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 XIV

PRIVATE ECONOMY AND NATIONAL ECONOMY.

WE have proved historically that the unity of the nation forms the fundamental condition of lasting national prosperity; and we have shown that only where the interest of individuals has been subordinated to those of the nation, and where successive generations have striven for one and the same object, the nations have been brought to harmonious development of their productive powers, and how little private industry can prosper without the united efforts both of the individuals who are living at the time, and of successive generations directed to one common object. We have further tried to prove in the last chapter how the law of union of powers exhibits its beneficial operation in the individual manufactory, and how it acts with equal power on the industry of whole nations. In the present chapter we have now to demonstrate how the popular school has concealed its misunderstanding of the national interests and of the effects of national union of powers, by confounding the principles of private economy with those of national economy.

‘What is prudence in the conduct of every private family,’ says Adam Smith,
*76 ‘can scarce be folly in that of a great kingdom.’ Every individual in pursuing his own interests necessarily promotes thereby also the interests of the community. It is evident that every individual, inasmuch as he knows his own local circumstances best and pays most attention to his occupation, is far better able to judge than the statesman or legislator how his capital can most profitably be invested. He who would venture to give advice to the people how to invest their capital would not merely take upon himself a useless task, but would also assume to himself an authority which belongs solely to the producer, and which can be entrusted to those persons least of all who consider themselves equal to so difficult a task. Adam Smith concludes from this: ‘Restrictions on trade imposed on the behalf of the internal industry of a country, are mere folly; every nation, like
every individual, ought to buy articles where they can be procured the cheapest; in order to attain to the highest degree of national prosperity, we have simply to follow the maxim of letting things alone (laisser faire et laisser aller).’ Smith and Say compare a nation which seeks to promote its industry by protective duties, to a tailor who wants to make his own boots, and to a bootmaker who would impose a toll on those who enter his door, in order to promote his prosperity. As in all errors of the popular school, so also in this one does Thomas Cooper go to extremes in his book
*77 which is directed against the American system of protection. ‘Political economy,’ he alleges, ‘is almost synonymous with the private economy of all individuals;
politics are no essential ingredient of
political economy; it is folly to suppose that the community is something quite different from the individuals of whom it is composed. Every individual knows best how to invest his labour and his capital. The wealth of the community is nothing else than the aggregate of the wealth of all its individual members; and if every individual can provide best for himself, that nation must be the richest in which every individual is most left to himself.’ The adherents of the American system of protection had opposed themselves to this argument, which had formerly been adduced by importing merchants in favour of free trade; the American navigation laws had greatly increased the carrying trade, the foreign commerce, and fisheries of the United States; and for the mere protection of their mercantile marine millions had been annually expended on their fleet; according to his theory those laws and this expense also would be as reprehensible as protective duties. ‘In any case,’ exclaims Mr. Cooper, ‘no commerce by sea is worth a naval war; the merchants may be left to protect themselves.’

Thus the popular school, which had begun by ignoring the principles of nationality and national interests, finally comes to the point of altogether denying their existence, and of leaving individuals to defend them as they may solely by their own individual powers.

How? Is the wisdom of private economy, also wisdom in national economy? Is it in the nature of individuals to take into consideration the wants of future centuries, as those concern the nature of the nation and the State? Let us consider only the first beginning of an American town; every individual left to himself would care merely for his own wants, or at the most for those of his nearest successors, whereas all individuals united in one community provide for the convenience and the wants of the
most distant generations; they subject the present generation for this object to privations and sacrifices which no reasonable person could expect from individuals. Can the individual further take into consideration in promoting his private economy, the defence of the country, public security, and the thousand other objects which can only be attained by the aid of the whole community? Does not the State require individuals to limit their private liberty according to what these objects require? Does it not even require that they should sacrifice for these some part of their earnings, of their mental and bodily labour, nay, even their own life? We must first root out, as Cooper does, the very ideas of ‘State’ and ‘nation’ before this opinion can be entertained.

No; that may be wisdom in national economy which would be folly in private economy, and
vice versâ; and owing to the very simple reason, that a tailor is no nation and a nation no tailor, that one family is something very different from a community of millions of families, that one house is something very different from a large national territory. Nor does the individual merely by understanding his own interests best, and by striving to further them, if left to his own devices, always further the interests of the community. We ask those who occupy the benches of justice, whether they do not frequently have to send individuals to the tread-mill on account of their excess of inventive power, and of their all too great industry. Robbers, thieves, smugglers, and cheats know their own local and personal circumstances and conditions extremely well, and pay the most active attention to their business; but it by no means follows therefrom, that society is in the best condition where such individuals are least restrained in the exercise of their private industry.

In a thousand cases the power of the State is compelled to impose restrictions on private industry.
*78 It prevents the shipowner from taking on board slaves on the west coast of Africa, and taking them over to America. It imposes regulations as to the building of steamers and the rules of navigation at sea, in order that passengers and sailors may not be sacrificed to the avarice and caprice of the captains. In England certain rules have recently been enacted with regard to shipbuilding, because an infernal union between assurance companies and shipowners has been brought to light, whereby yearly thousands of human lives and millions in value were sacrificed to the avarice of a few persons. In North America millers are bound under a penalty to pack into each cask not less than 198 lbs. of good flour, and for
all market goods market inspectors are appointed, although in no other country is individual liberty more highly prized. Everywhere does the State consider it to be its duty to guard the public against danger and loss, as in the sale of necessaries of life, so also in the sale of medicines, &c.

