IN THE still-continuing debate over the Allied Debts, the political factors in the argument are often reënforced by an appeal to the British precedents of the Napoleonic era. These precedents show a definite policy on the part of Great Britain, on the whole one of statesmanship rather than of bookkeeping. But the circumstances were not really similar. The fact is that there was no large-scale remission of Continental debts, mainly because the debts were few and small; the policy of Great Britain had been on the whole to grant subsidies, representing the pooling of economic along with military and naval power in a common war effort, rather than to lend on a commercial basis.

Subsidy as a phase of British war effort began as early as the time of Edward the Third, who employed it as part of the chain of alliances he made with the German Princes and with the Emperor himself, Lewis the Bavarian. The regular system was begun by Walpole by an advance of £300,000 in 1741 to Maria Theresa; Carteret advanced the subsidy to £500,000 in 1742; and in 1745 the amount for the allies was raised to over £1,250,000. The arguments in favor of granting subsidies rather than sending soldiers were several. For one thing, British troops were more expensive to maintain than Bavarians. Moreover, an increase in British troops raised the old English bugbear of a standing army. George Grenville said, "It is dangerous to our liberties as well as destructive to our trade, to encourage great numbers of our people to make the soldier craft their trade."

The Seven Years' War gave the subsidy system a still more regular establishment. Pitt was consciously creating the British Empire. He needed Frederick and the best army of Europe to wear down the French resources, to help him "conquer Canada in Germany," a combination designed to break the reactionary power of Bourbon-ridden France in the new world and in the old. Frederick was haughty and refused subsidy until the military disasters of 1757 convinced him that without England he would be overwhelmed by the French alliance. The horizon of war and diplomacy extended to include the habitable globe, and as Trevelyan says, "All the grand schemes of war and diplomacy depended on the battleships of England, tossing far out at sea; Louis of France, like Philip of Spain before him, was hunted down by the pack he never saw."

Money, the expression of England's economic power, was equally necessary. "If one wheel stopped, all might," said Pitt. An "engagement with the Empress of Russia, pursuant to Treaty" of £100,000 appears in the accounts for 1757, but on Russia's forming an alliance with Sweden against Prussia this subsidy was cancelled.

The subsidies to Frederick began with £200,000 in 1757, increased for 1758 to £670,000 a year, which was to be employed by the King of Prussia "in keeping up and augmenting his Forces, which shall act in the most advantageous manner for the common Cause, and for the End proposed by their aforesaid Majesties of reciprocal Defence and mutual Security." There were other similar arrangements, notably with Hesse-Cassel. The Landgrave received an annual subsidy of £60,000 for general purposes, and one year's pay amounting to £97,582 for putting 6992 men into the field; England also took 12,020 Hessians into her own pay. These figures were subsequently increased.

Great Britain's financing of the various combinations against France in the last decade of the century began in 1793 with subsidies to Hanover, Hesse-Cassel and Sardinia. In 1794 a subsidy of £2,500,000 to the King of Prussia was opposed by Fox as certain to be wasted and to encourage others. The argument of the War Minister was simply, "Was the assistance of Prussia necessary, and what was it worth?"[i] The support thus extended was continued annually until 1816, the subsidies aggregated approximately £50,000,000, and the list came to include Hesse D'Armstadt, Baden, Brunswick, Portugal ("including Stores which cannot be distinguished"), Austria, Russia, Prince of Orange, "German Princes," Sweden, Sicily, "Portuguese Sufferers," Morocco, "Russian Sufferers," and "Minor Powers, under engagements with the Duke of Wellington." £30,000,000 of the £50,000,000 was paid in the last four years of the war.

The only considerable break in this subsidy policy came on the proposal of the Government in 1795 for a loan to Austria of £4,600,000, probably because the amount was beyond example. Besides charging all the hereditary revenues of the Emperor, Austria was to deposit collateral security -- actions in mortgage on the Bank of Vienna at the rate of four for three -- thought by Pitt to be ample, and this would conserve British force unimpaired for the maintenance of her naval supremacy. The loan, guaranteed by Great Britain, was to be raised by public subscription, the contributors to receive 7½ percent interest. Austria agreed to put not less than 200,000 men into the field. Fox again opposed; he doubted Austria's good faith. Loan advances have to be paid as agreed, but "subsidies are generally paid in monthly instalments which can be stopped."[ii] Beginning with Prussia "we might be brought to pay for every man and every horse in Europe, employed against the French in the present dreadful contest." He would have liked to see the money spent on the navy "instead of depending on treacherous allies." The Directors of the Bank of England, too, were nervous about the drain of bullion and specie which the loan would occasion, but the House voted it 173 to 58.

