FRIEDRICH LIST, THE
ULTIMATE GLOBALIST
Regulating
Entrepreneurship and World Power
JEL classification: B 25 & 31, F
02 & 15, and O 19.
Keywords:
History of Economic Ideas on: Growth;
Development; Trade, Economic Integration
For the essay-collection on Free Trade and the Nation State
Edited by Jürgen G. Backhaus, as an outcome of
The 1997
Arno Mong
Daastøl
SUM - Centre
for Development and Environment,
arno@daastol.com http://daastol.com
Friedrich List was a “globalist” at heart while
still being a protectionist and an economic nationalist, by force of the
prevailing situation. I will try
to untangle List’s
apparent and somewhat contradictory stance by way of explaining some
crucial points of List's criticism of the free trade policy of Adam Smith's followers.
These concern the role of co-operation of labour based on immaterial production
forces focused in particular at promotion of productive powers, through
production of public goods in a wide sense.
After giving a necessary general background and description of his ideas
I will return to the task of untangling the "contradiction".
The German-American economist, Friedrich List,
is known historically
among economists as the foremost proponent of railroad construction - and above
all as a trade protectionist. In
this article I will show that he held beliefs quite contrary to this ordinary
appreciation of him. He worked for a more elevated form of global civilisation
and therefore was a devoted believer in the promotion of free trade, international
law, world trade congresses, a world trade organisation, and a world
government. Concerning all these points he came forward with specific suggestions on
how to go about to succeed and what resistance to expect. To him, this was most
likely to be fulfilled through a development that was gradual and that involved
legal, administrative and democratic measures.
The core of List’s strategy was the theory of productive powers as
opposed to “the theory of exchange values”, which English writers termed the
rather monetary oriented outlook of Adam Smith and his followers. The means to
elevate civilisation was the establishment of an urban industrialised society. The crucial and
basic instrument was to be tax
and trade policy, besides property regulation. On a more concrete level this
would involve arranging for incentives that would spur investment into infrastructure of all kinds,
into manufacture, especially machine tool production, and into agriculture,
especially science related agriculture.
List’s strategy differs from that of the
acknowledged free traders in that he paid more respect to factors of production that can be summarised under
the label “immaterial”. This is connected to List’s inclusion of the role of co-operation or
“confederation of labour” as an important factor of production - in
addition to Smith’s “division of labour”. This focus on immaterial factors had consequences for the
practical application of the legal and administrative measures in that he would
advocate transitional
remedies related to national learning to overcome the different
prevailing circumstances of each individual nation.
List therefore stressed the difference between private and
national (public) economic principles. Knowledge being the public good # 1
makes learning and therefore cultivation and protection of skill crucial,
therefore the need for governmental intervention. He believed that the
following motive / incentive oriented factors were crucial for the development
of a more elevated global civilisation: Stability & order for
predictability (for investments of all kinds), freedom & participation (for
creativity), morality & know-how (for predictability and productivity).
These factors were all goals in their own right that needed an accompanying
industrialisation. These factors were also instruments of his program for
industrialisation.
This is why List in his pursuit of a more
elevated and free civilisation, and therefore as an adherent of free trade, of
international law, and of a world government, could also be devoted to the
promotion of the national principle (applying state intervention) in economics,
as the necessary instrument. It is this author’s belief that List’s version of
free trade would represent a more genuine type, if free trade ever would be
possible.
The basic core of List's contribution to economics or rather
Political Economy, may be said to be that of,
…
a prophet of the ambitions of all underdeveloped nations. (Laue, 1963, p.57)
Industrialisation and urbanisation were meant to be means to further general and individual freedom of thought and action, and to develop the spiritual characteristics of Man by offering potential for the creation, implementation and exchange of ideas, including morality.
That List was a free
trader and an Globalist by heart should be obvious from the following quotes. The last point of his criticism against his own
beloved industrial system as opposed to the monetary system (or Mercantile- as
he named it) was,
7. That chiefly owing to its utterly ignoring
the principle of cosmopolitanism, it does not recognise the future union of all nations, the
establishment of perpetual peace, and of universal freedom of trade, as the
goal towards which all nations have to strive, and more and more to approach.
