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61ST CONGRESS ) CPXTAmP (DOCUMENT 2d Session f SENATE j SQ1 NATIONAL MONETARY COMMISSION HISTORY OF THE BANK OF ENGLAND And its Financial Services to the State Second edition, revised EUGEN VON PHILIPPOVICH Professor of Political Economy in the University of Vienna Translated by CHRISTABEL MEREDITH WITH AN INTRODUCTION BY H. S. FOXWELL Washington : Government Printing Office : 1911 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis NATIONAL MONETARY COMMISSION. NELSON W. ALDRICH, ] Qiode Island, Chairman. EDWARD B. VREELAND, New York, Vice-Chairman. JULIUS C. BURROWS, Michigan. JOHN W. WEEKS, Massachusetts. EUGENE HALE, Maine. ROBERT W. BONYNGE, Colorado. PHILANDER C. KNOX, Pennsylvania. SYLVESTER C. SMITH, California. THEODORE E. BURTON, Ohio. LEMUEL P. PADGETT, Tennessee. HENRY M. TELLER, Colorado. GEORGE E. BURGESS, Texas. HERNANDO D. MONEY, Mississippi. ARSENE P. PUJO, Louisiana. JOSEPH W. BAILEY, Texas. ARTHUR B. SHELTON, Secretary. A. PIATT ANDREW, Spa Assistant to Commission. 2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis TABLE OF CONTENTS Page. INTRODUCTION BY H. S. FOXWELL 5 PREFACE TO FIRST EDITION 23 PREFACE TO SECOND EDITION 27 INTRODUCTION 29 PART I. THE FOUNDATION OF THE BANK OF ENGLAND. I. THE DEVELOPMENT OF ENGLISH ECONOMIC ORGANIZATION DUR­ ING THE SEVENTEENTH CENTURY, WITH SPECIAL REFERENCE TO THE LOAN SYSTEM 43 II. PUBLIC CREDIT BEFORE THE FOUNDATION OF THE BANK 55 III. THE FOUNDATION OF THE BANK OF ENGLAND, AND ITS STATU­ TORY RELATION TO THE STATE 68 PART H. THE RELATIONS BETWEEN THE BANK AND THE ADMINISTRATION OF THE PUBLIC DEBT, AND OF THE PUBLIC MONEY DURING THE EIGHT­ EENTH CENTURY 78 THE EVOLUTION OF THE NATIONAL DEBT AND OF ITS ADMINISTRATION. A. The principle of the incorporation of public debt as recognized at the foundation of the bank, and its subsequent application: 1. The principle of incorporation 80 2. The attempt to establish a land bank 84 3. The East India Co 86 4. The South Sea Co 91 B. History of the exchequer bills and their importance in the sys­ tem of public debt 96 C. The administration of the national debt by the companies: 1. The distinct characters of the companies in 2. The development of the forms of debt 113 3. The connection between the companies and the manage­ ment of the public debt 123 (a) The East India Co 125 (b) The South Sea Co 125 (c) The Bank of England 132 4. The duties involved in the management of the debt and the indemnity paid by the State 137 II. THE ADMINISTRATION OF PUBLIC MONEY AND THE BANK'S SHARE THEREIN 143 1. The central financial authorities—the treasury and the exchequer 145 3 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis National Monetary Commission II. THE ADMINISTRATION OF PUBLIC MONEY AND THE BANK'S SHARE THEREIN—Continued. Page. 2. The position of the receipt offices and the exchequer 152 3. The right of assignment 160 4. The administration of money by the pay departments.. 164 5. The transactions between the public office and the bank. 175 PART IE. THE LEGAL DEVELOPMENT OF THE RELATIONS BETWEEN THE BANK AND THE ADMINISTRATION OF THE PUBLIC DEBT AND PUBLIC MONEY. I. THE BANK AND THE ADMINISTRATION OF THE PUBLIC MONEY. 1. The reforms in the administration of public money be­ tween 1780 and 1834 183 2. The union of the public treasury with the bank (1834).. 190 3. Reforms in organization and administration between 1834 and 1866 197 II. THE BANK AND THE ORGANIZATION OF THE PUBLIC DEBT 210 PART IV. THE PRESENT POSITION OF THE BANK AS THE FINANCIAL SERVANT OF THE STATE 220 I. THE BANK AS MANAGER OF THE PUBLIC MONEY. 1. The concentration of the public revenue in the bank 222 2. The exchequer account 225 3. The paymaster general and his accounts 231 4. Provisions for covering the cash deficit 242 5. Methods of payment 244 6. The control over money transfers 249 II. THE BANK AS THE OFFICE FOR THE MANAGEMENT OF THE PUBLIC DEBT 253 CONCLUSION 261 APPENDIX I THE STATUTORY BASIS OF THE POSITION OF THE BANK OF ENGLAND IN THE ENGLISH ECONOMIC SYSTEM 271 APPENDIX II THE SETTLEMENT OF THE NATIONAL LAND BANK 281 APPENDIX III THE PRESENT FORMS OF THE EXCHEQUER BILLS, TREASURY BILLS, AND EXCHEQUER BONDS 285 APPENDIX IV AVERAGE AMOUNT OF THE PUBLIC DEPOSITS AT THE BANK OF ENGLAND 288 APPENDIX V BANK ACT, 1892 290 4 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis INTRODUCTION BY H. S. FOXWEXL. The work of Professor Philippovich here translated is a recognized economic classic. It owes this position to the importance of its subject and the thoroughness and accuracy with which the distinguished author has handled it. The position of the Bank of England is so exceptional