A framework for analyzing the state in economic history

Abstract

IThe creation of a state is an essential precondition for economic growth. The state, however, is the source of man-made economic decline. This paradox should have made the study of the state central to economic history: Models of the state should be an explicit part of any analysis of secular changes. They are not, and-though economic history is the poorer for it-for good reason. Theorizing about the state has been a favorite pastime of scholars for centuries, and the long path of historical research is strewn with the bones of theories of the state developed by historians and political scientists; one may justly inquire whether another effort by an economist can fare any better. There are reasons for a cautiously optimistic answer. Modern extensions of neoclassical economic theory have proven to be powerful tools of analysis; in recent years they have been applied to a variety of political issues, with some degree of success (Baumol, 1962; Buchanan and Tullock, 1962; Downs, 1957; Niskanen, 1971; Breton, 1974). Neoclassical theory conceived of as a theory of choice has provided at the very least a disciplined and logically consistent approach to these issues-something that has been notably lacking in much of the past literature on the subject. This theory offers the promise of developing refutable propositions about nonmarket decision-making. Moreover, recent research into economic organization has revealed its close kinship with political organization. A satisfactory theory of the firm would be a long step toward the development of a theory of the state (Coase, 1937; Alchian and Demsetz, 1972). Yet as we develop some preliminary propositions about the state, we should be cautious about the limits of neoclassical theory for such an This essay has had a long gestation period and over the past nine years earlier versions have been presented at a meeting of the Public Choice Society at Yale and at a number of university colloquia. I am particularly indebted to Tom Borcherding, Elisabeth Case, Chris Hall, and Roger Nell for suggestions that have improved content and clarity of exposition.