Ferdinand Mount · Collect your divvies: Safe as the Bank of England · LRB 15 June 2023

Sep 21, 2023

The Bank of England​ had been in existence for only a few months when it was first called on to save the nation's bacon. The second siege of Namur in the summer of 1695 was to prove the decisive engagement in the Nine Years’ War. It was a huge battle, more than 100,000 on each side. William of Orange was in personal command of the allied forces and was making headway against the French, but he had run out of cash to pay the siege workers. A delegation from the fledgling bank zoomed across the Channel to begin coining money in Antwerp. On 17 July, the bank's first deputy governor, Michael Godfrey, eager to see war at first hand, strolled into the trenches and found himself crouching alongside the king, who was furious to encounter him there. As Macaulay writes in his History of England,

‘Mr Godfrey, you ought not to run these hazards, you are not a soldier; you can be of no use to us here.’ ‘Sir,’ answered Godfrey, ‘I run no more hazards than Your Majesty.’ ‘Not so,’ said William. ‘I am where it is my duty to be; and I may without presumption commit my life to God's keeping; but you …’

At this instant, a cannonball from the ramparts laid Godfrey dead at the king's feet. Macaulay goes on to say that ‘it was not found, however, that the fear of being Godfreyed – such was during some time the cant phrase – sufficed to prevent idle gazers from coming to the trenches.’ Godfrey's death caused a fall of 2 per cent on the stock exchange, a fitting tribute to an honest merchant, and the City Poet, Elkanah Settle, a hack versifier derided by Dryden and Pope, wrote a threnody for him which prophesied that this ‘fair Foundation Royal/… Beyond her yet too narrow lease shall stand/With its unshaken head, till time's last sand.’ This last phrase was borrowed by David Kynaston for the title of his captivating history of the bank.* The exit of the deputy governor remained unequalled for drama until the resignation of another deputy governor during the Barings crash three centuries later, after a Sunday tabloid reported that he had made love to an American journalist on the carpet of the governor's dressing room – the so-called ‘Bonk of England Affair’.

The Godfrey affair has lasting resonances. We find the bank in its infancy already coming to the rescue of a government unable to finance its costly foreign wars. Indeed, Sir John Clapham, at the opening of his magisterial 1944 history of the bank, speculates that ‘had the country not been at war in 1694, the government would hardly have been disposed to offer a favourable charter to a corporation which proposed to lend it money.’ From the start, war and the bank were joined at the hip. At the same time, we see the bank and its supporters straining for an immortality far beyond the ‘narrow lease’ of its initial charter, a mere twelve years. As time goes by, we shall find the bank repeatedly bailing out a cash-strapped government in return for an ever-lengthening extension of the charter.

The two sieges of Namur are also thought to mark a novelty of a different sort: throughout the desperate and bloody fighting, the government encouraged public interest in and support for the war. The sieges were a media circus. It was the birth of war tourism. As Macaulay points out, there were plenty of other onlookers ready to risk being Godfreyed. At home, newspaper reports, medals, maps and eulogies combined to bring the public in on the action that they were now directly helping to finance.

Eighty years on and several charters later, the bank had become a byword for solidity. People started using the phrase ‘as safe as the Bank of England’. In March 1783, the bank appointed three of its directors to form a Committee of Inspection, to reinforce the reputation of ‘the Palladium of public credit’. It is at this point that Anne Murphy takes her bird's eye view of a day in the life of the bank. In her acknowledgments she expresses some apprehension about having plumped for this approach, but she need not have worried. This is a model of economic history, acute, profound and diverting. Before becoming an academic, Murphy worked for twelve years in the City, trading interest rate derivatives – a subject about which she has clearly forgotten more than the senior management of Barings ever learned.

By 1783, the bank had more than three hundred clerks and was doling out huge loans to the East India Company, the South Sea Company and the Hudson's Bay Company as well as to the Exchequer itself. Unlike the rackety EIC, it never ran into such choppy water that it had to be regulated and controlled. The bank survived as an independent private contractor from 1694 until it was nationalised in 1946, with its common seal of Britannia seated on a money chest (for the coinage, Britannia was transferred to a less mercenary but more uncomfortable perch on a rocky foreshore), safe in its fortress in Threadneedle Street, windowless at ground level, for fear of a repeat of the attack on the bank during the Gordon Riots of 1780, which brought panic and destruction to the City. The bank opened for business the next day, on a reduced scale.

You cannot help being struck by the awesome stability of all its arrangements: the paper for banknotes was manufactured at Portals’ mills in Hampshire from 1724 until the switch to polymer notes less than a decade ago. Alas, as cash fades from circulation, De la Rue, which prints it, has had to issue no fewer than four profits warnings in the last two years. For a couple of hundred years, too, despite a not undeserved reputation for antisemitism, the bank relied on Mocatta and Goldsmid to discover the proper price of bullion, and on Freshfields for legal advice. All the bills and dividends were painstakingly made out by hand in pretty much the same fashion until the advent of computers.

