Quentin skrabec

1. To Our Lady of Perpetual Help, whose picture hung in the homes
of tens of thousands of steelworkers in Western Pennsylvania in the 1900s
Vox clamantis in deserto
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2. The Pantheon
The Manufacturing Manifesto is a result of years of research into the Golden
periods of American business and capitalism. It has produced a number of iconic
biographies. At the seat of Jupiter is President William McKinley, who developed a
managed approach to tariffs. On his right side are business innovators such as H. J.
Heinz, George Westinghouse, and Michael Owens. On the left there are William
McGuffey, America’s educator, and Henry Clay Frick corporate organizer. The
Pantheon of books includes tributes to the many developers of early industry (The
Pig Iron Aristocracy, Boys of Braddock, and Iconic Lessons of Operations Management).
The many industrial laborers are honored in book A Genealogy of Greatness. Over
twenty of these “gods of business” are interviewed and questioned about today’s
problems in the book-Interviews with the Titans of Business.
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3. Read the full Pantheon
Other Books by Quentin R. Skrabec Jr., Ph.D (The Literary Pantheon)
The Boys of Braddock ISBN 0-7884-2516-1
George Westinghouse: Gentle Genius ISBN 978-0-87586-507-2
The Metallurgic Age ISBN 0-7864-2326-9
Michael Owens ISBN 978 1 58980 385 5
In Search of the Lost Grail of Middle Management ISBN 0-7618-2551-7
Glass in Northwest Ohio ISBN 13 978-0-7385-5111-1
Labor Productivity and Profits ISBN 0-7414-3890-9
St. Benedict’s Rule For Business Success ISBN 1-55753-254-0
Iconic Lessons in Operations Management ISBN 0-7414-2893-8
De Metallica Pertia ISBN 0-7414-3559-1
Saintly Lessons and Divine Concepts for Business ISBN 156072845-0
William McKinley: The Apostle of Protectionism ISBN 978-0-87586-577-5
A Genealogy of Greatness ISBN 978-1-934209-46-2
The Pig Iron Aristocracy ISBN 978-0-7884-4515-6
Interviews with the Titans of Business ISBN 0-7414-4536-0
H. J. Heinz: A Biography
William Holmes McGuffey
Henry Clay Frick
Quentinskrabec.com
Theironpantheon.com
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4. Prologue
For thirty years I have been researching and writing about the golden years of
manufacturing in America, creating a literary pantheon. I have written many industrial
biographies and I’ am presently extending that literary Pantheon. This Pantheon includes
H. J. Heinz, Henry Clay Frick, George Westinghouse, Charles Schwab, Andrew
Carnegie, William McGuffey, Edward Libbey, Michael Owens, William McKinley,
Charles Goodyear, and many others. I have researched the nature of the immigrants that
filled the factories as well as the capitalists who managed them. I have studied the
economics of the 19th century for clues in its creativeness and industrialism. There are
themes and factors, which can be recaptured. It is in this history of great industrialists,
capitalists, educators, scientists, and inventors that the seed of a future manufacturing
renaissance. I grew up in industrial Pittsburgh and managed in the steel industries. I came
from a family of steelworkers. No sight intrigued me more than the glowing orange night
skies of Pittsburgh that spelled prosperity. I played on the endless slag plies from the
Pittsburgh steel mills, and found a love of nature in Frick Park named after one of
America’s most committed capitalists. I found a love of learning in the Carnegie libraries
and the great Carnegie Museum. Winning a science award from Buhl Planetarium in
eight grade, I met a scientific hero in Werner Von Braun. My best Christmas gift was and
always will be my Gilbert chemistry set. I lived through the glories and the fall of
American industry. I got my undergrad degree in engineering from the University of
Michigan, where a learned the automotive industry. While in Michigan I found my
favorite piece of American geography in the Henry Ford Museum and Greenfield
Village. I have a passion for manufacturing, and ultimately got a PhD in manufacturing
management.
My whole life has been spent in the “rust belt” from Detroit to Cleveland to
Akron/Canton to Pittsburgh. I saw the “final” glories of these cities. We have been told
that free trade policies would be the engine of our economy only to see a factories close.
A group of in vogue “Austrian school” or “Chicago” economists have told us for years
that free trade is the pillar of capitalism, yet American capitalism saw it glory on the
protectionist (managed trade) policies from 1850 to 1910. Sociologists of the same school
have told us what is good for the world is good for America. My conservative brothers
have left me standing alone on managed trade. The idea that America is exceptional has
been debunked, and replaced by the idea that we are merely a state in a big world.
Environmentalists tell us that America uses more than its share and our standard of living
must be reduced. Manufacturers, like me, lament the passing of American capitalism,
American exceptionalism, and domestic production. Our prayers and hopes remain in a
return of American capitalism and manufacturing.
American capitalism differs from capitalism in that it is specific. It puts a
premium on freedom and the pursuit of happiness. That premium is reflected in fair
wages and a higher standard of living. It does not ignore the world, but offers a beacon
light for it. It rewards hard work and those that advance society and freedom. It allows for
American exceptionalism. It was only in 2000 that I visited a shrine to that type of
American capitalism. The shrine sits in the heart of the rust belt in Niles, Ohio. It is here
that America’s great industrialists honored their fallen President William McKinley. It is
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5. a pantheon of bronze busts of forgotten heroes that has inspired my life quest of building
a literary pantheon of American capitalism. It is doubtful that any American school child
today would recognize these rows of bronze. I believe that America will have a
manufacturing renaissance, but the polices since the 1950s have taken on the opposite
path. This manifesto offers a different path. It details a renaissance as much as a
revolution in manufacturing. It goes belong merely opening old factories, and suggests a
new type of manufacturing.
A Manufacturing Manifesto
We are still awaiting the Manufacturing Revolution. The Industrial Revolution
was merely one of quantity and methodology. The Manufacturing Revolution will be
when the mind of man, not the hand of man does the manufacturing. It will represent the
confluence of information systems, computer technology, and robotics. It will be one of
man’s greatest ages, far surpassing the “information age.” It will be an evolutionary
change more than revolutionary. It will require having infrastructure in place. This
confluence is actually under way in places like the old steel slag dumps of Pittsburgh,
which I spent my youth. It is on these slag piles of the Industrial Revolution that
Carnegie-Mellon tests its robots. This is more than symbolic, the manufacturing
revolution will be born in the factories of the industrial revolution, and that process is
under way. Whichever country wins this revolution will be the next super-power. It will
be a social revolution as well, where robots replace cheap labor or highly productive
labor replaces that of cheap hands. The struggles of labor and capitalists will change
dramatically. The very role of a manager will change. It will not necessary eliminate jobs,
but create a new class of jobs. It will be a world augured in Isaac Asimov’s robotic
trilogy. It will bring new challenges with its many blessings, but it will require
investment and innovation now. Future success is dependent on creating a vision today.
Another often-overlooked part of any manufacturing thrust will be abundant and cheap
energy.
The ability to manufacture has been used to define man’s evolutionary progress.
Man has been classified not by brain size as much as by the complexity of his
manufactured tools. Even the Bible marks man’s advance in terms of manufacture,
progressing from Tubalcain, the father of all manufacturers. Early primitive American
civilizations are distinguished on the manufacturing prowess to move from the Clovis to
Folsom point technology. The Folsom point representing the best of flint pressure-flaking
manufacturing, which opened up new horizons in hunting larger game. The Assyrians
manufacturing skills created one of the world’s first great civilizations, as did the
Egyptians. These were societies built on manufacturing and building, as were their
military empires. The Hittites built the first iron-based civilization and ruled most of the
known of the west with their metal working superiority. The Philistines held Israel
captive by not allowing them the knowledge of working metals.
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6. Manufacturing remained the heart of ancient civilizations regardless of political or
social organization. As early as 1700 B. C., the Chinese had developed a national
industry of trades under the autocratic rule of the emperor. Official state workshops
ranged from a few hundred employees to thousands of employees. The Song Dynasty in
the seventeenth century B. C. established a national Ministry of Works. The craftsmen
lived in government controlled collective workshops in a type of civil monastery.
Craftsmen reached the highest level of skill under this specialized organization.
Production was often inspected and rewarded personally by the emperor. Quality of
manufacture was considered a reflection of the nation’s soul. This type of nationalistic
pride in manufacture would augur the early Greeks, Egyptians, 19th century Americans,
Nazi Germans, and Japanese of the late 20th century. It was a type of national self-
actualization through manufacturing achievements, which a nation becomes the aggregate
craftsman. It was the type of manufacturing pride seen in the World Fairs of the 19th and
early 20th century. Manufacturing pride can replace that of war in civilizations.
The world’s great culture has been a result of man’s ability to manufacture.
Agriculture and manufacturing have been the basis of civilizations and great empires.
Again it has been the advance of manufacture that allowed for significant advances in
agricultural productivity. The Egyptians, Greeks, Romans, Hittites, Persians, Chinese,
and other were all expert builders and manufacturers. The lesson of western nations is
that the failure to develop and maintain manufacturing has resulted in the fall of great
empires. Many may argue that today we are in the Information Age, and that will be the
basis of future empires, civilizations, and cultures. The ability to process data, however,
has always been limited by the ability to manufacture more miniaturized silicon chips.
The chip is the limiting factor not the knowledge of computing. Most philosophers such
as David Hume, Adam Smith, and Henry Kames, agree that the way people of a nation
earn their living defines the country’s laws, government, and culture. It should be
remembered that manufacturing, science, and industry drive information technology, not
the other way around. Manufacturing is an economic policy, a social philosophy, and the
touchstone of the level of civilization.
Furthermore, there is an inherent love of man’s ability to rise above nature, and to
create and manufacture things. We see it in our love of architecture and building, and in
the earliest playing of our children with toy blocks. We learn by trying to re-order our
world. Our greatest tribute to our God was in our cathedrals and churches. Manufacturing
is the touch mark of the human soul. It is even reflected in our great literature such as
Robinson Crusoe, which birthed centuries of novels down to this day. The Robinsonade
was the technique of the master fiction writer Jules Verne, which hailed man’s ability to
survive through primitive manufacture. We never lose interest in watching man create
from nothing. Manufacturing is part of man’s psyche. An attribute that was exploited by
the early monastic communities of Roman soldiers in Africa.
Medieval Europe moved out of Feudalism and the Dark Ages on the back of
manufacturing. No one understood the importance of manufacturing and the nature of
man better than the monk St. Benedict, whose followers would build over 40,000
monasteries throughout the world. It is in the monastic business model that we can find
many answers for globalization, since globalization has its roots in the monastic
manufacturing centers of the Middle Ages. Benedict’s vision of human nature became
“prayer and work,” putting manufacturing on the level of prayer. Benedict saw self-
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7. actualization in man creating with his hands. Monastic manufacturing resulted in a
revolution in management, science, and information technology. Their vertical
integration offers powerful lessons in supply chain management. No similar historic
model offers a successful blend of green and lean. They built green operations that
included the world’s first fisheries and forest management. They found energy
independence in the wind and water. While their monastic network was worldwide,
stringing hundreds of monasteries together, they found favorable local production to limit
transportation costs. It was an energy efficient model with many applications for today.
Their great libraries and information collection was related to their need to advance
manufacturing into new areas.
Christian monastic communities and monks represent some of the world’s oldest
factories and trade centers. The Monastic business model includes the age-old
monasteries such as the Benedictines, American communal societies such as the Shakers,
and German separatists such as the Harmonists. These manufacturing engines were based
on similar rules for organizational success, and a belief that man finds self-actualization
in his ability to produce. They pioneered industries such as brick, glass, food processing,
and iron making. These monasteries revolutionized agricultural techniques, fisheries, and
harvesting in Europe. Monasteries evolved rapidly to become self-sufficient and green,
and then from that base spread capitalism to deal with their surpluses. For centuries, the
monasteries of Europe fed, employed, and trained craftsmen. They employed and taught
the commoners in agriculture. In the 15th and 16th century, they revived a broken world
economy. They were not only economic engines, but also centers of innovation and
knowledge. Beyond manufacturing techniques, they established organizational principles
for economic success. Pioneering the science of Human Relations and personnel
management. The monks were brilliant at information management, data base creation,
and data mining. The medieval monasteries were the original “knowledge creating”
organizations, inventing and innovating to advance productivity. Their inventions include
the glass kiln, blast furnaces, assembly line techniques, improved bricks, fisheries, crop
management, sheep shears, grinding wheels, water power, turbines, deep mining, and
textile manufacture. Their organization offers the businessperson insights into building
successful and productive organizations.
Probably the most overlooked part of their manufacturing was their green
approach. Green was a necessity for these monasteries. Resources were often in short
supply, and their agricultural roots had honed them in recycling. Their sanitary systems
were state of the art. They advanced intensive farming to maximize the use of land, and
developed crop rotation practices. They learned to use all parts of the cattle, sheep, and
horses. Reduction of waste, in a resource short world, was the core to their success. Like
Toyota, in the 1980s, monasteries realized waste and high inventories clogged
manufacturing systems. Energy was a limiting factor and had to be conserved, while
searching out new sources. These monks were efficiency engineers that got the most out
of their resources, developing wind, solar, and waterpower. They not only conserved
resources, but also through technology and productivity drove manufactured products
prices down. They balanced green and economic needs, allowing manufacturing to
become an extension of man’s natural evolution.
These monks were true organizational geniuses, combining scientific
management with group innovation. They were the first to define organizational mission
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8. statements and set corporate goals. They combined and utilized Roman law and military
organization to build highly efficient factories. They combined Christian principles to
motivate employees. At heart was the concept that manufacture had to be combined with
prayer, and through this combination you can achieve self-actualization. They pioneered
paternal capitalism that was founded on individual improvement. They build research and
development centers that improved all phases of manufacture. They invented the very
principles of scientific research. They built great libraries to store scientific and
manufacturing data for improvement. Data mining was used to make information work
for them in their production techniques. Their organizations are the world’s most
successful and oldest. Their principles, techniques, and management approaches are
timeless and the organizations they created. More recently, businesses and colleges have
turned to these principles for competitive advantage.
What is at the root of this organizational and economic success? The monastic
approach honors work on a level with prayer, which centuries later would be honored in
America as the “Protestant Work Ethic.” In fact, it was 20th century German sociologist
Max Weber that attributed the success of American capitalism to its religious based work
ethic. Weber praised manufacture, as did the monks, as Godly. The basis of these great
monasteries was their organizational rules, such as the Rule of St. Benedict. These rules
reinforced organizational infrastructure, established manufacturing, built a work ethic,
and fostered creativity. The rules were based on Roman organizational principles,
government, and military procedures. The earliest second century rule of Pachomius had
been developed out of necessity to sustain a desert community. Pachomius was an ex-
Roman soldier, who knew the importance of organization. The most famous rule was
created by Benedict of Nursia (480-547), and spread by Gregory the Great (540-604).
Both these men came from old Roman senatorial families, and experienced personally the
fall of the Roman Empire. Their personal experience of the entropy and anarchy of the
Roman fall inspired a desire for a lasting organizational order. These organizational rules
offered the cybernetic guidance needed for stability and growth, and became incorporated
in manufacturing management.
It would be the Benedictine Rule that spread order, an inherent praise of
manufacture, and economic growth. Like the desert fathers of Pachomius, early sixth
century monasteries worked for basic needs. They applied and advanced agricultural
science, but self-sufficiency took them into tool making. Monks became skilled
blacksmiths to produce plows and carpenters to produce wagons and harnesses. They
improved on Roman technology such as the padded horse collar to improve efficiency
and productivity. The core of their manufacturing strategy was self-sufficiency or what
we would call vertical and horizontal integration. Blacksmithing took them into mining
