Did the diminution of the Discounts and of the Bank Notes in circulation, correspond with each other? – Yes; except so far as it might be affected by the emission of Bank Notes for the payment of dividends.
Did the diminution of Discounts, by the Bank, produce any difference with respect to discounts by private Bankers, and other persons usually discounting bills? – I presume it did.
What difference did it produce? – It is not within my cognizance, further than that the less accommodation the Bank give to the Public, the less Bank Notes will be in the hands of the Bankers.
The next witness was Pitt himself. ‘I certainly thought, from all that passed, that they felt the necessity of the measure on public grounds,’ he responded when asked about the attitude of the Bank directors to suspension. ‘But,’ he carefully added, ‘I certainly do not mean to represent them as recommending or advising the measure.’ The governor, Daniel Giles, was also asked: ‘According to the best judgement you could form at that time, founded upon all the circumstances affecting the interest of the Bank, did you think such a measure necessary? – I thought it was prudential.’ Other witnesses included Walter Boyd, who launched a full-scale attack on the Bank’s December 1795 change of discount policy (‘has diminished the powers of commercial houses, and diminished the value of public securities’), while from Threadneedle Street, after Raikes on being recalled had insisted that it was ‘the alarm of invasion’ that above all had caused ‘the present drain’, the remaining three witnesses were Benjamin Winthrop, Godfrey Thornton and Samuel Bosanquet. Winthrop put it on record that ‘I was always fearful that such very large advances to Government might at some time or other operate very prejudicially to the Bank, and therefore on many occasions, as an individual Director, I have been against such advances’; Thornton feebly replied, ‘The causes are unknown to me,’ when asked to explain the unusual demand for specie; and Bosanquet cogently outlined the big picture as seen from the Bank’s Court Room:
Is it not always in the power of the Directors of the Bank to restrict the amount of their Advances to Government, and to enforce the reduction of those Advances? – Undoubtedly it is; but not without taking measures which may be very detrimental in their consequences. I do not recollect a single Advance of any importance, which has been consented to for the use of Government, for a considerable time past, but where the consequences of refusing it did not appear to the Directors to be liable to the fatal consequence of bringing on a public alarm, by injuring the national credit.
‘And this,’ explained Bosanquet, ‘they judged likely to be of more fatal consequence than any inconvenience which could arise to the Bank from making the Advance.’6
The Commons naturally also debated the turn of events, specifically the Bank Restriction Bill. The most resonant contribution (retrospectively anyway) came on 24 March, from the Whig politician and Irish playwright Richard Brinsley Sheridan, always happy to portray Pitt’s Tory government in an unfavourable light:
He made a fanciful allusion to the Bank, as an elderly lady in the City, of great credit and long standing, who had lately made a faux pas which was not altogether inexcusable. She had he said unfortunately fallen into bad company, and contracted too great an intimacy and connexion at the St James’s end of the town. The young gentleman, however, who had employed all his arts of soft persuasion to seduce this old lady, had so far shown his designs, that by timely breaking off the connexion, there might be hopes for the old gentlewoman once more regaining her credit and injured reputation.
The Bank’s main spokesman in the Commons was Samuel Thornton, who three days later ignored Sheridan’s jest but insisted that ‘no minister, nor any authority on earth, ever had or ever should control the conduct of the directors of the Bank in giving accommodation to individual merchants by way of discount’, adding that ‘the directors were the best judges to what extent their issue of paper should be made, which must be regulated by prudence …’ His words cut no ice with Sir William Pulteney, MP for Shrewsbury and reputedly the wealthiest man in Britain. In a fierce speech on 7 April he advocated ‘putting an end to the monopoly of the Bank of England’; argued that ‘its antiquity alone has had a great effect, and the imposing mystery which has hitherto been observed in the conduct of its affairs, has created an awe and veneration, which the human mind must, for a time, have some difficulty to overcome’; and went on:
But the late events, have, in a great measure, dispelled this charm: the Bank of England has been obliged to disclose the state of its affairs, the veil is drawn up, and we see nothing of that fancied magnificence which, till now, made a wonderful impression. It can never again, I believe, assume the same place in the imagination of the public.
