Boroughs in locations that were conducive to trade and had obtained farm grants ended up being overrepresented in Parliament. In the long term, this produced more inclusive local elections and, by the seventeenth century, greater support for parliamentarians during the Civil War. Thus, medieval compromises about tax collection, rooted in the weakness of the central authorities, strengthened the mercantile element in the national assembly and policy outcomes.89
Most important, the critical period of recurrent civil war and reconstruction from the 1640s to the 1680s created elite consensus in favor of a stronger and more centralized state that protected commercial interests at home and overseas. The “Glorious Revolution” of 1688 has long been considered a breakthrough in this process. Rooted in the struggle between absolutism and its opponents, it marked the success of a broad (if elite) coalition against absolutism that was sustained in no small measure by the rise of merchants and businessmen that the state could not fully contain.90
This success fostered more pluralistic political institutions that were more open to economic and social aspirations. In the economic sphere, it has been credited with shoring up property rights, improving financial markets, undermining monopolies on foreign trade, and removing barriers to the expansion of industry.91
This picture applies in broad outlines even as details remain debated. In their classic exposition, Douglass North and Barry Weingast maintain that reforms associated with the Glorious Revolution secured property rights in ways that allowed capital markets to prosper, an effect reflected in the huge growth of public debt alongside falling interest rates, a startling combination made possible by credible commitments to creditors. This in turn boosted private capital markets: the stock market and the number of banks expanded.92
Much of this might better be viewed as the result of longer-term trends. Yet even in a more restrained reading, political reform removed concerns about constitutional rights, establishing parliamentary primacy over absolutist tendencies. Most significantly, Parliament’s power over taxation and its control of the executive increased. In the process, in North and Robert Thomas’s words, “The supremacy of parliament and the embedding of property rights in the common law put political power in the hands of men anxious to exploit the new economic opportunities and provided the essential framework for a judicial system to protect and encourage productive economic activity.”93
After 1688, Parliament met more frequently and generated more legislation in response to a growing number of petitions, compared not just to previous years but to any other European assemblies. Unlike the latter, it enjoyed an unusual degree of authority over public finances and freedom of interference by local power bases. Because it was not organized into estates, it was also more open and permeable.
Unlike in the past, party politicians rather than monarchs set policy. This mattered because as the balance of power changed in favor of the commercial class, represented by the Whig faction, policymakers embarked on a costly war with France that prompted the expansion of fiscal and military capabilities as well as the creation of a central bank. This shift also focused policy more expressly on growth of the manufacturing sector.94
As a further result of this trend, Parliament showed itself increasingly responsive to demands for acts that reorganized property rights. By modifying less-flexible archaic rights regimes and loosening constraints on investment by eroding customary rights in favor of those that responded to changing economic opportunities, legislation removed obstacles to economic development. Acts frequently aimed to lower transaction costs within society and displayed particular interest in transportation issues. Enclosure acts benefited capitalist farming. And as we will see in chapter 12, Parliament’s willingness to side with innovators against incumbents accelerated industrial development.95
All of this, to be sure, was very much a work in progress. The large volume of legislation betrays its incremental and piecemeal character, often enacted to grant special favors to proponents. By current standards, Parliament was corrupt, often favoring legislation that targeted specific constituencies in exchange for inducements. Even so, over the course of the eighteenth century, rent-seeking gave way to considerations of national interest: instead of pleasing the highest bidder, Parliament sought to arbitrate among competing interest groups. Moreover, the sheer volume of acts underlined their relevance and Parliament’s responsiveness to interest groups from across the country. These interactions strengthened the ties between center and regions, promoting integration.96
In Julian Hoppit’s words, parliamentary intervention in the aggregate represented “a commercialization of political power leading to an intensification of market relations within society.” Landholding elites acquiesced to this ongoing shift of political power in favor of the mercantile class because they themselves benefited greatly from early industrialization well into the nineteenth century, when this process had already advanced too far to be reversed.97
As Parliament acted as a mechanism for balancing the interests of different elite groups from aristocrats to merchants, it ensured that legislation relating to property rights and related economic issues enjoyed fairly broad support and was therefore durable. This created a predictable framework for economic activity. Without an assembly that could routinely and expeditiously deal with competing interests and was able to tackle a substantial workload with the help of fixed procedures and an expanding bureaucratic apparatus, such broad-based support, durability, and predictability might well not have materialized.98
The seventeenth century was thus a period of decisive change. The first patent laws encouraged innovation, joint-stock companies flourished, coffeehouses served as precursors of organized insurance, commodity and securities markets and deposit banking appeared, and a central bank, the privately held Bank of England, extended loans not only to the government to support war but also and at low interest to manufacturers.
