Public Choice DOI 10.1007/s11127-016-0354-3

A positive theory of the predatory state Mehrdad Vahabi1

Received: 24 September 2015 / Accepted: 30 June 2016  Springer Science+Business Media New York 2016

Abstract While the distinction between public and private goods is essential in developing a normative theory of non-predatory states, the focus of this article is on a positive theory of predatory states. Since the predatory relationship between the state and its subjects depends on the power of the state to grab or to appropriate coercively and the subject’s ability to escape or hide, the boundaries of the state are decided by the nature of the assets that can be taken more or less easily. Accordingly, I will introduce a new distinction between captive and fugitive assets that positively captures the frontiers of a state space. The US railroading in the nineteenth century provides an illustration regarding the explanatory power of an asset-appropriating perspective of the state compared to a public goods approach. Keywords Booty and economic value of an asset
Captive
Fugitive and mixed assets
Coercive appropriation
Public goods
Predatory state
US railroading

1 Introduction In his insightful book, North (1981) suggested a simplified classification of two general types of theory about the state: (1) a ‘contract theory’ largely accepted by the mainstream economics in which ‘‘the state plays the role of wealth maximizer for society’’ or (2) a ‘predatory theory’ of the state shared by a remarkably varied collection of schools according to which the state would specify ‘‘a set of property rights that maximized the revenue of the group in power, regardless of its impact on the wealth of the society as a whole’’ (ibid, p. 22).

& Mehrdad Vahabi [email protected] 1

Department of Economics, University of Paris 8, Residence les Lilas, 69 rue Haxo, Escalier 10, 75020 Paris, France

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In the first type of theory, the boundaries of state intervention into the economy are defined by the nature of goods and services. Public goods and services call for state intervention and are characterized by two properties: non-rivalrous in consumption, i.e., the existence of a positive consumption externality, and non-excludability from consumption, even by those who have not contributed to financing the goods’ provision.1 Accordingly, the optimal boundary of state action is decided by the scales and scopes of public goods and services. This is clearly a normative theory of the state’s boundaries. But this theory does not explain how the boundaries of the state evolved and how they were delineated throughout history. In fact, many so-called ‘public goods’ (such as military security, highways and lighthouses) are provided privately (Coase 1974), while some non‘public services’ (like the postal service) have been nationalized, e.g., as in the USA, according to Article I, Section 8 of the US Constitution. While a normative theory of the state has not been used as a guideline for state intervention, the Fifth Amendment has provided a doctrine of regulatory takings: ‘‘nor shall private property be taken for public use, without just compensation.’’ In practice, however, in the US some of the most contested topics in property law today relate to this amendment (Ely 2003). Indeed, the history of railroad building in the US demonstrates how the ‘takings’ clause in the Fifth Amendment2 empowered private railroad companies to appropriate land in the name of the public interest. Which theoretical framework can provide a better explanation for this: a ‘public goods’ or an ‘asset-appropriating’ perspective? While the distinction between public and private goods is essential in developing a normative theory of non-predatory states, this article focuses on a positive theory of predatory states, specifically what the boundaries of a state are rather than what they ought to be. My assumption is that the distinction between public versus private goods does not have a strong explanatory power in defining the contours of a predatory state as they are or as they have evolved throughout history. In practice, the boundaries of the state are determined by the appropriability of assets. However, the appropriability of assets also is determined by the boundaries of the state. Appropriability, in other words, is endogenous. While public choice economists have explored the predatory origins of the state extensively (see, e.g., McGuire and Olson 1995; Benson 1999; Kurrild-Klitgaard and Svendsen 2003; Holcombe 2004; Leeson 2007; Powell and Stringham 2009; Leeson and Williamson 2009), few scholars have explored the effects of asset appropriability in delineating state space. This article addresses this research gap. First, it is important to investigate the nature of coercive appropriation and why these transactions cannot be treated as voluntary. This will reveal the difference between the economic value of an asset and the booty value of an asset. For the state, what matters is the booty value of an asset (i.e., the amount of value that can be transferred or allocated through coercive capture of the asset) regardless of its economic value. Because the predatory relationship between the state and individuals depends on the power of the state 1

Samuelson (1954) referred to ‘collective consumption goods’ versus ‘private consumption goods’, but Desmarais-Tremblay (2014) argued that the two dimensions of public goods already were adumbrated by Musgrave in 1939. Later, Musgrave (1969) formulated the ‘free-riding’ problem as an explanation for market failure in the case of public goods, and Musgrave and Musgrave (1973) originally conceived a twoby-two table as a pedagogical device for classifying different families of goods based on the possibility of satisfying both or only one of two criteria: non-rivalrous and non-excludability.

2

While the amendment imposed two requirements for ‘takings’, namely ‘public use’ and ‘just compensation’, to tame the ‘despotic power’ of the state (Miceli and Segerson 2014), the evolution of the interpretation of the Fifth Amendment actually illustrates the predatory nature of the state and the inability to constrain predation in the long term (see Epstein 1985; Paul 1988; Jones 2000; Benson 2008).

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to appropriate coercively and the ability of the subject to resist or escape appropriation, the boundaries of the state are decided by the nature of the assets that can be confiscated more or less easily. A new distinction can be made between captive and fugitive assets to positively capture the frontiers of a state space. The second section of this article provides a critical survey of the literature on predatory states and mobility. Section 3 shows how state space is determined by captive rather than public assets. Section 4 provides an illustration of the asset-appropriating perspective of the state by focusing on railroads and military security during the first century of the US Constitutional Republic. A short conclusion will follow.

2 A critical review of the literature on predatory state and asset mobility A rather vast literature exists on the importance of asset mobility in restraining predatory states. The theoretical richness of this literature notwithstanding, it suffers at least from two fundamental shortcomings that render the formulation of a positive theory of predatory state impossible. The first one is to conflate coercive and consensual appropriations; the other is to confuse ‘mobility’ with the ‘appropriability’ of an asset. Discussing this literature is useful, however, because it facilitates the introduction of key issues such as the economic and booty values of assets and the importance of distinguishing asset mobility from asset appropriability. Assets’ values as ‘seen by a state’3 in the context of coercive relationships are not the same as the economic values of assets in consensual relationships. To understand this difference, we need to disentangle the meaning of economic property rights and their enforcement.

2.1 Economic and booty value of an asset Coercive ‘appropriation’ refers here to ‘capture by force’ or involuntary redistribution, including state confiscation, expropriation, extortion and theft. Other modes of appropriation, such as acquisition by market transaction, donation, inheritance and option value of financial assets, assume voluntary transactions.4 According to the property rights approach, the economic or consensual value of an asset is not determined by its physical properties, but rather by the allowed rights of action over the asset. ‘‘(T)he value of what is being traded depends upon the allowed rights of action over the physical good and upon the degree to which these rights are enforced’’ (Demsetz 1964, p. 18). There are two important concepts in Demsetz’s definition of economic value, namely ‘right’ and ‘enforcement’. If the mere possession of an asset could imply an economic right over that asset, then the distinction between a consensual and an involuntary transaction would be entirely irrelevant. In this sense, Barzel’s (1997) distinction between ‘economic’ and ‘legal’ property rights is confusing: ‘‘Whoever actually drives the car over which I have legal rights has economic rights over it, be it myself, a person I authorized to use it, or a thief, 3

The title of James Scott’s book (1998), Seeing Like a State, is clearly relevant to what I suggest below in distinguishing the booty value of an asset (as seen by a state) from the economic value of the same asset in a consensual relationship.

4 In organization theory, ‘appropriation’ often refers to post-contractual opportunist behavior within voluntary transactions (Klein et al. 1978). This type of ‘appropriative’ activity does not fall within the scope of involuntary (coercive) transactions.

