Tuesday, December 06, 2011

Newt Gingrich, Champion of Hamiltonian Statism

On the Glenn Beck radio program today, Newt Gingrich once more confirmed his support for Hamiltonian industrial policies. In some instances, such as ethanol, Gingrich argued, the federal government should subsidize some industries over others. In other instances, such as the automobile industry, such subsidies should not be undertaken.

Gingrich failed to offer a convincing argument why subsidies are appropriate for some industries and companies, but not others.

When he cited the history of subsidies to manufacturers and other companies in America, the former professor of history got in to big trouble with those of us who support the three core values of the Tea Party movement: (1) Constitutionally Limited Government (2) Free Markets and (3) Fiscal Responsibility.

Gingrich pointed to two examples of “successful” industrial subsidies in our nation’s first century — Alexander Hamilton’s 1791 Report on Manufactures and the transconstinental railroad built during the 1860s.

He could not have found two better examples that illustrate the corrupting nature of the federal government picking winners and losers. In fact, “Professor” Gingrich seems to have either missed history’s lessons about the adverse affects of crony capitalism, or he’s emulating some big-government villains in American history.

As I point out in my new book, Covenant of Liberty: The Ideological Origins of the Tea Party Movement, Alexander Hamilton was the original champion of crony capitalism. Indeed, before introducing his Report on Manufactures to the Second Congress in December, 1791, Hamilton had organized and raised capital for a private company called The Society for Establishing Useful Manufactures. Though he himself was not an investor, he wrote the prospectus, and persuaded his many financial speculator friends in New York City to invest in the deal. Why wouldn’t they? With the public backing of the Secretary of the Treasury, it was a sure thing. Hamilton persuaded the State Government of New Jersey to invest, as well as numerous Congressmen, a future Supreme Court Justice, and the Governor of New Jersey himself.

In his Report on Manufactures, Hamilton asked Congress to subsidize this very company, without specifically naming it. The Chairman of SEUM, a financial manipulator by the name of William Duer, soon was caught up in the first national Wall Street financial scandal, emptied all the investor funds from the company, and went to debtors prison. Hamilton got his friends at the Bank of New York (where much of the federal government’s funds were invested) to loan $10,000 to the essentially bankrupt enterprise, and it limped along for another five years before it became, at least temporarily, a shell company.

SEUM purchased land in what is now Paterson, New Jersey, and the ruins of its buildings can be seen there today. Why did the enterprise fail ? Because neither Hamilton nor any of the investors in the company (the speculators and politicians) knew anything about manufacturing.

This is a project that Gingrich points to as an example we should emulate today?

It gets worse.

You can read the rest of this article at Broadside Books’ Line of Fire here.

1 comment:

Anonymous said...

Yes, the interesting business of subsidies and regulations comes to the fore in for example all the energy related businesses,
from light bulbs to Solyndras.

Stimulating the competition is key.
It always was.

So, all along the electricity supply chain: Utilities, like light bulb and other manufacturers then strive to keep
down their OWN energy costs, while manufacturers are also pushed to
make energy saving products that people actually want to buy
(and have always wanted, since savings are a marketable advantage)

New ideas (energy efficient or otherwise) can be helped to the market.
But that is different from Solyndra type competition distorting aid:
For example loan guaranteee schemes, available to ALL start-ups,
rather than favored cherry picking,
and without supporting ongoing profit-making businesses.

Farming is another case in point:
Farming is really a business.
The notion is that "small farmers need continued support"
There is always a market niche:
Organic farming, special fruit farming, ostrich farms etc.

Also: People always want fresh local produce, often from nearby (small) farms.

Again: Start-up help, then that's it.

If businesses fail,
the reasons are looked at, and another business might be helped on the way - but the failed idea is never supported, whether to "save jobs" (short term) or not.

The "helpful subsidy" angle to business is widespread- look at all the "fairtrade" deals.

Toothless coffee farmer Angelo in Nicaragua is not ultimately helped by being tied in to Fairtrade Slave Deals with middle class whiteys creaming off distribution gains,
with little kids tugging at mummies to make sure the product is bought.

Angelo is helped
long term by infrastructure, education aid etc that expands life choices,
-- but even if tying him to agriculture, and for that matter
to growing coffee,
as a small farmer he can be helped provide organic coffee, non-common (Arabica etc, whatever they're called) strains, to the free market, that the Big Bad Yankee corporation next door is not doing, etc - independence on the market for slightly more expensive, but of themselves desirable, deals.

Peter (Ceolas.net)