American System

The American System (1815–24) was a three-part economic plan to develop U.S. industry, commerce, and agriculture. First, the plan sought to protect U.S. industry by placing protective tariffs on imported goods. Second, the plan called for the establishment of the Second Bank to spur the economy. Third, the plan called for federal monies to improve the country's internal transportation systems, such as roads, bridges, and canals. This would give farmers and manufacturers easier access to markets. With the three parts of the plan working together, the proponents believed the federal government would foster economic stability and growth.

Statesman and congressman Henry Clay was the primary designer of the plan and worked in Congress toward federal adoption. His supporters included members of the National Republican Party. In 1824 they opposed presidential candidate Andrew Jackson's election on the Democratic-Republican ticket. When Jackson became president in 1828, members of the National Republican Party continued to oppose his policies. Jackson's supporters were members of the Democratic-Republican Party. They also opposed the American System. The National Republican Party reorganized into the Whig Party during the 1834 congressional election.

A tariff is a tax on imported goods. In the early 1800s the issue of the federal government establishing protective tariffs on imports raised questions about the power of the federal government versus states' rights. The industrial and manufacturing sectors supported the tariffs. The agriculture interests, particularly in the South, opposed them.

The plan also called for federal funding to improve infrastructure. This consisted of upgrading the country's roads, bridges, railroads, and canals. A canal is a constructed waterway that provides access for ships to inland areas. Better infrastructure would benefit farmers and manufacturers, but proposing the federal funding of transportation projects once again raised the question of states' rights versus the power of the federal government. States' rights advocates opposed the idea of the federal government funding infrastructure projects.

The 20-year charter for the First Bank of the United States ceased in 1811 when the Jeffersonian Republicans successfully defeated the effort to renew the charter. As in 1791 when the Jeffersonian Republicans also opposed a national bank, the effort to charter the Second Bank was as contentious as the effort to charter the First Bank. But in 1816 the United States faced war debts from the War of 1812, and the economy was in a slump. Many members of differing political parties believed chartering the Second Bank would be a solution to managing the nation's debts. Proponents of the Second Bank included Henry Clay, financier John Jacob Astor, Secretary of the Treasury Alexander Dallas, and congressional Democrat-Republican from South Carolina John C. Calhoun. After much debate, a bill was passed, and though President James Madison wavered at times, the bill was signed in April 1816. The Charter of the Second Bank of the United States was to last 20 years.

The Second Bank drew attention in the election of 1832 when it became a campaign issue. Running for reelection, Democratic-Republican nominee Andrew Jackson strongly opposed the Second Bank, referring to it as a "monster bank." Motivated in part by political reasons, proponents of the Second Bank—mostly National Republicans—sent a request to renew the bank's charter to Congress in January 1832, four years before the charter was due to expire. Legislation was passed by both the House and the Senate to renew the charter, but Jackson vetoed the bill. Proponents of the Second Bank were unable to raise enough votes to override Jackson's veto. To Jackson's joy, the bank's charter expired in 1836. It struggled on as a state bank for several years but ultimately failed in 1841.