Institutional Selection in International Relations: State Anarchy as Order
Author(s): Hendrik Spruyt
Source: International Organization , Autumn, 1994, Vol. 48, No. 4 (Autumn, 1994), pp.
527-557
Published by: The MIT Press
Stable URL: https://www.jstor.org/stable/2706895
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Institutional selection in international
relations: state anarchy as order
Hendrik Spruyt
In effect, what this question asks is why, at various times and in differing contexts,
individuals and groups believe one political form rather than another is
best suited to advance their interests.
-Robert Gilpin
At the end of the feudal era, a dramatic economic change occurred. Localized
barter exchange started to give way to monetary exchange and translocal trade.
By the beginning of the fourteenth century, a variety of new institutional forms
had emerged for organizing political and economic life. Sovereign territorial
states, city-leagues, and city-states all tried to tap into the new sources of
economic wealth, particularly long-distance trade. Indeed, the city-based
political organizations initially did very well. In the long run, however, roughly
by the middle of the seventeenth century, city-states and city-leagues had fallen
by the wayside. In this article, I attempt to answer the question of why this was
so and chart how sovereign territorial states displaced their contemporary rivals.
I argue that the sovereign territorial state prevailed because it proved more
effective at preventing defection by its members, reducing internal transaction
costs, and making credible commitments to other units. It did this in three
ways. First, sovereign rulers were better at centralizing jurisdiction and
authority.' Consequently, they were in a better position to prevent free riding
and to gradually rationalize their economies and standardize coinage and
I thank Deborah Avant, Peter Cowhey, Dan Deudney, Joel Hellman, Arvid Lukauskas, Helen
Milner, John Odell, John Ruggie, Alexander Wendt, and the referees of this journal for their
comments and critiques. The research was supported by the Columbia University Council for
Research in the Social Sciences. The epigraph is from Robert Gilpin, War and Change in World
Politics (Cambridge: Cambridge University Press, 1981), p. 42.
1. In the following pages I sometimes denote "sovereign territorial state" with either the term
"territorial state" or "sovereign state." These terms all refer to a particular form of government
wherein authority claims internal hierarchy and recognizes no higher authority beyond its borders.
For this definition see Stanley Benn, "Sovereignty," in The Encyclopedia of Philosophy (New York:
Macmillan, 1967), pp. 501-5.
Intemational Organzation 48,4, Autumn 1994, pp. 527-57
? 1994 by The IO Foundation and the Massachusetts Institute of Technology
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528 International Organization
weights and measures. This economic rationalization corresponded with a
greater capacity to wage war. The institutional makeup of sovereign territorial
states thus gave them competitive advantages over other organizational
possibilities.
Second, sovereign territoriality, when confirmed to other actors, was a means
of structuring interunit behavior.2 States, or rather the political and social elites
within sovereign states, preferred similar types of units in their environment
because sovereign rulers could more credibly commit the members of their
organization (through their control of free riding and defection) and because
their authority was exactly specified by territorial parameters.
Third, and as a consequence of the first two conditions, actors from other
institutional arrangements defected to states or copied their institutional
makeup. Displacement of alternative types thus occurred from the bottom up
as well as the top down-actors "voted with their feet" or copied what they
perceived to be the superior organizational type.
The principle of sovereign territorial authority differed from other systems of
rule. Although inherent in the early medieval attempts to reconstruct the
Roman Empire and the attempts of the popes to build a Christian theocracy
was a notion of internal hierarchy, both organizational attempts lacked precise
territorial specifications. The newer institutional types-the city-leagues and
city-states that emerged in the course of the twelfth and thirteenth centuriesalso
differed from sovereign territorial rule. The city-states acknowledged
territorial limits but often lacked clear internal hierarchy. The city-leagues had
neither, lacking both territorial contiguity and fixed borders (that is, they were
not territorially specified). Additionally, they largely were loose confederations
having no clear sovereign.
This article begins with the premise that the possibilities of continued
feudalism, a centralized empire, and theocracy had all waned by the early
fourteenth century.3 The future lay with three new institutional arrangements:
the city-league, the city-state, and the sovereign territorial state. The question
is why did the last system of rule win out. Thus, while we often talk about the
erergence of the state in terms of increased taxing powers, the formation of
public rather than private authority, and the growth of the state in terms of
scale, those are not the features of the state that this essay will examine. In
essence, city-leagues, city-states, and sovereign territorial states were all state
forms, but not all had internal hierarchy or territorial limits.4 Instead, the focus
2. The term "international" semantically prejudges the issue, since it is an anachronism for this
period.
3. For an argument that these three institutional arrangements had run their course by 1300, see
Charles Tilly, ed., The Formation of National States in Westem Europe (Princeton, N.J.: Princeton
University Press, 1975), p. 26.
4. For a discussion of the various meanings of the term "state," see J. P. Nettl, "The State as a
Conceptual Variable," World Politics 20 (Summer 1968), pp. 559-92.
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Institutional selection 529
of this essay is on a critical feature of the modern state: the principle of
sovereignty-the principle that authority is limited by precise spatial terms and
is subject to no other authority. Stated another way, authority is territorial and
exclusive. The origins of that principle, which came to dominate Europe, can be
traced to the late Middle Ages. We need now to explain its dominance.
The next part of this article suggests that two bodies of literature-new
institutional history (NIH) and historical sociology-can be useful in analyzing
the interaction between markets and hierarchies. Both have analyzed how
actors, operating in the absence of higher authority to arbitrate disputes and
enforce agreements, try to overcome that difficulty by favoring certain
institutional solutions. Historical sociology provides for a taxonomy of how
actors in practice have resolved the tensions between markets and hierarchies.
The NIH literature provides a variety of tools to explain why institutional
arrangements historically have taken a particular shape. Moreover, while it is
sometimes claimed that NIH is by definition a post hoc enterprise, I will argue
that this approach provides some a priori criteria to suggest which institutions
will be more viable in the long run.
The following parts of this article comprise the main body of my argument,
beginning with a description of how the old political order-consisting of
crosscutting and overlapping jurisdictions of feudal lords, church, emperor,
and aspiring but weak kings-proved unsuitable for an emerging precapitalist
economic environment.5 The legal climate was unfavorable for trade given the
underdevelopment of written codes, the importance of local customary
proceedings, the lack of instrumentally rational procedures, and the crosscutting
nature of jurisdictions. Economically, commerce suffered from great
variation in coinage and in weights and measures and a lack of clearly defined
property rights. Transaction costs were high.6
Newer forms of organization-sovereign territorial states, city-states, and
city-leagues-were in essence attempts to solve the discrepancy between
emerging translocal markets and existing political arrangements. These forms
of organization were all, to some degree, the result of increasing demands by
the towns to change the existing order to one more conducive to their
preferences and the result of political rulers seeking to expand their revenue
and resources.
5. The literature on emergent capitalism ranges in perspective from a neo-Marxist one to a
liberal economic one, focusing on property rights and individual incentives. For an example of the
former perspective, see Perry Anderson, Lineages of theAbsolutist State (London: Verso, 1974); and
Immanuel Wallerstein, The Modem World System, vol. 1 (New York: Academic Press, 1974). For
the public choice approach, see Douglass North and Robert Thomas, The Rise of the Westem World
(Cambridge: Cambridge University Press, 1973); Douglass North, Structure and Change in
Economic History (New York: W. W. Norton, 1981); and Margaret Levi, Of Rule and Revenue
(Berkeley: University of California Press, 1988).
6. I define transaction costs as the costs of arranging a contract ex ante and monitoring and
enforcing it ex post. See Thrain Eggertson, Economic Behavior and Institutions (New York:
Cambridge University Press, 1990), p. 14.
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530 International Organization
This article does not examine the origins of these organizations. The
literature on state formation is vast and diverse, and no attempt is made to
engage the literature on the emergence of particular systems of rule. There is
no suggestion that the territorial state emerged as an optimal solution to
individual preferences. Rather, I examine why sovereign territorial states
eventually displaced other institutional possibilities in Europe. The emphasis is
thus placed on explaining selection among already existing alternatives.
I then compare the account herein to rival explanations and discuss the
larger implications of this article. The most obvious conclusion is that the
international system can go through dramatic transformations that are distinct
from the less comprehensive changes in ordering principle or the distribution
of power.7
Two perspectives on markets and hierarchies:
new institutionalist theory meets historical sociology
When do individuals who engage in economic transactions seek hierarchy?
When might political elites seek to capitalize on expanding their rule and when
not? Those questions are central to NIH and have a direct bearing on
institutional change in international relations.
But whether or not NIH literature can explain actual political outcomes is a
matter of debate.8 I argue that this approach can indeed fruitfully be brought to
bear on some of these issues, provided it is sensitive enough to historical cases;
and here, historical sociology comes in.
The deductive perspective of new institutionalism
The NIH approach explains institutions as contractual agreements between
rational individuals. This, of course, need not take the form of a formal
contract, but the premise of this view is that individuals engage in strategic
exchange. Individuals, whether they behave in an optimizing or satisficing way,
pursue the formation of institutional structures that they believe will best meet
7. This lies in contrast to Waltz's view of international systems. His argument is that such
systems vary only by ordering principle and capabilities. See Kenneth Waltz, Theory of Intemational
Politics (New York: Random House, 1979), pp. 82ff. While both ordering principle and capability
remain critical elements in any understanding of international affairs, they alone do not determine
structure. In other realist understandings, the most fundamental type of change in the international
system is that of unit change. See Robert Gilpin, War and Change in World Politics
(Cambridge: Cambridge University Press, 1981), pp. 39-42.
8. See Kathleen Thelen and Sven Steinmo, "Historical Institutionalism in Comparative
Politics," in Sven Steinmo, Kathleen Thelen, and Frank Longstreth, eds., Structuring Politics (New
York: Cambridge University Press, 1992), pp. 1-32; and James Caporaso, "Microeconomics and
International Political Economy: The Neoclassical Approach to Institutions," in Ernst-Otto
Czempiel and James Rosenau, eds., Global Changes and Theoretical Challenges (Lexington, Mass.:
D. C. Heath, 1989), pp. 135-59.
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Institutional selection 531
their interests.9 Traders will prefer institutions that protect them physically and
economically. That is, they will prefer systems of rule that help them to enter
into stable contracts and that do not charge exorbitant taxes or fees. They will
be concerned with ex post reneging and will prefer institutional mechanisms
that diminish that probability.10 From their side, political entrepreneurs will
seek to capitalize on gains from trade and will seek to expand their rule in order
to do so.11 They perform a rough calculus aimed at maintaining or expanding
their own political positions.
