• Daniel Ethan Finneran

Hamilton, Madison, and a History of American Tariffs

March 2018

Before he was a myth, he was a man. Before he was a song, he was a story. Before he was an American hero, an apotheosis of the rags-to-riches archetype that’s become the proud emblem of this land, he was flesh and bone.

He was a child of the islands, an orphan of the seas. He was a lost boy born out of wedlock set adrift in strange mores and storms. He was an outcast in every caste; he fell from the gentry, stumbled down society, and was struck by every branch of ignominy along the way.

On his rump, he landed among the masses, ineligible for a proper education but insatiable to find one. By necessity, he was a diligent autodidact, investing every spare moment of his time to be a student when he wasn’t compelled by life and by circumstance to be a merchant. In his pursuit of the former, he was, as so many are, enraptured in the beauty and endless edification that is a life devoted to books. In the latter—again, as so many are—he was sobered and humbled in that familiar, harsh reality that is the earning of a living. He might have become cynical in response to the station into which he’d been haphazardly tossed by the hands of fate, or scornful of those around him more auspiciously endowed. He might have blistered in the Caribbean sun and withered away with callous scars—himself never imprinting upon American history his mark.

This wasn’t to be his fate. A life of obscurity, all but pre-ordained in the oppressive heat of that British colony, changed by the force of his will. He made it into one of immortality. With the help of an adopted father, he flew north, laden with dreams and soaked with precocity. He landed first in New England, thereafter finding a home in New York. Even then the Empire State was, of the thirteen, the most welcoming. He welded together, like an esemplastic sculptor, his background and foresight in the overlapping realms of political economy and philosophy. It would be his combined contributions to both, with a little added revolutionary zeal, that would enshrine him forever on the mantle where America flaunts her most prolific and lustrous men. Had he not been so astute a businessman, our financial system would doubtless be different; had he not been so capacious a pupil, our spirit wouldn’t as we know it exist.

If you haven’t guessed by now to whom I dedicate this laudatory introduction, this encomium of an entrée, I’ll give you a hint. You carry in your pocket his countenance on the ten-dollar bill. You owe to his foresight the commercial security of the high seas and you’re indebted to his sagacity for your paper currency and the national bank. Alexander Hamilton made possible all of these things—things that we agree, more or less, to be useful in the case of the ten-dollar bill, essential in the case of the U.S. Coast Guard, and palatable, if not profitable in the case of the Federal Reserve Bank. But in 1791, Hamilton pushed for an idea that would today face almost universal hostility. It was that year, the same in which the Bill of Rights was at long last ratified, that Hamilton presented to Congress his “Report on Manufactures”—his palmary political work.

As it was then, so it is now, tariffs were the talk of the day. And just as they are in the present moment, they were equally controversial in Hamilton’s time. Hamilton decided, at last and largely against the vociferous protestations of many landowners from the south (who, presciently wary, didn’t take kindly to the ideas of this ambitious, industrious, and infringing Yankee) to recommend to the Congress the implementation of various tariffs on imported goods. Very likely, his recommendation was the end result of countless years spent thinking about the world economy and America’s incipient place therein. Only two years prior he’d acceded to the yet unknown position of secretary of the treasury, but his economic ideology was already at that time thoroughly conceived. More than that, it was carefully polished, fastidiously matured, and downright ready for action. His was a somewhat novel ideology, quite at odds with the exceedingly popular Jeffersonian image of a peasant-led yeomanry.

Hamilton’s view was antithetically different. Where Jefferson wanted a peasantry, Hamilton wanted a proletariat. The former wanted a nation built upon the backs of farmers, the latter in the bellies of banks. Hamilton saw the industrial dynamism that had become increasingly common to every respectable European state and wanted it in his own. Those thoughts that filled Jefferson’s dreams were of pasturage, acreage, and tillage. He wanted robust and proud agriculturalists who would be able to feel, by day and on their own lands, the ineffable connection between soil, man, liberty, and on some quiet occasions, God. Perhaps, as did he beneath the portico of his beloved Monticello at each day’s end, this new breed of independent agrarians would even wash away their sweat and their toils in the invigorating, refreshing baths of literature, science, and philosophy. By day, they’d tend to their cattle and field, only to—by night—return to their homes to cultivate the fertile pastures of their minds.

