Market-based finance historically arose from limits on royal power

Evidence

A shift in financial intermediation from institutions to markets has important implications for economic power. It is not simply a transfer from Main Street to Wall Street, but a qualitative change in the nature of power relations. Indeed, many features of contemporary financial markets have historical roots in the political struggles between the monarchy and an increasingly empowered British Parliament in the late seventeenth century. The Parliament’s eventual victory in this struggle limited the discretion of the Crown, facilitated the development of an international credit market for state-building, and assured the strict enforcement of financial property rights, all of which constituted the foundation of modern financial markets (North & Weingast 1989). Strong financial markets resulted in constrained executive power and a particular framework of laws for governing finance, features that endured for centuries (Carruthers 1996). — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 100

Categorization

• XREF: Echoes North & Weingast’s credible-commitments argument about the Glorious Revolution — connects to broader literature on constitutions as commitment devices. — connects to: Modern financial markets are deliberately designed entities — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1235

Broader Connections

• Modern financial markets are deliberately designed entities #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1235