The Cash Nexus: Money and Politics in Modern History, 1700-2000

by Niall Ferguson

69. Figures from Flora et al., State, Economy and Society, vol. i, pp. 210–42.

  70. Duncan and Hobson, Saturn’s Children, p. 53.

  71. Wages and salaries as a proportion of federal, state and local expenditure: Statistical Abstract of the United States 1999, table 503.

  72. Hogwood, Trends in British Public Policy, p. 50.

  73. Goldsmith, Premodern Financial Systems, pp. 60 ff.

  74. Braudel, Civilization and Capitalism, vol. iii, p. 310.

  75. Goldsmith, Premodern Financial Systems, p. 226.

  76. Morineau’s figures, quoted in Gelabert, ‘Fiscal Burden’, p. 560 n. But see Braudel, Civilization and Capitalism, vol. iii, pp. 312 f.

  77. Hellie, ‘Russia’, pp. 496 f.

  78. Goldsmith, Premodern Financial Systems, pp. 171 ff.

  79. Bonney, ‘Early Modern Theories of State Finance’, pp. 181 f.

  80. O’Brien, Power with Profit.

  81. Bonney, ‘Struggle for Great Power Status’, pp. 336 f., 345 and fig. 337. France’s annual revenue was about 1.4 times Britain’s; 2.4 times Spain’s; 3.5 times Austria’s; 3.8 times Holland’s; and 6.5 times Prussia’s. Cf. Mathias and O’Brien, ‘Taxation in Great Britain and France’.

  82. White, ‘France and the Failure to Modernize’, p. 4.

  83. See tables 2.1, 2.2, 2.3, 2.5 and 2.6 in Hogwood, Trends in British Public Policy, pp. 40–43.

  84. Statistical Abstract of the United States, p. 339.

  85. OECD, Economic Outlook, 65 (1999), annex table 28.

  86. Kennedy, Rise and Fall of the Great Powers, p. 67.

  87. Goldsmith, Premodern Financial Systems, p. 117.

  88. Harris, ‘Political Thought and the Welfare State’, p. 43.

  89. Green, ‘Friendly Societies’.

  90. Whiteside, ‘Private Provision and Public Welfare’, p. 34.

  91. Thane, ‘Working Class’, p. 106.

  92. Ibid., p. 111.

  93. I am grateful to Edward Lipman for his unpublished researches on this subject.

  94. Although it was worth just five shillings, half a million ‘very poor, very old’ people claimed it: Thane, ‘Working Class’, p. 108.

  95. Whiteside, ‘Private Provision and Public Welfare’, pp. 29 f., 41.

  96. Hogwood, Trends in British Public Policy, p. 38.

  97. Hentschel, Wirtschaft und Wirtschaftspolitik, p. 150.

  98. Butler and Butler, British Political Facts, pp. 332 f.

  99. See in general Abelshauser (ed.), Weimarer Republik.

  100. Abelshauser, ‘Germany’, p. 127. Cf. Overy, War and Economy in the Third Reich.

  101. Burleigh, Third Reich, pp. 219–51.

  102. Chennells, Dilnot and Roback, ‘Survey of the UK Tax System’, p. 21.

  103. Crafts, ‘Conservative Government’s Economic Record’, p. 23.

  104. Kay and King, British Tax System, pp. 23, 196; Hogwood, Trends in British Public Policy, p. 102.

  105. Ibid., pp. 101–3.

  106. Ibid., p. 49. Cf. David Smith, ‘Treasury Relaxes its Grip’, Sunday Times, 23 January 2000.

  107. British health spending as a percentage of GDP was 6.8 per cent in 2000, compared with a weighted continental average of 9 per cent. The equivalent figure for the US and Canada is around 10 percent: Seldon, Dilemma of Democracy, p. 52.

  108. Figures from Mitchell and Deane, Abstract of British Historical Statistics, pp. 396–9; HM Treasury, Financial Statement and Budget Report, 1999.