The debate ended that day with a short pained speech from Thornton, explicitly repudiating Pulteney. ‘The restriction did not arise from the operations of the Bank itself, but from other causes, which he was not at liberty to describe,’ he stated; while ‘as to the compact which was said to subsist between government and the Bank, during the years in which he had been connected with the Bank, he knew of no partiality whatever …’7
The suspension of payments in gold was undeniably a huge national event, and the great political cartoonist James Gillray was quickly on the case. On 9 March a cartoon entitled ‘MIDAS, Transmuting all into GOLD PAPER’ went on sale at Mrs Hannah Humphrey’s print shop in St James’s, above which Gillray occupied a room. As arresting as anything that he drew, it showed Pitt vomiting banknotes and shitting money into the Bank of England. A fortnight later, Sheridan in the Commons indulged in his bit of fancy; and on 22 May, in the immediate context of Pitt under criticism for seeking to secure yet another substantial loan from the Bank, there appeared Gillray’s celebrated cartoon, ‘POLITICAL RAVISHMENT, or The Old Lady of Threadneedle Street in danger!’ It depicted the freckly beanpole Pitt seeking to ravish a gaunt old lady dressed in banknotes and sitting on a locked box containing the Bank’s treasure; while, as he did his worst, she was crying, ‘Murder! murder! Rape! murder! – Oh you Villain! what have I kept my Honor untainted so long, to have it broke up, by you at last? – Oh Murder! Rape! Ravishment! Ruin! Ruin! Ruin!!!’8 A nickname, by Gillray out of Sheridan, was thus born, lasting at least two centuries and in the process giving to the Bank an affectionate familiarity that no public relations campaign could have hoped to achieve.
On and off, but mainly on, Britain would continue to be at war with France for the next eighteen years, until Wellington’s hard-fought victory at Waterloo. Jane Austen’s near-silence on the subject may have suggested otherwise, but across Britain these were frequently tumultuous, even fearful years, wonderfully caught in Jenny Uglow’s panoramic survey In These Times (2014). At the Bank, shortly before Christmas 1803 and following the appointment the previous month of a select committee, the Court of Directors was assured that ‘a Plan has been concocted, whereby, they [the Committee] have reason to hope, not only the many valuable Articles, which are allways in the Custody of the Bank, but also such of the original Books and Papers, as appear most necessary to be preserved, may be secured from danger, during the confusion which is to be apprehended from an Invasion’. Personal vicissitudes were many, even for those accustomed to the dignity of the Court Room. ‘With a fortune diminished by two-thirds of its amount,’ mused Samuel Thornton at the start of 1812 in the context of having been compelled to sell his Albury Park estate in Surrey, ‘I hope still to live with contentment, and though not in splendour, yet in comfort.’ More generally, the Bank played a key role in the often underestimated (then and later) British war machine – a role acknowledged in 1800 by the almost entirely uncontentious twenty-one-year renewal of its Charter, taking it from 1812 to 1833 at the acceptable price of an interest-free £3 million loan to government for six years.9
What, then, specifically was the Bank’s contribution to the war effort? Arguably it had six main aspects: first, amid the pound sterling’s continuing inconvertibility, the issuing of paper money on a
large scale, with the £1 and £2 denominations putting banknotes into the hands of the general populace for the first time; second, managing the hugely enlarged national debt, up from £245 million at the start of the war to £834 million by the end; third, managing much of the government’s day-to-day money, an increasingly complex task; fourth, the time-honoured function of providing, relatively uncomplainingly, temporary advances to government, running for much of the duration at a reasonably manageable six to seven millions a year; fifth, managing the government loan process, vital to the financing of the war and usually involving competitive tenders from contractors, with the Treasury in practice heavily reliant on the disinterested guidance of the governor and deputy governor of the day; and sixth, stimulating commercial credit (largely through its discounting activities), not least so that, in a deeply uncertain trading world, merchants could guard against future shortages by stockpiling goods in their warehouses.
