Undoubtedly, the country was not ripe for such a movement until the beginning of the nineteenth century; and though the number of partners in private banking firms was extended to ten in 1857, this concession by no means placed the private banker on an equal footing with the joint stock companies, which could increase their members or partners by the issue of additional capital whenever it became apparent that their business was rapidly progressing. The private banker, had he desired to farm some dozen counties, would have been compelled to find a few large capitalists to join hands with him, whereas the joint stock banks had only to obtain hundreds of very small ones, and it is quite evident that the companies possessed infinitely the easier task. In fact, down to 1844 the monopoly of the Bank of England prevented their rapid growth. Then came the period of, so to speak, free banking; but not for the private firms.
People are constantly asking: Why did not the private bankers establish themselves firmly in the country and progress? They were first in the field, and, had they been well managed, surely they would have been as progressive as their joint stock rivals.
But we know that the law never gave them the remotest chance. How could they progress on a really gigantic scale when their partners were limited to six? The law literally forced them to stand aside; and in 1826 and 1833 only the joint stock system profited by the concessions wrung from the Bank of England, because by that system alone could sufficient capital be obtained to enable a bank to farm the country from south of the Tweed to Land's End.
Of course the private banker was at liberty to adopt the joint stock system at an earlier date, but he did not at first believe in the new movement, and, consequently, clung to his own system until he was far outdistanced by his competitors, for directly the country was relieved from the incubus in the shape of the Bank of England's monopoly, and the joint stock system was given a free hand, that system, as might have been expected, instantly began to forge ahead, and in a very short space of time the private banker, who to this day cannot admit more than ten persons into partnership, was left hopelessly behind by a system which was unfettered by legal restrictions and allowed fair play.
The Bank of England's monopoly reduced the private banker to impotency. It fostered in every county of England dangerously small firms, which disappeared in hundreds as soon as credit became bad and a state of panic caused their notes to be presented for payment in unusually large numbers, and it made really great private banking companies impossible in England; while but for the fact that public opinion wrenched this power from the hands of the directors, the Bank and its monopoly, which encouraged a dangerous form of banking, might both have been swept away in a bad financial crisis.
Fortunately, public opinion won the day; and though the private banker could not compete successfully against the joint stock system on account of the smallness of his capital compelling him to concentrate his energies in a particular district, that system, being unrestricted, soon covered the land with its branches. The private bankers were at first held in check by the Bank of England's monopoly. Now they are simply being smothered out of existence by the extension of a system of which, in a manner, though, of course, not in the modern sense, the Bank was the first exponent; for a banker, at the beginning of the nineteenth century, was largely dependent upon his note circulation for his profit, our present system of deposit banking being then in its infancy. In fact, the one evolved out of the other.
If a person held one hundred pounds in bank notes, it could not but occur to him that he was in reality lending the issuer one hundred pounds entirely free of interest; and as he possessed sufficient confidence in the banker to lock up the notes in his cash box, it was only going one step farther to deposit his money at his bank and draw out the cash as he required it. Obviously, too, if he exchanged the notes for a deposit receipt, he would receive some interest upon his money; and as the receipt could be held equally as safely as the notes, he naturally adopted the plan that was the more profitable to himself. So, although in 1826 the joint stock banks in the country attached great importance to their circulation, their notes rather took the form of an advertising medium for attracting deposits, or, at least, became a means to that end, for the progressive banks did not hesitate to sacrifice their note issues in order that they might open branches in London.
We find, then, that the joint stock banks at first attempted to place as many of their notes as possible among the public, and that, by the process already explained, the holders of their notes gradually began to deposit with them, until, by degrees, our present system of deposit banking obtained a firm hold upon the habits of the people. As the trade of the country expanded, the cheque rapidly drove out a large proportion of the bank notes in circulation; and though the issue of notes certainly introduced deposit banking in this country, modern requirements have made cheques and bills of exchange the media for the transference of credit. Such being the case, the note issues of the larger joint stock banks became of secondary importance to them; and, rather than remain outside the Metropolis, we have seen that they sacrificed their notes to the monopoly of the Bank of England.
From 1708 to 1826 the Bank of England owed its predominant position entirely to monopoly, and enough has been written to show that its sway was not an unmixed blessing to the country. The private banker, without a shadow of doubt, can trace his lack of progress to the restrictions placed upon his business by the Bank charter; and the joint stock companies may certainly be said to have succeeded in spite of the Bank; yet no greater compliment can be paid to any institution than to assert that it has earned the respect, if not the love, of its enemies; and such undoubtedly may be truthfully affirmed of the "Old Lady of Threadneedle Street," even when her rule was autocratic and her rivals' dislike of her intense.