Benjamin H. Mitra-Kahn, October 2009 Ch. 4: City University London Ph.D. thesis Available on www.mitrakahn.com The Credit Driven Economy, 1720s - 1742

Credit is the foundation on which the trade of “ England is made so considerable… -Daniel Defoe (1738: 193).

From 1721 to 1770 British empirics and economic theory went through a “period of neglect” (Studenski 1958: 40). Seeing that the period from 1721 to 1742 was one of the most exciting for political theorists, constitutional historians and economic historians, it seems odd that economic theory, so debated in periodicals throughout the 1710s, should suddenly vanish. This chapter argues that it didn’t. What occurred in those twenty years was a, well documented, financial revolution, which led to a complete re-consideration of the economy while the country’s constitution and form of government was re-invented. Britain’s first prime-minister, Robert Walpole, governed Britain through parliament for 22 years, and throughout that time he thought of the economy in terms explicitly stated by Daniel Defoe, and generally shared in Britain, providing regular national accounts, to justify the domestic economic policies. The economy of Walpole’s reign was one defined by the goods and services which circulated in the economy, the quantity of which was driven by the credit worthiness of the nation, as influenced by the government’s national debt position.

This chapter draws on the extensive economic history literature on the public finance of 18th century Britain. It attempts to provide the contemporary theoretical interpretation of what North and Weingast (1989) has called the ‘financial revolution’ in Britain after 1688. This chapter argues, that based on the theoretical contribution of Daniel Defoe, a large amount of primary sources from the House of Commons and HM Treasury, and the results of the public finance literature, there is good reason to see the government’s empirical publications throughout the two decades as national accounts addressing a very specific, and consistent definition of the economy. As such the chapter adds to the history of British empirics (Deane 1951, Desrosières 1998, Stone 1997), national accounting (Studenski 1958, Vanoli 2005) and economy

1 (Hoppit 1996, Schabas 2005), all of which appear to have neglected this very exciting period of British history.

In 1712 Charles Davenant had been asked by a parliamentary commission to present a set of statistics to estimate the trade balance and its impact on the economy. Parliament went from strength to strength in the early 18th century, becoming ever more independent and continued to consider such accounts of the economy in the periodical literature of the 1710s. In the 1720s they did not stop requesting accounts of the economy, they had simply re-defined the economy, to something which we today might not imagine was possible at the time, by an author we would not have considered, especially when we did not appreciate the impact that periodicals had on policy making in the early 18th century.

1 Daniel Defoe and his economics The author of Moll Flanders and Robinson Crusoe has, according to Roger Backhouse (2007: 63), “conventionally been regarded as much less important in the history of economics, than in English intellectual life more generally”, and has attracted only little discussion, as in Earle (1977) and McWeagh (2006). Defoe was actually a prolific author of books on finance and trade (Owens and Furbank 2000), was a major contributor to the economic periodicals1 of the time, and considered “the most important economic journalist of the early eighteenth century” (Stevens 1978: 690). He had worked directly for the Tory Secretary of State, Robert Harley2 in 1707, and the later Whig Chancellor of the Exchequer, Godolphin, and was active in economic literature until his death in 1731. His omission from the history of economic thought, due to the ‘lack’ of economic theory and empirics of the 1720s and 1730s, is worsened by the fact that Defoe’s most re-published book at the time, was on economics and the measurement of the economy. The Complete English Tradesman, first published in 1726, re-printed with A Supplement in 1727, and then re-published fully in 1732 and again in 1738, has only been considered in literary studies (e.g. Bender 1987), not the history of economics. Its account of the economy, both

1 Defoe wrote and published the very popular Review (1704-11), contributed to Mercator (1713-14), editied and wrote for Mercurius Politicus (1716-20), and Manufacturer (1719-21). 2 Robert Harley, The Tory Secretary of State, and founder of the South Sea Company, had saved Defoe from Newgate Prison in 1701 and later sent Defoe to Scotland to influence the Act of Union debates and to act as a spy for the Tory government. Defoe was paid from the secret service allowances.

2 empirical and theoretical, I argue, represented how both Defoe and parliament conceptualised the economy, and would be cited by economists in France and England during the 18th century3.

Defoe opened with the idea “that an estate is a Pond, but trade a Spring” (1738: xxii). Land was fixed, but trade, part of which derived from land could change and grow like a ‘spring’. By trade Defoe referred not to the international markets, but rather to “the circulation of commerce amongst ourselves” (Defoe 1738: 183). The circulation of commerce, trade, was a result of the demand for goods, so “consumption increases the quantity made, and this creates what we call Inland trade, by which innumerable families are employed, and the increase of the people maintained” (Defoe 1738: 182). The ‘inland trade’ was a term for the domestic circulation of goods and services, and it was, as Earle (1977) recognised “a factor in economic development” for Defoe (cited by Stevens 1977: 691) but did not comment on the flow of trade in Defoe’s economy.

