Friday, 23 June 2017

Lord Liverpool and the economy 1812-1822

Lord Liverpool became Prime Minister after Spencer Perceval was assassinated in the lobby of the House of Commons in May 1812. He was the most underrated Prime Minister in the nineteenth century. described later in the century by Benjamin Disraeli as an ‘arch mediocrity’. Yet, he was a skilled politician and held together a government of strong personalities with differing opinions more prepared to serve under him than under each other. Between 1812 and 1822, he was faced with economic, political and radical challenges caused by the war against France and the problem of returning to peacetime conditions after the final defeat of Napoleon at Waterloo in 1815. Between 1822 and 1827, the government had considerable energy largely because of the emergence of what has been called ‘liberal Toryism’. It was damaged only by divisions within the Cabinet especially over the ‘Catholic question’ though even here Liverpool was able to head off serious tensions by making it an ‘open question’.



Liverpool’s stroke in February 1827 released long restrained tensions and rivalries. Within three years, his party was in tatters, divided and without effective leadership. Three Prime Ministers followed in quick succession. Liverpool’s successor, George Canning[1] died in August within months of gaining office. His successor, Viscount Goderich[2] was a disaster resigning without ever meeting Parliament. Finally, the Duke of Wellington took the helm in January 1828.[3] His ministry saw the repeal of the Test and Corporation Acts in 1828 and Catholic Emancipation the following year. Wellington’s refusal to accept parliamentary reform led to the fall of his government in November 1830. The Whigs were in power.

Year Events
1812 11 May: Assassination of Spencer Perceval 8 June: Lord Liverpool became Prime Minister
1815 Corn Laws passed 18 June: Napoleon defeated at Waterloo
1816 Income tax repealed against government’s wishes December: Spa Fields riots
1817 February: Habeas Corpus suspended March: Seditious Meetings Act March of the Blanketeers 9 June: Pentrich rising
1818 General Election
1819 May: Bullion Committee chaired by Peel recommended the phased resumption of cash payments by the Bank of England 16 August: Peterloo Massacre followed by the Six Acts
1820 29 January: George III died, succeeded by George IV; General Election February: Cato Street conspiracy June: beginnings of Queen Caroline affair December: Canning resigned over government’s handling of Queen Caroline affair
1821 December: Sidmouth resigned as Home Secretary
1822 Peel appointed Home Secretary 12 August: Castlereagh committed suicide. Canning becomes Foreign Secretary and Leader of House of Commons
1823 January: Robinson appointed Chancellor of the Exchequer October: Huskisson appointed President of the Board of Trade
1826 General Election
1827 March: Liverpool resigned following stroke on 17 February April: Canning became Prime Minister and Chancellor of the Exchequer 8 August: Canning’s death. Goderich became Prime Minister
1828 January: Goderich resigned and Wellington became Prime Minister Repeal of Test and Corporation Acts
1829 Catholic Emancipation
1830 June: Death of George IV. William IV succeeds July: Revolution in France August: General Election 2 November: Wellington ruled out parliamentary reform 16 November: Wellington resigned

How did Lord Liverpool’s economic policy develop 1812-1822?

Liverpool became Prime Minister towards the end of the protracted wars with France. By 1812, the duke of Wellington was winning the war against the French in Spain. The French defeat at Vitoria in August 1813 allowed him to cross the Pyrenees and invade France. Napoleon had been weakened by his unsuccessful invasion of Russia in 1812 and in early 1813 Liverpool and his Foreign Secretary, Lord Castlereagh[4] were able to set up the Fourth Coalition (Austria, Russia and Prussia). Napoleon was defeated in the three-day ‘Battle of the Nations’ at Leipzig in October 1813 and faced with a two-pronged invasion of France (Wellington from the south and the coalition partners from the east), he abdicated in 1814. Exiled to Elba, an island in the Mediterranean Napoleon plotted his return while the allies set about redrawing the boundaries of Europe at the Congress of Vienna. In March 1815, Napoleon returned to France but was defeated, in what Wellington called ‘a close-run thing’ at Waterloo in June. Exile was now permanent and Napoleon was sent to the southern Atlantic island of St. Helena where he died in 1821. Liverpool faced two major problems in the seven years after 1815: he needed to reorganise government finances depleted by the cost of the French Wars; and he had to face and deal with a revival of working-class radicalism.

