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CHAPTER II.

ENGLISH VIEWS ABOUT BANKING.-1650-1675.

In 1651, William Potter published another volume in which he set forth a proposal that parliament should legalize the currency of private bills. He was of the opinion that if A had transactions with B, he could adjust his affairs by giving his bill to B. The latter in turn having occasion to make a payment to C could make use of this bill and give it increased strength by adding his name to it. Thus it could be passed from hand to hand with ever growing strength. This, he said, although not so good as his proposed corporation, was at any rate an improvement upon the methods then in use in ordinary trade.¹

In 1652, Henry Robinson published a pamphlet, the first clause in the title of which was, “Certain Proposalls in order to the peoples freedome and accommodation in some particulars,” etc., etc.²

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In this pamphlet Robinson discusses the causes of and the possible remedies for the exportation of coin. He closes his list of remedies as follows: “But above all other Engines or Instruments, the greatest pre-eminence is due unto a Banck, which hath a capacity of infallible preventing the exportation of our own moneys, and necessitating the importation of Bullion and foreign Coines, it will prevent the passing of false or clipt money, with the weare and wast of money by telling it; save all the time now spent in telling money; over-rule the Merchandizing Exchange, whereby the Merchants of this Nation have been meerly cheated in all parts of the world, where exchanging by Bills of Exchange is practised.”

“It is this onely that can reduce and keepe the Grand Ballance of Trade in favour of this Nation, by preventing the Importation of a greater quantity of Forreigne Commodities than wee export of native; It is capable of multiplying the stock of the Nation, for as much as concerns trading in Infinitum: In breife, it is the Elixir or Philosopher’s Stone, to which all Nations, and everything within those Nations must be subservient either by faire meanes or by foule.”

To this he adds a plea for the establishment of registries of deeds, from which it may perhaps be inferred

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that his proposed bank was to make loans upon real estate.

Apparently this pamphlet was submitted to the council, for in 1654, a committee was appointed by the council, to consider a proposal of Henry Robinson concerning a bank.¹

In 1659 a pamphlet was published in which, among a great number of propositions for the improvement of trade, there was a proposition for a bank and a suggestion that the credit of individual merchants might be made current.² The preface of this pamphlet is addressed “To the judicious Reader” and is signed by Thomas Holmwood. He makes the following statement therein:—”And although I was by Mr. John Bland Merchant, who was the Author of these Proposals, injoyned, at the Printing them, to silence his name and having accordingly delivered sundry Books to divers worthy Persons under a Nonemus, I have conceived it just, and indeed my duty to correct the error I then committed.”

The various plans of improvement suggested by Bland and promulgated by Holmwood were far-reaching and full of ingenious speculation. If we select from them such as bear upon the subject under consideration and arrange them in a slightly different order from that in which they are presented in the pamphlet, we shall find that they are as follows:

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“That throughout the Nation there be a certain form of a Bill and Bond used for all sums of mony lent or due for goods sold.”

“That all Bonds and Bills be made salable, and being assigned or transferred from one to another, the Assigne to be capable in his own name to prosecute the Debtor, whose Bond or bill it is, without using the name of the Assignor, or any Letter of Attorney from him to recover or receive the same.”

He thought this would quicken trade because “all men generally, to keep up the Reputation of their Bills, will be extream punctual in their payments, that their Bills may be current and freely accepted of by the Commerce, when ever profered to sale either for mony or goods.”

The coin of the realm he wished to have “reduced to as pure a finenesse as any coyn whatever current throughout the universe,” but to prevent its exportation he wished the coins to be made thin and of light weight.

For the benefit of merchants who might desire advances upon imported goods, his sixteenth measure to encourage the trade of the nation was:

“That there might be some way thought of to raise a Publick Stock of mony, that therewith such persons that have goods arrived from forein parts, and want funds or means to supply themselves with present monies, to discharge their Freights * * * might be supplied at easie rates by depositing of their goods in custody for security thereof * * *.”¹