They’d do so with the seeds of ancient letters and the harvests of subtle thoughts. Not until second-helpings of enlightened conversations about Montesquieu, Hobbes, Sophocles, and Moliere would they go by twilight to a final respite beneath stars that might flicker without the competition of city lights and a moon, unencumbered by budding towers, that might illuminate the sky. There they’d sleep until the reignited horizon thrust them into a new day.

So far as Hamilton was concerned, Jefferson’s economic Eden was, at best, charmingly quaint and, at worst, ineffectually archaic. Either way, Hamilton realized beyond a shadow of a doubt that the Jeffersonian model couldn’t meet the young country’s urgent economic and military needs (Hamilton, probably sooner than anyone else, developed the prescient but portentous notion of a military-industrial complex). Nor would it be, he astutely assured us, a profitable template for posterity. The Jeffersonian spirit, so thought Hamilton, was stuck in the academic, Hellenistic days of old. He saw in Jefferson a philosopher besotted with the intoxicating aromas of the French physiocrats and the rugged, self-reliant Greeks. To the former, Jefferson ascribed the quintessence of political economy in the modern age; to the latter, he attributed great historical significance and a timeless model to which we owe a great deal. He liked the idea of a nation (or, more appropriately, a confederacy of states tied, one to the other, with a tenuous patriotic string) caring for and sustaining itself with its own bounty. The ultimate value of a nation’s worth was its land. This proved, more than our coast-hugging ancestors could’ve predicted in their time, a boundless commodity that America had in spades. We were still years away from a destiny—manifestly or otherwise ordained—that would lead to our usurping or settling (depending on your approach to history) the frigid, timber-filled north; the stifling, cotton-filled south; and the untamed, unknown west.

In all likelihood, Jefferson had in mind something very near an autarky—the type of radically self-sufficient state that needn’t bother with the niceties of foreign commerce nor open trade. Such states might be found in later years, if not in entirely mature forms, in Mussolini’s Italy, Hitler’s Germany, or Meiji’s Japan. But the true, if not acknowledged, forefather of these autarkical regimes was not Jefferson, but Hamilton. The difference, though, is the route by which he wanted to achieve this end. Hamilton shared none of Jefferson’s philhellenic nor physiocratic ideals. Applying only pasturage and tillage to excite a new economy, he thought, was a romantic, sophomoric plan. Jefferson looked to the past and to France for these ideas and brought them to now modern, now independent America; Hamilton thought them better left whence they came.

If America were to make it into her adolescence and, by some stroke of luck or succor of providence, survive into her adulthood, she would need more than just an economy grounded in the land. She would need industry, finance, and corporate growth. She would need manufactures and matériels, armaments and accoutrements. She would need raw commodities and finished goods. She would need subsidies, excises, taxes, and tariffs. Above all, though, she would need to learn how to support herself on her own without the oversight of an overlord. Hamilton, perhaps more urgently than any other Founding Father, recognized America’s economic vulnerability in her new position in the world. Heretofore, the American military and economy were directed under the now extinguished aegis of King George III. Under his rule, goods and commodities, irrespective of how inordinately taxed during the pre-war years, could be expected to arrive at American ports with some regularity, reliability, and affordability. Anything wanting at home could be acquired easily from abroad. This was the boon of being bound to the world’s leading economy.

