The National System of Political Economy

By Friedrich List

MORE than thirty-three years have elapsed since I first entertained doubts as to the truth of the prevailing theory of political economy, and endeavoured to investigate (what appeared to me) its errors and their fundamental causes. My avocation (as Professor) gave me the motive to undertake that task–the opposition which it was my fate to meet with forcibly impelled me to pursue it further.My German contemporaries will remember to what a low ebb the well-being of Germany had sunk in 1818. I prepared myself by studying works on political economy. I made myself as fully acquainted as others with what had been thought and written on that subject. But I was not satisfied with teaching young men that science in its present form; I desired also to teach them by what economical policy the welfare, the culture, and the power of Germany might be promoted. The popular theory inculcated the principle of freedom of trade. That principle appeared to me to be accordant with common sense, and also to be proved by experience, when I considered the results of the abolition of the internal provincial tariffs in France, and of the union of the three kingdoms under one Government in Great Britain. But the wonderfully favourable effects of Napoleon’s Continental system, and the destructive results of its abolition, were events too recent for me to overlook; they seemed to me to be directly contradictory of what I previously observed. And in endeavouring to ascertain on what that contradiction was founded, the idea struck me that
the theory was quite true, but only so in case all nations would reciprocally follow the principles of free trade, just as those provinces had done. This led me to consider the nature of
nationality. I perceived that the popular theory took no account of
nations, but simply of the entire human race on the one hand, or of single individuals on the other. I saw clearly that free competition between two nations which are highly civilised can only be mutually beneficial in case both of them are in a nearly equal position of industrial development, and that any nation which owing to misfortunes is behind others in industry, commerce, and navigation, while she nevertheless possesses the mental and material means for developing those acquisitions, must first of all strengthen her own individual powers, in order to fit herself to enter into free competition with more advanced nations. In a word, I perceived the distinction between
cosmopolitical and
political economy. I felt that Germany must abolish her internal tariffs, and by the adoption of a common uniform commercial policy towards foreigners, strive to attain to the same degree of commercial and industrial development to which other nations have attained by means of their commercial policy. [From the Preface to the First Edition]

Book Cover

Translator/Editor

J. Shield Nicholson, ed. Sampson S. Lloyd, trans.

First Pub. Date

1841

Publisher

London: Longmans, Green, and Co.

Pub. Date

1909

Comments

First published in German. First translated 1885.

Copyright

The text of this edition is in the public domain. Picture of List courtesy of The Warren J. Samuels Portrait Collection at Duke University.

Book I, Chapter VII

THE GERMANS.

IN the chapter on the Hanseatic League we saw how, next in order to Italy, Germany had flourished, through extensive commerce, long before the other European states. We have now to continue the industrial history of that nation, after first taking a rapid survey of its earliest industrial circumstances and their development.

In ancient Germania, the greater part of the land was devoted to pasturage and parks for game. The insignificant and primitive agriculture was abandoned to serfs and to women. The sole occupation of the freemen was warfare and the chase; and that is the origin of all the German nobility.

The German nobles firmly adhered to this system throughout the Middle Ages, oppressing agriculturists and opposing manufacturing industry, while quite blind to the benefits which must have accrued to them, as the lords of the soil, from the prosperity of both.

Indeed, so deeply rooted has the passion for their hereditary favourite occupation ever continued with the German nobles, that even in our days, long after they have been enriched by the ploughshare and the shuttle, they still dream in legislative assemblies about the preservation of game and the game laws, as though the wolf and the sheep, the bear and the bee, could dwell in peace side by side; as though landed property could be devoted at one and the same time to gardening, timber growing, and scientific farming, and to the preservation of wild boars, deer, and hares.

German husbandry long remained in a barbarous condition, notwithstanding that the influence of towns and monasteries on the districts in their immediate vicinity could not be ignored.

