Friedrich List and Economic Nationalism

In my two previous posts, I argued that Epicurean ethical theory and Lockean political theory are the most useful guides to ethics and politics in a universe that scientific discovery has emptied of magic and divinity. I’ll conclude this personal credo by explaining why I think that economic nationalism, in the tradition of Friedrich List, is the tradition of political economy most compatible with the republican liberalism of John Locke.

Today’s dominant economic orthodoxy of neoliberalism, shared by most progressive as well as most conservative economists and policymakers, rests on academic neoclassical economics, which builds upon the classical liberalism of Adam Smith and the Physiocrats. From the eighteenth century, there has always been a broad rival tradition of economics. It influenced the practice of nation-building statesmen like Alexander Hamilton and Abraham Lincoln in the U.S., the Meiji reformers in Japan and Otto von Bismarck in Germany. This alternate tradition consists of the economic theories of the American School of National Economy and the German Historical School in the nineteenth century and the twentieth-century American Institutional Economics of John R. Commons, Thorstein Veblen, John Kenneth Galbraith. Although he was an Austrian émigré, Joseph Schumpeter’s intellectual roots are in the German Historical School, not the “Austrian economics” of von Mises and von Hayek.

Developmental economics is the term I will use for the tradition as a whole (other terms are “evolutionary economics,” “innovation economics” and “the historical school”). Although he was not the most brilliant thinker in this tradition, its greatest systematizer and evangelist was Friedrich List (1789-1846), a German liberal who, after being exiled to the United States, was converted to the economic nationalism of the American Hamiltonians and advocated it for other developing nations, including his own Germany. Here are the basic differences between neoclassical economics and developmental economics :

Individualism versus communitarianism. Neoclassical economics believes that the goal should be to maximize the interests of all individuals, ideally in a world without barriers to the free movement of goods, labor or capital. List dismissed this as “cosmopolitical economy,” arguing that political communities (mostly nation-states nowadays, but also city-states and empires and blocs) are legitimate actors in the economy. What is good for the polity in the long run may not be in the short-term economic interest of every individual citizen.

Consumer sovereignty. For the neoclassicists, the goal of economic policy is eliminating inefficiencies in the satisfaction of individual desires for consumption. For developmentalists, the goal of economic policy is enhancing the productive power of the sovereign community.

Absolute versus relative gains. For mainstream neoclassical economics, only positive gains count. It doesn’t matter if your neighbors are getting richer faster, as long as you are getting rich too. For Hamilton, List and like-minded thinkers, this is naïve. Countries exist in a world dominated by war and peacetime military competition. Military power rests on industrial and financial power. It may therefore be suicidal for a country to pay attention only to its absolute wealth rather than its relative standing among other powers.

Static versus dynamic technology. Neoclassical economists posit the natural equilibrium of markets with static technology. Indeed, many neoclassical theorists have reduced technology to a mystifying residual factor to be added to their pseudoscientific equations. The natural condition of the economy is assumed to be equilibrium; if you push the economy, it will wobble back into place. In the real world, new inventions and innovations, many of them backed by governments as well as industrial monopolies and oligopolies, are continually destabilizing the economic and social world by means of Schumpeter’s “creative destruction” and “industrial mutation.” An afterthought in neoclassical economics, technological innovation, along with its adaptation by countries catching up with more advanced nations, is at the very center of the Listian alternative tradition.

Scarcity versus abundance. Neoclassical economics has been defined as the allocation of goods in conditions of scarcity using market mechanisms. Developmental economics is about the use of technology to produce abundance. Whether the technology is used by the private sector, the public sector or the nonprofit sector is a secondary issue.

Which economic school would John Locke have preferred? Because he is described as a “liberal” (a term only coined in the nineteenth century), Locke is often assumed to have shared the preference for free markets and free trade of classical liberals like Smith and Mill. But Locke, who served on the British Board of Trade and Plantations, was a mercantilist who shared many basic assumptions with Hamilton, List and their school. Locke believed that the state, in order to be secure and independent, needed to be as strong as possible on the basis of its own internal resources. In his Letter Concerning Toleration, Locke says that “the pravity of Mankind… obliges Men to enter into Society with one another, that by mutual Assistance, and joint Force, they may secure unto each other their Properties in the things that contribute to the Comfort and Happiness of this Life… But forasmuch as Men thus entering into Societies… may nevertheless be deprived of them, either by the Rapine and Fraud of their Fellow-Citizens, or by the Hostile Violence of Foreigners; the remedy of this Evil consists in Arms, Riches, and Multitude of Citizens; the Remedy of the other in Laws…”

For Locke, individual prosperity serves the state by increasing the resources that can be devoted to defending its independence from foreign enemies: “…That prince who shall be so wise and godlike as by established laws of liberty to secure protection and encouragement to the honest industry of mankind, against the oppression of power and the narrowness of party, will quickly be too hard [powerful] for his neighbors…”

Like List and other economic nationalists, Locke argued that relative economic power, not absolute economic gain, should be the criterion for national trade and industrial policy: “Riches do not consist in having more gold and silver, but in having more in proportion than the rest of the world, or than our neighbors… who, sharing the gold and silver of the world in a less proportion, want the means of plenty and power, and so are poorer.”

Modern environmentalists would be horrified by Locke’s attitudes toward resources and population. Although he denounced wars of aggression and conquest, he argued that civilized countries could legitimately annex and exploit “waste lands” inhabited only by primitive nomads (which gave his fellow English an excuse to expropriate Native Americans, many of whom, however, were settled agrarians). And believing that relative power rested in part on relative population size, he argued for pro-natalist measures, including penalties for childless bachelors like himself. Modern environmentalists and anti-natalists find their patron saint in an Englishman of a later generation than Locke, the Reverend Thomas Malthus (1766-1834).

Epicurean, Lockean and Listian. I began this series of posts by describing myself in these terms, not in the hope of converting anybody but with the goal of explaining the premises that inform my interpretation of history and current affairs. To be sure, it is the broad, living traditions of Epicurus, Locke and List that are important, not every quirk or idea of the individuals after whom they are named. Nor are the three traditions of equal importance. Listian economics can serve Lockean politics, which in turn, by providing oases of order in an anarchic world, can make it easier for individuals to obtain the ataraxia, the freedom from anxiety, which is the goal of Epicurean ethics.

My personal credo is nothing more than a variant of “the American creed,” itself the local version of a trans-Atlantic tradition of Enlightened republican liberalism articulated eloquently by Thomas Jefferson, among others. While Jefferson’s agrarian political economy and pseudoscientific racialist theories must be rejected, what is valuable in Jefferson’s thought deserves to be salvaged, including his reverence for Locke and Epicurus. The theory and phraseology of Jefferson’s Declaration of Independence are lifted from Locke, and in a letter to a friend in Virginia in 1813 Jefferson wrote what I am happy to endorse, by way of closing: “I too am an Epicurean. I consider the genuine (not the imputed) doctrines of Epicurus as containing everything rational in moral philosophy which Greece and Rome have left us."