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Autarky

The independent operation of a country

What is Autarky?

Autarky is the term used to describe a country or economy that operates independently. Autarky, in its most basic sense, means “self-sufficient,” though it’s almost always used in correlation with a political or economic system, meaning that the entity – whatever it is – can operate and exist free of outside influence, support, or trade.

 

Autarky

 

Digging Deeper into the Concept of Autarky

In most cases, a country and its economy are linked together when described as an autarky. It means that the country and its economy are able to function independently from involvement – especially financial involvement – with other countries and their economies. If an autarky flatly refuses to trade with other countries, it becomes known as a closed economy.

When looking at the idea of an autarky from a political standpoint, it simply means that the rules and governments ruling over an entity don’t require assistance from outside. Consider, for example, the United States and its military. In most cases, the U.S. military groups – Army, Navy, Marines, etc. – function perfectly well without help from outside influence. And in many cases, the U.S. military groups assist other countries. In times of war, however, help from other countries and their military groups is necessary for survival and success.

The ideology of autarky has been widely used throughout history by a variety of entities and in different schools of thought, including syndicalism, leftist populism, and African socialism. Traditionalist conservatism and even the U.S. system of government have utilized the concept of autarky, at least in part.

Still, most entities find that autarky is almost impossible to fully reach and is detrimental, as it stagnates growth and prevents the development and strengthening of relationships between nations. Such relationships almost always come in necessary, or at least handy, at some point in time.

 

History of Autarky

The modern traces of autarky generally begin with German economist Friedrich List and his book “The National System of Political Economy,” published in 1841. After studying under the likes of Friedrich Wilhelm and Joseph Schelling, List moved around, studying and working to update the economic viewpoints put forth by Alexander Hamilton.

The root of autarky ultimately comes from Georg Friedrich Hegel and the Hegelian belief system, which called for a robust state and the building of a centralized government that received input from, but was not flooded by, individuals and their decisions. While it’s much more complicated than one concept, Hegelian philosophy, at its core, focused on economic and political forces being bound to the nation-state, and asserted that trading outside of the nation-state is treasonous because it poses a threat to the state’s overall health and growth.

List ultimately expanded on the concept, writing in his book that individual interests should come second to the interests of the nation and that the concept should be duly directed toward international trade policies. In the end, List’s ideas were in direct contradiction to the concept of free trade and independence to interact with other countries – the same ideals that were the basis for the birth of the new world.

The concept of autarky and the move away from free trade lost traction until its resurgence after the stock market crash of 1929. The government passed acts like the Smoot-Hawley Tariff Act, placing heavy taxes on international goods with the mistaken belief that they would bring the country back from the pit of economic depression it found itself in throughout the 1930s.

 

Autarky in the Modern World

After World War II, and following the creation of policies such as the General Agreement on Trades and Tariffs (GATT), the modern world moved back toward free trade and building financial and economic bonds between countries. For decades, autarky stayed in the wings, poking its head in from time to time, though it remained useful only in part by certain countries, and is generally reserved for specific areas of economic or political systems, such as the military example mentioned above.

In the end, most countries realized the futility of striving for or ever reaching, full independence on all fronts. The concept of free trade and the bonds that it creates between countries are arguably the primary function that enables strong countries to grow stronger. Also, it allows for developing nations to transform their political and economic systems into those that benefit its people.

 

Additional Resources

CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

  • Import Quotas
  • Infant Industry Argument
  • Tariff
  • Trade Barriers

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!