American School (economics)

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See also American System (economic plan).
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The American School also known as "National System" in politics, policy and philosophy represents three different yet related things. Used in political rhetoric from 1824 to the present,[1] existing as actual American policy for many decades within that period waxing and waning in actual degrees and details of implementation,[2] and finally, according to Michael Lind, existing as a coherent applied economic philosophy with logical and conceptual relationships with other economic ideas.[3]

It is the macroeconomic philosophy that dominated United States national policies from the time of the American Civil War until the mid-twentieth century[4] (after mercantilism and prior to Keynesian economics, it can be seen as a modified type of classical economics). It consisted of these three core policies:

  1. protecting industry through selective high tariffs (especially 1861-1932) and some include through subsidies (especially 1932-1970)
  2. government investments in infrastructure creating targeted internal improvements (especially in transportation)
  3. a national bank with policies that promote the growth of productive enterprises.[5]

It differs from mercantilism in recognizing comparative advantage. It is a capitalist economic school based on the Hamiltonian economic program.[6] The American School of capitalism was intended to allow the United States to become economically independent and nationally self-sufficient and is distinct from the Free Market form of capitalism of Adam Smith, the internationalist Socialism of Karl Marx and the comprehensive Planned Economy associated with the Soviet Union.[7] The American School's key elements were promoted by John Q. Adams and his National Republican Party, Henry Clay and the Whig Party, and Abraham Lincoln through the early Republican Party which embraced, implemented, and maintained this economic system.[8] The American School has evolved into the mixed economy of today's America.

During its American System period the United States grew into the largest economy in the world with the highest standard of living, surpassing the British Empire by the 1880s.[9]

Contents

[edit] Policies

The American School includes three cardinal policy points:

  1. Support industry: The advocacy of protectionism, and opposition to free trade - particularly for the protection of "infant industries" and those facing import competition from abroad. Examples: Tariff of 1816 and Morrill Tariff
  2. Create physical infrastructure: Government finance of Internal improvements to speed commerce and develop industry. This involved the regulation of privately held infrastructure, to ensure that it meets the nation's needs. Examples: Cumberland Road and Union Pacific Railroad
  3. Create financial infrastructure: A government sponsored National Bank to issue currency and encourage commerce. This involved the use of sovereign powers for the regulation of credit to encourage the development of the economy, and to deter speculation. Examples: First Bank of the United States, Second Bank of the United States, and National Banking Act[10]

Henry C. Carey, a leading American economist and adviser to Abraham Lincoln, in his book Harmony of Interests displays two additional points of this American School economic philosophy that distinguishes it from the systems of Adam Smith or Karl Marx:

  1. Government support for the development of science and public education through a public 'common' school system and investments in creative research through grants and subsidies.
  2. Rejection of class struggle, in favor of the "Harmony of Interests" between: owners and workers, farmer and manufacturers, the wealthy class and the working class.[11]

[edit] Philosophy

A portrait of Alexander Hamilton by John Trumbull, 1792. Hamilton's ideas and three Reports to Congress formed the philosophical basis of the American School.
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A portrait of Alexander Hamilton by John Trumbull, 1792. Hamilton's ideas and three Reports to Congress formed the philosophical basis of the American School.

The American School of economics represented the legacy of Alexander Hamilton, who in his Report on Manufactures, argued that the U.S. could not become fully independent until it was self-sufficient in all necessary economic products. Hamilton rooted this economic system, in part, in the successive regimes of Colbert's France and Elizabeth I's England, while rejecting the harsher aspects of mercantilism, such as seeking colonies for markets. As later defined by Senator Henry Clay who became known as the Father of the American System because of his impassioned support thereof, the American System was to unify the nation north to south, east to west, and city to farmer.[12] A leading proponent and economist of the 19th Century, Henry Carey, called this a Harmony of Interests in his book by the same name, a harmony between labor and management, and as well a harmony between agriculture, manufacturing, and merchants.

The name, "American System," was coined by Clay to distinguish it, as a school of thought, from the competing theory of economics at the time, the "British System" represented by Adam Smith in his work Wealth of Nations.[13] In a passage from his book, The Harmony of Interests, Carey wrote concerning the difference between the American System and British System of economics:

"Two systems are before the world;...One looks to increasing the necessity of commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization. One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of ELEVATING while EQUALIZING the condition of man throughout the world."[14]

[edit] History

Senator Henry Clay leader of the Whig Party and advocate for the American System.
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Senator Henry Clay leader of the Whig Party and advocate for the American System.

The "American System" was the name given by Henry Clay in a speech before Congress advocating an economic program based on the economic philosophy derived from Alexander Hamilton's economic theories (see Report on Manufactures, Report on Public Credit I and II). Clay's policies called for a high tariff to support internal improvements such as road-building, and a national bank to encourage productive enterprise and to form a national currency as Hamilton had advocated as Secretary of the Treasury.