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though if it is a thief, the state will help me to recover it’’ (Barzel 2015, p. 2). Barzel’s confusing distinction is related to the fact that in line with the University of Washington branch of property rights, he assumes that involuntary transactions might be treated as voluntary transactions.5 He applies this assumption in analyzing slavery (Barzel 1977). However, according to Hohfeld’s (1913) theory of jural relations, a ‘right’ to something for one person implies that at least one other person must have a corresponding ‘duty’ not to interfere with her possession and use thereto (Hodgson 2015). What is the thief’s ‘right’ over a stolen asset that implies an ‘obligation’ for others? Claiming property rights over an asset on the basis of using it is not synonymous with having a property ‘right’ because a ‘‘property claim becomes a property right only when it is socially or legally recognized as such, signifying the voluntary acceptance and enforcement of concomitant duties of noninterference’’ (Cole and Grossman 2002, p. 325).6 The second point in Demsetz’s definition is ‘enforcement.’ Indeed, a property right is a socially enforced entitlement to a specified use of an economic asset (good or resource). The right of action depends on the degree of rights’ enforcement. For example, the extent to which auto theft is prohibited determines the value of a car. If the law is lenient about auto theft, and private protection devices are not allowed (or restricted), the car price will fall below the social value of the automobile. By a socially enforced entitlement, I do not necessarily mean state enforcement, since as Ellickson (1991, 1993) has clearly shown, property rights preceded the state. Borrowing Stringham’s (2015) critical assessment of ‘legal centralism’, the state is not the only definer and enforcer of rights. In fact, a predatory state actually does the opposite, since it can take property, making any property rights less secure. In this sense, Hodgson (2015, p. 6) is not right in claiming that ‘‘property in its truest sense has another prerequisite—the political authority of the state.’’ There are two problems with Hodgson’s definition of ‘property rights’: first, property rights precede the state; second, his definition puts a unilateral emphasis on formal state entitlement, and hence it mystifies the state and disregards the predatory laws and predatory states.7 In sum, economic property rights include exchanges through voluntary transactions only (or by economic means) and preclude involuntary reallocation of resources through supraeconomic force. What is the difference between these two types? Coercive appropriation assumes a predatory relationship in which the reallocation of assets from the predator’s viewpoint depends on two factors: (1) appropriability (the predator’s ability to appropriate assets determines the benefits of appropriation); (2) resistance (the prey’s resistance to thwart appropriation or escape decides the costs of appropriation). The difference between the benefits and costs of appropriation defines the booty value of an asset. What matters for any agent interested in coercive appropriation, including a state, is not the economic value of an asset but the asset’s booty value. 5

For a detailed critical survey of this school, see Vahabi (2011).

6

See also Hodgson’s (2015) trenchant critique of Barzel’s confusing distinction between economic and legal property rights.

7

A good illustration is the way Germany’s Fascist state robbed Jews (1933–1945) (Dean 2008). The Nazi authorities tried to seize not only all Jewish property but also to give those confiscations at least a veneer of legality. Hence, robbing the Jews proceeded in two steps: (1) Aryanization of the economy; (2) the confiscation of Jewish property by the state. Aryanization preceded and prepared the way for ‘legal’ confiscation, converting various forms of Jewish wealth into bank accounts or investments that could be assessed accurately by the German Ministry of Finance and then easily confiscated by the state. According to Hodgson’s definition of property rights, the Jews’ properties had to be regarded as their ‘possessions’ and the ‘property’ of the state’s looters as soon as the Fascist state adopted the Jewish confiscation law. This legalistic interpretation is misleading since it mystifies the state.

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The booty value of an asset depends on its exit option. This option is determined by two factors: (1) the degree of difficulty of appropriating an asset; (2) the ability of an asset to escape appropriation. From an anti-predatory perspective, the more an asset is mobile and invisible (i.e., either having hidden ability or easy to be hidden or disguised),8 the more resistant it is to confiscatory (appropriative) policies. Although mobility and invisibility are two different properties, they share a common quality in the context of predation: inaccessibility to those tracking it down. Here, the term mobility includes the invisibility of or the ability to hide an asset. Movable assets can exit more easily than unmovable ones, and assets can be more or less classified into ‘fugitive’ and ‘captive’ according to their higher or lower booty value. A second confusion in the literature is to treat ‘mobility’ as synonymous with ‘inappropriability’.

2.2 Mobility and appropriability Many economists have noted the importance of mobile assets in restraining and controlling the power of tyrants (e.g., Domar 1970; Friedman 1977; Bates and Lien 1985; De Long and Shleifer 1993). Hirschman’s systematic work on ‘exit’ versus ‘voice’ has inspired recent inquiries into the relationship between democracy and asset mobility.9 This work is helpful in developing a positive theory of the predatory state, but it suffers from a fundamental confusion between two distinct properties: ‘appropriability’ and ‘mobility.’ The former pertains to the state’s ability to prey; the latter refers to the prey’s ability to escape. ‘Mobility’ of an asset provides a means to escape, but does not necessarily imply a lesser ability of the state to appropriate. Consider two movable assets: alluvial diamonds and expert knowledge. The former is easily subject to state confiscation; the latter is not. Which specific factors affect ‘mobility’ and ‘appropriability’? In recent economic and political literature, mobility has often been related wrongly to the specificity of assets. Borrowing from ‘transaction cost’ economics, certain authors have defined ‘unmovable’ assets as non-redeployable or transaction-specific assets and ‘movable’ assets as redeployable or non-specific assets. This description suggests a synthesis between transaction costs economics and Hirschman’s theoretical exit and voice framework. However, I will argue that while asset specificity may affect ‘appropriability’ in some cases, it has no bearing on ‘mobility.’ This synthesis was never advocated by Williamson (1976) or Hirschman (1978),10 but it has recently been supported by certain economists and political science scholars (Rogowski 1998; Boix 2003; Acemoglu and Robinson 2006; Clark and McGirr 2010; Connolly 2012; Freeman and Quinn 2012). Rogowski (1998, p. 53) wrote, ‘‘The cost of exit is 8

I owe this distinction between ‘invisibility’ and ‘the ease to be hidden’ to one of the referees. As the reviewer persuasively argues, cocaine is not invisible but it can be hidden or disguised pretty successfully.

9

Many scholars in the eighteenth and nineteenth centuries focused on the role of asset mobility; see Hirschman (1970, 1977/2013) for examples from Montesquieu, Sir James Stuart Mill and Adam Smith, defining money, notes, bills of exchange, equity shares of companies, ships, all commodities and merchandises as ‘movable assets’ that could escape from tyranny. Hirschman (1978) also cited Turgot regarding the role of the emigration of persons in addition to physical capital in enhancing democracy. Bates and Lien (1985) added several other scholars, including Quesnay, Mirabeau and Marx, the latter stating that capital was the most mobile factor of production.

10

Although Williamson (1976) emphasized complementarity between the two theories in comparing markets and firms (hierarchies), he referred to certain differences in their backgrounds and orientations: ‘‘The antecedent tradition on which EVL [Exit, Voice and Loyalty] relies is a mixture of politics and economics, the former of which is rather diffuse’’ (Williamson 1976, p. 371). Later, he delineated the frontiers between markets and hierarchies (Williamson 1985).

