Congressman Andrew Stewart’s The American System (1872): Time-Tested Economic Ideas for Today’s Crisis

A review of the book The American System: Speeches on the Tariff Question, and on Internal Improvements, principally delivered in the House of Representatives of the United States of America with select excerpts

The term “American System” was the name used by Henry Clay to describe his political/economic philosophy which for all intents and purposes was merely a continuation of Alexander Hamilton’s own economic ideas known as the “American School.” The crux of his plan was the use of a high tariff on imported goods which would serve to protect nascent domestic manufacturing from the importation and even dumping of cheap, foreign products. At that time, the tariff was the chief means of revenue generation for the federal government and, not being a direct tax, was in essence a voluntary tax for the citizenry – there was no income tax.

One of the key components of the American System was that the surplus revenue was to be used for internal improvements within the country to be built at federal expense – to develop or improve roads, rivers and canals. Important examples of this are the Erie Canal, the Cumberland Road, and the Chesapeake and Ohio Canal. The thought was that by opening up these corridors of transportation within the country, commerce and communication would be facilitated between the citizens of the various states and thereby would strengthen the bonds of the union. Why the South would fight this obviously beneficial policy for decades and even secede from the union to some degree because of this issue is well beyond the scope of this brief review. For this, I highly recommend W. J. Cash’s seminal work The Mind of the South.

Andrew StewartThe American System: Speeches on the Tariff Question, and on Internal Improvements, principally delivered in the House of Representatives of the United States of America by Andrew Stewart – a four term U.S. Congressman from Pennsylvania – was first published in 1872 and is mainly a collection of the various speeches that Rep. Stewart made in Congress in defense of high tariffs and internal improvements. It is available online at both Internet Archive and Google Books. The book was compiled by Mr. Stewart and one of his sons and is intermixed with actual quotations from Mr. Stewart’s speeches and synopses of events that took place in the House of Representatives. It’s a fascinating look at the historical events and personages of that time, and it is exceedingly relevant to our current time of global economic crisis.

Mr. Stewart believed so staunchly in protecting the domestic economy that he quit the Democratic Party in 1828 when Van Buren –a follower of Aaron Burr who later became the top political strategist for the failed presidency of Andrew Jackson – and his supporters from the South (including future President Buchanan) rejected the policy of protecting our own manufacturers and instead pushed for free trade.

Separated from the pernicious influences of party, he [Stewart] was sure there could be but one opinion upon the subject. The contest was for the American market. Foreigners, and especially the British, were the parties on the one side, and the Americans on the other; and the only question was, which side should we take? By adopting “free trade,” we give our markets and our money to foreigners; by adhering to protection, we secure both to our own people. Disguise it as you will, this is the true and only question to be decided, and the fate of the country depends on the result.[1]

Would that current cowardly players of party politics might turn away from the chimera of the “free market” and follow Stewart’s lead!

His [Stewart’s] maxim was “measures, and not men”; he should always support the measures he thought right, he cared not where they originated, by whom they were supported, or by whom opposed.[2]

It is interesting to note here that, after Stewart left the Democrats, he returned home and told his constituents that his conscience would not allow him to vote for the two-to-one favorite Democrat, Andrew Jackson, in the upcoming presidential election – that he was instead throwing his support behind the Whig candidate, John Quincy Adams, and the protectionist principles that he stood for. However, despite Jackson’s overwhelming win, Stewart demonstrated his popular support and the respect he had established amongst the voters by winning an unprecedented landslide victory over his Jacksonian opponent.

Stewart’s tenure in the House of Representatives from 1820 to the late 1840s afforded him the opportunity to see U.S. economic policy vacillate over the years between a protectionist high tariff and a low tariff or free trade. So, it was from this history that Stewart was able to reflect upon, gather statistics and either validate or disprove the claims of the Democratic Party free traders. He debated his position by insisting on an adherence to the statistical facts – and not opinion – that showed very clearly which of the two economic policies had produced the best results. Was free trade or a high protective tariff the answer? He answered time and again that it was factually provable that it was the high tariff that made this country prosperous and free trade which led to its ruin. To illustrate, he included numerous statistical reports throughout the book to substantiate his claims that a protective tariff policy is economically superior in every way to free trade. The table below clearly shows increased revenue generation from a high tariff, and these statistics were ironically taken from a report by Robert J. Walker – President Polk’s Secretary of the Treasury who was a free trader advocating for a low tariff!

