A Reappraisal of Classical Economic Nationalism and Economic LiberalismAuthor(s): Christine Margerum HarlenSource: International Studies Quarterly, Vol. 43, No. 4 (Dec., 1999), pp. 733-744Published by: Blackwell Publishing on behalf of The International Studies AssociationStable URL: http://www.jstor.org/stable/3014028Accessed: 23/10/2010 01:17

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International Studies Quarterly (1999) 43, 733-744

A Reappraisal of Classical Economic Nationalism and Economic Liberalism

CHRISTINE MARGERUM HARLEN

University of Leeds

The mischaracterization of the works of the early Economic Nationalists and early Economic Liberals has obscured both the variety within each school and the connections between them. Many scholars have written about misinterpretations of Adam Smith's ideas, but few have corrected similar misinterpretations of the ideas of the leading Economic National- ists, Alexander Hamilton and Friedrich List. List and Hamilton have been falsely portrayed as mercantilistic advocates of autarky and unlimited protectionism. A comparison of their works with those of the leading early Liberals: Adam Smith, David Ricardo, and John Stuart Mill, indicates a more complex pattern. Hamilton's and List's ideas, rather than being the antithesis of Liberalism, are a synthesis of it and mercantilism. This reappraisal indicates that some of the more controversial aspects of Economic Nationalism, such as its promotion of autarky, are not an essential part of this school of thought.

Although the classical works of Economic Nationalism and Economic Liberalism continue to influence opinion on the proper role of the state in promoting economic development, many understandings of the differences between these two schools of thought are mistaken or incomplete. Since other scholars have written extensively about the mischaracterization of the early Liberals, this article will focus more on the Economic Nationalists. Often there has not been enough recognition that Economic Nationalism and Economic Liberalism are neither as internally unified schools of thought as often portrayed nor as easily separated. In particular, the Liberal elements in the works of the most notable Nationalists, Alexander Hamilton and Friedrich List, have been underemphasized.

The Mischaracterization of Economic Liberals and Economic Nationalists

Partially accurate understandings of the early Economic Liberals and Economic Nationalists abound. Numerous authors have written about the ways in which Adam Smith's work has been misinterpreted and how it differs from current under- standings of Liberalism (Viner, [1926] 1966; Muller, 1993). As Wyatt-Walter (1996) has pointed out, Adam Smith's view of international relations was often closer to the Realist or mercantilist traditions than to the Liberal Internationalism with which some scholars have associated him. In contrast to Smith, Ricardo and Mill fit better into commonly accepted understandings of Liberalism.

Autthor's note: The author is grateful to Rhiannion Vickers, Ricardo Blaug, and anonymouis referees for their valuable comments on earlier versions and to Meredith Woo-Cumings for her ear-ly encouragement of this project.

C 1999 International Studies Association. Published by Blackwell Publishers, 350 Main Street, Malden, MA 02148, USA, and 108 Cowley Road, Oxford OX4 IJF, UK

734 A Reappraisal of Classical Economic Nationalism

Like Smith, Hamilton and List have not always been portrayed accurately, but relatively little has been written about the mischaracterization of their work. Such mischaracterizations are commonplace: even leading scholars have overemphasized the protectionist nature of List and Hamilton. Carr (1941:155), for example, states that Hamilton's ideas support autarky, failing to note the qualifications Hamilton put on protectionism. More recently, international political economy scholars have credited Hamilton and List with the popularity of protectionism in the late nine- teenth century. Rosecrance (1985:98) states that "[w]hen tariffs were reimposed in the 1880s, nations, following the dictates of Alexander Hamilton and Friedrich List [emphasis added], agreed that nations ought to endeavor to possess within them- selves all the elements of national supply." Gilpin (1987:181) likewise credits Hamilton's ideas with supporting the high U.S. tariff levels of the post-Civil War period and popularizing autarky.

