Why were fiscal and monetary problems so important in the 1810s and 1820s

It has become fashionable recently to deny the importance of the cabinet reshuffle in 1821-1823 on Tory polity thereafter. Differences with the previous era are explained by suggesting that a fortuitous economic upturn allowed the government to undertake various reforms that they would have done long before, but were incapable of doing so. A lot of evidence is marshaled in support of this, most obviously the fact that the main decisions before the reshuffle were undertaken by an aristocratic coterie of advisors at Fife House or Walmer Castle during recess (idiosyncratically, even the leader of the opposition, Lord Grenville, was consulted for fiscal matters) consisting mainly of liberal Tories. Notwithstanding this fact, in this essay, I shall argue for a palpable difference between high and liberal Toryism. This essay will focus mainly on the liberal Tory mindset and it is perhaps regarding fiscal and monetary policies that this mindset is easiest to reconstruct. Liberal Toryism was always at a much greater ease with issues of economic policy than they were with other matters. Catholic emancipation proved a tricky issue for a party who claimed to be the descendants of Pitt, as Stack has shown. It had proved extremely divisive when the old Orangeist toast to the Protestant Ascendancy was introduced to the Pitt club in 1814. Surprisingly, for such a divisive issue, the Tories seemed merely to accept to agree to disagree, despite some uproar and threats of resignation after Burdett’s Relief Bill in 1825. Equally, constitutional and Irish matters were usually the concern of the Whigs, rather than the liberal Tories. If anything this emphasis on fiscal matters was a necessity. Wasson refers to Liverpool’s government adapting “to the pressures of the post-war world”[1] and though it probably unfairly tarnishes liberal Toryism with the brush of “Realpolitik,” I think it makes the point. The fiscal-military state had expanded to an unprecedented size and various converging and competing interests were lobbying government incessantly for a return to normalcy (the most obvious example being the dispute between the Canadian and Baltic timber trades) now the war was over – whatever normalcy was supposed to be. In fact, victory in the Napoleonic wars had come at a price and that was an inferiority complex over the state of British society. The fact that the “take off” of industrialization seemed to have occurred during an artificial state of war created a mood of ambivalence about the unprecedented economic growth. Ministers responded by seemingly strip things back to its natural state and allowing society to run itself, hence laissez-faire. The historiography hitherto has tended to portray this in a secular light, however I will argue here that rather, laissez-faire was based on a Christianized conception of economics. In the post-Malthusian era of gloom and misanthropy, where the world’s resources seemed finite, it could no longer be assumed that the market would naturally augment material happiness. Rather, for the liberal Tories, who embraced this post-millenarian evangelical mindset, their aim was justice. This rather than happiness was their telos. As post-millenarianists believed, unlike their extremist brethren, that Providence operated through fixed and immutable laws, their aim was to create a state, by stripping back all artificial barriers, as close to the natural world as possible, allowing society to become self-regulating. This probably sums up the attitudes of the liberal Tories best regarding fiscal and monetary policies. If all Tories, as Professor Brock has suggested shared “a sense of the harmony of society,”[2] this was quite for the Ultras and the liberals. The liberals relied on a mechanical discourse, which viewed society as operating best when left alone, whereas the Ultras favoured an organicist rhetoric, which probably had its origin in the Country Party domination during Queen’s Anne’s reign. Though these two competing discourses could often overlap, it will be the aim of this essay to show their polarized conceptions of governance. This can be seen most starkly in monetary and fiscal matters.

