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Text on spine:
FRIEDRICH LIST
The Natural System of Political Economy
Translated and edited by
W.0. Henderson
Backside:
FRIEDRICH LIST:
ECONOMIST
AND VISIONARY
1789-1846
W. O. Henderson
Dr. Henderson's account of the life and work of
Friedrich List, the first English biography of this German economist to appear
for 70 years, is based upon List's collected works and on his papers in the
archives of the city of Reutlingen. In two major works — The Natural System
of Political Economy and The National System of Political Economy — he
attacked the theories of Adam Smith and his followers and enunciated his own
doctrines of "productive powers" and stages of economic growth, and
advocated the imposition of import duties to safeguard infant industries. He
advocated the industrialisation of underdeveloped countries and championed the
cause of the "third world" of his day. Dr. Henderson's discussion of
List's eventful career in Germany, France, and the United States — as civil
servant, professor, politician, and journalist — is followed by an examination
of List as an economist, as a railway promoter, and as a champion of German
unification. He was the driving force behind the construction of two of the
earliest railways to be built in the United States and Germany. He promoted the
establishment and expansion of the German customs union and he had visions of
the economic expansion of Germany and Austria Hungary in central European the
Balkans, and in the Near East.
FRANK CASS
FRIEDRICH
LIST
The Natural
System of
Political
Economy
* * * *
Translated
and edited by
W.0.
Henderson
THE NATURAL SYSTEM OF POLITICAL ECONOMY
Translated and edited by W. O. Henderson
Friedrich List, a leading German economist in the
first half of the nineteenth century, wrote his first substantial thesis in
Paris in 1839. This book, The Natural System of Political Economy, was
not published until 90 years later and has now been translated into English for
the first time. The book is considerably shorter than List's well known The
National System of Political Economy which appeared in 1841. The importance
of The Natural System lies not so much in List's advocacy of the fiscal
policy of protection as in the relatively new doctrines that he put forward.
While the English classical economists had examined problems concerning
population, exchange-value, money, rent, and the allocation of scarce
resources, List discussed stages of economic growth, "productive
powers", and the industrialisation of backward regions. As the German
editor of The Natural System observes: "List's most important and
fundamental teachings are fully developed in this book. Above all the theory of
the stages of economic growth finds full classic expression as a central theme
in List's thinking ... In his treatise List frequently gives clear, systematic,
and brief explanations in numbered paragraphs of his most important doctrines,
which are not so clearly stated in any of his other works".
W. O. Henderson is well-known for his major
contributions in the field of modern European economic history. After a first
degree at Cambridge, and a doctorate at London, Dr. Henderson's university
teaching career took him to Cambridge, Liverpool and Hull before the
interruption of the Second World War. After the war, he joined Manchester
University, where he was Reader in International Economic History until his
retirement; he was also a frequent lecturer at German universities.
The Genesis of the Common Market (1962)
Industrial Britain under the Regency (1968)
The Industrial Revolution on the Continent
(1961) /. C. Fisher and his Diary of Industrial
England
1814-1851(1966)
Life of Friedrich Engels, 2
vols. (1976)
Studies in the Economic Policy of Frederick the
Great (1963)
The Zollverein (1959,2nd
ed. 1968)
Dr. Henderson has also written Britain &
Industrial Europe (Leicester U.P., 1965), The Industrialisation of
Europe 1780—1914 (Thames & Hudson, 1969) and The Rise of German
Industrial Power 1834—1914 (Temple Smith, 1975), and edited Engels:
Selected Writings (Penguin Books, 1967).
The Natural System of
Political Economy
FRIEDRICH
LIST
The Natural
System
of Political
Economy
1837
Translated
and edited by
W.0. Henderson
FRANSK CASS
Jacket design by Andy Jones
FRANK CASS AND COMPANY LIMITED
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London Ell
IRS, England
and in the United States of America by
FRANK CASS AND COMPANY LIMITED
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Copyright © 1983 W.O. Henderson
British
Library Cataloguing in Publication Data
List,
Friedrich The natural system of political economy 1837.
1.
Microeconomics
I.
Title II. Henderson, W.O. III. Das nationale
System der politischen Oekonomie. English
338.5 HB171.5
ISBN
0-7146-3206-6
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reserved. No part of this publication may be
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Typeset by
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Printed in
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(Padstow) Ltd.,
Padstow,
Cornwall
Editor's Introduction
1
List's Introduction 17
1. Cosmopolitan
Economics 27
2. National Economics 29
3. Theory of Productive Powers 34
4. Theory of Value 36
5. The Differences between Countries and their
National Economies 41
6. The Dominant Nation 46
7. The Common Interest of all Manufacturing States
in Free Trade 49
8. The
Opposition of Countries to the Dominant Nation
in Industry, Commerce, and Sea Power 51
9. The
Productive Powers of Agriculture in the
First Stage of Economic Development 52
10. The
Productive Powers of-Agriculture in the
Second Stage of Economic Development 54
11. The
Productive Powers of Agriculture in the
Third Stage of Economic Development 60
12. The Productive Powers of Industry 66
13. The Productive Powers of Industry (continued) 70
14. Does the Development of Industry withdraw Capital
from Agriculture? 76
15. Does the
Protection of Industry by a Tariff
give Manufacturers a Monopoly Prejudicial to
the Consumers of the Goods that they make? 80
16. Are the
Interests of Consumers sacrificed if the
Home Market is dominated by native Manufacturers? 82
17. Is it
necessary to protect Agriculture and, if so,
in what Circumstances? 85
18. Agriculture
and Industry in the Fourth Period
of Economic Development 91
19. The Productive Powers of Commerce 94
20. How do the Interests of Commerce differ from
the Interests of Individual Merchants? 99
21. Protection by Means of a Tariff 105
22. Tariffs: Prohibitions and Duties on Imports
and Exports 109
23. Tariffs: The Policy of Protection 114
24. Transition from the System of Prohibitions to
the Policy of Protection 118
25. Transition from the Policy of Protection to
the Policy of as much Free Trade as possible 122
26. How best to introduce and to foster Free Trade 124
27. History of England's Economic Policy 128
28. History of France's Economic Policy 141
29. History of Germany's Economic Policy 152
30. Economic Policy of Spain, Portugal and Italy 162
History of the Economic Policy of the
United States of America 170
31. History of Russia's Economic Policy 177
32. The Spirit of different Economic Doctrines in
Relation to Tariff Laws 178
33. The Natural System of Political Economy 189
34.
The Question posed by the Academy 191
Appendix. List's Note to Chapter 4 193
Index 197
Friedrich List, a
leading German economist and journalist in the first half of the nineteenth
century, was one of the earliest and severest critics of the classical school
of economists. He denounced Adam Smith and his disciples as the
"cosmopolitan school" and advocated what he called first a
"natural" and then a "national" doctrine of economics. He
held that universal free trade was an ideal that might be achieved in the far
distant future but, for the time being, each nation should foster the
development of its own manufactures by prohibitions, import duties, subsidies,
and navigation laws so as to restrict the flow of imports from more advanced
industrial countries. Only by such means could countries like France, Germany,
Russia, and the United States ever hope to reach a standard of industrial
efficiency which would enable them to compete on equal terms with Britain which
was at that time by far the most advanced manufacturing country in the world.
List was no
mere armchair critic of the free traders. He had taken an active part in fiscal
controversies in America and in Germany. In the United States, where he lived
from 1825 to 1832 (except for an interval of a year),1 List had
become involved in the struggle between protectionists and free traders that
preceded the passing of a new tariff law in 1828. He had vigorously supported
the propaganda campaign in favour of higher import duties mounted by the
Philadelphia Society for the Promotion of Manufactures and the Mechanic Arts.
In a series of letters to Charles Ingersoll, published in the National
Gazette (Philadelphia) in 1827, List had argued in favour of greater
protection for the American iron and textile industries. In the same year the
letters appeared in two pamphlets entitled Outlines of American Political
Economy and Appendix to the Outlines of American Political Economy.2
In Germany
List had taken a leading part in the agitation in favour of protection. In
1819, as a young man, he had drawn up a
1
petition on behalf of a Union of German Merchants for
submission to the Federal Diet in which he had urged the German states to set
up a customs union with a tariff "based upon the principle of retaliation
against foreign countries". For eighteen months he had been an
indefatigable supporter of the Union of Merchants and had worked hard to
promote its objects.3 Later, in the 1840s, in the early years of the
German customs union (Zollverein) List argued that German manufacturers
were at the mercy of competition from highly efficient English rivals and
urgently needed greater tariff protection in the home market. In his view a
great mistake had been made in 1834 when the states joining the Zollverein had
agreed to adopt the Prussian tariff in 1818 which at that time was the most
liberal in Europe.
List's book
on The National System of Political Economy: International Commerce,
Commercial Policy, and the German Customs Union, published in 1841,4
came to be accepted as a standard statement of the protectionist case. Long
after List's death advocates of protection found in List's writings the
arguments they were seeking to justify their demands for higher tariffs. In
1889, three years before his appointment as Russia's Minister of Finance, Count
Witte wrote that List's book was studied in every German university and lay on
Bismarck's desk.5 In 1909 F.W. Hirst declared that "it is not
too much to say that most of the ideas which underlie modern tariffs, both in
the old world and the new, were originated and formulated by List".6
List's
disciples, however, treated the doctrines of their master in a rather cavalier
fashion. They paid tribute to the profundity of List's learning and the cogency
of his arguments but instead of following his advice in its entirety they
accepted those aspects of his theories that suited their immediate purpose and
ignored those that did not. For example List had demanded protection only for
manufactured goods and had recommended that no import duties should be levied
upon agricultural products or raw materials. In practice, however, whenever a
country has adopted the policy of protection the landowners and farmers have
declared that if manufacturers enjoy a privileged position in the home market
they too have a right to receive similar privileges. And although taxes on food
normally result in higher prices for the housewife, few governments have been
able to resist demands for protection from the agricultural interest. Moreover
very few protectionists were prepared to face
2
the possibility - clearly envisaged by List - that
manufacturers should at some time in the future be prepared to dispense with
the protection afforded by import duties or subsidies. List advocated protection
mainly for new "infant" industries during the first years of their
development to give them an opportunity to become as efficient as similar
industries already established in more advanced countries. He recognised that,
at any rate for a time, this would involve some sacrifice on the part of
consumers who would have to pay high prices for goods of comparatively poor
quality instead of buying better products from abroad more cheaply. But however
long an "infant" industry enjoys protection it is rare indeed for
manufacturers to admit that their industry has grown up and no longer requires
protection. Those who impose tariffs on "infant" industries may
intend that the duties should be levied only for a time and should be lowered
or even abolished when the industry has become well established. In practice
"infant" industries never seem to grow up and the duties levied to
protect them become a permanent feature of the tariff. This was by no means
what List had intended. Again List believed in the possibility of universal
free trade in the future. His disciples rarely shared his optimism.
In addition
to the Outlines of American Political Economy and The National System
of Political Economy List had a third book to his credit but this was not
published until ninety years after it had been written.7 This was The
Natural System of Political Economy which was written in Paris in the
autumn of 1837. When List arrived in France at the end of October he apparently
had no intention of resuming his studies on economics. During the previous four
years he had tried to foster the progress of railway construction in Germany
and he had been particularly active in promoting the line between Leipzig and
Dresden. Disappointed at his failure to secure either a directorship in a railway
company or a post in the administration of a state railway, he had left
Germany to settle in Paris, where he hoped to arouse interest in his plans for
the construction of railways in France.
Soon after his arrival in Paris, where he found
lodgings in the Rue des Martyrs, List learned that the Academy of Moral and
Political Sciences8 was offering a prize for a treatise answering
the question: "If a country proposes to introduce free trade or to modify
its tariff, what factors should it take into account so as to reconcile in the
fairest manner the interests of producers with those of consumers?"
3
Although the closing date for entries was December 31,
1837 List decided to compete for the prize and the manuscript was completed in
great haste. On November 22 List wrote to his wife that he was working for
fifteen hours a day to finish the treatise in time.9 When he
submitted his manuscript he was told that the final date for submitting it had
been postponed for a week, so he was able to make some last minute revisions.
On the day on which the final corrections were made List added a long note to
Chapter 4 in which he stated that the manuscript had taken forty days to
complete and in a letter to his wife he declared that he had spent six or seven
weeks on the treatise.10 Later he pretended that the work had been
done more quickly than this. In 1838 he wrote that his manuscript had been
finished in three weeks'' and in 1841 he asserted that he "had only a
fortnight... to meet the Academy's peremptory deadline". List was also
mistaken in 1841 when he wrote that "as I did not have my earlier writings
by me, I had to rely entirely on my memory".12 In fact List had
consulted over thirty books.'3 An examination of the manuscript
shows that these books included standard works of leading writers on trade and
industry-King, Anderson, and Adam Smith on England; Chaptal,
Dupin, Say, and Ferrier on France; Uztaris and Ulloa on Spain;
Alexander Hamilton and Mathew Carey on the United States; and Storch on Russia.
In writing
his thesis List was influenced by the advice given to competitors on behalf of the
Academy by the well known economist Charles Dupin.
The "Programme" drawn up by Dupin raised a
number of questions which competitors were expected to answer. Was it right that
cheap foreign imports should be allowed to ruin a branch of industry at home in
the name of Free Trade? Should industries that had developed during a war (to
produce goods in short supply) be allowed to sink into oblivion when
hostilities ceased? Would it be in the national interest to protect an industry
which could not compete with a foreign rival because that rival had gained an
advantage by using a newly invented efficient machine? And should the state
foster the growth of a new industry by a protective tariff and by encouraging
skilled foreign mechanics to settle in France? In his essay List attempted to
answer these -and other - questions posed by Dupin.
The Academy
decided that none of the twenty seven manuscripts submitted was worthy of the
prize. It criticised the candidates for failing to answer the question that had
been set. They had been
4
content to advocate either a policy of complete
freedom of trade or one of protection. Three manuscripts, however, were
commended as "ouvrages remarquables”
and one of them bore the motto "Et la patrie et l'humanite". This was List's treatise. List was
bitterly disappointed at not receiving the prize. He needed the money and he
would have welcomed the prestige attached to an award from the leading learned
institute in Europe. And the publication of a prize essay would have
established List's reputation as an economist. List was angry that the
adjudicators had failed to appreciate the merits of The Natural System of
Political Economy. In a letter to Cotta he complained that the Academy had
not merely failed to award him the prize but had added insult to injury by
announcing a new competition with the German customs union as its subject. List
declared that he had already dealt fully with the significance of the
Zollverein in his manuscript and he quoted with approval a remark made to him
by "an influential personage" in Paris that the Academy was "a
nest of robbers".14
Having
failed to win the prize, List dismissed The Natural System of Political
Economy as a hastily written work of no great importance and turned his
attention to The National System of Political Economy which appeared in
1841. Although the manuscript submitted in the competition gathered dust in
the archives of the French Academy until its publication in 1927 it is much
more than a mere first draft of The National System of Political Economy. It
is a book in its own right which marks an important stage in the progress of
List's economic thinking. Since List had to meet a deadline he had to be brief
and he had to put forward his arguments in a concise form. Although the
treatise was only about half the length of The National System of Political
Economy it contains virtually all the main points to be found in the later
work. As the editors of The Natural System of Political Economy observe:
List's more
important and fundamental teachings are fully developed in this book. Above all
the theory of the stages of economic growth finds full classic expression as a
central theme in List's thinking - as it does again in The National System
of Political Economy. In his treatise List frequently gives clear,
systematic, and brief explanations in numbered paragraphs of his most important
doctrines, which are not so clearly stated in any / of his other works.15
5
The
importance of The Natural System of Political Economy lies not so much
in List's advocacy of the policy of protection as in the new - or relatively
new - doctrines that he put forward. While the classical economists had
examined problems concerning population, exchange-value, money, rent, and the
allocation of scarce resources, List discussed stages of economic growth,
"productive power," and the industrialisation of backward regions.
Those who have regarded List simply as a leading protectionist have done him
less than justice and have failed to appreciate the real significance of his
writings. There was no lack of champions of the policy of protection in the
early nineteenth century. Chaptal, Dupin, and Ferrier in France, and Alexander Hamilton and
Mathew Carey in the United States had advocated the imposition of prohibitions
and of import duties to safeguard native industries, while in England there was
ample support for the Corn Laws, the navigation code, and imperial preference.
But List offered his readers much more than a repetition of the familiar
arguments put forward by these writers. He regarded prohibitions, import
duties, and subsidies as simply one method - indeed the most important method -
by which a government could foster a nation's economic expansion. But in his
view a tariff was only a means to an end. And the object of the policy of
protection, from List's point of view, was the establishment of an
urban-industrial society. This was the promised land to which List believed
that he could lead those who accepted his doctrines and followed the policies
that he recommended.
List
declared that in a purely agrarian and rural society "the whole range of
intellectual and moral powers is virtually nonexistent" and sheer
physical strength was all that could be expected from those who worked on the
land. On the other hand an indus-( • trialised urban society "calls forth and promotes the
growth of intellectual and moral forces of every kind". List considered
that "industry is the mother and father of science, literature, the arts,
enlightenment, freedom, useful institutions, and national power and
independence".16 He regarded a manufacturing town as a mecca for enterprising entrepreneurs and skilled workers
who could fulfil their ambitions in a way that would be impossible in the
countryside. He saw in the growth of factory towns the key to educational and
cultural advance. Only an urban and industrial society could afford to provide
its citizens with facilities for progress in the arts and sciences. Only such a
civilisation could build and
6
maintain schools, colleges, theatres, opera houses,
concert halls, museums, and art galleries. But what List failed to mention was
that the factory workers of the 1830s had to work long hours for low wages.
Many of them lived in wretched slums, survived on a very poor diet, and
suffered from numerous industrial diseases. They had no security of employment
and ran a serious risk of losing their jobs whenever there was a slump in
trade. For them there was no hope of the good life in factory towns that List
had promised them. The idyllic existence of the urban workers was a figment of
List's lively imagination and bore no resemblance to the harsh reality of life
in a factory town at that time.
List next
explained how a backward country could foster the growth of its economy so that
it could eventually enjoy the benefits of an urban industrial society. He
believed that this could be done by fostering a country's "productive
powers". These were rather different from the "productive
forces" discussed by Charles Dupin in a
statistical work on the French economy published in 1827." Dupin had explained that "by productive and commercial
forces in France I mean the combined forces exercised by men, animals and
nature and applied to work in agriculture, workshops, and commercial
enterprises". List's doctrine of "productive powers" was much
wider than this for it included political, administrative, and social
institutions, natural and human resources, industrial establishments, and
public works.
List held
that before a country could foster the growth of its "productive
powers" it should have made some progress towards the establishment of
suitable political and social institutions. The abolition of slavery and
serfdom, the ending of despotism and autocracy, the establishment of the rule
of law with security for persons and property were essential prerequisites for
economic growth. A measure of self-government at both local and national level
was also highly desirable. The natural resources of a country, particularly its
land and minerals, should be used to the best advantage. If coal, peat, timber,
or iron ore were available they could become the basis of important industries.
The skills of the people - especially the young people - should be fostered by
providing a sound elementary education for all children and adequate training
facilities at universities and technical colleges for the more gifted. A well
educated community, with a sufficient number of competent managers and skilled
workers, could exploit a country's
7
natural resources far more efficiently than a backward
ignorant people. List included professional men, civil servants, and local
government officials among those who helped to increase a nation's
"productive powers". While this section of the community did not grow
foodstuffs or make manufactured goods it did assist indirectly in their
production. The lawyers and policemen who maintained law and order, the armed
forces which defended the country, the doctors who maintained a nation's
health, the teachers who educated the rising generation, and the clergy who
maintained the moral standards of their parishioners were all just as useful
members of society as miners or factory workers.
The building
of new factories and the opening up of new mines would not only stimulate
industrial output at once but would be an asset to future generations for years
to come. List considered the provision, whether by public authorities or
private companies, of improved transport facilities to be a vitally important
contribution to a country's "productive powers". The construction of
an adequate network of roads, railways, and canals and the building of bridges
and harbours were essential to promote the flow of raw materials to factories
and of manufactured goods to consumers at home and abroad. List wrote with some
authority on transport since he had been closely involved with the construction
of the Tamaqua—Port Clinton railway in Pennsylvania and the Leipzig— Dresden
railway in Saxony. The growth of the mercantile marine and the shipbuilding and
fishing industries would promote the expansion of foreign trade. List also
suggested other means of stimulating a nation's "productive powers"
such as organising industrial exhibitions, rewarding inventors, encouraging the
immigration of skilled workers from abroad, and assisting manufacturers to
visit foreign factories.
List
considered that none of these methods of promoting the development of a
nation's "productive powers" was as effective as the imposition of
prohibitions and import duties so as to protect manufacturers from competition
in the home market from more advanced industrial countries. He advocated
protection for new industries that could not otherwise survive competition from
more efficient foreign rivals. On the other hand he considered that no
protection was necessary for agriculture. The degree of protection for industry
that List proposed would vary from country to country and from commodity to
commodity. Some manufacturers might
8
need to be safeguarded by prohibiting all imports of
foreign goods, while others would need only the protection of moderate import
duties. List believed that duties should be changed quickly if necessary. For
example the sudden arrival of large quantities of a particular product should
be countered at once by raising the import duty that they had to pay. List was
well aware of the drawbacks of tariffs. Prohibitions and high import duties
raised the prices that consumers had to pay, rendered householders liable to
have their premises searched for contraband, and encouraged smuggling. But
circumstances might arise which would make it imperative for a government to
impose a general tariff. For example, large quantities of British manufactured
goods had been sent to the Continent immediately after the collapse of the
Continental System so that industries which had developed during the Napoleonic
wars were threatened with extinction. Only the erection of tariff barriers
enabled them to survive.
The various
ways in which List suggested that a country's "productive powers"
might be fostered involved sacrifices on the part of the public. The imposition
of prohibitions or import duties would mean that, at any rate for a time,
people would have to buy expensive goods of poor quality instead of cheap
foreign goods of high quality. People would have to pay higher taxes to finance
the construction of roads and canals, the establishment of technical colleges,
and the holding of industrial exhibitions. List considered that it was not
unreasonable to expect people to make financial sacrifices of this kind to
promote the future economic prosperity of the country. As private citizens they
made sacrifices for their children and grandchildren. A landowner who gave his
son a good education and let him travel abroad to improve his knowledge of
agricultural practices was spending money to ensure that his estate would be
well run when he retired. A farmer who planted an orchard might derive little
benefit from it himself but his descendants would be grateful to him for his
foresight. List believed that what prudent private citizens did for later
generations should also be done by the state and he urged that immediate gains
should be sacrificed to ensure the economic growth of the nation in the future.
List also
put forward a theory of stages of economic growth. The criterion which he used
to identify different phases of growth was the extent to which the economy of a
village, a region, or a nation was linked with other economies. List's first
stage of
9
economic development was one of isolation and
self-sufficiency when peasants and craftsmen produced the food and manufactured
goods that they required and when a village had very little contact with
neighbouring communites. The second stage came when
villages had made contact with the nearest town. This association with an urban
economy brought new ideas and techniques to peasants and artisans. There was
progress in farming and craft work and there was an exchange of commodities
between urban and rural areas.
List's third
phase was one in which - with improved communications - urban and rural
workshops and factories were able to supply a whole country with manufactured
goods. Just as an isolated village had been virtually self-sufficient in the
first phase of economic development, so now in the third phase an entire
country was virtually self-sufficient. In the fourth phase a nation had made
contact with neighbouring states and imported some of the raw materials and
foodstuffs which it required and it exported some of its manufactured goods in
return. All this may appear somewhat elementary in comparison with more
sophisticated modern theories of economic expansion but List deserves credit
for having suggested the possibility of identifying phases of economic growth.
The merit of
List's The Natural System of Political Economy lay in its new approach
to economics, the analysis of national "productive powers," and the
theory of stages of economic growth. It dealt with problems that continued to
be relevant long after List's death. In the second half of the twentieth
century those interested in stimulating the economic expansion of states in the
Third World could still find inspiration in List's doctrines. List's true claim
to fame was as "a prophet of the ambitions of all underdeveloped
countries"18 rather than as a champion of the policy
of protection.
But The
Natural System of Political Economy was not without its faults. List
persistently overrated the extent to which the government of a country is
capable of stimulating economic expansion. Time and time again he attributed
the prosperity of a nation at a particular time to the wise actions of the
government. The growth of industry and trade is a highly complex process
involving the interaction of many factors. Government policy is one of these
factors and it is not necessarily the most important. List's interpretation of
/t/if historical events was not always accurate. He repeatedly argued that the
Continental System had brought prosperity to Napoleon's
10
dominions and that the opening of the ports after his
defeat was followed by a period of depression because the markets of the Continent
were flooded by cheap British manufactured goods. It is a travesty of the truth
to suggest that the economies of France and her satellites flourished in
Napoleon's day. Some regions – such as Saxony and the Roer
Department - and some branches of manufacture derived benefits from the
Emperor's economic policy. Others did not. The Grand Duchy of Berg, which
included the Ruhr, "suffered nothing but injury from the Continental
System".19 And Heckscher considers
that between 1811 and 1813 there was "a serious deterioration of the
economic conditions prevailing every where on the Napoleonic mainland".20
Again, List stated that interest rates were always high in the early stages of
industrialisation. This was true of France at the time when List was writing
but it had not been true of England in the second half of the eighteenth century.21
List was prone
to make confident assertions without attempting to prove that they were
correct. An example of this was his extraordinary statement that no suitable
work was available for women, children, and old people on the land. Another
example was his statements concerning the relationship between a country's
internal and external commerce which are of no great value in the absence -at
that time - of statistics of internal trade. Another weakness of List's writing
was his habit of regarding "industrialists" and "agriculturalists"
as compact social groups each pursuing its own economic interests. But
manufacturers do not all think alike and those who make a living on the land do
not all think alike. Different industrialists (ironmasters, textile
manufacturers) and different "agriculturalists" (sheep farmers, dairy
farmers, arable farmers, stockbreeders) may have conflicting interests and may
support different fiscal policies at various times. And within a particular
industry there may be groups which have different interests such as spinners,
weavers, bleachers, and dyers in the textile industries.
On a number
of matters on which his readers might expect some precise information List is
somewhat vague. A protective tariff was the very cornerstone of his doctrine of
the growth of "productive powers" which would promote
industrialisation. Yet List refers only to "reasonable" and
"fair" tariffs without explaining what rates of import duty are
"reasonable" and "fair". The same criticism may be made
concerning his reference to a "fair" rate of
11
interests without any explanation being given as to
what a "fair"
rate might be.
A comment should also be made upon List's violent attack upon merchants, which is a little surprising as at one time
he played a leading part in organising a
Union of Merchants in Germany. List denounced merchants for what
he regarded as their anti-social activities.
He accused them of selling anything to anybody - so long as they had bought in the cheapest market and
were selling in the dearest market - without being concerned about the way in
which their transactions might affect the interests of the country. He denounced trafficking in arms and drugs. He
seemed to forget that there were individuals engaged in many other occupations
who were also from time to time
guilty of unsocial or unpatriotic acts. There seems to be no reason to signal out the black sheep among the merchants
for special condemnation.
Finally, List's criticism of Adam Smith and his followers deserves to
be mentioned. List labelled Adam Smith's doctrines "cosmopolitan
economics" and declared that they were based upon the principle of
universal peace. List considered that "cosmopolitan economics" taught
that "conflicts between nations - whether settled by force of arms or by other means - must be replaced by an alliance
of all peoples, governed by laws of universal application. A world republic, as envisaged by J. B. Say, is
necessary to secure the fulfilment
of the dreams of the free traders" ,22 List was wrong in supposing that Adam Smith chose to ignore the
fact that the world was divided into many nations each of which pursued
its own economic and political interests.
Adam Smith had made it clear that the
first duty of a sovereign was to protect a country from invasion by another state and this duty could be performed
only by maintain-^ ing a military
force. He declared that the art of war was the noblest of the"arts. He
approved of bounties on the export of sailcloth and gunpowder to
encourage the production of commodities which would
be of vital importance to a country in time of war. And in an oft-quoted passage he declared that since defence
" is of much more importance than opulence, the act of navigation
is, perhaps, the wisest of all the commercial regulations of England".23
It may be added that List "made the
mistake so common with popular writers, but inexcusable in the author of a systematic treatise, of attributing to
Adam Smith the extravagant dogmas of his exponents".24
Some of the
weaknesses of The Natural System of Political
12
Economy may be ascribed to List's background and previous experience. Although for a short time he had oncebeen a professor at the University of Tubingen, he was no academic. He was a politician,
a journalist, and a businessman. His treatise for the French Academy was his first attempt to give a full account of his economic
doctrines. And it did not turn out to be a balanced scholarly monograph. Each chapter might have been an article written for a newspaper. It was List the
journalist, rather than List the
economist who was responsible for the sweeping generalisations, the
exaggerations, and the personal attacks upon his opponents.
NOTES
1. List lived in the United States from June 1825 to
July 1832. He was in Europe between November 1830 and October 1831.
2. Reprinted in Margaret E. Hirst, Life of Friedrich
List (1909), pp. 147-272 and F. List, Werke, Vol. II (ed. W. Notz, 1931 and 1971), pp. 97-155. List's letter of November
27,1827 was not included either in the Outlines of American Political
Economy (1827) or in Hirst's biography of List.
It is printed in F. List, Werke, Vol. II, pp. 155-6.
3. Hans-Peter Olshausen, Friedrich
List und der Deutsche Handels- und Gewerbsverein (1935).
4. There are two English translations. The first (by
G.A. Matile) appeared in Philadelphia in 1856, the
second (by Sampson S. Lloyd) in London in 1885 (reprinted in 1904 and in 1966).
A French translation by Henri Richelot was published
in 1857 and a Russian translation in 1891.
5. Theodore H. Von Laue, Sergei Witte and the
Industrialisation pf Russia (1963). p-62.
6. F.W. Hirst's introduction
to Margaret E. Hirst, Life of Friedrich List (1909).
7. On March 15, 1913 Eugene d'Eichthal
gave a lecture to the Academy of Moral and Political Sciences on the manuscript
of The Natural System of Political Economy entitled "L'Economiste Frederic List. Candidat
a un des concours de l'Acadfemie
des sciences morales et politiques
en 1837". List's manuscript was published in 1927 (reprinted 1971) as the
fourth volume of his collected works. A German translation appeared in the same
volume.
8. The French Academy of Moral and Political Sciences
was established in 1795 as the second section of the Institute of Sciences and
Arts. The section was abolished in 1802 but was revived in 1832.
9. F. List to Caroline List, November 22, 1837 in F.
List, Werke, Vol. IV, p. 46. In this letter List stated that he was
working on two prize essays. The second was an answer to the question:
"How do the mechanical power and the means of transport now in use
influence the life of the community, the state of society, the political power,
and the economic development of the old world and the new?". No copy of
this thesis has been found in the archives of the French Institute. Carl
13
Brinkmann
doubts if it was ever written: see Carl Brinkmann, Friedrich
List (1949), p. 233, note 11.
10. F. List to Caroline List, January 1, 1838 and
postscript of January 13, 1838 in F. List, Werke, Vol. IV, pp. 47-8.
11. F. List to J.G. Cotta, September 6, 1838 in F. List,
Werke, Vol. IV, p. 48.
12. F. List, Das Nationale
System der Politischen Okonomie in F. List, Werke, Vol. VI, p. 19.
13. F. List to Caroline List, January 1, 1838 and
postscript of January 13, 1838 in F. List, Werke, Vol. IV, pp. 47-8.
14. F. List to J.G. Cotta, September 6, 1838 in the
List Archives (Reutlingen): printed in F. List, Werke, Vol. IV, p.20.
15. Edgar Salin and Artur Sommer in F. List, Werke,
Vol. IV, p. 20.
16. See chapter 12 below.
17. Charles Dupin,Situation
Progressive des Forces de la Francedepuis 1827 (Paris,
1~827). In a speech in Philadelphia on November 3,1827 List had referred to
this book as an "excellent production", written by a "celeb~rated scholar".
18. T.H. Von Laue, Sergei Witte and the
Industrialisation of Russia (1963), p. 57.
19. E.F. Heckscher, The
Continental System (1922), p. 314.
20. E.F. Heckscher, The
Continental System (1922), p. 322. For Germany's foreign trade between 1789
and 1834 see MartinK\xtz,DeutschlandsAussenhandelvon
der franzosischen
Revolution bis zur Grundung des Zollvereins (1974).
21. T. S. Ashton,/tn Economic
History of England. The Eighteenth Century (1955) and L.S. Pressnell, "The Rate of Interest in the Eighteenth
Century" in L.S. Pressnell (ed),
Studies in the Industrial Revolution (presented to T.S. Ashton) (1960),
pp. 178-214.
22. See below, chapter 1.
23. Adam Smith, An Inquiry into the Nature and
Causes of the Wealth of Nations, 1776 (Everyman edition), Vol. I, p. 408.
24 J. Shield Nicholson's introduction of 1904 to F.
List, The National System of Political Economy, 1841 (new edition,
1966), p. 448.
FRIEDRICH LIST
THE NATURAL SYSTEM
OF POLITICAL ECONOMY
1837
Etlapatrie,
etl'humanite
Answer to
the Question posed by the French Academy of Moral and Economic Sciences.
If a country
proposes to introduce free trade or to modify its tariff, what factors should
it take into account so as to reconcile in the fairest manner the interests of
producers with those of consumers?
In THE SCIENCE
of economics, theory and practice are virtually divorced from one another - to
the detriment of both. Economists condemn practical men as mere followers of
routine who fail to appreciate either the truth or the grandeur of the
doctrines enunciated by economists. Practical men, on the other hand, regard
economists as mere doctrinaires who ignore the facts of life and inhabit a
dream world of economic theories that exists only in their imagination.
Consequently
the science of economics has failed to achieve its noblest aim which should be
to elucidate economic practices and to show how they can be improved. And for
their part practical men have not changed since they are as much children of
routine today as they always have been in the past.
It is therefore certain that, in a more perfect world,
economists would enunciate correct, reasonable and useful rules for practical
men to fellow, while practical men would provide economists with facts and
results which would confirm their theories and enable them to discover new
doctrines.
Anyone who
is both an economist and a practical man cannot deny that errors have been
committed by both parties. Up to the present day all founders of new schools of
economic thought and their disciples have failed to pay sufficient attention to
experience gained in the world of affairs - experience which can be confirmed
by all who have been engaged in practical activities. Economists have been
overconfident concerning the conclusions of their reasoning - doubtless
profound but the fruits of labours in the solitude of their studies - even when
their conclusions are at variance with what people have always accepted as wise
and correct. Even the worthy Adam Smith does not hesitate to brand as "an
insidious and crafty animal" anyone who challenges his illusionary
17
theories by practical experience.1 And the
French disciples and interpreters of this famous writer use equally opprobrious
language when referring to practical men of affairs. Yet at all times in
advanced nations there have been a great many men of affairs whose intelligence,
experience, understanding and patriotism have earned them recognition as great
leaders by their contemporaries. Can any impartial person doubt the value of
their services or argue that men of this calibre have throughout the centuries
played the part of idiots or fools?
On the other
hand it must be admitted that, on the whole, practical men have been too ready
to assess and to judge economic problems solely from their own point of view.
They have scorned to make a thorough study of economic doctrines which would
enable them to expose the errors of economists and to marshal the arguments
with which they could refute the theorists on their own ground.
These
assertions can be proved by taking as an example a French writer2
who combines theoretical knowledge with practical experience. His observations
have often led to striking conclusions. Unfortunately his arguments are based
upon principles which have long been shown to be erroneous.
There are
three reasons why men in public life, who shoulder great responsibilities, are
justified in rejecting the principles laid down by doctrinaire writers which
are obviously incompatible with experience in everyday life.
1. [The "insidious and
crafty animal" condemned by Adam Smith was the "statesman or
politician whose councils are directed by the monetary fluctuations of
affairs" (Adam Smith, The Wealth of Nations, ed. E. Cannan, 2
vols., 1904, Vol. I, p. 432).] [The editor's notes are in square brackets
throughout.]
2. M. Ferrier. [Francois
Louis Auguste Ferrier was the director of customs at
Dunkirk. His major works were: Du governement considere dansses rapports avec
le commerce (Paris, 1805) and Du systeme
maritime et commercial de I'Angleterre au XIX siecle (Paris, 1829).]
3. See the differences
between the doctrines of J.B. Say and Adam Smith [p.21 below].
18
Thus the
physiocrats proved the theories of the mercantilists to be untenable and then
Adam Smith and J. B. Say exposed the inadequacies and errors of the physiocrats.
In the United States two attempts to introduce free trade have failed. In
France the treaties which Turgot concluded in the hope of moving as far as
possible in the direction of free trade did not promote the welfare of the
country but had exactly the opposite result. Germany has always followed the
doctrine of free trade but far from deriving any benefit from this policy she
has seen the collapse of the greater part of her productive powers.
Unfortunately
the consequences of experiments made by doctrinaire economists are as uncertain
as some of the results of medical experiments although in both cases the most
recent theories have been put into practice. Whenever theoretical principles
deviate from sound common sense and are opposed to what has been accepted as
judicious, necessary and useful, it is prudent to refrain from taking any
action which might be harmful to the welfare of society. It would be prudent to
assume that the economic doctrine might be wrong and to delay making any
hazardous changes until further research has either proved or disproved the
validity of the theory.
This is
certainly true of the so called doctrine of free trade which has been
fashionable since Quesnay's day. In the name of scientific progress doctrinaire
economists have urged practical men to adopt the policy of free trade without
even explaining clearly what the doctrine means. Yet in all countries,
practical men faced with real problems have always found it both necessary and
judicious to regulate commerce and to restrict trade in various ways.
Whenever a
number of enlightened, experienced, and intelligent men of affairs are faced
with a problem that does not affect their private interests and are satisfied
that a particular course of action is both necessary and desirable then one may
presume that their decision is based upon common sense. This is true even if
their action is condemned as unreasonable and contrary to the very nature of
things by people who enjoy the reputation of being clever and well educated but
who lack any experience of practical affairs.
Attention
may be drawn to two ways in which even the most judicious proposals for
economic reform are received by the public. First, such proposals nearly always
have to face prejudiced opposition from conservative people who act by rule of
thumb. Secondly,
19
the reception of a new doctrine may be seriously
hampered because it may be accepted and achieve popularity owing to its
apparent simplicity - yet a great many of its supporters (lacking reasoning
powers and hoping to be looked upon as knowledgeable people) will embrace the
new theory without proof and without thought, so as to bask in the reflected
glory of the originator of the doctrine. Thus the influence for good of the
greatest reformers is to some extent counterbalanced by the fact that their
errors gain popular acceptance as quickly as the truths which they have
enunciated. Consequently the greater the skill with which a new and victorious
doctrine is launched, the greater its apparent simplicity, and the greater the
confidence that it inspires in men of knowledge and integrity, the more likely
will it be that a critic will fail if he undertakes the difficult task of
trying to draw attention to the errors of the theory. In many respects that is
the position of the author of this treatise.
Although the
writer fully acknowledges the great services that Adam Smith and J. B. Say have
rendered, he believes that in order to answer the question posed by the Academy
in a satisfactory manner, he must prove (i) that
there are important deficiencies in the doctrines of these two great
economists, (ii) that these deficiencies explain the incompatibility between
the theory and practice of economics as well as the disputes between theorists
and practical men, and (iii) that the truth lies somewhere between the dominant
theory of free trade, and the normal commercial practice of the present day.
The writer
appreciates the difficulty of the task that he has undertaken, since he himself
acknowledges the exalted genius of the economists whom he presumes to criticise
and he recognises that their doctrines have been accepted by many men of
superior talents. Far from confident of his own abilities, he might hesitate to
attempt such a difficult task were it not for his conviction that the Academy
of Moral and Economic Sciences - by the form of the question it poses and by
the advice given to competitors -apparently assumes that the doctrines of Adam
Smith and J. B. Say are capable of being put into practice successfully.
In fact the
history of all new ideas shows that human progress is not promoted by the
uncritical acceptance of the doctrines of great thinkers. Such an attitude
makes it impossible for their successors even to make good the deficiencies
that occur in the writings of
20
these great men. With the passage of time, however,
intelligent people everywhere are prepared to accept the fact that it is right
for the doctrines of profound thinkers of the past to be completed and improved
by their successors.1
However, since
the writer is both an economist and a man of affairs he enjoys certain
advantages which may make up for his intellectual limitations. For many years
he has not only studied the doctrines of the various schools of economic
thought but he has also examined the actual facts of life. He has visited all
the advanced countries in the world and he has studied their trade, industry,
finances, and agriculture.
The widest possible gulf separates the men of theory
from the men of practice when it comes to discussing the question of free
trade.
The doctrine
of free trade was first advocated by Quesnay and his disciples, the
Physiocrats. Their arguments were based
1.
[List's note] My doubts concerning the infallibility of economic doctrines and my right to pass judgment even
on the past distinguished masters of this branch of knowledge have been
strengthened by reading what the leaders of various schools of economic thought have had to say
about each other. J.B. Say calls the Encyclopaedists dreamers - and dreamers indeed they are. He attacks their
inspired assertions, their sectarian
spirit, and their dogmatic and abstract language.
Consequently
the supporters of today's dominant free trade doctrines have no cause whatever to complain of
criticisms of their basic ideas. J. B. Say has opposed Adam Smith as vigorously as he has opposed the
Encyclopaedists. Granted that in general he shows the dominant school of economic thought the respect it
deserves, he nevertheless
has no hesitation in attacking particular aspects of Adam Smith's doctrines. Say alleges that Adam
Smith does not lay sufficient emphasis on the r61e of agriculture and capital; and that he actually
exaggerates the significance of the division of labour - a principle which he was the
first to discover. Say declares that Adam Smith places too much emphasis on
labour as the main source of wealth. Say regards this point of view as too
narrow and argues that Adam Smith should write "industry" instead of
"labour." Say complains that Adam Smith gives no general account of
the way in which wealth is divided. He considers that this aspect of economic theory has not yet been
adequately explored. In short Say argues that Adam Smith's fundamental
principles have not been proved. Say accuses Adam Smith of failing to make his position clear.
Nevertheless, according to the introduction of Say's Discours
preliminaire, while Adam Smith lays down
"the most reasonable
fundamental principles of economics" at the same time there is much confusion of thought in his book.
There are plenty of accurate theories mixed up with positive facts. The uninitiated reader of Say's
work really does not know what to think
of so distinguished an economist as Adam Smith.
Consequently
in France those whose opinion carries considerable weight have hardly felt able to support (any
one of the) various rival economic doctrines. Charles Dupin,
for example, writes: "I do not claim to have invented any economic
doctrines or
theories. I am not so foolish as to expect my countrymen to be taken in by my rambling speculations".
21
upon cosmopolitan principles. They put forward three
propositions which are obviously erroneous and untenable - first that only agriculture
produces wealth; secondly, that industry needs no protection; and thirdly that
agriculture can flourish only if commerce is free from all restrictions.
Adam Smith
reached the same conclusion by a different process of reasoning. He declared
that the way to give the economy the most powerful stimulus was to leave it
alone. Agricultural and industrial production and commerce should be left to
private enterprise. Government intervention would only guide industry and
capital into less profitable channels. Adam Smith considered that if a
government wishes to increase national prosperity it has only to free
production and foreign trade from all restrictions. He recommended that
internal peace should be established as well as security for commerce and
transport in order to secure the maximum welfare of a state. He believed that
every nation possessed particular advantages, which would be fully exploited
only if world free trade were established. He considered that exports were
always balanced by imports of equal value and that there was no difference
between trade in specie and trade in anything else. Adam Smith argued that
Britain had become wealthy and powerful in spite of - and not because of - her
restrictive commercial policy. He argued that import duties created privileges
and monopolies which benefited particular groups of people but damaged the
interests of consumers and of society as a whole. He denounced the levying of
retaliatory import duties directed against the tariffs of other countries since
such a policy harmed the country imposing the duties as much as the country
that they were supposed to injure.
In view of
these considerations Adam Smith, his disciples, and his successors have
denounced every prohibition, every restriction, and every high import or export
duty imposed to protect industry. They admit that, in present circumstances, the
immediate total abolition of all commercial restrictions is impossible, but
they urge the gradual removal of such restrictions. Merchants all over the
world think only of their own private interests and agree with the theorists
who advocate free trade but they make no effort to examine the validity of the
arguments put forward in support of this fiscal policy. Since the profits of
merchants come simply from exchanging products, they regard all imposts and
restrictions as bad for business and they have invented and given their
allegiance to the motto:
22
"laissez faire et laissez passer" - except
for shipowners who consider bounties and privileges
to be essential for merchant shipping and the fishing industry because - so
they say - there can be no navy without a mercantile marine.
