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A Reappraisal of Classical Economic Nationalism and Economic Liberalism

Author(s): Christine Margerum Harlen

Source: International Studies Quarterly, Vol. 43, No. 4 (Dec., 1999), pp. 733-744
Published by: Blackwell Publishing on behalf of The International Studies Association
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(1999) 43, 733-744

A Reappraisal of Classical Economic

Nationalism and Economic Liberalism


The mischaracterizationoftheworksoftheearlyEconomicNationalists
and earlyEconomicLiberalshas obscuredboththevariety withineach
schooland theconnections betweenthem.Manyscholarshavewritten
aboutmisinterpretations ofAdamSmith'sideas,butfewhavecorrected
ists,AlexanderHamiltonand Friedrich List.ListandHamiltonhavebeen
falselyportrayed advocatesof autarkyand unlimited
as mercantilistic
protectionism.A comparison oftheirworks withthoseoftheleadingearly
morecomplexpattern. Hamilton'sand List'sideas,ratherthanbeingthe
antithesisof Liberalism,are a synthesis of it and mercantilism.
reappraisalindicatesthatsome of the more controversial aspectsof
EconomicNationalism, such as its promotionof autarky, are not an

Althoughthe classicalworksof Economic Nationalismand Economic Liberalism

continueto influenceopinionon theproperrole ofthestatein promotingeconomic
development,manyunderstandingsofthe differences betweenthesetwoschoolsof
thoughtare mistakenor incomplete.Since otherscholarshave writtenextensively
about the mischaracterization
of the earlyLiberals,thisarticlewill focusmore on
the Economic Nationalists.Often there has not been enough recognitionthat
Economic Nationalismand Economic Liberalismare neitheras internallyunified
schools of thoughtas oftenportrayednor as easily separated. In particular,the
Liberalelementsin theworksofthemostnotableNationalists,AlexanderHamilton
and FriedrichList,have been underemphasized.

The Mischaracterizationof Economic Liberals and Economic Nationalists

Partiallyaccurate understandingsof the early Economic Liberals and Economic
Nationalistsabound. Numerousauthorshavewrittenabout thewaysinwhichAdam
Smith's work has been misinterpretedand how it differsfromcurrentunder-
standingsof Liberalism(Viner,[1926] 1966; Muller,1993). As Wyatt-Walter (1996)
has pointedout,Adam Smith'sviewofinternationalrelationswas oftencloserto the
Realist or mercantilisttraditionsthan to the Liberal Internationalismwithwhich
some scholarshave associatedhim. In contrastto Smith,Ricardoand Mill fitbetter
intocommonlyaccepted understandingsof Liberalism.

note:The authoris gratefulto RhiannionVickers,Ricardo Blaug, and anonymouisrefereesfortheirvaluable

commentson earlierversionsand to MeredithWoo-Cumingsforher ear-ly encouragementof thisproject.
C 1999International
350 MainStreet,Malden,MA02148,USA,and 108 CowleyRoad,OxfordOX4 IJF,UK
734 A Reappraisal

