Georg Friedrich List (August 6, 1789 – November 30, 1846) was a leading nineteenth century German economist who believed in the "National System" type of capitalism. Although greatly influenced by Adam Smith's theories, List also criticized them in several aspects. List considered that the prosperity of a nation depended not upon the wealth that it had amassed but upon its ability to develop "productive forces" which would create wealth in the future, productive forces not being those involved in creating material products, but rather scientific discoveries, advances in technology, improvements in transportation, the provision of educational facilities, the maintenance of law and order, an efficient public administration, and the introduction of a measure of self-government. List's theory of "national economics" contrasted the economic behavior of an individual with that of a nation, noting that the individual considers only his own personal interests but the nation is responsible for the needs of the whole. Thus, List's view was that that a nation must first develop its own agricultural and manufacturing processes sufficiently before it is able to fully participate in international free trade. List recognized the existence and power of nationalism, and that a unified world could not be quickly and harmoniously achieved until individual nations all reached sufficient levels of development to avoid being overwhelmed by the already developed nations. List's work, therefore, has been highly influential among developing nations. In the era of globalization, List's understanding of national economics may prove vital in the successful establishment of a harmonious, peaceful world.
List was born in Reutlingen, Württemberg, Germany in 1789. Unwilling to follow the occupation of his father, who was a prosperous tanner, he became a clerk in the civil service, and by 1816 had risen to the post of ministerial under-secretary. In 1817 he was appointed professor of administration and politics at the University of Tübingen, but the fall of the ministry in 1819 compelled him to resign. As a deputy to the Württemberg chamber, he was active in advocating administrative reforms.
List was eventually expelled from the chamber and, in April 1822, sentenced to ten months' imprisonment with hard labor in the fortress of Asperg. He escaped to Alsace, and, after visiting France and England, returned in 1824 to finish his sentence, finally being released on undertaking to emigrate to America.
He resided in the United States from 1825 to 1832, first engaging in farming and afterwards in journalism. The discovery of coal on some land that he had acquired made him financially independent. It was in America that he gathered from a study of Alexander Hamilton's work the inspiration which made him an economist with his pronounced "National System" views.
In 1832 List returned to Germany as United States consul at Leipzig. He strongly advocated the extension of the railway system in Germany, and the establishment of the Zollverein was due largely to his enthusiasm and ardor. In 1841, List was offered the post of editor of the Rheinische Zeitung, a new liberal newspaper which was being established in Cologne. But he "declared that ill-health prevented him from accepting the post - which eventually went to Karl Marx" (Henderson 1983, 85).
List's latter days were darkened by many misfortunes; he lost much of his American property in a financial crisis, ill-health also overtook him, and he brought his life to an end by his own hand on November 30, 1846.
List took Adam Smith as his starting point in economics, but made intelligent amendments to Smith's views. According to Henderson, in 1827 List declared that he had once been "…not only a very faithful disciple of (Adam) Smith and (J.B.) Say, but a very zealous teacher of the infallible (free trade) doctrine."
However, the slump in Germany that followed the collapse of Napoleon's "Continental System" led him to revise his views on fiscal policy. When Napoleon's empire fell, the ports of the continent were opened and British manufactured goods flooded the German market. List had seen for himself "the admirable effects of...the Continental System" and what he regarded as disastrous affects of its abolition.
"The contemplation of these effects induced me first to doubt infallibility of the old (free market) theory" (List 1827). In some respects, however, he remained faithful to his earlier convictions. He continued to believe in world free trade as an ideal state of affairs, which might be achieved at some time in the future.
List considered that the prosperity of a nation depended not upon the wealth that it had amassed but upon its ability to develop "productive forces" which would create wealth in the future. These forces included scientific discoveries, advances in technology, improvements in transportation, the provision of educational facilities, the maintenance of law and order, an efficient public administration, and the introduction of a measure of self-government.
List drew a distinction between the theory of exchange value and the theory of powers of prediction. He argued that Adam Smith and his followers had laid too much emphasis upon material wealth, which had an exchange value, and had not adequately appreciated the significance of the productive powers that create wealth. He praised Adam Smith for breaking new ground with his theory of the division of labor, but criticized him for omitting to explain fully the role in the economy of the "productive powers of labor," which he had mentioned in the introduction to The Wealth of Nations.