Following the classic Coase theorem, market arrangements will suffice to
achieve efficient solutions. However, when transaction and information costs
are not zero, a more hierarchical form of organization is called for. In short,
institutions can be explained by microlevel analysis of individuals' preferences
and contractual choices. Oliver Williamson thus explains firm organization by
individual choices to reduce transaction and information costs.12 That is, when
transaction costs are high and property rights are ill-defined, then the
contracting actors will benefit from structuring their interactions in a hierarchical
fashion. Vertical integration, that is, hierarchy, will be pursued to the point
that further integration increases marginal costs of expansion over marginal
benefits.13
Individuals engaging in commerce thus will have reasons to prefer more
hierarchy when this reduces information and transaction costs and creates
more certitude in their environment. Political entrepreneurs will prefer to
extend such hierarchy based on a calculation of a variety of factors. This
calculation will depend on their responsiveness to the demands of domestic
actors and on the costs of attempting such a strategy.
NIH literature also forces us to focus on the consequences of institutional
choice. Two facets of institutional arrangements are critical: the ability to
prevent free riding and the ability to credibly commit. The ability to prevent
free riding has an obvious internal component. Collective goods will be
underprovided unless the group is sufficiently small or unless there is a
9. For excellent overviews of the literature, see Terry Moe, "New Economics of Organization,"
American Joumal of Political Science 28 (November 1984), pp. 739-77; and Beth Yarborough and
Robert Yarborough, "International Institutions and the New Economics of Organization,"
Intemational Organization 44 (Spring 1990), pp. 235-59.
10. See, for example, the discussion on reneging by Beth Yarborough and Robert Yarborough,
Cooperation and Govemance in Intemational Trade (Princeton, N.J.: Princeton University Press,
1992), pp. 14ff. For an example of how actors seek to devise institutions to limit expost reneging in
foreign investments, see Charles Lipson, Standing Guard (Berkeley: University of California Press,
1985).
11. For one account that uses such "entrepreneurial logic" see David Friedman, "A Theory of
the Size and Shape of Nations," Joumal of Political Economy, vol. 85, no. 1, 1977, pp. 59-77.
12. See Oliver Williamson, Markets and Hierarchies (New York: The Free Press, 1975); and
Oliver Williamson, Economic Organization (New York: New York University Press, 1986).
13. For an expansion of this logic to the integration of states, see Beth Yarborough and Robert
Yarborough, "International Contracting and Territorial Control: The Boundary Question,"
Joumal of Theoretical and Institutional Economics, forthcoming.
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532 International Organization
dominant actor to prevent such free riding.14 But it also has external
implications: can a particular actor credibly commit? That is, to what extent can
one expect an actor to comply with the terms of an agreement once it has been
concluded?15 I will argue that some types of organization (particularly the
city-leagues) lacked the ability to credibly commit, either because it was not
clear that the negotiating party spoke on behalf of all the members of the
organization or because the rulers of such organizations could not prevent free
riding by their constituents.
In short, NIH literature can be useful in explaining the preferences for
particular institutions. It furthermore contributes to explaining domestic and
international consequences of institutional outcomes.
Some problems with new institutionalism
Despite the elegant and parsimonious explanations made possible by this
theoretical approach, any extension of this theory from economic organization
to political institution building must be made with caution. As NIH proponents
themselves suggest, economic and political organizations differ in some
fundamental respects. Most notably, the absence of a clear medium of
exchange-that is, the absence of profit making as an evaluative mechanism of
the rationale of such association-makes comparisons problematic.16
Second, political associations are based on a variety of individual motives:
military protection, ideological affinities, as well as economic rationale.17
Individual kings, lords, clergy, and merchants will have variant sets of
preferences. The political bargain struck between them need not a priori be
reducible to any particular set of preferences. The resulting organization
cannot be reduced to simple optimal efficiency arguments.
Moreover, NIH proponents, because they assume that institutions are
basically rational, run the risk of committing a similar error to that of
functionalist arguments. Namely, they deduce from the existing institution that
its development had to take this particular course: the post hoc, ergo propter hoc
fallacy. The existence of the institution is imputed to derive from the functions
it performs. NIH assumes a direct connection between the preferences for an
institution that would perform certain functions and the actual existence of a
14. The standard argument is by Mancur Olson, The Logic of Collective Action (Cambridge,
Mass.: Harvard University Press, 1965). See also Russell Hardin, Collective Action (Washington,
D.C.: Resources for the Future, 1982).
15. For a brief discussion of some of the issues involved, see Williamson, Markets and
Hierarchies, pp. 20 and 48.
16. Moe, "New Economics of Organization," p. 761.
17. For example, Margaret Levi suggests that political associations are based on security
motives; see Levi, Of Rule and Revenue. See also Richard Bean, "War and the Birth of the Nation
State," Joumal of Economic History 33 (March 1973), pp. 203-21; and Edward Ames and Richard
Rapp, "The Birth and Death of Taxes: A Hypothesis," Joumal of Economic History 37 (March
1977), pp. 161-78.
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Institutional selection 533
given institution. Sometimes preferences are then deduced tautologically from
the functions that the existing institution performs.
Finally, transaction costs are often imputed post hoc, as well. Depending on
whether a particular outcome occurred, transaction costs are suggested to have
been high or low. But as Williamson himself notes, this leads to a tautological
use of transaction costs.18
For these reasons, greater historical and empirical sensitivity is warranted.
Preferences need not be imputed. The fallacy of post hoc rationalization can be
avoided by describing the institutional choices then available to the individuals.19
Rather than deduce preferences from current functions, one can examine
the individual's actual choices among alternatives. What transaction costs and
credible commitments really mean can be made plausible by empirical data.
They need not be deduced post hoc. Stated another way, new institutionalism
needs history.20
In sum, a microlevel focus on the contractual nature of institutions, which
empirically takes account of the role that transaction and information costs
play in institutional choice, can be useful. It illuminates the reasons for political
entrepreneurs and merchants to strike particular bargains. Moreover, it
provides for hypotheses on whether or not institutional arrangements will be
competitively successful in the long run. Thus one might expect that institutions
will be competitively successful if they can prevent free riding and defection.
This ability will provide the means to rationalize the domestic economy and
reduce transaction and information costs. Additionally, if particular organizational
units can reduce the level of defection and ex post reneging between
themselves, then they can credibly commit to long-term agreements. If an
organization cannot do so, there is good reason to exclude such an actor from
the preferred set of units. Historically, sovereign rulers provided focal points to
regularize transactions.21 They could do so because they could plausibly speak
on behalf of their subjects and commit them. In game-theoretic terms, they
were able to engage in iterative behavior.22
18. Oliver Williamson, The Economic Institutions of Capitalism (New York: The Free Press,
1985), p. 4.
19. For brief and insightful critiques of functionalist explanations, see Robert Keohane, After
Hegemony (Princeton, N.J.: Princeton University Press, 1984), pp. 80-83; Brian Barry, Sociologists,
Economists, and Democracy (Chicago: University of Chicago Press, 1978), p. 169; and Yarborough
and Yarborough, "International Institutions and the New Economics of Organization," pp.
252-55.
20. Many of these points are also raised in Thelen and Steinmo, "Historical Institutionalism in
Comparative Politics."
21. For a discussion of focal points in enhancing cooperation, see Thomas Schelling, The Strategy
of Conflict (Cambridge, Mass.: Harvard University Press, 1980). In my usage, however, I do not
associate it with tacit communication.
22. See the discussion of how such actors can overtake the elements in an entire set in Robert
Axelrod, "The Emergence of Cooperation Among Egoists," American Political Science Review 75
(June 1981), pp. 306-19. For a discussion of the prerequisites of iteration, see Kenneth Oye,
Cooperation UnderAnarchy (Princeton, N.J.: Princeton University Press, 1986), chap. 1.
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534 International Organization
Two historical solutions to markets and hierarchy
Historically, the relation between market and political authority has often
taken two forms-imperial organization and ad hoc lord-merchant arrangements.
Both forms can be understood within the explanatory framework of
NIH.
In traditional empires, most economic interaction takes place within the
boundaries of the empire. The geographical extension of political authority
roughly corresponds with the spatial extension of the primary market. According
to Roberto Unger, "Its most tangible feature is the overall coincidence of
economic and political boundaries."23 Anthony Giddens argues that "imperial
expansion tends to incorporate all significant economic needs within the
domain of the empire itself, relations with groups on the perimeter tending to
be unstable."24 Immanuel Wallerstein suggests that economically integrated
zones, that is, world systems, often were transformed into empires.25 While
such an empire might recognize an outside world, it is regarded as a periphery
with which one would deal as a nonequal.26 The overarching hierarchy can be
provided by political imperial control, as occurred in China, or by theocratic
authority, as occurred in India.27
The argument does not hold just for traditional empires. Clearly, modern
imperial pretensions often have been fostered by coalitions between elites with
transnational economic interests and political entrepreneurs. Economic elites
might seek resources or markets for their products to which the empire gives
them preferential access. Political rulers seek empire as a means of revenue,
glory, or manpower.28
But, of course, not all economic transactions fall within unified political
control, even though some traders and rulers might desire such outcomes.29
Even in premodern empires, a substantial amount of trade might be conducted
beyond the imperial frontiers. Moreover, imperial preferences will be matched
by other actors who seek to delimit such extension. Indeed, the greater the
23. Roberto Unger, Plasticity into Power (New York: Cambridge University Press, 1987), p. 113.
Unger places such modern empires as the twentieth-century German and Japanese programs in
this category.
24. Anthony Giddens, The Nation-State and Violence (Berkeley: University of California Press,
1987), p. 80.
25. Wallerstein, The Modem World System, p. 15.
26. On this point, see Friedrich Kratochwil, "Of Systems, Boundaries, and Territoriality: An
Inquiry into the Formation of the State System," World Politics 39 (October 1986), pp. 27-52.
27. For an overview of these dynamics, see John Hall, Powers and Liberties (Berkeley: University
of California Press, 1985).
28. See Michael Doyle, Empires (Ithaca, N.Y.: Cornell University Press, 1986); and Jack Snyder,
Myths of Empire (Ithaca, N.Y.: Cornell University Press, 1991).
29. As Abu-Lughod notes, many economic zones, and world systems, did not fall under political
unification. She also notes, however, that unification can sometimes reduce uncertainty and
protection costs. See Janet Abu-Lughod, Before European Hegemony (New York: Oxford
University Press, 1989), pp. 208-9.
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Institutional selection 535
imperial drive, the greater the possibility that a balancing coalition will arise
against the imperial actor.30
When commerce occurs across boundaries without political supervision, that
is, when the market geographically extends beyond existing political authorities,
then merchants must rely on self-help. On the one hand, merchants must
strike deals with local lords (or kings) to obtain local protection and trading
privileges. Unger terms this set of arrangements "overlord-peddler" agreements.
