Till Time's Last Sand

by David Kynaston

  The rest of the 1760s were uneventful, but as usual the next financial crisis was not far away. That of 1772 was possibly the most fraught since the South Sea Bubble, and during its most acute phase the London Chronicle offered an all-too-plausible analysis. ‘The present calamity,’ declared the paper in late June, ‘is owing to several concurring circumstances, the chief of which is generally reckoned to be a pernicious practice, that has been encreasing for some years, and which of late has been carried to a great height, that of drawing bills on London on fictitious credit for the purpose of raising money.’ Earlier in the year, the Bank had in fact sought to limit discounts and thereby check speculation, earning it some anonymous public abuse about virtuous traders being malignly ‘oppressed by one man or a set of men who devote a few hours in the day to business and call themselves Directors’; but during June itself, as panic and emptiness grew almost hourly following the failure on the 10th of the London banking house Neale & Co (whose leading partner, Alexander Fordyce, had particularly intimate connections with the Scottish banking and commercial world), the Bank reprised its 1763 policy and began to discount more liberally. In the wake of the collapse of the major Edinburgh house of William Alexander and Sons (which held the contract for the export of tobacco to France), the very worst day was Monday the 22nd, as one of the City’s most respectable private banks, Glyn and Hallifax, was compelled to stop payments, fortunately only temporarily. ‘It is beyond the power of words to describe the general consternation of the metropolis yesterday,’ reported the Evening Post next day. ‘No event for these thirty years past has been remembered to have given so fatal a blow to both our trade and credit as a nation. An universal bankruptcy was expected; the stoppage of every banker’s house in London was looked for. The whole city was in an uproar: the whole city was in tears.’ At this point the Bank accelerated its discounting dramatically: whereas between January and May there had been only nine occasions when the daily business had exceeded £200,000, on 23 June the day’s business was £387,756, and on 25 June it was £529,265 – ‘nearly as much,’ notes Clapham, ‘as in the busiest whole week of 1763’. That same day, the 25th, the seriously over-ambitious and over-extended Scottish bank Douglas, Heron & Co, commonly known as the Ayr Bank, was forced to suspend payments, described by one historian as ‘a major catastrophe for Scotland, since many influential people, both landed and mercantile, were either shareholders or customers of the bank’.

  Much helped by the Bank’s discounting policy, the worst of the crisis was over by early July, though a series of bankruptcies continued for the rest of the year; as for two of the main protagonists, the Ayr Bank foolishly declined the Bank’s terms to help re-establish its credit and eventually gave up business in 1773, but Alexanders accepted from the Bank a credit of £160,000 and resumed payments in mid-July. ‘You will find it impossible,’ an anonymous but well-informed observer had warned the Ayr Bank in an open address published in the London Chronicle, ‘to carry on your business as a Banking Company independent of the Bank of England, that being the great source of the British funds and credit, without whose countenance and occasional aid, no banker nor merchant even in London, can do business with safety and profit.’18

  A further indication of the Bank’s indispensability came soon after the crisis. Over three-quarters of a century earlier, the great recoinage of 1696 had been essentially concerned with silver, not gold, which by the 1770s was, in Clapham’s apposite words, ‘badly worn’. Accordingly, legislation in 1773–4, in which the good offices of the Bank seem to have been largely taken for granted, involved its bullion office receiving and replacing gold guineas, half-guineas and quarter-guineas that had been cut and defaced, thereby denoting that they were light or counterfeit. Eventually, at least 6½ million such guineas were received – and, to quote Clapham again, ‘what was now in effect the British standard coinage was put into admirable order’. The mid-1770s also saw the start of yet another war: the American War of Independence. Its immediate cause (the dumping on the American market of tons of unsold tea) has been described by one American historian as ‘the direct result of the East India Company’s gross irresponsibility’, so perhaps it might have been better in retrospect if the Bank had managed in 1773 to resist the government’s demand to lend it £1.4 million against Exchequer bills in order that it could bail out the overstretched Company. Initially the new war made relatively little financial impact, but that all changed from 1778, as in turn France, Spain and Holland became involved. By early in the new decade the 3 per cents were rarely above 60, Bank stock struggled to be much above par, and the national debt was rising rapidly. All of which was presumably of some concern to George Washington, who throughout the war continued to be a Bank of England stockholder.19

