Optimal Rent Extraction in Pre-Industrial England and France – Default Risk and Monitoring Costs



I. Introduction

Before the Civil War in England in 1640, English and French monarchs
typically sold tax farmers the rights to tax goods, such as patents, li-
censes, salt, clothing, and trade1 , and oligarchs the right to become
monopolists2 . The tax farmers and monopolists on their part used their
positions to create huge fortunes [Brewer 1988, Swart 1980]3.Inthe
period that followed the Civil War, however, the English fiscal system
started to change in favor of direct ex-post collection through government
officials [Brewer 1988, O’Brien 2002]. Along with this change, public fi-
nances improved significantly [Braddick 1996, Hunt and O’Brien 1999
and Ferguson 2001].4 In the period that followed the Glorious Revo-
lution in 1688 the tradition of collecting revenues up-front through tax
farming was almost terminated; at the same time, officials’ rents were
reduced and the public finances improved dramatically [Lipson 1948,

1 Swart [1980] gives a detailed description of the historical farming of taxes and
the sale of office in England and France as well as in many other countries. See
also Matthews [1958], North and Thomas [1973], Chandaman [1975], Ekelund and
Tollison [1981], North [1981], Brewer [1988] and O’Brien [2002].

2 Matthews [1958, p. 30], for example, describes how the sale of office worked in
France: “The purchaser paid the government a lump sum, known as the finance of the
office. This finance represented the capital or principal of the permanent loan which
the purchaser was advancing to the treasury. In turn, the government attributed to
the office certain salaries or perquisites known as gages. The gages were, in effect,
the annual interest earned by the finance”

3In England in 1630, for example, the rents of the crown were around £ 80 000
whereas monopolists earned between £200 000 and £300 000 [Brewer 1988].

4 Even though the farming of taxes was formally abandoned in the excise in 1673
and in the customs in 1683, up-front collection of revenues continued to be used in
different forms [Swart 1980 and Brewer 1988].



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