The Demand and Supply of Protection: a Reinterpretation of the Emergence of a Weberian/Olsonian State through the Lens of Modern China

Abstract

The study of institutions and economic history was much influenced by Ronald Coase and Douglass North, in particular with Douglas North’s notion of government as an endogenous outcome of institution competition. Although Max Weber articulated a concept of government as a monopoly of violence in 1919, much subsequent modeling work on governments was built around the banditry notion of governments of Mancur Olson (1993, “Democracy, Dictatorship and Development.” The American Political Science Review 87(3) (September): 567–576). Examples are Usher (1989, “The Dynastic Cycle and the Stationary State.” American Economic Review 79: 1031–1044), Moselle and Polak (2001, “A Model of a Predatory State.” Journal of Law, Economics & Organization 17(N1)), and the like. A good summary is found in Dixit (2004, Lawlessness and Economics: Alternative Modes of Governance. Princeton, NJ: Princeton University Press). We called this collectively a Weberian/Olsonian view of governments. Building on the notion that a State is a monopoly of violence, these models are in line with the banditry idea of Olson, which, among many country historical studies, he used the Chinese example that governments are essentially stationary/roving bandits. Taking Olson’s ideas as a lead, this paper uses the counter-example of Feng Yu-hsiang (馮玉祥 1882–1948) (Feng), a Chinese “warlord”, to present an alternative analytical framework in terms of a supply-demand model for the emergence of governments. The level of generalization for a framework of such societal order is necessarily heuristic, and can be compared to such economic simplification of social reality by Hayek, Schumpeter and North. However, it should help constellate facts that can be gathered to evaluate refutable hypotheses that are of interest to political theorists and historians. The model formulated for this paper is not intended to justify violence, which the authors deplore, but is recognized as merely a statement about realpolitik.