Battle between the SSC and the Bank was joined in late January and early February, as the two rivals bid against each other – and, indeed, seriously over-bid – for the right to convert government debt. It was a hectic few days. On the afternoon of 27 January, the SSC presented a £3½ million offer before the Commons; that same afternoon, the Bank (whose directors had met earlier in the day at Waghorn’s Coffee House) offered up to £5½ million for the privilege of enabling holders of long-term government debt to convert into Bank stock. The intrinsic economics may not have been sound, comments John Carswell in his authoritative narrative of the South Sea Bubble, but ‘for the Bank the devising of a counter-proposal seemed a matter of life and death’. Then on 1 February the SSC returned to the table with an offer that was not only worth up to £7½ million, but included a promise (directly aimed against the Bank) to circulate £1 million of Exchequer bills without charging interest or a management fee. Meanwhile, the Bank itself was now broadly sticking to its £5½ million offer, no longer enough; and next day, the 2nd, against the wishes of the rising Whig politician Robert Walpole, the Commons accepted the SSC’s proposal, immediately causing the price of its stock to rise in Exchange Alley from 129 to 160. Morale at Grocers’ Hall slumped. ‘I could hear only a few broken words,’ reported James Milner, a merchant and MP, about a visit to the Bank probably not long afterwards. ‘“Buy long annuities, lock up our cash, distress, upstarts, revenge and ruin, &c.”’
But elsewhere, as winter gave way to spring and early summer, the SSC – and a plethora of companies formed in the wake of its apparent coup – bubbled away merrily. ‘Surprizing scene in Change Alley,’ noted an observer by early June. ‘S. Sea in the morning above 900 … Professions & shops are forgot, all goe thither as to the mines of Potosi. Nobility, Ladys, Brokers, & footmen all upon a level. Great equipages set up, the prizes of things rose exorbitantly. Such a renversement of the order of Nature as succeeding ages can have no Idea of.’ As for its battle with the Bank, predictably the SSC continued to make all the running – partly through muscling into the Bank’s customary domain of circulating Exchequer bills, partly through arranging to bring into circulation significant amounts of its own bonds, or in Kleer’s words ‘laying the groundwork for a push to displace Bank notes from their position as the nation’s premier fiduciary currency’. Indeed, so generally rattled was the Bank that in May it committed what Clapham calls the ‘grave mistake’ of following the example of the SSC by starting to lend on the security of its own stock, so that over the next few months more than £1 million was lent by the Bank to its own proprietors – a not unimportant contribution to the prevailing credit inflation. And for the SSC itself, it must have been a sweet moment when in July the Bank was among the holders of the redeemable national debt that now put those redeemables at the Company’s disposal, in the Bank’s case up to the value of £300,000: not huge perhaps, but hugely symbolic.15
In fact, the tide was already starting to turn. Parliamentary action in June against the bubble companies impacted also on the SSC, whose share price peaked at just over 1,000 by the end of the month, before steadily subsiding to 775 by the start of September and 520 a fortnight later. ‘All is floating, all falling, the directors are curst, the top adventurers broke,’ observed a contemporary that month; for one gifted young artist, William Hogarth, his first great subject was at hand, with his subsequent print of The South Sea Scheme showing Self Interest breaking Honesty on the wheel, Villainy flogging Honour, and Trade lying ragged and abandoned.
