Services to the Nation

Business began for real during the week starting 30 July 1694. That day, the directors decided that the Bank’s Common Seal was to represent ‘Britania sitting and looking on a Bank of mony’ – a decision that in turn meant that Britannia would henceforth appear on all the Bank’s printed notes. That same Monday, the directors appointed the first nineteen ‘Servants of this House’, including a ‘Secretary and Sollicitor’ (John Ince), a ‘First Accomptant’ (Thomas Mercer) and a ‘First Cashier’ (John Kendrick): these were the three key staff appointments (though Kendrick lasted only a few weeks), anticipating how until well into the twentieth century the Bank in a day-to-day sense would essentially be run along tripartite lines, under the secretary, the chief accountant and the chief cashier. Over the next few months, most of the infant institution’s business concerned funding the government, mainly through the original subscription to the Bank. Crucially, the £1.2 million loan promised to the Treasury was paid not in coin, but in paper – at first in the form of so-called ‘sealed bills’, then in the form of ‘running cash notes’ issued by the Bank. The Bank was thus from the start an engine to create credit, albeit an engine inevitably somewhat resented by London’s goldsmith-bankers, who nevertheless often still found it convenient to have an account there. No doubt they read the runes, and despite the odd setback the price of Bank stock steadily rose during the autumn and into 1695. It was also telling that by December the Bank was based in larger premises, having taken out a lease – though initially only for a cautious eleven years, the period of the Charter – on Grocers’ Hall, governor Houblon’s livery company. ‘A very convenient place,’ Daniel Defoe would note in the 1720s about this enclosed building roughly halfway between Poultry and Lothbury, ‘and considering its situation, so near the [Royal] Exchange, a very spacious, commodious place.’1

The Bank’s enjoyment of its new home may have been marred during 1695 by a flurry of anti-Bank broadsheets and pamphlets. Reasons Humbly Offer’d to The Honourable House of Commons, By Eminent Merchants and Citizens of the City of London: Shewing The Inconveniences that may arise by the Bank was the restrained title of one, apparently co-authored by the prominent Tory goldsmith-banker Richard Hoare and accusing the Bank of being poised to ‘Engross most of the Ready Money in and near the City of London, which is the Heart of Trade, and so will amount in effect to a Monopoly’; an anonymous pamphleteer claimed that the Bank’s note issue was ‘almost a Fraud on the Subject’; while according to the equally anonymous author of Angliae Tutamen: or the Safety of England, ‘the great Dividends the Bank has already made, and is preparing to make … tell all the World in honest English, that one Part of the Nation preys upon t’other’, with the author broad-mindedly adding that ‘if we could extract Profits from Foreigners ’twould do well, but from one another, enriches not the Publick one jot’. Even John Locke had his doubts. ‘The money in the Bank is, and I conclude always will be, managed by London merchants,’ he declared to Whig friends in February, prompting him to predict that as a result ‘the greatest part of our trade will in a little while by secret combinations be got into a few hands’, whereas ‘money might be better distributed into the country, and other ports, and trading parts of England’. Amid all this, the Bank’s main defender was its deputy governor, Michael Godfrey, responsible for A Short Account of the Bank of England. Lower interest rates, an enhanced price for land, a financial strengthening of the monarchy – these were among the many ‘services to the nation’, he insisted in a detailed exposition, that the Bank was already providing and would continue to provide. Godfrey also challenged the goldsmith-bankers: ‘If there be an advantage to be made by the running cash of the kingdom, it’s fitter for the Bank to have it; which consists of thirteen hundred persons, and who employ it to serve the nation in general, by lowering the interest of money; than that it should be given to a few private men, who have already made use of it, so much to the nation’s prejudice.’ In short, he concluded, the Bank ‘will and must be preserved and maintained, because of its great use to the whole realm’.2

Duly justifying its existence, the Bank continued through 1695 to lend to the government: either directly to the Treasury – with the Bank receiving in return exchequer ‘tallies’ (sticks of notched wood that were in effect IOUs) – or more indirectly by discounting (which is to say purchasing) tallies and Navy paper (bills based on the security of the English Navy). Two human dramas, meanwhile, played out. The first involved the Bank’s original ‘projector’, William Paterson, who had been elected as one of the original directors but by early 1695 was almost certainly getting itchy feet. His latest scheme was for another bank, to be called the Orphans’ Bank, and on 12 February his colleagues at Grocers’ Hall informed him unequivocally that ‘his proceeding in the business of the Orphans Estate, in Conjunction with those he told the Court were known enemies of the bank, is not becoming a Director of this Court, but a Breach of his Trust’. A few days later, Paterson claimed that the Orphans’ Bank, dealing in land not trade, would be no threat to the Bank of England; but by the end of the month he was gone. The other human drama stemmed from the decision in May to establish an agency in Antwerp in order to pay the troops in Flanders, with a small sub-committee, including Michael Godfrey, James Houblon and Sir William Scawen, being ‘empowered to goe over to Antwerpe’. Two months later, on 17 July, the deputy governor found himself in the trenches in the company of his monarch, watching the siege of Namur at all too close quarters:

William: Mr Godfrey, you ought not to run these hazards; you are not a soldier; you can be of no use to us here.

Godfrey: Sir, I run no more hazard than your majesty!

