Old and New London, Volume I / A Narrative of Its History, Its People, and Its Places

by Walter Thornbury

That great financial genius, William Paterson, the founder of the Bank of England, was born in 1658, of a good family, at Lochnaber, in Dumfriesshire. He is supposed, in early life, to have preached among the persecuted Covenanters. He lived a good deal in Holland, and is believed to have been a wealthy merchant in New Providence (the Bahamas), and seems to have shared in Sir William Phipps' successful undertaking of raising a Spanish galleon with £300,000 worth of sunken treasure. It is absurdly stated that he was at one time a buccaneer, and so gained a knowledge of Darien and the ports of the Spanish main. That he knew and obtained information from Captains Sharpe, Dampier, Wafer, and Sir Henry Morgan (the taker of Panama), is probable. He worked zealously for the Restoration of 1688, and he was the founder of the Darien scheme. He advocated the union of Scotland, and the establishment of a Board of Trade.

The project of a Bank of England seems to have been often discussed during the Commonwealth, and was seriously proposed at the meeting of the First Council of Trade at Mercers' Hall after the Restoration. Paterson has himself described the first starting of the Bank, in his "Proceedings at the Imaginary Wednesday's Club," 1717. The first proposition of a Bank of England was made in July, 1691, when the Government had contracted £3,000,000 of debt in three years, and the Ministers even stooped, hat in hand, to borrow £100,000 or £200,000 at a time of the Common Council of London, on the first payment of the land-tax, and all payable with the year, the common councillors going round and soliciting from house to house. The first project was badly received, as people expected an immediate peace, and disliked a scheme which had come from Holland—"they had too many Dutch things already." They also doubted the stability of William's Government. The money, at this time, was terribly debased, and the national debt increasing yearly. The ministers preferred ready money by annuities for ninety-nine years, and by a lottery. At last they ventured to try the Bank, on the express condition that if a moiety, £1,200,000, was not collected by August, 1699, there should be no Bank, and the whole £1,200,000 should be struck in halves for the managers to dispose of at their pleasure. So great was the opposition, that the very night before, some City men wagered deeply that one-third of the £1,200,000 would never be subscribed. Nevertheless, the next day £346,000, with a fourth paid in at once, was subscribed, and the remainder in a few days after. The whole subscription was completed in ten days, and paid into the Exchequer in rather more than ten weeks. Paterson expressly tells us that the Bank Act would have been quashed in the Privy Council but for Queen Mary, who, following the wish of her husband, expressed firmly in a letter from Flanders, pressed the commission forward, after a six hours' sitting.

The Bank Bill, timidly brought forward, purported only to impose a new duty on tonnage, for the benefit of such loyal persons as should advance money towards carrying on the war. The plan was for the Government to borrow £1,200,000, at the modest interest of eight per cent. To encourage capitalists, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. Both Tories and Whigs broke into a fury at the scheme. The goldsmiths and pawnbrokers, says Macaulay, set up a howl of rage. The Tories declared that banks were republican institutions; the Whigs predicted ruin and despotism. The whole wealth of the nation would be in the hands of the "Tonnage Bank," and the Bank would be in the hands of the Sovereign. It was worse than the Star Chamber, worse than Oliver's 50,000 soldiers. The power of the purse would be transferred from the House of Commons to the Governor and Directors of the new Company. Bending to this last objection, a clause was inserted, inhibiting the Bank from advancing money to the House without authority from Parliament. Every infraction of this rule was to be punished by a forfeiture of three times the sum advanced, without the king having power to remit the penalty. Charles Montague, an able man, afterwards First Lord of the Treasury, carried the bill through the House; and Michael Godfrey (the brother of the celebrated Sir Edmondbury Godfrey, supposed to have been murdered by the Papists), an upright merchant and a zealous Whig, propitiated the City. In the Lords (always the more prejudiced and conservative body than the Commons) the bill met with great opposition. Some noblemen imagined that the Bank was intended to exalt the moneyed interest and debase the landed interest; and others imagined the bill was intended to enrich usurers, who would prefer banking their money to lending it on mortgage. "Something was said," says Macaulay, "about the danger of setting up a gigantic corporation, which might soon give laws to the King and the three estates of the realm." Eventually the Lords, afraid to leave the King without money, passed the bill. During several generations the Bank of England was emphatically a Whig body. The Stuarts would at once have repudiated the debt, and the Bank of England, knowing that their return implied ruin, remained loyal to William, Anne, and George. "It is hardly too much to say," writes Macaulay, "that during many years the weight of the Bank, which was constantly in the scale of the Whigs, almost counterbalanced the weight of the Church, which was as constantly in the scale of the Tories." "Seventeen years after the passing of the Tonnage Bill," says the same eminent writer, to show the reliance of the Whigs on the Bank of England, "Addison, in one of his most ingenious and graceful little allegories, described the situation of the great company through which the immense wealth of London was constantly circulating. He saw Public Credit on her throne in Grocers' Hall, the Great Charter over her head, the Act of Settlement full in her view. Her touch turned everything to gold. Behind her seat bags filled with coin were piled up to the ceiling. On her right and on her left the floor was hidden by pyramids of guineas. On a sudden the door flies open, the Pretender rushes in, a sponge in one hand, in the other a sword, which he shakes at the Act of Settlement. The beautiful Queen sinks down fainting; the spell by which she has turned all things around her into treasure is broken; the money-bags shrink like pricked bladders; the piles of gold pieces are turned into bundles of rags, or fagots of wooden tallies."

