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Who’s Afraid of the American System?

By Nancy Spannaus

Dec. 31, 2022—“Henry Clay’s `American System’ is Bad News for the American Economy” proclaimed an article on the American Institute for Economic Research website on December 8.  It seems that a part of the free market crowd feels threatened by the emergence of sanity on the Federal government’s necessary role in the U.S. economy within the ranks of the Republican Party. This particular article, written by Phillip W. Magness and James R. Harrigan, is nothing less than hysterical.

Who's Afraid of the American System?
Alexander Hamilton’s statute in the Capitol Rotunda. He established the principles behind the American System.

On one level, the AIER piece is beneath comment, due to the absurdity of its claims and its denial of the realities of American history. The role of the Alexander Hamilton and Abraham Lincoln, both American System advocates, in building the economic might of the United States has been established over and over again. It was reiterated concisely in the spring of 2020 in one of the American Compass’s kickoff articles by Wells King, “Rediscovering a Genuine American System.” Whole books have been written disproving the idea that “laissez-faire” built this country.[1]

So why have I decided to issue a rejoinder?  On the one hand, I consider it my responsibility as editor of Americansystemnow.com, which I have endeavored over the past five years to turn into the leading resource on this subject.  On the other, I fear that far too many Americans are so uninformed on the basic principles underlying real economic growth, that they can be swayed by even the most ridiculous arguments against American System economic principles.

I will concentrate on a few critical points, all of which expose the fallacies of the AIER article.

What Is the American System?

Magness and Harrigan, like the American Compass before them, define the American System on the basis of Henry Clay’s 1824 Congressional speech on the subject. In it, Clay argued eloquently for a protective tariff for U.S. manufactures, as well as the use of Federal government power and credit to build U.S. infrastructure. He blasted British trade policies as a little-disguised effort to prevent the United States from becoming an industrial power, and those who opposed tariffs, both North and South, as condemning their country to be a vassal state.

What Clay was attacking is perhaps better described as imperialism. As the world’s leading empire at the time, the British were determined to control world production and the terms of trade.[2] The rest of the world were to be suppliers of raw materials to the imperial center; independent centers of rival production were to be squelched, by force if necessary. One of his clearest statements appeared in his other famous American System speech, given in 1832:

“Gentlemen deceive themselves. It is not free trade that they are recommending to our acceptance.  It is, in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead substantially to the recolonization of these states, under the commercial domination of Great Britain.” (emphasis added)[3]

Of course, there’s never a hint of this reality in the AIER piece. The British wished to “stifle in the cradle” U.S. manufactures, not establish a fair-trade situation, but Magness and Harrigan want the U.S. government to let the market take its course.  Is this the kind of “freedom” we fought a revolution for?

Who's Afraid of the American System?
American System defender Henry Clay, speaking before Congress.

The genesis of the American System of political economy, which was intended to thwart that domination, arose not from Clay, of course, but from our first Treasury Secretary Alexander Hamilton. Hamilton devised a system which would give us economic freedom, the freedom to develop our nation. As elaborated most fully in his Report on Manufactures, his system called for national sovereignty over credit and currency (a national bank); Federal support for the industries and infrastructure required to allow the nation “to possess within itself all the essentials of national supply;” fostering manufactures “to cherish and stimulate the power of the human mind;” and establishing an “energetic” government to promote the General Welfare.

It is a travesty to reduce the idea of the American System to the imposition of tariffs, which, by the way, were only one of the ways Hamilton proposed to advance U.S. manufacturing. Implementation of the American System required a regulated financial system, protected against the depredations of speculation; the provision of national infrastructure; support for science and the arts – in short, all the elements required for constant technological progress.

Mathew Carey, Henry Clay, and Henry C. Carey all sought to apply Hamilton’s economics in their own day, with varying degrees of success. That they were constantly being defeated was the cause of many of the disasters our nation faced.

Slavery

The AIER argument gets even crazier when the authors bring up the issue of slavery. They do their best to insinuate that Clay’s tariff push, and the American System’s goal of a “harmony” of economic interests throughout the country, were actually vectored toward subsidizing slavery, and “politically entrenching slavery in perpetuity.”

Who's Afraid of the American System?
Cotton plantations in the South sent 70 to 80% of their crop to the British.

