CHAPTER IV: FRIEDRICH LIST AND THE NATIONAL SYSTEM OF POLITICAL ECONOMY
By the middle of the nineteenth century the doctrine of Adam Smith had conquered the whole of Europe. Former theories were forgotten and no rival had appeared to challenge its supremacy. But during the course of its triumphant march it had undergone many changes and had been subjected to much criticism. Even disciples like Say and Malthus, and Ricardo especially, had contributed many important additions and effected much improvement. Through the influence of Sismondi and the socialists new points of view had been gained, involving a departure from the narrow outlook of the master in the direction of newer and broader horizons.
Of the principles of the Classical school the Free Trade theory was the only one which still remained intact. This, however, was the most important of all. Here the triumph had been complete. Freedom of international trade was accepted as a sacred doctrine by the economists of every country. In Germany as in England, in France as in Russia, there was complete unanimity among scientific authorities. The socialists at first neglected this topic, and when they did mention it it was to express their complete approval of the orthodox view.[566] A few isolated authors might have hinted at reservations or objections, but they never caught the public ear.[567] It is true that Parliaments and Governments in many countries hesitated to put these new ideas into practice. But even here, despite the strength of the opposing forces, one can see the growing influence of Smith’s doctrine. The liberal tariff of Prussia in 1818, the reforms of Huskisson in England (1824-27), were expressly conceived by their authors as partial applications of those principles.
However, there arose in Germany a new doctrine for which the peculiar economic and political conditions of that country at the beginning of the nineteenth century afforded a favourable environment. Although the development was slow it was none the less startling. Friedrich List, in his work entitled Das Nationale System der Politischen Oekonomie, promulgated the theory of the new Protection. “The history of my book,” he remarks in his preface, “is the history of half my life.” He might have added that it was also the history of Germany from 1800 to 1840. It was no mere coincidence that led to the creation of an economic system based exclusively upon the conception of nationality in that country, where the dominant political note throughout the nineteenth century was the realisation of national unity. List’s work was a product of circumstances, and these circumstances we must understand if we are to judge of the author and his work.
I: 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 régime, 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.”[568] 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.[569] “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.”[570]
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 over-stock 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 Tübingen 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 Würtemberg, in 1820, but was banished from the Assembly and condemned to ten months’ imprisonment for criticising 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 Würtemberg, 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 Würtemberg, 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 régime 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,[571] Austria excepted, and under this régime 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 evils 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 régime 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.”[572] This fundamental point of view must be changed if we would avoid the consequences which naturally follow from it. List realised 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.[573]
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 civilised nations, accompanied by free exchange, might be both possible and useful.[574]
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.[575] A nation becomes “normal”[576] 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.[577] 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.[578] 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.[579]
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.[580] Even a temporary sacrifice of the second may be demanded for the sake of the first. In these expressions List merely wishes to emphasise 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.”[581]
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[582] 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, characterise 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.”[583] Manufactures permit of a better utilisation 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.[584]
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?”[585] 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’ètre 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.[586] 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.[587]
(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.[588] “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.”[589] 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 lately 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.[590])
(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.”[591]
(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.”[592]
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.
II: SOURCES OF LIST’S INSPIRATION. HIS INFLUENCE UPON SUBSEQUENT PROTECTIONIST DOCTRINES.
The question of the origin of List’s Protectionist ideas has frequently been raised. The works of the Frenchmen Dupin and Chaptal undoubtedly gave him some material for reflection, but he was really confirmed in his opposition to laissez-faire by the men whom he met in America. While there he came into intimate contact with the members of a society which had been founded at Philadelphia for the encouragement of national industry. The founder of this society was an American statesman named Hamilton, the author of a celebrated report upon manufactures, who as far back as 1791 had advocated the establishment of Protection for the encouragement of struggling American industries.[593] Hamilton’s argument, as List fully recognised, bears a striking similarity to the thesis of the National System.[594] The Philadelphian society, which was then presided over by Matthew Carey (the father of the economist of whom we shall have to speak by and by), immediately after List’s arrival in America inaugurated an active campaign on behalf of a revision of the tariffs. Ingersoll, the vice-president, persuaded List to join in the campaign, which he did by publishing in 1827 a number of letters which caused quite a sensation.[595] They are really just a résumé of the National System. The policy which in the course of a few years he was to advocate in Germany he now recommended to the consideration of the Americans.