Towns sprang up in the ancient Roman colonies, at the seats of the temporal and ecclesiastical princes and lords, near monasteries, and, where favoured by the Emperor, to a certain extent within their domains and inclosures, also on sites where the fisheries, combined with facilities for land and water transport, offered inducements to them. They flourished in most cases only by supplying the local requirements, and by the foreign transport
trade. An extensive system of native industry capable or supplying an export trade could only have grown up by means of extensive sheep farming and extensive cultivation of flax. But flax cultivation implies a high standard of agriculture, while extensive sheep farming needs protection against wolves and robbers. Such protection could not be maintained amid the perpetual feuds of the nobles and princes between themselves and against the towns. Cattle pastures served always as the principal field for robbery; while the total extermination of beasts of prey was out of the question with those vast tracts of forest which the nobility so carefully preserved for their indulgence in the chase. The scanty number of cattle, the insecurity of life and property, the entire lack of capital and of freedom on the part of the cultivators of the soil, or of any interest in agriculture on the part of those who owned it, necessarily tended to keep agriculture, and with it the prosperity of the towns, in a very low state.

If these circumstances are duly considered, it is easy to understand the reason why Flanders and Brabant under totally opposite conditions attained at so early a period to a high degree of liberty and prosperity.

Notwithstanding these impediments, the German cities on the Baltic and the German Ocean flourished, owing to the fisheries, to navigation, and the foreign trade at sea; in Southern Germany and at the foot of the Alps, owing to the influence of Italy, Greece, and the transport trade by land; on the Rhine, the Elbe, and the Danube, by means of viticulture and the wine trade, owing to the exceptional fertility of the soil and the facilities of water communication, which in the Middle Ages was of still greater importance than even in our days, because of the wretched condition of the roads and the general state of insecurity.

This diversity of origin will explain the diversity characterising the several confederations of German cities, such as the Hanseatic, the Rhenish, the Swabian, the Dutch, and the Helvetic.

Though they continued powerful for a time owing to the spirit of youthful freedom which pervaded them, yet these leagues lacked the internal guarantee of stability, the principle of unity, the cement. Separated from each other by the estates of the nobility, by the serfdom of the population of the country, their union was doomed sooner or later to break down, owing to the gradual increase and enrichment of the agricultural population, among whom, through the power of the princes, the principle of unity was maintained. The cities, inasmuch as they tended to promote the prosperity of agriculture, by so doing necessarily were working at their own effacement, unless they contrived to incorporate the agricultural classes or the nobility as members of their
unions. For the accomplishment of that object, however, they lacked the requisite higher political instincts and knowledge. Their political vision seldom extended beyond their own city walls.

Two only of these confederations, Switzerland and the Seven United Provinces, actually carried out this incorporation, and that not as the result of reflection, but because they were compelled to it, and favoured by circumstances, and for that reason those confederations still exist. The Swiss Confederation is nothing but a conglomerate of German imperial cities, established and cemented together by the free populations occupying the intervening tracts of country.

The remaining leagues of German cities were ruined owing to their contempt for the rural population, and from their absurd burgher arrogance, which delighted in keeping that population in subjection, rather than in raising them to their own level.

These cities could only have attained unity by means of an hereditary royal authority. But this authority in Germany lay in the hands of the princes, who, in order to avert restraints upon their own arbitrary rule, and to keep both the cities and the minor nobles in subjection, were interested in resisting the establishment of an hereditary empire.

Hence the persevering adherence to the idea of the Imperial Roman Empire amongst German kings. Only at the head of armies were the emperors rulers; only when they went to war were they able to bring together princes and cities under their banner. Hence their protection of civic liberty in Germany, and their hostility to it and persecution of it in Italy.

The expeditions to Rome not only weakened more and more the kingly power in Germany, they weakened those very dynasties through which, within the Empire, in the heart of the nation, a consolidated power might have grown up. But with the extinction of the House of Hohenstaufen the nucleus of consolidated power was broken up into a thousand fragments.

The sense of the impossibility of consolidating the heart of the nation impelled the House of Hapsburg, originally so weak and poor, to utilise the nation’s vigour in founding a consolidated hereditary monarchy on the south-eastern frontier of the German Empire, by subjugating alien races, a policy which in the northeast was imitated by the Margraves of Brandenburg. Thus in the south-east and north-east there arose hereditary sovereignties founded upon the dominion over alien races, while in the two western corners of the land two republics grew into existence which continually separated themselves more and more from the parent nation; and within, in the nation’s heart, disintegration, impotence, and dissolution continually progressed. The misfortunes
of the German nation were completed by the inventions of gunpowder and of the art of printing, the revival of the Roman law, the Reformation, and lastly the discovery of America and of the new route to India.

