PART TWO

1815–1914

5

All the Obloquy

The year 1815 marks one of those attractively straightforward lines in the sands of modern British history: not only the end of the war, but the start of almost a century of peace (broadly speaking), of Britain’s rise to becoming the workshop of the world, of London’s increasing dominance as an international financial centre, exporting capital to all quarters of the globe. All that is essentially true; yet for at least three decades, until the 1850s, it felt to contemporaries a far more chequered, fraught and uncertain process. Certainly these were difficult decades for the Bank, finding itself uncomfortably often at the sharp end of sustained and widespread criticism, as what became a distinctively Victorian monetary settlement was slowly and painfully forged.

Against a larger background of severe economic depression and high unemployment, allied to pent-up resentment about the Bank’s undeniably handsome profits during the war, criticism was under way within months of Waterloo. ‘That an account should be laid before a General Court,’ demanded a proprietor in December 1815, ‘of the amount of the surplus profits of this Company’, a demand ‘warmly’ supported by David Ricardo; but on the governor, William Mellish, brusquely informing the Bank’s stockholders that ‘the Company had all along placed great confidence in their Directors, and that if any reason were harboured for wishing to withdraw it, he begged that their accusation might be spoken out’, the motion was lost on a show of hands ‘by about two to one’. The verdict of the political economist James Mill, writing next day to Ricardo, was plain enough: ‘I should treat all the excess above the due remuneration for their public services, as money got upon false pretences, which the law treats as swindling.’ Ricardo himself entirely agreed – ‘I think the Bank an unnecessary establishment getting rich by those profits which fairly belong to the public,’ he had written not long before to another eminent economist, Thomas Malthus – but probably no one was hotter on the subject than the Whig MP and businessman Pascoe Grenfell. The deposits of public money at the Bank were, he told the Commons in February 1816 in the course of proposing a select committee to look into its arrangements with government, ‘wholly unproductive to the public, but productive of profit and advantage to the Bank’, quite apart of course, he added, from the excessive cost of the Bank’s management of the public debt, as well as the ‘immense increase in Bank profits’ as a result of the paper-money era. ‘I am not,’ he insisted, ‘advising the establishment of a second great national bank’; but he had no hesitation in contrasting on the one hand a country during the last twenty years ‘groaning under the weight and burthen of taxation – vexed, harassed, and tormented, by a swarm of petty, paltry, teazing taxes’, with on the other hand the fact that ‘we should be squandering upon this wealthy, this opulent company, so large, so vast, so extravagant a remuneration’ – a contrast, he went on, that ‘excites in us feelings of disgust and indignation’. From the government benches, Lord Castlereagh (mindful no doubt that the post-war abolition of income tax would make ministers particularly dependent on loans from the Bank) argued that ‘any unnecessary inquiry’ into the Bank’s affairs would be ‘to its prejudice, and, so far, to the prejudice of the country, by affecting the public credit’; while, directly on the Bank’s behalf, Alexander Baring declared that his ‘main objection to the motion arose from the exaggeration with which it was prefaced, and the sort of spirit with which it was proposed’, sentiments echoed by William Manning (a recent governor, and father of the cardinal), who ‘stated that, including all the responsibility and expenses, the Bank only charged the public, for the expense of managing the funds, eightpence in the £100’. Grenfell’s motion was duly defeated, 81–44; and a year later, when he tried again, the result was similar, 90–40, notwithstanding his well-researched claim that ‘the profits of the Bank within the last twenty years, in addition to the usual dividend of seven per cent, amounted to the sum of 27 millions’ – albeit he ‘did not mean to impute any censure to the Bank that made these gains’, but rather he ‘found fault only with the government that tolerated them’.¹

All this was hardly, from the Bank’s point of view, brilliant mood music for determining the big one: whether to resume cash payments, and if so, when.

‘Much difficulty occurs about our currency,’ noted Samuel Thornton at the start of 1816, adding that it was ‘the general wish that the Bank should resume its cash payments as soon as possible’. May that year saw a full-scale Commons debate and vote, and again it was Baring and Manning to the fore. The former, calling himself ‘as great an enemy as any man to the restriction act in itself’, wanted the House to ‘intrust the whole to the discretion of the Bank, and depend upon its zeal, and its desire of answering the expectations of the country, so conformable with its own interests’, at the same time asserting that ‘two years were necessary to enable the Bank to supply specie in sufficient quantity for the circulation of the country’; while the latter took a similar line, emphasising that the watchword had to be ‘caution’. The Commons duly voted to extend restriction until July 1818, but not before a fierce attack from the Whig MP George Tierney:

However demure the Bank directors might look, and whatever professions they might make, they seemed resolved to act in opposition to those looks and professions; they had still upon their countenances all the beautiful simplicity and innocence they had worn for the last nineteen years – always pretending to be ready to pay in gold, yet, when the time came, always finding some reason to keep their money in their own hands. He entertained great personal respect for the directors individually; but, speaking of them collectively, he could not help saying that they seemed very desirous of retaining in their hands the annual gain of £800,000.

Still, two years was perhaps not so long in the overall scheme of things, and William Huskisson in February 1817 told the Commons that he ‘rejoiced to see the period approaching in which cash payments would be resumed’.

It was not to be. By that autumn the exchanges had turned decisively against England and gold began inexorably to drain away, with indeed increasing rapidity from early 1818, fuelled also by successive bad harvests necessitating substantial imports of wheat; and in May 1818 the Tory government pushed through a further one-year postponement of resumption. As usual the Bank came in for criticism, prompting Thornton to protest in the Commons that circumstances had been beyond its control. ‘The resumption of cash payments would,’ he explained in his customary hurt tones about the entirely honourable motives of his colleagues and himself, ‘make them comparatively independent men – for they would then be no longer subject to those questions which were daily pressed upon them, and those asperities that were hourly used towards them.’ Huskisson meanwhile kept his eye firmly on his long-term goal, befitting his increasing reputation as the intellectual driving-force behind Lord Liverpool’s ministry and in effect speaking for a rising generation of commercially minded middle-class economic liberals. For him, and those who thought like him, one of the decisive advantages of returning to the gold standard was that it would be so properly regulated from the outset that there could be no possibility of mismanagement – let alone greed – on the part of Thornton et al. ‘The Bank,’ he assured Liverpool in July 1818 in visionary manner, ‘would be the great Steam Engine of the State to keep the Channel of the Circulation always pressing full, and the power of converting its Notes at any time into Gold Bullion at 78s per ounce the Regulator and Index of the Engine, by which the extent of its operations and the sufficiency of the supply would be determined & ascertained.’²

If that was essentially a utilitarian perspective, there was also emerging strongly by this time a powerful radical-cum-humanitarian critique of the Bank, fuelled in significant part by the continuing vain search for an ‘inimitable’ banknote and the sharp rise in Bank prosecutions for forgery (up from 63 in 1815 to 260 by 1818), together with subsequent hangings (some two dozen in 1818). It proved a fruitful artistic subject. A peep into the old rag shop in Threadneedle Street was the title of an anonymous print published in September 1818, showing the unfortunate, meanly dressed possessor of a forged note pleading on his knees for mercy, while the Bank’s prosperous directors sit in judgement at a nearby table. ‘Take him out, Thomas!!! he has a d––––d hanging look,’ orders one director to a minion; ‘Away with the Vagabond! do you think we sit here for nothing?’ says another; a third merely slumbers; and a fourth deigns to inspect the note, before declaring, ‘Upon my soul I have my doubts … We had better declare it bad.’ Soon afterwards, in January 1819, the great George Cruikshank (later Dickens’s illustrator) produced his uncompromising ‘Bank Restriction Note’, adorned with skulls, convict ships and gibbets, as well as Britannia gobbling up a naked infant. So too with radical journalists, above all the brilliant, tireless and shamelessly exaggerating William Cobbett. ‘This villainous Bank has slaughtered more people than would people a State,’ he exploded in the Political Register a few months after Cruikshank’s gruesome parody.

With the rope, the prison, the hulk and the transport ship, this Bank has destroyed, perhaps, fifty thousand persons, including the widows and orphans of its victims. At the shop of this crew of fraudulent insolvents, there sits a council to determine, which of their victims shall live, and which shall swing! Having usurped the royal prerogative of coining and issuing money, it is but another stop to usurp that of pardoning or of causing to be hanged!

