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Unit 8: The Restoration Period or Beginning of Neoclassicism (Dryden's Contribution, Glorious Revolution of 1688)

private debt, but that risk premium disappeared and became a small discount in the years 1698 to Notes
1705. The drop in the rates on government debt marks a substantial increase in the market’s
confidence in the government after the Treaty of Ryswick ended the Nine Years War in 1697 and
left William III and the new constitution intact. A related measure of confidence was the market
price of stock in companies like the Bank of England and the East India Company. Because those
companies were created by Parliamentary authorization and held large quantities of government
debt, changes in confidence were reflected in changes in their stock prices. Again, the Treaty of
Ryswick greatly increased stock prices and confirms a substantial increase in the credibility of the
government. In contrast, later Jacobite threats, such as the invasion of Scotland by James II’s son
‘the Pretender’ in 1708, had negative but largely transitory effects on share prices.

8.2.8 Financial Consequences

The fiscal credibility of the English government created by the Glorious Revolution unleashed a
revolution in public finance. The most prominent element was the introduction of long-run
borrowing by the government, because such borrowing absolutely relied on the government’s
fiscal credibility. To create credible long-run debt, Parliament took responsibility for the debt, and
Parliamentary-funded debt became the National Debt, instead of just the king’s debt. To bolster
credibility, Parliament committed future tax revenues to servicing the debts and introduced new
taxes as needed (Dickson 1967, Brewer 1988). Credible government debt formed the basis of the
Bank of England in 1694 and the core the London stock market. The combination of these changes
has been called the Financial Revolution and was essential for Britain’s emergence as a Great
Power in the eighteenth century.
While the Glorious Revolution was critical to the Financial Revolution in England, the follow up
assertion in North and Weingast (1989) that the Glorious Revolution increased the security of
property rights in general, and so spurred economic growth, remains an open question. A difficulty
is how to test the question. An increase in the credibility of property rights might cause interest
rates to decrease because people become willing to save more; however, rates based on English
property rentals show no effect from the Glorious Revolution, and the rates of one London banker
actually increased after the Glorious Revolution (Clark 1996, Quinn 2001). In contrast, high interest
rates could indicate that the Glorious Revolution increased entrepreneurship and demand for
investment. Unfortunately, high rates could also mean that the expansion of government borrowing
permitted by the Financial Revolution crowded out investment. North and Weingast (1989) point
to a general expansion of financial intermediation which is supported by studies like Carlos, Key,
and Dupree (1998) that find the secondary market for Royal African Company and Hudson’s Bay
Company stocks became busier in the 1690s. Distinguishing between crowding out and increased
demand for investment, however, relies on establishing whether the overall quantity of business
investment changed, and that remains unresolved because of the difficulty in constructing such an
aggregate measure. The potential linkages between the credibility created by the Glorious
Revolution and economic development remain an open question.

Task Write a short note on Dryden’s contribution to Restoration Literature.

8.3 Summary

Dryden’s contribution to English literature, besides his poems and plays, was the inven-
tion of a direct and simple style for literary criticism.
The Glorious Revolution was when William of Orange took the English throne from James
II in 1688.

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