(* 1841, p.341)
In other citations in the same direction, List
claims that,
The
highest ultimate aim of rational politics is … the uniting of all nations under
a common law of right (* 1841, p.410)
Thus the
question as to whether, and how, the various nations can be brought into one united
federation, and how the decisions
of law can be invoked in
the place of military force to determine the differences which arise
between independent nations, has
to be solved concurrently with the question how universal free trade can be established in the
place of separate national commercial systems. (* 1841, p.114)
… the countries which have reached the second
and third stage of industrialisation should form an association of their own to press for the
establishment of world free trade which should be the common aim of all
countries. (* 1837 a, p.52)
Chapter headings of his
Natural System (* 1837 a) speak for themselves: The Common Interest of all
Manufacturing States in Free Trade
(Ch. 7), Transition from the Policy of Protection to
the Policy of as much Free
Trade as possible, (Ch.25) and How best to introduce and foster Free Trade (Ch.26)
Still he might claim that,
Free
trade is the fantasy of the merchants engaged in foreign commerce, (* 1837 a, p.58)
This
following statement makes this contradiction more understandable,
The system of protection … appears to be the
most efficient means of furthering the final union of nations, and hence also
of promoting true freedom of trade. (* 1841, p.126)
Friedrich List (1789-1846) was one of the earliest and severest critics
of what he labelled Cosmopolitical School of Economics, i.e. the tradition from
the Physiocrats and Adam Smith: The Classical and
List is generally known as a proponent of a protective,
nationalist economic policy and of railroad construction, in the early
nineteenth century. This is only correct from a superficial point of view, as
his fundamental ideas were far wider reaching, dealing with questions like the
ultimate and immaterial basis of economics and of civilisation, within a
dynamic long-term, global perspective. Moreover, it is in this perspective his
ideas on trade must be seen - as one of several instruments. Any inquirer into the ideas of List
would be well advised to consult the last chapters of his Natural System (*
1837 a, Ch.33 & 34).[i]
List wrote under the impressions of a mainly rural
List agreed with Smith on the desirability of global free trade. List
claimed, however, that instant deregulation and radical free trade would lead to a monopoly under
the strongest nation, technologically and economically (* 1841, p.126). Before
any major deregulation could take place, other nations therefore had to be
lifted up to the level of the leading nation (* 1841, p.127). This had to be
done gradually through legal and regulatory arrangements (* 1841, p.125), involving among other
instruments, limited and differentiated protection at home and proper
international legal agreements.
Actually Smith would not have disagreed to the disastrous
effects of sudden deregulation and wrote on the matter of trade that,
Changes
of this kind should never be introduced suddenly, but slowly,
gradually,
and after a very long warning. (Smith,
1776, Book IV, Ch.II, p.44 - p.471 in
Liberty
Fund’s edition).
List may
have been a greater free trader than his main adversary Adam Smith, in the sense that List's strategy would promote
long-term competition to a larger degree than would Smith's strategy, and
thereby promote wealth-creation more efficiently. This was List’s own
opinion (* 1841, p.131). This is a matter of perspective, of
time; and of economic complexity, regarding for instance inter-relationship
between markets. List would claim that Smith might be said to be a free trader
only from a static short-term and relatively superficial perspective concerning
the interests of
List's
basic argument against Smith, was
that his materialist, static, and superficial generalisations hid the crucial differences that
made the state and different policies in different circumstances necessary -
concerning types of goods, capital, markets, institutions, private vs. public
interests, historical stage of development, the role of time in general and of
learning.
In particular this concerned the difference between private vs.
public interest, between commodities and refined goods and the level of development
of a nation in all respects. He claimed the short-term merchant interest and
its accompanying monetarist outlook to be Smith‘s point of departure. Thereby Smith could overlook the necessity of
installing an active government that would create a policy that
differentiates, and therefore would defend the macro point of interest, by
establishing regulations and legal arrangements, nationally and
internationally.
List's claimed that his economic strategy would also promote the basic and
crucial non-monetary factors for economic development that Smith mainly
overlooked. His perspective did not only pay attention to material factors, as
he claimed Smith to do, more or less. List, in contrast, saw the immaterial factors as the most
important for the development of economics as well as civilisation in
general.
List also argued that Smith and his followers confused causes and effects
in their arguments by using non-historical static arguments. (* 1841, p.126,
135) This added to the above tendency of disregarding the need for legal and
regulatory intervention in the economic sphere. Concerning in particular
underdeveloped nations, this generally promoted short term merchant interests contrary to
long term national interests (including the merchants), List charged.
List was, sometimes, too much of a free trader, in the sense
that his opinions were ill founded. (See the second last chapter on criticism.)
In this sense, List often showed too much faith in the withering away of
necessary public regulation, being at the bottom of his heart a liberalist
emotionally and politically. When advocating free trade for agricultural
produce for instance, he for some peculiar reason overlooked the role of
agriculture as a stable home market for domestic manufacture and as a crucial
producer of necessities in times of convulsion.
Although development of human civilisation at
large was indeed List's main preoccupation, his he was also devoted to promotion of more concrete and
intermediate matters such as promoting larger markets through economic
and political integration. This was to be realised by political and economic integration and by innovations
and investments into activities related to communication first of all but also
investments into industry and agriculture. More efficient transport systems
would further urbanisation, the division and co-operation / confederation of
labour. This would foster the power of the individual and of democracy, he
believed, and thereby further boost the creativity of the individual. This would
again boost scientific, moral, and economic progress, and so on.
