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 II, Chapter XIII

THE NATIONAL DIVISION OF COMMERCIAL OPERATIONS AND THE CONFEDERATION OF THE NATIONAL PRODUCTIVE FORCES.

THE school is indebted to its renowned founder for the discovery of that natural law which it calls ‘
division of labour,‘ but neither Adam Smith nor any of his successors have thoroughly investigated its essential nature and character, or followed it out to its most important consequences.

The expression ‘
division of labour‘ is an indefinite one, and must necessarily produce a false or indefinite idea.

It is ‘
division of labour‘ if one savage on one and the same day goes hunting or fishing, cuts down wood, repairs his wigwam, and prepares arrows, nets, and clothes; but it is also ‘
division of labour‘ if (as Adam Smith mentions as an example) ten different persons share in the different occupations connected with the manufacture of a pin: the former is an objective, and the latter a subjective division of labour; the former hinders, the latter furthers production. The essential difference between both is, that in the former instance one person divides his work so as to produce
various objects, while in the latter
several persons share in the production of a single object.

Both operations, on the other hand, may be called with equal correctness
a union of labour; the savage unites various tasks in his person, while in the case of the pin manufacture various persons are united in one work of production in common.

The essential character of the natural law from which the popular school explains such important phenomena in social economy, is evidently not merely
a division of labour, but
a division of different commercial operations between several individuals, and at the same time
a confederation or union of various energies, intelligences, and powers on behalf of a common production. The cause of the productiveness of these operations is not merely that
division, but essentially this
union. Adam Smith well perceives this himself when he states, ‘The necessaries of life of the lowest members of society are a product of
joint labour
and of the co-operation of a number of individuals.’
*74 What a pity that he did not follow out this idea (which he so clearly expresses) of
united labour.

If we continue to consider the example of the pin manufacture adduced by Adam Smith in illustration of the advantages of division of labour, and seek for the causes of the phenomenon that ten persons united in that manufacture can produce an infinitely larger number of pins than if every one carried on the entire pin manufacture separately, we find that the division of commercial operations without
combination of the productive powers towards one common object could but little further this production.

In order to create such a result, the different individuals must co-operate bodily as well as mentally, and work together. The one who makes the heads of the pins must be certain of the co-operation of the one who makes the points if he does not want to run the risk of producing pin heads in vain. The labour operations of all must be in the proper proportion to one another, the workmen must live as near to one another as possible, and their co-operation must be insured. Let us suppose e.g. that every one of these ten workmen lives in a different country; how often might their co-operation be interrupted by wars, interruptions of transport, commercial crises, &c.; how greatly would the cost of the product be increased, and consequently the advantage of the division of operation diminished; and would not the separation or secession of a single person from the union, throw all the others out of work?

The popular school, because it has regarded the division of operation alone as the essence of this natural law, has committed the error of applying it merely to the separate manufactory or farm; it has not perceived that the same law extends its action especially over the
whole manufacturing and
agricultural power, over
the whole economy of the nation.

As the pin manufactory only prospers by the confederation of the productive force of the individuals, so does every kind of manufacture prosper only by the confederation of its productive forces with those of all other kinds of manufacture. For the success of a machine manufactory, for instance, it is necessary that the mines and metal works should furnish it with the necessary materials, and that all the hundred different sorts of manufactories which require machines, should buy their products from it. Without machine manufactories, a nation would in time of war be exposed to the danger of losing the greater portion of its manufacturing power.

In like manner the entire manufacturing industry of a State in connection with its agricultural interest, and the latter in connection with the former, will prosper the more the nearer they are placed to one another, and the less they are interrupted in their mutual exchanges with one another. The advantages of their confederation under one and the same political Power in times of war, of national differences, of commercial crises, failure of crops, &c., are not less perceptible than are the advantages of the union of the persons belonging to a pin manufactory under one and the same roof.

