There was no doubting, though, who was the main man, and indeed the main family, in July 1694. ‘It was a mighty pretty sight,’ recorded Samuel Pepys back in the 1660s, ‘to see old Mr Houblon whom I never saw before, and all his sons about him; all good Merchants.’ So they were, mainly in Mediterranean trade (especially Iberian), and two of the brothers, Sir James and Abraham, were among the first directors while another brother, Sir John Houblon, became at the age of sixty-two the first governor. The brothers were fourth-generation Walloon immigrants, their great-grandfather having been the son of a Lille merchant who in the 1560s had found asylum in England from Catholic persecution; their political sympathies were moderate Whiggish (John himself being MP for Bodmin); and they were all major subscribers to the new institution. Pepys’s particular friend was James – ‘a pretty serious man’, thought the diarist on their first encounter, though soon ‘a man I love mightily’. Unquestionably the three brothers were all very wealthy men: after dining with James, Pepys noted that none of the food or wine had originated from anywhere closer than Persia, China and the Cape of Good Hope, and another diarist, John Evelyn, observed after a similar occasion that the merchant lived ‘en prince’. But all the evidence suggests that this was also a family with, perhaps because of its distinctive Protestant roots, a strong sense of duty and public responsibility; and when Sir John died in 1712 in the Threadneedle Street house (site of the present Bank) where he had lived and worked, he was found – at least according to the family biographer – in his chamber in the attitude of prayer.
Solid, unimaginative, breathing the air for the most part of a somewhat limited circle that seldom questioned its own worth or purpose, merchants would continue to dominate the leadership and governance of the Bank of England for the next two centuries and more. Yet it is too easy to be condescending. In 1711, introducing the members of the imaginary Spectator Club, the essayist Richard Steele described one of them, Sir Andrew Freeport. ‘A Merchant of great Eminence in the City of London’, he was a man ‘acquainted with Commerce in all its Parts’ who, as a favourite jest, ‘calls the Sea the British Common’. Sir Andrew, reflected Steele in his portrait, was proof of the proposition that ‘a General Trader of good Sense, is pleasanter Company than a general Scholar’, having ‘a natural unaffected Eloquence’, so that ‘the Perspicuity of his Discourse gives the same Pleasure that Wit would in another Man’.10 Sadly, it is not always possible to get as close as one would like to the words of the real-life merchants. Much more ample is the evidence of their deeds, including their deeds at what was not yet remotely a central bank; and it is by their deeds that these practical men must largely be judged.
PART ONE
1694–1815
1
Services to the Nation
Business began for real during the week starting 30 July 1694. That day, the directors decided that the Bank’s Common Seal was to represent ‘Britania sitting and looking on a Bank of mony’ – a decision that in turn meant that Britannia would henceforth appear on all the Bank’s printed notes. That same Monday, the directors appointed the first nineteen ‘Servants of this House’, including a ‘Secretary and Sollicitor’ (John Ince), a ‘First Accomptant’ (Thomas Mercer) and a ‘First Cashier’ (John Kendrick): these were the three key staff appointments (though Kendrick lasted only a few weeks), anticipating how until well into the twentieth century the Bank in a day-to-day sense would essentially be run along tripartite lines, under the secretary, the chief accountant and the chief cashier. Over the next few months, most of the infant institution’s business concerned funding the government, mainly through the original subscription to the Bank. Crucially, the £1.2 million loan promised to the Treasury was paid not in coin, but in paper – at first in the form of so-called ‘sealed bills’, then in the form of ‘running cash notes’ issued by the Bank. The Bank was thus from the start an engine to create credit, albeit an engine inevitably somewhat resented by London’s goldsmith-bankers, who nevertheless often still found it convenient to have an account there. No doubt they read the runes, and despite the odd setback the price of Bank stock steadily rose during the autumn and into 1695. It was also telling that by December the Bank was based in larger premises, having taken out a lease – though initially only for a cautious eleven years, the period of the Charter – on Grocers’ Hall, governor Houblon’s livery company. ‘A very convenient place,’ Daniel Defoe would note in the 1720s about this enclosed building roughly halfway between Poultry and Lothbury, ‘and considering its situation, so near the [Royal] Exchange, a very spacious, commodious place.’1
