War and loot

 I wrote this piece under Bad King Bush and his occupation of Iraq. I think it is ever so relevant now.

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.