that its history must always be of peculiar interest; and this more especially in so far as concerns its relations to public finance. For this Bank was, above all others, perhaps, in its origin and development, emphatically the servant of the State. Arising out of a State loan, it was cradled in a Ways and Means Act dealing with the tonnage duties imposed to provide interest on the loan; and in early days was nick­ named the " Tunnage Bank." At the outset the Bank of England had no other statutory relations to the State; in fact, special provision was made to limit its services to those authorized by Parliament. Even its banking monopoly was not conferred by the orig­ inal charter. Starting without a monopoly, it obtained its privileged position by its unfailing loyalty to the Gov­ ernment; just as the Bank of Scotland, which started with a monopoly, lost it in 1727 by its suspected affection for the interest of the Pretender. Thus the different attitude toward the State of the two contemporary banks, carrying with it differences of privilege, determined the difference in the national systems of banking in England 5 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis National Monetary Commission and Scotland, a difference which reached its extreme about a century ago. The nineteenth century has seen the struggle between these two types of banking end in the complete victory of the Scottish type. The issue is still a live one in the United States; but in the United Kingdom it may now be said that, for good or ill, the large branch bank has completely ousted the small local bank. In all probability this result would have come about at least a century earlier but for the close connection between the Bank of England and the State. But though the Bank of England was at its origin rather an incident of State finance than the foundation of a national banking system, its services to the State were very narrowly restricted by statute. It is curious to note that those exchequer functions which it afterwards under­ took, and whose gradual assumption it is the principal object of this book to trace, are not even referred to in the original act and charter. The fact is that the Bank of England, like most really English institutions, was case- made; it owed its form and functions not to systematic planning, but to attempts to meet emergencies as they from time to time arose. Thus the "running cash note," which afterwards became the most effective banking instru­ ment of the English bank, was an evasion, even if not (as often alleged) a positive infraction of its charter. The charter only contemplated an issue of " sealed bills," strictly limited in amount to the capital subscribed. If this was so with its banking methods, it was equally the case with its relations to the Exchequer. The connection of the Bank with the public revenue, as Professor Philippovich clearly shows, grew up informally 6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis The English Banking System long before it received legislative recognition. It can not be said, however, that the matter was altogether over­ looked at the foundation of the Bank. As usually happens in times of national crisis, when the public mind is deeply stirred, the air was full of constructive schemes, and almost every conceivable form of public bank had active and able advocates. " Banks swarm everywhere/' writes I/Hermitage, referring to the numerous projects in 1695. Among the various types then proposed there are of special interest: The State Bank, owned by the State; the National Branch bank of the type of the present Banque de France; and the Bank of London, or City Bank, under the man­ agement of the Corporation. The first and last of these were at the time inadmissible. The credit of neither State nor City of London would have commanded general con­ fidence. It is to be observed that contemporary writers always spoke of the Bank of England as resting upon Par­ liamentary, not State, security; that is, upon an income definitely secured by the Parliament upon the yield of par­ ticular taxes. The Crown might have had more to say in regard to a State bank. Moreover, the authorities of a State bank might have sacrificed both the national trade and the stability of the Bank to exigencies of State. A board of merchants representing private proprietors was less likely to make this mistake. No doubt a city bank, resting like those of Amsterdam and Hamburg on the guaranty of the Corporation, might have been trusted to promote commercial interests. But the credit of the City of London in 1694 was at its lowest ebb.

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