.gif)
American School (economics)
Encyclopedia
The American School, also known as "National System", represents three different yet related constructs in politics, policy and philosophy. It was the American policy for the 1860s to the 1940s, waxing and waning in actual degrees and details of implementation. Historian Michael Lind describes it as a coherent applied economic philosophy with logical and conceptual relationships with other economic ideas.
It is the macroeconomic
philosophy that dominated United States
national policies from the time of the American Civil War
until the mid-twentieth century (closely related to mercantilism
and prior to Keynesian economics
, it can be seen as contrary to classical economics
). It consisted of these three core policies:
It is a capitalist
economic school based on the Hamiltonian economic program
. The American School of capitalism
was intended to allow the United States
to become economically independent and nationally self-sufficient.
The American School's key elements were promoted by John Q. Adams and his National Republican Party, Henry Clay
and the Whig Party
, and Abraham Lincoln
through the early Republican Party
which embraced, implemented, and maintained this economic system.
During its American System period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880s.
The American School 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.
Frank Bourgin's 1989 study of the Constitutional Convention
shows that direct government involvement in the economy was intended by the Founders. This had more to do with the perceived need to overcome the economic and financial chaos the nation suffered under the Articles of Confederation
, and nothing to do with any desire to have a statist economy. The goal, most forcefully articulated by Hamilton, was to ensure that dearly won political independence was not lost by being economically and financially dependent on the powers and princes of Europe. The creation of a strong central government able to promote science, invention, industry and commerce, was seen as an essential means of promoting the general welfare and making the economy of the United States strong enough for them to determine their own destiny.
A number of programs by the federal government undertaken in the period prior to the Civil War gave shape and substance to the American School. These programs included the establishment of the Patent Office
in 1802; the creation of the Coast and Geodetic Survey in 1807 and other measures to improve river and harbor navigation created by the 1824 Rivers and Harbors Act
; the various Army expeditions to the west, beginning with Lewis and Clark's Corps of Discovery in 1804 and continuing into the 1870s (see for example, the careers of Major Stephen Harriman Long
and Major General John C. Frémont
), almost always under the direction of an officer from the Army Corps of Topographical Engineers
, and which provided crucial information for the overland pioneers that followed (see, for example, the career of Brigadier General Randolph B. Marcy
); the assignment of Army Engineer officers to assist or direct the surveying and construction of the early railroads and canals; the establishment of the First Bank of the United States
and Second Bank of the United States
as well as various protectionist measures (e.g., the tariff of 1828
).
Leading proponents were economists Friedrich List
(1789–1846) and Henry Carey (1793–1879). List was a leading 19th Century German and American economist who called it the "National System" and developed it further in his book The National System of Political Economy. 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 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.
The American School included three cardinal policy points:
Henry C. Carey, a leading American economist and adviser to Abraham Lincoln
, in his book Harmony of Interests, displays two additional points of this American School economic philosophy that distinguishes it from the systems of Adam Smith
or Karl Marx
:
In a passage from his book, The Harmony of Interests, Carey wrote concerning the difference between the American System and British System of economics:
The Government issue of fiat paper money has also been associated with the American School from the 1830s onwards. The policy has roots going back to the days of the American Colonies, when such a type of currency called Colonial Scrip
was the medium of exchange. As early as 1837, John C. Calhoun
called for a debt-free currency issued and controlled by the Government. Such a policy would reduce the profits of the banks, and in response to this, the banking institutions threw their support behind the British school, espousing the gold standard throughout the 1800s.
In the Civil War, a shortage of specie led to the issue of such a fiat currency, called United States Note
s, or "Greenbacks". Towards the end of the Civil War in March 1865, Henry C. Carey, Lincoln's economic advisor, published a series of letters to the Speaker of the House entitled "The Way to Outdo England Without Fighting Her." Carey called for the continuance of the Greenback policy even after the War, while also raising the reserve requirements of the banks to 50%. This would have allowed the US to develop its economy independent of foreign capital (primarily British gold). Carey wrote:
Carey's plans did not come to fruition as Lincoln was assassinated the next month and new President Andrew Johnson
supported the gold standard, and by 1879 the U.S. was fully on the gold standard.
in a speech before Congress advocating an economic program based on the economic philosophy derived from Alexander Hamilton's economic theories (see Report on Manufactures
, Report on Public Credit I and II). Clay's policies called for a high tariff
to support internal improvements
such as road-building, and a national bank to encourage productive enterprise and to form a national currency as Hamilton had advocated as Secretary of the Treasury.
