1
SOME PIONEERS IN LISTâS GERMAN-US-FRENCH CONTEXT
This book encourages readers to see the history of neomercantilist thought in a less List-centric way. It might seem odd, then, that the book begins with a section of four chapters focused on what I have called the Listian intellectual world. As I note in the introductory chapter, however, Listâs ideas are important to any history of the emergence of neomercantilist thought. Readers need an understanding of them and this section serves that purpose. But it also begins to develop my case for a wider history in two ways. First, it highlights how some thinkers inspired by List went beyond his ideas in ways that made important contributions to neomercantilist thought. Second, it shows how List himself built on the ideas of a number of earlier neomercantilists.
This chapter examines the ideas of these earlier neomercantilists, while largely leaving the question of how Listâs work was influenced by them until the next chapter.1 These thinkers came from three places in which List lived for extended periods of time: the German-speaking world (where he was born in 1789 and lived until 1822 as well as during 1831â37 and 1840â46), the United States (where he resided during 1825â30), and France (where he lived briefly in the early 1820s, 1830â31, and 1837â40).2 Their ideas provide the first examples in this book of important contributions to neomercantilist thought beyond List. They also offer some initial evidence that there were many varieties of this ideology beyond Listâs version, that the international circulation of neomercantilist thought involved more than Listâs ideas, and that neomercantilist thought built on wider mercantilist traditions than those cited by List.
Hamiltonâs Tentative Neomercantilism
Of the thinkers discussed in this chapter, the best known among modern IPE scholars is US politician Alexander Hamilton. Indeed, some IPE textbooks identify Hamiltonâs 1791 Report on Manufactures as a pioneering neomercantilist work alongside Listâs 1841 book.3 In one sense, this reputation is deserved, because Hamilton was the first prominent thinker to challenge Adam Smithâs ideas on trade policy from a sophisticated neomercantilist perspective. At the same time, it is important to recognize that Hamiltonâs endorsement of strategic protectionism was much more lukewarm than that of List and many other early neomercantilists.
Hamilton came to the topic of trade policy with considerable commercial experience. Born on the Caribbean island of St. Croix, he began working for a trading company in the Caribbean region as a young teenager. In 1772, he moved to the United States to pursue education before joining the revolutionary war three years later. After rising quickly to become an aide-de-camp to George Washington, he then went on to become one of the countryâs founding fathers, author of a majority of the Federalist Papers, and first treasury secretary of the United States. It was in this latter capacity that he wrote his 1791 report.
Although the report was a policy document responding to a Congressional request, it contained detailed theoretical engagement with Smithâs The Wealth of Nations, which had quickly become widely known in the United States after its publication. Hamilton was particularly interested in the Scottish thinkerâs advice that an independent United States should continue to focus its economy on agriculture and resist protective measures designed to build up local manufacturing. Although acknowledging Smithâs logic, Hamilton argued that it still made sense for the government to take an active role in promoting manufacturing âin certain cases, and under certain reasonable limitations.â4
The reasons outlined by Hamilton anticipated many of the arguments that List and other later neomercantilists would make. To begin with, Hamilton argued that local manufacturing was needed to bolster the âindependence and securityâ of the new country. As he put it, âEvery nation, with a view to those great objects, ought to endeavour to possess within itself all the essentials of national supply. These comprise the means of Subsistence, habitation, clothing, and defence.â Hamilton highlighted how the experience of his countryâs revolutionary war had brought this point home; the âextreme embarrassments of the United States during the late War, from an incapacity of supplying themselves, are still matter of keen recollection.â5 Indeed, Hamiltonâs views on this subject were widely shared, including by his mentor Washington, who had argued in his first state of the union address to Congress in 1790 that a âfree people . . . should promote such manufacturies as tend to render them independent of others, for essential, particularly military, supplies.â6
Hamiltonâs emphasis on the need to protect US sovereignty reflected his concern about the conflictual nature of international relations as well as his skepticism of liberal arguments that the expansion of international commerce would lead to a more peaceful world. In other writing a few years earlier he argued, âMen are ambitious, vindictive, and rapacious,â and asked, âHas commerce hitherto done anything more than change the objects of war?â7 Although Hamilton considered political economy questions from a nationalist perspective rather than a broader cosmopolitan one, his 1791 report did not discuss the relevance of nationality to his economic thought in the detailed way that List would later do.8
In addition to arguments about bolstering his countryâs sovereignty, Hamilton outlined many economic reasons for the active government promotion of manufacturing. Some of these related to economic benefits arising from reduced reliance on foreign markets. For example, Hamilton noted that the growth of domestic manufacturing would provide farmers with new local markets, including ones that allowed them to diversify beyond a focus on export crops. He also suggested that demand from these local markets would be steadier for farmers than foreign demand, which was often adversely affected by conditions of foreign harvests or obstacles to international trade. The countryâs wealth as a whole would also be boosted by lower transportation costs, as more agricultural products were sold locally and more manufactured goods were purchased from domestic suppliers.