Yet there was another advantage to our association with and dependence on the king. Simply stated, it was above all the military protection he guaranteed. Ironically, in one of the many remarkable footnotes to history, it was Britain’s military presence and the loyalists’ strategic endurance that rebuffed the French and the natives during the Seven Years’ War. Without them, our fledgling country couldn’t have sustained itself and wouldn’t have developed into that which it became. Had that unlikely team of Bourbons and Indians defeated us, we might be today speaking French, eating baguettes, and donning the fleur-de-lis like the effete, execrable Quebecois.

All thanks unto his majesty—King George, not Louis XV—this nightmarish scenario was avoided; French was not to be our fate. In time, though, the French and Indian War, as in the Isles it was known, would strain the crown’s coffers and its liquidity. The price of victory, as always it does, proved costly—if not in human investment than in that of coin. It led to Britain’s urgent need and desperate attempt to finance a now-bloated war debt. In being coerced without representation to pay for their own upkeep, Americans were footed (perhaps not entirely unreasonably) with a portion of the bill. Along with the mandated quartering of Red coats, Americans were not amused. Their ire climbed a scale, beginning first with irritation, moving thence to agitation, climaxing to the high-pitch of exasperation. The conclusion was revolution and war.

The Revolutionary War finally won, America gained her independence, but lost the guaranteed provision of a well-trained, and, more importantly, well-equipped army. Few Americans in their celebratory zeal thought about this consequence. Hamilton, it should come as no surprise, was one of those who did. His sober realization was that America, unfettered now of the British yoke, was more vulnerable now than ever she was before. It mustn’t be forgotten that he served—God bless him—at the intrepid and impressionable age of twenty-two, as General Washington’s aide-de-camp. From Trenton to Yorktown, by Washington’s side was our philosopher, economist, and pugilist. He, more than any Founding Father watching the battle from afar, realized intimately the dangers of having dissociated from Britain’s once steadfast military support. Remaining after the war were the ragged tatters of an American militia, gallant, yes, but ill-prepared for any future assault. And in the years immediately following the war, this fear—that of an imminent, follow-up attack—weighed heavily upon the nation’s mind.

It was in light of this that Hamilton became such an ardent protectionist in his economic thought and a dogged Federalist in his political theory. Only a strong, centralized government, he thought, could adeptly administer the state in times of war, and only an inward-looking economy could insure its own sustenance and growth. One national bank, rather than many provincial purses, could see to the guaranteed and regular payments of soldiers for their work and, in time, finance the new necessity of a standing army—an expense every world power was now willing to pay. By supporting its own domestic economy, at the cost of the importation of cheaper products from abroad, America could build from the ground up a vibrant industry that could support itself hopefully, in long stretches of peace, but inevitably, in intervals of war.

This was the historical context in which Hamilton developed his ideas about political economy, but more must be said of the ideological underpinnings of his thought and whence they sprang. His economic philosophy was fundamentally strained. It was, for lack of a better word, a contradiction of sorts. He was at once Smithian and Elizabethan, Scottish and English, capitalist and mercantilist. From Adam Smith, whose humble inquiry into the Nature and Causes of the Wealth of Nations came into circulation the same year that the Revolution began, Hamilton extracted the ideas of urban dynamism, capitalism, enlightened self-interest, the division of labor, and industry. He stopped there, and went no further. Hamilton hadn’t a kind thing to say about Smith’s advocacy for an open, free market of worldwide trade. It made to him no difference that merlot is better made in France than in Scotland, or that silver is more easily mined in Spain than in France. Smith thought that the better products should come from the places better equipped for their cultivation. To stay in one’s lane and to export only that which is more advantageously, economically, and successfully grown in one’s own country would be an enrichment for all involved in the trade. Countries, from the Orient to the Levant, Europe to the United States, would see all boats rise; there was no concept of the zero-sum game.