Nevertheless, a crucial point of criticism
against Smith was Smith’s one-eyed focus on the role of the division of labour.
List applauded Smith’s contribution in this area but claimed that Smith had forgotten the
other side to this phenomenon, namely the union or confederation of labour, i.e. the
co-operation of individuals and institutions (firms, regions and nations) in
order to produce a result. This concerns several sub-issues. One concerns the
immaterial side: The skill, morality, and insight required to co-operate.
Another concerns the implications for transport and tariff policy. A higher
union or confederation of labour requires better communication and
co-operation. Geographical proximity between actors furthers better such
co-operation and thereby synergy between skills, trades and branches. Besides it may be economical in the sense
that it requires less transport and therefore use of resources like time and
energy. However, such local confederation of labour may not develop “naturally”
and spontaneously but may require “artificial measures” as governmental
intervention and restriction of some sort.
List
emphasised the crucial roles of two phenomena intimately related to legal arrangements, arranged here
according to importance:
Political and religious freedom, security and morality.
Although
primary goals by themselves these immaterial goals also served the next
point.
Arrangements to invoke incentives for,
and investments into: Education, science, research and communication /
transportation as well as into production in manufacturing and agriculture.
This would also serve the first point. One type of arrangement was regulation
of national trade - and eventually international trade by means of
differentiated protection outwards, and liberalisation inwards - as well as
voluntary customs unification to reap economics of scale benefits.
The ultimate goal in List’s strategy was of an immaterial and moral and
the prime instrument was
therefore to be the legal system. Changed legal regulations were to
promote social progress. Educated
in law and having practised within the legal- and parliamentary system this was
logical to him, however much they had to be fought through in political
and bureaucratic battles. National and international legal arrangements were
also main preoccupations of List's forerunners in
Surprisingly, it is little realised today, in
the so-called information age, that List was also the prophet of the economics of communication.
His strategy was based on an idealistic
image of Man, regarding the human spirit as the ultimate source of
wealth and of power, preferably over nature and less over other human beings.
This crucial fact places his insight and strategy far ahead of his
materialistically based adversaries within the economics profession, like those
of the Smith-Ricardo-Mill-Marshall tradition, concerning the "new"
so-called "knowledge-" or "information-economy" and also as
regards the entrepreneurial aspect., as he thoroughly discussed the incentive structure in many
aspects. (* 1841, Ch.25)
List warned against the destabilising effects of a lack of industry,
It is dangerous to allow the prosperity of a
country's arable land to be entirely dependent upon the export of cereals and
raw materials in exchange for manufactured products. Such agricultural exports
are liable to serious fluctuations. (* 1837 a, p.56)
To this he added the danger and vulnerability of one-sided
economies in particular those lacking an industrial sector and therefore
dependent upon foreign consumption for its own economic stability. A
monocultural primitive economy was more prone to indebtedness and commercial
crisis than a mature and heterogeneous economy. (* 1841, pp.147, 280ff). On the
other hand he argued that industrialisation
would elevate civilisation by demanding a highly developed
infrastructure and therefore educated and skilled workers with a high moral
standard ensuring high quality conditions of work and trade.
List's eagerness to promote general and individual freedom of thought and action was the major reason why he was so eager to industrialise and urbanise. In fact his reasons may have been quite philosophical if not even religious, apart from the reaction to the personal persecution he experienced. List grew up in a country that for ages had been dominated by a high regard for learned knowledge.
A trait in the post-everything
age we are presently going through is that some forgotten questions are
being put forward again. For example concerning development. Who has the
legitimate authority to
define (the content of) development for others? Development is by itself
a relatively empty concept,
and may be twisted into any shape and content we might prefer. What therefore
must be emphasised and
questioned is the goal of development, the deliberate content of
development that we decide upon. And this is where we enter the philosophical
and religious arena. This question cannot be decided by social scientists as
such not any other scientist - in a more
proper understanding of the word. This concerns the Image of Man, the meaning of our
limited life on earth. In
The question that must be asked was: What is Man, and do we want her to be? The answer would have to be somewhere between Man as spirit and as matter- situated between God and Animal. The answer would have dire consequences for Man's individual freedom since the image and goal, Man as Animal, would leave individual freedom not room and instead have collective instincts gain the dominance. On the other hand, the goal: Man as God, pure spirit or reason, would direct attention to the potential of in principle limitless creativity, i.e. individual freedom. The mainstream of German social thought in the 19th Century, and Friedrich List, was geared towards the latter reason-oriented perception of Man and of development. Therefore, the weight attached to the development of industry and cities in this tradition was directly a result of the starting point of the German economic tradition, based on German idealism in philosophy.