For its part, understandably unwilling not to protect the integrity of its notes, the Bank could only hope to ride out the storm, no doubt aware that justice for the little men was sometimes rough. ‘We talked of Bank note Forgeries,’ recorded Joseph Farington in January 1819 after sitting at dinner next to the son of a City alderman. ‘Price said, that it is well known that the principal Forgers reside at Birmingham; that they are well known to the Bank Directors but sufficient evidence against them has not been obtained.’³

On the larger question of resumption itself, the next few months would see a remarkable sequence of events unfold. At the Bank’s urging – based on the argument that it was ‘a matter of the highest Importance that the Public shall not be deluded with an Expectation which is not likely to be realized’ – the government appointed secret committees of inquiry in both the Commons and the Lords, which duly held hearings between mid-February and the start of May. The Bank’s more experienced witnesses (including Jeremiah Harman and Samuel Thornton, as well as governor George Dorrien and deputy governor Charles Pole) continued to refuse to commit themselves. ‘It is very difficult to say when the Bank could with propriety resume its cash payments, it must always be judged of by experience,’ Dorrien told the Commons committee (chaired by Robert Peel). ‘Fixing a period, and not adhering to it, always creates a great deal of dissatisfaction and disappointment in the public mind,’ added Harman; and he stressed that such was the state of the foreign exchanges ‘what further time may be necessary must depend on circumstances not under our control’, though of course ‘we always look on the bright side of things’. By contrast, two younger, more recently elected directors, William Haldimand and William Ward (in his leisure time a high-scoring batsman), revealed themselves as appreciably more open to the prospect of early resumption, with Ward arguing that a return to gold would result in a change of commercial ‘habits’, and in particular in fewer ‘extravagant speculations’ than during the restriction period. The committees recommended a definite return to gold within four years, but in the end it would come down to government resolve and parliamentary opinion.

‘A strong and decisive effort can alone redeem our character and credit,’ insisted Liverpool to doubters; his fellow-Tories Peel and Huskisson were especially determined to seize the moment; on 20 May the Bank made a formal representation to the Commons, declaring – in the face of ‘all the obloquy, which has been so undeservedly heaped upon the establishment’ – that restriction had given it ‘duties to the community at large, whose interest in a pecuniary and commercial relation, have in a great degree been confided to their discretion’; and four days later there began a two-day debate in the Commons to settle the matter. Amid what the historian Boyd Hilton has described as a ‘curiously unreal’ atmosphere, Peel not only warned that if ‘the circulating medium was to be left to the discretion of the Bank directors, uncontrolled by any consideration but that of their own profits, it would become impossible to estimate the extent of the mischief that might ensue’, but also asserted unambiguously that the time had come for Parliament to ‘recover’ from the Bank ‘the authority which it had so long abdicated’; Manning counter-warned that ‘if the House withdrew its confidence from the Bank at a moment like the present, they [the Bank] could not be answerable for the consequences’; Ricardo had some knockabout fun, accusing the Bank of being ‘a cautious and timid body’ possessing ‘total ignorance of the principles of political economy’; and in a dramatic denouement, amid ‘loud and universal cries of hear, hear!’, George Canning for the Tories successfully called on the House to make ‘an undivided vote’ for resumption within four years, in order ‘to show the public that the House was in earnest in its attempts to restore the ancient standard’ – though not without Manning ‘reserving to himself … the right of stating his objections to the proposed measures on a future occasion’.⁴

The politicians had triumphed, defying the wishes of not just the Bank but the City as a whole. After all, Nathan Rothschild, the square mile’s new titan, could hardly have been more direct in his evidence to the Commons secret committee, anticipating ‘a great deal of mischief’ in the event of early resumption, given that ‘money will be so very scarce, every article in this country will fall to such an enormous extent, that many persons will be ruined’; while shortly before the crucial Commons debate some 400 to 500 of the City’s merchants, bankers and traders had signed a petition along similar lines. ‘They all dreaded the pressure of monetary stringency,’ in Hilton’s words, and ‘very few could see the ultimate commercial benefits of deflation and a “sound” currency’. How much were they (and indeed the Bank’s leadership) motivated by broader pragmatic economic concerns? Or by fear for their own commercial survival? Or simply by a natural conservatism, having become comfortably used to the paper-money dispensation? Perhaps all one can usefully say is that no doubt it was a mixture of all three. As for the politicians, there were also arguably three principal motives at work. First, as developed by the bullionist theoreticians (who had done much of the intellectual heavy lifting for resumption in their 1810 report), a belief in the superior commercial morality of gold as opposed to paper, not least its anti-speculative aspect; second, the understandable conviction that by placing gold at the centre of the monetary system, automatically regulating and stabilising its daily workings, this would greatly reduce the Bank’s unwelcome scope for discretion; and third, as probably only perceived by a select few, a view of the return to gold as transformative for London’s place in the bigger global picture. On that last motive, Huskisson had set out his thinking in his visionary memo to Liverpool the previous July:

I have no doubt that with the extent of our commercial dealings and operations of Exchange, which make this Country the Emporium not only of Europe but of America North & South, the Bank of England would make London the chief Bullion Market of the World … The facility it would give to Trade in affording them the means of promptly rectifying the Exchange with any particular Country, and probably in the particular Coin of that very Country to which it might be desirable to remit Bullion, could not fail to form one of those inducements which would make London the settling House of the Money transactions of the World.

In time, of course, this would become a vision fully and proudly shared by the Bank and the City, almost believing that they had had the idea in the first place; but in 1819 that time was not yet.

The next year or two proved difficult for almost all concerned, as the boom of 1818 gave way to an intense economic trough accompanied by considerable popular disaffection – including 1820’s Cato Street conspiracy, a plan both to assassinate the Tory Cabinet and to seize the Bank. For its part, the Bank during the months after the resumption vote remained grumpy enough, refusing Liverpool’s request for advances on a loan and generally showing a frosty attitude to government, until eventually Vansittart felt compelled to begin peace talks with three key directors (Harman, Thornton and Haldimand). Postponement of resumption was not on the table – Liverpool was adamant that to do so would amount in practice to a ‘perpetual restriction’ – but Van did promise to repay £5 million; and by November 1819 Huskisson was able to inform his wife that ‘all the difficulties with the Bank are adjusted’. During 1820 the Bank made large purchases of bullion, helped by favourable exchanges; and by February 1821 its treasure had reached £11.9 million, more than ever before, prompting it to decide that if the return to gold was going to have to happen anyway by 1823, this was the moment to do it. Accordingly, payments in cash were resumed in May – almost a quarter of a century after the fateful turn of events in 1797 – and, simultaneously, small notes (£1 and £2) were withdrawn. The role may not have been quite of its own choosing, but the moment was now at hand for the Bank to prove itself ‘the great Steam Engine of the State’.⁵

It was very shortly before resumption that the twenty-seven-year-old George Warde Norman, not yet a partner in the family firm of timber merchants, was elected a director. As he gazed around the Court Room during his early weeks and months, and listened to proceedings, he was largely unimpressed. Not only were governor Charles Pole and deputy governor John Bowden ‘utterly without the scientific knowledge which a Director of the present day would be expected to possess’, he recalled in the late 1850s, but most of the other senior directors, sitting also on the Committee of Treasury, were ‘persons of still humbler grade of intellect’. He then named names: ‘Jeremiah Harman, who had long ruled the Bank with almost despotic sway, was ignorant, pompous, prejudiced, and overbearing. The opinion of a junior, if opposed to his, he hardly thought of answering, excepting by an exhibition of scorn and contempt. Manning and Mellish, amiable but feeble, Dorrien feeble but less apparently amiable, in fact a nobody. Pearse a man of some sense, but little knowledge.’ What about Samuel Thornton, who had become a director back in 1780 and would remain on the Court until eventually stepping down in 1836? ‘He was a man of strong mind and general ability,’ reflected Norman. ‘His ability was conspicuous in all he said. Unfortunately he was by nature sly and a thorough intriguer. He liked secret paths and crooked ways and it was with the utmost difficulty one ever arrived at a knowledge of his real wishes and opinions.’

In what was clearly a mixed-ability class, there were nevertheless some notable figures. The cricketing William Ward, quite apart from saving the present-day Lord’s ground from speculative development in the mid-1820s, was an incisive presence on the Court until a reversal in his fortunes compelled retirement in 1836; Norman himself was a serious economist, whose youthful pamphlet on the question of timber duties prompted Thornton to sponsor his election; and William Cotton (elected 1822) was a conscientious social reformer and a man of parts, as displayed not least by his invention in the 1840s of an ‘automaton balance’, capable of weighing and separating light gold coins from those of standard weight, in the process doing much to preserve the eyesight of the Bank’s weighing clerks. Perhaps the most notable director, though, was John Horsley Palmer. Born in 1779 into a London merchanting background, he became a director in 1811, having established himself as an East India merchant, and emerged in the course of the 1820s as the Bank’s dominant voice. ‘Love of business and ability to bear any quantity of it, and above all a force of will, which I never saw exceeded in any man,’ were identified by Norman as his key characteristics. ‘When he had made up his mind it was all but impossible to turn him and his resolute advocacy of his opinions bore down all opposition.’ Fortunately, also noted Norman, ‘he had much sound sense’.