Smith affirms that the division of labour is less applicable to agriculture than to manufactures.
*75 Smith had in view only the separate manufactory and the separate farm. He has, however, neglected to extend his principle over whole districts and provinces. Nowhere has the division of commercial operations and the confederation of the productive powers greater influence than where every district and every province is in a position to devote itself exclusively, or at least chiefly, to those branches of agricultural production for which they are mostly fitted by nature. In one district corn and hops chiefly thrive, in another vines and fruit, in a third timber production and cattle rearing, &c. If every district is devoted to all these branches of production, it is clear that its labour and its land cannot be nearly so productive as if every separate district were devoted mainly to those branches of production for which it is specially adapted by nature, and as if it exchanged the surplus of its own special products for the surplus produce of those provinces which in the production of other necessaries of life and raw materials possess a natural advantage equally peculiar to themselves. This division of commercial operations, this confederation of the productive forces occupied in agriculture, can only take place in a country which has attained the greatest development of all branches of manufacturing industry; for in such a country only can a great demand for the greatest variety of products exist, or the demand for the surplus of agricultural productions be so certain and considerable that the producer can feel certain of disposing of any quantity of his surplus produce during this or at least during next year at suitable prices; in such a country only can considerable capital be devoted to speculation in the produce of the country and holding stocks of it, or great improvements in transport, such as canals and railway systems, lines of steamers, improved roads, be carried out profitably; and only by means of thoroughly good means of transport can every district or province convey the surplus of its peculiar products to
all other provinces, even to the most distant ones, and procure in return supplies of the peculiar products of the latter. Where everybody supplies himself with what he requires, there is but little opportunity for exchange, and therefore no need for costly facilities of transport.

We may notice how the augmentation of the powers of production in consequence of the separation of occupations and the co-operation of the powers of individuals begins in the separate manufactory and extends to the united nation. The manufactory prospers so much the more in proportion as the commercial operations are divided, the more closely the workmen are united, and the more the co-operation of each person is insured for the whole. The productive powers of every separate manufactory are also increased in proportion as the whole manufacturing power of the country is developed in all its branches, and the more intimately it is united with all other branches of industry. The agricultural power of production is so much greater the more intimately a manufacturing power developed in all its branches is united locally, commercially, and politically with agriculture. In proportion as the manufacturing power is thus developed will the division of the commercial operations and the co-operation of the productive powers in agriculture also develop themselves and be raised to the highest stage of perfection. That nation will therefore possess most productive power, and will consequently be the richest, which has cultivated manufacturing industry in all branches within its territory to the highest perfection, and whose territory and agricultural production is large enough to supply its manufacturing population with the largest part of the necessaries of life and raw materials which they require.

Let us now consider the opposite side of this argument. A nation which possesses merely agriculture, and merely the most indispensable industries, is in want of the first and most necessary division of commercial operations among its inhabitants, and of the most important half of its productive powers, indeed it is in want of a useful division of commercial operations even in the separate branches of agriculture itself. A nation thus imperfect will not only be merely half as productive as a perfect nation, but with an equal or even with a much larger territory, with an equal or a much larger population, it will perhaps scarcely obtain a fifth, probably scarcely a tenth, part of that material wealth which a perfect nation is able to procure; and this for the same reason owing to which in a very complicated manufactory ten persons produce not merely ten times more, but perhaps thirty times more, than one person, or a man with one arm cannot merely work half as little, but infinitely less, than a man with two arms. This loss
in productive power will be so much greater, the more that the manufacturing operations can be furthered by machinery, and the less that machinery can be applied in agriculture. A part of the productive power which the agricultural nation thus loses, will fall to the lot of that nation which exchanges its manufactured goods for agricultural products. This will, however, be a positive loss only in case the agricultural nation has already reached that stage of civilisation and political development which is necessary for the establishment of a manufacturing power. If it has not yet attained that stage, and still remains in a barbarous or half-civilised state, if its agricultural power of production has not yet developed itself even from the most primitive condition, if by the importation of foreign fabrics and the exportation of raw products its prosperity nevertheless increases considerably from year to year, and its mental and social powers continue to be awakened and increased, if such commerce as it can thus carry on is not interrupted by foreign prohibition of importation of raw products, or by wars, or if the territory of the agricultural nation is situated in a tropical climate, the gain on both sides will then be equal and in conformity with the laws of nature, because under the influence of such an exchange of the native products for foreign fabrics, a nation so situated will attain to civilisation and development of its productive powers more quickly and safely than when it has to develop them entirely out of its resources. If, however, the agricultural nation has already reached the culminating point of its agricultural development, as far as that can be attained by the influence of foreign commerce, or if the manufacturing nation refuses to take the products of the agricultural nation in exchange for its manufactured goods, and if nevertheless, owing to the successful competition of the manufacturing nation in the markets of the agricultural nation, no manufactures can spring up in the latter, in such a case the agricultural productive power of the agricultural nation is exposed to the danger of being crippled.

