How Abraham Lincoln’s political economy ‘trumped the Free Trade British System’

I have written before on the oft-neglected American School of political economy, drawing on the work of Michael Hudson here and here.

Along the same vein, November’s issue of the Cambridge Journal of Economics features an article by Emir Phillips. It is included as the Editor’s Choice, so you can read it for free on the journal website or by downloading the pdf.

Here is the abstract:

The Whigs could legitimately emphasise what Hamilton’s Report had not touched upon: urban labourers made unemployed by import competition could not shift to ‘collateral employments’ with the presumptive ease asserted by Free Trader Democrats. More than anything, it was the structural cyclical instability (Minsky moments) that engendered a new party (Republican) to exert political pressures for government involvement in the management of the economy (mercantilism). Economic beliefs played the most fundamental role in Lincoln’s career, and his mercantilist views, in conformity with Hamilton, Clay and the economist Carey, were key determinants in effectuating the Industrial Revolution within the United States through tariffs, government-supported macro-projects and structurally stimulating aggregate demand through a national currency. Permeating Lincoln’s political economy was a fierce non-neutral view of money wherein banks created the funds to ignite the American System. Henry Clay, Henry Carey and Abraham Lincoln were seeking to supplant the Ricardo–Malthus long-term model of economic growth (emphasising distribution within a relatively stagnant economy) with one of expanding productive powers and rising wage levels. These interventionist issues are still quite relevant since US economics students are taught modernised versions of the doctrines of Ricardo and Malthus which were controverted more than a century ago by the American School, and more specifically by Abraham Lincoln.

The article tells the story of how 19th century Whig-Republicans, and Abraham Lincoln in particular, accelerated industrialisation in the US through government intervention in the economy, such that

Mercantilist nationalism (Republican Party of 1860) confronted both the Free Trader Jacksonian-Democrats and the US Constitution, and created a commercially linked Nation whose industrial productivity over the next 60 years (all US Presidents without exception were Republican until President Wilson) supplanted England as the world’s workshop (p.1455).

The policies used included a combination of tariffs to protect domestic industry from English manufactured exports and raise government revenue, investment in transport infrastructure, particularly railroads, and management of the national currency to sustain aggregate demand and investment in industry.

The American System or School saw capital and labour as potentially complements, in that investment in productive capacity in increasing returns industries, namely manufacturing, would stimulate rising productivity and output. This would enable both profits and wages to rise, so that both capitalists and workers would benefit from economic development, resulting in some form of social harmony and supporting national democracy. Thus

[b]y 1845, Lincoln perceived these United States as entirely dependent upon certain economic activities subject to increasing returns, with each regional section being a synergetic phenomena built upon a mutual dependency created by finely knit and interlocking network of rail, divisions of labour and raw inputs into a manufacturing Northeast. Within this matrix, social mobility (‘equal opportunity for the pursuit of happiness’) was enchained to industrial productivity to the benefit of all Americans. The increasing returns found in Northern manufacturing created the synergetic element that made the United States greater than its parts (the States). The Republicans were then the National Capitalist Party, with wealth creation and not Constitutional adherence as its abiding precept (p.1455-6).

Indonesia’s State-Led Development: Custodian of the National Interest, or Boondoggle? — Developing Economics

Nobel Laureate Esther Duflo once likened the work of economists to that of plumbers – tinkering and adjusting as necessary as they engage with the details of economic policy-making. The implication in this comparison is that economists generally understand economic systems and behaviour – how the pipes come together – and that the main work […]

via Indonesia’s State-Led Development: Custodian of the National Interest, or Boondoggle? — Developing Economics

What sort of big government? Corporate welfare versus the common good in the US

For me, the argument is over. Big government is all-pervasive and inevitable in today’s democratic capitalism. Markets and states are or should be complements, not alternatives, in any society which is both wealthy and continuing to develop and improve the lives of its citizens in the widest possible sense.

This is not an argument for socialism, although there are some on the right who see big government as an evil leading inevitably to a totalitarian and repressive state. This remains a possibility, but it was big government that saved a system on the edge of collapse during the financial crisis, however imperfectly. Crises may be inevitable under capitalism, but it remains the job of government to improve economic and social performance by harnessing the dynamic potential of markets so as to serve the common good.

