– it is possible to gain some larger sense of what at first sight appears as a bewildering pattern of successes and failures produced by the many wars of this period.
The importance of finance and of a productive economic base which created revenues for the state was already clear to Renaissance princes, as the previous chapter has illustrated. The rise of the ancien régime monarchies of the eighteenth century, with their large military establishments and fleets of warships, simply increased the government’s need to nurture the economy and to create financial institutions which could raise and manage the monies concerned.4 Moreover, like the First World War, conflicts such as the seven major Anglo-French wars fought between 1689 and 1815 were struggles of endurance. Victory therefore went to the power – or better, since both Britain and France usually had allies, to the Great Power coalition – with the greater capacity to maintain credit and to keep on raising supplies. The mere fact that these were coalition wars increased their duration, since a belligerent whose resources were fading would look to a more powerful ally for loans and reinforcements in order to keep itself in the fight. Given such expensive and exhausting conflicts, what each side desperately required was – to use the old aphorism – ‘money, money, and yet more money’. It was this need which formed the background to what has been termed the ‘financial revolution’ of the late seventeenth and early eighteenth centuries,5 when certain western European states evolved a relatively sophisticated system of banking and credit in order to pay for their wars.
There was, it is true, a second and nonmilitary reason for the financial changes of this time. That was the chronic shortage of specie, particularly in the years before the gold discoveries in Portuguese Brazil in 1693. The more European commerce with the Orient developed in the seventeenth and eighteenth centuries, the greater the outflow of silver to cover the trade imbalances, causing merchants and dealers everywhere to complain of the scarcity of coin. In addition, the steady increases in European commerce, especially in essential products such as cloth and naval stores, together with the tendency for the seasonal fairs of medieval Europe to be replaced by permanent centres of exchange, led to a growing regularity and predictability of financial settlements and thus to the greater use of bills of exchange and notes of credit. In Amsterdam especially, but also in London, Lyons, Frankfurt, and other cities, there arose a whole cluster of moneylenders, commodity dealers, goldsmiths (who often dealt in loans), bill merchants, and jobbers in the shares of the growing number of joint-stock companies. Adopting banking practices which were already in evidence in Renaissance Italy, these individuals and financial houses steadily created a structure of national and international credit to underpin the early-modern world economy.
Nevertheless, by far the largest and most sustained boost to the ‘financial revolution’ in Europe was given by war. If the difference between the financial burdens of the age of Philip II and that of Napoleon was one of degree, it still was remarkable enough. The cost of a sixteenth-century war could be measured in millions of pounds; by the late seventeenth century, it had risen to tens of millions of pounds; and at the close of the Napoleonic War the outgoings of the major combatants occasionally reached a hundred million pounds a year. Whether these prolonged and frequent clashes between the Great Powers, when translated into economic terms, were more of a benefit to than a brake upon the commercial and industrial rise of the West can never be satisfactorily resolved. The answer depends, to a great extent, upon whether one is trying to assess the absolute growth of a country as opposed to its relative prosperity and strength before and after a lengthy conflict.6 What is clear is that even the most thriving and ‘modern’ of the eighteenth-century states could not immediately pay for the wars of this period out of their ordinary revenue. Moreover, vast rises in taxes, even if the machinery existed to collect them, could well provoke domestic unrest, which all regimes feared – especially when facing foreign challengers at the same time.
Consequently, the only way a government could finance a war adequately was by borrowing: by selling bonds and offices, or better, negotiable long-term stock paying interest to all who advanced monies to the state. Assured of an inflow of funds, officials could then authorize payments to army contractors, provision merchants, shipbuilders, and the armed services themselves. In many respects, this two-way system of raising and simultaneously spending vast sums of money acted like a bellows, fanning the development of western capitalism and of the nation-state itself.
Yet however natural all this may appear to later eyes, it is important to stress that the success of such a system depended on two critical factors: reasonably efficient machinery for raising loans, and the maintenance of a government’s ‘credit’ in the financial markets. In both respects, the United Provinces led the way – not surprisingly, since the merchants there were part of the government and desired to see the affairs of state managed according to the same principles of financial rectitude as applied in, say, a joint-stock company. It was therefore appropriate that the States General of the Netherlands, which efficiently and regularly raised the taxes to cover governmental expenditures, was able to set interest rates very low, thus keeping down debt repayments. This system, superbly reinforced by the many financial activities of the city of Amsterdam, soon gave the United Provinces an international reputation for clearing bills, exchanging currency, and providing credit, which naturally created a structure – and an atmosphere – within which long-term funded state debt could be regarded as perfectly normal. So successfully did Amsterdam become a centre of Dutch ‘surplus capital’ that it soon was able to invest in the stock of foreign companies and, most important of all, to subscribe to a whole variety of loans floated by foreign governments, especially in wartime.7
The impact of these activities upon the economy of the United Provinces need not be examined here, although it is clear that Amsterdam would not have become the financial capital of the continent had it not been supported by a flourishing commercial and productive base in the first place. Furthermore, the very long-term consequence was probably disadvantageous, since the steady returns from government loans turned the United Provinces more and more away from a manufacturing economy and into a rentier economy, whose bankers were somewhat disinclined to risk capital in large-scale industrial ventures by the late eighteenth century; while the ease with which loans could be raised eventually saddled the Dutch government with an enormous burden of debt, paid for by excise duties which increased both wages and prices to uncompetitive levels.8
What is more important for the purposes of our argument is that in subscribing to foreign government loans, the Dutch were much less concerned about the religion or ideology of their clients than about their financial stability and reliability. Accordingly, the terms set for loans to European powers like Russia, Spain, Austria, Poland, and Sweden can be seen as a measure of their respective economic potential, the collateral they offered to the bankers, their record in repaying interest and premiums, and ultimately their prospects of emerging successfully from a Great Power war. Thus, the plummeting of Polish governmental stock in the late eighteenth century and, conversely, the remarkable – and frequently overlooked – strength of Austria’s credit for decade after decade mirrored the relative durability of those states.9
But the best example of this critical relationship between financial strength and power politics concerns the two greatest rivals of this period, Britain and France. Since the result of their conflict affected the entire European balance, it is worth examining their experiences at some length. The older notion that eighteenth-century Great Britain exhibited adamantine and inexorably growing commercial and industrial strength, unshakable fiscal credit, and a flexible, upwardly mobile social structure – as compared with an ancien régime France founded upon the precarious sands of military hubris, economic backwardness, and a rigid class system – seems no longer tenable. In some ways, the French taxation system