ORDERED ANARCHY, STATE, AND RENT-SEEKING: THE ICELANDIC COMMONWEALTH, 930-1262
    by Birgir T. Runolfsson Solvason
     

    INTRODUCTION

    A Theory of Cooperation
    The Icelandic Commonwealth
    Theory and History
    Selection of Sources
    Organisation of the Work
     
     

    INTRODUCTION
     

      When all is said and done, Constitutional Economics, for me, must be acknowledged to rest upon a precommitment to, or faith in if you will, man's cooperative potential. Persons are neither bees in hives, carnivorous beasts in a jungle, nor angels in God's heaven. They are independent units of consciousness, capable of assigning values to alternatives, and capable of choosing and acting in accordance with these values. It is both physically necessary and beneficial that they live together, in many and varying associations and communities. But to do so, they must live by rules that they can also choose.
                    James M. Buchanan (1990:18)


    How is it that human beings come to cooperate with each other? How does cooperation arise among us? Are there conditions under which cooperation will or will not arise? Will these conditions ensure the continuation and stability of cooperation, once it is established? Why does cooperation decline within societies?

    These questions, if not posed in the above terms exactly, have intrigued scholars through the ages, and they still do. Many, indeed, have come up with answers to these questions, even managed to convince others of the correctness of their answers and gained a following, only for their answers to be questioned again and lose their appeal. For the most part, philosophers have been the ones asking and attempting to answer these questions, and only occasionally have scholars from other disciplines entered the arena.

    A THEORY OF COOPERATION

    These questions concerning the rise, stability, and decline of cooperation motivates this study. I approach these questions not from the point of view of the philosopher but rather from that of the economist. My task is to come up with a theory of cooperation, a theory that explains how and under what conditions cooperation among human beings arises, becomes stable, and how and why it may decline. I attempt to accomplish this task by searching the relevant literature and to utilize what it offers on this topic.

    Mainstream economics regrettably does not attempt to answer these questions. The mainstream seems to take it for granted that cooperation exists in society and sees no sense in asking or answering these questions. Happily, though, there have been deviations from the mainstream and some of these provide clues to answers to these questions. These deviant schools, for the most part, build upon neoclassical or orthodox analysis, but extend their paradigms to include additional areas of inquiry. Two of these schools, Constitutional Political Economy and Neoinstitutional Economics,1 extend the mainstream paradigm to analyze the emergence and role of institutions. The generalized paradigm, which the two schools advocate, appears to offer some answers to the intriguing questions raised above.

    Scholars using this new paradigm have asked and answered these questions with some success. Indeed collectively, this literature takes us a long way in understanding how cooperation arises, is stable, and why it may decline. Various scholars have modeled theories of cooperation which are highly informative theoretically.2 My task, for this reason, is simplified. My study can, to some extent, use these models, although modification to, clarification of, and a selection among the preferred models is necessary. One, of two, major goals of this study, therefore, is to scrutinize these models of cooperation, and then adopt them for the second goal of our study, that of trying to understand human cooperation historically.

    Although theorizing about and modelling cooperation is a novel goal and may help us intuitively to understand how cooperation arises and declines, it is only a partial goal. Theory, by itself, can sharpen or focus our intuition, and in so doing may supply its own justification. But only a theory that is helpful in understanding actual history is worth its name. The ultimate goal of theorizing and modelling in the social sciences is only complete when the theory or model can, in one way or another, be utilized to understand what it is supposed to explain: actual human behaviour. Therefore, an equally important task to theory building is that of applying the theory to historical instances. My goals, therefore, are, first, to come up with a theory of how cooperation arises, stabilizes, and declines, and, secondly, to apply that theory to a particular historical case.3

    THE ICELANDIC COMMONWEALTH

    The historical case I will discuss is the rise and decline of social order in medieval Iceland; the so-called Commonwealth period. The Icelandic Commonwealth is conventionally dated 930-1264 AD. This historical case is interesting for several reasons. First of all, it is interesting to me, as an Icelander, because it gives me a chance to work on a native problem. But, secondly and more important, it has been of interest to other scholars, no matter what their nationality,4 because medieval Iceland provides an example of a country that was uninhabited before 874 and where a society was established over the next century. By 965 cooperation had arisen in Iceland and remained stable, for the most part at least, for the next two centuries. After that cooperation began to decline and eventually the Commonwealth came to an end in 1264.

