British Support of the Continent

We may now return to the economic life of Great Britain herself. It has been shown that the more fundamental effects of the Continental System on her organism did not play a decisive part in the issue of the struggle. But as the reader may remember from part 1, chapter IV, it was assumed in French circles that there was a more immediate connexion between the self-blockade of the Continent and the political elimination of Great Britain than that which was provided by its general economic ruin. It was thought, in fact, that, owing to the inability to export, Great Britain would be prevented from supporting the Continent either by means of subsidies or by the maintenance of troops. Miss Cunningham, in the little study that has often been cited in this work, has not only successfully elucidated these ideas and their bearing on the policy of Napoleon but has also, with less success, so far as I can judge, sought to show the validity of that train of thought to such an extent as to prove the correctness of Napoleon's (falsely assumed) object of ruining Great Britain by supplying her with foodstuffs. Miss Cunningham's thesis, indeed, is that the excess of imports gave rise to an export of gold which came near to exhausting the metal reserve of the Bank of England and thus shaking 'the real foundation of the credit system'. This contention does not appear to give due weight to the real significance of international exchange as that was brought out, not only by Adam Smith, but more particularly by the leading economists, in the great currency debate which went on during the actual period of the Continental System. To begin with, we must see whether that French line of thought was correct which made British exports the antecedent condition for the making of payments on the Continent; and in so doing we must connect the matter with the discussion in our first part to which reference has just been made.

The kernel of the question, then, is the point that Adam Smith maintained, namely, that both war and other functions are in reality paid for by goods and human efforts (services), and not by money or precious metals. The subsidies that Great Britain had to pay on the Continent were intended to procure necessaries for her allies, and the same were required for the maintenance of the British troops after Great Britain had begun operations by land. Consequently, the business in hand was either to provide the necessaries direct or else to provide the means with which they might be purchased.

If, then, the situation was such that British goods could be imported into the Continent, the simplest arrangement of the matter was that described by Adam Smith, namely, an export of goods from Great Britain without corresponding imports. It was of no consequence whether the British goods were or were not precisely of the kind required by the troops or by the continental governments. Their sale on the Continent created in the latter case British assets which could be used to pay for the domestic goods needed by the troops or by the allies; that is to say, the purchasers of the British goods in reality paid their debt, not to the British, but to the sellers of the domestic goods that were used by the British troops or by the governments supported by Great Britain. But the fact that the matter was simplified by the possibility of exporting British goods to the Continent by no means implies that the support of the continental governments would have been impossible without the realization of such a condition. If, for instance, we suppose, instead, that no British, but, only transmarine goods, could get into the Continent, the system only needed to be supplemented by the participation of a third country, for instance, the United States, in the operation. At times this was undoubtedly the case with the payments on the Iberian peninsula, where American corn went in great quantities. The assets that Great Britain acquired by her exports in transmarine countries went, under this supposition, to the European mainland in payment for continental imports of colonial goods, that is to say, British exports for the non-European countries paid for British support to the Continent of Europe. In the one case as in the other it was a question of the exchange of commodities, and not of any need of payment in money or in gold and silver. When, therefore, it came about that Wellington wished to make cash payment during his campaigns in Spain and Portugal, this by no means meant that he had to have the requisite amount sent to him in precious metal. The only thing necessary was that the British government should have assets on the Iberian peninsula, for instance, in the form of bills of exchange or claims on business establishments there, to an amount corresponding to the requirements of the British army, so far as those requirements could not be satisfied by the supply of goods on British account.

It is true that it is possible to imagine a situation in which Great Britain was cut off from exporting to transmarine countries as well as to the European Continent; and it would then become a question of what possibilities there would be for supporting the Continent under such conditions. In that case the matter was manifestly hopeless; for a completely isolated Great Britain—and a country without exports is practically the same as an isolated country—must, no less than a completely isolated European Continent, necessarily imply the impossibility of British help for the adversaries of Napoleon. But this connexion is self-evident to such a degree that it need scarcely be pointed out; and what is more, the supposition of its existence is so devoid of practical importance that it can never have played any part in the conduct of Napoleon or any other statesman of the time.

The next question, then, is whether even a diminution of British exports would not have been able to place obstacles in the way of supporting the Continent, inasmuch as the assets held by Great Britain to pay for the support might in that case be expected to be smaller. But even this idea is incorrect, because the decisive thing is not the absolute amount of exports but the amount in relation to imports, i.e., the excess of exports. If only imports were diminished to the same extent as exports, the possibility of giving support would be in no wise altered. It is in the nature of things that the support must be paid for by limitation of domestic consumption when a country cannot count upon borrowing abroad, a thing which was not to be thought of for Great Britain during the period of the Continental System. The general conclusion thus remains simply this, that exports (including carrying profits and other foreign trade profits) must exceed imports by the amount of the support given to foreign countries. It is true that British commercial statistics for this period are altogether too uncertain to admit of any positive arithmetical proof in such a question; but it may be mentioned that the British customs statistics for the years 1805-9 show an excess in the trade balance itself (that is to say, apart from freights, &c.) varying between 5,900,000 and 14,900,000 pounds sterling, or, as an average for those five years, amounting to almost precisely £10,000,000.

