How important were William III's wars in the development of a financial revolution?

Question 1

Give a timeline of the financial revolution.

Answer 1

1688 - Nine Years’ War breaks out
1691 - Opposition within parliament begin to favour reduction in king’s participation in war - first Public Accounts Commission set up
1693 - William borrows £108,100
1694 - Bank of England founded
1697 - Nine Years’ War ends with peace of Ryswick
1698 - William raises £2 million from investors in the East India Company

Question 2

Explain the basis of Nine Years’ War?

Answer 2

1688-97:

• Fought between the League of Augsburg, led by Holland, England, Spain and the Holy Roman Empire - and France under Louis XIV
• William = head of state in Holland and Britain - spent 6 years on campaign - made many key strategic decisions himself
• Concerned with ensuring France wasn’t able to dominate - that balance was restored to - European politics

Question 3

The Nine Years’ War marked a complete transformation in…

Answer 3

British foreign policy - William taking risk by committing millions of pounds and thousands of troops to the war effort

Question 4

How did parliament react to the war?

Answer 4

Caused strained between William and parliament - huge sums being demanded to fund the war - had never been approved by a parliament before.

Question 5

What advantages did Louis XIV have in the war?

Answer 5

1) Authority through divine right
2) Large number of troops - after 1691 - opposition favoured reduction in William’s participation - only voted him funding for 10,000 troops

Question 6

How were merchants impacted by the war?

Answer 6

Were particularly unhappy with the continuing hostilities and trading routes in the North Sea, Mediterranean and African coast became too dangerous after 1693.

Question 7

How did William get funds for the war effort after parliament’s opposition in 1695?

Answer 7

Succeeded in recruiting 68,000 men at a cost of £2.8 million through borrowing - via newly established Bank of England
- Therefore he attempted to keep parliament informed of his progress at regular intervals

Question 8

Why was there criticism of William’s campaign in the war?

Answer 8

For the impact it was having on trade - his use of foreign commanders and his poor performances.
- William also took many key decisions himself - such as placement of troops and negotiations with other states

Question 9

What happened after 1696, in terms of the war?

Answer 9

King entered peace talks with French - but Louis didn’t offer a satisfactory settlement to William and French negotiations refused to acknowledge William as the legitimate King of England.

Question 10

What problems were faced at the end of the war in 1697?

Answer 10

1) Both powers bankrupt by 1697
2) William facing increasing opposition from the Tories and non-Junto Whigs in parliament
3) Parliament argued that the army should be reduced in size against and that the taxes that had been used to pay for the war should be reduced

Question 11

What was the Treaty Ryswick?

Answer 11

Settlement reached under its terms - in September 1697:

• Peace officially declared between France and 3 powers: England, Spain and the Dutch United Provinces
• French agreed to abandon claims for land in Germany and Holland - Louis forced to accept that William was the legitimate King of England - promised to give no assistance to James

French made gains from English in North American - borders returned to those that existed before 1688.

Question 12

What was the average annual expenditure and average tax revenue in the Nine Years’ War?

Answer 12

Expenditure - £5.4 million

Tax revenue - £3.6 million

Question 13

How did William achieve the level of tax revenue that he did?

Answer 13

Through excise taxes on tea, tobacco and alcohol.

• Most significant revenue stream: land tax - provided for around 1/3 of all required funds
• Landed elites made liable to pay this tax and efficiency with which it was collected suggested the war had the tacit approval of many of them

Question 14

How was an administrative revolution taking place?

Answer 14

1) Unprecedented levels of taxation meant that royal income doubled after 1688
2) Land tax introduced in 1692 - yielded £1 million in its first year
3) To meet shortfall in funding for the war - new system of public credit established - Crown took out long-term loans from merchants and City traders - repaid w/ interest - selling govt debt
4) Leads to creation of national debt - which stood at £16.7 million by 1698 - repayments took up around 30% of Crown’s annual revenue - relatively secure debt - it had been underwritten by parliament - loans employed by William were long term

Question 15

Give examples of loans levied by William III to fund the Nine Years’ War.

