American Renewal

The American System: How We Return To An Economy That Lifts All Americans

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Wells King Contributor
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On February 2, 1832, Henry Clay rose on the Senate floor to defend a bold national economic agenda that he had christened eight years earlier “a genuine AMERICAN SYSTEM” (emphasis in original). He had already advanced a number of measures critical to his vision: a national bank, protective tariffs for manufacturing, and infrastructure to connect commercial centers to the expansive frontier. But the political revolution in 1828 that drove Clay’s National Republican Party from power and installed a backcountry populist in the White House was threatening to undo these projects.

Speaking over the course of three days, Clay documented the “unparalleled prosperity” that the American System had produced. He explained how this “long established system” was “patiently and carefully built up, and sanctioned, … by the nation and its highest and most revered authorities.”

His opponents’ alternative, he alleged, was vacuous at best: “When gentlemen have succeeded in their design of an immediate or gradual destruction of the American System, what is their substitute?” Clay asked. “Free trade! Free trade! The call for free trade, is as unavailing as the cry of a spoiled child. … It never has existed; it never will exist.”

Clay lost this particular round in the never-ending fight over America’s economic aspirations and the role of government in fulfilling them. President Andrew Jackson vetoed the re-chartering of the national bank that summer and then soundly defeated Clay’s challenge in the presidential election that fall.

But Clay was not the first great American statesman to champion a robust role for public policy in shaping the national economy. Nor would he be the last. The efforts of that coalition, from Alexander Hamilton to Abraham Lincoln to Dwight Eisenhower, kept alive the spirit of the American System from the nation’s founding through the Cold War. In its various expressions, the System helped to deliver the “unparalleled prosperity” Clay once heralded and made American industry the envy of the world. (RELATED: US Manufacturing Shutdown Approaches WWII Demobilization Levels)

Conservatives abandoned that tradition in recent decades and then forgot its existence altogether. Just last week, the Wall Street Journal editorial board lamented that “[Milton Friedman’s] ideas haven’t run the economy since the 19th century.” Imagine their surprise, upon traveling back in time to share their dog-eared copy of Free to Choose with Senator Clay, at the tongue-lashing they’d receive; “cry of a spoiled child,” indeed.

We need more Henry Clays. Conservatives could provide them, if we recognized that robust national economic policy is not a crime against capitalism, but a great American tradition.

That tradition began with Hamilton, who outlined an aggressive economic agenda as the nation’s first Treasury Secretary. He advocated a general tariff to fund the government’s debt and operations, orchestrated a plan to establish the creditworthiness of the United States, and designed the Bank of the United States, a national bank for which “public utility [was] more truly the object … than private profit.”

Later the same year, Hamilton presented a plan for federally subsided industrialization, arguing that the “independence and security” of the United States were “materially connected with the prosperity of manufactures” but that private capital would not be sufficient to support its development. Such investment was an affirmative obligation of the federal government. He maintained, “the public purse must supply the deficiency of private resource. In what can it be so useful, as in prompting and improving the efforts of industry?”

“There is no Hamilton memorial,” conservative columnist George F. Will has noted. “But if you seek his monument, look around. This is Hamilton’s America.” This was already true when Henry Clay spoke in 1832. Only the Hamiltonian project went by a new name: the American System.

The American System itself emerged from crisis and the young nation’s sudden awareness of its own mortality. As the United States entered the War of 1812, Henry Clay emerged as a leading War Hawk in the Congress and channeled his anti-British posture into a call for economic nationalism. His primary aim was self-sufficiency. “We should thus have our wants supplied, when foreign resources are cut off,” Clay advised his fellow lawmakers, “and we should also lay the basis of a system of taxation, to be resorted to when the revenue from imports is stopped by war.”

Clay’s American System integrated three mutually supporting priorities: tariff-based protection of infant industries, a national financial system, and “internal improvements,” which we would today call infrastructure. In 1816, Clay led the passage of an expressly protective tariff for the nation’s burgeoning manufacturing industry, shepherded the creation of a new national bank, and advocated federal funding of canal and railroad projects.

Even as the System was being dismantled by Jacksonian Democrats, the seeds of its renaissance were being planted in an ambitious young statesman from the frontier, an admirer of Henry Clay named Abraham Lincoln.