But facts were even more eloquent than books, and what chiefly struck the practical mind and the observant eye of List was the material success of American Protection, just as in Germany he had been impressed by the beneficial effects which temporary Protection enforced by the Continental Blockade had produced there.[596]
Far from being injurious to the economic development of the United States, it seemed as if Protection had really helped it. What it actually did was to quicken by the space of a few years an evolution which nature herself was one day bound to accomplish. So vast was the territory, so abundant the natural resources, and so advantageously were they placed for the application of human energy that no system, however defective, could long have delayed the accumulation of wealth. The similar condition of Germany lent colour to the belief that the same experiment carried on under similar circumstances would also succeed there.
Accordingly, List’s work, though not directly connected with any known American system, is the first treatise which gives a clear indication of the influence upon European thought of the economic experiences of the New World.
In a beautiful paragraph in the National System List has himself confessed to this. “When afterwards I visited the United States, I cast all books aside—they would only have tended to mislead me. The best work on political economy which one can read in that modern land is actual life. There one may see wildernesses grow into rich and mighty states; and progress which requires centuries in Europe goes on there before one’s eyes, viz. that from the condition of the mere hunter to the rearing of cattle, from that to agriculture, and from the latter to manufactures and commerce. There one may see how rents increase by degrees from nothing to important revenues. There the simple peasant knows practically far better than the most acute savants of the Old World how agriculture and rents can be improved; he endeavours to attract manufacturers and artificers to his vicinity. Nowhere so well as there can one learn the importance of means of transport, and their effect on the mental and material life of the people. That book of actual life I have earnestly and diligently studied, and compared with the results of my previous studies, experience, and reflections.”[597]
Though from this point of view List’s Protectionism seems closely connected with the most modern of economic units, a still closer tie links him to the Mercantilism of old. Nor did he ever dissemble his love for the Mercantilists, especially for Colbert. He accused Smith and Say of having misunderstood them, and he declared that they themselves more justly deserved the title of Mercantilists because of their attempt to apply to whole nations a very simple conception which they had merely copied from a merchant’s note-book, namely, the advice to buy in the cheapest and sell in the dearest market. He distinguishes between two classes of Mercantilists according as they are influenced by one or other of two dominating ideas. On the one hand we have those who emphasise the importance of industrial education, which is the dominant note in List’s philosophy. This idea has quite taken the place of the older idea of a favourable balance of trade, and has been adopted by such a Liberal thinker as John Stuart Mill, whereas the other has been definitely rejected by the science. Furthermore, the Mercantilism of the seventeenth century was a special instrument employed in the interests of a permanent policy, which was exclusively national; while List’s Protection, according to his own opinion, was merely a means of leading nations towards the possibility of union on a footing of equality. It was a mere transitory system, a policy dictated by circumstances.
List’s system cannot be regarded as the inspirer of modern Protection, any more than he himself can be regarded as a direct descendant of the old Mercantilists. Even in Germany, despite the great literary success of his work, its influence was practically nil, unless we credit it with the slight increase of taxation upon which the Zollverein decided in 1844, and couple with it the Protectionist campaign afterwards carried on by List in the columns of his newspaper.[598] But the Liberal reforms carried out by the English Parliament under the Premiership of Peel were during that very same year crowned by the abolition of the Corn Laws. This measure caused much consternation throughout Europe, and the confirmation which Cobden’s ideas thus received influenced public opinion a good deal and gave a Liberal trend to the commercial policy of Europe during the next few years. The régime of commercial treaties inaugurated by Napoleon III was an outcome of this change of feeling.
Towards the end of 1879 a vague kind of Protectionism made its appearance in Europe. Tariff walls were raised, but they never seemed to be high enough. One would like to know whether these new tariffs, established successfully by Germany and France, were in any way inspired by List’s ideas.
