PROLOGUE
‘The Commissioners for the new Bank came this morning to Mercers’ Chapel, where the books were opened,’ noted the dogged chronicler Narcissus Luttrell on Thursday, 21 June 1694. ‘’Tis said,’ he added, ‘the subscriptions already amount to £300,000.’ Luttrell was right: the capital-raising process for the putative Bank of England was off to a cracking start. In addition to King William and Queen Mary (jointly contributing £10,000, the maximum permitted), other first-day subscribers included the first lord of the Treasury (Lord Godolphin, £4,000), a clockmaker (John Ebsworth, £1,000), a salter (John English, £500), an apothecary (Nicholas Gambier, £600), a host of merchants, and a ‘gentleman’ from ‘the town of St Albans in the county of Hertfordshire’ (John Gape, £500). The following Tuesday a friend told the political philosopher John Locke that he had subscribed £300 – which, Locke then informed another friend, ‘made me subscribe £500’ – while even before that, on the 25th, one of the opponents of the new institution had faced up to painful reality. ‘I am informed,’ the Duke of Leeds wrote from his Yorkshire fastness to his London bankers, ‘That subscriptions to the Bank do fill so fast, that their is at this day near 700’000 subscribed, so that it must now nesesarily be a bank. I therfore desire that you will subscribe foure thousand pound for mee …’ The overall target was £1.2 million (25 per cent payable in cash), and it was reached at Mercers’ Hall in Cheapside on the tenth day, 2 July, with the last of the 1,268 subscribers being Judith Shirley of Preston in Sussex, staking a modest £75.1
Three men above all had been responsible for getting the Bank (as the Bank of England would in time be familiarly called) to this promising point. William Paterson, a remarkable and resilient Scot, is best described as a ‘projector’ – or, in the words of one of his biographers, someone ‘more skilful at promoting his plans than at executing his projects, and more interested in his own self-advancement than in carrying through the consequences of his ideas’. In any case, whatever the motivation, it was Paterson who had the persistence and the flair to put the idea of an English bank of credit – note issuing and able to lend to the state, unlike the Dutch model – firmly on the table. Such a bank would, he insisted in his key pamphlet A Brief Account of the Intended Bank of England, be ‘for the convenience and security of great Payments, and the better to facilitate the circulation of Money, in and around this great and oppulent City’. By 1694, and probably earlier, his two key allies were Charles Montagu, a difficult but hugely able Treasury minister who marshalled the political support, and Michael Godfrey, a substantial merchant who did much the same in the City of London. On 25 April, the much contested Bill that became generally known as the Tonnage Act passed through both Houses of Parliament. Among other things it declared that if half the pledged sum of £1.2 million was lent to the state at 8 per cent by the start of August, the subscribers were to be incorporated under the Great Seal as ‘the Governor and Company of the Banke of England’.2
There followed the successful subscription of late June and early July, ensuring that it would be a certainty. On 5 July, three days after the books had closed, an announcement in the London Gazette summoned all subscribers of £500 or more to meet on the 10th at 8am at Mercers’ Hall. There, after swearing that the sum subscribed had been their ‘own proper money’, they were to ‘give in Riting, Rolled up, the Names of Two Such Persons as they think fit’, one to be governor of the new bank, the other deputy governor. The election duly happened, resulting in Godfrey (an £8,000 subscriber) being named deputy governor, with another prominent City merchant, Sir John Houblon (a £10,000 subscriber), as governor. Next day the process was repeated, with twenty-four of the subscribers being chosen as the Bank’s first set of directors. Governor, deputy governor and most of the directors then assembled at Mercers’ Hall just over a fortnight later, on the afternoon of Friday, 27 July, for their first ‘Court’, hours after the Bank’s Charter had been formally sealed at the Lincoln’s Inn Fields house of Sir John Somers, lord keeper of the Great Seal. The immediate issue faced by the fledgling body was to determine the appropriate method ‘of giving Receipts for running Cash’:
Upon putting the Question after a long Debate, It was Resolved, That these three Methods shall be observed & none other
1st To give out Running=Cash=Notes, and to endorse on them what is paid off in part
2nd To keep an Accompt with ye Creditor: in a Book or Paper of his owne
3rd To accept Notes drawn on ye Bank
And it is Ordered that no Creditor shall use any two of the said methods …
The second option was in effect pass-book banking, the third option cheque-book banking; but almost certainly the preferred option was the first – a recognition of (in Derrick Byatt’s 1994 words, referring to the goldsmith-bankers who had emerged in London since the 1630s) ‘the advantage to commerce generally of the goldsmith’s note payable to a named depositor or order (later, or bearer)’. And ‘thus,’ he added, ‘was laid the foundation stone for the Bank’s series of note issues down the centuries’.3
