The Natural System of Political Economy

Friedrich List, W. O. Henderson, W. O. Henderson

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781315442228
• Edition: 1
• Topic: Economia
• Subtopic: Storia economica

The importance of this book, translated for the first time in 1983, lies not so much in List's advocacy of the fiscal policy of protection as in the relatively new doctrines that he put forward. He discussed stages of economic growth, 'productive powers' and the industrialisation of developing regions. List's most fundamental teachings are fully developed in this book.

CHAPTER ONE
Cosmopolitan Economics*

MAN HAS TO WREST from nature what he requires to satisfy his needs. The more intelligence, integrity and capacity for hard work that he possesses, the better equipped will he be to achieve his ends. He can, however, achieve little on his own since both his powers and the area in which he can operate are very limited. He needs the support of his own kind to supplement his modest powers and the restricted resources at his disposal. The greater the number of his associates – and the greater their intelligence, integrity, and capacity for hard work – the easier will it be for him to achieve his aim.

By means of the reciprocal exchange of goods and services, each individual can concentrate his efforts on the occupation for which he is best fitted by his physical and intellectual qualities, by his education, by his experience, and by the natural resources at his disposal. In this way the output of each individual reaches the maximum that his abilities permit and the surplus goods that he makes can be exchanged for the greatest quantity of goods produced by others. This is called the division of labour.

The greater the growth of the productive powers of society, the greater the area in which they can operate, and the greater the number of producers, the greater is the number and variety of the goods that can be made and which are available to each individual. As the economy expands, so each individual can produce more goods which he can exchange for foreign goods. In this way he can become progressively richer. But the first and the main condition for the production of wealth is the existence of complete freedom for the individual to produce goods and to exchange them.

If the inhabitants of a town, a group of towns, or a number of provinces are able to exchange goods freely among themselves, their standard of living will improve in a way that would not be possible if the movement of goods were restricted by imposts or prohibitions. Similarly the wealth of the various nations in the world would reach a maximum if universal freedom of trade were established.

In certain circumstances there may be a failure to balance the various goods produced by various individuals. This may occur because of the freedom of the individual to engage in whatever economic activity he pleases, to produce as many goods as he sees fit, and to make what he regards as the most profitable bargain when he exchanges the goods that he has made. The individual does not know if too many or too few competitors have decided to produce the same goods as himself, and he cannot judge if the demand for his goods is rising or falling. The best way of restoring the balance between supply and demand which has been disturbed in this way, is to establish the greatest possible freedom of trade between all the countries in the world.

If agricultural and manufacturing products can be freely exchanged they will be made in those places designed by nature for their production. The state of farming, the availability of scientific and technical knowledge and the social and political condition of the inhabitants are all factors which will stimulate economic growth. The fullest development of manufacturing industry, however, will take place only when various branches of industry are so intimately linked that one process can follow another as closely as possible. The principle of co-operation is as indispensable to steady regular industrial growth as the principle of the division of labour.

Experience teaches us that a high degree of civilisation, and the labours of successive generations, are necessary to bring the industrial capacity of a country to a high degree of perfection. To achieve this object a regular – though perhaps a slow – rate of growth both of output and of sales must have first priority. Any step backwards must be avoided at all costs.

Particular countries may achieve an overwhelming industrial ascendancy owing to the special aptitudes of the inhabitants, the introduction of improvements in the manufacturing processes, or to natural advantages. In brief the advantages bestowed by nature or by history may enable a country to become – and to remain – a great industrial power. Such a country will be able to supply the world with the best goods at the lowest prices. And in this way the manufacturing power of the whole world will quickly reach hitherto unimagined heights to the advantage of all humanity.

At the same time the economic progress of the agrarian countries will expand in the most natural and sensible manner. Their prosperity will grow as they sell their raw materials and agricultural products to industrial countries while they can buy the manufactured products, the tools, and the most efficient machines that they require. Their increased wealth and their contacts with industrial countries will enable them to improve their political and social institutions. The time will come when these agrarian states will themselves become manufacturing countries. Moreover the surplus capital and workers in the industrial states will inevitably move to agrarian countries when they are ripe for industrial development.

