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It’s barely the beginning of daybreak at the New England manor home of the American Institute for Economic Research. I’m awakened by a flutter, scrape, and a jumble of bird chirps, coming from somewhere vaguely over there.
Back to sleep. A few minutes later, it repeats itself. The birds don’t have a song. It’s more of a quick and exultant announcement that comes and goes in a few seconds before resting again for a random bit of time before starting over again.
Where are they? Outside? In the attic?
On the first day, it was charming. Less so on the second and third. By the fourth day, it was on the verge of being intolerable so I reported the disturbance to the caretakers of the home. A few hours later, following a careful investigation, the diagnosis was presented to me with great elan: “The fireplace in your room has a problem with chimney swifts.”
The Fix
Somehow it seemed like the right problem for this house to have. It was built in the old English manor Cotswold style, a huge stone house built as an extension of the original property constructed in the interwar years from financial resources accumulated as far back as the Gilded Age. That’s America’s version of what was called late Victorian in England, a time when chimney cleaning became a huge and wonderful industry with its own culture, economic impact, and sartorial style.
My immediate hope was that someone would hire a chimney sweep and that he would arrive in top hat and suit, carrying a brush on a stick, and that he would look like a character from the musical Oliver or Mary Poppins. Please let it be so!
The maintenance masters, however, had other plans. The eternal battle between sweep and swift would take place with modern technology. There is a machine with a high-pitched tone designed to drive the birds away. It was installed. So far it seems like the birds absolutely love it. Maybe there is hope for a chimney sweep after all. More likely, I’m guessing, a fire will be lit in the fireplace and that will be the end of the problem.
The Meaning of the Sweep
Still, the entire incident got me thinking about the industry of chimney sweeping and its place in history. Why do images of sweeps figure so large in our cultural imaginations?
It didn’t take long to discover a rich and amazing history.
Chimney sweeps are associated with three great things: wealth, good luck, and sartorial elegance. There is a reason for all three.
Great Innovations
First, wealth. Chimneys were themselves excellent innovations over the open fires that shelters had in feudal times. The appearance of the fireplace and the technology for moving the smoke out of the room itself suggested an uptick in wealth, making its appearance in Europe around the 12th century (a time when other innovations such as the ribbed ceiling, the wine press, liquor distillation, and glass mirror gave us early glimpses of modernity).
As people moved to the city to pursue new opportunities, houses began to be built closer together, each abode having its own fireplace, forming neighborhoods with beautiful skylines of chimneys. By the 18th century, England and Germany (the most prosperous of the Industrial Revolution), had large industries devoted to the cleaning of these chimneys.
To be sure, the necessity of cleaning them involves a storied history of child labor here. As everyone knows, the largest cities had large orphan populations, and their ubiquitous presence became a source of pathos among reformers of all sorts. But what is not often noted is that in past centuries, these people might not have been around at all, simply because they would not have been able to travel, find shelter, or live off the food and clothing that other people threw away. That was never possible before in history!
What the eye saw – and many writers documented it – was thousands of poor orphans living in the streets or finding protection under businessmen who gave them food and shelter in exchange for work such as chimney sweeping. What the eye does not see is what would have been the poverty and early death for these very people in previous ages. What looks like signs of poverty are actually signs of rising wealth.
When you look at the details, and the sad lives of children who did this work, condemned by William Blake in his 18th-century poem, it does indeed look indefensibly grim. Children as young as 6 were dropped into tiny tunnels filled with soot, shimmying down naked while carrying a brush, scrapping up their elbows and knees, and falling down the other side into the fireplace. The goal was to do this 5 to 6 times per day, marketing their services by shouting “soot-oh sweep!” all over town, in exchange for which the orphans received food and shelter. Sometimes they got stuck. Sometimes they died in service of the people.
So, yes, of course we are all against this. And yet the efforts to ban the practice, which were spectacularly unsuccessful from the earliest attempt in 1788, lacked that one critical thing: a better option. Where were these orphan sweeps going to go if they lost their jobs? They didn’t have home, parents, or income. They would have lived on the streets and exposed to even worse dangers. The do-gooders and their pieties were never able to generate a good answer to that critical question.