By the end of the century, a favorable institutional framework was firmly in place. Industrial regulation and the power of guilds declined while a variety of organizations encouraged mobility of capital. These changes had become “irreversible and cumulative,” directed against the old regime of status, stasis, and royal control. Inasmuch as modern state structures were a prerequisite of capitalist markets and secure property rights, England had cleared this hurdle.99
WAR
England’s precocious political and economic development unfolded behind the shield of sovereignty and naval power. Rising taxes were the foundation: per capita income tax grew fourfold in real terms between the 1680s and the 1830s. In a powerful reflection of the expansion of trade and commerce, customs and excise duties accounted for 60–80 percent of this revenue, much of it derived from duties on alcohol, salt, sugar, tea, and tobacco—consumer goods that were neither necessities nor extravagant luxuries and were increasingly abundant across society.100
At times during the eighteenth century, up to 90 percent of public revenue was spent on war. Between 1688 and 1815, loans covered a third of wartime expenditure. By the end of the Napoleonic Wars, British debt had grown to more than two times annual GDP: only Dutch levels of public debt were higher.101
That the country was able to take on this burden was the result of the financial revolution of the seventeenth century. It equipped England with the most sophisticated financial system in Europe and indeed the world. The costly wars against France after 1688 were a major driving force: they could only be funded by long-term public debt. Holding these bonds turned citizens into stakeholders whose trust in their government was crucial—and trust it they did. By the time of the Napoleonic Wars, the number of debt holders had expanded to about 300,000, well beyond the elite circles of a dramatically unequal society. Interest rates halved while debt soared.102
This was not so much a payoff of inclusion—Britain was not a democracy—as a powerful demonstration of trust in the law and the state’s willingness to honor its commitments to the public. This trust had to be earn
ed. Parliament and the Bank of England monitored the way revenue was spent, enabling a “virtuous circle” of spending on debt service and naval expenses that protected more and safer trade. Public debt thus fostered transparency and helped build trust between state and society.103
This confidence in state commitments enabled Britain to keep up with growing challenges. The French Revolution pushed up mobilization levels to unprecedented heights: Napoleon drafted 2 million men from among 44 million subjects and allies. Yet Britain outdid him in per capita terms: about 1 million men out of 11 or 12 million people in Britain and another 5 or 6 million in Ireland became involved in the army, the navy, or the forces of the East India Company. In addition, Britain paid for half a million allied troops and built more than 500 warships in the early years of the nineteenth century. At that point, no country anywhere could rival its relative mobilization capacity.104
Given the scale of these efforts, it is scarcely surprising that the business of war dwarfed any other businesses. Around 1800, the fixed capital of the British navy was worth more than five times that of the 243 textile mills in the West Riding woolen industry, one of the largest sectors of the country’s export economy. Military rather than civilian enterprise took the lead in changing the organization of management and production.105
How was economic development related to military capabilities? In continental Europe, the buildup of military resources continued steadily during the eighteenth century even as wars became somewhat less common than they had been. However, British-style economic growth was absent.106
It appears that competing was not enough: winning was crucial. In this respect, Britain also stood out. It was spared war on its own soil: there had been no serious combat in England since the end of the Civil War in 1651, which was followed by only minor engagements during the Dutch invasion of 1688 and a foray from Scotland during the Second Jacobite Rising of 1745. Scotland was pacified the following year. The British navy was exceptionally successful. In the end, Britain won or at least did not lose most of its wars after the 1670s, except for one against the nascent United States, which inflicted no lasting damage on trade relations.107
Recurrent success in the wars of the late seventeenth and eighteenth centuries stimulated the British economy by securing a large share of international trade, which sustained urbanization, higher wages, and agricultural productivity, the latter as farmers responded to rising demand. This created an environment in which the presence of coal, capital, high wages, and protectionism favored the substitution of capital for labor and thus industrialization. I return to this at the end of chapter 12.108
PROTECTIONISM
In Britain’s case, one of the most potent effects of interstate conflict on economic progress was indirect: it encouraged protectionist strictures that prompted creative experimentation and technological breakthroughs. Across early modern Western Europe, mercantilist policies benchmarked countries’ economies against each other in an endless search for competitive advantage. A manifestation of economic nationalism, these policies were driven by concerns about state strength and its financial foundations. Designed to skew trade balances in one’s own country’s favor and to increase domestic bullion stocks, the protectionist systems promoted manufacturing in order to add value and substitute for imports, as well as trade—ideally conducted by one’s own countrymen—to sell goods abroad.
