In the shadow of speenhamland: social policy and the



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Ricardo argued forcefully for restoring the pound to its pre-war parity from his first publication in 1810 of a pamphlet called “The High Price of Bullion (Redman1997, p. 276) . He insisted that the wartime inflation was a direct consequence of the suspension of gold convertibility and that the only way to return prices to their proper level was to restore the pre-war parity. His views and those of other bullionists were endorsed by the parliamentary Bullion Committee in its 1810 Report. By 1816, Ricardo had retired from business and he reasserted his advocacy of a return to gold with a pamphlet entitled, “Proposal for an Economical and Secure Currency”. With the publication of Ricardo’s Principles in 1817 and his entrance to Parliament in 1819, his influence on public policy became greater and was central to the government’s decision to restore gold to its pre-war parity in 1819 (Viner [1937] 1965, Fetter 1965, Gordon 1976, Hilton 1977).

It is important to understand that the restoration occurred against the backdrop of a severe rural crisis that had begun right at the end of the Napoleonic Wars. Wheat prices fell sharply in 1813 and 1814, producing a massive collapse of rural banks that had failed to hold on to any reserves. Between 1814 and 1816, 240 rural banks stopped payments leading to a destruction of wealth and a disappearance of credit (McCulloch [1845] 1938, p. 175, Fussell and Compton 1939, Hilton 1977). The result was a dramatic increase in unemployment as both farmers and other employers were forced to cut back both investment and the size of their labor force.

It is hardly surprising that in the first years of the downturn, there were no efforts to revive the economy or protect the supply of money and credit since laissez-faire was already official policy. 11 But as the deflation took hold, there was an ironic consequence--the value of the pound started to rise so that the goal of restoring the pre-war parity appeared substantially closer. The response of the authorities in 1816 and 1817, therefore, was to prepare for the resumption of gold payments at the old parity (Viner 1965, p. 172), and in May of 1819, Parliament passed legislation to restore gold payments within two years. While there is intense controversy over the specific policies that the government and Bank followed in restoring gold, there is widespread consensus that the sustained effort to return to the pre-war parity had a profoundly deflationary impact . On the one side, the government was precluded from pursuing the kind of countercyclical policies that could have revived the rural economy. On the other, the sustained tight money policies greatly restricted the availability of the credit that farmers desperately needed.

Moreover, the deflationary pressures did not end with the success of restoration; the gold standard simply institutionalized the pressures on the rural economy. Wheat prices continued to fall until 1829 and after that, prices were stabilized at a very low level (Fussell and Compton 1939, p. 186). The failure of rural banks were also continuous across the whole period from 1815 to 1830 (Fussell and Compton 1939, p. 189). It was precisely this context of falling

prices and limited credit that forced farmers to reduce labor costs and that, in turn, produced . chronic rural unemployment and increased use of poor relief. The ongoing pressure of low wheat prices meant that as the more successful farmers who had profits to reinvest put increasing resources into labor saving technology such as the threshing machine. Since hand threshing of wheat could represent as much as one quarter of the whole year's quantity of farmwork (Gash 1935, pp. 92-93), mechanization had a huge impact on the rural demand for labor in the winter months. Dissatisfaction with these high rates of unemployment ultimately produced the machine smashing in the Captain Swing riots of 1830 (Hobsbawm and Rude 1968, Tilly 1995) .12

In the absence of Ricardo's eloquent pleas for a restoration of the pre-war parity, policymakers might well have chosen a less deflationary set of policies. Had the rural economy not suffered the additional shock of the deflationary pressures of gold, the wheat growing areas might have experienced a recovery and an earlier rebound of wheat prices. Moreover, without the ideological commitment to laissez-faire policies, the government might have embraced policies that helped to cushion the economy in periods of contracting demand, including provisions for a steady flow of credit to farmers (Gordon 1976). Under any set of policies, there would ultimately have been a problem of a rural labor surplus that could only be solved by more rapid rates of outmigration. But the Ricardian policies dramatically intensified the problem; so that this massive readjustment had to be handled over twenty years rather than forty. As Polanyi (2001 [1994], 39) eloquently argues, government policies can help protect ordinary people simply by slowing the rate of change, but the Ricardian policies did exactly the opposite; they vastly accelerated the problem of rural surplus population.

The role that the gold standard played in exacerbating the rural crisis places the intensifying campaign against the Poor Law in a new light. As the agricultural crisis deepened, efforts were intensified to blame the crisis--not on an agricultural depression or on the potential consequences of gold--but on the bad behavior of the rural poor that resulted from the perverse incentives of the Poor Law. The new edition of Malthus' Essay published in 1817 and the Parliamentary Report on the Poor Laws (1817) in the same year provided new fuel for this campaign that gathered steam as the price deflation intensified (Henriques 1979, Digby 1986).

To be sure, the campaign was not waged at the same level of intensity for the entire period from 1815 to 1834. But when the problems of the rural economy became acute–either because of high levels of distress or rural unrest or both–there were renewed efforts to explain the problems as the working out of the perverse consequences of Speenhamland. The campaign was an exercise in blame shifting, but it also finally gave the government something to do. Within the narrow limits set by laissez-faire, successive English governments were extremely constrained in their ability to respond to the rural crisis (Gordon 1976, Hilton 1977, Gordon 1979). Government ministers were in the extremely awkward position of doing nothing as rural distress intensified. The overhaul of the Poor Law--even if it represented a response to the wrong problem--helped bolster the government's legitimacy by showing that it could take positive action to make the economy work.

