‘The Political Foundations of Modern Economic Growth: England, 1540-1800 Gregory Clark Journal of Interdisciplinary History, Vol. 26, No. 4 (Spring, 1996), 563-588. Stable URL: fip:flinks jstor-org/sicX sici=0022-1953928 199621 2926%3A4%3C969%3 ATPFOME3B2.0,.CO%3B2-4 Journal of Imerdisciptinary History is currently published by The MIT Press Your use of the ISTOR archive indicates your acceptance of ISTOR's Terms and Conditions of Use, available at flip: feworwjtor org/aboutterms.htmal. ISTOR's Terms and Conditions of Use provides, in par, that unless you fave obtained pcior permission, you may not dowaload an cnt isus of @ journal or multiple copies of articles, and you may use content inthe ISTOR archive only for your personal, non-commercial uss. Please contact the publisher cegarding any further use of this work. Publisher contact information may be obtained at bhupsferwer,jstor.orp/joumals/mitpress.htrl. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transtnission. For mote information on ISTOR contact jstor-info@umich edu, ©2003 IsTOR hup:thrwwjstor orgy ‘Tue Dec 9 17:00:38 2003Jounal of Itediplinay Hlstary, xxvi4 (Spring, 1996), 563-588 Gregory Clare The Political Foundations of Modern Economic Growth: England, 1540-1800 In a recent article, North and Weingast argue chat the political history of England in che period before the Industrial Revolution illustrates two impoxtant propositions: the first, that the establishment of secure and stable property rights for private citizens is a necessary and sufficient condition for economic growth, and the second, that che estab- lishment of such tights depended on the creation of a repre- sentative democracy. Thus, they believe that chere was an intimate connection between the Gloriovs Revolution of 1688 and the Industrial Revolution of 1760 and thereafter.’ Many scholars cite England during the seventeenth and eighe- eenth centuries as an example of how stable democratic politics causes economic growth. The Glorious Revolution replaced 4 corupt, autocratic monarchy, which financed itself by 2 variety of extortionary means, with 2 political system in whicl Parlia- ment, admittedly drawn from a limited franchise, controlled the monarch. This political system. was remarkably stable. There were no coups, and few attempted coups, after 1639, but an unbroken line of governments elected by 2 popular franchise. When Jarmes II was deposed, the throne passed first to William of Orange and James' daughter Mary, and then to Mary's sister Anne. When Anne died childless in 1714 (despite giving birth to eighteen children), Gregory Clete is Anacate Profesor of Economies, Univericy of Cakforia, Davis He te the autine of Facry Dich," ows of Eo Misty LIV (1954), 128-363, coeuthon, ‘wid Michiel Huberman and Pater index, of "A Briesh Food Puzle,” Eanonie Huny rion, CVI (199s), 205-337 “The data vied sn thu ale wnt mide posible by Wer grant Se-g7-224pr"i* and a scholarhip Soa the ty (estat Reform ane he Informal Secon) program a the University of Marland. The author tanks Beier Lidar, Lary Nel, ard the peicipazs of the aut-ve Beonamic Hin Confrence a the Univesity af California, Los Angeles, tn (oa for hepfsl comment and sogeesions. Eddy Van Cawenserhe kindy supplied de thoue the aver content of pond groten fiom £55016 1750. © 2096 by dhe Masachuteus Tasiaute of Technology tnd the edicar of The foal af Iueseicry Bary «Douglas ©, Nord ind Bary Weingast, “Consticuons and Commicment The Evalucon of Tiions Governing Puke Choice i Sevenceencs Canunty Enghnd, "fauna of eon Hlaerg, XLIX (gh) 805-822S64 | GREGORY CLARK James I's son was laying claim to the throne from exile in Brance. Yer, Parliament was able to install in his place an obscure German princeling who never learned to speak English well, without any serious threat to its control ‘The years between the Glorious Revolution and the Indus- trial Revolution saw widespread change in che British economy: ‘The transport system was radically improved; a large scale con- version Co a purely private agriculture was accelerated; new insti- tutions of finance and commerce were put in place; and the government's debt was regarded as the safest asset in the economy. Hence, many have been tempted to argue that the Glorious Revolution created the preconditions for the Industrial Revolu- tion. As Olson notes, ‘With a carefully constrained monarchy, an independent judiciary, and a Bill of Rights, people in. England in due course came to have 2 relatively high degree of confidence that any contracts they entered into would be enforced and that private property rights, even for critics of the goverament, were relatively secure. Individ- tual rights co property and contract enforcement were probably more secure in Britain after 1689 chan anywhere ele, and it was in Buitain, not very long after the Glorious Revolution, that the Industrial Revolution began? ‘Cameron agrees with North and Weingast on the importance of the Glorious Revolution, though his reasoning focuses more ‘on the stability of public credit. ‘The so-called Revolution of 1688-9 constitutes » major turning poire not only in political aed constitutional history, but in eco- nomic history as well... . [T]he ease, cheapness, and stability of credit for public finance reacted favorably on private capital mar- kets, making funds available for iovestment in agriculture, com- merce, and industry.? This article argues, co che contrary, that 1688 did not repre= senta significant change in regime for private actors in the English economy. [c employs data about che reurn on capital and about 2 Muscut Olan, ‘Distnhip, Democes, and Developmen," Ames Raat Sou evi, CBU 9, 526 2 Ronde Cameron, 4 Conte tonanie try ofthe Will (Ontos 1986). 