Revisiting Friedrich List’s National System of Political Economy
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This paper traces a historical origin of the idea that the state (government) can and should implement a series of industrial policies to nurture domestic infant industries, in order to show how this economic theory sheds new light on contemporary debates regarding the proper relation between the state and market. Many scholars on the East Asian development experience have correctly focused on developmental states’ industrial and trade policies for promoting outward, export-led growth. However, least attention was paid to (the historical origin of) the economic theory that justifies this highly unorthodox policy measures by the state. The author claims that the original idea in the history of economic thought is best exemplified by the early 19th century German political economist Friedrich List, and examines how his infant industry protection policy proposals have been widely used by almost all advanced economies. This historical investigation of economic thought and the survey of actual capitalist economic development process shows that the East Asian development experience is not unique to this region and virtually almost all advanced economies had relied on a certain forms of policy of protection that List once emphasized. In addition, the same policy measures for protecting particular domestic industries are frequently used by the government in advanced capitalist economies even nowadays.
This paper starts from the assumption that “many prominent scholars on the East Asian development experience have correctly emphasized the important role of the interventionist state’s export promotion and preferential industrial policies for domestic infant industries. … However, less attention was paid to a historical origin of economic theories that guided such an activist state intervention.” Starting from this assumption, the paper sets itself the goal of analyzing the source of the developmental state theory, i.e. the work of Friedrich List, and, in the light of this genealogy, it aims at providing new insights into the analysis of the East Asian development experience.
In my view, however, the underlying premise of this paper does not stand to scrutiny. The main developmental state scholars, in fact, explicitly identify Friedrich List as one of their main forefathers. List’s National System of Political Economy (1841) is treated in Development Studies and in International Political Economy as a seminal text in development theory. There is therefore an abundant literature that examines Friedrich List’s work as the main source of the developmental state theory.
See, for example:
Chang, H.-J. 2002. Kicking Away the Ladder: Economic Strategy in Historical Perspective. London: Anthem.
Levi-Faur, D. 1997. Economic nationalism: From Friedrich List to Robert Reich. Review of International Studies, 23(3): 359–70.
Shafaeddin, M. 2005. Friederich List and the infant industry argument. In K.S. Jomo, ed. The Pioneers of Development Economics: Great Economists on Development. London and New York: Zed Books, pp. 42–61.
Since the author does not mention any of these (and many other) works, it is not clear how this article seeks to contribute to the literature on Friedrich List and the developmental state. This literature has already highlighted the limits of Ricardo’s theory of comparative advantage, and explained the differences between the classical economists’ “cosmopolitanism” and the “national” political economy of Friedrich List. There is also plenty of scholarly work on List’s “infant industry” argument and its contemporary relevance.
In his 2009 article on List (A historical materialist appraisal of Friedrich List and his modern day followers. New Political Economy), moreover, Ben Selwyn used Marx’s draft article on List to develop a critique of contemporary neo-Listian political economists such as Robert Wade, Ha-Joon Chang, Linda Weiss, Alice Amsden, and Jomo Kwame Sundaram. I have developed a similar argument in my 2014 article on List (New developmentalism and the origins of methodological nationalism. Competition and Change, 2014), in which I advance however a different interpretation of Marx’s critique of List, especially with regard to the theory of productive powers.
In his 2012 article “Friedrich List’s Adam Smith historiography and the contested origins of development theory” (Third World Quarterly), Matthew Watson has shown that the interpretation of classical political economy that is presupposed in the developmental state literature (and in this article as well) is very problematic, and very much follows Friedrich List’s own interpretation of the classics.
Even though some of the criticisms developed in this article have some potentially interesting insights, I think that the author would highly benefit from a deeper engagement with the existing literature. The article would also benefit from a clearer structure and a clearer set of goals: in the second part of the article, in fact, the author discusses a multiplicity of topics (East Asian developmental experience, post-2008 US economic policy etc.) without sufficiently deepening the analysis of any of these topics.
“About Hee-Young Shin’s ‘Revisiting Friedrich List’s National System of Political Economy.’
In this short essay Shin reminds economists that there was an alternative to classical/neoclassical thought, which is based on a market system mapped isomorphically onto mathematically modeled Newtonian mechanics, which transformed economics into a “science.”