Good Luck!
Second, luck. One story, which is probably apocryphal, is that a chimney sweep in the late Middle Ages in England pushed the King out of the way of a runaway horse and 
carriage. The King then declared that henceforth, sweeps should be considered a source of good luck. Another story is that a sweep fell from a roof and got his pant leg caught on a rain gutter. A hand from inside a window reached to save him. It was the hand of person who would later turn out to be his bride. This is why (did you know this?) it is considered lucky to have a chimney sweep at your wedding.
Top Hats
Third, sartorial style. This story again involves a 12th-century English king saved by a chimney sweep, who calmed a scared horse. The King not only declared sweeps to be lucky but also declared that they should be permitted to dress as nobles. In later centuries, the permission to dress up was embodied in top hats and tails.
In the 18th and 19th centuries, this was a glorious mark of pride, which also helped recruit boys into the profession. My goodness, you can dress like a king, or at least like Prince Albert, who was responsible for popularizing the top hat.
In these times, clothing marked your class, birth, and station. It took centuries for capitalism to break down these class barriers, to get to the point where we are today when anyone can wear anything. Back in the day, to be permissioned to dress like the upper class was glorious. The chimney sweepers gained this privilege.
The Past and Future
There’s something about the physical experience of a spot like Cotswold Cottage at the American Institute for Economic Research that connects you to the deep past, in all its tribulations and struggle for progress, but also points to a brilliant future. Sometimes we need experiences like this to cause reflection of where we’ve been and where we are going in the forward motion of time, all while experiencing the truly permanent things, like the never-ending battle between the swifts and the sweeps.
We’ll win this one.
Jeffrey A. Tucker
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The Impossibility of Negative Rates
The economics discussion would be greatly enhanced if it were better understood that underlying all spending, selling, saving, lending, borrowing, and investing is an exchange of products, services or labor. Real things are always and everywhere being moved around when “money” changes hands.
It cannot be stressed enough that “money” is just an agreement about value that only has use insofar as there’s already wealth. Money does not instigate despite what economists, pundits and politicians tell you, rather it’s a consequence. We produce goods, we save them, we direct them to higher uses in the near-term since our needs are long-term (investment), and money is merely the medium that facilitates the movement of real things.
This requires mention ahead of what AEI resident scholar Paul Kupiec wrote in a recent Wall Street Journal opinion piece. Writing about the alleged tax implications of the impossibility that is “negative interest rates,” Kupiec observed that “the Fed hopes to avoid resorting to negative interest rates during the next recession, [but] without them the central bank’s ability to stimulate growth may be limited.” No, that’s not correct.
Readers should never forget that no one borrows dollars. Never. They borrow what dollars can be exchanged for: once again products, services, and most crucial of all to productive economic activity, labor. It’s all a reminder that the Fed’s ability to stimulate or shrink through its rate mechanism is only real in the eyes of economists, the media members who enable them, along with politicians who simply don’t know any better.
In the real economy, we borrow real things when we seek dollars, which means that the notion of Fed “ease” is pure fantasy. For one, dollars are the measure used to facilitate lending globally. Assuming a slowdown in U.S. economic activity, or a retrenchment by U.S. economic actors, the globalized nature of dollar credit means that increasingly austere market providers of dollars will overwhelm any artificial attempts by the Fed to rewrite reality with so-called “easy money.” In other words, what the Fed falsely “gives,” market sources of credit will take away.
After which we must return to the simple truth that the Fed can in no way increase access to the products, services and labor that borrowers seek when they borrow dollars. Implicit in Kupiec’s analysis is that the Fed can decree easy access to economic resources by merely fiddling with a rate. No, it can do no such thing.