But the most critical legitimation was of classical economics itself. Since gold standard restoration could easily be counted as the first great policy triumph of the new science, the severity of the agricultural downturn might well have undermined the whole belief in laissez-faire and self-regulating markets (For the ideological consolidation of laissez-faire ideas in this period, see Waterman 1991). Classical political economy was in its infancy in this period, and its ultimate maturation and worldwide influence was hardly a foregone conclusion (Checkland 1949). While it is difficult to think through such a radical counterfactual; an alternative and more pragmatic strand of economic thinking might have become institutionalized in the place of the Malthus-Ricardo tradition. Instead, the intensifying campaign against the Poor Law, and the ultimate policy triumph of the New Poor Law diverted attention from the new science's first major policy failure and solidified the hold of the faith in market self-regulation on the society's imagination.13 The 1834 success would set the stage for the culminating victory of the free trade forces–the repeal of the Corn Laws twelve years later (Semmel 1970, Kindleberger 1975).

In short, there is a powerful narrative that makes sense of the recent body of scholarship that has debunked both the pro- and anti-market versions of the Speenhamland story. The core idea is that the Speenhamland myth was created in the period from 1815 to 1834 to divert blame for a deep agricultural crisis away from government policy and towards the rural poor who were the major victims of the economic downturn. Since the decision taken by the government on Ricardo's advice to restore the pre-war parity of the pound intensified the rural depression, the mythology worked to cover up the first major policy failure of Classical Economics. 141979, ch.4. While Malthus and Ricardo had profound substantive and theoretical disagreements, it was Malthus’ powerful critique of the Poor Law that rescued Ricardo and Classical Economics itself from being forever tainted by the disaster of gold standard restoration.

The importance of this myth becomes apparent when one thinks about the diffusion of economic liberalism during the course of the 19th century. England's ability to persuade other countries to adopt free trade, the gold standard, and the belief in market self-regulation depended on its ability to present itself as a great economic success story. Were other societies aware that the price that England had paid for economic liberalism was severe economic hardship

in the countryside in the 1820's, 1830's, and 1840's, the English model and the doctrine would have been considerably tarnished. By shifting the blame for the problems on to the Old Poor Law, the economic liberals successfully reframed the agricultural downturn into a problem of individual morality and a parable of the dangers of government "interference" with the market.

Conclusion

The major theoretical lesson that we learn from this case study is hardly novel; it is a renewed appreciation for the power of narrative to influence how history is experienced and why certain theories about the world triumph over others. What is so interesting about the specific case is that the narrative of the disastrous consequences of Speenhamland was produced before any significant evidence had been gathered. In Malthus' 1798 Essay on Population, all the elements of the story line are already in place. An overly generous system of poor relief destroys the work incentives and the limits on fertility of the rural poor, producing both a fall in productivity and a rapid growth of population. The combination results in a catastrophic decline in living standards and the complete moral degradation of the poor. The only way to return the poor to their natural state of self-discipline in both work and procreation is to abolish the system of poor relief.

In subsequent years --particularly after 1815--this story was repeated so frequently by political economists and the clergy that it gained the quality of truth. When the Royal Commissioners produced their report in 1834, they elevated it from ordinary truth to Social Scientific Truth. It then took almost 130 years before there was a serious scholarly effort to

show the shallowness and distortions of that document. But even after years of detailed scholarly work had effectively debunked the Speenhamland legend, contemporary social welfare theorists were successful in mobilizing precisely the same storyline to discredit current welfare institutions. Charles Murray's influential 1984 book, Losing Ground simply updated the old story to argue that an excessively generous welfare system in the U.S. had undermined both the work ethic and sexual restraint among the poor. Moreover, the work of Murray and likeminded scholars played a critical role in creating the climate for the 1996 Personal Responsibility and Work Opportunity Reconciliation Act that eliminated the entitlement of poor children to government assistance.

Our review of the historical evidence suggests two conclusions. First, the perversity story lacks empirical support. The experience of the Speenhamland period is that poor relief did not hurt the poor; it helped to protect them from structural changes in the economy that had made it far more difficult for people to earn a living. Second, the doubts that have hung over guaranteed income proposals since Speenhamland should now be dissipated. While it is theoretically possible that a floor under incomes would be transformed into a ceiling, this certainly did not happen during the Speenhamland period and. there is little evidence that it has ever happened. There are good reasons why this theoretical possibility is rarely likely to occur in practice. In contrast to Speenhamland, most contemporary income guarantee proposals, including variants on the negative income tax, do not require that recipients work. Hence, when employees are faced with an employer who is progressively lowering wages to take advantage of the income guarantee program, they are likely to quit and look for alternative employment since they know that they will be protected by the income guarantee from economic hardship during their period of unemployment. Moreover, under most circumstances, employers avoid unilateral reductions in wages precisely out of the fear that they would drive away existing employees and make it harder to fill vacancies. It seems only logical that if an income guarantee were in place, employers would become even more cautious about imposing wage cuts.

In short, we should proceed to debate welfare and income maintenance policies free of the mythologies that were created two hundred years ago. If we do so, it will be clear that we have a broader range of policy options with which to combat poverty and economic hardship than many economic liberals have been willing to admit.


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