Sunday, January 19, 2014

Friedrich List - The Real Sources of Wealth and the American System of Political Economy

"The power to create wealth is infinitely more important than wealth itself."
Friedrich List (1789-1846) was born in Reutlingen, Württemberg, in what was not yet a united Germany. As a young economics professor in the aftermath of the Congress of Vienna (1815), he worked for unity and protective tariffs among the tiny, feudalist-ruled German principalities. His German Trade and Tradesmen’s Union [Allgemeiner Deutscher Handels- und Gewerbeverein] aimed for a free republican constitution and national promotion of home industries. List demanded protection from the cheap imports from Britain’s global slave empire that were flooding the markets, fearing that the German people would end up as “drawers of water and hewers of wood for Britain.” Austria’s Prince Metternich saw List as an intolerably dangerous “agitator”, and arranged to have him arrested and jailed, forcing him eventually in 1824 to emigrate to America.

Contrary to Metternich’s intention, that led to the most fertile collaboration with Americans such as Henry Carey and Henry Clay. In a speech before the Pennsylvania Society for the Promotion of Manufacture and the Mechanic Arts in 1827, List threw down the gauntlet: “I herewith declare war against the system of Adam Smith on behalf of the American Systemof Political Economy.” His book “Outlines on American Political Economy” was written that year. While in the United States, he opened coal mines, helped plan a canal system, designed rail transport, and proposed the cutting of a Panama Canal. He returned to Germany in 1830, becoming the American Consul to Leipzig. There he launched his program for a national railway network, becoming known as the “Father of the German Railways”. His program for the expansion of the Zollverein [Customs Union] was implemented in 1834. He gave us one of today’s best works on economics, published in 1841 as “The National System of Political Economy”, which tore apart the British free-trade ideology:

The causes of wealth are something totally different than wealth itself. An individual can possess wealth, i.e., exchange value, but if he does not have the power to create more valuable items than he consumes, he will become impoverished. An individual may be poor, but if he has the power to create a larger amount of valuable items than he consumes, he becomes rich. The power to create wealth is therefore infinitely more important than wealth itself; it guarantees not only the possession and increase of what has been acquired, but also the replacement of what has been lost. This is even more the case with whole nations, that cannot live on pensions, than with private persons. Germany has been ravaged in every century by plague, by famine, or by internal and external wars, but it has always managed to save much of its productive forces, and so it returned quickly to prosperity, while the rich and powerful, but despot- and priest-ridden Spain, in full possession of domestic peace, sank ever deeper into poverty and misery. The same Sun shines upon the Spaniards, they have the same earth and land, their mines are just as rich, they are the same people as before the discovery of America and before the introduction of the Inquisition; but this people has gradually lost its productive power, so it has become poor and miserable. The North American liberation war has cost that nation hundreds of millions, but through the acquisition of national independence their productive power was strengthened immeasurably, so they could create much greater riches within a few years after the peace than they had ever possessed.

[...] The motto, ‘laissez faire, laissez passer’ is [...] one that sounds no less pleasant to robbers, cheaters, and thieves than to the merchant, and therefore one ought to regard this maxim with suspicion [...] This perversity, to surrender the interests of manufacturing and agriculture to the unfettered demands of trade, is a natural consequence of that theory, which universally looks only at prices, never allowing for the work required to produce, and views the entire world as one single and indivisible republic of merchants. This school of thought [Adam Smith’s] does not see that the merchant can achieve his purpose — obtaining profits by trade, even at the expense of agriculture and manufacturing, at the expense of the productive forces—just as easily through the independence and autonomy of nations. It’s all the same to him, and it is in the nature of his business and his aspirations that he cannot give a fig about the effect that the way in which he imports or exports goods might have upon the morality, the prosperity, and the power of the nation. He imports poisons just as he imports medicines. He enervates entire nations with opium and distilled spirits. Whether he provides hundreds of thousands of jobs and livelihood through his imports and chicanery, or whether an equal number are thus brought to beggary, it means nothing to a businessman, so long as it improves his balance sheet.

No sane person should have any difficulty following List’s arguments: Surrendering all to the “invisible hand” of the market is an anarchist concept of freedom, which quite intentionally does not differentiate between thievery and productive investment. Hence the British ideology of free trade was refuted already by Gottfried Leibniz and Jean-Baptiste Colbert in the 17th Century, Alexander Hamilton in the 18th Century, and again by Henry Carey, Sergei Yulevich Witte and many others in the 19th Century.

However, in more recent times British Prime Minister MargaretThatcher (1979-1990) had been a fervent follower of the Austrian School’s economic anarchism. She had read with enthusiasm Friedrich von Hayek’s The Road to Serfdom, and subsequently argued that any social spending is tantamount to socialism. With one idiotic simplification went another: that free trade was synonymous with freedom. The October 1986 “Big Bang” was the name for Thatcher’s purported blow for freedom, the sudden and radical deregulation of financial markets. With the abolition of capital controls, and the exorbitant payment of bonuses to executives, the fattest financial fat cats from all over the world could romp freely in London. London became the largest financial center in the world, with spectacular growth rates of the new sector. In the U.S. the deregulation of infrastructure and the systematic reduction of investment in the real economy were promoted by certain Rockefeller-protégés of the Mont Pelerin Society, and finally set into place under President Jimmy Carter (1977–1981). The process was accelerated significantly under Ronald Reagan (1981–1989), and thirty years later, there is not much left of industrial and productive jobs in the U.S. In the example of Detroit, the collapse of urban culture in a former major industrialized nation is studied by Asian anthropologists.

Free trade and deregulation were devastating failures whenever and wherever they were practiced. They were leading directly into the current global breakdown crisis, which is orchestrated by a fascist dictatorship of white collar terrorists from the City of London, Wall Street, Frankfurt, Riad and Doha. These fanatics are employing war-machines called FED, ECB, IMF, WTO, UN, and NATO to generate astronomical profits for the few, and misery and failed states for the many. However, at the same time the countries of the Shanghai Cooperation Organization (SCO), the Eurasian Union, and the BRIIC keep proving that real economic growth and human progress are possible also in today’s world. Students of Leibniz, Colbert and Hamilton, List, Carey and Witte are demonstrating how to use power wisely in order to create wealth from industrial production, how to regulate the financial sector, how to facilitate high-quality public education, research, healthcare and investment, and how to establish and protect social and economic rights of working people and their families.