    The rise and decline of this society is interesting not only because it is fairly well documented, but, more importantly, because its history is in some respects simpler to analyze than histories of most other societies. This is because Iceland, an island in the middle of the Atlantic Ocean, was isolated from outside influences and threats. Iceland was not isolated in the sense of having no relations, such as trade, with other countries. Further, the Icelandic Church always had relations with the Church abroad, especially with the archbishop for Iceland. But, rather, the Commonwealth was isolated in that its domestic development was largely independent of developments in its neighbouring countries and free from the threat of invasion. This is in sharp contrast to the development of societies in most other areas, such as England, where continuous invasions threatened, and actual occupation sometimes occurred.

    Likewise, the history of the rise of cooperation in Iceland is relatively simple compared to that of others. In Iceland, there was no urgent need imposed from the outside for the Icelanders to organize cooperative ventures. Furthermore, there was, seemingly, no organized effort either to establish cooperation in Iceland; nevertheless cooperation did occur. This, interestingly, suggests that cooperation somehow arose spontaneously in Iceland.

    The system of cooperation in Iceland, the institutional structure of the Commonwealth, worked fairly well, at least in the beginning, and did provide stability. Yet, the system did later decline and the Commonwealth came to an end. This decline of cooperation further adds interest to this historical case.

    The experience poses two main questions; first, how did the Commonwealth emerge, and, second, why did it break down.

    THEORY AND HISTORY

    Historians, or more properly Icelandic historians, have always shown interest in the Commonwealth and produced numerous works on it.5 Most historians uncover similar facts from the original sources, but emphasize different sets of these facts as being the important explanatory factors. Such different emphases of the historians are most apparent in their explanations of the rise of the Commonwealth's institutional structure and in explaining the cause of its decline. Their general descriptions of the system's operation, on the other hand, are for the most part identical.

    I essentially accept the account of the Commonwealth story that historians have provided. However, importantly, I differ from the historians in supplying an explicit theoretical account of the Commonwealth's history.6 Because the historians lack such an explicit theory, they fail in their attempts to come up with a coherent explanations of the rise and decline of the Commonwealth's cooperative structure. It is this particular failure, the lack of an explicit theoretical account, of the historians that I want to rectify. I try to offer a convincing integrated explanation of the emergence of the structure and the causes for its decline.

    I do not try to uncover new historical facts, but rather, accept the "facts" as recorded by the historians. My historical account is, in some sense, copied from the historians and my disagreement with them lies solely in interpreting these "facts". By providing an explicit theoretical account of the history, by using my theory to discriminate between and then arrange the "facts", I attempt to provide a more coherent story of the Icelandic Commonwealth.

    SELECTION OF SOURCES

    Since no attempt will be made here to uncover new historical facts I will not abandon the secondary literature of the historians in favour of original sources. However, I do recognize that `facts' do not come without a theory; that all `facts' are theory laden, and that in accepting the `facts' I am, to some extent, accepting theories. Even so, my theory is not identical with any single theory of the historians' theories. Further, interpretation is needed in reading the secondary literature and so my perspective may not be the same as that of the respective authors' themselves. At any rate, I do not claim that all the theories that the historians use are wrong, but rather that their theories are mostly implicit and that they are more or less incoherent. My task here is to provide a coherent theory of cooperation and then offer a coherent, explicitly theoretical, and convincing account of the history. I do not claim originality on the `facts' presented in my study. Instead, the originality lies in providing, mainly through integration of previous work, a coherent theory of cooperation, how it rises and declines, as it applies to the historical case discussed: the Icelandic Commonwealth.