The greatness of the British nation is not owing to war and conquests, to inlarging its dominions by the sword, or subjecting the people of other countries to our power; but it is all owing to Trade, to the increase of our commerce at home, and the extending it abroad (Defoe 1738: 179)

The acquisition of new lands did not add to the ‘greatness’ of Britain, because land, in and of itself, only contributed to the economy if it was used to produce something. But its only yield was raw materials, or rent, so land would only be beneficial if there was a demand for its use, otherwise it should be left fallow (Defoe 1738: 301). Such a demand would only be realised if trade occurred. “This I call inland trade, and these circulators of goods, and retailers of them to the last consumer, are those whom we are to understand by the word tradesmen” (Defoe 1738: 183). The inland trade included everyone who were not producers of agricultural goods, and not the first importer or final exporter of goods or services but who handled the goods or services circulating the country.

3 As in Gournay (1753 [2003: 381]).

3 Defoe’s view of the economy was one driven by traders, serving consumers who demanded goods. To provide these goods, the traders would seek out manufacturers, who in turn sought out raw material producers – land owners or tenant farmers. The the ‘wholesale dealer’ bought new goods from the manufacturer, and it entered the flow of trade, where it would eventually be sold to the final consumer. “The more hands it [trade] goes through, the greater public advantage to the country” (Defoe 1738: 298), because increased trade led to employment and higher wages:

What is it but Trade, the increase of business at home, and the employment of the poor in the business and manufactures of the kingdom, by which the poor get so good wages, and live so well. (Defoe 1738: 180)

Inland trade improved wages and increased employment in the business and manufactures at home, but exports were also encouraged. Defoe argued this when discussing the impact of large cities on the economy (Defoe 1738: 280-5). Large cities would export and, according to Defoe, concentrate trade but spread the employment across the country, engaging thousands of people in the business of trade. More trade meant higher wages.

Higher wages and more employment meant that “the working manufacturing people of England eat the fat, drink the sweet, live better and fare better” (Defoe 1738: 181). So with more income and employment came more consumption. Moreover the type of consumption would change with higher incomes, and people would demand better housing and higher quality provision in general. So the increased “consumption of provisions increases the rent and value of the lands; and this raises the gentleman estates, and that again increases the employment” (Defoe 1738: 181).

Trade led to higher wages, higher wages to consumption, and higher consumption to diversified and higher demand, raising returns on land and encouraging more trade. The economy was a circular flow of goods and services, but there was no concept of ‘superlucration’ as in Petty, King and Davenant. There was no national stock: Land was only valuable insofar that it produced commodities or rents which increased inland trade. Defoe’s economy was a flow economy, defined by the amount of trade circulating. The growth of the economy was simply the difference in the trade flow

4 year on year. This is not unlike our concept of the circular flow of income today, but very different from the ideas of the 17th and early 18th century. Defoe had incorporated Davenant and the British Merchant’s notion that both the international and domestic market could add to the economy, but he had no need of a national stock. Trade – the inland trade – was what mattered.

1.1 The source of trade Defoe’s economy was the flow of trade between people, but he emphasised that “credit is the foundation on which the trade of England is made so considerable” (Defoe 1738: 193). The ability of British traders to acquire credit and guarantee loans meant that they could purchase more goods than their immediate assets allowed. Part of the reason why the land – the ‘pond’ – did not matter, was that credit could substitute for assets in the traders world. Traders could start out with no assets and invest in trading stock based purely on credit. Similarly, established traders could acquire a much larger turn-over by extending and receiving credit. This increased the flow of trade in the economy, meaning economic growth. It is worth quoting at some length to appreciate Defoe’s thinking (1738: 192):

I may say, many a tradesman begins the world with borrowed stocks, or with no stock at all, but that of credit, and yet carries on a trade for several hundreds, nay, for several thousands, of pounds a-year.

By this means the trade in general is infinitely increased--nay, the stock of the kingdom in trade is doubled, or trebled, or more, and there is infinitely more business carried on, than the real stock could be able to manage, if no credit were to be given; for credit in this particular is a stock, and that not an imaginary, but a real stock; for the tradesman, that perhaps begins but with five hundred, or one thousand pounds' stock, shall be able to furnish or stock his shop with four times the sum in the value of goods; and as he gives credit again, and trusts other tradesmen under him, so he launches out into a trade of great magnitude;

The ‘stock of the kingdom in trade’ – or the trading stock would grow as the availability of credit instruments grew. Regardless of the ‘real stock’ or asset position of the merchant. Credit could thereby substitute for assets, seizing to be ‘imaginary’

5 and enter the flow of trade. Defoe provided a brief example to illustrate just how significant credit was:

Defoe supposed there was a bundle of goods worth £100,000 throughout the flow of trade, which needed to pass through ten traders’ hands to reach the consumer. This meant one million pounds was “returned in trade for that one hundred thousand pounds worth of goods” (Defoe 1738: 189). The meaning of this statement was, as I read it, that the amount of credit extended if none of the merchants have any liquid funds, would be ten times the value of the goods. This was not an estimate of the circulation of money, nor looking at the profits, but an illustration of the requirement for liquidity and credit in any given trading situation. If any one of the traders were unable to raise £100,000, the value of the bundle would fall as the trader who was not creditworthy, would not be able to afford the full bundle. As such the idea that people demanded goods and therefore consumed those goods was insufficient for Defoe, because if the traders could not avail of credit, they were unable to sustain the same level of inland trade, and the goods would simply not be available:

Nor is it enough to say, that people must and will have goods, and that the consumption is the same; it is evident that consumption is not the same; and in those nations where they give no credit, or not so much as here, the trade is small in proportion, as I shall show in its place. (Defoe 1738: 192)

The public availability of credit was the basic constraint, or accelerant, of economic activity. The economy could function and grow without credit but it would be severely limited. For Defoe, the traders made the economy function, but they could only do that if they had access to credit, so the foundation of the economy was the public credit, and the institutions for facilitating such credit. Such institutions would need to provide forms of paper money, credit guarantees and transferable funds, and they would have to be an increase in the availability of such credit forms for Defoe’s economy to function, or even exist. My suggestion is that since 1717 Britain had been transforming into such an economy.

6 2 Where Public Finance comes in The foundation of Defoe’s very real credit economy began with the founding of the Bank of England in 1695, and its facility for offering loans to the government in return for interest bearing bonds. North and Weingast’s (1989) have argued that the acceptance to obey the law by the monarch in 1688 led to a ‘credible’ commitment to service and maintain any debts acquired from the Bank. With the founding of the South Sea Company and the East India Company, the monarch’s ability to borrow was extended, but the credibility maintained. Weir (1989) and Wells and Wills (2000) both agree that this initial constitutional change had a profound impact the ease with which royal loans and the national debt was raised. The national debts, it must be remembered, were not a parliamentary liability in 18th century Europe. Rather they were “usually guaranteed by pledges of jewelry [sic], specific revenues, or real property; and almost invariably they were regarded as personal obligations of the reigning sovereign” (Hamilton 1947: 118). So the sovereign was personally accountable for the public loans4.

An increase in public loans, and national debt should, according to modern economic historians, crowd out private investment; but North and Weingast (1989: 824-5), in concert with Dickson (1967), Neal (1990: 11), Roseveare (1991 : 47-51) and Caruthers (1996) , argue that the crowding out effect was more than offset by the increased availability of loanable funds as a result of the credible royal guarantee. This meant “public and private finance could expand in tandem” (Quinn 2001: 594), because the paper bonds issues by the Bank of England were accepted at their face value as guarantees for loans, purchases and even stock market transaction. With the quantity of such paper bonds growing from £4m in 1695 to £47m in 1717, their availability on the market would have been growing steadily as well. It was suggested already in 1953 that:

Nothing more strikingly differentiates the 18th century from its predecessors than the widespread adoption by governments of the technique of borrowing on

4 As the 1690 House of Commons statement regarding the national debt illustrated: It was a “Motion being made for raising a Supply to be granted to their Majesties for Satisfaction of the said Debt" (JHoC 1690 25 Nov). Parliament would raise the tax the monarchs were entitled to, and the monarchs would settle the account, either through their parliament or personally.

7 transferable securities. In England this development committed the state to a role of fundamental importance in the nation’s economy. John (1953: 954)

The issue of paper bonds with a credible guarantee to repay became a defining feature of the early 18th century. It was this development which Defoe was observing and incorporating into his theory of the economy. Weir (1989: 95) has shown how England “used its public debt to expand and integrate its banking sector” by allowing paper bonds to be used as security in transactions.

Analysing the records of a London bank, Quinn (2001) has showed how the portfolio of guarantees against loans and credit shifted towards more government (and corporate) bonds. In 1680-90, 0.3% of the loans granted to individuals, by Child’s Bank, were secured by government paper5. From 1690-1697 it had grown to 1.6%, and by 1698-1705 it was a massive 18.7% - the most used form of collateral in the bank (Quinn 2001: 604). Based on the bank records Quinn concludes that:

The mechanics of private debt was transformed by the dual revolutions in England’s systems of constitutional power and public finance. Bankers and their customers began to use the improved financial instruments of the government to facilitate private lending. (Quinn 2001: 613)

As a result of these changes, credit in Britain grew in quantity and became more reliable as the people began to trust the monarch’s pledge to repay the loans. But in the 1720s the burden of the national debt would shift from the King to Parliament.

