List Economic Condition in Germany

Friedrich List’s Ideas in Relation To The Economic Conditions in Germany

The Germany of the nineteenth century presents a unique spectacle. Her population was at first essentially agricultural, and the various states politically and economically isolated. Her industry was fettered by the corporative regime, and her agriculture was still in feudal thraldom. Freed from these encumbrances, and having established first her econo­mic and then her political unity, she took her place during the last three decades of the century among the foremost of industrial Powers.
The Act of Union of 1800 had ensured the economic unity of the British Isles. The union of England and Scotland was already a cen­tury old, and Smith regarded it as "one of the chief causes of the pros­perity of Great Britain." France had accomplished the same end by the suppression of domestic tariffs in 1791. But Germany even in 1815 was still a congeries of provinces, varying in importance and separated from one another by tariff walls. List, in the petition which he ad­dressed in 1819 to the Federal Assembly in the name of the General Federation of German Trade and Commerce, could reckon no less than thirty-eight kinds of tariffs within the German Confederacy, without mentioning other barriers to commerce. In Prussia alone there were no fewer than sixty-seven different tariffs. "In short," says List in another petition, "while other nations cultivate the sciences and the arts whereby commerce and industry are extended, German merchants and manufacturers must devote a great part of their time to the study of domestic tariffs and taxes."

These inconveniences were still further aggravated by the complete absence of import duties. The German states were closed to one another, but, owing to the absence of effective central control, were open to other nations—a peculiarly galling situation on the morrow of the Continental Blockade. The peace treaty was scarcely signed when England—so long cut off from her markets and forced to over­stock her warehouses with her manufactured goods—began to flood the Continent with her products. Driven from France by the protec­tive tariff established by the Restoration Government, these goods, offered at ridiculously low prices, found a ready market in Ger­many.

The German merchants and manufacturers became thoroughly alarmed, and there arose a general demand for economic unity and a uniform tariff. Public opinion urged a reform which appeared to be the first step in the movement towards national unity. In 1818 Prussia secured her own commercial unity by abolishing all internal taxation, retaining only those duties which were levied at the frontier. Her new tariff of 10 per cent, on manufactured goods, with free entrance for raw material, was not regarded as prohibitive, and was actually approved of by Huskisson as a model which the British Parliament might well imitate. But this reform, confined as it was to Prussia alone, did nothing to improve the lot of the German merchants else­where, for the Prussian tariff applied just as much to them as to foreigners.

This particular reform, far from staying the movement towards uniform import duties, only accelerated it. A General Association of German Manufacturers and Merchants was founded at Frankfort in 1819 to urge confederation upon the Government. The agitation was inspired by Friedrich List. He had been for a short time professor at Tubingen and was already well known as a journalist. He was nominated general secretary of the association, and became the soul of the movement. He wrote endless petitions and articles, and made personal application to the various Governments at Munich, Stuttgart, Berlin, and Vienna. He was anxious that Austria should take the lead. But all in vain. The Federal Assembly, hostile as it was to every manifestation of public opinion, refused to reply to the petition of the merchants and manufacturers. List himself was soon taken up with other interests. He was named as the deputy for Reutlingen, his native town, in the state of Wiirtemberg, in 1820, but was banished from the Assembly and condemned to ten months' imprisonment for criticizing the bureaucracy of his own country. After seeking refuge in France he spent a few years travelling in England and Switzerland, and then returned to Wiirtemberg, where he again suffered imprisonment. Upon his release from prison he resolved to emigrate to America, where Lafayette, whom he had met in Paris, promised him a warm wel­come.

Returning to Germany in 1832, after having made numerous friends and accumulated a fortune, he found the tariff movement for which he had struggled thirteen years before just coming to a head. It was to be established, however, in a fashion quite different from what he had expected. It was not to be a general reform, and Austria was not to be leader.