Industrialisation and urbanisation were therefore means to develop the spiritual characteristics of Man by offering potential for the creation, implementation and exchange of ideas, including morality. In this way, money as a means of exchange may certainly be said to fill the same spiritual function, by making division and co-operation of labour possible so that everybody may work with their speciality, for everybody else. However, the monetary institution may be arranged so that other characteristics may counter this function - cf. hoarding and narrow-minded speculation.
High morality and skill in a society would
require general welfare. In order to industrialise, any country's government
would need to consciously develop
the country's infrastructure in all of its ideal and material aspects;
its educational, communicative and administrative system, including the legal
system, which was to have the pivotal role. According to List's stage theory,
which he developed further after his American Experience (* 1827 a, 161)[iii],
an industrialising country would have to go through a period of free trade and export of commodities and
gradual introduction of industry. Then a period of protective trade policy, in
conjunction with establishment of protective navigation laws and naval policy.
And finally back to free trade when ALL economic sectors had been developed.
This pragmatic attitude toward regulation of trade was more normal in practice
than we tend to think nowadays in our quasi-religious times, concerning the
economic doctrines of free trade. The core organiser of this strategy of List
was to be - the legal system.
In Chapter 15, of the National System (called Nationality and the Economy
of the Nation) we find an opening phrase, much like a compressed
theoretical and political program and attack on the
The system of the school suffers,
as we have already shown in the preceding chapters, from three main defects: firstly, from
boundless cosmopolitanism,
which neither recognises the principle of nationality, nor takes into
consideration the satisfaction of its interests; secondly, from a dead materialism, which
everywhere regards chiefly the mere exchangeable value of things without taking
into consideration the mental and political, the present and the future
interests, and the productive powers of the nation; thirdly, from a
disorganising particularism
and individualism, which, ignoring the nature and character of social
labour and the operation of the union of powers in their higher consequences,
considers private industry only as it would develop itself under a state of
free interchange with society (i.e. with the whole human race) were that race
not divided into separate national societies.
Between each individual and
entire humanity, however, stands THE NATION, ... As the individual
chiefly obtains by means of the nation and in the nation mental culture, power
of production, security, and prosperity, so is the civilisation of the human race only conceivable
and possible by means of the civilisation and development of the individual
nations. (1841, Ch.15, p.174)
A central and crucial part of his world of ideas and his agitation was
freedom, the lack of which had persecuted List more than once. He claims
that industry will
transform the morality of habit into conscious morality and tolerance.
(* 1841, pp.208-209) It was List's firm belief that religious and political freedom could only be
attained through industrialisation and vice versa. (* 1841, pp.107, 142
etc.) This had to be enacted through the legal system, establishing a rule of
law, and of just and egalitarian law.
… It is from manufactures that the nation's capability originates
... all the mental powers
of a nation, its State revenues, its material and mental means of defence, and
its security for national independence, are increased in equal proportion by establishing
in it a manufacturing power. (* 1841, p.209)
It has been the experience of all ages and of
all countries that freedom
and industrial progress are like siamese twins. (* 1837 a, p.153)
The spirit of enterprise, economic progress, technical knowledge, and
artistic skill develops only in countries enriched by political and religious
freedom. (* 1837 a, p.164)
Great, however, as have been the advantages
heretofore mentioned, they have been greatly surpassed in their effect by those
which
Chaos
seldom fosters freedom for the average man. As with language and games, a culture need some collective rules in order to
make it possible for the individual to play with these, in order to
benefit himself and perhaps society at large. The following quote gives an idea
of the important role List gave to freedom guaranteed by the legal order ,
Everywhere and at all times has the well-being of the nation been in
equal proportion to the intelligence, morality, and industry of its
citizens; according to these, wealth has accrued or been diminished; but
industry and thrift, invention and enterprise, on the part of individuals, have
never as yet accomplished aught of importance where they were not sustained by
municipal liberty, by suitable public institutions and laws, by the State
administration and foreign policy, but above all by the unity and power, of the
nation.
History
everywhere shows us a powerful process of reciprocal action between the social and the individual
powers and conditions. (* 1841, p.107)
The of purpose of List’s strategy was to establish a multifarious variety
competitive national industries in order to promote national sovereignty
and productive synergy between economic sectors
The
whole social state of a nation will be chiefly determined by the principle of
the variety and division of occupations and the cooperation of its productive
powers. (* 1841, p.159),
List argued that industrialisation and urbanisation is necessary to
construct a truly human society, establish freedom of mind as well as
democracy and a say for small people, preserve nature and its resources,
thereby improving the efficiency of the economic system and adding to wealth
creation. List argued that nation-building was generally a continuation of the
principles of city-building, in that,
The agricultural-manufacturing-commercial State is like a city which
spreads over a whole kingdom... (* 1841, p. 339)
Against the claims of the orthodox school,
List suggests that industry rather than trade is the founding stone of freedom
and tolerance,
The popular school has attributed this civilising effect to foreign trade,
but in that it has confounded the mere exchanger with the originator. Foreign manufactures furnish the
goods for the foreign trade ... (* 1841, p.142)
List here points to the effects of manufacturing
for trade through the instrument of protectionism by creating a home market
that eventually would contribute positively to the size of the world market.
