U.S. History

Government and Markets

The 14th Congress was overwhemingly made up of Jeffersonian Republicans, but it reversed many of the positions taken by Jefferson's old party.

For example:

-It chartered a national bank (which Jefferson was completely against)
-It enacted a protective tariff
-It debated building a national system of roads & canals

I think I hear Jefferson rolling in his grave right now.

Republicans had (as late as 1811) viewed such programs as heresy, but by 1815, the had come to accept it as orthodox. (Oh, the hypocrisy...)

As the Republicans struggled with their national identities (like teenagers at the peak of puberty) the War of 1812 waged, during which the United States demonstrated:

-It was unable to coordinate a fiscal & military effort
-Its reliance on foreign trade made the U.S. dependent on Europe
-It must abandon Jefferson's export oriented agrarianism
-It must encourage national independence through susidies through commerce & manufactures

The American System

Henry Clay, a war hawk (a party in Congress who supported the 1812 War efforts), headed the drive for neo-Federalist program. He advocated three things in the American system:

-Protective tariffs (So there was actually reason behind taxes at one point)
-Internal improvement (Roads, canals, railroads, etc.)
-National bank

Clay argued that the American system would foster national economic growth and sectional interdependence between geographical sections, which would result in a happy & healthy republic.

The second Bank of the United States was charted by Congress in 1816, headquatered in Philadelphia, and it could establish branches wherever it saw fit.

The federal government agreed to deposit its funds in the national bank, to accept the Bank's notes as payment, and to by 20% of the Bank's stock. It became more powerful than the Bank that was rejected as unconstitutional in 1811.

Two major things that convinced Republicans in favor a national bank:

-The nation needed a national currency
-The nation needed a centralized control of money & credit

The alternative was state banks, which would issue unregulated and inflated notes, which would throw the postwar economy into chaos.

The constitutionality of the bank was not discussed (the power of ignorance is a powerful tool in politics). The Bank was empowered to be the sole institution to do business throughout the U.S. The notes issued by the Bank was the first semblance of national currency, which it could regulate.

The first overtly protective tariff was passed in 1816, shepherded by Henry Clay and John Calhoun. It raised tariffs an average of 25%, and protected the nation's infant industries. It did so at the expense of foreign trade & American producers (I'll just assume they knew what they were doing).

Wartime difficulties helped because America could not depend on imported manufactures during war, and Congress encouraged domestic manufactures.

The protective tariffs were strongly supported in the Northeast and the West, and got just enough support from the South to pass. It established once and for all the principle of protectionism.

Internal improvements had a harder time winning approval. (Hint: it had something to do with money. Surprise, surprise.)

Wartime British blockade that hampered coastal shipping encouraged internal improvements because it made Americans dependent on obsolete interior roads and caused a desire of an efficient transportation network.

Some wanted a National road linking Chesapeake with trans-Appalachian West, others wanted an inland canal system linking northern & southern coastal states, and some wanted a federal turnpike linking Maine & Georgia.

But because of funding, the improvements was doubtful of constitutionality (the federal government didn't want to pay for something only beneficial to certain states, very much like the way parents refuse to blatantly favor one child), so it was only partially supported by Presidents Madison & Monroe. The government wanted a more constitutional amendment.

Therefore, the state governments took care of the funding for internal improvements. It reflected the designs of the most ambitious states. The most spectacular accomplishment is New York's Erie Canal, challenged by Pennsylvania's and Ohio's canal systems. Most internal improvements were built by corporations charted by canals & railroads.

This commitment to a more efficient transportation network produced the market economy. States provided funding that attracted private investors.

Markets and Law

The American revolution replaced British courts with national and state legal systems, which were based on English common law and made legal action accessible to most white males.

Most of the disputes generated by the transition to a market society ended up in court. The courts removed social conflicts from the public arena and into a peaceful courtroom (No such thing). The result was a promotion of:

-Entrepreneurial use of private property
-Sanctity of contracts
-Right to do business shielded from neighborhood restraints
-Right to do business shielded from the tumult of democratic politics

The central character was Chief Justice of the Supreme Court: John Marshall. He presided over the Court from 1816 onwards. He used the Court as a conservative hedge against the excesses of democratically elected legislatures, and he protected the independence of courts. Marshall also created the court's right of review legislation, encouraged business, and strengthened national government at the expense of the states.

Marshall protected contracts and charters from state legislatures:

-DARTMOUTH VS WOODWARD (1816)

Dartmouth defended its royal charter of the 1760s from the changes introduced by a Republican legislation. The Republicans wanted to change it from a bastion of Federalism to a state college. Dartmouth was defended by Daniel Webster, who convinced Marshall to rule that state legislation could not alter corporate charter. This decision also protected all business ventures that had privileges under corporate charters, which had been granted by state governments, but could not be regulated by states once granted. Thus, these corporate charters acquired the legal status of contracts and beyond the reach of democratic politics.

-MUCCULLOCH VS MARYLAND (1816)

The state of Maryland had Jeffersonian doubts about the constitutionality of the Bank of U.S. so they tried to tax the Baltimore branch of the Bank, which then challenged Maryland's right to do so. Marshall decided in the favor of the Bank. He cited the Constitution's granting to the federal government of implied powers, which included the power to establish the Bank. So in laymen's terms, Maryland was not allowed to tax the Bank or any other federal agency because "the power to tax implies the power to destroy." This was an explicit blow against Jeffersonian strict constitution for Marshall, who insisted that the federal government was not dependent on the states. However, many Southerners believed that the Founders had intended the opposite. (This is why legal jargon is so overrated--who cares if it sounds good if no one understood it!)

-GIBBONS VS OGDEN (1824)

Marshall breaks a New York state-granted steamship monopoly; he argued that the monopoly interfered with federal jurisdiction over interstate commerce. This decision empowered the federal government over state government just like the aforementioned cases. Also, this decision encouraged private entrepreneuralism.

Marshall supported the American System and assumed that a natural link existed between the federal government and a market society.

State Courts

The state courts worked profound transformation of American law. They gave businessmen the right to do business even when they inflicted damage on neighbors. They ruled that businessmen had the right to develop property for business purposes and that railroads could build despite townspeople's complaints and protests. They believed "private injury and personal damage" must be expected and business uses of private property demanded legal protection.