and metallurgy in the seventh century. Blacksmiths produced nails and horseshoes. They
expanded into sheep herding to produce woolen clothing, developing iron shears among
the way. By the ninth century, success allowed them to more into construction, masonry,
and brick making. Charlemagne (771-814) recognized their organizational genius, and
their principles were applied to government and education. By the tenth century, these
monasteries were the economic engines of Europe. Capitalism was born in the great
surplus these monastic organizations produced.
They moved from self-sufficiency to surplus supply and mass production. The
need for productivity improvements led to advances in technology. Energy became
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9. critical to expand growth, leading to the full application of waterpower and wind power
to power grain mills, forges, winepresses, breweries, glass houses, and iron furnaces. By
the eleventh century, the monasteries were the food processing factories of Europe.
Clothes manufacture stimulated dye and loom technology. As trading and mass
production increased, the monasteries moved into banking to support the economic
boom. Increases in productivity allowed for more time to pursue intellectual arts, which
also inspired the production of paper and ink. Bringing their pragmatic approach to
science, chemistry emerged out of alchemy, physics out of magic, and astronomy out of
astrology. The combination of encyclopedic knowledge and manual arts led to the
foundation of crafts guilds. Monastic principles instilled quality manufacture into the
system, and manufacturing pulls in science and technology advances just like the pull
systems of inventory control.
Today’s businessperson may wonder how the study of “religious” rules might
apply to the business of business. First it would be a mistake to look at monastic rules as
prayer books, they were not. They dealt with the practical problems of mission,
organization, management, manufacturing, authority, and corrective action. The Rule of
Benedict remains today, the Western World’s oldest living document. It is the only
document to fully embrace the pragmatic civil laws, military principles, and organization
of the Roman Empire. The rule understood that manufacturing and crafts were in the very
soul of man. These rules were guides as to how to run a complex monastery, similar to
ISO 9000 in today’s business world. While ISO 9000 makes for a simple analogy, the
rules were much more pragmatic, more of a medieval managerial handbook. While
standards or rules of today such as ISO 9000 are strategic, monastic rule translates
strategy into organizational tactics. The rules did not make saints, but created efficient
organizations. No modern standard can boast as Benedict’s Rule, organizations of 1500
years. Benedictine organizations that have outlasted empires, religions, government,
natural disasters, and nature’s own entropic drive. Benedictine organizations today exist
within every type of political and cultural environment. No simple organizational
document has lasted and been used for 1500 years, except that of Benedict’s Rule. This
longevity and cultural regeneration is the very heart of the Rule, and manufacturing with
prayer was the soul of Rule.
The success of monastic manufacturing and business is not limited to the Middle
Ages, but finds a different renewal in the American 1800s. The early 1800s saw the
influx of Protestant immigrants, mainly from Germany, committed to communal business
communities. These were religious communities of families. The largest such as the
Shakers, Mennonites, Harmonists, and Zoarites were well known for their quality
products, and a belief that work is at the heart of society. Like their Middle Age
predecessors, they lived under strict organizational and religious rules. Most were
German Separatists, but many used the secular model of Robert Owen in the 1800s.
Owen had studied the success of the Shakers and applied it in a non-religious setting.
Owen had created a communal manufacturing center at New Lanark, Scotland in 1800.
New Lanark applied a paternalistic type of capitalism. The community provided
education, housing, and medical help. The model was highly productive, competitive
with the best textile mills of the time. Robert Owen came to America and the Harmonists
in Pennsylvania and Indiana readily accepted his ideas. The paternal capitalists of the late
1800s, such as H. J. Heinz and George Westinghouse, adopted many of Owen’s ideas.
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10. These early American monastic ideas formed the basis of America’s golden
manufacturing era.
Countries that do not manufacture are destined to lesser roles. Rome’s final fall
saw it completely dependent on other countries for food and products. Few countries
have risen to the top tier as merchant nations, exceptions being Venetians and the Dutch,
but even these embraced glassmaking and shipbuilding. In the early 1840s, Great Britain
fully embraced free trade theories of Adam Smith. In 1851, a backward protectionist
country shocked many of the industrial equipment exhibits of the world’s Great
Exhibition held in Britain in 1851. Prince Albert was so shocked; he formed a national
review to identify the factors in America’s manufacturing success. By the 1860s, British
machine makers and tool and die makers were emigrating from Britain to America. By
the 1870s, an even more protectionist America was leading in machine and railroad
equipment manufacture. Britain remained proud and an apostle of free trade. In the
1890s, protectionist America eclipsed Britain’s iron, steel, machine, glass, ceramic,
chemical, and most other industries. Germany’s Bismarck saw the decline of Britain, and
moved to build German industry like America, using focused protectionist principles.
With Britain’s decline in manufacturing came its decline as the world’s superpower. The
point is not to favor protectionism over free trade, but to put manufacturing at the heart of
national policy. Free trade is however, the capitalist’s Achilles heel. It offers new markets
and draws in the capitalist, but then destroys its very home base.
Manufacturing is the base of any economic philosophy. Bismarck of Germany in
1800s built up industry around his nationalistic socialism. In effect, Bismarck developed
a national community for manufacturing. Bismarck moved from national free trade to the
type of managed trade that had led to America’s success. Bismarck believed that working
people were happier and better off, but he worried about the abuses of capitalism.
Bismarck found much success in extending the paternalism of Adolf Krupp to a nation.
The danger is that National Socialism can take workers to a form of economic slavery.
Andrew Carnegie tied a welfare type of capitalism with paternalism. The ideal operating
environment would appear to be some form of paternal capitalism such as that of George
Westinghouse and H. J. Heinz. Manufacturing without the hope of someday being a boss
or owner is but slavery. Smith believed this type of economic slavery must be avoided.
There are social costs associated with bringing in imported cheaper goods, which Adam
Smith overlooked. Manufacturing supplies the jobs needed for growth, and makes trade
possible. Adam Smith knew nothing of currency fluctuations between nations as we have
today. His experience was not manufacturing based but that of trade markets of Glasgow,
Scotland.
Even Marxist governments were aware that the real economic power resided in
the heavy industries. Communist countries focused on the development of heavy industry
because of its pull of dependent demand, its militaristic dimension, and its potential of
full employment. Small German and American communal manufacturing communities
proved highly successful in the 1800s, with the same type of “communist” control to
promote manufacturing. Manufacturing can supply jobs and a standard of living, not
possible in trading based societies. China has shown this very power of manufacturing in
a mixed political and economic environment. Alexander Hamilton argued that capitalism
and manufacturing were sisters, but China is example of manufacturing making any
model that includes manufacturing an economic success. Still, manufacturing can achieve
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11. its greatest potential in a capitalistic model; however, government must always be the
auditor and regulator of capitalistic manufacturing. Capitalism inspires man to work, but
it can lead to greed, and that is why regulation is part of the American capitalism. The
basic concept of capitalism motivates society to produce more. Manufacturing certainly
reached its highest success in the American industrial age, where capitalism, American
exceptionalism, and democracy ruled.
The rise of America over the great British Empire was manufacturing based. In
many ways, Britain had abdicated its world leadership preferring to become the world’s
merchant in the 1860s, when it moved to a free trade policy. Britain realized that to be a
merchant, it needed manufacturing, and reset it goal to become a banking and financial
center. The result was Britain passed as one of the world’s leading manufacturing
countries. America seems determined to take the same path. America has now abdicated
its leadership to Asia preferring to be the world’s marketplace. Free trade has become our
mantra and Adam Smith (1723-1790) our hero. We can look to Europe as our future.
Both American political parties are free traders, and since the 1930s Adam Smith has
been accepted as economic dogma. Liberals and misguided conservatives have found
common ground in free trade policies.1 Tariffs have been effectively blamed for the Great
Depression. This logic has created a generation that sees free trade as a given. Yet, few of
these followers had read the behemoth Wealth of Nations. Adam Smith was far from a
purist as his followers are today. He made exceptions on free trade for industries
necessary for a country’s defense or culture. He allowed the British to protect its
shipbuilding and France to protect its wine. A “fair trader” today is considered
uneducated and ignorant of enlightened economics. A “protectionist” is a dumb nativist
lacking education and blindly patriotic. An economist that suggests any benefits of
protectionism has the same lunch table as the university creationists. The protectionist
and fair trader have even been expelled from their natural home in conservative politics.
They are in ideological exile.
Adam Smith’s 900 page manifesto was framed in the Britain of the 1700s. He
argued for free trade based on a provincial model. The Union of Scotland and England in
1707 represented the largest free trade zone in Europe, which created an economic boom
in Adam Smith’s Glasgow, Scotland. England had successfully moved out of its
provincial tolls and tax system. The economic success of free trade was based on British
internal free trade versus the clogged internal customs and tolls on main land Europe.
Proponents of world free trade today miss the point that the only true analogy to Smith’s
view today would be trade between the states of America. Furthermore, does it make
sense to put our faith in Adam Smith, who never saw or heard of the Industrial
Revolution? Most if not all tariffs of Adam Smith’s lifetime were on agricultural
products. A man from a world dominated by craftsmen and small merchants. A man who
knew a world of only a handful of manufacturers, and a handful of developed countries.
Had Adam Smith seen the economic power and employment of large industry, he would
have deemed it as necessary for a nation. Adam Smith was right in seeing all trade as
local and capitalism as national. Lacking a one world movement and system, there can be
1
Free Trade is used to identify a government policy. The term is really duty-free in
practice. Protectionism is really managed trade as successfully employed in the 1800s.
Fair Trade is an acceptable and preferred term for protectionists, but out of vogue as a
term. Politicians have beaten back the use of the term fair trade.
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12. no other view. The real fact is that both free trade and full protectionism are ideas that
need open review. Like politics, all trade is local.
American Capitalism and a Vision of a Democratic Manufacturing Utopia
The father of American manufacturing is none other than Federalist
Alexander Hamilton. It is unfortunate that conservatives have embraced the political
ideas of the Federalists, but have totally ignored the economic policies of Federalists.
American exceptionalism and sacrifices demands a premium for our labor. Hamilton’s
Report on Manufactures should be a guiding document. The following is an important
excerpt: “But though it were true, that the immediate and certain effect of regulations
controlling the competition of foreign with domestic fabrics was an increase of price, it is
universally true, that the contrary is the ultimate effect with every successful
manufacture. When a domestic manufacture has attained to perfection, and has engaged
in the prosecution of it a competent attend the importation of foreign commodities, it can
be afforded, and accordingly seldom or never fails to be sold cheaper, in process of time,
than was the foreign article for which it is a substitute. The internal competition, which
takes place, soon does away every thing like monopoly, and by degrees reduces the price
of the article to the minimum of a reasonable profit on the capital employed. This accords
with reason of the thing, and with experience. Whence it follows, that it is in the interest
of a community, with a view to eventual and permanent economy, to encourage the
growth of manufactures, in a national view, a temporary enhancement of price must
always be well compensated by a permanent reduction of it.”2 Hamilton’s thesis would be
proven in the1800s. Tariffs built up domestic manufacture and encouraged technology
investment that actually lowered prices long run. In addition, domestic competition was
strong enough to prevent monopolistic behavior. Hamilton saw capitalism as national in
scope. Hamilton’s and Federalist views led directly to the “American System” of Henry
Clay.
American capitalism was directly related to the political foundation of
Henry Clay’s “American System.” Clay’s American System was a protectionist approach
to protect American industries via tariffs, and an aggressive approach to national
improvements. The Federalists and the Jeffersonians would split on this to form the Whig
Party. To fully grasp the roots of Clay’s economic philosophy, one must first understand
Thomas Jefferson’s vision of the nation. Jefferson envisioned an agrarian society of
farmers and merchants. In 1790, an estimated 90% of the American population was
employed in agriculture. His vision demanded free trade to assure that American crops
could move into foreign markets readily. Jefferson had grown up in a tobacco and cotton
culture that depended on European purchases and their crops. While he believed in farm
self-sufficiency, he feared the industrialization that he had seen in Europe. Hamilton on
the other hand saw America’s freedom rooted in its ability to achieve economic freedom
through manufacturing and banking. Hamilton, the soldier, was well aware of the role of
technology and manufacturing in the ability of a nation to win wars, and believed that
manufacturing was fundamental to America’s freedom. Hamilton as a young officer
found the colonial army constrained by lack of iron cannon and rifles because of the lack
of American manufacture. America’s moved to cheap dumped British iron after the
Revolutionary War, only to be caught again short of manufactured arms for the War of
2
Alexander Hamilton, Report on Manufactures, January 15, 1790
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13. 1812. Interestingly, President William McKinley would have the same experience in his
regiment during the Civil War, and it would be President McKinley that was the golden
era for pig iron protectionism. Hamilton, however, remained a opposed to across the
board duties, like many of his federalist friends, believing that financial systems were the
basis for industrialization. Still, at the very root of Hamiltonian Federalism was
government’s role to promote industry. Actually, the Federalists were split on tariffs,
some seeing no need for them because America lacked manufacturing, and others seeing
tariffs as a source of federal revenue. Hamilton envisioned protectionist tariffs to help
develop particular industries. Even today we allow a 50 cents a gallon tariff on Brazilian
ethanol to promote the domestic development of this industry.
Both Jefferson and Hamilton were constrained by the agricultural nature and lack
of manufacturing in America at the time, as well as by earlier colonial British constraints
on industries such as iron making. These British prohibitions such as the British Iron Act
of 1750 had infuriated Scotch-Irish iron makers like James McKinley (William
McKinley’s grandfather) in western Pennsylvania. In particular, the Scotch-Irish moved
to the Ohio frontier to avoid tax laws. The Iron Act of 1750 allowed for all raw bars of
smelted iron known as pig iron to be shipped to England duty-free, but outlawed the
production of iron products, such as kettles, skillets, stoves, forged iron for guns, and
steel for the blacksmith shop. These frontiersmen remembered and vowed never to be
economically restrained again by any government. Many of these same Scotch-Irish
would flee western Pennsylvania to Ohio, Kentucky, and Tennessee to avoid the federal
tax on whiskey manufacture in 1794, and would become part of the political base of
frontier politician Henry Clay. It would be a base that often disagreed with Clay wanting
cheap imported goods, but believed in America.
The rural nature of early America colors the approach of the Federalists papers.
But make no mistake about it; if the Federalists were to see the erosion of the
manufacturing base today they would be appalled. The Federalists believed firmly in the
function of government to regulate commerce. The Federalists were supporters of tariffs
to protect American agriculture, but foresaw a day when a different movement would be
necessary to promote manufacturing.3 James Madison also argued the regulation of
foreign commerce was a function of the federal government.4 They would quickly see
through the idea of “free” trade, and realize the nature of the economic warfare we find
ourselves. They would well remember their dependence on England for iron when the
War of 1812 began. That lesson would help form the Whig party that saw manufacturing
as fundamental to national security. The Whig Party saw strong manufacturing as part of
national defense, and even Adam Smith saw national defense trumping free trade
concepts. The anti-government Scotch-Irish, who a rebelled against federal taxes,
believed that the federal government should promote manufacturing as a national defense
issue. These freedom-loving patriots realized that economic freedom was necessary for
political freedom. They have suffered centuries both in Europe and America from British
control of their manufacturing. Similarly, the American declaration of economic freedom
preceded the Declaration of Independence by two years.
The Whiskey Rebellion of 1794 more than anything caused a political divide in
the Scotch-Irish along economic lines. The wealthy Scotch-Irish industrialists and the
3
Federalist Papers, James Madison No. 41
4
Federalist Papers, James Madison No. 42
13