The Bank’s enjoyment of its new home may have been marred during 1695 by a flurry of anti-Bank broadsheets and pamphlets. Reasons Humbly Offer’d to The Honourable House of Commons, By Eminent Merchants and Citizens of the City of London: Shewing The Inconveniences that may arise by the Bank was the restrained title of one, apparently co-authored by the prominent Tory goldsmith-banker Richard Hoare and accusing the Bank of being poised to ‘Engross most of the Ready Money in and near the City of London, which is the Heart of Trade, and so will amount in effect to a Monopoly’; an anonymous pamphleteer claimed that the Bank’s note issue was ‘almost a Fraud on the Subject’; while according to the equally anonymous author of Angliae Tutamen: or the Safety of England, ‘the great Dividends the Bank has already made, and is preparing to make … tell all the World in honest English, that one Part of the Nation preys upon t’other’, with the author broad-mindedly adding that ‘if we could extract Profits from Foreigners ’twould do well, but from one another, enriches not the Publick one jot’. Even John Locke had his doubts. ‘The money in the Bank is, and I conclude always will be, managed by London merchants,’ he declared to Whig friends in February, prompting him to predict that as a result ‘the greatest part of our trade will in a little while by secret combinations be got into a few hands’, whereas ‘money might be better distributed into the country, and other ports, and trading parts of England’. Amid all this, the Bank’s main defender was its deputy governor, Michael Godfrey, responsible for A Short Account of the Bank of England. Lower interest rates, an enhanced price for land, a financial strengthening of the monarchy – these were among the many ‘services to the nation’, he insisted in a detailed exposition, that the Bank was already providing and would continue to provide. Godfrey also challenged the goldsmith-bankers: ‘If there be an advantage to be made by the running cash of the kingdom, it’s fitter for the Bank to have it; which consists of thirteen hundred persons, and who employ it to serve the nation in general, by lowering the interest of money; than that it should be given to a few private men, who have already made use of it, so much to the nation’s prejudice.’ In short, he concluded, the Bank ‘will and must be preserved and maintained, because of its great use to the whole realm’.2
Duly justifying its existence, the Bank continued through 1695 to lend to the government: either directly to the Treasury – with the Bank receiving in return exchequer ‘tallies’ (sticks of notched wood that were in effect IOUs) – or more indirectly by discounting (which is to say purchasing) tallies and Navy paper (bills based on the security of the English Navy). Two human dramas, meanwhile, played out. The first involved the Bank’s original ‘projector’, William Paterson, who had been elected as one of the original directors but by early 1695 was almost certainly getting itchy feet. His latest scheme was for another bank, to be called the Orphans’ Bank, and on 12 February his colleagues at Grocers’ Hall informed him unequivocally that ‘his proceeding in the business of the Orphans Estate, in Conjunction with those he told the Court were known enemies of the bank, is not becoming a Director of this Court, but a Breach of his Trust’. A few days later, Paterson claimed that the Orphans’ Bank, dealing in land not trade, would be no threat to the Bank of England; but by the end of the month he was gone. The other human drama stemmed from the decision in May to establish an agency in Antwerp in order to pay the troops in Flanders, with a small sub-committee, includin
g Michael Godfrey, James Houblon and Sir William Scawen, being ‘empowered to goe over to Antwerpe’. Two months later, on 17 July, the deputy governor found himself in the trenches in the company of his monarch, watching the siege of Namur at all too close quarters:
William: Mr Godfrey, you ought not to run these hazards; you are not a soldier; you can be of no use to us here.
Godfrey: Sir, I run no more hazard than your majesty!