  109. Bonney, ‘Introduction’, p. 18.

  110. Duncan and Hobson, Saturn’s Children, p. 59.

  111. Dowrick, ‘Estimating the Impact of Government Consumption on Growth’.

  4. Mountains of the Moon: Public Debts

  1. Kennedy, Rise and Fall of the Great Powers, p. 681 and n.

  2. Financial Times, 5–6 February 2000. In fact, Clinton was referring to all US debt held by the public, excluding the federal government account and the debt held by the Federal Reserve system. The difference is of the order of 2 trillion dollars.

  3. ‘In the Red: A History of Debt 2000 BC–2000 AD’, exhibition at the Ashmolean Museum, Oxford, January–April 2000.

  4. Goldsmith, Premodern Financial Systems, p. 79.

  5. Parker, ‘Emergence of Modern Finance’, pp. 540–545.

  6. The monti were originally charitable institutions which lent money to the poor at low interest: ibid., p. 534.

  7. Hocquet, ‘Venice’, p. 395, and ‘City-State and Market Economy’, pp. 87–91; Parker, ‘Emergence of Modern Finance’, p. 571.

  8. Goldsmith, Premodern Financial Systems, pp. 157 ff., 164 f., 167 ff.

  9. Partner, ‘Papacy’, p. 369.

  10. Hocquet, ‘City-State and Market Economy’, pp. 91 f.; Parker, ‘Emergence of Modern Finance’, p. 567. Importantly, the Church did not regard annuities as usurious.

  11. Körner, ‘Public Credit’, pp. 507 ff.

  12. Muto, ‘Spanish System’, pp. 246–9.

  13. Parker, ‘Emergence of Modern Finance’, p. 564.

  14. Ormrod, ‘England in the Middle Ages’, p. 37.

  15. Ormrod, ‘West European Monarchies’, pp. 122 ff.

  16. Bosher, French Finances, p. 6; Körner, ‘Public Credit’, p. 521; Schulze, ‘Sixteenth Century’, p. 272; Parker, ‘Emergence of Modern Finance’, p. 568; Hamilton, ‘Origin and Growth of the National Debt in Western Europe’, p. 119; Velde and Weir, ‘Financial Market and Government Debt Policy in France’, p. 7.

  17. Bosher, French Finances, p. 23.

  18. Muto, ‘Spanish System’, pp. 246–9.

  19. Neal, Rise of Financial Capitalism, pp. 1 ff.

  20. Parker, ‘Emergence of Modern Finance’, pp. 549, 571.

  21. Capie, Goodhart and Schnadt, ‘Development of Central Banking’, p. 7.

  22. Crouzet, ‘Politics and Banking’, pp. 27 f.

  23. Ibid., p. 28. Cf. Bosher, French Finances, pp. 257 ff. Custine denounced the ‘fiscal agents’ of the old regime as ‘bloodsuckers on the body politic … with fortunes made by the sweat and blood of the people’: ibid., p. 262.

  24. Crouzet, ‘Politics and Banking’, pp. 36 ff.; Körner, ‘Public Credit’, p. 530.

  25. Crouzet, ‘Politics and Banking’, p. 45.

  26. Neal, ‘How It All Began’, pp. 6–10.

  27. North and Weingast, ‘Constitutions and Commitment’, pp. 819–28.

  28. Parker, ‘Emergence of Modern Finance’, p. 581.

  29. Neal, Rise of Financial Capitalism, pp. 1–43, 117.

  30. Körner, ‘Public Credit’, p. 536.

  31. Calculated from figures in Mitchell and Deane, Abstract of British Historical Statistics, pp. 402 f.

  32. Bordo and White, ‘Tale of Two Currencies’.

  33. Michie, London Stock Exchange, pp. 15–36.

  34. Parker, ‘Emergence of Modern Finance’, p. 575.

  35. Ibid., p. 576.

  36. See Bosher, French Finances, pp. 12–16.

  37. Neal, ‘How It All Began’, pp. 26–33.

  38. Parker, ‘Emergence of Modern Finance’, pp. 584 f.

  39. Mirowski, ‘Rise (and Retreat) of a Market’, p. 569.

  40. Parker, ‘Emergence of Modern Finance’, p. 587.

  41. Kindleberger, Financial History, pp. 59 ff.

  42. Neal, ‘How It All Began’, pp. 33 f.

  43. Doyle, Origins of the French Revolution, p. 50.

  44. Bonney, ‘France, 1494–1815’, pp. 131 ff., 152 f.

  45. Velde and Weir, ‘Financial Market and Government Debt Policy in France’, pp. 3, 28–36. Cf. Wallerstein, Modern World-System, vol. iii, p. 84 n.

