Economic Theories of Peace and War

War often comes down to one thing: money. The role of economics in both peace and war is arguably the most important single factor when it comes to the study of defence. The aim of this book is to provide a critical overview of the history of economic thought on defence, peace and war from its eighteenth-century origins right up to the present day. Important themes covered within the book include: the German historical school classical economics and defence studies socialism through war or peace econometric analyses of military expenditures.

This superb book will be of interest not only to those involved in the burgeoning eld of defence economics it will also be of vital interest to students and academics from international relations, defence studies, philosophy and political science backgrounds. Fanny Coulomb is lecturer in Economic Science at the University Pierre Mends of Grenoble, France.

2004 Fanny Coulomb

Studies in defence economics Edited by Keith Hartley and N. HooperUniversity of York

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European Armaments Collaboration Policy, problems and prospects R. Matthews Military Production and Innovation in Spain J. Molas-Gallart Defence Science and Technology Adjusting to change R. Coopey, M. Uttley and G. Spiniardi The Economics of Offsets Defence procurement and countertrade S. Martin The Arms Trade, Security and Conict Edited by P. Levine and R. Smith Economic Theories of Peace and War F. Coulomb From Defense to Development? International perspectives on realizing the peace dividend A. Markusen, S. DiGiovanna and M. Leary

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Economic Theories of Peace and War

Fanny Coulomb

2004 Fanny Coulomb

First published 2004 by Routledge 2 Park Square, Milton Park, Abingdon, Oxfordshire OX14 4RN Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2004. 2004 Fanny Coulomb All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0-203-49596-9 Master e-book ISBN

ISBN 0-203-57126-6 (Adobe eReader Format) ISBN 0-415-28408-2 (Print Edition)

2004 Fanny Coulomb

Contents

List of illustrations IntroductionPART 1

The economy, a factor of peace or war: a theoretical dichotomy which appeared with political economy during the eighteenth century1 National power benets from the economy The mercantilist movement and the improbable peace The economic bases of national security, according to List The German historical school: for a pragmatic use of the economic and military power instruments in favour of the national interest The economy as a factor of peace The physiocrats or the desirable peace The classical economists: free trade, a factor of peace and prosperity The triumph of economics as a factor of peace The hesitations and internal differences within each economic perspective as a factor of war and peace The inopportune war The avaricious peace: the pessimistic classical school From James Mill to John Stuart Mill: from classicism to the renewal of the liberal economic analysis of international relations

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PART 2

War or peace, resultant of an economic system: new economic analyses on defence-related issues since the mid-nineteenth century4 War and the threat of war at the heart of the functioning of the capitalism system Socialism through war or peace: Utopians pacic reforms versus Marxs revolutionary war Divergences of Marxist theories about the consequences of militarization on the stability of capitalism Turbulence inherent to capitalism The heterodoxies of the inter-war years: economists confronted with war The economic study of both world wars and their theoretical repercussions The diversity of post-1945 heterodox analyses on defence and war

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PART 3

From new debates opened by economics on peace and war factors to a resurgence of the political economy perspective6 Peace and war factors revealed by economic science The economic analysis of defence strategies Econometric and formalized analyses of military expenditure and disarmament The strategic dimension of political economy and the concept of economic war The economic weapon: what efciency? The concept of economic war: support for a new denition of national security Conclusion Notes Bibliography

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Illustrations

FiguresI.1 6.1 6.2 8.1 Great phases of dominant debates on war, peace and defence analysis Resource allocation in Nation J Cone of mutual deterrence Simplied comparison of the debates on the warlike or peaceful nature of the economy at the end of the eighteenth century and at the beginning of the twenty-rst century

Tables6.1 6.2 6.3 6.4 6.5 6.6 The main results of Richardsons model Some studies based on Richardsons model Brito and Intriligators strategic analyses and the point of conict outbreak Some studies in the theories of alliances Some studies in the economic foundations of arms-race models Examples of studies of the effect of military expenditure on economic growth, concluding on an absence of relation between economic growth and military expenditure Some studies concluding on a negative relation between economic growth and military expenditure Some studies concluding to a positive relation between economic growth and military expenditure Some studies concluding to different impacts of military expenditure on economic growth on each country Some studies of the relation between military expenditure and investment

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6.11 7.1 7.2

Study of the relation between military expenditure and employment Positive and negative economic sanctions for David Baldwin The application of economic values as power resources, according to Klaus Knorr

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Introduction

There is an extensive literature on the subject of military conicts, because of their crucial character for humanity, at least because of the induced human and economic losses. Great works have thus been devoted to war and peace issues, notably in literature, philosophy, sociology and politics; in this last eld, international relations even became a discipline after the Second World War, with the opposition between Morgenthaus realist current and Wilsons idealism. On the other hand, no great work has been published on these issues in the eld of economics, except perhaps Guerre et Paix (Peace and War) written by J. Proudhon (1861), but which could just as well be considered as dealing with politics as with economics, or The Economic Consequences of the Peace by J.M. Keynes in 1919, but this deals exclusively with post-war economic policy issues, or a few other works written by less well-known economists of the inter-war period. The economic analysis of international conicts therefore proves to be weak compared to the numerous studies conducted in other elds, notably in philosophy. However, the study of economic laws has often been integrated into a general theory of economic and strategic interstate relations. Yet, at this level, the economic analysis was much inspired by philosophical theories. Philosophers were the rst to link economic issues and conicts, or to explain international relations which inuenced economic thought. In an early conception, defence and power were presented as the superior social objectives, and economy as subordinated. Plato considers that wisdom rather than wealth should be the rst aim of the ideal Estate. An important military force must be kept, the class of soldiers coexisting with the ones of producers and philosophers, the latter dominating the social hierarchy. The class of guardians ensures the internal order and also possesses the moral qualities necessary to dene a foreign policy in accordance with wisdom. Aristotle defends the moderation of economic needs through virtue and he does not encourage trade; however, the society must be rich enough to ensure its defence. The conduct of a war of aggression can only ruin the guilty State, whose territorial expansion is also, in the long-term, a factor of destruction. Later, Saint Augustine established the bases of what is known today as the theory of the just war, which tends to legitimate armed conicts under certain conditions, with regard to 2004 Fanny Coulomb

their causes and methods. Saint Thomas Aquinas and then the Dutch philosopher Hugo Grotius claried this theory of the just war. At the beginning of the sixteenth century in Italy, Machiavelli presents war as a decisive factor in public action and he relativizes the importance of the objective of national wealth compared to political stability. The maintenance of a powerful army is essential to guarantee the States superiority at the international level. Thus, the maintenance of a powerful army serves the State both at the domestic level (eradication of internal contesting) and the international level (the defence against foreign threats becoming the supreme social aim). Militarization helps to spread the values which reinforce social cohesion and the feeling of belonging to a community. Finally, war also appears as a remedy to civil war or internal contesting. However, Machiavelli considers that a peaceful State is, in the absolute, preferable to a warlike state, but is less likely to occur, the wish to dominate being inherent to the States nature. In these early conceptions of society, defence is thus perceived as a fundamental need, which guarantees that the ideal Estate works well and economy is considered as a subaltern function. But economy was rehabilitated in the seventeenth century with the adoption of a new philosophical conception of humanity, based on the concept of social contract, in the context of European economic development. Whereas the physiocrat theory outlines a conception of society ruled by harmony among its members interests, the political theory evolves towards an anarchical conception of relations between individuals, and therefore between states. In Leviathan (1651), Hobbes considers that man has a warlike nature. The state of war is permanent (because of an insatiable desire, taking different forms and always renewed), even if it doesnt always develop into an open conict. Humanity adheres to a social pact because of its instinct of self-preservation, transferring their natural rights to a society ruled by an absolute power, even tyrannical (absolute monarchy), preventing in this way all civil conict, more dangerous than war. Peace is inevitably articial; when it lasts, it does not correspond to a state of nature, but on the contrary to a rational calculation, as the most efcient condition of the preservation of human life. Locke, however, states that peace is natural and positive and that man is naturally social. The acknowledgement of the necessity to preserve others as much as oneself derives from human reason, but also from humanitys natural inclination towards neighbours. War isnt reasonable, but can, however, temporarily occur, because of the imperfections of human nature, notably ambition and love of oneself. States conquered by force and tyranny do not represent a lasting political community; they can give rise to civil wars. Locke inuenced the English philosopher David Hume, but he then went on to reject the concept of social contract. The political institutions ensuring social peace, such as property, result from imagination and habits, i.e. they arise spontaneously, instead of resulting from a voluntary adhesion. They must be adapted to human nature. These reections directly inspired the liberal economic theories, according to which society is ruled by a natural order, in which the State must not intervene. But Hobbes thought dominated the whole political thought until 2004 Fanny Coulomb

