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
As the demand for the re-publication of the work of Friedrich List is to be assigned mainly to the interest aroused by the fiscal controversy, the purpose of the Introduction which I have been requested to write, will be best served by indicating in the first place the bearing of the author’s ideas and arguments on the present situation in this country. Those who expect to find an assortment of authoritative opinions which can be aggressively and conclusively quoted against upholders of the present system will surely be disappointed. The method of isolated extracts would probably be as favourable to the supporters as to the opponents of ‘free trade.’ List maintained, for example, that England would have gained by the abolition of the Corn Laws just after the restoration of the general peace (in 1815), but—these are the words—’Providence has taken care that trees should not grow quite up to the sky. Lord Castlereagh gave over the commercial policy of England into the hands of the landed aristocracy, and these killed the hen which had laid the golden eggs’ (p. 297). Or, again, take this passage on retaliation: ‘Thus it is Adam Smith who wants to introduce the principle of retaliation into commercial policy—a principle which would lead to the most absurd and most ruinous measures, especially if the retaliatory duties, as Smith demands, are to be repealed as soon as the foreign nation agrees to abolish its restrictions’ (p. 254).
Nor if we abandon the dangerous and unfair method of isolated extracts, and look on List as the great critic and
opponent of Adam Smith, can there be much doubt as to the general results of the comparison of the Scotsman with the German. List has made the mistake so common with popular writers, but inexcusable in the author of a systematic work, of attributing to Adam Smith the extravagant dogmas of his exponents. One would almost suppose that List had never read Adam Smith himself, but had taken for granted the
Smithianismus bandied about in popular pamphlets. One passage from List may suffice to illustrate the unfairness of his rendering of Adam Smith. ‘He [Adam Smith] entitles his work, “The Nature and Causes of the Wealth of Nations” (i.e. [on List’s interpretation] of all nations of the whole human race). He speaks of the various systems of political economy in a separate part of his work solely for the purpose of demonstrating their non-efficiency, and of proving that “political” or
national economy must be replaced by “cosmopolitical or world-wide economy.” Although here and there he speaks of wars, this only occurs incidentally. The idea of a perpetual state of peace forms the foundation of all his arguments’ (p. 97). The real Adam Smith wrote that the first duty of the sovereign, that of protecting the society from the violence and the invasion of other independent societies, can be performed only by means of a military force. No nation, he declared, ever gave up voluntarily the dominion of any province how troublesome soever it might be to govern it. ‘To propose that Great Britain should voluntarily give up all authority over her colonies, would be to propose such a measure as never was and never will be adopted by any nation.’ ‘The art of war is certainly the noblest of all arts.’ And in a passage too long for quotation, Adam Smith maintained that even if the martial spirit of the people were of no use towards the defence of the society, yet to prevent that sort of mental mutilation, deformity, and wretchedness which cowardice necessarily involves in it from spreading themselves through the great body of the people, is a duty as
incumbent on the Government as the prevention of leprosy or any other loathsome disease. The same Adam Smith approved of bounties on the export of sail-cloth and gunpowder so that the production at home might be encouraged and a larger supply be available for war in case of need.
Malthus, it may be observed incidentally, is another great writer whom List has utterly misrepresented through relying on popular dogma instead of going to the original source. The account given by List of the ‘errors of Malthus’ (p. 103
et seq.) is curiously and perversely wrong.
When List is so weak on the history of economic theory, it is not to be expected that his history of economic facts and institutions should be above suspicion. On such important matters, for example, as the causes of the secession of the American colonies and the influence of the Navigation Acts, the opinions of List are not confirmed by the more recent work of Dr. Cunningham and Professor Ashley.
And without insisting on details, for it must be expected that recent work in economic history should have upset many old opinions, List is open to the general charge of exaggeration. He is led away by preconceived ideas and induced to build up systems of policy on too little evidence. Notably as regards the industrial and commercial development of England he lays far too much stress on the benefits derived from legislation and governmental action. He is too ready to assume that if an idea is good in theory it must also be good in practice; but, as every student of history knows, the wastage in ideas is as great as that in the ova of fishes—millions of ova for one good herring.