The overlord offers the trader landing rights, unobstructed passage, and
protection in exchange for certain fees or taxes. In essence, traders must strike
deals themselves, deals that are ad hoc and subject to defection by the local
lord. In NIH terms, merchants had to try to create institutional arrangements
that limited the incentives for ex post reneging. It was unknown whether the
other party would respect the terms of the bargain. As a result, long-distance
trade often was conducted by merchants who were related by kin or of similar
cultural background.31 Clan ties, reputation, and shared culture were critical to
commerce, since such traits had particular advantages in preventing reneging
and in reducing transaction and information problems.32
The problem of hierarchy and markets generally has been solved in two ways.
In the imperial logic of organization, political elites might benefit from
expanding their authority over the relevant sphere of economic transaction.
They might do so to gain more revenue or tribute or to expand their power
base. Merchants might acquiesce to such rule as it might create more certitude
in their market environment.33 The Roman Empire thus benefited both
emperor and merchant. Similarly, the lamented "barbarian" extension of
Mongol rule over much of the Eurasian continent in fact benefited trade by
placing East-West trade routes under unified political control. Such developments
reduced uncertainty by providing protection against infringement of
property rights, violation of contracts, and outright predation by robbers and
local lords. Such rule might reduce transaction costs by providing for certain
coinage and particular weights and measures and by reducing the amount of
legal customs.
30. Snyder, Myths of Empire, p. 6.
31. See Curtin's discussion of trade diasporas in Philip D. Curtin, Cross-Cultural Trade in World
History (Cambridge: Cambridge University Press, 1984).
32. See Janet Landa, "A Theory of the Ethnically Homogeneous Middleman Group: An
Institutional Alternative to Contract Law," Joumal of Legal Studies 10 (June 1981), pp. 349-62;
Hans-Jorg Schmidt-Trenz, "Private International Trade in the Shadow of the Territoriality of Law:
Why Does It Work," Southem Economic Joumal 58 (October 1991), pp. 329-38; and Jack Carr and
Janet Landa, "The Economics of Symbols, Clan Names, and Religion," Joumal of Legal Studies 12
(January 1983), pp. 135-56.
33. One might object that this expansion should not be perceived as a contract between ruler
and ruled. However, if one assumes that at least a minimum of quasi-compliance is necessary for a
trading system to continue, then a purely extortionist government will destroy its own basis of
revenue should it tax its merchants to the point that there are no incentives to continue to engage in
commercial activity.
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536 International Organization
Imperial authority, however, might have a negative consequence: it might
exploit traders who, given that the market lies primarily within the empire,
would have little opportunity for exit short of surrendering their occupation
altogether. Unified control over the market is thus a double-edged sword.
In a decentralized logic of organization, merchants have to strike deals with
lords on an ad hoc basis. This reduces the ability of long-term predation by one
lord because a merchant can shift to another. But it increases protection
problems and magnifies the uncertainty and transaction costs of crossboundary
trade without political protection. (This might be one reason why
trade across boundaries was often luxury trade. High profit margins compensated
for high risks and transaction costs.)
In Europe a third arrangement emerged. When trade increased in the late
Middle Ages, imperial organization, either in the form of the Holy Roman
Empire or Roman theocracy, failed. But this did not mean that merchants now
had to fend for themselves. The overlord-peddler deals increasingly became
supervised and routinized by a variety of political authorities. Of these,
sovereign territoriality proved to have long-term advantages in that it created
more certitude in the domestic economic environment. It reduced free riding
and transaction costs more efficiently than the alternatives. Externally, sovereign
authority became a focal point around which to conduct international
affairs. In short, the success of the territorial state can at least partially be
understood by its solution to the tension between markets and hierarchies.
The feudal era: local trade and barter exchange
Feudalism essentially entailed decentralized political authority, private possession
of the means of violence, and the lack of any distinction between public
and private authority.34 Those political factors created an environment that
greatly hindered commerce. While goods were produced primarily for local
consumption and exchange was largely in-kind, this posed few problems. The
late medieval expansion of trading opportunities, however, necessitated some
institutional changes.
The feudal barriers to trade were varied. First, feudal organization lacked
the absolute exclusion that we attach to private property. Instead, continued
possession over time, seisin, established the legitimacy of the holder. Since
production consisted mainly of agricultural commodities that were traded by
barter and often took place in the context of reciprocal feudal relations, this
was a workable solution. Holdings were embedded in a system of mutual
34. The characteristic features of feudalism are the subjects of long-standing disputes. Strayer's
description is widely accepted, and that is the one I use here. See Joseph Strayer, Feudalism (New
York: Van Nostrand Reinhold, 1965), p. 13.
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Institutional selection 537
obligations, and thus one could not easily convey any exclusive right to a third
party.35
Second, given that money was scarce, feudal obligations of necessity revolved
around in-kind transfers.36 Indeed, the very basis of feudal organization was
centered around the granting of land by a high lord or king to a lesser vassal.
Lords or knights of the manor demanded in-kind goods and services from the
peasants and serfs who worked the lands, in exchange for which they were
granted protection. All such relations were highly personalized and context-
specific.
The legal system further hindered commercial transactions. Feudalism
evolved into a system of preferential birth and operated as a closed caste
system favoring the warrior aristocracy.37 No amount of material wealth
dispelled the difference between commoner and noble. This entailed preferential
judicial procedures such as trial by ordeal and combat and judgment by
noble peers rather than by inferiors. Clearly such arrangements did not work in
favor of the burghers who sought more rational means of contract enforcement.
The high degree of localized rule also yielded a diversity of legal customs.38
Given that even lesser lords had acquired previously royal rights to pass
judgment, so-called banal justice, each locality had its own legal particularities.39
This situation was only exacerbated by the general absence of written
law-with the exception of southern France and Italy, the lands of the droit ecrit
(written law). Thus northern France, the land of the droit coutumier (customary
law), was governed roughly by three hundred local customary codes.40
Transaction costs were raised further by the fact that secular and ecclesiastical
lords used their own weights and measures. Indeed, manipulation of such
measures could yield tidy profits for local lords. They furthermore required
traders to use their measures and weights at a given location, of course paying a
fee to the lord for such use. By the late Middle Ages, England had hundreds of
35. Michael Saltman, "Feudal Relationships and the Law: A Comparative Inquiry," Comparative
Studies in Society and History 29 (July 1987), pp. 514-32. See also Marc Bloch, Feudal Society
(Chicago: University of Chicago Press, 1961), pp. 115-16.
36. Thus, Polanyi defined feudalism as an in-kind economy. See Karl Polanyi, "Primitive
Feudalism and the Feudalism of Decay," in George Dalton, ed., Economic Development and Social
Change (New York: Natural History Press, 1971), pp. 141-47 and p. 142 in particular. An indicator
of this local consumption was the itinerancy of kings. Kings traveled to locations to claim lodgings
and food, to which they were entitled by the gite, the claim to hospitality from their vassals.
37. Leopold Genicot, "La Noblesse au Moyen Age Dans L'Ancienne 'Francie': Continuite,
Rupture ou Evolution?" (Medieval nobility in ancient France: Continuity, break, or evolution?)
Comparative Studies in Society and History, vol. 5, no. 1, 1962, pp. 52-59.
38. For a good account of the local diversity of law, see Susan Reynolds, Kingdoms and
Communities in Western Europe 900-1300 (Oxford: Clarendon Press, 1984), chaps. 1 and 2. See also
Harold Berman, Law and Revolution (Cambridge, Mass.: Harvard University Press, 1983),
particularly chap. 13.
39. For a discussion of these rights of local lords, see Georges Duby, Rural Economy and Country
Life in the Medieval West (Columbia: University of South Carolina Press, 1968), p. 181.
40. Jean Dunbabin, France in the Making 843-1180 (Oxford: Oxford University Press, 1985), p.
277.
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538 International Organization
different major measures, with perhaps as many as twenty-five thousand local
variations.4'
Finally, lords minted their own coins. In France there were perhaps three
hundred minters; in Germany, perhaps six hundred. Each Italian town had its
own mint.42 Traders thus had to learn which exchange rates were operative,
whether or not the local lords recently had debased their currency, what the
gold value of such coin might be, and so forth.
All such matters made the conduct of any business a highly speculative and
sometimes dangerous affair. In the terms of new institutionalism, transaction
and information costs were high, and the danger of ex post reneging was
ubiquitous.
As long as barter and local exchange prevailed, none of this was particularly
problematic. By the late eleventh and early twelfth centuries, however, a
dramatic economic transformation began to take place.43 Wastelands and
forests were cleared, and agricultural production and trade began to expand.
This economic revival had several causes-decreasing invasions, improved
agricultural production, possibly even a change in weather. However, the most
critical factor in this transformation was the role played by long-distance
trade.44 Trade made increasing division of labor possible. Consequently, many
new towns were founded, and existing towns grew in the wake of this economic
boom. Indeed, many current European towns trace their founding to this
period.45
The growth of towns caused a new political group to emerge: the burghers or
town dwellers. The existing institutions had favored the interests and perspectives
of clergy and feudal lords. The new actors, the townspeople, had little
41. Ronald Zupko, "Weights and Measures, Western European," in Joseph Strayer, ed.,
Dictionary of the Middle Ages, vol. 12 (New York: Charles Scribner, 1989), p. 582; Witold Kula,
Measures and Men (Princeton, N.J.: Princeton University Press, 1986), provides a fascinating
account of the variety of weights and measures and of their regulation as an issue of contention. For
a classic discussion of the variation in weights and measures and coinage throughout the
Mediterranean, see Robert Lopez and Irving Raymond, Medieval Trade in the Mediterranean World
(New York: W. W. Norton, 1967), pp. 11ff.
42. Herbert Heaton, Economic History of Europe (New York: Harper and Row, 1948), p. 175.
43. Bloch describes this period as the second feudal period. See Bloch, Feudal Society, p. 69. The
economic growth is well-documented in Carlo Cipolla, Before the Industrial Revolution (New York:
W. W. Norton, 1980); Georges Duby, The Early Growth of the European Economy (Ithaca, N.Y.:
Cornell University Press, 1974); and Jacques Le Goff, Medieval Civilization (New York: Basil
Blackwell, 1988).
44. See Fernand Braudel, The Perspective of the World (New York: Harper and Row, 1984);
Henri Pirenne, Medieval Cities (1925, reprint; Princeton, N.J.: Princeton University Press, 1952).
For a reaffirmation of Pirenne, see Le Goff, Medieval Civilization; Fritz Rorig, The Medieval Town
(Berkeley: University of California Press, 1969), p. 20; Geoffrey Barraclough, Origins of Modem
Germany (New York: W. W. Norton, 1984), pp. 4 and 76; and Adriaan Verhulst, "The Origins of
Towns in the Low Countries and the Pirenne Thesis," Past and Present 122 (1989), pp. 3-35.
45. See Paul Hohenberg and Lynn Lees, The Making of Urban Europe (Boston: Harvard
University Press, 1985); and Edith Ennen, The Medieval Town (Amsterdam: North Holland
Publishing, 1979).
