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THE Treaty of Paris,
concluded between Britain, France, and Spain, in January 1783,
inaugurated a period of ten years' peace. This was abruptly and terribly
ended by the great French Revolution, which appears to have been only
the most hideous manifestation of an almost world-wide disturbance in
all departments of the civilised economy. Great changes had taken place
in men's views; and with the progress of knowledge, and the increase of
wealth, there spread a desire for liberty which rapidly developed into
license. Comparatively isolated as Scotland was, it reflected in a
marked degree the tendencies of the time. The rude and simple-living
Scot had become luxurious as his wealth increased; and the vices of
advanced civilisation manifested themselves in a corresponding ratio.
This was particularly the case in Edinburgh, which had always been far
ahead of the rest of Scotland. The city had spread out its borders to a
large extent; and with the exodus of the higher classes from their
pent-up alleys and courts to the spacious streets and squares of the new
town, a complete change occurred in the manners and customs of the
citizens. Scotland, like the rest of the European nations, had awakened
to a sense of its inherent power. It cannot occasion wonder that this
social revolution was accompanied by excesses; and it is matter for
congratulation, that the natural good sense of the people kept them
within comparatively moderate bounds.
In our second last
chapter we traced the rapid development of banking in Scotland, which
accompanied this progress of the nation in material prosperity. It
remains for us on the present occasion to bring down our narrative to
the close of the century, which terminated with the consolidation of the
empire as the United Kingdom of Great Britain and Ireland.
In 1783, simultaneously
with a large increase in their capital, the Royal Bank (who had refused
in 1780 a proposal to open a branch in Paisley) for the first time
departed from their policy of confining their operations to the
Metropolis, by opening an office in Glasgow. It would appear, however,
that this desirable and too long delayed operation was performed in a
very humble manner. According to an interesting record of banking events
in Glasgow, their first office was on the one side of a small shop in `Hopkirk's
Land,' east side of High Street, five doors north from the corner at the
Cross. Their agent carried on his ordinary business of a linen-draper on
the other side of the shop. The rent paid by the bank was £2: 10s.
annually. The agent had been originally a herd-boy, afterwards a weaver
in Paisley, Hamilton, and Cambuslang, thereafter a clerk to a
silk-mercer in Glasgow, and at the time the bank employed him, he was,
as already said, a linen-draper on his own account." [Banking in Glasgow
during the Olden Time, Glasgow, 1862 p. 23, note. Also 2nd edition,
1884, p. 16.] If this account of the commencement of their direct
connection with Glasgow be correct, it is evident that they had no great
faith in its success. Their subsequent policy in regard to branch
extension shows a strict adherence to conservative views. It was not
until the collapse of the Western Bank, in 1857, that they adopted in
earnest the theory of a branch system.
With the exception of a
slight panic which seized the depositors with private bankers in
Edinburgh in 1788—a consequence of several severe failures among corn
merchants and distillers, with whom they were involved—few incidents of
importance fall to be considered until the year 1793. The private
banking house of Seton, Wallace & Co. was established in Edinburgh in
1791. It does not seem to have existed for more than fifteen years, as
the firm is not mentioned after 1805 ; probably owing to the death of
Mr. Alex. Wallace on 12th June 1804. Bank stock seems to have commanded
a high price at this time, as it is recorded in 1792, that "three shares
of the capital stock of the Bank of Scotland, with the benefit of the
new subscription, were sold at £740, which is £246:13: 4 a share.
Besides this, the purchaser pays the auction duty, which makes it above
£254 for each original share of £1000 Scots, or £83 : 6 : 8 sterling."
About the same time the new stock of the Royal Bank sold at £240 per
cent.
The rapid advance of the
country in industrial projects, to which we have already referred, seems
to have proceeded with more activity than discretion. The political
disturbances in connection with the French Revolution, and the renewal
of hostilities with France, gave a severe shake to the unduly extended
system of credit. Numerous bankruptcies occurred throughout the country.
These told heavily on the banks. This was more particularly the case in
Glasgow, where the crisis led to the failure of the Glasgow Arms Bank
(Murdoch, Robertson & Co.), and of the house of Andrew, George, & Andrew
Thomson, which had been formed in 1785. The former bank stopped payment
on March 14th, with liabilities to the extent of £183,000. These were
eventually met in full without interest. The failure of the Messrs.
Thomson did not take place until 5th November. Their debts, which are
stated at £64,564 by one authority, and at £47,000 by another, were
ultimately paid in full.
