Post No.: 0403
Economic development and production stalls under anarchies – it needs polities that are centralised and preferably inclusive. Inclusive means that they should serve the interests of everybody within the state, including ordinary citizens. Centralised – which we’ll focus on in this post – means a government that has a monopoly on violence within its jurisdiction i.e. only it can legitimately deal in violence (e.g. via military force, incarceration); and this is one way how governments impose order.
As human groups expanded, anarchy was how all societies first started out and it was generally not a good state to be in compared with the evolved governed civilisations of today. Even today, trust, economic production and trade declines steeply if a state suddenly falls into anarchy or becomes a failed state.
The evolution of governments and polities coincides with the falling rate of global violence over time too. Well to rewind a bit – historically at least, successful groups first exploited the scale economies of violence via the size of their armies, but in the long run they needed to cooperate to benefit from the scale economies of production rather than violence. Let’s explain…
In a rural society, there are two types of economic activities of equal status – production and violence. In an anarchy where everybody is free to do whatever they want – the unproductive (e.g. unproductive farmers) and weak (in terms of being able to fight others) will die off, and the productive and strong will be fine. But the unproductive but strong can violently bully the productive but weak, which isn’t good for their production. Appealing to morally won’t work and it’d be selfishly rational to use violence to steal what one wants in an anarchy if one is stronger than another. This violence will beget more violence though since people will have to personally expend (or waste) energy and resources on defending themselves rather than on actual production. (This kind of tension still exists today with public expenditure on maintaining large militaries and nuclear weapons that’ll hopefully never be used (more than just as a deterrent) versus spending that money on things that hopefully or definitely will be.)
Armies manifest as a result of the scale economies of violence. Larger armies tend to beat smaller armies hence lots of members within a group will need to dedicate themselves to fighting (off) rival groups rather than on production, in order to survive in this kind of world. Armies will be more important than farmers or manufacturers i.e. there’s an incentive for violent gangs to form in anarchies that’ll set up protection rackets and prey on and threaten the productive but weak. And over time these gangs will get larger and larger in order to stand against any rival gangs.
A group with a larger army will capture a group with a smaller army, all else being equal, and this victorious group will start to tax members of that captured group, and with as high a rate as possible without killing them since this would cripple their production. The taxed would still need to produce to survive for their own sake, but wealth from the productive but weak will be expropriated by the unproductive but strong. This tax revenue will be used to mainly bolster the army and thus consolidate their control, as well as to help fight off or capture any other outgroups out there in an inter-group struggle of the survival of the fittest. All this can bring order and peace within a group (although under a brutal regime!) but conflict between rival groups.
Infighting can still occur though, which will harm one’s own ingroup in the face of inter-group competition, so we’ll eventually need laws and enforcement, and therefore judges and courts. Law and order allows the productive to flourish within a group without the fear of strong individuals forcefully taking away the fruits of their labours – the government is allowed to do this but not anyone else! (Imperialism essentially involves being okay with violently taking from members of outgroups e.g. the British stealing from African tribes, but not being okay with members violently taking from other ingroup members e.g. the British stealing from the British.)
Trade requires people to trust each other. So laws also importantly ensure that citizens will honour trade contracts, which will overall result in a far more productive internal economy. A central government can enable two tradespeople who want something from each other, but whom don’t implicitly trust each other, possibly because they’ve only just met each other, to honour their sides of a deal when the time comes (e.g. a corn farmer wants to trade with a wheat farmer but their harvests come at different times of the year hence the trade is not simultaneous). With laws, they can confidently trade with each other and ‘expand the pie’ in a win-win outcome. (Some argue that no true free market currently exists in this world because of government interference – but this suggests that no markets would’ve existed at all without governments!) In return, the government is entitled to a bit of tax for enabling this transaction and for helping to expand that pie that’s beneficial to all parties in this deal. The enforcement of such laws will be funded by some tax. This internal cooperation will again help this group to out-compete any rival outgroups.
However, collecting taxes creates the need for a bureaucracy capable of auditing what people have got, in order to extract more from them, hence the emergence of an inland/internal revenue system.
