An Outline of the American Economy (1991)

3/12 A historical perspective on the American Economy

4/14 New Nation's Economy

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The U.S. Constitution, adopted in 1787 and still in effect to this day, was in many ways a work of creative genius. As an economic charter, it established that the entire nation -- stretching from Maine to Georgia, from the Atlantic Ocean to the Mississippi Valley -- was a unified or "common" market. There were to be no tariffs or taxes on interstate commerce. The Constitution provided that the federal government could regulate commerce with foreign nations and among the states; establish uniform bankruptcy laws; coin money and regulate its value; fix standards of weights and measures; establish post offices and post roads; and fix the rules governing patents and copyrights. The last-mentioned clause was an early recognition of the importance of "intellectual property," a matter that assumed great importance in trade negotiations in the late 20th century.

Alexander Hamilton, one of the nation's "Founding Fathers" and George Washington's secretary of the treasury, advocated a means of economic development in which the federal government would nurture infant industries through overt subsidies and protective tariffs. He also urged the federal government to create a national bank and to assume the public debts that the colonies incurred during the Revolutionary War. The new government dallied over some of Hamilton's proposals, but ultimately did make tariffs an essential part of American foreign policy -- a position that lasted almost until the middle of the 20th century.

Although early American farmers feared that a national bank would serve the rich at the expense of the poor, the first National Bank of the United States was chartered in 1791; it lasted until 1811. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing and banking. Hamilton's political rival, Thomas Jefferson, based his philosophy on protecting the common man from political and economic tyranny. He particularly praised small farmers as "the most valuable citizens."

In 1801 Jefferson became president and turned to promoting a more decentralized, agrarian democracy.

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