Commentary on Political Economy

Saturday 17 March 2018

Friedrich List and the Myth of 'Free Trade'

The Chinese Dictatorship, now in its death throes, just like Putin's Russia, has been facilitated in its malevolent and pernicious ascent by false humanistic ideas prevalent in the West that are the fruit of Christian-bourgeois society and ultimately of capitalist ideology. It is this ideology of power-lessness, harmful in the extreme to our own democratic institutions, that we must counter if we wish to defeat once and for all the Chinese and Russian Dictatorships. The work of Friedrich List - on which these dictatorships rely absolutely to game the indolent and gullible West - offers essential clues as to how to begin this task in earnest.

…[L]ife itself is essentially appropriation, injury, conquest of the strange and weak, suppression, severity, obtrusion of peculiar forms, incorporation, and at the least, putting it mildest, exploitation [Ausbeutung]; -- but why should one for ever use precisely these words on which for ages a disparaging purpose has been stamped? Even the organisation within which, as was previously supposed, the individuals treat each other as equal--it takes place in every healthy aristocracy -- must itself, if it be a living and not a dying organisation, do all that towards other bodies, which the individuals within it refrain from doing to each other: it will have to be the incarnated Will to Power, it will endeavour to grow, to gain ground, attract to itself and acquire ascendancy - not owing to any morality or immorality, but because it lives, and because life is precisely Will to Power. (Nietzsche, Beyond Good and Evil, Aphorism 259.)

In The National System of Political Economy, Friedrich List lays bare in the starkest terms the ultima ratio that forms the backbone of his diatribe against the “cosmopolitan” school of political economy propounded by the Anglo-Saxons from Smith to Ricardo and then Mill, against the “national” doctrine that List expounds and propounds as the future economic strategy of a powerful Germany against the dominance of Britain and France.

Without explicitly addressing the question of the meaning of “wealth” in economics at the level of human individuals or of humanity as a whole, List is already confronting the stark reality that the “wealth of a nation” cannot and must not be understood purely in terms of “utilitarian exchange” but rather in terms of “national power”, of Macht - in terms, that is, of the ability of a nation to impose itself over other nations….in the event of war! 

EXTRACTS FROM AUTHOR’8 PREFACE xliii I would indicate, as the distinguishing characteristic of' my system, nationality. On the nature of nationality, as the intermediate interest between those of individualism and of entire humanity, my whole structure is based.

The “cosmopolitan” view of the British economists contains three non sequiturs: it assumes that all exchange of goods, all trade between nations, is an equal exchange not only because equal values or wealth are exchanged, but also because such exchange necessarily increases the wealth of each trading nation by virtue of its being “free and equal”, free and fair - and therefore it must benefit each trading party. This is a non sequitur, of course; but List only sees the second part of it - that free trade does not necessarily enrich all parties. He totally misses the first part, the “equal exchange” in terms of “value” and “wealth” as quantifiable or objective entities. And he totally ignores the fallacy of “free” trade - the fact that a decision to trade cannot be free because “freedom” is irrelevant in trade for the simple reason that trade ineluctably establishes a “bond” between trading parties!

Let us examine the second part of the non sequitur.

4 The prosperity of a nation is not, as Say believes, greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion in which it has more developed its powers of production' (p. 117).

It is not the present wealth of a country, then, that determines its prosperity; rather, it is a country’s present ability to produce wealth that determines its pre-eminence among nations, again, not in terms of its present stock of wealth, but in terms of its future flow of wealth or prosperity (Latin pro and spes, hope for the future). For List, then, the prosperity of a nation is measured by its present ability to produce wealth on such a scale as “secures to the nation an infinitely greater amount of material goods [than is the case for other nations], but also industrial independence in case of war”!

‘ It is true that protective duties at first increase the price of manufactured goods; but it is just as true, and moreover acknowledged by the prevailing economical school, that in the course of time, by the nation being enabled to build up a completely developed manufacturing power of its own, those goods are produced more cheaply at home than the price at which they can be imported from foreign parts. If, therefore, a sacrifice of value is caused by protective duties, it is made good by the gain of a power of production, which not only secures to the nation an infinitely greater amount of material goods, but also industrial independence in case of war9 (Friedrich List, The National System of Political Economy, p. 117).