List shows on occasion that he was aware of this liability to over-emphasis. In his Preface he says authors of celebrity must be refuted in energetic terms, and this must be his
excuse if he appears to condemn in too strong language the opinions and works of authors and whole schools. And in the body of the work he occasionally reminds the reader that the prosperity of nations depends on a multitude of causes besides the commercial policy of governments. After insisting, as usual with a good deal of exaggeration, on the advantages England derived from trial by jury, and the early abolition of the use of the Latin language in her Law Courts and State departments, and comparing the happy history of England with the unhappy history of her neighbours on the Continent, List exclaims, ‘But who can say how much of these happy results is attributable to the English national spirit and to the constitution; how much to England’s geographical position and circumstances in the past; or again, how much to chance, to destiny, to fortune?’ (p. 42).
List’s habit of ‘contradicting energetically’ is no doubt to be ascribed largely to the fact that he was engaged for the greater part of his life in political agitation. In this he resembled Cobden, who also excelled in exaggeration. The political agitator is like a person accustomed to shout to the deaf one idea at a time and as loud as possible, and even when a soft answer would be more suitable to the ears of the unafflicted he shouts still.
If, then, List is open to these charges, wherein lie his merits? Why is List popularly regarded as the great critic of the free-traders?
In the first place, it may be allowed that the defects just noticed are not constructive but superficial. The energetic language, which is absurdly wrong as applied to Adam Smith, is often just as applied to those who have tried to make his arguments popular by leaving out the difficulties and the qualifications. Indeed List himself constantly speaks of ‘the school’ alternatively with Adam Smith, and his mistake consists in not knowing or remembering that the extreme popular dogmas on free trade are not countenanced
by Adam Smith. The principles on which List insists so strongly may for the most part be considered as the natural development of the modifications of what List calls
cosmopolitical free trade, which are acknowledged throughout the ‘Wealth of Nations.’ It is clear from the passages already cited that Adam Smith took it for granted that the world consisted of nations, and that national interests were not always harmonious.
And if further proof were needed, it is furnished in his great chapter on colonial policy. He there distinguishes between the advantages which Europe in general has derived from the planting of new colonies and the particular advantages derived by particular nations. What any one nation ought to expect from her colonies is an increase of revenue or an increase of military power. It is true he showed that the various nations have sacrificed an absolute advantage to gain a less relative advantage by the monopoly of their respective colonial trades, but, on the other hand, he formulated the most thorough scheme of Imperial Federation to convert the ‘project of an empire’ into a reality. From the British standpoint Adam Smith is indeed more Nationalist than List himself; for whilst Adam Smith says the most visionary enthusiast would not propose the abandonment of the colonies, List (p. 216; see also p. 143) calmly assumes that Canada will secede as soon as she has reached the point of manufacturing power attained by the United States when they seceded, and that independent agricultural manufacturing commercial states will also arise in the countries of temperate climate in Australia in the course of time. But although Adam Smith himself always adopted the national standpoint, his followers of ‘the school’ have in general assumed that what is best for all the nations as a whole, must
ipso facto be best for each individual nation, or that cosmopolitical and national interests always coincide. Against this extreme view List’s central doctrine is directed, ‘I would indicate, as the distinguishing
characteristic of my system, NATIONALITY. On the nature of
nationality, as the intermediate interest between those of
individualism and of
entire humanity, my whole structure is based’ (Preface, p. xliii.). List’s system is emphatically and explicitly the national system of political economy.
Next in importance to his doctrine of nationality must be placed his position on immaterial capital and productive powers. Adam Smith had included under the fixed capital of a nation the natural and acquired abilities of its inhabitants, but for a long time both in theory and practice the term ‘capital’ was narrowed down to purely material forms. If this change of definition had been made merely in deference to popular usage, in order to avoid confusion, no harm might have ensued; but, unfortunately, with their exclusion from capital the immaterial productive forces and powers were dropped from the popular arguments altogether. Apparently the wealth of nations was supposed to depend principally on the accumulation of material capital, which was necessary to provide both the auxiliary aids to labour and its subsistence. List did good service in showing that mere accumulation is of minor importance compared with the organisation of the productive forces of society. ‘The present state of the nations is the result of the accumulation of all discoveries, inventions, improvements, perfections, and exertions of all generations which have lived before us; they form the
mental capital of the present human race, and every separate nation is productive only in the proportion in which it has known how to appropriate these attainments of former generations and to increase them by its own acquirements, in which the natural capabilities of its territory, its extent and geographical position, its population and political power, have been able to develop as completely and symmetrically as possible all sources of wealth within its boundaries, and to extend its moral, intellectual, commercial, and political influence over less advanced nations and especially over the affairs of the world’ (p. 113).
