England's greatness and the national debt
The European economy developed exuberantly after 1750 and England was no
exception. There were many signs of visible growth - but which are the most
crucial or important? The increasing hierarchy within commercial life ? The
exceptionally high prices which had disadvantages but also the advantage not
only of attracting to England 'the production of foreign countries' but of swelling
home demand ? The standard of living and per capita income of her inhabitants,
inferior only to small and very rich Holland? The volume of trade? All these
things counted, but England's greatness - shortly to bring about an industrial
revolution which nobody could at the time have predicted was not the result
simply of the rise and organization of the expanding British market, nor entirely
of the unrestrained growth common to all developed countries of Europe in the
eighteenth century. It was also the result of a series of happy chances which
placed England, without her always fully realizing it, on the road towards
modern solutions. The pound sterling was a modern currency; the banking
system was one which shaped and adapted itself in a modern direction; and the
national debt was rooted in the security of long-term or perpetual debt - an
empirical solution which would turn out to be a technically effective masterpiece.
It is true that this is also in retrospect the clearest indication of the health of the
British economy, for however ingenious the system that emerged from what has
been called the English financial revolution, it required the prompt and regular
discharge of the interest continuously payable on the national debt. The fact
there was never any defaulting on the interest payments is an achievement as
remarkable as the uninterrupted stability of sterling.
The feat is all the more remarkable in that English public opinion was
overwhelmingly hostile to the national debt. England had of course borrowed
money before 1688, but always on a short-term basis with high interest paid at
irregular intervals and with repayment at even more irregular ones, sometimes
only thanks to a new loan. In short, the state's creditworthiness was not of the
soundest, especially since 1 672 and the moratoria on the debts of CharlesII, who
not only failed to repay in time the money lent him by the bankers but also
suspended interest payments (and the affair ended up in the courts) . After the
Glorious Revolution and the accession of William of Orange, the government,
finding itself obliged to borrow large sums and to reassure the moneylenders, hit
upon the policy of long-term loans (the word 'perpetual' was even mentioned)
with interest guaranteed by an earmarked tax. This decision which with hind
sight we can see as the beginning of an ingenious financial policy, of amazing
rectitude, was in fact improvised in confusion, amid much discussion and dis-
turbance, and under heavy pressure from events. Every solution was tried in
turn : tontine, life annuities, lotteries and even in 1 694 the creation of the Bank of
England which, as we have seen, promptly lent all its capital to the state.
But to the English public, all these innovations smacked of 'jobbing' , of
speculation in shares and, no less, of foreign practices brought into the country
by William of Orange. People distrusted 'these New Notions in Government' ,
wrote Jonathan Swift in 1713 , 'to which the King, who had imbibed his Politics
in his own Country, was thought to give too much way'. The Dutch idea that 'it
was in the public's interest to be in debt', might be true of Holland, but not of
England where politics and society were after all very different. Some critics
went even further: was not the government seeking, by means of these loans, to
buy the support of the subscribers and even more that of the firms who ensured
the success of such operations ? Moreover, did not the possibility of this easy
investment, at interest rates higher than the legal norm, create a powerful
competitor for the natural credit which was the lifeblood of the English economy,
and in particular its steadily expanding trade? Defoe himself, in 1720, looked
back nostalgically on the days when 'there were no bubbles, no stock-jobbing
. . . no lotteries, no funds, no annuities, no buying of navy-bills and public
securities, no circulating exchequer bills', when all the money in the kingdom
flowed like a mighty commercial river with nothing to divert it from its ordinary
course. As for the claim that the state was borrowing money out of concern
not to tax its subjects too heavily, that was absolute nonsense! Every new loan
made it necessary to create a new tax, a fresh source of income, so that the
interest could be paid .
In addition, many English people were alarmed at the large total of the sums
borrowed. In 1748 , just after the peace of Aix-Ia-Chapelle, which he thought
disappointing and mortifying, a disputatious Englishman lamented that the
debt had reached about £80 million. This level, he explained, seems to be our
'nec plus ultra and if we were to take one step more, we should be in danger of
general bankruptcy' . This would take us 'to the edge of the precipice and ruin ' .
'One does not have to be a wizard' , remarked David Hume in about I750, 'to
guess what will happen next. It can only be one of these two catastrophes: either
the nation will destroy public credit, or public credit will destroy the nation.
