History of Economic Thought: Friedrich List

Table of Contents

1     Introduction. 3

2     Life and Time of George Friedrich List 3

2.1      Short Bibliographical Sketch. 3

2.2      Societal Demand for Economic Thought of Given Historical Periods. 4

2.3      Environmental Forces that Led to the Provision of Particular Economic Thoughts. 5

3     Ideas and Theories of Friedrich List 6

3.1      Infant Industry Protection. 6

3.2      The Theory of Productive Powers. 7

4     Legacy. 8

4.1      Influence of Historic Thinkers on Modern Economic Theory and Practice. 8

4.2      Influence of Historic Thinkers on Modern Economic, Political, and Social Milieu. 9

References. 10

1.Introduction

            Among different groups of people, individual preferences and/or desires on goods and services are highly influenced by different cultural and physical factors as opposed to the availability of such goods and services in the market. Equally, the available resources in the process of production in any society are subject to scarcity at any moment in time. As a result, every society has its own way of managing economic choices in reference to the cycle of creating, sharing out, and consuming different goods and services. Assigning the scarce resources their highest valued use is one of the many ways that different societies use to overcome the challenge of scarcity of resources. This implies that individuals have to understand their preferences and utilize the scarce resources efficiently to the highest levels possible.

In the present day, economists refer to the history of economic thought as the political economy. Its focus is on the past economic thinkers and the theories that have significantly shaped the modern day economics. George Friedrich List is one of the past economic thinkers whose contributions in economics are evident especially in his “national system of innovation”. He also contributed significantly in the development of the German historical school of economics and the European Economic Community. This essay focuses on the history of economic thought and further sheds light on George Friedrich List and his significant contribution in the history of economic thought.

2           Life and Time of George Friedrich List

2.1         Short Bibliographical Sketch

Friedrich List is a German-American born in Reutlingen, South Germany in the year 1789. After completing his education, Friedrich worked as a civil servant in the state of Württemberg until 1817 when he officially became a Professor of Administration at the University of Tubingen. During this time, he actively participated in the elimination of internal duties in Germany; this role that saw him elected to the lower chamber of Württemberg Diet. All along, he was still a Professor of Administration at University of Tubingen. During this time, Friedrich was a man of rebellious political views. His rebellious political views saw him dismissed from the University of Tubingen as a Professor of Administration, expelled from the Württemberg Diet, and blamed for treason (Levi-Faur, 1997).

After losing his jobs in the University of Tubingen and Württemberg Diet, Friedrich served a 6-month jail term with hard labor. The initial sentence was 10 months but his release came after only six months with a pre-condition that he moves to the United States of America. On relocation to the US, he was highly successful to the extent of getting a nomination to the American Consul in Leipzig to work for German Economic and Political Unification. His success in America was however short-lived. The combination of his political disillusionment, illness, and economic challenges made him depressed resulting to his suicide. Nonetheless, he significantly influenced the ideas of policy makers and his work still inspires the modern day scholars in the fields of political economy and policy formulation (Levi-Faur, 1997).

2.2         Societal Demand for Economic Thought of Given Historical Periods

Today, there are many reasons why the society would desire and pay for the particular economic thought produced in given historical periods by Friedrich List. Friedrich List’s economic thought is significant in intellectual stimulation of the modern day economist. For instance, modern economists would want to understand the concept of the productive powers. How a wealthy individual can turn poor by failing to produce goods that have a high value than what he/she consumes. Equally, Friedrich identified three main types of capital including the natural capital, material capital, and the mental capital. Modern economists would want to understand the significance of each type of capital in the process of creating wealth and the interaction between the three types of capital in the process of wealth creation.

The society also wants to understand the development of the history of economic thought from the times of Friedrich List to the present day. This would promote comprehension of how the economic ideas of Friedrich List shape the modern day economic theory. For instance, the society would be interested in understanding the emergence and development of market structures and forces such as demand and supply. Friedrich List used various tools to supplement his argument regarding societal demand for and supply of economic thought. For instance, he maintained that the intuitive mind catapults the society, or an individual to express the need, or demand for economic thought. He reasons that without the necessary drive for knowledge, the demand for historical economic information would be void. Friedrich List uses the market forces such as consumer spending behavior, amount of cash float in the market, and level of competition to define his philosophy about the supply and demand curve. With these forces in play, Friedrich List posits that the demand and supply for economic thought would assume a distinct shape and trend. In this aspect, it means that the theoretical framework presented by the economist argues that the society would experience a just demand and supply of economic thought of given historical periods as long as they elicit the need to understand these arguments.

The different theoretical frameworks proposed by Friedrich List include the infant industry protection, the theory of productive powers, and the concept of the human capital among others. The society wants to identify the influence behind such great economic perspectives, establish the development of such concepts over time, identify the main differences among these concepts, and establish the similarities between such concepts and the modern economic theory.

2.3         Environmental Forces that Led to the Provision of Particular Economic Thoughts

Friedrich List is popular for his theory of infant industry protection. In this theory, Friedrich List focuses on the developing countries in their early stages of industrialization. As such, this theory forms the basis of new theories that focus on the developing countries. In the infant industry argument, Friedrich inspiration came from the ideas of Carey and Hamilton. Their argument is highly influenced by the uneven industrial development in the Great Britain, other main European countries, and in the United States after the first industrial revolution. In the year 1791, Alexander Hamilton introduced the concept of industrialization through infant industry protection. He argued that industries in the United States require protection against imports from Great Britain. This made the United States the home of infant industry protection both as a theory and as a tool of trade (Yaffey, 1998).