"Clay first used the term “American System” in 1824, although he had been working for its specifics for many years previously. Portions of the American System were enacted by Congress. The Second Bank of the United States was rechartered in 1816 for 20 years. High tariffs were maintained from the days of Hamilton until 1832. However, the national system of internal improvements was never adequately funded; the failure to do so was due in part to sectional jealousies and constitutional scruples about such expenditures."[15]

Clay's plan became the leading tenet of the National Republican Party of John Quincy Adams and the Whig Party of himself and Daniel Webster.

The American System was supported by New England and the Mid-Atlantic, which had a large manufacturing base. It protected their new factories from foreign competition.

The South opposed the American System because its plantation owners were heavily reliant on production of cotton for export, and the American System produced lower demand for their cotton and created higher costs for manufactured goods. After 1828 the United States kept tariffs low until the election of Abraham Lincoln in 1861.

[edit] Implementation

According to a biography of Vice-President Calhoun, he said in 1837: "The station, from its leisure, gave me a good opportunity to study the genius of the prominent measure of the day, called then the American system, by which I profited." The biography continues: "Mr. Clay's American system, to which Mr. Calhoun referred, was in full success. The bank, the protective policy, the internal improvement system, and the "general welfare" rule for constitutional construction, composed this celebrated policy. [...] An extra session of congress was called in the summer of 1841 [for] the restoration of his American system [...] When the tariff question came up again in 1842, the compromise of 1833 was rudely overthrown, and the protective system placed in the ascendent. [...] The hostility of President Tyler to the American system made its restoration during his administration only partial."[16]

Due to the dominance of the then Democratic Party of Van Buren, Polk, and Buchanan the American School was not embraced as the economic philosophy of the United States until the election of Abraham Lincoln in 1860, who with a series of laws during the American Civil War was able to fully implement what Hamilton, Clay, List, and Carey theorized, wrote about, and advocated.

President Lincoln an "Old Henry Clay tariff Whig" by his own definition, enacted much of the American School's core policies into law during his tenure as President 1861-1865.
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President Lincoln an "Old Henry Clay tariff Whig" by his own definition, enacted much of the American School's core policies into law during his tenure as President 1861-1865.

According to an article at US-History.com: "As soon as Lincoln took office, the old Whig coalition finally controlled the entire government. It immediately tripled the average tariff, began to subsidize the construction of a transcontinental railroad in California even though a desperate war was being waged, and on February 25, 1862, the Legal Tender Act empowered the secretary of the treasury to issue paper money ('greenbacks') that were not immediately redeemable in gold or silver."[17]

The Republican Party Platform, supporting the American School policies stated:

  • On a Protective Tariff - 1860 Platform
    • "12. That, while providing revenue for the support of the general government by duties upon imports, sound policy requires such an adjustment of these imports as to encourage the development of the industrial interests of the whole country; and we commend that policy of national exchanges, which secures to the workingmen liberal wages, to agriculture remunerative prices, to mechanics and manufacturers an adequate reward for their skill, labor, and enterprise, and to the nation commercial prosperity and independence."[18]
  • On Internal Improvements - 1856 Platform
    • "Resolved, That a railroad to the Pacific Ocean by the most central and practicable route is imperatively demanded by the interests of the whole country, and that the Federal Government ought to render immediate and efficient aid in its construction, and as an auxiliary thereto, to the immediate construction of an emigrant road on the line of the railroad. Resolved, That appropriations by Congress for the improvement of rivers and harbors, of a national character, required for the accommodation and security of our existing commerce, are authorized by the Constitution, and justified by the obligation of the Government to protect the lives and property of its citizens."[19]

In power and without southern opposition, the Republican Party was able to move quickly upon its promised platform planks, rooted in the American School policies of national banking, tariff protection, and internal improvements. In 1861, prior to Lincoln's inauguration, the Morrill Tariff was passed at a rate of 37.5% and then raised during the war to a rate near 48%. In 1862 they successfully passed the Pacific Railways Act, initiating the building of the Union-Pacific Railroad across the continental United States.[20] In 1862 the Legal Tender Act was passed, allowing issuance of paper money, followed by the National Banking Act of 1863 which established the final piece of a three part economic philosophy which Henry Clay termed the American System.[21]

The United States continued these policies throughout the later half of the 19th century. President William McKinley (1896-1901) stated at the time:

"[They say] if you had not had the Protective Tariff things would be a little cheaper. Well, whether a thing is cheap or dear depends upon what we can earn by our daily labor. Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer. Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man.
"[It is said] that protection is immoral.... Why, if protection builds up and elevates 63,000,000 [the U.S. population] of people, the influence of those 63,000,000 of people elevates the rest of the world. We cannot take a step in the pathway of progress without benefitting mankind everywhere. Well, they say, `Buy where you can buy the cheapest'.... Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: `Buy where you can pay the easiest.' And that spot of earth is where labor wins its highest rewards."[22]

The American System was important in the election politics for and against Grover Cleveland.[23]

[edit] Evolution

As the United States entered the 20th century, the "American School" was the policy of America. At some point American policy was instead called Keynesian economics[citation needed] which also promotes a type of mixed economy. Instead of the economic process being based on continuous improvements in potential output, as most classical economists had believed from the late 1700s on, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy, especially in periods of downturn. Towards the end of the 20th century Free Market policies were increasingly adopted; justified by arguments from the Classical, Supply-side, and Austrian schools of economic thought. Monetarism strongly limits American Free Market policies and can be seen as a continuation of the third core policy (financial infrastructure) of the "American School" as it necessitates a central banking system used for political/economic objectives.

