State capacity and economic development: Causal mechanism or correlative filter?

ARTICLE IN PRESS

JID: JEBO

[m3Gsc;January 10, 2020;22:4]

Journal of Economic Behavior and Organization xxx (xxxx) xxx

Contents lists available at ScienceDirect

Journal of Economic Behavior and Organization journal homepage: www.elsevier.com/locate/jebo

State capacity and economic development: Causal mechanism or correlative filter? Vincent J. Geloso a,∗, Alexander W. Salter b a b

School of Management, Economics and Management, King‘s University College, 266 Epworth Avenue, London Ontario, Canada N6A 2M3 Rawls College Of Business, Texas Tech University, Lubbock, TX 79409, United States

a r t i c l e

i n f o

Article history: Received 11 February 2019 Revised 17 December 2019 Accepted 18 December 2019 Available online xxx JEL classifications: B53 D72 L51 Keywords: State capacity Economic development Public Goods

a b s t r a c t In this paper, we explore why there are no examples of societies with low state capacity and high economic development. We argue that such an outcome is unlikely because of the nature of investments in state capacity. Societies that become rich in the absence of a strong state invite predation by societies that develop such states. Thus societies invest in state capacity, in part, to plunder other societies’ wealth. Those investments are a form of rent-seeking. Potentially preyed-upon societies are forced to invest in state capacity in turn so as to deter potential attackers. This entails that as soon as a rent seeker enters the game, the likelihood of a low-capacity, high-development society surviving falls. This explains the historical lack of such societies. We thus interpret state capacity not as a causal condition for widespread economic prosperity, but a survivability condition for enjoying this prosperity. © 2019 Published by Elsevier B.V.

1. Introduction The literature on state capacity (Acemoglu et al., 2015; 2016; Besley and Persson, 2008; 2009; 2010; Dincecco and Katz, 2014; Dincecco, 2015; Dincecco, 2017; Gennaioli and Voth, 2015; Johnson and Koyama, 2017; Madsen et al., 2017; Rota, 2016; Piano, 2018; Salter and Young, 2019) has clearly established an important paradox regarding economic development: many rich societies also have larger states, which is contrary to another body of literature arguing that larger states may be detrimental (beyond an optimum point) to economic growth (e.g., Afonso and Furceri, 2010; Barro, 1990; Grossman, 1987; Hansson and Henrekson, 1994; Scully, 1989). This paradox has been accompanied by an important research agenda on how states may bolster economic growth by developing the capacity to support markets (Dincecco, 2017).1 An important branch of that research agenda comes from economic historians, who focus on how centralized and strong states emerged in ways that replaced costlier forms of politicaleconomic organization that were smaller, weaker and more decentralized (see notably Johnson and Koyama, 2017). That being said, this branch focuses heavily on the societies that did develop economically in congruence with centralized states, as well as societies that failed to do so (e.g. Britain in the 17th and 18th centuries versus France or the Ottoman Empire or China). The literature traces the outcome as a dichotomous situation whereby there are either poor societies with low ∗

Corresponding author. E-mail addresses: [email protected] (V.J. Geloso), [email protected] (A.W. Salter). 1 This could include mundane things such as weights and measures, land cadasters and postal services (Dincecco 2017; Acemoglu et al. 2016), as well as more important services such as impartial courts. All these fall under the label of “effective statehood” as explained by Dincecco (2017). https://doi.org/10.1016/j.jebo.2019.12.015 0167-2681/© 2019 Published by Elsevier B.V.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

ARTICLE IN PRESS

JID: JEBO 2

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx Table 1 Typologies of state capacity and development.

High development Low development

High state capacity

Low state capacity

OECD countries Byzantine Empire, Cuba, North Korea, Soviet Union

? Sub-Saharan countries

Source: Adapted from Martin and Ruhland (2018).

state capacity or rich societies with high state capacity. However, as Martin and Ruhland (2018) point out, there can also be societies with high state capacity but low development.2 They argue that the Byzantine Empire qualifies as an example. Whether or not their example is correct, their logic nonetheless suggests that state capacity can be conceived as a two-bytwo matrix with a column for the level of development and another for the level of state capacity (see Table 1). Akin to ideal types, the different spots in that matrix can be said to reflect certain groups of countries. Rich countries with high state capacity would be represented by OECD countries, while Sub-Saharan Africa emerges as the archetype of low state capacity and relative poverty. If we accept the example of Martin and Ruhland (2018), the Byzantine Empire represents high capacity with limited development. This example could be joined by modern-day Cuba which, in spite of low-income levels, is able to operate a quite developed state apparatus – especially in the field of healthcare (Hirschfeld, 2009; Berdine et al., 2018). North Korea which is also poor society with a developed state apparatus could qualify. However, one quadrant is conspicuously sparse: are there any high-development and low-capacity examples? Scholars interested in the economics of anarchy may argue that there are examples of societies that had very small or inexistent states (Friedman, 1979; Anderson and Hill, 2004; Leeson, 2014; Stringham, 2015; see also Murtazashvili, 2018). However, some of these examples have not achieved widespread economic prosperity.3 More importantly, none appear to have withstood the test of time, having either been conquered or replaced by more developed state apparatuses.4 Why are there no examples of such societies in the literature on state capacity? One explanation may be that no sufficient evidence exists for us to fill that quadrant in Table 1. Another explanation, which we propose in this paper, is that such an outcome is naturally unstable: it cannot be an equilibrium. To make this case, we apply an insight developed by Leeson et al. (2014), which suggests that the optimal provision of public goods related to national defense may be equal to any value between zero and infinity. Simply put, national defense simultaneously entails national offense, because the public good associated with national defense is chiefly its deterrence effect. This implies that if there are no threats, the optimal quantity of national defense for a country is equal to zero. As many public goods tended to be related directly or indirectly to national defense (see notably the list of public goods proposed by Blanton and Fargher, 2008),5 we can equate (to some imperfect extent) investments in state capacity as investments in national defense.6 However, as the quantity of the latter depends on national offense, we must explain what determines the willingness to attack. Our argument runs as follows. If a society becomes rich in the absence of a state, as some examples in the economics of anarchy literature suggest is possible (Anderson and Hill, 2004; Friedman, 1979), then the relative returns of trading compared to raiding will fall at the margin (Anderson and McChesney, 1994). We should thus expect societies to invest more in raiding as they become wealthy, ceteris paribus. Externally, this incentivizes investments in national offense on the part of other societies. These investments are meant to capture rents and thus, the investments are themselves rentseeking. Economic growth generates an externality that plays against future growth in that it is more susceptible to attacks (Hendrickson et al., 2018). This reaction in turn incentivizes the richer society to invest more in its defense, which is meant to protect against rent-seeking but generates outcomes equal to rent-seeking. This simple price-theoretic explain why lowcapacity high-development outcomes are unstable. Our argument has two important implications. The first is that state capacity is an outcome variable of growth, not an input into growth. Others have recognized this possibility (Besley and Persson, 2010: 12; Boettke and Candela, 2019; Piano, 2018: Section 4; see also Volckart, 20 0 0) but ours is the first to account explicitly for the missing quadrant of high productivity, low state capacity societies. The second is that the level of wealth is endogenous to the ability to defend it. We believe that this should have an effect in understandings of why rich societies are also high-state-capacity societies. Our

2 This resembles the concept of a predation trap advanced by Kohn (2014). The trap is that as societies grow richer, they approach frontiers of institutional innovation, but politically this institutional innovation cause socities to develop a predatory state. This causes economic stagnation. Martin and Ruhland can be read as complementary to Kohn, highlighting that predatory states may have both high and low capacities. 3 However, some of this may be due to poorly documented living standards, as is the case of Friedman’s use of medieval Iceland (1979). 4 For example, the Acadian (the French settlements of Atlantic Canada) experience from the 17th to 18th centuries which ended in the forceful deportation of the settlers by the British in 1755. 5 This wide-ranging definition of the ends that some public goods are meant to serve, to which we will return below, can be well illustrated by the case of the lighthouse in Britain. While the lighthouse appears as the quintessential public good unrelated to national defense (it was meant to boost trade), the original justification for conferring monopoly rights to particular agents in Britain was one related to national defense (Ruddock 1950: 460; Harris 1969: 214). 6 There is a large body of literature linking the building of state capacity with warfare and conflicts as well (see notably Sambanis et al. 2015; Gibler 2017). There is also a literature highlighting that the public provision of welfare-enhancing public goods, such as the textbook example of the lighthouse, was justified on the basis of national defense (Candela and Geloso 2018b).