Prussia was to be the pivot of the movement, which was to be accomplished by means of a series of general agree­ments. In 1828 there were formed almost simultaneously two Tariff Unions, the one between Bavaria and Wiirtemberg, the other between Prussia and Hesse-Darmstadt. Within the areas of both of these unions goods were to circulate freely, and a common rate of duty was to be established at the frontiers. From the very first there was a rapprochement between the unions, but a definite fusion in one Zollverein was only decided upon on March 22, 1833. The new regime actually came into being on January 1, 1834. Even before that date Saxony and some of the other states had already joined the new union.
Thus by 1834 the commercial union of modern Germany was virtually accomplished. The Zollverein united the principal German states, Austria excepted, and under this regime industry, assured of a large domestic market, increased by leaps and bounds. But a new problem presented itself, namely, what system of taxation was to be adopted by the union as a whole. In 1834 the liberal Prussian tariff of 1818 was adopted without much opposition, but nothing more was attempted just then. Many of the manufacturers, however, especially the iron-smelters and the cotton and flax spinners, demanded a more substantial means of protection against foreign competition. This clamour became more intense as the need for iron and manufactured goods increased the demand for raw material. Hence from 1841—the date of the completed Zollverein—a new discussion arose between the partisans of the status quo, inclining towards free exchange, and the advocates of a more vigorous protection.

List's National System, advocating Protection, appeared at the psycho­logical moment. This delightfully eloquent work is full of examples borrowed from history and experience. The peculiar condition of contemporary Germany was the one source of List's inspiration, and since the work was written for the public at large it is remarkably free from all traces of the 'schools.' Germany's industry, the sole hope of her future greatness, had found scope for development only during the peace which followed 1815. It was still in its infancy, and found itself hard hit by the competition of England, with her long experience, her perfected machinery, and her gigantic output. This was the all-important fact for List. England, whose rivalry appeared so danger­ous, had closed her markets to German agriculturists by her Corn Laws, while industrial competition was out of the question. Two other nations, France and the United States, destined, like Germany, to become great industrial Powers, indicated the path of emancipation. France, warned by the results of the Treaty of Eden (1786) as to the veils of English competition, hastened to defend her fortunes by means of prohibitive tariffs. Still more significant was the example of the United States, whose situation was in all respects comparable with that of Germany. In both cases economic independence was hardly yet fully established, the natural resources were abundant, the terri­tory was vast, the population intelligent and industrious, with the hope of a great political future. Though scarcely free as yet, the Americans made the establishment of industry and the shutting out of English goods by means of protective tariffs their first care. Thus there was everywhere the same danger, the tyrannical supremacy of England, and the same method of defence, Protection. Would Germany alone stand aloof from adopting similar measures?

That is the essential point of List's thesis. But these very practical views tended to damage the well-known arguments of those econo­mists whom List refers to collectively as "the school." The 'school' maintained that nations as well as individuals should buy in the cheapest markets and devote all their energies to producing just those commodities which yield them the greatest gain. Industry can only grow in proportion to the amount of capital saved, but a protec­tive regime hinders accumulation and so defeats its own end. To/ overcome these objections it is not necessary to combat them one by one, for the discussion may be carried to an entirely different field. The 'school' adopts a certain ideal of commercial policy as the basis of its thesis, namely, the increase of consumable wealth, or, as List puts it, in an awkward enough fashion, "the increase of its exchange­able values."1 This fundamental point of view must be changed if we would avoid the consequences which naturally follow from it. List realized this, and in his attempt to accomplish the task he gave expres­sion to new truths which make his book one of lasting theoretical value and ensure for it an important place in the history of economic doctrines.

In fact, he introduces two ideas that were new to current theory, namely, the idea of nationality as contrasted with that of cosmopoli­tanism, and the idea of productive power as contrasted with that of exchange values. List's whole system rests upon these two ideas.