158MODERN ECONOMIC GROWTH IN ENGLAND, r54o-1800 | 565 land prices to show that secure private property rights existed in England at least as eacly a8 1600, and probably much earlier. As far as most private investors were concerned, nothing special happened in 1688, or, for that matter, in any period between 1600 and 1688; yet, for most of this long period before 688, there was little economic growth. Secure and stable property rights may be a necessary condition for economic growth, but the history of England shows that they are not a sufficient one, Moreover, the information feom. capital markets implies that the move to-a representative democracy was not necessary for the establishment of secure private property rights. For most people, stich rights existed under the plethora of political arrangements that occurred in England between 1540 and 1688, inchiding the autocracy of (Chadles II and the dictatorship of Oliver Cromuell POLITIES AND ECONOMIC GROWTH North and Weingast argue that to produce economic growth, political systems need co be both stable and nonautocratic. A key assumption that this article shares with North and Weingast is that adverse political regimes reduce material output principally by driving up the return on capital, and hence reducing ies supply. This state of affairs affects both the immediate output and the rate of economic growth, since the advazice of production technique depends on the invest- ment of resources. Tanovation does not just happen; ic occurs hecause producers spend time looking for new techniques. Consider, for example, political instability. As factions vie for control of the state, property rights are uncertain, especially if the successful factions seek to reward their members and punish their opponents. Ie is estimated, for example, that nearly one-fifth of all land wes confiscated fiom the king's followers after the Civil ‘War in England, and that approximately the same amount of land was seized from the supporters of Parliament after the Restoration. ‘When political struggles involve the use of force, property may be destroyed in the fighting and economic activity disrupted. Insecure regimes may suppress economic activity if the groups who benefit from it include those hostile to the regime. Driven by the short-term needs of survival, the insecure regime may plunder capital owners or innovators periodically, depriving the economy of investment or innovation and keeping it impover~ ished. Thus, in the 1640s, Charles I fined those enclosing common$66 | GREGORY CLARK ands Jargely as a revenue expediency, even though enclosure increased the rental value of lands. The contest for political power cant make all property insecure and all private atterapts at accu- mulation fruitless; it supports the enrichment of individuals only through the capacity of the state to confiscate it from others. This political climate cends (o deter investment in capital or in new techniques unless the return on capital rises sufficiently t com- pensate for che enhanced risk.* ‘The expected effect of political instability on returns on capital is evident in a number of cases. At the end of the English Civil War in 1650, for example, the victorious Parliament sold most of the deposed king's estates. In 1650, the perpetnities owned bby the crown sold for an average implied rate of rete of 11.2 percent, at a time when private perpetuities yielded 2 retumn of about 5.5 percent. Land confiscated from royalists, church, and crown sold for an implied return of 9.5 percent; che retum on private lands was just above 3 percent. The huge premium in returns available to investors in the confiscated property reflected the political uncertainty that attached to these property rights; and, indeed, the purchasers lost those assets upon the Restoration in 1660.5 According to North and Weingast, even the stable regimes before 1688 created conditions of uncertainty that drove up pri- ‘vate returns. Such autocratic rulers as James [and Charles 11 could, not offer their subjects the security to invest without fear of expropriation. The argument of North and Weingast, however, depends crucially on autocrats being purely selinterested and. having limited time horizons. [fautocrats have dynastic ambitions, 4 Christopher 19h), 40 45. Foe crown perpatuces (ee-frm rents, see Sidney J. Madge, The Dowday of Cut Lands Landon, 1938), 219. See fgueet «und ¢ heen fo private perpetuces end ends HL. (ohn) Hsbuskok, “Dubie Finance and the Sale of Confeeatea Property duseg the Fase regu," Banoo Hiory Revie XV (1952), 70-88, dscuser the sale of land by Prament. [Band vas sold mostly an exchange for government deb, but, since dhe debe ad a matket pee, she implied veuna cen Be calculated. A miace mada exsople of che effec: of luscerinry on setts far epital i she Mesican Bevoetion of 1910-1919, whic lft indstial capita lagely uncamnaged by che iting but ceased grec unceratey about whic. propane sights would preva ia dhe end Investrent neadly cuted, and shate value pact meted, See Stephen Fisher fiat and Cadedewlgman: The Indtutlicaune of Meio, igo-tgee Seance, 1989), (32-145 mame Expomion and Socal Change: England, 1goo-1308 Cambidge,MODERN ECONOMIC GROWTH IN ENGLAND, 1549-1800 | 367 Pig. 1 Taerest Rates on New fssves of Government Debt, 1540-1800 git & 12 gto 8 Government inter onan 500 1550 1600 1650 1700 1750 1800 Year NOTE The loans befire 16 often had art clement of coercion them, #0 the actu fate would be bgher SOURCES Raber Aubeon, Tay Can and dh Moma Mare, ofoy-ctga (Oxford, toto, 1-19, 125, £27; Base GM. Dickion, The Feel Revlon tx Bila (Load, (67, 4, 60-8 Sidney Hater and Richard Sia Busy af Inter Rates (Nevr Bramsorck, 1,35, then they can credibly commit to moderate expropriation without stifling investment Whatever the source of the alleged political pathology, if it is to have pervasive effects in the economy, it should appear as 3 widespread increase in the rate of return on capital. North and Weingast themselves point to the sharp decline in the rate of return on government borrowing in the decades after 1689 a5 a sign that the government operated differently after the Glorious Revolution. Rates of return of to percent gave way to rates 26 low as 3 percent by the mideighteenth century. Figure 1 shows the rate of return on a variety of goverament loans between 1540 and. 800. North and Weingast interpret the dramatic decline in gov- ecument interest rates in the 16905 and in the 17105 as showing 6 Nonh and Weingas, “Conaiutlons end Commimens.S68 | GREGORY CLARK that, in the new stable regime, private capital mazkets with low interest rates flourished, and private incentives to invest improved, fueling growth: “Thus were the institutional foundations of mad~ em capital markets laid in England.” Noxth and Weingast now that, unfortunately, data about capital markets for the period before the Glorious Revolution are “almost noa-existent.”