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO

ARTICLE IN PRESS V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 3

conclusion is that, while state capacity can be argued to be beneficial to economic activity on some margins (Johnson and Koyama, 2014a; Becker et al., 2016; Cappelli, 2016; Dell et al., 2018),7 the impetus for state capacity has little to do with the aim of improving general welfare. Thus, some of the economic development observed occurred in spite of, not because of, investments in state capacity. We proceed as follows: Section 2 reviews the state capacity literature to better situate the question proposed. Section 3 argues that is correct to correlate national defense with state capacity since many public goods provided by the state are defense-oriented. We do so by using the examples of roads, lighthouses and central banks. Sections 4 and 5 establish our explanation regarding the instability of low-capacity high-development outcomes by using a series of historical examples, notably from French settlements in the Americas in the 17th and 18th centuries and Britain in the 17th and 18th centuries. These examples are selected because they represent two cases of societies with limited state capacity and high development and because there is rich empirical evidence on both.8 Section 5 concludes. 2. State capacity and the political economy of coercion State capacity can be viewed as the product of a strong fiscal administration allowing the state to produce public goods. As they are interrelated, a stronger fiscal administration entails that the state is better able to raise resources for the production of public goods. The public good that comes easiest to mind is national defense – the literal textbook example. Defending a polity from external attack confers non-rivalrous and nonexcludable benefits to citizens. At the margin, additions to the polity’s population do not diminish the existing population’s enjoyment of protection. And it is infeasible to exclude those who do not contribute to the production of defense. Thus, the standard public economics result: the market will tend to underproduce national defense. The state, because it can tax citizens, has a comparative advantage at producing (or financing, at least) this good. However, as Leeson et al. (2014) recognize, financing and producing defense is more complicated than the above story suggests. It depends on several institutional contingencies that are rarely discussed. First, we note that the good in question is more precisely specified as deterrence. The maintenance of defense-related goods serves as a disincentive to potential external predators. Viewed this way, the public good associated with national defense is actually a credible threat of national offense. Thus, what matters is generalized coercive capacity by states: the ability to defend is necessarily also the ability to prey. Matters become more complicated when we realize that, for a given polity, the level of coercive capacity is endogenous to other polities’ choice of investment in coercive capacity. If other polities, for whatever reason, choose to maintain only a low degree of coercive capacity, the amount of coercive capacity for the choosing polity will likely also be low. It may even be the case that the optimal investment in coercive capacity is zero. This simple finding obviously understates the complexity of how coercive institutions functioned throughout history, especially since the development of modern states. This is where the insights of the state capacity literature (cf. Johnson and Koyama, 2017) become relevant. State capacity and coercive capacity are inherently linked.9 While it may be possible to invest in coercive capacity without state capacity,10 investing in state capacity necessarily implies investments in coercive capacity. Thus, as Hendrickson et al., (2018) recognize, arguments for linking state capacity with economic prosperity are also implicitly arguments for linking the latter with the ability to organize and employ martial force. This gives us strong reasons to suppose that a global low-coercive capacity environment is not an equilibrium. Resources can be devoted to production or predation; their relative employment will depend on the net payoffs of each activity (Hirshleifer, 2001). Assuming diminishing returns at the margin to production and predation, we should expect polities to engage in some amount of both. More importantly, if rival polities invest in low amounts of coercive capacity, it is likely that the marginal benefits of predation will exceed the marginal costs, meaning we should expect to see more investments in coercive capacity. Of course, this is endogenous to global coercive capacity. Because coercive capacity is positional, it is conceivable that many agents could possess “low” coercive capacity in some absolute sense, but exhibit sufficient parity among them to discourage predation at the margin. Historically, the productivity increase in Western European nations’ military sectors 7 It is worth pointing out that some of these empirical studies have been criticized. For example, Johnson and Koyama (2014a) found that state capacity caused the decline of witch trials while Christian (2019) found that positive economic shocks made political elites richer and in turn this allowed them to expend more on witch trials. Leeson and Russ (2018) find no statistically significant effects of state capacity on witch trials. As way of another example, Acemoglu et al. (2016) used the post office in the United States during the 19th century to approximate state capacity and found a positive effect on patent rates. However, Makovi and Geloso (2019) tried to do the same for the Canadian postal system during the same period but using agricultural productivity as their outcome variable. They found that the results of Acemoglu et al. (2016) could not be generalized as they were no effects of postal offices on productivity growth. Thus, we feel it is possible, while acknowledging that state capacity can help development, to give a greater weight to the arguments we advance in this paper. 8 However, as we will point out later, other examples exist and would require their own separate papers to be explained (see footnote 14). 9 This is why we focus on the coercive capacity of states, although many other scholars emphasize the importance of fiscal and legal capacity (e.g., Besley and Persson 2010). These other measures are arguably more important as inputs into economic development. Our intention is to re-frame them as contributing to the survivability of states, by conceiving them as part of a production process subject to the filter (cf. Alchian 1950; Becker 2011 [1976]) of resisting external predation. 10 Defending a territory is frequently easier than conquering one, because for the former the victory condition is mere survival, whereas for the latter it is unconditional surrender. Historically, even with decentralized provision and non-professional forces, polities have defended themselves against better armed forces.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 4

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

(Hoffman, 2011; 2017) alongside the increased importance of finance—and hence minimally developed and protected markets—for organizing military might (Gennaioli and Voth, 2015) tilted strongly against a low global coercive capacity equilibrium.11 Piano (2018: 302–305) and Dudley (1991; 2008) contain good discussions of how the relevant technological variables determine the distribution of coercive capacity. For our purposes, we restrict our attention to the historically relevant events: the changes in military production possibilities in the 16th and 17th centuries that served as the impetus for increasingly centralized, hierarchical coercive organizations. By focusing on how successful states have wielded coercive capacity in a way that reduced the excess burden of taxation, financed the provision of public goods, and promoted the rule of law, scholars of state capacity have posted a causal link between state capacity and economic prosperity (Besley and Persson, 2009, 2011, 2013; Dincecco, 2011). What our arguments imply is that the relationship is more akin to a survivability condition. We observe a historical process culminating in high-income, high-state capacity polities beginning in early modernity because these polities were capable of conquering without themselves being conquered (Batchelder and Freudenberger, 1983; Tilly, 2015; Turchin et al., 2013). “Rulers in early modern (150 0–180 0) Europe built state capacity in the pursuit of state power and victory in war. Prosperity and economic development were largely means to this end; they did not anticipate the possibility of modern economic growth” (Johnson and Koyama, 2017: 3). A claim for which there is evidence provided by Becker et al. (2016) whereby German polities between 1200 and 1750 that experienced higher conflict exposure established more sophisticated tax systems. In other words, a state “cannot perform the previously mentioned public functions if it has not solved the problem of resisting encroachment” (Hendrickson et al., 2018: 170). There are two conceptual reasons to be hesitant to embrace state capacity, and the various political-economic mechanisms (fiscal capacity, legal capacity, etc.) that fall under that rubric, as an explanation for long-run economic growth. The first is the incentive problem. Once a centralized and powerful state is constructed, what is to prevent those who wield political power to prey on others, benefiting themselves at the expense of broader economic prosperity? Johnson and Koyama (2017: 3) correctly note that: …powerful states can also impede economic growth and produce economic stagnation. The link between greater state capacity and sustained economic growth is contingent: it depends on whether state policies complement markets and market-supporting institutions. The experience of the twentieth century teaches that attempts to build state capacity in the absence of the rule of law or a market economy have failed to generate sustained economic growth. The second is the knowledge problem. Achieving sustained economic growth is not an ad hoc economic process divorced from commerce and exchange in general. When polities become wealthy, it is because they have found a way to increase specialization under the division of labor and facilitate the allocation of resources to their highest-valued uses (Bauer, 20 0 0). The information-generating capacity of the market price system is crucial to this process, because it allows market participants to harness more information than they can consciously comprehend (Hayek, 1948). But this process also rightly describes the construction of institutional architecture that supports widespread market activity. Constructing state capacity is, in part, an economic problem: how should resources be allocated to developing the institutions necessary for enforcing a uniform rule of and financing crucial public goods internally, as well as resisting predation externally? Something in the complicated process of state-building must be performing a knowledge generation and knowledge surrogacy rule, similar to the role played by the price system in markets. As of yet, scholars of state capacity have yet to identify a suitable mechanism.12 To be clear, many state capacity scholars acknowledge these limitations. Strong states may contribute to economic growth, so long as states are constrained such as within federal systems (Weingast, 1995; Migué, 1997). But state capacity itself cannot be the main source of the constraint. In recent years the determinants of strong but constrained states has received additional attention (see Johnson and Koyama, 2017: Section IV for an overview; see also Fukuyama, 2004). But these works are further exploring mechanisms within the state capacity paradigm; there has yet to be an effective challenge to the paradigm itself. In this paper, we offer the beginnings of such a challenge. While the conceptual difficulties raised above are our starting point, they are not the subject of this paper. Instead our contribution is empirical. We pursue the hypothesis that the observed correlation between strong states and economic prosperity is best thought of as an instance of survivorship bias. The crucial factor is the change in incentives that comes with increasing coercive capacity. First, polities that are already wealthy, relative to their competitors, will be near the global production possibilities frontier, which means that increasing wealth via additional production will become more expensive than increasing wealth via investments in predatory ability.13 We thus should expect a shift in resource allocation from producing to preying at the margin, ceteris 11 An in-depth discussion of the relationship between the “military revolution” and the centralized, hierarchical state is beyond the scope of this paper, but we think the rational choice theory of state emergence of Batchelder and Freudenberger (1983) is clearly relevant. This unjustly neglected paper makes the important point that changes in military technologies and tactics shifted the sustainable scale of organized coercive capacity in away from feudal decentralization to modern centralization. Their rational choice framework, essentially a story of shifting constraints, neatly complements ours, which is an account of what those shifting constraints filter out. 12 In fact, we are unaware of any discussion of the knowledge problem in the context of building state capacity. The literature thus far is exclusively occupied with incentive problems. 13 This claim is even stronger if we take into account the distribution of gains from predation. For example, there is debate over whether or not the British Empire’s territories paid off, but there is a clear acceptance of the fact that the gains disproportionately went to those very high in the British income distribution (Davis and Huttenback 1986). Members of the British elite did shift resources from producing to preying upon the populations of the

