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By James Pew
The following essay is a continuation of the can of worms I opened on June 8th with Canada Recedes While America Booms.
“Not only Soviet-style efforts to ration resources and micromanage firms by centralized diktat, but also the traditional efforts of liberal democracies to ensure investment in long-term economic and social priorities are now gathered under the ‘planning’ heading and treated as indistinguishably awful.”1 – Julius Krein, Editor of American Affairs.
To plan or not to plan? – apparently, that is the question. Although, it is poised in a rather reductive way. On one hand the hapless questioner believes that any economic planning undertaken by a government inevitably leads to tyranny, and on the other, that no planning whatsoever leads to a spontaneous market-driven order via a mystical “invisible hand.” The dichotomy is unnecessary. There is a third road, one that involves some government planning with regards to economic development, in line with political strategy (including foreign relations), and which helps to direct and catalyze the unleashing of market forces. This third road is not a modern novelty, but an approach to political economy rooted in the governance philosophies of Alexander Hamilton.
The Trump administration, in both its first and delayed second terms, has been engaged in dismantling the so-called “post-WWII rules based order,” the American Hegemony Strategy, and replacing it with a modern version of Hamiltonian principles in a framework of political economy known as The American System (aka. The National System). This of course is the disruptive, transformative, somewhat belligerent and chaotic, classically Trumpian, thing which has been dominating headlines intermittently since Trump initially took office. And more importantly, it is the thing which has utterly infuriated and disoriented high-ranking members of the global elite, like Mark Carney (the globalists golden boy). And lastly, it is the thing which Carney was droning on about in his infamous “middle powers” speech earlier this year at a World Economic Forum summit in Davos, Switzerland.
Before we get too far into it, it is worth commenting briefly that the Post-WWII American Hegemony Strategy allowed the dissolving British Empire somewhat of a soft landing. It has long been a complaint of Trump’s that during this period European powers (including Britain) have taken advantage of the U.S. by not paying their fair share for defence. It has largely been the American navy which enabled frictionless global trade. When Britain and France unilaterally invaded Egypt in an effort to take the Suez Canal in 1956, an enraged President Eisenhower responded by threatening to destabilize the pound sterling unless Britain withdrew. Britain capitulated. The message was clear, America was the new boss and there would be no more unapproved British military expeditions from then on. However, the British and other European powers did enjoy many decades of continued British Imperial System type economic prosperity due directly to global security provided by U.S. might. Essentially, Trump is seeking to end what he sees as European powers taking advantage of U.S. hegemony.
American Compass is a journal dedicated to advocating, examining and “rebooting” The American System of political economy. They point out that thinkers associated with The American System are not as well known as the “standard canon of Smith and Marx, Keynes and Hayek.” We can also include well-known neoliberal economists like Milton Friedman as a sort of modern canonical branch of standard economic thought and political economy. But political economy encompasses a broader spectrum of ideas than what one finds in the works of the aforementioned. As put forward by American Compass, the following thinkers should be considered alongside the usual suspects: Friedrich List, Karl Polanyi, Robert Nisbet, and Daniel Bell — I’ll have more on their works in a future essay.2
For now, it is worth pointing out that although Adam Smith coined the term “invisible hand,” according to Oren Cass, chief economist at American Compass, “he meant little, if anything, by it.” In fact, over the entire two-volumes of his ground-breaking work, The Wealth of Nations, Smith only used the term once. However, Cass points out that “in the second half of the 20th century, economists built an entire worldview around it.”3
The best way for the uninitiated to break free from the bondage of thinking that blind faith in neoliberal “invisible hand” economics is inherently good, and any sort of intervention or strategy (planning) to protect or develop native industries and bolster national sovereignty is inherently bad, is to first realize that this binary is reductive. Then, consider the insanity of putting all of civilization’s eggs into a singular basket where custodianship and survival are dependent on the randomness of an “invisible hand.” And third, look at economic history, and notice how often some sort of planned government strategy or policy was implemented in the Western world for the general purpose of protecting and increasing national prosperity.
At no point in history has an invisible hand ruled as a de facto benevolent dictator, instead, as brilliant economists like Adam Smith articulated, the power of market forces can most often, among other such things, stabalize prices. However, Adam Smith scholars have argued that the “invisible hand” phrase has been vastly over-interpreted, and never intended by Smith to be a sweeping theory of market self-regulation.
