The Currency of Power: Want to understand America’s place in the world? Write economics back into the plan
October 9, 2012
Earlier this year, Bob Carr, Australia’s foreign minister and a longtime friend of the United States, observed with Aussie clarity: “The United States is one budget deal away from restoring its global preeminence.” He added a caution: “There are powers in the Asia-Pacific that are whispering that this time the United States will not get its act together, so others had best attend to them.”
Carr’s insight — that the connection between economics and security will determine America’s future — is sound and persuasive. Yet ever since the rise of “national security” as a concept at the start of the Cold War, economics has become the unappreciated subordinate of U.S. foreign policy. Today, the power of deficits, debt, and economic trend lines to shape security is staring the United States in the face. Others see it, even if America does not.
Carr, a student of U.S. history, would probably not be surprised to learn that his warning echoes words drafted by Alexander Hamilton, America’s first Treasury secretary, for President George Washington’s farewell address: The new nation, Hamilton urged, must “cherish credit as a means of strength and security.” Ironically, it took an admiral — Mike Mullen, then chairman of the U.S. Joint Chiefs of Staff — to recall Hamilton’s warning about the link between credit and security. Mullen seized attention not by pointing out a danger to the fleet, but by telling CNN, “The most significant threat to our national security is our debt.”
Mullen’s observation should not come as a surprise, because strategists in uniform often look to history as their laboratory. They also have to match means and capabilities to achieve ends. Officers at staff colleges may be inspired by the exciting chapters on Napoleon Bonaparte’s bold campaigns, but the astute also discover that the key to Britain’s victory in the Napoleonic Wars is found in the dry accounts of the budgets of William Pitt the Younger, the chancellor of the Exchequer and prime minister. By restoring Britain’s credit after its costly imbroglio with the American colonies, Pitt enabled his country to fight a long war — and even repeatedly finance coalition partners — without choking Britain’s economy.
In contrast, consider the foreign-policy debates of this U.S. election year. Journalists and commentators expound about wars and rumors of wars, political leaders and upheavals, human rights and duties to intervene, missiles and their defense. All serious and important topics. But how about a question on the eurozone crisis that threatens the integration of Europe, one of the 20th century’s greatest security-policy achievements and America’s closest ally and partner? What about America’s connections to growth in East Asia, where economics is the coin of the realm? The reply is that these topics concern economics, not foreign policy!
America’s security strategists seem to have lost the ability to integrate the two. Their perspectives on economics do not extend much beyond sanctions policies and paying for defense budgets. At best, the role of economics is assumed, not analyzed. We scarcely understand its effects on power, influence, diplomacy, ideas, and human rights. At worst, economic problems have become a justification for a “come home, America” isolationism. And economists — absorbed with mathematical models and debates about quantitative easing and stimulus policies — are content to operate in their separate universe.
Some, on the left and the right, disparage the role of economics in foreign policy as crass commercialism, narrow business interests, or, worse, affording undue influence to bankers. Others view international economics and trade policy as narrow specialties involving technical negotiations that just aggravate domestic constituencies. Yet this separation of economics from U.S. foreign policy and security policy reflects a shift from earlier American experience. For its first 150 years, the American foreign-policy tradition was deeply infused with economic logic. Unfortunately, thinking about international political economy has become a lost art in the United States. How did this happen?
IN 1773, A TRIBE of Bostonians threw 342 chests of tea into the harbor — without damaging other property, I should add — to protest taxes imposed to bail out the nearly bankrupt British East India Company. Their protest still inspires a political movement in our time. The incident was the most dramatic of waves of colonial “nonimport-ation” policies dating to the 1760s, early American efforts to employ trade as a tool of policy.
The new American republic was born amid a world of mercantilist empires. Navigating around the trading monopolies of the seasoned, established powers — and later blockades and bullying — the former colonies fought continually for what historian Philip Zelikow has called “freedom to trade.” This principle was not “free trade” as we understand it today, but a challenge to the old order nevertheless.
The young United States, under President Thomas Jefferson, tried to exert its own leverage with nonimportation acts and even a disastrous embargo on foreign commerce in 1807. Ironically, it took the failure of Jefferson’s trade sanctions, as well as the War of 1812, for the United States to start developing the manufacturing base that Hamilton sought and Jefferson opposed.
Britain was not the only object of U.S. economic security policy. From 1801 to 1805, in the face of the Barbary pirates’ attacks on U.S. ships, Jefferson rejected demands for tribute and instead sent the U.S. Navy to the shores of Tripoli. As the U.S. Marine Corps’ hymn has memorialized, this Libya expedition was not “led from behind.”
In an age when power arose from the expansion of territory, resources, people, and commerce, America’s implicit strategy understandably concentrated on the North American continent and open immigration. Land and settlement provided security, especially when buffered by two vast oceans.
Wielding a tool of diplomacy lost today, the United States resolved disputes by buying lands: Louisiana; Florida; old New Mexico, California, and the Gadsden Purchase; Alaska; and even the Virgin Islands at the start of the 20th century. (Admittedly, in some cases use of force led to price discounts.) In another touch of irony, Jefferson needed Hamilton’s Bank of the United States and credit system, which Jefferson had opposed, for his greatest achievement, the Louisiana Purchase.
The theme of Western Hemispheric integration — a partnership of young democracies, not an empire — was advanced by Secretary of State Henry Clay in the 1820s, revived in the 1880s and 1890s, and found first fruits a century later in the North American Free Trade Agreement (NAFTA) and then five more U.S. free trade agreements with Latin America. Today, the partners in those free trade agreements account for more than half of the hemisphere’s non-U.S. GDP. In the 21st century, comprehensive free trade agreements could turn out to be the ties that bind, like the alliances of old.
The Federalist Papers, the touchstone of American constitutionalism, are replete with references to the need for a strong federal government to secure the United States’ place among foreign countries, including through healthy commerce and credit. The founders understood the link between economics and security. In a prescient example, John Jay, in Federalist No. 4, cautioned in 1787 that trade with China and India could one day draw the United States into conflict with competitors. It was no coincidence that the first U.S. forays into international relations were called treaties of “Amity and Commerce.“…