Overthrown

Just three and a half weeks ago, Liz Truss's chancellor, Kwasi KwartengA British Conservative politician who served as Chancellor of the Exchequer under Liz Truss from September to October 2022., stood before MPsMembers of Parliament. MPs are elected to represent people in 650 different geographical areas.  and announced massive economic reforms. He slashed taxes, raised spending, and promised economic growth.

Yesterday, Liz Truss's new chancellor, Jeremy HuntA British Conservative politician who has held many senior roles in government. , made a new statement aimed directly at international markets. He raised taxes, slashed spending and promised economic stability. He reversed almost every change in Kwarteng's plan.

Observers say Truss's authority is completely shattered. She is now implementing the opposite programme to the one she wanted. Conservative MPs are calling Hunt the de factoSomething that happens in practice, in contrast to that which happens de jure, or according to the law. prime minister.

Truss may last in office for only a few more weeks. But she is part of a story that goes back more than 300 years. 

Until the 17th Century, governments tried to avoid going into debt. When they needed to borrow money, they would try to pay it back as quickly as possible.

If they did not pay it back, or were too slow in doing so, the lenders would simply stop lending them money, and they would not be able to raise any funds.

Then in 1693, William IIIKing of England, Scotland and Ireland from 1689 to 1702. He was invited to become king by Parliament, which wanted to depose its reigning Catholic monarch James II.  of England wanted to go to war with France.¹ But one of his predecessors, Charles IIThe King of Scotland from 1649 to 1651 and the King of England, Scotland and Ireland from 1660 to 1685. , had defaultedFailed to repay a loan. on his loans, so investors were unwilling to lend any more money to the English government.

Instead, William created the Bank of EnglandThe central bank of the UK. Like other central banks around the world, it tries to stabilise the economy by keeping down inflation and offering loans to struggling banks., which raised a loan from ordinary members of the public. This earned him £1.2m - around £230m in today's money - and he was able to start his war.

He did not yet realise he had invented something that would revolutionise the global economic system: national debtThe total amount of money a country's government has borrowed. . 

Previously, governments had only raised short-term loans. From now on, they would maintain a permanent debt, and raise money by selling shares of it, known as "bonds".

This gave them a permanent source of income. But it also put them at the mercy of investors.

Investors will only buy bonds if they believe their value will go up and that the state will not default on its loans. That means governments constantly need to reassure investors that they are not doing anything that risks damaging the economy, or they will struggle to find buyers for their bonds.

That is why some think the markets have become an enemy of democracy. They say investors can now punish elected governments for trying to implement radical economic programmes.

This is not just a problem for Truss and her conservative backers, they argue. Left-wing governments face similar challenges.

They point to the example of Greece, which elected a radical left-wing government in 2015.² After months of fighting to implement their programme, they ultimately had to give in and impose a right-wing economic plan.

But others think this has nothing to do with democracy. Governments cannot do whatever they want just because they are elected, they say. They cannot force investors to endorse their plans. If they want money from markets, they have to persuade them that there is little risk in lending.

Yes: Truss proposed a new, ambitious economic policy. Within days, the markets had forced out her chancellor and imposed a series of U-turns on her. This is little more than a coup d'etatWhen a government is overthrown or suddenly removed from power. .

No: A government cannot change reality. If you get elected on a platform of abolishing gravity, things will not start floating. It is simply a fact that governments rely on markets for funding, so they have to keep them happy.

Or... Truss was not elected by the public anyway. She has no mandateAuthority from the people to do something, usually given to politicians in an election. for her programme. The markets have not reversed the will of the people, because the people never had a say.