Dynamics of Interventionism and Economic Development in Quebec before 1854

Abstract

The theory of interventionism argues that government interventions are inherently destabilizing, which in turn helps explain the growth of government. I argue that the theory of interventionism is also useful for explaining the process of economic growth. At first, an intervention reduces living standards as a level change. However, because the intervention alters entrepreneurial incentives, there is a second effect that decelerates economic growth (Czeglédi 2014). The theory argues that any additional intervention to deal with the distortions generated by initial interventions merely accentuates these two effects. Thus, the dynamics of interventionism entail a cumulative process of divergence. To illustrate this argument, I use the example of milling regulations in colonial Quebec. Directly, these regulations reduced the quantity and quality of milling services. However, indirectly, they altered long-run specialization patterns, notably in dairy production. As dairy exports later boomed due to exogenous factors, this alteration eventually led to greater divergence.