The National System of Political Economy
By Friedrich List
MORE than thirty-three years have elapsed since I first entertained doubts as to the truth of the prevailing theory of political economy, and endeavoured to investigate (what appeared to me) its errors and their fundamental causes. My avocation (as Professor) gave me the motive to undertake that task–the opposition which it was my fate to meet with forcibly impelled me to pursue it further.My German contemporaries will remember to what a low ebb the well-being of Germany had sunk in 1818. I prepared myself by studying works on political economy. I made myself as fully acquainted as others with what had been thought and written on that subject. But I was not satisfied with teaching young men that science in its present form; I desired also to teach them by what economical policy the welfare, the culture, and the power of Germany might be promoted. The popular theory inculcated the principle of freedom of trade. That principle appeared to me to be accordant with common sense, and also to be proved by experience, when I considered the results of the abolition of the internal provincial tariffs in France, and of the union of the three kingdoms under one Government in Great Britain. But the wonderfully favourable effects of Napoleon’s Continental system, and the destructive results of its abolition, were events too recent for me to overlook; they seemed to me to be directly contradictory of what I previously observed. And in endeavouring to ascertain on what that contradiction was founded, the idea struck me that
the theory was quite true, but only so in case all nations would reciprocally follow the principles of free trade, just as those provinces had done. This led me to consider the nature of
nationality. I perceived that the popular theory took no account of
nations, but simply of the entire human race on the one hand, or of single individuals on the other. I saw clearly that free competition between two nations which are highly civilised can only be mutually beneficial in case both of them are in a nearly equal position of industrial development, and that any nation which owing to misfortunes is behind others in industry, commerce, and navigation, while she nevertheless possesses the mental and material means for developing those acquisitions, must first of all strengthen her own individual powers, in order to fit herself to enter into free competition with more advanced nations. In a word, I perceived the distinction between
political economy. I felt that Germany must abolish her internal tariffs, and by the adoption of a common uniform commercial policy towards foreigners, strive to attain to the same degree of commercial and industrial development to which other nations have attained by means of their commercial policy. [From the Preface to the First Edition]
J. Shield Nicholson, ed. Sampson S. Lloyd, trans.
First Pub. Date
London: Longmans, Green, and Co.
First published in German. First translated 1885.
The text of this edition is in the public domain. Picture of List courtesy of The Warren J. Samuels Portrait Collection at Duke University.
- Translators Preface to the First Edition
- Introductory Essay, by J. Shield Nicholson
- Extracts from the Authors Preface
- Book I, Chapter 1
- Book I, Chapter 2
- Book I, Chapter 3
- Book I, Chapter 4
- Book I, Chapter 5
- Book I, Chapter 6
- Book I, Chapter 7
- Book I, Chapter 8
- Book I, Chapter 9
- Book I, Chapter 10
- Book II, Chapter 11
- Book II, Chapter 12
- Book II, Chapter 13
- Book II, Chapter 14
- Book II, Chapter 15
- Book II, Chapter 16
- Book II, Chapter 17
- Book II, Chapter 18
- Book II, Chapter 19
- Book II, Chapter 20
- Book II, Chapter 21
- Book II, Chapter 22
- Book II, Chapter 23
- Book II, Chapter 24
- Book II, Chapter 25
- Book II, Chapter 26
- Book II, Chapter 27
- Book III, Chapter 28
- Book III, Chapter 29
- Book III, Chapter 30
- Book III, Chapter 31
- Book III, Chapter 32
- Book IV, Chapter 33
- Book IV, Chapter 34
- Book IV, Chapter 35
- Book IV, Chapter 36
- Appendix A
- Appendix B
- Appendix C
- Appendix D
AFTER our historical examination of the commercial policy of the European nations, with the exception of those from which there is nothing of importance to be learnt, we will cast a glance beyond the Atlantic Ocean at a people of colonists which has been raising itself almost before our eyes from the condition of entire dependence on the mother country, and of separation into a number of colonial provinces having no kind of political union between themselves, to that of a united, well-organised, free, powerful, industrious, rich, and independent nation, which will perhaps in the time of our grandchildren exalt itself to the rank of the first naval and commercial power in the world. The history of the trade and industry of North America is more instructive for our subject than any other can be, because here the course of development proceeds rapidly, the periods of free trade and protection follow closely on each other, their consequences stand out clearly and sharply defined, and the whole machinery of national industry and State administration moves exposed before the eyes of the spectator.
