Customs unions avert monopolies and inefficiency
List repeatedly claimed that protection might be damaging in a small nation, as it was likely to establish an inefficient monopoly. Small nations would have to cooperate through customs unions, arranged by means of international legal agreements.
There would be no internal barriers to trade, so that trade was made efficient by internal competition - a classic mercantilist strategy. In order to facilitate efficiency, competition ought to be furthered through the following factors: education, innovation, division of labour, economics of scale, transfer of technology and other cultural achievements, technical standardization and the infrastructural grid, including of course the legal framework. In this regard he criticized Smith for his theory of (exchange) value as an expression of narrow-minded merchant interests (List, 1837a, p. 102). For List, protection should offer privileges to any individual who is willing to risk his capital for the public good, limited to the period during which it serves public interest. There are therefore both good and bad monopolies, and bad ones raise domestic prices permanently whereas good ones lower them in the longer term (ibid., ch. 15, p. 81).
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