‘A Logical List’ - An attempt to unearth the principles of

Friedrich List’s international system of innovation and progress

by Arno Mong Daastøl

A Presentation of a Dissertation for the degree of PhD (Dr. rer.pol)

Sept. 2011at the University of Erfurt, Germany

This dissertation

• Is a systematised and thematic study of Friedrich List’s economic approach, showing:

1) The fundamental importance of immaterial production factors, and (as such)

2) How the ‘capital of mind’ binds together a multitude of issues into a coherent system

List’s practical reputation

• Promoted German unity by:

1) A German railroad network (as the Harkort brothers; von der Heydt brothers; Camphausen, Hansemann etc.)

2) A German customs union - the "Zollverein"- elaborating the "infant industry" argument(as Ferrier, Ganilh, L. Say, Chaptal)

List also promoted

1) Productive Forces (as Müller, 1809 & Dupin, 1827)

2) Spiritual Capital as core (as Müller, 1809)

• None of the above were original to List:• But, he fused these elements and changed the

emphasis towards the immaterial (intelectual and social)

List’s books• Outlines (1827): USA in debt due to deficits

(lacking productive power – remedy is clear)

• Natural System (1837): Trade Theory and HistoryA Realistic Strategy for Free Trade

• + Rise & Fall of Great Nations (ch.27>)

• National System (1841): History; Theory and Politics

Rise & Fall of Great Nations (ch.1-10)a) City States (Italy, Hanse, Netherlands)b) Nation States (Spain, Portugal, Russia, France, Germany, England)c) Contintents (America, Europe)

List’s system is simple in principle, and yet complex in reality:

• The human spirit creates culture which creates wealth – or in more detail:

Q: Mental capital creates innovation, constitutes and reshapes collaboration, which constitutes and reshapes nations and (defines and) creates wealth.

Q: Greater part of the productive power consists in the intellectual and social conditions of the individuals, which I call capital of mind. (List, 1827b, p. 63)

Using List’s terminology:

1) The task of political economy is to contribute to individual and social progress: The goal is elevation of global civilisation by moral and material improvement

2) Mental capital, individual and collective, is the prime source of wealth and constitutes the essence of;

3) The Confederation of Labour, which both constitutes and continuously reshapes the nation, both its civic institutions (Civil Society”) and the State

4) The nation is the main vehicle for the individual person’s quest for freedom, happiness and wealth

5) The ultimate confederation of Labour lies in global free trade, making the selfish colonial system as well as navies obsolete

Ad 1) Progress• The task of political economy is to contribute to individual and social progress:

• The goal is elevation of global civilisation by moral and material improvement.

Q: 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. (List, 1837, p. 33)

Q: But politics demands, in the interests of each separate nation, guarantees for its independence and continued existence, special regulations to help its progress in culture, prosperity, and power, to build its society into a perfectly complete and harmoniously developed body politic, self-contained and independent. (List, 1841, Introduction, in Hirst, 1909, p. 291)

Freedom and liberty

• Freedom - essence of German thought since before Kant

Q: The spirit of enterprise, economic progress, technical knowledge, and artistic skill develops only in countries enriched by political and religious freedom. (List, 1837a, p. 164)

Q: … liberty and civilisation have everywhere and at all times emanated from towns… (List, 1841, p. 204) Q: Manufactories and manufactures are the mothers and children of municipal liberty, of intelligence, of the arts and sciences, of internal and external commerce, of navigation and improvements in transport, of civilisation and political power. (List, 1841, p. 140)

Ad 2) ‘Mental capital’

• - is the founding stone of List’s system of productive powers. It alone can utilise the resources given by nature:

Promote: Morality and knowledge; education, innovation, research, communication: Elevation of Labour

Q: Greater part of the productive power consists in the intellectual and social conditions of the individuals, which I call capital of mind. (List, 1827b, p. 63)

List’s inspiration (Re: Capital of Mind)

Takes us back to:

• Philosophical tradition: German Idealism (Cusa, Kepler, Leibniz: - Kant, Hegel, Fichte ... Müller)

• Economic tradition: Cameralism and Renaissance statecraft (Regulation for common weal)

• - and in both the above instances: the ancient Greeks)

The Idealist Tradition

• Renaissance and Cameralist ideal:

• Man in the image of God: Imitate God:

• Perfecting the State into Heaven on Earth

Q: National economy teaches by what means a certain nation, in her particular situation, may direct and regulate the economy … to create … perfect nations … (List, 1827b, Letter I, pp. 25)

