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Thursday, July 05, 2007


In the aftermath of the Napoleonic wars, William Hazlitt produced a polemic in his highest style that presented the classical liberal way of looking at war in an essay entitled “War and Taxes”. He begins with the distinction between productive and unproductive labor, and proceeds to show that war falls under the latter category. However, even if a project is unproductive, it must be paid for somehow. It has a cost:

“If the sovereign of a country were to employ the whole population in doing nothing but throwing stones into the sea, he would soon become the king of a desert island. If a sovereign exhausts the wealth and strength of a country in war, he will end in being a king of slaves and beggars. The national debt is just the measure, the check-acount of the labour and resources of the country which have been so wasted – of the stones we have been throwing into the sea. This debt is in fact an obligation entered into by the government on the part of the tax-payers, to indemnify the tax-receivers for their sacrifices in enabling the government to carry on the war. It is a power of attorney, extorted from nine-tenths of the community, making over to the remaining tenth an unlimited command over the resources, the comforts, the labour, the happiness and liberty of the great mass of society, by which their resources, their comforts, their labour, their happiness and their liberty, have been lost, and made away with in government knick-knacks, and the kick-shaws of legitimacy.”

This is a vivid and captivating idea. LI has often plugged into the notion that war is paid for by the loss of liberty.

The question is: is it a true idea? Does it really describe modern war?

Hazlitt wrote this in 1816. This is what had happened over the past two decades: France, after overthrowing the monarchy, had borrowed money to pursue its wars by liquidating the estates of the church and the nobility and divvying them up as paper. These assignats have a complicated history – in fact, the spider web of loans consolidated into mandats, which were divided between those to which the nation pledged its sacred purpose to redeem and those that were, in fact, left unredeemed – in other words, a form of bankruptcy – plunged European markets into chaos and has plunged every succeeding generation of economic historians, seeking to understand the system, into chaos too. Suffice it to say that the interest on the loans to the French created pressure on the English, so that Pitt was forced to suspend the gold standard, and designed a great system for floating loans to conduct the war – conduct which involved, among other things, financially supporting the opponents of France, Austria and Prussia. By 1815, the National Debt seemed overwhelming.

To the average textile worker or artisan, the English economy must have looked hopeless in 1816. Add to that, in Hazlitt's case, the extinction of his hopes for liberty. Hazlitt supposedly wandered around in a daze after Waterloo. He could not get over the return of the Bourbons, the repression of liberty, and the seeming return of the revolutionary energies unlocked by 1793 to the dungeon of history. On all of these counts, he was... well, not utterly wrong, but definitely not right in foreseeing the apocalypse. Britain was about to expand as never before. To see why, one has to put the British system of financing the great wars against France in an even larger context – that of the British system that had brought England not only back into European history since 1688, but that made England – a relative non-entity in terms of world power in 1688 – the greatest world power a mere century later. The rise of Britain is a mystery shrouded in the complacent assumptions we bring to the idea that the British empire was some kind of eternal thing, or that the British were a well respected European power. They were respected mainly for their pirates until the Stuarts, a subsidy of Louis XIV, were chased out. How did they become such an event?

Lawrence Stone, in “An Imperial State at War; Britain from 1689 to 1815” puts the issues into a liberal political form that Hazlitt would have appreciated:

“It is only very recently that historians have begun to study this paradox of, on the one hand, the use of massive external military empire to block a rival hegemonic power and to create a maritime trading power and, on the other, the preservation of internal liberty and the rights of private property – a rare combination only paralleled by Periclean Athens and America from 1941 to the present day. Judith Sklar described 18th century Britain as ‘a commercial, extensive, non-military, democracy disguised as a monarchy.” This is largely, but not entirely, correct.” Stone points out that the non-military part disguised the use of mercenaries – he doesn’t correct the democracy part, which is obviously insane. And he writes: It is also true, however, that British politics and society were bound to be deeply affected by a prolonged war with France. In order to win, the ruling elite were prepared to spend immense amounts of treasure and also torun up the national debt on a scale comparable only to the activities of the Reagan-Bush administrations in the United States.” The comparison in that last sentence is severely understated. The U.S. during the Reagan-Bush years contained a manufacturing stock undreamt of in the 18th century, as well as a wholly transformed sector of human capital that is hard to compare to a society in which bare literacy was the norm.