List (died 1846), a spokesman for that alternative, based economics on the nation not the market, meaning that he posited a system of National Economic analysis in opposition to the analysis of Adam Smith and the Classical Economists, that List called cosmopolitical economics. In List’s view, cosmopolitical economics was itself a system of National Economics in the sense that it did not amount to an economic analysis composed of neutral analytical categories, but of one that, if followed, held backward economies in thralldom economically to the dominant London emporium. List’s National System of Political Economy preached the active intervention of governments in order to overcome the burden of backwardness through tariffs and fiscal protectionist policies that promoted the productive forces of a nation.
Shin’s recognition of the Listian alternative to cosmopolitical economic analysis echoes the recent work of David Levi-Faur and Arno Mong Daastøl. Like them he stresses that nations, where economists currently tout the virtues of free-trade, did not, when they struggled to overcomes the burden of backwardness, follow the principles of cosmopolitical economics but those of Listian protectionism, e.g., the United States and Germany.
If Shin is right to recall the Listian tradition, I do not think he sufficiently appreciates just how profoundly List in his concepts and methods differed from those of the cosmopolitical economists. List used historical arguments, because he realized when dealing with nations, that their historical development was important. But he also employed sociological arguments, like networking, when explaining the development of productive forces. Most important, List realized just how inadequate the materialistic assumptions that underpin cosmopolitical economics are to any explanation of the development of a nation’s productive forces. He stressed the significance of mental capital as a factor promoting the expansion of these productive forces; cosmopolitical economists ignored it in their theoretical analysis for a hundred years; when they got around to recognizing a mental capital factor in the 1960s, their analysis was superficial, individually based, and not of much use to those interested in explaining how a nation’s productive forces are fostered.
List wrote during what historians called the First Industrial Revolution (1750-1850). The factors that fostered or hindered the development of productive forces had to be specific to the time. The advantages that England possessed that List noted were in its free political institutions and the spirit of capitalism imbued in Protestantism, the disadvantages that weighed down the backward countries were political absolutism and Catholicism, as well as the idiocy of rural life compared to the progressive networking of urbanization that develops the mental capital of a nation.
When the factors necessary to promote productive forces changed in subsequent “industrial revolutions,” the specificity of what List wrote no longer pertained. But his analytical methods certainly do. His emphasis on the importance of mental capital is just as valid as an analytical category during the Second Industrial Revolution as during the First, only the state of English higher education compared to German, which did not matter in the First Industrial Revolution, became a retrograde factor when science-induced industries became integral to the development of productive forces. On the other hand, the development of the MBA in US business schools has, in the era of financialization, proven to be detrimental to the mental capital requirements needed to foster American productive forces in our times. The lexicon of neoclassical economics provides little explanatory power when dealing with these phenomena, the Listian analytical dynamic does.
The paper titled “Revisiting Friedrich List’s National System of Political Economy” aims to identify and explain the theoretical foundations of the economic policies that led to the rapid industrialisation of South Korea and Taiwan after 1945. According to the author, economic planners in those countries were guided by the economic doctrines of German journalist Friedrich List, who wrote in favour of granting protection to infant industries in Germany and the United States during the first half of the nineteenth century.
The author further claims that the protection granted in form of tariffs and export subsidies enabled the infant industries in South Korea and Taiwan to acquire advanced production technologies and organisational skills necessary for competing with foreign companies in the world market.
The paper is divided into three main sections, preceded by an introduction and succeeded by the conclusions. Section two (the first of the main sections) contains a critique of David Ricardo’s comparative advantage. Section three analyses List’s economic theory, with particular focus on what he called “the national system of political economy” and the protection of infant industries. The fourth section is dedicated to refute some opinions about the development process in East Asia, with the declared purpose of demonstrating the continued relevancy of List’s policy prescriptions.
Although I am familiar with the topic of this paper, I have to confess that it was a difficult read. Unfortunately, the paper lacks a clear structure and is not well written. In more than a few paragraphs it is quite hard to grasp what the author is trying to say.
The most important shortcoming of the paper is that it does not engage with the relevant literature on the subject. This has wide-ranging consequences. It leads, for example, to the false premise that List has been a neglected author, when in reality he has been a recurrent reference for those who believe that developing countries should protect their infant industries. Ha-Joon Chang, a South Korean economist and one of the most prominent contemporary promoters of List’s thinking and method, even published a book (Chang, 2002) titled “Kicking away the ladder”, after the well-known passage of List’s book.
