Many people are unfamiliar with the “American System,” the policy of protection as the bulwark of industrial independence, and the foundation of American development and prosperity. A return to the American System would be a major step toward increasing prosperity and restoring the traditional social order in the United States.
When Donald Trump spoke at a rally in Louisville, Kentucky, he brought attention to the American economist Henry Clay. President Trump said that “the great 19th century American statesman, Henry Clay, represented Kentucky in the United States Congress. Henry Clay believed in what he called the American System, and proposed tariffs to protect American industry and finance American infrastructure.”
Henry Clay played a significant role in shaping the economic debate in the U.S., but many today are not familiar with his ideas and those who followed in the development of the “American System,” a term he coined in 1820. The first to use the moniker “self-made man,” Clay listed the three planks of the American System as protective tariffs, a national bank, and internal improvements.
Mr. Trump continued by saying that “Clay was a fierce advocate for American manufacturing. He wanted it badly. He said, very strongly: Free trade, which would throw wide open our ports to foreign production without duties, while theirs remains closed to us. That was his quote. He knew, all the way back, early 1800s. Clay said that trade must be fair, equal, and reciprocal.”
The American System formed the core of the Republican party, and the Republican platform of 1896 summarizes its success best: “We renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of American development and prosperity.”
One can find the main principles of the American System in the writings of Alexander Hamilton, the great economic nationalist. His famous Report on Manufactures which he delivered to Congress was a repudiation of the free trade policies of Adam Smith. Smith believed that agricultural pursuit was superior in wealth accumulation than manufacturing, but Hamilton as a visionary saw that the reverse was true, when he wrote that “the net produce of capital engaged in manufacturing enterprises is greater than that of capital engaged in agriculture.” He confidently said in 1774, “If . . . manufactures should once . . . take root among us, they will pave the way still more to the future grandeur and glory of America.” To this end, he supported tariffs and subsidies to protect “infant industries.” Hamilton also founded the first national bank, seeing it as a necessity for a stable nation, and pushed for the construction of roads and canals to cheapen transportation costs.
Henry Clay’s successor in government would be found in Abraham Lincoln and his chief economist Henry Carey. Lincoln said that “Henry Clay is my beau ideal of a statesman, the man for whom I fought all my humble life.” He said that his politics, based upon Clay’s beliefs, were “short and sweet, like the old woman’s dance. I am in favor of a national bank. I am in favor of the internal improvement system and a high protective tariff. These are my sentiments and political principles.”
Lincoln understood the significance of tariffs, which is why he said in 1847, “Give us a protective tariff, and we will have the greatest nation on earth.” President Trump remarked that “Abraham Lincoln warned that abandoning the policies that protect American industry would ‘produce want and ruin among our people.’ ”
Another successful promoter of the American System was Erasmus Peshine Smith. A friend of Henry Carey, the latter would acknowledge that he was influenced by the economic insightfulness of Smith. Smith would later serve as a legal advisor to the Japanese Emperor during the Meiji Restoration. While in Japan, Smith would spread the work of Hamilton and the theoreticians of the American System, preparing the country for industrialization.
Georg Friedrich List was one of the earlier advocates of the American System. A German immigrant, he developed his economic theories through conversing with economists like Mathew Carey, the father of Henry Carey, and others who took a strong protectionist stance in the early Republic. Seeing how the individual states in America were united by a strong federal government, he thought that a similar approach could be applied to the various German states. Trade between these 39 German states was difficult because they enacted high internal customs between German state boundaries. To get from point A to point B, goods may have to be taxed dozens of times, which made any fruitful trade possibilities in Germany impossible. Trade was slow, costly, and not worth the effort.
List proposed a German Customs Union, or Zollverein, which could unify the states, which would make trade between the individual German powers easier with the abolishment of internal customs, yet product Germany’s infant industries with import tariffs, which had until then had ceased to grow due to the dumping of cheap British goods following the end of the Napoleonic wars.
His work was profoundly influential in the German Empire, as the Kaiser encouraged the teaching of List’s books in colleges. List was recognized as an influential figure posthumously because of his role in unifying the nation of Germany, and although many American economists may not be familiar with his name, his work is still widely read in countries such as Japan, a country who utilized the work of American economists to industrialize and prosper.
Due to buildup of Germany’s economy, especially after Otto von Bismarck implemented more tariffs in 1879, American economists began to study in German universities. One of these aspiring economists was Simon Patten, who would teach at the Wharton School of Business. Patten was a steadfast in his protectionist views, and wrote that “[h]ad our nation followed the lines of relative advantage advocated by free-traders, our country would be divided into three parallel belts, used for cotton, tobacco, and wheat.”
Trey Propp of The Pennsylvania Gazette described him as the “intellectual godfather of the New Deal.” This is especially true, since as Popp notes, “[h]e called for price controls, an immediate 50 percent increase in wages, an 8-hour day and 40-hour week, equal pay for men and women, regulation of working conditions, and social insurance.”
A student of his, Rexford Tugwell, would become a member of Franklin Roosevelt’s Brain Trust. While the New Deal has been described by some economists as simply liberal reform, the historian Michael Lind, in his book Land of Promise, sees the New Deal as a continuation of the American System, following “in the tradition of Hamilton, Clay, and Lincoln.” He cites FDR speechwriter Robert Emmet Sherwood to support this claim, who wrote that the New Deal “was, in fact, as Roosevelt conceived it and conducted it, a revolution of the Right, rising up to fight its own defense.” Even President Richard Nixon supported the New Deal, and it continued uninterrupted until Jimmy Carter’s administration began to dissemble it through deregulation. From the end of WWII to the early 1970s, this period was known as America’s “Golden Age.” This is a time when per capita personal income grew nearly twofold, while employment rose by 75 percent and real GDP increased by 169 percent.