  He might also have noted with interest the events of June 1780. On Friday the 2nd a 60,000-strong crowd, headed by Lord George Gordon, marched on Parliament to present a petition, sponsored by the Protestant Association, demanding the repeal of recent legislation relieving some of the penal laws against Roman Catholics. Over the next few days London trembled, amid multiple disturbances, acts of physical intimidation and the storming of prisons. The Gordon Riots culminated on the night of ‘Black Wednesday’, the 7th, as the mob sought to take the Bank, whose protection lay in the hands of a guard placed in the nearby Royal Exchange. Thomas Holcroft related the outcome in his contemporary account:

  They made two attempts upon the Bank; but were so much intimidated by the strength with which they beheld it guarded that their attacks were but feebly conducted. They were led on to the first by a brewer’s servant on horseback, who had decorated his horse with the chains of Newgate [which had been destroyed on the 6th, with all the prisoners released]; but were repulsed at the first fire from the Military, and their second succeeded no better. They made an effort to break into the Pay Office likewise, and met the same fate. Several of them fell in these skirmishes, and many more were wounded, as the importance of these places made it necessary to shew but little lenity.

  The first assault was probably at around 11 o’clock at night, and the second in the small hours. Taking part in repulsing the former attempt was the radical City politician John Wilkes in his capacity as a London militiaman (‘killed two rioters directly opposite to the Great Gate of the Bank’, he recorded), while the latter assault was described by the London Chronicle:

  A large party of the rioters went down Cheapside in order to attack the Bank, several of them armed with muskets. When they got to Poultry the Horse and Foot Guards were drawn up and stopped them. The rioters fired on the soldiers, and the soldiers returned the fire for several minutes, and killed about eight people and wounded a great many. The mob was so great that they beat off the Horse Guards, but the Foot, by keeping a constant fire, dispersed them.

  Altogether, over 200 rioters were shot dead in the capital’s streets that night, while possibly as many died later from their wounds. London’s historian Jerry White justifiably calls it the city’s ‘most terrible crisis in the modern period, not exceeded until the wartime blitz 160 years later’; and unsurprisingly, less than a fortnight after that memorable night, the Bank’s Committee of Treasury ‘considered of the necessity of some defence & security to be established at the Bank’. The upshot was the Bank Picquet: a military guard consisting of a detachment from the Brigade of Guards, mounted almost every night (except during the Second World War) at the Bank, until its eventual withdrawal in 1973, some 70,000 nights later. As an immediate expression of gratitude the Bank in August 1780 ‘gave an elegant entertainment at the Queen’s Arms Tavern in St Paul’s Churchyard to all the officers who have been on duty at the Bank or elsewhere in the City during and since the late riots’ – a dinner that, continued the London Chronicle, ‘consisted of a turtle (which alone cost 23 guineas), a dozen haunches of venison and the first dainties in season, together with all sorts of wines’.20

  If riots came and went, the war was less obliging, and the following summer, five
years early but owing everything to the financial burden on the state of the continuing American conflict, it was agreed between government and Bank that the Charter should be renewed for a further twenty-six years (four fewer than the Bank had originally demanded) in return for a £2 million loan at 3 per cent against Exchequer bills. Unusually, there ensued a full-scale debate in the Commons, with the prime minister, Lord North, vigorously defending not only the bargain, but renewal itself. ‘The Bank, he said, had been established for near ninety years, and had been conducted in all that time with so much wisdom, so much advantage to the nation, and so much credit to itself, that he could not imagine there was one man living, who, after the long experience of its utility, would deny that it was the duty of parliament to cement and strengthen the connection and union between the Bank and the public as much as possible.’ As for those unhappy with the new Charter’s terms and even wanting to replace the Bank:

