A German Nationalist Critiques Adam Smith

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"A critique of Adam Smith by Friedrich List (1789-1846)

This quote by List is from his The National System of Political Economy. He was one of the driving forces behind the German Zollverein (customs union), which is credited with propelling Germany's economy to world-class levels.

"ADAM SMITH'S doctrine is, in respect to national and international conditions, merely a continuation of the physiocratic system. Like the latter, it ignores the very nature of nationalities, seeks almost entirely to exclude politics and the power of the State, presupposes the existence of a state of perpetual peace and of universal union, underrates the value of a national manufacturing power, and the means of obtaining it, and demands absolute freedom of trade.

Adam Smith fell into these fundamental errors in exactly the same way as the physiocrats had done before him, namely, by regarding absolute freedom in international trade as an axiom assent to which is demanded by common sense, and by not investigating to the bottom how far history supports this idea."

Comment
Friedrich List (1789-1846) was a German nationalist who lived in the USA for many years and who wrote the ‘National System of Political Economy’ (1841) in opposition to the universal system of free trade between nations advocated by Adam Smith. List grossly exaggerated the influence in practice of Adam Smith on what he called the ‘English’ political economy, under which, he alleged, England had become surreptitiously a national manufacturing power at the expense of other nations, and which policy must be avoided by the numerous separate states within Germany, which should follow what 'England' had done not what Adam Smith had claimed to advise.

Adam Smith’s critique of mercantile political economy was directed at existing policies of successive English and UK governments, represented by wealth measured by the net flows of gold into a country from its trading policies, necessitating trade protections, tariffs and duties, local manufacturing monopolies, the Navigation Acts, hostility to trading neighbours (‘jealousy of trade’), wars for trivial ends, colonies and the prodigality of governments.

Wealth Of Nations contains a free trade, competitive and anti-monopoly preference, modified by circumstances, such as ‘defence is more important than opulence’ for an island economy; some level of customs duties are necessary to contribute to the expense of government while the tax base is small; the necessary duties of government – defence, justice, public works to facilitate commerce, education and expenses of government; and necessary regulations to protect society from rogue elements – require taxation according to the revenue enjoyed by citizens.

The fact that the UK government followed parts of Adam Smith’s advice, but ignored much of it, was ignored by List, or regarded as hypocrisy and a political cover for Britain’s real strategy for commercial advantage in a world economy.

List concluded that the best national policy (picked up by Jefferson in the USA for the protection of new industries ) was for the mini-states in Germany to form a union of states, establish manufacturing industries behind tariffs, and develop themselves into a major economic power.

His patriotic politics were have some influence with German nationalists later in the 19th century, and were mimicked by protectionist sentiments elsewhere.
He concluded the preface to the first edition of The National System of Political Economy with this typical sentence:

“But my sole encouragement lies in the thought, that nevertheless much will be found in my book that is new and true, and also somewhat that may serve especially to benefit my German Fatherland.”

(Friedrich List, [1841] 1916. The National System of Political Economy, p xliv, trans. Sampson S. Lloyd, introduction J. Shield Nicholson, Longmans, Green and Co. London)