The nature and historical evolution of an exceptional fiscal state and its possible significance for...

The nature and historical evolution ofan exceptional fiscal state and its

possible significance for the precociouscommercialization and

industrialization of the British economyfrom Cromwell to Nelson

By PATRICK O’BRIEN

Institutions that promoted or restrained early modern economic growth were estab-lished, sustained, and often destroyed by states.Yet their economic history lacks eithera fundamental theory or grounded narrative for state formation in the east or thewest.This survey of a library of recent research in the conjoined histories of nationaltaxation and finance deploys a stage theory and reciprocal comparisons to explainwhen, how, and why England’s political elites constructed a fiscal constitution for anisland state that provided the external security, internal order, and successful mer-cantilism to carry the economy to a plateau of possibilities for a precocious industrialrevolution.ehr_538 408..446

‘Revenue is the principal preoccupation of the State. Nay more it is the State’.Edmund Burke1

Modern and efficient states can be represented as sovereign authorities gov-erning successful economies that provide high, stable, and rising standards

of welfare for their citizens. Such states emerged slowly and painfully over centu-ries of geopolitical rivalry and internal conflict across countries and among aris-tocracies which were competing for the status of hereditary monarchies until theycame to rest upon firmer and more broadly based social, fiscal, and politicalfoundations.2 Over a period in European history that unfolded for roughly threecenturies after 1453 (when England’s armies were finally expelled from all sus-tained imperialist ventures on the mainland) no state recognized responsibility foreconomic growth with social welfare as anything other than matters of fiscal andpolitical prudence.3 Their overwhelming concerns were with their own stabilityand formation in contexts of external threats to security, and rivalries for controlover resources with warlords, aristocratic magnates, provincial and urban oligar-chies, organized religions, and other serious contenders for authority within theirown vulnerable borders.4 Power prevailed over profit by large margins in the

1 Cited in Dietz, English government finance, p. 37.2 Spruyt, Sovereign state.3 Harriss, Shaping the nation.4 Blockmans, History of power.

Economic History Review, 64, 2 (2011), pp. 408–446

© Economic History Society 2010. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 MainStreet, Malden, MA 02148, USA.

priorities of all premodern states. The overriding objectives of emperors, popes,tsars, monarchs, princes, dukes, oligarchies, and ruling elites everywhere included:dynastic and regime survival, territorial security with colonization overland oroverseas, the monopolization of internal coercion, and the integration of diverseregional, ethnic, and religious populations into polities in order to transform theminto societies of compliant subjects obedient to laws promulgated, adjudicated,and enforced by a single sovereign source of hereditary authority.5

Over the centuries before 1815 which marked the beginnings of a liberalinternational economic order, a majority of the dynasties, elites, and oligarchiesthat appear more or less briefly in Europe’s historical records as recognized rulersover many now forgotten-quasi autonomous political units failed to achieve thesecurity, stability, and sovereignty required to construct viable states. Historyreveals that hundreds of territories and societies of varying shapes, sizes, locations,populations, and constitutional forms were conquered and absorbed into rivalempires, dominions, realms, princedoms, duchies, and republics.6 Agglomerationalso altered the political map of Europe and occurred by way of prudential politicalagreements (cemented by marriages) among ruling houses. Incorporation as theoutcome of violent conflict was more common and victorious states are recordedas those that mobilized armed forces more effectively for violent takeovers. Unfor-tunately economic theories that might help to explain the process of mergers intolarger polities are ontologically irrelevant for this purpose.7 From case to casemergers could be more heuristically ascribed to such fortuitous factors as bettercommanders, braver soldiers, more astute diplomacy, and patriotic populations.Most economic historians looking at the long process of state formation areinclined, however, to minimize differences in ideological, diplomatic, military, ornaval capabilities. Instead, they emphasize such structural capacities as: naturalresources, larger populations, more extensive and productive domestic and colo-nized economies, homogeneous or compliant societies, and finally (to reach thetheme explored by this survey and speculation) access by states to the very ‘sinewsof power’. Attracted by possibilities for quantification, many of our tribe havehoned in upon money, or upon rather centralized and viable fiscal and financialregimes, capable of providing sovereign states in formation with the resourcesrequired to sustain their security, stability, and support for territorial and eco-nomic expansion, as the best way to model their survival and success in a mer-cantilist international order that persisted for centuries before and some decadesafter the Treaty of Vienna.8 During that era states operated within the parametersof a geopolitical and economic world order marked by persistent bouts of warfareand virulent competition. They attempted to regulate cross-border flows of trade,labour, capital, and useful knowledge in ways that were designed to maximizebenefits for one country or empire at the expense of others.9 At the same time andwithin their insecure borders they confronted unpredictable episodes of instability

5 Lachman, Capitalists.6 Tilly, Coercion.7 Alesina and Spolaore, ‘Number and size of nations’; Bolton and Roland, ‘Break-up of nations’; Alesina,

Spolaore, and Wacziarg, ‘Economic integration’.8 Bonney, ed., Economic systems.9 Contamine, ed., War and competition; Magnusson, ed., Mercantilist economics.

BRITAIN’S EXCEPTIONAL FISCAL STATE 409

© Economic History Society 2010 Economic History Review, 64, 2 (2011)

associated with violent changes of ruling dynasties and oligarchies, internal revo-lutions, and episodes of revolt and repression.10

These familiar and enduring political features of the early modern politicalworld explains why two public goods (external security and internal order) sup-plied by states for economies under their control were widely recognized at thetime as virtually indispensable for any sustained increase, however gradual, inprivate investment, trade, and innovation. However, the protection of persons andtheir property from violence and theft both within and beyond the frontiers ofestablished polities could not be secured (except at high cost) without minimal andpredictable levels of support from states. Economically speaking the inefficientstates of early modern times can be revealed as those that simply lacked the meansto guarantee investors in physical and human capital or innovators searching foruseful and potentially profitable knowledge with adequate protection againstomnipresent risks from enemy invasions, political instability, widespread preda-tion, and barriers to trade. In general such guarantees (when effectively fundedand enforced) insured wealthy elites undertaking investment against invasion,violence, and theft in an era when such risks probably formed one of the mostserious and persistent obstacles to trade, capital formation, and technologicalprogress.

Latterly the significance of privately maintained institutions, rules, customs, andculturally conditioned behaviour for the promotion of long-term economic devel-opment has re-emerged as a field of enlightening research and theorizing byeconomists, sociologists, and political scientists.Yet the role of states in sustainingthe productive as well as counter-productive institutions behind observed ratesand patterns of economic growth has not yet received anything like the sameattention or theoretically rigorous analysis that any serious political economyseeking explanations for long-run economic growth warrants.11 That neglect isserious. It implies that the social science for the study of institutions remainswithout foundations because behind the observed and contrasting institutionalregimes within which private investment, innovation, and trade occurred acrossEurope stood an array of benign, neutral, ineffective, and malign states. Ultimatelystates defined and enforced property rights or failed to do so. States solved orevaded many of the legal and infrastructural problems involved in extending,integrating, and coordinating markets. States helped or hindered the reordering ofreligions, ideologies, and cultures of behaviour that affected such importantmatters for economic progress as shirking, cheating, free riding, thrift, risk, inno-vation, and entrepreneurship. There is almost no area of new institutional eco-nomics, sociology, and political science where an analysis of the constitutions andpolitical systems surrounding commodity and factor markets could be neglected.In short the reorientation of economics and economic history to take institutionsinto account has always implied a serious engagement with states and with theextant and growing libraries of political history concerned with their formation,strategies, and operations.12

10 Reinhard, ed., Power; Zmora, Monarchy.11 North, Institutions.12 Bloch and Evans, ‘State’; Field, ‘Problem’.

410 PATRICK O’BRIEN


Between the Peace of Westphalia (1648) and the Treaty of Vienna (1815)European states faced common and particular problems. Their successes andfailures in creating, supporting, and sustaining institutions that promoted long-term divergence in economic development need to be understood and comparedin specified historical contexts that differed widely across space and time.13 Analy-ses based either upon models of rational political choice or prior ideologicalcommitments to free markets, laissez faire, and constitutions for liberty in this eraof dynastic rivalry, mercantilism, predation, and state formation look parsimoniousto the point of simplicity.These models shed more ideological heat than scholarlylight on the roles that states actually played or neglected to play historically in thedivergent trajectories for long-run development taken over premodern centuriesby competing national and imperial economies.14

Fortunately, programmes to investigate the comparative economic histories ofstate formation are now underway.15 Antecedents for that discussion in the richhistories of political and economic thought are clear that some form of centralizedand coordinated provision for external security and internal order were everywhereprerequisites for any kind of economic growth.16 Our parent discipline (history)has, moreover, long recognized that private institutions, designed to facilitateinvestment, production, skill formation, and innovation, required sponsorship,promotion, support, or at least benign neutrality from states for their successfuloperation and development.17 Like proverbial hedgehogs political historians knowone major thing, namely that states without access to the resources required tofund the delivery of effective levels of protection to sustain institutions thatfostered some semblance of congruence between the pursuit of private profit andsocial welfare were either taken over, or often by default (rather than malign intent)hindered rather than promoted the development of their economies.18 Further-more, historians neither seek (nor anticipate) that there could be any overarchinggeneral theory to account for the strategies and policies pursued by states that,either by design or in outcome, effected the progress of domestic and imperialeconomies.19 Their sense of what to emphasize in constructing a negotiable meta-narrative that somehow includes the range and variety of states that exercisedpower over premodern European economies is predicated on the assumption thatplausible and heuristic generalizations could be grounded in a traditional andempirically rich and sophisticated historiographical discourse (already in print)that highlights constraints on the penetrative powers of rulers to cope even withserious and persistent threats to external security and internal order, let alone lendsupport to the construction of effective institutions for domestic trade with impe-rial expansion overland and overseas.

Meanwhile libraries of political history, latterly summarized and conceptualizedas historical sociology, have more or less degraded the generalizations on offer

13 Tilly, Formation of national states.14 Ekelund and Tollison, eds., Politicized economies.15 Teichova and Matis, eds., Nation, state, and the economy; Backhaus and Rodger, eds., Navies; Dincecco, ‘Fiscal

centralization’.16 Sonenscher, Before the deluge.17 Reinert, ‘Role of the state’.18 Glete, War and the state.19 Persson and Tabellini, Economic effects, and Dincecco, ‘Fiscal centralization’, represent mathematically

rigorous attempts to construct such models for modern and premodern times.



from economics on the roles, nature, and operations of early modern states.20 Forexample, a wave of revisionist research devoted to studying the practices ofgovernance as distinct from the lifestyles and political pretensions of rulers, theirrhetorics of absolutism and autocracy, and tendencies to predation, has probablyundermined a discourse in political philosophy congenial to liberals who have forcenturies maintained that the constitutions of states were everywhere and for alltimes closely correlated to the advance of their national economies.21 Since Mon-tesquieu, this canonical tradition of writing in political thought has maintainedthat the forms of government that provided for representative assemblies, forconstraints on the executive powers of emperors, kings, princes, and other rulers,as well as for freedom for individual and private enterprise represent the optimalconditions for economic progress. In short it is a tradition that represents consti-tutions for liberty as optimal frameworks for higher levels of productivity andstandards of living.22

In entering this major discourse in political history and thought, economichistorians anticipate that investigations into and comparisons across the fiscal,financial, and monetary institutions sustained by states will display complex inter-connections to their political forms and arrangements for making and implement-ing decisions. Connections ran both ways, which implies that episodes ofdeplorable predation upon private property by states could arise as the outcome ofpolitical failures to secure compliance with demands for necessary and properlyfunded central governance.23 In short it is opportune to expose the fiscal andfinancial constraints underlying the capacities of various states to implementpolicies to fund the provision of public goods and sustain efficient private institu-tions over time.24

This recommendation for research could, however, be rejected by a long tradi-tion of neo-liberal writing in the economics of public choice that continues tofavour small states, constrained by limited access to taxes and loans. Representedin recent decades by James Buchanan and his followers, the tradition continues tomaintain that effective fiscal systems (even for this era of premodern state forma-tion) normally provided ubiquitous, predatory, and rent-seeking rulers of ancienpolitical regimes with access to resources that they wasted on warfare and luxu-rious courts, or utilized for purposes that were inimical to the long-run growth ofeconomies.25

Much of this writing is ideology predicated on ahistorical foundations. Its apriori assumption is that expenditures by governments partake of the attributes ofprivate consumption and carry entirely limited externalities for the longer-termgrowth of economies. Yet over these centuries the overwhelming proportion of

20 National historical professions have been engaged with research into the formation and policies of states formore than two centuries. That literature has, with some notable exceptions, been disregarded by economists.Historical sociologists following Mann’s lead have tried to impose some order and induct some discussablegeneralizations from the awesome volume of historical scholarship that is in print. See Mann, Sources of socialpower; Hall and Schroeder, eds., Anatomy of power.