List also noted that Adam Smith had failed to “assign a productive character to the mental labor of those who maintain law and order and cultivate and promote instruction, religion, science, and art.” He thought it ridiculous that a pig breeder or a maker of bagpipes should be regarded as a productive member of society, while a professor or a composer should not.
On the issue of law, List wrote that "while J. B. Say was right when he asserted that 'laws cannot create wealth,' it was just as right to argue that laws could 'create productive power,' which is more important than riches, i.e. than the possession of values of exchange" (Henderson 1983, 177). Finally and foremost, List maintained that
The civilization, political education and power of nations, depend chiefly on their economical condition and reciprocally; the more advanced their economy, the more civilized and powerful will be the nation, the more rapidly will its civilization and power increase, and the more will its economical culture be developed. (List 1856)
List described four stages of economic development through which nations naturally proceed:
In the economical development of nations by means of external trade, four periods must be distinguished. In the first, agriculture is encouraged by the importation of manufactured articles, and by the exportation of its own products; in the second, manufacturers begin to increase at home, whilst the importation of foreign manufactures to some extent continues; in the third, home manufactures mainly supply domestic consumption and the internal markets; finally, in the fourth, we see the exportation upon a large scale of manufactured products, and the importation of raw materials and agricultural products. (List 1956)
In the economical aspect, List's theory opposed the "cosmopolitan" (or more properly "cosmopolitical") theory of Adam Smith and J. B. Say, and in its political and national aspects their theory of universal freedom of trade.
The system of import duties being considered as a mode of assisting the economical development of a nation, by regulating its external trade, must constantly take as a rule the principle of the industrial education of the country. To encourage agriculture by the aid of protective duties is vicious policy; for agriculture can be encouraged only by promoting manufacturing industry; and the exclusion of raw material and agricultural products from abroad, has no other result than to impede the rise of national manufactures. (List 1956)
This, in fact, is the central idea of List's theory, that a nation must first develop its own agricultural and manufacturing processes sufficiently to support international free trade.
It is only when a nation has reached such a stage of development that she can bear the strain of competition with foreign manufactures without injury in any respect, that she can safely dispense with protection to her own manufactures, and enter on a policy of general free trade. (List 1827)
This "economic nationalism" can be observed as permeating all List's economic writing.
List's theory of "national economics" differed from the views of Smith and Say. He contrasted the economic behavior of an individual with that of a nation: an individual promotes only his own personal interests but a state fosters the welfare of all its citizens. An individual may prosper from activities that harm the interests of a nation, while activities beneficial to society may injure the interests of certain individuals: "Canals and railroads may do great good to a nation, but all waggoners will complain of this improvement. Every new invention has some inconvenience for a number of individuals, and is nevertheless a public blessing" (List 1856).
He did, however, recognize the need for moderation, arguing that although some government action was essential to stimulate the economy, an overzealous government might do more harm than good:
It is bad policy to regulate everything and to promote everything by employing social powers, where things may better regulate themselves and can be better promoted by private exertions; but it is no less bad policy to let those things alone which can only be promoted by interfering social power. (List 1856)
List asserted that economists should realize that since the human race is divided into independent states:
…a nation would act unwisely to endeavor to promote the welfare of the whole human race at the expense of its particular strength, welfare, and independence. It is a dictate of the law of self-preservation to make its particular advancement in power and strength the first principles of its policy. (List 1856)
He claimed that a country should not count the cost of defending the overseas trade of its merchants and "the manufacturing and agricultural interest must be promoted and protected even by sacrifices of the majority of the individuals, if it can be proved that the nation would never acquire the necessary perfection ... without such protective measures" (Henderson 1983, 150).
Both Adam Smith and Karl Marx adopted the hopeful view that nations and national rivalry were a relic from the past that could be easily overcome. Smith relied on commercial self-interest. Marx relied on class divisions erasing national differences. Both were quite correct as to the general direction in which the world was moving. However, List was more realistic in thinking that the excellent goal of a cosmopolitical world could not be quickly achieved without allowing for the present existence and power of rival nations and states. Thus, List recognized the power of national forces, while Marx and Friedrich Engels seriously underestimated the strength of nationalism (Williams).