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The relations of the Goldsmiths at this time to banking, are of sufficient importance to make contemporary references to them which develop this subject valuable. John Biddulph Martin quotes the following from a tract of 1660, called “An Appeal to Cæsar”: “The merchants of London have transported all the gold and most of the silver out of England, principally by confederation and assistance of the Goldsmiths in Lombard Street, who are just in the nature of bankers in Amsterdam. * * * Some Goldsmiths in Lombard Street keeping at this day many great Merchants’ of London cashes and some noblemens cash: by this credit of other men’s monies, the Goldsmiths of Lombard Street are in the nature of bankers, and have a great stock of treasure by them always of gold, forraigne coin, and silver.”¹

In 1660, Samuel Lambe published a pamphlet, which was by its title offered to the Lord Protector, and was stated to have been printed so that it might be considered and put in execution by parliament.²

The writer asserted that the chief and most considerable way by which the Dutch had brought themselves to what they were, was their profitable use of banks. If such institutions could be established in England, they would bring back the gold and silver which had been drained out of the land by the Hollander’s banks. They would increase the stock of the land (that is to say, its value), and thereby increase all manner of trade wonderfully.

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“A Bank,” the author says, “is a certain number of sufficient men of estates and credits joined together in a joint stock, being as it were, the general cash keepers or treasurers of that place, where they are settled, letting out imaginary money at interest 2 and 2½ and 3l. per cent. to tradesmen or others that agree with them for the same, and making payment thereof by assignation, and passing each man’s account from one to another with much facility and ease * *.”

He furnished “certain proposals for establishing a Bank at London,” one of which was that the society of good men or governors who should manage the bank were to be chosen by the several companies of the merchants of London, the names of which he recites as follows: East India, Turkey, Merchant Adventurers, East Country, Muscovy, Greenland and Guinea Companies. All men were to be at liberty to bring their money to the bank, and if they should desire it again they could have it on demand. Bank credits are also termed, in this pamphlet, “imaginary money”, and this was to be let out at 2½ and 3l. per cent. at the most. All bills of exchange were to be received and paid in bank.

The writer acknowledged the influence upon his mind of the example of the Hollanders. It did not need this, however, to show that he had the Bank of Amsterdam in view in constructing his scheme. The liability of the proposed bank to restore deposits upon demand and the proposition to loan bank credits are not in accordance with the generally conceived idea of the custom of the prototype hank. So far as the first of these is concerned it must be remembered that the ordinance of the City of Amsterdam establishing the bank provided that the depositor might withdraw his money

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at pleasure¹ and the practice of making such deposits irredeemable was of a later date than that of the publication of this pamphlet.²

As to the other point, the Bank of Amsterdam is not supposed to have openly loaned its credits during the term of its existence. This, therefore, may be regarded as an innovation of the author, based perhaps upon rumors of what the Bank of Amsterdam was supposed to do but not upon any open and avowed practice.³

Francis Cradocke, in 1660, published a pamphlet which was addressed to Charles II, in which a proposition was submitted for raising revenue without taxes.⁴ This was to be effected by “Erecting Bankes for the Encouragement of Trade.” The bank which he proposed in this pamphlet to establish was one of deposit, through which, as was the case with the one proposed by Sir Robert Heath, all payments exceeding £20 sterling should be made. He averred that it was generally conceived at that time that the Bank of Amsterdam did not at any time have in ready cash the tenth part of what the bank stood debtor to private persons.

Cradocke was apparently a versatile man and as this plan was not adopted, he followed the proposition by another in 1661, in which he suggested a plan for a bank of deposit which should make loans upon the security

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of lands or the pledge of personal property, three per cent. interest to be charged for such loans.¹

In his second pamphlet, he defined a bank as follows:

“A Bank is an incorporated number or Society of sufficient men of credit and estates, joyned together in a stock as it were, for keeping several mens cash in one Treasury, and making payment thereof by assignation, transferring the ownership of money from one mans account to another, so as the propriety remains still intire to the right owner.” Having shown that payments might be made by transfers of account, he added, “I shall proceed to my third Allegation, that goods, jewels and other pledges may supply such credit of money, which is a great part of my first proposition for the erecting Banks without Money in England.” Following the same line of argument he reached his “main proposition”, which was that “Lands may be as good if not better security than money or jewels.”

Cradocke’s assertion concerning the availability of the deposits of the Bank of Amsterdam would seem to indicate the tendency of belief at that time that the bank was making loans.