The intellectual, social, and economic revolution which we have described produced divisions and disruption between the constituent members of the Empire, disunion between the princes, disunion between the cities, disunion even between the various guilds of individual cities, and between neighbours of every rank. The energies of the nation were now diverted from the pursuit of industry, agriculture, trade, and navigation; from the acquisition of colonies, the amelioration of internal institutions, in fact from every kind of substantial improvement, the people contended about dogmas and the heritage of the Church.

At the same time came the decline of the Hanseatic League and of Venice, and with it the decline of Germany’s wholesale trade, and of the power and liberties of the German cities both in the north and in the south.

Then came the Thirty Years’ War with its devastations of all territories and cities. Holland and Switzerland seceded, while the fairest provinces of the Empire were conquered by France. Whereas formerly single cities, such as Strasburg, Nürnberg, Augsburg, had surpassed in power entire electorates, they now sank into utter impotence in consequence of the introduction of standing armies.

If before this revolution the cities and the royal power had been more consolidated—if a king exclusively belonging to the German nation had obtained a complete mastery of the Reformation, and had carried it out in the interests of the unity, power, and freedom of the nation—how very differently would the agriculture, industry, and trade of the Germans have been developed. By the side of considerations such as these, how pitiable and unpractical seems that theory of political economy which would have us refer the material welfare of nations solely to the production of individuals, wholly losing sight of the fact that the producing power of all individuals is to a great extent determined by the social and political circumstances of the nation. The introduction of the Roman law weakened no nation so much as the German. The unspeakable confusion which it brought into the legal status and relations of private individuals, was not the worst of its bad effects. More mischievous was it by far, in that it created a caste of learned men and jurists differing from the people in spirit and language, which treated the people as a class unlearned in the law, as minors, which denied the authority of all sound human understanding, which everywhere set up secrecy in
the room of publicity, which, living in the most abject dependence and living upon arbitrary power, everywhere advocated it and defended its interests, everywhere gnawed at the roots of liberty. Thus we see even to the beginning of the eighteenth century in Germany, barbarism in literature and language, barbarism in legislation, State administration and administration of justice; barbarism in agriculture, decline of industry and of all trade upon a large scale, want of unity and of force in national cohesion; powerlessness and weakness on all hands in dealing with foreign nations.

One thing only the Germans had preserved; that was their aboriginal character, their love of industry, order, thrift, and moderation, their perseverance and endurance in research and in business, their honest striving after improvement, and a considerable natural measure of morality, prudence, and circumspection.

This character both the rulers and the ruled had in common. After the almost total decay of nationality and the restoration of tranquillity, people began in some individual isolated circles to introduce order, improvement, and progress. Nowhere was witnessed more zeal in cherishing education, manners, religion, art, and science; nowhere was absolute power exercised with greater moderation or with more advantage to general enlightenment, order, and morality, to the reform of abuses and the advancement of the common welfare.

The foundation for the revival of German nationality was undoubtedly laid by the Governments themselves, by their conscientious devotion of the proceeds of the secularised Church lands to the uses of education and instruction, of art and science, of morality and objects of public utility. By these measures light made its way into the State administration and the administration of justice, into education and literature, into agriculture, industry, and commerce, and above all amongst the masses. Thus Germany developed herself in a totally different way from all other nations. Elsewhere high mental culture rather grew out of the evolution of the material powers of production, whilst in Germany the growth of material powers of production was the outcome chiefly of an antecedent intellectual development. Hence at the present day the whole culture of the Germans is theoretical. Hence also those many unpractical and odd traits in the German character which other nations notice in us.