According to U-S-History.com
Clay's plan became the leading tenet of the National Republican Party of John Quincy Adams and the Whig Party
of himself and Daniel Webster.
The "American System" was supported by New England and the Mid-Atlantic, which had a large manufacturing base. It protected their new factories from foreign competition.
The South opposed the "American System" because its plantation
owners were heavily reliant on production of cotton for export, and the American System produced lower demand for their cotton and created higher costs for manufactured goods. After 1828 the United States kept tariffs low until the election of Abraham Lincoln in 1861.
The term became synomonous with other phrases such as "National System" and "Protective System" as it was used over the course of time.
Due to the dominance of the then Democratic Party of Van Buren
, Polk
, and Buchanan
the American School was not embraced as the economic philosophy of the United States until the election of Abraham Lincoln in 1860, who with a series of laws during the American Civil War
was able to fully implement what Hamilton
, Clay
, List
, and Carey theorized, wrote about, and advocated.
According to an article at US-History.com
The United States continued these policies throughout the later half of the 19th century. President William McKinley (1897–1901) stated at the time:
The American System was important in the election politics for and against Grover Cleveland
, the first Democrat elected after the Civil War, who, by reducing tariffs protecting American industries in 1893, began rolling back federal involvement in economic affairs, a process that continued until Herbert Hoover
's "too little, too late" attempts to deal with the worsening Great Depression
.
", "National System", "Protective System", "Protection Policy", and "Protectionism", which alludes only to the 'tariff policy' of this system of economics.
This continued until 1913 when the administration of Woodrow Wilson
initiated his The New Freedom
policy that replaced the National Bank System with the Federal Reserve System, and lowered tariffs to revenue-only levels with the Underwood Tariff.
The election of Warren G. Harding
and the Republican Party in 1920 represented a partial return to the American School through restoration of high tariffs, although a shift away from productive investments into speculation by the Federal Reserve System
continued. This speculation led to the Stock Market Crash on Black Friday in October 1929. President Herbert Hoover
responded to this crash and the subsequent bank failures and unemployment by signing the Smoot-Hawley Tariff Act
, which some economists considered to have deepened the Great Depression
, while others disagree.
The New Deal
continued infrastructure improvements through the numerous public works projects of the Works Progress Administration (WPA) as well as the creation of the Tennessee Valley Authority (TVA); brought massive reform to the banking system of the Federal Reserve while investing in various ways in industry to stimulate production and control speculation; but abandoned protective tariffs while embracing moderate tariff protection (revenue based 20–30% the normal tariff under this) through reciprocity
, choosing to subsidized industry as a replacement. At the close of World War II, the United States now dominant in manufacturing with little competition, the era of free trade had begun.
In 1973 when the "Kennedy" Round concluded under President Richard Nixon
, who cut U.S. tariffs to all time lows, the New Deal orientation towards reciprocity and subsidy ended, which moved the United States further in the free market
direction, and away from its American School economic system.
List
's influence among developing nations has been considerable. Japan has followed his model. It has also been argued that Deng Xiaoping
's post-Mao policies were inspired by List.
It is the macroeconomic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
philosophy that dominated United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
national policies from the time of the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
until the mid-twentieth century (closely related to mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
and prior to Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
, it can be seen as contrary to classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
). It consisted of these three core policies:
- protecting industry through selective high tariffs (especially 1861–1932) and some include through subsidies (especially 1932–70)
- government investments in infrastructure creating targeted internal improvementsInternal improvementsInternal improvements is the term used historically in the United States for public works from the end of the American Revolution through much of the 19th century, mainly for the creation of a transportation infrastructure: roads, turnpikes, canals, harbors and navigation improvements...
(especially in transportation) - a national bankBankA bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
with policies that promote the growth of productive enterprises rather than speculation.
It is a capitalist
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
economic school based on the Hamiltonian economic program
Hamiltonian economic program
The Hamiltonian economic program was the set of measures that were proposed by American Founding Father and 1st Secretary of the Treasury Alexander Hamilton in three notable reports and implemented by Congress during George Washington's first administration....