By
a crippled state of agriculture we mean that state of things in which, from want of a powerful and steadily developing manufacturing industry, the entire increase of population tends to throw itself on agriculture for employment, consumes all the surplus agricultural production of the country, and as soon as it has considerably increased either has to emigrate or share with the agriculturists already in existence the land immediately at hand, till the landed property of every family has become so small that it produces only the most elementary and necessary portion of that family’s requirements of food and raw materials, but no considerable surplus which it might exchange with the manufacturers for the manufactured products which it requires. Under a normal development
of the productive powers of the State, the greater part of the increase of population of an agricultural nation (as soon as it has attained a certain degree of culture) should transfer itself to manufacturing industry, and the excess of the agricultural products should partly serve for supplying the manufacturing population with provisions and raw materials, and partly for procuring for the agriculturists the manufactured goods, machines, and utensils which they require for their consumption, and for the increase of their own production.

If this state of things sets in at the proper time, agricultural and industrial productive power will increase reciprocally, and indeed
ad infinitum. The demand for agricultural products on the part of the industrial population will be so great, that no greater number of labourers will be diverted to agriculture, nor any greater division of the existing land be made, than is necessary to obtain the greatest possible surplus produce from it. In proportion to this surplus produce the population occupied in agriculture will be enabled to consume the products of the workmen employed in manufacturing. A continuous increase of the agricultural surplus produce will occasion a continuous increase of the demand for manufacturing workmen. The excess of the agricultural population will therefore continually find work in the manufactories, and the manufacturing population will at length not only equal the agricultural population in numbers, but will far exceed it. This latter is the condition of England; that which we formerly described is that of part of France and Germany. England was principally brought to this natural division of industrial pursuits between the two great branches of industry, by means of her flocks of sheep and woollen manufactures, which existed there on a large scale much sooner than in other countries. In other countries agriculture was crippled mainly by the influence of feudalism and arbitrary power. The possession of land gave influence and power, merely because by it a certain number of retainers could be maintained which the feudal proprietor could make use of in his feuds. The more vassals he possessed, so many more warriors he could muster. It was besides impossible, owing to the rudeness of those times, for the landed proprietor to consume his income in any other manner than by keeping a large number of servants, and he could not pay these better and attach them to his own person more surely than by giving them a bit of land to cultivate under the condition of rendering him personal service and of paying a smaller tax in produce. Thus the foundation for excessive division of the soil was laid in an artificial manner; and if in the present day the Government seeks by artificial means to alter that
system, in so doing it is merely restoring the original state of things.

In order to restrain the continued depreciation of the agricultural power of a nation, and gradually to apply a remedy to that evil in so far as it is the result of previous institutions, no better means exists (apart from the promotion of emigration) than to establish an internal manufacturing power, by which the increase of population may be gradually drawn over to the latter, and a greater demand created for agricultural produce, by which consequently the cultivation of larger estates may be rendered more profitable, and the cultivator induced and encouraged to gain from his land the greatest possible amount of surplus produce.

The productive power of the cultivator and of the labourer in agriculture will always be greater or smaller according to the degree in which the exchange of agricultural produce for manufactures and other products of various kinds can proceed more or less readily. That in this respect the foreign trade of any nation which is but little advanced can prove in the highest degree beneficial, we have shown in another chapter by the example of England. But a nation which has already made considerable advances in civilisation, in possession of capital, and in population, will find the development of a manufacturing power of its own infinitely more beneficial to its agriculture than the most flourishing foreign trade can be without such manufactures, because it thereby secures itself against all fluctuations to which it may be exposed by war, by foreign restrictions on trade, and by commercial crises, because it thereby saves the greatest part of the costs of transport and commercial charges incurred in exporting its own products and in importing manufactured articles, because it derives the greatest advantages from the improvements in transport which are called into existence by its own manufacturing industry, while from the same cause a mass of personal and natural powers hitherto unemployed will be developed, and
especially because the reciprocal exchange between manufacturing power and agricultural power is so much greater, the closer the agriculturist and manufacturer are placed to one another, and the less they are liable to be interrupted in the exchange of their various products by accidents of all kinds.

