Early Modern England 1485-1714: A Narrative History (73 page)

This brings us to the financial genius of the Junto, Charles Montagu (1661–1715, from 1700 Lord Halifax). Named a lord of the Treasury in 1692 and chancellor of the Exchequer in 1694, Montagu realized that in order to win the war, William’s government would need lots of ready cash – quicker and more abundant cash than could be raised by the Land Tax. He saw an alternative source of income in the wealth flowing into the country from the commercial revolution. As will be recalled, the Customs and Excise were already the most profitable taxes in the Crown’s portfolio. The parliaments of the 1690s raised Customs rates as high as 25 percent and extended the Excise to all sorts of new products, including leather, coal, malt (important for brewing), salt, spices, tea, coffee, and wine. But such taxes took as long to collect as the Land Tax; nor did Montagu wish to expand them any further, as that would have the effect of strangling the goose that was laying the golden egg of English commerce. Rather, he wanted to persuade its keepers – large and middling merchants and investors in trading ventures – to loan ready money to the Crown voluntarily. This was a tough proposition because the Crown was a poor risk: recall that, in 1672, Charles II had actually declared a kind of bankruptcy.

Montagu and the Whigs, copying innovative Dutch financial techniques, had another idea. In 1693 Parliament authorized the government to solicit a loan of £1 million on the security of a fund fed by the Land, Excise, and other taxes. This marks the establishment of a
funded
national debt. For the first time, interest on the debt was guaranteed to be paid out of a specific “pot.” This made such loans much more attractive as their repayment seemed much more secure. Montagu went farther by proposing that in future the Crown make no promise to pay back the
principal
of such loans by any particular date; instead, they would remain outstanding for the course of the war, if not longer. But the Crown did promise to pay lenders 14 percent
interest
on their loan, out of the fund described above, for life. What this meant was that, if William won the war and the lender lived, he and his family could make their investment many times over. This was so attractive that, as time went on and trust in the regime’s promises grew, the government found that it could lower the interest paid to as little as 3 percent and still find takers. Later, the Crown also offered lenders self-liquidating annuities for a number of lives or for 99 years, and sold tickets to public lotteries. They also charged corporate bodies like the East India Company and, in the next reign, the South Sea Company vast sums in return for the privilege of being allowed to exist. The greatest example of this fund-raising strategy, and Montagu’s crowning inspiration, was the charter for the Bank of England, established in 1694. In return for an immediate loan of £1.2 million, the Bank was allowed to sell stock in itself, receive deposits, make loans, and even print notes against the security of its loan to the government. In future years, the Bank of England would be the Crown’s greatest jewel: its largest single lender, its principal banker, and the manager of this funded national debt which Montagu initiated.

The fiscal expedients described above were so far reaching that they have been dubbed “the financial revolution” by their historian, P. G. M. Dickson. Their impact was profound. First, in the short term they enabled His Majesty’s government to raise fabulous sums of money very quickly. This, in turn, enabled William to raise and supply his armies in Europe and to maintain his navies across the Atlantic. Admittedly, the one weakness in the Junto system was that there was no great military leader. With Marlborough tainted by Jacobitism, William III acted as his own general and he was generally not thought to have been a very good one. The early years of the war saw a series of catastrophes as the Grand Alliance (consisting of the British, the Dutch republic, the Holy Roman emperor [Austria], Spain, Savoy, Brandenburg-Prussia, Hanover, and Bavaria) lost land battle after land battle, fortress after fortress to the armies of Louis XIV. This led to increasing Tory demands for withdrawal from the continent in favor of their preferred “blue-water” strategy, as well as “country” demands for investigations into government misconduct. Nevertheless, thanks to Britain’s vast financial and material resources, William’s unrelenting determination, and the Junto’s sheer competence, the Grand Alliance held and the French began to be worn down. By 1695 the Allies took the key French fort at Namur (see
map 12
, p. 291). More importantly, Louis (or, more accurately, the French taxpayer) was running out of money. In 1697 both sides sought peace. According to the
Treaty of Ryswick
, the French king agreed to recognize William III as king of England, Scotland, and Ireland and, thus, withdraw his support for King James. He also agreed to restore nearly all the territories he had seized since 1678 and to negotiate a Partition Treaty with William to ensure that when Carlos II of Spain died, no one European power would receive the whole of the Spanish empire. Daniel Defoe (1660?–1731) explained these developments when he wrote that “‘tis not the longest sword, but the longest purse that conquers.”
⁴
Thanks to the financial revolution and Britain’s longer purse, the greatest army in Europe had been stopped; Louis XIV’s dream of a Franco-Spanish empire was put on hold; and the Dutch republic, European Protestantism, and, in Britain, the Revolution Settlement in Church and State were safe. For the moment, at least.

