Up to this point I have explained the argument for this kind of intervention in terms of the advantages accruing from the development of particular processes or industries. It should be reasonably obvious, however, that it is capable of being carried substantially further than this. The fostering of certain types of economic activity in this way may be conceived to give rise to what Marshall called external economies in the shape of a more generally skilled and adaptable labour force, the prevalence in the locality or society concerned of general traditions of industrial know-how, the existence of organs of technical information and research, a trade press and so on. It is customary to think of the Marshallian external economies in the context of the expansion of particular industries. But, in fact, the conception is much more at home in .a wider setting; and it is no accident that it was first elaborated by Marshall in his Principles, not in book v which deals with demand and supply and value, but in book IV which deals with land, labour, capital and organisation.

It was this kind of influence which, much earlier than Marshall, had been the focus of·List’s various disquisitions on the development of productive powers. List was a turbulent, tragic character, full of romantic prejudices and given to wild exaggeration, and his misrepresentation of his intellectual antagonists, particularly Adam Smith, is almost comic in its inaccuracy. I But, divested of its sound and fury, there remains surely acore of truth in his contention that the fostering of certain industries in certain historic context may carry with it an increase of productive potential, not to be measured merely in the value of particular outputs or the growth of capital values.

In my judgment the influence of his exaggerations and misrepresentations did much harm, especially in so far as they contributed to the growth of economic nationalism in Europe. But that is no reason for denying some degree of analytical validity to his principal contention. I t is worth noting that all the writers I have cited developed the argument for the encouragement of infant industries in the context of national societies open to competition from elsewhere. They did not contend that pure economic freedom was inappropriate within closed societies or between different localities within the national area. List, indeed, who was busy agitating for the forma tion of the great free trade area which was the· Zollverein, went out of his ,vay to declare that within a universal confederation ‘there would be no better way of raising all these countries [the membership of the confederation] to the same stage of wealth and cultivation as England than free trade’.I Nevertheless, the formal arguments developed had wider implicationsthan that eventhough, from a practical point of view, List’s reservations may not be thought to be thoroughly sensible. It is not without significance that the first mention by Marshall in his Principles ofthe concept of external economies occurs in conjunction with the phrase, the localisation of industry.

At any rate it is clear to me that the very cautious and open-ended expositions by Sidgwick and Marshall of the claims of the system of economic freedom were substantially influenced by the inroads on the more dogmatic versions which had been made by the infant industry argument. The presumption is still in favour of economic freedom as the central principle. But there is a wide margin left for various types of intervention.