adhered to, when we find Addison arguing for the reality of witchcraft at
the same time that he refuses to believe in any modern instance of it; and
even Blackstone, half a century after, gravely declaring that "to deny the
possibility, nay, actual existence of witchcraft and sorcery, is at once
flatly to contradict the revealed word of God in various passages both of
the Old and New Testament."
%ESTABLISHMENT OF THE BANK OF ENGLAND%
A.D. 1694
JOHN FRANCIS
Not only did the establishment of the Bank of England meet the demands of
public exigency at the time; it also created an institution which was
to become vitally important in the expanding life of the nation. This
custodian of the public money and manager of the public debt of Great
Britain is now the largest bank in the world. The only other financial
institution that could show an equal record of long stability was the Bank
of Amsterdam, which existed from 1609 to 1814.
The national debt of England began in 1693, when William III, in order to
carry on the war against France, resorted to a system of loans. This debt,
however, was not intended to be permanent; but when the Bank of England was
established, the contracting of a permanent debt began. Its advantages
and disadvantages to England have been discussed by many theorists and
financial authorities. But of the extraordinary service rendered to Great
Britain by the far-seeing Scotchman, William Paterson, originator of the
plan of the Bank of England, there is no question, although, as Francis
shows, the project at first met with opposition from many quarters.
The important position assumed by England, toward the middle of the
seventeenth century, renders the absence of a national bank somewhat
surprising. Under the sagacious government of Cromwell the nation had
increased in commercial and political greatness; and although several
projects were issued for banks, one of which was to have branches in every
important town throughout the country, yet, a necessity for their formation
not being absolutely felt, the proposals were dismissed. During the
Protectorate, however, Parliament, taking into consideration the rate of
interest, which was higher in England than abroad, and that the trade was
thereby rendered comparatively disadvantageous to the English merchant,
reduced the legal rate from 8 to 6 per cent., and this measure, although it
had been carried by the Parliament of Cromwell, almost every act of which
proved odious in the eyes of the Stuarts, was nevertheless confirmed by
the legislature of Charles II. In 1546 the payment of interest had been
rendered legal, and fixed at 10 per cent. In 1624 the rate had been reduced
to 8 per cent.; and with the advance of commercial prosperity it had been
found advisable to lower it still further.
There were many reasons for the establishment of a national bank. It was
necessary for the sake of a secure paper currency. It was required for the
support of the national credit. It was desirable as a method of reducing
the rate of interest paid by the state; a rate so high that, according to
Anderson, men were induced to take their money out of trade, for the sake
of securing it; an operation "big with mischief." The truth is that the
times required it. The theorist may prove to demonstration the perfection
of his theory; the speculator may show the certainty of its success: but
unless it be a necessity called for by the onward progress of society, it
must eventually fall to the ground.
That the want of such an establishment was felt is certain. But while such
firms as Childs--the books of whom go back to the year 1620, and refer to
prior documents; Hoares, dating from 1680; and Snows, from 1685--were able
to assist the public demand, although at the exorbitant interest of the
period, it does not occasion so much surprise that the attempt made to meet
the increasing requirements of trade proved insufficient. In 1678, sixteen
years previous to the foundation of the Bank of England, "proposals for a
large model of a bank" were published; and, in 1683 a "national bank of
credit" was brought forward. In a rare pamphlet entitled _Bank Credit; or
the usefullness and security of The Bank of Credit, examined in a dialogue
between a Country Gentleman and a London Merchant_, this idea is warmly
defended. It was, however, simply to have one of credit, nor was it
proposed to form a bank of deposit; although, by the following remark of
the "Country Gentleman," it is evident that such an establishment on a
secure scale was desirable. He says:
"Could they not without damage to themselves have secured the running
cash of the nobility, gentry, merchants, and the traders of the city and
kingdom, from all hazard, which would have been a great benefit to all
concerned, who know not where to deposit their cash securely?"
After much trouble this bank of credit was established at Devonshire House,
in Bishopsgate Street; its object, as we have related, being principally
to advance money to tradesmen and manufacturers on the security of goods.
Three-fourths of the value was lent on these, and bills for their amount
given to the depositor. In order to render them current, an appointed
number of persons in each trade was formed into a society to regulate
commercial concerns. Any individual possessed of such bills might therefore
obtain from this company goods or merchandise with as much ease as if he
offered current coin.
The bank of credit does not appear to have flourished. The machinery was
too complicated, and the risk of depreciation and the value of manufactures
too great. It was next to impossible for such a company to exist after the
Bank of England came with its low discount and free accommodations.
