Review of “National System of Political Economy” by Friedrich List

The book is here.

You can read all about List and his economic thought here.

List is very critical of Adam Smith, but it was interesting to read a non-Leftist critique of Smith. I didn’t know that such a thing existed!

In short, List believes that Smith and his followers neglect the way that the world works in their understanding of economics. The neglect leads to conclusions that would be irresponsible for the leaders of a nation to pursue.

Smith and his followers assume "a state of things which has yet to come in­to ex­is­tence." They assume "the ex­is­tence of a uni­ver­sal union and a state of per­pet­ual peace, and deduce[] there­from the great ben­efits of free trade."

List agrees that free trade is beneficial to some nations in some circumstances. He also believes it is beneficial to the world as a whole. However, he does not believe that it is always beneficial to all nations at all times. This seems like a reasonable position, but it puts him at odds with Smith and his followers.

List also believes that Smith errs in focusing on wealth as opposed to focusing on the ability to produce wealth, "the pow­er of pro­duc­ing wealth is there­fore in­finite­ly more im­por­tant than wealth it­self; lt in­sures not on­ly the pos­ses­sion and the in­crease of what has been gained, but al­so the re­place­ment of what has been lost. This is still more the case with entire na­tions (who can­not live out of mere rentals) than with pri­vate in­di­vid­uals."

Finally, List believes that leaders of nations must focus on the long-term welfare of the nation. A Smith-based approach will be too focused on short-term gains at the expense of long-term prosperity.

To this last point, one can’t help but think that List would be sad, but not surprised to see, modern America losing all her manufacturing jobs in favor of jobs that create transitory wealth at best (in honor of GBFM, think of girls in short-skirts selling subprime mortgages).

Much of the book is devoted to historical examples of development. List makes a very convincing case that development requires some period of protectionism. The US own system was based on List’s ideas. It seems to have worked here.

Here, from the introduction to List’s work, is a summary of his view of how nations develop:

In the first stage they must adopt free trade with the more ad­vanced na­tions as a means of rais­ing them­selves from a state of bar­barism and of mak­ing ad­vances in agri­cul­ture. In the sec­ond stage they must re­sort to com­mer­cial re­stric­tions to pro­mote the growth of man­ufac­tures, fish­eries, nav­iga­tion, and for­eign trade. In the last stage, af­ter reach­ing the high­est de­gree of wealth and pow­er, they must grad­ual­ly re­vert to the prin­ci­ple of free trade and of un­re­strict­ed com­pe­ti­tion in the home as well as in for­eign mar­kets, so that their agri­cul­tur­ists, man­ufac­tur­ers, and mer­chants may be pre­served from in­do­lence and stim­ulat­ed to re­tain the suprema­cy which they have ac­quired. Writ­ing in 1841, [List] con­cludes the sur­vey: ‘In the first stage, we see Spain, Por­tu­gal, and the King­dom of Naples; in the sec­ond, Ger­many and the Unit­ed States of North Amer­ica; France ap­par­ent­ly stands close up­on the bound­ary line of the last stage; but Great Britain alone at the present time has ac­tu­al­ly reached it.’

List was an early discoverer of the importance of institutions and the make-up of the population for economic growth:

One thing alone was want­ing to Italy to en­able her to be­come what Eng­land has be­come in our days, and be­cause that one thing was want­ing to her, ev­ery oth­er el­ement of prosper­ity passed away from her; she lacked na­tion­al union and the pow­er which springs from it. The cities and rul­ing pow­ers of Italy did not act as mem­bers of one body, but made war on and rav­aged one an­oth­er like in­de­pen­dent pow­ers and states. While these wars raged ex­ter­nal­ly, each com­mon­wealth was suc­ces­sive­ly over­thrown by the in­ter­nal con­flicts be­tween democ­ra­cy, aris­toc­ra­cy, and au­toc­ra­cy. These con­flicts, so de­struc­tive to na­tion­al pros­per­ity, were stim­ulat­ed and in­creased by for­eign pow­ers and their invasions, and by the pow­er of the priest­hood at home and its per­ni­cious in­flu­ence, where­by the sep­arate Ital­ian com­mu­ni­ties were ar­rayed against one an­oth­er in two hos­tile factions.

. . .

Ev­ery­where and at all times has the well-be­ing of the na­tion been in equal pro­por­tion to the in­tel­li­gence, moral­ity, and in­dus­try of its cit­izens; ac­cord­ing to these, wealth has accrued or been di­min­ished; but in­dus­try and thrift, in­ven­tion and en­ter­prise, on the part of in­di­vid­uals, have nev­er as yet ac­com­plished aught of im­por­tance where they were not sus­tained by mu­nic­ipal lib­er­ty, by suit­able pub­lic in­sti­tu­tions and laws, by the State ad­min­is­tra­tion and for­eign pol­icy, but above all by the uni­ty and pow­er, of the na­tion.

