Abstract
Rent-seeking behavior can thrive in democratic and other forms of government where the government is able to hand out exclusive privileges or positions. One of the most famous examples is the venal aristocratic Ancien Régime of seventeenth- and eighteenth-century France. This paper presents the Revolution as guided by private interests rather than as an uprising powered by aspirations of peasants for the provision of public goods. While taxation, income distribution, and multiple other causal factors played a role, opposition to rent seeking, from merchants, tradespeople, upper-income members of the Third Estate, and others negatively affected by French policies, was the tipping point leading to the Revolution in 1789. In constructing a public choice–based theory to make this argument, we bifurcate the mercantilism that characterized the French economy into seventeenth- and eighteenth-century types.
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24 July 2019
The original version of this article was published with an erroneous version of the Acknowledgements. Please find in this document the correct version of the Acknowledgements that should be regarded as final version by the reader.
Notes
The relative paucity of French data from the eighteenth century, with some exceptions (Morrisson and Snyder 2000; Beuve et al. 2017a), precludes formal econometric hypothesis testing. However, scholars have assembled reconstructed estimates from assorted statistics, some of which are used in the current paper.
Some historians and political scientists reject the “byproduct” theory, but with little convincing evidence. Muller and Opp (1986) reject the rational choice approach using survey-interview data on nuclear energy. Reduced real income produced by inflation was shown empirically to induce participation in revolutions in African countries by Cartwright et al. (1985, p. 272).
The concept of mercantilism has undergone changes over the past half century. The classic understanding has been that it consists of a litany of policies used to protect domestic industries or to promote state power. Some of those familiar policies include fostering a positive balance of trade, preventing gold outflows and promoting inflows of specie, import substitution by using tariffs and trade controls to protect domestic industries and employment, export of finished goods and import of raw materials, and a host of other economic goals. Some scholars see mercantilism as attempting to develop state power. The problem with those conceptions is that the modern mercantilist literature shows self-interest rather than economic principles as the driving force. What, for example is “the state”? At the root of many of the state-centric views and issues are the classic and critically important works of Heckscher ([1934] 1939), Viner (1937), and Cole (1943). Ekelund and Tollison (1980, 1981, 1997) and later Root (1994) argued that mercantilism was a process of rent seeking on the part of monarchs, aristocrats, entrepreneurs, local regulators, large landowners, and other interest groups. Focusing on internal regulation rather than international trade, those authors maintained that outright venality and attempt to monopolize segments of the economy where it was profitable was at the heart of royal, aristocratic, entrepreneurial and business motives for internal policy in the powerful economies of England, France and Spain as they emerged from feudalism and the medieval period.
According to Doyle (2018, p. 2), 13 parlements, or sovereign courts of appeal existed in 1776, with the Paris parlement covering a third of France.
Beuve et al. (2017a) use models to study specific decisions of the Bureau—four blocs relating to status (right to produce, for example), territorial exclusivity, personal tax exemptions and custom-duty exemptions—on the elaborate privilege-granting apparatus. They do not consider that decisions from the 90-year period depend on the stock of prior grants. For instance, the “technical innovation” significance (and perhaps the “local economy”) may be determined by the regulators’ efforts to work around what has already been done. There exists a stock of regulatory capital, so to speak, that limits subsequent decisions. Additionally, much structure is imposed on the model by using a time trend rather than time fixed effects. Unless the pattern of decisions follows a linear trend, the results may reflect peculiarities of years. Period fixed effects would be the natural choice, which may not lead to the anticipated results.
Some of the grants (if not all) are defended by business interests and by Beuve et al. (2017a) as furthering the public interest. As in the modern world described by Holcombe (2018, p. 270), “by protecting their business interests, they are protecting and creating jobs…. They are maintaining governmental competence and professionalism. Institutions that convey advantages to political incumbents increase legislative professionalism…. Nobody is arguing for cronyism. The arguments that support political capitalism are arguments that are built on the hope of benevolent government and governmental professionalism. And, they are arguing for policies that support domestic business and that create jobs.” This is precisely the rationale for the type of mercantilism supported by the Bureau du Commerce.
A sequence to the bureau’s decisions is identified by Beuve et al. (2017a): one set of grants is conditional on receiving another grant. The sequence may involve one or more decision trees (it could be quite complex), but certainly one does not obtain an exclusive territory or tax relief if one can’t operate a business. That is, before one obtains an exclusive territory (model 3), one must obtain a business license (model 1). Yet model 3 includes observations of applicants who that did not receive a business license (about 30% of the sample), and the model does not account for the relevance of model 1’s results to model 3’s results (perhaps a Heckman-type selection correction, or limiting the data to those observations that were successful in model 1, the latter of which may or may not be valid. A model containing all of the conditional probabilities needs to be crafted to understand exactly how to estimate the model and what the results mean). Presumably, the failure to obtain the business license implies a failure to obtain an exclusive territory, meaning a large number of the observations in models 2–6 have no possibility of getting a grant. The model is almost certainly tainted by selection bias. Furthermore, the “ordered” nature of the dependent variables must be accounted for. For instance, does a very successful outcome in the business-license model (model 1, outcome 3) affect the subsequent decisions? The model does not help answer that and other key questions.