For the moment the Germans are in the position of an individual who, having been formerly deprived of the use of his limbs, first learned theoretically the arts of standing and walking, of eating and drinking, of laughing and weeping, and then only proceeded to put them in practice. Hence comes the German predilection
for philosophic systems and cosmopolitan dreams. The intellect, which was not allowed to stir in the affairs of this world, strove to exercise itself in the realms of speculation. Hence, too, we find that nowhere has the doctrine of Adam Smith and of his disciples obtained a larger following than in Germany; nowhere else have people more thoroughly believed in the cosmopolitan magnanimity of Messrs. Canning and Huskisson.

For the first progress in manufactures Germany is indebted to the revocation of the Edict of Nantes and to the numerous refugees who by that insane measure were driven to emigrate to almost every part of Germany, and established everywhere manufactures of wool, silk, jewellery, hats, glass, china, gloves, and industries of every kind.

The first Government measures for the promotion of manufactures in Germany were introduced by Austria and Prussia; in Austria under Charles VI. and Maria Theresa, but even more under Joseph II. Austria had formerly suffered enormously from the banishment of the Protestants, her most industrious citizens; nor can it be exactly affirmed that she distinguished herself in the immediate sequel by promoting enlightenment and mental culture. Afterwards, in consequence of a protective tariff, improved sheep farming, better roads, and other encouragements, industry made considerable strides even under Maria Theresa.

More energetically still was this work pushed forward under Joseph II. and with immensely greater success. At first, indeed, the results could not be called important, because the Emperor, according to his wont, was too precipitate in these as in all his other schemes of reform, and Austria, in relation to other states, still occupied too backward a position. Here as elsewhere it became evident that one might get ‘too much of a good thing’ at once, and that protective duties, in order to work beneficially and not as a disturbing element upon an existing state of things, must not be made too high at the commencement. But the longer that system continued, the more clearly was its wisdom demonstrated. To that tariff Austria is indebted for her present prosperous industries and the flourishing condition of her agriculture.

The industry of Prussia had suffered more than that of any other country from the devastations of the Thirty Years’ War. Her most important industry, the manufacture of cloth in the Margravate of Brandenburg, was almost entirely annihilated. The majority of cloth workers had migrated to Saxony, while English imports at the time held every competition in check. To the advantage of Prussia now came the revocation of the Edict of Nantes and the persecution of the Protestants in the Palatinate and in Salzburg. The great Elector saw at a glance what Elizabeth
before him had so clearly understood. In consequence of the measures devised by him a great number of the fugitives directed their steps to Prussia, fertilised the agricultural industry of the land, established a large number of manufactures, and cultivated science and art. All his successors followed in his footsteps, none with more zeal than the great King—greater by his policy in times of peace than by his successes in war. Space is wanting to treat at length of the countless measures whereby Frederick II. attracted to his dominions large numbers of foreign agriculturists, brought tracts of waste land into cultivation, and established the cultivation of meadows, of cattle fodder, vegetables, potatoes, and tobacco, improved sheep farming, cattle breeding, horse breeding, the use of mineral manures, &c., by which means he created capital and credit for the benefit of the agricultural classes. Still more than by these direct measures he promoted indirectly the interests of agriculture by means of those branches of manufacture which, in consequence of the customs tariff and the improved means of transport which he established, as well as the establishment of a bank, made greater advances in Prussia than in any other German state, notwithstanding that that country’s geographical position, and its division into several provinces separated from one another, were much less favourable for the success of such measures, and that the disadvantages of a customs cordon, namely, the damaging effects of a contraband trade, must be felt more acutely there than in great states whose territories are compact and well protected by boundaries of seas, rivers, and chains of mountains.

At the same time we are nowise anxious, under cover of this eulogy, to defend the faults of the system, such as, for example, the restrictions laid upon the exportation of raw material. Still, that in despite of these faults the national industry was considerably advanced by it, no enlightened and impartial historian would venture to dispute.

To every unprejudiced mind, unclouded by false theories, it must be clear that Prussia gained her title to rank amongst the European powers not so much by her conquests as by her wise policy in promoting the interests of agriculture, industry, and trade, and by her progress in literature and science; and all this was the work of one great genius alone.

And yet the Crown was not yet supported by the energy of free institutions, but simply by an administrative system, well ordered and conscientious, but unquestionably trammelled by the dead mechanical routine of a hierarchical bureaucracy.

