If you think big government is holding back economic growth today, it’s got nothing on the feudal system of France’s ancien regime. Historians record overlapping levels of nobles and Catholic church officials collecting taxes on everything from passing flocks of birds to the manufacture of doors and windows within city walls, not to mention the all-important growing, milling, and selling of grain.
The resultant economic stagnation is one of the woes that led to the guillotine.
The French revolution, as we were reminded last week on Bastille Day, swept away that feudal structure in the name of liberty, fraternity, and equality. But economic researchers analyzing years of agricultural data argue in a new working paper (pdf) that the economic benefits from this radical turn actually come from increasing inequality and the consolidation of wealth.
In 1789, the revolutionary government seized French lands owned by the church, about 6.5% of the country, and redistributed them through auction. This move provided a useful experiment for the researchers—Susquehanna University’s Theresa Finley, Hebrew University of Jerusalem’s Raphaël Franck, and George Mason University’s Noel Johnson.
They tracked the agricultural outputs of the properties and the investment in infrastructure like irrigation, and find that areas with the most church property before the revolution—and thus the most redistribution afterward—saw higher output and more investment over the next 50-plus years. They also found more inequality in the size of farms, thanks to consolidation of previously fragmented land, than in areas with less redistribution.
Why does this matter? The authors argue that this is a case that helps explain one of the most important concepts in economics and law, the Coase theorem, developed from the work of the Nobel-prize winning economist Ronald Coase. The theorem says that bargaining should result in optimal outcomes regardless of how economic institutions are designed. However, the lack of perfect bargains in the world led economists to refine this prediction—these optimal outcomes only happen when there are no transaction costs. In reality, the high costs of making a deal often block mutually beneficial deals.
Consider French agriculture: Before the revolution, large landholders like the church tended to focus on renting out their land to small-holders, but these small plots didn’t reward investment in large-scale irrigation or other…