2.1 The National Debt as a Parliamentary responsibility Parliament had, as North and Weingast point out, been empowered to oversee all government, and thereby royal, spending since the 1688 Bill of Rights (Lock 1989, William and Mary6 1688: §4). They only started to refuse spending requests from the monarch, after George I ascended the Throne in 17157, and it is important to understand how Britain changed again. George I had been chosen by Parliament, and

5 In the form of guarantees on government tax (tallies), Exchequer Bills, East India Company Bonds, Lottery Tickets, and Bank of England Stock. 6 References to legislation are traditionally given with the Monarch(s) as the nominal author, which is the format followed here. So the authors are William III and Mary. 7 As in 1717 when parliament refused to raise money for the King’s war in Hanover.

8 added new lands to Britain8 as the ruler of Hanover. In this dual role, he was in Hanover for a fifth of his time in power (Hatton 1978: 187), and he, like his son George II, left the running of domestic affairs to parliament (Rowse 1944), with Royal Assent practically irrelevant after 17159.

The position as Chancellor of the Exchequer was the most senior domestic policy position and it first went to Robert Walpole in 1715 who had been instrumental in arranging the public credit and loans as ‘Paymaster to the Forces’ during the interregnum. In 1720 Walpole returned to Parliament, after a three year absence, and in 1721 he regained the chancellorship. He did so to restore public confidence in the public debt, through “a program of honouring the debt as a national debt” explained Winks and Kaiser (2004: 61), emphasizing that “this was a novel concept in an age when most states treated their debts as the monarch’s personal obligation”. Walpole sought to take control of the king’s debt, and guarantee them as a parliamentary responsibility. In doing so, he would remove the King’s last legitimate reason for taxes, as the national debt would no longer be the King’s burden. In the 1722 Commons address, the speaker made it clear that the government would

Grant whatever shall be necessary for the Safety of the Kingdom; being entirely convinc'd, that we can by no other Means restore publick Credit, and enable ourselves to attempt the gradual Reduction of the great National Debt. (HoC10 1722, 17 Oct)

Walpole had taken charge of parliamentary spending11 (Black 1985, Hill 1989, Black 2001) and recognised that the national debt and the public credit were related. While he had responded to George’s recommendation that the national debt should be reduced (HoC 1722, 9 Oct), the government was happy to continue servicing the debt, and did not reduce it. As a result Walpole and his government “had a new place in the

8 which may account for some of Defoe’s ideas about the non-productivity of land 9 Not a single bill passed in both the Houses of Parliament was refused Royal Assent after 1714 10 I have abbreviated “House of Commons, History and Proceedings by Chandler” (1742) to “HoC” for ease of reading. This is an extensive ad verbatim account of the House of Commons debates, 1660- 1739, in 10 volumes, published by the House of Commons, digitized by the History of Parliaments Trust, and available on-line. As such there are no page numbers, only dates, with each text available, individually on-line. The Abbreviation is my own. 11 By 1727 parliament was setting the Monarchs income (HoC 3 July 1727) granting an extra £100,000 per annum to the royal household (Black 2001, Simms 2008).

9 social, economic and political life of the country” and became the legislative authority in Britain (Hoppit 1996: 125). By 1725, the Bank of England was granted permission to print its first issue of paper money, backed by deposits, which again gained wide currency as a form of credit. This notion that the public availability of credit was tied in with the national debt – as recent economic historians have shown it was during Walpole’s reign – is what I suggest Walpole had understood, and Defoe explained, and it remained the government position on what the economy was until Walpole resigned as ‘prime minister’ in 1742. I base this argument on how Walpole responded to criticisms of his economic management. In parliament, when Walpole re-assigned money which could have been used to repay the national debt, William Shippen even complained that he “thought [the funds] had been a Sacred Depositum, reserved for the gradual Discharge of the National Debt: I thought it would have been look'd upon as a Sort of Sacrilege, to have diverted the least Part of it, on any Pretence whatsoever, from its original Uses; and it is as surprizing to me, that the honourable Person [Walpole] should be for destroying his own Darling Project, and that he should be for pulling down the boasted Monument of his Glory” (HoC 3 July 1727). In the year that Defoe’s book is re-published, the national debt, and credit, was being referred to as Walpole’s ‘darling project’ and a ‘monument of his glory’ – the national debt was clearly on Walpole’s mind.

3 Walpole’s use of National Debt accounts When William Pulteney rose in parliament on 17 January 1734 he challenged the government by announcing that “the State of the Nation must be called for”, whereby parliament be given an account of the government’s spending and the nations economic health (Cobbett12 1811b:198). Historian Brendan Simms (2008: 236) read this as a request for “a searching formal examination of Britain’s declining domestic, international and fiscal position”; Pulteney had officially demanded a national account. What was Pulteney given in response? An account of the national debt for 1734 (Shaw 189813, §).

