Controlling capital, liberating labor? Lessons from Alexander Hamilton on tariffs and industrial policy today

Edmund Wilson

July 28, 2025

The first U.S. Treasury Secretary Alexander Hamilton is known, among other things, for co-writing the Federalist Papers, a foundational source of constitutional interpretation. Naturally, when the Court of International Trade challenged many of Trump’s tariffs, it cited Federalist No. 51. Either Hamilton or James Madison wrote in this paper that the “separate and distinct exercise of the different powers of government” is “essential to the preservation of liberty.” The court interpreted this as meaning that Trump’s tariffs were incompatible with the separation of powers in the Constitution. The ruling has since been stayed on appeal, meaning the tariffs remain in place. The court that challenged Trump’s tariffs did not acknowledge Hamilton’s own preferred constitutional model: a reformed version of the British monarchy with “Energy in the Executive” (essentially, a potent central government). A prominent critic of Trump, Francis Fukuyama, is known for defending free-market liberal democracy as the “end of history," or highest form of human government. However, Fukuyama has also recently defended Hamilton’s support for an energetic executive, or a centralized state, that can get things done quickly. This suggests support for a Hamiltonian “strong” state on both sides of the political aisle. Hamilton lays out this vision of a “vigorous Executive” in Federalist No. 70 – presenting a vision of a unified, centralized government (aided by a rational bureaucracy) that can be easily subject to democratic checks.

More recently, Christian Parenti has portrayed Hamilton not just as a “nationalist” and “developmentalist,” but also as a proto-socialist, given that Hamilton argued that the state should take a, if not the, leading role in economic development. This contrasts with Lin-Manuel Miranda’s portrayal of Hamilton as a champion of speculative finance in the Broadway musical, inspired by Ron Chernow’s biography of Hamilton which puts Hamilton on the same level as classical liberal economist Adam Smith. But even Adam Smith thought that national security ultimately trumped free-market economics, defending the protectionist Navigation Acts by noting, in The Wealth of Nations, that “defence, however, is of much more importance than opulence.” He also hinted at the centrality of class struggle between labor and capital, anticipating Karl Marx.

So who is the real Hamilton? I propose investigating Hamilton’s reports on public credit and manufactures to reveal some of the parallels between his economic vision in the 1790s and the new economics emerging across the West in the 2020s, particularly in the United States as it comes to terms with the rise of China and the exorbitant role of finance in the world economy today.

Hamilton’s influence on industrial policy

In the Report on Manufactures, Hamilton argued against the Physiocrats—political economists who wished to prioritize agriculture over industry. Hamilton, however, saw the progressive potential in manufacturing, and sought to prioritize industrial development. To that end, he developed two main strategies for protecting and enhancing industrial production: “protecting duties,” or tariffs, and “pecuniary bounties,” or subsidies. 

For Hamilton, tariffs “amount to a virtual bounty on the domestic fabrics since by enhancing the charges on foreign Articles, they enable the National Manufactures to undersell all their foreign Competitors.” Using the revenue from these tariff duties, Hamilton planned to fund more direct bounties, which he deemed potentially the “best” means of “encouraging manufactures”: the “produce of that duty” would be applied “by way of bounty, either upon the production of the material itself or upon its manufacture at home or upon both.”

This brings to mind recent worries by Vice President Vance that the United States is losing out in both low- and high-end manufacturing to countries such as China. In a speech to investors, entrepreneurs, and politicians, Vance noted: “Now, we assumed that other nations would always trail us in the value chain, but it turns out that as they got better at the low end of the value chain, they also started catching up on the higher end. We were squeezed from both ends. Now, that was the first conceit of globalization.” To reverse deindustrialization, then, Trump and Vance seem to be prioritizing protectionism for core resources in key sectors. In electronics and energy, for example, the administration’s direct investment in rare earths company MP Materials and its tariffs on semiconductor chips are increasing pressure to reshore upstream processes of rare earths mining and semiconductor chip fabrication. Indeed, following Trump’s tariff threats, the Taiwan Semiconductor Manufacturing Company announced that it would expand manufacturing in Arizona to the tune of $100 billion. Thus, the U.S. government is aiming to facilitate industrialization down the production chain through protectionist policies upstream—building on Biden’s own Hamiltonian subsidies such as in the CHIPS and Sciences Act (2022). To industrialize or reindustrialize an economy, state-led Hamiltonian protectionism may be necessary.

These initiatives are responses to Hamiltonian concerns that America was and is losing out to foreign competitors – whether they be the British Empire in the 1790s, or China today. Large and persistent deficits, Matthew Klein and Michael Pettis argue in response to theorists like J. A. Hobson, are symptoms of class inequality: trade imbalances spring from and exacerbate economic inequality between rich and poor. Thus, deindustrialization can hurt the poorest the most, compounding the effects of marketization. The post-industrial United States today is thus in an analogous position to the pre-industrial United States of Hamilton’s day; the U.S. in both periods is at a relative economic disadvantage to key industrializing competitors, and its working class suffers as a result. Inequality in China, too, has risen sharply, leading to (and exacerbated by) “excess savings and unbalanced trade” between China and other countries, as Pettis evidences.

