Introduction

Friedrich List was one of the earliest and most severe critics of the Classical school of economics, the tradition of the Physiocrats and Adam Smith. His theoretical system is an empirically oriented system, in the sense that he claimed it to be based on historical experience.

List agreed with Smith on the desirability of global free trade. He claimed, however, that instant and radical free trade would lead to a monopoly under the strongest nation, technologically and economically. Other nations there­fore had to be lifted up to the level of the leading nation in order to promote the potential wealth of the individual developing nations as well as the global common good. This had to be done gradually through legal and regulatory arrangements nationally and internationally. This would involve, among other instruments, limited and differentiated protection at home and international legal agreements.

List may even be a greater free trader than his main adversary, Adam Smith, in the sense that List’s strategy would promote long-term competition to a larger degree than would Smith’s strategy, and thereby promote global wealth creation more efficiently. This is a matter of perspective, of time, and of economic complexity, regarding for instance the interrelationship between markets. List would claim that Smith might be said to be a free trader only from a superficial, static short-term and relatively narrow-minded perspective concerning the interests of Britain only, and that this was the deliberate choice of Smith.

List’s basic argument against Smith was that his materialist, static and superficial generalizations hid the crucial differences that made different policies in different circumstances necessary (concerning goods, capital, mar­kets, institutions, private versus public interest and historical stage of development). In particular, this concerned the differences between private versus public interest, between commodities and refined goods and between the levels of development of a nation in all respects. Thereby Smith could overlook the necessity of installing an active government that would create and maintain a policy that differentiates between the above categories. This government would defend the macro point of interest, by contributing to the establishment of regulations and legal arrangements, nationally and internat­ionally. List also argued that Smith and his followers confused causes and effects in their arguments by using non-historical static arguments (List, 1841, pp. 126, 135). This added to the tendency to disregard the need for legal and regulatory intervention in the economic sphere. As regards underde­veloped nations in particular, List alleged that this generally promoted merchant interests contrary to national interests.

List claimed that his economic strategy would also promote the basic and crucial non-monetary factors for economic development that Smith over­looked. His perspective not only paid attention to material factors, as he claimed Smith did, more or less. List, in contrast, saw the immaterial factors as the most important for the development of economics, as well as civiliz­ation in general. List was, perhaps, too much of a free trader, often showing too much faith in the withering away of necessary public regulation, being at heart a liberalist, emotionally and politically.

Although development of human civilization at large was indeed List’s main preoccupation, his heart and activity was also devoted to the promotion of more concrete and intermediate matters such as promoting larger markets through economic and political integration, thereby allowing economies of scale and technological efficiency. This was to be realized by political and economic integration and by innovations and investments in activities related to communication, first of all, but also investments in industry and agricul­ture. More efficient transport systems would foster the power of the individual and of democracy, he believed, and thereby further boost the creativity of the individual. This would again boost scientific, moral and economic progress, and so on. Therefore he emphasized the crucial roles of two (three) phenom­ena, all intimately related to legal arrangements, arranged here according to importance:

1. political and religious freedom, security and morality. Although a pri­mary goal by itself this also served the next point;

2. arrangements to invoke incentives for and investments in education, science, research and communication/transport as well as in production in manufacturing and agriculture. This would also serve the former point. The next point was one instrument to achieve the present point;

3. regulation of national trade. Differentiated protection outwards and liber­alization inwards, as well as voluntary customs to reap economics of scale benefits.