The Ladder & the Fence: What 4 Economists Knew That Today’s Financial Order Forgot. Part 1

The richest countries climbed to prosperity by methods they now forbid everyone else to use. Hamilton, List, Carey and Polanyi, four economists explained why those methods work and why abandoning them ends badly.

Four economists, writing across a century and a half and three continents, would have found it hilarious. Alexander Hamilton built a credit system for a bankrupt republic. Friedrich List, an exile who learned his lesson in America, made his experience into a theory of national development. Henry Charles Carey, a Philadelphia publisher turned economist, argued that a country should keep its farms and factories within shouting distance. And Karl Polanyi, writing as the Second World War ground on, explained why treating land, labour and money as ordinary commodities keeps disaster in store.

Part I: Building the Scaffolding, 1790–1944

None of the 4 economists was an oracle. Each was wrong about something, occasionally spectacularly, and this article will say where. But as a timeline of what works, their ideas make a surprisingly reliable compass, and the episodes where governments ignored them make a surprisingly consistent crash log. The first part of this series covers the building years, while the second covers what happens when the builders decide the scaffolding is embarrassing.

1790–91: A Bankrupt Republic Discovers Credit

In January 1790 the United States was a debtor of dubious reputation, owing money at home and abroad with no clear date for paying it. Alexander Hamilton’s remedy, the Report on Public Credit, was almost insultingly simple: honor the national debt in full, and have the federal government take over what the states still owed from the war.

Congress giddily swallowed it after a famous bargain that moved the capital to the Potomac. In February 1791 the first Bank of the United States received its charter, over the objections of Thomas Jefferson and Edmund Randolph, who thought it unconstitutional. Hamilton answered with the doctrine of implied powers, and Washington signed.

The result was the closest thing to a financial miracle the eighteenth century offered. American bonds, lately regarded as a gamble, became prized in London and Amsterdam, and the foreign debt was cleared by 1795. Hamilton’s follow-up, the Report on Manufactures of December 1791, went further: tariffs, subsidies and public works to make the country industrially independent of Europe.

Now to the caveat, which must always arrive. Congress passed only very modest tariffs, and most of the grand industrial plan stayed on paper. Many contemporaries saw the whole program as a gift to northern financiers, and the assumption scheme was as much about tying creditors’ loyalty to the federal government as about arithmetic.

Still, the irony is hard to miss. The United States entered history as a debtor that behaved like a state-builder, then spent much of the........

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