Part 206

"The earliest coinage for America is said to have been executed in 1612, when the Virginia Company was endeavoring to establish a Colony on the Summer Islands (the Bermudas). This coin was of the denomination of a shilling, and was struck in brass." The "pine-tree" money of Massachusetts" was instituted by the Colonial Assembly in 1652, after the fall of Charles I. … This coinage was not discontinued until 1686; yet they appear to have continued the use of the same date, the shillings, sixpences, and threepences all bearing the date 1652, while the twopenny pieces are all dated 1662. … After the suppression of their mint, the Colony of Massachusetts issued no more coins until after the establishment of the Confederacy. … The silver coins of Lord Baltimore, Lord Proprietor of Maryland, were the shilling, sixpence, and fourpence, or groat."

_J. R. Snowden, Description of Ancient and Modern Coins, pages 85-87._

See PINE TREE MONEY.

MONEY AND BANKING: 17-18th Centuries. Banking in Great Britain. Origin and influence of the Bank of England.

"In the reign of William old men were still living who could remember the days when there was not a single banking house in the city of London. So late as the time of the Restoration every trader had his own strong box in his own house, and, when an acceptance was presented to him, told down the crowns and Caroluses on his own counter. But the increase of wealth had produced its natural effect, the subdivision of labour. Before the end of the reign of Charles II. a new mode of paying and receiving money had come into fashion among the merchants of the capital. A class of agents arose, whose office was to keep the cash of the commercial houses. This new branch of business naturally fell into the hands of the goldsmiths, who were accustomed to traffic largely in the precious metals, and who had vaults in which great masses of bullion could lie secure from fire and from robbers. It was at the shops of the goldsmiths of Lombard Street that all the payments in coin were made. Other traders gave and received nothing but paper. This great change did not take place without much opposition and clamour. … No sooner had banking become a separate and important trade, than men began to discuss with earnestness the question whether it would be expedient to erect a national bank. … Two public banks had long been renowned throughout Europe, the Bank of Saint George at Genoa, and the Bank of Amsterdam. … Why should not the Bank of London be as great and as durable as the Banks of Genoa and Amsterdam? Before the end of the reign of Charles II. several plans were proposed, examined, attacked and defended. Some pamphleteers maintained that a national bank ought to be under the direction of the King. Others thought that the management ought to be entrusted to the Lord Mayor, Alderman and Common Council of the capital. After the Revolution the subject was discussed with an animation before unknown. … A crowd of plans, some of which resemble the fancies of a child or the dreams of a man in a fever, were pressed on the government. Pre-eminently conspicuous among the political mountebanks, whose busy faces were seen every day in the lobby of the House of Commons, were John Briscoe and Hugh Chamberlayne, two projectors worthy to have been members of that Academy which Gulliver found at Lagado. These men affirmed that the one cure for every distemper of the State was a Land Bank. A Land Bank would work for England miracles such as had never been wrought for Israel. … These blessed effects the Land Bank was to produce simply by issuing enormous quantities of notes on landed security. The doctrine of the projectors was that every person who had real property ought to have, besides that property, paper money to the full value of that property. Thus, if his estate was worth two thousand pounds, he ought to have his estate and two thousand pounds in paper money. Both Briscoe and Chamberlayne treated with the greatest contempt the notion that there could be an over-issue of paper as long as there was, for every ten pound note, a piece of land in the country worth ten pounds. … All the projectors of this busy time, however, were not so absurd as Chamberlayne. One among them, William Paterson, was an ingenious, though not always a judicious speculator. Of his early life little is known except that he was a native of Scotland, and that