Question

Briefly explain a series of measures proposed by Hamilton (1791) to achieve the industrial development in the US.

Answer 1

The Report on the Subject of Manufactures, generally referred to by its shortened title Report on Manufactures, is the third major report, and magnum opus, of American founding father and first 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.

Economic plan

Hamilton reasoned that to secure American independence, the United States needed to have a sound policy of encouraging the growth of manufacturing and ensure 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 promoted immigration into the young United States. They would also expand the applications of technology and science for all quarters of the economy, including agriculture. In the report, Hamilton advocated rewarding those bringing “improvements and secrets of extraordinary value” into the United States. This contributed to making the United States a haven for industrial spies.

Tariffs

See also: List of tariffs in the United States, Tariffs in United States history, and Protectionism in the United States

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 domestic infant industries until they could achieve economies of scale and then could compete with more established firms abroad
• Raise revenue to pay the expenses of government
• Raise revenue to directly support manufacturing through bounties (subsidies)

Industrial subsidies

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