Perhaps one of the best examples of liberal Tory suppositions is the debate over the return to the Gold Standard. Here, the hangover from the war played its part once again and after 1815 it was considered by many the greatest issue facing the country. Bullionists’, most of whom were liberal Tories, views were based on the quantity theory of money and the specie flow mechanism. Essentially they argued that the level of money in circulation should hinge almost entirely on its relations to other countries in terms of trade. This could be deduced in terms of imports and exports. Essentially, what the bullionists argued was a sort of laissez-faire approach to the economy, where any drains of specie should not be fixed by counter-cyclical monetary measures or by bankers interfering in the issue of currency (“real bills” doctrine), but left to work themselves out. All of the measures proposed by the anti-bullionists were futile as the amount of currency in circulation depended almost entirely on the amount of gold in the vault. What they were essentially arguing was a sort of laissez-faire approach to monetary management. This was the view expressed in the “Bullion” report of 1810 by Huskisson, Horner and Thornton, which was debated in Parliament. A number of interesting points were offered by the Ultras in rebuttal. Among them was the accurate, pragmatic point, that the existing system allowed the government to an easier act of specie, which was crucial during wartime to support the British army in the Peninsula. Relativists, led by the romantic Tory Coleridge, and the high Tory Castlereagh, in parliament, argued that value exists in the relation between objects as exchangeable commodities. This view was all very well but is symptomatic of the issues the high Tories had. The current generation had to live through the uncertainties of war, the attack on the established verities by the French Revolution, and were everywhere faced with the subjectivity of Romantic thought. They did not want hyper-relativism, but the liberal Tory model of a universal criterion of value, which is what bullionism offered by making sure the amount of currency in circulation could be transferred into gold bars. This simple model of monetary policy, which aimed at removing artificial currency circulation and stripping things back to its natural order is perhaps best summed up by Huskisson, who, frustrated at Vansittart’s hand-to-mouth economic policies and constant interference in the monetary system stated unequivocally: “in finance, expedients and ingenious devices may answer to meet temporary difficulties; but for a permanent and peaceful system, the only wise course…is a system of truth and simplicity.” Eventually, this system of truth and simplicity was put into place. Cash payments were to be resumed by May 1823 at the latest. What better could sup up liberal Tory aims of stripping things back to their natural state so that society could become self-regulating? It is surprising how long this model of monetary policy held over the tory imagination. Peel’s Bank Charter Act of 1844, for example, should be seen the concomitant of 1821, which aimed, albeit unsuccessfully, at curtailing the powers of the Bank of England further to issue money.

When many of the members of Parliament however voted for a return to the Gold Standard, many did not vote out of economic considerations. In fact, political economy was rejected altogether in many aristocratic circles, most famously the Grand Whiggery, as Peter Mandler has shown. Rather, they were voting for a system they felt was more natural and honest and above all to end all the recent speculation. Speculation was a pejorative terms, perhaps similar in terms of its connotations to “kulak” in Stalinist Russia, which first entered the political lexicography around the time of the commercial downturn in the 1810s. Malthus’ “Principles of Political Economy” went as far as to suggest that avarice was the principle middle-class vice, as licentiousness was for the working-class, and responsible for various under-consumptionist crises. These men, the opposite of rentiers, who had invested money, or so it was believed, responsibly in government stocks, were able to take advantage of the current issue of paper money to rise above their current station in life unnaturally and hastily. It also caused further sentiments of antipathy as it seemed to connote religious infidelity and political heterodoxy as well. Burke, for example, had articulated intellectual and financial speculation in a similar light; holding them both responsible for the collapse of ancien régime France. Financial speculation was a common trope in contemporary writing and no doubt portrayed in a bad light. Jane Austen’s Mansfield Park is just one example. In fact such was the hold of speculation of the imagination of the British people, that many members of the landed aristocracy, ironically, supported the resumption of cash payments even though the restriction had inflated their main asset and resumption, essentially a deflationist policy, would be unfavourable to them as producers for the domestic market. Now of course, the dividing line, as anyone who is involved in the stock-market would know, between a bold investment and mere speculation is arbitrary but to contemporaries the line could be drawn. This is why many people supported a return to the Gold Standard as it was seen as killing off artificial wealth. This is why many landed members, probably with their head in a physiocrat’s book, supported resumption, viewing landed wealth as the source of all real wealth and believing that once resumption of cash payments had been undertaken, industrial and commercial wealth would wither away and die. This attention given to speculation has important implications for my overall argument. This evangelically-inspired mindset, which was prevalent in the early nineteenth century, cited justice, rather than happiness and order in the world as the main example of the deity’s superintendence of terrestrial life. So, it was believed that if cash payments were resumed at their 1797 value, it would be easier to separate artificial, speculative and dishonest wealth from that which was real. Hence, it was believed that things should be stripped back to their natural order with minimal government interference. No doubt this was in many ways a cover for some social conservative attitudes towards a rising new money; this is probably one of the reasons why the serial fraudsters John Sadleir and George Hudson were still accepted in aristocratic cliques. Nevertheless, even if the evangelical pull on their minds was unconscious, it is no doubt that this prevalent mode of thinking was widespread.