In the long term, the wealth produced by the financial revolution – what historian John Brewer has called the “sinews of power” – would ensure Britain’s growing military domination of Europe in the eighteenth century, and the world in the century after that (see below). A second long-term effect of the financial revolution was that it initiated the funded national debt of Great Britain. The British government was now committed to pay or service that debt for the foreseeable future. Clearly, it would have to collect more taxes and contract more debt, every year, in order to continue to pay the interest on the debt already contracted. In other words, the debt would be self-perpetuating: though it would be greatly paid down during periods of peace, it would never go away completely. In order to secure Parliament’s continued approval for contracting and servicing the debt, William III would have to summon it annually, as well as agree to a Commission to examine his government accounts in 1691; to the Triennial Act in 1694; to the reduction of his Dutch guards in 1698; and to provisions reducing the royal prerogative in the Act of Settlement of 1701. The financial revolution thus played a key role in shaping the English constitution – and increasing the power and initiative of Parliament.

And yet, while the war and the financial revolution reduced the
personal
power of the sovereign, they vastly increased that of the Crown, that is, His Majesty’s government. That government now had at its disposal enormous armies and navies and the expanding bureaucracy necessary to oversee and supply them. For example, William’s army numbered 76,000 men, almost twice that of James II. It has been estimated that the central administration comprised some 4,000 officials in 1688. By the 1720s it would come to over 12,000, with over 3,000 officers serving the Excise alone. Old departments grew while new ones would be established, such as the Office of Trade and Plantations (to administer Britain’s new colonial acquisitions) and new revenue-collecting departments (a Glass Office, Salt Office, Stamp Office, and Leather Office). The Treasury increasingly controlled this vast bureaucracy, and sought to run the government more efficiently and thriftily. In order to weed out old, corrupt practices, it initiated adequate salaries and pension schemes, drew up handbooks of conduct, and calculated statistics to make realistic appraisals of the tasks at hand. As this implies, the late seventeenth and early eighteenth centuries saw a growing sense of professionalism among government workers. Men like William Blathwayt at the War Office (ca. 1650–1717), Samuel Pepys (1633–1703) at the Navy Office, and William Lowndes (1652–1724) at the Treasury were career bureaucrats who remained in office despite shifts of faction and party.
⁵

The socioeconomic significance of the financial revolution was that it created new forms of wealth and made investors, in particular Whig financiers and government contractors who supplied the war, very wealthy, very fast. In fact, it seemed to give birth to a new class of men, labeled “monied men” by contemporaries, who made their wealth not from the land or even from the sale of goods but from the exploitation of credit. That is, they seemed to make money out of money (their loans), or paper (government bonds, lottery tickets, and bills of exchange), or out of thin air (credit itself). These new men now played so important a role in government finance that they often served on government commissions, their advice sought by government officials. They thus acquired influence, not only on fiscal policy but on foreign and domestic policy as well. Below their level, even the moderately prosperous with a little cash with which to play sunk it into government annuities: 10,000 people invested in the national debt by 1709, 30,000 by 1719. Gradually, the financial revolution created a speculative market in annuities and stocks which tempted large segments of the population to quick wealth – or quick loss.

This whole business – the vast government bureaucracy necessary to fight the war, the burgeoning national debt which paid for it, the novel and complex system of finance which serviced the debt, the heavy taxes on land which secured the debt, and the growing wealth of non-landed men, financiers, contractors, government officials, and soldiers who profited from it all – jolted contemporaries, Tory landowners in particular. Years later, during the next war against the French, Jonathan Swift would write:

Let any man observe the equipages in this town; he shall find the greater number of those who make a figure to be a species of men quite different from any that were ever known before the Revolution, consisting either of generals or colonels, or of such whose whole fortunes lie in funds and stocks: so that power, which according to the old maxim was used to follow land, is now gone over to money.

