Adam Smith’s “system of natural liberty” claims that competition causes growth. Governments that displace market competition by picking “winners and losers” will find they don’t know enough, and are corrupted by short-term political payoffs. As Milton Friedman later argued, the best the state can do is confine itself to setting neutral rules—sound money, low taxes, predictable regulations, and open trade. That view became a consensus, and after the Second World War most of the world flourished under that consensus.
That consensus is now breaking down, fast. Not from communist nations; there really aren’t any, because all except the most obdurately authoritarian joined the prosperity party. Perhaps surprisingly, the biggest frontal assault on the system of natural liberty is coming from conservatives, erstwhile advocates of the market order.
In a July 2026 interview with Michael Knowles on The Daily Wire, J.D. Vance proposed a new (old) alternative: mercantilism. As Vance put it:
American economic policy on the right is now much more Alexander Hamilton than it is Milton Friedman… I do think fundamentally that Hamiltonian tradition is going to be what we see on the American Right and will dominate American conservative economic thinking for the future, which is not laissez-faire.
To be fair, Vance’s underlying diagnosis is cultural as much as economic. He has argued that Friedman’s small-government vision was viable in the Reagan era because the country still possessed, in his words, “a very rich and powerful institutional Christianity” that supplied the moral restraint markets themselves do not generate — the public-spiritedness that once kept self-interest from curdling into pure extraction.
Absent that restraint, Vance claims laissez-faire is unworkable; government must put a thumb on the scale rather than trust that private incentives will serve the public good on their own. This “Hamiltonian” suite of policies: consists of tariffs and subsidies to protect and build domestic industries, Vance claims, has worked before to build America, and it will work again.
This argument has several problems, but I will focus on the simplest. Vance is simply wrong about what Hamilton believed and about the actions the young nation took to achieve growth. Or, to paraphrase the eponymous musical, “It must be nice / To have Hamilton on your side.”
What Hamilton Actually Said: Tariffs
A prefatory note: Hamilton is famously prolix; one can often find support for a proposition, and its opposite, in the flood of words. My interpretation of what Hamilton actually said in his December 1791 Report on the Subject of Manufactures should be stated clearly at the outset to help the reader through the longer exposition. Also, calling this “my interpretation” is not really accurate. I am relying on my own reading, but also on Douglas Irwin (2004) and Richard Sylla (2011), because they have studied these issues and documents carefully
With that said, there are two key points:
First, the new government needed revenue. Hamilton tried to tap every revenue source he could think of, including a nearly disastrous tax on distilling. But by far the most reliable and productive source of revenue was taxes on imported goods at ports. These taxes could not be “protectionist”; a revenue tax must be low enough to encourage enough imports to supply the needed funding. At several points, Hamilton makes a “Laffer Curve” style argument: tariffs should be lowered if doing that would expand revenue. Raising tariffs above the revenue-maximizing rate—which is literally the definition of “protectionism”—was exactly the opposite of Hamilton’s proposal.
Second, Hamilton’s (quite legitimate, given the events of 1812) concern for the security of the new nation led him to advocate blocking or restricting imports from England and providing subsidies to industries that would reduce American reliance on English goods.
Bizarrely, the Report is invoked constantly today to support general protective tariffs (wrong) and to support encompassing industrial planning and subsidies (wrong). Neither “new” reading survives contact with the text, and this conclusion is already orthodox in the peer-reviewed literature. For example, as the economic historian Richard Sylla puts it in his assessment of the report, “Hamilton did not espouse state-directed economic development… He favored tariffs as the most practical way of raising government revenue in the 1790s. But he opposed raising those tariffs to truly protective levels, and his Federalist political party suffered in popularity as a result” In 1791 the federal government had almost no tax base besides the customs house. Hamilton had finagled (“The capital will be in Virginia!”) the assumption of $21.5 million in outstanding state war debts, along with the existing federal debt (about $42.4 million domestic plus about $11.7 million owed to foreign creditors, mostly France and Dutch bankers). That meant the total U.S. national debt after assumption came to over $75 million, about 40 percent of GDP. Given Hamilton’s personal responsibility for assuming this debt, he was eager to produce a credible plan for repayment, and in short order.