the end of the Second World War, funding the pre-eminent realist current in the study of international relations. Karl Von Clausewitz (1818), who was one of its main representatives in the eld of the military theory, considers that international relations are fundamentally conicting, and that peace can only be an interlude. All social situations contain the seeds of hidden conicts, liable to degenerate into an open war, when the political resources will be exhausted. War also contributes to the disappearance of internal political conicts. Later, several great philosophical theories considered conict issues. Emmanuel Kant (17241804) developed his analysis in opposition to Hume. Kant resolves the dilemma between the economic materialism and idealism by considering that humanity is free, nding in ourselves the moral law, the categorical imperative guiding our actions. Social institutions (private property, free trade) give rise to a general law harmonizing everyones free will. An end, a hidden plan of nature, leads all of humanity. In this way, in the very long term, universal peace should be achieved, after several conicts. Wars can be morally condemned but they contribute to the progress of societies towards a world federation characterized by a universal and lasting peace. The Kantian theory also strongly participated in the genesis of the German philosopher J.G. Fichtes thought (17621814), who later, like Hegel and Feuerbach, had a great inuence on economic thought, and notably on Marxism. However, Fichte adopts a totally idealistic position, in so far as he considers that in the last resort, ideas guide the world. His thinking evolves from the exaltation of the French Revolution towards the defence of the German nation-state, with strong state intervention and a militarization of society. Inuenced by Kant and Fichte, Hegel (17701831) elaborates a theory of violence, considered as a necessary step in the process of social change and he uses the dialectical method which will also be used by Marx. In the very long term, after a struggle against the existent social institutions, the outcome of the social evolution should be characterized by the settlement of State structures helping each individual to feel freely fullled. Revolutions and wars are often necessary steps in this social evolution process, even if one can regret the evils engendered. In opposition to the richness of philosophical analyses on war and peace, orthodox economic science was established on the conviction that the government must withdraw and let individuals act according to their own rationality. Peace should then automatically follow. When political economy became an economic science, it rejected what it did not master, with simplistic hypotheses, such as the non-economic character of wars or their irrationality. Two fundamental hypotheses have been constantly applied by the dominant theory: peace is a normal situation; economic development is the fundamental condition for a lasting peace.

However, dominant theoretical currents have always nourished theories of opposition and of the several heterodox theories developed, most of them have 2004 Fanny Coulomb

been inuenced by philosophies which recognize the role of violence in history and integrate it into their analyses. Moreover, in spite of the very few economic analyses which have been specically devoted to war and peace issues, all great economists have dealt with them. But their thought on these subjects is generally scattered throughout their works, and requires a detailed reading to be reconstituted. This research should be all the more useful as the economic perspective is essential to enlighten the eventual relations between trade and military conicts. It at least contributes to the study of the inuence of international economic competition on the evolution of international relations. But this raises the question of whether our study should include subjects such as economic war, i.e. the denition of defence and peace. Yet, economic theories do not have the same conceptions of defence, war and peace. For the mercantilists, military and economic conicts are two interdependent facets of a same reality: the competition between two states on the international scene, to establish their power. On the contrary, for the classical or neo-classical economists, interstate conicts on economic grounds result from a false comprehension by the ruling class of the real economic interest of their country. Only the military conict can be legitimated but it is excluded from the economic eld of analysis, because the logic of war (the destruction of resources) is opposed to economic prosperity. Later, however, neo-classical theory developed analyses of situations of conict and of military expenditures, notably owing to the new tools provided by game theory. As for the heterodox economic analyses, they generally agreed on a conception of conicts directly enlarged to the economic sphere: this point of view was notably shared by List and the German historical school, by the Marxists, even by Keynes and his successors. For these economists, the analysis of economic and trading relations between two states is essential to understand their conicting or pacic relations. Another difculty in the delimitation of our subject lies in the fact that the borderline between the state of peace and the state of war is not always clear. During the seventeenth and eighteenth centuries, in a context of confrontations between European nations, periods of peace were rather periods without major conicts: trade disputes replaced for a time armed conicts, which permanently threatened international relations. On the contrary, after the Second World War, the international strategic evolution, with the nuclear factor, was characterized by the absence of major conicts. Nevertheless, the competition between the American and Soviet superpowers led to an arms race, with a mobilization of national resources for the military sector comparable to a traditional state of war. One must then distinguish peace without major conict from an armed peace. This explains how a broader denition of defence was adopted. In its strict sense, defence represents all the means aiming at ensuring the material integrity of a territory against foreign attacks. In its traditional sense, national security, guaranteed by military power, is ensured when no foreign threat relating to the risk of losing national independence or the surrender in 2004 Fanny Coulomb

front of foreign exigencies is credible, and in the absence of war or of its perspective in the short term. Military means are the most commonly evoked, but several kinds of economic measures are also intended to ensure national defence, such as the control of strategic goods or the use of economic weapons. In some respects, foreign economic policy measures aiming at promoting national interests (trade barriers for example) can also concern defence objectives. A clear distinction between war and peace situations can then become problematic, because of the probability of warlike behaviours. Since the end of the Cold War, the concept of security has been widened, at least for the superpowers, the security of which has increased with nuclear weapons (balance of terror). With the world divided between two spheres of inuence, military intervention became justied not only in case of a direct attack, but also to protect allied countries or national resources located outside the national territory, such as oil elds. The more the military power of the State is important, the more the notion of security will have a broad sense, because values considered as vital are then enlarged. Some economists even link security issues to problems of international trade competition, since they present national security and economic power as interdependent, whereas other economists consider security as a strictly political issue. This division can be compared to the one existing on the methodological level between two distinct currents. On the one hand, pure economic theory presents peace as the normal situation and excludes defence from its analyses. This positivist and scientic analysis is based on the idea that the economic system is ruled by some immutable laws and that modern societies are built on science. Utopian economists are also illustrative of this scientic current, as well as Marx, who agrees on the idea of a historical progress which follows an immanent plan and uses the dialectical method. But this triumph of scientism, which began in the eighteenth century and became particularly dominant during the second half of the nineteenth century, has been contested. The dominant theory was attacked on its non-operational concepts, some of which couldnt be proved. The progresses of economics, which are based on the deductive method and on beginnings which for the most part date back to the nineteenth century, may not be as evident as the ones of physics, which uses the inductive approach and quantitative methods. Some economists, who contested scientism, based their theories on the observation of economic facts and on economic history (List, the German historical school), therefore dealing with interstate power issues. Others integrated the tools of other elds of work, such as sociology (Veblen), notably to explain war in capitalist economies. This dismissal of scientism also contributed to the development of a more pragmatic approach of applied economics with, among other subjects, studies advising governments in the management of war and post-war economies. The history of economic thought should contribute to the presentation of former analyses from the point of view of the economists of the time, in order to show to what extent these analyses foreshadowed contemporaneous developments, and so as to lead to a better understanding of our time. The interest in 2004 Fanny Coulomb

developing thought on the theoretical foundations of defence economics is thus three-fold, since it relates to the following questions: how did past economists analyse these issues? on which theoretical foundation are the commonly accepted ideas on military expenditures, defence, war and peace based? what lessons can be drawn from past economic analyses so as to explain the present international economic realities (military and economic conicts, conditions for the maintenance of peace, desirable level of military expenditures, etc.)?