The pamphlets published by Cradocke apparently failed to convince the King that the proposed bank could be profitably experimented with in England, but they were so far successful that he secured for himself a grant to establish a bank in Barbados, where under royal protection, in a more limited field and under favorable circumstances it was thought the experiment would succeed. Cradocke in connection with Thomas Elliott, groom of the bed-chamber, filed a petition on

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the nineteenth of November, 1661. The petitioners set forth that the proposition for erecting banks without money in England and thereby raising a great yearly revenue, although theoretically approved by many, did not receive any practical support from the people, for the reason that the experiment had never been tried elsewhere. They suggested that the laws and customs of Barbados especially adapted the island for such an experiment. They said it would be acceptable to the people there, that it would relieve many of the abuses which were complained of, and they prayed for a commission empowering them in connection with certain others to erect a bank there.¹

On the ninth of December, 1661, a warrant was issued to the attorney or solicitor general to prepare a bill authorizing Elliott, Cradocke and others “to erect and manage a bank or banks in the said island, founded on the security of lands and goods, with sole power to give credit and transfer the same from one month’s account to another, as is done by the ownership or credit of money in foreign parts.” * * * A penalty was to be provided for taking or giving more than 6 per cent. interest per annum, and the following clause as to the registry of mortgages and the penalty for counterfeiting bills was added: “The office of keeping the records of estates to be kept at the bank, and any person counterfeiting any bill or seal of the bank, or doing anything to cheat the same, shall on conviction be liable to perpetual imprisonment, and forfeit his estate, one moiety to the crown and the other to him that shall sue for the same in any Court of Record.”²

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It appears that on the 2d day of August, 1660, Cradocke had been appointed provost-marshal-general of Barbados, with all the fees and emoluments incident thereto. The governor was, therefore, instructed to aid him in receiving all the fees belonging to his office and was required to give him every assistance in settling his banks.¹ Again the king addressed the governor of the island, informing him that he had sent to Barbados, “Francis Cradock, heretofore made Provost Marshall General thereof, under the great seal of England, empowering him and others to erect a bank or banks there for trade, which wise and ingenious persons conceive will be practicable and of great accommodation to the people of the island, wherefore as much assistance as may be is to be given him, that the experiment may be forthwith made.”²

Cradocke had based his hopes of success in Barbados upon the favorable circumstances which were supposed to exist there. It is evident that these were purely imaginary, and it is not probable that his bank was ever put in operation.³

A document in the English State Papers under date of 1661, is thus described in the published calendar:—

“Brief description by Sir B. Gerbier D’Ouvilly, of a Bank of Exchange, as very beneficial to sovereign and people and a main prop to a bank of loan on personal estates; suggesting that to make the credit of English Merchants equal to that of foreign, there should be a bank, with a large stock, under fitting

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Governors, such as to remove all jealousy of its falling into the hands of them who hold the militia, with a coinage of its own, called bank money, and ability to lend on real estate; suggesting also the making foreign money current in England.”¹

The next succeeding entry in the Calendar begins “Summary of papers presented to Council by Sir Balt. Gerbier April 10, 1661, relating to his propositions for the establishment of banks of loan.”

These entries do not furnish enough information for us to discover where the funds were to come from which it was proposed to loan nor what was meant by the bank’s having “a coinage of its own.” Doubtless the scheme was sufficiently elaborated in the various papers which were submitted to the council to reveal these points, if we knew their contents.

The phrase “a large stock” would, if used in such a connection to-day, convey the idea of a large paid up stock, but the English at that date were hardly up to the conception of capitalizing a bank according to present methods and, although it may have been the intention of the proponent to convey this exact idea, the inference cannot be said to be inevitable.

It may be inferred from an entry in the Calendar of State Papers, under date of February, 1662-63, that a commission was then issued to the Earl of Bristol to erect in London and in country towns, banks and what were termed “Monts de Piété”. He was to be himself the superintendent over them and had power to appoint deputies and subordinate officers.²

This was probably a scheme for loaning small sums upon pledges of personal property with the intention of

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protecting borrowers of small amounts from the greed of those ordinarily engaged in such traffic. Such, at least, would be the natural interpretation of the “Monts de Piété”, and the so-called banks may have been but a part of such a scheme. Such institutions were sometimes spoken of as banks.