    ORGANIZATION OF THE STUDY

    The thesis is organized as follows:

    Chapter 1, CONSTITUTIONAL POLITICAL ECONOMY AND HISTORICAL ANALYSIS, focuses on the connection between historical analysis and modern political economy. The main point is to show how institutional theory is essential to historical analysis, such as this one. The institutional approach is abstract and theoretical; the result is institutional history, not the history of persons. The discussion then focuses on Constitutional Economics and Public Choice theory, explaining how these fields differ from conventional, orthodox economics, and arguing that the addition of these fields adds greatly to our understanding of social and economic life.

    Chapter 2, HISTORY OF THE ICELANDIC COMMONWEALTH, offers a short history of the Commonwealth. This short history takes us through the age of the Vikings and shows how that history affects the settlement of Iceland. I describe the main institutions of the Commonwealth, their operation, and their evolution. The rise of the Church as an independent institution and the introduction of taxation are also briefly discussed. The historical summary closes on a discussion of the end of the Commonwealth, and of a treaty that the Icelanders made with the king of Norway. The treaty, the Old Agreement 1262-64, added Iceland to the Norwegian Kingdom.

    After the historical summary I discuss the theories historians implicitly offer to explain the rise and the decline of the Commonwealth. It is on these issues that I differ with most historians and these issues are, therefore, the mainstay of my study. I first criticize the "constructivist" explanation of the formation of the institutional structure of the Commonwealth, and suggest instead that a more evolutionary or spontaneous type of explanation is in order.7

    The main problem with the historians' account of the decline of the Commonwealth is their lack of explicit theoretical explanations. There are in fact so many differing explanations of the decline that I in no way claim to do justice to all of them individually. Instead, I criticize them in groups; drawing together theories that stress similar causes. My main emphasis will be on two types of theories: first, an economic decline explanation, and, second, a wealth and power struggle and concentration explanation.

    Chapter 3, SPONTANEOUS AND DECENTRALIZED ORDERS, opens on the question of how cooperation among individuals can ever arise. A brief discussion is then offered of different types of explanations, separating spontaneous order explanations from constructivist ones. Axelrod's (1984) work on the evolution of cooperation is introduced to offer a framework for theory building and a potential answer to our question. After recognizing some shortcomings of Axelrod, I describe the contribution of Buchanan and Vanberg (1989) and show how their analysis helps clarify underlying issues. Their suggestion of "second-order clustering" provides a solution to the problem of cooperation.

    With a theory of cooperation at hand, Chapter 4, THE EMERGENCE OF SOCIAL ORDER IN THE ICELANDIC COMMONWEALTH, begins the application of the theory to the historical case. I reject the constructivist explanation of the emergence of cooperation in Iceland. The theory of the evolution of cooperation provides an alternative explanation of the formation of a cooperative structure in Iceland. I first show how institutions emerged in the settlement period, how additional institutions of the second order evolved to form the Commonwealth structure, and how these institutions established cooperation among Icelanders. Next, I explain the legal system of the Commonwealth, including law enforcement. Finally, I show how the Icelanders overcame some potential problems posed by the theory, namely, the transmission of information and the reintegration of defectors.

    Chapter 5, FROM A DECENTRALIZED ORDER TO THE RISE OF MINIMAL STATES, describes the institutional structure that evolved in the Commonwealth as a system of decentralized autonomous units. This decentralized system incorporated some elements of centralization, for instance, in legal decision-making. Individuals voluntarily associated themselves with groups, and each group was led by a chieftain. There was a balance in this system to be found in the voluntary choice and the equality of group size. The relations in this system seem to have been able to provide stability of cooperation.

    Next, I introduce Nozick's theory of the rise of the minimal state. I correct a problem with Nozick's theory by connecting the theory of the minimal state to the theory of "tied public goods." The evolution of the Goði-Þingmann relationship in the Commonwealth may, analogously, be thought of as a rise of minimal states through the tied sales of public goods. The chieftains, being limited in number and owning the temples and churches, were able to change their relations with the farmers and others within the system, at the farmers expense. The chapter traces this development through the first two centuries, laying the foundation for the argument that this balance would break down because of competition between the minimal states.