21 Relevant texts have been cited above and include seven volumes under the editorship of Blockmans andGenet, Origins. A brilliant short synthesis was published by Epstein, Freedom and growth.

22 Macfarlane, Riddle.23 Bonney, ed., Rise of the fiscal state.24 Krasner, Sovereignty; Grapperhaus, Taxes; Sonenscher, Before the deluge.25 Ekeland and Tollison, eds., Politicized economies; Nye, War, wine, and taxes.



expenditures by states was on armed forces mobilized to preserve external securityand internal order, and to expand the territory, assets, and human resources undercentral control. Residual proportions of tax revenues and domain income wereallocated to royal or imperial courts—long regarded as habitats for ‘wastefulexpenditures’ of all kinds. Courts varied, however, across polities. Some propor-tion of their activities has been plausibly represented as functional for the main-tenance of internal stability and for the efficiency of centralized governanceoperating under primitive technologies for communication and coordination. Eliashas convinced historians that many royal, ecclesiastical, and aristocratic courtspatronized forms of cultural activity that reordered the behaviours of elites indirections that curtailed violence, embodied support for innovations, and gener-ated longer-term benefits for stability and for society as a whole.26 In any case,overwhelming proportions of the revenues that reached central governments wereallocated to their armed services. Of course, waste was endemic to geopoliticalconflicts and coercion to maintain stability, but the proportions of these allocationsthat can be realistically depicted either as avoidable or as rents (in the sense thatthe services supplied by armies and navies could conceivably have been obtainedat significantly lower costs) have never been specified, let alone measured.

All this history of repression, violence, and mercantilism added up, as AdamSmith and his French predecessors eloquently maintained, to a deplorably waste-ful political and geopolitical economic order.27 Unlike his neo-Smithian followers,Smith realized, however, that it was the context and order in which Eurasian stateshad perforce to operate. Nevertheless, some managed to rule societies andpromote economic development more effectively and at lower costs than others.For the early modern period successful states can be recognized as those thatraised sufficient resources to survive, and even to foster gradual economic progressin a Hobbesian world of geopolitical conflict, unregulated economic competition,and internal threats to law, order, and political stability. Only historical researchcan help us comprehend both the common and the particular fiscal and financialproblems faced by states in terms and ways that rulers and their talented advisersmight have recognized as representing their own world and times.28

Unfortunately a statistical base containing secure, conceptually refined, andproperly calibrated data for revenues made available to central governments for alarge and representative sample of major European polities has not been con-structed. This remains as an urgent and necessary task for research into fiscalhistory on a comprehensive basis. Data for a small sample of countries for someperiods has, however, been published.29 Meanwhile conceptual taxonomies for thequantitative indicators required to compare relative levels of real revenues allo-cated to fund the strategies and policies formulated and implemented by stateshave been elaborated to guide future research. If data covering most Europeanpolities become available in calibrated and standardized units of account, offeringpossibilities for the construction of relevant ratios, then historians and socialscientists could move on to a position enabling them to distinguish fiscally secure

26 Elias, Civilizing process; Fletcher, Violence and civilization.27 Winch, Riches and poverty; Dome, Political economy; Sonenscher, Before the deluge.28 Holsti, Peace and war.29 The European Science Foundation project ‘Rise of the European state’, produced a database that is not as

comprehensive as is required. See Bonney, ed., Economic systems, app., pp. 577–9; Mulhall, Dictionary.



(powerful) states from those that (for reasons investigated below) lacked sufficientresources to maintain an architecture of governmental and subordinate privateinstitutions providing some of the conditions for the long-term development ofnational and imperial economies.30 Meanwhile, and to promote future research,this survey will refer to a narrow range of ad hoc figures and other impressionisticevidence. My justification for not waiting until a large-scale database is con-structed, is that statistical evidence of the quantity and quality required may not beout there. In the meantime there is an urgent need to reference and summarize abibliography of national histories that offer narratives of why some states managedto construct fiscal and financial regimes that provided central governments eitherwith sufficient or with inadequate access to the revenues and loans required tofund security, stability, and some kind of infrastructure of institutions and incen-tives for higher rates of growth in productivity per worker and incomes per capita.31

Most investigations into the capacities of early modern states for purposefulaction logically begin with their fiscal bases. This is because, in some ultimatemacroeconomic sense, limits to appropriate and borrow (and earn) revenues wereset by the size of gross national or imperial products over which rulers claimedrights to taxation and to the profits, interest, and rents accruing from income-generating assets under direct state ownership and/or control. Clearly aggregatedvolumes of production available varied enormously, not merely in the scale, butalso in the scope that they offered states in formation for the construction ofregimes for fiscal extraction. For example, the expanding fiscal potential availableto Austrian and Romanov emperors in the seventeenth and eighteenth centurieswas ostensibly many times larger than the base controlled by the British monarchyand Parliament during that same period.32 At the height of struggles to repress therevolt of the United Provinces, the kings of Spain (ruling over a far-flung empirein Europe and the Americas) could, in theory, appropriate resources that wereimmeasurably greater than anything under the command of the kings’ rebelliousDutch subjects.33 Polities that evolved to include extensive territories, large popu-lations, and high levels of production minimized risks and could also realizeeconomies of scale for expenditures on external security. But as the histories of the

30 Databases currently under construction which are either in print or available as working papers refer torevenues paid into the treasuries of central governments.Thus, the totals utilized for comparisons of trends overtime or across polities are not comprehensive.They unavoidably omit: (a) revenues assessed, collected, and spentfor and by regional, urban, and village authorities; (b) costs (which varied over time and among polities) incurredfor the tasks of assessing, collecting, and dispatching taxes imposed by and for states by subordinate authoritiesand private enterprise; (c) expenditures undertaken on the demand of states by subordinate authorities andprivate firms; (d) taxation in kind. See K. Karaman and S. Pamuk, ‘Ottoman state finances and fiscal institutions’,Department of Economics, Bogazici Univ., Istanbul, unpub. working paper in European Fiscal History (2009);Dincecco, ‘Fiscal centralization’; L. Pezzolo, ‘Working papers on taxation’, Department of Economics, UniversitaCa Foscari,Venice (2007–8).The complex conceptual problems involved in defining the revenues of early modernstates are discussed by O’Brien and Hunt, ‘England’.

31 For early modern states that bibliography is long. In recent years, useful texts, collections, and survey articleswith bibliographies have been produced by: Webber and Wildavsky, History of taxation; Hoffman and Norberg,eds., Fiscal crises; Bonney, ed., Economic systems; idem, ed., Rise of the fiscal state; Teichova and Matis, eds., Nation,state, and the economy; Torres Sanchez, ed., War, state and development; Yun-Casalilla et al., eds., Formation andefficiency; Bordo and Cortés-Condé, eds., Transferring wealth. I have relied on this literature and my own databasefor Britain to bring some provisional order to a discussion of fiscal state formation that is ongoing.

32 Hellie, ‘Russia’; Gatrell, ‘Russian fiscal state’; Hartley, ‘Russia’; Hochedlinger, ‘Habsburg monarchy’.33 Thompson, ‘Castile: polity, fiscality, and fiscal crisis’; idem, ‘Castile: absolutism, constitutionalism, and

liberty’; Muto, ‘Spanish system’; Gelabert, ‘Castile’; Núñez and Tortella, ‘Economic development’; Yun-Casalillaand Comín, ‘Spain’.



Spanish, Austrian, Russian, and Eastern Empires reveal, they were also weaklyintegrated, prone to interludes of disorder and crises of secession and succession,and vulnerable to invasions to bring about regime change. All of these increasedthe need, but at the same time seriously circumscribed their political capacities, toraise taxation.34

Apart from Switzerland, nearly all histories of early modern states are marked bypropensities towards fiscal imperialism. In other words, they are marked byattempts to expand their parameters for taxation by acquiring territories, assets,and populations beyond their circumscribed medieval frontiers. For European(less for Asian) polities, these attempts were made by actively pursuing mercantilistpolicies designed to channel taxable flows of international commerce throughports under their jurisdiction and control.35

Many resorted to organized plunder which could, in times of war (as the case ofNapoleonic France testifies) significantly augment revenues for victorious states,but usually for rather short spans of years.36 Colonization in Africa, Asia, and theAmericas did, however, increase the longer-term flows of tribute that becamedirectly accessible to the Portuguese and Spanish monarchies in the form of silver,gold, and other transportable and taxable luxuries for some centuries after 1415and 1492.37 No other imperial state (with the exception of the Netherlands andBelgium for shorter periods during the nineteenth century) managed, however, toextract and transfer to the metropolis ‘significant’ and continuous flows of taxrevenues from conquest and colonization overland or overseas. Total flows of‘colonial’ tribute into the coffers of governments of the Ottoman, Mughal, Qing,Romanov, Austrian-Habsburg, British, French, Danish, and other early modernempires cannot be depicted as important for the construction of productive andviable fiscal systems for the long-run growth of metropolitan economies. Aftermeeting outlays for conquest and the annual costs for the defence and governanceof their colonized territories and provinces, apart from an initial phase of plunder,such net flows probably added rather small (even negative) amounts to the fiscalresources at the disposal of metropolitan governments.38 In the nineteenth century,Prussia and Piedmont appropriated assets with taxable potential for the new andunified states of Germany and Italy at the expense of the Austrian empire.39

Mergers with Scotland and Ireland had earlier increased the English state’s poten-tial for taxation, but with more disappointing results.40 The Belgian governmentobtained fiscal control over the territories and assets of the Southern Netherlands,when it seceded from Holland in 1830.41 In early modern times, with the exceptionof Brandenburg Prussia, only Portugal and Spain succeeded in sustaining notable

34 Deng, ‘Origins’; Bin Wong, ‘Taxation’; Pamuk, ‘Evolution’; Richards, ‘Fiscal states’, ch. 15; O’Brien, ‘Stateformation and the construction’, pp. 53–75.

35 Porter, War.36 Aerts and Crouzet, eds., Economic effects; Bonney, ‘Struggle for great power status’.37 B. Yun-Casalilla, ‘The institutions and political economy of the Spanish imperial composite monarchy

1492–1714’, unpub. paper, European Univ. Institute (2008); Braga, ‘War, taxes and gold’; Mata, ‘Pioneermercantile state’; Torres Sanchez, ed., War, state and development, pp. 437–60.

38 O’Brien and Prados de la Escosura, eds., Costs and benefits. Grafe and Irigoin, ‘Spanish Empire and itslegacy’, emphasize this point even for the Spanish Empire.

