U.S. Enters a New Era of State-Directed Capitalism and Hamiltonian Economics

By Victor Sperandeo with the Curmudgeon

Backgrounder - Economic Systems:

The three primary economic systems today are:

Capitalism is a political and economic system founded on the recognition and protection of individual rights, including the liberty to acquire, own, use, and exchange private property and the means of production and distribution. Individual liberty is what allows for the creation of wealth. Capitalism is based on the principles of natural law and inalienable rights, affirming that individuals should be free to pursue their lives and voluntary economic relationships without physical force, fraud, or unjust coercion by government or others.

Socialism is an economic and political system where the community or the government owns and controls the main parts of production. This includes factories, tools, and natural resources. Instead of private owners making profit, the goal is to share wealth and resources fairly to help everyone in society. It rarely succeeds and for only a short time. Many socialist countries have communist influence, e.g. Nicaragua, Nepal, Venezuela, Eritrea, etc.

Communism is a far-left political and economic ideology that seeks to establish a classless, stateless, and moneyless society based on the public ownership of all property and the means of production. There are five countries that remain under single-party communist-party rule today, though their economic models vary significantly from traditional state planning. They are China, Cuba, North Korea, Vietnam, and Laos.

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U.S. Economic Changes Under Trump 2:

In the U.S., the defining economic change under President Donald Trump’s second term (Trump 2) is the expansion of state-directed capitalism. The U.S. federal government now plays a more explicit role in allocating capital, protecting domestic production, shaping supply chains, investing in companies, and supporting industries viewed as essential to national power.

This marks a decisive movement away from the late-20th-century preference for globally integrated, market-led capital allocation. For investors, the central question is whether this framework produces stronger U.S. productive capacity, higher real wages, resilient supply chains, and sustained technological leadership—or channels capital toward politically favored firms and raises inflation, deficits, and financing costs.

China provides a useful, though imperfect comparison with the U.S. economic system. Under Mao Zedong, China organized economic life through central planning, state ownership, and political control. Deng Xiaoping’s reforms after Mao’s death in 1976 introduced private incentives, foreign investment, export manufacturing, special economic zones, and market-based price signals. China’s rise followed the creation of this hybrid structure: a politically authoritarian state directing land, credit, strategic industry, and long-term national priorities while market incentives expanded production, investment, and trade. However, China’s government today maintains very strict control of the people who therefore don't have the liberty enjoyed in most capitalist countries.

The United States now operates through a quasi-capitalist economic system. Private property, enforceable contracts, entrepreneurship, competition, public equity markets, and private credit remain the foundation of wealth creation. At the same time, federal policy influences capital allocation through monetary policy, taxation, regulation, defense procurement, subsidies, trade policy, export controls, and financial-market regulation. Let’s examine the economic changes under Trump 2 in more detail…….

The Trump 2 Economic Framework:

The Trump administration’s economic program centers on national (domestic) power, industrial capacity, strategic autonomy, domestic employment, energy abundance, and reduced dependence on foreign supply chains. Its tools include tariffs, domestic-content rules, tax incentives, defense procurement, export controls, infrastructure investment, and support for strategic production.

There is also the unprecedented U.S. government investment in private sector companies. Trump has moved the federal government from subsidizing strategic industries toward taking direct ownership positions and control rights in selected corporations it favors. That is a major evolution of U.S. capitalism: Washington increasingly acts as a strategic investor, industrial planner, purchaser, regulator, and significant shareholder.

We wrote about this tactic last October (Curmudgeon/Sperandeo: Intel to U.S. Steel: Washington Takes a Seat at the Table ), but it’s continued unabated.

Main U.S. government share holdings include:

· Intel: The Commerce Department acquired 433.3 million common shares for $8.9 billion, a 9.9% stake. Intel describes the holding as passive, without board representation, though the agreement includes a warrant connected to a potential change in control of its foundry business.

· MP Materials: The Defense Department invested $400 million for a 7.5% position in the rare-earth producer and holds rights that could lift the stake to 15%. The policy objective is an American rare-earth magnet supply chain less dependent on China.

· Lithium Americas: The federal government obtained a roughly 10% interest tied to financing for the Thacker Pass lithium project, a strategic input for batteries, defense applications, grid storage, and electric vehicles.

· Trilogy Metals: The government took a 10% stake through a $35.6 million investment associated with exploration in Alaska’s Ambler mining district, which contains copper and other critical minerals.

· U.S. Steel: Washington retained a “golden share” as a condition of Nippon Steel’s acquisition. The instrument gives the U.S. government continuing veto power over designated corporate actions, including relocating headquarters, moving production abroad, or closing facilities.

By May 2026, analysts at Center for Strategic and International Studies estimated that about $10 billion in federal funds had been committed for direct U.S. government equity stakes, with Intel representing the largest share. Subsequent reporting indicates a broader and faster expansion into chipmakers, minerals, quantum technology, and other strategically defined industries. This best exemplifies the U.S. transition from market-based capitalism to state capitalism or strategic state-directed capitalism.

