The American System-
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Alexander Hamilton, George Washington's treasury secretary, presented his Report on the Subject of Manufactures on December 5, 1791. He thought it expedient to promote the growth of manufacturing by protecting it with a tariff. This had three objectives in his mind:
1) Protect American industry.
2) Raise revenue to pay for the expenses of government.
3) Use the revenue to directly support industry through subsidies.
Tariffs were the largest (approaching 95% at times) source of Federal Revenue until the Federal Income Tax was passed in 1913. For the first 120 years of the republic it was largely financed by taxes on imports averaging about 20%. In 1917 with the need for higher taxes for WWI, the income tax receipts finally exceeded the tariff revenue.
In 1824 Henry Clay began referring to an American System which consisted of three main points:
1. Protect industry. This was principally accomplished by tariffs.
2. Develop physical infrastructure. Internal improvements such as the National Road (Cumberland Road), canals, better port facilities. Abraham Lincoln, a follower of Clay would facilitate the Transcontinental Railroad (Union Pacific Railroad) in 1862.
3. Develop financial infrastructure: Examples would be the First Bank of the US, Second Bank of the US, etc.
Henry C. Carey, an American economist and adviser to Abraham Lincoln, in his book a Harmony of Interests, raises two additional points of American School economic philosophy:
1. Government support for the development of science and education through a public school system and investments in creative research.
2. Rejection of class struggle, in favor of the "Harmony of Interests" between: owners and workers, farmers and manufacturers, the wealthy class and the working class. See Abraham Lincoln's quote, " Republican's are for both the man and the dollar, but in a pinch choose the man."
With the election of Lincoln in 1860, the opposition of the plantation capitalists disappeared politically and the American System was enacted with a tripling of the tariff, construction of the transcontinental railroad, and the passage of the Legal Tender Act (February 25, 1862). Except for a return to the gold standard, this was the American economic system until the Wilson Administration. It was also the policy of the United States in the Roaring Twenties. During this time America grew to be the dominant economic power on the planet.
1. Government support for the development of science and education through a public school system and investments in creative research.
2. Rejection of class struggle, in favor of the "Harmony of Interests" between: owners and workers, farmers and manufacturers, the wealthy class and the working class. See Abraham Lincoln's quote, " Republican's are for both the man and the dollar, but in a pinch choose the man."
With the election of Lincoln in 1860, the opposition of the plantation capitalists disappeared politically and the American System was enacted with a tripling of the tariff, construction of the transcontinental railroad, and the passage of the Legal Tender Act (February 25, 1862). Except for a return to the gold standard, this was the American economic system until the Wilson Administration. It was also the policy of the United States in the Roaring Twenties. During this time America grew to be the dominant economic power on the planet.
Henry Clay gave a speech called The American System in February 1832. His summation is as follows:
1. That the policy which we have been considering ought to continue to be regarded as the genuine American System.
2. That the free trade system, which is proposed as its substitute, ought really to be considered as the British colonial system.
3. That the American System is beneficial to all parts of the Union, and absolutely necessary to much the larger portion.
4. That the price of the great staple of cotton, and of all our chief productions of agriculture, has been sustained and upheld, and a decline averted by the protective system.
5. That, if the foreign demand for cotton has been at all diminished by the operation of that system, the diminution has been more than compensated in the additional demand created at home.
6. That the constant tendency of the system, by creating competition among ourselves, and between American and European industry, reciprocally acting upon each other, is to reduce prices of manufactured objects.
7. That, in point of fact, objects within the scope of the policy of protection have greatly fallen in price.
8. That if, in a season of peace, these benefits are experienced, in a season of war, when the foreign supply might be cut off, they would be much more extensively felt.
9. And, finally, that the substitution of the British colonial system for the American System, without benefiting any section of the Union, by subjecting us to a foreign legislation, regulated by foreign interests, would lead to the prostration of our manufactures, general impoverishment, and ultimate ruin."
1. That the policy which we have been considering ought to continue to be regarded as the genuine American System.
2. That the free trade system, which is proposed as its substitute, ought really to be considered as the British colonial system.
3. That the American System is beneficial to all parts of the Union, and absolutely necessary to much the larger portion.
4. That the price of the great staple of cotton, and of all our chief productions of agriculture, has been sustained and upheld, and a decline averted by the protective system.
5. That, if the foreign demand for cotton has been at all diminished by the operation of that system, the diminution has been more than compensated in the additional demand created at home.
6. That the constant tendency of the system, by creating competition among ourselves, and between American and European industry, reciprocally acting upon each other, is to reduce prices of manufactured objects.
7. That, in point of fact, objects within the scope of the policy of protection have greatly fallen in price.
8. That if, in a season of peace, these benefits are experienced, in a season of war, when the foreign supply might be cut off, they would be much more extensively felt.
9. And, finally, that the substitution of the British colonial system for the American System, without benefiting any section of the Union, by subjecting us to a foreign legislation, regulated by foreign interests, would lead to the prostration of our manufactures, general impoverishment, and ultimate ruin."
Unfortunately Henry Clay was ultimately prophetic, because since we went off the American System and on the Free Trade System (British colonial system), we have had our industrial base eviscerated, our wages stagnate, and our treasury sent 18.2 trillion dollars in the pit. It's time to get out of the pit, it's time to return to the American System.
Several notes on the American System of Capitalism
1) It is about national development. Rather than comparative advantage where different countries specialize in various products, the American System will tend to make each country of a certain size self sufficient.
2) It is about development of a domestic market for goods by paying workers a living wage. The primary market is domestic.
It is open to foreign trade on a limited basis. Thank you for the revenue.
3) It is about domestic competition. In the early 19th century monopolies were not established. Later during the Theodore Roosevelt administration, due to concentration of industry President Roosevelt initiated antitrust enforcement against Standard Oil.
4) It has worked before and was abandoned after WWII not because it had been proven inferior to Free Trade with respect to the average American citizen but as an underpinning to the establishment of an American trading empire and to serve the political ends of the Cold War.
5) Note that in 1832 the United States had almost paid off the public debt of the Revolutionary War, the Louisiana Purchase, and the War of 1812. As a mark of comparison after 40 years of globalization our present debt of 18.2 trillion is an underwhelming performance.
1) It is about national development. Rather than comparative advantage where different countries specialize in various products, the American System will tend to make each country of a certain size self sufficient.
2) It is about development of a domestic market for goods by paying workers a living wage. The primary market is domestic.
It is open to foreign trade on a limited basis. Thank you for the revenue.
3) It is about domestic competition. In the early 19th century monopolies were not established. Later during the Theodore Roosevelt administration, due to concentration of industry President Roosevelt initiated antitrust enforcement against Standard Oil.
4) It has worked before and was abandoned after WWII not because it had been proven inferior to Free Trade with respect to the average American citizen but as an underpinning to the establishment of an American trading empire and to serve the political ends of the Cold War.
5) Note that in 1832 the United States had almost paid off the public debt of the Revolutionary War, the Louisiana Purchase, and the War of 1812. As a mark of comparison after 40 years of globalization our present debt of 18.2 trillion is an underwhelming performance.