However, still another possibility may be conceived, namely, that the European Continent might take no necessaries at all, either British or continental, or might take only money or precious metals. This was undoubtedly what Napoleon aimed at, although he never even approximately reached his goal. So far as Great Britain succeeded in carrying on military operations on the Continent, however, even this possibility was quite out of the question; for where troops could be landed, it is evident that goods could be landed with still greater ease. And as regards the allies, the matter would have been of importance only in the highly curious situation that the countries in question applied the Continental System strictly and received British subsidies at the same time. For the sake of completeness, however, this line of thought may be followed out. Here, too, the same thing holds good; the idea to which Adam Smith had given expression, namely, that the precious metals in this connexion were commodities like others and would have had to be purchased by means of British exports. The only difference in the situation from a British point of view would have lain in the fact that precious metals might prove difficult to obtain, as indeed was probably often the case. From the point of view of the Continent, on the other hand, such a form of payment meant that in reality nothing was imported that could serve military purpose; and consequently the thing could have been of importance only in case one or more of the individual continental states could thereby acquire necessary goods from other continental countries.

If we pause to consider the actual circumstances in greater detail, we are immediately impressed by the fact that it was precisely the flourishing period of the Continental System that was marked by quite insignificant subsidies to the continental states; and the reason for this is closely connected with the fact just mentioned that efficacy of the self-blockade ceased as soon as Great Britain gained the support of allies on the Continent. For the whole of the sexennial period 1807-12, the sum total of the cash subsidies subsequently reported to Parliament was £14,722,000; and it is in the very nature of things that most of this amount fell to countries with which Great Britain had unimpeded intercourse, e.g. (in round numbers), Portugal (1809-12) nearly £6,000,000; Spain (1808-12) £3,660,000; Sicily (1808-12) £1,700,000; Sweden (1808-9 and 1812) £1,660,000; and Russia (1807, before the Peace of Tilsit) £600,000. Altogether these came to £13,580,000, or more than nine-tenths of the total amount. There is no material available for estimating the total amount spent on British military operations on the Continent; but in 1808-10 the total payments of the British government abroad ran to something over £32,000,000. As has been observed above, however, the military expenses must always have been among those where the normal system of international payments could be employed.

As a matter of fact, however, we have the seemingly incompatible facts that, on the one hand, Great Britain had great difficulties with her payments on the Continent, and, on the other hand, was exposed to an outflow of precious metals, which constantly threatened the bank reserve and was usually connected with the heavy decline in the rates of exchange on England. It might thus seem as if Napoleon was right after all in trying to read the success of his war against the credit of England in the decline of the exchanges and in the difficulties of payment. But the true connexion was quite different.

First, as regards the difficulty of financing the military operations on the Continent, we may say that that difficulty was mainly due to bad financial organization, and also to an apparently ineradicable notion of the unimportance of the war in the Iberian peninsula. Wellington had many occasions to complain of the inadequacy of pecuniary support and the shortage of the most necessary things, while at the same time huge sums were dissipated in far less important ways, even on the Continent, such as for the notorious and thoroughly abortive expedition to the island of Walcheren, off the coast of Holland, in 1809. As regards the modus operandi, Wellington had to obtain funds by drawing bills on the British treasury and selling them on the spot, that is to say, without there being any available British assets; and as there was an entire lack of organization, this could not take place without a heavy decline in their value. Nathan Mayer Rothschild, the greatest financial genius of the house of Rothschild and its true founder, who at this time had already moved from Frankfurt to London, mentioned to Sir Thomas Fowell Buxton, in the course of a conversation many years afterwards, that once during this period he set about buying up, on the one hand, a great number of Wellington's bills on the British government, which were under par, and, on the other hand, gold, which was sold by the East India Company; and by so doing he declared that he compelled the government to come to an agreement with him, on the one hand, to prolong the bills which it had no means to pay, and, on the other hand, to pass over the gold, for which Wellington was very hard pressed. 'When the Government had got the money,' he said, with well-founded contempt, 'they did not know how to get it to Portugal. I undertook all that, and I sent it through France. It was the best business I ever did.'

Apart from this scanty and late item, which is as meagre as most of the contributions to the history of the house of Rothschild, we seem to know hardly anything about the actual manner in which the Continent was financed by the British government under the Continental System. On the other hand, we have a somewhat fuller knowledge of the circumstances during the next period, that of the Wars of Liberation and of the Hundred Days in 1813-15, owing to the materials collected in a biography of the politician J. C. Herries, the commissary in chief in the British financial administration of that time (1811-16), on which the German economic historian, Professor Richard Ehrenberg, has based that part of his study of the house of Rothschild. Even at that time, with the greatly multiplied continental expenses for both subsidies and military requirements, the financing was at first managed partly by very cumbrous movements of silver from England, and partly, and more particularly, by bills drawn from the Continent on the British treasury in London. These last the continental governments and generals afterwards had the greatest difficulty in selling, and therefore they declined heavily in value. But now there was gradually carried out, through N. M. Rothschild, a change of system by which bills and coins were privately bought up on the Continent, with the result that difficulties of placing bills and the consequent dislocations in the exchanges almost ceased. Thus Herries states in his official report that during 1813 bills on Holland and Frankfurt for £700,000 were bought up without depressing the exchange, while a payment of £100,000 on the old methods would, in his opinion, have had ten times as great an effect upon the exchanges.

The whole of this account shows clearly enough that the difficulties lay in the matter of technical organization and were not due to any profound economic obstacles in the way of payments on the Continent; for it is manifest that such obstacles, had they existed, would no less fully have lain in the way of Rothschild's purchases of commercial paper on the Continent, that is to say, his acquisition of continental assets on British account. What the change of system implied, therefore, was to organize the support in the main on the lines of international payments in general.

But it was recently mentioned that in the earlier stage Rothschild sent gold to Wellington on the account of the British government, and that the later payments on the Continent were partly effected by sending silver. One thus gets the impression, in spite of all that has been said, that precious metals were necessary, at least at times, in order to support the Continent. This evidently needs explanation; and the explanation mainly lies in the state of British currency during the Napoleonic wars.