However, in the two countries where List and Hamilton had the most influence, the United States and Germany, levels of protection rose much higher than either theorist would have endorsed. Hamilton wanted to limit tariffs to 15 percent and use the proceeds solely for production bounties. Under the tariff system of the late nineteenth century, the government protected industry with much higher tariffs and rejected bounties, which cost money and did not retaliate directly against British merchants and manufacturers (Miller, 1959:299). Likewise, List's ideas did not support the way in which Germany turned toward protectionism. Although the German Historical School, which List founded, has been credited with Bismarck's extension of tariff protection to grains and manufactures in 1879 (Gilpin, 1987:181), List himself had always argued against agricultural protectionism.

The confusion over what List and Hamilton said is surprising, since their ideas can be expressed rather simply. Hamilton and List both supported free trade in principle. However, they believed that free trade was only possible under certain conditions that did not exist for their economically weak, politically divided coun- tries. As a result, they supported limited types of protection to promote industriali- zation in countries with the necessary capabilities.

If Hamilton's and List's ideas can be explained so clearly, why is there so much confusion about them? First, followers of Hamilton and List used the patriotic credentials of both men to give intellectual credibility to more protectionist ideas (Vandenberg, 1921:196). Both men were national heroes. Hamilton was the first U.S. Secretary of the Treasury and one of the authors of the Federalist Papers, while List was a well-known proponent of German unification. Second, other Economic Nationalists were much more extreme. Some Economic Nationalists, such as Henry Carey in his later years and Simon Patten, did support almost universal protection for industry and agriculture. Others, such asJohann Gottlieb Fichte, even supported autarky. Although contrasting the early Liberals with the more extreme Economic Nationalists would be easy, it would not be useful because the latter theorists have faded into relative obscurity.

The works of Hamilton and List have been more enduring than those of their more extreme counterparts because they provide an interesting synthesis of Liber- alism and mercantilism. Hamilton and List are sometimes portrayed as being successors ofjust the mercantilists. Gilpin, for example, consistently draws parallels between the two theories: "the roots of economic nationalism can be found in the mercantilist writers of the seventeenth and eighteenth centuries," "Hamilton mod- ernized the eighteenth century mercantilist thesis," and "Like other mercantilists before him [emphasis added], Hamilton identified national power with the development of manufactures" (Gilpin, 1987:180).

Gilpin does not mention the strong influence of Liberalism on Hamilton and List, even though it is readily apparent in their writings. Hamilton and List limit the conditions under which protection is justifiable because they accept some of the

CHRISTINE MARGERUM HARLEN 735

Liberal arguments about free trade. Since the Liberals themselves recognized some limitations on the desirability of free trade, the differences between these two schools on the issue of free trade are more complex than the simple endorsement of free trade versus protectionism. The time at which these theorists wrote also matters. Of the leading three Liberals, only Smith, who fits least well into general descriptions of Liberalism, was early enough to influence Hamilton's writings. List, however, was the contemporary of Ricardo and Mill and some of List's ideas reflect later Liberal thought.

Smith, Ricardo, and Mill on Trade

As Gilpin notes, the writings of Smith, Ricardo, and Mill are at the roots of modern-day Liberalism. Gilpin lists three main general aspects of Liberals' attitudes toward trade: they believed, first, that it promotes economic growth and expands the possibilities of economic consumption; second, that it improves the values and ideas of society, and third, that it was "a force for peace because they believe that economic interdependence creates positive bonds among peoples and promotes a harmony of interests among societies" (Gilpin, 1987:171-72). Yet while the three early Liberals all supported the first tenet of Liberalism mentioned, Smith's work clearly does not support the last two tenets.

The wealth-creating aspects of free trade played a central role in the thought of the early Economic Liberals. Moral philosopher Adam Smith appropriately titled his greatest work on political economy "An Inquiry into the Nature and Causes of the Wealth of Nations." Smith argued that the mercantilists had erred in believing that there was a fixed amount of wealth. By defining a nation's wealth as the value of the produce of its land and labor, Smith showed that a nation created wealth as it produced more. Free-trade policies helped to increase national wealth by making possible a greater specialization of labor and thereby increasing production. Free trade benefited not just producers, but also consumers, who could purchase goods cheaply, and countries, which could exchange their excess goods for ones they needed (Smith, [1776] 1976:446).