Those who earn salaries or draw pensions adopt the
same attitude since it is in their interest to buy what they require in the
cheapest market.
Manufacturers
have very different ideas from farmers concerning free trade. Industrialists
consider that freedom of commerce is desirable in foodstuffs, fuel, and raw
materials because the lower the cost of these commodities, the better they are
able to compete successfully with foreign rivals both at home and abroad. It
is, however, difficult to satisfy the demands of manufacturers because there
are so many definitions of what constitute "raw materials."
Farmers on
the other hand consider that the welfare of society is seriously injured by
every prohibition or restriction which increases the cost of manufactured
goods. At the same time they argue that it is necessary to erect tariff walls
to restrict the importation of foodstuffs. They put forward a thousand reasons
to justify this demand. They declare that they pay higher wages and are burdened
by higher taxes than their foreign competitors.
All
governments are under conflicting pressures from these opposing interests. On
the one hand they may favour greater freedom of trade yet at the same time
they will realise the necessity of preserving and protecting existing interests
so as to avoid any violent convulsion which might endanger the finances, credit
or security of the state.
However
enthusiastically they may pay lip service to the profundity of the doctrine of
free trade, all governments recognise that it is much easier to declare their
determination to establish free trade than it is to adopt a policy that will
overcome all the difficulties and will achieve the object that they have in
mind. They have neither the time not the desire to make a detailed examination
of the doctrine of free trade and they are continually distracted by the
demands of various pressure groups and by the actual situation in which the
country finds itself. Faced with such an awkward and embarrassing situation it
is quite natural that governments should take the easiest course open to them
to surmount the difficulties with which they are beset. This accounts for the
great gulf which separates their words from their deeds.
23
In England,
where the free trade doctrine was born and received the greatest support, a
recent attempt to put the theory into practice failed. After the advantages and
drawbacks had been carefully weighed, it was decided to leave things as they
were. It was evident that the claims of the supporters of free trade were
unfounded.
What did the
great champions of free trade - men like Canning and Huskisson
- ever do to put into practice the doctrine which they so fervently supported?
They caused a few laws to be passed which proved to be useless and are already
a dead letter. They reduced a few import duties but always took care that the
new duties were high enough to safeguard the home market for English
manufacturers. They lowered unnecessarily high tariff walls but always made
sure that import duties remained high enough to protect the country from a
flood of imports. When they abolished some prohibitions they replaced them with
import duties high enough to be equivalent to a prohibition. They even dealt
with the Corn Laws in this way although the abolition of the import duties on
cereals would have been of great benefit to their country. Did they ever do
anything to reduce import duties on the products which France, Germany, or
Switzerland would like to sell in the English market? No, they did not.
These men
actually proclaimed that they had taken a great step forward towards free
trade. But their hypocrisy was obvious since their true purpose was simply to
trick those countries into making tariff concessions on the English goods which
they imported. Even (the United States), the world's youngest state, which has
applied the most modern principles and inventions of our age to achieve
unparalleled economic growth, has not been able to adopt the policy of free
trade.
Sensible
impartial observers have to admit that although England preaches free trade,
she practises something very different. What England means by free trade is the
right to sell freely all over the world both her own manufactured goods and the
produce of her colonies while at the same time she erects hostile tariff
barriers to prevent foreign goods from competing with her own products in the
home market. It must in fairness be admitted that the way in which England
treats the rest of the world is no different from the way in which other nations
treat their weaker neighbours who are in no position to retaliate.
There is
therefore a real danger that the strongest nations will use
24
the motto "Free Trade" as an excuse to adopt
a policy which will certainly enable them to dominate the trade and industry of
weaker countries and reduce them to a condition of slavery.1
All over the
world people misuse the term "Free Trade". They use it to deceive
people while lining their own pockets under the cloak of patriotism. The vast
mass of humanity cannot be expected to grasp the full implications of high
politics or the differences between commercial, political, and social freedom.
Inside a
country the policy of free trade is beneficial provided that it simply means
that citizens are free to manufacture what they please and are not restricted
when moving their produce from one place to another. But free trade in foreign
commerce is far from beneficial. Indeed it is the equivalent of commercial
slavery. Free trade in this sense - if introduced unilaterally - permits
foreign competitors to ruin native industry while denying to native manufacturers
the right to compete on equal terms with foreign rivals in markets abroad. Such
"freedom" leaves us to the tender mercies of foreigners. Our industry
and commerce are dependent upon their laws and regulations.
To answer satisfactorily the question posed by the
Academy it will be necessary, first of all, to recommend certain changes which
will reform both the theory and the practice of economics.
1.
[List's note] Montesquieu in his Esprit des Lois writes: "Free
trade is not a licence granted to merchants to do as they please. It is a
servitude imposed upon them. If the state imposes restrictions upon the individual merchant, it
does so in the interest
of commerce in general. Trade is never subjected to greater restrictions than in free nations, and it is never
subjected to fewer restrictions than in nations under despotic
governments." And again: "England restricts the individual merchant
but promotes commerce in general."
25
Man has to wrest from
nature what he requires to satisfy his needs. The more intelligence, integrity
and capacity for hard work that he possesses, the better equipped will he be to
achieve his ends. He can, however, achieve little on his own since both his
powers and the area in which he can operate are very limited. He needs the
support of his own kind to supplement his modest powers and the restricted
resources at his disposal. The greater the number of his associates - and the
greater their intelligence, integrity, and capacity for hard work - the easier
will it be for him to achieve his aim.
By means of
the reciprocal exchange of goods and services, each individual can concentrate
his efforts on the occupation for which he is best fitted by his physical and
intellectual qualities, by his education, by his experience, and by the natural
resources at his disposal. In this way the output of each individual reaches
the maximum that his abilities permit and the surplus goods that he makes can
be exchanged for the greatest quantity of goods produced by others. This is
called the division of labour.
The greater
the growth of the productive powers of society, the greater the area in which
they can operate, and the greater the number of producers, the greater is the
number and variety of the goods that can be made and which are available to
each individual. As the economy expands, so each individual can produce more
goods which he can exchange for foreign goods. In this way he can become
progressively richer. But the first and the main condition for the production
of wealth is the existence of complete freedom for the individual to produce
goods and to exchange them.
If the
inhabitants of a town, a group of towns, or a number of provinces are able to
exchange goods freely among themselves, their standard of living will improve
in a way that would not be possible if the movement of goods were restricted by
imposts
*[Or Individual and Social
Economics]
27
or prohibitions. Similarly the wealth of the various
nations in the world would reach a maximum if universal freedom of trade were
established.
In certain
circumstances there may be a failure to balance the various goods produced by
various individuals. This may occur because of the freedom of the individual to
engage in whatever economic activity he pleases, to produce as many goods as he
sees fit, and to make what he regards as the most profitable bargain when he
exchanges the goods that he has made. The individual does not know if too many
or too few competitors have decided to produce the same goods as himself, and
he cannot judge if the demand for his goods is rising or falling. The best way
of restoring the balance between supply and demand which has been disturbed in
this way, is to establish the greatest possible freedom of trade between all
the countries in the world.
If
agricultural and manufacturing products can be freely exchanged they will be
made in those places designed by nature for their production. The state of
farming, the availability of scientific and technical knowledge and the social
and political condition of the inhabitants are all factors which will stimulate
economic growth. The fullest development of manufacturing industry, however,
will take place only when various branches of industry are so intimately linked
that one process can follow another as closely as possible. The principle of
co-operation is as indispensable to steady regular industrial growth as the
principle of the division of labour.
Experience
teaches us that a high degree of civilisation, and the labours of successive
generations, are necessary to bring the industrial capacity of a country to a
high degree of perfection. To achieve this object a regular - though perhaps a
slow - rate of growth both of output and of sales must have first priority. Any
step backwards must be avoided at all costs.
Particular
countries may achieve an overwhelming industrial ascendancy owing to the
special aptitudes of the inhabitants, the introduction of improvements in the
manufacturing processes, or to natural advantages. In brief the advantages
bestowed by nature or by history may enable a country to become - and to remain
- a great industrial power. Such a country will be able to supply the world
with the best goods at the lowest prices. And in this way the manufacturing
power of the whole world will quickly reach hitherto unimagined heights to the
advantage of all humanity.
28
At the same
time the economic progress of the agrarian countries will expand in the most
natural and sensible manner. Their prosperity will grow as they sell their raw
materials and agricultural products to industrial countries while they can buy
the manufactured products, the tools, and the most efficient machines that they
require. Their increased wealth and their contacts with industrial countries
will enable them to improve their political and social institutions. The time
will come when these agrarian states will themselves become manufacturing
countries. Moreover the surplus capital and workers in the industrial states
will inevitably move to agrarian countries when they are ripe for industrial
development.
As each
country prospers and becomes more civilised it acquires an aptitude for the
manufacturing arts and in due course it will become an industrial state.
For this
prosperity to be procured by every nation and by the whole human race it is
necessary to have universal peace. Conflicts between nations - whether settled
by force of arms or by other means - must be replaced by an alliance of all
peoples governed by laws of universal application. A world republic, as
envisaged by J. B. Say, is necessary to secure the fulfilment of the dreams of
the free traders.
In the PREVIOUS
chapter we summarised the main features of the most widely accepted economic
doctrine of our time. This doctrine is clearly concerned only with individuals
and with a universal republic embracing all members of the human race. But
this doctrine omits a vital intermediate stage between the individual and the
whole world. This is the nation, to which its members are united by the tie of
patriotism.
*[Or
Political Economy]
29
At present
the world is divided into a number of different states, each with its particular
national characteristics. Each individual - be he a manufacturer, farmer,
merchant, professional man, or pensioner- is a member of the country in which
he lives. The state protects him and helps him to achieve the aims that he
pursues as an individual.
Individuals
owe to a nation their culture, their language, their opportunity to work, and
the safety of their property. Above all they depend upon the state in their
relations with people in other countries. They share in the nation's glory and
in its misfortunes; they share in its memories of the past and its hopes for
the future; they share its wealth and its poverty. From the nation they draw
all the benefits of civilisation, enlightenment, progress, and social and
political institutions, as well as advances in the arts and sciences. If a
nation declines, the individual shares in the disastrous consequences of its
fall.
So it is
right and proper that the individual should be prepared to sacrifice his own
interests for the benefit of the nation to which he belongs.
As yet no
universal republic exists. What is called "international law" is, for
the time being, only the embryo of a future world state. Common sense and - as
we saw in our first chapter - mutual interests should induce nations to abate
their natural envy and their distrust of each other. Common sense tells us that
war between nations is as stupid and savage as duels between individuals.
Mutual interests would suggest the establishment of perpetual peace as well as
free trade between nations which would bring the greatest prosperity to us all.
Nevertheless it is not yet safe for the lamb to lie down with with lion.
So far there
are only a few people, even in the most enlightened countries, who have grasped
the fact that perpetual peace and universal free trade are both desirable and
necessary. Nations have not yet attained a state of political and social
development which would make such a reform possible. Moreover the civilised and
enlightened countries in the world cannot be expected to disarm and to renounce
warfare so long as there are in existence powers which reject the ideas of
peaceful prosperity for the whole human race and are bent upon conquering and
enslaving other nations.
Just as the discovery of gunpowder enabled states to
establish law and order in their towns and in isolated regions so it now seems
that
30
only some new (and so far unknown) invention will
persuade people of the possibility - indeed the necessity - of establishing a
system of laws which will enable them to live together in peace throughout the
world.
At present a
nation may be regarded from two distinct points of view with regard to its
relations with other countries:
(i) First, a nation is a sovereign political body. Its
destiny is to safeguard and to maintain its independence by its own efforts.
Its duty is to preserve and to develop its prosperity, culture, nationality,
language, and freedom - in short, its entire social and political position in
the world.
(ii)
Secondly, a nation is a branch of human society. It is the duty of a nation -
as far as its own special interests permit - to join with other countries in
the task of promoting the welfare and prosperity of the whole world.
Regarded
from the first point of view a nation should adopt an independent "national
economy". Regarded from the second point of view it should adopt a
"cosmopolitan economy". An analogy between the "national"
and the "cosmopolitan" economics would be the two kinds of legal
system which exist in the world. There are "national" systems of law
which are in force in particular countries and there is a
"cosmopolitan" - or international - system of law which is in force
all over the world.
Cosmopolitan
economics - or universal free trade between all the countries in the world - is
only in the very earliest stage of development. Nations can only move slowly,
step by step, towards the attainment of world free trade. They can do so only
insofar as it is advantageous and not disadvantageous for them to adopt such a
policy.
A nation
which dismantled its fortresses and demobilised its armed forces would not
enjoy the benefits of eternal peace, despite the fact that our religion teaches
us to love and to help one another. Similarly a nation which abolished its
import duties while other countries retained their tariffs, would not enjoy the
benefits of world free trade.
The doctrine
of national economics teaches us that a country which hopes to attain the
highest degree of independence, culture and material prosperity, should adopt
every measure within its power to defend its economic security from any foreign
attack,
31
whether such an attack takes the form of hostile
legislation or military action. To enable a country to protect itself it is
essential that it should establish industries and foster their development -
insofar as this is possible with available physical and human resources.
The
foundations upon which national independence can be built are quite inadequate
without the development of industries. A country of farmers and peasants can
never maintain the military power - or the human and physical means to defend
itself- that can be maintained by an industrialised country. The position of an
agrarian country is worsened by the fact that just when it needs to defend
itself it may be unable to find markets for its agricultural products and it
may thus be deprived of the capital with which to create new industries.
Moreover those of its merchants who live abroad - men who are half foreigners
already - will in wartime never be such sound patriots as manufacturers and
farmers whose entire livelihood depends upon the maintenance of their country's
independence.
In time of
war every country is forced to establish factories to make those goods which
were formerly imported from abroad in exchange for products made at home. The
result is the same as that achieved by a prohibitive fiscal policy in peace
time. The nation is forced to demand great sacrifices from consumers in order
to create new industries. And this happens just when the means available for the
establishment of manufactures have been reduced to a minimum. If free trade is
introduced when hostilities cease the newly established industries will be
thrown to the tender mercies of foreign competitors. In these circumstances a
country will lose all the capital, all the experience, and all the work of the
war years and will return to its former position of weakness and dependence
upon foreigners.
In the event
of war or of the threat of war it is essential for a Great Power to establish
industries. And in peacetime a government should foster the establishment of
new branches of manufacture to safeguard the prosperity and the culture of the
nation.
We saw in
the previous chapter how the division of labour and the co-operation of
productive powers follows automatically from the adoption of the policy of free
trade. But if the natural growth of the economy is hindered by the hostile
political actions of other states it would be foolish to expect that the same
growth will take place that
32
would have occurred if universal free trade existed.
In such circumstances a nation can expect the industrial sector of the economy
to grow only if defensive measures are taken through political action. If a
country stimulates the establishment and the expansion of manufactures by
adopting a suitable tariff it will promote the continued extension of the
division of labour and a proper balance between agriculture and industry.
Co-operation between industry and agriculture will stimulate the continued
growth of the economy and will protect the country from any possibility of a
slump.
From this
point of view the imposition of a protective tariff in no way hampers the
natural growth of the economy. The object of a tariff is to frustrate any
hostile action by foreigners to harm a country's economy by political action or
by acts of war. While achieving its immediate object a protective tariff will
also foster the natural and normal expansion of home industries. A protective
tariff establishes free trade within the frontiers of a single state, as an
alternative to the establishment of universal free trade. In the world in which
we live it is impossible to introduce universal free trade just now because the
various nations into which it is divided are intent upon pursuing their own selfish
economic interests.
In these
circumstances one would fail to appreciate the nature of the relations between
a state and the individuals who compose it if one were to argue that a national
commercial policy designed to control trade with foreign countries could in any
way prejudice the rights and interests of the individuals who form the nation.
We have already observed that the fortunes or misfortunes of individuals are
dependent upon the maintenance of the independence and progress of the whole
nation. We have seen that each country can secure economic growth by means of a
specially designed tariff. It is obvious therefore that individuals in a
country must accept the restrictions imposed for the welfare of the nation as a
whole. It is equally obvious that the freedom of the individual must be
restricted to secure the freedom of all the individuals who make up a nation.
In doing this a state acts in the same way as it does when it demands part of
an individual's wealth to pay for the administration of the country or when it
calls upon its citizens to serve in the armed forces, at risk of life and limb,
to defend its independence.
33
In ORDER TO
establish which economic principles should be used as guide lines for a
national commercial system and for a tariff it is necessary to examine the
economy of individuals. Two factors are involved. The first is the skill or the
physical labour which enable something to be produced. The second is an object
that has been produced which can be exchanged for something else and therefore
has a value. Two different economic doctrines - cosmopolitan and national
economics - are both based upon a recognition of the existence of these
factors. The doctrines are derived from different principles but they have
numerous points in common.1
A few
examples may be given to illustrate the difference between the two doctrines. A
father who spends his savings to give his
l.[Note by List] J.B. Say
almost certainly appreciates the significance of an independent theory of
productive powers but he does not make a clear distinction between the two
doctrines which we have mentioned. In his first book (Nouveau principe d'economie politique, chapter 2) he distinguishes between what he
calls "high politics" and "political economy". He writes:
"The first is concerned with cultural needs, the second with material
needs". It is only in his second book (Traité
d’economie politique) that
Say includes "cultural product ion" in his doctrine under the general
heading of "immaterial goods" and "immaterial industry".
But he does I not regard "cultural production" simply as a factor in
the production of material
goods. In his last book (L’economie politique pratique, Vol. I,
p. 211) Say writes: "When intellectual services are rendered they are an
immaterial product which has value and is an object of exchange. It is always
an application of human knowledge to
material human needs". Say argues that "cultural production"
does not create productive powers but does aid in the production of material
goods. Baron Charles Dupin in his famous book Les
forces productives de la France was the first to
recognise fully the significance of productive powers. He emphasises the real
practical value of productive powers. In an appendix to Dupin's
book J. Droz (Book IV, chapter 4) writes: "I
have observed with regret that several writers have employed expressions which
apparently imply that all our needs are of a material character". This
emphasis on material things has gone so far that Thomas Cooper, a distinguished
American economist, evaluates human beings by the money spent on their
education. Thus he declares that a lawyer is worth 3,000 or 4,000 dollars. Even
Droz has tried to prove that there is a connection
between productive powers and the theory of value. He quotes the example that
we have cited from Cooper to show that a father sacrifices "value" to
gain "productive power" when he pays for his son's education.
34
children a good education sacrifices "value"
but substantially increases the productive powers of the next generation. But
a father who invests his savings and neglects to educate his children increases
the "exchange value" at his disposal by spending the interest on his
capital at the expense of the future productive powers of the country.
According to the doctrine of productive powers a father or teacher who trains
the citizens of the future is a producer, but according to the theory of value
he is simply a consumer. A planter, who raises slaves, is "productive"
in the sense that he increases the wealth of the nation, but he weakens the
productive powers of the state. There are many products, such as alcoholic
liquors, which increase the "exchange value" of a nation but weaken
its productive powers.
Just as it
is possible to sacrifice productive power to gain "exchange value" so
it is possible to give up "exchange value" to increase productive
power. The result of giving up "exchange value" for greater
productive power is not immediately apparent but it is seen in the increased
output of the next generation or even later generations.
The owner of
a large estate will sacrifice significant "exchange value" if he
decides that his son should not work on his farms to increase their output but
should travel abroad to study new farming methods and to bring home new plants,
seeds and improved livestock. Here the immediate loss is balanced by an
improvement in the productive power achieved by later generations rather than
by the landowner himself.
While Watt
and Arkwright were inventing new machines and improving them there was a loss
of "exchange value" but eventually these pioneers enormously
increased the productive power not only of England but of the whole world. Most
inventors and those who advance technical knowledge sacrifice their savings but
the national economy is immensely strengthened. Countries, such as the United
States of America, have suffered huge economic losses to achieve political
independence but their sacrifices have ultimately been rewarded by an immense
increase in their prosperity and productive power.
A nation
which has an agrarian economy and is dependent upon foreign countries (for its
manufactured goods) can - if it has the necessary moral qualities or natural
advantages - stimulate the establishment of industries by means of a protective
tariff. Such a
35
country may well sacrifice much "exchange
value" for the moment if its new workshops produce expensive goods of poor
quality. But it will greatly increase its productive power in the future
because it has fostered the division of labour on a large scale and has ensured
the permanent co-operation between farming and industry. In this way the
national economy will grow and the welfare of the people
will increase.
This is our
main argument in support of a protective tariff and in opposition to the
doctrine of free trade. We shall (in the following chapters) see how
doctrinaire free traders have confused two quite different economic doctrines
in their specious arguments to discredit those who favour protective tariffs.
The theory
of productive power not only .explains whv a protective
system is necessary but also shows how1, a tariff should be applied.
Import duties should not be levied for revenue purposes because this might
seriously injure the nation's productive forces. To raise money for the state
should be only a secondary object of a tariff. Again import duties should not be
levied in the hope of j | enticing
specie into the country - and of keeping it there. This is a discredited aspect
of the mercantile system. Such a policy might weaken rather than strengthen the
country's productive power.
Import
duties should be levied to protect and gradually to increase the nation's
productive power. With this object in mind the rates of duty levied under a
tariff should be adapted to the needs of a particular country. This will be
discussed at greater length in our fifth chapter.
J. R. McCULLQCH, the most
distinguished contemporary English economist,2 has rightly given the
name "theory of value" to a
1. [List's
note to this chapter, written when the treatise was finished, is printed in an appendix; see below, pp. 193-5.]
2. J..R. McCulloch
(1789-1864) was a contributor to the Edinburgh Review, Professor of Political Economy at University
College, London and Comptroller of
36
doctrine based upon the teachings of Adam Smith and J.
B. Say. The latter clearly included the theory of value in his definition of
"political economy" which, in his view, was that branch of knowledge
which examines the production, division, and consumption of wealth. But this
definition shows that Say does not propose to discuss how productive power is
established, how they develop, or how they can be destroyed.
We do not
deny that Adam Smith and J.B. Say recognise the significance of productive
power for the creation of material wealth. But we hope to show that they have
failed to recognise the difference not only between the two doctrines which we
have mentioned but also between the theories of cosmopolitan and national
economics. These writers confuse the two theories, and when they seek to
support the policy of free trade they are quite capable of using propositions
derived from one doctrine as arguments against the other doctrine.
Moreover
Adam Smith, more logical than J.B. Say, classes as unproductive those who -
like professors, teachers, judges, artists and actors - do not produce any
material wealth. This is fully justified if one considers the theory of value
in isolation. But if one appreciates how the work of these members of society
contributes to the growth of a nation's productive power one can see that they
are really more productive than those who make material goods. The judge
upholds the safety of the individual and the sanctity of property, the teacher
prepares the way for the future extension of learning, including technical
knowledge, while the artist establishes and elevates the culture of society.
Say does
appreciate, though only in a vague sort of way, the existence of this important
lacuna in his doctrine and he regards these creators of productive forces as
mere producers of cultural (or immaterial) values. Since his doctrine is
entirely materialistic in conception - he is concerned only with the
"exchange value" of material goods - he tries to justify his view by
defining the activities of these producers in purely materialistic terms. Say
argues that these producers create only "immaterial values" which are
consumed as soon as they are made. If this were really the case the producers
in question would be engaged in a truly empty sort of
H.M.
Stationery Office. His books include Principles of Political Economy (1820),
The Rate of
Wages (1826),
Dictionary ofCommerce (1832) and Statistical
Account of the British Empire (1837).
37
production which would hardly be worth discussing at
all. Say also argues that the producers of "cultural values" receive
"exchange values" for their services. This argument, too, falls to
the ground since it implies that the producers of "cultural values"
make no contribution to the wealth of the nation.
The
foundation of Say's doctrine is the conception of material wealth. His whole
system is based upon it. Consequently he concentrates his attention upon the
theory of value and he is interested in productive forces only insofar as they
can be brought into direct association with his doctrine.
On the other
hand Say's assessment of foreign commerce and import duties would
unquestionably have been quite different if he had distinguished clearly between
cosmopolitan and national economics, if he had given the theory of productive
power priority over the theory of value, and if he had considered the theory of
value only insofar as material wealth creates things that contribute to future
economic expansion.
When Say
denounces import duties and suggests that they fail to stimulate industrial
progress, he uses arguments which are valid only as criticisms of the
mercantile system and which are all dependent upon his theory of value. He
thinks that every nation should buy the goods that it requires in the cheapest
market. He believes that it is as absurd for a nation as for an individual to
manufacture goods at a higher cost than they can be purchased from foreigners.
This is obviously an argument which applies only to a merchant who makes a
living by exchanging goods or "exchange values". A merchant is not
concerned with the theory of productive power and may indeed be ignorant of its
very existence. And Say's argument is not even sound when applied to private
individuals for they should always aim at the preservation and growth of their
own personal productive power.
Above all we
must point out that Say mentions only the immediate sacrifices that the
consumer has to make when import duties are imposed. He fails to consider the
long term advantages of a policy of protection. If it were always foolish to
make short term sacrifices for long term gains it would be a mistake to plant
pear trees and sensible to buy pears since the cost of planting trees is so high
that every pear picked at the end of the first year would be more expensive
than a basket of pears bought in the market. To this sort of doctrinaire
argument a practical farmer would reply that he
38
does not plant a tree to reap the crop that it will
bear at the end of the first year. He plants a tree to gather the pears that it
will bear for a hundred years. The cost of planting a tree should be compared
with the fruit that it will bear throughout its life. And a nation establishes
industries not for a hundred years but for the whole period of its existence.
Moreover the indirect advantages that agriculture derives from the
establishment of industries are an additional bonus to the direct advantages
gained by society from the growth of the manufacturing sector of the economy.
Finally, a nation should not regard the progress of industries from a purely
economic point of view. Manufactures become a very important part of the
nation's political and cultural heritage.
A further
weakness of Say's argument is that he assumes that a country which has - for
one or more years - had enough money to pay for the goods which it buys more
cheaply abroad than they can be manufactured at home, will always be in a
financial position to make such purchases.
Say makes another
erroneous statement which we shall discuss in more detail later. He asserts
that import duties upon manufactured goods confer upon industrialists a
monopoly at the expense of farmers and consumers in general. In fact the
monopoly is not one granted to a particular set of individuals at the expense
of another group of individuals. It is a monopoly granted to the country as a
whole at the expense of foreigners. The long term results of the protection of
industry by import duties are as follows. Assuming that people are free to
choose their occupation and to move from one job to another; assuming the
existence of universal education; assuming the availability of adequate capital
in the country that has conferred a monopoly upon itself by a protective tariff-
then in the long run native manufacturers will be able to produce goods which
can be sold at lower prices than those charged for foreign products. For these
reasons - and because of the advantages gained by farmers from a growing demand
for their foodstuffs and raw materials - the initial high prices that consumers
pay for native manufactured goods protected by a tariff are of minor
consequence compared with the ultimate advantage of having a strong home
industry.
We believe
that we have drawn attention to the mistakes concerning import duties which
Adam Smith and Say have made through confusing the theory of value with the
theory of productive
39
forces. We shall give further proofs later.
On the very
first page of his book Say makes it clear how little he knows about the theory
of productive power. He asserts that all nations are capable of becoming
prosperous under any form of government. In fact a study of the history of all
peoples at all times shows that the prosperity of a country depends to a great
extent upon the nature of its political constitution.1
Say makes a
still more extraordinary assertion when he argues that politics should have
nothing to do with economics. This contradicts the very name of his doctrine.
Since he calls his doctrine "political economy" it should be
concerned as much with politics as wth economics. The
way in which Adam Smith and J. B. Say both completely exclude politics from
their doctrines is the clearest proof that they are concerned solely with the
theories of cosmopolitan economics and value and not with the doctrine of
national economics.
Adam Smith
and J.B. Say have, of course, performed a very useful service as founders of
the theory of cosmopolitan economics
1. [List's note] In his Traité d'economie politique (1824), discours
preliminaire, Say writes: "Political
science, which ought properly to be regarded as the study of the organisation
of society, has long been confused with economics, which examines how the
wealth which satisfies our needs is created, distributed, and consumed. The
wealth of a country is really independent of its political organisation. A
state will become rich if it is well administered, whatever its constitution
may be. Nations ruled by absolute monarchs have prospered, while those governed
by popular assemblies have seen their economies ruined. It is only indirectly
that political liberty may be more favourable (than a dictatorship) to economic
prosperity - or for that matter to the progress of cultural activities".
All history refutes this notion. The truth is the very opposite. No nation has
ever achieved success as an industrial power without also enjoying a high
degree of political freedom. No country ruled by a despot has ever been able to
establish manufactures on a large scale or to achieve economic prosperity. Free
peoples have declined and have become poor and weak, but this has occurred only
after they have lost their liberty. A despot has sometimes secured a certain
degree of prosperity for his subjects but this has happened only if he had the
good fortune to employ a number of exceptionally able ministers and officials.
But, as the Emperor Alexander once remarked, that is only a fortunate chance.
As soon as the services of able officials are no longer available the economy
of the country declines. Liberty and industry are synonymous and cannot be
separated. Only a strong democratic element in society can bring opulence to a
monarchical or an aristocratic state. The nobles of Venice committed suicide as
soon as they effectively weakened the democratic element in the city state.
Industry demands a democratic government which pursues the same economic policy
for many hundreds of years.
The validity of this proposition is supported not only by historical
evidence but also by no less an authority than Montesquieu who writes in his Esprit
des lois (Part II, p. 192): "In a servile
state people work to preserve what they have got rather than to increase their
wealth. In a free society people work to acquire riches rather than to preserve
wealth".
40
and the theory of value. Their fame is not lessened by
their failure to remedy certain gaps in their doctrines, or by the fact that
their mistake in confusing two different theories should have been repeated by
their disciples, or by the continued contradiction between their theories and
what happens in the real world of business.
Our thanks
are due to Adam Smith and to Say because they have clearly laid down the
principles of individual economics and cosmopolitan economics. These doctrines
may be regarded as aims which nations should strive to achieve. But experience
teaches us that Adam Smith and Say have not shown countries the right road to
follow to achieve the noble ideal of world free trade. Their services are not
diminished by the fact that- although they have developed the theory of value
to its greatest extent - they have failed to appreciate the significance of the
doctrine of productive power. And Adam Smith and Say have also attacked the
policy of protection by mistaken arguments based upon erroneous principles.
We define
the theory of value as those unalterable principles which can be shown to have
existed unchanged among all peoples and at all times with regard to the level
of prices, rents, profits, wages, supply and demand, capital, and interest. As
a discussion of the theory of value does not fall within the scope of the
question posed by the Academy we shall examine the doctrine only insofar as it
touches upon our own doctrines of national economics and productive power.
Supporters of the doctrine
of cosmopolitan economics do not consider it necessary to trouble themselves
very much either with the economic situation in particular countries or with
the way
41
in which particular national economies can be
improved. They simply wish to show that the maximum prosperity will be secured
by the establishment of universal free trade in a world wide republic. They
believe that nations can bring this about merely by abolishing all tariffs and
by leaving individuals absolutely free to trade as they please.
From our
point of view the problem is not so simple because we have to bring our
doctrine of national economics into relationship with the actual situation in which
particular states are placed. On approaching the problem we find that there are
great differences between various nations. Some are civilised, some
semi-civilised, and some are in a state of barbarism. There are giants and
dwarfs among the states of the world. Some nations are strong while others are
weak; some are enlightened while others are sunk in ignorance; some are
industrious while others are lazy. Some countries are eager to adopt new ideas
while others cling firmly to old established customs. Some nations enjoy
liberty, some are only half-free, while others are enslaved. Some countries are
skilful, some are not. Some nations are endowed with rich natural resources
while others are entirely lacking in such resources. Some nations have only an
agrarian sector of the economy, others have great industries and commercial
activities, while others have developed an enviable balance between all aspects
of economic activity. Do nature and common sense intend that one procrustean
bed should accommodate all these different countries?
The lessons
of history justify our opposition to the assertion that states reach economic
maturity most rapidly if left to their own devices. A study of the origin of
various branches of manufacture reveals that industrial growth may often have
been due to chance. It may be chance that leads certain individuals to a
particular place to foster the expansion of an industry that was once small and
insignificant - just as seeds blown by chance by the wind may sometimes grow
into big trees. But the growth of industries is a process that may take
hundreds of years to complete and one should not ascribe to sheer chance what a
nation has achieved through its laws and institutions. In England Edward III
created the manufacture of woollen cloth and Elizabeth founded the mercantile
marine and foreign trade. In France Colbert was responsible for all that a
great power needs to develop its economy. Following these examples every
responsible government should strive to remove
42
those obstacles that hinder the progress of
civilisation and should stimulate the growth of those economic forces that a
nation carries in its bosom.
Sound laws
and institutions and an efficient administration can abolish fanaticism,
superstition, idleness, ignorance, and wastefulness. They can abolish
privileges and harmful institutions. They can improve education, foster
liberty, and raise moral standards. They can attract foreign skill and capital.
They can create new economic resources for the benefit of the nation. Obviously
a single individual, without the support of the state, could achieve little, if
anything, on these lines by himself.
It would,
for example, be foolish for a tiny state to introduce a tariff since its own
resources would be neither large enough nor diverse enough for it to survive on
its own. Its internal market would be too small to support industrial growth.
But what a tiny state cannot accomplish in isolation it can accomplish in
association with other countries. This has recently been proved by the
establishment of the German customs union.1 Prussia is a great power
but its provinces are too scattered to enable it to establish an efficient
system of tariffs, except in collaboration with smaller neighbours. Switzerland
will never consider introducing a protective tariff but the Swiss cantons are
in a position to secure a substantial expansion of their productive forces in
various ways. They can disseminate technical knowledge, improve internal
communications, conclude commercial treaties with foreign countries, and set up
trading companies.
The Kingdoms
of Naples, Spain, and Portugal can stimulate the growth of their productive
forces by extending facilities for education, by protecting persons and
property, by improving agriculture and mining, by encouraging people to work
harder, by improving political institutions, by attracting capital and skilled
labour from abroad, and by exchanging what they can produce for foreign
manufactured goods. All this would be much better than imposing high import
duties.
The South
American states are in much the same position. Their protective tariffs have
had the very opposite effect than they would have had in countries with
progressive, industrious and inventive
1. [The Zollverein was
established in 1834.]
2. [At this time each Swiss
canton had its own customs duties. The federal government secured control over
tariffs in 1848.]
43
populations which (like those living in the United
States) live under advanced social and political institutions. In South America
protective tariffs cannot at a stroke turn an ignorant people into a well
educated, industrious and inventive people. Only a few weak factories would be
established in South America (under the shelter of a tariff) and they would
produce only expensive goods of poor quality. No competition would develop at
home to encourage the manufacture of better goods at a lower price. In these
circumstances foreigners would hesitate to invest their capital and skill in
backward South American states which cannot even provide adequate security for
persons and property. And if, by chance, in exceptional circumstances, a
foreigner would venture his capital and skill in South America his sole object
would be to make his fortune as quickly as possible before returning to his
native land.
In backward
countries the growth of industries would harm rather than benefit agriculture
because the manufactured goods which are produced would be poor in quality and
high in price. Such industrial undertakings would not buy sufficient quantities
of raw materials or foodstuffs to be of any real benefit to the agrarian sector
of the economy. But if the government of a backward country were to stimulate
the importation of cheap manufactured goods from abroad and the export of raw
materials and foodstuffs to foreign states it will gradually stimulate the
demand at home for a greater diversity of manufactured goods. And this will
happen at the very time that the people are securing the means by which they
can buy the manufactured goods that they require. In this way people will be
encouraged to increase the output of their farms so as to be able to buy
manufactured goods from abroad. This will provide a stimulus to people to work
hard and to save their money. Educational facilities will be extended and
better standards of morality will be established. Political institutions, too,
will be improved. In this way a backward nation can develop into a progressive
state.
In the
United States, on the other hand, the position is different. The country has a
well developed agrarian sector of the economy; rich natural resources; a large
domestic market; a progressive, enlightened, inventive, skilled, and
venturesome population; and a very efficient political constitution. In this
country the introduction of a protective tariff has fostered the growth of
important industries based upon machinery and using raw materials produced at
home.
44
The progress of other branches of industry which are
still operated by craftsmen - such as silk weaving - will not be so
satisfactory so long as labour costs are higher than in other countries. The
productive powers of the country would be stimulated if such goods were
purchased from abroad and were paid for by exporting raw materials and
foodstuffs.
In Russia
there are factors which hamper the development of industries by means of a
protective tariff. They are the backwardness of the country, the absence of
political liberty and the lack of a middle class. It will be necessary to
abolish serfdom and to encourage the development of a middle class by granting
a measure of municipal self-government to the towns. Only when this has been
done will the beneficial results of the tariff become evident.
The
situation in France and in Belgium is quite different. These countries possess
all the prerequisites, all the conditions, all the means, and all the powers
which are needed to achieve the maximum degree of industrialisation. The
obstacles which once hindered the growth of modern manufactures in France and
Belgium have been virtually all removed. These countries have already made
great progress in industrial development and they have only to hold on to what
they have achieved to expand their manufactures still further. Compared with
England, however, France and Belgium can be regarded as only industrial states
of the second rank.
Germany has
the ability and the natural resources to become a manufacturing country but
there are numerous difficulties which still prevent the attainment of full
industrialisation and these have still to be overcome. Since it is only quite
recently that the establishment of the Zollverein has made possible the
introduction of a uniform tariff Germany is still well behind France and
Belgium as far as industrial progress is concerned. Germany may be described as
a manufacturing country of the third rank which has the ability to become a
manufacturing country of the second rank.
We have
shown that different nations have reached different stages in their development
as industrial countries. Because of these differences, various countries will
best be served by different types of protective tariffs.
1. [The
Zollverein did not cover the whole of Germany when List was writing. The Tax Union (Hanover,
Oldenburg, Brunswick), Hamburg, Bremen, Lübeck,
Schleswig, Holstein, and the two Mecklenburgs had not
yet joined the German customs
union.]
45
The PRESENT
position of England is obviously quite different from that of all other
countries. England is far in advance of all her rivals with regard to her
agriculture and industry, her fleet and overseas possessions, her national
wealth, her exports and imports, her efficient means of communication. It may
satisfy one's self-esteem to doubt England's superiority but it is neither
profitable nor sensible for people in relatively backward countries to indulge
in that sort of egotism. A failure to face obvious facts would prevent such
countries from judging correctly their true situation when compared with that
of England and it would blind them to the way in which England's industrial and
commercial supremacy harms their own economic interests.
In England
two developments occurred sooner than anywhere else. First, the middle classes
have secured their freedom. Secondly, the monarchy, the aristocracy, and the
bourgeoisie have united to pursue the common aim of expanding both the nation's
productive powers and its trade in all parts of the world. Consequently
farming, industry, and commerce have all been developed to the highest degree
and there exists a harmonious balance between these three aspects of the
economy. Here we see how protective duties - levied at the island's ports -
have been a practical success. In England, with one brief interval, the
productive powers of the nation have steadily increased for centuries and this
has repaired the losses incurred in civil wars. Perpetual internal peace has
stimulated industrial progress at home, while England's naval supremacy has
prevented any decline in trade abroad. Every war that England has fought has
brought about a further expansion of her foreign trade.
England
holds the richest colonies in every part of the globe, while her flag dominates
the seas of the world. Her trading companies and her fishermen are protected by
the world's most powerful navy. And the supremacy of her navy rests upon the
size and importance of England's mercantile marine and fisheries. England's
powerful foreign trade is not supported by an occasional
46
and uncertain transit trade. It rests upon the solid
foundation of a gigantic industrial sector of the economy. England's
manufactures are based upon highly efficient political and social institutions,
upon powerful machines, upon great capital resources, upon an output larger
than that of all other countries, and upon a complete network of internal
transport facilities.
England has
the largest capital resources in the world, and an immense manufacturing power,
which can create new wealth and can be exchanged for bullion drawn from other
countries. In these circumstances it seems to us that England has become the
world's banker. England does not worry about her balance of trade because she
never lacks commodities which can be turned into specie. One might draw an
analogy between England's position in world trade and the position of the
richest capitalist in a country who never needs to have a reserve of cash in
hand because at any moment he can sell some of his securities and bonds.
A nation
which makes goods more cheaply than anyone else and possesses immeasurably more
capital than anyone else is able to grant its customers more substantial and
longer credits than anyone else. In competition with its rivals such a nation
will also be able to command the lion's share of the market in poorer and less
advanced countries.
By accepting
or by excluding the import of their raw materials and other products, England -
all powerful as a manufacturing and commercial country - can confer great
benefits or inflict great injuries upon nations with relatively backward
economies. What England does depends upon whether her economic policy is
inspired solely by self-interest and national passions and prejudices or
whether her policy is inspired by a higher morality and by nobler aims. The
latter is hardly to be expected at all times and in all circumstances.
All states
have a common interest in defending themselves against the damage that England,
enjoying world economic supremacy, can arbitrarily inflict upon their
industries.
On the other
hand England, with her advanced economy, could inaugurate the gradual
establishment of greater freedom of trade throughout the world. But this
freedom would not be achieved by insisting that states in the second and third
phase of industrialisation should open their home markets to unlimited
competition from English manufactured goods.
47
Should England pursue such a policy she would be pretending to foster
the wider interests of mankind while really fostering her own selfish
interests. Free competition between the advanced factories of England and the relatively backward factories
of other manufacturing countries
would - as we have already shown - simply lead to the destruction of the
industries of the weaker states. This would mean that the countries in
question would not merely give up all prospects of economic expansion in the
future but would actually lose the progress that they had achieved in the past
towards the establishment of a more advanced economy.
It is surely
reasonable to suggest that no nation should try to hasten the future economic advance of the human race by sacrificing
the progress that it has already made towards establishing its own national economic independence. Such a
policy, far from being advantageous to humanity in general, would be to
the sole advantage of the dominant economic nation.
Manufacturing
states which have reached the second or third phase
of industrialisation might hope to extend free trade by uniting with the dominant nation but such a policy should
be adopted only if the special economic interests of the countries concerned
are adequately safeguarded.
In THIS CHAPTER
we shall show that even in industrial nations there is no need - or very little
need - to give tariff protection to the production of raw materials and
foodstuffs, save under quite exceptional circumstances.
Moreover we have already given at any rate partial proof of the fact
that many countries would be well advised to be content with
48
a purely agrarian economy. This is desirable on the
assumption that no restrictions are placed either on exporting farm products to
industrial states or on importing manufactured goods from industrial states.
Experience
shows that the barbarous or semi-barbarous peoples of Asia, Africa, and South
America who have become civilised most quickly have always been those whom the
industrialised states have provided with stable administrations, protection for
persons and property, and freedom of trade. In this way backward peoples have
been given the opportunity of securing manufactured goods cheaply and of
selling their own products to the best advantage. Here is a great opportunity
to apply the principles of the doctrine of cosmopolitan economics in a
practical way. Far from injuring any country this would bring together the
special interests of every nation in a valuable common enterprise.
It might, at
first sight, appear to be asking too much to expect England to open her
colonies to the commerce of all nations and to renounce the advantages to be
gained by using her sea power to force distant backward countries - such as the
states of South America - to submit to treaties which give her commercial privileges
in their markets.
This is very important for the future prosperity of
both advanced countries and backward and barbarous peoples. If one regards the
matter from a more elevated standpoint than the sordid view taken by a merchant
eager to enjoy the fruits of a monopoly, it will be seen that the introduction
of the greatest possible freedom of trade would benefit not only the states in
the second and third phases of industrialisation but would confer upon England
greater advantages than upon anyone else.
The example
of the United States shows how a country that was formerly of no importance in world
trade, is able to confer great benefits upon all countries by developing her
agriculture and by making great progress from an economic and social point of
view. The same example illustrates the point that industrial states can promote
the expansion of shipping, commerce, and manufactures much more by opening
their overseas possessions to the trade of all nations than by monopolising the
commerce of their colonies.
The most
advanced countries in Europe and North America have the greatest possible interest
in fostering the opening up and the progress of civilisation in all parts of
South America, Africa, Asia
49
and Australia. In doing so they will enormously
increase their exports of manufactured goods, their imports of foreign
products, their transit trade, and their shipping.