The other side of the Hamiltonian coin was the economic policy predominant in Queen Elizabeth’s day. This, quite unlike that of the gentle philosopher Smith, was an economic policy that was, in essence, mercantilist and, in practice, exploitative. It was precisely the model that Smith had opposed—that against which he eloquently vented in his famous treatise. In the mercantilist’s analysis, the accumulation and harboring of physical wealth should be a state’s sole aim. Valuing bouillon above everything else, the idea is that there is a fixed, finite amount of wealth on earth. The goal is to procure it, to secure it, and not to lose it through international trade. The strong presumption of error rests in the importation of goods; to export is to acquire from another country its bouillon through exchange. Because wealth (in the form of gold and silver) is finite, the mercantilist country will eventually exhaust its own mines and reservoirs. Having harnessed from its bowels all that it can, the mercantilist state must either expand or stagnate. In this way, torn between these choices, the state is impelled to colonize foreign lands and extract precious foreign stones. Seldom is this a mutually-agreeable transaction between colonizer and victimized. The stones (we call them silver, copper, and gold) are often ill-gotten, usually by some combination of rapine, plunder, persuasion, or guise.

Trade, then, is fundamentally frowned upon. A nation seeks, at little expense to itself and with little risk of the outpouring of cash, the development of its economy from within. Hamilton found in this summation of mercantilism much to be desired: he agreed with the notion that a country’s strength must be built from within, that its industry must be promoted provincially rather than internationally, and that we would lose if another country were given the chance to win. Sure, our access to foreign markets would contract, a trade war might ensue, and our interdependency with the world economy (and its availability of relatively more affordable goods) would wither away, but these consequences would be small prices to pay. We might suffer in the short-term imperceptibly, but in the long-run, we’d flourish.

Tariffs and subsidies, therefore, were central to Hamilton’s centralized plan. From without, imported goods would be met at American ports—from New York to Charleston, Philadelphia to Savannah—with moderate tariffs. Only by paying these tariffs would foreign merchants and their foreign goods, like cloves from Micronesia, wine from Iberia, or spices from Arabia, find viable buyers in the commercial markets of America’s bustling city streets. These tariffs, whose cost fell upon those who facilitated the production and importation from abroad, turned consequentially to the American consumer. Struck with the choice, either to purchase at a palatably higher price a domestic product or to spend more on an inordinately costlier foreign good, Hamilton hoped Americans would choose the former. By making foreign goods cost-prohibitive, domestic trade was advantaged in a profound way. All the while, the government—itself in desperate financial straits and in need of funds—could take a cut from the tariffs.

Aside from the tariffs, which, surprisingly or not, the Jeffersonian Democrats agreed would be a boon (so much so, that they actually pushed for tariffs to be raised to still higher rates), Hamilton advanced the idea of subsidizing American businesses. On this point, with Hamilton, Jefferson and James Madison vehemently disagreed. They noted that the game of government subsidization is one of favoritism and corruption. The best, they thought, that one could hope for was that the one might not devolve into the other. Either way, though, the game was incontrovertibly unfair. When a government doles out a subvention based on some unknown motivating factor—be it a fiat or something more shadowy or obscure—it chooses, by sheer caprice or some other calculation, to prop up a less successful business for some allotment of time.

Madison, in all of his short-statured sagacity (he was all of 5’4”) recognized in Hamilton’s plan a potentially damaging goal that couldn’t be ignored. The proposed subsidies, Madison rightly averred, would unequally shift the weight of influence and power from the southern states to those of the Atlantic and of New England. The northern industrialists would prosper, at the expense of the southern agrarians. Buttressed by the government’s investment and its own burgeoning economy, the north would become considerably more powerful than the south, and the chasm would be well-neigh insurmountable. Southern strength would wane in the shadow of the north’s manufactured, undemocratic, anti-laissez-faire, government-sponsored monopoly.

