Arnold Kling has some more to say about North, Wallis, and Weingast and their book, Violence and Social Orders:
- The libertarian view of the ideal of limited government is a fantasy. Instead, for NWW the best state is an open-access order. The law is administered impersonally. There is very broad access to the tools for creating and participating in both economic and political organizations. Political and economic organizations are expected to be able to outlive their individual leaders. In an open-access order, government is not small. However, the competitive environment does lead government to provide public goods, rather than serve as a mechanism for the dominant coalition to extract rents from the population at large. Some organizations can be economically important without wielding great political power, and conversely some organizations can be important in politics without have great economic power.
- The alternative to an open-access order is a limited-access order–also called a natural state. In a limited-access order, there is a dominant ruling coalition. All of the groups with a potential for organized violence are part of the coalition. They partition economic and political power among themselves. They exclude others. For an organization to have economic power, it must have political power. The law is far from impartial, particularly with respect to conflicts between those within the dominant coalition and those outside the dominant coalition.
- Most people start with the assumption that the state has a monopoly on the legitimate use of force. NWW point out that this monopoly should not be taken for granted. In natural states, there are multiple organizations with a capacity for violence. Equilibrium is maintained by agreements over privileges and rents. Outside reformers complain about corruption. However, there is no way to end the corruption without destroying the equilibrium and risking civil war. Think of Iraq. Or Pakistan. Or Mexico.
I enjoyed listening to Russ Roberts interview Weingast on Violence, Power and a Theory of Nearly Everything a while back. I recommend the podcast to anyone who isn’t already listening to EconTalk.
North, Wallis, and Weingast have formalized something I thought to myself back in high school — or maybe early college. If free-markets are so efficient, why do we see so many guilds (and other monopolies) in pre-modern economies?
It didn’t take me very long to come to a realization. The king has plenty of soldiers, but not necessarily a lot of cash. Granting monopolies is virtually free to him and probably easier than collecting taxes.
What intrigues me is the thought that kings and dictators could probably do better for themselves by sticking to a few efficient taxes (e.g. a land-value tax), rather than trying to fiddle with anything and everything, and they could hand out favors by handing out straightforward shares of tax revenue (or “profits” after government expenses), not monopolies on random segments of the economy.