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1688-1714: William III, the War of Spanish Succession & the Bank of England create the first Fiscal Military State

Updated on May 30, 2014


In 1688, England was at a time where the old was being replaced with new and the mechanisms of religiosity were being replaced with the machinery of secularization. Consecration, divination and confiscation gave way to rationalization, replication and commercialization but not without great risk and cost to both Parliament and people, yet the consequences of the era would create the foundations of the modern world, with Britain as its first true hegemon. As P.M. Dickson put it, it was an "age of wagers on the lives of private and public men, the chances of war, and the occurrence of natural events, as well as the issue of a horse-race, the fall of dice the turn of a card..." (Dickson, p. 45). The sum results of the Whig and Tory gambling against each other between 1688 and 1714 was a whole new world, literally; it brought forth the end of the notion of French universal monarchy, the creation of the first bipartisan state, the ascension of the newly formed British Empire over the continental theater commercially courtesy of the Spanish Asiento, the security of the Hanovarian and Protestant line of succession, a system of public credit that would fund the most advanced national security system of the time, the conclusion of over 130 treaties with foreign powers, the foundation of a powerful German state, the painful awareness that the balance of power in Europe was a British problem whether on the far side of the Channel or not and, finally, the knowledge of how unharmonious internal backstabbing could destroy opportunities externally – as the Tory betrayal would eventually lead the death of the trading companies and most of the colonial Empire, raising up America and creation of the modern political climate (Simms, pg. 70-75). Ultimately,

these were all the building blocks for Britain’s crowning achievement, the first fiscal military state – forged by commerce with the continent and abroad, bipartisan idea-swapping and profound leadership on varying levels of society.

The General History: 1688-1707

When the English succession came into question, the Whig Parliament courted a king who was willing to let their gambles play out as long as he was able to go to war against a common enemy - it was a win-win for both William of Orange and anyone looking to push the Protestant agenda. In 1688, with the help of a cloak-and-dagger Parliament willing to undermine King James II and again in 1694, with the help of Chancellor Charles Montagu's Bank of England, William III was able to exchange the power of absolute rule for the position to run the war on France against Louis XIV for the Whigs, opening a new door for a powerful method of leadership; a triumvirate between business, Parliament and the crown that would impact war, government and the world's modern economies. It was these very gamblers that Dickson urges were the advisors of William and Mary and their blind-faith-in-the-people mentality created the bureaucratic system of checks and balances that most democracies use today to moderate their business, finance and political sectors. The gamblers were known as The Immortal Seven and included five Cavalier Whigs led by the Earl of Danby and two Tories eager to see the Catholic tyrant James II off the throne. The gamble was the unconventional usurpation co-regency between James's own Protestant daughter, Princess Mary and Dutch Protestant Prince of Orange William III that would carry on the war against France beginning in 1688.

While maintaining the royal sovereignty, the Crown could keep Mary as coregent, holding to Tory tradition of divine succession and the Whig Parliament could keep their hero-general from returning to The Netherlands and maintain security against France and any Jacobite resurgences

that might emanate from either Ireland or Scotland. France's attacks on Orange and James's abandonment of its people insured William's commitment to England's security against both James and Louis XIV. Mary's allegiance came from her abhorrence of her father's acts on behalf of Catholicism which had begun with her being forced to marry her own cousin and included the possible "pretend" brother that had been born or created to inherit the throne ahead of her in 1688 sparking the Revolution. The confiscation of Protestant church lands for the purpose of royal spending and the betrayal of Orange kept Mary firmly on the side of the Whigs and her husband when it came to ending her father's reign. So much so, that she willingly abdicated all power to William if only to stand as the English placeholder of the throne on his behalf. The Whig Parliament did what they could to end the Stuart succession and put William at the head of the war table.