Like quite a number in the larger mercantile community, Palmer’s merchanting background included an active interest in the slave trade. How common was that in the case of Bank directors? A helpful snapshot comes from looking at the twenty-one directors who attended Court on 31 July 1834 – the day before the previous year’s Slavery Abolition Act came into force, ending slavery in the British Empire – and identifying how many of them subsequently received compensation. As far as one can tell, the answer is five: relatively small amounts (under £7,000) for Palmer himself and Timothy Curtis (governor in the late 1830s); some £50,000 each for Sir John Rae Reid (governor after Curtis) and Humphrey St John Mildmay (Barings’ representative on the Court); and some £100,000 for Rowland Mitchell (a Lime Street merchant who had joined the Court in 1832 and would leave it in 1841 after his business failed). It requires much fuller research, though, to reach any definitive conclusions.⁶

The slavery question aside, Anthony Howe’s illuminating prosopographical study enables one to make various generalisations about the composition of the Court during the second quarter of the century – a Court that still met in Taylor’s Court Room, though with the addition since 1805 of a wind-dial (connected with a vane on the roof) giving the direction of the wind, vital information to merchants in the age of sailing ships. As ever, well over four-fifths were indeed still merchants, with bankers as such still firmly excluded on the grounds of possible conflicts of interest; the particular bias of many of those merchants was towards the Russia and West India trades; a not wholly insignificant minority of directors had close links with British industry, especially the metal and mining sectors; recruitment still tended to come from influential City families (prompting Howe’s comment that ‘by and large this was no world for Dick Whittingtons’); new directors were often in their early to mid-thirties, seldom having received a university education; and – perhaps just starting to be recognised in what was becoming an age of reform in the wider world – the strict rotation of the governorship, with length of service since election the sole criterion, was little incentive for an able, restlessly ambitious merchant to put himself forward for the Court. As for the social position of these directors, Howe convincingly emphasises that ‘it would be wrong to exaggerate the aristocratic lifestyle within the Court, which contained many men whose social horizons were firmly contained within the metropolis, with the pattern of sociability of an urban haute bourgeoisie, with London houses and occasional retreats to country and coast’. A letter that Samuel Thornton sent to John Soane in August 1825 speaks volumes. ‘Being here with some friends from the North who are desirous to see the improvements that are making in Windsor Castle I shall be greatly obliged if you can give me an introduction to M^r Wyatville [the architect carrying out the work] if Etiquette does not prevent you,’ the Bank’s aged director wrote somewhat nervously from Chobham Place in Bagshot. ‘I shall of course abstain from going,’ he went on, ‘when there is the least probability of any of the Royal Family visiting the premises & be anxious to accord to any rules.’

Soane himself was by now on his final stretch. Between 1818 and 1823 he renovated Taylor’s 4 and 5 Per Cent Offices, unifying (in the warm words of the nineteenth-century critic Richard Brown) ‘the classical delicacies of the Greek and Roman designs with the playfulness of the Gothic’; and between 1824 and 1828 he reconstructed the whole of the 370-foot south front, after a successful appeal to the directors that if they followed his advice and chose the more expensive option (rebuilding as opposed to merely repairing) the gratifying outcome would be that ‘the whole of the exterior of this extensive pile erected at so many different times and under so many different circumstances will appear uniform, simple, and characteristic’. The rebuilding included in 1825 the front entrance, prompting soon afterwards a plea to Soane from ‘A Proprietor of Bank Stock’:

The new Front you have given to the Bank, is an honor to the Country and the age; but I would beg leave, with the kindest feelings, to point your attention to the wretched state of the pavement in front of it – one half is paved with very middling flags; the other – with blocks of granite of very irregular surface. Do pray have it amended, to correspond with the glorious architecture.

Eventually, almost eighty and with eyesight failing, Soane felt no alternative but to call time – two years after his belated knighthood – on an astonishing, transformative tenure. ‘During a period of forty five years, my best endeavours have been anxiously and unremittingly exerted in the faithful discharge of the important trusts reposed in me,’ he wrote to the directors in October 1833, resigning from ‘a situation which has so long been the pride and boast of my life’. And though over the years they had sometimes quibbled about costs, the directors were surely being sincere when in reply they thanked him for his ‘unremitted zeal’ on the Bank’s behalf – zeal that had done much to create for that institution an image of certainty and monumentality, discouraging to critics and inquirers alike.⁷

‘In consequence of the return to cash payments at the Bank, and the great diminution of work, many clerks, mostly old and unfit, were pensioned,’ recalled Samuel Harrison about the step-change of the early 1820s. ‘Nearly 200 went. Some applied to go, among these Geldald, who on his salary of £200 got as much as £100 a year with 16 years’ service. He commuted this for £1,000 down.’ Higher up the food chain, these years saw not only two successful government debt conversions (£150 million of 5 per cent stock converted to 4 per cent; £70 million of 4 per cent stock reduced to 3½ per cent), but also the altogether more problematic ‘deadweight’ scheme. A forty-five-year annuity to cover the cost of military and naval pensions, it proved a no-go with the investing class, before the Bank reluctantly assumed from government a share of responsibility. More generally, this early post-resumption phase was a time of ‘high bullion reserves and low profits’ (in Clapham’s phrase), with two interesting developments: a flurry of substantial mortgages, especially to the landed class (£300,000 to the Duke of Rutland, £200,000 to the Marquis of Bath, £130,000 to the Duke of Devonshire); and the start of a serious business relationship with Nathan Rothschild, the master of bullion operations. A huge boon, meanwhile, from the end of the paper-money era was the collapse in forgeries and prosecutions, following the withdrawal of small notes, and it was a further relief when in 1824 a new form of banknote could be issued, whose ‘numerical sum’ would, reported the London Gazette, be ‘visible in the substance of the paper in Roman letters on waved lines’, thereby significantly enhancing security. Not that fraud suddenly disappeared from the scene. Henry Fauntleroy, a partner in the West End private bank Marsh, Stracey & Co, was arrested that autumn on the grounds of large-scale fraudulent transfers of government stock, going back to 1815; it emerged at the trial that the principal motive was revenge (‘they shall smart for it’), after the Bank had begun to refuse his bank’s acceptances; the gallows followed; and it cost the Bank some £265,000 to replace the fraudulently transferred stocks.⁸

Fauntleroy met his maker on the last day of November 1824, almost exactly a year before the City was hit by arguably the most acute of the several financial crises of the first half of the century. The collapse of an absurdly overblown boom in ill-judged foreign loans and company promotions, speculative overtrading in imported commodities, rashness on the part of the country banks, the Bank’s credit policy veering between complacent expansion (fuelled in some measure by the perceived need to make up for lost paper-money income) and over-sharp contraction – all these factors undoubtedly played a part in the humdinger 1825 crisis. ‘The abundance of money has led to a variety of speculations in England, and scarcely a week has passed but some new company was founded to direct a wild projected adventure,’ reflected Thornton as early as New Year’s Day. ‘What must be the cure of this mania time only can show.’ Part of the problem as 1825 unfolded was a signal lack of co-ordination between government and Bank, even as bullion drained steadily away, down from almost £12 million the previous August to £3.6 million a year later; and when in autumn 1825 the Bank did start belatedly to reduce its note issue and ration its discounts, the effect was a sudden and almost total collapse of credit generally. ‘There is a tremendous pressure upon this town, & I suppose almost all the Bankers are more or less distressed,’ J. J. Gurney (a member of the great Norfolk banking family) found in mid-November on a visit to the capital. ‘The root of the difficulty is in the Bank of England, where they are extremely restricting their discounts with a view to producing a favourable effect on the exchanges, so as to prevent their being run upon for gold.’ And he added darkly: ‘It seems strange that the pecuniary facilities of the whole realm should thus depend on the management of a small despotic Committee.’⁹

The pace quickened from early December, with runs on country banks under way and the Bank, reversing its recent policy, starting to discount largely. An especially piquant drama was played out at the City private bank Pole, Flinton, Free, Down & Scott, whose elderly senior partner, Sir Peter Pole, was connected by marriage to the Bank’s governor, Cornelius Buller. That bank, in generally poor shape and not helped by its extensive country banks agency, had been suffering from a run since the 1st; and on Sunday the 4th Buller persuaded his fellow-directors to lend it £400,000. For an intensely relieved Marianne Thornton (‘from the deepest sorrow, we are all at once the happiest of the happy’), sister of the young partner Henry and niece of Samuel, it proved a false dawn. News on the 8th of the failure of Wentworth & Co, a leading Yorkshire bank, prompted a severe run on the country banks; and Poles on Monday the 12th stopped payment, intensifying the general sense of crisis in the City. That week, the Court met almost every day, and some years later the veteran director Jeremiah Harman would make a celebrated claim about how the Bank during those desperate days sought to restore credit:

We lent by every possible means, and in modes that we never had adopted before; we took in stock as security, we purchased exchequer bills, we made advances on exchequer bills, we not only discounted outright, but we made advances on deposit of bills of exchange to an immense amount; in short by every possible means consistent with the safety of the Bank; and we were not upon some occasions over nice; seeing the dreadful state in which the public were, we rendered every assistance in our power.