? ‘THE POLITICAL BACKGROUND Between 1540 and 1770, Fogland experienced numerous periods of political turmoil, intemal war- fare, and important changes of political regime. In the late Sx- teenth century, the impending death of the childless Elizabeth created great political uncertainty. By 1578 when Elizabeth reached the age of forty-five, it was clear that she would die childless and that the Tudor dynasty would come to an end. The end of her reign saw five serious contenders for the throne, none of whom the aging Elizabeth seems to have shown any fivor. Although James VI of Scodand was the successor by the laws of primogenitor, he was king of the iraditional enemy of England, Elizabeth had executed his mother in 1586, and Henry VII, through parliamentary act and his own will, had barred the house of Stuart from the succession. Lady Arbella Stuart was descended from the same line as James, but had the advantage of being English. Under the ternis of Henry VII's will, che crown should have passed to the House of Suffolk ane to the descendants of Catherine Grey. But her marriage as well as that of her mother to the Duke of Suffolk was of doubtful validity. The last major claimant was Philip IT of Spain and, barring him, his daughter the Infanta, The claims of the Infanta were pushed by the Catholic minority. Elizabeth herself increased the confusion by having an act passed imposing severe penalties on anyone making claim ta the royal succession without Parliament's affirmation but then preventing Parliament from making 2 selection." ‘The implication is that rates of return on capital should have risen for two reasons in Elizabeth's waning years: The uncertainty of the succession presaged a bloody power struggle after her death, but it also meant that Elizabeth could not credibly commit to any 4 Bid, 825, 88 Joel Heat. Frio, Corapton and Gemma in Eshen Baga (London, 1978) touts, gives the deals of the succesion debe Peer Weatwort-—an a who spoke it the Home of Carimons about the sucesion and publced » pamphlee—at set 20 he Tower in 94 end ied there fous yeu late {427MODERN ECONOMIC GROWTH IN ENGLAND, 1540-1809 | $69 long term contract with her subjects, if monarchs indeed behave like predators in North and Weingast fashion. Elizabeth could have expropriated property in the declining years of her reign 2t Tittle cost to herself, After the death of Elizabeth I in 1603, the Crown passed peaceably to the Scottish House of Stuart. But the Stuart kings did not enjoy a happy relationship with the English Parliament. ‘The interminable power struggle between Crown and Parliament hetween 1603 and 1688 was fueled after 1660 by the Catholic sympathies of the monarchy and the Protestantism of the people. Unlike in many other European countries where the monarch had control of taxation, in England this power belonged to Par- Jiament, The monarch had the revenue of the royal estates at his or her disposal, but even Elizabeth I had to deplete these estates bay sales to meet war and other expenses because of Parliaments reluctance to levy taxes. As a result, the monarchy was always short of fiznds and had co resort to various illegal and sernilegal exactions and confiseations to raise revenue.” The Crown had some success with these measures in the early seventeemth century. It deliberately allowed obsolete regu- Iations introduced in the midsixteench century that limited eco- nomic activity to remain in force, and then encouraged professional informers to inform against transgressors, who were fined. So systematic was this revernie-collecting device that, in some cases, private individuals were given the monopoly of the right to inform and the power to iteat with tansgressors for payment of fines. The Crown similarly sald monopoly privileges for new and for existing products, and resorted to forced loans and to the revival of feudal privileges in its scramble for money. Even when Parliament consented to levy taxes, the assessment of wealth was often wildly unrealistic and heavily influenced by political connections. Thus, the tax burden on the richest was light, some magnates being omitted from the tax Lists altogether. The middle income groups, being less influential, bore more than a proportionate burden," 9. Sce Robect Ashton, The Engl Cie! tHe Caneration ond Reson, ofoy-ety (Lom- on, 1978); Chaacopher Fill, The Caney of Reva, iSoy-rpng CEAnbvxg, 1963), James es Joes, Count and Cau: Elen, 1321704 (Cambridge, Mas, 978, 19 Chby, Boon Expontion ud Seat Change Baglin, 1gne~zpeo (Cambrdge, 1064), I, 350-257 fn 1026, Tames Caso begin oo case revenue by sling peerage570 | GREGORY CLARK In the early seventeenth century, taxation was slight and collection inefficient, unpredictable, and subject to political influence and corruption. A measure of the corruption in the governing classes is evident in the admission by Francis Bacon— the famous philosopher and the chief justice of the land—to his accusers in 1621 that he fad taken substantial “gifts” from chose on whose cases he was ruling (he denied any venal intent)!" ‘The conflice between king and Parliament resulted in open warfare in the years 1639-1640, (642-1646, 1648, and 1651, when rival Royalist and Pacliamentary armies vied for control of the country. One author describes these years 25 “one of the most damaging periods in the history of England.” Armies marched across the countryside destroying craps and requisitioning food. Property damage resulted from sieges, raids, and the strengthening of fortifications in such cowns as Birmingham, Colchester, Gloucester, Worcester, and York." From i649 to 1660, the country fell under vacillating Puritan controt that gradually dissolved internally. The property of the king and his supporters formed 2 major source of revenue ip the years 1649-1653. Meanwhile, Parliament debated all kinds of radical proposals chat would have affected property rights—pro- posals for further sales of Royalist lanes, and for the abolition of tithe rights. As the control of the Puritans unraveled, the amy had to quarter itself on the populstion, and open plunder seemed but a short step distant The restoration of the monarchy in the person of Charles IT in 1660 led to further uncertainty. Some, but not all, confiscated property was restored co its original owners, and the conflict between Crown and Parliament was seemingly resolved. But soon the old strains were appearing, Charles had Catholic sympathies in a Protestant country where religion was an important political issue. Ia 1670, Charles entered into a secret tceaty with France, wherein che French committed to subsidizing him and, in return, he agreed to collaborate with the French in a war on Holland and to declare himself 2 Catholic at a suitable moment. As the 16705 ts See “Political Coreupron in Madeen England. The Historias Problem,” in Hurt cdo, Campin, and Covered, Las-U4 Io Anthony Baker, A Buutefeld Ads of de English Gil War London, 1986), & Stephen Poser, “Property Detruction m the Engish Cav Wary” Hiniry Tadey, XXKVU (1986), seaMODERN ECONOMIC GROWTH IN ENGLAND, 1540-1809. | 57r proceeded, it became clear that Charles would be succeeded by his openly Catholic brother, James, the Duke of York. tn 1679 afier a rebellion by Protestant dissenters in Scodand, Parliament passed a bill excluding James from the succession. Disaffected Royal advisors planned a coup in 1682, and, in 1683, a plot to murder Charles IT and James was uncovered. ‘When James IT became king in 1685, thece was an unsuc- cessful Protestant