Politics, Popery, and Property: A Comment on North and Weingast

Abstract

In a recent article Douglass North and Barry Weingast offered an intriguing interpretation of political and economic institutional change in seventeenth-century England.' Their central point is that the institutional arrangements that constrain government action have important implications for individual property rights and for the development of markets. They illustrate this argument using the example of constitutional change during the Glorious Revolution of 1688 and the subsequent development of public and private markets in England. I wish to discuss certain of the limitations to the North-Weingast argument. North and Weingast assert that the development of markets is heavily influenced by the extent to which rulers abide by the rules that govern economic exchange.2 Economic growth is reduced if rulers can unilaterally alter property rights whenever it suits them. Growth is enhanced if property rights are secure. Political institutions determine the extent to which rulers can revise property rights and hence also determine the trajectory of economic growth. They do this by structuring the incentives that face a ruler. Does a sovereign have an incentive to renege on his or her obligations, or is it in the sovereign's interest to live up to them? In the former situation, property rights will likely be violated. In the latter, they are secure. North and Weingast apply this argument to the case of seventeenth-century England. They argue that political institutions changed during the Glorious Revolution in such a way as to alter fundamentally the incentives faced by English monarchs. They pay particular attention to markets and to public indebtedness since capital markets are especially sensitive to the security of property rights.3 Capital markets serve as a kind of litmus test. Before 1688 Stuart monarchs were frequently tempted to alter the terms of loans unilaterally, to grant monopolies, and to impose new taxes in order to solve their financial problems.4 This demonstrated their willingness to alter property rights in their favor. After 1688 constitutional changes shifted the position of the Crown relative to Parliament in such a way as to reduce the incentive to alter property rights. Parliamentary supremacy was established, Parliament gained a central role in public finances, various prerogative powers were eliminated or curtailed, and the judiciary gained its independence from the Crown.5 The wealth holders represented by Parliament gained greater control over the government, enhancing the security of their property rights. Public creditors were now assured that the terms of their loans would be honored. The result was a tremendous development in the system of public finance, with more money being borrowed at lower rates of interest. North and Weingast summarize the develop-