American Economic Policy from the Revolution to the New Deal

William Letwin

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351532747
• Edition: 1
• Topic: Economía
• Subtopic: Teoría económica

The documents in this volume reflect the great debates that have shaped this country's economic life. Covering a wide variety of problems, they show how each was treated at a moment when it was politically urgent. Since they were efforts at persuasion, usually addressed to a wide audience, they are coherent and self-contained and avoid technical jargon. They therefore present clear and vivid evidence of what men have desired and hoped to achieve, and explain not only much that is critical about how Americans lived in the past but much also about the inheritance of the present.

From the overwhelming mass of available documents, a representative group has been chosen here. Among the twenty-nine included are: Hamilton's Report on Manufactures, which helped set the American attitude on economic growth; Andrew Jackson's veto message on the bill to renew the charter of the Bank of the United States; the first annual report of the Interstate Commerce Commission, which put the railroads under federal regulation; William Jennings Bryan's famous Cross of Gold speech, which helped him win the Democratic nomination in 1896; the conclusions of the Pujo Committee's report on the money market, which were instrumental in setting up the Federal Reserve System; and key documents on the National Recovery Administration, one of Franklin D. Roosevelt's major moves in his fight against the depression.

In his introductory essay, the editor summarizes the forces and movements that helped to make American economic policy "exceedingly confused and therefore very annoying to historians and economists, " But, he insists, this very confusion reduced "the extremism and disorder potentially so great in the United States... to remarkable moderation."

PART I

1789–1862

A Tariffs

During the early period, the tariff had a twofold importance. It was the federal government’s chief instrument of regulation. It also furnished most of the federal revenues: from 1789 to 1862–except for 1796 and the two brief intervals of 1814–1818 and 1835–1840–customs receipts yielded over four-fifths of the government’s annual income.

Some of the debate over the tariff arose from a clash between its two objectives. When, for instance, high protective duties yielded more revenue than the government chose to spend, it was faced with the troublesome problem of disposing of the surplus. When protective rates became so high that sales fell off, whereupon revenues declined, the government then had to curtail expenditures, borrow, or enlarge the use of other sources of revenue.

Politically, tariff questions divided the country by party, region, and economic interest. It is often loosely said that protective duties were favored by Federalists, Whigs and Republicans, inhabitants of the Northeast, and manufacturers; and opposed by Democrats, Southerners and Westerners, and farmers. Such a summary oversimplifies the position of men–such as Southern Federalists and New England farmers–who fit into two or more categories supposed to have been mutually exclusive.

Much of the attitude toward tariffs was determined in fact by the theoretical arguments on the two sides. The merits of protection and free trade have continued to be debated throughout American history; but the case for each has never been stated more authoritatively than by Hamilton (1) and by Walker (2).

Hamilton’s powers as a constitutional theorist and economic analyst appear to best advantage in a set of papers that he wrote while Secretary of the Treasury (1789–95). These outlined the economic policy of Washington’s administration, and they have had a lasting effect on the whole structure of American economic life. The report on public credit (1790) set out the basic financial arrangements between the states and the federal government as to public debt. The report on a Bank of the U. S. (1791) led to the establishment of a central bank (D). The report on manufactures (1) helped fix the American attitude toward economic growth.

The position Hamilton criticizes in the opening of this report is the one associated with Jefferson. The authority whom he later quotes and sometimes amends is Adam Smith.

Walker, a prominent spokesman in the Senate for the Southwest, served as Secretary of the Treasury under Polk from 1845 to 1849. His first report (2) was quickly recognized as a classic statement of the objections to protective duties, and certain of its proposals were incorporated into the tariff bill of 1846. The report is valuable also for indicating some characteristic Democratic views on such questions as banking, public lands, and internal improvements, and the expansionist attitude toward Oregon and Texas.

In speaking of the “true maximum” rate–“the lowest rate which will yield the largest amount of revenue”–Walker assumes that a number of different rates may all yield the maximum revenue. For example, 100 units of an article priced at $1, imported when the tariff rate stood at 10 per cent, would yield a tariff revenue of $10. If the rate were raised to 12 ½ per cent and only 80 units were imported, the revenue yield would still be $10.