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affected, in politics as in economics, by at least two things: actual conversion costs (acquiring new equipment or skills) and write-off of non-redeployable assets (incompatible or highly specific equipment).’’ This analysis of ‘conversion costs’ is insightful, but using asset specificity when discussing political exit is misleading. Boix (2003) did not explore ‘conversion costs’, but followed Rogowski in analyzing causal relationships between exit (mobility) and political regimes in terms of asset-specificity (non-redeployability). He felt that the process of economic development involves a shift from a ‘complete asset specific’ (non-redeployable) economy based on agriculture (landed property) to a ‘relatively nonspecific asset’ (redeployable) economy built on industry and commerce (Boix 2003). He claimed that democracy relies on the interaction between inequality and asset specificity. According to this historical account, as asset specificity declined, the constraining effect of inequality on democracy lessened and the extension of the franchise became a much less painful option to the owners of industrial capital. This new synthesis is misleading, because it misinterprets the relationship between asset-specificity and vulnerability to confiscatory measures and neglects the difference between economic asset-specificity and political mobility (exit). I will show that: (1) the higher the level of asset specificity, the lower the value of confiscated assets will be; (2) economic asset specificity (i.e., non-redeployability) has no bearing on the political mobility of an asset. First, it is important to define asset-specificity and political exit: I will use Williamson’s (1985) version of ‘asset specificity’ as non-redeployability owing to a particular investment and Hirschman’s (1978) version of ‘political exit’ as an exodus from a given state space. Specific or idiosyncratic assets are almost non-appropriable, as illustrated by the story of Ghazali and the robbers (see Giffel 2009). The story describes a man who was robbed of his books, but later retrieved them and memorized their contents so that no thief could rob him of his knowledge. This pertains to a particular type of asset specificity: human capital asset specificity. Unlike books, personal knowledge is not ‘stealable’ and cannot be confiscated. That explains why any authoritarian regime must tolerate and compromise with experts if it wants their help and collaboration; otherwise, it must slaughter them, as in Cambodia under Pol Pot’s regime. Moreover, experts often can easily emigrate: ‘brain drain’ is usually the result of tyranny or warfare. Therefore, human-specific assets are both movable (capable of political exit) and nonstealable or hardly subject to confiscation (Pagano 2014). In this sense, human specific assets are fugitive assets, meaning assets with two properties: 1.

2.

Mobility: capable of escaping from a given state space, because they can be easily hidden or displaced geographically; this also refers to the possibility of altering political allegiance without any geographical displacement. Non-confiscable: hardly subject to confiscation because (1) any attempt to transfer property rights through coercion destroys the asset or reduces its value to almost nil,11 and (2) the costs of confiscation are greater than the benefits of confiscation.

Specific investment in physical capital is another source of asset specificity. Physical capital (e.g., plants, machines equipment) cannot emigrate easily, making it less mov-

11

Angell (1910/2012, p. 2) devoted a whole chapter to the impossibility of confiscation, writing: ‘‘If credit and commercial contract are tampered with in an attempt at confiscation, the credit-dependent wealth is undermined, and its collapse involves that of the conqueror; so that if conquest is not to be self-injurious it must respect the enemy’s property, in which case it becomes economically futile.’’

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able; financial capital is another story.12 According to Boix (2003, p. 3), asset specificity is the ‘‘cost of moving capital away from its country of origin’’ so physical capital is highly specific.13 The question here is not whether they are movable but whether they are easily subject to confiscation. The answer is negative, because the continuation of particular investments requires specific entrepreneurial capabilities, including marketing, financing, monitoring, coordinating and networking abilities. In the absence of these capabilities, specific assets break down into generic assets, losing all or most of their value. Vahabi (2011) demonstrated that highly specific assets are less vulnerable to strong opportunistic behavior (e.g., theft, predation) outside the contractual relationship and are more prone to subtle forms of opportunistic behavior (e.g., moral hazard, adverse selection) within the contractual relationship. In other words, specific investments in physical capital are hardly subject to confiscation: they are not fugitive assets, but they are not captive assets either. Captive assets are: (1) unmovable in the sense that they are not invisible or capable of escaping from a given state space and (2) readily subject to confiscation. In his article on ‘Standing Tiebout on His Head’, Caplan (2001) also notes the importance of appropriability of assets when he relates different tax regimes to a combination of ‘landed property’ (easily confiscable and immobile) and ‘liquid wealth’ (hardly confiscable). Other examples of captive assets include oil fields and other minerals. Contrary to Boix’s claim, these assets are not necessarily transaction specific. In fact, they often are generic in the sense that they are not the product of a particular investment. Landed property devoted to agriculture is one example: basic agricultural activity has been ongoing since the birth of civilization and does not fall within the scope of specific assets: it is a purely generic asset. Only much later was agriculture industrialized and transformed into specialized assets. In other words, in contrast to Boix’s historical account, human civilization started with generic assets and evolved to specific assets through a long historical process. Similarly, once necessary investment was engaged in extracting oil and other minerals, they transformed into specific assets. There is no general rule about the relationships between fugitive assets14 and asset specificity. Human specific assets are part of fugitive assets, but physical capital assets are not. However, the latter are not captive assets either. Generic assets, like root crops and 12 The frontier between ‘movable’ and ‘unmovable’ is not rigid. A previously unmovable asset can transform into a movable one depending on the level of technological, organizational and institutional change. Currently, equipment can ‘emigrate’ overnight from one country to another to take advantage of cheaper labor costs if the government permits it and does not expropriate the underlying assets. Physical capital investments like human capital assets increasingly are becoming movable, but even in this era of globalization, physical capital is less movable than liquid capital. 13 I prefer Williamson’s (1985) definition: specificity does not only refer to an asset’s physical quality, but also to contractual relationships. 14

Fugitive assets should not be confused with ‘fugitive property’, a term employed by legal scholars to define resources that have no definite boundaries and are not easily identified. Examples of fugitive property are water, natural gas, underground deposits of crude oil and wild animals. These assets should be put under ‘restraint’ before ownership can be claimed. Consequently, it is difficult to determine who has property rights over them. The legal system is confronted with issues concerning the trade-off between the costs of administrating these property rights and the benefits of having these property rights clearly defined and delineated (Cooter and Ulen 2012, chap. 5, pp. 119–126; 128–138). In our theoretical framework, fugitive assets capture both mobility and non-appropriability. For example, oil and other minerals are regarded as captive and not fugitive assets. Best’s work (2004) provides a literally critical appraisal of legal formalism concerning the disputes over the rendition of fugitive slaves and underlines the role of personhood to property.

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tubers, are typical examples of fugitive assets:15 they require little attention and are invisible to invaders: ‘‘A reliance on root crops, and in particular the potato, can insulate states as well as stateless peoples against the predations of war and appropriation…. Enemy armies might seize or destroy grain fields, livestock, and above ground fodder crops, but they were powerless against the lowly potato, a cultivar which Frederick William and Frederick II after him had vigorously promoted. It was the potato that gave Prussia its unique invulnerability to foreign invasion’’ (Scott 2009, p. 196). Other examples of ‘escape crops’ are roots and tubers (having the hidden ability) such as yams, cassava, manioc, and yucca. Many generic crops that do not need any attention can be labelled as ‘escape crops.’ Thus, fugitive assets might be generic or idiosyncratic. The point is that while asset-specificity is relevant to determining the level of appropriability, it is not relevant in distinguishing assets with regard to their mobility (political exit).