14. Presbyterian Church leaders had supported the Federalist application of the law. Their
poorer cousins in the Pennsylvanian hills opposed a strong central government and taxes
on their whiskey. The whiskey tax forced these frontier Scotch-Irish into Jefferson’s
“Republican” Party, and the 1820s, “the clapboard junto” of Pittsburgh (those who lived
in clapboard houses) put together a strong opposition to the Federalist manufacturers. The
Jacksonain Democratic Party (known as the clapboard democracy) controlled the area,
but Pittsburgh’s congressmen were protectionists, who sided with Henry Clay in
Congress. Clay’s Federalism and strong support of manufacturing turned western
Pennsylvania, eastern and southern Ohio, Northern Kentucky, and Maryland into a
stronghold for “Clay Federalists.” Clay’s system built a manufacturing base in the
Midwestern and New England states. Pennsylvanian Henry Baldwin supported Henry
Clay’s American System with an iron fist. Pennsylvania Senator Judge Wilkins became
known as the “iron knight” in his support of iron tariffs. The manufacturers ultimately
wrestled the vote away from the democrats as Andrew Jackson’s policies turned anti-
manufacturing. These manufacturers often held dinners for national protectionists, such
as Mathew Carey and Henry Clay. Near-by manufacturing cities such as Steubenville,
Ohio and Wheeling, Virginia developed a manufacturing network through Clay and
Carey. Matthew Carey would become a proponent of managed trade and an advisor to a
young Abraham Lincoln. Clay and Carey (and Hamilton) would be heroes to future
Presidents Lincoln and McKinley.
If President William McKinley’s economic roots can be traced to Henry Clay then
Clay’s roots can be traced to Federalist and first Secretary of the Treasury, Alexander
Hamilton. And like McKinley, Hamilton learned his economics as an army supply
officer. Hamilton, while on Washington’s staff, had struggled to get their soldiers
clothing because of America’s dependence on British goods. He also learned the hard
lesson of inflated dollars as merchants rejected government notes. His experiences would
be the foundation for Hamilton’s classic in 1791, the Report on Manufactures, which
“prophesied much of post-Civil War America.”5 It would augur both Henry Clay and
McKinley’s approach to government as it related to national industrial planning, and the
importance of protecting such industries as pig iron. Hamilton was the first to suggest a
scientific approach to tariffs versus across the board revenue tariffs. First defense and
national industries were to be protected, followed by targeted infant industries. He argued
for lower tariffs on raw materials to help industry. This is why you must manage trade for
the good of the country. These early founders invested federal money in the development
of canals and roads to expand manufacturing. Hamilton would win many disciples
including Henry Clay.
Henry Clay was a Virginian lawyer who moved to Kentucky to launch a career. In
1810, he was elected to the United States Congress. Clay was a nationalist, patriot,
republican, Founder of the Whig party, and a Federalist. In his junior years in the Senate,
he advocated a strong national bank and a national road system. Often Clay favored the
good of the nation over his own constituents in Kentucky. His oratory, compromising
skills, and patriotism brought him quickly to the position of Speaker of the House. Clay
not only fashioned the position of House Speaker, but he formed the powerful standing
committees such as the Ways and Means Committee, which would be the pedestal to
launch the career of William McKinley years later. Clay also created a Committee on
5
Ron Chernow, Alexander Hamilton, (New York: Penguin Books, 2005), 374
14

