Sound finance : Gladstone and British government finance, 1880-1895
The fifteen year period 1880-1895 was one of profound change in government finance, not only in the scale of expenditure (which increased by a quarter) but the very expectation of what that expenditure should be as the traditional governing elite began to take notice of the "democratic" society which would soon displace it. Although governed by the Conservatives for six of those years, it was dominated by the fiscal theory of "Sound Finance", especially as practiced and perfected by Gladstone as Chancellor of the Exchequer. This philosophy demanded balanced budgets, a low tax burden and minimal government expenditure. It is necessary to explain why this philosophy came about and how it adapted to changing circumstances. "Sound Finance" as a fiscal theory was also closely associated with a belief in free trade and a commitment to the gold standard. Together these formed the trinity of fiscal orthodoxy for the late Victorian governing class in Parliament, the Treasury, and at the Bank of England. But as Britain fell into the "Great Depression" and economic growth seemed to stagnate, this consensus was attacked by those who believed that these old doctrines were capable of fulfilling neither the government's revenue requirements nor the economic imperatives of the nation. Hence their advocacy of bimetallism and "Fair Trade". In spite of this, at no time were these critics able to implement such doctrines nor even to deviate in any substantial ways from the imperatives of "Sound Finance". "Sound Finance" dominated the fiscal thinking of politicians, bureaucrats and business leaders, regardless of political stripe, because it was at the heart of contemporary economic theory, and indeed because it seemed to explain for them the place of the state in that economy while allowing crucial flexibility. Yet just as significantiy, the strictures of "Sound Finance" allowed both a political and economic control of the state while providing, at least in theory, both Parliamentary and democratic supervision and accountability.