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
WHILST the English were busied for centuries in raising the structure of their national prosperity upon the most solid foundations, the Spaniards and the Portuguese made a fortune rapidly by means of their discoveries and attained to great wealth in a very short space of time. But it was only the wealth of a spendthrift who had won the first prize in a lottery, whereas the wealth of the English may be likened to the fortune accumulated by the diligent and saving head of a family. The former may for a time appear more to be envied than the latter on account of his lavish expenditure and luxury; but wealth in his case is only a means for prodigality and momentary enjoyment, whereas the latter will regard wealth chiefly as a means of laying a foundation for the moral and material well-being of his latest posterity.
The Spaniards possessed flocks of well-bred sheep at so early a period that Henry I. of England was moved to prohibit the importation of Spanish wool in 1172, and that as far back as the tenth and eleventh centuries Italian woollen manufacturers used to import the greater portion of their wool supplies from Spain. Two hundred years before that time the dwellers on the shores of the Bay of Biscay had already distinguished themselves in the manufacture of iron, in navigation, and in fisheries. They were the first to carry on the whale fishery, and even in the year 1619 they still so far excelled the English in that business that they were asked to send fishermen to England to instruct the English in this particular branch of the fishing trade.
Already in the tenth century, under Abdulrahman III. (912 to 950), the Moors had established in the fertile plains around Valencia extensive plantations of cotton, sugar, and rice, and carried on silk cultivation. Cordova, Seville, and Granada contained at the time of the Moors important cotton and silk manufactories.
*45Valencia, Segovia, Toledo, and several other cities in Castile were celebrated for their woollen manufactures. Seville alone at an early period of history contained as many as 16,000 looms, while the woollen manufactories of Segovia in the year 1552 were employing 13,000 operatives. Other branches of industry, notably the manufacture of arms and of paper, had become developed on a similar scale. In Colbert’s day the French were still in the habit of procuring supplies of cloth from Spain.
*46 The Spanish seaport towns were the seat of an extensive trade and of important fisheries, and up to the time of Philip II. Spain possessed a most powerful navy. In a word, Spain possessed all the elements of greatness and prosperity, when bigotry, in alliance with despotism, set to work to stifle the high spirit of the nation. The first commencement of this work of darkness was the expulsion of the Jews, and its crowning act the expulsion of the Moors, whereby two millions of the most industrious and well-to-do inhabitants were driven out of Spain with their capital.
While the Inquisition was thus occupied in driving native industry into exile, it at the same time effectually prevented foreign manufacturers from settling down in the country. The discovery of America and of the route round the Cape only increased the wealth of both kingdoms after a specious and ephemeral fashion—indeed, by these events a death-blow was first given to their national industry and to their power. For then, instead of exchanging the produce of the East and West Indies against home manufactures, as the Dutch and the English subsequently did, the Spaniards and Portuguese purchased manufactured goods from foreign nations with the gold and the silver which they had wrung from their colonies.
*47 They transformed their useful and industrious citizens into slave-dealers and colonial tyrants: thus they promoted the industry, the trade, and the maritime power of the Dutch and English, in whom they raised up rivals who soon grew strong enough to destroy their fleets and rob them of the sources of their wealth. In vain the kings of Spain enacted laws against the exportation of specie and the importation of manufactured goods. The spirit of enterprise, industry, and commerce can only strike root in the soil of religious
and political liberty; gold and silver will only abide where industry knows how to attract and employ them.
Portugal, however, under the auspices of an enlightened and powerful minister, did make an attempt to develop her manufacturing industry, the first results of which strike us with astonishment. That country, like Spain, had possessed from time immemorial fine flocks of sheep. Strabo tells us that a fine breed of sheep had been introduced into Portugal from Asia, the cost of which amounted to one talent per head. When the Count of Ereceira became minister in 1681, he conceived the design of establishing cloth manufactories, and of thus working up the native raw material in order to supply the mother country and the colonies with home-manufactured goods. With that view cloth workers were invited from England, and so speedily did the native cloth manufactories flourish in consequence of the protection secured to them, that three years later (in 1684) it became practicable to prohibit the importation of foreign cloths. From that period Portugal supplied herself and her colonies with native goods manufactured of home-grown raw material, and prospered exceedingly in so doing for a period of nineteen years, as attested by the evidence of English writers themselves.