The "American School" became known by other names, which include: "American Policy", "Economic nationalism", "National System",[24] "Protective System", "Protection Policy",[25] and "Protectionism", which alludes only to the 'tariff policy' of this system of economics.[26]

In 1913 the administration of Woodrow Wilson pressed forward with his New Freedom policy that replaced the National Bank System with the Federal Reserve System, and lowered tariffs to revenue only levels with the Underwood Tariff.

The election of Warren G. Harding and the Republican Party in 1920 represented a partial return to the American School through restoration of high tariffs, although a shift away from productive investments into speculation by the Federal Reserve System continued. This speculation lead to the Stock Market Crash on Black Friday in October of 1929. President Herbert Hoover responded to this crash and the subsequent bank failures and unemployment by signing the Smoot-Hawley Tariff, which some economists considered to have deepened the Great Depression, while others disagree.[27]

The New Deal continued infrastructure improvements through the numerous public works projects of the Works Progress Administration (WPA) as well as the creation of the Tennessee Valley Authority (TVA); brought massive reform to the banking system of the Federal Reserve while investing in various ways in industry to stimulate production and control speculation; but abandoned protective tariffs while embracing moderate tariff protection (revenue based 20-30% the normal tariff under this) through reciprocity, choosing to subsidized industry as a replacement.[28]

Much of Roosevelt's "New Deal" remained in place during the Truman, Eisenhower, Kennedy, and Johnson administrations. America remained dominant in industrial strength during this era with little competition for her industries and with moderate protection offered through subsidy and revenue tariffs under reciprocity arrangements.[29]

In 1973 when the "Kennedy" Round concluded under President Richard Nixon which cut U.S. tariffs to all time lows, the New Deal orientation towards reciprocity and subsidy ended, which moved the United States in a Free Market direction. The semi-privatization of the U.S. Post Office is an example of continued movement in the Free Market direction.

The administrations of Ford and Carter continued these policies. Privatization and "contracting out" continued on through Reagan, Bush, Clinton, and Bush together with a continuing march toward free-trade liberalization through the North American Free Trade Agreement (NAFTA) and CAFTA.[30]

[edit] Legacy

The key elements of the American School are debated in American politics today.

The American School's reliance on protecting and promoting industry through tariffs or subsidies has gained renewed interest since Ross Perot's run for the Presidency in 1992 and the passage of NAFTA in 1993. Among those adovocating "fair trade" reform in various forms are:

Indicating renewed interest for internal improvements to infrastructure, in a March 8, 2006 article at senate.gov titled Senators Voinovich, Carper and Clinton Introduce Infrastructure Improvement Bill Sen. Clinton stated:

"Our nation’s economic strength throughout history has been inexorably linked to the investments made in our public infrastructure. From the Transcontinental Railroad to the National Highway System, the public sector's investments in our roads, our waterways, our railways and our aviation systems have defined the bedrock strengths of the American economy and its people."[35]

There has also been increasingly bipartisan collaboration in the U.S. Senate to revive a national commitment to manufacturing. On June 14, 2005, Senators Lindsey Graham (R-SC) and Hillary Clinton (D-NY) formed the Senate Manufacturing Caucus to address this concern.[36]

[edit] Analysis

The "American System" was a term coined by Henry Clay to describe an economic plan, rooted in American School principles, that he proposed in 1824 in speech before Congress. The term became synomonous with other phrases such as "National System" and "Protective System" as it was used over the course of time. As a political expression, this term, although used by the Republican Party in 1932 to describe their economic policies (especially the protective tariff), fell out of disfavor at somepoint in the early 20th century.

The term "American System" has been a political campaign slogan used by politicians from Clay's day to today; it is the less common name together with "National System" for the "American School" of the national economic policy of the United States from the American Civil War until sometime in the twentieth century; and it is by definition an economic school of thought with ideas related to other economic schools of thought.

[edit] Political campaigns and rhetoric

An example of political rhetoric against the "American System" during Clay's time:

The Monkey System or Every One For Himself Henry Clay says "Walk in and see the new improved original grand American System!" The cages are labeled: "Home, Consumption, Internal, Improv". This 1831 cartoon ridiculing Clay's American System depicts monkeys, labeled as being different parts of a nation's economy, stealing each other's resources (food) with commentators describing it as either great or a humbug.
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The Monkey System or Every One For Himself Henry Clay says "Walk in and see the new improved original grand American System!" The cages are labeled: "Home, Consumption, Internal, Improv". This 1831 cartoon ridiculing Clay's American System depicts monkeys, labeled as being different parts of a nation's economy, stealing each other's resources (food) with commentators describing it as either great or a humbug.

