Philippine’s “Prophet of Disaster”: Salvador Araneta
Historically, the strongest and most organized advocate of protectionism in the Philippines is a group called National Economic Protectionism. This tool of protectionism and big government founded in 1934 aims to foster “the spirit of economic nationalism and national industrialization, and promotes the protection of Filipino interests in the country’s polity, economy, culture and environment.”
One of the most influential founding officers of NEPA was Salvador Araneta, an industrialist, economist, educator, and Filipino statesman. With his strong defense of protectionism (allegedly to protect our local industries, but in reality to help and protect Filipino oligarchs and cronies like him), Araneta was one of early builders of Philippine Oligarchy that remains dominant today.
Araneta’s undeniable influence in helping shape the country’s economic and political history should not be ignored when one tries to understand how protectionism became an almost inherent part of our national politics and constitution. A highly educated man, Araneta first entered politics in 1935 when he was elected delegate to the constitutional convention that created the Commonwealth Constitution. His political position made him instrumental in the creation of many governmental institutions that shaped the philosophical, political and economic foundation of this country.
Obviously fueled by his strong sense of nationalism, Araneta opposed the Bell Trade Act and passionately advocated national sovereignty, taxing autonomy, currency authority, and tariff protection, a position that placed him in direct opposition to then newly elected president Manuel L. Roxas. For his views on the trade agreement, Araneta was called by Roxas “a prophet of disaster”. If we are to study and understand the country’s economic history since 1935, we wouldn’t be surprised to find out that Roxas was absolutely right about his prescient description of Araneta, who was indeed a ‘prophet of disaster’.
However, there’s one particular statement Araneta made that caught my attention. He made the following statement in a speech before the Manila Rotary Club in January 1947, entitled ‘Precepts We Can Not Surrender’:
“There is no country (with the exception of England which was the first to turn to industrialization) which has been able to become industrialized without having had to protect its industries. The United States, with all its natural resources, had to protect its industries with high tariff barriers. From the time of its first Secretary of Treasury, the great Alexander Hamilton, to the present time, the United States has in fact consistently been a highly protectionist country.”
It is worthy of note that he particularly mentioned the name Alexander Hamilton to justify his argument that even America practiced protectionism to protect its economic interests against Great Britain and other more established empires in Europe. This is not at all surprising, because most advocates of protectionism in the United States cite Hamilton as the founding father of America’s protectionism.
The mere fact that one or two of the founding fathers favored protectionism does not mean America was founded as a protectionist nation. Advocates of protectionism tend to forget the man who penned the Declaration of Independence: Thomas Jefferson, who was Hamilton’s political and ideological enemy.
If Hamilton was an advocate of strong central government, Jefferson strongly favored a decentralized republic. Hamilton believed that efficiency, order and organization must be brought to public life, whereas Jefferson once said “I am not a friend to a very energetic government.”
Supporting the idea that America must have credit for industrial development, commercial activity and operations of government, he devised a central bank of the United States. Hamilton strongly favored the imposition of tariffs, relying on a version of an ‘infant industry’ premise: that temporary protection of new businesses can help boost the growth of competitive national industries.
Today’s America embraced the soul and influence of Hamilton. In fact, the Federal Reserve named Hamilton as its founding father.
In the Philippines, the cataclysmic legacy of the ‘prophet of disaster’ — Salvador Araneta– remains influential and dominant.
In regard to the disastrous legacy of Hamilton, American economist Thomas DiLorenzo made the following commentary:
Hamilton was the intellectual leader of the group of men at the time of the founding who wanted to import the system of British mercantilism and imperialistic government to America. As long as they were on the paying side of British mercantilism and imperialism, they opposed it and even fought a revolution against it. But being on the collecting side was altogether different. It’s good to be the king, as Mel Brooks might say.
