Sect. III.—: Bank of England, Account of.

The Bank of England, which has long been the principal bank of deposit and circulation, in this country and in Europe, was founded in 1694. Its principal projector, Mr William Paterson, an enterprising and intelligent Scotch gentleman, was afterwards engaged in the ill-fated colony at Darien. Government being at the time much distressed for want of money, partly from the defects and abuses in the system of taxation, and partly from the difficulty of borrowing, because of the supposed instability of the revolutionary establishment, the bank grew out of a loan of £1,200,000 for the public service. The subscribers, besides receiving eight per cent. on the sum advanced as interest, and £4000 a year as the expense of management, in all £100,000 a year, were incorporated into a society denominated the Governor and Company of the Bank of England. The charter is dated the 27th of July 1694. It declares, amongst other things, that they shall “be capable, in law, to purchase, enjoy, and retain to them and their successors, any monies, lands, rents, tenements, and possessions whatsoever; and to purchase and acquire all sorts of goods and chattels whatsoever, wherein they are not restrained by Act of Parliament; and also to grant, demise, and dispose of the same.

“That the management and government of the corporation be committed to the governor and twenty-four directors, who shall be elected between the 25th of March and the 25th day of April each year, from among the members of the company duly qualified.

That no dividend shall at any time be made by the said governor and company, save only out of the interest, profit, or produce arising by or out of the said capital stock or fund, or by such dealing as is allowed by Act of Parliament.

They must be natural-born subjects of England, or naturalised subjects; they shall have in their own name, and for their own use, severally, viz. the governor at least £4000, the deputy-governor £3000, and each director £2000, of the capital stock of the said corporation.

That thirteen or more of the said governors and directors (of which the governor or deputy-governor must be always one) shall constitute a court of directors, for the management of the affairs of the company, and for the appointment of all agents and servants which may be necessary, paying them such salaries as they may consider reasonable.

Every elector must have, in his own name and for his own use, £500 or more capital stock, and can only give one vote. He must, if required by any member present, take the oath of stock, or the declaration of stock in case he may be one of the people called Quakers.

Four general courts to be held in every year, in the months of September, December, April, and July. A general court may be summoned at any time, upon the requisition of nine proprietors duly qualified as electors.

The majority of electors in general courts have the power to make and constitute by-laws and ordinances for the government of the corporation, provided that such by-laws and ordinances be not repugnant to the laws of the kingdom, and be confirmed and approved, according to the statutes in such case made and provided.”

The corporation is prohibited from engaging in any sort of commercial undertaking other than dealing in bills of exchange, and in gold and silver. It is authorised to advance money upon the security of goods or merchandise pledged to it; and to sell by public auction such goods as are not redeemed within a specified time.

It was also enacted, in the same year in which the bank was established, by statute 6 William and Mary, c. 20, that the bank “shall not deal in any goods, wares, or merchandise (except bullion), or purchase any lands or revenues belonging to the crown, or advance or lend to their majesties, their heirs or successors, any sum or sums of money, by way of loan or anticipation, or any part or parts, branch or branches, fund or funds of the revenue, now granted or belonging, or hereafter to be granted, to their majesties, their heirs and successors, other than such fund or funds, part or parts, branch or branches of the said revenue only, on which a credit of loan is or shall be granted by Parliament.” And in 1697 it was enacted, that the “common capital or principal stock, and also the real fund, of the governor and company, or any profit or produce to be made thereof, or arising thereby, shall be exempted from any rates, taxes, assessments, or impositions whatsoever, during the continuance of the bank; that all the profit, benefit, and advantage from time to time arising out of the management of the said corporation, shall be applied to the uses of all the members of the said association of the governor and company of the Bank of England, rateably and in proportion to each member’s part, share, and interest in the common capital and principal stock of the said governor and company hereby established.”