Like Smith, Ricardo emphasized that free trade would increase national wealth. He ([1821] 1973:214) argued that "the object of all trade is to increase productions," because capital under free trade should go where it is most useful. Ricardo ([1821] 1973:210) disapproved of high tariffs and export bounties because they decreased production, arguing that their sole effect was "[t]o divert a portion of capital to an employment which it would not naturally seek. It causes a pernicious distribution of the general funds of the society-it bribes a manufacturer to commence or continue in a comparatively less profitable employment." Because of this less advantageous use of capital, protectionism decreased wealth in general by not giving to the domestic economy all that it had taken from the foreign one (Ricardo, [1821] 1973:212-14).

The third major classical Liberal, John Stuart Mill, generally agreed that trade promoted economic wealth, but provided an important exception to this general rule. Mill argued that some industrializing countries could increase their wealth by protecting developing industries. Mill's development of the infant industry argu- ment shows the pragmatic nature of his thinking. Mill generally opposed govern- ment interference in free trade because it worked against the general good by preventing the most beneficial utilization of resources, not because of an ideological aversion to protectionism.

On the second general aspect of Liberalism, the ability of trade to improve the cultural and political life of a country, there is a sharp split between Smith and Mill. While Smith believed that the division of labor, both nationally and internationally, would promote wealth, he was ambivalent about its cultural effects. Smith ([1776]

736 A Reappraisal of Classical Economic Nationalism

1976:418-19) believed that free trade would break down the negative effects of feudalism, but he ([1776] 1976:782) also felt that the division of labor would force workers into repetitive work that was mind numbing, rendering them unable to be good citizens.

In contrast to Smith, Mill emphasized the cultural benefits of trade. For Mill (1848:119), the economic advantages of commerce were "surpassed in importance by those of its effects which are intellectual and moral." He argued that international trade had the power to improve international morality by increasing the sense of international community. Mill (1848:119) was optimistic that commerce was bring- ing civilization to "barbarians" and teaching even patriots to see their own advantage in the wealth and progress of other countries. He noted that the benefits of trade had already won over even the main supporters of mercantilism, the selling classes. Whereas rival tradesmen had once been unable to see how their prosperity de- pended on the fortunes of other countries, they now understood how commercial countries derived their prosperity from one another.

For Mill, trade's positive impact on culture was associated with the third alleged benefit of trade, its ability to prevent war. He believed that trade, by making people aware of their common economic interests, would overcome the different political interests among nations that led to war. In fact, in his view, commerce had already begun to develop an international community of interest, "rapidly rendering war obsolete, by strengthening and multiplying the personal interests which are in natural opposition to it" (Mill, 1848:120). Mill (1848:219) noted that the selling classes' conversion to the cause of free trade had transformed the commercial spirit from a principal cause of war into one of the strongest obstacles to it. Because war was the only event that could stop the progress of civilization, Mill (1848:120) maintained that "international trade, in being the principle [sic] guarantee of the peace of the world, is the greatest permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race."

Mill's faith in trade's ability to create international harmony follows Ricardo's line of thinking, but not Smith's. Ricardo ([1821] 1973:81) noted that a perfectly free system of commerce "binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world," but did not empha- size this theme in his work. In contrast, as a number of scholars (Muller, 1993; Wyatt-Walter, 1996; Earle, [1943] 1966) have noted, Smith's work does not support the view that trade leads to increased international harmony. For Smith, national- istic antagonisms were powerful enough to overcome economic interests. For example, Smith ([1776] 1976:496) argued that greater trade between France and England would be advantageous, but "[b]eing neighbours, they are necessarily enemies, and the wealth and power of each becomes, upon that account, more formidable to the other." Therefore, paradoxically "what would increase the advan- tage of national friendship serves only to inflame the violence of national animosity." National antagonisms even made war popular with the residents of great empires, to whom it was a source of amusement, "providing a thousand visionary hopes of conquest and national glory" (Smith, [1776] 1976:920).

