Libertarians often bemoan the expansion of the federal government over the centuries and cite Thomas Jefferson’s quotation, “The natural progress of things is for liberty to yeild [sic], and government to gain ground.” Of course, there have been important advances for liberty in the U.S. in the 20th and 21st centuries too, yet overall, government’s impact on the economy has increased dramatically. In his book, The Rise and Decline of Nations, political economist Mancur Olson theorized that the simple passage of time permitted the accretion of more and more interest groups (“distributive coalitions”), who would lobby government to increase their share of the economic pie at the expense of the total size of the pie. Therefore, more stable societies would see relative economic decline.
I have always been skeptical that the mere passage of time was an important predictor of interest-group power and bad economic policy. Indeed, all of Olson’s data came from the post-World War 2 period, and he had good things to say about France and Japan, particularly in relation to Britain, that do not ring true 30 years after he wrote the book.
However, as I investigate the economic history of early modern Europe, I am struck by what looks like a “law of political entropy,” that is, a tendency for relatively “associational” governments that act as agents for the taxpayer to become ossified, oligarchic, “predatory” states that exploit the taxpayer. Consider the Dutch Republic and Switzerland, probably the two most “associational” states in early modern Europe.
During the Dutch Golden Age, the highly decentralized federation acted as an agent of the provinces, who in turn were federated associations of the towns. The towns were ruled by the principal merchants. There was a semi-hereditary “stadtholder” position at the central level, demanded by the monarchical ideology of the day, but the real political power lay with the great taxpayers.In fact, during the period of the Republic’s most rapid economic growth, there was no stadtholder, just an elected “grand pensionary,” the proto-liberal Johan de Witt, who supported free trade, republicanism, and religious toleration, opposed imperialism and military meddling, and strongly endorsing the doctrine of provincial (and town) sovereignty over Republic-level control.
Unfortunately, after the French and English launched a combined sneak attack on the Republic in 1672, de Witt was overthrown and lynched, and the stadtholders returned. Although the Dutch escaped that war with their independence, over time the political system became more ossified, and by the end of the 18th century English GDP per capita had caught up with Dutch. According to Wikipedia,
At first the lower-class citizens in the guilds and schutterijen could unite to form a certain counterbalance to the regenten, but in the course of the 16th, 17th and 18th century the administration of the cities and towns became oligarchical in character, and it became harder and harder to enter their caste. From the latter part of the 17th century the regent families were able to reserve government offices to themselves via quasi-formal contractual arrangements. Most offices were filled by co-option for life. Thus the regent class tended to perpetuate itself into a closed class.
Similarly, Switzerland started off as an extremely loose confederation of republican cantons in the late Middle Ages (individual cantons could even declare war). The cantons themselves were originally established by peasants who had thrown out the Habsburg aristocracy, winning a bloody victory over their knights at the Battle of Morgarten:
When the Confederates attacked from above with rocks, logs and halberds, the Austrian knights had no room to defend themselves and suffered a crushing defeat, while the foot soldiers in the rear fled back to the city of Zug. About 1,500 Habsburg soldiers were killed in the attack. According to Karl von Elgger, the Confederates, unfamiliar with the customs of battles between knights, brutally butchered Continue Reading »