Charter Cities Podcast Episode 16: State Capacity, Religious Toleration, and Political Competition with Mark Koyama
Today’s guest is Mark Koyama, Economic Historian at George Mason University. Mark recently co-authored Persecution & Toleration: The Long Road to Religious Freedom with Noel Johnson, and in this episode, we talk to Mark about some of its big themes – state capacity, religious toleration, and political competition.
We begin by hearing Mark’s ideas about a key argument in his book, the connection between religious freedom and the development of liberal societies. From there, we unpack the meaning of the idea of state capacity which springboards a discussion on the relationship between strong states and the treatment of religious minorities. To flesh out some of the nuances of this idea, our discussion hones in on the treatment of Jews during the Black Death during the Holy Roman Empire.
On the topic of state-building, we look at some examples of small city-states versus medium states in Europe, hearing Mark’s ideas on why the latter had more lasting power. We also speak about the role of weaponry in state-building. Our conversation moves to focus on the idea of shocks to a local labor pool and how these forces affect wages and markets in different ways. Following this, Mark talks about the persecution of Christian ‘heretics’ during the Reformation and the role of the printing press as well as the Ottoman Empire. We speak about the influence of the ideas of Locke and Spinoza on religious toleration and then move on to critically examine the ‘everything exists is efficient’ argument as it pertains to state-building.
Wrapping up, we talk to Mark about how deep roots literature accounts for state-building in Europe, the role of counterfactual thinking in economic history, and the role of data and analytic narratives in understanding history. We round off the episode with an exchange about how an understanding of economic history will make libertarian arguments against the state less convincing. Tune in today!
Transcript (edited for clarity):
Mark L: Hello and welcome to The Charter Cities Podcast. I’m your host, Mark Lutter, the Founder and Executive Director of The Charter Cities Institute. On The Charter Cities Podcast, we illuminate the various aspects of building a charter city, from governance to urban planning, politics to finance, we hope listeners to The Charter Cities Podcast will come away with a deep understanding of charter cities, as well as the steps necessary to build them.
You can subscribe and learn more about charter cities at chartercitiesinstitute.org, follow us on social media, @CCIdotCcity on Twitter and Charter Cities Institute on Facebook. Thank you for listening.
Mark L: My guest today is Mark Koyama, an economic historian at George Mason University. His recent book, co-authored with Noel Johnson, is Persecution and Toleration: A Long Road to Religious Freedom. We talk about state capacity and religious toleration, as well as political competition.
Mark L: Welcome to the show, Mark.
Mark K: Hi, Mark. Great to be here.
Mark L: To start, you recently published a book. Can you tell us about that? It was really focused on state capacity, in particular, state capacity and religious freedom. Tell us about that.
Mark K: The book is called Persecution and Toleration: A Long Rad To Religious Freedom. It's with my colleague at George Mason, Noel Johnson. It was published in 2019 by Cambridge University Press. The purpose of the book is to ask how we get modern liberal societies. It's viewing that big question through the lens of religious freedom, because if you look at the history of liberalism all across societies, they key freedom, which people were most agitated for and led to the development of liberalism more generally, was actually religious freedom.
It takes a long historical perspective. It really begins by asking fundamental questions, like why the states have this relationship with religion and why do they coerce religious beliefs. Then how from almost the Roman Empire, through Middle Ages, through the early modern period, how do you get the gradual emergence of religious freedom.
Mark L: Cool. This strikes me as a little bit of a different perspective. Most people, when they think of liberalism, their primary motivating definition of liberalism isn't going to be religious freedom. My intuition is that if you ask the modern educated layman, they will say religious freedom is an important set of indicators of a liberal state, but there are other indicators that might be things like due process before the law, democracy, which is sometimes conflated with liberalism and sometimes distinct, and rule of law. Where do you see religion as fitting in with these different inputs and why do you rank it as more important than them?
Mark K: It's true. Rule of law is definitely an important component of a liberal state and definitely a crucial one. The reason we focus on religious freedom is if you think about the period at which liberal states emerge, so the definition of liberal state is going to vary, but let's think about the 18th to 19th century, when you get states moving decisively towards being more liberal. This is the organizing principle. This organizing principle, actually, it's good to leave people alone when they're not doing anything which is not harming others. It's valuable to have a private sphere of a private life away from the state. Those are not seen as admirable, or important, characteristics of a state in earlier periods in history.
It's the Reformation, the subsequent Wars of Religion, which give rise to that being a core element of a liberal state. I think rule of law is also extremely important. Rule of law goes back further. You can trace notions of rule of law to the Magna Carta, at the very least, if not earlier. Rule of law is also a part of this. The religious dimension is definitely crucial. I think, without the religious dimension, it's hard to see a liberal case for freedom of speech, for example, emerging.
Mark L: Okay. How does this relate then to the Roman Empire? Because the Roman Empire had – I’m not sure if you would call it religious freedom in a modern sense, but they did allow for broadly polytheism, a number of different – I don't know how to exactly describe it, but sects that allowed for different religious ideals to flourish, in a way that's not entirely analogous to modern religious freedom, but it seems at least much more analogous to modern religious freedom than the absolutist states of the late medieval period.
Mark K: That brings us to a key concept in our book, which is the distinction between conditional toleration and religious freedom. Romans have a very eclectic view of religion, being they’re polytheists and they're willing to absorb other religions and to respect the religions of other people, especially if that religion is seen as having a lot of history. They are willing to tolerate a lot of states. There are a lot of religions. At no point in time in being ever committed to any liberal notion of religious freedom.
That's why when we encounter particular religious beliefs that they think are pernicious to the state, so the key examples are being both the druid belief in Britain and Gaul and they sell, of course, Christianity. There they’re ruthless and oppressing and persecuting these religions. The Romans, an example of conditional toleration, where the bounds of toleration are wide. Other states later on in the Middle Ages, they used to have some conditional toleration in the sense that they might give Jews some toleration, but only under very circumstance and limited spheres. They can't make a practice of religion, or they can't convert other people. A Roman Empire is eclectic and allows a lot of different religious beliefs to flourish. If any religious belief is at all at odds with the state, then they will repress it.
