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It’s the Thought that Counts: A Review of Stephen Davies’ The Wealth Explosion, Part Two– The Davies Difference: Elite Buy-in

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Click here to read Part 1 of this review. The Davies Difference: Elite Buy-in  The first part of this review ended with the observation that what Deirdre McCloskey sees as vital for the kind of “wealth explosion” that she and Davies discuss is the reorientation of  human perception away from an earlier focus upon limits and constraints to one of potentialities and opportunities. Both McCloskey and Davies recognize that one can almost see just such a shift occurring in other places like Song China. Both the experience of material betterment as well as certain philosophical orientations to various conceptions of improvement might well have afforded similar processes of advancement. But they were eventually thwarted (85-98). Why? For Davies, it is not sufficient

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Click here to read Part 1 of this review.

The Davies Difference: Elite Buy-in 

The first part of this review ended with the observation that what Deirdre McCloskey sees as vital for the kind of “wealth explosion” that she and Davies discuss is the reorientation of  human perception away from an earlier focus upon limits and constraints to one of potentialities and opportunities.

It’s the Thought that Counts: A Review of Stephen Davies’ The Wealth Explosion,  Part Two– The Davies Difference: Elite Buy-in

Both McCloskey and Davies recognize that one can almost see just such a shift occurring in other places like Song China. Both the experience of material betterment as well as certain philosophical orientations to various conceptions of improvement might well have afforded similar processes of advancement. But they were eventually thwarted (85-98). Why? For Davies, it is not sufficient that the ruling classes were unable to squelch the ideas of betterment circulating in the West. That is too passive an understanding of history. “There has to be,” Davies contends, “another agent that accounts for the impact of ideas” (50). For Davies, the key factor is not the ideas nor the specific value of betterment alone, but who buys into those beliefs. 

Certainly it is necessary that the value of personal betterment permeate society as a whole, but it matters more, at least initially according to Davies, that certain groups get there early in the historical process. If those with the power to compel and kill do not also buy into those ideas, then the growth and potential for improvement remain only precarious at best. Thus, according to Davies, when the emperor of China and his vast retinue of military and bureaucratic retainers shifted the focus away from commerce and the seas after the end of the Song Dynasty and compelled their commercial classes to divert attention away from invention and entrepreneurship, they essentially damned up the streams of betterment for everyone else.  

This, then, is the explanation for why the wealth explosion occurred where it did. For Davies we must first explain why those who wielded power did not squelch or suppress the value of self-improvement, but actively came to embrace and encourage it (65). Interestingly, this story is one that can cut two ways depending on how one conceptualizes the human condition. It is either the story of competition and anti-monopoly or it is one of improved administration and state capacity. From my vantage point as a historian, I favor the first, and have argued this with Johnson and Koyama before. Davies sharpens the historian’s perception of why that explanation must be so.

Competition has a powerful role in preventing monopoly in both economics and politics. As any good economist accepts, the ability to constrain others from entering a market can have serious deleterious consequences both for the betterment of consumers but also for innovation and adaptation. There are, of course, anecdotal examples that seem to go counter to that tendency, but everywhere these are temporary and unstable. Such is the case with the great German industrial cartels. Where productivity and even production are enhanced by such state fostered conglomerations, there eventually arise strong counter currents of path dependency leading to ossification and the reduction of opportunities for adaptation. But is it enough simply to prevent monopoly from taking hold to ensure the spread of the value of betterment?

If you are born to the purple, you are already “better.” What necessity is there to become better still? Even more problematic, why would you want to increase the well-being of those beneath you? It could very likely lead to the possibility of others displacing your particular place in the great chain of being. Davies contends that there must be a further hook to get those in power to buy into the betterment movement. Dreaming of the glories of Rome, and the potential for empires in the future, the ruling elites of Europe had an incentive to think differently than their Chinese counterparts who were already well ensconced within a coherent and still functioning imperial system. 

To the initial condition of decentralized and fractured politics in Europe, Davies adds the active, even desperate, searching for new channels of power among the aristocrats of late medieval times. What this means is that the elites were ready and waiting for any indication that would signal the chance to overcome a rival neighboring power, and this fostered a search both for innovative ways to raise money and develop new military techniques (115-119). 

From here Davies can establish the primacy of ideas in the processes of institutional context for a very specific kind of phenomenon. The lords soon recognized that one way to deal with the limits of their rural lives was to hitch a ride on the carts of merchant wealth, because only this could serve as a source for the constant flow of income necessary to sustain permanent military establishments: “Above all it required a much larger tax base and a more efficient means of raising funds through either taxes or loans” (114). 

