As much as I continue to enjoy David Hume's robust skepticism about our human understanding, I have come to see him as yet another gold bug ninny when it comes to political economy. A year after Henry Pelham's wonderful consolidation, Hume is still grousing about the prospect of future bankruptcy because of "the debt". Hume did not believe in God, but he most certainly believed in a kind of monetary fundamentalism. Only hard money could be the instrument of righteousness; the ability of credit to create structures of exchange reaching around the world was "of no very great importance", not when measured against the fundamental evil of debts secured only by the promise to pay.

Hume was complaining because Henry Pelham had removed refunding of all but short-term borrowings by the government. Its debts, including the South Sea annuities, were consolidated into IOU's without maturities. As a result the Bank of England became what the Federal Reserve is now, if you exclude from its activities all "management" of the Federal debt with 1 year or greater maturities. The Bank of England would provide cash management to the Exchequer by acting as its agent for the sale and redemption of short-term credit and would act as the agent for the transfers and payments of interest on the consols; but "the debt" was now a permanent fund that would never be "paid off".

In spite of the fact that they were the authors of the single most extraordinary change in the history of finance, you can barely find a mention of Pelham or his brother, the 1st Duke of Newcastle. They ran Britain's finances from the aftermath of the South Sea bubble to Henry Pelham's death in 1754; but they are essentially anonymous as far as political economy is concerned.


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