Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they will retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country toward real wealth and greatness.
—Adam Smith, 17761
Had our nation followed the lines of relative advantage advocated by free-traders, our country would be divided into three parallel belts, used for cotton, tobacco, and wheat.
—Simon Patten, 18902
In 1846–1849, Britain was so confident in its industrial supremacy that it adopted free trade and began preaching it to other countries.3 During its rise to industrial primacy, Britain had carefully protected and subsidized its own infant industries and its leaders knew that if agrarian societies renounced similar protective policies then Britain’s own superior, inexpensive imports could kill the infant industries of its military and commercial rivals in the cradle. By the end of the Napoleonic Wars in 1815, Britain’s promotion of its own industries, at the expense of those of its colonies in Ireland and India and its former American colonies, had succeeded in making it the world’s leader in manufacturing. Britain sought to maintain its near-monopoly of steam-powered manufacturing by discouraging other countries from becoming its industrial competitors. In the colonial regions that it ruled directly or indirectly, such as Ireland, Canada, and the Indian subcontinent, it continued the mercantilist policies that it had imposed on its former North American colonies, destroying native industries that competed with British manufacturers and forcing the inhabitants to buy British goods while exporting raw materials to British factories and food to the British population.
Britain used diplomacy and even military force to compel many countries that were not formal colonies to accept a subordinate place in the global division of economic labor and to buy their manufactured goods from Britain. In return for British aid in gaining their independence from Spain, many Latin American republics became part of Britain’s informal commercial empire by signing “unequal treaties.” Among the other countries pressured by Britain into unequal treaties were Siam (Thailand), beginning in 1824, Persia (1836 and 1857), the Ottoman Empire (1838 and 1861), and Japan (between 1854 and 1911). Following the Opium Wars (1839–1842), in which Britain and France crippled the Chinese government, China was compelled by the British Empire to sign a number of unequal treaties, resulting in the appointment of a British official as the head of Chinese customs from 1863 to 1908.4
Lacking the power to impose unequal treaties on the United States, Britain used incentives to try to persuade its former colonies to specialize in the export of raw materials and food, while importing British manufactured products. British free traders argued that Britain should abolish its own tariffs on such items, such as its Corn Laws (British “corn” is wheat, not American maize). The parliamentarian Robert Cobden, one of the major British proponents of free trade, argued that the policy would discourage other countries from trying to industrialize, the way that the United States and Germany had begun to do: “The factory system would, in all probability, not have taken place in America and Germany. It most certainly could not have flourished, as it has done, both in these states, and in France, Belgium, and Switzerland, through the fostering bounties which the high-priced food of the British artisan has offered to the cheaper fed manufacturer of those countries.”5 British free trade advocates like Smith, Cobden, and others believed that global free trade would produce the same result as the British colonial legislation that condemned other countries to the role of resource colonies for British industry. In the nineteenth century, the British economist Stanley Jevons boasted: “Unfettered commerce . . . has made the several quarters of the globe our willing tributaries.”6
In order to ensure that the United States would specialize in supplying commodities rather than compete with it for industrial markets, Britain did not limit itself to practicing and promoting free trade. It practiced economic warfare against the United States. American manufacturers had long suspected that British manufacturers engaged in “dumping,” or selling below cost for a time, in order to destroy the fledgling American industries that had grown up in the period of reduced US trade with Britain and Europe during the Napoleonic Wars. 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.”7 The suspicions of Americans like Adams were vindicated in 1816, when Henry Brougham in a speech in Parliament observed that “it was well worthwhile to incur a glut upon the first exportation, in order, by the glut, to stifle, in the cradle, those rising manufactures in the United States, which the war had forced into existence, contrary to the natural course of things.” Several decades later, a parliamentary report referred to the practice of voluntary losses by British employers during depressions and recessions “in order to destroy foreign competition and to gain and keep possession of foreign markets.”8
THE SOUTH, NEW ENGLAND, AND FREE TRADE
Between the end of the Napoleonic Wars and the Civil War, the question of America’s relationship to Britain underlay many seemingly unrelated disputes in American economic debates. Americans were divided between those who were content for the United States to be an agrarian resource colony in an international division of labor centered on industrial Britain, supplying raw materials to British factories and cheap food to British workers, and those who wanted the United States to catch up with and ultimately surpass Britain as an industrial power. Would the American economy complement the British industrial economy—or compete with it?
Then as now, academic economists and journalists tended to reflect the views of the economic elites in their cities and regions who subsidized their employment. In the antebellum years, there were two regional schools of free-market orthodoxy. One was in the export-oriented South and the other was centered in Boston and New England, where merchants opposed tariffs and where textile mill owners tended to identify their interests with those of their southern suppliers.
The planters opposed government-sponsored introduction of industrial capitalism into the United States for both economic and social reasons. If tariffs were used to keep out British and European manufactured goods, then agrarians would be forced either to pay tariffs on imports or to pay a higher price for American manufactured goods than they would have done, at least for a time, in the absence of tariffs. The same objection applied to other government efforts to promote American industries, such as bounties, or subsidies; these, like tariffs, would redistribute wealth from the agrarian sector to the manufacturing sector of the US economy. Because alternate ways of financing the federal government, such as federal income, wealth, or property taxes, were even less palatable to them, the southern oligarchs supported a tariff for revenue while opposing a tariff for protection—and were determined to keep both the tariff and the size of the federal government small.
An aversion to being taxed, directly or indirectly, to subsidize northern manufacturers was not the only reason that the southern planters opposed government-sponsored industrial capitalism in the United States. Neither the climate nor the population of the South was incompatible with an industrial society, as the industrialization of the Sun Belt in the twentieth century proved. But the hierarchical social order that the great slave-owning families had created in the South would be threatened by an urban, industrial economy based on free labor.