How did Liverpool reorganise government finances?

The French wars saw two contradictory trends in the British economy. The need for uniforms and weapons to feed the war stimulated demand in increasingly mechanised manufacturing industry, especially textiles and iron and production increased dramatically. Mechanisation led to working-class resistance and Luddism.[5] Because of expansion in the agriculture sector, Britain was less reliant on imported food especially wheat. Large areas of England had been enclosed during the war. This made farming more efficient and allowed farmers to increase the amount of food they were producing. They borrowed money to pay for this but high profits meant that they could easily repay the banks. They could charge high rents for their land and the price of wheat remain high because the war restricted imports. By 1815, both industry and agriculture were outwardly strong but they were geared up for wartime production. The transition to peacetime proved difficult and posed a series of fundamental questions that taxed government until the 1840s. What should the place of agriculture be in an industrialised society? How could the competing claims of farmers and industrialists be resolved? What was the relationship between consumers and producers? What role should government have in determining the overall direction of the economy?

British governments in the late-eighteenth century did not attempt to control change in the economy. After 1815, unemployment rose because of the demobilisation of the armed forces and the need to cut labour costs especially in farming and textiles.[6] In returning the economy to peacetime conditions, ministers were forced to take a more active role. ‘Corn’ and ‘Cash’ dominated debates in the 1810s and ‘Commerce’ became important in the 1820s. Each posed major political problems for the Tories.

‘Corn’

Between 1813 and 1815, corn prices fell following good harvests in 1813, 1814 and 1815 and the return to peace in 1814 brought unwelcome foreign grain imports. Farmers and tenants found themselves under pressure. Lower prices and high wartime taxation meant that they often found it difficult to repay bank loans. This had the following consequences for the farming sector. There were many bankruptcies amongst farmers who had borrowed to invest in their land during the war and who now faced with falling prices. Falling prices led to some landowners reducing the rents paid by their tenants. Falling prices and a surplus labour force caused largely by the demobilisation of the armed forces led to farmers reducing the wages they paid resulting in ‘distress’ in areas where farming was the main occupation.

These events culminated in the passage of the Corn Law of 1815 that prevented the import of grain until the price fell below 80 shillings a quarter (28 lbs.) for wheat. As grain prices rarely rose as high as 80 shillings, this measure effectively ensured that local farmers could get a high price for their grain without foreign competition. Why did Liverpool’s government decide to introduce legislation seen as unfair and favouring one sector of society? The protection of farming was not new originating in the Corn Laws passed in 1773 and 1804. Also, Liverpool could not ignore the fate of one of the country’s largest single economic interests, whose votes mattered in Parliament. A Corn Law was justified on the grounds of national security as Britain might need a reliable domestic supply of food. Finally, legislation was needed to maintain stability, as agriculture was the largest employer of labour and higher prices were justified to protect jobs.

Liverpool saw legislation as temporary to help farming return to normal after the war but the landed interest saw it as permanent or at least long-term. Parliament was dominated by landowners and farmers and they voted for legislation that the government had little option but to accept. Previous Corn Laws had tried to balance the interests of producers and consumers by maintaining prices at levels acceptable to both. The 1815 Act clearly favoured the interests of the producers. Manufacturers attacked the legislation. Parliament was, they argued interfering with the free market in their own narrow interests. Radical politicians regarded it as class legislation keeping corn prices artificially high to help farmers while penalising working people through higher food costs. Reaction was swift. There were petitions and riots in London in March. Politicians’ houses were attacked and troops had to be brought to the capital to restore order. Higher food prices fuelled working-class distress especially in rural England and riots in 1816 and again in 1818 were, in part a violent reaction to the Corn Laws.