. The American School of capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
was intended to allow the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
to become economically independent and nationally self-sufficient.
The American School's key elements were promoted by John Q. Adams and his National Republican Party, Henry Clay
Henry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
and the Whig Party
Whig Party (United States)
The Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
, and Abraham Lincoln
Abraham Lincoln
Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
through the early Republican Party
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
which embraced, implemented, and maintained this economic system.
During its American System period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880s.
Roots
Alexander Hamilton
Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
, who in his Report on Manufactures
Report on Manufactures
The Report on Manufactures is the third report, and magnum opus, of American Founding Father and 1st U.S. Treasury Secretary Alexander Hamilton...
, 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
Jean-Baptiste Colbert
Jean-Baptiste Colbert was a French politician who served as the Minister of Finances of France from 1665 to 1683 under the rule of King Louis XIV. His relentless hard work and thrift made him an esteemed minister. He achieved a reputation for his work of improving the state of French manufacturing...
's France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and Elizabeth I's England
England
England is a country that is part of the United Kingdom. It shares land borders with Scotland to the north and Wales to the west; the Irish Sea is to the north west, the Celtic Sea to the south west, with the North Sea to the east and the English Channel to the south separating it from continental...
, while rejecting the harsher aspects of mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...
, such as seeking colonies for markets. As later defined by Senator Henry Clay
Henry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
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.
Frank Bourgin's 1989 study of the Constitutional Convention
Constitutional convention
Constitutional convention may refer to:* Constitutional convention , an informal and unmodified procedural agreement.* Constitutional convention , a meeting of delegates to adopt a new constitution or revise an existing constitution.- Constitutional conventions by country :* Constitutional...
shows that direct government involvement in the economy was intended by the Founders. This had more to do with the perceived need to overcome the economic and financial chaos the nation suffered under the Articles of Confederation
Articles of Confederation
The Articles of Confederation, formally the Articles of Confederation and Perpetual Union, was an agreement among the 13 founding states that legally established the United States of America as a confederation of sovereign states and served as its first constitution...
, and nothing to do with any desire to have a statist economy. The goal, most forcefully articulated by Hamilton, was to ensure that dearly won political independence was not lost by being economically and financially dependent on the powers and princes of Europe. The creation of a strong central government able to promote science, invention, industry and commerce, was seen as an essential means of promoting the general welfare and making the economy of the United States strong enough for them to determine their own destiny.
A number of programs by the federal government undertaken in the period prior to the Civil War gave shape and substance to the American School. These programs included the establishment of the Patent Office
Patent office
A patent office is a governmental or intergovernmental organization which controls the issue of patents. In other words, "patent offices are government bodies that may grant a patent or reject the patent application based on whether or not the application fulfils the requirements for...
in 1802; the creation of the Coast and Geodetic Survey in 1807 and other measures to improve river and harbor navigation created by the 1824 Rivers and Harbors Act
Rivers and Harbors Act
Rivers and Harbors Act may refer to one of many pieces of legislation and appropriations passed by the United States Congress since the first such legislation in 1824. At that time congress appropriated $75,000 to improve navigation on the Ohio and Mississippi rivers by removing sandbars, snags,...
; the various Army expeditions to the west, beginning with Lewis and Clark's Corps of Discovery in 1804 and continuing into the 1870s (see for example, the careers of Major Stephen Harriman Long
Stephen Harriman Long
Stephen Harriman Long was a U.S. army explorer, topographical engineer, and railway engineer. As an inventor, he is noted for his developments in the design of steam locomotives. He was also one of the most prolific explorers of the early 1800s, although his career as an explorer was relatively...
and Major General John C. Frémont
John C. Frémont
John Charles Frémont , was an American military officer, explorer, and the first candidate of the anti-slavery Republican Party for the office of President of the United States. During the 1840s, that era's penny press accorded Frémont the sobriquet The Pathfinder...
), almost always under the direction of an officer from the Army Corps of Topographical Engineers
Corps of Topographical Engineers
The U.S. Army Corps of Topographical Engineers, was separately authorized on 4 July 1838, consisted only of officers, and was used for mapping and the design and construction of federal civil works such as lighthouses and other coastal fortifications and navigational routes. It included such...