Moreover, the author takes the accuracy of List’s critique towards classical political economists like Smith and Say for granted, without taking into consideration that List’s blunt misinterpretation of the classics has been already denounced by Marx and more recently by Matthew Watson (2012), among others.
In fact, the author emulates List in this respect. The former’s harsh treatment of Ricardo in section two of the paper is quite similar to the latter’s extravagant and peculiar caricature of Smith in the National System. As I will explain later on, the author misinterprets the content and role of Ricardo’s example within the classical case for free trade, and fails to understand the important relationship between comparative advantage and the proposition regarding the non-appliance of his labour theory of value to international exchanges.
In sharp contrast with his harsh criticism towards Ricardo, the author praises List for his novel and crucial contributions to the history of economic thought (see, for example, the abstract and page 19). This assertion, however, is even contradicted by some of the sources in the short literature list of the paper. Chang (2003, p. 5), for example, refutes the notion that List was the father of the infant industry argument, while Marx (1975) claims that there was not a single novel idea in List’s book.
The author portrays the contemporary debate about the proper role of the government in the economic development process as if it were exclusively between free market radicals and enlighten List-supporters (p. 18). The actual debate is much more nuanced, as can be appreciate in the discussion between Justin Lin and Ha-Joon Chang (2009).
In resume, I could not find in the paper any novel contribution to the debate regarding the contemporary relevance of List’s economic thinking in general, and his alleged influence on the East Asian development experience in particular. It might have been an interesting contribution to the debate if the author would have proven that the economic planners in South Korea and Taiwan were indeed influenced by List’s economic doctrines. Unfortunately, he doesn’t offer any evidence in this respect.
Contrary to the author’s own announcement (see page 3), section two does not offer an analysis of the European socioeconomic context during the early 19th century. It rather contains a critique of what has been called Ricardo’s theory of comparative advantage. Oddly enough, the section ends with four paragraphs about Friedrich List, which would be better suited in the next section.
The author claims that David Ricardo’s comparative advantage was considered the universal doctrine of foreign trade and economic growth since the early 19th century (page 3). This is incorrect. All the evidence suggests that the promotion of Ricardo’s insight to this paramount role occurred much later. As a matter of fact, Ricardo, Torrens and James Mill hardly ever referred to comparative advantage again in subsequent years. They prefer to make their case in favour of free trade more in the lines of the Wealth of Nations. Consequently, one can hardly find any reference to comparative advantage during the debate about the repeal of the Corn Laws, the most contented trade-policy issue in England between 1815 and 1846. Although all the leading economists of the time argued in favour of the repeal, they did not invoke comparative advantage to fundament their position. Cheryl Schonhardt-Bailey (2006) does not even bother to mention comparative advantage in her detailed book on the repeal of the Corn Laws. As a further proof that comparative advantage did not have such a prominent role in the classical case for free trade during the first half of the 19th century, one will hardly find any reference to Ricardo in List’s book, and not a single one about his famous numerical example in chapter seven of the Principles.
The whole section about comparative advantage is a collection of poorly written paragraphs containing unfounded accusations and misinterpretations, as can be appreciated in the following paragraphs:
“According to him (Ricardo), any two countries having different endowments of factors of production (and thus differential productivity) can gain mutual benefits by specializing in the production of a commodity that involves comparatively less production cost. By engaging in international trade, two countries can increase the use values that were previously unavailable domestically and can specialize the particular industry that they can produce better in (with less cost)” (page 4).
I am not aware that Ricardo ever wrote something similar to the above statement.
The author further affirms: “In putting forth this hypothesis, however, Ricardo did not explain at all about the cause, motive, and direction of international trade in the two countries under discussion. For example, in his famous England and Portugal example, there was no particular reason for Portugal— allegedly said to have absolute advantages in both industries (i.e., clothing and wine)—to choose one particular industry to trade with England, which had only one comparatively advantageous industry in clothing. Even though Ricardo attempted to show numerically that the two countries could produce two goods with smaller amounts of total labour time than before, this numerical example in itself did not explain the cause and the direction of the particular specialization of industries in two trading countries” (page 4).