Even so, there were demands from tenant farmers for further protection of farming after 1815 especially during the agricultural crisis of 1821-1823. However, political attitudes were changing. Liverpool was convinced, largely by the actions of radicals between 1815 and 1821 that governments that pandered to farmers at the expense of working-class consumers or tax-paying industrialists had a dangerously narrow political base. He made his own position clear in February 1822: ‘The agricultural is not the only interest in Great Britain. It is not even the most numerous.’ Farmers were being told bluntly that they no longer dictated government policies. Abolition of the Corn Laws was not practical but reform was. The government introduced minor changes in 1822 but price levels meant that they never came into operation. Liverpool regarded this as an interim measure while considered a more permanent solution.

Rising wheat prices from 1823, the financial crisis in 1825 and growing depression in manufacturing industry in 1826 brought fresh demands for the abolition of duties on foreign grain. Manufacturers lobbied Parliament and anti-Protectionists tried to make it an issue in the 1826 General Election. Liverpool made it clear in 1826 that he intended to revise the 1815 Act the following year. The 1827 and 1828 Corn Laws introduced by Canning and Huskisson respectively completed the process begun in 1822. These acts provided a sliding scale of duties that operated from 60 shillings and reduced to a nominal rate at 73 shillings a quarter. They were a compromise because of disagreement in the Cabinet on how best to handle this sensitive issue.

‘Finance’

Britain’s financial state in 1815 was not healthy: the French wars had been expensive, taxation was high and unpopular and ‘cheap’ paper money had been circulating since 1797 when Britain had gone off the Gold Standard[7] and the Bank of England had suspended payments in gold and silver and began to issue paper currency (£1 and £2 notes). Income tax (direct taxation)[8] brought in about a fifth of government income. Working-class radicals argued that indirect taxes[9] (duties or tariffs) pushed food prices up and hit working people unfairly. In 1814-1815, government spending exceeded income from taxation by 45 per cent. The national debt had risen from £238 million in 1793 to £902 million in 1816. Roughly, eighty per cent of government expenditure was needed simply to pay the interest on loans.

Reducing public spending and paying off its debts (a process called retrenchment) was a major priority for Liverpool’s government after 1815. Liverpool recognised that the transition to lower peacetime taxation would take time. What Liverpool and his Chancellor Nicholas Vansittart needed was a period of financial stability. Income tax was central to this stability. By 1815, it accounted for a fifth of all government income and while it had never been popular, it had been tolerated. With the end of the war, demands for its abolition increased and in 1815 and 1816 the Whigs organised a national campaign against it. This was successful and in 1816, Liverpool failed, by thirty-seven votes, to continue the tax.

Abolishing income tax may have been popular but it left government finances in chaos. To make up the lost income, Liverpool had to reduce government spending, borrow money and increase indirect taxation. £340,000 was trimmed from defence spending in 1816. Government departments pruned and a ten per cent cut was made in official salaries. Liverpool could do little to reduce spending further. By 1818, he controlled only nine per cent of revenue. The rest was swallowed up servicing the interest on the National Debt, war pensions and interest on loans necessary to meet the deficit of £13 million. There was an overwhelming need for reform of the financial system.

Liverpool recognised that sustained economic growth meant a return to ‘sound money’ (low levels of interest and cash payments in gold and silver rather than paper currency). He set up a Select Committee on Currency chaired by Sir Robert Peel. In May 1819, it recommended the gradual resumption of cash payments by 1823. This transition was achieved ahead of time and from 1821, Britain was back on the Gold Standard. Financial experts favoured the end of wartime paper currency arguing that a return to a fixed Gold Standard was essential to a sound monetary policy. The landed interest supported cash payments. For them, it meant a return to ‘proper’ money and the end of a paper currency that represented financial speculation, industrialisation and uncontrolled urban development. Industrialists in the northern textile towns, by contrast, saw the decision as premature.

