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Senator Henry Clay

The American System was an economic philosophy associated in particular with Henry Clay intended to allow the United States to become economically independent and nationally self-sufficient. It is a school of economic thought distinct from both the "British System" of Adam Smith and that of Karl Marx. The American System called for a high tariff, support for internal improvements such as road-building and railroads, and a national banking system. It was built on the policies of Alexander Hamilton and George Washington, was promoted by John Q. Adams, and was the antecedent to the policies of Abraham Lincoln and the early Republican Party.

Policies of the American System

The American System included three cardinal points:

Congressman Andrew Stewart defined elements of this system clearly in the following extract from his book, "The American System":

  • "Protect and cherish your national industry by a wise system of finance, selecting in the first place those articles which you can and ought to supply to the extent of your own wants-food, clothing, habitation, and defence-and to these give ample and adequate protection, so as to secure at all times an abundant supply at home. Next select the LUXURIES consumed by the rich, and impose on them such duties as the wants of the Government may require for revenue; and then take the necessaries of life consumed by the poor, and articles which we cannot supply, used in our manufactories, and make them free, or subject to the lowest rates of duty."
  • "Adopt a system of national improvements, embracing the great rivers, lakes, and main arteries of communication, leaving those of a LOCAL character to the care of the States; and on these expend the surplus revenue only; thus uniting and binding together the distant parts of our common country, and at the same time securing the most efficient system of defence in war, and the cheapest and best system of commercial and social intercourse in peace."
  • "Introduce enlightened economy in every branch of the public expenditures. Lighten the burdens, diversify the employments, and secure and increase the rewards of labor in all its departments."
  • "In your foreign relations follow the advice of the father of his country-" observe good faith and justice towards all nations-cultivate peace and harmony with all." Thereby illustrating the beauty and perfection of our Republican institutions, holding up a great example of "liberty and independence," for the nations of the earth to admire and imitate."

Henry C. Carey in his book "Harmony of Interests" displays two additional points of this American System economic philosophy that distinguishes it from the British System of Adam Smith or the Communist System of Karl Marx:

  • Government support for the development of science and public education through a public 'common' school system and investments in creative research through grants and subsidies.
  • Rejection of class struggle, in favor of the "Harmony of Interests" between: owners and workers, farmer and manufacturers, the wealthy class and the working class.

Philosophical basis of the American System

A portrait of Alexander Hamilton by John Trumbull, 1792.

The American System of economics represented the legacy of Alexander Hamilton, who in his Report on Manufactures, argued that the U.S. could not become fully independent until it was self-sufficient in all necessary economic products. Hamilton rooted this economic system, in part, in the successive regimes of Colbert's France and Elizabeth I's England, while rejecting the harsher aspects of mercantilism, such as seeking colonies for markets. As later defined by Senator Henry Clay who became known as the "Father of the American System" because of his impassioned support thereof, the "American System" was to unify the nation north to south, east to west, and city to farmer. A leading proponent and economist of the 19th Century, Henry Carey, called this a "Harmony of Interests" in his book by the same name, a harmony between labor and management, and as well a harmony between agriculture, manufacturing, and merchants.

The opposing view, represented by Thomas Jefferson maintained that the U.S. was morally better off as an agrarian nation with a plantation economy with a weak, small federal government.

The name, "American System," was coined by Clay to distinguish it, as a school of thought, from the competing theory of economics at the time, the British System represented by Adam Smith in his work Wealth of Nations. In a passage from his book, The Harmony of Interests, Carey wrote concerning the difference between the American System and British System of economics:

Two systems are before the world;...One looks to increasing the necessity of commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of ELEVATING while EQUALIZING the condition of man throughout the world.

Historic support base for the American System

President Lincoln

The American System was supported by New England and the Mid-Atlantic, which had a large manufacturing base. It protected their new factories from British or other foreign competition, thus, allowing higher wages and moderately high prices to exist side by side.

The South, on the other hand, opposed the American System because its plantation owners were heavily reliant on production of cotton for export, using cheap slave labor of African-Americans. These policies produced a feudal Plantation System at odds with the rest of American society. The plantation owners not only feared lower demand for their cotton but the higher costs of manufactured goods. After 1828 the Democrats kept tariffs low. It wasn't until the election of President Abraham Lincoln in 1860 that the American system would be fully enacted with a series of laws (due in part to the lack of Southern opposition) in the government during the American Civil War. For example, the 1861 Morrill Tariff's reached 48% (three tariffs were passed, first two days prior to Lincoln's inauguration, and was signed into law by Buchanan).

