Chapter IV

. The Spirit Of Gladstonian Finance. (1859-1866)

Nations seldom realise till too late how prominent a place a sound system of finance holds among the vital elements of national stability and well-being; how few political changes are worth purchasing by its sacrifice; how widely and seriously human happiness is affected by the downfall or the perturbation of national credit, or by excessive, injudicious, and unjust taxation.—LECKY.

I

In finance, the most important of all the many fields of his activity, Mr. Gladstone had the signal distinction of creating the public opinion by which he worked, and warming the climate in which his projects throve. In other matters he followed, as it was his business and necessity to follow, the governing forces of the public mind; in finance he was a strenuous leader. He not only led with a boldness sometimes verging on improvidence; apart from the merits of this or that proposal, he raised finance to the high place that belongs to it in the interest, curiosity, and imperious concern of every sound self-governing community. Even its narrowest technicalities by his supple and resplendent power as orator were suffused with life and colour. When ephemeral critics disparaged him as mere rhetorician—and nobody denies that he was often declamatory and discursive, that he often over-argued and over-refined—they forgot that he nowhere exerted greater influence than in that department of affairs where words out of relation to fact are most surely exposed. If he often carried the proper rhetorical arts of amplification and development to excess, yet the basis of fact was both sound and clear, and his digressions, as when, for example, he introduced an account of the changes in the English taste for wine,(38) were found, and still remain, both relevant and extremely interesting.

(M19) One recorder who had listened to all the financiers from Peel downwards, said that Peel’s statements were ingenious and able, but dry; Disraeli was clever but out of his element; Wood was like a cart without springs on a heavy road; Gladstone was the only man who could lead his hearers over the arid desert, and yet keep them cheerful and lively and interested without flagging. Another is reminded of Sir Joshua’s picture of Garrick between tragedy and comedy, such was his duality of attitude and expression; such the skill with which he varied his moods in a single speech, his fervid eloquence and passion, his lightness and buoyancy of humour, his lambent and spontaneous sarcasm. Just as Macaulay made thousands read history who before had turned from it as dry and repulsive, so Mr. Gladstone made thousands eager to follow the public balance-sheet, and the whole nation became his audience, interested in him and his themes and in the House where his dazzling wonders were performed. All this made a magnificent contribution to the national spirit of his time. Such extraordinary power over others had its mainspring in the depths and zeal of his own conviction and concern. “For nine or ten months of the year,” he told Sir Henry Taylor in 1864, “I am always willing to go out of office, but in the two or three that precede the budget I begin to feel an itch to have the handling of it. Last summer I should have been delighted to go out; now [December] I am indifferent; in February, if I live as long, I shall, I have no doubt, be loath; but in April quite ready again. Such are my signs of the zodiac.” The eagerness of his own mind transmitted itself like an electric current through his audience.

Interest abroad was almost as much alive as the interest felt in England itself. We have already seen how keenly Cavour followed Mr. Gladstone’s performances. His budget speeches were circulated by foreign ministers among deputies and editors. Fould, one of the best of Napoleon’s finance ministers, kept up a pretty steady correspondence with the English chancellor: appeals to him as to the sound doctrine on sugar drawbacks; is much struck by his proposals on Scotch banks; says mournfully to him (April 28, 1863), in a sentence that is a whole chapter in the history of the empire: “You are very fortunate in being able to give such relief to the taxpayers; if it had not been for the war in Mexico, I should perhaps have been able to do something of the same sort, and that would have been, especially in view of the elections, very favourable to the government of the Emperor.’”

When Mr. Gladstone came to leave office in 1866, he said to Fould (July 11): “The statesmen of to-day have a new mission opened to them: the mission of substituting the concert of nations for their conflicts, and of teaching them to grow great in common, and to give to others by giving to themselves. Of this beneficent work a good share has fallen to the departments with which we have respectively been connected.” Fould had already deplored his loss. “I counted,” he says, “on the influence of your wise doctrines in finance, to help me in maintaining our country in that system of order and economy, of which you were setting the example.” Alas, in France and in continental Europe generally at that time, selfish material interests and their class representatives were very strong, popular power was weak; in most of them the soldier was the master. Happily for our famous chancellor of the exchequer, England was different.

