Smith’s generalizations obscure the conflict between private versus communityinterest
A key to understanding List’s theoretical criticism of Smith and his followers is to observe how he criticized the strategy of Smith as being too generalizing, disregarding the empirical and historical particulars of each practical phenomenon (List, 1841, pp.
171, 224ff., 316). For a further discussion of this, refer to the section in the introduction above. List often criticized the radical market school for their extreme and anti-social individualism, which he claimed would be destructive to communities - in opposition to his own socially oriented individualism (ibid., pp. 169-71). List’s criticism of Smith’s confusion of private versus national economic characteristics and interests is almost endless (for example, List, 1827, Letter 5, p. 75; 1841, p. 172). Hildegard Schwab-Felisch has edited a collection of List’s writings devoted to this issue (see List, 1920).This difference between private and public interests is the basis for differentiating between private and public goods. Public goods have in common the feature of concentrated costs and dispersed benefits; there tends to be structural underinvestment in these areas, since government regulation always is inadequate or inefficient, in lack of better remedies ‘per definition’. This might not be a major problem if it had not been for the fact that these areas function as a carpet and a productivity-enhancing locomotive for all other economic activity in, practically speaking, any society. For List, these activities were related to innovation and communication, and to the former belonged education, science, arts and also the machine tool industry (List, 1841, p. 314). Public goods activities are therefore a prime target of governmental regulation and law making. List never used the phrase ‘public goods’ nor did he explain their basic characteristics - concentrated costs and dispersed benefits (as opposed to those of rent seeking: concentrated benefits and dispersed costs).
Nevertheless, his criticism of Smith does in practice take as its crucial and given point of departure the difference between private and public interests, and thereby the difference between private and public goods, as a crucial and given point of departure (List, 1827a, Letter 5, p. 75; 1841, ch. 14, ‘Private and national economy’).List claims that because of denying the sometimes-existant fact of a conflict of interest between private and community interests, Smith makes the logical mistake of playing down the necessity for organized action, through the institution of the nation (List, 1841, ch. 14, p. 163). He also claims that Smith’s and Cooper’s conscious confusion of private and public interests is a reason for their playing down of the role of public regulation, lawmaking, and therefore the role of the nation (List, 1827, Letter VI, p. 87; cf. 1841, p. 166). List was no admirer of regulation for its own sake, but saw clear advantages of regulation for justice and prosperity in opposition to the principle of laissez faire et laissezpasser (List, 1827, Letter VI, pp. 86-7).