1
ALEXANDER HAMILTON (1755–1804)
Report on Manufactures (5 Dec. 1791)
[Hamilton, Works (ed. Lodge), III, 294]

The expediency of encouraging manufactures in the United States, which was not long since deemed very questionable, appears at this time to be pretty generally admitted. The embarrassments which have obstructed the progress of our external trade, have led to serious reflections on the necessity of enlarging the sphere of our domestic commerce. The restrictive regulations, which, in foreign markets, abridge the vent of the increasing surplus of our agricultural produce, serve to beget an earnest desire, that a more extensive demand for that surplus may be created at home; and the complete success which has rewarded manufacturing enterprise, in some valuable branches, conspiring with the promising symptoms which attend some less mature essays in others, justify a hope, that the obstacles to the growth of this species of industry are less formidable than they were apprehended to be; and that it is not difficult to find, in its further extension, a full indemnification for any external disadvantages, which are or may be experienced, as well as an accession of resources, favorable to national independence and safety.

There still are, nevertheless, respectable patrons of opinions unfriendly to the encouragement of manufactures. The following are, substantially, the arguments by which these opinions are defended.

“In every country (say those who entertain them) agriculture is the most beneficial and productive object of human industry. This position, generally, if not universally true, applies with peculiar emphasis to the United States, on account of their immense tracts of fertile territory, uninhabited and unimproved. Nothing can afford so advantageous an employment for capital and labor, as the conversion of this extensive wilderness into cultivated farms. Nothing, equally with this, can contribute to the population, strength, and real riches of the country.

“To endeavor, by the extraordinary patronage of government, to accelerate the growth of manufactures, is, in fact, to endeavor, by force and art, to transfer the natural current of industry from a more to a less beneficial channel. Whatever has such a tendency, must necessarily be unwise; indeed, it can hardly ever be wise in a government to attempt to give a direction to the industry of its citizens. This, under the quick-sighted guidance of private interest, will, if left to itself, infallibly find its own way to the most profitable employment; and it is by such employment, that the public prosperity will be most effectually promoted. To leave industry to itself, therefore, is, in almost every case, the soundest as well as the simplest policy.

“This policy is not only recommended to the United States, by considerations which affect all nations; it is, in a manner, dictated to them by the imperious force of a very peculiar situation. The smallness of their population compared with their territory; the constant allurements to emigration from the settled to the unsettled parts of the country; the facility with which the less independent condition of an artisan can be exchanged for the more independent condition of a farmer; these, and similar causes, conspire to produce, and, for a length of time, must continue to occasion, a scarcity of hands for manufacturing occupation, and dearness of labor generally. To these disadvantages for the prosecution of manufactures, a deficiency of pecuniary capital being added, the prospect of a successful competition with the manufactures of Europe, must be regarded as little less than desperate. Extensive manufactures can only be the offspring of a redundant, at least of a full population. Till the latter shall characterize the situation of this country, ‘tis vain to hope for the former.

“If, contrary to the natural course of things, an unseasonable and premature spring can be given to certain fabrics,^* by heavy duties, prohibitions, bounties, or by other forced expedients, this will only be to sacrifice the interests of the community to those of particular classes. Besides the misdirection of labor, a virtual monopoly will be given to the persons employed on such fabrics; and an enhancement of price, the inevitable consequence of every monopoly, must be defrayed at the expense of the other parts of society. It is far preferable, that those persons should be engaged in the cultivation of the earth, and that we should procure, in exchange for its productions, the commodities with which foreigners are able to supply us in greater perfection, and upon better terms.”

This mode of reasoning is founded upon facts and principles which have certainly respectable pretensions. If it had governed the conduct of nations more generally than it has done, there is room to suppose that it might have carried them faster to prosperity and greatness than they have attained by the pursuit of maxims too widely opposite. Most general theories, however, admit of numerous exceptions, and there are few, if any, of the political kind, which do not blend a considerable portion of error with the truths they inculcate.

In order to an accurate judgment how far that which has been just stated ought to be deemed liable to a similar imputation, it is necessary to advert carefully to the considerations which plead in favor of manufactures, and which appear to recommend the special and positive encouragement of them in certain cases, and under certain reasonable limitations.

It ought readily to be conceded that the cultivation of the earth, as the primary and most certain source of national supply; as the immediate and chief source of subsistence to man; as the principal source of those materials which constitute the nutriment of other kinds of labor; as including a state most favorable to the freedom and independence of the human mind–one, perhaps, most conducive to the multiplication of the human species; has intrinsically a strong claim to preeminence over every other kind of industry.

But, that it has a title to any thing like an exclusive predilection, in any country, ought to be admitted with great caution; that it is even more productive than every other branch of industry, requires more evidence than has yet been given in support of the position. That its real interests, precious and important as, without the help of exaggeration, they truly are, will be advanced, rather than injured, by the due encouragement of manufactures, may, it is believed, be satisfactorily demonstrated. And it is also believed, that the expediency of such encouragement, in a general view, may be shown to be recommended by the most cogent and persuasive motives of national policy.

