The Economic Policies of Lord Liverpool

Robert Banks Jenkinson, 2nd Earl of Liverpool (“Liverpool,” 1770–1828) was UK prime minister over the period 1812–1827. His achievements were remarkable. He designed the financial attrition strategy that defeated Napoleon; led the United Kingdom through the turbulence of the takeoff stage of the industrial revolution; inherited a daunting fiscal situation that included a debt/​GDP ratio of well over 200 percent, and implanted the austerity measures needed to put this ratio onto the path that led to later Victorian levels; reformed the currency; pushed through the return to the gold standard; promoted both the Corn Laws and free trade; successfully managed the 1825 financial crisis, the worst in over a century; and pushed through subsequent reforms that put the UK banking system onto a stable trajectory that lasted into the late 20th century.Liverpool had a strong economics training from his father Charles Jenkinson, 1st Earl of Liverpool (“Jenkinson”), a leading Tory statesman in the late 18th century and best known to American audiences as the author of the Stamp Act.1 Jenkinson sent his son to Charterhouse, whose education was broader than that of Eton, and insisted that he read widely in political economy and current politics. While at Oxford, Liverpool engaged in the traditional “Grand Tour,” which took him to Paris in July 1789 where he witnessed the storming of the Bastille.Liverpool entered the House of Commons at the election of 1790 and was a front bench spokesman on economic matters by 1794. His first senior office was Master of the Mint in 1799, sponsored by his father, a leading expert on coinage.2 There he planned a major coinage restructuring, which he was to carry out as Prime Minister in 1816–1817. However, it was Jenkinson’s influence as much as his own merit that got him into Addington’s Cabinet as Foreign Secretary in 1801.War FinanceFrom late 1809, Liverpool was Secretary of State for War and the Colonies, overseeing Wellington’s campaign in the Iberian Peninsula. He outlined his preferred strategy to Wellington in September 1810:The question, in short, must come to this. We must make an option between a steady and continued exertion on a moderate scale, and a great and extraordinary effort for a limited time, which neither our means, military or financial, will enable us to maintain permanently. If it could be hoped that the latter would bring the contest to a speedy and successful conclusion, it would certainly be the wisest course; but unfortunately, the experience of the last fifteen years is not encouraging in this respect.3It was this central realization that made Liverpool a more successful strategist than Pitt; he understood that the growing strength of the UK economy and its superior financial system gave the UK government a major advantage over Napoleon’s financially unstable regime. A combination of stronger government finances, sustained financial attrition, and moderate but persistent military pressure would eventually win the war. When the war came to a head in 1813–1814, Liverpool pushed the British economy and taxation base to its limits and achieved his objective, but it was the earlier sustained pressure that had led to this point. By comparison, Pitt’s coalitions, maintained for short periods and based on exceptional strains to the British economy and government finance, had all failed, as did the Fifth Coalition of 1809.Finance underpinned Britain’s strategic position. Public spending had peaked at 24.8 percent of GDP in 1801, the last full year of the French Revolutionary War, and revenues were only 14.8 percent of GDP. Spending then rose further to peak at 25.1 percent of GDP in 1809, a level that could be sustained but hardly increased. The deficit at 3.8 percent of GDP in 1809 had been better controlled than under Pitt—an average of 4.0 percent of GDP in 1803–1810 compared with an average 8.9 percent of GDP in 1793–1801 and a fiscally horrifying 15.9 percent of GDP in the year to October 1797 (Mitchell 2011: 581, 587, 822).