Mark L: Walk me through how that's different, because when I think about, for example, the US today, which would rank I think very highly on any modern religious, or historical religious freedom score, I still think that there are going to be certain restrictions. If you look back, the condition for Utah becoming a US state was that the Mormons had to give up polygamy and had to become monogamous. It just seems to me that even though there's this relatively high level of respect for religious freedom, under George Bush, we saw the mosque near the former 9/11 site, there was a large outcry and prevented it from being built.
While there still is this broad respect for religious freedom, it seems to me that at least, the state sometimes does act against these religious beliefs that are considered to be sufficiently different from the existing spectrum and milieu that is socially accepted.
Mark K: It's a continuum. I take that point, it's a continuum. I think for distinguishing characteristics of liberal states is that they value religious freedom, it is one of their core freedoms. That's one of their corporates. If that principle goes against state security, then there's going to be some compromise there. I think it is seen as a core freedom. That's why you get a lot more protection for religious objection. If your religion needs you to object from public schools, or from conscription, or organ donation, you get more protections, because it's religion, than you would if it was just an ordinary preference.
I accept, it's definitely a continuum. What I would say is that prior to the emergence of liberal societies, no one articulates that there's a value to having religious freedom. Even though we don't happen to persecute many religions apart from a few which we've seen as very subversive, they never articulate it's a positive value to have religious freedom. That is a characteristic of liberal states. I think that's where I would place the emphasis.
Mark L: Cool. We've been talking about religious freedom, but the other main theme of your book is state capacity. What is state capacity and why does it matter?
Mark K: State capacity refers to the ability of states to enact their policies. It often has two components. You can think about one component being the ability to raise money to do things –physical capacity. The other capacity might be an administrative capacity, or sometimes called infrastructure power. That's the idea of a distinct connection. When it sets out to do something, it can do it. If it needs to build new hospitals to deal with a pandemic, it can do it relatively quickly. It can cordon off the country. It can enact its policy. Those policies could be good or bad, but it's a reference to the ability of a state to actually carry out its policies.
Mark L: Is there a good way to get this gut check understanding of state capacity, because this is a term that's really caught on recently that has a lot more people talking about it. Tyler Cowen did a well-known blog post on state capacity libertarianism, I believe December 31st, January 1st last year. I still feel that this concept isn't as widely accepted as it might otherwise be. What's this gut check of all right, if we're going to the 16th century in the Holy Roman Empire, what does state capacity look like there and how do we compare that to what is modern state capacity that we currently just think of as reflexive?
Mark K: I think the concept has caught on recently. I mean, it was used originally in the 1980s by historical sociologists, people like Charles Tilly and Michael Mann. It's been used by these historical sociologists for some time. Then it caught on among economists and economic historians. I think, following Besley and Persson's papers and book around 10 years ago. Fairly recent, as you say, in economic history and economics. I think the gut intuition one should have is to think about states in many developing countries, which are unable to to function and provide basic public goods.
They can't provide a non-corrupt police force which can police the streets. They can't necessarily collect a lot of taxes. They can't administer a lot of welfare policies very effectively. If you look at the Middle Ages, or pre-modern states, you'll see that these states often don't have many features of a state that we would imagine. They don't have police force. They don't have a bureaucracy. They don't have a tax administration. They're reliant on a lot of small number of private individuals, say collecting the taxes.
When we look at both across history and there's so many developing countries, we realize the modern state, which we take for granted in America, or in our textbooks, a state which can provide public goods, that's actually a recent phenomenon historically. I think that's one way to think about it. The other way where I think Tyler Cowen's blog post is relevant is if you think about the ability to say, do major reforms, or build infrastructure, even in a country like America, the United States today has a bigger government than it had in the 1950s. In the 1950s, it seemed to build infrastructure, like the highways, much more effectively and much quicker, at lower cost than it can do so today.
Similarly, if you look at China today, the Chinese state is extremely powerful in many respects in bad ways, but it certainly is able to build things very quickly. That seems to suggest some relatively high levels of capacity, at least in some dimensions.
Mark L: My favorite example of state capacity, I lived in Honduras briefly. When I was there, I took a bus to El Salvador. I remember the bus left at 6 in the morning, or some very early time, and when I asked why, they told me, "Because, if it leaves any later, then it's crossing the border at night and there are highway bandits who will rob you if you go near the border at night.” To me, that was a very clear, “Okay, the state doesn't actually have a monopoly on violence in this area.”
I remember when I was traveling in Peru, some armed people got on the bus and asked for donations. They were fighting a – I don't know exactly what it was, but some fight. They weren't sticking the guns to anybody. I think if I did not donate to them, I probably would have been fine and they were only asking for a few dollars, not everything in your bag. It was just like, okay, here are armed guys who are semi-official, but you can't really tell who are asking for donations. It's just a dynamic that in the US, at least in in my life, I have not experienced anything like that.
From the US, my favorite example is that the Golden Gate Bridge was built in the middle of the Great Depression and took three years. Then they built what was effectively an on-ramp to the Golden Gate Bridge, a mile and a half tunnel in the late 2000s, early 2010s that took seven years and a lot more money. Just in terms of, “Can you accomplish X within Y constraints?” high state capacity Y is lower, low state capacity states’ Y is much higher. Let's then tie this together. What can we understand about the relationship between strong states and the treatment of religious minorities?