he had been in the West Indies. … This man submitted to the government, in 1691, a plan of a national bank; and his plan was favourably received both by statesmen and by merchants. {2210} But years passed away; and nothing was done, till, in the spring of 1694, it became absolutely necessary to find some new mode of defraying the charges of the war. Then at length the scheme devised by the poor and obscure Scottish adventurer was taken up in earnest by Montague [Charles Montague, then one of the lords of the treasury and subsequently Chancellor of the Exchequer]. With Montague was closely allied Michael Godfrey. … Michael was one of the ablest, most upright and most opulent of the merchant princes of London. … By these two distinguished men Paterson's scheme was fathered. Montague undertook to manage the House of Commons, Godfrey to manage the City. An approving vote was obtained from the Committee of Ways and Means; and a bill, the title of which gave occasion to many sarcasms, was laid on the table. It was indeed not easy to guess that a bill, which purported only to impose a new duty on tonnage for the benefit of such persons as should advance money towards carrying on the war, was really a bill creating the greatest commercial institution that the world had ever seen. The plan was that £1,200,000 should be borrowed by the government on what was then considered as the moderate interest of eight per cent. In order to induce capitalists to advance the money promptly on terms so favourable to the public, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The corporation was to have no exclusive privilege, and was to be restricted from trading in any thing but bills of exchange, bullion and forfeited pledges. As soon as the plan became generally known, a paper war broke out. … All the goldsmiths and pawnbrokers set up a howl of rage. Some discontented Tories predicted ruin to the monarchy. … Some discontented Whigs, on the other hand, predicted ruin to our liberties. … The power of the purse, the one great security for all the rights of Englishmen, will be transferred from the House of Commons to the Governor and Directors of the new Company. This last consideration was really of some weight, and was allowed to be so by the authors of the bill. A clause was therefore most properly inserted which inhibited the Bank from advancing money to the Crown without authority from Parliament. Every infraction of this salutary rule was to be punished by forfeiture of three times the sum advanced; and it was provided that the King should not have power to remit any part of the penalty. The plan, thus amended, received the sanction of the Commons more easily than might have been expected from the violence of the adverse clamour. In truth, the Parliament was under duress. Money must be had, and could in no other way be had so easily. … The bill, however, was not safe when it had reached the Upper House," but it was passed, and received the royal assent. "In the City the success of Montague's plan was complete. It was then at least as difficult to raise a million at eight per cent. as it would now be to raise forty millions at four per cent. It had been supposed that contributions would drop in very slowly: and a considerable time had therefore been allowed by the Act. This indulgence was not needed. So popular was the new investment that on the day on which the books were opened £300,000 were subscribed; 300,000 more were subscribed during the next 48 hours; and, in ten days, to the delight of all the friends of the government, it was announced that the list was full. The whole sum which the Corporation was bound to lend to the State was paid into the Exchequer before the first instalment was due. Somers gladly put the Great Seal to a charter framed in conformity with the terms prescribed by Parliament; and the Bank of England commenced its operations in the house of the Company of Grocers. … It soon appeared that Montague had, by skilfully availing himself of the financial difficulties of the country, rendered an inestimable service to his party. During several generations the Bank of England was emphatically a Whig body. It was Whig, not accidentally, but necessarily. It must have instantly stopped payment if it had ceased to receive the interest on the sum which it had advanced to the government; and of that, interest James would not have paid one farthing."

