I tit ti d i thInstitutions and economic growth.

Why did some countries create efficient institutions?

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Why did others create inefficient institutions?

FranceFrance.

Charles VII takes overCharles VII takes over a destroyed country after Hundred Years W 1422War, 1422.Medieval sources of revenue depleted byrevenue depleted by war.Creating nation state C eat g at o staterequires large and growing revenues.

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Jean Fouquet, portrait of Charles VII of France, c. 1444. The Louvre, Paris.

FranceFrance.

Charles effective inCharles effective in restoring order.Estates General must approve levies.

Estates anxious to restore orderrestore order.Special right to levy turns into a permanent i htright.

Excluding nobles and clergy from taxation.

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clergy from taxation. Jean Fouquet, portrait of Charles VII of France, c. 1444. The Louvre, Paris.

FranceFrance.

Guilds become fiscalGuilds become fiscal agents for the crown.

Taxation moreTaxation more effective.Compare JP system in p yEngland.Strengthens guilds.

Administrative bureaucracy.

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Jean Fouquet, portrait of Charles VII of France, c. 1444. The Louvre, Paris.

ColbertismColbertism.Jean-Baptiste Colbert.Jean Baptiste Colbert.

Finance minister under Louis XIV (1661-83).Colbertisme synonymous withColbertisme synonymous with mercantilism.

Economic reforms.Efforts to reduce “particularism ”Efforts to reduce particularism.But favored state monopoly and industrial control. Origin of laissez faire.Frustrated by royal need for revenue.

Prohibitive tariffs lead to war

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with the Netherlands.

Spain in 1492Spain in 1492.

Reconquest ends with capture ofReconquest ends with capture of Granada, last Moorish stronghold.

Unification and consolidation of powerpower.Cortes grant taxing power.

Taxes increase 20 times between 1470 d 15401470 and 1540.

Expulsion of the Jews (and then Moriscos in 1609).)

Loss of artisanal, commercial, and agricultural skills.

Columbus sets sail

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Columbus sets sail.

Queen Isabella of Spain. Ruled 1479-1504.

The MestasThe Mestas.

Sh ildSheep guild.Granted Royal privilege in 1273.Transhumance rights in exchange for funds to finance reconquest.Decree of 1501 reserves in perpetuity all land on which sheep have ever grazed.

Effect on enclosure.Price controls on cereals.

Cons lado of B gos

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Consulado of Burgos.Transhumance routes in Spain.

The Spanish empireThe Spanish empire.

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The Spanish empireThe Spanish empire.

l lMonopoly control.Casa de Contratación.P hibiti f l i l i d t

Bullion and Inflation.

Prohibition of colonial industry.

Looted and mined gold and silver floods Spain and Europe.Prices increase by more than a factor of three in Spain, and a factor of five in Brabant and

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factor of five in Brabant and England.

The Spanish empireThe Spanish empire.

80

100

120

40

60

80

0

20

40

1501

1511

1521

1531

1541

1551

1561

1571

1581

1591

1601

1611

1621

1631

1641

1651

Index of silver imported to Seville 1501-1660 (1591-1600=100)

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Index of silver imported to Seville, 1501-1660. (1591-1600=100). Source: John H. Munro, “The Monetary Origins of the ‘Price

Revolution.’”

The decline of SpainThe decline of Spain.

RevenuesRevenues.Americas less than 20 percent.Netherlands largest source.g

Costs.Far exceed revenues.Hapsburgs spend on military and wars to expand empire.

EffectsEffects.Borrowing and bankruptcy.Fiscal spiral.

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Confiscation, monopoly, sale of titles.Titian, Charles V Seated (1548).

Pinakothek Munich.

The NetherlandsThe Netherlands.

Passes from Burgundy toPasses from Burgundy to the Hapsburgs (1477).Both Burgundians and gHapsburgs encourage growth and trade.

Small taxes on many itemsSmall taxes on many items in exchange for secure property rights.Discourage monopoliesDiscourage monopolies, guilds.

The goose that lays the ld ?

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golden eggs?The Netherlands in 1543.

The NetherlandsThe Netherlands.

Increased exactions lead to successful rebellion (1572-1581).

Antwerp sacked; commercialAntwerp sacked; commercial leadership moves to Amsterdam.

By 17th century, Dutch become commercial leaders of Europe.

