the organization of religion as a source of rents within the dominant coalition. All of the earliest human civilizations were theocracies, governed by priest–politicians. No doubt an institutionalized state religion reflected the society’s beliefs and helped the authorities maintain social control, but the traditional explanation fails to see deeper into the social consequences of organized religion. The authority to lead worship or to found a church is often a closely guarded privilege of a few elites within the dominant coalition. Organized religion generates important rents that the dominant coalition uses to provide stability within the dominant coalition. A state religion provides a way to constrain elites and non-elites.

Most belief systems, religious or otherwise, involve ideas about the structure of organizations, institutions, and human interactions. Beliefs not only shape individual choices but they also shape organizations and institutions. In several of the historical examples that follow, we show how the practice of Christianity affected the development of organizations and institutions within European society. Contested issues always had a purely theological side, but the issues also contained implications for how the church and the larger society should be organized. Theology and practicality intermingled. The ability to influence beliefs was not independent of the ability to influence opportunities.

2.2.2 Size, Boundaries, Trade, and Specialization

Natural states face two problems concerning size – the size of the dominant coalition and the physical size of the society – and a third problem that growing social size creates in the form of gains from specialization. First, taking the physical size of the state as given, how big should the dominant coalition be? Natural state coalitions face a fundamental trade-off. Expanding the coalition without increasing rent-generating activities adds members and increases the coalition’s ability to survive against internal and external threats. However, it also dissipates rents, which both lowers the value of being in the coalition and reduces the ability of members to punish the coalition by withdrawing their support. Because of this rent-dissipation, natural state coalitions are naturally self-limiting in size. Too large a coalition is unstable. The dominant coalition must be constantly aware of the danger that a subset of the existing coalition will attempt to displace the rest and take control of the state.

Natural states are stable as social orders but not static in terms of their makeup. Although a dominant coalition always exists, the identity and internal arrangements of the coalition constantly change as the world changes.

Relative prices, demographics, economic growth, technology, and a host of other variables alter continuously in ways that affect the power and position of various elites. As these changes advantage and disadvantage members of the coalition, their relative bargaining positions change. Adjustments in the distribution of privileges and rents must therefore take place to reflect the new balance of power. Because privileges are often inherent in the social identity of powerful elites, it may be difficult to make minor marginal adjustments within the coalition. Yet if minor adjustments fail to take place, then members who believe their power exceeds their share are likely to demand more and, if they fail to receive their due, they may fight for more privileges. For this reason, the actual structure of dominant coalitions in natural states is inherently unstable. The dominant coalition regularly changes size and composition by weeding out weaker members and by incorporating new strong members and, rearranging the entire composition of the coalition.

Limited access orders face another decision about size on the extensive, geographic dimension.9 A natural state can become larger by incorporating new territory, or a natural state can become smaller by breaking up into several pieces. For most of recorded human history, changes in boundaries and borders were a significant source of change in the structure of the dominant coalition. Until two centuries ago, all societies tended to have somewhat fluid external boundaries. The structure of the dominant coalition is in part an alliance of elites that exerts control over diverse geographic units. Neighboring states must decide whether to ignore each other, fight, ally, integrate, or destroy each other. Whether they ally or unite depends in part on their ability to create credible arrangements between the dominant coalitions in the two societies.

The forces leading natural states to integrate on the geographic dimension exhibit a similarity to those on the intensive dimension: bigger states command more military resources and are therefore more secure. Yet bigger states offer more opportunity for conflict within the coalition. The interaction of the forces mirrors a similar balance and conflict within the natural state: How big should the dominant coalition be?

Successful natural states often capitalize on their ability to produce a larger social surplus and to mobilize resources for the use of the state, such as financing military expansion at the expense of their neighbors. Successful

9An important theoretical issue affecting the size of states that we do not consider is economies of scale in violence, which change over time. See Bean (1973), North (1981, Ch. 3), and Alesina and Spolaore (2003).