Chart-p.195.jpg[3]

Britain’s repeal of the Corn Laws – tariffs on importing wheat into the UK – in 1846 is often cited as an indication that London was playing fair in the free trade game, but Stewart rightly pointed out that it was a mere feint to encourage the US to reduce their protectionism. This was indeed the result when Walker, slavishly moved to have most all tariff duties cut in half in response to the British move.

Sir Robert Peel [the British Prime Minister] understands his business; he proposes to take the duties off bread-stuffs and raw materials of all kinds used by their manufacturers, and remove every burden, so as to enable them to meet us and beat us in our own markets, and in the markets of the world, where Yankee competition is beginning to give them great uneasiness.

He sees that the manufacturers of Great Britain, the great pillars of her national prosperity, are pottering to their fall; he sees that powerful rivals are springing up in the United States and in Europe, who are not only supplying themselves, but threatening to drive Great Britain out of the markets of the world. To meet this new and fearful crisis, what does he do? He addresses the lords and landholders of England, with whom he had been always politically identified, thus: “Gentlemen, stern necessity now demands that you surrender some temporary advantages to save your country and yourselves. Our manufactures are threatened with destruction; they are your great and only markets; they consume, carry abroad, and sell one hundred and twenty-five millions of your agricultural produce annually—thus making England the greatest agricultural exporting country in the world. But if you suffer your manufactures to be destroyed by foreign competition, what becomes of you? Where are your markets? Can you carry your bread and meat, your wool and other products abroad in a raw and unmanufactured form? Our manufacturers are giving way; last year the United States sold in the foreign markets more than THIRTEEN MILLIONS of manufactured goods, and the question is now presented, will you sustain your manufacturers in this struggle by cheapening their living, or will you hold on and break them down, and with them your country and yourselves?” This noble and patriotic appeal had its effect; the corn laws were repealed.

Sir Robert Peel’s present system furnishes powerful arguments for adhering to our protective system—his object is, not to favor, but to beat us; and our course is, not to defeat, but to favor his purpose.[viz. Walker’s plan to reduce protection][4]

There were three main arguments against protectionist policies which Mr. Stewart answered and refuted throughout his speeches. A few excerpts are included here:

  1. The free marketeers, sometimes using the bankrupt “enumerated powers” argument, claimed that internal improvements built by the federal government were unconstitutional. Stewart replied that the federal government was already exercising these powers.

    … the power to erect a fort, improve a harbor, or to purchase a mail-bag. The Constitution gave Congress no express authority to do any of these things; they were incidental to the power of defence—of “regulating commerce” and “establishing post-offices,” which powers necessarily carried with them the means of their own execution; but the express authority was given to Congress to pass all laws necessary and proper to carry into effect these powers. Hence the power to defend the country gave Congress the right to purchase cannon and erect forts as the means of defence. Now, if a railroad or a canal was found to be as available for defence as a fort, had they not as good a right to adopt it? Who could doubt it? The Constitution says, “Congress may regulate commerce with foreign nations and among the States.” What right have you to build a ship or improve a harbor? The Constitution is silent upon the subject. It is because you have the power to regulate commerce with foreign nations. And was it not manifest that you have precisely the same power to regulate commerce among the States by improving rivers or harbors, or other means equally appropriate to this end? Most clearly. To have specified in the Constitution all the means, would have been to make a code and not a Constitution.[5]

    … the power to raise money is plenary and indefinite, and the objects to which it may be appropriated are no less comprehensive, than the payment of the public debts, and the providing for the common defence and general welfare. The terms, ‘general welfare,’ were doubtless intended to signify more than was expressed or imported in those which preceded; otherwise numerous exigencies incident to the affairs of a nation, would have been left without a provision. The phrase is as comprehensive as any that could have been used; because it was not fit that the constitutional authority of the Union, to appropriate its revenues, should have been restricted within narrower limits than the ‘general welfare;’ and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.[6]

    In essence, Stewart thus embraced the implied powers doctrine advanced by Hamilton and validated by the great nationalist Chief Justice John Marshall of Virginia in his landmark 1819 McColloch v. Maryland decision.

