The Bear’s Lair: The Oxfordshire School of economic thought

Oxfordshire, beautiful rolling land of small villages before 1900, may seem (outside the eponymous University itself) an unlikely seedbed for an economic theory. Yet in its idyllic villages and modest country houses, a theory of political economy developed, quite distinct from the Whiggish view of Adam Smith and William Gladstone that became known as “classical” economics. Its principal exponent was Robert Banks Jenkinson, 2nd Earl of Liverpool, prime minister 1812-27. However its origins can be traced in an Oxfordshire line via Liverpool’s father Charles Jenkinson, the North family, (both Frederick, Lord North the 1770-82 prime minister and his great grand-uncle the statesman/merchant/economist Sir Dudley North (1640-91)) and the great Earl of Clarendon (1608-74) to the quiet cloisters of Great Tew, home of Lucius Cary, 2nd Viscount Falkland (1610-43). This political-economic theory deserves a name, beyond the Toryism of the party that most of its proponents represented which is now thoroughly ambiguous; I therefore propose to christen it the “Oxfordshire School.”

Falkland was a remarkable man; Clarendon wrote later that “all mankind could not but admire and love him.” At Great Tew, he assembled a circle of theological and political thinkers which Clarendon, one of their number, described as “a college situate in a purer air.” The Great Tew Circle, following the doctrines of Richard Hooker (1554-1600) propounded a rationalist approach to religion, and opposed the somewhat intolerant and very corrupt government of Charles I, although they remained Royalist. Economics was peripheral to the Great Tew group, but they strongly opposed the Royal monopolies that hampered the economy under the early Stuarts, supporting freedom of domestic trade.

When crisis came in 1640, Falkland (whose viscountcy was Scottish, thus not carrying a seat in the Lords) and Edward Hyde, the future Clarendon, formed an important moderate group in the Long Parliament’s House of Commons. They began by supporting major reforms but ended up opposing John Pym’s Grand Remonstrance of November 1641. (The Grand Remonstrance passed by only 11 votes and, by destroying the central principles of Charles’ government, made rapprochement with the Crown impossible.) Falkland and Hyde then joined Charles’ administration, Falkland as Secretary of State. When the nation descended into civil war, he fought for the King at the Battle of Edgehill but became discouraged by the Royalist lack of success and the worsening relations between the two sides. Consequently, before the Second Battle of Newbury in September 1643 he told his friends he “foresaw much misery to his own country and did believe he should be out of it ere night” after which he was killed in that day’s battle.

As a romantic hero, Falkland was much admired by the Victorians; Sir John Marriott in his 1907 biography described him as “combining in no ordinary degree the intellectual luxuriance of the Greek and the moral austerity of the Puritan.” His principal importance to later generations however was the intellectual impetus which he and the Great Tew circle gave to his friend Clarendon, also an Oxfordshire man (his seat was at Cornbury, 8 miles from Great Tew) who as Lord Chancellor from 1660-67 set up the Restoration constitutional settlement and was later, through his second son Laurence Hyde, Earl of Rochester (1642-1711) the inspiration for the Tory party of 1678 onwards.

Clarendon’s new economic ideas appeared immediately after the Restoration, with the Convention Parliament’s passage of the Tenures Abolition Act, 1660. This eliminated many feudal dues and service obligations that had been due to the Crown. More important, it eliminated the feudal restrictions on land holding, making land an asset that could be freely bought, sold and mortgaged. By this means, it freed up enormous amounts of capital that could be used to finance industrialization. By creating a free market in land, it gave Britain an advantage that France, Spain and the Holy Roman Empire all lacked, even a century later.

To replace state revenues from eliminated feudal dues, Section 14 of this Act also imposed an excise duty on tea, coffee, sherbet and chocolate. By shifting state revenues to these new sources, Clarendon performed a vital service for the country’s fiscal future. Instead of being fixed, as were previous taxes, customs and excise duties on these newly consumed products (as well as on tobacco and sugar, produced in Britain’s American and West Indian colonies) increased with the increase in national wealth, trade, “luxury” and consumption of these expensive imported goods. These new revenues formed the basis of Britain’s taxation system until the 1840s; by 1792 customs and excise duties were producing 69% of Britain’s revenue of £18.7 million, itself some 15 times the revenue in 1661 (in pounds whose value had changed little). The burden of this new system fell primarily on the luxury-consuming wealthier classes; the revenues it produced were naturally buoyant as wealth and trade increased.

