Dominic Lawson: A lesson from the Napoleonic Wars

Bastiat argued that when public expenditure is cut, the immediate consequence is highly visible; but the effect of that money being returned to taxpayers is not seen

Share
Related Topics

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. Bastiat repelled them as follows: "A hundred thousand men, costing the taxpayers a hundred million francs, live as well and provide as good a living for their suppliers as a hundred million francs will allow. That is what is seen. But a hundred million francs, coming from the pockets of the taxpayers, ceases to provide a living for these taxpayers and their suppliers, to the extent of a hundred millions francs. That is what is not seen... You do not see that, before, the country gives the hundred million francs to the hundred thousand [soldiers] for doing nothing; afterwards it gives them the money for working... If all things considered, there is a national profit in increasing the size of the army, why not call the whole male population of the country to the colours?"

Bastiat was, in fact, advancing the same argument that George Osborne and his colleagues are putting forward the best part of two centuries later: that public spending is a substitute for private spending, which adds nothing to overall levels of employment, and can have the perverse effect of directing people into occupations and enterprises for which there is political, rather than popular, demand.

George Osborne however, chose not to be as brutally direct to Parliament last week as Bastiat was to the French assembly: "As a temporary measure in a time of crisis, this intervention on the part of the taxpayer could have good effects... As a permanent, general, systematic measure, it is nothing but a ruinous hoax... which makes a great show of the little work that it has stimulated, which is what is seen, and conceals the much larger amount of work that it has precluded, which is what is not seen."

Naturally, those in the Britain of 2010 who believe that Gordon Brown's doubling of the cost of the state to the individual represents a good deal for all tend to be those whose wages and index-linked final salary pensions are paid for out of general taxation, rather than voluntarily, by the consumer and business. They would be right to argue that many of those so paid are doing work genuinely welcomed by the population, and much more socially useful than the engorged French standing army of Bastiat's day. Yet the engorgement of the "modern" public sector, complete with unproductive jobs of merely political significance, dwarfs anything that Bastiat could have contemplated.

For example, I was told last week by a very senior police officer that his force spends as much of its time (and the public's money) "auditing" crime, as it does in detection – the job the public rightly thinks is the police's proper function. By "auditing", he essentially meant pure bureaucracy – complying with Government edicts and targets – quite detached from the business of keeping the public safe. This is a point worth bearing in mind if the police begin to complain that any cut in their number will inevitably lead to more crime going undetected.

The opponents of Bastiat's attack on the bloated French military protested not just that the nation's safety would be put at risk, but that those released would be unable to find other work: the same argument might be used in the months to come in response to any cut in our police budgets. Yet can it really be true that those who have entered public service are so inadequate or untalented that they would be unable to find employment by anyone other than a beneficent and indulgent state? Such an argument would surely be doing our public servants a deep injustice.

In this context it is worth recalling that the British economy is not, actually, in recession. It is growing, albeit slowly. Moreover the global economy, in absolute contrast to the 1930s – which Labour keeps citing as analogous to our present predicament – is expanding at an annual rate of about 4 per cent. We are not in the "Keynesian moment" of a world-wide slump and a massive contraction of export markets; and, by the way, Maynard Keynes himself believed that public debt should never be much higher than 25 per cent of Gross Domestic Product, making George Osborne's targets look rather expansive by comparison.

This is not to deny that the next few years will be painful, acutely so for those who have long been dependent on the taxpayers' enforced largesse; but even Alistair Darling, when Chancellor, warned that a re-elected Labour government would have to make public expenditure cuts "much tougher and deeper than Thatcher's". Believe it or not, it's for the best. The alternative, as Frederic Bastiat pointed out all those years ago, is "a ruinous hoax".

d.lawson@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Supply Teachers

Negotiable: Randstad Education Crawley: Randstad Education can provide you wit...

Year 4 Teacher

Negotiable: Randstad Education Plymouth: Year 4 Primary Teachers needed Randst...

Sessional ICT Teacher - GCSE

£120 - £162 per day: Randstad Education Hull: ICT teacher job in Humberside. ...

Year 6 Teacher - January start

£90 - £120 per day: Randstad Education Hull: Randstad Education are looking fo...

Day In a Page

Read Next
The Prime Minister David Cameron speaks outside Downing Street after the result of the Scottish Referendum  

Scottish referendum results: And now for the West Lothian question – but resolving it won’t be easy

Rosie Millard
No supporters react to results in the Scottish independence referendum at The Marriott Hotel in Glasgow as ballet papers are counted through the night.  

Scottish referendum results: Thank you, thank you, thank you to the No voters – the Union is saved

Andy McSmith
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week