Like Sismondi and Saint-Simon, List was as much interested in transition between stages of economic development as in the end result. He felt that passage through the first three stages will be brought about most speedily by free trade between states and nations, but that economies in transition between the last two stages required economic protection until the final stage was reached.

Free trade justified once again, however, when the final stage of development was attained, "in order to guard against retrogression and indolence by the nation's manufacturers and merchants".

By List's classification and testimony, only Great Britain had attained the final stage of economic development. While the Continental and American nations struggled to reach this apogee, however, cheap British imports were thwarting the development of domestic manufacturing. List felt that until all nations reached the final stage of development, international competition could not exist on an equal footing. Thus he favored protective tariffs for Germany until its greatest national economic power was attained.

It is important to note that List was not an outright protectionist; rather, he felt that protection was warranted only at critical stages in history. His writings are replete with examples borrowed from history and experience showing that economic protection is the only way for an emerging nation to establish itself. List felt that the American experience offered vindication of his views, and he of course found ready support among United States protectionists, particularly Alexander Hamilton and Henry Carey.

List's Criticism of Classical Economics

List strongly opposed the absolutist, cosmopolitian tendencies of the classical economists. They derived principles, he maintained, which were then assumed to hold for all nations and all times. By contrast, List's theory and methodology were strongly nationalistic and historical. His theory of stages in economic development, for example, was calculated to demonstrate the insufficiency of classical economics to recognize and reflect the variety of conditions existing in different countries and, most especially, in Germany.

Like Sismondi, List subordinated economics to politics in general. In his view, it was not enough for the statesmen to know that the free interchange will increase wealth (as demonstrated by the classical economists); he must also know the ramifications of such action for his own country. Thus List argued that free trade that displace either population or domestic industry is undesirable. Moreover, List would not sacrifice the future for the present. He maintained that the crucial economic magnitude in economic development is not wealth (as measured by exchange values) but productive power. In his own words, " The power of producing wealth is...infinitely more important than the wealth itself". Thus economic resources must be safeguarded so that their future existence and development are assured. This view constitutes further justification for List's protectionist arguments; it also lies at the root of the popular "infant-industry" argument in support of protective tariffs.

For List, the ultimate goal of economic activity should be national development and the accretion of economic power. In this, he (as Marx was to do later) perceived industry as more than the mere result of labor and capital. Rather, he conceived industry as a social force that itself creates and improves capital and labor. In addition to effecting present production, industry gives an impetus and a direction to future production. Therefore, List recommended the introduction of industry into underdeveloped countries even at the expense of temporary loss.

List's originality in economic theory and method consisted in his systematic use of historical comparison as a means of demonstrating the validity of economic propositions and in his introduction of new and useful points of view in contradistinction to the economic orthodoxy of classical liberalism. In stretching the dynamic fabric of classical economic growth by representing economic development as a succession of historical stages, he provided a methodological rallying point for the economists of the German historical school. Thus List may appropriately be considered the forerunner of that school.

This reaction in favor of protection spread throughout the Western World in the latter part of the 19th century. Germany adopted a systematically protectionist policy and was soon followed by most other nations. Shortly after 1860, during the Civil War, the United States raised its duties sharply; the McKinley Tariff Act of 1890 was ultra-protectionist. England was the only country to remain faithful to the principles of free trade.

But the protectionism of the last quarter of the 19th century was mild by comparison with the mercantilist policies that had been common in the 17th century and were to be revived between the two World wars. Extensive economic liberty prevailed by 1913. Quantitative restrictions were unheard of, and customs duties were low and stable. Currencies were freely convertible into gold, which in effect was common international money. Balance-of-payments problems were few. People who wished to settle and work in a country could go where they wished with few restrictions; they could open businesses, enter trade, or export capital freely. Equal opportunity to compete was the general rule, the sole exception being the existence of limited customs preferences between certain countries, most usually between a home country and its colonies. Trade was freer throughout the Western World in 1913 than it was in Europe in 1970.