William: Not so; I am where it is my duty to be, and I may without presumption commit my life to God’s keeping; but you—.

At which point, relates Macaulay in his immortal account, a cannon ball from the ramparts laid Godfrey’s head at William’s feet. Bank stock immediately fell 2 per cent, once the news reached London; and Scawen, who apparently had been standing only two yards away, was elected as the new deputy governor.3

He and his colleagues now confronted the exceptionally challenging circumstances of 1696 – in effect, a two-pronged attack on the very existence of the Bank, or at the least its credibility. The first prong derived from the consequences of the Recoinage Act of January that year: although necessary in its own terms, in order to tackle the scandalously debased condition of England’s silver coin, the solution – recalling and reminting all silver coin – inevitably led to the Bank itself becoming seriously short of specie and soon finding it difficult to meet demands for cash. Hoare would later deny the charge, but some of his fellow goldsmith-bankers did not hesitate in their attempt to wreak maximum damage, culminating on 6 May when they, according to Macaulay, ‘flocked to Grocers’ Hall and insisted on immediate payment’: that is, of bullion (silver or gold) for bills and notes issued by the Bank that they had been assiduously storing ahead of this orchestrated démarche. At which point, the directors ‘refused to cash the Notes which had been thus maliciously presented’, whereas ‘other creditors, who came in good faith to ask for their due, were paid’. Put another way, there had been a run on the Bank – and partial suspension of payments. A week later, on the 13th, Scawen gravely informed the General Court (a meeting of the Bank’s stockholders) that ‘a greater demand is made att present than is possible att present to be answer’d by the money coined’; and that ‘if any person be under any uneasinesse for want of his money, The Bank is willing to Give such person Good Tallies [IOUs] for his notes’. Whereupon, it was not only resolved that ‘every Member of the Corporation who has any goldsmiths notes should be desired to bring them into the Bank & Change them for Bank Notes’, but also ‘recommended to all the Members to keepe their Cash & Transact all their businesse in the Bank’.4

The other prong was the Land Bank threat. Conceived specifically as a rival to the Bank of England, and supported largely by the ‘country’ interest (anti-Whig, anti-City), the Land Bank had as its central premise a note issue on the security of land. ‘How a Land Bank shall supply the King with ready money I doe not well see,’ reflected Locke on 14 February, shortly after a House of Commons committee had both agreed to a national land bank going ahead and (in Narcissus Luttrell’s words) ‘ordered that none concerned in the Bank of England have any thing to doe in it’. To this the Bank responded proactively, offering to lend the government the same amount (£2.56 million) promised by the Land Bank, but at a lower rate of interest. The offer, however, was rejected, and on 10 March the Commons accepted its committee’s recommendation. ‘The Governour informed the Court,’ recorded the General Court’s minutes on 29 April in detailing the Bank’s reponse, ‘that tho’ the Act of Parliamt was passed [on 27 April] for the Establishing of a Land Bank, yet that the Bank of England doe still remaine in good Creditt – And that the Court of Directors have and will doe all things in their power for the Interest of the Bank.’ Fighting talk, but these were bad days, and on 4 May, just forty-eight hours before the run on the Bank caused by the recoinage crisis, there appeared a would-be prophetic pamphlet called The Trial and Condemnation of the Land Bank at Exeter Change for murdering the Bank of England at Grocers’ Hall. The level of personal abuse was high even by the standards of the day – there were references to Sir John Houblon’s ‘obstinacy and blunders’, Sir William Gore’s ‘shuffling tricks’, Sir Gilbert Heathcote’s ‘cynicalness and self conceit’ – and just at this moment the prospect of a Grocers’ Hall corpse seemed far from impossible.5

In the event, the would-be rival proved one of the more spectacular flops in financial history. ‘People generally despair of the Land Bank and think it will come to nothing,’ observed Lord Godolphin (until recently first lord of the Treasury) shortly after the subscription books opened on 4 June – and within weeks the whole thing was dead in the water, with barely £7,000 subscribed. Even so, the Bank was still in a very tight spot, given the larger national situation. ‘The months of July and August 1696,’ notes one historian, ‘were the most desperate of the war’; and on 15 August it needed a masterly speech by the governor to persuade the General Court to vote through a £200,000 loan to the government. Although he fully acknowledged that the Bank continued to suffer from that ‘want of Specie which at this time is the common Calamity of the whole nation’, the essential fact was, he went on, that the government now acknowledged the Bank as indispensable, with the Lords of the Treasury having ‘informed the Court of Directors (which is a great truth) that neither the Government nor the trade of England can be carried on without Creditt, and that they knowe if the Creditt of the Bank be not maintained, no other Creditt can be supported’. Nevertheless, the so-called ‘patriotic’ loan further intensified the Bank’s shortage of cash (gold or silver coin), and by October the price of Bank stock was down to 60 (having stood at par at the start of the year), with the Bank resorting to understandable delaying tactics. ‘All Notes of £5 and under,’ resolved the directors, ‘be paid off in full alphabetically, beginning upon Wednesday the 28th day of October instant with Notes payable to names of A and B, and so on Wednesday of every week two letters through the alphabet.’ Meanwhile, the government’s need for cash to pay the troops remained acute, and by early December, a few months after he had created the first issue of Exchequer bills, the chancellor Charles Montagu decided further to chance his arm, proposing his so-called ‘engrafting’ scheme: that the outstanding tallies (IOUs) would be added to the Bank’s stock through a new subscription, with the Bank being paid interest on those tallies. ‘He is very confident in his Scheme,’ John Freke, a Whig barrister, reported to Locke on 5 December, adding that ‘last night he went to the Directors of the Bank to propose it to them’. Would Montagu get his way? Freke did not know, but had ‘no doubt’ that he would ‘threaten them’ if ‘they would not comply’. Perhaps he did, but it seems that the Houblon faction (a nephew, brother-in-law and cousin being directors, as well as the three brothers) in particular stood firm, apparently apprehensive that engrafting would not only overburden the Bank but also reduce their personal stakes; and on the 7th the General Court rejected the scheme.6