The southern planters and the professors whom they subsidized in southern universities cited the authority of the British classical economists who argued that the United States should specialize as a source of commodities for Britain’s industrial economy. The favorite economist of America’s agrarians, Adam Smith, in The Wealth of Nations, wrote: “It has been the principal cause of the rapid progress of our American colonies toward wealth and greatness that almost their whole capitals have hitherto been employed in agriculture. They have no manufactures, those household and coarser manufactures excepted which necessarily accompany the progress of agriculture, and which are the work of the women and children in every private family. The greater part both of the exportation and coasting trade of America is carried on by the capitals of merchants who reside in Great Britain. Even the stores and warehouses from which goods are retailed in some provinces, particularly in Virginia and Maryland, belong many of them to merchants who reside in the mother country, and afford one of the few instances of the retail trade of a society being carried on by the capitals of those who are not resident members of it. Were the Americans, either by combination or by any other sort of violence, to stop the importation of European manufactures, and, by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country towards real wealth and greatness.”9
If Americans had paid attention to Adam Smith, the United States never would have become the world’s greatest industrial economy—because it never would have become an industrial economy at all. Along with most countries in the Americas, Europe, Asia, and the Middle East, the United States, according to Adam Smith, should have forever remained a supplier of foodstuffs and raw materials to industrialized Britain.
THE AMERICAN SCHOOL
In every country during the steam era, manufacturing facilities were located near sources of coal and iron—the West Midlands in Britain, the Ruhr in Germany, and Appalachia in the United States. For this reason, the factory owners of Pennsylvania and other Midatlantic states became the chief advocates of high protective tariffs. With the support of its local industrialists, who viewed themselves as competitors of British industry, Pennsylvania became the center of the developmental, protectionist “American School” that contrasted itself with the “British School” of free trade and laissez-faire economics. According to the American School, the United States, having won its political independence from the British Empire, now needed to win its economic independence from the British System.
The rationale for import substitution, or infant-industry protection, in the United States was set out by Alexander Hamilton in his Report of the Secretary of the Treasury on the Subject of Manufactures (1791). In the report, Hamilton pointed out that “the United States cannot exchange with Europe on equal terms; and the want of reciprocity would render them the victim of a system, which should induce them to confine their views to Agriculture and refrain from Manufactures.”10 The leading writers of the American School were two Baltimore intellectuals, Hezekiah Niles and Daniel Raymond, the economists Francis Wayland and Mathew and Henry C. Carey of Philadelphia, and Friedrich List, a German American émigré.
The most important member of the American school of economic nationalism was Carey, author of Principles of Political Economy (1837) and many other books. Karl Marx and Ralph Waldo Emerson believed that Carey was the most important economist the United States had produced.11 From his father, an Irish immigrant, Carey derived his Anglophobia and protectionism, along with a publishing empire closely allied with Pennsylvania iron and coal interests. Carey viewed free trade as the economic corollary of British imperialism: “By adopting the ‘free trade,’ or British, system we place ourselves side by side with the men who have ruined Ireland and India, and are now poisoning and enslaving the Chinese people.”12
In the view of Carey and other American School thinkers and politicians, the industrializing North was opposed by a combination of the British Empire and its allies in the southern planter class, who shared an interest in a system in which the South would supply cheap cotton to British mills, in return for providing a market for British factory goods. Following the Civil War, Carey wrote in 1867: “Slavery did not make the rebellion. British free trade gave us sectionalism, and promoted the growth of slavery, and thus led to rebellion.”13
HARRY OF THE WEST
In politics, the unlikely champion of the policy of American economic development on the basis of import substitution was a Virginia-born Kentucky slaveowner named Henry Clay. Over six feet tall, Clay became one of antebellum America’s best-known orators, with the use of a broad mouth described by a historian in 1857: “In his old days, when the men crowded around him for a shake of his hand, and the women beset him for a kiss of his patriarchal lips it was remarked that his capacity of gratifying this latter demand was unlimited, for the ample dimensions of his kissing apparatus enabled him completely to rest one side of it, while the other side upon active duty.”14 Clay coined the phrase “self-made man” and considered himself one, though he owed his fortune not to business but to his marriage into the influential landholding family of his wife, Lucretia Hart, and lived at Ashland, a plantation worked by hundreds of slaves.
An unsuccessful candidate for the presidency five times, “Harry of the West” served in the cabinets of several presidents. As Speaker of the House and later as a leading senator, the “Great Compromiser” helped to avert southern secession and civil war by promoting the Second Missouri Compromise in 1821 and the Compromise of 1850. Clay began his political career as a Jeffersonian opponent of the Hamiltonian program of national banking and internal improvements. But his economic nationalism was a natural progression from the fear of British power that he manifested as a War Hawk during the War of 1812. Of Britain he wrote: “She sickens at your prosperity, and beholds, in your growth—your sails spread on every ocean, and your numerous seamen—the foundations of a power which, at no very distant day, is to make her tremble for her naval superiority.”15 Like Hamilton and Washington, Clay came to consider domestic manufacturing to be an essential element of US national security: “We should thus have our wants supplied, when foreign resources are cut off, and we should also lay the basis of a system of taxation, to be resorted to when the revenue from imports is stopped by war.”16
“A GENUINE AMERICAN SYSTEM”
In a two-day oration in the House of Representatives on March 30 and 31, 1824, Speaker of the House Clay argued that the United States should have a machine-based economy of its own, in order to meet the challenge posed by the industrial supremacy of Britain: “But Britain is herself the most striking illustration of the immense power of machinery. . . . A statistical writer of that country, several years ago, estimated the total amount of the artificial or machine labor of the [British] nation to be equal to that of one hundred millions of able-bodied laborers. . . . In the creation of wealth, therefore, the power of Great Britain, compared to that of the United States, is as eleven to one.”