Turning to Hayek, in the following, notice his admittedly inexplicable, yet almost religious faith in the spontaneousness of market forces: “assume that, especially in the economic field, the self-regulating forces of the market will somehow bring about the required adjustments to new conditions, although no one can foretell how.”4 In fact, Hayek’s faith was so strong he wrote that those who advocate for government planning, “can think of nothing better than to imitate Hitler.”5 When one considers this unfortunate comparison, and how widespread and accepted blind faith in free markets has become, is it really such a surprise that Trump’s revamping of The American System has seen him constantly compared to the Fuhrer?
Planning does not equal Fascism or Communism, both are forms of totalitarianism, meant to place Orwell’s proverbial boot on the face of humanity eternally. Hamiltonian planning involves leveraging the power of government to maximize economic prosperity achieved through markets that are guided by select instances of policy which act more as referees, not tyrants. Over the course of my life I saw unquestioned adherence to invisible hand economics gut industry across North America — what we all witnessed with the off-shoring of the auto sector should be more than enough to convince people that totally free, unregulated, invisible hand markets can, if not made to conform to certain industry-specific restrictions, lead to a degradation of the economy and general good, in spite of the profits secured by individual capitalists.
Free market capitalism is a powerful force indeed, but without targeted and specific measures taken by governments to ensure capitalists don’t plunder resources, exploit workers, or degrade the commons and general good, that powerful force can easily lead to the downfall of Western civilization. In both foreign and domestic policy, the economy is a more desirable tool, as compared to use of police or military force, when it comes to bringing about positive developmental outcomes that add prosperity without undermining security or sovereignty.
The last United States President to oppose the global elites and their post-WWII consensus, the American Hegemony Strategy, was Richard Nixon. After World War II, the Western allies constructed a new international monetary order at Bretton Woods, New Hampshire in 1944. The system worked roughly like this: the U.S. dollar was pegged to gold at $35 per ounce, and all other major currencies were pegged to the dollar. This gave the world a stable, predictable monetary foundation for international trade and investment during the postwar boom. The U.S. acted as the anchor of the entire global financial system.
By the late 1960s, the system was under severe strain. The Vietnam War and Great Society spending had created large fiscal deficits, flooding the world with dollars. Foreign governments — particularly France under De Gaulle — began converting their dollar reserves into gold, draining U.S. gold reserves. It became increasingly untenable to maintain the $35/ounce peg. Nixon faced a choice between painful domestic austerity to defend the peg, or abandoning the system entirely.
On August 15, 1971 — in a Sunday evening television address, with no prior consultation with allies — Nixon announced several dramatic moves simultaneously: he suspended the convertibility of the dollar into gold, effectively ending Bretton Woods; he imposed a 10% surcharge on all dutiable imports; and he imposed a 90-day freeze on wages and prices domestically. This essentially destroyed an entire international monetary architecture that had governed the global economy for 27 years. The unilateralism was stunning — allies in Europe and Japan woke up that morning to find the entire monetary order had been dismantled overnight without warning.
Even though Trump is accurately described as transformative because of his internationally disruptive rebooting of the American System, he has yet to do anything quite so destabilizing or significant as Nixon in spite of the hysterics and bluster from the TDS-riddled media. With this in mind, it’s a little easier to keep things in perspective and not melt into the histrionics the media is heating you up for. In the next essay I will take a closer look at the history of the American Economy, with an emphasis on Hamilton, and show that throughout its evolution it has oscillated between a more Jeffersonian approach to political economy, and a more Hamiltonian approach. And also, that government planning, intervention and developmentalism are as American as apple pie. And lastly, that the American republic has not been one, but a drawn out developmental process involving three distinct republics, each with their own industrial revolution with significant implications on political economy (we’ll dip into Michael Lind for that). All of this and more in the next essay.
And no, you are not lost. These essays are indeed designed for Canadians, and this newsletter is indeed focused on Canada. My hope with this work is that we Canadians get over the TDS, cancel elbows up, and start seeing the Americans as extraordinarily prosperous and good friends (cousins really) who we should align our destinies with.
Thanks for reading. For more from this author, read Black Radicals in Ontario Schools
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Friedrich A. Hayek, The Road to Serfdom (London: The Institute of Economic Affairs, 1999), 70.
Thank you, James. Very interesting.
Your last paragraph makes sense. But not with Trump at the helm. He is a narcissistic, megalomaniac who employs childish and insults and runs his govt just to prove other presidents have been wrong and only he can MAGA. Which is utter bilge water and you know it. Look what he just did in Iran.