12 Cobbett’s Parliamentary History is an ad verbatim account of House of Commons proceedings as and when available in 36 volumes, from 1066 to 1803. The first volume was published in 1806 and the final volume was published in 1820. All references are to year of publication, with dates indicated when possible. Rather than page numbers, Parliamentary History is paginated with column numbers. 13 Shaw edited the calendar of Treasury Books and Papers detailing all requests and papers submitted to the Treasury from 1729-1745 in five volumes. All entries are dated, but rather than paginated each

10

Walpole, and his ministry, used national debt accounts as their official indicators of how the nation, and economy, was doing. This follows from Defoe’s problem, throughout the various editions of his book, with empirically estimating the flow of inland trade.

I have endeavoured to make some calculation of the number of shop-keepers in this kingdom, but I find it not to be done. It is as impossible likewise to make any guess at the bulk of their trade, and how much they return yearly: nor, if we could, would it give any foundation for any just calculation of the value of goods in general: because all our goods circulate so much. (Defoe 1738: 189)

Recall that only in 1712 Davenant, who had the best trained data collectors struggled to gather a national trade balance. An annual account of the inland trade was definitely beyond the capacity of the government at the time. But it was not beyond the government to account for Davenant’s ‘foundation of trade’, the availability and credibility of the public credit – which was set by the government’s treatment of its national debt. In fact, while Walpole had not been criticised in the first six years of his rule, the death of George I in 1727 – with whom Walpole had been friendly – the new king, who disliked Walpole, made it possibility to criticise the prime minister in public. Those criticism had to be aimed Walpole’s domestic efforts, and in particular, as chancellor, his economic ability. It is during this year that Defoe’s account of how the economy is re-published and the first empirical criticisms of Walpole occur. They again targeted only his treatment of the national debt, and by extension, the public credit.

3.1 Challenges to Walpole lead to public national accounts In 1727 a number of estimates of the national debts were published anonymously (Anon. 1727, 1727b). “The national debt”, William Pulteney14 told Walpole in parliament, “had been increased since the setting up of that pompous project” (HoC

entry has a § number which is referenced in the text. The full calendar was digitized by the Institute of Historical Research, and all references are dated to Shaw (1897) in the text. 14 Pulteney also argued that deficit spending, through borrowing, would simply have to be taxed in the future so was not beneficial to the economy. “When they deliberated on the loan of the bank, Mr. Pulteney observed, that the shifting of funds was but perpetuating taxes, and putting off the evil day” (Smollett 1766 [1844]: 378). Remarkably similar to late 20th century theories of deficit funding.

11 1728, 23 Feb). Pulteney’s comments on the national debt elicited “some warm altercation [which] passed between him and Sir Robert Walpole on this subject” (Smollett 1776 [1844]: 378). The challenges to the Walpole’s domestic policy were so important, and centred so much on the national debt, that contemporary 18th century historian Tobias Smollett (1721-71) called the sub-chapter on George II’s first parliamentary gathering in 1727 the “violent disputes concerning the national debt” (Smollett 1766 [1844]: 378).

In this parliamentary session, Walpole’s Ministry was also criticized for an omission of duty on ‘wrought-plate’ from the tax accounts in 1728, and as a result the opposition managed to pass a motion so that “The Commons in a Grand Committee consider of the State of the National Debt” (HoC 1728, 4 Mar). Every aspect of the government’s domestic program was tied up with the national debt – exactly because Defoe and Walpole’s ideas were, I argue, the general consensus on what defined the economy, and how one could best encourage it to grow.

Walpole’s dominance in parliament had kept such accounts from public scrutiny, but now “Mr. W. Pulteney inveighed against such a vague and general way of accounting for the public money, as tending to render parliaments altogether insignificant, to cover embezzlements, and to screen corrupt and rapacious ministers” (Smollett 1766 [1844]: 37815). The ‘public money’ was at stake, the credibility of parliament, and thereby the national debt and credit could be jeopardised, so accounts of the economy would have to be made available to parliament.

As a result of this pressure, and another set of anonymous national debt accounts (Anon. 1729), 17 days after the second session of parliament started in 1729 MP John Scrope was “demanding” statements of the National Debts, as they stood at year end 1727 and 1728 (Shaw 1897, 7 Feb 1729, §65,). Four days later Alexander Chocke, receiver of the excise16, presented the treasury with accounts of the national debts incurred before 1716 (Shaw 1897, Feb 11 1729, §71), while Scrope requested additional accounts for the debts up to 1725 (Shaw 1897, Feb 11 1729, §65).