In 1696, during the great recoinage, the bank was involved in great difficulties, and was even compelled to suspend payment of her notes, which were at a heavy discount. Owing, however, to the judicious conduct of the directors, and the assistance of the government, the bank got over the crisis. But it was at the same time judged expedient, in order to place her in a situation the better to withstand any adverse circumstances that might afterwards occur, to increase her capital from £1,200,000 to £2,201,171. In 1708, the directors undertook to pay off and cancel one million and a half of exchequer bills they had circulating two years before, at four and a half per cent., with the interest upon them, amounting in all to £1,775,028, which increased the permanent debt due by the public to the bank, including £400,000 then advanced in consideration of the renewal of the charter, to £3,375,028, for which they were allowed six per cent. The bank capital was then also doubled, or increased to £4,402,343. But the year 1708 is chiefly memorable in the history of the bank, for the Act previously alluded to, which declared, that during the continuance of the corporation of the Bank of England, “it should not be lawful for any body politic, erected or to be erected, other than the said governor and company of the Bank of England, or of any other persons whatsoever, united or to be united in covenants or partnership, exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable on demand, or in any less time than six months from the borrowing thereof.” This proviso, which had a powerful operation on banking in England, is said to have been elicited by the Mine-Adventure Company having commenced banking business, and begun to issue notes.

The charter of the Bank of England, when first granted, was to continue for eleven years certain, or till a year’s notice after the 1st of August 1705. The charter was further prolonged in 1697. In 1708, the bank having advanced £400,000 for the public service, without interest, the exclusive privileges of the corporation were prolonged till 1733. And in consequence of various advances made at different times, the exclusive privileges of the bank have been continued by successive renewals, till the first of August 1855, with the proviso that they may be cancelled on a year’s notice to that effect being given after the said 1st of August 1855.

We subjoin an account of the successive renewals of the charter, of the conditions under which these renewals were made, and of the variations in the amount and interest of the permanent debt due by government to the bank, exclusive of the dead weight.—(See following page.)

The capital of the bank on which dividends are paid has never exactly coincided with, though it has seldom differed very materially from, the permanent advance by the bank to the public. We have already seen that it amounted in 1708 to £4,402,243. Between that year and 1727 it had increased to near £9,000,000. In 1746 it amounted to £10,780,000. From this period it underwent no change till 1782, when it was increased eight per cent., or to £11,642,400. It continued stationary at this sum down to 1816, when it was raised to £14,553,000, by an addition of twenty-five per cent. from the profits of the bank, under the provisions of the Act 56 Geo. III. c. 96. The Act for the renewal of the charter 3 and 4 Will. IV. c. 98, directed that the sum of £3,671,700, being the fourth part of the debt due by the public to the bank, should be paid to the latter, allowing her, if she chose, to deduct it from her capital. But that has not been done; and after sundry changes, the capital of the bank amounts, as formerly, to £14,553,000.

The Bank of England has been frequently affected by panics amongst the holders of her notes. In 1745 the alarm occasioned by the advance of the Highlanders, under the Pretender, as far as Derby, led to a run upon the bank; and in order to gain time to effect measures for averting the run, the directors adopted the device of paying in shillings and sixpences! But they derived a more effectual relief from the retreat of the Highlanders, and from a resolution agreed to at a meeting of the principal merchants and traders of the city, and very numerously signed, declaring the willingness of the subscribers to receive bank-notes in payment of any sum that might be due to them, and pledging themselves to use their utmost endeavours to make all their payments in the same medium.

During the tremendous riots in June 1780, the bank incurred considerable danger. Had the mob attacked the establishment at the commencement of the riots, the consequences might have proved fatal. But they delayed their attack till time had been afforded for providing a force sufficient to insure its safety. Since that period a considerable military force is nightly placed in the interior of the bank, as a protection in any emergency that may occur.

The year 1797 is the most important epoch in the recent history of the bank. Owing partly to events connected with the war in which we were then engaged; to loans to the Emperor of Germany; to bills drawn on the treasury at home by the British agents abroad; and partly, and chiefly, perhaps, to the advances most unwillingly made by the bank to government, which prevented the directors from having a sufficient control over their issues, the exchanges became unfavourable in 1795, and in that and the following year large sums of specie were drawn from the bank. In the latter end of 1796 and beginning of 1797, considerable apprehensions were entertained of invasion, and rumours were propagated of descents having been actually made on the coast. In consequence of the fears that were thus excited, runs were made on the provincial banks in different parts of the country; and some of them having failed, the panic became general, and extended itself to London. Demands for cash poured in upon the bank from all quarters; and, on Saturday the 25th of February 1797, she had only £1,272,000 of cash and bullion in her coffers, with every prospect of a violent run taking place on the following Monday. In this emergency, an order in council was issued on Sunday the 26th, prohibiting the directors from paying their notes in cash until the sense of Parliament should be taken on the subject. And after Parliament met, and the measure had been much discussed, it was agreed to continue the restriction till six months after the signature of a definitive treaty of peace.

