The Glorious Revolution is a cardinal event in the eyes of modern economic historiography. Not only did it provide the setting for the Industrial Revolution, but it also became a textbook example of the impact of institutional change upon the economy. The 1989 article by North and Weingast is said to be the most quoted in the discipline. Indeed it formalized the process of historical change, but also strongly hinted at what good institutions should be.
The ideas of check and balance, self-enforcing agreement and respect of private property are at the basis of their argument. In their view, the significant decrease of the threat posed by government upon wealth caused a drop of interest rates. Hence the constitutional parliamentary regime lesser incentive to default smoothened the financial system and through that betterment favoured the whole economy and spurred growth.
Overall this general framework has been seldom criticized. Indeed, Dan Bogart links directly the institutional change that occurred in 1688 and the unfolding of the Transport Revolution which greatly decreased transfer cost in England. He points out that however most of the improvement were technically feasible as early as 1600, political instability and the sovereign’s undue involvement in the matter caused undertakers to limit their investments for almost a century.
Ann Carlos et al. have a slightly different view on the matter and they provide some criticism of North and Weingast. They point out that the Glorious Revolution did not trigger a sudden “Phoenix-like” rise of finance. Indeed, during the 1670s and 1680s the London stock market had gradually learned its trade, all the Glorious Revolution did was to boost the growth of a sector that already existed. Paradoxically, Carlos et al.’s article uses the same process as Bogart but come out with a different conclusion about 1688.
Stephen Quinn has a much larger bone to pick with North and Weingast. In his view, the development of public debt had a detrimental impact on private finance, it simply siphoned the cash businessmen used to fund their ventures. Wealth-owners may have got richer but the impact was rather negative on private interest rates hence actual development suffered.
In the same line of criticism of the New Institutional orthodoxy, Patrick O’Brien points out that the system used by the post-1688 to finance its numerous wars was costly and unsustainable. Debts pilled up during the 18th century (credit was cheap) until the possibility of a serious crisis arose in the late 1790s; the government had precipitously to create an income tax. Servicing the ever-increasing debt was not inexpensive either, the real tax burden imposed on British constituents may have reach as much as 30%.
These few articles confirm that the Glorious Revolution had an enormous impact upon the kingdom and its economy. But they draw a more complex image of the consequences of 1688 than the sort of Golden Legend Whig history (followed by North and Weingast) had. Despite its undeniable positive influence, the post-1688 period also had to bear some of the more negative results of the revolution.
PS: Larry Epstein had a pretty strong criticism of North and Weingast’s view (in Freedom and Growth) arguing basically that many governments miles away from being parliamentarian nor constitutional enjoyed extremely low interest rates on public loans long before 1688 and that England is much more of an oddity than the general rule. Unfortunately I forgot his book in Portugal so I unfortunately can’t review that part of his work.
I’m starting econometrics summer class next week, may lead to light blogging. However will try to continue posting. This time about Dutch early financial history.