However strenuously Madison disagreed with the now-deceased Hamilton (he was, as every committed hero-worshipper knows, struck fatally in a trial of honor in an obscure New Jersey town) the time came in the year 1816 to put into action his political opponent’s economic policy. It was Madison who enacted America’s first truly protectionist tariff. Of course, this very tariff was an integral component of the Hamiltonian approach against which Madison, not so many years ago, had railed. But, the hallmark of a competent leader is his adaptability in the face of changing circumstance. Time, ever more tumultuous by the passing day, deemed necessary the implementation of a tariff. The explicit intent of the Tariff of 1816, as it came to be called, was to shelter American goods from overseas competition. Never before had a tariff’s goal been so clearly and unapologetically articulated.

Under the leadership of Madison’s administration, the War of 1812 had come to its anticlimactic end. Its treaty had been negotiated at the Belgian town of Ghent two years thereafter, but still, the looming possibility of a recrudescing war was in the air. Both sides thought themselves victors in this ultimately nugatory war. England and her erstwhile penal colony turned tributary state fought indecisively to a draw. The ensuing détente, though, didn’t do much to put at ease Madison’s nerves. He had witnessed the White House razed, trade embargoes imposed, and the military might of mighty America spoiled in a matter of two short years. Probably, Hamilton’s memory was beginning to haunt him from beyond the grave.

America was made vulnerable and England was seizing on this opening with a subversive, commercial coup. Sensing that they were losing a portion of the American market in the immediate post-war years, English merchants began flooding the American ports and city streets with goods—superiorly manufactured yet more affordably priced. This, if ever there was such a brazen example, was the epitome of economic warfare; underhanded, clever, legal, and above all, effective. British prices were set far below market value, with the idea being that Americans—still coming to their senses after the austere throes of war—would be enticed to buy cheaper British goods. For a time, the British merchants might, by selling goods so cheaply, take a small hit, but it would be well-worth a shallow dip in profit if a stranglehold on American consumption could be grabbed and maintained.

In his unprecedented response, Madison imposed a 25% tariff on imported cotton and wool and a 30% tariff on iron, paper, leather, and hats—all of which had been for years streaming from the continent to the American coast more or less unencumbered. In addition, he urged Congress, with a new and discomfiting sense of pressure, humility and perspicacity, to charter a second national bank. The federal government’s treasury was in dire fiscal straits; the flow of precious specie (gold and silver) was trickling to a halt, the value of soft currency was plummeting as the likelihood of deflation rose, and bondholders were preparing to make their run on the banks. Madison was left with little choice but to push for an agenda against which he stubbornly opposed for the better part of twenty years. Anathema to his earlier political conscience though it might’ve been, he knew that a strong centralized bank was what the country needed most and it was the only practical solution to see this crisis through. For Madison, his push to establish the Second National Bank was a matter not of altered ideology, but of urgent expediency. With its establishment, the descendants of Hamilton rejoiced, the adherents of Jefferson moaned, and the predecessors of Jackson prepared for the mid-century Bank War to come. However, at least for the moment, Americans could breathe a temporary sigh of relief.

But as one exhales, so too must he inhale, and with each new breath, the air either vitalizes or demoralizes the recipient lung. The continued use of tariffs went on to exacerbate tensions between those inveterate enemies—the industrial North and the agrarian South. Too often forgetful of their sacred fraternity and their future tied in blood, the two sides disagreed about exactly what should be done with the tariffs. The North wanted them enshrined, as they stood to profit handsomely from their continuation; the South wanted them repealed so they might catch up in the wake of their revocation. On this point, they remained at loggerheads for nearly the entirety of the antebellum period. By no means did it create, but it did carve more deeply the schism separating the two.

History, in so many ways, is a matter of happenstance. None could’ve predicted that it would be Madison, and not Hamilton, who would implement the Federalist’s financial scheme. But, alas, to Hamilton, all things arrived too soon: he was an orphan by thirteen, aide-de-camp by twenty-two, secretary of the treasury by thirty-three, and a corpse before his fiftieth year. Still, centuries later, his thought permeates our own. And on the issue of tariffs, whether we know it or not in our own day, a stronger champion than him can’t be found. Here’s, then, to Hamilton, upon whom a history of commerce, industry, and tariffs rely.

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