The True Origin Of The American System Of Economics As Implemented By Our Founding Fathers

The True Origin of the American System of Economics as Implemented By Our Founding Fathers The notion that America as an Empire was built on the foundation of free trade and Laissez Faire Capitalism is a fallacy and a disservice of what is being taught in colleges and universities. Both the United States and British National Economies were built on entirely different ideologies. First the British moved from a mercantile political economy to one based on the free market ideologies of Adam’s Smith Wealth of Nations. The heart of the British Colonial Empire was the East India Company. The East India Company was known for being notorious in subjecting and exploiting the population through cheap labor to produce Cheap Products that they would then dump on other countries at gunpoint. The clearest example of the East India Company’s method was forcing Opium on China and the Opium Wars that followed after the Chinese’s refusal to let the illegal drug enter into their country. “The British East India Company (the ``Company'') was one of the institutions created as a product of the Venetian takeover of England. The Levant Company, set up to trade with the East, had been formed in 1592 as a fusion of the Turkey Company and the Venice Company. In 1600, the East India Company was formed as a spin-off of the Levant Company. It received a perpetual charter from the British Monarchy for a monopoly on trade with the East Indies. In 1740, the Company's role in India was limited to trade through its centers at Bombay, Calcutta and Madras. By 1815, it had an army of 150,000 men, and governed most of India, either directly or indirectly. The Company utilized the vast superiority of European weapons to take over India in stages, through a series of wars. Its takeover was assisted by the collapse of power of the This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

Indian Moghul Emperors, which left India broken up into sections, controlled by local rulers. By 1800, the main source of revenue, from Company operations in India, was land taxes, imposed on conquered lands. Bengal was the first major area conquered by the Company. Its army defeated the native ruler in 1757, and proclaimed itself the official ruler of Bengal in 1765. It imposed incredibly harsh taxes. The province deteriorated rapidly. In 1770, the failure of monsoon rains, led to a famine in which an estimated one-third of the population perished. Bengal then became the center of the East India Company's opium monopoly.” (Robert Trout, July, 1997). The British Empire in its Heyday in cohorts with the East India Trading Company practiced a reversed protectionism. That is they disallowed their colonial possessions from developing their own home industries by withholding capital, equipment, and technical assistance. They would extract raw material at gunpoint, import it back to England and then sell it back to their colonies with a tax added to maximize investment. They are the conditions which led to the American Revolution because the colonists wanted to develop their own economy and not be held hostage to the East India Company. However, the Indian subcontinent was not as fortuned and had to endure the forced policies and practices on the East India Company on their economy, citizens, and political institutions. “Carey demonstrated, in graphic detail, that the British Empire's system of ``globalization'' had devastating effects on India. Prior to the takeover of India by the East India Company, the Indian economy was characterized by the existence of native manufacture of cloth and other goods, which made possible a division of labor, and a higher level of productivity for the economy as a whole. The British demanded one-half of the gross products of the land, as This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

tribute from the areas that they controlled, and imposed a tax collection system which severely disrupted the economy. Even more deadly, the British imposed a policy of technological apartheid, banning the export of machinery, from England to India, and refusing to develop India's rich iron and coal deposits. Taxes were imposed to deliberately suppress native manufacturing.” (Robert Trout). During the height of the Industrial Revolution in England, the British needed a cheap source of cotton for their textile Mills and established trade with the Confederacy during the Civil War. Both the Confederacy and the British Empire were similar in nature in that they both relied on the exploitation of human beings for Cheap Labor to produce their product and dump on other countries at gunpoint. In the case of the south it was the evil institution of slavery which drove its agrarian economy. “The most telling aspect of what this free trade based system produced, however, is in the character and condition of labor in the south. Given the principle, that was central to doctrine of "American System" political economy, that the most essential of all resources is the productive capacity of labor, the productive potential of a nations citizens, as the basis for the development of all other resources, it is here that the most damning indictment of the results of free trade policies on the south are found. A system based on the enslavement of the productive capacities of the bulk of its labor force is itself a statement of the bankruptcy of such a system, and would undoubtedly mean conditions that were barbaric and brutal, not only for the black slave, but for its supposedly free labor, as well. Descriptions of the conditions that existed for black slaves in This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