There ensued during the early weeks and months of 1697 some arguably risky brinkmanship, as the Bank took the opportunity to exercise a significant degree of leverage and in the process consolidate its long-term future. In essence, having first at the start of the year declined outright to lend some £2½ million, the Bank did now consent to take £1 million of short-term debt off the government’s hands through a capital-enlarging ‘engrafting’ process – but only in return for four key conditions being met: that the original Charter should be extended to 1711; that the Bank should be exempt from taxation; that the government would initiate measures against the counterfeiting of Bank notes, which was becoming a serious problem (such forgery was later made a capital offence); and above all that, in the Bank’s own words as it formulated its demands, ‘no other Bank or any Constitution whatever in the nature of a Bank, be Erected or Established, permitted or allowed, within this Kingdome, during the continuance of the Bank of England’. The Bank did not quite get everything its own way – with the Commons insisting that ‘at all future Elections there shall not be chosen above two-thirds of those who were Directors the previous year’ – but overall the legislation passed that spring marked a decisive victory for the fledgling institution in its relationship with government.

The resulting capital enlargement, involving government creditors exchanging their short-term debt (tallies) for Bank stock, led to a significant social broadening of the Bank’s shareholders, with first-time proprietors including a Plaistow waterman (John Wells, £625) and a Horsley Down mealwoman (Martha Thomson, £250); while the Bank’s newly strengthened position saw the price of Bank stock rapidly climbing back towards par. The first elections under the new dispensation took place in July, with Scawen being chosen as governor and Nathaniel Tench as deputy governor; and two months later, the Treaty of Ryswick marked the end of the Nine Years’ War.7 This particular conflict was over, but one of its most important by-products was here to stay.

The pleasures of peace did not last very long. Even as they were still ‘looking back with Horrour on the heavy Load of Debts they had contracted’, recalled Jonathan Swift in 1711 about the English people during the aftermath of the Nine Years’ War, they, ‘without giving themselves time to breath, would again enter into a more dangerous, chargeable, and expensive War’. This new war was the War of the Spanish Succession, lasting from 1702 to 1714 – and another opportunity for the Bank to show its prowess in war finance, especially through loans to a predictably strapped state. ‘The government which is chiefly supplied by them, can scarce expect for the future to be supported without them,’ observed in 1706 one pamphleteer, the Duke of Marlborough’s chaplain John Broughton, of its apparently ever-increasing dependency on the men running the Bank. That dependency was intensified from 1707, when in effect the Bank took over responsibility for circulating new issues of Exchequer bills secured on taxes, a service it performed not only for a handsome allowance for bills outstanding, but also with the precise interest on bills left entirely to its own discretion. ‘What extraordinary profit must have accrued to the bank by this operation, every one must perceive,’ noted with grudging admiration the political economist Sir James Steuart over half a century later, adding that ‘almost the whole accumulated interest paid, became a pure profit to the bank, as well as a great augmentation of the national debt’.

In addition, 1707 was the year of the Act of Union, involving the Bank in a less profitable service to the state. The agreement, far from popular north of the border, included the provision that the Scots, as an ‘equivalent’ for their contribution to repaying England’s national debt, would receive some £100,000 in cash and £300,000 in Exchequer bills; and that summer, a heavily guarded party of twelve wagons, accompanied by three Bank officials, made its way from London to Edinburgh. There they were met by four English commissioners, including James Houblon, son of the former Bank director Sir James. ‘A good share of ye Mob are very Angry,’ he reported to his brother on 5 August after the wagons’ arrival, ‘& threw Stones at ye Bank-Officers & Coachmen.’ Apparently the mob believed that the wagons contained ammunition. Such was the uncertain standing of Exchequer bills that the commissioners had to request the Bank to send a further £50,000 in coin, resulting in a second convoy (again attended by three Bank officials) later in the summer. The tailpiece to the story involved an unseemly squabble. Back in London, the wagon drivers demanded from the Bank an extra £22 per man; the Bank’s offer of an extra £10 was refused; the secretary, John Ince, complained to the Treasury that the drivers were ‘very rude and troublesome’; and although the documentation runs out at this point, no doubt a compromise was reached.