3 State space and asset structure Asset appropriation by the state is another area for analysis: instead of focusing on private versus public, it is necessary to investigate assets as less or more easily captured. Considering the two criteria, appropriability and mobility, all assets may be regrouped into four major categories: (1) pure fugitive assets that satisfy both mobility and non-appropriability criteria; (2) mixed fugitive assets that satisfy the mobility criterion but are appropriable; (3) mixed captive assets that do not satisfy the mobility criterion but are non-appropriable; (4) pure captive assets that are both appropriable and unmovable. In reality, state space is not decided by goods and services that are non-excludable and non-rivalrous, but rather by pure captive assets. While pure fugitive assets (category 1) are out of the state space, and pure captive assets (category 4) belong to the state space, the ‘mixed fugitive assets’ as well as the ‘mixed captive assets’ (categories 2 and 3) are intermediary assets and have ambivalent positions with regard to the state space. They can become part of a state space or undertake political exit; everything depends on the outcomes of the bargains between the state and the owners of these assets. In the case of ‘mixed fugitive assets’, owners can exercise their ‘exit power’ to take advantage of rival predatory states to reduce the rent (tribute) they pay to protect their appropriable goods from threat of confiscation by local authorities, pirates or bandits. This ‘exit power’ of merchants and financiers is related to their ability to find a substitute protector. In this sense, competition a` la Tiebout (1956) ensues among providers of protection (kings, lords, religious authorities) to attract consumers of protection (merchants, financiers, industrialists) (Pietri et al. 2016). The owners of ‘mixed captive assets’ do not have such exit power, but the value of their assets and hence the amount of the state’s revenue or taxes depends on their entry on the market. Their ‘entry power’ gives them the opportunity to bargain with the state to guarantee the security of their physical capital investment through laws, regulations and privileges. Table 1 recapitulates the relationship between different types of asset and state space. Source: Vahabi (2016, p. 244) ‘Famine’ foods include oats, barley, fast-growing millets and buckwheat, which are tolerant of poor soils, high altitudes and short growing seasons 15 Scott (2009, op.cit.) calls these crops, ‘escape crops.’ In fact, ‘fugitive assets’ broaden the scope of this category to assets in general.

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Public Choice Table 1 Types of assets and state space Type of assets

Mobility (including hidden ability)

Appropriability

State or non-state space

Examples

1. Pure fugitive assets

Yes

No

Non-state space

Human-specific assets, ‘famine’ foods (e.g., potatoes)

2. Mixed fugitive assets

Yes

Yes

Ambivalent

Notes, money, gold, commodities, merchandise

3. Mixed captive assets

No

No

Ambivalent

Physical capital investment

4. Pure captive assets

No

Yes

State-space

Landed property, oil

(Scott 2009). These are both movable (hidden) and non-appropriable, and they typically belonged to poor and stateless people. In contrast, the rich owned movable but appropriable goods; they could use their exit power to exact concessions from the state. In this sense, they were not ‘out’ of the state, but could threaten not to be ‘in’ the state. ‘Lootable’ goods include primary commodities that are often highly taxed and/or confiscated, because they are easily accessible to governments and bandits with minimal bureaucratic infrastructure (Le Billon 2001). Resource extraction activities are also generally fixed spatially, so items such as gemstones (diamonds), narcotics (opium, cannabis, coca) and timber are usually considered ‘lootable’ commodities (Ross 2004). Unlike oil, a primary commodity, lootable goods are lucrative and easy to transport (Snyder 2006). They can be considered both ‘pure captive assets’ and ‘mixed fugitive assets’ according to their mobility: because their source is spatially fixed, they may be regarded as ‘pure captive assets’, but because of the high ratio of value to weight (easy transport) of the extracted resources, they may be regarded as movable and ‘mixed fugitive assets.’ What are the determinants of ‘appropriability’ and ‘mobility’? Addressing this question requires one to focus on the predator-prey relationship from the state’s point of view. My hypothesis is that humans invented predation without killing by becoming the sole and unique predator behaving also as a protector. We first tried this method by domesticating animals. The state is the prolongation of the domestication technique in human society. One must emphasize that the predator protects the prey only if s/he has its monopoly as his/ her property. This means that the prey owes allegiance to the predator, and in a multiplepredators system, a predator should compete with other predators over the protection of the prey (Vahabi 2016, chap. 2). Hence, every predator must also incur costs of protection against potential threats from other predators. Moreover, as Holcombe (1994, pp. 8–9, 2004, pp. 329–330) explains, the ruler is motivated to protect his subjects since he obtains his income from their productive activities. The predatory state simultaneously protects some property rights and violates others by takings and altering the rights. The protection of certain rights is also a way to economize on the costs of keeping the prey in captivity. Loyal subjects are much less costly than rebellious ones. The time horizon of the ruler is determinant in choosing simple predation or domestication. The former is based solely on the use of force (aggression) for pillaging and marauding occasionally. By contrast, the latter requires a combination of protection and aggression to develop the prey’s productive capacity in the long term. This difference in the time horizon of the ruler is noted by many public choice scholars (Levi 1988, pp. 13, 32–33; Holcombe 1994, p. 112). Benson (1999,

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p. 152) summarizes this point eloquently: ‘‘After all, the more secure the sovereign feels, the longer his time horizon tends to be, and this in turn implies secure private property rights.’’ The stability of the ruling system is not only threatened by rebellious subjects, but also by other predatory rulers. Various competing predatory states try to offer ‘protection’ or less predatory behavior to attract mobile wealth. In this sense, the prey’s mobility is generated exogenously in a multiple-predator system by the competitive behavior of predatory states. But what about other sources of mobility deriving from the prey’s strategy of escape? Mobility involves costs and benefits. The benefit of ‘mobility’ or flight is a considerable reduction in protection costs and its costs are conversion costs, including the costs of adaptation to the new environment and acquiring new skills.16 Mobility is one requirement for escaping state power by changing location or allegiance. Exit power involves three main factors and their respective conversion costs: (1) physical or geographical change in location; (2) allegiance shift; (3) human asset specificity or skills. The state confronts a power gradient depending on the remoteness from the state center (Boulding 1960), so it has less influence over some geographical zones. Steep hills, marshes, tropical forests and deserts have always been natural refuge zones for escapees. People living on the borderlines of two or several states also enjoy an advantageous position in terms of mobility and exit power. Social organization likewise may contribute to geographical mobility or the power to hide: for example, peasants are sedentary, but pastoral nomads are not (Beck 1990). Exit is not always associated with a physical move: people can decide to choose a different protector. This has been a common occurrence throughout history, and lords have often competed in demanding payments for protection in almost the same territory (Lane 1958/1979; Volckart 2000). Hence, even geographically attached people might be ‘mobile’ in the sense that they have an ‘exit power’ and can choose their provider of protection. Finally, human asset specificity affects exit power. Experts and professionals are more productive owing to their knowledge and skills: because those assets are non-appropriable, and often in high demand by different states, such individuals have more exit power. Asset mobility is defined by the high ratio of value to weight and volume. The higher this ratio is, the greater the distance over which an asset might be traded. Historically, distant trade was based on these ‘lootable’ products, including ivory, rubber, wax and, more recently, silk, gold, gemstones, aromatic woods, pepper, rare medicines and tea. Trade in these products linked centers to peripheries on the basis of exchange rather than political domination. Over time, capitalist production proliferated, increasing the number of movable assets such as money, notes, bill of exchange, equity shares of companies, ships, commodities and merchandise. These goods are easily appropriable, and it is no coincidence that security concerns became overriding with the ascendancy of the commercial, manufacturing and professional middle classes. Unlike the old aristocracy, their interests were more immediately tied up with movable property, and they needed security and protection against urban crime. Appropriability is the second underlying criteria for demarcating the boundaries of moveable versus captive assets. Four principal factors affect appropriability: (1) state accessibility of assets; (2) concentration or dispersal of assets; (3) asset specificity; (4) asset measurability. 16 A detailed study of different components of conversion costs is beyond the scope of the present article. For an analysis of different components of ‘conversion costs’, see Vahabi (2016, chap. 6).

