Institutional economics: Glorious revolutions and their discontents

IN THE past two decades, economists have become increasingly interested in how institutions contribute to economic growth. They are particularly enthused by the view that institutions guaranteeing a “credible commitment” to liberal limits on state action—and repayment of the national debt—caused the industrial revolution to get off the ground in 18th-century England. This may at first appear to be an academic debate of only esoteric interest. But such views have quickly become dominant within economics. And some related conclusions—such as an emphasis on democracy and property rights as necessary prerequisites for sustained economic growth—came to influence the so-called Washington consensus of global economic governance.But some are now questioning whether this idea of “credible commitment” has been taken too far. The phrase itself may be one of the most over-used terms in modern economics. For example, a search on EconLit, an electronic bibliography of economics articles, finds no fewer than 1,932 hits for the exact phrase between 1976 and 2012. Of these, 1,894 were after Douglass North and Barry Weingast published a seminal paper in 1989. In this paper, Mr North and Mr Weingast argued that the growth in power of the English Parliament arising from England’s “Glorious Revolution” of 1688-89 created, for the first time, that “credible commitment” not to default on …

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