But the integration of defence and peace issues into economic analysis is often uncertain. A real gap exists between the reality of economic facts and the development of orthodox economic theory which tended to exclude conict issues from the eld of an economic analysis concerned with the sole ideal market laws. The importance of the resources devoted to national defence sometimes led to accusations of it being responsible for tax increases. But it seems difcult to deal with military expenditures by only seeing them from the point of view of the burden they represent, compared to an economy of welfare totally pacied. Several examples can be given of the close relations between economy and the security or defence of a country: the arms race between the United States and the USSR certainly corresponded to strategic considerations, but it also appeared to be an economic war. This is attested by the collapse of the Soviet Union, bled white for having sustained a continual military effort for over sixty years. defence is often used as an argument to justify governmental economic measures. In this way, everything which concerns national security is excluded from the rules of the World Trade Organization. for certain countries, the arms sector represents an important part of national production, and decisions in this eld have a signicant impact. Because of its specic organization, the military-industrial complex also exerts a particular inuence on national economic structures. military superiority confers an important role in international relations to great arms-producing countries, including in their economic dimension. economic and military aims are sometimes closely interwoven. In this respect, the current development of information technologies interests both the military and civil sectors.

OutlineHistorically, there rst came a break, which opposed mercantilist analyses to classical ones (Part 1). For the former, economy is an instrument of power in the hands of politicians. For the latter, the development of economic interdependencies owing to the market, outside public action, ineluctably leads to 2004 Fanny Coulomb

Adhesion to liberalism Economy in the service of politics (mercantilists).

Criticism or economic reform

Refusal of capitalism

Natural economic order (physiocrats).

Peace through institution reforms (Utopian economists). State offensive to develop productive forces. List. German historical school.

Economy as a factor of peace (classicals).

State role decreases.

Capitalism as a factor of war (Marx, Engels).

A-conflictual economy (neoclassicals). Militarism and capitalism institutions (Veblen).

Critic of militarism (Pareto).

War economy management (Keyes, Pigou).

Economic interventionism. Link between war and economic crisis. International pacifism (Keynes).

Theory of imperialism (Interimperialist wars).

Capitalism, socialism and war. Liberal analysis (Schumpeter).

Models of conflict. Arms race. Game theory.

Militarism and capitalism inefficiencies (Galbraith). Macroeconomic models. Burden of military expenditure.

Neomarxist analyses. Militarism as support of capitalism. Third World exploitation. Economic war.

Models of military expenditures. Econometry.

Neo-mercantilism. Economic war.

Peace dividend.

Figure I.1 Great phases of dominant debates on war, peace and defence analysis.

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international peace. While, for the mercantilists, politics dominate economics, for the classical economists, in the long run, the economy leads to a stationary State in which politics tend to be insignicant, the economic system guaranteeing world peace. Pursuing this analysis, the neo-classical economists of the end of the nineteenth century were concerned with the establishment of a pure economic theory, i.e. exclusively centred on the explanation of economic mechanisms, without any political consideration. But all these analyses do not go further than the conrmation of the necessity for the State to withdraw from the economy and to limit its actions of foreign policy. They go no deeper in the economic analysis of international relations. With these two corpuses of doctrine, the support or the contesting of the theme of international peace owing to economic development becomes the main point of view from which economists study international relations (Chapters 1 and 2). But beyond their systemic opposition, these movements nourished internal divergences, based precisely on the interpretation of the relations between economy and politics. In this respect, some liberal aspects appear in later mercantilist works, while some classical authors moderate the optimism as to the long-term evolution of societies. Indeed, the pessimism of some classical economists regarding future economic potentialities inuences their thinking on defence issues. Finally, Lists theory conrms the separation between two conceptions of economic analysis. It shouldnt be satised with the enunciation of normative principles which are not directly applicable to the contemporary international environment. Political thought and the analysis of economic mechanisms are interdependent (Chapter 3). At the end of the nineteenth century, the debate on the nature of the ideal society which had to be established opened the way to a new economic point of view on international relations (Part 2). The Marxist movement (and before it, the Utopian economists of the nineteenth century) considered that capitalism would inevitably lead to class struggles and be doomed to disappear more or less violently (depending on the efciency of the proletarian revolutionary actions) (Chapter 4). But in an international context characterized by the worsening of international conict, the emergence of a socialist system and the economic crisis, economics could not just express the liberal ideals of laissez-faire and laissez-passer. Some heterodox economists, like Keynes or Schumpeter, then tried to develop a political economy interested in the scientic process as well as in the practical considerations of the governments of the time. Economists then went deeper into their analysis of international relations (Chapter 5). Finally, a new development in the economists contribution to the analysis of international relations occurred after the Second World War (Part 3). The increased formalization of the discipline opened new perspectives of analysis of the strategic interactions between two adversary states or of their level of military expenditure. But this did not necessarily lead to a better perception of the inuence of economic variables on international relations (Chapter 6). On the other hand, with the new debate between the proponents of globalization and those of economic war, some preoccupations dating back to the origins of 2004 Fanny Coulomb

economic thought reappeared, such as the alternative between liberalism and protectionism, for example. Thus, whereas the economists who assess that ineluctable globalization is a factor of peace defend the development of international economic relations, those who use the concepts of security and national independence reject it. After two centuries of theoretical and scientic constructions denying the role of the interdependencies between politics and economics, we come back today to a debate close to the former break between mercantilism and the classical school. The idea that the economy is an instrument of political power or a factor of peace owing to development is redundant. International relations therefore remain at the core of the alternative between the existence of an economic science and the permanency of a political economy (Chapter 7).

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Part 1

The economy, a factor of peace or warA theoretical dichotomy which appeared with political economy during the eighteenth centuryA rst way of presenting the economic analysis of war and peace is to emphasise the existence of two opposite points of view, which both developed before the First World War. The idea that an economy serves the national power, which closely links political and economic analyses. Several lines of thought developed, notably the mercantilists, F. List or the historical school. They rely on the study of concrete facts, or even on a historical analysis. The idea that an economy generates international peace, through the rise of interdependencies. This point of view is shared by economists who aim to show the validity of free trade and laissez-faire principles. Progressively, this type of economic analysis will stop dealing with political issues such as the international balance of power, war and defence.

This dichotomous presentation isnt sufcient, however, to grasp all the complexity of these theoretical currents. Indeed, internal divergences on the economic analysis of war exist within each current. They partially show the difculty in expounding denitive economic principles on issues which dont exclusively depend on economic factors.

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National power benets from the economy

The idea that the economy serves power is present in several analyses, and especially in certain mercantilist texts, in the work of F. List and in the historical school. Their rst concern was to give concrete answers to current political problems or to draw lessons from the study of historical facts. These currents give a lot of importance to the issues of defence and war, and thus to national unity, independence and power. Several economic policy principles, which answer political as much as economic objectives, are also developed.