(See below.)
Economic progress was in List's mind inseparable
from progress in civilisation, which in List's opinion meant a liberal world modelled after the
British experience (see * 1841, pp.48-52, 56, 130) - As Britain later
was to be Hitler's model country, being the ruler of India etc. In the typical
German idealist and rationalist Renaissance tradition, as opposed to the
materialist Enlightenment tradition and to the irrational Romantic tradition of
the 19th and early 20th Century, List argues for the rational,
humanistic and liberating benefits for the individual of the industrially based
urban life-style. (* 1837 a, p.69)
... the confederation of the productive powers,
press with irresistible force the various manufacturers towards one another. Friction produces sparks of the
mind, as well as those of natural fire. Mental friction, however, only exists where people live
together closely, … Therefore liberty and
civilisation have everywhere and at all times emanated from towns; … (* 1841, pp. 203-204)
The country derives energy, civilisation, liberty, and good institutions
from the towns, ... (* 1841, p.208)
This urban oriented tradition is very strong throughout German history:
We find the same individualistic (in the non-egotistic sense) and humane
orientation with Nicholas Cusa some four centuries earlier in the 15th Century;
with Leibniz 150 years earlier (Anners, 1983, p.211), and later, after List,
with for instance Karl Bücher (Bücher, 1893) and Georg Simmel (Simmel, 1902) in their discussions on transportation and
urbanisation. The irrational and backward-looking biology oriented “Blut und
Boden” tradition of the late 19th Century and early 20th
Century seem to be a temporary breech in this humanistic tradition. List writes
that,
The productive powers of agriculture are
scattered over a wide area. But the productive powers of industry are brought
together and are centralised in one place….. Only in such
conurbations can a public opinion develop which is strong enough to vanquish the brute force, to maintain freedom for all, and
to insist that the public authorities should adopt administrative policies that
will promote and safeguard national prosperity. ... (* 1837 a, p.69)
List also point out the benefits of democracy and the benefits of improved
communication for democracy. (* 1837 b) Democracy is another way of
saying universalism, i.e. equal rights, and this was a strong tendency in the
tradition of German economic thought. Bücher pointed more descriptively to the
same phenomenon in transportation and health service (Bücher, 1893).
List
pointed out how manufacturing, as opposed to agriculture, creates higher
potential for diversification of social activity and enhanced possibilities for
utilisation of individual abilities,
especially mental abilities, thereby enhancing and harmonising equal rights to
develop one's abilities and happiness with general social welfare and
prosperity, ... (* 1841, Ch.17, p.200) Today, we may argue that agriculture has changed a lot
and that it often embodies so much knowledge and combined skills that it often
may offer the individual a more varied life if not as specialised as the
industry based life might do. However, even in his days, List argued that industry was necessary for science and he
argued for the introduction of
science in agriculture, as for instance in breeding, so that by this,
agriculture itself is raised to a skilled industry, an art, a science. ...
The
power of machinery, combined with the perfection of transport facilities in
modern times, affords to
the manufacturing State an immense superiority over the mere
agricultural State. (* 1841, p.200)
… industry calls forth and promotes the growth of
intellectual and moral forces of every kind. … the productive powers of
industry awaken in industry and agriculture the spirit of enterprise and innovation. … a great
many resources - formerly of little value - have become increasingly valuable
as industry expands. .. industry …. stimulates the improvement of
communications, … (* 1837 a,
p. 68)
List argues that industry and science extends
human potential to utilise new materials and to utilise the ones already in use
more efficient and thereby save waste and energy, concerning both production
and transportation. (Cf. * 1841, p.210)
Industry
is the mother and father of science, literature, the arts, enlightenment,
useful institutions, and national power and independence. (*
1837 a, p.67ff see also p.79)
In addition the manufacturers
are the focus of a large, lucrative, and world wide trade with peoples
of varied standards of culture who live in many distant countries. Industry turns cheap bulk raw materials,
which cannot be sent long distances, into goods of low weight and high value which are in
universal demand. (* 1837 a, p. 69)
List's
criticism was generally directed against short-term and narrow-mindedness in
economic affairs, and it had in mainly four targets who he claimed acted contrary to their own long-term interests;
1) Landed interests -
in particular
2) Merchant interests -
in particular
3) Governmental regulation - in general
4) International politics - in particular
In all these cases List pointed out the international aspect of the
problems. As well, in all these cases he insisted that his targeted actors did not have a sufficient
understanding of their own interests and how these could benefit from contributing
to the interests of other actors. They therefore acted contrary to their own
long-term interests. His
suggestions on to remedy this was in part through legal and regulatory
arrangements as well as education and moral enlightenment.