rebellion in the west, led by Charles’ illegitimate son, the Duke of Monmouth. Nevertheless, the policies of James, particularly his introduction of Catholic officers into the army and his raising of an Irish army of dubious loyalty to the English Parliament, resulted in widespread fear and disaffection. When James IT had a son and heir in 688, William of Orange—a claimant to the throne in his own tight and the husband of James’ daughter Mary feom a previous marriage—invaded from Folland in collusion with English allies, James found little support and fled, and, in 1689, the Parliament amouaced his abdication, installing ‘William and Mary as monarchs. Under the new constitutional order—the foundation of the modem British state—Parliament gained more control over the actions of the monarchy. In 1700, it so discouraged William that he left for Holland and threatened to abdicate. ‘The success of the Glorious Revolution was not immediately obvious, for its outcome depended on the power struggle that engaged Burope in the late seventeenth century, William had chimed the English throne, in part, because the Dutch needed to preserve England as an ally against French hegemony. From 1688 to 1695, William's new regime waged war against France on the continent, and against the partisans of James in Ireland and Scot- land, who were supported by the French, Only in 1697, when Willian and Louis XIV made « peace treaty that recognized William as king of England did the new political settlement appear secure,! ‘Though most historians give little importance to it after 1695, the Jacobice cause did not die immediately; it was che popular rallying point for various disaffected groups until the (408. In 23, Set Daniel Serchi, The five: Botan an Bape, 6es786 Manchester, 1904), $2058 ones, Coury ad Come, 256-278572 | GREGORY CLARK 1715 and is 1745/6 Jacobite rebels in Scotland penetrated 25 fir south as Derby, causing a brief panic in London. ‘The new political regime ushered in a host of political and administrative changes, among them the Land Tax of 1692, which, provided 2 large new source of funds far the government, from a relatively predictable exaction on property owners. Since reas- sessments were rate, it entailed no disincentive to investments in land improvement. In 1694, the Bank of Eagland was formed a5 the principal lender co the government, ushering in a series of financial developments now called “The Financial Revolution.” tus para The existing information about the English private capital market before 1725 is limited, particularly before 1650. A few studies treat the rate of return on land—mainly in the south— but information for the period before 1688 has been largely impressionistic." This article uses information fiom 2,882 transactions or wills recorded in the Charity Commission reports, as well as supple- mentary information, mainly about Jand sales fiom the depositions of the directors of the South Sea Company in 1721, to examine the operation of the private capital market from 1540 to 1837, Also employed are 1,824 observations on land sales between 1600 and 1749 from the Charicy Commission reports ta examine the movement of land prices. The Charity Commission examined the asset holdings of charities in most parishes in England and Wales, during the course of its investigation, which lasted front 1818 to 1837. The commissioners often gave details on the purchases and sales of such assets as land, tithes, houses, rent charges, mortgages, and private bonds that they could glean from the documents retained by the charity to ensure that no land had been lost to the charity over time, and chat rent charges bought earlier were all still being paid. Tre Charity Commission reports generally gave the location of the asset pucchased or sold, permitting a determi 4. Clay, “The Price of Erecold Lana inthe Later Sevenscents and Eightensth Canter,” Econ Hisory Review, SOWIE (2574), e7}-189, calles te rate of retuned in ‘the sth of England aad che micaods foe 160-1889, 1670-1089, znd 1700-180) from 248 trannies or offers for ale, Habsklrk, “The Leng- Tere Rate of tere andthe Price of Land ia the Sevetteenth Century,” Exesmic Hutery Reseu, V (933), 36-45, oven a2 imeprenionisic survey ofthe market fr land n che nxteene and yeverteenth centreMODERN ECONOMIC GROWTH IN ENGLAND, t54o-r800 | $73 nation of how representative the data are. Since the commissioners wanted co ascertain whether the charities were being used for the purposes specified in the donors’ wills, they also frequently de- tailed what donors expected as rates of return on their charitable assets. For example, a donor might have bequeathed £100 to buy land or a rent charge at a yield of at least 5 per year to purchase bread for the poor.® The vacious types of capital instrument are to be distinguished according (o their ramifications, Land and houses were real assets, the curcent returns of which would approximate to their real rate of return so long as real land and house rents were not changing zapicly. There were no usury restrictions on returns on land. Rent charges were nominal assets with an infinite cerm the real return of which depended on the rate of price inflation; these were not affected by usury restrictions either. Bonds and mortgages were also nominal assets, but the return on chem was limited by usury restrictions. Bonds were short term assets chat could be terminaced by either side of the contract at will How representative are the Charity Commission observations of capital onarket conditions for the couney as a whole? The observations from these sources are well distributed geographi- 15 Berwean the yeaes 18:9 124 1840, the Chaney Commision published 32 reports containing 27,c00 page in the Hease of Commons paper. A peal reference othe zelen ‘on capita is "By indentote, bearing dae 22nd Maceh r772, John Sempron, in conse cetion of £20, granted to the patie ofthe second part and ehce hein a0 annuiy of Zi issn outof te ta Joh Surnpecn's one-fourth par of the message, nck and trees, ‘led Colehouse, situate in the path of Broadwood Kely" (Grex Briaia, Parizmencay eps, Repos afte Chany Commas, Wal 12, XUV (0824), 4) “Tue date sembled hese represents «ser of eannctoss tat land and rene chaepe sakets—eypialy with the emccy ae bujer—t wl 48 «st of dated wil cecerding te [rvount of exch Sequert ad te rear thst each bequettor expected the chant t0 achieve fam investrent an lind ot 26 2 Fentcharge- A tene chaige wa fxed peepetust nemal ‘shligation secured hy a house or» pute of land. Ce ecu be raderned ly ithe owner the rene charge agreed to accep « epi unt fo en charge, sneer 3 "Fe fn ests” vied fhm ae ee he eel ccna snd were sl being creted inthe eighteenth ceoeury Evenly the