(c) 2001, J. Douglass Klein Eco 24 – Agenda for this week Finish Hamilton’s Reports (the Federalist agenda) The Debate over Internal Improvements - Constitutional - Economic Review the three types of market failure

(c) 2001, J. Douglass Klein Hamilton’s Reports on Public Credit Makes the case for good public credit for the federal government. on Manufacturers Makes the case for promoting manufacturing in the US by means of protection (tariffs) and other means.

(c) 2001, J. Douglass Klein Early Federalist v. Anti-federalist Debate Proposals for a “federal town” for the deliberations of the Continental Congress were made in 1783, 4 years before the adoption of the Constitution. Rivalry between Northern and Southern delegates over the site appeared in the First Congress, The Virginia members of the House wanted a capital on the eastern bank of the Potomac; they were defeated by the Northerners, while the Southerners defeated the Northern attempt to have the nation assume the war debts of the 13 original states, the Assumption Bill fathered by Alexander Hamilton. Hamilton and Jefferson arranged a compromise: the Virginia men voted for the Assumption Bill, and the Northerners conceded the capital to the Potomac. The World Almanac® and Book of Facts 1995 is licensed from Funk & Wagnalls Corporation. Copyright © 1994 by Funk & Wagnalls Corporation. All rights reserved. The World Almanac and The World Almanac Book of Facts are registered trademarks of Funk & Wagnalls Corporation.

(c) 2001, J. Douglass Klein Report on Manufactures Outline of the report {Works page numbers} 1. General case in favor of manufacturing, offering seven reasons why it is important. { } 2. More specific reference to the situation of the US, and why a balance between manufacturing and agriculture is the right policy. { } 3. Specific methods of promoting manufacturing. { } 4. Specific industries to be protected. { } 5. Conclusion and discussion of administration. { }

(c) 2001, J. Douglass Klein Report on Manufactures Summarize the arguments presented in quotes on the second two pages. “… it can hardly ever be wise in a government to attempt to give a direction to the industry of its citizens.” {p. 193} “If … a premature spring can be given to certain fabrics, by heavy duties … this will only be to sacrifice the interests of the community to those of particular classes.” {p. 194}

(c) 2001, J. Douglass Klein Questions on Manufactures 7 reasons why Manufacturing contributes: 1. Division of labor 2. Extends use of machinery 3. Increases employment in certain classes 4. Promotes emigration 5. Greater scope for the diversity of talents 6. More ample and various fields for enterprise 7. Create a more certain demand for produce of the soil

(c) 2001, J. Douglass Klein Questions on Manufactures What IDEAL WORLD does Hamilton describe {214} (986) [295], and how is this world different from the real world?

(c) 2001, J. Douglass Klein Questions on Manufactures In defense of the government support of manufacturing, what arguments does Hamilton present to counter Smith's maxim that resources should be allowed to go where they can earn the highest return? {p. 216} HABIT FEAR OF WANT OF SUCCESS SUPERIORITY ANTECEDENTLY ENJOYED BY OTHER NATIONS BOUNTIES AND PREMIUMS PAID BY OTHER GOVERNMENTS COMBINATIONS MAKING TEMPORARY SACRIFICES

(c) 2001, J. Douglass Klein Methods of Protection 1. Protective duties (e.g. our analysis of British corn) 2. Prohibitions on imports 3. Prohibitions on exports 4. Pecuniary bounties (e.g subsidies on manufacture) 5. Premiums (like prizes) 6. Exemption of materials of manufacture from duty 7. Drawbacks (cancelled tariffs on materials used as inputs) 8. Encouragement of new inventions (patents) 9. Regulations for the inspection of goods (quality control) 10. Facilitating pecuniary remittances (banking and currency) 11. Facilitating transportation (internal improvements)

(c) 2001, J. Douglass Klein Questions on Manufactures 1.Near the beginning of the Report, there is a lengthy quotation … What is the point of this passage? How does Hamilton address the issues raised. 2. List and briefly explain the seven arguments which begin on page 980, for why manufacturing is important to a society. (A answers 1,2; B=3,4; C=5,6,7 3. Do you think that Hamilton’s arguments in favor of protecting US manufacturing fall under one of Adam Smith’s criteria for protection or not. See in particular Hamilton’s discussion beginning on page 986. (2 different groups) 5. List and briefly explain the eleven different ways to encourage manufacturing. (These begin around page 1008.) Try to use supply and demand graphs to illustrate some of them. If you draw a NEAT graph, I’ll post it. (A=1,2; B=3,4,5; C=6,7,8; D=9,10, A 2B 2C 3 5A 5B 5C 5D

(c) 2001, J. Douglass Klein Manufacturing and Sectionalism Does protection of manufacturing increase sectional rivalries between, say, North and South? “Mutual wants constitute one of the strongest links of political connection…” (241) “The extensive cultivation of cotton can … hardly be expected but from the previous establishment of domestic manufactories of the article…” (243)

(c) 2001, J. Douglass Klein Internal Improvements

(c) 2001, J. Douglass Klein Internal Improvements

(c) 2001, J. Douglass Klein Internal Improvements

(c) 2001, J. Douglass Klein Internal Improvements Assignment Read about market failures in an Intro. Textbook, or see Read the sections on Internal Improvements. What reasons for or against internal improvements does each author give? What objections to internal improvements are raised?