It was the course of the war, and specifically the defeat of the Allies at Fontenoy, that gave the green light to the Jacobite rebellion of 1745 under the leadership of the ‘Young Pretender’. On 21 September, Prince Charles Edward Stuart’s Highlanders defeated Hanoverian troops at Prestonpans, news of which caused serious alarm in London, including the almost inevitable run on the Bank – ‘a hurry’ that the Gentleman’s Magazine subsequently sought to explain: ‘’Twas said to be occasioned by the Papists and Jacobites, with design to hurt credit as much as was in their power and to get gold to send to the rebels; in which the directors wisely disappointed them, by ordering payment in silver.’ Paying demands for cash with silver shillings and sixpences was a tactic out of the 1720 playbook, but on the 26th the directors also ordered that ‘no Bills of Exchange be discounted which have more than a Month to run, and those only with such persons who keep Cash with the Bank’. The key intervention, though, came later that day:
Several very eminent merchants of London, considerable traders and proprietors of the publick funds, met, about noon, at Garraway’s coffee-house [reported the Gentleman’s Magazine], and with the utmost alacrity came to the following agreement, for supporting the public credit. ‘We the undersign’d merchants and others, being sensible how necessary the preservation of public credit is at this time, do hereby declare, that we will not refuse to receive bank notes in payment of any sum of money to be paid to us. And we will use our utmost endeavours to make all our payments in the same manner’; and by five next afternoon 1140 had sign’d it.
This Change Alley démarche did much to restore confidence during the autumn, but it was not quite the end of the story. By 4 December the Young Pretender had reached Derby, causing a fresh wave of metropolitan panic; and just over a week later, in order to boost the Bank’s depleted bullion reserve, the directors called in 20 per cent from those who had subscribed to the ‘last subscription for circulating Exchequer Bills’. The following month, January 1746, saw a £1 million loan to government, a tacit recognition that the Bank needed to do its bit in the suppression of the Scottish rebels; in February the stockholders (aka proprietors) voted that a not hugely handsome £1,000 be contributed to a City fund ‘for the relief, support and encouragement of His Majesty’s forces’; and two months later, the rebellion ended bloodily enough at Culloden.3 The Hanoverian settlement, and all the mercantile prosperity that flowed from it, was at last safe.
The Treaty of Aix-la-Chapelle in 1748 finally brought the war to an end, by which time the national debt had risen to some £77 million, with all its attendant servicing costs, compared to £46 million before the war. The chancellor was the much underrated Henry Pelham, who in the course of 1749 steered through Parliament a bill to reduce the interest on the 4 per cent Funds to 3½ per cent from 1750 and then to 3 per cent from 1757. The landed interest naturally welcomed the prospect of lower taxes, the moneyed interest for the moment stayed its hand, the Bank was apparently not consulted, and the deadline set for fundholders to signify their consent to Pelham’s scheme was the end of February 1750. Everyone knew that the crux would be the attitude of the three moneyed companies (the South Sea Company and the East India Company as well as the Bank itself): although the debt due to them comprised barely a quarter of the overall funded debt, the justifiable assumption was that individual fundholders would look to the companies for guidance and almost certainly follow their example.
By the time the Bank’s General Court assembled on the morning of 31 January 1750 at Merchant Taylors’ Hall in Threadneedle Street, the equivalent bodies of the other two companies had already indicated a significant degree of resistance. The governor, William Hunt, began proceedings by recommending that ‘their Debates on the Proposals be carried on with Calmness of Temper and Respect to one another as becomes Gentlemen who have but one view or Design which is the Prosperity and Safety of their Corporation’. The directors themselves do not seem to have participated in the ensuing discussion, while a contemporary press report revealed that among the Bank’s proprietors arguing for an acceptance of the scheme was the great Jewish financier Samson Gideon, a key Pelham ally. The report also revealed the outcome: ‘After some Debates, the Majority (which was at least Five to One) were against the Question.’ Given that a lower rate of interest meant lower profits for what was still a private organisation, this was not on the face of it a surprising outcome.