He
focused on the gains to welfare to be earned by everyone from a more long-term and wider-minded
approach, so to say within a
positive sum game. This constitutes Man's unified effort to gain power over
nature. On the other hand, he criticised a policy devoted to Man's power over Man. This kind of power struggle is by
definition a zero-sum game, where one Man's gain is the other's loss. In the
long run this will be destructive.
List called these two traditions respectively
the manufacturing
tradition and the mercantile tradition, and favoured the former. (* 1837
a, p.178) Most likely, he saw A.Smith's position as a continuation of the
latter. And historians have argued that liberalism is a child of a
power-oriented and beggar
thy neighbour type of mercantilism as opposed to a prosper thy neighbour type
of mercantilism - of the leading nation. It still seems like List was a
little naïve about this in general, and in particular regarding his personal
life. In all cases, his
suggestions for remedies of these long-term, market inefficiencies were
of a legal nature.
Concerning
the landed aristocracy,
protection should be lifted and implementation of manufactured inventions
promoted. This would raise industrial production, demand and landed rent.
Instead, the English,
... landed aristocracy ... killed the hen that had laid the golden eggs" (* 1841,
p.370),
It is therefore evident, that keeping down the manufacturing
industry of the Continent, though it certainly hinders the progress of
the Continental nations, does not in the least further the prosperity of
Concerning
the merchants, economic integration
should be encouraged through law-enforced investments in communications and
through trade agreements where the Dutch were to buy more from
Concerning
politicians and lacking investments
into infrastructure, suggestions were for the establishment of schools,
scientific academies and journals, telegraphs, railroads etc. through public
regulation and administration, in particular taxation arrangements which he
claimed to be of far higher significance than any other intervention into
industrial matters.
Concerning
industry he advocated instruments like differentiated
cheap credit, differentiated tariff protection, limited monopolies, differentiated
subsidies, grants, patent-laws, prizes, exhibitions.
Concerning
international politics and the role of
List sees radical free trade policy as in the interest of one special social group, the merchants, in which he includes what we may call the money managers. This reflects his beliefs in an institutionalist approach to economic studies. He exclaims,
Free trade is the fantasy of the merchants engaged in foreign commerce, (* 1837 a, p.58)
… commerce must be regulated according to the interests and wants of agriculture and manufactures, not vice versâ.
.. 'Laissez faire, laissez passer,' an expression which sounds no less agreeably to robbers, cheats, and thieves than to the merchant, and is on that account rather doubtful as a maxim. This perversity of surrendering the interests of manufactures and agriculture to the demands of commerce, without reservation, is a natural consequence of that theory which everywhere merely takes into consideration present values, but nowhere the powers that produce them, and regards the whole world as but one indivisible republic of merchants. The school does not discern that the merchant may be accomplishing his purpose (viz. gain of values by exchange) at the expense of the agriculturists and manufacturers, at the expense of the nation's productive powers, and indeed of its independence. … It is therefore evident that the interest of individual merchants and the interest of the commerce of a whole nation are widely different things. … Commerce emanates from manufactures and agriculture, and no nation which has not brought within its own borders both these main branches of production to a high state of development can attain (in our days) to any considerable amount of internal and external commerce. (* 1841, pp.259-260)
Although a firm adversary of the using the
merchant principle in national economic affairs, List’s view of the merchant is rather sober
although
It is the nature of things
that he must buy in the cheapest markets and sell in the dearest. (* 1837 a,
p.99)
This phenomenon of short-sightedness in various
ways, was also the target of his criticism, concerning passivity of governments in the production of
public goods, including
machine tools and new technology. In a way his criticism could be regarded as a
criticism of the passivity
of private entrepreneurs, but keeping the incentives structure in mind,
this would not be a just
charge, since after all the
main task of individual "micro" entrepreneurs is staying alive as
such. List did not make this charge. Rather,
he hailed them – the micro actors - for their
initiatives in this sector (* 1837 a, p.62). The main task of individual
entrepreneurs is staying alive as such.
Therefore the charge should be directed towards the passivity of the
"macro" entrepreneur with responsibility for the entirety,
i.e. government, not fulfilling
their task of promoting an efficient national economy by using its tools of
regulation and law-making to this purpose, this being a prime goal of the
nation state as such. List's insistence of the duty and necessity of governments to initiate investments
into innovative production, education and infrastructure was based on his
experience with insufficient or even lacking private investments into these
public goods areas.
Public
goods are generally phenomena that
are connected to promotion of knowledge, like innovation and communication - or
more specifically like general education, basic science, communication and
transportation networks. They have in common the feature of concentrated costs and dispersed
benefits. For this reason there tends to be structural under-investment in these areas,
if private initiative alone is to be relied upon. In other words, markets for
these public goods tend not to work properly without governmental intervention.