The mercantilist movement and the improbable peaceThe mercantilist movement developed with modern capitalism, in a context of the political assertion of nations on the international scene and of monarchic centralization. This new doctrine is pragmatic and nationalist. It suggests solutions to increase the level of the national Treasury, by providing the means to lead wars. The theme of war is evident throughout these studies. The interpretation of mercantilist works later gave rise to numerous debates. In fact, the mercantilist analysis raises the essential question of whether the economy is an instrument of power or an end in itself. The rise of mercantilism From the sixteenth to the eighteenth century, the mercantilist doctrine is characterized by its analysis of the States role in national economic development. The power of the nation benets from economic wealth and the nation is associated to the Prince. Mercantilists share a static conception of international economic relations, which leads them to assert that a country can only progress economically by disadvantaging another country. In this way, they expressed the real theory of economic war. Therefore, the matter of the links between power and national economy is thus central in their argumentation. The development of the mercantilist doctrine occurred during the political formation of the European nations. With the development of the concepts of State and natural boundaries, the sovereigns were confronted with the necessary unication of their political territory, while defending national power with regard to 2004 Fanny Coulomb

foreign nations. From 1450 to 1750, the mercantilist doctrine developed, while international relations were marked by numerous wars. At the end of the sixteenth century, England overcame the Spanish domination and supplanted Holland during the seventeenth century, before putting a decisive brake on French hegemony at the beginning of the eighteenth century. The development of mercantilist thought coincided with the progressive conrmation of the British Empires domination of all international economic relations. Wars were multiplied as states were initiated. Braudel (1979) denes mercantilism as the insistent, selsh, soon vehement, push of the modern State. By centralizing power, monarchies established juridical and administrative structures on which traders could rely. Conicts between European powers occurred for commercial reasons. Their main concerns were the control of colonies and conicts over commercial monopolies. For example, the commercial rivalry between England and Holland was based on shing zones. Likewise, European powers were in conict for the domination of distant territories, particularly when these, following the American example, proved to be abundant in precious metals. In this conictual context, the mercantilist principles aimed at guiding the Princes foreign policy. The development of mercantilist thought was catalysed by great discoveries which led the way to an unprecedented development of maritime trade and to a massive inow in Europe of gold and silver from South America. These economic upheavals altered the medieval relation between the individual and the State. The Renaissance gloried the search for power and wealth and rehabilitated industry and business. The conception of war in a general sense, i.e. involving military but also economic forces, was already evident throughout mercantilist theory. Economy was indeed an instrument of national power. The study of the mercantilist theories is based on doctrinal works (Mun or Bodin) as well as on concrete measures of economic policy (Colbert). Mercantilism does not provide a unique and unchanging thought; its principles noticeably differ according to countries and periods. This heterogeneity explains that differences remain in the interpretation of this theory, particularly with regard to the importance of the links between power and economic development. In spite of its signicant inuence, mercantilist thought has never became a formally established theory. Its main representatives were businessmen (especially in England), statesmen (especially in France) or professors (Germany). Foreign trade and the advantages of colonization enabled large national companies to grow rich. To be authorized to expand their activities, they rst had to solicit a charter. Under these conditions, maintaining good relations with the King and members of government was essential, all the more so as the competition between various national companies was erce. This explains that this thinking achieved its global theoretical reection by stating practical rules of economic policy. The emphasis on the concordance between the interests of traders and the sovereign contributed considerably to the doctrines development. Willing to satisfy the objective of national power, this doctrine was based on several theoretical 2004 Fanny Coulomb

explanations of the way the national economy and its foreign trade functioned. In fact, the mercantilist policy did not exclusively benet traders or nanciers. Sometimes, the military and aggressive commercial policies of the States even went against their short-term economic interests. It is, however, necessary to keep in mind that the main purpose of these public actions was to favour the trading classes, especially those controlling domestic trade. We cant talk of only one mercantilism, but of several ones, because analyses differed from country to country, and from one period to another. Notably, the most important economic powers of the time (France, England and Spain) each adopted a particular conception of the best way to develop national power, giving more or less importance to the colonial policy, the promotion of foreign trade or the development of national industries. Spanish (notably Orthiz, Olivars and Botero) but also Genoese or Florentine mercantilists insisted on the necessity for the sovereign to accumulate precious metals, considered as the basis of military and economic power. This was the main purpose of the Spanish colonial policy and is called chryshedonism, i.e. the search for the maximum of satisfaction in owning gold. Regarding economic policy, the Spanish policy is characterized by the bullionism, i.e. the prohibition of gold outows and the overestimation of foreign currencies. This policy contributed to the decline of Spanish power, to the benet of industrial England. Indeed, the gold inow generated a price increase, disrupting the entire national economy, notably by reducing the competitiveness of Spanish products. French mercantilists gave priority to industrial development, as well as trade expansion which was supposed to guarantee gold inows, mines of precious metals being monopolized by Portuguese and Spanish. French economic policy consisted of supporting factories, encouraging exports of manufactured goods and prohibiting imports. However, the economic policy was already subtle, refusing exports of products likely to be used as war instruments (particularly weapons) and by carrying out an import-substitution policy (Prebisch, Furtado). Colbert shaped his economic policy in application of these principles. State interventionism was at the heart of economic development, as underlined by Bodin, Montchrestien and Laffemas. However, their points of view varied more than is usually admitted, although they favoured State interventionism and industrialization. The German Cameralists, who taught in universities, training future public administrators, also favoured industrialization, interventionism and protectionism. English mercantilism (Davenant, Mun and Child) was based on national economic development through trade. Individual initiative was recognized and encouraged. Industry and trade expansion were sought, notably by means of low interest rates. Mercantilism acquired a certain theoretical legitimacy in England, notably concerning the advantages to be gained from an active trade balance. It is very difcult to have access to an entire economic literature which developed over three or four centuries, in several countries, in ancient 2004 Fanny Coulomb

languages often difcult to translate. A discussion based on the specic characteristics of national doctrines is therefore out of the question. This is why our analysis intends: rst to underscore contemporary debates on the interpretation of mercantilist thought; then to underline the importance of the general principle according to which the States power is the main objective of economic action; in chapter 3, we shall show that numerous theoretical differences have appeared within the mercantilist thought, regarding war, peace, defence or national power issues.

Contemporary debates on the power policy recommended by mercantilist doctrines Studies on the history of economic thought mention little about the analysis of mercantilism. Numerous authors consider Adam Smith as the father of political economy, without mentioning that the study of mercantilist and physiocratic thought holds an important place in The Wealth of Nations. However, mercantilist thought went through several periods of revival, notably in Germany in the middle of the nineteenth century or during the systemic arms race of the Cold War. An approach to this doctrine by the contrasting analyses of the German historical school, by Heckscher, Viner, Keynes, Schumpeter or Silberner, of power, war and defence issues turns out to be very interesting. The debates were limited to two main subjects: what is the priority objective of economy, power or wealth? is economic power necessarily a response to an economic situation of conict?

Power and/or wealth: which priority objective for mercantilists? In his presentation of mercantilism, by way of an introduction to his work on war and peace in economic doctrines, Edmund Silberner (1957) insists on mercantilists bellicosity, in opposition to liberals pacism. He comments on several characteristics of mercantilism, notably the search for autarky, the xenophobia and the idealization of war. According to the author, mercantilism was dominated by the war factor and shared an antagonistic conception of international relations, which determines its monetary and commercial ideas, its will to economically and politically dominate other nations, and its rejection of foreigners. Silberner considers that the great majority of mercantilists did not mistake money for wealth. But precious metals played an important part in warfare and in support of defence. However, numerous economists qualied this bellicose interpretation of mercantilism. In his famous book, Mercantilism (the rst edition of which was pub 2004 Fanny Coulomb

lished in 1931), Eli F. Heckscher devoted an entire part to mercantilism as a system of power. For the author, mercantilism was basically aimed at the objective of the States power. Jacob Viner (1948) believed this interpretation was excessive. He considered that, for mercantilists, economic progress was a purpose as important as the promotion of a strong or dominant State. Moreover, he noticed that, often very critical of the governments economic policies of the time and little interested in general welfare, mercantilists were above all concerned with the defence of their own advantages. In answer to these criticisms, Heckscher (1955) admitted that economic and political objectives were strongly interdependent in mercantilist thought. If the States power is an important economic factor, it cannot, in the long term, disregard neglect of citizens welfare without being contested. But power also benets from wealth as stocks of resources are at the Princes disposal for him to satisfy his political objectives. Therefore, there is no basic disagreement in the analyses of mercantilism by these two authors. This interpretation found a broad echo among contemporary economic literature, which insists on the fact that politics and economy are inextricably connected in mercantilist texts. Thus, for Albert O. Hirschman (1945), policies recommended by mercantilists aimed at a double objective: the countrys enrichment and the increase of its power. The balance of trade theory made wealth increase and the search for a national power increase by disadvantaging rival states compatible (see also, more recently, the work of Lars Magnusson (1994) on this question). The policy of power as an answer to a political and economic situation of conict Subject to repeated attacks by classical and neo-classical economists, mercantilism fell into disgrace at the end of the eighteenth century. But the protectionism rebirth in Europe and the 1870 war revived the economists interest for this thinking. Mercantilists were then presented as defenders of realistic measures, in the economic and political context of the time. The conviction that ensuring the States power was the objective of the mercantilist economic policy was expressed by William Cunningham (1892), the main gure of the historical school in England. In Germany, Gustav Schmoller (1857) wrote a short book on the historical meaning of the mercantilist system. Mercantilism is presented as a response to a historical necessity, deriving from the States wish to assert themselves with regard to foreign nations, but also to strengthen their authority at the national level, through a policy of power and warfare. This was the rst expression of economic nationalism. The economic crisis in the 1920s and 1930s coincided with a strong protectionist revival, in a political context marked by international tensions. John Maynard Keynes, in General Theory (1936), used his defence of mercantilism (against the attacks of classical economists) to conrm his conviction that an unsuitable international monetary system contains the germs of international conict by making the various national interests antagonistic. As stated by the 2004 Fanny Coulomb