_Lord Macaulay, History of England, chapter 20._

"For a long time the Bank of England was the focus of London Liberalism, and in that capacity rendered to the State inestimable services. In return for these substantial benefits the Bank of England received from the Government, either at first or afterwards, three most important privileges. First. The Bank of England had the exclusive possession of the Government balances. In its first period … the Bank gave credit to the Government, but afterwards it derived credit from the Government. There is a natural tendency in men to follow the example of the Government under which they live. The Government is the largest, most important, and most conspicuous entity with which the mass of any people are acquainted; its range of knowledge must always lie infinitely greater than the average of their knowledge, and therefore, unless there is a conspicuous warning to the contrary, most men are inclined to think their Government right, and, when they can, to do what it does. Especially in money matters a man might fairly reason—'If the Government is right in trusting the Bank of England with the great balance of the nation, I cannot be wrong in trusting it with my little balance.' Second, The Bank of England had, till lately, the monopoly of limited liability in England. The common law of England knows nothing of any such principle. It is only possible by Royal Charter or Statute Law. And by neither of these was any real bank … permitted with limited liability in England till within these few years. … Thirdly. The Bank of England had the privilege of being the sole joint stock company permitted to issue bank notes in England. Private London bankers did indeed issue notes down to the middle of the last century, but no joint stock company could do so. The explanatory clause of the Act of 1742 sounds most curiously to our modern ears. … 'It is the true intent and meaning of the said Act that no other bank shall be created, established, or allowed by Parliament, and that it shall not be lawful for any body politic or corporate whatsoever created or to be created, or for any other persons whatsoever united or to be united in covenants or partnership exceeding the number of six persons in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable on demand or at any less time than six months from the borrowing thereof during the continuance of such said privilege to the said governor and company, who are hereby declared to be and remain a corporation with the privilege of exclusive banking, as before recited.' {2211} To our modern ears these words seem to mean more than they did. The term banking was then applied only to the issue of notes and the taking up of money on bills on demand. Our present system of deposit banking, in which no bills or promissory notes are issued, was not then known on a great scale, and was not called banking. But its effect was very important. It in time gave the Bank of England the monopoly of the note issue of the Metropolis. It had at that time no branches, and so it did not compete for the country circulation. But in the Metropolis, where it did compete, it was completely victorious. No company but the Bank of England could issue notes, and unincorporated individuals gradually gave way, and ceased to do so. Up to 1844 London private bankers might have issued notes if they pleased, but almost a hundred years ago they were forced out of the field. The Bank of England had so long had a practical monopoly of the circulation, that it is commonly believed always to have had a legal monopoly. And the practical effect of the clause went further: it was believed to make the Bank of England the only joint stock company that could receive deposits, as well as the only company that could issue notes. The gift of 'exclusive banking' to the Bank of England was read in its most natural modern sense: it was thought to prohibit any other banking company from carrying on our present system of banking. After joint stock banking was permitted in the country, people began to inquire why it should not exist in the Metropolis too? And then it was seen that the words I have quoted only forbid the issue of negotiable instruments, and not the receiving of money when no such instrument is given. Upon this construction, the London and Westminster Bank and all our older joint stock banks were founded. But till they began, the Bank of England had among companies not only the exclusive privilege of note issue, but that of deposit banking too. It was in every sense the only banking company in London. With so many advantages over all competitors, it is quite natural that the Bank of England should have far outstripped them all. … All the other bankers grouped themselves round it, and lodged their reserve with it. Thus our one-reserve system of banking was not deliberately founded upon definite reasons; it was the gradual consequence of many singular events, and of an accumulation of legal privileges on a single bank which has now been altered, and which no one would now defend. … For more than a century after its creation (notwithstanding occasional errors) the Bank of England, in the main, acted with judgment and with caution. Its business was but small as we should now reckon, but for the most part it conducted that business with prudence and discretion. In 1696, it had been involved in the most serious difficulties, and had been obliged to refuse to pay some of its notes. For a long period it was in wholesome dread of public opinion, and the necessity of retaining public confidence made it cautious. But the English Government removed that necessity. In 1797, Mr. Pitt feared that he might not be able to obtain sufficient specie for foreign payments, in consequence of the low state of the Bank reserve, and he therefore required the Bank not to pay in cash. He removed the preservative apprehension which is the best security of all Banks. For this reason the period under which the Bank of England did not pay gold for its notes—the period from 1797 to 1819—is always called the period of the Bank 'restriction.' As the Bank during that period did not perform, and was not compelled by law to perform, its contract of paying its notes in cash, it might apparently have been well called the period of Bank license. But the word 'restriction' was quite right, and was the only proper word as a description of the policy of 1797. Mr. Pitt did not say that the Bank of England need not pay its notes in specie; he 'restricted' them from doing so; he said that they must not. In consequence, from 1797 to 1844 (when a new era begins), there never was a proper caution on the part of the Bank directors. At heart they considered that the Bank of England had a kind of charmed life, and that it was above the ordinary banking anxiety to pay its way. And this feeling was very natural."

_W. Bagehot, Lombard Street, chapters 3-4._

ALSO IN: _J. W. Gilbart, History and Principles of Banking._

_H. May, The Bank of England (Fortnightly Review, March, 1885)._

MONEY AND BANKING: 17-18th Centuries. Early Paper issues and Banks in the American Colonies.