Nor does he ignore power:

And pow­er is more im­por­tant than wealth. That is in­deed the fact. Pow­er is more im­por­tant than wealth. And why? Sim­ply be­cause na­tion­al pow­er is a dy­nam­ic force by which new pro­duc­tive re­sources are opened out, and be­cause the forces of pro­duc­tion are the tree on which wealth grows, and be­cause the tree which bears the fruit is of greater val­ue than the fruit it­self. Pow­er is of more im­por­tance than wealth be­cause a na­tion, by means of pow­er, is en­abled not on­ly to open up new pro­duc­tive sources, but to main­tain it­self in pos­ses­sion of for­mer and of re­cent­ly ac­quired wealth, and be­cause the re­verse of pow­er —name­ly, fee­ble­ness—leads to the re­lin­quish­ment of all that we pos­sess, not of acquired wealth alone, but of our pow­ers of pro­duc­tion, of our civil­isa­tion, of our free­dom, nay, even of our na­tion­al in­de­pen­dence, in­to the hands of those who sur­pass us in might, as is abun­dant­ly at­test­ed by the his­to­ry of the Ital­ian re­publics, of the Hanseat­ic League, of the Bel­gians, the Dutch, the Spaniards, and the Por­tuguese.

. . .

Eng­land has got in­to her pos­ses­sion the keys of ev­ery sea, and placed a sen­try over ev­ery na­tion : over the Ger­mans, He­ligoland; over the French, Guernsey and Jer­sey; over the in­hab­itants of North Amer­ica, No­va Sco­tia and the Bermu­das; over Cen­tral Amer­ica, the is­land of Ja­maica; over all coun­tries bor­der­ing on the Mediter­ranean, Gibral­tar, Mal­ta, and the Io­ni­an Is­lands. She pos­sess­es ev­ery im­por­tant strate­gi­cal po­si­tion on both the routes to In­dia with the ex­cep­tion of the Isth­mus of Suez, which she is striv­ing to ac­quire; she dom­inates the Mediter­ranean by means of Gibral­tar, the Red Sea by Aden, and the Per­sian Gulf by Bushire and Kar­rack. She needs on­ly the fur­ther ac­qui­si­tion of the Dardanelles, the Sound, and the Isth­mus­es of Suez and Pana­ma, in or­der to be able to open and close at her plea­sure ev­ery sea and ev­ery mar­itime high­way. Her navy alone sur­pass­es the com­bined mar­itime forces of all oth­er coun­tries, if not in num­ber of ves­sels, at any rate in fight­ing strength.

So was it England’s power or England’s economic system that made it the dominant force in the world? List’s answer is power.

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10 Responses to Review of “National System of Political Economy” by Friedrich List

  1. JohnK says:

    I can think of at least one other non-Leftist critique of Smith, that proposed by John D. Mueller:

    “… what is economics about? The short answer is production, exchange, distribution, and consumption. Scholastic economics (c.1250-1776) began when Thomas Aquinas integrated these four elements, all drawn from Aristotle and Augustine, at the individual, domestic and political levels. This “AAA” outline was taught by Catholics and Protestants (after the Reformation) for more than five centuries. (Lutheran Samuel Pufendorf’s version was widely known in the American colonies and cited by Alexander Hamilton among other founders.)

    “Classical economics (1776-1871) began when Adam Smith cut these four elements to two, trying to explain what he called “division of labor” (specialized production) by production and exchange alone. When three economists (W.S. Jevons, Carl Menger, and Leon Walras) simultaneously but independently reinvented Augustine’s theory of utility, reintegrating consumption with production and exchange, “neoclassical” economics (1871-c.2000) was born.

    “Adam Smith’s significance is therefore not what he added to, but rather subtracted from economics. The necessity of describing all four facets of any economic event with at most three equations has condemned classical and neoclassical economists frequently to resort to circular logic and/or empirically false assumptions.”

    Mr. Mueller’s recent book on ‘neo-scholastic economics’ is for sale here.

  2. robert61 says:

    List makes some good points.

    I’ll go along with his emphasis on Great Britain’s military power over its economic power. The same applies to Britain’s successor.

    Both Britain and the US have greatly benefited from the moat between them and their competitors. They have been, in effect, uninvadable. A key to the success of both empires has been naval hegemony.

    Yet the US’s carriers no longer seem so impregnable. Space weaponization has to be the next step. Who needs boats if you can rain death from satellites? The question is, if a bluewater navy is no longer the sine qua non of a hegemon, will watery distance from potential aggressors still matter? Obviously it still matters today. In the long run, maybe not so much.

  3. Windy Wilson says:

    I had forgotten about Bushire and Kar­rack.
    What Sound was he referring to?
    Interesting that England got Suez but not Panama, and spent a lot of blood and treasure on the Dardanelles.

  4. [...] Opposing free trade I reviewed Friedrich List’s arguments against free trade here. [...]

  5. [...] makes many of the same points that Friedrich List makes. Fletcher extends List’s analysis in an interesting way. List believes that free trade [...]

  6. [...] directly contradict each other. Economic theory suggests that free trade is necessary for growth. History suggests that restricting trade is a necessary condition for development. Either historical reality or [...]

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