As each country prospers and becomes more civilised it acquires an aptitude for the manufacturing arts and in due course it will become an industrial state.

For this prosperity to be procured by every nation and by the whole human race it is necessary to have universal peace. Conflicts between nations – whether settled by force of arms or by other means – must be replaced by an alliance of all peoples governed by laws of universal application. A world republic, as envisaged by J. B. Say, is necessary to secure the fulfilment of the dreams of the free traders.

NOTE

* [Or Individual and Social Economics]

CHAPTER TWO
National Economics*

IN THE PREVIOUS chapter we summarised the main features of the most widely accepted economic doctrine of our time. This doctrine is clearly concerned only with individuals and with a universal republic embracing all members of the human race. But this doctrine omits a vital intermediate stage between the individual and the whole world. This is the nation, to which its members are united by the tie of patriotism.

At present the world is divided into a number of different states, each with its particular national characteristics. Each individual – be he a manufacturer, farmer, merchant, professional man, or pensioner – is a member of the country in which he lives. The state protects him and helps him to achieve the aims that he pursues as an individual.

Individuals owe to a nation their culture, their language, their opportunity to work, and the safety of their property. Above all they depend upon the state in their relations with people in other countries. They share in the nation’s glory and in its misfortunes; they share in its memories of the past and its hopes for the future; they share its wealth and its poverty. From the nation they draw all the benefits of civilisation, enlightenment, progress, and social and political institutions, as well as advances in the arts and sciences. If a nation declines, the individual shares in the disastrous consequences of its fall.

So it is right and proper that the individual should be prepared to sacrifice his own interests for the benefit of the nation to which he belongs.

As yet no universal republic exists. What is called “international law” is, for the time being, only the embryo of a future world state. Common sense and – as we saw in our first chapter – mutual interests should induce nations to abate their natural envy and their distrust of each other. Common sense tells us that war between nations is as stupid and savage as duels between individuals. Mutual interests would suggest the establishment of perpetual peace as well as free trade between nations which would bring the greatest prosperity to us all. Nevertheless it is not yet safe for the lamb to lie down with with lion.

So far there are only a few people, even in the most enlightened countries, who have grasped the fact that perpetual peace and universal free trade are both desirable and necessary. Nations have not yet attained a state of political and social development which would make such a reform possible. Moreover the civilised and enlightened countries in the world cannot be expected to disarm and to renounce warfare so long as there are in existence powers which reject the ideas of peaceful prosperity for the whole human race and are bent upon conquering and enslaving other nations.

Just as the discovery of gunpowder enabled states to establish law and order in their towns and in isolated regions so it now seems that only some new (and so far unknown) invention will persuade people of the possibility – indeed the necessity – of establishing a system of laws which will enable them to live together in peace throughout the world.

At present a nation may be regarded from two distinct points of view with regard to its relations with other countries:

(i) First, a nation is a sovereign political body. Its destiny is to safeguard and to maintain its independence by its own efforts. Its duty is to preserve and to develop its prosperity, culture, nationality, language, and freedom – in short, its entire social and political position in the world.

(ii) Secondly, a nation is a branch of human society. It is the duty of a nation – as far as its own special interests permit – to join with other countries in the task of promoting the welfare and prosperity of the whole world.

Regarded from the first point of view a nation should adopt an independent “national economy”. Regarded from the second point of view it should adopt a “cosmopolitan economy”. An analogy between the “national” and the “cosmopolitan” economics would be the two kinds of legal system which exist in the world. There are “national” systems of law which are in force in particular countries and there is a “cosmopolitan” – or international – system of law which is in force all over the world.

Cosmopolitan economics – or universal free trade between all the countries in the world – is only in the very earliest stage of development. Nations can only move slowly, step by step, towards the attainment of world free trade. They can do so only insofar as it is advantageous and not disadvantageous for them to adopt such a policy.

A nation which dismantled its fortresses and demobilised its armed forces would not enjoy the benefits of eternal peace, despite the fact that our religion teaches us to love and to help one another. Similarly a nation which abolished its import duties while other countries retained their tariffs, would not enjoy the benefits of world free trade.