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(1) State accessibility: the state as master predator assumes the double role of being aggressor (confiscator) and protector (provider of protection). Hence, the extension of the state space hinges on its ability to have physical, military and administrative access to resources in order to simultaneously grab and protect them by behaving as the ultimate ‘definer’ and ‘enforcer’ of property rights. This is what I refer to as state accessibility. Accessibility is the first major determinant of appropriability. State accessibility is dependent on the geo-political location of assets and on industrial and military technological progress in transportation, communication and strike zones. With regard to geo-political location, valleys were the birthplaces of states. Hills, deserts, tropical forests, marshes and swamps were not easily accessible and often were used as refuges for fugitives. Historically, maritime routes were faster and cheaper means of transporting bulky cargos, so access to strategic chokepoints was a major source of power, allowing the control of land and naval routes. The second factor influencing state accessibility is technological and organizational progress, particularly in the communication, transportation, and military strike zones. Mobility, invisibility and omnipresence are the sources of predatory power. Inventions such as the railroad can usher in an era of mass warfare, while communications and technological advances can greatly reduce the size of an army (Onorato et al. 2014). Unlike geo-political location, technological and organizational progress in transportation and communication is endogenous and influences the extension of administrative allocation of goods and services. (2) Concentration or dispersal is the second determinant of appropriability. More concentrated assets are also more accessible and appropriable. Concentration contributes to economies of scale in the state provision of services and goods, and facilitates central administration of resources. In contrast, more dispersed assets will be costlier in terms of access and appropriation. A few concentrated industries are much easier to confiscate than several thousand small shops (Kautsky 1903, vol. II). Dispersion is the enemy of appropriation for two reasons: it increases invisibility, and it augments the costs of accessibility and measurement. (3) The third determinant is asset specificity. An asset is more vulnerable to appropriation when it is more generic, because it can be more easily redeployed without losing value. A more specialized asset is more difficult to appropriate because its redeployment will incur the loss of quasi-rents from specific investment. Generic assets are more liquid than idiosyncratic assets: it is more difficult to steal knowledge than a book, and a pickpocket will always prefer cash to a traveler’s check. Therefore, the degree of asset specificity plays an important role in determining the protection costs (Vahabi 2011). The development of an impersonal market and anonymous exchange increases protection costs, while specific contractual relationships (personal or face-to-face market relationships) are less prone to appropriation and more vulnerable to contractual defection.17 Anonymous exchange can take two forms: caveat-emptor and explicit future-delivery transactions. Unlike future-delivery disputes, caveat-emptor disputes can occur only at the transaction time. In caveat-emptor transactions, the third-party enforcer simply ascertains that each side delivers what was agreed upon, thus preventing the stronger or the quicker from getting away with plain theft. In future-delivery agreements, however, disputes can arise usually if the recipient perceives a discrepancy between the merchandise and the specifications stipulated in the contract (Barzel 2002). However impersonal market exchanges do not necessarily require third-party violence-using enforcement as suggested 17

Williamson (1985) referred to these as ‘bilateral monopoly’ and handled them as ‘holdup’ cases.

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by North (1990, p. 57): ‘‘complex contracting…in a world of impersonal exchange must be accompanied by some kind of third-party enforcement.’’ In fact, Stringham (2015) provides extensive historical evidence that refutes North’s contention. Enforcement of short sales and forward contracts in the world’s first stock market in Amsterdam in the early seventeenth century often warranted neither the state nor violence (Stringham 2015, chap. 4). At a theoretical level, Leeson (2011) also addresses the issue of handling different types of contracts through a system of clubs without using third-party enforcement. The temporal horizon of social relationships is also a relevant factor in deciding the level of protection costs. In general, protection costs are lower within permanent relationships with no final date of expiration than one-time relationships or relationships with final dates of termination. Repeated contacts make defection more difficult. A longer term relationship is the basis of reputation and trust. This temporal dimension can be regarded as a particular case of ‘anonymity’ versus ‘personal’ relationships. While tribal, clan and neighborhood communities know little or no protection costs within themselves, capitalist economies with their individualistic, market relationships generate diverse forms of protection costs. (4) Measurability is the fourth determinant of appropriability. Accountability and controllability are essential in administering and appropriating assets. Hence, the appropriation of an asset requires the ability to assess and to measure its value so that it can be seized, controlled and allocated properly (Lenin 1921/1965). Assets’ concentration or dispersal is germane in measuring their values. The more concentrated an asset is, the more easily it can be measured. The costs of measurement determine the degree of appropriability. These costs include transaction costs (informational and monitoring costs) that depend on the degree of homogeneity or heterogeneity of assets (Barzel 1982, 1997). The more generic an asset is, the less costly its measurement will be since generic assets are often more homogeneous. By contrast, the more specific an asset is, the costlier its measurement will be because of its idiosyncratic, nonhomogeneous profile. Asset specificity impacts measurement and protection costs in opposite directions. Generic assets incur low transaction and high protection costs, whereas idiosyncratic assets involve high transaction and low protection costs. Transaction costs are particularly germane in contractual relationships involving highly specific assets that are dependent on complex market relationships. Idiosyncratic assets generating quasi-rents contribute to enhancing a value-added productive economy. By contrast, generic assets are poor in producing added value and susceptible to redistributive policies. An important result is that appropriative acquisition of resources prevails in an economy with generic assets rather than specific assets. The difference between these two types of economies, i.e., productive and redistributive, cannot be explained by the level of transaction costs. The main difference lies in the prominence of confiscatory policies by the state.

4 Asset-appropriating versus a public-goods perspective: an illustration Transportation and communication infrastructures and military security are classic examples of public goods. These textbook illustrations often are inspired by American economic history, notably US railroading and the development of a professional and mobile US army (Adler and Polsky 2010). In fact, the symbiotic relationship between the army and railroads characterizes to a large extent the nature of the young American

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republic from 1850 until the end of the nineteenth century (Angevine 2004). This new state might be termed ‘‘the cavalry-railroad complex, an informal public-private partnership’’ (Adler and Polsky 2010, p. 108). During the antebellum period and at the onset of the Civil War in April 1861, both the Confederate and the Union armies were not sufficiently prepared to deploy railroads for military purposes. The war altered both the nation’s rail network and the army’s organizational culture and structure. Later Union generals Grant, Sherman and Sheridan, serving as quartermasters at army posts on the Pacific coast, pioneered this new military culture. The dramatic increase in the army’s transportation costs after the Mexican-American War, amounting to 1500 % from 1844 to 1850 (Angevine 2004, p. 141), incentivized the Union army to consider the advantages of using the railroads to transport men and munitions during wartime. The three men actively mobilized the railroad for military purposes during the Civil War and became the leading proponents of close cooperation between the army and the railroads in the West. Before and after the Civil War, three potential models of military-industrial relations were tried: The first was the policy of minimal government intervention in railroad affairs implemented by the Confederacy. The second was the system of direct military control used by the Union to supervise and operate the Southern railroads during the war. The third was the cooperative approach employed by the Union to guide relations with Northern railroads during the war. When the war ended, the army modified and adopted the third model and began a new phase of military participation in railroad development. (Angevine, Ibid, p. 130) The symbiotic relationship between the army and private railroads, or the ‘cavalryrailroad complex’, was finally adopted. According to Adler and Polsky (2010), this symbiotic relationship provided the public goods necessary to enhance the national economy and was the cause of strong post-war American economic growth. However, Fogel’s cliometric studies do not seem to confirm their assessment: ‘‘The railroad did not make an overwhelming contribution to the production potential of the economy’’ (Fogel 1964, p. 235). Indeed, while the railroad undoubtedly was the most efficient form of transportation available to the nation’s farmers, the combination of wagon and water transportation could have provided a relatively good substitute for the fabled iron horse. Political considerations might be more important than economic efficiency in choosing railroads. ‘‘The history of the army’s connection with railroads demonstrates that the military was central to technological change and industrial development in nineteenth-century America’’ (Angevine 2004, p. 227). While following Angevine, I will focus on the interests of the state (army) in developing railroading, other social and political implications of railroading should not be ignored. For example, Lemke (2016) extensively documents how the spread of railroads significantly reduced the costs associated with interjurisdictional mobility leading to the promotion of opportunities for unmarried women’s mobility westward. This mobility was a causal mechanism behind advancements in married women’s property rights. The development of the transcontinental railroad contributed to rectify some of the extreme early gender imbalances (Lemke 2016, p. 305). The increase in Tiebout type of interjurisdictional competition was closely related to reform in married women’s property laws as well as rent-seeking activity of local politicians to capture state subsidies. By 1871, the federal government had given over 158 billion acres of land to private companies or state governments in order to subsidize railroad construction (Richter

