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Friday, April 24, 2015

Hamilton on Free Trade

Alexander Hamilton was a proponent of free trade. But what he meant by "Free Trade" and what is sold as free trade now, are two different things!

In 1795 writing as Secretary of Commer, In No. Xxvi (From The Minerva.) he writes of the difficulties presented by our treaty with Great Britain, and of the evils of monopolistic Colonial trade. But then he notes:

"Several circumstances calculated to give our trade with Asia an advantage against foreign competition, and a preference to our trade with Europe, are deserving of attention." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

He then goes on to list what made our ability to trade with foreign countries superior to that of the Colonial Powers (he mainly was referring to Britain, but he includes other countries too). The first advantage being our ability to trade directly with East Asia and not have to ship to London and then to our country anymore. And:

"Second.—The difference between the duties on Asiatic goods imported in American bottoms direct from Asia, and the duties imposed on the same goods in foreign bottoms from Asia or from Europe; being on all articles a favorable discrimination, and in the articles of teas, the duties on those imported in foreign bottoms being fifty per cent. higher than on those imported in American bottoms." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

Free Trade requires Individual not Corporate Enterprise!

For Hamilton and our sane founders, "free trade" didn't mean freedom from duties or the freedom for Giant Foreign Conglomerates to corner our markets. It meant the right to individual enterprise. And his third reason why we had the advantage is telling on this:

"Third.—The European intercourse with Asia is, in most cases, conducted by corporations or exclusive companies, and all experience has proved that in every species of business (that of banking and a few analogous employments excepted), in conducting of which a competition shall exist between individuals and corporations, the superior economy, enterprise, zeal, and perseverance of the former will make them an overmatch for the latter; and that while individuals acquire riches, corporations engaged in the same business often sink their capital and become bankrupt." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

Note, free enterprise doesn't mean treating "corporations as people" it means the right of individuals to participate in markets. There is no free enterprise in monopolies or conglomerates. The Freedom comes from individual freedom within the context of commonwealth. I think he would be aghast at the degree that East India style companies have taken over our country. We've given away our freedom to conglomerates.

No Saint

Free Enterprise benefits from natural advantages from differences of climate, resources and cultural ability. Hamilton finishes his paragraph saying:

"The British East India Company are, moreover, burdened with various terms and conditions, which they are required to observe in their Asiatic trade, and which operate as so many advantages in favor of their rivals in the supply of foreign markets. The company, for example, are obliged annually to invest a large capital in the purchase of British manufactures, to be exported and sold by them in India; the loss on these investments is considerable every year, as few of the manufactures which they are obliged to purchase will sell in India for their cost and charges; besides, from the policy of protecting the home manufactures, the Company are, in a great measure, shut out from supplying India goods for the home consumption of Great Britain. Most of the goods which they import from India are re-exported with additional charges, incurred by the regulations of the Company, to foreign markets, in supplying of which we shall be their rivals, as, from the information of intelligent merchants, it is a fact that Asiatic goods, including the teas of China, are [on an average] cheaper within the United States than in Great Britain." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

He would have been happy with importing cheap manufactures from China and India, as long as they weren't competing unfairly with US manufacturers. And his fourth point was how cheap Asian Manufactures were compared to European Manufactures.

"Fourth.—The manufactures of Asia are not only cheaper here than in Europe, but in general they are cheaper than goods of equal quality of European manufacture. So long as from the cheapness of subsistence and the immense population of India (the inhabitants of the British territories alone being estimated at forty millions) the labor of a manufacturer can be procured from two to three pence sterling per day, the similar manufactures of Europe, aided with all their ingenious machinery, are likely, on a fair competition, in almost every instance, to be excluded by those of India. So apprehensive have the British Government been of endangering their home manufactures by the permission of Asiatic goods to be consumed in Great Britain, that they have imposed eighteen per cent. duties on the gross sales of all India muslins, which is equal to twenty-two per cent. on their prime cost. The duties on coarser India goods are still higher, and a long catalogue of Asiatic articles, including all stained and printed goods, is prohibited from being consumed in Great Britain." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

Hamilton described the then superiority of Indian (and Chinese) manufactures to European ones, even as late as 1795. It took concerted effort to reduce India and China to the basket cases they were under colonial oppression. What they are doing now is to regain ground they lost, not acting in some kind of vacuum.

"The British manufacturers were not satisfied even with this prohibitory system; and on the late renewal of the Company’s charter, they urged the total exclusion from British consumption of all India goods, and, moreover, proposed that the Company should be held to import annually from India a large amount of raw materials, and particularly cotton, for the supply of the British manufacturers." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

It is policy that drives poverty. Free markets mean free access to markets for individuals. Not a system where giant companies exercise monopolies.

"Those facts are noticed to show the advantages to be derived from a free access to the India market, from whence we may obtain those goods which would be extensively consumed even in the first manufacturing nations of Europe, did not the security of their manufactories require their exclusion." Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

It makes you wonder how much Hamilton really was a protectionist, or if he saw the advantages of genuine free trade, meaning genuine individual enterprise. He certainly saw the risks of corporations and not protecting industry at home. But I think this article shows he knew the risk of overprotecting markets. We don't have free trade we have giant Conglomerates, more like the East India Company than what we had in 1795.

Further Reading

Alexander Hamilton, The Works of Alexander Hamilton, (Federal Edition), vol. 6 [1795] []

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