The private bankers in
Edinburgh were greatly pressed for money. Sir William Forbes says, " The
check to circulation, and the consequent demands for money, began to be
felt by us, as well as by our neighbours, very early in the year 1793,
and rose to such an alarming height as put the demands on the house that
took place in the year 1788 totally out of remembrance." After referring
to the failure of the Glasgow Arms Bank, and to the bankruptcy of "James
Dunlop, of Glasgow, who was supposed to be one of the most opulent and
cautious men of business in the West," he proceeds to state, that "on
the 23rd April, the house of Bertram, Gardner & Co., of Edinburgh, also
stopped payment, and to complete the confusion, the four banks of
Newcastle, which were known to be opulent, were forced to shut up on the
12th April, owing to their not having had the precaution to keep in
readiness sufficient funds to meet the demands that were made upon them.
Their stoppage was accompanied by that of a great many country banks in
England." Sir William is, doubtless, correct in giving 23rd April as the
date of the stoppage of Bertram, Gardner & Co., but it is somewhat
curious that their actual bankruptcy did not occur until 10th December
following. Their creditors had granted a "deed of supersedere," under
which, "followed by a very liberal subscription of guarantee in aid of
the funds of the house," and the direction of a committee, they
continued to conduct their business. [Courant, 2nd May 1793. It is
probable that the Merchant Bank of Glasgow also ceased at or about this
time.] Sanguine expectations were, however, disappointed; for the firm
failed again on 10th November, and were made bankrupt a month later.
They were the only bankers in Edinburgh who succumbed at this crisis.
Their liabilities were about £145,000, of which their estates liquidated
17s. 6d. per £. The provincial bankers seem to have all stood this
trial.
An interesting project,
which unfortunately proved abortive, was formed about this time, for the
establishment of a new bank at Glasgow. Recognising the superiority of
corporate banks over banking companies, its promoters proposed that it
should be erected under Act of Parliament. It was to have been modelled
on the constitution of the Bank of England; but, had it been formed, it
would probably have more nearly resembled the two Edinburgh banks. On
12th June, 1793, just when financial affairs were assuming a more
satisfactory character, a meeting was held in Glasgow to consider the
proposal. The decision appears to have been favourable, and steps were
taken to carry out the project. But, whether from want of sufficient
support, or on account of the unfavourable condition of commercial
affairs in the West of Scotland, or refusal of Government recognition,
or other impediment, the scheme fell through. This gives cause for some
regret, for had the Glasgow Royal Bank—for so it was to have been
styled—been actually established on the high-class footing which was
sketched out, there is reason to believe that it might have been very
successful, not only in a financial sense, but as fostering legitimate
trade, and imparting a high tone to banking in the West of Scotland. It
might have done much to mitigate, if not to avert, the consequences of
the recklessness and speculativeness which have always been too
characteristic of banking as conducted in Glasgow, more especially, but
also elsewhere, by banking companies dominated by the mercantile spirit.
Nearly, we might almost say-absolutely, all the banking disasters in
Scotland can be clearly traced to too intimate a connection between the
management of banks and the mercantile section of the community. Such a
bank as was here designed would have been sufficiently independent.
The continuance of the
war with France and the dread of invasion were the immediate causes of
another crisis in 1797. This was a more general disturbance than that we
have just referred to. [It was not, however, in the so-called
"decennial" series. That occurred four years earlier-1793 being in the
true periodical rotation. The present was a currency crisis.] A
continuous and heavy drain of gold to meet expenditure abroad, and loans
to foreign allies, had exhausted the bullion reserve of the Bank of
England, and curtailed the metallic circulation throughout the country.
The wants of the community led to extensive issues of local coins,
tokens, and notes for small payments. Year by year the withdrawal of
coin from the country had grown worse, prices had risen excessively, and
at last the Bank of England was brought within a few days of stopping
payment. Roused to action by the representations, often repeated, of the
Bank Board, the Privy Council, on 26th of February, directed the Bank of
England to suspend payment in specie. On the following day, in
accordance with this order, the Bank Directors issued a circular
declaring "the affluent and prosperous situation of the general concerns
of the Bank," and stating that they would continue "their usual
discounts for the accommodation of the commercial interest, paying the
amount in bank notes." The suspension of specie payments was confirmed
by Parliament, and lasted until 1821.
The news of this
important event arrived in Edinburgh on the 1st March, by an express
sent to the Bank of Scotland. The demands on all the banks in Edinburgh
for specie were continually pressing; but they had hitherto maintained
their ability to meet them. Now that access to the ultimate bullion
reserve had been cut off, however, it was imperative that they should
protect themselves by immediate action of an unusual kind. Sir William
Forbes supplies a graphic and interesting account of the proceedings
which took place. It was generally believed that "the nation was ruined
beyond redemption." The public banks and private bankers met, and
consulted with one another, "for all ceremony and etiquette of public or
private banks was now out of the question, when it had become necessary
to think of what was to be done for our joint preservation on such an
emergency." It was resolved to follow the example of the Bank of England
by suspending all payments in specie. The local authorities supported
this resolution, and information of the fact was sent throughout the
country. Sir William adds, that "the instant this resolution of paying
no more specie was known in the street, a scene of confusion and uproar
took place, of which it is utterly impossible for those who did not
witness it to form an idea."
