Transcriber’s Notes:
Underscores “_” before and after a word or phrase indicate _italics_
in the original text.
Small capitals have been converted to SOLID capitals.
Illustrations have been moved so they do not break up paragraphs.
Typographical errors have been silently corrected.
The advertisements at the beginning of the book have been moved to the
end.
THE MONEY MARKET
BY
F. STRAKER
FELLOW OF AND LECTURER TO THE BANKERS’ INSTITUTE
AND LECTURER TO THE EDUCATIONAL DEPARTMENT
OF THE LONDON CHAMBER OF COMMERCE
THIRD EDITION
METHUEN & CO. LTD.
36 ESSEX STREET W.C.
LONDON
_First Published_ _June 1904_
_Second Edition_ _January 1911_
_Third Edition_ _1920_
CONTENTS
PAGE
CHAPTER I
THE BEGINNING OF BANKING IN ENGLAND 1
CHAPTER II
THE FOUNDATION AND GROWTH OF THE BANK OF ENGLAND 7
CHAPTER III
THE EARLY PRIVATE BANKERS 19
CHAPTER IV
THE BANK CHARTER ACT OF 1844, AND ITS SUSPENSIONS 28
CHAPTER V
THE DEVELOPMENT OF LONDON AS THE FINANCIAL CENTRE OF THE WORLD 41
CHAPTER VI
FACTORS OF THE MONEY MARKET 47
CHAPTER VII
THE BANK RETURN 56
CHAPTER VIII
THE GROWTH OF JOINT-STOCK BANKS 76
CHAPTER IX
JOINT-STOCK BANK BALANCE SHEETS 87
CHAPTER X
THE BILL-BROKERS 105
CHAPTER XI
THE CLEARING HOUSE 115
CHAPTER XII
FOREIGN EXCHANGES 122
CHAPTER XIII
THE MONEY ARTICLE OF THE PRESS 144
CHAPTER XIV
CONCLUSION 161
APPENDIX
THE GOLD RESERVE 169
INDEX 179
THE MONEY MARKET
CHAPTER I
THE BEGINNING OF BANKING IN ENGLAND
The present position of the Money Market in this country so enters
into the life of the people as a thing that _is_, that few trouble
themselves to inquire how our monetary system came to be what it
is, how it was founded, grew, and developed into its present state.
Whether people are aware of it or not, the stability and condition of
the Money Market of a country influences the lives of all—rich and
poor alike—and the material well-being of all is largely dependent
upon it. Before proceeding to any examination of the methods in which
present-day business in the London Money Market is conducted, we will
look back into the past, and trace the rise of our financial system
from its early beginnings.
Trade is, of course, the foundation of, and reason for, the need of
money; and trade commenced with the first division of labour. With the
earliest men one was more fitted for one thing and one for another; one
was a hunter and one a husbandman. When the hunter handed over to the
husbandman so many skins for so much corn, trade was established; but
this trade was, of course, only a system of barter. As men grew more
civilised and trade developed, the inconveniences of this system became
apparent and pressing, and gradually more suitable modes of settling
transactions were evolved; although in certain remote and uncivilised
parts of the world trading by barter exists to the present day. As a
reminder of bygone times there is, in the Royal Exchange, a picture of
the Phœnicians trading with the men of Cornwall fine cloth for tin and
skins.
We know that the early inhabitants of this country had coinage of a
kind, but the earliest record of any definite business in monetary
transactions was in the reign of William the Conqueror, who first
introduced Jewish traders to this country. From that time on, for
hundreds of years, the Jews were more or less intimately connected with
our finances; but they led a very chequered career in England, being
frequently treated with great cruelty and barbarity. They were required
for the help which could be obtained from them, but hated by the people
for their usurious practices. The exactions which the kings and nobles
of the time put upon them were largely conducive to these practices,
however, as unless the Jews could make large profits out of the people
they would not have been able to meet these exactions.
The financial importance of the Jews appears to have declined in this
country towards the end of the thirteenth century; but about the
same time their place was taken by the Lombards, the early Italian
merchants, who came over and settled here in the street which still
bears their name. These Lombards were men of some attainment, being
skilled in arts and trade, and they possessed the only knowledge of
banking then in existence. They combined the art of the goldsmith with
the business of the banker, and gradually obtained a firm and sound
footing in the country.
The reign of Elizabeth was notable, among many other things, for a
great and important increase in the trade and commerce of the country.
Many causes contributed to this, among others being the capture of
Antwerp by the Duke of Parma, when it is said a third of the merchants
of that flourishing city found a refuge on the banks of the Thames.
The newly awakened national energies found fresh outlets and markets,
and London gradually became the general mart of Europe and of the then
known world. That the knowledge of banking and the foreign exchanges
had by this time considerably developed we can gather from many
sources; but the knowledge and wisdom exhibited by Sir Thomas Gresham
during the reigns of Edward VI., Mary, and Elizabeth is remarkable,
and his influence had a far-reaching effect on the public and private
finances of the time.
In spite of this increase of the knowledge of monetary matters,
however, no settled banking business developed for some time. As our
merchants gradually accumulated riches they fell into the custom of
sending their surplus funds to the Tower of London for safe custody.
This custom was brought to an abrupt end in 1640 by Charles I. taking
possession of £200,000 which had thus been lodged at the Tower; but
this sum was shortly after repaid. For a time the merchants kept their
moneys in their own possession, but owing to the unsettled condition of
affairs ruling through the whole period of the civil war, they adopted
a system of depositing their cash with the goldsmiths, who were by this
time a wealthy and responsible body.
In addition to the presumed safety of funds so deposited, the
goldsmiths offered an extra inducement for further funds to be
placed in their hands by allowing interest on such moneys. With this
additional borrowed cash at their disposal, the goldsmiths commenced
the business of discounting bills and lending money; and they also
lent money to the king on the security of the taxes. The receipts they
issued for the money lodged with them circulated from hand to hand, and
were known as Goldsmiths’ Notes, and these may be considered the first
kind of notes issued in England. Scott, in the _Fortunes of Nigel_,
makes Heriot to say, “I am a goldsmith, and live by lending money as
well as by selling plate.”
In 1672, however, this gradually developing banking business received
a rude shock. As we have already seen, the goldsmiths, or bankers, of
the time lent their money to the king; that is, they deposited their
moneys with the Treasury on the security of the revenue, from which
they were afterwards reimbursed, obtaining a good rate of interest on
their money in the meanwhile. A king or a government, however, can
no more live beyond their income without getting into difficulties,
than can an individual. The necessities and extravagances of Charles
II. led him to a memorable step when, in the year 1672, he suddenly
ordered the Exchequer to be closed, and refused to pay out any of the
sums deposited. The amount thus annexed was about £1,300,000, and this
drastic measure had the effect of bringing ruin on nearly half of the
goldsmiths, and consequently on their clients who had money deposited
with them. The injustice of this seizure raised such universal protest
that the king agreed to pay interest at the rate of 6 per cent. per
annum on the principal sum out of the hereditary excise. This interest
was paid until the last year of his reign, and subsequently an
arrangement was made by which about one-half the sum owing was allotted
to the claimants in the form of stock. This was the real commencement
of our National Debt in its present form.