In my letters to Mr. Charles J. Ingersoll, President of the Society for Promoting Arts and Industries in Philadelphia, of the year 1828 (entitled, ‘Outlines of a New System of Political Economy’), I tried to explain the advantages of a union of the manufacturing power with agriculture in one and the same country, and under one and the same political power, in the following manner. Supposing you did not understand the art
of grinding corn, which has certainly been a great art in its time; supposing further that the art of baking bread had remained unknown to you, as (according to Anderson) the real art of salting herrings was still unknown to the English in the seventeenth century; supposing, therefore, that you had to send your corn to England to be ground into flour and baked into bread, how large a quantity of your corn would not the English retain as pay for the grinding and baking; how much of it would the carters, seamen, and merchants consume, who would have to be employed in exporting the corn and importing the bread; and how much would come back into the hands of those who cultivated the corn? There is no doubt that by such a process the foreign trade would receive a considerable impetus, but it is very doubtful whether this intercourse would be specially advantageous to the welfare and independence of the nation. Consider only in case of a war breaking out between your country (the United States) and Great Britain, what would be the situation of those who produced corn for the English mills and bakehouses, and on the other hand the situation of those who had become accustomed to the taste of the English bread. Just as, however, the economical prosperity of the corn-cultivating interest requires that the corn millers should live in its vicinity, so also does the prosperity of the farmer especially require that the manufacturer should live close to him, so also does the prosperity of a flat and open country require that a prosperous and industrial town should exist in its centre, and so does the prosperity of the whole agriculture of a country require that its own manufacturing power should be developed in the highest possible degree.

Let us compare the condition of agriculture in the vicinity of a populous town with its condition when carried on in distant provinces. In the latter case the farmer can only cultivate for sale those products which can bear a long transport, and which cannot be supplied at cheaper prices and in better quality from districts lying nearer to those who purchase them. A larger portion of his profits will be absorbed by the costs of transport. He will find it difficult to procure capital which he may employ usefully on his farm. From want of better examples and means of education he will not readily be led to avail himself of new processes, of better implements, and of new methods of cultivation. The labourer himself, from want of good example, of stimulus to exertion, and to emulation in the exercise of his productive powers, will only develop those powers inefficiently, and will indulge himself in loitering about and in idleness.

On the other hand, in the proximity of the town, the farmer is in a position to use every patch of land for those crops which
best suit the character of the soil. He will produce the greatest variety of things to the best advantage. Garden produce, poultry, eggs, milk, butter, fruit, and especially articles which the farmer residing at a distance considers insignificant and secondary things, will bring to the farmer near the town considerable profit. While the distant farmer has to depend mainly on the mere breeding of cattle, the other will make much better profits from fattening them, and will thereby be led to perfect his cultivation of root crops and fodder. He can utilise with much profit a number of things which are of little or no use to the distant farmer; e.g. stone, sand, water power, &c. The most numerous and best machines and implements as well as all means for his instruction, are close at hand. It will be easy for him to accumulate the capital necessary for the improvement of his farm. Landed proprietors and workmen, by the means of recreation which the town affords, the emulation which it excites among them, and the facility of making profits, will be incited to exert all their mental and bodily powers for the improvement of their condition. And precisely the same difference exists between a nation which unites agriculture and manufactures on its own territory, and a nation which can only exchange its own agricultural products for foreign manufactured goods.