And since some will ask, it’s worth briefly stressing that the Fed can’t alter the truth about price controls either. Assuming the Fed could decree zero or negative rates that market actors would actually abide (they wouldn’t, but let’s briefly imagine that they might), such a scenario would logically result in credit scarcity. Get it? When cities decree artificially low apartment rents, access to the latter shrinks as opposed to increasing. To believe the Fed can create abundance of credit through imposition of artificially low rates is much less than serious.
Which brings us to Kupiec’s mere suggestion that the Fed could engineer negative rates in a recession, and that doing so would prove stimulative. No, that’s an impossibility.
To see why, consider what investors do when they buy bonds. They in simple form buy bonds for say $100,000 now with an eye on getting the $100,000 back in the future, plus interest (let’s say for fun, 3%) throughout the life of the debt instrument. In short, they’re buying income streams meant to produce more than $100,000 for them over yet again the life of the bond. But that’s not what they’re really doing. With investment it’s always an exchange of resources with a view to attaining more resources in the future.
To buy a bond is to shift resource access to the borrower (think yet again products, services, and labor) in the present in order to attain access to products, services and labor in greater amounts in the future. Products for products. Always.
Yet explicit in negative rates is that investors, corporations and other holders of dollar wealth would quite literally provide resource access to borrowers in the near term worth – say – $100,000 in order to receive less than $100,000 worth of resources down the line. It’s all a reminder that in the real economy, negative rates are an impossibility. Once again, no one buys bonds, or the income streams that bonds pay out, as much as they buy the right to access greater amounts of goods (the income streams exchangeable for goods and services) in the future. Explicit in negative rates is that investors and businesses would literally invest in order to shrink the exchangeable value of their investment in the future. No chance.
In Kupiec’s defense, he acknowledges the above truth, though somewhat vaguely. He notes that when “corporate treasurers first faced negative deposit rates in Switzerland and Denmark, they looked for new places to park their cash balances.” Well, of course they did. Imagine what the stock market would look like if businesses were knowingly putting their dollar, euro, yen, Pound (name the currency) profits to work with an eye on shrinking their value. Or imagine if investors were pursuing negative returns.
Thankfully they don’t have to. Explicit in the market impossibility that is negative rates is that there’s a “glut” of savings such that economic resources are worse than useless. No. Not happening. Not during a recession, and not during a boom. Such a view is rather ignorant per Henry Hazlitt. So long as people have unmet wants, meaning forever, and so long as innovative thinkers have visions for improving, or better yet transforming our future, interest rates will always be positive to reflect the expense of accessing resources to bring the future into the present.
So what of negative rates? They do exist, don’t they? Yes, but what Kupiec left out is that the owners of these negative-yielding debt instruments aren’t investors, businesses or individuals; rather they’re central banks, insurance companies and pension funds. Oh well, central banks exist at the pleasure of governments, while insurance companies and pension funds operate with varying degrees of protection from government. And even the three entities mentioned have limits to how dense they can be. Ultimately insurance companies and pensions must produce returns, and central banks must remain somewhat solvent. In short, their capacity to absorb what is mindless has limits.
Looking ahead to the next downturn, economic laws will still exist. No doubt central banks cheered on by economists will promise all manner of interventions to allegedly soften the blow. And they’ll fail. Thankfully so. If central planners could truly alter reality for the better, as so many so sadly still believe, then the 20th century wouldn’t have been the murderous disaster that it was for so many. What’s too bad is that these lessons still haven’t sunk in with economists lucky enough to have prominent perches from which they’re empowered to preach what defies simple common sense.
John Tamny
John Tamny, research fellow of AIER, is editor of RealClearMarkets. His book on current ideological trends is: They Are Both Wrong (AIER, 2019)
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Alexander Hamilton, the Other Tariff Man Who Created a Mess
One of the many unsettling features of Donald Trump is his deep-seated antipathy to the time-honored doctrine of free trade. Even as early as 2016, Trump devoted a substantial portion of his Republican Convention speech calling for the adoption of protectionist tariffs and other trade restrictions against “any country that cheats.”