The wild spirit of speculation--that spirit which at various periods has
created fearful crises in the commercial world--commenced in 1694. The
fever which from time to time has flushed the mind of the moneyed man, and
given a fierce excitement to the almost penniless adventurer, was then and
in the following year in full operation. The great South Sea scheme in 1720
is ordinarily considered the earliest display of this reckless spirit.
But a quarter of a century before, equal ingenuity and equal villany were
exercised. Obscure men, whose sole capital was their enormous impudence,
invented similar schemes, promised similar advantages, and used similar
arts to entice the capitalists, which were employed with so much success at
a later period.
The want of a great banking association was sure to be made a pretext. Two
"land banks," and a "London bank" to be managed by the magistrates, with
several other proposals, were therefore put promisingly forward. One of
these was for another "bank of credit"; and a pamphlet published in 1694,
under the title of _England's Glory_, will give some idea of its nature:
"If a person desires money to be returned at Coventry or York he pays it
at the office in London, and receives a bill of credit after their form
written upon marble paper, indenturewise, or on other as may be contrived
to prevent counterfeiting." It was also proposed that the Government should
share the profits; but neither of the projects was carried out.
The people neglected their calling. The legitimate desire of money grew
into a fierce and fatal spirit of avarice. The arts so common at a later
day were had recourse to. Project begat project, copper was to be turned
into brass. Fortunes were to be realized by lotteries. The sea was to yield
the treasures it had engulfed. Pearl-fisheries were to pay impossible
percentages. "Lottery on lottery," says a writer of the day, "engine on
engine, multiplied wonderfully. If any person got considerably by a happy
and useful invention, others followed in spite of the patent, and published
printed proposals, filling the daily newspapers therewith, thus going on to
jostle one another, and abuse the credulity of the people."
Amid the many delusive and impracticable schemes were two important
projects which have conferred great benefits on the English people. The
first of these was the New River Company, the conception of Sir Hugh
Middleton; the second was the corporation of the Bank of England. Nature
and the great nations of antiquity suggested the former; the force and
pressure of the times demanded the latter. It is from such demands that our
chief institutions arise. By precept we may be taught their propriety; by
example we may see their advantages. But until the necessity is personally
felt they are sure to be neglected; and men wonder at their want of
prescience and upbraid their shortsightedness when, with a sudden and
sometimes startling success, the proposal they have slighted arises through
the energy of another.
William Paterson, one of those men whose capacity is measured by failure or
success, was the originator of the new bank; and it is perhaps unfortunate
for his fame that no biography exists of this remarkable person. As
the projector of the present Bank of Scotland, as the very soul of the
celebrated Darien Company, and as the founder of the Bank of England, he
deserves notice. A speculator as well as an adventurous man, he proved his
belief in the practicability of the Darien scheme by accompanying that
unfortunate expedition; and the formation of the Bank of England was the
object of his desires and the subject of his thoughts for a long time
previous to its establishment.
From that political change which had been so justly termed the "great
revolution," to the establishment of the Bank of England, the new
Government had been in constant difficulties; and the ministerial mode of
procuring money was degrading to a great people. The duties in support of
the war waged for liberty and Protestantism were required before they
were levied. The city corporation was usually applied to for an advance;
interest which varied probably according to the necessity of the borrower
rather than to the real value of cash, was paid for the accommodation. The
officers of the city went round in their turn to the separate wards, and
borrowed in smaller amounts the money they had advanced to the state.
Interest and premiums were thus often paid to the extent of 25 and even 30
per cent., in proportion to the exigency of the case, and the trader found
his pocket filled at the expense of the public. Mr. Paterson gives a
graphic description:
"The erection of this famous bank not only relieved the ministerial
managers from their frequent processions into the city, for borrowing of
money on the best and nearest public securities, at 10 or 12 per cent. per
annum, but likewise gave life and currency to double or treble the value
of its capital in other branches of the public credit, and so, under God,
became the principal means of the success of the campaign in 1695; as,
particularly, in reducing the important fortress of Namur, the first
material step toward the peace concluded in 1679."
To remedy this evil the Bank of England was projected; and after much
labor, William Paterson, aided by Mr. Michael Godfrey, procured from
Government a consideration of the proposal. The King was abroad when the
scheme was laid before the council, but the Queen occupied his place. Here
considerable opposition occurred. Paterson found it more difficult to
procure consent than he anticipated, and all those who feared an invasion
of their interests united to stop its progress. The goldsmith foresaw the
destruction of his monopoly, and he opposed it from self-interest. The Tory
foresaw an easier mode of gaining money for the government he abhorred,
with a firmer hold on the people for the monarch he despised, and his
antagonism bore all the energy of political partisanship.
