In discussing modern American, British or global politics, I often find myself on a different planet from other commentators, because my preferred political system is not that of any modern polity, but that of Britain under Lord Liverpool’s government from 1812 to 1827. Most of the policies were better in that government’s earlier years, but the economic results were better after 1820. In the lull between Christmas and New Year, I would like to review why I believe those policies to be optimal, and what would be necessary to bring them back. Of course, as often in these columns, mere political realism is not my prime objective!

The British economy of the 1820s had some similarities to that of today. The legend of gigantic inequality at that time is wrong (it becomes less wrong later in the century and in the United States). The poor were far poorer than those of today, though after 1819 there was little or no starvation, as wages were above the Malthusian level (rapid population growth attests to this reality). However, the rich were nothing like as rich as today’s rich.

The richest aristocrat was the 1st Duke of Sutherland (1758-1833), who inherited a major agricultural and industrial fortune from his father the great 1st Marquess of Stafford (1721-1803) and a giant Scottish agricultural fortune through his wife, Countess of Sutherland in her own right, which the couple increased through “highland clearances.” Sutherland’s net worth was about £5 million in the 1820s, equivalent to $5 billion today (converting at the ratio between the 1820s gold price (£4.25 per ounce) and today’s gold price of somewhere over $4,000 – it moves daily – using consumer price index figures for conversion would give a much lower figure). In other words, Elon Musk is worth more than 100 times as much in real terms as was the Duke of Sutherland, yet today’s U.S. poor are not 100 times as rich as 1820’s subsistence-level poor; they are only perhaps 10 times as rich, spending 1/3 of their income on food, but eating no more than three times as well. There is thus no measure of economic inequality by which we can claim moral superiority over the 1820s. We are much richer than they were, but that is the result of 200 years of technological progress, certainly not of better policy.

There are two areas of fundamental difference in economic policy between Britain’s society in the 1820s and U.S. or British society today. First, the government was much smaller. Total public spending was around 15% of GDP, compared with 40% of GDP today in the U.S. (including state and local government) and more in Britain. Furthermore, two thirds of government expenditure represented interest on the gigantic debt the state had incurred to fight the Napoleonic Wars, so actual public spending was only around 5.6% of GDP. This left far more of the economy subject to private wealth-maximizing decisions rather than public-sector politically-determined decisions. In an era when industrial technology was only marginally effective and capital markets weak, this encouraged its further development. The gigantic stock of irredeemable “Consols” government debt also helped finance the Industrial Revolution, because the yield decline after war’s end brought Consols almost a doubling in price between 1813 and 1824, which together with declining consumer prices from the return to gold, made Consols holders much richer in real terms, allowing them to finance factories, canals and later railways.

Government was financed primarily by tariffs; as the fiscal position improved with economic growth, those tariffs were lowered, but there was no attempt to move to full free trade with an Income Tax until Peel’s reintroduction of the wartime Income Tax in 1842. Corn Laws were passed to protect British agriculture (on a crowded island with expensive land and labor) from foreign competition; their removal in 1846 only brought the downfall of British agriculture after 1873, when American grain and meat could be shipped economically to the British market. High transportation costs during this period also kept immigration at low levels.

Economically, Liverpool’s government operated on a central economic principle of enabling British labor costs to rise and remain high, because it saw in high wages the greatest possible incentive to innovate, with new mechanized devices that would save labor and thereby increase productivity and reduce costs per unit of output. That principle is still applicable today, and contrary to the “cheap-labor lobby” of Sir Robert Peel and his successors who today seek to reduce labor costs by importing foreigners that undercut local labor, reducing the incentive to mechanize and improve productivity and wrecking the lives of ordinary people.