He proceeded to blame NAFTA for a litany of largely-imagined economic woes in the industrial sector; reiterated his support for an import-substitution regime to internalize manufacturing and tech production in the United States; likened the trade deficit to the federal budget deficit; and railed incoherently against that favorite modern-era scapegoat of all of America’s purported trade ills, China.
In the following years, Trump only doubled down on his calls for alleged economic autonomy, threatening to take the United States out of the World Trade Organization, imposing vast tariffs against any country with whom the US runs a “trade deficit,” threatening more tariffs as a political bludgeon, daily introducing more uncertainty about the rules in a way that has made business cautious to invest.
Protectionists are not new to American politics, though they do buck the trend toward a managed but certain trade liberalization, advanced by both major parties over the past eighty years. In his own idiosyncratic and sometimes vulgarized way, Trump represents the resurgence of an economic philosophy as old as the republic itself: that of Alexander Hamilton.
Hamilton’s “Fortress America” Economic Policy
A skilled, if often mistaken, political commentator in his own right, Hamilton was the father of the direct antecedents to Donald Trump’s favored economic system. Over the course of almost 30 years in political life, Hamilton developed a program of sometimes nuanced but assertive economic nationalism. He believed that trade restrictions were crucial to the development of the fledgling nation’s “infant” industrial base, as well as a guardian against practices of European nations that he deemed unfair or harmful to American interests.
To attain this result, Hamilton advocated a complex and carefully tuned system of “bounties” (essentially, subsidies to boost American companies against their competitors abroad) and protective tariffs to insulate American industries from foreign competition. Hamilton and his political heirs coupled this prescription with an aggressive program of harbor, canal, and road infrastructure spending, often called “internal improvements.”
These public works projects would in turn provide the means to transport American-made products to American consumers, thereby bypassing the alleged “dependency” on Europe for manufactured imports. As an added bonus, their construction would supply American workers with jobs and industry in its own right.
Hamilton’s Plan to Make America “Grand and Glorious” Again
The parallels to Trump’s agenda are no accident. To quote the great classical liberal economist William Graham Sumner, Hamilton’s mind was “completely befogged in the mists of mercantilism.” This affliction lasted from his earliest forays into politics as a young soldier in the revolutionary army until his most famous economic treatise, the deeply protectionist “Report on Manufactures,” that he wrote as Secretary of the Treasury in 1791. To Hamilton, economic “autonomy” — maintained through an extensive system of state regulations and economic management — was a primary feature of the American experiment.
“Food and clothing we have within ourselves,” he wrote in 1774. The rest could be cultivated with a policy of forced economic independence. Hamilton continued:
Our climate produces cotton, wool, flax, and hemp; which, with proper cultivation, would furnish us with summer apparel in abundance… We have sheep, which, with due care in improving and increasing them, would soon yield a sufficiency of wool…
It would be no unbecoming employment for our daughters to provide silks of their own country. The silk-worm answers as well here as in any part of the world. Those hands which may be deprived of business by the cessation of commerce, may be occupied in various kinds of manufactures and other internal improvements.
If, by the necessity of the thing, manufactures should once be established, and take root among us, they will pave the way still more to the future grandeur and glory of America; and, by lessening its need of external commerce, will render it still securer against the encroachments of tyranny.
Trumpilton Trade: Winners vs. Losers, Cheaters vs. Suckers
This aggressively autarkic pronouncement gave way to greater nuance as Hamilton’s politics matured, but protectionism always remained a constant feature of his message. In 1782, he pressed its strategic propriety in a blistering assault on the national government’s lack of regulatory powers under the Articles of Confederation.
“To preserve the balance of trade in favor of a nation ought to be a leading aim of its policy,” Hamilton declared. “The avarice of individuals may frequently find its account in pursuing channels of traffic prejudicial to that balance, to which the government may be able to oppose effectual impediments.”