The usurer foresaw the destruction of his oppressive extortion, and he
resisted it with the vigor of his craft. The rich man foresaw his profits
diminished on government contracts, and he vehemently and virtuously
opposed it on all public principles. Loud therefore were the outcries and
great the exertions of all parties when the bill was first introduced
to the House of Commons. But outcries are vain and exertions futile in
opposition to a dominant and powerful party. A majority had been secured
for the measure; and they who opposed its progress covered their defeat
with vehement denunciations and vague prophecies. The prophets are in
their graves, and their predictions only survive in the history of that
establishment the downfall of which they proclaimed.
"The scheme of a national bank," says Smollett, "had been recommended to
the ministry for the credit and security of the Government and the increase
of trade and circulation. William Paterson was author of that which was
carried into execution. When it was properly digested in the cabinet, and
a majority in Parliament secured, it was introduced into the House of
Commons. The supporters said it would rescue the nation out of the hands
of extortioners; lower interest; raise the value of land; revive public
credit; extend circulation; improve commerce; facilitate the annual
supplies; and connect the people more closely with Government. The project
was violently opposed by a strong party, who affirmed that it would become
a monopoly, and engross the whole of the kingdom; that it might be employed
to the worst purposes of arbitrary power; that it would weaken commerce
by tempting people to withdraw their money from trade; that brokers and
jobbers would prey on their fellow-creatures; encourage fraud and gambling;
and corrupt the morals of the nation."
Previous governments had raised money with comparative ease because they
were legitimate. That of William was felt to be precarious. It was feared
by the money-lender that a similar convulsion to the one which had borne
him so easily to the throne of a great nation might waft him back to the
shores of that Holland he so dearly loved. Thus the very circumstances
which made supplies necessary also made them scarce.
In addition to these things his person was unpopular. His phlegmatic Dutch
habits contrasted unfavorably with those of the graceful Stuarts,
whose evil qualities were forgotten in the remembrance of their showy
characteristics. Neither his Dutch followers nor his Dutch manners were
regarded with favor; and had it not been for his eminently kingly capacity,
these things would have proved as dangerous to the throne as they tended to
make the sovereign unpopular. In a pamphlet published a few years after the
establishment of the new corporation is the following vivid picture of this
monarch's government:
"In spite of the most glorious Prince and most vigilant General the world
has ever seen, yet the enemy gained upon us every year; the funds were
run down, the credit jobbed away in Change Alley, the King and his troops
devoured by mechanics, and sold to usury, tallies lay bundled up like Bath
fagots in the hands of brokers and stock-jobbers; the Parliament gave
taxes, levied funds, but the loans were at the mercy of those men (the
jobbers); and they showed their mercy, indeed, by devouring the King and
the army, the Parliament, and indeed the whole nation; bringing their great
Prince sometimes to that exigence through inexpressible extortions that
were put upon him, that he has even gone into the fields without his
equipage, nay even without his army; the regiments have been unclothed when
the King had been in the field, and the willing, brave English spirits,
eager to honor their country, and follow such a King, have marched even
to battle without either stockings or shoes, while his servants have
been every day working in Exchange Alley to get his men money of the
stock-jobbers, even after all the horrible demands of discount have
been allowed; and at last, scarce 50 per cent. of the money granted by
Parliament has come into the hands of the Exchequer, and that late, too
late for service, and by driblets, till the King has been tired with the
delay."
This is a strange picture; beating even Mr. Paterson's account of the
"processions in the city," and adds another convincing proof of the
necessity which then existed for some establishment, capable of advancing
money at a reasonable rate, on the security of Parliamentary grants.
The scheme proposed by William Paterson was too important not to meet with
many enemies, and it appears from a pamphlet by Mr. Godfrey, the first
deputy-governor, that "some pretended to dislike the bank only for fear it
should disappoint their majesties of the supplies proposed to be raised."
That "all the several companies of oppressors are strangely alarmed, and
exclaim at the bank, and seemed to have joined in a confederacy against
it." That "extortion, usury, and oppression were never so attacked as they
are likely to be by the bank." That "others pretend the bank will join with
the prince to make him absolute. That the concern have too good a bargain
and that it would be prejudicial to trade." In Bishop Burners _History of
His Own Times_ we read an additional evidence of its necessity:
"It was visible that all the enemies of the Government set themselves
against it with such a vehemence of zeal that this alone convinced all
people that they saw the strength that our affairs would receive from it.
I heard the Dutch often reckon the great advantage they had had from their
banks, and they concluded that as long as England remained jealous of her
Government, a bank could never be settled among us, nor gain credit among
us to support itself, and upon that they judged that the superiority in
trade must still be on their side."
