” We are all–peoples, states, union, banks, etc. -linked up, interwoven together and united in fate and destiny. All have the right to be protected by a paternal state .”
The American System provided the blueprint that allowed the country to become a major industrial power. Alexander Hamilton provided the framework, and Abraham Lincoln would implement it fully. But Henry Clay made Hamiltonian economics compatible to Jeffersonian politics. Clay was not a champion of specific policies. Clay wanted to create a state of strength and resilience that could unite America and adhere to republican principles. This essay series will begin by looking at the history and development of American industrial policy. It is appropriate to start with one of America’s most important visionaries.
Clay wasn’t a Hamiltonian. He was a strong Jeffersonian, a product of the South and a native Virginian who built a successful career in Kentucky. Much like the rest of the Whig party that sprung into being in 1833, Clay entered politics as a member of Thomas Jefferson’s Republican Party. Ex-Federalists such as Daniel Webster were part of the Whig alliance, but the Whigs’ backbone was actually the Republican Party’s nationalist wing, which had been led previously by James Madison, and James Monroe. Clay was a firm believer in the Constitution’s strong state, but he did not share the Federalist tendencies to place authority over freedom and hierarchy.
Clay was inspired by the Jeffersonian belief in equality and his desire to create a nationalized, sophisticated economy that will provide opportunities for all Americans. Clay’s Kentucky experiences inspired him in many ways. There, he witnessed firsthand how a variety of economic systems could create prosperity. A protective tariff, global improvements and a central bank would boost both agricultural and industrial production and establish a synergy between them. Clay proposed a plan of economic development that would strengthen the national spirit and allow for greater integration between different classes and interests to create a united America.
The War of 1812, the “second war of independence” as some saw it at the time, was the defining experience for republican nationalists like Clay. Following his message to Congress at the conclusion of the conflict, Madison signed legislation for the nation’s first ever protective tariff and the creation of the Second Bank of the United States in 1816. The Republican Party was divided over how government power and private virtue should be compared to the common good. “Old Republicans” remained faithful to Jefferson’s more extreme ideas about limited government and strict constructism. This set the stage for future party fracture.
Republican nationists still enjoyed the benefits of Monroe’s presidency, which allowed them to argue for the protection tariff in order to create jobs and support domestic industries. This would culminate in the 1824 tariff law which increased tariff rates from 20 percent to 35 percent and sparked intense debate between Northern and Southern interests. Speaking in defense of the legislation, Clay coined the term “American System.” He argued that the short-term impact of the tariff increase would be compensated by the long-term gain for the nation as a whole. Division only deepened following the election of John Quincy Adams after the 1824 election was decided in the House of Representatives. Adams supported elements of Clay’s American System but his reelection campaign in 1828 was upended by Andrew Jackson’s accusation that the previous election had been rigged by a “corrupt bargain” between Adams and Clay.
The boom years of the Jackson presidency allowed the Democratic Party to ignore the need for intervention and stop the rechartering of the Second Bank of the United States. The glue that held the Whig alliance together was anti-Jacksonian sentiment. The 1830 Maysville Road veto, whereby Jackson blocked federal funding for the Maysville Road, crystallized perceptions of how the Democrats had hindered stable investment in internal improvements. When the Panic of 1837 struck, triggering a long-lasting depression, the debate was transformed as Clay gained the vindication he needed, consolidating the Whigs’ identity around a positive policy platform and convincing voters that the Democrats had failed to stabilize the American economy.
Despite the intransigence of Jacksonian Democrats, state and federal investment poured into railroads across the nation during the 1840s. This has led to the period between 1843 and 1860 being seen as a time of rapid and extraordinary change for the American economy. Railroads helped to accelerate the industrial revolution by opening up new markets for lumber, steel, and iron. The Second Bank of the United States was closed down in 1929, and railroad corporations have become the largest companies. The growth of railroads could not unify a nation that was fractured as it spread eastward instead of south.