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Institutional selection 539
influence in that political set of arrangements. Thus, coupled with the rise of
the towns, a new set of interests and ideological perspectives emerged with a
new set of demands. The feudal order-based on crosscutting jurisdictions and
on ill-defined property rights and judicial procedures-did not fit the burghers'
mercantile pursuits. Market exchange and trade required abstract contractual
obligations with money as a medium.46 The emergence of towns thus created a
dynamic element in the European political system. As Georges Duby wrote,
"Central to the revitalized principalities, towns now held the key position in the
political order that slowly emerged from the tangle of feudal relations."47
Despite the opposition of the feudal aristocracy, the German emperor, and
the church, the economic transformation made new political arrangements
possible. Most accounts argue that the possibilities of continued feudalism, a
centralized empire, and theocracy had waned by the early fourteenth century.48
The future lay with three new institutional innovations: the city-league, the
city-state, and the sovereign territorial state. All three responded in some
degree to the demands of commercial actors, that is, of the townspeople.
Sovereign territorial states emerged particularly in England and France, while
city-states gradually arose out of the roughly two hundred to three hundred
independent communes of Italy. Germany became the primary location of
city-leagues, which united to curtail predation by the lords.
All three were able to respond to the precapitalist opportunities of the
period. It is thus a mistake to argue that sovereign territorial states supplanted
feudal organization in a linear and sequential way. All three institutional
arrangements-city-league, city-state, and sovereign territorial state-could
mobilize more resources than could traditional feudal organization. The
question is not why territorial states replaced feudalism but why they ultimately
managed to displace their contemporary competitors.
In short, until the late Middle Ages, European political development
differed little from that elsewhere. Decentralized political authority necessitated
ad hoc bargains and reliance on self-help by social actors. Alternatively,
both emperor and pope attempted to reestablish imperial organization. In
Europe none of these possibilities-feudal lordships, empire, or theocracyeventually
carried the day. Instead, the dramatic economic change led to
institutional innovation unique to the European historical experience.
We might conjecture that the new institution that would ultimately prove
most successful would be the one that could lessen the problems of feudal
particularism the most. A successful institution would have to reduce the
46. For a discussion of the significant implications of that transition, see Marvin Becker,
Medieval Italy (Bloomington: Indiana University Press, 1981).
47. Duby, The Early Growth of the European Economy, p. 252. For a similar view, see John
Morrall, Political Thought in Medieval Times (Toronto: University of Toronto Press, 1980), p. 42.
48. For an assessment that these three institutional arrangements indeed had come to the end of
their primacy by 1300, see Tilly, The Formation of National States in Western Europe, p. 26; and
Morrall, Political Thought in Medieval Times.
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540 International Organization
number of crosscutting and rival jurisdictions. By centralizing justice and
authority, it could also reduce defection by its constituents. Furthermore,
internal hierarchy would reduce the number of legal codes, standardize judicial
procedure, and provide for an appeals process. In the economic sphere, an
organization's success might be measured by the centralization of coinage and
the standardization of weights and measures. Consequently, if one accepts that
standardizations of laws, weights and measures, and coinage are at least some
of the prerequisites for a modern economy, then we have a priori indicators of
success. Furthermore, given that European trade would be transboundary
trade, a successful institution could a priori be specified as an institution that
could credibly commit to international agreements. Of the new institutional
types that emerged in the late Middle Ages, which performed these functions
most successfully in the course of the next centuries?
Rivalry and selection among the new
institutional possibilities
Sovereign territorial rule
The possibility of unified political control over the primary area of economic
interactions (the imperial solution) had failed by the early fourteenth century.
The expanding level of trade, therefore, occurred across political boundaries.
Consequently, traders had to work out arrangements of their own, such as the
development of merchant law,49 and had to negotiate with a variety of political
authorities over whose borders they crossed.
Rulers, however, realized that rationalizing the economies of their kingdoms
and facilitating trade were in their own interests. Consequently, they became
involved in both domestic and international tasks. Internally, political authorities
gradually became involved in creating an efficient domestic economy by
combating feudal particularism. Externally, they began to create conditions
that made long-term iterative behavior predictable and relatively stable. In
fact, as P. H. Sawyer wrote, "One of the prerogatives claimed by English kings
in the thirteenth and fourteenth centuries was the right to regulate merchants
and commerce."50
One aspect of such regulation was the attempt to centralize and regulate
coinage. The dissemination of mints (for example, the small duchy of Berry
49. Merchant law is discussed by Berman, Law and Revolution, chap. 11. For a new
institutionalist view of merchant law, see Paul Milgrom, Douglass North, and Barry Weingast,
"The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the
Champagne Fairs," Economics and Politics 2 (March 1990), pp. 1-23; Avner Greif, "Institutions
and International Trade: Lessons from the Commercial Revolution," American Economic Review
82 (May 1992), pp. 128-33; and Bruce Benson, "The Spontaneous Evolution of Commercial Law,"
Southern Economic Journal 55 (January 1989), pp. 644-61.
50. The quotation is drawn from p. 139 of P. H. Sawyer, "Kings and Merchants," in P. H. Sawyer
and I. Wood, eds., Early Medieval Kingship (Leeds: University of Leeds, 1977), pp. 139-58.
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Institutional selection 541
alone had twelve different mints) correlated with frequent depreciation by
many of the minting lords.51 To combat such fragmentation, the early Capetian
kings declared royal currency to be the only currency of the French realm.52
Although feudal lords continued to mint coins, their area of usage increasingly
was limited to that area immediately under each's control. The number of
mints declined from roughly three hundred to thirty by the beginning of the
fourteenth century, the end of the Capetian reign.53
Although English minting already was much more centralized, the English
king tried to decrease further the number of baronial mints. Moreover, English
traders benefited from a regular currency that was debased only rarely.54
Monarchs also tried to standardize weights and measures. Here the French
king initially was less successful. It was clear to the bourgeois, however, that
only a hierarchical form of government could ultimately make inroads in that
direction. Philip V (1316-22) was one of the first French monarchs to regulate
weights and measures, but others continued the policy. Louis XI in the
fifteenth century, Louis XII in the reform of 1508, and Francis I and Henry II in
a variety of edicts in 1540, 1557, 1575, and 1579 all tried to reduce the
mind-boggling variety of measures then used throughout the kingdom.55 In
England, central authority made greater inroads into standardizing weights
and measures. Some progress already had been made beginning in the twelfth
century. In 1317, the crown had ordered that the standards of London be used.
Other orders, such as the statute of 1389 and the parliamentary legislation of
1413, further declared standards and specified penalties for offenders. But the
movement toward standardization received particular impetus during the
Tudor government. In the words of Ronald Zupko, "Before the imperial
weights and measures era began in the third decade of the nineteenth century,
no period in English history was as important from the standpoint of physical
standards as the Tudor."56
Particularism and customary procedures in the legal field also were tackled.
By the middle of the thirteenth century, kings had forbade trial by combat and
51. Duby, The Early Growth of the European Economy, p. 249.
52. For French royal efforts in this regard, see Robert Fawtier, The Capetian Kings of France
(New York: St. Martin's Press, 1960), pp. 188-91. In general, all royal authorities tried to
standardize and rationalize the legal process and bring more certitude to economic transactions.
See Berman, Law and Revolution, pp. 466-77; Peter Spufford, "Coinage and Currency," The
Cambridge Economic History of Europe, vol. 2 (Cambridge: Cambridge University Press, 1987), p.
812; and Henry Myers, Medieval Kingship (Chicago: Nelson-Hall, 1982), p. 319.
53. See Heaton, Economic History of Europe, pp. 174-75; and William Jordan, Louis IX and the
Challenge of the Crusade (Princeton, N.J.: Princeton University Press, 1979), p. 209.
54. Carlo Cipolla, "Currency Depreciation in Medieval Europe," Economic History Review, vol.
15, no. 3, 1963, pp. 413-22. For the stability of English coinage, see Duby, The Early Growth of the
European Economy, p. 251.
55. See particularly Kula, Measures and Men, chap. 22. Also see Elizabeth Hallam, Capetian
France 987-1328 (New York: Longman, 1980), p. 284; and Myers, Medieval Kingship, p. 319.
56. Ronald Zupko, British Weights and Measures (Madison: University of Wisconsin Press, 1977),
p. 74. For another discussion of English success at centralization, see Rorig, Medieval Town, pp.
65ff.
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542 International Organization
ordeal.57 Rulers tried to decrease local particularism by insisting on hierarchical
appeal procedures and by turning to Roman (that is, written) law for
greater certitude. Roman law not only justified sovereign rule, and hence was
desirable from the king's position for that reason alone, but it also contained
developed theories of property. While English law did not take the same route,
there too kings began to rationalize judicial procedure. As early as the twelfth
century, Henry II had started to revolutionize "the system of law in England
primarily by imposing royal jurisdiction, and royal law, upon criminal and civil
matters that had previously been under local and feudal jurisdiction," in the
words of Harold Berman.58 One of the dimensions of this royal jurisdiction was
greater protection for those who were illegitimately dispossessed. This occurred
even prior to the development of such principles in Roman law on the
Continent.59
Externally, kings started to act as representatives of their domestic constituencies.60
For example, the French king claimed during the Hundred Years War
that only he was allowed to negotiate with the English.6' Government also
became involved in regulating trade. According to Jacques Bernard, "They
strictly controlled all 'letters of mark' and reprisals against foreign merchants,
and in their place substituted due process of law.... they also tried to
guarantee the authenticity, validity and execution of trading agreements."62
Gradually, merchant law, the system of law that the merchants had administered
themselves in an ingenious self-help construction, was replaced by royal
law.63 To use Nettl's term, sovereign rulers became the gatekeepers separating
their domestic realms from the international arena.64
The process of rationalizing the economy and centralizing the judicial system
was a lengthy one. England was initially much more successful than France.
Still, the latter had also made considerable inroads into centralization even
before Jean-Baptiste Colbert's mercantilist policies of the early seventeenth
century. In short, from the very beginning of sovereign territorial rule, which
was formally claimed by kings in the late thirteenth century and throughout the
57. See Fawtier, The Capetian Kings of France, p. 188; and Berman, Law and Revolution, p. 467.
58. Berman, Law and Revolution, p. 445.
59. R. C. Van Caenegem, The Birth of the English Common Law (New York: Cambridge
University Press, 1988), 2d ed., pp. 44 and 91.
60. For an argument that the Capetian kings had formed the basis for sovereign authority by
1300, see Hallam, Capetian France 987-1328, pp. 262, 266, and 308; and Fawtier, The Capetian
Kings of France, pp. 47 and 189.
61. Aline Vallee, "Etat et Securite Publique au XIVe Siecle: Une Nouvelle Lecture des
Archives Royales Francaises" (State and public security in the fourteenth century: A new reading
of French royal archives), Histoire, Economie et Societe 1 (Spring 1987), pp. 3-15. Similarly the king
claimed jurisdiction in translocal affairs such as piracy. See Frederic Cheyette, "The Sovereign and
the Pirates," Speculum, vol. 45, no. 1, 1970, pp. 40-68.