William: Not so; I am where it is my duty to be, and I may without presumption commit my life to God’s keeping; but you—.
At which point, relates Macaulay in his immortal account, a cannon ball from the ramparts laid Godfrey’s head at William’s feet. Bank stock immediately fell 2 per cent, once the news reached London; and Scawen, who apparently had been standing only two yards away, was elected as the new deputy governor.3
He and his colleagues now confronted the exceptionally challenging circumstances of 1696 – in effect, a two-pronged attack on the very existence of the Bank, or at the least its credibility. The first prong derived from the consequences of the Recoinage Act of January that year: although necessary in its own terms, in order to tackle the scandalously debased condition of England’s silver coin, the solution – recalling and reminting all silver coin – inevitably led to the Bank itself becoming seriously short of specie and soon finding it difficult to meet demands for cash. Hoare would later deny the charge, but some of his fellow goldsmith-bankers did not hesitate in their attempt to wreak maximum damage, culminating on 6 May when they, according to Macaulay, ‘flocked to Grocers’ Hall and insisted on immediate payment’: that is, of bullion (silver or gold) for bills and notes issued by the Bank that they had been assiduously storing ahead of this orchestrated démarche. At which point, the directors ‘refused to cash the Notes which had been thus maliciously presented’, whereas ‘other creditors, who came in good faith to ask for their due, were paid’. Put another way, there had been a run on the Bank – and partial suspension of payments. A week later, on the 13th, Scawen gravely informed the General Court (a meeting of the Bank’s stockholders) that ‘a greater demand is made att present than is possible att present to be answer’d by the money coined’; and that ‘if any person be under any uneasinesse for want of his money, The Bank is willing to Give such person Good Tallies [IOUs] for his notes’. Whereupon, it was not only resolved that ‘every Member of the Corporation who has any goldsmiths notes should be desired to bring them into the Bank & Change them for Bank Notes’, but also ‘recommended to all the Members to keepe their Cash & Transact all their businesse in the Bank’.4
The other prong was the Land Bank threat. Conceived specifically as a rival to the Bank of England, and supported largely by the ‘country’ interest (anti-Whig, anti-City), the Land Bank had as its central premise a note issue on the security of land. ‘How a Land Bank shall supply the King with ready money I doe not well see,’ reflected Locke on 14 February, shortly after a House of Commons committee had both agreed to a national land bank going ahead and (in Narcissus Luttrell’s words) ‘ordered that none concerned in the Bank of England have any thing to doe in it’. To this the Bank responded proactively, offering to lend the government the same amount (£2.56 million) promised by the Land Bank, but at a lower rate of interest. The offer, however, was rejected, and on 10 March the Commons accepted its committee’s recommendation. ‘The Governour informed the Court,’ recorded the General Court’s minutes on 29 April in detailing the Bank’s reponse, ‘that tho’ the Act of Parliamt was passed [on 27 April] for the Establishing of a Land Bank, yet that the Bank of England doe still remaine in good Creditt – And that the Court of Directors have and will doe all things in their power for the Interest of the Bank.’ Fighting talk, but these were bad days, and on 4 May, just forty-eight hours before the run on the Bank caused by the recoinage crisis, there appeared a would-be prophetic pamphlet called The Trial and Condemnation of the Land Bank at Exeter Change for murdering the Bank of England at Grocers’ Hall. The level of personal abuse was high even by the standards of the day – there were references to Sir John Houblon’s ‘obstinacy and blunders’, Sir William Gore’s ‘shuffling tricks’, Sir Gilbert Heathcote’s ‘cynicalness and self conceit’ – and just at this moment the prospect of a Grocers’ Hall corpse seemed far from impossible.5
