Wednesday, July 19, 2006

List and the Isolationist Tradition

On nearly any day of the week, one can open a newspaper and find some pundit arguing that free-trade should be restricted. The reasons given in support of their position vary, but they inevitably arrive at a conclusion that says "free trade in general is a good thing, but in this particular situation society would be better off without it". While this may seem a bit ignorant and annoying to many of us who have studied economics, don't believe for a moment that this isolationist view has anything less than a prestigious tradition. In fact, many of the arguments put forth by D0bbsian/Buchananite Isolationists can be found in the work of the nineteenth century economist Fredrich List.

List's four volume work The National System of Political Economy (1841) is a critique of the classical economists (who he refers to as the Popular School). List begins his theory of economics by drawing a distinction between Political Economy and Cosmo-political Economy. The former, in his view, deals strictly with the affairs and well-being of people within a particular country, while the latter science is concerned with all of Earth's inhabitants. He accuses the Popular School of practicing the latter approach and deliberately using the nomenclature Political Economy to eschew the issue.

The fundamental distinction which List draws is that the Popular School, especially the 1776 work of Adam Smith, ignores the role played by governments in international trading relations. He argues that without a nation state, peace and therefore trade cannot take place. The Popular School erred in assuming that there could be beneficial free trade without a unified world state. Once this oversight is taken account of, it is easily seen that free trade is a road to economic ruin.

List's arguments run the spectrum of the isolationist perspective. He argues that:

1. Specialization will increase a country's risk of economic ruin. If the demand for a country's main export takes a deep fall, the country will be ruined.

2. Nascent industries will be smothered by international competition; as such, a prudent country will protect that industry until it can compete on the world market. The end result will be a more robust national economy.

3. List believes that trade policy of foreign countries is tantamount to regulation of a country's domestic life and is thus a broach of sovereignty. To List, the obvious response to this alleged infringement is removal of participation.

List's adamant isolationist position is couched in the same rhetoric as so many pundits on PBS today.

For fear of giving List short shrift, I will say that I found some merit amongst the rubble. For example, in line with his emphasis on the Nation, he recognizes that many cultural, social, and political institutions will have an effect on the domestic and international economic environment. I disagree with some of the institutions he upholds, but the focus is clear and similar in spirit to that of the neo-institutionalist work of Douglass North. List also lack an animus to business per se. He actually believes that the manufacturing sector encourages moral, mental, and social growth. Culture and good living are born in the industriousness needed to succeed in the manufacturing life.

List's place as an economist falls plainly amongst those who are against free trade. While many modern commentaries carry his arguments as refreshing and progressive, it is clear that these ideas are nothing new. It is toward ending the effectiveness of these arguments that I believe economic education is still greatly required. If people still won't believe in the benefits of free trade, what chance do economists have of convincing the public of the myriad of other economic insights that we believe can improve the world?

Addendum: Here is List's page on Wikipedia. The brief biography there is quite interesting.

1 comment:

Anonymous said...

Your entire posting seems to miss the point that List's work is addressing trade policy-making for nations with differing relative levels of economic development (with industrialism as the apex, as seen in his day), especially the European nations of the mid-1800s. Thank God that the new American nation was protectionist. Indeed, every relatively young nation-state having sigificant domestic resources should be protectionist. This is the lesson of history.