Portugal’s interest in the featured exchange is stated quite clearly in the Principles. Portugal imports a certain amount of cloth from England in exchange for a certain amount of wine because she saves by this trade the labour of 10 men working for a year. Although the cloth would cost her only 90 men to produce instead of the 100 men that are required in England, the wine that Portugal needs to export in order to pay for the cloth requires merely the labour of 80 Portuguese working a year. Thus, acquiring the cloth from England cost her less labour than producing it internally. The 10 men saved are Portugal’s gains from trade (See Ricardo, Vol. 1, p. 135).
Moreover, the author accuses Ricardo of failing to recognise the theoretical contradiction between the labour theory of value and comparative advantage (page 5). This accusation is completely spurious. Ricardo stated quite clearly that his value theory does not apply to international exchanges because of the relative difficulty by which capital moves across country borders. If the author would reread Ricardo’s chapter on foreign trade in the Principles, and eventually consult a paper that I have published some years ago in HOPE (see Morales Meoqui, 2011), he might discover that Ricardo’s alleged “fundamental logical flaw” is non-existent when his insights are properly understood.
Like many of List’s contemporary supporters, the author barely mentions that the German journalist explicitly introduces some remarkable limitations to his case for infant industry protection, which are particularly relevant for South Korea and Taiwan. List explicitly states, for example, that not all countries are well suited for infant industry protection. Because he is somehow convinced that manufactures can only flourish in temperate climates, he believes that tropical countries must never attempt to acquire manufactures through artificial means.
In addition to limiting his recommendation for infant industry protection to countries located in the temperate zone, List introduces additional geographical and socioeconomic prerequisites:
“Measures of protection are justifiable only for the purpose of furthering and protecting the internal manufacturing power, and only in the case of nations which through an extensive and compact territory, large population, possession of natural resources, far advanced agriculture, a high degree of civilisation and political development, are qualified to maintain an equal rank with the principal agricultural manufacturing commercial nations, with the greatest naval and military powers” (List, 1909, p. 247).
None of the above country features apply to South Korea and Taiwan. It seems obvious that List would have recommended against the protection of infant industries in these two countries. If List’s economic doctrines were to be followed to the letter, the immense majority of today’s developing countries would be actually banned from using infant industry protection. That was indeed his intention, because List’s case for infant industry protection was conceived as a tailor-made economic theory for the incipient industrialists’ circles of the United States and his native country Germany.
The author agrees with List in considering the universal doctrine of free trade as “an ideological propaganda that only serves the exclusive interest of the dominant social classes in already developed economies” (p. 18). Marx, who cannot be suspected of being a supporter of the ruling classes, already debunked this myth. According to Marx, List’s empty idealistic phraseology about the national economy impedes him to identify the real barriers standing in the way of his pious wishes — the high-ranking nobility, the bureaucracy and the feudal institutions ruling his home country at that time. These bastions of the ancient regime, and not the British and French capitalists, were the true impediments of the process of industrialization in Germany.
Since the paper deals with a subject belonging to the history of economic thought, the author should pay more attention to the historically correct use of the terminology.
“Throughout his book, List made a clear distinction between “cosmopolitan economics” and “national economics”. The cosmopolitan economics is a doctrine that was fully articulated by both Adam Smith and Jean-Baptiste Say, whereas national economics is the label that List uses to differentiate his own view from the cosmopolitan economics” (page 6).
You will not find the term “economics” in List nor in Smith, Ricardo, Say or any other economist belonging to the classical school of economic thought. They always referred to the economic science as political economy. The gradual substitution of the traditional term “political economy” for the modern term “economics” in English speaking countries during the late nineteenth century was part of a concerted effort by neoclassical economists in order to appear more objective and scientific.
The author states that The National System of Political Economy (1841) can be seen as an expansion of a relative short thesis titled The Natural System of Political Economy (1837). As Henderson (1983) explains, the latter was written in haste for the purpose of participating in a prize competition of the French Royal Committee, and its ideas are not always well exposed. Why does the author then quote first and foremost from the earlier book instead of the National System?
Why this matters can be appreciated in the following example.
According to the author, List stated that there are three different stages of economic development (p. 9). A society moves from (1) primitive pastoral and agricultural activities, via (2) international commercial activities, to (3) the manufacturing industry. The author does not indicate the specific source of this statement, but I presume he took it from the Natural System.
