What saved America’s economy after the Civil War?

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OCALA, Fla., March 26, 2014 — These days, politicians, academics, and pundits find themselves caught in a tug of war.

Pulling one end of the rope are Keynesian School economists, who call for the government to more or less control the economy with massive infusions of money. Opposite them stand the Austrian Schoolers, who want unfettered free market capitalism; meaning no minimum wage or labor rights. 

While most probably don’t know it, there is a viable alternative to these two extremes. It goes back to a time not long after the United States was founded. Fittingly, it is called the “American School” or “System”.

Over the last few days, this column has featured two articles about the School and how it came to be. Now, we are up to the Civil War.

During its onset, Abraham Lincoln had far more than military concerns to deal with.

With the South, a crop producer second to none, forming a country of its own and the West mostly inaccessible due to rebels controlling much of the Mississippi River, America’s economy was left in shreds.

Henry Charles Carey, serving as Lincoln’s chief economic advisor, believed that this allowed for a chance unlike any other to totally restore the American System. With both Southern slave-intensive free traders and libertine Western pioneers out of the picture, the mercantile North was left to run the show.

Run the show it did. Tariffs were tripled, railroads built, and the Legal Tender Act passed. The latter was especially important; it allowed the Treasury to print greenback currency not exchangeable in precious metals. Essentially, Lincoln’s leadership managed to bring the country back to a time of economic independence, innovation, and security.

Following Lincoln’s assassination, which roughly coincided with the South’s defeat, other presidents would continue in his tradition. Reconstruction, a complex political policy that allowed Northern appointees to run Southern public offices and institutions, guaranteed the North total control over the American System for over a decade.

Even after Reconstruction ended, the South had grown, begrudgingly, to largely accept the American School. The West, locked in a series of wars pitting settlers against native inhabitants, understandably had greater priorities. As the years passed, the nation’s economy continued to grow stronger; more factories were built, more products devised, and both blue and white collar workers enjoyed higher incomes.

At times, so few things were wrong with America’s domestic market that pundits actually searched for things to squabble over. By the 19th century’s closing decades, the United States had become the world’s foremost industrial power. As the year 1900 approached, it seemed as if an unparalleled era of prosperity was at hand.

Even before then, though, the seeds for the American system’s destruction had been sown. The fellow who planted them was Grover Cleveland, who served as president for two nonconsecutive terms in the 1880s and ‘90s. A staunch believer in economic noninterventionism, he radically cut tariff rates and vigorously promoted internationalist trade.  

By the end of Cleveland’s second term, the public was panicked over the future of the nation’s economy and subsequently elected William McKinley, an outspoken tariff advocate, to the presidency. McKinley managed to reinvigorate not only the market, but also the dollar, with his emphasis on backing the latter with gold.  

The good times were rolling once again, though these were not to last.

Much of this article was first published as Amerinomics, Part Three: The Golden Era of the American System in Blogcritics Magazine.

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  • Bill

    What “saved the American economy after the Civil War”…was not the vague or convoluted answer you gave. It was the western expansion of the railroads, made possible by US national sovereignty on the land, and the various Pacific RR Acts (1862-69).

    We could do a similar kind of thing, but in outer space, if the political will was as strong today as it was after that terrible conflict. But weak-minded internationalists allowed LBJ in 1967 to ram a flawed treaty thru the US Senate, that was a total sop to Soviet Cold War paranoia, the Outer Space Treaty of 1967. It forbids US national sovereignty on “heavenly bodies” (e.g. the Moon), and thus, removes the whole notion of property rights, effectively removing the reward portion of the immutable “Law of Risk & Reward”.

    Otherwise, the USA could realistically enjoy the kind of economic & technological growth that caused Henry Luce to proclaim the “American Century” for the 20th. That century was midwifed by those RR acts passed some 3+ decades earlier.