Front Page Titles (by Subject) SECTION I.: A RECORD OF BEGINNINGS. - A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.)
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SECTION I.: A RECORD OF BEGINNINGS. - Editor of the Journal of Commerce and Commercial Bulletin, A History of Banking in all the Leading Nations, vol. 2 (Great Britain, Russian Empire, Savings-Banks in the U.S.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 2 A History of Banking in Great Britain, the Russian Empire, and Savings-Banks in the U.S.
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A RECORD OF BEGINNINGS.
Banking Originates in Royal Rapacity—Goldsmiths Become Bankers—Cromwell Encourages Them—The King Seizes Their Treasure—His Promises of Compensation Never Honored.
BANKING, in the modern sense of the word, had no existence in England before 1640. Up to that date, merchants had been for a considerable time in the habit of depositing their bullion and cash in the Mint in the Tower, under the guardianship of the Crown. In that year, however, Charles I. being in great straits for money, in consequence of his fatal dissolution of the Parliament before it had voted supplies, seized upon the merchants’ bullion and cash in the Mint, to the amount of £120,000. The merchants were in consternation, as the cash was the provision they had made to meet their bills with. They immediately met, and drew up and presented a strong remonstrance to the Council. They ultimately agreed to let the King have £40,000, upon receiving adequate security for its repayment with interest. The whole of the loan was ultimately repaid to them with interest.
But their confidence in the royal honor was gone; and henceforth they determined to keep their cash in their own houses, under the care of their own clerks and apprentices. But their treasures were no safer than before. The plebeian cashiers were more dishonest than the King. As the war went, these gentlemen of the quill were seized with a martial ardor; they deserted their desks in multitudes to join the army, and carried off their masters’ cash with them. Others lent out their masters’ funds to the goldsmiths clandestinely, at 4d. per cent. per day, which they kept to themselves. The goldsmiths lent out the money which came into their hands in great quantities to merchants and others, weekly or monthly, at high interest, and then began to discount mercantile bills. Finding this to be very profitable, they began to attract money from the general public by offering them interest at the rate of six per cent. and engaging to repay the sums placed with them on demand.
When a customer paid in money to his account, and when they discounted a merchant’s bill, i. e., bought the debt, or right of action to the money due to him, they simply gave them in exchange for it a credit, debt or right of action in their banks, which in the technical language of banking is termed a deposit. Moreover, in order to diminish the demand for actual money as much as possible, they agreed with their customers to make these credits or deposits as transferable as money itself, and to pay any person to whom their customers had transferred their credits, in the same way as to themselves. These credits or deposits, were transferred by means of paper documents, which were of two forms: 1. Either the goldsmith gave his customer a written promise to pay to himself, or to his order, or to bearer, on demand, a certain sum of money. These notes were in simple writing, and were called goldsmith’s notes. 2. The customer might write a note to the goldsmith directing him to pay a certain sum to any person, or to his order, or to bearer, on demand; these notes were, at first, called cash notes, but in modern language they are termed cheques.
These two forms of documents were as transferable as money itself, and produced all the effects of money. By experience, the goldsmiths soon found that they could keep afloat an amount of credit several times exceeding the amount of cash they kept to meet the demands upon them; and this increased quantity of credit was in all its practical effects exactly equivalent to an increase of money of equal amount. People found it much more convenient to place their money with the goldsmiths, where they could have it back whenever they pleased with interest at six per cent., than to lend it out on real or personal security. The goldsmiths soon received the rents of all the gentlemen’s estates which were transmitted to town. Five or six stood pre-eminent among their brethren; and Clarendon says, that they were men known to be so rich, and of such good reputation, that all the money in the kingdom would be trusted to their hands. These goldsmiths then, for the first time, came to be called bankers.
Several schemes for the foundation of joint stock banks, similar to those which existed in considerable numbers in Italy, were proposed under the government of Cromwell, but none of them were carried into effect. The goldsmith bankers however flourished; and their command of ready money soon brought them a much higher customer than the merchants. Notwithstanding the fame and strength of the Protector’s Government, and his unquestionable sincerity in wishing to govern with free Parliaments, he and they were unable to agree better than his royal predecessor had done with them. They were jealous of his power, and kept him in a constant state of financial embarrassment. He then applied to the “Bankers,” and they advanced him money, in anticipation of the supplies. They thus became almost indispensable to the Government.
