The American System and Whig Political Economy

By Michael F. Holt, Ph.D.

Championed by Henry Clay, Lincoln's model statesman, even before Clay helped found the Whig party, the American System was a program of national legislation aimed at developing the economies of the nation's different regions and integrating them together in order to strengthen national unity. It was meant, in short, as a nationalistic antidote to the sectional antagonism ignited by the Missouri crisis of 1819-21. The program advocated that Congress pass protective tariffs to foster the growth of manufacturing in the Northeast, whose firms and workers could then be a market for western foodstuffs and southern cotton; a national bank to provide an ample and uniform citculating currency throughout the country; and federal subsidies for internal improvement projects like the clearing of rivers and the construction of roads and canals to facilitate the movement of goods among different parts of the nation. By the early 1830s Clay was advocating an important variation on this last goal: the distribution of federal land revenues to the states so that state governments could subsidize internal improvement projects.

The Whig party embraced the American System as their model for national economic legislation, but they also wanted activist state governments that would improve people's lives economically and morally, that would charter banks and other corporations, allow an ample supply of paper banknote currency that would mean lower interest rates on bank loans, and that would use public funds, even if it required the incursion of bonded indebtedness, to build or improve transportation infrastructures.

Behind these programmatic preferences, all of which were opposed by Democrats, lay three core beliefs that also distinguished the Whig party of Lincoln from Democrats. The first was a belief that the American economy between 1815 and 1850 was essentially underdeveloped because supplies of investment capital were either inadequate or too fragmented among atomistic economic actors. Thus to secure economic development, government should supply the necessary capital directly in subsidies for internal improvements or indirectly by encouraging individuals to pool their resources by investing in corporations, whose stockholders had limited liability for their debts, or manufacturing firms that were protected from foreign competition by high tariffs. The second belief was that ample and cheap credit — the ability to borrow money — was the lubricant that oiled the engine of economic growth. Thus Whigs favored paper-money banking, government bond issues to raise funds, and low interest rates on loans that would allow farmers to buy lands, businesses to meet payrolls, and cash-poor entrepreneurs to start new enterprises, all of which would help "grow" the economy. Third, and most important, Whigs believed that such government-promoted economic development and diversification would vastly increase individuals' freedom by expanding the choices of career opportunities available to them. This expansion, in turn, would enhance what Lincoln eloquently called men's "right to rise," that is, their ability to pursue and achieve individual upward socioeconomic mobility from a dependent wage-earner status to the independent status of self-employment.

Whigs, in sum, did not simply define liberty in political terms as the right of self-government and freedom from executive despotism. For them, liberty also had an economic dimension — escape from economic dependence, a liberation from dead-end jobs and inherited occupations, and the freedom to pursue economic happiness and success in any career that an individual wished.