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A History of William Paterson and the Darien Company
Chapter III. The Darien Company and its bank-note issue

One of the first operations resolved upon by the Court of Directors of the Darien Company was the organising of a banking business as an adjunct to their great colonisation scheme. This was in defiance of the Act passed in favour of the Bank of Scotland on 17th July 1695, whereby that institution had a monopoly of banking in Scotland. The Bank Act declared that, for the space of twenty - one years after its date, "it shall not be leisom [lawful] to any other persons to enter into or set up an distinct Company of Bank within the Kingdom."

The Act of the Darien Company contained no reference to banking, being solely directed to foreign trade and commerce. It appears, however, that Paterson had it in view from the first to include banking, or a "fund of credit" as he termed it, as part of his scheme. This intention was kept secret at first; but it got "air" about the month of May 1696, while Mr John Holland of London, the founder and first governor of the Bank of Scotland, was temporarily residing in Edinburgh. Holland had come to Scotland at the request of the directors of the Bank for the purpose of placing the young institution on a proper business footing, as he was thought to be better acquainted with the nature and management of a bank. Holland felt keenly the unexpected and hostile attitude of the Darien Company, and he made a spirited attack on Paterson in a pamphlet published in Edinburgh in 1696. This brochure is entitled 'A short Discourse on the present Temper of the Nation with respect to the Indian and African Company and of the Bank of Scotland; also of Mr Paterson's pretended Fund of Credit.' In this paper Holland stated that, on his arrival in Edinburgh, Paterson came " and begged him to pardon his ever pretending against the Bank, and [declaring] that whatever had been [done] was only for fear it might interrupt and hinder the subscriptions to the African Company, but he [Paterson] saw it did not, and therefore wished all manner of success to it." [Paterson had no hand in the formation of the Bank of Scotland, but was rather opposed to it. In a letter to Lord Provost Chiesly, dated London, 15th August 1695, he says, "I desire a copy of the Bank Act so surreptitiously gained. It may be a great prejudice [to our Company], but is never likely to be any matter of good to us, nor to those who have it."] Notwithstanding this protestation, Paterson and his associates proceeded with their banking operations.

The following establishment was appointed, apparently with a view to engaging in banking on an extensive scale:—

On 18th June 1696 an engraved copperplate for printing bank notes was given in charge by the Court of Directors to their Committee of Treasury, "to be kept under lock and key with the cash." The committee were also ordered to take care " that no copies or blank bills should be cast off or printed, but in presence of three at least of their number; who were further directed to take all such blanks into their special care, as if the same were real money."

A writer in the ' Scottish Antiquary' of July 1896 states that the character of the lettering on the copperplate is so close a copy of Paterson's handwriting that it may be assumed that the

original model of it passed to the engraver direct from his own pen. A similar reference is made to the handwriting filling up the blank spaces, dates of issue and money amounts, &c., of the actual notes in process of being made ready for circulation.1 The notes were of the values of 100, 50, 20, 10, and 5. The same copperplate was used for all the denominations of the notes, the different values being written in with the hand.

Following upon this—viz., on 26th June— the Court of Directors, having under consideration " the manner of rendering the Company's Current-Bills useful," ordered that fit persons should be appointed at Glasgow, Dundee, Aberdeen, &c., to be cashiers to the Company, who should have certain amounts of the Company's bills in their hands, to answer and serve the Company's correspondence in these towns and the several next adjacent places. Accordingly, the cashiers of the Company in the various parts were charged with the Company's bank notes, for the purposes of circulation, as follows :—

Owing to the poverty of Scotland at this period, the practice of receiving money on deposit had not begun, and banking clients were all borrowers. [The Bank of Scotland appears to have first received money on deposit in 1707, for which no interest was given. In 1729 it was received on current account on the treasurer's bond or bill, carrying interest. In 1762 notes payable to order by the treasurer for deposits began to be used as a regular branch of business. In 1810 deposit receipts were commenced, and havo since continued in use.] Strict banking consisted in lending money on heritable and personal bonds and in the discount of bills. By this means the Bank notes were placed in the hands of the public.

As we have seen, the Darien Company opened agencies in various provincial towns for the purpose of circulating their notes. This infringement of the Bank's special Act of Parliament and obstruction to its progress at the beginning of its career was very trying to the young institution. In a letter written in 1696 by the London directors of the Bank to their colleague Mr Holland in Edinburgh, they say that they "are sorry to hear of any designs of the African Company against us [i.e., the Bank], having resolved to assist them in the best of our power, they themselves within the bounds of their Act." Although the Bank directors possessed the exclusive privilege of banking in Scotland, they did not exercise their right of contesting their legal position, and so extinguishing the innovation on their monopoly. The Darien Company was too popular throughout Scotland, "the whole humour of the nation being run on it," to render any action of this kind a success. The Earl of Marchmont, writing to the Duke of Queensberry in December 1699, says: " I have enough ado to keep myself from falling into disgrace with that Company, which is little less than to say falling into disgrace with the Scots nation." Mr Holland noted this, and prudently advised his fellow-directors "to lie by for a little, and so manage the Bank's affairs as not to suffer an affront from the mighty Company by the latter making a run upon their cash." As it happened, the obstruction was temporary only, and in a year or two it entirely disappeared.

Lawson, in his ' History of Banking,' states that in order to obtain a circulation of their notes, and to suppress the notes of their rival the young Bank, the Company lent money on securities which they were unable to realise, —"this coming to the knowledge of the public, lessened the value of their stock so much that they ultimately gave up the banking business." The Company also made advances to their own proprietors on the security of their stock—a practice which had to be discontinued. [ "And the Committee of Treasury was ordered to sign no more Warrants to the Cashier for lending money to any of the proprietors of this joint-stock, upon the credit of their respective Shares therein, without special order from the Court of Directors concerning the same."—Darien Company Minute, 2nd October 1696.]Probably the chief cause of their non-success in banking was the fact that the whole of their paid-up capital, with borrowed money in addition, was fully required in exploiting their great colonisation scheme. The want of "till-money" endangered the convertibility of their notes. As Paterson himself states in a tract, published in 1705, "No bank can succeed without a considerable fund of cash to answer necessary demands."

When the notes were finally retired by the Company on 19th June 1701, the total issue had amounted to 12,085 only, thus—

These notes were the Company's first and only issuer They were all dated 25tli June 1696; made payable to the chief accountant, James Dunlop, or bearer on demand; signed by the chief cashier, Gavin Plummer, and countersigned as "entered" by the assistant cashier, Andrew Cockburn. The Company had no notes below 5. [By way of contrast, we give the Bank of Scotland note circulation at the time. In his 'Short Discourse' (1696) Mr Holland says: "As soon as the rules and methods for carrying on the Bank of Scotland were agreed to by the General Meeting of Adventurers, the Directors proceeded to business, and with such success that the credit of the Bills [Bank notes], as fast as they were issued out, obtained to a degree beyond expectation." The Bank took in its subscriptions and commenced business some months earlier than the Darien Company, and their first issue of large notes is dated 25th March 1696, being three months prior to those of the Darien Company. 1 notes were not issued by the Bank until 7th April 1704. In December 1704, when the Bank made a temporary stop, caused by the scarcity of money all over the kingdom and by a report that the Privy Council was to cry up the value of "species," the balance-sheet, drawn up for the information of the Council, reported that the Bank notes outstanding amounted to 50,847. This was after the Bank had met a severe run.

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