What utter nonsense! While Clay and his Whig Party definitely had flawed policies and views on slavery, the entire thrust of the American System, from Hamilton to John Quincy Adams to Lincoln and Carey, was to champion free labor, and extirpate the horror of slavery from the economy. The “free traders,” in South and North, were the ones who insisted that the Federal government’s role in the economy represented a threat to states’ rights, and thus to the slave system.

From the time of the Constitutional ratification meetings on, it was advocates of slavery who denounced every American System economic policy in sight – from the national bank, to the 1824 National Survey Act that enabled the Army Corps of Engineers to work directly on laying out our canal and rail system, and the tariff itself.

The British

Which brings us to the matter of the British, whom Magness and Harrigan present as a “natural anti-slavery ally” for the Union cause. They single out the case of British free-trader Richard Cobden, founder of the network of Cobden clubs which agitated against protective tariffs in the United States, while its namesake worked in favor of the policy in the UK. Cobden, they write, was a leading abolitionist, and expressed his upset that the Lincoln Administration’s protective tariff policy would prevent Britain from supporting the anti-slavery Union forces in the Civil War. It was the tariff that deprived us of this powerful ally.

The CSS Alabama, a ship the British built for the Confederate Navy. Britain paid reparations to the U.S. after the war due to its support for the South.

What garbage!  As I recently reviewed in the post “Guess Who Supported Us in the Civil War?,” the British government was intensely interested in the conflict—as a means of weakening the United States! While having to tread lightly in the face of popular English support for the Union, the Palmerston government maintained unofficial but significant material support for the Confederacy. British financial links to the Southern slave system were deep and long-standing, and by no means simply the result of the Morrill tariff.

In reality, failing to protect and develop manufactures – and the infrastructure, education, and improvement of agriculture that went with it – was a way of protecting slavery!  And that’s what British anti-American System policy was out to do.

Who Created the Disasters?

Magness and Harrigan claim that it was the successes of the Clay policy (which they have de facto reduced to tariffs) which has caused the evils of the secession, the Civil War, and even the Great Depression. In reality, it was their defeat that created these disasters.

To make this argument required some glaring omissions. These include the stunning progress of the Lincoln Administration and its American System measures, which the authors basically dismiss, by claiming that the United States was already a world power before that. Equally egregious is the omission of any discussion of the unregulated speculative financial boom of the 1920s, which led to the financial crash and depression of the 1930s. Magness and Harrigan ignore this abandonment of American System principles and blame the Smoot-Hawley Tariff instead.

Who's Afraid of the American System?
An abandoned factory in Detroit, Michigan, the fruit of abandoning the American System.

Even more outrageous is their omission of the story of the decline of U.S. manufacturing, productivity, and prosperity over the last 50 years, which has been the starting point (or wake-up call) for the shift toward American System economic policies for the conservatives they attack. Of course, they can’t argue that high tariffs, nor any other American System policy, caused this situation. We have been on a rampage of deregulation and deindustrialization commencing at least in the early 1970s, dismantling controls over speculation, disinvesting in infrastructure, advocating services over production, and singing the praises of individual choice over concern for the general welfare.

While Magness and Harrigan of course condemn the American System for “corruption” by supporting certain industries,  do they seriously claim that today’s system, the one that brought us the 2008 financial crisis, our rotting infrastructure, and hollowed-out industrial base, is not rife with corruption?

It is the financial forces behind this process, which I loosely describe as “Wall Street” and its close international partners in London and elsewhere, who are afraid of a revival of the American System. Let’s hope their fears are well-grounded, as knowledge about Hamiltonian economics turns into action that will rebuild our nation so that it once again is a beacon of hope for both us and all mankind.

Nancy Spannaus is the author of Hamilton Versus Wall Street: The Core Principles of the American System of Economics, available here.

[1] For one, see The Great Challenge: The Myth of Laissez-Faire in the Early Republic, George Braziller, New York, 1989.

[2] For an elaboration on this point, see https://americansystemnow.com/henry-clay-attacks-free-trade-as-british-colonialism/

[3] See Robert C. Byrd, The Senate Classic Speeches, vol. 3, pp. 83-116. Available online at https://www.senate.gov/artandhistory/history/resources/pdf/AmericanSystem.pdf