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Glorious Revolution
The 1688 English constitutional settlement that constrained the Crown's arbitrary power and made the state's commitments credible — the paradigmatic case in North and Weingast's framework for how institutional change produces economic transformation.
In 1689, the English Parliament established its supremacy over the Crown through a constitutional settlement that followed William III's accession. The settlement constrained the Crown's ability to arbitrarily alter property rights, repudiate debts, or change the rules of the economic game without Parliamentary consent. North and Barry Weingast's 1989 paper examining this episode transformed the study of institutional economics by demonstrating that the institutional change produced measurable economic consequences. By making the English state's commitments credible, the Glorious Revolution reduced the risk premium lenders charged the government, reduced transaction costs across the economy, and produced the stable institutional environment within which the economic growth of the eighteenth century became possible. The paper's insight was that institutional arrangements that constrain the arbitrary exercise of power produce better economic outcomes than arrangements that concentrate power — even when the concentrated power is exercised by benevolent actors.
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The mechanism North and Weingast identified was credibility. A benevolent ruler