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THE year 1765 is notable,
in Scottish banking, on account of the first Act specially regulating
the business having been then passed. Previous to that date, there were
no restrictions on the proceedings of the various establishments, other
than those embodied in their individual constitutions, or imposed by the
common law of the land; and it was only in the case of the three oldest
banks that the constitutions were prescribed by competent authority; the
others being entirely free to lay down, or abstain from laying down,
such rules as to the partners seemed fit. In point of fact, however, the
old establishments set the example, and moulded the general principles,
which were adopted throughout the country, for the conduct of banking
business. That they should have survived, while the majority of their
imitators have passed away, is to be attributed to the fact that the
younger establishments, in the eagerness of their rivalry, forgot the
principles they nominally adhered to, while they had not sufficient
strength and credit to carry them through trials which were met by their
powerful competitors with comparative ease.
The practical immunity
from legislative interference which characterises banking in Scotland
until the year 1844 has been an unmistakable blessing to the country,
and has saved the banks from those vexatious and unnecessary
distinctions and restrictions which have hampered and distorted English
banking. In Scotland, banking was permitted to develop as the country
advanced in wealth and in intelligence. Nay, it was even enabled to lead
the nation on the path of prosperity, and to evolve, from practical
experience, a natural and healthy system of banking, which would have
been impossible under close State control similar to that followed in
other countries. Despite the manifest errors and stains conspicuous in
the history of Scottish banking, the system matured by Scottish bankers
is justly acknowledged to be a model one. Freedom, however, has its
limits; and, at the time we are now dealing with, it had become
absolutely necessary to impose some check on the indiscriminate issue of
notes, which had been pushed to an extent which produced the pardonable,
but not strictly accurate, contemporary exclamation of a writer in the
Edinburgh Advertiser:—"Since the beginning of the world there never was
a nation so much abused by banking as Scotland is at present, and
probably never will again till the end of time."
The grievance was not
that there was an overissue of notes (although that was freely stated),
for with the system of periodical exchanges, which even then was pretty
systematically carried out, that was impossible except to a small
extent. The main evil lay in the pernicious practice devised, as we have
already seen, by the Bank of Scotland during its early troubles with the
Royal Bank (1730), of inserting in the bank notes a clause making them
repayable at a term after presentation (usually six months) in the
option of the issuers. Although it was stipulated that, in such
circumstances, interest should accrue on the principal sum at 5 per cent
per annum, the option was entirely inconsistent with the nature of bank
notes, whose legitimate character is that they should be convertible
into specie on demand. The action was, besides, of the nature of a
forced loan, in regard to which the lender had no say. Moreover, by this
means, persons of little or no substantiality were enabled to raise
money by an unadvisably easy method, which was availed of to a very
large extent as far as the number of issuers was concerned.
This phase of the note
circulation was greatly aggravated, by the practice of issuing notes for
very trifling sums, varying from one shilling Scots upwards. The regular
bankers do not seem ever to have adopted a smaller issue than five
shillings; but a multiplicity of business firms, and small partnerships
organised for the purpose, thrust their worthless paper on the public.
This appears to have been accomplished, mainly, by employers of labour
paying wages in this personally convenient form. It would probably be
impossible to enumerate all the instances of this species of note
issues, but the following examples may be both interesting and amusing.
James Smiton, seemingly a coffeehouse keeper in Edinburgh, obliges
himself "to pay the bearer, on demand, in money or drink, two shillings
and sixpence sterling," on the backs of which notes, it is stated, "are
sometimes marked receipts for one or more mugs of porter, or bottles of
strong ale, &c., in part [payment]. "P. Williamson, Edinburgh, under the
designation of the Ready-Money Bank, promises "to pay to Sir John
Falstaff, or bearer on demand, in books, coffee, or ready-money,
according to the option of the Director (!), One shilling sterling,
value received." The Mason Barrowman Company of Edinburgh issued a
lengthily-worded and formidable-looking document for the value of one
shilling Scots (one penny sterling).
Perth, however, was the
great seat of this industry. There, notes were issued by the "Wright
Journiman Company" for one shilling Scots; by the "Tannery Company"
(Stewart, Richardson & Co.); by the Craigie Company" (John Ramsay &
Co.); John Stewart & Co.; Blacklaws, AVedderspoon & Co.; and MacKeith,
Rintoull & Co. [Boase, p. 56.] But, while the epidemic was most virulent
in the old town of St. Johnston, it was general throughout the country.