It does not seem that they were. Neither of the two countries which have remained faithful to a thoroughgoing Protection any longer needs industrial education. Both of them have long since arrived at that complex state which, according to List, is necessary for the full development of their civilisation and the expansion of their power. Germany and the United States have no longer any cause to fear England. Their commercial fleets are numerous, their warships powerful, and their empires are every day expanding. Were he to return to this world to-day, List, who so energetically emphasised the relative value of the various commercial systems, and the necessity of adapting one’s method to the changing conditions of the times and the character of the nation, but always laid such stress upon the essentially temporary character of the tariffs raised, would perhaps find himself ranged on the side of those who demand a lowering of those barriers in the interest of a more liberal expansion of productive forces. Has he himself not declared that “in a few years the civilised nations of the world, through the perfection of the means of transport, through the influence of material and intellectual ties, will be as united, nay, even more closely knit together, than were the counties of England a hundred years ago”?[599] Even the profound changes in the international economic situation during the last sixty years fail to supply a serious justification for the Protectionist policy of the great commercial nations, and the essential traits of this new régime differ toto cælo from the outlines supplied by List. Far from allowing agriculture to develop naturally, there has arisen the cry for some protection for the farmer, which has served as a pretext for a general reinforcement of tariffs in a great number of cases, notably in France and Germany. The competition of American corn has hindered European agriculture from benefiting by the advancement of industry as List had predicted. Modern tariffs, involving as they do the taxation of both agricultural and industrial products, imply a conception of Protection entirely different from List’s. He would have confined Protection to the most important branches of national production—to those industries from which the other and secondary branches receive their supplies. Only on this ground would he have justified exceptional treatment.[600] It is an essentially vigorous conception, and what he sought of Protection was an energetic stimulant and an agent of progress. But a tariff which indifferently protects every enterprise, which no longer distinguishes between the fertilising and the fertilised industries, and increases all prices at the same time, can have only one effect—a loss for one producer and a gain for another. Their relative positions remain intact. It is no longer a means of stimulating productive energy; it is merely a general instrument of defence against foreign competition, and is essentially conservative and timorous.
To speak the truth, tariff duties are never of the nature of an application of economic doctrines. They are the results of a compromise between powerful interests which often enough have nothing in common with the general interest, but are determined by purely political, financial, or electoral considerations. Hence it is futile to hope for a trace of List’s doctrines in the Protective tariffs actually in operation. His influence, if indeed it is perceptible anywhere, must be sought amid the subsidiary doctrines which uphold them.
The only complete exposition of Protectionism that has been given us since List’s is that of Carey,[601] the American economist. Carey was at first a Free Trader, but in 1858 became a Protectionist, and his ideas, which were expounded in his great work The Principles of Social Science, published in 1858-59, bear a striking resemblance to those of his German predecessor.
Carey, like List, directs his attack against the industrial pre-eminence of England, and substitutes for the ideal of international division of labour the ideal of independent nationality, each nation devoting itself to all branches of economic activity, and thus evolving its own individuality. According to him, Free Trade tends to “establish one single factory for the whole world, whither all the raw produce has to be sent whatever be the cost of transport.”[602] The effect of this system is to hinder or retard the progress of all nations for the sake of this one. But a society waxes wealthy and strong only in proportion as it helps in the development of a number of productive associations wherein various kinds of employments are being pursued, which increase the demand for mutual services and aid one another by their very proximity. Such associations alone are capable of developing the latent faculties of man[603] and of increasing his hold upon nature. These two traits help to define economic progress. Under a slightly different form we have a picture of the normal nation or the complex State so dear to the heart of Friedrich List—an ideal of continuous progress as the object of commercial policy being substituted for one of immediate enrichment.
Following List, but in a still more detailed fashion, Carey sought to show the beneficial effects that the proximity of protected industry would have upon agriculture. But unfortunately there are other arguments upon which Carey lays equal stress that are really of a much more debatable character.
Protection, according to Carey, by furnishing a ready market for agricultural products, would free agriculture from the burden of an exorbitant cost of carriage to a distant place. This argument, which List[604] merely threw out as a passing suggestion, continually recurs with the American author. But, as Stuart Mill justly remarked,[605] if America consents to such expenditure it affords a proof that she procures by means of international exchange more manufactured goods than if she manufactured them herself.
Another no less debatable point: The exportation of agricultural products, says Carey, exhausts the soil, for the products being consumed away from the spot where they are grown, the fertilizing agents which they contain are not restored to the earth; a manufacturing population in the immediate neighbourhood[606] would remedy this. But, as John Stuart Mill again remarks,[607] and justly enough, it is not Free Trade that forces America to export cereals. If she does so, it is because exhaustion of soil appears to her an insignificant inconvenience compared with the advantage gained by exportation.