Perhaps there was a degree of exaggeration – for instance, it was not until Wednesday the 14th that the Bank abruptly jettisoned its policy of refusing discounts on bills longer than ninety-five days – but the substance probably holds; while, at the other end of town, the Cabinet on the 15th authorised the issue of £1 notes, on condition that such issue was ‘understood to be strictly temporary’.

Next day, Friday the 16th, the situation remained critical. That morning, the diarist Mrs Arbuthnot and her husband (a Treasury minister) were put in the picture – charged and fractious – by the member of government closest to the City:

Mr Herries told us that such had been the extraordinary demand for gold to supply the country bankers & to meet the general run upon them that the Bank of England was completely drained of its specie & was reduced to 100,000 sovereigns … The Bank expects to be obliged to suspend cash payments tomorrow, and they want the Government to step forward to their assistance & order the suspension. Lord Liverpool is unwilling to do this & wishes the Bank to do it upon their own responsibility. By Mr Herries’s account there seems to be considerable irritation between the Govt & the Governors of the Bank … Rothschild has made most gigantic efforts to assist the Bank & he told Mr Herries that, if he had been applied to sooner, he wd have prevented all the difficulty. As it is, if they can hold out till Monday or Tuesday, he will have enormous sums over in sovereigns from Paris, & the pressure will be entirely relieved …

The exact timing and extent of Rothschild’s contribution would be disputed over the years, but there is evidence that even on that Friday he managed to get paid into the Bank a significant amount of bullion, possibly as much as £300,000. In any case, that evening the Cabinet met and eventually, after five hours, reached a political compromise about the Bank’s demand. The key figure was Wellington, who on the one hand reluctantly acceded to Huskisson’s insistence that the Bank should not be allowed to exploit the crisis as a way of going off gold, and on the other persuaded his colleagues that Huskisson’s wish to deprive the Bank of its Charter, should it be forced to stop cash payments, was absurd. ‘He told Lord Liverpool,’ recorded Mrs Arbuthnot about the resolute Iron Duke, ‘that while there was life there was hope; that there was a chance of the Bank standing & while that chance remained, he wd not despair; that the Government were bound to support them to the very utmost of their power … for that their interests were those of the country.’

Over the weekend, the Bank managed to avoid suspension of cash payments – possibly helped by the chance discovery, according to a well-worn story that may or may not have been true, of a large box of unissued £1 notes, but certainly assisted by a fresh supply from the printers of £5 and £10 notes. By Monday, or Tuesday at the latest, Rothschild had come through with major tranches of gold from France; and by Christmas Eve the run on the Bank’s reserves was conclusively over. ‘For the extraordinary exertions of the clerks,’ remembered Samuel Harrison about some of the Old Lady’s most demanding weeks, ‘they were rewarded with a gratuity each of £10 and £20. I missed by a half-year’s service coming under the latter category though working as much as any.’¹⁰ The cost of the crisis had been – and would continue to be – severe, involving amid much else the collapse of numerous country banks. The Bank itself had just about survived unscathed, but it did not take a Nostradamus to predict that a major overhaul of the nation’s banking system, including the Bank’s place in it, would soon be under way.

Liverpool himself took the initiative as early as January 1826. England’s existing banking structure was, he informed governor Buller, ‘unsound and delusive’, in which ‘the effect of the law at present is to permit every system of banking except that which is solid and secure’. He proposed therefore two main structural changes: first, that the Bank would have to give up its historic monopoly on joint-stock banking, in order to allow the creation of joint-stock banks with greater financial resources and stability than the country banks, confined to a maximum of six partners; and second, that the Bank itself should establish branches in the provinces, thereby further reducing the influence of the country banks. In both cases the Bank reluctantly agreed, though in the former successfully insisting that the new joint-stock banks should be confined to areas sixty-five miles or more outside London. As for the latter, it seems to have been a matter of some internal debate. ‘My opinion was that the branches would give increased stability to the currency generally,’ recalled Norman three decades later. ‘That they would augment the necessity for, and the importance of, the Bank of England, which was then at a low ebb, and that they would furnish large profits to the proprietors.’ Accordingly, ‘I carried my point in spite of the opposition of most of the seniors and of the Committee of Treasury.’¹¹

Those two major changes may have been forced on the Bank, but soon the Bank itself was seeking to be more proactive, even to stake – as it had seldom or never done before – the intellectual high ground. Following an initiative by William Ward, 1827 saw the rescinding of the resolution that the directors had put forward in 1819 to the parliamentary committee on resumption – a resolution that had obstinately denied that the note issue could have any impact on the foreign exchanges. Then, over the next few years, John Horsley Palmer really came to the fore, as deputy governor from 1828 and governor from 1830. His contribution was threefold: resisting a Huskisson plan to introduce a form of bimetallism (that is, a monetary system in which the currency is backed by silver as much as it is by gold), effectively arguing that the Bank already possessed enough silver bullion to overcome panics and ‘combinations made to their prejudice’; pushing increasingly hard (as far as political circumstances allowed) for the note issue to be centralised upon the Bank; and above all, starting to implement what would become known as the ‘Palmer Rule’ – essentially, a currency principle by which the Bank’s deposits and note circulation would fluctuate in relation to its holding of specie, in effect seeking to further the Bank’s operational independence from government, while at the same time being entirely consistent with Palmer’s conception of the Bank as fundamentally a public rather than a private institution. George Warde Norman, although as an economist uneasy about the specifics of the principle itself, did not underestimate Palmer’s achievement. Whereas, he reflected, ‘the absurdities of the Harmans &c of former days as to the uselessness of adverting to the state of the exchanges in managing the Bank of England’ had ‘disgusted sensible men and made them regard the Bank as a great overgrown job, deserving of being consigned to the Limbo of things’, it was Palmer by contrast who ‘first abandoned the rule of thumb system of management, or rather the absence of all rule’, and ‘devised a principle which although not quite sound, had at any rate some reference to sense and reason, and he thus won for us many and powerful adhesions’.

Palmer’s strength of will came fully into its own during 1830, as the Wellington government sought, against a darkening economic backdrop, to end the 65-mile restriction on the new joint-stock banks. Wellington’s chancellor was the capable Henry Goulburn, whose biographer notes that Palmer ‘proved to be as formidable and skilful a defender of a strong position as Wellington had been on many a battlefield’. Eventually in April, after two months of correspondence and meetings, negotiations were suspended, but not before Goulburn had told Palmer to his face that ‘he [Goulburn] thought it to be quite practicable to obtain the formation of a new Bank, which would be willing to undertake the management [of government business] without any charge for that agency, considering itself sufficiently compensated by the collateral advantages which it would derive from the countenance & support of Government’ – a threat that the newly elected governor seems to have ignored. In September, not long before the fall of the ministry, the two men talked again. Might the government be willing, asked Palmer, to give, prior to the establishment of any further joint-stock banks, a ‘fair trial’ to extending the circulation of the Bank’s notes? Might the government also be willing to restrict heavily those new banks in the issuing of their own notes? To both questions, Goulburn answered in the negative, leaving a difficult relationship to end with neither side happy.¹² Even so, as both men were well aware, the Bank’s Charter was up for renewal in only three years, and inevitably these and related matters would soon be revisited.

