The American System

Bob Higgs reiterates a key observation regarding economic growth. Explicating the weakness of aggregation and the C + I + G + Xn method of attempting to understand and measure economic activity, Higgs does a great job of making clear the "engine" of economic growth and the "anchor" that tends to slow or retard growth.

The local paper this am had a brief article on point.


The reporter writes:

State officials tout Arizona's new Commerce Authority, a public-private partnership designed to woo companies and new jobs to the state, as the lynchpin that will help usher in a new era of economic development.

But public-policy groups and legislators are criticizing similar entities elsewhere in the country for not being open about their business dealings, inflating their job-creation numbers and doling out taxpayer dollars to unproven companies or businesses that have financial ties to government officials and board members.

What is interesting is, in the face of unintended and often perverse outcomes from state involvement or intervention in society, there is a significant level of support for this involvement. I wonder how much of this support is based upon rent seeking and how much support stems from the belief systems of individuals in our society. Public choice theory helps us to understand the former, it is the later that is, I think, more pervasive and powerful. Boyes and I have previously blogged on the topic of public discourse and the role played by elites or intellectuals in shaping public opinion and, over time, morality. Both Sowell and Hayek have analyzed the role played by both the intellensia and the media and supporting institutions. (Note: this is an excellent podcast by Hayek discussing this issue)

A point raised in today's Arizona Republic article caught my attention:


Traditional commerce departments are run by the state and answer to the governor, but the new setup blends public dollars and private-sector business leaders, meaning the board that controls the money doesn't automatically have to follow the same rules that govern state agencies.

The reporter calls this a "grey" area and I thought of Adam Smith's observation about the impact of merchants adovcating monopoly from the state. This process of achieving "special" status and ongoing operation does tend to take place in a grey area. This lack of transparency obfuscates the ability of individuals to see both the process of rent seeking and the outcomes of this rent seeking. The uproar in Wisconsin over efforts to bring public employee compensation into line with . . . come level of fiscal rationality I think reflects on the veil of ignorance that surrounds the fog of rent seeking.

I am teaching my US Economic History Class the "American System" of Hamilton and Clay. It seems to be that a valid discussion can be made pro and con about the efficacy of public or public/private infrastructure. The American System is one with deep roots in mercantilism and I think and exploration of a protectionist system is appropriate today - the combination of formal and informal institutional support for government involvement certainly predates the 20th century. The contrasting views of Gordon and diLorenzo as they look at the American advocate for strong government intervention would be the basis for a fruitful examination of the evolution of interventionist or statist thinking today.

Higgs work is also valuable in attempting to understand the belief system and set of norms that support and encourage deepening state involvement in society - the emergence of a welfare and warfare state rests to a large extent on these beliefs and conventions. Given the emergent and strong nature of moral codes it is, I think, important for those who advocate liberty and responsibility to recognize the power of alternative belief systems.

19th century United States economic activity was characterized by volatility, change and economic growth and improving economic welfare over this 100 years. This era was also one of the emergence and evolution of the American System of tariffs, central banking (first and second Bank of the United States), federal and state support for infrastructure as well as support for industry. A nice overview can be viewed here.

I am not satisfied with a response that economic growth and improving welfare in 19th century American took place in spite of intervention by the state. Like Douglass North, I would think that the process of economic change is so complex that we cannot begin to fully understand the deep interplay between individuals, institutions (both formal and informal) and change. That said, it is clear that the accelerating American System of the 20th and 21st century reflects a powerful and continuing set of informal institutions in our country.

It is times like today - Arizona consideration of Public/Private agency support for economic change, Wisconsin's fiery debate over unions, Chris Christie's work in New Jersey as examples, provide a forum for a civil and thoughtful debate over the American System.

Higgs' thoughtful critique of the American System:
Private Business Net Investment Remains in a Deep Ditch