Closely associated with these doctrines was the leading idea that from the national standpoint of productive power the cheapness of the moment might be far more than counter-balanced by the losses of the future measured by the loss of productive power. It follows that to buy at the time in the cheapest market and to sell in the dearest may not always be the wisest national policy.
The distinction between present and future advantage from the national standpoint is fundamental throughout the whole work. As soon as it is clearly apprehended the principle must be admitted, at least in theory, and the difficulty is to discover in practice the cases that may be brought under the rule. To Mill it seemed that there was only one case ‘in which, on mere principles of political economy, protecting duties can be defensible,’ that is, ‘when they are imposed temporarily, especially in a young and rising nation, in hopes of naturalising a foreign industry, in itself perfectly suitable to the circumstances of the country.’ This case so jejunely treated by Mill (though the bare admission has exposed him to the fierce attacks of extreme free-traders) is taken by List as one simple example capable of much more extended application by analogy. List maintains that in the early years of the nineteenth century England had obtained the manufacturing and commercial supremacy of the world to such a degree that all the other nations were in danger of becoming mere providers of food and raw materials in return for her manufactures. To List it seemed that the continental nations (just as much as the United States of America) must adopt protection until they were strong enough to compete with England (p. 294). But List goes much farther. He seeks for a wide inductive generalisation based on the experience of nations. In the chapter on the teachings of history the conclusion is reached that nations must modify their systems according to the measure of their own progress (p. 93). In the first stage they
must adopt free trade with the more advanced nations as a means of raising themselves from a state of barbarism and of making advances in agriculture. In the second stage they must resort to commercial restrictions to promote the growth of manufactures, fisheries, navigation, and foreign trade. In the last stage, ‘after reaching the highest degree of wealth and power,’ they must gradually revert to the principle of free trade and of unrestricted competition in the home as well as in foreign markets, so that their agriculturists, manufacturers, and merchants may be preserved from indolence and stimulated to retain the supremacy which they have acquired. Writing in 1841, he concludes the survey: ‘In the first stage, we see Spain, Portugal, and the Kingdom of Naples; in the second, Germany and the United States of North America; France apparently stands close upon the boundary line of the last stage; but Great Britain alone at the present time has actually reached it’ (p. 93).
This summary of historical tendencies is no doubt open to the usual charge of hasty and imperfect generalisation, but it shows very clearly the attitude of List towards protection. The main use of protection is to promote the growth of productive power in all the departments in which the nation has the requisite natural resources.
The attitude of List towards protection is made still clearer in the following passages, which fairly represent a large part of his main argument: ‘
The power of producing wealth is therefore infinitely more important than
wealth itself; it insures not only the possession and the increase of what has been gained, but also the replacement of what has been lost’ (p. 108). ‘The prosperity of a nation is not, as Say believes, greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion in which it has more
developed its powers of production‘ (p. 117). On List’s view there is no real opposition between free trade and protection, because neither is
an end in itself, but simply a means to achieve a certain end, namely, the greatest development of productive power. Which policy may be better at any time depends on the stage of development of the nation in relation to the development of other nations. For the time being a protective duty involves a loss. But the present loss is justifiable if in the future there will be a greater gain. ‘It is true that protective duties at first increase the price of manufactured goods; but it is just as true, and moreover acknowledged by the prevailing economical school, that in the course of time, by the nation being enabled to build up a completely developed manufacturing power of its own, those goods are produced more cheaply at home than the price at which they can be imported from foreign parts. If, therefore, a sacrifice of
value is caused by protective duties, it is made good by the gain of a
power of production, which not only secures to the nation an infinitely greater amount of material goods, but also industrial independence in case of war’ (p. 117).