62. Jacques Bernard, "Trade and Finance in the Middle Ages 900-1500," in Carlo Cipolla, ed.,
The Fontana Economic History of Europe, vol. 1 (Glasgow: Collins, 1972), p. 314.
63. Benson, "The Spontaneous Evolution of Commercial Law," p. 651.
64. Nettl, "The State as a Conceptual Variable," p. 564.
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Institutional selection 543
preindustrial era, monarchs worked toward eliminating the remnants of feudal
particularism.
Of course, kings and queens had reasons of their own to do so. By providing
such goods, they obtained the support of the towns and thereby capital.
Moreover, by enhancing the economic well-being of the realm, they increased
their own ability to raise more revenue.65
The city-league: fragmented
sovereignty and nonterritoriality
The city-league lies in starkest contrast to the state. The most powerful of
such leagues was the Hanseatic League, or Hansa, which consisted of 160-200
towns and monopolized most of the northern trade.66 This league did not adopt
the principle of sovereign territoriality. It had no clear internal hierarchy and
no territorial borders to mark its jurisdiction. Because of its importance, and
because its organization was typical of many other city-leagues (such as the
Rhenish League, the Saxon League, the Swabian League, and others), I will
take the case of the Hansa as representative of city-leagues in general.
Unlike the situation in England and France, where the interests of the
monarch in an efficient economy corresponded with those of the burghers, no
central authority could legitimately claim to be a provider of internal collective
goods in the Hansa. Each town mistrusted the objectives of the others. In such
an arena of mutual distrust, economic transactions remained unstable. Efforts
by Lubeck, Hamburg, or Bremen, say, to standardize weights and measures met
with noncooperation. Consequently, city-league members continued to use a
variety of weights and measures to their own advantage.67 Moreover, to
complicate matters even further, measures might vary with the distance from
the point of origin. That is to say, traders manipulated measures to hide illicit
profit margins from ecclesiastical scrutiny.
One way of attempting to overcome this lack of collective action and create
greater standardization was the demand of the Hansetag (the Hanseatic
65. On the affinity between king and burghers, see Gianfranco Poggi, The Development of the
Modem State (Stanford, Calif.: Stanford University Press, 1978), p. 63; Edward Miller, "Government
Economic Policies and Public Finance 1000-1500," in Cipolla, The Fontana Economic History
of Europe, vol. 1, pp. 356 and 369; and Rorig, The Medieval Town, pp. 58-64.
66. The seminal work on the Hansa is by Philippe Dollinger, The German Hansa (Stanford,
Calif.: Stanford University Press, 1970). Wernicke gives a good description of the Hansa's
formative period and its regional and local subassemblies. See Horst Wernicke, Die Stddtehanse
1280-1418 (The Hanseatic cities 1280-1418) (Weimar: Hermann Bohlaus Nachfolger, 1983). A
good introduction to the history of the Hansa can be found in G. V. Scammel, The World
Encompassed: The First European Maritime Empires Circa 800-1650 (Berkeley: University of
California Press, 1981), chap. 2.
67. On the lack of success in standardizing measures and weights, see Otto Held, "Hansische
Einheitsbestrebungen im Mass und Gewichtswesen bis zum Jahre 1500" (Hanseatic attempts at
unity in measures and weights until the year 1500), Hansische Geschichtsbldtter 45 (1918), pp.
127-67.
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544 International Organization
Parliament) that its regional associations adopt the standards of one of the
dominant towns of that region. The Dutch towns, for example, were expected
to follow the lead of Cologne. But the Dutch, of course, benefited from using
and manipulating their own measures and hence had little reason to comply.68
Nor could the many Hanseatic towns agree on which currency to use and who
should mint it. The Hansa saw the use of Brandenburg talers, Lubeck and
Prussian marks, Rhenish guilders, Flemish pounds, and other currencies. The
various attempts to standardize coinage, for example through the Wendish
union on coinage, failed miserably. Relative to England and France, Hanseatic
currencies remained in disarray.69
Legal codes also remained diverse throughout the Hansa. Daughter cities
adopted the codes of mother cities in an ad hoc manner. Some cities adopted
the legal code of Lubeck, others accepted codes from Magdeburg, Hamburg, or
other towns.70 Furthermore, enforcement and implementation of the decisions
of the Hanseatic parliament were left to the individual towns. Although the
Hansa provided for punishment, such as exclusion, for towns that defected, in
general the sanctioning process left a great deal of leeway for individual
shirking.
Given the lack of effective control of each town over the others, even the
major towns tended to pursue their own objectives rather than provide for
collective goods as a hegemonic power might. Thus, despite the political
organization of the Hansa, members continued to rely on mechanisms usually
associated with self-help systems to organize trade. One such mechanism was
the implementation of ordinances to ensure the maintenance of strong family
ties. Marrying non-Hanseatics was forbidden and business partnerships with
them could be penalized by the loss of two fingers.7'
The distrust among Hanseatic members not only obstructed efforts for
greater centralization but at the same led to free riding when external collective
activity was called for. While the Hansa was sometimes quite successful in
waging war, there was always the danger of individual cities refusing to fulfill
their obligations. Thus, the Saxon members were slow to support the Wendish
towns in the war with Denmark.72 Some of the Dutch member towns were
reluctant to support the league against nonmember Dutch towns in Holland
68. Leo Lensen and Willy Heitling, De Geschiedenis van de Hanze (The history of the Hansa),
(Deventer, Holland: Arko, 1990), pp. 24 and 36.
69. Dollinger, The German Hansa, p. 207. Wilhelm Jesse, "Die Munzpolitik der Hansestadte"
(The coinage policy of the Hanseatic cities), Hansische Geschichtsblftter 53 (1928), pp. 78-96,
contrasts the lack of success in standardizing coinage and minting in the Hansa with the relative
success of France. See also Rorig, The Medieval Town, p. 65. Holborn comments on the lack of
centralization and the chaotic currency conditions in Germany as compared with England. See
Hajo Holborn, A History of Modem Germany: The Reformation (Princeton, N.J.: Princeton
University Press, 1959), p. 68.
70. Berman, Law and Revolution, p. 376.
71. Lensen and Heitling, De Geschiedenis van de Hanze, p. 41.
72. Matthias Puhle, "Der Sachsische Stadtebund und die Hanse im Spaten Mittelalter" (The
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Institutional selection 545
and Zeeland.73 Even Lubeck and Hamburg, which as the Hansa's dominant
towns were most likely to prevent free riding, were at one time briefly expelled
from the league for defecting from the league themselves.
Sovereign actors deliberately profited from this lack of unity. For example,
the Danish king claimed that certain privileges were due to the Wendish but
not the Prussian towns, although privileges had in fact been agreed upon for
the Hansa as a whole. The Prussians drew the incorrect conclusion that the
Wendish towns had defected and had negotiated private benefits of their
own.74
The lack of clear sovereign authority also made it difficult for the league to
credibly commit itself to international agreements. Treaties were negotiated by
the league as a whole, but individual towns were able to choose whether to
ratify the treaty or not. Thus, although Prussian towns refused to sign the peace
treaty with England in 1437, the Hansa nevertheless insisted that English
concessions were due to the Prussians.75 When English negotiators in the
sixteenth century demanded a list of all Hanseatic towns so that they could
know which ships could legitimately claim the specific privileges that the Hansa
had negotiated, the league refused.76 It feared that the crown would seek to
negotiate with individual towns at the expense of the league as a whole, a not
illusory danger, since England stood to gain by enticing towns to defect.77
From its side, the league would occasionally welcome free riding to
exonerate itself from any responsibility for infractions of international agreements.
For example, when England claimed that members of the Hansa
engaged in piracy and violated agreements thereon, the Hanseatic League
argued that it had no control over individual towns. In other words, it had no
clear means to deal with free riding.78
The Hansa thus could not credibly commit itself to long-term iterative
relationships with other governments since it could not control individual
towns' incentives to free ride. Benefits of defection would accrue to the
individual town, whereas the costs would be borne by all. Moreover, the Hansa
itself benefited from obfuscating which members were part of the league, and
hence non-Hanseatics often distrusted their negotiating partners.
Saxon city-league and the Hansa in the late Middle Ages), Hansische Geschichtsbldtter 104 (1986),
pp. 21-34.
73. Lensen and Heitling, Geschiedenis van de Hanze, p. 155.
74. Dietrich Schafer, "Zur Frage nach der Einfuhrung des Sundzolls" (On the question of the
introduction of customs duties in the sound), Hansische Geschichtsblitter 5 (1875), pp. 33-43.
75. T. H. Lloyd, England and the German Hanse 1157-1611 (New York: Cambridge University
Press, 1991), p. 370.
76. Georg Fink, "Die Rechtliche Stellung der Deutschen Hanse in der Zeit ihres Niedergangs"
(The juridical position of the German Hansa in the time of its decline), Hansische Geschichtsblftter
(1936), pp. 122-37. See also Lloyd, England and the German Hanse, pp. 294-304, 319, and 378.
77. On English expansion into the Baltic, see Ralph Davis, English Overseas Trade 1500-1700
(London: Macmillan, 1973), pp. 16-19.
78. John Conybeare, Trade Wars (New York: Columbia University Press, 1987).
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546 International Organization
Finally, the Hansa did not follow the principle of territorial delimitation of
its authority.79 It had no recognized borders. Consequently, its attempts to
bring new members into the league ran directly counter to the interests of
sovereign state actors, posing to them the same danger as imperial logics of
organization. Indeed, the Hansa acquired privileges in England that exempted
it from parliamentary statutes.80
In short, the city-league had problems with establishing internal hierarchy,
and consequently it was less successful than states in standardizing coinage and
centralizing jurisdiction. Externally, it was not able to credibly commit to
international treaties. Moreover, given its lack of clearly defined territorial
jurisdiction, it was less compatible with the territorial units in the international
system. In the Peace of Westphalia, for example, the princes refused to
recognize the league.81 However, individual cities such as Bremen, Hamburg,
and Lubeck were considered imperial cities (hence, de facto independent) and
as city-states were allowed to participate.82 The league therefore was refused
not on the basis of the total material resources at its disposal but on the basis of
its particular organizational logic. The structure of the league was such that it
did not fit that of an international state system: it was not a like type.
I do not suggest that the material resources of the organization are irrelevant
altogether. It would be difficult to exclude the Hansa in its prime. However, a
material explanation alone cannot clarify why so many small actors continued
as legitimate actors in international relations. Bremen, Hamburg, and many
others were considered independent actors for many centuries after Westphalia.
