The National System of Political Economy

Contents

1. Translator’s Preface to the First Edition 6 min 4

   Sampson Lloyd explains why he translated List in 1885. List’s works had been republished in Germany and were credited with shaping the protectionist policies of Germany and the United States. Although the book was written before the repeal of Britain’s Corn Laws and Navigation Laws, Lloyd thinks its principles still apply. He sums up List’s system as free import of food and raw materials combined with moderate protection of manufactures, distinct both from British free trade and from Bismarck’s duties on food. He insists that List admired England, and he promises a literal translation.

2. Some Extracts from the Author’s Preface to the First Edition 13 min 7

   In extracts from his 1841 preface, List tells how he came to doubt free-trade theory. The Continental System and its collapse convinced him that free trade benefits nations only when they are at a similar level of development. He describes leading the German merchants’ league of 1819 for a customs union against hostile officials, journalists and English interests, and learning in America from “the book of actual life”. He names nationality, standing between the individual and humanity, as the basis of his system, and denies that he is simply reviving mercantilism.

3. I.1 The Italians 19 min 15

   List opens his history with the Italian city republics, which led medieval Europe in manufactures, banking and shipping but were ruined by mutual wars, faction, foreign invasion and priestly power: they lacked national union. Venice is his main example. Protection helped her rise, but keeping it after she had won supremacy bred indolence, and a closed oligarchy sapped her vigour. He concludes that a single city cannot keep a protective system going against great nations, and that free trade within a state must be distinguished from free trade between states.

4. I.2 The Hansards 32 min 23

   The Hanseatic League rose by union, navigation laws and naval power, and dominated England’s foreign trade through the London Steelyard. England exported raw wool and bought manufactures until Edward III and his successors attracted Flemish weavers, restricted foreign merchants and finally, under Edward VI and Elizabeth, stripped the Hansards of their privileges. The League declined because its commerce had no national base of agriculture and industry. List accuses Adam Smith of ignoring this history because it showed protection making England great.

5. I.3 The Netherlanders 18 min 6

   Flanders, Brabant and Holland grew rich on wool, rivers, herring and trade, under counts who favoured towns and free markets. Charles V and Philip II could have built a German maritime empire but instead tried to impose Spanish rule on the Netherlands, driving out Belgian industry. Holland then dominated world commerce, until England’s Navigation Acts, French protection and the Methuen Treaty broke its supremacy. List concludes that a mere strip of coast cannot sustain national power and that Holland belongs in the Zollverein.

6. I.4 The English 51 min 18

   England’s greatness grew from sheep and wool, then from immigrant skills protected by tariffs and prohibitions. The Navigation Laws built a merchant marine and navy that defeated the Dutch, and the Methuen Treaty opened Portugal and its gold. Britain banned Indian cottons to build its own manufacturing power, which List calls the Theory of the Powers of Production. He argues that power matters more than wealth, catalogues Britain’s sea power and output, and credits also its institutions, insular position, wars and immigrants.

7. I.5 The Spaniards and Portuguese 23 min 19

   Spain and Portugal grew rich quickly on colonial gold but destroyed their own industries through bigotry, despotism and the expulsion of Jews and Moors. Portugal’s protected cloth industry flourished until the Methuen Treaty of 1703 traded lower wine duties for the admission of English cloth, after which Portugal’s manufactures collapsed and its gold flowed to England. List rebuts Smith’s three arguments that the treaty brought England no special advantage, and he describes the Asiento and English smuggling as further means of conquering markets.

8. I.6 The French 15 min 9

   France owed its early industry to monasteries, Italian influences and royal patronage, but its great period began with Colbert, whose tariffs, roads and recruitment of foreign workmen created flourishing manufactures. The revocation of the Edict of Nantes undid his work. The free-trading Eden Treaty of 1786 ruined French manufacturers, while Napoleon’s blockade let them prosper. After 1815 the English preached free trade abroad while protecting themselves at home, and France returned to prohibition.

9. I.7 The Germans 33 min 7

   Germany’s nobles despised industry, its leagues of cities lacked unity, and the Reformation, the Thirty Years’ War and Roman law left the nation divided and its culture theoretical. Refugee Huguenots and the policies of Austria and Prussia began its manufactures, and Napoleon’s blockade advanced them. Then the English flooded German markets after 1815. Prussia’s moderate tariff of 1818, List’s merchants’ union of 1819 and a series of treaties led to the Zollverein, under which German industry and agriculture are now advancing.