39 Good, Economic rise; Storrs, ‘Savoyard fiscal-military state’.40 O’Brien, ‘Political preconditions’.41 Janssens, ‘Taxation in Belgium’.



increases to the flow of fiscal resources to support centralizing states by way ofconquest, annexations, and colonization.42 Payoffs for metropolitan states fromimperialism in the form of flows of tax revenues has rarely been other thanmarginally significant for their long-run formation.43

Over centuries of early modern history, the prospects for increasing commandover resources seem to have been better realized by states who managed toconstruct fiscal and financial regimes with sufficient powers and organizationalcapacities to penetrate deeply into local economies for purposes of taxation, and toobtain access through loans and credits to the incomes, wealth, and expendituresof the populations over which they claimed sovereignty. That outcome might befurthered by colonization, but only if and when the profits of private individualsand firms who garnered most of the gains from state-supported territorial exten-sion overland and commercial expansion overseas could be garnered into nets fortaxation.

Historians of European state formation have also recognized that both externaland internal pressures on ruling dynasties and oligarchies to build up moreproductive domestic, fiscal, and financial systems varied considerably across spaceand time. For example, they remained weaker for states like England, before itsCivil War, which obtained defence on the cheap from the realm’s location as anisland. Its rulers reinforced this natural advantage by taking over the neighbouringisland (Ireland) to the west and by stages (1563, 1603, 1707, and 1801) agglom-erating Wales, Scotland, and Ireland into a united kingdom.44 No other stateenjoyed such natural barriers for homeland security. Perhaps mountainous Swit-zerland came close.45 In contrast the sheer scale, length of frontiers, geographicaldispersion, and ethnic diversity of the Spanish and Austrian empires (and the largekingdom of France) rendered them vulnerable to invasions, secessions, and con-quests of outlying territories, as well as greater degrees of internal instabilityassociated with the plurality of religions and ethnic nationalisms they pretended tocontrol.46

Furthermore, as late as the seventeenth and eighteenth centuries, several majordynasties on the mainland also came under less urgent pressures to pursue strat-egies for rapid transformation into rulers of fiscal and financial states, eitherbecause their alliances rendered them less vulnerable to invasions and takeovers, orbecause they retained property rights to large domains. For example, externalthreats to security remained far more tenuous for small and underfunded German-speaking polities, who retained membership of that loose alliance of states thatconstituted the Holy Roman Empire, than was ever the case for their Dutch andItalian counterparts.47

Of greater significance for both fiscal state formation and mutatis mutandiseconomic growth is the fact that the ruling dynasties of several major European

42 Schremmer, ‘Taxation and public finance’; North, ‘Finances and power’; Craig, Germany; Tilly, Formation ofnational states; Brewer and Hellmuth, eds., Rethinking Leviathan.

43 Liberman, Does conquest pay?44 O’Brien, ‘Political economy of British taxation’.45 S. Altorfer, ‘The canton of Berne as an investor on the London capital market in the 18th century’, London

School of Economics Department of Economic History, working paper, 85/04 (2004).46 Bonney, ‘France’; Yun-Casalilla, ‘Institutions and political economy’ (see above, n. 36); Hochedlinger,

‘Habsburg monarchy’; Pieper, ‘Financing an empire’.47 Volckart, ‘Die Ursachen’. I am grateful to Oliver Volckart for providing a translation of his article.



states continued right down to the outbreak of the French Revolution to obtainconsiderable (if declining) shares of their total revenues from patrimonial domainsof cultivable land, forests, minerals, and other regalian property rights that bothcontained and circumvented political resistance to demands for higher taxation.Scattered data allow us to locate a sample of European states as they moved alonga trajectory of stages outlined by Schumpeter from domain to tax states.48 Forexample, revenues accruing from domains in England, Spain, Portugal, France,and even Austria had dwindled to an insignificant supplement by the early seven-teenth century and to a place of marginal importance for the Princes of Saxony,Wurttemberg, Bavaria, Sweden, and Savoy.49 Domains retained a place of discern-ible significance, however, for revenues accruing to the ruling houses of Denmarkand Hesse, and of very clear and persistent concern for the kings of Prussia andtsars of Russia, who also continued to ‘conscript’ manpower and other resourcesdirectly from their own extensive domains.50 Inferences of a theoretically plausiblerather than historically validated kind can be drawn from Schumpeter’s teleologi-cal stage theory. For example, the commitment of some states to secure propertyrights, to the coordination and integration of internal factor and commoditymarkets, to urbanization, and to overseas trade could have been more easilysupported by greater degrees of dependence on domestic taxation, linked tocredits, loans, and monetization. States operating with other more ‘feudal’ modesof funding might well have remained less interested in markets.51

Nevertheless, over the centuries after 1453, geopolitical conflict intensified andcompelled states to sell domains and gradually replace their income from propertywith revenues derived from taxation.The rise of larger-scale, capital-intensive, andmore technologically proficient navies and armies, together with the weakening ofreligious restraints on geopolitical violence (that flowed from the Reformation, andcompetitive imperialism in Africa, Asia, and the Americas) promoted an altogethermore vigorous and costly pursuit of power and profit by nearly all states, nations,and empires in the process of formation and extension. This pursuit led tounavoidable attempts to widen and deepen bases for taxation.52

At the same time the need to borrow money also became urgent becauserevenues from both taxes and domains flowed slowly and cyclically into theircoffers, while expenditures on defence, aggression, and internal repression usuallydemanded the urgent mobilization of payments to armed forces. For this purpose,credits and longer-term loans could usually be obtained (at a price) on the securityof the assets embodied in domains and other regalian property rights or, as timewent on, by way of anticipation of inflows of tax revenues. Thus states thatimproved their capacities to tax, mutatis mutandis, also increased their capacities toraise and service loans. Unless they obtained subsidies from allied powers, theirfiscal and financial prowess continued to be ultimately constrained within the

48 Schumpeter, ‘Crisis of the tax state’; Petersen, ‘From domain to tax state’. The data are in Bonney, ed.,Economic systems.

49 Schulze, ‘Emergence’; Ormrod, Bonney, and Bonney, eds., Crises.50 Bonney, ed., Economic systems; Wilson, ‘Prussia’; Hartley, ‘Russia’.51 Witt, ed., Wealth and taxation. For other factors behind fiscal centralization, see Dincecco, ‘Fiscal

centralization’.52 Glete, War and the state; Downing, Military revolution; Black, Europe and the world; idem, ed., European warfare;

Rogers, ed., Military revolution.



parameters of the taxable empires, kingdoms, republics, populations, and eco-nomic assets over which they exercised dominion.53

Across Europe and throughout these centuries the persistent attempts by rulingdynasties and oligarchies to enforce their proclaimed or constitutional rights toboth ordinary taxes and demands for extraordinary contributions (that is, taxeslinked to loans and credits) were nowhere translated into absolute fiscal sover-eignty. This sovereignty remains, as Bonney and his school have recognized, themost enlightening indicator of centralized power available to historians tracing andcomparing processes of state formation in the west.54

Variations in degrees of fiscal sovereignty (that is, regularized or constitutionalaccess to private wealth, incomes, production, and consumption), could, in theory,be ascertained if and when a comprehensive European-wide database is con-structed that provides estimates for three indicators of fiscal centralization orsovereignty: firstly, total taxes appropriated year after year by all the authoritiescontained within a polity exercising politically recognized rights to taxation,divided between sums received by states on the one hand and the subordinateauthorities over which they claimed dominion on the other; secondly, shares ofnational incomes received by states in the form of tax revenues, coupled to loansand credits—allocated for expenditures by all agencies of central government; andthirdly, revenues (taxes plus loans) per head of population per square kilometre ofterritory or length of frontiers received by states.

Even with an ideal database in place, the complex set of variables that combinedtogether accounted for the formation of fiscal constitutions for European stateswould still need to be modelled and then tested (inevitably in reduced form withunavoidable recourse to dummy variables purporting to measure power). Unlessand until that happens, we must perforce fall back upon less rigorous solutions thatmight satisfy the sensibilities of historians who are well read in early modernsources and records.55

Their preferred ‘way of knowing’ more about the role and significance ofdifferent states for the formation of private institutions behind early moderneconomic growth involves engagements in reciprocal bilateral and multilateralcomparisons of levels, trends, and fluctuations in the fiscal capacities of states tofund both benign and malign strategies for the protection and stability of econo-mies under their dominion and protection.56

For that recognizably under-quantified approach, virtual libraries of books andarticles recently published in fiscal history (supplemented by confined and imper-fect samples of data) support some general and uncontested hypotheses about theformation of fiscal states in Europe.57 For example, before the mid-sixteenth

53 Körner, ‘Public credit’; Caselli, ed., Government debts.54 Bonney, European dynastic states; idem, ed., Economic systems; idem, ed., Rise of the fiscal state.55 Articles by Acemoglu, Johnson, and Robinson, ‘Politics and economics’; DeLong and Shleifer, ‘Princes and

merchants’; Alesina et al., ‘Economic integration’; and Barro, ‘Democracy’, expose the heuristic benefits andlimitations of cross-sectional regression analyses and parsimonious knowledge of early modern political history asdeployed by economists.

56 Moses and Knutsen, Ways of knowing. By far the best attempts to specify and to test econometrically observedvariations in fiscal centralization in space and time across polities have been published by Dincecco, ‘Fiscalcentralization’, and idem, ‘Political regimes’.

57 I am grateful to Sevket Pamuk, Kivanic Paraman, Luciano Pezzolo, and Wantje Fritschy for permission torefer to data still in the process of refinement.



century the fiscal capacities of major states may have been comparable.58 Forroughly a century thereafter France and Spain forged ahead of the rest, until thecollapse of Spanish power in the mid-seventeenth century.59 For roughly 150 yearsafter the Peace of Westphalia, France retained a position as Europe’s hegemonicfiscal state. After the Treaty of Utrecht (1713), the revenues obtained by theemperors of the Austrian Habsburg and Romanov Empires, along with theBourbon dynasty ruling Spain, displayed growth with indications of convergenceupon France over the eighteenth century.60 From the mid-seventeenth centuryonwards England controlled greater fiscal and financial resources than Spain, theNetherlands, and the rest. By 1800 the capacities of the ruling regime of the thenUnited Kingdom to wage warfare and preserve internal order had surpassed thoseof Napoleonic France.61 In terms of a sustained fiscal achievement (potentiallymeasurable) as shares of per capita incomes, wages, and gross domestic productstransferred as taxes and loans to states, the performance of the Netherlands(struggling to maintain independence) has been represented in narrative historiesand acceptably ‘measured’ as remarkable. On such assessments and indicators ofpolitical and administrative performance England ran second, while France andSpain, together with the Austrian, Russian, and Ottoman Empires and presumablymost other polities, probably remained constrained and thwarted in their aspira-tions by unrealized potential for higher levels of taxation.62

Nevertheless, the size and location of the Netherlands as well as the persistentlydangerous nature of threats for about a century, first from Spain and then fromFrance, to its very independence and religious identity, severely constrained anyambitions the Dutch oligarchy may have harboured to become a great power.63

Furthermore it is almost unnecessary to observe that the scale of the fiscal basesavailable even under optimal political and administrative conditions for the appro-priation of taxes remained too circumscribed for most other small states (Portugal,Switzerland, Venice, Wurttemberg, and so on) to become central for comparativeeconomic histories of state formation.64 Thus the location and scale of its economy(supplemented by the data at our disposal) selects England (and not Holland) asthe most heuristic comparator for comprehending the fiscal and financial basis forstate formation across early modern Europe and exposes potential connections ofthat process to modern economic growth.65 Neoliberals and marxists (with theo-retical dispositions and ideological commitments to writing histories—particularlyeconomic histories—from below) will not be inclined, however, to accept top-down connections. They prefer to represent the activities of early modern states

58 Bonney, ed., Rise of the fiscal state; Pezzolo, Paraman, Fritschy, and Pamuk, work in progress (furtherinformation available on request from the author).

