This dissertation explores the role of Absolutist states in the transition from feudalism to capitalism in Western Europe. Three general questions are addressed: (1) what are the determinants of variations in the autonomy of rulers? (2) what are the consequences of variations in autonomy for states policies? and (3) what are the effects of various state policies on economic development? A new theoretical framework, based on a synthesis of the neoclassical economic literature on principal-agent relations and current organizational theory in sociology, is developed to answer these three questions. Case studies of Absolutism in England, France, Sweden, and Spain are used to illustrate the explanatory power of the theory.