A still agrarian Congress shelved his report, but his ideas shaped economic policy for the next century. Henry Clay’s “American System” carried his influence forward. The protective tariffs that helped industrialise the North and the federal land grants that built the transcontinental railroads did so as well. During the 20th century, the Cold War gave rise to the military-industrial complex. Darpa invented the internet, Nasa developed and spun off technologies that reshaped entire industries, and federal procurement sustained America’s aerospace and semiconductor sectors for decades. The Interstate Highway System was not only one of history’s largest infrastructure projects but also a major federal subsidy for the automobile industry. When the 2008 financial crisis hit, the government took equity stakes in banks and carmakers, once again flouting free-market orthodoxy.
As the US marks 250 years since the signing of the Declaration of Independence this summer, there is no better moment to confront one of the great myths of American economic life: that its prosperity was built on laissez-faire capitalism.
From the outset, the US has run a hybrid model in which the state directs, subsidises and at times bails out private enterprise in pursuit of national priorities. The dominant narrative has championed free markets, but policymaking has always been more pragmatic. In 1791, Treasury Secretary Alexander Hamilton submitted to Congress his Report on Manufactures, noting that America’s infant industries, particularly textiles and garments, could not compete with established British manufacturers without government protection. He proposed tariffs and subsidies to nurture the industries of the future.
