Published by EH.NET (June 2004)

David Stasavage, Public Debt and the Birth of the Democratic State: France and Great Britain, 1688-1789. New York: Cambridge University Press, 2003. xii + 210 pp. $60 (hardcover), ISBN: 0-521-80967-3.

Reviewed for EH.NET by Stephen Quinn, Department of Economics, Texas Christian University.

In Public Debt and the Birth of the Democratic State, David Stasavage makes the worthwhile point that political parties mattered for the establishing of credible government debt in the early modern era. In “Constitutions and Commitment: the Evolution of Institutions Governing Public Choice in Seventeenth Century England” (Journal of Economic History, 1989), Douglass North and Barry Weingast make the point that moving from an autocracy to a constitutional democracy can increase the credibility of government debt. This book moves the focus from establishing a constitution to the politics of the assemblies that a constitution empowers. To make the break clear, Stasavage states unequivocally that constitutional checks and balances, “are neither a necessary nor a sufficient condition (p. 2)” for fiscal credibility. Instead, fiscal credibility for a young democracy follows from the political power of the party representing creditor interests. The book’s historical interpretation is that in Britain the Whig party managed to gain sufficient power to create credibility. In contrast, no such party gained power in France, so similar credibility was never achieved.

The reach of the book follows from considering what constitutes and maintains sufficient power. Here, both theory and comparative history are put to good use. On the theoretical side, Stasavage sets the threshold for sufficient power above simply having a veto because creditors need enough political power to secure taxes in order to service existing debt (p. 13). On the historical side, Stasavage notes that in small, commercial states, creditors could be a majority in a legislative assembly, and he offers the Estates of Holland as an example (p. 59). For creditors to gain sufficient power in eighteenth century Britain or France, however, they needed to form a political party with other groups, so they could act as a voting block to support their collective positions. Creditors would get their debts protected while others would gain something else, such as religious protection. The crucial concept is that the “something else” issue divides a majority that would otherwise form against creditors. In Britain, religion, foreign policy, and other issues allowed the Whigs to form such a party. Across the Channel, however, “French politics lacked a cross-cutting cleavage that might have opened up possibilities for political compromise (p. 136).”

With the issue of credibility centered in the legislative realm, Stasavage finds that the preservation of credibility comes to rely on the political party keeping power and maintaining voting discipline. Stasavage’s most compelling historical point is that the Whig’s fall from power in 1710 saw the credibility of British government debt collapse (p. 81 and Figure 4.2 in particular). To measure this, Stasavage examines government interest rates in a regression that controls for net government borrowing and inflation. The episode demonstrates that the government’s fiscal credibility was connected to the fortunes of the Whig party. The importance of the Whigs’ return to power in 1715 is less clear given the period also saw the conclusion of the War of Spanish Succession in 1713 and Hanoverian succession in 1714.

For France, Stasavage’s conclusion is that no pro-creditor party gained power in the eighteenth century and that no cohesive version of such a party was lurking in the wings. For example, if the Regent had called the Estates General in 1715, Stasavage contends that no Whig-style party would have formed because no other issue existed to divide non-creditors (p. 132). Worse, those calling for the Estates wanted to use the assembly to have the government declare bankruptcy (p. 133). A similar problem arose when an assembly was called in 1789. Here the nascent pro-creditor party, called the Society of 1789, had no issue that could break the opposing voting blocks (pp. 147-51). With no coalition partner, the Society dissolved as France fell into radicalism. Stasavage even suggests that the moderation used by the Whigs to maintain power discouraged armed revolt (pp. 164-66) and that the lack of such a party in France meant one less brake on France’s descent into violence (pp. 168-71).

Yet another theme that follows from the centrality of party credibility is the success of delegated bureaucrats such as the Bank of England or the Bank Royale. The credibility of the Bank of England rose and fell with the Whig’s parliamentary power (p. 124). In contrast, John Law’s Bank Royale was doomed by the lack of a supporting political party (pp. 138-41).

The book is remarkably clear and focused. Stasavage gains lucidity through the use of many generalizations that might trouble scholars of Britain and France. The devil is in the details, and this book leaves them for others. Also, historians already know that politics matter for understanding the political economy of early modern France and Britain, and this is demonstrated throughout by the author’s reliance on historians of all kinds to support his interpretation. The author does supply some archival work, but the heavy reliance on summaries of secondary sources would be problematic except that Stasavage’s audience is political scientists and economists. His goal is to convince them that party politics is central to the credibility story. For that audience, it makes sense for Stasavage to supply game theory in Chapters 2 and 7 to show that politics can make a difference on theoretical grounds. The purpose of the narrative is to demonstrate that an historical interpretation can be made that puts political parties at the center of the credibility story for both Britain and France.

This book is a must for scholars interested in the political economy of early modern governments, and economic historians of the era will benefit from the conceptual structure Stasavage creates. The book is well written and can be easily comprehended by students new to the subject. The game theory can be easily skipped.

Stephen Quinn’s recent publications include “Money, Finance, and Capital Markets,” in The Cambridge Economic History of Modern Britain, Volume I, 1700 to 1860, edited by Floud and Johnson (2004) and “Are On-Line Currencies Virtual Banknotes?” with William Roberds, Economic Review, Federal Reserve Bank of Atlanta (2003). He is currently working on the role of the early Bank of England as a delegated bureaucrat.