By 1818, government income through taxation covered the costs of government spending or a balanced budget. However, Liverpool still faced the problem of having to continue to borrow money from the London money market to pay off existing debts. Interest rates rose after 1815 and the government had to borrow money at high rates of interest to service existing debts. This led to a rising National Debt. The radical press, landowners who had to pay higher interest charges on loans but were faced with lower agricultural prices and industrialists were critical of ‘tax eaters’ and ‘fund holders’ who seemed to be holding the nation to ransom. The case of a review of the national system of finance was necessary economically and politically. A second committee looked at government finance (taxation, spending and borrowing). The recommendations of this committee led to Vansittart’s budget of 1819 that imposed £3 million of new taxes, including a new malt tax, and took £12 million out of government reserves to balance the budget. This was seen to herald a ‘new system of finance’. It established the two principles of fiscal management that dominated the remainder of the century: government should aim for a surplus of income from taxation over government spending; and that a balanced or surplus budget helped to restore public confidence in government.

‘Trade’

Liverpool recognised that a revival in trade and manufacture was essential if his fiscal policy was to work effectively. ‘Trade’ was the third strand of his policies. It was thought that removing tariffs on imports and loosening commercial regulations would stimulate the sluggish economy but Liverpool’s approach was cautious. The government derived much of its income from customs and excise. Farmers were suspicious of moves towards freer trade, as they believed this would inevitably lead to the repeal of the Corn Laws.[10] Many merchants and manufacturers supported protection in markets in which they were weak arguing for freer trade only where they had the competitive advantage. Liverpool echoed these attitudes in a speech on trade in the House of Lords on 26 May 1820 that was guarded in its approach. He made clear the advantages of freer trade but he reassured his audience that he was not considering abandoning agricultural protection and believed that absolute free trade was out of the question. Two committees were established to lay down strategies for implementing the move to freer trade. Thomas Wallace, Vice-President of the Board of Trade played a central role arguing that freer trade would help industries out of depression, encourage the search for new markets and generate employment. With Vansittart, he drew up the blueprints for the reforms that Frederick Robinson, Vansittart’s successor as Chancellor and William Huskisson undertook after 1823.

In 1819 and 1820, Liverpool had established clear guidelines for the development of new financial and commercial policies. Sound money policy, together with these reforms, led to a dramatic increase in government revenue. By 1822, the government was in surplus and Robinson’s budget had excess revenue of £5 million. In 1823, he budgeted for a surplus of £7 million of which £5 million was used to repay debts leaving £2 million for tax cuts. Surplus budgets in 1824 and 1825 allowed reductions in excise duties on a range of consumer goods and raw materials including coal, iron and wood and on spirits, wine, rum, cider and coffee. In fact, there were budget surpluses until 1830 though they were insufficient to allow further tariff reductions. The limits of tax reduction had been reached and Liverpool recognised, as early as 1824 that the only way out of this financial stalemate was the reintroduction of income tax. John Herries, Chancellor of the Exchequer under Goderich was preparing to do so when the ministry collapsed in early 1828 and Henry Goulburn, Wellington’s Chancellor was only prevented in doing so in the 1830 budget because of the Prime Minister’s opposition.

Changes in commercial policy began in 1821 when Wallace reduced duties on timber imports. The following year he simplified the Navigation Acts allowing the colonies freer trade with foreign countries while Anglo-colonial trade was still restricted to British ships. In 1823, Wallace resigned when William Huskisson[11] became President of the Board of Trade and he has not received the credit for developing the commercial policies that Huskisson then implemented. In 1823, the Reciprocity of Duties Act reduced tariffs if other countries would follow suit and by 1827, most European countries and the United States had negotiated agreements for mutual abolition or adjustment of discriminatory tariffs. Foreign ships were allowed freer access to British ports especially London which became the centre of world trade. The policies of Wallace and Huskisson proved very successful and there was a sixty-four per cent increase in tariff revenue between 1821 and 1827.