(a) List accuses Adam Smith and his school of cosmopolitanism. Their hypothesis rested on the belief that men were henceforth to be united in one great community from which war would be banished. On such a hypothesis humanity was merely the sum of its individuals. Individual interests alone counted, and any interference with economic liberty could never be justified. But between man and humanity must be interpolated the history of nations, and the ' school' had forgotten this. Every man forms part of some nation, and his prosperity to a large extent depends upon the political power of that nation.
Universal entente is doubtless a noble end to pursue, and we ought to hasten its accomplishment. But nations to-day are of unequal strength and have different interests, so that a definite union could only benefit them if they met on a footing of equality. The union might even only benefit one of them while the others became depen­dent. Viewed in this new light, political economy becomes the science which, by taking account of the actual interests and of the particular condition of each nation, shows along what path each may rise to that degree of economic culture at which union with other civilized nations, accompanied by free exchange, might be both possible and useful.

List distinguishes several 'degrees of culture,' or what we would to-day call 'economic stages,' and he even claims actual historical sequence for his classification into the savage, the pastoral, the agri­cultural, the agricultural-manufacturing, and the agricultural-manu­facturing-commercial stage. A nation becomes 'normal' only when it has attained the last stage. List understands by this that such is the ideal that a nation ought to follow. As a matter of fact, he would allow it to possess a navy and to found colonies only on condition that it kept up its foreign trade and extended its sphere of influence. It is only at this stage that a nation can nourish a vast population, ensure a complete development of the arts and sciences, and retain its inde­pendence and power. The last two ideas constitute the sine qua non of nationality. Not all nations, it is true, can pretend to this com­plete development. It requires a vast territory, with abundant natural resources, and a temperate climate, which itself aids the development of manufactures. But where these conditions are given then it becomes a nation's first duty to exert all its forces in order to attain this stage. Germany possessed these desiderata to a remarkable degree. All that was needed was an extension of territory, and List lays claim to Holland and Denmark as a portion of Germany, declaring that their incorporation would be regarded even by themselves as being both desirable and necessary. Accordingly, he wished them to enter the Confederacy of their own free will.

Hence the aim of a commercial policy is no longer what it was for Smith, viz., the enriching of a nation. It is a much more com­plex ideal that List proposes, both historically and politically, but an ideal which implies as a primary necessity the establishment of manufactures.

(b) This necessity becomes apparent from still another point of view. The estimate of a nation's wealth should not be confined to one par­ticular moment. It is not enough that the labour and economy of its citizens should at the present moment assure for it a great mass of exchange values. It is also necessary that these resources of labour and of economy should be safeguarded and that their future development should be assured, for "the power of creating wealth is infinitely more important than the wealth itself." A nation should concern itself with the growth of what List in a vague fashion calls its productive forces even more than with the exchange values which depend upon them. Even a temporary sacrifice of the second may be demanded for the sake of the first. In these expressions List merely wishes to emphasize the distinction between a policy which takes account of a nation's future as compared with one which takes account only of the present. "A nation must sacrifice and give up a measure of material property in order to gain culture, skill, and powers of united production; it must sacrifice some present advantages in order to ensure to itself future ones."

But what are these productive forces which constitute the perma­nent source of a nation's prosperity and the condition of its progress?

With particular insistence List first of all mentions the moral and political institutions, freedom of thought, freedom of conscience, liberty of the Press, trial by jury, publicity of justice, control of administra­tion, and parliamentary government. All these have a stimulating and salutary effect upon labour. He is never weary of recalling to mind the loss of wealth caused by the Revocation of the Edict of Nantes, or by the Spanish Inquisition, which, says he, "had passed sentence of death upon the Spanish navy long ere the English and the Dutch fleets had executed the decree" (p. 88). He unjustly accuses Smith and his school of materialism, and condemns them for neglecting to reckon those infinitely powerful but perhaps less calculable forces.

But of all the productive forces of a nation none, according to List, can equal manufactures, for manufactures develop the moral forces of a nation to a superlative degree.

The spirit of striving for a steady increase in mental and bodily acquirements, of emulation and of liberty, characterize a State devoted to manufactures and commerce. ... In a country devoted to mere raw agriculture, dullness of mind, awkwardness of body, obstinate adherence to old notions, customs, methods, and processes, want of culture, of prosperity, and of liberty prevail.

