In October 2015, I posted HAWB 1791 - Alexander Hamilton rejected Adam Smith. What I am posting today could be titled
HAWB 1791 - Alexander Hamilton rejected Adam Smith Part 2.
My October 2015 post mostly discussed Hamilton's refutation of Smith's
advocacy of free trade. Near the end, I presented Hamilton's argument in
favor of direct government intervention in the domestic economy, by
excerpting from
European Origins of the Economic Ideas of Alexander Hamilton (Arno Press, New York, 1977), by Robert James Parks:
One of the doctrines of the physiocrats which Smith had
accepted was that of non-regulation of business, with a neutral policy
toward its growth. Let alone, neither encouraged nor discouraged,
industry would seek its most useful and profitable employment. Against
this hypothesis, Hamilton offered several objections. These were that
the supposed tendency of industry to seek its most profitable employment
was inhibited by the force of habit, the spirit of imitation, fear of
new ventures, the intrinsic hazards of new enterprises, and the unfair
competition created by the bounties and subsidies given in competitive
nations. Experience teaches that men change habits only slowly and
reluctantly. It is the job of government to encourage and speed up
change. He argued that capital is cautious, and can only be made
venturesome if the government removes some of the risks.
"Experience teaches," Hamilton wrote in Section VII of his December 1791
Report to Congress on the Subject of Manufactures,
that men are often so much governed by what they are accustomed to see
and practice, that the simplest and most obvious improvements, in the
most ordinary occupations, are adopted with hesitation, reluctance, and
by slow gradations….
The apprehension of failing in new attempts is, perhaps, a more serious
impediment. There are dispositions apt to be attracted by the mere
novelty of an undertaking; but these are not always the best calculated
to give it success. To this it is of importance that the confidence of
cautious, sagacious capitalists, both citizens and foreigners, should be
excited. And to inspire this description of persons with confidence, it
is essential that they should be made to see in any project which is
new—and for that reason alone, if for no other, precarious—the
prospect of such a degree of countenance and support from government, as
may be capable of overcoming the obstacles inseparable from first
experiments.
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