Louis Rouanet

June 8, 2017

How Political Competition Made Europe Rich

In the quest to explain economic development, institutional competition has been almost systematically ignored by many economists and historians alike who have fallen under the spell of the interpretation of nineteenth-century German historicists. The members of the German historical school, and especially Schmoller and Bücher, saw the state as the institution that was responsible for the creation of both the market and modern capitalism. Modern institutionalists, although they differ from historicists in many ways, have accepted this narrative, arguing that political centralization is a prerequisite to economic development. One book showing this tendency to accept the historicist narrative can be found, for instance, in Acemoglu and Robinson’s Why Nations Fail (2012). Distinguishing between extractive and inclusive institutions, Acemoglu argues that centralization is a necessary step […]