On the other
hand nothing has proved to be a greater hindrance to the progress of
civilisation in backward lands than the selfish and greedy policy pursued by
various rival nations in different parts of the world. Advanced nations have
tried to gain complete control over colonies, or exclusive influence over the
administration of backward regions. Sometimes they have gained special trading
rights by signing commercial treaties with the rulers of backward territories.
Instead of adopting such policies, all the advanced industrial countries in the
world should adopt the principle of free trade and equal rights in South
America, Asia, Africa, Portugal, Spain and the Two Sicilies.
A liberal policy of this kind would strike at the very root of the evil of
economic selfishness. It would without doubt lead to a situation in which all
industrial nations would be happy to see any one of their number undertake the
task of bringing progress to barbarous peoples.
Thus England
would only gain if France proclaimed a protectorate over all North Africa or
if Germany embarked upon the task of promoting the progress of civilisation in
Turkey and the Levant. It would be mutually beneficial to all advanced nations
if their surplus populations could make use of their skills in these
territories.
England's
gains would be far greater than her losses because the united manufacturing
power of all the industrialised countries would be far more effective than the
isolated industrial power of England alone, especially if that power were
hampered by the envious rivalry of other states.
It is
obvious that the United States is developing into a maritime power which before
long will inevitably surpass that of England. It is equally obvious that the
economic interests of Canada will one day be identical with those of the United
States. England would in these circumstances be well advised to give up
voluntarily a supremacy that cannot in any case survive for very long. And when
another nation becomes the dominant economic country in the world England will
find this predominance as irksome and as unpleasant as England's dominant
position is for other people today. Consequently in her own interest England
should now be prepared to share her dominant position with other advanced
industrial countries and should agree to the establishment of a hegemony
50
which would secure for her advantages which would be
both more substantial and longer lasting than those which she at present
enjoys. Moreover new inventions - in transport and armaments -will one day
deprive England of the advantages which she now enjoys because of her insular
position. Then her naval and maritime power will be drastically reduced,
especially if she should have to face a coalition of hostile powers. These are
two very good reasons why England should now be prepared to make a commercial
alliance with states in the second and third phases of industrialisation.
At all times the
weaker countries in Europe have collaborated to defend themselves against the
pretensions of a dominant state. This has been called the balance of power. In
the same way there has been united opposition to England's dominant position
with regard to industry and trade. England has become so powerful economically
that she is able to bring good fortune or ill-fortune to other nations, so long
as those countries act in isolation.
It is
obvious that the idea of the Continental System was born because of England's
excessive economic power and because of the possibility that England might
misuse this power. Sooner or later the countries which have reached the second
and third stage of industrialisation will have to unite to establish a new Continental
System if ever England should show any inclination to use her superior sea
power to injure the manufactures or commerce of these countries.
An attempt
to set up a new Continental System, however, would endanger the prosperity not
only of England but of all nations and -
51
as we have shown in the last chapter - the only
satisfactory solution to the problem would be the establisment
of world free trade.
Since we can
hardly expect England of her own free will to make the concessions necessary to
secure the establishment of a world customs union, it seems to us that 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.
France and
the United States should take the lead in promoting such an alliance. These two
countries are closely linked by commercial ties and by their common interest
in energetically furthering the maintenance of the freedom of the seas. France
and the United States have similar political institutions and similar economic
interests. They are natural allies and they should be prepared to take the
initiative in promoting a plan which would ultimately benefit all the countries
in the world.
Primitive peoples
start by being hunters. Next they are engaged in pastoral activities and
eventually they become arable farmers. So long as they do not trade with their
neighbours the arable farmers remain in a state of virtual barbarism. This is
the age of slavery, aristocracy, theocracy, and despotism. Only the great
landowners are free and the wealthiest among them wield the greatest power.
Tied by tyrannical laws to land which does not belong to them, the peasants are
oppressed by feudal services and by the obligation to work on the estate of
their lord. Their labours satisfy the needs of the landowners but they do not
satisfy their own needs.
52
People who
depend entirely upon farming and are scattered over a wide area, live in
isolation and cannot meet one another. They cannot enjoy the life of a wider
society. Lacking contact with each other they cannot discuss their common
problems with their fellows. They are ignorant folk who have no appreciation of
the arts and they do not enjoy any personal liberty. Such people cannot hope to
make progress or to improve their political position so long as they are unable
to set up workshops or to engage in foreign trade. The one factor which
stimulates all human activities and which is the main cause of universal
prosperity is missing in their lives.
Primitive
peasants who simply cultivate the soil are miserable creatures, without
adequate capital or tools, without culture, knowledge or any competitive
spirit. Nothing encourages them to improve their situation and so they carry
on with the dull routine of labour from one generation to another, happy if
their crops are sufficient to pay their lord his dues. From the cradle to the
grave they lead a truly wretched existence. Their physical and mental powers
are never adequately used or properly developed.
These peasants appreciate neither the value of time
nor the value of the land that they cultivate. Their net output - after
deducting the barest necessities of life - amounts to virtually nothing. To a
great extent they produce the material from which their clothes are made. Their
greatest efforts produce only the most miserable results. Abstinence is their
greatest achievement.
The peasant
who simply tills the soil is self-sufficient and has no surplus produce to
exchange for other goods. A purely arable district has no need to improve its
communications with other regions. There is no stimulus to create better
transport facilities which are a powerful means of improving a people's level
of culture.
The failure
to secure a division of labour between those who till the soil and those who
make manufactured goods has another very serious drawback in as much as it
leads to an undue subdivision of the land. Lacking industry to absorb the
surplus population the growth of a population entirely dependent upon the soil
must lead to a continual reduction in the size of the farms and smallholdings.
Peasants themselves consume nearly everything that they produce and are able to
save only a small surplus to keep in reserve.
For this
reason - and because of inadequate means of transport -a failure of the harvest
leads to famine and epidemics. The standard
53
of farming is so poor - the lack of scientific
management is so obvious - that no surplus is produced that could be used for
commerce or for industry. The primitive peasant is able to consume very few
products of industry and sometimes he cannot consume any at all. He has no
surplus to devote to the education of his children, to his own enjoyment, or to
his intellectual advancement.
In these
circumstances good harvests and an increase in the population have the great
disadvantage that they provide the rulers of such regions with the means to
engage in needless wars with the result that the wretched standard of life of
the peoples sinks to a position of utter misery and degradation.
The
intellectual powers of such a people are hardly awakened and are put to little use.
There are no opportunities for latent talents to be developed. Only physical
exertion secures rewards and they are poor enough since the landowners
monopolise the labour of the workers on their land.
Such people
have few contacts with each other or with neighbouring peoples. The activities
of the individual are confined to a single village. In these circumstances
inefficiency, prejudices, bad habits, and vices survive for centuries. Physical
strength is the dominant factor in such societies. Moral strength never makes
its mark and never triumphs over brute force.
WHEN FOREIGN trade brings manufactured goods into a
country in exchange for agricultural products a dramatic change occurs in the
agrarian economy. Farmers are able to obtain better machines and tools which
are more efficient for the tasks that they have to
54
perform. They are followed by new processes and
improvements of every kind, such as new crops and better and more useful stock.
From abroad come new ideas and new capital. An injection of cash into the
economy enables those who work on the land to make many desirable improvements.
In such a situation new needs are created and an improved standard of life
appears to be possible. This in turn stimulates new economic activities and
promotes a new spirit of enterprise. The productive powers of agriculture are
fostered in a thousand different ways.
Foreign
trade fosters the export of certain agricultural products such as wool, hemp,
wine and cereals. It also stimulates the division of labour among those working
on the land and it encourages them to specialise in growing particular crops.
Those who, thanks to the nature of their soil and to climatic conditions, are
able to produce foodstuffs for export will concentrate their activities on one
particular branch of agriculture. On the other hand they will start to buy
those (farm) products which their neighbours can produce more cheaply. The
demand from abroad for their products, the new division of labour, and the
development of an exchange of (farm) products within the agricultural community
will enable all who work on the land to increase their output. At the same time
internal commerce will steadily expand.
In time
agricultural products themselves take on the character of exchangeable goods.
People with money to spare will realise the advantage of purchasing farm
produce when it is cheap and of storing it until prices rise after a poor
harvest or because of an increased demand from abroad. Society is better off
and famines will become a thing of the past, as prices become stable and the
net output of agriculture increases. With the growth of agricultural revenues
the price of land rises while credit is more readily available. The incomes of
tenant farmers, the rents collected by landowners, and the wages of labourers
all rise. Since landowners and tenants both desire to secure the maximum output
from the land, they will co-operate to sink new capital into agriculture and to
improve methods of farming.
At the same
time people will begin to recognise how feudal rights impose restrictions upon
production and upon internal trade. They will see the drawbacks of feudalism
and they will appreciate the need for sound laws and institutions which will
guarantee the liberty of the individual, the security of workers, the safety of
55
property, and the progress of
education and culture. As internal and external commerce expands people will appreciate the advantages of
improved transport facilities.
This is a time when farmers, manufacturers, and merchants unite to
support free trade. It is the golden age of the motto: "Laissez faire et lassez
passer".
In this
period a nation's industries begin to develop. As people see the prospect of
enjoying a better standard of living there is a
strong demand for manufactured products. Some of these may not be
available from foreign countries. Others may be made more cheaply at home than abroad because of the
country's resources, the existence of a low level of wages, or other
circumstances. At first when industry is stimulated by foreign commerce,
manufacturers join with farmers in
supporting free trade which is advantageous to both. But as native
industries grow so manufacturers realise that their
progress is being restricted by the import of foreign goods. At the same
time those who work on the land come to appreciate the fact that the home market is much larger, more stable, more certain, and
more profitable than foreign markets.
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. The amount of produce purchased annually by the
importing countries depends upon the size of
their own harvests. When they have to import foodstuffs they seek to buy in the cheapest market. From time to
time it may be to
their advantage to purchase their requirements from a
new source of supply. In such circumstances an agricultural country may find that
it has no market for its surplus produce.
Moreover
every year an agrarian country draws advance payments from an industrial country in respect of sales of foodstuffs and raw
materials and it has generally spent the proceeds of its future sales even before the crops have been harvested. A
crisis, affecting merchants and
farmers alike, will occur if there is a poor harvest or if the orders from the industrial country are insufficient
to cover the advance payments.
Agriculturalists seek a more regular and a more reliable market for their products at home to avoid these crises and the uncertainty of foreign orders. Unfortunately,
owing to foreign competition, native industries have, at this stage, not
developed sufficiently to guarantee the farmers a secure market for their
56
produce at home. Indeed
centuries may pass before native manufacturers
become strong enough to do so unless, of course, a war or a decline in the output of the industrial countries
gives them the opportunity to expand.
Wars between nations break the bonds of commerce that link agricultural and industrial countries. During
hostilities farmers and smallholders
can no longer sell their raw materials and foodstuffs to an industrialised country. Similarly manufacturers in
an industrialised country lose their market in an agricultural country in time
of war. It is for these reasons that nations come to be thrown on their own resources to satisfy their needs. And this is the
crucial moment when the industrialists in
an agricultural country, who have long struggled
against foreign competition begin to wake up.
At first industrialists will not be able to supply the rural community with manufactured goods which are as cheap or
as good as those supplied by foreigners. But
in time, by improving methods of production,
they will be able to do so. The industrialists will not at first be able to compensate the rural community for
all the losses sustained by the interruption
of its contacts with foreign markets. The
rural community will not buy from native industrialists as many manufactured
goods as it formerly purchased from abroad and it will have to pay higher prices for home produced goods of poorer quality.
So those who work on the land will suffer a double loss.
In time, however, the situation will change. Stimulated by wartime conditions and by the new profits which they are
making, the native manufacturers will begin
to compete among themselves. When this
happens the rural community will appreciate that it has on its own doorstep new home industries which will one
day be far more useful to it than the
foreign manufacturers with whom they formerly
dealt. Those who work on the land will realise that they now secure manufactured goods from a stable source and
that these products will be available in wartime as well as in
peace time.
In the event of a long war the progress made by native manufacturers will be such that the agrarian community
will see that tariff protection for industry against foreign competition will
be in its own interest. As soon as hostilities cease the merchants
engaged in foreign trade will certainly
press for the return of a free exchange of goods between the former belligerents. Once more their motto -once
echoed throughout the land - will be: Laissez faire, laissez passer.
57
On the other
hand the industrialists will now demand the ex-; elusion of foreign
manufactured goods so that they can continue to enjoy the monopoly of the home
market that was theirs during the war. They will argue that since they are not
yet strong enough to stand on their own feet, they could be ruined if free
trade were established between the two countries as it was before the war. Free
trade would soon reduce native industry to its former impotent position and all
the sacrifices made by farmers and manufacturers during the war would be lost.
If hostilities were renewed the country would have to make the same sacrifices
all over again. Manufacturers argue that a prohibitive tariff giving them
protection similar to what they enjoyed during the war would enable them in
time to become powerful enough to withstand foreign competition. They point to
the advantages that those who work on the land will eventually secure through
their contacts with a fully developed home industry, which can never be
destroyed by any future war and which will consequently grow from strength to
strength.
The agrarian
sector of the economy has to decide upon what attitude it should, in its own
interest, adopt with regard to the claims of merchants engaged in foreign
commerce and of industrialists engaged in producing manufactured goods at home.
Those who work on the land hold the balance of power between these rival
claims. Whichever side it supports will be the victor. Agriculturalists are in
a position to choose between apparent immediate short term advantages and
ultimate real long term advantages. Free trade offers the agriculturalists the
apparent immediate advantage of securing higher prices for their exports and of
paying lower prices for the manufactured goods that they import from abroad. On
the other hand protection offers them for the future all the advantages that
they have been offered by the native manufacturers. If those who work on the land
are capable of grasping the full implications of the situation they will show
true patriotism and they will support a protectionist policy which will lay the
foundations of the future prosperity and greatness of the nation.
Free trade
is the fantasy of the merchants engaged in foreign commerce and if it wins the
day, most of the home industries that have developed during the war will
collapse and the workers they employ will have to find new jobs on the land.
The collapse of the industries of a predominantly
agrarian country would substantially reduce the demand for farm products
58
and would also lead to an expansion of the work force
on the land. This would bring about the overproduction of agricultural produce
and would also lead to a fall in the price of such produce. The surplus produce
which is not absorbed by the home market will be exported to an industrial
country, with the result that in this country too the price of farm products
will fall.
Thus what
happens to the agrarian sector of the economy in a predominantly agrarian
country affects the state of agriculture in an industrialised country. Just as
industry develops rapidly in wartime in an agricultural country so there will
be an expansion of agriculture in an industrialised state. In wartime the
inability to import farm products causes prices of such products to rise and
substantial capital has to be invested in agriculture in an industrialised
state to increase output on existing cultivated land and to bring new land
under the plough.
An expansion
in the demand for agricultural products causes prices to rise. Rents, profits,
and wages also go up and there is an increase in the labour force on the land
and in the output of farm produce. After the war agricultural products from
abroad - such as large quantities of cheap grain - come onto the market once
more. The industrialised country is now faced with an agricultural crisis
similar to the industrial crisis that afflicted the agricultural country. And
the farmers in the industrial country will demand the imposition of high
import duties to keep out the farm products of the agricultural country.
If the
complaints of the agricultural classes in an industrialised country are
ignored, the situation in both states - the agrarian and the industrialised
country - will gradually return to what it was before the war. Should
hostilities be resumed everything will again be turned upside down and the
events of the first war will simply be repeated. But if the farmers in the
industrialised country are protected by a tariff against competition from the
agrarian country, a different kind of war will break out - a tariff war of
import duties.
Should the
agricultural products of an agrarian country be denied access to the markets of
an industrialised state, the farmers in the agrarian country will suffer
severely. They will realise that they are gaining no advantage from buying
cheap manufactured goods from an industrialised country if they cannot pay for
these goods by exporting their farm produce. Then they will remember the
benefits that they received in the days when the industries of their country
59
were flourishing. Then they will realise that they
have gained nothing by sacrificing their country's factories. Then they will
see the permanent prosperity of agriculture must be based upon the existence of
a strong national industry. And now they too will demand tariffs so that the
industry of their country may be protected from all threats from abroad and
may expand. In the historical part of our treatise we will show how natural is
this development. Here we will simply observe that we have demonstrated how prohibitions
and protective tariffs are the natural consequences of national rivalries and
wars. They are not the invention of some doctrinaire economist.
In THE LAST
chapter we showed
1.
That in an agrarian country
agriculture can become important only in association with the industry of that
country.
2. That
in an agrarian country agriculture is raised from the first to the second stage
of development through foreign trade - which is simply co-operation between the
farmers of an agrarian country and the industrialists of an industrialised
country.
3. That
this co-operation may be interrupted or may come to an end altogether if
hostilities break out between the agrarian country and the industrialised
country.
4. That
certain consequences follow from the ending of this co-operation:
(a)The farmers in the agrarian state try to promote the industrial development
of their own country
(b) The industrialised country
attempts to foster the development of agriculture.
5.
That these factors inevitably lead
to international rivalry and to the imposition of tariffs and prohibitions.
60
In this
chapter we propose to explain how the agriculture of a country can flourish,
can expand, can gain security for the future, and can be protected against
every relapse and every crisis. To achieve this state of affairs it is
necessary that agriculture and industry should be physically close together and
that their close co-operation should not be interrupted by natural causes or by
any political action. Moreover all branches of the country's industry must be
fully developed and there must be a harmonious balance between production and
consumption and between the two main groups in the population - those who work
on the land and those who are engaged in industry.
The third
stage in the development of agriculture begins when the industries of the
nation dominate the whole - or nearly the whole -of the home market. This
dominance may have been secured either by the inherent strength of the
industries concerned or by the protection afforded by a tariff.
In the first
and second stages of development the agriculture of an agrarian country is
dependent upon the industries of a foreign country. Agriculture enjoys the
following advantages when it reaches the third stage of development:
1. When manufactures are fully developed, agriculture
can usually sell products at a higher price than before in the industrial home
market and buy its manufactured goods at a lower price than would be possible
if an exchange of products took place between the agrarian country and a
foreign industrialised state . The closer the farms are situated to the
factories, the lower are the costs charged by merchants and carriers for
effecting the exchange of agricultural products and manufactured goods. The
time and capital needed to bring about the exchange are reduced. And the exchange
will not be hampered by natural causes, by wars, or by commercial crises. The
exchange can take place with great regularity and is protected against
fluctuations of trade. Indeed the more harmonious the co-operation between
producers and consumers the fewer are the slumps that hinder the exchange of
goods.1
1. Chaptal (De I'industrie françoise, Part II, p. 203) estimates that in 1819 the
value of the output
of industrial goods was 1,820 million francs. He estimates the profits of
manufacturers at only 182 million francs. The rest includes the cost of raw
materials, wages,
etc. French industry (excluding the consumption of the industrialists) provided French agriculture with
a market for its produce valued at 1,638 million francs.
61
2. Thousands
of products in the possession of landowners which were formerly of little or no
value now increase greatly in value. These include waterfalls, building
materials, sand, stones, chalk, gypsum, and all kinds of soil and materials. In
addition there is land suitable for the workshops, dwellings, and gardens of
the manufacturers.
3. A new
demand will be created for many products for which formerly there was little if
any demand - cattle for fattening, meat, poultry, eggs, butter, cheese, fruit,
vegetables, straw, hay, and oats for horses - which the manufacturers need for
work or pleasure. There will be demand for tobacco and for plants producing
oils and dyestuffs. By purchasing these products, most of which are best
produced by smallholders, the industrialists give those who work on the land
the opportunity to improve their condition and to make more money.
4. 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. Consequently industrialists hasten to promote the expansion of
communications within a country. They foster the construction of highways,
canals, and railways and the improvement of navigable rivers. Moreover they
turn these improvements into lucrative industrial undertakings. In countries
with deposits of coal and peat the existence of improved transport facilities
will enable landowners to draw the fuel they need from distant regions. Areas
which, lacking such fuel, would be planted with trees can be used to raise much
more profitable crops. And there will be an increased demand for farm produce
on the part of those who work in the mines.
5. The
demand for a variety of farm products (paragraph 3 above) and the improvement
of communications (paragraph 4 above) are factors which greatly stimulate
specialisation on the land. Indeed, this process has already begun in the
second stage of agricultural production. Hilly districts concentrate entirely
upon forestry, mining, cattle, and sheep and draw their foodstuffs from arable
districts which are better suited to growing cereals. In the plains cattle can
be fattened for the market. In short every region can specialise in the
agricultural production for which it is favoured by nature. In return each
region draws from other parts of the country those products which are not grown
or raised locally. This
62
division of labour - or rather division of products -
will greatly increase the output of agriculture.
6. As it
expands industry will accumulate capital of its own and will also attract new
capital from abroad. Money from these sources which may not be needed to
improve or to extend existing factories can frequently be made available to
agriculture. Loans can be made to landowners for agricultural improvements.
Alternatively industrialists themselves can invest money in landed property
which they can improve. This will lead to an increase in the price of land. The
productive powers of the land will expand and will be advantageous to the whole
agricultural sector of the economy.
7. As
industry develops in a country so the subdivision of farm land into
smallholdings will cease. There will be a more rational division of the land.
We condemn as harmful the division of farm land into numerous tiny
smallholdings because their owners can hope to attain only a very low standard
of living. A large farmer or landowner, on the other hand, is his own
manufacturer, his own producer, his own consumer, and his own wage earner.
Since home industry stimulates a large demand for farm products and a demand
for labour, the existence of a surplus output from the farms no longer promotes
the undue subdivision of agricultural land. On the contrary it helps to feed
the factory workers and it promotes an increase in the number of industrial
workers. Large estates will become common because they can produce the surplus
agricultural produce which industry needs. The demand for farm products that we
have mentioned in paragraph 3 (above) promotes a very useful specialisation in
agriculture. Some farmers raise fat cattle; others make dairy products. Some
grow vegetables, others have orchards. In addition there are allotments in the
towns which the factory workers cultivate as a recreation.
8. If a
region becomes industrialised the local smallholders, farm workers and their
families have an opportunity of making good use of time which was formerly
wasted, particularly during the winter months. Now the factories will be able
to provide them with useful employment. This applies particularly to women, old
people, children, cripples, and the infirm. The labour of these people is of
little use on the land but can be most useful in industry.
9. The
development of manufactures demands a great many skills and those who possess
such skills have the opportunity of using their abilities in various branches
of manufacture. Skilled
63
workers earn enough to live in comfort and some may
even become rich. Agriculture benefits from the growth of industry because
children growing up on the land who have mechanical aptitudes can be trained
for an industrial occupation. If no industry existed - and therefore no jobs
for skilled workers - these children would have to choose between emigrating
and facing a dull life on the land.
10. In
general it appears that agriculture shares with industry in all the advantages
brought about by the growth of manufactures. These advantages include not only
the development of political freedom, but advances in learning, the arts,
literature, and education. There are also improvements in public institutions,
in national defence, and in taxation. It is obvious that two people have a
better chance of defending themselves than one individual has of defending
himself alone. Similarly two people can carry a greater burden of taxation than
one person. This is still more obvious when a person who owns nothing except
his physical strength as his means of subsistence, is supported by a person
whose knowledge and skill is united with the power of machinery.
11. It can
be shown that in favourable circumstances a farmer and his family can produce
enough provisions to feed an industrial worker and his family. Similarly a
factory worker can provide someone who lives in the country with the tools and
other manufactured products that he requires. Taking account only of the
internal production and the internal consumption of a country, a balance is
struck between the agricultural and the industrial populations when the two are
equal in numbers. French industry will be fully developed when the 20 million
persons working on the land can feed and keep employed 20 million workers in
industry. In prosperous times those working in industry will consume foodstuffs
and raw materials to the value of at least 150 to 200 francs a head. French
industry would then buy French farm produce to the value of 3 to 4 milliard
francs. This is certainly more than France could ever hope to sell abroad if it
were to remain a purely agrarian country. It follows that once home industries
are fully developed, those who make a living on the land have obtained a far
larger and more valuable market than they could find in the whole world,
however free international trade might be.
12. The
advantages which the agrarian sector of the community secures in the home
market when industry is fully developed are shared by certain specialised
branches of agriculture, which are
64
suited to a particular country. The vineyards of
France may serve as an example. A comparison between the output and the export
of wine shows that France consumes ten times as much wine as it sends abroad. It
is clear that the ability to send their wines freely all over the world would
not compensate the vineyard owners for the consequent loss to the nation's
manufacturing powers at home.1
13. When a
nation has succeeded in fully developing both agriculture and industry and in
securing a satisfactory balance between them, the consumption of each of these
sectors of the economy will exactly equal the production of the other.
In this
situation a country can look forward for centuries to come to the continued
expansion of its productive powers, wealth, national strength, economic
prosperity, and cultural progress. On the other hand a nation which depends
upon foreigners for its manufactured goods is liable to experience all the
disturbances and crises which we mentioned in the previous chapter.
It is this
reciprocal activity between the two sectors of the economy - the agrarian and
the industrial - which explains both the extent and the strength of England's
productive powers. And this reciprocal activity has not been interrupted during
centuries of steady progress.
These
factors taken together influence the revenues, the value and the price of all
landed property in the country. There is no better measure of the prosperity of
a nation than the price of landed property. Every advance in agriculture or
industry is reflected in an increase in the price of urban and rural land.
Every decline in
1. [List's note] Chaptal estimates the total value of the production of
French wines and spirits at 718 million francs (De l’industrie
françoise, Part I, p. 177). He estimates the
value of the exports in the period 1786- 90 (when it had without doubt reached
its peak) at 51 million francs. So the value of the wine consumed at home is 14
times as great as the value of the wine exported. Chaptal
estimates that the consumption of wine in France amounts to 22 francs per head.
So 2,200,000 Frenchmen consume as much wine as was exported when exports were
at their peak. Since it is well known that the industrial population consumes
on average more wine per head than the agrarian population the above figure may
be reduced to 1,500,000. Today the industrial population of France is
10,000,000. One can hardly doubt that with the expansion of agriculture and
industry the populations of the two sectors will one day be equal. In other
words the industrial population of France will be 20,000,000 at some time in
the future. These 20,000,000 will then drink from six to eight times as much
wine in a year as France has ever exported. This shows how important the
expansion of French industry will be for the French vine growers and how little
substance there is in their assertion that they will be ruined by tariffs
imposed to protect manufacturers.
65
agriculture or industry is reflected in a fall in the
price of land. Everywhere the price of property is high or low according to the
strength or weakness of the productive powers of the nation. It can be shown pat
a nation which invests 100 million francs in new factories increases the value
of its landed property by five to ten times that amount. And the author of this
treatise will certainly submit statistical proof of this assertion. This factor
in the situation is of great significance when it is necessary to find out
whether the creation of a national industry by means of import duties can be
achieved in some way other than at the expense of the consumers – that is to
say those whose livelihood depends upon the land.1
A fourth stage in the development of
agriculture remains to be considered but we do this only after we have examined
the leading characteristics of manufacturing industry.
INDUSTRY is the mother and father of science,
literature, the arts, enlightenment, freedom, useful institutions, and national
power and independence.
Anyone
who wishes to devote himself to industrial activity - to
1. [List’s note] Chaptal (De I'Industrie françoise, Part I, p. 225) estimates at 37,522 million
francs the total value of the capital of
property and agricultural land in France. It is certain that industry has
played an important part in creating this capital. The value of landed property
is ten times higher in England than in Poland. If we assume that French
industry - as yet not fully developed - has already been responsible for a five
fold increase in the value of French landed property then this increase in
wealth, which benefits only the landowners, may be estimated at 30,000 million
francs. When French industry is fully developed this figure will be doubled.
The expansion in agricultural wealth is equivalent to 170 times the total
annual profit of manufacturers. This proves that industrialists do not become
rich at the expense of those who make a living from the land. In fact those who
work in the industrial and the agrarian sectors of the economy make each other
rich.
66
the production of manufactured goods - should learn and
understand something of mathematics and the natural sciences. Schoolmasters
and books are needed to enable those engaged in industrial pursuits to make
progress in these subjects. They are needed to give young people possessing the
appropriate natural ability and previous education the opportunity to
specialise in mathematics and the natural sciences.
As a nation
becomes more industrialised it becomes more necessary to secure the services of
suitable trained people in the factories and workshops. Such people are now
able to command
higher salaries and wages than was formerly
possible. It will be easier for them to devote themselves entirely to a
particular branch of knowledge, provided that they have the necessary natural
aptitude and a good preliminary training. Knowledge is becoming more
specialised. It is clear that all branches of knowledge – particularly those
which can be applied to industrial pursuits - are making rapid progress.
The greater
the advance in scientific knowledge, the more numerous will be the new
inventions which save labour and raw materials and lead to the discovery of new
products and processes. As those engaged in industry become more familiar with
the advances made in scientific knowledge the more quickly - and the more successfully
- will new discoveries and inventions be applied to industry in a practical
way.
Anyone
engaged in industrial pursuits should appreciate that success will depend upon
his knowledge of science and upon the new discoveries that are the result of
scientific progress. If he does not already possess certain qualities he should
develop the art of independent thought and the ability to make decisions. A man
acquires intellectual qualities and imagination not only from schoolmasters and
books but by travelling and by associating with those who have ambitions
similar to his own. He should be in touch not only with men who are in the same
line of business as himself but he should also associate with those engaged in
various other aspects of the world of business and also with men who devote
their talents to public affairs. A man with this sort of training and
experience will soon realise that if he is to succeed in business and gain a
fair reward for his work he will need as firm guarantees as possible for his personal
safety and for the security of his property. His experiences of life - and an
appreciation of the nature of his own interests -
67
should lead him to support the abolition of anything
that restricts his freedom and the prosperity of his enterprises. He should
support the establishment of national institutions that will ensure his freedom
and increase his prosperity.
In countries
where arable farming has been practised for centuries it is rare to find men
who rise from poverty to enjoy first a modest competence and then wealth and
complete financial independence. Industry, on the other hand, offers men who
start at the bottom the chance of rising to the very top by using their
abilities and by working hard. The possibility of such an achievement provides
a stimulus for the whole working population.
A country devoted entirely to agriculture esteems
really sturdy physical strength most highly and accords it the greatest
financial rewards. In such a society the whole range of intellectual and moral
powers is virtually non-existent. But industry calls forth and promotes the
growth of intellectual and moral forces of every kind.1
In the
previous chapter we have shown how the productive powers of industry awaken in
industry and agriculture the spirit of enterprise and innovation. We have seen
how a great many natural resources - formerly of little or no value - have
become increasingly valuable as industry expands. We have explained that
industry promotes the division of labour in agriculture, increases the demand
for new farm products, stimulates the improvement of communications, and
checks the harmful subdivision of land into tiny smallholdings, while
fostering a sensible division of landed property. We have shown how industry
gives scope for the expansion of all kinds of skills and abilities as well as
increasing the revenues and value of land. We have made it clear that normally
agriculture can prosper only insofar as industry also prospers and becomes more
efficient.
Agriculture
gives little scope for the abilities of skilled and useful , workers. Factories, on the other hand, do
give them the opportunity to use their skill so that their productive powers
are multiplied by 10 or even by 100. Consequently an industrialised society
will gain immeasurably more from new inventions and from scientific progress
than is possible for an agrarian society.
A division
of labour can be usefully developed in agriculture only insofar as it is
brought about and stimulated by differences of soil
1.
[List's note] Charles Dupin, Forces prod., p.
92. [The full reference is Charles Dupin, Forces productives
et commerciales de la France (two volumes, Paris,
1827), Vol.1, pp. 89-92.]
68
and climate. On the other hand the various branches of
industry can give unlimited scope for the division of labour. The productive
powers of agriculture are scattered over a wide area. But the productive
powers of industry are brought together and are centralised at one place. This
process of concentration eventually creates an expansion of productive powers
which grow in geometric rather than in arithmetic proportion.
This is why
the population of an industrialised society is brought together in a few
conurbations in which are concentrated a great variety of technical skills,
productive powers, applied science, art and literature. Here are to be found
great public and private institutions and associations in which theoretical
knowledge is applied to the practical affairs of industry and commerce. Only in
such conurbations can a public opinion develop which is strong enough to
vanquish mere 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.
Just as the towns draw their foodstuffs from farms
scattered over a wide area, so the farms secure from the towns the means to
improve their living standards, to stimulate their intellectual needs, and to
meet their need to improve their social and political conditions.
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 bulky raw materials, which cannot be sent long distances,
into goods of low weight and high value which are in universal demand.
The market for agricultural products is limited by
their weight, by their low value in relation to their weight, and by the
availability of transport facilities. Moreover primitive and semi-civilised
societies usually produce all the foodstuffs and raw materials that they need
-with some to spare - but they do not manufacture industrial goods.
A country
with a predominantly agrarian economy cannot trade with primitive societies-
and most societies in the world fall into this category. Primitive peoples
already possess everything that a predominantly agrarian economy has to offer
and they do not produce anything that a predominantly agrarian economy
requires.
But the manufacturers in an industrialised country can
acquire sufficient gold and silver to finance the steady expansion of its
international trade and to curb fluctuations in prices. Only an
69
industrialised country can
establish colonies and link them to the mother country by a mutually profitable
exchange of goods.
We have shown that it is factories that make possible the establishment
of a substantial and permanent foreign trade. Consequently the prosperity of
the mercantile marine is also based upon growing industries. Transit trade
alone can never be a satisfactory basis for the development of shipping and we
shall illustrate this from the example of the Hansa
Towns (chapter 29).
In the previous chapter we
explained that a country can double and treble its population and output by
monopolising the home market through its national productive powers. The
financial and military strength of the nation grows in the same proportion.
We think that we have now made it clear that if a country desires to
ensure its national independence and to achieve a high degree of prosperity,
wealth, and power, it must possess highly developed and efficient industries.
The
cosmopolitan theorists do not
question the importance of industrial expansion. They assume, however, that
this can be achieved by adopting the policy of free trade and by leaving
individuals to pursue their own private interests. They believe that in such
circumstances a country will automatically secure the development of those branches
of manufacture which are best suited to its own particular situation. They
consider that government action to stimulate the establishment of industries
does more harm than good.
In our first chapter we observed that the situation existing in a world
of universal peace - as is assumed by the dominant school of economics - bears
no relation to the situation that actually exists
70
in a world of national
rivalries and wars. In our second chapter we showed how in the real world the
countries with the most i advanced economies are
forced to promote the development of those branches of manufacture that are
suited to their particular needs. And such countries would have to do this if
only to secure the growth and the prosperity of their agriculture. Finally in
our last chapter we have submitted evidence proving that an efficient and
highly developed industry is essential if a country is to expand its revenues,
wealth, and armaments and if it is to make progress in the arts of
civilisation. In this chapter we propose to show that countries in the second
or third phase of industrialisation also need protective tariffs in order to
challenge the economic power of the dominant industrial state. The very nature
of their industries makes it essential for them to adopt such a fiscal policy.
A national industry in which all branches of manufacture are highly
developed is a plant of slow growth. Many generations may pass before a people
can achieve such a high standard of industry, especially if social or political
obstacles delay the development of the economy. National industry can expand
only insofar as progress also occurs in education, culture, and political
freedom. The removal of obstacles brought about by faulty institutions or laws
is also necessary. Moreover the agrarian sector of the economy must be able to
supply industry with the raw materials, the foodstuffs, and the market for
manufactured goods that it requires.
Even when all these conditions have been met, a long time will have to
be allowed for training the necessary number of civil engineers, industrial
chemists, mechanics, and factory managers. And still more time will be needed
to turn people accustomed to working on the land into keen skilled factory
workers. Only traditions passed on from one generation to another can imbue men
with a genuine preference for a particular industrial occupation -the sort of
dedication that even makes a miner prefer life underground to life behind the
plough.
It takes a long time for both factory managers and factory workers to
learn step by step how to perfect machines, tools, and manufacturing processes.
Only after a long series of experiments is it possible for the manager of a
factory to turn out a perfect product.
Not only the quality but also the price of the goods produced in a
factory must be satisfactory. The price of goods is determined by the level of
wages paid in the factory, by the interest payable on the
71
capital
invested in the factory, and by the quantity of goods produced.
The work of the less skilled men in the factory
is not only the most | expensive but also the worst. Some men have a natural aptitude for farm work and they follow this
occupation by inclination. To persuade
them to turn to a new industrial occupation, the factory manager must make the work attractive by offering
higher wages than those earned in agriculture. The wages of labour are
determined by supply and demand and when a
new factory is established the relationship between supply and demand -
as far as labour is concerned - is distorted in a manner unfavourable to the
factory owner.
In predominantly agricultural countries
investors are accustomed to demand solid guarantees before they invest their money. Since the erection of a new factory is
always a hazardous enterprise it is not surprising that capitalists often hesitate to
support such an undertaking.
If they do invest in a new factory they will demand a bonus in the shape of higher interest. In these circumstances a factory owner has to pay heavily for the capital
that he borrows to found his enterprise.
A factory owner also needs cheap raw materials
and fuel. Even if they are available in adequate quantities in the country in
which the factory is situated, their
cost will depend upon the efficiency of the transport system. In a
predominantly agricultural country, communications
are generally very poor. The result is a vicious circle. Efficient
highways and canals produce no revenues. The need
for a good transport system is not felt until large industries have developed. Yet large industries cannot grow
in a country until adequate communications have been provided.
The cheapest and best methods of obtaining the necessary raw I materials and of marketing the finished
manufactured goods are discovered
only by a process of trial and error lasting many years. At first sales
may be poor, or at least uncertain. But the greater the uncertainty and the
smaller the sales the higher are the prices that the factory owner must charge
for his goods.
Regarded as isolated enterprises there are grave drawbacks that newly
established factories have to overcome.
It is also obvious that the success of one
branch of industry always j depends upon the success of another branch of
industry. An ironmaster who makes pig iron cannot make a profit if he is
unable to
72
secure
supplies of cheap fuel because the local collieries have not been sufficiently developed. Nor
can he make a profit unless there are
in existence enough foundries, steelworks, and engineering plants to buy the
pig iron that he produces.
Every factory needs to operate in association
with countless other enterprises which supply raw materials, buy the finished
product, or construct and maintain machinery. No factory reaches its maximum efficiency unless all the
factories with which it is linked have also reached their maximum efficiency.
We believe that we have now shown what difficulties have to be overcome by all new manufacturing enterprises.
We have shown that all factories are
linked together and that one cannot succeed unless the others also succeed. And we have explained why it takes such
a long time for a factory to reach its full potential and maximum efficiency.
We will now compare and contrast the
manufacturing power of states in
the second and third phases of industrialisation with the economy of the
dominant industrial state. We will compare countries which are still moving
towards full industrialisation with those
which have successfully completed the process of industrialisation.
A fully industrialised state is one which has
successfully completed
the process of industrialisation and has managed to overcome all the obstacles which we
have already discussed. Such a state has
numerous trained engineers, mechanics, industrial chemists, and factory workers whose skills are based upon
technical knowledge and practical experience. Sufficient skilled
workers are available at modest wages. The
most efficient tools and machines are being used in modern factory buildings.
The original capital borrowed to
launch the enterprise has long been repaid. The undertaking now enjoys the confidence of investors. The
factory owner can now borrow money that he needs at a reasonable rate of
interest. Local communications have reached a high level of efficiency. All branches of industry have expanded
in an orderly fashion. Manufacturers
are now assured of regular supplies of raw materials and of markets in which to sell their goods. In these circumstances there is a high output of goods of
the best quality which are being offered for sale at the lowest possible
price.
If, under conditions of free trade, a struggle
should take place between
countries at different stages of economic development it is
73
inevitable that the most
backward country would go to the wall. And what would be the consequence of the
collapse of industry in a relatively backward country?
Manufacturers who had acquired the necessary knowledge and experience
would settle in foreign countries. Workers would have to learn a new trade,
change their jobs, emigrate, or sink into a condition of miserable poverty.
Nearly all the capital invested in factory buildings, tools and machinery would
be lost. The confidence of investors in industrial enterprises would vanish if
not for ever at any rate for a long time. There would be a dramatic decline in
the traffic on the roads, rivers, and canals. The output of mines would also
decline. All progress would come to an end. There would be a steady decline in
the public revenues, in the power of the nation, in the rents collected by
landowners, and in the value of landed property. In fact the country would
relapse into a state of barbarism from which it could be rescued only by
reversing the process of decline by again stimulating industrial progress by
means of tariff protection. Such a policy would eventually enable a country to
resume its former position among the states of the world as an independent
civilised nation.
In an age of great inventions, such as the one in which we are now
living, it is impossible to assess the influence of new technical discoveries
either upon particular branches of manufacture or upon industry as a whole
which are at present in the second or third phase of industrial development. In
fact the manufacturers of the dominant manufacturing country who sell their
products in extensive markets all over the world will feel the urge to exploit
the invention as quickly as possible and to snatch it from under the noses of
the manufacturers of the relatively backward industrial countries so as to
produce goods even more cheaply than before. This would enable them to widen
their market and to make bigger profits. The expenses incurred through being
the first in the field would be more than covered by additional profits earned
later. The capital at their disposal and their ability to raise loans would
make it possible for them to make financial sacrifices so as to be able to
exploit a new invention. On the other hand the manufacturers in a relatively
backward industrial country would still be paying off their initial capital and
would not be able to raise additional capital either by using their own
resources or by borrowing in the open market. Consequently they would not be in
a position to exploit the inven-
74
tion. In this way it could happen that a large part of the
industry of a less advanced nation might collapse simply because a more
advanced state was able to exploit a new invention a few years before a weaker
rival could do so.
Moreover it should be appreciated that the balance between supply and
demand is generally upset at regular intervals - five to ten years - and this
causes commercial crises. During a slump the free exchange of goods between
factories in different countries is replaced by a war to the death. Inevitably
the firms which go under are those which have the lowest cash reserves and are
least able to pay interest on their loans. They are the firms which are not
able to grant credit to their customers. They cannot earn a sufficient profit
to cover their immediate expenses and they cannot survive trading losses. These
firms cannot keep their factories going and they cannot survive unscathed until
the coming of better times.
Finally, as we mentioned in the previous chapter, it is necessary to
appreciate the significance of national industrial power in time of war.
For a state in the second or third phase of industrialisation there can
be no doubt that it is both necessary and desirable to adopt the fiscal policy
of protection.
The protection which a nation
can give to its industries will be more effective if certain conditions are
fulfilled:
1.
The policy
of protection should be in accord with the natural and human resources - as
well as the social and political structure - of the nation.
2. The policy should aid not only manufacturers but also
mining and agriculture.
3.
The policy
should ensure a steady expansion of industrial output.
4. The policy should safeguard industry and agriculture
from fluctuations in trade and from slumps.
5.
The policy
should stimulate the competitive power of a country's industries. In time these
industries should be able to face foreign competition successfully. The policy
of protection should, however, continue to ensure the further expansion of the
country's industries.
6. The policy of protection should be adjusted so that
foreign capital and skill are attracted to a country.
75
7. The policy of protection should be so well balanced
and should be established on so firm a basis that it cannot be harmed by any measures - legal or otherwise -
taken (by foreigners) to oppose it.
The
cosmopolitan theorists do not
deny that prohibitions and import duties
can bring into existence what they call "artificial" industries. But they do deny that this is to the
advantage of a country. They regard
such "artificial" industries as hot house plants that attract capital
away from more useful economic activities,
which would foster the expansion of the national economy (for example in
agriculture) in a natural manner.
In all abstract branches of knowledge there is
a serious misuse of technical
terms which are not strictly defined. Thus in economics the word "capital" is particularly liable to
misuse.1 Economic theorists
apply the word to all sorts of quite different things such as
1.
[List's note] Readers of the last 6 and the next 6 chapters of my treatise will
know how to judge correctly the following argument of Adam Smith (Vol. II, p.
179) :
That
this monopoly of the home market frequently gives great encouragement to that
particular species of industry which enjoys it, and frequently turns towards
that employment a greater share of both the labour and stock of the society
than would otherwise have gone to it, cannot be doubted. But whether it tends
either to increase the general industry of the society, or to give it the most
advantageous direction, is not perhaps altogether so evident ...
The general industry of the society can never
exceed what the capital of the society can employ. As the number of workmen
that can be kept in employment by any particular person must bear a certain
proportion to his capital, so the number of those that can be continually
employed by all the members of a great
76
money, machinery, labour,
population, or the intellectual qualities of a people. The word has been
applied to the natural resources which men can use. But to check the validity
of the conclusions drawn by economists it is necessary to know exactly what
they mean when they use the word "capital".