  46. Doyle, Origins of the French Revolution, p. 48.

  47. Ibid., p. 114.

  48. White, ‘Making the French Pay’, pp. 30 f.

  49. Syrett and Cooke (eds.), Papers of Alexander Hamilton, vol. ii, pp. 244–5.I am grateful to Professor Richard Sylla for this reference.

  50. Sylla, ‘US Financial System’, passim. See also Bro
wn, ‘Episodes in the Public Debt History’, pp. 230–237.

  51. Capie, Goodhart and Schnadt, ‘Development of Central Banking’, p. 6.

  52. Ibid., p. 68.

  53. See in general, Cameron (ed.), Banking.

  54. Parker, ‘Emergence of Modern Finance’, pp. 565 f.

  55. See Ferguson, World’s Banker, passim.

  56. In 1924 only around 12 per cent of the internal British national debt was held by small savers through savings banks and the Post Office, compared with 10 per cent held by banks other than the Bank of England, and 5 per cent held by insurance companies: Morgan, Studies in British Financial Policy, p. 136.

  57. Quoted in Hynes, War Imagined, p. 432.

  58. Ferguson, Pity of War, p. 225.

  59. Feldman, Great Disorder, p. 48.

  60. Ferguson, Pity of War, p. 325.

  61. For evidence of waning public enthusiasm for new German War Loans, see Holtfrerich, German Inflation, p. 117. The worsening under-subscription suggests that the government was over-pricing the new bonds.

  62. Goodhart, ‘Monetary Policy’, p. 8.

  63. Morgan, Studies in British Financial Policy, p. 140 and table 107. Cf. Bankers Trust Company, English Public Finance, p. 30.

  64. Bankers Trust Company, French Public Finance, pp. 138 f.; Balderston, ‘War Finance’, p. 227; Hardach, First World War, pp. 167 ff. Cf. Ferguson, Pity of War, ch. 11.

  65. Goodhart, ‘Monetary Policy’, p. 12.

  66. Makinen and Woodward, ‘Funding Crises’. The authors argue that the cause of the crises was a failure on the part of the authorities to raise the interest rates on Treasury bills in line with market rates.

  67. Alesina, ‘End of Large Public Debts’, p. 49.

  68. Broadberry and Howlett, ‘United Kingdom’, p. 50.

  69. Goodhart, ‘Monetary Policy’, p. 8. The floating debt was larger in 1945/6 than in 1918/19 (27 per cent of the total debt compared with 19 per cent); on the other hand, the external debt had been much higher after the First World War (17 per cent of total debt, compared with less than 2 per cent). The term structure of the funded debt differed only slightly.

  70. Rockoff, ‘United States’, p. 108. Broad money growth was slightly higher in the US than in Britain: relative to 1938, M3 increased by a factor of 2.6, compared with a British figure of just 2. 1. In the Soviet Union, too, the money stock rose by a factor of less than three between 1940 and 1945: Harrison, ‘Soviet Union’, p. 277.