15 Quoting ad verbatim HoC (29 Feb.1728) 16 According to Noble and Granger’s Biographical History of England (1806: 255)

12 The Right Honourable John Scrope, MP, was not however part of the opposition; in fact he was a secretary to the Treasury17, and therefore Walpole secretary, not to mention his uncle. The Treasury Secretaries were confidants of the Chancellor and very influential, as their signature “at the end of a letter carried the authority of the treasury” (Clark 1936: 35). On Scrope more personally, a footnote in Cobbett’s Parliamentary History noted that he was “perhaps the coolest, the most experienced, faithful, and sagacious friend the ministers had. He was greatly trusted in all matters of revenue, and seldom or never spoke but to facts, and when he was clear on his point” (Cobbett 1811b: 1196). Therefore, when Scrope ‘demanded’ the national account over the years18, I think I can reasonably assert that it was on Walpole’s instigation, meaning Walpole had decided to let the accounts be public, to let parliament know how they were managing the economy.

Some might argue that it was not domestic concerns or a focus on the economy which made the British government publish their national debt accounts, but rather international concerns. Simms (2008) noted that France, for example, became more assertive after 1726 while Black (1985) pointed to Spain’s rising power. After the death of George I, Walpole had taken a “back seat in the day-to-day running of foreign affairs” and was not involved in these matters19. Moreover the typical response to a hostile nation, at the time would be extra secrecy of the accounts, not public discussion. Therefore I argue that the drive to publish the national debt or contemporary national accounts in Britain, were not influenced by foreign affairs, but were pushed by Walpole’s domestic conditions, and it was done to ensure that the Ministry appeared to be tending to the domestic economy as best they could.

After 1729 Walpole’s Ministry oversaw the distribution of the national account for debt to parliament on an almost annual basis, providing up-to-date figures for discussion in the House of Commons. As they were able to provide regular national

17 John Scrope (c.1662-1752) MP for Ripon 1722 - 1727, Bristol 1727 - 1734, Lyme Regis 1734 - 9 April 1752; Secretary to the Treasury 1724-1752. 18 Scrope requested accounts for past years on: 7 Feb 1729, 11 Feb 1729, 18 Feb 1730, 18 Feb 1732, 16 Mar 1733, 19 Feb 1734, 19 Apr 1735, 25 Feb 1736, 16 Mar 1737, 21 Feb 1738, 21 Mar 1739, 24 Jan 1744. See Calendar of Treasury Books and Papers, Volumes 1-5 for individual requests on each date. 19 This had been compounded by Walpole being distanced from the Secretary for the Northern Department, Townshend, after his wife, who was Walpole’s sister, died that same year (Simms 2008: 212).

13 debt accounts, anonymous publications disappeared after 1730, as economic debates revolved around what the government figures revealed. Below is a table of all the national debt estimates published between 1695 and 1775, highlighting whether they were released during Walpole’s time in power not.

Figure 4.1: National Debt published between 1695 and 1775 End of Year During Walpole Total National Debt Source 1695 £ 4,042,376 6s. 71/8d HoC 13 Dec 1695 1716 Yes £ 51,640,934 17s Anonymous B 1727b20 1716 Yes £ 51,068,103 7s 6d Anonymous C 1729 1716 Yes HM Treasury 1729 1717 Yes £ 47,894,950 Anonymous B 1727 1724 Yes £ 52,363,471 Anonymous B 1727 1725 Yes £ 51,346,089 Anonymous B 1727 1727 Yes £ 53,909,112 1s 7d Anonymous C 1729 1727 £ 50,261,206 Smollet 1757 1730 Yes HM Treasury 1730 1732 Yes £ 48,442,655 6s. 1½d HM Treasury 1732 1734 Yes HM Treasury 1734 1736 Yes £ 47,866,598 3s. 3¼d HM Treasury 1738 173721 Yes £ 47,855,948 3s. 3¼d. HM Treasury 1737 1737 Yes £ 47,185,869 10s. 1¼d HM Treasury 1738 1740 Yes HM Treasury 1741 1741 Yes HM Treasury 1741 1742 Yes HM Treasury 1742 1753 £ 74,368,451 15s. 1d Smollet 1757 1760 £ 108,493,154 Noorthouck 1773 Source for empty HM Treasury Accounts from: HM Treasury. Calendar of Treasury Books and Papers Vol. 1-5, covering the years 1729-1745, published 1897-1903. Empties indicate that the calendar notes that an account was submitted for a given year but provides no details on the debt.