main tasace ‘ons involving them were sales thed pacts, otc the owners of the land. When tithes were commuted afer 1839, chey were allen seplaced by “tthe tent charges,” which were xed money payments fom the lind 0 the tee older in perpeicy The (eal properties ‘of reat chaege went lage unchanged becween the mide ages and dhe vente century. See Wilbam Douglas Edwards, A Camndium of We Law of Progeny in Lond and Comeasenng (Condos, 1904: 18 ed): Geatiey Cuevsber Cheshive, The Mosiua Law of Rest Popery (Condon, 1963; gta); Pederck Pollock and Frederick W. Maidan, The Play ef Ege Law tf he Tne of Edad 1 {Camaidge, 1893)sm | GREGORY CLARK Fig. 2 The Distribution of Observations Geageaphically, Prior to 170 cally, as Figure 2 shows. The local clusters around London, Bris- tol, south Lancashire, and the West Midlands correspond with areas of dense population before 1837. The land purchase data similarly cover most of England and Wales, As is illustrated in Table 1, breaking down the Charicy Com- mission data into various types by location, the data pertain to both urban and roral capical markets, London and the four other ange towns of preindustrial England—Bristol, Fxeter, Norwich, and York—are all well represented in the data set in terms of returns from land and rent charges. London alone is responsible for 13.5 percent of the observations on recurs from both land and rent charges, but this figure is close to the city’s share of the population in England and Wales in 1700. There is almost no land actually purchased in London, but many daced wills record legacies from Londoners to buy land, stipulating a rate of return to be achieved, The Charity Commission data seem to be representative of the urban/rural split of the population as well The distribution of observations for each type of asset is not uniform across time. For che early period, the most numerousMODERN ECONOMIC GROWTH IN ENGLAND, 1540-1809 | $75 Table 1 Distibucion of Recam Observations ‘URHAN (CONDON, BRISTOL, rorat BXBTER, NORWICH, YORK} ” w % AIL Retuons Land 690 us 67 Frouses ny 8 495 Rent charges 331 nae or Bonds and moregages 287 56 195 Actual Reeweas Land 309 6 ts Houses SC 2 392 Rent charges 05, 8 oa Bonds and morgages 192 ” wa Fxpected Reniras Land wr 109 46 Houses 6 ” 56 Rene charges 7 8 293, Bonds and morgages 4 9 2a observations are the actual and expected zeturns on land holding and rent charges and in the later period, private bonds and marc gage lending. ‘The changing frequency of observations for different types oflending over zime reflects the development of the capital market and the scrvival of certain types of records. Rene charges, for example, were steadily superseded by government perpetuities after 17727, since the latter were as secure as rent charges and much more liquid. Thus, many of the observations in the later period are rates of return at which rent charges were bought out by the ‘owners of property charged with them. However, since these deals could have been cone only with the consent of bath parties, they still should have represented a markee interest rate. Records of bond and mortgage lending in the carly years tended not to survive because such lending had a higher default rate than in~ vestments in land oF vent charges, meaning that the money would be lost over time, and also because when the loans were paid, there was no reason to keep the records on them. The distribution of the observations in different time periods is shown in Table 2 The data also saggest that, from an early period, the capital market was reasonably integrated both by location and by type of578 | GREGORY CLARK Table 2 Composition of Rate of Return Observations, (540-1770 ie PRE 642—C042-16RB “1489-1779 TOTAL Real Assets Land 203 19 aa 690 Tiches 6 3 3 2 Houses 8 4 ca ny Nominal Asses ‘een charges ag aad 287 73 Marigiges ° 6 2 o Bonds Rp “5 164 2a ‘Tow 499 495 384 1853 Sores The number af ebsenions fom The Pasismentary Papers, Rept fe Ohanty Genindsione, Vai. 22 (8Ig-t840) He Lop, oe che yests 1719 10 e724, ont The Paclumestiry Paper, The Farias aid fmt ofthe Ete of the Late Sb Gaver, Dipaty-Govomay, ext Dec of he South Sas Conny (4731), repeated ts Shela Curent (ed), Howe of Comment Senional Pape of he Eighth Cent, Vals 4-8 (Whesngean, Del 975) 199 Sheraton asset. The period before 1700 shows evidence of a slight increase in returns as distance from London increases for both rent charges and land, bue che remotest parts of England and Wales still re~ tutned Jess than 0.§ percent mote on capital than the London market, The decline i returns in London between 1630 and 1730 is echoed in all the other parts of the country. Land and rent charges were almost equally secure, though only returns on land were secure against inflation. Since, on average, rates of inflation were less than I percent per year between 1550 and 1837, the average difference between these two assets should have been a slightly lower retum for land, which was indeed the case. In all decades but one, land yielded Jess than rent charges, but the overall difference was merely 0.5 percent. Thus, at east these two different capital assets seem to have been traded in an integrated market." ‘A more important issue is how representative of the privace capical market hese recums from charity would be. Could chari- {ies have been careless purchasers and poor managers of assets wich retums lower than those in the general marketplace? Two pieces of evidence prove otherwise: £6 Fox sore det, see Clatk, “The Land Maske in Pccndteat Society: England and Wales 1540-1837," Working paper 76 (Aalst History Center, Univer of Calon, Davi, 209.MODERN ECONOMIC GROWTH IN ENGLAND, 1540-1800 | $77 Fig. Rewum on Farmland, 1540-1837 10 Rate of Return (%) h oO © nv oO 1540 1600 1660 1720 1780 1840 Year (1) Comparison of the retums expected on land and rent charges, as expressed in wills, with the actual retums charities achieved when chey purchased Jand or rent charges shows that, for both land and rent charges, che acenl returns are insignificantly different from the expected retums, both quantitatively and sta~ ciscically, (2) Comparison of the retuens chat chatities achieved on land purchases with the recurs achieved by private purchasers of land in the eighteenth and early nineceenth centuries, as reported by Clay, and Norton, Trist, and Gilbert, shows that these are close when the series overlap.” Even if charities, on average, achieved marginally lower re~ cums on capital invested in land or rent charges than private purchasers, derecting the effects of changes in political regime on rates of return would be a problem, as long as this difference in retums was stable over time. There is no reason to expect that 17. Chay, “The