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO

ARTICLE IN PRESS V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 5

paribus. Second, because of these incentives, the only polities likely to survive are those that can wield sufficient martial force to retain their independence from other polities, and perhaps even their existence. Richer polities invite external predation, which incentivize rulers to marshal coercive capacity to resist such predation. Once again: wealth is endogenous to the ability to defend it. Our argument is essentially about filtering, with coercive capacity serving as the filter. Filtering arguments require their advocates to show two things: that those entities possessing the traits selected by the filter do, in fact, pass through the filter, and that those entities without the requisite traits do not. The state capacity literature has ably demonstrated the first. Our value-added is the second: showing instances of (relatively) wealthy societies with low coercive capacity choosing to invest in it due to higher returns at the margin, and showing instances of (again, relatively) wealthy societies with low coercive capacity that did not make such investments, and as a result were conquered. This does not invalidate the claim that there is some mechanism linking state capacity to economic growth, but it does fundamentally reorient the kinds of explanations and mechanisms we can employ when discussing state capacity. A word of caution before we proceed. The analysis thus far assumed that states are unitary actors, at least with respect to their interactions with other states. We focus in our model on the predation that occurs between states. Within a state, predation is best understood as the degree of feasible (equilibrium) centralization of coercion, for the purposes of rent appropriation by elites. This is determined by background variables, and is logically prior to the filtering process between polities.14 In other words, domestic coercive capacity is exogenous, but the results of inter-polity competition are endogenous. Thus, our claims regarding the marginal benefits and marginal costs of predation, as well as defending against predation, are focused on the coercive apparatus as monopolized by ruling elites. For theoretical simplicity, we abstract from domestic predation, with the exception of those strategic investments made by elites for the purpose of generating additional rents (see Section 3 below). Fully specifying the equilibrium strategies of the various actors, both within and across polities, would add a layer of complexity that would detract from our thesis.15 However, this is an issue that should be addressed in subsequent work. Most notably, elites can “rationalize” domestic governance institutions (cf. Scott, 1999), both as a way of generating rents and further securing their control over the polity, which can cement their monopoly status. This in turn improves their position in the inter-polity strategic scenario.16 We now begin the empirical examination. In Section 3, we discuss the relevance of seemingly non-military public goods to coercive capacity. In Section 4, we present the French settlements of Atlantic Canada (known as the Acadians) as a first example of a rich society with low state capacity which ended by the deportation of the settlers in 1755 by the British. In Section 5, we highlight that Britain’s divergence from Europe preceded that country’s investments in state capacity. We select these two societies because there is rich empirical evidence about living standards in both. We also selected Britain because it features prominently in the state capacity literature. However, we do not mean to say that they are the only cases that illustrate our argument as other cases exist.17 However, before we proceed with these examples, we highlight that national defense should be considered more expansively than on the grounds of producing an army alone. Many public goods serving “civilian” ends also serve defense purposes. 3. “Civilian” public goods with defensive purposes Astute readers will notice that we are confining our argument to military goods and thus may be tempted to retort that states produced public goods for purposes other than defense. It is necessary to highlight that even seemingly “civilian” public goods have a defense component. colonies. In some cases, the rents they gained from this predation were shared with local elites in conquered societies so as to assure continued rent extraction (Davis and Huttenback 1986). 14 Within states, we assume something like a stationary bandit (cf. Olson 20 0 0), which behaves as a standard revenue maximizer (cf. Buchanan and Brennan 1980). We use these concepts as interpretive frameworks, not empirical postulates. Clearly the degree of centralization, resource appropriation, etc. will be significantly lower in quasi-anarchic societies, such as Acadia, than in societies with well-developed states, such as England. 15 Again, we are developing the same kind of filtering argument as Alchian (1950). Alchian argued firms may be modeled as profit maximizers because markets select for firms that make the largest profits over time. This theory abstracts from firm-level characteristics, such as internal organization, in the sense that the theory does not explain those characteristics. Likewise, our argument focuses on inter-polity competition as the filter that selects for polities that develop the greatest coercive capacity over time. Explaining the internal (institutional-organizational) variation in polities for securing elites’ rents is not our focus. The external variation in survivability based on coercive capacity is. 16 We thank an anonymous referee for encouraging us to state this point explicitly. 17 The importance of available data for stateless societies that were conquered can be well seen in other potential cases. For example, Geloso and Rouanet (2019) and Russell (2012) point to the Métis (a mixed European-Indian nation) of the Canadian prairies in the 19th century as an example of a prosperous stateless society which ended in violence when the region was formally integrated in the Canadian dominion (a status granted by the British crown in 1867). However, stateless societies tend to provide fewer data than high-state capacity societies. Thus, Geloso and Rouanet (2019) rely on a wide array of qualitative and empirical sources to draw a portrait, the discussion of which takes up a sizable share of the paper. Another example is that of Medieval Iceland, which was stateless for more than three centuries until the King of Norway gained control of Iceland through vassalage. The problem here is similar to that of Geloso and Rouanet: the empirical evidence is limited. Friedman (1979: 413) relies on limited price information to make his statements about prosperity. Steckel (2004) provides evidence of a remarkably prosperous society using heights data that showing Icelanders to be taller than most other Europeans. While data about human stature correlates with socio-economic outcomes (Grasgruber et al., 2016), it is merely a proxy for living standards and has to be used cautiously. Thus, while there are other cases of stateless societies growing prosperous which in turn invited predation, we preferred to use the one that offered the highest level of certainty about living conditions (which incidentally minimizes the space allocated to explaining living standards). This is why Acadia is our case of choice.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 6

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

Rulers select the bundle of goods to produce under the constraint that they must also protect their hold over power (Dincecco, 2011; Moselle and Polak, 2001; Piano, 2018). Such investments should also be visible (Mani and Mukand, 2007) and are easier if wealth is appropriable easily (Vahabi, 2016). Such investments will obviously include various military functions, which is why many scholars tie state capacity building with conflict (Karaman and Pamuk, 2013; Sambanis et al., 2015; Dincecco, 2017; Gibler, 2017). However, even more mundane goods and services are produced with an eye towards rulers’ self-preservation. Investments in “organized celebrations” (e.g. monasteries and temples which Blanton and Fargher, 2008: ch.7 and Moselle and Polak, 2001 consider public goods) by states are a good example as they serve the purpose of assuaging masses and reduce the likelihood of rebellions. The distribution of free bread in Rome (Morley, 1996; Temin, 2012) is another example of a good produced for the purposes of protecting rulers against insurrections. While they can serve multiple purposes, these publicly-provided goods serve to police against insurrections and foreign invaders (see also the example of lighthouses below). As such, one must bear in mind that government-produced goods (public or goods) were often justified and argued for on the basis of defending rulers. In their work on the formation of pre-modern states, Blanton and Fargher (2008: ch. 7) generate ten dimensions of nonmilitary public goods. Transportation infrastructures represented three out of these ten dimensions. However, transportation infrastructures were often justified on the basis of defense. Scott (1999: 56) pointed out that thoroughfares were thought of as military roads as they made it more convenient to move troops around. Elsewhere, Scott points to the redesigning of the streets of Paris in the 19th century by Napoleon III as a potent example of the military uses of transportation infrastructure. The goal of the redesign was to make it easier for troops to move around the city and prevent insurrections like those that occurred between the French Revolution and Napoleon III’s ascension to power (Scott, 1999: 61). In the days of both the Roman Republic and the Roman Empire, the vast network of roads served a “military purpose” (Dalgaard et al., 2018: 11).18 Another potent example is that of the lighthouse, which is also a recurrent textbook example of a public good (Mill, 1848; Samuelson, 1954; Arrow, 1969). Because the light it produces can be seen by all incoming vessels, the task of excluding non-payers is a difficult one. For this reason, the lighthouse meets the requirements of a public good, and one that is important for commerce. But it also has a military component. Regardless of whether this public good can be privately produced (Coase, 1974; Van Zandt, 1993; Bertrand, 2006; Candela and Geloso, 2018a, 2018b), its origins are strongly related to national defense. In England, the most discussed area in the literature on the economics of the lighthouse, the statemandated provider of lighthouses justified its monopoly on the basis that if lighthouses were built in large numbers, it would benefit enemy ships attempting to attack England (Trinity House, 1732: 1; Harris, 1969: 214). Recent evidence confirmed that lighthouses were motivated in part for national defense and, more importantly, that the state-mandated provider did restrict the quantity of lighthouses to prevent foreign invaders from relying on them (Candela and Geloso, 2018b). Thus reasons of state served as a reason purposefully to restrict the number of lighthouses. The lighthouse at the port of Ostia, near Rome, was built in the early days of the Empire in part for the purposes of defending the city and the grain trade vital to the free distribution of bread (which limited the odds of rebellions in Rome) (Holland, 1972: 2). As such, while military defense constitutes one of the most important public goods the state could produce, many of the other public goods also helped serve defensive purposes even if they could jointly support other uses such as facilitating commerce. The primary purpose of the good is the reinforcement of the ruler’s hold over power and the value that he can extract from this hold. If, in the process, it also helps economic growth, it is merely a fortunate byproduct. Again, we believe the most important point to emphasize, in the context of this literature, is how public goods contribute to the durability of a regime, and thus the interests of its rulers. 4. The french settlements of Atlantic Canada to 1755 In the 17th century, French settlers began populating Canada in two different basins. The first is in the modern-day province of Quebec and the second, known as Acadia, in provinces of Nova Scotia, New Brunswick and Prince Edward Island. By circa 1750, their respective populations stood at 55,0 0 0 and 18,50 0 (Public Archives of Canada, 1874: XXIX, XXXIV).19 The two colonies differed radically in institutional terms. Quebec had a developed administrative state in which French intendants and governors were active in developing state-capacity (Desbarats, 1995; 1997; Bordo and Redish, 2006; Chartrand, 2009). Acadia was left largely stateless (Clark, 1968; Kennedy, 2014; Heaman, 2015). The reason for this statelessness is that Acadia was considered a borderland (Kennedy 2014) of little strategic importance to the French crown. Thus, investments in state capacity were not politically remunerative. The colony frequently changed hands between the French and British until 1713 when the British obtained it under the Treaty of Utrecht. The British were also largely uninterested in the colony and they governed only symbolically: they imposed no militia requirement (as in the American colonies to the south) nor mandatory military recruitment, merely requesting an oath of neutrality (as opposed to a loyalty oath) (Harris, 2009: 57; Parmenter and Robinson, 2007). A key piece of evidence supporting statelessness in Acadia relates to the role of seigneurial tenure. This feudal import from France granted the King the right to concede large estates to landlords (known as seigneurs). These landlords would 18 Scott also highlights that even seemingly minor things such as a uniform system of weights and measures (which would, according to some such as Velkar [2012], help promote development) were developed for the purposes of collecting taxes in a way that made European powers “military potent” (Scott 1999: 31). 19 When Native indian populations are added, these numbers swell to 70,0 0 0 and 21,0 0 0.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO

ARTICLE IN PRESS V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 7

then be forced to grant plots to farmers who would, in exchange, pay taxes in perpetuity to the landlords. These taxes represented 5–14% of gross farm income (Dechêne, 1992; Harris, [1966] 1984) and more than 25% of net farm income (Altman, 1983, 1987). Notably, the seigneurs could limit the ability of peasants to leave their lands because of a de jure prohibition on leaving one’s plot without selling it. This was coupled with a de facto restriction on mobility whereby 1/8th of the proceeds of the sale of a farm would be taken by the seigneur under a tax known as lods et ventes. Finally, the seigneurs also gained numerous de jure monopoly rights, notably on the establishment of flour mills (Greer, 1985). All of this system required heavy state support (Geloso, 2019) especially with regards to the enforcement of the flour milling monopoly (Geloso and Lacombe, 2016). Absent state capacity, this system would not have been within the institutional possibilities set. In Acadia, this system was declared as the tenure institutions of the colony, but it prevailed in name only. The enforcement of the system was so weak that settlements in Acadia are considered by historians as free ranging, similar to squatting and homesteading (Harris, 2009: 61; Griffiths, 1992: 21). In Quebec, where the state had a stronger arm, the institution survived well into the 19th century and actually persisted in a diminished form until the 1940s (Grenier, 2012). Thus, we can consider the colony of Acadia as stateless or – at the very least – that the state had weak coercive abilities.20 Moreover, the colonists did not benefit from imperial defense goods. When they were nominally under French rule, the Acadians were frequently left to fend for themselves and relied on local communities to repel British privateers and New England raiding parties (Kennedy, 2014: 148–149). The French governors understood their claims to the region to be so weak that they often had to bribe the Acadians to help in the region’s defense (Kennedy, 2014: 146–150). However, when larger military forces (north of 10 0 0) were attacking the region, the Acadians refused to do anything (Kennedy 2014: 148–150). When the British took over, they were formally hostile to the settlers but they understood their ability to enforce their will to be so weak that they refused to ask for the traditional oath of loyalty. They instead requested an oath of neutrality and refused to intervene in local affairs beyond this request until the 1750s (Griffiths, 1992; Hodson, 2012; Kennedy, 2014). This reinforces the contention that Acadia was a society with weak state capacity. The statelessness of the colony incentivized colonists to form “parish assemblies to run their own affairs and … largely ignored political allegiances” (Heaman, 2015: 38).21 These assemblies functioned on consensus-building and were largely concerned with how to foster peaceful relations with their main trading partner: the Mi’kmaq Indians of the region. The assemblies possessed no taxation power and raised no militia. Historians have described an exceptional situation of peace between Indians and settlers (Clark, 1968; Griffiths, 1992; Faragher, 2006; Hodson, 2012) in large part because of the economic interdependency between both groups in terms of trade. Geloso and Candela (2018) argue that this statelessness allowed the two groups to develop harmonious relations, because statelessness prevented interest groups from shifting the costs of violence onto the general population. It generated an environment whereby “trade” was preferred to “raid” allowing the region to grow rich. One important factor in achieving this peace (and make it self-reinforcing) was that the Acadians invested considerable capital and labor in draining marshlands along the coast. This meant that they would not infringe on the hunting grounds of the Mi’kmaq and it was recognized as such by the latter (Faragher, 2006; 2014). Once drained, the marshlands were incredibly productive (see more below) and were well-suited for pastoral production (Clark, 1968: 238– 240; Faragher, 2006: 48–50). The goods produced from these drained marshlands were traded for furs with the Mi’kmaq and then exported to colonial ports (of both French and British allegiance) (Clark, 1968; Griffiths, 1984; 1992; Gwyn, 1998; Hodson, 2012; Geloso and Candela, 2018). This reinforced the peaceful equilibrium with the Mi’kmaq as foreign trade was tied to not overstepping beyond the drained marshlands. This is why, when the Acadians were eventually deported in 1755, some contemporary observers described the region as having “land as good (…) as any in the world” (Faragher, 2006, 83). The region was recognized then as a rich one. Data on the colony’s development, as a result of the statelessness, is much more limited than it is for other colonies. However, it does confirm contemporary impressions. Two sets of evidence can be used in that regard. The first is to rely on what historians have tended to use as evidence: population growth rates, farm yields and livestock. With regards to population growth rates, the idea is that richer areas would face weaker Malthusian pressures and could enjoy faster rates of population growth. By that metric, the colony did enjoy rapid population growth: an annual rate of 4.73% per annum between 1710 and 1755 (Leblanc, 1979)22 as opposed to 2.57% in Massachusetts and 3.25% for the whole of the thirteen American colonies (Rabushka, 2008). For farm yields, the idea is more straightforward: real income depends on real productivity, and so in predominantly agricultural milieus, farm productivity is a reasonable proxy for living standards. The available data for Quebec place farm yields at between 7.07 to 8.7 bushels per acre (Garneau, 1859: 104; Altman, 1981: 64) as opposed to 15 bushels per acre in Acadia (Clark, 1968: 163, fn. 132) and New England (Henretta, 1978: 13; Pruitt, 1984: 364). Livestock counts are also a measure of development, given how dear capital was in North America at time (for example, cattle had first to be imported from Europe and then bred in the colony). Cattle herd size thus serves as a proxy for capital intensity. In 1701, cattle, sheep and swine stood at 1.59, 1.58 and 1.03 per capita, respectively, in Acadia

20 The fur trade also fits this description. The French crown did grant monopoly rights to a few merchants, but the Acadians willfully ignored them and organized the trade with the Mi’kmaq for furs themselves (Clark 1968; Griffiths 1992). This is in large party why the Acadians were known as smugglers who traded with everyone (British, French, Americans) in North America, the Caribbean and Europe (Griffiths 1984: 32; Griffiths 1992: 13,25) 21 In her history of the Canadian state, Heaman (2015) reinforces the contention that Acadia was more or less a stateless region: “The state in Acadia was at best nominal, at worst a target” (2015: 38). She also adds that the “state was its weakest in Acadia” (2015: 49). 22 Perhaps as high as 5% if the 1755 population figures from the Public Archives of Canada (1874: XXIX) are taken at face value.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 8

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx Table 2 GDP per capita in different regions of North America and Europe (where Quebec = 100%).

Peru (Low) Peru (High) Quebec Mexico (Low) Mexico (High) France (Low) France (High) Acadia (Low) New England Acadia (High) Britain (Low) Britain (High)

1701

1707

71.4 79.3 100.0 103.6 115.1 118.4 131.5 165.9 204.5 205.8 197.9 240.9

62.4 63.3 100.0 90.7 91.9 103.3 104.7 169.3 220.2 207.5 164.7 254.0

Source: Geloso and Candela (2018).

(Public Archives of Canada, 1874: 45). In 1706 in Quebec, these rates fell well below at 0.86, 0.11 and 0.45 per capita (Lunn, 1942: 443; Public Archives of Canada, 1874: 48).23 These forms of evidence have been recently supplemented a new set of empirical evidence. First, there is the work of Gregory Kennedy (2014) that used data from private individuals to arrive at measures of incomes and found that the colonists were significantly richer. Second, there are works of Altman (1988) and Geloso and Candela (2018). These works use methods from economic history to reconstruct national accounts and historical GDP statistics. Most of this was done for Quebec first by Altman, but the methods were refined by Geloso (2016) who then extended it to Acadia (Geloso and Candela 2018) using the main two censuses available (the 1701 and 1707 censuses). The results are reproduced in Table 2 below. As one can see, Acadia is roughly on par income-wise with the American colonies of New England and well ahead of the other French colony of Quebec. The relative wealth of the colony helps us make sense of subsequent historical developments. The French settlers of the area were eyed jealously by American settlers to the south who saw them as a barrier and a threat.24 The first calls for deportation arrived early after 1713 and grew more insistent as time passed. Faragher (2006, 83) highlights a notable letter published in newspapers of New York, Pennsylvania and Maryland which presented the expulsion of the Acadians, which occurred in 1755, as a “Great and Noble Scheme” and a chance to obtain land “as good (…) as any in the world”. The idea of deportation had been present since the 1710s but they had failed to gain traction until the 1750s. Most of the pressure for what came to be known as the “Great Upheaval” came not from imperial authorities in London but from American colonists who sought to seize the lands of the Acadians and also deprive the Mi’kmaq Indians (with whom they had poor relations) of their most trusted allies. In fact, when the deportation began, it occurred in spite of contrary directives from London (Akins, 1869, 581–582; Faragher, 2005, 366–367). Thus, Acadia’s wealth attracted a negative externality in the form of inviting violence on the part of others. This was reinforced by the fact that the American colonists did not have to pay the full costs of their expropriative venture. At many turns, Britain had opposed the deportation which had been desired by the New England colonists. When the plan was finally enacted, it was a few days before London sent a dispatch ordering the plan not to proceed. Nevertheless, it was British troops and ships which would carry out the operation, at the expense of British taxpayers. To deport the Acadians, 2250 soldiers were dispatched: 1 soldier for every 5.6 Acadians (Geloso, 2015: 60). Adding the size of the British naval units assigned to the deportation, this was the largest display of coercive abilities the region had ever known (Geloso, 2015). Absent a state, the Acadians were largely unable to resist and the deportation began in the summer of 1755. Estimates of the extent of the deportation vary but a well agreed upon figure is that between 70 0 0 and 80 0 0 Acadians were deported (Leblanc, 1979) but some go as high as 11,0 0 0 (Plank, 20 03: 149) which represents between 40% and 60% of the population and fall well within the range of other North American cases of forcible removals, such as the Cherokees in the first half of the 19th century (Gregg and Wishart, 2012).25

23 In addition, the aforementioned institution of seigneurial tenure is generally considered as a detrimental institution to economic development in Quebec (Phillips 1974; Altman 1983; 1987; 1998; Greer 1985). Its weakness in Acadia would have been beneficial to the colony. Admittedly, there is some debate concerning the magnitude of the institution’s effect (Percy and Szostak 1992; Russell 2012): Canadian historians agree that it hindered development, but disagree as to whether the effect was large or modest. 24 It is worth pointing out that American colonists were going after all sorts of frontier land which did not have to be rich per se. However, the difference that must be pointed out is that the lands the Acadians occupied were already improved. For American settlers, this meant foregoing a considerable cost associated with farm-making as it takes many years to bring a farm to “maturity” (Lewis 2001). As long as the Acadians would not be able to resist a large military force deporting them (which would in any case be paid by the Crown), it made sense for American settlers to push for deportation in order to seize the land of the Acadians. The fact that the land was, as we indicated above, quite productive and well-suited to pastoral production merely made deportation, in order to seize the land, even more appealing. 25 Once the deportation was completed, some 2,0 0 0 Acadians did return to the area (Akins 1869: 302–303).

