50. Alesina, ‘End of Large Public Debts’, p. 62. A somewhat similar role to that of the German Mefo was played by the Italian Consorzio Sovvenzioni su Valori Industriali during the Second World War: Zamagni, ‘Italy’, p. 200.
51. Eichengreen, ‘Discussion’, pp. 83 f.
52. I have not calculated annual averages for short-term interest rates, though this could also be done. For annual averages or means of monthly short-term interest rates from 1824 until 1938, see Mitchell and Deane, Abstract of British Historical Statistics, p. 460. Figures for the period before 1824 would not be illuminating because there was a usury ceiling of 5 per cent from 1714 until 1833, though this ceased to be an effective constraint from around 1817.
53. The famous cartoon by James Gillray was published on 22 May 1797.
54. Millard, ‘Examination of the Monetary Transmission Mechanism’.
55. The largest monthly percentage increases/decreases in the yield on consols, 1754–1998:
56. The source for this and the following calculations is NBER series 11021.
57. Gilbert, Twentieth Century, vol. i, p. 690.
58. German public sector yields for the period 1928–35 are taken from E. Wagemann, Konjunkturstatistisches Jahrbuch (1936), p. 113. I am grateful to Dr Joachim Voth for supplying this series.
59. Frey and Kucher, ‘History as Reflected in Capital Markets’, esp. pp. 478 f.
60. Capie, Goodhart and Schnadt, ‘Development of Central Banking’, p. 30. All calculations from the series for ‘Long-Term U.S. Government Securities; Including Flower Bonds, Board of Governors’, Federal Reserve Bank of St Louis website.
61. Calculated from data in The Economist.
62. The Economist, 31 March 1848.
63. Ibid., 17 November 1854.
64. Ibid., 29 April 1859.
65. Lipman, ‘The City and the “People’s Budget”’, pp. 68 ff. The ‘bid–ask spread’ is the spread between prices sought by sellers of bonds and the prices buyers are willing to pay.
7. Dead Weights and Tax-eaters: The Social History of Finance
1. Cobbett, Rural Rides, p. 121.
2. Zola, L’Assommoir, pp. 24–7.
3. Kaelble, Industrialization and Social Inequality, table 1. 5.
4. Feinstein, ‘Pessimism Perpetuated’, appendix.
5. Rubinstein, ‘British Millionaires’, pp. 207–9.
6. See in general Cannadine, Class in Britain.
7. Heine, ‘Lutetia’, in Sämtliche Schriften, vol. v, pp. 448 ff.
8. Körner, ‘Public Credit’, p. 510.
9. Heffer, Carlyle, pp. 263 f.
10. Hocquet, ‘City-State and Market Economy’, pp. 87–91.
11. Goldsmith, Premodern Financial Systems, pp. 167 ff.
12. Ormrod, ‘England in the Middle Ages’, p. 136.
13. Schultz and Weingast, ‘Democratic Advantage’, pp. 11, 24 f.
14. Körner, ‘Public Credit’, p. 529.
15. Bosher, French Finances, pp. 262, 265.
16. Hamilton, ‘Origin and Growth of the National Debt in Western Europe’, p. 121.
17. North and Weingast, ‘Constitutions and Commitment’.
18. Cobbett, Rural Rides, p. 150.
19. Ibid., pp. 117, 38, 183; 66; 160; 47; 34, 53.
20. Ibid., p. 92.
21. Ibid., p. 117.
22. Marx, Capital, Bk. I, ch. 31.
23. Heine, ‘Ludwig Börne’ in Sämtliche Schriften, vol. iv, p. 28.
24. Pulzer, Rise of Political Anti-Semitism, pp. 43 ff.
25. Lane and Rupp (eds.), Nazi Ideology before 1933, pp. 31 f.
26. On the political background, see Hilton, Corn, Cash and Commerce.
27. I am grateful to J. F. Wright of Trinity College, Oxford, for providing me with his figures, based on his research in the Bank of England archives.