Given the lack of national capacity, and the encumbrances of federalism, tariffs were the only administratively workable tax the young federal government had. That fiscal, rather than protectionist, purpose is visible in the report’s own language. Hamilton concedes in the Report that “protecting duties” (import duties on goods that compete with domestic manufactures) function as an incidental benefit to domestic producers. But he is quite clear about which purpose comes first: duties are levied for revenue; encouragement of manufactures is the byproduct, not the purpose.
When sometimes Hamilton turns to the policy tool that would most resemble modern protectionism — prohibiting imports — he restricts it sharply, writing that this is “only fit to be employed when a manufacture has made such a progress and is in so many hands as to insure a due competition, and an adequate supply on reasonable terms.”
The actual numbers bear this out. Ad valorem duties in force in 1791 ranged from five to 12.5 percent; Hamilton’s proposed changes cut some rates to zero, and raised others to fifteen percent. He was fine-tuning rates to raise revenue, not block imports. In fact, domestic manufacturers who wanted real shelter from British competition were disappointed, and Sylla notes that Hamilton was willing to pay a political price for avoiding using tariffs as protection:
The modest duties caused manufacturers who desired more protection to shift their political support away from Hamilton’s Federalist Party and toward Jefferson’s Democratic Republican Party, which favored tougher measures to reduce imports from Britain, the leading trading partner of the United States.
The need for revenue meant tariffs were too low to afford protection, because a tariff produces revenue only when imports actually enter the country. Irwin makes the same claim, arguing that Hamilton “was skeptical of high protective tariffs because they sheltered inefficient and efficient producers alike, led to high prices for consumers, and gave rise to smuggling, which cut into government revenue.” If you buy the Vance interpretation, then Hamilton’s real worry that tariffs would shelter U.S. industries from competition, and for exactly the reasons that Milton Friedman would have endorsed, must leave you gasping for air!
What Hamilton Actually Said: Subsidies and Industrial Policy
The word used to describe export subsidies was “bounties.” Hamilton was clearly a fan of bounties, saying in the Report: “Pecuniary bounties [have] been found one of the most efficacious means of encouraging manufactures, and it is in some views, the best.”
His reasoning was that a protecting duty raises the price of the imported good and, by extension, also raises the domestic substitute sheltering behind the tariff. But
“the bounty when drawn from another source is calculated to promote a reduction of price, because without laying any new charge on the foreign article, it serves to introduce a competition with it, and to increase the total quantity of the article in the Market…Bounties have not like high protecting duties, a tendency to produce scarcity.”
The basis for supporting bounties is debatable; Adam Smith was certainly skeptical. But that is rather beside the point, because support for bounties falls well short of endorsing the open-ended industrial policy endorsed by contemporary economic nationalists who want Hamilton on their side.
For one thing, Hamilton confined bounties to a narrow and temporary purpose — overcoming the specific disadvantages of new enterprises competing against foreign producers who were themselves subsidized. He was explicit that the justification expired when the industry grew from infancy into a toddler: “The continuance of bounties on manufactures long established must almost always be of questionable policy,” since their persistence would signal “that there were natural and inherent impediments to success” rather than a genuine transitional need.
Second, regardless of what Hamilton himself did or didn’t like, Congress never enacted this part of the program. Since bounties were never enacted, they cannot be part of any story of the success of American industry. In fact, American industry succeeded without bounties, and it is at least possible that bounties, if provided, would have held us back.
Of Hamilton’s four major reports, Sylla notes, Congress “received, debated, and enacted” the substance of those on public credit, the national bank, and the mint; “in the case of Manufactures, it only received the report; there was no debate on it, and no comprehensive enactment of its policy proposals.”
What Congress did adopt within months were the tariff-schedule adjustments—and Sylla claims it adopted those “less to encourage manufacturing than to gain revenue to fund increases in military spending” after a military defeat on the western frontier. The subsidy scheme is historically important as a statement of Hamilton’s economic reasoning. It was never the operative policy, and attributing American industrial growth to nonexistent subsidies is intellectual malpractice.
What Would Hamilton Think Now?
