The history of Britain and Cowen’s “State Capacity Libertarianism” I: the modern state as a blind alley
The distinguished economist, blogger and public intellectual Tyler Cowen has long been an intriguing fellow traveller for libertarians. Recently, he has noted that many libertarians have been becoming disillusioned with the anti-state version of their ideology. He has proposed that libertarians should switch from believing that larger-than-minimal state is necessarily an evil to be fought to finding ways of improving it to help promote what libertarians really value. In his January 1 blog post that reads like a manifesto, Cowen coins the term “state capacity libertarianism” (SCL) to refer to the latter view. To quote him directly:
Earlier in history, a strong state was necessary to back the formation of capitalism and also to protect individual rights (do read Koyama and Johnson on state capacity). Strong states remain necessary to maintain and extend capitalism and markets. This includes keeping China at bay abroad and keeping elections free from foreign interference, as well as developing effective laws and regulations for intangible capital, intellectual property, and the new world of the internet. (If you’ve read my other works, you will know this is not a call for massive regulation of Big Tech.)
[…] Rapid increases in state capacity can be very dangerous (earlier Japan, Germany), but high levels of state capacity are not inherently tyrannical. Denmark should in fact have a smaller government, but it is still one of the freer and more secure places in the world, at least for Danish citizens albeit not for everybody.
There have already been several respectfully critical responses to the SCL manifesto. In the first instalment of his critique, Iya Somin rightly questioned whether many prominent libertarians have actually been gravitating to SCP, as Cowen claims. You should definitely stay tuned for Somin’s upcoming article on the substance of SCL. Nick Gillespie noted inter alia that the modern US problems that Cowen considers to arise from the deficit of state capacity are actually attributable to it. Vincent Geloso and Alex Salter wrote a working paper (summarized here) suggesting that the relationship between economic development and state capacity is the opposite to the one imagined by Cowen. David R. Henderson gave a point-by-point rebuttal of Cowen’s claims about how boosting state capacity is a plausible answer to the modern US problems.
I will attempt to argue for a much more forceful position using the historical example of the birthplace of the Industrial Revolution, Britain. In my view, the development of the modern state was a blind alley taken by societies because the sudden unprecedented techno-economic growth provided the resources for it, and because politicians and statist intellectuals found new ways to sell government to people after the Ancien Regime with its stratified social structure had become fundamentally illegitimate.
In what follows, I will, first, use the evidence gathered and presented by historian Joel Mokyr to show that government played little if any role in the British scientific and industrial transformation that started in the late 18th century.
What role did the British state play in the Industrial Revolution?
It is clear that if we can demonstrate that the British industrial and scientific takeoff did not happen thanks to government to any significant degree, this will be a fatal blow to SCL. If intensive and sustained economic growth appeared for the first time in human history without much government assistance, it becomes very difficult to argue that the continued existence and development of capitalism depends on a strong state. In fact, however, the British historical evidence presented by Joel Mokyr points at a way more far-reaching conclusion. Far from a strong state having been crucial to the Industrial Revolution, even the functions that we usually consider the province of a minimal government have probably played little role on the eve of the Industrial Revolution.
In his paper on the institutional origins of the British Industrial Revolution, Mokyr is concerned with the question which institutional basis existed in the late 18th-century Britain for the subsequent acceleration of progress and what was the state’s place in the mix. Mokyr, first, considers the idea that the British patent system may have been indispensable for the Industrial Revolution. He finds the evidence for this proposition tenuous at best:
At first glance it would seem that the British patent system, in force since 1624, was a classic example of successful protection of intellectual property rights, and that the incentives to innovate it created were central to its economic success (North, 1981). The idea that technological progress depended on inventors’ incentives through a patent system has become increasingly dubious on both historical and theoretical grounds (MacLeod, 1988; Boldrin and Levine, 2006; MacLeod and Nuvolari, 2007). Our concept of intellectual property rights has been too limited and too conditioned on modern circumstances. In the centuries before the Industrial Revolution, useful knowledge, both “natural philosophy” or science (broadly defined) and “the useful arts” or technology, developed much more along a system of open science, akin to modern open-source technology (Mokyr, 2006, 2007). While we should not altogether dismiss the role for the British patent system as an institutional factor in the Industrial Revolution, the new research casts some doubt on its strategic importance and at the same time shows the extent to which Britain’s advantage on its European neighbors was limited. After all, many European nations adopted a patent law similar to Britain’s after the French Revolution, and the patent system of the United States was far more user friendly (for inventors) than Britain’s (Khan and Sokoloff, 1998), but none of this reduced British technological lead before 1850. Moreover, Moser (2007) has shown that only a small proportion of the significant inventions made in Britain by the middle of the nineteenth century were ever patented.