Perhaps the best example of the liberal Tory mindset is their attitude to the 1825 financial crash. All this began really after the government and the Bank of England undertook some serious “speculation.” In order to encourage investment in agriculture, the government decided in May 1823 to extend the life of small notes for another ten years. Concurrently, the Bank of England was making plans to get rid of its excess liquidity by increasing loans and discounts. All of this led to an excess of cash, much of which was pumped abroad into the South American silver mines. As reports reached back home by early 1825 of their failure, which coincided with the failure of many new country banks, a run on the bank and a subsequent drain of specie ensued. When the London Bank of Pole, Thornton & Co fell on 12th December, it brought forty-three other country banks down with it and the Bank of England nearly stopped payment. Now, ministerial reaction is fairly revealing. Huskisson’s plan of introducting bimetallism was briefly mooted but soon dropped. Ministers were able to agree on the immediate abolition of new and the phased withdrawal of £1 and £2 notes by April 1839. The Bank of England’s chartered privileges were invaded as joint-stock companies were allowed within a sixty-five mile radius. However, there was one proposal which proved divisive and nearly split the cabinet in 1826. This was the proposal to help out failing businessmen, as the government had done so in 1793 and 1811, by issuing exchequer bills to be cashed in at the Bank of England. What is so revealing about this is the way in which ministers divided. Nearly all the Ultras – Bexley, Castlereagh, Sidmouth, Eldon, Herries and Bathurst supported the motion, whereas nearly all the liberals of whatever party affiliation rejected it – Huskisson, Canning, Peel, Althorp, Lansdowne and Grenville, in many ways foreshadowing the rise of the Liberal party. Nowhere else surely are the ideological divisions between tory and liberal so clear. (Robinson, Peel and Huskisson in particular were more concerned with the unfunded debt and therefore proposed that the Bank of England should instead purchase £500,000 worth instead). Why such a divide? “The explanation is that this technical point touched the raw nerve of ideological conflict.”[3] For the liberal Tories, financial crises such as these were part of God’s method of justice in searching out those who had taken part in unwise speculation. Of course, with limited liability not on the statute books until 1856, this was not always easy to defend and the slightly backhanded justification of atonement was often cited. Nonetheless, the point still held way and it seemed futile, dangerous and immoral for government to intervene by bailing distressed businessmen out, especially when financial issues, like society, were explained in mechanical terms and would work themselves out if left alone. Of course such was the sheer size of the crash that many people cited this as an example of special Providence and favoured government interference on this ground. Chalmers, by a mere glance at its preamble, it is clear was moved to change part of his “Christian and Civic Economy” by the crash. However, this liberal Tory model still held sway.

Recent historians have tended to be a lot kinder towards Tory protectionism. Gambles in many ways started this trend, though even before her, very few would refer to it as a piece of “naked class legislation” as before. In fact, according to Hilton, in introducing protection in 1814 Tory ministers were not acting out of their own self-interest, but rather, were influenced by the need to safeguard food supplies. Scarcities in 1795-6, 1810 and 1812 and continental blockade during the Napoleonic wars had drilled this message home and led to the decision that corn should not be imported or released from bonded warehouses until its price at home reached 80s per quarter. In fact the laws were not as protective as posterity has tended to cast them. 80s per quarter was far less than the 120s which most agriculturalists clamoured for and colonial wheat was allowed to enter the British market at 67s. However, as the Irish crop failure in 1816-17 and various scarcities at home had shown, self-sufficiency was not a realistic aim. Crucially for the anti-Corn Law lobbyists and rather fortuitously, a return to the gold standard in 1821 exacerbated the situation as merchants tended to pay for wheat in coinage, which in times of scarcity would lead to a serious drain in bullion. By the early 1820s it was clear to most liberal Tories that protectionism would have to be jettisoned eventually. It was really a question of when rather than if. These aims were spelled out in Huskisson’s Select Committee Report in 1821. The fact that total repeal was not undertaken until 1846 was mainly because of agriculturalist pressure though this lessened somewhat after 1822 thanks to the squires’ revolt. It was this in fact, which allowed Huskisson’s replacement of the current prohibitionary system with a sliding scale, which eventually fixed a duty of 20s 8d per quarter when the price of bread at home was 66s with an increase of 1s with every 1s fall in the price. Paradoxically, at least for this essay, the 1828 revision was almost pure Ricardian. In advocating reform, Huskisson appealed to the subsistence theory of wages and the inverse wage-profit ratio. Also, the eventual legislation was based on the prescription of countervailing protection, which suggested that protection should only go so far as to reimburse landowners for the special burdens they suffered from, such as poor rates and the land tax, lest they leave agriculture altogether. Now, this may seem strange from the point of view of this essay. It is the traditional Ricardian model of free, or in this case, freer trade, which is supposed to have dominated political thought during this period and this would seem to suggest so. However, it should be pointed out that Huskisson was a very different animal. He was the first of his kind as he began his political career as a junior minister and ended up in cabinet. In this respect, it should not surprise us that he was an anomaly. In fact, as someone who was regularly plagued by feelings of inferiority, he often over-exaggerated the doctrinaire aspects of his policy, which may explain his overtures to Ricardianism. Rather, most ministers in introducing the sliding scale in 1828 and in fact in finally abolishing in eighteen years later were motivated by a more evangelical conception of society – that is to say of stripping back artificial barriers and exposing the natural order of the world. In this way, not only would this lead to moral improvement, as society was self-regulating, but it would absolve government from all blame. This was perhaps even a necessity after the rise of cabinet government made it difficult to shift blame. This view of laissez-faire, which viewed free trade as a tool for economic expansion, material progress and international peace was later to supersede the evangelical one and this perhaps has coloured historians’ perception of this period (though perhaps they were also influenced by the long shadow which Thatcherism has cast) During this period at least, it was the latter model which held sway.