Economic diversification.The Dutch East India CompanyThe Dutch East India Company (1602).

“The First Modern Economy.”

13Replica of Henry Hudson’s schooner, the Half Moon.

EnglandEngland.

Government funded as anGovernment funded as an extended household.Expenditures exceed revenues pfrom Crown lands.Sale of land to meet shortfall.

Eli b th ll 25 t ft 1588Elizabeth sells 25 per cent after 1588 war with Spain.James I sells another 25 per cent.Charles I (1625-1641) sells the rest.

Parliament controls taxes and customs

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customs.

King James I (ruled 1603-1625).

Stuart EnglandStuart England.

Stuarts seek revenue outside parliamentary control

New customs impositions.S l f li

Stuarts seek revenue outside parliamentary control.

Sale of monopolies.Expansion of peerage.

Packing the House of LordsPacking the House of Lords.James: a baronet for £1,095; price later falls to £220.

Loans secured under threat.Purveyance.

King Charles I (ruled 1625-1641).

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Charles I seizes £130,000 of bullion stored in the Tower of London (1640).

Stuart EnglandStuart England.Parliament withholds revenues.a a e t t o ds e e ues

Demands respect for traditional property rights.

C L tCommon Law courts oppose monopolies.

Coke invokes Magna Carta.Coke invokes Magna Carta.Charles responds with Royal Prerogative. Sir Edward Coke (1552-1634).

Prerogative courts.Special laws for individuals.Star Chamber

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Star Chamber.Fires Coke and other judges.

The English Civil WarThe English Civil War.

C liti b ild i tCoalition builds against the Crown.

Marginal incentive to support the king declines as costs of other people’sas costs of other people s privileges mount.

Unlike continental

Execution of Charles I (1649).

Unlike continental monarchs, English king has no standing army

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has no standing army.

The English RepublicThe English Republic.

Star Chamber AbolishedStar Chamber Abolished.Restrictions against monopolies enforcedmonopolies enforced.Regular standing parliament.Ro al administ ati eRoyal administrative mechanisms abolished.Act of 1660 abolished feudal

Oliver Cromwell (1599-1658).Act of 1660 abolished feudal tenures, effectively making England a fee simple society.

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England a fee simple society.

The RestorationThe Restoration.

Cromwell unable to find aCromwell unable to find a stable form of government.

Son proves a poor successorSon proves a poor successor.

Stuarts restored to power (1660).(1660).Royal abuses begin again.

“Rechartering” the Whigs outRechartering the Whigs out of parliament.

James II turns on his own

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followers (1686-88).King Charles II (ruled 1660-1685).

The Glorious RevolutionThe Glorious Revolution.

Parliament welcomesParliament welcomes invasion by William of Orange and Mary, g y,Protestant daughter of James II. William III (ruled

1689-1702.

Parliamentary supremacy.Fiscal revolution underpins

1689 1702.

political revolution.A self-enforcing

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constitution. Mary II (ruled 1688-1694).

A self enforcing constitutionA self-enforcing constitution.

Required parliament’s assent for majorRequired parliament s assent for major policy changes.

Allowed wealth-holders to veto what wasn’t in their interest.

Ways of reneging unilaterally eliminated.Limited Crown sources of fundsLimited Crown sources of funds.Audit expenditures.Prerogative courts abolished.J di i l t

John Locke (1632-1704 ). Published Two Treatises of Government (1690)Judicial tenure.

Self enforcing.Credible threat of dethronement.

Government (1690).

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The fiscal revolutionThe fiscal revolution.

Parliament agrees to putParliament agrees to put government on sound financial footing in gexchange for veto power.Evidence: lenders now William III (ruled

1689-1702.

willing to supply funds.After 1688, government has

d d

1689 1702.

access to unprecedented funds.Tenfold increase, 1688-

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Tenfold increase, 16881697.

Mary II (ruled 1689-1694).

The fiscal revolutionThe fiscal revolution.

The Glorious RevolutionThe Glorious Revolution as a “business merger” between Britain and the Netherlands.

Alliance with the House of William III (ruled 1689-1702.

Orange allows Britain to tap into sophisticated Dutch financial capabilities.

1689 1702.

financial capabilities.Territorial market-splitting between Dutch and British E t I di C i

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East India Companies. Mary II (ruled 1689-1694).