Deepak Lal says that empires are natural because they solve a Hobbesian problem of anarchy among independent states. A domestic Leviathan prevents the descent into a “war of all against all” by providing security essential for peace and prosperity in its own territory. But if we look at the history of trade, we observe that the Lal thesis is not supported. What is necessary for international society to develop in this case is that people have the capacity to resist the temptation to commit aggression or to suppress those who succumb to such temptation in order to gain the higher productivity of the division of labor. The suppression of criminals does not have to be monopolized in the state; the attempt to do so most often ends up creating a monopoly of criminals in the form of a Leviathan. FULL ARTICLE
Source link: http://archive.mises.org/5858/small-states-global-economy-a-critique-of-lal/
Small States, Global Economy: A Critique of Lal
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This is an interesting article with a lot of truth in it. But I have a couple of problems with it. First, I can’t agree with the author’s perspective on the rise of capitalism. He seems to equate capitalism with commerce, in which case capitalism has always existed in some form throughout the world from the beginning of history, because merchants have always existed. For example, Isaiah, in the Old Testament, describes the wealthy cities of Tyre and Sidon as having gained their wealth through trade via shipping.
Also, throughout the middle ages and early modern period, the cities of the Ottoman Empire were far richer and more populous than any in Europe. Ottomans considered Europeans to be savages. Ottoman trade routes extended by land and sea from China and India to Morocco and Spain. So if extent of commerce and wealth describe capitalism, then the Ottoman Empire was the most capitalistic of its era. In addition, Ottoman’s were the opposite of mercantilists in that they subsidized imports and taxes exports. The Italian city-states, even Antwerp, offered few innovations in commerce that Istanbul didn’t possess. All suffered from period famine, disease, population declines and static productivity. Standards of living around the planet were almost identical. The history of Western Europe until 1500 involved Europe’s trying to catch up to the rest of the world, especially China, Persia, and the Ottoman Empire.
But in the 17th century, things changed dramatically. Suddenly productivity exploded in the Dutch Republic alone, and only in the Dutch Republic. By the next century, England had caught on, but Spain, France and Italy continued to suffer from Malthusian problems and declines. The Ottoman Empire didn’t suffer a decline in per capita income, but its growth was much slower than that of the Dutch and English.
If you want to search for the origins of capitalism, you should look at the Dutch Republic in the 16th and 17th centuries, because that was where productivity began to increase at fantastic rates for the first time in history and Europe began to pull away from the rest of the world in terms of growth rates, wealth, technology and the end of famines. In other words, the Dutch Republic invented what most people think of today as capitalism. In fact, Adam Smith used the Dutch as the example of a nation that practiced natural liberty to its fullest extent.
The history of capitalism is important because the author stakes a lot of importance on the decentralization of Western Europe as a main cause of the growth of capitalism, when in reality something in the character of the Dutch Republic gave birth to capitalism.
Major thesis of the essay is correct but for the wrong reasons. Through WW2 empire was necessary because “God was on the side with the most cannon.” American fear of the “stan” nations is clear evidence that size and population is no longer critical.
Possession of a-bombs is critical. MAD worked for civilized nations and nothing works to contain mad nations. Even ones smaller than New Jersey if they have a-bombs and missles.
If the 13 colonies had had a-bombs and missles then a declaration of independance would have been sufficient to gain independance and the Articles of Confederation would have been sufficient to organize the 13 colonies.
Therefore, I propose that the Constitution be retracted and the Articles of Confederation be re-estabalished to organize our 50 sovereign states and our misc. possessions.
“Because natural law is universal, it can operate with particular adjudication and enforcement.”
Who decides what is and is not “natural law,” and how is it “universal?” In some regions of the world, clitorectomies are simply a matter of the parents’ preference. Elsewhere, they are punished as felony assaults.
“The common law and arbitration, for example, function consistently with the natural law not because the state is in the background supporting them, but because the natural law itself is operating universally.”
Please. Defendants pay judgments because if they don’t, the sheriff will seize their property.
“Why the suppression of criminals would have to be monopolized in the state is not clear.”
Because an arbitration/protection agency that just sold its verdicts to the highest bidder or could be trumped by the verdict of a competing agency would not be able to offer anything of value if it could not guarantee its verdicts would be enforced.
Defendants pay judgments because if they don’t, the sheriff will seize their property.
Actually, they pay because they know the sheriff will seize their property, AND they know that if they complain about the validity of the seizure to the very same agency that issued the judgment, the sheriff will be declared immune from prosecution.
This is not a small distinction. See below.
an arbitration/protection agency that just sold its verdicts to the highest bidder or could be trumped by the verdict of a competing agency would not be able to offer anything of value if it could not guarantee its verdicts would be enforced.
