Marcello De Cecco on Smith, Ricardo, and List

William S. Lear rael at
Thu Oct 22 16:16:27 PDT 1998

Since we have had threads on Smith and List, and since I just came across a very stimulating exposition on Smith, Ricardo, and List by Marcello De Cecco in his book *Money and Empire* (Basil Blackwell, 1974), I thought I'd pass it on.


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An alternative model [to that of Smith and Ricardo] is offered by Friederich List. His main work, *The National System of Political Economy*[9], is almost contemporary with Ricardo's *Principles*. But his influence on students of the international economy was as weak as Smith's and Ricardo's was strong. An examination of current Anglo-American textbooks on international economics will easily show List as one of the least-quoted authors.

Friederich List is the intellectual opposite of Smith and Ricardo. The latter try to establish political economy as an exercise in logic, a study of the internal consistency of abstractly formulated logical systems; the former attempts to immerse himself in the reality of economic history and to derive the most important lessons from it. His work, much more than Smith's, is an inquiry into the real causes of the wealth of nations. For him, economics is one of the arts of statemanship. He does not care about discovering the immutable laws that govern the actions of '*homo oeconomicus*' --- What he wants to understand is how to get Germany on to a path which might allow her to become an economically powerful state in the shortest possible time, since he is convinced that economic power is the necessary precondition of political power.

His points of departure are opposite to those of Smith and Ricardo. To the latter, the *primum mobile* of economic activity is the individual's endeavour to maximise his own welfare, which brings him into competition with others for the command of scarce resources. To List, the *primum mobile* of economic activity is represented by man's desire to congregate in extra-familiar units. The basic feature of modern economies is the possibility of getting increasing returns by enlarging the scale of production, which is offered by manufacturing industry; whereas European agriculture, suffocated by rent, offers a completely opposite choice. It follows that the countries of temperate Europe, if they want to reach a


high level of development, must specialise in manufacturing. Since Great Britain, thanks to her past of intelligent protectionism, has managed to gain an enormous advantage in manufacturing over the rest of the world, other European countries *must*, if they want to develop, adopt protectionist measures, the strictness of which must be graduated in two phases: in the first phase, the need to import manufacturing techniques in order to learn them will make it expedient to import industrial products from Great Britain. Protection will thus need to be only moderate. In the second phase, when the industrial structure of the country has been built up, but is still not able to stand up to British competition, protection will have to be at its most severe, since the only available market is the national one. List was of the opinion that the future would not see European countries widening their mutual exchange of industrial products. He was convinced that the development of international trade would follow the mode of complementarity introduced by the colonial empires. From the temperate area manufactures would be exported to the tropical area, which would in its turn supply raw materials and agricultural products. The division of labour he prophesied is thus the one between the two areas. In the tropical area he included the south-western part of the United States.

He thus showed very clearly what he considered would be the two main avenues of development in the nineteenth century: manufacturing production, taking place at decreasing cost, would allow European countries to accumulate capital and grow fast; at the same time their need for raw materials and agricultural commodities would induce them to foster the development of the tropical area as Europe's complementary unit, i.e. as a producer of primary commodities and a consumer of manufactures. Only manufacturing production, however, took place at decreasing cost, so that Europe would grow much faster than the tropical area.

Adam Smith had considered increasing returns to scale; he had not, however, recognised the revolutionary implications of this feature of manufacturing production. Nor had he, or David Ricardo for that matter, drawn the conclusion that an imperialistic division of labour would obtain for the world as a whole, and a chasm would open between developed and under-developed countries. Smith on colonies is complementary to Smith on free trade. The imperialist model of development was imposed by force on colonies, he affirms. It is thus to be disapproved of, because


colonials are not free to choose what they want to produce. The complementarity imposed on the tropical area does not seem to him to be a fundamental analytical element to be pointed out. In any case, his international trade model cannot include real complementarity among nations, but only actual or potential competition among states which have all reached the same level of development.

The greatness of List's analysis lies, on the contrary, in his full utilisation of the classical method of reasoning in order to reach economic policy conclusions of a kind which are the perfect opposite to the classical ones. We can say that by adding dynamism and history to classical analysis, List obtains a strategy for fast economic growth that is perfectly suitable to the socio-economic conditions of his country as well as of many other countries which want to undergo a process of modernisation. If we read List in the light of recent historiography,[10] we can clearly see --- in his rejection of individual action as the basis for economic growth for countries other than Britain --- his awareness of the impossibility of founding economic modernisation on a bourgeois revolution, i.e. on the English model, and of the ensuing need to find a different 'national way', based on collective action, i.e. by grafting a modernisation process on to a social context that has not yet known the rise of a 'liberated' bourgeoisie. List understands that in countries such as Germany modernisation must come as a 'revolution from above', which will permit the country to jump, as it were, over one historical phase, i.e. the destruction of the *ancien r\'egime* effected by the bourgeoisie, which characterised the modernisation process in England.