In order to refute the objection to which we have referred above it is
necessary that we should examine the various ways in which the word "capital" has been used by
supporters of the theory of value.
What is needed to establish factories in an agricultural state? If First, land is required for workshops and
houses. Water power is generally also necessary. More than enough land and
water power are available in a purely agrarian country. The landowner who sells
land to a manufacturer will doubtless secure a higher price than he could have
hoped to obtain if the land had been sold for agricultural purposes.
To erect factories, workshops, and dwellings the manufacturer needs
stone, sand, lime and timber. All these are of little or no value in a purely
agricultural country but now they suddenly do have a value and a landowner can
make a handsome profit by selling them.
Builders and factory workers consume food, while machines consume fuel.
There is normally a surplus both of food and fuel in an agrarian country. The
sale of such commodities stimulates the agrarian economy.
The factory owner uses wool, hemp, flax, vegetable oils, and dyestuffs.
All these products are generally available in an agricultural country in far
greater quantities than they are consumed. If these commodities were sent
abroad and then imported again in the form of manufactured products far more
warehouses would be needed than if they were manufactured in local factories.
Thus a country which grows its own cereals and then turns the
society, must bear a certain proportion to the
whole capital of that society, and never can exceed that proportion. No
regulation of commerce can increase the quantity of industry in any society
beyond what its capital can maintain. It can only divert part of it into a direction into
which it might not otherwise have gone; and it is by no means certain that this
artificial direction is likely to be more advantageous to the society than that
into which it would have gone of its own accord.
Every individual is continually exerting himself
to find out the most advantageous employment for whatever capital he can command. It is his own
advantage, indeed, and not that of the society, which he has in view. But the
study of his own advantage
naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.
77
grain into flour and the
flour into bread does not need to keep cereals stored in warehouses as would be
necessary if the cereals were sent to England to be turned into flour and then
imported again in processed form. The new factories do not deprive agriculture
of either natural resources or supplies of cereals.
What then can agriculture lose? Intellectual capital? Very little
intellectual capital exists in a purely agricultural country and if it did
exist it would not be lost. In the early stages of industrialisation the
necessary technical knowledge and skill must come from abroad (and not from
local agriculture).
Is labour lost? No. There is
a surplus of labour in all agricultural societies and the workers are
relatively uneducated. Moreover factories provide employment for a type of
labour that is useless on the land - namely the labour of women, children, and
old people.
But if one assumes that the factories will create a considerable demand
for labour it is also reasonable to assume that this will bring about a general
rise in wages. While on the one hand landowners and farmers have to pay higher
wages, they will on the other hand receive higher prices for the products that
they sell to manufacturers. Moreover agricultural production will increase
because the workers on the land are better paid and better fed. So the
production of manufactured goods by the factories is a pure gain to society.
The significance of this fact - taken in conjunction with our previous
observations - will become clear if one thinks of all those who work on the
land as a single family engaged in a joint productive enterprise.1
It would surely be foolish for a country to fail to harness its
waterfalls, or to let its minerals lie undisturbed in the earth, or to export
raw materials and foodstuffs in return for manufactured goods of one tenth of
their value. It would be folly for a society to allow most of its physical and
intellectual resources to rot in idleness.
1. [List's note] The author
considers that he should make it clear that he does not support the doctrines
of the St Simonians. He does not believe in the
possibility of establishing large communities in which property is held in
common - at any rate in the present state of human society. Nevertheless the
suggestion that we have made is correct. It is often possible to simplify the
most abstruse economic problems if one thinks of a state as a single family,
the members of which are not divided by private interests. On this assumption
what is useful and advantageous - or harmful and disadvantageous - for society
as a whole will be the same for its individual members.
78
It is obvious that what a country needs to
become industrialised is an adequate labour force - easily available from the land - which will have to be taught technical skills and new habits
of work. It is clear that industrialisation will not involve any loss of
capital by agriculture, except what is
needed to buy foreign machinery. On the
contrary industrialisation will greatly increase the value of a country's
natural resources.
It is astonishing that the exponents of the theory of value have for so
long confused so clear a matter. It is still more surprising that the cosmopolitan economists have managed to keep
silent concerning the great advantages of the policy of protection
although it is self-evident that a system of
tariffs safeguards industry and promotes the welfare of society. In England,
the most advanced industrial country in the world, the policy of protection has
safeguarded capital, technical
knowledge, and skilled labour. People are attracted to a country which
safeguards its industries by the policy
of protection because they wish to share in the advantages provided by tariffs.
This migration of foreign resources - physical and intellectual capital - is certainly not a gain made at the expense of
a country's agriculture.
It cannot be denied that only advanced civilised
countries - where a man is recompensed for leaving his homeland by the guarantee
of personal
freedom and the protection of his property - can hope to become industrialised by
attracting English capital and technical knowledge.
The arguments that we have advanced are no mere abstract propositions. They are based upon established facts.
All countries in which, under
favourable circumstances, industries have been established through the
policy of protection, have found that agriculture
has gained amazingly in strength simply through the erection and operation of
factories. Again, in a country in which canals and railways are built it is agriculture which first secures the
most obvious advantage from these
public works - a recompense for having, to a great extent, paid for
them.1
1. [List's note] Adam Smith
writes in Book IV, chapter 9 (of The Wealth of Nations):
According to this liberal and
generous system, therefore, the most advantageous method in which a landed
nation can raise up artificers, manufacturers and merchants of its own, is to
grant the most perfect freedom of trade to the artificers, manufacturers and
merchants of all other nations. It thereby raises the
79
MONOPOLY!
That dread word has often been used in the last century to brand the alleged despotic schemes of
financiers which have occasioned great public
calamities.
Merchants produce nothing. They make a living by buying and selling
goods. It is in their interest to denounce any measure that
value of the surplus produce
of its own land, of which the continual increase gradually establishes a fund,
which in due time necessarily raises up all the artificers, manufacturers and
merchants whom it has occasion for.
When a landed nation on the contrary, oppresses either by high duties or
by prohibitions the trade of foreign nations, it necessarily hurts its own
interest in two different ways. First, by raising the price of all foreign
goods and of all sorts of manufactures, it necessarily sinks the real value of
the surplus produce of its own land, with which, or what comes to the same
thing, with the price of which, it purchases those foreign goods and
manufactures. Secondly by giving a sort of monopoly of the home market to its
own merchants, artificers, and manufacturers, it raises the rate of mercantile
and manufacturing profit in proportion to that of agricultural profit, and
consequently either draws from agriculture a part of the capital which had
before been employed in it, or hinders from going to it a part of what would
otherwise have gone to it. This policy, therefore, discourages agriculture in
two different ways, first by sinking the real value of its produce, and thereby
lowering the rate of its profit; and, secondly, by raising the rate of profit
in all other employments. Agriculture is rendered less advantageous, and trade
and manufactures more advantageous than they otherwise would be; and every man
is tempted by his own interest to turn, as much as he can, both his capital and
his industry from the former to the latter employments.
Though, by this oppressive policy, a landed nation should be able to
raise up artificers, manufacturers and merchants of its own, somewhat sooner
than it could do by the freedom of trade; a matter, however, which is not a
little doubtful; yet it would raise them up, if one may say so, prematurely,
and before it was perfectly ripe for them. By raising up too hastily one
species of industry, it would depress another more valuable species of industry
...
[At the beginning of the
quotation List omits the words: "According to this liberal and generous
system, therefore ..."]
80
hampers their freedom to buy
and to sell. Merchants have condemned as a "monopoly" any system of
protection that is introduced in a country to safeguard the home market in
manufactured goods for citizens of that country.
Is it really right to attack as a "monopoly" a measure to
ensure that our 20 million industrialists enjoy a legal right to supply our 20
million agriculturalists with manufactured goods - especially when one
remembers that our agriculturalists enjoy a natural monopoly to supply our 20
million industrialists with foodstuffs?
The policy of protection confers no privilege on one citizen at the
expense of another. The privilege is one enjoyed by a whole nation at the
expense of another nation. All manufacturers who are citizens of a country
enjoy the same rights in the home market of a country as their fellow citizens.
Only in that special sense can a tariff be said to confer a
"monopoly".
There are useful and just monopolies as well as harmful and unjust
monopolies. Thus a useful and just monopoly is one granted to an inventor who
enjoys the exclusive use of his discovery for a definite period of time. The
reason for granting a monopoly of this kind is self-evident and requires no
further elucidation.
A similar motive lies behind the granting of a monopoly in the home
market to all manufacturers who are citizens of the country. Such a monopoly is
not given to any individual at the expense of society as a whole. The privilege
of tariff protection is granted without exception to all industrialists who are
citizens of the country. Anybody is free to set up a factory and anybody who
does so is allowed to operate the factory as he pleases. The protection enjoyed
by manufacturers eventually benefits the very people it is supposed to harm -
namely those who work on the land.
The granting of exclusive privileges in the home market to
industrialists is open to criticism only if those privileges cause manufactured
goods to be always sold at a higher price than similar goods made abroad.
But when a country's industries have developed to such an extent that
they can face foreign competition in the home market, it will be found - as we
have shown in chapter 11 - that the goods made at home will be cheaper than
those made abroad. This satisfactory state of affairs will be due partly to
tariff protection in the past and partly to foreign competition.
The social and political
conditions of some countries have not
81
developed
sufficiently for there to be much internal competition between local manufacturers in the home markets. In such countries - and only in such countries - will the
privileges enjoyed by manufacturers
through the imposition of a tariff enable a handful of rich powerful firms to plunder the consumers.
They can charge high prices for their
goods. Only in these circumstances may the privileges granted to manufacturers be regarded as a dangerous monopoly which would hinder and slow down the
development of a country's productive powers.
In
chapter thirteen we explained why a country in
the second or third phase of
industrialisation has not fully developed its manufacturing capacity. And we showed how the goods manufactured
in such a country are necessarily lower in quality and higher in price than those produced in a fully industrialised country. In the circumstances it has been argued that the
granting of tariff protection to
manufacturers must inevitably involve some sacrifice on the part of
consumers and must appear to be unfair to them.
To reply to this criticism of the policy of
protection and to judge this policy in its true light we must first consider who, if anybody, is
really harmed by the imposition of a
tariff.
Manufactured goods are consumed by:
82
We have already shown in chapter 12 that the higher prices charged for
manufactured goods inflict no injury if one manufacturer is consuming the
products made by another manufacturer. This is because no branch of industry
can flourish unless all other branches of industry are also flourishing.
The majority of consumers in a society in the second or third phase of
industrialisation are those who live and work on the land. There can be no
doubt whatever that they have to pay higher prices for manufactured goods if
tariffs are imposed upon those goods and if competition between local
manufacturers has not yet been fully developed. But should the success or
failure of an economic policy be judged solely by the prices charged for
manufactured goods? Should one not also take into account what a man gets for
the products that he sells? If he gets more for the products that he sells,
than he pays for the goods that he buys, is he not prospering? Even if the
money that he gets from what he sells just equals the money that he pays for
his purchases, he may still be regarded as having prospered. Is the owner of a
piece of land near Paris, who has to pay higher prices for the goods that he
buys really in a worse position than the owner of a piece of land of equal
extent, which is situated far from any town or factory? We have already explained
in chapter 10 that if agriculture depends mainly upon foreign trade it is
subject to serious fluctuations. We have explained in chapter 11 how great are
the advantages to farming if national industries expand. We have also shown
that the policy of protecting industry by tariffs, far from injuring
agriculture, eventually confers the greatest benefits upon agriculture.
It is possible that, in the early stages of industrialisation, the
introduction of import duties to foster manufacturing enterprises, may impose
some sacrifices upon agriculture. But what are these sacrifices in comparison
with the depressions in trade caused by commercial crises, political
revolutions, foreign tariffs, or wars that inevitably afflict an economy that
is almost entirely dependent upon foreign trade? In all countries in which
industry has developed with the aid of tariffs, agriculture too has flourished.
Does this not prove that any sacrifices imposed upon farming in the early
stages of
83
industrialisation
- if they really can be called sacrifices - are of relatively small importance and indeed are hardly noticeable?
Even if one were prepared to admit that
agriculture has to make some sacrifices in the early stages of industrialisation it would still be true to say that eventually
agriculture will be richly compensated by an enormous - indeed a hundredfold -
expansion of its output. This will happen as soon as industry has reached its highest peak of
production. Then all the hard work, the sacrifices, and the anxieties of rearing this tender plant will reap its due reward.
Eventually competition between
industrialists themselves will cause a reduction in the prices of manufactured
goods below those charged by foreign firms. As industry expands and as
the population grows there will be an ever increasing demand for agricultural
products so that the prices of farm produce will rise. This should prove to those who work on the land that they should not
hesitate to make sacrifices now in order to prepare the way for the
prosperity of future generations. This prosperity is illustrated by the case of
a farmer who harvests fruit from his orchards and so benefits from the hard
work of his ancestors who planted the trees. Those who work on the land have no
reason to complain of the poor quality or
the high cost of manufactured goods in the early stages of industrialisation
when industries benefit from tariff protection.
This applies also to capitalists, to people with private incomes, to pensioners, to professional men, and to
artists. These classes in society gain enormously when industry and agriculture
flourish. This is self-evident and need not be discussed further.
Merchants, too, lose nothing if there is an
increase in the output of the factories and farms. The production and the consumption of farmers and manufacturers will increase in the same
proportion. The productive capacity of the
agrarian and industrial sectors of the economy will also expand to the
same degree. The merchants -mere intermediaries between producers and consumers
- are not affected by these developments.
There can be no doubt that the internal commerce of a country which has reached the highest stage of
industrialisation is much larger and
much more significant than that of a purely agricultural country. It is equally certain that a fully
industrialised country needs far more
foreign raw materials and exports far more manufactured goods than a
purely agrarian country.
The only people who are inconvenienced by the
introduction of
84
tariffs are the commission
agents of foreign manufacturers and those
who buy farm produce to sell abroad. They will merely lose the business which they have been accustomed to
handle and which has been necessary
in the past. But as industry develops so will the activities of these merchants and it will be easy
for them to find some other outlet for their skill in business. Here too
one cannot argue that their interests have
really been injured by the introduction of tariffs.
Those who lose most through the introduction of the policy of protection are civil servants and all those whose
salaries or incomes are not
regulated by supply and demand. These people lose insofar as their salaries have been based upon lower
prices. But the revenue of the state from taxes of all kinds will increase with
the growth of a nation's productive
powers and when this happens it will not be unreasonable to expect the
taxpayers to accept an increase in the salaries
of civil servants to bring those salaries into line with the increased
cost of living.
In
all COUNTRIES in which attempts -
whether successful or not - have been made to stimulate the output of
manufactured goods by imposing tariffs
there has been a demand from those who work
on the land for similar protection for themselves and these demands have
generally been met to a greater or lesser degree.
Experience has unquestionably shown that
economists have been right when they have observed that a rise or a fall in the population is directly linked with the rise
or fall in the output of agricultural production. It does not matter whether the foodstuffs
consumed by the population in question
are produced at home or are imported
85
from abroad. If the import of
foodstuffs is hindered in any way it is clear that the greater the reduction in
food imports, the greater must be the decline in the population. There is no
increase in the food produced at home and any tendency for the population to
expand is sharply checked.
In a country in which industry is protected and is developing rapidly so
that it has achieved great prosperity, the manufactured goods which would have
been imported but for the imposition of tariffs are now made at home. This
benefits mainly the industrial part of the population. A highly industrialised
country is capable of producing the wealth needed to support a much larger
industrial population than would be possible for a purely agrarian country.
Increased quantities of raw materials for the factories are needed by a growing
industrial population. The increased imports of raw materials and foodstuffs
are balanced by the export of manufactured or agricultural products of equal
value. But this growth in the industrial population - and these exports - would
be lost if any restrictions were placed on the importation of raw materials and
foodstuffs.
In the last chapter, however, we showed that a country's agriculture
can flourish only if its industry flourishes as well. It is clear therefore
that any attempt to protect the home market for the benefit of the farming
community by the imposition of a tariff would not produce the desired result
but would actually harm agriculture.
Immediately after the imposition of a tariff designed to safeguard the
interests of the agrarian sector of the economy it might appear as if some real
benefits had been conferred upon agriculture. If the import of meat were
prohibited or made very difficult by the imposition of a high import duty it
might appear that cattle farmers would secure an immediate advantage. Soon,
however, it would become apparent that the industrial part of the population
was suffering owing to the high price of meat while the farmers were suffering
from a reduction in their exports abroad. Foreigners who formerly exchanged
their cattle for our wines and our manufactured goods would now leave us in
the lurch. France has had this experience not only with regard to meat but also
with regard to other products.1 England has suffered in the past and
will suffer still
1. [List's note] Charles Dupin observes in his Forces productives
et commerciales de la France (two volumes, 1827),
Part I, p. 116: "It would be far better to trade in complete freedom and
to give up the stupid idea of protecting negligent, ignorant and
86
more in the future for
failing to recognise the natural laws of exchange of agricultural products.
When considering the question of free trade one must appreciate that
agriculture is in quite a different position from industry. No one can deny
that most countries are potentially capable of establishing and developing all
kinds of industries, assuming that they have reached a sufficiently advanced
standard of civilisation. It is equally clear that agriculture is dependent
upon natural processes that man can do little to modify. For this reason
different countries and different regions specialise in growing different
products such as grapes, cattle, sheep, cereals, timber, tobacco or cotton.
Common sense tells us that it would be foolish to try and produce different
products from those to which a region is best suited because of its climate and
soil and because of the habits and skill of its inhabitants.
It is astonishing that the arguments of the doctrinaire cosmopolitan
economists are, to a great extent, applied rigidly to agri-
idle French farmers from the
competition of the active, keen, and efficient farmers living in territories
adjacent to our frontiers. By doing that we would avoid the disagreeable
retaliation of foreigners directed against our agriculture and our
industry".
Chaptal (De I'Industrie francoise,
Vol. I, p. 196) gives the following estimate of the number of cattle in France:
Bulls 214,131
Oxen 1,701,740
Cows 3,909,959
5,825,830
Before the import duties on cattle were increased the imports of cattle
into France were:
Oxen 16,000
Cows 20,000
36,000
Cattle imports therefore amounted to only one 160th of the total number
of cattle in France. Obviously the closing of this insignificant import trade
would not affect the prosperity of French agriculture in any way. The depressed
state of farming around Paris and in certain departments in western France will
decline still further. Workers, who are most in need of good food will suffer
most and the working strength of the whole nation will be weakened. At the
market in Poissy the average price of meat rose from
42 centimes to 50 centimes. This illustrates a new and very important
distinction between the output of farming and the output of industry - a
distinction that we have not mentioned previously. Different classes in society
and different districts in a country are affected in different ways if high
import duties are imposed upon foodstuffs whereas all classes and all parts of
the country are equally affected if high import duties are levied upon
manufactured goods.
87
culture.
These economists have blundered by treating the output of agriculture in the same way as
the output of industry although, as we have seen, the two forms of production are governed by quite different
laws.
We propose to make this distinction clear
because we wish to be strictly
impartial and have no desire to be accused of being a partisan supporter of the
factory owners.
It is in the nature of things that agriculture
should generally have a natural monopoly of the home market. The position of industry is quite different.
As a country becomes more advanced and its
industries expand those
who work on the land have even less cause to fear competition in the home market from foreigners. The exact opposite
is true of the factory owners.
Foreign competition can never totally destroy
agriculture. The nature
of agricultural production is such that if farmers can find no profitable outlet for their surplus produce at home or
abroad they can make use of the surplus on their
own farms by increasing their stock
or by improving their land. It is far easier for a farmer than for a
factory owner to wait for better times. Severe competition, however, spells
certain ruin for the factory owner - and for his workers, machines, premises,
and business organisation.
It costs little to train men to work on the land
- nature takes care of that - and most of these workers need only a robust
constitution and do not require a great
deal of skill. The situation is quite different in industry.
If agriculturalists are forced by low prices to
keep their produce in their barns they may for a time enjoy more food than they would do if high prices encouraged them
to sell more of their produce. In the factories,
on the other hand, competition - and consequent low prices - leads to a slump,
unemployment, and universal distress.
If those who work on the land do not have
enough money to pay for high quality factory
goods, they can make their own manufactured goods. The sacrifice may be
unpleasant but it does not threaten his
livelihood. But if the factory worker is short of food his health -
often his very life - is threatened.
By protecting industry with tariffs a country
will be able to attract foreign capital, entrepreneurs, skilled and unskilled workers, and machines. This either does not
apply to agriculture at all or it applies to agriculture to only a very limited degree.
88
The output of factories is capable of an immense expansion but any
increase in agricultural output is limited by the area of farm land that is
available and by the nature of the soil and the climate.
Tariffs to protect manufactures directly stimulates the development of
industry. On the other hand tariffs imposed to protect agriculture are very
harmful to industry.
If the policy of protection for industry is maintained for a long time
the competition in the home market between industrialists will lead to a
continual fall in the prices of manufactured goods. On the other hand, the
longer this protection continues, the more will the prices of farm products
decline.
Tariffs to protect industry lead to an increase in the wages paid to
factory workers. Tariffs to protect agriculture from foreign competition will
neither increase the profits of tenant farmers nor the wages of farm labourers.
Only the rents paid to landowners will increase. This will give the landed
aristocracy of a country a monopoly at the expense of the vast majority of the
inhabitants -the poorest, the most oppressed, and the most useful class -
namely the working class in general, including the farm workers.
Protection by the imposition of a tariff enables factory owners to raise
loans from capitalists. Only this protection gives the founder of a new factory
the ability to secure for his undertaking the money with which to buy essential
equipment. On the other hand the owner of land or property already possesses
the security that he needs to raise loans.
To increase the cost of food by the imposition of prohibitions or import
duties is to defy the natural law of national survival. It gives to those who
already monopolise a country's land a second monopoly by permitting an
artificial increase in the cost of agricultural produce which harms the
welfare of society as a whole. On the other hand to protect industry by the
imposition of a tariff provides the working class with jobs and with food and
it enables it to escape from the consequences of any increase in the cost of
manufactured goods.
Only the protection of industry by means of a tariff will enable a
country to buy food from abroad if the harvest at home should fail. To
stimulate regular imports - even to let foreigners know that imports may be
needed in the future - will encourage foreign countries to produce a surplus of
agricultural products and to store them so that they can be made available if
required. A country
89
which closes its frontiers to
foreign raw materials and foodstuffs to protect its own agriculture will
deprive itself of the possibility of getting food from abroad if its own
harvest should fail. In addition it will discourage the expansion of farm
produce in foreign countries.
By opening its frontiers freely to all agricultural products from abroad
an industrial nation is ensured of foreign markets in which to sell its
manufactured goods. But if it closes its frontiers to farm produce from abroad
it will force foreign agricultural states to promote the development of their
own industries.
The unrestricted import of raw materials and foodstuffs makes it
possible for a country to establish colonies. A mutual trade between the mother
country and its overseas possessions can be established which will be highly
advantageous to both of them. But if a country prohibits the import of
agricultural products it will discard a means by which it can become wealthy
and provide work to some of its employed.
As we have already observed, the imposition of a tariff to protect
industry is essential for the encouragement of cultural progress and for the
maintenance of the power, independence, and prosperity of a nation. It is the
only way to stimulate agriculture so that it can reach a peak of efficiency.
But the imposition of a tariff to protect farming simply enriches some great
landowners at the expense of others who make a living on the land.
For these reasons we believe that there should be complete freedom of
trade between all nations with regard to raw materials and foodstuffs. Human
society as a whole and all countries without exception will secure great
advantages and great wealth from this policy. On the other hand universal free
trade with regard to manufactured goods would deprive a number of countries of
their independence, their power, and their standard of living and would make it
impossible for them to make further progress towards a higher standard of
civilisation.
It would perhaps be possible to find other important differences between
the effects of prohibitions and import duties on manufactured goods and on
agricultural products but we hope that the differences that we have already
indicated will be sufficient for our purpose.
In view of the arguments that we have advanced it may be asked why in
nearly all countries the agricultural interest has been able to secure the
imposition of tariffs on foodstuffs and raw materials.
90
Manufacturers realise that to persuade a government to impose a general tariff they must secure the support of
the agricultural interest so as to overcome the opposition both of
merchants engaged in foreign trade and of
doctrinaire economists. The agriculturalists fail to appreciate that by
supporting the imposition of a general
tariff- including import duties on raw materials and foodstuffs - they are pursuing a mistaken policy
which will ultimately be detrimental to their own interests.
In most legislative bodies those who will
benefit from an immediate
rise in the value of land are either in a majority or at any rate carry
considerable weight in the debates and in the decisions that are taken. These men sacrifice real future
advantages for an apparent immediate financial gain.
Three
phases in the development of agriculture
have been discussed in previous chapters.
1.
In the
first phase agriculture is isolated from foreign trade.
2.
In the second phase agriculture is influenced by foreign trade.
3.
In the third phase a balance has been achieved between agriculture and industry so that most - if not all - of
the output of agriculture is consumed in the country in which it is produced.
These three phases in the development of
agriculture correspond to three
stages in the growth of industry, namely
1. The
first phase is one of self-sufficiency when landowners and farmers produce most of the
manufactured goods that they require. It is a period when domestic craft industries are the
only ones in a country.
2. The
second phase is one in which important industries develop,
91
either in association with or
in competition with imported manufactured goods. It is a period when industry
begins to be established, despite competition from foreign rivals, either by
paying lower wages than those paid by firms abroad, or because of particular
local advantages that it enjoys.
3. The third phase is one in
which a country's industries dominate the home market, though not always
completely.
There is a fourth period of development for both agriculture and
industry, in which either all the raw materials - or part of the raw materials
and foodstuffs - that a country requires are imported from foreign countries.
Manufactured goods are exported in exchange for the raw materials and
foodstuffs.
It might appear paradoxical that agriculture should have reached a more
advanced stage of development when a country imports raw materials and
foodstuffs than when it monopolised the home market. But the truth of our
assertion will be evident to readers of our earlier chapters.
A country which imports raw materials and foodstuffs is one which is
expanding its industrial capacity. It is a country in which costs of production
are declining and in which industrialists are able to produce far more
manufactured goods than the home market can absorb.
Such a country is far better placed than it would be if it restricted
the flow of raw materials and foodstuffs from abroad and artificially raised
the prices of agricultural produce at home by imposing prohibitions and high
duties on imports. Such a country can provide far more employment than
agriculture alone can provide for factory managers, skilled workers, and
merchants. Isolated houses give way first to villages, then to hamlets, then to
little towns, and then to great cities which double and even treble their
houses and population.1
The construction of new highways and canals leads to an increased
demand for building materials, fuel, and consumer goods of
1. [List
has seen for himself in the United States how rapid economic growth stimulated equally rapid urban
growth. In 1829 he wrote: "Some time ago, after an absence of six months,
I again visited Philadephia. I found quite new
streets and suburbs.
The reason for this was the phenomenal expansion of agriculture which had
stimulated a demand for manufactured goods. These developments were fostered by
the existence
of many natural and artificial means of communication". F. List, Mitteilungen aus
Nordamerika (1829), reprinted in F. List, Werke,
Vol. Ill
(Part 1), p. 133.]
92
all kinds. The growth of new
villages and towns, providing fresh markets for farm produce, follows the
opening up of quarries, kilns, coalmines, or peat works. Farmers can now buy
coal or peat instead of trying to obtain them from their own land in a
primitive fashion. Numerous workers are employed in erecting buildings of all
kinds and in constructing roads and canals. The demands of these workers
stimulate the output of the farms in the district.
Gardens are converted into building land; open fields are turned into
vegetable gardens and orchards; meadows and woods come under the plough. These
changes are brought about by the continually growing demand for more agricultural
produce. Part of this demand may be met by imports from abroad but this will be
only a small part of the total new demand for milk, eggs, butter, vegetables,
potatoes, and fruit as well as for oats and straw for farm horses and riding
horses. Above all meat, vegetable oils, and dyestuffs are in great demand. When
communications have been improved and farmers have been brought into closer
contact with their customers the farmers in a country will have a distinct
advantage over their foreign competitors in the home market because foreigners
will have to pay more for transport, storage, and insurance. Local farmers will
therefore secure the lion's share of the local market in the products that we
have mentioned.
By concentrating on these products the farmers will be able to increase
their output, earn larger profits, and give employment to far more labourers
than would be possible in the relatively backward types of farming
characteristic of the earlier stages of agricultural development - when, for
example, farms existed which did little more than breed draught animals.
If the government of a country were to adopt a policy of restricting
imports of raw material and grain, it would be impossible for agriculture to
reach the most advanced stage of development and it would also be impossible
for the industrialists to increase the sale of their manufactured goods abroad.
It has been argued that it would be a mistake to allow industry to grow
to such an extent that it became absolutely dependent upon imported raw
materials and foodstuffs and upon foreign markets for the sale of its
manufactured goods. It has been argued, too, that such a dependence upon
foreign countries is dangerous because both imports of raw materials and
foodstuffs and exports of manufactured goods may suffer from interruptions to
trade owing to
93
commercial crises or to the
hostile tariffs of foreign countries. There is no need for anyone to worry on
this account. A nation which has reached the most advanced stage of industrial
and agricultural development will never lack either the means or the power to
overcome difficulties of that kind. Anyone who is afraid of the future
because of trade slumps or hostile foreign tariffs is like a man who refuses to
walk on two legs because he is afraid that he might wear them out.
Domestic
and foreign commerce affects the exchange
of the output of agriculture and industry. Merchants seek markets where there
is a demand for particular manufactured goods or farm produce. They arrange the
necessary transport facilities and they are responsible for collecting debts
due to producers. In addition they provide credit and arrange for the storage
of products that cannot be sold immediately. In this way merchants assist in
the process of production and help to maintain the balance between output and
consumption. They are able to cope with the situation if the harvest is either
too big or too small.
There are those who define trade as the link between producers and
consumers. In fact .merchants have two functions. First, as we have explained,
they facilitate the exchange of the output of various branches of agriculture
and industry. Secondly, thevjink those who produce
material goods with those - for example, officials, artists and retired people
- who are only consumers.
To appreciate fully the productive powers of commerce we must
concentrate our attention upon the principal function of merchants which is to
link the two main economic sectors - agriculture and industry. An examination
of the functions of commerce leads us to draw the following conclusions:
1. Strictly speaking merchants are not producers. They only
94
foster the production and
consumption of manufacturers and farmers.
2. Commerce expands and declines as industry and agriculture expand and
decline.
3. If industry and agriculture flourish because their home market is
protected, commerce flourishes to the same extent. It can be proved that
internal trade is from five to ten times as great as foreign trade in a country
in which industry and agriculture have reached an advanced stage of
development.
4. Only insofar as foreign commerce promotes a country's industry and
agriculture can it be allowed to operate freely. Only in those circumstances
can it be considered useful to a country's economic development.
5. It has been shown that foreign trade can sometimes have harmful
effects upon the development of a country's agriculture and industry. When that
happens a country would injure its own economic interests if it failed to check
these harmful effects by imposing suitable restrictions upon foreign commerce.
6. In a country in which industry has reached an advanced stage of
development, internal trade is far more important than foreign trade. And
foreign trade expands or declines as the industry of a nation expands or
declines. As we have shown in earlier chapters, common sense tells us- and the
experience of all countries confirms the fact - that the growth of a nation's
industries is accompanied by a corresponding expansion of its imports of raw
materials and foodstuffs and its exports of manufactured goods. In a predominantly
agricultural country - even if complete free trade has been established - the
total value of foreign trade is quite insignificant in comparison with the
value of the imports and exports of a highly industrialised country, even if
that country has placed tariff restrictions upon foreign commerce.
7. By expanding and developing its industries a country can increase its
independence, power, and prosperity. When this happens it is above all foreign
trade that benefits. The very existence of trade with other countries depends
upon the protection which the government is able to give it against foreign
rivals. The foreign trade of a country faces ruin if it cannot rely upon
support from a strong national government.
8. In the absence of a growing industry and in the absence of government
support the foreign trade of a nation - like other
95
aspects of the economy - is
left to the tender mercies of any foreign
country that chooses to take arbitrary action against it. In these circumstances foreign commerce is
defenceless against such arbitrary
acts and - even in peacetime - can become virtually a sort of satellite
dependency of a foreign power.
9. In
wartime the trade between belligerents is completely destroyed and utterly ruined. Merchant ships lie at anchor in their
harbours, merchant seamen seek employment abroad, and master mariners find work on the land. The capital
invested in foreign trade
either earns no profits or is
transferred abroad. Merchants who in vest their capital in factories which prosper
because of the war find themselves in a paradoxical position. The very men who
before the
war sang the praises of free trade
now that hostilities have ceased find
themselves supporting the introduction of a tariff to safeguard the capital
that they have invested in manufacturing enterprises. An advanced industrial state, however, is in quite a
different position with regard to
foreign trade. Supported by a strong navy, such a country will soon find new markets abroad to
replace those which
have been lost for the time being.
And even if some capital, former ly
devoted to foreign trade, can no longer find profitable employment
abroad, there are a thousand opportunities for new safe advantageous investments in prosperous local industries at home.
10. Merchants engaged simply in transit trade have both
feet in foreign states and their
activities need to be considered only if they
stimulate home industries, only if the commissions that they earn are used for
the benefit of the country as a whole, and only if one can hope that the profits which they earn
will one day benefit the nation. Compared with internal commerce one should
always regard foreign trade as an alien intruder in the national
economy. Merchants engaged in foreign trade
should never expect a government to favour their views and aspirations. Least
of all should they expect the state to make any sacrifices on their
behalf.
In view of what has been said it is clear that there is really no clash of interests as far as commerce, agriculture
and industry are concerned. Merchants have no right to put forward
claims for special treatment, which would
be injurious to a country's agriculture or industry. It is quite unreasonable
to regard freedom of trade in an isolated fashion as if commerce were an
independent factor in the economic process. In fact commerce is no more than a
link between the various productive forces in society.
96
No clearer proof of our
argument can be given than the one already put forward in chapter 14 where we
suggested that a country should be regarded as a united society in which goods
belong to all its members. If this point of view is accepted, we can ask the question:
To what extent can merchants be regarded as producers in view of the fact that
they are concerned simply with recording, storing, dispatching and distributing
goods? Will their business not increase to the same extent as the output of
agriculture and industry? Would not the merchants themselves condemn a country
for its folly if it exported wool and imported woollen cloths containing only a
quarter of the raw wool sent in exchange? Would not the merchants admit that it
would be just as foolish and reckless to export cereals and to import flour and
bread in return? Would not such a policy be even more foolish if the manpower
and the skill were available to establish cloth mills and if agriculture
produced a surplus of food with which to feed the factory workers? Could the
merchants who formerly exported wool and imported cloth have the slightest
justification for criticising the government for bringing these harmful
transactions to an end? And if they did put forward such an argument one would
give the following reply: The industry of a country can produce four times as
much cloth in its own factories as was formerly imported. In this situation the
merchants will benefit because there will be a very substantial increase in the
registering, the dispatching, and the distribution of goods at home because
everybody will be consuming twice as much cloth as before. In addition half of
the cloth will be worth twice as much as the wool that was formerly sent
abroad. The country will gain not only by exporting cloth but it will also gain
twice as much as before from its imports. This is because it will be possible
to export cloth in exchange for goods twice the value of those formerly
imported in exchange for raw wool. It follows that the merchants engaged in the
export-import business are not to be regarded as useless members of society. On
the contrary, in the circumstances that we have mentioned, their usefulness to
society has actually doubled.
There is only one case in which export-import merchants would have a
right to object to measures taken to protect industry. This is if a nation does
not yet have a sufficient manpower to produce the wool or to manufacture cloth
successfully in comparison with the country from which it has been accustomed
to buy cloth in exchange for wool. In such circumstances the nation would no
doubt be better
97
clothed if, at any rate for
the time being, it continued to produce wool and to exchange it for cloth.
This is so obvious that the failure of merchants to appreciate the situation
would be truly astonishing were it not for the fact that the interests of
commerce in general are very often different from the interests of individual
merchants. In our next chapter we propose to discuss this difference and to
elucidate its results. At this point, however, we wish to guard against any
suggestion that we have failed to be objective by stating categorically that we
fully appreciate the importance of commerce for the development of a country's
productive powers and cultural progress.
It is by commerce that new products appear on the market and that new
demands for consumer goods are created. To secure these goods primitive peoples
become accustomed to work and this in turn leads to progress in morality,
religion and law. It is the merchant and not the missionary who stimulates
backward primitive peoples in their advance towards a more civilised
existence.
It is the merchant who fosters the development of agriculture which, but
for his efforts, would continue to languish in the most miserable fashion. It
is he who prepares people to enter a new stage of economic and social
existence. It is his efforts which strike at the very roots of prejudice,
fanaticism, physical and intellectual idleness, the harmful privileges of
nobles, and the arbitrary rule of despots. He gives primitive peoples the will
and the ability to improve themselves, because he provides them with new goods
and so awakens in them the desire to make these goods themselves. He also
provides them with the means to introduce and to develop their own domestic
industries.
Only during the transition from the second to the third stage of
agriculture do the activities of certain merchants clash with the interests of
society as a whole. In the fourth stage of agriculture, however, the interests
of merchants and of society once more coincide.
In the early stages of economic development, commerce encourages the
growth of a country's productive powers and helps to bring them into closer
association with each other. Later on commerce will actually succeed in
completely uniting a nation's productive powers.
Free trade is no idle dream. With the triumph of reason it will be
universally established and then all peoples on earth will achieve the
98
highest degree of physical
and cultural well being. This, however, can happen only when all countries have
reached the same stage in their economic, moral, social, and political
development. Moreover it would appear that if the world is divided into large
national units, this process of unification will be hastened to a successful
conclusion.
Only
those who work on the land or in industry
produce something that did not previously exist. Their activities are
therefore necessarily always beneficial to society as a whole. (There is one
exception to this.) The interests of particular producers may be very seriously
injured if their output is too large and if a surplus of goods is thereby
created. A temporary slump occurs whenever the supply of a particular product
exceeds the demand.
A merchant's business is not affected in the same way. He himself
produces no consumer goods. He simply gives a value to existing goods by
bringing them to market. His object is simply to make money by exchanging
products and it is quite immaterial to him if this exchange harms the
productive powers of a nation or of the whole world.
But a merchant should not be criticised for being indifferent to the
harm that he may inflict upon a nation's productive powers because these
activities are an integral part of his business. It is in the nature of things
that he must buy in the cheapest market and sell in the dearest. If all the
farmers in a country decided to dig up their fruit trees and to export them, no
merchant would have any scruples in handling the transaction, always provided
that a profit could be made on the deal. Indeed, if it were possible, he would
export the very soil in which the trees were growing. And having looted the
last
99
scrap
of earth he would take ship to another country and continue his business there.
A merchant would have no scruples in selling factories to foreigners. In the event of a slump a merchant -
true to the principle of buying in
the cheapest market and selling in the dearest - would be quite capable of raising capital by selling an
industrial enterprise in his own
country and using the money by buy cheaply in a foreign country goods
that their owners were forced to sell as trade was depressed. The merchant could then dump these goods in his own country
and condemn thousands of workers to unemployment and starvation. The tragic consequences of his
actions would cause him little
concern. As a supporter of the theory of value he carries on his business
with the sole object of making a profit at the end of the year. If he feels it necessary to excuse his
conduct he resorts to a platitude and simply argues that the misfortunes that
he has helped to bring about are due to circumstances beyond his control.
If he cannot profit from his country's
prosperity a merchant will speculate on its misfortunes such as famine or war. He profits from the export of beasts essential
for farming. He profits from the sale of the machinery and stock of bankrupt industrial
enterprises. He profits from the emigration of factory managers, and unemployed
urban and rural workers. He even
profits from the sale of arms to his country's enemies. He speculates and makes
money by engaging in all these dubious
activities. He poisons entire nations and
communities with his brandy and still continues to proclaim his adherence
to the policy of "laissez faire et laissez passer".
A true story is told of a pious Quaker, well
known for his high moral
sentiments and sound religious principles. When his ship was captured and was found to be
packed with arms for the enemy, the captain who had taken him prisoner rebuked him for his
lack of patriotism. The Quaker
angrily replied: "What do you mean, Sir? I
am a merchant and I would go to hell if my business took me there." That is how the mind of a merchant
works. Neither religion nor morality can change his true character.
It is in the very nature of things that a
merchant should defend absolutely unrestricted freedom of trade in this way, even if his
actions are utterly at variance with the interests of commerce in general. If a fox were a member
of a legislative assembly he would protest that it would be an infringement of
natural law to pass a bill forbidding
the consumption of poultry and pigeons.
100
The merchant appeals to "natural law" to condemn anything
which hampers his business. He thinks that there is nothing wrong in a man of
honour engaging in smuggling. Indeed he actually flatters himself that
contraband trade is a proper and honourable way of enforcing the "natural
law" that society has broken.
To such an extent are merchants debased by their determination to make a
profit at any cost that not only individuals but groups of merchants - such as shipowners, shipbuilders, and insurance companies - will
unite to make money out of the thousands of people and the millions of francs
worth of goods that are lost at sea every year. These men are thieves and
robbers.
It will need the intervention of a statesman of high character to ensure
that any clash of interests between the mercantile community on the one hand
and a nation, society, or humanity on the other is resolved in favour of the
latter.
It has been repeatedly
observed that merchants engaged in foreign trade will inevitably side with their
country's enemies as soon as they see that such a course of action will benefit
them financially.
A merchant, unlike a philosopher, is no citizen of the world. If his own
country sinks into a wretched and shameful state of bankruptcy and slavery, a merchant
will take himself off to a foreign country with all his possessions. Merchants
deserted Venice, Portugal, and the Hansa Towns as
soon as these states declined. Adam Smith has no illusions concerning the
behaviour of merchants (see Book III, chapter 4).1
Measures of state control designed to maintain the quality of
manufactured goods which are exported are advantageous to commerce in general
but they are detested by individual merchants who complain bitterly of any
interference in their business and reiterate their demand for a policy of
"laissez faire et laissez passer". Commerce in general obviously
benefits from canals and railways and
1. [The passage which List
had in mind was probably the following: "A merchant, it has been said very
properly, is not necessarily the citizen of any particular country. It is in a
great measure indifferent to him from what place he carries on his trade; and a
very trifling disgust will make him remove his capital, and together with it
all the industry which it supports, from one country to another. No part of it
can be said to belong to any particular country, until it has been spread as it
were over the face of that country, either in buildings or in the lasting
improvement of land ... The ordinary revolutions of war and government easily
dry up the sources of that wealth which arises from commerce only" (The
Wealth of Nations, Vol.1, pp. 373-4 (Everyman edition)).]
101
merchants normally are
strongly in favour of their construction. But he loses all interest in the
project as soon as he becomes a shareholder in a canal company or a railway
company. Now he is interested only in making a profit from a rise in the value
of his shares.
It is evident that a yawning chasm frequently exists between the
interests of a particular merchant and the interests of commerce in general.
One cannot strike a balance of commercial gains and loss from a national point
of view by examining the profits and losses of individual merchants. Indeed
commerce in general can be threatened and can be destroyed root and branch
although at the same time some of the merchants engaged in foreign trade are
making handsome profits. While commerce flourishes if a nation's productive
powers are growing, an individual merchant prospers by making money, and - as
we have seen - he can actually profit from the decline and fall of his native
country.
It is by confusing the theory of productive powers with the theory of
value that economists, who support free trade, have taken over the merchants'
principle: Laissez faire et laissez passer. As we have shown in chapter 19 the
principle should often be reversed. The more foreign manufactured goods fall in
price during a slump, the more dangerous - in the national interest - is it to
buy them owing to the danger of ruining our own factories. In such
circumstances it is vitally important to levy high import duties on these
products. Merchants on the whole demand "freedom" in the very widest
sense - illegal and harmful freedom as well as lawful and useful freedom. But,
in comparison with manufacturers, they cannot do very much to promote the
development of freedom and the progress of science.
It is in the very nature of things that a manufacturer
should sharpen his intellect by making a thorough study of the business in
which he is engaged. And he takes a real interest in the progress of science,
technology, and art. A merchant, on the other hand, concentrates upon
arithmetic, double entry, and the state of the stock market and these are
topics which are hardly likely to elevate the spirit or improve the intellect.
The interests of those who
work on the land or in the factories are identical with those of the entire
nation but the closer a merchant lives to a frontier the more is he drawn
towards a foreign country. A merchant becomes a true citizen of his country
only when he owns
102
land or property or a factory
or when he becomes associated with some industrial enterprise.