, and which provided crucial information for the overland pioneers that followed (see, for example, the career of Brigadier General Randolph B. Marcy
Randolph B. Marcy
Randolph Barnes Marcy was a career officer in the United States Army, achieving the rank of Brigadier General before retiring in 1881. Although beginning in 1861 his responsibilities were those of a brigadier general, the U.S...
); the assignment of Army Engineer officers to assist or direct the surveying and construction of the early railroads and canals; the establishment of the First Bank of the United States
First Bank of the United States
The First Bank of the United States is a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.-Banking History:...
and Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
as well as various protectionist measures (e.g., the tariff of 1828
Tariff of 1828
The Tariff of 1828 was a protective tariff passed by the Congress of the United States on May 19, 1828, designed to protect industry in the northern United States...
).
Leading proponents were economists Friedrich List
Friedrich List
Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
(1789–1846) and Henry Carey (1793–1879). List was a leading 19th Century German and American economist who called it the "National System" and developed it further in his book The National System of Political Economy. 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
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
, manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
, and merchants.
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
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
in his work Wealth of Nations.
The American School included three cardinal policy points:
- Support industry: The advocacy of protectionismProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
, and opposition to free tradeFree tradeUnder a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
- particularly for the protection of "infant industriesInfant industry argumentThe Infant industry argument is an economic rationale for trade protectionism. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar...
" and those facing import competition from abroad. Examples: Tariff of 1816 and Morrill TariffMorrill TariffThe Morrill Tariff of 1861 was a protective tariff in the United States, adopted on March 2, 1861 during the administration of President James Buchanan.... - Create physical infrastructure: Government finance of internal improvementsInternal improvementsInternal improvements is the term used historically in the United States for public works from the end of the American Revolution through much of the 19th century, mainly for the creation of a transportation infrastructure: roads, turnpikes, canals, harbors and navigation improvements...
to speed commerce and develop industry. This involved the regulationRegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
of privately held infrastructure, to ensure that it meets the nation's needs. Examples: Cumberland Road and Union Pacific RailroadUnion Pacific RailroadThe Union Pacific Railroad , headquartered in Omaha, Nebraska, is the largest railroad network in the United States. James R. Young is president, CEO and Chairman.... - Create financial infrastructure: A government sponsored National BankNational bankIn banking, the term national bank carries several meanings:* especially in developing countries, a bank owned by the state* an ordinary private bank which operates nationally...
to issue currencyCurrencyIn economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
and encourage commerceCommerceWhile business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...
. This involved the use of sovereign powers for the regulation of creditCredit (finance)Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
to encourage the development of the economy, and to deter speculationSpeculationIn finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
. Examples: First Bank of the United StatesFirst Bank of the United StatesThe First Bank of the United States is a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.-Banking History:...
, Second Bank of the United StatesSecond Bank of the United StatesThe Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
, and National Banking ActNational Banking ActThe National Banking Acts of 1863 and 1864 were two United States federal laws that established a system of national charters for banks, and created the United States National Banking System. They encouraged development of a national currency backed by bank holdings of U.S...
Henry C. Carey, a leading American economist and adviser to Abraham Lincoln
Abraham Lincoln
Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...
, in his book Harmony of Interests, displays two additional points of this American School economic philosophy that distinguishes it from the systems of Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
or Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
:
- Government support for the development of scienceScienceScience is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe...
and public educationEducationEducation in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...
through a public 'common' school system and investments in creative research through grants and subsidies. - Rejection of class struggleClass struggleClass struggle is the active expression of a class conflict looked at from any kind of socialist perspective. Karl Marx and Friedrich Engels wrote "The [written] history of all hitherto existing society is the history of class struggle"....
, in favor of the "Harmony of Interests" between: owners and workers, farmer and manufacturers, the wealthy class and the working class.
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.
