Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism

unprincipled opportunist, whereas Jefferson was at least principled, albeit guided by wrong principles. As a result, Burr had to satisfy himself with the job of vice president. And then, in 1804, when Burr was running for the New York state governorship, Hamilton waged a verbal campaign against Burr, again preventing him from getting the job he wanted. The above details are from J. Ellis (2000), Founding Brothers – The Revolutionary Generation (Vintage Books, New York), pp. 40–1 and J. Garraty & M. Carnes (2000), The American Nation – A History of the United States, 10th edition (Addison Wesley Longman, New York), pp. 169–70.

29

Similarly, Latin American industrial development was given an important impetus by an unexpected disruption in international trade caused by the Great Depression during the 1930s.

30

Hamilton proposed to issue government bonds to finance public infra-structural investments. The idea of ‘borrowing to invest’ was suspect to many people at the time, including Thomas Jefferson. It did not help Hamilton’s cause that government borrowing in Europe at the time was usually used to finance wars or extravagant life style of rulers. Eventually Hamilton succeeded in persuading Congress, buying Jefferson’s consent by agreeing to move the capital to the South – to the newly built Washington, DC. Hamilton also wanted to set up a ‘national bank’. The idea was that a bank that was partly owned by the government (20%) and acting as the government’s banker could develop and provide stability to the financial system. It could give extra liquidity to the financial system by issuing bank notes, using its special position as a government-backed institution. It was also expected that the bank could finance nationally important industrial projects. This idea, too, was considered dangerous by Jefferson and his supporters, who considered banks to be essentially vehicles of speculation and exploitation. For them, a semi-public bank was even worse, as it is based on an artificially created monopoly. To diffuse such potential resistance, Hamilton asked for a bank with a finite 20-year charter, which was granted, and the Bank of the USA was set up in 1791. When its charter expired in 1811, it was not renewed by Congress. In 1816, another Bank of the USA (the so-called the Second Bank of the USA) was set up under another 20-year charter.When it came up for renewal in 1836, its charter was not renewed (more on this in chapter 4). After that, the US did without even a semi-public bank for nearly 80 years, until the Federal Reserve Board (its central bank) was set up in 1913.

31

The exhibition was called ‘Alexander Hamilton: The Man Who Made Modern America’ and was held between September 10 2004 and February 28 2005. See the web page at: http//www.alexanderhamiltonexhibition.org.

32

The Whig Party was the main rival to the then dominant Democratic Party (formed in 1828) between the mid-1830s and the early 1850s, and produced two presidents in five elections between 1836 and 1856 – William Harrison (1841–4) and Zachary Taylor (1849–51).

33

Cited in Garraty & Carnes (2000), p. 405.

34

The quote is from R. Luthin (1944), ‘Abraham Lincoln and the Tariff’, The American Historical Review, vol. 49, no. 4, p. 616.

35

One of Lincoln’s key economic advisors was Henry Carey, the then leading US economist, who was the son of a leading early American protectionist economist, Mathew Carey, and himself a prominent protectionist economist. Few people have heard of Carey today, but he was regarded as one of the leading American economists of his time.Karl Marx and Friedrich Engels even described him as ‘the only American economist of importance’ in their letter to Weydemeyer, 5 March 1852, in K. Marx & F. Engels (1953), Letters to Americans, 1848–95: A Selection (International Publishers, New York), as cited in O. Fraysse (1994), Lincoln, Land, and Labour, translated by S. Neely from the original French edition published in 1988 by Paris, Publications de la Sorbonne (University of Illinois Press, Urbana and Chicago), p. 224, note 46.

36

The consolidation of a protectionist trade policy regime was not the only economic legacy of Lincoln’s presidency. In 1862, in addition to the Homestead Act, one of the largest land reform programmes in human history, Lincoln oversaw the passage of the Morill Act. This act established the ‘land grant’ colleges, which helped boost the country’s research and development (R&D) capabilities, which subsequently became the country’s most important competitive weapon. Although the US government had supported agricultural research from the 1830s, the Morrill Act was a watershed in the history of government support for R&D in the USA.

37

Bairoch (1993), pp. 37–8.

38

Bhagwati (1985), p. 22, f.n. 10.

39

Bairoch (1993), pp. 51–2.

40

In reviewing my own book, Kicking Away the Ladder, the Dartmouth economist Doug Irwin argues that ‘the United States started out as a very wealthy country with a high literacy rate, widely distributed land ownership, stable government and competitive political institutions that largely guaranteed the security of private property, a large internal market with free trade in goods and free labor mobility across regions, etc. Given these overwhelmingly favorable conditions, even very inefficient trade policies could not have prevented economic advances from taking place’. D. Irwin (2002), review of H-J. Chang, Kicking Away the Ladder – Development Strategy in Historical Perspective (Anthem Press, London, 2002), http://eh.net/bookreviews/library/0777.shtml.

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