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FRIEDRICH LIST AND AMERICAN INDUSTRY

Jerome G. Manis, Ph.D.

Little is known today in the United States about the importance to the nation, and to the world, of Friedrich list. His writings and actions, here and in Germany, have played an influential part in their transformation. Growing awareness of the harmful effects of contemporary free trade and globalization policies urges reexamination of his life and writings. The rise and fall of America’s textile industry illustrates theirA significance.

Half of the textiles once made in the United States now are produced in China. Industry owners and workers contend that the remainder will vanish unless our textiles are protected by tariffs. Free trade advocates oppose tariffs as outdated and harmful. Still, American tariffs created the textile industry and many others during a century of protectionism. Those tariffs enabled America’s rapid industrialization.

The formation of the United States of America continued its reliance upon British imports of clothing and other products. To end that dependence, Alexander Hamilton wrote his 1791 “Report on Manufactures.” It proposed tariffs on imports to aid the development of our own industries. He also advised the use of water power from Passaic Falls in New Jersey where the first cotton mill began in 1794. a By 1800, the United States still was a quite new nation and Germany was only a loose confederation of completely sovereign states. Several decades later, both countries began their very rapid rise as world powers. One person--Friedrich List--performed a considerable part in their transformation. His ideas about protectionism remain important today.

Born in Germany in 1789, List came to the United States in the 1820s. Here he published his famed Outlines of American Political Economy. Its clarification and justification of tariffs needed for industrialization made him a major figure in America. He wrote and published widely, was a popular public speaker, was honored at public dinners, and addressed the Pennsylvania legislature.

After returning to Germany, in 1844 he wrote The National System of Political Economy, emphasizing the need for protectionism by nations lacking industry. For an 1885 printing, the translator stated that List had “directly inspired the commercial policy of two of the greatest nations of the world, Germany and the United States of America.”2

Although hardly noted in today’s United States, List is well remembered in Germany. Monuments have been erected in his honor. Many editions of his writings have been printed and archival libraries contain much evidence about his life and numerous public reports. It is important to recall his support for tariffs and their necessity today for the United States, now already a “heavily indebted nation.”

The current neglect of List may stem from America’s abolition of major tariffs in the 1930s. Of the 61 books about Friedrich List recently in the catalogue of the Library of Congress, 49 are in German and 10 in English. Two of the latter are of the same 1909 biography and others by British writers. A search of books on the shelves of a large university library, listed as economics, economic history, and American history revealed scant references to List.

A 2004 book has described the beneficial influence of Friedrich List upon the tariff policies of Southeast Asian countries in prior years. According to Robert Wade, ‘by and large, countries that have caught up with the club of wealthy industrial countries, have tended to follow the prescription of Friedrich List, the German catch-up theorist.”

The basis for List’s lifetime influence on these nations was his efforts to explain why poorer nations needed tariffs. He contended that only by protecting the growth of their own industries could they became self-sufficient and independent. His analysis of the times and places for needed tariffs remains relevant today. Yet, before his death, he had often been described in Germany as a demagogue or traitor. Afterwards, he has been called “one of Germany’s outstanding heroes.” But not in America.

List was born in Wurttemberg where his father was a successful tanner. List was uninterested in that work. Instead, he found employment as a public clerk rising rapidly as an administrator As an avid reader, he became aware that the then divided political entities of Germany relied on many imported products from England. He knew that England had long been an imperial power, industrialized, with many colonies. From them, England bought raw materials and to them sold manufactured products.

In 1799, Napoleon had gained control of France, becoming emperor in 1805. He soon barred British ships from French ports to end their trade with continental Europe. He was defeated in Russia in 1814, after nearly conquering the continent, ending French dominance. When Napoleon's empire fell, his “Continental System” ended and British manufactured goods again flooded French and German markets.

A German Confederation established in 1815 consisted of 39 sovereign states, each with its own King, its own money, its own laws, and its own customs. Each German state was essentially a foreign country to all the other German governments.

List had seen for himself the benefits of the Continental System and what he regarded as disastrous effects of its abolition He still believed in world free trade as an ideal state of affairs which might be achieved at some time in the future. Until then, less industrialized nations would need to take protectionist measures.

The need for protectionism soon became a major concern of List. He had attended Tubingen University, and at age 29 was appointed its professor of political economy. At this time, he married a widow with one son, and had four more children. His wife remained a strong supporter throughout his life of his political activities and his many writings.