Nearly all the pamphlets of this period which treat of banks favor such establishments. Most of them indeed contain propositions of one sort or another for founding institutions of this nature. In 1664, however, a pamphlet was published the purpose of which was especially to controvert the arguments of Gerard Malynes but the author also attacks what he denominates “another project of the same brood” * * * “a general office—called the King’s Royal Exchange or his Deputies—for exchange of all plate, bullion or money”, on the ground that “it would decay the King’s coinage, deprive the Kingdom of much treasure, abridge the subjects of their just liberty, and utterly overthrow the worthy trade of the goldsmiths” * * *.¹

This publication was posthumous and therefore belongs to an earlier date. We find in it the following reference to bankers: “The Bankers are always ready to receive such sums of money as are put into their hands by men of all degrees, who have no skill or good means themselves to manage the same upon the exchange to profit,”² and the following comments upon the power to control exchange:

“I have lived long in Italy, where the greatest Banks and Bankers of Christendom do trade, yet could

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I never see nor hear, that they did, or were able to rule the price of Exchange by confederacie, but still the plenty or scarcity of money in the course of trade did always overrule them and made the Exchanges to run at high or low rates.”

A pamphlet of twenty-seven pages entitled “A description of the Office of Credit etc” was printed in 1665. It was devoted to an explanation of a scheme for issuing bills against goods to be deposited with a society which either had been organized or was proposed to be organized for that purpose. It is stated on the title page of the pamphlet that the same was issued by the society.¹

Another pamphlet, having no title page, but with the heading “Several Objections sometimes made against the Office of Credit,” was evidently written by the same author and at the same time. The method of setting up men of straw and then knocking them down, was not uncommon with a certain class of pamphleteers in those days.

Henry Robinson, whose name has appeared several times in this discussion, first as the author of a pamphlet in 1641, and again as the proponent of a scheme for a bank in 1650, 1652 and 1654, once more entered the field in 1666. This time he urged the adoption of his plan for a bank. If he should be allowed to carry it out according to his proposition, he wished, among

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other things, that a patent for the monopoly of its use for fourteen years should be granted to him. If the king should take the matter into his own hands, he wanted one-fifth of the profits and the nomination of some of the officers.¹

The idea of establishing warehouses for the storage of goods, where merchants might make deposits and secure advances was advocated in 1676, in a pamphlet entitled “A Proposal for the Advancement of Trade upon such principles as must necessarily enforce it.”

This pamphlet opens with an “Address to the Reader,” which is signed “Robert Murray & Comp’.” The authorship is attributed to Murray. The writer states that the money then current in his Majesty’s dominions consisted exclusively of foreign bullion, of which a sufficient quantity for the purposes of trade could not be secured. His suggestion of a remedy for this evil is made in the following words: “Money being no more than a deposite given for such commodities as men part withal; if in lieu thereof, a Credit be raised upon a substantial Fund, it will in all respects answer the use of money.” His method of making this credit available was that traders should deposit their “dead stock” in magazines, to be established, against which credits should be issued for two-thirds or three-fourths of their value, such credits to be for periods not longer than six months. This is no more, he says, than “what is practised in Banks here and abroad, where men deposite money, and obtain Bank Credit, which generally passeth in Receipts and payments without the real issuing of money, the money remaining as a Pawn or Ground of Security in the Cash Chest, or else is employed by the Banker to his own benefit, the Paper Credit being current

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among Traders.” For the above purpose he thought goods a better security than money.

The relation of the subject of banking to individuals who acted in early days as depositories of funds, cash keepers as they were sometimes termed, and the effect of this action in developing the knowledge of the possibilities of banks of deposits, are shrouded in obscurity and have occasioned students of economic history much research.

A rare pamphlet which was made use of by Anderson in his “Historical and Chronological deduction of the Origin of Commerce,” was reprinted in January, 1888, by Professor Dunbar in the Quarterly Journal of Economics.¹

From the pages of this pamphlet we learn that about 1646 the Merchants began “to put their Cash into Goldsmiths hands to receive and pay for them, (thinking it more secure) and the trade of Plate being then but little worth, most of the Nobility and Gentry, and others melting down their old Plate rather than buying new, and few daring to use or own Plate, the Goldsmiths sought to be Merchants Cash-keepers to receive and pay for nothing, few observing or conjecturing their profits they had for their pains * * * .”