Mark K: Tying them together, the strong states can persecute minorities and have done, but they can also protect them. It's a double-edged sword, but you could get both outcomes. Whereas weak states cannot protect them. Weak states can neither maybe persecute that much, but we can certainly not protect them. If you're living in a world where there's going to be religious conflict, ethnic conflict as well, but which often has a religious dimension, if you want to get robust religious freedoms, if you want to get the type of society where people of an unpopular religious minority, can walk about on the streets doing a daily business, open shops, and not be subject to violence or persecution, you need to have a state which is credible and powerful enough to commit to their protection. That's the essence of the relationship.
That state can also persecute them. In the process of state building, states often have used minorities as scapegoats to persecute. This is why this road to religious freedom is a road. It's a process. One of the examples we have in our book is the Holy Roman Empire. The Holy Roman Empire was fragmented into more than a thousand polities. The Holy Roman Emperor himself had very little power. The main religious minority in the Holy Roman Empire from the middle ages were Jewish communities. There were Jews in most, or certainly, the larger towns and cities across the Holy Roman Empire.
Nominally, they had some protection from the Holy Roman Emperor. Nominally, the position of both the church and the state was for Jews were to be discriminated against, but protected, not persecuted, not forcibly converted to Christianity. At a local level, expulsions and pogroms were increasingly common and they often occurred after periods of economic hardship. Following the Black Death, there's a major series of pogroms, the worst in European history prior to the 20th century.
The emperor, even though he's normally supposed to be protecting the Jews, either doesn't do so, or only does so selectively in those areas, where it's worth his while, or he has the ability to do so. That's one example of state weakness leading to persistent episodes of reoccurring persecutions, which is a little bit different to the – but what you see in other European countries.
Mark L: There's two dimensions there. One is the Black Death leading to the pogroms and then the other is state weakness. If we're thinking about the Holy Roman Empire, should we think about the Holy Roman Empire as being a weak state, or should we think about the individual principalities or city-states? Because if I’m thinking about the late medieval period and I’m thinking about areas with high capacity, I would think that for example, a lot of the Hanseatic League, those city-states probably had reasonably high, I mean, they're not independent states, but they are semi-autonomous cities that probably rank relatively high at least, for their time with state capacity.
Mark K: Yeah, that's a good point. In terms of local administrative state capacity, or ability to provide conditions for markets, these city states are relatively high state capacity. I know more a little bit about Italy actually, than I do about the Hanseatic League. I know something about the Hanseatic League, but the internal organizations, like Florence is much better documented. Florence and Venice are the city states in Italy which are pioneering state capacity institutions, like public debt, for example, and announce the taxation.
Certainly, when state capacity was built in the middle ages, it’s often built at a local level. The issue the Jews have is twofold. There are two issues, which I think are important to explain. One is that this is the nature of pogroms, particularly during the Black Death is this rumor, which is untrue, of the Jews poisoning the wells. What happens is in one city being tortured some Jews into confessing and poisoning the wells and then executing them. The news of this spreads across Germany.
People think, well, they admitted to poisoning the wells, so we've got to kill our Jewish community, or expel them, before the plague gets here. There's a negative externality. If one city state decides to enact a pogrom, or commit a persecution, the spillover effect in terms of rising anti-Semitism, which hits other cities. The fragmented nature of the Holy Roman Empire seems to have some unintended negative consequences in that respect.
That doesn't just happen with the Jews. It happens again in the 17th century, 16th, 17th century when it comes to witch trials. The Holy Roman Empire, which is fragmented, has the worst witch trials by far in all of Europe. It seems to be a similar dynamic, where they try a witch in one city, or one village, and then neighbors hear about it and they also persecute the witches. The federal nature of a Holy Roman Empire, which might be good for some things, it might allow a lot of variation in economic policies, or tax rates. It's pernicious for building toleration.
The final point I would say, just about the trade point in the Hanseatic League is that – on one hand, commerce and trade tends to make people relatively tolerant of the other, because if you're a merchant, you can make profit from trading with somebody, regardless of their religion, or their ethnicity. There's one thing in favor of commerce and trade. On the other hand, in these city states, or these more prosperous mercantile towns, the Jews were often competing against Christian merchants. Actually, there's some substitution going on.
Sometimes these mercantile towns, are actually quite willing to persecute minority groups, because they need them less economically and they might have an interest group who has a vested interest, or benefit, if the Jews are sent away, or expelled. The dynamics are complex. What I would say is the Holy Roman Empire, in many senses, it seems to illustrate some pernicious features of a decentralized state system, rather than the beneficial features of one.
Mark L: Yeah. I find that interesting, because if you ask me ex-ante, “What would be the impact of pogroms in one polity in the Holy Roman Empire?” without any prior knowledge, I would probably say, well, that could spread, but the other option is another polity would say, especially during the Black Death, “Okay, we have a population shortage, so we want to improve our relative position and we can do that by attracting a population. The Jews tend to be of higher than average productivity, so we can just say, ‘Hey, we won't persecute you. If the neighbor is persecuting you, come here and now this gives us both a population of advantage, as well as a commercial advantage over our neighbors and allows us to dictate terms better.’”
Mark K: That happens as well. Exactly. Yeah. Ravensburg, I think is one town from memory, which accepts Jews. Doesn't persecute them. Both stories are true, in the following sense. The Black Death, in 1348, and the Jews in maybe 600 German towns that we know of and there are pogroms in most – many towns have pogroms, expulsions. Many, but not all. There's some towns where Jews are not persecuted. We can try and predict why that is.
There's a famous paper by Joachim Voth and Nico Voigtlaender, called “Persecution Perpetuated,” where they extremely exploit variation in these Black Death pogroms and link it with anti-Semitism in the 20th century. The claim of that paper is for cities which did not persecute Jews in the black death period, also are less likely to support the Nazis and less likely to be anti-Semitic in the 20th century. Various variation.
The Black Death, the mechanism I said about the Back Death spreading pogroms is true, so there's so many more pogroms in the wake of the Black Death than there are previously or afterwards. This dispersion of anti-Semitic propaganda and so on is really spreading out pogroms, but not everywhere is affected. The places which don't persecute the Jews benefit economically.
