In the early 1800s the politician Henry Clay championed a new economic plan to help spur self-sufficiency in the United States. The question of whether the so-called “American System” was successful is varied, though the plan dominated economic discussion throughout most of the early 19th century.
The American System was composed of three primary policies: high tariffs and land prices, a centralized national bank, and a federally-funded system of canals, roads, and bridges to interlink the United States.
This nation-wide economic agenda aimed to decrease the United States’ reliance on foreign goods and spur development throughout the nation.
The plan enjoyed broad support in some parts of the nation but fierce resistance in others. The North and West in particular primarily supported the policy as it helped to develop the nascent American manufacturing sector.
However, the south fiercely opposed the American System given its reliance on tariffs that hurt their agricultural exports.
The political career of the Kentucky politician Henry Clay was greatly intertwined with the American System. Clay utilized the economic plan to help expand western states’ influence in national politics while also benefiting his own political ambitions.
Although the American System was never successfully implemented in its entirety, it had great significance in shaping American policy while highlighting sectional differences in the lead-up to the Civil War.
Post-War of 1812 Economic Background
The American System emerged in the aftermath of the War of 1812, though elements had been present since the passage of the Constitution. The ratification of the Treaty of Ghent in early 1815 catapulted the United States into a period of heightened nationalism known as the Era of Good Feelings.
The post-war economy flourished, especially when Congress issued a charter for the Second National Bank of the United States in 1816 to help regulate the amount of credit issued.
However, lax banking practices led to the reckless expansion of bank notes, especially in the west. This was a primary cause of the Panic of 1819 which was the nation’s first widespread financial crisis.
The devastation caused by the Panic of 1819 helped lead to and refine many concepts of the American System.
Cheap federal lands for sale in the west and easy access to credit led to rampant land speculation where a large inflationary bubble emerged. As access to credit tightened, the asset bubble popped, leading to a subsequent depression where land values were sometimes cut in half.1
Already at this time the United States was struggling to determine the direction of the national economy. The Jeffersonian vision of an agrarian-dominated society was rapidly fading into the background as the necessity for domestic manufacturing was made abundantly clear during the War of 1812.
Americans were wary of the perceived societal ills of an industrial-dominated economy like many in Europe at the time. Writers such a Thomas Malthus and David Ricardo provided stern warnings of the European social landscape.1
The influential politician Henry Clay argued that the United States need not worry about such gloomy forecasts. The unique economic landscape in the US provided a multitude of opportunities that Europe did not possess.
If factory life did not satisfy or provide the right opportunity, there was always the ability to move west and purchase a plot of land. It was this interrelationship between manufacturing, agriculture, and the abundance of opportunity that formed the core tenant of the American System.
The 3 Parts of the American System
The American System was comprised of three main parts:
1) High tariffs to protect and promote American manufacturing and industry, as well as higher land prices in the West to increase federal revenues.
2) A national bank to finance development and promote commerce.
3) A system of federally-funded internal improvements such as canals, roads, and bridges (now known as infrastructure).
Henry Clay is attributed with coining the term “American System” which dates back to an 1824 speech he made in support of legislation for a higher tariff. This tariff would eventually become known as the Tariff of 1824.2
Clay, a westerner from Kentucky, set his sights on the complete self-sufficiency of the American economy. No longer would the United States be dependent on foreign trade under his plan.
Clay and supporters of the American System viewed the American economy as having unlimited potential and a virtual world within itself. They all drew heavily on Hamiltonian concepts including his 1791 “Report on Manufactures.”1
The west had abundant land which could provide produce and agriculture to the other regions. The north dominated manufacturing and trade, while the south provided the raw materials such as tobacco, indigo, and cotton (with help from the impact of the cotton gin). Each region depended on the other and the result would be complete economic independence.3
High tariffs would stifle foreign competition for goods; internal improvements like roads, canals, and bridges would help goods get to markets and interconnect the American economy; and a national bank would help regulate overall commerce and access to credit.