15. Manufactures to help stimulate American manufacturing as Alexander Hamilton had
suggested years earlier. Clay appointed members for these powerful committees, and thus
centralized legislative power under the position of Speaker. Clay used the power to create
a national infrastructure for an industrial America. Clay’s vision of an industrial empire
took him from Jeffersonian Republicanism to Federalism and then to conservatism and
republicanism. Some Federalists, however, were New England based free traders. Clay’s
arguments and the rise of American manufacturing won over many Federalists who
believed in the destiny of the American republic as a world power. Clay had grown up in
the economic debates between the Jeffersonians and the Federalists.
Amazingly, the early Jeffersonians promoted duty-free trade were possible to
assure tobacco and cotton plantations could trade with England. British dumping of
defense related materials such as iron, saltpeter (for gunpowder), foundry products,
hemp, and an array of manufactured goods. America had become dependent on Britain,
and might have faced a major defeat in the War of 1812, when providence intervened a in
the years preceding the war. Political disagreements with England required some strong
action. Jefferson imposed an embargo (the ultimate tariff) on some British goods and
later there was a British embargo. The lack of iron, in particular, caused the start-up of
America’s iron furnaces that had been dormant for decades. Saltpeter and gunpowder
mills were re-started. American manufacturing was created as foundries and forges
opened again. A mini economic boom resulted. The result was an industry, while still
weak, could supply the American fight. America would win the war, but Brittan would
later turn to economic warfare to break the young American nation.
The struggle and the delineation of these competing visions of agriculture and
industry would evolve as the nation evolved. By the dawn of the 1800s, the nation had a
developing manufacturing sector in New England. America was learning to produce
guns, gunpowder, farming implements, and textiles. Even Jefferson marveled at the
industrial growth and its contribution to the nation. Yankees had smuggled in new
automated looms from England and American textile manufacture moved to a new level.
The acceptance of automation had given American textile manufacturers an advantage
over the labor-intensive British industry. Its own anti-automation proponents known as
Luddites had held England back. Furthermore, the War of 1812 had caused a surge in
American textile production as part of the need for economic freedom, as well as, a boom
in iron manufacture in the middle states. The McKinley family would ultimately purchase
one of those infant iron furnaces of 1812 in Niles, Ohio in the 1850s.
The War of 1812 and the economic warfare that followed extended into the
1820s, and proved Hamilton’s view of the need for economic independence. The British
attempted to destroy the American textile industry by dumping huge quantities of British
textiles on American docks. The British similarly dumped cheap pig iron to suppress the
American pig iron industry. Henry Brougham in Parliament declared, “It was well worth
while to incur a loss upon the first exportation, in order, by the glut, to stifle in the cradle,
those rising manufactures in the United States.” The British were more successful in this
type of war bankrupting hundreds of American manufacturers and closing charcoal iron
furnaces throughout the country. Lord Brougham in Parliament of 1816 summarized the
strategy: “ It is well worth while to incur a loss upon first exportation, in order by the glut
to stifle in their cradle those rising manufacturers in the United States which the war has
forced into existence contrary to the natural course of things.” The northeast put political
15