author, the mercantilists bellicosity was mainly a realistic answer to the monetary problems of the time. They realized the organization of international monetary relations led to economic war. In the xed gold standard international system, the balance of payments is a decisive factor for the money stock and the interest rate, and thus for the national economic health. It is therefore necessary to promote national exports to attract the maximum of precious metals, at the expense of other nations. In this context, the preservation of international peace seems highly improbable because the international monetary system prevents the realization of full employment in all nations. In his History of Economic Analysis, Joseph A. Schumpeter (1954) also defended mercantilists against those who accused them of having supported irrational and contradictory economic policy measures. According to the author, mercantilist policies were, on the contrary, based on a strong practical argument. The policies based on the public monopoly of exports and on the control of imports and exchange rates (embargo on precious metals) are rationally explained by the situation of conict and the international tensions of the time. As stated by Schumpeter, mercantilists were not theorists, but rather interpreters of the popular common sense, in a political context of international confrontation. Besides, most mercantilist authors belonged to business circles, which directly beneted from aggressive foreign policy. They put forward the arguments of the Kings wealth and of Englands security to hide their (real) imperialist motives. For John K. Galbraith (1987), according to the mercantilist doctrine, economy is subordinated to political objectives and is of benet to national power. But, gradually, there was an evolution in the identication of the powers economic bases, modifying or substantially qualifying the too abrupt analysis of the mercantilists bellicosity. We shall try to bring this evolution to the fore in Chapter 3. The general principle of the Princes power as a cause of economic action Whereas English classical economists will later aim at economic development through the expansion of peaceful trading relations, mercantilists have underscored the power and the domination relations of a nation through economic weakening, or even military conquest of neighbouring countries. Above all, economic development was of benet to military power, by providing the means to ensure the States defence and by nancing military expeditions abroad. Politics beneted from trade. The precious metals trade surplus: a factor of power Mercantilism was characterized by a few main principles, which justied economic and military conicts between European states, as well as colonial conquests. The trade surplus enables the constitution of a treasure (or of public 2004 Fanny Coulomb

savings) likely to protect national wealth. Mercantilists then developed the balance of trade surplus theory. In the sixteenth century, while the economy had gradually monetized, insufcient credits explain the importance given to the accumulation of precious metals. But, above all, the State was newly in charge of permanent mercenary armies, and the changes in military techniques had created substantial nancial needs that only the constitution of an important war chest could meet. Antoine de Montchrestien (1615) pursued the idea stemming from Antiquity that money is the sinews of war. Many other authors, notably Jean-Baptiste Colbert in France and John Locke in England, also shared the view that the power of a State depends on the importance of its Treasury. The dominant idea was that the power of a State was determined by its capacity to have sufcient monetary resources available at any time to achieve its foreign policy, in particular to nance its wars (this point of view was illustrated by John Hales (1581) for example). Thus, there is an immediate relation between supply and demand, in the sense that the money disposal (of which neutrality is an underlying hypothesis) leads directly to the ownership of desired goods. Therefore, the existence of a war chest composed of precious metals or the concrete availability of weapons in case of conict are assumed to be two equivalent situations. This analysis contains the premises of Says law. However, the role played by the precious metals stock in war success was later minimized. English mercantilists in particular insisted on the importance of manufactured goods exports and of the national production of goods necessary for warfare. The mercantilist argumentation was based on the balance of trade theory which was rst expressed, as far back as 1616, by Francis Bacon (1625): the development of trade is of benet to the country if it generates an excess of exports over imports, the trade balance returning to the nation as money. As stated by Charles Davenant (1696), the Princes interest implied an aggressive commercial policy, because precious metals reserves could only be acquired through trade. However, conicts between private interests and public interest could occur. Although they favoured the development of English exports, most mercantilists were opponents of currency exports, therefore hindering trade development. Some of them, like Milles (Spiegel 1971: 100), did not hesitate to prescribe the control of foreign trade, in the medieval tradition of bullionism. We notice the concept of treasure explains both budget surplus and trade surplus, as if they had to go together and as if the Prince could take possession of the trade surplus. In fact, mercantilists considered that only production leading to an export surplus was really productive and could create wealth. According to Simon Clment (1695: 371), trade within the national territory does not create wealth, but only represent transfers from one person to another (the prot of one making up for the loss of the other). In this way, the production devoted to exports and the traders role were gloried. Mercantilists therefore favoured import limitations and encouraged exports. 2004 Fanny Coulomb

According to certain mercantilists, currency was necessary to the circulation of goods and to economic activities;1 others considered that it represented a liquid capital, which allowed an increase in exports and eventually in stocks (Magnusson 1994: 162165). This interpretation explains why they favoured both the balance of trade theory and the quantitative theory of money. As early as 1568, Bodin expressed, in answer to Malestroit, the quantitative theory of money, according to which a currencys value, whatever its nature, is inversely proportional to its quantity. It did not prevent mercantilists from spreading the idea that a nations wealth is proportional to its precious metals stock. Bodin himself did not abandon the chryshedonist point of view. Indeed, he considered that gold and silver represented the real wealth of a country and having them in abundance was an advantage which widely compensated for the inconvenience of the price increase following the precious metals inow, notably by provoking a decline in interest rates favourable to the development of economic activities. Moreover, Bodins analysis is not contradictory, in the context of an international monetary system based on the gold standard. Because of public export and import restraints, the quantitative theory only applied to the restrictive case of the non-intervention of the government in economic activities. The question of economic self-sufciency Can the search for self-sufciency be considered as a mercantilist principle? Answers differ according to periods and countries. French mercantilists were proponents of a progressive autarkic economic organization. They expressed a profound mistrust with regard to foreign nations and more generally regarding trade activities. This point of view was totally incompatible with that of the English mercantilists, who insisted more and more on the benecial effects which a nation could gain from foreign trade (see Chapter 3). The economic policies of European states during the fourteenth century were characterized, in Heckschers words, by their policy of provision. This method was introduced in the thirteenth century and culminated in the fourteenth century (and continued until the end of the eighteenth century for manufactured goods) (Heckscher 1955: 91). The purpose was to stop exports of certain goods, especially food, but also military goods. A part of these export prohibitions were applied to trade relations with the enemy, and to strategic goods (armaments or other goods useful to national defence). But this policy of provision was not only concerned with strategic considerations. Indeed, the mother country still depended on its trade with the colonies, which were difcult to secure. Besides, the need to prepare for an embargo enforced by the enemy was almost never mentioned to justify this policy, which was at rst primarily based on the scarcity of goods. Colonial conquests used this logic by giving access to complementary products, different from those produced in the mother country. Heckscher (1955: 131) makes a necessary distinction between the mercantilist policy, which recommended autarky, and the mercantilist doctrine, which recommended the expansion of exports and the limitation of imports. The wish 2004 Fanny Coulomb