Despite their differences, these theorists generally emphasized that government intervention was less likely to benefit the nation than governmental restraint. As Mill ([1871] 1965:950) expressed it, "laisser-faire [sic], in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil." Each theorist, however, came up with a different view on what greater goods might justify protectionism. Although List ([1841] 1904:348) later charac- terized Smith as saying that the state should do nothing, among the early Liberals Smith allowed the greatest role for government activity.

CHRISTINE MARGERUM HARLEN 737

Classical Liberals'Justifications for Protectionism and Industrial Policy

One major classical Liberal rationale for protectionism was the promotion of national security. Adam Smith ([1776] 1976:689), in particular, emphasized the importance of government in this area, stating that "[t]he first duty of the sovereign" was "that of protecting the society from the violence and invasion of other inde- pendent societies." For this reason, Smith ([1776] 1976:464-65) argued in favor of the Navigation Acts, protectionist measures carried out for national security reasons. He even remarked that "[a]s defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations in England." It seems paradoxical that a work looking into the causes of the wealth of nations should place national security in even higher regard. Smith believed, however, that a nation that was unable to protect itself from foreign attack would lack the security necessary to develop politically and economically.

Compared with Smith, Mill and Ricardo had much more negative views of Britain's use of protectionism to promote national security. Writing just a few years after the Napoleonic Wars, Ricardo doubted that the Navigation Acts benefited the country. He ([1820] 1952:51) noted that they "enabled the ship-owner and the cotton manufacturer to injure the community" just as any protectionist measure benefited one trade but disadvantaged the rest of the country. Mill, on the other hand, objected to the Navigation Acts primarily because they had outlived their former usefulness. Mill ([1871] 1965:920) noted that the Acts "though economically disadvantageous, [were] politically expedient" at the time when the Dutch domi- nated shipping and were hostile to Britain. In his opinion, at that time Britain had rightly sacrificed economic benefits for increased security.

Another area that reflects the pragmatism of the Liberals is their attitude toward agricultural protectionism. Again, Smith is the least laissez-faire. Smith ([1776] 1976:539) supported free trade in grains in general, but noted that a small country might have to limit exports during a famine if other countries were doing so, because " [t]he very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another." Furthermore, Smith ([1776] 1976:471-72) rejected the immediate abolition of protectionism, including agricultural protectionism, because he believed that only a gradual decrease in protection would be fair to the producers.

In contrast, Ricardo ([1821] 1952:358) was a vocal opponent of agricultural protectionism, noting that "no measures could so much contribute towards our wealth and prosperity as repealing the Corn Laws, and paying off our debt." However, he followed Smith's reasoning in opposing the immediate abolition of those laws. Even so, Ricardo was still less protectionist than Smith, opposing the idea that agricultural protectionism might be necessary during a war. Ricardo ([1815] 1951:28-30) noted that Britain's experience during the Napoleonic Wars showed that foreign countries would not stop their grain shipments during a war, because they needed to continue exporting.

Like Ricardo, Mill sharply criticized Smith's argument for protecting agriculture, arguing that a cessation of food imports was unlikely since a country probably would not be at war with all foreign countries at once. Unlike Ricardo, Mill noted that nations often did stop their grain exports during a famine. Mill ([1871] 1965:594) hoped, however, that such practices would decrease as international morality improved for "if the greatest amount of good to mankind on the whole, were the end aimed at in the maxims of international conduct, such collective churlishness would certainly be condemned by them."

Smith and Mill also allowed nations to protect themselves with retaliatory tariffs. Smith ([1776] 1976:467) reluctantly approved of retaliatory tariffs as a means of forcing another country to open up its trade. Mill ([1871] 1965:856), however, shows

738 A Reappraisal of Classical Economic Nationalism

an interesting willingness to impose retaliatory duties to raise government revenue, arguing that "[t]he only mode by which a country can save itself from being a loser by the revenue duties imposed by other countries on its commodities, is to impose corresponding revenue duties on theirs," but he notes that these duties must not be prohibitive.