James fled to France and left William to work out the details of his co-reign with Parliament, the Church of England and the ruling class. The result of which turned the role of King into more of an employment, which worked for William as long as he got his chance to put an end to French universal rule and Louis’s Catholic aims. However, he found his war to be expensive and the short-term lending of the common Dutch tradition was insufficient for the amount of debt being allocated by the war effort. This left William and the Whig Parliament searching for new ideas for finance to manage their history of bruised credit and empty coffers.


The Original Grievances

The Glorious Revolution began with the understanding that the Church of England and Protestantism was created against the majority will of the English people, and in particular, the severely Catholic Irish people by Henry VIII (Doubleday, p. 8). Henry then proceeded to use the new church to confiscate all the Catholic lands, particularly Irish lands, to afford to go to battle with France and Scotland for what he believed was "his land". Accompanied by his desires to bed and marry whom he chose when he chose, he - with the help of Protestant "vicar-general" Thomas Cromwell - created the Church of England, of which he was the divine head, formally ousting the Pope from any right to rule to the subjects of England. The following grievances were brought on by the ensuing fights between the two churches as they battled for power over Crown, land and people.

The Roman Catholic Church resurged again through the first Queen Mary, called "Bloody Mary", daughter of Henry and Catherine of Aragon, who saw fit to kill as many Protestants as possible and confiscate as much land from the Church of England as she could to spite her father and honor her Catholic mother and husband, King Phillip of Spain. She was later dethroned and beheaded, replaced by her younger sister Elizabeth. A time of peace passed as Elizabeth took the crown for a time and entertained a peace between the churches through a practice of general indifference towards papists, refocusing on the reformation of England until she died in 1603 with no heir leaving the throne to the next in line from the Scottish House of Stuart, James VII of Scotland also known as James I of England.

James I eldest son Charles I ruled until 1649 but was overthrown and the monarchy was abolished for a short time. England was ruled under the Protectorate by Oliver Cromwell, who named his son Richard to succeed but he was ineffective and removed. The monarch was then restored and Charles II was placed on the throne. Charles II was a strong Protestant who had no true heir but a bastard son, the Duke of Monmouth and his Catholic brother, James II. He openly supported his Royal Declaration of Indulgence and tolerance for papists, however, the "Country Party" or soon to be Whigs, were growing in power thanks to the lobbying feats of the Earl of Danby, under whose leadership any Catholic traditions were to be shut down promptly. This included the succession of Charles's brother, James, to the throne in what came to be known as the Exclusion Crisis of 1679-1681. Papist meant absolutism and standing army to the new Whig Party and they were not interested in returning England to the hands of the Pope in any capacity. After openly refusing to take an oath to the new Test Acts imposing disabilities on papists, James was outted as a Roman Catholic and the Parliament found him unfit to be heir of the Church of England. Using his royal power, Charles dissolved the cavalier Parliament and imprisoned the Earl of Danby and James II took over for Charles II despite the unwillingness of both a dissolved Parliament and silenced people. This earned him the title "The Old Pretender" and the resentment of a nation.

While James was ousted by his own son-in-law William after only four years on the throne, his heirs would seem inconsequential. However, Jacobite resurgences would continue through the eighteenth century so their importance was key to English politics of the 1700s. James II was without a surviving male heir after his first marriage to commoner Anne Hyde, which bore him his surviving daughters Mary and Anne, whom were both raised Protestant and would later ultimately succeed him despite his wishes. It was in his first marriage that he converted to Catholicism with his wife after being exposed to it while traveling abroad (Callow, p. 147) and it was that which would end his popularity, if ever he had any from his commercial endeavors. While James II preferred Protestant services and folk, such as John Churchill, the Duke of Marlborough, who had been close friends, the conversion to Catholicism occurred and would affect his only son and surviving heir from his second marriage to staunch Catholic Mary of Modena immensely as James III would be raised Catholic and primarily in France, to the dismay of the English people. He would come to be known as James III, the "Young Pretender". He, too, would attempt Jacobite rebellions to restore his father's throne but would not have the gumption to carry through for the succession.