On the occasion of an earlier anniversary, the 250th in 1944, a more celebrated historian of the Bank, Sir John Clapham, opened his account with a sentence that would become much quoted: ‘The establishment of the Bank of England can be treated, like many historical events both great and small, either as curiously accidental or as all but inevitable.’ And he went on: ‘Had the country not been at war in 1694, the government would hardly have been disposed to offer a favourable charter to a corporation which proposed to lend it money. Had Charles Montagu, a Lord of the Treasury, and from [May] 1694 Chancellor of the Exchequer, not thought that, out of several scores of financial schemes submitted to him, this was on the whole the most promising, there would again have been no charter or perhaps quite a different one.’ Context is often all, and perhaps peculiarly so in the case of this quasi-accidental institution that would achieve a rare permanence.
The cardinal context was indeed war – specifically, the Nine Years’ War against France that followed on from William and Mary’s accession to the throne in 1688, a war that resulted in public expenditure during the 1690s running at well over twice the level it had in the 1680s. Taxation naturally increased, up to around £4 million a year by the mid-1690s, but that still left an annual shortfall of some £2 million. Given that the King had no intention of making what he saw as a premature peace – and given the underlying truth of the political economist Charles Davenant’s contemporary observation that ‘the whole Art of War is in a manner reduced to Money’, so that ‘that Prince, who can best find Money to feed, cloath, and pay his Army, not he that has the most Valiant Troops, is surest of Success and Conquest’ – the need to fill the gap was, to put it mildly, urgent. What to do? With means of repayment increasingly non-existent, and a range of short-term expedients already tried, the obvious answer was long-term borrowing: the beginning, in effect, of the funded (aka national) debt. Lottery tickets and lottery-like tontine annuities were tried, with mixed success, before finally the ‘special bonds’ solution: namely, £1.2 million bonds, not only (in the words of the financial historian Larry Neal) ‘carrying a guaranteed eight per cent rate of interest and funded from specific taxes assigned to that purpose by Parliament’, but ‘sold only to subscribers in the proposed new Bank of England’. This did not quite meet the shortfall, but crucially it meant that the King’s will could be done and the war continue.
Not that the King’s will was quite what it had been, given that 1694 was only six years after England’s ‘Glorious Revolution’ – that decisive shift towards constitutional monarchy and in due course something starting to resemble parliamentary democracy, a shift that William himself had no alternative but to accept as the price of his kingship. Undoubtedly, the Bank itself was one of the most palpable immediate consequences of the revolution; and it was explicitly in relation to this new institution and its likely financial muscle that on 8 July, six days after the subscription books had closed, the future Duke of Chandos, James Brydges, candidly informed his Jacobite-inclined father that ‘the opinion of most persons here as well as strangers abroad’ was that there was now ‘no likelihood’ of the government of the day ‘ever changing in favour of King James’. There was also by this time a specifically party political aspect: whereas the Tories stood foursquare for the primacy of land and were instinctively hostile to the City and all its financial wiles – incomprehensible, dangerous, even republican – the increasingly powerful Whigs were developing a political economy that (in the words of Steve Pincus, historian of England’s ‘First Modern Revolution’) ‘embraced urban culture, manufacturing, and economic imperialism’. In short, the Bank was ‘a Whig creation against Tory resistance’, a creation that marked the triumph of the commercially minded and the unsentimental forces of the new.4
Arguably paramount among those forces was what was rapidly emerging by the late seventeenth century as a profound financial revolution, parallel to the political one. Key elements included a rapidly growing securities market, now poised to trade in long-term government debt; Lloyd’s insurance, with Edward Lloyd in 1691 moving his coffee house from near the river to Lombard Street in order to be close to the General Post Office, a prime source of shipping intelligence; and an increasingly enmeshed web of bankers and merchants, enjoying a symbiotic and mutually beneficial relationship. The glaring absence was clearly a national bank, call it the Bank of England. But as to precisely what sort of animal it was at the point of creation in July 1694, that was less clear-cut.