Like Smith,Hamilton and List have not alwaysbeen portrayedaccurately,but

relativelylittlehas been writtenabout the mischaracterization of theirwork.Such
mischaracterizations are commonplace:evenleadingscholarshave overemphasized
the protectionistnatureof Listand Hamilton.Carr (1941:155), forexample, states
thatHamilton's ideas supportautarky,failingto note the qualificationsHamilton
put on protectionism.More recently,internationalpoliticaleconomyscholarshave
creditedHamilton and Listwiththe popularityof protectionismin the late nine-
teenthcentury.Rosecrance(1985:98) statesthat"[w]hentariffs were reimposedin
the 1880s, nations,followingthe dictatesofAlexanderHamiltonand FriedrichList
[emphasisadded], agreed thatnationsought to endeavor to possess withinthem-
selves all the elements of national supply." Gilpin (1987:181) likewise credits
Hamilton's ideas withsupportingthe high U.S. tarifflevels of the post-CivilWar
period and popularizingautarky.
However,in the twocountrieswhereListand Hamiltonhad the mostinfluence,
the United Statesand Germany,levelsof protectionrose much higherthaneither
theoristwould have endorsed. Hamiltonwanted to limittariffs to 15 percentand
use the proceeds solelyforproductionbounties.Under the tariff systemof the late
nineteenthcentury,the governmentprotectedindustrywithmuch higher tariffs
and rejectedbounties,whichcostmoneyand did notretaliatedirectlyagainstBritish
merchantsand manufacturers(Miller, 1959:299). Likewise,List's ideas did not
support the way in which Germanyturned towardprotectionism.Althoughthe
German HistoricalSchool, whichList founded,has been creditedwithBismarck's
extensionoftariff protectionto grainsand manufactures in 1879 (Gilpin,1987:181),
List himselfhad alwaysargued againstagriculturalprotectionism.
The confusionoverwhat List and Hamilton said is surprising,since theirideas
can be expressed rathersimply.Hamilton and List both supportedfree trade in
principle.However,theybelieved thatfreetrade was only possible under certain
conditionsthatdid not existfortheireconomicallyweak,politicallydivided coun-
tries.As a result,theysupportedlimitedtypesofprotectionto promoteindustriali-
zation in countrieswiththe necessarycapabilities.
If Hamilton'sand List's ideas can be explained so clearly,whyis thereso much
confusionabout them? First,followersof Hamilton and List used the patriotic
credentialsof both men to give intellectualcredibilityto more protectionistideas
(Vandenberg,1921:196). Both men were national heroes. Hamilton was the first
U.S. Secretaryof theTreasuryand one of the authorsof theFederalist Papers,while
List was a well-knownproponentof German unification.Second, other Economic
Nationalistswere muchmoreextreme.Some Economic Nationalists,such as Henry
Carey in his lateryearsand Simon Patten,did supportalmostuniversalprotection
forindustry and agriculture.Others,suchasJohannGottliebFichte,even supported
autarky.Althoughcontrastingthe earlyLiberalswiththe more extremeEconomic
Nationalistswould be easy,itwould not be usefulbecause the lattertheoristshave
faded intorelativeobscurity.
The worksof Hamilton and List have been more enduringthan those of their
more extremecounterpartsbecause theyprovidean interestingsynthesisof Liber-
alism and mercantilism.Hamilton and List are sometimesportrayedas being
successorsofjustthe mercantilists. Gilpin,forexample,consistently drawsparallels
betweenthe twotheories:"the rootsof economic nationalismcan be foundin the
mercantilist writersof the seventeenthand eighteenthcenturies,""Hamiltonmod-
ernizedtheeighteenthcenturymercantilist thesis,"and "Likeother mercantilists
him[emphasis added], Hamilton identifiednational powerwiththe development
of manufactures"(Gilpin, 1987:180).
Gilpin does not mentionthe stronginfluenceof Liberalismon Hamilton and
List,even thoughit is readilyapparent in theirwritings.Hamilton and List limit
theconditionsunderwhichprotectionisjustifiablebecause theyaccept some ofthe

Liberal argumentsabout freetrade.Since the Liberalsthemselvesrecognizedsome

limitationson thedesirability betweenthesetwoschools
on the issue of freetrade are more complex than the simple endorsementof free
tradeversusprotectionism. The timeat whichthesetheoristswrotealso matters.Of
the leading threeLiberals,onlySmith,who fitsleastwell intogeneral descriptions
ofLiberalism,was earlyenough to influenceHamilton'swritings.List,however,was
the contemporaryof Ricardo and Mill and some of List'sideas reflectlaterLiberal

Smith,Ricardo, and Mill on Trade

As Gilpin notes, the writingsof Smith, Ricardo, and Mill are at the roots of
modern-dayLiberalism.Gilpinliststhreemain generalaspectsofLiberals'attitudes
towardtrade: theybelieved,first,thatit promoteseconomic growthand expands
the possibilitiesof economicconsumption;second, thatit improvesthevalues and
ideas of society,and third,thatitwas "a forceforpeace because theybelieve that
economic interdependencecreatespositivebonds among peoples and promotesa
harmonyof interestsamong societies"(Gilpin, 1987:171-72). Yet while the three
earlyLiberals all supportedthe firsttenetof Liberalismmentioned,Smith'swork
clearlydoes not supportthe last twotenets.
The wealth-creating aspectsof freetradeplayed a centralrole in the thoughtof
the earlyEconomic Liberals. Moral philosopherAdam Smithappropriatelytitled
his greatestworkon politicaleconomy"An Inquiryinto the Nature and Causes of
theWealthof Nations."Smithargued thatthe mercantilists had erred in believing
thattherewas a fixedamountofwealth.By defininga nation'swealthas the value
of the produce of itsland and labor,Smithshowed thata nationcreatedwealthas
itproduced more.Free-tradepolicieshelped to increasenationalwealthbymaking
possible a greaterspecializationof labor and therebyincreasingproduction.Free
trade benefitednotjust producers,but also consumers,who could purchase goods
cheaply, and countries,which could exchange theirexcess goods for ones they
needed (Smith,[1776] 1976:446).
Like Smith,Ricardo emphasized thatfreetradewould increasenationalwealth.
He ([1821] 1973:214) argued that"theobjectofall tradeis to increaseproductions,"
because capital under freetradeshould go whereit is mostuseful.Ricardo ([1821]
1973:210) disapprovedof high tariffs and exportbountiesbecause theydecreased
production,arguingthattheirsole effectwas "[t]o diverta portionof capital to an
employmentwhichit would not naturallyseek. It causes a perniciousdistribution
of the general funds of the society-it bribes a manufacturerto commence or
continue in a comparativelyless profitableemployment."Because of this less
advantageoususe ofcapital,protectionism decreasedwealthin generalbynotgiving
to thedomesticeconomyall thatithad takenfromtheforeignone (Ricardo,[1821]
The thirdmajor classical Liberal,John StuartMill, generallyagreed thattrade
promotedeconomic wealth,but provided an importantexception to thisgeneral
rule. Mill argued thatsome industrializing countriescould increasetheirwealthby
protectingdeveloping industries.Mill's developmentof the infantindustryargu-
mentshowsthe pragmaticnatureof his thinking.Mill generallyopposed govern-
ment interferencein free trade because it worked against the general good by
preventingthemostbeneficialutilizationofresources,notbecause ofan ideological
aversionto protectionism.
On the second general aspect of Liberalism,the abilityof trade to improvethe
culturaland politicallifeofa country,thereis a sharp splitbetweenSmithand Mill.
WhileSmithbelieved thatthedivisionoflabor,bothnationallyand internationally,
would promotewealth,he was ambivalentabout itsculturaleffects.Smith([1776]
736 A Reappraisal