the south are legend as to the brutal and inhuman way in which they were treated under this system. Prior to the War, descriptions by both northern and southern writers of the conditions of the black slave had circulated throughout the North.” (Frederic W. Henderson, November 11, 1991). The old saying that “Birds of a feather flock together” can best characterize the cozy relationship that the British Empire had with the Confederate South when it came to the production of cotton by oppressed means. Yet the enforcement of slavery also had adverse effects on the Southern economy in that development was not allowed to take place and the slave owners developed a feudal landowner system. “Such a labor system would not only degrade labor, but would bestialize those who owned, or controlled such labor. Despite the southern propaganda praising the benefits of such a system, and southern assertions of the power of King Cotton, southern planters were themselves chained to such a primitive system, through indebtedness to outside finance, total dependence on the British and British allied New England textile manufacturers, who turned their raw cotton into finished products, and outside suppliers for almost all consumer and capital goods. The need to justify and defend such a system had horrid consequences for what they would become. In this context, the shear violence of southern society is a telling fact, with homicide among southerners, particularly those as a result of dueling or "gentlemen's homicide" reaching frightening rates.” (Frederic W. Henderson). It was the great Frederick Douglas who characterized the predatory nature of both slavery and free market unregulated capitalism as one and the same. “But what does it mean? Who does it bless or benefit? The answer is already more than indicated. A moment's thought will show that This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

cheap labor in the mouths of those who seek it means not cheap labor, but the opposite. It means not cheap labor, but dear labor. Not abundant labor, but scarce labor; not more work, but more workmen. It means that condition of things in which the laborers shall be so largely in excess of the work needed to be done, that the capitalist shall be able to command all the laborers he wants, at prices only enough to keep the laborer above the point of starvation. It means ease and luxury to the rich, wretchedness and misery to the poor. The former slave owners of the South want cheap labor; they want it from Germany and from Ireland; they want it from China and Japan; they want it from anywhere in the world, but from Africa. They want to be independent of their former slaves, and bring their noses to the grindstone. They are not alone in this want, nor is their want a new one. The African slave trade with all its train of horrors, was instituted and carried on to supply the opulent landholding inhabitants of this country with cheap labor; and the same lust for gain, the same love of ease, and loathing of labor, which originated that infernal traffic, discloses itself in the modern cry for cheap labor and the fair-seeming schemes for supplying the demand. So rapidly does one evil succeed another, and so closely does the succeeding evil resemble the one destroyed, that only a very comprehensive view can afford a basis of faith in the possibility of reform, and a recognition of the fact of human progress.” (Frederick Douglass, August 17, 1871). Which leads me to my next contention that the U.S System of Political Economy was founded on the Model of Mercantile Capitalism which emphasized a system of Credit, Protective Tariffs, Control its own money by printing its own currency, Infrastructure Improvements, and

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

technology to fully develop the country? Its proponents were Henry Clay, George Washington, Alexander Hamilton, John Quincy Adams, and Benjamin Franklin. “The American School, also known as "National System", represents three different yet related constructs in politics, policy and philosophy. It was the American policy for many decades, waxing and waning in actual degrees and details of implementation. Historian Michael Lind describes it as a coherent applied economic philosophy with logical and conceptual relationships with other economic ideas. It is the macroeconomic philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century (after mercantilism and prior to Keynesian economics). It can be seen as a modified type of classical economics. It consisted of these three core policies: 1. protecting industry through selective high tariffs (especially 1861–1932) and some include through subsidies (especially 1932–70) 2. government investments in infrastructure creating targeted internal improvements (especially in transportation) 3 a national bank with policies that promote the growth of productive enterprises.

It is a capitalist economic school based on the Hamiltonian economic program. The American

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

School of capitalism was intended to allow the States to become economically independent and nationally self-sufficient. “(Absolute Astronomy.com). The American System of economics was firmly grounded in the concept of the General Welfare as enshrined in the preamble of the constitution. The General Welfare represented the uplifting of mankind whereas the British represented the exploitation of man in the ruthless pursuit of profit. To the British man was a political animal, in the heritage of the American System, mankind represented the highest form on intelligence that made after the image of God himself. “Nothing shows the ignorance of an economist or a historian more than the assertion that the American System of economics is based on the ``principle'' of free trade. Yet this assertion has largely prevailed in the last decades of popular culture and ``learning'' in the United States, with the result of instilling an academic excuse for the hatred of government by even those citizens who absolutely depend upon government functioning the most. It was ``free trade'' that the American Constitution, and the economic system which it enabled to be brought into being, was founded against. And had ``free trade''--specifically the British system of control of trade which was dominating the world even after the end of the American Revolutionary War--not been curbed by the establishment of the Constitution, the funding system, and the Bank of the United States, there would have been no American Republic, and thus no roadblock to the global British imperium.” (Nancy Spannaus).

