What Is the American System?

By Nancy Spannaus

March 13, 2018—When I began this blog nine months ago, I set out to provide an overview of the American System of Economics through introducing readers to the leading practitioners of that system, with a special focus on Alexander Hamilton’s  ideas and achievements. I am now convinced that a broad conceptual presentation of the principles of that system is required, in order to fulfill my purpose of in-depth education on this subject.

The core principle of the American system is correctly summarized in the blog’s statement of purpose:  “the use of government-regulated credit to promote continuous scientific and technological progress through the constant upgrading of the productive powers (mental as well as physical) of the labor force.” But even this statement basically serves as a kind of shorthand for the conceptual basis for the American System overall. One can also, of course, point to the concepts elaborated in the Declaration of Independence and U.S. Constitution as forming the bedrock of the unique System, as its leading representatives, such as John Quincy Adams, Abraham Lincoln, and Franklin Delano Roosevelt, did: “life, liberty and the pursuit of happiness,” and the “general welfare” and concern for “posterity” being most notable. But there are many conflicting interpretations today of what those documents stand for, and more clarity is needed.

One can usefully approach the question, in part, by identifying what the American System is not. In these modern times, it is common to speak of the Anglo-American free market system, based on Adam Smith et al., as the key basis for the successes of today’s western capitalist system. Yet the American System was born in mortal conflict with the “Anglo” system of British imperialism, as every patriotic American knew, to some degree or another, up to the 1940s. A case in point was FDR’s conflict with Churchill over Britain’s maintenance of colonial backwardness in Africa, as described in Elliott Roosevelt’s As He Saw It. Hamilton himself emphatically opposed Smith’s assertion of “free market” principles which would condemn America, like other colonies, to being a raw materials producer, rather than an advanced industrial nation.

The clearest statement of the difference between the American System and the British System still comes from Henry C. Carey’s 1851 Harmony of Interest. It deserves to be read with close attention, as it becomes increasingly clear how our system today has come to resemble that British System Carey (Lincoln’s economic adviser) is excoriating in the excerpt below. Note that Carey’s key concern is to increase productive work in the economy, not money or trade.

Two systems are before the world; the one looks to increasing the proportion of persons and of capital engaged in trade and transportation, and therefore to diminishing the proportion engaged in producing commodities with which to trade, with necessarily diminished return to the labour of all; while the other looks to increasing the proportion engaged in the work of production, and diminishing that engaged in trade and transportation, with increased return to all, giving the labourer good wages, and to the owner of capital good profits….

One looks to compelling the farmers and planters of the Union to continue their contributions for the support of the fleets and the armies, the paupers, the nobles, and the sovereigns of Europe; the other to enabling ourselves to apply the same means to the moral and intellectual improvement of the sovereigns of America. One looks to the continuance of that bastard freedom of trade which denies the principle of protection, yet doles it out as revenue duties; the other by extending the area of legitimate free trade by the establishment of perfect protection, followed by the annexation of individuals and communities, and ultimately by the abolition of customs houses. One looks to exporting men to occupy desert tracts, the sovereignty of which is obtained by aid of diplomacy or war; the other to increasing the value of an immense extent of vacant land by importing men by millions for their occupation….

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…. (emphases added)

Man as a Creator

Let us define the American System anew, from a positive standpoint. I start with a quote from my 1996 preface to the second edition of The Political Economy of the American Revolution, a book of European and American writings on the subject of statecraft edited by British historian Christopher White and myself originally in 1977:

The actual lineage of the American system is the concept of the commonwealth, an idea which emerged with force out of the period of the Italian Golden Renaissance, which was itself based on the Platonic republic tradition from the Greek Classical period, as well as Christianity. The concept of the commonwealth was built on the idea that a sovereign nation-state must be dedicated to the education and improvement of its population through scientific and technological progress. It was an idea that defined a positive role for the state, in its fostering of conditions that would benefit the individual, and which understood the individual for the first time in history, as being made in the image of God the Creator, and thereby worthy of being treated as such in social and economic policy.

If you understand the principle of the commonwealth, you then understand the coherence of the Declaration of Independence and the U.S. Constitution, and the undeniable fact that the fledgling American republic was a rejection of John Locke and British free-trade policies, and an embrace of republican values. If you know the real history of the commonwealth tradition, you then understand where the concept of the “general welfare” in the U.S. Constitution comes from, and how it commits the United States to rejecting the Confederate Constitution and its modern-day imitators. You are able to resolve the allegedly irreconcilable conflict between the interest and freedom of the individual and of states, through the concept of a republican nation state based on God’s natural law.