Before then, there was the small matter of a profound political crisis over the extension of the franchise. In October 1831 the House of Lords rejected the Whig government’s Reform Bill, leading to widespread riots, including loss of life at Bristol – where an attempt was made to blow up the Bank’s recently opened branch. Then the following spring came the dramatic ‘May Days’, as the anti-reform Wellington sought to form a government. By Sunday the 13th, a placard devised by the leading radical Francis Place – ‘to Stop the Duke, Go for Gold’ – was widely on display in London. Hectic scenes ensued over the next two days. ‘The demand for gold at the Bank is increasing,’ reported The Times’s ‘Money-Market and City Intelligence’ on Monday evening. ‘The counter in the Cashier’s office at which sovereigns are obtained, was beset during the whole day with applicants.’ And the following evening, after another day of ‘a steady demand for gold’: ‘Every man of common understanding is convinced that the gold in the Bank will be exhausted in a week if a Tory Ministry is appointed in the face of the obstinate determination against it on the part of the people.’ The Bank itself, quite apart from making substantial purchases of bullion, took action on Wednesday the 16th. ‘Under the peculiar circumstances of the moment,’ as Palmer explained to the Court next day, a notice was issued stating that the Bank was ‘ready to receive applications for Loans upon the deposit of Bills of exchange, Exchequer Bills, East India Bonds, or other approved Securities’ – a significant panic-averting move. By the end of the week it was clear that Wellington was not going to be able to form a ministry, and by early June the Great Reform Act was a reality. How decisive had Place’s intervention been? Accounts have differed, not helped by the Bank’s continuing reluctance in the 1830s to disclose figures, though according to one informed calculation as much as £1.6 million of gold drained away in the course of a week or so; and Michael Brock, in his authoritative history of the reform crisis, reflects that the key politicians ‘may well have known that the figures popularly given for the Bank’s reserves were too high’.¹³

The ‘Go for Gold’ drama was barely over before, on 29 May 1832, a parliamentary committee – which included Peel, Goulburn and the chancellor of the exchequer, Lord Althorp – began taking evidence in connection with the renewal of the Bank’s Charter. Sole witness for the first four days was Palmer (entering his third year as governor), who lost little time in stating his Rule:

What is the principle by which in ordinary times the Bank is guided in the regulation of their issues? – The principle, with reference to the period of a full currency, and consequently a par of exchange, by which the Bank is guided in the regulation of their issues (excepting under special circumstances) is to invest and retain in securities, bearing interest, a given proportion of the deposits, and the value received for the notes in circulation, the remainder being held in coin and bullion; the proportions which seem to be desirable, under existing circumstances, may be stated at about two-thirds in securities and one-third in bullion; the circulation of the country, so far as the same may depend upon the Bank, being subsequently regulated by the action of the Foreign Exchanges.

Perhaps the most telling sequence, though, came after Palmer had agreed with a questioner that the Bank should be ‘a bank of discounts only in cases of emergency’:

Is not the accommodation of discount to the commerce of the country, one of the main objects for which the Bank has ever been instituted, and for which all banks are instituted? – As an exclusive Bank of issue in the capital, it appears to me that it cannot beneficially conduct a discount account to any great extent with individuals, except in times of discredit. When the circulation is full, a competition with the bankers would in all probability lead to excess …

Then you consider that it ceases to become the paramount duty of the Bank, because there are other bodies, in the shape of private bankers, and so on, that do it? – Yes, who employ the circulation.

What do you consider as the principal function which it is the duty of the Bank to perform? – To furnish the paper money with which the public act around them, and to be a place of safe deposit for the public money, or for the money of individuals who prefer a public body, like the Bank, to private bankers.

Are not those functions the functions of a Government rather than a private company? – That is for the Government to determine.

Other Bank witnesses included the former governors Harman, growling six years on from the joint-stock legislation that he was ‘always jealous of the measure’, and John Richards, dismissing concerns about the Bank’s lack of transparency and declaring that ‘the best security you have is to get individuals of integrity to manage it’. Among non-Bank witnesses, a powerful sense came through of major City figures closing ranks around its indispensable if sometimes unloved institution. ‘Speaking generally, it is exceeding well managed,’ insisted Samuel Gurney, the square mile’s dominant bill broker; ‘I feel the management, and I know that it is good,’ agreed Nathan Rothschild; while George Grote – private banker, the City’s main pro-reform spokesman during the political crisis, and future historian of Greece – explained how in times of difficulty ‘a man can get to the Bank without that special, permanent, and exclusive connexion which he preserves with his own Banker, and which cuts him off from all other Bankers’. Particular attention was paid to the evidence of Samuel Jones Loyd, by now emerging among the City’s private bankers as theintellectual heavyweight on monetary subjects:

Is not the Bank of England as much an engine of Government, and an establishment performing the functions of Government, as it is an engine performing the functions and connected with the interests of a private company? – The Bank of England is a body issuing currency, which is the public currency of the country, and at the same time performing Banking business …

May not the Bank, as a Company in which a great body of Proprietors are interested, have a separate interest from those of the country at large? – I conceive such a thing to be possible …

Should you anticipate a better system of management of the circulation of the country if Government had more immediate control than it has over the circulation of the Bank of England? – I am inclined to think not.

But a last word goes to another private banker with likewise a mind of his own, George Carr Glyn. ‘Is your intercourse with the Bank almost daily?’ he was asked. ‘Hourly, I may say,’ replied Glyn. And: ‘Do you find any facilities afforded in your transactions with the Bank? – Every facility.’

Just over a year later, in August 1833, the Bank’s Charter was duly renewed, in effect for a minimum of another eleven years. From the Bank’s point of view, the terms featured one definite minus, one arguable minus and two definite pluses. Permitting joint-stock banks in London (and thereby abandoning the 65-mile restriction) would, the Bank vainly petitioned the House of Lords shortly before the Bill was enacted, ‘have the effect of destroying the present character of the Bank of England and forming it into a Bank of competition’; but politically speaking, following the 1832 Reform Act, a further reduction of the Bank’s monopoly was perhaps inevitable. The more arguable minus was the Bank Act’s stipulation that the Bank henceforth be required to provide the Treasury with a weekly return of its total of bullion, securities, circulation and deposits, with a monthly average to appear in the London Gazette – undoubtedly repugnant to some at the Bank, though as Norman had conceded to the committee, the Court was ‘much divided’ on the question of publishing the amount of bullion in the Bank’s possession. By contrast, the two unequivocal pluses were firstly the provision liberating the Bank’s discount rate from the 5 per cent maximum embodied since 1713 in anti-usury legislation – an important moment in the Bank’s embryonic development of credit control; and secondly, the clause that made all Bank notes above £5 legal tender (except at the Bank itself or at its branches, where gold was still payable), a measure likely to reduce future internal drains of bullion. Altogether, eight years after the horrors of the 1825 crisis had left the Bank badly exposed, it was in a better place than it might have been. While as for the continuing vexed private/public relationship, it might have taken comfort from the words of Althorp introducing the legislation: ‘I feel confident, that persons standing so prominent as the Bank Directors will be as completely controlled by public opinion as if they were acting under legal responsibility.’¹⁴

By this time the Bank’s branches were a well-established part of the provincial banking scene. Back in 1826, responding to the government shake-up of the banking structure, the Bank had moved quite quickly into action, with branches opened by the end of the year in Gloucester (where there had been a particularly widespread failure of country banks), Manchester and Swansea; these were followed in 1827 by Birmingham, Liverpool, Bristol, Leeds and Exeter, in 1828 by Newcastle, and in 1829 by Hull and Norwich. Subsequently, over the next decade and a half, branches were opened in 1834 at Plymouth and Portsmouth, and in 1844 at Leicester, while the unprofitable Exeter and Swansea branches were closed in 1834 and 1839 respectively – ultimately followed by Gloucester (1849), Norwich (1852), Leicester (1872) and Portsmouth (1913), leaving eight branches at the start of the First World War. These new Bank branches were not universally welcome in their localities – ‘Of all men who are sinned against by this uncalled-for interference on the part of the Bank of England,’ complained the Exeter Flying Post in December 1827, ‘none are less deserving it than the bankers of our own City’ – and in each case it was down to the branch’s agent and deputy agent, salaried but receiving on top a percentage of net profits, to manage a sometimes difficult situation. Perhaps the most important branch was Birmingham, headed by George Nicholls for its first eight years. In his mid-forties when he took on the position, Nicholls had spent much of his adult life at sea, as an officer of the East India Company, as well as being a Poor Law reformer and a canal engineer. The evidence is that he ran the branch only reasonably efficiently, while the work itself failed to satisfy a restless, questing spirit. ‘Mere banking – that is, the receipt and payment of money and the discount of bills – is of all the associations with which it has been my lot to be connected,’ he would reflect in his autobiography, ‘the least interesting and intellectual; I think I may also add, the most narrowing and restrictive in its influence on character.’¹⁵

For both government and Bank, the prime purpose of the branches was to expand the Bank’s note issue in the provinces, at the expense above all of the note issue of the country banks, and generally to give the Bank greater control over circulation as a whole. ‘To effect this,’ explains Dieter Ziegler, a leading historian of the Bank’s branches, ‘the main device was the introduction of the so-called “circulation accounts”, or “three per cent accounts”, a privileged discount account for those banks which abandoned their issuing right and circulated Bank of England notes only. Up to the amount of the former note circulation – with a minimum of 14 per cent below this figure – these banks were entitled to re-discount at their Bank of England branch at three per cent.’ And, adds another historian, David Moss, ‘from the contracting bank’s point of view, the guaranteed supply of notes, backed by the Bank’s gold reserves, reduced the risk of failure during a monetary crisis when confidence in the banking system was low and country notes could be held in poor esteem’. On paper it was a mutually attractive arrangement, but in practice, amid continuing local jealousies, it worked out better in some branches than others. Liverpool achieved the greatest success with these privileged circulation accounts, to the extent that provincial banknotes were displaced there altogether by 1840; Birmingham did pretty well, at least for a time; while elsewhere was mixed. By the early 1840s, through these accounts and other means (including the offer to provincial banks of ordinary open accounts with the Bank), the Bank had gone some way, but far from the whole way, to meeting its objective: during the first half of 1841, as many as 281 private banks and 91 joint-stock banks were still issuing their own banknotes; and of total banknotes being circulated in the provinces, around £6.3 million had been issued by the country banks and around £3.7 million by the joint-stock banks, with the Bank itself responsible for around £4 million – less than one-third.¹⁶