Later episodes of plague don't result in pogroms in the same way with first Black Death does. Maybe some cities, German cities realized that their economic benefits having Jewish communities. Some Jews are invited to return in the 15th century to German towns.
Mark L: That's interesting. This is not exactly the topic of your book, but it's related. How do you view the role of the development of state capacity with the size of political units? Because there's some arguments, the Montesquieu argument, where one of the reasons that China never, for example, experienced the industrial revolution was because it was always homogeneous, or always had a single state for most of its history, which allowed for capture by political elites, instead of mercantile elites.
Then in Europe, Montesquieu’s argument is that because it has always been fragmented, particularly in the late middle ages, which saw the domination of city-states of a lot of trade that because there was this more competitive element, particularly at a local level, that required basically, innovation in governance, which led to the control of the merchant class of governments, which was arguably a necessary precondition for the actual industrial revolution.
Mark K: This is a classic argument about polycentricism. I’ve actually got a new paper on this with Jesús Fernández-Villaverde, Youhong Lin, and Tuan-Hwee Sng trying to explain why Europe is more fragmented. Europe benefits from a lot of medium-sized states, actually, is my view.
The city states, very small states are important in the middle ages, until you have a Holy Roman Empire, which is thousands of polities. You have Italy, which is divided up into many city states. Even within France or Spain, you actually have more, often more than one polity, like Burgundy, Dauphiné, and Gascony are almost independent, or ruled by other monarchs and Spain is divided into many kingdoms. Very small states are good for experimentation, but they're bad for military capacity, because you have scaled economies in warfare.
If you're divided up into loads of small states, then you're vulnerable to being invaded and also, you lose benefits from coordination. For example, if you have thousands of states in Europe say, I mean, each have their own tariffs, then obviously, market integration is going to be really impeded. There are benefits to fragmentation, the most important being I think, innovation. Potential thinkers, or innovators if they're threatened, or have a hostile environment in one state can move to another, there are other benefits from competition, from experimentation and different forms of policy and different administrative forms.
If you're too small, you can't realize economies of scale, you're going to have too many wars, you’re going to be vulnerable to invasion and you got too many trade barriers. Europe after the middle ages, the states consolidate in the early modern period, is characterized by a large number of medium-sized states. I think medium-sized states are important. If you think about the important innovations in constraining the state in protecting property rights, to building a fiscal administration, building a public debt, they emerge into these states like Florence and Venice, eventually moved to states like the United Provinces of the Netherlands, which is also fairly small.
Both Florence and the United Provinces of the Netherlands are threatened by invasions from say, France and Spain. What's decisive before the industrial revolution is that England, which is a medium-sized state, adopts basically these Dutch stroke Italian institutions of public debt, limited government. That happens with the Glorious Revolution.
Mark L: They “adopt.”
Mark K: Yeah, they're invaded by William of Orange and end up copying the Dutch institutions and then developing the Dutch. I think medium-sized states are equal, relatively similar sized, medium-sized states are important. They act as a check on each other. This is an argument that a historian at Stanford, Walter Scheidel makes in a recent book called Escape From Rome.
Mark L: Okay. Then the argument is that city-states lead to the development of these new institutional forms, but it really requires a medium-sized state that has the internal market that can then make full use of these new governance innovations to really take them to the next level.
Mark K: Yeah, I think so. I mean, the city states do well later in the 20th century. You think about Hong Kong, or Singapore, but they do well, you might say because they have some security umbrella from America, or NATO. They struggle with – if you're a small city state and you want to raise a big army to fend off a predator, you're going to have to raise a lot of taxes on a per capita level. That might dampen your growth in the long run.
Mark L: In the book, you briefly discussed the role of firepower, particularly with cannons and how they changed the nature of forts. One of one of the questions I’ve often thought about with respect to economic history is the impact of both offensive and defensive weaponry on state building, where one of the arguments is that, for example, the modern state is dependent on muskets, because with muskets, it's a very cheap arm that does not take a lot of cost, and so you can just get a 100,000 people and give them all a musket. With that, then mobilization becomes much more valuable.
While if you're thinking about the medieval period with knights, knights are very expensive to equip. You need horses, you need skilled labor to produce armor, etc. Their offensive capabilities are limited, where all you need to do to restrict those capabilities is build a wall and that strengthens city states and those types of jurisdictions. How does the relationship between the relative costs of offensive and defensive weaponry influence state building?
Mark K: I think you summarized it perfectly, actually. That's exactly the right argument, I think, about the cost. Because I mean, to make sense of what we know, long bows seem, at least by some studies, more effective than early muskets. If you didn't know about the economics of these weapons, you might think that why don't the English keep using the longbow into the 16th, 17th century, given you could fire a longbow far more rapidly than you can fire a musket, basically.
It's only around the early 19th century do we think that musket power over gunpowder, so weapons are obviously better than longbows, at least at short range. Because the longbow, you can fire I think six times a minute. The answer to that question isn't the effectiveness of the longbow. That's irrelevant, or rather, that's not the main point. The main issue about longbow is that to use it effectively, to have the ability of the English archer –
Mark L: You train for 10 years.
Mark K: Yeah, he needs to train from childhood. These guys have one of their arms is bigger than the other arm, because it's so demanding. You have to train continuously. The English king famously banned football because they wanted people to practice archery. You can only raise a relatively small number of archers and it's very costly to do so. If you need to meet a sudden military need, you can't raise a 100,000 of these guys ever, basically.