  2. Free traders also asserted that a protective tariff was a tax on the South. Stewart discussed the issue in this way:

    The gentleman [Mr. Holmes from S.C.] asked whether all this benefit did not grow out of a tax upon the South? Mr. S. would answer the gentleman; if these factories were built by Government, then this might, to some extent, be true. But they were built, not by Government, but by individual enterprise; and what sort of a tax was it upon the South, to give them better goods for one-fourth the price they formerly paid?[7]

    If protective duties, as he had proved, reduced prices, where was the taxation? But suppose it to be admitted that the duties on foreign goods are added to the price. Then I ask what tax did farmers and laborers now pay the United States? Nothing. Many of them used nothing but domestics. They bought no foreign goods except tea and coffee, and they were free. Thousands and hundreds of thousands of our people don’t pay a dollar a year into the National Treasury, and thousands not a cent. How would it be under a system of direct taxation? The burdens of the Federal Government would fall on farmers and laborers more heavily than the heaviest State taxation. Under a system of direct tax the proportion of Pennsylvania would be three millions a year—more than double her present heavy State taxation. But all these burdens put together are nothing compared to the taxes imposed on us by the British. To form an idea of its extent, let every gentleman ascertain the number of stores selling British goods in his district. These merchants are all tax-gatherers for England, taking millions and tens of millions of specie [i.e. gold and silver] from our farmers for British agricultural produce, wool, and everything else converted into goods, and sent here and sold to our farmers, who have those very materials on their hands rotting for want of a market; and this is the ruinous system recommended to our farmers by these “free-trade” advocates.[8]

  3. The free traders claimed that a protective tariff is overly oppressive to the poor – making everything they buy overpriced. Stewart proved that, in reality, a protective tariff led to lower prices being paid by Americans for manufactured goods. Stewart showed:

    … that there never was a protective duty levied in this country, on any article which we could and did manufacture extensively, which had not resulted in bringing down the price of that article; and he challenged gentlemen to point him to a single instance in reference to which this was not true. The prices of commodities, instead of being raised by protection, had been reduced to one-third, one-fourth, and even to one-tenth and one-twelfth part of what had been paid for them when imported from abroad.[9]

    The gentleman [Mr. Payne from Alabama], if he had walked up to the Fair, might there have seen American cotton, such as had cost, when the enormous minimums [import duties] were first imposed for its protection by Mr. Lowndes and Mr. Calhoun, eighty-five cents a yard, now ready to be delivered in any quantity, and of better quality, at seven cents; and woollen jeans, sold in 1840 at sixty-five cents, now selling, of superior quality, for thirty-five; and these articles were subject to the very highest duties in the whole catalogue—proving, beyond all contestation, the truth of the proposition denounced as an absurdity by the gentleman, that the highest duties often produce the lowest prices, when levied on articles which we can supply to the extent of our own wants. Here was the result of American industry, skill, and improvement, when left free to act out their own energies, and occupy, fully and freely, their own appropriate markets, without the disturbing and destructive competition of the pauper labor of Europe.[10]

    In other words, domestic industrialization cheapens industrial commodities by breaking the British cartel prices.

One of the most interesting passages in this book is the inclusion of correspondence between Thomas Jefferson and Benjamin Austin. President Jefferson, the champion of states’ rights, who wanted the US to be an agrarian republic, and who is often aligned with the ideals of Rousseau, confessed in a letter that his earlier free market philosophy had been fundamentally changed by his own experience.

Mr. Jefferson, in his letter to Benjamin Austin, Esq., in 1816, uses this strong and emphatic language: “To be independent for the comforts of life, we must fabricate them ourselves—we must now place the manufacturer by the side of the agriculturalist. The grand enquiry now is, shall we make our own comforts, or go without them, at the will of a foreign nation? He therefore who is now against domestic manufactures, must be in favor of reducing us either to a dependence on that nation, or be clothed in skins, and to live like wild beasts in dens and caverns—I am proud to say I am not one of these, experience has now taught me that manufactures are as necessary to our independence as our comfort;” and expresses his determination to wrest this weapon from foreign hands, by purchasing nothing foreign when the domestic article can be had, without regard to price.[11]