It has often been said that he ignored the social question; did not even seem to know there was one. The truth is, that what marks him from other chancellors is exactly the dominating hold gained by the social question in all its depth and breadth upon his most susceptible imagination. Tariff reform, adjustment of burdens, invincible repugnance to waste or profusion, accurate keeping and continuous scrutiny of accounts, substitution of a few good taxes for many bad ones,—all these were not merely the love of a methodical and thrifty man for habits of business; they were directly associated in him with the amelioration of the hard lot of the toiling mass, and sprang from an ardent concern in improving human well-being, and raising the moral ideals of mankind. In his “musings for the good of man,” Liberation of Intercourse, to borrow his own larger name for free trade, figured in his mind’s eye as one of the promoting conditions of abundant employment. “If you want,” he said in a pregnant proposition, “to benefit the labouring classes and to do the maximum of good, it is not enough to operate upon the articles consumed by them; you should rather operate on the articles that give them the maximum of employment.” In other words, you should extend the area of trade by steadily removing restrictions. He recalled the days when our predecessors thought it must be for man’s good to have “most of the avenues by which the mind, and also the hand of man conveyed and exchanged their respective products,” blocked or narrowed by regulation and taxation. Dissemination of news, travelling, letters, transit of goods, were all made as costly and difficult as the legislator could make them. “I rank,” he said, “the introduction of cheap postage for letters, documents, patterns, and printed matter, and the abolition of all taxes on printed matter, in the catalogue of free trade legislation. These great measures may well take their place beside the abolition of prohibitions and protective duties, the simplifying of revenue laws, and the repeal of the Navigation Act, as forming together the great code of industrial emancipation.”(39)

(M20) It was not unnatural that fault should be found with him for not making a more resolute effort to lighten the burden of that heavy mortgage which, under the name of the National Debt, we have laid upon the industry and property of the nation. In 1866 he was keenly excited by Jevons’s argument from the ultimate shrinkage of our coal supply, and he accepted the inference that we should vigorously apply ourselves by reduction of the debt to preparation for the arrival of the evil day. But, as he wrote to Jevons (March 16, 1866), “Until the great work of the liberation of industry was in the main effected, it would have been premature or even wrong to give too much prominence to this view of the subject. Nor do I regard that liberation as yet having reached the point at which we might say, we will now cease to make remission of taxes a principal element and aim in finance. But we are in my judgment near it. And I am most anxious that the public should begin to take a closer and more practical view of the topics which you have done so much to bring into prominence.”

He was always thinking of the emancipation of commerce, like Peel and Cobden. His general policy was simple. When great expenditure demanded large revenue, he raised his money by high income-tax, and high rates of duty on a few articles, neither absolute necessities of life nor raw materials of manufacture. He left the income-tax at fourpence. In 1866, he told the House that the new parliament then about to be elected might dispense with the tax. “If,” he said, “parliament and the country preferred to retain the tax, then the rate of fourpence is the rate at which in time of peace and in the absence of any special emergency, we believe it may be most justly and wisely so retained.” While cordially embracing Cobden’s policy of combining free trade with retrenchment, he could not withstand a carnal satisfaction at abundant revenue. Deploring expenditure with all his soul, he still rubs his hands in professional pride at the elasticity of the revenue under his management.

II

When it is asked, with no particular relevancy, what original contribution of the first order was made by Mr. Gladstone to the science of national finance, we may return the same answer as if it were asked of Walpole, Pitt, or Peel. It was for Adam Smith from his retreat upon the sea-beach of distant Kirkcaldy to introduce new and fruitful ideas, though he too owed a debt to French economists. The statesman’s business is not to invent ideas in finance, but to create occasions and contrive expedients for applying them. “What an extraordinary man Pitt is,” said Adam Smith; “he understands my ideas better than I understand them myself.” Originality may lie as much in perception of opportunity as in invention. Cobden discovered no new economic truths that I know of, but his perception of the bearings of abstract economic truths upon the actual and prospective circumstances of his country and the world, made him the most original economic statesman of his day. The glory of Mr. Gladstone was different. It rested on the practical power and tenacity with which he opened new paths, and forced the application of sound doctrine over long successions of countless obstacles.