The danger is politicized capital allocation. A government shareholder can influence investment, employment, facility location, mergers, trade policy, technology development, and procurement. Companies with superior political access may receive capital, tariff protection, contracts, and regulatory advantages over firms with superior efficiency or innovation. The result is less competitive discipline, weaker price discovery, and a growing premium on lobbying.

U.S. Transition from Free Markets to “Hamiltonian Economics”:

The Trump Administration has changed the U.S. political and economic systems in a major way. It is called “Hamiltonian Economics.” This is the term promoted by “Prometheus Action,” a political movement by its key speakers Susan Kokinda and Barbara Boyd.

The history and theory are based on U.S. founding father Alexander Hamilton. It was heavily promoted by Henry Clay, a member of the House and Senate in the 1840’s and early 1850’s. After Clay came U.S. 25th President William McKinley who also promoted Hamiltonian Economics and now President Donald J Trump is its new champion.

This approach includes: protective tariffs, promotion of domestic manufacturing, infrastructure development, national financial capacity, and federal support for industries central to national development. It is the opposite of Adam Smith’s free market economics.

Vice President JD Vance and Treasury Secretary Scott Bessent have said in separate speeches that capitalism - as in Free-Market economics - has FAILED! In particular, Vice President JD Vance discussed Alexander Hamilton’s views and shifting economic moves during an interview on The Michael Knowles Show released on June 30, 2026. Among other remarks, he stated that "tariffs are now a baseline position for the GOP,” after he noted that tariffs were abhorred during the first Trump administration.

Hamilton’s economic vision contained elements that critics today associate with a highly centralized political economy: close coordination between government institutions and large commercial interests. Such arrangements can strengthen state capacity, support strategic industries, and concentrate capital for national development. However, absent strong competition policy, labor protections, and broad-based access to opportunity, the benefits may accrue disproportionately to politically connected corporations and higher-income households.

“Crony Capitalism” and Socialist Policies:

Contemporary public frustration with capitalism often reflects dissatisfaction not with competitive markets themselves, but with “crony capitalism”—a system in which regulatory preferences, tax provisions, subsidies, procurement decisions, and other government interventions favor well-connected firms and investors. Critics argue that this can weaken market discipline, reduce economic mobility, and widen disparities in income and wealth.

The growing appeal of socialist policies (e.g. in New York City) can therefore be understood partly as a response to perceived failures of the prevailing economic system to deliver broadly shared gains. When middle- and lower-income households experience stagnant real wages, declining purchasing power (inflation rising faster than wages), rising housing and health-care costs, and limited wealth accumulation, calls for stronger public provision, redistribution, and market regulation become more politically expedient.

In this view, the central policy issue is not simply capitalism versus socialism. It is whether economic institutions promote open competition, transparent governance, investment in productive capacity, and broadly distributed opportunity—or instead reinforce a system of preferential access in which public policy and private influence mutually sustain inequality.

Market Structure and Investment Flows:

A state-directed capitalism model shifts expected returns across sectors. Companies tied to national security, strategic manufacturing, energy capacity, data infrastructure, and domestic supply chains may receive sustained policy support. Capital markets increasingly must evaluate public-policy alignment alongside earnings growth, competitive position, balance-sheet strength, and valuation.

This table summarizes the current U.S. economic system:

Market area	Key investment drivers	Principal market exposure
Defense and aerospace	Procurement, rearmament, secure supply chains	Federal-budget priorities and program concentration
Semiconductors and AI	Domestic fabrication, advanced compute, data-center construction	Capital intensity, energy availability, export controls
Energy and grid infrastructure	Generation, transmission, pipelines, LNG, nuclear, grid interconnection	Permitting, commodity cycles, financing costs
Steel, aluminum, mining, and critical minerals	Tariffs, reshoring, strategic-materials security	Global demand, downstream input costs, trade retaliation
Industrial automation	Factory construction, labor scarcity, manufacturing reshoring	Capital-expenditure cycles and interest rates
Telecom and fiber infrastructure	AI traffic growth, data-center interconnection, cloud capacity	Power constraints, construction costs, enterprise demand
Retail and consumer goods	Domestic sourcing, pricing power, supply-chain redesign	Import exposure and household purchasing power

The distinction between productive industrial policy and crony capitalism is essential. Productive industrial policy expands national capacity through power generation, transmission, advanced manufacturing, skilled labor, transport infrastructure, research, secure supply chains, and competitive private investment. Crony capitalism concentrates gains among protected incumbents, weakens competitive pressure, shifts losses to taxpayers, and directs capital through political access.

Markets will evaluate the Trump program through observable outcomes: productivity growth, real wages, manufacturing output, capital expenditures, new-business formation, power availability, inflation, Treasury yields, and corporate profitability.

Tariffs, Prices, and Interest Rates:

Tariffs occupy a central position in the Trump economic program. They provide protection for domestic producers, incentives for reshoring, revenue for the federal government, and leverage in trade negotiations. The policy also alters prices and margins throughout the economy.

