The historian Charles Tilly famously reduced several centuries of modern European history to the formula “war made the state, and the state made war.” The maxim has proved enduring not because of its novelty―after all, many others had already said essentially the same thing―but because of its concision and punch. Sheldon D. Pollack, in his new book, War, Revenue, and State Building: Financing the Development of the American State, expands Tilly’s formulation, as it were, to make it read: war made the state and when, primarily during a succession of wars, rulers successfully devised effective means of garnering many more resources from society, the state first made wars and later established a welfare state. This version is not so punchy, but it is surely undeniable. Pollack also seeks to determine whether recent interpretations of revenue capture and state building by political scientists and historians, who have focused on European history, also apply to the rise of the U.S. state. In particular, his “objective in this book is to elucidate the linkages between the sources of public revenue available to the American state at specific junctures of its history, the revenue strategies pursued by its political leaders in response to these factors, and the consequential impact of their revenue strategies on the development of the American state” (6).

Rulers are not free to take as much as they like from society or to take what they do get in any manner whatsoever. “In democratic states,” Pollack observes, “rulers must enter into ‘revenue coalitions’ with powerful groups and interests in society, providing benefits (e.g., protection, subsidies, or favored status) in return for their revenue contributions… Taxation is but one of countless methods used to raise revenue; however, it has proven to be the most efficient and effective for extracting great quantities of revenue from prosperous economies” (9). Pollack recognizes that rulers possess substantial autonomy, and the “central argument of this book is that state autonomy ultimately depends on the state’s fiscal powers―its capacity to extract revenue from society” (20). A state that has run out of money has not only run out of luck but also has exhausted its ability to survive.

Pollack premises his historical survey on a remarkably clear-eyed view of the nature of the state and its operations. States originated in the activities of mounted raiders (“roving bandits”) who preyed on the settled populations that proliferated during the Agricultural Revolution. These raiders plundered their victims, hauling away portable valuables and sometimes the people themselves as slaves. Gradually, however, the raiders saw greater advantage in settling among their victims (becoming “stationary bandits”), ruling their communities and insisting on a continuing stream of tribute. Thus, the state assumed its classic form as essentially a protection racket, albeit one that sought legitimacy via priestly endorsement and other measures. States that succeeded in establishing a system for garnering regular revenues from their subjects thereby transformed themselves from “plunder states” to “tax states.” In their final stage, they devoted increasing proportions of their expenditures not simply to making war but also to the maintenance of a “welfare state.” After 1945, the United States achieved unique status as a great warfare state combined with a great welfare state.

Thus, in Pollack’s characterization, the current U.S. state “is a ‘tax state’ that operates a benign form of a ‘protection racket’―collecting ‘tribute’ in the form of income taxation and in return providing such public goods as protection from criminals and foreign invaders, free markets, a stable currency, and the ‘rule of law’ (e.g., recourse to law courts to enforce contracts)” (22). Some observers ardently dispute this system’s benignity, not to mention the extent to which contemporary markets are truly free and the currency stable, but one cannot deny that an ostensible “exchange” occurs between the state and its subjects at large. The often-encountered claim that a “social contract” underlies this essentially coercive arrangement surely deserves to be considered a convenient myth that serves to prop up the legitimacy of those who exercise its supreme power (46–48). In any event, Pollack’s chapter “The State: Coercion and Tribute” raises many of the essential issues related to the nature of the state, and it will prove instructive to readers who simply take the state, its powers, and its panoply of activities for granted, as if all of these things were as natural as rain and snow.

Pollack devotes two chapters to the emergence and development of European states during the past five or six centuries. These states arose when changes in military technology gave a more decisive advantage to rulers who could operate on a large financial scale, and therefore pay for well-trained and well-equipped professional troops, muskets and cannon, stronger fortifications, well-armed navies, and other elements of the new techniques of waging war. Princes who devised more effective ways to raise revenue systematically, by “laying imposts on wealthy individuals, land, and commercial activities” (69), could equip themselves with superior armed forces and defeat the forces of other principalities, plundering those areas and incorporating them into their own realms. In this way, the stronger states gained territory and subject population, and the weaker states tended to disappear. “In 1500, there were some five hundred principalities, independent city states, and uncontested territories in Europe; by 1900, the number of European states had fallen to approximately twenty-five” (67).