[…] Moreover, not all inventors sought the rewards of a successful patent, and certainly not many actually attained it. In Britain, the state only recognized and enforced the inventor’s right (Hilaire-Perez, 2000). It did not normally evaluate the invention’s contribution to society. Britain’s patent system, however, was not exactly inviting: it charged a patentee around £ 300 for the right to patent in the entire Kingdom, not counting the costs of traveling to and staying in London (Khan and Sokoloff, 1998). Many patents were infringed upon, and judges were often hostile to patentees, considering them monopolists
Instead, the dissemination of useful ideas was encouraged by private institution that encouraged progress without relying on the use of force:
Britain created alternative organizations that encouraged innovation and the dissemination of useful knowledge beyond the Patent system. A notable example is the Society of Arts, founded in 1754, which 8 William Shipley, its founder, viewed its purpose as follows “Whereas the Riches, Honour, Strength and Prosperity of a 8 Nation depend in a great Measure on Knowledge and Improvement of useful Arts, Manufactures, Etc… several [persons], being fully sensible that due Encouragements and Rewards are greatly conducive to excite a Spirit of Emulation and Industry have resolved to form [the Society of Arts] for such Productions, Inventions or Improvements as shall tend to the employing of the Poor and the Increase of Trade.” explicitly aimed at disseminating existing technical knowledge as well as at augmenting it through an active program of awards and prizes, encouraging networking through correspondence, the publication of periodicals, and the organization of meetings. Only inventions that had not been patented were eligible for 8 one of the Society’s prizes. Although such effects are hard to measure, there can be little doubt that the Society helped to stimulate invention by increasing the social standing of inventors in Britain and improve communication between creative and knowledgeable people. In 1799, two paradigmatic figures of the Industrial Enlightenment, Sir Joseph Banks and Benjamin Thompson (Count Rumford), founded the Royal Institution, devoted to research and charged with providing public lectures of scientific and technological issues. Furthermore, there were the Mechanics Institutes, the first one established by Birkbeck in 1804 in London, and which spread to Scotland and then to the rest of the country. Mechanics Institutes provided technical and scientific instruction to the general public. Private institutions seem to have been quite adequate for most of Britain’s needs. All in all, the British patent system was on balance a positive institution, but in no way can we credit it with giving Britain the edge that turned it into the first industrial nation.
Nor was there any major government involvement in providing venture capital for the new industries. In fact, where it was necessary, private actors slotted in, and the amount of venture capital needed to jumpstart the process was not huge, in any case:
In addition to institutions that encourage innovation, a society that hopes to benefit from technological progress needs venture capital. The traditional story is that venture capital in Britain was hard to come by because lenders tended to be conservative. Most fixed capital that embodied the new technology such as machines and engines was scraped together from private sources and from retained earnings. Yet even at the early stages of the Industrial Revolution some of the institutions that emerged in Britain were favorable to venture capital. One such institution was country banks, which experienced a veritable explosion in the second half of the eighteenth century. In 1750 there were no more than a dozen such banks, while in 1800 there were 370. A recent paper (Brunt, 2006) has gone so far as to compare these banks to modern venture capitalists, though the analogy appears stretched.
The one possible other role that Mokyr could not have addressed in his paper because it was mostly irrelevant for the period he considers concerns the construction of crucial infrastructure like railroads. It is well-known, however, that the first British railroads were built by the private sector using private capital.
By this point, we can essentially dismiss the idea that an active role of government beyond that of performing the night watchman state functions is observable in the lead-up to the British Industrial Revolution. However, this is just the beginning because Mokyr’s historical analysis also casts doubt even at the importance of the most basic government role.
First, Mokyr suggests that early modern Britain was a surprisingly peaceful society, even though the very harsh sanction for crimes in its laws seem to suggest that the importance of crimes against property was recognized:
Yet the admittedly somewhat 9 tenuous evidence suggests that violent crime was declining over the eighteenth century and that crimes against property moved more or less pari passu with population growth (Beattie, 1974; Beattie, 1986). There was also collective crime. Local rioting, either for economic or political grievances, was common. Machine breaking, bread riots, turnpike riots, or rioting against some unpopular group like Catholics, Irish immigrants, or dissenters were common. Turnpike riots, the Gordon riots of 1780, and the Bristol Bridge riot of 1793 all sowed fear in the hearts of property-owning classes. Food rioters, forgers, thieves, and those who resisted enclosures and new machinery forcibly were all threatened by execution and transport. However, daily crime that seriously endangered the accumulation of capital and the proper conduct of commerce was on the whole rare. To be sure, eighteenth century Britain passed a myriad of draconic laws protecting property by imposing ferocious penalties on those who infringed on it. The harshness of the penalties seems to suggest that violent crime and crimes against property were regarded as serious issues. Yet it also meant that the authorities were reluctant to spend resources on law-enforcement, hoping that the harsh punishments could deter would-be criminals
What is crucial, however, is that the relatively peaceful society with potentially declining crime rates developed despite almost no government mechanisms of law-enforcement.
