The Real Henry Clay: The Corrupt American Architect of Mercantilism and Protectionism

Today in history marks the two hundred and twenty-ninth anniversary of Henry Clay's birthday. Clay was born in Hanover County, Virginia on April 12, 1777. Clay was a founder and key leader of the Whigs and the National Republican Party in the United States, though he got his start in politics as a Democrat. Clay was admitted to the bar in 1797 and commenced practice in Lexington, Kentucky. He rose to become a prominent U.S. Senator for Kentucky by the 1830s, and he gained considerable prestige in the eyes of many historians for his role in the Missouri Compromise of 1820 as a Congressman. According to Carl Schurz, a German émigré, professed national revolutionist, and Union general, Clay was said to be a political success because:

Clay’s quick intelligence and sympathy, and his irreproachable conduct in youth, explain his precocious prominence in public affairs. In his persuasiveness as an orator and his charming personality lay the secret of his power. He early trained himself in the art of speech making, in the forest, the field and even the barn, with horse and ox for audience. By contemporaries his voice was declared to be the finest musical instrument that they ever heard. His eloquence was in turn majestic, fierce, playful, insinuating. His gesticulation natural, vivid, large, powerful.

Indeed, Henry Clay was a master orator with a silver-tongue and a knack for persuasive speeches and forceful polemics against the opposition. Not surprisingly, a Senate committee chaired by John F. Kennedy in the late 1950s, honored Clay as one of the five greatest U.S. Senators in American history. Clay was in a word, the archetypical politician: crafty, clever, compromising, and above all – shrewd.

The American System

Henry Clay is considered the architect of the u2018American System,' which called for a regiment of high tariffs, federal support for u201Cinternal improvementsu201D such as road building and railroads, corporate welfare, and a national banking system based on fiat money. It was a conscious attempt to bring the Hamiltonian System to fruition, as embodied in Alexander Hamilton's 1792 u201CReport on Manufacturers.u201D Hamilton himself hoped to model the American polity after that of Great Britain, all the way down to the pattern of a consolidated unitary state and the British mercantilist system of patronage and privilege. Hamilton more or less destroyed the Federalist Party in the 1800 elections and elicited a tax revolt. Where Hamilton failed, one generation later, Henry Clay rallied to pick up the torch and implement this mercantilist system. Thomas DiLorenzo notes, u201CProtectionism, a money supply that is controlled by the central government, and government subsidies to corporations were the keystones of what might be called the Hamiltonian/Clay/Lincoln American System.u201D (DiLorenzo, p. 67)

As DiLorenzo explains in The Real Lincoln, protectionism represented nothing more than:

…[A]n indirect subsidy to politically influential businesses that comes at the expense of consumers (who pay higher prices) and potential competitors. Because government never has the resources to subsidize all businesses, so-called internal improvement subsidies could never have amounted to anything but selective subsidies to politically favored businesses. And a nationalized banking system, which was finally adopted by Lincoln and the Republican Party during the War between the States, has always been used as a means of printing money (and thereby creating inflation) to pay for even more selective special interest powers. (DiLorenzo, p. 59)

All of these policies tended toward further centralization of government, and were averse to the doctrine of limited, constitutional government, and facilitated the aggrandizement of power, prestige and wealth around those who doled out the favors to special interests. Virginia statesmen John Taylor of Caroline, said of this mercantilist system, it was "the best which has ever appeared for extracting money from the people; and commercial restrictions, both upon foreign and domestic commerce, are its most effectual means for accomplishing this object."

Cartoonist E.W. Clay published this 1831 cartoon lampooning the American System as the Monkey System with this caption "Every one for himself at the expense of his neighbor!"

Though renowned for his hand in the compromise after the South Carolina nullification crisis, Clay was among the chief proponents of the 1828 Tariff of Abominations that had sparked the crisis. While he is often credited with helping to abate the crisis by sponsoring a compromise tariff bill in 1832, it was a predicament that he helped instigate. The higher tariff rate schedule was requisite Clay reasoned, because the 1824 rates "fell short of what many of my friends wished." Despite his reputation as a reconciler in the U.S. Senate, Clay promised that he would someday "defy the South, the president, and the devil" that tariffs might be raised again.

As Ludwig von Mises noted in Human Action, "All that a tariff can achieve is to divert production from those locations in which the output per unit of input is higher to locations in which it is lower. It does not increase production; it curtails it" (Mises, HA, p. 737). Lew Rockwell observes:

Calhoun developed a unique way of thinking about the tariff that turned it into a populist issue. If the tariff is 33 1/3%, it is the same as the government taking one third of what the producers raise in cotton, rice, and tobacco. Whether the goods are coming into the country or leaving it, a tariff of one third is the theft of one third. To Calhoun this meant that one third of the toil and labor of the people of the South was being transferred to the North to build Northern industry and to feed a hostile government. (Rockwell, "Protectionism, War, and, the Southern Tradition.")

