If we look to the founding of the United States do we find unbridled free enterprise to be the natural state of the Republic?
Manufacturing in America peaked in 1979 when 19.5 million Americans actually produced durable goods. In the last 30 years our manufacturing sector has declined by 40% losing almost 8 million jobs. Nearly 6 million jobs have been lost since 2000 and since the Great Recession began we have lost an average 89,000 manufacturing jobs every month for the last two years. Due to this dramatic constriction America has fallen below 12 million workers employed in manufacturing for the first time since 1946 and is now below levels not seen since 1941. This dismal record portrays the stunning decline of America as a manufacturing superpower. And while a rise in productivity has helped America maintain a prominent position in the world this has not resulted in manufacturing continuing to be an avenue for upward mobility for Americans.
So how do we re-industrialize America? How do we get back all the jobs that have been exported in the last 30 years? What will be the consequences of taking the bold steps necessary to make America once again the engine that drives the world’s economy? What will be the result of failing to do so?
To set this discussion into its proper context first we must look at how America grew from a rustic agricultural nation on the edge of Western civilization into the greatest industrial superpower ever known.
In the interest of full disclosure I must confess that I am a life-long capitalist. I believe that capitalism is the only economic system ever devised by man that requires free choice as a necessary requirement. Every other system is either more or less a command economy. The defense and restoration of America’s capitalist economy is today a hallmark of the conservative movement. Many study the works of Milton Friedman and Friedrich von Hayek. Those of us who want to see economic opportunity unshackled espouse the principles of both the Chicago and the Austrian Schools of economics as opposed to the theories of the Frankfurt School which have moved America in the direction of a centrally planned economy.
Flying in the face of this conventional wisdom for the purposes of this discussion we must ask the question, was it capitalism that provided the environment which set America on the road to material riches and industrial power? Culture to humans is like water to a fish. It is everywhere. It provides the medium through which we move. However, since it is ever present it is not something we constantly notice or concentrate on. Most of those who read these words were raised in a time or by people who taught American History as a positive, ever improving saga. We were taught that America never started a war and never lost one. We were taught that rugged individualism carved out an empire from a raw wilderness. We were taught that capitalism paved and paid the way.
At the hazard of being branded an apostate to conservatism I must continue to ask the question, was capitalism the catalyst for America’s industrial power or do we labor under the after-glow of a time when American History was taught in such a way as to magnify present circumstances by projecting them into the past? Are we looking to a myth of free enterprise to recreate what it didn’t create in the first place?
Was it capitalism that fostered the founding of the colonies which became the seedbed of the United States?
Mercantilism was the economic system that proceeded capitalism in western civilization. This was a system of economic nationalism which sought to build a strong country by maintaining a favorable balance of trade and by being self-sufficient. This was one of the primary reasons why the sea-going European powers sought to establish colonies. They wanted to secure sources of raw materials for their developing industrial sectors and to control external markets allowing them to produce and sell products all within their domestic economy, keeping all the gold at home.
The term mercantilism was coined by Adam Smith the philosophical father of capitalism, but it was not capitalism. Inherently Mercantilism necessitated a centrally planned and controlled economy. What benefitted the nation was permitted and encouraged. What didn’t was prohibited and discouraged. It was under this system that the English colonies were founded. The first viable English colony in the New World, Virginia was founded by the Virginia Company a joint stock company which was given a charter by James I. This charter, like subsequent charters given to the Massachusetts Bay Company and proprietary charters given to individuals such as William Penn and the Lords Baltimore gave these companies and individuals monopolies within specific geographic areas. Government imposed and enforced monopolies are a restraint of trade and by nature incompatible with a free capitalist system.
The colonies founded upon this restraint of trade followed suit giving monopolies to companies and individuals to do everything from making iron to importing. Government planning and control of the economy did not stop there. The colonial governments also granted subsidies, bounties, land grants, loans and money prizes to encourage the birth and prosperity of the industries and services desired. Through these actions the precursors of modern America were doing what is today reviled as inherently un-American, picking winners and losers.
If we fast forward to the founding of the United States do we find the unbridled free enterprise seen today to be the natural state of the Republic?
In 1791 Secretary of the Treasury Alexander Hamilton issued his third path-breaking report to Congress the Report on Manufactures. Of all his reports this one is considered the most innovative. It provided a stark revelation of Hamilton’s and his Federalist compatriots’ vision for America and its economy. So did this report outline an economy based upon capitalism and free enterprise? No it did not. This report envisions an America “independent of foreign nations for military and other essential supplies” this is the heart of a mercantilist program. Hamilton proposed subsidies to encourage industry. Some of the mercantilist policies advocated by Hamilton encouraged the central government:
• To constitute a fund for paying the bounties.
• To constitute a fund for a board to promote arts, agriculture, manufactures, and commerce. Hamilton wanted the fund to:
1. to defray the expenses of the emigration of artists, and manufacturers in particular branches of extraordinary.
2. to induce the prosecution and introduction of useful discoveries, inventions, and improvements, by proportionate rewards.
3. to encourage by premiums, both honorable and lucrative, the exertions of individuals and of classes.
The historical evidence of America’s reliance upon protectionist and economic interventionist policies as tools in the building of our greatness can be found everywhere. The central government built, licensed, and encouraged roads and canals to foster interstate trade by providing monopolies, subsidies and grants. It fought wars to safeguard sea lanes and to expand territory and markets. And it birthed, regulated and controlled the financial industry from its very inception.
The incontrovertible evidence points to the fact that America was founded, launched, and nurtured as the successor to and the continuation of mercantilist not capitalist policies.
If these were the policies of economic nationalism which helped foster America’s rise to industrial greatness wouldn’t it seem appropriate for these policies to be the ones that would help it rise again? There is only one national figure who has consistently urged a return to economic nationalism, Patrick Buchanan. He has pointed out for years that our rush to embrace so-called free trade has put American workers at a decided disadvantage. The dissolution of tariff protection forced our workers to compete against people who will work for a small percentage of what Americans can afford to work for in societies with little or no regulation.
How do we get back all the jobs that have been exported in the last 30 years?
If we want to re-industrialize America we have to protect our markets and support our industry otherwise we will soon sink to a supplier of raw materials and a market to China and the other rapidly rising industrial powers of Asia.
What will be the consequences of taking the bold steps necessary to make America once again the engine that drives the world’s economy?
Such a policy calculated to re-build our industry and re-capture our domestic markets from China, Japan, and the four tigers of Asia will carry as many risks as it does benefits. Just as any predator will react to resistance on the part of its prey so to if we enact tariffs on Chinese goods it may well ignite a trade war. Then again anything worth having is worth fighting for. If we want to once again rise to the top of the industrial world to once again have a favorable balance of trade we need to look to what is best for America not what is best for the U. N. or what is best for the globalization lobby.
What will be the result of failing to rebuild our industrial sector?
Some may deride this proposed return to mercantilist policies as isolationism. However, just as a nation without borders will soon cease to be a nation any nation that fails to protect and encourage its industry will find itself an agricultural and raw material colony in all but name for those nations which do.