Price of Fesiald Land"; Nort, Trt and Gilet iw Grn, “A Centary of Cand Voluer: Engoad ané Wales” in Elesnory Canst-Wilnon fed, Baap in Fite lary, MY, Landon, 963}, #28134. The comparion is done exlicidy in Cat, “The Lead Marker in Presndastnal Soci.”578 | GREGORY CLARK Fig. 4 Retr on Rent Charges, 1560-1837 10 8 5 6 i a |: -. o4 sa - g 2 Samet Gloncus Givi ar Revlon 0 —1 fo 1540 1590 1640 1690 1740 1790 1840 Year charities would pesform any better or worse than private purchas- ers in 150 than in 1750, POLITICAL REGIMES AND THE RATE OF RETURN Did any of the supposedly imporcant political events of the sixteenth and seven teenth century affect rates of rerum in che private capital market? Figures 3 and 4 show the annual average rates of return on farmland and rent charges from 1540 to 1776. The private rates, of retum change slowly with time, indicating no dramatic epward movement in any of the periods of political uncertainty: neither the lasc years of Flizabeth’s reign (1578-1603); the period of turmoil before and during the Civil War (1639-1648); the inter- regnum (1649-1639); the final years of the Stuart dynasty (1670~ 1688); nox the difficult years of the new regime (1689-1696). Instead, the trends in returns on both land and rent charges are longer and smoather. Both seem to have increased slowly and slightly from the 1550s to the 1620s, before beginning a long gradual decline chat continued for mare than 100 years. A formal test of thtee series—teal property dand, houses, and tithes), tent charges, and bonds and mortgages—demonscratesMODERN ECONOMIC GROWTH IN ENGLAND, 1560-1860 | 579 Table 3 Definition of Variables in Regression Equations YARTABLE ‘DEFINITION Tr Year Dx ‘Dammmy equal to 1 when che return is expected ‘asin a will Dit Dummy equal to 1 when the asict is 2 house DT. Dummy equal to 1 when the asec is 2 Gthe right DBUB Dummy equal to 1 in 1720 (South Sea Bubble) poLD Durnmy equal to 1 in 1578-160 (yeaes of Elizabeth’ reign with clear absence of successor) pew Durnmy equal to 1 in 1639-1648 (Civil War) DINT. Dummy egual to 1 in 1649-1659 (ineerregnum) DsTu Dursmy equal to 1 in 1670-1688 (ast years of the Saar) DNBWREV Dummy equal ro 1 in 1689-1636 (eaely Glorious Revolution} DREV Dummy equal to 1 in 1697-1970 (Glorious Revolution esablished) whether the periods of political turmoil had any effect on rates of| return in private capital markets. Did rates of retum on any of these three classes of asset rise during periods of political instability? For real assets, the estimated coefficients of the regression equation are RET = a+ BT + B.T'+ yDX+ DH + y,DT + S,DBUB + 8.DOLD + dDCIV + dDINT + 8,DSTU+ O.DNEWREV + 5DREV+ 6, w the variables of which are defined in Table 3. The regression formally tests for any break from long term trends in interest rates during periods of curmoil or regime changes. If political uncer tainty mattered, then the estimated values of 6,, 5,, 6,, and d, should be large positives, reflecting the petiods of turmoil, and either 6; or 6, should be a large negative, depending upon perceptions of when a new regime was established. Included also is an estimate of a similar regression for rent charges, as well as a further estimate of the same equation for both types of returns with only two regime dummies—the Civil War and the years after 1696, when the new regime was established.s8o | GREGORY CLARK Table 4 Rates of Return and Political Changes, 1540-1770 749 Bobble) muster no9s no96 ex (38) fes6) spt sour oh = (DBeabes eign wichour ex) fou) sear sccescy) 619-648 ness -ons mag oot (Cre Wan) fens) fos) om) fox) 649-659 8 = 308 = Goteweanue es) ox) repaecss 3 ~ bas (ae year of Seuaet) er) en ta -696| - mos Gly Glosious Revolsion) eau, eor-ene no3s mors (te Glonous Revalacen} a0) erg 2 239 ot * 188 755 +The estimate i sigmiicandly diferent fom o at the 5% level The eaimate is significantly diene fan oa the 6 Leva, note The gurabers in porenchees at sural exert Table 4 shows the estimated values of the coefficients for each of the seven crucial periods. None of the political and military convulsions of the seventeenth century seems to have bad any ‘quantitatively significant effect on private capital markets in the predicted direction. The estimated movement of interest rates are mostly by fractions of a percent and mostly in the wrong direction. Yet the precision of the estimates is high enough that, in most of the episodes, 0.5 percent movement up or down in interest rates, would be detected as a significant deviation by the regression estimate. The only episode before 1770 that seemed to make any difference to rates of return. was the South Sea Bubble, when, for six months in 1720 the prices of South Sea stock rose to extraor- dinary heights in a speculative mania. Rates of return on both real assets and rent charges fell by about 1 percent in the year of the Bubble. The Glorious Revolution, counted either as an event of 1689 or of 1697, once the new regime achieved a measure of security, is associated with, at hest, a 0.14 percent estimated decline ‘of returns on land from the late Stuart period, and a decline of 0.40 percent for rent charges.MODERN ECONOMIC GROWTH IN ENGLAND, 1540-1800 | 381 Redoing, the estimates and keeping just «wo indicators of political instability—the durnmy for the Civil War period and che dummy for the confirmation of the new regime in 1697—finds very small effects—an estiraated rise of 0.12 percent on returns on land and a decline of only 0.18 percent im returns on rent charges. Political events in the period 1540 to 1776 do not seer to have mattered in che private capital market. ‘The experience in southem Netherlands during che sare petiod is in direct contrast to that of Fngland and Wales. De ‘Wever reports the rate of return implied by land purchases in the town of Zele, Flanders, between 1530 and 1795, The countryside near Zele was subject to several long periods of desteuctive mili- tary activity and of uncertainty from 1550 to 1750. The struggle for Durch independence took place mainly in Flanders during the yeats 1581-1592, Both Dendetmonde to the northeast and Ghent to the wesc were recaptured from the rebels in 1584 ater fierce fighting. After 1585, most of Flanders was in Spanish hands, bat the Ducch continued to raid the countryside until c697. There was also warfare in Flanders ftom 1672 (0 1697, during the wars of che Dutch and the Habsburgs against Louis XIV and later during the War of the Spanish Succession. In 1706, the French besieged Dendermonde and, in 1707, captured Ghent, only to lose it co the Allies again in 1709. As Figure s shows, the chree major military convulsions—particularly the War of Independence in 1581-1607—drove up the rate of return on land sharply in Zele.