  71. Hansemeyer, ‘Kriegswirtschaft’, p. 417; Hara, ‘Japan’, p. 258; Mitchell, European Historical Statistics, p. 359.

  72. Goodhart, ‘Monetary Policy’, pp. 13–32.

  73. Calculated from the unpublished statistical annex of Goodhart, ‘Monetary Policy’.

  74. Kennedy, Rise and Fall of the Great Powers, pp. 103 ff.

  75. Bonney, ‘Struggle for Great Power Status’, pp. 368 f.

  76. Doyle, Origins of the French Revolution, p. 43.

  77. Bonney, ‘Struggle for Great Power Status’, pp. 347 f., 351.

  78. Ibid., pp. 341 f.

  79. Hinsley, Power and the Pursuit of Peace, pp. 62 ff.

  80. Clarke, ‘Keynes, Buchanan and the Balanced-Budget Doctrine’, p. 66.

  81. Brown, ‘Episodes in the Public Debt History’, table 8.7.

  82. Calculated from sources to table 2.

  83. A calculation of the deficit as ‘net increase in debt’ produces a much smaller figure of 1.5 per cent.

  84. Cf. the figures in Broadberry and Howlett, ‘United Kingdom’, p. 51; Zamagni, ‘Italy’, p. 199; Harrison, ‘Soviet Union’, p. 275; Hansemeyer, ‘Kriegswirtschaft’, p. 400; Abelshauser, ‘Germany’, p. 158; and Brown, ‘Episodes in the Public Debt History’, pp. 249 f. (net increase in the debt/GNP ratio).

  85. Clarke, ‘Keynes, Buchanan and the Balanced-Budget Doctrine’, p. 67 and table 4.1.

  86. Ibid., pp. 73–6.

  87. Congdon, ‘Keynesian Revolution’, pp. 90 ff. As Samuel Brittan memorably put it: ‘[Conservative] Chancellors [between 1951 and 1964] behaved like simple Pavlovian dogs responding to two main stimuli: one was a “run on the reserves” and the other was “500,000 unemployed”.’

  88. Buchanan and Wagner, Democracy in Deficit; Buchanan, Wagner and Burton, Consequences of Mr Keynes.

  89. Congdon, ‘Keynesian Revolution’, p. 99; Sargent, ‘Stopping Moderate Inflations’, p. 144.

  90. Goldsmith, Premodern Financial Systems, p. 107.

  91. Ibid., pp. 214 ff.

  92. Braudel, Civilization and Capitalism, vol. iii, p. 307.

  93. Goldsmith, Premodern Financial Systems, p. 194.

  94. Körner, ‘Swiss Confederation’, pp. 337, 348 ff.

  95. Barro, ‘Government Spending’, p. 239 n., arrives at a lower figure, peaking at 185 per cent, by adjusting for the fact that in the period up to 1815 large amounts of debt were issued at a discount to yield 5 per cent but were counted in the reported debt total as though issued at par; but for the sake of consistency and in conformity with modern conventions I have used the official debt figure.

  96. Stockmar, Memoirs, vol. i, p. 44.

  97. Bonney, ‘Struggle for Great Power Status’, p. 345.

  98. Bosher, French Finances, pp. 23 f., 255 f. Braudel, Civilization and Capitalism, vol. iii, p. 307. For earlier figures c.1715 see White, ‘France and the Failure to Modernize’, p. 27.

  99. Brown, ‘Episodes in the Public Debt History’.

  100. Calculated from OECD figures.

  101. Financial Times, 21 July 2000.

  102. Dickens, David Copperfield, p. 170.

  103. Quoted in Eltis, ‘Debts, Deficits’, p. 117; cf. Winch, ‘Political Economy’, pp. 13 ff.

  104. Quoted in Eltis, ‘Debts, Deficits’, pp. 117 f.

  105. Smith, Wealth of Nations, bk. II, ch. 3. Marx took the opposite view.

  106. Quoted in Winch, ‘Political Economy’, p. 18.

  107. Quoted in Anderson, ‘Loans versus Taxes’, p. 314.

  108. Quoted in Maloney, ‘Gladstone’, p. 30.

  109. Anderson, ‘Loans versus Taxes’, p. 325.

  110. Hamilton, ‘Origin and Growth of the National Debt in Western Europe’, p. 129.

  111. Quoted in Winch, ‘Political Economy’, p. 14; cf. Bonney, ‘Introduction’, p. 14.

  112. Quoted in Winch, ‘Political Economy’, p. 20.

  113. Quoted in Sylla, ‘US Financial System’, p. 255.

  114. See the summary of the various theories in Cavaco-Silva, Economic Effects, pp. 16–23.

  115. Gale, ‘Efficient Design’.

  116. See most recently Neal, ‘How It All Began’, pp. 19–25.

  117. Quoted in Hamilton, ‘Origin and Growth of the National Debt in Western Europe’, p. 121.

  118. Barro, ‘Determination of the Public Debt’. Cf. Barro, Macroeconomics, pp. 373, 377. The idea is often referred to as the ‘Ricardian equivalence theorem’, though Ricardo only raises the issue casually in his Funding System (1820) and dismisses it elsewhere as unrealistic. The theory nevertheless has come to bear his name. Cf. Eltis, ‘Debts, Deficits’, p. 121; Barro, ‘Reflections’, p. 49.

