Markets and the Good   /   Fall 2023   /    Thematic: Markets and the Good

Hamilton’s System

Who is the father of American capitalism?

Jacob Soll

THR illustration (Shutterstock).

The three-hundredth anniversary of the birth of Adam Smith (1723–90) coincides with a crisis in our economic thinking. Article after article hammers home the economic failures and inconsistencies of free-market doctrines that have influenced American and global political economics for the better part of four decades. Oddly, Adam Smith has largely remained unscathed, and, as myths are attacked and statues fall, he sits confidently in his place as the “Father of Capitalism” and the lodestar of US wealth creation.

Central to Smith’s exalted status is the premise that wealth is created simply by exchange, or demand and supply. In other words, individuals have desire, need, or greed, they buy and sell, and this alone turns the market and creates wealth. Neoliberals who champion free markets über alles tend to dismiss the idea that a nation might have needs for its own industry, or for the living standards of its people. Consequently, they label industrial strategies aimed at achieving such ends dangerous forms of economic nationalism. Yet since the founding of the United States, industrial strategy has been at the heart of the country’s economic success. It was Alexander Hamilton who saw the need for such a strategy—and the danger of following Smith’s laissez-faire theories too slavishly.

Smith’s status is especially secure among contemporary neoliberals who still ground their ideas about the economy in the work of this eighteenth-century thinker. Following Friedrich Hayek and Milton Friedman’s claims that Smith’s ideas backed up their libertarian, free market economic theories, in his best-selling economics textbook, economist N. Gregory Mankiw claims that “Adam Smith made the most famous observation in all of economics: Households and firms interacting in markets act as if they are guided by an ‘invisible hand’ that leads them to desirable market outcomes.”11xN. Gregory Mankiw, Principles of Economics (Independence, KY: Cengage Learning, 2017), 9. In other words, pure individual “self-interest” is apparently the only thing that effectively guides markets and creates wealth. But after two federal bailouts of the US economy in two decades, and the success of so many government-sponsored companies (remember, Tesla has profited enormously from state rebates) along with the rise of Asian state-guided economies in China, Singapore, and South Korea, we know this simply isn’t true. States play a big role in wealth creation.

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