In Marketing Sovereign Promises, Gary W. Cox contributes to the vibrant debate about the role of political institutions in Britain's transformation from a peripheral European power to a global hegemon. He takes issue with the institutionalists’ approach, giving careful and thorough acknowledgment of Douglass North and Barry Weingast's critics. Yet Cox is firm on the point that the Glorious Revolution of 1688 was a watershed moment, arguing that “English sovereign debt became very credible almost immediately after the Revolution” (13). His explanation for this achievement lies in parliamentary control of budgets and the credible threat of the shutdown of government to prevent profligate spending or unwarranted taxation.
Cox focuses the first part of the book, chapters 2 to 9, on an exposition of that argument. In these chapters he covers, variously, an assessment of the development of Parliament's control over taxation and spending, the establishment of monopoly control over the issuance and marketing of sovereign debt, the question of property rights, and the connections that arguably led from the Glorious Revolution to industrialization. Cox takes the long view in exploring antecedents to the revolutionary settlement but, frustratingly, does not consider the development of the state or its financial systems much past 1720. This means that his argument ignores the tests of financial credibility that came with the wars at the end of the eighteenth century.
In the second part of the book, chapters 10 to 12, Cox offers an assessment of whether and how the English model was adopted by other states. He assesses the early and late adopters and concludes that many of the world's constitutions do not mandate the ability to shut down parts of government in the absence of an agreed budget and therefore cannot be said “to have taken the first and most important step to limited government” (175). The second part of the book is less developed than the first and many of the points made have been explored in much more detail by Mark Dincecco in Political Transformations and Public Finances: Europe, 1650–1913 (2011).
Throughout part one Cox offers elegant and persuasive arguments. He argues that despite the fact that most scholars have focused on the financial revolution, as defined by P. G. M. Dickson, the “budgeting revolution crucially underpinned the debt revolution” (49). It was only once Parliament gained full control of the state's finances, which Cox denotes as the right to make annual budgets, that it was able to issue longer-term, funded, and much cheaper debt. The key to all of this was Parliament's ability to veto the budget to punish profligate behavior.
Since the type of debt held and shortfalls between expected and realized tax revenues are key to Cox's argument, the work would have benefited from a closer examination of the British financial system. Cox does not provide any detail about tax funds or their shortfalls, nor does he ever specifically identify which were the junior and senior funds issued by the state, or who might have been holding such debt and the extent of their power to lobby the state. Where did lottery funds, for example, typically low face value and used throughout the long eighteenth-century, sit in this hierarchy of debt? Moreover, when exploring reactions to the debt, he argues that high interest rates and high discounts were not evidence of lack of credibility of the debt but merely that the debt was junior or poorly funded (51). This is an interesting point but one that stems from a misunderstanding of the circumstances under which the debt was issued and traded. The Bank of England, for example, was certainly initially regarded as credible by its shareholders, but it could still charge 8 percent interest to the state because of the desperate need for funds to support war. But did the bank's shareholders believe they were lending to the state or investing in private enterprise? For early issuance of British long-term debt, which was mediated by private individuals, rather than the state, we do require a more careful consideration of where credit relationships actually lay. Cox also makes the error of conflating high interest rates—offered in the late seventeenth and early eighteenth century to attract badly needed but cautious new public creditors—with high discounts, which were imposed by the secondary market on existing debt and were, without question, an indicator of lack of faith in the state's ability to pay. This point is well documented in the contemporary literature.
Cox goes on to discuss the role of the Bank of England in entrenching the promises of the state. He quite rightly dismisses the idea that the bank could easily refuse further lending to the state instead focusing on the bank directors’ ability to block statutes that would be needed to revise or repudiate debt (63). Cox describes the bank as being well positioned to exploit such a strategy and in many respects that was true, but he presents no evidence to substantiate his claim nor does he test his theory. What of the challenges presented by the Land Bank or the South Sea Company? Why does Cox ignore the vulnerability of the bank during the election crises of 1710–11 or during the sometimes hotly contested Charter renewal negotiations? While my sympathies are with Cox's assertions, I cannot help but think that here, as in so many other places in this book, the point is lost to a poor grasp of the details of the British financial revolution and poor methodology.
In summary, Cox's work stimulates thought and adds potential new dimensions to the credible commitment debate, but he has left it to others to find the evidence to test and support his theories. It is to be hoped that scholars will take up the challenge.
