TheFinancial Revolution was a set ofeconomic andfinancial reforms inGreat Britain after theGlorious Revolution[1] in 1688 whenWilliam III invaded England. The reforms were based in part onDutch economic and financial innovations that were brought to England by William III. New institutions were created: apublic debt (firstgovernment bonds were issued in 1693) and theBank of England (1694). Soon thereafter, Englishjoint-stock companies began going public.[2] A central aspect of the financial revolution was the emergence of astock market.[3]
The elements of the financial revolution rested basically on the financial techniques developed in the Netherlands: the bill of exchange, both foreign and inland, which as a negotiable instrument became part of the medium of exchange; transferable shares in the permanentcapital stock ofcorporations that were traded in an active secondary market; and perpetual, government-issuedannuities (known asConsols).[4]
Another piece of Financial Revolution which fundamentally altered the relations between theEnglish Crown and theEnglish Parliament was the creation of theCivil List in 1698. This was how Parliament granted the Crownrevenues to meet the costs of running the government and royal establishment. From this point, the Crown was reliant on Parliament's control of revenue for its day-to-day running.
There is a strong connection between the Glorious Revolution, the Financial Revolution, and Britain's rise toglobal power in the eighteenth century. With the creation of aconstitutional monarchy, the English Parliament had to approve any furthergovernment borrowing and any new taxes (to cover the costs of borrowing). Becausebondholders' interests were hence directly represented in the decision-making process, they could be confident that the risk of default was low. Having such a "credible commitment" to the public debt, Britain could borrow more cheaply (at lowerinterest rates) than was possible forabsolute monarchies (such as theKingdom of France) in which bondholders' voices were not represented in government. Scholars debate whether its constitutional structure alone sufficed to make Britain a credible borrower (this argument, made in a very widely cited article by economic historianDouglass North and political scientist Barry Weingast has been challenged byDavid Stasavage whose analysis emphasizes the importance ofparty politics).[5]
Eighteenth-century writers already integrated fiscal and military data into narrative histories of the period. For example,James Ralph’sThe History of England, During the Reigns of King William, Queen Anne, and King George I (1744–46) appended annual customs and excise series (1689–1726), national-debt tables, and army/militia returns, and used them to evaluate policy. Ralph’s account was notably critical of the “financial revolution”, including William III’s war finance, and even faulted contemporaries for omitting discussion of the 1694 Bank of England bill.[6][7]
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