This letter reveals that Jefferson converted late in life and after his presidency to a more Hamiltonian, and implicitly a more protectionist, view. This battle between having a protectionist economic policy or having free trade has gone on for centuries and has had a very profound ideological effect on our country’s history – although most Americans today are unaware of the real background. Currently in 2011, 1% of the global population owns fully 40% of the entire real assets in the world, while 40% only own 1%.[12] This discrepancy between the super rich minority and the masses has never been more pronounced, and to identify the players in this struggle, remember John D. Rockefeller’s famous monopolistic quote that “competition is a sin.” Andrew Stewart had declared decades earlier:

“Wages of labor and national prosperity go up and down with protective and free-trade duties – Protection destroys monopoly, by building up competition, the only thing that can destroy it.”[13]

Free trade is an outstanding economic system if you are a powerful, monopolistic entity seeking to eliminate all competition, but for the mass of the working people in a society it only offers immiseration – a race to the bottom. The very name “free trade” is nothing more than an insidious newspeak term that would be more truthfully identified as enforced backwardness and brutal exploitation.

At the end of his career, Andrew Stewart condensed his economic theories into a concise, but beautifully written, four point plan which he delivered to Congress on March 14, 1846:

THE TRUE AMERICAN POLICY[14]
The true American policy is just the reverse of that recommended by this administration [that of low-tariff Democrat James K. Polk]. It is this:

1st. Protect and cherish your natural industry by a wise system of finance, selecting in the first place those articles which you can and ought to supply to the extent of your own wants—food, clothing, habitation and defence—and to these give ample and adequate protection, so as to secure at all times an abundant supply at home. Next select the LUXURIES consumed by the rich, and impose on them such duties as the wants of the Government may require for revenue; and then take the necessaries of life consumed by the poor, and articles which we cannot supply used in our manufactories, and make them free, or subject to the lowest rates of duty.

2d. Adopt a system of national improvements, embracing the great rivers, lakes, and main arteries of communication, leaving those of a LOCAL character to the care of the States; and on these expend the surplus revenue only; thus uniting and binding together the distant parts of our common country, and at the same time securing the most efficient system of defence in war, and the cheapest and best system of commercial and social intercourse in peace.

3d. Introduce enlightened economy in every branch of the public expenditures. Lighten the burdens, diversify the employments, and secure and increase the rewards of labor in all its departments. And :—

4th. In your foreign relations follow the advice of the father of his country—”Observe good faith and justice towards all nations—cultivate peace and harmony with all.” Thereby illustrating the beauty and perfection of our Republican institutions, holding up a great example of “liberty and independence,” for the nations of the earth to admire and imitate. This was the great and true American system which he hoped yet to see adopted and carried out. We owe a great example to the world—let it be given. This was the duty, as he trusted it would be the destiny, of this, our great and glorious republic.

In summary, this book is a fascinating look at a period of American history that has received scant attention from the mainstream media, or worse, has been intentionally hidden and obscured. It offers a prescription for the ills that have been brought to us by so-called free trade – or in modern terms – Globalization. It documents that an economic policy centered on nationalistic interests – a dirigistic policy – is a tried and true system that is as American as apple pie.

How sadly ironic for us is it that China, by engaging in massive industrialization and internal infrastructure improvements over the past few decades, has in essence turned away from Mao’s communism and rather implemented the economic policy of the American System, partially as mediated through the MacArthur reforms in Japan and the Taiwan experience, and is now soundly trouncing us at what used to be our own game? It is high time to return to an economic system that has proven successful and beneficial to this country – not Ricardo’s monetarist British System, not the Austrian School, not Marx, not Malthus nor his follower Keynes, and not the Chicago School, but the American System.


References

1 Andrew Stewart. The American System: Speeches on the Tariff Question, and on Internal Improvements, principally delivered in the House of Representatives of the United States of America (Philadelphia: H.C. Baird, 1872) p.17.
3 Ibid. p.195.
5 Ibid. p.229.
6 Ibid. p.180.
7 Ibid. p.25.
8 Ibid. p.31.
9 Ibid. pp.18-19.
10 Ibid. p.19.
11 Ibid. p.178.
12 James B. Davies, Susanna Sandstrom, Anthony Shorrocks, and Edward N. Wolff. The World Distribution of Household Wealth. 5 December 2006.
13 Andrew Stewart. The American System: Speeches on the Tariff Question, and on Internal Improvements, principally delivered in the House of Representatives of the United States of America (Philadelphia: H.C. Baird, 1872) p.9.
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