The Radical plan of Reconstruction envisioned extending the American System into the South by building railroads, and by promoting the development of manufacturing there to diversify its economy and unite it with the North's (New England, Mid-Atlantic, Mid-West, and West). This plan failed for various reasons and the South did not industrialize until much later.

Republican Party implements the American System

According to an article at US-History.com: "As soon as Lincoln took office, the old Whig coalition finally controlled the entire government. It immediately tripled the average tariff, began to subsidize the construction of a transcontinental railroad in California even though a desperate war was being waged, and on February 25, 1862, the Legal Tender Act empowered the secretary of the treasury to issue paper money ("greenbacks") that were not immediately redeemable in gold or silver."

Below are two extracts from the Republican Party Platform, supporting the policies outlined above of the "American System."

  • On a Protective Tariff - 1860 Platform
    • "12. That, while providing revenue for the support of the general government by duties upon imports, sound policy requires such an adjustment of these imports as to encourage the development of the industrial interests of the whole country; and we commend that policy of national exchanges, which secures to the workingmen liberal wages, to agriculture remunerative prices, to mechanics and manufacturers an adequate reward for their skill, labor, and enterprise, and to the nation commercial prosperity and independence."
  • On Internal Improvements - 1856 Platform
    • "Resolved, That a railroad to the Pacific Ocean by the most central and practicable route is imperatively demanded by the interests of the whole country, and that the Federal Government ought to render immediate and efficient aid in its construction, and as an auxiliary thereto, to the immediate construction of an emigrant road on the line of the railroad. Resolved, That appropriations by Congress for the improvement of rivers and harbors, of a national character, required for the accommodation and security of our existing commerce, are authorized by the Constitution, and justified by the obligation of the Government to protect the lives and property of its citizens."

In power and without southern opposition, the Republican Party was able to move quickly upon its promised platform planks, rooted in the American System policies of national banking, tariff protection, and internal improvements. In 1861, prior to Lincoln's inauguration, the Morrill Tariff was passed at a rate of 37.5% and then raised during the war to a rate near 48%. In 1862 they successfully passed the Pacific Railways Act, initiating the building of the Union-Pacific Railroad across the continental United States. In 1862 the Legal Tender Act was passed, allowing issuance of "greenbacks," followed by the National Banking Act of 1863 which established the final piece of a three part economic philosophy which Henry Clay termed the "American System".

After ten years of this system the American centennial celebration, celebrated in 1876 in Philadelphia at the Centennial Exposition, was formally opened by President Ulysses S. Grant , and served as a showcase for the achievements of the United States. Prominently featured were innovations of science and technology as applied to infrastructure. Among the items on display were the gigantic Corliss Engine developed by George Corliss, and the telephone of Alexander Graham Bell. The centennial was a celebration of American Independence and innovation as well as over ten years of industrial strength under the three policies enacted during Lincoln's administration. Foreign nationals left the exposition with an admiration for the progress America had made since the last such expo in 1851. According to the Free Library of Philadelphia's "Centennial Exhibition" website, "In 1851 America had been embarrassed by its inability to compete on a par with other nations at the Crystal Palace Exhibition. By 1876 foreign visitors were impressed and captivated by American progress and industrial know-how."

British-American industrialist Andrew Carnegie praised the GOP in 1900 as, "The Party of Protection of American Industries, of Internal Improvements, the Party of the Union, of Emancipation, and of the Highest Standard of Value for the money of the people..." , the Republican Party continued to support national banking, protectionism, and internal improvements well into the Twentieth Century. During this time the "American System" was sometimes called by other names, which include: "American Policy", "National System,"""Protective System", "Protection Policy," and "Protectionism", which alludes only to the 'tariff policy' of this system of economics.

The last U.S. President to vigorously promote the American System was William McKinley. Some aspects of American System policy were retained after his administration. The high tariffs of the American System, especially the Smoot-Hawley Tariff passed after the Stock Market crash in 1929, are considered to have deepened the Great Depression by some economists, while others disagree.

Legacy of the American System and renewed interest today

Following the wild speculation of the Roaring Twenties and the subsequent crash, some aspects of the American System were revived under the New Deal, particulary the emphasis on infrastructure and intervention by the federal government to direct credit to manufacturing (a policy which, under the original American System, had been carried out by a National Bank.)