That autumn of 1720, as the SSC’s price continued southwards, to 290 at the start of October and 170 by mid-October, before picking up a little, the Bank’s role in starting to resolve what was a general crisis of public credit is not easy to chart with certainty. During negotiations from 15 to 23 September that eventually led to the so-called ‘Bank Contract’ under the overall auspices of Walpole, the Bank (with the indomitable Heathcote to the fore) imposed two key conditions for agreeing to circulate £3 million in SSC bonds: first, that the Company would henceforth keep its cash with the Bank – or, as Heathcote put it, ‘if the South Sea Company be wedded to the Bank, he ought not to be allowed to keep a mistress’; and second, that the Bank would be allowed to exchange for South Sea stock its £3.8 million of redeemable debt. ‘In effect,’ comments Kleer, ‘this meant that the Bank would keep its existing cash flow and get access to the whole of the new flows associated with the debt-conversion project,’ which in turn meant that ‘the Bank would also retain its current position as the government’s chief credit purveyor’. The next few weeks were difficult: such was the market’s gloomy post-Bubble state that subscriptions to the newly created Bank Contract stock fell well short of the intended £3 million; the Bank itself was under pressure from a serious run, even as it called in loans and increased its bullion stock; while among many merchants and others now going down was Sir Justus Beck, a leading director of the Royal Exchange and a former director of the Bank. ‘How terrible a calamity the fall of South Sea Stock has produced in a few days,’ lamented Joseph Moyle, writing on 12 October to his cousin Humphry Morice, a Bank director and a Whig MP, big in the Africa trade (gold, ivory, slaves) and very friendly with Walpole. Even so, there was probably some truth in what Moyle then added: ‘I am however very glad that the Bank made so noble a stand in such ticklish times, and has showed themselves, as indeed they are, the only Support of credit, and the true Balance of the nation’s interest.’16
Further twists and turns lay ahead in what became a protracted process, not least after the Bank itself in November had controversially repudiated the Bank Contract, on the possibly dubious – and certainly belated – grounds of changed circumstances. Eventually, in October 1722, the so-called ‘Bank Treaty’ saw the Bank agreeing to pay (through the issue of new stock) £4.2 million for £200,000 per annum of the SSC’s ‘Exchequer annuity’, at last enabling the SSC to get back into the black and start to pay off its bond debt. The SSC was saved – but would never again be a major financial force. As for public credit more generally, the Bank signed earlier that year an important new contract with the Treasury over the circulation of Exchequer bills; while, despite the fiasco of the SSC itself, the beneficial fact was that the conversion of a mass of illiquid annuities into liquid and tradable South Sea annuities left the legacy of a hugely enhanced secondary market, above all for government debt. There was also of course a personal dimension to the Bubble’s aftermath. Among those found guilty by the House of Commons in 1721 for having been partly responsible for the dramatic chain of events was Sir Theodore Janssen, a founder-director of the Bank and on the Court as recently as 1719. ‘I had no hand in contriving the scheme,’ he protested to MPs; and although he had his estate confiscated, he was permitted to retain £50,000 out of his considerable fortune – some consolation as he lived out his last twenty-seven years until his death in 1748, the last of the men of 1694.17
Daniel Defoe in 1724 not only described the Bank’s home in Grocers’ Hall as ‘a very spacious, commodious place’. He also noted admiringly that ‘here Business is dispatched with such Exactness, and such Expedition and so much of it too, that it is really prodigious; no Confusion, nobody is either denied or delayed Payment, the Merchants who keep their cash there, are sure to have their Bills always paid, and even Advances made on easy Terms, if they have Occasion’. In short: ‘No Accounts in the World are more exactly kept, no place in the World has so much Business done, with so much Ease.’ It was a glowing tribute to an organisation that during the post-Bubble decade was becoming increasingly indispensable, not least to government. Managing a large part of the national debt, taking responsibility for underwriting and paying the interest on Exchequer bills on the annual taxes, making short-term loans (to the paymaster general of the forces, to the treasurer of the Navy, above all to the lords of the Treasury during these largely peaceful years under Walpole’s ‘Robinocracy’), managing a range of government securities (following on from the 1717 establis
hment of a sinking fund), responding to the Macclesfield scandal of 1725 (involving the impeachment of a lord chancellor) by taking charge of all Chancery monies and securities – in these and many other ways, including in relation to private commerce, the Bank justified its place in national life as, to quote the historian Paul Langford, ‘a uniquely favoured corporation’.
