Alexander Hamilton’s concept of the American System was most fully developed in his Report on the Subject of Manufactures, submitted to the U.S. Congress, upon its request, in December of 1791. There, at great length, Hamilton lays out the way in which the productive powers of labor are increased in an agro-industrial economy, as opposed to simply an agricultural one (the position promoted by British free traders such as Adam Smith and American anti-Federalists such as Thomas Jefferson). Crucial among the advantages of developing such an economy, Hamilton argued, was the cultivation of the creative powers of the human mind. In fact, those powers represented the actual source of wealth in the economy, since they produced the labor-saving inventions on which increasing productivity depended.
Hamilton argued that the Federal government had to play a guiding role in ensuring the development of this agro-industrial economy. He had already elaborated the function required of a national bank (the Bank of the United States) in the Second Report on Public Credit, demonstrating how such a bank would reduce usury and improve prosperity for all sections of the economy, and putting forward the plan by which the unpayable debt of the young United States could be transformed into a credit base to finance the growth of industry and agriculture through such a banking institution.
Now he went further, proposing that the Federal government stimulate the growth of manufactures (especially in areas crucial for national defense, such as iron) through a variety of measures, most especially bounties, and tariffs. He also proposed the establishment of a “Board … for promoting Arts, Agriculture, Manufactures and Commerce” which would aid in recruiting skilled artisans and training of the labor force in the United States. He also called for the improvement of means of transportation through establishing canals and turnpikes, as a crucial element in making progress possible.
Congress never took up his plan.
As you can see, his plan comprehended the major elements of the American System program taken up by later generations: a National Bank (or equivalent credit institution), Tariffs (or other protection for home industry and agriculture), and Internal Improvements (infrastructure). While Hamilton asserted that the Federal government had to take the lead in all of these areas, Hamilton was by no means calling for state control. Indeed, while his National Bank was partly owned by the Federal Government, and both reported to and was supervised by it, it was not run by Federal bureaucrats: its purpose was not just to help the Federal government regulate the national currency and finances, but to act as a commercial bank to foster industry, agriculture and commerce (what today we would call the private sector).
* Alexander Hamilton’s four major reports—The Report on Public Credit, The Second Report on Public Credit, the Defense of the Constitutionality of the National Bank, and the Report on the Subject of Manufactures—are all available at Amazon.com. For shorter readings which you might find more accessible, I recommend:
* Hamilton Versus Wall Street: The Core Principles of the American System of Economics, by Nancy Bradeen Spannaus, iUniverse, Bloomington, Indiana, 2019.
Tags: American System, Hamilton, infrastructure, National Bank, productive powers