Manufactures permit of a better utilization of a country's products than is the case even with agriculture. Its water-power, its winds, its minerals, and its fuel supplies are better husbanded. The presence of manufactures gives a powerful impetus to agriculture, for the agri­culturist profits even more than the manufacturer, owing to the high rent, increased profits, and better wages that follow upon an increased demand for agricultural products. The very proximity of manufac­tures constitutes a kind of permanent market for those agricultural products, a market which neither war nor hostile tariffs can ever affect. It gives rise to varied demands and allows of a variation of cultivation, which results in a regional division of labour. This enables each dis­trict to develop along the most advantageous line, whereas in a purely agricultural country each one has to produce for his personal con­sumption, which means the absence of division of labour and a conse­quent limitation of production.
Industry for List is not what it was for Smith. For him it is a social force, the creator of capital and of labour, and not the natural result of labour and saving. It deserves introduction even at the expense of a temporary loss, and its justification is that of all liberal institutions, namely, the impetus given to future production. In a beautiful com­parison which would deserve a niche in a book of classical economic quotations he writes as follows:

It is true that experience teaches that the wind bears the seed from one region to another, and that thus waste moorlands have been transformed into dense forests; but would it on that account be wise policy for the forester to wait until the wind in the course of ages effects this transformation?
The tariff, apparently, is the only method of raising the wind.

By placing himself at this point of view List is able to defeat the most powerful arguments used by his opponents. All we can say in reply is that manufactures will not produce these effects if they have not already a raison d'etre in the natural evolution of a nation—that is, if they do not demand too costly a sacrifice. The land on which the settler sows his corn can scarcely be regarded as ready to receive it if it lacks the power to make it grow.

List's Protectionism, as we may guess from what precedes, possesses original features. It is not a universal remedy which may be in­differently applied to every country at any period or to all its products. It is a particular process which can only be used in certain cases and under certain conditions. Subjoined are some of the characteristic traits of this Protectionism which List himself has neatly described.

(1) The Protectionist system can only be justified when it aims at the industrial education of a nation. It is thus inapplicable to a nation like the English, whose industrial education is already com­plete. Nor should it be attempted by countries that have neither the aptitude nor the resources necessary for an industrial career. The nations of the tropical zone seem destined to the pursuit of agriculture, while those of the temperate zone are accustomed to engage in many and varied forms of production.

(2) But a further justification is also necessary. It must be shown that the nation's progress is retarded by the competition of a powerful manufacturing rival which has already advanced farther on the industrial path. "The reason for this is the same as that why a child or a boy in wrestling with a strong man can scarcely be victorious or even offer steady resistance." This was precisely the case with Germany in her struggle with England. (It is interesting to come across a full account of the process of 'dumping' in List's letters to Ingersoll. 'Dumping,' which has received much attention in connection with the trust movement, consists in selling at a low price in foreign markets in order to keep up prices in the home market.)

(3) Even in that case Protection can be justified "only until that manufacturing Power is strong enough no longer to have any reason to fear foreign competition, and thenceforth only so far as may be necessary for protecting the inland manufacturing power in its very roots."

(4) Lastly, Protection ought never to be extended to agriculture. The reasons for this exception are that on the one hand agricultural prosperity depends to a great extent upon the progress of manufac­tures—the protection of the latter indirectly benefits the former—and on the other hand an increase in the price of raw materials or of food would injure industry. Moreover, there exists a natural division which is particularly advantageous to the system of cultivation pursued by each country, a division dependent upon the natural qualities of their soils, which Protection would tend to destroy. This territorial division does not exist for manufactures, "for the pursuit of which every nation in the temperate zone seems to have an equal vocation."

One might experience some difficulty in understanding the sudden volte-face of List in favour of free exchange in agriculture did we forget the particular situation in Germany, to which his thoughts always returned. This is equally true of many other points in his system. Germany was an exporter of corn and suffered from the operation of the English Corn Laws. German agriculture needed no protection, but suffered from want of markets, and List would have been very happy to persuade England to abandon her Corn Laws. Agricultural protection was only revived in Germany towards the end of 1879, when the agriculturists thought they were being threatened by foreign competition.