During the nineteenth century, as democratic political institutions gained ground, the European states found it necessary to make increasing concessions, which eventually culminated in a “transformation of the raison d’être of the state… The rulers needed to forge durable relations with a wider range of social classes, providing a quid pro quo to the newly enfranchised classes to preserve what was left of the old order” (88). Bismarck’s Germany led the way in the 1880s, instituting compulsory sickness and accident insurance for workers and old-age and disability pensions. Other Western European nations adopted similar programs soon thereafter. Although labor unions and social-democratic political parties generally supported these programs, the major impetus for them came from the top, not from the downtrodden. As Pollack observes, “Much of the initiative behind these programs came from state actors, rather than unions or political parties on the left.” He quotes Peter Swenson’s conclusion that “private interests were simply overwhelmed by state officials and policy experts with their autonomous problems, ideals, ambitions, and powers” (94). When the United States adopted such programs, first at the state level and later, especially in the 1930s, at the national level, Progressive intellectuals, well-placed do-gooders, and state functionaries played a similar leadership role.

Pollack maintains that “the high cost of operating social welfare programs coupled with the great expenses associated with maintaining a modern military force is driving even the most prosperous democratic states of Western Europe and North America toward long-term financial insolvency” (85). He does not say, however, how he believes this situation will be resolved, and indeed it is probably impossible at present for anyone to venture more than a guess. All we know for certain is that the system built between the late nineteenth century and the late twentieth century contains the seeds of its own destruction. Nonetheless, political forces intent on its perpetuation remain strong, and surely a great deal of political fury awaits us as modern states adapt, as they must, to the hard realities of having promised much more than they can deliver.

On page 100, Pollack finally comes to his main subject, the development of the American state, by which he means the national state (he deals with the U.S. “states” [Alabama, Connecticut, etc.] only in passing and in relation to the national, or “federal,” government). Although he devotes the remaining two hundred pages to this subject, his discussion is curiously unbalanced in that he discusses the earlier periods, when the national state was weaker and more limited, at greater length than he discusses the periods, especially World War II and its aftermath, when this state gained and exercised its greatest powers (and, as Pollack’s theme alerts us, systematically seized its greatest revenues).

If the national government was initially weak in the United States, relative to the great European states, it was so because most political leaders wanted it that way. The United States of America was created by revolutionaries from thirteen independent states that, having seceded from the British Empire, saw the advantage of joining forces for the purpose of loose cooperation in the fight to sustain their separation from Britain. Most of the revolutionary troops were state militiamen, and the states bore much of the war’s financial cost directly. Cooperation with the Continental Congress was vacillating and half-hearted. The national government during the early years of the war and later under the Articles of Confederation (ratified March 1781) had no power to tax, and its assessments on the states generally brought forth scant returns. Hence, the Continental Congress resorted to issuing more than $240,000 in paper money, which quickly became worthless, and to borrowing from foreigners, especially the French and the Dutch.

When the government under the Constitution was established, a few powerful figures, most notably Alexander Hamilton, wished to adopt the institutions common to the powerful mercantilist states of Europe, but most Americans preferred to keep nearly all the power at the state level, expressing “an unrelenting hostility toward centralized government that can be traced to an indigenous strain of political thought that first emerged in British North America in the 1750s and 1760s” (106). Although Hamilton succeeded during his term as the first secretary of the treasury in establishing many of the national institutions he desired―especially the collection of taxes (mainly tariffs), the maintenance of a standing army, the establishment of a national bank, and the assumption and payment of remaining war debts, including those of the states―these institutions for a long time had only a limited reach. “For decades, the triumph of the nationalists was more potential than actual” (184). Seven decades later, the War Between the States, which brought an explosion of taxation and government expenditure, helped to give new vitality to some of the nationalists’ schemes, producing “the belated fulfillment of Alexander Hamilton’s vision of an American fiscal-military state modeled on eighteenth-century England” (211).