The most interesting classical Liberal exceptions to laissez-faire involve govern- ment promotion of industry, an area of great interest to Economic Nationalists. Smith's concern with national wealth led him to approve even of measures to promote certain types of business activity. His main concern was that they be conducted in a way that least harmed others (Viner, [1926] 1966:148-49). Smith ([1776] 1976:754-55) sanctioned the government's granting of temporary monop- olies in cases where merchants might not otherwise be willing to take the great risks necessary to establish a branch of trade. The monopoly was to be only temporary, since a permanent exclusion would disadvantage other subjects of the state. Smith ([1776] 1976:523) also suggested that the government encourage manufacturing by awarding premiums to artists and manufacturers who excelled at their crafts. Smith preferred these measures over bounties, the granting of which was more subject to partiality.

Compared with Smith, Mill offers less scope for government activity. Mill (1848: 487) noted just one case in which protectionist measures "on mere principles of political economy can be defensible ... when they are imposed temporarily (espe- cially in a young and rising nation)." Mill reasoned that an economically powerful nation might have an advantage in an industry simply because its people had acquired skill and experience by being the first producers. However, even in his first edition of The Principles of Political Economy, Mill sounded a cautious note. Mill (1848:487) argued that such infant industry protection should only be "confined to cases in which there is a good ground of assurance that an industry which it fosters will after a time be able to dispense with it." Furthermore, producers were only to receive aid during "the time strictly necessary for a fair trial of what they are capable of accomplishing" (Mill, 1848:487). After special interest groups in the United States and Australia used the infant industry argument to call for tariffs that Mill felt were unwarranted, he ([1868] 1972:1520-21) came to favor replacing tariff protection for industiy with direct annual grants, which would be more readily discontinued when they were no longer needed.

Despite some of the exceptions they made to laissez-faire principles, the early Economic Liberals were no mercantilists. The early Liberal closest to mercantilism, Smith, makes it clear that he envisaged government's role as primarily setting out the basic conditions necessary for an effective market. Smith was aware that Britain had acquired considerable economic power at the time when it carried out mercan- tilist policies, such as the Corn Laws and colonial expansion. Nonetheless, he argued that these policies had done more harm than good. Whereas the mercantilists had supported the development of trade networks with the colonies, Smith ([1776] 1976:495) argued that the colonial system had on balance hurt Britain. He argued that it had made Britain depend on the American market and drawn its attention from more profitable ventures in and near Europe. For Smith ([1776] 1976:540) the true cause of Britain's prosperity was the contemporaneous improvement in the legal protection of property. This change in the law, by assuring "every man that he shall enjoy the fruits of his own labour, is alone sufficient to make any country flourish, notwithstanding ... absurd regulations of commerce."

Hamilton and List on Trade

Economic Nationalism is often viewed as the opposite of Economic Liberalism. Gilpin (1987:172, 182) notes that, whereas Economic Liberals view trade positively,

CHRISTINE MARGERUM HARLEN 739

Economic Nationalists frequently regard trade negatively, particularly because of its negative cultural effects, and favor economic protectionism. It therefore might be expected that the early Economic Nationalists would have a negative interpre- tation of trade that would preclude them from sharing the Liberals' general faith in the progress toward peace. One might also expect that Hamilton and List generally preferred protectionism and saw few cultural and political benefits in adopting free trade.

In their writings, however, both Hamilton and List make clear that free trade was often a good thing. List even shared the Liberals' views of the cultural benefits of trade and faith in political union. Neither List nor Hamilton approved of Britain's Corn Laws and both were wary of unjustified protectionism. List ([1841] 1904:272) in particular criticized mercantilism for encouraging unwarranted protectionism.

Nonetheless, in their works Hamilton and List emphasized their disagreement with the Economic Liberals. Hamilton and List argued that while the Liberals were correct in identifying the benefits of free trade, they did not adequately address the problems of how economically and politically weak countries might ensure their national security in a world where free trade did not exist. As a result, Hamilton and List disagreed with the Liberals on the actions that economically weak nations could and should take when faced with foreign protectionist tariffs and, in the case of List, on how and when universal free trade might be achieved. Hamilton and List argued that agricultural countries with the potential to industrialize might need to use protectionist measures, emphasizing much more than Mill the importance of protecting infant industries.

