War is an expensive business. By the end of the Nine Years’ War (1688-1697), England’s national debt amounted to around 20 percent of national income—a low figure by today’s standards but a worryingly high one to contemporaries. But as anyone who has ever had a mortgage or any other sort of loan knows, what matters is not just the quantum of the borrowing but its costs.

As England (and, after 1707’s Act of Union with Scotland, Great Britain) established that it would not miss a payment and as Parliament then demonstrated its ability to increase the tax take when needed, the interest rates charged began to fall. By the time of the Seven Years’ War in the 1750s, the British government was able to borrow at just 3 percent. In theory, the plan was always to “pay off” the national debt at some point.

War is an expensive business. By the end of the Nine Years’ War (1688-1697), England’s national debt amounted to around 20 percent of national income—a low figure by today’s standards but a worryingly high one to contemporaries. But as anyone who has ever had a mortgage or any other sort of loan knows, what matters is not just the quantum of the borrowing but its costs.

As England (and, after 1707’s Act of Union with Scotland, Great Britain) established that it would not miss a payment and as Parliament then demonstrated its ability to increase the tax take when needed, the interest rates charged began to fall. By the time of the Seven Years’ War in the 1750s, the British government was able to borrow at just 3 percent. In theory, the plan was always to “pay off” the national debt at some point.

Financial officials throughout the 18th century would often note that while Parliament had granted taxation on the basis of borrowing at, say, 8 percent, the actual costs were often lower—perhaps 4 or 5 percent—and the difference could be used to pay down the principal. In the late 1710s, optimistic officials believed the whole thing would be paid off within 22 years. But that comforting arithmetic ignored the reality of Britain’s long on-again-off-again war with France. By the time the Seven Years’ War (1756-1763) rolled around, following the long War of the Spanish Succession and the War of the Austrian Succession, government debt was around 100 per cent of GDP.

But the costs of serving it were eminently manageable.

A country with high debts and high interest rates forced into using yet more borrowing is generally one set to suffer a decline in military power. The Britain of the 18th century, however, may have had high debts—higher than those which played a role in driving France into revolution—but the low interest rates, based on institutional credibility, made her debts crucially different.

It was this financial framework that under-pinned Britain’s successful prosecution of global warfare in the 1750s. Britain could afford to maintain a top-class navy and to provide subsidies to more financially stretched allies on the European mainland to keep armies in the field against France.

For Britain, especially in the conflict’s latter half, the Seven Years’ War was a truly global conflict. It is important to trace here the notion of the sometimes-controversial idea of a “British way of warfare.” In the Nine Years’ War, the English King William of Orange, originally Dutch, had been justifiably concerned at the prospect of the Dutch Republic being overrun by its larger neighbor to the south and maintained a large English army in Flanders fighting directly on the continent.

A similar continental commitment had occurred in the War of the Spanish Succession, fought from 1700 to 1714, with the Duke of Marlborough winning his famous victories in Europe. This was not always popular in Britain. It was easy to justify the existence of the navy, which not only protected an island nation from invasion but also helped to protect and expand growing British interests and trade overseas.

The issue became more polarized after Queen Anne (William and Mary’s successor) died childless in 1714 and the perceived need to maintain a Protestant succession led to George I of Hanover becoming king as well as maintaining his original holdings in Germany. Throughout the first few decades of the Hanoverian line, some British parliamentarians were reluctant to see British armies serving what looked to be Hanoverian interests in mainland Europe. Epitomized by William Pitt (the Elder), a member of the cabinet and essentially the manager of Britain’s wartime strategy from 1756 to 1761, the British way of warfare downplayed the need for a large army, was suspicious of putting British boots on the ground in Europe, and instead emphasized the importance of providing financial support to allies, of maintaining a powerful navy, and of taking control of the colonies and overseas possessions of her opponents.

Proponents of such a strategy argued that it played to Britain’s strengths—a maritime culture that generated a comparative advantage in naval power and the financial strength to support allies economically. France was, after all, a much larger country and, when it came to land forces, would always hold the edge. One by-product of such a course of action was the opportunity to mop up French colonies overseas.

This is exactly the path Britain took in the 1750s. While a small British army did fight in Germany—as told in William Makepeace Thackeray’s novel The Luck ofBarry Lyndon—and win great acclaim at the Battle of Minden, the bulk of Britain’s war effort was focused outside Europe. As well as the victories in India and Quebec, French islands across the Caribbean were also taken, and towards the end of the conflict, Britain declared war on Spain and took possession of both the Philippines and Cuba.

The intention, though, was never to hold all these gains in perpetuity. Eighteenth-century statesmen recognized that peace talks were a bargaining process that involved give and take. Indeed, one feature of peace treaties in the period was that they often contained commercial clauses—the victor might not only take some colonies but also insist on favorable access for their own exports in a market controlled by a former enemy.

The aim for Britain towards the end of the war was to seize as much as possible in order to have plenty of options going into the inevitable peace talks. This did not work out quite as planned in the case of the conflict with Spain. Eighteenth-century communications being what they were, the British force that attacked Manila did so before news of the war had reached the Philippines and by the time news of their seizure reached Europe, the treaties had already been concluded.

Before the inevitable haggling with the French, though, there was plenty of haggling in Britain too about exactly which prizes should be kept and which handed back in return for peace. From 1760 to 1763, a fierce debate raged that, to modern ears, sounds rather preposterous: Should Britain aim to keep Canada or Guadeloupe? Pamphlets written by figures ranging from Benjamin Franklin to the Bishop of Carlisle weighed in on the question.

The debate was not as odd as it may appear.

While Canada was physically much larger and contained a great many more people, it did appear to offer less in the way of immediate economic returns. The beaver fur trade was all well and good, but Guadeloupe was a sugar island, and sugar was a high-value commodity much demanded in Europe in the 18th century. The immediate financial returns from Guadeloupe, though, had to be set against a clear security case for Canada: The removal of a French colony to the immediate north of Britain’s own 13 North American colonies would, it was hoped, not only secure their position but also lead to eventual financial savings from lower garrisoning costs.

The debate occasionally became bitter. The Earl of Bute, who led the government at the end of the war, was accused in the North Briton newspaper of not understanding the appeal of beaver pelts and he was parodied as saying, “If any lady have be so nice as to require artificial warmth; we have cats and dogs for the purpose … with such delicious roughness.”

In the end, Britain went for the security of her North American colonies over the returns offered by a sugar island. That, though, as some perceptive commentators in the pamphlet war realized, was to have much longer-term contrary results. The presence of a large French colony in modern Canada had, if nothing else, been a clear reason for those colonies to rely on Britain for security.

As one British colonist was to write in the 1760s, “a Neighbour that keeps us in some Awe, is not always the worst of Neighbours.” The removal of the French threat changed the incentives of those colonists. Prior to the Treaty of Paris, being part of Britain’s empire might have imposed some costs, but it also came with the clear benefit of protection from France.

After the treaty, the costs remained and indeed began to increase as Britain attempted to place more of the burden of imperial rule on to her colonies, but the benefits were much more questionable. Swapping Guadeloupe for Canada may, in the final analysis, have cost Britain North America. The country’s institutions allowed her to win a global war but a failure to understand incentives made the victory hollower.