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO

ARTICLE IN PRESS V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 9

To sum up: Acadia’s statelessness contributed to its development, because its statelessness prevented the rise of extractive administrative institutions. However, in the process it attracted envy on the part of colonists in New England who could rely on a more developed state, namely the British, to evict the Acadians. The American colonists used well-developed state capacity to expropriate a rival group that did not develop coercive power sufficient to create deterrence. Furthermore, the colonists were able to do this by shifting the burdens of their de facto conquest onto British taxpayers, while claiming the rewards. This is a meaningful example of a relatively wealthy polity that became wealthy without recourse to state capacity, but then failed to survive precisely because this wealth invited irresistible predation. It also demonstrates how the institutions of state capacity lend themselves to rent seeking. 5. England’s divergence and state capacity We now turn to the converse scenario: relatively wealthy societies that made investments in state capacity due to (a) the increased returns of raiding relative to trading at the margin, given their closeness to the European production possibilities frontier and (b) the desire to protect established wealth from other raiders. England in the 17th and 18th centuries is an example. Recreating national accounts for Britain, Broadberry et al. (2015) showed that incomes per capita started increasing in the mid-17th century after having been stable since the early 15th century. Simultaneously, other European countries such as Spain and Italy were experiencing modest or pronounced reversals in living standards. Sweden and Portugal experienced reversals in the 18th century that eroded previously made gains. Recent evidence suggest that France suffered through a long decline in real incomes from the 14th century to the mid-16th century after which point it recovered modestly, although levels were still inferior to the 14th century peak (Ridolfi, 2017). The only exception was Holland, towards which England was rapidly converging (Broadberry et al., 2015: 378–381; Fouquet and Broadberry, 2015: 230). This is consistent with demographic evidence assembled by Crafts and Mills (2009) and Nicolini (2007) who showed that England escaped its Malthusian trap during the second half of the 17th century. It is also consistent with evidence regarding annual real wages assembled by Humphries and Weisdorf (2017). In addition, England was richer than most of the rest of Europe even before that take-off.26 Using measures of real wages adjusted for purchasing power disparities across Europe, Allen (2001; 2009) found that England was ahead of the rest of Europe, with the exception of Holland, as early as the 16th century. Some criticisms of Allen’s work have emerged, but they only reduce the extent of England’s lead and tend to focus on the 17th and 18th centuries (Stephenson, 2018). It is thus reasonable to characterize England as a relatively wealthy society, near the frontier of the European production possibilities frontier. Importantly for our argument, England did not enter this era with a well-developed state apparatus. In their study on pre-modern states, Blanton and Fargher (2008: 133–160) classified the level of public goods provided by England and a number of other countries. Their classification depends on whether a state produced certain goods and services (roads, bridges, public water works, public safety, redistributive schemes) as well as the amount (Blanton and Fagher, 2008: 134). All of these goods fit the story of state capacity investments as means to promote the development of markets. Pre-modern England (before the 16th century) falls near the bottom in terms of public goods provision, behind other states such as Venice and the Ottoman Empire. Turning to the financing side, Karaman and Pamuk (2010: 611) show that on a per capita basis, between 1650 and 1659, England had lower tax revenues than France, Spain, Venice and the Dutch Republic. Given that England was richer than all these countries, except the Dutch republic, we may conclude that England had one of the smallest states in Europe at the time.27 This appears to conflict with generally-held views regarding state capacity in Britain. Generally speaking, English governments in the 17th century inherited a long tradition of political integration (Johnson and Koyama, 2017: 4). It was also “precocious” in its centralization of fiscal and legal institutions (Johnson and Koyama, 2017: 4). However, the actual implication of these claims is that England, in virtue of its formal governance institutions, found it easier to invest in state capacity than other European states. Particularly important for the construction of state capacity was greater population homogeneity than France or Central Europe (Johnson and Koyama, 2017: 5). The impetus for the creation of state capacity in England is well-reflected by Johnson and Koyama (2017: 9) when they discuss the counter-example of the Netherlands. As mentioned above, the Netherlands were the only region of Europe to enjoy greater living standards than England. This advantage appears to have existed as far back as the 14th century (van Bavel et al. 2004). They also enjoyed a rapid pace of growth that, in the 15th and 16th centuries, led them to outpace most of Europe (de Vries and van der Woude, 1997; van Zanden and van Leeuwen, 2012; Broadberry et al., 2015). However, the Dutch were constantly embroiled in conflicts in which, unlike England, they suffered invasion. Recurrent warfare meant that the Dutch had to expend considerable resources to protecting themselves. These resources were significant relative to the

26 Given the quality of the measures of GDP reconstructed by economic historians, there is a margin of error to consider. England appears richer than everyone except the Netherlands. However, its 17th century lead over Spain is relatively small. Thus, as Henriques and Palma (2019) note, there is a possibility that Spain was, during the 15th century, richer than England (or at the very least that it was not significantly poorer than England). We thank Nuno Palma for pointing this possibility out. However, we should point that this does not alter our argument in the slightest. Indeed, our main claim does not hinge on Britain being the richest. It simply needs to be rich enough and politically weak enough to invite predation. 27 O’Brien (2001: 5) characterizes this limited state capacity when he stated that, following the republican interregnum in the mid-17th century, England “reverted to stabilizing royal rule over one of the more lightly taxed societies in Europe”.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 10

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

small population of the Netherlands. Its navy in 1718 stood at 63 ships of the line, which amount to 0.32 per 10,0 0 0 inhabitants (Modelski and Thompson, 1988). This compares with 122 and 0.18 for England. Continuous warfare contributed to the slowdown of the Dutch economy noted by van Zanden and van Leeuwen (2012: 128–129). “In contrast” argue Johnson and Koyama (2017: 9), “greater state capacity undoubtedly played an important negative role in protecting eighteenth century England from a similar experience, enabling it to conduct a second hundred years war with France at the same time as undergoing the industrial revolution”. This mimics the point made by Kohn (2014) that governments who found ways to draw upon their economies without excessively burdening them were able to sustain themselves – which was not the case for the Netherlands but did happen for England.28 In England’s case, the erection of state capacity in the form of centralized fiscal and legal systems served the dual purpose of offense and defense.29 Whereas our previous example of Acadia related to a case of a society that did not pass the filter, England changed course to pass by building state capacity early on. It is unnecessary to take a side as to whether, in any particular instance, England used its state capacity to protect itself or attack others. All that matters for a situation where a society passes the filter without being conquered (as Acadia failed to do) is that state capacity was built to protect relatively high levels of wealth. On that account, England clearly built state capacity for the purposes of waging wars. As Brewer (1988: XI) puts it, “the changes of the late seventeenth and eighteenth centuries” were concerned with “enhancing the government’s ability to wage war”. In essence, the erection of state capacity took place under external pressure, as it was in the Netherlands. England’s perennial enemy, France, had a larger population which constituted a key advantage in terms of resources available for warfare (Kennedy, 1987). To counter this advantage, England had to be able to marshal more efficiently resources against its enemies, which is why a great deal of the literature on England’s state capacity speak to its fiscal system. As mentioned earlier, England (despite being richer) collected fewer revenues per capita in the 1650–1659 period than France (Karaman and Pamuk, 2010: 611). By 1700, this was no longer true. The common narrative suggests that with the Glorious Revolution, constitutional reforms solidified the credibility of the English Crown leading to a greater ability to take out loans to fund war-related activities (North and Weingast, 1989). There are debates over whether (Cox, 2011; 2012; 2015) or not (Sussman and Yafeh, 2006) the Glorious Revolution was a constitutional watershed, but what is clearly accepted is that interest rates on English treasury bonds fell and became lower than those of other European countries (Sussman and Yafeh, 2006). One important reason for this was the formation of political coalitions in which creditors of the crown were members of government, which reinforced their trust in the government’s promises (Stasavage, 20 02; 20 03; 20 07). Another important development which allowed England to develop a “fiscal exceptionalism” (O’Brien, 2001) whereby tax farming was eliminated as a method of collecting revenues and direct collection became the norm (Johnson and Koyama, 2014b), thereby minimizing excess burden. Taken together, these developments allowed England to marshal considerable resources for the purposes of war. Public debt rose rapidly and did so faster than the overall economy (Clark, 2001; Deane and Mitchell, 1962; Broadberry et al., 2015).30 By the 1750s, England’s debt to GDP ratio was well above 100%. By the end of the Napoleonic Wars, it was well above 150%. The majority of that debt was taken in order to fight wars and, in addition to year-to-year spending on the army and navy which stood well above the levels of other countries (Sánchez, 2009: 155), expenditures on debt service sometimes reached 60% of total government expenditures (O’Brien, 1988; Sussman and Yafeh, 2006: 925). This fiscal ability to wage war was a key development in Britain’s ability to defend its relatively high levels of wealth. It is for this reason that scholars such as P.K. O’Brien argue that Britain’s fiscal abilities, despite other disadvantages, had allowed it exhaust the will and fiscal capacities of its rivals tempted to challenge its hegemonic status (2001: 25).