28. See Ch. 2. On the US, see Brown, ‘Episodes in the Public Debt History’, p. 235.
29. Gallarotti, Anatomy.
30. Eichengreen, Golden Fetters, ch. 1.
31. Gladstone’s purchases of Ottoman loans secured on the Egyptian tribute to Turkey – which yielded a handsome profit following the British occupation of Egypt which he himself ordered – were typical of the age: see Ch. 9.
32. Buxton, Finance and Politics, vol. i, p. 30.
33. Lipman, ‘The City and the “People’s Budget”’. The events of 1830 and 1909–10 are explored in more detail in Ferguson, World’s Banker, chs. 8 and 29.
34. Bordo and Rockoff, ‘Good Housekeeping’, pp. 319 f.
35. Flandreau, Le Cacheux and Zumer, ‘Stability Without a Pact?’.
36. Maier, Recasting Bourgeois Europe. See also id., ‘Politics of Inflation’.
37. Alesina, ‘End of Large Public Debts’, pp. 38 f.
38. Ibid., p. 40.
39. For an illuminating discussion see Maier, ‘Interest Representation’, pp. 247–60.
40. McKibbin, ‘Class and Conventional Wisdom’.
41. Keynes, Tract on Monetary Reform, pp. 3, 29, 36.
42. Graham, Exchange, Prices and Production, esp. pp. 289, 318–21, 324.
43. Holtfrerich, German Inflation, pp. 271–8.
44. Feldman, Great Disorder, pp. 46 f., 816–19.
45. Wormell, Management of the National Debt, p. 662.
46. Morgan, Studies in British Financial Policy, p. 135.
47. Ibid., p. 136.
48. Balderston, ‘War Finance’, p. 236.
49. Bordo and Rockoff, ‘Adherence to the Gold Standard’.
50. Keynes, Economic Consequences, pp. 220–233.
51. Keynes, Tract on Monetary Reform, pp. 3, 29.
52. See Feldman, Great Disorder, passim; Ferguson, Paper and Iron, pp. 419–33.
53. Keynes, How to Pay for the War, pp. 57–74.
54. Cf. Dornbusch, ‘Debt and Monetary Policy’, pp. 11, 15. Dornbusch puts the average real yield on consols between 1946 and 1980 at just 0.48 per cent.
55. Social Trends 1995, table 5.9.
56. Benefits include contributory as well as non-contributory cash payments, education, health care, housing subsidies, travel subsidies and school meals. Taxes include income tax, national insurance, local taxes and indirect taxes.
57. I am grateful to Martin Wolf of the Financial Times for this quotation.
58. Duncan and Hobson, Saturn’s Children, p. 77; cf. pp. 50, 52, 67.
59. Micklethwait and Wooldridge, Future Perfect, p. 151.
60. See Goodin et al., Real Worlds of Welfare Capitalism; Atkinson, Economic Consequences.
61. See e.g. Freeman, ‘Single Peaked vs. Diversified Capitalism’.
62. Social Trends 1995, table 5.12.
63. Jamieson, British Economy, p. 182.
64. Figures from Bank of England website. Cf. Goodhart, ‘Monetary Policy’, p. 43, table 8.
65. Ibid., pp. 41 f.
66. The Economist, 10 January 1998.
67. Boskin, ‘Federal Deficits’, p. 78. Other assumptions necessary for the ‘Ricardian’ model are that households are rational, that capital markets are perfect, that future income and tax shares are known, that taxes are lump sum and that the transaction costs for issuing and redeeming bonds are zero: Velthoven, Verbon and van Winden, ‘Political Economy’, pp. 9 ff.
68. Musgrave, ‘Public Debt’, p. 144.
69. Broadway and Wildasin, ‘Long Term Debt Strategy’, p. 64.
70. The following section draws heavily on Ferguson and Kotlikoff, ‘Degeneration of EMU’.
71. It is assumed that each successive generation’s lifetime net tax payment (their generational account) is x per cent larger than that of the previous generation, where x is the economy’s growth rate of real wages per hour. Future rates of population growth and economic growth are based on official projections.
