Opinion from a Libertarian ViewPoint

Decentralization and the Rise of the West: The European Miracle Revisited

Posted by M. C. on April 27, 2022

The Amsterdam magistrate, in contrast, chose to treat all merchants, local or foreign, equally. Relatively speaking, the Dutch Republic was a beacon of political, economic, and religious freedom in the seventeenth century, and Holland in particular experienced an economic boom in the Dutch Golden Age.

Bas Spliet

Decentralization has long been at the forefront of the minds of Austro-libertarians. Hans-Hermann Hoppe, for instance, appeared on Austrian television this month sharing his dream of a Europe “which consists of 1,000 Liechtensteins.”

Although principally based on economic reasoning, this policy agenda emerged at least in part out of a celebration of the historiography on the “European miracle,” which posits that the West grew rich because of the existence of thousands of competing political entities of differing size and form in premodern Europe. Since Ralph Raico summarized this historiography thirty years ago, the “European miracle” school of thought has moved forward with varying degrees of success.

The European Miracle

Back in 1994, Ralph Raico wrote an essay on the then emerging “European miracle” school of thought in economic history. The scholars in this school, Raico argued, had at long last repudiated the “historical materialism” of the Marxists. Unlike Karl Marx and his followers, they insisted that technological change and economic growth were the result of certain legal, political, and ideological institutions—or the “superstructure,” in Marxist terms—rather than the other way around.

Institutions such as property rights, restraint in taxation, and liberalism, in turn, arose out of the political anarchy of medieval Europe. Although culturally homogenous and economically integrated, Europe for centuries remained a patchwork of different kingdoms, principalities, city-states, and ecclesiastical polities. This meant that the ever-growing middle classes of merchants, artisans, and shopkeepers could take their business elsewhere if the rulers usurped too much of their productive wealth. As a result, the political authorities competed with each other to develop an atmosphere conducive to economic freedom. As Eric Jones put it in The European Miracle, which Raico named his article after:

Political decentralization and competition did abridge the worst arbitrariness of European princes. There were many exceptions, but gradually they became just that, exceptions. Meanwhile, freedom of movement among the nation-states offered opportunities for “best practices” to diffuse in many spheres, not least the economic…. The number of states never shrank to one, to a single dominant empire, despite the ambitions of Charlemagne, the Hapsburg Charles V or Napoleon. Within many states a long process in the history of economic thought conditioned rulers to listen to academics and other wise men. Writers of the seventeenth and eighteenth centuries in central and western Europe dared to offer advice about how to rule, some of which was taken.

Political competition ultimately is what set the West apart from the rest. Asia’s Charlemagnes, Charles Vs, and Napoleons were successful in monopolizing political power, allowing them to establish command economies.

The Nation-State

Raico’s article appeared in a volume called The Collapse of Development Planning, edited by Peter J. Boettke. The implosion of the Soviet Union undoubtedly made Raico optimistic that the influence of left-wing ideologies in the field of economic history would collapse, too. Yet the institutional approach has not come to dominate the field. The idea that the rise of the West is principally the result of the exploitation of labor still holds a lot of support in academia.1 Historical narratives that explain the Industrial Revolution through out-of-the-blue technological progress or coincidental geographical factors abound as well. Moreover, historians have tried to prove the efficiency of premodern antimarket institutions, such as craft guilds and serfdom.

Finally, the nation-state is still allocated a decisive role in the economic rise of the West. In his Global Economic History: A Very Short Introduction, for instance, Robert C. Allen celebrates the “standard model” for economic development spearheaded by nineteenth-century European nation-states and the US government. Influenced by Friedrich List and Alexander Hamilton, the four allegedly “successful” state policies, according to Allen, were investments in transportation and mass education, central banking, and tariffs.

Still, few historians would deny that political competition played a vital role in the European miracle. Niall Ferguson, for instance, included competition as the first of several “killer apps of Western power” in his popular 2011 book Civilization: The Six Killer Apps of Western Power. The problem is that since most historians are not libertarians, they do not a priori exclude the possibility that the nation-state can create wealth. Therefore, when government intervention and economic growth go hand in hand, even the institutionalists tend to conclude that the state somehow played a contributing role.

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