When the United States became independent from Britain it also rebelled against the British System of economics, characterized by Adam Smith, in favor of the American School based on protectionism and infrastructure and prospered under this system for almost 200 years to become the wealthiest nation in the world. Unrestrained free trade resurfaced in the early 1900s culminating in the Great Depression and again in the 1970s culminating in the current Economic Meltdown.
American School of Economics
(Intro updated with thanks to Whitis for his (?) suggestions. Some links added as well.)
Good morning. My first diary. I made some effort to read the guidelines before posting, but I will admit that I skimmed, so my apologies if I missed something and committed some sort of unintentional faux pas.
The current global economic crisis has led to a flurry of debates and discussions on the proper solution.
Ground zero for this crisis lies in the United States, and other Western nations in a number of inter-linked factors, including the out of control derivatives market, hedge funds, deregulation of the financial system, deindustrialization, and free trade. The instability and disintegration sparked by this crisis has since spread to the world as a whole through those who participated in the mess.
Different options have been bandied about as potential solutions. One of the prominent ideologies promoted lately is Keynesianism (or varieties thereof) with the argument that this tradition played some part in the efforts of FDR. However, I want to remind people today of a different, older, yet more distinctly American economic tradition. While rarely taught these days, even in American universities, this tradition was, throughout most of the history of America, from the earliest days of the American republic until the early 1970's, the leading system of economics in America.
Many misconceptions are spread about the foundations of the American economic system. One commonly voiced fraud is that the American system was based on British liberal economics of the likes of Adam Smith. This misconception is usually perpetrated by free market ideologues. (Ironically, given Smith’s role as an employee of the British Empire and the timing of publication of the Wealth of Nations (1776), a much different relation between the ideas of Smith and the American tradition can be seen) In point of fact, however, the authentic, traditional source of the American economic system lies much closer to home.
I am speaking of the American School of Economics.
The American School rests on a number of key principles, most prominently:
- Belief that legitimate government is founded in the people and exists to promote the general welfare of the people. That the government should play an active role in monitoring and steering (not planning, steering) the high level functioning of the economy.
- Promotion of domestic agriculture and manufacturing by the government, with promotion of use of science and technology in both,to improve and develop the nation's land. This includes making directed investments in economic infrastructure and large projects promoting developments of advanced technologies.
- Protection of domestic industry through tariffs to ensure that prices are at a high enough level to sustain the domestic manufaturing production on which a healthy economy depends. Fair Trade rather than Free Trade.
- A National Bank with policies encouraging the financing of development of the nation's territory through productive private enterprise.To direct credit and finance toward productive investment rather than speculation.
- A national currency created and backed by the credit of the government and regulated by the elected government (Congress).
Traditionally, the American School was presented as an alternative to the British System of Free Trade and laissez faire capitalism.
Some key figures, proponents, and works related to the American School:
The Federalist Papers – Hamilton, Madison, et al.
Alexander Hamilton (America's first Treasury Secretary; he's the man on the $10 bill)
-Report to Congress on Public Credit
-Report to Congress on National Banking
-Report to Congress on the Establishment of a Mint
-Report to Congress on Manufactures
-Essays on Political Economy
Henry C. Carey
-Principles of Political Economy
-Harmony of Interests
-Principles of Social Science
Henry Clay, US Senator – Actively promoted the American School in Congress, and arguably the originator of the term "American School." Several times a nominee for presidential candidate and one of America’s historically greatest senators.
Abraham Lincoln – embraced actively the American School. His national railroad project was a fine example of a national infrastructure project developing the territory of the nation and laying the groundwork for future economic development.
Friedrich List (German Economist who actively promoted American School, or "National System of Economics," as he called it, in Germany)
-National System of Political Economy
Other prominent recent examples of application of American School principles are the infrastructure projects of FDR, Eisenower's National highway system, and JFK's space program.
Under this system, the United States experienced the greatest economic growth in the history of the world, producing an integrated, thriving economy from the Pacific to the Atlantic, from Mexico to Canada. The historical success of this system in the US led to many of its principles being used in the late 19th century and early 20th, with comparable success, in Germany, Russia, and Japan. Since the abandonment of this system in the early 1970's, much of this progress in standard of living of the people has bee reversed. At the present time, America as a nation, as well as much of the world, stands in danger of disintegration. The American School is a way forward today, if it is properly revisited and placed back in its position of former prominence.
There is much that can be done to lay the groundwork for the next half-century of economic development. If America and other nations turn back to this great economic tradition, this made in America crisis can be repaired through a distinctly American approach.
I am currently at work, but will be poking in periodically to see if the topic takes off and to check comments (if they are made). In addition, I would like to add my apologies: I had intended to hunt down weblinks for online versions of some of the books and documents mentioned. However, I couldn't find the time (kids, work, and all that jazz). However, since I feel the topic is important and timely, I wanted to post nonetheless. If I can find the time throughout the day, and if the topic is still going, I may update or add info in the comments. Hope y'all find this thought provoking and interesting.