Dominic Lawson: A Napoleonic Lesson on Austerity
[Dominic Lawson is a columnist for The Independent.]
There is a phrase never far from the lips of the Government's critics, one that has assumed a peculiar potency: it is that the coalition's plans to reduce our national debt "will take money out of the economy".
By this the critics say they are referring to the cuts in public expenditure outlined by George Osborne in his Budget last week – which are indeed eye-watering. Yet the alternative to such cuts would only be more tax rises: why could not that also be described as "taking money out of the economy"?
The truth is that it is debt that needs to be taken out of the economy – on a scale not contemplated since the Attlee administration fought to pay down the massive borrowings incurred in fighting the Second World War. Today the Labour party pretends that it is sustainable to borrow one in every four pounds of public expenditure – a position that it would have to reverse if it were still in Government.
It has, historically, been military adventures that have led governments into financial crises – and it is worth turning to an earlier such example in order to see the oddity of the argument that public expenditure cuts "take money out of the economy".
In the wake of the Napoleonic wars, the French were stuck, as it seemed, with a very large body of men in uniform, trained for fighting and not much else. Yet when a member of the national assembly, Frederic Bastiat, argued that the state should no longer finance an army of this scale, he was not popular.
Later, Bastiat addressed his critics in a remarkable essay entitled "What is seen and what is not seen". His basic argument was that when public expenditure is cut, the immediate consequence is highly visible – in that case, the redundancy of soldiers – but the effect of that money being returned to taxpayers, and the men made available for more profitable purposes than parading, is "not seen".
To illustrate this, Bastiat quotes from a typical speech of one of his opponents "Discharge a hundred thousand men! What are you thinking of? What will become of them? What will they live on? On their earnings? But do you not know that there is unemployment everywhere? ... Just at the moment when it is difficult to earn a meagre living, is it not fortunate that the state is giving bread to a hundred thousand individuals? Consider further that the army consumes wine, clothes, and weapons and thus spreads business to the factories and the garrison towns, and that it is nothing less than a godsend to its innumerable suppliers. Do you not tremble at the idea of bringing this immense industrial activity to an end?"
You can see from this that the theories we now know as Keynesianism were advocated avant la lettre in the French National Assembly of the first half of the 19th century...
Read entire article at Independent (UK)
There is a phrase never far from the lips of the Government's critics, one that has assumed a peculiar potency: it is that the coalition's plans to reduce our national debt "will take money out of the economy".
By this the critics say they are referring to the cuts in public expenditure outlined by George Osborne in his Budget last week – which are indeed eye-watering. Yet the alternative to such cuts would only be more tax rises: why could not that also be described as "taking money out of the economy"?
The truth is that it is debt that needs to be taken out of the economy – on a scale not contemplated since the Attlee administration fought to pay down the massive borrowings incurred in fighting the Second World War. Today the Labour party pretends that it is sustainable to borrow one in every four pounds of public expenditure – a position that it would have to reverse if it were still in Government.
It has, historically, been military adventures that have led governments into financial crises – and it is worth turning to an earlier such example in order to see the oddity of the argument that public expenditure cuts "take money out of the economy".
In the wake of the Napoleonic wars, the French were stuck, as it seemed, with a very large body of men in uniform, trained for fighting and not much else. Yet when a member of the national assembly, Frederic Bastiat, argued that the state should no longer finance an army of this scale, he was not popular.
Later, Bastiat addressed his critics in a remarkable essay entitled "What is seen and what is not seen". His basic argument was that when public expenditure is cut, the immediate consequence is highly visible – in that case, the redundancy of soldiers – but the effect of that money being returned to taxpayers, and the men made available for more profitable purposes than parading, is "not seen".
To illustrate this, Bastiat quotes from a typical speech of one of his opponents "Discharge a hundred thousand men! What are you thinking of? What will become of them? What will they live on? On their earnings? But do you not know that there is unemployment everywhere? ... Just at the moment when it is difficult to earn a meagre living, is it not fortunate that the state is giving bread to a hundred thousand individuals? Consider further that the army consumes wine, clothes, and weapons and thus spreads business to the factories and the garrison towns, and that it is nothing less than a godsend to its innumerable suppliers. Do you not tremble at the idea of bringing this immense industrial activity to an end?"
You can see from this that the theories we now know as Keynesianism were advocated avant la lettre in the French National Assembly of the first half of the 19th century...