It was this sixth aspect that was by far the most controversial, especially after the commercial boom of 1808–10 got out of hand, with predictable results. Had the Bank, asked its critics, abused the freedom of non-convertibility? A trio of modern verdicts are helpful. Ian Duffy, the economic historian who has made the closest study of the Bank’s discounting policy during what came to be known as the restriction period (that is, the suspension of cash payments), accepts that the Bank’s refusal to reduce advances in early 1810 was mistaken; but at the same time he argues that this refusal was a tacit and honourable acknowledgement that its December 1795 policy of rigid rationing had been an error, leading to severe commercial and financial difficulties, even perhaps to suspension itself. More generally, Elisa Newby has valuably emphasised how these eighteen years were inevitably taxing times, as ‘the war, high government expenditure, trade blockades and bad harvests made the formulation of monetary policy a difficult task’. Yet despite all this, she observes, the Bank’s notes were accepted as payment throughout, while the fact that interest rates (for both long- and short-term borrowing) remained below 6 per cent graphically indicated the monetary policy’s market credibility. A final word goes to a politician as well as historian, Kwasi Kwarteng: ‘Despite the steep increase in [government] borrowing, the fact that the paper pound essentially held its value [depreciating only 30 per cent between 1797 and 1815] was an extraordinary piece of financial management on the part of any central bank. The Bank of England had organised government borrowing, but it had not put money into circulation. In modern parlance, the Bank maintained a tight control of the money supply, in stark contrast to the French and American revolutionary regimes.’10
An important and time-consuming by-product of the paper-money era – especially with so many people unaccustomed to banknotes now having them in their pockets – was large-scale forgery and the related crime of ‘uttering’ (deliberately possessing and circulating) counterfeit notes. ‘If some steps are not taken to counteract this alarming increase in the circulation of forged paper,’ a Plymouth correspondent warned the Bank only four years after suspension, ‘we are apprehensive that it may prevent the negotiating of your notes altogether.’ Or as a partner from the Bank’s solicitors, the firm that soon became known as Freshfields, put it in 1809: ‘The fabrication and circulation of forged bank notes has lately become so systematic a matter of business that the security of the circulating medium of the country is seriously menaced and unless prompt and active measures are taken to detect and punish the offenders, the most serious consequences may be the result.’ The Bank’s reaction to the problem was vigorous, undertaking in most years between 1800 and 1815 at least thirty prosecutions for forgery, having not stinted in its system of financial rewards in order to get to that point. A significant proportion of prosecutions ended in the death penalty, though legislation in 1801 permitted those pleading guilty to uttering the lesser sentence of fourteen years of transportation.
Inevitably, letters from convicted prisoners, appealing for mercy and/or charity (usually pecuniary), poured in. How did the Bank, whose Committee for Law Suits met regularly from 1802, respond? ‘Deliberate and rational’ is Deirdre Palk’s verdict, based on her pioneering analysis of this often wretched correspondence and what ensued. ‘To those, male or female, who were condemned to die, it would make only the cold response that it was not its business to interfere. Nor would it support others petitioning the Home Secretary or monarch. Having gone through the expensive and difficult process of prosecuting capitally those it believed to be a serious threat to the nation’s, and its own, security, it stood back, justified in its actions. On the other hand, the Bank showed tolerance towards those who were going to be removed from the country.’ In particular, she notes, ‘the Bank was willing to respond with generosity to women convicts while they remained in prison and when they went on board the transport ships’; while in general ‘it responded favourably to requests from women, and unfavourably to requests from men’. Financial relief was above all what most women asked for – and, according to Palk, ‘this was what they got in abundance’, often in the form of weekly payments, usually after the Bank had sent investigators to Newgate to check the genuineness of the request. ‘The reasons given were distress, hunger, little children to support, lack of clothing, no husband or friends to give support, no one to visit them. Men were not so likely to be in this condition, or so the Gentlemen of the Bank believed.’11