Friedrich lived in the United States for five years (1825 to 1830) and it is during this time that he discovered the economic works of Alexander Hamilton. Other economists who also influenced Friedrich include Henry Clay and Carey. From the ideas of these economists, Friedrich wrote his book “National System of Political Economy” and published it in Germany in 1841. Some critics argue that Friedrich’s ideas in this book were not original; however, he used economic analysis tools in devising the infant industry argument in the book (Yaffey, 1998).

3           Ideas and Theories of Friedrich List

3.1         Infant Industry Protection

The industry protection argument, as perpetuated by Friedrich List, focuses on protecting the infant industries from the might of the already large and established industries in the market. This theory focuses on the context of the developing nations during their early stages of industrialization. It also forms the basis of most of the new theories of trade that focus on the developing nations. Friedrich argues that the government should take the responsibility of protecting all the infant industries from other large competing industries until the infant industries can attain large economies of scale. Friedrich inspiration came from the ideas of Carey and Hamilton about the uneven industrial development in the Great Britain and in the United States after the first industrial revolution. Hamilton argued that industries in the United States require protection against imports from Great Britain. This made US the home of infant industry protection as a theory and as a tool of trade (Yaffey, 1998).

In this theory, Friedrich List argues that the process of development involves five important stages including the savage stage, pastoral stage, agricultural stage, manufacturing stage, and commercial/services stage. Any developing country follows these steps to attain industrialization. According to List, the subsequent progression of a country from one level to the other cannot take place through the natural market forces without any regulations. This is because not all countries are in the same level of development. Equally, the more developed nations would outdo the underdeveloped nations in terms of competition. To this end, Friedrich notes that the infant industry protection is necessary to protect countries that are still developing from any form of economic oppression by the developed nations.

3.2         The Theory of Productive Powers

Friedrich List used the term “productive power” for the first time in the “Outlines of the American Political Economy”. He explained this concept further in “The Natural System of Political Economy” and in “The National System of Political Economy”. Friedrich List drew this concept from the existing differences between wealth and the causes of wealth. He argued that a wealthy individual becomes poor if he/she does not possess the powers to produce goods that are more valuable than he/she consumes. On the other hand, a wealthy individual becomes wealthier if he/she possesses the powers to produce goods that are more valuable than his/her consumption.

According to Friedrich, productive powers have three types of capital including the natural capital, the material capital, and the mental capital. Friedrich argues that the natural capital comprises of natural resources including the land, rivers, mineral resources and so forth. The material capital comprises objects used in the process of production either directly or indirectly. Such objects include machinery and utensils among others. Mental capital comprises the capabilities of humans in the production process. It includes skills, experience, and talents and so forth. List noted that all these types of capital are significant in the production process or the process of creating wealth. In the process of creating wealth, Friedrich points out that human skills, initiative and industry interact with both the natural and material capital leading to wealth creation.

4           Legacy

4.1         Influence of Historic Thinkers on Modern Economic Theory and Practice

Historic thinkers played a significant role in developing ideas that are still highly influential in the modern economic theory and practice. Many modern economists consider Friedrich List as the father of modern economic theory and practice. In the “Outlines of American Political Economy”, Friedrich List focuses on the “productive powers” of individuals within the economy. This concept of productive powers informs the modern economic theory and practice. Friedrich List argued that a wealthy individual becomes poor if he/she does not possess the powers to produce goods that are more valuable than he/she consumes. On the other hand, a wealthy individual becomes wealthier if he/she possesses the powers to produce goods that are more valuable than his/her consumption. From this concept, modern economists learn that one can possess wealth and end up becoming poorer or richer depending on the power to produce versus the rate of consumption.

Friedrich List coined and emphasized the significance of human capital in economic development. He views human capital as highly significant in economic development as it provides the basis for labor supply. This concept is not only theoretically relevant but it is also practical in the sense that human labor drives development. Today, individuals (both economists and non-economists) are investing in human capital through education as a means of acquiring the required skills in the economic world. Investment in human capital through education leads to development of careers and professionals all that are significant in stimulating and sustaining economic development.

4.2         Influence of Historic Thinkers on Modern Economic, Political, and Social Milieu

It is more that 160 years from the time that Friedrich List published “National System of Political Economy”. However, his prowess in the analysis and prediction of the practices of the state’s economic role is still highly significant in the analysis of the present political and economic milieu. Today, many economists perceive the economic role of the state as practical; Friedrich List informs this perception. He predicted, analyzed, and justified the practical role of the state in promoting economic development. Today, different strategies are in place to regulate the system of trade. Such strategies include general trade agreements, highlighting the importance of education in developing human capital, and investing in infrastructure among other strategies. Friedrich List suggested all these strategies as significant policy strategies in the development of both the local and international economic systems.

Today, there exists a connection between economic perspective/terminology and the national terms as propagated by Friedrich List. Such significant economic concepts that originate from Friedrich List’s economic perspective include the national balance of trade, national product per capita, national product, and national balance of trade among others. These concepts attract attention to the political economy of nationalism as brought forward by Friedrich List. A more comprehensive analysis of these concepts yields fruitful discussions on the meaning and importance of national economy as well as the role of the nation state.

Furthermore, Friedrich List’s argument of infant industry protection is an important policy making tool in the modern economic and political world. Many modern day industrial nations developed their strong industrial base by employing the concept of infant industry protection even though in different ways and levels. One of the nations noted to have not used this concept while developing its strong industrial base is Hong Kong. In Japan, the infant industry protection policy led to the success of the import-substitution policy and eventual success in the development of the modern day strong industrial base in Japan

References

Levi-Faur, D. (1997). Friedrich List and the political economy of the nation-state. Review of

International Political Economy, 4(1), 154-178.

Yaffey M (1998). Friedrich List and the causes of Irish hunger. In: O’Neill H and Toye J, eds. A

World without Famine? New Approach to Aid and Development. London, St. Martin’s Press.

ACED ESSAYS