I was reading Theda Skocpol’s States and Social Revolutions yesterday and got very interested in her description of venality in ancien régime France. Offices were openly for sale. The state sold offices, some of which entitled the holder to collect certain fees and taxes and others of which provided elite access and status, and often the holder of the officer had the right to sell those offices — a secondary market in state-sponsored privately-administered coercion. Some of this is what is known as tax farming, where an individual pays the state for the right to collect taxes over a certain area, which I had heard about occurring in India under British rule.
One of the interesting aspects here is the dynamic commitment problem the state creates for itself. To raise more money by selling additional offices, it has to continue to honor privileges of existing office holders. But it will face temptations to offer additional offices (like an artist continuing to issue “limited editions” of a replicable work, or a firm issuing shares that dilute current ownership) or, of course, to merely expropriate current office holders. The incentive to keep prices high for future issues should constrain the state to some extent, but the conflict will always exist.
The importance of status in officeholding means that the commitment problem is not just about quantity of offices but also the quality of the officeholders. If the offices were purely about well-defined rents, then existing office-holders would care only about whether newly-created offices eroded those rent opportunities. But status was clearly an important issue, and a large part of the value of the office was that it provided entry into high society, which came with social and economic rewards. As such, the state faces a commitment problem in its standards for who can buy and assume high-status offices. At some point the state might like to sell offices to uncouth nouveaux riches to maximize revenues, but existing nobility might view this as expropriation — it reduces the value of their offices. The state might therefore like to be able to commit to issuing status only to “high quality” people and not just to the highest bidder. The problem here is reminiscent of the problem of ownership of clubs and associative goods described by Hansmann in The Ownership of Enterprise; in that setting, the solution was member ownership of the club. I suppose the state in Bourbon France was owned by the nobility, but there still must have been some conflict, perhaps at the level of the more marginal offices the state was selling.
The status component of office rents also poses problem for reformers trying to rationalize the state and remove some of the economic burdens created by the grasping of the rentier class. Such reformers might like the state to buy out office-holders’ rent opportunities (because of common pool problems or negative externalities of rent-seeking). This might work fine if the rent is separable from the status: perhaps the guy can still be the Marquis, but the state can buy out or expropriate his ability to collect tolls in his district. But problems arise for the state if the rent is tied up in status. Perhaps then a rent-collecting privilege that is worth 100 livres to the state is worth 200 livres to the Marquis because of the status it confers.
Buyouts could also run into problems if the state is not able to internalize the benefits from solving the common pool problem. Again, say a particular rent-collecting privilege is worth 200 livres to the Marquis but nothing directly to the state, because the state wants to eliminate that rent. Presumably there are indirect benefits of removing the rent that explain why the state wants to remove it, and presumably these could be captured by a state with the administrative capacity to tax efficiently. But in a constrained fiscal situation the state might not be able to buy out the Marquis because it can’t afford to wait for the benefits of reducing the rents, or perhaps because eliminating this rent would simply result in other rents increasing, and the state can’t afford to do all the buyouts at once.
I also wondered whether something North-and-Weingast-ish could be done with the price of offices, on which there appears to be quite good data, e.g. in William Doyle’s book. One would expect to see things like the issue of new offices eroding the price of existing ones, or signs of state fiscal collapse causing a collapse in prices of offices. I wondered whether this is indeed in evidence (the latter appeared not to be, perhaps because the Revolution was not well anticipated), and what else one might extract from these prices about what people believed about the state and the future value of privilege.