Making a Modern American Economy

In recent years, historians and political scientists have demonstrated renewed interest in the early American national state, prompting a reconceptualization of national government during the late eighteenth and early nineteenth centuries. It is becoming more difficult to adhere to the notion that the Founding Fathers created a weak and indifferent government. The men who met in Philadelphia in 1787 chafed against the disintegrative potential of internationalism that stymied national governance under the Articles of Confederation. As Max Edling has aptly demonstrated, Federalists were eager state-builders and endorsed a powerful government buttressed by fiscal-military powers. Both historians and political scientists have expanded our understanding of the nationalizing potential of the Constitution by revealing federal efforts to construct national infrastructure projects, the military as an early state-building instrument, and the post office as an institution promoting knowledge diffusion and national culture. “The most significant and lasting tenet of this revisionism,” writes William Novak, “is that the American state is and always has been more powerful, capacious, tenacious, interventionist, and redistributive than was recognized in earlier accounts of U.S. history.”¹

With Founding Choices , editors Douglas Irwin and Richard Sylla bring economic perspectives to this conversation. “The economic policy choices of the 1790s,” they insist, “not only established conditions for (and removed constraints on) modern economic growth, but also provided a long-term policy framework that continued to encourage growth, the territorial expansion of the United States, and the country’s influence on world affairs for decades and centuries” (pp. 3–4). The essays included derive from presentations given at a 2009 meeting of the National Bureau of Economic Research, which also orchestrated the publication of the book. Leading economists contributed to the volume, but much of the econometric analysis is kept far simpler than what one might regularly find in the Journal of Economic History, resulting in a comparatively accessible set of arguments. This makes sense considering that the editors wish to bring attention to economic policy achievements of the Founders beginning in 1789, which, they somewhat reasonably assert, have been neglected in celebratory works on that generation.

The first chapter, the whole of part one (“Politics”), offers a familiar historical narrative of political events leading to the 1787 convention, and it provides a framework for understanding the significance of the Constitution from an economic policy perspective. The core argument advanced by Sonia Mittal, Jack N. Rakove, and Barry R. Weingast—the only political scientists represented in the collection—is two-fold. First, a direct effect of the Constitution was the creation of a “common market and the basis for specialization and exchange that emerged over the next two generations” (p. 40). Subsequent national policies solved problems facing the government by tackling national defense and security, improving revenue, implementing a common market, improving financial markets, and facilitating communication. Second, an indirect effect arising from the newly defined relationship between states and the federal government was “market-preserving federalism”—Weingast’s term—which “placed states in competition with one another in the context of policy and tax authority over local goods while requiring them to face the financial consequences of their decisions” (p. 27). These concepts, “common market” and “market-preserving federalism,” act as conceptual themes implicitly threading many of the chapters together and, with some rearrangement, might also have served as organizational devices rather than “Policy” (part two) and “Business Organization and the Factors of Production” (part three).

The five essays comprising part two largely wrestle with the implementation of a common market by the national state. Douglas Irwin’s “Revenue or Reciprocity? Founding Feuds over Early U.S. Trade Policy” traces debates about and implementation of trade policies as the early nation struggled to secure revenue. While Irwin suggests that aggressive trade policies endorsed by Thomas Jefferson and James Madison during the 1790s likely would not have had deleterious revenue outcomes for the United States, he argues that...