In 1696 (very soon after its birth) the Bank experienced a crisis. There was a want of money in England. The clipped silver had been called in, and the new money was not ready. Even rich people were living on credit, and issued promissory notes. The stock of the Bank of England had gone rapidly down from 110 to 83. The goldsmiths, who detested the corporation that had broken in on their system of private banking, now tried to destroy the new company. They plotted, and on the same day they crowded to Grocers' Hall, where the Bank was located from 1694 to 1734, and insisted on immediate payment—one goldsmith alone demanding £30,000. The directors paid all their honest creditors, but refused to cash the goldsmiths' notes, and left them their remedy in Westminster Hall. The goldsmiths triumphed in scurrilous pasquinades entitled, "The Last Will and Testament," "The Epitaph," "The Inquest on the Bank of England." The directors, finding it impossible to procure silver enough to pay every claim, had recourse to an expedient. They made a call of 20 per cent. on the proprietors, and thus raised a sum enabling them to pay every applicant 15 per cent. in milled money on what was due to him, and they returned him his note, after making a minute upon it that part had been paid. A few notes thus marked, says Macaulay, are still preserved among the archives of the Bank, as memorials of that terrible year. The alternations were frightful. The discount, at one time 6 per cent., was presently 24. A £10 note, taken for more than £9 in the morning, was before night worth less than £8.

Paterson attributes this danger of the Bank to bad and partial payments, the giving and allowing exorbitant interest, high premiums and discounts, contracting dear and bad bargains; the general debasing and corrupting of coin, and such like, by which means things were brought to such a pass that even 8 per cent. interest on the land-tax, although payable within the year, would not answer. Guineas, he says, on a sudden rose to 30s. per piece, or more; all currency of other money was stopped, hardly any had wherewith to pay; public securities sank to about a moiety of their original values, and buyers were hard to be found even at those prices. No man knew what he was worth; the course of trade and correspondence almost universally stopped; the poorer sort of people were plunged into irrepressible distress, and as it were left perishing, whilst even the richer had hardly wherewith to go to market for obtaining the common conveniences of life.

The King, in Flanders, was in great want of money. The Land Bank could not do much. The Bank, at last, generously offered to advance £200,000 in gold and silver to meet the King's necessities. Sir Isaac Newton, the new Master of the Mint, hastened on the re-coinage. Several of the ministers, immediately after the Bank meeting (over which Sir John Houblon presided), purchased stock, as a proof of their gratitude to the body which had rendered so great a service to the State.

The diminution of the old hammered money continued to increase, and public credit began to be put to a stand. The opposers of Paterson wished to alter the denomination of the money, so that 9d. of silver should pass for 1s., but at last agreed to let sterling silver pass at 5s. 2d. an ounce, being the equivalent of the milled money. The loss of the re-coinage to the nation was about £3,000,000. Paterson, who was one of the first Directors of the Bank of England, upon a qualification of £2,000 stock, disagreed with his colleagues on the question of the Bank's legitimate operations, and sold out in 1695. In 1701, Paterson says, after the peace of Ryswick, he had an audience of King William, and drew his attention to the importance of three great measures—the union with Scotland, the seizing the principal Spanish ports in the West Indies, and the holding a commission of inquiry into the conduct of those who had mismanaged the King's affairs during his absence in Flanders. Paterson died in 1719, on the eve of the fatal South Sea Bubble.

When the notes of the Bank were at 20 per cent. discount, the Government (says Francis) empowered the corporation to add £1,001,171 10s. to their original stock, and public faith was restored by four-fifths of the subscriptions being received in tallies and orders, and one-fifth in bank-notes at their full value, although both were at a heavy discount in the market.