External barriers to exchange went up just as internal ones were dismantled in order to raise productivity. Improvement was the explicit goal, to be achieved by intervention in markets and even in production itself. In the eighteenth century, this mind-set was dominant among European elites who prized war and state interests over citizen welfare.109
Yet early modern European states had not yet developed coherent national political economies and thus struggled to implement economic policies and exercise effective control. England was the principal if partial exception, in the sense that it pursued relatively consistent policies of protecting its industries and traders. Even as it remains doubtful just how well bans worked in practice—smuggling was common—at least they worked better than elsewhere.110
England’s institutions empowered rent-seeking members of the elite and its legal system favored the wealthy and stood ready to deploy coercive powers against the poor. In no small measure, it was thanks to this bias that coalitions in favor of British goods were usually sufficiently powerful to sway Parliament: “Mercantilist policies, to the extent that they benefited anyone, protected a narrow range of merchants, manufacturers, financiers, ship-owners, and planters and thus constituted redistribution from the tax-paying public to a small special interest group.”111
These interests also extended to international trade. In the seventeenth century, shares in overseas ventures had become available to members of the elite, including Members of Parliament. This helped unify elite interests by opening up access to investment opportunities and aligning the interests of politicians with those of traders.112
Legislation supported national trade through a variety of measures. A series of Navigation Acts, passed in the third quarter of the eighteenth century and directed mainly against the Dutch, provided for coastal shipping by British-owned ships, limited imports of certain goods to British ships or those of their country of origin, reserved long-distance imports for British merchantmen, and stipulated that a variety of colonial products had to be brought to England first before they could be reexported to Europe. All these measures sought to cut out middlemen and boost the volume of British shipping and related services.
Chartered companies such as the East India and Hudson Bay Companies blurred the boundaries between war and commerce: their modus operandi was to weaken their foreign competitors by all means necessary, including military force. Since the same was true of their continental peers, protection—both legal and in the form of a strong navy—was a necessity to sustain commerce: under these circumstances, free and fair trade was simply not an option.113
Customs duties, initially imposed for fiscal reasons, grew into instruments of protectionism to shield fledgling domestic industries from foreign competition. Tariffs protected special interest groups such as colonial planters or specific industries, most notably cotton processing and iron manufacturing.114
As we will see in chapter 12, the British textile industry owed much of its prosperity to duties on the export of raw wool that had first been imposed in the Middle Ages. Later, manipulation of the trade in cotton played a key role. Import restrictions on Indian cotton cloth, introduced in 1685 and increased five years later, failed to stem the flow. Thus, in 1700 the legislature decided to ban the import of certain types of Indian cloth (printed and painted calicoes) altogether, unless they were earmarked for reexport rather than domestic consumption. This created a de facto monopoly for local cloth printers, followed by a huge expansion in production. In 1721, a comprehensive ban on cotton textile imports for sale in Britain closed remaining loopholes. Only white cloth continued to be imported to be printed or dyed for export.
These aggressive interventions limited the supply of cotton in Britain in the face of strong demand, not only at home but also in West Africa, where slaves were traded for cotton cloth. This prompted a search among domestic manufacturers for ways of producing more and cheaper cotton cloth that was suitable for printing. In response, a series of innovations greatly increased productivity in spinning and weaving, first by raising output per worker and then, crucially, by introducing water-powered machinery. Between the 1730s and the 1770s, the flying shuttle and the spinning jenny were followed by the water frame and the spinning mule, which was perfected into a fully automated device in the 1820s. But it was earlier with Samuel Crompton’s invention of the mule that the Lancashire muslin industry took off from the 1780s onward.115
Interstate competition and interventionism also affected the British coal industry. Export duties on coal rose in the seventeenth and eighteenth centuries to keep down prices for domestic users. Crack
downs on collusion between mine operators and dealers also lowered prices. As a result, the real price of coal held steady despite growing demand.
The more London and the arms industry came to rely on energy from coal, the more the government took an interest in its procurement. The Royal Navy protected coastal traffic, using the main coal route as a training ground. At a critical juncture of industrial takeoff, the great French Wars favored autarky and accelerated import substitution of British coal for Baltic timber and wood fuel, causing mining output to double.116
The picture was similar for iron: rising tariffs on Russian and Swedish imports shielded the domestic iron industry during the seventeenth and eighteenth centuries until the switch from charcoal to coal fuel greatly reduced costs. Even as the imposition of such dues was motivated in the first instance by strategic considerations and concern about dependence on foreign sources, in practical terms it encouraged innovation that improved productivity.117
Mercantilist protectionism served as the crutch on which the modern machine-based and fossil fuel economy learned to walk. The earliest stages of the Industrial Revolution cannot be properly understood without reference to state intervention and a dirigiste political economy that were rooted in war, taxation, and public debt.118
These conflict-driven features also mediated the way in which other factors contributed to economic growth. Thus, when high real wages and growing work inputs in response to consumption incentives—the so-called Industrious Revolution—among a large segment of society created a growing consumer market, this process provided impetus for industrialization only in the very specific context of import substitution impelled by protectionist import restrictions.119
Escape From Rome Page 40