(M21) If we probe his fame as financier to the core and marrow, it was not his power as orator, it was not his ingenuity in device and expedient, it was his unswerving faith in certain fixed aims, and his steadfast and insistent zeal in pursuing them, that built up the splendid edifice. Pitt performed striking financial feats, especially in the consolidation of duties, in reformed administration, and in the French treaty of 1786. But ill-fortune dragged him into the vortex of European war, and finance sank into the place of a secondary instrument, an art for devising aliments, some of them desperate enough, for feeding the war-chest of the nation. Sir Robert Walpole, Mr. Gladstone wrote, “had not to contend with like difficulties, and I think his administration should be compared with the early years of Pitt, in which way of judging he would come off second, though a man of cool and sagacious judgment, while morally he stood low.”(40)

In the happier conditions of his time, Mr. Gladstone was able to use wise and bold finance as the lever for enlarging all the facilities of life, and diffusing them over the widest area. If men sometimes smile at his extraordinary zeal for cheap wines and cheap books and low railway fares, if they are sometimes provoked by his rather harsh views on privileges for patents and copyrights for authors, restrictive of the common enjoyment, it is well to remember that all this and the like came from what was at once clear financial vision and true social feeling. “A financial experience,” he once said, “which is long and wide, has profoundly convinced me that, as a rule, the state or individual or company thrives best which dives deepest down into the mass of the community, and adapts its arrangements to the wants of the greatest number.” His exultation in the stimulus given by fiscal freedom to extended trade, and therefore to more abundant employment at higher wages, was less the exultation of the economist watching the intoxicating growth of wealth, than of the social moralist surveying multiplied access to fuller life and more felicity. I always remember, in a roving talk with him in 1891, when he was a very old man and ill, how he gradually took fire at the notion—I forget how it arose—of the iniquities under which the poor man suffered a generation ago. “See—the sons and daughters went forth from their homes; the cost of postage was so high that correspondence was practically prohibited; yet the rich all the time, by the privilege of franking, carried on a really immense amount of letter-writing absolutely free. Think what a softening of domestic exile; what an aid in keeping warm the feel of family affection, in mitigating the rude breach in the circle of the hearth.” This vigorous sympathy was with Mr. Gladstone a living part of his Christian enthusiasm. “If you would gain mankind,” said old Jeremy Bentham, “the best way is to appear to love them, and the best way of appearing to love them, is to love them in reality.” When he thought of the effect of his work at the exchequer, he derived “profound and inestimable consolation from the reflection that while the rich have been growing richer, the poor have become less poor.” Yet, as my readers have by this time found out, there never was a man less in need of Aristotle’s warning, that to be forever hunting after the useful befits not those of free and lofty soul.(41) As was noted by contemporaries, like all the followers of Sir Robert Peel he never thought without an eye to utilitarian results, but mixed with that attitude of mind he had “a certain refinement and subtlety of religiousness that redeemed it from the coldness, if it sometimes overshadowed the clearness, of mere statesmanlike prudence.” On the other hand, he had “the Lancashire temperament.”

III

(M22) This thought and feeling for the taxpayer was at the root of another achievement, no less original than the peculiar interest that he was able to excite by his manner of stating a financial case. Peel was only prime minister for five years, and only four months chancellor. Mr. Gladstone was prime minister for twelve—ten years short of Sir Robert Walpole in that office, seven years short of Pitt. But he was also chancellor of the exchequer under three other prime ministers for ten years. Thus his connection with the treasury covered a longer period than was attained by the greatest of his predecessors. His long reign at the treasury, and his personal predominance in parliament and the country, enabled him to stamp on the public departments administrative principles of the utmost breadth and strength. Thrift of public money, resolute resistance to waste, rigid exactitude in time, and all the other aspects of official duty, conviction that in the working of the vast machinery of state nothing is a trifle—through the firm establishment of maxims and principles of this sort, Mr. Gladstone built up a strong and efficacious system of administrative unity that must be counted a conspicuous part of his very greatest work. “No chancellor of the exchequer,” he once said, “is worth his salt who makes his own popularity either his first consideration, or any consideration at all, in administering the public purse. In my opinion, the chancellor of the exchequer is the trusted and confidential steward of the public. He is under a sacred obligation with regard to all that he consents to spend.”(42) This tone of thinking and feeling about the service of the state spread under his magisterial influence from chancellors and the permanent officers that bear unobtrusive but effective sway in Whitehall, down to tide waiters and distributors of stamps. As Burke put the old Latin saw, he endeavoured to “give us a system of economy, which is itself a great revenue.” The Exchequer and Audit Act of 1866 is a monument of his zeal and power in this direction. It converted the nominal control by parliament into a real control, and has borne the strain of nearly forty years.