Partly through the legislation, partly through the Charter and partly through what was tacitly understood, the following (baldly summarised) seems to have been the case: that the Bank, in return for its £1.2 million loan, not only received 8 per cent annual interest and a £4,000 annual management fee, but a range of privileges, including a) seldom accorded joint-stock status; b) in effect limited liability; c) the right to maximise its profits through undertaking a general banking business, including through issuing paper money, taking deposits, lending on mortgages and dealing in bills of exchange as well as gold and silver; and d) the right to choose its own top personnel. The deal was not quite open sesame – the Charter was guaranteed for only eleven years, the Bank was not yet formally the government’s banker, and it did not yet have a monopoly on either joint-stock banking or note issue – but this was still a pretty attractive package.5
Looked at in the round, from a larger viewpoint as well as just the Bank’s, the temptation is to see the whole process as smooth, Whiggish (literally) and inevitable, all coming together to form a virtuous circle. ‘The state’s blessing afforded general circulation to the Bank’s notes,’ comments Felix Martin on this ‘public/private’ partnership. ‘The commercial ownership and management of the Bank improved the state’s creditworthiness.’6 Yet ultimately, as economists and even economic historians sometimes forget, it takes people to make something work – and people, mercifully, are neither uniform nor predictable.
Who, to start with, were the 1,268 initial subscribers? We know quite a lot.7 One hundred and ninety ‘esquires’ contributed 25 per cent of the total £1.2 million; 201 merchants contributed 21 per cent; sixty-three titled aristocrats contributed 15 per cent; almost 70 per cent of subscribers contributed under £1,000; 12 per cent of the subscribers were women, responsible for about 6 per cent of the capital; some 123 of the subscribers were Huguenots (£104,000), but only about half a dozen were Jews (£4,100); and although the lists did feature a range of tradesmen and artisans, including carriers, clothworkers, embroiderers, farmers, mariners and wharfingers, generally the subscribers (in the words of Anne Murphy) ‘belonged to the mercantile middle classes of London’, albeit with ‘important ancillary contributions from lawyers, office-holders, and clergy of the Church of England’. Barely 2 per cent of the capital was subscribed for from abroad; over 87 per cent of the subscribers lived in London, Middlesex, Surrey and Hertfordshire; and almost 55 per cent of the subscribers were based in the City itself, the historic square mile. As to motivation, what Jonathan Swift would recall as ‘the bait of large Interest’ was almost certainly the prime inducement, at a time of war and dislocation drawing in ‘a great Number of those whose Money by the Dangers and Difficulties of Trade lay dead upon their hands’. Or as the anonymous author of Remarks upon the Bank of England would recall in 1706, ‘the 8 per Cent. Alone, (when the Legal Interest was but 6, and the clear produce of Land seldom 4) was of itself a sufficient Encouragement to this Undertaking; especially considering that this was Exempt from Taxes, to which other Money, and Stock, and Land was liable’. Even so, for many of the subscribers it was not just about the 8 per cent – it was also about getting in on the ground floor of an incorporated joint-stock company with rich financial potential. ‘They were attracted,’ as Sir Albert Feavearyear wrote many years later, ‘by the opportunity which the foundation of the first joint-stock bank in England provided of taking a hand in the business of banking, a business which in the last fifty years had raised up more junior clerks and scriveners to be wealthy aldermen than had any other in treble the time. Most of the subscribers, in short, were speculators, men of “quality” and men of business, who saw a chance of big dividends.’8