This might not be a major problem, had it not been for the fact that these
areas function as a carpet
and a productivity enhancing locomotive for all other sectors of economic
activity, in practically speaking any society throughout history. Public
goods activities are therefore a prime target of governmental regulation and law making.
All branches are mutually interdependent as List points out. (*
1841, pp.39, 387) Still some branches are more "dependence
creating" in the sense that they are have public goods characteristics. This means that
it matters especially much to an economy whether these markets function. And
since List singles out regulation of law, knowledge production and communications as his particularly favoured sectors we may infer that he saw these as the
foundation of other sectors, in other words as the public goods markets.
List
never used the phrase public goods
nor did he explain the basic characteristics of these - concentrated costs and
dispersed benefits (as opposed to rent seeking: Concentrated benefits and
dispersed costs) but his criticism of A.Smith concerning private and public
interests takes the difference
between private and public goods as the crucial point of departure. (*
1827 a, Letter 5, p.75 and 1841, Ch.14: Private and National Economy) As with his advocacy of knowledge based
production, he never seemed to develop a thorough and analytical theory on this
issue, but his defence may be that neither had anybody else developed these
concepts thoroughly at this historical point.
A student of trade cannot be oblivious to the role of industry and
of communication as the foundation of trade. List was an epitome of this
opinion. In the preface (in the main unfortunately
missing in the English edition) to the National System he writes, concerning
the lessons he learned about infrastructure in Little Schuylkill,
Only now
did I recognise the reciprocal relationship which exists between manufacturing power and the national
system of transportation, and that the one can never develop to its fullest
without the other. (* 1841, § 22)
And he also underlined the importance of cheap
energy,
Nothing is more important for industrialists
than the availability of cheap
fuel and also easy, speedy, and regular transport at a low cost for all
the products and raw materials which they need to build factories and to
produce manufactured goods. (* 1837 a, p.62)
Communication
and innovation have in common that they are perhaps the most important types of
public goods that distribute their benefits widely throughout the economies, both nationally and
internationally. They also work mutually reinforcing each other and this is
also true for also for the machine
tool industry. As communications, it distributes innovations throughout
the economies. Innovative transport technology, as with the steam-powered
locomotive at List's time, combines communication and innovation and thereby
plays an immense productivity-increasing role.
The following point is of great importance in order to understand List's trade policies. The mental foundations of (economic etc.) welfare makes learning necessary. This implies the necessity of stability, security and protection.
List agreed with Smith that division of labour
was an important reason for productivity of labour, and he equally agreed that
confederation of labour was important. However, he severely criticised Smith for dealing to
too shortly with the latter side to the coin, namely the confederation of
labour, which to List was at least equally important. This different
emphasis would have important
implications. Division of labour may lead the way to “beastly”
competition, and may be open
to relatively mechanically analysis and biological metaphors and has made formalisation of economics
easier and more devoid of real life relevance. Formalisation implies
machinery that runs “frictionless” without the transaction costs and
externalities that human beings and institutions involve.
Kropotkin
argued against Darwin and Spencer,
but attributed the co-operative force to biological forces (Kropotkin, 1904). List however, attributed
this force to the human spirit. List attacks the “Smith school” such,
The school is indebted to its renowned founder
for the discovery of that natural law which it calls 'division of labour,' but neither Adam Smith nor
any of his successors have thoroughly investigated its essential nature
and character, or followed it out to its most important consequences.
The
expression 'division of
labour' … may be called
with equal correctness a union of labour; …... The cause of the productiveness of
these operations is not merely that division, but essentially this union.
... the division of
commercial operations without
combination of the productive powers towards one common object could but little further this
production. (1841, Ch.13, pp.
149-151)
One side to the synergy effect of this division and co-operation
of labour is, that it is greater
the more variety there is among branches and occupations, and the closer
they are in space (urbanisation). Among these he ranked those that demanded
skill higher since they would increase this same variety more - as would for
instance manufacturing as compared to agriculture. Apart from this he did not
attach any higher moral rank to mental than to material occupations. The variety of branches and
occupations is potentially larger the more populated, “infrastructured”, and
urbanised a society is.