72. Barro, Macroeconomics, p. 383.
73. Kotlikoff and Raffelheuschen, ‘Generational Accounting’, also offer figures showing the necessary cuts in government purchases (
as opposed to transfers).
74. Anyone who doubts this should consider that, if policy remains unchanged, the share of the federal budget which is consumed by social security spending is set to rise from just over a fifth (20.8 per cent) to only slightly less than a third (32.4 per cent) by 2030.
75. Deutsche Bundesbank, ‘Opinion’, tables 3 and 4.
76. Cardarelli, Sefton and Kotlikoff, ‘Generational Accounting in the UK’.
77. Peterson, ‘Grey Dawn’.
78. The Economist, 10 June 2000.
79. Ibid., 4 March 2000.
80. According to Kotlikoff and Raffelheuschen, ‘Generational Accounting’, Thailand could – and indeed should – more than double government transfers in order to achieve generational balance. Alternatively, it could cut all taxes by 25 per cent, or virtually abolish income tax altogether.
81. Broadway and Wildasin, ‘Long Term Debt Strategy’, p. 39.
82. Tabellini, ‘Politics of Intergenerational Redistribution’, p. 70.
83. Daykin, ‘Funding the Future?’, pp. 22 f.
84. Stein, ‘Mounting Debts’, pp. 32–5.
85. Lawson, View from No. 11, p. 37.
86. Butler, British General Elections since 1945, pp. 69 f.
87. Jones and Kavanagh, British Politics Today, p. 90.
88. Coxall and Robins, Contemporary British Politics, p. 156.
89. Butler and Kavanagh, The British General Election of 1997, pp. 81, 108, 236.
90. McMorrow and Roeger, ‘Economic Consequences of Ageing Populations’, p. 66.
91. Jeremy Harding, ‘The Uninvited’, London Review of Books, 3 February 2000, p. 3.
92. Stephan Thernstrom, ‘Plenty of Room for All’, Times Literary Supplement, 26 May 2000.
93. The Economist, 8 July 2000.
94. James, Globalization and its Sins, p. 195.
95. Ibid., esp. p. 168. See also O’Rourke and Williamson, Globalization and History.
8. The Myth of the Feelgood Factor
1. See e.g. Financial Times, 11 February 1999.
2. For the same reason, four eminent American political scientists were confident at the time of writing (May 2000) that, despite opinion polls to the contrary, Vice-President Al Gore was assured of a comfortable victory in that year’s presidential election. Washington Post, 26 May 2000.
3. Norpoth, ‘Economy’, p. 299.
4. Matthew, Gladstone, pp. 162–6.
5. Blake, Disraeli, p. 523.
6. Gall, Bismarck, vol. ii, p. 125.
7. Hanham, Elections and Party Management, pp. 222 f.
8. Blake, Disraeli, p. 704. Neither claim has stood up to subsequent scholarly investigation.
9. Hanham, Elections and Party Management, p. 228 f.
10. Blake, Disraeli, p. 719.
11. Foster, Churchill, p. 117.
12. See in general Marsh, Chamberlain.
13. Clarke, Hope and Glory, p. 32.
14. Hennessy, Never Again, p. 427.
15. Jeffrys, Retreat from New Jerusalem, p. 25.
16. Horne, Macmillan, pp. 64 f. It is often forgotten that Macmillan went on to warn of the danger of inflation; ‘the problem of rising prices’.