Over time, as you get more – in the 16th century, England's at peace most of the time, then it becomes impossible to maintain the training you require for a longbow. The benefit of gunpowder weapons is their cheapness, their ability to scale. The only thing I’d add to your argument was the offensive power of artillery. Until the late 15th century, the walls of European cities, if you could build tall walls, like somewhere like Florence, the city walls mean that it's very difficult to besiege that city. Artillery in the late 15th century, it means you can break down city walls, especially initially, because the city walls are tall. They're tall and thin. They're very vulnerable to cannon. That dramatically changes the odds in favor of the larger states, like France and Spain against the city states. You've seen that. That's exactly the period when the city states have lose a lot of political and military importance.
Mark L: How does that fit into state capacity? My intuition is that with cheaper arms, that then drives more demand for state capacity, because if you can then round up 10,000 peasants and all give them a musket, that tends to be much more impactful than rounding up 10,000 peasants and giving them all pikes.
Mark K: Yeah. In general, it allows certain qualities, like France is being the notable one in the continent, England later. Later, I guess, Spain and some others. Allows certain polities to mobilize larger armies and to consolidate their states. Holy Roman Empire notably fails, but within the Holy Roman Empire, some states eventually do this. Prussia being one of them, but not the only one. It's the lower cost of scaling up your army is going to benefit some states over and above others.
What you see is the impact being heterogeneous. Some states do this and then succeed. Prussia being one. Other states don't do this for whatever reason and effectively fail. The classic example is only Poland. Poland-Lithuania is a very large, very decentralized polity in in 1600. By 1800, it's disappeared.
Mark L: Let’s switch gears a little bit. You talked about the Black Death and how that increased persecution among Jews. What does the Black Death imply about immigration? Because the Black Death is typically used to show that real wages went up substantially, because the cost of land and capital were lower. Therefore, the costs of labor were higher, so it basically boosted peasant wages.
I remember some studies looking at for example, the wages of women during World War II, when most of the male workforce was at war in Europe, or in Asia. That saw that female wages were boosted. Then if you look at most immigration studies, they find that a bunch of migrants moving to an area does not change – substantially change the wages of the local population. How do you square these two challenges?
Mark K: Okay. Yeah. “How big a labor shock do you need to affect the wages?” is the question. What I would say by way of answer is that the Black Death actually has two – there are two elements of a shock. The Malthusian part of the answer is for when you describe, but the Black Death causes a labor shortage, at least in the medium one. If it's a labor shortage, and wages will go up eventually. That's a true force. It's also a massive trade disruption. You're also dislocating the economy and you're killing so many people, but you can pick purposes, like raising the transaction costs of trade.
The Black Death, isn't actually that clean an example, because it's a very negative shock to the economy on the supply side, as well as a boost to the – I mean, as well as a labor scarcity shock. What happens after the Black Death is somewhat more complex than people often think. Nominal wages jump, but so do prices. Because a lot of food is – a lot of the crops in the land are not collected. Both nominal wages and prices jump. The elites, the landlords, try to regulate the increase in wages. They're trying to limit the increase in wages.
Actually, real wages don't go up instantly. It takes quite a long time for real wages to go up, but they do go up eventually and they go up quite a lot as the population keeps on declining. They basically, eventually be doubled, but it takes a long time. 600 years. When you look at more recently, there are a lot of reconstructions of per capita GDP. We see Broadberry and coauthors have reconstructed the GDP of England. Per capita GDP goes up less than the real wages. The intuition economically is to think about this as a Smithian thing, a Smithian force.
Adam Smith said the division of labor is limited by the extent of the market. When you have a large market which is tightly connected, people can specialize and not be productive. When you have a Black Death shock, where economy becomes simpler, at least initially, there are fewer people, so the market contracts to some degree. The Smithian benefits of specialization probably go down in the short run. The economy doesn't benefit as much as the real wages of workers benefit, I think.
Even then, the experience of different countries is different. Spain doesn't have much of an increase in real wages, as far as we can tell after the Back Death. GDP per capita goes down, not up. Bringing that to modern immigration studies, we could say several things. Firstly, that the numbers of people who come as immigrants are sufficiently small, but they're not necessarily as massive of an effect as a Black Death in terms of the number of weight of the workers. Number two, who are they competing against? They're competing against only maybe of other unskilled workers who are getting a subset of a population.
From a Malthusian perspective, it's a relatively small shock. From a Smithian perspective, they are expanding the size of a market. You have more customers, more people to buy stuff. Immigration is creating a bigger market, which is going to lead to some benefits. I think, my view about immigration studies is that if you had open borders, or if you allowed a huge amount of migrants from unskilled countries, you would get very big negative effects on real wages, at least at some sectors. The rates we're seeing, those effects are very muted, and they also count about countervailing benefits in terms of the Smithian factors.
Mark L: Cool. One of the things I noticed reading your book that I didn't really put together, that there are several of these, mostly in France, what might be called persecutions of different Christian sects. The Cathars, the Albigensians. One of the things that struck me as interesting is that these were pre-Reformation. There were these splits that hadn't been consolidated enough to be called a full-blown Reformation. One, what is the economic intuition of why these are happening and then two, typically the Reformation is explained via the printing press, so one, why was the persecution happening? Then two, why did these splits exist in the first place?
Mark K: What I would say is in the early middle ages after the fall of Roman Empire, there aren’t that many organized heresies. There's some old heresies, but they're just intellectual. A few random heretical intellectuals might have these beliefs feeling become mass movements. After around 1100, you get economic growth in Europe, so this is the so-called Commercial Revolution. You also get a movement for papal reform. The papacy institutes are far more rigorous program of clerical celibacy. They have a campaign against ceremony.
You really try and reform the church from within and make it more pure. That generates a demand and it becomes more popular. You have literacy gradually percolating through the population. This results both in almost a religious revival that we've seen all the cathedral building movements and the movements such as the Franciscans and so on. It also generates would-be reformers, who have the same – maybe they begin with the same motivation as the church, but they want to go further. They might begin by campaigning against the corruption of individual clergymen, but they end up going further and they end up rejecting at some point, the authority of Rome, so that's why they will be labeled heretics.