Ideas and Competition 

Davies sets out an extensive bibliographic trail at the end of each chapter that leads the reader to see that many different modes of tapping the wealth of commerce were tried ranging from predatory to parasitic to symbiotic. The context of Europe’s divisions ensured a long interval for many experiments and the result was a variety of more or less parasitic/symbiotic hybrids. One tributary would lead to the modern nation-state. But here I believe Davies could have emphasized, far more than he does, a very particular kind of institutional development that went hand in hand with the fractured, decentralized politics of the European peninsula.  

I would have stressed the crucial role of cities and especially the leagues of cities like the Hansa, which eventually fed into the rise of the great merchant republic of the Dutch. The seedbed of thought for these developments was already well fertilized before the modern nation-state had come into being. Davies mentions Jane Jacobs and Hendrik Spruyt  among other authors, but I think the phenomenon gets lost in his rush to make the competitive argument. Cites were cultural centers as well as the quintessential expression of Europe’s decentralized state of affairs (4, 40, 42, 68-69).

The importance of cities as the seed bed for most of the ideas of betterment has of course been long known, and McCloskey has also given them a powerful place in her narrative. If we enter in closely to understand them we find that they were not modern states, nor were they the completely free products of spontaneous action. They were something far more interesting and heterogeneous in nature, reflecting their origins within the interstices of more traditional territorial powers.

Writers in camps favoring either endogenous ideational or exogenous environmental processes have long pinpointed the fact that the cities developed between landed, predominantly rural, fiefdoms. One finds this both in Harold Berman and Randal Collins, for example, and in Douglas North and E. L. Jones. Such cities were meeting places of merchants, and while they might have a charter from one lord, they were never adverse to switching allegiance to another. 

As was true among most of the earliest examples of chartered corporations, cities possessed a strong element of private voluntary association about them. Their relations with particular lords partook of the quasi-private and public relations that permeated all medieval social ties. Lords were themselves as much proprietors of the soil as they were the overlords of their vassals. 

But like the lords on their manors, the cities also made and enforced their own laws. They made their own wars. And they formed their various alliances both with landed elites and with other cities.  Rather than proto-modern states, as Hendrik Spruyt has pointed out (a book that ought to be in Davies’s otherwise extensive surveys) , they were an early and viable alternative form of defensible order. They attracted the attention of all the great lords and soon-to-be greater kings. Along with the attraction of their wealth there was the explicit culture of betterment already on display. 

As it is though, Davies’s essential point comes through loud and clear. All of the various polities of whatever form in Europe became increasingly better at fielding armies and fostering innovations in the arts of war. More importantly though, they preserved enough parity with one another that none succeeded in monopolizing power over the whole of the continent. 

Charles V and Phillip II provide Davies with his major illustration of the failure to establish a European wide hegemon or monopoly of imperial control. Exhausted, Charles retired and broke up large chunks of his empire among his heirs, and Phillip overreached after his initial victories in Holland, resulting in the resurgence of the low countries in 1587 and the rise of the English and French as countervailing forces (144-152). All of this meant that the elite would continue to compete, and betterment would continue to permeate the cultural landscape.

Conclusion: State Capacities or Limited States?

So how should this story be characterized? 

Certainly more efficient political units are one result of competitive processes, and that might tempt some to privilege the role of state capacity in the creation of the subsequent boom that was the wealth explosion. At best, however, such a conception puts the cart before the horse. This can be garnered from Koyama and Johnson’s own work: “State capacity” they argue, “need not promote economic growth.” In fact, even “States with high capacity can pursue destructive economic policies.” Rather, it is only when we get states who are “constrained by law” that we get the desired boom. But what will do this? 

As Davies’s summation of the literature shows, the boom was entirely the product of the competition that decentralization enforced. It is not a foregone conclusion that the only political form that has capacity is the nation state (see again, Spruyt’s The Nation State and Its Competitors). Various types of states can be held more or less in check by the processes of competition, and in these arrangements cities and leagues formed the most salient spaces for the early development of the ideas of equal protection of the laws and individual moral equality. 

To focus on capacity, then, merely begs the question of capacity for what end? Betterment for the sake of destroying your enemy is not quite the same as betterment for betterment’s sake. To privilege the political tempts us to take our eyes off the needful limits that must always be imposed on coercive power. Davie’s history places our attention right where it needs to be: anti-monopoly and competition. While he has not addressed the state capacity writers directly, he has in fact provided a powerful response to their position, one that is more consonant with what we know of ourselves, past and present. When it comes to human action, it’s the thought that counts.

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