Could Pelham turn it round? His other key ally was the indomitable Barnard, who a week after the Bank’s overwhelming negative brought out a pamphlet, Considerations on the Proposals for Reducing the Interest on the National Debt, that cogently argued both a moral-cum-political case (the unfortunate implications of flouting the authority of Parliament) and a financial case (that 3 per cent was now the normal market rate of interest, enabling the government if necessary to raise a loan to pay off those who did not come in). ‘Tom Telltruth’, calling himself ‘a Bank Proprietor’, grumbled in a letter to the General Advertiser on 19 February – ‘the Generality of the publick Contracts hitherto made between the Legislature and the Bank, have been to the Prejudice of the Bank Proprietors’ – but by the time the General Court reassembled at Merchant Taylors’ Hall on the 27th, the resistance was already starting to weaken. At that meeting, Hunt made it clear that the view of the Court of Directors was in favour of accepting Pelham’s proposals; Gideon again took a prominent role in the debate; and in the words of the General Advertiser’s report, ‘the question being put, it was by a very great Majority carried in the Affirmative’.
The inner story of the Bank’s volte-face is impossible to uncover. ‘It would be nice to know,’ wistfully reflects one historian, ‘what arts Gideon used to turn the lion of January into the lamb of February.’ But, in any case, the success of Pelham’s scheme was now assured; and in 1752 much of the national debt was consolidated into one fund which became known as ‘Consols’, with their entire management entrusted to the Bank. For whatever mixture of motives, the proprietors – a significant minority of them foreign, mainly Dutch, although not voting unless prepared to travel to London – had done a good day’s work.4
Indeed, Pelham’s scheme could hardly have been more timely, for it was not long before the fife and drum were heard again. The Seven Years War (1756–63) had of course its splendidly patriotic, empire-building aspect – ‘Our bells are worn threadbare with ringing from victories,’ observed Horace Walpole at one point – and was in many ways a tribute to the development since the 1690s of the state’s financial sinews of power, not least through the offices of the Bank. Some, though, continued to worry about the ever-steeper rise in the national debt, up to £139 million by the end of hostilities, a rise that inevitably much increased the Bank’s daily workload. As ever, war put pressure on the Bank’s holdings of gold and silver, so that in 1759 notes for £10 and £15 were issued for the first time (the previous lowest denomination being £20) in an attempt to relieve that pressure. And in the event, the financial crisis that many had been dreading came not during the war, but in its immediate wake.
The 1763 crisis, starting to unfold within months of the Peace of Paris being signed in February, was essentially Continental in origin – above all, the collapse of some twenty of Amsterdam’s major mercantile houses, in turn leading to a series of bankruptcies in London. Almost certainly the consequences could, but for the Bank, have been far worse. ‘The British merchants,’ declared David Macpherson in his 1805 Annals of Commerce, ‘acted with the most honorable liberality by giving large credit to their [European] correspondents … and even sending large remittances for their support, which they were enabled to do by the no less liberal determination of the Bank of England and the principal bankers to support payment of their own bills’; while, according to George Chalmers in his 1812 Comparative Strength of Great Britain and Ireland, the Bank during the crisis discounted bills of exchange in large amounts, in effect supplying emergency credit. Quantitative analysis by the historian Michael Lovell support