6. Conclusion We offer a reevaluation of the link between state capacity and economic development. The issue that motivated our analysis was the lack of examples of societies that became wealthy without developing state capacity. There are two possible explanations. The first is that state capacity is, in some way, causally related to economic development. This is the position taken, oftentimes implicitly, by many contemporary scholars. The other explanation is that state capacity is a correlative filter. State capacity does not cause economic growth, but must be developed in order to survive some sort of selection process. While the two are not necessarily mutually exclusive, we argue that the latter perspective offers greater explanatory

28 It is worth pointing out that Kohn (2014) believes that it was reliance on well-developed markets that allowed the Netherlands to resist so long against other major European powers. 29 Our argument fits well with recent literature on the coeval development of states and markets in England. For example, Bogart and Richardson (2011) argue Parliament significantly reorganized property rights to better exploit economic opportunities. More recently, Pincus and Robinson (2014) defend North and Weingast (1989) on the importance of the Glorious Revolution, albeit for different reasons. Rather than credible commitment, the mechanisms Pincus and Robinson point to are transition to state control by political parties rather than the king’s advisors, as well as the Whig’s modernizing (state-building, market-enhancing) political projects. That state actors can face private incentives for social wealth creation is well-known (cf. Olson, 1993), but we contend that this does not mean state capacity per se is the relevant mechanism. We elaborate on this in the Conclusion, especially fn. 27. 30 The amplitudes differ slightly depending on the GDP series used. The Clark (2001) GDP series differ from Broadberry et al. (2015) so that the percentages are different. However, both show the same trend.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

ARTICLE IN PRESS

JID: JEBO

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 11

potency.31 We offered a theoretical discussion of why state capacity ought not be thought of as a causal mechanism related to sustained and broad-based economic growth. We also provided two brief case studies to corroborate our argument. The first, Acadia, became relatively wealthy but was then conquered, due to its lack of investments in state capacity. The second, England, became relatively wealthy and protected that wealth, as well as preyed on other societies’ wealth, through investments in state capacity.32 Our purpose in surveying two societies that ran up against the state capacity filter was to illustrate the effect of the filter itself. The history is not our main contribution. Instead, we believe the history is an input into an institutional theory that plausibly explains why state capacity is not the kind of mechanism social scientists may plausibly turn to when explaining so phenomenal an outcome as the bounty of economic modernity. Investments in state capacity, because they were frequently related to attempts by society’s rulers to plunder or prevent plunder, are meaningfully categorized as a form of rent seeking. The logic is precisely the same as for investments made domestically to prevent theft (Tullock, 1967). Furthermore, state capacity, as a morphology of formal governance institutions, does not contain within itself the ability to offer answers to two important questions: what information those who constructed and wielded state capacity had at their disposal to use the new institutional architecture to promote economic growth, and what incentives they had to do so, rather than continue to engage in mere predation, as was the norm throughout human history. A theory of sustained broad-based economic growth, of the kind experienced in the West dating back to the Industrial Revolution, must ultimately rest on the dual pillars of information-generation and incentive-alignment. As of yet, state capacity scholars have not offered this kind of an explanation. If we are correct that state capacity is best understood as an equilibrium strategy in a trade-or-raid game, what else can be said about the link between state capacity and economic development? State capacity can certainly still perform a secondary role, in that its construction and use can prevent societies that have accumulated wealth from losing that wealth to external predators. There may even be some primary channels, relating to the positive unintended consequences on growth of public goods provisions. That these goods were produced with an eye towards fighting and winning wars does not mean they cannot also entail significant peacetime benefits (e.g. lighthouses). We think it is intuitively plausible, at least, for state capacity plus something else to be a condition for economic development. But it cannot be state capacity by itself, because the information and incentive problems associated with building and then employing state capacity must be solved by something other than state capacity (Salter and Young, 2018, 2018b; see also Salter, 2015). Scholars of state capacity can continue to focus primarily on state capacity, since its construction is an important historical phenomenon. But if scholars wish to associate state capacity with economic development—and currently in the literature many of them do—then more effort needs to be spent searching for the something else that, in conjunction with state capacity, is capable of serving as an explanation for modern living standards. Declaration of Competing Interest We have no conflict of interest to report nor have we used human subjects in writing this paper. We received no funding for this paper. References Acemoglu, D., Garcia-Jimeno, C., Robinson, J.A., 2015. State capacity and economic development: a network approach. Am. Econ. Rev. 105 (8), 2364–2409. Acemoglu, D., Moscona, J., Robinson, J.A., 2016. State capacity and american technology: evidence from the nineteenth century. Am. Econ. Rev. 106 (5), 61–67. Afonso, A., Furceri, D., 2010. Government size, composition, volatility and economic growth. Eur J Polit Econ 26 (4), 517–532. Akins, Thomas, 1869. Public Documents on the Province of Nova Scotia. Charles Annand Publishers, Halifax. Alchian, A.A., 1950. Uncertainty, evolution, and economic theory. J. Polit. Econ. 58 (3), 211–221. Allen, R.C., 2001. The great divergence in european wages and prices from the middle ages to the first world war. Explor. Econ. Hist. 38 (4), 411–447. Allen, R.C., 2009. The British Industrial Revolution in Global Perspective. Cambridge University Press, Cambridge. Altman, M., 1981. Economic Aspects of Agricultural Productivity and the Seigniorial Land Holding System in Quebec, 1780–1850 The Testing of Causal Hypotheses. M.A. Thesis. McGill University. Altman, M., 1983. Seigniorial tenure in New France, 1688-1739: an essay on income distribution and retarded economic development. Hist. Reflec. Réflex. Histor. 10 (3), 335. Altman, M., 1987. Note on the economic burden of the seigniorial system in New France, 1688–1739. Hist. Reflec. Réflex. Histor. 14 (1), 135–142. Altman, M., 1988. Economic growth in Canada, 1695-1739: estimates and analysis. Will. Mary Q. Mag. Early Am. Hist. 45 (4), 684–711.

31 We say this for two reasons. The first is theoretical. A number of empirical papers managed to specify and quantify microeconomic mechanisms by which state capacity positively affects wealth creation (e.g. Becker et al., 2016 on the legacy of the Habsburg Empire on trust in public institutions, or Dell et al., 2018 on the effects of centralized administration on economic outcomes in Vietnam). That being said, we cannot agree with an interpretation of these studies that hold state capacity is doing the “heavy lifting.” State capacity, by itself, is a description of institutional morphology that speaks to, e.g., the degree to which formal governance institutions are centralized or decentralized. This morphology by itself is causally inert. We agree with Salter and Young (2019: 1249) as to what kind of an explanation state capacity is, and hence what load it can (or cannot) bear. State capacity is to economic development what the production possibilities frontier is to markets: a description of technological possibilities. But it is the information-generating and incentive-aligning features of institutions that determines which point on the PPF is efficient. In this manner, state capacity can, at most, specify the range of possible institutional bounds. But it cannot tell us how the equilibrium governance institutions (cf. Djankov et al., 2003) will map on to economic outcomes without something else doing the work of generating information and aligning incentives. The second reason is empirical: there is literature that contests some key empirical results of the state-capacity/growth relationship and finds different results (see Footnote 7). 32 As we pointed out in footnote 14 above, there are other cases that point in the same direction and that could form the basis of future research.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 12

