Friedrich List National System

Political Economy Reading List

Friedrich List and the National System of Political Economy

Friedrich List (1789-1846), son of a German leatherworker, forsook an aca­demic career to become active in German politics. In 1819, he became leader of the General Association of German Manufacturers and Merchants and the very soul of the movement to confederate the German states.

The economic and political unity that characterized much of Europe in the first half of the nineteenth century was totally absent from Germany. The peace treaty that ended Germany's participation in the Napoleonic wars left that country divided into thirty-nine different states, most of which were indi­vidual monarchies economically and politically isolated from one another. Such isolation was primarily the result of a complex system of interstate tariffs that impaired the free and easy exchange of goods. At the same time, however, no import duties existed. Thus British surplus products (and those of other countries) found their way into German markets, where they were offered at extremely low prices.

Under these circumstances, the very existence of German manufacturing and mercantile interests was threatened, and by the 1830s there arose among the German states a general clamor for economic unity and uniform tariffs. It was this movement that consumed List's interests and energy.

Protectionism and the Stages of Economic Development In

his analysis of national systems of political economy, List applied a method of inquiry origi­nated by Saint-Simon: the idea that an economy must pass through successive stages before it reaches a "mature" state. The historical stages of develop­ment detailed by List were: (1) barbaric, (2) pastoral, (3) agricultural, (4) agricultural-manufacturing, and (5) agricultural-manufacturing-commercial. Like Sismondi and Saint-Simon, List was as much interested in the transition between stages of economic development as in the end result. He felt that pas­sage through the first three stages would be brought about most speedily by free trade between states and nations but that economies in transition between the last two stages required economic protection until the final stage was reached. Free trade was warranted once again, however, when the final stage of development was attained, "in order to guard against retrogression and in­dolence by the nation's manufacturers and merchants" {The National System of Political Economy, pp. 143ff).

By List's classification and testimony, only Great Britain had attained the final stage of economic development. While the Continental and American na­tions struggled to reach this apogee, however, cheap British imports were thwarting the development of domestic manufacturing. List felt that until all nations reached the final stage in their development, international competition could not exist on an equal footing. Thus he favored protective tariffs for Germany until its greatest national economic power was attained.

It is important to note that List was not an outright protectionist; rather, he felt that protection was warranted only at critical stages in history. His writ­ings are replete with examples borrowed from history and experience showing that economic protection is the only way for an emerging nation to establish itself. List felt that the American experience offered vindication of his views, and he of course found ready support among United States protectionists, par­ticularly Alexander Hamilton and Henry Carey.

List's Criticism of Classical Economics

List strongly opposed the absolut­ist, cosmopolitan tendencies of the classical economists. They derived princi­ples, he maintained, which were then assumed to hold for all nations and all times. By contrast, List's theory and methodology were strongly nationalistic and historical. His theory of stages in economic development, for example, was calculated to demonstrate the insufficiency of classical economics to rec­ognize and reflect the variety of conditions existing in different countries and, most especially, in Germany.

Like Sismondi, List subordinated economics to politics in general. In his view, it was not enough for the statesman to know that the free interchange of products will increase wealth (as demonstrated by the classical economists); he must also know the ramifications of such action for his own country. Thus List argued that free trade that displaces either population or domestic indus­try is undesirable. Moreover, List would not sacrifice the future for the present. He maintained that the crucial economic magnitude in economic de­velopment is not wealth (as measured by exchange values) but productive power. In his own words, "The power of producing wealth is., .infinitely more important than the wealth itself (The National System of Political Economy, p. 108). Thus economic resources must be safeguarded so that their future ex­istence and development are assured. This view constitutes further justifica­tion for List's protectionist arguments; it also lies at the root of the popular "infant-industry" argument in support of protective tariffs.

For List, the ultimate goal of economic activity should be national develop­ment and the accretion of economic power. In this, he (as Marx was to do later) perceived industry as more than the mere result of labor and capital. Rather, he conceived industry as a social force that itself creates and improves capital and labor. In addition to effecting present production, industry gives an impetus and a direction to future production. Therefore, List recommended the introduction of industry into underdeveloped countries even at the expense of temporary loss.

List's originality in economic theory and method consisted in his systematic use of historical comparison as a means of demonstrating the validity of eco­nomic propositions and in his introduction of new and useful points of view in contradistinction to the economic orthodoxy of classical liberalism. In stretch­ing the dynamic fabric of classical economic growth by representing economic development as a succession of historical stages, he provided a methodological rallying point for the economists of the German historical school. Thus List may appropriately be considered the forerunner of that school.