State Capacity and Economic Growth: Cautionary Tales from History

This paper uses economic history to probe the relationship between state capacity and economic growth
during the Great and Little Divergences (c.1500–c.1850). It identifies flaws in the dominant measure of state
capacity, fiscal capacity, and advocates instead analysing state expenditures. It investigates five key activities
on which states historically spent resources: waging war; providing law and administration; building
infrastructure; pursuing industrial policy; and fostering a national culture. The lesson of history, it
concludes, is not to build a capacious state. Rather, we need a state that uses its capacity to help (or at least
not hinder) market activity.