To nurture infant industries and move the United States beyond a slave-based agricultural economy, and to catch up with an industrializing Britain, Hamilton sought to use tariffs and subsidies to develop low- and high-end manufacturing alike. Rebutting arguments about price-hiking tariffs, Hamilton argued that domestic manufacturing often reduced, not increased, prices. This is echoed by D. L. Jacobs’s recent observation in Sublation that, when “tariffs were applied the first time” in Trump’s initial administration, “Prices for durables fell, the dollar appreciated against importers (curbing inflation), and retail seemed to just eat their margins.” Tariffs were not consistently inflationary in Hamilton’s day; nor are they necessarily inflationary today, it seems.

Tariffs were hardly welcomed by the agricultural sector, however. Slave-owning Southern states wanted low- or zero-tariff free trade and feared the impact of industrial tariffs on the institution of slavery. The Hamiltonian industrialization strategy that followed contributed to the Civil War and the abolition of slavery when the industrial Northern states led by a Republican President won.

Hamilton concludes his Report on Manufactures by making an argument that contemporary left-leaning economists like Mariana Mazzucato would readily recognize: “In countries where there is great private wealth much may be effected by the voluntary contributions of patriotic individuals, but in a community situated like that of the United States, the public purse must supply the deficiency of private resource. In what can it be so useful as in prompting and improving the efforts of industry?” This argument would suggest that today, public investment is key to reinvigorating domestic industry—as the “great private wealth” of some in the U.S. is not being sufficiently spent on industrial development at home. This public investment is exemplified by Trump’s “nuclear industrial” strategy and its de facto subsidies such as expansion of government loans and government approvals for nuclear plant construction and completion. However, contrary to Hamiltonian industrial policy, Trump has rolled back Biden’s subsidies for renewables, which Elon Musk dubbed the energy sources of the future (noting that Earth’s “entire ecosystem is solar-powered”). Nonetheless, America’s new nuclear industrial strategy is paralleled by the UK government’s planned ownership stake in new nuclear capacity, which it is investing in and deregulating, signaling a broader shift across the West towards energy independence. Perhaps this is why the EU is also looking to decouple from China on rare earths, while Michael McNair explicitly compares the U.S. government’s stake in MP Materials to Hamilton’s Report on Manufactures.

Hamilton’s influence on financial policy

The ghost of Hamilton lingers across the political spectrum. The specter of China’s state capitalism similarly haunts American policymakers, torn between containing China and learning from it. As China relaxes its own capital controls, for example, the United States has considered reimposing capital controls (through Section 899 of the “Big Beautiful Bill,” hinting at “soft capital controls” according to The Economist, before the Senate scrapped the provision under pressure from businesses). Hamilton did not have a contemporary reference for what we now call capital controls (nor for economist James Tobin’s proposed currency transactions tax), but he was all too aware of the power of finance in capitalism, especially as agriculture gave way to industry. So, as Miranda’s Broadway musical notes (while brushing over the industrializing role of tariffs and the evil of slavery with chilling ease), Hamilton “established a national bank.”

In Hamilton’s Report Relative to a Provision for the Support of Public Credit, he mourns the economic devastation of the American Revolutionary Wars: “The value of cultivated lands, in most of the states, has fallen since the revolution from 25 to 50 per cent,” due to the “scarcity of money.” Great Britain saw a rise in “monied capital,” thereby increasing land values, demonstrating the “beneficial tendency of a funded debt.” A funded debt would lower interest, Hamilton reasons. Hamilton aimed to pay America’s war debts through a tax on Madeira wine, sherry, Hyson tea, and distilled spirits. This produced the Whiskey Rebellion, which Hamilton effectively suppressed; however, the distilled spirits tax was nonetheless repealed (by Hamilton’s rival Jefferson) in the next decade. Nonetheless, the national bank Hamilton dreamed of was created on his instigation, and it was designed to “favor … public creditors, as it would tend to raise the value of stock.” Hamilton’s plan, though, was to use “foreign speculations” for the nation’s benefit: “Their money laid out in this country, upon our agriculture, commerce and manufactures, will produce much more to us, than the income they will receive from it.” Finance is to serve industry, and not vice versa, anticipating Treasury Secretary Scott Bessent’s note that Wall Street has had a good time for four decades—now it is Main Street’s turn.