In today’s US, an unlikely president is unashamedly trying to subvert and dominate the system for his own ends. The process may seem incoherent, but perhaps it mostly boils down to serving a thirst for power and attempting to fill what some have called an ’emptiness’ at the heart of the man.

If one takes Trump’s recent State of the Union address as an accurate description of his political achievements and the state of the US, rather than analysing what he has actually done, one could be forgiven for thinking that all is well there. It is not.

This post is not an analysis of Trump’s achievements in office, rather a discussion based on three books which take a critical view of US capitalism and society, reaching beyond the current political cycle. Although each takes a slightly different perspective and more or less covers a different period in US history, the thread which links them is the idea that its economy and society are being held back by an excessive concentration of power. Continue reading

Don’t Be Evil. Rana Foroohar on Big Tech

The FT’s Rana Foroohar discusses the ‘evil’ side of ‘Big Tech’. She is pushing her new book, but it is an interesting interview which touches on a range of issues relevant to the economics, business, politics, finance and culture of this increasingly all-pervasive phenomenon.

Foroohar has also written on the dangerous and distorting power and influence of ‘Big Finance’, which has become known as financialisation and has generated a large and growing literature among political economists, particularly those writing in the Marxist and post-Keynesian traditions.

Trump’s trickle dries up — Michael Roberts Blog

An interesting take on Trump’s economic stimulus and current and prospective US economic performance from Marxist economist Michael Roberts. The full post is at the link below.

“The economy now has hit 3 percent. Nobody thought we’d be anywhere close. I think we can go to 4, 5, and maybe even 6 percent.” – Donald Trump, Dec. 16, 2017 Well, Trump’s boast turned to dust in 2019. US GDP grew by 2.3% in 2019, well below President Trump’s promise of 3%+ growth. […]

via Trump’s trickle dries up — Michael Roberts Blog

Keynesian economics – back from the dead?

Here is an interesting recent lecture given by Robert Rowthorn on the “main developments in macroeconomics since the anti-Keynesian counter-revolution 40 years ago.” It can be downloaded for free. Alternatively the video of the lecture can be viewed here.

Rowthorn is Emeritus Professor of Economics at Cambridge University. Back in the 70s and 80s he was very much a Marxist, but has since moved away from that commitment and written on a wide range of topics, from Kaleckian growth and distribution theory to deindustrialisation in the advanced economies and the economics of the family.

For those who are interested in development economics, he supervised the PhD of another prominent Cambridge economist, Ha-Joon Chang, who has written a number of popular books alongside his academic work.

This is the rest of the abstract of Rowthorn’s paper:

It covers both mainstream and heterodox economics. Amongst the topics discussed are: New Keynesian economics, Modern Monetary Theory, expansionary fiscal contraction, unconventional monetary policy, the Phillips curve, hysteresis, and heterodox theories of growth and distribution. The conclusion is that Keynesian economics is alive and well, and that there has been a degree of convergence between heterodox and mainstream economics.

All of these topics are relevant to today’s economic problems, and Rowthorn argues that “many leading economists in the USA and the UK have Keynesian sympathies”.

Thanks to The Case For Concerted Action blog for drawing my attention to this lecture.

Prospects and Challenges for the US economy

Here is the latest Strategic Analysis paper from the Levy Economics Institute of Bard College on the prospects and challenges for the US economy over the next few years. The Levy Institute is officially nonpartisan, but much of its output is in the post-Keynesian tradition, and influenced by luminaries such as Hyman Minsky and Wynne Godley.

Minsky and Godley were instrumental in highlighting the interdependence of the real and financial sectors of the capitalist economy and the role of the latter in contributing to its periodic instability.

The post-Keynesian or ‘left Keynesian’ tradition is a broad church, but is generally critical of capitalism while suggesting policies which attempt to mitigate its defects, in particular the presence of unemployment, inequality and instability. It emphasises the importance of aggregate demand and macroeconomic categories and relationships.

The Levy Institute publishes a short Strategic Analysis on the US economy like this one every year. It is accessible while being based on a stock-flow consistent macroeconomic model that Godley spent the final years of his life helping to build.

The paper highlights the risks to the US over the next few years of an overvalued stock market, overstretched and fragile corporate sector balance sheets, an overvalued dollar, a slowing global economy and the US administration’s erratic trade policy. It is well worth a read.