While their limited resources might have made them second- or third-order
players in international politics, they were considered as legitimate players.83
The demise of the Hansa, therefore, had several causes. First, it was due to
the competitive nature of the international system in which it was confronted
by rival forms of organization. Sovereign states proved better at mobilizing
their societies and enhancing their domestic economies. Territorial units
gradually encroached on the independence of the cities that were members of
the league. Parallel with this "Darwinian" selective process were the choices of
79. See Werner Link, "Reflections on Paradigmatic Complementarity in the Study of International
Relations," in Ernst Czempiel and James Rosenau, eds., Global Changes and Theoretical
Challenges (Lexington, Mass.: D. C. Heath, 1989), p. 101.
80. Lloyd, England and the German Hanse, p. 375.
81. Krasner is right in pointing out that Westphalia is not a dramatic break with the past. I see it
as a codification of practices already under way centuries before that. Nevertheless, it does serve a
useful purpose as a benchmark signifying that the formation of a state system was coming to
fruition. See Stephen Krasner, "Westphalia and All That," in Judith Goldstein and Robert
Keohane, eds., Ideas and Foreign Policy (Ithaca, N.Y.: Cornell University Press, 1993), pp. 235-64.
82. Hans-Bernd Spies, "Lulbeck, die Hanse und der Westfalische Frieden" (Luibeck, the Hansa,
and the Peace of Wesphalia), Hansische Geschichtsblatter 100 (1932), pp. 110-24.
83. Structuration theorists might frame this in terms of the system empowering only like actors.
See, for example, Giddens, The Nation State and Violence, p. 282. Rephrased this implies that actors
recognize other units only on their terms-they admit only other states as legitimate actors in
international relations.
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Institutional selection 547
individuals to form or join units they perceived as superior modes of
organization.84 The German princes thus started to mimic the administrative
processes and legal framework of territorial states.85 Towns, no longer
convinced of the benefits of membership in the league, defected to the
protection of territorial rulers or styled themselves as independent states in
their own right-however small they might be. But the demise of the Hansa
also proceeded along another dimension of mutual empowerment and mutual
recognition. The Hansa-nonterritorial in nature, with only a weakly established
hierarchy, and fraught with free riding-did not fit a system of
territorially demarcated states where sovereigns could credibly negotiate on
behalf of the members of their societies.
City-states and fragmented sovereignty
City-states shared characteristics of both sovereign territorial states and
city-leagues. Internally, city-states looked somewhat like leagues in that they
lacked the clear internal hierarchy of sovereign territorial states. Indeed,
Charles Tilly describes both such urban organizations as fragmented sovereignties.86
When the two hundred to three hundred independent communes of
northern Italy gradually were incorporated into about a dozen larger citystates,
they were given inferior status, roughly similar to that of colonies.87 Su
subjugated towns, however, retained much autonomy. According to Giorgio
Chittolini, "Large responsibilities were left to cities-a distribution of power
that some historians have called a diarchy."88
Conversely, the inhabitants of the subjugated cities did not enjoy the benefits
that derived from being a citizen of such dominant cities as Venice and
Florence.89 When threatened by foreign powers, the subjugated towns often
84. In other words, they exercised exit rather than loyalty. See Albert Hirschman, Exit, Voice,
and Loyalty (Cambridge, Mass.: Harvard University Press, 1970).
85. For this institutional mimicry, see Barraclough, Origins of Modem Germany, pp. 279 and
342-52; and Holborn, A History of Modem Germany, pp. 34-36 and 57.
86. Charles Tilly, Coercion, Capital, and European States, AD 990-1990 (Cambridge: Basil
Blackwell, 1990), p. 21.
87. For the early histoty of these communes, see Daniel Waley, The Italian City-Republics (New
York: McGraw-Hill, 1969).
88. The quotation is drawn from p. 699 of Giorgio Chittolini, "Cities, City-States, and Regional
States in North-Central Italy," Theory and Society 18 (September 1989), pp. 689-706. Also see
Anderson, Lineages of the Absolutist State, p. 152; Brian Pullan, ed., Crisis and Change in the
Venetian Economy in the Sixteenth and Seventeenth Centuries (London: Methuen, 1968), p. 15; and
Jean-Claude Hocquet, "Venise, Les Villes et les Campagnes de la Terreferme XVe-XVIe siecles"
(Venice, and the towns and countryside of the mainland in the fifteenth and sixteenth centuries" in
Neithard Bulst and Jean-Philippe Genet, eds., La Ville, La Bourgeoisie et la Genese de L'Etat
Modeme (The city, the bourgeoisie, and the creation of the modern state) (Paris: CNRS, 1988), pp.
211-28.
89. For an exposition of this internal fragmentation, see Eric Cochrane, Florence in the Forgotten
Centuries 1527-1800 (Chicago: University of Chicago Press, 1973), p. 65; Eric Cochrane, Italy
1530-1630 (London: Longman, 1988), pp. 46-47; Stuart Woolf, A History of Italy 1700-1860
(London: Methuen, 1979), pp. 57 and 63; and Frederic Lane, Venice: A Maritime Republic
(Baltimore, Md.: Johns Hopkins University Press, 1973), p. 424.
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548 International Organization
would favor foreign powers over their own dominant city. The subject cities
perceived Venice as "the city of three thousand tyrants."90 Consequently they
were usually garrisoned by troops of the dominant town.
This lack of internal unity can be seen in the lack of rationalization of
internal economies. Although much research needs still to be done, particularly
on city-states after the Renaissance, the evidence suggests that-not
unexpectedly, given these divisions and lack of centralization-weights and
measures were standardized relatively late. Most standardization did not occur
until the eighteenth century.91 The lack of unity also was visible in the tensions
between capital and subject cities on economic matters. For example, evidence
suggests that Venice deliberately kept some industries on its mainland from
developing so as to prevent competition with Venice itself.92
On currency issues, less diversity was seen, with the currency of the dominant
city being the one usually accepted throughout the city-state. Particularly,
Venice seems to have established a relatively stable currency system.93
Legal codes in the city-states, however, remained diverse. Guilds, aristocracy,
clergy, and the subject towns retained their own legal authority.
Jean-Claude Hocquet wrote that Venice "did not dream of issuing an
ordinance that might have applied to the entire state."94
In general, while in the course of the sixteenth and seventeenth centuries
sovereign territorial states were on their way to rationalizing their economies,
the opposite tendency seemed at work in Italy. Although the various ruling
elites of the city-states had attempted to transform themselves into territorial
states, they were largely unsuccessful. As Michael Knapton describes, Venice
took "no planned action to create a more economically integrated region with
deliberate policies to favour freer patterns of internal flow of goods."95 Italy
thus remained plagued by "the survival of innumerable transit duties" and
suffered from the continued existence of "protectionist duties and internal in
barriers to trade," in Stuart Woolf s words.96
Indeed, according to many historians, the Italian city-states refeudalized.
Their internal fragmentation blocked their transformation into more integrated
and rationalized economies. To again quote Woolf, feudal forms of
90. Denys Hay and John Law, Italy in the Age of the Renaissance (London: Longman, 1989), p.
261.
91. See Braudel, The Perspective of the World, p. 289; Cochrane, Italy 1530-1630, p. 183; and
Woolf, A History of Italy 1700-1860, p. 208.
92. Richard Rapp, Industry and Economic Decline in Seventeenth-Century Venice (Cambridge,
Mass.: Harvard University Press, 1976), p. 160.
93. Lane, Venice: A Maritime Republic, p. 427.
94. See Hocquet, "Venise, Les Villes et les Campagnes de la Terreferme," p. 210; and Woolf, A
History of Italy 1700-1860, p. 64.
95. Michael Knapton, "City Wealth and State Wealth in Northeast Italy, Fourteenth through
Seventeenth Centuries," in Bulst and Genet, La Ville, La Bourgeoisie et la Genese de L'Etat
Modeme, p. 189. For a similar evaluation of Florentine efforts, see Cochrane, Italy 1530-1630, p. 9.
96. Woolf, A History of Italy 1700-1860, pp. 52 and 59. See also Cochrane, Italy 1530-1630, p.
183.
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Institutional selection 549
tenure became "obstacles to the possession of full property rights."97 Indeed,
territorial demarcation between such city-states once again became amorphous,
since feudatories held contiguous domains across borders.98
Externally, however, city-states behaved much like sovereign territorial
states. They recognized formal territorial limits to their jurisdiction-that is,
they accepted borders-and routinized their diplomatic representation.99
While the subjugated towns retained much local autonomy, as far as external
affairs were concerned the dominant cities represented the entire city-state.100
In other words, city-states had the means of establishing credible commit-
ments.101
Unlike the city-leagues, the city-states died a slow death. While city-leagues
were unacceptable to the other actors in the system, city-states were considered
legitimate members of the international community, given that they were
territorially defined and provided clear focal points for negotiation. Unlike the
city-league, the system of rule of the city-state was not inherently at odds with
the principle of territorially circumscribed authority.
Competitively, however, the city-states suffered from some of the same
problems as the leagues, in that they lacked internal unity and consequently
were slow in rationalizing their economies. While they formally did not come to
an end until their incorporation by Napoleon, their decline had begun much
earlier.
Because sovereign territorial states were competitively more successful,
individuals turned to those institutional models for inspiration. When political
elites recognized the consequences of localism and the lack of economic
integration in their city-states, they turned to the territorial rules of Frederick
and Catherine the Great as models worthy of emulation.102
In sum, some political and social actors will prefer institutions that can
reduce uncertainty in their internal and external environments. Specifically in
commerce, actors will prefer organizations that reduce transaction and
information costs and can prevent expost reneging. Sovereign authority did just
that. Sovereign rulers centralized fragmented political systems and thus
reduced legal uncertainty and domestic transaction costs. As a consequence, by
97. Woolf, A History of Italy 1700-1860, p. 51.
98. Cochrane, Italy 1530-1630, p. 14. For similar assessments of the return of feudalism, see
Woolf,A History of Italy 1700-1860, pp. 17-18; Knapton, "City Wealth and State Wealth," p. 195;
and Ruggiero Romano, "Italy in the Crisis of the Seventeenth Century," in Peter Earle, ed., Essays
in European Economic History 1500-1800 (Oxford: Clarendon Press, 1984), p. 193.
99. See the discussion in Garrett Mattingly, Renaissance Diplomacy (New York: Dover, 1988),
first published in 1955.
100. Eugene Rice, The Foundation of Early Modem Europe 1460-1559 (New York: W. W.
Norton, 1970), p. 115.
101. For the long-run diplomatic successes of some of the Italian city-states, see F. H. Hinsley,
Sovereignty, 2d ed. (New York: Cambridge University Press, 1986); and William McNeill, Venice:
The Hinge of Europe 1081-1797 (Chicago: University of Chicago Press, 1974).
102. Woolf,A History of Italy 1700-1860, p. 85.
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550 International Organization
preventing free riding and by rationalizing their economies, such systems of
rule were able gradually to expand the level of resources they could bring to
bear against opponents. Unity and integrated economies were prerequisites for
success in war.
