Maynard Keynes, as a good left-liberal, was a political admirer of an earlier Cambridge alumnus Oliver Cromwell, and certainly regarded himself as part of the “Roundhead” tradition. Yet it is becoming increasingly apparent that, just as Cromwell’s virtues and policies pointed Britain on the road to the Industrial Revolution, so the vices and profligacies inspired by Keynes and his followers are bringing the great human advance brought by that Revolution to an end. Let me explain.
The English Civil War was overwhelmingly important constitutionally, but it also marked a watershed in the country’s economic policy. The early Stuarts, like their Tudor predecessors, were perpetually short of money and attempted to alleviate that shortage by the sale of monopolies to politically favored groups. This resulted in economic stagnation – however much the promoters of the 1631 “New Soap” scheme asserted that it “washeth whiter” the rise in soap prices resulted in widespread evasion and a sharp decrease in soap consumption, with adverse consequences for the public health and wellbeing of the lower orders.
Cromwell, first as the most important political figure behind the 1649-53 Commonwealth and then as Lord Protector until his death in 1658, revolutionized British economic management in several ways. First, apart from the proceeds of Royalist sequestrations, he was able to ensure that Parliament provided the government with revenues adequate to its needs, no longer acting as a pure obstruction to government money-raising. With this advantage, he then took to paying the government’s bills more or less on time (which the early Stuarts had not) thereby greatly increasing the efficiency of the military and naval suppliers that were already a large part of the economy. He also dispensed with monopolies, removing the drag on economic activity that Royal monopolies had imposed.
Cromwell encouraged trade, on the mercantilist theory that increased trade would bring “Treasure” into the country and the Exchequer. In particular he passed the ground-breaking Navigation Act of 1651, that prohibited the use of foreign ships to transport goods into Britain or its new American colonies, except for goods produced in the foreign country owning the ship. This slowed the expansion of the Dutch merchant marine and produced a gigantic stimulus to the British merchant marine, which from this point onwards steadily expanded its market share of international trade.
Cromwell also came up with a mercantilist strategy to ensure an ample and growing cash flow to the government and Britain as a whole. Virginia had already begun exporting tobacco to Britain before the Civil War; Cromwell ensured that excise tax was both charged and paid on the product and that the great majority of tobacco supplies to continental Europe had to come through Britain and be taxed. He also in 1654 launched the “Western Armada” against Spanish possessions in the West Indies and the following year captured Jamaica. Together with the British colony on Barbados (taken over by the Commonwealth in 1652) and stimulated by the Navigation Act, Britain’s West Indian colonies supplied another lucratively addictive and taxable product to Britain and Europe: cane sugar. The cash generated by the excise taxes made the British government aggressively solvent; that generated by the businesses themselves built up a large pool of capital in England, unequalled elsewhere in Europe, which was to fund the beginnings of industrialization.
One innovation that neither Cromwell nor the Commonwealth made was paper money. Their revenues, including sequestrations, were adequate for the government’s needs, so they did not make the hyper-inflationary mistakes of the French and American revolutionaries a century later. As trade expanded, some of London’s goldsmiths took to issuing receipts in excess of the gold in their vaults, but this limited issue, controlled by the goldsmiths’ own need for solvency, was the only expansion beyond the country’s metallic coinage.
Finally, in 1656 Cromwell allowed the Jewish population fully legal residence in England, with freedom of worship; together with his toleration of Quakers and other minority religions this encouraged the growth of the merchant and financier community in London, benefiting commerce, finance and eventually industry.
Britain’s transformation into an industrial society was a lengthy one, spanning two centuries. Cromwell’s economic reforms benefited primarily the first stage in that process: Britain’s transformation into a highly commercial society, similar to 17th Century Holland but on a somewhat larger scale. Daniel Defoe’s “A Tour through the Whole Island of Great Britain” written in 1724-27, demonstrated the results at the end of the commercial phase of this process; Britain, while still lacking artificially powered industrial processes, was the world’s most commercially intense society.
Cromwell would undoubtedly have agreed with today’s French economist Thomas Piketty that an excessively unequal distribution of income and wealth has a disastrous effect on the morals and economic welfare of a society, as well as on the living standards of the poor. Indeed, he would have given the examples of Charles I’s magnificent picture collection (which he broke up and sold off), Inigo Jones’ Banqueting Hall at Whitehall and the elaborate formal masques held therein as instances of the kinds of decadence that over-concentrated wealth could produce. Nevertheless, Piketty’s remedies for this problem, and those of Keynes, would have been anathema to him.
Cromwell by his policies encouraged commercialization, private property (except for that of his political enemies), sound money, trade, solvent government and the build-up of capital in the country which could be used for further development in previously unimagined directions. His successors nearly 400 years later have reversed most if not all his policies, largely through a bastardized reading of Keynes’ writings:
- They despise commercial activity and place it lowest among their priorities, with environmental, social and other shibboleths being allowed to interfere with it. The “ESG” movement in business is purely anti-commercial and results in big businesses becoming box ticking bureaucracies. It contravenes the price-seeking ability of the market, its most precious attribute.
- They resent private property, especially in large accumulations, and seek to have resources directed by state agencies or politically correct non-profit bureaucracies.
- They debauch the currency, devising artificial entities (central banks) that set interest rates a huge distance below their free market level, encouraging pointless real estate and wild speculation and discouraging honest, productive enterprise.
- In the United States and Britain, the economy runs trade and balance of payments deficits of a substantial percentage of GDP, year after year. This builds up foreign holdings of debt, de-capitalizes the economy, and provides nothing more than cheap consumer “luxuries” (as Cromwell would have called them) that have no long-term economic value.
- Since 2008, governments worldwide have gone on an orgy of deficit spending, financing their profligacy in cheap debt markets, but also through direct money-printing by the central banks. Cromwell knew better than we do the depths to which such practices lead – he had the early Stuarts as examples, but also Spain, which had dissipated the wealth of the Indies and impoverished its people.
- Modern governments believe capital an infinitely available, even free resource. Cromwell would be shocked by the way in which the United States and the world in general have allowed budget and payments deficits, together with low or negative savings rates, to de-capitalize their economies. For him, capital was scarce, and you never knew where to find it when you needed it.
Though he did not know it, Cromwell’s policies were the first step towards the Industrial Revolution, which over the last 200 years has allowed global standards of living to reach levels unimaginable in Cromwell’s time. He would however be perfectly clear that today’s policies, reversing as they do the thrift and sound practices that he installed, will undoubtedly reverse the process that made the world’s citizens rich, reducing our descendants to overpopulated, impoverished, resource-scarce penury.
(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)