It is true that even in those days the English gave proof of that ability which at subsequent times they have managed to bring to perfection. In order to evade the tariff restrictions of Portugal, they manufactured woollen fabrics, which slightly differed from cloth though serving the same purpose, and imported these into Portugal under the designation of woollen serges and woollen druggets. This trick of trade was, however, soon detected and rendered innocuous by a decree prohibiting the importation of such goods.
*49 The success of these measures is all the more remarkable because the country, not a very great while before, hadbeen drained of a large amount of capital, which had found its way abroad owing to the expulsion of the Jews, and was suffering especially from all the evils of bigotry, of bad government, and of a feudal aristocracy, which ground down popular liberties and agriculture.
In the year 1703, after the death of Count Ereceira, however, the famous British ambassador Paul Methuen succeeded in persuading the Portuguese Government that Portugal would be immensely benefited if England were to permit the importation of Portuguese wines at a duty one-third less than the duty levied upon wines of other countries, in consideration of Portugal admitting English cloths at the same rate of import duty (viz.
twenty-three per cent.) which had been charged upon such goods prior to the year 1684. It seems as though on the part of the King the hope of an increase in his customs revenue, and on the part of the nobility the hope of an increased income from rents, supplied the chief motives for the conclusion of that commercial treaty in which the Queen of England (Anne) styles the King of Portugal ‘her oldest friend and ally’—on much the same principle as the Roman Senate was formerly wont to apply such designations to those rulers who had the misfortune to be brought into closer relations with that assembly.
Directly after the conclusion of this treaty, Portugal was deluged with English manufactures, and the first result of this inundation was the sudden and complete ruin of the Portuguese manufactories—a result which had its perfect counterparts in the subsequent so-called Eden treaty with France and in the abrogation of the Continental system in Germany.
According to Anderson’s testimony, the English, even in those days, had become such adepts in the art of understating the value of their goods in their custom-house bills of entry, that in effect they paid no more than half the duty chargeable on them by the tariff.
‘After the repeal of the prohibition,’ says ‘The British Merchant,’ ‘we managed to carry away so much of their silver currency that there remained
but very little for their necessary occasions; thereupon we attacked their gold.’
*52 This trade the English continued down to very recent times. They exported all the precious metals which the Portuguese had obtained from their colonies, and sent a large portion of them to the East Indies and to China, where, as we saw in Chapter IV., they exchanged them for goods which they disposed of on the continent of Europe against raw materials. The yearly exports of England to Portugal exceed the imports from that country by the amount of one million sterling. This favourable balance of trade lowered the rate of exchange to the extent of fifteen per cent. to the disadvantage of Portugal. ‘The balance of trade is more favourable to us in our dealings with Portugal than it is with any other country,’ says the author of ‘The British Merchant’ in his dedication to Sir Paul Methuen, the son of the famous minister, ‘and our imports of specie from that country have risen to the sum of one and a half millions sterling, whereas formerly they amounted only to 300,000
All the merchants and political economists, as well as all the
statesmen of England, have ever since eulogised this treaty as the masterpiece of English commercial policy. Anderson himself, who had a clear insight enough into all matters affecting English commercial policy, and who in his way always treats of them with great candour, calls it ‘an extremely fair and advantageous treaty;’ nor could he forbear the
naïve exclamation, ‘May it endure for ever and ever!’
For Adam Smith alone it was reserved to set up a theory directly opposed to this unanimous verdict, and to maintain that the Methuen Treaty had in no respect proved a special boon to British commerce. Now, if anything will suffice to show the blind reverence with which public opinion has accepted the (partly very paradoxical) views of this celebrated man, surely it is the fact that the particular opinion above mentioned has hitherto been left unrefuted.
