ࡱ>    !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWYRoot EntryZ O2@ yXCONTENTS CompObjVSPELLING4 argely prevented from the imperial enterprise to focus instead on capital accumulation and production at home. The history of the Bank of England has its very beginnings in British aggression and expansionism--in this case, in the War of the League of Augsburg (1688-97). As the great historian of the Bank of England, John Clapham, has noted,  Had the country not been at war in 1694, the government would hardly have been disposed to offer a favourable charter to a corporation which proposed to lend it money. Surely this cannot be considered mere coincidence.# The founder of the Bank, Scotsman William Patterson, sought the establishment of the Bank  with the express purpose of providing what was at the time the immense loan of 1,200,000 to the English Crown. # Also most assuredly not mere coincidence is the almost immediate bankruptcy suffered by the insolvent fractional reserve Bank in 1696, which  survived only because of government help& The English Crown& remained its main customer and granted additional privileges, such as suspension of payments, and legal protection against the competition of other banks. # From its inception, therefore, the Bank served as the primary lender to the government in exchange for the monopoly on official note issues throughout the sterling area. The Bank was granted fractional reserve privileges, allowing it to issue notes often far in excess of its specie reserves and thereby increase the money supply, always to the benefit of those receiving the newly-created money first--and, therefore, at a higher value--namely, the British government. From the 1690s to the modern day, every measure passed by the British government granting new privileges to the Bank of England has been accompanied by a  financial quid pro quo, usuCHNKWKS TEXTTEXT`FDPPFDPPFDPCFDPCFDPCFDPCFDPCFDPCSTSHSTSHSTSHSTSH2SYIDSYIDPSGP SGP hINK INK lBTEPPLC pBTECPLC (FONTFONT<TOKNPLC TOKNPLC $4TOKNPLC lFTN FTN ֟NFTN FTN 8NSTRSPLC HAugsburg (16 Printing an Empire: The Bank of England and Imperial Finance Many are the tools of empire at the disposal of modern powers, and the situation was no different for imperial Great Britain. One of the less well-known and researched tools of empire is the great money-machine: fractional reserve central banking. From its beginnings in 1694 to the present, the Bank of England has served to finance the actions of the British government beyond what taxation will support. With the invention of monopolistic, fractional reserve central banking, governments were no longer bound to the heavy chains of taxation and could spend as they saw fit for virtually whatever ends and with very few structural impediments in their way. The history of European political activity prior to the advent of modern fractional reserve central banking demonstrates the restraining effects of a public finance supported entirely from taxation and the sale or lease of royal lands (as well as the occasional coin-clipping), as every increase in central spending resulted in a directly observable corresponding decrease in private capital.# With the new banking structure in England as of 1694, the British government could finance its operations through debt granted it by the Bank of England backed by a fluctuating fractional reserve. The financial floodgates had been opened and the world would suffer the consequences. This essay will briefly outline the history of the Bank of England and its relationship to the imperial process from the Bank s inception to the height of the Empire in the early twentieth century. It will argue that fractional reserve central banking was a major development in the history of the British Empire and, had it never developed, the ambitious British would have been lally in the form of lucrative loans to the government often absent the customary interest requirements.# In the eighteenth century, the Bank s financing of the government was primarily confined to war-time measures as a function of continental politics rather than colonial affairs.# There are, however, important exceptions to this general rule of war-time finance throughout the century. The 1707 Act of Union with Scotland guaranteed the payment of 150,000 in cash and 248,885. 10s. 0d in Exchequer notes as compensation for the acceptance of joint responsibility in paying the English national debt as a result of the union. This blatantly colonial aggrandizement of English power is a perfect example of the early enabling of the colonial process by the powers granted the Bank of England by the British government.