The branches were also supposed to make money for the Bank. Palmer may have claimed in his 1832 evidence that the Bank had established them ‘without any profit to the Bank of England, the object being to give solidity and strength to the whole circulation of the country’, but six years earlier the Bank’s Committee for Branch Banks had explicitly stated that opening branches in the provinces would be ‘for the benefit of the Bank as well as to the interest of the public and the Government’, while of course Norman had bullishly anticipated that ‘they would furnish large profits to the proprietors’. In reality, that turned out to be, admitted Norman, ‘an exaggerated view’; yet at the same time, during the 1830s and into the 1840s anyway, the income from branch discount business often exceeded that from Threadneedle Street’s discount business, notwithstanding that branch agents often chafed at the tight controls imposed upon them by Head Office, while several branches – including Newcastle, Gloucester, Bristol, Hull and Plymouth – struggled for a long time to make any sort of profit. Altogether, the measured optimism in September 1843 of the Committee for Branch Banks, recommending to the Court the opening of a branch in rapidly industrialising Leicester, was probably fair enough: ‘The Committee do not contemplate a large profit in the first instance, but they have reason to believe that the Branch will pay its expenses with a surplus and with a fair prospect of increasing profit.’¹⁷

In March 1834, less than a year after the renewal of the Bank’s Charter and the accompanying loss of its London monopoly over joint-stock banking, the London and Westminster Bank (direct forerunner of the modern NatWest) opened in Throgmorton Street for deposit-taking business. It received a cool welcome from the City establishment – not least from the Bank, which through a protracted legal tussle tried to clip its powers, refused until 1842 to open a drawing account for it, and for a time would not even discount bills payable at the new bank. The Bank’s attitude won few friends, with The Times as early as 1834 identifying ‘a petty jealousy and meanness’ that was ‘unworthy not only of men filling a high public trust, but of men of character’. By contrast, the Bank’s relationship during the same years with the Bank of Ireland was more one of stern mentor, as England’s embryonic central bank did its best to guide Ireland’s (founded in 1783). ‘The elevated position occupied by the Bank of Ireland as the chartered Bank of that country and which it doubtless wishes to maintain imposed on it not the care of its own Credit only but the protection of the Banking and Commercial Security of Ireland, generally,’ the older institution’s governor, James Pattison, reminded in December 1836 his counterpart in Dublin; ‘and it is therefore indispensable,’ he went on, ‘that more extended views should be taken by that Corporation and it should as regards the Security of that Country occupy in Ireland a similar station to that which this Bank sustains in relation to the security of England.’¹⁸

Pattison himself – somewhat reluctant Liberal MP for the City, and described by the financial journalist David Morier Evans as looking less like a Bank director than ‘a respectable country farmer’, with ‘his bluff face, his long flapped black coat, his drab smalls [breeches] and gaiters, ornamented with small bright buttons’ – was writing during anxious times. American trade and its financing had been booming, but the rapid and alarming downturn of the American economy from earlier in 1836 resulted in a crisis that lasted the best part of a year – a crisis that at the London end was played out in three main phases and intimately concerned the Bank as well as the leading ‘American’ houses: principally, Barings, Morrison Cryder, Browns (based in Liverpool) and the three Ws (Wiggins, Wilsons and Wildes).

‘The Governor of the Bank pretends to be or really is most alarmed about the gold going to America and the amount of American bills in circulation,’ was the report in July 1836 of Joshua Bates, the dour Bostonian who was for many years the main man at 8 Bishopsgate, home of Barings. Two months later, the Bank decided to take overt action against the American houses, temporarily refusing to discount their paper – a manoeuvre condemned by Bates as ‘shabby’ – before in late October the governor called in the partners of each firm and formally told them that ‘the extensive Credits hitherto given to the Bankers of the United States and others, either as open Credits or in anticipation of the Sale of States Securities in this Country, are objectionable so far as the Bank of England is concerned …’ Bates was convinced that the Bank, in its understandable concern to restore its dwindling bullion reserves, had got it wrong, complaining that ‘it is useless for the Bank to make war on Bills of exchange’; but in the Bank itself during the closing weeks of 1836 a rival focus was an internal disciplinary matter. ‘The circumstances connected with the origin, progress and communication to the Public of the Report respecting the House of George Wildes & Co’ was the subject of the report on 14 December of the Committee of Inspection of the Drawing Office &c, following the spread of false rumours six days earlier, rapidly reaching the press, that the undoubtedly over-extended Wildes had failed. The report found

that M^r Smith of the Bill Office was the first to name the House as having failed; that M^r Whitford, the Principal of the Bill Office, having heard from M^r Worthington, who was told by one of the Out Tellers, that the House had failed, on giving instructions to the Clerks to expedite their business imprudently named the failure of the House as the reason of his doing so, without having made due inquiry into the fact; that M^r Ormes, who is a Junior Clerk in the Establishment, on hearing in the Bill Office, that the House had stopped payment, within 20 Minutes communicated the information to a Stock Broker in the Rotunda of the name of James Woolley, and as he states, that he did it in confidence, and told Woolley that it was in confidence, it is evident that he knew, he was not justified in making the communication Public.

For Ormes, his big mistake had been to trust Woolley – ‘a schoolfellow of mine’, he revealed under examination. He and Smith were compelled to resign, with the latter writing forlornly to the Court:

I have been in the Establishment upwards of 26 Years, – 24 years of which Period I have attended at the Bill Office, as early as ½ past seven and occasionally as early as seven oClock in the Morning (Sundays excepted) and have to the best of my Ability discharged the Duties of my Situation with zeal and fidelity. I am now in the fiftieth year of my Age with my Health seriously impaired and my Eye sight defective.

Accordingly, he asked the Court ‘to make some Provision during the remainder of my Life’; and some provision, though not handsome, was indeed made.¹⁹

Against the background of an unnervingly steady flow of bad news from across the Atlantic, the second phase of the crisis was under way by March 1837, with an especially sharp City commentary being provided by George Carr Glyn, seriously concerned that too many of the Bank’s directors were ‘impregnated with political economy doctrines’, an approach he contrasted with the ‘practical knowledge’ of Horsley Palmer, fortunately still a director. ‘I may tell you,’ he confided in a correspondent at the Bank of Liverpool, ‘that had it not been for the firmness of Horsley Palmer & the Deputy Governor [Timothy Curtis], the Governor and his party in the Court would have brought down every American house.’ ‘I really think,’ he added, ‘the Governor is mad upon this subject. He and I have been brought into disagreeable collision.’ Later in March, two of the Bank of Liverpool’s directors came down to London, where they stayed at St Paul’s Coffee House and wrote to the governor, warning of ‘the great embarrassment which prevails in Lancashire both in the Mercantile and Manufacturing interest, arising chiefly from the want of confidence occasioned by the doubt and discredit thrown upon American paper’, so that ‘unless immediate steps are taken to restore confidence and mercantile credit, we must soon inevitably witness the most awful crisis ever known in this or any other Country’. ‘We are sure,’ hopefully concluded their petition to Pattison (due shortly to vacate the governor’s chair), ‘that it must be particularly gratifying to you at the close of your administration of the affairs of the most important institution in the World, to be instrumental in preserving the Country from the calamities with which it is now threatened.’ That was on the 21st, and it is clear that the Bank’s directors were deeply divided, with Norman among those instinctively but nervously on the side of leaving the more reckless American houses to their fate. ‘I can see very serious difficulties in the way of assistance from the Bank and very serious objections upon principle to any such measure,’ his close friend Samuel Jones Loyd wrote to him on the 25th in stiffening mode. Eventually in April, after the government had declined to intervene, the Court took a deep breath and agreed to save Wildes, the most stretched of the three Ws and unable to offer any collateral – a decision no doubt made easier by the fact of Curtis now being governor, with the similarly pragmatic Sir John Rae Read as his deputy.²⁰

