The Historical School: From Friedrich List to the Social Market Economy

Book two, «Theory» of the «National System of Political Economy», is devoted to analyzing the views of the economists of the classical school, F. Kenet, A. Smith, J.-B. Say, whose theories he outlines, subjected to sharp criticism, and develops the theoretical foundations of his system. List notes, «Kené, who first originated the idea of universal freedom of trade, extended the scope of his research to the whole of humanity, having no idea of a separate nation… he would like „merchants of all nations to form one trade republic.“ Clearly, Kenet had in mind cosmopolitan economics, i.e., that science which teaches how the human race can secure its own welfare, as opposed to political economy, or that science which confines itself to the study of how a given nation, under known world relations, by means of agriculture, industry, and commerce, achieves prosperity, civilization, and power…Adam Smith, like Kenet, did not think of writing a treatise on the subject of political economy, i.e., the policy which individual nations should follow in order to make progress in their economic condition.»57

Classical political economy only overlooked the essence of nationalities, their interests and their special conditions. Each nation has its own path of development, argued List. The final unification of individual nations on an economic basis is possible only when all nations fully develop their productive forces. Therefore, List noted, not for every nation and not at any time can be applied the same common measures of economic policy for all. What is useful for one nation may be premature for another, as it does not have the appropriate level of development of productive forces. Therefore, the protectionist system is the only means to raise lagging nations to the level of the nations ahead of them. List notes «the protectionist system is, from this point of view, a powerful force drawing nations towards the ultimate goal of the association of nations, and hence towards true free trade. From the same point of view, national (political) economy is a science which, recognizing the existing interests and individual conditions of nations, teaches how each of them can rise to the same degree of economic development at which its association with other nations of equal culture on the basis of free trade becomes possible and profitable»58.

Criticizing the labor theory of value (value), List put forward the theory of productive forces. If a man can possess wealth, i.e. exchange value, but if he does not possess the ability to produce more valuable objects than he consumes, he will be poor. On the other hand, a man may be poor, but if he has the power to produce quantities of value greater than he consumes, he will become rich»59. The ability to create wealth is infinitely more important than wealth itself, according to List. List considered the main component of productive forces to be «mental capital» – it is the main source of wealth. And the increase of material capital of the nation depends on the increase of its mental capital and vice versa, according to List. In contrast to A. Smith’s doctrine of productive labor, List recognized as productive the activities of those who run the court and administration, in whose hands education and religious upbringing, who moves science, works in the field of art, etc. In List’s view, the well-being of a nation is conditioned not by the quantity of wealth, as the classics claim, but by the degree of development of the productive forces that create it. It is not only important for a nation to have the totality of material goods available to meet current needs, but it is even more important to retain «the ability to create and increase wealth,» for this ability is more important than wealth itself, List noted. Sometimes it may happen that it is necessary to sacrifice cash wealth in order to develop and increase it in the future, according to List. A nation must sacrifice and put up with the lack of material wealth in order to acquire the intellectual and social strength to develop it; it must sacrifice present benefits in order to secure its future, he believed. Let us turn to the primary source: in reference to the classical school he writes: «It is evident now how strangely mistaken the school was in making material wealth or exchange values alone the subject of its investigations and in considering only physical labor as productive force. In its opinion, he who raises pigs is a productive member of society, and he who raises human beings is not productive. He who makes balalaikas and harmonies for sale is a productive member of society, while the greatest virtuosos, just because they cannot bring what they perform to the market, are not productive. The physician who saves the life of his patient does not belong to the class of producers, but the apothecary boy belongs to it, although the exchange-values, or pills, which he manufactures, exist only for a few minutes, and then are utterly destroyed. The productivity of Newton, Watt, Kepler is inferior to that of the donkey, the horse, the pack ox, which have recently been placed by MacCulloch among the productive members of human society… The above errors and contradictions of the school may be easily proved from the standpoint of the theory of productive forces. Those who raise pigs or make balalaikas and pills are, of course, productive, but incomparably more productive are the educators of youth and the teachers of adults, virtuosos, doctors, judges and administrators. The former produce exchange values, the latter create productive forces: one of these latter prepares the next generation for production, another develops the morality and religious feeling of the present generation, a third contributes to the ennobling and elevation of the human spirit, a fourth saves the productive forces of his patients, a fifth secures the state of law, a sixth the social order, a seventh, finally, by his art and the pleasures he gives, excites the productivity of exchange values. If laws and public institutions do not directly produce values, they create productive forces; and Say is mistaken when he asserts that nations enrich themselves under every mode of government and that laws cannot create wealth.»60

The highest form of development of productive forces, according to F.List, is manufactory, i.e. the development of manufacturing industry. According to F.List, it is in it that all material and social forces of the nation – the use of natural forces of the country, division of labor, increase in demand, market, increase in wages and welfare of the population, increase in profit, rent, etc. – find the highest development in comparison with previous economic forms. – find their highest development in comparison with previous economic forms. And the protectionist system is «the only means of raising the backward countries to the level of the nations that have preceded them, which by nature have not received any eternal monopoly of manufactory industry, but have only gained in time over other nations.»61

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