1976:418-19) believed that free trade would break down the negativeeffectsof
feudalism,but he ([1776] 1976:782) also feltthatthe divisionof labor would force
workersintorepetitiveworkthatwas mind numbing,renderingthemunable to be
good citizens.
In contrastto Smith,Mill emphasized the culturalbenefitsof trade. For Mill
(1848:119), theeconomicadvantagesofcommercewere "surpassedin importance
bythoseofitseffects whichare intellectualand moral."He argued thatinternational
trade had the power to improveinternationalmoralityby increasingthe sense of
internationalcommunity.Mill (1848:119) was optimisticthatcommercewas bring-
ingcivilizationto"barbarians"and teachingevenpatriotsto see theirownadvantage
in the wealthand progressof othercountries.He noted thatthe benefitsof trade
had alreadywon overeven the main supportersofmercantilism, thesellingclasses.
Whereas rival tradesmenhad once been unable to see how theirprosperityde-
pended on the fortunesof othercountries,theynow understoodhow commercial
countriesderivedtheirprosperityfromone another.
For Mill,trade'spositiveimpacton culturewas associatedwiththe thirdalleged
benefitoftrade,itsabilityto preventwar.He believedthattrade,bymakingpeople
aware of theircommon economic interests, would overcomethe different political
interestsamong nationsthatled to war. In fact,in his view,commercehad already
begun to develop an internationalcommunityof interest,"rapidlyrenderingwar
obsolete, by strengtheningand multiplyingthe personal interestswhich are in
naturalopposition to it" (Mill, 1848:120). Mill (1848:219) noted that the selling
classes' conversionto thecause offreetradehad transformed thecommercialspirit
froma principalcause ofwar into one of the strongestobstaclesto it. Because war
was the only event that could stop the progress of civilization,Mill (1848:120)
maintainedthat"internationaltrade,in being the principle[sic]guaranteeof the
peace oftheworld,is thegreatestpermanentsecurity fortheuninterrupted progress
of the ideas, the institutions,and the characterof the human race."
Mill'sfaithin trade'sabilitytocreateinternationalharmonyfollowsRicardo'sline
of thinking,but not Smith's.Ricardo ([1821] 1973:81) noted thata perfectlyfree
systemofcommerce"bindstogether,byone commontieofinterestand intercourse,
theuniversalsocietyofnationsthroughoutthecivilizedworld,"butdid notempha-
size this theme in his work. In contrast,as a number of scholars (Muller, 1993;
Wyatt-Walter, 1996; Earle, [1943] 1966) have noted,Smith'sworkdoes not support
theviewthattradeleads to increasedinternationalharmony.For Smith,national-
istic antagonismswere powerfulenough to overcome economic interests.For
example, Smith([1776] 1976:496) argued thatgreatertrade betweenFrance 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
formidableto theother."Therefore,paradoxically"whatwould increasetheadvan-
tageofnationalfriendshipservesonlyto inflametheviolenceofnationalanimosity."
National antagonismseven made war popular withthe residentsof greatempires,
to whom it was a source of amusement,"providinga thousandvisionaryhopes of
conquestand nationalglory"(Smith,[1776] 1976:920).
Despite theirdifferences, thesetheoristsgenerallyemphasized thatgovernment
intervention was less likelyto benefitthe nation than governmentalrestraint.As
Mill ([1871] 1965:950) expressed it, "laisser-faire[sic], in short,should be the
generalpractice:everydeparturefromit,unless requiredby some greatgood, is a
certainevil." Each theorist,however,came up witha different viewon whatgreater
goods mightjustifyprotectionism.AlthoughList ([1841] 1904:348) later charac-
terizedSmithas sayingthatthe stateshould do nothing,among the earlyLiberals
Smithallowed the greatestrole forgovernmentactivity.