Of course, the part and parcel of Henry Clay's American System was steep protective tariffs.

Whigs vis-à-vis Democrats

Henry Clay's Whig party was not without opposition, and the American System he celebrated faced extinction at the hands of Democrats. In point of fact, the first avowed Conservatives in the United States were Democrats – chiefly in the South. Michael Holt, author of the impressive The Rise and Fall of the American Whig Party, surmised the principled position of the Democratic opposition to the Whigs:

Since government created these privileges through its positive actions, government should do as little as possible. If government acted at all, Democrats asserted, it should be the government closest to the people – the states before the nation, localities before the states – and the purpose of such action should simply be to guarantee equal rights and individual freedom. (Holt, p. 67)

The Democratic Review in 1838 established their creed: "The democratic creed may be summed up in this brief formula. As little as government as possible; that little emanating from, and controlled by, the people; and uniform in its application to all." Senator John Calhoun said, “We want free trade, they restrictions. We want moderate taxes, frugality in the government, economic accountability, and a rigid application of the public money to the payment of debt.”

The big government Whigs fancied themselves as advocates of "internal improvements," which was a euphemism for corporate welfare and subsides to private interests and wasteful, inefficient federal expenditures on boondoggle public works projects. Likewise, they were foes of the gold standard and ardent proponents of a central bank, and inflationary fiat money system. Holt explains,

As the agent of the people, the national government therefore should supply that capital, either directly or indirectly. It should subsidize expensive transportation projects or transfer its funds to the states so that they could do it. It should deposit government funds in banks, preferably a new national bank, so that banks could expand money and credit. It should provide tariff protection for American manufacturers… (Holt, p. 69)

The Whigs, notes Michael Holt, "believed government must promote prosperity. Especially in hard times, government must take positive action to stimulate economic recovery." The opposition in contrast stressed the virtue of a "natural economy," as John Taylor put it, characterized by sound money and a bare minimum of state intervention in the economic affairs of men. In contrast, the party of Henry Clay openly advocated paternalistic government, as evident by the 1840 campaign pamphlet "The Crisis of the Country," in which Calvin Colton argued,

The maxim of Mr. Van Buren, "Let the people take care of themselves, and the Government take care of themselves," is as destructive as it is fallacious… The appropriate function of Government is a parental care of the people" (Holt, p. 69).

Clay's Character in Politics

It is well documented that both Henry Clay and Daniel Webster received kickbacks for their service to the agenda of the national bank. Both were in the back pocket of the Second Bank of the United States, and received kickbacks and other compensation from the corrupt bank director Nicholas Biddle. Andrew Jackson rightly saw it as a corrupting influence upon the body politic to be dispensed with.

During his time in Congress, Clay incurred a sizable personal debt of $40,000 and spent exorbitantly. Of course, he could afford to do so, as he was the principal advocate of the Nicholas Biddle's national bank in Congress, and served as the counsel afterwards. In his book Henry Clay the Lawyer, Clay biographer Maurice Baxter biographer notes,

His income from the business amounted to what he needed [to pay off his debt]: three thousand dollars a year from the bank as chief counsel; more for specific cases; and a sizable amount of real estate in Ohio and Kentucky in addition to the cash… When he resigned to become Secretary of State in 1825, he was pleased with his compensation. (DiLorenzo, p. 65.)

His compensation was equivalent to a million dollars in current dollars. Not surprisingly, he maintained a sizable estate named u201CAshlandu201D in Lexington, Kentucky. One of his colleagues, another famous Whig, Daniel Webster, just took such kickbacks openly while in Congress. Webster once wrote the bank director Nicholas Biddle, stating, u201CI believe my retainer has not been renewed or refreshed as usual. If it be wished that my relation to the Bank should be continued, it may be well to send me the usual retainer.u201D As John Taylor of Caroline astutely prophesized in his 1822 classic Tyranny Unmasked, the "paper aristocracy" would completely corrupt the body politic – and by implication, the Congress.

Admired by Abe

It should not come as surprise to many that Abraham Lincoln considered himself to be a heartfelt admirer of Henry Clay, and he made Clay his exemplar. During 1852, at his death, Abraham Lincoln eulogized Clay as “the beau ideal of a statesman” and the “great parent of Whig Principles.” Lincoln was conscious in making Clay as his political archetype, in noting: “During my whole political life, I loved and revered [Clay] as a teacher and leader.” When the Whig Party was fractured in the sectional strife, out of the ashes arose the Republican Party of Abraham Lincoln.