It was Hamilton who coined the phrase “The American System” to describe his economic policy of corporate welfare, protectionist tariffs, central banking, and a large public debt, even though his political descendants, the Whig Party of Henry Clay, popularized the slogan. He was not well schooled in the economics of his day, as is argued by such writers as John Steele Gordon. Unlike Jefferson, who had read, understood, and supported the free-market economic ideas of Adam Smith, David Ricardo, John Baptiste Say (whom Jefferson invited to join the faculty of the University of Virginia), Richard Cantillon, and Turgot (a bust of whom still sits in the entrance to Monticello), Hamilton either ignored or was completely unaware of these ideas. Instead, he repeated the mercantilist myths and superstitions that had been concocted by apologists for the British mercantilist state, such as Sir James Steuart.
Hamilton championed the cause of a large public debt — which he called “a public blessing” — not to establish the credit of the US government or to finance any particular public works projects but for the Machiavellian idea of tying the interests of the more affluent to the state: being government bondholders, they would, he believed, then support all of his grandiose plans for heavy taxation and a government much larger than what was called for in the Constitution. He was right. They, along with Wall Street investment bankers who have marketed the government’s bonds, have always provided effective political support for bigger government and higher taxes. That is why Wall Street investment bankers were first in line for a bailout, administered by one of their fellow investment bankers, Treasury Secretary Paulson.
Hamilton argued for a large standing army not because he feared an invasion by France or England, but because he understood that the European monarchs had used such armies to intimidate their own citizens when it came to tax collection. Evidence of this is the fact that Hamilton personally led some 15,000 conscripts into Western Pennsylvania (with George Washington) to attempt to quell the famous Whiskey Rebellion. He was eventually put in charge of the entire expedition, and rounded up two dozen tax protesters, every one of whom he wanted to hang. They were all pardoned by George Washington, however, to Hamilton’s everlasting regret.
In a publication entitled “A History of Central Banking in America” the Fed proudly labels Hamilton as its founding father, boasting that he even spoke just like a contemporary Fed chairman. The First Bank of the United States, which was opposed by Jefferson and Madison, created 72 percent inflation in its first five years of operation, as Murray Rothbard wrote in A History of Money and Banking in the United States. It was not rechartered in 1811, but was resurrected by Congress in 1817, after which it created America’s first boom-and-bust cycle, which led to the Panic of 1819, the title of another of Rothbard’s great works on American economic history.
After years of generating political corruption and economic instability, Hamilton’s bank finally came to an end by the early 1840s, thanks to President Andrew Jackson. This led to the twenty-year “free banking” era. Hamiltonian central banking was resurrected once again in the 1860s with the National Currency Acts. This is an important reason why some historians have labeled the postwar decades as a period of “Hamiltonian hegemony.”
When Anna Schwartz, Michael Bordo, and Peter Rappaport evaluated this precursor to the Fed in an academic publication, they concluded that it was characterized by “monetary and cyclical instability, four banking panics, frequent stock market crashes, and other financial disturbances” (see their paper in Claudia Goldin, ed., Strategic Factors in Nineteenth-Century Economic Growth). Naturally, the government’s response to all of this economic panic and instability caused by centralized banking was to create an even more centralized banking system with the Federal Reserve Act.
Hamilton is perhaps best known among economists for his Report on Manufactures. In his 1905 biography of Hamilton, William Graham Sumner wrote that Hamilton’s report advocated “the old system of mercantilism of the English school, turned around and adjusted to the situation of the United States.” Thomas Jefferson also wrote that Hamilton’s “schemes” for protectionism, corporate welfare, and central banking were “the means by which the corrupt British system of government could be introduced into the United States.” They were right.
Hamilton’s reputation as having had great expertise in economics and finance has been greatly exaggerated, wrote Sumner, who also wrote that Hamilton’s economic thinking was marred by “confusion and contradiction” and that Hamilton was “befogged in the mists of mercantilism.” Unfortunately for us, all of Hamilton’s bad ideas “proved a welcome arsenal to the politicians” who succeeded him, noted Sumner.