59 Bonney, ed., Economic systems; Storrs, ed., Fiscal-military state.60 Storrs, ed., Fiscal-military state; Yun-Casalilla et al., ed., Formation and efficiency; Torres Sanchez, ed., War,

state and development.61 Bonney, ‘France’; O’Brien and Hunt, ‘England’.62 ’t Hart, ‘United Provinces’, pp. 309–26; ’t Hart, Jonker, and van Zanden, eds., Financial history; Fritschy

et al., ‘Long term trends’; idem, ‘Public finance’. Unpublished data from work in progress, available on requestfrom the author, and Dincecco’s estimates published in ‘Fiscal centralization’.

63 Israel, Dutch Republic; ‘t Hart, ‘Mobilizing resources’.64 Bonney, ed., Economic systems.65 Fritschy, ‘Taxation’; Davids and ‘t Hart, ‘Navy’; O’Brien, ‘Mercantilism and imperialism’, pp. 489–501.



either as negative or endogenous and sometimes as both.66 Agreed, variations inthe fiscal capacities of states must continue to be related to changes in theireconomies, but the correlations cannot be interpreted in any straightforward way.67

For example, over the period 1642–1815 the English state ruled over the mostrapidly growing of Europe’s national economies.68 That fiscally functional paceand pattern of development carried whole sections of society over thresholds ofincome and promoted patterns of expenditure whereby purchases by householdson goods and services taxed by governments in London began first to contributeand (as private expenditures rose and diversified) to augment public revenues fromindirect taxes. Furthermore, the concentration of households and producers intowns and regions of specialization not only increased taxable outputs flowingthrough organized markets, but also rendered the imposition and collection ofsuch taxes easier to administer. Larger and denser zones of production, togetherwith established and regular circuits for distribution and exchange (which accom-panied the growth of industrial market economies), are prerequisites for thecollection of more revenue in the form of indirect taxes.69

Nevertheless, the fact that Britain’s national product and urbanization rateprobably rose by ratios of around three between the Glorious Revolution and theTreaty of Vienna, while tax receipts at the Exchequer multiplied some 15 times inreal terms, degrades any suggestion that purports to explain Britain’s fiscal successas a product of economic growth. Rising agricultural productivity, industrializa-tion, and the relocation and reorganization of production must be regarded ascontributory and not as major forces behind the marked upswing in revenues fromtaxes and loans.70 Indeed, the speculative conclusion to this survey (see section III)is that the time has come to acknowledge and debate two key hypotheses.The firstis that the dramatic rise of a strong fiscal state was significant for the growth of thedomestic economy. The second is that development came on stream in large partas the outcome of civil war and an interregnum of fiscal state formation in1642–88, which England’s major European rivals could neither contain noremulate for path-dependent reasons. This will be elaborated by way of a stagetheory constructed in section I to summarize and organize an enormous volume ofresearch in European fiscal history; followed by section II, which is designed toreflect and explain English exceptionalism in a European mirror.71

I

Between the treaties of Westphalia (1648) and Vienna (1815), Europe’s agglom-erated empires, composite monarchies, and confederated republics were ruledeither by dynasties (served by and serving coteries of aristocrats) or by urbanoligarchies of notable and wealthy families. As ‘closed elites’ the Continent’s rulingfamilies held virtual monopolies of control over the military and naval means for

66 Arrighi, Long twentieth century; Levi, Rule and revenue. For the opposite view, see Chang, Institutional change;Reinert, ‘Role of the state’.

67 Roseveare, Financial revolution.68 van Zanden and Horlings, ‘Rise of the European economy’; Allen, British industrial revolution.69 Ardant, Histoire de l’impôt.70 Sinclair, History of the public revenue; O’Brien, ‘Formation of a mercantilist state’; White, ‘France’.71 Research is now deepening and widening out to include publications on Eastern empires: see Vries, Via

Peking; Yun-Casalilla et al., eds., Formation and efficiency.



coercion. They exercised almost exclusive but differently institutionalized degreesof hierarchical authority over the formulation of policies pursued by states fordefence, aggression, and the maintenance of internal order.72

Their access to and control over the economic means (taxes, loans, and domainrevenues) to fund the exercise of these and other powers depended upon when andhow and why Europe’s patchwork of competing ‘dominions’ had been initiallyconstructed and evolved over centuries of time thereafter.73 Fiscal constitutions orsystems usually emerged and stabilized after a foundation stage that followedeither (and in most cases) from conquest and plunder or from negotiations flowingfrom mergers, dynastic marriages, and the fortuitous outcomes of familial inher-itance codes. Over time fiscal state formation developed into a process thatinvolved ruling dynasties, oligarchies, and their advisors in continuous negotiationover the extension, distribution, and administration of central claims to tax rev-enues from the territories, assets, and populations located within the frontiers ofempires, monarchies, and republics. For several centuries before and after thePeace of Westphalia, these claims continued to be disputed by aristocratic elitesand urban oligarchies ruling over formerly autonomous territories or towns, that atvarious points in time had been either forcibly or voluntarily incorporated (par-tially or unconditionally) into a Habsburg Empire, a Bourbon composite monar-chy, a Tudor or Stuart realm, a Bavarian kingdom, or a Venetian, Swiss, or Dutchconfederated republic.74

Typically during the foundational stage of fiscal state formation, hegemonicemperors, monarchs, princes, and urban oligarchies imposed, demanded, or nego-tiated quotas of tax revenues and loans on a geographical basis. They tended toleave the politically contentious and complex administrative responsibilities for theassessment, collection, and dispatch of both direct and indirect taxes to centraltreasuries, to the aristocratic, ecclesiastical, provincial, urban, village, and otherterritorial authorities and long established administrations already in place.75

For several political and organizational reasons, this typical and virtuallyunavoidable resort to the devolution of responsibilities for taxation operated torestrain the pace of future formation of more centralized fiscal states. Firstly, initialquotas were normally apportioned upon a political basis to support and sustaindominion. Accessible regions (such as Greater London, the Paris Basin, Holland,Bohemia, and Castile) carried disproportionate shares of the tax burden. Quotasbecame rigid and resistant to reform. Every province attempted to free ride ontaxable cores and/or upon revenues from domains owned by ruling dynasties.76

Regional, urban, and ecclesiastical and local authorities (run by aristocrats,bishops, notables, and urban oligarchs with their officers and village headmen withtraditional powers) claimed and received tax privileges and exemptions as pay-ments for their status, loyalty, and unremunerated military services for earlymodern states. Across Europe and at every level of social hierarchy, powerful andwealthy elites extorted heavy charges for the albeit difficult and unpopular tasksinvolved in assessing and collecting taxes on behalf of remote states. Predictably

72 Blockmans, History of power; Reinhard, ed., Power; Porter, War; Zmora, Monarchy.73 See above, n. 30.74 Epstein, Freedom and growth; Webber and Wildavsky, History of taxation; Grapperhaus, Taxes.75 Bonney, ed., Economic systems.76 Bonney, ed., Rise of the fiscal state; Hoffman and Norberg, Fiscal crises.



they also tended to transfer liabilities from towns to villages, across districts, anddown social and income scales. Incidence remained or became manifestly moreunequal, which stimulated resistance and undermined compliance with centraldemands for taxation. Furthermore, and in order to maintain and even augmenttheir localized powers and patronage, they often insisted on diverting funds allo-cated for expenditures on policies formulated by states to personal networks,communities, firms, and churches located in places that they favoured and gov-erned.77 Manifestly difficult to restructure, these political and administrativeobstacles to the formation of fiscal states remained in place decade after decadebecause they continued to be sustained by the balances of power between dynas-ties and oligarchies ruling taxable dominions on the one hand, and nominallysubordinate local authorities and urban elites on the other. States depended uponthese insubordinate hierarchies not only for taxes but for credits and loans inanticipation of tax revenues—required all too frequently during persistent inter-ludes of warfare when higher and rapid inflows of resources became matters ofmilitary necessity and/or regime survival.78

For centuries taxation continued to be a major source of continuous tensionleading to periodic outbreaks of violence between rulers and powerful statusgroups (nobilities, ecclesiastical hierarchies, and wealthy urban oligarchies) whoacted collectively through established institutions to defend interests vested inlocal taxation for local purposes, hereditary hierarchies, traditions, and historicalagreements that preserved the status quo.79 Fiscal centralization included, but wasmuch wider than, the removal of tolls and other barriers to internal trade.80 It alsoinvolved the incorporation of privileged social groups and ecclesiastical and otherexempt institutions; and the inclusion of households traditionally subject only tothe fiscal jurisdiction of provincial, urban, and local authorities into reconfiguredtaxation systems designed and imposed by states. Centralized fiscal constitutionscan be recognized as those prescribed and enforced rules for the assessment andadministration of direct and indirect taxes that aspired to become ‘universal’ intheir application and productive of higher net revenues for states in formation.81

Everywhere that mission was subject to resistance, prevarication, evasion, andpredation from politically subordinate provincial and urban authorities charged tosupply states with imposed and/or negotiated ‘quotas’ of taxation and loans bor-rowed on the security of future flows of tax revenues.

Europe’s rulers and their advisers attempted to implement centralizing strate-gies in two ways; firstly, by initiating systems for monitoring, and secondly, byfranchising the assessment and collection of taxes to private enterprise. Bothroving and stationary monitors (elus, intendants, inspecteurs, commissioners, comp-trollers, surveyors, Prussian officers, consejle royale, procurados, et al.) wereappointed by finance ministers to protect and extend taxation for states. Predict-

77 Bonney, ed., Economic systems; idem, ed., Rise of the fiscal state..78 Spruyt, Sovereign state; Mann, Sources of social power; Hall and Schroeder, eds., Anatomy of power.79 Zmora, Monarchy; Reinhard, ed., Power; Bonney, ed., Rise of the fiscal state.80 See above, n. 30. For an interesting attempt to map trends towards fiscal centralization by measuring the size

of areas within polities subject to tolls and other barriers to internal trade, see Dincecco, ‘Fiscal centralization’.81 Tilley, Coercion; Bonney, ed., Economic systems; Ormrod, ‘England’. Dincecco, ‘Fiscal centralization’, recog-

nized the extent of the problems involved in fiscal centralization, but for purposes of quantification preferred tomodel it with restricted definitions of barriers to trade and taxonomy of states that are tight but contestable.



ably this strategy embodied classical principal-agent problems. Many appointedbureaucrats and their underpaid staffs opted to look after the interests of localelites, among whom they resided and with whom they preferred to cooperate inwithholding revenues from the remote states, dynasties, and oligarchies.82

As monitors they lacked both the coercive powers and local knowledge toenforce criteria prescribed for the assessment of territorial, institutional, andpersonal liabilities for taxes. For direct taxes (levied upon wealth and/or incomes),led by Tuscany (1447) most states attempted to conduct cadastral surveys—apractice which became widespread during the eighteenth century. Their accuracyas measures of taxable wealth and income depended, however, on the existence ofmarkets for land, minerals, and other visible assets, as well as reluctant cooperationfrom the owners of natural resources and all other less visible forms of fixed andcirculating capital. Cadastral surveys took years to complete.They only rarely andtemporarily altered the basis upon which direct taxes could be levied.

Above all, they almost nowhere in the west or the east recorded more than afraction of the taxable outputs and incomes derived from industry, trade, andservices which were potentially available to states for inclusion in their fiscalbases.83 In early modern economies most firms producing and selling taxablemanufactured goods and services were small in scale and dispersed in location,and their (often unrecorded) taxable surpluses could be exceedingly difficult tomeasure. The solution to the state’s problem of extending indirect taxation leviedon production and trade down the line to outlays by consumers was tax farming.84

Most European states experimented and for good reasons persisted with systemsof franchising indirect (and in some cases direct) taxation to partnerships orsyndicates of private firms with the credentials, financial security, and expertise totake over the responsibilities and to cope with the political resistance and violenceinvolved in assessing, collecting, and dispatching indirect taxes that rulers claimedand defined as revenues of the state.