The main argument of this essay has been that a dominant creed held sway in the early nineteenth century. This creed can be most easily found in liberal Tory fiscal and monetary policies, which is why they were so important. However, this creed has at times only been dealt with implicitly. Essentially the overall argument of this essay is best summed up that “the point of freer markets and sound money was to restore the economy to a natural state.”[4] And “this probably owed more to the vague but diffusive sway of evangelicalism than to Benthamism,”[5] contrary to what is often written. In fact, it is often assumed that Say’s Law and the suppositions of Ricardian free trade doctrine were not defeated until the arrival of Keynes in the 1930s. However, if the fundamentals of Ricardianism are his theories of value, rent, wage and trade, very few adhered to him by the 1830s. The problem arises is that during the 1830s very few, especially in parliament, were what could be described as post-millenarian evangelicals; a point which is probably not dealt with in enough detail by Hilton. In fact the only four according to Hilton can be classified as such during this period are Gouldbourn, Harrowby, Grant and Vansittart. The latter of course does not fit this argument as he was a high Tory; Grant meanwhile swapped sides and joined the Whigs in 1830, while the former two can hardly be described as the eminent statesmen of the time and most influential on liberal Tory policy. However, in response, I would point to the sway which evangelicalism had over the minds of many who were indifferent and many who out right rejected it. Pitt was the first to benefit from this, according to Torrance, and it is not surprising therefore that after his death he was portrayed as deeply pious, despite an obvious ambivalence to religion throughout his life. He in fact rejected the sacrament on his deathbed as the Bishop of Lincoln reported. In their monetary policy and economic reform, liberal Tories therefore sought simply to make things as close to the natural order of the world as possible. Phrases such as “the Gospel of Free Trade” and “the sacred rights of political economy” point to how this message was articulated in evangelical, rather than secular and expansionist terms. In referring to penal reform, the deeply evangelical Hannah Moore claimed “we govern our country by laws emulative of those by which he (Providence) governs his creatures” and this could be applied to nearly any aspect of liberal Tory policy at the time from Huskisson’s reduction of over one thousand import duties to eight categories to Peel’s reform of the death penalty, which contrary to what Gatrell suggests, was not an attempt to out-maneuver the Whig Mackintosh. Perhaps the best summary of this “nightwatchman” state was made by the Whig Macauley, although in typical Whig fashion there is an overemphasis here on public opinion, nevertheless: “It is not by the intermeddling of…the omniscient and omnipotent State – but by the prudence and energy of the people – that England has hitherto been carried forward in civilization.” It is perhaps worth here commenting briefly on the Whigs. Though they clearly held a similar conception of society to the liberal Tories, their views were always coloured regarding economics with a curious whiggish notion of material progress, which was of course not fashionable at the time when moral progress was held in higher esteem and when time was seen as essentially cyclical and static. Nevertheless, there are some clear affinities here and in many ways we can see the germ of the mid-Victorian Liberal party, which came to dominate British politics. The liberal tory mechanical view of society and minimalist government was perhaps closer to the Whigs than the high Tories and their fiscal and monetary policies play out this difference. Though it is not clear how far the organicist discourse of the Ultras was influenced by Burkean principles[6], contrary to the work of Hilton, there was a difference nonetheless. These differences and the liberal tory mindset can best be seen by an analysis of the monetary and fiscal policies of the early nineteenth century.
[1] E.A. Wasson, The Coalition of 1827 and the Crisis of Whig Leadership, HJ (1979), p587
[2] W.R. Brock, Lord Liverpool and Liberal Toryism, p35
[3] B. Hilton, A Mad, Bad & Dangerous People? (2004), p385
[4]Ibid, p310
[5] B. Hilton, Age of Atonement: The Influence of Evangelicalism on Social & Economic Thought (1988), p33
[6] If only because Sack has proven the ambivalence towards Burke’s principles among the Tories after his death.