Despite what the truth might have been, the scars of "Bloody Mary" ran deep in the English people and they were ready to believe that any Catholic-inclined king was a fraud and a tyrant. As James II was notoriously Catholic and would take the throne from his father in 1685, it took little time for Parliament to mount an effort to end his reign especially when he attempted to reinstate a standing army for the first time in decades but it took only the suspicious birth of his son James III in 1688 for the English landed class to begin the Glorious Revolution, putting an end to the Stuart rule and French alliances.

Bank of England


Building the Bank

Initially, the ever-growing need had taken root in 1689 with the growth of the Grand Alliance coming to include England under Whig rule as a means protecting the last perceived bastion of Protestantism from the French, Flanders (Simms, pg. 37). After having shut down Jacobite – or French-backed pro-James - rebellions in Boyne in 1690 and Aughrim in 1691, it had become clearer to the Whigs that English diplomacy on the continent would be necessary as would the forging of allies if they were to eliminate any outcries from Scotland, Ireland or otherwise that might be in Stuart favor. A sophisticated system would be required to fund and maintain the endeavor that would become the English goal to monitor the balance of power in Europe. In 1694, the Bank of England offered the opportunity and the English people, drawn to the fight for Protestantism against Popery came to a strategic consensus that allowed a massive new system of taxation to flood forth unquestioned (Simms, pg. 39).

William found his credit beginning to weaken throughout London and when the English navy suffered a devastating loss at the Battle at Beachy Head to France in 1690, it was clear a superior naval force was required regardless of Louis’s failure to follow up on his victory (James, pg. 55). England was going broke and even its vast amount of resources at home and abroad could not be refined, marketed and taxed fast enough to keep up with the military spending needed. Additionally, pirating of British ships was taking place continuously by the French and even the Dutch upon being abandoned. A new plan for financing had to be made now that royal lands and assets were not at the King's arbitrary disposal. The 1688 reformation of The Exchequer had worked to diligently levy taxes thus kicking off the Financial Revolution as it ushered in the era of long-term capital to finance war on a massive scale; it was the foundation of the machine that would begin to evolve and permeate all of British life. Credit could be issued to the Army and Navy against incoming taxes and interest could be added to the principle between monies companies like the East India Trading Company and eventually, the Bank of England (Brewer, pg. 99 -101).

In 1691, a new plan was offered by a man named William Paterson who had previously failed in his attempts to exploit James II in the Darien Scheme meant to aid and abet Scotland's revival. Paterson introduced a pamphlet titled A Brief Account of the Intended Bank of England in which he suggested purchasing government debt of 1.2 million pounds with his company The Merchant Taylor's Company and thus becoming the banker of England at a generous eight percent interest. In 1694, this would later come to fruition through the Tonnage Act or Bank of England Act of 1694 under the guidance of House of Commons member Charles Montague, 1st Earl of Halifax. Montague, who would then be elevated to the status of Chancellor of the Exchequer, established The Bank of England so that it would be run by private investors (until made public in 1946) who were the sole owners of the government's debt, receiving their eight percent interest per annum and had the sole right to issue bank notes to the public. The government would be given cash in exchange for bonds, which would then be lent again. This process continued until the minting of coin which would later follow. It took twelve days for the Bank of England to acquire the investors with the 1.2 million pounds required to build the navy, much to William's relief (Doubleday, pg. 77).

The only failure of this system at the time was that there was no legislative backing that guaranteed repayment of government debt to private businesses, so they had to rely on government goodwill (Dickson, p. 342). The result was the devastation of venues like the Bank of Amsterdam in 1694 from weak credit to issues such as the Bank of England being accused by its opponents of preferential lending to The Exchequer on tallies it would get paid back on first (Dickson, p. 347), behaviors that would ultimately lead to regulation and insurance structures we still use today.