List had many disagreements with Adam Smith. In the third chapter of The Wealth of Nations, Smith mentioned the actual cause of the division of labor, namely the benefits resulting from the formation of a very large economic unit. From the point of view of net production, he argued the larger the better. List, however, was not convinced by this argument, mainly because he asked the question: What if we suppose the large economic unit contains several separate sovereign states? Smith did not ask this question, which may not have occurred to him. He was a man who felt that the union within Great Britain had been a great blessing. Did he also foresee an eventual union of Europe being brought about by trade?
List correctly noted that Smith drew on systems of thought that were "cosmopolitical," hence seeing national differences as a relic of the Dark Ages that enlightened politics would eventually overcome. But List realized that there would be problems. He also had the advantage of seeing the drastic self-destruction of eighteenth-century Enlightenment in the French Revolution. In the European-wide struggle of the Napoleonic Wars, Britain had backed various reactionary forces rather than let a strong empire emerge in continental Europe.
List's answer was:
The result of a general free trade would not be a universal republic, but, on the contrary, a universal subjection of the less advanced nations to the predominant manufacturing, commercial and naval power, is a conclusion for which the reasons are very strong…… A universal republic ..., i.e. a union of the nations of the earth whereby they recognize the same conditions of right among themselves and renounce self-redress, can only be realized if a large number of nationalities attain to as nearly the same degree as possible of industry and civilization, political cultivation and power... Only with the gradual formation of this union can free trade be developed, only as a result of this union can it confer on all nations the same great advantages which are now experienced by those provinces and states which are politically united... The system of protection, inasmuch as it forms the only means of placing those nations which are far behind in civilization on equal terms with the one predominating nation, appears to be the most efficient means of furthering the final union of nations, and hence also of promoting true freedom of trade. (List 1844, 102-103)
List historically has held one of the highest places in economic thought as applied to practical objects. His principal work entitled Das Nationale System der Politischen Ökonomie (1841) and was translated into English as The National System of Political Economy. This book has been more frequently translated than the works of any other German economist, except Karl Marx.
Eugene During, of the University of Berlin, declared that “List's doctrines represented ‘the first real advance’ in economics since the publication of The Wealth of Nations (by Adam Smith)" and Marx himself wrote in his famous Anti-Duhring pamphlet: "It would be better to read Herr Duhring's chapter on mercantilism in the 'original', that is, in F. List's National System, Chapter 29." Thus, Marx was clearly well aware of List's work. However, he never to deal with it directly, and because of this, List was largely ignored by later writers.
However, List’s influence among developing nations has been considerable. Despite the fact that his “National System” was vigorously attacked, such was the demand for it that three editions were called for within the space of a few months, and translations of it were published in English, French, Russian, Swedish, Hungarian, and many other foreign languages. Japan, in the nineteenth century, followed his model, Hungarian leader, Kossuth, alluded to him in public as “the man who had best instructed the nations as to their true national economical interests,” and it has also been argued that Deng Xiaoping's post-Mao policies in China were inspired by List's work.
The last excerpt from The National System should forever be considered to be the “manual” for all the NGOs (United Nations, World Trade Organization, etc.) in the developed world dealing with the developing countries:
The economical education of a country of inferior intelligence and culture, or one thinly populated, relatively to the extent and the fertility of its territory, is effected most certainly by free trade, with more advanced, richer, and more industrious nations... Every commercial restriction in such a country aiming at the increase of manufactures, is premature, and will prove detrimental, not only to civilization in general, but the progress of the nation in particular... If its intellectual, political, and economical education, under the operation of free trade, has advanced so far, that the importation of foreign manufactures, and the want of markets for its own products has become an obstacle to its ulterior development, then only can protective measures be justified.... Internal and external trade flourish alike under the protective system; these have no importance but among nations supplying their own wants by their own manufacturing industry, consuming their own agricultural products, and purchasing foreign raw materials and commodities with the surplus of their manufactured articles... Home and foreign trade are both insignificant in the merely agricultural countries ...., and their external commerce is usually in the hands of the manufacturing and trading nations in communication with them... A good system of protection does not imply any monopoly in the manufacturers of a country; it only furnishes a guarantee against losses to those who devote their capital, their talents, and their exertions to new branches of industry. (List 1856)
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