An example of political rhetoric for the "American System" during Clay's time:

"While in Congress, it will be seen that Mr. Stewart served on several of the most important committees, among them as Chairman of the Committee on the Tariff, and the Committee of Internal Improvements, constituting together, what was well called by Mr. Clay, "The American System "-in the advocacy of which, Mr. Stewart commenced and ended his political life. This system, he always contended, lay at the foundation of the national prosperity-the one protecting the national industry, and the other developing the national resources. He called it the "political thermometer," which always had and always would indicate the rise and fall of the national prosperity. In concluding one of his speeches, he put this whole matter in a nutshell when he said: The true American policy is this:

  • 1st. Protect and cherish your national 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 piotection, 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."[37]

[edit] National economic policy

According to historian Michael Lind

"Many things that educated people in the English-speaking world think that they know about economic history are, in fact, false. It is not true that there was a golden age of free trade ended by America's adoption of the much-reviled Smoot-Hawley tariff in 1930; a tariff which is unfairly blamed for the rise of fascism and the second world war-phenomena which originated, respectively, in the cultural trauma of the first world war and the geopolitical ambitions of Germany, Japan and Italy, rather than the depression. The school of thought in economic policy with the greatest global influence between the 1800s and the mid-20th century was not the laissez-faire "English School" of Adam Smith and David Ricardo but the rival school of economic nationalism, which is more accurately labelled as "strategic economics" because its prescriptions have been followed successfully by empires, trading blocs and city-states as well as nation states. In the US in the 1790s, the brilliant first secretary of the treasury, Alexander Hamilton, laid out a programme for the industrialisation of the country by means of infant-industry protection and other policies. Hamilton's programme was developed in the next generation by Henry Clay, under the name of "the American System," and implemented under Clay's disciple and admirer Abraham Lincoln and his successors during the period between the 1860s and the 1940s, when the US became the planet's leading manufacturing economy behind a high wall of tariffs. The lessons of the "American school" of "national economy," transmitted to Germany by Friedrich List, formed the basis of state-sponsored industrialisation in Wilhelmine Germany. Moreover, during a visit to Germany in the 1870s, Toshimichi Okubo, one of the leaders of the Meiji Restoration, became acquainted with the Hamilton-List tradition. Returning to Japan, Okubo founded the ministry of home affairs, which promoted Japanese industry, and in 1874 issued an equivalent of Hamilton's 1791 Report on Manufactures, in the form of his influential Proposal for Industrial Promotion. By the early 20th century, then, the US, Germany and Japan had successfully used strategic economics to catch up with Britain and (in the case of the first two nations) to surpass it. Even Britain's dominions of Australia and Canada, emulating American and German practice rather than British theory, insisted on the right to use tariffs to keep out goods from Britain and establish their own industrial base. Not that Britain had any right to complain. From the Tudors until the early 19th century, Britain used various protectionist devices to promote its own industries. The 18th-century prime minister Robert Walpole, remembered chiefly today as a corrupt politician pilloried by Alexander Pope, turns out, according to Chang, to have been an industrial-policy mastermind who inspired Alexander Hamilton. Only when Britain's industrial supremacy was secure did the British begin to promote free trade, in the hope of wiping out competitive industries in the US, continental Europe and elsewhere. Following the Napoleonic wars, which stimulated the growth of American manufacturing by suspending transatlantic trade, Lord Henry Brougham in 1816 told parliament: "It is well worthwhile to incur a loss upon the first exportation, in order by the glut, to stifle in the cradle, those rising manufactures, in the US, which the war had forced into existence, contrary to the natural course of things." The "natural course of things," according to British politicians and British theorists of free trade, required the US to supply Britain with agricultural goods and raw materials and to import, rather than make, all of its machinery and manufactured goods. John Adams wrote in 1819: "I am old enough to remember the war of 1745, and its end; the war of 1755, and its close; the war of 1775, and its termination; the war of 1812, and its pacification...The British manufacturers, immediately after the peace, disgorged upon us all their stores of merchandise and manufactures, not only without profit, but at certain loss for a time, with the express purpose of annihilating all our manufacturers, and ruining all our manufactories." In India and Ireland, the British imperial authorities actually outlawed the native textile industries. Like Britain, the US protected and subsidised its industries while it was a developing country, switching to free trade only in 1945, when most of its industrial competitors had been wiped out by the second world war and the US enjoyed a virtual monopoly in many manufacturing sectors. The revival of Europe and Japan by the 1970s eliminated these monopoly profits, and the support for free trade of industrial-state voters in the American midwest and northeast declined. Today, support for free-trade globalism in the US comes chiefly from the commodity-exporting south and west and from US multinationals which have moved their factories to low-wage countries like Mexico and China. Like 19th-century Britain, 21st-century America tells countries that are trying to catch up: do what we say, not what we did."[38]

[edit] Economic schools of thought and ideas

Macroeconomic is the economics sub-field of study that considers aggregate behavior, and the study of the sum of individual economic decisions. This is in contrast to microeconomics, the study of the economic behavior of individual consumers, firms, and industries. Macroeconomics can be used to analyze how best to influence government policy goals. The American School is a macroeconomics policy and school of thought.