Some of the keenest to enjoy those dividends were almost certainly the original directors, about whom we again have a reasonable degree of background knowledge.9 The great majority were City-based merchants of considerable substance; about a third were merchants trading with Portugal merchants, concentrating largely on the wine trade; half a dozen were of Huguenot background, while there was also a significant Dutch connection; about half were from the dissenting interest; and there existed an overwhelming affiliation with the Whigs. An exception was Sir William Gore, a Tory alderman whose turnover the following year was estimated at an impressive £64,000, helped by his Court connections securing him profitable contracts supplying the armed forces; but politically more typical was Sir Thomas Abney, a future Whig MP for the City who had made his way up in the mercantile world after originally being a linen draper and would eventually give his name to a north London cemetery. Probably the chief merchant prince among the new directors – and possibly even in the City as a whole – was Gilbert Heathcote. The eldest son of a Chesterfield ironmonger, and by the 1690s a West Indies and Baltic merchant of immense wealth, he is described by his biographer as ‘one of the inner group’ that had promoted the Bank’s chartering and flotation – an activity that he would not have spent valuable time on purely out of sentiment or for the public good, to judge by Alexander Pope’s subsequent deathless couplet: ‘The grave Sir Gilbert holds it for a rule / That every man in want is knave or fool …’
There was no doubting, though, who was the main man, and indeed the main family, in July 1694. ‘It was a mighty pretty sight,’ recorded Samuel Pepys back in the 1660s, ‘to see old Mr Houblon whom I never saw before, and all his sons about him; all good Merchants.’ So they were, mainly in Mediterranean trade (especially Iberian), and two of the brothers, Sir James and Abraham, were among the first directors while another brother, Sir John Houblon, became at the age of sixty-two the first governor. The brothers were fourth-generation Walloon immigrants, their great-grandfather having been the son of a Lille merchant who in the 1560s had found asylum in England from Catholic persecution; their political sympathies were moderate Whiggish (John himself being MP for Bodmin); and they were all major subscribers to the new institution. Pepys’s particular friend was James – ‘a pretty serious man’, thought the diarist on their first encounter, though soon ‘a man I love mightily’. Unquestionably the three brothers were all very wealthy men: after dining with James, Pepys noted that none of the food or wine had originated from anywhere closer than Persia, China and the Cape of Good Hope, and another diarist, John Evelyn, observed after a similar occasion that the merchant lived ‘en prince’. But all the evidence suggests that this was also a family with, perhaps because of its distinctive Protestant roots, a strong sense of duty and public responsibility; and when Sir John died in 1712 in the Threadneedle Street house (site of the present Bank) where he had lived and worked, he was found – at least according to the family biographer – in his chamber in the attitude of prayer.
Solid, unimaginative, breathing the air for the most part of a somewhat limited circle that seldom questioned its own worth or purpose, merchants would continue to dominate the leadership and governance of the Bank of England for the next two centuries and more. Yet it is too easy to be condescending. In 1711, introducing the members of the imaginary Spectator Club, the essayist Richard Steele described one of them, Sir Andrew Freeport. ‘A Merchant of great Eminence in the City of London’, he was a man ‘acquainted with Commerce in all its Parts’ who, as a favourite jest, ‘calls the Sea the British Common’. Sir Andrew, reflected Steele in his portrait, was proof of the proposition that ‘a General Trader of good Sense, is pleasanter Company than a general Scholar’, having ‘a natural unaffected Eloquence’, so that ‘the Perspicuity of his Discourse gives the same Pleasure that Wit would in another Man’.10 Sadly, it is not always possible to get as close as one would like to the words of the real-life merchants. Much more ample is the evidence of their deeds, including their deeds at what was not yet remotely a central bank; and it is by their deeds that these practical men must largely be judged.