The United States is a very fractious place these days. One of the biggest splits crisscrossing the left and the right concerns economic policy. But while this debate is sometimes portrayed as “economic nationalists versus libertarian globalists,” there’s something misleading about that narrative.
Not all American free marketers, for example, can be dismissed as Silicon Valley bubble-dwellers who consider the very idea of nations as passé. Many regard national sovereignty as good and necessary, and are as proud of being American as any economic nationalist. They even view exposure to competition—including foreign competition—as benefiting America.
Such competition does, after all, help ensure that American businesses don’t lose sight of their ever-changing comparative advantages, thereby enhancing America’s long-term economic competitiveness. To this we could add that the intellectual fathers of modern market economies, most notably Adam Smith, saw economic liberalization as important for ensuring that national interest doesn’t become confused with the prosperity of those companies which happen to be better rent-seekers than others.
Patriotism and economic liberty, then, are not mutually exclusive. This was well-understood not only by the father of modern Anglo-American conservatism and avid free trader, Edmund Burke, but also key American Founders. One way that they sought to integrate these two goods was by configuring America as a commercial republic. Revisiting that idea, I’d suggest, is one way to assess some of the economic disputes presently pre-occupying the United States.
Commercial and Republican
When The Federalist Papers’ authors set out what amounted to an agenda for putting America on the path to becoming a commercial republic, they had several things in mind. First, the American regime was to be republican. The governed were to be regularly consulted and public affairs would be conducted via accepted procedures and institutions which impeded arbitrary power. These in turn would direct politics towards realizing those decidedly common goods of life, liberty and the pursuit of happiness.
The same regime, however, was to be commercial. Republican government would be combined with a private enterprise economy constantly subject to the discipline of consumer preferences expressed through open and competitive markets. Federalists 44 and 62 stressed the necessity of the states and the new Federal government dispensing with the internal barriers that inhibited commerce. They also underscored how ever-expanding regulation would advantage those who we would call crony capitalists at the expense of “the industrious and uninformed mass of people.”
Holding the “commercial” and the “republic” together was never going to be easy. The potential for merchants and politicians to corrupt each other in such conditions was well-understood. But commercial republicanism also replicated the type of political and economic culture which existed throughout much of America. This was a society in which people were anxious to be economically mobile and accumulate wealth, but also highly influenced by Protestant Christianity and the more conservative expressions of Enlightenment thought about government’s nature and ends.
To be sure, when vital interests like national security were at stake, few Founders objected to the government taking on more proactive economic responsibilities. Even the most commercially-minded among them accepted Adam Smith’s dictum that “defense . . . is of much more importance than opulence.” Many held that the new federal government had to put in place particular economic institutions needed by any sovereign nation-state.
That said, private commerce and open markets were considered the economic norm for what Federalist 11 called the “one great American system” that not only provided for national security in a dangerous world but which created economic, political, and cultural opportunities for millions of Americans. By contrast, extensive government intervention was regarded as compromising commercial society’s economic workings and undermining commercial republicanism’s ability to limit state power.
Commercial republicanism wasn’t solely focused on giving domestic form to the new nation’s experiment in ordered liberty. Like economic debates in present-day America, it was as much concerned with America’s engagement with the world.
The Federalist Papers recognized that America’s commercial dynamism couldn’t help but spill over the republic’s borders. Federalist 4, for instance, stresses that American commerce, driven by what Federalist 11 called an “unequalled spirit of enterprise,” would lead American merchants to compete in international markets. That in turn would necessitate the young nation developing naval power commensurate with the reach of that trade. Few countries would welcome American competition. Economic, trade, and military policy, it turned out, were not so easily separable.
These realities helped spark fierce foreign policy debates during George Washington’s Presidency. Some (like Thomas Jefferson) wanted what they called “commercial discrimination” to enhance Franco-American trade because of their positive view of the French Revolution and animus against Britain. Others (like Alexander Hamilton) maintained that trade policy should be driven by national interest, not specific factions’ philosophical preferences.