Prior to the Bank of England, the East India Trading, Royal African and South Sea Companies had created a system of bond-debt and company shares that allowed them to collect investors - chiefly the government - and raise capital but with the creation of the Bank of England in 1694 two things happened. First, the bank shut down corporate note-issuers and in exchange had the companies create overdraft accounts and interest rates that operated on the amounted indebted to them. Second, the corporations were allowed more flexibility by anonymity as they now no longer had traceable and identifiable bonds; all Bank of England bonds for all three companies looked the same, so their movement was made more ambiguous. This allowed for each company to cook books and pass off bonds accordingly depending on what they could come up with regardless of whether or not it was originally bonded to their company. As all had similar value and similar interest, they were virtually untraceable (Dickson, p. 408). Special legal provisions were ultimately made to protect bond holders from such issues, as well as the companies from theft which became harder to prove. Additionally, seals were created for each company making bonds more identifiable and laws were created to protect the fraudulent use of seals.

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The War of Spanish Succession & the European Balance of Power

While the domestic revolution of 1688 had been successful, William’s bickering with France had become less so after the 1690’s Jacobite rebellions. The Tories began to draw Whigs over to their side arguing for a “blue water” campaign that was more navy focused for defense purposes and less continentally focused as William previously had been. The balance of power, the Tories argued could take care of itself or it was not much of a balance, but regardless was not England’s problem. They sought to abandon the Allies and focus on the revitalization of England’s commercial sphere, which meant dealing with the carryover of the fighting to the Caribbean and colonies. The New Country Party of Whig schisimists agreed and this began a shift in focus both militarily and financially from the mainland to the Americas, specifically French-Canada. They rushed to tie a bow around the continental wars with the Treaty of Ryswick in 1697, forcing Louis off the Spanish Netherlands and to recognize the Prince of Bavaria as the next successor to the Spanish throne, rather than his grandson Philip of Anjou. That poor decision coupled with the consequences of Scotland attempting the Darien Scheme of 1698 on the Isthmus of Panama woke Parliament back up to the imminent possibility that France universal rule could easily resurge and with support of England’s very own neighbors (Simms, pg. 45).

The death of Spain’s king Carlos II without an heir in 1700 allowed William the opportunity to paint a picture of an unbalanced Europe forged together by the merging of the Franco-Spanish crowns, an empire much worse than Charles V’s had been. The Bavarian heir agreed on at Ryswick had since died and Louis proceeded to advise Philip to accept the throne despite the treaty. There was no majority for the war in Parliament but the Whigs and William knew that failure to prepare for a continental war would be foolish. The Kentish Petition of May 1701 circulated with the purpose of demanding England aid its Dutch ally but was struck down and its creators imprisoned by the Tory Parliament (Simms, pg. 46). It was not until England and Holland were forced to recognize Philip as king of Spain and he then passed the Asiento on to the French that Tories began to see the error of their ways. The lucrative right to trade slaves with the Spanish drove commerce in the Americas and without it, England and Holland’s plantations would be devastated. The final straw came in 1701 when James II died and Louis announced James III as the recognized heir to the throne of England. In June of the same year the House of Commons proclaimed its support for William’s cause and renewed the terms of the Grand Alliance, committing England to policing the balance of power on the continent.

William died in 1702 with no heir, leaving the line of succession to fall to his wife Mary’s sister Anne. Anne took great confidence in John Churchill, the Duke of Marlborough, renowned hero of the War of Spanish Succession. Parliament placed him as supreme commander of the armies of the Grand Alliance and sent him across the channel to check the French, which he did successfully until Tory politicians forced his removal in 1710. Marlborough, however, became the first European war hero, known by all, especially for his devastation of the French in Blenheim, Germany in 1703 for which his palace in England is named after. Incidentally, most of the British victories were won in Germany with a German army under Marlborough’s lead. He was even known for his political charm, particularly when he managed to persuade King Charles of Sweden to retreat from Poland rather than advancing on Austria, which would have effectively taken Austria out of the game (Simms, pg 51).