Despite List's and Hamilton's greater emphasis on government activism to promote industrialization, they often borrowed Liberal ideas. While Alexander Hamilton's Report on Manufactures was the first notable critique of Smith, numerous passages in it follow those of Smith's Wealth of Nations, including a long verbatim uncited quote on the advantages of transportation networks (Hamilton, [1791] 1966:311). Although List frequently criticized the "Smithian school," as he called Liberalism, his work also contains some key elements of Liberal thought. While it is an exaggeration to describe List's National System of Political Economy as the practical application of the Wealth of Nations in the commercial policy of a backward country (Anson-Meyer, 1982:186), List's work was not a complete rejection of Smith, but rather a caution against directly importing his ideas into countries that were less politically and economically developed than those Smith had analyzed.

Although List and Hamilton have acquired a reputation for being protectionists, both believed that universal free trade was a worthwhile goal. List in particular made clear that free trade was the optimal policy for most countries. Both thinkers differed from the Economic Liberals in believing that it was not yet a completely desirable policy in certain economically weak countries for national security reasons and because economically strong countries retained protectionist policies.

At times, Hamilton and List criticized protectionist practices, most notably the Corn Laws, in ways reminiscent of Liberalism. In his Report on Manufactures, Hamilton harshly criticized the trade practices of industrialized nations, which allowed the United States to import essential manufactured goods, but prevented it from exporting its agricultural commodities. Hamilton ([1791] 1966:258) argued that such agricultural protectionism benefited no one:

[T]he manufacturing nations abrige [sic] the natural advantages of their situation, through an unwillingness to permit the Agricultural countries to enjoy the advantage of theirs, and sacrifice the interests of a mutually beneficial intercourse to the vain project of selling every thing and buying nothing [emphasis in original].

740 A Reappraisal of Classical Economic Nationalism

Like Hamilton, List ([1839] 1929:114) noted that Britain's Corn Laws hurt England by limiting its manufacturing.

The protectionism of the industrialized countries was a key reason why Hamilton and List argued for government support of industrialization in some less-developed countries. Hamilton ([1791] 1966:262) noted that "[i]f the systems of perfect liberty to industry and commerce were the prevailing system of nations," then "the arguments which dissuade a country in the predicament of the United States from the zealous pursuit of manufactures would doubtless have great force"; however, the prevalent policies of nations have "been regulated by an opposite spirit." Since the United States could not export its agricultural goods, it needed to develop a domestic market, which could only be created by fostering domestic manufacturing (Hamilton, [1791] 1966:230). Likewise, List ([1839] 1929:114) noted that it was Britain's Corn Laws that caused North America, Russia, and Germany to retaliate by adopting successful measures to develop competing manufacturing industries.

The emphasis on using industrial policies to deal with foreign protectionism marks a contrast between the Economic Liberals and the Economic Nationalists. Whereas Smith ([1776] 1976:471) alone among the three classical Liberals had been very pessimistic about the establishment of free trade, he differed from the Eco- nomic Nationalists in his prescription for how nations could cope with foreign protectionism, advocating retaliatory tariffs. Hamilton felt that such measures would be insufficient for the U.S. In an argument foreshadowing models of economic dependency, Hamilton ([1791] 1966:263) pointed out that the United States had a constant and increasing need of European goods, while Europe was only inconsis- tently and partially in need of U.S. goods. While the U.S. was too weak to force other countries toward free trade, the protectionism of other countries hurt it (Hamilton, [1775] 1963:127-31).

List was even more critical, stating that Smith's retaliatory tariffs "would lead to the most absurd and most ruinous of measures" (List, [1841] 1904:318). If a nation engaging in retaliatory tariffs was not qualified to become a manufacturing power, such tariffs would simply mean that it incurred high costs. If a nation was qualified to become a manufacturing power, it made little sense to provide protection to an industry, only to end it when the conflict subsided.

