Did the Glorious Revolution cause the Industrial Revolution?

John Phelan

Yes – North & Weingast (1989)

• Before 1688 British monarchy arbitrarily seized wealth

• After 1688 Parliament put in place rules to constrain the Crown’s ability to do this

• This led to falling costs of capital (lower interest rates on government debt) which fostered private capital markets and stimulated investment

Exhibit A (from Sussman and Yafeh (2006))

Exhibit B - French vs. British GDP per capita (1990 US dollars) – From last week

No – Sussman and Yafeh (2006)

• English/British government interest rates remained “high and volatile” until the 1730s

• Market for long term government debt remained illiquid

• Other countries did just as well

Exhibit A

Exhibit B

Exhibit C

No – Clark (1996)

• England had declining interest rates before 1688

• Interest rates were not correlated with periods of ‘regime uncertainty’ as North & Weingast’s theory would suggest

• Property rights had been reasonably strong for 200 years before 1688

Exhibit A

Critiques of Institutional Economics

• Chang (2011) argues that Institutional arguments such as North and Weingast’s muddles up causation – does growth lead to development of institutions rather than other way round?

• Institutions -> growth or Growth -> institutions?

Conclusion

If it wasn’t the Glorious Revolution, what was it?

• “An adequate explanation for the Industrial Revolution requires factors other than the emergence of stable private property rights” - Clark

The Industrial Revolution

• Growth pre dated 1688 (Clark)• So did institutional development (Szreter,

2007)• Science and technical innovation (Mokyr,

1994)

Conclusion

• “Secure and stable property rights may be a necessary condition for economic growth, but the history of England shows that they are not a sufficient one” - Clark