It has been maintained, that agriculture is not only the most productive, but the only productive species of industry. The reality of this suggestion, in either respect, has, however, not been verified by any accurate detail of facts and calculations; and the general arguments which are adduced to prove it, are rather subtile and paradoxical, than solid or convincing.

Those which maintain its exclusive productiveness, are to this effect:

Labor bestowed upon the cultivation of land, produces enough not only to replace all the necessary expenses incurred in the business, and to maintain the persons who are employed in it, but to afford, together with the ordinary profit on the stock or capital of the farmer, a net surplus or rent for the landlord or proprietor of the soil. But the labor of artificers does nothing more than replace the stock which employs them (or which furnishes materials, tools, and wages), and yield the ordinary profit upon that stock. It yields nothing equivalent to the rent of land; neither does it add any thing to the total value of the whole annual produce of the land and labor of the country. The additional value given to those parts of the produce of land, which are wrought into manufactures, is counterbalanced by the value of those other parts of that produce which are consumed by the manufacturers. It can, therefore, only be by saving or parsimony, not by the positive productiveness of their labor, that the classes of artificers can, in any degree, augment the revenue of the society.

To this it has been answered:

1. “That, inasmuch as it is acknowledged that manufacturing labor re-produces a value equal to that which is expended or consumed in carrying it on, and continues in existence the original stock or capital employed, it ought, on that account, alone, to escape being considered as wholly unproductive. That, though it should be admitted, as alleged, that the consumption of the produce of the soil, by the classes of artificers or manufacturers, is exactly equal to the value added by their labor to the materials upon which it is exerted, yet, it would not thence follow, that it added nothing to the revenue of the society, or to the aggregate value of the annual produce of its land and labor. If the consumption, for any given period, amounted to a given sum, and the increased value of the produce manufactured, in the same period, to a like sum, the total amount of the consumption and production, during that period, would be equal to the two sums, and consequently double the value of the agricultural produce consumed; and, though the increment of value produced by the classes of artificers should, at no time, exceed the value of the produce of the land consumed by them, yet, there would be, at every moment, in consequence of their labor, a greater value of goods in the market than would exist independent of it.”
2. “That the position, that artificers can augment the revenue of a society only by parsimony, is true in no other sense than in one which is equally applicable to husbandmen or cultivators. It may be alike affirmed of all these classes, that the fund acquired by their labor, and destined for their support, is not, in an ordinary way, more than equal to it. And hence, it will follow, that augmentations of the wealth or capital of the community (except in the instances of some extraordinary dexterity or skill), can only proceed, with respect to any of them, from the savings of the more thrifty and parsimonious.”
3. “That the annual produce of the land and labor of a country can only be increased in two ways–by some improvement in the productive powers of the useful labor which actually exist within it, or by some increase in the quantity of such labor. That, with regard to the first, the labor of artificers being capable of greater sub-division and simplicity of operation than that of cultivators, it is susceptible, in a proportionably greater degree of improvement in its productive powers, whether to be derived from an accession of skill or from the application of ingenious machinery; in which particular, therefore, the labor employed in the culture of land can pretend to no advantage over that engaged in manufactures. That, with regard to an augmentation of the quantity of useful labor, this, excluding adventitious circumstances, must depend essentially upon an increase of capital, which again must depend upon the savings made out of the revenues of those who furnish or manage that which is at any time employed, whether in agriculture or in manufactures, or in any other way.”

But, while the exclusive productiveness of agricultural labor has been thus denied and refuted, the superiority of its productiveness has been conceded without hesitation. As this concession involves a point of considerable magnitude, in relation to maxims of public administration, the grounds on which it rests are worthy of a distinct and particular examination.

One of the arguments made use of in support of the idea, may be pronounced both quaint and superficial. It amounts to this: That, in the productions of the soil, nature co-operates with man; and that the effect of their joint labor must be greater than that of the labor of man alone.

This, however, is far from being a necessary inference. It is very conceivable, that the labor of man alone, laid out upon a work requiring great skill and art to bring it to perfection, may be more productive, in value, than the labor of nature and man combined, when directed towards more simple operations and objects; and when it is recollected to what an extent the agency of nature, in the application of the mechanical powers, is made auxiliary to the prosecution of manufactures, the suggestion which has been noticed loses even the appearance of plausibility.