As soon as the order in council prohibiting payments in cash appeared, a meeting of the principal bankers, merchants, traders, &c. of the metropolis, was held at the Mansion-house, when a resolution was agreed to, and very numerously signed, pledging, as had been done in 1745, those present to accept, and to use every means in their power to make bank-notes be accepted, as cash in all transactions. This resolution tended to allay the apprehensions that the restriction had excited.

Parliament being sitting at the time, a committee was immediately appointed to examine into the affairs of the bank; and their report put to rest whatever doubts might have been entertained with respect to the solvency of the establishment, by showing, that at the moment when the order in council appeared, the bank was possessed of property to the amount of £15,513,690, after all claims upon her had been deducted.

Much difference of opinion has existed with respect to the policy of the restriction in 1797; but, considering the peculiar circumstances under which it took place, its expediency seems abundantly obvious. The run did not originate in any over-issue of bank paper, but grew entirely out of political causes. So long as the alarms of invasion continued, it was clear that no bank paper immediately convertible into gold would remain in circulation. And as the bank, though possessed of ample funds, was without the means of instantly retiring her notes, she might, but for the interference of government, have been obliged to stop payments; an event which, had it occurred, might have produced consequences fatal to the public interests.

The error of the government did not consist in their coming to the assistance of the bank, but in continuing the restriction after the alarm of invasion had ceased, and there was nothing to hinder the bank from safely reverting to specie payments.

It had been generally supposed, previously to the passing of the Restriction Act, that bank-notes would not circulate unless they were immediately convertible into cash. But the event showed, conformably to the principles already stated, that this was not really the case. Though the notes of the Bank of England were not, at the passing of the Restriction Act, declared by law to be legal tender, they were rendered such in practice, by being received

as cash in all payments on account of government, and by the vast majority of individuals. For the first three years of the restriction, their issues were so moderate, that they not only kept on a par with gold, but actually bore a small premium. But in 1801, 1802, and 1803, they were so much increased that they fell to a discount of from 8 to 10 per cent. In 1804 they again recovered their value; and from that year to 1808, both inclusive, they were at a discount of 21/2 per cent. In 1809 and 1810, however, the directors appear to have embarked on a new course, and to have entirely lost sight of the principles by which their issues had previously been governed; for the average amount of bank-notes in circulation, which had not exceeded 171/2 millions, nor fallen short of 161/2 millions, in any one year, from 1802 to 1808, both inclusive, was in 1809 raised to £18,927,833, and in 1810 to £22,541,523. The issues of country bank paper were increased in a still greater proportion; and, as there was no corresponding increase of the business of the country, the discount on bank-notes rose from 21/2, in 1808, to from 13 to 16 per cent. in 1809 and 1810.

This depreciation in the value of bank paper being accompanied by a corresponding fall in the exchange, attracted the attention of the public and the legislature. In consequence, the House of Commons appointed, in 1810, a committee to inquire into the subject; and having examined several witnesses, the committee in their report, which is both an able and a celebrated paper, justly ascribed the fall in the value of bank paper, as compared with gold, to its over-issue; and recommended, in the view of correcting the existing evil and of preventing its recurrence, that within two years the bank should be obliged to resume specie payments. But this recommendation not being adopted, the over issue of paper went on increasing. In 1812 it was at an average discount, as compared with bullion, of 203/4 per cent.; in 1813, of 23 per cent.; and in 1814, when the maximum of depreciation was attained, it was 25 per cent.