Meanwhile, a war famous for its resonant battle names (Blenheim 1704, Ramillies 1706, Oudenarde 1708, Malplaquet 1709) continued to drag on – and just as a decade earlier, the Bank took advantage of the Whig government’s need for immediate funds to secure for itself a new, enhanced agreement. Embedded in legislation in 1708–9, there were three key aspects from the Bank’s point of view: first, its Charter was extended to 1733, almost a quarter of a century away; second, its monopoly over joint-stock banking was strengthened, at the same time confining private banking to organisations of six partners or fewer; and third, its authorised capital was doubled to £4.4 million, immediately resulting in a highly successful subscription process at Grocers’ Hall. None of this meant that the Bank had suddenly become a universally accepted, let alone welcomed, institution. ‘The malignity of the Bank is of that extent that I know not well where to begin my account of it,’ declared in 1708 the anonymous author of a public letter to an MP, Arguments against Prolonging the Bank, Showing the Dangerous Consequences of it to our Constitution and Trade. Still, in terms of prevailing sentiment, in the City anyway, that same year a London correspondent of Thomas Pitt at Madras surely had the right of it. ‘The Bank,’ he wrote, ‘not only in my own opinion but of all my acquaintance, is thought the surest estate, and scarce any money’d man but has a share which he looks upon as his nest egg.’8

What sort of place was the Bank by the time this new deal was struck? ‘I looked into the Great Hall,’ Joseph Addison would note a year or two later in the Spectator, ‘and was not a little pleased to see the Directors, Secretaries and Clerks, with all the other Members of that Wealthy Corporation, ranged in their several stations, according to the Parts they act in that just and regular Oeconomy.’ The directors remained predominantly merchants, typified by Francis Eyles, a Wiltshire clothier’s son who became a prominent Levant and colonial merchant and, having been elected a director in 1697, served as governor for what was becoming the usual two-year term, in his case 1707 to 1709. But in terms of the conduct of the Bank’s day-to-day business, the people who really mattered during these formative years were not ‘the Direction’ (as it came to be called) but its first generation of permanent, full-time staff.

Inevitably their numbers increased (over sixty by 1700), though it would be a long time before their total reached three figures; as for their functions, the clerical staff were mainly divided into those working in the Accountant’s Office, those in the Cashier’s Office, those in the Secretary’s Office, those in the Discount Office, and the tellers. The heaviest burden probably lay on the last group: over twenty of them by the early 1700s, situated in the handsome banking hall at Grocers’ Hall, and in effect the public face of the bank – accepting deposits and loan payments, cashing notes and bills, and from 1704 subject to a detailed four-page ‘Orders for the Observance of the Tellers of the Bank’. Theirs was demanding work, not helped by poor-quality coinage and the ever-present danger of forgery of paper instruments of exchange, and one of the many specific stipulations was that ‘the Teller Indorse the persons name to whom they pay mony on Notes payable to Order, and if unbeknown the place of his abode’. There were also of course non-clerical staff, comprising by 1704 two messengers and doorkeepers, one gate-porter, two house-porters, one house-cleaner, one gardener and six watchmen, with the gate-porter provided by this time with ‘a crimson cloth gowne lined with orange, and a large Bamboo cane with a silver head’. Discipline was generally strict: not only were ‘the servants of the House’ (whether clerical or non-clerical) under threat of instant dismissal for failure to comply with the rules of the Bank, but they were required on pain of suspension to report on any fellow-employees guilty of ‘prophaneness, immorality, loose or scandalous living’ in their personal conduct; and although the pay was respectable (the average teller getting around £55 a year, somewhat above what a schoolmaster earned), Anne Murphy’s verdict that ‘on balance the majority of the Bank’s employees would have found its management practices to be more about the stick than the carrot’ is surely correct. Still, there were always the consolations of home: an evocative 1704 list shows that although a handful of the most senior staff lived at the Bank, Thomas Jones could retreat to ‘his Mothers a Coffeehouse in Starre-Court in Breadstreete’, William Deards to ‘his owne house in Naggshead Court in Bartholomew Lane by ye Exchange’, Robert Lloyde to ‘the Middle Temple in Essex Court in the Staircase No. 4 up one paire of staires at Mr. Scroopes chamber’, and Thomas Cowell to ‘Hony Lane market, at ye Bell a Publick House’.9

What exactly, then, was the nature of the Bank’s day-to-day business during its first fifteen or so years? Elements of mystery remain, but essentially what it did – as a private (as opposed to public) bank, in addition to its ever-closer connection with government – was to provide a range of indispensable services for the London mercantile community. These services included issuing banknotes and other paper credit instruments; providing deposit, account and payment transfer facilities; making carefully selected loans; and discounting bills of exchange. As for services on behalf of government, over and above making regular loans and advances as well as its facilitating role in relation to Exchequer bills, the Bank did not yet manage the long-term national debt. But it did increasingly act as banker to what Clapham calls ‘the great national accounts’, such as ‘during Marlborough’s wars the Paymaster of the Army, the Paymaster of Guards and Garrisons, the Treasurer of the Ordnance Office and the Treasurer of the Navy’. All in all, whether for the mercantile community or for government, but especially for the latter, it was a profitable business; and between 1697 and 1709, the annual dividend payment to stockholders invariably amounted to at least 7 per cent and was often significantly more.