Answer 15

Jan 1693 - £108,100 borrowed - 10% interest - investors received annual dividend on their investment

March 1694 - £1,000,000 borrowed - 14% interest - 100,000 £10 tickets sold as a lottery

July 1698 - £2,000,000 - 8% interest - investors incorporated into the East India Company

Question 16

What was the position of Dutch merchants and the English gentry by the end of the war?

Answer 16

• Dutch merchants could not longer endure further disruption to trade
• English gentry could no longer tolerate the burden of the land tax

Question 17

How was the financial settlement of 1690 designed by parliament?

Answer 17

Designed to be insufficient for William to live off.

Question 18

How did the Civil List Act of 1689 affect William’s finances?

Answer 18

King given a ‘civil list’ of income estimated at £700,00 per year - surplus granted only with consent of parliament
- This money was allocated to meet expenses of William’s govt - including salaries of civil servants and judges - and expenditure of the royal household

All military and naval expenditure - in times of peace and war - responsibility of parliament.

Question 19

King and parliament had to meet regularly to renew…

Answer 19

the civil list.

Question 20

What necessitated regular meetings of parliament?

Answer 20

The financial settlement of the 1690s - rather than the Triennial Act or Bill of Rights - that necessitated regular meetings.

Question 21

What did concerns among backbenchers about the huge sums of money spent on war lead to?

Answer 21

A number of parliamentary commissions being set up to investigate govt expenditure.

Question 22

What were the commissions set up by parliament?

Answer 22

• Had power to interrogate ministers and call for papers from govt to be read and consulted in order to establish whether money had been spent appropriately
• Commissions would then publish reports - would often expose corruption or waste at William’s court
• William the first to suggest he opened up his accounts to inspection - such scrutiny had rarely been permitted before

Question 23

In 1689, why were MPs unsure about how to go about their investigations to scrutinise the govt?

Answer 23

No precedent for this kind of procedure

Question 24

How was the commission structured, and when was it created?

Answer 24

1690 William agreed to Public Accounts Act - commission set up in 1691 - with 9 commissioners voted to their positions by the MPs - renewed each year until 1697 - although William blocked more being established.

• 9-strong commission paid £500 per year each - ultimately response to parliament rather than the monarch
• When 2 members - Sir Robert Rich and Robert Austen - were given roles in the admiralty by William - were removed from next commission
• Comprised 7 members for rest of William’s reign

Question 25

How was scrutiny by the commission carried out with unprecedented attention to detail?

Answer 25

• Meetings took place daily

- Interviews regularly carried out - although govt officials would often obstruct the process

Question 26

How did obstructions by govt officials to the work of the commission have an impact?

Answer 26

Many of the intended reports were never completed - it became difficult to make definitive suggestions for financial improvement

Question 27

How was scrutiny more limited, in relation to the commission?

Answer 27

• Obstructions by govt officials
• Reports made it clear where ministers had evaded questions - and refused to present accounts - implicating them in mismanagement

Question 28

How was the commission successful in their attitude towards William III?

Answer 28

William generally happy to adopt suggestions made by them - it was successful in compelling him to reassess the size of the army and navy.

Question 29

How did the commission have influence in the Commons chamber?

Answer 29

Able to criticise govt expenditure - members such as Robert Harley became members of the Country oppoisiont

Question 30

Why did the commission, in the latter half of the 1690s, lose some of its initial impact?

Answer 30

Became increasingly used to attack unfavourable ministers rather than to act as a check on finances.

High profile members of the House, such as the Speaker Sir John Trevor, were expelled for financial malpractice.

Question 31

The Bank of England was the brainchild of…

Answer 31

the Whig Chancellor, Charles Montagu - supported by many Whigs but opposed by leading Tories.

Question 32

From 1692, financially, what was parliament increasing interested in?