17. Ibid., p. 336.
18. Castle, Diaries, p. 149.
19. Lewis-Beck, Economics and Elections, p. 13.
20. Castle, Diaries, p. 631.
21. Benn, Conflicts, pp. 177, 179.
22. Ibid., p. 214.
23. Ibid., p. 342.
24. Saatchi, ‘Happiness Can’t Buy Money’, p. 4.
25. Ibid., p. 10.
26. Thatcher, Downing Street Years, p. 153.
27. Ibid., pp. 560, 567.
28. Lawson, View from No. 11, pp. 245 f.
29. Ibid., p. 694.
30. Tebbit, Upwardly Mobile, p. 161.
31. Ibid., pp. 200 ff.
32. Ibid., p. 254.
33. Fowler, Ministers Decide, pp. 282 f.
34. Baker, Turbulent Years, pp. 269, 277.
35. Ridley, ‘My Style of Government’, p. 221. See also pp. 21, 86, 196.
36. King et al., New Labour Triumphs, p. 228. Cf. Peter Kellner, ‘Major’s Farewell to Feelgood Factor’, Observer, 30 March 1997.
37. You Can Only Be Sure With the Conservatives: The Conservative Manifesto 1997, p. 7.
38. Saatchi, ‘Happiness Can’t Buy Money’, p. 13.
39. The Times, 24 April 1997.
40. Today programme, BBC Radio 4, 21 February 1999.
41. Financial Times, 10 April 1997.
42. Will Hutton, Observer, 30 March 1997.
43. See Butler and Kavanagh, The British General Election of 1997, p. 303. Cf. David Butler, ‘The Spinner’s Web’, Times Literary Supplement, 15 January 1999.
44. Saatchi, ‘Happiness Can’t Buy Money’, p. 14.
45. Clarke, Hope and Glory, p. 32.
46. Castle, Diaries, p. 93.
47. The indicator used was the Bank of England base rate or Minimum Lending Rate at end of month.
48. Downs, Economic Theory, pp. 20, 28.
49. Nordhaus, ‘Political Business Cycle’.
50. Tufte, Political Control, p. 12.
51. Brittan, ‘Excessive Expectations’, p. 251.
52. Jay, General Hypothesis, p. 31.
53. Hibbs, ‘Political Parties’, fig. 8, p. 1482. In fact, the difference between the two parties was remarkably low: 0.6 per cent. If the same calculation had been done ten years later, the difference would have been far higher.
54. For a development of the Hibbs thesis, see Alesina and Sachs, ‘Political Parties and the Business Cycle’.
55. Clarke and Whiteley, ‘Perceptions of Macroeconomic Performance’, p. 114.
56. See esp. Persson and Svensson, ‘Stubborn Conservative’; Alesina, ‘Political Economy of the Budget Surplus’. It should be emphasized that Alesina’s ‘rational partisan theory’ only really works for relatively polarized two-party systems.
57. Alesina and Roubini, ‘Political Cycles’; Alesina, Cohen and Roubini, ‘Macro-economic Policy’.
58. Norpoth, ‘Economy’, p. 317.
59. For an introduction to these complexities, see Frey and Schneider, ‘Recent Research’.
60. Norpoth, ‘Economy’, p. 303.
61. Lewis-Beck, Economics and Elections.
62. Paldam, ‘How Robust is the Vote Function?’, esp. p. 24.
63. Powell and Whittan, ‘Cross-national Analysis of Economic Voting’, p. 407. They studied nineteen industrial democracies from 1969 to 1988.
64. Kramer, ‘Short-term Fluctuations in US Voting Behavior’. See also Stigler, ‘General Economic Conditions’.
65. Fair, ‘Effect of Economic Events’. See also his ‘1992 Update’.
66. Partly on the basis of GDP figures from the fourth quarter of the pre-election year through the first quarter of election year Michael Lewis-Beck forecast that Gore would win 56.2 per cent of the two-party vote: Washington Post, 26 May 2000. Fair’s model predicted a far closer result: see www.fairmodel.econ.yale.
67. Goodhart and Bhansali, ‘Political Economy’, pp. 61 ff. In their regressions, total R2 was 0.38 for the whole period 1947–68, but rose to 0.81 for the period 1961–8.
