Fundamental Concepts of Hamilton and List: Impact on Modern Economic Growth

Fundamental Concepts of Hamilton and List: Impact on Modern Economic Growth

Fundamental concepts of Hamilton and List

International political economy, also known as Global Political Economy, is the examination of economics in connection to international relations. It encompasses economic theories, particularly macroeconomics, and political factors to ascertain the current state of the economy (Abdelal, Blyth and Parsons 2015). Both Keynes and Adam Smith saw the world economy as a crucial component for economic development. Boianovsky (2013) asserts that both Friedrich List and Alexander Hamilton saw foreign factors as essential to elucidating the economy of the 17th century. This article aims to examine the relevance of the ideologies of Hamilton and List in contemporary economic growth.

Fundamental concepts of Hamilton and List — Alexander Hamilton and Friedrich List are the two eminent economists of their day who motivated their respective governments to establish national systems from the perspective of the nation's economy. Hamilton presented the first Public Credit report detailing the state and federal obligations of the United States government. In 1790, he issued the second report on Public Credit, advocated for the establishment of a National Bank to bolster the US economy, and expressed his views in the Report on Manufacturers to enhance the manufacturing sector in the US (Frieden 2016). Benne et al. (2016) state that Conversely, Friedrich List advocated for the German Customs Union from a nationalist perspective. The ideas of the List formed the foundation for the European Economic framework. The national economic theory of List contested the individual and cosmopolitan economic theories proposed by J.B. Say and Adam Smith. Both economists advocated for government action to stimulate the nation's economy (Koopman, Mitchell and Thierer 2014). List's idea was primarily established for Germany; nonetheless, it also proved advantageous for the US economy. Furthermore, Hamilton and List expressed their views advocating for National Unity, protectionist policies, and a robust academic system to enhance the nation's economy.

Friedrich List's economic perspectives, as articulated by Warner (2016), delineate the evolution of an economy into five stages, with the first stage characterized by human reliance on fishing or hunting for existence, termed the savage stage. The following phase is the pastoral stage, during which individuals roam for a while before ultimately being driven to settle in the third stage to secure their sustenance via cultivation. Subsequently, the manufacturing phase follows, whereby people engage in production, followed by the fifth stage, during which humans engage in trade and commerce. The list mostly concentrated on the fifth stage and generated many concepts to enhance national revenue.

Friedrich List's economic perspectives

In the 17th century, List formulated the National System of Political Economy, which saw international commerce as a function of government foreign trade (List 2016). This text advocates for free commerce among nations, which will significantly improve the trade balance of an economy. Additionally, List's philosophy primarily concentrated on the German economy, which has established the foundation of the European economy.

Protectionism for nascent industries – A primary argument presented by List was the need of safeguarding nascent sectors from global competition. He said that if Germany's nascent industries encounter competition from global markets, the absence of economies of scale and inferior manufacturing skills would result in the firm's closure (Boianovsky 2013). Consequently, the government need to support nascent enterprises to facilitate their growth.

Education is a factor of production; nevertheless, although prominent economists like as Smith and Keynes have acknowledged its significance in production, none have seen it as a function of production, unlike List. He asserts that education is a primary element influencing economic productivity, since more education enables labor to operate more efficiently.

Contention put up by Alexander Hamilton – Alexander Hamilton, one of the foremost economists in the United States, contributed significantly to the establishment of the nation's economic structure after the conclusion of the Civil War. His primary objective was to formulate the nation's budgetary policies to benefit the affluent demographic. Chernow (2016) noted that Hamilton contended that if the affluent segment of the nation flourishes, the benefits will then cascade to the impoverished strata of society. To formulate a coherent fiscal strategy, Hamilton proposed certain actions outlined below:

Necessity of Government Intervention - Hamilton contended that to incentivize the affluent segment of society to thrive, governmental intervention in the market is essential. The government should assume all state obligations, enabling states to alleviate their indebtedness, which would subsequently impact the production and efficiency of the economy (Mercer 2016).

Protectionist Policy - Hamilton advocates for a protectionist policy, which closely resembles the baby industry argument. Mastanduno (2015) states that Hamilton advocated for protectionism, asserting that government protection policies for nascent industries are essential for their initial success, ultimately enabling them to compete on an international scale.

National System of Political Economy

An effective academic institution is essential for a robust economy, since it facilitates the cultivation of a greater pool of talent. A greater number of skilled laborers enhances industrial production, resulting in a stable and expanding economy.

The relevance of Hamilton and List's thesis in contemporary society - The current state of the global economy has significantly transformed in comparison to that of the 17th century. It has transitioned to a mixed capital economy, including elements of the socialist market alongside the framework of the capitalist economy (Gilpin 2016). The ideas of Hamilton and List remain relevant in the contemporary global economy; yet, some arguments do not align with current circumstances. The government rejects the baby industry rationale since it fails to empower the sector to compete in the world market post-support and does not contribute to the expansion of the national economy. Lima et al. (2014) assert that the current capitalist market contends that government expansion is essential; nevertheless, organizing the necessary funding is challenging due to the tax system and a decline in global economic development. In the context of the international political economy articulated by Hamilton and List, it is reasonable to assert that education is a primary element of production. Enhanced education will result in increased proficiency among workers, hence yielding more economic production. Furthermore, the proposition of enhancing assistance for the secondary and tertiary sectors, as articulated by Hamilton and List, remains pertinent, as it would facilitate economic development and improve trade relations among nations, resulting in an increased balance of trade.

The concepts proposed by Hamilton and List originated long ago and were intended to establish a stable economy in their respective nations. Nevertheless, the majority of their concepts remain pertinent within the framework of the 21st-century economy. The arguments presented by List and Hamilton contest Adam Smith's foundational notion of international commerce, asserting that Smith's perspective is inherently mercantile and that economic prosperity necessitates government intervention. In conclusion, the concepts of Hamilton and List remain relevant today to a certain degree, particularly if the educational system, advanced foreign technology, and economic unification are considered the primary requirements for economic development. 

Reference:

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Benne, C., Cheesman, T., Davies, P., Feigel, L., Gardt, A., Goebel, E. and Griem, J., 2016. From ‘Überschwemmung’to ‘Einkreisung’: British Industrial Competition and the Course of German Nationalism, 1815–1914 John R. Davis Published Online: 2013-11-28| DOI: https://doi. org/10.1515/anger-2013-0004. Issues, 9.

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