Therefore, “cosmopolitical” economy can be valid only if the trading nations have similar industrial structures. Where these industrial structures differ, inter-national trade and exchange cannot be “equal” because even where the value of the exchange is equal, the ability of the trading nations to produce those values will differ! List has in mind, as we saw earlier, the ability of a nation to prepare for war and to dominate other nations.

[T]he idea struck me that the theory was quite true but only so in case all nations would reciprocally follow the prin-
ciples of free trade.... This led me to consider the nature of nationality. I perceived that the popular theory took no account of nations, but simply of the entire human race on the one hand, or of single individuals on the other. 

I saw clearly that free competition between two nations which are highly civilised can only be mutually beneficial in case both of them are in a nearly equal position of industrial development, and that any nation which owing to misfortunes is behind others in industry, commerce, and navigation, while she nevertheless possesses the mental and material means for developing those acquisitions, must first of all strengthen her own individual powers, in order to lift herself to enter into free competition with more advanced nations. In a word, I perceived the distinction between ] cosmopolitical and political economy. I felt that Germany must abolish her internal tariffs, and by the adoption of a common uniform commercial policy towards foreigners, strive to attain to the same degree of commercial and industrial development to which other nations have attained by means of their commercial policy.

If indeed, List reasons, nations could trade as individual human beings whose power to accumulate “wealth” is limited by their physical abilities, then trade between individuals could be said hypothetically to be free and fair or equal. The same applies to humanity as a whole because in that case “wealth” would be an abstract notion in the aggregate. But where individual nations or nation-States are concerned, the notion of “wealth” or “value” must extend to the ability of each trading nation to subjugate the others!

Here List incurs a blinding contradiction between a notion of “wealth” or “value” which he entirely shares with the “cosmopolitan” economists (Smith and Ricardo) - and a wholly different notion of “value” or “wealth” that his stance of trade-as-conflict between nations clearly entails! It is simply impossible to speak of “value” as if it were an economic category entirely independent of the “nationality” implied by his countervailing notion of “national economy”! List himself concedes that “free trade” can be “fair and equal” provided that trading nations are at a similar stage of industrial development. Yet, such a concession is tantamount to falling into the fallacy of “cosmopolitan economics” divulged by the British under the false pretence of “neutral science”! For if indeed “the ability to produce value” is even more important than value itself, then the notion of “value” must be re-evaluated or reinterpreted to allow for the novel category of “ability to produce”!

(We have here a dramatic precognition on List’s part of what would later become Nietzsche’s “transvaluation of all values” - cf. my “Nietzsche and Economics”.) The “value” of the British political economy simply cannot be the same as the value of List’s “national economics” or “National-oekonomie”! The first notion of value (Smith, Ricardo, Marx) refers to an apolitical quality or substance - be it subjective utility or objective wealth (labour-time) - whereas the second, List’s, refers to a broader category of political control and domination through the production and exchange of goods. The difference is not simply one of “stocks” and “flows” of one and the same entity. Rather, the two kinds of “value” refer to completely distinct entities - one utilitarian or absolute, and the other clearly political and even military in nature!

Equally, if we follow this reasoning with cold and calculated logic, we will see that the notion of “free trade” is meaningless for the simple reason that the category of “freedom” is quite meaningless when applied to that of “trade”! No “trade” can ever be “free” for the simple reason that “trade” itself, the exchange of produce, already implies a “bond” between the trading parties that negates or at the very least obliterates the notion of “freedom”. By changing the real status of the trading parties from before the trade takes place to after it does, trade also transforms the status of the parties vis-a-vis each other in such a way as to render the notion of “freedom” entirely irrelevant to the reality of exchange by trade! Parties to trade may well be “free” to engage in the trade - but this “free choice to trade” becomes irrelevant and meaningless once the trade is executed - for the crushing reason that, in the absence of an objectively quantifiable “value”, the exchange has transformed the material standing of the trading parties! It is quite simply a wanton and gratuitous exercise to speculate on whether a trade is “free” or otherwise because (a) it is impossible to determine the real motives of traders, (b) traders may not be aware of their and other traders’ motives, and ©, whatever the motives and interests, the very effecting of a trade creates a new set of circumstances that make the “freedom” or less of the trade completely irrelevant to its material consequences. The mythology of “free trade” (either a pleonasm or an oxymoron) stems from the legal interpretation of contractual arrangements whereby a contract represents an “agreement” or “a meeting of the minds”. But, as we have succinctly explained, the reaching and closing of a contractual arrangement tells us nothing about the “freedom” of the contracting parties! (This point is outlined with characteristic insight and perspicacity, as well as vitriolic acuity, by Nietzsche in The Genealogy of Morals - discussed in my own “Nietzsche and Economics”.)