At the same time as that's happening, so you get these popular movements of Wardensians, the Avagentians are the two most prominent. At the same time as this is happening, you have European states developing, it's like the French monarchy, who are who are predicating their authority on their religious legitimacy. The French king is the most Christian king. He said he's the enemy of heretics. You also get states persecuting these groups with the church. You have groups emerging to oppose the church.
As you said, without the printing press, the appeal of these groups is relatively limited and relatively local. It's difficult for them to spread their message. They tend to be very localized. The degree of popular involvement is always relatively small. In addition to the two you mentioned, those are the Lollards in England and then the Huserates in Czech Republic, who are the most protestant-like of these groups. Neither of them succeed. The church-state alliance is sufficiently strong to always repress these groups. That changes in 1500. There are several reasons why it changes, but the most important one is that Luther has a printing press. Luther is a very good disseminator of political propaganda.
Mark L: Is the political decentralization of the Holy Roman Empire, is that related to the Protestant Reformation being there, or what happened in France?
Mark K: Exactly. It's crucial too, I think, because the elective Saxony protects Luther from the Holy Roman Emperor. Without that, it doesn't happen. There's even an argument I’ll just add, which is a paper by Murat Iyigun in the QJE, which claims that the Ottoman Turks are responsible for the success of the Reformation, because had the Ottoman Turks not been invading eastern Europe successively, then the Holy Roman Emperor, Charles V, would not have been distracted by that and he would have focused all his attentions on Germany and bringing the protestants to heel.
Mark L: Can the deep roots literature explain Northern Europe? Because the deep roots literature is something I’m somewhat sympathetic to. For the listeners who don't know, the argument is that regions with a long history of statehood are better able to modernize, because they have this historical memory of what a state is and are able to more quickly adapt to modern conditions, which require effective governments.
Northern Europe, like Germany, which is one of the most productive countries in the world. They've dealt with COVID among the best. They were a bunch of small principalities until recently. They weren't really unified until the latter half of the 19th century. How does the history of the deep roots literature interact with and explain Northern Europe?
Mark K: Yeah. My view of the deep roots literature is there are some – it depends how abstract and how broad brush you want to be. In a sense, it seems indisputably true that people who have no tradition of living through agriculture and states, populations which have come from basically hunter-gathering to modernity without these intermediate stages. Think about aboriginals in Australia, indigenous peoples in the Americas, they seem to be disadvantaged in various ways. Some of these ways are due to systematic discrimination and policies of colonialists, for sure. Some other elements have been disadvantaged in other ways beyond that.
The deep roots literature can explain that, because it can say, “Look, culture is something which evolves over many generations and people in other societies, like in the west and in parts of East Asia that may have developed these cultural adaptations to living in big cities, living in more complex economies and living under states.” One element of the states, of the deeper roots literature says that the state antiquity of your population predicts performance, state antiquity being a measure how long have you been in your inherent state.
That literature might also shed light on why, say in 1960, if you compare South Korea to say, Nigeria in per capita GDP terms, they're comparable. South Korea has been devastated by the Korean War. It was colonized by the Japanese. The people are living in close to absolute poverty. Nigeria has been colonized by British. People are also very poor. If you look at their subsequent histories, the Nigerians struggle with autocracy, with civil war, and being ever, even despite having loyalty, they don't achieve sustained economic growth. Whereas in South Korea, despite this legacy of war, despite basically stopping at war of the north, despite having a dictator, despite having problems with corruptions, they're able to build a very effective economy. The deep roots literature sheds light on that. Unambiguously, it has insights. The question then is what happens when you want to explain maybe more local variation? Yeah, Germany versus France?
Mark L: Even like Sweden, Norway, they had some history of statehood, but it doesn't strike me as comparable to East Asia, where East Asian histories tend to be much longer. England for example, had at least a thousand years. Spain also has a long history of statehood.
Mark K: Yeah. I agree. I mean, it's certainly other things are going to matter. A level of this local variation, it's hard. How much history of statehood do you necessarily need to have? I don't think we understand the mechanisms that well. Some of the deep roots literature, they present very interesting correlations between something which happened a long time ago and something which happens today, but then the mechanism is going to be inherently more speculative. That's something where I think we need further research. I’m not super confident that it's going to explain a 100% of a variation.
Mark L: Yeah, that's fair. I mean, even with Nigeria. Nigeria was largely ruled by the Benin empire, until conquest by the UK, there was a history. I don't know enough about it to compare it to the history of statehood in Korea.
Mark K: I think Sub-Saharan African polities were always quite ephemeral for various reasons. Disease being one of them. They do have empires. They're quite ephemeral. They don't last as long. They're not deeply rooted in local communities. I think local tribes and ethnic groups are more governing themselves is my impression about most of sub-Saharan African societies before colonialization.
Mark L: Yeah. I mean, they never had a crop that was really easy to mass extract. The west was wheat and the east was rice and there was nothing comparable that had extractive surplus that would allow for estate apparatus to exist for long periods of time.
Mark K: Exactly. Yeah.
Mark L: One of the interesting points, you actually make it quite early in the book, is you talk about the influence of Locke and Spinoza and other early advocates of religious tolerance. You, I guess, dismissed them a little bit. Dismiss might be too strong of a word, but you point out– Okay, so we shouldn't say that these ideas led to religious freedom. Instead, we should say, ask ourselves why did these ideas take hold at this particular point in time? I guess, can you explain that idea a little bit more?
Mark K: Yeah. We're pushing back on a more conventional history of religious freedom, which is very much a history of certain thinkers and certain ideas. If you buy a book on religious toleration, that's a conventional narrative and I think it's missing the institutional insight. I don't want to over exaggerate the point in the sense that even people who focus on history of ideas, we're going to recognize that these ideas have to be of a moment. We have to have advocates. We have to have supporters. In our book, I think I’m being the first to admit that someone like Locke in particular is for whatever reason, he becomes in the 18th century the go-to person to read about toleration.
