The American System — Henry Clay's Plan for the National Economy

c. 1815–c. 1836

The American System was an economic plan devised by Henry Clay that was intended to create a national economy. Although moderately successful, it is also famous for contributing to the sectional divide between the North and South leading up to the Civil War.

Henry Clay, Portrait, Brady, c 1850

Henry Clay, circa 1850. Image Source: Library of Congress.

American System Summary

The American System was a 19th-century economic policy known for promoting government-driven economic growth and development in the United States through internal manufacturing and trade.

Henry Clay is generally considered the architect of the system, which is based on Alexander Hamilton’s Economic Plan. The American System was based on three main principles — improvements to infrastructure, revenue generation through protective tariffs, and a strong national bank.

Clay’s system was initially implemented following the War of 1812, during the Madison Administration and the early part of the “Era of Good Feelings.” The system was largely supported by Northern Industrialists but was opposed by Southerners because the economy in the South was based on agriculture, not industry.

Although the system had some success — it led to the construction of the Erie Canal and the National Road — it also created controversy. In 1830, President Andrew Jackson vetoed funding for the Second Bank of the United States, which cut funding for additional roads. The high tariffs that were part of the system eventually led to the Nullification Crisis — a direct cause of the Civil War.

Andrew Jackson, Portrait, Painting
Andrew Jackson. Image Source: Wikipedia.

American System Facts

  1. The American System was a set of economic policies aimed at promoting domestic economic growth and protecting American businesses from foreign competition.
  2. The system was developed in the early 19th century by Henry Clay, a politician from Kentucky who served in both the House of Representatives and the Senate.
  3. President James Madison introduced parts of the system in his Annual Message to Congress on December 5, 1815.
  4. Clay called it the “American System” in a speech he delivered to the House of Representatives over two days, March 30–31, 1824.
  5. The American System was intended to promote economic nationalism and make the United States more self-sufficient, reducing reliance on foreign imports.
  6. The system was opposed by some Southerners, who saw it as favoring Northern and Western interests at the expense of the South.
  7. The first protective tariff approved by Congress was the Tariff of 1816.
  8. The National Road was the most important infrastructure improvement funded by the American System.
  9. The Second National Bank was established in 1816 for 20 years, but the charter was not renewed.
  10. Despite its limited success, the American System was important to the industrialization of the United States, because it laid the groundwork for later transportation and infrastructure projects that would enable economic growth and expansion.

The Three Parts of the American System

Although the American System was first implemented in 185, it did not have a formal name until 1824. Over the course of two days, Clay delivered a speech to the House of Representatives, in support of the Tariff of 1824. During the speech, he gave the economic system a name, saying:

“Are we doomed to behold our industry languish and decay yet more and more?…there is a remedy, and that remedy consists in modifying our foreign policy, and in adopting a genuine American System. We must naturalize the arts in our country, and we must naturalize them by the only means which the wisdom of nations has yet discovered to be effectual — by adequate protection against the otherwise overwhelming influence of foreigners.”

Protective Tariffs

The American System included protective tariffs that taxed imported goods. The purpose was to protect domestic industries from foreign competition. The tariffs were intended to make imported goods more expensive, encouraging consumers to buy American-made goods instead. Protective Tariffs included:

  1. Tariff of 1816
  2. Tariff of 1824
  3. Tariff of 1828
  4. Tariff of 1832
  5. Tariff of 1833

The Tariff of 1816 started the “Thirty Year Tariff War,” which culminated in the Nullification Crisis of 1832–1833. During the Crisis, South Carolina threatened to secede from the Union. Henry Clay and John C. Calhoun brokered a compromise with the Tariff of 1833 that averted the potential start of a Civil War.

Infrastructure Improvements

The American System supported improvements to the nation’s transportation infrastructure, including the construction of roads, canals, and bridges. These improvements would facilitate commerce and make it less costly to transport goods and materials. They were especially aimed at connecting farmers in the West with merchants and markets on the East Coast. 

The most important infrastructure improvements that came out of the American System were the Erie Canal and the National Road.  

The Erie Canal created a system of interlocking canals that ran from the Hudson River to Lake Erie. The Canal was completed in 1825 and improved the transportation of goods between the eastern and western United States. The construction of the canal was a significant engineering feat and played a key role in the development and growth of New York City and the surrounding region. The canal was used extensively until the 1850s when it was replaced by railroads.

The National Road — also called the Cumberland Road — was the first “highway” built by the Federal government. Construction started in Cumberland, Maryland in 1811. By 1818, the road reached Wheeling, West Virginia. The Federal Government gradually transferred responsibility for the road to the states through which it ran. The National Road played an important role in Manifest Destiny, as Americans traveled to the West. It also helped expand the economy. The road is still in use today and is known as US Route 40.