  They knew not the solid advantages resulting to the public from its connection with the present company, they saw not the difficulty that must now attend the attempt to incorporate a new one; at present the Bank, from long habit and the usage of many years, was a part of the constitution, or if not a part of the constitution, at least it was to all important purposes, the public exchequer; all the many business of the Exchequer being done at the Bank, and as experience had proved, with much greater advantage to the public, than when it had formerly been done at the Exchequer.

  The Bank of England as an integral part of the British constitution was not a concept that appealed to Yorkshire’s MP Sir George Savile, eighth baronet and an independent-minded Whig. Mocking North for having ‘spoken of the connection that subsisted between the public and the Bank with a degree of warmth, as if he had been describing conjugal love’, and declaring his belief that ‘the Bank business was to him something like magic’, he argued forcibly that ‘this moment, when public credit was crippled’, was far too premature for renewal. Other speakers had their say, few of them particularly well informed, but the exception was the MP for Dorchester, who happened to have recently become governor. Pronouncing that the Bank had ‘offered fairly and handsomely’ in negotiating the terms of renewal, and insisting that its profits ‘arose from the industry, the hazard, and management of the directors of the Bank’, William Ewer went on to express his conviction that ‘the public had no more right to those profits than to the profits of the private trade of any individual, or of any private banking company’. What about Savile’s ‘magic’ accusation? ‘Good God,’ expostulated Ewer, ‘could public business be so little known, that at this time of day it should be supposed that the Bank could coin whatever sum they wanted?’ And, somewhat more tactfully, he sought to allay concerns that such a lengthy renewal would make the Bank dangerously independent of government:

  The public were by far the best customers the Bank had. Their credit, their power of accommodating government, arose solely from their being the cashiers of the public … If, at any time, the directors acted so ill, so imprudently, or so rashly, as to refuse granting to government every assistance in their power, as often as the occasion of the state rendered such assistance necessary, government would have it in its power to continue the Bank the cashier of the public no longer …

  North and Ewer duly carried the day: a decisive vote (109–30) in favour of renewal on the proposed terms saw the Bank’s future assured until 1812.21

  The war was effectively over by the early weeks of 1783, but that was still a year of crisis. The Bank’s bullion reserve, having plunged from £4.2 million in August 1780 to £2 million by August 1782, continued to deteriorate, down to £1.3 million by February 1783 (compared to a rising note circulation of £7.7 million) and heading further south. A decade and a half later, a Bank director, Samuel Bosanquet, would explain the larger context, as well as the decisive action that the Bank then took, refusing for about six months to make its customary advances to government:

  The drain of cash proceeded from the great extension of commerce which followed the peace, and which occasioned so considerable an export of the commodities of this country that the circulation was hardly sufficient to support it. It was evident that if this drain could be supported for a short time the influx of wealth that must follow from the return of the Exports would amply compensate for the preceding drain, and so it turned out. The Bank Directors, therefore, without opening the state of affairs to the Administration, took a bold step of their own authority, and refused to make the advances on the loan of that year; this answered the purpose of making a temporary suspension in the amount of the drain of the specie. The time at which they had the most ground of alarm was not when their cash was at the lowest, but about April or May, when they refused to advance on the loan, and although in October their cash was lower than before [down by August to £590,000] yet they had such reason to expect a turn in their favour by a favourable alteration of the exchanges, that they were under much less apprehensions than they were in the Spring.

  The Bank, it seems, had played a difficult hand with considerable adroitness.