The paper-money era, and the attendant rise of counterfeiting, also meant that the focus was on the banknotes themselves. ‘Until means are discovered of rendering the Forgery of Bank Notes utterly impracticable,’ observed a landscape engraver, John Landseer, in 1797, ‘it should seem to be a duty the Bank Directors owe to the Public and to themselves to render it as difficult as possible.’ Perhaps the Bank should have taken responsibility for coming up with its own solution, but instead it asked the public at large to put forward proposals for a so-called ‘inimitable’ note – a course of action that led to some 400 suggestions reaching the Bank during the whole restriction period. Sadly, the quest proved unavailing, with a future governor recalling in the 1830s that ‘the multiplicity of proposed schemes, the absurdity of many and the inefficiency of others had tended to embarrass and protract the subject rather than add any useful information’; even among those proposals that had some initial plausibility, there proved to be no ‘inimitable’ note that the Bank’s engraver was not capable of copying. As for the Bank’s existing notes – or ‘Newlands’ as they were often called, in reference to the chief cashier, whose name appeared as the payee on all notes until his retirement in 1807 – some new security measures were undoubtedly adopted during these years, in addition to the traditional use of white watermarked paper, but there was some truth in the claim of a miniature painter called J. T. Barber Beaumont. Of ‘inferior workmanship to common engraved shop-bills’ was his unfavourable judgement, soon after the end of the war, on the Bank’s notes; and furthermore, he added, they could be forged ‘by any one who can use a camel’s hair pencil’.12
Famously, the paper-money era engendered more than its fair share of debate among economists and bankers. The first phase occurred in the early 1800s, against the background of a sharp rise in the cost of food and an unfavourable turn in the foreign exchanges. A Letter to the Right Honourable William Pitt, on the Influence of the Stoppage of Issues in Specie at the Bank of England was the title of Walter Boyd’s combative pamphlet, published in early 1801. Boyd argued that ‘there is the highest probability that the increase of Bank Notes is the principal cause of the great rise in the price of commodities and every species of exchangeable value’; declared that ‘the real resources of the country are now, and always have been, too solid and extensive to require the aid of forced paper-money, that dangerous quack-medicine’; professed himself ‘intimately convinced’ that ‘the resumption of payments in specie at the Bank’ would be ‘perfectly consistent’ with ‘the truest interest’ of ‘the Bank itself’; and depicted the Bank’s directors as facing since 17
97 an ‘almost irresistible temptation’, given that the ‘impression upon their minds, that every fresh addition to their circulating paper was a new service rendered’, chimed so naturally with ‘the still more powerful and certain conviction that it was, at the same time, an addition to the sources of profit to the Bank’.
Later that year came a direct refutation from Sir Francis Baring, who back in 1797, not long after suspension, had publicly identified the Bank as the lender of last resort – while 1802 saw a heavyweight contribution from Henry Thornton. He was an MP, an economist, a City banker and a younger brother of Samuel (who himself the previous year had optimistically noted that ‘my own strength and vigour will be recruited as soon as my responsible situation of Governor to the Bank shall be ended’). An Enquiry into the Nature and Effects of the Paper Credit of Great Britain had at its heart a paradox. On the one hand, it stoutly defended the Bank, not only highlighting its independence of government but finding ‘an additional ground of confidence’ in it, namely:
that the numerous proprietors who chuse the directors, and have the power of controlling them (a power of which they have prudently forborne to make any frequent use), are men whose general stake in the country far exceeds that particular one which they have in the stock of the company. They are men, therefore, who feel themselves to be most deeply interested not merely in the increase of the dividends or in the maintenance of the credit of the Bank of England, but in the support of commercial as well as public credit in general. There is, indeed, both among them and among the whole commercial world, who make so large a portion of this country, a remarkable determination to sustain credit, and especially the credit of the bank …
On the other hand, the remorseless logic of Thornton’s treatise tended towards what soon became known as the ‘bullionist’ position, at whose heart lay the belief – for some an almost messianic belief – that it was the quantity of money that determined prices. ‘His loyalty to the Bank of England led him to accept too readily the view that the premium on gold was due to a decline in trade due to bad harvests,’ reflected the economist J. Keith Horsefield many years later. ‘Nor did he recognise that his explanation of the necessity to suspend cash payments – a panic demand for gold at home superimposed upon an unfavourable balance of trade – was in itself inadequate to justify the continuance of the suspension. His theoretical demonstration was perfectly clear, and only his reliance on the practical good sense of the Bank can have prevented his applying it to the facts.’13
Till Time's Last Sand Page 11