Not only painstaking but painful. The clerks suffered rotten health, and although their pensions were generous, they did not often survive more than five years after retiring, suffering as they were from the cold, damp and lack of fresh air in the bank, impaired eyesight and frequently paralysis of the writing arm or, as we would say, repetitive strain injury. Charles Lamb records in ‘The Superannuated Man’ the misery of his years in Mincing Lane as a writer for the EIC. He became haunted by a sense of incapacity for business: ‘I had perpetually a dread of some crisis, to which I should be found unequal. Besides my daylight servitude, I served over again in my sleep, and would awake with terrors of imaginary false entries, errors in my accounts, and the like.’ When he is gently let go, with a handsome pay-off, he rejoices in his newfound leisure, but for a time finds himself at a loss and misses the old routine and companionship. This is Pooter as victim, and as hero.

Murphy's day-in-the-life method brings out how public-facing the bank was, how deliberately approachable, open for business all day, six days a week. From 1782, The Bank of England's Vade Mecum informed the public ‘how to transact that Business with Ease, Safety and Dispatch, and also to prevent the numerous Inconveniences which so daily happen’. The Vade Mecum included site maps and orientation tips, pointing out such landmarks as the statue of William III and the great clock. You could exchange a note for ready coin, cash in your dividends and more. Thomas Rowlandson's picture of the Rotunda from 1792 is filled with a crowd of jobbers, speculators, investors and matrons, as jolly and busy a scene as Ranelagh Gardens or the music room at Vauxhall, and like those other popular venues a magnet for foreign tourists. Sixty years on again, George Elgar Hicks's Dividend Day at the Bank (1859) shows a rich social mix of classes and ages come to collect their divvies. As a precaution, there was blotting paper inserted between each leaf of the Dividend Book to prevent the people signing it from getting a squint at the other names.

The significant minority of women investors put in sums ranging from a few pounds to thousands. The largest recorded by Murphy in 1784 is the £12,000 invested in 3 per cent consols by Miss Ann Allen from Pembrokeshire. This, I guess, must be the elder sister (born 1732) of the notoriously bad-tempered John Bartlett Allen of Cresselly, who discovered large coal reserves under his house, which he then rebuilt higher up the hill, and dug out a sizeable fortune. Ann's investment of her portion would be a good example of the way the proceeds of the mineral reserves that founded the fortunes of so many aristocratic and gentry families eventually washed up in government coffers. In 1802, Samuel Taylor Coleridge stayed for a month in the delightful rococo rooms that Allen made at Cresselly, gorged himself on cream and pestered the Miss Allens to go into Haverfordwest to buy him more laudanum, on a Sunday.

To build up the bank's credibility, a reputation for fair dealing and protection against fraud was essential and not easy to win. Security measures were fairly primitive: fragile wooden chests with a single padlock, large sums left to be handled by junior clerks, and the entries not all double-checked until after the reforms proposed by the Committee of Inspection, which was aghast to discover that the senior men in every department went home at 3 p.m., while the tallying and signing off were not finished until the small hours. Many clerks acted as jobbers on their own account, pretending to be unaware that this practice was officially banned.

Yet the bank's reputation for probity only increased with the years. In theory, all brokers were licensed by the City. In practice, there were quite a few unlicensed ones, but Adam Smith pointed out that those who did not keep their credit would soon be turned out and become ‘lame ducks’ (the term was originally used to refer to defaulters). There were spectacular frauds, of course. In their report, the inspectors single out for praise the clerk who attended on them, Robert Aslett, for his unfailing diligence. Aslett later rose to become Second Cashier and was in line for the top job, but he lost thousands on private speculations and stole thousands more in Exchequer bills to cover his losses. He was condemned to death, the sentence commuted to life imprisonment, a mercy not extended to Francis Fonton, a clerk in the Dividend Office who defrauded dozens of his clients, friends and lovers and was executed in 1790. Forgery remained a constant problem, the death penalty proving no deterrent. The forgers proliferated hugely after the triumph of paper money in the great crisis of 1797. In despair, the bank launched a competition for ‘the inimitable note’. No luck: the forgers continued to outwit the bank's engravers, just as the scammers today keep several steps ahead of the bank's fraud department.

Despite the lurid headlines provoked by these cases, the bank's security remained strong enough to satisfy even such an acerbic critic as Daniel Defoe, who wrote that ‘no accounts in the world are more exactly kept, no place in the world has so much business done with so much ease.’ Murphy points out that the bank's credibility was earned by its daily performance, ‘in the provision of liquidity’ and as a ‘one-stop shop in which business relating to the public debt could indeed be done with "readiness, ease and dispatch".’

