Mr. Hamilton’s Growth Strategy

Hamilton’s shot of confidence led to rapid growth. Whereas only 32 for-profit corporations had been chartered from the time of the first colonial settlement in 1607 through 1790, an astounding 287 were chartered from 1791 through 1800. They included insurance companies and firms that maintained turnpikes and bridges — an infrastructure for current and future growth.

The lesson is not only what Hamilton did, but also what he did not do. In a fiscal dilemma similar to ours but far worse, and with many fewer tools at the government’s disposal, he never considered austerity or big tax hikes or cuts as a solution. Only after the country was moving toward sustained prosperity did he increase taxes, including a controversial levy on whiskey.

What does Hamilton’s strategy mean to us today? For one thing, it recommends against obsessing over taxes, a “fiscal cliff” and a disastrous austerity program. Instead, the answer is to increase the size of the economic pie.

Does tax policy affect growth? Of course. But what’s the point in continuing an endless dialogue over it when other tools lie at hand?

In itself, Hamilton’s strategy would markedly increase federal income. And that is the real lesson, not only of the 1790s, but also of more recent decades: the 1940s, 1960s, 1980s and 1990s. In some of these periods, taxes were raised, in others they were cut, and in most they were both raised and cut. But the pie expanded in all of them. Federal revenues expanded along with it, and the national debt never became the problem it was in 1790 — and is today.