Trade regulation, to Hamilton, was the essence of economic policy. Free trade, he complained, stood “contrary to the uniform practice and sense of the most enlightened nations.” Rather, commerce must be subject to “the encouragements or restraints of government.” The “power of regulating trade ought to have been a principal object of the Confederation,” he continued, laying out the case for a national authority to regulate commerce that would come to pass under the new Constitution of 1787.
Hamilton’s 1791 Report turned these sentiments into prescriptive policies. Deeming foreign demand for American agricultural products “too uncertain a reliance” for the fledgling nation, he called for the use of economic regulations, tariffs, and bounties to create “a substitute for it, in an extensive domestic market.”
The reason for these policies, according to Hamilton, was an allegedly unfair playing field abroad. “If the system of perfect liberty to industry and commerce were the prevailing system of nations,” he argued, free trade would have merit. “But the system which has been mentioned, is far from characterising the general policy of Nations. The prevalent one has been regulated by an opposite spirit.”
Echoing Hamilton, Trump advanced a boorish but conceptually identical argument in the March 10, 2016 Republican debate: “Take China as an example. I have many friends, great manufacturers, they want to go into China. They can’t. China won’t let them. We talk about free trade. It’s not tree free trade; it’s stupid trade. China dumps everything that they have over here. No tax, no anything.”
Who Could Be against “Improvements”?
To complement his managerial approach to international trade and domestic industry development, Hamilton also used the 1791 report to propose a national infrastructure plan. “Improvements” favoring the transportation of goods, he argued, were an object of any government. In this area, “The United States stand much in need.” He continued:
The symptoms of attention to the improvement of inland navigation which have lately appeared in some quarters, must fill with pleasure every breast, warmed with a true zeal for the prosperity of the country. These examples, it is to be hoped, will stimulate the exertions of the Government and citizens of every State.
There can certainly be no object more worthy of the cares of the local administrations; and it were to be wished that there was no doubt of the power of the National Government to lend its direct aid on a comprehensive plan. This is one of those improvements which could be prosecuted with more efficacy by the whole, than by any part or parts of the Union.
If these features sound familiar, consider the following line from Trump’s acceptance speech: “This new wealth will improve the quality of life for all Americans — we will build the roads, highways, bridges, tunnels, airports, and the railways of tomorrow. This, in turn, will create millions more jobs.”
It is more or less the same argument, updated by about 200 years of technological advance and distilled into the bombastic platitudes of an idiot.
Pro-Immigration — in Theory
If Trump’s trade protectionism is essentially less coherent Hamiltonianism, what about its close cousin in immigration? Trump has infamously appealed to the nativist tendencies of American populism, ranging from his proposal to build a massive wall on the American border with Mexico to a range of notorious “security” deportations and immigration restrictions, in the name of fighting crime and terrorism.
Alexander Hamilton was, famously, an immigrant himself. He also diverged from Trump in his pairing of immigration and protectionism. The 1791 Report contained an extensive defense of “promoting of emigration from foreign Countries” and linking this policy to his broader program for the state promotion of manufactured goods.
Though he struck liberal policy tones on immigration for his day, Hamilton’s immigration views were not without nuance, and an uglier side emerged toward the end of his life. Hamilton proved quite capable of espousing openly xenophobic and nativist beliefs, often to the surprise of his contemporaries who knew of his own birth on the Caribbean island of Nevis.
One striking episode came to print in 1796, involving a dispute between Hamilton and William Findley, a congressman from western Pennsylvania who had harshly criticized Hamilton’s role as Secretary of the Treasury in instigating the Whiskey Rebellion.
Addressing the Irish-born Findley and Swiss-born politician Albert Gallatin, Hamilton “censured the people [of Pennsylvania] for electing us.” According to Findley’s recollection:
[Hamilton] expressed much surprise and indignation at their reposing so much confidence in foreigners, that Gallatin and I were both foreigners and therefore not to be trusted.
When it was answered, that I had been in the country from my youth, &c. and that Mr. Gallatin had come into it very young and had been a citizen a competent length of time, to be legally qualified for trust, that we were both sensible men, and had a sufficient stake in the country, to secure our interest, he persisted in saying, that we were bad hearted men and dishonest politicians.
