American System Case

American History II

The American System was a mercantilist financial plan that played a leading role in the American policy in the first half of the 19th century. A strategy to unify and strengthen America, the American System, was created by a number of leading politicians and the Democratic-Republican Party (Kaufman, 1998). The system was a fresh form of federalism, which comprised of a high tariff of securing the American industries.

Derived from the "American School", the plan incorporated three elements of the American economy. They included a tariff to protect, as well as promoted American industries, federal subsidies for roads and other internal improvements, and finally, a national bank to foster commerce.

A tariff refers to either a tax on exports or imports in and out of a country, or, on the other hand, a schedule or list of prices for things such as bus routes, electrical usage or rail service (Kaufman, 1998). From the 1790's up to the eve of the First World War, Tariffs, often referred to as customs, were, for a long time, the largest source of the American revenue.

A subsidy, on the other hand, referred to the assistance paid to an economic sector or business (Kaufman, 1998). A majority of subsidies were created by the U.S. government and offered to subventions in an industry so as to prevent the industry from collapsing. Subsidies, in the United States, were often regarded as a form of trade barrier or protectionism (Kaufman, 1998). This was because it made locally manufactured goods more competitive than imports.

Finally, a national bank, in the United States, refers to a private bank operating within the regulatory structure, which might or might not function nationally. The whole meaning of a national bank is that the bank is not subject to state usury laws, which are intended to prevent predatory lending (Kaufman, 1998).

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