PUBLIC DEBT AND THE BIRTH OF THE DEMOCRATIC STATE france and great britain, 1688–1789 Does establishing representative democracy increase commitment to repay public debt? This book develops a new theory about the link between debt and democracy and applies it to a classic historical comparison: Great Britain in the eighteenth century, which had strong representative institutions and sound public finance, versus ancien regime France, which had neither. The book argues that whether representative institutions improve commitment depends on the opportunities for government creditors to form new coali- tions with other social groups, which is more likely to occur when a society is divided across multiple political cleavages. It then presents historical evidence to show that improved access to finance in Great Britain after 1688 had as much to do with the development of the Whig Party as with constitutional changes. In France, the balance of partisan forces made it unlikely that an early adoption of “English-style” institutions would have improved credi- bility. Given the importance of government credibility for different issues, the arguments developed here will be relevant for a wide range of scholars. David Stasavage is a Lecturer in the Department of International Relations at the London School of Economics. His research focuses on the political economy of money and finance and on comparative political economy more generally. He holds a Ph.D. from the Department of Government at Harvard University and has published in a number of political science and economics journals. political economy of institutions and decisions Series Editors Randall Calvert, Washington University, St. Louis Thrainn Eggertsson, Max Planck Institute, Germany, and University of Iceland Founding Editors James E. Alt, Harvard University Douglass C. North, Washington University, St. Louis Other Books in the Series Alesina and Howard Rosenthal, Partisan Politics, Divided Government and the Economy Lee J. Alston, Thrainn Eggertsson and Douglass C. North, eds., Empirical Studies in Institutional Change Lee J. Alston and Joseph P. Ferrie, Southern Paternalism and the Rise of the American Welfare State: Economics, Politics, and Institutions, 1865–1965 James E. Alt and Kenneth Shepsle, eds., Perspectives on Positive Political Economy Jeffrey S. Banks and Eric A. Hanushek, eds., Modern Political Economy: Old Topics, New Directions Yoram Barzel, Economic Analysis of Property Rights, 2nd edition Robert Bates, Beyond the Miracle of the Market: The Political Economy of Agrarian Development in Kenya Peter Cowhey and Mathew McCubbins, eds., Structure and Policy in Japan and the United States Gary W. Cox, The Efficient Secret: The Cabinet and the Development of Political Parties in Victorian England Gary W. Cox, Making Votes Count: Strategic Coordination in the World’s Electoral System Jean Ensminger, Making a Market: The Institutional Transformation of an African Society David Epstein and Sharyn O’Halloran, Delegating Powers: A Transaction Cost Politics Approach to Policy Making under Separate Powers Kathryn Firmin-Sellers, The Transformation of Property Rights in the Gold Coast: An Empirical Analysis Applying Rational Choice Theory Clark C. Gibson, Politics and Poachers: The Political Economy of Wildlife Policy in Africa Ron Harris, The Legal Framework of Business Organization: England 1720–1844 Continued on page following index Other Books in the Series (continued from page iii) Anna L. Harvey, Votes without Leverage: Women in American Electoral Politics, 1920–1970 Murray Horn, The Political Economy of Public Administration: Institutional Choice in the Public Sector John D. Huber, Rationalizing Parliament: Legislative Institutions and Party Politics in France Jack Knight, Institutions and Social Conflict Michael Laver and Kenneth Shepsle, eds., Making and Breaking Governments Michael Laver and Kenneth Shepsle, eds., Cabinet Ministers and Parliamentary Government Margaret Levi, Consent, Dissent, and Patriotism Brian Levy and Pablo T. Spiller, eds., Regulations, Institutions, and Commitment Leif Lewin, Ideology and Strategy: A Century of Swedish Politics (English Edition) Gary Libecap, Contracting for Property Rights John Londregan, Legislative Institutions and Ideology in Chile Arthur Lupia and Mathew D. McCubbins, The Democratic Dilemma: Can Citizens Learn What They Really Need to Know? C. Mantzavinos, Individuals, Institutions, and Markets Mathew D. McCubbins and Terry Sullivan, eds., Congress: Structure and Policy Gary J. Miller, Managerial