Lincoln took up the mantle of the American System, and he supported some of the most onerous tariff increases in American history. The Morrill Tariff of 1861 was a protectionist tariff bill passed by the U.S. Congress in early 1861. The main purpose was the protection and encouragement of a cadre of northeastern manufacturing interests. Not surprisingly, 87% of the northern congressmen supported the bill and 87.5% of southern congressmen opposed it. As historian Frank Tausig observes, the schedule of the Morrill Tariff and its two successor bills were retained long after the end of the war. Whereas tariffs were around rates of 18–20% on average in the 1820s, the Morrill Tariff raised the average rates to 36.2%, and it was subsequently revised upward in 1864, and the average rate stood at 47.56%.

In his book Omnipotent Government, Austrian economist Ludwig von Mises astutely explained a protectionist system is seldom moderate in nature, and historically degenerates into a desire for total autarky (viz. self-sufficiency):

In the long run there cannot be such a thing as moderate protectionism. If people regard imports as an injury, they will not stop anywhere on the way toward autarky. Why tolerate an evil if there seems to be a way to get rid of it? (Mises, OG, p. 250)

Mises' observation is well observed in American history with the rise of the war hawk Republican Party, which was born in blood, and wholly embraced Clay's American System. In his magnum opus Human Action, Mises surmised that protectionism was philosophy that leads to belligerent nationalism and war:

The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines. (Mises, HA, p. 683)

When the states of the Deep South initiated their secession in early 1861, Lincoln was asked, “Why not let the South go in peace?” To which he frankly replied, “I can’t let them go. Who would pay for the government?” Lincoln preferred an invasion and a bloodbath to peaceful separation, and tolerance of a free-trade southern Confederacy. As Frédéric Bastiat observed in 1850, "when goods don’t cross borders, then troops will.” Thus, the real legacy of Henry Clay is laying the groundwork of a system of patronage and plunder – which fomented political instability, kindled southern resentment and led to the War Between the States. The American System was made possible by the rise of the Republican Party. As the late Samuel Francis observed, "it is one of the ironies of our history that the political party that claims the republican name has been the chief vehicle since the Civil War of anti-republican nationalism." The push for the American System led to political strife, and compelled those most victimized economically by it to a principled but nonetheless futile resistance. Such is the legacy of Henry Clay's American System and his political son Abraham Lincoln. As John Acton surmised, "Calhoun was the real defender of the Union."

The Closing Salvo

As Frédéric Bastiat quipped in tongue-in-cheek fashion, "The State is the great fiction through which everybody endeavors to live at the expense of everybody else." Clay spent his whole career proving that aphorism, as he labored to usher in the gilded age of political centralization, oligopoly, protectionism, patronage and privilege in the United States. Edgar Lee Masters offered a telling summation of Clay's character in his book Lincoln the Man:

Clay was the champion of that political system which doles favors to the strong in order to win and to keep their adherence to the government. His system offered shelter to devious schemes and corrupt enterprises. His example and his doctrines led to the creation of a party that had no platform to announce, because its principles were plunder and nothing else. (Masters, p. 27)

Clay's American System was fully embraced by the party of Lincoln and set the stage for an exorbitant special interest lobby in Washington, D.C. Clay's legacy lives on in the twenty-first century, and is embodied in big government, and all of its attendant perils: namely pork-barrel spending, staggering budget deficits, a bloated national debt, an inflationary monetary system, spoliation of taxpayers, national commandeering of state public policy prerogatives. Likewise, it is characterized by a colossal political appropriation of the nation's labor, production, wealth and property by a corpulent central government. John Acton observed, "Great men are almost always bad men, even when they exercise influence and not authority; but still more when they are super bad and add the tendency of the certainty of corruption of authority." Henry Clay was a great man.

Further Reading

While Robert Remini wrote a fairly flattering biography entitled Henry Clay: Statesman for the Union, even so Henry Clay's machinations and corruption are documented in the 2001 Mises Institute release, Reassessing the Presidency: The Rise of the Executive State and the Decline of Freedom edited by John V. Denson, and also in Thomas DiLorenzo's The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War. Likewise, the March 1998, Vol. 16, No. 3 issue of The Free-Market featured a succinct essay by DiLorenzo entitled "Henry Clay: National Socialist" which is available online through the Mises Institute. Finally, Lew Rockwell offered an insightful address, "Protectionism, War, and the Southern Tradition" which elucidates on the principled opposition to Clay's Whig Party made by the Southern Democrats and Old Republicans.

April 13, 2006