Unsurprisingly, dividends were reassuringly solid, from 1721 to 1733 invariably between 5½ and 6 per cent, prompting John Hanger, governor during the Bubble and still a director, to reflect in 1731 that ‘the prosperity of the Bank’ was ‘very agreeable to me’. Hanger himself was by this time among some 8,000 or more stockholders, with foreigners (especially Dutch) owning perhaps some 17 per cent of the capital stock, but still with the overwhelming majority of the Bank’s proprietors being individuals living in London or the Home Counties – above all members of the City’s prosperous mercantile community, including of course many merchants, but also bankers and brokers. As for the directors, if there was between the mid-1720s and early 1730s a single dominant figure, it was probably no longer Heathcote (even though he served a second term as governor, 1723–5) but Samuel Holden, a director from 1720 and governor between 1729 and 1731. He was also a leading merchant, governor of the Russia Company for twelve years from 1728, MP for the rotten borough of East Looe in Cornwall, friendly with Walpole, and a prominent nonconformist, being chairman of the Dissenting Deputies Committee, albeit (in a biographer’s words) ‘conspicuously reluctant to run a noisy public campaign for the repeal of the Test and Corporation Acts’. Altogether Holden’s was a life of the utmost respectability; and when he died in 1740, still a Bank director, he left £80,000 and instructions that ‘what of my estate may exceed £60,000 (exclusive of Land) be distributed in charitable uses at the discretion of my wife and children [two unmarried daughters] such as promoting true religion, sobriety, Righteousness and Godliness’.18
In reality, not everything in the final phase at Grocers’ Hall was quite as well ordered as it might have been. A rash of scandals, internal as well as external, began with a trio in 1721: during what turned out to be a terminal illness, William Stubbs, one of the most trusted cashiers, drew fictitious bills via his son John, also working at the Bank; a fraudulent transfer of £350 of Bank stock, involving a Jewish broker called Moses Waag, eventually led to two members of staff vainly pursuing him across much of Europe; and a Cambridge-educated medical student called George Nicholas, who had fallen into criminal company, was found guilty of altering the value of a handwritten banknote, leading to a death sentence subsequently commuted to transportation for life. Note forgery also featured in the 1724–5 cases of Philip Lodgeing and Francis Kyte, with the latter’s punishment being to stand in the pillory on Little Tower Hill; and as a result of these and similar cases, an agreement was reached with the paper-maker Henry Portal, of Whitchurch in Hampshire, to supply ‘Paper for Bank Notes of the like Goodness or fitter for their Service than the paper now used’, though it would be a considerable time yet before a similar upgrade was made to printing methods for the notes. Security concerns also motivated the decision in 1728 to start issuing promissory notes ‘at three Days’ Sight’, which in practice proved less than adequate time for rightful owners to notify the Bank of forgery or theft, and ten years later the period of grace would be extended to seven days’ sight.
By then there had been the two scandals of 1731. The first was bad enough, involving a clerk in the Accountant’s Office, William Maynee, found guilty of having for several years ‘carried on a fraudulent practice in the business of Accountable Receipts’, leading to Bank losses of £4,420 and for Maynee himself an appointment at Tyburn, at which place of hanging he ‘begged pardon of the Court of Directors, prayed for the prosperity of the Bank, and died very penitent’. The second scandal was worse. ‘I think it a little hard to have your business encroach more this year upon you than ever it did since I was so happy to be your wife as not to allow you time to come down oftener than once a week, but as it is I must submit to it & live in hopes of better days,’ Mrs Katherine Morice wrote in September 1728 to her husband from her parental home in Wandsworth, before adding: ‘I have thus long harangued upon this subject.’ She was the second wife of Humphry Morice, then in the middle of his term as governor. Three years later, in November 1731, Morice suddenly died – at which point it was discovered that he had discounted with the Bank a whole series of fictitious bills in order to secure advances of nearly £29,000, quite possibly in order to buy a peerage from Walpole. Would the merchant’s widow now repay to the Bank the money obtained by such ‘unwarrantable practices’? No, decided Katherine; and it would be many years after her death in 1743 that the Bank managed to recover even as much as £12,000.19
But for his own death, Morice would have been present a few weeks later on 16 December 1731 when the Court of Directors, conscious of the Bank’s recent growth and potential for future growth, not to mention enhanced status, took a fundamental decision: to end negotiations with the Grocers’ Company over a fresh lease and instead to go ahead with building a new, bespoke home for the Bank. Four of the older directors (including Heathcote, who himself would die barely a year later) dissented; but the decision was final, confirmed by the General Court’s unanimous vote in January 1732 to erect ‘a new publick office for the Bank upon the Bank’s estate in Threadneedle Street’. Appropriately, the site had been acquired from the widow of the Bank’s first governor, Sir John Houblon, whose mansion house was soon afterwards demolished; and, amid considerable competition, the architect chosen for the job was George Sampson, probably getting the nod because of his plan’s adherence to the principles of classical composition (or what Daniel Abramson in his definitive history of the Bank’s architecture calls ‘the classical standards of anthropomorphic composition and beauty as enunciated by Vitruvius’). The construction process ran some eight months behind schedule, but on 5 June 1734 – virtually forty years on from those formative summer days – the Bank opened for business at its new premises.20
2
A Great Engine of State
‘The Bank was comfortable,’ Sir John Clapham would write about the 1730s – that decade of almost unbroken peace, of Sir Robert Walpole still managing for the most part to let sleeping dogs lie. One City man, the public-spirited MP and marine insurance underwriter Sir John Barnard, was less comfortable. Urging that the key to national prosperity and lower taxation lay in reducing the interest on the national debt, he put forward in March 1737 a plan that envisaged a reduction from 4 to 3 per cent, including on the government’s debt to the Bank. That institution, he told the Commons, was a ‘powerful and rich company’ whose stockholders ‘of late years’ had ‘in some measure become masters of the public credit of the nation’; and he plausibly predicted that they would ‘certainly oppose, with all their might, a scheme concerted for the ruin of their company, and for making every particular man in it lose at least 50 per cent of what he may then call himself worth’.