But the cases which we have mentioned (the school will reply) concern unlawful damages to property and to the person, not the honourable exchange of useful objects, not the harmless and useful industry of private individuals; to impose restrictions on these latter the State has no right whatever. Of course not, so long as they remain harmless and useful; that which, however, is harmless and useful in itself, in general commerce with the world, can become dangerous and injurious in national internal commerce, and
vice versâ. In time of peace, and considered from a cosmopolitan point of view, privateering is an injurious profession; in time of war, Governments favour it. The deliberate killing of a human being is a crime in time of peace, in war it becomes a duty. Trading in gunpowder, lead, and arms in time of peace is allowed; but whoever provides the enemy with them in time of war, is punished as a traitor.

The allegation of the school, that the system of protection occasions unjust and anti-economical encroachments by the power of the State against the employment of the capital and industry of private individuals, appears in the least favourable light if we consider that it is the
foreign commercial regulations which allow such encroachments on
our private industry to take place, and that only by the aid of the system of protection are we enabled to counteract those injurious operations of the foreign commercial policy. If the English shut out our corn from their markets, what else are they doing than compelling our agriculturists to grow so much less corn than they would have sent out to England under systems of free importation? If they put such heavy duties on our wool, our wines, or our timber, that our export trade to England wholly or in great measure ceases, what else is thereby effected than that the power of the English nation restricts proportionately our branches of production? In these cases a direction is evidently given by
foreign legislation to
our capital and
our personal productive powers, which but for the regulations made by it they would scarcely have followed. It follows from this, that were we to disown giving, by means of
our own legislation, a direction to our own national industry in accordance with our own national interests, we could not prevent foreign nations from regulating our national industry after a fashion which corresponds with their own real or presumed advantage, and which in any case operates disadvantageously to the development of our own productive powers. But can it possibly be wiser on our part, and more to the advantage of those who nationally belong to us, for us to allow our private industry to be regulated by a foreign national Legislature, in accordance with foreign national interests, rather than regulate it by means of our own Legislature and in accordance with our own interests? Does the German or American agriculturist feel himself less restricted if he has to study every year the English Acts of Parliament, in order to ascertain whether that body deems it advantageous to encourage or to impose restrictions on his production of corn or wool, than if his own Legislature imposes certain restrictions on him in respect of foreign manufactured goods, but at the same time insures him a market for all his products, of which he can never again be deprived by foreign legislation?

If the school maintains that protective duties secure to the home manufacturers a monopoly to the disadvantage of the home consumers, in so doing it makes use of a weak argument. For
as every individual in the nation is free to share in the profits of the home market which is thus secured to native industry, this is in no respect a private monopoly, but a privilege, secured to all those who belong to our nation, as against those who nationally belong to foreign nations, and which is the more righteous and just inasmuch as those who nationally belong to foreign nations possess themselves the very same monopoly, and those who belong to us are merely thereby put on the same footing with them. It is neither a privilege to the exclusive advantage of the producers, nor to the exclusive disadvantage of the consumers; for if the producers at first obtain higher prices, they run great risks, and have to contend against those considerable losses and sacrifices which are always connected with all beginnings in manufacturing industry. But the consumers have ample security that these extraordinary profits shall not reach unreasonable limits, or become perpetual, by means of the competition at home which follows later on, and which, as a rule, always lowers prices further than the level at which they had steadily ranged under the free competition of the foreigner. If the agriculturists, who are the most important consumers to the manufacturers, must also pay higher prices, this disadvantage will be amply repaid to them by increased demands for agricultural products, and by increased prices obtained for the latter.

It is a further sophism, arrived at by confounding the theory of mere values with that of the powers of production, when the popular school infers from the doctrine, ‘
that the wealth of the nation is merely the aggregate of the wealth of all individuals in it, and that the private interest of every individual is better able than all State regulations to incite to production and accumulation of wealth,‘ the conclusion that the national industry would prosper best if only every individual were left undisturbed in the occupation of accumulating wealth. That doctrine can be conceded without the conclusion resulting from it at which the school desires thus to arrive; for the point in question is not (as we have shown in a previous chapter) that of immediately increasing by commercial restrictions the amount of
the values of exchange in the nation, but of increasing
the amount of its productive powers. But that the aggregate of the productive powers of the nation is not synonymous with the aggregate of the productive powers of all individuals, each considered separately—that the total amount of these powers depends chiefly on social and political conditions, but especially on the degree in which the nation has rendered effectual the division of labour and the confederation of the powers of production within itself—we believe we have sufficiently demonstrated in the preceding chapters.

