Report on Manufactures
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The Report on the Subject of Manufactures, generally referred to by its shortened title Report on Manufactures, is the third report, and magnum opus, of American Founding Father and 1st U.S. Treasury Secretary Alexander Hamilton. It was presented to Congress on December 5, 1791
It laid forth economic principles rooted in both the Mercantilist System of Elizabeth I's England and the practices of Jean-Baptiste Colbert of France. The principal ideas of the Report would later be incorporated into the "American System" program by Senator Henry Clay of Kentucky and his Whig Party. Abraham Lincoln, who called himself a "Henry Clay tariff Whig" during his early years, would later make the principles cornerstones, together with opposition to the institution and expansion of slavery, of the fledgling Republican Party.
Hamilton's ideas formed the basis for the American School of economics.
Hamilton reasoned that to secure American independence, the United States needed to have a sound policy of encouraging the growth of manufacturing and secure its future as a permanent feature of the economic system of the nation. He argued these could be achieved through bounties or subsidies to industry, regulation of trade with moderate tariffs (not intended to discourage imports but to raise revenue to support American manufacturing through subsidy), and other government encouragement. These policies would not only promote the growth of manufacturing but provide diversified employment opportunities and promote immigration into the young United States. They would also expand the applications of technology and science for all quarters of the economy, including agriculture.
Hamilton reasoned that tariffs issued in moderation would raise revenue to fund the nation. The tariff could also be used to encourage domestic (or national) manufacturing and growth of the economy by applying the funds raised in part towards subsidies (called bounties in his time) to manufacturers. Hamilton sought to use the tariff to:
- protect infant American industry for a short term until it could compete;
- raise revenue to pay the expenses of government;
- raise revenue to directly support manufacturing through bounties (subsidies)
Subsidies to industry
Hamilton reasoned that bounties (subsidies) to industry, which would rely on funds raised by moderate tariffs, would be the best means of growing manufacturing without decreasing supply or increasing prices of goods. Such encouragement through direct support would make American enterprise competitive and independent along with the nation as a whole. In part subsidies would be used to:
- encourage the spirit of enterprise, innovation, and invention within the nation;
- support internal improvements, including roads and canals to increase and encourage domestic commerce;
- grow the infant United States into a manufacturing power independent of control by foreign powers through reliance on their goods for domestic and especially defense supplies.
Adoption by Congress
Though Congress refused to accept Hamilton's proposals in 1791, due to opposition from James Madison and his supporters, much of Hamilton's third report would later be adopted by the United States Congress despite continued opposition to the support of industry through subsidy. Both sides agreed that manufacturing independence was desirable and necessary but disagreed on how to obtain it. The Jeffersonian Democratic-Republican Party's main objection to subsidy was their fear that subsidy would lead to corruption and favoritism of certain sections of the new nation over others; namely the north over the agrarian south. This divide (north vs. south) would come up again and again in issues of economic policy until the outbreak of the American Civil War.
It is often thought that Hamilton's report was completely ignored, but in fact "Hamilton worked to ensure that Congress enacted virtually every tariff recommendation in the report within five months of its delivery." Hamilton's revenue-based trade policy, with its more moderate tariffs, meant that, by 1794, manufacturers had switched their support from the Federalists to the Republicans.
Opposition to the Report
Leading opponents of Alexander Hamilton's economic plan included Thomas Jefferson (until later years) and James Madison, who were opposed to the use of subsidy to industry along with most of their fledgling Democratic-Republican Party. Instead of bounties they reasoned in favor of high tariffs and restrictions on imports to increase manufacturing; which interestingly was favored by the manufacturers themselves who desired protection of their home market. Although the Jeffersonian stance originally favored an "agrarian" economy of farmers, this changed over time to encompass many of Hamilton's original ideas, while "the Madison administration helped give rise to the first truly protectionist tariff in U.S. history."
- First Report on the Public Credit - Hamilton's report on public finance.
- Second Report on Public Credit - Hamilton's report on national banking.
- Federalist Party - Hamilton's political party.
- Political economy - overview of economic theory research.
- Free trade economics - opposing school of thought.
- Irwin 2004, pp. 801–2. "Although the report is often associated with protectionist trade policies, Hamilton's proposed tariffs were quite modest, particularly in light of later experience [i.e. compared to import duties of the nineteenth century]".
- Nelson 1979, p. 977. "By the end of 1793 Hamilton's pro-importer political economy was driving manufacturers from Boston to Charleston into opposition to the Federalists".
- Irwin 2004, pp. 819–20. "The tumultuous experience of dealing with British trade policies after independence had transformed Jefferson from someone who had written in 1785 that farmers were 'the chosen people of God' and had pleaded 'let our workshops remain in Europe' to conceding in 1816 that 'we must now place the manufacturer by the side of the agriculturalist.' 'Within the thirty years that have elapsed, how are circumstances changed!' Jefferson wrote. "[E]xperience has taught me that manufactures are now as necessary to our independence as to our comfort".
- Irwin 2004, p. 819.
- Ben-Atar, Doron (1995). "Alexander Hamilton's Alternative: Technology Piracy and the Report on Manufactures". The William and Mary Quarterly 52 (3): 389–414. JSTOR 2947292.
- Croly, Herbert, The Promise of American Life (2005 reprint)
- Joseph Dorfman. The Economic Mind in American Civilization, 1606–1865 (1947) vol 2
- Joseph Dorfman. The Economic Mind in American Civilization, 1865–1918 (1949) vol 3
- Foner, Eric. Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War (1970)
- Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
- Irwin, Douglas A. (2004). "The Aftermath of Hamilton's 'Report on Manufactures' ". The Journal of Economic History 64 (3): 800–821. doi:10.1017/s0022050704002979. JSTOR 3874820.
- Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
- Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
- Nelson, John R. (1979). "Alexander Hamilton and American Manufacturing: A Reexamination". The Journal of American History 65 (4): 971–995. JSTOR 1894556.
- Peskin, Lawrence A. (2002). "How the Republicans Learned to Love Manufacturing: The First Parties and the 'New Economy' ". Journal of the Early Republic 22 (2): 235–262. JSTOR 3125181.
- Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)
- Edward Stanwood, American Tariff Controversies in the Nineteenth Century (1903; reprint 1974), 2 vols.