Perhaps “foreigners are bad hearted men” was 18th century shorthand for “the Mexicans are sending us drugs dealers, criminals, and rapists.”
Trump’s Dream: The Alien and Sedition Acts
Hamilton also served as something of a behind-the-scenes cheerleader of perhaps the most severe anti-immigration policy to emerge during the founding era, the legislative package known as the Alien and Sedition Acts of 1798. This set of four bills is best known today for its penalization of “sedition” — the criminalization of certain forms of political speech that the Federalist Party used to persecute opposing newspaper editors.
The legislative package’s other three less-discussed provisions actually pertained to immigration:
- The Naturalization Act of 1798 increased the required residency period for an immigrant to obtain naturalized citizenship from 5 to 14 years.
- The Alien Enemies Act authorized the imprisonment or forcible deportation of non-citizen males coming from any country with which the United States was in a state of declared war (note that this provision extended to persons who would have also lost their citizenship eligibility under the Naturalization Act).
- The Alien Friends Act granted the president wide authority in times of peace to order the detention or deportation of foreign nationals that were deemed “hostile” to the United States, and to prescribe severe restrictions on the durations that targeted persons could remain in the country.
These draconian measures came into being as a product of early anti-immigrant sentiments tied to the undeclared Quasi-War with France, which Hamilton played a key role in fomenting. The Quasi-War itself was an outgrowth of the French Revolution, entangling the United States in a state of degrading diplomatic and eventually naval relations with a succession of governing regimes in France.
As Hamilton’s political adversaries, the Democratic-Republicans, had expressed early sympathies for the French Revolution, the episode also functioned as a prime opportunity for the Federalists to whip the American public into a state of alarm about the presence of alleged subversives and other “treasonous” elements who supposedly threatened to import a Jacobin “Reign of Terror” into the fledgling United States.
In reality, the Federalists’ driving motivator was likely a combination of (1) a ploy to strengthen the case for war with France, and with it the establishment of a “defensive” army under Hamilton’s command, and (2) an old-fashioned ballot suppression scheme to disenfranchise immigrants, who tended to vote for the opposition Democratic-Republicans.
Hamilton followed the bills’ progress through Congress closely. While his role in their drafting is confounded by the destruction of Hamilton’s personal papers — and a disputed assignment of blame to him by Hamilton’s bitter enemy, President John Adams — there can be little doubt that he approved of the anti-immigration measures.
As Congress debated the bills, he wrote Secretary of State Timothy Pickering for information about their progress. Hamilton informed Pickering of his opinion that “the mass [of Aliens] ought to be obliged to leave the Country,” though he wished for Congress to carve out exceptions for persons “whose situations would expose them too much if sent away & whose demeanour among us has been unexceptionable,” and he asked that their enforcement “not be cruel or violent.”
Nonetheless, his position was clear. Hamilton supported deporting foreigners on suspicion of threat to the United States, which in his own time entailed the publicly inflamed specter of Jacobin revolutionaries in France. It is not difficult to see the parallel “national security” rationale for the Alien Acts of 1798 and Donald Trump’s own vulgar plan for banning Muslims from entering the country.
The Long Shadow of Hamilton
Most of the alien and immigration restrictions were quickly repealed after the Federalists fell from power in 1800, though they served as an unsettling precedent for subsequent anti-immigration measures across American history. The Alien Enemies Act remained on the books however, and provided an important legal pretext for more aggressive measures enacted under the Espionage Act of 1917.
Since then, economists have also debunked the reasoning behind Hamilton’s neo-mercantilist economic system, but its popular appeal has persistently lingered over American politics. Hamiltonian ideas directly sustained a trade-penalizing protectionist regime into the early 20th century.
Unfortunately Donald Trump has reinvigorated one of America’s oldest and most dubious political traditions, and this time it’s coming with all the reckless ambition of its founder, but none of his intellectual sophistication or erudition.
Phillip W. Magness
