Source: Facebook

QUESTIONING THE ECONOMIC IMPACT OF THE SCALE OF THE STATE.

(profound) (worth reading)

(And an additional hypothesis)

by Peter Boettke

–“States capacity is required for tax collection, but the emergence of property rights and their enforcement predate both the formal state and the establishment of a taxing authority. Tyler gives a nod to Franz Oppenheimer in his link — Oppenheimer’s The State was a classic discussion of the conquest origins of formal government. The state is violence, the state is war. At least that is one way to put it. But does that conquest theory of the origins of the state undermine or support the state as essential for modern economic growth hypothesis?

An alternative hypothesis is that rules that enable individuals and groups to realize the gains from social cooperation under the division of labor can arise outside of the formal apparatus of the state, and be supported through a diversity of institutional arrangements. I already linked to my close colleague Dragos Paul Aligica’s new book on Institutional Diversity and Political Economy, but today I was pointed to (ht: Angel Martin) to a new project among younger scholars in Europe focusing on the question of institutional design and institutional diversity influenced by Douglass North, Avner Greif, and Elinor Ostrom.”–

by Mark Lutter:

— “I don’t think state capacity and competition between states are mutually exclusive. During the middle ages there existed growth inhibiting organizations and institutions other than the state, guilds for example. State capacity essentially ensured sufficient power to stop local barriers to trade.

Another aspect in which state capacity could lead to economic growth requires thinking about optimal tax theory. Certain types of taxation inhibit growth more than others. Increasing state capacity allowed the state to collect taxes using distortionary mechanisms.”—

by Curt Doolittle

I’ll offer a fourth hypothesis: centralization of free riding and rent seeking forces the decentralized citizenry to enter the market.

The way to articulate and therefore understand these abstract processes is to refer to their causes not effects: free-riding and rent seeking.

The statement “State capacity essentially ensured sufficient power to stop local barriers to trade” is correct, but would be causally articulated as the state forced the centralization of rent seeking.

This is the same purpose that the federal governments provides: negotiation of terms for access to markets.

In other words, they force market prices to be free of rent seeking. The question is whether the multiplier from central rent seeking or the multiplier from distributed rent seeking is superior. I think that’s very hard to prove.

In fact, all we can prove is that the state centralizes rent seeking. I don’t think we can prove that there is much benefit to the centralization of rent seeking. It appears only that stability in rent seeking is superior to volatility in rent seeking, because stability in rent seeking forces all individuals to compete in the market now that the capacity to seek rents is put at a distance.

Conversely, the concentration of rents creates a rental economy that generates rent-based wealth. (Washington DC). But there isn’t any evidence that rent based wealth has an particular value to a society other than generating wealthy consumers that are concentrated in the local rent-economy.

The entire problem remains the same: how to force out rent seeking and free riding such that all individuals are participating in the market for goods and services.

This is the necessary foundation for any economy, and the necessary foundation of property rights: property rights are a prohibition on rents and free riding, forced from the family to the individual, as rents and free riding are forced upward into the state at the expense of the family.

If you grasp that this is what is being done, then you will grasp the causal nature, not the descriptive nature, of the process of developing states: the centralization of rent seeking and free riding, and in doing so, forcing individuals to compete in the market for goods and services.

I am not convinced that this organized monopoly on rents and free riding is more influential to the economy than whatever ‘investments’ are made by the state. One can argue that the business of rent seeking and free riding is extremely profitable. That’s possible to argue.

But in any human population, driving the maximum number of individuals to compete in the market for goods and services is what increases productivity under the division of knowledge and labor.

Like all human cognitive processes, we identify what is visible as causal, rather than what is invisible.

The scale of the state and the provision of taxes are meaningless. They are a MEANS but not the good provided. The good provided, and the benefits to any society, are created by the universal prohibition on the visible crimes of violence, fraud and theft, and the invisible crimes of rents and free riding. We accomplish these prohibitions by forming an institution that enforces those prohibitions and provides insurance against them.