Anachronism & Relevance in History: a comment on Steve Pincus

Anachronism and relevance are in tension. Historians (often) rail against the former and (often) pine for the latter. They can easily manage a bit of relevance by intervening in today’s political and economic debates and offering ‘lessons’ from the past — but at high risk of anachronism. That’s certainly how I view Yale historian Steve Pincus’s intervention in The New York Review of Books, “1776: The Revolt against Austerity“. (Edit: Steve Pincus has replied in the comments section!)


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The main thrust of the article is to rephrase a more or less conventional account of the American Revolution in terms of the contemporary language of ‘austerity’ and ‘stimulus’. The American colonies revolted against Britain in the face of tax impositions, constraints on commerce, and restrictions on frontier expansion. I do not dispute the substance of that narrative, but I do object to the uses of the words ‘austerity’ and ‘stimulus’ in that context.

Is my objection merely semantic ? I think not. Pincus rides roughshod over pretty basic distinctions crucial to contemporary debates about the government management of business cycles. He subtracts from, not adds to, popular economic knowledge.

The classic Keynesian prescription is that the state should add to aggregate demand by running large fiscal deficits when there is insufficient demand in the economy, e.g., a recession. Whether the state should actually be doing that has been passionately debated since… for ever but especially since 2008 in both Europe and the United States. Austerity in this context has meant doing the opposite: even though revenue naturally falls as a result of the recession, it is argued, the government should eliminate the deficit all the same.

In other words, ‘stimulus’ is not any kind of government spending at any time and ‘austerity’ is not any kind of fiscal retrenchment at any time. It is certainly not ‘stimulus’ in today’s economic parlance if the government builds roads, canals, and ports while also balancing the budget. It would do rhetorical violence to Keynesian logic to call that stimulus.

Yet the conflation of the demand-side management of business cycles and the supply-side development of the economy is what Pincus does throughout the article, especially near the end: “America’s founding document called for an American state that would promote economic growth…” And below he goes full throttle, giving the impression that European governments accumulated large debts for what we today might call ‘development’ spending or investment :

The controversy over austerity in the British Empire had a long history. Throughout the seventeenth and eighteenth centuries, European governments borrowed huge sums of money to finance their various state-building projects, with Britain setting the pace. These governments faced huge debts with uncertain means of repayment. Until George III’s accession to the throne in 1760, the British government had supported the economic development of the colonies, spending generously on infrastructure and subsidizing the immigration of many politically and religiously persecuted groups to North America. As recently as the 1730s the British state had subsidized the peopling of the new province of Georgia with immigrants from the Scottish Highlands and all across Europe. William Pitt continued these stimulus policies during his joint ministry with the duke of Newcastle in the late 1750s. Pitt, who believed that British imperial prosperity was intimately related to demographic and economic growth in America, refused to tax the colonies during the enormously expensive Seven Years War (also known as the French and Indian War) that began in the mid-1750s. Along with Newcastle, he drew up plans to populate newly conquered territories from Canada to Cuba, and supported bounties that would help the colonies develop new products for export to American and European markets.

But, of course, almost all of these debts were accumulated as costs of war. From John Brewer, The Sinews of Power: War, Money, and the English State, 1688-1783, pg 94 :

brewer94

As can be seen in the chart, wars were followed by peace-time reduction or stabilisation of the national debt. I’m not disputing that the British state spent on ‘investment’. I’m merely saying the national debt that so exercised 18th century British statesmen in peace time had been the result of war finance.

Another issue which Pincus papers over is timing. Keynesians typically argue austerity in times of slump or weak demand feeds a vicious cycle: as you eliminate the deficit (reduce demand even more), the economy worsens, and revenue falls even more, which prompts more calls for austerity, etc. I’m not saying anything special or insightful here. That has been the logic used against the German insistence on austerity for Greece since the financial crisis began.