Litigants are encouraged to pay the judgments of private arbitration agencies because they know that if you defy the agency’s judgment, you will not have the benefit of that agency later on.
Plus, you’d find that major private arbitration agencies would honor the judgments of the other major agencies, as a matter of reciprocity.
In such a society, if you ignore a private judgment against you, you risk finding yourself without credit, legal protection, etc.
For example, when a private debt-collection agency comes to seize the debtor’s property, he’d have no means to complain about the validity of the seizure.
This was the system under which private contract law was developed, before it was co-opted by the State.
Douglass North, in his books on the development of institutions in Western Europe, writes that for much of European history, individuals had to protect their own property, but that was expensive. So they willingly surrendered some freedom to government in exchange for property protection by the state because it lowered their cost of protecting their property.
The Dutch faced two problems: hostile nations such as France, Spain and England were intent on destroying them militarily, while within the Republic, mob rule was a constant threat. Angry mobs murdered two heads of the Republic, reportedly eating the heart of one after the murder. Unscrupulous nobility had stirred up the ignorant mobs. The Republic survived until Napoleon’s invasion, but I doubt it would have lasted a few years with anarchy. The key to their success was arriving at the precise balance between individual liberty and the state. For more, see Jonathan Israel’s books on the Dutch.
“For example, when a private debt-collection agency comes to seize the debtor’s property, he’d have no means to complain about the validity of the seizure.”
Yes he would: force of arms.
I found the segment of the article linking Thomist Catholicism and Capitalism quite interesting.
Can anybody provide some links to further reading on the subject?
Yes he would: force of arms.
The debtor in your example (the one having his property seized by the sheriff at the direction of a monopolistic court) has the same option.
Nick,
Thomistic philosophy reached its apex at the School of Salamanca in Spain. Two good books on the subject are “School of Salamanca: Readings in Spanish Monetary Theory 1544-1605″ by Marjorie Grice-Hutchinson, and “Faith and Liberty: The Economic Thought of the Late Scholastics” by Alejandro A. Chafuen. I like the latter book best because it includes work by Grice-Hutchinson and others. Also, Rothbard includes something on it in his history, as does Schumpeter in his history of economic thought.
The Scholastics went from Thomas Aquinas to, at least, Hugo Grotius in the Dutch Republic, but some include Adam Smith as a latter-day Scholastic. Rothbard considers Austrian economics to be a restoration and improvement on Scholastic economics, especially that of Salamanca.
But for most of their history, the Scholastics had little influence on economic policy, especially in Spain where the Salamanca school was located. The Dutch were the first to turn Scholastic thinking into policy. That’s why I consider the Dutch the founders of capitalism because they wedded the free market philosophy of the Scholastics with governmental policy, and that’s the true definition of capitalism. The Spanish and French completely ignored that great school.
Also, Lew Rockwell had a great article on the Late Scholastics on the FEE site at http://www.fee.org/publications/the-freeman/article.asp?aid=4482
Roger,
“First, I can’t agree with the author’s perspective on the rise of capitalism. He seems to equate capitalism with commerce, in which case capitalism has always existed in some form throughout the world from the beginning of history, because merchants have always existed. For example, Isaiah, in the Old Testament, describes the wealthy cities of Tyre and Sidon as having gained their wealth through trade via shipping.â€
What is the distinction between capitalism and private commerce in a free market? Were none of the factors of production in those days such as the ships and tools used for shipping and production private capital? Free market capitalism exists where the use of private capital exists and prevails; where the state does not monopolize the control of the factors of production.
There are some problems with the Lal’s analysis about the origin of state. His theory is exogenous theory of origin of state so that some outside force is forming the state. But Vilfredo Pareto’s endogenous theory of elites is much better since there are always those who are ruled and those who rule. Elites just circulate and move up and down in an eternal struggle. Pareto very well knew that the democracy and liberalism are just words which might just hide really cynical power struggles amongst the elites. Better to be a anti-democrat than democrat…
Don Robertson, there might be people who prefer total destruction of human race and could also say that the most changes which usually are considered as an improvement in human life are destructive to other life forms in this planet. Technology and wealth might have different meanings to others. Main point I think that many such people ultimately want to be dictators, so that they could impose their will on others. As for the use of reason, it’s the only tool available us to comprehend the world and use our skills to our advantage. Use of reason has made humans masters of this planet regardless of their race or other such things.
Paul: “What is the distinction between capitalism and private commerce in a free market?â€
There is no distinction, but Western Europe didn’t have free markets until the Dutch Republic.