The Government issue of fiat paper money has also been associated with the American School from the 1830s onwards. The policy has roots going back to the days of the American Colonies, when such a type of currency called Colonial Scrip
Colonial Scrip
Early American currency went through several stages of development in the colonial and post-Revolutionary history of the United States. Because few coins were minted in the thirteen colonies that became the United States in 1776, foreign coins like the Spanish dollar were widely circulated....
was the medium of exchange. As early as 1837, John C. Calhoun
John C. Calhoun
John Caldwell Calhoun was a leading politician and political theorist from South Carolina during the first half of the 19th century. Calhoun eloquently spoke out on every issue of his day, but often changed positions. Calhoun began his political career as a nationalist, modernizer, and proponent...
called for a debt-free currency issued and controlled by the Government. Such a policy would reduce the profits of the banks, and in response to this, the banking institutions threw their support behind the British school, espousing the gold standard throughout the 1800s.
In the Civil War, a shortage of specie led to the issue of such a fiat currency, called United States Note
United States Note
A United States Note, also known as a Legal Tender Note, is a type of paper money that was issued from 1862 to 1971 in the U.S. Having been current for over 100 years, they were issued for longer than any other form of U.S. paper money. They were known popularly as "greenbacks" in their heyday, a...
s, or "Greenbacks". Towards the end of the Civil War in March 1865, Henry C. Carey, Lincoln's economic advisor, published a series of letters to the Speaker of the House entitled "The Way to Outdo England Without Fighting Her." Carey called for the continuance of the Greenback policy even after the War, while also raising the reserve requirements of the banks to 50%. This would have allowed the US to develop its economy independent of foreign capital (primarily British gold). Carey wrote:
The most serious move in the retrograde direction is that one we find in the determination to prohibit the further issue of [United States Notes]...To what have we been indebted for [the increased economic activity]? To protection and the " greenbacks"! What is it that we are now laboring to destroy? Protection and the Greenback! Let us continue on in the direction in which we now are moving, and we shall see...not a re-establishment of the Union, but a complete and final disruption of it.
Carey's plans did not come to fruition as Lincoln was assassinated the next month and new President Andrew Johnson
Andrew Johnson
Andrew Johnson was the 17th President of the United States . As Vice-President of the United States in 1865, he succeeded Abraham Lincoln following the latter's assassination. Johnson then presided over the initial and contentious Reconstruction era of the United States following the American...
supported the gold standard, and by 1879 the U.S. was fully on the gold standard.
Advocacy
The "American System" was the name given by Henry ClayHenry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
in a speech before Congress advocating an economic program based on the economic philosophy derived from Alexander Hamilton's economic theories (see Report on Manufactures
Report on Manufactures
The Report on Manufactures is the third report, and magnum opus, of American Founding Father and 1st U.S. Treasury Secretary Alexander Hamilton...
, Report on Public Credit I and II). Clay's policies called for a high tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
to support internal improvements
Internal improvements
Internal improvements is the term used historically in the United States for public works from the end of the American Revolution through much of the 19th century, mainly for the creation of a transportation infrastructure: roads, turnpikes, canals, harbors and navigation improvements...
such as road-building, and a national bank to encourage productive enterprise and to form a national currency as Hamilton had advocated as Secretary of the Treasury.
According to U-S-History.com
Clay first used the term “American System” in 1824, although he had been working for its specifics for many years previously. Portions of the American System were enacted by Congress. The Second Bank of the United States was rechartered in 1816 for 20 years. High tariffs were maintained from the days of Hamilton until 1832. However, the national system of internal improvements was never adequately funded; the failure to do so was due in part to sectional jealousies and constitutional scruples about such expenditures.
Clay's plan became the leading tenet of the National Republican Party of John Quincy Adams and the Whig Party
Whig Party (United States)
The Whig Party was a political party of the United States during the era of Jacksonian democracy. Considered integral to the Second Party System and operating from the early 1830s to the mid-1850s, the party was formed in opposition to the policies of President Andrew Jackson and his Democratic...
of himself and Daniel Webster.
The "American System" was supported by New England and the Mid-Atlantic, which had a large manufacturing base. It protected their new factories from foreign competition.
The South opposed the "American System" because its plantation
Plantation
A plantation is a long artificially established forest, farm or estate, where crops are grown for sale, often in distant markets rather than for local on-site consumption...
owners were heavily reliant on production of cotton for export, and the American System produced lower demand for their cotton and created higher costs for manufactured goods. After 1828 the United States kept tariffs low until the election of Abraham Lincoln in 1861.