One of the main reasons why a merchant always opposes the imposition of
any import duty is his great reluctance to give up a branch of business with
which he is familiar and to embark upon a new sort of business with which he is
not familiar.
But the very merchant who argues that it is difficult and inconvenient
to make such a change does not hesitate to tell an unemployed factory
operative that he ought to find work on the land, although this is undoubtedly
much more difficult to do than it is for a merchant to transfer his capital
from foreign trade to commerce and industry at home.
The most remarkable characteristic of the merchant who is mainly
involved in the sort of commercial transactions that endanger the productive
powers of his country and who is the sworn enemy of monopolies, privileges,
restrictions and tariffs to protect what he calls "private industry"
is the very person who leaves no stone unturned to secure for himself such aids
from the state as soon as they happen to coincide with their own private
interests.
He insists that the interests of the fishing industry must be safeguarded
by premiums and by other measures of protection. He loudly demands the passing
of Navigation Acts whenever foreign competition appears to threaten the
prosperity of a country's mercantile marine. He appeals to his government to
send gunboats to every sea to protect his ships from pirates and from hostile
foreign merchants. He calls for the appointment of ambassadors in every foreign
capital and of consuls in every foreign port to watch over his trading
interests.
He cannot deny that a navigation code has turned the smallest sea power
into the largest and most formidable in the world and he uses this fact to
support his demand that his own government should adopt a navigation code. Yet
at the same time he is quite capable of denouncing as unlawful and ineffective
any attempt of the state to bring prosperity to industry by establishing a
tariff. He seems unable to grasp the fact that a navigation code imposes severe
restrictions, while premiums and import duties which protect the fishing
industry are no different in principle from a tariff which protects industry.
There are merchants who demand that a government should devote the
greater part of the budget to the maintenance of a fleet,
103
but who also complain
bitterly that it is scandalous to spend a lot of money in setting up an
efficient customs administration which - so they say - is as absurd as it is
harmful to the welfare of the state. Merchants engaged in smuggling have the
effrontery to declare that the existence of a contraband trade proves that tariffs
are not only ineffective but also unnecessary.
Their private interests turn merchants into citizens of the world and
they make common cause with universal philosophers against a nation's own
industries. These are strange bedfellows indeed.
Once more we reject the
criticism that we have drawn a caricature of the truth. It is our intention to
stick to the truth. We have described the merchant as he really is, as he can
be, and as indeed he must necessarily be - unless a country deliberately sets
limits to his lust for gain.
Merchants are the most faithful disciples of the theory of value. They
invented the principles "laissez faire et laissez passer" and
"buy where you can buy in the cheapest market". The cosmopolitan
economists find that merchants are their most ardent followers and spread their
doctrines with the greatest enthusiasm.
And so the doctrines of Adam Smith and Say must be regarded as the true
"mercantile system" - an economic theory which places the interests
of those merchants who import foreign manufactured goods above those of
commerce in general. It is a theory which stresses only material wealth and
ignores productive powers. It is a doctrine which sacrifices a country's future
economic power, political greatness, and cultural progress in order to deceive
people into believing in the "truth" of a principle which is in fact
based upon the most despicable egotism.
It is indeed strange that those who most passionately denounce what they
choose to call the mercantile system have in fact invented a real mercantile
system all of their own - a system which exalts the hawker of foreign goods and
actually includes the activities of the smuggler in the science of economics.
104
The
advantages of tariffs are as follows:
They awake the spirit of enterprise in a
country. They encourage young people to attend technical schools and to
travel abroad to complete their studies.
They encourage workers to give up existing jobs and to devote themselves for the rest of their lives to a
new occupation -after first acquiring
the necessary skills - even though success in the new job cannot be guaranteed. Tariffs safeguard
the industrial enterprises of entrepreneurs who take risks and have no means of
knowing if they are going to be a
success or not. Tariffs encourage capitalists,
manufacturers and skilled workers to migrate to our country bringing with them their money,
machinery, and technical knowledge. Tariffs enable new factories to
reach at a stroke the same degree of
efficiency as most advanced enterprises abroad. They make it possible for these factories to make goods of as high quality as those produced in more advanced
industrial countries. Tariffs give to entrepreneurs as large markets and
as many customers as those enjoyed by foreign factory owners.
The drawbacks of tariffs are that they create thousands of customs officials in our frontiers; they restrict
complete freedom of trading; and they
impose upon citizens the inconvenience of having their premises searched. Even in time of peace tariffs stop friendly
foreign countries from sending us their manufactured goods as if they
were infectious diseases. And to some extent tariffs lower the moral standards of those who live near a
frontier by putting temptation in
their way to break the law. If anyone could suggest how the advantages of a tariff can be secured
without the drawbacks we would be delighted to support such a proposal.
1.
[List's note] Say writes as follows on tariffs (Traite,
Part I, p. 251): "What would one say if customs duties were levied on
clothes and shoes at every front door so as to force the happy householder to make these
things for himself? ... That is the tariff system pushed to its logical conclusion".
Our comment is that a nation is no shoemaker.
105
Unfortunately the advantages of a tariff can be secured only if we are
prepared to put up with the drawbacks. There are many ways in which
industrialisation can be promoted. They include the establishment of technical
schools; the granting of financial assistance to enable scientists to travel
abroad; the holding of industrial exhibitions at which new inventions can be
shown; the establishment of companies to promote industry and internal
commerce by regulating rivers and by constructing highways, canals, railways
and steamships; the granting of honours to those who advance scientific
knowledge or establish new industries; the payment of generous subsidies for
new industries, new processes, new plants, and new efficient factories; and the
granting of state loans to industrial enterprises. But all these measures will
have little effect unless they are supported by a tariff.
Do not attempt to refute these arguments by pointing to Switzerland
(which has developed its industries without a high national tariff). The great
security of persons and property and the considerable measure of political
freedom have for centuries favoured the development of industries in that
country. Although in comparison with modern constitutional developments this
freedom may appear to be somewhat out of date it has nevertheless enabled
Switzerland to enjoy certain economic advantages which its neighbours have -to
their cost - not enjoyed.
Moreover the reformation in Switzerland to some extent stimulated advances
in industry, education, morality, thrift, and other aspects of human progress.
The existence of political and religious freedom has enabled Switzerland to
attract the money and the skill of persecuted Germans, Frenchmen and Italians.
And the great reserves of capital - material and intellectual - which
Switzerland has acquired over the centuries have never been dissipated by wars,
persecution, despotism or high taxes.
Stimulated and developed by political and religious freedom, the spirit
of enterprise and competition in Switzerland - coupled with the influence of
society, family, and schools - has enabled those who could not make a good
living at home to succeed abroad in any enterprise that they might undertake.
With new skills at their disposal and with plenty of money in their pockets
they would eventually return to the open skies and the mountains of their
native land, where Swiss industry and society would gather the fruits of their
sojourn abroad.
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Since nature has not blessed Switzerland with a
rich soil, her skilled and unskilled workers have been forced to seek their fortunes
abroad and a considerable part of the population has been encouraged to devote itself to
industrial pursuits. On the other hand Switzerland has been blessed with low wages,
modest taxes, and a superfluity of water power. Much foreign capital has been
invested in the
country and many immigrants, from all parts of the world, have brought their knowledge and skill with them. All
this has greatly stimulated the industrial development of Switzerland.
The growth of manufactures in Switzerland has
also been stimulated by the profitable
exchange of Swiss industrial products for the
raw materials and foodstuffs of neighbouring countries. Moreover it has
been easy for the Swiss to ignore the prohibitions of adjacent states and to
smuggle their manufactured goods across their frontiers.
Much of Switzerland's output of industrial and agricultural products has
been protected from foreign competition by the activities of gilds and other corporations, by the simplicity and stability of the manners and customs of the people
- free from the bad influence of the
luxurious courts of princes and nobles - and by the existence of a
traditional way of life that has survived for centuries.
Commerce both at home and abroad has been
stimulated by the ability
of the Swiss to speak the languages of all their neighbours. They have been able to use new
machinery and processes originating in these countries. Finally it may be observed that the money brought into the country by the
many travellers who visit Switzerland contributes to the welfare not only of
the rural population but of the
whole country.
Tariffs are doubtless a very great nuisance but
they should be regarded as the lesser of two evils, just as the maintenance of
a standing army, the construction of
fortresses and war itself are lesser evils
when compared with the loss of a people's sovereignty and nationhood.
We repeat what we have observed in chapter 10.
The imposition of a
tariff should not be regarded as something discovered by economists or bureaucrats. It should be seen as the
natural and inevitable consequences of international tensions and rivalries. There are despotic rulers whose sole object in
life is to promote the growth of their political and financial power,
without caring how
107
much their subjects suffer. These despots have been
forced to impose tariffs and to follow the same policy as democratic governments
freely elected by all the voters. Such administrations find that they have no
option but to adopt the policy of protection so as to cope with a situation in
which the home market has for a long time been dominated by foreign
competitors. And this has been done despite the fact that American economists,
almost without exception, have strongly advocated the merits of the
cosmopolitan doctrine of free trade. The Americans, like the Germans, have
appreciated that they cannot move forward a single step without the aid of a
tariff and the doctrinaire economists have been forced to eat their words to
such an extent that their theories eventually collapse in irreconcilable
contradictions.
Even
Britain, the leading industrial state in the world - which would derive the
greatest advantage if universal free trade were adopted - has not been
persuaded by her cosmopolitan economists to give up the policy of tariff
protection. Her excuse to foreign governments is that the revenues raised from
existing import duties are not sufficient to meet the requirements of the
budget, but debates in Parliament make it clear that all recent changes in the
tariff have been motivated by a desire to protect English industries. Other
countries - duped into lowering their import duties - have discovered after
careful reflection how ridiculous is Britain's excuse for not adopting free
trade. Foreign governments realise that as far as they are concerned it hardly
matters why Britain reduces her purchases from abroad. It may be to secure a
favourable balance of trade or it may be to strangle the growth of foreign
industries. But she will still draw a large revenue from import duties.
On the other
hand in the existing state of international trade it is the policy of
protection that will eventually lead to the establishment of free trade. This
is apparently a paradox but it is true. Experience shows that highly
industrialised nations always - or nearly always - abuse their superior
position in relatively backward countries. So long as the less advanced
countries do not object to this shameful treatment, the arrogance of the
advanced nation will know no bounds. But as soon as the weaker states begin to
defend themselves the more powerful nation will adopt a more reasonable policy.
Experience tells us that the bully who gets a thick ear from his victim soon changes
his tune.
A tariff is
not only a method of protecting home industries. It is
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also a weapon with which a
nation can defend itself against every arbitrary aggression on the part of
foreign states. A nation which is protected by a tariff can defend itself by
threatening to retaliate if it is in danger of
being harmed by the economic policy of another country. Such a threat will lead to the immediate removal of the danger or it will lead to the conclusion of a
commercial treaty which will regulate the trade of the two countries to the
advantage of both.
There
are TWO methods by which industry
may be safeguarded from foreign competition.
One is to stop the importation of foreign raw materials, foodstuffs, and manufactured goods altogether. The other
is to impose such high duties upon imports that native industrialists
are given a distinct advantage over foreign competitors.
The first method of safeguarding industry is the most efficient method
of achieving the desired result, provided that a check is maintained upon
products which have already entered the country and are in
circulation. But this has a serious drawback because the personal freedom of the individual is violated when customs officials
search his home for contraband. It is also alleged that this type of protection stifles competition at home and encourages slackness among manufacturers. The second
safeguard for manufacturers - the imposition of import duties rather than
prohibitions - has the advantage that it permits sufficient quantities of
foreign goods to enter the country to allow people to buy certain products not
made at home and to encourage some competition between native and foreign manufacturers. This method of safeguarding the interests of manufacturers does not disturb the
exchange of goods
109
within a country and saves
people from the risk of having their homes searched for contraband. The first
method of safeguarding industry is called the "prohibitive system"
while the second is called the "policy of protection".
Which of these two systems is the best? In this there can be no doubt
that in the long run the prohibitive system is much less harmful than the
system of protection. It is true that a failure to engage in foreign trade at
all deprives a nation of the many advantages to be derived from having
commercial contacts with other countries. A state which adopted the prohibitive
system would be behaving in just as unreasonable a fashion as a hermit who cuts
himself off from all contacts with his fellows.
In practice, however, the situation is quite different. We have already
explained that the introduction of the prohibitive system is generally the
result of a war and has nothing to do with theories advanced by economists. The
prohibitive system ensures the continuation in peacetime of a state of affairs
that previously existed when two countries were at war. If a war has lasted for
a long time the industry of a country will have expanded considerably. Much
capital will have been invested in new factories which will be giving
employment to large numbers of workers. Millions of people will have invested
their savings, their skills - indeed their whole future -in various branches of
industry. The whole industrial strength of the nation, stimulated by the
absence of foreign trade during the war, will have expanded to an extent never
attained before. Suddenly peace is declared and immediately the country has to
face keen competition from a rival state with a much more advanced industrial
economy, supported by vast capital resources. The fiercer the onslaught of this
competition, immediately after the cessation of hostilities, the greater will
be the threat to the future prosperity of the whole industrial economy of the
less advanced country. In these circumstances it is self evident that a nation,
placed in peril in this way, will try to reverse the process and will endeavour
to return to the situation that existed during the war. It will isolate itself
as much as possible from its powerful rival. It will do this rather than
indulge in rash fiscal experiments which might endanger the future prosperity
of millions of its citizens. This is what happened in France at the time of the
Restoration after the collapse of Napoleon's empire. The French government
tried to introduce free trade, as far as this was possible, but very soon it
was horrified at the disastrous
110
consequences of this policy
and it quickly returned to a policy of prohibitions.
An economist, with any pretensions to the wisdom of a statesman, who
has grasped the true nature of industrial development must surely recognise
that - in the situation that we have just described - an application of the
theory of productive powers fully justifies the imposition of prohibitions. He
cannot escape this conclusion whatever abstract economic theories he may once
have advanced. At the end of the Napoleonic wars the first duty of the French
government was to preserve the economy as it existed at that time. Industries
had not developed sufficiently for the government to conclude that they were
strong enough to survive and to expand without the aid of a tariff. Just as all
industries had been protected during the war so all industries needed
protection after the war. These safeguards were needed until experience had
shown which industries could be permanently established and what degree of
protection would be required to ensure their survival. At first all that was
needed, in the interests of the whole economy, was to give every industry the
chance to prove that it could survive. It was clearly the duty of the
government, on grounds of public morality alone, to do this since - owing to
the war and to its own policy - it had promoted the creation of new branches of
manufacture. The government had persuaded people to risk their capital, their
technical knowledge, their skills, and their future prosperity in the new
industries. The establishment of these industries had certainly been of great
advantage to the nation during the period of hostilities. The manufacturing
enterprises had not only satisfied the requirements of the country but had also
created a new market for agricultural products at a time when farmers could not
sell their produce abroad. And the new industries have borne their share of
taxation and have increased the ability of the country to defend itself. So it
would have been not only the height of ingratitude on the part of the
government but also an act of political folly to sacrifice those industries as
soon as peace was declared. A nation which so abused the trust of its citizens
would suffer for it in the event of another war. If hostilities broke out again
the government could not hope to rely again upon the enterprise of men whose
trust had been shamefully abused. It is the duty of a government - and it is to
its own advantage - to retain the confidence of the citizens. Even those
branches of manufacture which may eventually fail and may not be
111
able to claim that permanent
tariff \. section for them is in the national
interest, could argue that they were being unfairly treated if they were left to their fate - left to collapse
completely - because unrestricted competition from abroad was allowed
the moment peace was declared. Even those
industries have a right to be treated with
the greatest compassion. If the government decides that they cannot be saved
from collapse it can at least postpone the evil day. The industry should
be allowed to run down gradually so that factory
owners and workers, whose livelihoods are at stake, can suffer as little as possible and can have an
opportunity of entering some other industry. Immediately after a war a
government cannot know which
industries will never prosper and will never add to the wealth of the
country. And a government cannot foresee the full extent of the damage that
would be inflicted upon the national economy by the introduction of free trade.
It cannot therefore decide what steps should
be taken to alleviate the harm that would be caused by the introduction
of free trade.
There are even weightier considerations which should be mentioned.
During the Napoleonic wars France diverted most of her material and intellectual resources to her war effort. Little could be done to promote those aspects of national life
which stimulate industrial production, such as technical education, roads,
canals, and river shipping. Only when the wars were over could the state
concentrate all its energies on stimulating the growth of manufactures.
Only then could vast human and material resources be brought together which had formerly been devoted to the war effort or which had been used by industry because they
could not be used by the army. When
the wars ended, both agriculture and industry could attract capital recently used for military purposes. Companies were formed to promote new manufacturing
enterprises and steps were taken to improve transport facilities and to
promote the expansion of the coal and iron industries. And in this period we find that representatives of agriculture and
industry secured representation in the French legislature.
In wartime all contacts with foreign countries
were interrupted since people could not travel or trade abroad. Only when the
war ended could the raw materials and
manufactured products that France required be purchased from abroad. Only then
could the French resume their export trade
in those manufactured articles in the
production of which French craftsmen excelled. Who could then
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foresee
the consequences for French industry of this resumption of international trade?
When peace was restored the French could travel
to England and could judge for themselves what industrial progress had been
made in that country
in the last twenty years. They could see how this progress had been achieved. They were fired
with the desire to introduce
into France the new processes, the new machines, and the new advances in technology. Only
when this had been achieved could France, under the shelter of her system of
prohibitions, hope to attract foreign capital
and skill to her shores.
What wise and sensible French statesman could
at that time have contemplated
giving up a fiscal system which, over a period of twenty years, had encouraged the growth of
industries of all kinds? How could he think of doing such a thing at the very moment when the
system of prohibitions was on the verge of achieving its greatest success? What fate would have
been in store for France if her industries had been sacrificed to unrestricted
competition from foreign
goods? And what would be the position of France today if that had been allowed to happen?
Only those entirely lacking in practical
experience - immediately the
Napoleonic wars ended - have regarded the adoption of the prohibitive system as a pernicious policy.
Certainly nothing worse could have happened to J. B. Say than to be appointed a
minister of state on the day that Louis XVIII was restored to the
throne.
Although the system of prohibitions was
undoubtedly necessary and useful to France immediately after the Napoleonic wars, it does not follow that this fiscal
policy will always be necessary and useful in the future. Although circumstances may make
it imperative that the
system of prohibitions should be established this system should be regarded as only a transitional
policy. The government should endeavour
to introduce a protective tariff as soon as possible. And the policy of tariff
protection is only necessary and useful if it is regarded as a step on the road
that eventually leads to the establishment of universal international free
trade.
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It
has BEEN seen that the system of
prohibitions is a natural consequence of long wars which interrupt peaceful
contacts between two great nations for many years. In the same way the policy
of tariff protection is a result of shorter wars. It may also be brought about
if a predominantly industrial state puts an end to a long established trade
with an agricultural country by adopting a hostile tariff policy.
There are many ways in which tariffs can encourage the development of
industries. Countries with different material and human resources and different
economies will require different tariffs. One type of tariff will be suitable
for a country which has previously had a prohibitive system while another type
will be suitable for a country which is reorganising an existing protective
tariff. One tariff will be suitable for a purely agricultural country, while
another will be suitable for a country in which various branches of manufacture
have already made some progress.
In order to explain how tariffs can be adapted to the requirements of
particular countries we shall imagine a state which has - or can secure - a
surplus of foodstuffs and raw materials such as wool and cotton. The social and
moral condition of this country and its political institutions are suitable for
industrial expansion. The country exports wool and cereals to an industrial
state and imports manufactured goods from that state. Let us suppose that the
industrialised country decides to impose high import duties on wool and grain.
In such circumstances the agrarian country would be forced to retaliate by
imposing import duties on manufactured goods from the industrialised state. The
tariff policy of the agrarian country would be influenced by the level of wages
earned by its workers. The government would have to consider if it would be
necessary to offer higher wages in order to attract workers to industry at a
time when there was still plenty of new land available for farming. In such
circumstances a government should favour the establishment of industries which
do not require a large labour force
114
but can be started if cheap
fuel and raw materials - and the necessary technical knowledge - are available.
On the other hand if a country produces cheap foodstuffs and raw materials and
the wages earned by its workers are low, the government should protect those
industries which provide employment to a large number of workers.
No country should try to promote the immediate expansion of all branches
of manufacture. At first - for the reasons that we have mentioned - it should
attempt to stimulate only those industries which have an assured home market
and appear to have the best chance of success.
Even these industries should not at first be protected by high import
duties. Such duties would not increase the revenues of the state and would be
oppressive as far as consumers are concerned. The best policy would be to start
with moderate duties and to raise them by a predetermined sliding scale until
they are high enough to assure the industry of a dominant position in the home
market. On each occasion that the import duty is raised there will be an
equivalent increase in the competition between manufacturers so that the price
of the manufactured goods will progressively decline. When this happens the
consumers will have no cause to complain of the import duties. As we explained
in chapter 16 the expansion of a country's industrial power is accompanied by
an improvement in the standard of living of its citizens. As soon as
manufacturers have secured a dominant position in the home market, the import
duty can be reduced on a sliding scale so that competition from foreign
factories is gradually allowed. This competition, however, should be permitted
to exist to only a limited extent. The appearance of foreign goods will
stimulate competition between rival firms at home. Foreigners should be allowed
no more than af air share of the annual expansion in
the demand for manufactured goods. Every nation which enjoys a harmonious
balance between industry and agriculture enjoys also an annual increase in
population and production, which automatically increases the demand for manufactured
goods every year.
But if, for any reason, circumstances change, a government should
reverse its policy. Suppose that foreigners succeeded in gaining more than
their fair share of the increased demand. Suppose that they were actually able
to supply all the increased demand and threatened to restore the situation that
existed before the
115
imposition of the tariff.
This might happen because, for some reason,
foreign manufacturers enjoyed a temporary advantage over home producers.
Owing to a trade recession, for example, they might
decide to get rid of their surplus goods at any price. If this happened
the government should promptly restore higher import duties until the former position was re-established. A minister of state should be empowered to do this without
waiting for the next meeting of the legislature.
These principles are undoubtedly valid
particularly when fixing import
duties on cloths made from cotton, wool, hemp, and flax since there is a huge internal demand for these products. A country with a large population employs at least a fifteenth
or a tenth of its people in satisfying the demand of the home market for
textiles. These industries stimulate agriculture by fostering an increased
demand for foodstuffs and raw materials.
We have explained in chapter 17 that the imposition of import duties on textile raw materials, such as cotton,
wool, hemp, and flax, will
eventually fail to produce the desired effects. As we shall show in chapter 25 the only way to deal with this
difficulty is to grant subsidies to home producers.
A country such as the United States which has
had a high level of wages
for a long time should not attempt to protect industries, such as the manufacture of silks,
which rely upon artistic patterns and upon
operatives who have considerable skill but are prepared to work for moderate wages. The success of the silk
industry depends upon skills handed
on from one generation of workers to the next. The United States should not
protect a silk industry of its own so long
as it can import silks in exchange for some of its own products. If an import duty were levied on silks it should
be regarded as a revenue duty on the rich. Large imports of silks will not harm
the productive powers of the nation. Indeed they will stimulate the production of the goods which are exported in
exchange for silks.
Pig iron and coal are imports of considerable significance. It is
desirable to consider very carefully if the natural resources of a country favour the opening up of coalmines
or the establishment of ironworks. If conditions are unfavourable there
is no point in levying import duties on coal or pig iron. The country should facilitate the importation of coal and pig
iron since they are materials which
are indispensable to the expansion of the economy.
But if the necessary natural resources are available, import
116
duties should be imposed upon
coal and pig iron, though they should not be
so high as to reduce consumption. The best policy would be for the state
to foster these industries by improving internal communications - canals and
railways - as much as possible. And if
there is not enough private capital available for the development of the mining
industry the state should itself invest in joint stock mining companies and it
should forego any dividend on its
shares so long as private investors are not receiving any interest on
their capital.
The principle that we have suggested for levying
import duties on textiles should be reversed
for iron goods. The less work that is done
on iron goods in the manufacturing process the lower should be the duty levied on imports. The more that is
done in the manufacturing process the greater should be the protection
afforded to such products. Iron is a raw
material that influences all the productive powers of a country. The less the
work put into the manufacture of iron products the more damaging and
dangerous are the consequences of making them more expensive.
An exception to this rule should be made in favour of plants making machines. If a country has industries
sufficiently advanced to require
large numbers of modern machines of various kinds but does not have the
engineering workshops which make them, it would
be foolish to impose high import duties on machinery. Such a policy would gravely endanger the future
productive powers of the country.
This argument is valid for a country which has just begun to establish
import duties to protect its new industries. Here too, as with mining, the state would be well advised to foster the establishment of joint stock companies to set up
model engineering workshops for the
construction of machinery. If a war were to break out these workshops
could be expanded and their output would meet all the country's requirements as
far as machines were concerned. All newly
invented machines should be allowed to enter the country for a certain period without payment of any import duty.
In general it may be observed that in fixing the rates of import duties to protect home industries it is important
for a government to consider the
level of prices and wages as well as the availability of capital and raw materials. The government should
also assess the efficiency of the
communications between its own country and the foreign countries with which it trades and with which it may have to compete.
117
The principles laid
down in the last chapter are valid only when applied to a country which has
just started to impose import duties to protect its industries. The position of
a country which already safeguards its industries by prohibitions but proposes
to change to the policy of protection is quite different. In view of the
fundamental principles already discussed it is clear that a sound tariff should
be instrumental in promoting the stability of the economy. Any sudden violent
change in the rate of duties, however well-intentioned, would be most imprudent
and contrary both to natural justice and to the welfare of society.
This applies
even to import duties on raw materials and foodstuffs which are bad in
themselves. If the state imposes these restrictions much capital and labour are
attracted to a particular branch of production. It is contrary to common sense
and to natural justice and it is contrary to the general welfare of the economy
for a state suddenly to withdraw these restrictions since this would involve
many people in grievous losses. Both capital and labour would be penalised with
disastrous results. The removal of such import duties should take place in an
orderly fashion. They should be reduced by annual instalments of a quarter or a
third until only a small duty is levied. This duty should be regarded as a
revenue duty payable by the foreigner, as an equivalent to taxes paid by home
producers.
A different
situation arises as far as manufactured goods are concerned. Before imposing
import duties on manufactured goods the government of a country should
undertake a thorough investigation to make sure that everything possible has
been done to secure the maximum advantages from the system of prohibitions that
can be achieved by an efficient and energetic administration.
Even if this
is not done it is still desirable to announce in advance the date on which an
import duty will be levied on particular manufactured goods, which were formerly
prohibited from entering
118
the country. It is only fair that interested parties
should be given this information so that they can make preparations in view of
the forthcoming change. The date should be fixed in plenty of time and in the
intervening period - long or short - the government should do everything
possible in its power to remove any obstacles that may be holding up the
expansion of a particular branch of industry.
It is also
necessary - in accordance with the principles suggested in the last chapter -
to give advance notice of the sliding scale which is to replace prohibitions.
The sliding scale should start with high import duties which should be reduced
every year until they reach a level which still gives home industry adequate
growth in demand for particular manufactured goods. At the same time, as we
suggested in the last chapter, the administration should be given the necessary
authority to increase import duties if, for any reasons, the country's
manufacturers were suddenly to be threatened by foreign competition.
The
following measures should be taken by an industrialised state in preparation
for the transition from a system of prohibitions to a policy of protection.
1. The
national transport system should be expanded to the fullest extent. This
includes canals, railways, roads, steam shipping, and river shipping. Tolls
should be fixed at a level that will stimulate industrial expansion in the hope
that the costs of construction will eventually be covered. They should not be
fixed at such a level as to raise immediately the funds necessary to pay
investors interest on the capital invested in these public works.
2. The
government should foster the extension of technical education to the best of
its ability. Technical and agricultural schools and colleges should be
established not only in the capital of a country but throughout the provinces.
The cost of building these schools should be defrayed by the provincial
authorities. They should be run under the supervision of provincial chambers of
commerce and agriculture and competition between them should be encouraged. The
Ministry of Education should exercise only a general oversight over technical
and agricultural schools.
3.
Restrictions upon the entry of raw materials and foodstuffs into a country
should, as far as possible, be reduced or removed.
4. Every
year the government should hold an industrial exhibition in which the best
foreign products and the best products made in a country should be shown side
by side - with prices indicated.
119
5. If a
government observes that manufacturers are producing goods lower in quality and higher in price than those made abroad and if
it is satisfied that this is the fault of the local industrialists it should offer substantial prizes as a reward to those
manufacturers who, within a specified period, are able to make goods
which approach those made abroad in quality and price. The ability to
manufacture such goods regularly should also be considered when awarding prizes. Acceptance of such an award
should be conditional upon a firm allowing workers employed elsewhere to visit
its factory so as to improve their technical knowledge.
6. Should a government decide that manufacturers have failed to make
products which are as good as those made abroad simply because they have not been able to secure the services of a sufficient number of hardworking skilled men it should offer
prizes to workers who reach a high
standard of technical skill. It should also offer prizes to firms which, in a particular period,
have succeeded in attracting foreign
workers of proven skill and reliability into their employment.
7. A government should make an annual investigation so as to establish which firms fail to reach satisfactory
standards of production and the results of the enquiry should be
made public.
8. The
Minister of Commerce should regularly send large numbers of experts in economics, in public administration, and in various
branches of manufacture to foreign countries in order to investigate particular industries or particular
aspects of agriculture. The experts should submit reports on their
investigations and should explain how their observations can benefit the
development of industries in their own country. These reports should be published annually as an encouragement to the
experts themselves and as a method of informing the public about economic
developments in foreign countries. Experts who do good work and who show outstanding ability in the performance of
their duties should be appointed to consular posts abroad or to posts in
the Ministry of Finance or other branches of the civil service.
9. It is essential that the workers of a country which is becoming industrialised
should be well paid and well fed. It is therefore necessary that the absolute necessities of life should be taxed either very
lightly or not at all. The worst imposts - taxes which are contrary to natural
law - are octrois (consumption duties)
levied upon the commonest foodstuffs, fuel,
soap, meat, and ordinary wine
120
and beer.' No worker can be expected to increase his
output if he is not getting sufficient nourishment. Roast beef and porter have
done more for the greatness of England than one might suppose. All English
parliamentary enquiries prove that the output of the English worker is two or
three times as great as that of workers in other countries. The influence of
the earnings of workers upon the prices of manufactured goods should not be
judged by the existence of a high or a low level of wages. It should be j udged by the relation between wages and output. If workers
are poorly nourished their children will be stunted and weakly and so the
productive powers of future generations will be destroyed. Moreover it is
unjust to place the same heavy indirect taxes upon those who can afford only
the barest necessities of life and those who are able to live in the lap of
luxury. The worst tax of all is that upon salt because it directly threatens a
nation's productive powers.
It would be
injudicious to make these proposals without also suggesting how to meet the
deficit in the national budget which would follow the abolition of all taxes on
the necessities of life. An income tax would bridge the gap. No one has yet put
forward a reasonable and sensible objection to the introduction of income tax.
Its opponents have been content to argue that there are insuperable practical
difficulties in assessing and collecting such a tax. This is true enough in a
despotic state but it is not true in a constitutional state. In a democratic
society the administration operates with the support of sound institutions and
patriotic sentiments. If each citizen made a declaration of his income - and if
this was checked by three different juries- a satisfactory assessment could be
made and nobody would have cause to complain about it.
It is
particularly important that octrois should
be abolished and that the lost revenue should be made good by imposing an
income tax. The removal of these consumption duties would help to reduce the
cost of manufactured goods and would be most beneficial to the workers.
10. A
government should do everything in its power to increase the currency in
circulation to keep pace with the growth of industry. It should also promote
the establishment of public credit institutions. It should encourage the
establishment of provincial banks all over the country and these banks should
be authorised to issue their
1.
[List's note] See Charles Dupin, Forces productives et commerciales de la
France (2 vols., Paris, 1827), pp.
61-73.
121
own notes.1 But great
care should be taken to ensure that these banks were
run on sound financial principles.
National
banks in the capital of a country, which have no branches in the provinces and issue notes only in large denominations, cannot adequately carry out the functions
of country banks or cannot carry them out at all.
11. The government should try to foster the founding of new companies but should endeavour to prevent any misuse
of this form of business organisation. It
should forbid the issue of bearer bonds and should make provision for the public inspection of the working of
all companies.
We REGARD ourselves as citizens of the world, but our
faith in humanity rests upon the solid
basis of nationalism. We can certainly envisage a situation in which a country would find freedom of trade preferable to a restrictive fiscal policy. We are
citizens of a nation before we are citizens of the world. We devote our
faculties to the energetic pursuit of the
culture, welfare, fame, and security of the nation to which we belong. We strive towards the same goal for humanity.
But the fortunes of humanity must be compatible with the fortunes
of our country. We cannot support any policy that would harm our country in order to benefit the whole world. This is because we owe to our country our culture, our
language, our livelihood, and our
intellectual values. Nature has implanted in our hearts the desire that
future generations should enjoy the same benefits from the nation as we enjoy
today.
A time comes when certain countries and regions are capable of
1. [In the same year that he
wrote The Natural System of Political Economy List submitted a
memorandum to Louis Philippe recommending the establishment of joint stock
banks to finance the construction of railways (F. List, Werke, Vol. V,
pp. 95-8).]
122
adopting a policy of free trade instead of a policy of
protection. We propose, however, that such countries should retain those import
duties which are necessary to compensate manufacturers for the burden of
taxation that they are expected to bear. The countries we have in mind are:
1. All
purely agrarian countries which - for reasons given in chapter 10 - are not yet
capable of developing industries even with the aid of a tariff. By trading
freely with industrialised states these agrarian countries can more quickly
develop their economies.
2. All
colonies, all primitive regions, and all backward barbarous regions.
3. The
leading industrial state in the world, because the high quality and the low
prices of its manufactured products enables it to dominate the home market and
to compete successfully in foreign markets.
4. Those
industrialised states of the second rank which consider that they are strong
enough to compete with the leading manufacturing country.
5. All
countries in the world as far as commerce in raw materials and foodstuffs is
concerned.
In this
transition period, as in previous transition periods, a government should work
out and announce in plenty of time a definite sliding scale for the reduction
of import duties. It should also be prepared if necessary to impose import
duties again if foreign competition should at any time threaten the nation's
industrial forces.
In this
connection the following observations may be made:
Import
duties levied purely for revenue purposes should never be levied at so high a
rate as to lead to a perceptible decline in consumption.
Export
subsidies are a miserable palliative which cannot remedy the injurious effects
of pernicious import duties on raw materials. Export subsidies direct to
foreign countries capital and industry which might be much more usefully
employed at home. Since they encourage fraud they are, from a financial point
of view, harmful to the state. Finally export subsidies are not only useless
and unnecessary but they force other countries to retaliate and to introduce
such subsidies themselves.
Restrictions
on the export of raw materials, foodstuffs, or manufactured goods cannot be
justified by logical arguments or on
123
economic grounds. Only in time of war can such
restrictions be justified.
A country
may derive real permanent advantages from companies
trading abroad, even though they sometimes fail to show a profit for their shareholders. This occurs when a
country has highly developed industries and agriculture but has so far
made little progress with regard to foreign
trade. Alternatively such a country may have lost its foreign commerce as the
result of a long war. In such
circumstances companies trading abroad are able to inspire -or to revive - a spirit of enterprise and they
can secure for a country valuable
information concerning foreign markets. But these companies do more harm than
good in a country which has not made much
progress in establishing industries or in a country which has already
developed a considerable foreign trade.
J.B. SAY has
inspired economists with such a horror of commercial treaties that we would not presume to raise a voice in favour of such agreements unless we were able to explain
the reasons for Say's views and to
show the weakness of his arguments. In fact Say is thinking only of agreements similar to the
Methuen Treaty.1 Such treaties
have always been found to have thoroughly unsatisfactory results and these results have been the exact
opposite of those which Say declares
follow the adoption of Free Trade. It is therefore easy to understand Say's
opposition to every kind of commercial treaty. He considered that all such treaties were useless because the results of
those concluded so far were inconsistent with his economic
1. [By
the Methuen (Anglo-Portuguese) commercial treaty of 1703 Portugal removed her prohibition on the
import of woollen cloth from England while England agreed always to admit Portuguese wines at
two-thirds of the duty imposed upon French
wines. See chapter 27 below.]
124
doctrines. Say's theory is of great value - except
that it has no practical application.
There are
only two ways by which Free Trade can be introduced. The first is to set up a
world state like the European empire that Napoleon tried to establish. The
second is for countries to conclude commercial treaties. Care must of course be
taken not to conclude treaties by which one nation enjoys the oysters while
another has to be content with the shells. Commercial treaties must give equal
advantages to all the countries which sign them. All countries must secure
guarantees for the future survival and prosperity of their industries.
France and
the United States are two countries which would benefit greatly from the
conclusion of a commercial treaty.1 It is very important for France
to maintain her market for silks in the United States because the population
and economic growth of that country are accelerating at such a pace that the
demand for silks will double, or more than double, every ten years. There is an
enormous potential demand for French silks in the United States. On the other
hand so long as wages are so high in the United States that country will not be
interested in establishing a silk industry of its own. This branch of
manufacture takes a long time to develop and requires the services of skilled
operatives who are satisfied with moderate wages. It is to the advantage of the
Americans to buy silks from abroad, in exchange for goods that they can
produce, rather than to attempt to manufacture silks at home. Again it is to
the advantage of the Americans - particularly those living in New England, the
Middle States, and the West - that France should accept in return for her silks
not only cotton, tobacco, and potash but also all kinds of farm produce.
Unfortunately France imposes very high import duties on cotton and potash
without thereby
1. [List had long been
interested in promoting trade between France and the United States. In 1827 in his Outlines of American Political Economy
he had written that France will
"ever be a good and sure market for American cotton". "There are
strong reasons to believe that
France would readily increase the importation of other products from the
United States, particularly tobacco, ham, lard, and tallow, if the United States would take proper measures to
increase their importation from France"
(reprinted in F. List, Werke, Vol.11, p. 154). In 1830 List had
undertaken a mission to Paris in the
hope of persuading the French government to enter into commercial negotiations
with the United States. See also F. List, "Idees
sur les reformes economiques, commerciales
et financieres, applicables
a la France" in the Revue Encyclopedique, March and November 1831 (reprinted in F. List, Werke, Vol.
V, pp. 59-91).]
125
conferring any benefits on the French people. And
France has a tobacco monopoly which greatly
limits the consumption of tobacco.
It is evident that France and the United States would both benefit from
a reduction in the onerous French import duties on cotton and potash. This would be in accordance with the doctrine
that we advanced in chapter [25?]. And if the French tobacco monopoly were replaced by an import duty this would almost
entirely compensate the state for the loss of revenue raised
from the monopoly. But such changes could
hardly be brought about except by the conclusion of a commercial treaty. It
would be easy to conclude a series
of other similar trade agreements which would be highly advantageous to
the countries concerned.
To pave the way for the conclusion of advantageous commercial treaties a world trade congress should be convened at
which all countries should be represented by experienced and well qualified experts. Such a congress should consider how the
common interests of the various nations can best be served and how opposing
interests could be reconciled. The congress should consider the
varied interests of regions and societies
at different stages of economic development - such as industrialised,
agrarian, colonial, and primitive
societies. It should examine the needs of countries which have reached the second or the third stage of
industrial development in relation to the world's leading manufacturing
country. It should consider the
economic relations between two particular countries and between certain groups of countries. The deliberations of the congress would provide information
to people all over the world
concerning economic problems. This would encourage governments and legislative
assemblies to adopt measures which would
be to the advantage of all countries and it would enable governments to enlighten the citizens of all
states on these matters. It would,
for example, be much easier for the British government to secure acceptance of the repeal of the Corn Laws
if this measure were to follow
discussions at a world trade congress. The discussions at the congress should cover all the matters
mentioned in chapter 17. These are topics which are of interest to all
countries. The deliberations of the
congress would throw light on the following topics - the advantages of
universal free trade in raw materials and
agricultural products; the advantages to be secured by all industrialised countries by agreeing to the
imposition of uniform import duties
on manufactured goods; the advantages of establish-
126
ing common measures to secure universal peace, public
order, and security of persons and property. Above all a world trade congress would facilitate the establishment of the freedom of
the seas since it would give the lesser mercantile countries an
opportunity to appreciate their real interest in this matter.
In chapters 7 and 8 we dealt with this aspect of the problem. We suggested
that France and the United States should, in their own interests, take the lead in calling a world trade congress. There are reasons to believe that a suggestion of this kind
would be supported by all the countries on the Continent. If these countries
collaborated it can hardly be doubted
that England, too, would send representatives to the proposed world trade
congress, if only to keep abreast with
what was happening. In chapter 7 we showed how powerful are the reasons
which might make England decide to adopt a liberal commercial policy. Here we may add that England's cotton mills have now become very dependent upon the United
States for their supplies of raw cotton.
The author
considers that the explanatory memorandum attached
to the question posed by the Academy1 justifies him in putting forward his proposal for the holding of a
world trade congress although this is admittedly a somewhat daring
suggestion.
He hopes that he has paid proper attention to all the points raised in
the Academy's memorandum:
"Will it be possible to establish Free Trade in wartime as well as
in peacetime by an international
treaty which - however incomplete -could still be regarded as a
great step forward in the progress of humanity?"
The great
principle of "free ships, free goods" has already been enunciated by
Catherine the Great of Russia and by George Washington. But so far it has not
been possible to secure the universal
acceptance of this principle. It is obvious - proof is hardly required -
that the universal acceptance and strict observation of this principle of international law would remove most of the disastrous consequences that war brings to all
branches of industry. The author can
see no way of achieving this aim unless the proposed doctrine of
international law is universally accepted.
1. [List's note] See Charles Dupin, "Sur le prix d'economie
politique relatif aux moyens d'etablir la liberte commerciale (December 28,
1836), [Reprinted in F. List, Werke (Schriften, Reden, Briefe) Vol. IV: Das
natürliche System der politischen Okonomie, 1837
(1971), pp. 39-44]
127
If, however, there came a time when the maritime powers of the second
and third rank were in a position to force England to accept the
doctrine of "free ships, free goods" it could be done only if they collaborated closely. The best way to secure
this co-operation would be through a world trade congress, as we have
already proposed. Such a conference would be
the simplest way of showing the nations on the Continent where their
common interests lay. Even if the nineteenth century should pass without the
doctrine "free ships, free goods"
being generally accepted, the twentieth century will surely see its
adoption.
When that time comes England will be the country to advocate the adoption of the principle and people will discuss
how best to check the arbitrary power of the United States of
America.
Adam smith and
his disciples have repeatedly asserted that England's commercial policy has not
been responsible for her present
prosperity. They argue that England became prosperous in spite of her commercial policy. Our own arguments
would fall to the ground if this were true. We believe that we can
reveal Adam Smith's errors. We consider that Adam Smith's biographer was right in complaining that this profound thinker
was prone to make paradoxical assertions.
Before the twelfth century England was a very poor and primitive agricultural country. Then the significance of her
flocks of sheep -the foundation of her
future prosperity - was increased by trade with the Hansa merchants who began to import manufactured goods from Germany, Flanders, the Mediterranean
countries and
128
the East. In exchange the Hansa merchants exported from England butter, lead, tin and particularly wool which was sent
in large quantities to Germany and
Flanders where it was spun and woven. Then some of the cloth was
sent back to England.
By the thirteenth century the export of wool - a thousand bales a year- had already given English agriculture its first
stimulus. But in Edward Ill's reign the government realised that
England could do better than to export wool in order to import cloth. Edward
III invited weavers from Flanders and
Brabant to settle in England.1 Political unrest in their own
countries led them to accept the invitation.
At the same time Edward III forbade his subjects to wear any garments
other than those made from English cloth.2
Following in
the footsteps of his predecessors, Edward IV ordered
foreign merchants to export English cloth to the value of the goods that
they brought into England. In 1463 he actually prohibited the import of all foreign cloths as well as many other products.3
The Hansa towns by force of arms secured the repeal of this
statute by the Treaty of Utrecht in 1474 but the manufacture of cloth was so
firmly established in England that fifty years later Henry VII was able to revive the statute. Once more foreign merchants
had to export English manufactured goods of equal value to the goods which they
brought to England from abroad.