In the sixth chapter of his fourth book Adam Smith says, that inasmuch as under the Methuen Treaty the wines of Portugal were admitted upon paying only two-thirds of the duty which was paid on those of other nations, a decided advantage was conceded to the Portuguese; whereas the English, being bound to pay quite as high a duty in Portugal on their exports of cloth as any other nation, had, therefore, no special privilege granted to them by the Portuguese. But had not the Portuguese been previously importing a large proportion of the foreign goods which they required from France, Holland, Germany, and Belgium? Did not the English thenceforth exclusively command the Portuguese market for a manufactured product, the raw material for which they possessed in their own country? Had they not discovered a method of reducing the Portuguese customs duty by one-half? Did not the course of exchange give the English consumer of Portuguese wines a profit of fifteen per cent.? Did not the consumption of French and German wines in England almost entirely cease? Did not the Portuguese gold and silver supply the English with the means of bringing vast quantities of goods from India and of deluging the continent of Europe with them? Were not the Portuguese cloth manufactories totally ruined, to the advantage of the English? Did not all the Portuguese colonies, especially the rich one of Brazil, by this means become practically English colonies? Certainly this treaty conferred a privilege upon Portugal, but only in name; whereas it conferred a privilege upon the English in its actual operation and effects. A like tendency underlies all subsequent treaties of commerce negotiated by the English. By profession they were always cosmopolites and
philanthropists, while in their aims and endeavours they were always monopolists.
According to Adam Smith’s second argument, the English gained no particular advantages from this treaty, because they were to a great extent obliged to send away to other countries the money which they received from the Portuguese for their cloth, and with it to purchase goods there; whereas it would have been far more profitable for them to make a direct exchange of their cloths against such commodities as they might need, and thus by one exchange accomplish that which by means of the trade with Portugal they could only effect by two exchanges. Really, but for the very high opinion which we entertain of the character and the acumen of this celebrated savant, we should in the face of this argument be driven to despair either of his candour or of his clearness of perception. To avoid doing either, nothing is left for us but to bewail the weakness of human nature, to which Adam Smith has paid a rich tribute in the shape of these paradoxical, almost laughable, arguments among other instances; being evidently dazzled by the splendour of the task, so noble in itself, of pleading a justification for absolute freedom of trade.
In the argument just named there is no more sound sense or logic than in the proposition that a baker, because he sells bread to his customers for money, and with that money buys flour from the miller, does an unprofitable trade, because if he had exchanged his bread directly for flour, he would have effected his purpose by a single act of exchange instead of by two such acts. It needs surely no great amount of sagacity to answer such an allegation by hinting that the miller might possibly not want so much bread as the baker could supply him with, that the miller might perhaps understand and undertake baking himself, and that, therefore, the baker’s business could not go on at all without these two acts of exchange. Such in effect were the commercial conditions of Portugal and England at the date of the treaty. Portugal received gold and silver from South America in exchange for manufactured goods which she then exported to those regions; but too indolent or too shiftless to manufacture these goods herself, she bought them of the English in exchange for the precious metals. The latter employed the precious metals, in so far as they did not require them for the circulation at home, in exportation to India or China, and bought goods there which they sold again on the European continent, whence they brought home agricultural produce, raw material, or precious metals once again.
We now ask, in the name of common sense, who would have purchased of the English all those cloths which they exported to Portugal, if the Portuguese had chosen either to make them at
home or procure them from other countries? The English could not in that case have sold them to Portugal, and to other nations they were already selling as much as those nations would take. Consequently the English would have manufactured so much less cloth than they had been disposing of to the Portuguese; they would have exported so much less specie to India than they had obtained from Portugal. They would have brought to Europe and sold on the Continent just that much less of East Indian merchandise, and consequently would have taken home with them that much less of raw material.
Quite as untenable is Adam Smith’s third argument that, if Portuguese money had not flowed in upon them, the English might have supplied their requirements of this article in other ways. Portugal, he conceived, must in any case have exported her superfluous store of precious metals, and these would have reached England through some other channel. We here assume that the Portuguese had manufactured their cloths for themselves, had themselves exported their superfluous stock of precious metals to India and China, and had purchased the return cargoes in other countries; and we take leave to ask the question whether under these circumstances the English would have seen much of Portuguese money? It would have been just the same if Portugal had concluded a Methuen Treaty with Holland or France. In both these cases, no doubt, some little of the money would have gone over to England, but only so much as she could have acquired by the sale of her raw wool. In short, but for the Methuen Treaty, the manufactures, the trade, and the shipping of the English could never have reached such a degree of expansion as they have attained to.
