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Alexander Hamilton, Bad Samaritans, and the Need to Challenge Conventional Wisdom

by Lee

Since I've started watching the "John Adams" mini-series on HBO, I've become more interested in reading about the real stories behind the founding of the United States. This Sunday's Part 5 finally introduced us to Alexander Hamilton, the first Secretary of the Treasury. Hamilton was one of the more intriguing characters I read about in Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang, the book on which I did my most recent book report. In 1790, Hamilton introduced the "infant industry" argument for protectionism. The policy (that nascent industries do not have the economies of scale to compete without protection) is commonly dismissed by today's mainstream economists, but -- as Chang points out -- is largely responsible for the United States' rapid ascension to world power.

The central theme of Chang's book is that poor countries can get rich only by doing the exact opposite of what they are told by the World Bank, the International Monetary Fund and the World Trade Organization -- the "Bad Samaritans" referred to in the title. I found it fascinating how today's advocates of free trade only lowered tariffs after their industries had firmly established their lead over rivals. The book had numerous examples of how today's commonly accepted principles are frequently not the pre-conditions to economic success that they are seen as (e.g. low inflation, lack of corruption, etc.). The biggest lesson that I took from the book, however, was something I try to keep in mind when approaching all of our research: that it is always necessary to question conventional wisdom.