For example, franchised contracts bypassed the tensions involved in negotiatingwith established political authorities and traditional elites; reduced the conflictsand evasion endemic to all types of direct taxes levied on the wealth and incomesof the more affluent households; widened nets for taxation to include new andrapidly growing sectors of economic activity and patterns of consumption; allowedstates to mobilize personnel with knowledge and organizational expertise notreadily recruited through established elite channels for political command andcommunication; provided conduits into more extensive private markets for creditsand loans on the security of tax revenues that prima facie attenuated problems ofrisk and commitment for investors in state securities issued to obtain credits andloans; and generated information about opportunities for taxation potentially opento states.85

Nevertheless, allowing the market entree into such key areas of state formation(however, necessary and unavoidable) carried in train very real prospects of

82 See above, nn. 29–32.83 Mannori, ed., Cadastre; O’Brien, ‘State formation’; Yun-Casalilla et al., eds., Formation and efficiency.84 Bordo and Cortés-Condé, eds., Transferring wealth; Bonney, ed., Economic systems.85 Tax farming systems are described country by country in case studies published under the editorship of

Bonney, ed., Economic systems, and idem, ed., Rise of the fiscal state.



diminishing returns to tax revenues and serious dangers to the sovereignty ofstates.86 In theory diminishing returns which arose from the rising costs of assess-ment, collection, and transfers of taxation could be measured as the gap betweenthe yield of each and every farmed tax and the actual amounts received by states.Costs invariably rose because legal formulations for indirect taxes and the shapeand parameters of contracts adopted for tax farms—which were often constructedin the face of political hostility and under pressures from vested interests—embodied political compromises, anomalies, and opportunities for corruptionand evasion in specifications for the liabilities of taxpayers and of farmers.87

Furthermore, knowledge accessible to farmers about the volumes of local produc-tion, trade, and consumption available for taxation, the income and price elastici-ties of demand, for taxable commodities, as well as their potential to provokeevasion and hostility, was deliberately withheld from states in order to avoidcompetition and the framing of more productive contracts for the delivery of taxrevenues.88

Above all, the geopolitical context for state formation in the early modern periodwas overwhelmingly responsible for market failures that attended the strategiesadopted for franchising the assessment and collection of tax revenues.89 Between1494 and 1659 (years which mark the French and Spanish invasions of Italy andthe Peace of the Pyrenees), the engagement of all European powers in dynastic,imperial, mercantilist, and religious warfare intensified and became, for techno-logical reasons, ever more costly to pursue. In varying degrees policies for strategicaggression, combined with threats to external security, led to increased demandsfrom ruling dynasties and oligarchies for taxes, credits, and loans.90 The pressuresand urgency needed to secure the fiscal and financial means to command militaryand naval forces changed balances of power between states on the one hand, andthe nominally subordinate political authorities and their tax farmers on the other.91

The centuries before and after the Peace of Westphalia witnessed an intensifiedinvolvement of states in armed conflicts (with their attendant and persistentdemands for ever higher and more rapid inflows of taxes, loans, and credits).Thisreduced dynasties and oligarchies, whatever their pretensions to absolute sover-eignty, to weaker positions of negotiation and bargaining over access to money attimes of conflict when prospects for coercing subordinate political authorities orstimulating competitive bids from tax farmers diminished.92 Warfare magnifiedtendencies towards corruption, monopoly, venality, and private proprietorialrights, to taxation for states into commonplace features of all European fiscal andfinancial systems.93 The geopolitics of this period also pushed many rulers andoligarchies into debasements and defaults on their contracts with powerful taxfarmers, so that only larger-scale, longer-tenured, and (in France and Spain)proprietorial syndicates became willing to assume the tasks and risks of assessing

86 Ardant, Théorie sociologique; Doyle, Venality; Bonney, ‘Failure of French revenue farms’.87 Ashton, ‘Revenue farming’; idem, Crown; ’t Hart, Making of a bourgeois state.88 Kiser, ‘Markets and hierarchies’; ’t Hart et al., eds., Financial history.89 Kiser, ‘Markets and hierarchies’.90 Kiser and Linton, ‘Determinants’; Porter, War.91 Major, From renaissance monarchy to absolute monarchy.92 Henshall, Myth of absolutism.93 Hoffman and Rosenthal, ‘Political economy of warfare’.



and collecting taxes or possessed access to the capital and contacts required tobecome able and willing to lend on the anticipation of future inflows of revenuesunder their control.94 Payments for their fiscal and financial services rose wellabove ratios that approximated to competitive managerial changes to managementand market rates of interest. In short, geopolitical conflict progressively andseverely reduced ‘net’ annual flows of revenues into the treasuries of all Europeanstates, even England.95

II

My model elaborating upon an evolution from foundation stages of conquest andplunder through to a stage of diminishing returns has exposed the challenges andobstacles faced by all European fiscal states in formation. Once ruling dynastiesand oligarchies had exhausted the potential of their domains to yield rising levelsof revenue, they all confronted a common and key problem. A stage theory fromfoundational plunder to diminishing returns has been constructed to expose thehistory of how states attempted to impose universal, acceptable, collectable, andtransferable taxes levied upon the wealth, incomes, and expenditures of house-holds nominally under their dominion. Over the latter half of the seventeenthcentury, England moved further and faster than others along Schumpeter’s andWeber’s famous trajectories towards the formation of properly funded fiscal andfinancial states.96 From the perspectives of European rulers and their ministers offinance, England’s conjoined ‘sinews of power’ supporting and facilitating theoffshore kingdom’s capacities to maintain internal order, protect property, andsustain economic expansion overseas emanated from a range of political, eco-nomic, and geopolitical contrasts with their own evolving path-dependent, butaltogether less productive, fiscal and financial systems.97

In recent years historians have anticipated that reciprocal comparisons mightexpose when and how such a small and vulnerable state (that had endeavoured toenlarge its fiscal capacity sinceTudor times) managed to push up shares of nationalincome appropriated as taxes and borrowed as loans to unprecedented levels.98

Many are inclined to repudiate the current and hegemonic explanation whichplaced the Glorious Revolution at the beginning and Parliament at the core ofnarratives for the rise and success of Britain’s fiscal naval state as truncated inchronology, narrow in conception, and insular in focus.99 The year 1688 has beenuncritically endorsed by North American ‘Whigs’ as the ‘constitutional moment’in England’s political and legal history when the realm’s monarchy and aristocracyaccepted a Bill of Rights and embraced an unwritten but economically functionalconstitutional regime.100 Too many economists and political scientists remaininclined to accept the history of an economically Glorious Revolution as marking

94 Bonney, ed., Economic systems; Kiser and Kane, ‘Revolution and state structure’; Caselli, ed., Governmentdebts.

95 Kiser and Linton, ‘Determinants’; Contamine, ‘Growth of state control’.96 Webber and Wildavsky, History of taxation; Douglas, Taxation in Britain.97 Brewer, Sinews of power; O’Brien, ‘Fiscal exceptionalism’.98 O’Brien and Hunt, ‘England’; Ormrod et al., eds., Crises; Yun-Casalilla et al., eds., Formation and efficiency.99 Brewer, Sinews of power; Stone, ed., Imperial state at war.

100 North and Weingast, ‘Constitutions and commitment’. S. C. A. Pincus, 1688: the first modern revolution(2009), the most recent and comprehensive statement of the ‘constitutional moment’ thesis, appeared too late toinform the current discussion.



a discontinuity from the malign ways of the Stuart monarchy, when a reformedparliamentary system of government entered into sustained commitments: torespect property rights, protect private enterprise, support freedoms to contract.Parliament then, over time, facilitated a penumbra of favourable institutionaldevelopments which led (via unmeasurable reductions in transaction costs) to theemergence of the world’s first industrial market economy.101 In an otherwisecommendable effort to discover political foundations for institutional develop-ments behind England’s precocious industrialization, this widely cited interpreta-tion of its economic history has mis-specified the significance of the GloriousRevolution as a serious change in the private property rights and other institutionsfor the support and integration of free markets; exaggerated a Dutch coupd’état as a constitutional conjuncture; and above all neglected the real significanceof 1688 as marking a fundamental change in the realm’s foreign policy.102 Aschronology this interpretation has, moreover, failed to accord real weight toa virtual library of scholarship dealing with England’s history of civil war,republican interregnum, and Stuart Restoration, when the political consensusand administrative foundations for England’s successful fiscal state came intobeing.103

In short, the new fiscal constitution that funded the armed force that pushedaside rival powers and made space for the realm’s geopolitical evolution towardsthe political and economic hegemony attained and recognized by European states-men at the congress of Vienna in 1815 came into place before the GloriousRevolution.104 Modern historiography displays nothing short of a general agree-ment that more profound outcomes followed from a succession of political eventsthat occurred during an interregnum of civil warfare, which witnessed seriousdestruction of human and physical capital, challenges to hierarchy, and the recon-struction of the state from 1642 to 1684, than ever flowed from the deposition ofanother Stuart monarch in 1688.105 First and foremost that history forged apolitical consensus among England’s wealthy elites for an altogether stronger andmore centralized state, above all to maintain order and political stability, but alsoto afford greater protection for the economy’s growing commercial interests over-seas.106 Paradoxically the Civil War (which after all included a revolt against ainfamous tax called ship money among its proximate causes) created conditionsfor a profound conjuncture, not only in the realm’s political history, but, as myreconstructed data for long-term trends in total tax revenues indicate, in its fiscalhistory as well.107

In constitutional terms, which incidentally were not formalized for some10 years after the Glorious Revolution, the sovereignty of Parliament over all forms

101 Weingast, ‘Constitutions as governance structures’.102 Clark, ‘Political foundations’.103 Russell, Crisis of parliaments; Hirst, England in conflict; Roseveare, Financial revolution; Ellis and Barber, eds.,

Conquest and union; Israel, ed., Anglo-Dutch moment; Harper, ‘Public borrowing’.104 Wheeler, Making of a world power; Jones, Britain and the world; Horn, Great Britain and Europe; Black, Britain

as a military power.105 Woolrych, Britain in revolution; Morrill, Nature of the English Revolution; Pocock, ed., Three British revolutions;

Jones, Charles II.106 Hill, Reformation; Brenner, Merchants and revolution; Bradshaw and Morrill, eds., British problem.107 O’Brien and Hunt, England; Houston and Pincus, eds., Nation transformed; Russell, Causes; Braddick, State

formation; Israel, ed., Anglo-Dutch moment.



of taxation was reaffirmed.108 Politically the settlement of 1697 implied that fromthen onwards the levels and selection of taxes, the rules prescribed for theirassessment and collection, and ultimate control over the departments of stateresponsible for the implementation of statutes of the realm concerned with taxa-tion rested with Parliaments of notables elected upon a highly restricted franchiseand riddled with bribery, corruption, and rent seeking of all kinds.109

Between then and final victory in the Second HundredYearsWar against Franceat Waterloo, in operational terms, the annual provision of funds (allocated inoverwhelming proportion prospectively, and in high proportion retrospectively, tosupport the forces of the Crown in wartime) remained virtually under the controlof an aristocratic oligarchy of ministers reporting either to Stuart, Orange, orHanoverian monarchs.110 With the kingdom so often at or preparing for war,Parliament rarely accorded real time to a primitive and uninformative budgetaryprocess, and almost never used its power of the purse to seriously scrutinize fiscalpolicy, let alone enforce cuts in the Crown’s requests for revenues.111 To the dismayof radicals, who continued for decades before and after 1688 to press for realconstitutional controls over taxation and expenditure as well as reforms to thefranchise, neither the House of Commons nor the Courts played anything otherthan entirely circumscribed roles in the formulation and execution of the king-dom’s strategic, foreign, and imperial policies with their associated fiscal implica-tions that cost British taxpayers so much to bring to a more or less successfulconclusion by 1815.112 As Paine told both his British and American readers,‘Parliamentary government is the most productive machine for taxation everinvented’.113