to ensure national independence only resulted from a misunderstanding of the fact that these exports necessarily created links between the national economy and foreign economies, forcing the country to import certain goods. Thus, the search for economic self-sufciency cannot be considered as a main characteristic of the mercantilist doctrine in England. Besides, we must keep in mind that English mercantilists generally favoured the arrival of immigrant workers on national soil, since the population, and thus the capacity of national enrichment, grew subsequently. On the other hand, the economic self-sufciency principle was crucial in the works of two important French mercantilist authors: Laffemas and Montchrestien, whose work much inuenced Colbert. For Barthlemy Laffemas (1598), the trafc and trade of foreigners on national soil brought about the ruin of France. Furthermore, imports made by national traders were also harmful, because they generated an outow (and thus a loss) of precious metals. The country had to base its economic development on national production rather than on trade openness. Antoine de Montchrestien (1615), who was the rst to use the term political economy, also supported self-sufciency. His Treaty of political economy was marked by a strong nationalism and by a virulent attack against foreigners, in particular traders, accused of being responsible for all the disorders from which France suffered. In this way, the mercantilist doctrine was also characterized by the exacerbation of xenophobic feelings.2 The recommended solution was to limit the rights of foreign traders and progressively search for self-sufciency, as the goods produced in France ought to be primarily used for national consumption. Montchrestien advocated the growth of factories and the implementation of rights on exports as well as on imports. But he was not concerned with providing the abundance of goods within the kingdom, nor was he interested in encouraging prodigality and luxury expenditures, dangerous for the greatness of France. Regarding foreign policy, the search for autarky is coupled with the wish to expand colonial conquests, but without open trading ambitions. French mercantilist theory was fundamentally bellicose. Its theorists exalted war, which helped to maintain unity and national virtue and supply public funds. In this way, they justied the war of aggression. The promotion of economic war According to the mercantilist doctrine, all means are good to ensure the national economic and political domination. Its development was accompanied by the exacerbation of nationalist feelings and the wish to weaken foreign countries, even if it penalized national prosperity. Mercantilists considered that the possession of a money stock superior to that of other States was a fundamental economic objective. In this way, they supported the numerous commercial wars of the time, because of a lack of natural harmony among national interests. Francis Bacon (1625) associated the balance of trade with the balance of greatness or of power. According to him, 2004 Fanny Coulomb

the English policy should aim at developing both the nations power and trade. The increase of Englands power and Treasury disadvantaged rival countries. The rule according to which one only wins what the other one loses (zero-sum game principle) justied the State in directing its foreign trade policy towards a real economic war. As stated by Josiah Child (1681: 30), a States power and wealth are only relative. Trading relations allowing both countries to grow rich were only desirable if they improved the power of the nation compared to that of its trading partners. The core of the mercantilist doctrine relies on a static conception of economy, i.e. on the idea according to which world economic resources are xed. Montaigne, Montchrestien, Bacon and Colbert were the main representatives of this conception. At the economic policy level, the main effects of the mercantilist doctrine were the implementation of numerous import restrictions, the encouragement of exports and several measures leading to continual commercial wars between European states. Mercantilists unanimously defended legislative or military measures aiming at increasing foreign trade. In this way, they supported the Acts of navigation, the control of commercial roads to promote manufactured goods exports, as well as trade between the metropolis and the colonies. However, mercantilists works often (strongly) disapproved of wars. Thus, wars entailing a gold outow (because of the expenditures required to maintain armies in distant countries) were criticized (Clment 1695: 371). This negative effect does not appear for wars fought at the realms borders or at sea (Mun 1664: 99). Furthermore, some of the wars led by monarchs are unfair; they dont aim at the necessary defence of their own rights, but respond to the pride and the greed to add realms to the realm (Mun 1664: 128). As for John Locke, wars of conquest are expensive and create an increase of the needs, an increase of the Luxury and the Vanity of the People; business must be preferred to wars (1691: 63). Therefore, there are right or opportune wars (based on the Princes power) and inequitable wars (based on destruction and robberies). Besides, we discern the rst stages of an analysis in terms of costadvantages. In spite of this hesitation about certain military conicts, mercantilists remain convinced that trade expansion depends on the support of a strong military force which is benecial to defence, deterrence and offensive, according to trade policy needs. This doesnt mean mercantilist authors are necessarily interested in ensuring or optimizing the populations welfare. The objective of the States power and wealth prevails over individual well-being, which can be sacriced to the public cause. Thomas Mun (1664: 135) considers that the more a nation suffers from scarcity, the more it will be wise and industrious. Abundance shouldnt prevail in the realm, because it corrupts the populations capacities of obedience and sacrice. Similarly, Josiah Child (1668: 20) suggests the creation of legislation to prevent the population from idleness. Human capital was an underlying concept of this thinking: John Hales (1581) considers that the populations training (which should develop its courage, ghting spirit and education) must be carefully maintained, because of its benecial effects on the 2004 Fanny Coulomb

Princes power policy. As stated by Charles Davenant (1696: 230), the populations prosperity would be better ensured by the limitation of Englands foreign trade, but such trade is necessary to preserve the States power. Jean Bodin developed the idea according to which war against foreign enemies had benecial effects on national peace. Antoine de Montchrestien pursued the same idea, but added that the same results could be achieved through the rise of the subjects living standards. The French, unlike the English mercantilist authors, did not attempt to develop a science of trade, notably because non-orthodox economic views were subject to an austere censorship, all the more effective as most French mercantilist authors were statesmen. Jean-Baptist Colbert, superintendent of nancial institutions, then general controller of Louis XIV, implemented the French mercantilist principles, giving rise to a whole set of precepts now named colbertisme in France. By expressing these precepts, Colbert was primarily concerned with the need to provide the nancial means required for Louis XIVs numerous wars and to thwart the Dutch commercial expansion (owing to the French trading companies), which he interpreted as the sign of a political will to dominate Europe. With regard to foreign trade, Colberts policy consisted in forbidding raw materials exports, promoting manufactured goods exports, as well as prohibiting imports. However, he emphasized especially international industrial competition and the need to develop French industries, owing to an educative protectionism. Colbert considered that the State had to use the instruments of investments, of the granting of privileges or of the creation of public factories. The national economys construction entails the easing of restrictions on domestic trade, notably through the abolition of tolls (Edict of 1664) and the development of communications. According to Colbert, national laissez-faire increases wealth, as well as exports, by mobilizing the productive force. As early as 1576, Jean Bodin, in his work, The Republic expressed similar ideas. These measures enabled France to become one of the leading world economic and military powers. Beside the promotion of exports, the population policy was another mainstay of the mercantilist analysis. It was a matter of providing the means to implement the foreign policy. The more the State was populated, the more it was considered as powerful.3 In France, Jean Bodin exalted the advantages that a country gained from an abundant population, namely wealth and power. In this way, he expressed the famous proverb: Il nest de richesse ni force que dhommes (There is no wealth nor strength but men). In the same way, a high birth rate was of benet to the interests of traders and manufacturers, who needed a labour force to take part in the national economic development. John Hales (1581) searched for the means to develop industry so as to maintain a constant population level, and thus maintain the armys strength, while the policy of enclosures had created a massive movement of rural exodus. He thus suggested the development of Englands foreign trade. 2004 Fanny Coulomb

