Economic Efficiency and Absolutism

While redistributing the nation's wealth to preferred clients, the French state provided property rights that increased net output. The weakness of competitive markets limited economic efficiency; nevertheless, output was increased by rules that protected the property rights of large investors. Although the Crown only selectively protected the property rights of its subjects, the protection encouraged investments that were socially useful. The Crown provided special courts to enforce contracts among merchants, albeit giving preference to specially chosen royal clients. The economy also benefited from the reinvestments by financiers of their profits from tax farming in the protected industries and privileged commercial companies sponsored by the Crown. Once such investments were made, the Crown generally resisted reneging on the privileges it had provided. While the Crown's finance ministers were likely to acquire private fortunes during their tenure of office, they often worked closely and reliably with their clients. The need to maintain an ongoing relationship with well-organized private business groups gave the Crown an incentive to defend the property rights of the private sector. Recognizing its dependence on repeated interactions with prominent business interests, the Crown took measures to protect private property rights, stabilize monetary policy, and reduce the frequency of debt repudiations. Had it not been for the hope of revenue from the protection of the property rights of its subjects, the king might have created and enforced less efficient property rights or perhaps even none at all. Had the French Crown acted as opportunistically toward business groups as the Spanish Crown did, less investment, and less commercial and technical progress, would have occurred.

Rulers are rarely able first to devise rules that maximize efficient production and then to negotiate the methods of revenue collection. Property rights that increase the wealth of private groups do not automatically lead to greater revenue for the state.^[81] The property rights that emerged in Old

[81] On this point, see Douglass C. North, "The Path of Institutional Change," in Institutions, Institutional Change, and Economic Performance (New York: Cambridge University Press, 1990). And see, too, Robert Bates, Markets and States in Tropical Africa (Berkeley and Los Angeles: University of California Press, 1981). Even in post-colonial Africa, where choices seemed relatively unconstrained by the past, it weighed heavily on the present.

Regime France, while not necessarily the most efficient for the economy, did allow the Crown to capture the maximum revenue at the lowest cost.^[82]

The expansion of monopolies and other protectionist practices in France may have produced the deadweight losses that economists expect to find in the exercise of monopolies as compared to competitive industries, but perhaps the choice in the Old Regime was between regulated industries or none at all.^[83] The French government's rent seeking provided private business interests with institutional structures that facilitated trade and investment. A relatively stable currency and restrictions on the predatory behavior of its agents resulted, which increased the level of investment by comparison with the standards of previous centuries. Although the French monarchy strategically supplied property rights to selected business people to gain revenue, the investments encouraged had positive spillover effects, benefiting the economy overall.^[84] The property rights the French state did offer should help us to understand why France's economic expansion was considerable during this period, surpassing that of many of its European rivals, with the exception of Britain.^[85]

[82] The French Crown's failure to reform agriculture provides an example of transaction costs determining the relative advantage of alternative contractual forms. In the eighteenth century, output-maximizing property rights decreed in royal edicts were blocked by local administrators who feared that the new structures (the abolition of collective responsibility for taxes and the elimination of communal property) would result in distributional losses for the state. The likelihood that the new rules would increase the transaction costs of collecting taxes led these local officials to obstruct the implementation of rules designed to increase the aggregate output of peasant communities. See Hilton L. Root, Peasant and King in Burgundy: Agrarian Foundations of French Absolutism (Berkeley and Los Angeles: University of California Press, 1987).

[83] For example, many of the new manufactures (silk, tapestries) created and protected by Colbert might not have been established in France. Of course, the optimal solution would have been to provide anonymous institutions to support anonymous private traders in welfare-enhancing trades.

[84] The property rights created resulted in long-term welfare gains that may have offset in present-value terms the welfare losses arising from short-term rent seeking.

[85] On French growth rates, see Patrick O'Brien and Caglar Keydor, Economic Growth in Britain and France, 1780–1914: Two Paths to the Twentieth Century (London: George Allen & Unwin, 1978).