Why King Charles lost his head

Saumitra Jha: How Financial Innovation Helped Start the English Civil War (and Why That’s Important Today)

 

A Stanford scholar explains why financial mechanisms could be useful to align diverse interests.

April 29, 2015|by Theodore Kinni

 

In the mid-1600s, something revolutionary happened in England: Parliament rose up against King Charles I, leading to a violent civil war that cost upward of 200,000 people their lives and Charles his head. The result was the establishment of what is now one of the world’s most enduring representative governments, a model that the United States and many other nations followed.

 

The question of why Parliament rebelled against Charles has attracted intense interest in the four centuries since. Most historians point to three causes for the revolt in England: overly greedy monarchs, the emergence of a commercial middle class, and the religious struggle accompanying the rise of Protestantism.

 

But a new paper by Stanford Graduate School of Business professor Saumitra Jha posits a different cause — one that is fraught with import, not only in the context of history but also in the modern context of how representative governments can be established and nurtured. Jha makes the case that financial innovation was a driving force in the rise of England’s representative government. In the following interview, edited for length and clarity, he explains why.

 

What got you interested in the ascendency of England’s Parliament?

I’m interested in strategies that societies can use to resolve conflicts of interest and adopt policies that benefit a lot of people without resorting to political violence. Financial innovations can be used to align the incentives of different groups in favor of broader policy objectives.

 

Specifically, I noticed that the period of the Civil War was a period during which there was a lot of innovation happening in England’s financial sectors, particularly around the new opportunities that emerged with the discovery of the New World and the expansion of overseas trade. The first English joint stock companies were formed to fund these overseas ventures, and for the first time, non-merchants gained ownership in trade activities....read the rest here