Blame Washington
The first president and the origins of American corporate welfare


Kevin D. Williamson

Government “investments” have had a poor showing of late. President Barack Obama, convinced as ever that our economy can run on good intentions rather than hydrocarbons, got sold a bill of goods by such corporate rent-seekers as Solyndra and Tesla. And the federal government cannot even get the hydrocarbon-related businesses right, either: Our alleged “investment” in General Motors cost taxpayers many billions of dollars and made them partners in an incompetent and negligent operation that contributed to the deaths of at least 13 people who perished in accidents related to faulty switches in GM vehicles. As investment gurus go, Barack Obama isn’t exactly E. F. Hutton.

But our current feckless chief executive is not the worst offender on this front, and probably not even in the top ten, a point of more than merely historical interest argued at some length in Burton and Anita Folsom’s Uncle Sam Can’t Count: A History of Failed Government Investments, from Beaver Pelts to Green Energy, a terrific and very readable book published earlier this week. The Folsoms, who both teach at Hillsdale College, start setting ’em up and knocking ’em down with George Washington, a great president but a pretty lousy practitioner of beaver-pelt protectionism. The rogues’ gallery includes everything from federally supported steamship operations and railroads to Herbert Hoover’s Reconstruction Finance Corporation, the corrupt favor factory that gave birth to the Small Business Administration and Fannie Mae, and sundry 21st-century variations on the 18th-century mercantilist theme.

President Washington, inaugurating a line of argument that would be refreshed every generation up to (and, no doubt, beyond) our own time, viewed the beaver-pelt trade as a national-security issue, a critical component of the economy that demanded federal intervention to foreclose the possibility that devious foreigners would horn in on our national economic infrastructure and leave us vulnerable to outside interference. The Washington administration, concerned that British and French inroads in the pelt trade would lead to the strengthening of their ties with the Indians, saw to it that a $50,000 annual subsidy — which of course grew to six times that figure — was dedicated to building infrastructure for trade with the Indians, in order to “fix them strongly in our Interest.” Thus was born the Office of Indian Affairs. But like the Affordable Care Act so many years later, the rollout of the Indian trade infrastructure was so poorly managed that nobody wanted to do business there — especially not the Indians, who had many trading partners to choose from: English, French, and private American firms working outside the government system. Politics of course came to dominate economic concerns, and rather than stock federally established trading posts with goods the Indians actually wanted, the government stocked them with goods that they believed the Indians should want — goods that would have the effect of civilizing them and bringing their cultural values into line with those of the fledging United States. Which is to say, we tried to sell farm implements to tribes organized around hunting, offering plows to a market hungry for muskets.

That worked out about as well as you’d expect. The federal trade system bled money, while the best of the private traders, John Jacob Astor, became the new nation’s first multimillionaire. Naturally, the government’s first response was to propose a ban on private traders, though that bill thankfully died in the House. The Folsoms write that, upon examining the program, “many congressmen were astounded at the waste of government funds,” a sentence that has remained true for practically every period of American history. The political backlash was significant.

The same story would be repeated in the case of Cornelius Vanderbilt, who had to crack a government-backed shipping monopoly before showing travelers that he could cut rates and improve services while making a handsome profit. The monopoly eventually bought him out — and Vanderbilt reinvested his payoff in a new shipping business, further expanding services, cutting fares, and adding services (notably, free meals) to the point that newspapers joked that “a traveler who wishes to save money cannot afford to walk.” Steamship operators, envious of the subsidies offered to their British and European counterparts, began making the beaver-pelt case: Unless they, too, received subsidies, the nefarious Europeans would open up a steamship gap.