But whatever be the estimate formed of the effects of the Methuen Treaty as respects England, this much at least appears to be made out, that, in respect to Portugal, they have in no way been such as to tempt other nations to deliver over their home markets for manufactured goods to English competition, for the sake of facilitating the exportation of agricultural produce. Agriculture and trade, commerce and navigation, instead of improving from the intercourse with England, went on sinking lower and lower in Portugal. In vain did Pombal strive to raise them, English competition frustrated all his efforts. At the same time it must not be forgotten that in a country like Portugal, where the whole social conditions are opposed to progress in agriculture, industry, and commerce, commercial policy can effect but very little. Nevertheless, the little which Pombal did effect proves how much can be done for the benefit of industry by a government which is anxious to promote its interests, if only the internal hindrances
which the social condition of a country presents can first be removed.
The same experience was made in Spain in the reigns of Philip V. and his two immediate successors. Inadequate as was the protection extended to home industries under the Bourbons, and great as was the lack of energy in fully enforcing the customs laws, yet the remarkable animation which pervaded every branch of industry and every district of the country as the result of transplanting the commercial policy of Colbert from France to Spain was unmistakable.
*55 The statements of Ustaritz and Ulloa
*56 in regard to these results under the then prevailing circumstances are astonishing. For at that time were found everywhere only the most wretched mule-tracks, nowhere any well-kept inns, nowhere any bridges, canals, or river navigation, every province was closed against the rest of Spain by an internal customs cordon, at every city gate a royal toll was demanded, highway robbery and mendicancy were pursued as regular professions, the contraband trade was in the most flourishing condition, and the most grinding system of taxation existed; these and such as these the above-named writers adduce as the causes of the decay of industry and agriculture. The causes of these evils—fanaticism, the greed and the vices of the clergy, the privileges of the nobles, the despotism of the Government, the want of enlightenment and freedom amongst the people—Ustaritz and Ulloa dare not denounce.
A worthy counterpart to the Methuen Treaty with Portugal is the Assiento Treaty of 1713 with Spain, under which power was granted to the English to introduce each year a certain number of African negroes into Spanish America, and to visit the harbour of Portobello with one ship once a year, whereby an opportunity was afforded them of smuggling immense quantities of goods into these countries.
We thus find that in all treaties of commerce concluded by the English, there is a tendency to extend the sale of their manufactures throughout all the countries with whom they negotiate, by offering them apparent advantages in respect of agricultural produce and raw materials. Everywhere their efforts are directed to ruining the native manufacturing power of those countries by
means of cheaper goods and long credits. If they cannot obtain low tariffs, then they devote their exertions to defrauding the custom-houses, and to organising a wholesale system of contraband trade. The former device, as we have seen, succeeded in Portugal, the latter in Spain. The collection of import dues upon the
ad valorem principle has stood them in good stead in this matter, for which reason of late they have taken so much pains to represent the principle of paying duty by weight—as introduced by Prussia—as being injudicious.
Recueil d’Observations sur l’Angleterre. Mémoires et Considérations sur le Commerce et les Finances d’Espagne. Ustaritz,
Théorie et Pratique du Commerce.
De l’Industrie Française, vol. ii. p. 245.
Essai Politique sur le Royaume de la Nouvelle Espagne, vol. ii. p. 652. The goods trade with those regions, as well as with the West Indies, first assumed important proportions, by the introduction of the sugar, coffee, and cotton planting.
Annals of Commerce for the years 1771 and 1774. The obstacles thrown in the way of the importation of foreign goods greatly promoted the development of Spanish manufactures. Before that time Spain had been obtaining nineteen-twentieths of her supplies of manufactured goods from England.—Brougham,
Inquiry into the Colonial Policy of the European Powers, Part I. p. 421.
Théorie du Commerce. Ulloa,
Rétablissement des Manufactures d’Espagne.