Although economists and political scientists are accustomed to prescribing government provision as the textbook solution for public good problems and the other “market failures” identified above, the most prolific scholarship exploring the role of the state in developing irrigation is due to historians Karl Wittfogel and Donald Worster. Early in his career Wittfogel studied the development of what he called “hydraulic societies” in China, where regimes with centralized political power constructed and maintained irrigation works (Wittfogel 1975). Initially, Wittfogel saw the concentration of political power around the provision of these basic public goods as inevitable, arguing that the state was necessary for such a grand undertaking.

Though Wittfogel later abandoned the claim that a centralized state was the necessary purveyor of irrigation works after emigrating to the United States and observing the property rights system there (the subject of this chapter), this did not stop Donald Worster from taking up the “hydraulic society” thesis and applying it to problems of twentieth-century irrigation in the United States (Worster 1985).4

Economists and historians alike are fond of depicting the state as the natural purveyor of public goods, but the realities of the western frontier in the latter half of the nineteenth century precluded such a textbook solution to the problem of irrigation development. As a practical matter, the federal government’s ability to exert de facto control over most of the western United States was extremely limited. At the same time, the population of western territories was spread unevenly across the landscape and constantly in flux as the area was settled. Just as migrants lacked experience with large-scale farming, government at all levels was wanting in expertise for understanding how irrigation works should be organized, financed, and developed. Together, these factors amounted to a lack of state capacity for the provision of local public goods.

As Allen (1991) points out, the low density of US Army troops and outposts on the western frontier partially explains the pattern of land claiming enshrined in the Homestead Act and related laws. By allocating property rights to land via first possession, the federal government lowered enforcement costs relative to auctions—an alternative property rights allocation mechanism preferred by many economic theorists. Whereas auctioning land claims necessitated de facto control of all plots up for sale, allocation via first possession only required the government to enforce property rights for land that was actually claimed. Nor was land the only resource that was allocated in this way; rights to timber, minerals, and water were allocated in a similar fashion (Gates and Swenson 1968).

In addition to lowering overall enforcement costs by reducing the size of the federal estate that had to be monitored, first possession gave incentives for search by individual claimants. Promoting search by claimants helped reveal which locations and resources were worth defining rights to, ensuring that enforcement costs were allocated efficiently (Allen 1991; Leonard and Libecap 2016). Economists studying the relationship between property rights and innovation have long appreciated the role that first possession plays as a reward for costly yet socially valuable research activities. One reason this mechanism works so well is that the state lacks the knowledge ex ante to predict which areas of research will be profitable, precluding a more precise, direct form of research funding. In the same way, the federal government situated in Washington, D.C., lacked functional knowledge of the western frontier. Despite commissioning numerous reports and surveys, the efficient scope, scale, and location of irrigation was not well understood by political decision makers (Ostrom 2011).

Enforcement and information issues aside, the vastness of the US West and fluctuating nature of the region’s population would have made systematic taxation initially difficult. State and territorial governments had uncertain boundaries that developed in response to the emergence of settlements in particular areas. Provision of public goods requires taxation, which in turn requires vested authority for collecting taxes and enforcing penalties for failure of payment. With the population and state boundaries themselves in flux, the logistics of tax collection presented a first-order challenge for public finance. As Tyler (1992) notes, organizing local taxing authorities was necessary for irrigation development even after the Federal Bureau of Reclamation became active in the early twentieth century.5

From a purely theoretical perspective, the efficient provision of a public- good-like infrastructure requires precise knowledge of the costs of providing the good and the marginal social benefit of additional amounts of the good to a variety of users. From a practical perspective, the provision of a public good requires the ability to finance construction via taxation. This, in turn, requires the ability to identify beneficiaries and hold them accountable for the benefits they receive. Irrigation development during westward expansion in nineteenth-century America lacked both the theoretical and the practical requirements for government provision of a public good. So, despite being identified by economists and historians alike as a classic job for the state, the development of irrigation works in the West would be addressed via alternate institutions.

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