The Art of the New Deal
By Philip Drucker
On December 5, 1791, then Secretary of the Treasury Alexander Hamilton delivered to Congress a Treasury Report entitled "On the Subject of Manufactures". Controversial for its time, the Report suggested the most economic path forward for the United States was to leave its agrarian roots behind and become an industrialized nation capable of building its wealth through increased international and domestic trade opportunities and the levying of progressive tariffs.
Almost immediately after Hamilton's presentation to Congress both Thomas Jefferson and James Madison voiced their strong opinions in opposition of the industrialization of America. Jefferson did not disagree with the premise that industrialization would not lead to additional wealth into the nation's mostly empty coffers, but that in doing so, both our republican form of government and democracy would be imperiled if not lost to a cabal of albeit wealthy, corrupt, industrialists.
Hamilton urged Congress to consider the value of building canals and roadways to facilitate commerce among the states and the advantages it would bestow upon the newly minted nation including advancements in our military capabilities to defend ourselves as a single nation from foreign invasions.
Jefferson argued it was the farmers who had mostly fought the Revolutionary War and it was they who first and foremost deserved to enjoy the fruits of their hard-fought liberty and freedoms. Rural Populism was alive and well. It was the country bumpkins versus the big-city dandies and dwellers. It was 1791.
Jefferson further disagreed with Hamilton's plan to centralize power in the hands of a strong federal government. He did not agree with Hamilton that the federal government should offer financing and essentially subsidizing private enterprise. Indeed, Jefferson thought those actions to be both unwise and unconstitutional.
Shortly thereafter, the two went public with their feud trading barbs in the local newspapers. Jefferson warning of the impending threat of tyranny, while Hamilton bemoaning the watering down of federal rights while giving too much power to the states.
Eventually their no longer private disagreement made its way into various political circles. the result was the creation and introduction of the political party system into the halls of Washington DC.
The Federalists, led by Hamilton, who favored a strong, centralized government aligned closely with England, and the Democratic-Republicans, guided by Jefferson's philosophy of stronger individual states rights and the French, antebellum agrarian lifestyle of the gentleman, and not so gentile, American farmers.
As their fight raged on, George Washington, he being of no particular political party, was elected to serve a second term as the President of our quickly becoming schizophrenic nation of roughly four million inhabitants, most of whom were religious zealots and for most of the time, drunk. Farmers or not.
Let us pause and take a moment to ponder. Has all that much really changed? Bankers still foreclosing on Farmers every chance they get? Check. Democrats and Republicans still fighting over basic issues, like the difference between capitalism and socialism, that no one understands? Check States rights versus Big capital "G" Government? Big "D" as opposed to small "d" democracy? It all still seems to be there.
But recently there seems to be one major difference that needs to be soberly addressed. While we still have farms and it cannot be realistically argued that the American middle-class was not born from the manufacturing and buying, selling and trading of goods both internationally and domestically, and as the logistics of the world grow closer and closer, the economic impact of nations once thought to be too far away to have an impact on our shores, is it time to admit that manufacturing as the backbone of our American economy is on life support, if not gone? And, importantly, is never coming back? If so, then what?
One of the main selling points of Hamilton's plan was by collecting excise taxes on goods, the Nation could begin to pay down its enormous debt. Considering there were no federal income taxes on individuals back then it seemed a good idea to tax the buyers. The sellers could just include the cost of the tax into the price and voila! Money coming into the Federal vaults.
Problem was, and is, is that placing taxes on certain items while excluding others creates an artificial imbalance in the price of goods and thereby eventually favors one type of grower, manufacturer, or good over another. Take for example, the case of the Whiskey Rebellion. In 1791 Congress enacted an excise tax on Whiskey. The tax proved so burdensome to the grain farmers and distillers in Western Pennsylvania that protests led to calls for secession and finally to acts of violence calling for the repeal of the oppressive tax.
At first, President Washington cautioned patience and prudence in quelling what was the first true uprising, or rebellion, in the United States of America. As the rebellion continued, eventually George Washington was forced to rally the militias in an effort to quell the violence. Leading a militia of 1300 strong culled from several of the states, it would be the last time Washington ever rode into battle.
Fortunately for all, there was to be no battle. With the news of Washington's imminent presence, the protestors folded their hand, accepting the authority of the federal government to quell domestic violence. The Whiskey Rebellion was over.
Washington went home while his troops began to search for protestors who were wanted for past acts of violence in the name of the uprising. They found 150. Ten made it to trial. Two were sentenced to death. Washington then issued the first two president pardons. When Thomas Jefferson became our third president he banned all federal excise taxes. Case closed, for now anyway.
Despite this curious, if not colorful beginning, America did go on to become a great industrialized nation manufacturing its way to the top of the food chain. At the end of World War II, we were the last super power standing. We took the opportunity to rebuild the world and in the process, create the modern middle-class. The one that today, is shrinking. Because it is too expensive to manufacture here. Labor costs are too high. Automation is taking over. The "service" industry and "gig" economy are seriously incapable of generating the amount of wealth and income necessary to pull us out of our slump.
Two of the biggest companies in the world, Amazon and Walmart, don't make anything. They just move it around.
The stock market is currently a snapshot of our biggest companies being artificially supported by government sponsored socialism in the form of government payouts to corporations who probably don't need any bailout to keep solvent of our tax dollars.
Small business loans are not reaching enough small business. Stimulus and unemployment checks are not reaching those who need them to survive in adequate amounts. We are all waiting for the economy to come back. Come back to what? As I stated above, manufacturing is not coming back. Or is it?
Fortunately, there is one exception that may help us, at least in the short run, that will allow America to rebuild the middle Class and its economy. In the 1930s, against the backdrop of the Great Depression. FDR knew what it was. He called it the New Deal, specifically the Works Progress Act (WPA). You know, the government working together hand in hand with local businesses to rebuild the infrastructure of a nation.
The roads, bridges, dams and waterways of a crumbling nation badly in need of repair. Just as Alexander Hamilton suggested in 1791. Tell you what though, no pardons for Trump, his family or his cronies. For even George Washington would agree, would be a rebuilt bridge too far for the currently fragile psyche of this nation to survive.