One should not exaggerate the reach of the early Bank of England – after all, for much of the eighteenth century it was quite often referred to as the ‘Bank of London’. Moreover, unlike the appreciably older Bank of Amsterdam, the Bank ‘did not’, to quote the historians Larry Neal and Stephen Quinn, ‘dominate the local bill market, it did not act as a large-scale clearing house, and no bills were required to pass through it’. Instead, notwithstanding its other services to the mercantile community, it was a ‘note-issuing bank, committed to serving the British Treasury’. Undoubtedly a key aspect of that service was the part the Bank played in helping the development of what other historians have called ‘credible commitment’ – that key post-1688 evolution of an institutional structure by which the new dispensation of parliamentary government could be more widely trusted than had ever been the case in the age of Crown-dominated public finance. Or put more specifically, the Bank’s role in almost all new loans to government was soon so central that in effect it acted as guarantor of responsible behaviour, not least in relation to the prompt payment of interest. Yet at the time, it must be re-emphasised, not everyone saw the Bank in such a favourable, public-interest light. ‘Its status was contested, its monopoly at risk, and it remained highly vulnerable to the whim of Parliament’: even after the 1709 enhanced deal, Murphy’s salutary words still apply.10 And indeed the Bank at this point had still to face perhaps the biggest threat of all to its very existence.

The sequence of events that eventually led to that threat began in 1710 – a year of intense political drama, with the Bank under the take-no-prisoners leadership of Sir Gilbert Heathcote (governor from 1709) positioned uncomfortably close to the drama’s centre. The larger context helps to explain the febrile atmosphere. Public finances under increasing strain, bad harvests, a seemingly endless war (with Heathcote stubbornly insisting to Godolphin, back in office as first lord of the Treasury, that any peace failing to secure war aims in Spain would be ‘a rotten peace’), Queen Anne in the ninth year of her reign believing the time at last ripe to get rid of the detestable Whigs – all this, and Dr Henry Sacheverell too. On 27 February the trial began (for seditious libel) of this eloquent high churchman and fierce anti-Whig; within days the Sacheverell Riots were under way; and the mob – intent on looting and burning Grocers’ Hall – was thwarted only by the arrival of the Grenadier Guards, whose Captain Orrell had reputedly declared, ‘Gentlemen, it is better to have all the [dissenting] meeting-houses destroyed than the Bank.’ Sacheverell himself was virtually acquitted, and the Tories by early summer had the wind firmly in their sails, to the alarm of the money men.

Over the next few months, the Bank twice tried to halt political change and twice failed. The first intervention came on 15 June, with Heathcote and three colleagues personally informing the Queen of their ‘desire’, following the dismissal of the Earl of Sunderland from the government, that ‘she would make no further alterations in the ministry which much affect all the public credit’; some seven weeks later, a further Bank deputation, this time to the Treasury and seeking to shore up the position of Godolphin (a pro-Bank moderate Tory who had become increasingly close to the Whigs), only had the effect of goading Anne into dismissing him. That same deputation also demanded an assurance against an early dissolution of the Commons – and again the Bank’s wishes were ignored, with an October election resulting in a Tory landslide. Did Heathcote repent at all of the Bank’s interventions? Probably not. ‘If we err’d,’ he confided to a prominent Whig, ‘t’was in failure of our judg’ments, and God of his mercy grant that that may be the case, but I cannot help being still of the same mind.’11

That autumn the politics of the City could hardly have been more charged, with Heathcote in the thick of it. In late September, in the midst of a controversial count and a riot at the mayoral Common Hall, Heathcote was chosen as the next lord mayor; the following month, in the City’s parliamentary election, he was one of the four Whig candidates (all of them present or past Bank directors, and three of them, including Heathcote, sitting MPs) swept aside by the four Tory candidates (including Sir Richard Hoare), after a five-day poll marked by, in the words of one historian of the City, ‘an atmosphere of rhetorical and physical violence unmatched since the Revolution’. The Bank itself continued to dig in its heels and make life as difficult as possible for Robert Harley’s new Tory government – not only still refusing to discount bills of exchange for military pay officers, but also now refusing to discount overseas bills of exchange. ‘It is only pique and revenge of Heathcote’s and his party who now govern the Bank absolutely,’ a banker-ally of Harley informed him in November, almost certainly accurately.

The game-changer was the news just before Christmas that Lord Stanhope’s army had surrendered at Brihuega – in effect, spelling an end to any serious hopes of conquering Spain and of thereby avoiding Heathcote’s ‘rotten peace’. By early 1711 there was a palpable spirit of compromise and co-operation between the Tory government and the Whig-supporting Bank, much helped by a successful internal rebellion against Heathcote during the last few months of his governorship, a rebellion apparently led by two former governors, John Ward and Sir James Bateman. Even so, at the annual election in April of new directors, Tories in the City still tried to stage a coup, leading to a much heavier turn-out by stockholders than usual. The coup failed – in Clapham’s words, ‘the crowds of proprietors voted for the men they knew’ – and accordingly it was very much the old Whiggish guard that was returned, including Nathaniel Goulde as governor and John Rudge as deputy governor, both of whom had joined the Court back in the 1690s. A more successful Tory initiative was the formation later in 1711 of the South Sea Company, intended from the start as a counterweight to the Bank and designed in essence as a vehicle for converting into perpetual annuities a large chunk of the government’s floating debt, with the vaunted South Sea trading-company aspect being little more than a façade. Revealingly, and befitting his reputation as a pragmatic operator, Harley went to great lengths to ensure that the Bank did not feel unduly threatened by the new creation. He was well aware that a rapprochement with the heart of the monied interest, even if that interest was still defiantly Whiggish, was too important to be thrown away lightly.12

