Academic journal article Journal of Private Enterprise

Hamilton, Harvard, and the German Historical School: A Short Note on a Curious History

Academic journal article Journal of Private Enterprise

Hamilton, Harvard, and the German Historical School: A Short Note on a Curious History

Article excerpt

Abstract

Alexander Hamilton's reputation has waxed and waned, but one judgment appears fairly constant: his place as the American founding's leading thinker on finance and political economy. And yet, his specific efforts moved exactly contrary to the core contribution of Adam Smith; namely, Smith's refinement of the idea of the "invisible hand," where rational self-interest leads to the unintended flourishing of others. But still, generations of scholars have affirmed Hamilton's sagacity as an economic thinker (Knott 2002, pp. 6-7, 221-23). Most recendy, Thomas McCraw, a prominent member of the now not-sonew "New Organizational School" of interpretation, reaffirmed that judgment (McCraw 2012, p. 93). Why is it that the Hamiltonian turn takes such prominence in scholarly circles? The intellectual connections are closer than one might think.

Hamilton was well aware of Smith's particular arguments of unintended consequences, having quoted The Wealth of Nations at length in his report on manufactures, but he was insistent that America could not wait for the off chance that markets might foster certain industries naturally. As a consequence, he crafted arguments from history and experience for the political promotion of manufactures. That effort proved important to the development of another line of thought: The German Historical School, the central tenet of which was that economic phenomena needed to be seen and understood in their concrete manifestations in time, and not primarily through abstract logical relations. Usually one hears of statist influences moving from Germany to America. In this instance, the ideas went in the other direction. Even more curiously, they returned to America by way of Harvard through the New Organizational School, of which Thomas McCraw was a late prominent member.

Thus when McCraw reviews Hamilton's career in The Founders and Finance, it is in fact Hamilton's own perspective come back to interpret itself. Reconsidering the schools' origins sheds light on the reasons why conceptualizing the unseen and unintended has proven so difficult. The spirit of Hamilton's theoretical impatience has gone hand in hand with modern academic inclinations (Lamoreaux, Raff, and Temin 2003, pp. 404-33).

I. Hamilton's Turn to History

Many have argued that Hamilton's break with Smith was not as profound as early protectionists had originally portrayed, and in certain particulars, this argument is true enough. Hamilton did not reject Smith in toto (Hacker 1957, pp. 150,168; Chernow 2004, pp. 347, 376-77.) Against the French physiocrats who privileged agriculture, Hamilton found Smith's argument for the efficacy of the division of labor quite useful, even employing the very words of The Wealth of Nations (Bourne 1894, pp. 328-44; Rabeno 1895, pp. 317-18). But to emphasize this point misses a far more fundamental disagreement. The original aim that prompted Hamilton's thinking was the desire for a more powerful central government. That aim predated the U.S. Constitution and was vigorously pursued in 1781-82 in the Continentalist Essays, where he attacked directly the idea of the unplanned and the unseen (Vernier 2008, pp. 169-200).

Smith's well-known line of argument that each "is led by an invisible hand to promote an end which was no part of his intention" illustrates how deeply important the unseen results of human activity are to the economic question (Smith 1776, p. 456). That was not an argument that fit well with Hamilton's aims. "There are some," he wrote in the fifth Continental,flwho maintain that trade will regulate itself, and is not to be benefited by the encouragements or restraints of government. Such persons will imagine that there is no need of a common directing power." Indeed, he wrote, "This has become one of those wild speculative paradoxes, which have grown into credit among us, contrary to the uniform practice and sense of the most enlightened nations." The essence of such "uniform practice," as Hamilton emphasized, was the observable and the obvious, not the unseen and unintended. …

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