Clay continued: “But there is a remedy, and that remedy consists in modifying our foreign policy, and in adopting a genuine AMERICAN SYSTEM.” In support of a federal policy of protection and promotion of infant industries, Clay cited the policies “of the Edwards, of Henry the Great, of Elizabeth, of the Colberts, abroad; of our Franklin, Jefferson, Madison, Hamilton, at home.” Then he quoted at length “the master spirit of the age”—Napoleon. “I at first confined myself merely to prohibiting the web,” Clay quoted Napoleon as saying, “then I extended the prohibition to spin cotton; and we now possess, within ourselves, the three branches of the cotton manufacture, to the great benefit of our population, and the injury and regret of the English.”17 During the Napoleonic Wars, Napoleon had promoted the Continental System in France and French-occupied Europe, a program of government sponsorship of industries undertaken in response to Britain’s blockade. Napoleon’s Continental System and Clay’s American System had the same geopolitical purpose: economic independence from Britain, the first industrial superpower.
Clay’s American System had three major elements: infant industry tariffs, internal improvements, and a sound system of national finance.
Under the leadership of Clay, Congress revised the tariff in 1816 to protect American industries. Imports on all manufactured goods averaged 40 percent, while tariffs on imported agricultural products were also increased—in some cases amounting to 60 percent.18
Clay also promoted the use of funds from federal land sales to finance internal improvements like canals and railroads. Clay opposed proposals to allow settlers to buy federal lands at low prices, because that would reduce the funds for infrastructure projects. The federal government owned a vast amount of land, but land sales were never a major source of federal revenue. Tariffs provided 85 percent of the revenue for the federal government before 1860.19 Federal land grants to railroads eventually fulfilled this part of Clay’s program.
The third element of the Hamiltonian triad that made up Clay’s American System was national finance. Although he opposed the renewal of the charter of the first Bank of the United States in 1811, he supported the creation of the second bank in 1816, and from 1822 to 1824, between stints in Congress, he was paid as the bank’s general counsel. Critics pointed out that he profited in other ways from the policies he promoted, including tariffs on imports of hemp, a source of rope fibers, which he grew on his plantation.
OLD HICKORY
By the second decade of the nineteenth century, Jefferson, Madison, and Gallatin had reconciled themselves to aspects of the Hamiltonian system for national economic development such as the second Bank of the United States and some degree of federal support for manufacturing and internal improvements. But a new generation of southerners and their northern allies in the tradition of Jefferson proved to be more radical in their rejection of federal authority than Jefferson himself had been.
None was more influential than “Old Hickory”—Andrew Jackson, the hero of the Battle of New Orleans, who was elected twice to the presidency, in 1828 and 1832. Unlike the genteel and educated Virginians Jefferson, Madison, and James Monroe, Jackson, a Tennessean born in South Carolina, was a product of the Scots-Irish frontier culture with its machismo and suspicion of refinement. He first achieved renown as the hero of the Battle of New Orleans in 1814, a victory over the British won several weeks after peace had been negotiated, something that neither the American nor British combatants at New Orleans knew because of the primitive state of communications at the time. Jackson had won additional fame with his role in the bloody Creek Indian War of 1813. In 1819, Secretary of War John C. Calhoun recommended the censure of then-general Jackson for his actions during the Seminole War of the previous year, which included an unauthorized invasion of Spanish Florida and the execution of two British nationals. Clay’s support for the censure motion, which Congress rejected, earned him Jackson’s lifelong hatred.
Jackson’s campaign for the presidency in 1824 had played on popular anti-intellectualism. The Harvard-educated northeastern patrician John Quincy Adams, the son of the second president of the United States, John Adams, was ridiculed for calling observatories “lighthouses of the skies,” as though there could be such a thing. When the electoral college delivered the presidency to Adams, Jackson was furious and convinced that Clay had engaged in a “corrupt bargain” to deliver electoral votes to Adams in return for a place in Adams’s cabinet as secretary of state. Jackson was finally elected president in 1828, but forgive and forget was not the code of the southern backcountry. Jackson was a man of violent hatreds who had a bullet lodged in his body from one of his many duels, in one of which he had killed his opponent. With Jackson’s defeat of Clay, the Hamiltonian framework for the development of the American economy would be shattered.
THE TARIFF OF ABOMINATIONS AND THE NULLIFICATION CRISIS
In 1828 the tariff, last revised in 1824, was revised again, to protect American industries. Ironically, this measure was supported as a gambit by Jackson’s running mate and vice president Martin Van Buren. Van Buren hoped to appeal to manufacturers in the North. He gambled that southern voters would acquiesce in the tariff.20 Southerners and northern supporters of free trade denounced the 1828 tariff as the “Tariff of Abominations,” and South Carolina threatened to “nullify” the law, by refusing to collect the duties at Charleston. When President Jackson threatened to use force to enforce the law, South Carolina backed down.
The crisis led to the Compromise Bill of 1832, brokered in part by Clay. The average tariff would be diminished from 40 percent to 20 percent over the decade to 1842.21 The influence of the southern Democrats was seen in the Tariff of 1846, which imposed average duties on the major imports to 27 percent. This regime remained in place with few changes until 1861.
The Nullification Crisis divided Jackson from some of his fellow southerners. But on other issues he represented the views of the southern slaveowner elite, who were increasingly hostile to the federal government.
The tariff crisis had been about more than the tariff. At issue was the fear of southern slaveowners that federal power might be used to legislate the abolition of slavery. The conclusion that the protection of slavery in the South meant that federal power of any kind had to be crippled explains the transformation of South Carolina senator John C. Calhoun from a nationalist who shared Clay’s support for federally sponsored internal improvements and the Bank of the United States into the leading philosopher of states’ rights and the “concurrent majority,” by which he meant a regional southern veto on all national action. In a letter of September 11, 1830, Calhoun explained: “I consider the tariff act as the occasion, rather than the real cause of the present unhappy state of things. The truth can no longer be disguised, that the peculiar domestic institution of the Southern States and the consequent direction which that and her soil have given to her industry, has placed them in regard to taxation and appropriations in opposite relation to the majority of the Union, against the danger of which, if there be no protective power in the reserved rights of the states they must in the end be forced to rebel, or, submit to have their paramount interests sacrificed, their domestic institutions subordinated by Colonization and other schemes, and themselves and children reduced to wretchedness.”22 The desire to cripple federal authority in order to protect slavery explains why, after Britain’s abolition of slavery in 1830, the South’s leaders became far more hostile to federal government activism than Jefferson, Madison, and Gallatin, who during and after the War of 1812 had accepted the need for many elements of the Hamiltonian program of national development such as support for internal improvements and domestic manufacturing.