The North American colonies were kept, in respect of trade and industry, in such complete thraldom by the mother country, that no sort of manufacture was permitted to them beyond domestic manufacture and the ordinary handicrafts. So late as the year 1750 a hat manufactory in the State of Massachusetts created so great sensation and jealousy in Parliament, that it declared all kinds of manufactories to be ‘common nuisances,’ not excepting iron works, notwithstanding that the country possessed in the greatest abundance all the requisite materials for the manufacture of iron. Even more recently, namely, in 1770, the great Chatham, made uneasy by the first manufacturing attempts of the New Englanders, declared that the colonies should not be permitted to manufacture so much as a horseshoe nail.
To Adam Smith belongs the merit of having first pointed out the injustice of this policy.
Freed from restrictions, in possession of all material and intellectual resources for manufacturing work, and separated from that nation from which they had previously been supplied with manufactured goods, and to which they had been selling their produce, and thus thrown with all their wants upon their own resources, manufactures of every kind in the North American free states received a mighty stimulus during the war of revolution, which in its turn had the effect of benefiting agriculture to such an extent that, notwithstanding the burdens and the devastation consequent upon the then recent war, the value of land and the rate of wages in these states everywhere rose immensely. But as, after the peace of Paris, the faulty constitution of the free states made the introduction of a united commercial system impossible, and consequently English manufactured goods again obtained free admission, competition with which the newly established American manufactories had not strength enough to bear, the prosperity which had arisen during the war vanished much more quickly than it had grown up. An orator in Congress said afterwards of this crisis: ‘We did buy, according to the advice of modern theorists, where we could buy cheapest, and our markets were flooded with foreign goods; English goods sold cheaper in our seaport towns than in Liverpool or London. Our manufacturers were being ruined; our merchants, even those who thought to enrich themselves by importation, became bankrupt; and all these causes together were so detrimental to agriculture, that landed property became very generally worthless, and consequently bankruptcy became general even among our landowners.’
This condition of things was by no means temporary; it lasted from the peace of Paris until the establishment of the federal constitution, and contributed more than any other circumstance to bring about a more intimate union between the free states and to impel them to give to Congress full powers for the maintenance of a united commercial policy. Congress was inundated with petitions from all the states—New York and South Carolina not excepted—in favour of protective measures for internal industry; and Washington, on the day of his inauguration, wore a suit of home-manufactured cloth, ‘in order,’ said a contemporary New York journal, ‘in the simple and impressive manner so peculiar to this great man, to give to all his successors in office and to all future legislators a memorable lesson upon the way in which the welfare of this country is to be promoted.’ Although the first American tariff (1789) levied only light duties on the importation of the most important manufactured articles, it yet worked so
beneficially from the very first years of its introduction that Washington in his ‘Message’ in 1791 was able to congratulate the nation on the flourishing condition of its manufactures, agriculture, and trade.
The inadequacy of this protection was, however, soon apparent; for the effect of the slight import duties was easily overcome by English manufacturers, who had the advantage of improved methods of production. Congress did certainly raise the duty on the most important manufactured articles to fifteen per cent., but this was not till the year 1804, when it was compelled, owing to deficient customs receipts, to raise more revenue, and long after the inland manufacturers had exhausted every argument in favour of having more protection, while the interests opposed to them were equally strenuous upon the advantages of free trade and the injurious effects of high import duties.
In striking contrast with the slight progress which had, on the whole, been made by the manufacturers of the country, stood the improved condition of its navigation, which since the year 1789, upon the motion of James Madison, had received effectual protection. From a tonnage of 200,000 in 1789 their mercantile marine had increased in 1801 to more than 1,000,000 tons. Under the protection of the tariff of 1804, the manufacturing interest of the United States could just barely maintain itself against the English manufactories, which were continually being improved, and had attained a colossal magnitude, and it would doubtless have had to succumb entirely to English competition, had it not been for the help of the embargo and declaration of war of 1812. In consequence of these events, just as at the time of the War of Independence, the American manufactories received such an extraordinary impetus that they not only sufficed for the home demand, but soon began to export as well. According to a report of the Committee on Trade and Manufactures to Congress in 1815, 100,000 hands were employed in the woollen and cotton manufactures alone, whose yearly production amounted to the value of more than sixty million dollars. As in the days of the War of Independence, and as a necessary consequence of the increase in manufacturing power, there occurred a rapid rise in all prices, not only of produce and in wages, but also of landed property, and hence universal prosperity amongst landowners, labourers, and all engaged in internal trade.