Mercantilism is the economic theory holding that the prosperity of a nation depends upon its supply of capital, and that the global volume of trade is "unchangeable." The amount of capital, represented by bullion (amount of precious metal) held by the state, is best increased through a positive balance of trade with other nations, with large exports and low imports. Mercantilism suggests that the ruling government should advance these goals by playing a protectionist role in the economy, by encouraging exports and discouraging imports, especially through the use of tariffs. The economic policy based upon these ideas is often called the mercantile system. This system and school of thought existed prior to the American School and Classical economics.

Classical economics is a school of economic thought whose major developers include William Petty, Adam Smith, David Ricardo, Thomas Malthus, John Stuart Mill and Johann Heinrich von Thünen. It is seen by many as the first modern school of economic thought. Some authors, such as John Maynard Keynes expand the definition of classical economics to include Karl Marx. Classical economists attempted to explain growth and development. They produced their "magnificent dynamics" during a period in which capitalism was emerging from a past feudal society and in which the industrial revolution was leading to vast changes in society. These changes also raised the question of how a society could be organized around a system in which every individual sought his or her own (monetary) gain. Why would such a society not collapse in chaos? Classical economists reoriented economics away from an analysis of the ruler's personal interests to a class-based interest. Physiocrat Francois Quesnay and Adam Smith, for example, identified the wealth of a nation with the yearly national income, instead of the king's treasury. Smith saw this income as produced by labor applied to land and capital equipment. Once land and capital equipment are appropriated by individuals, the national income is divided up between laborers, landlords, and capitalists in the form of wages, rent, and profits. The American School can be seen as a modified type of classical economics; specifically modified to serve the specific politial needs and desires of an industrially backward America.

Keynesian economics is an economic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics promotes a mixed economy, where both the state and the private sector play an important role. The rise of Keynesianism marked the end of laissez-faire economics (economic theory based on the belief that markets and the private sector could operate well on their own, without state intervention). In Keynes's theory, general (macro-level) trends can overwhelm the micro-level behavior of individuals. Instead of the economic process being based on continuous improvements in potential output, as most classical economists had believed from the late 1700s on, Keynes asserted the importance of aggregate demand for goods as the driving factor of the economy, especially in periods of downturn. From this he argued that government policies could be used to promote demand at a macro level, to fight high unemployment and deflation of the sort seen during the 1930s. A central conclusion of Keynesian economics is that there is no strong automatic tendency for output and employment to move toward full employment levels. This, Keynes thought, conflicts with the tenets of classical economics, and those schools, such as supply-side economics or the Austrian School, which assume a general tendency towards equilibrium in a restrained money creation economy. In neoclassical economics, which combines Keynesian macro concepts with a micro foundation, the conditions of General equilibrium allow for price adjustment to achieve this goal. More broadly, Keynes saw this as a general theory, in which resource utilization could be high or low, whereas previous economics focused on the particular case of full utilization. The acceptance of Keynesian economics completes the change in American policy from one appropriate to an economic and technological underdog on the world stage to the foremost leader in finance, military, technology and industry. The change in policy with regard to the American System reflected not a change in beliefs or values but a change in America's position in the world and thus the best policies for serving America's interests.[39]

A Mixed economy is an economy that contains both private and public, or state owned (or controlled) enterprises so by definition the American School is a mixed system, as perhaps are all actual systems.

Free Market is a market where price is determined by the unregulated interchange of supply and demand. This is in contrast to a controlled market where supply, demand, and price are set "artificially" by government.[40] According to a more philosophical definition, a free market is a market where trades are morally voluntary and therefore free from the interference of force and fraud.[41] Associated with the ideal of a free market is the laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Hence, with government force limited to a defensive role, government itself does not initiate force in the marketplace and the free market is preserved. In political economics, the free market economy is simply the conceptual opposite of a command economy, where decisions regarding production, distribution, and pricing are a matter of governmental control. Or, in other words, a free market economy is "an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions."[42] In social philosophy, a free market economy is a system for allocating goods within a society: supply and demand within the market determine who gets what, and what is produced. Early proponents of a free-market economy in 18th-century Europe contrasted it with the mediaeval, early-modern, and mercantilist economies which preceded it.

Supply-side economics is a school of macroeconomic thought which emphasizes the "supply" part of "supply and demand." The central concept of supply-side economics is Say's Law: "supply creates its own demand," or the idea that one must produce before one has the means to buy. In evaluating public policy, supply-side economics is more concerned with the extent to which a reform will change producer incentives, rather than how it may stimulate demand. This emphasis represents a fundamental difference between classical, supply-side economics and Keynesian or demand side economics.