Not only did the trauma of civil war between supporters of the king andParliament mark the beginnings of the pronounced and sustained upswing in totaltax revenues (exposed in figure 1), but as usual urgent demands for funds forarmies and navies generated untenable as well as sustained changes in the capacityof the state to levy taxes.114 For example, attempts by Royalists and Republicansalike to revalue the fiscal bases they controlled by accurately and regularly mea-suring personal incomes and/or regional wealth, upon which universal more equi-table and productive rates of taxation might be levied, revitalized a tradition ofresistance of intolerable intrusions into the private sphere for ‘extortionate’ andunacceptable modes of direct taxation.115 Thereafter, memories and myths sur-rounded all forms of direct and effective assessments for taxes levied upon theincomes and wealth of households as envisaged in the plans of Charles I to extendship money across his kingdom, and exemplified by regular, universal, and moreequitable assessments conducted brutally by troops under the commonwealth.These left behind a social memory of popular and parliamentary antagonism to

108 Congleton, ‘From royal to parliamentary rule’.109 Reitan, ‘From revenue to civil list’; Roberts, ‘Constitutional significance’; Horwitz, Parliament; Braddick,

Nerves of state.110 Brooks, ‘Public finance’; Hoppit, Land of liberty?; Ellis and Barber, eds., Conquest and union.111 Hoppit, ‘Checking the Leviathan’; Wilson, Sense of the people.112 Stevens, Royal Treasury; Congleton, ‘From royal to parliamentary rule’, pp. 267–84; Cunningham, History.113 Paine, Decline and fall, p. 37; Holmes and Szechi, Age of oligarchy; Roberts, ‘Constitutional significance’;

Ralph, Use and abuse114 Jones, ‘Fiscal policies’; Hutton, British republic.115 Braddick, Nerves of state; Jones, Country and court.



any system of direct taxation based upon regular and accurate assessments of theincome and wealth either of households and/or the parishes and counties liable for‘contributions’ payable to kings and their deferential Parliaments in London. Onlytraditional forms of such direct taxes levied upon the shires, towns, and parishes inrelative proportions that had hardly changed since the middle ages remainedacceptable to the kingdom’s taxpayers.

These stereotyped quotas, combined with control by local elites over theirassessment, collection, and dispatch to the Exchequer, formed the basis for a‘negotiated’ and ‘restored’ land tax which persisted in virtually unaltered formfrom 1694 to 1798.116 All other and widely resented experiments with ‘graduated’poll and hearth taxes (assessed under the later Stuarts and by William III in the1690s) disappeared after 1697.117 No new controversial direct taxes emergedbefore Pitt’s income tax came onto the statute book at a moment of crisis andthreat to the security of the realm in 1799.118 Before that innovation appeared,kings in Parliaments could prescribe and legislate, but freeborn propertiedEnglishmen insisted on withholding from the state accurate information about thevalues of their incomes and wealth.119 In effect, wealthy elites set the terms forcooperation and compliance by retaining control over the administration of theland and all other forms of directly assessed taxation.120

Tenacious political antagonism from classes with taxable and wealth incomesdid not extend, however, to indirect forms of taxation. Although experimentsduring the Civil War with a wide range of ‘foreign excises’ had been unpopular, anew principle (namely that ‘duties’ could be imposed upon goods and servicesproduced and sold within the realm) had been conceded by Parliament. Further-more, the departure during a period of civil warfare from a tradition of resistanceto excises had demonstrated that the assessment and collection of taxes levied on

116 Webber and Wildavsky, History of taxation; Ward, English land tax.117 Brooks, ‘Public finance’; McArthur, Financial and political facts; Brand, Alterations.118 O’Brien, ‘British incomes and property’.119 Brand, Alteration.120 Daunton, Trusting Leviathan.

60

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Figure 1. Total taxes in £millions, 1490–1820 (in constant prices of 1451–75)Source: From data referenced in O’Brien and Hunt, ‘England’.



selected domestically produced commodities (especially beer and liquors, andtobacco, but also salt, soap, starch, coal, and minerals) could produce (undersystems of franchised tax farming) significant amounts of revenue for the Exche-quer in London.121

To avoid any further threats to a restored monarchy provoked by policiesdesigned to reform direct taxes, the ministers of Charles II and their advisorsturned towards the improvement of the legal, institutional, and administrativeframeworks required for collecting rising proportions of revenue for the state in theform of customs, stamps, and excise duties, particularly the latter.122 In effect theevolution towards a fiscal constitution rebalanced towards indirect taxation beganearlier in the seventeenth century, but received strong impetus from the Civil Warand Interregnum.123 It came fully on stream over the century after 1713 whenaround three-quarters of all tax revenues received by successive British govern-ments took the form of indirect taxes. Most of the increment to the state’s incomefrom taxation consisted of excise and stamp duties, levied upon the domesticproduction of goods and services.124 Furthermore, excises formed the legal andpolitical foundations upon which the king in Parliament could honour commit-ments to service debts incurred upon the security of future flows of tax revenues(figure 2).

121 O’Brien and Hunt, ‘Emergence and consolidation’; Chandaman, English public revenue; Whitworth, ed.,Political and commercial works.

122 Roseveare, Financial revolution; Gill, ‘Relationship’; Jones, ‘Fiscal policies’; Leftwich, History; Hoon, Orga-nization.

123 Jones, ed., Restored monarchy; Braddick, Nerves of state; Smith, Stuart Parliaments.124 O’Brien, ‘Political economy of British taxation’; Accounts of Income and Expenditure (P.P. 1868–9, XXXV);

Ashworth, Customs and excise.

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Predictably (and in line with centuries of fiscal with financial developments inVenice, Genoa, Tuscany, the Netherlands, and other states of the mainland) overthis final phase of European warfare and mercantilism, the accumulation ofEngland’s national debt mounted in line with the state’s augmented capacity to taxand pay interest on loans from extra revenues derived in the highest proportionfrom indirect taxes.125 Thus, from a ratio of 24 per cent during that brief interludeof peace (1698–1702), the share of the total tax receipts allocated to service debtmounted, conflict after conflict, to reach some 60 per cent after the Revolutionaryand Napoleonic Wars (figure 3).

War after war, as the British state exploited its growing fiscal potential to borrowfunds to support a far more aggressive stance in great power politics, and mer-cantilist rivalry, Britain moved from the foot to the apex of the European leaguetable for government indebtedness. Again, following histories of its Europeanrivals, who had participated more actively in geopolitical warfare and colonizationlong before 1648, Britain’s fiscal and financial system also weathered several fiscaland financial crises of the state, but with greater ease and more rapid recoveriesthan France and Spain. First came the infamous South Sea Bubble.126 The secondoccurred in the wake of the American War of Independence, 1776–83, when Pittthe Younger reintroduced a sinking fund designed and accepted by Parliamentas a permanent commitment to the systematic redemption of governmentdebt—which by then had accumulated in the perceptions of the political elite todangerous levels (subsequently measured at around double the national income)which threatened the fiscal system, the stability of the constitution, and the

125 Caselli, ed., Government debts; Dickson, Financial revolution; Macdonald, Free nation.126 Neal, Rise of financial capitalism.

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prosperity of the economy.127 Similar manifestations of despondency accompaniedthe renewed and even more rapid accumulation of public debt during the waragainst revolutionary France from 1793 to 1798. It was necessary to preserveconfidence in the financial system while providing funds to meet the rising costs ofa potentially protracted war waged to defeat threats to property from Britain’srevolutionary foe across the Channel. In order to do this, Pitt persuaded Parlia-ment to accept the novel strategy of paying for considerably higher proportions ofmilitary and naval expenditure from the proceeds of the nation’s first real incometax.128 Sixteen years later, and after the most costly conflict in Britain’s history(and despite the clear success of Pitt’s taxes) when the nominal value of thenational debt had risen to nearly three times the national income, Lord Liverpool’sadministration then began the task of rebuilding trust in the fiscal constitution,basically by repealing the hated income tax and by taking initial steps to roll backthe state in the name of laissez-faire.129

To borrow money and accumulate debt at the rates achieved during 10 warsfought by Britain between 1651 and 1815, it was necessary to raise more and moretaxation. Unfortunately (for them) the realm’s major European rivals not onlymanaged taxation systems that had moved more slowly along trajectories for theformation of effective fiscal states elaborated in section I, but they had alreadyexhausted much of their potential to appropriate taxes and borrow money byengaging more intensively in costly involvements in geopolitical and imperialwarfare between 1494 and 1648.130 Many (like the Spanish Bourbons) tried, butbetween the Peace of Westphalia and the Congress of Vienna, no other statesucceeded in raising taxation or accumulating debt at anything like the Englishrate, basically because political constraints upon the implementation of reformsdesigned to widen and deepen fiscal bases for taxation and thereby maintainconfidence in their commitments to service and repay debt remained altogetherstronger in France, Spain, Austria, Denmark, Russia, and the Ottoman Empirethan they became in England once its ancien régime had been restored and properlyfunded.131 Over this closing period of an era of European mercantilism, combinedwith the expansion overseas, England’s fiscal constitutions forged in the crucible ofcivil war and shaped by the policies and institutions for a restored system ofmonarchical and aristocratic government turned out to be far more supportive forthe provision of internal stability, external security, and securing gains from globalcommerce than the fiscal constitutions constraining the strategies pursued by itsrivals on the mainland.132

In contrast to the rest of Europe, the measure of ‘compliance’ secured fromBritish taxpayers for revenues (taxes with loans) to support their state’s aggressivestance in external policy looked remarkable. That compliance requires far deeperanalysis case by case than the short list elaborated briefly below simply to display‘contours’ for England’s fiscal exceptionalism. First of all (and except for thesymbolically important but, in terms of its share in total revenue, increasingly

127 Ehrman, Younger Pitt.128 O’Brien, ‘Triumph and denouement’, pp. 167–201.129 Daunton, Trusting Leviathan.130 Bonney, European dynastic states.131 Caselli, ed., Government debts; Torres Sanchez, ed., War, state and development.132 O’Brien, ‘Taxation for British mercantilism’; Stasavage, Public debt.



insignificant case of the land tax), provincial, regional, and local quotas for taxationhad virtually disappeared from the British system, long before 1688.133 From aEuropean perspective, English ministers and their advisors reporting to monarchsexercised ‘real’ authority over the timing, form, and implementation of legislation,formally passed by subservient Parliaments, for all other categories of taxation,including: taxes assessed upon the ownership and/or use of houses, windows,carriages, riding horses, servants, and dogs; tariffs upon imports; and above all asexcise and stamp duties levied upon a widening range of domestically producedgoods and services.134 From the Continent the island state seemed singular in thattaxes designed by ministers to service the policies of the Crown operated asliabilities prescribed under the laws that would be universally applied throughoutthe kingdom.The rather short list of essentially trivial territorial, social, ecclesias-tical, corporate, and personal exemptions from liability would represent nothingmore than tiny percentage losses of revenue potentially available to fund Britain’sgrowing and increasingly effective naval and military machine.135