and IndustrialPolicy
One major classical Liberal rationale for protectionismwas the promotion of
national security.Adam Smith ([1776] 1976:689), in particular,emphasized the
importanceofgovernmentin thisarea, statingthat"[t]hefirstdutyofthesovereign"
was "thatof protectingthe societyfromthe violence and invasionof other inde-
pendent societies."For thisreason,Smith([1776] 1976:464-65) argued in favorof
theNavigationActs,protectionist measurescarriedoutfornationalsecurity reasons.
He even remarkedthat"[a]s defence,however,is of much more importancethan
opulence, the act of navigation is, perhaps, the wisest of all the commercial
regulationsin England." It seems paradoxical thata worklooking into the causes
ofthewealthofnationsshouldplace nationalsecurityin even higherregard.Smith
believed,however,thata nationthatwas unable to protectitselffromforeignattack
would lack the securitynecessaryto develop politicallyand economically.
Compared with Smith, Mill and Ricardo had much more negative views of
Britain'suse of protectionismto promotenationalsecurity.Writing just a fewyears
afterthe Napoleonic Wars,Ricardodoubted thatthe NavigationActsbenefitedthe
country.He ([1820] 1952:51) noted that they"enabled the ship-ownerand the
cotton manufacturerto injure the community"just as any protectionistmeasure
benefitedone trade but disadvantagedthe restof the country.Mill, on the other
hand, objected to the NavigationActs primarilybecause theyhad outlivedtheir
formerusefulness.Mill ([1871] 1965:920) noted thattheActs"thougheconomically
disadvantageous,[were]politicallyexpedient" at the timewhen the Dutch domi-
nated shippingand were hostileto Britain.In his opinion,at thattimeBritainhad
Anotherarea thatreflectsthepragmatismof the Liberalsis theirattitudetoward
agriculturalprotectionism.Again, Smith is the least laissez-faire.Smith ([1776]
1976:539) supportedfreetradein grainsin general,butnoted thata smallcountry
mighthave tolimitexportsduringa famineifothercountriesweredoing so,because
" [t]heverybad policyofone countrymaythusrenderitin some measuredangerous
and imprudentto establishwhatwould otherwisebe the best policy in another."
Furthermore,Smith ([1776] 1976:471-72) rejected the immediate abolition of
protectionism, includingagriculturalprotectionism, because he believed thatonly
a gradual decrease in protectionwould be fairto the producers.
In contrast,Ricardo ([1821] 1952:358) was a vocal opponent of agricultural
protectionism,noting that "no measures could so much contributetowardsour
wealth and prosperityas repealing the Corn Laws, and paying offour debt."
However,he followedSmith'sreasoning in opposing the immediateabolition of
those laws. Even so, Ricardo was stillless protectionistthan Smith,opposing the
idea that agriculturalprotectionismmight be necessaryduring a war. Ricardo
([1815] 1951:28-30) noted thatBritain'sexperience duringthe Napoleonic Wars
showed thatforeigncountrieswould not stop theirgrain shipmentsduringa war,
because theyneeded to continueexporting.
Like Ricardo,Mill sharplycriticizedSmith'sargumentforprotectingagriculture,
arguingthata cessationoffoodimportswas unlikelysincea countryprobablywould
not be at war withall foreigncountriesat once. Unlike Ricardo, Mill noted that
nationsoftendid stop theirgrainexportsduringa famine.Mill ([1871] 1965:594)
hoped, however,that such practices would decrease as internationalmorality
improvedfor"ifthe greatestamount of good to mankindon the whole,were the
end aimed at in the maximsof internationalconduct,such collectivechurlishness
would certainlybe condemned by them."
Smithand Mill also allowed nationsto protectthemselveswithretaliatory tariffs.
Smith ([1776] 1976:467) reluctantlyapproved of retaliatorytariffs as a means of
forcinganothercountryto open up itstrade.Mill([1871] 1965:856), however,shows
738 A Reappraisal

an interesting willingnessto impose retaliatory dutiesto raise governmentrevenue,