Austrian School is generally associated with groups that label themselves laissez-faire liberal or libertarian in their ideas of social, political and economic organization. It opposes the American School economic school of thought.

Monetarism is a set of views concerning the determination of national income and monetary economics that advocates a central bank policy (one of the three key American School policies) aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand.

[edit] See also

Important early economists
Key concepts and articles

[edit] Further reading

[edit] Modern books

  • Batra, Ravi, Dr., The Myth of Free Trade: The pooring of America (1993)
  • Boritt, Gabor S. Lincoln and the Economics of the American Dream (1994)
  • Buchanan, Patrick J., The Great Betrayal (1998)
  • Curry, Leonard P. Blueprint for Modern America: Nonmilitary Legislation of the First Civil War Congress (1968)
  • Croly, Herbert, The Promise of American Life (2005-reprint)
  • Dobbs, Lou Exporting America: Why Corporate Greed is Shipping American Jobs Overseas (2004)
  • Joseph Dorfman. The Economic Mind in American Civilization, 1606-1865 (1947) 2 vol
  • Joseph Dorfman. The Economic Mind in American Civilization, 1865-1918 (1949) vol 3
  • Foner, Eric. Free Soil, Free Labor, Free Men: The Ideology of the Republican Party before the Civil War (1970)
  • Faux, Jeff. The Global Class War (2006)
  • Gardner, Stephen H. Comparative Economic Systems (1988)
  • Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
  • Carter Goodrich, Government Promotion of American Canals and Railroads, 1800-1890 (Greenwood Press, 1960)
    • Goodrich, Carter. "American Development Policy: the Case of Internal Improvements," Journal of Economic History, 16 ( 1956), 449-60. in JSTOR
    • Goodrich, Carter. "National Planning of Internal Improvements," ;;Political Science Quarterly, 63 ( 1948), 16-44. in JSTOR
  • Richard Hofstadter, "The Tariff Issue on the Eve of the Civil War," American Historical Review, 64 (October 1938): 50-55, shows Northern business had little interest in tariff in 1860, except for Pennsylvania which demanded high tariff on iron products
  • Jenks, Leland Hamilton. "Railroads as a Force in American Development," Journal of Economic History, 4 (1944), 1-20. in JSTOR
  • John Lauritz Larson. Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (2001)
  • Lively, Robert A. "The American System, a Review Article," Business History Review, XXIX (March, 1955), 81-96. recommended starting point
  • Lauchtenburg, William E. Franklin D. Roosevelt and the New Deal 1932-1940 (1963)
  • Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
  • Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
  • Paludan, Philip S. The Presidency of Abraham Lincoln (1994)
  • Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)
  • Remini, Robert V. Henry Clay: Statesman for the Union. New York: W. W. Norton Co., 1991
  • Roosevelt, Theodore. The New Nationalism (1961-reprint)
  • Richardson, Heather Cox. The Greatest Nation of the Earth: Republican Economic Policies during the Civil War (1997)
  • Edward Stanwood, American Tariff Controversies in the Nineteenth Century (1903; reprint 1974), 2 vols., favors protectionism

[edit] Older books

  1. W. Cunningham, The Rise and Decline of the Free Trade Movement (London, 1904)
  2. G. B. Curtiss, Protection and Prosperity: an ; W. H. Dawson, Protection in Germany (London, 1904
  3. Alexander Hamilton, Report on the Subject of Manufactures, communicated to the House of Representatives, 5th December 1791
  4. F. Bowen, American Political Economy (New York, 1875)
  5. J. B. Byles, Sophisms of Free Trade (London, 1903); G. Byng, Protection (London, 1901)
  6. H. C. Carey, Principles of Social Science (3 vols., Philadelphia, 1858-1859), Harmony of Interests Agricultural, Manufacturing and Commercial (Philadelphia, 1873)
  7. H. M. Hoyt, Protection v. Free Trade, the scientific validity and economic operation of defensive duties in the United States (New York, 1886)
  8. Friedrich List, Outlines of American Political Economy (1980-reprint)
  9. Friedrich List, National System of Political Economy (1994-reprint)
  10. A. M. Low, Protection in the United States (London, 1904); H. 0. Meredith, Protection in France (London, 1904)
  11. S. N. Patten, Economic Basis of Protection (Philadelphia, 1890)
  12. Ugo Rabbeno, American Commercial Policy (London, 1895)
  13. Ellis H. Roberts, Government Revenue, especially the American System, an argument for industrial freedom against the fallacies of free trade (Boston, 1884)
  14. R. E. Thompson, Protection to Home Industries (New York, 1886)
  15. E. E. Williams, The Case for Protection (London, 1899)
  16. J. P. Young, Protection and Progress: a Study of the Economic Bases of the A merican Protective System (Chicago, 1900)
  17. Clay, Henry. The Papers of Henry Clay, 1797-1852. Edited by James Hopkins