Another contemporary
account states that, "in consequence of the measures adopted by the
banks, of refusing to give out specie for notes, resolutions have been
entered into by a great number of gentlemen to receive bank notes in all
payments; for this purpose, subscription papers lay open for several
days in the Merchants' Hall. There seems little doubt that the great
scarcity of specie in this part of the island is occasioned by the fear
of an invasion, operating too powerfully on the ignorant and desponding
part of the community. The responsibility of the Banks, joined to a
renewal of confidence, from a short trial, will, we doubt not, set all
to right very soon. While individuals hoard up, and deprive the banks of
their usual supplies, it cannot be expected that they should exchange in
their usual way. A little more liberality, in giving small sums to such
as they know, we think would be right and proper." [Scots Magazine,
1797, p. 212,]
One of the most
distressing features of the situation was the want of small currency.
For sums of £1 and upward the bank notes were still available, but for
smaller sums there was no medium of payment. The commonalty, and indeed
the whole community, were thereby placed in a most painful situation.
Tradesmen could not pay wages, and small purchases could not be made.
People resorted to the expedient of tearing £1 notes into halves and
quarters, a practice which appears to have been tacitly recognised by
the banks. Eventually an Act was passed to permit banks to issue notes
of less than 20s. value for a limited period. Under the provisions of
this Act, the Bank of Scotland, Royal Bank of Scotland, and British
Linen Company (who are specifically mentioned), and all other banks or
banking companies in Scotland, in operation, and issuing notes on or
before 1st March 1797, but no other persons, were empowered to "issue
notes, bills, or tickets, in the nature of bank-notes, payable to the
bearer on demand, for any sum whatever, under the sum of 20s. sterling."
The banks were indemnified for having so issued before the passing of
the Act; but the powers of issue conferred by the Act were to cease on
15th May following. By a subsequent Act the latter provision was
extended to 5th July 1799. In accordance with the powers thus given, the
three old banks, and probably many of the other banks, made an issue of
5s. notes, and the excitement gradually subsided. It does not appear
that any other denomination of fractional notes was issued. Indeed, it
is probable that the banks were reluctant to do more in this matter than
was absolutely required in the public interest. For, while the expense
of making these notes would be as great as for larger denominations, the
profit from them would be proportionally smaller.
The action of the Scotch
bankers in suspending payment in specie was, of course, quite illegal,
and any creditor could have prosecuted his claim for payment in legal
tender. The authority granted, or rather the order given, to the Bank of
England did not extend to other bankers. It is noticeable, however, that
notwithstanding the public excitement which ensued on the promulgation
of the resolution, no attempt was made to enforce claims by appeal to
the law courts. It would appear, moreover, that while the notes of the
Bank of England fell to a discount, the Scotch circulation always
maintained its par value. In fact, after the first excitement had worn
off, the public accepted the notes of the banks in an inconvertible form
as readily as they had formerly done when they were exchangeable for
specie on demand. Such a circumstance would be impossible now; and
rightly so, for an inconvertible note is essentially an abomination. But
it was not ignorance on the part of the public that tided the banks over
this dangerous epoch. It was that spirit of true national patriotism
which, relying with confidence on the solidity of the banks, recognised
that the action of the latter was occasioned by a common emergency, and
called for the support and not for the opposition of their creditors. We
now live under more selfish, if more logical conditions; but to the
repeated forbearance of our ancestors in regard to the conduct of the
Scotch banks, and to their sometimes overtaxed confidence in their
respectability, Scotland owes no small part of its subsequent
prosperity. Had our forefathers overturned the banking system whenever
it went a little agee, the industrial life of the nation would have been
subjected to repeated paralytic strokes, which would have dwarfed and
stunted the national growth.
It would seem that up to
this period the impression of the duty stamps on bank notes, newspapers,
etc., had to be performed in London ; for it is stated that, in
September 1785, there was an agitation to have arrangements made for
carrying out that part of revenue work in Edinburgh instead of requiring
papers to be sent to London. The agitation was renewed in 1805, and some
time before 1812 the Edinburgh Stamp Office seems to have been
authorised to impress. At least this may be inferred from the narrative
of an unsuccessful attempt then made to exact new license dues on
changes of partners in banking companies. |