arguingthat"[t]heonlymode bywhicha countrycan save itselffrombeing a loser
by the revenuedutiesimposed by othercountrieson itscommodities,is to impose
correspondingrevenuedutieson theirs,"buthe notesthatthesedutiesmustnotbe
The mostinterestingclassicalLiberal exceptionsto laissez-faireinvolvegovern-
ment promotionof industry,an area of great interestto 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 thatleast harmed others(Viner,[1926] 1966:148-49). Smith
([1776] 1976:754-55) sanctionedthegovernment'sgrantingoftemporarymonop-
olies in cases wheremerchantsmightnot otherwisebe willingto takethegreatrisks
necessaryto establisha branchof trade.The monopolywas to be onlytemporary,
since a permanentexclusionwould disadvantageothersubjectsof the state.Smith
([1776] 1976:523) also suggestedthatthegovernmentencouragemanufacturing by
awardingpremiumsto artistsand manufacturers who excelled at theircrafts.Smith
preferredthesemeasuresover bounties,the grantingofwhichwas more subjectto
Compared withSmith,Mill offersless scope forgovernmentactivity. Mill (1848:
487) notedjust one case in which protectionistmeasures "on mere principlesof
politicaleconomycan be defensible... when theyare imposed temporarily(espe-
ciallyin a youngand risingnation)." Mill reasoned thatan economicallypowerful
nation might have an advantage in an industrysimplybecause its people had
acquired skilland experiencebybeingthefirstproducers.However,even in hisfirst
edition of The Principlesof PoliticalEconomy,Mill sounded a cautious note. Mill
(1848:487) argued thatsuch infantindustryprotectionshould onlybe "confinedto
cases in whichthereis a good groundof assurancethatan industrywhichit fosters
willaftera timebe able to dispense withit." Furthermore,producerswere onlyto
receiveaid during"thetimestrictly necessaryfora fairtrialofwhattheyare capable
ofaccomplishing"(Mill,1848:487). Afterspecialinterestgroupsin theUnitedStates
and Australiaused the infantindustryargumentto call fortariffs thatMill feltwere
unwarranted,he ([1868] 1972:1520-21) came to favorreplacing tariffprotection
forindustiywithdirectannual grants,whichwould be more readilydiscontinued
when theywere no longerneeded.
Despite some of the exceptionstheymade to laissez-faireprinciples,the early
EconomicLiberalswereno mercantilists. The earlyLiberal closestto mercantilism,
Smith,makes it clear thathe envisagedgovernment'srole as primarilysettingout
thebasic conditionsnecessaryforan effective market.Smithwas aware thatBritain
had acquired considerableeconomicpowerat the timewhenitcarriedout mercan-
tilistpolicies,suchas theCorn Lawsand colonialexpansion.Nonetheless,he argued
thatthesepolicies had done more harm than good. Whereasthe mercantilists had
supported the developmentof trade networkswith the colonies, Smith ([1776]
1976:495) argued thatthe colonial systemhad on balance hurtBritain.He argued
thatit had made Britaindepend on the Americanmarketand drawnitsattention
frommore profitableventuresin and near Europe. For Smith([1776] 1976:540)
thetruecause ofBritain'sprosperity was thecontemporaneousimprovementin the
legal protectionof property.This change in the law,by assuring"everyman that
he shall enjoy the fruitsof his own labour, is alone sufficient to make any country
flourish,notwithstanding ... absurd regulationsof commerce."

Hamilton and List on Trade

Economic Nationalism is oftenviewed as the opposite of Economic Liberalism.
Gilpin(1987:172, 182) notesthat,whereasEconomic Liberalsviewtradepositively,