# Another prime example of eighteenth-century colonial finance is exhibited in the loans made by the Bank of England to the British East India Company, which, it must be stressed, was entirely a creature of the Elizabeth I s monopolistic charter and not the private sector.# As Clapham states,  To that Company [the BEIC] the Bank lent continuously, from a very early date, and on a very large scale, and in the aftermath of Plassey and the Seven Years War, the Company s debt to the Bank only increased. By 1773, Parliament authorized an act to allow the Bank  to accommodate the Treasury with 1,400,000 at 4 per cent  for the relief of the East India Company.  In addition, the Bank financed the disastrous South Sea Company which collapsed amid a deluge of debt liquidation and monetary inflation. As if its monetary tentacles had not stretched over enough of the globe yet, the Bank also financed the fledgling Royal Africa Company  a corporation in chronic difficulties& on the personal security of six of its directors. # The nineteenth century witnessed a veritable explosion of British imperialism enabled and facilitated by central, fractional reserve banking centered in the Bank of England. The great D. K. Fieldhouse directly addresses the changes in the imperial financial structure which so greatly contributed to the proliferation of imperial activity. He states that the development of English capitalism and industrialism caused a tremendous amount of financial-industrial linkage and that  As banks increased their loans to industrial concerns they became closely concerned in industrial production, so that eventually the banks ceased to be merely credit organizations and became owners of industrial capital. While he does not address the fact that the Bank of England had full control over the fractional reserve system and controlled the incentive structure which ultimately resulted in the extension of imperial funding, Fieldhouse does indeed provide the basis for understanding the genesis of the economic motives so often discussed in leftist works regarding the imperial process.# Throughout the nineteenth century, as Britain expanded its empire, the Bank of England extended credit to various industrial concerns and imperial ventures seeking new resources, settlement colonies, and trade routes. It s loans to the British government created what Cain and Hopkins call the  military-fiscal state, or the quasi-fascist fusing of private and public into one for the purpose of world-wide subjugation to the British crown. The Bank would create notes out of fractional reserves, lend the notes to the government, and the government would fund its great Empire.# Examples of Bank involvement in the colonial enterprise abound throughout the century but for our purposes we must focus on only a few cases here. So widespread was this finance, that Clapham states that the BEIC  went on sending in its  usual letter, as the Court Minutes write, and receiving its customary credit. # The bank would continue this level of operations with the BEIC until the Company s dissolution in 1858, at which point the Bank s standard financing of the government would take the place of BEIC loans. The construction of the Suez Canal and British takeover of Egypt in 1882 also serve as particularly illustrative examples. Critical to the establishment of British suzerainty over Egypt, of course, was the massive amount of Egyptian debt owed British creditors such as the Bank of England and the British government itself. By no means does this author adopt the Robinson and Gallagher thesis that this interest alone prompted the Scramble, but it is certain that the tremendous financial stakes involved in Egypt provided all the excuses necessary to extend Her Majesty s imperial reach.# Capping the nineteenth century (and this essay) was the tumultuous South African War largely thought to have been fought over the control of lucrative gold reserves in Transvaal as well as an abundance of newly-discovered diamond mines. For our purposes, the gold mines are especially important as an influx of gold into Bank reserves could result in a tremendous increase in the extension of credit and investment  capital. Fractional reserve banking policies enabled banks acquiring new gold to profit not simply at the price of gold, but potentially many times the current market value of gold (depending upon the reserve ratio set by the Bank of England in its capacity as the British central bank). Fieldhouse keenly displays the results of the mixing of private and public interests enabled by government involvement in the banking sector:  economic change had political implications which ultimately generated imperialist politicies. The Bank of England and its member banks had large interests in acquiring the vast gold deposits in the Transvaal, the British government had various geopolitical interests in curbing South African power, the Bank funded the government s war in keeping with the Bank s original purpose and most stable source of profit, and the government prosecuted the war which would expand the Bank s issuance of credit. The cumulative effect of this artificial expansion of the money supply was the enrichment the investor class and extension of the imperial state at the expense of the poor, middle, and colonized classes.