On Debt: Hearts of Oak, I

Reader Alex writes: "So, is there any big economic news shortly after Anson's return and paying-off? You probably want a top-down identification of a signature to go with your bottom-up analysis."

Excellent question! But so as not to inflict you with an eye-glazing wall of words (that's for below the cut!) and images over the sidebar, let's go root through Youtube for a version of "Hearts of Oak" that's not completely awful!

That was educational. I really didn't want to go to all Last Night of the Prom here, but that's what I ended up with. There are no versions of "Hearts of Oak" that aren't, well... . You'd think that if "Leaving of Liverpool" could get all those reinterpretations, someone would have produced a version of "Hearts of Oak." But, well, no. "Leaving of Liverpool" turns out to not be a good indicator. Maybe it's the connection with California, even if it's repurposed from a years-long haul around the Horn for wheat at Astoria and gold at San Francisco into narcissistic voyages into the  heart of celebrity? Oh, sorry. I think I'm supposed to take the authenticity of the Pogues at face value. Well, fuck it. (As the Pogues would say.) My niece used to love the Shamrocks, and that's where I prefer to go.

Though I'll at least acknowledge that Ted Leo and the Pharmacists and Knights One are trying to do something different with the, uhm, intellectual property. I will def bear you guys in mind the next time I'm 17 and dropping Molly.  

So that's "Hearts of Oak," for the relevance of which I do not have to make strained arguments, although I will. After all, Alex's question starts with a navy thing, then takes us to that weirdest branch of early modern history, financial history. In 1967, Peter George Muir Dickson wrote The Financial Revolution in England: A Study of the Development of Public Credit in England, 1688--1756 [1968].  So that's the book that I was hunting up and placing in context at the University of British Columbia Library. by placing in context, I meant that I want to pair it with two "natural" companions, Robert Albion's Forests and Sea Power, 

and D. W. Jones' War and Economy in the Age of William III and Marlborough. Dickson is the book the reader will probably recognise. Jones is obscure, but a natural companion. Forests and Sea Power, on its face, not so much.

So that's the strained argument. We can't leave oak at the docks as we climb up to the Treasury and matters financial. It will stick with us, but, for the moment at least, on to Dickson. We know him as the great source, much to be gestured at, and, perhaps, cautiously lifted and cracked open, even read, for a page or three before left to sit. In that he's like Albion, on about forestry, and Jones, worried about the price of silver in Amsterdam. Which is to say, we have a vague idea that these things are important, are overwhelmed by their reality, and in the end would much rather wave at them than read them. Also, they're all three of them about the last decade of the Seventeenth and the Eighteenth Century, and they are implicitly about the Greater London Area. So they do have a lot in common right there.

A tangent here that's not really a tangent. It's hard to buy a non-burger-related lunch on UBC's Point Grey campus on a Sunday afternoon right now. I ended up walking a bit further than I expected, right through the corner of West Mall and Chancellor Boulevard, which I remember as being dominated by the student union building, War Memorial Gym, and the swimming pool, with lots of room left over for a bus loop, a grassy knoll, and the gigantic grassy sward of Back Campus. Now it's the site of four new buildings going up more-or-less-simultaneously.

It's got uglier since.

Of course I am going to complain about it. That's what old people do.  I don't think my case is without merit, though. When I enrolled at UBC, way back in 1982, total enrollment was 34,000. Enrollment peaked at 68,000, including an Interior campus at Kelowna, and has since fallen to 49,000, which, subtract the Kelowna campus, is 41,000, a 20% increase since 1982. Meanwhile, if I type "albion forests seapower" into the keyword search block, I will come up with a "no hits" return, because the title gives it as "sea power." Then, once I fix that, I have to pull the book out of the compact storage, because when they rebuilt Main Library on its old footprint, they had no room for book stacks, the space being instead given over to acres of, well, I guess they must be class rooms, even if I am not seeing the need.

The not-tangent part of this isn't so much that the libraries have not exactly kept pace with the growth of the physical infrastructure, but rather the reverse, that something deeper is going on. In physical terms, since Dickson and Albion, though not Jones, turned out to be compact storage in another building, I did a quick shelf scan of the spot where Dickson should be. And there, in the midst of a column of book shelves groaning with titles like Debt Crisis in the Third World, I find one wafer-thin book, Henry Roseveare, The Financial Revolution, 1660—1760 (London: Longman, 1991), a "Dickson for dummies," which can be even further shortened to something like this: the government of the United Kingdom borrowed every penny offered it in the course of its endless Eighteenth and Nineteenth Century wars, eventually ending up with a public debt vastly larger than its GDP. In spite of this, the British economy proceeded to grow very quickly, for very many years. Roseveare states the key facts much more succinctly and forcefully than Dickson does, and thanks for that, but there's a sense in which just the placement of his book tells us more than we need to know.

 The very big, very serious books that frame Roseveare on the open shelves probably do not disagree with him very much. There is nothing like a scholarly consensus that public debt is a bad thing that should be always and everywhere avoided. The thing is that people don't read books like Dickson. They wave at them. That shelf, full of big, serious books with serious, black bindings and DEBT on the spine, is as scary as a graveyard. 

We live in a world of contracting public debt --at least in Canada. We also live in a world in which there is a campus full of shiny new buildings in progress, and where library function is in full retreat. It is getting harder and harder to put your hands to actual books to read, which would be a great deal less frightening if it were getting easier to put your hands on electronic books instead. But it's not. It is almost as though falling public debt is a bad thing, in the same way that rising public debt turned out to be a good thing. That can't be a bald statement, though. We need to find out what kind of debt, and when.

Before I hit the jump, a last apology for getting a bit eccentric here, but the title of the blog announces it. A post on Bench Grass --even one about public debt in the Eighteenth Century-- wants to start with the upland pasture country south of London. 

The Weald of Sussex, ladies and gentlemen.  

Source: National Trust Prints available

The print, above, is of the HMS Association second-rate battleship of the line (90 guns), wearing the flag of Admiral Sir Cloudesley Shovell, HMS Eagle (70), HMS Romney (50), and the Firebrand fireship going aground on the rocks of Scilly, carrying down with them between 1400 and 2000 sailors, including Shovell, his two stepsons, and his flag captain, together pretty much wiping out the male descent of Shovell's patron, Admiral Sir John Narborough. Watching, helpless, from the deck of Torbay was the-then Rear Admiral of the Blue, Sir John Norris, who would be commander-in-chief in the Channel during the invasion crisis of 1744, flying his flag from the large and ungainly 100 gun first rate Victory (1737) battleship. Before the end of the year, Victory would suffer the same fate as Association, going down with all hands somewhere in the western Channel on a voyage back from Hispanic waters while carrying the flag of Admiral Sir John Balchen. Long thought wrecked on the Black Rock of the Casquets, Victory was found in 100 meters of water well out in the Western Approaches, suggesting loss due to some kind of structural or stability casualty. A structural failure would link it nicely to a third maritime disaster, the foundering of the Royal George in 1782 with the loss of 800 souls, apparently as a result of the "general decay of its timbers. We can't blame bad lumber for the Scilly disaster, but it is not a stretch to blame it for the loss of Victory as well as Royal George.

And that brings me to Albion's thesis that there really was so an ongoing crisis in timber supply for the Royal Navy in the Eighteenth Century, as doomsaying contemporaries kept saying there was about to be. I think that Albion is wrong, but that he is wrong productively so.

The problem with Albion's thesis is that timber shortages did not stop the British from building ever more warships through the Eighteenth Century. The critical episodes may therefore be seen as procurement crises, not supply shortfalls, and our explanations sought in the intersection of finance and administration. After all, once timber shortages did start to become critical in 1804, the Admiralty simply diversified its sources of supply until it overcame the shortage. Albion's claim is that the timber shortages of earlier periods must have been real, and not an issue of procurement, in spite of the failure to diversify, because the Admiralty "conservatively" believed that it could not diversify. Rather, it reserved construction timber, as opposed to mast, to a single species of timber, oak, and its purchases of that lumber to the "five forest counties" of Kent, Sussex, Surrey, Hampshire and Wiltshire. Even the Forests of Dean and Sherwood are excluded. This is certainly not sound shipbuilding science, Albion points out. Other timbers are good for shipbuilding, and good oak is very widely distributed around the world. Nor does it make particularly good economic sense when the price of timber can be seen to rise in response to demand, as it will.

As a Whig historian of a certain, old-fashioned kind, Albion is quick to blame "conservatism" for just about everything. Are English sawyers slow to adopt windmill-driven sawmills compared to the Baltic countries? Conservatism. Do British warships fail to develop in size as rapidly as he thinks might have been possible? Conservatism. Do British estate managers insist on putting oak plantations into clay soil land, where wheat might flourish? Conservatism. It's pretty clear now, especially in the wake of the recovery of Mary Rose, that much that has been said about the "conservatism" of British naval architecture is mistaken. From Mary Rose to Victory (1737) to Victory (1765) there is actually a considerable development to be detected. It is just that you have to have a considerable appetite for the fine details of carpentry to pick up the key details. Ironically for Albion's thesis, many of the most "dramatic" (they're anything but dramatic, being the details of the joins of beams and framing timbers) changes are done to conserve timber. (Jonathan Adams, A Maritime Archaeology of Ships:Innovations and Social Change in the Medieval and Early Modern Periods, 176--8. )

So, totally arguing by analogy, but also with the authority of N. A. M. Rodger, we can see a case for understanding the Admiralty's preference for Wealden wood not in terms of a conservative attachment to the oak of old England but, that most daring of all possible criticisms of Whig interpretations: ideology. To put it very, very bluntly, we say that only Wealden oak will do. We mean that we own oak plantations in the Weald. Ironically, again, I am going to link to perhaps the most famous oak-planting Admiral of the Royal Navy, and it turns out that Lord Cuthbert Collingwood was a Northumberland man, planting his little acorns, from which mighty oaks would grow just in time to never be needed by the Royal Navy, near Newcastle-upon-Tyne.

The salience of the Weald is here very, very simple. It is an upland zone of clay soils that practically slopes straight down into the Thames and, only slightly less directly, into Solent Water. It is well-suited to pasture, that is, to producing meat for the London market, for forestry, producing timber for ship-building along the Thames, and for charcoal-burning, supporting an iron industry. 

On closer inspection, we notice that the "timber shortage" argument is a bit absurd taken strictly. A single "cartload" of approximately six hundred board feet, making roughly one ton burthen of shippping, can be got from a single oak tree, so that at a very generous spacing of 5.5 meters between trees after thinning, you can get the wood for five 1900 ton first-rate battleship-of-the-line out of a square kilometer of woodland. The Weald is traditionally reckoned at 190 km by 45. The real problem is precisely those clayey soils, which create pockets of relative isolation by turning the roads into glue. That's why there's pig browsing and charcoal burning and, yes, forestry in the Weald. Lack of internal communications renders it relatively inaccessible and discourages alternative uses for the land. One thing that can be said for Admiralty timber procurement: it makes Wealden estates valuable in the first place.

Now, about that financial history:

Dickson frames the story of public debt as the story of Britain's rise to greatness. In the crisis of 1695/6, which Geoffrey King framed in terms of a sale of the national assets to fund the war which had reached a point where the remaining capital stock of  the nation was about to reach a value to be computed at £7 million, only twice as much as the computed value of the bedding of old England, people less addicted to fanciful estimates thought matters severe enough as to occasion an immediate conversion of the currency. Because Navy and Treasury were hopelessly over-borrowed by the effort of covering navy, subsidy and military expeditionary needs later covered by a £2 million loan from the Bank of England, the government undertook to recall the old, hammered coinage and replace it with a milled at 5s 2d the ounce. It was a savage deflation, that threw the country into a trading depression so complete that only the fact that the French had collapsed first in the wake of bad harvests in 1692/3 allowed the Allies to eke out a win. 

Now, as for what happened next [Spoiler: the War of the Spanish Succession]* , Jones and Dickson have quite different takes. The heart of Dickson's account is the great companies, the Bank of England, with its heroic ability to find money to meet the government's insatiable appetite for debt, the East India Company, or, rather, the two East India Companies, the South Sea Company. Certainly this is a key part of the story, this institutional capacity to find wealth to met the needs of the state. 

Jones, on the other hand, focusses on the brute reality of war. Britain had to run a positive trade balance with the continent in order to subsidise its allies and support an expeditionary army. That meant exporting its own goods, and re-exporting "colonial" goods. Britain had therefore first to procure those goods, second, convoy them safely to England and re-export them to the continent, and, third, prevent its enemies from taking up the inelastic demand for prestige luxury goods and thereby denying England the final clearing of the trade in money bills drawn on continental exchanges which could then be used to finance Marlborough's armies. The Navy! It's all about the navy, even when it is about the army!

In any case, we know what happened next. A difficult peace which faced the incoming Hanoverian government. A wartime expenditure of £99 million had left the country with a debt of £40 million of which £25 million was in a bewildering range of annuities at an annual interest charge of  £684,000, £9 million was in guaranteed South Sea Company stocks, and £6 million was held by the "other" companies, the "company"debt paying £550,678 at an even higher interest charge than the average 7% of the annuities. 

When we appreciate just how disproportionately important were bullion in hand and exotic luxury imports, which paid import taxes on arrival, excise on departure, and still covered the state's foreign policy need for holdings in foreign currencies, it becomes just a little more plausible that almost a quarter of the public debt was held to be secured by the profits of a future trade with Central America, Latin America and the Pacific Rim. What is very difficult to understand is how the country can bear an annual interest charge of over £1 million.

Skip ahead six years, and we herald the arrival of a new name in politics, Sir RobertWalpole, who will control Britain for the next generation on the strength of his solution to what turned out to be a rather overvalued South Seas Company stock. 

Hardly accidental in all of this, although still mysterious in its details, was a series of interventions in the Baltic market by naval expeditions led by Admiral Sir John Norris. The Norris papers, deposited in the British Library by a mysterious presumed descendant in 1869, shed a little light on the way in which the trade for naval stores, fish, and Russian exports balanced the flow of silver and made ready money available for Walpole's extraordinary manoeuvre.**

Yes, I'm reaching a bit to get Norris into this story, because I love those "assumed descendants." Norris's marriage to Admiral Matthew Aylmer's daughter does not seem to have been fertile, and, of course, Aylmer, like Norris, Shovell, and Narborough, cruised for most of a decade off Barbary. Wink wink nudge nudge --yeah, no, this ain't going far.

Anyway, What happened is that the South Sea Company’s investors accepted a cramdown, but not a total loss. Their stocks would be converted into long-term low interest instruments yielding between one-third and two-thirds of value. The company’s capital was split into a portion to finance its long and futile effort to trade in the South Seas, and a portion that was pure liability to be funded by the Exchequer, until 1850, when Gladstone bought it out.

The years of Walpole (1721—1742) were to be, for the most part, years of careful economic management. A Sinking Fund was established to gradually pay off the debt, and Walpole found a kindred spirit in Cardinal Fleury in France, equally eager to subdue the passions of Europe, by keeping the adventurous spirit of La Farnese in check. It was, perhaps, a testament to Walpole's success that it was passions boiling up in England that finally broke the peace. Well, as much as anything, given the gaping hole torn in the fabric of the peace by the War of the Polish Succession. 

Anyway, the War of Jenkins Ear was subsumed in the Wars of the Austrian Succession;

 Walpole fell, and the regime of "the Pelhams" followed. That would be Henry Pelham (1742—54) and his brother, the Duke of Newcastle, in case you found references to the “Pelhams” as opaque as I did until I finally looked it up on Wikipedia. It turns out that some of the opaqueness is because we don't know what we'd like to know: Henry Pelham died prematurely, and his papers were destroyed. We do, however, know that as a financial manager, Henry Pelham was a true heir to Walpole. Both aimed to reduce taxation, mainly the Land Tax. Walpole also aimed to reduce the state’s financial liability by replacing old liabilities bearing interest of 5% or more by floating new loans of £6.5 million bearing 3—4%, so that Walpole was able  during his tenure to pay off £12.8 million of those old debts.

Pelham, of course, could do nothing of the sort. The War of the Austrian Succession cost 95 million, of which a full third was added to the National Debt. Oops! By 1749, it stood at 70 million, of which 57.7 was at 4%, the rest at 3%. This was obviously a great deal better than the 7% of much of the debt of 1714, but still far too high. Much of the problem had come at the peak of the war, when Quaker City man John Bernard had taken demanding a reduction in the National Debt to demanding that the old regime of "secret lists" be replaced by an “open subscription” loan. The result was the oversubscribed open loan of 1747, which raised nearly £9 million. The money, liberally sprinkled around Europe, failed to secure the great victories hoped for. Indeed, the tail end of the war saw an almost unimaginable escalation of the scale of siege warfare in the Lowlands with the fall of Bergen-op-Zoom. The next year, 1748, the open subscription project failed, and another merchant, Sampson Gideon, who had previously been a major contributor to the "secret list" loans, and whose private list, that is, the portion of the national debt he held either for himself or his principals, had grown from 600,000 to a full million in 1742—45, stepped in. Having already saved the state from financial panic in the crisis of 1745, he, of course, got full credit for being the main prop of Throne and Nation, in spite of his Jewish faith. 

