Niall Ferguson has made a discovery. With a weekend essay in the Wall Street Journal, supported by a Hoover Institute Working paper, he proposes 'Ferguson's law': that 'any great power that spends more on debt service than on defense risks ceasing to be a great power'. Ferguson's limit is the point at which debt servicing exceeds defence spending. This is, of course, named after Adam Ferguson, that eighteenth century political theorist who warned of excessive indebtedness, although the rule is Niall’s own creation.
The sceptic might think this mere political argument. The discovery comes as the US has breached the Ferguson law for the first time in its history. It's unsurprising that Ferguson, a noted conservative, finds debt dangerous and defence paramount.
And yet, this is a law, one grounded in history. Ferguson sets out a number of case studies that 'support the idea of an historical regularity'. He includes Hapsburg Spain, the Dutch Republic, Bourbon France, the Ottoman Empire, Austria-Hungary, Tsarist Russia and modern Britain, each supposedly showing the dangers of prolonged breaches of the Ferguson rule. Let us consider these examples.
There are a number I profess no special knowledge of. The Ottomans, the Austrians and the Russians lie beyond my understanding. The others, however, I feel able to comment upon.
First is Hapsburg Spain. Ferguson notes it briefly crossed the Ferguson limit between 1575 and 1584, but the 'real fiscal crisis came later'.[1] This is convenient, as late sixteenth century Spain was undeniably pre-eminent. Unfortunately, this later discussion abandons the idea of the Ferguson limit, as his graph ends in 1595. That said, it seems that between 1556 and 1659, 'military expenditures averaged 75% of government outlays'. Afterwards, Spain supposedly breached the law and so lost its great power status.
That would be a nice story, if only the dates matched up. As Ferguson points out, Spain's decline began in earnest much earlier. It lost Portugal in 1640, was ground down by France in the 30 Years War, and the 1659 Peace of the Pyrenees confirmed its collapse. By the 1680s, when its debt became crippling, European leaders had long since been eyeing the Spanish holdings they'd seize once the childless Carlos II died. Far from being an 'advance indicator' of great power decline, the case of Hapsburg Spain suggests that breach of the Ferguson limit provided only belated confirmation.
Spain is contrasted with the Dutch republic, for which Ferguson gives more concrete data. It consistently followed Ferguson's law until 1713, when debt payments started to exceed military spending. Yet 1713 would be an odd point to mark the start of Dutch decline. After the high point of the early seventeenth century, the Republic was nearly crushed by Spain in the 1620s, rescued only by the timely intervention of France and Sweden. In Westphalia, when the great powers decided Europe's fate, the Dutch played only a bit-part role. By the 1670s, they were forced into flooding their own country to prevent being totally overrun by the French. Prolonged breach of Ferguson's law, following 1713, seems to have come well after great power collapse.
Next is Bourbon France. Here the crucial point seems to be in the reign of Louis XVI, when supposedly the government was taken 'far beyond the limits of Ferguson's law'. Frustratingly, no hard numbers are provided, and so it is unclear when exactly this happened, if at all. At any rate the decades pinpointed by Ferguson come long after France's own perceived decline. The War of Spanish Succession had seen its armies routinely routed, and while Louis XIV could claim victory in 1714, his nose had been more than bloodied. By the Seven Years War, Choiseul, the chief minister, feared utter annihilation in light of Britain's naval dominance. It was in this climate of panic that the finance ministers of the 1780s began performing the increasingly complicated financial acrobatics that triggered crisis.
One example raised only to be swept aside by Ferguson is that of Hanoverian Britain, which consistently breached the Ferguson limit in the eighteenth century yet faced no great power decline. Indeed, it was a century of great success, as Britain rose from one among equals to the World's clearly dominant force, even despite the loss of America. There is always an exception that proves the rule I suppose.
Finally, there is 20th century Britain. This paragon of great power decline breached Ferguson's rule in ... 2010? Surely that can't be right I thought. Yet the historian is equal to this challenge. Far from reconsidering the premise, Ferguson engages in patriotic revisionism. He notes the triumph of the Falklands, the British military deployment across the world, and engagement in the War on Terror. Yet the Suez crisis is left out, as is the slow decline of the 50s, 60s, and disastrous 70s. In the winter of 1979, as James Callaghan surveyed a diminished country, I doubt that the continued keeping of defence spending above debt payments would have provided much comfort.
The conclusion of Ferguson's case studies seems to be that the decline of great powers often involves fiscal crises. Hardly a revolutionary thought. In none of those I've examined was the collapse preceded by breach of 'Ferguson's limit'. For Hapsburg Spain, the Dutch Republic and modern Britain, that threshold was crossed well after the loss of great power status.
The maxim that debt servicing should not exceed defence spending might be a good one. It is notable that the US has met this threshold point. Niall Ferguson is a smart man, with good insights on modern geo-politics. Indeed, his WSJ essay is full of prescient observations on why the current state of American debt is particularly concerning. Yet by dressing this up in talk of 'historical regularities', using examples that have no bearing on the purported law, he is little better than a back-alley conjurer. Ferguson's law, Ferguson's limit, more like Ferguson's folly.
[1] I shall take Ferguson's numbers at face value, which, for early modern monarchies at least, are somewhat dubious. In a mercantilist world, where the flow of capital between states were tightly controlled, the absolute monarch has enormous discretion over their supposed obligations. High headline interest rates might, on a whim, be reduced. For over two hundred years, Europe's police states were able to do this, helped by the carrot of higher status at court, and the stick of the headsmen. To give an example, James VI of Scotland owed the financier Thomas Foulis £160,000 in 1598, over a year's worth of spending. The despot had no intention of paying the debt, and thus had Foulis disgraced and his debt expunged. Foulis never recovered; James VI became King of England.
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