Fifteen years after the Global Financial Crisis: Recessions and Business Cycles in the History of Economic Thought

England's Inglorious Monetary Revolutions: John Locke versus Doug North on Institutions and Growth

Morrison James, LSE

Few analyses of political economy have proven influential than has North and Weingast's 1989 classic on credible commitments and the Glorious Revolution. It sparked the (massive) literature on central bank (in)dependence, democractisation, and development. Yet, this literature largely overlooks the simultaneous revolution in the monetary system: the birth of the unalterable, fixed metallic standard. Dating back to the Norman Conquest, England's exchange rate regime had been fixed but (highly!) adjustable. By shifting to the permanently fixed regime in the 1690s, the English sovereign relinquished its rights to reduce its (real) public debt burden through currency depreciation. Moreover, archival manuscripts reveal the cleavage between the Bank of England's champions and those who imposed the shift toward the fixed regime. Indeed, the latter argued that it was all the more necessary *because* the newly created banks (including the Bank of England) would inflate credit and further depreciate the pound. Seen in this light, the early Bank of England appears as an engine of (relatively) soft money, a mechanism to steer credit toward the Treasury, and as a highly *dependent* "central bank."

Area: Eshet Conference

Keywords: john locke; doug north; institutions; economic growth; Great Recoinage; Bank of England; Glorious Revolution

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