Hazlitt and in some way Stone speak of war, then, purely in terms of a cost – a waste. The accursed portion, the sacrifice, to use the more elevated rhetoric of Bataille. In this way of thinking, the older notion of war – war as looting – is left behind. The looting system is divorced from the new system of paying for war – which was the genius of the British system. From 1688 – the year that James II was deposed – onward, the British instituted a two tier system for paying for war – short term loans that would be repaid by long term loans. In this way, the British were able to get past the limits traditionally imposed by direct payment for war. Instead, the British steadily cultivated a national debt that was composed almost entirely of old loans, consolidated into long term ones, for an endless series of wars. But loans aren’t merely negative things – if they were, nobody would loan, and there would be no bond market. Rather, by producing a lively bond market, the English spread the debt for their wars around. To do this, the state had to perform a one/two step – on the one hand, centralizing organization enough to manage wars, and on the other hand, decentralizing finance to the extent of divvying its debts up among the upper bourgeoisie. Thus, when France, with its autocratic model of government and its dysfunctional parliamentary system, suffered untold misery trying to pay for its part in this series of wars, the British, whose debt to GDP ration was on some accounts worse than France, flourished.

Loot had not been forsaken as a motive to war. On the contrary, by 1794, the British were in possession of India and bleeding it for all it was worth. But the art of looting had gone up to another level.

The system wasn't, of course, flawless. Even the most beautiful system of finance does face the fact that payment must be made on debt. Here is another area in which war can have an unexpectedly blessed result. One of the takers on the British bonds was the Dutch, which had the most developed financial infrastructure on the Continent. What it did not have was a large army. When, in the 1790s, the French threatened Holland, the Dutch naturally turned to the British. Eventually the French occupied Holland, with the Dutch banks fleeing before them and relocating in London. By 1815 London had displaced Amsterdam as the world center of banking.

All of which is a way of saying that the distinction Hazlitt makes, the distinction that is still made, between productive and unproductive labour, is a much softer distinction – and is sometimes no distinction at all – than Hazlitt, and after him a whole liberal tradition, would like to be the case. As the Cambridge Economic History of Europe puts it, nicely: “Already in the eighteenth, more strongly in the nineteenth century, there existed among the British population a wealthy section capable and willing to invest part of its income in state bonds. Between 1761 and 1820, about 305 per cent of British public expenditure was financed from this source; between 1689 and 1820 the proportion did not fall as low as 29.5 per cent. This section of the population derived from these loans an income in the form of annual interest which grew to a substantial independent source of incomes within the total economy. Interest due to the wealthier section of the population was defrayed via the budget mainly from revenues derived from indirect taxes, paid overwhelmingly by sections of the population in receipt of lower incomes.”

The new system of financing war produced a whole new system of looting. The wealthy, in the anglosphere, have never forgotten this lesson. Those in “receipt of lower incomes” have never, ever learned it. And the liberals pretend, by and large, that it never happened.


P.M.Lawrence said...

Where to begin, in correcting this curious pastiche that somehow manages to get so many details wrong, some even reversed, yet still manages to get the overall picture poetically right. So I will state certain facts without proof.

There is the usual offensive use of "England" to mean Britain. England hasn't been a power in the world since the time of the Duke of Marlborough, in Queen Anne's day.

Business was booming for textile workers and artisans right up until all their contracts were cancelled in 1815 (see what happened to Marc Isambard Brunel's budding pulley block mechanised manufacture; it was only in the transport industry that the wartime economic shock lasted long enough to pass a tipping point). The textile workers would have felt badly done by, but they would have seen that the [sic] English economy was booming - just not for them. The plight of the weavers really cut in a while later.