THE MAYSVILLE ROAD VETO
In 1830 the National Road, begun in 1811, was still far from completion. President Jackson relished the chance to veto a bill to authorize federal funding of a turnpike between Maysville and Lexington, Kentucky, the home of his adversary Henry Clay. Jackson’s vice president, Martin Van Buren, told a friend, “I had the most amusing scenes in my endeavors to prevent him from avowing his intentions before the bill passed the two houses.”23 In his veto message of May 27, 1830, Jackson argued that the Maysville Road, even though it was part of an interstate road, was a purely local project and declared that internal improvements, while important, should be left to the states and private enterprise.
In his veto message, Jackson made it clear that he did not object to state-sponsored internal improvements or truly national projects, however defined. But his veto of the Maysville Road had lasting consequences. In succeeding years, Congress would pass appropriations for small-scale road and “rivers and harbors” improvements. But not until the Federal Aid Road Act of 1916 would the federal government commit itself again to the project of building a national road system, a project that would culminate in the 1950s with the creation of the Interstate Highway System.
THE BANK WAR
The most important national economic institution to fall victim to Andrew Jackson was the second Bank of the United States (BUS). The bank, with twenty-nine branches by the 1830s, was the largest corporation in the United States and an inviting target for attacks based on economic interest or Jeffersonian ideology. The bank had been chartered in 1816 and its charter would be up for renewal in 1836. Its president was Nicholas Biddle, who could not have been more unlike Andrew Jackson.
Born into a patrician family in Philadelphia, Biddle was a child prodigy, nicknamed “Grammaticus” by his classmates. Biddle entered the University of Pennsylvania at the age of ten. When he was refused permission to graduate because of his age, he transferred to Princeton, graduating as the valedictorian of his class at the age of fifteen. As an unpaid clerk to an American envoy to France, the young Biddle toured Europe as far as Greece. On his return, he became an attorney, a member of the Pennsylvania state legislature, and man of letters, editing the Port Folio, an important national literary journal. In 1819, after he was appointed a director of the second Bank of the United States, Biddle helped Langdon Cheves of South Carolina rescue the bank from insolvency. On becoming president of the bank in 1822, Biddle showed that he understood the functions of a central banker, regulating the money supply and keeping state banks in check. Under Biddle, the local branches of the bank also facilitated the transfer of credit and funds throughout the United States.24
In his first year as a banker, Biddle described his transition from man of letters to banker in verses he penned for a young lady’s album:
I prefer my last letter from Barings or Hope
to the finest epistles of Pliny or Pope;
my “much-esteemed favors” from Paris, to those
which brought on poor Helen an Iliad of woes;
one lot of good bills from Prime, Bell, or the Biddles,
to whole volumes of epics or satires or idyls;
nay, two lines of plain prose with a good name upon it
to the tenderest fourteen ever squeezed in a sonnet.
Why, I would not accept—not for Hebe’s account—
the very best draft from Helicon’s fount,
nor give—this it grieves me to say to their faces—
more than three days of grace to all the three Graces.
Then their music of spheres! can it thrill through the soul
like kegs of new dollars as inward they roll?
and Cecilia herself, though her lyre was divine,
never gave to the world notes equal to mine.25
Although his sympathies lay with the Hamiltonian tradition identified with National Republicans like Adams and Clay, many of whom would move in 1843 into the new Whig Party, Biddle had voted in 1828 for Jackson. Jackson, however, shared the suspicion of government-chartered corporations expressed in 1825 by Thomas Cooper, the dean of the Jeffersonian school of political economy: “These institutions are founded on the right claimed by government, to confer privileges and immunities on one class of citizens, not only not enjoyed by the rest, but at the expense of the rest. . . . Generally in this country, it has glutted itself by incorporating banking companies, insurance companies, canal companies, and manufacturing companies of various descriptions. All these are increasing daily, the list of nuisances.”26
Along with Jeffersonian and Jacksonian ideology, the jealousy of state banks inspired the campaign against the BUS. As early as July 1791, Hamilton’s fellow Federalist Fisher Ames warned him: “I have had my fears that the state banks will become unfriendly to that of the United States. Causes of hatred and rivalry will abound.”27 Former president John Quincy Adams noted in 1832: “In every state in the Union there is a large capital . . . invested in stocks of multiplied state banks. Most of these are rivals in business with the Bank of the United States, and they have all boards of directors and most of them are colleague with newspapers, all eager for the destruction of the Bank of the United States—an institution doubly obnoxious to the system of Safety Fund Banks in the state of New York.”28
As Adams noted, many in New York’s financial community resented the fact that the federal revenues collected at the Port of New York, which were greater than those of all other ports combined, were deposited in the Wall Street office of the BUS, whose directors were primarily Philadelphians.29 Jackson’s vice president and successor was the New Yorker Martin Van Buren. In 1833, Biddle wrote: “It is a mere contest between Mr. Van Buren’s [projected New York] government bank and the present institution—between Chestnut Street and Wall Street—between a Faro [gambling] bank and a National Bank.”30
Alexander Hamilton’s son James was a leader of the New York financial community. As acting secretary of state for a time, the younger Hamilton assisted Jackson in his crusade against the bank and recorded his surprise when Jackson showed his ignorance by saying that he admired Hamilton’s father: “Colonel, your father was not in favor of the Bank of the United States.”31 Hamilton’s other son, Alexander, was an ally of Biddle who warned the banker of the campaign against him.32
In his first two annual messages to Congress as president, Jackson denounced the bank. In 1832, Biddle sought to obtain the recharter of the bank four years before it was scheduled to expire in 1836. Biddle reasoned that the bank was popular among members of Congress, including some who enjoyed its largesse, like Daniel Webster, a director of the Boston branch. Rechartering the bank early gave Biddle’s ally Henry Clay an issue in his campaign for the presidency against Jackson, who was running for reelection.