Was the economy weak in 1763 ? I suppose I could cite reconstructed GDP estimates, but like Pincus I will just quote from Adam Smith, The Wealth of Nations, Book V, Chapter 3:

To the honour of our present system of taxation, indeed, it has hitherto given so little embarrassment to industry that, during the course even of the most expensive wars, the frugality and good conduct of individuals seem to have been able, by saving and accumulation, to repair all the breaches which the waste and extravagance of government had made in the general capital of the society. At the conclusion of the late war, the most expensive that Great Britain ever waged, her agriculture was as flourishing, her manufacturers as numerous and as fully employed, and her commerce as extensive as they had ever been before. The capital, therefore, which supported all those different branches of industry must have been equal to what it had ever been before. Since the peace, agriculture has been still further improved, the rents of houses have risen in every town and village of the country—a proof of the increasing wealth and revenue of the people; and the annual amount the greater part of the old taxes, of the principal branches of the excise and customs in particular, has been continually increasing—an equally clear proof of an increasing consumption, and consequently of an increasing produce which could alone support that consumption.

At least according to Smith, the British economy was doing pretty well at the conclusion of the Seven Years’ War. The fact that the government after 1763 tried to make the colonies shoulder the burden of war expenses may have incited them to revolt, but I don’t think that can really be called ‘austerity’ as we mean it today.

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I also want to comment on several specific statements made by Pincus:

What alternative strategy did the authors of the Declaration propose? Today, we tend to regard the practice of using government spending to stimulate economic growth as an invention of John Maynard Keynes in the 1930s. But already in the eighteenth century, self-styled Patriots, followers of Pitt on both sides of the Atlantic, argued that what the British Empire needed if it was to recover from the fiscal crisis was not austerity but an economic stimulus. In the midst of the crisis one journalist wrote that Pitt and the Patriots believed that the burgeoning debt could be reduced by increasing “the national stock,” or Gross National Product, whereas Prime Minister Grenville believed “that an hundred and forty millions of debt is to be paid by saving of pence and farthings.”

I think the assertion regarding Pitt and Grenville is historically inaccurate. Here is the full quote from the journalist cited by Pincus :

Mr. Pitt thinks that the national stock ought to be increased; that our unprovided debt should be established on on proper funds; that the sinking fund ought to be increased by new supplies, and not simply by futile savings; and that this this fund ought to be kept sacredly inviolable.

Mr. Grenville thinks, that an hundred and forty millions of debt is to be paid by saving of pence and farthings, that the unfunded debt should be left to take care of itself; that the sinking fund is to be applied to as present resource; and that at the same time the revenue is to receive no new aid, but what it may derive from his economy.

The sinking fund was an account to stash surpluses in during peace time so that the government might draw upon them during wars and incur less debt. This was a fairly big issue in 18th century financial politics. Pitt (the elder) wanted current revenue in peace time to contribute to the sinking fund, whereas Grenville preferred to deposit savings from budget cuts. Either measure would have reduced the total amount of consumption spending in the economy.

In other words, Pitt and Grenville were just debating different forms of what Pincus would describe as ‘austerity’ !

George III’s ministers were determined to end what they perceived as economic redistribution to the colonies at the expense of wealthy English landowners and the government itself.

Actually, in the mid to late 18th century, the most important source of tax for the British exchequer was customs and excise tax. From Floud & Johnson (2004), page 218:

harris

So the 18th century wars partly waged on behalf of the colonies had not been paid mostly by the great landowners of Britain.

[the American] founders blamed George III and his government not for taxing too much but for doing too little to stimulate consumer demand.

Really ? That does not seem true even by the facts Pincus himself presents in the article:

Instead of subsidizing immigrants, George III’s Prime Minister George Grenville announced the Proclamation Line of 1763, designed to limit the demographic expansion of the North American colonies. Instead of encouraging the colonies to trade with Spanish America, the ministry instructed the Royal Navy to prohibit any intercolonial trade. Rather than lowering customs duties in order to encourage commercial activity, the ministry passed the 1763 Hovering Act, which made it easier to enforce existing customs regulations. Instead of allowing the colonies to bet on future growth by printing paper money, Grenville passed the Currency Act of 1764, which forbade the colonies to emit any new currency. Finally, in 1765, Grenville ushered the American Stamp Act through the House of Commons, a measure that was designed in part to restrict the colonial land market.