Of the 20 national debt estimates, 16 were released by Walpole’s government or during the 15 years he was prime minister, following Defoe’s publication of The Complete Tradesman, and the first challenges to Walpole’s premiership in 1727. It is remarkable that the national debt accounts, during the Walpole years, were so timely, with accounts for 1730, 32, 34, 37, 41 and 42 appearing at the end of the year in question. The debate about the relationship between the national debt and the public credit continued throughout Walpole’s premiership, but Walpole appears adamant that

20 This is an estimate the anonymous author takes from page 5 of A State of the National Debt published in 1727, and which he disagrees with. I have not been able to locate A State of the National Debt, or identified its author however. 21 Account accurate as of 2 February 1937

14 the debt should be maintained, but not removed. MP Sir John Barnard in 1737 complained that the government’s budget surplus and savings could be:

Applied wholly to discharge the national Debt, and to relieve the People from those heavy Taxes they now groan under... such a Thing can be brought about without any Danger to public Credit, or Breach of public Faith; and that this may in all Probability be done (HoC 1737, 21 Mar)

The Ministry does appear to have been swayed, and the level of the national debt was maintained. Tellingly, as Barnard had recognised, the argument for reducing the national debt had to be put in terms of its impact on the ‘public credit’ and the ‘public faith’. An equally telling indicator of Walpole’s focus on the national debt, as the indicator of the economy’s performance, is perhaps that after his resignation, no more debt accounts were presented in parliament. The final request for a ‘national account’ of the debts was lodged by Scrope on 24 January 1742, Walpole would resign on the 12 February, two and a half weeks later. I argue, that he had presided over a government, and a country, which conceptualised the economy in terms of a continuous flow of goods and services, which could be expanded by adjusting the national debt and the paper ‘money’ which the public used for its domestic transactions. Walpole had intentionally not used any of the several hundred other sets of empirical accounts available to them between 1715-1744, of which an approximate 19% were about finance, and 34% on various aspects of the economy (Hoppit 1996b22). He was interested in the national debt, and so I suggest was the general public.

3.2 The Public Imagination In the context of the public, it is important to illustrate that the importance of the national debt and the interest in it, was sparked by Walpole’s ascension to power and Defoe’s work. The bibliographical ‘contours and context’ of a period can give some insight into the public’s interest in a topic such as this. This is by no was sufficient to evaluate how ideas were perceived by the general public, but has been used to provide an insight into the social context (Théré 1998 and Woolf 2000, Hoppit 2006). The

22 Based on a sample of parliamentary sessions, 1715-16, 1724-25, 1735 and 1743-44, a fuller list of empirical evidence presented in parliament during the 18th century is available in Hoppit (1996b: 522), derived from Lambert (1975-76).

15 application here provides an overview of the British Library’s titles, relating to Britain, which include “national debt” in the title. On the vertical axis is the number of books, and the horizontal axis is a timeline from 1700 to 1775. Surprisingly, of all the 461 holdings ‘on’ national debt, not a single one was published before 1718, and the five in 1718 all refer to – or were published by – the South Sea Company in its bid for the public debt:

Figure 4.2: Published books with “National Debt” in the title; 1700-1775

6 Walpole Years 5

4

3

2 # # of Published Books 1

0

1700 1703 1706 1709 1712 1715 1718 1721 1724 1727 1730 1733 1736 1739 1742 1745 1748 1751 1754 1757 1760 1763 1766 1769 1772 1775 Source: British Library

When Walpole becomes Chancellor in 1721, on the promise to restore faith in the public credit and national debt, the debate on the national debt had started, but it is with Defoe’s second edition of The Complete Tradesman and Walpole’s political crisis in 1727 that the topic seems to get going in the public imagination.

This bibliographic record is indicative of how the national debt entered the national mind during the age of Walpole. In his 22 years as prime minister, thirty books23 on the national debt appeared, prior to which none had been written - ever. That is not counting the appearances of the national debt in the periodicals or newspapers which had become a mainstay of life in London by the twenties. It also excludes work on the national debt which does not include the term in the title, so Defoe’s frequent re- publications do not occur. As such, I suggest that the bibliographic record lends

23 The average annual output during Walpole’s premiership (1.41) and from 1775 until today (1.44) is almost equal so the period could be considered as having an average output of work.

16 credibility to the idea, that the national debt had become important for Brits from the 1720s onward.

4 How the circulation generated income Considering Defoe’s notion that the economy was a flow of goods and services, we might today conclude that the economic value in the system was generated by ‘value added’, or the profit margin at each stage of a transaction from production to consumption. A similar, albeit not identical, idea was actually present in Defoe’s model of the economy. I present this to highlight how Defoe’s concept of the economy was at once very similar to our 20th century idea, and also to show its difference.

Defoe (1738: 189) had given up estimating the size of the inland trade24, and instead constructed an example to show how the inland trade generated income. He gave an example and traced the production process of suit. To produce a suit, the first stage was to purchase the raw material which needed to sent to London as “Mr. A the factor sells it to Mr. B. the woollen-draper.” This required carriage of the cloth to London at a cost. Then “Mr. B. the woollen-draper sells it to Mr. C. shop-keeper at Northampton and he cuts it out in his shops and sells it to D… E… Esq.” where C adds the cost of carriage from London to Northampton to his sales price (Defoe 1738: 299).