Clarendon also reformed the coinage, producing the first “milled” coinage whose edges were machine-stamped, reducing the ability to debase the coinage through clipping. He reformed administration, removing internal duties and stamping out the monopolies that had persisted in Charles I’s time despite the 1624 Statute of Monopolies. This made internal trade flow smoothly, unlike in France, the Holy Roman Empire and other countries where internal duties persisted.

Clarendon’s reforms were those of a practical statesman, with little backing of economic theory (he was aware of Thomas Mun’s mercantilist theories but adhered to them only to the extent they improved state revenues, his principal aim.) Economic theory followed, in the writings of Sir Dudley North, who directed policy as Chairman of the Ways and Means Committee in the 1685 Parliament, introducing budget reforms that made the fiscal balance healthily positive until William III engaged the country in perpetual war. North was another Oxfordshire man, being MP for Banbury, close to the North family’s seat at Wroxton Abbey.

His main contribution however was his 1691 pamphlet “Discourses upon Trade,” the earliest classic of free-market economics, 40 years before Cantillon and 85 years before “The Wealth of Nations.” This had limited circulation at the time, but North’s friendships with influential Tories and his own public career gave it considerable policy significance. It was rediscovered by the economist John McCulloch (1789-1864) who not only republished it in 1822 but sent a copy to David Ricardo, who responded: “I had no idea that anyone entertained such correct opinions, as are expressed in this publication, at so early a period.”

North believed that interest rates and trade should both be as free as possible, and summarized England’s economy as of 1691 as follows: “In process of time, if the people apply themselves industriously, they will not only be supplied, but advance to a great overplus of Foreign Goods, which improved, will enlarge their Trade. Thus, the English nation will sell unto the French, Spanish, Turk, etc. not only the product of their own Country, as Cloath, Tin, Lead, etc., but also what they purchase of others, as Sugar, Pepper, Calicoes, etc., still buying where goods are produced, and cheap, and transporting them to Places where they are wanted, making great advantage thereby.”

North also anticipated Mandeville’s 1714 “Fable of the Bees”: “The main spur to Trade, or rather to Industry and Ingenuity, is the exorbitant Appetites of Men, which they will take pains to gratifie, and so be disposed to work, when nothing else will incline them to it; for did Men content themselves with bare Necessities, we should have a poor World.”

North’s great-grand-nephew, Frederick, Lord North, the prime minister, (also MP for Banbury) was a noted expert in economic matters, being Chancellor of the Exchequer throughout his administration. While reading and patronizing Adam Smith, he brought Sir Dudley North’s economic ideas into his administration and passed them on to his friend and colleague Charles Jenkinson (1729-1808) who became President of the Board of Trade in 1786-1804 and as first Earl of Liverpool the father and mentor of the prime minister. The Jenkinsons were also an Oxfordshire family; Charles was brought up at Shipton-under-Wychwood, about 4 miles from his Jenkinson baronet cousins’ family seat at Walcot, which itself was close to Cornbury and thus 8 miles from Great Tew (the Jenkinson baronets ran out of money and sold Walcot in 1758, which is why Charles Jenkinson took the initial title of Lord Hawkesbury after their other estates in Gloucestershire).

The economic ideas of the Oxfordshire school, shared between Clarendon, the Norths and the Earls of Liverpool, may be briefly summarized and were an amalgam of classical and Austrian economics, albeit adopted in most cases before either of those theories was promulgated:

  • Property rights are sacrosanct, the most important economic principle.
  • Free trade is good, but revenues from tariffs and excises are even better, since they fall primarily on the well-off.
  • Free trade also does not work in extreme circumstances, such as the British famine of 1800, when Jenkinson and Liverpool combined to allow state bread production from imported grain, over the protests of free trade purists.
  • Bubbles inevitably occur, because of foolish investment derived from excess money creation, should be deflated if possible and should not lead to bailouts (here Liverpool anticipated the Austrians).
  • The banking system should be local and atomized, and riskless savings vehicles should be separated from risk-taking bank lending.
  • Paper money should be issued only by privately-owned banks, not by the government or a state-controlled central bank, and should be anchored by a firm Gold Standard.
  • Modest cash payments or food handouts for poor relief are economically beneficial, because they reduce the downside of working-class risk-taking; anything beyond this, for example the workhouse system is expensive and almost certainly cruel and damaging.

The Oxfordshire School of economic thought gave the world the Industrial Revolution. It should be re-adopted as quickly and fully as possible.

(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.)

I recently chose some material related to his Lordship that may also interest readers: The best books on Regency politics.