Preface

Summary

From the redistributive societies of ancient Egyptian dynasties through the slavery system of the Greek and Roman world to the medieval manor, there was persistent tension between the ownership structure which maximized the rents to the ruler (and his group) and an efficient system that reduced the transaction costs and encouraged economic growth. This fundamental dichotomy is the root cause of the failure of societies to experience sustained economic growth.

(North, 1981, 25)

The state, like Janus, has two faces: one benign and one malevolent. The creation of the state facilitates the provision of public goods that would otherwise be absent, but it also allows a degree of hierarchical exploitation that would have been impossible before the existence of the state. Trying to design a set of governmental institutions that will encourage the benign aspects of the state while limiting its capacity for exploitation has been a persistent puzzle throughout history.

The state was the first form of social organization, of ten thousand people and more, for the purpose of supplying public goods. The action of the citizens under the coordination of the state generated benefits that would otherwise never have existed. The defining good for the emergent state was food storage. When food could be stored to tide people over in difficult times, social organization could exist on a scale otherwise impossible. However, any state that is strong enough to protect a large store of food and to direct the productive activities of the many also has the capacity to direct the benefits toward (or impose costs on) the few. Individuals did not come to build large irrigation systems or serve in the army by a happy coincidence of individual self-interest and the needs of the state.

It is not hard to understand why humans were reluctant recruits to the new state. It is not because they had no interest in the alluring goods and benefits made possible by the creation of states. Rather, it was the quite obvious realization that most citizens of the state were not going to be significant beneficiaries of the new regime. The creation of the state did not follow the invention of a perfect incentive system that made everyone better off than they had been in the pre-state systems.