Opinion | There Is a Secret Hamiltonian in the White House – The New York Times

President Biden has been called a lot of things, but Hamiltonian is not usually one of them. In spite of his economic successes, hardly anyone has thought to compare the president to the architect of the American economy.

And yet, more than any president in generations, Mr. Biden shares Alexander Hamilton’s fundamental vision for the country: America needs a strong industrial strategy to support its long-term security. Mr. Biden’s CHIPS and Science Act and his Inflation Reduction Act reflect this idea. These policies channel government money into the semiconductor, solar energy and electric vehicle sectors in the hope of reducing reliance on foreign producers and bolstering national security, while helping American companies become more competitive with Chinese state-subsidized industries.

Liberals are calling this government intervention the end of neoliberalism and a new “securonomics,” while conservatives are claiming that dangerous “Bidenomics” policies are hurting the economy and are an affront to the free market. In spite of this, by all indications, the policies seem to be working, and Republican states are benefiting. Ohio, South Carolina, Tennessee and Texas are taking billions in federal funds from the Inflation Reduction Act, and are reaping the rewards with the creation of tens of thousands of green-energy jobs.

As an economic historian, I can’t help being struck that this argument over industrial policy versus unfettered free markets has happened before, during the presidency of George Washington. It’s also hard to ignore the irony that Republican champions of historical originalism are attacking an economic playbook that looks much like the one written in 1791 by Hamilton when he was Washington’s secretary of the Treasury. While some historians have called Hamilton’s project for state support of American manufacturing a failure, the reality is that Hamilton’s plan was not only successful at the time, it also laid a template for almost two centuries of security-driven economic policy, which Mr. Biden is merely revamping.

Since the dawn of competition between militarized early industrial states in the 15th and 16th centuries, government economic strategy in the face of relatively hostile trading partners and even allies has paid major dividends for national wealth.

England had a long history of state involvement in the economy, with roots in Henry VII’s wool subsidies and protections, as well as monopolies under Elizabeth I. With the rise of imperial military competition in the 17th century, the wealth-bolstering relationship between trade and security became more apparent. Global commercial players could not compete in seaborne trade without industries that supported the navy. Ships were a precursor to high-tech industry: They needed complex parts, navigational technology, refined weaponry, a large skilled work force and managerial staff, and immense industrial ports and cities, which required state-supported monopolies, companies and subsidies.

In 1651, England passed its Navigation Laws to protect its shipping and fishing industries and to promote its naval prowess. A decade later, Louis XIV’s finance minister, Jean-Baptiste Colbert, emulated England’s long history of tariffs, subsidies and state industrial involvement that had given it advantages in wool, shipping and cannon making. When Colbert died in 1683, France had a superior navy and was in the process of becoming England’s major competitor in the textile market. The two countries had become Europe’s premier powers.

By the end of the 18th century, America was at the center of this competition for global dominance. With the young United States reeling from the Revolutionary War, and still facing economic and military threats from the British imperial behemoth, President Washington asked Congress in 1790 to “promote such manufactories” so that the country would be self-reliant “particularly” for “military supplies.” America had suffered from war supply shortages, and its leaders remained concerned by the British Prohibitory Act of 1775, a commercial blockade that had left the country unable to obtain basic staples along with technological and military necessities.

Following Washington’s address, the House of Representatives asked Hamilton for a plan to expand American manufacturing and counter related security risks. In December 1791, Hamilton presented it to Congress in the form of a short book called “Report on the Subject of Manufactures.” It was a rebuttal of laissez-faire economics and a blueprint for American state industrial policy.

Hamilton’s report challenged free market claims made by Adam Smith in his 1776 “The Wealth of Nations” that governments should not involve themselves in economic planning, and should, above all, count on agriculture over industry for economic growth: “No equal capital puts into motion a greater quantity of productive labor than that of the farmer,” Smith wrote. Hamilton was not persuaded. He expressed the concern that markets alone did not produce goods according to national security needs.