To Clay the American System was the only logical economic option to develop the American economy, improve production, and create harmony between agriculture and manufacturing. He would find that many others did not share the same view.1
Was Henry Clay’s American System Successful?
Though the American System played a significant role in shaping economic policy throughout the 19th century it was never fully implemented and only certain elements were successful.
The American System found stiff opposition from southern leaders and in particular plantation owners. Tariffs were particularly contentious and seen as a direct threat to cotton growers and states’ rights.1
Any American tariffs against foreign goods were usually met with foreign retaliatory tariffs against American export staples such as cotton, primarily grown in the south. These tariffs harmed the southern economy as the nascent northern manufacturing did not import enough to cover the difference in exports to foreign nations.
Southerners also often tended to import a lot of foreign goods as they were usually cheaper. Tariffs made these goods more expensive and forced southerns to pay more either for the foreign goods, or American manufactured goods. Either way, the American System offered little benefit for the agrarian southern economy.
While the north favored the American System due to its trade and manufacturing-based economy, the west was more divided in its support. Differing interests emerged between the “old” west (states like Ohio and Kentucky) and the “new” west (states like Illinois and Indiana).1
The old west was more established and populated and thus supported the higher land prices and manufacturing-focused policy of the American System. Meanwhile the new west had less manufacturing and needed an influx of settlers to help further populate the states.
Cheaper land attracted more settlers and provided a boost to the new western economies. The dilemma arose in the American System that the simultaneous promotion of western lands and manufacturing led to a widespread labor shortage and required immigration to help fill the gaps.1
The sectional support unfortunately did not allow the successful implementation of the American System.
Significance of the American System
While the tariffs and higher land prices faced opposition along sectional ground, the national bank and internal improvements also faced their own difficulties. Andrew Jackson notoriously opposed the national bank and refused to renew the twenty-year charter in 1836.
While a majority of Americans favored federally-funded internal improvements to help facilitate trade and transportation, the national bank often faced a lack of funding and challenges along constitutional grounds.
Interestingly the American System also held great significance in regards to foreign policy. Henry Clay was a champion of liberty and expressed support for the recognition of Spanish-American republics in the early 1800s.2
This became an issue during negotiations of the Adams-Onis Treaty of 1819 where Spain ceded Florida to the United States.
Some scholars believe that Clay foresaw a time where the US and former Spanish-American republics would be linked much closer economically and the US gained hegemony over the entire western hemisphere.2
Even if unlikely, the American System as a foreign policy closely aligned with the influential Monroe Doctrine issued in 1823.
Henry Clay’s creation of the American System eventually became a core tenant of the new Whig Party. Clay’s own presidential ambitions were tied closely to his economic agenda, and he narrowly missed out becoming president several times.1
Opposition to the American System along sectional grounds helped further divide the country in the lead-up to the Civil War. Tariffs in particular were particularly contentious, with the infamous Tariff of Abominations in 1828 directly contributing to the Nullification Crisis of 1832.
Although the American System was not successful in its totality, it greatly influenced the development of American manufacturing in the early 1800s.
To learn more about US history, check out this timeline of the history of the United States.
1) Van Atta, John R. “Western Lands and the Political Economy of Henry Clay’s American System, 1819-1832.” Journal of the Early Republic, vol. 21, no. 4, [University of Pennsylvania Press, Society for Historians of the Early American Republic], 2001, pp. 633–65, https://doi.org/10.2307/3125149.
2) Campbell, Randolph B. “The Spanish American Aspect of Henry Clay’s American System.” The Americas, vol. 24, no. 1, Cambridge University Press, 1967, pp. 3–17, https://doi.org/10.2307/979796.
3) Winkler, James E. “HENRY CLAY: A CURRENT ASSESSMENT.” The Register of the Kentucky Historical Society, vol. 70, no. 3, Kentucky Historical Society, 1972, pp. 179–86, http://www.jstor.org/stable/23377196.