It is worth speculating, while noting that this is only speculation, what Hamilton would say if we could bring him into today’s debate. He would likely share most of Vance’s underlying anxieties and concerns. Of course, today the threatening superpower is China. The debt is, if anything, even more dangerous: the ratio of federal debt to GDP this year will top 120 percent! (Hamilton’s contemporaries were worried when it was 40 percent; Hamilton might think we have lost our minds.) And the war in Iran has depleted our resources to the point where our ability to defend ourselves is potentially in question.
But those similarities highlight Hamilton’s main preoccupation: National and financial security. Dependence on a dominant foreign power was above all a security concern, not a general-purpose brief for economic nationalism. The Report was written under an explicit congressional charge to consider “the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies” — language about military supply, not consumer goods or GDP growth.
Hamilton’s Report could not be more explicit about this worry:
The extreme embarrassments of the United States during the late War, from an incapacity of supplying themselves, are still matter of keen recollection: A future war might be expected again to exemplify the mischiefs and dangers of a situation, to which that incapacity is still in too great a degree applicable.
His stated criteria for prioritizing industries for encouragement focused on:
…the capacity of the Country to furnish the raw material… the facility of execution… the extensiveness of the uses, to which the article can be applied — its subserviency to other interests, particularly the great one of national defence.
If we consider the burgeoning national debt, substitute China for Britain, and consider the draw down of American reserves of military equipment, missiles, and ammunition in the conflict with Iran, the parallels in the concerns are eerily close. But those facts point to a much narrower conclusion than the one Vance draws. A Hamilton concerned about American vulnerability to a strategic rival’s control over shipbuilding, critical minerals, semiconductors, or military-relevant supply chains would be recognizably continuous with the author of the 1791 report. A Hamilton who supported broad, economy-wide tariffs on all imports, or general-purpose subsidies to manufacturing as such, is a fabrication, based either on misreading or tendentious misrepresentation.
The Bottom Line: Hamilton Mostly Agreed with Market Freedom
Even granting, for the sake of argument, that the country should pivot to Hamilton, it matters that the pivoters get Hamilton right — and on the fiscal question, they have him wrong. Hamilton reached for tariffs because in 1791 the federal government had no alternative revenue base; customs duties were nearly the entirety of federal receipts. That constraint no longer exists. The United States now raises the great bulk of federal revenue from income and payroll taxes, and the arithmetic of trying to reverse that shift back toward tariffs does not work. In fiscal year 2025, total federal outlays were roughly $7.0 trillion and total federal revenue was roughly $5.2 trillion (Congressional Budget Office 2025). Actual customs-duty receipts that year — swollen by the most aggressive tariff regime in generations — came to about $195 billion, or roughly 2.8 percent of total federal outlays, even after rising 153 percent from the prior year (Congressional Budget Office 2025).
Pushed to its theoretical limit, the picture does not improve nearly enough to rescue the premise that tariffs could fund a modern federal budget. Because higher tariffs progressively reduce the volume of imports they tax, tariff revenue follows a Laffer-curve-shaped path rather than rising indefinitely with the rate. Modeling this tradeoff with a plausible import-demand elasticity of −2.5, economist Kyle Pomerleau finds that “the revenue-maximizing effective tariff rate is roughly 66 percent,” and that “tariffs at that rate could only replace around 33 percent of income tax revenue.” For perspective, that amount is on the order of $1.05 trillion annually against combined individual and corporate income-tax receipts of roughly $3.2 trillion. Measured against total federal outlays of $7.0 trillion, that theoretical ceiling would pay for no more than one-fifth of current federal spending, nowhere close to balancing the budget, let alone to replace the income tax or fund the government on tariffs alone.
None of this forecloses Vance’s narrower, security-based argument. It is entirely fair to say that Hamilton, once concerned with British dominance, would today be concerned with China; that concern is a legitimate basis for targeted tariffs and subsidies in specific strategic sectors. But that is a very different proposition from espousing broad-based industrial policy or general tariffs for economic reasons — the argument Vance’s Hamiltonian framing suggests, and the one Hamilton’s own report does not support. Hamilton was not a free-trade purist, but neither was he the tariff-and-subsidy nationalist the current debate sometimes makes him out to be.
Michael Munger is Professor of Political Science and Economics at Duke University. His research focuses on the relations between political and commercial institutions.