16. pressure on Congress to save its textile-manufacturing base, and the Pennsylvanian,
Virginian, and Ohio pig iron producers and users joined the political pressure. That
pressure would build and lead to the formation of the “American System” of Henry Clay.
Congress hesitated to act, torn by competing regional goals. The southern cotton
growers opposed any tariffs on British goods, believing Britain would retaliate with
tariffs on cotton and tobacco. The major portion of the South’s cotton and tobacco went
to Great Britain for processing. Furthermore, even the northeast representatives were torn
between the textile manufacturers and the merchants, who favored free trade. The
struggle in congress in 1816 would produce a new champion in Henry Clay, Speaker of
the House. The congress appeared hopelessly deadlocked on the issue. Clay built an
alliance for the tariffs based on nationalism versus regional politics. The debate took
place in a temporary brick building (at the site of today’s Supreme Court), known as the
“Old Brick capitol. The city of Washington lay in ruins after the sacking by the British,
and offered a stark reminder to Congress of the need for a strong defense. Clay found
allies in southerners John Calhoun and President Madison, who would help tip the
balance. Clay brought in the middle state representatives who had suffered from British
dumping of iron products to suppress American industry. He astutely played on rising
nationalism and anti-British sentiments to bring in enough southern votes to pass the
tariff. The embryonic Pig Iron Aristocracy rallied behind Henry Clay. The result was
America’s first tariff- the Tariff of 1816, which established duties of 25% on cotton and
wool products and 30% on iron products. The Tariff of 1816 would help the financial
security of the Pennsylvanian ironworker families, such as that of the future William
McKinley.
Clay had by the Tariff of 1816, not only broken from Jefferson’s thinking, but that
of his own Federalist leanings of free trade. The Federalists were split because tariffs
appeared to be a heresy. Many Federalists were free-trader Yankees, even thro they
favored helping national industries. The split would eventually lead to the Whig Party.
Clay forged a new path for American capitalism that was nationalistic and economic. It
was a Magna Charta of American economic freedom. Clay realized that economic war
was a reality in the world of the 1800s. Clay’s vision was similar to Jefferson’s, differing
only in that industry was substituted for agriculture. Like Eisenhower in the 1950s, Clay
envisioned a system of national transportation to support industrial growth. Clay molded
a powerful new philosophy, which blended Jeffersonian independence with economic
manifest destiny. Clay went further to justify his American System by blending in
American moral superiority with nationalistic capitalism. The momentum had turned in
Clay’s favor by 1824. The struggle, however, would not end as skillful opponents arose
such as Daniel Webster.
Congress in 1824 moved to debate even more extensive tariffs. Clay, the orator,
would emerge as leader of this industrial movement. He thundered in Congress with an
oratory reminiscent of Patrick Henry a generation earlier:
Is there no remedy within the reach of the government?
Are we doomed to behold our industry languish and decay
yet more and more? But there is a remedy, and the remedy
consists in modifying our foreign policy, and adopting a
genuine American System. We must naturalize the arts in
our country, and we must naturalize them by the only
16

17. means, which the wisdom of nations has yet discovered to
be effectual- by adequate protection against the otherwise
overwhelming influence of foreigners. This can only be
accomplished by the establishment of a tariff.6
Clay struggled against his oratorical match, Daniel Webster, and the entire southern wing
of the House of Representatives. Clay had strong support of the Pig Iron Aristocracy’s
Henry Baldwin, the “iron knight,” from Pittsburgh. Daniel Webster of New Hampshire
opposed the tariff because it might hurt the New England shipping industry. Clay
persisted, and on April 16, 1824, the Tariff of 1824 passed 107 to 102. Since cotton and
tobacco caused resistance in South, a break down of the slave versus non-slave states is
more telling. Non-Slave States voted for the tariff 89; against 32. Slave states: for tariff
18; against tariff 70. Ohio supported the tariff not only in the Mahoning Valley but also
in more western counties where an infant wool industry was emerging. Pennsylvania and
Ohio’s Pig Iron Aristocrats added additional support. President Monroe signed it in May.
The Tariff of 1824 extended the general level of protection to 35% ad valorem (the
percentage of value as represented by the invoice). The Tariff included cotton, wool, and
iron products also extended it to the hemp producers of Clay’s Kentucky.
Clay’s politics started a change in what would become the future core of the Whig
Party (known as Iron Whigs) and President McKinley's base- the Mahoning Valley,
Niles, Youngstown, Canton, Pittsburgh, western Virginia, and Ohio’s Western Reserve.
These old frontier areas had a large Scotch-Irish population who had opposed with guns,
the whiskey taxes of the Federalists. They tended to be frontier Jeffersonian, but the
protection on wool and iron by Clay started to build base for a new type of Federalist.
Industrialization was changing the area as well, and most middle-state Federalists were
moving toward protectionism versus their initial free trade policy. National roads and
canals favored the growth of these areas, which was fundamental to Federalist theory.
This Ohio old frontier was also similar to Clay’s Kentucky congressional district.
The victory of the 1824 tariff bill split the nation as well and cost Henry Clay the
presidency in 1824, but the defeat led to the formation of the pro-industry Whig Party.
Clay would further develop his American System as Secretary of State for the new
president John Q. Adams, but political opposition in the south was growing too. The
opposition was gathering behind Andrew Jackson and the Democrats. While the Pig Iron
Aristocracy supported Adams and Clay, Jackson’s popularity triumphed over local
interests on the Allegheny plateau of Pennsylvania and Ohio. In fairness at the time
Northern state congressmen whether Jacksonians, Jeffersonian, or Federalist supported
tariffs. The rural Scotch-Irish were fierce Jacksonians as a results of Federalists efforts to
tax whiskey, but the Scotch-Irish were pro-tariff. The Jacksonians were positioning for a
presidential run, and found success early by taking control of the Twentieth Congress in
1827. The Jacksonians of the Democratic Party had strength in the west and south. The
result of the popularity of tariffs in the east and middle states and political division led to
the “Tariff of Abominations” as tariffs became a party and political issue. The Democrats
actually allowed an unbalanced tariff to be passed by the National Republicans, turning
the measure into future votes for the Democrats and ultimately lower tariffs. The bill
extended the tariff on certain products from Ohio, Pennsylvania, Kentucky, and New
6
Robert Remini, Henry Clay: Statesman of the Union, (New York: W. W. Norton & Co.,
1991), 230
17

18. York by increasing the duties on iron, spirits, hemp, and molasses. The wool products of
New England, which Clay had initially used to justify the earlier tariffs, were basically
ignored with a modest increase. Clay could only watch as the bill passed, assuring future
Jackson votes in the powerful northeast. President Adams signed it because its usefulness
outweighed future political problems. The Tariff of Abominations would in retrospect
give Jackson and the free trading Democrats the White House, setback the nationalistic
tariff policy of Clay, and move the nation towards civil war. The Jacksonain movement
re-strengthened the Democrats on the Ohio frontier because of the personal popularity of
Andrew Jackson, but ultimately Jackson proved a weak supporter of American
manufacturers, which helped bring some Democrats into the Whig Party of Henry Clay.
Jackson’s weak trade policies had started to hurt his popularity. Clay’s industrial
vision was growing in 1828, but it lacked a national political base such as Jefferson’s.
The success of the American System was still a regional phenomenon, allowing
Democratic Andrew Jackson to take the White House in 1828. The Jacksonians efforts to
reduce tariffs were somewhat muted in Congress by Clay and his followers. Jackson’s
popularity won him re-election over a challenge by Henry Clay. Jackson would be Clay’s
nemesis throughout their careers. Clay might well have won the presidency except for the
split the Scotch-Irish Jackson caused among the Scotch-Irish. The Tariff of Abominations
in 1828 had caused the legislature of South Carolina to pass a Nullification Act. For the
sake of the union, Henry Clay compromised with the Jacksonians to pass a slightly
reduced tariff. The Jackson administration was a constant problem for protectionists such
as Clay, yet the industrialism of the north and east represented a growing political base.
The Jacksonians would bring down the National Bank system, but tariffs remained with
only minor reductions.
The national banking system known as the First Bank of the United States
(1791-1811) and the Second Bank of the United States (1816-1836). The national bank
had been a key factor in the industrialization of America. The bank had been a
Hamiltonian approach to assure money and credit were available to industry. Clay held
the tariffs, but lost the battle for the national bank. Still, the national bank served a very
important role in jump-starting American industry. The bank further showed that credit
and money help was part of the government’s role. Some might argue that a national
bank might have a role today.
The counter-revolution of Clay and Webster resulted in an alliance
between labor and capital under protectionism, which would be embodied in the
formation of the Whig party and later the Republican Party. Clay believed the laborer to
be part of American capitalism. This fundamental premise of an alliance of labor and
capital, and the strength of that alliance would define the success of the new Whig party
as well as the Republican Party for the next 60 years. To counter the folk hero of Andrew
Jackson, the Whigs elected their own Scotch-Irish hero, Davy Crockett of Tennessee to
Congress. The Whigs would also attract future leaders such as Abe Lincoln, James
Garfield, and Scotch-Irish William McKinley in the 1850s.
To focus solely on the political ramifications of Clay’s American System,
however, would also be to overlook the realization of Clay’s (and ultimately McKinley’s)
dream of an Industrial Eden. And it truly was a system where tariffs were focused to help
infant industries, and the tariffs revenues were used to build roads and canals. In the
northeast, textile mills were growing; in Pennsylvania and Ohio iron furnaces were being
18

19. built; and the American nation was moving from an underdeveloped country to an
industrialized one in the first decade of the 1800s. The American system of
industrialization was being held by industrial critics such as Charles Dickens as utopian.
The manufacturing methods and automation of American industry was rapidly becoming
the standard of efficiency for the world. Pioneering American industrialists such as
Francis Cabot Lowell started to develop uniquely American textile factories. While still
physically demanding, the factories were clean and offered schooling and training. Even
old Jeffersonians were proud of the rise of American manufacturing supremacy.
Part of the superiority could be found in the American “factory system.” The
tariffs and government contracts produced volume levels never previously encountered,
allowing a shift in many industries from a crafts system to the factory system. In 1812,
Thomas Jefferson had contracted Eli Whitney to produce arms with interchangeable
parts; it was the first government contract. The Springfield Armory under Colonel
Roswell Lee advanced the factory system in the 1820s with the application of labor
specialization and automation. The real progress was not so much in the ability to
produce standardized and large quantities of weapons, but the growth of the new industry
of machine making to support such industries. The Tariff of 1824 had built a foundation
for American investment by stabilizing the market for American industrial goods. In the
1830s, America was becoming a nation of mechanics as exemplified by the appearance of
mechanics’ institutes, schools, magazines, and newspapers. The Franklin Institute of
Philadelphia was founded in 1824 to promote the advance of mechanics and science.
The protective tariffs caused an industrial boom in New England’s textile
industry. The textile manufacturers were well protected and the textile industry grew, and
it birthed the machine industry to support the automation of the textile indsutry. Utilizing
the waterpower of the Connecticut River, the machinery industry grew to support textile
manufacture, arms manufacture, and farming equipment. The growth caused England’s
greatest machinists to immigrate to New England. They came with British machines,
which the New England Yankees reverse engineered into better machines. At the 1851
Crystal Palace Exhibition, the British were shocked and humbled by the American
machine technology. The Connecticut Valley would become a bastion of tariff support
for Clay and then McKinley. The machine industry opposed the Jacksonians and would
ultimately find a home in the Whig Party and Republican Party. The textile industry and
ancillary industries had demonstrated that tariffs could create focused growth.
The tariff created volume and stabilization in the textile industry ushered in an era
of invention and technology after 1812. An 1837 survey by the state legislature of
Pennsylvania of the textile industry reported the amazing advance:
Ten years ago, it was generally supposed, that few
improvements in machinery could take place. The machinery
of that day is now useless; and another period of ten years
may make the same difference; manufacturers are subject, in
this particular, to a heavy tax. He who advances with the
times, must incur the cost of continual improvement; he who
lags behind, must lose in the cost of his production. The
success of the American textile industry was a manufacturing
miracle attracting the world’s manufacturers, writers, and
19

