Hamilton’s Trade Legacy Is Worthy of Song

This week marks the one-year anniversary of the Broadway opening of Lin-Manuel Miranda’s hit musical Hamilton. Since then, the show has become a cultural phenomenon that has inspired millions to learn the history of its protagonist, Treasury Secretary Alexander Hamilton, who turned the world upside down with his economic plan for the new United States.

Advocates of limited government have rightly criticized the real-world Hamilton for his interventionist inclinations. Hamilton, after all, championed bailouts, sin taxes, and aggressive central banking in the young nation. But Hamilton is not given enough credit for a piece of his economic agenda much more compatible with free markets: his early and successful push for free trade among the states of the early Union.

Under the Articles of Confederation, states were free to lay their own duties on imports from abroad, and even from other states. There was no requirement for consistency. This resulted in a patchwork of separate markets with tax barriers between them, which inhibited the development of national commerce. Additionally, the weak national Congress had no power to sign trade agreements with foreign countries. State governments, which could never be satisfied, pursued heavy taxes and trade barriers with a populist zeal that brought about a weak economy and violent public resistance.

Hamilton recognized early on the need for a central government to set trade policy at the national level, lest the economic separation of the various states create political separation as well. As biographer Ron Chernow writes, Hamilton believed that “unless a new federal government with a monopoly on customs revenues was established, disunion would surely ensue.”

Thanks in no small part to Hamilton’s influence, the new Constitution granted the federal government the sole power to levy duties on imports. Free market advocates might want to say no to this policy, but it was a necessary step to unify the several state economies into one single market without internal barriers. Hamilton himself best laid out the case for such unification in Federalist No. 11:

In summary, the single market could (and did) lower the cost of imported goods, promote healthy competition across states, and encourage the development of industries that powered America’s economy in the next century. It also put the United States on stronger footing to negotiate international trade deals, since thirteen states have more bargaining power than one.

Enforcing trade laws is also much easier when the only barriers are external. Internal trade barriers would require checkpoints at every state border, with an army of bureaucrats to collect duties and police contraband. As Hamilton wrote in Federalist No. 12, “the arbitrary and vexatious powers, with which [enforcement agencies] are necessarily armed, would be intolerable in a free country.”

Civil libertarians owe much to Hamilton, who foresaw and prevented the development of interstate trade enforcement agencies that would have put the TSA to shame. Imagine going through a customs checkpoint every time you cross a state border. With a single market, protecting only one border was necessary: the Atlantic Ocean. Hamilton did so as Treasury Secretary with a fleet of customs ships that would eventually become the Coast Guard.

Americans take for granted that we can buy corn from Iowa, oranges from Florida, gasoline from Texas, and salmon from Alaska without having to worry about tariffs or other trade barriers. Other countries are not so lucky. Canada never pursued its dream of a national single market with Hamiltonian fervor. As a result, there are still substantial barriers between provinces, and it is often easier for a consumer in Alberta to import from China than Ontario. This all costs Canada up to US $99 billion annually, equivalent to 7 percent of the nation’s GDP.

India is another country without a single market. Its Byzantine system of provincial taxes and tariffs, combined with a national-level tax on trade between provinces, has kept many of its people mired in poverty. Narendra Modi, the growth-oriented prime minister, wants to replace the current mess with a single national goods and services tax, but he appears helpless in the face of fierce political resistance. That is a loss for India—estimates suggest that such a reform could boost growth by up to 1.7 percentage points, adding hundreds of billions of dollars to the economy over a decade. Hamilton would no doubt approve of Modi’s efforts.

America’s current economic dominance is thanks in no small part to the early and rapid unification of its regional markets. Alexander Hamilton foresaw what unrestricted commerce could do, and he campaigned for it diligently and forcefully. Free trade between the states is perhaps Hamilton’s most underappreciated legacy—without it, 18^th-century America might have become the India of its time. Donald Trump and Hillary Clinton, who have both criticized trade over the course of the presidential campaign, might want to read up on “the ten-dollar founding father without a father.” History has its eyes on them.

Preston Cooper is a policy analyst at the Manhattan Institute. You can follow him on Twitter here.

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