Each family and trader in the flow of trade gains a small percentage of the value of the final sales good. Defoe continued the hypothetical situation by tracing out each person’s income. First Mr. A. received a 2.5% commission, selling cloth at 15s a yard thus earning 4.5d per yard. The first Carrier, from the factor of production (Mr. A) to the London drapers, (Mr. B), earned 5s per 30 yard cloth (or 2d per yard ‘at market’). The Draper, Mr. B., gave credit to Mr. C., the shop-keeper in Northampton, over 6-9 months and charged him no less than 9d – 1s per yard. The carrier to Northampton from London then charged an additional 3.5d per yard. The shop-keeper cuts the cloth and sells it to Mr. D. on an advance of 1s 8d per yard. It is all these incomes, plus the profits of Mr. D. when he sells it to ‘E. Esq.’ at the end of the flow which makes up

24 He did give an estimate of the total number of traders, two million (Defoe 1738: 383), and provided average wage data for 1738 to illustrate that wages reflected the demand for the industry of the labourer (Defoe 1738: 181)

17 the benefit to the nation of the trade (Defoe 1738: 299). Such flow of inland trade generated between 3d 3s and 3d 6s personal income from trade25. To this one would have to add the profits of Mr. D. who sold the good to Mr. E. esq, which would include the some of the manufacturer’s profits.

In some sense, there is an idea of ‘Value Added’ in Defoe’s scheme, but throughout there is an emphasis on the credit which allows the inland trade to flow. The draper extends credit to the shop-keeper, who in turn takes an advance from Mr. D which necessitated savings or an additional loan from Mr. D. Even when the sale is realised there is no immediate clearing of the system, with Mr. B waiting up to nine months to collect on the credit line, so he would require financing as well. The focus is squarely on the income generation that the inland trade flow generated, but it was founded the availability of public credit and therefore a well maintained national debt.

5. The end of the flow economy Based on the work of Defoe, the financial and political changes of 1720s Britain, the parliamentary focus on the national debt as the only measure of whether Walpole was managing the economy properly and the extensive empirical estimates of the national debt over any other economic indicator, I argue that from 1720 to 1742 Britain was characterised by a credit driven flow-economy.

This economy relied on an extensive, and growing paper credit system, which Angela Redish, believe could not be possible as “it was not feasible to establish a stable token coinage prior to the nineteenth century” (Redish 1990: 789). While Redish is probably right to implicitly suggest that the currency system of 1720s Britain was not ‘stable’, I believe the work of North and Weingast (1989) and others has established that public- issue paper credit was stable, exactly due to the government’s commitment – be it royal or parliamentarian. That said, Arthur Young, another economist writing later in the 18th century, a few years after the Seven Year War (1754-1763), actually claimed that the English – not Scottish – transacted all domestic trades in paper notes (Young 1769: 421). A controversial claim in Redish’s view, but Young went on: He asked the obvious question, how could it be that a country like France, with twice the treasure

25 From 4.5d+2d+3.5d+9d+20d = 39d = 3s 3d; and 4.5d+2d+3.5d+12d+20d = 42d = 3s 6d

18 of Britain, could keep losing wars and have a relatively lower quality of life for the average citizen? The answer was that while:

One country [France] seems to be in want of common wealth, and the other [Britain] disgourges its guineas All over Europe – All, all is publick credit, and paper – the most amazing structure, the wit of man ever erected! (Young 1769: 417

The paper currency alone, of the latter [England], amounts to three hundred and fifty millions sterling, including the national debts: the whole may be even called really current, because it is as easily transferred from one person to another as gold itself (Young 1769: 419)

‘The most amazing structure, the wit of man ever erected’ was the paper money and credit notes which flowed from the national debt and public credit. For Young it had revolutionised Britain, and allowed it to beat a bigger and stronger neighbour, because the British had such a large quantity of paper money circulating in the economy. Young was careful to distinguish between the term ‘cash’ which was metal, and ‘notes’ which were “the signs of money” (Young 1769: 422), and it was the latter which had helped Britain so. This circulation corresponded to goods and services so the wealth of Britain was much higher than France, thanks to this paper money. Despite these allusions to what had been Defoe and Walpole’s concept of the economy, Young does not mention either of them.

Young’s failure to reference Defoe, Walpole or any of the debates from the 1720s and 1730s, probably has a lot to do with the changes in the British world of economics in the third quarter of the 18th century. Walpole had been a single strong prime minister, running the nascent democracy in a time of peace. After his resignation there was an almost complete fragmentation of British politics along political, religious and social lines. The renewed threat of a Stuart heir to the throne and religious revolutions coincided with two long wars and no single vision of what the economy was, or how best to do domestic policy. In that chaos, the reason for why Britain had such an extensive paper credit system was forgotten.

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