Friedrich List and Manufacturing Power

Found in The National System of Political Economy

The rationale for limited and temporary protection to allow the establishment of an “infant industry” can already be found in Adam Smith’s 1776 Wealth of Nations as one of the two exceptions that, with qualifications, Smith accepts for the general rule of free trade ( national defense being the other one). With less reluctance, Alexander Hamilton in 1791 advocated for protective tariffs based on the same reasoning, making the argument for protection to “infant industry” explicit.

The nation must sacrifice and give up a measure of material property in order to gain culture, skill, and powers of united production; it must sacrifice some present advantages in order to insure to itself future ones. If, therefore, a manufacturing power developed in all its branches forms a fundamental condition of all higher advances in civilisation, material prosperity, and political power in every nation (a fact which, we think, we have proved from history); if it be true (as we believe we can prove) that in the present conditions of the world a new unprotected manufacturing power cannot possibly be raised up under free competition with a power which has long since grown in strength and is protected on its own territory; how can anyone possibly undertake to prove by arguments only based on the mere theory of values, that a nation ought to buy its goods like individual merchants, at places where they are to be had the cheapest—that we act foolishly if we manufacture anything at all which can be got cheaper from abroad—that we ought to place the industry of the nation at the mercy of the self-interest of individuals—that protective duties constitute monopolies, which are granted to the individual home manufacturers at the expense of the nation? (FROM: Chapter XII: THE THEORY OF THE POWERS OF PRODUCTION AND THE THEORY OF VALUES)

Based on those precedents, Frederich List, in his National System of Political Economy, first published in German in 1841, fleshes out the “infant industry” argument for protection, from which the quote above is a brief excerpt. List was not proposing any original idea, and he was obviously aware of the criticism offered by economists to his neomercantilism. However sincere or not he was in his skepticism about the long term results of efficient capital allocation as driven by subjective evaluations and the advantages of allowing individual agents, motivated by their self-interest to spontaneously promote the manufactures in any given country is beside the point. From his perspective, back in a yet-to-be unified Germany, economic prosperity was less about opulence than about defense, or, more broadly, independence, at a time that the British economic, political, and military hegemony was obvious. Furthermore, List conflates the national interest of having domestic suppliers of few, essential strategic materials when a nation’s trading partners are also potential rivals in the international arena with the use of such excuses to grant economic advantages to privileged sectors. Contrariwise, for Adam Smith and David Ricardo bounties, tariffs, and other restrictions on international trade were unequivocally seen as privileges given to certain sectors of society against all the others, however justified they may be to the politicians taking those decisions.