Financial Innovations and Political Development: Evidence from Revolutionary England

The English Parliament’s struggle for supremacy in the seventeenth century was crucial for the development of representative government in the English-speaking world, yet its lessons continue to be debated. This paper provides the first systematic evidence on the determinants of individuals’ decisions to join the coalition for revolutionary reform. The paper employs a novel micro-dataset on the endowments of each member of the Long Parliament (1640-60) that initiated England’s institutional transformation and finds that the key determinants of support for reform were overseas interests and other factors over which the executive enjoyed discretion under the existing constitution. Further, investment in newly available shares in overseas companies appears central in fostering support for reform, chiefly among those lacking prior overseas interests. The paper argues that the innovation of shares allowed new investors to take advantage of emerging economic opportunities overseas, aligning their interests with overseas traders. However, since these shared opportunities were heavily exposed to executive discretion, financial innovation broadened support for parliamentary control of government.