The plains of North America and Russia are our cornfields; Chicago and Odessa our granaries; Canada and the Baltic are our timber forests; Australia contains our sheep farms, and in South America are our herds of oxen;...the Chinese grow tea for us, and our coffee, sugar, and spice plantations are all in the Indies. Spain and France are our vineyards, and the Mediterranean our fruit-garden.
Not all Americans were as resigned as the Jeffersonians to the vision of the United States as a de facto farming colony of industrial Britain. During the long period of Southern political dominance, the Hamiltonian tradition was carried on by National Republican and Whig politicians like Henry Clay and Daniel Webster, as well as by "national economists" like the Irish immigrant Mathew Carey and his son Henry. In the 1850s and 1860s, Henry Carey called for the United States, Germany, and Russia to adopt economic nationalism and overthrow Britain's economic supremacy, resisting "that oppressive [free trade] system under which the manufacturing industry tends to become more and more centralized in a single little island." Karl Marx, calling Henry Carey "the only important North American economist," condemned him for criticizing the destruction of the Indian textile industry by Britain (Marx thought the annihilation of national industries and the formation of a single global market, by immiserating workers everywhere, would hasten the worldwide socialist revolution).
In 1824, Kentucky Senator Henry Clay, influenced by Hamilton, Mathew Carey and other national economists, proposed "the American System," a synthesis of protectionism and infrastructural development. High tariffs would stimulate industries in the North and West; the proceeds from the tariffs would pay for canals and turnpikes bearing the new American manufactured goods down to the South, which would pay for them with the proceeds of its cotton exports.
Though President John Quincy Adams supported the American System, his successor Andrew Jackson vetoed Clay's bill for a federal turnpike, ending federal infrastructure policy for a generation (railroads, not turnpikes, would be the beneficiaries of post-1860 Republican largesse). Re-enacting Jefferson's destructive battle against Hamilton, Jackson destroyed the Second Bank of the United States, removing its deposits and placing them in state "pet banks" controlled by his allies, a move that inspired the Panic of 1836. Overall, the misguided Jeffersonian-Jacksonian philosophy of opposition to centralized banking and federal infrastructure and industrial policy benefited only wealthy landowners and retarded American industrial development and military power (Even though the Democrats were enthusiastic expansionists, responsible for the annexation of the Texas Republic and the conquered Southwest, they preferred an amateur military to a European-style army and fleet.)
The Hamiltonians finally came to power, in the form of Abraham Lincoln and the Republican Party, in 1860. The Southern slave-owners promptly left the union and attempted to recreate the Jeffersonian project within the Confederacy, which in practice would have been an agrarian resource colony of Britain--a kind of giant, nominally independent Jamaica. The philosophy of Hamiltonian nationalism guided the Republican party as it crushed the South and laid the foundation for American world power between 1860 and 1932.
Even before the war for Union was won, the Republican party in a Congress emptied of the Southern opposition was enacting the Federalist-Whig plan for state-sponsored national economic modernization. The first federal charter issued since the chartering of the Bank of the United States in 1816 was issued in 1862 to the Union Pacific Railroad, which built the first transcontinental rail line. Another Hamiltonian measure, long delayed by the Southern planter bloc in Congress, was national banking. The National Banking Act of 1863 made possible the rapid growth of federally-chartered commercial and investment banks. These helped finance the growth of America's first big business, the railroad industry, which surpassed all other American industries until late in the nineteenth century.
Lincoln was himself a railroad lawyer, who idolized Henry Clay and supported a protective tariff. Joseph Wharton, the Quaker industrialist after whom the Wharton School of Business is named, dismissed free trade in 1870 as "trade philanthropy." During the long era of Republican dominance from 1861 to 1932, the Hamiltonian program of industrialization through tariffs protecting infant industries was implemented. The term "industrial policy" originated before the Civil War; it was used by advocates of tariff-based industrialization such as Henry Carey and James M. Swank, who in 1876 published a Hamiltonian tract which used the phrase in its title.
