China Economic Analysis, The Decline Of Absolute Monarchy

In view of the characteristics of the absolute monarchy, this thesis, by adoptingthe methodology of historical and comparative institutional analysis (HCIA), uses thetheory of collusion in organization to analyze the collusion behavior and its evolutionprocess in the bureaucracy of the monarchy dynasty, so as to find the economicinterpretation of the replacement of dynasties. This thesis introduces the theory of property right and stationary bandit into theanalysis of the state, and assumes that might makes rights. The monarch wins theproperty right the state as the monopolist of the violence potential, and consequentlygains the right to levy on peasants. Peasants, with no violence potential, will tolerateany levy level if they can survive after paying taxes. As a principal, the monarch hires a group of agents namely bureaucrats tocomplete the duty of levying on peasants. Because of the wideness of the country andthe transaction costs of management, the bureaucracy applies the hierarchy system.Because of the different aims between the monarch and bureaucrats, moral hazardwill appear in bureaucratic behavior due to the asymmetric information framework. Ifthe supervision cost is too high, bureaucrats will collude to maximize their utilitythrough hiding information and levying informal tax on peasants. This Collusion willevolve an informal institution in bureaucracy through evolution and repeated games,which is the real institution in ancient Chinese society. As time passed, due to thedecline of the monarch's authority and enhancement of the collusion degree inbureaucracy, the monarch's supervision costs will increase, so the bureaucraticexploitation degree to peasants possesses the characteristic of endogenous growth. Atthe same time, because of the absence of the incentive mechanism,the army's forcewill decline as time goes on due to the shirking and corruption of generals who workas agents. Though monarchs may seek maximizing long-term utility in theory, this is notalways the case. If the future can't be rationally expected, the monarch may behaveopportunistically. On the other hand, the monarch will have the enthusiasm to purgepersons who have rendered outstanding services and put his favorites in the veryimportant positions in order to protect his property right due to the absence of thethird party arbitration mechanism. ii摘要 When the corruption degree in bureaucracy increases to a certain degree, somebureaucrats may intend to reform tax system stemming from their high degree ofmoral sense. But given the absolute monarchy can't change, the reform can't changethe asymmetric information framework in bureaucracy. However, the bureaucracydoes not have the durative enthusiasm to reform because the reform breaches informalcollusion institution. Therefore the reform will fail in the end. After the failure of the reform, the bureaucratic exploitation degree to peasantswill continue to grow along the road of draining the pond to get all the fish. At last,the stochastic violence impact will touch off the violent chains reaction, which resultsin the change of dynasties. Taking both Chinese and the other countries' history into consideration, thisthesis pointed out that periodic dynasty changes would take place among all empiresof the agriculture society after their military expansion had stopped, which enhancesour conclusion. So this thesis offers an economic interpretation of the replacement of dynastiesfrom the viewpoint of collusion in bureaucracy:the reason of the dynasties'replacement is the periodic change of collusion degree in bureaucracy; the virtue ofdynasties' change is the change of the bureaucratic organization through replacing theold bureaucratic organization with the new one whose collusion degree inorganization is lower.