Shortly after the Seven Years' War, Lord Northumberland confided to the duke
of Cumberland his anxiety on seeing the government 'live from day to day,
whereas France is restoring her finances, paying her debts and setting her fleet to
rights ' . Anything might happen, 'if France took a fancy to attack US' .
Foreign observers too were amazed at what seemed to them the incredible
size of the English national debt. They echoed British criticisms, poked fun at
processes they did not understand or, more often, saw this as a signal weakness,
an unthinking and facile policy which would take the country to disaster. The
chevalier Dubouchet, a Frenchman who had lived many years in Seville, ex-
plained in a long report to cardinal Fleury that England was crushed by her debt
of £60 million : 'we know her resources, we know her debts, she is in no position
to pay them'. Under these conditions, the war which was still being contem-
plated, would be fatal to her. This illusion is found in the writings of all the
political experts. It explains for instance the pessimism of a book published in
Vienna in 1771 by the Dutchman Accarias de Serionne, entitled La Richesse de
l'Angleterre (England's Wealth) - wealth the author regarded as threatened by
the high cost of living, the rising taxes, the extravagant level of the national debt
and even by the reputed drop in population. And what about the following
confident sally in the Journal de Geneve of 30 June 1778: 'It has been calculated
that in order to pay off the English national debt at a guinea a minute, it would
take 272 years, nine months, a week and a day and 15 minutes which means the
debt must stand at 141,405,855 guineas' . And yet war swelled the debt to even
greater - indeed enormous - proportions, as if to mock the incompetence of the
specialists and experts. In 1824, Dufresne de Saint Leon calculated that 'the capital
of all the public debts in Europe . . . comes to 38 to 40 thousand million francs,
three-quarters of which is accounted for by England alone' . At about the same
time ( 1 829) , Jean-Baptiste Say, who was also severe on English public borrowing,
already considered France's debt 'too considerable', 'although it comes to barely
4 thousand million' Was victory even more expensive than defeat?
And yet all these rational observers were wrong. The national debt was the
major reason for the British victory. It had placed huge sums of money at
England's disposal at the very moment when she required them . Isaac de Pinto
was clear-sighted when he wrote in 1771 : 'The scrupulous and inviolable exact-
ness with which this interest [that on the national debt] has been paid, the idea
of parliamentary guarantees, have established England's credit to the point
where she has received loans that have surprised and astonished the rest of
Europe' . He regarded the English victory in the Seven Years' War (1756-1763)
as the natural consequence. France's weakness, he claimed, lay in her poor credit
arrangements . Thomas Mortimer was also right when in 1769 he admired in
English public credit 'the permanent miracle of her policy, which has inspired
both astonishment and fear in the states of Europe'.337 Thirty years earlier,
George Berkeley had celebrated it as 'the chief advantage which England has
over France' . So a small minority of contemporary writers could see what was
at stake and recognized that this apparently dangerous game represented an
effective mobilization of England's full resources and a redoubtable weapon.
It was only in the final decades of the eighteenth century that the truth of the
matter was generally recognized and that Pitt the Younger could declare to the
Commons that on the national debt depended 'the vigour and even the indepen-
dence of this nation' . As a note written in 1774 put it, 'never could the English
nation, which is so weak in itself, have imposed its law on almost the whole of
Europe had it not been for its trade, its industry and its credit which only exists
on paper' . This was the triumph of 'artificial wealth', claimed some people.
But was not artificial wealth a masterpiece of human achievement? In April 1782,
during a serious crisis with practically no way out - or so thought France, her
allies and many other Europeans - the English government, which had appealed
for a loan of £3 million, received offers of £5 million. All it had taken was a
word with the four or five biggest firms in London. Lucid as usual, Andrea
Dolfin the Venetian ambassador in Paris, had written the previous year to his
friend Andrea Tron, apropos the war launched against England:
What is beginning is a new siege of Troy, and it will probably finish like that
of Gibraltar. We have to admire however the constancy of England which is
resisting so many enemies in so many places . It is time to recognize that any
plan of bringing her down must be despaired of, and therefore that prudence
commands some compromise and sacrifice for the cause of peace.
One could hardly ask for better homage to the power and, no less, to the tenacity
of England.
"Civilization and Capitalism 15th-18th Century; The Perspective of the World"
Ferdand Braudel