Working from this concept, Chris White and I compiled a set of writings showing the precursors of the American System—from Elizabethan England to France’s Colbert and Germany’s Leibniz—and its early practitioners, focusing mostly on Hamilton, but including some writings by Benjamin Franklin, George Washington, Thomas Paine, and even Thomas Jefferson (despite his general opposition to American System policies). While I would revise or excise some of these selections today, based on further research, the thesis holds: the American System, and the American Experiment itself, are based on Renaissance concepts of the nature of man as a creative individual, and of a state system and society appropriate to fostering that identity.

Fundamental Truths

From this statement come some fundamental truths, upon which good government, economic, and social policies must be grounded:

• It is the individual’s creative power which is the source of wealth in a society—not raw materials, gold, or any other material attribute.
• It is the responsibility of the state to foster that creative power through the necessary material, financial, and intellectual means, and to provide the freedoms necessary for it to be developed.
• The sovereign nation state (or republic) is the most efficient means discovered so far for creating the conditions for fostering both the culture and economy for the development of the individual, conditions which can be described as the “general welfare” of the society.
• Scientific and technological progress is a necessary outcome of such a proper policy, ensuring both the physical and intellectual improvement of the condition of mankind, from one generation to the next.

From this foundation, one can adduce all the key elements of the American System of Political Economy over the centuries of our nation’s existence. They “solve” the problem many have seen as a conflict between the Declaration and the Constitution, firmly identifying the latter as a means of preserving a nation built on the principles of the former.  The key elements include:

• the insistence on federal supremacy to hold the union together;
• the necessity for the nation-state as a sovereign entity to control its own credit and currency;
• the protection of labor and industry from predators at home and abroad, and the energetic pursuit of its advancement;
• the promotion of internal improvements, including all kinds of physical infrastructure;
• the promotion of a culture of moral and scientific improvement for all members of society;
• guaranteeing political freedoms from arbitrary power and oppression; and
• the establishment of international relations grounded in cooperation for common interests in mutual progress.

A core group of leaders committed to these policies—from Benjamin Franklin, to George Washington, and Alexander Hamilton—created a unique republic based on these policies, as was recognized internationally at the time. The United States was understood as a bastion of freedom against an oligarchy committed to maintaining power by enslaving mankind. The establishment of the American constitutional republic, as Hamilton’s Federalist No. 1 says, would “decide the question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force.”

A History of Conflict

The ideas of these Founders, enshrined as they were in the Founding documents, were always a matter of contention, as the battle over slavery most bitterly shows, but they were carried forward by the heroes who built us into a great nation: John Quincy Adams, Abraham Lincoln, Franklin D. Roosevelt, and, despite his short tenure, John F. Kennedy, to mention a few. Using particularly the ideas and institutions put into motion by Hamilton, all of these individuals drove forward scientific progress, political freedoms, and improved living standards for both the American people, and often, for those of other nations as well.

Even the best Presidents have compromised, from necessity or otherwise, even as they promoted the ideas (and ideals) upon which the nation’s prosperity depends. But these ideas were put into practice sufficiently to build the most powerful economy on earth, and to inspire similar economic progress in nations throughout the world. For example: Benjamin Franklin was at the center of an international network of scientists, including in England, who sparked the original industrial revolution. Hamilton’s ideas, through individuals like Mathew Carey, Friedrich List, and Henry Carey, helped bring about anti-feudal economic and political revolutions in Germany, Russia, Latin America, and Japan. Franklin Roosevelt’s dramatic accomplishments in economic progress, epitomized by the Tennessee Valley Authority and the Reconstruction Finance Corporation, have been taken up as models all over the world.

Here in the United States, since the death of FDR, the enemies of the American System have increasingly gained dominance in matters of political economy, rewriting history in the interest of a global financial oligarchy which has wreaked havoc on the world’s population, suppressed the most advanced scientific discoveries (such as nuclear and fusion power) except for their application to the means of destruction, and replaced international cooperation with perpetual war.  “Free market” and “fiscal conservative” policies derived from British imperial economists such as Adam Smith, Parson Malthus, and David Ricardo are lyingly put forward by our politicians as the “American Way.” With the exception of a few scholars and biographers, such as Michael Lind and Sidney Blumenthal, even the idea of a coherent American System has been wiped out of the history books, not to mention national politics.

It is long past time that the principles forming American System be revived in the United States today.

Tags: Adam Smith, Alexander Hamilton, Constitution, creativity, Declaration of Independence, Henry Carey, Nancy Spannaus