On the mainland, fiscal constitutions included rules for both direct and indirecttaxation that continued to allow for inflexible regional quotas, locally agreed‘contributions’, and a widespread (if gradual) diminution of social privileges andexemptions. Divisions over fiscal sovereignty deprived many so-called absolutiststates of serious amounts of revenue. Decentralized, inflexible, and continuouslyrenegotiated arrangements for taxation remained in place, decade after decade, ascontentious and counterproductive features of most European fiscal constitutions,within which hard-pressed ministers of finance operated between 1648 and 1815even in the Netherlands. Old kingdoms, provinces, estates, ecclesiastical domains,privileged cities, and corporations, as well as noble families and ‘officiers’ in theservice of Europe’s empires, composite monarchies, and city states, maintainedprivileges and defences against the imposition of more modern, centralized, uni-versal, equitable, and potentially more productive systems of taxation andfinance.136 Variations across the spectrum of Europe’s complex fiscal constitutionsand administrative arrangements for taxation and borrowing are difficult to evalu-ate in terms of their particular capacities to generate revenues, let alone stabilityand equity. Pezzolo maintains that compared to the net revenues obtained from thetransparent systems for the apportionment of fiscal and financial responsibilitiesfor the defence of Genoan, Venetian, Swiss, and Dutch republics, the quotas andcontributions that Habsburg and Bourbon kings and Austrian emperors managedto extract might be plausibly represented as the sums that aristocratic elites or‘conquered’ territorial units could be persuaded to part with.137

Apart from the more confederal and politically inflexible nature of the fiscalconstitutions retained by Europe’s empires, realms, and republics, with the pos-sible exception of France before 1789, no other European polity experiencedanything like the threat to dynastic rule, hereditary elites, and established property

133 Daunton, ‘Politics of British taxation’; Brooks, ‘Public finance’.134 Fritschy, ‘Taxation’, pp. 57–79; Mathias and O’Brien, ‘Taxation’; Ralph, Use and abuse.135 Hoppit, Land of liberty?, p. 38.136 The country-by-country case studies upon which this rather sweeping generalization rests are included in

Bonney, ed., Rise of the fiscal state; Storrs, ed., Fiscal-military state; Yun-Casalilla et al., eds., Formation andefficiency; and the edited vols. cited above, n. 30.

137 Pezzolo, ‘Formation of fiscal states’.



rights that occurred during England’s republican interregnum.138 Despite furtherepisodes of less violent conflict which in outcome had by 1697 placed Protestantkings within their manipulable Parliaments of wealthy rent-seeking notables incharge of taxation, that interregnum created an exceptional political consensus,not merely in favour of restoring but of sustaining an increasingly well-fundedsystem of monarchical with aristocratic rule.139 Furthermore, and fortuitously, thedefeat of the English elites’ pretensions to territory on the mainland in 1453,followed by some two centuries of virtual detachment from any serious or costlyengagements with European power geopolitics, together with a late and efficientlytimed expansion overseas had allowed a domestic base for fiscal extraction toexpand under the Tudor and Stuart monarchies. This was comparatively unre-strained by tariffs, tolls, duties, excises, and other extortionate demands for taxa-tion that frustrated the ambitions of rival European dynasties and oligarchies.140

Meanwhile on the mainland, intermittent but more protracted, intensive, andcostly involvement in dynastic, religious, and mercantilistic warfare led manyEuropean states exercising dominion over their expanding (and contracting) ter-ritories, populations, and assets, included in the empires, kingdoms, duchies, andrepublics, towards plateaux of diminishing returns.141 Their endeavours to extractever-rising amounts of revenue and loans from economic bases already closer tofiscal possibility boundaries for taxation promoted resistance from subjects owingallegiance but displaying effective opposition to ever increasing demands for higherlevels of taxation.142

As in England, resistance to and evasion of taxes remained particularly tenaciousand difficult to counteract for direct taxes levied in the larger composited monar-chies (such as Spain and France) and in the Austrian Habsburg and OttomanEmpires that included a mix of heterogeneous and potentially disloyal subjects.They relied upon traditional and local elites to protect them from demands fortaxes from royal states and urban oligarchies.143 To maintain tolerable degrees ofcompliance with rising and urgent demands for revenue in circumstances whichmade metropolitan plans for transparent and more equitable systems and modesof direct taxation virtually impossible to implement, finance ministers attempteddecade after decade to shift the structure of taxation towards indirect taxes leviedon the outlays by households resident in their dominions on goods and services.Their room to effect real changes in the balance between politically contentiousdirect forms of taxation and less visible forms of duties on expenditures remainedconstrained, however, by ratios of marketed to total national consumption, and bythe scale and concentration of units of production supplying accessible and regularmarkets located in towns and cities. Furthermore, by 1648 and after many decadesof war-induced impositions which had restrained the development of privateconsumption, trade, and production, indirect taxes upon luxuries ran into the

138 Blockmans, History of power; Bonney, European dynastic states; Downing, Military revolution; Lachman,Capitalists; Reinhard, ed., Power.

139 Holmes, Making of a great power; Prest, Albion ascendant; Houston and Pincus, eds., Nation transformed.140 Jones, Britain and the world; McKay and Scott, Rise.141 Ertman, Birth of the Leviathan; Holsti, Peace and war.142 See above, n. 30; Tallet, War and society.143 Bonney, ed., Rise of the fiscal state; Yun-Casalilla et al., eds., Formation and efficiency; Tortella and Comín,

‘Fiscal and monetary institutions’; and see other references cited above, n. 30.



buffers of diminishing returns, provoked resistance, and raised collection costs.Furthermore, their extension to include necessities, which added a further finan-cial burden, provoked outbreaks of disorder, even in the Netherlands.144

In contrast to the mainland (after the country’s interregnum of civil war andrepublican rule had created a political consensus for a larger properly funded stateand conceded the principle of excises), England’s commissioners in charge ofproviding both customs and excise ‘duties’ for their kings and his ministers, couldcontemplate the exploitation of an expanding fiscal base with considerably morepotential than anything available to their European counterparts. The latter hadalready been engaged for decades with policies designed to rebalance structures oftaxation in favour of less visible and contentious assessments levied directly on theconsumption of goods and services through tolls, customs, excise, and stampduties.145

Furthermore, the net gains from making structural shifts towards indirect taxesanywhere in Europe depended upon minimizing the total costs of assessing andcollecting revenue from taxes assessed upon imports, domestic production, andtrade. In England an interregnum of fiscal innovation stimulated by civil warfareand support for a republic led after the restoration of monarchy to the constructionof proto-bureaucracies for the assessment, collection, and dispatch of customs andexcise duties to the Exchequer.These gradually replaced tax farming and becamein many respects more professional and efficient than any of the systems estab-lished for centralized monitoring over private families, firms, and syndicatesresponsible for the collection of both direct and indirect taxation on the Conti-nent.146 The franchised systems that remained in place for the assessment, collec-tion, and dispatch of indirect taxes was perceived at the time (and has beenrepresented by historians since) as oppressive, venal, and inefficient—in the sensethat the gap between net revenues received at the centre and taxes assessed andcollected (under a plurality of complex leasing and ownership arrangements)remained unacceptably wide and thereby deprived states (especially France,Spain, Portugal, and Austria) of very ‘considerable’ but alas unmeasurableamounts of revenue.147 Reforms to these franchised systems usually produced littlemore than another corruptible layer of royal monitors, paid handsomely to retaintheir loyalties and to countervail the inherent rent-seeking activities of tax farmers.The latter’s perfectly rational objectives were to equate the private marginal coststhat they incurred to collect extra revenues, with the marginal returns that accruedto them as private profits while maintaining their own securities of tenure. Underpressure of wartime necessities to secure rapid inflows of credits and loans thesetenures had, moreover, matured under several monarchies and oligarchies intoproprietorial rights.148 Farmers certainly did not aim to maximize the revenuesdispatched into the exchequers and treasuries of kings.Their patrimonial interests

144 Hoffman and Rosenthal, ‘Political economy of warfare’.145 Kiser and Linton, ‘Determinants’; Hoffman and Norberg, eds., Fiscal crises; and for other references, see

above, n. 30.146 Roseveare, Financial revolution; Chandaman, English public revenue; D. D. Coffman, ‘The failure of the

protectorate excise farms: social network theory and the management of counter-party risk’, unpub. paper,Newnham College (2009); De Luna, ‘English sovereign borrowing’; Jones, ed., Restored monarchy.

147 Bonney, ‘Revenues’.148 Doyle, Venality; Bonney, ed., Rise of the fiscal state.



in royal franchises, ownership of public offices, and rights to use privately con-trolled coercion to collect sovereigns’ revenues alienated taxpayers, and intensifiedthe widespread proclivity of Europeans to evade, resist, and periodically revoltagainst taxes.149

In the aftermath of a civil war and during an interlude of fragile political stabilityand restrained demands for taxes between 1660 and 1684, a restored English statemanaged to abolish tax farming. It put in place—not a rational, incorruptible,efficient Weberian-type bureaucracy for the assessment and collection of indirecttaxes—but rather an embryo system of administration for the management andmore effective monitoring of the realm’s all-important fiscal affairs. This systemlooks in many of its essentials discernibly superior for state formation and theeffective pursuit of geopolitical and mercantilist objectives than anything operatingon the mainland outside that sui generis but explicable case of the Netherlandsunder almost permanent threat of re-absorption into the Spanish Empire or thecomposite monarchy of France, or of becoming a satellite of England.150

Compared to rival European regimes, England’s fiscal reconstruction occurredat a late but fortuitous stage in the process of state building when the powers of therealm’s ancient kingdoms, feudal aristocracies, ecclesiastical corporations, andprivileged cities had been shaken by the Reformation and reduced by civil war andCromwell’s armies. It also progressed over a period of time—1660–84—whenEngland’s domestic economy began to generate the kind of accelerated commer-cialization, colonization, urban concentration, and proto-industrialization thatfacilitated the collection of duties on domestic production and imports. In contrastto major polities on the Continent, the reconstruction of a fiscal state by therestored Stuart regime was not frustrated by powerful provincial estates, bloatedroyal bureaucracies, costly franchised administrations, and venal offices of the kindwidely utilized to collect revenues and provide loans and credits for Europeanemperors, kings, and oligarchies.151 By 1648, most fiscal systems on the mainlandhad become riddled with entrenched property rights to hereditary and tenuredpositions, with corruption, and with the tenacious defence of private and aristo-cratic interests in taxation, built up and consolidated over that era of geopoliticaland religious rivalry that had shaped the formation of all major European statesbetween the plunder of Italy (1494) and the Peace of the Pyrenees (1659).152

Incessant warfare and dynastic competition had left the centralizing monarchs,princes, and oligarchies of most early modern states with devolved and ineffectivefiscal systems—combined with dependence on patrimonialism, clientalism, andprivatized administrations in virtual control of the process of providing them withindispensable (and always urgent) means (taxes conjoined with loans) for theirrenewed engagements in interstate rivalry.153

Treaties signed in 1648–9 at Munster and Osnabruck in Westphalia did notbring peace. Conflict continued. Over the final phase of mercantilism effectivelyconcluded by the hegemony of the Royal Navy that flowed from victory atTrafalgar and was ratified by the Treaty of Vienna in 1815, Europe’s finance

149 Kiser and Kane, ‘Revolution and state structure’.150 Holmes, Making of a great power; Fritschy et al., ‘Public finance’.151 O’Brien and Hunt, ‘Excises and the rise of a fiscal state’; Roseveare, Treasury.152 Porter, War; Tallet, War and society.153 Bonney, ed., Rise of the fiscal state; Storrs, ed., Fiscal-military state.



ministers usually had more urgent tasks to attend to than reforming establishedconstitutions.Their priorities were to supply states with funds to maintain armiesin the field, navies at sea, and a presence in imperial ventures overseas. In any case,their attempts to tamper with the constitutions of composite monarchies andheterogeneous empires or to confront powerful and deeply vested interests of fiscalbureaucracies and franchised administrations usually failed.154 It seems that onlythe exogenous shocks of the kind delivered by civil war in England and theoutcomes that flowed from the French revolution (1789–1815) led to seriousreforms to the fiscal constitutions of other ancien régimes on the mainland.