While the war carved out many of the modern nation states, it particularly clarified the British identity. In 1703, the danger of Scottish separatism grew with the passing of Edinburgh Parliament’s Act Anent Peace and War, disassociating Scotland from anymore of England’s foreign affairs that were not approved by the Scottish Parliament after Anne’s death and the Act of Security which stated that should James III convert to Protestantism, he was welcome to the throne of England again. England responded with the 1705 Aliens Act, declaring Scots aliens unless they repealed the Act of Security; this was a reflection of the fear brought on by the Auld Alliance Scotland previously held with France and recognition that after the Darien Scheme, Scotland might attempt to cut into Imperial profits. In 1707, English and Scottish commissioners finally came to a unification agreement formalizing the United Kingdom of Great Britain and making Scotland a permanent partner in all the British Empire’s future commercial endeavors, especially the right of Asiento it would gain from the Treaty of Utrecht in 1713.

Duke of Marlborough


Additional Side-Effects

Various outcomes arose from the era, one of which was the newly concreted identities of the Whig and Tory factions of the fledgling British government. The pillar by which each party would be founded are reflected still today in the modern MPs. The Whig Party continues to stand for minimized government with strong foreign policy while the Tory focus remains at home and internalized. The openness with which these two parties are allowed to operate is what has created the current democratic wind we see today and may be what allowed Britain to become the first true hegemon of the modern era despite their inability to cooperate. That same behavior is seen today in American politics, as well.

The stock market was another side-effect of King William's War and the Financial Revolution. "A great many stocks have arisen since this War with France; for Trade being obstrucked at Sea, few that had Money were willing it should be idle..." stated John Houghton, F.R.S. in his 1694 A Collection for Improvement of Husbandry and Trade. The market of 1688 allowed for the rapid expanse of various companies and the breakup of several monopolies, like the East India Trading Company giving way to the Hudson Bay Company. Competitions arose such as those between Linnen Manufacturing Stock and Paper Stock and Salt-Petre Stock and others creating a securities market as well as a job market that supported the war. Both private shares and public securities filled King William's war chest in the boom from 1690-1705 (Dickson, p. 487). The complication arose when companies floated their value, increasing share prices without revenue; if they could make up the debt gap before they were caught it worked, but often they debts were owed by the Navy or other government branch and were beyond any immediate repayment. The final legislative cap on the high-risk capital was the The Bubble Act of 1720 courtesy of the South Sea Stock bubble created by the Tories.


A look in 2010 at the last British election and the recession finds a quote in The Economist stating, “When banks around the globe were going belly up, Britain came up with answers fastest…Free trade and open markets, for example, are in the DNA of this island nation.” With both its resource and financial expansion to fuel its war with France and its creative mechanisms of taxation and lending, Britain began structures that future states as well as forged its own DNA. Through the expansions and contractions of the Glorious and Financial Revolutions between 1688 and 1756, England became Britain as well as an imperial power and the foundation of all wartime economies to come, the original democracy and the first modern empire.


Dickson, P.G.M. The Financial Revolution in England: A Study in the Development of Public Credit, 1688-1756 (London: Macmillan, 1967).

Brewer, John. The Sinews of Power: War, Money and the English State, 1688-1783 (Cambridge, MA.: Harvard University Press, 1988).

T. W. Heyck. The Peoples of the British Isles: From 1688 to 1870, 3rd Edition (Chicago: Lyceum Books, 2008).

*Jones, D. W. War & Economy in the Age of William III & Marlborough. New York: B. Blackwell, 1988.

Callow, John (2000). The Making of King James II: The Formative Years of a King. Gloucestershire: Sutton.

Bagehot, Walter (1873). Lombard Street: a description of the money market. London: Henry S. King and Co.

Simms, Brendan. Three Victories and a Defeat. (New York: Basic Books, 2007.)

James, Lawrence. The Rise and Fall of the British Empire. (Great Britain: Abacus, 1998.)

Doubleday, Thomas. A Financial Monetary and Statistical History of England from the Revolution of 1688 to the Present Time. 1st ed. Pub. 1847 (London: Adamant, 2005.)

AP. “Britain’s Choice” The Economist. Vol. 395. No. 8677. April 10th, 2010. pp 13.


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