“In reducing economics to consumption, we forgot production. We measured abundance at the checkout counter rather than the factory gate. We talked about GDP, but not enough about its composition. And we prized low-cost inputs without first asking whether a nation can remain sovereign when it loses command over the things that matter most.
Manufacturing is more than output on a balance sheet. It is a reservoir of practical capability: engineers and welders, tool-and-die makers and logistics networks, plant managers and workers who know how to solve problems on the factory floor.
When that ecosystem is strong, a country can adapt quickly. When it is hollowed out, adaptation becomes slower, more costly, and less certain.”
That’s Treasury Secretary Scott Bessent speaking at the Ronald Reagan Presidential Library over the weekend. Reading through the transcript, it’s quite clear to me that we’ve caught onto something big…
We’ve been exploring the American System in our recent essay series. We traced the story from Alexander Hamilton’s meeting with Thomas Jefferson and James Madison in 1790… to Friedrich List and his theory of productive powers… to America’s first World Fair in 1876.
We’ll look at two more historical figures today who were foundational to fleshing out and propagating the American System. And like we did with List, we’ll analyze their key contributions and assess any gaps and omissions.
And it all comes down to this – the Trump administration is running the American System playbook. That’s become very clear. Indeed, Bessent’s entire speech last weekend espoused the American System’s core economic principles in a way that would resonate with a modern audience.
Bessent never mentioned the American System by name, however. And because it was largely lost to history, I don’t think many analysts have a framework in place to help them understand what’s actually happening… and how seemingly disparate policies are actually linked together in a coherent way.
So let’s continue our journey in exploring the system’s foundations today.
But before we press forward, please don’t take any of this as an explicit endorsement for anything. We’re learning together here, so I’m simply presenting you with my analysis and my takeaways.
My goal is for us to better understand the American System and its origins. Then we may be able to make some educated judgments about how its core principles could be applicable to the modern economy today.
So we’ll start today with another forgotten economist named Henry Charles Carey. If Friedrich List provided the theoretical framework for the American System, Carey developed its social dimensions.
Carey was born in Philadelphia in 1793. He was the son of Mathew Carey, who was himself a prominent economist and publisher. The elder Carey even sported Benjamin Franklin as a patron at one time.
The younger Carey went to work at his father’s publishing firm at the age of twelve, eventually becoming the leading partner at what was, at the time, the largest publishing house in the United States.
Carey’s education came from reading most of the books his firm published — which, given the scope of a major 19th-century publishing house, amounted to a remarkably thorough self-education in economics, history, and political philosophy.
So in his early years, Carey accepted the classical British works of David Ricardo and Thomas Malthus largely without question… because his firm published their books and he read them.
Then in 1835, he read Nassau William Senior’s published lectures on wages… and something broke open. From that point forward, Carey spent the rest of his life constructing alternatives to the British classical school.
His central work, The Harmony of Interests: Agricultural, Manufacturing, and Commercial, was published in 1851.
The title itself was a direct challenge to Ricardo and Malthus, who had painted a fundamentally pessimistic picture of economic life.
Ricardo’s theory of wages suggested that labor was perpetually pushed toward subsistence. And Malthus argued that population growth would inevitably outstrip food production, condemning much of humanity to scarcity and absolute poverty.
Carey rejected both premises.
His argument was that when an economy is organized around increasing productive capacity — through manufacturing, infrastructure, technological advancement, and education — the interests of capital and labor naturally converge rather than conflict. Carey suggested that rising productivity raises wages, reduces scarcity, and expands the total wealth available to everyone.
So Carey presented the idea of “class harmony”. It directly opposed the idea of “class warfare”.
But Carey noted that class harmony could only happen if the economy was structured to create genuine productive wealth rather than to extract existing wealth. And he explicitly framed this as the American alternative to the British economic worldview.
The British system, as Carey described it, was built around the assumption that economic life is a zero-sum competition between “capital” and “labor”. Thus, what capital gains, labor loses, and vice versa.
The American System, in Carey’s view, was built around the opposite assumption—that productive development creates new wealth, and in doing so, raises the standard of living for everyone involved. We can see how this was a natural extension of List’s “productive powers” concept.
Tariffs as Revenue
In addition to his views on productivity and class harmony, Carey was explicit that tariffs on imported goods were the appropriate mechanism for funding the national government.
His reasoning was straightforward.
Income taxes sap the ability of domestic producers to invest in expansion, and at the same time they drain the domestic population’s ability to purchase domestically-made goods. That has a compounding effect that creates a major drag on society.
To Carey, a system of tariffs doesn’t create a drag on the domestic economy because there are no taxes on factory workers’ wages or manufacturers’ profits. Instead, the cost of tariffs is that imported goods cost a little bit more than they otherwise would. But to Carey, economic growth would raise wages over time to offset those costs. Meanwhile, the earnings that an income tax would have siphoned off can be put towards productive purposes.
For most of American history, this was how the federal government was funded. From the adoption of the US Constitution in 1787 through the early 20th century, tariff revenue, supplemented by excise taxes on specific goods, was the primary source of federal income.
That changed in 1913 with the ratification of the 16th Amendment, which authorized a federal income tax. That paved the way for powerful interests to capture America’s financial system and gradually turn it towards extraction, not production. That’s been the story of much of the past century.
So Carey made some important contributions to American economic thought. But he had a major blind-spot with regards to the monetary system.
I say that because Carey was vocally opposed to the gold standard. He saw it as an instrument that favored established creditor nations – namely Britain – to the detriment of developing debtor nations.
Carey advocated for a monetary system based on productive credit — currency that derived its value from the productive capacity of the nation’s economy. He considered that to be a system of sound money.
A dollar lent to build a factory, in Carey’s view, was backed by something more durable than a gold coin — it was backed by the productive output the factory would generate. Alexander Hamilton had similar views, though Hamilton did not oppose gold-backed currency.
This was, in practice, the intellectual basis for the Greenback system — the paper fiat currency that was issued during the 1860s. But as we know, that experiment with unbacked fiat money created devastating price inflation – a recurring danger with fiat monetary systems throughout history.
That said, we don’t have to agree with Carey’s monetary view to acknowledge that his view that economic growth increases wealth and raises everyone’s standard of living was correct.
And I don’t know about you, but I would certainly prefer to live in a world where there was no income tax. If the choice was between tariffs or income tax, I would choose the tariffs also. I’ve learned not to let perfect be the enemy of good.
We can also see how Bessent’s comments in his speech last weekend echo the same foundational view that Carey put forth — that productive capacity would elevate everyone in the economy… not just the capitalists.
Tomorrow, we’ll assess one more of the American System’s early champions. And then we’ll ask the question that goes unasked…
-Joe Withrow
P.S. Episode 6 of the Phoenician League podcast is now online, and it’s the final of our foundational episodes. You can find it at: https://phoenicianleague.com/podcast-episode-6-how-the-phoenician-league-came-to-be/
Episode 7 will drop tomorrow at 6:00 am Eastern, and it will be the first of our ongoing economic and market commentary. In it, we’ll look at what powered The Age of Paper Wealth, why it ended, and I’ll provide you with three or four takeaways regarding how it applies to personal finance and investing today.
If you would like to tune in and join the conversation, the podcast is available on all the major platforms. This includes Apple Podcasts, Spotify, and all the others. The video version is available on our YouTube channel as well.
Alternatively, you can catch every episode after it has published at: https://phoenicianleague.com/podcast