List became a critic of Adam Smith who, List claimed. saw individual behavior as the core of economies while List felt that Smith ignored their national and political foundation. List was critical of the increasing tendency to replace political economy by economics. List denied Adam Smith’s assumption of a harmony of interests between individuals and their nations. At times to List, the private interests of powerful people could be contrary to the best interest of the country.

For List, more important than the wealth of nations was their ability to develop resources and manufacture goods. To do that, he drew up a statement in 1819 to create a German Commercial and Industrial Union eliminating 38 customs boundaries and replacing them with one free trading union containing external tariffs.

According to his 1909 biography by Margaret Hirst, his petition contained the statement “that merchants trading between Hamburg and Austria, or Berlin and Switzerland must traverse ten states, must learn ten customs tariffs, and must pay ten successive transit dues.” The petition asserted also that “the erection of a general tariff for the whole Federation can restore national trade and industry.” The petition was rejected.

Political opposition led to his university resignation in 1819. He was elected to the Württemberg Assembly in 1820 only to be expelled in 1822 because of his criticism of the government. During this period, sometimes called the Age of Metternich, the political and economic ideas of List had aroused the enmity of that leading Eu ropean statesman. As Austrian chancellor, Metternich was making every effort to suppress liberal and national activity. To him, List was a revolutionist, whose citizenship needed to be annulled.

Because of his actions, List was imprisoned for six months in 1824 and forced to emigrate. He and his family arrived in the United States in 1825. Here, at this time, protectionism was a contentious issue with many proposals being considered for larger tariffs to aid emerging American manufacturing against Great Britain.

Interlinked with protectionism was the national division over slavery. To the mainly cotton-producing southern states, tariffs were seen as very harmful, benefitting only the northern states. Among the related political controversies involved were “states rights” and “nullification.

Through an earlier meeting with General Lafayette, List had been invited to accompany Lafayette for travels in the United States in 1825. With him, List met many leading figures in America. including Presidents John Quincy Adams and later Andrew Jackson. Among the other notables that he met were Henry Clay, Charles Ingersoll, and Mathew Carey.

A year later, Carey and Ingersoll became cofounders of the Society for the Promotion of Manufactures and Mechanical Arts in Pennsylvania. While Carey was president, the vice-president of the society was Ingersoll with whom List corresponded on matters pertaining to industrialization. Hi highly detailed letters were published in List’s Outlines of American Political Economy.

That report is available in the biography by Hirst. It was by one of the few Americans then to describe his life. While brief, her book contained all of the letters of List to Charles Ingersoll. In her introduction, she asserted that: “Very high among his (Adam Smith) successors, if our touchstone is to be national policy, stands Friedrich List.” She also pointed out that “List favored moderate protective tariffs and warned of the danger of maintaining them after they are not needed.”

The “American system.” as List described it, could “grow powerful only by fostering the manufacturing interest.” He claimed that the “world wanted a system of political economy, and Mr. Smith was the best extent.” . Yet, “the world has advanced wonderfully in experience and intelligence since the time of Adam Smith...A new people with a new form of government and new ideas of general welfare and freedom, has arisen.”

Hirst also noted that for List, while tariffs were necessary for industrialization, transportation also was required. For that reason, he stressed the importance of railways for the government’s development of industry. He even advocated the use of wooden rails where not much is transported. He was honored at a dinner celebrating the opening of a new rail line and he was toasted with great enthusiasm.

President Jackson was elected in 1828 and List, as a newly accepted citizen of the United States was soon appointed as American consul to several German cities. Returning to Germany in 1832, he found that the tariff issue was more prominent than ever. The first German customs union (Zollverein) came into being in 1834.. However, its continuation of the earlier Prussian tariff of 10% was considered inadequate by local industry. Fortunately for List, his National System of Political Economy had just appeared.

That report confirms the contention that List based his study on historical judgments rather than a theoretical analysis. It was indeed a careful and systematic historical survey of commerce and industry throughout the western world. He examined trade among and between the Romans, Italians, Belgians, Portuguese, Dutch, Spanish, and the English. He evaluated their commerce and their tariffs. His historical, political, and economic conclusions are worth restudy today.

A case in point is the following: ”In the year 1413 the English woolen industry had already made such progress that Hume could write respecting that period, 'Great jealousy prevailed at this time against foreign merchants, and a number of restrictions were imposed on their trade, as, for instance, that they were required to lay out in the purchase of goods produced in England the whole value which they realized from articles which they imported into it’.“

List contended that “a small state cannot establish and maintain such a policy successfully in competition with great states and kingdoms; also that any power which by means of a protective policy has attained a position of manufacturing and commercial supremacy, can (after she has attained it) revert with advantage to the policy of free trade.”