20. politicians.7
Henry Clay toured the textile industry several times in the 1830s to furthermore promote
his “American System.” One of the mills was named after Henry Clay to honor his
protective tariffs. Even Clay’s enemy Andrew Jackson honored the textile industry with a
personal tour. Clay was now able to address the hero of free trade and the Democrats’
philosophical heart-Adam Smith. Adam Smith’s 1776 book Wealth of Nations had
become the banner for free trade. Henry Clay now argued that free trade could reduce
prices in the short run but at the expense of capital investment, invention, and
automation. Furthermore, Clay saw capitalism as a national philosophy, not an attribute
of free trade. Still, the farming majority saw it much differently, fearing international
reprisals and higher prices for domestic goods.
Henry Clay would bring philosophical support for protectionism. Henry Clay, the
lawyer, had actually read Smith’s long and boring narrative. Clay understood the
weakness of Scottish Smith’s ideal of free trade. Smith had allowed for a number of
exceptions in his free trade proposals such as defense industries. By doing so, Smith
allowed exceptions for some of Britain’s strongest industries. Clay saw industry itself as
basic to America’s defense of its freedom. Clay believed in capitalism at the national
level, but felt political factors restricted the type of international capitalism suggested by
Adam Smith. Furthermore, Clay was a true conservative, seeing America as having
supremacy and a God directed destiny. The survival of democracy depended on the
productivity of its laborers. To Clay protectionism was critical to freedom and democracy
itself. He further argued that Smith based his thesis on the trade-based economy of
Scotland, where trade was their industry. Clay’s friend and amateur economist John Q.
Adams agreed completely. Both of these men would champion the “American System”
as a political alternative. Clay’s philosophical base for protectionism helped win over
some old Federalists as well as many Jeffersonians.
America’s Machine Age
The period from 1840 to the Civil War was one of slow growth for the American
industry. Whig political pressure kept the tariffs favorable, and abundant resources
allowed growth. The iron industry, in particular, grew and improved. The Connecticut
Valley saw an emergence in the machine tool industry. The Connecticut Valley had a
long history of manufacturing. Like all immigrants, the Puritans moved west to find
prosperity. One of the earliest of these movements was to the Connecticut River Valley in
1636. The Connecticut River starts in the mountains of New Hampshire and cuts through
Vermont, Massachusetts, and Connecticut into Long Island Sound. In the early 1600s
some Pilgrims and Dutch had a fur trading operation, but not farming. It was an
extremely fertile valley, which drew immigrants from New York and Pennsylvania. More
importantly, the Connecticut River was a huge energy source. The Connecticut River’s
fall over its length is estimated to have had an energy potential greater than that of
Niagara Falls. The river could support power for gristmills and iron furnaces, making
farming more economically successful. The power of the Connecticut River caused a
mixing of nationalities, and the emergence of American manufacturing. The Valley
would birth manufacturers, such as Eli Whitney, Samuel Colt, Francis Lowell, Cyrus
Buckland, Thomas Blanchard, Alexander Holly, and George Westinghouse. The ethnic
7
Anthony Wallace, Rockdale, (Lincoln: University of Nebraska Press, 1972), 186
20

21. mixing retained the Protestant work ethic and economic drive of the Puritans. The
Connecticut Valley would launch the Machine Age in America.
The Puritans in Connecticut expanded their crafts and skills. Twenty-six towns
recorded silversmiths before 1776. Silver plate was one means of storing wealth in a
pragmatic manner, so favored by the Puritans. The demand for silver product created
world-class silver smiths in New England such as Paul Revere of Boston. The Puritans of
Connecticut really started the metals trades of America. Even with limited efforts to
produce pig iron, the Connecticut colonists developed a secondary metals industry
unequaled in the other colonies. Connecticut developed eight rolling mills (two more than
the total of all the other colonies), which manufactured hoops for barrels, nails, and sheet
for tinplate. The demand for iron bar created a search for bog iron, which was found in
1734 in Salisbury Township near the New York border. Initially, these industrious
colonists used crude Catalan furnaces and small forges. By 1740, charcoal furnaces were
being built; some of these became “iron plantations”, making an array of products.
Connecticut ironsmith advanced the technique of steel making for small tools, knives,
and banquets. The area became known as the “Arsenal of the Revolution.” In 1762, Ethan
Allen, future Revolutionary War hero, built his Lakeville Furnace. He added some of the
large forges in America to make cannons and anchors. Without the Salisbury iron works,
it is doubtful that the colonists could have armed properly for the British.
The great tradition of the Connecticut Valley was again awoke under Whig
polices in the 1840s and 1850s. Cheap energy, Whig tariffs, and regional capitalism again
birthed new industries. The machine tool industry took root. Lathes were refined and
applied to new applications. These “valley guys” invested in research and development.
They made precision machining a “Holy Grail.” Their fame grew within the field as
machinists emigrated from England to the valley. They stole technology when necessary
and improved on it. At the famous Great Exhibition of 1851 in London, America shocked
the world with its machines and tools. America was now a manufacturing power on equal
with England. Prince Albert was so shocked he formed a committee to detail how
America had surged ahead of industrial Britain. The list is informative for today’s
managers.
(1). A logic to exploit abundance
(2). High literacy rate
(3). Few barriers to organizing business
(4). Lack of resistance of the American worker to innovation
(5). A highly competitive nature
Interestingly, today these can be considered our weaknesses.
Lincoln exploited these strengths during the Civil War, and Lincoln forced
domestic production were possible. He stirred a competitive spirit in Union
manufacturers to build bigger and better arms. Great pride would be found in the stories
of casting the world’s largest cannons at Pittsburgh’s foundries. The American spirit
impressed the imagination of French science fiction writer Jules Verne, whose stories
hailed American ingenuity. It was competitive spirit that wanted to produce the biggest of
anything. Americans took pride in producing cannon bigger than those of those of the
Krupp in Germany. To make things bigger required the development of technology. The
success led to the Republican application of tariffs throughout the end of the 1800s.
American competition led to a love to conquer not in war but in the technology of the
21

22. World Fairs. To Europe it seemed boastful and wasteful. By the Philadelphia Exposition
of 1876, America was the world’s technological leader. American heroes were capitalists,
inventors, manufacturers, and engineers. Machines were the art of America, and
engineers were its artists. America was fulfilling the predictions of technological
greatness predicted by Jules Verne. America led the world in engineers, while today we
rate at the bottom of industrialized nations.
Another part of America’s success was the competitive and
fundamental approach of American education. Much has been written about William
McGuffey and capitalism because of Henry Ford’s love affair with McGuffey Readers. It
must not be lost in any discussion that McGuffey was an educator, not a philosopher.
McGuffey Readers hailed American exceptionalism. Maybe more revealing was the
description of the education of Henry Clay Frick, the father of American capitalism.
Frick biographer George Harvey described it as: “The curriculum comprised the familiar
three R’s, slightly amplified, the books allotted being McGuffey’s Reader, Pinneo’s
grammar, Mitchell’s geography and Ray’s arithmetic.” Other McGuffey capitalist alumni
include John Rockefeller, Andrew Carnegie, Charles Schwab, Charles Goodyear,
Thomas Edison, Andrew Mellon, George Westinghouse, H. J. Heinz, and many others.
McGuffey did not mold roots of American society but often merely spoke for them. More
so than Max Weber’s “Protestant Work Ethic,” McGuffey’s rationalization for class
structure and elevation of industry to a virtue formed the basis of American capitalism.
McGuffey took on Marxism before Marx had defined it as a political system. The
fundamental support of capitalism came from McGuffey’s unwavering support for
individual property rights. Likewise, his basic support of capitalistic concepts came
before Capitalism was defined as an economic approach. He saw the existence of poverty
and wealth as both in God’s providence. Neither was intrinsically evil. McGuffey
personally feared Andrew Jackson in his day as promoting redistribution of wealth.
Poverty was to be addressed by the wealthy, not solved by political schemes to
redistribute wealth. McGuffey preached competition when socialism preached political
equality. Lastly, McGuffey believed Americans were special and destined to do great
things. It is exactly the educational system that is lacking today. It was the opposite of
today’s world view.
The Golden Years of Protectionism
The Tariff Bill of 1890 was the career signature of William McKinley, and it
would give him national support and a local defeat. What at first was called his Waterloo
would actually forge the sword of victory. The Fifty-first Congress of 1888 formed with
what was believed to be a mandate for tariff reform. The Republicans controlled the
White House and both branches of the legislature. Providence seems to favor McKinley,
and McKinley’s power was peaking. The tariff issue, now preeminent was what
McKinley studied his life for. The new president Benjamin Harrison was for high tariffs,
although not a personal friend of McKinley, but McKinley drew on old friends such as
ex-president Hayes. McKinley’s showed true brilliance in his compromises and
teamwork, not only in the House, but also with the Senate and White House. He was
dealing with a mix in both parties. The tariff bill included many innovations, which
helped American farmers and manufacturers. It was an extremely well prepared by on
industry and product statistics. The bill completed the evolutionary steps of American
22