  119. Barro, ‘Are Government Bonds Net Wealth?’, p. 1095.

  120. Barro, ‘Government Spending’, p. 237.

  121. Quoted in Anderson, ‘Loans versus Taxes’, pp. 317, 326.

  122. The term ‘sinking fund’ dates back to 1717, when legislation was introduced creating sinking funds for specific Bank of England, South Sea and other loans. These were consolidated into a single fund in 1718. The principle was that each year a payment should be made out of current revenue to reduce the debt in question.

  123. Clarke, ‘Keynes, Buchanan and the Balanced-Budget Doctrine’, pp. 66 ff.

  124. Congdon, ‘Keynesian Revolution’, pp. 100 ff. On this basis, Congdon argues that there was a ‘slightly more’ Keynesian era of fiscal policy between 1949 and 1974, when fiscal policy was counter-cyclical in 15 of 26 years, and a ‘slightly less’ Keyn
esian era between 1975 to 1994, when policy was counter-cyclical in only 10 out of 20 years.

  125. See esp. Kotlikoff, Generational Accounting, and ‘From Deficit Delusion to the Fiscal Balance Rule’.

  126. See Cardarelli, Sefton and Kotlikoff, ‘Generational Accounting in the UK’, p. 22.

  127. Kotlikoff and Leibfritz, ‘International Comparison of Generational Accounts’.

  128. Kennedy, Rise and Fall of the Great Powers, p. 69.

  129. Ibid., p. 73.

  130. Körner, ‘Expenditure’, pp. 402 ff.

  131. Partner, ‘Papacy’, p. 369.

  132. Capra, ‘Finances of the Austrian Monarchy’, p. 297 ff.

  133. Hocquet, ‘City-State and Market Economy’, pp. 91 ff.

  134. Gelabert, ‘Castile’, pp. 208 ff. Cf. Parker, ‘Emergence of Modern Finance’, p. 570.

  135. Hart, ‘United Provinces’, pp. 311 f. See also Kennedy, Rise and Fall of the Great Powers, pp. 100 f. for the argument that the Dutch system discouraged entrepreneurship and pushed up labour costs.

  136. Bonney, ‘France, 1494–1815’, p. 148; Bonney, ‘Struggle for Great Power Status’, p. 347; Doyle, Origins of the French Revolution, p. 43; White, ‘France and the Failure to Modernize’, p. 26.

  137. Calculated from figures in Mitchell and Deane, Abstract of British Historical Statistics, pp. 386–91. Cf. Bonney, ‘Struggle for Great Power Status’, p. 345; Kennedy, Rise and Fall of the Great Powers, p. 109.

  5. The Money Printers: Default and Debasement

  1. Goethe, Faust, Part Two, Act I, pp. 70 ff.

  2. Ferguson, Paper and Iron, p. 87.

  3. Ibid., p. 430.

  4. Feldman, Great Disorder, p. 27.

  5. Goethe, Faust, Part Two, Act I, pp. 72 f.

  6. Ibid., Act IV, p. 222.

  7. ONS, quoted in Daily Telegraph, 11 June 1999.

  8. Brown, ‘Episodes in the Public Debt History’, p. 231.

  9. Ibid.

  10. Alesina, ‘End of Large Public Debts’, p. 36.

  11. Eichengreen, ‘Capital Levy’.

  12. Ferguson, Paper and Iron, pp. 276 f.

  13. Ormrod, ‘West European Monarchies’, pp. 112 ff.

  14. Henneman, ‘France in the Middle Ages’, p. 108.

  15. A true bankruptcy was the case of the Swiss Count Michel of Gruyère, who lost his lands as a result in 1555.

  16. In 1557, 1560, 1575, 1596, 1607, 1627, 1647, 1652, 1662, 1665, 1692, 1693, 1695 and 1696.