After the peace of Ghent, Congress, warned by the experience of 1786, decreed that for the first year the previous duties should be doubled, and during this period the country continued to prosper. Coerced, however, by powerful private interests which were opposed to those of the manufacturers, and persuaded by the arguments
of theorists, it resolved in the year 1816 to make a considerable reduction in the import duties, whereupon the same effects of external competition reappeared which had been experienced from 1786 to 1789, viz. ruin of manufactories, unsaleability of produce, fall in the value of property, and general calamity among landowners. After the country had for a second time enjoyed in war time the blessings of peace, it suffered, for a second time, greater evils through peace than the most devastating war could have brought upon it. It was only in the year 1824, after the effects of the English corn laws had been made manifest to the full extent of their unwise tendency, thus compelling the agricultural interest of the central, northern, and western states to make common cause with the manufacturing interest, that a somewhat higher tariff was passed in Congress, which, however, as Mr. Huskisson immediately brought forward counteracting measures with the view of paralysing the effects of this tariff on English competition, soon proved insufficient, and had to be supplemented by the tariff of 1828, carried through Congress after a violent struggle.
Recently published official statistics
*64 of Massachusetts give a tolerable idea of the start taken by the manufactures of the United States, especially in the central and northern states of the Union, in consequence of the protective system, and in spite of the subsequent modification of the tariff of 1828. In the year 1837, there were in this State (Massachusetts) 282 cotton mills and 565,031 spindles in operation, employing 4,997 male and 14,757 female hands; 37,275,917 pounds of cotton were worked up, and 126,000,000 yards of textile fabrics manufactured, of the value of 13,056,659 dollars, produced by a capital of 14,369,719 dollars.
In the woollen manufacture there were 192 mills, 501 machines, and 3,612 male and 3,485 female operatives employed, who worked up 10,858,988 pounds of wool, and produced 11,313,426 yards of cloth, of the value of 10,399,807 dollars on a working capital of 5,770,750 dollars.
16,689,877 pairs of shoes and boots were manufactured (large quantities of shoes being exported to the western states), to the value of 14,642,520 dollars.
The combined value of the manufactures of the State (deducting shipbuilding) amounted to over 86 million dollars, with a working capital of about 60 million dollars.
The number of operatives (men) was 117,352; and the total number of inhabitants of the State (in 1837) was 701,331.
Misery, brutality, and crime are unknown among the manufacturing population here. On the contrary, among the numerous male and female factory workers the strictest morality, cleanliness, and neatness in dress, exist; libraries are established to furnish them with useful and instructive books; the work is not exhausting, the food nourishing and good. Most of the women save a dowry for themselves.
This last is evidently the effect of the cheap prices of the common necessaries of life, light taxation, and an equitable customs tariff. Let England repeal the restrictions on the import of agricultural produce, decrease the existing taxes on consumption by one-half or two-thirds, cover the loss by an income tax, and her factory workers will be put into the same position.
No nation has been so misconstrued and so misjudged as respects its future destiny and its national economy as the United States of North America, by theorists as well as by practical men. Adam Smith and J. B. Say had laid it down that the United States were, ‘like Poland,’ destined for agriculture. This comparison was not very flattering for the union of some dozen of new, aspiring, youthful republics, and the prospect thus held out to them for the future not very encouraging. The above-mentioned theorists had demonstrated that Nature herself had singled out the people of the United States exclusively for agriculture, so long as the richest arable land was to be had in their country for a mere trifle. Great was the commendation which had been bestowed upon them for so willingly acquiescing in Nature’s ordinances, and thus supplying theorists with a beautiful example of the splendid working of the principle of free trade. The school, however, soon had to experience the mortification of losing this cogent proof of the correctness and applicability of their theories in practice, and had to endure the spectacle of the United States seeking their nation’s welfare in a direction exactly opposed to that of absolute freedom of trade.
As this youthful nation had previously been the very apple of the eye of the schoolmen, so she now became the object of the heaviest condemnation on the part of the theorists of every nation in Europe. It was said to be a proof of the slight progress of
the New World in political knowledge, that while the European nations were striving with the most honest zeal to render universal free trade possible, while England and France especially were actually engaged in endeavouring to make important advances towards this great philanthropic object, the United States of North America were seeking to promote their national prosperity by a return to that long-exploded mercantile system which had been clearly refuted by theory. A country like the United States, in which such measureless tracts of fruitful land still remained uncultivated and where wages ruled so high, could not utilise its material wealth and increase of population to better purpose than in agriculture; and when this should have reached complete development, then manufactures would arise in the natural course of events without artificial forcing. But by an artificial development of manufactures the United States would injure not only the countries which had long before enjoyed civilisation, but themselves most of all.
