Henry C. Carey's Practical Economics
Henry C. Carey understood that political economy must be based on the world as it is, not abstract theory.
The American System found its crowning achievements in the presidency of Abraham Lincoln. As a young Whig, President Lincoln followed the principles of Henry Clay and fed them into his own political and economic thought. But President Lincoln also drew upon the support of economists who shared his commitment to the American System. Henry Charles Carey was the leading light of the new American school of economics and played a crucial role in the founding of the Republican Party as well as the development of its economic policies under President Lincoln.
From the early years of the republic, it was the classical school founded by British and French intellectuals that dominated the American academy and its teaching of political economy. The 1825 Harvard and 1827 Yale catalogs had Jean-Baptiste Say’s A Treatise on Political Economy as their key reading. Academics such as Reverend John McVickar, Dr. Thomas Cooper, and Thomas R. Dew abided by the laissez faire doctrine defined by Adam Smith, Thomas Malthus, and David Ricardo. Many American economists were taught in Britain or Germany, continuing the domination of European economic thought. The American school would instead have to emerge principally from people with backgrounds in business, journalism, and politics, who wanted an alternative response to immediate public-policy questions.
By upbringing and training, Carey was a publisher and a businessman in Philadelphia. His father, Mathew Carey, was an ardent supporter of Alexander Hamilton who founded the Philadelphia Society for the Promotion of National Industry in 1819 and was involved in the Pennsylvania Society for the Encouragement of Manufactures and the Useful Arts. Benjamin Franklin helped Mathew Carey to set up his publishing company, and both men had a shared interest in nurturing American manufacturing. It was through his father’s teaching and the books they published that Carey learned about political economy. Carey was the first American economist to come fully into his own with an international reputation, though he is now largely neglected while the names of other economists and social scientists live on.
A combination of rising nationalism and intense anti-British sentiment drove momentum for economic independence as a desirable and necessary goal. Daniel Raymond, Alexander Everett, and Willard Phillips were three lawyers who led the charge against the classical school in the 1820s, arguing, as economist A.D.H. Kaplan put it, that “the productive capacity of the nation is the true measure of its wealth.” These amateur economists provided a template for Carey to follow during his career. The American School did not believe it was perfecting a science, but applying an art. This meant that political economy had to be adapted to their nation’s particular circumstances and should advance the national interest.
At the outset of his career as an economic thinker, Carey was a firm advocate of laissez faire doctrine, and his devotion to Smithian political economy never wavered even as his beliefs on trade began to fundamentally shift. But throughout his writings, starting with his 1835 Essay on the Rate of Wages, Carey sought to refute the teachings of Malthus and Ricardo on diminishing returns and population growth. Economic historians can find a wide number of flaws and contradictions in Carey’s writings. This does not mean Carey failed to provide vital insights that would shape the American School. In fact, he succeeded in providing a corrective to the dominance of the classical school.
The problem was that the economic pessimism of Malthus and Ricardo was being applied to a nation vastly different from Britain, where they had developed their observations. In America, land was plentiful and labor scarce. Carey and others believed that production was the key to economic independence and growth. To increase America’s ability to produce, government action was required to foster the efficient development of different economic interests. Economist Rodney J. Morrison described the American School as “characterized by a philosophy of opportunity and optimism based on the abundance of natural resources in the United States.”
While the essential features of the American System were already well established by the time Carey started writing, it took the economic shocks of the 1830s and 1840s to weaken his attachment to laissez faire and convert him to protective tariffs. As the owner of a paper mill and coal mine, Carey had firsthand experience of the devastating impact of the Panic of 1837 on commerce. From 1848 onwards, Carey started to argue that free trade did more to facilitate British economic superiority and left America vulnerable. Instead, he argued, America should develop its home market and diversify its industries as means of achieving economic independence. American academics, still committed to the classical school, did not find Carey’s work convincing, but he received plaudits across Europe and beyond where his works received French, Portuguese, German, Swedish, Russian, and Japanese translations.
Careys’ major contribution to the American School was The Harmony of Interests: Agricultural, Manufacturing, and Commercial in 1851. Much like Clay before him, Carey believed in bringing together America’s different regions and industries into a system of mutual support and prosperity with the helping hand of the state. He later argued that “The interests of the capitalist and the laborer are… in perfect harmony with each other,” and “Each derives advantage from every measure that tends to facilitate... growth.” The state-sponsored development of the home market would result in a robust industrial base, resilient agriculture, and vibrant commerce that could prepare America for fair competition with economic powers like Britain.
Although he no longer favored free trade, Carey maintained that there needed to be strong competition within the home market. Abiding by Smithian political economy, he was opposed to monopolies and the concentration of wealth in particular localities. He wrote that “the establishment of a local attraction [tends] to neutralize the attraction of the capitol, or great commercial city; and where such local centers must exist, there, invariably, is found the greatest tendency to the development of individuality, and the combination of action – and the most rapid progress in knowledge, wealth, and power.” To maintain the harmony of interests, economic growth had to be locally driven and balanced between different industries.