The final phase was not long following. By May remittances from the United States were still notable by their absence, many bills were arriving only to be dishonoured, and even those bills accepted were proving problematic. ‘Has known the business in US all his life & has been in London 16 years, never knew such a state of things before,’ noted James Morrison on the 21st after a conversation with Bates, while Glyn soon afterwards accurately mirrored the City’s keen desire that the Bank further assist the still desperately struggling three Ws, telling the Bank of Liverpool that ‘we all entertain the strongest hopes of the Bank taking the decisive step and determining to carry these houses’. The crunch came at the very end of May and beginning of June. Wilsons and Wiggins formally besought the Bank for relief, blaming ‘the temporary and almost universal suspension of credit throughout the principal commercial Cities of the United States’; ‘the Bank deliberating on the W’s – and all consternation dismal forebodings no sleep all night,’ recorded Morrison in his diary; ‘from what Mr Palmer tells me, I fear the result’, related Glyn. His forebodings were justified. The Court requested Curtis and Reid to lay before the prime minister (Lord Melbourne) and his chancellor (Thomas Spring Rice) the Wilsons/Wiggins applications for relief, but insisted that they state to the politicians ‘the apprehension of many of the Directors, from the character of the accounts received from America, of the eventual solvency of the Houses in question’. The politicians declined to get involved. And, by a single vote (according to Glyn’s information, presumably from Palmer), the Court decided against extending relief: the three Ws would never trade again. In effect, although some small firms fell in their wake, that lanced the boil of the crisis, especially after the Bank later in June gave significant help to both Morrison Cryder and Browns. But it was a crisis that, taken as a whole, had significantly damaged the Bank’s reputation, not least for unity and consistency. ‘Floundering about from one expedient to another, so as to resemble nothing but a ship at sea, without rudder or compass, exciting the pity of those who are placed beyond their influence, and the terror of those who are within its reach’: such was the verdict of The Times’s City editor at the end of June, and although exaggerated it had an undeniable kernel of truth.²¹

The Bank was in a different sort of jeopardy in January 1838. On a freezing night, with snowbound streets almost impassable, virtually the whole of the Royal Exchange burned down – the fire having been discovered, too late, in its north-west corner, only twenty-one feet from the Bank. Luckily, the wind that night was blowing from the north-east, not the south-east, while vigorous action, not least on the part of William Mellish (in the closing months of his forty-six-year directorship), saved Taylor’s Bank Buildings to the west of the Exchange. Soon afterwards, in April, governor Curtis took the decision to expel the stockbrokers from the Rotunda, linked possibly to the destruction of brokers’ offices in the recent fire and consequent overcrowding of the Rotunda, but possibly also to the unfortunate Ormes/Woolley episode. Either way, this did not make the governor flavour of the month among the stockbrokers, and three years later they enjoyed their revenge, as the floor of the Stock Exchange, in nearby Capel Court, bellowed out three cheers on the news of his firm’s failure. Plans by this time were well afoot for a new and enlarged Royal Exchange, complete with plaza in front; and one consequence was the soon regretted demolition of the Bank Buildings. Complementing the new Royal Exchange – officially opened in October 1844 by Queen Victoria, who during her reign apparently never visited the Bank – was the wonderful (and still standing) statue of Wellington on horseback. In 1836 the Committee of Treasury had declined to help with the cost of its erection, ‘the Bank not being in the habit of contributing to such objects’; but two years later the Bank relented, to the extent of 100 guineas.²²

Timothy Curtis, meanwhile, was also to the fore, though no longer governor, in an embarrassing but telling episode during the summer of 1839. For a mixture of reasons, including lax control and a drain on sterling in order to pay for wheat imports, the Bank’s bullion by the last week in July stood at barely £3.7 million, just over a fifth of the circulation and manifestly inadequate. It is possible that the Bank turned initially to Rothschilds, no longer under the guidance of Nathan, who had died three years earlier; but, in any case, by 19 July it was looking elsewhere, approaching Barings for assistance in negotiating a £2 million credit from the Bank of France, as formally given the go-ahead by the Court next day. Barings agreed to help, and soon Tom Baring joined Curtis in Paris for the negotiations with a syndicate of Paris bankers acting on behalf of the Bank of France. The agreement was eventually signed on 1 August, providing the Bank of England with £2 million in bills and thus avoiding the danger of having to suspend cash payments. The diary entry of a veteran timber broker, Charles Churchill, nicely caught the City reaction to the turn of events: ‘The Bank of England raise the rate of disC to 5 p C^t & negotiate an arrangement with the Bank of France to draw 2 Millions, by way of a Check to the Exchanges!! The Bank of England & accommodation Bills!! What next.’

The dismay was unmistakable, but at least it lacked the venom of the Rothschild reaction, after its Paris house had apparently tried to get involved in the negotiations but left it too late. Writing from there on the day the agreement was signed, Nathan’s brother James recalled that in 1825 ‘we arranged for such large quantities of gold to be brought in and thereby saved the Bank’; noted that ‘now it is Baring who is the recipient of everything’; argued that the Bank ‘should at least share out’, so that ‘the business is properly distributed’; and reserved his deepest ire for Curtis, nothing less than ‘a two-faced scoundrel’. Relations between Rothschilds and the Bank would continue to deteriorate, to the point where Nathan’s son Lionel took the decision in 1843 to close their account there. But for Curtis himself, sending a report back to Threadneedle Street at the end of the negotiations, the lesson of the episode was the desirability of establishing ‘a direct intercourse and interchange of good services’ between the Bank of England and its French counterpart. ‘Such an arrangement,’ he went on,

might be of the highest advantage to the Bank of England in freeing it in the first place from the necessity of applying to individuals on business when it may be desirable to operate on the foreign exchanges in the second, and therefore in giving greater facility to the intended action, from the powerful means it would place at the disposal of the Bank of England, and thereby from the immediate and unobserved influence which such friendly and confidential relations between the two establishments would tend to produce when the situation of either Bank might require the aid and assistance of the other.²³

No one of course yet talked about ‘central banks’, but it was still a significant anticipatory moment in the history of central bank co-operation.

That was for the relatively distant future. Later in 1839, the Manchester Chamber of Commerce – speaking as the voice of provincial industry rather than metropolitan finance – issued a report (endorsed by the influential Morning Chronicle) specifically blaming the Bank for having caused unnecessary commercial distress through monetary contraction, at a time when the state of trade was essentially sound. The response of one of the Bank’s directors, Norman, was to start preparing a lengthy defence of the Bank’s recent conduct, to be delivered to its proprietors early in 1840. ‘They are bound as faithful Stewards of the interest of the Proprietors, and as beside intrusted with important obligations towards the public at large,’ he asserted of his colleagues and himself, ‘to declare it to be their unequivocal opinion, that the old system of silence and reserve on their part is no longer applicable, and that great injury would arise to the corporation and the community, was it any longer persisted in to the former extent.’ The uncomfortable but unavoidable fact was, he continued, ‘that the Bank of England in all occasions, seems to be the general object of hostility’: ‘These attacks in some few instances are directed against the personal integrity of the Court of Directors, but more commonly charge them with gross ignorance and incompetence, and represent the Bank itself as a pernicious, or at best useless, Institution.’ The Bank appeared to be entering the new decade in a distinctly exposed, vulnerable position; and although nearly a century and a half old, and for all the lucidity of Norman’s ensuing analysis (including the admission that ‘had it been possible to foresee at the commencement of last Year all that has subsequently occurred, The Court of Directors can have no hesitation in saying that their measures would not have been exactly what they have been’, prompting the scribbled note ‘very true’ on Horsley Palmer’s copy), the general outlook was at best murky.²⁴

The Bank’s travails during the second half of the 1830s had especially serious implications for Palmer and his celebrated Rule, placing both on the defensive. Naturally he took to print, publishing as early as 1837 The Causes and Consequences of the Pressure upon the Money-Market – in which pamphlet he pinned the blame for the ongoing monetary instability almost wholly on the new joint-stock banks, by now numbering around a hundred, with as many as forty-two established during 1836 alone. ‘It is needless,’ declared Palmer, ‘to attempt to describe the competition that grew out of this excessive multiplication of banks: its effects were exhibited in a great and undue, and even rash extension of paper-money and credits … The commonest observer must have seen the gathering clouds, and dreaded the consequences.’ What about the Rule itself, so far honoured as much in the breach as in the observance? ‘The proportion of one-third of bullion with reference to the liabilities of the Bank at the period of a full currency’ was, he insisted, ‘never intended to apply under any extraordinary events that might arise,’ adding that ‘in such times it would become the duty of the Bank to reduce their securities without delay’. Palmer’s protestations failed to convince Samuel Jones Loyd, who within weeks issued a counter-pamphlet, not only accusing the former governor of ‘a mere arbitrary mode of making up an account to exhibit a desired result’, but advancing an attractively clear-cut argument:

The Bank, it must be observed, acts in two capacities; as a manager of the circulation, and as a body performing the ordinary functions of a banking concern. The duties of these two characters, though very often united in the same party, are in themselves perfectly distinct. In the principle [that is, the Palmer Rule] laid down by the Bank for its own guidance, the separate and distinct nature of these two characters has not been sufficiently attended to.