10. I.8 The Russians 9 min 2

    Russia owes its civilization to trade and to the unifying power of the Tsars. After 1815 it experimented with free trade, until British corn and timber duties, ruined manufactures and the drain of money led Count Nesselrode to announce an independent system in 1821. Protection has since attracted foreign capital and skill and expanded trade with Asia. List advises Germans to copy Russia instead of complaining, but warns that serfdom and backward institutions will hold it back.

11. I.9 The North Americans 30 min 8

    The American colonies were forbidden manufactures, and their industries rose whenever war cut them off from England and collapsed in each peace that reopened free trade. Gradually higher tariffs (1789, 1816, 1824, 1828) built a manufacturing power whose results List illustrates with Massachusetts statistics. He rejects the theorists who said America, like Poland, was destined for agriculture, and argues that without manufactures the Atlantic states would decline. He also denies that protection causes commercial crises.

12. I.10 The Teachings of History 21 min 4

    List draws the lessons of his history. National prosperity depends on liberty, institutions and above all national unity and power. Navigation and manufactures flourish only among free peoples. Restrictions arise from national rivalry and can end only in a world federation under law. Nations should pass through three stages: free trade to rise from barbarism, protection to build manufactures, and a return to free trade once supreme. Spain and Portugal are in the first stage, Germany and the United States in the second, and only Britain has reached the third.

13. II.11 Political and Cosmopolitical Economy 32 min 12

    List opens his theory by renaming the field. Quesnay, Smith and Say, he argues, wrote a cosmopolitical economy of the whole human race, assuming a universal union and perpetual peace; a true political or national economy, teaching how a given nation can advance under existing conditions, has yet to be written. He accepts that free trade would benefit a world federation, but insists that political union has always preceded commercial union. Under present conditions general free trade would subject backward nations to England's manufacturing supremacy, so protection is the way to an eventual union of equals. He also attacks Malthus and ends by satirising an “English world”.

14. II.12 The Theory of the Powers of Production and the Theory of Values 38 min 16

    The chapter sets out List's central distinction between the theory of values of exchange and the theory of productive powers. The power to produce wealth matters more than wealth itself. Smith glimpsed this but, dazzled by the division of labour, reduced the causes of wealth to labour and capital and ignored institutions, education, religion and politics. Parables of two fathers and of foreign export bounties as poisoned “presents” illustrate the point. Protective duties sacrifice present value to gain manufacturing power, which later yields cheaper goods and independence. British gluts dumped abroad show the danger of judging trade by values alone.

15. II.13 The National Division of Commercial Operations and the Confederation of the National Productive Forces 32 min 8

    List reinterprets Smith's division of labour as a union or confederation of productive powers: the pin factory works because its workers co-operate closely and without interruption. The same law applies to a whole nation, where agriculture and manufactures prosper most when they stand side by side under one political power. A purely agricultural nation is like a man with one arm and falls into a “crippled agriculture” of fragmented holdings. Barbarous and tropical countries, however, gain from trading produce for foreign manufactures. List quotes his American letters of 1827 and compares farms near towns with distant ones.

16. II.14 Private Economy and National Economy 25 min 7

    List rejects Smith's maxim that what is prudent for a family cannot be folly for a kingdom. A nation must provide for future generations, defence and public goods, which private interest neglects, and the state already restricts private industry in many accepted ways. Protective duties do not dictate how individuals invest; they answer foreign legislation, such as the English Corn Laws, which already directs national industry. The home market they secure is a national privilege, not a private monopoly, since domestic competition will lower prices. The school's individualism, which Thomas Cooper takes to extremes, cannot explain how nations rise or fall.

17. II.15 Nationality and the Economy of the Nation 48 min 13

    The school's three defects are cosmopolitanism, materialism and individualism. Between the individual and humanity stands the nation, which needs a large population, extensive territory, coasts and power, so List would extend the Zollverein to Holland and Denmark. Nations pass through five economic stages; free trade aids the early ones, while protection is justified only for nations ready to industrialise but held back by a stronger rival, and only temporarily and moderately. War has acted as protection since 1793, and peace must not undo its gains. The temperate zone should manufacture for the torrid zone, and Germany must first secure its home market. Several paragraphs are duplicated in this text.