By centralizing debt, it is possible to reorient finance from “pernicious” ends to productive ones, Hamilton notes. Far from the common perception of Hamilton as a friend of finance, Hamilton primarily aimed to develop industry by manipulating finance to the benefit of manufacturing, as well as agriculture and commerce. Hamilton’s approach is radical, as Parenti argues; it is also potentially bipartisan, as it speaks to a common concern about the over-financialization of the economy and the under-investment in industry and the working class. Think, for example, of Bernie Sanders’ war on Wall Street in two energized bids to be the Democratic Party nominee for President. Tariffs and centralized finance were part of Hamilton’s recipe for transferring power from the old aristocracy to the new bourgeoisie—and thus, potentially, to the engine of bourgeois capitalism: the working class. 

While anticipating Biden’s industrial policy and Trump’s trade policy alike, Hamilton also anticipates industrialization programs across Europe and the rest of the world, as Parenti notes. Hamilton influenced German economist Friedrich List (who credited Hamilton’s writing)—and, through List, state-led industrialization programs in Germany, Japan, China, Russia, Singapore, and beyond. State investment is required to stimulate the market. More than that, through channelling finance to benefit the real economy, it may be possible to reorient capitalism. As Chris Cutrone summarizes Bessent in Sublation, Bessent “wants [the economy] to serve the 90% and not merely the 10% or 50%.” Will these possibilities of helping the vast majority through Hamiltonian industrial policy be realized?

Hamiltonian economics today

Despite understandable criticisms of some of Trump’s other economic policies, such as regressive tax cuts and deep cuts to Medicaid, some key aspects of his trade and industrial policy can be seen in a Hamiltonian light as aiming for manufacturing growth with corresponding public benefits. McNair (who was early to note the capital-control effects of Section 899) speaks of the “Sovereign Wealth Effect” through the Trump-Bessent-Miran strategy to reverse the flow of capital between the United States and the rest of the world, particularly China. Trump’s tariffs are specifically focused on rebalancing the current account to the potential detriment of capital-flow policies such as now-scrapped capital controls and the announced Sovereign Wealth Fund. These capital-flow policies, McNair and Pettis explain, significantly affect the current account. This somewhat resembles the national-bank strategy of Hamilton, who aimed to mobilize finance for productive ends. While Hamilton’s report on manufactures is generally regarded as his magnum opus, his reports on public credit are arguably as important. Making finance serve industry—and, ultimately, the working class—was arguably Hamilton’s aim. Its echoes are found in some of the policies of Biden, Trump, and Sanders.

However, we should distinguish between Hamilton’s own understanding of his industrial policy and contemporary interpretations of his ideas. Hamilton was primarily interested in replacing imports with local manufacturing, which anticipates Parenti’s emphasis on “import-substitution industrialization.” Hamilton also identified the benefits of then achieving surplus manufacture for exports where possible, such as in steel, where he envisaged “considerable surplus for exportation.” However, this was less prominent in Hamilton’s thinking than Trump’s considerable focus on exports in order to achieve balance of trade. Hamilton’s industrial policy was more internally directed to the U.S.’s domestic economy than some developmental plans in today’s globalized world.

Hamiltonian economics resonates on both sides of the Pacific. Marius Trotter explores how China’s state-led industrialization and its system of state-owned enterprises have their roots in Hamilton’s protectionism, synthesized with aspects of Marxism. Perhaps, though, the U.S. may yet head in an even more Hamiltonian direction than contemporary China. For example, China is lifting capital controls while the U.S. considers reimposing them, suggesting that Hamiltonian central management of finance is returning to America. According to Klein and Pettis, the United States—along with countries such as the UK and Canada—resemble nineteenth-century Britain’s “imperial colonies” due to China’s investment of excess savings abroad such as in U.S. debt, driving China’s manufacturing surplus and increasing dependency of other states on China. Despite some Hamiltonian features of China’s economy, state-led industrialization may yet animate U.S. policy. 

The American republic is beginning to wake up to the socialist possibilities within capitalism—possibilities which are only starting to develop. Will attempts in certain democracies to “reindustrialize” lead to any sustained movement beyond financialized capitalism, as Nancy Fraser puts it? Furthermore, will the new industrial capitalism itself help societies move towards democratic socialism? Alternatively, will regressive measures such as the austerity-laden “Big Beautiful Bill” increase inequality and damage the social fabric? At this moment of intellectual confusion and contradictory policies, it is by no means clear what direction Biden, Trump, and the UK’s Starmer, to name but three, have set us on. Nor is it clear whether the rest of the world is faring any better in balancing the demands of the owners of capital with the pressing need to control capital and liberate labor. A consequence of Hamilton’s reports on manufactures and public credit was a system of national finance and protectionism that contributed to the abolition of slavery in the United States. Will a similar strategy today have similar effects, leveling social hierarchies, or are neo-Hamiltonian finance and protectionism just noise in a wider trend towards the concentration of capital? In the musical’s concluding words: “It’s only a matter of time.”