By the time of the War of the Austrian Succession in the 1740s, the bank had become, in Kynaston's words, ‘indispensable to the functioning of a national financial war machine that was soon the envy of all rival powers’. In the multiple bank collapses of 1763, at the end of the Seven Years’ War, the bank for the first time assumed the role of lender of last resort, bailing out several Continental banks as well as British ones, a step towards the adoption of the powers and responsibilities we now take for granted in central banking. As we reach Murphy's period, we find Smith in The Wealth of Nations pronouncing that ‘the stability of the Bank of England is equal to that of the British government … It acts not only as an ordinary bank but as a great engine of state.’ This reputation survived the suspension of bullion payments in the crisis of 1797. In fact, the bank emerges from the ‘long 18th century’ of European war, from Namur to Waterloo, with its reputation greatly enhanced. As the economic historian turned Tory MP Kwasi Kwarteng observed in War and Gold (2014),

Despite this steep increase in borrowing, the fact that the paper pound essentially held its value was an extraordinary piece of financial management on the part of any central bank. The Bank of England had organised government borrowing, but it had not put money into circulation. In modern parlance, the bank maintained a tight control of the money supply, in sharp contrast to the French and American Revolutionary regimes.

If only we could say the same of Mr Kwarteng's own brief period in office.

Modern historians​ have been awestruck by the emergence of what John Brewer in The Sinews of Power memorably called ‘the fiscal-military state’. Such a state, like Britain, was capable of operating a bureaucracy dedicated to extracting substantial taxation, which could then be used to prosecute a major war. Brewer's prime example is the Excise. But Murphy argues that one consequence of Brewer's influential work is that ‘taxation and its bureaucratic underpinnings have been the subject of much scholarship, while the question of how the state borrowed, and from whom, has been neglected.’ In fact, Brewer himself has plenty to say on debt management and the superiority of the British system to the French, until Jacques Necker came along, too late, in 1777. Murphy is surely right, though, in pointing out that while taxation was essential, borrowing provided the immediate funds needed in time of war (vide Mr Godfrey's hasty trip to Namur). Adam Smith argues that borrowing is intrinsic to modern life: ‘The same commercial state of society, which by the operation of moral causes, brings government in this manner into the necessity of borrowing, produces in the subjects both an ability and an inclination to lend.’

One interesting point, which not even Murphy brings out fully, is how well aware of the new developments people were at the time. Among the many publications helping lay investors to experience the new financial world with all its opportunities and its pitfalls was Thomas Mortimer's Every Man His Own Broker, first published in 1761, reissued in a dozen editions over the next forty years, and translated into the other great languages of commerce: German, French, Dutch and Spanish. Mortimer was able to consider the way the Bank of England weathered the storms of the American and French Revolutionary Wars, as well as the dynastic wars that had preceded them. This later experience only reinforced the upbeat message of the earlier editions, that Mortimer's little book would help the reader ‘to see by what easy methods a free government raises the large, but necessary annual supplies, for carrying on heavy and extensive wars; in comparison of those grievous and oppressive measures taken in despotic governments on the same emergencies’:

Surely, the breast of any Englishman, possessed of monied property, must glow with rapture and admiration, when he considers, that while the unhappy subjects of the other powers engaged in the two last wars were quite exhausted, and thousands of them totally ruined, owing to the demands made on them by their arbitrary monarchs, he voluntarily contributed towards defraying the public expences of his country, in a manner that so far from being burdensome to him, with respect to the large sums wanted yearly, that on the contrary he served himself at the same time by lending his money on parliamentary security.

National power and private profit – what a delicious combination. Through the comic smugness, there shines a terrifying confidence in the unbeatable springiness of Britain's financial arrangements. As early as the 1690s, the economist Charles Davenant observed that ‘the whole Art of War is in a manner reduced to Money,’ so that ‘that Prince who can best find Money to feed, cloath and pay his Army, not he that has the most Valiant Troops, is surest of Success and Conquest.’ By Murphy's period, the mobilisation of private savings for the projection of national power has reached public consciousness. As a result, it is not, I think, fanciful to detect a greater readiness in Britain, for all Parliament's objections, to go to war, whether to repel aggression, avenge insults or consolidate territorial gains.

There were, of course, panics in Parliament and the country when overstretched banks crashed in London, Scotland or Calcutta, when the costs of waging war reached alarming heights and when the national debt soared at the end of the war. Yet there was an underlying confidence that the bank had the stamina to see off its creditors. In any prolonged conflict, even the fabulous wealth of the Indian Rajahs could not outlast the East India Company, with its ability to borrow on the money markets of the world. The jezail might outperform the British musket, the Marathas had better field guns, forged in their own armouries, and first-rate French officers, but in the end financial firepower decided the outcome (one notable exception was Lord Auckland's calamitous Afghan expedition which destroyed the EIC's credit rating and forced Britain to sue for peace). France, too, had superior economic resources and manpower but a puny financial sector that was perennially crippled by huge taxes, partly because France's wars were on a far larger scale than Britain's. The Bank of England remained Britain's last line of defence, unbreached and imperturbable.

Michael Godfrey was buried in the City church of St Swithin's, which was smashed up in the Blitz – the second occasion on which lying below ground level had failed to protect Godfrey's body from enemy action. The church was demolished after the war. What a pity. It would have been the ideal place for a grateful nation's memorial to the Unknown Bank Manager.

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Till Time's Last Sand was reviewed in the LRB by Jamie Martin (24 January 2019).