68. Clarke and Whiteley, ‘Perceptions of Macroeconomic Performance’, p. 110. Allowing for a lag of four months, they find that a 1 per cent rise in unemployment was associated with a 3.9 per cent fall in popularity, and an equal rise in inflation was associated with a 1.1 per cent fall in popularity.
69. Norpoth, Confidence Regained.
70. Benn, Conflicts, p. 214.
71. Ibid., p. 340.
72. Kirchgässner, ‘Economic Conditions’.
73. Lafay, ‘Political Dyarchy’, p. 131.
74. Thatcher, Downing Street Years, pp. 270, 272.
75. Lawson, View from No. 11, p. 247.
76. For evidence of the sophistication of American voters on this issue even in the early 1960s, see Katona, Psychological Economics, pp. 339
f.
77. Johnston, et al., Letting the People Decide, p. 222.
78. Studlar, McAllister and Ascui, ‘Privatisation’.
79. Alt, Politics of Economic Decline, pp. 49–55, 127.
80. Fiorina, Retrospective Voting, pp. 21–30.
81. Sniderman and Brody, ‘Coping’; Kiewiet and Kinder, ‘Economic Discontent’; Kiewiet, Macroeconomics and Micropolitics, esp. tables 5.4 and 6.2, pp. 64 f., 89. See also Feldman, ‘Economic Self-Interest’.
82. Feldman and Conley, ‘Explaining Explanations’, table 1, p. 190.
83. Kramer, ‘Ecological Fallacy’; Markus, ‘Personal and National Economic Conditions’, table 1, p. 146, and p. 148.
84. On this basis, Thomas Holbrook predicted in May 2000 that Gore would win 59.6 per cent of the two-party vote: Washington Post, 26 May 2000.
85. Alt, Politics of Economic Decline, pp. 14–20; Clarke, Stewart and Zuk, ‘Politics, Economics and Party Popularity’, table 5, p. 133. See also on the US Fiorina, Retrospective Voting, p. 41; Kiewiet, Macroeconomics and Micropolitics, tables 4.1 and 4.2, pp. 43 ff. See also Powell and Whitten, ‘Cross-national Analysis of Economic Voting’, p. 405; Anderson, Blaming the Government.
86. Mischler, Hoskin and Fitzgerald, ‘British Parties’, pp. 222 ff.
87. Norpoth, Confidence Regained, table 5.4, p. 74, table 9.1, p. 180.
88. Särlvik and Crewe, Decade of Dealignment, pp. 83, 87.
89. Franklin, Decline of Class Voting, fig. 4.6, p. 95; table 6.5, p. 147; fig. 7.2, p. 171; also Norris, Electoral Change, p. 141.
90. See e.g. (for the US) Key, Responsible Electorate, table 3.1, p. 35; Weatherford, ‘Economic Conditions’, fig. 2, p. 926; Fiorina, ‘Elections and the Economy’, pp. 28–32; Lanoue, From Camelot, table 5.3, p. 81. In general, see Evans (ed.), End of Class Politics?
91. See e.g. Bloom and Price, ‘Voter Response’; Lau, ‘Two Explanations’; Lanoue, From Camelot, p. 80, and table 6.1, p. 95. But see Fiorina and Shepsle, ‘Negative Voting’.
92. Butler and Stokes, Political Change, pp. 402 ff. Cf. on the US, Key, Responsible Electorate.
93. Horne, Macmillan, p. 336.
94. Kramer, ‘Short-term Fluctuations in US Voting Behavior’. Cf. Clarke and Stewart, ‘Prospections’.
95. See also Fiorina, Retrospective Voting; Kiewiet and Rivers, ‘Retrospective Voting’.
96. For US presidential elections, MacKuen, Erikson and Stimson, ‘Peasants or Bankers?’ See also for the Senate and Congress, Kuklinski and West, ‘Economic Expectations’.
The Cash Nexus: Money and Politics in Modern History, 1700-2000 Page 61