Making the Modern Financial Centre: The Legacy of the Glorious Revolution

London is one of the financial centres in the world. Capital flows into the banks in the City of London and deals are made in the Canary Wharf. Indeed, London is always the dominating figure in leading the economy. But how did London gain this position? OKE Club will offer you a series of articles explaining the history of the Modern Financial Centre, London. This article brings you all the way back to the start of the start, explaining the context of the Glorious Revolution and its significance.

For Early Modern Europe, the 17th was not a happy era. Absolute monarchy occurred across Europe where the monarch aimed to hold supreme autocratic authority and not be restricted by any legislation. One well-known figure would be the King of France, Louis XIV, who proclaimed ‘l’état, c’est moi’, meaning ‘I am the State’. This was never a unique phenomenon in France. In the early 17th century, King James VI of Scotland became King James I of England. Despite his protestant beliefs, he believed in the catholic idea of the divine right of the king to have absolute power. James I and his son Charles I thought the way to demonstrate their absolute power was by unifying Britain. This was no doubt problematic. With huge regional differences in religion, economy and politics, the English Civil War took place.

Although known as the English Civil War, it is never a single war on one matter. Primarily, it occurred during Charles I and his son Charles II reign and had three major phases of 1642-46, 1648-49, and 1649-51. Moreover, it was never ‘English’ that at core was how the three kingdoms of England, Scotland and Ireland should be ruled. Should it be king or should it be the parliament? Arguably, Charles I did achieve greater control and the parliament was dissolved for 11 years during his reign.

Decades of conflicts not only created huge numbers of casualties, but also made religious differences more visible. When James II of England came to power, his Catholicism was accepted because the heir Mary was raised as an Anglican. James II was childless in his second marriage with a Catholic wife. Yet, two events that took place in June 1688 changed this completely. The first was the Catholic born James Francis Edward, who replaced Mary as the heir. This led to the fear that a Catholic dynasty would take place. The second was the anti-Catholic riots in June 1688 that made the English politicians decided to push Mary to the throne and invite her husband William III as the co-monarch. The event in 1688 is known as the Glorious Revolution

The co-monarch of Mary and William III had significant impact and it could be considered as one key turning point for Britain to achieve financial success. Firstly, William III was the de-facto ruler of the Dutch Republic. The contemporary Dutch were in the Golden Age. Along with his arrival, Dutch economic and financial innovations were brought to England. Key elements include the establishment of institutions such as the Bank of England and public debt systems such as governmental bonds. The existing system became more developed as techniques such as the bill of exchange made the structure clearer in dealing with both foreign and inland capitals. Ultimately, what many historians believe that made Britain developed faster than the Dutch was the legacy of the Bill of Rights 1689. It places balance and checks on the monarch by the constitution, preventing the absolute monarch from appearing again. Together, the state had enormous capacity to borrow in comparison to other European powers who were still ruled purely by monarchs. This was an advantage especially in the contemporary period when there were consistent wars between England and major European powers.

Constitution and institution are both crucial elements in the British economic history and in the next essay, we will offer a short introduction in the development of the British banking system with special references to the Bank of England.