Economic Nationalistsfrequentlyregard trade negatively,particularlybecause of

its negativeculturaleffects,and favoreconomic protectionism.It thereforemight
be expected thatthe earlyEconomic Nationalistswould have a negativeinterpre-
tationof trade thatwould preclude themfromsharingthe Liberals' general faith
in the progress toward peace. One might also expect that Hamilton and List
generallypreferredprotectionismand saw fewculturaland political benefitsin
adopting freetrade.
In theirwritings,however,bothHamiltonand Listmake clear thatfreetradewas
oftena good thing.List even shared the Liberals' viewsof the culturalbenefitsof
trade and faithin politicalunion. NeitherList nor Hamiltonapproved of Britain's
Corn Laws and bothwerewaryofunjustifiedprotectionism.List ([1841] 1904:272)
in particularcriticizedmercantilismforencouragingunwarrantedprotectionism.
Nonetheless,in theirworksHamilton and List emphasized theirdisagreement
withthe Economic Liberals.Hamiltonand Listargued thatwhilethe Liberalswere
correctin identifying thebenefitsoffreetrade,theydid not adequatelyaddress the
problems of how economicallyand politicallyweak countriesmightensure their
nationalsecurityin a worldwherefreetradedid notexist.As a result,Hamiltonand
ListdisagreedwiththeLiberalson theactionsthateconomicallyweak nationscould
and should takewhenfacedwithforeignprotectionist and, in thecase ofList,
on howand whenuniversalfreetrademightbe achieved.Hamiltonand Listargued
that agriculturalcountrieswith the potential to industrializemightneed to use
protectionistmeasures, emphasizing much more than Mill the importance of
protecting infant industries.
Despite List's and Hamilton's greater emphasis on governmentactivismto
promote industrialization,they often borrowed Liberal ideas. While Alexander
Hamilton'sReportonManufactures was thefirstnotablecritiqueofSmith,numerous
passages in it followthose of Smith's WealthofNations,includinga long verbatim
uncited quote on the advantages of transportationnetworks(Hamilton, [1791]
1966:311). AlthoughList frequentlycriticizedthe "Smithianschool," as he called
Liberalism,his workalso containssome keyelementsof Liberal thought.While it
is an exaggeration to describe List's National Systemof PoliticalEconomyas the
practicalapplicationofthe WealthofNationsin thecommercialpolicyofa backward
country(Anson-Meyer,1982:186), List'sworkwas nota completerejectionofSmith,
butrathera cautionagainstdirectlyimportinghis ideas intocountriesthatwereless
politicallyand economicallydeveloped than thoseSmithhad analyzed.
AlthoughListand Hamiltonhave acquired a reputationforbeing protectionists,
bothbelievedthatuniversalfreetradewas a worthwhile goal. Listin particularmade
clear thatfreetradewas theoptimalpolicyformostcountries.Boththinkersdiffered
fromthe Economic Liberals in believingthatitwas not yeta completelydesirable
policy in certain economicallyweak countriesfor national securityreasons and
because economicallystrongcountriesretainedprotectionist policies.
At times,Hamilton and List criticizedprotectionistpractices,most notablythe
Corn Laws, in ways reminiscentof Liberalism. In his Reporton Manufactures,
Hamilton harshlycriticizedthe trade practices of industrializednations,which
allowed the United States to importessentialmanufacturedgoods, but prevented
itfromexportingitsagriculturalcommodities.Hamilton([1791] 1966:258) argued
thatsuch agriculturalprotectionismbenefitedno one:
[T]he manufacturing nationsabrige [sic]the naturaladvantagesof
theirsituation,throughan unwillingnessto permittheAgricultural
countriesto enjoytheadvantageoftheirs,and sacrificetheinterests
ofa mutuallybeneficialintercourseto thevainprojectofsellingevery
thingand buying nothing[emphasisin original].
740 A Reappraisal

Like Hamilton,List([1839] 1929:114) noted thatBritain'sCorn Laws hurtEngland

by limitingitsmanufacturing.
The protectionism oftheindustrializedcountrieswas a keyreasonwhyHamilton
and Listargued forgovernmentsupportofindustrialization in some less-developed
countries.Hamilton([1791] 1966:262) noted that"[i]fthesystemsofperfectliberty
to industryand commerce were the prevailing systemof nations," then "the
argumentswhichdissuade a countryin the predicamentof the United Statesfrom
thezealous pursuitofmanufactures would doubtlesshave greatforce";however,the
prevalentpoliciesof nationshave "been regulatedbyan opposite spirit."Since the
United States could not export its agriculturalgoods, it needed to develop a
domesticmarket,whichcould onlybe createdbyfosteringdomesticmanufacturing
(Hamilton, [1791] 1966:230). Likewise,List ([1839] 1929:114) noted that it was
Britain'sCorn Laws thatcaused NorthAmerica,Russia,and Germanyto retaliate
byadoptingsuccessfulmeasuresto develop competingmanufacturing industries.
The emphasis on using industrialpolicies to deal with foreignprotectionism
marksa contrastbetweenthe Economic Liberals and the Economic Nationalists.
WhereasSmith([1776] 1976:471) alone among thethreeclassicalLiberalshad been
verypessimisticabout the establishmentof freetrade,he differedfromthe Eco-
nomic Nationalistsin his prescriptionfor how nations could cope with foreign
protectionism, advocatingretaliatory tariffs.
be insufficientfor the U.S. In an argumentforeshadowingmodels of economic
dependency,Hamilton([1791] 1966:263) pointedout thatthe United Stateshad a
constantand increasingneed of European goods, while Europe was onlyinconsis-
tentlyand partiallyin need ofU.S. goods. WhiletheU.S. was too weakto forceother
countriestowardfreetrade,theprotectionismofothercountrieshurtit (Hamilton,
[1775] 1963:127-31).
Listwas even more critical,statingthatSmith'sretaliatorytariffs "would lead to
themostabsurdand mostruinousof measures"(List,[1841] 1904:318). If a nation
engagingin retaliatorytariffs was not qualifiedto become a manufacturing power,
such tariffswould simplymean thatit incurredhighcosts.If a nationwas qualified
to become a manufacturing power,it made littlesense to provideprotectionto an
industry, onlyto end itwhen the conflictsubsided.
Hamiltonand Listfurthermore feltthatSmithwas correctin notingthatnational
defensewas a solid justificationforprotectionism,but that he had not gone far
enough in applying this rationale. Smith had restrictedthe national defense
argumentto commoditiesof directrelevanceto the military.In contrast,List and
Hamilton argued that national securitygenerallyrequired the developmentof a
manufacturing base.
The nationalsecurityrationaleof Hamilton'smajor workon politicaleconomy,
his Reporton theSubjectofManufactures, is clear. It developed out of a House of
Representatives'requestfordata on thecountry'smanufactures and forsuggestions
on "means ofpromotingsuch as willtend to renderthe United Statesindependent
of foreignnations for militaryand other essential supplies" (Hamilton, [1791]
1966:230). At the timeof Hamilton's Report,the United Stateswas experiencing
significanttrade problems.As a resultof the War of Independence, it had lost its
tradingtieswiththeBritishEmpire.It also facedheavytariffs fromotherEuropean
countriesand lacked a navystrongenough to preventdisruptionsof its foreign
commerce(Cole, 1928:232; Hamilton,[1791] 1966:291). Hamiltonwas particularly
concerned that trade problems could compromiseAmerican neutrality(Lycan,
1970:292). Even beforeAmericanindependence, Hamilton ([1774] 1963:56) had
noted thatgreaterAmericaneconomic independence mightrenderit more secure
againstthe encroachmentsof European powers.
National securityplays a somewhatdifferent role in List'swork,in part due to
the strong influenceof elements of nineteenth-century Liberalism. List shared