23. tariffs from revenue generating to protective to industry development. No bill before had
been directed at policy to build industries such as tinplate and sugar. Yes, there would be
a small increase initially in prices, but prices would actually decrease long term as
industry invested in research and development because of stable prices. This was a
pleasant surprise that long-term market stability actually improved investment. Think of
today as the swings in energy prices discourage long-term investment.
McKinley’s Bill of 1890 was the best researched ever, and used
science and statistics to apply the tariff rates. First McKinley argued that the revenue
tariff approach was the real problem, not protective tariffs. His statistics were convincing:
“Before 1820 nearly all our imports were dutiable; scarcely any were free; while in 1824
the proportion of free imports was less than 6 percent; in 1830, about 7 percent…. The
percent of free imports from 1873 to 1883 was about 30 percent, and under the tariff
revision of 1883 it averaged 33 percent.”8 For his 1890 bill it would be 50%. The
difference was that it focused on the nation’s needs, not revenue producing, which for
years had been the only major source of government income. The plan was fully
consistent with the Federalists view of a manufacturing utopia. The McKinley plan was a
result of years of study, and none knew more about tariffs than McKinley, but he would
have to make political compromises to get it passed. McKinley poured nightly over the
tariff schedules, and surveyed his colleagues on industry needs.
McKinley argued that protective tariffs had not restricted
exports, and again the numbers supported him: “We sell to Europe $449,000,000 worth
of products and buy $208,000,000 worth. We sell to North America to the value of
$9,645,000 and buy $5,182,000. We sell South America $13,810,000 and buy
$9,088,000.” McKinley was not alone is his evaluation. Bismarck in 1882 had hailed the
protective tariffs of America: “ Because it is my deliberate judgment that the prosperity
of America is mainly due to its system of protective laws.” The McKinley tariffs were
focused on building America, not restricting trade. They were applied in a manner that
did not produce trade wars. Still, McKinley was clear that his tariffs were nationalistic:
“The free-trader wants the world to enjoy with our citizens equal benefits of trade in the
United States. The Republican protectionist would give the first chances to our people,
and would so levy duties upon the products of other nations as to discriminate in favor of
our own.” McKinley extensive study had truly brought scientific management into tariff
rates, but Congress prefers politics to science. A tariff commission was also established
to monitor the impact of the tariffs. This regulatory committee helped the opposition
assure fairness and companies invested in jobs, not filling their pockets.
Free Trade
America has developed the British idealism of free trade of 20th century Britain. A
8
William McKinley, “ The Value of Protection,” The North American Review, June
1890, Volume 150, Issue 403, pages 747-48
23

24. path that took an Empire to a small world state. At best, American politicians do not
understand the role of manufacturing and the consequences of the lack of manufacturing.
At worst, America is willing to trade jobs for ideology. To buy minds for democracy
instead of convincing them with success. It is more than just jobs (as though that weren’t
enough), it’s about energy. It’s also about American freedom and our way of life.
Without manufacturing our destiny is a twentieth century India. The problem cannot be
overcome by free trade. One might argue that we are still the military power of the world.
True, but for how long. Many of our vital military machine parts are not manufactured
here. The very fuel for these military vehicles is mainly from other countries. America’s
downfall will not come from a nuclear warhead or a successful military invasion, but in
its inability to defend itself. We are already in a position where small countries can
generate crippling economic blows to our nation. Free trade assumes a one-nation world,
not seen since the times of Babel. It assumes one world mission and equality. It assumes
national self-sacrifice for the greater world, which is a myth. The type of free trade we
have today is world socialism with the goal of redistributing the wealth of nations (not
redistributing the wealth to the poor of the world). Governments still for the most part act
in self-interest, which makes free trade far from fair trade.
To put it in the simplistic village localism of Adam Smith, I’ll relate a true story.
The Congress had been under weeks of stress and in fighting. Neither party was willing
to cross the aisle. The President watched powerlessly as national unemployment spiraled
up, and money to buy houses disappeared. The farm representatives of Iowa and other
farm states, and the opposition industrial states had battled to a standoff. One Midwest
congressman rose to share his unbiased observations of the industrial belt and forge an
alliance:
In passing along the highway one frequently sees large
and spacious buildings, with the glass broken out the windows,
the shutters hanging in ruinous disorder, without any
appearance of activity and enveloped in solitary gloom. Upon
inquiry what they are, you are almost always informed that they
were some cotton or other factory, which their proprietors could
no longer keep in motion against overwhelming pressure of
foreign competition.9
This was not spoken today but in 1820 by Henry Clay! America was in its first
depression after its first great industrial expansion. She was still celebrating her second
victory over the world’s greatest military in the War of 1812. America had opened her
ports to all goods duty free, and an aggressive British empire saw the opportunity to win
the economic war. The crisis would result in the “American System” and lead to her
becoming the world’s manufacturing center forty years later. This worldwide crisis
consisted not only of economic factors but a fuel shortage in Britain.
In the 1860s, Britain fully embraced the theories of free trade, and within three
decades lost it manufacturing lead with the rapid decline of iron, steel, coal, and
machinery industries. At about the same time, America implemented managed trade with
protection to specific high employment and infant industries, and it was America that
replaced Britain in industrial leadership. The protectionist tariffs of America from 1860
9
Thomas Cochran and William Miller, The Age of Enterprise, (New York: Harper &
Row, 1942), 12
24

25. were really “golden” tariffs leading to America’s greatest industrial period ever. Prices
actually went down as industry stability created long term investment in technology. The
better term here is managed trade policies, which were protectionist, but avoided trade
wars, and demanded economic reciprocity (not political). During the great Republican
tariffs, America investments revolutionized glass, steel, communications, and oil
industries. Against the common wisdom that big business would pocket the profits from
tariffs, business saw stability of protection as an incentive for long-term capital
investment. Wages increased during the period as well as Americans were protected
against cheap labor. Vertical integration mushroomed as protected raw material prices
forced industries to look for American raw materials. America was fully employed and
shipping its manufacturing surplus overseas. Protected industries actually reduced
manufacturing costs and were competitive with the world. With tariffs as the
government’s major income (there were no income taxes) there was a surplus, and the
main problem was how to spend it! This golden period (1890 to 1907) has been
overshadowed by the later corruption and progressive shadow of Teddy Roosevelt.
Statistics for the 1890 to 1900 decade support the conclusion that prices came
down, profits rose, capital investment went up, and wages held or slightly increased (real
wages clearly rose). Average annual manufacturing income went from $425 a year and
$1.44 a day in 1890 to $432 a year and $1.50 a day in 1900. The average day in
manufacturing remained around 10 hours a day. Heavily protected industries such as steel
fared slightly better with wages. The cost of living index fell during the decade from 91
to 84 or about 8%. The clothing cost of living dropped even more from 134 to 108 or
19%. Food stayed about the same but the cost of protected sugar dropped around 25%.
The bottom line is that real wage (adjusted for cost of living) index rose from $1.58 a day
to $1.77 a day in 1900 or about a 12% increase.10 The success of this period of managed
trade depended on government oversight, business cooperation, and labor support. Maybe
just as important in a belief in American exceptionalism and healthy nationalism.
It’s not a small point that managed trade can be abused as capitalism itself. The
McKinley success depended on American capitalists re-investing in American plants.
Early on in the 1882, Congressman and Chair of Ways and Means, William McKinley
formed an overview board in congress to accesses the ongoing impact of the tariffs. This
overseeing and regulation was the final piece of the puzzle, preventing the abuses many
feared. Managed trade, however, contradicted Adam Smith. University economists and
politicians lined up to attack the success of McKinley’s tariffs.
Wealth of Nations
The least read, most often quoted book remains Adam Smith’s Wealth of Nations.
It is rarely misquoted, in that few who quote it have had to punish themselves by reading
it. The 1776 world reflected in Wealth of Nations has remained a model for today’s
world. It is used to justify the call of free trade. In 1776 the British world was yet to enter
the industrial revolution. The world was dependent on the trade of agricultural products.
10
Albert Rees, Real Wages in Manufacturing 1890-1914, (Princeton: Princeton
University Press, 1961)
25

26. Spices, tobacco, and precious metals were the major oceanic trade. Britain’s small
manufacturing base had no competition. Adam Smith was a true genius in understanding
the aggregate operation of world economics in a pre-industrial world. Adam Smith
clearly defined the assumptions and restrictions of free trade in that 1776 world. In many
cases, in unusual ways, he even foresaw the problems in a modern world. Adam Smith
foresaw how factors could act as a restraint to free trade. The problem is not so much in
the application of Adam Smith’s principles, but in the correct application of Adam
Smith’s principles.
Adam Smith’s free trade exceptions are often overlooked. First was the exclusion
for defense, which is a large hole in itself. Second is a lesser discussed exception: “The
second case, in which it will generally be advantageous in lay some burden upon foreign
for the encouragement of domestic industry, is, when some tax is imposed at home upon
the produce of the latter. In this case it seems reasonable that an equal tax should be
imposed upon the like produce of the former.”11 This is the essence of the fair trade
argument.
American products, in fact, carry a high social tax. That tax includes pensions,
health care, safety requirements, and standard of living. Adam Smith would agree that
these are monetary charges on our products. Tariffs should be set to reflect the home
social tax we impose on our products. This is at the heart of why world trade is not free or
fair. Chinese product competes unburdened by the costs of pensions, health care, safety,
and standard of living, let alone the high cost of freedom paid by generations of
Americans. The cost of this American social tax is as high as 30%. Certainly our steel,
automotive, refining, and most manufacturing would meet both of Smith’s exclusions.
Adam Smith even went further: “As there are two cases [defense and internal tax] in
which it will generally be advantageous to lay some burden upon foreign, for the
encouragement of domestic industry; so there are two others in which it may sometimes
be a matter of deliberation.”12 The first of these cases was economic tariffs in cases like
dumping. The second would be the case of slow implementation of free trade. Adam
Smith realized that unemployment could be a major issue. Smith noted in this case:
“Humanity may in this case require that the freedom of trade should be restored only by
slow gradations, and with a good deal of reserve and circumspection.” These are the
“lost” chapters of Adam Smith.
McKinley, Managed trade, and Reciprocity
McKinley’s model is the best for democracies and capitalism. McKinley’s
“dinner pail industrialism” is clearly on a par with Jefferson’s agrarian vision, Clay’s
American System, and Roosevelt’s New deal. In all these cases, at least for the period,
they gave proven results. Protectionism and tariffs has become an anti-intellectual
position in a complex world. McKinley saw protectionism or managed trade as an
extension of the Federalist view of government’s role to expand commerce.
Protectionism was a conservative principle until the 1960s, and now it is a concept lost to
both parties. Economic reciprocity has lost to political reciprocity in trade arrangements.
11
Adam Smith, Wealth of Nations, (New York: Prometheus Books, 1991), p. 361,
[ chapter of restraints of certain imports]
12
Smith, p. 363
26

