A superb paper by F.M. Scherer of HKS.
Adam Smith in his Wealth of Nations tome (1776) said US should not become an industrial economy. It should remain an agrarian economy.
in 1791, Hamilton presented a report on industrialization in US. Interestingly, Hamilton started his report with the words “respectable patrons of opinions …..unfriendly to the encouragement of US manufacturers”. Prof Scherer shows patron here was none other than Dr Smith.
In 1791 Alexander Hamilton submitted as U.S. Secretary of the Treasury a now-famous Report on the Subject of Manufactures. In it he criticized arguments that the U.S. colonies should remain preponderantly agricultural. He does not name the “respectable patrons of opinions” whose views he was contradicting. This paper attempts to clear up the identity mystery.
The rest is history as Hamilton’s proposal was applied in US economy and US became an industrial economy in quick time. Superb. So fathers (in this case Smith called as father of economics) can also go wrong.
In a related pieice, Prof.Ranjit Dighe reviews a recent book on US history by Michael Lind. It seems apart from Hamilton’s plan, it was Jefferson’s ideas which kickstarted US industrial revolution. This was ironical as Jefferson was actually an enemy of Smith . Though former’s ideas were much like Smith’s :
The most that Lind can say for the economics of Thomas Jefferson – and, perhaps surprisingly, Adam Smith – is that they made sense in a “largely static” preindustrial economy. Even then, Jefferson’s opposition to a national bank and a national debt put him at odds with Lind, not to mention the course of history. It is by now commonplace to note that in the long run Hamilton’s economic program became a reality and Jefferson’s vision of a nation of small farmers became increasingly obsolete. While Smith’s economics were obviously a lot more sophisticated than Jefferson’s, it is fascinating to hear that Smith was “the favorite economist of America’s agrarians” and argued that Americans should continue to specialize in agriculture rather than try to develop their own manufacturing. Lind quotes from The Wealth of Nations: “It has been the principal cause of the rapid progress of our American colonies toward wealth and greatness that almost their whole capitals have hitherto been employed in agriculture…. Were the Americans, either by combination or by any sort of violence, to stop the importation of European manufactures, and by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country toward real wealth and greatness.”
Lind says that James Watt and Matthew Boulton’s invention of the steam engine – in 1776, the same year as the Declaration of Independence and the publication of The Wealth of Nations – made Smith’s arguments obsolete by ushering in a new industrial revolution. While that is a striking coincidence, Lind later notes that steam power caught on only gradually, with water power providing almost half of the total energy in manufacturing as late as 1869. And Lind gives due credit to (Jefferson’s!) Embargo Act of 1807 and the autarchic years of the War of 1812 for jump-starting American manufacturing. Lind staunchly defends America’s protective tariffs of the nineteenth century, pressing the infant-industry case, though he concedes that high tariffs were no longer necessary by the end of the century. Regarding the tariff of 1816, he cites a remarkable statement from that year by Parliament’s Henry Brougham in favor of predatory British dumping after the war: “it was well worthwhile to incur a glut upon the first exportation, in order, by the glut, to stifle, in the cradle, those rising manufactures in the United States, which the war had forced into existence, contrary to the natural course of things.”
Interesting bit on econ history…