Almost everything mentioned above refer to tax, duties, restrictions on commerce, acquisition of new land, etc., all of which would have been understood in the 18th century as… tax and restrictions on commerce and property. Pincus certainly shows no evidence that any of those would have been regarded in Keynesian terms.

The Currency Act of 1764, however, could definitely be called a tight money policy for the colonies, although I doubt (but don’t know for sure) if anyone thought about it in those terms. The Act was nonetheless the culmination of a long history of attempts to suppress payments to British merchants in debauched colonial paper money. It was not something new to the Grenville ministry and predates the war. From Green & Jellison :

Unlike other features of the general restrictive program adopted by imperial authorities after 1763,  the Currency Act in no sense represents a sharp break with previous policy. Influenced by British merchants who feared that colonial legislators would attempt to force payment of sterling debts in depreciated paper, imperial authorities had never been sympathetic to colonial paper money. In 172o  they had sent a circular instruction to governors of ten colonies forbidding passage of laws to issue such currencies without a suspending clause, and they eventually gave a similar instruction to all governors.2 They insisted upon a rigid adherence to this instruction, but it was often ignored in times of emergency with the result that opponents of paper currencies began to demand Parliamentary action. Parliament responded in 1741  by passing a statute aimed specifically at the Massachusetts land bank of i740  to prohibit such organizations from issuing further legal tender paper bills and the following year contemplated placing strict regulations on the currencies of all the colonies. However, Parliament did not act again until 1751,  when it forbade the emission of legal tender currencies in all of the New England colonies.3 This prohibition did not apply to the colonies from New York to Georgia, and during the French and Indian War their legislatures found it necessary to issue large quantities of paper to pay for military operations. Some depreciation followed, and British merchants viewed the scene with increasing alarm.

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Finally, this whole business of drawing ‘lessons’ from history must be done with more care. Are the fiscal capacities of mid-18th century European states even comparable with the taxing and debt-carrying capacities of modern industrial economies ? Is there really a lesson in 1763-76 to teach the present ?

Today, industrial economies routinely collect 30-50% of GDP in tax revenue and service quite large national debts, with Japan exceeding 200% of GDP. Yet few industrial economies face significant constraints on further borrowing.

Britain in the 18th century collected up to 20% of GDP in tax during war time, but that was considered an extraordinary expedient. No one knows for sure, but it’s difficult to believe what was still a predominantly agrarian economy could even maintain such a rate in peace, especially via tax on land. There’s a good reason for why early modern states relied so much on customs and excises.

Although they are contested, there are plenty of good arguments that austerity is both unnecessary and counterproductive in today’s environment. But none of that implies that was also true in the 18th century. If Britain was alarmed by the size of the national debt in 1763, it was not necessarily unjustified — even if superficially similar worries today might be. After all a massive proportion of British tax revenue simply went to pay interest. Again from Brewer:

brewer95

Compare with the current USA, where the interest on the national debt is about 7% of the central government budget.

Pincus says Adam Smith supplied “robust theoretical support on all of these issues”, but Smith certainly worried about the capacity of the state to take on too much debt. At the end of the previously cited passage from The Wealth of Nations Book V, Chapter 3, he concluded:

Great Britain seems to support with ease a burden which, half a century ago, nobody believed her capable of supporting. Let us not, however, upon this account rashly conclude that she is capable of supporting any burden, nor even be too confident that she could support, without great distress, a burden a little greater than what has already been laid upon her.

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I suppose the politics of business cycle management inevitably gets mixed up with the larger left-right dispute about how much the state should be involved in the economy at all. But that doesn’t make Pincus’s article a constructive use of history to inform the present. His parallels are too simplistic. His rhetoric effaces the distinctions important to the austerity debate. By mixing up arguments about austerity with other issues, Pincus throws in about eight babies into the bathwater — and harms the public understanding of Keynesianism.

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7 Responses to Anachronism & Relevance in History: a comment on Steve Pincus

  1. dearieme says:

    “The American colonies revolted against Britain in the face of tax impositions,”: or, in the case of the Boston Tea Party, revolted against the substantial removal of an imposition.