At the period when the restriction on cash payments took place in 1797, it is supposed that there were about 280 country banks in existence; but so rapidly were these establishments multiplied, that they amounted to above 900 in 1813. The price of corn, influenced partly by the depreciation of the currency, and the facility with which discounts were obtained, but more by deficient harvests and the unprecedented difficulties which the war threw in the way of importation, rose to an extraordinary height during the five years ending with 1813. But the harvest of that year being unusually productive, and the intercourse with the continent being then also renewed, prices, influenced by both circumstances, sustained a very heavy fall in the latter part of 1813, and the beginning of 1814. And this fall having ruined a considerable number of farmers, and produced a general want of confidence, such a destruction of provincial paper took place as has rarely been paralleled. In 1814, 1815, and 1816, no fewer than 240 country banks stopped payment; and eighty-nine commissions of bankruptcy were issued against these establishments, being at the rate of one commission against every ten and a half of the total number of banks existing in 1813.

The great reduction that was thus suddenly and violently brought about in the quantity of country bank paper, by extending the field for the circulation of Bank of England paper, raised its value in 1817 nearly to a par with gold. The return to cash payments being thus facilitated, it was fixed, in 1819, by the Act 59 Geo. III., c. 78, commonly called Sir Robert Peel’s Act, that they should take place in 1823. But to prevent any future over-issue, and at the same time to render the resumption as little burdensome as possible, it was enacted, in pursuance of a plan suggested by Mr. Ricardo, that the bank should be obliged, during the interval from the passing of the Act till the return to specie payments, to pay her notes, if required, in bars of standard bullion of not less than sixty ounces weight. This plan was not, however, acted upon during the period allowed by law; for, a large amount of gold having been accumulated at the bank, the directors preferred recommencing specie payments on the 1st of May 1821.

The fluctuations, referred to above, in the value of paper were exceedingly injurious. From 1809 to 1815, the creditors of every antecedent contract, land-holders whose estates had been let on lease, stockholders and annuitants of every description—all, in short, who could not raise the nominal amount of their claims or incomes proportionally to the fall in the value of money, were to that extent losers. The injustice that would have been done to the creditors of the state and of individuals, who had made their loans in gold, or paper equivalent to gold, by raising the denomination of the coin twenty-five per cent., however gross and palpable, would not have been greater than was actually done them in 1814, by compelling them to receive payment of their just debts in paper depreciated to that extent.

It is true, that after a currency has been for a considerable period depreciated, as much injustice is done by raising, as was previously done by depressing, its value. But there is good reason to doubt whether the depreciation from 1809 to 1815 (for the depreciation of 21/2 per cent. during the six preceding years is too inconsiderable to be taken into account) extended over a sufficiently lengthened period to warrant the legislature in departing from the old standard. It is needless, however, to offer any opinion on this rather difficult point, for we have seen that the value of paper was raised in 1816 and 1817 almost to par by accidental circumstances without any interference on the part of government or of the bank. Sir Robert Peel’s Act, to which this rise has been ascribed, not being past till 1819, could have nothing to do with what occurred two or three years previously. Its object was twofold, to redeem the pledge given by Parliament to restore the old standard on the return of peace, and to shut the door against any fresh depreciation of paper.

It has sometimes, indeed, been alleged, that the rise in the value of the currency, by reverting to specie payments in 1821, was in reality much greater than was indicated by the previous difference between the values of paper and gold: for, it is maintained that the value of gold was itself raised by that measure. But we doubt whether this opinion have any good foundation. The supply of gold in the commercial world is too vast to allow of its value being sensibly affected by the drain occasioned by the resumption of cash payments in this country. It was probably, in fact, more than compensated by the cessation of hostilities, and the greater use of bills and other substitutes for coin, after the restoration of tranquillity. We are not aware that there is any article that fell in price after the peace of 1815, of which the fall has not been, or may not be, satisfactorily accounted for by changes in the channels of its supply, or in the cost of production, or both. And the rise that has of late years taken place in the price of some articles, is mostly, we believe, to be accounted for in the same way. The decline in the value of gold, in consequence of the increased supplies furnished by California and Australia, has hitherto been very trifling indeed. (See Article Precious Metals.)