Debt and democracy

General rule: one can raise higher taxes, in proportion to the liberty of the subjects; and one is forced to moderate them to the degree that servitude increases. This has always been, and will always remain so. It is a rule drawn from nature, which does not vary at all; one finds it in all countries, in England, in Holland, and in all states in which liberty becomes degraded, right down to Turkey.

Montesquieu

The Seven Years War (1756-1763) was a bunch of major powers (Austria, France, Russia) ganging up to cut Prussia down to size. The English joined in on the Prussian side, on the theory that an enemy of France was a friend of theirs. The war was also a world war, long before World War One, involving fighting as far afield as North America and India. On the international side, it was a win for England, and a loss for France, with the French losing Quebec and India.

The war brought home an important advantage of a constitutional state over an absolutist one. England was able to raise higher taxes on its subjects because they were voting for the taxes themselves, through Parliament. And England was able to borrow money for the war on easier terms than France, because English lenders were more confident that Parliament wouldn’t default on its debts: many of those who bought English war bonds either stood in Parliament, or voted for those who did. In spite of the “absolutist” label, French kings had a harder time squeezing money out of their subjects, and resorted to a lot of dubious expedients. For example, the government raised money by selling life annuities to investors: pay a lump sum for the annuity, and the government would pay back a fixed amount for every year the beneficiary was alive (sort of reverse life insurance). This led, among other things, to a syndicate of investors buying annuities on behalf of groups of young girls (such as The Thirty Geneva Maidens), judged the best bet, actuarially, for long life expectancies.

Generally they had to have reached the age of seven so as to be beyond the risk of smallpox. These maidens received the finest medical care, and Geneva’s wealthy bourgeoisie followed their health in the newspapers – not surprising given the huge investments that rested on their shoulders.

But the government was in such financial straits that it eventually started paying only a fraction of the promised annuities. The military weakness of the French state, stemming from its fiscal weakness, was the major cause of the French Revolution.

It would be nice to follow Montesquieu, and draw an improving moral lesson from this: constitutional liberty beats absolutism. But things played out differently in Eastern Europe, where there was less of a commercial sector to tap, and governments depended more on coercion – serfs serving their lords, lords serving the state – to keep up as great powers. There, the great constitutional state – the elective monarchy of Poland – was reduced to a second rank power, and eventually eliminated entirely. The most impressive military power, relative to its size, was Prussia, “not a country with an army, but an army with a country.” This was not the last time that military exigencies would push social evolution in very different directions in Western and Eastern Europe.

See A Free Nation Deep in Debt: The Financial Roots of Democracy

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