Even in Stornoway, in the Lews, there was an issue by the local
proprietor. In this case, however, it is probable that no smaller
denomination than £1 was used, and that the issue was justified by the
want of currency [This issue may not have commenced until a Iater
period.] George Kellor & Co., wine and spirit merchants in Glasgow,
Martinson & Co. at Falkirk, James Scrimgeour & Son at Borrowstounness,
and Alex. Fleming & Company at Kirkliston, issued similar notes. These,
together with the Perth notes, were made retirable in Edinburgh, when
public opinion became clamant against this species of imposition. The
position of this matter was rather piquantly hit off by a print,
purporting to he a note dated Glasgow, 16th January 1765, promising to
pay one penny sterling, or, in the option of the directors, in three
ballads, six days after demand. The border was ornamented with figures
of wasps, and the note bore the motto, "We swarm."
Although this state of
matters was highly objectionable, and justified the futile endeavours of
county magnates to refuse such notes in payment of rents, taxes, etc.,
the existence of these notes was occasioned by a severely felt public
want of a medium for small payments. The metallic currency of Scotland
was, and had been for an indefinite period, in a chronic state of
insufficiency. Some theorists may hold that the paper drove out the
coin; but, although this is a sound theory in general, it will not hold
in the present case, for the want of coin was felt before any notes
existed, and the denominations of the notes were only lowered below £1
as the necessity for small change became pronounced. Moreover, it is
clear that there was a distinct suction of coin to England, to assist in
meeting war expenditure abroad; and during the intervals of peace,
English investments in Scotland were withdrawn for employment at home,
where a state of war prevented so profitable a use of capital as the
poverty of Scotland at all times admitted of. From innumerable
statements, it is evident that the silver coinage in Scotland (gold had
been almost entirely replaced by notes) was altogether inadequate to
meet the requirements of the people. Even the large banks experienced
great difficulty in maintaining their reserves. This scarcity of coin
was the cause both of the optional clause and of the issue of small
notes. Indeed, some contemporary writers held that the optional clause
was a necessary counteraction to the tricks of English bullion jobbers,
who drew fictitious bills on London, at 30 days' currency, which they
sold in Edinburgh at a premium for notes payable on demand. These in
turn being converted into gold, the proceeds were sent to London to meet
the bills which would fall due a few days after the arrival of the
remittance.
In response to the
agitated condition of the public mind in regard to the note circulation,
the Bank of Scotland and the Royal Bank induced the then Lord Advocate,
Thomas Miller, Esq., of Barskimming, afterwards Lord President of the
Court of Session and a Baronet, to bring in a bill dealing with the
subject. [The Scots Magazine, October 1769, states that the credit for
this Act is chiefly duo to the Earl of Eglinton, whose murder they then
record.] The result of this representation was the Act of George III.
cap. 49, entitled, "An Act to prevent the inconveniences arising from
the present method of issuing notes and bills by the banks, banking
companies, and bankers, in that part of Great Britain called Scotland."
The provisions of this Act were: (1) That from and after 15th May 1766,
it should not be lawful to issue "any note, ticket, token, or other
writing for money, of the nature of a bank-note, circulated, or to be
circulated as specie, but such as shall be payable on demand in lawful
money of Great Britain, and without reserving any power or option of
delaying payment thereof for any time or term whatever." Also, that such
as were in circulation at that date, should thenceforward be deemed
payable on demand. (2) That summary execution might proceed on all bank
notes not paid on demand —one protest being allowed to include any
number of notes. (3) That from and after the 1st day of June 1765, no
bank note should be issued for any sum of money less than 20s. sterling;
and that those which had been issued up to that date might be allowed to
circulate for one year thereafter. The penalty attached to infringement
of the provisions of this Act was a fine of £500 with costs of suit,
payable to informers. The delays prescribed for the full enforcement of
the provisions of the Act were doubtless intended to allow time for the
accumulation of reserves of coin, and for an increase in the metallic
circulation; but it does not seem that the Government took any steps
towards practically assisting this movement. Indeed, it is probable that
unless the banks had themselves moved in the matter, the abuses of the
circulation would have gone on unheeded by the rulers of the land, whose
heads were always more engrossed, in those days, with foreign dynastic
intrigues, and the raising of loans and taxes at home, than with the
social questions which distressed their subjects.
A minor effect of this
Act was an alteration of the hours during which the banks were open for
business. Formerly they were open forenoon and afternoon, with an
interval for refreshment: (we read of the worthy citizens going for
their "meridian" when the "gill-bells" rang at half-past eleven from St.