III

Fortuitously expelled by French armies in 1453 from imperial ventures on theContinent, as a semi-detached island realm, the English state came late to anydeep involvement in European power politics, and moved slowly to establish alarge standing navy for the defence of the realm. The realm also gained from freeriding upon Portuguese, Spanish, and Dutch investments in colonization andcommerce overseas. After a destructive interlude of civil war and republicangovernment came the restoration of monarchy followed by a Glorious Revolutionwhich placated a propertied Parliament representing wealthy elites of taxablenotables, inclined to accede with demands for taxation that helped to protect andsecure the passage of legislation that augmented the value of their property rights.The kingdom’s Dutch and German kings (combined with the island’s rulingaristocracy) could enter without fiscal restraint into geopolitics, mercantilism, andimperialism unencumbered by debt and with an underexploited fiscal base andcompliant body of taxpayers at their disposal.155 Although the realm’s monarchicaland hereditary elite can be represented as the closest approximation to a business-man’s government in Europe, its kings and aristocratic rulers maintained a strongdegree of autonomy in the formulation of strategic, commercial, imperial, andfiscal policies. Before 1832, successive British cabinets remained relatively alooffrom a kingdom of taxpayers and their dispersed and heterogeneous body ofcreditors while they taxed and accumulated debt on an extraordinary scale.156

Edmund Burke once famously remarked that ‘revenue is the chief occupation ofthe state. Nay, more it is the state’.157 In this domain (the ‘sinews of power’) Britishexceptionalism had some discernible, but rather tenuous, connections with areassertion of parliamentary sovereignty over revenue (not expenditures) and therather inconsequential uplift in the security of property rights that supposedlyflowed from the end of the Stuart monarchy. Over-impressed with the benignconnections between the parliamentary commitment of this essentially ancienrégime to private property, North American Whigs might reflect on the tax revolttheir ancestors led against their king in Parliament in 1776.158

154 Genet and Le Mené, Genese de l’état.155 Black, System of ambition; Horn, Great Britain and Europe; Jones, Britain and the world; Langford, Public life.156 Black, Trade; Prest, Albion ascendant.157 Cited in Dietz, English government finance, p. 127158 Weingast, ‘Constitutions as governance structures’; Marshall, Making and unmaking.



Secure property rights go back a long way in English history. The fiscal andfinancial outcomes of the Glorious Revolution (or Dutch coup d’état) can be moreplausibly linked to the prior formation of a consensus among the propertied eliteabout the nature of the state, its fiscal constitution, and its strategic outlook, whichwere forged during a bloody civil war, an interlude of republican rule, and inno-vations in the politics and policies for taxation.159

There then followed a restoration of monarchical and aristocratic government,which reconstructed a fiscal administration that became, in European terms, aproto-professional and relatively effective system for the assessment and collectionof ever-increasing amounts of revenue in the form of indirect taxes.160 Customsand above all excise duties, together with the deference and compliance that therealm’s ancien régime secured from a body of chauvinistic taxpayers towards thestate’s strategic, naval, commercial, and imperial objectives, allowed for an uplift intaxation and an unprecedented accumulation of public debt.161

Between 1641 and 1688, and after Cromwell’s expanded Royal Navy had begunthe violent process of displacing Dutch hegemony in international commerce, apainfully restructured state moved the realm onto a path that carried the nationand its mercantilist ambitions through seven wars to reach a pinnacle of power andwealth that the UK enjoyed throughout a golden age of Victorian and Edwardianliberal capitalism.

In retrospect, and in comparative perspective, most of the competitive advan-tages enjoyed in the formulation and execution of their fiscal policies by monarchsand their aristocratic ministers who took over the state after the deposition ofJames II look path-dependent.They flowed from geographical endowments; morethan two centuries of virtual detachment by Tudor and Stuart regimes fromgeopolitics on the mainland; the unintended consequences of civil war; and thefiscal sclerosis that afflicted most of Britain’s major rivals between 1649 and1815.162 Fortunately the inexorable onset of that very same disease (that clearlyinfected Britain’s fiscal and financial system as ministers struggled with debtservicing problems for several decades after Waterloo) did not seriously compro-mise the exercise of British hegemony for more than a century before the GreatWar of 1914–18.This was basically because that final struggle against Revolution-ary and Napoleonic France had exhausted the will and fiscal capacities of Britain’srivals to challenge its imperial, economic, and geopolitical position in the worldeconomy.163

It will remain easier to expose the foundations and explain the evolution ofEngland’s exceptional fiscal constitution than to model and connect the formationof a well-funded state systematically to the realm’s precocious transition to anindustrial market economy.164 In contrast to their counterparts ruling numerouspolities on the mainland, English elites in charge of an island kingdom constructeda fiscal constitution that provided the funds required to support four economically

159 Zolberg, ‘Strategic interactions’; Bradshaw and Morrill, eds., British problem; Zmora, Monarchy.160 Braddick, State formation; Woolrych, Britain in revolution; van Creveld, Rise.161 Colley, Britons.162 Bonney, ed., Economic systems; idem, ed., Rise of the fiscal state; Hammer, Elizabeth’s wars; and for other

references, see above, n. 30.163 O’Brien, ‘Security of the realm’; Kindleberger, World economic primacy.164 Mokyr, ed., Enlightened economy; Allen, British industrial revolution.



significant public goods, namely, consistently preserved external security,sufficient political stability, effective coercion to safeguard property rights forprivate investments in the domestic economy, and (most important of all) subsi-dies and protection for trade and assets located far beyond the coastlines of therealm.165

Fiscal histories of early modern state formation in the west lend support tothe findings of economists now analysing that same process in modern Asia, theMiddle East, South America, and above all Africa.166 They too recognize thatelites ruling polities without benefit from fiscal constitutions that facilitate flowsof revenue to provide an indispensable array of public goods for economic devel-opment will form underfunded states that too often act (and acted) in counter-productive ways towards property rights and other institutions designed topromote private investment and innovation.167 By design and aspiration mostmodern and early modern states were rarely simply predatory in nature.When provided with sufficient revenues to maintain external security and politi-cal stability, does it not seem rational even for greedy elites holding onto heredi-tary power to invest some proportion of their revenues in extending fiscal basesby promoting the coordination and integration of commodity and factormarkets?168

For the English case, historical research has made it clear that the gains fromoverseas trade and colonization that began to cumulate from the mid-seventeenth century onwards flowed from the creation of conditions for thereconstruction of the realm’s fiscal constitution and a massive uplift in expen-ditures by the state upon a standing navy during an interregnum of republicanand restored monarchical rule, 1642–84.169 These two sinews of power helped tocarry the economy through to a plateau of possibilities and conditions for a firstindustrial revolution.

Now that this ‘British industrial revolution’ has been more or less provincializedand so many of the factors leading the economy to that plateau have beenEuropeanized, it must be time to take more notice of what our other parentdiscipline (history) has been publishing about the exceptional nature of the islandstate. In escaping from a liberal tradition that has long asserted that constitutionsfor liberty and democracy are synonymous with constitutions for economicgrowth, a modern historiography has revealed a set of political arrangements thatsecured an effective level of compliance with rising levels of taxation, coupled withthe rapid accumulation of debt, while meeting demands from the realm’s landed,mercantile, and industrial elites for external security, internal order, and theprotection of property rights.170 Both before and long after the Glorious Revolu-tion, the kingdom’s constitution was anything but democratic.171 Nevertheless, the

165 Rodger, Command of the ocean; Black, Trade; Findlay and O’Rourke, Power and plenty.166 Herbst, States and power in Africa.167 D. Rodrik, ‘Institutions for high quality growth; what are they and how to acquire them’, NBER working

papers 7540 (2000); Chang, Institutional change; Acemoglu et al., ‘Politics and economics’, pp. 1199–226.168 Epstein, Freedom and growth; Ménard and Shirley, eds., Handbook; Mokyr and Nye, ‘Distributional coali-

tions’, pp. 50–70.169 Houston and Pincus, eds., Nation transformed.170 Baxter, England’s rise to greatness; Hoppit, Land of liberty?; Langford, Polite and commercial people; Winch and

O’Brien, eds., Political economy.171 Clark, ‘Restoration’; Holmes and Szechi, Age of oligarchy.



state sustained functional institutions for economic governance, including a Par-liament of rent-seeking notables, a legal system heavily biased towards wealthyelites, and an effective apparatus of military coercion readily mobilized against thelower orders who transgressed property rights.172 Over the course of a precociousindustrial transformation the kingdom’s institutions simultaneously solved severalproblems that are beginning to preoccupy a growing minority of economists whorecognize that properly funded and centralized states have long been necessary foreconomic growth.173 This restoration of economic theory, derived from AdamSmith, posits that effective states supply public goods that embody familiar char-acteristics that differentiate them from commodities and services purchased andsold on free markets. Public goods (such as England’s standing navy) wereindivisible and carried significant externalities, and their supply was generallyseparated in time and space from demand were funded up-front as taxes andloans.174

In early modern conditions and geopolitical contexts, there had to be a sov-ereign authority with sufficient political coercive and administrative capacities toappropriate levels of taxation and raise loans required to supply whatever geo-political strategies and political policies became necessary to sustain an uplift inthe rate of economic growth over the long run.175 In the wake of civil war andthe restoration of monarchical and aristocratic government, the British stateestablished, promoted, and sustained institutions that turned out to be morepromotional for a precocious transition to an industrial market economy thanfor social welfare or for the maintenance of federal-style fiscal and political con-stitutions that led to a greater devolution of power and dissipation of rents onthe mainland.176

Revenues (taxes with loans) allowed the British state to provide a richlyendowed and well-located island economy with unrivalled external security, envi-able internal stability, sustained protection for property rights, and above allfunding for the pursuit of an effective mercantilist strategy that provided a com-mercializing economy with extraordinary shares of the gains from servicing anexpanding global economy.177 The latter might be the single most important ofseveral factors that led over time to the jack up of English wages to levels thatinduced technological progress.178

Before the unification of Germany, the UK’s fiscally constrained rivals could dolittle to arrest its progress towards geopolitical and economic hegemony. If ourtribe wish to pursue deeper investigations into foundations for long-run growth,we might encourage our divorced parents (history and economics) to remarry, andreinstate the significance of states behind the construction of institutions and the

172 Langford, Public life; Ekelund and Tollison, Mercantilism.173 Caplan, Myth of the rational voter; Wolf, Markets or governments; Oakland, ‘Theory of public goods’.174 Oakland, ‘Theory of public goods’; Migdal, Strong societies; Lizzeri and Persico, ‘Provision of public goods’.175 Migdal, Strong societies; Lizzeri and Persico, ‘Provision of public goods’.176 Persson and Tabellini, Economic effects; Battaglini and Coate, ‘Inefficiency’; S. B. Tao and Z. Xin, ‘A theory

of the efficiency of public finance: a new interpretation of the British industrial revolution’ unpub. paper, XiamenUniv., (2008); Rule, Albion’s people; O’Brien, ‘Contentions of the purse’; Mann, ‘Weberian state’.

177 Findlay and O’Rourke, Power and plenty. This argument will be elaborated in a forthcoming book: O’Brienand Duran, Royal Navy.

178 Allen, British industrial revolution, agrees; Mokyr, Enlightened economy, does not.



reordering of cultures favourable to higher rates of investment and innovation thatmarked the kingdom’s transition through the first industrial revolution.

London School of Economics

Date submitted 28 September 2008Revised version submitted 13 November 2009Accepted 5 January 2010

DOI: 10.1111/j.1468-0289.2010.00538.x

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