The term became synomonous with other phrases such as "National System" and "Protective System" as it was used over the course of time.
Implementation
An extra session of congress was called in the summer of 1841 for a restoration of the American system. When the tariff question came up again in 1842, the compromise of 1833 was overthrown, and the protective system placed in the ascendent.Due to the dominance of the then Democratic Party of Van Buren
Martin Van Buren
Martin Van Buren was the eighth President of the United States . Before his presidency, he was the eighth Vice President and the tenth Secretary of State, under Andrew Jackson ....
, Polk
James K. Polk
James Knox Polk was the 11th President of the United States . Polk was born in Mecklenburg County, North Carolina. He later lived in and represented Tennessee. A Democrat, Polk served as the 17th Speaker of the House of Representatives and the 12th Governor of Tennessee...
, and Buchanan
James Buchanan
James Buchanan, Jr. was the 15th President of the United States . He is the only president from Pennsylvania, the only president who remained a lifelong bachelor and the last to be born in the 18th century....
the American School was not embraced as the economic philosophy of the United States until the election of Abraham Lincoln in 1860, who with a series of laws during the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
was able to fully implement what Hamilton
Alexander Hamilton
Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
, Clay
Henry Clay
Henry Clay, Sr. , was a lawyer, politician and skilled orator who represented Kentucky separately in both the Senate and in the House of Representatives...
, List
Friedrich List
Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
, and Carey theorized, wrote about, and advocated.
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.
The United States continued these policies throughout the later half of the 19th century. President William McKinley (1897–1901) stated at the time:
[They say] if you had not had the Protective Tariff things would be a little cheaper. Well, whether a thing is cheap or dear depends upon what we can earn by our daily labor. Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer. Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man.
[It is said] that protection is immoral.... Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, ‘Buy where you can buy the cheapest'.... Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: ‘Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards.
The American System was important in the election politics for and against Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
, the first Democrat elected after the Civil War, who, by reducing tariffs protecting American industries in 1893, began rolling back federal involvement in economic affairs, a process that continued until Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
's "too little, too late" attempts to deal with the worsening Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
.
Evolution
As the United States entered the 20th century, the "American School" was the policy of the United States under such names as: "American Policy", "Economic nationalismEconomic nationalism
Economic nationalism is a term used to describe policies which emphasize domestic control of the economy, labor and capital formation, even if this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital. It opposes globalization in many cases, or at...
", "National System", "Protective System", "Protection Policy", and "Protectionism", which alludes only to the 'tariff policy' of this system of economics.
This continued until 1913 when the administration of Woodrow Wilson
Woodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
initiated his The New Freedom
The New Freedom
The New Freedom comprises the campaign speeches and promises of Woodrow Wilson in the 1912 presidential campaign. They called for less government, but in practice as president he added new controls such as the Federal Reserve System and the Clayton Antitrust Act. More generally the "New Freedom" is...
policy that replaced the National Bank System with the Federal Reserve System, and lowered tariffs to revenue-only levels with the Underwood Tariff.
The election of Warren G. Harding
Warren G. Harding
Warren Gamaliel Harding was the 29th President of the United States . A Republican from Ohio, Harding was an influential self-made newspaper publisher. He served in the Ohio Senate , as the 28th Lieutenant Governor of Ohio and as a U.S. Senator...
and the Republican Party in 1920 represented a partial return to the American School through restoration of high tariffs, although a shift away from productive investments into speculation by the Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
continued. This speculation led to the Stock Market Crash on Black Friday in October 1929. President Herbert Hoover
Herbert Hoover
Herbert Clark Hoover was the 31st President of the United States . Hoover was originally a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren Harding and Calvin Coolidge, he promoted partnerships between government and business...
responded to this crash and the subsequent bank failures and unemployment by signing the Smoot-Hawley Tariff Act
Smoot-Hawley Tariff Act
The Tariff Act of 1930, otherwise known as the Smoot–Hawley Tariff was an act, sponsored by United States Senator Reed Smoot and Representative Willis C. Hawley, and signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels.The overall level tariffs...
, which some economists considered to have deepened the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, while others disagree.