From his very first campaign manifesto in 1832, Lincoln confessed that “my politics are short and sweet. … I am in favor of national bank … in favor of the internal improvements system and a high protective tariff.” By the time he occupied the White House, his economic policy seemed to have changed little: “I have always been an old-line Henry Clay Whig,” he proclaimed in 1861. (RELATED: Trump Is The Best President Since Abraham Lincoln, Pastor Says)

As the Civil War raged, Lincoln pursued an American-System agenda on an epic scale. Long an advocate for protective tariffs, he raised them two times in the course of just three years. From Lincoln’s presidency through World War II, the American home market was the most protected in the world. Lincoln also recreated a federal financial system—granting Treasury the ability to issue “greenbacks” paper money backed by federal debt and establishing a network of nationally chartered banks. As with protective tariffs, Lincoln had supported ambitious infrastructure projects throughout his political career, and in 1862 he signed legislation to spend millions on what would become the First Transcontinental Railroad.

Lincoln also expanded the American System’s scope—in both concept and deed. Speaking to Congress just three months after Fort Sumter, Lincoln maintained that “the leading object” of the federal government was “to elevate the condition of men; to lift artificial weights from all shoulders; to clear the paths of laudable pursuit for all; to afford all an unfettered start and a fair chance in the race of life.” The following year Lincoln signed legislation that committed federal land to these ideals: the Homestead Act, offering settlers 160 acres of public land to encourage westward migration, and the Morrill Land-Grant Act, which funded the creation of more than 60 colleges including Cornell University and the Massachusetts Institute of Technology.

At Gettysburg, Lincoln tasked the American people with the “unfinished work” of safeguarding and improving the American experiment. In the century after his death, the federal government advanced an economic agenda to support it. The United States built a modern industrial economy that delivered national security, economic independence, and widely shared prosperity, becoming the envy and leader of the world. The tradition of the American System played a central role.

To foster and guide economic development, the U.S. government supported strategic industries through protection and investment and established the foundations for a functioning labor market that could serve American workers and businesses alike.

Buttressing this development was a financial system that used public credit and regulatory oversight to ensure that capital was not only efficiently and productively deployed, but safe from corruption and complete destruction by the business cycle.

The tradition of “internal improvements” lived on as well, as American policymakers recognized that the nation’s size was one of its great advantages and that prosperity ought to reach every corner rather than concentrating in a few cities. The United States invested in ambitious infrastructure programs to provide transportation, energy, and communications to the public.

From every angle available, the United States invested in the prosperity and opportunity of American citizens, recognizing that both a healthy democratic republic and a vibrant economy depended upon prosperity that was widely shared and available to all. The nation assumed an obligation to create opportunity and draw people to it, rather than lecture those who could not find it themselves.

This is the American tradition of economic policy: Crafting bold policies and committing vast resources to pursue national goals and ideals. (RELATED: EXCLUSIVE: Investor Foster Friess Shares Ideas On Reopening America ‘As Soon As We Can’)

Yet the modern American right-of-center would rather forsake that tradition altogether for fundamentalist free-market ideology. In the Wall Street Journal, Ambassador Nikki Haley recently criticized “conservatives who seem embarrassed by the free market” and “advocate for more tax credits here, more subsidies there, more mandates for this, more regulations for that.” This “watered-down or hyphenated capitalism,” she warned, “is the slow path to socialism.”

Echoing this critique, Senator Pat Toomey argued in a recent speech at the Heritage Foundation that “capitalism is nothing more than economic freedom” and “hyphenated capitalism” represents a misguided attack on it.

Such statements mischaracterize not only the proper role of government in a capitalist system, but the very traditions of American statecraft. If they are right, then America’s greatest statesmen — even the nation’s and the Republican Party’s very founders — were misguided “hyphenated capitalists” themselves. How, with such a heritage, did the United States get anywhere?

Economic stability, national security, widely shared prosperity, strong families, a pluralistic society — in short, the American way of life — are achievements plainly worth conserving. So is the only approach to economic policy that has ever proved capable of producing them.

Wells King is the research director at American Compass. This piece was adapted from “Rediscovering a Genuine American System” from American Compass.

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Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.