Carey, finally, was one of the first to discover in Protection a means of increasing wages. Once the complex economic State is established there arises a keen competition between the entrepreneurs who require the service of labour—a competition which naturally benefits the workman. But this advantage, granting that it does exist, is more than counterbalanced by the increased price of goods.
We see that Carey, although sharing the fundamental conceptions of List, employs arguments that are much less valid. Both in power of exposition and in the scientific value of his work, the German author shows himself vastly superior to his American successor. He is also much more moderate. Carey is not content with industrial Protection; he demands agricultural Protection as well, and the duties, though a little higher than those proposed by List, seem hardly sufficient for him.
Despite all this similarity of views, Carey does not owe his inspiration to List. He was acquainted with the National System and he quoted it. But American economic literature had already supplied him with analogous suggestions. Even more than books, the economic life of America itself as it evolved before his very eyes had contributed to the formation of his ideas. It was the progress of America under a Protective régime, it was the spectacle of a country as yet entirely new and sparsely populated, increasing the produce of her soil as colonisation extended, and multiplying her wealth as population became more dense, that inspired him with the idea of a policy of isolation with a view to hastening the utilisation of those enormous resources. More fortunate than List, he saw his ideas accepted, if not by the scientific experts of his country (who on the whole remained aloof), at least by the American politician, who has applied his principles rather freely.[608]
Carey’s doctrine, accordingly, cannot be attributed directly to the influence of List. It remains to be seen whether List had any influence upon European doctrines.
He undoubtedly succeeded in forcing the acceptance of the idea of a temporary Protection for infant industries even upon Free Traders. The most notable convert to this view was John Stuart Mill.[609] But it was a somewhat Platonic concession that he made. He thought it inapplicable to old countries, for their education was no longer incomplete, and at best useful only for new countries.
Can modern Protectionists claim descent from List? In the absence of any systematic treatise dealing with their ideas, it is not always easy to glean the significance of their doctrines from the various articles, discourses, and brochures amid which they are scattered.[610] Neglecting those writers who are merely content to reproduce the old fallacies of the Mercantile arguments concerning the balance of trade,[611] the majority of them appear to base their case more or less explicitly upon two principal arguments: (1) the necessity for economic autonomy; (2) the patriotic necessity of securing a national market for national products.[612] These two points of view, which are more or less clearly avowed and accepted as political maxims, would, if applied with logical strictness, result in making all external commerce useless. Each nation would thus be reduced to using just those resources with which Nature had happened to endow it, but it could get little if any of the goods produced by the rest of mankind. These two ideas were not absolutely foreign to List’s thought, although they never assumed anything more than a secondary or subordinate character. He never considered them as the permanent supports of a commercial policy.
List frequently spoke of making a nation independent of foreign markets by means of industry. He considered that nation highest which “has cultivated manufacturing industry in all its branches within its territory to the highest perfection, and whose territory and agricultural production is large enough to supply its manufacturing population with the largest part of the necessaries of life and raw materials which they require.” But he also recognised that such advantages were exceptional, and that it would be folly for a nation to attempt to supply itself by means of national division of labour—that is, by home production—with articles for the production of which it is not favoured by nature, and which it can procure better and cheaper by means of international division of labour, or, in other words, through foreign commerce. Complete autonomy is accordingly an illusion. But we cannot deny that some of his expressions seem to give credit to the false idea that a country which obtains a considerable portion of its consumption goods from foreigners must be dependent upon those foreigners.[613] In fact, it is no more dependent upon the foreigner than the foreigner is upon it. In the case of a buyer and seller who is the dependent person? There is but one instance in which the expression is justified, and that is when a foreign country has become the only source of supply for certain commodities. Then the buyer does become dependent, and List rightly enough had in view the manufacturing monopoly enjoyed by England—a monopoly that no longer exists.
He also spoke of retaining the home market for home-made goods; but he thought that this guarantee would of necessity have to be limited to the period when a nation is seeking to create an industry for itself: at a later period foreign competition becomes desirable in order to keep manufacturers and workmen from indolence and indifference.[614]
At no period was List anxious to make economic autonomy or the preservation of the home market the pivot of his commercial policy. The creation of native industry is the only justification of protective rights, but this is the one point which modern Protectionists cannot insist upon without anachronism.
