National Economy in Germany

National Economy in Germany

Adam Duller (1779-1829), who is known in economic thought as German Romanticist, was one of the first to oppose the individualistic, free trade doctrine of Adam Smith. He advocated the foundation of a national economic order. Home industry was to bt protected, and wherever necessary, imports and exports were 10 be prohibited as a means of stimulating national feeling. Muller's conception of the state as something more than the individuals in it, with a power and spirit of its own, caused him to subordinate the individual to the larger entity. To him the individual pursuit of economic gain was a disrupting force in society; it was far better to return to the fixed and unchanging institutions of the Middle Ages. The state was responsible, he believed, for maintaining these venerable institutions and the individual property relationships which accompanied them. In spite of his opposition to many of Smith's basic teachings, Muller nevertheless regarded Smith as one of the greatest political economists of all times.

In the writings of Friederich List (1789-1846) the emphasis upon a distinctly national economy was given its strongest expression. The English title of List's most important work, The National System of Political Economy (1841), is clear evidence of the character of the author's thought. The original plan for this work called for three volumes. Only the first was finished and this dealt almost exclusively with the evolution of national economy and with trade. The economic development of a country passed through five stages, he said: a hunting and fishing stage; a pastoral stage—tending domestic herds; a settled agricultural stage; an agricultural and manufacturing stage; and finally a stage consisting of agriculture, manufacturing, and world trade. As nations pass through these various stages different measures are required for their development. List's criticism of Adam Smith was that Smith had written as though his principles were universally applicable, whereas they were only useful for England which had reached the last stage of economic divelopment, or for some imaginary group of nations living in guaranteed peace and harmony. List, having lived in Germany, and then in America from 1820 to 1832, believed that these two nations were on the fourth stage, and therefore must of necessity follow a more controlled economic policy until such time as their manufacturing had reached a position to compete with those of any other country. In analyzing the economic activities of the world he came to two basic conclusions. The first was that the most desirable economic state of a nation could be achieved by arriving at a balance of its agricultural and manufacturing resources so that no interruption of exchange was possible. His second was that since some tropical nations have little adaptability to manufacturing but produce agricultural commodities which cannot be produced elsewhere, the manufacturing nations of the temperate zones therefore should bind these purely agricultural communities to themselves to the mutual benefit of both.

Following this line of reasoning then, it was desirable for a nation such as Germany or any nation which had the necessary requisites of a manufacturing nation, to adopt a policy of protection. Duties should be introduced gradually and reasonably, so as to achieve the maximum benefit. Agricultural products and raw materials should be exempt. After a reasonable number of years if an industry did not give evidence of being able to survive on a minimum of protection (List suggested twenty to thirty percent) it was evidence that the industry was not adapted to the country and all protection should be removed from it.

It is quite obvious that the ideas of List found fertile soil in Germany. The economic policy of the German nation has followed closely the general outline developed by him, and later economists and statesmen of that nation have constantly turned to him for the basic principles of a strong national economy.

Many practical developments and theoretical concepts of modern Germany are a testimony to his influence, for example, the system of national railways, the customs union or Zollverein, and the search for tropical areas to exploit. On the other hand, the criticisms levelled at List are more concerned with assumptions than with the practicability of his ideas. His absolute distinction between temperate and tropical nations is faulty; strong, manufacturing nations may also develop an extensive trade in raw materials, as for example the United States; and nations do not normally conform to the evolution by economic stages as List worked them out. However, if one may judge List's ideas as compared with those of Smith, he was at least as good an exponent of the economic tendencies of his own environment as Smith was of his.

About the same time as List there lived another economist who shared some of List's experiences and arrived at somewhat similar views. John Rae (1796-1872) was born and educated in Scotland but he migrated and spent most of his life in Canada. Like List, he objected to Smith's emphasis upon individual freedom and individual wealth on the grounds that the national wealdi and welfare were different from the sum total of individual wealth and welfare. Accordingly he believed that modified Iaissez faire was not a positive policy. Instead he advocated enlightened government control. He believed furthermore that legislatures had the ability and power to guide the economic activity of the country. To illustrate this, Rae used the analogy that a number of people passing between two points would in time wear a path. Would this path, he asked, being created without intention, be better than a path built under community direction? In matters of trade Rae was concerned with the most efficient method of establishing industries and the useful arts in a new country. He mentioned that these ends were better accomplished under the direction of the organized state, the public bearing the initial cost, than by private enterprise. To safeguard such efforts from foreign competition was also a legitimate use of government power.