All these varied interests were vainly exerted to prevent the bill from
receiving the royal sanction; and the Bank of England, founded on the same
principles which guarded the banks of Venice and Genoa, was incorporated
by royal charter, dated July 27, 1694. From Mr. Gilbart's _History and
Principles of Banking_ we present the following brief analysis of this
important act:
"The Act of Parliament by which the Bank was established is entitled 'An
Act for granting to their majesties several duties upon tonnage of ships
and vessels, and upon beer, ale, and other liquors, for securing certain
recompenses and advantages in the said Act mentioned to such persons as
shall voluntarily advance the sum of fifteen hundred thousand pounds toward
carrying on the war with France.' After a variety of enactments relative to
the duties upon tonnage of ships and vessels, and upon beer, ale, and other
liquors, the Act authorizes the raising of 1,200,000 pounds by voluntary
subscription, the subscribers to be formed into a corporation and be styled
'The Governor and Company of the Bank of England.'
"The sum of 300,000 pounds was also to be raised by subscription, and the
contributors to receive instead annuities for one, two, or three lives.
Toward the 1,200,000 pounds no one person was to subscribe more than 10,000
pounds before the first day of July, next ensuing, nor at any time more
than 20,000 pounds. The Corporation were to lend their whole capital to the
Government, for which they were to receive interest at the rate of 8 per
cent. per annum, and 4000 pounds per annum for management; being 100,000
pounds per annum on the whole. The Corporation were not allowed to borrow
or owe more than the amount of their capital, and if they did so the
individual members became liable to the creditors in proportion to the
amount of their stock. The Corporation were not to trade in any 'goods,
wares, or merchandise whatever, but they were allowed to deal in bills
of Exchange, gold or silver bullion, and to sell any goods, wares, or
merchandise upon which they had advanced money, and which had not been
redeemed within three months after the time agreed upon.' The whole of the
subscription was filled in a few days; 25 per cent. paid down; and, as we
have seen, a charter was issued on July 27, 1694, of which the following
are the most important points:
"That the management and government of the corporation be admitted to the
governor, deputy-governor, and twenty-four directors, who shall be elected
between March 25th and April 25th of each year, from among the members of
the company, duly qualified.
"That no dividend shall at any time be made by the said governor and
company save only out of the interest, profit, or produce arising out of
the said capital, stock, or fund, or by such dealing as is allowed by act
of Parliament.
"They must be natural-born subjects of England, or naturalized subjects;
they shall have in their own name and for their own use, severally, viz.,
the governor at least 4000 pounds, the deputy-governor 3000 pounds, and
each director 2000 pounds of the capital stock of the said corporation.
"That thirteen or more of the said governors or directors (of which the
governor or deputy-governor shall be always one) shall constitute a court
of directors for the management of the affairs of the company, and for the
appointment of all agents and servants which may be necessary, paying them
such salaries as they may consider reasonable.
"Every elector must have, in his own name and for his own use, 500 pounds
or more capital stock, and can only give one vote; he must, if required by
any member present, take the oath of stock, or the declaration of stock if
it be one of those people called Quakers.
"Four general courts to be held in every year in the months of September,
December, April, and July. A general court may be summoned at any time,
upon the requisition of nine proprietors duly qualified as electors.
"The majority of electors in general courts have the power to make and
constitute by-laws and ordinances for the government of the corporation,
provided that such by-laws and ordinances be not repugnant to the laws of
the kingdom, and be confirmed and approved according to the statutes in
such case made and provided."
When the payment was completed it was handed into the exchequer, and the
bank procured from other quarters the funds which it required. It employed
the same means which the bankers had done at the Exchange, with this
difference, that the latter traded with personal property, while the bank
traded with the deposits of their customers. It was from the circulation
of a capital so formed that the bank derived its profits. It is evident,
however, from the pamphlet of the first deputy-governor, that at this
period they allowed interest to their depositors; and another writer,
D'Avenant, makes it a subject of complaint: "It would be for the general
good of trade if the bank were restrained from allowing interest for
running cash; for the ease of having 3 and 4 per cent. without trouble must
be a continual bar to industry."
First in Mercers' Hall, where they remained but a few months, and afterward
in Grocers' Hall, since razed for the erection of a more stately structure,
the Bank of England conducted its operations. Here, in one room, with
almost primitive simplicity were gathered all who performed the duties of
the establishment. "I looked into the great hall where the bank is kept,"
says the graceful essayist of the day, "and was not a little pleased to see
the directors, secretaries, and clerks, with all the other members of that
wealthy Corporation, ranged in their several stations according to the
parts they hold in that just and regular economy." The secretaries and
clerks altogether numbered but fifty-four, while their united salaries did
not exceed four thousand three hundred fifty pounds. But the picture is
a pleasant one, and though so much unlike present usages it is doubtful
whether our forefathers did not derive more benefit from intimate
association with and kindly feelings toward their inferiors than their
descendants receive from the broad line of demarcation adopted at the
present day.