Relevance Of Hamilton And List's Ideas In Current Economic Development

Main ideas of Hamilton and List

International political economy, which is also acknowledged as the Global Political Economy is the study of economics with respect to the international relations. It includes both the economic theories specially the macroeconomics and the politics to determine the present situation of the economy (Abdelal, Blyth and Parsons 2015). Whether it is Keynes or the Adam Smith, all of them have considered the international economy as the important part of an economy to foster. According to Boianovsky (2013), when it comes to Friedrich List or the Alexander Hamilton, both of them has considered the international to explain the economy of the 17^th century. This essay is focused to discuss, whether the ideology of the Hamilton and List till relevant in current economic development.

Main ideas of Hamilton and List – Alexander Hamilton and Friedrich List are the two great economists of their time who inspired their respect governments to develop national system for from the viewpoint of the country’s economy. Hamilton provided the first Public Credit report of the state and federal state debts of the United States government. Besides this in the year 1790, he produced the second report on the Public Credit and proposed establishing of a National Bank for the US economy and thirdly he opined the Report on Manufacturers to promote manufacturing industry in the US (Frieden 2016). According to Benne et al. (2016) the On the other hand, Friedrich List argued in favour of the German Customs Union from the viewpoint of Nationalist standpoint. Ideas of the List constructed the basis on behalf of the European Economic. National Economics theory of List challenged the Individual and Cosmopolitan economic theory produced by the J.B. Say and Adam Smith. Both of the economists argued in favour of the need of government intervention in order to encourage the country’s economy (Koopman, Mitchell and Thierer 2014). List’s theory was mainly introduced for the Germany; however, it was beneficial for the US economy too. Moreover, Hamilton and List opined their ideas in favour of National Unity, protectionism policy and good academic system to foster the country’s economy.

Economic views of Friedrich List – As discussed by the Warner (2016) List stated that development of an economy is divided into five parts, where in the first stage human used to fishing or hunting for the survival, which he coined as the savage stage. Next comes the pastoral stage, when people wander for a certain time and then in the third stage compelled to settle in order to gain livelihood by the means of agriculture. Next to this comes the manufacturing stage, when human indulge them into the production and in the fifth stage, humans pursue trade and commerce. List focused mainly on the fifth stage and developed various ideas to grow national income.

Economic views of Friedrich List

National System of Political Economy – in 17^th century List developed the National System of Political Economy, which treated the international commerce as the function of foreign trade of government (List 2016). In this document, he argued in favour of free trade among the countries, which will effectively enhance the balance of trade of an economy. Besides this, List’s ideology was mainly focused on the Germany economy and it has formed the base of the European Economy.

Protectionism for the infant industries – One of the main arguments of the List was to protect the infant industries from the world competition. He stated that if the German’s infant industries face competition from the industries of the world market, then due to lack of economies of scale and less skill of production will lead to shutting down the firm (Boianovsky 2013). Thus, government should provide for the infant industries to let them prosper.

Education is a factor of production – Renowned economists like Smith, Keynes though have considered the importance of economies in the case of production but no one has considered it as the function of production rather than List. According to him, education is one of the main factors that alter the production of an economy because higher education will help the labour to produce faster.

Argument of Alexander Hamilton – One of the greatest economists of the US was Alexander Hamilton, who helped the US government to construct the economic system of the country after the civil war was over. His main idea was to shape the fiscal policies of the country in favour of the wealthier group. Chernow (2016) discussed that, Hamilton has argued if the wealthier group of the country starts to prosper, then the growth would trickle down to the poorer section of the society. In order to develop a well-structured fiscal policy, Hamilton suggested various action which are mentioned below:

Need of Government Intervention – Hamilton argued that in order to influence the richer section of the society to let them prosper, government should intervene into the market. Government should took over all the state debts, which will allow the states to feel indebted and it will influence the productivity and efficiency of the economy (Mercer 2016).

Protectionism Policy – According to the Hamilton, government should take protectionism policy, which is almost same as the infant industry argument. Mastanduno (2015) describes that Hamilton has argued in favour of protectionism; there should be protection policy from the government towards the infant industries that will help them to prosper in the beginning, and at last, it would lead to a full-fledged organisation that can take on the international competition.

National System of Political Economy

Good academic system is necessary – Academic system is necessary for a well-established economy because it will help the country to produce more amounts of talents. Higher the number of skilled labour, better the productivity of the industry will be leading to a stable and growing economy.

Validity of Hamilton and List's argument in today’s world – Present scenario of the world economy has changed largely compared to the economy of the 17^th century. It has moved towards the mixed capital economy, where some element of the socialist market is present along with the structure of the capitalist economy (Gilpin 2016). Ideas of Hamilton and List to some extent still valid in today’s context of world economy, however there are some argument that does not fit in. For instance, the government does not support the infant industry argument because it neither helps the industry to become potent enough to withstand the international market once the support is lifted from the industry nor aids the country’s economy to enlarge. According to Lima et al. (2014), besides this, present capitalist market argues that government extension is necessary however, it is hard to organise necessary fund owing to tax structure and reduction in the growth of the world economy. Well, coming to the valid points of the international political economic idea of Hamilton and List it is fair enough to consider that education is one of the main factors of production. Better education will lead to higher skill in the labours, which will lead to higher output for the economy. Besides this, the idea of providing more support towards the secondary and tertiary sector as opined by the Hamilton and List is still valid because it will aid the growth of the economy and better trade will take place among the countries leading to rise in balance of trade.

Ideas from the Hamilton and List were originate long back and it was meant to provide a stable economy to their respective countries. However, most of their ideas are still valid in the context of the economy of 21^st century. Argument of List and Hamilton challenges the basic theory of Adam Smith in the case of international trade because they believed that Smith’s idea is mercantile in nature and a economy can only proper if government intervenes. To conclude it can be said that ideas of Hamilton and List is still valid today to some extent and if educational system, sophisticated foreign technologies and economic unity is the main criteria for an economy to foster. 

Reference:

Abdelal, R., Blyth, M. and Parsons, C. eds., 2015. Constructing the international economy. Cornell University Press.

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.

Boianovsky, M., 2013. Friedrich List and the economic fate of tropical countries. History of Political Economy, 45(4), pp.647-691.

Chernow, R., 2016. Alexander Hamilton. Head of Zeus Ltd.

Frieden, J., 2016. Lessons for the euro from early American monetary and financial history. BRUEGEL.

Gilpin, R., 2016. The political economy of international relations. Princeton University Press.

Gilpin, R., 2016. The political economy of international relations. Princeton University Press.

Koopman, C., Mitchell, M. and Thierer, A., 2014. The sharing economy and consumer protection regulation: The case for policy change. J. Bus. Entrepreneurship & L., 8, p.529.

List, F., 2016. The Natural System of Political Economy. Routledge.

Mastanduno, M., 2015. Still the Liberal Leader? Domestic Legacies, International Realities, and the Role of the United States in the World Economy. In America, China, and the Struggle for World Order (pp. 189-210). Palgrave Macmillan US.

Mercer, L.J., 2016. Railroads and land grant policy: a study in government intervention. Elsevier.

Warner, M. ed., 2016. The Diffusion of Western Economic Ideas in East Asia (Vol. 137). Taylor & Francis.