“THE BANK IS TRYING TO KILL ME, BUT I WILL KILL IT!”
Led by Clay and Webster, on July 3, 1832, Congress passed a law renewing the charter of the bank. On July 10, President Jackson vetoed it.
Jackson asserted in his veto message that “the constitutionality and the expediency of the law creating this Bank are well questioned by a large portion of our fellow citizens.” In fact, the constitutionality of the bank could not be questioned. Although Jefferson and Madison had opposed its creation, Jefferson accepted and used it and Madison favored the creation of the second bank. The Supreme Court upheld the bank’s constitutionality in two cases.33 The elderly Albert Gallatin, the former secretary of the Treasury under Jefferson, opposed Jackson’s policy and published a defense of the bank in 1830. In 1841, he published a pamphlet arguing for the creation of a third Bank of the United States.34
In addition to making constitutional arguments, Jackson posed as a populist, declaring in his veto message that “when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society—the farmers, mechanics, and laborers—who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.” Jackson appealed to public xenophobia, arguing that foreign ownership of some of the bank’s shares was “calculated to convert the Bank of the United States into a foreign bank, to impoverish our people in time of peace, to disseminate a foreign influence through every section of the Republic, and in war to endanger our independence.” Amos Kendall, who wrote the first draft of Jackson’s bank veto message, warned under his own name of a new nobility arising in America: “Its head is the Bank of the United States; its right arm, a protecting Tariff and Manufacturing Monopolies; its left, growing State debts and State incorporations.”35
In his response to Jackson’s veto message, Clay insisted that the bank was constitutional: “The power to establish a bank is deduced from that clause of the Constitution which confers on Congress all powers necessary and proper to carry into effect the enumerated powers.” He dismissed the claim that foreign investors controlled it: “The assignable character of the stock is a quality conferred not for the benefit of foreigners, but for that of our own citizens. . . . The confidence of foreigners in our stocks is a proof of the solidity of our credit. Foreigners have no voice in the administration of this bank; and if they buy its stock, they are obliged to submit to citizens of the United States to manage it. . . . Will it not be a serious evil to be obliged to remit in specie to foreigners the eight millions which they now have in this bank, instead of retaining that capital within the country to stimulate its industry and enterprise?”
Although Jackson’s veto of the bank’s recharter created anger among his opponents in Congress, it was popular with the voters. Jackson easily won reelection, defeating Clay in the electoral college by a margin of 219 to 49. But trouble was only beginning. In September 1833, when Jackson ordered his Treasury secretary, William Duane, to put federal revenues in particular state banks he favored, rather than in the Bank of the United States, rather than carry out the order, Duane and his assistant resigned. Roger Taney was willing to obey the president, but the Senate refused to confirm him. On March 28, 1834, the Senate responded by a narrow vote that censured Jackson. The censure was expunged from the record in 1837.
Meanwhile, Biddle retaliated by contracting credit. Jackson exclaimed, “The bank is trying to kill me, but I will kill it!”
Jackson succeeded. When the House voted against a new charter, Biddle sought a charter for the Bank of the United States from the state of Pennsylvania. Hurt by unwise speculation on cotton futures, the bank closed its doors in 1841, a few years after Biddle retired in 1839. In 1844, he died, having lost much of his money along with his reputation. The center of gravity of American finance passed from the public-private hybrid BUS in Philadelphia first to Boston banking houses and then, by the 1850s, to the banking sector of New York. The United States would not have a national banking system again until the passage of the National Banking Act in 1863. Not until the Federal Reserve System was created in 1913 would the United States once again have a central bank.
In the aftermath of the bank’s destruction, the states adopted a baffling variety of state-chartered bank forms, ranging from private or “free” banks to state bank monopolies, each issuing its own notes. Thomas Hart Benton, a Jacksonian Democratic senator from Missouri, complained in 1837 about the results of the bank’s destruction: “I did not join in putting down the Bank of the United States to put up a wilderness of local banks. I did not join in putting down the paper currency of a national bank to put up a national paper currency of a thousand local banks.”36
In 1836, in one of his last acts as president, Jackson issued the Specie Circular, which required payment in gold or silver, not banknotes, for federal land sales. The Panic of 1837 struck shortly after Jackson’s ally and vice president Martin Van Buren was inaugurated as president. Historians disagree over whether to blame the financial crisis on the Jackson administration or on other factors, such as an increase in British interest rates or a price-lowering glut of cotton. Whatever the cause of the crisis, Van Buren reacted with yet more folly. In 1840, at his urging Congress created the independent treasury system, which ensured that federal money was locked up in subtreasuries where it could not help the banking system or the economy.
Clay’s American System lay in ruins. Not until the 1860s would there be a move to strengthen the federal role in the banking system—and that would take place during a civil war among American sections that had practically become different nations.
That subsequent upheaval was foreshadowed by the strife of the Jacksonian era. The bank war led to more than rhetorical violence. In 1830, Nicholas Biddle’s brother Thomas, a veteran of the War of 1812, was serving as a paymaster for the US Army in Saint Louis. After a local congressman, Spencer Pettis, denounced his brother Nicholas and the Bank of the United States, Thomas Biddle exchanged insulting letters with Pettis in a newspaper. Biddle then went to the hotel room in Saint Louis where Pettis was staying and proceeded to flog him with cowhide, a weapon chosen to show Biddle’s disdain according to the code duello. Pettis challenged Biddle to a duel that took place on August 26, 1831, on Bloody Island in the Mississippi River. Each shot the other and within a few days both men died.