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2005, p. 23). The value of those rents and the local settlement they could be used to promote led to intense political competition. (Lemke 2016, p. 304) Granting private land to railroad companies in the name of ‘public interests’ should be traced back to the antebellum era. At that time, the Fifth Amendment authorized the Federal Government and the State to grant immense tracts of land to railway companies18 to promote railroads in the name of public interests. State and federal courts in the antebellum era repeatedly sustained acts empowering railroads to appropriate private property. Rejecting arguments that property was being taken for private gain, they reasoned that railroad companies were carrying out the public purpose of improving transportation. The railroad eminent domain cases established two propositions: (1) that public use was not synonymous with public ownership and (2) that legislators were free to decide whether private enterprise might be a better vehicle than governmental agencies to effectuate the public interest. (Ely 2003, p. 33) Reviewing courts’ decisions regarding early ‘takings’ related to railroading, Ely underlines that in order to sustain the exercise of eminent domain, courts started to conflate ‘public use’ with the more expansive concept of ‘public interest’ or ‘public benefit.’19 The importance of takings notwithstanding, the federal government bestowed its ‘‘own land’’ for settlement in various ways after the Civil War (e.g., the Homestead Act of 1864). In fact, one of the distinctive characteristics of the American railroading compared to the English system was its access to cheap (if not totally ‘free’) land. This land had a double use: it could be mobilized as security for bank loans, and it empowered these companies to attract settlers and ‘‘thus to acquire traffic by disposing of its land on very easy terms’’ (Saturday Review 1883, p. 276). In return, the railway companies were obliged to transport persons and property for the military and naval establishments at ‘reduced rates’, which ended only on 12 December 1945 (Sutton 1966, p. 66). Given the reduced rates for military purposes, the railroads economized on the state’s costs of carrying troops by rail: ‘‘The average through rate for freight by rail was 19 cents per hundred pounds per hundred miles, while the wagon rate would have been between $1.45 and $1.99. The government therefore saved approximately $6 million’’ (Angevine 2004, pp. 186–187). But this cost-reducing effect was not the major benefit for the army. More importantly, before the Civil War, the US army was tiny or quasi-inexistent; the transformation of this army into a standing army after the war depended mainly on two factors: (1) the military use of the transcontinental railway and (2) the westward extension of land appropriation. I will demonstrate that while both factors are in line with an asset-appropriating perspective of the state, they contradict a public-goods approach. Considering the first factor, this new transport and communication means stretched what in the preceding section was named ‘state accessibility’ by creating a mobile standing army. As Herrera (2006, chap. 3) and Onorato et al. (2014, p. 453) have shown, mass 18 Although some people consider the land grants to railroads as massive handouts or subsidies, one could interpret the outcome as a form of mass privatization of land, one maybe even consistent with Lockean homesteading of previously unused land. While the two first interpretations are valid, the last one is more apologetic with regard to the seizure of land from the Native Americans. 19 For example, in Beekman v, Saratoga & Schenectady R.R. Co. (N.Y. Ch. 1831), a New York court decided that it was ‘‘the province of the legislature to determine whether the benefit to the public warranted taking private property’’ (Ibid).

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European armies20 followed the emergence of railroad networks: ‘‘Prior to the invention of the railroad, it was physically impossible for states to field mass armies.’’ The same is true in the case of the USA. ‘‘Railroads enabled the American army to expand its size, move faster and farther, and supply itself from more distant bases. One of the effects of railroads was to make the nation in arms a workable reality’’ (Angevine 2004, p. 147). Angevine is referring to the Civil War period. Because of its carrying capacity and speed, the railroad enabled an increase in the size of armies. By reducing the need for long marches just to reach the battleground, they allowed more civilians to participate in the fighting. ‘‘In the Civil War, 2.5 million Northerners and 1.6 million Southerners served in their respective armies. Battles during the war involved ten to twenty times more combatants than the largest battle in the War of 1812’’ (Angevine 2004, p. 147). It is true that the army’s size shrank after the Civil War but it never reduced to its prewar level: ‘‘Growth during the Civil War (1861–1865) was phenomenal: the Union Army totaled over 1 million men in 1865. It never shrank to its prewar level, its size fluctuating between 25,000 and 30,000 men in the 1870s and 1880s’’ (Anderson and McChesney 1994, p. 67). Furthermore, while the dissolution of the great volunteer armies of the Union reduced the size of the US army, the end of the Civil War was a turning point in substituting full-time, professional soldiers for local militias in fighting Indians. The derived demand for postwar soldiers came principally from fighting with Indians. ‘‘For [the latter half of the nineteenth century], the U.S. Army would find its primary mission and its main reason for existence in the requirements of the westward movement beyond the Mississippi’’ (Utley 1967 quoted in Anderson and McChesney 1994, p. 66). In this sense, maximizing a national mobile standing army’s size or extending state accessibility was a principal reason for the military deployment of railroads. Compared to the previously ‘minimal army’ (local militia), the creation of the US standing army not only did not reduce military expenditures, but increased it colossally at a national level. However, the maximization of the standing army’s size served the interests of military forces. The second factor is related to the role of the army in opening the West for settlement. While the ‘productive’ advantage of the cavalry-railroad complex is not obvious, its advantage in colonization and violent appropriation of land from Native Indians and Mexicans is uncontestable. Land for settlement is a captive asset, since it satisfies both of its properties: (1) it is immobile; (2) it is a generic asset and hence easily confiscable. The US army could implement the settlement policy through the state’s monopoly of force, which necessarily was a bloody process since its principal objective was land appropriation rather than enslaving native Americans. (Many were instead moved and confined to reservations far from their homelands.) In fact, a good part of the land granted to railroad companies was taken from the Navajo tribe. Between 1863 and 1868, the US Army waged a war on the Navajo people that ended in the Army holding half of all Navajos at Fort Sumner, New Mexico. ‘‘In 1866 Congress set aside a swath of land south of the treaty 20

Despite a widespread belief, the invention of a ‘mass army’ (leve´e de masse) is not attributable to the French Revolution: ‘‘the magnitude of the influence of the French Revolution and Napoleonic era on army size and mobilization was relatively small’’ (Onorato et al. 2014, p. 453). The authors’ detailed statistical data and econometric tests with regard to army size and military mobilization indicate that the peak Napoleonic army size was 2.2 times larger than it had been in 1747 (the peak date for War of Austrian Succession), and peak Napoleonic mobilization was 1.6 times larger than in that same year (Ibid, p. 475), whereas the size of the military in 1918 was 6.6 times larger than in 1812; the multiplier for mobilization was six. They demonstrate that this colossal increase was directly related to the use of railroads (see pp. 473–476). They also provide an exhaustive list of French historians who have underlined the undeniable impact of railroading in creating mass armies in France as well as explaining its failure in Franco-Prussian war owing to deficient railroads use.