Contemporaneously to List, Nietzsche demolished the naive “cosmopolitanism” of British Political Economy with a single stroke of his pen in Human All-Too Human:

25 Private- and World-Morality - The older morality, namely Kant's ,25 demands from the individual those actions that one desires from all men--a nice, naive idea, as if everyone without further ado would know which manner of action would benefit the whole of mankind, that is, which actions were desirable at all. It is a theory like that of free trade, which assumes that a general harmony would have to result of itself, according to innate laws of melioration. (HATH)

To argue that trade, in and of itself, ameliorates the lot of the exchanging parties is pure Kantian universalist idealism - sheer wishful-thinking! It is to presume that human beings, let alone nations, enter trade with the intention to improve the lot of all participants (hence Kant’s Categorical Imperative: do unto others as you would have them do unto you). - Even worse, it is to assume that trade in reality does improve the lot of participants! And worst of all, it assumes that individuals, let alone nations, know their own best interests - and that these are constructive rather than destructive

This is the false, fictitious (“cosmopolitan”!) logic - this is the Ohn-macht, the power-lessness, of Western thought and logic propmulgated by cohorts of “enlightened” literati, humanists and, of course, economists that Nietzsche denounces and to which he opposes his Will to Power (Wille zur Macht). It is, in political reality, just that - mere, pure logic, a useless and meaningless tautology with no substantive content! (Cf. On this point, the brilliant demolition of free-trade liberalism as a purely “logical” construction in M. DeCecco, Moneta e Impero. Like List, whom he invokes, however, DeCecco falls short of debunking the mythology of “value” and “free trade”.)

List himself falls into this “cosmopolitan” trap simply because he is unable to relinquish the notions of “wealth” and “value” as (mythical, as it turns out) universal homogeneous substances or substrata that are objectively measurable and identifiable - and to which all human beings aspire. It is on this mythology that the “freedom” of “free trade” is founded as the summum bonum, the highest aim of human aspiration. Nevertheless, his alertness to the problem is evident in the orientation of his historico-economic research and in his policy recommendations.

In the course of the daily controversy which I had to conduct, I was led to perceive the distinction between the theory of values and the theory of the powers of production, and beneath the false line of argument which the popular school
has raised out of the term capital. I learned to know the difference between manufacturing power and agricultural power. I hence discovered the basis of the fallacy of the arguments of the school, that it urges reasons which are only justly applicable to free trade in agricultural products, as grounds on which to justify free trade in manufactured goods. I began to learn to appreciate more thoroughly the principle of the division of labour, and to perceive how far it is applicable to the circumstances of entire nations.

We will turn to these policies next.

Wednesday 7 March 2018

Foreign Trade and the Nation-State - Reply to Martin Wolf

Martin Wolf, in an FT Column, contends that trade barriers reduce the "wealth" of all countries without advantaging the countries that impose them, with or without "retaliation".

Mr. Wolf bases his argument on a neat distinction between “trade” - which presumably does not affect “macroeconomics” - and “macroeconomics” proper, which is presumably governed by a different set of principles. In the world of Classical (Smith, Ricardo, Mill) and Neo-classical economics (from Jevons to Hayek), trade is merely an “exchange”, a “free exchange”, between nation-State countries that does not and cannot affect the “national” economic policies, but can rather only “reflect” them. In this perspective, it is “logical” that trade barriers can only affect national economies “globally” - all of them “negatively” - simply because, to repeat, “trade” is merely a “free exchange” that merely “reflects” the productive conditions (“macroeconomics”) “within national economies”.