s these assertions: even though its reserve ratio (the ratio of bullion to notes in circulation) fell to an alarming 6.9 per cent by August 1763, compared to almost 52 per cent a year earlier, the Bank’s high level of discount operations during the crisis unambiguously indicates that, in Lovell’s words, ‘it stood by willing to provide aid in large proportions’ – that, in fact, it was ‘serving as lender of last resort’, probably for the first time. Did this represent a deliberate policy shift? There is nothing in the minutes of the Court of Directors to confirm that this was the case; and Lovell may well be right when he suggests that the liberal approach reflected the behaviour of an institution now instinctively feeling more secure in its position, as well as less apprehensive about its ability to maintain convertibility into cash (gold or silver) on its notes. Either way, acting as lender of last resort marked a signal moment: whether consciously or otherwise, it was the Bank’s ‘first step’ (to quote Lovell again) ‘towards the adoption of the powers and responsibilities of central banking’.5
Contemporary observers occasionally let themselves go. The Bank of England, claimed the London Chronicle in 1765, was the ‘grandest, as well as the most commodious repository of wealth and business in Europe, if not the whole world’. Still, it was a grandness that, financially speaking, had to be taken largely on trust, given that before the 1790s the Bank was muteness itself when it came to explaining and detailing its activities and ambitions to the outside world. Almost two centuries later, the economist Joseph Schumpeter would reflect on this ‘reticence of its official spokesmen who, even when they were forced to say something, did their best to confine themselves to innocuous trivialities that would give as little scope to hostile criticism as possible’. After noting that ‘practitioners of business are rarely able to formulate their own behaviour correctly’, he went on:
The Bank had few friends. Control is now [circa 1950] a popular word. It was the reverse of popular in the epoch of intact capitalism. To say openly that the Bank was trying to control the banking system, let alone to manage the general business situation, would have evoked laughter if not indignation: the thing to say was that the Bank was modestly looking after its own business; that it simply followed the market; and that it harbored no pretensions at controlling anything or anybody. Moreover, in the formative stage of its policy, it would have been madness to assume in so many words the responsibilities that we now attribute to a central bank as a matter of course. This would have meant commitments which the Bank could not have been sure of being able to fulfil. Moreover, any spectacular announcement of policy would have brought down upon directors hosts of unbidden advisers, every one of them convinced that he knew much better what the Bank ought to do – and there would have been the danger of public outcries for legislation to force the Bank to take, or to refrain from taking, particular courses of action.
It was a reticence that Adam Anderson for one sympathised with. In his pioneering 1764 survey, An Historical and Chronological Deduction of the Origin of Commerce, his section on the Bank of England included this tellingly cautionary passage:
Some might possibly be so much farther inquisitive, as to form Conjectures, (for they can be no other) concerning the proportion which the Quantum of ready Cash always necessary to be reserved in this or any other public or private Bank … We can see no Benefit which can arise by any such minute Enquiries, to the Generality of Men; neither do we apprehend them proper to be enquired into at all, without there should arise any reasonable Suspicion for Fraud. For, as it has been a political Observation of long standing, That even the reputation of great and powerful Monarchies and States often subsists more by common Fame or Opinion than by real Strength or Ability, so it may more strictly and properly be applicable to a Bank and Bankers …6
Perhaps inevitably, and for a mixture of reasons, the eighteenth century remains the part of the Bank’s history we know the least about; but it is still possible to summarise its main day-to-day functions during its first half-century or so in Threadneedle Street.