By various means they ingrossed all the cash they could, “and having thus got Money into their hands, they presumed upon some to come as fast as others was paid away; and upon that confidence of a running Cash (as they call it) they began to accommodate men with

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moneys for Weeks and Moneths upon Extra ordinary gratuities, and supply all necessitous Merchants that overtraded their Stock, with present Money for their Bills of Exchange, discounting sometimes double, perhaps treble, interest for the time as they found the Merchant more or less pinched. * * * Every of them that had friends and credit, aspired to this new Mystery to become Bankers or Cashiers.”

We have here a distinct account of individuals performing the functions of banks of deposit and discount. In addition to this it is frequently asserted that at this date they issued notes which were to a certain extent current.

Macleod says:—”Marius the next writer of authority, in 1651, gives several forms of Bills of Exchange, all in the form of orders to pay. He takes no notice of the Goldsmith’s or Banker’s Notes which were certainly then in circulation; but at p. 6, he speaks of offering payment of an acceptance by a ‘note on a Goldsmith’.”¹

The “then in circulation” refers to 1651. The use of the words “Goldsmith’s Notes” and “notes on a goldsmith” in the same sentence is somewhat confusing. The latter he goes on to explain, were the origin of checks.

Marius was describing methods of payment, one of which was that the acceptor might write the payee “a note to go to a Goldsmith, or to such a place to such a man, and there orders the money to be paid.”² This

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note, if on demand, could have been nothing else in substance than the modern check, which is practically a bill of exchange, a form of mercantile paper then in common use.

Macleod is not alone in the belief that the goldsmith’s notes had a limited currency at this period. Other writers upon the subject of banking have expressed themselves in a similar way. This consensus of opinion is based largely upon probabilities. The oldest note of this class, which has been preserved for our inspection, was found among the papers in Temple Bar when that structure was destroyed. Macleod¹ gives a copy of it as follows:

Nov. 28, 1684.

I promise to pay unto Rt. honble, ye Lord North and Grey, or bearer, Ninety pounds on demand.

For Mr. Francis Child and myself

Jno. Rogers.

The mere existence of this demand, bearer, note carries with it a probability that others had been issued at an earlier period, and an examination of the law reports of the period furnishes satisfactory evidence of the truth of this conclusion. During the first half of the seventeenth century the promissory note was unknown to English jurisprudence. The bill of exchange was the only form of commercial paper recognized by law as negotiable and all precedents for pleadings were based upon this form of paper credit. In legal contests which arose upon the new form of commercial paper, the lawyers sought with varying success to apply the rules of law which had been established with reference to bills of exchange. A review of some of the more important of these decisions will disclose the period at

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which the currency of the notes must have been affected by the hostile attitude of the courts and will also enable us to fix the earliest mention of the bearer, demand note in the reports. This was in 1671, when a case arose in which the acceptor of a bill of exchange, made settlement for the same, part in money and part in his demand note payable to the payee of the bill of exchange or bearer. The note was duly paid, but some question arose as to the disposition of the proceeds, which led to the preservation in the report of this case of this statement as to the existence of the note.¹

In 1680, suit was brought upon a note which was payable to bearer but was under seal.² The Court sustained the right of the plaintiff to maintain the suit, upon his allegation that he was the bearer of the note, and referred to the custom of merchants in this regard in the following language:—”As when a merchant promises to pay to the bearer of the note, any one that brings the note shall be paid.” Holt, who was one of the judges present, appears not to have assented to this decision.

In 1682, there were two cases reported, in which promissory notes were involved, the defendant and the banker who issued the notes being the same in both of these cases. The statement of facts in the first of these cases is as follows:—

“The Plaintiff having by his factor sold goods to the defendant, the factor comes to the defendant for his money who tells him that he would give him a note on

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his banker (viz: The Temples, who broke, which occasioned the dispute) and accordingly he writes a receipt in Mr. Bouverie’s book of receipts, who tells him that his man should go with him, and he does go, and the bankers ask him if he would have money or notes * * * he takes two notes * * .”