This era of industrialization and urbanization helped to stimulate domestic demand for made goods. Mass production was born with the rise of factories and decline of the artisan workshop. The sewing machine was one of the first technological breakthroughs. By 1840, the population of the America matched Britain at 17 million people. The gross national product had a long-term growth rate of 3.9 percent, which was higher than Britain’s growth rate of 2.2 percent despite the latter being the larger economy.
These economic revolutions Clay wanted to exploit for the greater good of all. Historian Michael F. Holt summarized the American System as including “high protective tariffs to nourish American manufacturing and create a home market for American agricultural products, a national bank to provide a sound and uniform currency, and federal subsidization of internal improvement projects to ease the movement of goods. Clay advocated the distribution of federal land revenue to states for their improvements in later years. Although Clay’s plan was tailored to his particular situation, it also included principles that could still be used today.
Reasserting economic independence from Britain was central to Clay’s emphasis on the American nature of his program. In part this was to contrast with the British system of free trade, which encouraged other nations to open their markets to world trade even while Britain maintained protectionist measures such as the corn laws and the navigation acts. The American System, however, was not about reversing British economic dominance. Monroe had already outlined his famous 1823 doctrine against further European interference in the Western hemisphere. Clay felt it vital that America prevents its economy becoming dependent upon British manufactured goods. This would limit the country’s freedom.
As well as standing up to the British, Clay was determined to defy Jackson, famously satirized as ‘King Andrew the First,’ and condemn the overreach of presidential authority. Name choice for ‘Whig” was made to honor the Anglo-American tradition of resisting executive abuses, from the Magna Carta signing to the Revolutionary War. Clay was not inspired by the Federalists, but rather from Republicans like Albert Gallatin who was Treasury Secretary under Jefferson & Madison and still embraced Hamilton’s ideas. Clay shared the belief that a strong nation was possible, and many Whigs agreed with this sentiment. However, they believe it can only be achieved through republican principles under the direction of Congress. The political battle with Jackson and his successors was not only about economics. The conflict was over power balance between the legislative and executive.
The Bank War and Maysville Road Veto became powerful moments because of this. Jackson’s veto power was used to stop the Maysville Road bill from being approved by Democratically-elected legislatures. The veto power was previously used only sparingly to block legislation believed to be violating or undermining the Constitution. It was not meant to stop legislation contrary to President Obama’s political agenda. Clay believed it crucial for Congress to move forward with economic reforms that he felt were necessary. Whigs represented in state legislatures had also a part to play. Lincoln was a notable example when he entered politics as a state legislator backing state-funded internal improvements in 1836, his very own “Illinois System”, and defended the state bank.
There was another conception of class. Democrats talked about protecting the interests of the working class and defending them against the elites. The Whigs rejected class conflict rhetoric and thought that all classes can be connected in a system mutually beneficial. Clay declared, “We are all–people, States, Union, banks–bound up and interwoven together, united in fortune and destiny, and all, all entitled to the protecting care of a paternal government.” The American System was truly national in character, designed to integrate the various components of American society. Clay’s intellectual descendants would continue this approach in the Republican Party, from Lincoln through Eisenhower.
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Clay’s policies are clearly the result of an era and a place. A nascent superpower’s economic requirements are very different to those of an established global superpower. Clay’s principles are still applicable. Under the direction of Congress, The American System was created to create a strong nation that can achieve economic independence while balancing different interests and classes. These goals can be achieved by policies specifically designed and targeted to promote the development and growth of the American economy.
To make America strong today, we need an active Congress. Clay’s example shows that both Congress and Senators need to take the initiative in identifying policy solutions that will increase American industrial power. The CHIPS Act, despite its defects, is an important example of how legislators are currently acting to address America’s economic vulnerabilities. However, greater ambition is needed. Executive orders cannot sustain American industrial policy. To become reality, it requires Congress’ full power. This will allow America to be more resilient economically and provide opportunities for all citizens.
This article is part of the American System series edited by David A. Cowan and supported by the Common Good Economics Grant Program. This publication is solely under the author’s responsibility.