Yankee Finance Capitalism Part II: The Jeffersonian Triumph

“The revenue of the state is the state.” Edmund Burke

The rise of the modern nation state in the 1600s was founded upon monarchies securing independent sources of revenue to pay for the royal armies that secured their dynasties.  Jacques Colbert, Louis XIV’s minister of finance, designed a system of state monopolies, internal free trade districts, tariffs and internal taxes to support the wars of his sovereign.  Later in the eighteenth century, the French and Indian War resulted in a British victory in large part due to the rise of deficit spending (and the national debt which makes it possible) which funded the British war machine in this first of global wars.  Crucial to any scheme of deficit spending is the development of a symbiotic relationship between the financiers who purchase government debt and the state which comes to depend upon the funds of these financiers.  In Great Britain, the lender of last resort to the government was the Bank of England, so if British bonds could not catch a bid in the loanable funds market, the Bank of England could come to the rescue.