A starting point is its management of almost three-quarters of the national debt, a task involving considerable administrative complexity – or, at the least, attention to detail – in return for an annual management fee. By 1774, in addition to managing the debt owed by the state to the Bank itself as a corporation (amounting to £11.7 million), the Bank had responsibility for five classes of loan: in essence, acting as the government’s agent by on the one hand registering ownership and transfers of stock, on the other hand distributing interest, usually half-yearly. As itemised by J. E. D. Binney in his invaluable study of British public finance in the late eighteenth century, these five loan stocks were: the Civil List 3 Per Cents of 1726; 3 Per Cent Consolidated stock (Consols), whose market price was ‘the yardstick by which government credit was customarily measured’; the 3 Per Cents Reduced; the 3½ Per Cents of 1758 (whose rate of interest was due to reduce to 3 per cent in 1782); and the 4 Per Cents of 1760–2 (again due to reduce to 3 per cent in 1782). The Bank in 1774 also managed the so-called ‘Long Annuities’, which derived from the ninety-nine-year annuities of 1761 and were due to expire in 1860. Importantly, the Bank from the late 1760s also provided a bespoke marketplace, the newly built Brokers’ Exchange (also known as the Rotunda), in order to stimulate trading in the national debt and thereby a sufficiently liquid secondary market – in turn facilitating the issuance of new debt in the highly probable event that it should be needed. Significantly, the Bank’s transfer and dividend offices, where the public went to register stock transactions and to collect dividends, were physically close to the Rotunda; and the historian Anne Murphy is surely right to suggest that this publicly accessible and highly visible mixture of market liquidity and ‘a one-stop shop’ for the efficient execution of ‘all business relating to the public debt’ made a key contribution to the enhanced credibility of public credit. In short, ‘the Bank was undeniably a space in which public credit was put on display and the financial integrity of the state was demonstrated’.7
That said, the area of the Bank’s real dominance in relation to government lay in short-term lending – an area where there was little doubt which party enjoyed the thick end of the wedge. ‘The Exchequer Bill contract,’ complained a government informant in 1754, ‘is signed annually in July and is advantageous to the Bank; because as they are Cashiers to the Exchequer, and have seldom less in their hands than a million of Exchequer Cash, they lend the Government their own Money. For this they lodge in the Tellers hands, by way of Security, Exchequer Bills for the Value.’ Admittedly, government received each year a reliable £1–3 million, as the Bank agreed to take and circulate Exchequer bills up to a certain maximum; but given the Bank’s increasingly central position as the government’s bank (with accounts held there by the middle of the century including for the Army, Navy and Ordnance, as well as for many collectors of revenue), it was a not unreasonable charge that the Bank was in effect lending the government’s own money to the government. Moreover, the annual process of renewing ‘the Subscription for the Circulation’ was in itself an undeniably nice little earner for the Bank’s inner circle. ‘The Subscription has been filled for the most Part, by People in the Management and their Favourites,’ observed the Dutch financier Nicholas Magens in 1753. ‘Those who have interest to procure it commonly dispose of it at a handsome advance, before even they have paid in their subscription money … it being thought no Risque.’ Other ways in which the Bank was able to provide government with ready money included taking Navy and Ordnance bills, while it was also willing to make substantial advances (almost £5 million in 1777) on the two most reliable taxes, ‘Land and Malt’, with government paying back the advances as those taxes were collected.8 In sum, the Bank’s short-term financial help may have been self-interested to a degree; but from the state’s point of view it could hardly have discharged its responsibilities without that help.
Another Bank activity that by the second half of the eighteenth century increasingly
had ‘public’ implications concerned the money supply. Outside London, it was country-bank notes that were the main medium of exchange, in line with the rapid growth of provincial private banks (up to nearly 400 by the 1790s); but in London significant payments usually involved Bank of England notes, though occasionally the notes of London private banks. Importantly, the latter notes were convertible to Bank of England notes, which were themselves convertible to gold on demand – what has been called the Pre-classical Gold Standard, functioning from 1717 (when Sir Isaac Newton, master of the Royal Mint, introduced a revised gold–silver ratio in such a way as to put Britain on a de facto gold standard) through to almost the end of the century. From a Bank perspective, it was a far from straightforward regime to operate. The export of bullion may have been illegal, but in practice, as Elisa Newby observes in her pioneering study of the Bank’s gold reserve policy in this era, ‘British monetary gold was withdrawn from the Bank and smuggled to the continent when the exchanges were unfavourable and the price of gold abroad was higher than at home.’ And she goes on: ‘Disruptions in gold supply and shipping conditions, especially during warfare on the sea, made the gold convertibility rule a challenging task to follow. Bank runs and financial panics were relatively common and demand for gold was at its highest during political disruption. If there were simultaneous gold supply blockades, the Bank of England was in danger of exhausting its gold reserves.’9
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