Ad 3) Confederation of Labour

• Mental capital is the essence of the intergenerational ‘Confederation of Labour’: - Intergenerational social networks and institutions such as trust, credit, knowledge: “Civil Society”

• Constitutes the nation as a home market and as a national system of innovation and production

• It reaches its furthermost potential in an urban-industrial civilization, or as List termed it: The Industrial System

Fragile

• Although effective, mental capital is fragile;

• Home market needs to be wisely nurtured and protected against the gusts of the world markets, payments imbalances and economic crises

• Physical capital move and perish less easily

Ad 4) The Nation

• - Delivers collective services that an individual cannot – such as traditions, arts, freedom, security, and major investments

• It can only progress well through a carefully balanced development of all vital sections of agriculture, trade, and industry, and furthermore their efficient interconnection through state of the art institutions, standards, communications, and the establishment of towns

• The nation resembles a large company, constituted by the Confederation of Labour

Ad 5) Global free trade

• The ultimate confederation of Labour lies in global free trade

• Making the selfish colonial system as well as navies obsolete

Q: The highest aim of rational politics … the uniting of all nations under a common law of right, … (List, 1841, p. 410)Q: The system of protection … appears to be the most efficient means of furthering the final union of nations, and hence also of promoting true freedom of trade. (List, 1841, p. 126)

English Classical School

• Largely ignored (real estate and labour market) intangible capital, and therefore focused on:

1. Increased division of labour (Smith)

- through free trade and expanding markets; 2. Increased accumulation of material capital through

saving i.e. austerity / cost cutting (Smith follows the Physiocracts)

3. Exchange values (‘Monetarism’) (Smith - Ricardo)

4. Curtailing population growth (having little faith in human abilities – Malthus/Ricardo)

Adam Smith’s materialism …

Led him to: 1) Gross and fatal generalisations

(time and space, capital, branches, nations)

2) Misunderstand the nature of capital (and growth) (save corn – material ‘stock’ - for next spring’s labour)

3) Ignore immaterial factors and therefore: Social cohesion; co-operation; civil society; institutions; (such as the nation); Stability and economic regulation

England’s success

• Ironically, England was the nation that more than any had used every trick in the book of government intervention to promote industrialisation, and then prevent other nations from doing the same

• Smith’s doctrine therefore seen as propaganda, designed to fool other nations – "pulling up the ladder" that England had used

England Modelled and Challenged

• Religious and political freedom; technology; infrastructure, institutions and regulations

• But, copying England created a challenger …

• List therefore blamed - for German expansionism and wars

• List’s solution: (removing need for colonies and navies)

Free trade and world government (gradually through protection, trade conferences and agreements)

As opposed to Smith

• Revealing the materialistically based errors of Adam Smith’s theory of capital and growth:1) Investment matters - into infrastructure: health,

education; research; communication, transport(less focus on saving and cost cutting)

2) Co-operation matters – network stability(less focus on competition)

3) Balance of trade matters – for financial stability, growth and sovereignty

Smith versus List 1 – ‘Monetarism’

Exchange Value• Money as material

• One similar and abstract denominator: Money

Move capital easy and swiftly between branches and occupations

Productive Powers • Understanding the nature of

credit and money as ideas (jurisprudence; human relationships)

• Many kinds of capital(Different branches and occupations)

Limited movability - Path dependence

Smith versus List 2 – Growth and Trade

Materialist Capital1) Accumulate

(save, cut costs, austerity)

2) Expand division of labour; markets – free trade

3) Static theory of trade (stay by your lest)

4) Promote competition

Ideal Capital1) Invest in infrastructure (health,

education, research, communication, transport + machine tools)

2) Fragile; protect and nuture

3) Dynamic theory of trade - Learn new profitable trades

4) Balance competition with co-operation – network

Smith versus List 3 – Method

Axiomatic-deductive• Unrealistic axioms:1) Man is egotistical (Smith)2) Decreasing returns to scale

(Malthus-Ricardo-Mill)

Historical• Inductive-empirical:1) Man is multifarious2) Returns are multifarious

(based on property rights, such as scarce knowledge; )

Major theoretical accomplishments

• Pointing out immaterial factors as fundamental;

• Refining the (inter)national system of innovation: Confederation of Labour; – incentives driven - and therefore protection-

• Laid the seed to the theory of productive credit creation