Today, some commentators and activists have revived interest in protecting and promoting American industry, including 'fair trade' advocates Ross Perot, the Reform Party, Pat Choate, Alan Tonelson, Lou Dobbs, William H. Hawkins, and James Fallows; with alternative interpretations offered by Patrick J. Buchanan. Those who have shown interest in the internal improvements include persons from both major parties in America, including Governor Arnold Schwarzenegger of California and Senator Harry Reid of Nevada. There has been increasingly bipartisan collaboration in the U.S. Senate to revive a national commitment to manufacturing and infrastructure. On June 14, 2005, Senators Lindsey Graham (R-SC) and Hillary Clinton (D-NY) formed the Senate Manufacturing Caucus. In addition, Senators Clinton, George Voinovich, and Thomas Carper introduced the Infrastructure Improvement Bill on March 8, 2006. In the press release announcing the bill, Clinton writes that “Our nation’s economic strength throughout history has been inexorably linked to the investments made in our public infrastructure. From the Transcontinental Railroad to the National Highway System, the public sector’s investments in our roads, our waterways, our railways and our aviation systems have defined the bedrock strengths of the American economy and its people." However, the only public figure who supports the full American System by name is perennial presidential candidate Lyndon LaRouche.

Supporters of the American System or its policies

Pre-Clay (support below indicates adherence to pre-Clay policies):

Clay and Whig Party Era:

Post-Clay Lincoln and Republican Party Era:

Opponents of the American System or its policies

Philosophical Critics:

Pre-Clay Era Critics:

Clay and Whig Era Critics:

Post-Clay Lincoln and Republican Era Critics:

See also

Important online reading on the American System

References

  • Boritt, Gabor S. Lincoln and the Economics of the American Dream (1994)
  • Curry, Leonard P. Blueprint for Modern America: Nonmilitary Legislation of the First Civil War Congress (1968)
  • Joseph Dorfman. The Economic Mind in American Civilization, 1606-1865 (1947) 2 vol
  • Joseph Dorfman. The Economic Mind in American Civilization, 1865-1918 (1949) vol 3
  • Foner, Eric. Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War (1970)
  • Carter Goodrich, Government Promotion of American Canals and Railroads, 1800-1890 (Greenwood Press, 1960)
    • Goodrich, Carter. "American Development Policy: the Case of Internal Improvements," Journal of Economic History, 16 ( 1956), 449-60. in JSTOR
    • Goodrich, Carter. "National Planning of Internal Improvements," ;;Political Science Quarterly, 63 ( 1948), 16-44. in JSTOR
  • Richard Hofstadter, "The Tariff Issue on the Eve of the Civil War," American Historical Review, 64 (October 1938): 50-55, shows Northern business had little interest in tariff in 1860, except for Pennsylvania which demanded high tariff on iron products
  • Jenks, Leland Hamilton. "Railroads as a Force in American Development," Journal of Economic History, 4 (1944), 1-20. in JSTOR
  • John Lauritz Larson. Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (2001)
  • Lively, Robert A. "The American System, a Review Article," Business History Review, XXIX (March, 1955), 81-96. recomended starting point
  • Paludan, Philip S. The Presidency of Abraham Lincoln (1994)
  • Remini, Robert V. Henry Clay: Statesman for the Union. New York: W. W. Norton Co., 1991
  • Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)
  • Edward Stanwood, American Tariff Controversies in the Nineteenth Century (1903; reprint 1974), 2 vols., favors protectionism

Primary sources

  1. W. Cunningham, The Rise and Decline of the Free Trade Movement (London, 1904)
  2. G. B. Curtiss, Protection and Prosperity: an ; W. H. Dawson, Protection in Germany (London, 1904
  3. Alexander Hamilton, Report on the Subject of Manufactures, communicated to the House of Representatives, 5th December 1791
  4. F. Bowen, American Political Economy (New York, 1875)
  5. J. B. Byles, Sophisms of Free Trade (London, 1903); G. Byng, Protection (London, 1901)
  6. H. C. Carey, Principles of Social Science (3 vols., Philadelphia, 1858-1859), Harmony of Interests Agricultural, Manufacturing and Commercial (Philadelphia, 1873)
  7. H. M. Hoyt, Protection v. Free Trade, the scientific validity and economic operation of defensive duties in the United States (New York, 1886)
  8. A. M. Low, Protection in the United States (London, 1904); H. 0. Meredith, Protection in France (London, 1904)
  9. S. N. Patten, Economic Basis of Protection (Philadelphia, 1890)
  10. Ugo Rabbeno, American Commercial Policy (London, 1895)
  11. Ellis H. Roberts, Government Revenue, especially the American System, an argument for industrial freedom against the fallacies of free trade (Boston, 1884)
  12. R. E. Thompson, Protection to Home Industries (New York, 1886)
  13. E. E. Williams, The Case for Protection (London, 1899)
  14. J. P. Young, Protection and Progress: a Study of the Economic Bases of the A merican Protective System (Chicago, 1900)
  15. Clay, Henry. The Papers of Henry Clay, 1797-1852. Edited by James Hopkins

External links

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