He was more alive than any man at the exchequer had ever been before, to the mischiefs of the spirit of expenditure. As he told the House of Commons in 1863 (April 16): “I mean this, that together with the so-called increase of expenditure there grows up what may be termed a spirit of expenditure, a desire, a tendency prevailing in the country, which, insensibly and unconsciously perhaps, but really, affects the spirit of the people, the spirit of parliament, the spirit of the public departments, and perhaps even the spirit of those whose duty it is to submit the estimates to parliament.” “But how,” he wrote to Cobden (Jan. 5, 1864), “is the spirit of expenditure to be exorcised? Not by my preaching; I doubt if even by yours. I seriously doubt whether it will ever give place to the old spirit of economy, as long as we have the income-tax. There, or hard by, lie questions of deep practical moment.” This last pregnant reference to the income-tax, makes it worth while to insert here a word or two from letters of 1859 to his brother Robertson, an even more ardent financial reformer than himself:—

Economy is the first and great article (economy such as I understand it) in my financial creed. The controversy between direct and indirect taxation holds a minor though important place. I have not the smallest doubt we should at this moment have had a smaller expenditure if financial reformers had not directed their chief attention, not to the question how much of expenditure and taxes we shall have, but to the question how it should be raised.... I agree with you that if you had only direct taxes, you would have economical government. But in my opinion the indirect taxes will last as long as the monarchy; and while we have them, I am deeply convinced that the facility of recurring to, and of maintaining, income-tax has been a main source of that extravagance in government, which I date from the Russian war (for before that a good spirit had prevailed for some twenty-five years).

Bagehot, that economist who united such experience and sense with so much subtlety and humour, wrote to Mr. Gladstone in 1868: “Indirect taxation so cramps trade and heavy direct taxation so impairs morality that a large expenditure becomes a great evil. I have often said so to Sir G. Lewis, but he always answered, ‘Government is a very rough business. You must be content with very unsatisfactory results.’ ” This was a content that Mr. Gladstone never learned.

(M23) It was not only in the finance of millions that he showed himself a hero. “The chancellor of the exchequer,” he said, “should boldly uphold economy in detail; and it is the mark of a chicken-hearted chancellor when he shrinks from upholding economy in detail, when because it is a question of only two or three thousand pounds, he says that is no matter. He is ridiculed, no doubt, for what is called candle-ends and cheese-parings, but he is not worth his salt if he is not ready to save what are meant by candle-ends and cheese-parings in the cause of the country.”(43) He held it to be his special duty in his office not simply to abolish sinecures, but to watch for every opportunity of cutting down all unnecessary appointments. He hears that a clerk at the national debt office is at death’s door, and on the instant writes to Lord Palmerston that there is no necessity to appoint a successor. During the last twenty years, he said in 1863, “since I began to deal with these subjects, every financial change beneficial to the country at large has been met with a threat that somebody would be dismissed.” All such discouragements he treated with the half scornful scepticism without which no administrative reformer will go far.