In Henry
Mil's reign most of the descendants of the foreign artisans had raised the prices of all the necessities of life. Instead
of regarding this as a beneficial consequence of the activities of the artisans the King criticised them for placing the
country in danger of famine. He ordered 15,000 of them to be expelled
and he encouraged the Hansa merchants to increase
their imports by | restoring their former privileges.
This policy was greatly to the disadvantage of the English artisans. But the
former commercial policy was revived
first in Edward VFs reign and then - even more / vigorously - in the reign of Queen Elizabeth when
English artisans I
1.
[List's note] Rymer, Foedera,
p.496, De Witt, p.45 [List's reference to Rymer appears to have been taken from
David Hume, The History of England (12 vols, 1789), Vol. II, p. 523 ef. seq. and the reference to De Witt from Adam
Anderson, An Historical and Chronological Deduction of the Origin of Commerce (6 vols,
Dublin, 1790), Vol. I, p.402 et. seq.}
2. [List's note] 2 Edward
III, Cap V [i.e. 1328]
3.
[List's note] 3 Edward IV, Cap IV [List quoted the preamble to this statute in
a footnote to The National System of Political Economy, 1841 (edition of
1966, p. 17).]
129
not only gained control over the home market for their
ordinary rough cloths but were also able to export 200,000 pieces of cloth to
Germany and the Low Countries every year.
In James I's reign it was estimated that the value of England’s
cloth exports had reached the enormous total of £2,000 a year. This represented
nine tenths of all England's exports. At that time English cloth - manufactured
from the home clip – was priced and
welcomed in the chief markets of Europe. The expansion of the production of
wool and the growth in the number of spinners and weavers led to a remarkable
increase in the incomes of the landowners who were now prepared to promote the
progress and prosperity of the cloth industry. But in other countries at this
time the nobles had not yet begun to appreciate how the growth of industry
could promote the expansion of agriculture. In James I’s
reign English cloths exported to the Continent were still finished and dyed in
Flanders. The government, however, promoted the establishment of the finishing
process in England – as well as the manufacture of fine high quality cloths -
by prohibition and other measures.
By the
beginning of the eighteenth century England dominated the markets of Europe in
what was then the most important branch of industry. In 1703 the signing of the
famous Methuen Treaty enabled England to secure for herself a dominant trading
position in the Portuguese colonies. From time immemorial Portugal had
possessed a breed of sheep which produced wool of the very highest quality. In
ancient times Strabo reported that, even before his day, a fine breed of ewes
had been sent to Portugal at a cost of one talent
each. From these ewes great flocks of sheep developed so that Portugal was able
to produce large quantities of fine wool for export.
In 1687 the
Portuguese minister d'Ericeira decided t
^d,00"13^6 the immigration of foreign manufacturers and artisans and to
forbid the import of cloth from abroad. In this way he hoped to supply both
the home and the colonial markets with cloth made in
Portugal. This policy was pursued with great success between 1687 and 1783.
After the death of Count d'Ericeira
the English ambassador in Lisbon - John Methuen - persuaded the King and the grandees
that it would be greatly to their advantage if Portugal were to sell wool and
wine to England in return for cloth. In 1703 a commercial treaty
was concluded which provided for a reduction in the
English import
130
duty on Portuguese wine to one third of that levied on
wine imported from any other country. This gave Portugal a secure market for
her wine. In return Portugal fixed her import duty on English cloth at 23 per
cent.
To what
extent did this treaty fulfil the hopes of the King and the grandees of
Portugal? English writers provide the answer to this question. Before long the
goods sent from England to Portugal were valued at £1,000 more than the
Portuguese products sent to | England. The editor of The British Merchant, when
dedicating [the third volume of] his book to Sir Paul Methuen, the son of the
English ambassador to Portugal, wrote: "We gain a greater balance of trade
from Portugal than from any other country. Since the treaty came into force our
exports to that country have risen from £300,000 to £ 1,500,000".' In the
same volume it was stated that the balance of trade was so much in England's
favour that the Portuguese currency was devalued by 12 per cent in English
markets, which was very much to Portugal's disadvantage. English merchants
evaded the provisions of the Methuen Treaty by making false declarations
concerning the value of the cloth that they sent to Portugal. The value that
they declared was only one half of the real value. In this way they made
certain that the import duty of 23 per cent would afford no protection to the
Portuguese artisans. The result was that the Portuguese cloth industry
collapsed.2 The British Merchant declared with admirable
frankness that by this advantageous treaty "we brought away so much of
their silver as to leave them very little for their necessary occasions, and
then we began to bring away their gold" .3
Anderson,
who reports these facts, adds with charming naiveté: "The most just and
beneficial convention has remained inviolable to this day; which has preserved
an uninterrupted friendship and alliance between both nations. And may it ever
continue".4 We
[The dedication was as follows: "Your father,
often Ambassador Extraordinary to the King of Portugal, procured for Great
Britain that glorious Treaty of Commerce by which She gains above a Million a
year. By this Treaty we paid our Armies in Spain and Portugal and drew from
thence, in the late War, considerable Sums for our Troops in other Parts,
without remitting one Farthing from England; and at the same time coin'd in the Tower, above a Million of Portugal Gold in
three Years" (The British Merchant, Vol. Ill, p. 11).]
1. [List's note] The
British Merchant, Vol. Ill, p. 91.
2. [List's note] The
British Merchant, Vol. Ill, p. 15.
3. [Adam Anderson, An Historical
and Chronological 4. Deduction of the Origin of Commerce (6 vols, Dublin 1790). Vol. Ill, p.227 el. seq.]
131
invite the reader to note the
price of an English alliance and English friendship!
We shall see
later that the great Adam Smith does not accept 1 the favourable judgment passed upon this treaty
by English statesmen, merchants, and manufacturers. He regards the
treaty as disadvantageous to England and advantageous to Portugal. Perhaps an examination of his arguments will reveal his
weakness for paradoxes.
The facts
that we have given show that the manufacture of woollen cloth was England's first and greatest industry. They show that
ever since the thirteenth century England has first established
and then fostered and preserved this
industry by giving her artisans a monopoly of
the home market and by opening up foreign markets for them by
commercial treaties.
England has
not always followed so enlightened a policy as far as trade in cereals is
concerned. For centuries the government fixed the prices of foodstuffs and the
wages of labourers. Before Elizabeth's
reign the export of grain was prohibited. Indeed before the reign of Henry IV it was actually forbidden to
move grain from
one county to another.1 Henry IV was the
first monarch to grant licences which
permitted such movement of grain. At various times regulations were actually made stating the number
of sheep which each landowner could raise on his estate because the
government
feared that there would be a
shortage of grain if the flocks of sheep were too large. Queen Elizabeth, on
the other hand, allowed grain to be exported while James I
actually found this trade to be so advantageous that he encouraged it by the
payment of subsidies.
The growth
of England's overseas commerce and shipping has been promoted in the same way as the expansion of her agriculture and
industry, namely by restrictive regulations.
Henry VIII
was dependent upon the loan of ships from the Hanseatic
League to maintain his navy. At this time the expansion of the cloth industry and the growth of towns
increased the demand for coal.2
The mineowners opened up new collieries and were able
1. [List's note] Hume, ch. 18
[i.e. David Hume, The History of England].
2.
[List's note] The supremacy of Dutch shipping was originally based upon her fisheries as well as upon Peter Beukel' s discovery of a method of salting herrings. The supremacy of English shipping, on
the other hand, was originally based upon the coal trade and upon an Act of Parliament. In 1400
the nobles and citizens of London petitioned Henry IV to prohibit the use of sea coal
because this was an injurious and unhealthy fuel. It was called sea coal because it was
extracted from mines lying under
132
- in addition to supplying the home market - to export
large quantities of coal. This led to a remarkable expansion of coastal and
overseas shipping. In the middle of the seventeenth century some 900 ships used
the harbour of Newcastle-upon-Tyne - 600 in Dutch ) hands - and all were
employed in the coal trade. The development
i of shipping led to the growth of a
shipbuilding industry and to a
considerable expansion in the number of sailors serving in the navy and
the mercantile marine.1 The English came to recognise that the , time had come when shipping and
shipbuilding - so important for the commerce and defence of a nation - should
become independent of foreign influences.
For this
reason the Rump Parliament passed the famous Navigation Act in 1651, which
provided that foreign manufactured and agricultural products could be brought
to England only in English \ ships. The captain had to be a native-born
Englishman and three quarters of the crew had to be English. Foreign ships were
allowed to bring to England only the produce of the country to which the ships
belonged. The same law stated that only fish caught by English fishermen might
be landed in English or Irish ports. Only English ships could carry fish out of
these ports or from one English harbour to another.
As those
responsible for the Act had intended the Navigation Act struck a fatal blow at
Dutch naval supremacy and at the Dutch fishing industry. So seriously did the
Dutch suffer that they immediately declared war upon England. On February 13,
1653 a great I sea battle was fought and the Dutch were completely defeated.
The result was that Dutch trade through the Straits of Dover was cut off while
Dutch trade to the Baltic was seriously interrupted by English privateers.
Dutch fishing was entirely suspended and 1,600 Dutch ships fell into English
hands.2 In his book on the public revenue
the sea bed. The citizens of
London could hardly have realised that they were demanding the destruction of a
trade that would one day be the foundation of England's sea power. For many
years Newcastle-upon-Tyne has been a flourishing city because of the coal
trade. Most of this commerce has been an export trade because for a long time
the expansion of the consumption of coal in England itself was delayed by
popular prejudice against this fuel. But as the population of the country
increased - owing to the expansion of the manufacture of cloth - this prejudice
against the use of coal vanished. [Willem Beukel
invented a new method of gutting, salting, and curing fish. He died in 1397.
Charles V erected a statue to him in Amsterdam.]
1. [List's note] Anderson,
Vol. II, p. 511.
2. [List's note] Hume, Vol.
V. p. 39.
133
Davenant1 states that after the Dutch war
the English mercantile marine was doubled in 28 years.2
Adam Smith
is mistaken in supposing that the Navigation Act I was passed because of
national rivalries. The Act was based upon I the maritime code of the Hanseatic towns. These cities had, in their '
*- turn, taken over the rules and regulations of Venice.3 England
therefore followed the example of two sea-going commercial powers and took advantage of several centuries of
practical experience in these matters. Deliberately or involuntarily
Adam Smith forgets to mention two earlier
attempts - before the law passed by I the Long Parliament - to introduce a
navigation code. The first was in
Henry VI’s reign in 1461 when a proposal submitted by
Parliament was rejected by the
King.4The second was in 1622 in James I's reign when Parliament refused to accept a
proposal for a navigation code made by the government.5
To such an
extent does a navigation code partake of the very nature of a nation which
realises that it is destined one day to become
a great sea power that the United States had hardly finished fighting for its
independence than Congress passed a restrictive law which aimed at promoting shipping and overseas
commerce. This measure was even more successful in achieving its object than
the English Navigation Act had been. From the reign of Queen Elizabeth
to the present day England has evolved a
comprehensive method of encouraging industry. The
1. [Charles d'Avenant, Discourses of the Public Revenues and on the
Trade of England (London, 1698: new edition in 5 volumes, 1771), Vol. 1,
p.363.]
2. [List's note] Anderson
reports (Vol. II, p. 552) that in England many responsible people considered
the Navigation Act to be unjust and unworkable. They doubtless employed just as
profound arguments in support of their views as those put forward by Say when
he denounces the subsidies paid by the French government to promote the fishing
industry and the mercantile marine. There were those who argued that the
restrictions [imposed by the Navigation Act] were senseless and would have
dreadful results, such as war, famine, and the destruction of England's trade. The Dutch, for their part, learned
from bitter experience that they would have been well advised to share their
trade with the English rather than to suffer such great losses and so
ignominious a defeat. They attributed their downfall particularly to the fact
that the English had bigger ships. Attention had often been drawn to this fact
though it had never been considered to be of great importance. This point is of
some interest if one compares English and American shipping. Every English
naval officer visiting the United States is astonished at the size of American
naval and merchant ships and warns his countrymen of disasters to come if the
English government should fail to follow the example of the Americans with
regard to shipbuilding.
3. [List's note] Anderson, History
of Commerce, Vol. II, p. 46
4. [List's note] Hume, ch.
21.
5. [List's note] Hume, Vol.
IV, p. 330.
134
government has prohibited imports from abroad and has
fostered industry at home. Having closed
their harbours to the Hanseatic merchants the English did everything in
their power to persuade foreign artisans
who were being persecuted to settle in England. By granting asylum to refugees from France and the
Low Countries 1 England attracted many new industries to her shores. The
English government also signed commercial
treaties with Russia, Turkey, and the
Hanseatic League and granted privileges to chartered companies to trade
in these countries and in the East Indies.1
Every nation
has a particular industry in which it has led the | world. Holland dyes vermilion cloths, Venice makes glassware, Germany
manufactures iron and steel, France and Switzerland produce silks and watches, while fishermen from the Bay of Biscay are engaged in hunting whales.2
Craftsmen have actually been sent to Persia to learn the art of making and
dyeing carpets. And manu-
1. [List's note] Adam Smith and David Hume criticise
Elizabeth for granting privileges of this kind to companies of merchants. They
fail to appreciate that in those days the Hanseatic merchants were still strong
and rich and that the Dutch were at the height of their power. If Elizabeth had
acted according to the doctrines of these two scholars it is possible that the
English would never have chased these foreigners out of their home market. This
could be achieved only if the government supported companies of merchants and
signed commercial treaties with foreign states.
At that time no English
merchant was capable of opening up overseas commerce in 1 competition with Hanseatic and Dutch
merchants. On the other hand a chartered i company -
endowed with privileges and supported by commercial treaties and the strength
of the navy - could summon up courage to trade overseas and could attract j commercial capital from German and Dutch
towns. Merchants from Hamburg and Lubeck, for
example, lacking profits from their enterprises in foreign markets, went to
England to enjoy the advantage of the trading privileges granted by the
government.
If these trading companies
made no profits at first it was not really a loss as far as ) the state was concerned. It should be
regarded as an unavoidable sacrifice, without which England could never have
built up the extensive overseas trade that she enjoys today. If England's industry
later expanded when the privileges of the trading companies were withdrawn, it
does not mean that the country would have prospered j just as much, had the privileges not been
enjoyed in the past. When the privileges were withdrawn England's commerce had
long been firmly established and - by taking part in the joint enterprises of
great chartered companies - individual merchants had gained a thorough
knowledge of this type of trading. They now had the means and the initiative to
pursue their ventures further afield. All industries
are in the same position since early losses pave the way for later profits.
Many inventors who enrich millions of people by their discoveries have lost
their own capital while making their experiments. Privileges granted to
chartered companies are like patents granted to inventors. Each is valuable for
a certain period but when that period has elapsed the removal of both trading
privileges and patents benefits society as a whole.
2. [List's note] Anderson, Vol. I, p. 127 and Vol. II, p.
350.
135
facturers have had a strong urge to master new techniques
simply because they have enjoyed the support of a secure home
market.
In England one of the most important laws ever passed was aimed at stimulating the fishing industry, that wonderful
school for the training of sailors.
Subsidies were granted which were based upon the tonnage
of the fishing vessels and the size of the catch.
Of course it
must be appreciated that other factors have also contributed to England's rise
to the position of the leading commercial,
maritime, and industrial country in the world. They include England's natural resources, the energetic
character of the people, the geographical location of the country, and
the uninterrupted development of political
freedom - above all as a result of the revolution of 1689. Nevertheless it
cannot be denied that England would never have reached her present dominant
position without the continued
protection given by the state first to the manufacture of woollens, then to the shipping and fishing
industries, and finally to all branches of manufacture.
History
teaches us that nations - like clever and fortunate individuals - frequently
owe their success as much to the errors, follies, and ill-fortune of others as
to their own exertions. We have already seen - and we shall see again in later
chapters -how England has turned to her own advantage the decline and fall of
the Hanseatic League, Flanders, Venice, Genoa, Spain, Portugal, France and Germany - a decline that was due sometimes to
religious bigotry, sometimes to the privileges of the nobles, and sometimes to the oppression of despotic rulers.
We shall show how England alone has
been able, over the centuries, to use to her own advantage nearly all the fruits of the Reformation, the discovery of America, the opening up of a new route to India by
way of the Cape of Good Hope, and the invention of printing and of
gunpowder. But one must admit that England
has shown herself worthy of benefitting from this
wonderful inheritance by her own striking inventions and improvements which have given a new value to discoveries
that have taken place elsewhere.
England gave the civilised world the first complete national network of highways and canals and so showed how truly
remarkable are the results of constructing an efficient transport
system. Such a system of communications
vigorously stimulates all the productive powers of the nation. England showed
the world how great was the wealth
that could be derived from her coalmines and
136
steelworks. England has produced
new sources of energy, new machines, and
new manufacturing processes which have greatly increased the efficiency of transport facilities and the output of labour.
By increasing her productive powers in this way England was able, by her
own efforts, not merely to resist the terrible power of Napoleon for many years but finally to defeat him.
England was far from being weakened by the
long and bitter struggle which she had waged
against the French. She actually emerged from the war stronger than before.
This was because her productive powers had
increased since she had been able to isolate the colonies of European countries in America, Africa, and Asia
and to open them up as new markets
for her manufactured goods. At the same time she seized the opportunity
to extend her colonial possessions. Finally
her victory over Napoleon enabled England to subjugate the whole world by her industrial power. She became a
land of factories and warehouses. She
developed into a sort of metropolis which treated the whole world as if
it were a mere English province.
When peace was restored people all over the world fell under the spell of the theoretical economists, who argued that
the doctrine of free trade should now be put into practice. Governments
appeared to be willing to listen to these arguments. Russia, Scandinavia, Germany, Italy, Spain, Portugal and the United States
seemed to be ready to accept English
manufactured goods in exchange for their own products. Only France remained
faithful to the policy of protection but
even France might have made some concessions if England had opened her ports to French wines, brandies, and silks -though
the total value of these products was much smaller than that of England's cotton piece goods, woollens, and iron products.
Perhaps this was the time when England should have given up the policy of protection. As far as the Navigation
Act was concerned she might have
taken the advice given by Joseph Priestley many years before when he declared that "the time may
come in which it will be as politic to repeal this Act as it was to make
it".1
It would be difficult to imagine the degree of prosperity that the English would have achieved if they had continued to
accept foreign products in exchange for
their manufactured goods. Neither the states on the Continent -
with the possible exception of France - nor the United States would have
attempted to challenge Great
1.
[List's note] Priestley, Lectures on History and General Policy, Part
II, p. 289.
137
Britain's superiority. England would have imported the
surplus produce of the vast regions opened up - and to be opened up in the
future - in the United States. The millions of people in the new world - and
the hundreds of millions who will be living there a century from today - would
be wearing garments made from English cloth. Everything would have contributed
to England's power and wealth. In such circumstances it is doubtful if the
Russians or the Americans would ever have adopted the policy of protection.
There would have been no German customs union. It would have been contrary to
the interests of all the inhabitants of the agricultural countries to sacrifice
immediate advantages today in the hope of gaining other advantages tomorrow.
But, as a great poet once wrote, it is ordained that trees shall not grow into
the sky. We have it on biblical authority that if providence proposes to humble
a nation it first provides it with stupid rulers.
The policy
pursued by Lord Castlereagh at home and abroad j
failed to secure for England the fruits of her victory. It placed the : future
prosperity of the country at the mercy of the aristocracy who 1 promptly killed
the goose which laid the golden eggs. Had the noble landowners accepted the
fact that Great Britain was destined to be the industrial metropolis of the world
they would have turned much of their land into vegetable gardens, pleasure
gardens and meadows. They would have produced only those farm products which
could not be imported. In this way they would have been able to charge tenant
farmers much higher rents than they charged farmers who had been encouraged (by
the Corn Laws) to grow cereals. But this will happen only at some time in the
future and aristocrats are not renowned for their ability to look ahead. The
great landowners preferred to raise rents immediately by reducing imports of
foreign agricultural products by the imposition of prohibitions and high
import duties. They forced the nations of the world to seek prosperity by
following a different path from that indicated by the doctrine of free trade.
By the time
that Canning and Huskisson were in office the great
landowners had tasted too much of the forbidden fruit to be prepared to give
it up - even if these statesmen had really intended to deprive them of it. Once
a country has adopted the policy of protection it cannot accept a sudden change
in the fiscal system even if it realises that the administration of the most
powerful, the wealthiest, and the most industrialised nation in the world
138
has passed into the hands of men who accept the doctrine
of free trade. It would be the height of folly - dangerous stupidity - if those
responsible for running a country should waver from the principles of their
existing fiscal policy in return for empty words and promises. Those who make
such promises are in no position to keep them. Even if the promises can be kept
at the moment, no politician can give an absolutely firm guarantee that the
fiscal policy which he has introduced will survive his departure from office.
Speeches in
Parliament and articles in the press announced to an astonished world that the
English cabinet had adopted the policy of free trade and favoured a new fiscal
system which would be in close harmony with enlightened principles and with the
needs of a new century. This policy would increase the friendship between
nations. It seemed as if the principles of true political economy were being
championed by the government of the world's leading commercial and maritime
power. The economists had no hesitation in accepting these assurances and rejoiced
in the imminent dawn of the golden age for which they had long been preparing
the world. No minister of state was praised so much when he was alive and
mourned so sincerely after his death than Canning. Yet it is very doubtful if
this distinguished statesman had used his great intellectual gifts to further
England's commercial supremacy - at everyone else's expense - rather than to
promote the welfare of mankind.
The
enlightened statesmen of the world had not such bright hopes for the future as
to be prepared to accept the cosmopolitan catchwords of the English government
as a basis for their own policy. They asked themselves what their countries
would gain from handing over their industry to the tender mercies of the
English in order to be graciously permitted to sell their surplus farm products
in the English market. They asked themselves if the English government was
really in a position to confer these benefits upon foreign countries. They
asked themselves if the English landowners would agree to opening England's
ports to foreign agricultural produce. They realised that such a policy might
have to contend with very considerable opposition if its success depended
entirely upon the support of a single minister, however able and popular he
might be. They appreciated that this opposition might lead to the adoption of a
very different fiscal policy. They realised that if the minister died he might
be replaced by someone holding views of a very different kind. They saw that
there might be a change in the policy of the
139
occupant of the throne or his
advisers. They reflected upon the unhappy
consequences of such a change of policy for their own countries,
which might have to leave industry in the lurch to give free trade a trial. In
France in particular the disastrous consequences
of the (Eden) Treaty of 1786 had not been forgotten. So these statesmen
decided that it would be in their interests to postpone any decision for the
time being and to refrain from cooperating (with England) until the policy of
free trade had been more firmly established and had had an opportunity to
develop.
An
enlightened politician1 once remarked that Huskisson's
theory of free trade had not been intended
for home consumption. It had been intended for export.
For the English free trade means that foreign farm products may be imported only when the country is threatened with
famine. As far as manufactured goods are concerned Huskisson
was steadfast in his support of the policy of
protection while in his speeches he was always
prepared to use the catchwords of the free traders. He did indeed reduce import
duties on many manufactured goods but he never
failed to ensure that the new import duties continued to give adequate
protection to England's industries. He showed the same skill as the Dutch engineers who build high dykes where the water is high and low dykes where the water is low. They
do not consider erecting dykes of
uniform height. They simply build dykes which are high enough to protect the land from being
flooded. Huskisson also repealed some useless
ancient laws and this - with a few tariff changes
- was all that came of the attempt to put the English theory of free
trade into practice.
1.
[List was referring to Henry Baldwin (1780-1844), Associate Justice of the United States Supreme Court
between 1830 and 1844. In a speech to Congress on April 21, 1820 Baldwin had declared that the
books of English economists "are for exportation not for home consumption". In The
National System of Political Economy,1841, List wrote:" a highly accomplished
American orator, Mr. Baldwin, Chief Justice of the United States, when
referring to the Canning-Huskisson system of free trade, shrewdly remarked,
that, like most English productions, it had been manufactured not so much for home consumption as
for exportation" (translation of 1885:
new edition, 1966, p.74 note 1).]
140
ENGLAND'S great success aroused the ambitions of
France. At a time when Germany and Holland had many flourishing manufacturing
and commercial cities, the French had not made very much progress with regard
to trade and industry.
Early in the sixteenth century Francis I introduced
from Milan the cultivation of mulberry trees and the manufacture of silk.1
Since silk was a luxury product, which was very expensive at that time, only
small quantities were consumed and the output of silk could not be compared
with the output of woollen or linen cloth. Henry IV encouraged the manufacture
of linen and woollen cloth and glassware by persuading Flemish artisans to
settle in France. He also endeavoured to encourage the silk industry. After he
had suppressed the nobles Cardinal Richelieu turned his attention to the
economy and he tried to stimulate the expansion of trade and industry. He
fostered the growth of the manufacture of silks, velvets, and woollens in
Rouen. He founded trading companies, encouraged the fishing industry, and
created a splendid fleet. Subsequently Cardinal Mazarin promoted the
establishment of cloth workshops in Sedan by granting important privileges to
the manufacturers - including even patents of nobility. But all Mazarin's
efforts had insignificant results compared with the achievements of Colbert in
Louis XI Vs reign.
When this
great statesman took office the French fleet had been ruined. The state no
longer protected industry. There was a depression in agriculture. Commerce was
restricted by provincial customs duties. The public finances were in a state of
disorder.
1. [The
silk industry was introduced into France at an earlier date than that given by List. Chaptal
states in De I 'Industrie françoise
(two volumes, 1819) that Louis XI had brought the silk industry to the Tours district
(Vol I, p. 180). Louis XI reigned from 1461 to 1483]
141
Colbert was the son of a cloth merchant and had practical experience of
trade and industry. He combined great talents with an energetic character. He embarked upon a policy of radical
economic reforms. He subsidised the main
branches of manufacture; he persuaded skilled foreign workers to settle in
France; he purchased models of new
machines as well as the secrets of foreign industrialists; he
tried to replace provincial customs duties by a national tariff;1
and he placed heavy import duties upon manufactured goods that could be made at home. By these means this great statesman
promoted the growth of industry in France to such an extent that ten years after he had taken office
the woollen industry had over 50,000 handlooms while the trade in silk was
valued at 50,000,000 francs a year. Colbert created a navy of 198 ships manned by 166,000 men. He increased the national
revenue by 28,000,000 francs.
Despite these great successes the doctrinaire French economists have criticised Colbert for having favoured industry
at the expense of agriculture, which they
allege was oppressed by his policy. Some of them have actually gone so far as to declare that Colbert's policy has cost France some important branches of industry,
which moved to England and to the Low Countries. If ever a man has
been accused of a crime when, in fact, he
showed the qualities of the highest statesmanship, that man was Colbert.
But the arguments of his critics are either senseless or are founded upon
erroneous premises.2
1. [Colbert did not introduce a national tariff covering
the whole of France. On the eve of the revolution in 1789 there were three
tariff regions in France: (i) the 5 Great Farms
(Colbert's tariff union of 1664), (ii) the provinces "reputed to be
foreign", and (iii) the provinces "actually foreign". See Map 40
in Vries, Luykx, and Hender son, An Atlas of World History (1965).]
2. [List's note] We cite here Adam Smith's judgement of
Colbert. In view of what we have said above we do not consider that we need to
comment upon Adam Smith's criticism. Adam Smith wrote in The Nature and
Causes of the Wealth of Nations: "Mr Colbert, the famous minister of
Louis XIV, was a man of probity, of great industry, and knowledge of
detail; of great experience and acuteness in the examination of public
accounts, and of abilities in short, every way fitted for introducing method
and good order into the collection and expenditure of the public revenue. That
minister 1 had unfortunately embraced all the prejudices of the mercantile
system, in its nature and essence a system of restraint and regulation, and
such as could scarce fail to be agreeable to a laborious and plodding man of
business, who had been accustomed to regulate the different departments of
public offices, and to establish the necessary checks and controls for
confining each to its proper sphere. The industry and commerce of a great
country he endeavoured to regulate upon the same model as the
142
To do full justice to Colbert it should be remembered that agriculture
in France was hampered by a thousand restrictions during the
period of his great reforms. Peasants had to perform forced labour (corvee) for their lords and they had to pay tithes to
the Church. They were forbidden to change the rotation of their crops or to
introduce new crops. They had to pay heavy dues to their lords and - indirectly through their landlords - they paid taxes to the nobility. The nobles hunted over the land
cultivated by the peasants. The peasants were even forbidden to kill
game which threatened to destroy their crops. Yet when the lord of the manor went hunting, the peasants were liable to perform
forced labour for him. Condorcet - I
think in his life of Turgot - tells a story of a peasant, accused of killing a wild boar, who made the excuse that he thought he was defending himself against a man.'
The peasants lacked education and were deprived of their freedom. They were
universally regarded with contempt. The ignorance and arrogance of the nobles and the public officials, the
fanaticism of the clergy, the sharp
divisions between different regions brought about by provincial dues, and - above all - the wretched
state of communications were the real reasons for the decay of
agriculture. Colbert's national tariff and
the growth of the woollen and silk industries had nothing to do with the decline of farming in
France at this time. Any sensible
person can appreciate that the large number of silk workshops, fostered by Colbert and protected by
tariffs, helped to stimulate both agriculture and other branches of industry.
It is a fact, now universally
recognised, that nothing encourages the expansion of agriculture so much as the
establishment of manufacturing enterprises. Even Adam Smith and Say admit that
farmers can flourish only if they have a market for their produce in an
industrial town. Although Colbert restricted the export of agricultural
products he provided them with a large internal market. We do not defend
restrictions on the export of agricultural products, which are no
departments
of a public office; and instead of allowing every man to pursue his own interest in his own way, upon
the liberal plan of equality, liberty, and justice, he bestowed upon certain
branches of industry extraordinary privileges, while he laid others under as extraordinary restraints.
He was not only disposed, like other European ministers, to encourage more the industry of
the towns than that of the country; but, in order to support the industry of
the towns, he was willing even to depress and keep down that of the country".
(Everyman Edition, Vol. II, p. 157).
1. [The story does not appear
in Condorcet's life of Turgot.]
143
doubt highly undesirable.1 Despite this
mistake it is clear that Colbert greatly
stimulated French agriculture. We have already explained why French agriculture
did not flourish as much as Colbert's opponents desired. After Colbert left
office industry no longer prospered as it
had done during his administration. Was it his fault that no new Colbert
appeared on the scene to carry on his work? Was it his fault that France did
not have a constitution, similar to that of
England, which would have enabled a sound permanent fiscal system to be
established? In France, however, everything depended upon the king's
pleasure. Was it Colbert's fault that the spirit of reform perished with the
death of the reformer? After Colbert's death all the capacities of the country were monopolised by the royal court. While
manufacturers and craftsmen were despised, the most idle and useless members of
society were held in high esteem.
The fanaticism and extravagance of
Louis XIV were enough to destroy the work of ten Colberts.2
The religious persecutions began in Colbert's lifetime. They put an end to any hope of attracting foreign capital and
skilled artisans to France. They put an end
to any confidence in the permanence of Colbert's reforms. Colbert died in 1683 and two years later Louis XIV
revoked the Edict of Nantes. This cruel measure affected manufacturers and artisans more than anyone else
because the most enlightened entrepreneurs and skilled workers were
Huguenots. Some 500,000 refugees are
estimated to have fled the country in the
1. [List's note] Chaptal shows clearly in the introduction to De I'Industrie Françoise (two volumes, 1819) that
Colbert's policy was a wise one. Colbert used the best means at his disposal in
the circumstances of his day. It is Colbert's successors who should be
criticised for failing to move with the times. When one considers that for a
long time France was governed by despotic rulers who were opposed to any change
one must regard Colbert as a wiser man than his critics. At a particular stage
in social development despotic measures promote human progress in general and
the development of industry in particular. Was not even slavery necessary to
accustom men to work?
2. [List's note]. Mignet, with characteristic perspicacity and concision,
writes as follows on Louis XIVs administration (Histoire
de la revolution française, Vol. I, ch. 1):
"The immense power which Louis XIV exercised at home against the heretics
overflowed abroad against all Europe. Oppression was advised by ambitious
counsellors and was carried out by dragoons whose success encouraged still more
opporession. The complaints of the French people were
smothered by victory laurels, and their groans were drowned by the cries of the
victors. But eventually the men of genius died, the money disappeared, and it
was clearly seen that tyranny had exhausted its resources by its own successes
and had devoured its own future in advance". [This passage appears in Mignet's introduction and not in his first chapter.]
144
first three years after the revocation of the Edict of
Nantes. It may well be that no Protestant state in the world has failed to gain
the greatest possible benefits from this flight of the Huguenots from France.
Elsewhere - on the banks of the Rhine, in Switzerland, Saxony, Prussia, the Low
Countries, Denmark, Sweden, Russia, and America - the descendants of these
refugees are today running the most important industries, which they inherited
from their forefathers who were driven out of France. In Germany there are many
towns where the manufacture of woollens, silks, and jewellery dates from the
arrival of these skilled artisans from beyond the Rhine who had been forced to
leave their native land. Even in the Cape of Good Hope their descendants now
cultivate the vines which their forefathers introduced into that colony.
It is most
unfair to Colbert to blame him for the faults of the French constitution, the
stupidity of the government, the lack of patriotism of the aristocrats, and the
fury of the religious fanatics.
Both France
and England adopted a policy of protection but they did so under very different
circumstances and with very different results. England was a century ahead of
France and enjoyed many advantages such as an active and intelligent
population, an enlightened aristocracy, a free constitution, a long period of
uninterrupted peace, an island location, many rich overseas possessions, a
large fleet, and a revolution which had swept away numerous abuses. The
stability of England's fiscal system was guaranteed by the existence of a
representative parliament. France, on the other hand, suffered from all the
drawbacks of a despotic administration; costly wars; a licentious and bigoted
clergy; an arrogant, extravagant, and uncouth aristocracy; and a slavish and
ignorant population. So we see that the same fiscal system made England
prosperous but left France backward. Political bodies may be compared with
human bodies. If either is given a stimulant before the cause of a sickness has
been removed, the stimulant will make the patient worse and not better. France
had an excellent fiscal system which seemed likely to have beneficial results.
It could have raised France to a position among the leading industrial
countries of the world. But Louis XIV was no Henry IV. He drove half a million
skilled artisans out of France instead of persuading half a million skilled
workers to settle in France. He failed to free agriculture from its chains. He
did not give the country sound institutions or good roads and canals. And so
the policy of protection was attacked by
145
the theory of free trade - a doctrine continually
gaining more adherents though it was forced to rely upon the most ridiculous
arguments. The world was not ready for this doctrine and will not be for a very
long time. Although Adam Smith's version of the free trade theory turned it
into a foreign dogma it might have had a chance of being put into practice in
France. Yet in England not a single statesman was converted to Adam Smith's
views.
We would
like to refer at this point to the relations between the disciples of Quesnay
and those of Adam Smith. Although Adam Smith destroyed the foundations of the
doctrines of the Physiocrats, he accepted the principle of free trade which
they advocated. Adam Smith gave the doctrine the support of his great
authority. He was therefore cautious in his criticisms of the Physiocrats. He
praised the nobility of their sentiments and he approved the grandeur of their
aims. He persuaded them to accept his doctrines. He resembles the captain of a
warship who captures an enemy vessel and then praises the gallantry of his foes
so as to persuade them to enter his service.
It was a
misfortune for France that some of Quesnay's disciples came to hold high public
office. The most famous was Turgot, whose great talents and abilities led to
his appointment as Minister of the Interior. Although he held high principles
and enlightened views he fell under the spell of the reforming philosophers who
-in their determination to better the human race and to improve political
institutions - failed to differentiate between what was new and what was true.
They promulgated abstract principles without taking sufficient account of what
was happening in the real world and so they made the mistake of adopting
extreme policies. France had cause to be grateful for Turgot's administration
since he proposed to break the chains that fettered her industry, and - above
all - her agriculture. On the other hand France suffered severely as a result
of his administration since he advocated an industrial policy which was the
exact opposite of that pursued by Colbert. Turgot accepted the validity of the
two main principles advocated by the doctrinaire economists. The first was that
taxes should be levied only on the land - or rather upon the income derived
from the land - since, in the view of the Physiocrats, agriculture alone
produces wealth. The second was that the best way to stimulate agriculture was
to reduce import duties on foreign products as much as possible. In this way
Turgot came to champion unrestricted free
146
trade between all countries. It
was largely through the influence of Turgot'
s writings that, by the end of Louis XVI' s reign, it was widely held by enlightened Frenchmen that only a commercial
treaty with England could save the country
from the consequences of a huge national debt and an enormous budget
deficit.
England is ever ready to profit from the misfortunes of others -whether the misfortunes are due to a lack of physical
resources or (as in this case) to a lack of political judgment. England was
very happy to bestow upon France the
blessings of a new edition of the Methuen
Treaty. So in 1786 the Eden Treaty was signed1 which reduced the
English import duties on French wine and brandy and opened the
French market to English manufactured goods. The French waited impatiently for the favourable results of this agreement that they had been promised by the enlightened
philosophers. But they soon
experienced the very opposite from what they had been led to believe would happen. The great experiment ended with the
experience of the dog in the fable who lost his bone because he grasped at a shadow. The English, having been
used to drinking Portuguese wines for over a hundred years, did not greatly
increase their consumption of French
wines. On the other hand the French market
was flooded with cheap English manufactured goods. The English controlled vast resources of capital and
could grant favourable credit terms to their customers. Consequently
they were strong enough to drive French
manufacturers out of their own home market.
Moreover the French could offer the English only luxury products and the total value of these goods was
relatively small. But the English
could sell in France goods in every-day use, which had a much greater
total value. The treaty had been in force for only a few years when the French government appreciated that French industry
had been brought to the brink of ruin and terminated the agreement. The ending
of the Eden Treaty had some very disagreeable
consequences for the French but not for the English. It was obviously difficult to revive the ruined
industries of France but it was a
simple matter to persuade a few palates, which had become accustomed to French wines to start drinking
Portuguese wines again. But the French had become accustomed to English manufactured goods and now secured them through the
activities of smugglers. Many French manufacturers were ruined at the
very
1. [For
the Eden Treaty see W. O. Henderson, The Genesis of the Common Market (Frank Cass, 1962), ch. 2.]
147
time when they most needed help
from the government. Sir Walter Scott did not
include this wretched treaty in his list of the causes of the French revolution1 but Princess Lamballe did appreciate the significance of the Eden Treaty - a striking example of how an observant lady at court can do better than the most
famous novelist of our time.2
When the Jacobins overthrew the ancien regime
they destroyed the good with the bad because they had neither
the time nor the ability to appreciate where
the true commercial interests of France lay. These idiots dreamed of establishing a new Roman Republic and since the Romans had despised industry and
valued only agriculture, the
Jacobins considered only those who worked on the land to be true
republicans. But Napoleon thought otherwise. No one can doubt his genius, though one may criticise his propensity for despotism, and his boundless egotism. As soon as
he came to power, he realised that,
under existing circumstances, no country can hope to attain a high level of power, prosperity, and
independence, unless it possesses flourishing industries. He appreciated that -
when faced with the rivalry of more
advanced industrial countries - industrial progress could be achieved only by the imposition of import duties and
by other encouragements by the state.
In his usual
trenchant style Napoleon made the following comment
upon the policy of free trade:" If an empire was built upon granite,
it would crumble into dust if it introduced free trade".
Napoleon not only revived the old prohibitions and restrictions on
foreign imports to stimulate French industry but he extended them all over the Continent in the hope of
weakening and defeating the most powerful of his enemies. The success of both
aspects of Napoleon's policy is
proved first by the vigour of England's counter measures, and secondly by the way in which industry prospered in all
countries covered by the Continental System - despite the exceptionally heavy burdens which these countries
had to shoulder during the war.
In the previous chapter we discussed Lord Castlereagh's
failure to take advantage of England's victory over the Continental
System, and we explained how Canning and Huskisson, as soon as they came to power, decided to repair Castlereagh's
omission. They
1. [Sir
Walter Scott, Life of Napoleon Buonaparte, Emperor
of the French, with a Preliminary View of the French Revolution (9 vols., 1827).]
2. [Mme Guenard (ed.), Memoires
de la Princesse de Lamballe
(4 vols., 1801).]
148
proclaimed the adoption of a new fiscal policy and
pretended to support the doctrine of free trade. No doubt they hoped that other
countries would reduce their import duties and so enable England to flood their
markets with still more manufactured goods.
Just as in
1786, when England had been supported by the enlightened philosophers and their
disciples, so on this occasion was England aided by the cosmopolitan
economists, who were delighted with the doctrine of free trade. Dazzled by the
brilliance of the writings of J. B. Say - a man as honourable in his beliefs
and policies as Turgot - the economists denounced as fools and knaves all who
rejected the infallibility of the free trade doctrine or who refused to believe
in the truly philanthropic policy of Canning and Huskisson.
The same thing had happened 50 years ago when every economist or politician who
wished to be really up to date, was compelled to believe in free trade as a
universal panacea which would cure all the ills that afflicted mankind.
Whatever
criticism may be made of the Restoration government in France there can be no
doubt that it deserves the thanks of industry. The Restoration government was
not deflected from its support of the policy of protection by the intrigues of
the English government, the howls of the opposition, or the egotistical demands
of the merchants and the owners of vineyards.
When Canning
visited Paris to propose to the French government a renewal of the commercial
treaty of 1786 M. de Villele made it clear that he
was well aware of the consequences of trade agreements of the Methuen type. It
is said that he told Canning that the level of English import duties was just
right to protect English industry from foreign competition. Since French
industries had not yet made sufficient progress to compete successfully with
foreign rivals they still needed the protection of a tariff just as a sapling
must be safeguarded against the first blast of wind that threatens to blow it
down. Once a point had been reached when French industries no longer feared
foreign competition Villele would not fail to take
advantage of Canning's proposals.
Canning's
conduct when he returned to England showed that Villele
must have said something of the sort. He ceased to proclaim the coming of free
trade. When the problem of Spain was discussed in Parliament he threw courtesy
and diplomacy to the wind and boasted that by giving France the task of sending
troops to Spain he had hung a millstone round her neck. This remark shows how
149
Canning proposed to avenge
himself upon Villele. It shows also that his policy was neither so enlightened nor so
philanthropic as the trusting liberals on the Continent wanted the world to
believe. In fact Canning was every inch an Englishman whose philanthropy lasted
just so long as it accorded with England's commercial supremacy.1
It needed no great perspicacity on the part of M. de Villele
to avoid the trap that had been
laid for him. On the one hand he could see that Germany's industry, agriculture, and flocks of sheep, which had
prospered greatly under the protection of the Continental System, had now seriously declined partly because
of England's policy of prohibitions
and partly because of English competition in Germany's own home market. On the other hand he could see that experts who were independent of any political
affiliations and were recognised
authorities on the state of French industry - men like Chaptal and Baron Dupin - had
provided ample evidence to warrant the continued protection of French industry.
Chaptal's book on French industry champions the policy of protection
from cover to cover and gives numerous details of the success achieved by this policy. It seems as if the whole book was written
as an expansion of the following passage:
Instead of losing ourselves in a labyrinth of metaphysical abstractions
we recommend the maintenance and the extension of the
1. [List's note] In his Cours complet d'economie politique, Part
III, p. 363 Say wrote: "In England the House of Commons appeared to
recognise the validity of the warnings given by knowledgeable men that great
harm would be done to industry and commerce by the excessive use of the fiscal
system of prohibitions. This policy was partially - though not entirely -
abandoned and its effects were considerably mitigated. It is curious that
although the prohibitive system was regarded as successful in certain
respects, nevertheless the English are trying to get rid of it on the ground
that it hampers the progress of their industries".
Augustus Granville Stapleton in his biography of Canning (Part IV, p. 3)
writes as follows about the views of this great statesman on free trade:
"Mr. Canning was perfectly convinced of the truth of the abstract
principle, that commerce is sure to flourish most, when wholly unfettered by
restrictions, but since such had not been the opinions, either of our ancestors
or of surrounding nations and since in consequence restraints had been imposed
upon all commercial transactions, a state of things had grown up, to which the
unguarded application of the abstract principle, however true it was in theory
might have been somewhat mischievous in practice. The opposite course, however,
if entirely disregarding this principle in commercial legislation, would
certainly have been less mischievous in its ultimate results and Mr. Canning
felt that it was the part of a sound policy never indeed to lose sight of the
principle, but at the same time never to forget that from the circumstance of
its having been previously lost sight of, there existed an absolute necessity
for applying it with discretion and care". Canning spoke one way and acted
another.
150
existing
fiscal policy. A sound tariff is a sure safeguard for industry and agriculture.
