The Period of Monopoly, 1708 to 1826.
The Bank of England, which is managed by a Governor, Sub-Governor, and twenty-four Directors, was incorporated in 1694 at the suggestion of a Scotsman, William Paterson, a man of roving disposition, whose Darien expedition proved a miserable fiasco, cost Scotland some £400,000, and shattered the health of Paterson, who died in London at the beginning of 1719, if not in poverty at least stripped of nearly all his fortune.
Schemes relating to the Isthmus of Darien (or Panama), that narrow little strip of land which unites the two Americas, have proved fruitful in disaster. France's great canal venture, we all remember, resulted in huge loss and grave scandal; and Paterson lived to bitterly regret his colonisation scheme, devoutly wishing that he had pinned his faith to his finance company, the Bank of England, for a finance company it then was in every sense of the word.
Little is known of William Paterson's early career, the various accounts relating thereto being meagre and conflicting, his enemies describing him as a mere adventurer, and his friends declaring that he was actuated by the worthiest of motives. However, when it is remembered that his second great venture (the Darien scheme) involved thousands in ruin, it is evident that had the man been a saint he would not have lacked detractors, and though his public utterances sound quaintly pious to the modern ear, it seems probable that he was only an enterprising merchant, whose morality was neither better nor worse than that of the times in which he lived.
The son of a Scotch farmer, Paterson left home at an early age, and, after settling for a short time in the West of England, set sail for the West Indies, returning to Europe about 1686 with the Darien scheme in his brain. Receiving but scant encouragement in England, despite the fact that his bank had been successfully floated, he concentrated his energies upon Scotland, where his scheme fired the public imagination, almost every Scotsman with a few pounds to invest eagerly taking the money to the company, convinced that Panama was the natural commercial centre of the world, and that gold would be rained therefrom upon fortunate Scotland. The whole nation went almost frantic with the fever, for Panama, with its gold mines and its world-wide trade, was going to make Scotland rich beyond the dreams of avarice. It is estimated that nearly half the capital of the country was sunk in the Darien scheme.
Chartered by the Scottish Parliament in 1695, three vessels sailed from Leith in July, 1698, with some twelve hundred settlers on board, Paterson and his wife among the number. All Edinburgh flocked down to Leith to wish the members God-speed, and then returned to their homes to dream of the streams of gold with which Scotland was to be flooded. In a few years everybody would be rich, and Edinburgh would be the greatest and proudest city in the world. Trade, however, was destined to flow to a city a little farther south.
The scheme proved a dismal failure. England and Holland opposed the new colony; the East India Company treated it as a rival, and Spain was actively hostile. The climate did the rest. Before the close of 1699 "New Edinburgh" was deserted, and the colonists, decimated by want of provisions and disease, set sail for New York. To make matters worse, a second company meanwhile had sailed from Scotland, where the utmost enthusiasm still prevailed; but the new arrivals found the town deserted, and themselves at the mercy of the Spanish warships. Mad with rage at the lack of success of their national adventure, the Scotch openly accused the English Government of treachery, declaring that its conduct in withholding food supplies was as discreditable to it as was the butchery of Mac Ian and his clan at Glencoe in 1692, when neither old man nor child was spared, and fugitives were allowed to perish of hunger and exposure in the mountains.
Paterson's faith in Panama must have been profound. His wife died in the new colony, and he himself suffered severely in health; yet, after his return towards the end of 1699, directly his health began to improve, we read of his approaching William with a fresh Darien venture. The King naturally refused to risk a second disaster, and Paterson, like all great speculators who have risked everything and lost, could not again persuade the public to share his enthusiasm, for that mysterious entity seldom trusts a man after a cloud has obscured his "star." Once his spell of so-called good luck is broken, the public desert him in a body, when the adventurer, if he be wise, retires into obscurity with his spoil.
Paterson lived to discover that it is only a rising star, radiating success, that can obtain a sufficiently large following to finance a great scheme, and though he strove manfully to promote the new venture, his sanguine predictions were received sceptically. Nor did his subsequent schemes meet with a better reception. But he must still have retained some influence, for, after the Act of Union in 1707, he was returned to Parliament by a Scotch burgh. His chief claim to distinction, however, undoubtedly rests upon the fact that he founded the Bank of England, of which he was appointed one of the first directors.
The Bank of England, from its inception down to the present day, has never been a Government institution. It was originally simply a company that advanced money to and transacted business for the Government, which, in return, granted it certain privileges and concessions; but the connection between the Government and the Bank was so close, and their interests so identical, that public opinion connected the one indissolubly with the other. From this conception sprang the erroneous impression that the Bank is a Government establishment, when, in reality, it is no more so than is the National Provincial Bank of England or the London and County Bank.