"Previous to the Revolutionary War paper money was issued to a greater or less extent by each one of the thirteen colonies. The first issue was by Massachusetts in 1690, to aid in fitting out the expedition against Canada. Similar issues had been made by New Hampshire, Rhode Island, Connecticut, New York, and New Jersey, previous to the year 1711. South Carolina began to emit bills in 1712, Pennsylvania in 1723, Maryland in 1734, Delaware in 1739, Virginia in 1755, and Georgia in 1760. Originally the issues were authorized to meet the necessities of the colonial treasuries. In Massachusetts, in 1715, as a remedy for the prevailing embarrassment of trade, a land bank was proposed with the right to issue circulating notes secured by land. … The plan for the land bank was defeated, but the issue of paper money by the treasury was authorized to the extent of £50,000, to be loaned on good mortgages in sums of not more than £500, nor less than £50, to one person. The rate of interest was five per cent., payable with one-fifth of the principal annually. … In 1733 an issue of bills to the amount of £110,000 was made by the merchants of Boston, which were to be redeemed at the end of ten years, in silver, at the rate of 19 shillings per ounce. In 1739, the commercial and financial embarrassment still continuing, another land bank was started in Massachusetts. … A specie bank was also formed in 1739, by Edward Hutchinson and others, which issued bills to the amount of £120,000, redeemable in fifteen years in silver, at 20 shillings per ounce, or gold pro rata. The payment of these notes was guaranteed by wealthy and responsible merchants. These notes, and those of a similar issue in 1733, were largely hoarded and did not pass generally into circulation. In 1740 Parliament passed a bill to extend the act of 1720, known as the bubble act, to the American colonies, with the intention of breaking up all companies formed for the purpose of issuing paper money. {2212} Under this act both the land bank and the specie bank were forced to liquidate their affairs, though not without some resistance on the part of the former. … The paper money of the colonies, whether issued by them or by the loan banks, depreciated almost without exception as the amounts in circulation increased. … The emission of bills by the colonies and the banks was not regarded with favor by the mother country, and the provincial governors were as a general thing opposed to these issues. They were consequently frequently embroiled with their legislatures."

_J. J. Knox, United States Notes, pages 1-5._

MONEY AND BANKING: 17-19th Centuries. Creation of the principal European Banks.

"The Bank of Vienna was founded as a bank of deposit in 1703, and as a bank of issue in 1793; the Banks of Berlin and Breslau in 1765 with state sanction; the Austrian National Bank in 1816. In St. Petersburg three banks were set up; the Loan Bank in 1772, advancing loans on deposits of bullion and jewels; the Assignation Bank in 1768 (and in Moscow, 1770), issuing government paper money; the Aid Bank in 1797, to relieve estates from mortgage and advance money for improvements. The Commercial Bank of Russia was founded in 1818. The Bank of Stockholm was founded in 1688. The Bank of France was founded first in 1803 and reorganised in 1806, when its capital was raised to 90,000,000 francs, held in 90,000 shares of 1,000 francs. It is the only authorised source of paper money in France, and is intimately associated with the government."

_H. de B. Gibbins, History of Commerce in Europe, book 3, chapter 4._

MONEY AND BANKING: A. D. 1775-1780. The Continental Currency of the American Revolution.

"The colonies … went into the Revolutionary War, many of them with paper already in circulation, all of them making issues for the expenses of military preparations. The Continental Congress, having no power to tax, and its members being accustomed to paper issues as the ordinary form of public finance, began to issue bills on the faith of the 'Continent,' Franklin earnestly approving. The first issue was for 300,000 Spanish dollars, redeemable in gold or silver, in three years, ordered in May and issued in August, 1775. Paper for nine million dollars was issued before any depreciation began. The issues of the separate colonies must have affected it, but the popular enthusiasm went for something. Pelatiah Webster, almost alone as it seems, insisted on taxation, but a member of Congress indignantly asked if he was to help tax the people when they could go to the printing-office and get a cartload of money. In 1776, when the depreciation began, Congress took harsh measures to try to sustain the bills. Committees of safety also took measures to punish those who 'forestalled' or 'engrossed,' these being the terms for speculators who bought up for a rise."

_W. G. Sumner, History of American Currency, pages 43-44._

"During the summer of 1780 this wretched 'Continental' currency fell into contempt. As Washington said, it took a wagon-load of money to buy a wagon-load of provisions. At the end of the year 1778, the paper dollar was worth sixteen cents in the northern states and twelve cents in the south. Early in 1780 its value had fallen to two cents, and before the end of the year it took ten paper dollars to make a cent. In October, Indian corn sold wholesale in Boston for $150 a bushel, butter was $12 a pound, tea $90, sugar $10, beef $8, coffee $12, and a barrel of flour cost $1,575. Samuel Adams paid $2,000 for a hat and suit of clothes. The money soon ceased to circulate, debts could not be collected, and there was a general prostration of credit. To say that a thing was 'worth a Continental' became the strongest possible expression of contempt."

_J. Fiske, The American Revolution, chapter 13 (volume 2)._

Before the close of the year 1780, the Continental Currency had ceased to circulate. Attempts were subsequently made to have it funded or redeemed, but without success.

See UNITED STATES OF AMERICA: A. D. 1780 (JANUARY-APRIL).

ALSO IN: _H. Phillips, Jr., Historical Sketches of American Paper Currency, 2d Series._

MONEY AND BANKING: A. D. 1780-1784. The Pennsylvania Bank and the Bank of North America.