Mental capital as a basis for entrepreneurship and innovation
‘Mental capital’ was in List’s opinion the core of the productive powers (List, 1827, pp. 57-67; 1841, pp. 49, 140, 159 plus ch. 12). He claimed that ‘Mental work is in the social economy what the soul is to the body’ (List, 1927-36, vol.
5, p. 42). By basing their method on the erroneous labour theory of value once established by Aristotle, both Smith and Marx focused on matter instead of mind. List mocked those who do not distinguish between the potential productivity of a Kepler and that of a donkey (List, 1841, pp. 142ff.; cf. p. 159). He maintained that Smith overdid his focus on exchange (monetary) value. List claimed that he ignored the intellectual, moral and religious activity behind the only apparent productive forces and thence behind exchange value:It follows that certain conditions must be fulfilled before men’s productive powers, and their intellectual and physical labours, can be successfully applied to the production of material goods that have an exchange value. There must be good laws, effectively enforced. Persons and property must enjoy the maximum security.... high moral and religious standards... a good system of education. Science and the arts. adequate protection.. Moreover the labours of those who promote the expansion of productive powers are just as productive as those who actually make goods that have an exchange value. (List, 1837a, pp. 184-6)
List was deeply engaged in what is today normally termed ‘liberal’ or even ‘neoliberal’ causes such as freedom of the press and criticism of bureaucratic excess and arbitrariness. He did not see any contradiction between justice and economic efficiency and, quite the contrary, argued that only a free and just legal system could mobilize the mental powers of the individual citizen, in particular as entrepreneur, crucial to economic development. The most obvious example might be List’s repeated attacks on the institution of slavery (List, 1827, Letter VI, pp.
86-7; 1837a, p. 184; 1841, pp. 200, 416). List’s stress on the universality of law (trial by jury) and freedom of expression (for the press and so on) can be seen as an attempt to correct imperfections of the market for ideas and entrepreneurship, through vested interests and power structures. List intended to establish an efficient market for ideas, for innovation and for entrepreneurial activity, through implementing his liberal ideas. His work for security of property and for protection of investments can likewise be seen as intended to establish a market for innovation and for entrepreneurial activity, whatever the field, and all intended to secure an efficient working economy, to the benefit of general welfare.In order duly to estimate the influence which liberty of thought and conscience has on the productive forces of nations, we need only read the history of England and then that of Spain.
The publicity of the administration of justice, trial by jury, parliamentary legislation, public control of State administration, self-administration of the commonalties and municipalities, liberty of the press, liberty of association for useful purposes, impart to the citizens of constitutional states, as also to their public functionaries, a degree of energy and power which can hardly be produced by other means. We can scarcely conceive of any law or any public legal decision which would not exercise a greater or smaller influence on the increase or decrease of the productive power of the nation. [Footnote on J.B. Say] If we consider merely bodily labour as the cause of wealth, how can we then explain why modern nations are incomparably richer, more populous, more powerful, and prosperous than the nations of ancient times? (List, 1841, p. 139)
List paid much attention to the role of incentives in economics and how these could be promoted by regulative and legal arrangements. He devoted a whole chapter to this in his National System (List, 1841, ch.
25, ‘The manufacturing power and the incentives to production and consumption’, pp. 303ff.). Patent laws were one legal measure for promoting the mental powers of production (ibid., pp. 56, 307). For other measures, see the section on tariffs, below. As noted above List regarded the mental powers (creativity and morality) as the bedrock of development, emphasizing the mental and therefore the entrepreneurial aspect to which the legal system is crucial. This makes the legal system even more crucial for development in his scheme than it could ever be in the so-called ‘classical’ ‘orthodox’ and ‘neoclassical’ economic tradition. (The same relation has been noted above for the emphasis and role of regulations and the public bureaucracy).Law and economics deals specifically with the possibility of changing the incentives structure, but mainly within the standard economic image of Man as purely self-interested, that is, egotistic and in essence asocial. List’s idealistic approach deals more than anything with the incentives structure, but from a wider image or conception of Man, where Man is considered to be fundamentally but only potentially rational and moral, spiritual and social - in combination and in addition to being self-interested. This implies that standard economics has a narrower and more unrealistic conception of Man and therefore of reality, to which normal law and economics is also prone. List’s conception is therefore more realistic but less easy to formalize.