The doctrine of national economics teaches us that a country which hopes to attain the highest degree of independence, culture and material prosperity, should adopt every measure within its power to defend its economic security from any foreign attack, whether such an attack takes the form of hostile legislation or military action. To enable a country to protect itself it is essential that it should establish industries and foster their development – insofar as this is possible with available physical and human resources.

The foundations upon which national independence can be built are quite inadequate without the development of industries. A country of farmers and peasants can never maintain the military power – or the human and physical means to defend itself – that can be maintained by an industrialised country. The position of an agrarian country is worsened by the fact that just when it needs to defend itself it may be unable to find markets for its agricultural products and it may thus be deprived of the capital with which to create new industries. Moreover those of its merchants who live abroad – men who are half foreigners already – will in wartime never be such sound patriots as manufacturers and farmers whose entire livelihood depends upon the maintenance of their country’s independence.

In time of war every country is forced to establish factories to make those goods which were formerly imported from abroad in exchange for products made at home. The result is the same as that achieved by a prohibitive fiscal policy in peace time. The nation is forced to demand great sacrifices from consumers in order to create new industries. And this happens just when the means available for the establishment of manufactures have been reduced to a minimum. If free trade is introduced when hostilities cease the newly established industries will be thrown to the tender mercies of foreign competitors. In these circumstances a country will lose all the capital, all the experience, and all the work of the war years and will return to its former position of weakness and dependence upon foreigners.

In the event of war or of the threat of war it is essential for a Great Power to establish industries. And in peacetime a government should foster the establishment of new branches of manufacture to safeguard the prosperity and the culture of the nation.

We saw in the previous chapter how the division of labour and the co-operation of productive powers follows automatically from the adoption of the policy of free trade. But if the natural growth of the economy is hindered by the hostile political actions of other states it would be foolish to expect that the same growth will take place that would have occurred if universal free trade existed. In such circumstances a nation can expect the industrial sector of the economy to grow only if defensive measures are taken through political action. If a country stimulates the establishment and the expansion of manufactures by adopting a suitable tariff it will promote the continued extension of the division of labour and a proper balance between agriculture and industry. Co-operation between industry and agriculture will stimulate the continued growth of the economy and will protect the country from any possibility of a slump.

From this point of view the imposition of a protective tariff in no way hampers the natural growth of the economy. The object of a tariff is to frustrate any hostile action by foreigners to harm a country’s economy by political action or by acts of war. While achieving its immediate object a protective tariff will also foster the natural and normal expansion of home industries. A protective tariff establishes free trade within the frontiers of a single state, as an alternative to the establishment of universal free trade. In the world in which we live it is impossible to introduce universal free trade just now because the various nations into which it is divided are intent upon pursuing their own selfish economic interests.

In these circumstances one would fail to appreciate the nature of the relations between a state and the individuals who compose it if one were to argue that a national commercial policy designed to control trade with foreign countries could in any way prejudice the rights and interests of the individuals who form the nation. We have already observed that the fortunes or misfortunes of individuals are dependent upon the maintenance of the independence and progress of the whole nation. We have seen that each country can secure economic growth by means of a specially designed tariff. It is obvious therefore that individuals in a country must accept the restrictions imposed for the welfare of the nation as a whole. It is equally obvious that the freedom of the individual must be restricted to secure the freedom of all the individuals who make up a nation. In doing this a state acts in the same way as it does when it demands part of an individual’s wealth to pay for the administration of the country or when it calls upon its citizens to serve in the armed forces, at risk of life and limb, to defend its independence.

NOTE

* [Or Political Economy]

CHAPTER THREE
Theory of Productive Powers

IN ORDER TO establish which economic principles should be used as guide lines for a national commercial system and for a tariff it is necessary to examine the economy of individuals. Two factors are involved. The first is the skill or the physical labour which enable something to be produced. The second is an object that has been produced which can be exchanged for something else and therefore has a value. Two different economic doctrines – cosmopolitan and national economics – are both based upon a recognition of the existence of these factors. The doctrines are derived from different principles but they have numerous points in common.¹

A few examples may be given to illustrate the difference between the two doctrines. A father who spends his saving to give his children a good education sacrifices “value” but substantially increases the productive powers of the next generation. But a father who invests his savings and neglects to educate his children increases the “exchange value” at his disposal by spending the interest on his...