Even though if you read the more detailed histories, there are loads of other people discussing similar ideas and he's not even that influential in the late 17th century, but his ideas become crucial. By the time the founders in America are writing, Locke is very much on their minds. The ideas which don't have interest groups willing to advocate for them and wanting to push them into becoming policies, go for very flat. There are a lot of hints that you have people who are really not into – who really have quite pro diversity of religious opinions in the late Roman period and then later, maybe there are scattered hints in the medieval period of thinkers who think this way, who don't really believe religious coercion is worthwhile. They never have any impact, whatsoever. Why the change?
It's quite a gradual change and we document the change. It really is about interest. It's about persuading people, like rulers who are not necessarily invested in the intellectual discussion, but it's in their best interest.
Mark L: Stigler had a famous paper, now I forget the name of it. Basically, argues that everything that exists is efficient, where it takes the market perspective, where the market perspective is how many shoes should be produced every year? The answer is, I don't know the market. Stigler applies that to an institutional perspective, basically saying, look, if there is a particular institutional arrangement, then it probably exists for a reason. Pete Leeson, also a GMU professor, has really taken that idea to, I don't know, maybe an extreme, depending on how you want to describe it.
This is how to balance the relationship between interests and ideas, how they play off each other, what leads to what. Looking, for example, at the history of social movements, a lot of social movements don't seem to take seriously the consideration of interest. They might end up pushing on rope for a long period of time, without realizing that there needs to be some underlying factor that can also drive that change for which they're advocating.
Mark K: Yeah. I think the problem with the Stigler position is that it's a bit trivial, because if you subsume everything into the constraints of any heavy assumption that people are maximizing, then you get efficiency, basically. I think that normally when economists – when Adam Smith was saying, the mercantilist system is inefficient. He didn't use that terminology exactly, but that's how we interpret that. He's saying something more than just everyone is maximizing subject to the constraints. Because if a constraint includes my ideology, or something like that, then yeah, it's efficient in that sense.
I just don't think it's very useful. I think that I want to keep being not quite ordinary language, but ordinary economist view that we can go around and say, look, that particular tax policy in medieval Europe, even though it made sense given the interest groups, given the alignment of things, given people's ideologies, it's an equilibrium. It makes some sense. I still want to be able to say, in some sense, a better alternative might have been available, had you changed people's ideology, or interest. I still want to say that's inefficient. I want to keep that word. That's why I don't accept – I think it's not too helpful if we go to this ever in an efficent position.
Mark L: Yeah. I think that also relates to the question of multiple equilibria, where I think, there is a sense that a lot of things are broadly efficient but might not be narrowly efficient. There are some things, for example, North Korea, where while it might be difficult to imagine a substantially alternative modern day for Somalia, where Somalia does not have a history of statehood, where it's probably going to be relatively underdeveloped no matter what different historical contingency plays out, given that South Korea, for example, was quite economically successful. That seems to play an important role. It's possible to imagine that a different history plays out in North Korea, leads to a lot more economic success there.
This has been an ongoing debate within the economic history and maybe the history community, regarding the role of counterfactuals and how they might be used. Can you describe a little bit about what that looks like?
Mark K: Yeah. The position that economic historians take, which is influenced by developments in economics, is to think about natural experiments. The idea goes back to David Hume, probably, that if you want to say, “Does A cause B?” you have to say, “Without A, no B.” You have to run a counterfactual argument in your head. That is to say, every causal argument is a counterfactual argument. It doesn't mean you can always run it. There are not that many natural experiments. Sometimes, we cannot really establish causality fully. To explore causality, to think about causality, we should think in terms of counterfactuals.
All economic historians who trained in economics naturally think like this, I think. In history, this book I mentioned already, Escape From Rome by Will Scheidel, explicitly argues for a counterfactual approach to history. Strangely, historians have tended not to like this approach. They tend to associate counterfactuals with military history, or speculative science fiction history. "What if Hitler had not been born? Do we still get World War II?" There's a difference between controlled and uncontrolled counterfactuals. Hitler not being born is an uncontrolled counterfactual. So many things could have happened. Who knows, whether we get World War II or not? Controlled counterfactuals are going to tell us something about causality. That's verse number one.
That approach to causality, which is borrowed from the sciences, is not necessarily the approach used in conventional history. We're going to use the word a little bit differently and their approach is going to be more narrative based. This text for the distinction between the use of empirical analysis and data, versus use of narrative. To establish causality, do you want to get an actual experiment, run some regressions, and try and show that there's a causal relationship here? Or do you want to tell a narrative in which the narrative is going to establish for causality through some way, which is basically akin to storytelling? I’m going to make a causal argument in narrative form and is it plausible convincing enough giving the evidence to the reader?
Mark L: There's also been this discussion within economics, maybe within history as well. GMU for example, really likes analytic narratives. While, overall in economics, there's a much heavier focus on data. Your book does a little bit of both. It has some analytic narratives and it has also some data. How do you view the role of both data, as well as narratives in understanding history and understanding what can be learned from that?
Mark K: There's a lot more data available now than it was in the past. We're able to do a lot more. This is partly due to people geocoding a lot of things, GIS data. Also, more and more data sets becoming available and economic historians trained as economists, able to make use of this data. I’m all for using as much data as possible where available. There's some questions which you’re never going to have data, basically. The analytic narrative, the narrative approach is still valid, valuable, and being trained in understanding sources, understanding bias in the sources. The traditional skills of a historian are still valuable as well.
In our book, Noel and I really try to combine those approaches as we have done in our research. The balance is somewhat a matter of taste. It's easier to publish empirical papers in economics for sure. I’m not sure historians would necessarily buy into a narrative approach that we use as well. Because our narrative is often – landing narrative has got a narrative guided by economic theory. Obviously, I can believe both approaches are useful and sometimes you have to do one rather than the other, given the availability of the evidence.
