Last week we got
into a little discussion about Merrie Old England. One individual started gushing about how so
many inventions ’n stuff had come out of England, and wondered why this was
so. Of course, this particular
individual was into Art & Literature, so wasn’t too clear on just which
inventions she was talking about, but we got the general drift.
 |
| The sun never sets on the British Empire (even God doesn't trust 'em in the dark) |
Her opinion was
that there must be something extra-special about the English people that made
them so inventive so that they came up with capitalism, the British Empire, and
all kinds of good stuff like that.
Or not.
In any event,
there is — in our opinion — one very good reason why Merrie Old England
developed economically with such great rapidity, and why other countries lagged
behind until the United States took off in the latter half of the nineteenth
century. And that reason?
The Old Lady of
Threadneedle Street, a.k.a., “the Bank of England,” considered the first true
central bank.
No, really.
 |
| Bank of England, dontcherknow. Ripping, what? Pip, pip. |
The fact is, the
English aren’t inherently better or worse than any other nationality. People are people, or (in terms of Scholastic
philosophy), all human beings are as fully human, and are human in the same
way, as all other humans. (That’s the
principle of identity, by the way, the positive way of stating the first
principle of reason.)
What the English
had, at least at a critical period in time, was not better people, but better institutions,
especially the social tool of the State, and most particularly a central bank. Until 1844 the Bank of England was more or
less able to do what a central bank is supposed to do. That is, supply adequate liquidity (money and
credit) to the private sector for economic development. Central banks were not, contrary to popular
myth, invented or intended to finance government. That’s just an accident of history we’ve
discussed at length on this blog before.
 |
| Manchester workers at the mercy of foreign cotton imports |
The Bank of
England was established in 1694. Almost
immediately the English — that nation of shopkeepers — began a commercial
expansion unrivaled up to that time.
This created demand, and inspired new inventions to produce marketable
goods and services more efficiently and at lower cost.
The new machinery
was so much more productive than human labor that England was producing its
collective head off, and goods were piling up.
So, what did they do?
They went out and
got themselves an empire, not in a fit of abstraction, but to get captive markets
for English goods and services, and sources of raw materials to feed the
incredible productive behemoth the country had become. From the mid-eighteenth century to the
mid-nineteenth century, unbelievable wealth poured into England, and goods and
services flooded the world. It was no
coincidence that the British Crown turned over development of India to a
private mercantile company, which held the subcontinent for a century before
its misrule for profit caused the Great Mutiny, and the Crown imposed its
misrule for politics.
There was just
one problem. No one thought to build
mass consumption power into the people in the markets who were supposed to be
consuming all those goods and services.
At the same time, government finance became less dependent on taxation,
and more dependent on floating debt to be repaid . . . sometime.
How did that
happen? As a result of the owners of the
machines not being able to consume anywhere near what they produced, and the
owners of labor (and stomachs and bodies) not being able to produce anywhere
near what they consumed.
And how did that happen? As a result of the owners of labor not being
able to purchase the machinery that was taking away their ability to produce. So, to take up the slack, government (and not
just in England) began creating demand by issuing debt-money backed only by its
own promise to pay in an effort to balance production and consumption.
Of course, the
only rational way to balance production and consumption is to ensure as far as
you can that every producer can consume what he or she produces, and every
consumer can produce what he or she consumes.
That’s Say’s Law of Markets, which we’ve also covered in great detail a
number of times on this blog.
Things began to
get a little wonky . . . okay, a lot
wonky. The money supply of Merrie Old
England never seemed to match the needs of commerce. There always seemed to be either too much or
too little.
 |
| Magic tricks don't solve too may problems these days (or ever) |
The (rich)
powers-that-be and the politicians decided that the problem was all those
private sector commercial banks serving the financing needs of ordinary people
by indiscriminately extending credit for private sector investment, especially
capital projects. Since the private
sector could not be trusted to create the right amount of money by servicing
its customers needs, the British Bank Charter Act of 1844 restricted all money
creation to the Bank of England (or they thought it did, when it really didn’t;
the framers of the Act didn’t understand money, banking, credit, or finance),
with any increases coming from the import of gold, and any decreases coming
from export of gold.
It worked like a
magic charm, which is to say, not at all.
A series of currency crises hit Great Britain due to the money supply
not having any direct connection to production, and consumers increasingly alienated
from production, and producers from consumption.
In the space of
twenty years, Great Britain’s commercial preeminence was in serious
trouble. At the same time, that of the
United States was about ready to take off . . . and start making the same
mistakes Great Britain had made.
#30#