Hamilton's emphasis on the power implicationsof trade and the need to foster
industry.List,however,also shared Mill's interestin the progressionof the world
toward universal free trade and political union. Whereas for Mill, the mutual
economic interestshighlightedbyfreetradecould lead to politicalunion, forList,
politicalunion had to come first.The securityofindividualnations,ratherthanfree
trade,was List's keyprerequisiteforpoliticalunion. Only when all of the nations
capable of industrializinghad attainedan equal degree ofcultureand powerwould
they have the level of secure independence necessaryto develop "a universal
republic."List (1841:103, 272) describedthisrepublicas "a union of nationsof the
earthwherebytheyrecognizethe same conditionsof rightamong themselvesand
renounceredress."Althoughthisunion has been likenedto theGATITorganization
(Levi-Faur,1997), List clearlyhad in mind a more ambitiousplan: the creationof
a "universalrepublic."This universalrepublicwould not onlypromotetrade,but
also bringabout "the establishmentof perpetualpeace" (List, 1841:103, 272).

List'sand Hamilton's
Restrictions and IndustrialPolicy
on Protectionism
Even thoughEconomicNationalismhas become associatedwiththeidea thatthere
is no naturalcomparativeadvantage (Gilpin, 1987:181), both Hamilton and List
emphasized that protectionwas suitable only under certain circumstances.List
made clear his beliefthatmostcountriesbenefitedfromfreetrade,whileHamilton
presented an infant-industry argument that differedonly slightlyfrom Mill's.
Furthermore, protectionismwasjust one of severalmeans to the real end: greater
Hamilton has been viewed as a proponent of autarkybecause he ([1791]
1966:284) argued that every nation should aim to supply withinitself"all the
essentialsof nationalsupply.These comprisethe means of subsistence,habitation,
clothing,and defence" (Carr, 1941:155). Hamilton ([1791] 1966:291), however,
furthernoted that protectionto promote manufacturingshould only occur "in
certaincases and under certainreasonable limits."To receiveprotection,not only
should an industryideallybe importantto the national interest,it should also use
raw materialsthatare available in the country,have no or fewsubstitutes, be easy
to foster,and providematerialthatcould filla wide range ofuses (Hamilton,[1791]
1966:300). Even more important,Hamilton,foreshadowingMill, noted thatpro-
tectionshould be temporaryand only allowed for new undertakings.Hamilton
([1791] 1966:301) argued that"the continuanceof bountieson manufactureslong
establishedmustalmostalwaysbe of questionablepolicy"because it indicatedthat
therewere inherentimpedimentsto the successof an industry.
List also limited the justifiabilityof protectionism.List believed that some
protectionismwas necessary,but only because free trade alone would not bring
about the equalityessential for the creation of a universalrepublic. If a nation
capable of industrializinghad not yetdone so, it was in the internationalinterest
forthatcountry'sgovernmentto aid industrialization, since such aid would help
bring about the universalrepublic. Because protectionismwas onlyjustifiedif it
aided industrialization,List ([1841] 1904:273) disapprovedof agriculturalprotec-
tionismand criticizedmercantilists forendorsingsuch measures.
Like Hamilton,List approved of protectionismonlywhen itwas likelyto lead to
successfulindustrialization.List ([1841] 1904:247) ruled out the possibilityof
industrializationfor all tropicalcountries,because of theirclimate,and for any
countrylacking "an extensivecompact territory, large population, possession of
natural resources, far advanced agriculture,a high degree of civilizationand
politicaldevelopment."Listalso opposed theadoptionofprotectionism in countries
thathad not reached the necessarylevel of politicaland economic development.
Echoing Liberal statementson theeducativebenefitsoffreetrade,Listmaintained
742 A Reappraisal