He did not think it beneath his dignity to appeal to the foreign office for a retrenchment in fly-leaves and thick folio sheets used for docketing only, and the same for mere covering despatches without description; for all these had to be bound, and the bound books wanted bookcases, and the

## bookcases wanted buildings, and the libraries wanted librarians. “My idea

is that it would be quite worth while to appoint an official committee from various departments to go over the ‘contingencies’ and minor charges of the different departments into which abuse must always be creeping, from the nature of the case and without much blame to any one.” Sir R. Bethell as attorney-general insisted on the duty incumbent on certain high officials, including secretaries of state, of taking out patents for their offices, and paying the stamp duties of two hundred pounds apiece thereon. “I shall deal with these eminent persons,” he wrote to the chancellor of the exchequer, “exactly as I should and do daily deal with John Smith accused of fraud as a distiller, or John Brown reported as guilty of smuggling tobacco.” Mr. Gladstone replies (1859):—

I rejoice to see that neither the heat, the stench, nor service in the courts can exhaust even your superfluous vigour; and it is most ennobling to see such energies devoted to the highest of all purposes—that of replenishing her Majesty’s exchequer. I hope, however, that in one point the case stands better than I had supposed. The proof of absolute contumacy is not yet complete, though, alas, the _animus furandi_ stands forth in all its hideous colours. I spoke yesterday to Lord Palmerston on the painful theme; and he confessed to me with much emotion that he has not yet resorted to those mild means of exhortation—what the presbyterians call dealing with an erring brother—from which we had hoped much. The unhappy men may therefore yet come to their senses; in any case I rejoice to think that you, in the new capacity of mad doctor, are sure to cure them and abate the mischief, if the which do not happen (I quote the new Tennyson):—

“some evil chance Will make the smouldering scandal break and blaze Before the people and our Lord the King.”(44)

After a due amount of amusing correspondence, the recusant confederacy struck their colours and paid their money.

When he went to Corfu in the _Terrible_ in 1858, some two or three sleeping cabins were made by wooden partitions put up round spaces taken off the deck. Thirteen years after, his unslumbering memory made this an illustrating point in an exhortation to a first lord of the admiralty not to disregard small outgoings. “I never in my life was more astonished than upon being told the sum this had cost; I think it was in hundreds of pounds, where I should have expected tens.” Sometimes, no doubt, this thrift descended to the ludicrous. On this same expedition to Corfu, among the small pieces of economy enjoined by Mr. Gladstone on the members of his mission, one was to scratch out the address on the parchment label of the despatch bags and to use the same label in returning the bag to the colonial office in London. One day while the secretary was busily engaged in thus saving a few halfpence, an officer came into the room, having arrived by a special steamer from Trieste at a cost of between seven and eight hundred pounds. The ordinary mail-boat would have brought him a very few hours later. We can hardly wonder that the heroical economist denounced such pranks as “profligate” and much else. Though an individual case may often enough seem ludicrous, yet the system and the spirit engendered by it were to the taxpayer, that is to the nation, priceless.

IV

One of the few failures of this active and fruitful period was the proposal (1863) that charities should pay income-tax upon the returns from their endowments. What is their exemption but the equivalent of a gift to them from the general taxpayer? He has to make good the sum that ought in reason and equity to have been paid by them, as by other people, to the government that protects them. Why should this burden be compulsorily laid upon him? What is the quality of an endowment for a charitable purpose that constitutes a valid claim for such a boon? Into this case Mr. Gladstone threw himself with full force. The opposition to him was as heated and as vigorous as he ever provoked, and the violence of the resistance roused an answering vehemence in him. He speaks in his diary of his “deadly encounter with the so-called charities.” “I was endeavouring,” he says, “to uphold the reality of truth and justice against their superficial and flimsy appearances.” “Spoke from 5.10 to 8.20, with all my might, such as it was.” This speech, with its fierce cogency and trenchant reasoning, was counted by good judges who heard it, to be among the two or three most powerful that he ever made, and even to-day it may be read with the same sort of interest as we give to Turgot’s famous disquisition on Foundations. It turns a rude searchlight upon illusions about charity that are all the more painful to dispel, because they often spring from pity and from sympathy, not the commonest of human elements. It affects the jurist, the economist, the moralist, the politician. The House was profoundly impressed by both the argument and the performance, but the clamour was too loud, all the idols of market-place and tribe were marched out in high parade, and the proposal at last was dropped.