Mark L: One of the things I found interesting during my time at GMU is seeing econ professors who would teach very similar ideas in class, then would have widely different political beliefs. I typically think that at least econ tends to inform people's political beliefs to a certain extent more than other sciences, physics, biology, because with a particular understanding of economics, people tend to agree on outcomes, but they often disagree on the means to achieve those outcomes.
If you have similar understandings, then you have similar economics. You have similar understandings of the means necessary to get to those outcomes. How do you think about the relationship between economics, political beliefs and how those all work together?
Mark K: Economics informs one's view of the constraints. I think if you study economics seriously and, certainly if you’re at studying at GMU, there's certain policies which are going to be ruled out of court. If you think about the revival of socialism amongst young people today that we see on Twitter, they're startlingly ignorant. They think East Germany was awesome place to live and they didn't understand why people would flee across the Berlin Wall to escape. There are certain things, which is not just economics, but economics and history together, the two together. I think, often with two together, rules certain political ideologies out of court to some degree.
Not necessarily, because economics is nothing about one's preferences. One could have chauvinistic preferences, but then economics is going to rule some things out of court. At least, given current knowledge, we don't think socialism can work. Maybe if it could change in the future, potentially something you could argue about, but right now we don't think it really would work, at least modern control-style socialism. It's going to rule some stuff out of court. It also, I think, inculcates an appreciation of markets and trade. Economists could be less likely to buy local, or ethno-nationalist, blood and soil nationalists, because we appreciate that autarky is actually pretty costly.
Definitely, economics circumscribes what's possible. I think within that, once you've ruled out these extremes, there's a wide range of politics which are incompatible with one's understanding of basic economic theory. There are a lot of open questions, where the evidence the evidence is still out there, and new information is coming out.
I feel it's foolish to commit oneself overly to certain positions, because you can end up looking like a bit of an idiot. If your ideology commits yourself to one position very starkly, that goes for both sides in a political debate, but that's how I think about the relationship between the two.
Mark L: One of the other things I found interesting, I came to GMU, started my PhD, I was pretty libertarian. I now do not consider myself as libertarian. I think, part of the reason is classes like yours, where this understanding of economic history really inculcates this idea of the importance of the state, of how states work together to the creation of markets. Obviously, there are markets that exist independently of states. I’m not sure I had really fully understood how most markets are fully embedded within statehood. What is the short version of the importance of economic history for libertarians who are somewhat skeptical of ideas like state capacity?
Mark K: Libertarianism, I think is very appealing as an ideology. It appeals to quite simple moral intuitions, especially for the more extreme versions of libertarianism, we have things like non-aggression and the idea of just non-interference. The problem is taking that to the real world. Libertarians tend to take for granted all the infrastructure which has been built up by societies which have had states.
The idea that you can somehow make use of all these benefits and market infrastructure of wide terrain networks and then take away reinforcement for state enforcement and things will still be okay and people won't defect. One way of thinking about this is like Hobbes versus Smith. Smith has tremendous insights into the benefits of markets, but he takes for granted that there's a state there which is able to enforce contracts, enforce the law, rules of justice, provide basic public goods.
The question is what happens if you take those things away. Well, you might get a more Hobbesian environment. One of the more bizarre elements of libertarian literature is when you read the ideas of Nozick, or David Friedman, or Murray Rothbard, when it comes to things like private protection agencies. They're very much keen to demonstrate an existence theorem. It might be possible for a society to function without a state because you have private law enforcement, potentially. They never establish that it'd be better than having a state. Why don't the private law enforcement agencies degenerate into warlords, basically? Or set up some feudal system?
Mark L: They have arguments against that. I’m just not sure they're very good arguments.
Mark K: Yeah, exactly. I think the arguments are not informed by the history, or even by – I mean, your experience gains, like Guatemala. Or people who do development economics, or they travel to parts of the world which don't have functioning states, are going to appreciate that there's this fragile ecology that we have in modern societies and doing away with it, abolishing it, is potentially costly and we should err on the side of caution there.
Mark L: To paraphrase, apologies to Winston Churchill, but the state is the worst form of governance known to man, except all of the others. Let me end with two questions. One an open-ended one. Are there any takeaways from your book, or your general research, that you think apply to the modern world in terms of how state capacity is changing, in terms of development economics? What are these modern takeaways, if you want to share any?
Mark K: Yeah. One thing I didn't mention so much in this podcast was this idea of identity rules. Identity rules, we emphasize as the key to how low state capacity states function. Because it's a very cheap way to govern a society. We document in our explanation of the rights of religious freedom, we document a transition from identity rules to more general rules. That requires a lot of state capacity to do. Then if you look in developing countries, they are often governed through identity rules. A lot of Sub-Saharan African states, for example, after independence were governed by particular ethnic groups that may oppress other ethnic groups.
Identity rules seem to be a very pervasive way to govern a state. Actually, it's very hard to build general rules and we can see the potential that even in Western societies, you can always revert back to reliance on identity rules. It's a convenient proxy. The problem with that is that general rules are a basis for a lot of positive sum interactions. Whereas, identity rules have a tendency to be zero sum, or negative sum. One group wins, the other group loses. They generate a lot of resentment against the winners. I think that's a problematic development in both, which countries today, municipal countries.
Mark L: Great. Thanks for coming on the podcast. I’ve enjoyed having you.
Mark K: Thanks, Mark. It's been great.
Mark L: Thank you for listening to The Charter Cities Podcast. For more information about this episode and our guest, to subscribe to the show, or to connect with the Charter Cities Institute, please visit chartercitiesinstitute.org. Follow us on social media, @CCIdotCity on Twitter and Charter Cities Institute on Facebook. I’m your host, Mark Lutter, and thank you for listening to The Charter Cities Podcast.
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