  That certainly is the reading by Sir Albert Feavearyear, in his magisterial history of The Pound Sterling, of the Bank’s temporary refusal to finance a large portion of the government’s loan. ‘The remainder of that loan,’ he explains, ‘was therefore thrown immediately upon the resources of the market. This had the effect of tightening money and of curbing the tendency to over-speculation. The exchanges turned in favour of the country and the foreign drain ceased. Later in the year, although their reserve had fallen lower still, the directors were so much more confident of the position that they freely advanced money to relieve the strain upon houses which were feeling the effects of the falling market.’ Plausibly enough, Feavearyear contends that this was ‘the first occasion upon which the Bank definitely attempted to exercise some control of the money market’. And again he elucidates: ‘It discovered a principle which has been of great service on many occasions since, namely that when speculation is reaching a dangerous level credit should be progressively contracted until a definite fall of the market sets in; but when this occurs there need be no more fear, and advances may be made freely to soften the fall.’22

  From the mid-1780s the dominant politician was the remarkable – and remarkably determined – William Pitt the Younger. In 1786 he not only introduced an improved sinking fund (privately describing himself as ‘half mad with a project which will give our supplies the effect almost of magic in the reduction of debt’), but prevailed upon the Bank to charge significantly less (£450 per million instead of £562 10s) for managing the national debt. Over the next few years it was a tense enough relationship, including a sparky moment in July 1790 when ‘the Chairs’ (that is, governor, deputy governor and former governors) who formed the Committee of Treasury reluctantly accepted a block of Exchequer bills, but at the same time stated that they ‘wished it to be thoroughly understood that they meant this loan as a temporary assistance to government and not to be renewed on any account’. The real stand-off came soon afterwards. Pitt towards the end of 1790 put forward the argument that the balances of unclaimed dividends left in the Bank’s hands, amounting to some £547,000, belonged by rights not to the Bank but to ‘the temporary use of the public’, which is to say the government; the Bank flatly disagreed; and one of its MP directors, Samuel Thornton, made the strongest possible protest in the Commons, calling Pitt’s claim ‘a stab to public credit’. Neither side blinked during the early months of 1791, with the Bank fortified by a supportive memorandum from an impressively international range of ‘proprietors of the Public Funds’ as well as ‘Agents of many respectable foreigners extensively interested in these Funds’. The Bank followed this up in March with a petition on the 15th to the Commons that described Pitt’s proposal as a raid upon the ‘property of individuals without their consent and without their knowledge’, before on the 24th it decided to play its trump card – the publication of a list of unclaimed dividends dating
from before September 1780, predictably causing a huge ‘press to obtain payment’ from dividend owners anxious not to let the government get their money. The eventual outcome, formally endorsed by both sides in May, was a compromise: the Bank offering interest free a ‘perpetual loan’ of £500,000, in return for Pitt abandoning his Bill about unclaimed dividends. The Tory prodigy may have possessed a ‘damned long obstinate top lip’ (in George III’s words) and may indeed have generally held the upper hand in the relationship; but on this occasion the Bank had just about managed to keep him in check.23

  By this time the French Revolution, with all its manifold consequences, was under way. For three years, despite lurid accounts of events across the Channel, the British economic mood was largely buoyant, much helped by the booming cotton industry; but by the autumn of 1792 the outlook was perceptibly changing, not least in the City. A poor wheat harvest, country banks issuing implausibly large amounts of paper money, the threat of war, rising bankruptcies – these and other factors caused in November a brief but sharp panic among the brokers, jobbers and speculators who thronged Exchange Alley. Nor was the Bank itself in the best possible place that winter. Its bullion reserve, sometimes called its ‘treasure’, was on another downward curve, dipping below £5 million, while anxiety about French-inspired revolutionary radicalism (centred on the London Corresponding Society) led to its bespoke military guard, so much disliked and perhaps envied by the City authorities, being doubled in strength.24 Then, on 21 January 1793, Louis XVI was executed; and eleven days later, on 1 February, France declared war on Britain. For the Bank, poised to enter its second century, some wholly uncharted waters lay ahead.

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