The American System
The "American System" is the name by which American protectionist school was known during the 19th Century.
According to British Mercantilism of the 17th-18th Century, the American colonies were supposed to serve merely as a source of cheap raw materials (cotton, hemp, pitch, timber, iron ore, indigo, etc.) for English industries, and a captive market for English-manufactured high-value goods (finished cloth, metallurgy, crafts). Most manufacturing in the colonies was severely restricted by law. At one point, an American colonist who wanted something as simple as a nail, had to import it from England. By the Navigation Acts, American colonists were also forbidden from trading with any other country but Britain. Of course, the colonies being so far away and difficult to supervise, British Mercantilist laws were frequently flouted illegal production was carried on, foreign smugglers routinely visited American ports. This had been going for so long that American colonists had grown quite used to it. But by the 1760s, the British crown realized it couldn't turn a blind eye to these goings on and decided to enforce the Mercantilist laws strictly in the colonies. This was one of the provocations in the chain of events that led to the American Revolution of 1776 - the same year Adam Smith published his Wealth of Nations.
Early American writers embraced the liberal Enlightenment ethos not only in their politics, but also in their economics and, in that respect, accompanied intellectual developments in Europe. Thomas Jefferson was an enthusiast of French liberalism, particularly the works of the Physiocrats and their liberal progeny, the ideologues like Destutt de Tracy and Jean-Baptiste Say. But Americans added a few twists of their own. One that looms large is a concern with population growth. The US being relatively underpopulated, early American writers like Benjamin Franklin, paid special attention to ways of encouraging population growth. Free trade between American states was instituted with the 1787 Constitution.
Although Mercantilist laws were gone with independence, trade with Britain continued and little was done to change the
specializations. On the contrary, they were deepened. In the first half
of the 19th C., Britain underwent an industrial revolution, at the
spearhead of which was cloth-manufacturing. The great cloth-weaving
mills of Lancashire required raw cotton as a input. And they looked
abroad to supply it. By1840, more than 50% of the entire world's cotton
crop was destined for British textile industries. In response to
increased British demand, cotton plantations and slavery in the
American South were rapidly expanded and deepened. America's dependence
on primary commodity production grew rather than receded. By 1860, some
85% of the exports of the United States was raw cotton. Much of the
remainder were other primary commodities, like iron ore, indigo,
tobacco, rice., etc. The United States seemed destined to remain a
overwhelmingly agricultural-based primary commodity producer .
Already from the start, we begin to see the kernel of what would later become known as "American System", a nationalist-protectionist doctrine, what may be regarded as an updated American version of old Mercantilism. This began as early as Alexander Hamilton in the 1780s. Hamilton realized that political independence alone was not enough, that the American economy remained dependent on Britain, and envisaged the federal government as a tool to break that dependence. Hamilton advocated the establishment of the First Bank of the United States to promote US commerce and manufacturing and had already begun promoting protectionist tariffs in 1791.
The first protectionist tariff was passed in 1816 Early activists like Matthew Carey of Pennsylvania, raised protectionism into a major item of the political agenda. It became part of the platform of Henry Clay's Whigs. The economics behind it was given theoretical depth by Carey's son Henry C. Carey and the German exile Friedrich List, who provided "infant industry" arguments of a "national system" of protectionism. It was labeled the "American System" to contrast with the "British System" of Manchester School liberalism. The retardation of economics in American universities was partly because the best English-language textbooks of the day were based on classical Ricardian economics, peddling "British" free trade doctrines so inimical to the American industrialists who frequently served as university trustees. Economics was suspect, until Carey-based curricula were developed as alternatives. .
Ranged against the northern protectionists were the plantation lords of the South. They
feared retaliatory British tariffs on their cotton exports. Southerners
did not accept the Northern argument that a growing American cloth
industry could substitute for British markets. British industry was so
much larger and more developed than the American equivalent. Being still
small and unproductive, American cloth manufacturers could not hope to
offer as good a price for Southern cotton as the British manufacturers
could, nor could they sell Southern consumers manufactured goods as
cheaply as the British did. In Southern calculation, a US-wide tariff
would turn the terms of trade against them what they produced would
sell for less, what they consumed would cost more to buy. A
protectionist tariff would hit Southern pocketbooks, and hit them hard.
With the tariff triumphant, post-Civil War American economics changed color. The tide of free trade liberalism in Europe in the 1860s reached US shores, but proponents remained a minority. Some free trade advocates were tied up with other controversial causes (e.g. Henry George) . The bulk of American economists were what we have called "American apologists", suspicious of free trade and competition. The slogans of the American System - "Protection and Sound Money" - remained the central platform of the Republican Party into the early 20th Century.
Early American liberalism
The American System
Resources on American 19th Century Economics
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