Inventions, change and power: the obligation of law and economics

‘Every new invention has some inconvenience for a number of individuals, and is nevertheless a public blessing’ (List, 1827, Letter VI, pp. 86-7). As hinted above, List was a keen observer of power and of social structures, and therefore also of the implications of entrepreneurship for power.

Although possibly beneficial for the majority of a society, such change may be detrimental to some parts of the establishment which, in conse­quence, will try to use its dominant position to block change before it is too late, thereby cementing the structure of society and the economy, resulting in stagnation, eventual decline, sudden revulsion and upheavals. Hegel and Marx have described in a similar way the dynamics of social life with their theory of dialectics. It is thus of crucial importance for the survival of a community and eventually of a civilization that such static digressive behaviour is pre­vented and that a dynamic flow of change is permitted to take place. This line of reasoning applies on the local national level as well as to the international community. This problem, in particular, makes law and economics a crucial field of study and its students here have a crucial obligation.

Externalities like vested interests and power structures create transaction costs that render markets inefficient. This is a central theme of law and economics, which gives us yet another reason to claim that List should indeed be regarded as one of the important forerunners of law and econom­ics. For List, power was at the core of economics and economic policy, both as a result and as a prerequisite. This was the source of one of his major criticisms of Adam Smith, who conveniently avoided this aspect in most of his writings, well aware as he was that the current power structure favoured Britain. Added to this point is the fact that Smith sometimes, contradicting other statements of his, was an ardent supporter of government intervention (Smith, 1759, pt. VI, ch. I). He was therefore also a supporter of military activity, being the latter’s firm admirer: ‘The art of war is certainly the noblest of all arts’ (Smith, 1776, bk. V, ch. ii, pt. i). This insight was also Smith’s reason for applauding the very protectionist British Act of Naviga­tion, 1651, since it injured commerce (in the short term) but strengthened the navy (Smith, 1776, bk. IV, ch. ii).