Going back to the Wharton School of Business, Donald Trump is one notable alumni from the prodigious institution. The business school was founded by the industrialist Joseph Wharton for the sole purpose of teaching protectionism to aspiring economists and entrepreneurs. Specifically, he said the school would teach
how a great nation should be, as far as possible, self-sufficient, maintaining a proper balance between agriculture, mining, and manufactures, and supplying its own wants . . . how by suitable tariff legislation a nation may keep its productive industry active, cheapen the cost of commodities, and oblige foreigners to sell to it at low prices, while contributing largely toward defraying the expenses of its government; and lastly, the necessity for each nation to care for its own, and to maintain by all suitable means its industrial and financial independence, the right and duty of national self-protection must be firmly asserted and demonstrated.
Wharton deplored free trade, calling it a “fungus . . . a source of infection which healthy political organisms can hardly afford to tolerate.” Tariffs, on the other hand, “can defeat the foreign plunderer . . . better than a fort.”
President William McKinley championed the American System: “We lead all nations in agriculture; we lead all nations in mining; we lead all nations in manufacturing. These are the trophies which we bring after twenty-nine years of a protective tariff.”
His successor Theodore Roosevelt was also an ardent patriotic protectionist, and remarked that “pernicious indulgence in the doctrine of free trade seems inevitably to produce fatty degeneration of the moral fiber.”
High wages were another aspect expounded with the American System. Americans as early as Benjamin Franklin would voice their support for high wages:
High wages attract the most skillful and most industrious workmen. Thus the article is better made; it sells better; and in this way, the employer makes a greater profit, than he could do by diminishing the pay of the workmen. A good workman spoils fewer tools, wastes less material, and works faster, than one of inferior skill; and thus the profits of the manufacturer are increased still more.
Edmund Burke, astounded by the swift growth of the colonies, said that
nothing in the history of mankind is like their progress. For my part, I never cast an eye on their flourishing commerce, and their cultivated and commodious life, but they seem to me rather ancient nations grown to perfection through a long series of fortunate events, and a train of successful industry, accumulating wealth in many centuries, than the colonies of yesterday; than a set of miserable outcasts, a few years ago, not so much sent as thrown out, on the bleak and barren shore of a desolate wilderness, three thousand miles from all civilized intercourse.
Jacob Schoenhof, was given the special role to travel the world and record and juxtapose the productivity of labor and wages by the U.S. State Department. The data he accumulated is known as the “economy-of-high-wages-doctrine.” Schoenhof wrote that
it is not by reducing wages that America is making her conquests, but by her superior organization, greater efficiency of labor consequent upon the higher standard of living ruling in the country. High-priced labor means better food and better living, and these supply the American workman with that energy and nerve-power for which he is so justly celebrated. Higher-priced labor countries are everywhere beating “pauper-labor” countries.
One can look as late to Calvin Coolidge to see how valued tariffs were to the Republican party, when he said: “Our only defense against the cheap production, low wages and low standard of living which exist abroad, and our only method of maintaining our own standards, is through a protective tariff. We need protection as a national policy, to be applied wherever it is required.”
Even early founders of free trade would come to repudiate their earlier views. Johns Adams wrote in 1777, “I am against all shackles upon Trade. Let the Spirit of the People have its own way.” Yet after the influx of cheap British goods following the War of 1812, he wrote:
The British merchants and manufacturers, immediately after the peace, disgorged upon us all their stores of merchandise and manufactures, not only without profit, but at certain loss for a time, with the express purpose of annihilating all our manufacturers, and ruining all our manufactories. The cheapness of these articles allures us into extravagance and luxury, involves us in debt, exhausts our resources, and at length produces universal complaint.
Thanks to the implementation of the American System, during America’s Gilded Age real wages increased by 53 percent, all the while prices fell by 58 percent. Business was booming, supported by a tariff rate on dutiable imports averaging 45 percent. Looking back on the success of the Republican party in the latter half of the 19th century, Henry Kissinger wrote that “between the Civil War and the turn of the century, American coal production rose by 800 percent, railway track mileage by 567 percent, and wheat production by 256 percent.” In fact, protectionist America and Germany surpassed free trade Great Britain, becoming the world leaders of economic progress, even though Britain had one of the most powerful empires in the 19th century. The success of the American System deserves to be known among Americans.
If free trade Republicans today had listened to what Karl Marx had said on the subject, they would know why Bernie Sanders and socialism in general has gained popularity. Marx advocated for free trade because
the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.
It is unfortunate that many conservatives today have shown by their actions to embrace John Stuart Mill’s designation as being members of the “the stupidest party.” A fix is possible: Alexis de Tocqueville wrote that “the greatness of America lies not in being more enlightened than any other nation, but rather in her ability to repair her faults.” A return to the American System would be a major step toward increasing American prosperity and restoring the traditional social order in a society that has forgotten what it means to be American.
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The featured image is a photograph of the “World’s Columbian Expo., Chicago, 1892: Manufacturers Building.” There are no known copyright restrictions on this image, and it appears here courtesy of Wikimedia Commons.