In the event, the would-be rival proved one of the more spectacular flops in financial history. ‘People generally despair of the Land Bank and think it will come to nothing,’ observed Lord Godolphin (until recently first lord of the Treasury) shortly after the subscription books opened on 4 June – and within weeks the whole thing was dead in the water, with barely £7,000 subscribed. Even so, the Bank was still in a very tight spot, given the larger national situation. ‘The months of July and August 1696,’ notes one historian, ‘were the most desperate of the war’; and on 15 August it needed a masterly speech by the governor to persuade the General Court to vote through a £200,000 loan to the government. Although he fully acknowledged that the Bank continued to suffer from that ‘want of Specie which at this time is the common Calamity of the whole nation’, the essential fact was, he went on, that the government now acknowledged the Bank as indispensable, with the Lords of the Treasury having ‘informed the Court of Directors (which is a great truth) that neither the Government nor the trade of England can be carried on without Creditt, and that they knowe if the Creditt of the Bank be not maintained, no other Creditt can be supported’. Nevertheless, the so-called ‘patriotic’ loan further intensified the Bank’s shortage of cash (gold or silver coin), and by October the price of Bank stock was down to 60 (having stood at par at the start of the year), with the Bank resorting to understandable delaying tactics. ‘All Notes of £5 and under,’ resolved the directors, ‘be paid off in full alphabetically, beginning upon Wednesday the 28th day of October instant with Notes payable to names of A and B, and so on Wednesday of every week two letters through the alphabet.’ Meanwhile, the government’s need for cash to pay the troops remained acute, and by early December, a few months after he had created the first issue of Exchequer bills, the chancellor Charles Montagu decided further to chance his arm, proposing his so-called ‘engrafting’ scheme: that the outstanding tallies (IOUs) would be added to the Bank’s stock through a new subscription, with the Bank being paid interest on those tallies. ‘He is very confident in his Scheme,’ John Freke, a Whig barrister, reported to Locke on 5 December, adding that ‘last night he went to the Directors of the Bank to propose it to them’. Would Montagu get his way? Freke did not know, but had ‘no doubt’ that he would ‘threaten them’ if ‘they would not comply’. Perhaps he did, but it seems that the Houblon faction (a nephew, brother-in-law and cousin being directors, as well as the three brothers) in particular stood firm, apparently apprehensive that engrafting would not only overburden the Bank but also reduce their personal stakes; and on the 7th the General Court rejected the scheme.6
There ensued during the early weeks and months of 1697 some arguably risky brinkmanship, as the Bank took the opportunity to exercise a significant degree of leverage and in the process consolidate its long-term future. In essence, having first at the start of the year declined outright to lend some £2½ million, the Bank did now consent to take £1 million of short-term debt off the government’s hands through a capital-enlarging ‘engrafting’ process – but only in return for four key conditions being met: that the original Charter should be extended to 1711; that the Bank should be exempt from taxation; that the government would initiate measures against the counterfeiting of Bank notes, which was becoming a serious problem (such forgery was later made a capital offence); and above all that, in the Bank’s own words as it formulated its demands, ‘no other Bank or any Constitution whatever in the nature of a Bank, be Erected or Established, permitted or allowed, within this Kingdome, during the continuance of the Bank of England’. The Bank did not quite get everything its own way – with the Commons insisting that ‘at all future Elections there sh
all not be chosen above two-thirds of those who were Directors the previous year’ – but overall the legislation passed that spring marked a decisive victory for the fledgling institution in its relationship with government.
The resulting capital enlargement, involving government creditors exchanging their short-term debt (tallies) for Bank stock, led to a significant social broadening of the Bank’s shareholders, with first-time proprietors including a Plaistow waterman (John Wells, £625) and a Horsley Down mealwoman (Martha Thomson, £250); while the Bank’s newly strengthened position saw the price of Bank stock rapidly climbing back towards par. The first elections under the new dispensation took place in July, with Scawen being chosen as governor and Nathaniel Tench as deputy governor; and two months later, the Treaty of Ryswick marked the end of the Nine Years’ War.7 This particular conflict was over, but one of its most important by-products was here to stay.
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