The whole
social state of a nation will be chiefly determined by the principle of the
variety and division of occupations and the cooperation of its productive powers. ... the whole nation depend on the
exertions of all individuals standing in proper relation to one another. We
call this relation the balance
or the harmony of the productive powers. (* 1841,
p.159)
List has a longer
discussion of Smith’s understanding of the causes of wealth. List argues that
Smith did not understand the underlying spiritual causes, and that he was carried
away by the dogma of free trade that he inherited from the Physiocrats. (* 1841, 347) Since co-operation of labour necessitates “mentally
based” activity it is only natural that "Mental
capital" in List's opinion was the core of the productive powers. This, as
well as the focus on the state as the most important type of capital of a
nation, he possibly learned from Adam Müller (Müller, 1808). On the other hand
List was no one-eyed observer who ignored the dependency of mind upon matter -
and vice versa. (* 1841, p.49) List claimed that,
Mental work is in the social economy what the soul is to the body. By means of new inventions, it continuously increases the power of the human being. (* 1927-36, vol.5, 1930, p.42)
Concerning Adam Smith, he writes that,
His
investigations are limited to that human activity which creates material values. ... he illustrates solely by exchange, augmentation of material capital,
and extension of markets. His doctrine at once sinks deeper and deeper into
materialism, particularism, and individualism. ... and thereby laid the foundation for all the
absurdities and contradictions from which his school (as we propose to
prove) suffers ... This is undoubtedly not the science which teaches how the productive powers
are awakened and developed, and how they become depressed and destroyed.
M'Culloch calls it explicitly 'the science of values,' and recent English writers ' the science of
exchange.' (* 1841, pp.137-138)
By basing their method on the erroneous labour theory of value once established by Aristotle, both Smith and Marx confused the problem of value and focused on the manual side of labour.
… Smith and Say … treat,
therefore, principally of the effects of exchange of matter, instead of
treating of productive power. … Greater
part of the productive power consists in the intellectual and social conditions
of the individuals, which I call capital of mind. (* 1827 a, p.63)
List asks,
... can it
be deemed scientific reasoning if we assign as the cause of phenomenon that
which in itself is the result of a
number of deeper lying causes? … What else can it be than the spirit which animates the individuals, the
social order which renders their energy fruitful, and the powers of nature
which they are in a position to make use of? (*
1841, Ch. 12: The Theory of the Powers of
Production and the Theory of Values, pp.134-136)
Adam Smith regarded the physical labour which produces goods having exchange value as the sole source of goods and he failed to examine the origins that enable this work to be done. From this failure came his serious mistake of ignoring the intellectual resources that lie behind the creation of productive powers. (* 1837 a, 186)
It is meaningless to claim that the work people do is the origin and cause of
wealth. ... If work
produces wealth, what produces work? … We always find that there is some inner urge which sets the
human body in motion. … (* 1837 a, p.184)
Moreover the labours of those who promote the expansion of productive
powers are just as productive as those who actually make goods that have an
exchange value. ...
Intellectual
production and brainwork - like
manual labour and the production of material goods - cannot be measured by counting the numbers
of individuals concerned. …(* 1837 a, pp.184-185)
List points to the importance of immaterial production factors
criticising the
We
now see what extraordinary
mistakes and contradictions the popular school has fallen in making material
wealth or value of exchange the sole object of its investigations, and
by regarding mere bodily labour as the sole productive power.
The man
who breed pigs is, according to this school, a productive member of the
community, but he who educates men is a mere non-productive. ... A
Certainly those who fatten pigs or prepare pills are productive, but the instructors of youths and adults, virtuosos, musicians, physicians, judges, and administrators, are productive in a much higher degree. The former produce values of exchange, and the latter productive powers, ... The prosperity of a nation is not, as Say believes, greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion in which it has more developed its powers of production. (* 1841, p.142-144, original Italics).
List saw market pressure as an important factor for innovation
and as well for improvement of general improvement of the manufacturer’s
abilities,
... These circumstances produce in the manufacturer an energy which is not
observable in the mere agriculturist. (* 1841, pp.198-199)
List's suggestions for reform in his early years included, in general, proposals intended to make the bureaucracy and the economy function more efficiently and more just, for the benefit of general welfare.
He did not see any contradiction between these legal and economic purposes and, quite on the contrary, argued that only a free and just legal system could mobilise the mental powers of the individual citizen, in particular as entrepreneur, crucial to economic development. The most obvious example might be List's repeated attacks on the institution of slavery (* 1827 a, Letter VI, pp.86-87; 1837 a, p.184; 1841, Ch.17, p.200; p. 416). As an anecdote within the theme of this article, I would like to add the following quote,
It is an old observation, that the human race, like the various breeds of animals, is proved mentally and bodily by crossings; … and comprising the whole nation, have surpassed all other nations in power and energy of the mind and character, in intelligence, bodily strength, and personal beauty. (* 1841, p.220)
List's stress on
universality of law (jury trial); freedom of expression (for the press etc.)
can be seen as an attempt to correct imperfections of the market for ideas and
entrepreneurship, through vested interests and power
structures. Through his liberal ideas, he intended to establish an efficient market for ideas, for
innovation and for entrepreneurial activity.
List paid much attention to the role of incentives in economics and how these could be promoted by regulative and legal arrangements. He devoted chapter 25 to this in his National System: The Manufacturing Power and the Incentives to Production and Consumption (* 1841,