It might also be observed, with a contrary view, that the labor employed in agriculture, is, in a great measure, periodical and occasional, depending on seasons, and liable to various and long intermissions; while that occupied in many manufactures is constant and regular, extending through the year, embracing, in some instances, night as well as day. It is also probable that there are, among the cultivators of land, more examples of remissness than among artificers. The farmer, from the peculiar fertility of his land, or some other favorable circumstance, may frequently obtain a livelihood, even with a considerable degree of carelessness in the mode of cultivation; but the artisan can with difficulty effect the same object, without exerting himself pretty equally with all those who are engaged in the same pursuit. And if it may likewise be assumed as a fact, that manufactures open a wider field to exertions of ingenuity than agriculture, it would not be a strained conjecture, that the labor employed in the former, being at once more constant, more uniform, and more ingenious, than that which is employed in the latter, will be found, at the same time, more productive.

But it is not meant to lay stress on observations of this nature; they ought only to serve as a counter-balance to those of a similar complexion. Circumstances so vague and general, as well as so abstract, can afford little instruction in a matter of this kind.

Another, and that which seems to be the principal argument offered for the superior productiveness of agricultural labor, turns upon the allegation, that labor employed on manufactures yields nothing equivalent to the rent of land; or to that net surplus, as it is called, which accrues to the proprietor of the soil.

But this distinction, important as it has been deemed, appears rather verbal than substantial.

It is easily discernible, that what, in the first instance, is divided into two parts, under the denominations of the ordinary profit of the stock of the farmer and rent to the landlord, is, in the second instance, united under the general appellation of the ordinary profit on the stock of the undertaker; and that this formal or verbal distribution constitutes the whole difference in the two cases. It seems to have been overlooked, that the land is itself a stock or capital, advanced or lent by its owner to the occupier or tenant, and that the rent he receives is only the ordinary profit of a certain stock in land, not managed by the proprietor himself, but by another, to whom he lends or lets it, and who, on his part, advances a second capital, to stock and improve the land, upon which he also receives the usual profit. The rent of the landlord and the profit of the farmer are, therefore, nothing more than the ordinary profits of the two capitals belonging to two different persons, and united in the cultivation of a farm: as, in the other case, the surplus which arises upon any manufactory, after replacing the expenses of carrying it on, answers to the ordinary profits of one or more capitals engaged in the prosecution of such manufactory. It is said one or more capitals, because, in fact, the same thing which is contemplated in the case of the farm, sometimes happens in that of a manufactory. There is one, who furnishes a part of the capital or lends a part of the money by which it is carried on, and another, who carries it on with the addition of his own capital. Out of the surplus which remains after defraying expenses, an interest is paid to the money lender, for the portion of the capital furnished by him, which exactly agrees with the rent paid to the landlord; and the residue of that surplus constitutes the profit of the undertaker or manufacturer, and agrees with what is denominated the ordinary profits on the stock of the farmer. Both together, make the ordinary profits of two capitals employed in a manufactory; as, in the other case, the rent of the landlord and the revenue of the farmer compose the ordinary profits of two capitals employed in the cultivation of a farm.

The rent, therefore, accruing to the proprietor of the land, far from being a criterion of exclusive productiveness, as has been argued, is no criterion even of superior productiveness. The question must still be, whether the surplus, after defraying expenses of a given capital, employed in the purchase and improvement of a piece of land, is greater or less than that of a like capital, employed in the prosecution of a manufactory; or whether the whole value produced from a given capital and a given quantity of labor, employed in one way, be greater or less than the whole value produced from an equal capital and an equal quantity of labor, employed in the other way; or rather, perhaps, whether the business of agriculture, or that of manufactures, will yield the greatest product, according to a compound ratio of the quantity of the capital, and the quantity of labor, which are employed in the one or in the other.

The solution of either of these questions is not easy; it involves numerous and complicated details, depending on an accurate knowledge of the objects to be compared. It is not known that the comparison has ever yet been made upon sufficient data, properly ascertained and analyzed. To be able to make it on the present occasion, with satisfactory precision, would demand more previous inquiry and investigation, than there has been hitherto either leisure or opportunity to accomplish.

Some essays, however, have been made towards acquiring the requisite information; which have rather served to throw doubt upon, than to confirm the hypothesis under examination. But it ought to be acknowledged, that they have been too little diversified, and are too imperfect to authorize a definitive conclusion either way; leading rather to probable conjecture than to certain deduction. They render it probable that there are various branches of manufactures, in which a given capital will yield a greater total product, and a considerably greater net product, than an equal capital invested in the purchase and improvement of lands; and that there are also some branches, in which both the gross and the net produce will exceed that of agricultural industry, according to a compound ratio of capital and labor. But it is on this last point that there appears to be the greatest room for doubt. It is far less difficult to infer generally, that the net produce of capital engaged in...

Table of contents

• Cover Page
• Halftitle Page
• Title Page
• Copyright Page
• Preface
• Contents
• Introduction
• Part I: 1789–1862
• Part II: 1862–1912
• Part III: 1912–1935