On the same page he suggested a misuse of the term freedom. “Freedom of trade is spoken of in the same terms as religious freedom and municipal freedom. Hence the friends and advocates of freedom feel themselves especially bound to defend freedom in all its forms. And thus the term 'free trade' has become popular without drawing the necessary distinction between freedom of internal trade within the State and freedom of trade between separate nations.”

In it, List also wrote that: “The causes of wealth are something totally different from wealth itself...The power of producing wealth is therefore infinitely more important than wealth itself (his underlining).” List argued that economics cannot be separated from politics, which deals with matters of state and nation. Also, the more advanced an economy develops, the more necessary is its governmental oversight.

List had described how Spain in the 16th, Holland in the 17th, and England in the 18th century had all achieved financial and industrial success with the help of tariffs. Throughout, List emphasized that the economic well-being of the individual depended on the well-being of the nation.

In 1839, List was reported as having said that: “It is as if the English have produced their theories of political economy in the same way as their manufactured goods, more for export than domestic consumption.” Two years later, List was offered the post of Editor of the Rheinische Zeitung, a new liberal paper which was being established in Cologne. But he declared that ill-health prevented him from accepting the post which eventually went to Karl Marx.

While suffering from a painful and terminal illness, List committed suicide at the age of 57. Still, his efforts for tariffs to help poorer nation continued to influence not only Germany and the United States but also many other nations.

Since then, the 1993 emergence of the European Union has be linked to the aims of Friedrich List. To historian Robert-Hermann Tenbrock “his long-term objective was the formation of a central European union which should include Austria, Luxembourg, the Netherlands, Switzerland, Belgium, and Hungary.”

To List, the emergence of the European Union would have been very satisfying. Still, he always was concerned with the importance of the nation for protecting its peoples. Thus, he would not have been surprised by EU members rejecting takeovers of their businesses by businesses of other EU nations. Nor of American rejection of a United Arab Emirate purchase of port operations in six large cities. Just as he viewed free trade as an ideal, so did he favor tariffs whenever favorable to nations.

A 2000 study by Kevin O’Rourke has disclosed that ten nations had benefitted from tariffs between 1875 and 1913. They were Australia, Canada, Denmark, France, Germany, Italy, Norway, the United Kingdom, and the United States. The author concluded that “Tariffs were positively correlated with growth in these countries.” Such reports confirm the current importance of Friedrich List.

Now, 160 years after the death of Friedrich List, protectionism and ta riffs are much criticized. Free trade is dominant in much of the world. There is the Free Trade Area of the Americas (FTAA) a collaboration among 34 democratic governments in the Americas, including Canada. In addition, there are numerous small free trade areas involving numerous countries such as Bulgaria, Greenland, Jordan, Poland, and Singapore.

Yet, Friedrich List remains quite important for billions of people in what has been called “underdeveloped nations.” In his 1844 book, he wrote that “under the existing conditions of the world, the result of general free trade would not be universal republics, but, on the contrary, a universal subjection of the less advanced nations to the supremacy of the predominant manufacturing, commercial, and naval power.”

Those “existing conditions” apply to the consequences of highly profitable commodity of slavery. Many of those underdeveloped nations had been colonies largely of Britain, France, and Germany. The latter were joined by Belgium, Italy, Portugal, and Spain. Colonization and slavery led to chaotic conditions, famine, poverty, and indebtedness. Between 1950 and 1980, 47 former colonies gained independence, largely with military leadership and often followed by internal conflicts and dictatorships.

In the 2004 edition of Governing The Market, Robert Wade described how east Asian governments aided the industrialization and modernization of their economies. This was by blocking free trade through tariffs placed on imports, especially of manufactures. Winning an award in political economy, the book offers a stinging critique of free market theory.

Yet, Canada, the United States and Mexico have launched the North America Free Trade Agreement and formed the world's largest free trade pact. Since then, the United States agreed to a Central America Free Trade Agreement. Many similar pacts have been signed linking other countries in agreements to eliminate trade barriers.

For the most part these free trade treaties apply mostly to manufactured goods, much less to agricultural trade. The free trade in manufactured products benefits the industrialized nations but harms the poorer nations who lack industry. Those countries are prevented from selling their farm produce to the industrial nations by the tariffs against farm goods. In both ways, free trade and tariffs harms the poorer countries and prevents them from bettering themselves.