The whole social state of a nation will be chiefly
determined by the principle of the variety and division of occupations and the cooperation of its productive powers. What the pin is in the pin manufactory, that the national well-being is to the large society which we term ‘the nation.’
The most important division of occupations in the nation is that between the mental and material ones. Both are mutually dependent on one another. The more the mental producers succeed in promoting morality, religion, enlightenment, increase of knowledge, extension of liberty and of perfection of political institutions—security of persons and property within the State, and the independence and power of the nation externally—so much greater will be the production of material wealth. On the other hand, the more goods that the material producers produce, the more will
mental production be capable of being promoted.

The most important division of occupations, and the most important co-operation of productive powers in material production, is that of agriculture and manufacture. Both depend mutually upon one another, as we have shown.

As in the pin manufactory, so also in the nation does the productiveness of every individual—of every separate branch of production—and finally of the whole nation depend on the exertions of all individuals standing in proper relation to one another.
We call this relation the
balance or the
harmony of the productive powers. It is possible for a nation to possess too many philosophers, and literati, and too few skilled artisans, merchants, and seamen. This is the consequence of highly advanced and learned culture which is not supported by a highly advanced manufacturing power and by an extensive internal and external trade; it is as if in a pin manufactory far more pin heads were manufactured than pin points. The surplus pin heads in such a nation are: a mass of useless books, subtle theoretical systems, and learned controversies, through which the mind of the nation is more obscured than cultivated, and is withdrawn from useful occupations; consequently its productive powers are retarded in their progress almost as much as if it possessed too many priests and too few instructors of youth, too many soldiers and too few politicians, too many administrators and too few judges and defenders of justice and right.

A nation which only carries on agriculture, is an individual who in his material production lacks one arm. Commerce is merely the medium of exchange between the agricultural and the manufacturing power, and between their separate branches. A nation which exchanges agricultural products for foreign manufactured goods is an individual with
one arm, which is supported by a foreign arm. This support may be useful to it, but not so useful as if it possessed two arms itself, and this because its activity is dependent on the caprice of the foreigner. In possession of a manufacturing power of its own, it can produce as much provisions and raw materials as the home manufacturers can consume; but if dependent upon foreign manufacturers, it can merely produce as much surplus as foreign nations do not care to produce for themselves, and which they are obliged to buy from another country.

As between the different districts of one and the same country, so does the division of labour and the co-operation of the productive powers operate between the various nations of the earth. The former is conducted by internal or national, the latter by international commerce. The international co-operation of productive powers is, however, a very imperfect one, inasmuch as it may be frequently interrupted by wars, political regulations, commercial crises, &c. Although it is the most important in one sense, inasmuch as by it the various nations of the earth are connected with one another, it is nevertheless the least important with regard to the prosperity of any separate nation which is already far advanced in civilisation. This is admitted by writers of the popular school, who declare that the home market of a nation is without comparison more important than its foreign
market. It follows from this, that it is the interest of every great nation to make the
national confederation of its productive powers the main object of its exertions, and to consider their
international confederation as second in importance to it.

Both
international and
national division of labour are chiefly determined by climate and by Nature herself. We cannot produce in every country tea as in China, spices as in Java, cotton as in Louisiana, or corn, wool, fruit, and manufactured goods as in the countries of the temperate zone. It would be folly for a nation to attempt to supply itself by means of national division of labour (i.e. by home production) with articles for the production of which it is not favoured by nature, and which it can procure better and cheaper by means of international division of labour (i.e. through foreign commerce). And just as much does it betoken a want of national intelligence or national industry if a nation does not employ all the natural powers which it possesses in order to satisfy its own internal wants, and then by means of the surplus of its own productions to purchase those necessary articles which nature has forbidden it to produce on its own territory.

The countries of the world most favoured by nature, with regard to both national and international division of labour, are evidently those whose soil brings forth the most common necessaries of life of the best quality and in the largest quantity, and whose climate is most conducive to bodily and mental exertion, and these are
the countries of the temperate zone; for in these countries the manufacturing power especially prospers, by means of which the nation not merely attains to the highest degree of mental and social development and of political power, but is also enabled to make the countries of tropical climates and of inferior civilisation tributary in a certain measure to itself. The countries of the temperate zone therefore are above all others called upon to bring their own national division of labour to the highest perfection, and to use the international division of labour for their enrichment.

74.

Wealth of Nations, Book I. chap. i.

75.