That is why he attacks with such vigour 'the school', meaning classical economic theory and its basic principles. He understands the attraction that the classics exercise on the bourgeois groups existing in Germany. And he is convinced that the English revolution must not be exported, because it would mean crystallising for ever the hierarchical relations linking England to the rest of Europe in his time. In fact, if the European economies were made to go through a process which would involve the emerging of the bourgeoisie as the 'engine of growth', the cost of such an operation, in terms of time and resources, would be too high for them; whereas


it had been bearable for the English economy, which had gone through the same process before the industrial revolution. In his time, List thought, the industrial supremacy of Britain and the powerful free trade policy which she tried to impose on the rest of the world, would tend to kill all attempts to build up national economies as powerful as, and independent of, the English.

The greatest disservice one can do Friederich List is to call him the 'arch-protectionist', in opposition to the 'arch-freetraders' Smith and Ricardo. List is not protectionist *\`a outrance*. He is a scholar who understands that free trade is not a revealed truth, but only a form of economic policy which, at the period he was concerned with, suited English economic growth but was damaging to other countries because it compelled them to crystallise their economic relations with Britain. If those countries wanted to modernise their economies, to become as politically powerful as Britain, he thought they should blend protectionism and corporativism, skip the bourgeois revolution, and base their growth on state intervention, a measure of autarky and a hierarchical relationship with underdeveloped countries.

Upon reflection, all today's industrialised countries seem to have followed Friederich List's recipe.

We must not neglect to mention another of his contributions: it was he who tried to place the teaching of the classical school in historical perspective. In a word, he said that the classics were liberal because liberalism suited England at the time. This suggestion has lingered on, never being completely disproved. Some years ago Lord Robbins declared himself convinced of the 'patriotism' of Smith and Ricardo. More recently it has been advanced[11] that Smith's free trade is the result of the coincidence of interests that existed between entrepreneurs and the landed aristocracy of his time, and that Ricardo's free trade is a testimony to the conflict between entrepreneurs and the landed aristocracy. It is noted that, in Smith's time, English exports consisted mainly of wool manufactures, made of English-produced wool, while at the same time England had a distinct technical superiority over the rest of Europe in agricultural production. In Ricardo's time, on the contrary, foreign wheat and corn competed successfully with English, and England exported cotton manufactures made of a foreign


produced raw material. There could be no agreement between gentry and entrepreneurs on trade policy.

We cannot deny that such remarks have a very suggestive appeal. Noting that about fifty years divide *The Wealth of Nations* from the *Principles of Political Economy and Taxation*, we see the British gentry changing in those five decades from free trade to protectionism and British merchants and entrepreneurs switching from free trade to protectionism and from protectionism back to free trade. One could say that if Ricardo had been Smith's contemporary, he would have been a protectionist and if Smith been Ricardo's contemporary he would have been a protectionist too, preoccupied as he was with the welfare of the gentry. They were able to promote free trade because, in the fifty years that separated their works, England went through the industrial revolution and the English economy needed free trade to keep growing. One cannot think of a better example of List's theory of the stages of economic growth. The great majority of economists who have, in the course of the last 150 years had at their disposal both approaches, the classical and the Listian, have without hesitation opted for the former. The consequences of that choice have been grave. In 150 years an analytical orthodoxy has developed which is totally irrelevant to what concerns the causes and the modes of international trade; several decades have subsequently been spent by other writers in the effort to escape from its clutches and discover the theoretical limitations of classical trade analysis, which List had already pointed out more than a century before. What particularly concerns us here is that the study of the development of the international monetary system has all been conducted along the lines suggested by the classical model of international trade. A large intellectual superstructure has thus been erected, which proves very difficult to get rid of when one attempts, as I hope to do in this book, to study the international monetary system before 1914.

[9] F. List, *The National System of Political Economy*, Philadelphia 1857.

[10] See, for instance, Barrington Moore, Jr. *The Social Origins of Dictatorship and Democracy*, Cambridge, Mass., 1964.

[11] For an intelligent and exhaustive appraisal of this view, see S. Sideri, *Trade and Power*, Rotterdam 1970, especially ch. IV.

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