The import duties levied at our frontiers
should be increased or lowered according to circumstances. The tariff
compensates our manufacturers for the high wages that they pay and for the high
cost of fuel. Prohibitions protect
industries from foreign competition during their infancy. The policy of
protection defends the independence of our industries
and enriches France by safeguarding the labour of its people which, as I have often observed, is the
national wealth.
The
excellent book of Charles Dupin on France's
productive powers was a pioneer work. Dupin was the first to examine the economy and the
constitution of France from the point of view of the nation's productive powers. In another book on the growth of France's productive powers since 1814 he showed
clearly how much France has benefitted from
the Continental System and from the fiscal
policy of protection pursued by the government of the Restoration. It is
obvious that no French government, whoever its leaders may be, would dare to ruin the success of the last 40 years -achieved at such great sacrifices and so hopeful
for the future - by signing a new Methuen Treaty with England.
Dupin gives
the following examples to illustrate France's economic progress between 1812 and 1827: The population rose by 4 million
in that period. The number of sheep increased by 5 million and the number of
horses by 400,000. The output of woollens rose from 70 to
100 million lbs, cotton from 20 to 64 million lbs, pig iron from 200 to 320 million lbs. France imported sheep from Leicester
and Nubia (the Sudan) and goats from Tibet and produced the wool from which large numbers of
Kashmir shawls were made. Silk worms were brought from China which produced a
fine white silk and considerable
quantities of silks were exported to Turkey and Persia, which once sent their
silks to France. The population of Lyons, the chief centre for the
manufacture of silk rose from 100,000 to 150,000. Paris alone exported
(annually) manufactured goods to the value of 47 million (francs). France has overtaken England in the production of printed
cottons and in all kind of machines.
France has overtaken Germany in printed cottons, fine damask, Prussian
blue dye, steelware, and printing. France has
overtaken Turkey in red dye, India in silks, Persia in shawls, Switzerland in clocks, watches and mathematical instruments. France has greatly improved the quality of
her steel, copper,
151
tin and platinum and has achieved considerable success
in the printing of books, the printing of cloth (cottons, woollens and silks) and the manufacture of pottery and
chinaware. France leads the world in the production of porcelain,
carpets, and chemical products. In view of this great growth in her productive
powers France has nearly doubled her
internal commerce and has considerably expanded her foreign trade.
The author
regrets that time does not permit him to add here a long note on the silk trade
between France and England.1
The FREE CITIES
of Italy had inherited the civilisation of the ancient world and had been neighbours of the Byzantine Empire which, even in decline, still had - in comparison
with the barbarians of northern
Europe - preserved some of the intellectual and artistic achievements of the Roman Empire. During the
crusades, at a time when the Italian
cities had already made considerable progress in all branches of industry, religious zeal further stimulated the productive powers which they had already developed.
Their ships were constantly employed to transport the armies of the
crusaders to Palestine. The crusaders
brought back with them new inventions,
1.
[This sentence was added by Emilie List after the manuscript had been completed.]
2.
[List's note] Fischer, Histoire du commerce de I'AUemagne;
Sartorius, Histoire de la Ligue Hans; Lambeccius, Origines
Hamb; Angl. a Werdenhagen [sic], de rebus publ. hans tractus. [Full references:
F.C.J. Fischer, Geschichte des teutschen Handels...
(4 vols, Hanover, 1785-91);
Georg Sartorius, Geschichte des Hanseatis-chert Bundes (3 vols., Gottingen,
1802-8); P. Lembeccius, Origines
Hamburgenses, sive Rebus Hamburgensium
(Vol. 2, Hamburg,
1706); J. A. Werdenhagen, De rebuspublicis Hanseaticis
... (1631).
List may have derived his knowledge of the books of Lambeccius
and Werdenhagen from quotations in Adam Anderson, An
Historical and
Chronological Deduction of the Origin of Commerce (6 vols, Dublin, 1790).]
152
plants, methods of cultivation, and crafts. They
cultivated new tastes and found new sources of enjoyment. The goods which were
most sought after in the West had always been those produced in the East. They
reached Europe by way of the Red Sea, the Nile, Alexandria, and Venice. The
merchants of Venice distributed these goods throughout northern Europe. They
were sent by land to the valley of the Rhine and by sea to the ports of France,
England, Flanders, and Germany. Alternative routes by which these goods reached
northern Europe began in Persia and went to Aleppo or Constantinople either
overland or by sea through the Persian Gulf (Basra).
It has been
the experience of all ages and of all countries that freedom and industrial
progress are like Siamese twins. Wherever industry starts to develop there is a
movement in favour of political freedom. And whenever the flag of liberty is
hoisted there will be no delay in the appearance of industry. It is axiomatic
that the acquisition of wealth brings with it a demand for security to enjoy
it. Similarly as soon as people attain a measure of freedom they use their
freedom and their skills to improve their living standards. Since wealth
enables people to obtain - or to purchase - freedom, we find that in medieval
times the progress of industry and the progress of liberty followed closely in
the footsteps of the expansion of commerce along the valley of the Rhine to the
Low Countries, to the coasts of the Baltic, and to the very heart of the
barbarous regions in the East where Novgorod became a city with republican
institutions. The future prosperity of Flanders was assured when its Count
cleared the district of brigands at an early date and established the cloth
industry with the help of Italian artisans. In Germany the founding of cities
began in the tenth century, when the Emperor Henry I, desirous of strengthening
his dominions, fostered urban expansion throughout his territories. The same
policy was followed, from political motives, by his successors for many
hundreds of years. Like some judicious French and English monarchs, these
Emperors regarded the cities as powerful allies against the nobles, as a rich
source of income, and as the basis for national defence. The social life of the
towns fostered the growth of arts and crafts. Wealthy burghers promoted municipal
liberty, a spirit of enterprise, and the pursuit of knowledge. Of their own
free will the Emperors granted charters to the towns which gave the citizens
the rights enjoyed by those living under republican rule.
153
As far as the towns were concerned the powers
exercised by the Emperors were restricted to matters of national importance. As
I early as the tenth and eleventh centuries there was an astonishing I activity
on the coasts of Germany and the Low Countries. New cities were founded which rapidly
expanded; new commercial links were forged between towns; while municipal
institutions became more efficient. The progress of German towns at this time
cannot be better described than by comparing their growth with urban
developments in North America in recent years. In the early middle ages Germany
- particularly the northern cities - expanded with youthful vigour and zest.
The
municipalities, continually threatened by the brigandage of the nobles on land
and by the pirates on the high seas, decided to unite to defend their common
interests. Hamburg and Liibeck formed an alliance in
1241 and before the end of the thirteenth century this union had grown so that
it included 85 towns in the interior of Germany and on the coasts of the North
Sea and the Baltic. This federation was called the Hanseatic League. In the old
German dialect "Hansa" meant
"federation" or "alliance". The members of this league soon
benefitted by using their united strength to foster
the expansion of their commerce. They developed a commercial policy, the
success of which was soon evident in the unparalleled prosperity of their trade
and shipping.
Realising
the need to protect their shipping the Hansa Towns
established a powerful navy. They appreciated that the strength or weakness of
a country's sea power depends upon the strength or weakness of its fisheries
and merchant shipping. Consequently the Hansa Towns
fostered their fishing industry and forbade members to transport their goods in
any ships save those belonging to the towns themselves.
Although the
commerce of the Hansa Towns was in the hands of
private companies, the League debated and promulgated laws and regulations as
if it was a sovereign independent state. It concluded commercial treaties with
foreign countries and authorised the establishment of factories and warehouses
abroad. Charters were issued concerning the orderly conduct of business in
these establishments. The League received envoys from foreign countries and
sent ambassadors abroad. It organised and maintained the means for
common defence. It introduced a system of uniform
weights and measures. Although controlled by merchants the League found it
154
necessary to impose various restrictions upon the way
in which commerce should be conducted.
When the Hansa merchants came to London they found that it f was a miserable place with wooden thatched
hovels. People lived in rooms that were worse than stables. At that time
England was the America of the Hanseatic League. The Hansa
merchants sent manufactured goods to England
in exchange for wool, skins, butter, lead, and tin.
The
Hanseatic League set up a second factory at Bruges in ( Flanders in 1252. This was the great market for the sale of the raw materials
that the Hansa merchants brought from England and Russia in exchange for their manufactured products
and goods from the East. In Flanders
the English wool was turned into cloth which was then sent back to England. A third factory was established in
Novgorod in Russia, which sent furs, hemp, flax, tallow, and other raw materials to Germany. Finally a fourth
factory was built in Bergen in
Norway. This became the centre of the Hanseatic fishing industry. The sailors employed by the Hanseatic
merchants were trained in the fishing grounds.
All countries, once they have emerged from a state of barbarism, have experienced the situation in which they derive
great benefits from trading freely with a
more advanced industrialised country. But later this relationship becomes a
burden which hampers the development of
its own manufacturers. England experienced this and Edward IV introduced a commercial policy of prohibitions which culminated in the expulsion of the Hansa merchants from English soil
by Queen Elizabeth.
At the beginning of Elizabeth's reign the Hansa
merchants were not satisfied with maintaining their existing privileges but complained bitterly of their treatment at the hands of
Edward VI and Queen Mary. Elizabeth prudently replied that it was
not in her power to change the existing
state of affairs but that she would be prepared to allow the Hansa merchants to continue to enjoy the rights that they still possessed. The Hansa merchants were far from satisfied. In the hope of
avenging themselves and of punishing Elizabeth,
they broke off all trade with England. This action, however, benefitted the English merchants who took advantage of the situation, to expand their trading operations.
The Hansa merchants, beside themselves with
rage, did everything in their power to discredit the English traders with other
countries. They secured
155
the promulgation of an Imperial
Edict which prohibited English merchants from trading anywhere in
the Holy Roman Empire. Queen Elizabeth
sought to avenge herself by seizing 60 Hanseatic vessels, laden with Spanish contraband in the River Thames. She proposed
to free these vessels as part of a bargain with the Hanseatic League. When it became known that a conference of Hansa towns had been held at Lübeck
to discuss measures to destroy England's
overseas trade, Elizabeth confiscated the ships and their cargoes. Only two ships were released so that a message from the Queen, condemning the policy of the
League, could reach the Hansa towns.
That was the way in which Elizabeth treated the merchants who had
lent her father - and many earlier kings - ships with which to fight England's
naval battles. These were the merchants who had for centuries been courted by
all the rulers in Europe. These were the merchants who had acted as arbiters in
the struggles between Sweden and Denmark. These were the merchants who had put
a king on the Swedish throne and had made him their vassal. These were the
merchants who had chased a King of Denmark off his i throne and had auctioned it to the
highest bidder. These were the merchants who, by force of arms, had forced
monarchs to recognise their privileges and who, more than once, had held the crown of England in pawn as a pledge for the
repayment of loans granted to the king. These were the merchants who had
destroyed Copenhagen and had actually carried their arrogance and ferocity so
far as to let hundreds of English fishermen drown when they dared to invade the
Hanseatic fishing grounds off Bergen.
Although the
Hansa merchants were still strong enough to avenge Elizabeth's insults they were by this time
beginning to lose their former
powers. When they begged for new privileges from all the courts of
Europe, their pleas were contemptuously rejected. In 1630 the Hanseatic League,
which had once been capable of striking terror in men's hearts, was formally
dissolved.
There were
many reasons for the decline and fall of the Hanseatic League. Denmark and Sweden damaged the interests of the Hansa towns
whenever they could in revenge for the former presumptuous policy of the
German merchants. The Czar turned them out of Russia and granted trading privileges to an
English company. The Teutonic Order, for many years an ally of the
Hanseatic League, was vanquished and destroyed by the Poles. In the days of
their
156
power and prosperity the Hansa
towns had ignored the Holy Roman Empire. Now, when it was too late, they
remembered the existence of the Imperial Diet and laid their grievances before
it. Werdenhagen states that the Hanseatic merchants
complained to the Imperial Diet that England was exporting 200,000 pieces of cloth
annually, most of which was sold in Germany. The only way to force Elizabeth to
come to terms with the Hanseatic League would be to ban English cloths from
Germany. The Imperial Diet agreed to do this but - according to Anderson - Mr
(George) Gilpin, the English ambassador to the Diet,
devised a stratagem to prevent the edict from being carried out.1
The wisdom
of the principle "Laissez faire et laissez passer" was not exactly
confirmed by the history of the Hansa towns because
after the towns had allowed the merchants to go their own way, the merchants in
turn left the towns in the lurch as soon as it became clear that there was no
profit to be made by staying. At a time when the Dutch were said to be building
2,000 ships a year there were Hamburg merchants who sold their ships in Venice
and settled in Holland on the proceeds.
The glory
and importance of so magnificent a commercial empire as that of the Hanseatic
League justifies us in examining the causes of its decline and fall more
closely.
The commerce
of these towns had no national basis. It was not based upon any balance of the
various branches of native industry and it was not supported by an adequate
political power. The bonds
which linked the members of the League were too weak
for the interests of the burghers of particular towns to be subordinated to the
interests of the League as a whole. This fatal divergence of local
municipal interests led to jealousies and even to
betrayals. Cologne, for example, repeatedly used the enmity between England and
the League to her own advantage. Hamburg adopted a similar policy with regard
to a dispute between Lübeck and Denmark. If taxes
were due, no one had any funds available. If booty was to be distributed every
town tried to get as much as possible for itself. The commerce of the League
was not based upon home production and
consumption - German agriculture and industry - but
was no more
1. [Anderson, citing Werdenhagen, wrote: "Yet Gilpin
by a stratagem, outwitted the Hanseatics in such
sort, that the sentence could not be executed till the decision of another
Diet; and our merchants were afterwards permitted to remove from Stade to Hamburg, where they were well received" (An
Historical and Chronological Deduction of the Origin of Commerce, op. cit.,
Vol. II, p.206ef. seq.).]
157
than an enormous transit trade. The League protected
and fostered a variety of economic activities such as farming in Poland, sheep
rearing in England, iron-ore mining in Sweden, copper mining in Russia and
various industries in the Low Countries. For centuries the Hansa
merchants put into practice the theory of our modern doctrinaire economists.
They bought in the cheapest market and sold in the dearest. But when the Hansa merchants were turned out of the countries in which
they bought and sold, they could not fall back upon a new field for the
investment of their capital in Germany because German agriculture and industry
- which they had neglected in their days of great prosperity - had not
developed sufficiently. And so the wealth of the Hansa
merchants was attracted to Holland and to England where it actually fostered
the power, the wealth, and the industrial development of their enemies.
The Hanseatic League failed to secure for itself a
permanent influence over the constitutional development under the protection of
the Imperial Diet. All went well so long as the League had money and sea power.
The Emperor, the kings and the princes were good friends of the League but they
also feared its power. In vain did Emperor Sigismund try to protect his
relative King Eric of Denmark. The League simply ignored him and the Emperor
dared not openly express his anger at this total lack of respect for the
Imperial dignity. In practice the Hanseatic League acted like a sovereign
state. But when the League lost its sea power, it also lost its influence over
the Imperial Diet. Moreover the nobles, long jealous of the power of the
League, boldly demanded that "the Emperor should suppress the great
trading companies, which rule the country through their wealth". One by
one the Hansa towns in the interior of Germany fell
under the influence of the nobles and so the Hansa
ports lost the basis of their power in the heart of the country.
The English avoided all these mistakes. In England
political power, national independence, and private industry progressed hand in
hand. Agriculture and industry provided a firm foundation for trade and
shipping. Internal commerce was six times greater than foreign trade which is
as it should be. Yet England's foreign trade was more important than that of
any other country. The interests of the crown, the nobility and the towns
coincided in the most fortunate manner. Would any sensible person, who reflects
158
upon the progress of England's industries deny that
without the application of national power to the expansion of the economy,
England would never have attained so remarkable a standard of efficiency - and
so high a degree of self-sufficiency - in shipping and industry? Of course not.
But for the prudent policy of England's rulers, the Hansa
merchants might still be in the Steelyard in London. They might still be buying
wool and selling cloth. England, with her great flocks of sheep, might still be
the sheep-run of the Hansa towns, just as Portugal,
by the cunning of English diplomacy, has become England's vineyard. Indeed it
is possible that, without government aid to industrial progress, the English
might never have secured the political freedom that they enjoy today. English
liberties are the fruits of England's industry and wealth.
When one
examines the rivalry and the struggle between the Hanseatic League and England
it is surprising to discover that Adam Smith never discusses the development of
the League from its foundation to its fall, although it is clear from several
of his observations, that he is very well acquainted with the history of the Hansa Towns. Adam Smith writes:
A merchant
it has been said very properly, is not necessarily the citizen of any
particular country. It is in a great measure indifferent to him from what place
he carries on his trade; and a very trifling disgust will make him remove his
capital, and together with it all the industry which it supports, from one
country to another. No part of it can be said to belong to any particular
country, till it has been spread as it were over the face of that country,
either in buildings or in the lasting improvement of lands. No vestige now
remains of the great wealth said to have been possessed by the greater part of
the Hansa towns except in the obscure histories of
the thirteenth and fourteenth centuries. It is even uncertain where some of
them were situated or to what towns in Europe the Latin names given to some of
them belong.
It is indeed
astonishing that Adam Smith, who appreciated so clearly that the main reason
for the fall of the Hansa towns was the emigration of
their capitalists, should not have examined more thoroughly the causes of this
movement of capital, which he ascribes to the commercial policy of England and
Holland. It is surprising that he does not draw attention to the failure of the
Hansa towns to adopt an enlightened commercial policy
which might have created a
159
national German commerce out of their own trade and
industry. Such a policy would have enabled the Hansa
towns to resist any attempt of foreign states to damage their trade by
prohibitions and restrictions. It seems to me that the results of such an
enquiry would hardly have provided much support for Adam Smith's main
arguments.
After the
disintegration of the Hanseatic League the trade and industry of Germany
declined more and more. One of the main reasons for this was the decline in the
power of the Emperor which went hand in hand with the deterioration of the
towns. Small principalities were established as a result of these developments
and they established customs frontiers which undermined and ruined all
Germany's common institutions. Finally the principalities became sovereign
states and so carved up the true sovereignty of the whole of Germany into
little fragments. Both the authority of the Emperor and the independence of the
towns disappeared. Now the German ports were no longer protected from foreign
intervention. At the same time the opening of the Cape of Good Hope route to
India, discovered by the Portuguese, robbed Venice of her monopoly of commerce
in eastern commodities and consequently some German inland towns lost their
former transit trade in eastern goods.
Luther’s
Reformation increased the already existing dangerous divisions in Germany to
such an extent that all the political units in the Holy Roman Empire, most of
the states, and the towns were divided into two hostile camps. This was the
final blow that rendered impossible the co-operation (between different
sections of the community) which German commerce needed. Germany's economic
productive powers were ruined by the evil effects of a variety of factors - the
monetary anarchy, the petty jealousies, the lack of strong political
institutions, the lack of a fiscal policy of protection, the failure to establish
good communications, and the absence of internal free trade. When Holland, once
a part of the Holy Roman Empire, became independent, the estuary of Germany's
greatest river fell into foreign hands and Germany was so weak at that time
that it failed to appreciate the incalculable drawback of Holland becoming an
independent state.
Napoleon's
Continental System revived Germany's industrial activities, although it was a
serious disadvantage that German manufactured goods were excluded from the
French market and could no longer reach Spain, Portugal, or the Portuguese
colonies.
160
Yet at the same time the German home market was wide
open to French competition.
After the
fall of Napoleon the English turned up again and monopolised the German market
with their manufactured goods which were cheap and of high quality. Yet they
simultaneously prohibited German raw materials from entering their home market '
or imposed high import duties on these products. So German industry was
ruined again and there was even a marked decline in agriculture.
The customs
union (Zollverein) of the German states was set up because Germany's
commerce was placed in so disadvantageous a position in relation to France and
England. This is a union of all the German states (except Austria, Brunswick,
Hanover, Mecklenburg, Hamburg, Liibeck, and Bremen)
and its aims are to secure complete freedom of internal trade and to establish
a single tariff on foreign imports. The revenue from import duties is divided
according to the respective populations of each state which is a member of the
customs union. Since this customs union was established there has been a great
expansion of Germany's industry, agriculture, and commerce.
The import
duties of the Zollverein are generally calculated according to the weight of
the goods concerned and so the duties which produce the largest revenues are
those levied upon the commonest manufactured goods. Consequently the tariff
protects particularly those industrial goods which are essential to the needs
of the people. The total value of these goods is far greater than the value of
imported luxury goods. The import duties are generally moderate. In addition to
other products, Germany still imports 20 million (francs' worth) of cotton yarn
and so her industries are still dependent upon other countries.
The
commercial history of Germany shows that a people can be very industrious, very
moral, very thrifty, very inventive, and very intelligent and can combine these
qualities with the possession of a fruitful soil and many valuable natural
resources, without however being able to attain a high standard of industrial,
agricultural and commercial development. Indeed history teaches us that, in
spite of all these advantages, there may actually be a decline in the economy
simply because society is defective, weak, and divided. This weakness leads to
a lack of security, laws, justice, freedom of movement and an absence of good
communications, great markets, and trading
161
companies. It leads also to a
failure to open up markets abroad for her
exports because the effects of foreign tariffs are ignored. Finally the failure to stimulate and to protect industry is
the greatest weakness of all.
The history of the development of industry and commerce in Germany teaches us that the economic affairs of states
which are not strong enough to erect and
maintain a protective tariff fall under the control of the laws of other nations. Free trade is no more than an empty expression unless it is established and
guaranteed by at least two countries. For centuries the German
market has been open to the commerce of all
nations. This passive freedom - this freedom
to be injured by every disturber of the peace - has simply resulted in
the ruin of the well-being of society.
History teaches us that there is nothing so important to a nation as the ability to take suitable measures to defend the
country from invasion by foreign armies and
by foreign goods. Failure to do this leads to
the ruin of native industry once in every generation and to the
need to start all over again by replacing what has been lost.
Finally
history teaches us the complete inadequacy of the doctrines of the popular
doctrinaire economists.
While the English built
up their national industry on the most solid
foundations, the Portuguese and the Spaniards grew rich through new discoveries overseas by which they
became powerful
1.
[List's note] Geronymo de Ustariz
(Théorie du commerce) and Bernardo de Ulloa rightly attribute the depressed
state of agriculture in Spain and the general collapse of economic prosperity to the ruin of
industry. The causes which they mention for this decline include the provincial customs duties, local
dues (octrois) and other ruinous taxes, the
wretched state of the roads, the absence of canals, the importing of foreign goods, the
prevalence of smuggling, and even the poor inns. But they remain silent on the two main reasons for
Spain's decline - namely, despotism and fanaticism. Only Ustariz
ventures to whisper a complaint about the vast sums sent annually to Rome. The flow of money to Rome
would be of little consequence
162
nations in a short time. But the Portuguese and the
Spaniards behaved like dissipated
extravagant idlers who had won a big prize in a lottery, while the English were an industrious and thrifty people whose progress towards wealth and power, though
slow, was solid and sure.
Spendthrifts and gamblers who suddenly become very rich by chance will be able for a time to live in a
more luxurious style than sober
industrious workers. But when industrious people earn money by hard work their only ambition is to
improve their position and to
increase their knowledge still further. Those who acquire wealth rapidly are soon tempted to squander it in
idle pleasures and so they destroy their own productive powers. A rich idler
spoils his children who flatter his
vanity and he fails to give them a good education. But a prudent man
sees to it that his children are educated
properly so as to give them the best possible opportunity to take over
his business in due course and to expand it. Is it surprising that the descendants of the idlers are beggars while the descendants of the prudent man enjoy the rich
fruits of their father's diligence and thrift?
The Spaniards possessed fine flocks of sheep so long ago that as early
as 1172 Henry II of England forbade the importation of Spanish wool. Two centuries earlier the inhabitants of the Spanish district
of Viscaya1 were renowned for their production of iron and for their skill as sailors and fishermen.
These people were undoubtedly the first to engage in whaling. As late as
1615 the English had to send fishermen to the Bay of Biscay to learn how to
hunt whales. Spain was famed for her manufactured products from the earliest
times until Colbert's day when she exported to France some of her fine woollen cloth. Spain had a great navy and
mercantile marine and her large ships were for centuries feared by other sea powers. In short Spain possessed all the
elements of future
but for
the fact that Rome has deprived the Spaniards of the power to earn more money. [See Don Geronymo de Ustariz, Theoria y pratica de commercio y de Marina (1724, 1742, and 1757: English translation,
1757). List used the abridged French translation: Traduction libre sur VEspagnol
de Don Geronymo de Ustariz.
.. (1753). See
also Don Bernardo de Ulloa, Restablicimiento
de las fabricas y commercio espagnol
(1740). List
used the French translation: Bernardo de Ulloa, Retablissement des manufactures et du commerce
d'Espagne ... (Amsterdam, 1753). For Ustariz and Ulloa see Wirminghaus,
Zwei spanische Merkantilisten. G. de Ustariz and B. de Ulloa (Jena, 1886).]
1. [Viscaya is the most northerly of the Basque provinces in
Spain. It is on the Bay of Biscay
and the chief town is Bilbao.]
163
economic prosperity when the growing national spirit
was ruthlessly nipped in the bud by a combination of fanaticism and despotism.
The first act of oppression by this unholy alliance was to expel the jews and the arabs - and even
their descendants who had publicly given up their religious beliefs and had
been converted to Catholicism. The expulsion of the jews
and the arabs cost Spain many useful citizens and a
great deal of capital. The fear inspired by the terrible practices of the
Inquisition stopped foreigners from bringing their capital and manufacturing
skills to Spain and actually compelled Spanish entrepreneurs to seek shelter in
less dangerous countries. The discovery of the new world increased Spain's
wealth but this was only an apparent and a purely temporary phenomenon which
eventually actually hastened the utter ruin of the country. Spain failed to
adopt the colonial policy later adopted by Holland and England. She failed to
exchange the products of the new world for her own manufactured goods - a
policy which is as much to the advantage of the colonies as to the mother
country. Instead the Spaniards slaughtered and robbed the inhabitants of their
colonies and then exchanged their ill-gotten gains for the manufactured
products of foreign countries. Spain systematically
turned people who had formerly been usefully occupied at home into brigands and
oppressors in the new world. These evil deeds and oppressions led to a
strengthening in the power and industry of other states, particularly the Low
Countries. Spain actually fostered in her own territories her greatest foes and
most prosperous rivals. In vain did the king promulgate laws and ordinances
designed to foster Spanish industry and prevent bullion from leaving the
country. The spirit of enterprise, economic progress, technical knowledge, and
artistic skill develops only in countries enriched by political and religious
freedom. Gold and silver remain only in countries where they can be usefully
employed in active prosperous industrial enterprises. With the best intentions
in the world one may try to introduce industry and attract - and keep - bullion
but all the efforts in this direction will be of no avail and will have no
permanent success in a country oppressed by political and religious despotism.
This observation, based upon obvious facts, has escaped the notice of those
economists who regard Spain as a glaring example of the uselessness of
attempting to stimulate economic progress by restrictive measures. Poor dry
soil produces a lean harvest but that does not mean that the seed is bad.
164
Spain and Portugal may be regarded as twins of the
same age who have similar appearances, ideas, skills and prejudices. And they
have made the same mistakes. They have also shared the same rise to fortune and
they have suffered the same decline. Spain won the first prize by discovering
the new world while the second fell to Portugal when she found a new passage to
India round the Cape of Good Hope. The opening up of the new route to the East
enabled Portugal to develop into a great trading nation and sea power while it
dealt a fatal blow to the grandeur of Venice.
For
centuries the Republic of Venice had brought together the ancient skills of
Greece and Asia. Venice possessed industries of all kinds - above all the
production of woollens, silks, glassware, and mirrors. For centuries Venice
monopolised Europe's trade with the East Indies by way of Egypt. She had a firm
base of operations on the Italian mainland and she seized the Morea,1 Cyprus,
Crete and several other islands (in the Mediterranean). After a struggle with
the Republic of Genoa, which lasted for several hundred years, Venice succeeded
in establishing her unchallenged maritime supremacy. But just as Genoa fell
because its greatness had been founded upon the destruction of Pisa so Venice
was punished because she preferred to dominate and to degrade her sister
republics instead of forming an alliance with them as equals. When the Turks conquered
Greece, the Venetians lost a considerable part of their mainland territories
as well as many islands. Portugal replaced Venice as far as trade with the East
Indies was concerned. The Italian city states made the same mistakes as the
Hanseatic League. They injured themselves by their rivalries. They failed to
co-operate and to set up a united state. If they had united, their strength
would have been quite sufficient to defeat the Turks and to seize most of the
commerce that had been opened up by the great discoveries. The failure of the
Venetians to secure a share in the trade with India round the Cape of Good Hope
was due simply to the false political situation in which they had become
involved. Since at the very time that they were fighting the Turks they had to
keep a wary eye on their jealous rivals in Genoa, they could fight the
Portuguese neither on the high seas nor in the East Indies, although they had
more warships and more money at their disposal than the Portuguese. Like all
declining powers Venice tried to cover up her
1. [A small part of Morea (Peloponnesus) was held by Venice in 1461-1540 and in
1684-1714.]
165
weakness by intrigues. But intrigues have little
influence over the power of hard facts. Venice fell, never to rise again. Three
hundred years ago this wealthy city was called the Queen of the Seas. Today
Venice is merely a pile of stones in the middle of some marshes. It is no
pleasant task to dissect decaying corpses. We shall confine ourselves to
drawing attention to those factors in the commercial history of these countries
in decline from which useful lessons can be drawn both for the present and the
future.
In chapter
27 we showed in some detail how advantageous the Methuen Treaty had been for
England and we pointed out that Adam Smith had passed a very different judgment
on this agreement from that of statesmen, merchants, and manufacturers all
over the world. Adam Smith endeavoured to show that this treaty benefitted Portugal and harmed England.
We shall not
attempt to refute Adam Smith's arguments without, however, plunging into any
theoretical controversy. We are concerned only with the very practical question
as to whether commercial treaties of the Methuen type can be advantageous to a
country like England which is striving towards the highest degree of
industrialisation. It was a treaty of the Methuen type that England concluded
with France in 1786. It was a treaty of this kind that Canning offered to Villèle and England would be glad to sign a similar treaty
with any country that is unable to compete with her on equal terms.
Adam Smith
writes in Chapter 16 of his fourth book that the Methuen Treaty was
disadvantageous to England because England allowed Portuguese wine to be
imported on payment of only one third of the duty charged on other wine. This
placed Portugal in a privileged position. But England agreed that her woollen
cloth should pay the same import duty in Portugal as that levied on other
cloth. Consequently Portugal granted no special terms to England. But was not
the English cloth industry far in advance of that of other countries? Was not
England certain that she could sell more cloth in Portugal - without any
privileges - than any other country? Were not the English, according to the British Merchant, able to defraud the
Portuguese of half the duty on cloth? Were not the English, according to the
same writer, able to buy Portuguese wine 15 per cent cheaper because of the
rate of exchange? Did not the consumption of French and German wines, to which
the English had been accustomed, cease on the day that the Methuen Treaty came
166
into force? In fact the Portuguese enjoy a privilege
in England that is only a privilege on paper while the English enjoy a
privilege in Portugal which is a hard fact. A study of the true consequences of
the Methuen Treaty provide the key to England's commercial policy from that day
to this. The English have always been cosmopolitans and philanthropists in
theory but always monopolists in practice.
Adam Smith
did not deny that England enjoys the advantage of drawing large sums of money
from Portugal in payment for her cloth. In his second argument against the
Methuen Treaty he states that the English had no need to use the money received
from the sale of cloth in Portugal to buy goods which they required from other
countries. "But", wrote Adam Smith, "if those consumable goods
were purchased directly with the produce of English industry, it would be more
for the advantage of England than first to purchase with that produce the gold
of Portugal, and afterwards to purchase with that gold those consumable goods.
A direct foreign trade of consumption is always more advantageous than a
round-about one; and to bring the same value of foreign goods to the home
market, requires much smaller capital in the one way than in the other."1
If we did
not have the greatest respect for the character of this distinguished writer -
and for his wide knowledge and abilities - we would have to criticise him on
this occasion for lack of judgment or for something worse. But as we are
certain that Adam Smith had very great abilities we can only ascribe his casual
and empty arguments to the weakness of human nature and to the zeal with which
this eminent economist pursued the noble object which he always hoped to
achieve - namely to convince humanity of the benefits to be derived from
universal free trade.
Adam Smith's
reasoning is as senseless as that of an economist who asserted that a baker
would lose trade by selling bread for cash. If the baker were to ignore the
customers to whom he sold bread for cash and were to go directly to the miller
and exchange his bread for flour he would be doing business in one transaction
instead of two. But even a person of only very limited abilities could answer
such an argument. Since the miller does not need all the bread that the baker
produces he can stay in business only if he can find people willing to pay cash
for the surplus bread. Alternatively it could
1. [Adam Smith, An Inquiry into the Nature and Causes of the
Wealth of Nations (1776) (Everyman edition, Vol. II, p.46).]
167
be argued that although the miller would be prepared
to sell his flour for cash he would refuse to exchange his flour for bread.
That is exactly the position as far as England and Portugal are concerned. To
make this quite clear we must examine the way in which commerce was conducted
at the time of the Methuen Treaty. Portugal sent manufactured goods to the
tropical regions of South America and received gold and silver in return. But
since the Portuguese were too idle or too stupid to make manufactured goods
themselves they had to use their gold and silver to buy the goods that they
required in England or on the Continent. The countries receiving this gold and
silver either minted it for use at home or they used it to trade in China or in
the East Indies. England exported annually £500,000 to £1,000,000 to buy goods
in China and India. Some of these goods from the East were consumed in England,
while others were sold to various countries for gold and silver or for raw
materials to be manufactured in English workshops. The demand for cloth was
very small in Asia when compared with the demand in Portugal. And England's
exports to India were valued at only about £160,000 a year at that time.
In the name
of common sense we ask: Who would have purchased from England all the cloth
that she exported to Portugal if the Portuguese had not bought the cloth or had
bought it in France or Germany or had made it themselves in their own
workshops? If this had happened England would have failed to sell her cloth in
Portugal or in the Portuguese colonies. Her other customers were already buying
as much English cloth as they required. The only sensible answer is: The
English could not have produced the cloth which they had been selling to
Portugal. They could not have obtained the gold and silver which they had
formerly obtained from Portugal. They would not have had the gold and silver
which they formerly sent to Asia. They would have bought fewer goods from
India. They would also have bought fewer products from the Continent. And this
massive decline in trade would have reduced England's productive powers.
Portugal on the other hand - and those countries which supplied Portugal with
manufactured goods-would have increased her productive powers. Most important
of all there can be no question that England, without the Methuen Treaty, would
never have extended her power in the East Indies.
Adam Smith's
third argument is that the English would have secured the bullion that they
required from some other source if
168
they had failed to obtain it from Portugal. The gold
and silver surplus to Portugal's needs would have been sent abroad and would
then have reached England in one way or another. This argument is on similar
lines to the second argument and it is self-contradictory. If the Portuguese
had manufactured cloth themselves and had sent their surplus gold and silver to
China and India it is not likely that England could have laid hands on it. The
same thing would have happened if the Portuguese had bought the cloth they
needed in Germany or in Flanders. In that case, as far as England was concerned,
Portugal and her colonies would simply have ceased to exist and the English
would not have produced a yard more cloth. The English could not have secured
for themselves a grain more of gold or a pound more of spices from India than
their limited exports would have permitted. This is proved by Germany's
experience. Germany once had greater industries than England and even today has
as fine intellectual and moral resources as any other country. It is proved
also by the experience of all states which do not have a home market protected
by commercial treaties of the Methuen type. And it would have been proved by
the experience of England if her statesmen had followed Adam Smith's advice two
hundred years ago.
It can be
seen from Adam Smith's assessment of the Methuen Treaty how dangerous it would
be for statesmen to act in conformity with an economic doctrine which is based
upon a false cosmopolitanism and is supported only by evidence derived from
the theory of value. Moreover the arguments employed by Adam Smith largely
explain why the English honour his doctrine of foreign trade in theory but
decline to put it into practice.
It would
really be a master-stroke of England's policy to persuade other countries that
commercial treaties of the Methuen type were disadvantageous to England and
greatly to the advantage of other countries that signed them for Adam Smith has
proved them with arguments supporting this point of view and they might think
that they have good reason to accept his arguments.
We ask
anyone who cannot understand the difference between national and cosmopolitan
economists - and between the theories of productive powers and value - to turn
his attention to Portugal and to England and to compare the economies of these
two countries. I am sure that he can have no doubts as to which country is
prosperous and which has lost its economic independence, is dead
169
from an intellectual, commercial and industrial point
of view, and is decadent, poverty stricken and weak.
From the day that the American colonies were founded
to the day that they became an independent state they were treated by the
mother country as colonies to be cleared, planted, and exploited. In 1651
England imposed a heavy duty upon tobacco imported from Virginia. When the
planters replied by exporting their tobacco to Holland, the English parliament
passed an Act which provided that exports from the American colonies had to be
sent first to an English port where the import duty had to be paid. This law
remained in force until the revolt of the American colonies. When some
industries were established in the colonies, despite the English monopoly,
English ships were prohibited from handling American wool, yarn, or
manufactured products.
In 1719 the
House of Commons went still further. It declared that the development of industries
in the American colonies en-
1. [For an earlier discussion
of American economic policy see F. List, Outlines
of American Political Economy... (Philadelphia, 1827) and Appendix to the Outlines of American
Political Economy ... (Philadelphia, 1827). The first pamphlet contained 8
letters to C.J. Ingersoll and the appendix contained 3 letters. The letters
first appeared in the National Gazette
(Philadelphia) between August 18 and November 27,1827. The pamphlet and the
appendix were reprinted in Margaret E. Hirst, Life of Friedrich List (1909) and in F. List, Werke, Vol. II, pp.97-156. A twelfth letter (National Gazette,
November 27, 1827) was not included in the two pamphlets of 1827 but has been
printed in F. List, Werke, Vol. II,
pp. 155-6.]
170
dangered
their dependence upon the mother country and several laws were subsequently
passed to check the growth of American industries. In 1750 Parliament actually
denounced the very existence of American forges, foundries, ironworks on the
coast, and several other colonial manufacturing enterprises as being'' common
nuisances" harmful to society. Sir Josiah Child and Dr Davenant both
declared that the American colonies were the most harmful of all the overseas
possessions because they were establishing their own industries (1670). It is
to Adam Smith's credit that, in his famous book, he was the first to draw
attention to the injustice of England's commercial policy with regard to the
American colonies. The tyrannical attitude of England towards the commerce and
industry of her colonies was one of the main reasons for the outbreak of the
American war of independence.
There were
two reasons why the war of independence fostered the growth of American
industries. First, when the war broke out manufacturers were at once freed from
all the restrictions previously imposed by the British government. Secondly,
the establishment of new industrial enterprises was obviously necessary,
profitable, and patriotic because the interruption to Anglo-American commerce
stopped Americans from buying manufactured goods from England and from sending
their products to England.
After the
cessation of hostilities the loose links between the states of the Union were
too weak to give adequate protection to the industry and commerce which had
developed while trade with England had been interrupted during the war.
Moreover the production of manufactured goods was seriously hampered because
England continued to place import restrictions upon them. A country which had
enjoyed the blessings of peace in wartime now suffered the inconveniences of
war in time of peace. The slump in industry and trade was the main reason for
the discontent in all the states of the Union in the early years of
independence and this eventually brought about a revision of the constitution.
When the
first Congress met in 1786 after the adoption of the new constitution nearly
all the states - led by New York state and South Carolina - submitted petitions
in favour of the protection of industry and shipping. On the day of the opening
of Congress George Washington appeared dressed in a suit of homespun cloth and
the official press declared that he had done so in order to set an example to
all his countrymen and to show what should be done to
171
place the independence and prosperity of the country
on a sound footing.1
This
Congress imposed import duties which were high enough to foster home industries
in the early phase of their development. To promote the expansion of the
mercantile marine Congress ordered that goods imported in American ships should
pay 10 per cent less duty than goods imported in foreign vessels. The measures
passed by Congress in 1786 were so effective that when he opened the Congress
of 1791 the President was able to congratulate the country on the prosperous
state of agriculture, industry, and commerce.
It soon
became apparent, however, that the economy was being adversely affected by the
restrictions which foreigners- particularly the English - had placed upon
American trade. It was also obvious that the import duties originally imposed
were too low to accomplish their object of adequately protecting American
industry and shipping. Alexander Hamilton, the Secretary of the Treasury, was
instructed to prepare a full report on American manufactures and he carried out
this task in a very able manner. On the basis of Hamilton's report2 James
Madison proposed to the Congress of 1794 that import duties should be increased
to protect the country's industry and shipping. This proposal was accepted. The
main goods on which higher import duties were levied were woollens, calicos,
and iron and steel products.
Although
these import duties were still very moderate they were sufficient to enable all
the eastern states of the United States to develop substantial industries.
Later, however, owing to the rapid progress of England's industries, there were
occasions on which certain branches of American manufacture - particularly such
important industries as woollen and cotton cloths - suffered from
1. [List frequently repeated
this story. It appears to refer not to the opening of the first Congress in
1786 but to Washington's inauguration of 1789. The United States Gazette (New York, May 6, 1789) reported:"The
President of the United States on the day of his inauguration appeared dressed
in a complete suit of homespun cloths. The cloth was of so fine a fabric and so
handsomely finished, that it was universally mistaken for a foreign
manufactured superfine cloth ... This circumstance must be considered as not
only flattering to our manufacturers in particular, but interesting to our
countrymen in general" (quoted in F. List, Werke, Vol. II, p. 184).]
2. [Alexander Hamilton, Report of the Secretary of the Treasury of
the United States on the Subject of Manufactures ..., December 5, 1791
(second edition, 1824edited by M. Carey). In a speech at a dinner given in his
honour by the Pennsylvania Society for the Encouragement of Manufactures and
the Mechanic Arts on November 3, 1827 List had referred to "Hamilton's
celebrated work". See F. List, Werke,
Vol. II, p. 168.]
172
English competition. But Congress showed no
disposition to come to the aid of these industries so long as American farmers
and merchants were prospering as a result of the wars that were raging in
Europe. But the last war between England and the United States -and still more
the peace that followed it - altered the situation completely. Both farming and
foreign trade had been ruined during hostilities but all branches of industry
had flourished. The peace led to a further decline in the fortunes of the
merchants and the farmers and this at last led them to make common cause with
the unfortunate industrialists, who were now suffering once more from English
competition. For the second time the United States learned by bitter experience
that a peace which sacrifices the industries of a nation to foreign competition
is worse than a war.
The success
of English competition coupled with England's refusal to admit American wheat
and timber to her ports led to a widespread trade depression in the United
States. The survival of American industry now became a national issue. The
Congress of 1816 adopted a tariff which increased the import duties on English
manufactured goods but eventually even this tariff was found to be too low to
achieve its aim. The American factories did not revive and since the farmers
could not sell their grain the price of agricultural produce fell more and
more so that farmers and planters were faced with ruin.
In 1822 an
attempt was made to alleviate the crisis by raising the tariff but the cotton
planters - who play the same role in the United States as the winegrowers in
France - had a vested interest in retaining a low tariff. In co-operation with
the merchants interested in foreign commerce they were sufficiently powerful to
override the interests of the nation as a whole.
By 1825 the
number of bankruptcies among the wheat farmers had grown to such an alarming
extent that Congress agreed to another increase in the tariff. As soon as
information concerning the new duties reached England Huskisson
went to work and took measures of retaliation against the Americans which gave
English manufacturers the opportunity to compete successfully with the
Americans in their home market.
England's
retaliation placed the American manufacturers in an even worse position than
before. Thinking that the new tariff would protect them in the home market they
established many new enterprises only to find themselves faced with utter ruin
from the
173
moment that the new factories opened their doors.
These circumstances, coupled with a renewed threat to American farming from
the existing state of Anglo-American trade, eventually led to the adoption of
the new tariff of 1828 - despite strong opposition from the cotton planters and
the merchants engaged in foreign trade. This tariff at last gave American
industry - particularly the cotton, woollen, and iron industries - adequate
protection against foreign competition. It was the immediate cause of the
prosperity that American industry has enjoyed from that day to this.
The tariff
of 1828 was no more than a natural and necessary reply to England's commercial
policy. England persistently refused to accept American wheat and timber in
exchange for English manufactured goods. England would accept only those raw
materials, such as cotton, which were indispensable to her own industry. As far
as the United States was concerned this policy helped only the slave states
which were, from an economic point of view, the most backward in the country.