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

Altman, M., 1998. Land tenure, ethnicity, and the condition of agricultural income and productivity in mid-nineteenth-century quebec. Agric. Hist. 72 (4), 708–762. Anderson, T.L., Hill, P.J., 2004 The Not so Wild, Wild west: Property Rights on the Frontier. Stanford University Press. Anderson, T.L., Mc Chesney, F.S., 1994. Raid or trade? An economic model of indian-white relations. J. Law Econ. 37 (1), 39–74. Arrow, K.J., 1969. Joint Economic Committee, The organization of economic activity. The Analysis and Evaluation of Public Expenditure. US Congress, Washington D.C. Barro, R.J., 1990. Government spending in a simple model of endogeneous growth. J. Polit. Econ. 98 (5, Part 2), S103–S125. Batchelder, R.W., Freudenberger, H., 1983. On the rational origins of the modern centralized state. Explor. Econ. Hist. 20 (1), 1–13. van Bavel, B.J., van Zanden, J.L., 2004. The jump-start of the holland economy during the late-medieval crisis, c. 1350–c. 1500 1. Econ. Hist. Rev. 57 (3), 503–532. Bauer, L.P.T., 20 0 0. From Subsistence to Exchange and Other Essays. Princeton University Press. Becker, G., 2011. [1971]. Economic Theory. Routledge, New York. Becker, S.O., Boeckh, K., Hainz, C., Woessmann, L., 2016. The empire is dead, long live the empire! long-run persistence of corruption and trust in the bureaucracy. Econ. J. 126 (590), 40–74. Berdine, G., Geloso, V., Powell, B., 2018. Cuban longevity and infant mortality: health care or repression? Health Policy Plan. 33 (6), 755–757. Bertrand, E., 2006. The coasean analysis of lighthouse financing: myths and realities. Cambridge J. Econ. 30 (3), 389–402. Besley, T., Ilzetzki, E., Persson, T., 2013. Weak states and steady states: the dynamics of fiscal capacity. Am. Econ. J. Macroecon. 5 (4), 205–235. Besley, T., Persson, T., 2008. Wars and state capacity. J. Eur. Econ. Assoc. 6 (2–3), 522–530. Besley, T., Persson, T., 2009. The origins of state capacity: property rights, taxation, and politics. Am. Econ. Rev. 99 (4), 1218–1244. Besley, T., Persson, T., 2010. State capacity, conflict, and development. Econometrica 78 (1), 1–34. Besley, T., Persson, T., 2011. Pillars of Prosperity: The political Economics of Development Clusters. Princeton University Press. Blanton, R., Fargher, L., 2008. Collective Action in the Formation of Pre-Modern States. Springer Science & Business Media. Boettke, P.J., Candela, R.A., 2019. Productive specialization, peaceful cooperation, and the problem of the predatory state: lessons from comparative historical political economy. Publ. Choice 1–22. Bogart, D., Richardson, G., 2011. Property rights and parliament in industrializing britain. J. Law Econ. 54 (2), 241–274. Bordo, M.D., Redish, A., 2006. The legacy of french and english fiscal and monetary institutions for canada. In: Bordo, M.D., Cortés-Conde, R. (Eds.), Transferring Wealth and Power from the Old to the New World: Monetary and Fiscal Institutions in the Seventeenth Through the Ninteenth Centuries (259–283). Cambridge University Press, Cambridge. Brewer, J., 1988. The Sinews of Power: War, Money and the English State 1688–1783. Routledge. Broadberry, S., Campbell, B.M., Klein, A., Overton, M., van Leeuwen, B., 2015. British Economic Growth, 1270–1870. Cambridge University Press. Buchanan, J.M., Brennan, G., 1980. The Power to tax: Analytical Foundations of a Fiscal Constitution. Cambridge University Press, Cambridge. Candela, R.A., Geloso, V.J., 2018a. The lightship in economics. Publ. Choice 176 (3–4), 479–506. Candela, R.A., Geloso, V.J., 2018b. The lighthouse debate and the dynamics of interventionism. Rev. Austr. Econ. 1–26. Cappelli, G., 2016. One size that didn’t fit all? electoral franchise, fiscal capacity and the rise of mass schooling across Italy’s provinces, 1870–1911. Cliometrica (Berl) 10 (3), 311–343. Chartrand, R., 2009. La gouvernance militaire en nouvelle-france. Bull. Hist. Polit. 18 (1), 125–136. Christian, C., 2019. The political and economic role of elites in persecution: evidence from witchcraft trials in early modern Scotland. Rev. Econ. Inst 1–22. Clark, A.H., 1968. Acadia: The Geography of Early Nova Scotia. University of Wisconsin Press, p. 122. Clark, G., 2001. Debt, deficits, and crowding out: England, 1727–1840. Eur Rev Econ Hist 5 (3), 403–436. Coase, R.H., 1974. The lighthouse in economics. J. Law Econ. 17 (2), 357–376. Cox, G.W., 2011. War, moral hazard, and ministerial responsibility: England after the glorious revolution. J. Econ. Hist. 71 (1), 133–161. Cox, G.W., 2012. Was the glorious revolution a constitutional watershed? J. Econ. Hist. 72 (3), 567–600. Cox, G.W., 2015. Marketing sovereign promises: the english model. J. Econ. Hist. 75 (1), 190–218. Crafts, N., Mills, T.C., 2009. From Malthus to Solow: how did the Malthusian economy really evolve? J. Macroecon. 31 (1), 68–93. Dalgaard, C.J., Kaarsen, N., Olsson, O., Selaya, P. 2018. Roman roads to prosperity: persistence and non-persistence of public goods provision. Working Papers in Economics 722, University of Gothenburg, Department of Economics. Davis, L.E., Huttenback, R.A., 1986. Mammon and the Pursuit of Empire: The political Economy of British imperialism, 1860–1912. Cambridge University Press. Deane, P., Mitchell, B.R., 1962. Abstract of British historical Statistics. Cambridge University Press. Dechêne, L., 1992. Habitants and Merchants in Seventeenth-Century Montreal. McGill-Queen’s Press University Press. Dell, M., Lane, N., Querubin, P., 2018. The historical state, local collective action, and economic development in vietnam. Econometrica 86 (6), 2083. Desbarats, C.M., 1995. The cost of early Canada’s native alliances: reality and scarcity’s rhetoric. Will. Mary Q. 52 (4), 609–630. Desbarats, C.M., 1997. France in North America: the net burden of empire during the first half of the eighteenth century. French Hist. 11 (1), 1–28. Dincecco, M., Katz, G., 2014. State capacity and long-run economic performance. Econ. J. 126 (590), 189–218. Dincecco, M., 2011. Political Transformations and Public Finances: Europe, 1650–1913. Cambridge University Press., Cambridge. Dincecco, M., 2015. The rise of effective states in Europe. J. Econ. Hist. 75 (3), 901–918. Dincecco, M., 2017. State Capacity and Economic Development: Present and Past. Cambridge University Press. Djankov, S., Glaeser, E., La Porta, R., Lopez-de-Silanes, F., Shleifer, A., 2003. The new comparative economics. J. Comp. Econ. 31 (4), 595–619. Dudley, L., 1991. The Word and the Sword: How Techniques of Information and Violence Have Shaped our World. Blackwell. Dudley, L., 2008. Information Revolutions in the History of the West. Edward Elgar Publishing. Faragher, J.M., 2005. A Great and Noble Scheme: The Tragic Story of the Expulsion of the French Acadians from Their American Homeland. WW Norton & Company. Faragher, J.M., 2006. “A great and noble scheme”: thoughts on the expulsion of the acadians. Acadiensis 36 (1), 82–92. Faragher, J.M., 2014. Commentary: settler colonial studies and the North American frontier. Settler Colon. Stud. 4 (2), 181–191. Fouquet, R., Broadberry, S., 2015. Seven centuries of european economic growth and decline. J. Econ. Perspect. 29 (4), 227–244. Friedman, D., 1979. Private creation and enforcement of law: a historical case. J. Legal Stud. 8 (2), 399–415. Fukuyama, F., 2004. The imperative of state-building. J. Democr. 15 (2), 17–31. Garneau, F.-X., 1859. Histoire Du Canada: Depuis Sa Découverte Jusqu’à Nos Jours. P. Lamoreaux, Québec. Geloso, V.J., 2015. Toleration of catholics in quebec and british public finances, 1760 to 1775. Essays Econ. Busin. Hist. 33, 51–80. Geloso, V., 2019. Predation, seigneurial tenure and development in french colonial america. Soc. Sci. Hist 1–22. Geloso, V.J., 2016. The Seeds of Divergence: The Economy of French North America, 1688 to 1760. London School of Economics and Political Science. Geloso, V.J., Candela, R.C., 2018. Statelessness and the endogeneity of generalized increasing returns to trade: Acadian settlers and native Americans before 1755. Working Paper. Geloso, V., Lacombe, A., 2016. Why was flour of poor quality? the impact of seigneurial laws and price controls on flour in quebec during the colonial era. Agricult. Hist. Rev. 64 (2), 181–195. Geloso, V.J. Rouanet, L. 2019. Ethnogenesis and statelessness. Working Paper. Gennaioli, N., Voth, H.J., 2015. State capacity and military conflict. Rev. Econ. Stud. 82 (4), 1409–1448. Gibler, D.M., 2017. State development, parity, and international conflict. Am. Polit. Sci. Rev. 111 (1), 21–38. Grasgruber, P., Sebera, M., Hrazdíra, E., Cacek, J., Kalina, T., 2016. Major correlates of male height: a study of 105 countries. Econ. Hum. Biol. 21, 172–195.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO

ARTICLE IN PRESS V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

[m3Gsc;January 10, 2020;22:4] 13

Greer, A., 1985. Peasant, Lord, and Merchant: Rural Society in Three Quebec parishes, 1740–1840. University of Toronto Press. Gregg, M.T., Wishart, D.M., 2012. The price of cherokee removal. Explor. Econ. Hist. 49 (4), 423–442. Grenier, B., 2012. Brève Histoire Du Régime Seigneurial. Boréal. Griffiths, N.E., 1984. The golden age: a Cadian life, 1714–1748. Hist. Soc. Hist. 17 (33), 21–34. Griffiths, N.E., 1992. Contexts of Acadian History, 1686–1784. McGill-Queen’s University Press. Grossman, P.J., 1987. The optimal size of government. Publ. Choice 53 (2), 131–147. Gwyn, J., 1998. Excessive Expectations: Maritime Commerce and the Economic Development of Nova Scotia, 1740–1870. McGill-Queen’s Press-MQUP. Hansson, P., Henrekson, M., 1994. A new framework for testing the effect of government spending on growth and productivity. Publ. Choice 81 (3–4), 381–401. Harris, C., 1984. Seigneurial System in Early Canada: A Geographical Study. McGill-Queen’s Press University Press. Harris, C., 2009. The Reluctant Land: Society, Space, and Environment in Canada Before Confederation. UBC Press. Harris, G.G., 1969. The Trinity House at Deptford: 1514–1660. The Athlone Press, London. Hayek, F.A., 1948. Individualism and Economic Order. University of Chicago Press. Heaman, E.A., 2015. A Short History of the State in Canada. University of Toronto Press. Hendrickson, J.R., Salter, A.W., Albrecht, B.C., 2018. Preventing plunder: military technology, capital accumulation, and economic growth. J. Macroecon. 58, 154–173. Henretta, J.A., 1978. Families and farms: mentalite in pre-industrial america. Will. Mary Q. Mag. Early Am. Hist. 3–32. Henriques, A., Nuno, P., 2019. Comparative European Institutions and the Little Divergence, 1385-1800. No. 0171. European Historical Economics Society (EHES). Hirschfeld, K., 2009. Health, Politics, and Revolution in Cuba Since 1898. Routledge. Hirshleifer, J., 2001. The Dark Side of the force: Economic Foundations of Conflict Theory. Cambridge University Press. Hodson, C., 2012. The Acadian Diaspora: An Eighteenth-Century History. Oxford University Press. Hoffman, P., 2011. Prices, the military revolution, and western Europe’s comparative advantage in violence. Econ. Hist. Rev. 64 (s1), 39–59. Hoffman, P., 2017. Why Did Europe Conquer the World?. Princeton University Press. Holland, F.R., 1972. America’s Lighthouses: Their Illustrated History since 1716. Routledge. Humphries, J., Weisdorf, J.L., 2017. Unreal Wages? Real Income and Economic Growth in England, 1260–1850. Centre for Economic Policy Research (CEPR), London. Johnson, N.D., Koyama, M., 2014a. Taxes, lawyers, and the decline of witch trials in France. J. Law Econ. 57, 77–112. Johnson, N.D., Koyama, M., 2014b. Tax farming and the origins of state capacity in England and France. Explor. Econ. Hist. 51, 1–20. Johnson, N.D., Koyama, M., 2017. States and economic growth: capacity and constraints. Explor. Econ. Hist. 64, 1–20. Karaman, K.K., Pamuk, S¸ ., 2010. Ottoman state finances in European perspective, 1500–1914. J. Econ. Hist. 70 (3), 593–629. Karaman, K.K., Pamuk, S¸ ., 2013. Different paths to the modern state in europe: the interaction between warfare, economic structure, and political regime. Am. Polit. Sci. Rev. 107 (3), 603–626. Kennedy, P., 1987. The Rise and Fall of the Great Powers. Random House. Kennedy, G.M., 2014. Something of a Peasant Paradise?: Comparing Rural Societies in Acadie and the Loudunais, 1604–1755. McGill-Queen’s University Press. Kohn, M., 2014. Commerce, Predation, and Production: A New Theory of Economic Progress Unpublished manuscript. Available online at: https://sites. dartmouth.edu/mkohn/commpredprod/. Leblanc, R., 1979. Les migrations acadiennes. Cahiers de Géographie du Québec 23 (58), 99–124. Leeson, P.T., 2014. Anarchy unbound: Why self-Governance Works Better Than You Think. Cambridge University Press, Cambridge. Leeson, P.T., Coyne, C.J., Duncan, T.K., 2014. A note on the market provision of national defense. J. Priv. Enterpr. 29 (2), 51. Leeson, P.T., Russ, J.W., 2018. Witch trials. Econ. J. 128 (613), 2066–2105. Lewis, F.D., 2001. Farm settlement with imperfect capital markets: a life-cycle application to Upper Canada, 1826–1851. Canad. J. Econ. 34 (1), 174–195. Lunn, A.J., 1942. Economic Development of New France, 1713-1757 PhD dissertation. McGill University. Madsen, J.B., Wang, C., Steiner, B., 2017. The creation of effective states in the OECD since 1870: the role of inequality. Eur. J. Polit. Econ. 50, 106–121. Makovi, M., Geloso, V.J., 2019. State capacity and the post office: evidence from 19th century quebec. Working Paper. Mani, A., Mukand, S., 2007. Democracy, visibility and public good provision. J. Dev. Econ. 83 (2), 506–529. Martin, A.G., Ruhland, J.H., 2018. Politics as exchange in the Byzantine Empire. James M. Buchanan (Ed.). Palgrave Macmillan, Cham, pp. 511–536. Migué, J.L., 1997. Public choice in a federal system. Publ. Choice 90 (1–4), 235–254. Mill, J.S., 1848. Principles of Political Economy [2004]. Prometheus Books, Amherst. Modelski, G., Thompson, W.R., 1988. Seapower and global politics. Seapower in Global Politics, 1494–1993. Palgrave Macmillan, London. Morley, N., 1996. Metropolis and Hinterland: The City of Rome and the Italian Economy, 200 BC-AD 200. Cambridge University Press. Moselle, B., Polak, B., 2001. A model of a predatory state. J. Law Econ. Org. 17 (1), 1–33. Murtazashvili, J., 2018. A tired cliché: why we should stop worrying about ungoverned spaces and embrace self-governance. J. Int. Aff. 71 (2), 11–29. Nicolini, E.A., 2007. Was malthus right? a var analysis of economic and demographic interactions in pre-industrial England. Eur. Rev. Econ. Hist. 11 (1), 99–121. North, D.C., Weingast, B.R., 1989. Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England. J. Econ. Hist. 49 (4), 803–832. O’Brien, P.K., 1988. The political economy of British taxation, 1660–1815. Econ. Hist. Rev. 41 (1), 1–32. O’Brien, P.K., 2001. Fiscal exceptionalism: Great Britain and Its European Rivals: From Civil War to Triumph at Trafalgar and Waterloo. Working Paper Series of the Department of Economic History at the London School of Economics. Olson, M., 1993. Dictatorship, democracy, and development. Am. Polit. Sci. Rev. 87 (3), 567–576. Olson, M., 20 0 0. Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships. Basic Books, New York. Parmenter, J., Robison, M.P., 2007. The perils and possibilities of wartime neutrality on the edges of empire: Iroquois and Acadians between the French and British in North America, 1744–1760. Diplom. Hist. 31 (2), 167–206. Percy, M.B., Szostak, R., 1992. The political economy of the abolition of seigneurial tenure in canada east. Explor. Econ. Hist. 29 (1), 51–68. Phillips, P., 1974. Land tenure and economic development: a comparison of upper and lower canada. J. Canad. Stud. 9 (2), 35–45. Piano, E.E., 2018. State capacity and public choice: a critical survey. Publ. Choice 178 (1–2), 289–309. Pincus, S.C.A., Robinson, J.A., 2014. What really happened during the glorious revolution? In: Galiani, S., Sened, I. (Eds.), Institutions, Property Rights, and Growth: The Legacy of Douglas North. Cambridge University Press, New York, pp. 192–222. Plank, G., 2003. An Unsettled Conquest: The British Campaign Against the Peoples of Acadia. University of Pennsylvania Press. Pruitt, B.H., 1984. Self-sufficiency and the agricultural economy of eighteenth-century massachusetts. Will. Mary Q. 41 (3), 334–364. Public Archives of Canada, 1874. Volume IV to the Census of Canada of 1871. Canadian Department of Agriculture. Rabushka, A., 2008. Taxation in Colonial America. Princeton University Press. Ridolfi, L., 2017. The french economy in the longue durée: a study on real wages, working days and economic performance from louis ix to the revolution (1250–1789). Eur. Rev. Econ. Hist. 21 (4), 437–438. Rota, M., 2016. Military spending, fiscal capacity and the democracy puzzle. Explor. Econ. Hist. 60, 41–51. Ruddock, A.A., 1950. The trinity house at deptford in the sixteenth century. Engl. Histor. Rev. 65 (257), 458–476. Russell, P.A., 2012. How Agriculture Made Canada: Farming in the Nineteenth Century. McGill-Queen’s Press University Press.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015

JID: JEBO 14

ARTICLE IN PRESS

[m3Gsc;January 10, 2020;22:4]

V.J. Geloso and A.W. Salter / Journal of Economic Behavior and Organization xxx (xxxx) xxx

Salter, A.W., 2015. Rights to the realm: reconsidering western political development. Am. Polit. Sci. Rev. 109 (4), 725–734. Salter, A.W., Young, A.T., 2019. Polycentric sovereignty: the medieval constitution, governance quality, and the wealth of nations. Soc. Sci. Q. 100 (4), 1241–1253. Salter, A.W., Young, A.T., 2018. Medieval representative assemblies: collective action and the antecedents of limited government. Constit. Polit. Econ. 29 (2), 171–192. Sambanis, N., Skaperdas, S., Wohlforth, W.C., 2015. Nation-building through war. Am. Polit. Sci. Rev. 109 (2), 279–296. Samuelson, P.A., 1954. The pure theory of public expenditure. Rev. Econ. Stat. 36 (4), 387–389. Sánchez, J.J., 2009. Military expenditure, spending capacity and budget constraint in eighteenth-century spain and britain. Revista de Historia Economica J. Iber. Latin Am. Econ. Hist. 27 (1), 141–174. Scott, J.C., 1999. Seeing Like a state: How certain Schemes to Improve the Human Condition Have Failed. Yale University Press. Scully, G.W., 1989. The size of the state, economic growth and the efficient utilization of national resources. Publ. Choice 63 (2), 149–164. Stasavage, D., 2002. Credible commitment in early modern Europe: North and Weingast revisited. J. Law Econ. Org. 18 (1), 155–186. Stasavage, D., 2003. Public Debt and the Birth of the Democratic state: France and Great Britain 1688–1789. Cambridge University Press. Stasavage, D., 2007. Partisan politics and public debt: the importance of the ‘Whig supremacy’for Britain’s financial revolution. Eur. Rev. Econ. Hist. 11 (1), 123–153. Steckel, R.H., 2004. New light on the “Dark ages”: the remarkably tall stature of northern european men during the medieval era. Soc. Sci. Hist. 28 (2), 211–229. Stephenson, J.Z., 2018. ‘Real’ wages? Contractors, workers, and pay in London building trades, 1650–1800. Econ. Hist. Rev. 71 (1), 106–132. Stringham, E., 2015. Private Governance: Creating Order in Economic and Social Life. Oxford University Press, USA. Sussman, N., Yafeh, Y., 2006. Institutional reforms, financial development and sovereign debt: Britain 1690–1790. J. Econ. Hist. 66 (4), 906–935. Temin, P., 2012. The Roman Market Economy. Princeton University Press. Tilly, C., 2015. Coercion, Capital, and European States, AD 990–1992. Basil Blackwell, New York, NY. Trinity House, 1732. The Case of the Licensed Pilots of the Trinity House of Deptford-Strond Most Humbly Offered to the Honourable House of Commons Printer Unknown. Tullock, G., 1967. The welfare costs of tariffs, monopolies, and theft. Econ. Inq. 5 (3), 224–232. Turchin, P., Currie, T.E., Turner, E.A., Gavrilets, S., 2013. War, space, and the evolution of old world complex societies. Proc. Natl. Acad. Sci. 110 (41), 16384–16389. Vahabi, M., 2016. A positive theory of the predatory state. Publ. Choice 168 (3–4), 153–175. Velkar, A., 2012. Markets and Measurements in Nineteenth-Century Britain. Cambridge University Press. Volckart, O., 20 0 0. State building by bargaining for monopoly rents. Kyklos 53 (3), 265–291. de Vries, J., van der Woude, A., 1997. The First Modern economy: Success, Failure, and Perseverance of the Dutch Economy, 1500–1815. Cambridge University Press. Weingast, B.R., 1995. The economic role of political institutions: market-Preserving federalism and economic development. J. Law Econ. Org. 11 (1), 1–31. van Zanden, J.L., van Leeuwen, B., 2012. Persistent but not consistent: the growth of national income in Holland 1347–1807. Explor. Econ. Hist. 49 (2), 119–130. Van Zandt, D.E., 1993. The lessons of the lighthouse: “Government” or “private” provision of goods. J. Leg. Stud. 22 (1), 47–72.

Please cite this article as: V.J. Geloso and A.W. Salter, State capacity and economic development: Causal mechanism or correlative filter? Journal of Economic Behavior and Organization, https://doi.org/10.1016/j.jebo.2019.12.015