Over the rest of the decade, the Bank largely consolidated its position. In July 1713, three months after the Treaty of Utrecht had at last ended a war that had seen the national debt triple in size to £52 million, a new act extended the Charter to 1743 in return for the Bank agreeing to circulate a further £1.2 million of Exchequer bills. Politically, the dominant fact was increasingly the Queen’s ailing health and fears of a Jacobite-supporting French invasion, leading to at least two significant runs on the Bank. But when Anne did die in August 1714, the Hanoverian succession proceeded, to the Bank’s relief, entirely peacefully; and though in May 1715 the Jacobite plan was apparently for ‘three mobs to assemble at Smithfield, proclaim the Pretender, seize the Bank of England and set it on fire, assassinate some of the Chief Magistrates (including Sir Gilbert Heathcote) and raise a general insurrection’, not only did that dramatic scenario fail to unfold, but later in the year, during the failed actual Jacobite rebellion, the Bank found itself under little serious pressure. Indeed, it was in 1715 itself that the Bank’s remit was crucially extended, with the government asking it to handle a supply loan of £910,000 – the first major step in the Bank establishing control over long-term government borrowing. What about the South Sea Company? Relations between it and the Bank were generally reasonable, with the Bank even coming in effect to act as the upstart company’s bankers; but by the autumn of 1719 the directors of that company were, in Clapham’s words, ‘planning great and daring ventures’.13

In essence, as its scheme evolved that winter, the South Sea Company (SSC) proposed to take over the national debt (excluding that part owed to the Bank and the East India Company) in return for making a substantial one-off payment into the Exchequer – cash that would enable a financially hard-pressed government to redeem other long-term public debt, including that held by the Bank. What was in it for the SSC? Why might it be so advantageous to have a major swathe of the national debt converted into newly issued shares in the Company? Accounts of the ensuing infamous South Sea Bubble have tended to emphasise the motive of stock market speculation and manipulation; but the historian Richard Kleer has argued that the ambitious debt-conversion project of 1720 had an equally powerful motivation: namely, an attempt by the SSC ‘to direct vast new amounts of public money through its coffers and at the same time deprive the Bank of England of most its public cash flow’ – so that ultimately, further argues Kleer, the Company would ‘supplant the Bank of England and assume the latter’s longstanding status as the state’s principal lender’. ‘Longstanding’ is perhaps an exaggeration, given the Bank was still barely a quarter of a century old, but it is a compelling interpretation of what the Bank itself undoubtedly perceived as a very real and very present threat. ‘Now they stand ready,’ observed Daniel Defoe at the time about the architects of the scheme, ‘as occasion offers, and profit presents, to stock-job the nation, cozen the Parliament, ruffle the Bank, run up and down stocks, and put the dice upon the whole town.’14

Battle between the SSC and the Bank was joined in late January and early February, as the two rivals bid against each other – and, indeed, seriously over-bid – for the right to convert government debt. It was a hectic few days. On the afternoon of 27 January, the SSC presented a £3½ million offer before the Commons; that same afternoon, the Bank (whose directors had met earlier in the day at Waghorn’s Coffee House) offered up to £5½ million for the privilege of enabling holders of long-term government debt to convert into Bank stock. The intrinsic economics may not have been sound, comments John Carswell in his authoritative narrative of the South Sea Bubble, but ‘for the Bank the devising of a counter-proposal seemed a matter of life and death’. Then on 1 February the SSC returned to the table with an offer that was not only worth up to £7½ million, but included a promise (directly aimed against the Bank) to circulate £1 million of Exchequer bills without charging interest or a management fee. Meanwhile, the Bank itself was now broadly sticking to its £5½ million offer, no longer enough; and next day, the 2nd, against the wishes of the rising Whig politician Robert Walpole, the Commons accepted the SSC’s proposal, immediately causing the price of its stock to rise in Exchange Alley from 129 to 160. Morale at Grocers’ Hall slumped. ‘I could hear only a few broken words,’ reported James Milner, a merchant and MP, about a visit to the Bank probably not long afterwards. ‘“Buy long annuities, lock up our cash, distress, upstarts, revenge and ruin, &c.”’

But elsewhere, as winter gave way to spring and early summer, the SSC – and a plethora of companies formed in the wake of its apparent coup – bubbled away merrily. ‘Surprizing scene in Change Alley,’ noted an observer by early June. ‘S. Sea in the morning above 900 … Professions & shops are forgot, all goe thither as to the mines of Potosi. Nobility, Ladys, Brokers, & footmen all upon a level. Great equipages set up, the prizes of things rose exorbitantly. Such a renversement of the order of Nature as succeeding ages can have no Idea of.’ As for its battle with the Bank, predictably the SSC continued to make all the running – partly through muscling into the Bank’s customary domain of circulating Exchequer bills, partly through arranging to bring into circulation significant amounts of its own bonds, or in Kleer’s words ‘laying the groundwork for a push to displace Bank notes from their position as the nation’s premier fiduciary currency’. Indeed, so generally rattled was the Bank that in May it committed what Clapham calls the ‘grave mistake’ of following the example of the SSC by starting to lend on the security of its own stock, so that over the next few months more than £1 million was lent by the Bank to its own proprietors – a not unimportant contribution to the prevailing credit inflation. And for the SSC itself, it must have been a sweet moment when in July the Bank was among the holders of the redeemable national debt that now put those redeemables at the Company’s disposal, in the Bank’s case up to the value of £300,000: not huge perhaps, but hugely symbolic.15