Nevertheless, the bloated wartime apparatus was soon largely dismantled, and for the remainder of the nineteenth century, American government reverted for the most part to its prewar structure, with both revenue-raising and power-wielding concentrated at the state and local levels. Even the lower-level governments, with notable exceptions, left people largely free to pursue happiness as they thought best. On the eve of World War I, “[n]othwithstanding the efforts of Progressive reformers, the American state remained a fragmented political organization dominated by patronage politics and political parties, lacking the ‘universal’ professional bureaucracy, professional standing army, and revenue-extraction capacity possessed by the strong nation-states of nineteenth-century Europe” (242).

Then, in the twentieth century, wars―above all, World War II―became the occasions for finally transcending the old system of limited, relatively weak national government and authentic dual federalism. The costs of major wars increased many-fold: the War Between the States cost the Union more than the national government had spent in its entire previous history; World War I cost roughly ten times more than the War Between the States; and World War II cost roughly ten times more than World War I.

After ratification of the Sixteenth Amendment in 1913, the world wars brought dramatic increases in income-tax rates and, during World War II, pulled the bulk of the working population into the income-tax-paying group. Pollack gives good capsule accounts of these wartime tax surges, emphasizing that their permanent incorporation into the federal government’s financial operations consigned to the dustbin of history the central state’s long-standing reliance on revenues from tariffs and internal excises. Now the government had made itself a partner in the private economy’s prosperity: when people flourished there, the government had the means in place to rake off a substantial share of their gains. (Should they realize losses, however, they were generally on their own.) Adoption of income-tax withholding in 1943 made the government’s seizure of this revenue virtually automatic, even when taxpayers heartily wished to evade payment. The government also used the wars, which were financed primarily by borrowing, as propitious occasions for injecting its operations more firmly into the markets for financial securities, thereby giving Hamilton’s goal in this regard a realization beyond even his wildest dreams.

Space here does not permit mention of all the interesting facts and judicious interpretations Pollack has packed into his book. He writes very well, and he draws on a plethora of recent scholarly studies. The book is not pathbreaking in the historian’s sense, however: virtually all of the author’s sources, except for statutes, are secondary works; in a sense, the book tells us nothing we did not already know, if we had taken the time to read as widely as Pollack has read. Yet, even this well-read author has strangely neglected the relevant works of economists and economic historians, in favor of works by historians and political scientists, and here and there his conclusions go awry as a result―for example, when he maintains that the War Between the States promoted a “prosperous market economy” during the war (229), that the Great Depression began with the stock-market crash of October 1929 (254), and that only 5.5 percent of the population served in the armed forces during World War II (259). He might have profited from, among other sources, Larry Neal’s massive three-volume collection of studies titled War Finance (1994). Had he perused this collection, he probably would not have written that “we know remarkably little about the relationship between state development and public revenue” (25). Economists have been writing actively on this topic at least since Adam Smith’s time.

Pollack’s exposition also evinces at least two unresolved tensions. First, he recognizes that modern central governments function as protection rackets, yet he often writes as though their triumph was for the better and concludes that even if they are protection rackets, they are “benign” ones (22; see also 86–87, 281–83, 293–94). Second, he speaks repeatedly of how “efficiently” the modern state extracts revenue from society, yet he also acknowledges that the present welfare states of the economically advanced countries are unsustainable. One way to resolve these tensions is to conclude that these states have always been and remain today highly objectionable protection rackets, though cunningly operated ones in the more recent (“democratic”) era, but their revenue extraction cannot continue much longer to keep pace with the rulers’ short-sighted promises; hence the welfare state as currently fashioned cannot persist because before long its financial requirements will exceed the number of golden eggs the government can squeeze out without killing the goose (the private economy) that lays them.