Institutions – Moving to the Global?

A dominant strand of modern policy literature has revived what used to be a particularity of the German Historical School of Economics. The interpretation puts institutions and institutional design at the center of an analysis of economic growth, stability, and sustainability. The modern version was formulated in the influential work of North and Weingast (1989), with multiple important contributions by Acemoglu and Robinson (2006). The key is a historical parable from the end of the seventeenth century, when a fiscal revolution in England in the wake of the 1688 Glorious Revolution, in which a Protestant constitutional monarchy (under William of Orange and his Stuart wife Mary) replaced the less constrained and (under James II) Catholic Stuart monarchy. The core of the transformative deal as presented by North and Weingast was that the British monarchy borrowed from a class of creditors, institutionalized through the Bank of England created in 1694, which also dominated the constitutional political institutions, or parliament.