Answer 32

Schemes for long-term borrowing - and a tontine loan to the Crown was levied in 1693 - reasonable success

• Interest received by investors - was to be taken from number of excise duties for 99 years - but investors wary of its complexities - yielded only £108,000 for them
• Tonnage Act of 1694 - provided a similar loan of £1.2 million at an interest rate of 8% - this time - the investors were to be incorporated as the Bank of England

Question 33

Define tontine loan

Answer 33

A method for raising capital - investors can pay into the fund to provide a loan - which is paid back with interest
- Each investor receives annual dividends on the money they originally paid in - as each investor dies, their invested share is reassigned to the surviving members, thus increasing their yield

Question 34

The investors of the Bank of England had the authority to…

Answer 34

deal in bills of exchange - bills given by Bank as £100 bills - effectively bank notes - in return investors would receive aa guarantee that they would be paid through excise dutires

Question 35

How did bank notes increase in importance?

Answer 35

Were soon produced on a large scale - denominations as small as £5 produced.

Question 36

How did William III view this new Bank of England?

Answer 36

• An essential way he could attract large numbers of investors who would deposit small amounts to be lent to the govt

Question 37

What do the Bank of England and the tontine loan have in common?

Answer 37

They are both examples of the long-term borrowing that has kept govt afloat ever since.

Question 38

Other than the Bank of England and tontine loans, how were other loans levied?

Answer 38

In the form of ‘lotteries’ - such as the scheme that began in March 1694 - enabled William to raise £1 million.

100,000 tickets with value of £10 sold and winners drawn at random to win larger amounts.

Question 39

How did the ‘new’ East India Company benefit William III?

Answer 39

• 1698 - William raised £2 million at rate of 8% by promising investors a stake in the ‘new’ East India Company.

Question 40

Short-term borrowing associated with earlier Stuart monarchs always dependent on…

Answer 40

tax receipts - which were variable - led to a lack of confidence from creditors

• despite this long-term loans accounted for less than half of the money borrowed during the Nine Years’ War - William had to rely on high interest, short-term loans for the balance.

Question 41

What affairs did the Bank take over?

How were the bank successful?

Answer 41

Affairs relating to military funding - also opened a branch in Holland from which to attract investors:
- increased confidence in BoE - after William’s death - more emphasis placed on long-term investment + govt borrowing increased to over £2.5 million per year in decade after 1701

Question 42

What was the Recoinage Act?

Answer 42

Given royal assent in 1696

• Silver coins that had been produced during reign of Charles II had been regularly clipped on their edges or forged - meant their real value declined - but value of silver higher on continent
• Therefore - increased numbers of old coins being melted down + shipped abroad
• Parliament requested that old coins be surrendered and weight - to ascertain true value - new coins struck at a number of mints around country

Question 43

What was the effect of recoinage?

Answer 43

Promising at first - with the value of new coins being maintained for a time - much confidence restored in economy

Within 2 years, though, silver was again worth more as bullion that it was in coin.

Question 44

How was a distinction made between military and civil expenditure?

Answer 44

Parliament made significant steps towards relieving the king of any responsibility of the funding of the army and navy.

Question 45

What is the significance of parliament controlling various aspects of national finance?

Answer 45

1) Crucially - parliamentary control of finance meant the king had no choice but to meet with parliament regularly - increasing its authority
2) Parliament controlled military expenditure - could withhold supply and effectively hold the Crown to ransom
3) Parliament able to audit govt expenditure - unprecedented - the fact that the commission into public accounts was paid by and accountable to parliament rather than monarch gave it some independence
4) From 1698 - Crown’s day-to-day spending was controlled through a grant, the civil list - the monarch never against be able to use their prerogative to avoid working with parliament

Question 46

How did Douglas North and Barry Weingast interpreted parliamentary control of finance?

Answer 46

As beneficial to the economy - those who had previously been reluctant to invest in govt and wider economy - had new-found confidence as parliament was effectively underwriting the BoE.

Question 47

How did Christopher Hill interpret parliamentary control of finance through the Bank of England?

Answer 47

As a move that benefitted only the propertied classes - govt borrowing under direct control of MPs - representatives of the tax-paying classes

Argued this led to situation where monied interests played an important role in politics - no future political faction or party could hope for sustained success without the support of the finances of the City of London