Hanoverian Britain had no professional police force comparable to the constabulary that emerged after 1830, and the court system was unwieldy, expensive, and uncertain. Britain depended on the deterrent effect of draconian penalties because it had no official mechanism of law enforcement, prosecution was mostly private, and crime prevention was largely self-enforcing, with more than 80 per cent of all prosecutions carried out by the victims. Few victims were willing to proceed with the costly and burdensome tasks of prosecuting a crime (Emsley, 2005, pp. 183–186). Patrick Colquhoun noted in 1797 that “not one in one hundred offences that is discovered or prosecuted” (1797, p. vii). The growing volume of both domestic and international commerce and credit was supported less by formal law and order and third-party arbitration than by private-order institutions.
Mokyr goes on to discuss the exact private-order institutions that helped to maintain the necessary degree of order which are beyond the scope of this article.
A possible objection about government-recognized rules
A potential serious objection at least with regard to the historical importance of minimal state for the modern world is that even though the state may have been largely absent from enforcing the crucial rules like those protecting property rights, the fact that it officially upheld those rules through its laws suggests that it may have been indispensable.
Here, even if we set aside the question whether without enforcement legislation may be just dead letter, we can wonder how the rules most important for capitalism and economic growth have historically come about. Do we really owe them to legislators?
The two societies whose legal practice was crucial to the British legal order were the Ancient Rome and Britain itself. What is peculiar about both of these societies is what an important role the lawyers (both jurists and judges) played in the formation of both, as opposed to legislators.
Although the somewhat simplistic narrative by Hayek and Bruno Leoni that the Roman Civil law and the British common law were initially results of pure discovery of the just rules probably cannot be supported by the historical evidence, one can ask whether the role of laws in the formation of the market- and capitalism-friendly rules in those legal systems was indispensable or incidental.
This question is somewhat analogous to the discussion whether Christianity was crucial for the development of modern science or liberals. Does the fact that all the Medieval and early modern philosophers and philosopher-scientists were Christians mean that science and liberalism would not have developed without religion? A much more plausible interpretation is that in that era of compulsory religiosity, everyone had to be religious but whatever advances happened happened irrespective of religion.
Similarly to this, it is implausible that the Laws of XII Tables and similar legislative acts were really necessary for Roman private jurisconsulti to come up with the body of the Roman law. It looks like they were more of a distraction that had to be dealt with and circumvented. And among the pre-modern English legislation, one will perhaps find a lot more laws that were obviously highly detrimental to capitalism and economic progress than favoring them. It is perhaps enough to just mention the 1563 Statute of Artificers that was only abolished in 1813 and that would not be out of place in the modern far-leftist dictatorships like Venezuela.
And if you doubt about the capacity of pre- early modern lawyers to formulate legal principles not based on laws, just read Edward Coke on the famous Bonham case:
The Censors, cannot be Judges, Ministers, and parties; Judges, to give sentence or judgment; Ministers to make summons; and Parties, to have the moyety of the forfeiture, quia aliquis non debet esse Judex in propria causa, imo iniquum est aliquem sui rei esse judicem: and one cannot be Judge and Attorney for any of the parties, Dyer 3 E. 6. 65. 38 E. 3. 15. 8 H. 6. 19b. 20a. 21 E. 4. 47a. &c. And it appeareth in our Books, that in many Cases, the Common Law doth controll Acts of Parliament, and somtimes shall adjudge them to be void: for when an Act of Parliament is against Common right and reason, or repugnant, or impossible to be performed, the Common Law will controll it, and adjudge such Act to be void
What modern state quickly brought with it
I could finish the article here but it would probably be incomplete without mentioning what the modern British state actually brought as it strengthened with the new resources the Industrial Revolution provided it with.
First, it brought an expansion of colonialism and war-making as, perhaps, the first modern national projects. With them, came high inflation, highly detrimental measures like the Corn Laws that had to be actively fought against, and so on. Even Tyler Cowen will probably agree that none of those things was conducive to growth.
Secondly, the modern state boosted the status of the Bank of England gradually turning it into a means of centralized monetary policy and in the process abolishing the wonder that was the Scottish free banking.
The more modern government policies like large-scale redistribution or the large-scale funding of science and infrastructure came much later, when the British society had already undergone an astonishing transformation and had all the features of the modern world.
It, thus, looks as though far from facilitating the miracle of the British Industrial Revolution, the modern state was generating harmful effects from the start. How it may have managed to create the illusion of its indispensability in the modern world is the subject of a subsequent essay.