What the tariff fight of the 1790s reveals is not the clash of free market liberalism vs. dirigisme—indeed, no one in the late 1700s promoted total free trade—but rather the clash of two different industrial policies, each of which wanted to grant the US Government coercive power over the marketplace.
When Alexander Hamilton became the first Secretary of the Treasury, Great Britain was the most commercially advanced nation in Europe. Despite the Revolutionary War, Hamilton admired many elements of his former enemy’s centralized financial system, especially its protective tariffs, central bank, and financed public debt. All of these, Hamilton believed, were geared toward encouraging commerce because they benefited merchants, businessmen, and entrepreneurs. The flipside of this was that protective tariffs harmed the permanent, landed elite to which men like Thomas Jefferson and James Madison belonged. Indeed, Hamilton openly claimed his system would mean that one’s status would derive from one’s abilities, both mental and physical, and from one’s labor, offered freely.
Madison and Hamilton began as strong nationalists at the Constitutional Convention who believed in substantial government regulation, yet there was a key difference between them. While Hamilton saw a commercial America with no limits to future power and prosperity, Madison feared that too much economic development and prosperity would rob Americans of their civic virtue.
Hamilton hoped his system of tariffs and subsidies, especially his protective tariffs, would lead to a fruitful division of labor within the United States, enabling Americans to compete internationally and encouraging more trade while strengthening American industries. Madison, on the other hand, wanted to end trade with America’s greatest trading partner in a way that would inevitably harm the fledgling industries favored by Hamilton while benefiting the Plantations that relied on slaves and, he claimed, the yeoman majority who were too virtuous to buy foreign goods.
Hamilton’s economic policies would, in his mind, encourage the growth of American industry, entrepreneurship, and finance. Madison, on the other hand, aimed to limit the scope of industry while at the same time encouraging household production on a small scale. To Madison, success required discriminating against British trade, preventing the growth of American industries that might replace foreign imports, and somehow still opening overseas markets to American agricultural produce.