* 18_Focthe end sale se Bde Weve, “Rent and Sling Pres of Land st Zee Sterch to Eigheerch Cee)” in Henan vin der Wee snd Edy Van Cauwecerge (ls), The ‘Aaa Desepnt of Los Cnt Reales te Tbe and Ree Sts 250-800 {Ceaven, e578, Foe deal bout the confi ths psd see Grocy Pathe, The Data Rao tac, 17; Yn dex Wee, The Croat ofthe Ay Meet end Eagan Binoy (The Hoagie 963) F Trean, "Wake andthe Countyede: Socal sr Feonomic Apects obthe Miliary Deeucon in Funders during she Lave Middle Ages andthe Early Modern Fesiod” Tia Lo Cars Hay Veeck, XIV (90) 25-36 Jn Ci, Th Nive Yr ar ad te Bain Ary 1058 t6p The Opoatont te Lae Cia (Naschester 938) Vac der Wee notes thai Flanders £96 ws gest pein ot 29 bad”), ba Mocting by feebooten, snd not et by Spat roo, drt estc im 1387” (289s8 | GREGORY CLARK Fig. 5. Reta on Land Holding, Zele, 1550-1750 10 8 Rate of return (%) Wer War |hwar 0 L 1650 1600-1650» 17001750 Year ‘The rate of return from land holding at Zele was estimated from the regression RET = a + (T+ (Ts + yDWAR: + ODIWARS + @DWAR3, @ where DWARI is 1 for the years (581-1607, and o otherwise, DWAR2 is 1 for 1672-1797 and 0 otherwise, and DWAR is 1 for 701-1713 and o otherwise. All the periods of warfare were associated swith much higher rates of return. The estimated in- ‘crease in the rate of return for the years of the Spanish reconquest, of Flanders is 1.6 percent, on a base rate of 3.4 percent. This warfare seems to have driven up the rate of retoru Co capital either by destruction of the capital stock, making capital scarcer, ot by increasing the risks actached to investments in land. The second Jong period of warfare feom. 1672 to 1697 produced an increase of 0.9 percent fiom a base rate of 4 percent. The chird period produced che smallest effect—an increase in rates of return of about 0.5 percent again on a base of 4 percent. In all threeMODERN ECONOMIC GROWTH IN ENGLAND, r54¢-rf00 | 583 episodes, the effects of warfare were much greater than those from. the civil strife or changes in regime that occurred in England during the same period. ‘Testing for a significant change in English rates of return in the years 1689, or 1697—when the new regime finally seemed secure from overt internal and extemal opposition—could be regarded as unGair, Affer all, it might have taken twenty or thirty years to convince the populace that the country actually had a new political regime. The decline in government interest sates portrayed in Figure 1 took nearly cwenty-five years after 1689, and interest rates initially seemed to have increased between 1689 and 1695. Testing for a break in che series oaly after 1697 may not have given the new regime a fair chance. What transpired after 1689 could have been an acceleration of a decline in rates of recurn that figures 4 and 5 show to have been occurring before 1689, rather than a sudden break in the series. The estimated expression for this new test, done for returns on land, rent charges, and mortgages and bonds combined, is RET = a + BT + yREVT + ODBUB + &, a for the years 1660 (the Restoration of the Stuart monarchy) to 1729, where T is the year, REVT is 0 from 1660 till 1696 and thereafter equals the year ’, and DBUB is a dummy variable equal to 1 in the year of the South Sea Bubble. ‘The coefficient on REVT measures how the crend in rates of return changed after 1697 as a vesult of the Glorious Revolution.” In all c2ses, the coefficient on TT, the time trend, is negative, showing that retums on all assets were falling before 1697. But neither in che case of real assets, rent charges, nor bonds and mortgages was the estimated coefficient 7 significantly different from o eithet statistically or quantitatively, indicating no accelera- tion in decline of retums after 1697. The Glorious Revolution eaves no trace on rates of return in the English economy between, 1660 and 1730. As shown in Table 5, rates of return were falling in the years 1660 to 1696, and they continued to fall at the same rate once the new regime was established, The same results obtain 19. Esemation ofthe bond and morgage eet, asin equnton (1), Wes not posable becsnce he usury Limi eequizes a Toi estimation the Use ints, Reweves, changed sevecl umes between 7590 and 1970,584 | GREGORY CLARK Table 5 Rates of Return and the Glorious Revolution TaN, mouse, mae BONDE Ase ‘No teribs chances onroaas (60-1730) (1860-2730) 660-1714) r ~o.00968 “orate mcataa (@.0044) (0.0034) (0.0083) REVT o.coes “coat per {0.0001} (0.000%) {a.0003) psuB “ruse “o9y* * ts) (0.47) ie 0.30 8 - x Br 493 %6 2 The mime w ignieaely dfion: om o a Che 86 level 94 Te eaimae is sgicay diferent Gam a at che 9 level ars The number in pirenchie ate candied err. The bond and morgage equecion ‘was extmated using the Tobe procedore, becavse of wsury limi ad anly fr the years 660-714 saze the usuey Lani changed a £755 if we use 1689 as the break point between the old and new regimes. Another way to measure the effect of politics on capital markets is to look at asset values—in particular, the value of land, Both England and Zele allow many more observations on land prices chan on returns to land. Asset values should rise sharply in stable periods and decline in unstable periods. This effect is ever: more pronounced than the effect for retums on land in Zele. Figure 6 shows the average annual price of arable land in Zele between 1550 and 1749, measured in terms of bushels of wheat to control for the effects of movements in the price of outpue. Although there are modest loag-ran movements in land values, ic is clear from Figure 6 chat, in the war periods, land prices fell sharply. In. certain years during the war of independence, real land Prices fell to less than 6 percent of their value at the outset of the war. In the later war, land prices fell by more than $0 percent at their minimum. The average fall in prices during he first period ‘was 84 percent, in the second, 30 percent, and in the third, 1 percent. 