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Henry Clay and the American System

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  • 0:00 What Is the American System?
  • 0:40 The American System at Work
  • 3:26 Drawbacks of the System
  • 4:44 Lesson Summary
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Lesson Transcript
Instructor: Adam Richards

Adam has a master's degree in history.

Henry Clay's development of the American System represented the nationalist sentiment that swept the nation following the War of 1812. Learn about the economic system and its impact on the United States.

What is the American System?

The American System, as it came to be known, was the first great economic model introduced to the United States in the first half of the 19th Century. In 1816, Congressman Henry Clay, with the support of the Democratic-Republican Party, crafted the economic paragon to resemble that of Alexander Hamilton's American School of Economic Philosophy.

In the simplest terms, the goal of the American System was to assist the United States in becoming self-sufficient economically, while spurring massive market growth throughout the nation. Most hoped that this growth would eliminate regional boundaries and draw the country together.

The American System at Work

The American System was comprised of three elements: establishing protective tariffs, creating a national bank, and investing in internal growth that would create new roads, waterways, and other means of transportation. Let's take a look at each aspect of the American System in more depth.

Protective Tariffs

First, let's look at protective tariffs. After the War of 1812, relations between Britain and the United States remained unstable - so much so that a war over the Oregon boundary became a possibility in the 1840s. The instability between the two nations led to an unreliable movement of consumer goods both in and out of the United States. Congress, therefore, decided to foster domestic manufacturing over importing goods from nations like Britain.

In 1816, Congress passed the first of many protective tariffs, the Tariff of 1816. These tariffs were meant to ensure that newly developing industries survived. The tariffs taxed imported goods at a remarkable 25% rate. While the goal helped to nurture industry, American consumers felt the brunt of the tariffs when the cost of their goods drastically increased. Next, let's discuss the forming of a national bank.

National Bank

Establishing a national bank was another major arm of the American System. Clay and many of the Democratic-Republicans supported the notion of a centralized banking system over a state financial systems without any oversight. In 1816, Congress decided to support and charter the Second Bank of the United States. Power was given to the Bank to establish regional financial offices and generate a national currency. Additionally, the federal government approved the transfer of federal money into the Bank, as well as allowed the Bank to make payments for federal transactions.

The Second Bank of the United States proved to be an incredible creation. Currency was centralized, national script was administered and states were required to back their supplied currency with gold. Additionally, trade became much easier due to all of the federal government's transactions being filtered through one entity instead of several private organizations.

Infrastructure Investment

Finally, let's discuss infrastructure investment. Transportation infrastructure was the major winner via the American System. Needless to say, travel within the United States prior to 1816 was treacherous and time consuming. The nation needed new transportation routes that improved time efficiency and were cost conscious.

Improvements such as the Cumberland (National) Road (linking the Potomac River with the Ohio River), the Lancaster Turnpike, the Erie Canal and the arrival of the steamboat (due to the First Industrial Revolution) transformed the United States' ability to move both people and goods. Both transportation time and costs were greatly reduced, and new development along these transportation routes became possible.

Drawbacks of the System

There were a number of drawbacks regarding the American System and its effectiveness throughout the 19th Century. The first was the constitutionality of the model. Many questioned whether the federal government had the right to centralize certain entities, such as the national bank, without some sort of checks-and-balance system.

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