Powers of Production Comes Before Wealth Creation
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“The causes of wealth are something totally different from wealth itself. A person may possess wealth, i.e. exchangeable value; if, however, he does not possess the power of producing objects of more value than he consumes, he will become poorer. A person may be poor; if he, however, possesses the power of producing a larger amount of valuable articles than he consumes, he becomes rich. The power of producing wealth is therefore infinitely more important than wealth itself; it insures not only the possession and the increase of what has been gained, but also the replacement of what has been lost.”– Friedrich List, ‘The National System of Political Economy’
List’s argument is fundamentally that long-term investment in areas that constitute ‘the productive powers’ of the nation mattered more than contemporary “GDPmaxxing” which mortgages the future to sustain the present. This theory covers everything from our issues with dwindling housing supply to spiralling energy costs, all caused by low investment for decades.
The good news is that Britain retains remarkable productive powers in other domains that we can yet reform. The bad news is that they too are under severe pressure. Britain maintains world-leading research universities but struggles to convert their discoveries into industrial strength; she hosts sophisticated financial markets but fails to channel capital into productive investment; and, she preserves the legal frameworks, i.e. the common law system, enabling past prosperity but cannot mobilise them to enable new development.
We can see the difference in approaches between the Victorians and modern Britain in the responses to the housing crises both eras shared. The ineffective response of policymakers today is to approach housing as a commodity whose price is determined by supply and demand and policies focused on marginal adjustments: tweaking planning rules, adjusting mortgage markets, fine-tuning housing benefits, etc. The Victorians saw housing differently: as a fundamental productive power that enables or constrains all other economic activity, and their response to urban housing challenges offers a perfect illustration of the cultivation of productive powers in action.
“Adam Smith has on the whole recognised the nature of these powers so little, that he does not even assign a productive character to the mental labours of those who maintain laws and order, and cultivate and promote instruction, religion, science, and art. His investigations are limited to that human activity which creates material values. With regard to this, he certainly recognises that its productiveness depends on the 'skill and judgment' with which it is exercised; but in his investigations as to the causes of this skill and judgment, he does not go farther than the division of labour, and that he illustrates solely by exchange, augmentation of material capital, and extension of markets. His doctrine at once sinks deeper and deeper into materialism, particularism, and individualism. If he had followed up the idea 'productive power,' without allowing his mind to be dominated by the idea of 'value,' 'exchangeable value,' he would have been led to perceive that an independent theory of the 'productive power,' must be considered by the side of a 'theory of values' in order to explain the economical phenomena. “– Friedrich List, ‘The National System of Political Economy’
Where the Victorian state could grant all needed powers through a single parliamentary bill, modern projects must navigate multiple regulators with overlapping jurisdictions. The Victorians developed further institutional frameworks that enabled both public and private initiative for long-term investment. Local authorities gained the power to shape development, while private enterprise and charitable trusts had clear frameworks within which to operate. The result was a massive increase in housing stock that supported Britain's industrial expansion.
Projects that once took months to approve now take years or decades. The main costs have shifted from actual construction to regulatory compliance, while the primary risks have moved from technical and financial challenges to regulatory and political uncertainties. Large projects become nearly impossible, forcing development into small, inefficient increments. Innovation is discouraged by regulatory complexity, while massive pre-construction costs drive up end prices. Perhaps most damagingly, Britain has lost crucial skills in major project delivery as technical expertise has been subordinated to regulatory compliance.
The paradox of modern Britain - sophisticated institutions alongside degraded productive capacity - can only be understood by the conscious unravelling of the sources of Britain’s productive powers built in the Victorian era, and the choice to live off the diminishing rents thereof until we are left with neither the ability to create wealth or wealth itself.