After 1872, Congress, following an explicit industrial policy in this sense, altered the tariff system, to allow raw materials and many agricultural goods like tea and coffee in under low duties, while stimulating industry with high duties on manufactured imports. Between 1866 and 1883, the average tariff on manufactured imports was 45 percent. While the tariffs did not bar British investment (which played an important role), they effectively excluded British imports, permitting American manufacturers to flourish and benefit from economies of scale. As the contemporary example of British India demonstrated, the key to American industrial success was not just a large domestic market, but a large domestic market effectively closed to foreign industrial imports.
During this period, far from collapsing because of its extreme protectionism, as contemporary laissez-faire libertarian theory would have it, the U.S. enjoyed some of the highest levels of economic growth in its history; GNP per capita increased at an annual rate of 2.1 percent between 1870 and 1890, and 2.0 percent between 1890 and 1910. By 1880, the United States was second only to Great Britain in its share of world manufacturing output, with 14.7 to 22.9 percent; by 1913, the United States (32 percent) was far ahead of Germany (14.8 percent) and a sinking Britain (13.6 percent). "We lead all nations in agriculture; we lead all nations in mining; we lead all nations in manufacturing," McKinley declared. "These are the trophies which we bring after twenty-nine years of a protective tariff."
The tariff was defended for its role in preserving American living standards as well as promoting American industrialization. The "social tariff," derided today by laissez-faire conservatives and free-trade liberals, was considered a legitimate measure by most American politicians from 1865-1945. In 1888, presidential candidate Benjamin Harrison warned that under free trade American "mills and factories must reduce wages here to the level with wages abroad, or they must shut down." According to Harrison, "one of the worthy objects of tariff legislation...[was] to maintain the American scale of wages by adequate discriminative duties upon foreign competing products." In 1892, William McKinley argued that "Open competition between high-paid American labor and poorly paid European labor will either drive out of existence American industry or lower American wages, either of which is unwise." The 1904 Republican platform stated: "Protection, which guards and develops our industries, is a cardinal policy of the Republican party. The measure of protection should always at least equal the difference in the cost of production at home and abroad." In 1932, Herbert Hoover restated the conventional Republican wisdom when he denounced any trade liberalization that would "lower the standard of living which we have established for our workers."
The Democrats, though more friendly to free trade because of their agrarian exporter base, also endorsed social tariffs. In 1928, the Democrats, hoping to woo Northern industrial workers, promised protectionism to ensure "a high standard of wages for American labor...Actual difference between the cost of production at home and abroad, with adequate safeguard for the wage of the American laborer must be the...measure of every tariff rate." In 1932, candidate Franklin D. Roosevelt favored a "competitive tariff" defined as "one that equalizes the difference in the cost of production" between the United States and low-wage countries. Only in recent decades have American policy makers--perhaps erroneously--come to assume that the short-term benefits of forcing American workers to compete with low-wage foreign labor necessarily outweigh the long-term social costs.
The Myth of the Pax Britannica
In the face of all this evidence, perhaps it might be conceded reluctantly that the United States did not after all develop according to a laissez-faire, free-trade model. Even so, was it not the case that the rest of the world developed in the nineteenth century thanks to the spread of free trade behind the sheltering shield of Pax Britannica? And should not Pax Britannica be the model for a contemporary Pax Americana, ensuring universal prosperity through global free trade?
In the first chapter of his 1958 book Power and Diplomacy, Hull's successor Dean Acheson has a section entitled, "The Collapse of a World Order," in which he argues along these lines:
[I]n the nineteenth century an international system of sorts not only kept the peace for a century but also provided highly successful economic working agreements. It brought about the industrialization of Europe and of many other parts of the world--our own country, for one. It stimulated production of raw materials and led to a great, though unevenly distributed, rise in the standard of living. This was accomplished by the export of capital, primarily by Great Britain, but also by all of Western Europe...Essay Types: Essay