1. Constitutions and Commitment: The Evolution of Institutional Governing
Public Choice in Seventeenth-Century England

2. Summary What institutions are needed to create incentives to invest?
The authors try to answer that question by analyzing the effects of the evolution of institutions after the Glorious Revolution in 1688 on the capital market.
In addition to institutions establishing private property rights, institutions showing credible commitment to these rights are necessary.

3. The Role of the Constitution
Incentive for political actors
Does growth suffice as incentive?
Compliance as reoccuring problem
Must be self-enforcing
Does reputation suffice as incentive?
Credible restrictions of coercive powers needed

4. The Stuarts‘ Economic Problems 1600-1688
Household deficit
Parliament‘s tax authority
Other revenue sources:
Sale of lands
Impositions
Forced loans
Sale of monopolies
Sale of peerance
Purveyance
Sale of hereditary titles
Court of Wards
Dispensations
Expropriations

5. Institutions Allowing the Stuarts‘ Governance
Royal Prerogative
Star Chamber
Control over the judiciary
Insufficient Checks and Balances

6. Historical Developments
Civil War
1660 Restoration of the Monarch
1688 Glorious Revolution

7. Evolution of Institutions after 1688
Restriction of the Monarch‘s powers
Parliamentary Supremacy
Parliament‘s financial authority
Substantial reduction of the Royal Prerogative
Political Rights
Checks and Balances
Fiscal revolution

8. Control of Wealth Holders over Government
No unilateral action by the Monarch
Checks and Balances
Self-enforcing constitution
Threat of removal
Sufficient tax revenue

9. Constraints on Parliament
(Why did Parliament not assume absolute power?)
Political reasons:
Uncertainty and higher returns lead to less demand for control
Less regulation strengthened the constitutional democracy
Democracy made rent-seeking activities inefficient
Institutional reasons:
Veto powers
Arbitrary administrative institutions abolished
Coalition advocating a limited government after the Glorious Revolution
Independent judiciary

10. Consequences of Restrictions
Higher predictability of the government
No incentive and political obstacles for expropriation
Higher political hurdles for interest groups

11. Evidence: Public Capital Market Data
Pre-revolutionary government loans were forced loans
Post-revolutionary government loans after the fiscal revolution:
Earmarked taxes pay the interest on new loans
Bank of England controlled by Parliament
Separate fund for earmarked tax deficiencies
Milling coins instead of shaving

12. Evidence: Public Capital Market Data

13. Evidence: Public Capital Market Data

14. Evidence: Private Capital Market Data

15. Recap
Constitutional commitment to private rights leads to credibility and therefore creates economic development.
Capital markets responded very well to the institutions created after the Glorious Revolution in 1688.

16. Conclusion

17. Open Question
“We have shown how the political institutions governing society can be considered endogenously.”
No exogenous effect needed?