Nobody in his or her right mind would have thought England [sic] was the greatest world power a century after 1688, only the greatest naval power, utterly helpless without continental allies (which relates to the confusion between mercenary forces and subventions to allies who really had common interests; even in 1776-83 the "mercenaries" were really only replacements for Scottish forces of that sort whom the Dutch refused to release in time of need as the treaty stipulated - do you see now why it is important not to confuse the parts of the UK? Scotland mattered).

Loot - an Indian word, incidentally - was not a motive for war in that time and place, merely an incidental of it, and one which the landed interest in England (a precise use this time) well knew worked against their own positions. The British establishment resisted this because of its tendency, as Macaulay put it, to raise the prices of both rotten eggs and rotten boroughs. What does count was a by then nearly forgotten pattern, one which Napoleon to some extent revived, of making war feed on war. The object was not so much to reap rewards from war as to generate the means for it while carrying it out - to fight at the enemy's expense. This was pretty much the slow burning pattern of the Spanish reconquista and the Turkish advance until that bogged down in small valley systems (far from paying mercenaries, the Grand Turk even levied a toll on accompanying irregulars when his host's advance reached bridges).

It is perceptive to note that the Napoleonic Wars moved Europe's financial capital from Amsterdam to London. However it is wrong to suppose that the fact was accomplished by 1815; it actually took several years after that, during which capital that had found itself caught short when the music stopped was able to adjust and sort out a new centre of gravity - something that was not altogether obvious at first. 1830 would be a better date, if we had to pick one.

Finally, it is important to track the beginning of this national debt system. It had its beginnings quite early in the 18th century, and boomed during the Seven Years' War; that is the critical stage, not the Napoleonic Wars. What those gave was a willingness to let the debt stand and roll over indefinitely rather than try to retire it incrementally with sinking funds and such. That leads us to issues involving the American War of Independence and the general trend of bullion to move from source powere, through middlemen, to end destinations - a process which had been going a long time, but was particularly important in the late 18th century as the pulse that had lifted the middlemen began to subside. Hence, too, the bullionist/real bills theory controversy. But these are other questions for another day.

roger said...

P.M. Lawrence, what a wonderful reply! I want to tussle with some bits of it, and push a little bit on the notion of war feeding war.

On England – of course, you are correct. Still, underneath the surface of the U.K., what do we see in that period between the Glorious revolution and Pitt’s inglorious response to a revolution? The English and the Lowland Scots take the opportunity afforded by the incursion of Charles Stuart to utterly pillage and disrupt the Highlands, which of course has effects reaching up until this very day – in what other country in Europe besides Scotland does such a small percentage of families own such a large percentage of the land? As I am sure you are well aware. Similarly, the English/Dutch military victories in Ireland in 1689-90 marked the ascendancy of the English Protestant class there – although of course the consciousness of the ascendancy was always a conflicted thing, as is shown by the writings of the greatest of them – Swift and Burke. So even if the system that arose in Great Britain accommodated the Scots to the point that Johnson could bitterly complain that a Scots faction – lead by Lord Bute - ‘controlled’ the government in the 1760s to the detriment of the English (which was a pretty common sentiment), they operated as a catspaw of the English landed interest.

On the National Debt and loot. I love this sentence of yours: “Loot - an Indian word, incidentally - was not a motive for war in that time and place, merely an incidental of it, and one which the landed interest in England (a precise use this time) well knew worked against their own positions. The British establishment resisted this because of its tendency, as Macaulay put it, to raise the prices of both rotten eggs and rotten boroughs.” However, my point is to ask about the criteria that make “loot” an 'incidental'. This is at the heart of the classical liberal account of war. And I think you are right that the landed interest knew that the inflationary effects of war eroded their economic power, so in one way that account is right – it is a guide to collapse of the establishment will to continue the war against the American colonies, for instance. But my point is that the continuity between the notion that war is unproductive labor and the idea that loot is the illicit gain of war, and hence no justification for it, disguises not only the profit that there is in war, but the way it can re-shape the whole political and economic system. In other words, that classical British liberalism arose in conditions that were created by a system for conducting and financing wars. The British empire did not come about in a fit of absent mindedness, that silly phrase that is still beloved of certain imperial historians. Rather, the system that was invented to finance the wars was ‘productive’ – it produced a whole new system of profiting from war - new in several respects, starting from the tiering of the debt needed to finance the wars - and to that extent, took “loot” to a whole other level.