Swift’s point is that the wars, and the financial revolution and government bureaucracy invented to fight them, threatened the traditional hierarchy based on birth and land. Landowners grew poor because they were paying the Land Tax; while military men (who made huge profits from subcontracts for uniforms, weaponry, and food), government officials (whose jobs depended on the war), manufacturers (who supplied the uniforms, weapons, and food), and “monied men” (who invested in government loans, funds, and lotteries) became wealthy. Anyone could rise. Nor did it bode well that the average English man or woman found the new financial instruments complicated if not impenetrable:

through the contrivance and cunning of stock-jobbers [brokers], there has been brought in such a complication of knavery and cozenage, such a mystery of iniquity, and such an unintelligible jargon of terms to involve it in, as were never known in any other age or country of the world.
⁶

Anyone who, in modern times, has struggled to understand the workings of junk bonds, derivatives, subprimes, or the Dow Jones index can probably sympathize. Even worse, in Swift’s eyes, was the deliberate contracting of massive debt, to be paid off who knew when? All of this helps to explain the country’s apparently curious reaction to the Treaty of Ryswick, a Tory resurgence.

The Tory Resurgence, 1697–1701

The Treaty of Ryswick was a remarkable achievement. Yet Louis XIV’s concessions seemed to many Britons to be very small return for all the blood and treasure expended in the enterprise. The British taxpayer felt hard put upon and resented the king’s plans to maintain his standing army as a check on Louis, despite the peace. Country politicians, mainly Tories, were able to exploit these sentiments. Their leader was an ambitious young MP named Robert Harley (1661–1724), whose father had been a Roundhead, a country MP, and an Exclusionist Whig before migrating along with Robert himself and numerous other landowning Whigs to the Tory party in the 1690s. Under the younger Harley’s guidance, the Tories began to evolve into a true country party: suspicious of big government, modern finance, foreign entanglements (particularly with the Dutch), standing armies, and war. They claimed, with some justification, to represent the national mood. This, along with Junto overconfidence and disunity, explains why Tories and anti-administration Whigs gained seats in the parliamentary elections of 1698. Parliament was now so necessary to pay government expenses that the king had no choice but to appoint ministers with whom its majority could work. (Here is another sign that the wartime expansion of royal government was actually another milestone on the road to parliamentary sovereignty.) William, who was losing confidence in his Junto ministers anyway, began to name Tories in their place. Over the next three years Parliament would vote to cut the Land Tax in half; reduce the army to 7,000 men; send home the king’s Dutch guards; rescind his grants of Irish lands to favorites; and impeach the leading former Whig ministers for their conduct of the peace negotiations.

Parliament’s most notable initiative, however, was the
Act of Settlement of 1701
. This legislation became necessary when Princess Anne’s last surviving child – and therefore the last Protestant grandchild of James II – William, duke of Gloucester (1689–1700), died the previous year. Both Tories and Whigs were desperately aware of the fact that, apart from Anne, the only remaining Stuart claimant to the throne was young Prince James, the Catholic son of James II. Even Jacobite Tories, who would otherwise have welcomed the younger James, were afraid of his Catholicism and the hostile popular reaction should he be designated heir apparent. And so, facing political realities, the Tory-leaning Parliament passed a law which stated that, failing the birth of further heirs from the widowed William and the aging Anne, the Crown would pass at the survivor’s death to their nearest Protestant relatives, the descendants of James I’s youngest daughter Elizabeth. These were Sophia, electress of the German State of Hanover (1630–1714), and, if she should predecease Anne, her son, Georg Ludwig (1660–1727). In taking this step, Parliament again abandoned the notion of a sacrosanct hereditary succession, for there were dozens of Catholic relatives with better claims than the Hanoverians. The Tories went along with this, but not without adding some provisos, intended as a rebuke to William, limiting the power of a foreign-born king. The Act specified that the king could not take England to war to defend European holdings or leave the British Isles without parliamentary permission, as William had done. Henceforward, no foreigner – not even a naturalized one – could hold government office or receive Crown lands, as his favorites, Portland and Albemarle, had done. The Act of Settlement also made it illegal for salaried government officials to serve in Parliament after Anne’s death. The idea was to eliminate the power of the Crown and its ministers to influence parliamentary votes by bribing MPs with offices, as once Danby and now the Junto were accused of doing. What is perhaps most remarkable about this piece of legislation is that it came from the party that had once been the home of Danby and his court partisans!