AN ERA OF STATE POWER
The defeat of the ambitious federal internal-improvements schemes envisioned by Jefferson and Gallatin as well as by Hamilton and Clay meant that financing roads, canals, and railroads was overwhelmingly the responsibility of the states before the Civil War. From 1790 to 1860, the federal government spent $54 million on transportation infrastructure; of this, $9 million was spent on roads. State and local governments spent roughly nine times as much—more than $450 million. State governments also provided as much as 40 percent of the funds for American railroads.37 Surveying Jacksonian America, Jackson’s rival John Quincy Adams complained that the nation was “palsied” in “an Era of State Power.”38
The ambition of some of the state infrastructure projects can be inferred from the name of the Mammoth Bill of 1836 in Indiana. In promoting infrastructure without aid from the federal government, the state governments went deeply into debt. In 1841, of total government debt, the federal government accounted for only $5 million while the state debts totaled $193 million and local debt made up $25 million.39 As a result of the Panic of 1837, many states defaulted on their debts. British financiers called on the federal government to assume the debts of the states, as it had done under Hamilton. But the federal government refused, and when it issued securities later in the year, the Times of London in 1842 declared that “the people of the United States may be fully persuaded that there is a certain class of securities to which no abundance of money, no matter how great, can give value; and that in this class their own securities stand pre-eminent.”40
In Illinois, state-led internal improvements were opposed by many Jacksonian Democrats and supported chiefly by Whigs. One of the latter was a young Whig state legislator named Abraham Lincoln. In his bid for reelection in 1836, he declared: “Whether elected or not, I go for distributing the proceeds of the sales of the public lands to the several states, to enable our state, in common with others, to dig canals and construct railroads, without borrowing money and paying interest on it.”41
During the Illinois legislative session of 1836–1837, Lincoln belonged to a group of Whigs called the “Long Nine” because all were at least six feet in height. The Long Nine gained enough allies among the Democrats to pass a bill authorizing construction of the Illinois-Michigan Canal and a state bond funding railroads and river improvements. Construction halted, however, during the Panic of 1837. Lincoln’s law partner William Herndon later recalled that “every river and stream . . . was to be widened, deepened, and made navigable. A canal to connect the Illinois River and Lake Michigan was to be dug, . . . cities were to spring up everywhere, . . . people were to come swarming in by colonies, until . . . Illinois was to outstrip all others, and herself become the Empire State of the Union.” However, “the internal improvement system, [in] the adoption of which Lincoln had played such a prominent part, had collapsed, with the result that Illinois was left with an enormous debt and an empty treasury.”42 Eventually Chicago grew into a major trade entrepôt and metropolis, thanks in part to the canal that linked the Illinois River with Lake Michigan.
Mixed-enterprise capitalism in the United States was a casualty of the canal and railroad bubbles of the 1830s. Following the Panic of 1837, corporations in which the federal or state governments owned shares along with private investors were denounced by Jacksonian populists. Like many other states, Illinois amended its constitution in 1848 to ban state subsidies to private corporations.
The public backlash against mixed enterprise inspired support for free or general incorporation—allowing corporations to form by registering with a state government, rather than depending on a special charter from a state legislature. This solved one problem—minimizing the incentive of businessmen to obtain corporate charters by bribing politicians—only to create another. The regulation of corporations that were chartered by legislatures or, as with the two Banks of the United States, by the federal government, posed no problems, because specific rules governing particular corporations could be spelled out in their individual charters. But when incorporation became easy in the second half of the nineteenth century, regulation had to be based on statutes, not on charters. The question of the authority of the state and federal governments to regulate corporations by statute created difficult issues that had not existed under the older system of mixed enterprise.
THE MODERNIZATION OF THE NORTHEAST
The collapse of the national development project in the 1830s meant that modernization by default became the project of state governments rather than the federal government. One consequence was the increasing divergence of different parts of the country. In the generation before the Civil War, the United States became three regional societies, each with its own distinctive economy.
New England was the most advanced, an industrializing nation within a nation. Of all the regions of the country, it was least affected by the financial chaos that followed the destruction of the second Bank of the United States. The Suffolk Bank of Boston performed some of the functions of a central bank for New England, stabilizing the financial environment to the benefit of merchants and manufacturers.43
By the 1830s, the United States had a third of the spinning capacity of Britain, most of it in New England.44 The pioneering textile mills of Samuel Slater and Francis Cabot Lowell had given way to much more advanced factories. Waterwheels still provided almost all the power for American manufacturing, but the introduction of steam power was beginning.45 If the antebellum North is thought of as a nation, then it was already quite industrialized, with a fifth of the workforce in manufacturing.46
JEFFERSON AND THE YEOMAN REPUBLIC
An agrarian America, not a commercial and industrial America, was the utopia of Thomas Jefferson and his allies and followers. It was the Midwest, not the South, that was to come closer than any other American region to fulfilling Jefferson’s vision of a democratic republic of yeoman farmers. Influenced by Jefferson, the Northwest Ordinances of 1784, 1785, and 1787 sought to create the basis of an agrarian democracy in the states formed from the territory of the old Northwest (the present Midwest around the Great Lakes). The first two acts provided for the rapid transition from undemocratic territorial government to the status of self-governing states, which became Ohio, Indiana, Illinois, Michigan, and Wisconsin. And most consequential of all, in light of the long-term development of the United States, while the Northwest Ordinance of 1787 made provisions for a fugitive-slave law, it banned slavery from the states formed from the Northwest Territory.
Another policy of great importance for the evolution of a free society in the Midwest was the provision in the Northwest Ordinance that all government sales of land would be in fee simple. Yeoman farmers would own their land free and clear and would not suffer from the complex forms of “fee-tail,” or encumbrances, which in British law were a relic of feudalism. The importance of fee simple is evident from a brief autobiography that Abraham Lincoln wrote during his 1860 campaign for the presidency. Lincoln explained that his family was forced to migrate from Kentucky to Indiana and Illinois “partly on account of slavery; but chiefly on account of the difficulty in land titles.”47 A British lawyer who met Lincoln in the White House in 1864 reported that the president “talked of the landed tenures of England, and said we had some ‘queer things in the legal way’ at home, of which he seemed to think ‘quit rents’ as queer as any. And then he told us how ‘in the state of Kentucky, where he was raised, they used to be so troubled with the same mysterious relics of feudalism, and titles got into such an almighty mess with these pettifoggin’ incumbrances turnin’ up at evry fresh tradin’ with the land, and no one knowin’ how to get rid of ’em.’”48
The ban on slavery in what became the midwestern states prevented plantation agriculture from taking root in the region, making possible its characteristic family farms. In the slave states on the frontier, developers sold large tracts to planters who would bring in slave gangs to clear them for cotton and other crops. In the free states, land speculators had an incentive to divide land into small plots and supply them with infrastructure and public schools, in order to attract American and European immigrants. That was one reason that European immigration went disproportionately to the North. The two sections were roughly comparable in population in 1790, but by 1860 the free states outnumbered the slave states by nineteen million to twelve million.