For the first three years the half-yearly payments on this loan, amounting to £985,573, were regularly made by the agents of His Imperial Majesty up to May 1, 1797, and no charge was incurred by Great Britain. In that month Austria received another loan, raised in Great Britain, to repay the advances which had been made out of British Army Funds. The interest, approximating 7 percent, was never paid, and from this time on no interest was paid on the loan of 1795; all the charges fell on the British Exchequer.[iii]

Subsidies were unsatisfactory, but the Austrian loan was more so. Nothing was paid; yet the British Government exerted no serious pressure, for considerations of policy were more important than the money involved. Castlereagh thought that Austria lay under no reproach, as she had fought well; but the Opposition attacked on account of the burden upon "the suffering people of this country." Lord Liverpool admitted that it might have been better to subsidize than to lend, "and it was a maxim of this experience not to engage in any transaction of that kind;" there was no individual who voted for the loan who would not have voted for giving the money as a subsidy. As the loan had not been pressed in the later coalitions, had in effect been allowed to lapse, "it could not fairly be brought up now."[iv] Aberdeen thought that a subsidy rather than a loan had been intended, and that for that reason England had continued to subsidize Austria without alluding to the defaulted debt.

The negotiations for repayment were intermittent and inconclusive. Proposals from Great Britain, which involved throwing off ever-increasing amounts of principal, and accepting part payment in ships, timber or quicksilver, were rejected or side-stepped, and Austria made unavailing efforts to discover counter-debts. The Duke of Wellington delivered an ultimatum at Vienna, and put pressure on Metternich at the Congress of Verona.

A settlement was reached in 1823. Giving Austria credit for the redemption of Consols which had been made by the Sinking Fund, and taking 3 percents at £80 (the approximate price of the period), the account between the two countries as of January 5, 1824, would have stood as follows:

Advances by Great Britain for Austria to January 5, 1824
£ s. d.
Interest of Imperial Debt 10,875,635 15 4
Management 113,252 13 6
For Sinking Fund 962,291 5 --
Liability by Transfer of Remaining Capital Debt 3,697,551 -- --
Total exclusive of Interest on Advances 15,648,730 13 10

The settlement was for £2,500,000 payable in instalments, the last one, of £1,300,000, to be paid June 1, 1827. Austrian credit rose on the settlement; she paid in £2,189,285 by April 1824, and got the benefit of a discount of £310,714 for the anticipation. The total burden entailed on Great Britain by the Imperial Debt was therefore £13,459,444.

The House was not enthusiastic. Members said tartly, "that in justice to other bankrupts the Emperor's name ought to appear alongside theirs in the Gazette," and "that 2s. 6d. in the pound was not a handsome composition for an Empire." The Chancellor of the Exchequer was more pleased than the taxpayers, for he planned to use the money in building churches and decorating Windsor Castle, and £570,000 he would use in buying pictures to form the nucleus of a National Gallery.

These British precedents are clearly not a set of blueprints exactly applicable to the case of the Allied debts. They show only the temper in which the British handled their financial relations with their allies, a certain spaciousness of attitude which may or may not be suitable for a less imperial and more commercial era.

C. P. H.

[i] Before the year was out Prussia had made a separate peace with France.

[ii] A £2,000,000 advance to Austria in 1800 was agreed to, but almost as soon as the first instalment arrived Austria signed an armistice with France, and England stopped payment of the balance.

[iii] A loan of £200,000 was made to Holland in 1813, and one of the same amount to the restored Bourbon Government in 1814; both of these were promptly repaid. A loan of £600,000 was made to Portugal in 1809, on which 5 percent was paid as interest and sinking fund until 1815 when the unpaid balance was forgiven. These were the only British loans during the French war.

[iv]Cf. E. F. Gay: "War Loans or Subsidies," FOREIGN AFFAIRS, April 1926, p. 394.

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