In fact, the tide was already starting to turn. Parliamentary action in June against the bubble companies impacted also on the SSC, whose share price peaked at just over 1,000 by the end of the month, before steadily subsiding to 775 by the start of September and 520 a fortnight later. ‘All is floating, all falling, the directors are curst, the top adventurers broke,’ observed a contemporary that month; for one gifted young artist, William Hogarth, his first great subject was at hand, with his subsequent print of The South Sea Scheme showing Self Interest breaking Honesty on the wheel, Villainy flogging Honour, and Trade lying ragged and abandoned.

That autumn of 1720, as the SSC’s price continued southwards, to 290 at the start of October and 170 by mid-October, before picking up a little, the Bank’s role in starting to resolve what was a general crisis of public credit is not easy to chart with certainty. During negotiations from 15 to 23 September that eventually led to the so-called ‘Bank Contract’ under the overall auspices of Walpole, the Bank (with the indomitable Heathcote to the fore) imposed two key conditions for agreeing to circulate £3 million in SSC bonds: first, that the Company would henceforth keep its cash with the Bank – or, as Heathcote put it, ‘if the South Sea Company be wedded to the Bank, he ought not to be allowed to keep a mistress’; and second, that the Bank would be allowed to exchange for South Sea stock its £3.8 million of redeemable debt. ‘In effect,’ comments Kleer, ‘this meant that the Bank would keep its existing cash flow and get access to the whole of the new flows associated with the debt-conversion project,’ which in turn meant that ‘the Bank would also retain its current position as the government’s chief credit purveyor’. The next few weeks were difficult: such was the market’s gloomy post-Bubble state that subscriptions to the newly created Bank Contract stock fell well short of the intended £3 million; the Bank itself was under pressure from a serious run, even as it called in loans and increased its bullion stock; while among many merchants and others now going down was Sir Justus Beck, a leading director of the Royal Exchange and a former director of the Bank. ‘How terrible a calamity the fall of South Sea Stock has produced in a few days,’ lamented Joseph Moyle, writing on 12 October to his cousin Humphry Morice, a Bank director and a Whig MP, big in the Africa trade (gold, ivory, slaves) and very friendly with Walpole. Even so, there was probably some truth in what Moyle then added: ‘I am however very glad that the Bank made so noble a stand in such ticklish times, and has showed themselves, as indeed they are, the only Support of credit, and the true Balance of the nation’s interest.’16

Further twists and turns lay ahead in what became a protracted process, not least after the Bank itself in November had controversially repudiated the Bank Contract, on the possibly dubious – and certainly belated – grounds of changed circumstances. Eventually, in October 1722, the so-called ‘Bank Treaty’ saw the Bank agreeing to pay (through the issue of new stock) £4.2 million for £200,000 per annum of the SSC’s ‘Exchequer annuity’, at last enabling the SSC to get back into the black and start to pay off its bond debt. The SSC was saved – but would never again be a major financial force. As for public credit more generally, the Bank signed earlier that year an important new contract with the Treasury over the circulation of Exchequer bills; while, despite the fiasco of the SSC itself, the beneficial fact was that the conversion of a mass of illiquid annuities into liquid and tradable South Sea annuities left the legacy of a hugely enhanced secondary market, above all for government debt. There was also of course a personal dimension to the Bubble’s aftermath. Among those found guilty by the House of Commons in 1721 for having been partly responsible for the dramatic chain of events was Sir Theodore Janssen, a founder-director of the Bank and on the Court as recently as 1719. ‘I had no hand in contriving the scheme,’ he protested to MPs; and although he had his estate confiscated, he was permitted to retain £50,000 out of his considerable fortune – some consolation as he lived out his last twenty-seven years until his death in 1748, the last of the men of 1694.17

Daniel Defoe in 1724 not only described the Bank’s home in Grocers’ Hall as ‘a very spacious, commodious place’. He also noted admiringly that ‘here Business is dispatched with such Exactness, and such Expedition and so much of it too, that it is really prodigious; no Confusion, nobody is either denied or delayed Payment, the Merchants who keep their cash there, are sure to have their Bills always paid, and even Advances made on easy Terms, if they have Occasion’. In short: ‘No Accounts in the World are more exactly kept, no place in the World has so much Business done, with so much Ease.’ It was a glowing tribute to an organisation that during the post-Bubble decade was becoming increasingly indispensable, not least to government. Managing a large part of the national debt, taking responsibility for underwriting and paying the interest on Exchequer bills on the annual taxes, making short-term loans (to the paymaster general of the forces, to the treasurer of the Navy, above all to the lords of the Treasury during these largely peaceful years under Walpole’s ‘Robinocracy’), managing a range of government securities (following on from the 1717 establishment of a sinking fund), responding to the Macclesfield scandal of 1725 (involving the impeachment of a lord chancellor) by taking charge of all Chancery monies and securities – in these and many other ways, including in relation to private commerce, the Bank justified its place in national life as, to quote the historian Paul Langford, ‘a uniquely favoured corporation’.