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  2. Steven Pincus says:

    The anonymous author has leveled a series of criticisms of my argument relying on some ostensibly impressive evidence. Unfortunately she/he has taken much of this out of context or read it devoid of context to render the arguments somewhat less persuasive

    First the author suggests that because so much of Britain’s deficit was created by war spending and that the deficit decreased during peacetime there is no evidence that Britain pursued counter cyclical policies. Alas the evidence the author produces shows the opposite. In fact Britain’s first great debt crisis was in the latter years of the War of Spanish Succession (1701-1713). The Tory government that came to power in 1710 did want to put a halt to the war and a variety of forms of government spending so as to balance the books. They wanted to pursue what we would now call austerity policies. The Whigs who came to power in 1714 refused to do this and despite the economic downturn and the large debt spent money on infrastructure in Scotland and the colonies at significant rates. The result, as Brewer shows, was to decrease the deficit in the 1720s and 1730s, despite going to war 1718-1720 and 1728-1730. The stimulus seemed to work

    Second it is import at to note that Britain’s response to the debt crises of the eighteenth century were unusual. Most European states in the eighteenth century spent well over 80% of their revenues on the military. After spending several years working through the Treasury papers in Britain’s national archives the economist/political scientist James Robinson and I have found that Britain spent about 65% on the military. In two forthcoming papers we explain that that difference was spent on de eloping Scotland and the colonies. Brewer himself, the anonymous critic should have pointed out, makes a similar point

    Third it should be noted that Grenville and his allies were well aware that during victorious wars radical Whig governments felt justified in spending on other non-military projects. That was why Grenville and Viscount Bolingbroke before him, opposed not only civil expenditure during economic downturns but also going to war under Whig regimes. Grenville constantly said despite Britain’s great victories 1757-1763 the Seven Years War was a great mistake

    Fourth the anonymous author quotes Adam Smith saying that the economy was growing in the 1760s. This demonstrates the great weakness of decontextualized history. The author is right. smith did say that. But then he was one of the bitterest critics of Grenville’s policies. The mounds of internal memoranda of the Grenville administration argued just the opposite. They believed the economy was in free fall because of the war and they cut government spending was the best way to solve the problem. ( the immense amount of economic discontent in England in the 1760s — the cider tax riots and the Spitalfield riots for example gave ample evidence to support their case)

    Fifth the anonymous author has asserted that William Pitt was just pursuing an alternative austerity policy. In fact, the author has misread the quote that he helpfully provided. Pitt wanted to spend money on infrastructure in the newly gained colonies, he wanted to support expansion into the west with government support — much in the way that Parliament had provided the start up costs for Georgia during the difficult economic times that were the 1730s, and he wanted to spend money to settle decommissioned British officers in the colonies. He also wanted to use the anticipated growing colonial demand for British manufactured goods to rebuild the sinking fund to pay down the debt. In other words Pitt wanted the government to spend money so as to generate economic growth that would in the medium term allow the government to pay down the debt. All of this is made clear in the Pitt papers in the National Archives and also in some of the memoranda in the Rockingham papers now held in Sheffield

    Sixth my anonymous critic says there is no evidence that the American Founders wanted more government spending and not just fewer taxes. in fact the Founders called for a return to subsidized immigration explicitly in the Declaration. They also wanted the government to return to the policy of creating and financing free ports so as to allow the colonials to trade with the Soanish and French colonies. Also — and again context her is useful — many of the Founders including George Washington had from the 1760s lamented that Grenville had rejected the Patriot policy of subsidizing colonial growth, even during difficult economic times, rather than trying to spend as little as possible on the colonies.

    Debt was very much a central concern for political economic commentators throughout the eighteenth century. While many like Adam Smith wondered about the limits to government borrowing, there was by no means a consensus on how to react. My point is that in the eighteenth century many — including the Patriots on both sides of the Atlantic — thought the best response to economic downturn was government spending. Others, like George Grenville and Lord North thought the government should try to save to balance the books. Those arguments do bear a great resemblance to the arguments being advanced today.

    The author of this piece is absolutely right that historians need to be careful in drawing contemporary parallels. They also need to be careful to place their arguments in historical context and not rip evidence out of that context to serve their polemical purposes. It is my contention after spending a decade working through materials in a variety of archives and thinking through a huge amount of treasury data that the parallels with our current situation, while not exact, are quite suggestive

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    • I never denied that Britain invested in development whether in the colonies or in Scotland or anywhere else.