Meanwhile all the rest of Germany had for centuries been under the influence of free trade—that is to say, the whole world
was free to export manufactured products into Germany, while no one consented to admit German manufactured goods into other countries. This rule had its exceptions, but only a few. It cannot, however, be asserted that the predictions and the promises of the school about the great benefits of free trade have been verified by the experience of this country, for everywhere the movement was rather retrograde than progressive. Cities like Augsburg, Nürnberg, Mayence, Cologne, &c., numbered no more than a third or a fourth part of their former population, and wars were often wished for merely for the sake of getting rid of a valueless surplus of produce.

The wars came in the train of the French Revolution, and with them English subsidies together with increased English competition. Hence a new downward tendency in manufactures coupled with an increase in agricultural prosperity, which, however, was only apparent and transitory.

Next followed Napoleon’s Continental blockade, an event which marked an era in the history of both German and French industry, notwithstanding that Mons. J. B. Say, Adam Smith’s most famous pupil, denounced it as a calamity. Whatever theorists, and notably the English, may urge against it, this much is clearly made out—and all who are conversant with German industry must attest it, for there is abundant evidence of the fact in all statistical writings of that day—that, as a result of this blockade, German manufactures of all and every kind for the first time began to make an important advance;
*61 that then only did the improved breeding of sheep (which had been commenced some time before) become general and successful; that then only was activity displayed in improving the means of transport. It is true, on the other hand, that Germany lost the greater part of her former export trade, especially in linens. Yet the gain was considerably greater than the loss, particularly for the Prussian and Austrian manufacturing establishments, which had previously gained a start over all other manufactories in the German states.

But with the return of peace the English manufacturers again entered into a fearful competition with the German; for during the reciprocal blockade, in consequence of new inventions and a great and almost exclusive export trade to foreign lands, the manufactories of the island had far outstripped that of Germany; and for this reason, as well as because of their large acquired capital, the former were first in a position to sell at much lower prices, to offer much superior articles, and to give much longer
credit than the latter, which had still to battle with the difficulties of a first beginning. Consequently general ruin followed and loud wailings amongst the latter, especially in the lower Rhenish provinces, in those regions which, having formerly belonged to France, were now excluded from the French market. Besides, the Prussian customs tariff had undergone many changes in the direction of absolute free trade, and no longer afforded any sufficient protection against English competition. At the same time the Prussian bureaucracy long strove against the country’s cry for help. They had become too strongly imbued with Adam Smith’s theory at the universities to discern the want of the times with sufficient promptness. There even still existed political economists in Prussia who harboured the bold design of reviving the long-exploded ‘physiocratic’ system. Meanwhile the nature of things here too proved a mightier force than the power of theories. The cry of distress raised by the manufacturers, hailing as it did from districts still yearning after their former state of connection with France, whose sympathies it was necessary to conciliate, could not be safely disregarded too long. More and more the opinion spread at the time that the English Government were favouring in an unprecedented manner a scheme for glutting the markets on the Continent with manufactured goods in order to stifle the Continental manufactures in the cradle. This idea has been ridiculed, but it was natural enough that it should prevail, first, because this glutting really took place in such a manner as though it had been deliberately planned; and, secondly, because a celebrated member of Parliament, Mr. Henry Brougham (afterwards Lord Brougham), had openly said, in 1815, ‘that it was well worth while to incur a loss on the exportation of English manufactures in order to stifle in the cradle the foreign manufactures.’
*62 This idea of this lord, since so renowned as a philanthropist, cosmopolist, and Liberal, was repeated ten years later almost in the same words by Mr. Hume, a member of Parliament not less distinguished for liberalism, when he expressed a wish that ‘Continental manufactures might be nipped in the bud.’

