About the Author: Johnny Roy has been an Advanced Placement US History teacher for the past 8 years at Cuyahoga Heights High School just outside of Cleveland, Ohio. He has been actively involved with the AP Reading as a grader for the past 3 years having scored the DBQ, LEQ, and SAQ sections of the exam.
The American System
The American system was a national economic plan put forth by Senator Henry Clay of Kentucky and the Whig party throughout the first half of the 19thcentury. The plan consisted of three major components:
- Pass high tariffs (taxes) on imports to protect American businesses and to increase revenues.
- Re-establish a Bank of the United States (original charter had expired in 1811) in order to stabilize US currency and state banks.
- Develop and support internal capital improvements, primarily consisting of designing and constructing roads and canals.
Following the War of 1812, the United States was in dire financial status due to poor planning and the fiscal decisions of Presidents Thomas Jefferson and James Madison. Their efforts to enforce a strict-constructionist view of the Constitution (outside of a pretty good land deal in the Western US) shrunk the US Army and Navy, reduced tariff revenues coming into the government (remember, no national income tax till the Civil War) and shifted internal improvement responsibilities to the states.
The United States was deep in debt and with no real plan to get out of it.
As the country began to move past the War of 1812, the financial reality began to set in. The United States was deep in debt and with no real plan to get out of it. Luckily for Henry Clay, a strong sense of nationalism emerged after the war and it made the possibility of re-shaping the country’s economic system more likely.
Tariffs – Part I
As government tax revenues continued to decline leading up to and following the War of 1812, the United States needed to raise funds to pay off debts and cover the costs of running a federal government. The Tariff of 1816 placed a high tax on English cotton cloth in an effort to protect the New England textile industry.
Tariffs eventually spread to other imported goods like wool, hemp, and iron. However, the use of tariffs became more of a political tool to address sectional differences more than an economic tool to fix the country’s fiscal woes.
The use of tariffs became more of a political tool to address sectional differences more than an economic tool to fix the country’s fiscal woes.
Northern and Western business owners and politicians knew that the Southern citizens relied more heavily on imported finished products then they did, so these tariffs would affect the Southern consumer more than the Northern and Western ones. The passage of the Tariff of 1828 became the culminating event in this sectional fight as this tariff raised taxes 35%-38% on more than 90% of all imported goods. This “Tariff of Abomination” as it was known in the South, led to increased discord at all levels of government.
This “Tariff of Abomination” as it was known in the South, led to increased discord at all levels of government.
An open disagreement occurred between President Andrew Jackson and his Vice-President, John C. Calhoun of South Carolina over this tariff. Seen as a sectional plot to force the slave holding South to either support Northern businesses due to price increases on manufactured goods or pay the expenses of the federal government disproportionately (remember, the South bought more imports so they would pay more taxes).
As a result, South Carolina began to advocate for the possibility of declaring the tariff null and void. This action which eventually led to the Nullification Crisis and the eventual action of President Jackson to sign the Tariff of 1832 and 1833 that began to ease the burden on South Carolina and other Southern states. Nonetheless, Calhoun would resign as Jackson’s Vice-President at the end of 1832 in protest over the tariffs.
Bank of the United States – Part II
The economic brainchild of Alexander Hamilton and the center piece of the Hamilton Fiscal plan, the Bank of the United States (BUS), was seen as a tool to stabilize the American economy following the Revolutionary War. However, Southern politicians (including Jefferson) saw it as a power grab by Northern merchants and a weakening of local and state banks.
Yet, much like after the Revolutionary War the American economy needed a central bank to help stabilize the national economic system. So the Bank of the United States was re-chartered in 1816 for an additional 20 years.
Though it was re-chartered, the bank became a lightning rod of conflict once Andrew Jackson was elected to the presidency in 1828.
Though it was re-chartered, the bank became a lightning rod of conflict once Andrew Jackson was elected to the presidency in 1828. Jackson and the Democrats saw the bank as a tool for the rich (much like Jefferson) and wanted to “kill the bank”. Numerous conflicts with the banks president Nicholas Biddle and attempts to revoke the banks charter before the election of 1832 ultimately became known as the Bank War.
Henry Clay and Senator Daniel Webster of Massachusetts fought to re-charter the bank in 1832 and were able to get a bill of re-charter passed through Congress, thinking Jackson would not risk an economic downturn in an election year. Playing to his masses of the “common man” and relying on class warfare rhetoric, Jackson issued his stirring veto message and vetoed the bill. The veto was unable to be overridden by Clay, Webster, and their supporters and the bank was eventually “killed” when the charter expired in 1836. After the death of the 2ndBank of the United States, the country entered a “free banking era” in which short lived state banks over saw the majority of monetary policy and transactions.
After the death of the 2ndBank of the United States, the country entered a “free banking era” in which short lived state banks over saw the majority of monetary policy and transactions.
Internal Improvements/Transportation – Part III
The third component of Clay’s American System was an effort to combine the economic visions of Hamilton’s industrial society and Jefferson’s agrarian one through a connective system of roads and canals. Connecting the agriculturally driven South with the industrialized North and the expanding West would ensure economic interaction and prosperity for everyone as they became dependent on one another. Clay and others believed that connecting the regions economically with transportation routes could cut down on the sectional conflicts that had been plaguing the country.
Clay and others believed that connecting the regions economically with transportation routes could cut down on the sectional conflicts that had been plaguing the country.
In 1830, congress passed a bill to complete part of the Cumberland Road system known as the Maysville Road. Once again, President Andrew Jackson stepped in and vetoed the bill. He argued that the federal government should not fund construction projects that occurred wholly within a single state. In this case, the state was Kentucky, the home state of Jackson’s political enemy, Henry Clay.
Even with this setback hundreds of miles of roads were constructed during this time. These projects became a part of the National Road and connected existing cities and river systems while encouraging expansion further west due to easier access to necessary supplies and transportation of goods.
Even with conflicts and arguments over various projects, much headway was in fact made in an effort to link the regions. The Eerie Canal was a major engineering feat and economic boon for the Western and Northern regions. Using the Great Lakes and a series of canals, Western farmers were able to transport their crops to the shipping ports of New York and then on to the rest of the world.
Using the Great Lakes and a series of canals, Western farmers were able to transport their crops to the shipping ports of New York and then on to the rest of the world.
Beginning of construction took place in 1817 and was opened in 1825 at a cost of $7.1 million dollars ($109 million in today’s money). Massive increases in trade of finished products heading West and cheaper food coming East and then being shipped out to the world solidified New York City as the financial capital of the United States. Revenues collected from tolls along the canal, covered construction costs within several years and contributed heavily to the federal operation budget.
Impact of the American System
Impact of the American System could be described as a mix bag. Early successes during the Era of Good Feelings (1817-1825) on the National Road and Eerie Canal construction along with tariff revenue were net positives for the country, specifically, the North and West. However, following the election of Andrew Jackson and his ideological differences from the Whigs and his hatred of Henry Clay (most likely resulting from the circumstances around the election of 1824 and the perceived “corrupt bargain”) many proposed plans of the American System ran into problems due to conflicts with the Executive Branch. Numerous veto’s and political infighting stifled progress of the American System and did little to curb sectional differences.