Harper Torchbooks, NYC., 1947, 309 pgs., index, notes, bibliography,
illustrations, map, paperback
Chapter 4 - Economic Experiments
I The Impoverishment of War;
"In 1715 every government in Europe was insolvent. The unprecedented costs
of the world war had greatly exceeded the receipts from taxation. There was a
mass of short-term obligations, of unpaid and overdue bills of may kinds, of
salaries and pensions in arears, and no apparent means to pay them. either by
refunding or from any possible revenue".
Of course it was the 'unprecedented' expense of waging war circa 1500 that had
generated the development of a new concept "the state' as a way of
legitimizing the demands of 'city states' and princes then. And this was merely
its continued expansion that was occuring in the 18th century.
"in England the Jacobite danger impaired the credit of the govenment which
had been hardly less prodigal and reckless than that of Louis XIV. Adam Smith's
view of eighteenth-century English government finance is more to be trusted
than that of some nineteenth-century historians".
Dr. Roberts describes the situation in Prussia, France, Venice, and other
"Adam Smith's alarmist view of the dangers of national debt may perhaps be
as obsolete as some modern economic theorists argue, but his description of the
way in which they arose is accurate and succinct".
Read Wray for the 'modern economist'.
The personal credit of Charles II and the Stuart monarchy ended with the
closing of the Exchequer in 1672. William III found that no reform of the
revenue could raise the sums needed for the War of the Grand Alliance".
Read Felix Martin for the 'check on the
exchequer' and subsequent founding of the Bank of England.
II The Bank of England and the Banque Royale;
"A new era in British public finance began during "King William's
War," as the American colonists called it. The government forced to borrow
and unable to do so by the issue of its own bonds, called on the aid of the
associations of businessmen. This practice developed into what Clark calls 'the
eightennth century system under which the state was financed by privileged
companies': The Bank of Englaind, the East India Company, The South Sea
Company"... "The most important of these was the Bank of England,
established in 1694. Charles Montagu, soon to be appointed Chancellor of the
Exchequer, pondered on more than seventy financial schemes for the flotation of
a loan at 8 percent; he finally selected the third of these submited by William
Paterson, a Scotsman living in London and later concerned in the unfortunate
Drl Roberts describes this critical event in the history of banking, money and
fianance, and it is even more fully described by Martin, but somehow not by
"The tie between the Bank and the government grew steadily stronger. ..
"The success of the Bank of England in maintaining public credit and
stimulating private enterprise made a deep impression on financiers and
businessment in other countries. During the War of the Spanish Succession the
British and the Dutch were not merely able to pay for the armies of the German
princes, who could not have maintained their troops from their own revenues or
by their own credit; they were also in a position to increase the prosperity of
their own trading classes". "Proposals for the establishment of banks
were consquently made in other countries and seriously considered by the
III Sinking Fund and Visa;
"The comparison of the measures proposed and adopted in England with those
suggested and those carried through in France shows not merely the very
considerable influence of each country on the other, but also the differences
then existing between their respective social and economic organizations. In
England the merchant class was not only numerous and prosperous but also
politically influential in Parliament; in France the merchants were also
numerous and prosperous, but politically they had to work indirectly through
their influence on the royal bureaucrcy". "The creation of a national
debt based on loans raised by chartered companies forced the directors of those
companies - the East India Company, The South Sea Company, and the Bank of
England - to support the regime which had contracted the debt".
Now comes a critical difference well described by the author. "Yet in all
other monarchies, including France, the notion persised that the debts of the
crown were the personal debts of the sovereign, not binding upon the nation.
The Sinking Fund Act, and the whole plan of which it was the essential
connecting link, is a greater achievement than it appears to modern historians,
to whom the concept of national debt is familiar".... "The Government
had been a poor credit risk under William III. Under George III its securities
were the most gilt edged to be had, while those of Louis XVI's France were
still no more trustworthy than the paper of Louis XIV had been".
What Dr. Roberts is describing is the issuance of Perpetuals - bonds with no
termination but that would pay interest for ever: indeed Gilts. Yet. Dr.
McCloskey does not stress this in relation to the advancement of the bourgeois
- the holder of these Gilts. He continues with further discussion in the
following sections in which, among other topics, he describes,favorably, in
great detail the ideas and efforts of John Law to save the French financial
IV The Mississippi and South Sea Bubbles;
V The Ostend Company;
VI Asiento and Interlopers;
VII Political Implication of Economic Progress
"The first half of the eighteenth century was in most of Europe a period
of economic progress. The progress, measured in terms of increased
international trade, increased incomes, indeed by any of the norms of economic
statistics, was real".
The period was important for the development of modern banking and money
creation with the Bank of England as decribed by Felix Martin in his book on
Money. Much of the importance of this
development in financial conditions is overlooked by Dr. McCloskey. It is
decribed in political terms by Philip Bobbitt (Shield
of Achilles) and in economic -social terms by David Fischer (The