At length the prayer of the Prussian manufacturers found a hearing—late enough, indeed, as must be admitted when one considers how painful it is to be wrestling with death year after year—but at last their cry was heard to real good purpose. The Prussian customs tariff of 1818 answered, for the time in which it was established, all the requirements of Prussian industry, without in any way overdoing the principle of protection or unduly
interfering with the country’s beneficial intercourse with foreign countries. Its scale of duties was much lower than those of the English and French customs systems, and necessarily so; for in this case there was no question of a gradual transition from a prohibitive to a protective system, but of a change from free trade (so called) to a protective system. Another great advantage of this tariff, considered as a whole, was that the duties were mostly levied according to the weight of goods and not according to their value. By this means not only were smuggling and too low valuations obviated, but also the great object was gained, that articles of general consumption, which every country can most easily manufacture for itself, and the manufacture of which, because of their great total money value, is the most important of any for the country, were burdened with the highest import duty, while the protective duty fell lower and lower in proportion to the fineness and costliness of the goods, also as the difficulty of making such articles at home increased, and also as both the inducements and the facilities for smuggling increased.

But this mode of charging the duty upon the weight would of course, for very obvious reasons, affect the trade with the neighbouring German states much more injuriously than the trade with foreign nations. The second-rate and smaller German states had now to bear, in addition to their exclusion from the Austrian, French, and English markets, almost total exclusion from that of Prussia, which hit them all the harder, since many of them were either totally or in great part hemmed in by Prussian provinces.

Just in proportion as these measures pacified the Prussian manufacturers, was the loudness of the outcry against them on the part of the manufacturers of the other German states. Add to that, that Austria had shortly before imposed restrictions on the importation of German goods into Italy, notably of the linens of Upper Swabia. Restricted on all sides in their export trade to small strips of territory, and further being separated from one another by smaller internal lines of customs duties, the manufacturers of these countries were well-nigh in despair.

It was this state of urgent necessity which led to the formation of that private union of five to six thousand German manufacturers and merchants, which was founded in the year 1819 at the spring fair held in Frankfort-on-the-Main, with the object of abolishing all the separate tariffs of the various German states, and on the other hand of establishing a common trade and custom-house system for the whole of Germany.

This union was formally organised. Its articles of association were submitted to the Diet, and to all the rulers and governments
of the German states for approval. In every German town a local correspondent was appointed; each German state had its provincial correspondent. All the members and correspondents bound themselves to promote the objects of the union to the best of their ability. The city of Nürnberg was selected as the head-quarters of the union, and authorised to appoint a central committee, which should direct the business of the union, under the advice of an assessor, for which office the author of this book was selected. In a weekly journal of the union, bearing the title of ‘Organ des deutschen Handels- und Fabrikantenstandes,’
*63 the transactions and measures of the central committee were made known, and ideas, proposals, treatises, and statistical papers relating to the objects of the union were published. Each year at the spring fair in Frankfort a general meeting of the union was held, at which the central committee gave an account of its stewardship.

After this union had presented a petition to the German Diet showing the need and expediency of the measures proposed by their organisation, the central committee at Nürnberg commenced operations. Deputations were sent to every German Court, and finally one to the Congress of Plenipotentiaries held at Vienna in 1820. At this congress so much at least was gained, that several of the second-class and smaller German states agreed to hold a separate congress on the subject at Darmstadt. The effect of the deliberations of this last-named congress was, first, to bring about a union between Würtemberg and Bavaria; secondly, a union of some of the German states and Prussia; then a union between the middle German states; lastly, and chiefly in consequence of the exertions of Freiherr von Cotta to fuse the above-named three unions into a general customs confederation, so that at this present time, with the exception of Austria, the two Mecklenburgs, Hanover, and the Hanse Towns, the whole of Germany is associated in a single customs union, which has abolished the separate customs lines amongst its members, and has established a uniform tariff in common against the foreigner, the revenue derived from which is distributed
pro rata amongst the several states according to their populations.

The tariff of this union is substantially the same as that established by Prussia in 1818; that is to say, it is a moderate protectionist tariff.

In consequence of this unification of customs, the industry, trade, and agriculture of the German states forming the union have already made enormous strides.

61.

The system must necessarily have affected France in a different manner than Germany, because Germany was mostly shut out from the French markets, while the German markets were all open to the French manufacturer.

62.

Report of the Committee of Commerce and Manufactures to the House of Representatives of the Congress of the United States, Feb. 13, 1816.

63.

Organ of the German Commercial and Manufacturing Interests.

Chapter IX

Categories: Friedrich List