      My whole argument was about how to characterise government spending — whether it should be called ‘stimulus’ or not in the Keynesian sense. I argued that you conflate the two categories of spending, viz., demand-side countercyclical spending and supply-side investment spending unrelated to the business cycle.

      First the author suggests that because so much of Britain’s deficit was created by war spending and that the deficit decreased during peacetime there is no evidence that Britain pursued counter cyclical policies

      Unless there was peace-time deficit spending, there was no stimulus. Period.

      The only way to say Britain pursued ‘countercyclical policies’ was that such policies (1) coincided with weakness or slump in the economy; and (2) state actors were aware of the weakness in the economy. Casually alluding to ‘debt crises’ as though these were tantamount to recessions in the modern sense is simply wrong.

      I did say the national debt accumulated in the 18th century was the result of war spending, not ‘development’ spending. If you and Robinson have unearthed hard evidence which would mitigate that claim, then I await your estimate of what percentage of the debt contracted during the 18th century was for ‘development’ spending.

      Also — and again context her is useful — many of the Founders including George Washington had from the 1760s lamented that Grenville had rejected the Patriot policy of subsidizing colonial growth, even during difficult economic times, rather than trying to spend as little as possible on the colonies.

      The same thing. You’ve presented zero evidence that Washington was calling for what today we would call countercyclical stimulus policies via deficit spending. Why on earth are you citing the subsidisation of immigration ? One could support that for any reason. Why would you call that Keynesian stimulus ?

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  3. Steven Pincus says:

    The author has now conceded the argument. The issue is whether there was a deficit spending during a period of perceived economic weakness. Note that the issue is perceived since we are debating the intent of the policies

    Britain’s economy was perceived to be weak and in decline relative and absolute both in the 1730s when the Patriots clamored for increased government spending on development and subsidized immigration to the colonies and in the 1760s when the Patriots complained about Grenville’s pinching pennies. That was the context in which they wanted the state to pay for increased migration to the colonies. These were counter cyclical calls for spending

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    • Pincher Martin says:

      “The issue is whether there was a deficit spending during a period of perceived economic weakness.”

      The issue is whether “austerity” is properly used in the context of British-American colonial economic relations, and whether you have subtracted from, rather than added to, public knowledge about European and U.S. economic history by making such an explicit comparison to contemporary thinking about current events.

      As for the blogger’s identity, anonymity does not make his arguments any better or worse. Nor is your argument made any more or less anachronistic by attaching your real name to it.

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  4. Why can’t Steven Pincus point to a published speech or letter by Pitt the Elder (or anyone who agreed with him against Grenville in 1763-65), which called for peace-time deficit finance ? That would unequivocally support his point.

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  5. I would like to go back to the stated subject of the post, viz., anachronism. There is that anachronism which is simply an out-of-awareness mistake. There is also that anachronism which is unscrupulous, the tossing of a bait word into a supposedly serious discussion. But there is also the kind that is a pedagogical tool, a serious joke, a device to wake up the listener and sharpen awareness. I’m all in favor of the latter – and I heard plenty of it in college from Morton Smith, from whom I took an ancient history course in 1970. Smith’s summarizations were often anachronistic and provocatively, even notoriously reductive. They still shine in the memory, forty five years later.

    So the question is perhaps not just whether Pincus has gotten the history right, it’s whether he’s got control of terms like “austerity” and whether, in using them, his intent is to clarify or to stir up some mud. I don’t know the answers, of course, but what does seem clear is that, in the last part of the review, Pincus is making a political attack on opponents’ political use of an overtly political document – a document that is framed, as all “platforms” are framed, as a statement of principles. This is the same battle, renewed every four years (and never really dropped in the media) of who can best claim the founding fathers’ sanction, as if Washington and Jefferson were still, in 2015, the fount of all legitimacy.

    But isn’t it possible that the founding fathers, in their list of grievances in the Declaration of Independence, were not (at least not in every phrase) expressing deep convictions, but simply rattling off a list of popular discontents in the hope of energizing their base of support?

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