representative than the ancien régime in France. When one adds to this the important point that per capita income was already somewhat higher in Britain than in France even by 1700, it is not altogether surprising that the population of the island state was willing and able to pay proportionately larger taxes. Finally, it is possible to argue – although more difficult to prove statistically – that the comparatively light burden of direct taxation in Britain not only increased the propensity to save among the better-off society (and thus allowed the accumulation of investment capital during years of peace), but also produced a vast reserve of taxable wealth in wartime, when higher land taxes and, in 1799, direct income tax were introduced to meet the national emergency. Thus, by the period of the Napoleonic War, despite a population less than half that of France, Britain was for the first time ever raising more revenue from taxes each year in absolute terms than its larger neighbour.11
Yet however remarkable that achievement, it is eclipsed in importance by the even more significant difference between the British and French systems of public credit. For the fact was that during most of the eighteenth-century conflicts, almost three-quarters of the extra finance raised to support the additional wartime expenditures came from loans. Here, more than anywhere else, the British advantages were decisive. The first was the evolution of an institutional framework which permitted the raising of long-term loans in an efficient fashion and simultaneously arranged for the regular repayment of the interest on (and principal of) the debts accrued. The creation of the Bank of England in 1694 (at first as a wartime expedient) and the slightly later regularization of the national debt on the one hand and the flourishing of the stock exchange and growth of the ‘country banks’ on the other boosted the supply of money available to both governments and businessmen. This growth of paper money in various forms without severe inflation or the loss of credit brought many advantages in an age starved of coin. Yet the ‘financial revolution’ itself would scarcely have succeeded had not the obligations of the state been guaranteed by successive Parliaments with their powers to raise additional taxes; had not the ministries – from Walpole to the younger Pitt – worked hard to convince their bankers in particular and the public in general that they, too, were actuated by the principles of financial rectitude and ‘economical’ government; and had not the steady and in some trades remarkable expansion of commerce and industry provided concomitant increases in revenue from customs and excise. Even the onset of war did not check such increases, provided the Royal Navy protected the nation’s overseas trade while throttling that of its foes. It was upon these solid foundations that Britain’s ‘credit’ rested, despite early uncertainties, considerable political opposition, and a financial near-disaster like the collapse of the famous South Seas Bubble of 1720. ‘Despite all defects in the handling of English public finance,’ its historian had noted, ‘for the rest of the century it remained more honest, as well as more efficient, than that of any other in Europe.12
The result of all this was not only that interest rates steadily dropped,* but also that British government stock was increasingly attractive to foreign, and particularly Dutch, investors. Regular dealings in these securities on the Amsterdam market thus became an important part of the nexus of Anglo-Dutch commercial and financial relationships, with important effects upon the economies of both countries.13 In power-political terms, its value lay in the way in which the resources of the United Provinces repeatedly came to the aid of the British war effort, even when the Dutch alliance in the struggle against France had been replaced by an uneasy neutrality. Only at the time of the American Revolutionary War – significantly, the one conflict in which British military, naval, diplomatic, and trading weaknesses were most evident, and therefore its creditworthiness was the lowest – did the flow of Dutch funds tend to dry up, despite the higher interest rates which London was prepared to offer. By 1780, however, when the Dutch entered the war on France’s side, the British government found that the strength of its own economy and the availability of domestic capital were such that its loans could be almost completely taken up by domestic investors.
The sheer dimensions – and ultimate success – of Britain’s capacity to raise war loans can be summarized as in Table 2. And the strategical consequence of these figures was that the country was thereby enabled ‘to spend on war out of all proportion to its tax revenue, and thus to throw into the struggle with France and its allies the decisive margin of ships and men without which the resources previously committed might have been committed in vain’.14 Although many British commentators throughout the eighteenth century trembled at the sheer size of the national debt and its possible consequences, the fact remained that (in Bishop Berkeley’s words) credit was the ‘principal advantage that England hath over France’. Finally, the great growth in state expenditures and the enormous, sustained demand which Admiralty contracts in particular created for iron, wood, cloth, and other wares produced a ‘feedback loop’ which assisted British industrial production and stimulated the series of technological breakthroughs that gave the country yet another advantage over the French.15
TABLE 2. British Wartime Expenditure and Revenue, 1688–1815
(pounds)
Why the French failed to match these British habits is now easy to see.16 There was, to begin with, no proper system of public finance. From the Middle Ages onward, the French monarchy’s financial operations had been ‘managed’ by a cluster of bodies – municipal governments, the clergy, provincial estates, and, increasingly, tax farmers – which collected the revenues and supervised the monopolies of the crown in return for a portion of the proceeds, and which simultaneously advanced monies to the French government – at handsome rates of interest – on the expected income from these operations. The venality of this system applied not only to the farmers general who gathered in the tobacco and salt dues; it was also true of that hierarchy of parish collectors, district receivers, and regional receivers general responsible for direct taxes like the taille. Each of them took his ‘cut’ before passing the monies on to a higher level; each of them also received 5 per cent interest on the price he paid for office in the first place; and many of the more senior officials were charged with paying out sums directly to government contractors or as wages, without first handing their takings in to the royal treasury. These men, too, loaned funds – at interest – to the crown.
Such a lax and haphazard organization was inherently corrupt, and much of the taxpayers’ monies ended in private hands. On occasions, especially after wars, investigations would be launched against financiers, many of whom were induced to pay ‘compensation’ or accept lower interest rates; but such actions were mere gestures. ‘The real culprit’, one historian has argued, ‘was the system itself.’17 The second consequence of this inefficiency was that at least until Necker’s reforms of the 1770s, there existed no overall sense of national accounting; annual tallies of revenue and expenditure, and the problem of deficits, were rarely thought to be of significance. Provided the monarch could raise funds for the immediate needs of the military and the court, the steady escalation of the national debt was of little import.
While a similar sort of irresponsibility had earlier been shown by the Stuarts, the fact was that by the eighteenth century Britain had evolved a parliamentary-controlled form of public finance which gave it numerous advantages in the duel for primacy. Not the least of these seems to have been that while the rise in government spending and in the national debt did not hurt (and may indeed have boosted)