In free Pennsylvania, most projects to promote infrastructure and industry were eventually adopted; in slave-based Virginia, most similar state programs failed to be enacted by the legislature.49 In turn, transportation infrastructure, including the Erie Canal and a network of midwestern canals, by lowering transportation costs, created markets for midwestern farm products in the East.
A virtuous circle underlay midwestern development. The absence of slavery meant that farmers had to rely on wage labor, which was expensive. That gave them an incentive to invest in labor-saving technology, such as McCormick’s reaper. Many farmers could afford such investments because of their success in raising cash crops for national and international markets. The family farmers of the Midwest also benefited from a supportive financial system, which allowed eastern bankers to finance midwestern farm mortgages.
Social equality reinforced the greater economic equality and mobility of the antebellum Midwest and North. In the early nineteenth century, American courts rejected the British inheritance of annual labor contracts, in favor of at-will employment, which could be terminated by either party, with wages paid to the point of termination.50 Semantic changes accompanied legal reforms. American workers adopted the term “bosses,” borrowed from baas, the word used for “master” by the Dutch in New York, because they did not like to call their employers their “masters,” and both men and women preferred to be known as “help” rather than as “servants.”
THE STEAM-AGE SOUTH
The third of the regional economies in the antebellum United States was that of the South. While northern reformers denounced its slavery-based social order as a relic of feudalism, the southern economy was quite modern, specializing in the supply of cotton, the essential raw material for the first mechanized global industry, the British textile industry. Cotton was to the global industrial economy of the nineteenth century what oil became to the machine civilization of the twentieth. In each case, reactionary oligarchs who controlled the indispensable material required by industry—the southern planters, the Saudis and other Arab monarchies—were able to enrich their class while holding off the forces of political and social modernization in the territories they controlled.
In 1784, customs officials at Liverpool seized eight bales of cotton brought from the United States. The officials took it for granted that the cotton was being smuggled from another source, because it was believed that cotton could not be grown in large quantities in Britain’s former American mainland colonies.51 In the mid-1780s only 0.2 percent of the cotton imported into Britain came from the United States, while cotton goods made up only 6 percent of British exports. By 1820, cotton surpassed tobacco as the major export of the South, and in that year 59 percent of the cotton destined for British mills came from the United States, while woven cotton goods accounted for almost an identical proportion, 60 percent, of Britain’s exports.52 By 1860, the percentage of Britain’s cotton imported for its textile mills from the American South rose more than 90 percent.53
The specialization of southern planters in cotton is usually attributed to the cotton gin that Eli Whitney invented in 1794. His model was the product of a long line of development, and had to be perfected by others over time.54
Demand for southern cotton from the textile industries in Britain and the Northeast grew by 5 percent a year from 1800 to 1860.55 Britain by 1860 was particularly dependent on Southern cotton.56 In 1858, the South accounted for 66 percent of US exports.57 Anticipating the industrial countries of later generations that would worry about their dependence on oil-exporting autocracies, in 1853, Britain’s Blackwood’s Magazine worried about “millions in every manufacturing country within the power of an oligarchy of planters.”58
“Oligarchy” was the correct term. In 1860, the one-fourth of southern whites who owned slaves had among them slave “property” valued between $2.7 and $3.7 billion, a sum larger than the total of railroad and manufacturing capital in the United States.59
Most white southerners did not own slaves. Slaveowners on average owned five slaves, but slave ownership was highly concentrated, with 27 percent of slaveowners controlling 75 percent of the enslaved population.60 In 1860, 70 percent of slaveowners owned fewer than ten slaves; one-quarter owned between ten and forty-nine; and only 3 percent owned fifty or more slaves.61 Apart from those who owned slaves, southern whites were relatively poor. In 1860, the average white southerner was 80 percent wealthier than the average northerner, but the nonslave wealth of the South was 40 to 50 percent beneath the level in the North.62
The historian William Scarborough examined the 339 slaveowners who owned at least 250 slaves in 1850 or 1860, adding up to more than 100,000 slaves in all. Half of this elite within the southern elite lived in three states—Alabama, Mississippi, and Louisiana—while half of the rest lived in South Carolina. The richest was Nathaniel Heyward, a South Carolina rice planter, who owned an estate worth more than $2 million.