Protected producers may gain market share, pricing power, and support for new capacity. Industries such as metals, industrial equipment, defense, advanced manufacturing, energy, critical materials, and selected technology supply chains stand to benefit. Domestic capital expenditure may rise as companies shift procurement, manufacturing, and logistics closer to U.S. markets.

This transmission mechanism also reaches firms that rely on imported machinery, components, raw materials, and finished products. Automakers, retailers, construction companies, electronics producers, and smaller businesses with limited purchasing leverage face greater cost pressure. Consumer prices can rise where firms pass higher input costs through to households.

A tariff-led rise in prices places the Federal Reserve in a more complex position. Expansionary fiscal policy, large AI infrastructure requirements, strategic investment subsidies, and tariff-related price pressure can reinforce inflation expectations. Higher-for-longer rates would raise borrowing costs for households and businesses and influence equity valuations, commercial real estate, venture investment, housing activity, and infrastructure finance.

Fiscal Policy and Capital Markets:

The long-term market issue is fiscal capacity. An active industrial policy requires durable funding for defense, infrastructure, energy systems, supply-chain development, research, tax incentives, and strategic manufacturing. Tax policy, entitlement spending, and interest costs determine whether these commitments support growth within a sustainable fiscal framework.

Large federal deficits increase U.S. Treasury debt at auctions (please see chart below). Investors then assess the supply of government debt, inflation expectations, fiscal credibility, and the term premium demanded for long-duration securities. Rising Treasury yields (30-year U.S. yield is at a 19 year high) increase federal interest expense and raise the benchmark discount rate used across corporate credit, equities, commercial property, mortgages, and private capital.

Financing the AI Investment (CAPEX) Boom:

High long-term interest rates matter greatly for the AI investment cycle. Large U.S. tech companies (mostly hyperscalers) are funding an enormous buildout of advanced computer servers, semiconductors, data centers, power generation, transmission, cooling systems, fiber networks, and cloud interconnection. Much of that enormous 2026 AI capex ($765 billion globally; $581 billion U.S. capex - estimates by Goldman Sachs) is debt financed - a lot of which is off balance sheet borrowing.

These projects could potentially strengthen productivity and reinforce U.S. leadership in artificial intelligence, but ONLY if the resulting AI services can be monetized to produce a reasonable ROI for big tech. Their financial viability depends on long-term capital availability, reliable energy supply, construction capacity, and economic returns that justify multiyear investment.

For technology, telecom, and infrastructure investors, the pivotal variables include:

· Electricity generation and grid-interconnection capacity

· Natural-gas availability, nuclear deployment, and transmission buildout

· Semiconductor supply, domestic fabrication economics, and export controls

· Data-center construction costs and long-term financing conditions

· Fiber, metro, and long-haul capacity supporting AI workloads

· Hyperscaler capital expenditures and enterprise AI adoption

· Treasury yields, credit spreads, and the cost of infrastructure finance

Distribution, Stability, and Political Risk:

The political durability of the new framework depends on how broadly its economic gains reach households. Strong industrial investment, rising productivity, wage growth, affordable energy, secure employment, and improved purchasing power would support public confidence in the system.

A different outcome would feature strong asset markets and protected corporate earnings alongside weak household affordability, high housing costs, elevated consumer debt, and widening wealth disparities. That environment fuels demand for more aggressive redistribution, greater state intervention, and anti-establishment political movements across the ideological spectrum.

The appropriate standard is therefore broader than GDP growth or equity market performance. A successful economy delivers prosperity, stability, productive opportunity, and greater security for working and middle-class households.

Sir James Goldsmith summarized the principle directly in a 1994 interview with Charlie Rose: the economy exists to serve society’s fundamental needs rather than being an end in itself.

Conclusions:

The Trump 2 era has elevated the role of government in shaping the structure of U.S. capitalism. Trump’s program preserves private corporate ownership but increasingly places strategic capital allocation under federal government control. That is capitalism with a powerful state shareholder and industrial-policy apparatus—not the decentralized free-market model in which private investors, consumers, prices, and competition primarily determine where capital flows.

As applied today, a Hamiltonian-style economic approach favors selected industries, concentrates power and provides public benefits to large corporations, financial institutions, and politically connected investors through subsidies, preferential regulation, tariffs, and government contracting. The resulting lobbying for preferential treatment and the weakening of competitive market forces can raise consumer costs, burden taxpayers, and widen wealth and income inequality.

Investors should focus on policy-supported sectors, power and infrastructure bottlenecks, tariff-driven cost shifts, federal financing needs, and whether industrial policy expands genuine productive capacity across the American economy.

End Quote:

From one of the greatest economists in history:

“A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two systems of social organization; it chooses between social cooperation and the disintegration of society.”

Ludwig Von Mises was an Austrian-American political economist and philosopher. He was a leading proponent of the Austrian school of economics.

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Wishing you good health, success and good luck. Till next time.................

The Curmudgeon
ajwdct@gmail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever-changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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