[edit] External links

[edit] Sources and notes

  1. ^ U-S-History.com [1] [2]
  2. ^ [3]
  3. ^ [4]
  4. ^ U-S-History.com [5] cornell.edu UShistory.org presidency.ucsb.edu presidency.ucsb.edu ourdocuments.gov SCU.edu cornell.edu Page 180 of Scribner's Magazine Volume 18 #1 (January-June 1896); article "A History of the Last Quarter-Century" (which begins on page 175) by E. Benjamin Andrews
  5. ^
    • Lind, Michael: "Lincoln and his successors in the Republican party of 1865-1932, by presoding over the industrialization of the United State, foreclosed the option that the United States would remain a rural society with an agrarian economy, as so many Jeffersonians had hoped." and "...Hamiltonian side...the Federalists; the National Republicans; the Whigs, the Republicans; the Progressives." (from "Hamilton's Republic" Introduction pages xiv-xv - published 1997 by Free Press, Simon & Schuster division in the USA - ISBN 0-684-83160-0)
    • Lind, Michael: "During the nineteenth century the dominant school of American political economy was the "American School" of developmental economic nationalism...The patron saint of the American School was Alexander Hamilton, whose Report on Manufactures (1791) had called for federal government activism in sponsoring infrastructure development and industrialization behind tariff walls that would keep out British manufactured goods...The American School, elaborated in the nineteenth century by economists like Henry Carey (who advised President Lincoln), inspired the "American System" of Henry Clay and the protectionist import-substitution policies of Lincoln and his successors in the Republican party well into the twentieth century." (from "Hamilton's Republic" Part III "The American School of National Economy" pg. 229-230 published 1997 by Free Press, Simon & Schuster division in the USA - ISBN 0-684-83160-0)
    • Richardson, Heather Cox: "By 1865, the Republicans had developed a series of high tariffs and taxes that reflected the economic theories of Carey and Wayland and were designed to strengthen and benefit all parts of the American economy, raising the standard of living for everyone. As a Republican concluded..."Congress must shape its legislation as to incidentally aid all branches of industry, render the people prosperous, and enable them to pay taxes...for ordinary expenses of Government." (from "The Greatest Nation of the Earth" Chapter 4 titled "Directing the Legislation of the Country to the Improvement of the Country: Tariff and Tax Legislation" pg. 136-137 published 1997 by the President and Fellows of Harvard College in the USA - ISBN 0-674-36213-6)
    • Boritt, Gabor S: "Lincoln thus had the pleasure of signing into law much of the program he had worked for through the better part of his political life. And this, as Leornard P. Curry, the historian of the legislation has aptly written, amounted to a "blueprint for modern America." and "The man Lincoln selected for the sensitive position of Secretary of the Treasury, Salmon P. Chase, was an ex-Democrat, but of the moderate cariety on economics, one whom Joseph Dorfman could even describe as 'a good Hamiltonian, and a western progressive of the Lincoln stamp in everything from a tariff to a national bank.'" (from "Lincoln and the Economics of the American Dream" Chapter 14 titled "The Whig in the White House" pages 196-197 published 1994 by Memphis State University Press in the USA - ISBN 0-87880-043-9)
  6. ^ hmco.org
  7. ^ cvoice.org
  8. ^ cornell.edu
  9. ^ "By 1880 the United States of America had overtaken and surpassed England as industrial leader of the world." from "Trade Wars Against America: A History of United States Trade and Monetary Policy" by Gill, William J. - Chapter 6 titled "America becomes Number 1" pages 39-49 - published 1990 by Praeger Publishers in the USA - ISBN 0-275-93316-4)
  10. ^ hmco.com
  11. ^ Henry C. Carey in his book Harmony of Interests
  12. ^ cornell.edu
  13. ^ cornell.edu
  14. ^ Henry C. Carey's book Harmony of Interests
  15. ^ U-S-History.com
  16. ^ [6]
  17. ^ UShistory.org
  18. ^ presidency.ucsb.edu
  19. ^ presidency.ucsb.edu
  20. ^ ourdocuments.gov
  21. ^ SCU.edu
  22. ^ William McKinley speech, Oct. 4, 1892 in Boston, MA William McKinley Papers (Library of Congress)
  23. ^ cornell.edu Page 180 of Scribner's Magazine Volume 18 #1 (January-June 1896); article "A History of the Last Quarter-Century" (which begins on page 175) by E. Benjamin Andrews
  24. ^ econlib.org
  25. ^ cornell.edu
  26. ^ cornell.edu,cornell.edu,cornell.edu,cornell.edu,cornell.edu
  27. ^
    • Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
  28. ^
    • Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
  29. ^
    • Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
    • Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
  30. ^
    • Gill, William J. Trade Wars Against America: A History of United States Trade and Monetary Policy (1990)
    • Lind, Michael Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
    • Lind, Michael What Lincoln Believed: The Values and Convictions of America's Greatest President (2004)
