The co-evolution of theories and institutions
Analysis of differences between paradigmatic developments in Britain, Germany, France, and Italy may explain both late internationalization and the way in which combinations involving two or more national traditions eventually led to progress.
To put the following in perspective, two more general aspects have to be kept in mind. (1) Regarding the historical context, the development of public economics may be thought of in terms of a co-evolution accompanying the emergence of modern statehood differing across Europe. In the feudal setting, taxation was conceptualized in framings not yet adapted to modern ideas of statehood and the public sphere. In older treatises on public finances, taxation is often viewed as an irregular source of revenue that should be tapped only in times of wars and emergencies (Mann 1937: ch. 3). The co-evolution of modern statehood and modern market economies coincides with the evolution of public finances and taxation, eventually triggering multifarious developments in public economics. (2) Different architectures of state and governance are developed by major thinkers of European modernity, influencing the discussions on the principles of public economy in different ways across the different eras and the different nations of modern Europe: Hobbes, Locke, Montesquieu, Kant, and Georg Wilhelm Friedrich Hegel. However, there are common elements too; public economics must deal with the coherence of the principles of governance and their implications for policies. The latter need to be analysed in an environment of complex market interdependences. Practical knowledge regarding “good” public institutions and mechanisms presupposes such analysis. Different sets of foundational principles were mapped into the conceptual space of public economics, including:1. The voluntary-exchange theory of the state. This is related to the quid-pro-quo or benefit principle of taxation and the concept of a Lindahl equilibrium regarding the provision of public goods (see Foley 1967).
2. Locke’s conception of the state as an expedient enforcement agency for pre-political private property rights. This is related to the view that the main task of the state is lowering the costs of private transactions, again gaining prominence in the wake of the Coase theorem.
3. Conceptualizations of the complementary functions of the state and the private property-market economy as emphasized in German idealism. This is related to conceptions of (re)productivity of the state and collective wants emerging in German language Public Economics (see Sturn 2006).
The range of influences on currents of thought includes such foundational reasoning along with nation-specific institutional features, policy challenges and ideologies. There is no one-to-one correspondence between nations and currents of thought: “national traditions” in public economics consist of combinations of elements whose origin is not always purely domestic. However, the specific mix of ideas and its evolution tends to be conditioned by institutional circumstances and political problems. In the nineteenth century, nation-specific developments and research strategies of public economics are influenced by historically specific forms of those two elements, that is:
1. The theoretical background, shaping thought regarding the role of the state in a market society. This includes public goods and market failure as well as the drawbacks of political mechanisms and the forces of self-regulation.
2. The political context, either putting public economics into the perspective of incremental reform in the context of an existing governance structure or else raising foundational issues of statehood pertinent to a more radical transformation of governance structures.
“National traditions” neither preclude the existence of common ingredients, nor of common problems, nor of cross-fertilization. For instance, theories capturing the selfregulating mechanisms of the market economy and the concomitant logic and potential of the spontaneous order had impacts across borders.
The lessons of Smithian political economy were absorbed not only in France, but were taken up in Hegel’s political philosophy (see Priddat 1990) and by the protagonists of German Staatswirtschaftslehre (economics of the state), whose theoretical architecture was influenced by theories of the state of German idealism. On the other hand, James Steuart was influenced by continental thought and influenced German nineteenth-century thought.At a different level, some degree of thematic convergence occurred regarding specific issues of public finance across different national and theoretical contexts. Vauban and Pierre de Boisguilbert in France, Petty in England, and the cameralists often dealt with very similar problems. Examples include (1) the debates on excise taxes in early modernity, on income taxes in the nineteenth century (with important precursors), or recurrent debates on taxes on land from the eighteenth century onward; (2) ideals of governance without taxation that were promoted in liberal as well as in romantic circles; concerns related to (3) equitability of taxation (for example, ability to pay) and (4) exchange paradigms of taxation (for example, quid-pro-quo or insurance theories of taxation), both recurrent issues from the seventeenth century onward.
Nation-specific traditions should neither be considered as autochthonous currents nor as monolithic paradigms. They are influenced by the a-synchronic emergence of modern statehood and economy in Europe with all its institutional and ideological heterogeneity. They develop their specific profile as part of co-evolutionary processes contingent upon the interaction of modes of governance, pending policy-issues and ideas of statehood widely shared by influential elites and/or public opinion. Moreover, there may be more than one tradition responding to the politico-economic-ideological circumstances of one nation at the same time.