The reference to economical independence in the last phrase indicates that List did not consider that even as regards productive power the advantage was to be measured merely by the greater cheapness ultimately. As with Adam Smith, ‘defence is of much more importance than opulence.’ And with List the maxim is applied to all the industries that may be considered of vital importance to a nation. An interesting example is given in List’s account of the methods of dumping (though the name is not used) practised by the English against the manufacturers of the Continent and America. ‘Through their position as the manufacturing and commercial monopolists of the world, their manufactories from time to time fall into the state which they call “glut,” and which arises from what they call “overtrading.” At such periods everybody throws his stock of goods into the steamers…. The English manufacturers suffer for the moment, but
they are saved, and they compensate themselves later on by better prices’ (p. 119). This is, of course, a simpler form of dumping than the modern plan of continuous sale of goods at lower prices abroad than at home, but the principle involved is the same as regards the economic independence of the nation. List goes on to show that by this English method of dealing with gluts the whole manufacturing power, the system of credit, nay, the agriculture and generally the whole economical system of the nations who are placed in free competition with England, are shaken to their foundations.
List also insists on the importance, from the standpoint of national productive power, of the development of both manufactures and agriculture, as indeed of all industries, for which the nation is by nature adapted. When List wrote, dealing as he did mainly with the interests of other nations as against England, he was most concerned to show that without manufactures a nation must remain relatively unprogressive, even as regards its agriculture. ‘A nation which possesses merely agriculture, and merely the most indispensable industries, is in want of the first and most necessary division of commercial operations among its inhabitants, and of the most important half of its productive powers, indeed it is in want of a useful division of commercial operations even in the separate branches of agriculture itself’ (p. 124). ‘The productive power of the cultivator and of the labourer in agriculture will always be greater or smaller according to the degree in which the exchange of agricultural produce for manufactures and other products of various kinds can proceed more or less readily. That in this respect the foreign trade of any nation which is but little advanced can prove in the highest degree beneficial, we have shown in another chapter by the example of England. But a nation which has already made considerable advances in civilisation, in possession of capital, and in population, will find the development
of a manufacturing power of its own infinitely more beneficial to its agriculture than the most flourishing foreign trade can be without such manufactures’ (p. 127). A number of reasons are assigned, but the final argument is ‘especially because the reciprocal exchange between manufacturing power and agricultural power is so much greater, the closer the agriculturist and manufacturer are placed to one another, and the less they are liable to be interrupted in the exchange of their various products by accidents of all kinds.’
This is the argument which was developed in theory by Henry Sidgwick to show that ultimately the world at large might gain by the temporary protection of the constituent nations. And on the practical side it is this argument which is most popular in the British colonies. The colonies are protectionist because they wish to become complex industrial nations, and though it is the manufacturers who gain in the first place by protection, it is claimed that agriculture must also gain indirectly by the encouragement to various bye-products.
Even as regards manufactures the benefit of protection is limited by List to the educational or young industry stage of development. When nations have attained to their full powers protection is apt to check progress and lead to decadence. The case of Venice is given as typical (p. 8). Unrestricted freedom of trade was beneficial to the Republic in the first years of her existence, but a protective policy was also beneficial when she had attained to a certain stage of power and wealth, and protection first became injurious to her when she had attained the commercial supremacy of the world, because the exclusion of competition led to indolence. ‘Therefore, not the introduction of a protective policy, but perseverance in maintaining it after the reasons for its introduction had passed away, was really injurious to Venice.’ As regards protection to agriculture, curiously enough List
confesses that he is in accord with the prevailing theory—that is, extreme free trade (p. 175). ‘With regard to the interchange of raw products, the school is perfectly correct in supposing that the most extensive liberty of commerce is, under all circumstances, most advantageous to the individual as well as to the entire State. One can, indeed, augment this production by restrictions; but the advantage obtained thereby is merely apparent. We only thereby divert, as the school says, capital and labour into another and less useful channel.’ The argument is given at length and is on familiar lines.