With the Americans, however, sound common sense, and the instinct of what was necessary for the nation, were more potent than a belief in theoretical propositions. The arguments of the theorists were thoroughly investigated, and strong doubts entertained of the infallibility of a doctrine which its own disciples were not willing to put in practice.
To the argument concerning the still uncultivated tracts of fruitful land, it was answered that tracts of such land in the populous, well-cultivated states of the Union which were ripe for manufacturing industry, were as rare as in Great Britain; that the surplus population of those states would have to migrate at great expense to the west, in order to bring tracts of land of that description into cultivation, thus not only annually causing the eastern states large losses in material and intellectual resources, but also, inasmuch as such emigration would transform customers into competitors, the value of landed property and agricultural produce would thereby be lessened. It could not be to the advantage of the Union that all waste land belonging to it should be cultivated up to the Pacific Ocean before either the population, the civilisation, or the military power of the old states had been fully developed. On the contrary, the cultivation of distant virgin lands could confer no benefit on the eastern states unless they themselves devoted their attention to manufacturing, and could exchange their manufactures against the produce of the west. People went still further: Was not England, it was asked, in much the same position? Had not England also under her dominion vast tracts of fertile land still uncultivated in Canada, in Australia, and in other quarters of the world? Was it not almost as easy for England to transplant
her surplus population to those countries as for the North Americans to transplant theirs from the shores of the Atlantic to the banks of the Missouri? If so, what occasion had England not only continuously to protect her home manufactures, but to strive to extend them more and more?
The argument of the school, that with a high rate of wages in agriculture, manufactures could not succeed by the natural course of things, but only by being forced like hothouse plants, was found to be partially well-founded; that is to say, it was applicable only to those manufactured goods which, being small in bulk and weight as compared to their value, are produced principally by hand labour, but was not applicable to goods the price of which is less influenced by the rate of wages, and as to which the disadvantage of higher wages can be neutralised by the use of machinery, by water power as yet unused, by cheap raw materials and food, by abundance of cheap fuel and building materials, by light taxation and increased efficiency of labour.
Besides, the Americans had long ago learnt from experience that agriculture cannot rise to a high state of prosperity unless the exchange of agricultural produce for manufactures is guaranteed for all future time; but that, when the agriculturist lives in America and the manufacturer in England, that exchange is not unfrequently interrupted by wars, commercial crises, or foreign tariffs, and that consequently, if the national well-being is to rest on a secure foundation, ‘the manufacturer,’ to use Jefferson’s words, ‘must come and settle down in close proximity to the agriculturist.’
At length the Americans came to realise the truth that it behoves a great nation not exclusively to set its heart upon the enjoyment of proximate material advantages; that civilisation and power—more important and desirable possessions than mere material wealth, as Adam Smith himself allows—can only be secured and retained by the creation of a manufacturing power of its own; that a country which feels qualified to take and to maintain its place amongst the powerful and civilised nations of the earth must not shrink from any sacrifice in order to secure such possessions for itself; and that at that time the Atlantic states were clearly the region marked out for such possessions.
It was on the shores of the Atlantic that European settlers and European civilisation first set a firm foot. Here, at the first, were populous, wealthy, and civilised states created; here was the cradle and seat of their sea fisheries, coasting trade, and naval power; here their independence was won and their union founded. Through these states on the coast the foreign trade of the Union is carried on; through them it is connected with the civilised
world; through them it acquires the surplus population, material, capital, and mental powers of Europe; upon the civilisation, power, and wealth of these sea-board states depend the future civilisation, power, wealth, and independence of the whole nation and its future influence over less civilised communities. Suppose that the population of these Atlantic states decreased instead of growing larger, that their fisheries, coasting trade, shipping engaged in foreign trade and foreign trade itself, and, above all, their general prosperity, were to fall off or remain stationary instead of progressing, then we should see the resources of civilisation of the whole nation, the guarantees for its independence and external power, diminish too in the same degree. It is even conceivable that, were the whole territory of the United States laid under cultivation from sea to sea, covered with agricultural states, and densely populated in the interior, the nation itself might nevertheless be left in a low grade as respects civilisation, independence, foreign power, and foreign trade. There are certainly many nationalities who are in such a position and whose shipping and naval power are
nil, though possessing a numerous inland population!
