23 Things They Don't Tell You About Capitalism

Benjamin Franklin – who features on the best-known paper money in human history, the $100 bill – never was president. However, he could well have been. He was the oldest of the Founding Fathers and arguably the most revered politician of the new-born country. Although he was too old and George Washington’s political stature too great for him to run for the first presidency in 1789, Franklin was the only person who could possibly have challenged Washington for the job.

The real surprise in the pantheon of presidents on the greenback is Alexander Hamilton, who features on the $10 bill. Like Franklin, Hamilton was never a president of the US. But unlike Franklin, whose life story has become American legend, he was, well, not Franklin. Hamilton was a mere Treasury Secretary, even though he was the very first one. What is he doing among the presidents?

Hamilton is there because, unbeknown to most Americans today, he is the architect of the modern American economic system. Two years after becoming Treasury Secretary in 1789 at the outrageously young age of thirty-three, Hamilton submitted to the Congress the Report on the Subject of Manufactures, where he set out the economic development strategy for his young country. In the report, he argued that ‘industries in their infancy’, like the American ones, need to be protected and nurtured by government before they can stand on their own feet. Hamilton’s report was not justabout trade protectionism – he also argued for public investment in infrastructure (such as canals), development of the banking system, promotion of a government bond market – but protectionism was at the heart of his strategy. Given his views, were Hamilton finance minister of a developing country today, he would have been heavily criticized by the US Treasury Department for his heresy. His country might even have been refused a loan from the IMF and the World Bank.

The interesting thing, however, is that Hamilton was not alone in this. All the other ‘dead presidents’ would have met with the same disapproval from the US Treasury, the IMF, the World Bank and other defenders of the free-market faith today.

On the $1 bill is the first president, George Washington. At his inauguration ceremony, he insisted on wearing American clothes – specially woven in Connecticut for the occasion – rather than higher-quality British ones. Today, this would have been a violation of the proposed WTO rule on transparency in government procurement. And let’s not forget that Washington was the one who appointed Hamilton as Treasury Secretary, and in full knowledge of what his view on economic policy was – Hamilton was Washington’s aide-de-camp during the American War of Independence and his closest political ally after that.

On the $5 bill, we have Abraham Lincoln, a well-known protectionist, who during the Civil War raised tariffs to their highest level ever.[1] On the $50 bill, we have Ulysses Grant, the Civil War hero-turned president. In defiance of the British pressure on the USA to adopt free trade, he once remarked that ‘within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade’.

Benjamin Franklin did not share Hamilton’s infant industry doctrine, but he insisted on high tariff protection for another reason. At the time, the existence of almost-free land in the US made it necessary for American manufacturers to offer wages around four times higher than the European average, as otherwise the workers would have run away to set up farms (this was no idle threat, given that many of them were farmers in their previous lives) (see Thing 10). Therefore, Franklin argued, the American manufacturers could not survive unless they were protected from low-wage competition – or what is known as ‘social dumping’ today – from Europe. This is exactly the logic that Ross Perot, the billionaire-turned-politician, used in order to oppose the NAFTA (North American Free Trade Agreement) in the 1992 presidential election campaign – a logic that 18.9 per cent of the American voters were happy to endorse.

But surely, you may say, Thomas Jefferson (on the rarely seen $2 bill) and Andrew Jackson (on the $20 bill), the patron saints of American free-market capitalism, would have passed the ‘US Treasury Test’?

Thomas Jefferson may have been against Hamilton’s protectionism but, unlike Hamilton, who supported the patent system, he argued strongly against patents. Jefferson believed that ideas are ‘like air’ and therefore should not be owned by anyone. Given the emphasis that most of today’s free-market economists put on the protection of patents and other intellectual property rights, his views would have gone down like a lead balloon among them.