# Clapham succinctly sums up the Bank s involvement in financing the South African War:  War meant debt, debt work for the Bank& War bonds and Treasury Bills& gave the Bank& the best returns. # This very brief, cursory look at the exploits of the Bank of England regarding the imperial process can teach students of history several valuable lessons. First, it demonstrates the genesis of private-public partnerships and illustrates the essentially statist (as opposed to market-oriented) basis of institutions such as fractional reserve banking. The Bank of England was created by a grant of monopoly privilege and special legal waivers such as what was essentially a license to commit fraud first by issuing multiple notes representing the same amount of reserve specie (the fractional reserve system of finance) and second by being able to suspend specie payment in times of economic crisis (created by the initial extension of credit beyond the specie reserves of the Bank).# Through this method, the Bank could help hide the costs of British governance and alleviate the noticeable tax burden of citizens by inflating the money supply and loaning the newly-created money to the government first, thereby artificially increasing the purchasing power of government funds while correspondingly decreasing the purchasing power of every other bank note in circulation. For this very reason, we see the government borrowing more and more from the Bank during times of crisis (such as war) and domestic expansion (see attachment). The Bank of England was never a market-oriented, capitalistic enterprise and it always served the interests of its parent organization, the imperial British government.# Second, such an analysis of the Bank of England can show historians the economic mechanisms through which governments expand the most. Often, the expansion of government control is open and even voted into effect by the populace, but perhaps just as often (if not more so), the growth of government is facilitated by secretive actors engaged in projects which are largely hidden from public view. The Bank of England and its imperial financing serves as a wonderful example because of the economics of imperialism. Economists have long known that imperialism does not pay. Mercantilist policies of conquest and imperial domination (even those carried out in the name of protecting free trade), are not economically viable on the market. In other words, entrepreneurs such as Cecil Rhodes could never have stayed in business without government grants of land and authority and the British could never have created or sustained their empire without isolating the process as much as possible from the free market. Capitalist enterprise operates such that only voluntary interactions are profitable and, therefore, imperialist activity would never occur precisely because forcibly interacting with others is an inherently unprofitable undertaking. By not subjecting themselves to the market process of finance--and thereby enabling themselves to project force with relative impunity--British rulers could embark upon incredibly unprofitable enterprises for global power while indicating all of the increased trade with the new colonies to assuage the inflation-addled population at home. The problem with this tactic, however, is the fact that it was a complete lie. Had market interactions with those peoples who would have been colonized prevailed, the British people would have been far richer based upon simple economic law.# Concluding such a cursory work is most difficult; however, it is certainly not impossible. If one is to learn anything from the history of British imperial finance, it is imperative that one recognize the totality of government action in procuring and maintaining colonial relations. Imperialism has always been and will always be a government enterprise, entirely antagonistic to market operations and principles.# Bibliography Ashworth, William.  Chapter Nine: The Economic Influence of Government in An Economic History of England, 1870-1939. (London: Methuen & Co. Ltd., 1960). Cain, P. J. & Hopkins, A. G.  