Interrelationships of markets and protection for long-term efficiency

A variant of transaction costs is interrelationships between markets. This occurs when actors in one market are dependent upon other markets but have limited influence on them, or sufficient incentives to engage in them, even though this malaise might affect all the actors.

Furthermore, he was a keen observer of the fact that markets have different characteristics and came to the conclusion that therefore, in order to work properly, they need to be treated in different ways through public legislature, and that this in particular pertains to public goods markets. In a larger per­spective, regulation and protection limited by time (and trade) may be seen as contributing more to competition than immediately introducing free trade. Protection may be seen as a remedy to correct market imperfections where some actors have the upper hand. Indeed, this was List’s opinion concerning the strong position of English producers in his day, and this way of interpret­ing List is not new. As J.S. Nicholson points out, in his ‘Introductory essay’ to the 1904 reprint of List’s National System, Henry Sidgwick argued, ‘that ultimately the world at large might gain by the temporary protection of the constituent nations’.

Temporary protection will eventually lead to fiercer competition and a more efficient economy at a later stage. List answered his critics with pre­cisely this argument and claimed that foreign domination of domestic markets consisted in a monopoly (List, 1841, pp. 169-71, 176-7). He saw no advan­tage in a foreign (British) monopoly over that of, not domestic monopoly, but internal competition (ibid., 1841, pp. 184, 189-93). He therefore set out to establish domestic production and competition. Establishing infrastructure was one important element of making this come about, as no competition can exist without communication.

Thus List’s fight for the employment of legal arrangements for protection perfectly matches the agenda of law and economics, seen from a larger perspective. Indeed, List’s concept of economics was in some profound ways wider reaching than today’s law and economics.

Notes

1. These German authors all belong to the tradition of natural (rational) law, code of law as opposed to common law, but to the idealist section that adheres to Thomas Aquinas’ verdict that the ultimate duty of Man is moral perfection. The opposed materialist section of this tradition of natural law, dominated by people such as Hugo Grotius, Thomas Hobbes and Samuel Pufendorf, saw biological survival as Man’s ultimate duty. See, for instance, Chris­tian Wolff (1749, ch. 1: ‘Duties of nations to themselves and the rights arising therefrom’), for instance paragraph 35: ‘Of a nation’s duty to perfect itself and its form of government’ and paragraph 51: ‘How far this applies to the ruler of the state’.

2. The title first intended seems to have been The American Economist.

3. The subtitle of List’s treatise was Et la patrie, et Vhumanite. List’s work was rediscovered in 1925 and published two years later in French and German. The question posed by the French Academy of Moral and Economic Sciences was: ‘If a country proposes to introduce free trade or to modify its tariff, what factors should be taken into account so as to reconcile in the fairest manner the interests of producers with those of consumers?’.

4. The subtitle of this treatise was On the Effects of Steam Power and the New Means of Transportation. Erroneously this treatise was thought lost, for instance by Henderson (1983).

5. Since Britain was the most powerful and influential nation at that time. He mentions the Hanse, Venice and Holland as historical examples and the United States as a likely future example.

6. The British Act of Navigation ‘accidentally’ promoted British manufacture and power in the long run and led to the perhaps decisive Anglo-Dutch war. The English victory in 1651 cemented English world domination, later perpetuated by the United States.

References

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Laue, Theodore von (1963), Sergei Witte and the Industrialisation of Russia, reprinted New York: Columbia University Press (1969).

Lenz, Friedrich (1930), Friedrich List, ‘die Vulgarokonomie' und Karl Marx, Jena: G. Fisher.

List, Friedrich (1827), Outlines of American Political Economy, newly edited by Michael Liebig and published with a parallel translation in German, Wiesbaden: Dr.Bottiger Verlag, 1997.

List, Friedrich (1837a), The Natural System of Political Economy; reprinted Totowa, NJ: Frank Cass, 1983, ed. W.H. Henderson.

List, Friedrich (1837b), Die Welt bewegt sich. Uber die Auswirkungen der Dampkraft und der neuen Transportmittel; reprinted Gottingen: Vandenhoek & Ruprecht, 1985, ed. Eugen Wendler.

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