On top of the disdain of American academics, Carey was criticized by classical school thinkers in Britain. John Stuart Mill called Carey’s arguments “perverse and absurd” and referred to his Principles of Social Science (1858-60) as “the very worst book of political economy that I have ever toiled through”. But Carey was not attempting to convert the likes of Mill. He was speaking for the interests of American enterprise. The Bulletin of the American Iron and Steel Association called Carey the “Ajax of Protection” in recognition of his efforts. Outside of Carey’s native Pennsylvania, support for protection was modest during the 1850s but the outbreak of the Civil War would pave the way for a fundamental economic transformation.
A More Perfect Economic Union
Having established himself as a powerful voice for the American School, Carey’s home became an intellectual hub with gatherings known as “Carey Vespers.” Key friends and allies included Congressman William D. Kelley of Pennsylvania, known as “Pig Iron Kelly” due to his support for high duties on iron and steel, and Joseph P. Wharton, a leading iron and steel businessman. Writers such as Rufus Griswold, the editor of the American Whig, and Robert Ellis Thompson, editor of Penn Monthly, were also regular attendees. Even Ulysses S. Grant was known to have visited. Carey would support the protectionist journal the Plough, the Loom, and the Anvil to help advance his goals in public debate.
The founding of the Republican Party created a vital opening for Carey and the American School. Carey’s economic arguments put the Clay Whigs in a powerful position to forge the new party’s political creed. He had also established his abolitionist credentials in 1853 with the publication of The Slave Trade, Domestic and Foreign: Why It Exists & How It May Be Extinguished, which criticized slavery for making the South dependent on a single crop that was vulnerable to the British import market and drastically reduced land productivity. The Democratic Party’s support for free trade and slavery were bound together in the South for this very reason. This added a useful economic argument to augment the powerful moral case made against slavery by the abolitionists within the Republican Party.
When he joined the Republican Party, Carey provided intellectual ballast to protectionists and attacked President Buchanan’s 1857 low-tariff law. After the publication of his three-volume magnum opus, Principles of Social Science, Carey became a pamphleteer to promote the American School’s ideas. Philadelphia hosted the very first nominating Republican National Convention at which Carey would chair the proceedings and receive three votes for the vice-president nomination. An influential figure in Pennsylvania, he was even spoken of as a possible gubernatorial candidate. Four years later in Chicago, Carey threw his support behind Lincoln’s candidacy. Alongside the president, influential members of the Lincoln administration, including Treasury Secretary Salmon P. Chase, would follow Carey’s advice on key economic issues.
To win the war and restore the union, the Lincoln administration set about putting the American School’s ideas into practice with Carey acting as President Lincoln's economic advisor. The Lincoln administration supported infrastructure projects like the First Transcontinental Railroad and introduced the Homestead Act. The National Academy of Sciences, Department of Agriculture, and Free State Land Grant Colleges were also established. Protectionism became a central pillar of Republican economic policymaking with the introduction of the Morrill Tariff of 1861. Just as Carey hoped, the Lincoln administration was working to harmonize the different interests of America so that a stronger union could emerge from the Civil War.
Despite protests from financial interests in New York and Boston, Lincoln issued $400 million in greenbacks and sold new 7-30 and 5-20 bonds directly to the American people. Thaddeus Stevens, a Pennsylvania congressman who worked with Carey, sponsored the Legal Tender Act of 1862. Carey called greenbacks “the people’s money.” This was supported by the passage of National Bank Acts that taxed state bank notes out of existence. However, when the issue of specie-payment resumption was raised after the conflict, Carey was firmly on the side of maintaining the flow of cheap money. This put him at odds with the Republican leadership, which preferred a national currency tied to the gold standard, forcing Carey to defect to the populist Greenback Party.
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Carey’s departure from the Republican Party did not diminish the legacy he left behind for the remainder of the 19th century. His theory of protection and development inspired a generation of American School thinkers such as E. Peshine Smith, Horace Greeley, H.C. Baird, and William Elder. Protective tariffs remained a central part of Republican orthodoxy for decades to come, more for political reasons than theoretical ones. France, Germany, and Japan went along similar journeys during the high noon of British free trade, growing industrial production under the protection of tariffs. Protective tariffs gained a brief following in Britain itself under the leadership of Joseph Chamberlain during the early 20th century, albeit with limited success.
Carey’s contribution to public life was revealing how political economy must be based on the world as it is rather than on theory. His insights helped the Lincoln administration to act decisively to strengthen the American economy, unleashing staggering industrial power. Modern America finds itself in the position once occupied by the British Empire as the world’s largest economic superpower and guarantor of the international trading system. To decouple from the Chinese economy and rebuild the nation’s industrial base, America needs the boldness of President Lincoln and the practicality of Carey. This means putting aside free-trade orthodoxy and using tariffs intelligently as part of a comprehensive industrial strategy.
This article is part of the American System series edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors.