The Bear’s Lair: Return of the Whig Economy

The Industrial Revolution was a Tory Story! It began with the scientific exuberance of the Tory-dominated Restoration period, then slowed as the Whigs diverted the country into war and financial excess from 1689 to 1720. Even though the key inventions of the steam engine and coke-fired ironworks came during that period, they were not developed further. Forty years of Whig financial capitalism and social repression followed, before a Patriot King and a series of Tory governments unleashed the greatest boost in living standards the world has ever seen. Alas, since 1991 we have returned to Whiggery and worse.

One of the most important questions in world history is why Britain got the Industrial Revolution and other European countries did not. (Other civilizations – Chinese, Japanese, Mughal and Ottoman – could theoretically have led industrialization also, but their failure is a more complicated story.) In 1600, Britain had little to distinguish it from other European polities. Spain was much richer, France was richer, larger and in 1600 better run by the estimable Henri IV, the Holy Roman Empire was vast and full of good hard-working German artificers, while the Netherlands was moving towards modern capitalism in a way that Britain, in 1600, was not. The first half of the 17th Century saw little progress by Civil War-wracked Britain and a lot by the Netherlands, although admittedly France, Spain and the Holy Roman Empire all, for different reasons, fell further behind.

Then came the British Interregnum, followed by the Restoration. The Interregnum was helpful in opening opportunities to groups who had previously been blocked by the remnants of the mediaeval class system. Also, the Protector Oliver Cromwell was a believer in property rights, quelling those of his colleagues who weren’t. However, it was the intellectual and economic dynamism of the Restoration, led by the Earl of Clarendon and the Tories, that changed everything. The Royal Society was the first scientific institution of its kind, establishing Francis Bacon’s Scientific Method among British scientists, speeding progress through their interactions and producing an amazing burst of creativity that in 1687 was to lead to Isaac Newton’s Principia.

Commercial and social avenues opened also, with Britain establishing trading empires in tea, coffee, sugar, tobacco and chocolate that were to revolutionize British tastes, world markets and state finances. The East India Company’s early expansion also brought an entrepot market for Indian textiles that boosted state revenues and expanded British textile know-how and capabilities. At the top, Prince Rupert of the Rhine, with a past career as general, admiral and pirate, invented Prince Rupert’s Drops and founded the Hudson’s Bay Company. Finally, the scrivener-banker Sir Robert Clayton’s Clayton, Morris founded true domestic deposit banking and mortgage finance, while the goldsmith-bankers went belly-up lending to the state when it partially defaulted in 1672.

Then, for non-economic reasons, everything changed in 1688. The new regime was dominated by the Whigs and perpetually at war, imposing the draconian (in its early years) Land Tax on their landed gentry political opponents from 1693. They financed the state’s suddenly huge borrowing needs, not with fixed-rate debt, but with an extraordinary collection of lotteries, annuities, tontines and SPACs (one of which became respectable in retrospect as the Bank of England) thereby raising state borrowing costs close to 10% per annum, compared to the Netherlands’ 4%, to the great enrichment of the Whig “monied interest.” We remember the South Sea Bubble of 1720 as a gigantic scam run by crooks, but the 1690s scams were far more expensive and persisted for the entire period; only in a brief lull from 1702-10 under Sidney Godolphin was war financing’s respectability partially restored.

The true Industrial Revolution had begun with two inventions: Abraham Darby’s coke-based iron production at Coalbrookdale from 1709 and Thomas Newcomen’s “atmosphere engine” from 1712, the first truly functional steam engine. However, neither man was well networked, and neither invention was developed further until much later. Darby died young in 1718, and his process was improved by his son only in 1750, but the Darbys being Quakers were socially isolated, so shocked by a visit to Shrewsbury (population: 10,000) in 1752 that Mrs. Darby wrote a pamphlet denouncing Shrewsbury’s loose morals. As for Newcomen, he was a deferential bloke, and operated under the dodgy patent of a Captain Savery, who had extended its tenor to 35 years through an Act of a compliant Whig parliament in 1698. Neither the Darbys nor Newcomen grew even modestly rich, or socially influential beyond their own villages. Thus, there was no incentive for the ambitious young to follow their example.

For 40 years from 1720, the Whigs ran Britain as a one-party state, until the death of George II. For the young and ambitious, there were golden opportunities, none of them involving the slow and difficult work of pushing forward the technological frontier. Finance was still lucrative in a quiet way; the state debt was expanding while interest rates continued to decline under the sound tutelage of Walpole and Henry Pelham, making debt trading as profitable as it has been since 1982. In America and the West Indies, well-organized slave trades had opened opportunities to make large fortunes from tobacco and sugar plantations. In India, the Mughal Empire was collapsing, opening staggering opportunities for the young, clever and unscrupulous – Robert Clive (1725-74) and Lord Liverpool’s maternal grandfather William Watts (1721-64) both made fortunes far beyond the dreams of mere industrialists. The economy remained finance-oriented while the working classes were suppressed by such statutes as the Artificers Act of 1719, making it illegal for skilled artificers to emigrate, and the Black Acts of 1723, creating over 100 new hanging offenses. Living standards gradually improved, the consumer market broadened and the Empire was vastly enlarged, but industrialization took a nap.

Everything changed in 1760, with the advent of a Patriot King in George III and a succession of mostly Tory governments led by Bute, Grenville, North and the younger Pitt. The number of patents granted annually doubled in the 1760s compared to the 1750s or any previous decade, and then kept on rising. Josiah Wedgwood expanded his pottery to nationwide and then global markets in the 1760s. The High Tory Richard Arkwright invented the spinning frame in 1769 and became very rich and an example to all. Most important, the nerdy Nonconformist James Watt, inventing the condenser in 1765, had the sense in 1772 to go into partnership with the extrovert -High Tory manufacturer Matthew Boulton, thereby becoming world-famous and very rich rather than unknown and obscure like Newcomen. The Birmingham Lunar Society, allowing local manufacturers to learn about improvements in technology, was formed in 1765 by Boulton, among others.

In the new Tory world, as industrial opportunities increased, less productive avenues to fame and fortune diminished. The American colonists, who hated Tories, became first recalcitrant and then independent, eliminating opportunities for British entrepreneurs. The Somersett decision of 1772 and the rise of Abolitionism thereafter made West Indian sugar fortunes ethically unattractive. Warren Hastings cleaned up Indian administration, greatly reducing the pillage of local inhabitants and thereby earning the lifelong enmity of greedy Whigs, culminating in his disgraceful impeachment of 1788-95. The Ayr Bank collapse of 1772 took many London financiers with it and shrank that money pot. Banking itself was revolutionized by the plethora of country banks that sprang up, nearly 800 of them by 1825, mostly created by local attorneys along the pattern of Clayton, Morris and owing little to the London market. These were to make it much easier to finance embryonic industrialists (most of whose needs were for short-term trade finance) without selling out to greedy London interests.

The Industrial Revolution was unstoppable by the 1780s, but the enlightened industry-friendly economic policies of Pitt and Liverpool speeded and broadened its progress. Only after 1830, with the return of the Whigs, was British industrialization hampered, first by the 1834 Poor Law and later by the 1846 Repeal of the Corn Laws and the policies of unilateral free trade that followed. Thereby Britain lost her industrial lead, but the creation of the Industrial Revolution, not its dissipation, was the country’s unique economic achievement.

Since 1900 and still more since 1991, global economic policy has steadily deteriorated, becoming first Whiggish and then worse. Finance has been excessively profitable, culminating in a series of dodgy innovations worthy of the 1690s. Policies, especially monetary policy, have favored “get rich quick” schemes rather than the slow accumulation of knowledge and capability that produces true industrial innovation. Government has splashed money around with abandon, only without the long-term benefits of the colonial wars of the 18th Century. In short, all the economic policies that brought industrialization have been abandoned or reversed.

It is little wonder, therefore, that de-industrialization and economic decline appear to loom in our future.

(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.)