Just how committed was Liverpool’s government to free trade? Barry Gordon regards Wallace’s decision in 1821 to reduce timber duties as ‘the first practical step towards implementation of laissez-faire in the post-war period’. Boyd Hilton disagrees seeing the free trade commercial policies of the 1820s as motivated by very practical considerations: the 1821 Agricultural Report made it clear that the United Kingdom could no longer feed itself and the Corn Laws were seen as an obstacle to getting the necessary food from the continent. A reliable and cheap food supply was essential to maintain public order. In Boyd Hilton’s view, free trade reform was based on fiscal and agricultural policies designed to stabilise rather than expand the economy. Norman Gash argues that Liverpool’s economic policies were essentially ‘social’ in character. His aim was to make the economy more prosperous and as a result reduce working-class discontent.

Liverpool supported the abolition of legal restrictions on the export of machinery, emigration of artisans and trade unions. He was prepared to legislate to deal with particular problems. The Poor Employment Act of 1817 offered government loans for public work schemes to help the unemployed. In 1819, a Factory Act regulated the employment of children in textile mills and the legal position of Friendly Societies[12] was clarified. Restrictions were imposed on trade unions in 1825 a year after the repeal of the Combination Acts. These were limited in scope and largely ineffective in practice. Neither Liverpool nor Huskisson were doctrinaire free traders. Their policies were based on a hard-nosed assessment of the economic advantage Britain could gain, the prosperity and political stability this would bring.


[1] George Canning (1770-1827) entered Parliament in 1784 and held various government offices including Foreign Secretary (1807-1808, 1822-1827). He became Prime Minister and Chancellor of the Exchequer a short time before his death in August 1827.
[2] Frederick Robinson, 1st Viscount Goderich (1782-1859) was Chancellor of the Exchequer between 1823 and 1827. He was asked to serve as Prime Minister after the death of his friend Canning but was unable to control his ministers. He resigned in January 1828. In 1833, he was created Earl of Ripon and served as Whig Lord Privy Seal (April 1833-May 1834) but later joined the Conservative Party serving as a minister between 1841 and 1843 in Peel’s government
[3] Arthur Wellesley, 1st Duke of Wellington (1769-1852) rose to fame as a military leader in the French wars culminating in his victory over Napoleon at Waterloo in 1815. He was Prime Minister between 1828 and November 1830. A sound military leader, he lacked the political flexibility to be a good Prime Minister and party leader.
[4] Robert Stewart, Viscount Castlereagh, 2nd Marquess of Londonderry (1769-1822) was Foreign Secretary between 1812 and 1822. He was very influential at the Congress of Vienna at the end of the French wars especially his ideas about a European balance of power. Highly-strung and almost incapable of taking criticism, he committed suicide
[5] The Luddites were machine breakers who operated in Nottinghamshire, south Lancashire and Yorkshire between 1811 and 1813. The term ‘Luddism’ is often applied more generally to any movement in which machines were smashed to protect existing technologies and employment.
[6] Up to a quarter of a million soldiers and sailors were demobilised in 1815 and 1816. Unemployment went up dramatically because it did not prove possible to absorb so many people into work
[7] Gold Standard. System under which a country’s currency is exchangeable for a fixed weight of gold on demand at the central bank.
[8] Direct taxation was taxes levied on individuals directly. The most widespread was income tax introduced in 1797 by William Pitt. It was abolished in 1816 but revived by Sir Robert Peel in 1842.
[9] Indirect taxes were taxes imposed on good or services usually collected when the good move from one country to another (customs and excise duties) or at the point of sale. Tariffs are duties paid on goods.
[10] Free Trade--shorthand for the doctrine of laissez-faire—is the doctrine of non-interference by the state in economic matters. It derived from the teachings of classical economists like Adam Smith, Malthus and David Ricardo.
[11] William Huskisson (1770-1830) was President of the Board of Trade 1823-1827 where he continued the work of William Pitt on fiscal reform. He died after being knocked down by a locomotive at the opening of the Liverpool-Manchester railway in September 1830.
[12] Friendly Societies were set up often by working people to provide insurance for workers to cover things like sickness, unemployment and burial costs.


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