27. Part of the issue is tied to the death of nationalism, which was part of McKinley’s vision.
Furthermore, the main pillar of McKinley’s Dinner-Pail Republicanism was American
exceptionalism, which passed away in the 1970s. Today the heart geographically of
McKinley’s political strength is called the “Rust Bowl.” The once great factories of the
industrial heartland have broken windows as Henry Clay had predicted in 1814. The great
bronze busts of the pantheon at the McKinley Niles Memorial are no longer recognizable
to young visitors. But if there is to be a renaissance of American Manufacturing it will be
found in the McKinley pantheon in Niles, Ohio. It is here that some Joan or John of Arc
will rise from America’s rust belt.
McKinley had learned what Henry Clay had known before him. Protectionism
while good for the nation’s overall manufacturing was many times industry specific and
regional specific. As with Clay voting to protect American industry often had local
backlash. Protectionism, like its antithesis free trade, works as a ecomonic policy, not as a
set of economic principles to be applied. Political compromise and trade-off would
always be required. Even Adam Smith made exceptions for British shipbuilding in order
to pacify critics. McKinley would learn to compromise in the future suggesting
reciprocity with certain nations and products. Furthermore, McKinley believed with
Henry Clay that Congress’s function was to review and monitor manufacturing tariffs.
This is the cornerstone of managed trade-reciprocity and review. Both Clay and
McKinley developed a congressional committee to oversee the tariffs. Still, in the end
Congress preferred debate to the work of monitoring. It is this approach that can lead to
true free trade.
Even today economists still point spuriously to the tinplate industry of the 1890s
as a failure of protectionism.13 Tinplate, however, is a biased example. In 1890 tinplate
was made from mostly imported rolled high quality iron. The tin-platters coated the
rolled iron plate with tin through a rolling or coating process. Most of the tin came from
Wales, which drove domestic platters costs higher. Two-thirds of their costs were in
rolled iron as a raw material, which came mostly from England, thus a tariff on imported
rolled iron products drove tinplate prices high as well. The Welsh producers had an
inherent advantage by processing the world’s major tin deposit at Cornwall. In effect,
Wales had an international monopoly on tin and tinplate. In the short run, the McKinley
tariffs did increase the price of tinplate, but the high price spurred exploration for tin and
increased technology investment in tinplate and canning. The tinplate industry itself,
however, became a major employer in the United States, and prices dropped as the
industry matured. Welsh tin-platers immigrated to the United States to set up shop,
further building the domestic American tinplate industry. The Welsh brought their “secret
powders,” but Americans learned fast, and in the end the McKinley Tariff broke a world
monopoly and cartel on world tinplate.
Prior to 1890, there were a handful of tinplate manufacturers in the United States,
but by 1892 there were 200 producing 13,000,000 pounds of tinplate! The tinplate
industry suffered from Britain’s monopolistic control of both tin and the iron substrate.
The tinplate industry suffered from high priced imported iron and steel because of no
domestic production, which allowed importers to charge whatever. At the same time
cheap tin- plate and tinplate products were imported cheaply, which suppressed the
development of a domestic industry. Many feared that England would increase the price
13
D. A. Irwin, “Great Tariff Debate of 1888,” Journal of Economic History, March, 1998
27

28. of “black plate” needed for tin plate production. The American producers, however,
responded as McKinley had predicted producing 5,000,000 pounds of black plate in
1892. The mills “found” the technology that free traders said America lacked. Fifteen
months after the passage of the Tariff of 1890, McKinley toured a new state-of-the-art
tinplate mill built in Ellwood, Indiana. Tinplate is actually the example of what is needed
in a managed approach to trade.
The price of tinplate dropped dramatically by 1895 as the McKinley tariffs
created a very competitive iron industry and technology improved through putting profits
back into the business. As the price increased, American investors poured into the
tinplate and canning industry. McKinley, as a Union Army quartermaster, knew well the
shortage of canned food to supply the army. The tariffs not only brought investors into
tinplate, but into the biggest use of tinplate -canning. During the Civil War a tinsmith
could make sixty cans a day; by 1880 a two-man machine could produce fifteen hundred
in one day. In general, the period from 1880 to 1910 saw one of the greatest growth rates
for American industry ever. By1900 McKinley had turned the public perception around;
one of the slogans for McKinley’s presidential reelection would be a “full dinner pail.”
The automation of the Glass industry and American leadership is another example
of the successful impact of managed trade. Protectionism or managed trade during the
last half of the 19th created a surprising result in the advance of American technology
through investment in research and development. The period represented one of great
periods of market stability. Men like Michael Owens, Edmond Libbey, Andrew Carnegie,
and Charles Schwab were able to invest in technology for the long term and be relatively
sure of the future product price. If you take the last half of the 20th century, most
manufacturers were facing a downward spiral in prices as cheap imports flooded the
market. It made it difficult to invest in research and developments, realizing the market
may well disappear. Of course, some would argue that research and development is
needed in such a market. The facts, however, suggest that research and development is
cut in a declining market and price trend. Investment dollars in such a market tend to be
focused on cost cutting and operating improvements. William McKinley’s managed trade
seemed to offer a wide range of advantages to manufacturing.
Coming from an iron manufacturing family in Niles, Ohio and representing an
industrial congressional district centered on Canton, Ohio, McKinley was protectionist in
a much different light than most people today. Protectionism was needed in his view, for
American capitalism to flourish in a world dominated by international monopolies. In
1882 in congress McKinley answered free traders in debate:
“ England wants it [free trade], demands it—not for our
good but for hers; for she is more anxious to maintain her
old position of supremacy than she is to promote the
interests and welfare of the people of this republic, and a
great party in this country voices her interest…. She would
manufacture for us, and permit us to raise wheat and corn
for her. We are satisfied to do the latter, but unwilling to
concede to her the monopoly of the former.”
McKinley’s full implementation of managed trade in the 1890s certainly statistically
demonstrated the power of managed trade versus unmanaged tariff free trade. Today our
industries struggle against huge foreign monopolies. Our government strips any
28

29. monopolistic growth internally, leaving our manufacturers at a further disadvantage in the
world market.
The success of the McKinley tariffs, however, must be considered a result of a
faith in American exceptionalism. The latter half of the 19th century was the best of
America’s belief and commitment in it. American exceptionalism and nationalism kept
capital and investment in America. It was a patriotic alliance between American
industrialists and the American government. Today we lack both that alliance and a belief
in American exceptionalism. America and particularly our government must choose
whether our mission is one world globalization or American exceptionalism. It’s our lack
of vision for American manufacturing that is the deeper problem. We sacrifice our
manufacturing to help spread “capitalism” and democracy, but we are best when we are
the light on the hill. We offer nothing as a mere state of the world. Even if mere world
statehood is to be our goal, it is not our governments or that of economists’ decision to
make, but that of the people.
After labor, energy is the core of manufacturing. Energy even more so than labor
has been the limiting factor of manufacturing. Energy has historically limited
manufacturing growth as in Germany and Japan. And certainly, cheap energy has
historically been the root of American manufacturing success more so than cheap labor.
Labor and energy are the core of manufacturing. Success has in manufacturing been
limited even more by energy than labor. When nations have been short on energy, they
have been extremely limited in their ability to manufacture. Historically, America’s
manufacturing success has been more related to cheap energy than cheap labor. If we
choose to limit our energy resources, we will be unable to compete in manufacturing or
we will be unable to sustain our higher wages for labor. Low energy resources have
historically been more limiting than any other resources. Cheap energy in the United
States has historically offset our higher labor costs even in the 19th century. The idea that
cheap energy has been part of our high standard of living and jobs is often overlooked.
Our present course of free trade, high wages, good benefits, high standard of living, and
restricting energy resources cannot sustain a manufacturing industry, and in long run,
standard of living and wages will cycle down. We need to find ways to drill safely for oil,
apply nuclear power, develop natural gas applications, use our world advantage in coal
reserves, and expand wind and solar power. We cannot focus narrowly on only one or
two, we need to have abundant and cheap energy to run our factories and employ our
citizens. Managing trade and increasing energy is the only way to sustain the
manufacturing benefits of high wages, good benefits, and high standard of living.
Government Intervention, Bailouts, Bridge loans etc.
The cries of 2008 were the downfall of American capitalism had been ushered in
with the bailout. Conservatives and even liberals cried let the market decide. Bailouts and
government loans were socialism or at the very least anti-capitalism. Many quote the
Federalist papers against government intervention. As with Adam Smith’s thesis, the
father of the Federalists, Alexander Hamilton is misquoted, misunderstood, and most
often misrepresented. Alexander Hamilton was the antithesis of Adam Smith. Smith
didn’t see or consider manufacturing in his views of free trade development and
29