  31. ^ Provide a balanced, tailored trade program that: Promotes the economic interests and welfare of all our citizens, Safeguards domestic production of vital military resources and equipment, Ensures entry of goods which comply with our environmental and product safety standards, Provides markets for our domestic small businesses, Eliminates the large trade deficits that have made us the world's largest debtor nation. Countries conducting unfair trade practices must be required to provide compensating benefits to the U.S. on the import of their products, Withdraws from the WTO and develop tailored trade agreements with other nations according to the practices and performance of those countries, Nullifies the incentive to relocate manufacturing to low wage regions of the world wherein the market for goods produced is the U.S. consumer, Maintains the ability to manufacture or stockpile all products and materials vital to our national security, Advocates a "Buy America" policy that patronizes American made goods, Articles should carry the label "Made in the U.S.A." only when they meet strict requirements for materials, content, processing, assembly and packaging. All imported products, including food, should be required to bear a label stating Country of Origin, Safeguards American employment and labor standards and uphold our ban on the import of the products of child and slave labor, We believe workers should be encouraged to organize and practice collective bargaining. We oppose the efforts to relocate American jobs offshore. We stand for the promotion of higher wage jobs for American workers. Reform Party Platform: Trade Policy
  32. ^ Pat Choate,Dr. Ravi Batra's book "The Myth of Free Trade" quotes for sourcing: "Unlike most of its trading partners, real wages in the United States have been tumbling since 1973, the first year of the country's switch to laissez-faire." (pg 126-127) - "Before 1973, the US economy was more or less closed and self-reliant, so that efficiency gains in industry generated only a modest price fall, and real earnings soared for all Americans." (pg. 66-67) - "Moreover, it turns out that 1973 was the first year in its entire history when the United States became an open economy with free trade." (pg. 39) - "Throughout its history, at least until 1970, America was practically a closed economy." (pg. 37), Dr. Ravi Batra of SMU bio page, Ravi Batra book page, Interview with Dr. Ravi Batra, William J. Gill's book "Trade Wars Against America" source material: "By 1880 the United States of America had overtaken and surpassed England as industrial leader of the world. Indeed, England, which had stubbornly persisted in its free trade policy, instituted in the 1830's, was now in third place...The rise of America dazzled the world." (pg 39.) - "I suggest you visit Youngstown or Cleveland, the industrial suburbs of Chicago, or the ghost towns up and down the Mongahela River thst feeds the Ohio at Pittsburgh, formely the industrial heart of America, and once the world's redoubtable "Arsenal of Democracy." (Gill pg. ix), "William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council." and "Mr. Hawkins is the author of two monographs: "Importing Revolution: Open Borders and the Radical Agenda" (American Immigration Control Foundation, 1994), and "America's Economic Preeminence: Goals for the 1990s" (with Anthony Harrigan, USBIC, 1989). He has also contributed chapters to six other books including "Selected Readings in Military History" (U.S. Military Academy, 1993); "America Asleep: The Free Trade Syndrome and the Global Economic Challenge" (USBIC, 1991); "Peace Betrayed? Essays on Pacifism and Politics" (Ethics and Public Policy Center, 1990); and "The New Federalist Papers" (Claremont Institute, 1989). - During the past 20 years, Mr Hawkins has published over 140 articles, including pieces in The Naval War College Review", Hawkins bio, Hawkins writing on issues., Hawkins information from Jamestown.org
  33. ^ "The U.S. Business and Industry Council, founded in 1933, is a national organization of business owners and executives dedicated to preserving the manufacturing, processing, and fabricating industries as integral parts of the American economy." About US Business and Industry Council, "The mission of the American Manufacturing Trade Action Coalition (AMTAC) is to preserve and create American manufacturing jobs through the establishment of trade policy and other measures necessary for the U.S. manufacturing sector to stabilize and grow." Auggie Tantillo and the American Manufacturing Trade Action Coalition
  34. ^ Lou Dobbs bio, Lou Dobbs on Fair trade, Michael Lind bio, "Countdown to a Meltdown" article by Fallows, James Fallows bio wrote "What is an Economy for?" for Atlantic
  35. ^ senate.gov
  36. ^ "For generations, our manufacturing sector has been the backbone of the American economy,” said Senator Clinton in announcing the caucus. “Manufacturing jobs built our great middle class and allowed millions of families to live the American dream and create a better life for their children. That bedrock strength is being eroded and we cannot afford as a country to sit back while our manufacturing capability slips away. We need a strong manufacturing base for our economy to grow and we need to invest in creating the manufacturing jobs of the future. This caucus will lead efforts on Capitol Hill to help address these challenges."nema.org
  37. ^ [7][8]
  38. ^ [9]
  39. ^ [10]
  40. ^ Dictionary of Finance and Investment Terms. Barrons, 1995 - "market in which price is determined by the free, unregulated interchange of supply and demand. The opposite is a controlled market, where supply, demand, and price are artificially set, resulting in an inefficient market."
  41. ^ Foldvary, Fred E.. Has Deregulation Failed?, The Progress Report, 2002.
  42. ^ Free-Market Economy, Microsoft® Encarta® Online Encyclopedia 2006
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