The second economic condition that was far more favorable to productive activity in the 1820s than today was that from 1821 (legislation being passed in 1819) Britain returned to the Gold Standard. This was not popular with financial services operators, who saw all kinds of lucrative scam opportunities wiped out. Nathan Rothschild wrote to Liverpool during the unrest surrounding the “Peterloo Massacre” in October 1819 suggesting that the legislation passed only that spring should be reversed; as Liverpool wrote to Nicholas Vansittart, his faithful and extremely capable Chancellor of the Exchequer:

“I am satisfied that no measure could be more fatal, and that the very notion of its being a matter for consideration would do harm. In the first place, there is not the smallest real pretext for it, supposing the exchanges to remain unfavourable for a short time, the Bank was only obliged to pay at £4/1/-, and this must be to them a sufficient security; and as to their not having considerably augmented their treasure, I think it a fortunate circumstance in every respect. As to the continuing the restriction from the dread of diminishing their circulation too much, this would be a ground of a perpetual restriction and is the idea of all others that it was most necessary to combat last year.”

With the Gold Standard, prices remained stable (albeit with fluctuations) for the next century, idiotic leverage as favored by Rothschild and his colleagues became suicidal in downturns, fast-buck investment was severely discouraged, while long-term investment in productive assets became very much easier, as Britain became a Mecca for international capital throughout the 19th Century. The merchant banks took to playing silly games with foreign bonds instead of financing productive British industry. However, local country banks, very numerous in Liverpool’s time, remained available to finance their local entrepreneurs even without aristocrat or plutocrat connections until they began to disappear after Peel’s deeply foolish 1844 Bank Charter Act.

In terms of government itself, Britain had a property franchise, with the qualification in most constituencies set at a “forty-shilling freehold.” The allocation of seats partly dated back to the Model Parliament of 1295, and was therefore somewhat unrepresentative, with rural areas being over-represented – when the franchise was “Reformed” in 1832 the rural bias was removed because the Whigs were stronger in the big cities, but the franchise qualification was raised from 40 shillings (£2) to £10, thereby making the system less “democratic” and thoroughly gerrymandered. The political system was also made more deferential and traditionalist by a powerful House of Lords, consisting only of hereditary peers, which had a full veto on legislation.

The society of 1820s Britain thus had a rural bias and a strong class system, although upward mobility was considerable, either through industrial enterprise or sheer ability (the Earl of Eldon, Lord Chancellor for a quarter-century, was the son of a Newcastle coal merchant). This enabled the Establishment to impose strong business ethics throughout the economy; shysters would have difficulty doing business or obtaining financing. One example of this was Thomas Brassey (1805-70), a farmer’s son just beginning his career in the 1820s, who made a huge £5 million fortune in the ethically rough business of global railway contracting, yet was famous for his ethical standards among all those, domestic and international, with whom he dealt.

Britain’s foreign policy was one of preventing another outbreak of war, such as had devastated Europe for twenty years. Its strategy for this until 1822, implemented by the great Viscount Castlereagh as Foreign Secretary, was the Holy Alliance, a coalition of Christian powers devoted to the maintenance of sound government throughout Europe. With meetings every couple of years, this had the effect of keeping the major European statesmen in contact, allowing them to sort out differences peacefully. Sadly, this policy was abandoned by the arrogant liberal George Canning after 1822. Had a Holy Alliance with regular contacts been maintained, both the Crimean War and World War I might have been avoided.

The Holy Alliance policy’s last gasp was the visit of the Duke of Wellington to the coronation of Czar Nicholas I, travelling to St Petersburg through the snow of January 1826 – it took a month. Wellington was favorably impressed by the young and intelligent Czar, who remained a technology-favoring Anglophile thereafter, having been impressed by a youthful visit to Leeds in 1813, where he saw “Salamanca” the world’s first railway engine in commercial operation, hauling coal. Wellington died in December 1852; it is not a coincidence that a belligerent anti-Russian Whig/Peelite government started the Crimean War a year later.

The British 1820s are a lost Nirvana of good policy, sound government and solid business ethics. To return, we could begin by re-instituting a Gold Standard, which looks more inevitable week by week. (As the gold price keeps rising it becomes more and more obvious that the Biden administration’s 2022 seizure of Russian assets has broken the previous dollar-based system.) That in turn would eliminate inflation, to the enormous relief of ordinary people whose old age is otherwise in perpetual peril. However, the class system, the hereditary peerage with full powers, the property franchise, the bias towards high labor costs and the downsized government; all these appear more difficult, especially the downsized government.

But one can dream, and at this festive season it is appropriate to do so!

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(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.)