Just kidding! In fact, the evil reign of the cosmopolitan financier/Pelhams was only just beginning. In 1749, Henry Pelham solved the problem of the financial viability of the state by giving holders of 4% stocks until February 1750 to accept 3.5% instead, then, after only seven years, 3%. Roseveare (62) believes that the argument that John Barnard, somehow roped into supporting the state, presented was correct. This was the best interest rate that investors could expect to get, so they might as well put up with it. this would then account for Gideon's extraordinary ability to extort consent to the arrangement from the General Courts of the Chartered companies. 88% of the old 4% stock was surrendered, and the Treasury had no trouble “mopping up” the rest. Further tidying up was able to consolidate the medley of war loans into a single 3% perpetual bond, the consol, which by December 1752 was selling at 106 3/8, a price not matched until the “high noon of Victorian prosperity.” (63)Dickson is not so sure that the story is so simply one of the banners ever ascending, and wonders what coercion Gideon used at the critical moment. Much, of course, will have depended on the question of who held the debt, and while this will never be altogether clear, Dickson is about to provide an idea.

Dickson will, however, provide an estimate. There were between 50,000 and 60,000 creditors of the government in English society by this time. Things were no longer political, so that it was not Tory outsider versus Whig insider, but religious bigotry was conserved by the activities of Quakers and Jews. Of those who held the debt, Widows and orphans were important, and “middling” men who held between £1000 and £4999, together holding “40 to 50 per cent of some stocks.” More cosmopolitan, rootless adventurers with names like Salvador, Van Neck and Craisteyn appear. But so do the greatest names of England, and the Bank of England, Court of Chancery and Church of England, while overseas interests held about 15% of government debt, a a quarter of East India Company stock, and a third of Bank of England. Finally, there are the insurance companies, principally the marine insurance companies.

Was it an efficient and useful market? Roseveare believes so. To start with, the great crises produced activity, but fewer bankruptcies than might be expected. Even the South Sea Bubble hurt less than the trading depression of the late 1720s. War, although it adversely affected the market and increased tax burdens, could have a stimulative effect in certain sectors of the provincial economy, bringing prosperity in depression in an unpredictable mix. 

Speaking of provincial markets, Roseveare detects local, provincial networks, specifically, a Lancashire network. Here, provincial investors, motivated by the same need for financial security as motivated investors closer to London, sought what investments they could. Often, however, the market could not absorb their money.

And here, I think, is the critical point. London market was the local market of the Southeast. The  £1000 and £4999 men, with their Wealden estates, are the men we need to look at in this story of the "nation's" finances. The extrapolation is that it is very much the story of London's local finances. Of course, London was a very large region of the United Kingdom, and a very wealthy one; but it was a region, nonetheless. As long as this post has been, it could easily get longer, but I do have a takeaway point: in favouring Wealden wood to be bought on Navy supply notes, the Admiralty was making a very clear statement of interest. The rest of England, never mind the world, is not to get a look in at the great naval armaments of Britain.

For now. There is, has to be, a mechanism of overflow. I have introduced John Norris, and the invasion scare of 1744, not to be confused with the invasion scare of 1745, and the expeditionary army on the continent, and the problem of designing, building and fitting out warships. To that needs to be added the problem of manning them, and basing them. At the same time, we have the unlooked-for "helicopter money" provided by booty, above all Anson's "prize of all the oceans." At the end, I think it is pretty clear that the success of the Pelham manouevres, and of the consol, is telling is that there is a shift of the British economy onto a new, higher growth trajectory. My intuition is that this is causal, not coincidental. 

*Dickson contributed a great chapter on the financing of the war in the Cambridge New Modern History. It may be available here if you don't exhaust your preview time before you find it.

**David Denis Aldridge, Admiral Sir John Norris and the British Naval Expeditions to the Baltic Sea, 1717—1727 (Lund, Sweden: Nordic Academic Press, 2009): 12.