thatfreetradeaided thedevelopmentofthesecountriesbyexposingthepopulation
to greatercivilization.For example, List([1843] 1931:186-92) was highlycriticalof
the protectionistpolicies of Hungary,arguing that theywould failbecause Hun-
gary'sfeudalisticeconomic and social relationspreventedindustrialization.List
([1841] 1904:151) similarlycriticizedthe protectionist policies of South America.
List also argued against protectionistpolicies forany countrythathad already
achievedeconomicand manufacturing supremacy.List([1841] 1904:272) criticized
the mercantilistsfor failingto notice that such a manufacturingnation should
abolish protectionism"to preserve her own manufacturesand merchantsfrom
indolence,bypermittingfreecompetitionin her own markets."In thisregard,List
([1841] 1904:9) noted that"any powerwhichby means of a protectivepolicyhas
attaineda positionofmanufacturing and commercialsupremacy,can (aftershe has
attainedit) revertwithadvantage to the policyof freetrade."
Even when a nation was justifiedin using protection,List placed limitson the
amountand typeofprotectionitshould grant.He argued thattheprotectivetariffs
necessaryto begin industrialdevelopmentshouldbe verymoderateat firstand only
risegradually.When an industryhad become established,butwas notyetsupreme,
protectivetariffswere allowable"onlyso faras maybe necessaryforprotectingthe
inland manufacturing powerin itsveryroots"(List,[1841] 1904:144).
In short,List's argumentsdo not justifythe protectionistreputationhe has
acquired. Some of the misunderstandings seem to arise froma conflationof List's
works with those of the mercantilistsbecause he, like them, was interestedin
developingstatepower.Attimestheideas whichList([1841] 1904:272) emphasized
to separatehis ideas fromthoseofthemercantilists have been ignored.These ideas
include his muchmore limitedjustificationsforprotectionismand his beliefin the
futureunion of all nations.
Furthermore, forboth Listand Hamilton,protectionism wasjust one methodof
strengtheningthe industrialcapacity of a nation. Hamilton ([1791] 1966:292)
espoused a wide range of methodsto aid manufacturers, includingimprovingthe
rightsof inventors,increasingregulation,and improvingfinancialand transporta-
tion services.List devoted considerable energyto various causes that promoted
national strength,such as loweringtariffbarriersbetweenGerman statesbefore
unificationand buildinga Germanrailwaynetwork.

Althoughthe earlyEconomic Liberals and earlyEconomic Nationalistshave been
portrayedas two tightlyunified opposing schools, that view is oversimplified.
Among the earlyEconomic Liberals therewas a general beliefthatfreetradewas
the best policy,but therewas considerable disagreementbetweenSmithand his
successorson the issues of trade'seffecton cultureand war.Among the Economic
Nationalists,List's vision of politicalunion reflectslater Liberalismin a way that
would not have been possible forAlexanderHamiltonor Adam Smith.
While the unitywithinthe twodifferent groupsof theoristshas been overstated,
so have thedifferences betweenthetwogroups.Despite theirreputationsas staunch
advocates of laissez-fairepolicies, the early Liberals,especiallySmith,recognized
theneed to make exceptionsto freetrade.Similarly,Hamiltonand Listrecognized
the need to place restrictions on protectionism.Like the Liberals,Hamilton and
List sawuniversalfreetradeas a usefulgoal. However,theydid notbelieve thatthe
Liberalsprovideda realisticvisionformanyeconomicallyweak countriesin a world
where free trade was the exception. As a result,theyat timessupported Liberal
arguments,criticizingBritain'sCorn Laws as fiercelyas Ricardo had. However,the

Economic Nationalistsweregenerallymore protectionist thanthe Economic Liber-

als. The economicand politicalweaknessof theircountriescaused themto expand
greatlyon Smith'srationaleforbasing protectionismon national securityconsid-
erationsand to use the infantindustryargumentwithfewerreservationsthan Mill
laterwould.Because oftheprecarioussituationoftheircountries,Listand Hamilton
were more concerned about the dangers of laissez-fairethan theywere about the
dangersof governmentintervention.
The mischaracterization of Hamilton and List and, to some extentSmith,has
importantimplications.Just as the misrepresentationof Smith has weakened
Liberalismbyunnecessarilylinkingitwithutopianism(Wyatt-Walter, 1996:28), so
too the mischaracterizationof Listand Hamiltonhas weakened Economic Nation-
alism by unnecessarilyassociatingit withautarkyand the failureto recognizethe
benefitsof freetrade.As one of thekeytheoriesof internationalpoliticaleconomy,
Economic Nationalismdeservesto be betterunderstood.

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