It may well be the case that in situations of sequential monopoly it was unnecessary to skim profits from both inputs and outputs using those inputs. An industry may be cartelized at the output stage, eliminating the necessity of input regulation.
While Beuve et al. (2017a, b), if statistically accurate, interpret such policies as means of fostering economic development and an implementation of early industrial policy based on a mercantilist worldview, the change did not advance the French economy to the level of England in terms of technology or growth.
Nowhere do Ekelund and Tollison (1981, 1997) claim that the establishment of a Bureau du Commerce would only have “increased the overall capacity of the Crown to extract fiscal resources and redistribute them as rents” (Beuve et al. 2017a, p. 530). They argue instead that self-interest guided a mercantilism that evolved over the eighteenth century.
Noble status could be purchased for life, as heritable titles or after a delay of three generations—all for different amounts.
Isnard was a member of the Ecole des Ponts et Chaussées, a talented engineer who was the first writer to attempt a mathematical definition and a mathematical proof of an economic equilibrium. He did so in his Traite des richeses, 2 volumes (London: F. Grasset).
Morrisson and Snyder (2000, p. 70) find their computed Gini coefficient for France in 1788 to correspond “fairly closely to the estimates of income inequality that existed during the 1960s in such Third World countries as Brazil, Kenya, and Mexico.”
Such ideas, as noted by Hayek (1991), more than suggest that the intellectual revolution created by the Enlightenment ultimately was one of the factors that “paved the way for the political revolution.” Hayek echoes Alexis de Toqueville ([1856] 1955, p. 138), who, writing in retrospect of the Revolution, believed that the fundamental problem was the Ancient Regime, but concluded that a more fundamental cause could be traced “to the particular, more recent events which finally determined its [the Revolution’s] place of origin, its outbreak, and the form it took.” According to de Tocqueville in the Old Regime and the French Revolution, the significant impetus was provided by the mid-eighteenth-century writers and thinkers who began to take center stage with their bold ideas to change society radically by exercising human reason based on natural law. According to de Tocqueville (1955, p. 139), those writers had an enormous ideological effect on the people.
Turgot enacted agricultural reforms and introduced the potato into the local diet. He suspended the stamp tax and the baker’s guild and encouraged free trade. His reforms were popular and noticeably successful. His biographer, Say (1888, p. 73), notes that when Turgot was called into the king’s service, a popular expression was “The king does well to take M. Turgot, but we are very unlucky to lose him.”
Braudel (1981, p. 91) summarizes the “biological ancient regime” on the eve of revolution as “a number of deaths roughly equivalent to the number of births; very high infant mortality, famine, chronic under-nourishment; and formidable epidemics.”
Furthermore, the inequality within French society, according to Roeder (1982, p. 13), “everything else equal, increases revolutionary action in at least two ways—first, by creating political actors with fewer resources and, second, by creating objects of revolutionary action that promise higher returns.”
Naturally, we do not preclude future attempts at rent-seeking within the new power structure.
The hazardous route from initial democracy through dictatorship and monarchy ultimately to representative government also is noted by Acemoglu and Robinson (2006, p. 67). That view is amplified by North et al. (2009, pp. 221–227), who provide a detailed discussion of the Revolution’s aftermath. In their view, France continued to be a limited-access economy (limiting economic growth) between 1789 and 1875, with 11 constitutions over that period and myriad forms of legislative and executive government. While the economy of Spain mirrored France in terms of few checks on privilege and rent seeking, France did reach a turning point toward open-access government and growth with the Revolution. Britain, with early checks on aristocratic rent seeking, was ahead of France and Spain in the process of creative destruction and economic growth. Income inequality is estimated to have grown in France up to 1870 (Morrisson and Snyder 2000), but was reduced afterward, at least up to 1929.
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Acknowledgements
We are deeply grateful to Richard Ault, George Ford, Phil Gramm and Bob Hébert and to an anonymous reviewer and to the editors of this journal for excellent comments on earlier versions of this paper. We also thank Kathy White for technical support. We dedicate this paper to the late Bob Tollison who is always with us in spirit. Naturally the usual caveat applies.
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Ekelund, R.B., Thornton, M. Rent seeking as an evolving process: the case of the Ancien Régime. Public Choice 182, 139–155 (2020). https://doi.org/10.1007/s11127-019-00674-8
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DOI: https://doi.org/10.1007/s11127-019-00674-8