The rational self-interest of a ruler, such as a queen/king, is to gather as much tax as possible and to stop the threat of being deposed by a rival – and this is best served by helping one’s people to be more productive and strong enough to together fend off any external rivals. Collecting taxes therefore motivates a ruler to grow the group’s prosperity because a larger economy means a larger tax revenue. A ruler needs to grow the group’s economy to benefit her/himself and this means she/he cannot tax her/his own people too much or leave them to become too weak or malnourished i.e. if one is long-term rational, one must seek win-win outcomes within one’s own group. A dictator who just takes from but leaves her/his own people weak might reduce the risk of being internally overthrown but increases the risk of being externally overthrown.
So with a tax system in place, there’s an incentive for the ruler to grow the economy, and one way to achieve this is via encouraging trade. The interests of the ruler and her/his people are somewhat aligned when taxes are collected. One must invest in infrastructure, marketplaces and other public spending that’ll encourage even more production and trade (e.g. roads, bridges and markets to connect people, and later schools and hospitals for a more innovative and healthy workforce). More production means more tax revenue, which will mean more for the ruler personally, as well as more for building an even bigger army to protect her/him and her/his people.
If a ruler needs even more money to resource her/his army (perhaps because an unfriendly neighbouring state appears to have a more formidable army), she/he can also issue bonds – asking the wealthy elite to loan money to the treasury to fund defences against invaders or the spiralling costs of underestimated invasions, which will be paid back after (hopefully) victory. The wealthy elite might as well do this because if the group loses then they’ll lose everything as well because the victorious invading group will likely totally strip them of their wealth and titles anyway, or simply kill or banish them.
But why should they trust the ruler will pay them back? To gain this trust, the ruler will need to set up a parliament i.e. cede some power to other wealthy people so that they’ll have some control of the governmental budget and whether they’ll get their money back (like the Magna Carta of 1215 – but the first parliament of England only included the wealthy elite; and some will argue that not much has changed in that regard since then with the UK parliament of today!) The ruler at this stage therefore needs to concede and share some power in order to serve her/his own interests. Meow.
This evolution towards a centralised state really revolved around war, around building a larger army to keep safe from rival outgroups who also possessed large armies i.e. it’s not necessarily driven by greed but the fear of being usurped. And members within an ingroup should largely cooperate otherwise their group will be defeated by a more powerful outgroup, and they’ll be potentially raped and pillaged by them, which would be an even ****er prospect than their current life even if they’re one of the poor and exploited members of their current group (although that could be just propaganda by their current ruler and army to justify their extortionate protection racket?)
What happened historically was that small individual groups in an area gradually became a few large groups, partly via groups conquering other groups, until one group won overall control of a territory. Religion fits into the picture too, such as the claimed divinity of a group’s ruler and the sense of belonging to a group unified by its common religious beliefs and practices. This all took many generations to happen. If a group didn’t internally cooperate, whether through coercion or not, then it got defeated by a rival outgroup that did cooperate between its own members. Spies could also see what rival outgroups were doing, as well as sniff out anyone who could give more to their ingroup in taxes than they were.
A centralised state with lots of features of a modern state will be created, but so far this hasn’t produced a pleasant state to live in unless one belonged amongst the wealthy elite – it’s basically a state ruled by thugs who extort and exploit! But it has produced a shift from anarchy to a state of upward economic development. Note that the ruler hasn’t done anything out of kindness here – it’s just that if she/he doesn’t enforce trust, invest in infrastructure and share some power with others, she/he would likely be defeated by a neighbouring rival ruler and group that did.
An example of this process was post-Roman Britain – Britain was plunged into anarchy in 410 AD when the Romans left. Small groups violently contested the land for power until seven states, then one state, was left, which became England. But a group with an even greater military power led by William the Conqueror in 1066 came and conquered the land, partly due to having a better taxation strategy – hence why one of the first things he did was implement a strong taxation strategy, which was what the Domesday Book was about.
An example of successfully sharing power to become stronger (together) was how the Netherlands eventually ousted the much larger Habsburg Empire to become independent. The Prince of Orange only had limited power – the Dutch parliament controlled the budget, which meant that, as the war dragged on, when he wanted to borrow money from the rich to fund it, he could secure lower interest rates because there was more confidence held by his lenders that any loans would be paid back to them as soon as possible. This was contrasted with the Habsburg Empire, which didn’t have such a parliament, hence had to borrow at much higher interest rates because there was a greater risk the monarch wouldn’t have paid his creditors back after the war, even if he had been victorious. And since debts compound, the latter defaulted sooner and had to give up.
…This is only the first post in a series exploring the typical path from anarchy to economic prosperity. Centralisation is only the first step but we’ll explore the rest in due course.