Hamilton’s position reflected his awareness that Britain was America’s biggest trading partner. But Hamilton also believed that America’s national interest required it to develop the economic strength needed to survive in a world of competing nation-states. Britain’s ability to exert global power rested primarily upon an unparalleled economic prosperity. Hamilton was determined to secure a similar base for America.
For Hamilton, this cashed out in several ways. One was his ambition to make America a financial and capital powerhouse via his debt and banking policies. Another was his related desire to diversify America’s economy by encouraging manufacturing.
But as the economist Douglas Irwin has noted, “Hamilton was not as much of a protectionist as he is often made out to be,” not least because his “policy toward manufacturing was one of limited encouragement and not protection.” Contra the mercantilist doctrines of his time, Hamilton didn’t want to discourage imports, especially imports of capital. In the words of one leading Hamilton scholar, America’s first Treasury Secretary “generally opposed tariffs and any policies that interfered with the free exchange of goods between nations, and he adamantly opposed using trade sanctions as an instrument of foreign policy.”
Like Adam Smith, Hamilton was willing to make exceptions, especially concerning national security issues. But Hamilton’s overall orientation was to favor free exchange between nations because he believed this was in America’s long-term interest and consistent with its future as a commercial republic and its people’s enterprising spirit.
Farewell to Mercantilism
These themes come together in George Washington’s 1796 Farewell Address. This text sought to achieve several immediate goals, such as maintaining America’s neutrality in the escalating war between France and Britain. But it also expressed a longer-term vision. This was of a sovereign American nation freely trading with and able to hold its own among other countries, something very distinct from the borderless crypto-pacifist federation outlined by Immanuel Kant a year earlier.
In many ways, the Farewell Address is imbued with realism. Nations will always follow their interests, and these interests don’t always coincide. Thus while America should “Observe good faith and justice toward all nations,” Washington insisted it should avoid particular attachments. “The great rule of conduct for us in regard to foreign nations is,” he stated, “in extending our commercial relations to have with them as little political connection as possible.”
Here we see America’s national interest firmly associated with American commerce’s extension throughout the world. Central to that policy is a generally favorable commitment to free trade. As Washington elaborated:
our commercial policy should hold an equal and impartial hand, neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing; establishing with powers so disposed, in order to give trade a stable course, to define the rights of our merchants, and to enable the Government to support them, conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary and liable to be from time to time abandoned or varied as experience and circumstances shall dictate . . . .
These aren’t the sentiments of a laissez-faire purist. They indicate cognizance that trade is subject to all the vicissitudes that characterize international relations—a realm which, like any other, mirrors man’s political and fallible nature. Such fluctuations may occasionally, albeit temporarily, require government intervention.
Nevertheless Washington’s outlook is far removed from the policy-prescriptions of an eighteenth-century mercantilist or a twenty-first century protectionist. The proposed norm is that of a sovereign nation whose citizens exuberantly, competitively, and freely trade with each another and foreigners. Yes, it allows for exceptions. But so do Books IV and V of Smith’s Wealth of Nations. To Washington’s mind, such a trade policy was necessary if America was to become, to use his expression, “a free, enlightened, and at no distant period, a great nation.”
Today’s United States is very different from late-eighteenth century America. The respective influence of free traders and protectionists has waxed and waned throughout America’s history. References to the Founding won’t settle every economic debate dividing contemporary America.
They do allow, however, us to ask an important question. Is cowering behind tariff walls, propping up uncompetitive domestic industries at the behest of crony businesses, and making American consumers pay more for lower-quality goods consistent with the ideal of a self-confident American commercial republic—one undergirded by patriotism, militarily strong, unembarrassed about promoting its national interests, concerned with its citizens’ long-term economic prosperity, and which understands the value of political and economic liberty at home and abroad for America?
The answer, I think, is obvious.