However, in this eld, mercantilism cant be reduced to a fanatical nationalism. Botro, for example, sets forth the principle of appropriateness between population increase and available subsistence goods. Some mercantilist works mention precepts which fall within a strategy of impoverishment, with the refusal to implement an embargo on the exports of national products with the enemy, even during wartime. On the contrary, the subsequent gold outows should contribute to weaken the enemy and increase its economic dependence. Therefore, the development of trading relations could contribute to the increase of one countrys power compared to another. John Cary writes in 1695 about France, at war with England at the time: I wish he were better furnishd with our Product and Manufactures, and we had his Money for them, which would much more weaken him, than the other would enable him to carry on the War. (Quoted in Heckscher 1955: 99) Mercantilist writings also mention a rst expression of the concept of an arms race. The anonymous author4 of the text Britannia Languens considers that the sovereign of a rich country will achieve his military aims faster by arming himself rapidly (forcing the country he wants to defeat to do the same), than by coming into open conict with his enemy. The opponent being poorer, its resources would very quickly run out, increasing its vulnerability (Silberner 1957: 30). Here are expressed the main hypotheses of Richardsons arms race model, but also the broad lines of the strategic policies implemented during the Cold War by the Soviet Union and for the Strategic Defense Initiative by Reagan. Finally, traders could be employed as intelligence agents, by providing the nation with precious information on the enemys economy and resources, which could not have been obtained by military means. This idea was notably developed by Lewes Roberts (1641: 262). In this way, mercantilists shared a real conception of economic war, very close to our modern analyses of commercial wars, of the economic weapon and of industrial intelligence. The modernity of these analyses is remarkable. Conclusion Mercantilists established a direct link between economic development and the conrmation of national power. From this time onwards, economic reasons justied war. They believed international economic relations were marked by economic and military competition for the conquest of markets and resources. The nations power was relative, and government had to improve the national position in the hierarchy of powers. Therefore, the State had to intervene on the international scene to promote national interests. At the national level, it could undertake actions in favour of the development of export industries. These mercantilist principles opened the way to the modern concepts of protec 2004 Fanny Coulomb

tionism and economic war. In fact, by justifying aggressive trade and military conquest policies, it opened a debate on the opportunity of trade interventionism which still exists today.

The economic bases of national security, according to ListFriedrich List, German economist (17891846), inspired the German customs union (Zollverein). His most important book, The National System of Political Economy (1841), appealed for national unity and for the implementation of a common trade and customs policy in Germany, but also in all countries wishing to develop their industry, to face the domination of leading economic powers, mainly Great Britain, over international trade. He pursued the traditional practical teaching of economy in Prussia and inspired the German historical school. His analysis is very useful to defence economists, because it always refers to concepts of defence, independence and national power. War and peace issues, presented along with protectionism, also held an important role in his work. Lists theory has sometimes been misinterpreted. It has been dened as a theory of protectionism or of national power which would have foreshadowed the German theories of lebensraum. However, the Listian analysis is not the caricature it may seem. More than a theory of war, it is a theory of security. More than a theory of power, it is a theory of the national economys development and organization. List describes a strangely modern picture of the defence eld of analysis, wider than the one depicted by English classical authors. Indeed, according to List, military issues are not subsidiary, notably when they become instruments of the geo-economic security. Moral aspects intervene with material ones as elements of defence. List is the rst economist to have placed security in the centre of economic analysis, and to have made it become an explanatory element of the way State economy works and of its integration to international economy. In this respect, his analysis is fundamental. Unlike the liberals, List links defence issues to other issues, and goes further by suggesting a new conception of national security. His theory signicantly contributed to the analysis of international economic relations. Indeed, it gives a meaning to economic and military conicts issues, by relating them closely to matters of development.

The economy is benecial to national strategic interests In opposition to the classical school, List considers State intervention in trade policy as indispensable to ensure the development of national productive forces. National defence and economic security issues are evident throughout his theory. International economic relations are competitive, and even conictual.

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From military defence to economic security For List, defence implies the development of productive forces, the growth of national industry, economic patriotism and the implementation of a powerful trade policy to defend national interests. Adam Smith and List, who used the concept of productive forces, had two different conceptions of defence. Whereas Smith considers defence as the most unproductive expenditure, List asserts that this expenditure, as well as those devoted to education and justice, allow an increase in national productive forces in the long run, even if they represent a destruction of values in the short term. All expenditures devoted to the education of the youth, to the respect for justice, to the countrys defence, etc., is a destruction of value which is of benet to the productive force. The major part of a countrys consumption aims at the education of the new generation, the care of the future productive force. (1841: 247) The American politician Alexander Hamilton (1791) had already expressed principles similar to those defended by List. According to Hamilton, a solid economic base ensures a countrys security in the long run. He recommended the Union, at the level of which the prohibitive tariffs necessary to face the English and Dutch competition could be implemented. Besides, public support for arms production is essential. Military security is a condition of Americas industrial development, because it enables the country to free itself from its dependence on foreign powers. He suggests an import substitution policy, with the creation of a tariff to protect industries essential to national security. He wonders what opportunity there could be in a governmental organization for arms production. Indeed, the arms production necessary to national defence shouldnt be subject to the risky speculations of individual initiatives. These ideas will be pursued by List, for whom the power of production is the key to national security. The ability to wage war is based on the potential of wealth production and on the development of productive forces. The danger of war makes the protection of productive capacities necessary. Societys institutional frame is also productive. List underlines the importance of the freedom of thought and of conscience in the development of productive forces. Notably, the abolition of slavery and serfdom is a source of productive forces. Therefore, laws and institutions must not be considered as unproductive, even if they produce no value; indeed, they contribute to the development of productive forces, which are the instruments of economic prosperity. Besides, the nature of the national government system is a decisive factor of the nations industrial, commercial and maritime success. Thus, institutions have to guarantee the civil freedom of institutions and laws, of administration and foreign policy, as well as the national unity and power (1841: 214). Political institutions have to direct individual forces towards the collective project. Everywhere History 2004 Fanny Coulomb

shows us an energetic action of social forces and individual forces one against the other (1841: 214). Freedom is thus the basis of economic development. Yet, the ownership of an industry by the nation ensures the liberalization of its institutions. In fact, industrialization has highly interdependent relations with political freedom, social progress and the conrmation of national power. Therefore, purely agricultural nations are the nations where political institutions are less free and business is less encouraged (slavery, tyranny, theocracy). The School5 has assigned this civilizing power to foreign trade; in this respect it serves as intermediary for the cause (1841: 250). Therefore, industrialization is at the basis of every economic development, but also of the nations moral values. It enables the realisation of the different objectives which List has always related and considered as essential: prosperity, civilization, power and independence of the nation. Industrialization is the necessary condition for the community to become an independent nation and then an economic power. The mainsprings of Lists theory of defence are thus set out: defence is an important element of political life and justies State interventionism. The State economy must be directed towards two clearly asserted objectives, besides economic prosperity: national power and independence. In this respect, List innovates with regard to the classical conception of defence. According to List, the formation of a national industry is necessary to ensure the growth of productive forces, the ultimate purpose being national independence. National independence is multiple, i.e. moral, economic and political, and is obtained through the development of industries and of a powerful class of factory owners and tradesmen (1841: 111). Like defence and education expenditures, public support for national industries is an investment which will generate an increase in productive forces in the long run. There are two important points here. First, List pursues the idea, expressed earlier, that material capital and human capital are closely related when it comes to ensuring national survival. Therefore, according to List, the ownership of a manufacturing industry enables the increase of intellectual forces of the nation as well as public incomes and material and moral means of defence and it guarantees national independence (1841: 320). The development of a manufacturing industry directly contributes to the improvement of national defence: At a time when art and mechanics have such a strong inuence on warfare, when all military operations highly depend on the situation of the Treasury, when the countrys defence is more or less ensured, according to the population mass, i.e. if it is rich or poor, intelligent or stupid, energetic or plunged in apathy, if its sympathies belong unreservedly to the country, or are partially in support of foreign nations, if it can arm more or less soldiers; more than ever, in such a time, industry must be viewed from the political point of view. (1841: 320) 2004 Fanny Coulomb