If a power existed that cherished the project of keeping down the rise of the American people and bringing them under subjection to itself industrially, commercially, or politically, it could only succeed in its aim by trying to depopulate the Atlantic states of the Union and driving all increase of population, capital, and intellectual power into the interior. By that means it would not only check the further growth of the nation’s naval power, but might also indulge the hope of getting possession in time of the principal defensive strategical positions on the Atlantic coast and at the mouths of the rivers. The means to this end would not be difficult to imagine; it would only be necessary to hinder the development of manufacturing power in the Atlantic states and to insure the acceptance of the principle of absolute freedom of foreign trade in America.
If the Atlantic states do not become manufacturers, they will not only be unable to keep up their present degree of civilisation, but they must sink, and sink in every respect. Without manufactures how are the towns along the Atlantic coast to prosper? Not by the forwarding of inland produce to Europe and of English manufactured goods to the interior, for a very few thousand people would be sufficient to transact this business. How are the fisheries to prosper? The majority of the population who have moved inland prefer fresh meat and fresh-water fish to salted; they require no train oil, or at least but a small quantity. How is the coasting trade along the Atlantic sea-board to thrive? As the largest portion of the coast states are peopled by cultivators of
land who produce for themselves all the provisions, building materials, fuel, &c. which they require, there is nothing along the coast to sustain a transport trade. How are foreign trade and shipping to distant places to increase? The country has nothing to offer but what less cultivated nations possess in superabundance, and those manufacturing nations to which it sends its produce encourage their own shipping. How can a naval power arise when fisheries, the coasting trade, ocean navigation, and foreign trade decay? How are the Atlantic states to protect themselves against foreign attacks without a naval power? How is agriculture even to thrive in these states, when by means of canals, railways, &c. the produce of the much more fertile and cheaper tracts of land in the west which require no manure, can be carried to the east much more cheaply than it could be there produced upon soil exhausted long ago? How under such circumstances can civilisation thrive and population increase in the eastern states, when it is clear that under free trade with England all increase of population and of agricultural capital must flow to the west? The present state of Virginia gives but a faint idea of the condition into which the Atlantic states would be thrown by the absence of manufactures in the east; for Virginia, like all the southern states on the Atlantic coast, at present takes a profitable share in providing the Atlantic states with agricultural produce.
All these things bear quite a different complexion, owing to the existence of a flourishing manufacturing power in the Atlantic states. Now population, capital, technical skill and intellectual power, flow into them from all European countries; now the demand for the manufactured products of the Atlantic states increases simultaneously with their consumption of the raw materials supplied by the west. Now the population of these states, their wealth, and the number and extent of their towns increase in equal proportion with the cultivation of the western virgin lands; now, on account of the larger population, and the consequently increased demand for meat, butter, cheese, milk, garden produce, oleaginous seeds, fruit, &c., their own agriculture is increasing; now the sea fisheries are flourishing in consequence of the larger demand for salted fish and train oil; now quantities of provisions, building materials, coal, &c. are being conveyed along the coast to furnish the wants of the manufacturing population; now the manufacturing population produce a large quantity of commodities for export to all the nations of the earth, from whence result profitable return freights; now the nation’s naval power increases by means of the coasting trade, the fisheries, and navigation to distant lands, and with it the guarantee of national independence and influence over other nations, particularly over those of South
America; now science and art, civilisation and literature, are improving in the eastern states, whence they are being diffused amongst the western states.
These were the circumstances which induced the United States to lay restrictions upon the importation of foreign manufactured goods, and to protect their native manufactures. With what amount of success this has been done, we have shown in the preceding pages. That without such a policy a manufacturing power could never have been maintained successfully in the Atlantic states, we may learn from their own experience and from the industrial history of other nations.
The frequently recurring commercial crises in America have been very often attributed to these restrictions on importation of foreign goods, but without reasonable grounds. The earlier as well as the later experience of North America shows, on the contrary, that such crises have never been more frequent and destructive than when commercial intercourse with England was least subject to restrictions. Commercial crises amongst agricultural nations, who procure their supplies of manufactured goods from foreign markets, arise from the disproportion between imports and exports. Manufacturing nations richer in capital than agricultural states, and ever anxious to increase the quantity of their exports, deliver their goods on credit and encourage consumption. In fact, they make advances upon the coming harvest. But if the harvest turn out so poor that its value falls greatly below that of the goods previously consumed; or if the harvest prove so rich that the supply of produce meets with no adequate demand and falls in price; while at the same time the markets still continue to be overstocked with foreign goods—then a commercial crisis will occur by reason of the disproportion existing between the means of payment and the quantity of goods previously consumed, as also by reason of the disproportion between supply and demand in the markets for produce and manufactured goods. The operations of foreign and native banks may increase and promote such a crisis, but they cannot create it. In a future chapter we shall endeavour more closely to elucidate this subject.