The position the bankers had gained under the frugal government of Cromwell was not lost under his dissolute successor. The first care of the restored monarch was to disband the terrible republican armies. But they had to be paid off, and some hundreds of thousands of pounds were required to be got together in a few days. The slow receipts of the taxes were quite inadequate to effect this, and the Ministers were compelled to have recourse to the bankers; and they were so well satisfied with their proceedings that they declared that the King’s affairs could not be carried on without their assistance. Their method of doing business with the Crown was as follows. As soon as the supplies were granted, they were sent for to attend the King. He having consulted his Ministers as to what immediate sums were needed, desired them to be called in, and they were then informed what ready money he would require to be provided by such a day. They were then asked how much they could lend, and what security they would require. Each answered according to his several ability; for there was no joint stock among them; one perhaps £100,000, another more, another less. They were desirous of having eight per cent. for their money, which the King and his Ministers were perfectly ready to give as a reasonable remuneration; but, upon further consideration, they determined to leave it to the King’s own bounty, lest it might afterwards be turned to their disadvantage; mentioning at the same time, that they themselves paid six per cent. for it to their customers, which was known to be true. They then received an assignment for the first moneys that came in under the Act of Parliament, or tallies upon such other branches of the revenue as were least changed. But even this was no security; as the King and the Treasurer might divert these payments to other purposes. “Therefore,” says Clarendon, “there is nothing surer, but that it was nothing but the unquestionable confidence in the King’s justice and the Treasurer’s honor and integrity which was the true foundation of that credit which supplied the necessities of the Government. The King always treated them very graciously as his very good servants, and all his Ministers looked upon them as very honest men.” We shall now see how their confidence in the King’s honor was repaid.
In 1667, the Government provoked a war with Holland. Parliament voted supplies of unexampled magnitude; but they were all embezzled by the courtiers, who made fortunes, while the seamen mutinied for want of pay and the ships were rotting. The Dutch destroyed Sheerness and Chatham, burnt the ships there, and attacked Tilbury; the sound of the enemy’s guns was heard in London. The citizens were seized with the utmost alarm, and rushed to demand their money from the bankers. It was known that they had advanced large sums to the King, and the people believed that regular payments out of the exchequer could not be made. To quiet the public alarm, the King, in June, 1667, issued a proclamation that the payments out of the exchequer would continue as usual; but it was his steadfast resolution to preserve inviolable to all his creditors all the securities and assignments made for repayment of their advances, and that he held this resolution firm and sacred in all future assignments and securities to be granted by him upon any other advances of money for his service by any person on any future occasion. However, in 1672, the Court was in greater difficulties than ever, and the King declared that the Treasurer’s staff should reward the ingenuity of the man who should discover an expedient for “raising the wind.” The expedient hit upon was to shut up the exchequer. On the 2d January, 1672, a proclamation was issued stating that payment out of the exchequer would be suspended for one year; but a rent, or interest, at the rate of six per cent. was promised. The sum seized by the King was £1,328,526. So much for the King’s proclamation of 1667.
The bankers, it is true, were not many; but the money they had belonged chiefly to their creditors, and there were 10,000 of them. The coup de finance was so cleverly done, that no one, except one or two intimate friends of the conspirators, had the slightest warning. The consternation was dreadful in the city. Numberless merchants were ruined. The distress was felt in all ranks of society. Widows and orphans who had no other means of subsistence had placed their all with the bankers. Many persons went mad; many died of a broken heart; many destroyed themselves. It was at first promised that the suspension should only be for a year; but year after year passed away and nothing was done, and neither the principal nor the interest was paid. What seems to be a most extraordinary circumstance was that no notice was taken of the transaction in Parliament. But the intensity of the public distress was too great, and the public indignation was too fierce to be entirely neglected. At length in April, 1676, the King was obliged to order the accounts of the creditors to be examined by the Chancellor of the Exchequer. This having been done, in April, 1677, the King issued letters patent granting to each of the goldsmiths’ heirs and assigns, for the benefit of their creditors, in lieu and satisfaction of their debts, a yearly rent out of the hereditary excise equal to six per cent. upon the debt, with a clause of redemption upon payment of the principal and interest. These letters patent were printed and made public on the 23d of May, 1677, and a bill to ratify them was passed by the House of Lords; but by some misadventure (?) it did not reach the Commons before the end of the session and never became law. The rent, or interest, was paid till Lady Day, 1683, when it ceased, and none was paid during the reign of James H. At length, in 1689, the creditors, worn out with despair, petitioned the Court of Exchequer to make an order for the payment of their claims. In 1691, the Court gave judgment in their favor, and made an order on the exchequer for payment; but the judgment was reversed by Lord Somers on a technical point. But, in 1700, the Lords reversed the judgment of Lord Somers. This judgment of the Lords established the rights of the petitioners to their principal and interest; but they were not paid one farthing. In 1700, an act was passed that after the 31st December, 1701, the hereditary excise should be charged with interest at three per cent. on the principal until payment was made of one-half the debt. Thus ended this monstrous injustice. It was calculated that the bankers and their creditors lost £3,000,000. The principal was never repaid, and forms the first item of our National Debt.