18. II.16 Popular and State Financial Administration. Political and National Economy 4 min 2

    A short chapter distinguishing the financial economy of the state from the economy of the people. The economy of the people becomes national economy only where a state embraces a whole nation able to stand alone. In fragmented states it cannot, which is why German economics, under its changing names, had ignored the nation and spoken vaguely of “society”.

19. II.17 The Manufacturing Power and the Personal, Social, and Political Productive Powers of the Nation 31 min 5

    Manufactures, List argues, develop the personal, social and political powers of a nation far more than agriculture does. The isolated farmer grows routine-bound, resigned and dependent on landlords and priests, while the manufacturer lives by intercourse, competition and invention. Manufactures foster science, machinery, transport, a sense of the value of time and the employment of even the weakest. Towns, especially productive rather than consuming ones, have been the source of liberty and civilisation, and their influence frees the countryside from feudal burdens. A manufacturing power also multiplies population, revenue and the means of national defence.

20. II.18 The Manufacturing Power and the Natural Productive Powers of the Nation 32 min 8

    Manufactures bring into use natural resources that lie dead in a purely agricultural state: water power, minerals, fuel, stone, and land suited to special crops. Temperate climates are made for industry. Here List agrees with the school that free trade in raw products is best and that restrictions such as the Corn Laws harm both agriculture and industry, but he denies that the greenhouse-wine argument applies to manufactures. Poland, which exported grain and imported manufactures, is his warning example. He ends with speculations on racial mixture and on the improvement of livestock and plants.

21. II.19 The Manufacturing Power and the Instrumental Powers (Material Capital) of the Nation 24 min 7

    The chapter examines material capital, which List calls instrumental power. Smith argued that protection lowers income and therefore slows the saving from which capital grows. List replies that Smith confused a rentier's book-keeping with a nation's economy: national capital grows mainly by converting idle natural and mental powers into productive capital through manufactures, by colonisation and by attracting foreign capital, not through thrift alone. Each stage from hunting to agriculture reaches limits that only manufactures overcome. Capital and skill are tied to particular uses, so they cannot be freely shifted between industries as the school assumes.

22. II.20 The Manufacturing Power and the Agricultural Interest 54 min 9

    List argues that a home manufacturing power benefits the landed interest more than anyone, raising demand for farm produce, rents and above all the capital value of land. Comparing England and Poland, and using MacQueen's estimates of British national wealth, he claims that a small manufacturing capital sustains a vast agricultural one. Foreign demand for farm exports is fickle and breeds ruinous swings in land values, as in Germany and America. He criticises Smith for ranking manufactures an "indirect" cause of rising rent, Bowring's free-trade case for French wine, and Ricardo's theory that rent arises from the soil's natural fertility.

23. II.21 The Manufacturing Power and Commerce 20 min 5

    Commerce, List argues, is productive only as the intermediary between agriculture and manufactures and should be regulated in their interest, not the merchant's: the trader will sell opium or arms if it pays. Internal trade far outweighs foreign trade in a manufacturing nation, while agricultural exporters of the temperate zone face unstable markets. World commerce consists chiefly in exchanging temperate manufactures for tropical produce, a trade List expects to grow enormously as European rule, transport and the collapse of the Ottoman and Iberian empires open the tropics.

24. II.22 The Manufacturing Power and Navigation, Naval Power and Colonisation 7 min 2

    A short chapter linking manufactures to sea power. Manufactures create coastal and foreign shipping and fisheries, which train the sailors of a navy; the navy wins colonies, which supply raw materials and buy manufactures. Agricultural nations can neither found nor keep colonies. Temperate colonies such as the United States, Canada and Australia will eventually become independent manufacturing nations, but List holds that tropical lands will remain dependent for all time. Other European nations must build industry and combine to check British supremacy.