20 ath land sent and land values fell in the oa pind, but the former soce than the lamer The price of whe is tom Will Abel (ans. Clive Ord), Apadie! autos ‘Burge fo the Thine tae Tents Coste (London, 198), 43>~443, whic givesMODERN ECONOMIC GROWTH IN ENGLAND, r54e-rkoo (585 Fig 6 Real Farmland Prices, Zele, 1350-1750 8 War g i War War g Price of arable land (in wheat) 8 0 | 1550 1600 1650 1700 1750 Year ‘The Charity Commission data reports 1,824 land prices for the yeats 1600 to 1749, throughout England and Wales, Did land prices fall in periods of political instability, and did they rise after the Glorious Revolution? Because movement in che price of agricultural output will be associated with movement in land prices, as in Zele, all prices have been deflated according to Bowden's index of the price of ourput, which was constructed hhere as a ten-year moving average to avoid spurious variation caused by harvest failures and successes. Individual plot prices varied considerably. Information on land use, the enclosure status ‘of and, the location of the land, and the numbers of buildings on. the land are included to cov:ral for this variation. Figure 7 shows the average annual price of land in England and Wales from 1600 to 1749, controlling for these factors, constructed as @ centered three-year moving average. The cortections were derived by regressing land prices on the variables, and then adjusting the price the average whex pice n Baiges, Duxmuce, Nieuport, Anvers, ad Basie, converad Rant silver eo sominal value ing snormation om the slvr content af the pond grater, spied by Wao Cauwenberahe586 [ GARGORY CLARK Pig, 7 Real Parmland Prices, England and Wales, 1600-1750 20 a Price per Acre (pounds) 8 8 4 Civil Glorious War Revolution 0 | 1600 1625 1650 1675 1700 1725 1750 Year NOTE The individual land prices wore corrected for the parel sins, che use of the lind balidings upon the lend, che locmion of che land, and the faction of the lend thar was nelased The fguee thot + centered thee year nang seen of Lad puie, SOURCES Great Brain, Patlamentry Papen, Repent ofthe Charity Commas, Val rape (ekigrchqa). Nominal vilset detnd by sgacelel ouput pret 0° from Beer Boviden, “Saidcal Appendix,” a Joan Thisk (a), The Apanion History of Frglind end Hits (Camb, 1985). TV, 849-850, V. 87-849. for each plot to remove the price variation caused by differences in land characteristics." As evident in Figure 7, the two major events of the period— the Civil War of 1639 to 1648 and the Glorious Revolution of 1688—had no obvious effect on land prices. The contrast with Zele is more marked for land prices than for rates of secur. Political events had fittle effect on land prices ‘in England fiom 1600 to 1749. Even if charities were not the most astute purchasers ofland, there is na reason to suppose that their purchasing abilities improved or worsened as a result of changes in political regirnes in this period. ak Peter Bowden, “Seisicel Append,” in Joan Think (ed), The Agile Any of gad and Wes (Cambridge, 1985), iV, 849-890: Vy 7-4MODERN EGONOMIC GROWTH IN ENGLAND, r540-1800 [587 A more formal test for the effect of political events on land prices is the regression equation predicting the logarithm of land prices per acte in terms of land characteristics, a time trend, and political changes. That is, LOG(RENT) = a+ B,T + B,T* +}. YCHAR, + 6DCIV + §,DREV +8, (a) where CHAR; is a set of land characteristics, such as plot size, DCIV is a dummy variable for che Civil War period (1639-48), and DREV is a dummy for che Glorious Revolution {the years afier 1688 or 1696}. The logarithmic form for rent is chosen so that land characteristics and other independent variables have a proportionate effect on land values. Controlling fox the long time trends in land values, the estimated effect of the Civil War is an increase of 0.1 percent in land values. The effect of the Glorious Revolution, as dated at 1697, is a 9.7 percent decline in land values, wich an estimated coefficient significantly less than 0 a¢ the 5 percent level. The decline in land values is stronger if 1689 is taken as che break point Did the Glorious Revolution represent just 2 cursing point in the trend of land prices? That is, did land prices gradually rise afier 1689 or 1697? The lata from the periad 1660 © 1730 reveal that real land values were tising before the Glorious Revolution and chat the race of inerease of land values was the same after the Glorious Revolution. There was a growth of land prices from 0.6 percent to 0.8 percent per year that predated the Glorious Revo- lution (taking either 1689 or 1697 as its date} and that continued after the Revolution at almost exactly the same rate. Neither way of treating the problem indicates that the Glorious Revolution had an effect on land prices. imptications The evidence suggests that England in the pe~ riod prior to the Industrial Revolution cannot be cited 2s an example of the importance of political stability to economic de~ velopment, contrary to institutionalists such as North, who seeks institutional explanations of growth and development. The key issue concerning the growth that began with the Industrial Revo-SAB | GREGORY CLARK lution is the investment of energy and resources in the develop- ment of production technology. North and his followers account for the vapid rate of technical progress in eighteenth-century Britain by an enhanced incentive to invest in new technology, created by an enhanced security of property rights. One measure of such security of property is the sate of return on capital. Institutionalists were strecching 2 poist when forging the link between the insticutional changes of 1688 and che Industrial Revolution beginning in 1760. England, as far back 2s the reign of Heney VIIL, seems to have enjoyed secure capital markets. The private cconomy in England after 1540 was largely insulated ftom political events— even fiom the strife of the Civil War. To read the Glorious Revolution as ushering in a stable regime of taxes and property rights that laid the foundation for the Industrial Revohution is co write Whig history of the most egregious sort. Rates of rexum on capital fell in the 100 years prior to the Industria! Revolution, but in such a way as to show no connection with political events. Within the pre-1688 regime, rates of return ‘on capital cose slowly to a peak in 1625 and then dediined again. Within the post-1688 regime, rates of return on capital again moved, but wich no indication chat che change in veginae was a causal factor. Similarly, Jand values show litle or no response to the po~ litical convulsions of the era. Farmland values are estimated to have fallen as a resale of the Glorious Revolution. Given the sampling errors in the data, we can conclude that there is only a one in twenty chance that land values actually rose by as much as 6 percent as a result of the Glorious Revolution. There is no evidence from returas on capital chat, had James IT remained on the throne and been succeeded by his son James III, the economic history of England in the eighteenth century would have been any different Stable property rights may have been a necessary condition for the Industrial Revolution, but, since they had existed in England and Wales for more than 200 years prior co the Induscrial Revolution, they were certainly not a sufficient condition. An adequate explanation for the Industrial Revolution requires Exctors other than the emergence of stable private property rights