 Yet, this “logical” reasoning breaks down once we abandon the world of British “political economy” and we examine instead the “National-oekonomie” that formed the basis of German economic thought from Friedrich List through to Klein and ultimately even Schumpeter (especially in the ‘Theory of Economic Development’). It is clear from this latter viewpoint, that economic reality (“national” or “political” economy) differs violently from the “logical” framework of Classical and neo-Classical equilibrium developed by the English, and later the American, economists. In this “national-economic” perspective, trade is not simply an “equal exchange”; rather, it is a form of political interaction that is vital to determining the relative “dominance” of one nation-State over another. The aim of all capitalist exchange is “profit” - the “wealth of nations” to which Smith (not Ricardo, and least of all the neo-classics, with the great exception of Keynes!) referred. But what is this “wealth of nations”? what is “profit”? Ina nutshell, profit is the ability to dominate other nations by “commanding” their living labour. (Marx came closest to this realisation.) It is clear therefore that trade is an attempt by nation-states to project their Political Might, their Power (Macht) over other nations. (See, on this theoretical point, M. DeCecco, Money and Empire.)

To the extent that “free trade” served the national-political needs of the Anglo-Saxons, the “science of economics could easily defend and propagate the theory of equilibrium and market-based international trade, reliant on the Gold Exchange Standard. Now that these “equilibria” are breaking down, it is time to revise the entire philosophical and political foundations of Western economics. - Something I have attempted in this Blog.

Perhaps I ought to add that, from this perspective (amply explored in this Blog), Western “economic science” represents the ultimate form of “power-lessness” (Ohn-Macht) that Nietzsche, and then Weber (who was close to the German Historical School of Economics), and ultimately Schumpeter openly denounced. In “Imperialism and Social Classes”, Schumpeter exposed the “will to power” (Nietzsche’s expression) that the German ruling class espoused to extend its economic domination over Central Europe, resulting ultimately in Hitler’s Lebensraum. Again in this German perspective - a “mercantilist” one -, the brutal racist-imperialist will to power of the Chinese Dictatorship is keenly displayed. It behoves us as inheritors of Western democracy to expose the “power-lessness” of Western “economic science” and to fight back those dictatorships that wish to adopt these bland logical tautologies into tools of politico-economic domination!  

Saturday 3 March 2018

The Chinese Catastrophe

In this post, we wish to advert to a number of misconceptions surrounding the coming co-optation by the Chinese Dictatorship of Big Brother Xi Jin Ping to a lifelong term as President Of His (not the People’s!) Republic of China.  First, contrary to what all media seem foolishly to believe, the centralisation of all decision-making power in Big Brother is the final confirmation of the weakness and fear of the Chinese Dictatorship: it most certainly is not a statement of strength. Had the Dictatorship been confident about (a) the chances of social development and economic growth of Chinese society, and (b) its ability to impose its socio-economic system outside China, it would never have agreed to this act of suicide.

It is almost self-evident, and historia docet (history teaches), that a confident and exuberant regime or indeed polity would never consciously decide to let one Dictator arrogate all social and political power in his hands. It had long been known that the Dictatorship’s choices were either to save Party and lose the country or else to save the country and dissolve the Party. This latest desperate act of hara kiri shows conclusively that it has chosen the former course.  Cornered and besieged on all sides, with the economy close to contraction and a collapsing financial system, the Dictatorship knew that any further opening of Chinese economy and society would result in its repentine irrelevance. Given that the Chinese Politburo is made up of a kleptomaniac plutocracy, these inveterate murderers must know that their fate and that of their families would soon be sealed. The only solution, of course, is a return to the totalitarian genocide of Mao Tze Dung's infamous "Cultural Revolution".

Similarly, in this perspective, the One Belt One Road strategy is one last desperate stratagem on the Dictatorship‘s part to achieve two fundamental aims: one, to preempt encirclement in the form of a cordon sanitaire on the part of parliamentary democracies from India to Japan, and two, to unload its internal contradictions by exporting them over a formal and informal empire in terms of (a) the migration and overseas posting of potentially dangerous elements and (b) the requisition of economic resources needed to pacify the Chinese population - which, be it noted, remains among the very poorest in the world.. This project  - this "final solution", Hitler's Lebensraum - is common to all dictatorships: imperialism is vital to their survival - in the guise not merely of nationalism but rather of fascist and racist expansion - because they need to unload their internal conflict outside their borders through territorial expansion, absolute exploitation of occupied territories, loot and rapine. (For an elementary exposition of this point, please refer to J. Schumpeter, Imperialism and Social Classes; also to H. Arendt, Imperialism; and finally to M. De Cecco, Money and Empire.)