Rejecting Smith, Hamilton declared himself the economic heir to “the great Colbert,” and in this spirit, he sought to put America on a manufacturing course, claiming it was more “productive” than farming and also spurred military innovation. He insisted that America’s infant industries could not flourish on their own, in competition with the more developed ones of Europe. In other words, America needed a government that focused on developing technology suited for the military.

Hamilton claimed that Britain’s “immense progress” came not from agricultural trade, but rather from the cotton mill, something Smith never mentioned. According to Hamilton, the only way America could encourage home-grown iron and steel manufacturing for the gun industry was through strategic tariffs of 7 percent to 10 percent.

Hamilton’s policies slowly prevailed. With the support of James Madison, he managed to get the Tariff of 1790 enacted. Maintaining such policies was difficult given the opposition to the cost of subsidies from both Federalists and Republicans. However, constant worry about foreign threats meant that not only did Hamilton’s protectionist policy hold, it also gained traction as conflict with Britain exploded into the War of 1812, inspiring more tariff policies. By 1816, even Thomas Jefferson, an admirer of Smith and one of protectionism’s strongest opponents, had come to agree that a national manufacturing policy was necessary to the economy and to independence itself.

This shift enshrined a Hamiltonian tradition of industrial strategy based on national safety concerns as a hallmark of foreign policy under presidents of different parties. From the War of 1812 onward, Secretary of State Henry Clay continued Hamilton’s economic policy with his own successful “American System” of protectionism along with military and industrial investment in order to compete with British free market policies, which Clay saw as a national threat. Even after America had built an industrial base, Abraham Lincoln declared himself a supporter of this second wave of Hamiltonian security-oriented economics.

In the 20th century, national economic strategy continued to be central to Franklin Delano Roosevelt’s wartime policies, and to Cold War strategies of technological investment. The idea was that if America had a possible military weakness, the government would step in to foster the industries necessary for military defense. Silicon Valley grew, in part, from investments by the National Security Agency and the C.I.A. in radio wave military research at Stanford. Cisco and I.B.M. got off the ground with federal funds and contracts. Even as he liberalized the economy, Ronald Reagan maintained an industrial policy aimed at burying what his administration saw as “sunset” industries like steel and cars to focus on high-tech industries, like fiber optics, particularly useful for military purposes.

Times have changed, but the Hamiltonian roots of American economic policy remain in place. Though it is one of the most technologically advanced countries on earth, America lags in key industries. Market forces, along with Chinese subsidies, have made it that militarily essential American national industries depend on Chinese parts, expertise and manufacturing. American companies may yet have the capacity to meet strategic security needs without government intervention, but the development of the chip industry so far makes it fair to argue that they have not. As in Hamilton’s time, the market looks for profits before security.

Few on the right acknowledge that Mr. Biden’s CHIPS and Science Act and Inflation Reduction Act have also come as a response to the very state subsidies they complain about, and which have scored successes in supporting Chinese industry in the important domains of computers, cellphones, solar power and electric cars — China’s BYD has become the biggest electric vehicle producer worldwide, putting pressure on Tesla and other American companies. With recent chip technology breakthroughs, China is rapidly catching up to the United States in semiconductor capacity precisely because of state strategy and support.

Government intervention and research investment in semiconductors could be seen as a gamble, but they in no way constitute a radical departure for American policy. Mr. Biden’s economic plans look even more Hamiltonian in contrast with Donald Trump’s suggested 10 percent tariffs on all imports and 60 percent tariffs on all Chinese goods. Republican leaders have yet to weigh in on these disastrous proposals, in spite of leading economists of all stripes predicting dire consequences for the American economy, let alone security alliances, if they were adopted.

Hamilton’s main concern was that America compete successfully to build industry to defend itself. He was looking to protect the future prospects of a fledgling nation in a hostile world of industrially and militarily powerful countries, and he did not hesitate to bring the state into the equation. With neo-Hamiltonian securonomics, Mr. Biden is doing the same.

In an age of rising autocracy and militarism around the world, the president is thinking not just tactically in terms of the country’s economic well-being, but also strategically about how industrial policy is crucial to America’s security, in every sense of the word.

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