National Bank

The American System required the establishment of a strong national bank that would provide stability to the financial system and make loans available to businessmen. The bank would also serve as a depository for federal funds collected from tariffs and land sales.

The charter for the First Bank of the United States expired in 1811, due to concerns over foreign investments. Following the War of 1812, the need for a national bank led to the establishment of the Second Bank of the United States in 1816. Like the First Bank, the Second Bank was given a 20-year charter. However, President Andrew Jackson opposed the bank and vetoed the bill to renew the charter as part of his “Bank War.”

John Quincy Adams, Portrait, Photograph
John Quincy Adams supported the American System. Image Source: Smithsonian Institution Archives.

American System Frequently Asked Questions

What was the main idea of the American System?

The main idea of the American System was to promote economic growth and development in the United States by supporting domestic industries through protective tariffs, improving transportation infrastructure, and establishing a strong national bank to provide stability to the financial system. The American System was proposed in the early 19th century as a way to unite the country economically and make it less reliant on foreign goods. It aimed to create a self-sufficient and prosperous economy that would benefit all regions of the country.

What is an example of the American System?

An example of the American System is the development of the Erie Canal, a 363-mile-long waterway that connected the Hudson River to Lake Erie. The canal was built in the early 19th century and was funded by both private and public funds. The canal was a transportation improvement that helped to facilitate trade and commerce between the Midwest and the East Coast. It was an example of the American System because it was a public investment in transportation infrastructure that helped to promote economic growth and development.

What role did Henry Clay play in the American System?

Henry Clay played a significant role in the American System as its primary architect and supporter. Clay, a Senator from Kentucky, believed that the United States needed to develop a strong and self-sufficient economy. He saw the American System as a way to promote economic growth and development in the country, particularly in the Western regions. Clay argued that by promoting manufacturing and improving transportation infrastructure, the American System would create a demand for Western raw materials and increase the purchasing power of Westerners, who would then buy Eastern manufactured goods.

What was the impact of the American System on the U.S. in the early to mid-1800s?

The American System had a significant impact on the economic and political development of the United States during the early to mid-1800s. The system promoted economic growth and development by supporting American industries, improving transportation infrastructure, and stabilizing the financial system. However, the system also contributed to the growth of Sectionalism, with different regions of the country having varying levels of support for the policy.

How did the American System contribute to the Industrial Revolution?

The American System set the stage for the Industrial Revolution by promoting the growth of manufacturing, especially in the North.

How did the American System contribute to increased Sectionalism in the United States?

By promoting Northern industries and Western farmers, the American System alienated Southerners, who relied on trade with foreign nations. This led to skepticism and criticism of the system by Southerners, including John C. Calhoun. Although he initially supported the system, Calhoun eventually opposed it due to high tariffs. Following the Tariff of 1828, he authored the “South Carolina Exposition and Protest,” which argued the tariffs could be “nullified” by the states. Calhoun’s pamphlet, and the Tariff of 1832, set the stage for the Nullification Crisis of 1832-1833.

American System Significance

The American System was important to United States history because it was one of the first national economic plans, driven by the Federal Government, that was intended to create a nationwide economy. The system is remembered for being beneficial to the North and West and opposed by the South. It set the stage for the Industrial Revolution and encouraged Westward Expansion, however, it also contributed to the growing sectional divide that fueled tensions between the North and South, leading to the Civil War.

John C Calhoun, Portrait
John C. Calhoun. Image Source: National Portrait Gallery.

American System AP US History (APUSH) Study Guide

Use the following links and videos to study the American System, the War of 1812, and the Era of Good Feelings for the AP US History Exam.

American System APUSH Definition

The definition of the American System for APUSH is a federal economic policy proposed in the early 19th century aimed at promoting economic growth and development in the United States. The policy included three main components  — infrastructure improvements, protective tariffs, and a strong national bank. The system intended to stimulate economic growth and development by supporting American industries and promoting a national economy. The policy is known for being a precursor to many economic policies that followed and contributed to debates about the role of the federal government in promoting economic growth and development.

American History Central Resources and Related Topics

Video Overview of Henry Clay’s American System for APUSH

This video from Marco Learning covers the American System as part of APUSH Unit 4, Key Concept 4.2.

Citation Information

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  • Article Title The American System — Henry Clay's Plan for the National Economy
  • Date c. 1815–c. 1836
  • Author
  • Keywords American System, Henry Clay, James Madison, James Monroe, National Road, Erie Canal, Tariff of 1816, 30 Year Tariff War, Sectionalism, Second National Bank of the United States
  • Website Name American History Central
  • Access Date May 22, 2024
  • Publisher R.Squared Communications, LLC
  • Original Published Date
  • Date of Last Update February 2, 2024