List left no marked traces of his influence either upon practical politics or upon Protectionist doctrines. It is in his general views that we must seek the source of his influence and the reason for the position which he holds in the history of economic doctrines.
III: LIST’S REAL ORIGINALITY
List’s method is essentially that of the pioneer. He was the first to make systematic use of historical comparison as a means of demonstration in political economy. Although he can lay no claim to be the founder of the method, still the brilliant use which he made of it justifies us in classifying him as the equal, if not the superior, of those who at the same moment were attempting the creation of the Historical school and the transformation of history into the essential organon of economic research.
List also introduced new and useful points of view into economics. The principle of free exchange as formulated by Smith, and especially by Ricardo and Say, was evidently too absolute and rested upon a demonstration that was too abstract for the ordinary politician. If, as List justly remarks, the practice of commercial nations has so long remained contrary to a doctrine that all economists regard as admirable, it is not without some just cause. As a matter of fact, can the statesman ever place himself outside of the point of view of national interest of which he is the custodian? It is not enough for him to know that the interchange of products will in some degree increase wealth.[615] He must be certain that this increased wealth will benefit his own nation. He must be equally well assured that Free Trade will not result in too sudden a displacement of population or industry, the social and political results of which might be very harmful. In other words, political economy must be subordinated to politics in general, and to-day there is no single economist who does not recognise the impossibility of separating them in practice.[616] There is none that does not perceive the influence of political power on economic prosperity, and that consequently does not recognise the necessity for the different complexion which the peculiar circumstances of each country imposes upon the practical application of the principle of commercial liberty.
This is not all. List by abandoning the favourite habit of eighteenth-century writers who contrasted man and society, and by giving us a picture of man as he really is, as a member of a nation, has introduced a fruitful conception into economics of which we have not yet seen the full results. He rightly treats of nations not merely as moral and political associations created by history, but also as economic associations. Just as a nation is politically strengthened by the moral cohesion of its citizens, so its economic cohesion increases the productive energy of each individual and enhances the prosperity of the whole nation.
And Governments, while charged with maintaining the political unity of a country, ought also to retain its economic unity by subordinating all local interests to the general interest, by preserving intact the liberty of internal trade, by organising railways and canals on a national basis, by keeping watch over the central bank, and by aiming at a uniform code of commercial legislation. This was the programme outlined by List in his paper the Zollvereinsblatt.
This belief in the power which a unified economic organisation can bring to a nation is by no means too common among individualists, who at bottom are often particularists. But List possessed it in the highest degree. He devoted many years of his life to advocating the establishment of a German railway system, and it was he who traced the principal highways which have since been established in Germany. Protection, in his opinion, was one means of increasing the economic cohesion of Germany, because of the solidarity of interests which would result from the presence of a powerful industry.
With similar enthusiasm he devoted himself to two apparently contradictory tasks—the suppression of inter-State duties and the establishment of protective rights. To him there was no element of contradiction in this, any more than there would be for us in a national system of political economy with no protective rights.[617]
He also extended the political horizon of the Classical school and substituted a dynamic for their purely static conception of national development. His thorough examination of the conditions of economic progress is a contribution to the study of international trade exactly analogous to the contribution made by Sismondi to the study of national welfare. But, unlike Sismondi, who wished to retard this progress, he is anxious to stimulate it, and so he charges the State with the duty of safeguarding the future prosperity of the country and with furthering its production. The actual procedure, involving as it did the establishment of protective rights, may appear to us to be unfortunate.[618] But the idea which inspires it—the recognition that in the interests of the future national power has a definitely economic rôle—is essentially sound. To-day it is a mere commonplace, but when List enunciated it it was quite a novel idea.
In attempting to define List’s real significance one feels that he failed in the achievement of his chief aim. He has not succeeded in breaking down the abstract theory of international trade. On the other hand, he did make a real contribution to economic science, a contribution which the whole of the nineteenth century seemed bent upon emphasising, namely, that the Classical writers had been too ready to draw universal conclusions from their doctrines, forgetting that in economics it is never safe to pass from pure theory to practical applications without taking account of the intermediate links and making allowance for change of time and place—considerations which abstract theory rightly avoids. List’s merit lies in his having emphasised this truth, especially in the region of international trade, and in his doing it just at that particular moment.