There’s a problem with defining capitalism. What we call capitalism, Adam Smith called the system of natural freedom and pointed to the Dutch as the best example of it. Marx invented the term “capitalism†and saw it originating in the move from the self-sustaining medieval households to that of peasants working for wages, but he didn’t see it appearing until about the time of the industrial revolution. Max Weber saw the rise of capitalism with the Protestant work ethic. Others have their own ideas about the definition and rise of capitalism, which shows that a lot of confusion exists over the issue.
The more popular view today follows the evolutionary model in which capitalism is like a latent gene that has always been there trying to break free, and eventually does, but we can catch glimpses of it at different periods in history. However, that model fails to explain why capitalism didn’t break out in China and the Ottoman Empire who were so far ahead of Western Europe in the 16th century in terms of technology, trade, size of markets, wealth, population, large cities and every other variable that economists use to explain the growth of Western Europe. In fact, I think trade in the Ottoman Empire was actually freer than in Europe at the time.
Economies from China to Spain were very similar until about 1600. Merchants in Venice and Istanbul (far larger and richer than Venice) faced almost identical situations. Each empire claimed to respect private property, but had numerous ways in which they interfered with it, including issuing of monopolies by the governments and control of labor, prices, quality and volume by the government, either directly or through guilds. Governments worldwide controlled markets to a heavy degree throughout the middle ages and the early modern eras, including in Western Europe. That control resulted in very slow growth in per capita income. I call these traditional economies because they had existed for millennia. In traditional economies, the government claimed to allow private property but controlled markets heavily.
Nothing changed much until the Dutch Republic, which suddenly freed markets resulting in explosive, sustained per capita income growth. The Dutch improved old institutions and created new ones that protected property rights and established free markets in a way that no one else in history had done before them (see books by Jonathan Israel and Johan De Vries).
Capitalism is more than a claim to private property; it’s a system of government and institutions (formal and informal) that protect property rights and see free markets as an extension of property rights. I guess it’s a matter of degrees, but those institutions didn’t exist before the Dutch Republic. By the way, the Calvinists in the Dutch Republic (whom Weber credits with creating capitalism) fought vehemently against those institutions, but were held at bay by the Erasmian Christians, later known as Remonstrants.
RogerM,
Thank you for the references on the Scholastics.
In regards to capitalism, the original term emerged as a description of the state’s interference with the market. If you look at the writings of early anti-state Marxists (virtually extinxt after being “Gulag-ed” out of existence), Individualist Anarchists like Benjamin Tucker, and Mutualists, you will see this description. It can also be seen today in the writings of “Austrian Marxist” Kevin Carson (mutualist.blogspot.com) and Keith Preston.
The term “capitalism” was aimed at the state’s system of priviledge that re-allocated capital away from market participants and toawrds the well-connected. This was done through, taxation (less common at the time), monetary control, Tariffs, Subsidies (both explicit and implicit), and land policies. So at the time, people like Benjamin Tucker who would today call themselves anarchocapitalists (or maybe mutualists) called themselves socialists: opponents of the state-controlled system of capital allocation.
Now, I think we Austrians can agree with early free-market socialist thought on the issues of tariffs, taxes, money, and subsidies, but we differ on land. the early free-market socialists believed that there can be no such thing as an absentee landlord. This is a middle-of-the-road view between the Austrian viewpoint on property and the Georgist/geolibertarian viewpoint that land can never truly be “owned”.
As a result of the disagreement over what the term “Capitalism” really means, we get really poor communication. An-Caps, Austrians, and other free-market ideologies see Capitalism as free markets (or condemn “state capitalism). Statists make the same, but are in opposition to the market. Left-Anarchists see the term capitalism as “State Capitalism”, and claim that capitalism is NOT a free merket process, but rather a system imposed by the state.
Nick: “As a result of the disagreement over what the term “Capitalism” really means, we get really poor communication.”
Yeah it’s really confusing. The press refers to everything as capitalism, from nations with corrupt dictators to the socialism of Europe to what is happening in China. Maybe it’s a fools errand, but I would like to narrow the difinition a tad.
If capitalism is just any instance of commerce, then it has existed everywhere at all times in at least small amounts, but that doesn’t help us figure out how the West went from being poorer than the rest of the world to being far richer.
Thanks for the info on the use of capitalism by the early socialists. I didn’t know that.
I would like to agree with RogerM that the Dutch did invent modern capitalism, and that this was done through the creation of markets systems (and institutions) that could support long term large scale private debt to finance the independence wars against the Spanish. Such a system enabled to free up large sums of virtual money, something that had up until then been done only by huge taxation (in France and Spain). These large sums enable large reinvestments into technology creation (more importantly for today), but also enabled governments to finance their wars in a way that was very cost effective and with much larger budgets. As a French citizen, I could also add that it allowed England who took on the Dutch model and perfected the institutions to support it to hold its own against France in the 17th century, and to beat it hands down in the 18th century despite its comparatively low population at the time.
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