Nor is List’s attitude towards free trade merely negative. It is not that protection should be abandoned when it becomes useless, and that free trade is the absence of useless restrictions, but positive virtue is ascribed to free trade as to other forms of freedom. List was an enthusiast for freedom. ‘The real rise of the industry and the power of England dates only from the days of the actual foundation of England’s national freedom, while the industry and power of Venice, of the Hanse Towns, of the Spanish and Portuguese, decayed concurrently with their loss of freedom’ (p. 87). In this passage the reference is to freedom in the larger political sense, but in other places List extols the positive virtue of free trade once a nation has attained its full maturity. Protective duties ought never to be so high as to strangle healthy competition. ‘It may in general be assumed that where any technical industry cannot be established by means of an original protection of forty to sixty per cent. and cannot continue to maintain itself under a continued protection of twenty to thirty per cent. the fundamental conditions of manufacturing power are lacking’ (p. 251). Thus even in the educative stage the duties are to be moderate (relatively to the methods of production), and later on they are to be abandoned altogether. ‘In order to allow freedom of trade to operate naturally, the less advanced nations must first be
raised by artificial measures to that stage of cultivation to which the English nation has been artificially elevated’ (p. 107). List was also a great enthusiast for the political union of kindred states, as exemplified in the case of Germany and Italy, but he thought that the political union must always precede the commercial union of the separate states (p. 102). Although the corner-stone of List’s system is nationalism, his ultimate ideal is universal free trade. His difference with the
laissez-faire school was that if under present conditions universal free trade were adopted, it would simply serve to subject the less advanced nations to the supremacy of the predominant manufacturing commercial and naval power (the England of his day); and in this way the development of the nations would be checked, and in the end the whole world would lose. The system of protection was the only means in his view of bringing other nations to the stage at which universal free trade would be possible and desirable.
This brief survey of the leading ideas of List’s work confirms the suspicion, suggested by isolated extracts, that his arguments can only be brought to bear on the present controversy in this country by appealing to his fundamental ideas. List, like every other great writer, was influenced very much by the conditions under which he wrote and the atmosphere in which he moved. The predominance of England in industry and commerce was in fact considerable, and, according to the popular sentiment and jealousy of other nations, was altogether overbearing. The problem with List was to show the nations how they might upset this commercial overlordship and attain to an equality with England. The only method seemed to be that of temporary protection. To-day the fear has been expressed that England may succumb to other nations. It is plain that the case is altered. It would be absurd to argue that the manufactures of England must be protected until they have had time to grow up;
they are no longer young; if they are weak, the weakness is that of age and not infancy.
Again, in List’s day the conditions of agriculture and the means of transport were such that he himself argued in reference to England that with the abolition of the Corn Laws and other restraints on the import of raw produce, ‘it is more than probable that thereby double and three times as much land could have been brought into cultivation as by unnatural restrictions’ (p. 175). The idea at the time seemed reasonable that in the main every country must rely on its own food supplies, that agriculture was naturally protected, that the cultivator could resort to ‘other things,’ and that the growth of wealth through the increase of manufacturing power would increase the demand for these other things. And for nearly a generation after the repeal of the Corn Laws this view seemed justified. But again the conditions have changed; and it would be idle to quote the authority of List regarding raw products, that under all circumstances the most extensive liberty of commerce is most advantageous both to the individual and to the State.
Alike in agriculture and in manufactures the particular opinions of List are either irrelevant or adverse as regards the adoption by England of protection or retaliation, and even as regards federation he thought that political must precede commercial union. But the real value of List’s work lies in the principles and fundamental ideas. These ideas are always to be reckoned with; they suggest questions which the statesman must answer whatever the change in conditions. The questions which our statesmen have to answer, suggested by the ideas of List, are such as these: Will the productive powers of the nation suffice to maintain and increase its present prosperity? Are the great national industries threatened with no signs of decay, and if there is decay where are substitutes to be looked for? Is there any change in the character of our trade which indicates a lower standard
of national life? Is there any danger from foreign monopolies? Will retaliation promote the industrial development of the nation?
*2 Is the Empire capable of closer and more effective commercial and political union? And, lastly, there is the practical question, how far a change in tariffs is likely to prevent or remedy any of the evils of the present system?
The work of List will give no cut-and-dried answers to these questions, but it will suggest fruitful lines of inquiry in the search for the answers. Finally, it may be said, just as Adam Smith admitted exceptions to free trade, so List admitted exceptions to protection. And in both authors the exceptions in theory are so important that the divergence on balance is not nearly so great as the reader might suppose. List’s work would have gained in power and in popularity if, instead of attacking Adam Smith for opinions which were only held by his extreme successors, he had emphasised his points of agreement with the original author.
Economic Surveys, by Professor Ashley, and Dr. Cunningham’s
Growth of English Industry and Commerce, vol. ii. (edition 1903).
industrial development of the nation, if it serves as it were as an assistance to this object’ (p. 255).
Memoir, by J. Shield Nicholson
Friedrich List, ein Vorläufer und ein Opfer für das Vaterland. (Stuttgart, 1877.)