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

In essence, the true origin of the U.S. Economy was in actuality a mixed model where there are market-based initiatives which are controlled by a set of rules, regulations, and procedures to control the predatory nature of unregulated capitalism.

“We have a parallel in economics. Laissez faire is the object of a faith that is widely accepted and uncontroversial. According to this faith a pure free market system, unencumbered by government interference, must provide the best economy. But despite our unquestioning belief and despite the appearance of prosperity so confidently exuded by soaring financial markets, there is a wide range of data (that we ignore) that calls this faith into question. It is remarkable that even economists are blind to this. Of course, no country has a pure free market economy. Everyone knows that in all developed countries governments tax their citizens and spend 20% of GNP or more on items ranging from social programs to highways, from libraries and schools to courts and prisons, from parks to national defense. Such taxation and spending necessarily distort the pure free market.” (Kenneth S. Friedman, 2003).

The traditional mixtures of rules, regulations, and laws that placed into place by our government to control the volatility of the market were removed starting with both Reaganomics in the United States and Thatcherism in England. Once these pieces of legislation were removed, the United States began its downward spiral starting with the Market Crash of October 1987 called “Black Monday.”

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

” The stock market's collapse on Oct. 19 showed once again the potential volatility of the securities markets. And it demonstrated to thousands of investors around the country that options can be among the most volatile of all instruments in these markets, even for those who use them in conjunction with other strategies. On that day and the days immediately following, options purchasers who had bet that stock prices would rise suffered losses totaling many millions of dollars. The most visible sign of options losses was the $90 million write-off taken by an affiliate of the Continental Illinois Corporation, largely as a result of options dealings of six investors who were said to have sold out-of-the-money ''naked'' put options. For them and for others, the relatively small gain from the sale of the contract was overwhelmed by an enormous loss.” (LEONARD SLOANE, Thursday, November 12, 1987). Add to this mixture the Saving & Loans Debacle, Dot.com Bust, Sub-prime crisis, a record budget deficit in Washington, DC, and corporate scandal, one can truly understand the financial crisis and meltdown that is now taking place globally. Everyone from the Corporate Executive on Wall Street to the average citizen on Main Street is not only concerned about the current condition of the economic crisis but actually distraught. Citizens have lost their homes to foreclosure and businesses are filing bankruptcy and closing in record numbers. Worldwide, our European and Asian allies have lost confidence in the stability of the American dollar. As we speak, the American economy is the glue that holds the Global financial architecture together. If the current bubble were to burst it would be disastrous worldwide and would plunge the Globe into an abyss of chaos, war, disease, and famine. “In other words, without eliminating the This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

entirety of the world’s present monetary systems, through instant reforms in national financial bankruptcy, into credit-systems based on the U.S. Constitutional model initiated by the first U.S. Federal Secretary of the Treasury, Alexander Hamilton, there is no remaining possibility of saving the entirety of this planet from a general, physical breakdown-crisis of every and all nations of the world today. If that ruin happens, it will be the present world monetarist system which has brought that calamity about.” (Lyndon H. LaRouche, Jr., May 29, 2009). The economic reputation of the United States has been damaged such that there have been calls by the Chinese, Russians, and Brazilians for a new international currency that would be monitored and maintained by the IMF. “Some time in the not-too-distant future the governments of the industrialized democracies – concretely, the United States, the European Union, and Japan – should consider establishing a common currency for their collective use. A common currency would credibly eliminate exchange rate uncertainty and exchange rate movements among major currencies, both of which are significant sources of disturbance to important economies. One currency would of course entail one monetary policy for the currency area, and a political mechanism to assure accountability. This proposal is not realistic today, but is set as a vision for the second or third decade into the 21st century. Europeans, in creating EMU, have taken a major step in the direction indicated. Their idea could be taken further.” (Richard N. Cooper et al., June 2006). The world has no faith in the dollar for stability purposes ever sense Nixon pulled the rug from underneath the Bretton Woods Accord which had mandated fixed exchange rates for financial stability in the Global Markets. Once the dollar was taken off the exchange rate and converted to This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