But sovereign authorities also reduced the problems facing transboundary
trade by providing for clear focal points through which to negotiate. Such
rulers, moreover, could more credibly commit their subjects to long-term
agreements. Hence states had good reasons to prefer like units, that is, other
sovereign territorial states, in their environment.
Consequently, individuals had reasons to mimic those successful institutions
and to shift loyalties. Individuals emulated what they perceived to be successful
arrangements in order to reduce uncertainty and gain legitimacy.103
A brief comparison with alternative accounts
No doubt behind the decline of the Italian city-states and the Hansa lay many
causes. Changing trade routes, technological breakthroughs in oceanic shipping,
even migrating herring (in the case of the Hansa) have been suggested as
causal variables. This essay does not disavow the importance of those variables.
Instead, it draws attention to the internal and external consequences of
particular types of rule. Thus, while it specifically examines the Hansa and the
Italian city-states, it means to suggest why they as institutional types were less
successful-why their characteristics made them less successful-than sovereign
territorial states.
Are there alternative independent variables that explain equally well the
general nature of unit change in the European system between roughly 1300
and 1650? Given the anarchical nature of the international system and
considering the frequent occurrence of conflict in preindustrial Europe, we do
well to ask how the above account squares with the prevalent view that changes
in warfare lay at the heart of state formation.
Much of the discussion of the causes of the feudal-state transformation is at
cross-purposes. The question of whether war made states centers around the
growth in extractive capacities of government. Changes in warfare favored
larger and more expensive armies, which necessitated more taxation and
rational government. That issue largely has been settled. Warfare indeed has
had a profound effect on the growth of government and the influence of
government on society.104 That is to say, when "state" denotes "formal
103. On the notion of institutional mimicry, see Paul DiMaggio and Walter Powell, "The Iron
Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,"
American Sociological Review 48 (April 1983), pp. 147-60. My thanks to Guy Peters and Stephen
Krasner for bringing this argument to my attention.
104. See, for example, Karen Rasler and William Thomson, "War Making and State Making:
Governmental Expenditures, Tax Revenue, and Global War," American Political Science Review 79
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Institutional selection 551
government" there is little doubt that protracted conflict has influenced the
size and functions of public authority.
The question examined by this essay, though, is why did this particular form
of state prevail. What precisely about a public authority that was hierarchical
and spatially defined caused it to survive when the other two types of authority,
city-leagues and city-states, seemed also quite viable? One might argue that
because states were superior in waging war, defeated city-leagues and
city-states were absorbed into them. But such an account needs elaboration
and specification. For instance, the ability to wage war itself must first be
explained. To argue that a particular institutional form, that is, the sovereign
territorial form, was superior at war begs the question. Why was it superior?
Most accounts imply that military superiority was largely a function of size, and
in so doing, they neglect the consequences of institutional characteristics.105
Some researchers have compared the institutional efficiency of different
territorial states, by analyzing the relative efficiency of similar types of units.
Barry Weingast and Douglass North, for example, have taken a public choice
approach to investigate why England was able to raise capital at low rates, and
hence wage war at considerably less cost than France.106 But the present article
is one of the first studies of the institutional efficacy of different types of units,
comparing territorial states to their contemporary alternatives.
Second, since city-states were at one time as powerful and resourceful as
sovereign states or even more so, one might ask why states survived that initial
period. Indeed, in many cases the revenue of the Italian city-states outstripped
that of the emerging sovereign territorial states. And if money is the sinew of
power, then during this period of mercenary armies the answer to that question
is not straightforward.107 Furthermore, it is said that many Italian towns were
able to bring large armies to bear, even compared with France: by some
(June 1985), pp. 491-507; John Brewer, The Sinews of Power (New York: Alfred Knopf, 1989);
Michael Mann, States, War, and Capitalism (Cambridge: Blackwell, 1988); William McNeill, The
Pursuit of Power (Chicago: University of Chicago Press, 1982); Tilly, Coercion, Capital, and
European States; and Brian Downing, The Military Revolution and Political Change (Princeton, N.J.:
Princeton University Press, 1992).
105. Often these arguments allude to military and economic efficiencies of scale. See Leonard
Dudley, "Structural Change in Interdependent Bureaucracies: Was Rome's Failure Economic or
Military?" Explorations in Economic History 27 (April 1990), pp. 232-48; Bean, "War and the Birth
of the Nation State"; and Ames and Rapp, "The Birth and Death of Taxes."
106. See Douglass North and Barry Weingast, "Constitutions and Commitment: The Evolution
of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic
History 49 (December 1989), pp. 803-32; North and Thomas, Rise of the Westem World; and North,
Structure and Change in Economic History.
107. For example, the Della Scala signoria, comprising Parma, Lucca, and Modena, had a yearly
revenue of about 700,000 florins in the beginning of the fourteenth century. This was double that of
England at the time. See Reinhold Schumann, Italy in the Last Fifteen Hundred Years (Lanham,
Md.: University Press of America, 1986), p. 116. The revenue of Venice and its Terra Ferma
around the middle of the fifteenth century was 60 percent higher than that of France-more than
double that of England or Spain. See Braudel, The Perspective of the World, p. 120. See also the
estimates in Knapton, "City Wealth and State Wealth."
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552 International Organization
estimates Genoa could raise an army of forty thousand in 1295.108 The
Rhenish-Swabian League united about eighty-nine towns to oppose their
feudal overlords in 1385. In 1377 a league of southern German cities defeated
not only the Count of Wurttemberg, against whom they had allied, but also the
forces of Emperor Charles IV when he chose to back the count. The Hansa
frequently waged war with Denmark, England, Holland, and Sweden. In
Fernand Braudel's estimate, initially the balance swung against territorial
states.109 Size was an imperfect predictor of how the Darwinian process would
work and suggests, therefore, that institutional efficiency might matter consid-
erably.
Moreover, the ability to wage war cannot explain why so many small
territorial states survived. If the possession of considerable military force is the
only explanation of which units survive, why did Germany-as well as
Italy-see the survival of independent cities and miniature principalities until
well into the nineteenth century? While city-leagues and city-states were
occasionally defeated militarily, such setbacks did not lead to their ends as
institutional types. The Hansa's decline was slow and not premised on any
particular military defeat. Likewise, confrontations with territorial states did
not end the phenomenon of the city-state.
Admittedly, the aggregate size of political organization is not irrelevantsmall
towns can hardly wield as much force as great empires no matter their
institutional efficacy-but it is an imperfect predictor of success. For example,
the decline of the Italian city-state is sometimes explained by reference to the
size of France and Spain, which invaded the Italian peninsula in the sixteenth
century. Sovereign states were larger and hence could mobilize larger armies
and raise more revenue. However, those wishing to pursue that explanation
should recall that the Republic of the Netherlands, a leading power if not the
hegemon of the seventeenth century, had as many citizens as Venice (1.5
million). Similarly, England, with only 40 percent of France's population and
much less territorial area under its control, was able to match France and Spain
quite well. The Republic of the Netherlands and England were able to fight
empires and larger states successfully before acquiring empires themselves. In
short, while acknowledging that success has multiple explanations, my particular
emphasis is the effectiveness and efficiency of particular institutional
arrangements in mobilizing and rationalizing their domestic economies. That
in turn is an important factor in determining military success.
Consequently, the approach here suggests answers to some of the puzzles
mentioned above. First, continued internal particularism might partially
108. On the number of Genovese troops, see Scammel, The World Encompassed, p. 161.
Florence fielded about twenty-four thousand men in 1550; see Cochrane, Florence in the Forgotten
Centuries, p. 91. On the Rhenish-Swabian league, see Rhiman Rotz, "German Towns," in Joseph
Strayer, ed., Dictionary of the Middle Ages, vol. 5 (New York: Charles Scribner, 1985), p. 464. By
contrast, the French standing army after the end of the Hundred Years War in the middle of the
fifteenth century numbered about fourteen thousand.
109. Braudel, The Perspective of the World, p. 91.
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Institutional selection 553
explain the decline of Florence, Genoa, and other city-states. Second, in
suggesting that selection also depends on whether or not a unit is recognized as
legitimate by other actors, we have an explanation of why small states survived.
Unlike the Hansa, they were not logically contradictory to sovereign territorial
rule."11
The approach taken here has, therefore, much in common with the work
pioneered by North and Robert Thomas, by Margaret Levi, and by others.
Nevertheless, there are significant differences. First, NIH is susceptible to
particular methodological flaws. This article has tried to avoid some of those
pitfalls by looking at competition between simultaneously existing alternative
institutions, without suggesting that any of those competing institutions was an
optimal outcome.1"' A variety of factors intervenes between preferences and
the creation of institutions. For example, second-order collective action
problems may prevent the creation of such an institution. Moreover, dominant
social and political elites also need not have overall efficiency as their primary
preference. A complete account of institutional emergence requires retracing
the old institutions and the changes in relative power among social actors that
enable them to pursue new institutional choices, and analysis of the overall
bargain struck to create coalitions in favor of institutional change. That cannot
be done within the scope of this essay. I have looked only at the relative
efficiency of simultaneously competing institutions during a specific period.
Second, this article draws attention to aspects of institutional selection other
than Darwinian struggles. Competitive success also depends on what actors
themselves find to be acceptable as a unit. They enforce their choices through
recognition of which types of units can more credibly commit and hence form
preferable partners in international deals.
Third, in trying to avoid a tautological use of transaction costs, this article has
tried to operationalize such costs and credible commitments in a plausible way.
I have defined transaction costs as the general costs of concluding any type of
contract in a given economy, rather than as the costs between ruler and
ruled.112
Fourth, I have extended transaction costs and property rights analysis by the
suggestion that these are heavily influenced by whether or not a political unit
has a clear sovereign authority who has an incentive to reduce such costs and
provide for protection of such rights. That is, I have suggested a specific
independent variable to account for the variation between different units.
110. This notion of international empowerment also explains why African states have persisted
despite tribal and irredentist movements. For that argument, see Robert Jackson, "Quasi-States,
Dual Regimes, and Neo-classical Theory: International Jurisprudence and the Third World,"
Intemational Organization 41 (Autumn 1987), pp. 519-49.
111. North argues that the flaw of suggesting optimality in outcomes existed particularly in his
earlier work. See Douglass North, Institutions, Institutional Change, and Economic Performance
(New York: Cambridge University Press, 1990), p. 7. For a discussion of this problem, also see
Moe, "New Economics of Organization."
112. For the latter use of transaction costs, see Dudley, "Structural Change in Interdependent
Bureaucracies"; and Levi, Of Rule and Revenue.