Unsurprisingly, dividends were reassuringly solid, from 1721 to 1733 invariably between 5½ and 6 per cent, prompting John Hanger, governor during the Bubble and still a director, to reflect in 1731 that ‘the prosperity of the Bank’ was ‘very agreeable to me’. Hanger himself was by this time among some 8,000 or more stockholders, with foreigners (especially Dutch) owning perhaps some 17 per cent of the capital stock, but still with the overwhelming majority of the Bank’s proprietors being individuals living in London or the Home Counties – above all members of the City’s prosperous mercantile community, including of course many merchants, but also bankers and brokers. As for the directors, if there was between the mid-1720s and early 1730s a single dominant figure, it was probably no longer Heathcote (even though he served a second term as governor, 1723–5) but Samuel Holden, a director from 1720 and governor between 1729 and 1731. He was also a leading merchant, governor of the Russia Company for twelve years from 1728, MP for the rotten borough of East Looe in Cornwall, friendly with Walpole, and a prominent nonconformist, being chairman of the Dissenting Deputies Committee, albeit (in a biographer’s words) ‘conspicuously reluctant to run a noisy public campaign for the repeal of the Test and Corporation Acts’. Altogether Holden’s was a life of the utmost respectability; and when he died in 1740, still a Bank director, he left £80,000 and instructions that ‘what of my estate may exceed £60,000 (exclusive of Land) be distributed in charitable uses at the discretion of my wife and children [two unmarried daughters] such as promoting true religion, sobriety, Righteousness and Godliness’.18

In reality, not everything in the final phase at Grocers’ Hall was quite as well ordered as it might have been. A rash of scandals, internal as well as external, began with a trio in 1721: during what turned out to be a terminal illness, William Stubbs, one of the most trusted cashiers, drew fictitious bills via his son John, also working at the Bank; a fraudulent transfer of £350 of Bank stock, involving a Jewish broker called Moses Waag, eventually led to two members of staff vainly pursuing him across much of Europe; and a Cambridge-educated medical student called George Nicholas, who had fallen into criminal company, was found guilty of altering the value of a handwritten banknote, leading to a death sentence subsequently commuted to transportation for life. Note forgery also featured in the 1724–5 cases of Philip Lodgeing and Francis Kyte, with the latter’s punishment being to stand in the pillory on Little Tower Hill; and as a result of these and similar cases, an agreement was reached with the paper-maker Henry Portal, of Whitchurch in Hampshire, to supply ‘Paper for Bank Notes of the like Goodness or fitter for their Service than the paper now used’, though it would be a considerable time yet before a similar upgrade was made to printing methods for the notes. Security concerns also motivated the decision in 1728 to start issuing promissory notes ‘at three Days’ Sight’, which in practice proved less than adequate time for rightful owners to notify the Bank of forgery or theft, and ten years later the period of grace would be extended to seven days’ sight.

By then there had been the two scandals of 1731. The first was bad enough, involving a clerk in the Accountant’s Office, William Maynee, found guilty of having for several years ‘carried on a fraudulent practice in the business of Accountable Receipts’, leading to Bank losses of £4,420 and for Maynee himself an appointment at Tyburn, at which place of hanging he ‘begged pardon of the Court of Directors, prayed for the prosperity of the Bank, and died very penitent’. The second scandal was worse. ‘I think it a little hard to have your business encroach more this year upon you than ever it did since I was so happy to be your wife as not to allow you time to come down oftener than once a week, but as it is I must submit to it & live in hopes of better days,’ Mrs Katherine Morice wrote in September 1728 to her husband from her parental home in Wandsworth, before adding: ‘I have thus long harangued upon this subject.’ She was the second wife of Humphry Morice, then in the middle of his term as governor. Three years later, in November 1731, Morice suddenly died – at which point it was discovered that he had discounted with the Bank a whole series of fictitious bills in order to secure advances of nearly £29,000, quite possibly in order to buy a peerage from Walpole. Would the merchant’s widow now repay to the Bank the money obtained by such ‘unwarrantable practices’? No, decided Katherine; and it would be many years after her death in 1743 that the Bank managed to recover even as much as £12,000.19

But for his own death, Morice would have been present a few weeks later on 16 December 1731 when the Court of Directors, conscious of the Bank’s recent growth and potential for future growth, not to mention enhanced status, took a fundamental decision: to end negotiations with the Grocers’ Company over a fresh lease and instead to go ahead with building a new, bespoke home for the Bank. Four of the older directors (including Heathcote, who himself would die barely a year later) dissented; but the decision was final, confirmed by the General Court’s unanimous vote in January 1732 to erect ‘a new publick office for the Bank upon the Bank’s estate in Threadneedle Street’. Appropriately, the site had been acquired from the widow of the Bank’s first governor, Sir John Houblon, whose mansion house was soon afterwards demolished; and, amid considerable competition, the architect chosen for the job was George Sampson, probably getting the nod because of his plan’s adherence to the principles of classical composition (or what Daniel Abramson in his definitive history of the Bank’s architecture calls ‘the classical standards of anthropomorphic composition and beauty as enunciated by Vitruvius’). The construction process ran some eight months behind schedule, but on 5 June 1734 – virtually forty years on from those formative summer days – the Bank opened for business at its new premises.20

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