Chapter 2: Aristocracy, Finance and Empire, 1688-1850, in British Imperialism, 1688-2000. (London: Pearson Education Limited, 2001). Clapham, John. The Bank of England: A History Vol. I. (Cambridge: The University of Cambridge Press, 1970). Ebeling, Richard, ed. The Austrian Theory of the Trade Cycle and Other Essays. (Auburn: The Ludwig von Mises Institute, 1996). Fieldhouse, D. K.  Chapter 3: The Imperialism of Capital in Economics and Empire, 1830-1914. (Ithaca: Cornell University Press, 1973). French, Douglas.  Chapter Seven: The South Sea Bubble, in Early Speculative Bubbles and Increases in the Supply of Money. (Auburn: The Ludwig von Mises Institute, 2009). Hlsmann, Jrg Guido. The Ethics of Money Production. (Auburn: The Ludwig von Mises Institute, 2008). Levine, Philippa.  Chapter Five: Britain in India, in The British Empire: Sunrise to Sunset. (Harlow: Pearson Longman, 2007). Marx, Karl.  The Genesis of Industrial Capital, in Mary Poovey, ed. The Financial System in Nineteenth-Century Britain. (New York: Oxford University Press, 2003). 221-227. Anthony Comegna Final Paper--The British Empire # # As this essay will only be able to very briefly address the history and functioning of fractional reserve and central banking, it is strongly suggested that the reader consult what is, in this author s opinion, the greatest work to date on such topics: Jrg Guido Hlsmann, The Ethics of Money Production, (Auburn: The Ludwig von Mises Institute, 2008). # John Clapham, The Bank of England: A History Vol. I, (Cambridge: The University of Cambridge Press, 1970), 1. # Hlsmann, The Ethics of Money Production, 199-201. # Ibid. 156. # See the attached table for more information. Ibid. 201. # Clapham, The Bank of England, 57; 89; # Ibid. 59-60. # Philippa Levine,  Chapter Five: Britain in India, in The British Empire: Sunrise to Sunset, (Harlow: Pearson Longman, 2007.) # Clapham, The Bank of England, 116-121; 250; Douglas French,  Chapter Seven: The South Sea Bubble, in Early Speculative Bubbles and Increases in the Supply of Money, (Auburn: The Ludwig von Mises Institute, 2009). # D. K. Fieldhouse,  Chapter 3: The Imperialism of Capital in Economics and Empire, 1830-1914, (Ithaca: Cornell University Press, 1973). # P. J. Cain & A. G. Hopkins,  Chapter 2: Aristocracy, Finance and Empire, 1688-1850, in British Imperialism, 1688-2000, (London: Pearson Education Limited, 2001). # Clapham, The Bank of England Vol. II, 37. # Cain & Hopkins, British Imperialism, 312-317; Fieldhouse, Economics and Empire, 120-122. # Fieldhouse, Economics and Empire, 354-362; Clapham, The Bank of England, 373; Hlsmann, The Ethics of Money Production. # Ibid. 376. # Hlsmann, The Ethics of Money Production; Richard Ebeling, ed. The Austrian Theory of the Trade Cycle and Other Essays, (Auburn: The Ludwig von Mises Institute, 1996). # William Ashworth,  Chapter Nine: The Economic Influence of Government in An Economic History of England, 1870-1939, (London: Methuen & Co. Ltd., 1960). For an astute assessment of the problems created by such forms of finance, hampered though it is by the lack of classifying the British financial system as entirely a creature of government, see Karl Marx,  The Genesis of Industrial Capital, in Mary Poovey, ed. The Financial System in Nineteenth-Century Britain, (New York: Oxford University Press, 2003). 221-227. # Because a full discussion of such economic principles is not practical for this venue, the author recommends the following works as introductions: Henry Hazlitt, Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics, (New York: Harper & Brothers, 1946); Hans-Hermann Hoppe, Democracy, The God That Failed: The Economics and Politics of Monarchy, Democracy, and Natural Order, (New Brunswick: Transactions Publishers, 2006); Murray Rothbard, An Austrian Perspective on the History of Economic Thought, Volume II: The Classical School, (Auburn: The Ludwig von Mises Institute, 1995). For a more rigorous, advanced reading, see Ludwig von Mises, Human Action: A Treatise on Economics, (Yale University Press, 1949); Murray Rothbard, Power and Market: Government and the Economy (Institute for Humane Studies, 1970); Murray Rothbard, Man, Economy, and State, (William Volker Fund, 1962). # For a conclusion which adopts the muddied view of the Bank of England and similar financial institutions as essentially market-based operations (as opposed to the view taken by this author that such institutions are purely government agencies--though often titularly owned by private individuals), see Niall Ferguson, The Ascent of Money: A Financial History of the World, (New York: Penguin Press, 2008). . # Ibid. 376. # Hlsmann, The Ethics of Money Production; Richard Ebeling, ed. 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