Not only are poorer nations the losers from free trade but so too are the poorer peoples of advanced countries the most likely losers. In the industrialized countries, free trade means job losses, wage reductions, disappearing pensions, and declining health care funding. The benefits of free trade are most favorable to the highest bidder, thus blocking access to those with the least capital. They are also beneficial mostly to those who can sell at the lowest price, thus favoring the most industrialized nations.

Today, many contemporary nations stagnate as a result of their past decades or centuries as colonies. As former colonies, they remain deeply indebted to affluent nations and lacking in what List considered most necessary--manufacturing. Contemporary “free trade” for them parallels the American experience prior to Alexander Hamilton and Friedrich List.

Most of the nations south of the Sahara Desert in Africa remain backward. They are among the 53 countries with 700 million people. Most are black, with 800 ethnic groups living across national boundaries. 32 of those nations are among the 38 also described by the World Bank as “heavily indebted countries.:”

An explanation of this indebtedness has been offered in a recent book by John Perkins trained as a young economist to ensnare poor nations for the economic and political benefit of his country. Confessions of an Economic Hit Man describes how he was taught to encourage their leaders to borrow from the businesses and government of the United States. The indebtedness of such countries causes their leaders to accept American dominance in commerce and politics.

An outcome is that the income ratio of the one-fifth of the world’s wealthiest countries to the poorest went from 30 to 1 in 1960 to 74 to 1 in 1995. To advocates of free trade, this deterioration of poor countries with over a billion people has been traced to “a lack of entrepreneurial alertness.” That view is from a Cato Institute report by Christopher Coyne and Peter T. Leeson in “The Plight of Underdeveloped Nations.” For List, criticizing individuals ignores the historical, political, and cross-national influences upon economies. That is “blaming the victims.”

Is List and his message of protectionism still valid today? Not according to the conventional wisdom. Yet, if we consider those many people in the indebted countries, their nations badly need help. Not until their debts are forgiven and infant industries subsidized by other countries can they become self-sufficient and contributors to the world economy.

Even for today’s successful nations, the major benefits of free trade areas go to their largest enterprises and to their most affluent individuals. The worst consequences go to their working peoples, who often face lengthy joblessness, loss of homes and pensions, and ending of health care.

Today the survival of industry in the “developed nations” is threatened by the newly developing nations, such as China and India. The front cover of The Economist (British, 7/30/05) focuses on its article “How China runs the world economy.” Its recommendation cites a Chinese proverb “What you cannot avoid, welcome.” List would not have agreed.

That free trade recommendation ignores the current and future damage by China to the economies of the United States and other “successful” nations. The Economist report does not mention that America now is a “heavily indebted” nation. The U.S.-China Review (Summer, 2005) reports that China already “has the world’s second largest foreign exchange reserve. It also claims that “China will achieve its goal of quadrupling its gross domestic product from 2000 to 2020 ahead of schedule.”

The effects of this large and rapid growth on the United States already is evident. Our indebtedness to China is enormous and still growing. Our purchasing of their products, especially textiles, also is enormous and still growing. China exports six times as much to the United States as it imports. America’s textile industry and others were created by tariffs and may be ended by our lack of tariffs.

Criticisms of contemporary free trade appears to be increasing. Especially noteworthy is a total turnaround by noted economist Paul Samuelson. His numerous writings supporting free trade have been widely adopted in higher education. In the summer, 2004 issue of the Journal of Economic Perspectives, he has noted many harmful effects of free trade.

Very serious globally will be the effect of a rise in economic power by China, and soon after by India. With their populations of billions of people and low wages, their products and services will create difficulties for already developed nations but even more so for the poorest nations.

According to “The Failed States Index” in Foreign Policy (7/05), “About two billion people live in countries that are in danger of collapse.” Those countries are poor, lacking industry, and deeply in debt. They have not received adequate help in the past, even less likely in the years ahead. A free trade policy will have no benefits for them, only greater losses.

Many nations will be facing great challenges from rising centers of economic power. According to the Economist, the United States, Japan, and England have l ost 20% of their manufacturing jobs during the past decade. Without protectionism, their industries will decline further.

For the many underdeveloped, heavily indebted , and failed states, not only tariffs but financial help and forgiveness of indebtedness are necessary. As List pointed out, in a world of equal nations, free trade will become inevitable eventually.

A world of equal nations is now here, according to Thomas Friedman in his The World is Flat (2005). In it, he ignores much evidence about rapidly increasing national inequalities. Friedman makes no mentions of the dozens of nations and the billions of people harmed by free trade. He endorses globalization while also ignoring tariffs and protectionism. Nor does he mention Friedrich List whose policies are worth remembering.