It being Budget Day yesterday in Britain I reached down Joseph Schumpeter’s weighty History of Economic Analysis (1954), which contains a short magnificent ode to Gladstonian finance. William Ewart Gladstone, four times Prime Minister and four times Chancellor of the Exchequer between 1853 and 1894, was a Tory who later became leader of the Liberal Party.
Reading Schumpeter’s praise of Gladstone I could not help wonder whether today's two-year old coalition of Conservatives and Liberal Democrats might surprise the country with unconditional support of the kind of radical retrenchment that Gladstone pursued in 1853, and to which both political parties are rightful heirs.
Wrote Schumpeter:
There was one man who not only united high ability with unparalleled opportunity but also knew how to turn budgets into political triumphs and who stands in history as the greatest English financier of economic liberalism, Gladstone…
The greatest feature of Gladstonian finance was that it expressed with ideal adequacy both the whole civilization and the needs of the time, ex visu of the conditions of the country to which it was to apply; or, to put it slightly differently, that it translated a social, political, and economic vision, which was comprehensive as well as historically correct, into the clauses of a set of co-ordinated fiscal measures…
Gladstonian finance was the finance of the system of natural liberty, laissez-faire, and free trade...
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The most important thing was to remove fiscal obstructions to private activity. And for this, in turn, it was necessary to keep public expenditure low. Retrenchment was the victorious slogan of the day...
It means the reduction of the functions of the state to a minimum...
Retrenchment means rationalisation of the remaining functions of the state...
The resulting economic development would in addition, so it was believed, make social expenditures largely superfluous...
Equally important was to raise the revenue that would still have to be raised in such a way as to deflect economic behaviour as little as possible from what it would have been in the absence of all taxation ('taxation for revenue only')...
And since the profit motive and the propensity to save were considered of paramount importance for the economic progress of all classes, this meant in particular that taxation should as little as possible interfere with the net earnings of business...
As regards indirect taxes, the principle of least interference was interpreted by Gladstone to mean that taxation should be concentrated on a few important articles, leaving the rest free...
Last, but not least, we have the principle of the balanced budget...
Schumpeter did not view Gladstonian finance as a general recipe for all times. It was, however, the appropriate strategy whenever deficits rendered countries vulnerable to unpredictable crises of internal or external origin. Realistically, he said, crises are perhaps the only time for restructuring and clearing away “dead wood”.
Apart from the economic policies they both favoured, Gladstone and Schumpeter shared a natural kind of sympathy for the process of creative destruction. Gladstone famously had two great hobbies. He felled trees. Because of this, Randolph Churchill, father of Winston, complained of Gladstone’s apparent relish for destruction. And yet, Gladstone was a bibliophile who restored books. He brought down dying oaks in order to plant new trees. And he preserved books, which in those days depended on trees. He was creative in various ways. It is said that Gladstone read Treasure Island while on his way to brief Queen Victoria on affairs of state. The cultural critic, John Ruskin criticized Gladstone’s governments for not spending enough on the arts. Schumpeter retorted that Ruskin’s kind of criticism is typically blind to the “social system as a whole”. Ruskin could not see that Gladstone’s economic policies “allow people to earn so that they have the money to buy pictures or to enjoy leisure”, which, in the end, was just a different method for achieving the same ends.
A curious episode in Britain’s austerity debates reminded me of Gladstone. There was public controversy earlier this year over the fig trees that adorn the atrium of the building where British members of parliament have their offices. Reports that the trees are rented from a private company at an annual cost to the taxpayer of £32,500 were discussed as far afield as the Wall Street Journal. In the face of mounting pressure from the British Taxpayers Alliance, the House of Commons Commission promised to renegotiate the tree rental contract.
Momentarily I had a vision of William Ewart Gladstone wielding his axe in the atrium.
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It being Budget Day yesterday in Britain I reached down Joseph Schumpeter’s weighty History of Economic Analysis (1954), which contains a short magnificent ode to Gladstonian finance. William Ewart Gladstone, four times Prime Minister and four times Chancellor of the Exchequer between 1853 and 1894, was a Tory who later became leader of the Liberal Party.
Reading Schumpeter’s praise of Gladstone I could not help wonder whether today's two-year old coalition of Conservatives and Liberal Democrats might surprise the country with unconditional support of the kind of radical retrenchment that Gladstone pursued in 1853, and to which both political parties are rightful heirs.
Wrote Schumpeter:
There was one man who not only united high ability with unparalleled opportunity but also knew how to turn budgets into political triumphs and who stands in history as the greatest English financier of economic liberalism, Gladstone…
The greatest feature of Gladstonian finance was that it expressed with ideal adequacy both the whole civilization and the needs of the time, ex visu of the conditions of the country to which it was to apply; or, to put it slightly differently, that it translated a social, political, and economic vision, which was comprehensive as well as historically correct, into the clauses of a set of co-ordinated fiscal measures…
Gladstonian finance was the finance of the system of natural liberty, laissez-faire, and free trade...
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Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
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The most important thing was to remove fiscal obstructions to private activity. And for this, in turn, it was necessary to keep public expenditure low. Retrenchment was the victorious slogan of the day...
It means the reduction of the functions of the state to a minimum...
Retrenchment means rationalisation of the remaining functions of the state...
The resulting economic development would in addition, so it was believed, make social expenditures largely superfluous...
Equally important was to raise the revenue that would still have to be raised in such a way as to deflect economic behaviour as little as possible from what it would have been in the absence of all taxation ('taxation for revenue only')...
And since the profit motive and the propensity to save were considered of paramount importance for the economic progress of all classes, this meant in particular that taxation should as little as possible interfere with the net earnings of business...
As regards indirect taxes, the principle of least interference was interpreted by Gladstone to mean that taxation should be concentrated on a few important articles, leaving the rest free...
Last, but not least, we have the principle of the balanced budget...
Schumpeter did not view Gladstonian finance as a general recipe for all times. It was, however, the appropriate strategy whenever deficits rendered countries vulnerable to unpredictable crises of internal or external origin. Realistically, he said, crises are perhaps the only time for restructuring and clearing away “dead wood”.
Apart from the economic policies they both favoured, Gladstone and Schumpeter shared a natural kind of sympathy for the process of creative destruction. Gladstone famously had two great hobbies. He felled trees. Because of this, Randolph Churchill, father of Winston, complained of Gladstone’s apparent relish for destruction. And yet, Gladstone was a bibliophile who restored books. He brought down dying oaks in order to plant new trees. And he preserved books, which in those days depended on trees. He was creative in various ways. It is said that Gladstone read Treasure Island while on his way to brief Queen Victoria on affairs of state. The cultural critic, John Ruskin criticized Gladstone’s governments for not spending enough on the arts. Schumpeter retorted that Ruskin’s kind of criticism is typically blind to the “social system as a whole”. Ruskin could not see that Gladstone’s economic policies “allow people to earn so that they have the money to buy pictures or to enjoy leisure”, which, in the end, was just a different method for achieving the same ends.
A curious episode in Britain’s austerity debates reminded me of Gladstone. There was public controversy earlier this year over the fig trees that adorn the atrium of the building where British members of parliament have their offices. Reports that the trees are rented from a private company at an annual cost to the taxpayer of £32,500 were discussed as far afield as the Wall Street Journal. In the face of mounting pressure from the British Taxpayers Alliance, the House of Commons Commission promised to renegotiate the tree rental contract.
Momentarily I had a vision of William Ewart Gladstone wielding his axe in the atrium.