    Chapter 6, THE POLITICAL ECONOMY OF RENT-SEEKING AND THE END OF THE COMMONWEALTH, introduces the theory of rent-seeking and, then analyzes "rent-seeking" in the Commonwealth. This rent-seeking behaviour was initiated by the institutional changes described in the previous chapter, changes which cleared the way for the acceptance of taxation in Iceland. My contention is that rent-seeking causes problems for the stability of cooperation and, in fact, caused the decline of cooperation in the Commonwealth.

    The new tax-law provided a structure for ever increasing competition for the revenue, i.e. rent-seeking, and such behaviour really took off. This, in turn, led to increased concentration of power, to the outbreak of a civil-war, and continuous warring among chieftainship families. The result was a breakdown of the legal order, and, increasingly, the formal legal structure was ignored and manipulated by the chieftains. The overall effect of rent-seeking behaviour was a general disruption of social and economic life, resulting, finally, in a treaty with the Norwegian king to uphold law and order.

    Next, in some detail, I criticize the theory that the end of the Commonwealth was caused by economic decline. I argue that although an economic decline may have occurred during the last century of the Commonwealth period, this by itself was not the cause of the fall of the Commonwealth. Rather, this economic decline, if it did occur, was itself an effect and not a cause of the institutional and social breakdown in Iceland.

    In chapter 7, the CONCLUSION, I evaluate the Commonwealth experience by drawing together the main thoughts and arguments of preceding chapters. 


    chapter 1
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    1 For an introduction to and survey of these schools, see, on the former (which to me includes both Constitutional Economics and Public Choice), Buchanan (1987c;1990) and, the latter, Eggertsson (1990).
    2 It suffices, at this point, to mention only a handful of these theoretical attempts: Axelrod (1984), Buchanan (1975), Nozick (1974), Sugden (1986), Taylor (1982; 1987), Ullman-Margalit (1978), Vanberg and Buchanan (1989).
    3 My goals should be interpreted with modesty. I do not intend to claim that with my case study I have in any way "proved" the theory. Nor do I even claim that with my theoretical explanation of the case have I "proved" the "true" history of the Commonwealth. With modesty I claim, and will remind the reader occasioanally of this claim throughout the thesis, to present a coherent theory of cooperation; how it may evolve and is then used to interpret a historical case. Hopefully, my interpretation is a more coherent and convincing explanation than has appeared before.
    4 To name but a few "foreigners" that have written on this period in Icelandic history: J. Bryce (1901), J. Byock (1988), D. Friedman (1979;1989a;1990), B. Gelsinger (1981), K. Hastrup (1985), W. Miller (1984;1988) and last but not least Konrad Maurer (1864;1882;1908;1909;1910). In this connection a question may occur to some as to why my writing on the same subject is needed? The answer is really twofold: First, and more importantly, my task is different from that of other scholars; namely in forwarding a theory of cooperation and then applying it to an (arbitrary?) historical case. Second, I am dissatisfied particularly with some of what has been written on the institutional history of the Commonwealth and also the interpretation of it. Some of this dissatisfaction will become appearant in the pages to follow, some will not. Of the latter, I will not discuss my dissatisfaction with some political interpretations that I do not think are justified; such as claiming that the Commonwealth is an example of libertarianism or anarcho-capitalism in practice (see Friedman 1989a;1989b). This interpretation of the Commonwealth is not warranted, and the reasons for why it is not, will become appearant in this thesis.
    5 The best complete histories on the period are: Jóhannesson (1974) and Þorsteinsson (1953;1966;1980). Other important works, in my opinion, are: Líndal (1964;1969;1974; 1975;1978;1984), Sigurðsson (1989), and Byock (1988). For others, see bibliography.
    6 There are exceptions, though. The nature of the legal system, for example, has been analyzed somewhat coherently through a particular theoretical perspective (Líndal 1964;1969;1984). Complete histories, on the other hand, all seem to suffer from a lack of a theoretical perspective.
    7 This was suggested by Professor Líndal (1969), and I formalize his suggestion.

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