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reservation for a transcontinental railroad that would travel through the middle of the Navajos’ traditional homeland. The grant, alternate square-mile sections in a corridor soon expanded to 100 miles wide, was supposed to generate funds to finance railroad construction’’ (Kelley and Francis 2001, p. 73). It is not surprising that in a letter to Grant, the chief engineer of the Union Pacific Railroad, Grenville M. Dodge, predicted that ‘‘our Rail Road will do more toward taming Indians than all else combined’’ (quoted in Angevine 2004, p. 176). Railroads were regarded as the technology of domination helping the expulsion of aboriginals from their territories, exterminating the resistant tribes and domesticating the thwarted Indian tribes. Advocating a public-goods approach to the role of army, Adler and Polsky (2010, pp. 109–110) underline the prominent role of the Army in the Western peripheral part of the country: We identify the state of the nation’s geographic periphery—what might be termed the state of the West. Its physical scope shifted steadily westward following the ratification of the Constitution, initially covering the trans-Appalachian region, then crossing the Mississippi River and extending its tentacles across the continent to the Pacific Ocean. In this state of the West, one institution towered over all others—the Army. Controlled by neither courts nor parties, it assumed a dominant position in securing land for settlement, removing aboriginal inhabitants when they clashed with white settlers, seizing a vast swath of territory from Mexico, mapping routes for settlers and assisting transcontinental migration, establishing forts that became the first economic nodes for civil commerce and more. It is hard to describe ‘colonialization’ as the provision of ‘public goods’ rather than manhunting and land confiscation.21 But it may be argued that the provision of military security to settlers was a ‘public good’ for the colonizers. However, a further inquiry about those who benefited from the Army’s protection clarifies that settlers were not among the principal beneficiaries. Indeed, army protection in the US during the nineteenth century was far from being a ‘non-excludable’ and ‘non-rival’ good. Since the army lacked enough troops, it could not provide defense to every settlement. The provision of protection to one settlement could deprive others of it. In this sense, it was a rival good. This point was clearly acknowledged by the Army’s major authorities. For example, according to William Tecumseh Sherman, the goal of the army was ‘‘to aid the people in self-defense, until in time they can take care of themselves, and to make the roads by which they travel or bring their stores from the older parts of our country as safe as the case admits of’’ (quoted in Angevine 2004, p. 167). Moreover, military protection was excludable. In fact, it was limited to the Pacific route railroads: Since the army lacked the resources to police every route across the plains, it tried to funnel westward emigration onto a few primary avenues of travel by designating a few major routes for emigrants to follow and refusing to establish or protect others. The construction of the Pacific railroads, which Grant predicted ‘will naturally draw all travel to those lines’, represented an opportunity to reduce even further the number of routes west. (Angevine 2004, p. 168)

21

For having a glimpse at the ‘domestication’ of the native Indian through Reservation to Reorganization, see Takaki (1993, chap. 9).

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In other words, all other routes except those of the Pacific railroads were excluded from military protection. Those who determined the patterns of railway routes could leave others unguarded by the US Army. It should be reminded that railroads were built in sparsely populated regions far in advance of times justified by traffic (Saturday Review 1883, p. 276; Adler and Polsky 2010, p. 101). This clearly meant that military protection was a private good. In fact, the Army provided private protection for Pacific railroads, and this also was conceded by top military officials: In exchange for benefits that the army received from the railroads, its leaders felt obliged to provide several services. First and most importantly, Grant argued, the army should provide ‘every protection practicable’ to the railroads, Sherman concurred, reasoning that the privately owned Pacific railroads were nevertheless public endeavors, and ‘their public nature implies public protection.’ (Angevine 2004, p. 173) But what were the benefits that the army received from the railroads? The most important benefit was the aforementioned ‘reduced rates’ for the transportation of the army’s personnel and materials that contributed to the emergence of a professional transcontinental army. In return, the state granted land to private railway companies in the name of the ‘public use’ as stipulated by the Fifth Amendment and interpreted by state and federal courts as ‘public interest’ or ‘public benefit’ during the antebellum era as explained earlier. In addition to this benefit, two others should be emphasized. First, the railroads’ interests in the extinction of American bison, buffalos: ‘‘Leading army officers recognized the links between the extension of the railroads, the decline of the buffalo, and the fate of Native Americans. By reducing the buffalo population, thereby weakening the Native Americans on the plains, the railroads were helping the army accomplish its mission’’ (Angevine 2004, p. 173). However, it should be noted that another major factor for the extermination of buffalo was cattle ranching. As Anderson and Hill (2004, pp. 98–100, 138–139) argue, cattle could be more easily controlled and transported to market. Accordingly, the bison had to be eliminated to make room for cattle on western grazing lands. Second, personal favors for the army’s leading officers forging a close relationship with Pacific railroads: ‘‘The Union Pacific and the Union Pacific Eastern Division also offered personal benefits to army officers. They provided private cars and valuable passes for free railroad travel…. The companies also entertained officers on excursion trips and sold them land at steep discounts’’ (Angevine 2004, p. 185). Corruption among army officers as well as Presidents and Boards of Directors of railway companies has been documented exhaustively by Bain (1999). Reviewing the story of the ‘cavalry-railroad complex’ shows that a public good approach does not capture the rise of a mobile professional army, colonization and the use of railroads as a technology of domination. The only doctrinal justification for the ‘civilizing effect’ of railroads has been the domestication of the native Indians, viewed widely as ‘roving bandits’: The leading figures in the army in the West regarded the conflict on the plains as a contest between civilization and barbarism. Sherman divided Native Americans into two groups based on their potential for civilization. He was willing to tolerate those who embraced his idea of civilization by settling in one place and adopting agriculture.…He doubted, however, that most Native Americans were capable of adopting a sedentary lifestyle.…Peaceful coexistence of the different ways of life