This system everywhere takes into its consideration only individuals who are in free unrestrained intercourse among themselves, and who are contented if we leave everyone to pursue his own private interests according to his own private natural inclination. This is evidently not a system of national economy, but a system of the private economy of the human race, as that would constitute itself were there no interference on the part of any Government, were there no wars, no hostile foreign tariff restrictions. Nowhere do the advocates of that system care to point out by what means those nations which are now prosperous have raised themselves to that stage of power and prosperity which we see them maintain, and from what causes others have lost that degree of prosperity and power which they formerly maintained. We can only learn from it how in private industry, natural ability, labour and capital, are combined in order to bring into exchange valuable products, and in what manner these latter are distributed among the human race and consumed by it. But what means are to be adopted in order to bring the natural powers belonging to any individual nation into activity and value, to raise a poor and weak nation to prosperity and power, cannot be gathered from it, because the school totally ignoring politics, ignores the special conditions of the nation, and concerns itself merely about the prosperity of the whole human race. Wherever international commerce is in question, the native individual is throughout simply pitted against the foreign individual; examples from the private dealings of separate merchants are throughout the only ones adduced—goods are spoken of in general terms (without considering whether the question is one of raw products or of manufactured articles)—in order to prove that it is equally for the benefit of the nation whether its exports and imports consist of money, of raw materials, or of manufactured goods, and whether or not they balance one another. If we, for example, terrified at the commercial crises which prevail in the United States of North America like native epidemics, consult this theory as to the means of averting or diminishing them, it leaves us utterly without comfort or instruction; nay, it is indeed impossible for us to investigate these phenomena scientifically, because, under the penalty of being taken for muddleheads and ignoramuses, we must not even utter the term ‘
balance of trade,‘ while this term is, notwithstanding, made use of in all legislative assemblies, in all bureaux of administration, on every exchange. For the sake of the welfare of humanity, the belief is inculcated on us that exports always balance themselves spontaneously by imports; notwithstanding that we read in public accounts how the Bank of England comes to the assistance of the nature of things;
notwithstanding that corn laws exist, which make it somewhat difficult for the agriculturist of those countries which deal with England to pay with his own produce for the manufactured goods which he consumes.

The school recognises no distinction between nations which have attained a higher degree of economical development, and those which occupy a lower stage. Everywhere it seeks to exclude the action of the power of the State; everywhere, according to it, will the individual be so much better able to produce, the less the power of the State concerns itself for him. In fact, according to this doctrine savage nations ought to be the most productive and wealthy of the earth, for nowhere is the individual left more to himself than in the savage state, nowhere is the action of the power of the State less perceptible.

Statistics and history, however, teach, on the contrary, that the necessity for the intervention of legislative power and administration is everywhere more apparent, the further the economy of the nation is developed. As individual liberty is in general a good thing so long only as it does not run counter to the interests of society, so is it reasonable to hold that private industry can only lay claim to unrestricted action so long as the latter consists with the well-being of the nation. But whenever the enterprise and activity of individuals does not suffice for this purpose, or in any case where these might become injurious to the nation, there does private industry rightly require support from the whole power of the nation, there ought it for the sake of its own interests to submit to legal restrictions.

If the school represents the free competition of all producers as the most effectual means for promoting the prosperity of the human race, it is quite right from the point of view which it assumes. On the hypothesis of a universal union, every restriction on the honest exchange of goods between various countries seems unreasonable and injurious. But so long as other nations subordinate the interests of the human race as a whole to their national interests, it is folly to speak of free competition among the individuals of various nations. The arguments of the school in favour of free competition are thus only applicable to the exchange between those who belong to one and the same nation. Every great nation, therefore, must endeavour to form an aggregate within itself, which will enter into commercial intercourse with other similar aggregates so far only as that intercourse is suitable to the interests of its own special community. These interests of the community are, however, infinitely different from the private interests of all the separate individuals of the nation, if each individual is to be regarded as existing for himself alone
and not in the character of a member of the national community, if we regard (as Smith and Say do) individuals as mere producers and consumers, not citizens of states or members of nations; for as such, mere individuals do not concern themselves for the prosperity of future generations—they deem it foolish (as Mr. Cooper really demonstrates to us) to make certain and present sacrifices in order to endeavour to obtain a benefit which is as yet uncertain and lying in the vast field of the future (if even it possess any value at all); they care but little for the continuance of the nation—they would expose the ships of their merchants to become the prey of every bold pirate—they trouble themselves but little about the power, the honour, or the glory of the nation, at the most they can persuade themselves to make some material sacrifices for the education of their children, and to give them the opportunity of learning a trade, provided always that after the lapse of a few years the learners are placed in a position to earn their own bread.

Indeed, according to the prevailing theory, so analogous is national economy to private economy that J. B. Say, where (exceptionally) he allows that internal industry may be protected by the State, makes it a condition of so doing, that every probability must exist that after the lapse of a
few years it will attain independence, just as a shoemaker’s apprentice is allowed only a few years’ time in order to perfect himself so far in his trade as to do without parental assistance.

76.

Wealth of Nations, Book IV. chap. ii.

77.

Lectures on Political Economy, by Thomas Cooper, pp. 1, 15, 19, 117.

78.

See Appendix B.

Chapter XV