25. II.23 The Manufacturing Power and the Instruments of Circulation 53 min 7

    List partly rehabilitates the balance of trade. Drawing on the American crises after the Compromise Tariff of 1833, he argues that an agricultural nation open to British manufactures runs persistent deficits, sells its stocks and state bonds to London, loses its gold, and suffers credit collapses whenever the Bank of England tightens. Russia's tariff, by contrast, brought stability. The classical self-correcting mechanism works within a political union, not between rival nations. Smith's colonial example misleads, since colonies are underwritten by the mother country. The chapter ends with pointed questions for those who call the balance of trade an exploded fallacy.

26. II.24 The Manufacturing Power and the Principle of Stability and Continuity of Work 19 min 4

    Industry depends on continuity: skills, connections, institutions and public works accumulate over generations, and interruption destroys them far more completely in manufactures than in agriculture. List defends public debt for durable works such as transport, provided it is not spent wastefully or serviced by taxing workers' consumption. Protective duties arise from this need for continuity. An established industrial power, with its capital, skilled labour, credit and markets, can wage a "war of extermination" on newcomers, who resemble a boy wrestling a strong man. Wartime industries collapse when peace reopens the market.

27. II.25 The Manufacturing Power and the Inducement to Production and Consumption 11 min 3

    Production depends on inducements as well as direct labour. Art, books, education, social ambition and the display of wealth spur people to work and save, and manufactures multiply such inducements far beyond what a rural economy offers. List defends the improving consumption of workers, coffee, sugar and woollen cloth, against those who lament their luxury, arguing that better-provided workers are more productive. Free institutions that reward enterprise with esteem, patents that reward inventors, and protective duties that guarantee returns to new industries all act as stimulants to production.

28. II.26 Customs Duties as a Chief Means of Establishing and Protecting the Internal Manufacturing Power 18 min 4

    List sets out his tariff rules. Agricultural products and raw materials should bear only moderate revenue duties; protection is for manufactures alone, and only in large, populous, civilised nations fit to become great powers. Duties should rise gradually on a pre-announced schedule, beginning with goods of common use rather than luxuries, and fall once industry is established. An industry that cannot take root behind 40 to 60 per cent protection lacks the necessary conditions. Machinery should enter cheaply, while the state supports domestic machine-building; bounties and state-backed companies are acceptable only as temporary aids.

29. II.27 The Customs System and the Popular School 23 min 5

    A summary of the free-trade school's errors as List sees them. He turns Smith's own exceptions, retaliation, defence and the offsetting of domestic taxes, into a justification of the whole protective system, and mocks Say's allowance of a few years' protection. He explains away the school's favourite examples: Switzerland as a small, special case, Spain as ruined by religious persecution and bad institutions rather than protection. England's coal and iron are no proof of a natural monopoly. Reciprocal commercial treaties between nations at similar stages can lower tariffs gradually; only British supremacy stands in the way.

30. III.28 The National Economists of Italy 16 min 9

    Book III, a history of economic systems, opens with Italy. List reads Machiavelli's Prince as a plan to unite Italy under the Medici, its advice to destroy republican liberties a means to national unity. He praises Antonio Serra (1613) for seeing that manufactures, trade and above all stable government and civic liberty make nations rich, against Say's claim that constitutions are irrelevant to economics. He concedes that absolute rule can be progressive at early stages. Beccaria, Filangieri and Verri are judged by their stance on protection.

31. III.29 The Industrial System (Falsely Termed by the School “the Mercantile System”) 12 min 5

    What the school calls the mercantile system List renames the industrial system: the practical policy by which the new national monarchies, allied with the towns against the feudal nobility, drew manufactures and shipping from the city-republics behind tariffs, creating the integrated agricultural-manufacturing-commercial nation. Steuart first described it, from English practice. List lists its merits (valuing native industry and the nation) and its faults (protecting agriculture, restricting raw-material exports, ignoring the ultimate goal of universal free trade), and denies that its statesmen thought money alone was wealth.

32. III.30 The Physiocratic or Agricultural System 7 min 4

    Physiocracy, List argues, was a product of eighteenth-century French conditions: an agriculture crushed by feudal dues, clerical and noble privilege, unequal taxation and internal tolls. Court-connected reformers like Quesnay, unable to attack the monarchy and privileged orders openly, wrapped their programme in the doctrine that land alone yields a net revenue, from which followed a single land tax, the end of privilege and free trade. List calls the reasoning absurd but the aims sound, and defends Colbert against the physiocrats' blame.

