20 November 2018

The National Debt: a short history

Martin Slater
2018, C Hurst & Co, 321 pages,
ISBN 9781849049412

Reviewer: William Allen

Martin Slater, a retired teacher of industrial economics at Oxford University, has written a short history of the British national debt, from the time before the Glorious Revolution when kings and queens were unreliable debtors, to the present day.

His account of the origins of the national debt, and of its management up to the nineteenth century, is the clearest, most illuminating and most convincing that I have read. For example, he describes how wars had to be paid for up front, before increased taxes could be received. He describes the Stop of the Exchequer of 1672, which was among the causes of the Glorious Revolution of 1688, and how the loan contractors of the eighteenth century, like the market makers of today, bought government securities en bloc and distributed them to their clients. And he provides an interesting and persuasive account of the attractions and real effects of sinking funds. At every stage, he is attentive to the interconnections between finance and politics.

Unfortunately his account becomes less convincing when it advances into the twentieth century. He notes that the financing of the First World War was very expensive because holders of gilt-edged securities issued at relatively low yields early in the war were allowed to convert without penalty into later, higher-yielding, issues, but he does not explore why they were allowed this concession. Jeremy Wormell’s book on British government debt management from 1900-1932 gives a fuller and better account. And Slater’s account of the bitter post-war reparations quarrel reports as if it were a fact that the impositions on Germany were impossibly onerous. They were, however, greatly reduced in negotiation, and there are reasons to doubt that they really were insupportable.

Slater says, quite rightly, that the financing of the Second World War was much better managed than that of the First, lessons having been learned. To my mind, he underestimates the seriousness of the post-war aftermath: a debt/GDP ratio of well over 200% could be managed in practice only by means of inflation, and the first fifteen or so post-war years were a period of fiscal dominance of monetary policy. And he is wrong to say (p 206) to say that no perpetuities have been issued since the Second World War: Hugh Dalton issued one in 1946 as part of his failed attempt to get long-term interest rates down to 2½%, an episode which Slater curiously neglects to mention.

More important, in explaining the motivation for his book, Slater alleges that there is a ‘complexity and lack of transparency’ in government debt management. Complexity, yes, but there are no grounds for the accusation of lack of transparency, as an examination of the website of the Debt Management Office will show.

I don’t think Slater has fully exposed the difficult but important complexities of debt management in the last century. However, his account of earlier times is masterly, and the book is worth buying for that alone.