europe, a forerunner of the un and nato. The City of London, which had been feared and detested by many American and German modernizers in the nineteenth century, became a benevolent predecessor of the imf, the World Bank and the Agency for International Development. Protectionist tariffs, the foundation for American, German and Japanese industrialization, were accused in hindsight of inspiring fascism and World War II.
This Wilsonian version of history, formulated early in the Cold War, has now been reduced to a catechism, recycled by editorial writers, op-ed columnists, presidential and congressional speech writers. Otherwise well-informed policymakers and scholars (including many theoretical economists) who have not studied economic history absorb this mythology by reading the papers and listening to speeches and political debates, never realizing that what they take for established fact is really fifty-year-old partisan propaganda.
The Myth of America's Laissez-Faire Development
Many conservatives and liberals alike believe that American economic policy, before the triumph of Keynesianism in the 1930s and 1940s, followed the laissez-faire theories of Adam Smith and other early British economists. In fact, the U.S. developed largely on the basis of an indigenous American theory of capitalism, the American School of "national economy." Indeed, one leading economic historian, Paul Bairoch, goes further, maintaining that "the modern protectionist school of thought, the one connected with the post-Industrial Revolution period, was actually born in the United States."
The father of American economic nationalism is Alexander Hamilton. In great state papers like his 1790 Report on Manufactures to the Congress, and in other writings and projects, Hamilton laid out a blue print for the economic and military development of the United States into a great power. Federal subsidies and protective tariffs would encourage the growth of "infant industries" in what, in the 1790s, was an almost completely agrarian country, dependent on imports of European manufactured goods (Hamilton himself attempted to jump-start industrial capitalism, by organizing the ill-fated Society for Useful Manufactures--sum--in Paterson, New Jersey, which later became a major mill town and factory center). For the federal government to promote industrialization and construct a national infrastructure, its constitutional powers would have to be interpreted broadly, and American law, at both federal and state levels, would have to be purged of common-law anachronisms that inhibited large-scale industrial and financial organization.
These projects, commonsensical as they seem today, struck Jefferson, Madison and other Southern planters with horror. These rich farmers, accustomed to dominating government, feared that the power of their class would dwindle in an America with a strong centralized government and a rising class of industrial capitalists. With Jefferson's election in 1800, the beginning of a quarter-century reign of slave-holding Virginian presidents, agrarian isolationism triumphed over Hamilton's developmental nationalism. The Jeffersonians were deeply influenced by Adam Smith and the other British free-trade theorists, who held that agrarian countries, including the United States, should abandon any thought of rivaling Britain in industry (Smith, like Jefferson, was suspicious of manufacturing, opposed to big business and big banking, and believed that agriculture was preferable morally and socially to manufacturing).
Writing in 1806, the New York Jeffersonian polemicist Clement C. Moore (best known today for the poem "The Night Before Christmas"), argued that the United States should forego any foreign commerce other than that "which serves to promote the internal industry of the people, by affording a free vent for their surplus produce, and by bringing back, in return for it, foreign articles which could neither be so well nor so cheaply made at home." The Jeffersonians made two exceptions to the rule that the United States should specialize in agricultural exports and import all industrial products from Europe. "Coarse manufactures" for local use, like clothes and farm tools, could be produced on a small scale, without corrupting the virtuous yeoman republic. And an elaborate infrastructure--ports, canals, later railroads--was acceptable, as a necessity for the transportation of American crops to foreign markets. Antebellum Southern planters, hostile to other government expenditures, favored transportation and communications projects; before the Civil War, the South promoted the first trans-atlantic packet service, the country's first long-distance telegraph cable, and, by 1860, had one of the most extensive rail networks in the world.
The grand strategy of the Jeffersonians, then, presupposed a global division of labor, in which Britain, France and a few other European countries would be the only manufacturing powers, and in which the Americas, along with Eastern Europe and the rest of the world, would serve as Western Europe's agricultural and raw material hinterlands. The United States, in effect, was to have been the world's largest banana republic, with the difference that cotton and tobacco would substitute for bananas. Jefferson, Madison and the other Republican leaders did not believe that this semi-colonial economic system would cause the United States to be subordinate to the European great powers, because they thought that Europe needed American agricultural exports more than America needed European manufactured imports.
Rather like those opec ministers who thought that they could bring the developed world to its knees by means of an embargo, Jefferson put this theory to the test with his own Embargo of 1807-1809. Placed on U.S.-European trade and designed to open European markets that had been closed by the Napoleonic Wars, it was a disaster. Instead of making Britain and France realize their dependence on American farmers, the embargo (known to its detractors as the "O-Grab-Me") crippled the U.S. economy--and, ironically, stimulated Northeastern manufacturers now protected from British import competition, in true Hamiltonian fashion. As late as 1812, however, Jefferson was still committed to a Gandhian dream of a pre-industrial America in which machinery was limited to farms and villages: "We have reduced the large and expensive machinery for most things to the compass of a private family, and every family of any size is now getting machines on a small scale for their household purposes."
Not unnaturally, the anti-industrial, free trade policies of the Southern-dominated United States were encouraged by the British elite, who wanted the United States to be a source of foodstuffs and raw materials rather than a rival in industry and commerce. David Ricardo, the founder of the "comparative advantage" theory of free trade, argued in 1817 that "It is this principle which determines that wine shall be made in France and Portugal, that corn (i.e. wheat) shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England." Thanks to global free trade, Macaulay told the Parliament in 1842, "we might supply the whole world with manufactures, and have almost a monopoly of the trade of the world," while "other nations were raising abundant provisions for us on the banks of the Mississippi and the Vistula." The Victorian economist William Stanley Jevons was even more lyrical in his description of the entire planet as an agricultural hinterland of industrial Britain:Essay Types: Essay