Monetary and Fiscal Policy in England During the French Wars (1793-1821)

Abstract

The French Wars (1793-1815) exerted unprecedented pressures on Britain's fiscal and monetary policy settings. Policy makers had to constantly adjust the policy mix as events unfolded. This meant implementing monetary and fiscal policy innovations, such as the suspension of the gold standard and the instauration of Britain's first income tax. These adjustments signalled the government's commitment to undertake the necessary to win the war, without jeopardizing fiscal sustainability. Drawing on new hand-collected data, we also show that the Bank of England played an essential role in two successive phases of the war. The Bank granted ample liquidity to the domestic payment system, by discounting large amounts of private bills. It also financed the decisive phase of the wars by purchasing large amounts of public debt. The successful winding down of the balance sheet and the resumption of the gold standard influenced the Bank's policies and shaped the political and financial landscape for the century to come.