Dilemmas: The Political Economy of Hierarchy Douglass C. North, Institutions, Institutional Change, and Economic Performance Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action J. Mark Ramseyer, Odd Markets in Japanese History J. Mark Ramseyer and Frances Rosenbluth, The Politics of Oligarchy: Institutional Choice in Imperial Japan Jean-Laurent Rosenthal, The Fruits of Revolution: Property Rights, Litigation, and French Agriculture Charles Stewart III, Budget Reform Politics: The Design of the Appropriations Process in the House of Representatives, 1865–1921 George Tsebelis and Jeannette Money, Bicameralism John Waterbury, Exposed to Innumerable Delusions: Public Enterprise and State Power in Egypt, India, Mexico, and Turkey David L. Weimer, ed., The Political Economy of Property Rights PUBLIC DEBT AND THE BIRTH OF THE DEMOCRATIC STATE France and Great Britain, 1688–1789 DAVID STASAVAGE London School of Economics Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge , United Kingdom Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521809672 © David Stasavage 2003 This book is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2003 isbn-13- 978-0-511-06412-8 eBook (NetLibrary) isbn-10- 0-511-06412-8 eBook (NetLibrary) isbn-13- 978-0-521-80967-2 hardback isbn-10- 0-521-80967-3 hardback Cambridge University Press has no responsibility for the persistence or accuracy of s for external or third-party internet websites referred to in this book, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. For Emmanuelle Contents Acknowledgments page xi 1 Introduction 1 2 A Model of Credible Commitment under Representative Government 26 3 Historical Background: Sovereign Borrowing in Europe before 1688 51 4 Trends in French and British Sovereign Borrowing, 1689–1789 68 5 Partisan Politics and Public Debt in Great Britain, 1689–1742 99 6 Partisan Politics and Public Debt in France, 1689–1789 130 7 Stability of Representative Institutions in France and Great Britain 155 8 Conclusion 173 Appendix 183 References 189 Index 207 ix Acknowledgments When I first began work on this book I was interested in exploring whether the eighteenth-century experiences of France and Great Britain could pro- vide general lessons about the link between representative democracy and policy credibility. Like many other scholars, I had been influenced by an article published by Douglass North and Barry Weingast in 1989 that ar- gued that the constitutional changes associated with the Glorious Revolu- tion of 1688 had allowedtheBritish stateto commit to repayingits debt and thus to gain unprecedented access to finance. Their argument also seemed well supported by the experience of ancien regime´ France, where the monarchy had near absolute authority, yet it struggled to find deficit finance and regularly resorted to default. While fascinated by the comparison, I was struck by several unanswered questions; most impor- tantly, why would granting greater authority to Parliament in the United Kingdom result in commitment to repay debt when government creditors at this time had only limited representation in the House of Commons? I was also surprised to discover that many historians of eighteenth-century Britain considered that the emergence of cohesive political parties after 1688 was as significant a development as the constitutional changes fol- lowing the Glorious Revolution. To confront these issues, in this book I have sought to develop new theoretical propositions about public debt and democratic politics and then evaluate them using historical evidence from France and Great Britain during the eighteenth century. In doing so I have been helped by a great number of people, all of whom have proved open to a research project which is necessarily interdisciplinary. A number of people read and commented on several preliminary papers that laid thebasis for thefinal book, including LawrenceBroz,KeithDowding, Macartan Humphreys, Phil Keefer,Gilat Levy, Richard Mash, Ken Scheve, Ken Shepsle, Barry Weingast, and Stewart Wood. I was also fortunate to xi Acknowledgments receive comments from participants at seminars organized at Harvard (by Jeff Frieden), NewYork University (by Bill Clark and Mike Gilligan), Washington University in St. Louis (by Randall Calvert), Yale (by Ken Scheve), Trinity College, Dublin (by Ken Benoit), the London School of Economics (LSE) (by Cheryl Schonhardt-Bailey), and Oxford (by Iain McLean and Stewart Wood). The following people graciously gave com- ments on the book manuscript: Michael Behrent, Randall