Hmm. I’m going to do another post about this.

P.M.Lawrence said...

Well, I think I should reply, in part to that and in part to amplify and/or clarify certain things that now seem more apposite in the light of where this is going.

Logically first, I think we should fasten our attention on the distinction between real and nominal economic numbers, and on the different circumstances of 18th century economics that means a switch of emphasis. But I am going to track your comments in order once over lightly, then come back and cover the logical underpinnings.

As for Scotland over the long 18th century, the tribal (clan) aristocracy mostly switched its position and connection with others, adopting a feudal/class orientation under which they became the landowners rather than clan sponsors. In this, they completed a change that had been going on for centuries, since the separation of Lowland culture and the arrival of feudalism. The result of that, brought to fruition in the centuries since then, was a fusion of the upper classes. Please do not understand this analysis as in terms of economic class! Nevertheless, there was and remains a very real consciousness of national identity; you can see it foreshadowed in the conversation between the captains in Shakespeare's Henry V, where it is clear that Wales (say) is a nation in itself despite the term "nation" not meaning "sovereign state".

Anyhow, the cultural forces at work to this day are not united in the UK, which was only ever united that way in the sense of pursuing some larger common goal. This reality still shows in the sensitivities of people like me, with a Scottish father and Irish mother, even though my father was caught young by the Second World War and my mother was brought up in France (her own father found it convenient to emigrate there just after the First World War). I may digress further on the peculiar arrangement of the UK class system some other time; I believe I have established that it interreacts with national identity so that no single simple pattern of behaviour results, just as the feudal and clan systems once did. But read the asides on Scotland in Perrin's "Giving up the Gun" on Japanese arms limitation.

On the specific point of Scottish concentration of land ownership, I am sure you are aware that much of this is nominal ownership, that is, ownership of land that confers nothing. Who is wealthier, Argyll or Westminster? Furthermore, it was quite typical until 1945 saw the large landholdings of central Europe fall under communist sway. So there is something of a coincidence here.

The Ascendancy was, umm, not so much confirmed by the events of 1688-9 as empowered by them. That is, it took a couple of generations of consolidation to reach its peak. As soon as that happened there was no more untapped resource which the locals could draw on, and any additional burden on them translated into poverty. (Think of adding heat to ice; the temperature won't rise for so long as additions of heat can go into more melting.)

What is more, Ireland illustrates the progress of empire very well. Until the Ascendancy was accepted as British, central authority was only concerned with Ireland in two related ways: to stop outsiders like the Spanish and French having it as a strategic threat; and, to control not the Irish proper but rather the people there who had a connection with England, first as Norman barons and later as planters or whatever; they might intervene in England (only a little before the Norman Conquest the Welsh raided Hereford Cathedral, and they had Irish help doing it). It was a bit like France only becoming emotionally committed to Algeria once the settlers were accepted as French. Even so, the Anglo-Irish were always "English to the Irish and Irish to the English"; they, and the likes of Burke who passed, could only get as far as being British, which is where I came in with this. (Recall the Duke of Wellington's indignation at being called Irish, saying that Jesus may have been born in a stable but that didn't make him a donkey; the irony here is that English custom reckons these things by geography, but the Duke of Wellington was using the Celtic system of affinity and kindred.)

On to your next paragraph. "...The British establishment resisted this...", well, not quite. Just as the class system was orthogonal to questions of national identity, so also was it orthogonal to (in principle, although correlated with in practice) economic class. There was no one single monolithic establishment; according to the question of the hour you could slice it according to naval vs. army, land vs. trade wealth, or whatever. Clearly these were either positively or negatively correlated, leading to Whig and Tory groupings with some surprising bedmates (like Whig grandees and commercial interests - they were more than secure enough in their land, so safeguarding it was less of a priority than it was for a squire; think Biblical parables where one person has many sheep and another has just one ewe lamb). This too tapped into an "elephant in the room" - until George III's time, the regime had no legitimacy because there were still meaningful Stuarts around. Nobody could risk pushing too hard, because it was only held together by the mud, so to speak.