That was on the 14th, and over the next six weeks or so a short, intense squall played out. ‘The House of Commons this day confirmed that the national debts shall be reduced to 3 per cent, against which the moneyed men clamour exceedingly, and this day there was a run on the Bank,’ noted the Earl of Egmont in his diary on 30 March, as gold began to drain from the Bank. The following evening he heard the latest from his brother: ‘He said he had been in the city, where the run continued on the Bank and every face appeared confounded; that the stocks continued to fall; that the Bank directors held a court this morning to depute a committee to Sir Robert Walpole …’ Things had barely improved a week later, with another observer, Sir Thomas Robinson, recording on 7 April that ‘the Stocks begin to rise again, but the run still continues on the Bank, and they pay in silver all demands above 50 pounds’. All now turned on Walpole: albeit privately sympathetic to Barnard’s scheme, he decided that the City’s – including the Bank’s – opposition was too fierce to be challenged. By the
21st he was reported as being ‘determined to throw it out’; and just over a week later, on the 29th, he ensured that Barnard’s Bill was decisively rejected by the Commons. ‘Great rejoicings were made in the City,’ noted Egmont next day, adding that not only was Barnard ‘burnt in effigy’, but the cry went up ‘Long live Sir Robert Walpole for ever.’1
Five years later, the country was at war again (the War of the Austrian Succession), Walpole had lost power, the state needed money, and it was time for that ritualistic dance that was the periodic renewal of the Bank’s Charter. ‘Resolved,’ stated the minutes of the Court of Directors in March 1742,
That it is the opinion of this Court, That the Bank may advance the sum of Twelve Hundred Thousand Pounds for the Service of the Publick, on their present Annuity of One Hundred Thousand Pounds payable the 1st of August 1743, in Order to purchase a Term of 21 Years longer from that time for the Existence of the Corporation of the Bank, and a prolongation of their Priviledge of Exclusive Banking for the same time, together with a Confirmation of all the Clauses and other Priviledges granted them by their Charter, or Acts of Parliament, now in force, and with such further Advantages as shall be hereafter Agreed on …
In the event, the Treasury successfully held out for a £1.6 million loan as the price of renewal, taking the government’s debt to the Bank to a total of £10.7 million; the Bank in turn increased its own capital by £840,000, taking it up to a total of £9.8 million; and that telling phrase ‘exclusive banking’ was duly incorporated in the 1742 Act, its first appearance in an English statute. Yet arguably 1742 was more significant in the Bank’s history because it was from this year that, in a war context, there began a series of publicly subscribed long-term loans to the government that were entered at the Bank in special subscription ledgers and, more generally, were entirely administered by the Bank.2 Put another way, the demands of war finance were starting to become too big for the Bank to be able to continue its role as a principal direct supplier to government. Rather, its future now lay in facilitating, in organising, in enabling; and as such, it rapidly became indispensable to the functioning of a national financial war machine that was soon the envy of all rival powers.
Till Time's Last Sand Page 4