The circumstances of the second case, so far as the banker’s note is concerned, correspond so closely with the above statement that it is superfluous to repeat them.¹

We have followed these notes far enough in the reports to have reached a point where there is a certain familiarity with them on the part of the courts and to have shown that the custom of merchants in their regard was recognized. Very shortly after this the courts assumed a hostile attitude towards this form of paper credit, and the number of suits which are reported shows that bankers’ notes must then have been in common use. The objection to them appears to have been purely a matter of form. The courts had come to the conclusion that the notes could not be declared on as bills of exchange. Notwithstanding these decisions, lawyers continued to raise the question whether they were not, in law, bills of exchange. In one case an attorney argued that there was no difference between “I promise to pay J. S. or order” and “I pray you to pay J. S. or order.”²

In another case where the same point was raised, Holt C.J. said, “Why do not dealers use that way which is legal and may be this?” and then proceeded to show how the purpose of the parties could be accomplished

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by putting the transaction in the form of a bill of exchange, instead of a promissory note, that is to say, A could draw an order upon himself to pay B a certain sum of money, instead of putting it in the form of a promise to pay the same amount, and while accomplishing his purpose, he could make use of a form of obligation which would be recognized by the courts.¹

Whatever the legal point amounted to which affected the decision of the courts, of course, the opinion of the court prevailed and the negotiability of promissory notes which was thereby destroyed was not restored until parliament intervened with an act of relief.²

While it is not necessary for our present purposes to follow this controversy in detail beyond this point, it is important to consult one or two cases which in their chronological sequence should naturally be considered at a later period. From the cases in question, we can learn something about the course of events in the past and perhaps arrive at an approximate estimate of the time of the advent of the goldsmith’s notes. And first as to the course of events. In a case in which a plaintiff had declared upon the custom of merchants in London, in an action on a bearer note, Treby C.J. said that “bills of exchange were originally between foreigners and merchants trading with the English; afterwards, when such bills came to be more frequent, then they were allowed between merchants trading in England, and afterwards between any traders whatsoever, and now between any persons whether trading or not; and, therefore, the plaintiff need not allege any custom, for now the bills were of that general use, that upon an indebitatus assumpsit they may be given in evidence

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upon the trial, or it may be left to the jury to determine whether it was given for value received.”¹

In what Judge Treby says we obtain knowledge of the manner in which commercial paper overcame the conservativeness of English customs and established, step by step, its right to recognition by the courts in the form of the note, but we have no dates given at which any of the several steps were taken. Chief Justice Holt comes to our relief in this respect. In one case he said that “the maintaining these actions upon such notes were innovations upon the rules of common law, and invented in Lombard Street, which attempted in these matters of bills of exchange, to give laws to Westminster Hall; that the continuing to declare upon these notes upon the custom of merchants, proceeded from obstinacy and opinionativeness.”²

Following the same line of reasoning, he declared in another case, the succeeding year, that he remembered when actions on inland bills did first begin. The notes in question were only an invention of the goldsmiths in Lombard Street, who had a mind to make a law to bind all those that did deal with them. At another day, Holt, Chief Justice, declared “that he had desired to speak with two of the most famous merchants in London, to be informed of the mighty ill consequences that it was pretended would ensue by obstructing this course; and that they had told him it was very frequent with them to make such notes, and that they had been used for a matter of thirty years * * .”³

It may safely be said that these notes could not have been long in use in the commercial world when first they made their impression upon the reports of the

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Law Courts. Hence we can not go far back of 1671 to find the beginning of their use. Chief Justice Holt furnishes us with two means of determining what that date was. In his interview with the two London merchants they said that the notes had been in use for a matter of thirty years. This would carry them back to 1674. The Chief Justice himself remembered when actions on inland bills of exchange did first begin. His knowledge of such actions must have been professional. He was admitted to the Bar in 1663. These actions, therefore, must have begun about that time.¹

The author of the learned note to Mandeville v. Riddle in Cranch’s United States Supreme Court Reports argues that promissory notes ante-dated bills of exchange,² but if we accept the more reasonable theory that they take their place in the line of evolution after the inland bill of exchange which accords with their historic position in the English reports, we can through Holt’s statements concerning the bills and actions brought on them approximately fix the time of their appearance.

It may be inferred, then, that the use of these notes began just before 1670 and that by 1680 they had conquered for themselves recognition in the commercial world. Until other evidence is offered an earlier use can not be conceded as probable.

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