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554 International Organization
Before concluding, I must note that I have not examined the question of why
states ultimately extended across the globe.113 The focus has been narrow,
looking only at why states displaced other European institutions. I do not claim
to have accounted for the ultimate decline of Ming China, Tokugawa Japan, or
other imperial organizations. However, the logic herein might be used to
extend the argument in that direction. For example, one could argue first, that
because of the plurality of discrete jurisdictions, no political actor could exploit
his or her subjects to the same extent as imperial rulers could. That is to say,
within a state system, predation is limited because social actors have more
opportunity to exit that political system and to seek refuge and better
environments elsewhere. The flight of the Huguenots and the migration of Jews
from Antwerp to Amsterdam are but two such examples; while the reasons
behind each reason are complex, clearly both movements had large economic
repercussions. Even French absolutism was limited in scope.114
Second, the development of the individual states was driven by the very fact
that states interacted frequently and competitively. An isolationist policy such
as that pursued by Tokugawa Japan simply was impossible. Competition drove
internal development and institutional innovation.115
Third, one might examine to what extent such empires were compatible with
a system of de jure equivalent actors. Since empires deny others such
equivalence, state actors would have an incentive to prefer similar institutional
arrangements elsewhere.
Conclusion and implications
Why then did sovereign territorial states "win out" over rival institutional
forms? The answer advanced here lies along three dimensions. One causal
variable was competitive institutional efficiency. Sovereign territorial authority
proved superior to its contemporary rivals due to its internal structure. While
rival forms of organization initially might have controlled more resources, in
the long run sovereign authority proved to be better at combating the
fragmentation of feudal authority. Such rule could take the form of absolutist
government as in France or of a king-in-parliament as in England, but in all
cases authority was centralized. Polities such as the Republic of the Netherlands,
which lacked a formal sovereign, made up for that lack by the de facto
113. For a comparison between the competitive state system and non-European autarkic
empires, see Hall, Powers and Liberties; and John Hall, ed., States in History (Oxford: Basil
Blackwell, 1986).
114. See David Parker, The Making of French Absolutism (New York: St. Martin's Press, 1983),
for the argument that French absolutism was paradoxically quite weak vis-a-vis the multitude of
social actors. Robin Briggs notes how monarchs were constrained in the level of debasement, as
this would weaken their "international position." See Robin Briggs, Early Modern France
1560-1715 (New York: Oxford University Press, 1977), p. 44.
115. As John Hall points out, that argument already had been made by Gibbon. Hall, Powers and
Liberties, p. 14.
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Institutional selection 555
hegemony of one city, Amsterdam, which produced much of Dutch revenue
and effectively ran the country. In the long run, however, the lack of formal
institutionalized central government hurt even the Dutch.1"6
In addition, territorial demarcation of jurisdiction with internal hierarchy
proved to be an effective way of structuring international relations. By
monopolizing external interactions with other units, sovereign rulers provided
focal points through which to regularize international relations. This second
aspect of institutional efficiency goes hand in hand with the first. The less the
political fragmentation, the greater the ability to mobilize society and prevent
defection and free riding. This in turn yielded a greater ability to commit
credibly. Hence sovereign territorial states could achieve long-term gains.
Third, sovereign territorial states proved mutually compatible. Indeed,
borders are explicit agreements on respective spheres of jurisdiction. States are
de jure equivalent, although de facto, of course, they are not.117 By their spatial
delimitation, they recognize that there is no logical necessity why such
authorities should encroach upon one another. Nonterritorial forms of organization
such as the city-league then or pan-Arabism today are logically at odds
with sovereign statehood.118
Fourth, once the benefits of internal centralization and the ability of
sovereign territorial states to engage in longer-term commitments to one
another became clear, actors began to imitate such institutions or defect to
them.
This account of how and why sovereign territorial states displaced other
institutional types might shed some light on the question of why the sovereign
territorial state continues to exist given the apparent tension between spatially
defined authority and the increasingly nonspatial nature of the international
economy.119 Put another way, why have states become, and why do they
continue to be, the constitutive units of the international system despite the
fact that the level of economic interaction has increased so much?120
116. For a discussion of the Dutch case, see C. R. Boxer, The Dutch Seabome Empire 1600-1800
(London: Penguin, 1965), pp. 119 and 328; and R. J. Holton, Cities, Capitalism, and Civilization
(London: Allen and Unwin, 1986), p. 108.
117. For the difference, see David Held, Political Theory and the Modem State (Stanford, Calif.:
Stanford University Press, 1989), chap. 8.
118. For different views about the compatibility of Islam and statehood, see James Piscatori,
Islam in a World of Nation-States (New York: Cambridge University Press, 1986).
119. The early independence literature in emphasizing transnational relations below the state
level can be read as describing the tension between sovereign territorial rule and the nonspatial
character of the global economy. See Robert Keohane and Joseph Nye, Power and Interdependence
(Boston: Little Brown and Company, 1977). See also Robert Reich, The Work of Nations (New
York: Alfred Knopf, 1991). Porter argues that the state is still relevant, but only in terms of an
aggregation of sectors. See Michael Porter, The CompetitiveAdvantage of Nations (New York: Free
Press, 1990). For the development toward truly transnational organization, see Christopher
Bartlett and Sumantra Ghoshal, Managing Across Borders (Boston: Harvard University Press,
1989).
120. This issue is raised explicitly in John Ruggie, "Territoriality and Beyond: Problematizing
Modernity in International Relations," Intemational Organization 47 (Winter 1993), pp. 139-74.
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556 International Organization
This article suggests a partial answer to that question. Political entrepreneurs
and social groups had good reasons to prefer a system of sovereign states:
such units created some measure of regularity and predictability in both their
domestic economies and in international relations. The principle of territorially
delimited authority, which was sovereign within those borders, delineated
what was to be "domestic" and what "international.121 Only those forms of
political organization that were based on such distinctions were recognized by
other actors. Despite the much-lamented existence of sovereign territoriality,'22
it is in fact a method of structuring international relations that makes
interactions more predictable and regularized. In game theoretic terms,
sovereign territorial states could play iterative games, at which other units were
less adept, precisely because others' governments could not credibly commit
themselves; the confederated nature of city-leagues made them particularly
suspect.
The previous argument thus differs from the Grotian position advanced by
Hedley Bull and others.123 That is to say, I do not contend that territorial states
create a particular international society but that the particular internal makeup
of a unit, specifically of the sovereign territorial state, had external consequences.
In the Grotian argument the particular characteristics of the unit
largely are irrelevant. The Grotian argument is a sociological one in that it
explains how units act within a given set of intersubjective rules.
Although the lack of government clearly is a fundamental problem of
international relations, I disagree with the structural realist position that
certain patterns of order are imposed only by hierarchy and the distribution of
power.'24 Just as the distribution of power in the system imposes certain
behaviors on actors, so the dominant types of unit have consequences for
cooperation and conflict. Indeed, which type of unit gains dominance in a given
era itself determines who is to count as an international actor in the first
place. Thus, whichever type of unit becomes the constitutive unit of the
international system at a given time determines whom we understand to be an
international actor operating under anarchy and whom we consider a domestic
121. This issue has been well-described by Kratochwil, "Of Systems, Boundaries, and Territoriality";
J. L. Holzgrefe, "The Origins of Modern International Relations Theory," Review Of
International Studies 15 (January 1989), pp. 11-26; and John Ruggie, "Continuit and Transformation
in the World Polity," in Robert Keohane, ed., Neorealism and Its Critics (New York: Columbia
University Press, 1986), pp. 131-157.
122. For example, Wright cites Arnold Brecht's view that the anarchy of the state system is the
primary cause of armed conflict: "There is a cause of wars between sovereign states that stands
above all others-the fact that there are sovereign states, and a very great many of them." See
Quincy Wright,A Study of War, vol. 2 (Chicago: University of Chicago Press, 1942) p. 896.
123. Hedley Bull, TheAnarchical Societ (New York: Columbia University Press, 1977).
124. Realists such as Robert Gilpin have suggested that the most fundamental type of system
change is change in the type of units, but there has been little research on what the effects of such
change are. See Gilpin, War and Change in World Politics, pp. 41-42; and Peter Katzenstein,
"International Relations Theory and the Analysis of Change," in Czempiel and Rosenau, Global
Changes and Theoretical Challenges, pp. 291-304.
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Institutional selection 557
actor operating under hierarchy.125 Sovereign government works as a gate-
keeper.
This essay, therefore, provides an empirical and material explanation of a
facet that structuration theory has highlighted but not explained. Given that
the nature of a system needs to be accounted for by the actions of its agents
(i.e., states), we need to explain why states empowered only like units-other
states. Alexander Wendt argues that since individual discrete units are taken as
given, "the most important weakness of neorealism's individualist approach ...
is that it fails to provide a basis for developing an explicit theory of the state."126
This essay contends that there were material reasons for agents to empower
only similar types of units, thus creating a structure that severely limited
subsequent possibilities for other types of units.
The notion that every international actor had to have some form of internal
hierarchy and external demarcation also led to a determination of what was
"private" and what "public." As Janice Thomson has shown, actors classified as
private were disallowed into the international system. For example, piracy was
for a long time a perfectly legitimate policy for sovereign states, but it gradually
was disallowed because it did not fit the mold of internal hierarchy and external
demarcation. Were pirates subjects of territorial states and hence private
actors subject to the public authority of their sovereign? Or were they actors
who worked interstitially in the state system and hence had to be weeded
out?127 The same held true for mercenaries. Sovereign territorial states
gradually phased out their use.128 The use of force by nonstate actors did not fit
the territorial mode of authority whereby international relations were conducted
by sovereign governments.
The specification of internal and external realms continues as a constitutive
rule of international affairs. It is exactly because a state system is an ordering
device that one state is reluctant to interfere in another state's affairs. That is,
we have equated sovereignty with autonomy. Since states have been one way of
ordering international relations, ethnic and irredentist movements define
themselves as statist in their intent. With the possible exception of Islamic
fundamentalism, movements define themselves in the terms of the international
state system in order to be recognized by the other members. They claim
international legitimacy based on their adherence to the constitutive rule of the
system-sovereign territoriality.
125. This corresponds with what Ruggie describes as the mode of individuation between units.
See Ruggie, "Territoriality and Beyond."
126. Alexander E. Wendt, "The Agent-Structure Problem in International Relations Theory,"
Intemational Organization 41 (Summer 1987), pp. 335-70 and p. 342 in particular. Ashley makes a
similar point from a poststructural perspective. See Richard Ashley, "The Poverty of Neorealism,"
in Keohane, Neorealism and Its Critics, pp. 255-300.
127. See Janice Thomson, "Sovereignty in Historical Perspective: The Evolution of State
Control over Extraterritorial Violence," in James Caporaso, ed., The Elusive State (Newbury Park,
Calif.: Sage, 1989), pp. 227-54. See also Ritchie's account of Captain Kidd in Robert Ritchie,
Captain Kidd and the WarAgainst the Pirates (Cambridge, Mass.: Harvard University Press, 1986).
128. Janice Thomson, "State Practices, International Norms, and the Decline of Mercenarism,"
Intemational Studies Quarterly 34 (March 1990), pp. 23-48.
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