Giles, just as in the afternoon they took their " four hours' penny,"
i.e. a penny glass of ale). This arrangement was changed to a continuous
period from nine to three o'clock; these being the hours during which
notes not paid on demand might be protested. It need not be supposed
that total abstinence during these hours supervened; doubtless a
luncheon hour (whatever it might be termed) would be arranged on some
system of relays.
We are now approaching
the great Scottish banking crisis of 1772, which will fall to be treated
of in our next chapter; but meanwhile we may note some of the principal
incidents which occurred from 1763 till that date, other than those
already dealt with. In our last chapter we alluded to the establishment
of the Dundee Banking Company of George Dempster & Co., which commenced
business on 1st August 1763, with a paid-up capital of £1260. Although
during the century of its existence, terminating with its amalgamation
with the Royal Bank of Scotland in February 1864, it gradually developed
into an institution of no small moment, having a paid-up capital of
£100,000, deposits to the amount of £685,000, and a note circulation of
£41,000, it was in its early years classed with the note societies of
which we have been treating. It was, however, from the first in all
respects a bank; and although about the year 1837 it was actually in a
state of insolvency, from which it was only rescued by systematic good
management, it played a most important part in developing the industries
of Dundee and Forfarshire; and as the first bank formed in Dundee, and
one of the earliest and most successful of the provincial banks, it
possesses a peculiar interest. Its progress has been fully chronicled in
a series of valuable statistics and notes (a quarry of information) by
its last manager, Mr. C. W. Boase, who, while managing partner of the
Dundee New Bank, was called on to readjust its embarrassed finances,
which, as we have seen, he amply succeeded in doing.
The private firm of John
Macadam & Co., in Ayr (or Air, as it was then spelled), was also
established in 1763. The business was purchased eight years later by
Douglas, Heron & Co. The year 1766 witnessed the formation of the Perth
United Company. It was dissolved on 6th May 1787, its notes being
retired and the banking business carried on by a new company under the
firm-name of the Perth Banking Company, which existed until 1st August
1857, when it joined the Union Bank of Scotland. The firm of Alex.
Johnston, Hugh Lawson & Co. in Dumfries, which was another of Douglas,
Heron & Co.'s bad bargains, also commenced in this year (29th October).
In the succeeding year (1767), the long-headed Aberdonians made up for
their abortive scheme of 1749 by establishing the Banking Company in
Aberdeen, which proved a most wonderful success. It was organised as a
regular joint-stock company. The contract of co-partnery, which took
effect as from 1st January 1767, ascribes the formation of the company
to the great scarcity of all kinds of specie in the north of Scotland,
and the dangers of "the extensive and industrious circulation of a
variety of bank-notes issued and signed by people unknown in this part
of the country," as well as for the promotion of local industries. It
defines the business to be engaged in as "issuing notes of hand, lending
money on cash-accounts, bills, or permanent securities, purchasing bills
of exchange, and discounting inland bills or notes." The capital
subscribed was £72,000, in shares of £500 each, of which £200 was to be
paid up. This seems to have been immediately completed to £75,000, with
£30,000 paid up. An absolute prohibition against engaging in any other
business was carefully prescribed; and the other regulations were
similarly judicious. The company appears to have been managed with
consummate ability during the greater part of its career. Over a series
of years its dividends averaged 8 per cent per annum, besides occasional
large bonuses added to paid-up stock. In 1836 the paid-up capital was
£200,000, of which £170,000 was accumulated from profits, in addition to
a reserve of £50,000. The shares, bearing £150 paid, sold in 1821 at
£1400, and in 1836 they were worth £3000. This singularly prosperous
concern was merged in the Union Bank in 1849. [Theory and Practice of
Joint-Stock Banking, Peter Watt, Edinburgh, 1836.] About this time—the
spring of 1769—the smaller traders in Glasgow started a new bank, called
The Merchant Banking Company of Glasgow.
The only important
banking incident which falls to be recorded at this time is the failure,
in August 1769, of William Hogg & Son, who had been established in
Edinburgh for about twenty years. They had temporarily suspended payment
previously, when the senior partner was alive. After his death the
business was continued by his son Thomas. The failure was connected with
advances to a lead-mine speculator. Although the business was not
extensive, the liquidation seems to have been a prolonged one, as
notices of meetings appear as late as 1793. The depositors were not paid
in full. The surviving partner died in Edinburgh on 12th April 1784.
This bankruptcy had little effect on the general position. In the same
year the miserable three years' fiasco of Douglas, Heron & Co. commenced
its ruinous career. |