Hamilton and List furthermore felt that Smith was correct in noting that national defense was a solid justification for protectionism, but that he had not gone far enough in applying this rationale. Smith had restricted the national defense argument to commodities of direct relevance to the military. In contrast, List and Hamilton argued that national security generally required the development of a manufacturing base.

The national security rationale of Hamilton's major work on political economy, his Report on the Subject of Manufactures, is clear. It developed out of a House of Representatives' request for data on the country's manufactures and for suggestions on "means of promoting such as will tend to render the United States independent of foreign nations for military and other essential supplies" (Hamilton, [1791] 1966:230). At the time of Hamilton's Report, the United States was experiencing significant trade problems. As a result of the War of Independence, it had lost its trading ties with the British Empire. It also faced heavy tariffs from other European countries and lacked a navy strong enough to prevent disruptions of its foreign commerce (Cole, 1928:232; Hamilton, [1791] 1966:291). Hamilton was particularly concerned that trade problems could compromise American neutrality (Lycan, 1970:292). Even before American independence, Hamilton ([1774] 1963:56) had noted that greater American economic independence might render it more secure against the encroachments of European powers.

National security plays a somewhat different role in List's work, in part due to the strong influence of elements of nineteenth-century Liberalism. List shared

CHRISTINE MARGERUM HARLEN 741

Hamilton's emphasis on the power implications of trade and the need to foster industry. List, however, also shared Mill's interest in the progression of the world toward universal free trade and political union. Whereas for Mill, the mutual economic interests highlighted by free trade could lead to political union, for List, political union had to come first. The security of individual nations, rather than free trade, was List's key prerequisite for political union. Only when all of the nations capable of industrializing had attained an equal degree of culture and power would they have the level of secure independence necessary to develop "a universal republic." List (1841:103, 272) described this republic as "a union of nations of the earth whereby they recognize the same conditions of right among themselves and renounce redress." Although this union has been likened to the GATIT organization (Levi-Faur, 1997), List clearly had in mind a more ambitious plan: the creation of a "universal republic." This universal republic would not only promote trade, but also bring about "the establishment of perpetual peace" (List, 1841:103, 272).

List's and Hamilton's Restrictions on Protectionism and Industrial Policy

Even though Economic Nationalism has become associated with the idea that there is no natural comparative advantage (Gilpin, 1987:181), both Hamilton and List emphasized that protection was suitable only under certain circumstances. List made clear his belief that most countries benefited from free trade, while Hamilton presented an infant-industry argument that differed only slightly from Mill's. Furthermore, protectionism was just one of several means to the real end: greater national security through industrialization.

Hamilton has been viewed as a proponent of autarky because he ([1791] 1966:284) argued that every nation should aim to supply within itself "all the essentials of national supply. These comprise the means of subsistence, habitation, clothing, and defence" (Carr, 1941:155). Hamilton ([1791] 1966:291), however, further noted that protection to promote manufacturing should only occur "in certain cases and under certain reasonable limits." To receive protection, not only should an industry ideally be important to the national interest, it should also use raw materials that are available in the country, have no or few substitutes, be easy to foster, and provide material that could fill a wide range of uses (Hamilton, [1791] 1966:300). Even more important, Hamilton, foreshadowing Mill, noted that pro- tection should be temporary and only allowed for new undertakings. Hamilton ([1791] 1966:301) argued that "the continuance of bounties on manufactures long established must almost always be of questionable policy" because it indicated that there were inherent impediments to the success of an industry.

List also limited the justifiability of protectionism. List believed that some protectionism was necessary, but only because free trade alone would not bring about the equality essential for the creation of a universal republic. If a nation capable of industrializing had not yet done so, it was in the international interest for that country's government to aid industrialization, since such aid would help bring about the universal republic. Because protectionism was only justified if it aided industrialization, List ([1841] 1904:273) disapproved of agricultural protec- tionism and criticized mercantilists for endorsing such measures.