The New Deal
New Deal
The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call...
continued infrastructure improvements through the numerous public works projects of the Works Progress Administration (WPA) as well as the creation of the Tennessee Valley Authority (TVA); brought massive reform to the banking system of the Federal Reserve while investing in various ways in industry to stimulate production and control speculation; but abandoned protective tariffs while embracing moderate tariff protection (revenue based 20–30% the normal tariff under this) through reciprocity
Reciprocity (international relations)
In international relations and treaties, the principle of reciprocity states that favours, benefits, or penalties that are granted by one state to the citizens or legal entities of another, should be returned in kind....
, choosing to subsidized industry as a replacement. At the close of World War II, the United States now dominant in manufacturing with little competition, the era of free trade had begun.
In 1973 when the "Kennedy" Round concluded under President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
, who cut U.S. tariffs to all time lows, the New Deal orientation towards reciprocity and subsidy ended, which moved the United States further in the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
direction, and away from its American School economic system.
List
Friedrich List
Georg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
's influence among developing nations has been considerable. Japan has followed his model. It has also been argued that Deng Xiaoping
Deng Xiaoping
Deng Xiaoping was a Chinese politician, statesman, and diplomat. As leader of the Communist Party of China, Deng was a reformer who led China towards a market economy...
's post-Mao policies were inspired by List.
See also
- History of economic thoughtHistory of economic thoughtThe history of economic thought deals with different thinkers and theories in the subject that became political economy and economics from the ancient world to the present day...
- Historical school of economicsHistorical school of economicsThe Historical school of economics was an approach to academic economics and to public administration that emerged in 19th century in Germany, and held sway there until well into the 20th century....
- Anders ChydeniusAnders ChydeniusAnders Chydenius was the leading classical liberal of Nordic history. Born in Sotkamo, Ostrobothnia, Sweden and having studied under Pehr Kalm at the Royal Academy of Åbo, Chydenius became a priest, Enlightenment philosopher and member of the Swedish Riksdag of the Estates.The world's first...
- Daniel RaymondDaniel RaymondDaniel Raymond was the first important political economist to appear in the United States.He authored Thoughts on Political Economy and The Elements of Political Economy .- Economic theory :...
- David RicardoDavid RicardoDavid Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...
- Johann Heinrich von ThünenJohann Heinrich von ThünenJohann Heinrich von Thünen was a prominent nineteenth century economist. Von Thünen was a Mecklenburg landowner, who in the first volume of his treatise, The Isolated State , developed the first serious treatment of spatial economics, connecting it with the theory of rent...
- John Stuart MillJohn Stuart MillJohn Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
- Thomas MalthusThomas MalthusThe Reverend Thomas Robert Malthus FRS was an English scholar, influential in political economy and demography. Malthus popularized the economic theory of rent....
- William PettyWilliam PettySir William Petty FRS was an English economist, scientist and philosopher. He first became prominent serving Oliver Cromwell and Commonwealth in Ireland. He developed efficient methods to survey the land that was to be confiscated and given to Cromwell's soldiers...
Modern books
- Batra, Ravi, Dr.Ravi BatraRaveendra Nath "Ravi" Batra is an Indian-American economist, author, and professor at Southern Methodist University. Batra is the author of six international bestsellers, two of which appeared on The New York Times Best Seller list...
, The Myth of Free Trade: The pooring of America (1993) - Boritt, Gabor S. Lincoln and the Economics of the American Dream (1994)
- Bourgin, Frank The Great Challenge: The Myth of Laissez-Faire in the Early Republic (George Braziller Inc., 1989; Harper & Row, 1990)
- Buchanan, Patrick J.Pat BuchananPatrick Joseph "Pat" Buchanan is an American paleoconservative political commentator, author, syndicated columnist, politician and broadcaster. Buchanan was a senior adviser to American Presidents Richard Nixon, Gerald Ford, and Ronald Reagan, and was an original host on CNN's Crossfire. He sought...
, The Great Betrayal (1998) - Curry, Leonard P. Blueprint for Modern America: Nonmilitary Legislation of the First Civil War Congress (1968)
- Croly, HerbertHerbert CrolyHerbert David Croly was an intellectual leader of the Progressive Movement as an editor, and political philosopher and a co-founder of the magazine The New Republic in early twentieth-century America...