33. III.31 The System of Values of Exchange (Falsely Termed by the School, the “Industrial” System)—Adam Smith 13 min 3

    Smith's system, in List's account, extends the physiocrats' cosmopolitanism: it ignores nations, reduces the state to keeping peace and justice, and treats free trade as an axiom. Citing Dugald Stewart's report of Smith's 1755 statement of his principles, List argues that Smith wrote to prove a preconceived idea. By focusing on exchange values rather than productive powers, his theory becomes the private economy of individuals, a shopkeeper's theory that buys cheapest regardless of national consequences. List nonetheless credits Smith with founding political economy as an analytical science.

34. III.32 The System of Values of Exchange (Continued)—Jean Baptiste Say and His School 21 min 10

    Say systematised and popularised Smith but added little, List says, except the productiveness of mental labour, which only a theory of productive powers can justify. List cites Louis Say's doubts about his brother's doctrine, mocks the simplicity that made Say popular and his hostility to history, statistics and politics, and attributes his free-trade views to his career and hatred of Napoleon. He notes the challenge of the Saint-Simonians and Fourierists, rejects their communal schemes as premature, and concludes that political economy is still an astrology awaiting its astronomy.

35. IV.33 The Insular Supremacy and the Continental Powers—North America and France 49 min 22

    List sums up the maxims by which England rose to industrial, commercial and naval supremacy, and charges that once on top it “kicked away the ladder,” using Smith’s cosmopolitical doctrine to dissuade others from imitating it. He traces English commercial diplomacy from the Eden Treaty through Canning and Huskisson, whose Corn Laws drove the Continent and America to build their own industries. France under the Restoration resisted; the United States protected itself in 1828 but conceded much in Clay’s compromise. Poulett Thomson’s mission duped France over linen, which shows how a nation’s industries form one interdependent whole.

36. IV.34 The Insular Supremacy and the German Commercial Union 52 min 12

    List turns to the German customs union, which he credits with ten years of rapid progress in manufactures, agriculture and national feeling, chiefly through protection of everyday cotton and woollen goods. He dissects Bowring’s 1840 report on the Zollverein: one voice urges Parliament to repeal the Corn Laws before German industry becomes unbeatable, another urges German governments to give up protection. List answers point by point, calls for spinning to be protected, for the Hanse towns to join, for a navy and colonies, and claims Holland as a German province whose union would make Germany a great commercial nation.

37. IV.35 Continental Politics 34 min 8

    Setting a universal union of nations as the distant goal, List surveys European power politics. Since 1815 the Continental powers’ common interest has been to check England’s maritime and manufacturing supremacy, not France. He judges the Holy Alliance an error and Napoleon’s Continental System a right idea wrongly executed. A united Germany, with Holland and Belgium, should anchor a Continental alliance. He discusses tropical trade and British emancipation of slaves in racist terms, and calls for Europe to take Asia under tutelage. He ends by predicting that the United States will eclipse Britain, which will then need Europe.

38. IV.36 The Commercial Policy of the German Zollverein 24 min 7

    The concluding chapter sets out a programme for the Zollverein, on which List says the survival of German nationality depends. Germany should spin its own cotton and linen yarn under a moderate, temporary duty of about 25 per cent and trade manufactures directly for tropical produce, buying from those who buy from it. It should press Holland to join the union through differential duties. It should subsidise steamship lines, direct emigration to Latin America and the lower Danube, build consulates, a flag and a fleet, seek colonies, and finance all this from duties on colonial produce. Railways complete the plan.

39. Translator’s Appendix 15 min 6

    Lloyd’s four appendices comment on List from the standpoint of 1880s Britain. Appendix A extends List’s point about war subsidies to the foreign loans of 1850–70, many lost in default. Appendix B reprints Justice Byles’s list of matters in which the state rightly interferes with individual liberty. Appendix C disputes List’s rejection of agricultural duties, arguing for moderate protection of British farming and for differential duties against restrictive nations. Appendix D weighs Britain’s growing excess of imports over exports, much of it income from foreign investment, and doubts that it is pure gain.