Accordingly, proposed Loyd, ‘if the two natures of the Bank of England were completely dissociated, each would proceed to the discharge of its respective functions with more simplicity and efficiency, unencumbered by the conflicting tendencies and opposite action of its former companion’; and under which system, involving a rigid separation of the Bank’s issuing and banking functions, ‘the amount of paper issued shall be represented by an amount of securities which never varies, and an amount of specie which is left to fluctuate with the fluctuations of the amount of notes out’.

Over the next few years, the late 1830s and into the early 1840s, two clear schools of thought took shape: the pro-Palmer ‘banking’ school that sought to give discretionary powers to bankers over the volume of currency; and the pro-Loyd ‘currency’ school that explicitly warned against such powers. The Bank’s recent track record hardly helped the former school, and by 1842, in his survey of Banks and Bankers, Daniel Hardcastle was bluntly stating that Palmer’s Rule was ‘effective against a Bank of issue, but not effective against a Bank of deposit also’. The decisive factor was political will. Prime minister since 1841 was the stern-minded Sir Robert Peel, arguably the principal driving force behind the 1819 decision over the resumption of cash payments, a move essentially designed to reduce the Bank’s freedom of action; and having witnessed since then a series of monetary mishaps, usually involving feverish speculation followed by financial crisis, he was determined to force the banking system, including the Bank itself, on to a path as straight and narrow as he could make it. Everything came together in 1844: the Bank’s Charter was liable for renewal; many of the Bank’s directors had long lost confidence in the efficacy of the Palmer Rule, perhaps even in their own discretionary abilities; Peel himself was thoroughly convinced of the merits of Loyd’s ‘currency’ school; and in William Cotton he and his chancellor, Henry Goulburn, had a governor (abetted by Benjamin Heath as deputy governor) with whom they could work. ‘I must say,’ publicly declared Peel with apparent sincerity after a round of positive and broadly harmonious negotiations during the early months of the year, ‘that I never saw men influenced by more disinterested or more public-spirited motives than they have evinced throughout our communications with them.’²⁵

Peel’s warm words came in the course of a lengthy speech to the Commons on 6 May, setting out and justifying his proposals.²⁶ In essence they were sixfold: separation of the Bank’s note-issuing function from its banking operations; restrictions on other banks of issue; a fixed fiduciary issue of £14 million (that is, the amount of notes that might be issued against securities); above that limit, a fixed ratio between notes and bullion; £180,000 less annually to the Bank for its management of the national debt; and the weekly publication of the Bank’s accounts. The reception was generally positive. ‘There can be little objection raised to the principle of the proposed plan,’ asserted a few days later the recently founded Economist; ‘sound & solid & generally approved of,’ noted the timber broker Churchill; while according to the diarist Charles Greville, ‘Peel has gained immense credit by his measure (and speech) about the Bank.’

Among the Bank’s proprietors, though, opinion was more divided. At two special meetings of the General Court, on 7 and 13 May, at least four strong dissenting voices were heard. Timperon stated (‘in a low tone of voice’) that ‘if it rested with him he would send the proposal of the Ministers to the winds’; Fielder, recalling bitterly that ‘the Government paid not a farthing of Fauntleroy’s frauds, which have all been paid by the Bank’, declared that once again ‘the Bank had been hardly dealt with, that they had not had fair play’; Cook (speaking ‘amidst much interruption’) claimed that the directors ‘were totally unfit to defend the interests of the proprietors’, being ‘tied down by the Government’; and Younger likewise ‘hoped the proprietors would make a stand, and not suffer themselves to be dictated to, or be made, as they had been, the ’scape-goats’. The key speeches on the other side of the argument came from Hammond and, perhaps inevitably, Samuel Jones Loyd. Praising the separation of departments, the former set out a financially attractive vision of the directors now given ‘an opportunity of directing their attention more to the Banking Department, and making it more profitable’, so that ‘he had no doubt that that branch of the business would extend, unfettered by the trammels of the other branch, with great advantage to the proprietors’; while from a loftier, less mercenary perspective, the latter, speaking in response to ‘many calls’, termed the proposed legislation ‘the measure of a truly statesmanlike mind, characterized as it was by a manly adoption of great principles and enlarged views of the public interest’, adding that ‘there might be some difficulty in working out the measure, but it would be well carried out by those of whom the Bank could justly boast, who would work the measure in a manner to promote the interests of the Bank’. Significantly, these fine uplifting words came after Loyd had waved a big stick. Rejection of the government’s proposals would lead, he warned, to a ‘monetary system of the country’ that ‘would assume a totally new and distinct form, which would terminate in a manner not less beneficial to the interests of the country, but infinitely less beneficial to the interests of this corporation’. In any case, from whatever mixture of motives, the proprietors voted overwhelmingly to accept, with ‘only three hands held up against’.²⁷

Thereafter, it was not quite all plain sailing. Horsley Palmer was the last man to concede defeat readily, and at the end of May he wrote to Peel, asking him to increase the fiduciary limit to £16 million. Then a week later, on 7 June, the senior partners of the City’s private banks met to consider a memorial to Peel that expressed themselves ‘apprehensive that the absolute limitation of the issue to £14,000,000, without any power of expansion being reserved, whether that amount be in itself a proper amount or not, will create a general feeling of uneasiness throughout the country’, in due course ‘leading to a general withdrawal of legitimate accommodation’ – in short, causing yet another financial and/or commercial crisis. ‘I strongly suspect that Mr Palmer is very much at the bottom of this movement,’ a disconcerted Cotton wrote on the 10th to Goulburn. ‘He has been trying to influence members of the Court and I shall not be surprised if he brings forward some resolution which may probably place me in a Minority, but I will make the best fight I can and I shall be supported by the intelligence if not by the members of the Court.’ In the event, though next day the majority of City bankers signed and presented their memorial to Peel, the former governor did not seek to mobilise fellow malcontent Bank directors – perhaps because, despite Cotton’s anxiety, he did not quite have the numbers.

Peel, anyway, was unmoved, and very soon afterwards, on the 13th, the Bill had its decisive second reading in the Commons, amid a fair degree of apathy. During the debate, the Whig politician Benjamin Hawes warned that having what was increasingly tantamount to ‘a single bank of issue’ would lead to the Bank being ‘ruled by the Government of the day’ and getting ‘mixed up with party politics’, producing ‘all the evils which resulted from such a course in America’; Goulburn, after referring to 1825 (when ‘the country had nearly been reduced to a state of barter’) and to ‘the misfortunes’ of 1839, and explaining that ‘the principle of this measure was, to make the currency, consisting of a certain proportion of paper and gold, fluctuate precisely as if the currency were entirely metallic’, insisted that ‘if there was one thing more than another guarded against in this measure, it was, that the Government should have no control over the Bank’; John Masterman, private banker and Conservative MP for the City, ‘thought it was a difficult point to settle that fourteen millions was to be the exact amount of money required at any particular period, or under any circumstances’; and the loudest cheer was reserved for Colonel Sibthorp, the famously reactionary member for Lincoln, when he declared that ‘if he had £100,000 in money he would rather entrust it to country bankers than to the monopolising Bank of England’. None of which stopped a 185–30 vote in the Bill’s favour, so that within weeks the Bank Charter Act was duly in existence, almost at the very moment of the Bank’s 150th anniversary.

The creators of the new dispensation undoubtedly knew their history, going back to the 1790s. ‘The main object which Sir R. Peel and myself had in the arrangement made in 1844,’ Goulburn would recall, ‘was to ensure the convertibility of the Bank note and to prevent as far as was in our power a return of the calamitous circumstances which had resulted from the suspension of cash payments of which we were both old enough to have witnessed the commencement and the close.’ At the heart of that analysis lay an unshakeable belief in the superior virtues of gold – virtues that, if consistently adhered to, would dampen down speculation and ensure financial and commercial stability; while in ministerial eyes the prospect that the Bank would henceforth be kept in check, administering the gold standard along strictly non-discretionary lines, merely completed the virtuous circle. Yet of course the underlying reality was more complex. Not only did the narrowness of the Bank’s remit give it the opportunity to achieve a technical mastery over monetary matters that few outsiders would be able to challenge, but the very inflexibility of the fiduciary limit (somewhat against Cotton’s wishes) would make future crises more likely – as predicted by Horsley Palmer, and inevitably compelling politicians to look to Threadneedle Street for guidance.

Even so, the godfather of the Act was relaxed enough. ‘H. Palmer has sent me his letter, if it proves anything it proves only that 14 million on Securities is too much,’ Samuel Jones Loyd wrote in August 1844 to George Warde Norman, still on the Court and perhaps secretly not unsympathetic to somewhat more flexible notions than either Loyd’s or Peel’s. ‘For a just decision on this point,’ went on the wealthiest banker of the day, ‘you Gentlemen of the Bank are exclusively responsible; and if you go wrong a la lanterne with you all.’²⁸