Douglass C. North and John Joseph Wallis, "American Government Expenditures: A Historical Perspective" AEA Papers and Proceedings (May, 1982) 336 40.
The long term secular trend of governments in the Western world is to grow not only absolutely, but in the proportion of GNP that government absorbs. Conventional economic explanations of this trend, as cited by the authors, are regarded as little more than traditional conservative brimstone about government giveaways, assuming as they do
a crude predatory theory of the state in which government
is simply a gigantic transfer mechanism for redistributing
To this conventional theory, North and Wallis propose an alternative which argues, essentially, that the relative growth of government is a natural consequence of the technology driven development of a more complex society. They divide nonmilitary gosvernment expenditures into two great catagories, direct transfers to persons, and "other." The "other," by and large, represents government investments in infrastructure of one sort or another: ports, highways, bridges, police forces, school systems. Statistics from the U.S. and a number of other developed industrial countries over recent decades shows a consistant pattern of growing overall relative share, with increases in both the transfer and "other" (public investment) catagories.
The public investments, in the authors' view, are required by the growing "transaction costs" of an elaborate modern market society. Some are straightforward. The government builds highways and maintains the air traffic system. Local governments provide public services such as police and fire service, and operate schools in order to try and provide a skilled work force to serve society's functions. In fact, the rising transaction driven public share of GNP is in line with the rising GNP share of transaction related sectors in the private economy, from commun...