a floating rate, inflation and the overprinting of money supply set in. Once the dollar was put on a floating exchange rate, then the speculators were allowed to determine National Currency rates overnight and plunged whole national economies into near financial collapse. That is what precipitated and caused the Asian Financial Crisis. Also there is the situation of the huge budget deficit cause by our negative imbalance presently with China and other Southeast nations. The Chinese have propped up the bulging U.S. National Debt by buying Treasury Bills. They have kept their currency down which has given them a trade supply. However, if the U.S. financial sector goes belly up (thus the question is asked is when?), this could throw the Chinese economy as well as the rest of world into a tailspin that it would not be able to pull up from. When the dust settles, the U.S could face the possibly of playing second fiddle to the growing power and influence of the BRIC (Brazil, Russia, India, and China) group. We would be pressed in every area that we currently dominate militarily, economically, politically, and technologically. “Using the latest demographic projections and a model of capital accumulation and productivity growth, we map out GDP growth, income per capita and currency movements in the BRICs economies until 2050. This allows us to paint a picture of how the world economy might change over the decades ahead. The results of the exercise are startling. They suggest that if things go right, the BRICs could become a very important source of new global spending in the not too distant future. The BRICs economies taken together could be larger than the G6 by 2039.” (Dominic Wilson and Roopa Puushothaman, October 1, 2003). If things don’t change very soon, the U.S. could find itself in the second tier of nations. The primary reason for our decline is a busted and fractured Manufacturing sector that has seen R&D, technology, money, and capital outsourced overseas. Take for example the Boeing 787 This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

Dreamliner which was scheduled to be ready for commercial orders by 2007. However, due to delays, the test model still has not taken its first Maiden flight. The delays were due because the company outsourced over 87% of its productions to such places as Spain, England, Germany, Italy, and Sweden. Meanwhile, its competitor Airbus filled over 15 orders for close to 3 billion dollars at the Paris Air show. We have let our skilled labor force linger into lower semi-skilled jobs where the average income is $11.11 per hour. It was the manufacturing jobs that built a staple Middle Class which are the brick and mortar of any nation. Secondly, the United States has let it infrastructure go to waste. It is estimated that it would take well over 3 trillion dollars just to do existing repairs to our roads, harbors, bridges, dams, railways, canals, electrical grids, and reservoirs.

The United States must return to its economic foundation which was the Hamiltonian model. It was this economic system that built the United States as the greatest Industrial by the late 1800’s and defeated the Nazi War Machine during WWII. The consequences of not maintaining our competitiveness will result in total devastation economically, politically, and socially for the next generation that will inherit the mantle of leadership.

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

ENDNOTES 1. Robert Trout, July, 1997, “THE CHINESE OPIUM WARS: The Queen of England Pushes Dope” Readings from the American Almanac, http://members.tripod.com/american_almanac/opium.htm (accessed August 24, 2009). 2. Ibid. 3. Frederic W. Henderson, “Free Trade, The Confederacy, and the Political Economy of Slavery,” Readings from the American Almanac, November 11, 1991, http://members.tripod.com/american_almanac/fwhfree2.htm (accessed August 24, 2009). 4. Ibid. 5. Frederick Douglas, “Cheap Labor, Taken from his Publication the New National Era. Reprinted Under the Title “Frederick Douglass Attacks the Fraud of Free Trade,” Readings from the American Almanac,” http://members.tripod.com/american_almanac/fredfree.htm (accessed August 24, 2009). 6. Absolute Astronomy.com, “American School (Economics),” http://www.absoluteastronomy.com/topics/American_School_(economics) (accessed August 24, 2009). 7. Nancy Spannaus, “The 'American System' Means Sovereignty, Not Free Trade, Physical Economy-Part II,” Readings from the American Almanac, http://members.tripod.com/american_almanac/nbs2.htm (accessed August 24, 2009). 8. Kenneth S. Friedman, Myth of the Free Market, (New York: Algora Publishing 2003), 12.

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]

9. LEONARD SLOANE, “Options' Risks Shown by Stock Market Slide,” Options' Risks Shown by Stock Market Slide, Thursday, November 12, 1987, http://www.nytimes.com/1987/11/12/business/options-risks-shown-by-stock-marketslide.html (accessed August 24, 2009). 10. Lyndon H. LaRouche, Jr., “ECONOMIC SCIENCE, IN SHORT,” LaRouche Political Action Committee, May 29, 2009, https://www.larouchepac.com/economicscience (accessed August 24, 2009) 11. Richard N. Cooper et al., “What About a World Currency? Proposal for a Common Currency Among Rich Democracies. One World Money Then and Now,” Working Paper #44, Bank of Greece Economic Research Department-Special Studies Division, (June 2006), 5. 12. Dominic Wilson and Roopa Purushothaman, “Dancing with BRIC’s: The Path to 2050,” Economics paper No #99, Goldman Sachs, (October 1, 2003).

This article is for the intended use of educational purposes only. Permission is granted for citation in academic documents as long as credit is given to the author as the original source. By Richard L. Dixon. Email address: [email protected]