, The Promise of American Life (2005 reprint) - Dobbs, Lou Exporting America: Why Corporate Greed is Shipping American Jobs Overseas (2004)
- Joseph Dorfman. The Economic Mind in American Civilization, 1606–1865 (1947) vol 2
- 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)
- Faux, Jeff. The Global Class War (2006)
- Gardner, Stephen H. Comparative Economic Systems (1988)
- Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
- Goetzmann, William H. Army Exploration in the American West 1803-1863 (Yale University Press, 1959; University of Nebraska Press, 1979)
- 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)
- Johnson, E.A.J., The Foundations of American Economic Freedom: Government and Enterprise in the Age of Washington (University of Minnesota Press, 1973)
- Lively, Robert A. "The American System, a Review Article," Business History Review, XXIX (March, 1955), 81–96. Recommended starting point.
- Lauchtenburg, William E. Franklin D. Roosevelt and the New Deal 1932–40 (1963)
- Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
- Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
- Paludan, Philip S. The Presidency of Abraham Lincoln (1994)
- Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)
- Remini, Robert V. Henry Clay: Statesman for the Union. New York: W. W. Norton Co., 1991
- Roosevelt, Theodore. The New Nationalism (1961 reprint)
- 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
Older books
- W. Cunningham, The Rise and Decline of the Free Trade Movement (London, 1904)
- G. B. Curtiss, Protection and Prosperity; and W. H. Dawson, Protection in Germany (London, 1904)
- Alexander Hamilton, Report on the Subject of Manufactures, communicated to the House of Representatives, 5 December 1791
- F. Bowen, American Political Economy (New York, 1875)
- J. B. Byles, Sophisms of Free Trade (London, 1903); G. Byng, Protection (London, 1901)
- H. C. Carey, Principles of Social Science (3 vols., Philadelphia, 1858–59), Harmony of Interests Agricultural, Manufacturing and Commercial (Philadelphia, 1873)
- H. M. Hoyt, Protection v. Free Trade, the scientific validity and economic operation of defensive duties in the United States (New York, 1886)
- Friedrich ListFriedrich ListGeorg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
, Outlines of American Political Economy (1980 reprint) - Friedrich ListFriedrich ListGeorg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
, National System of Political Economy (1994 reprint) - A. M. Low, Protection in the United States (London, 1904); H. 0. Meredith, Protection in France (London, 1904)
- S. N. Patten, Economic Basis of Protection (Philadelphia, 1890)
- Ugo Rabbeno, American Commercial Policy (London, 1895)
- Ellis H. Roberts, Government Revenue, especially the American System, an argument for industrial freedom against the fallacies of free trade (Boston, 1884)
- R. E. Thompson, Protection to Home Industries (New York, 1886)
- E. E. Williams, The Case for Protection (London, 1899)
- J. P. Young, Protection and Progress: a Study of the Economic Bases of the A merican Protective System (Chicago, 1900)
- Clay, Henry. The Papers of Henry Clay, 1797–1852. Edited by James Hopkins
External links
- Excerpts of the Report on Manufactures by Alexander HamiltonAlexander HamiltonAlexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America's first constitutional lawyers and the first United States Secretary of the Treasury...
- Report on Public Credit I by Alexander Hamilton
- Argument in Favor of the National Bank by Alexander Hamilton
- The Harmony of Interests by Henry C. Carey
- The National System of Political Economy by Friedrich ListFriedrich ListGeorg Friedrich List was a leading 19th century German economist who developed the "National System" or what some would call today the National System of Innovation...
- Federalist #7, The Federalist Papers by Alexander Hamilton as Publius
- The American System: Speeches on the Tariff Question and Internal Improvements by Congressman Andrew Stewart
- John Bull the Compassionate
- Party Platforms of Republican and Democratic Party's, including links to Third Party's in history.
- "Punchinello", Vol. 1, Issue 8 pg 125 Article from 1870 against the American System
- "Henry Clay: National Socialist" Thomas J. DiLorenzo, Ludwig von Mises InstituteLudwig von Mises InstituteThe Ludwig von Mises Institute , based in Auburn, Alabama, is a libertarian academic organization engaged in research and scholarship in the fields of economics, philosophy and political economy. Its scholarship is inspired by the work of Austrian School economist Ludwig von Mises...