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was simply impossible. ‘So long as the two distinct races of people, with such diverse interests as subsist between the roving Indians of the plains and our own white settlers, remain together’, he argued, ‘so long will actual war exist.’ (Angevine 2004, p. 169) The victory over the so-called ‘roving Indians’ was not achieved by ‘civilizers’ or promoters of public goods but by ‘stationary bandits’ (Olson 1982). This is the way an asset-appropriating perspective on the state interprets the creation of a US cavalry-railroad complex during the nineteenth century. The public goods approach has often characterized the young American Republic as a ‘developmental’ state as opposed to a ‘predatory’ state (Adler and Polsky 2010, p. 91). But what is a ‘developmental’ state, and can it be distinguished from a predatory state as usually assumed (Evans 1989)? An appropriating approach demystifies the so-called ‘developmental’ state as provider of public goods. While all states are predatory, some enhance economic development while others hinder it. The major issue is whether the predatory state employs aggressive strategies to enchain captive assets by force or if it combines aggressive and protective strategies to include not only captive, but also fugitive and mixed assets. The second strategy requires state protection of some property rights as discussed in the preceding section. A developmental state is a predatory state that combines aggression with some protection of property rights. The predatory young American Republic promoted economic development since it used the aggressive policy of land seizure from the Native Peoples to attract and develop fugitive and mixed assets. The confiscation of land or captive assets resulting from the symbiotic relationship between the army and the railroads contributed to the dissolution of communal land and the transformation of land into private property. By placing Native Americans on specially designated reserved lands, they were forced into sedentary lifestyles. But in 1887, when Congress passed the Dawes Act, known also as the ‘Indian Emancipation Act’, the reservations were dismantled. Accordingly, the Indians’ tribal relations based on reciprocity were dissolved, and their communal assets were transformed into mobile capital: ‘‘To advance and civilize the Indians, the white reformers argued, the tribal system had to be destroyed…the key to civilizing Indians was to convert them into individual landowners’’ (Takaki 1993, p. 235). This was the essence of a new policy entitled ‘allotment and assimilation’ to transform the Indians into property owners and US citizens. Now the government had the power to allot reservation lands and sell ‘the balance’ of reservation lands in order to make ‘homes for white farmers.’ What would be the future for the Indians if they no longer had their lands? ‘When the last acre and last dollar are gone’, Indian affairs commissioner Francis Leupp answered, ‘the Indians will be where the Negro freedmen started 35 years ago.’ Therefore, it was the government’s duty to transform Indians into wage-earners. (Takaki 1993, p. 237) In order to train Indians to become agricultural workers, Leupp arranged for the leasing of tribal lands to sugar beet companies willing to employ Indians. The land seizure was followed by the protection of property rights in land and the transformation of Indians into landowners and then agricultural workers. Furthermore, new settlers were ‘‘non-Indian cattle ranchers who hoped to profit from sales in distant markets made accessible by the new railroad and from government contracts’’ (Kelley and Francis 2001, p. 74).22 The end 22

For a more detailed historical narrative concerning New Mexico’s sheep industry, see Carlson (1969).

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of communal land ushered in an era of movable capital in agriculture developed by commercial cattle ranchers. It is also noteworthy that the cavalry-railroad complex laid the groundwork for an extensive integrated continental market and ‘‘nurtured nascent markets through troops’ purchasing power and contracts let by the War Department for supplies. Often forts were placed in sparsely populated areas and thus helped to spur new settlements. Such cases demonstrate how the Army accelerated population movement in advance of any natural demand for opening new land and even steered people to places that might otherwise never have seen development’’ (Adler and Polsky 2010, p. 101). In sum, the American predatory state paved the road for securing private property rights, commercialization of agriculture and cattle ranching as well as extending a continental market by seizing the land from the Native Americans.

5 Conclusion The concept of public goods is the cornerstone of a normative theory of the boundaries of state action, but its explanatory power in delineating the existing boundaries of a predatory state is questionable. In this article, I endeavored to develop a positive theory of the predatory state by focusing on how the state sees an asset. Hence, I distinguished the booty value of an asset from its economic value. Indeed, this distinction was captured implicitly in our discipline from its inception, since the founders of political economy already had underlined the impact of assets’ mobility on restricting tyranny and enhancing democracy. Following this line of inquiry, I further introduced a classification of assets with respect to their economic appropriability and political mobility. The former measures the interests of the predator and the latter captures the activities of the prey to thwart predation. Four categories of assets have been distinguished: (1) pure fugitive assets; (2) mixed fugitive assets; (3) mixed captive assets; (4) pure captive assets. Appropriation costs are the highest in the first category and the lowest in the last; they are intermediary for second and third categories. While pure fugitive assets define non-state space, pure captive assets determine state space. Mixed escape/captive assets are located on the frontiers of the state and non-state space and have an indeterminate position with regard to allegiance to any state space. Four dimensions have been identified in defining fugitive assets or the frontiers of the state space, namely state accessibility, concentration or dispersion, asset specificity and measurability. Since captive assets are easily appropriable and their appropriation costs are low, the state has monopoly power in fixing their protection price. But mixed assets are critical assets since they have an exit option, and their appropriation depends on the state’s ability to secure property rights by offering a competitive protection price. Predatory regimes can adopt different historical trajectories according to their strategy of accumulation. Generally speaking, they might choose either a redistributive or a productive regime. In the former case, they enhance ‘aggressive’ or coercive acquisition of resources to maximize protection rents (tribute). In the latter, the predatory state protects some property rights to include fugitive and mixed assets. The young American Republic provides a salient case study of a productive predatory state. A redistributive regime prevails in an economy with generic assets rather than specific assets. The owners of mixed assets can maximize their profits by

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minimizing protection rents (tributes) and foster a value-added productive economy. The difference between these two trajectories determines the development path. A positive theory of the predatory state requires an understanding of the continual evolution of the boundaries of captive versus fugitive assets, according to the state’s ability to appropriate and the subjects’ ability to escape or hide their assets. The US railroading system in the nineteenth century provides an illustration of the explanatory power of an asset-appropriating perspective of the state compared to a public goods approach.23 This alternative approach also demonstrates why a predatory state might protect some property rights and promote economic development. An important policy implication of this theory in developing countries is that the efficiency of predatory states is not analyzed solely in terms of the level (quantity) of investment but according to the assets’ structure (i.e., the ratio of fugitive and mixed to captive assets). This perspective raises new questions about the political economy of development under predatory regimes that need to be explored further. Acknowledgments I wholeheartedly thank my three anonymous referees, the associate editor Peter Kurrild-Klitgaard, and the editor in chief, William Shughart of the Public Choice journal, for their excellent and constructive comments. I would also like to present my gratitude to Bertrand Crettez, Geoffrey Hodgson, Peter Leeson, Sylvie Lupton, Pavel Pelikan, Antoine Pietri, Daniel Smith, Tarik Tazdait, and Mandana Vahabi, for their inspiring and insightful remarks on earlier versions of this paper. Obviously, all the remaining errors are mine.

References Acemoglu, D., & Robinson, J. (2006). Economic origins of dictatorship and democracy. Cambridge: Cambridge University Press. Adler, W., & Polsky, A. (2010). Building the new American nation: Economic development, public goods, and the early US Army. Political Science Quarterly, 125(1), 87–110. Anderson, T., & Hill, P. (2004). The not so wild, wild west: Property rights on the frontier. Stanford: Stanford Economics & Finance. Anderson, T., & Mc Chesney, F. (1994). Raid or trade? An economic model of Indian-White relations. The Journal of Law and Economics, 37(1), 39–74. Angell, N. (1910/2012). The great illusion, a study of the relation of military power to national advantage. Memphis: General Books LLC. Angevine, R. (2004). The railroad and the state, war, politics, and technology in nineteenth-century America. Stanford: Stanford University Press. Bain, D. (1999). Empire express, building the first transcontinental railroad. New York, London: Viking. Barzel, Y. (1977). An economic analysis of slavery. Journal of Law and Economics, 20(1), 87–110. Barzel, Y. (1982). Measurement cost and the organization of markets. Journal of Law and Economics, 25(1), 27–48. Barzel, Y. (1997). Economic analysis of property rights (2nd ed.). Cambridge: Cambridge University Press. Barzel, Y. (2002). A theory of the state, economic rights, legal rights, and the scope of the state. Cambridge: Cambridge University Press. Barzel, Y. (2015). What are ‘property rights’, and why do they matter? A comment on Hodgson’s article. Journal of Institutional Economics, 11(4), 719–723. Bates, R., & Lien, D. (1985). A note on taxation, development, and representative government. Politics and Society, 14(1), 53–70. Beck, L. (1990). Tribes and the state in 19th- and 20th-century Iran. In P. Khoury & J. Kostiner (Eds.), Tribes and state formation in the Middle-East (pp. 185–222). Berkeley: University of California Press.

23 In addition to political entrepreneurs like John Muir, the railroads also are responsible for developing another so-called ‘public good’, the National Parks (Runte 2010). That story also deserves to be investigated in more detail in the future.

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