(M24) Though the idea of putting a tax on the income of charitable endowments was rejected, the budget of 1863 was the record of a triumph that was complete. The American civil war by arresting the supply of cotton had half ruined Lancashire. The same cause had diminished the export trade to America by six millions sterling. Three bad seasons spoiled the crops. There was distress in Ireland. Yet the chancellor had a revenue in excess of expenditure by the noble figure of three millions and three quarters. Mr. Gladstone naturally took the opportunity of surveying the effects of four years of his financial policy. He admitted that they had been four years of tension, and this tension had been enhanced by his large remissions of duty, and by taking in hand the completion of the great work of commercial legislation. The end of it all was a growth of wealth, as he called it, almost intoxicating. The value of British goods sent to France had risen from four millions and three quarters to nearly nine millions and one quarter, in other words had about doubled under the operations of the treaty of commerce.(45) If to this were added foreign and colonial produce sent through us, and acquired by us in exchange for our own produce, the value had risen from nine and a half in 1859 to twenty-one and three quarters in 1862. In Mr. Gladstone’s own description later, the export trade of 1860, in spite of a bad harvest, was so stimulated by the liberating customs act, that it rose at once from a hundred and thirty millions to a hundred and thirty-five. The next year it fell to a hundred and twenty-five, and in 1862 it fell by another million owing to the withdrawal, by reason of the American war, of the material of our greatest manufacture. In 1866 it rose to a hundred and eighty-eight millions.(46) Then under the head of income-tax, and comparing 1842 with 1862, over the same area, and with the same limitations, the aggregate amount of assessed income had risen from one hundred and fifty-six millions to two hundred and twenty-one. Other tests and figures need not detain us.

_April 16, 1863._—My statement lasted three hours, and this with a good deal of compression. It wound up, I hope, a chapter in finance and in my life. Thanks to God. 17.—The usual sense of relaxation after an effort. I am oppressed too with a feeling of deep unworthiness, inability to answer my vocation, and the desire of rest. 18.—To Windsor, had an audience of the Queen; so warm about Sir G. Lewis, and she warned me not to overwork.

Lewis had died five days before (April 13), and this is Mr. Gladstone’s entry:—

_April 14._—Reached C.H.T. at 11-1/4, and was met by the sad news of the death of Sir George Lewis. I am pained to think of my differences with him at one time on finance; however, he took benefit by them rather than otherwise. A most able, most learned, most unselfish, and most genial man.

To Sir Gilbert Lewis, he wrote (April 18):—

Like several eminent public men of our time, he had many qualities for which the outer world did not perhaps, though it may not have denied them, ever give him full positive credit. For example, his singular courtesy and careful attention to others in all transactions great and small; his thoroughly warm and most forthcoming and genial disposition; his almost unconsciousness of the vast stores of his mind, and of the great facility and marvellous precision with which he used them; and, if I may so say, the noble and antique simplicity of character which he united with such knowledge of men and of affairs.

The final budget of this most remarkable series was that of 1866, when he swept away the last of the old vexatious duties on timber. It contained another element as to which, as I have said, some thought he had not been keen enough. In the budget of 1866 he first started the scheme of a sinking fund, which, when amplified, and particularly when simplified by his successors, did so much to reduce the dead weight of debt.(47) The complication of his scheme was due to his desire to make sure of its stability, and undoubtedly he would have carried it if he had remained in office through the session. He is, however, entitled to credit for laying the foundation of an effective sinking fund.

One word more may be added on Mr. Gladstone as financier. He was far too comprehensive in his outlook to suppose that the great outburst of material prosperity during the years in which he controlled the exchequer and guided parliament in affairs of money, was wholly and without qualification due to budgets alone. To insist on ascribing complex results to single causes is the well-known vice of narrow and untrained minds. He was quite alive to the effects of “the enormous, constant, rapid, and diversified development of mechanical power, and the consequent saving of labour by the extension of machinery.” He was well aware of the share of new means of locomotion in the growth of industrial enterprise. But the special cause of what was most peculiar to England in the experience of this period he considered to be the wise legislation of parliament, in seeking every opportunity for abolishing restrictions upon the application of capital and the exercise of industry and skill. In this wise legislation his own energetic and beneficent genius played the master part.

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