To the point. While there were individual empire builders like Clive and Rhodes, who seized the main chance and trusted to the system to back them up, the system always wanted to avoid such entanglements for several reasons: cost, since colonies were cost centres (remember, I have to get back to the economics); repercussions at home, such as those I have mentioned; and the involvement in others' quarrels that presented the sort of problem that the arch-rebel George Washington outlined to his co-conspirators, after having successfully dragged the French into what was for them a Pyrrhic Victory. You can see that this last, to the 18th century mind, was pragmatic rather than any point of high principle.

Why, then, did empire happen? It is in this sense that it was acquired in a fit of absence of mind. As with Ireland, in the words of the old Army song "we're here because we're here because we're here...". Given any sort of British presence, and given French or Spanish imperialism that was not backed up sufficiently from home for whatever reason, it was almost inevitable. Indian revisionism tends to leave France out of the equation these days, yet there would have been no British Raj if not for strategically defensive, tactically defensive reasons. Britain simply could not afford to leave things where the alternatives weren't empire vs. independence but ours vs. theirs, with independence not on the table. After Rhodes's time, mass culture made imperialism in Britain, but imperialism never made empire. (I have tried to find what I could from Oxford's Beit Professors of History like Sir Lionel Curtis and Sir Reginald Coupland, taking them as primary evidence of their own times.)

Back to the economics. What counts, if you are going to run your very own war machine, is not nominal or cash money but what the commissariat needs. On the other hand, if you are fighting somewhere else, you need hard cash, i.e. bullion, to tap into supplies from sceptical locals. This tension was part of what was behind cameralism, that treated money as real rather than nominal even though everybody knew that it wasn't the cash itself that mattered.

Back to the British situation. Indian cash was irrelevant to British strength, except insofar as Britain could pass the buck - spend cash buying war resources from Europeans; thus, "mercenaries". Why not just trade with India, assuming you could reach a modus vivendi with the French? Because there was a real element: India was the major source of supply for saltpetre, as used in gunpowder. Similarly the West Indies counted not for plantation money (though that did arrive and mattered for paying troops) as for not so empty calories, in the form of sugar that boosted typical 18th century European diets in wealth producing centres, i.e. cities and nearby areas where putting out could be done.

That brings us back to the Napoleonic Wars. The Continental Policy was partly pain, hurting the "nation of shopkeepers", but it had a very real part that the moderns often don't notice: the Royal Navy was dependent on the Baltic trade for shipbuilding materials (Tom Paine shows that this economic dependency was common knowledge), which it was going through at an astounding rate under wartime conditions. Luckily the New World was second sourcing it, since the American rebels had not succeeded enough (PEI was briefly the world's shipbuilding capital), and Russia wasn't enough under Napoleon's thumb to close the trade completely. Trying to complete that system led to the invasion of Russia and the spuriously even handed US embargo and invasion of Canada. Ironically, both led to British benefits, obviously from the war of 1812 destroying la Grande Armee, and less obviously because the American sideshow meant that British forces weren't disbanded in 1814 but were just returning when they were needed again for the Waterloo campaign. But I digress again...

Back to money and credit within wartime Britain in those days. Within Britain, there was near autarky; the outside supplies could be done without, apart from defence needs (anybody needing sugar could go back to a peasant lifestyle - no Malthusian limits just yet). Hard money wasn't necessary in itself, but for confidence, so that trade could continue to function. With confidence, the bank suspension did no harm. The real stuff kept moving around regardless of what was happening with the nominal, and the theorists started to wonder about real bills. So I'll stop here for now, lest I digress again... (Hint: the only thing wrong with real bills theory is that the bills aren't real.)