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]