South Carolinians were overrepresented among the politicians who belonged to this exclusive slave society elite: five US senators, seventeen US representatives, fifteen governors or lieutenant governors, and seventy-three state legislators.63 While hundreds of their slaves labored in the rice fields in the heat of a South Carolina summer, the Heyward family and their rich neighbors spent the months between April and November in the cool mountain air of exclusive resort villages like Flat Rock, North Carolina. The children of the planters went to resort village schools in the summer and played, hunted, and fished when the largely absentee landlord family returned to the plantation for a few months during the winter.64
When Heyward died in 1851, the inventory of his estate listed 1,648 slaves on fifteen plantations in South Carolina. To read their names is to wonder about the lives of so many people who were forced to labor so much so that a few could live in luxury. Clay Hall Plantation: Gabriel, Marcus, Neptune, Scipio, Ben, Judy, John, Leah, Maria. Lewisburg Plantation: July, Eve, Cudjoe, London, Di, Emanuel, Ben, Abbey, Sam. Middle House Plantation: Abram, Brutus, Joseph, Castle, Tim, William, Bess, Judy, Isaac, Sapho, Hannah.65
SLAVERY AND STAGNATION
Almost all of the five million immigrants who arrived between 1820 and 1860 went to the North. Because of its unattractiveness to immigrants, the South’s share of the total US population declined from 45 percent of 7.2 million in 1810 to 35 percent of 31 million in 1860. In a seeming paradox, the high cost of slave labor used in manufacturing further hampered the industrialization of the South. Southern slaveowners charged high prices for renting their slaves to factory owners. J. S. Buckingham, a traveler in Athens, Georgia, recorded a conversation with a manufacturer in 1839: “The negroes here are found to be as easily taught to perform all the required duties of spinners and weavers as the whites, and are just as tractable when taught; but their labour is dearer than that of whites . . . and the hope expressed by the proprietor to me was that the progressive increase of white population by immigration would enable him to employ wholly their free labour, which, to him, would be more advantageous.”66
In 1860, only one southern city was among the fifteen largest in the United States.67 A European visitor, Friedrich Ratzel, described southern cities in 1874: “The general character of Southern cities [is] . . . very different from their Northern and Western counterparts. . . . [T]he commerce of this area is still not connected to any industrial activity to speak of. For that reason, besides the big merchants here there are no big industrialists, no skilled workers, nor a vigorous white working class of any size worth mentioning. The shopkeepers and handworkers cannot make up for the lack of these hearty classes that create civilization and wealth. Therefore, . . . this society has an incomplete, half-developed profile like that which one tends to associate with the industry-less large cities of predominantly agricultural countries. In this regard, New Orleans, Mobile, Savannah, and Charleston look more like Havana and Veracruz than, say, Boston or Portland.”68
The journalist Hezekiah Niles, associated with the American School of economics of Henry Carey and Henry Clay, summed up the northern perception of the southern social order in 1829:
Free white labor is not honored;
The education of the poor is neglected;
A desire to excel is not stimulated;
Manufacturing establishments are not encouraged;
The mechanical class is degraded; and
Internal improvement is—LET ALONE69
FROM EXTORTION TO SECESSION
The southern slaveowners could count on allies in the Midwest, the Northeast, and New York City. Populated partly by Yankee migrants from New England and culturally similar Germans and Scandinavians, and partly by white southerners moving north, the Midwest held the key to domination of the federal government. For most of the period between the 1820s and the 1860s, the southern planters used the rhetoric of Jeffersonian and Jacksonian producerism to make the family farmers of the Midwest their political allies.
The alliance between the South and the Midwest had an economic rationale, as well. In his 1855 pamphlet Cotton Is King; or, Slavery in the Light of Political Economy, David Christy explained that one reason that the planters opposed the growth of an urban, industrial working class in the North was their concern that northern industrial workers would compete with their own slaves for the food grown in the Midwest, forcing the planters to recoup their costs by charging higher prices for cotton and making the US cotton industry less competitive compared to its rivals in Cuba and elsewhere: “The close proximity of the [food] provision and cotton-growing districts in the United States, gave its planters advantages over all other portions of the world. But they could not monopolize the [global] markets, unless they could obtain a cheap supply of food and clothing for their negroes, and raise their cotton at such reduced prices as to undersell their rivals. A manufacturing population, with its mechanical coadjutors [an urban working class], in the midst of the provision growers, on a scale such as the protective policy contemplated, it was conceived, would create a permanent market for their products [food], and enhance the price; whereas, as if this manufacturing could be prevented, and a system of free trade adopted, the South would constitute the principal provision market of the country, and the fertile lands of the North supply the cheap food demanded for its slaves.”70
In 1860, the leading manufacturing industry in the United States was the northeastern cotton-textile industry, whose output was valued at $115 million, while wool and iron accounted for roughly $73 million apiece.71 Although Boston was the center of abolitionist activity, most Massachusetts textile-mill owners did not want to antagonize their southern suppliers. They and their political representatives like Daniel Webster were denounced as craven “Cotton Whigs” by New England radicals.
Many of the fortunes in early industrial New England were based on processing cotton grown by southern slaves.72 The merchants and financiers of New York City also had reason to appease the southern planters. New York was deeply involved in the cotton trade, as the third point on a triangle that connected the South with Liverpool, from which cotton moved to the steam-powered mills of the British West Midlands. In 1860, New York City voted against Lincoln. Its mayor, Fernando Wood, argued for the acceptance of southern secession and even suggested that New Yorkers should defend slavery even more ardently than southerners: “As commercial people it is to our interest to cherish and keep so good a customer. . . . Not only let us avoid making war upon her own peculiar system of labor but let us become even stronger defenders of the system than the South itself.”73 Early in 1861, as southern states seceded, Wood proposed that New York and several neighboring counties secede to form an independent commercial city-state. The prospect of losing the midwestern trade to the ports of a low-tariff Confederacy, however, persuaded many merchants in New York to support the Union.74
Counting on northern allies like these, in the decades preceding the Civil War the confident and aggressive southern planter class used the threat of secession to intimidate the rest of the country into submitting to its goals. Their strategy of extortion succeeded in producing the compromises of 1820 and 1850, which maintained the outnumbered South’s equality in the US Senate, and in the compromise tariff of 1833.
As a result of the United States–Mexican War of 1846–1848, the territory of the United States increased by more than two-thirds, from 1.8 million square miles to 3 million. The geographic expansion of the Union threatened the balance among slave and free states in the Senate. In the last great effort of his life, Henry Clay became known as the “Great Compromiser” for brokering the Compromise of 1850.
But in 1854, the Kansas-Nebraska Act, as part of a plan to create a transcontinental railroad, repealed the Compromise of 1850. The possibility that the slave-plantation system could be universalized drove many midwestern Jacksonians together with former Whigs in the new Republican Party, which sought to prevent the extension of slavery beyond the South. Denouncing the Republicans as a purely sectional party, the southern slaveholders threatened secession when General John C. Frémont was nominated as the first Republican presidential candidate in 1856 and carried out their threat when Abraham Lincoln was elected president in the four-way race of 1860. The refusal of the federal government to recognize the new Confederacy made war inevitable, even before Confederate forces fired on Fort Sumter on April 12, 1861.