Thus, List establishes very close relations between economic and moral forces and appeals for economic patriotism. Second, the State must undertake a real economic development policy and create protective taxes, which, even if they represent a loss of value, contribute to the industrial education of the country and lead to an increase of productive forces in the long run, by ensuring prosperity and power (1841: 253). Therefore, the nations survival relies on the existence of a real political will in favour of national power. List accused the School of having mistaken the maxims of private economy for those of public economy and of having questioned the existence of nationality and of national interests, by refusing to encourage the growth of the merchant navy, nance its protection and prepare the country for naval warfare (1841: 274). He therefore blamed Adam Smith for having considered the nation as an individual, by recommending savings. A nation which would prefer savings to its own defence, trying to avoid expenditures generated by wars, would be later condemned to poverty, inhumanity, powerlessness, dissolution, because foreign countries could then monopolize its assets. The search for cheaper products through free trade should not necessarily be the ultimate objective of a nation, as protectionism plays an essential role in national unity. List appeals to all members of the nation to continually defend their present and future existence, through appropriate economic actions, guided by State intervention. Defence must always be taken into account along with economic concerns. Therefore, military expenditures and protectionist measures must not be considered as exceptional. List criticizes the idea that war establishes a kind of state of exception. He considers peace as a temporary suspension of conicts, in a world marked by the disparity in levels of national economic development. Therefore, even in peacetime, States must develop their navy and establish a prohibitive and protective system in order to direct capital towards specic industries, notably those related to national security. Restrictive measures on exports of strategic products, such as powder or artillery, would then be unnecessary in wartime. But the military or strategic sphere is not the only one concerned. The entire economy contributes to national defence. Thus, List disapproves of the trade retaliation principle advanced by Smith; he condemns its risky and temporary character. A well-led policy of restraints is a continuous one, and must not correspond to a logic of economic war, but rather of national independence. Therefore, Smiths argument to justify the protection of industries necessary for national defence must be extended to all industries, because a nations potential for defence is determined by its global industrial development. In the same way, List considers that the third exception to free trade mentioned by Smith (when domestic manufactured goods are disadvantaged compared to foreign countries with regard to taxes) is not satisfactory: why are the other disadvantages not considered (1841: 432)? In his argumentation, List mistakes economic for military matters, and defence for economic security matters. And in fact, a central element of his analysis is the search for national economic self-sufciency, because it 2004 Fanny Coulomb

is closely related to the governments economic policy. Unlike liberals, who only considered war, List enumerated three kinds of events which could threaten national economic security: foreign restraints, trade crises, wars (1841: 415). Indeed, if war occurs, a purely agricultural nation may lose its products outlets as well as the means to buy foreign goods. To overcome this danger, the nation must develop both agriculture and industry, in order to guarantee full employment of productive forces, which will prevent their reciprocal action from being disturbed by war or by foreign measures. Thus, the continual protection of national industries is necessary, not only in wartime but also in peacetime, as it has benecial effects on both economic development and national independence. A national offensive on foreign markets Under full employment of productive forces, national defence is better ensured if the society is imbued with an appropriate culture and knowledge. Indeed, politics may hinder the course of international trade. These disruptive factors can be a bad policy of monarchs, unintelligent or left to their passion; domestic troubles; war, devastation or oppression of a tyrannical or fanatical system. (1841: 457). They can cause the downfall of the most economically advanced nations which subsequently lose their comparative advantage. In this presentation of war, List considers that it is never waged for justiable objectives, and that it is often the result of a political constitution unfavourable to national economic progress. However, there is a positive side to war if it can help leaders to remember the importance for national economic security of having a strong national manufacturing industry. In this way, the United States beneted from war with England, because they had to abandon free trade and protect their manufacturing industries, which turned out to be favourable to the development of an economy whose agriculture had already developed well. The nation should maintain this system of restraints in peacetime, so as to help the development of industries still incapable of withstanding international competition. List does not consider the search for national power as a bellicose aim, but as essential to the protection of national independence: The idea of independence and power arises with the concept of nation (1841: 292). By reviving the consciousness of national interest, war encourages the implementation of benecial economic measures. But it would be even more advantageous if such measures were undertaken in peacetime, within the framework of a good political constitution. More than a competitive struggle between leading powers, it is a matter of national economic survival, in an international context characterized by differences in the levels of national development. However, by appealing for independence, List also appeals for the growth of national power. Although he doesnt mention them, he wasnt against wars waged to conquer new colonies. According to him, a nation must train men, 2004 Fanny Coulomb

manufacture machines and build communication routes in order to ensure its defence (1841: 57). But the colonial policy is also a logical continuation of the trade, education, defence and civilizing policy of an enlightened government. As stated by List, the enhancement of national power enables a country to take advantage of foreign countries natural forces, and to do so for several generations, through foreign trade or colonization. The nations power, which is assessed by its ability to extend civilization world-wide, is necessary for the development of productive forces. Indeed, it inspires in individuals a spirit which spurs them on at the level of the whole nation (1841: 251). According to him, there are reciprocal relations of cause and effect between civilization, political education, the peoples power and economic development (1841: 247). The school shouldnt exclude political and power issues from the political eld of analysis, otherwise, it will neglect the intellectual capital of the living economy, i.e. the fact that a population benets from the accumulation of knowledge by previous generations. [. . .] Every single nation is productive as long as it knows how to assimilate this conquest of the previous generations and increase it with its own acquisitions; the extent and geographic situation of its territory, the number of inhabitants and its political power are as important as natural resources if a nation wishes to cultivate, exceptionally and harmoniously, all the branches of labour, and extend its moral, intellectual, industrial, commercial and political action to less developed nations and more generally world-wide. (1841: 248) According to List, both moral and economic reasons justify colonization. Colonies wish to benet from the contributions of industrialized nations, regarding civilization and economic development. Colonial trade, such as exchanges of manufactured goods for raw materials, are necessary to the industrialization process. Besides, the possession of a colonial empire represents the crowning achievement of the development of industry, trade and national power.

Furthermore, List defends the particular attention paid by mercantilists to precious metals against the classical authors. Indeed, the trade balance surplus can help to limit monetary uctuations. And the level of this surplus depends on the nations trade policy and on its position in the hierarchy of powers (in particular the size of its colonial empire).

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The pacication of international relations through economic development List considers that, in the very long term, all nations having the same level of development could unite in a universal confederation, which would guarantee perpetual peace, notably with the abolition of custom duties. But in the context of trade wars and uneven development of nations of the time, the idea of perpetual peace could only be an illusion, advanced by the dominant theory, which was in fact mostly concerned with Englands supremacy in the world economy. Nations must avoid being trapped in the universal association based on the wealth and power of a single dominant nation, the others being submitted to subjection and dependence (1841: 441). In this context, every nation whose agriculture is prosperous, but whose industry is insufciently developed, must protect it with custom duties. List distinguishes private economy from social economy, and within the latter national political economy from cosmopolitan economy. The cosmopolitan economy supposes that all nations of the world form a single and unique society living in perpetual peace. Quesnay, Smith and Say were the rst theorists of this cosmopolitan economy, as they recommended universal free trade, without mentioning the idea of a nation. It is interesting to notice that the dominant theory is here dened with regard to its supposed pacism. As stated by List, the principles of free trade are only valid in the case of a universal association or confederation of all peoples of the world. According to him, there is a risk for a nation in opening up its economy too much to the outside world; he rejects the principle of the international division of labour and recommends national economic independence. Notably, he states that England can export, through cheap products, its trading problems (1841: 321). The best way to protect the economy from commercial crises or from uctuations due to wars or foreign restraints is to bring all national productive forces together in cooperation. As long as States resort to wars and protectionist measures, the union of peoples is inconceivable. However, the possibility to have recourse to armed conicts decreases as state economies develop; there is a gradual shift towards the peaceful settlement of conicts. Two peoples with an equally developed industry would do more harm to each other within a week than they could undo within the space of a generation. (1841: 230) Already, in the congress of leading powers, Europe has the embryo of the future congress of nations. From today onwards, the tendency to settle by agreement the conicts between peoples prevails over the use of military means. [. . .] (1841: 231) 2004 Fanny Coulomb

In the future, an association of all humans is possible and desirable for rational and religious reasons. It would represent the success of the scientic, artistic, industrial and social progress of humanity. List is in favour of commercial treaties through which nations make reciprocal concessions and he recommends a progressive decrease in protectionist measures throughout the world. These measures are only useful at a certain level of eco