Like Hamilton, List approved of protectionism only when it was likely to lead to successful industrialization. List ([1841] 1904:247) ruled out the possibility of industrialization for all tropical countries, because of their climate, and for any country lacking "an extensive compact territory, large population, possession of natural resources, far advanced agriculture, a high degree of civilization and political development." List also opposed the adoption of protectionism in countries that had not reached the necessary level of political and economic development. Echoing Liberal statements on the educative benefits of free trade, List maintained

742 A Reappraisal of Classical Economic Nationalism

that free trade aided the development of these countries by exposing the population to greater civilization. For example, List ([1843] 1931:186-92) was highly critical of the protectionist policies of Hungary, arguing that they would fail because Hun- gary's feudalistic economic and social relations prevented industrialization. List ([1841] 1904:151) similarly criticized the protectionist policies of South America.

List also argued against protectionist policies for any country that had already achieved economic and manufacturing supremacy. List ([1841] 1904:272) criticized the mercantilists for failing to notice that such a manufacturing nation should abolish protectionism "to preserve her own manufactures and merchants from indolence, by permitting free competition in her own markets." In this regard, List ([1841] 1904:9) noted 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."

Even when a nation was justified in using protection, List placed limits on the amount and type of protection it should grant. He argued that the protective tariffs necessary to begin industrial development should be very moderate at first and only rise gradually. When an industry had become established, but was not yet supreme, protective tariffs were allowable "only so far as may be necessary for protecting the inland manufacturing power in its very roots" (List, [1841] 1904:144).

In short, List's arguments do not justify the protectionist reputation he has acquired. Some of the misunderstandings seem to arise from a conflation of List's works with those of the mercantilists because he, like them, was interested in developing state power. At times the ideas which List ([1841] 1904:272) emphasized to separate his ideas from those of the mercantilists have been ignored. These ideas include his much more limited justifications for protectionism and his belief in the future union of all nations.

Furthermore, for both List and Hamilton, protectionism was just one method of strengthening the industrial capacity of a nation. Hamilton ([1791] 1966:292) espoused a wide range of methods to aid manufacturers, including improving the rights of inventors, increasing regulation, and improving financial and transporta- tion services. List devoted considerable energy to various causes that promoted national strength, such as lowering tariff barriers between German states before unification and building a German railway network.

Conclusion

Although the early Economic Liberals and early Economic Nationalists have been portrayed as two tightly unified opposing schools, that view is oversimplified. Among the early Economic Liberals there was a general belief that free trade was the best policy, but there was considerable disagreement between Smith and his successors on the issues of trade's effect on culture and war. Among the Economic Nationalists, List's vision of political union reflects later Liberalism in a way that would not have been possible for Alexander Hamilton or Adam Smith.

While the unity within the two different groups of theorists has been overstated, so have the differences between the two groups. Despite their reputations as staunch advocates of laissez-faire policies, the early Liberals, especially Smith, recognized the need to make exceptions to free trade. Similarly, Hamilton and List recognized the need to place restrictions on protectionism. Like the Liberals, Hamilton and List saw universal free trade as a useful goal. However, they did not believe that the Liberals provided a realistic vision for many economically weak countries in a world where free trade was the exception. As a result, they at times supported Liberal arguments, criticizing Britain's Corn Laws as fiercely as Ricardo had. However, the

CHRISTINE MARGERUM HARLEN 743

Economic Nationalists were generally more protectionist than the Economic Liber- als. The economic and political weakness of their countries caused them to expand greatly on Smith's rationale for basing protectionism on national security consid- erations and to use the infant industry argument with fewer reservations than Mill later would. Because of the precarious situation of their countries, List and Hamilton were more concerned about the dangers of laissez-faire than they were about the dangers of government intervention.

The mischaracterization of Hamilton and List and, to some extent Smith, has important implications. Just as the misrepresentation of Smith has weakened Liberalism by unnecessarily linking it with utopianism (Wyatt-Walter, 1996:28), so too the mischaracterization of List and Hamilton has weakened Economic Nation- alism by unnecessarily associating it with autarky and the failure to recognize the benefits of free trade. As one of the key theories of international political economy, Economic Nationalism deserves to be better understood.

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