In the National System, though, List indicates that all nations have to pass through five development stages in their long journey towards economic progress: (1) the savage stage; (2) the pastoral stage; (3) the agricultural stage; (4) the agricultural and manufacturing stage; and (5) the agricultural-manufacturing-commercial stage. In order to progress, countries ought to industrialise, i.e. transit from stage (3) to stages (4) and (5). List believes that such a transition cannot take place automatically through the natural course of things, because countries at stage (3) or (4) cannot compete successfully in manufactures with countries at higher stages of industrialisation and economic development. If they want to reach the agricultural-manufacturing-commercial stage (5), these catching-up countries need to protect their infant industries from foreign competition in order to develop their national productive powers. See List (1909, pp. 143-144).
Section four of the paper contains an amalgam of diverse opinions about the East Asian development experience. No wonder that the author could not develop any of them with the required depth and rigor. Moreover, it is a puzzle to me how the rejection of these opinions can be considered as a vindication of List’s economic theory.
Conclusions and recommendations
Due to the significant shortcomings of the paper in terms of structure, content and style, I cannot recommend its publication.
In a substantial revision of the purpose and content of the paper, the author should eliminate the section about Ricardo’s comparative advantage. The original classical case for free trade cannot be reduced to Ricardo’s four numbers (see Morales Meoqui, 2010). It seems rather impossible to me that one can offer an accurate critique of the classical case for free trade in the relatively short space of a journal paper that deals first and foremost with another topic.
If the author insists in his critique towards Ricardo, then he should take into account that there is an on-going process of reassessment of the comparative advantage theory based on the accurate interpretation of the numerical example in the Principles.
I would further recommend the author to refocus the paper on documenting the alleged influence of List’s economic doctrines in South Korea and Taiwan. He could use Mauro Boianovsky’s paper “Friedrich List and the Economic Fate of Tropical Countries” (2013) as a blueprint. In the long literature list of this paper he will find plenty of relevant sources.
If the author manages to prove that economic planners in South Korea and Taiwan were indeed inspired and influenced by List’s doctrines, it would be interesting to find out how they dealt with the fact that their mentor would have recommended against the pursue of industrialisation of these two countries, as he explicitly did for Latin American countries and India.
Boianovsky, M. (2013). ‘Friedrich List and the Economic Fate of Tropical Countries’. History of Political Economy, 45(4), pp.647–691.
Chang, H.-J. (2003). Kicking Away the Ladder: The “Real” History of Free Trade. Foreign Policy In Focus (Silver City, NM: Interhemispheric Resource Center).
Chang, H.-J. (2002). Kicking Away the Ladder. Development Strategy in Historical Perspective. London: Anthem Press.
Henderson, W. O. (1983). Friedrich List: Economist and Visionary 1789-1846. London: Cass.
Lin, J. & Chang, H.J., 2009. ‘Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha‐Joon Chang’. Development Policy Review, 27(5), pp.483–502.
List, F. (1841) (1909). The National System of Political Economy. (S. S. Lloyd, Trans.) London: Longmans, Green and Co.
Marx, K. (1975). Draft of an Article on Friedrich List’s Book Das Nationale System der Politischen Ökonomie. In K. Marx, & F. Engels, Collected Works (Vol. IV, pp. 265- 293). New York: International Publishers.
Morales Meoqui, J. (2011).’Comparative Advantage and the Labor Theory of Value’. History of Political Economy, 43(4), pp.743–763.
Morales Meoqui, J. (2010) ‘Classical Free Trade: A Policy Towards Economic Growth and Development’. Doctoral thesis, WU Vienna University of Economics and Business. Available at: http://epub.wu.ac.at/2952/
Ricardo, D. (2004) The Works and Correspondence of David Ricardo. Vol. I-XI. Edited by P. Sraffa, Indianapolis: Liberty Fund Inc.
Schonhardt-Bailey, Ch. (2006). From Corn Laws to Free Trade: Interests, Ideas, and Institutions in Historical Perspective. Cambridge, Mass.: The MIT Press.
Watson, M. (2012). ‘Friedrich List’s Adam Smith Historiography and the Contested Origins of Development Theory’. Third World Quarterly, 33(3), pp.459–474.