But England's policy ruined the most important, the most fertile, and the most
prosperous states in the Union. Every year the profits from their economic
activities were counterbalanced by the loss of 500,000 of their best farm
workers who migrated to the wilderness in the West. Huskisson
fully appreciated the situation. It is common knowledge that the British
ambassador in Washington frequently warned his government of the consequences
that would follow from the exclusion of American products from the English
market. Had Huskisson really been a leading
cosmopolitan - as the doctrinaire economists on the Continent would have us
believe - he would have taken the opportunity afforded by the imposition of the
new American tariff to make it clear to the English nobility that the
imposition of the new American tariff was a glorious consequence of their
precious Corn Laws. He would have told them that only the abolition of these
senseless laws would enable English industry to recover at any rate a part of the
American market, which they now risked losing altogether. But what did Huskisson do? He railed against the Americans like a
cardsharper whose slight of hand has been exposed. He made reckless assertions
that every American who worked on the land knew to be palpably false. He made
threats against the Americans that he had no means of carrying out. In short he
made a complete fool of himself. Huskisson declared
that the exports of the United States to England amounted to half her total
174
exports but that England's exports to the United
States amounted to only one sixth of her total exports. From this he concluded
that the Americans were more in England's power than England was at the mercy
of the United States. This superficial argument may sound plausible but every
American farmer knows perfectly well the true nature of Anglo-American trade.
He knows that the exports of the United States to England are all raw materials
that England cannot do without and that the value of these products is
increased tenfold in the manufacturing process. On the other hand he also knows
that all England's exports to the United States are manufactured goods which
the United States can very well do without since she can either make such goods
herself or she can buy them from France or Germany. Consequently England is in
the power of the United States in two ways. Huskisson
boasted of the great increase in the imports of American cotton to England in
recent years. That is true but it should be appreciated that this increase took
place in a manner advantageous to England and harmful to the United States.
This was because the output of raw cotton was continually expanding faster than
the demands of the market. Consider the significance of the following facts. In
1816 the Americans sold 81 million lbs of cotton for 24 million dollars while
in 1826 they sold 204 lbs for only 25 million dollars. The Americans had sold
three times as much cotton in 1826 as compared with 1816 but the revenue earned
from the cotton had risen by only one twentyfifth. In
these circumstances the English landlords could hardly take Huskisson's
arguments very seriously. Finally Huskisson
threatened to restrict the imports of American cotton. Can one really believe
what he says? I doubt it. If Huskisson really meant
what he said it would cast genuine doubts upon his intellectual capacity, upon
his practical knowledge, and upon his political integrity. Did he really
imagine that the Americans were so simple as to be cowed by his empty threats?
It is certain that the Americans were perfectly well aware of the following
facts: (1) that cotton from India is poor in quality, (2) that India, Brazil,
and Egypt can only expand their output of cotton very slowly, and (3) that so
long as England cannot get the cotton she needs from countries other than the
United States the imposition of a high import duty upon raw cotton would
benefit only the cotton industry on the Continent and would damage the English
cotton industry. For obvious reasons such a policy would encourage the
development of the manufacture
175
of cotton goods in the United States and this would
soon become the most important cotton industry in the world.
Another of Huskisson's threats ran counter to the most ordinary common
sense. He actually suggested that by smuggling goods across the Canadian
frontier the English could avoid the damage to their trade which would probably
be caused by the American tariff. Though England does not generally fear
retaliation she would certainly avoid it in that part of the world.
Huskisson
obviously erred in his assessment of the Americans and their economy just as
Canning erred in his assessment of France and the French. The age of Methuen
treaties has passed away and free trade economists cannot for ever hope to
throw dust in people's eyes. Today it is deeds that count, not words. The time
has passed when it was possible to persuade a nation to adopt a particular
commercial policy by gaining the ear of a few ministers of state. Today there
are so many journalists writing for so many newspapers, there are so many
readers of newspapers, and there are so many people capable of thinking for
themselves that it needs more than long-winded debates in parliament and low
diplomatic tricks to gain popular support for a commercial treaty. Nowadays the
truth must be told to gain the support of the people for a trade agreement and
it is essential that they should be convinced that the terms will be favourable
to both parties.
We have
considered it necessary to discuss the policy of Canning and Huskisson both in this chapter and in other parts of our
treatise because for many years we have marvelled at the way in which their
political activities have been misunderstood by continental philosophers and
politicians. The views of politicians have obviously been influenced by the
fact that these two ministers were Whigs who were bitterly attacked by the
Tories. The liberals on the Continent believed that the Whigs were their
friends and that Canning and Huskisson were flesh of
their flesh.
Heavens
above! An English Whig is always an Englishman. And any Englishman - especially
if he is the leader of his country - would never be a cosmopolitan except in
the sense that the term was once applied to the Hansards,
the Venetians, and the Dutch. "I fear the Greeks even when they bring
gifts."
176
SINCE THE RULERS of Russia had been instructed in the
doctrine of free trade by (their tutor) Heinrich Storch1 it is not surprising
that as soon as the Continental System was abolished and general peace was
restored, the Russian Empire should have lost no time in enjoying the blessings
of free trade. The Russian tariff of 18192 was, as far as possible, true to the
principles of free trade and the results were soon evident. Russia was flooded
with foreign goods, the home market was ruined, and most of the country's
bullion was drained away to foreign countries. If anything was needed to render
the doctrinaire theory of free trade even more ridiculous it was the fact that
all this happened at the very time when Great Britain was imposing restrictions
on the import of Russia's wheat and of most of her raw materials. Even when the
depression in Russia reached its climax the government persisted in the policy
of free trade for some time because the doctrinaire economists assured the Czar that the disastrous consequences of free trade would
be only temporary in duration and would undoubtedly be followed by better
times. The Czar waited for four years for the fulfilment
of the prophecy of the free traders.
Eventually
the distress in Russia became so great that serious consequences were feared.
Even Napoleon's invasion had not brought such disasters to the country as the
much vaunted policy of free trade. The Czar decided
to reverse his economic policy but so great was the influence of the supporters
of free trade that even the
1. [See H. Storch, Cours a"economic politique ou exposition des principes qui determinent la prosperite des
nations: ouvrage qui a servi
a Vinstruction de Leurs Altesses imperiales, les Grands-Ducs Nicolas et Michel (6 vols,
St Petersburg, 1815 and 4 vols, Paris, 1824). This
book was published at the expense of Czar Alexander
I. Storch was born in Riga in 1766 and died in 1835.
According to G. von Schulze-Gaevernitz, Volkswirtschaftliche Studien zu Russland (1899), p.244 the
Russian tariff of 1819 was inspired by the Prussian (Maassen)
tariff of the previous year and was only "a temporary deviation" from
the normal Russian fiscal policy of prohibitions and high import duties.]
[The Russian tariff was dated
November 22,1819. List wrote "1818" in error.]
177
autocratic government considered it prudent to justify
its action by a public statement. In a circular dispatch of March 22,1822 Count
Nesselrode wrote: "The landowners have no market
for their produce, the workshops are completely ruined, our precious metals
have been exported, and the most solid mercantile houses face bankruptcy."
Since those
days Russia has reversed her fiscal policy and we no longer hear of any
distress in that country. In fact it is said that agriculture, industry, and
commerce are now enjoying a new period of prosperity. Russia, however, is
obviously not yet ready for the adoption of a fully fledged policy of
protection.
The two fundamental principles of the mercantile
system were that a country can prosper only at the expense of another country
and that national wealth consists solely of precious metals. It followed that a
nation should try to secure as much money as possible from foreign states and
should take steps to ensure that it stayed within its own frontiers. This
policy was derived from the narrow myopic vision of merchants and it was put
into practice by imposing a tariff to restrict the export of precious metals as
much as possible.
It would be
a mistake to confuse the "mercantile system" with the
"manufacturing system" and to condemn both in the same breath. The
"manufacturing system" was described by certain writers before
Colbert's day. It was first practised by the English government and was later
copied by Colbert. The Italians called this system "Colbertism" and
they differentiated between the "mercantile system" and the
"manufacturing system".
178
Supporters
of the "manufacturing system" do not suggest that a country can
prosper only at the expense of another country. Their object is to enrich all
the citizens in a country - manufacturers, farmers, and merchants trading at
home and abroad. The "manufacturing system" seeks to establish and
to foster industry and the "productive powers" of the nation. In
practice it has invariably achieved its aims, provided that it has been
supported by suitable social, moral, and political institutions and provided
that adequate natural resources are available. Supporters of the
"manufacturing system" often imposed import duties to protect native
industry from foreign competition in the home market. But when they went so far
as to restrict the export of agricultural produce and raw materials in the
interest of the industrialists they injured those who made their living on the
land and they flouted all cosmopolitan principles. The "manufacturing
system" had become narrowly nationalistic and the outlook of its
supporters had become far too restricted.
The
"agricultural system" - the doctrines advocated by the Physiocrats -
was simply a reaction against the "mercantile system" and the
"manufacturing system". In exposing the errors of the earlier
theories the Physiocrats went to the other extreme and championed an opposite
doctrine which virtually amounted to pure cosmopolitanism. They wanted to
secure prosperity for the whole human race but in trying to attain their aims
they failed to appreciate - indeed they entirely ignored - the particular
interests of various nations. Confused by the weaknesses and limitations of the
"manufacturing system", the Physiocrats thought that economic
expansion could be promoted only by establishing complete free trade throughout
the world. They laid down a priori
principles and only later began to look for evidence to prove that they were
correct. They saw that in the very nature of things the existence of
nation-states prevented the fulfilment of their aims. An examination of
Colbert's achievements convinced them that in the modern world - in which the
human race is divided into nations - the establishment and development of
industries can be fostered only by the imposition of tariffs. But as their
outlook was completely cosmopolitan they turned a blind eye to the very
existence of national tariffs. The "agricultural system" of the
Physiocrats, though founded upon quicksands, was the
first economic doctrine to recognise fully the significance of agriculture and
to bring into
179
the limelight the interests of the whole human race,
which the mercantilists had failed to recognise.
We now come
to the "cosmopolitan system''. We can think of no better name for the
doctrines advocated by Adam Smith and J. B. Say. The supporters of these
doctrines recognise that the arguments of the Physiocrats are untenable and
they have restored industry to its rightful place in the economy. And they have
shown that industry is mainly responsible for the development of a prosperous
agriculture.
Blinded by
the cosmopolitan doctrine of free trade the supporters of the
"cosmopolitan system" have taken the wrong road to achieve their
purpose. They have fallen into the same trap as the Physiocrats by first
asserting a principle and then looking for evidence to support it. They have
not appreciated the significance of the fact that humanity is divided into
various nations, each with its own individuality. They have failed to recognise
the existence of a problem posed by nature itself - namely how to unite the
"productive powers" of all individuals so that they can pursue a
common goal to their mutual advantage. Since such unwelcome facts are
incompatible with the "cosmopolitan principle" they have simply been
ignored. The supporters of the " cosmopolitan principle" have
silently averted their eyes from the obvious fact that nations exist and they
have simply imagined the existence of a world republic.
At the same
time they have also been forced to ignore wars and the consequences of wars or
at any rate they have had to postulate the absence of such disagreeable events.
They regard tariffs as the result of a mistaken fiscal policy whereas they are
really brought about by the division of mankind into independent sovereign
states. Supporters of the cosmopolitan doctrine are treading a path that
ignores reality and they pretend that what in fact exists is not there at all.
Consequently all their conclusions are absolutely worthless in practice. On the
other hand practical men have to accept the fact that national rivalries and
international conflicts do exist and they have to cope with the consequences of
this state of affairs. Moreover the "cosmopolitan system" is a purely
materialistic conception which fails to take account of the human spirit - and
the human power- that lie behind material things. At best the
"cosmopolitan system" lays far greater stress upon material objects
than upon the creative power which makes possible the production of material
goods. The supporters of the "cosmopolitan system" make this
180
mistake - just as they made the fundamental mistake
which we have already mentioned - because they lay down a priori doctrines and
then try to prove them.1 They consider it axiomatic that all production depends
upon labour and upon the value of material things. But as soon as they attempt
to develop and to elucidate these principles in conformity with what happens in
the real world it becomes crystal clear that their doctrines can be applied
only to material goods that have already been produced and cannot be applied to
productive powers which obey entirely different laws.
This has led
the supporters of the "cosmopolitan system" to reach certain
erroneous conclusions. They have concluded that since goods can be bought only
in exchange for other goods, the exchange of products by foreign trade is
always desirable. In their opinion it follows that it is always foolish to
attempt to regulate by law what a country produces. They argue that if the
output of a particular commodity is diverted into channels different from those
intended by nature - because of restrictions imposed by another country -there
is nothing that can be done to remedy the injury. They consider that any
attempt at retaliation would only make matters worse by adding a second injury
to the first. They believe that as far as foreign trade is concerned, nations
show the greatest wisdom when they buy in the cheapest market and then allow
nature to take its course.
Those who
argue in this way completely fail to recognise that it is only step by step
that nations are able to secure the development of their agriculture to a high
standard of efficiency. They forget that the basic foundations for the
maintenance and future development of manufacturing power are progress in agriculture,
culture, power, and independence. They forget that this manufacturing power cannot
develop in relatively backward countries under conditions of free competition,
particularly when that competition comes from a highly industrialised country.
They forget that a nation begins to establish industries with a view to
developments that will occur not j ust in a few years
but in hundreds - even thousands - of years in the future. In fact these
developments will take place throughout the whole life of the nation. They
forget that from this point of view the theory of value does not come into the
picture at all; that
1. [List's note] Droz (Econ. polit., introduction vi) vigorously criticises those
who do not take the trouble to distinguish between what is known and what is
not known -and this is the only way to arrive at the truth. [The full reference
is Joseph Droz, Economie politique ou principes de la science des riches (Paris, 1829).]
181
a tariff is the only way to establish industries so
that they eventually reach a high standard of efficiency; that nations develop
great industries because they possess the necessary natural resources and
intellectual qualities. Above all they forget that this is the certain means by
which mankind will eventually achieve the goal of universal free trade. This
can never be achieved if one ignores the natural course of human development.
By ignoring
all these considerations the supporters of the "cosmopolitan system"
inevitably become involved in endless contradictions and they have put forward
arguments which are contrary to the course of nature. They acknowledge the
importance of industry and they agree that there can be no progress, no
culture, and no agriculture without it. Yet they vociferously reject the only
means by which the expansion of industry can be attained. Unable to deny that
all industrialised states have become rich and powerful, they argue that this
has happened in spite of - and not because of -their tariffs. In one chapter
they praise poor Colbert, while in the next they attack him.1 They feel that
they must denounce tariffs although tariffs are simply a method by which a
state reserves trade for itself. They have to argue that tariffs protect
industry at the expense of agriculture although in fact it is agriculture that
gains most from tariffs (on manufactured goods). They have to assert that a
tariff robs agriculture of capital although in fact industry generally uses
only resources and powers which, in a purely rural society, lie dormant and are
of no use. They have even found it expedient to criticise and to deprecate
commercial treaties which are in fact the only way by which freedom of trade
can be secured. Indeed it is precisely those commercial agreements which are in
closest accord with the "cosmopolitan system" which have failed
completely to produce the results prophesied by the free traders.
1. [List's note] Say states
(P.I., p.294 of his Traité):
"The stimulus which Colbert gave to manufactures placed a burden upon
agriculture". On page 279 of the same volume, however, he observes:
"Perhaps they (the silk and cloth industries) benefitted
from the stimulus given to them by Colbert." On page 275 he states:
"If an industry is profitable it needs no stimulus and if there is no
likelihood of a profit there is no point in fostering the industry" and
then in the same chapter on page 275 he observes:" It would perhaps be
right to stimulate some industries which may prosper in the future". On
page 268 in the same chapter Say states:" Commercial treaties are valuable
only if they protect an industry - and the capital invested in it - which has
developed on wrong lines owing to bad laws". Finally Say states (P.Il, p.404) that "agriculture will always be in a
wretched and depressed state unless a country has flourishing towns and
prosperous industries". There are indeed many contradictions here.
182
The
following argument illustrates in a striking fashion how blind to reality are
the supporters of the "cosmopolitan system". They assert that nature
ordains that people should trade according to the principle of freedom of
commerce. They proclaim that nature utterly rejects restrictions on commerce
because she has endowed different peoples with different resources and the
ability to produce different products. They argue that it would be flying in
the face of reason to try to make the northern countries grow the fruits of the
southern countries. This argument is all very fine but we have already shown in
chapter 17 that it applies only to agricultural products. As far as the output
of manufactured goods is concerned it is obvious that the major states in the
temperate zone - if they possess the necessary moral qualities and the
necessary political and cultural institutions - are all equally capable of
establishing great industries. Scholars of the calibre of Adam Smith and Say
would undoubtedly have appreciated this distinction had they not been
prejudiced by a principle which they feel that they must defend at all costs.
The best
proof of the errors and weaknesses of the "cosmopolitan system" is
the inability of its supporters to explain how the world republic of the future
is to achieve universal free trade. And they have never made the smallest
efforts to achieve this goal in practice.1
Adam Smith
has been highly praised for teaching that a nation's wealth consists not merely
of precious metals but of all kinds of products that have exchange-value. This
would indeed be a highly significant observation but for the fact that
something even more significant than material objects also deserves attention.
This is the human factor - the will and the ability to produce goods. Those who
lose the will to produce decline into a state of weakness, poverty, and
distress, however much wealth they may possess in terms of material products.
We have already illustrated the truth of this statement by discussing the fall
of Venice, the Hanseatic League, Spain, and Portugal. It has also been claimed
that Adam Smith showed that labour was the only real source of national wealth.
The
1. [List's note] Say
contradicts himself when he writes: "Perhaps a government would be well
advised to foster certain types of industrial production. Losses might be
sustained at first, but after a few years valuable benefits would result from
such a course of action". This "perhaps" completely contradicts
Say's rejection of state aid to industry. And does he not admit that an
industry will prosper only after many years have passed - and not just in a few
years? Does a nation exist for only a few years?
183
fact that there is virtually no truth in this narrow,
limited definition of the origin of wealth is, in itself, a proof of the utter
inadequacy and weakness of the entire "cosmopolitan system". Adam
Smith might just as well have argued that human hands and feet are the source
of all wealth. It would be just as impossible to derive any sensible principles
or conclusions from such a statement.
It is
meaningless to claim that the work people do is the origin and the cause of
wealth. Is there no difference between the work performed on a steamship by the
boy who handles the rudder and by the engineer? The physical labour of the boy
at the rudder may be ten times heavier than that of the engineer but the work
performed by the engineer is a thousand times more important than that of the
boy. Leaving on one side the power of machinery one might point to the
difference in output of the physical labour of an Englishman and some
undernourished Indian. One might compare the work of two farmers, one of whom
is far away from any industrial towns where he might have commercial contacts,
while the other is in close touch with a number of different manufacturers.
Again there is a significant difference between the output of demoralised
superstitious slaves and that of free, enlightened, cultured, and intelligent
workers.
To obtain a
clear and accurate picture of productive powers- and of the means by which
those powers can be developed and protected - it is necessary to ask the
question: If work produces wealth, what produces work? What makes men set their
hands and feet in motion to make something? What contributes to the success of
their efforts? We always find that there is some inner urge which sets the
human body in motion. The more that a man appreciates that he must provide for
his own future, and that of his dependants, the greater will be his efforts and
the more work will he perform. The more that a man has been accustomed to work
from his earliest days, the more that his education has awakened his latent
powers, the more that he follows the good example of his parents and teachers,
the less likely will it be that he will allow himself to be diverted from his
tasks by erroneous or superstitious views. Such a man will find that his
technical skill and his zeal for work will increase as time goes by and
consequently his output will increase. Christianity, monogamy, and freedom are
more likely to foster the development of productive powers than Mohammedanism,
polygamy, and servitude or a very limited amount of freedom. And
184
there are even significant differences between the
productive powers of the adherents of various Christian churches.
Nature
supplements and increases men's productive powers and output by the power of
water, wind, animals, and steam. But men can use these natural powers to
establish advanced types of workshops and factories only after they have made
the requisite intellectual progress. They must be enlightened and well
educated and they should have a good knowledge of science as well as high standards
of technical skill. Consequently the workers in an advanced country have a much
greater output than workers in a backward country.
It follows
that certain conditions must be fulfilled before men's productive powers, and
their intellectual and physical labours, can be successfully applied to the
production of material goods that have an exchange value. There must be good
laws, effectively enforced. Persons and property must enjoy the maximum
security. The people must have high moral and religious standards so that
superstition, prejudice, and vice can be rooted out. There must be a good
system of education. Science and the arts must be zealously fostered. Workshops
and factories must receive adequate protection. There should be a harmonious
balance between all branches of production. In general the whole national
economy should be stimulated. The government should safeguard economic
prosperity at home and should protect the country from foreign aggressors.
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.
Our
opponents might argue that the principle we have advanced could be interpreted
as meaning that economic prosperity is related to the number of lawyers,
parsons, soldiers, teachers, and scholars who are working in a country. It is
easy to refute this sophism. Intellectual production and brainwork - like
manual labour and the production of material goods - cannot be measured by
counting the number of individuals concerned. Two hundred workers - given the
necessary power driven machinery - can make as many garments as 1,000 men who
are working without these aids to production. In this case 1,000 workers on
their own produce less than 200 workers with power-driven machines. Similarly
1,000 teachers and parsons, who pursue their vocations zealously, can produce
more intellectual powers than 100,000 less dedicated men.
Adam Smith
regarded the physical labour which produces goods
185
having exchange-value as the sole source of wealth and
he failed to examine the origins of the powers 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. Had Adam Smith
examined these intellectual resources he must surely have recognised the
significance of industrial power for all the other economic activities carried
on in a country and he would not have fallen into the error of judging foreign
trade by the theory of exchange-value.
J. B. Say
appreciated Adam Smith's error and replaced the word "labour", which
Adam Smith used, by "industrious classes" but this also has too
narrow and limited a meaning. We can prove that Say failed to recognise - or at
least failed to recognise fully - the existence of productive powers by drawing
attention to the following facts: (1) Say takes exactly the same view of
commercial and trading restrictions as Adam Smith, (2) Say does not appreciate
that a native industry is absolutely essential to the development of a nation's
culture, independence, and power, and for the fullest expansion of agriculture,
(3) Say completely fails to understand the influence of the political and
social state of a country upon its economic development. For these reasons Say
makes the same mistakes as his predecessors.
The doctrine
of productive powers has become widely known through the comprehensive and
learned writings of Chaptal, Charles Dupin, and Droz. These scholars
have deepened our knowledge of the true nature of economics. Chaptal has limited his researches to showing how the
national wealth of France has increased as the result of a policy of fostering
home industry and foreign commerce. Dupin has brought
together statistics illustrating not only what Say calls "industry"
but also on the moral condition, the intellectual capacity, the educational
facilities, and the social and political institutions of France. He has made a
thorough, detailed, comprehensive, and systematic examination of the way in
which all France's productive powers have been applied in practice. The
profundity of his researches, the clarity of his thinking, and the completeness
of his survey - rather than his criticism of Adam Smith - have brilliantly
illuminated the gross inadequacy of the "cosmopolitan system". Droz has written a remarkably lucid criticism of the
"cosmopolitan system" of Adam Smith and Say and has concluded his
book with an excellent, detailed and well written chapter
186
in which he compared the " cosmopolitan
system" with the doctrine of productive powers. Had he expanded this
chapter he might have formulated a new doctrine which would be based firmly
upon what happens in the real world.
In previous
chapters we have shown how the English have paid homage to a doctrine that has
enabled their country to become the mistress of the world and to ensure her
supremacy in the future. English economists have denounced the opposition of
practical men in other countries to their theories as short-sighted and narrow
minded. This is quite natural.1 In England economic theory and practice go hand
in hand and even the erroneous aspects of the doctrine of free trade have
proved to be to England's advantage.
German
economists have also paid homage to the doctrine of free trade and still do so.
This too is understandable. Some German economists have actually resurrected
the theories of the Physiocrats from the dusty tomes in which they first
appeared. So far it has been impossible for Germany to adopt a national commercial
system because the country is divided into a number of small states. German
intellectuals naturally welcomed the doctrine of free trade and they hoped that
its adoption would bring prosperity to their country. It is perfectly
understandable that they should have embraced the theories of the "
cosmopolitan system". It is quite natural that a weak country, oppressed
by a powerful neighbour, should seek refuge in a doctrine based upon the
principles of justice and morality.
There are,
however, countries which - although their industries are quite well developed -
have suffered from the ruthless economic policy of a still more advanced
industrial nation. It is really astonishing that there are people in such
countries who are prepared to defend and to support the "cosmopolitan
system". The practical results of the acceptance of this system by the
countries in question would be a decline in their wealth, power, and culture as
well as oppression on the part of the rival industrially advanced nation. Such
an attitude is surely contrary to common sense. Only intellectual blindness
and crass egotism can explain the behaviour of such supporters of the
"cosmopolitan system".
Doctrinaire
economists declare that any failure to accept England's industrial supremacy would
harm the whole world. They
1. [List's note] Montesquieu
makes a penetrating observation on England's policy when he quotes Cicero - Nolo eundem populum
imperatorem et portatorem esse.
187
consider that England has made such striking
industrial progress and has extended her economic influence so far afield that humanity would make more progress if things
were left as they are than if nations which can be compared with England in
culture and power should try to catch up with her from an industrial point of
view by adopting restrictive commercial practices.
We would be
prepared to agree with these economists if it were true that the nations
concerned had decided to seek salvation under the supremacy of England and were
prepared to surrender their rights as sovereign states. In fact it is hardly to
be expected that nations would do this even if one could convince them that
England is really greatly superior to all other countries. If the existence of
such an attitude cannot be proved - and it is certainly not universally held -
then we must expect the French, Americans, Belgians, and other peoples to
cherish the hope that they can promote their industrial, social, and political
development by the same methods as those employed by the English. In that case
no mere doctrine can be expected to prevent a country from adopting such a
policy. Other countries will always regard as ridiculous the notion that
England should always be supreme and that their own economic advance should for
ever be retarded to benefit the progress of humanity. They believe that the
existing state of affairs has arisen simply because England - exceptionally
favoured by nature and by chance - has enjoyed a 30 to 50 year head start over
her rivals. They believe that humanity may make rather slower progress because
of their protective commercial policies but they consider that such progress
will be more balanced than would otherwise be the case. The protection of
national industries will enable states to preserve their freedom. The establishment
of a universal republic will be much more likely if all the civilised countries
in the world - followed in due course by countries which are at present
relatively backward -were making uniform economic progress. This would be much
better than a situation in which one country dominated all others in industrial
and commercial power, because in that case a world trading monopoly and a
universal despotism would have been established.
188
We have given the name "Natural System" to
the economic doctrine that we have put forward in this treatise. We have not
made any a priori assertions and then attempted to prove them. We have arrived
at our conclusions by proving the truth of principles derived from what
actually happens in the real world. We are not numbered among those who deny
that nations have individual characteristics and special interests. We have not
ignored the fact that these interests give rise to special relationships
between them. For our part we favour the eventual unification of all the
peoples in the world on the basis of the existence of different nations. We
regard both free trade and a universal republic as the natural consequence of
the harmonious and uniform development of the political and social institutions
of all countries.
Doctrinaire
economists cannot accuse us of defending the policy of protection on the ground
that we propose - as the mercantilists proposed - to secure wealth for a nation
at the expense of other countries. Nor do we propose to keep our gold and
silver within the frontiers of our own country, to attract precious metals from
other states, and to secure a favourable balance of trade. Our opponents cannot
accuse us of failing - as the supporters of the " manufacturing
system" have failed - to appreciate that nature has favoured some
countries with regard to certain products and other countries with regard to
other products. We advocate the greatest possible measure of freedom of
commerce as far as foodstuffs and raw materials are concerned. Our opponents
cannot accuse us of wishing to keep the world divided for ever into different
nations which are continually hostile to one another. We regard nationalism as
1. [List did not give his
treatise a title but the heading which he gave to Chapter 34 justifies the use
of the title The Natural System of
Political Economy]
189
simply one particular stage of human development,
which will one day be replaced by cosmopolitanism. Our opponents cannot accuse
us of failing to appreciate the great merits of the "cosmopolitan
system" since we have accepted its theory of value. We have merely argued
that there is also a theory of productive powers and that when questions of
international trade are under discussion the theory of value should be regarded
as subordinate to the theory of productive powers. Our critics cannot accuse us
of failing to appreciate the significance of Adam Smith's book although we have
rejected his view that labour is the origin of wealth. J.B. Say has shown that
Adam Smith's definition of "labour" is much too narrow. We believe
that we have shown that the conception of "industrious classes" that
Say puts in place of Adam Smith's "labour" is also a very narrow
definition which interprets productive powers in far too materialistic a
fashion.
Practical
men, for their part, cannot accuse us of failing to appreciate that every
nation has its own particular problems and interests. They cannot allege that
we pretend that humanity is in a situation that does not exist at present
although it may exist one day. They cannot suggest that we have tried to
support our conclusions with arguments that defy common sense and universal
experience. They must recognise that we have advanced theoretical arguments in
favour of more than half of their demands for tariff protection. The only
difference of opinion between ourselves and the practical men is that they wish
to stimulate agriculture by the imposition of import duties and that they
propose that all tariffs should last for ever.
We call our
doctrines the "Natural System" because we believe that they enable us
to draw attention to the mistakes and contradictions of the supporters of the
" cosmopolitan system'' and that we have been able to show how a
harmonious relationship can be established between economic theory and economic
practice.
190
We HAVE now completed our treatise which answers the
question:
"If a
country proposes to introduce free trade or to modify its tariff, what factors
should it take into account so as to reconcile in the fairest manner the
interests of producers with those of consumers?"
1. A
distinction should be made between countries which have reached different
stages of economic development.
We consider first a country which is retarded with
regard to its cultural, moral, social, and political development. It has no
independent prosperous middle class. Its land, capital, and technical knowledge
are in the hands of a small privileged class. Agriculture is relatively
backward and those who work on the land have little technical knowledge. To
promote the rapid economic expansion of such a country it will be necessary to
encourage the import of manufactured goods - assuming of course that the country
supplying these goods does not impose import duties or prohibitions upon the
import of foodstuffs and raw materials in exchange. In these circumstances the
agrarian country should trade with those industrialised countries offering the
best terms and it should reserve the right to extend its commerce in the future
to any other industrialised country which is prepared to do business on
similar terms.
2. Secondly,
we will examine the position of a country which has all the necessary cultural
qualifications for future industrial progress, but has only a small territory
and cannot expect to be able to set up manufactures on a substantial scale
because it lacks both adequate natural resources and a large enough home
market. Such a country should endeavour to expand its markets either by
entering into a customs union or by concluding commercial treaties with other
countries.
3. Thirdly,
we will deal with a country in which all the conditions for future industrial
expansion are satisfied. When considering such
191
a country - one which has reaches t first stage of industrialisation - it is
necessary to know
(a) if the country already operates a system of
prohibitions or high import duties. If this is the case the rates of the duties
should gradually be lowered until protection is afforded only to those branches
of manufacture which appear to stand a good chance of being profitable at some
time in the future.
(b) if the country has no protective tariff but proposes
to establish one. In this case the best policy to adopt would be gradually to
protect and to foster the development of those branches of manufacture which
appear likely to be successful in the future.
4. We shall
now consider a country in which all the conditions for future industrialisation
have been satisfied. This is a country which is capable of progressing to the
most advanced stage of industrialisation. If such a country has already fully
developed its productive powers by means of a prohibitive system, it should be
prepared to change gradually to a protective system.
5. Finally,
we will consider an industrialised country in which manufactures have developed
to such an extent that - even if it adopts a policy of free trade - it is in a
position to compete successfully with any other country. Such a country should
gradually reduce its import duties so as to allow foreign manufactured goods to
come on to the home market to compete with native products.
In Chapter
12 to 26 we have discussed the desirability of complete freedom of trade in all
agricultural products; the need to be prepared to change from one fiscal system
to another; the circumstances under which a country should protect native
industries, as well as various aspects of foreign competition.
The author refers his readers to the long note on page
17.' The hour has struck when he has to deliver the manuscript of his treatise
to the Academy. He has not had sufficient time either to correct numerous slips
made by the copyist or to add a number of notes and references.
[I.e. page 17 of List's
manuscript (Chapter 4). This note is printed below as an appendix.]
192
The steel pen with which I have written both the rough
copy and the final version of this treatise, and the fine paper on which it has
been written may serve as an excellent example to illustrate clearly and simply
the differences between the doctrines of exchange-value and productive powers.
At first I
thought that it would be wasteful to use fine paper for the rough copy as well
as for the final version but then I realised that my steel pen wrote much
better on fine paper than on paper of poorer quality. Moreover the steel pen
makes a noise when I write on paper of poor quality and this disturbs my train
of thought. So I made a calculation. To live by my pen as an author I must earn
40 francs a day. The treatise has taken me 40 days to write, representing an
earning power of 1,600 francs. Had I lost time by sharpening my pen or by
writing more slowly and had I been disturbed by the noise caused by writing on
poor paper I might have taken 70 days to write the treatise at a loss to my
earning power of 2,800 francs. Under the most favourable circumstances I might
not have gained an "exchange-value".2
By using
better tools I have been able to reduce my costs to 1,600 francs. The better
pens and the finer paper have cost 40 francs at the most so I have made a net
saving of 1,560 francs. This calculation is based upon the theory of value. But
a calculation based upon the theory of productive powers would give a different
result. In this case the gain by using better pens and finer paper is much
greater. Assuming that my annual output of new ideas exercises some influence
upon the productive powers of people like myself - which is not very likely - I
would be able to double my influence over the
1. [List wrote this long note
to Chapter 4 after his manuscript had been completed. It is printed at the end
of the book as an appendix. Although List purports to discuss the theories of
value and productive powers examined in Chapter 4, the note is really an
apology for having written the treatise in a very short time.]
2. [I.e. List might not win
the prize offered by the Academy.]
193
general public. But if this treatise should possess
any intellectual merit it would be due entirely to the speed of its
composition. For over 20 years I have been making observations and I have been
thinking about what I discuss in my manuscript but it has taken me only 40 days
to plan the enterprise, to read the necessary books, to make the necessary
notes, and to write down my views and criticisms. In addition I have had to
supervise the making of a fair copy. To complete my task in time I could not
wait until the whole of the original rough copy was finished before starting on
the fair copy, although this would have been desirable when composing a
treatise of this length. I have had to hand my rough draft to the copyist as
soon as it was written. At the same time I was afraid that I might have dealt
with some aspects of the problem too fully or not fully enough. In the first
case there was a danger of submitting an ill-digested treatise. In the second
case there was a danger that the adjudicators - who set such high standards for
themselves - might consider that my work had fallen below the standard that
they had a right to expect. In either case I would have failed to achieve my
aim which is to be worthy of the votes and the support of the learned body
which takes the first place in the world in every branch of knowledge to which
it has turned its attention. It is a body which has the power to confer the
greatest distinction or to deliver the most damning criticism on any literary
project.
Were my
treatise so imperfect or so incomplete as to merit my own condemnation I would
not have submitted it to the Academy. Since I mistrust my own abilities when my
initial efforts have been unsuccessful, I would probably have left the work
unfinished and I would have troubled myself no more about it. If, despite all
the unfavourable circumstances connected with its composition, I have
nevertheless been able to produce something worth while, this has been due to
the increase in my productive powers brought about by my good pens and my fine
paper. At the same time this is also a striking proof of the possible harmful
consequences of prohibitions since both pens and paper have been made in
England.
I must explain why I have had so short a time in which
to write my treatise. I was under the impression - by what mischance I do not
know - that the adjudication of the essays answering the Academy's question had
already taken place. It was only two months ago that I learned that this was
not the case. I could not start work on the manuscript for a fortnight owing to
other literary commitments.
194
I hesitate to explain the particular circumstances of
the composition of the manuscript but I think that I should do so in the hope
of securing the indulgence of the adjudicators. I have not had time either to
check my first rough draft or my fair copy. The style of the composition will
inevitably bear witness to my haste. The final copy has been written by two
persons1 and I am unable to assess the competence of one of them. Even as I
write this note (on the last day before the expiry of the extended time limit
for submitting the treatise) I do not know if I can find time to number the
chapters and the notes and to fill in any gaps left by the copyist because he
has not been able to read what I have so hurriedly written.
A candidate
for an Academy award may presume to hope that he may succeed in winning the
prize. Should this treatise, despite its imperfections, be so fortunate as to
gain the prize, the author is confident that he will be able to expand it and
improve it so as to justify the decision of the Academy.
1. [One of the copyists was
List's daughter Emilie. The identity of the other copyist is not known.]
195
Academy, French 3, 4, 5, 20, 25, 192, 195
Africa 49, 50, 137
"Agricultural System" 179. See Physiocrats
Agriculture 8, 54-66, 76-9, 85-94,191
America. See Canada, South America, United States
American war of independence 171
Ancien
regime. See Eden Treaty, Louis XVI,
Physiocrats,
Turgot
Anderson, Adam 4, 131, 134, 152, 157
Arkwright, Richard 35
Asia 49, 139, 168
Australia 50
Baldwin, Henry 140
Baltic Sea 153
Basra 153
Belgium 45
Berg, Grand Duchy 11
Bergen 155, 156
Beukel,
Willem 133
Bilbao 163
Biscay, Bay of 163
Bismarck 2
Brazil 175
British Merchant 131, 166
Bremen 161
Bruges 155
Bullion 164, 168, 177
Canada 50, 176
Canning, George 24,137-40, 148-50, 176
Cape of Good Hope 136, 160, 165
Carey, Mathew 4, 172
Castlereagh,
Lord 138, 148
Catherine the Great 127
Chaptal,
J. A.C. 4, 6, 61, 65, 66, 87, 150,186
Child, Sir Josiah 171
China 151,168,169
Colbert, Jean-Baptiste 42, 141, 142-4, 146, 163, 182
Cologne 157
Colonies, North American 170-1
Commerce 14-104
Commercial treaties. See Eden, Methuen
Commons, House of 170
Condorcet, Antoine 143
Congress, American 171-3
Continental System 9, 10, 51, 148, 150
Commercial treaties. See Treaties
Corn Laws (British) 6, 138, 174
Corvee
173, 175
"Cosmopolitan System" 27-9, 70, 180,
181,183,186 Cotton 173,175
Customs union, German. See Zollverein
Davenant, Charles
134,171
Denmark 156-8
Diet, Imperial 157-8
Dresden 3, 8
Droz,Joseph
181,186
Dupin, Charles 4,
6, 7, 21, 68, 86-71, 121, 127,150-1,
186
Economic growth, Phases of 52-65
Economists. See Chaptal, Droz, Dupin,
Encyclopaedists,
Ferrier, McCulloch, Physiocrats, Quesnay, J.B. Say, Adam Smith
Eden Treaty 147, 149, 166
Edict of Nantes 144-5
Edward III 42, 129
Edward IV 129, 155
Edward VI 129, 155
Egypt 165, 175
197
Elizabeth, Queen 42, 129, 132, 134, 157
Encyclopaedists 21
England 11, 22, 24, 45-8, 50-1, 108, 121, 128-40, 147-
9,153,
157-77, 188
Ericeira,
Luis de Menesses 130
Esprit des Lois. See Montesquieu
Exchange value. See Value, theory of
Ferrier, F.L.A. 4, 6
Fisheries 132-3, 155-6
Foedera.
See Rymer
France 1, 11, 19, 42, 45, 50, 52, 64-6, 110-13, 125-
7, 137-8,
141-52, 176, 186
Francis I (France) 141
Free Trade. See Encyclopaedists, McCulloch,
Physiocrats,
Quesnay, J.B. Say, Adam Smith
Genoa 136, 165
German customs union. See Zollverein
Germany 1, 19, 43, 45, 50, 136, 139, 151-62
Gilpin,
George 157
Greece 165
Hamburg 154, 157, 161
Hamilton, Alexander 4, 6, 172
Hanseatic League 70, 128-9, 132, 134-6, 154-60, 165,
183. See
Cologne, Hamburg, Lubeck, Steelyard
Henry I (Emperor) 153
Henry II (England) 163
Henry IV (England) 132
Henry IV (France) 141
Henry VI (England) 132
Henry VII (England) 134
Henry VIII (England) 129
Herrings 133
Holland 129-35, 140, 142, 154, 157, 160, 164, 170
Holy Roman Empire 153, 157, 160
Huguenots 144-5
Huskisson,
William 24, 138, 140, 148, 149, 173-6
India 136, 138, 160, 165, 168-9, 175
Ingersoll, Charles 1
Inquisition 164
Iran. See Persia
Italy 43, 50, 137, 165
Jacobins 148
James I 132, 134
Jews 164
King, Charles 4
Lamballe,
Princess 148
Leipzig 3, 8
List
Emilie
(daughter) 195
Karoline
(wife) 4
London 155
Louis XIV 141, 144-5
Louis XVIII 113
Low Countries. See Holland
Lübeck
154, 157, 161
Luther 160
McCulloch, J.R. 36
Madison, James 172
Mary, Queen 155
Mazarin, Cardinal 141
Mediterranean 165
Mercantile system 19, 178
Merchants. See Commerce
Methuen Treaty 124, 130-1, 149, 151, 166-9, 176
Montesquieu, Charles 25, 187
Morea 165
Nantes, Edict of 144-5
Naples. See Italy
Napoleon 9, 10, 11, 111, 112, 161, 177
National Economics 29-33, 41-5
National System of Political Economy 2, 3, 5
"Natural System" 189, 190
Navigation code 103, 133, 134, 137
Nesselrode,
Karl Robert 178
Netherlands. See Holland
Newcastle upon Tyne 133
New York state 171
Nile, River 153
North Sea 154
Novgorod 153
Octroi
120, 121, 162
Ottoman Empire. See Turkey
Outlines of American Political Economy 1,3, 125, 170,
198
Paris 3, 83, 87, 149, 151
Persia 153
Philadelphia 1, 92
Physiocrats 19, 146, 179
Pisa 165
Port Clinton 8
Portugal 43, 50, 124, 130-1, 137, 147, 159,166-9,183.
See Ericeira, Methuen Treaty
Priestley, Joseph 139
Productive powers 8, 9, 34-6, 52-75, 187
Protection 105-124
Prussia 43. See Zollverein
Quesnay, Francois 19,146
Reformation 160
Refugees, French 144-5
Richelieu, Cardinal 141
Ruhr 11
Russia 1, 4, 45, 127, 137, 145, 155, 156, 158, 177-8 Rymer, Thomas 129
Saint Simon, Comte de 78
Say, Jean-Baptiste 4, 12, 19-21, 34, 37-41, 104-5,
113,
124, 143,
149, 180-3
Scott, Sir Walter 148
Sheep 151, 158,163
Sicily. See Italy
Sigismund, Emperor 158
Silk industry 116, 125, 139, 141, 151
Smith, Adam 1, 4, 12, 17, 19, 21, 22, 37,
39, 40, 41,
76, 77, 79-80, 101, 104, 128, 132, 134, 142-3, 146, 159, 160, 167-9, 171, 180,
183, 186, 190
South America 43, 44, 49
South Carolina 171
Spain 43, 50, 136-7, 149, 162-5, 183
Stapleton, A. G. 150
Steelyard (London) 159
Storch, Heinrich 4, 177
Strabo 130
Subsidies 123,138
Sweden 156,158
Switzerland 106-7, 145
Tamaqua 8
Tibet 151
Treaties, Commercial. See Eden, Methuen
Tubingen 13
Turgot, A.R.J. 19, 143, 146
Turkey 50, 165
Two Sicilies. See Italy
Ulloa, Bernardo
4,163
United States 1, 19, 35, 44, 50, 52, 92, 125, 134,
137,
170-5
Union of German Merchants 2, 12
Ustiris,
Jeronymo 4, 162-3
Utrecht, Treaty of 129
Value, theory of 36-41
Venice 136, 153, 157, 165, 166, 183
Villèle,
Joseph 149, 150, 166
Virginia 170
Viscaya
(Spain) 163
Washington 174
Washington, George 127,171
Watt, James 35
Wealth of Nations. See Adam Smith
Werdenhagen
157
Whaling 165
Wheat. See Corn Laws
Wine 65, 124, 139, 147, 166
Witte, Sergei 2
Woollen industry 139, 141, 168, 172
World trade congress 126-7
Zollverein 2, 43, 45, 161
199