Hamilton highlighted other economic benefits that would stem from a more diversified domestic economy. The greater domestic division of labor would allow an increase in âproductive powers of labour, and with them, the total mass of the produce or revenue of a Country.â Hamilton also noted that manufacturing would boost âthe total mass of useful and productive labourâ in the country by providing new employment opportunities for various groups, including farmers who were not fully occupied all the time and those âwho would otherwise be idle (and in many cases a burden on the community) either from the bias of temper, habit, infirmity of body, or some other cause, indisposing or disqualifying them for the toils of the Country.â In the latter category, he added, âit is worthy of particular remark, that, in general, women and Children are rendered more useful, and the latter more early useful by manufacturing establishments, than they would otherwise be.â Hamilton argued that the greater diversity of employment opportunities would furnish âgreater scope for the diversity of talents and dispositions which discriminate men from each other.â A more diverse economy would also expand âthe spirit of enterprise,â enable domestic businesses to increase exports, attract more foreign customers to local markets, and cope better with sudden drops in demand in specific sectors.9
Hamilton also pointed to some inherent economic benefits of manufacturing production. Citing the invention of the cotton mill in England two decades earlier, he noted âthe advantages accruing from the employment of Machineryâ in manufacturing in terms of boosting productivity. Hamilton argued that âmanufactures open a wider field to exertions of ingenuity than agricultureâ and that labor in this sector was more âconstant and regular, extending through the year, embracing in some instances night as well as day.â More generally, he suggested that countries reliant on just agricultural exports were subject to disadvantageous terms of trade vis-Ă -vis manufacturing countries because of the greater âunsteadinessâ of foreign demand for their exports.10
If these various benefits would stem from the growth of manufacturing, why did Hamilton think its cultivation required active government measures? One reason was that locals might be discouraged from setting up manufacturing on their own by âthe strong influence of habit and the spirit of imitationâ or âthe fear of want of success in untried enterprises.â A second reason concerned the âintrinsic difficultiesâ experienced by a new venture that competed with established businesses. Finally, Hamilton noted that foreign governments were supporting their own industries with âbounties premiums, and other aidsâ in ways that undermined the ability of new US manufacturers to succeed.11
To support the growth of manufacturers, Hamilton highlighted the role that moderate tariffs and targeted bans on imports could play. Although a tariff would raise prices in the short term, he argued that it would lower prices over the longer term, as transportation costs were reduced and local competition increased. Hamilton also noted that trade barriers might encourage a European manufacturer to consider âtransfer of himself and his Capital to the United States,â especially if there was the prospect of a growing domestic market to serve. In contrast to some later neomercantilists, Hamilton welcomed this kind of foreign investment: âInstead of being viewed as a rival, it [foreign capital] ought to be Considered as a most valuable auxiliary; conducing to put in Motion a greater Quantity of productive labor, and a greater portion of useful enterprise than could exist without it.â12
At the same time, however, Hamilton thought that there should be sufficient domestic capital to fund local manufacturing, particularly if the financial reforms he proposed to Congress were implemented fully. These reforms included the creation in 1791 of the Bank of the United States, which was to assume central banking functions and act as a commercial bank that could lend to businesses. In justifying this institution, Hamilton highlighted the significance of bank credit to his broad economic goals: âBy contributing to enlarge the mass of industrious and commercial enterprise, banks become nurseries of national wealth.â13
His financial reforms also consolidated various official debts accumulated during the revolutionary war into a system of long-term public debt. Hamilton was familiar with the post-1688 English financial revolution, which had encouraged the emergence of that countryâs system of funded long-term public debt and the growth of new credit instruments and active secondary markets. Hamilton hoped that his reforms would have the same effect, boosting his countryâs wealth and power, including the power to fight wars and to protect itself in a hostile international environment. As he put it, public credit was key to âthe strength and security of nations.â14 These various activist financial reforms, in other words, reinforced the core neomercantilist goals of his proposals for promoting domestic manufacturing.
Although Hamilton is known as a critic of free trade, his support of trade protectionism was quite tentative. Protectionist policies should only be used, he argued, if there was enough domestic competition to prevent a monopoly. Hamilton also highlighted the benefits of using temporary government subsidies as an alternative way to encourage manufacturing. This policy would not only avoid causing higher short-term import prices (as well as scarcity and smuggling) but also boost exports in ways that tariffs would not (although Hamilton did not see exports as a leading source of economic growth). More generally, Hamilton noted that...