The Bank and Banking

Although London had no formally incorporated banks before the chartering of the Bank of England in 1694, moneylending had long been an essential part of the city's commercial life.  Because coins were often in relatively short supply, goods were routinely bought and sold on credit.  Wills of London retailers and merchants often include long lists of unpaid loans and uncollected debts, some of long standing but many reflecting commercial transactions still not completed at the time of the testator's death.  Some Londoners retired from trade in old age and supported themselves by lending out their savings at interest. 

By the early seventeenth century a number of scriveners and goldsmiths created what amounted to private banks.  The most successful of these during the reign of Charles II, belonging to the goldsmiths Sir Francis Child and Robert Blanchard, operated on the Strand under a sign bearing a marigold. In addition to banking, Blanchard and Child engaged in the diamond trade and did a brisk business renting out jewelry for use on occasions like royal coronations.  But they also issued loans, at first usually on the security of plate deposited in their shop.  By the 1680s, a few years after Blanchard's death, Child's banking business had grown to the point at which he found it necessary to spend £1600 enlarging his premises, which now stood near Temple Bar.  Child himself was eventually elected an alderman and Lord Mayor in 1698. By 1704 his business had assets of £175,000.  

Stuart monarchs piled up debts that dwarfed those of individual subjects.  Some were to individual tradesmen for goods bought on credit, which might be carried on the books of the Exchequer for years or even decades: in 1639, for example, Charles I finally finished paying for his sister's opulent wedding dress, purchased in 1613.  The sums involved in these transactions were at times considerable: one goldsmith sold King James I and Queen Anne £50,000 worth of jewels -- a sum exceeding the annual income of the richest peers -- for which he had still not been fully paid eight years later. It is not entirely clear how tradesmen managed to cope with such large unpaid bills but they must have had ways of covering their expenses until the Crown finally paid.

By far the largest royal debts were acquired to fight wars.  Loans were sometimes raised from foreign bankers -- Charles I actually mortgaged the Crown jewels in the Netherlands in 1625 -- but great London merchants provided another source of liquid capital the Crown periodically tapped.  It might do so either by turning to the Court of Alderman and demanding a loan from the City, which the aldermanic bench would then apportion, or by negotiating loans from individuals who had built up massive private fortunes in trade.  Sometimes syndicates of merchants were allowed to farm the King's customs and other revenues in return for loans (in other words they paid the King an annual rent and in return collected and pocketed his taxes).  Such arrangements created a cozy relationship between the Crown and large financeers. 

In the 1690s William III embarked on a major war against Louis XIV requiring unprecedented levels of expenditure, much of it covered by borrowing.  This led to a variety of schemes for tapping wider sources of wealth, for example by selling annuities returning 14% a year for the remainder of the purchaser's life. In 1694 a Whig ministry pushed through a controversial scheme to raise a loan of 1.2 million pounds by chartering a Bank of England and inviting indviduals to subscribe to its stock in amounts of £500 or more.  The subscribers would become the Bank's stockholders and receive dividends from the 14% interest payments the Crown agreed to pay on its new loan.  In less than two weeks 1,200 people, including the King and Queen, bought into this venture.  Since the subscribers included many of London's wealthiest merchants, it is not surprising that the Directors elected by the Bank's stockholders soon proved their skill in managing the Crown's debts, eventually lowering interest payments to about 8%. 

Although it took deposits and issued bank notes redeemable for coin, which amounted to paper currency, the Bank was therefore essentially an institution created to establish and manage a long term public debt, on which interest payments would be made through future taxation.  It became a symbol of public credit and the close relationship between high politics and high finance that developed in Britain in the 1690s and eighteenth century.  The fact that it was created by a Whig ministry and that many of the Bank's original Directors and large investors came from dissenting backgrounds (a few also had radical political pasts) increased the suspicions of Tory Anglican landowners.  But there is no question that the Bank made it easier for the Crown and private investors to borrow large sums of money at relatively moderate rates of interest.


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