Full text of History of the Bank of England and Its Financial Services to the State, Box 6, Item 4

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6 1st C o n g r e ss {

2d Session

f

ct^ t a ' pt?

SEN ATE

( D o cu m en t

-j

591

NATIONAL M O NETARY COMMISSION

HISTORY OF THE BANK
OF ENGLAND
And its Financial Services- to the State




Second edition, revised

BY

EUGEN VON PHILIPPOVICH
Professor of Political Economy in the University of Vienna

Translated by
C H R IS T A B E L M E R E D IT H
W IT H A N IN T R O D U C T IO N B Y
H. S. F O X W E L L

Washington : Government Printing Office : 1911

6 1st Co ng r ess /

2 d Session

\

SEN ATE

j D ocument

j

591

NATIONAL M O NETARY COMMISSION

HISTORY OF THE BANK
OF ENGLAND
And its Financial Services to the State




Second edition, revised

BY

EUGEN VON PHILIPPOVICH
Professor of Political Economy in the University of Vienna

Translated by
C H R IST A B E L M E R E D IT H
W IT H A N IN T R O D U C T IO N B Y
H. S. F O X W E L L

Washington : Government Printing Office : 1911

NATIONAL MONETARY COMMISSION.

N e l s o n W . A l d r ic h , I Lhode Island, Chairman.
E

d w a rd

B . V r e e l a n d , New York, Vice-Chairman.

J u l iu s C. B u r r o w s , M ichigan.

J

E u g e n e H a l e , M aine.

R o b e r t W . B o n y n g e , Colorado.

P h il a n d e r C. K n o x , Pennsylvania.

S y l v e s t e r C. S m it h , California.

ohn

W . W e e k s , Massachusetts.

T h e o d o r e E. B u r t o n , Ohio.

L e m u e l P. P a d g e t t , Tennessee.

H e n r y M. T e l l e r , Colorado.

G e o r g e F. B u r g e s s , Texas.

H e r n a n d o D . M o n e y , Mississippi.

A r s i n e P. P u jo , Louisiana.

J

o seph




W. B a i l e y , Texas.
A. P ia t t A n d r e w , Spe<

A r t h u r B . S h e l t o n , Secretary.
Assistant to Commission.

T A B L E OF CO N TEN TS
Page.
I ntroduction b y H. S. F oxwell
P reface to first ed itio n ...............
P reface to second edition ............
I ntroduction ........................................

5
23
27
29

PA R T I.
T he F oundation
I.

T he

development of

of the

English

B ank

of

E ngland .

economic organization dur ­

ing the seventeenth century , with special reference

TO THE LOAN SYSTEM...........................................................................

II .
III.

P ublic credit before the foundation of the b a n e ........
The foundation of the B ank of E ngland , and its statu ­
tory RELATION TO THE STATE.................................................

PA RT

68

n.

T he R elations b etw een the B ank an d the A dministration of
the P ublic D ebt , and of the P ublic Mo n ey during the E ight ­
eenth Ce n t u r y ...............................................................................................
T he

43
55

78

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:
x. The principle of incorporation..............................................
2. The attempt to establish a land bank................................
3. The East India Co...................................................................
4. The South Sea Co....................................................................
B. History of the exchequer bills and their importance in the sys­
tem of public debt.......................................................
C. The administration of the national debt by the companies:
1. The distinct characters of the companies...........................
2. The development of the forms of debt...............................
3. The connection between the companies and the manage­
ment of the public d eb t.....................................................
(a) The East India Co..................................................
(b) The South Sea C o.....................................................
(c) The Bank of England..............................................
4. The duties involved in the management of the debt and
the indemnity paid by the S ta te ....................................
II. T he administration of public m oney and the b a n k ’s share
t h e r e in ..........................................................................

1.




The central financial authorities—the treasury and the
exchequer....................................................................
3

80
84

86

91
96

hi
IJ3
123
I25
I25
132
r37
*43
*45

M onet ary

Na t i o n a l
II. T he

Commi ssi on

administration op public m oney and the b a n k ’s share

THEREIN —Continued.

2.
3.
4.
5.

Page.

The position of the receipt offices and the exchequer___
The right of assignment..........................................................
The administration of money by the pay departments..
The transactions between the public office and the ban k.

152
160
164
175

PA R T III.
T he L egal D evelopment ok
and the A dministration
Mo n e y .
I. T he

the

R elations betw een the B ank
P ublic D ebt and P ublic

of the

b an k and the administration of the public m o n ey .

1.

The reforms in the administration of public money be­
tween 1780 and 1834................................................................
2. The union of the public treasury with the bank (1834)..
3. Reforms in organization and administration between 1834
and 1866....................................................................................
II. T he bank and the organization of the public d eb t ..............

183
190
19^
210

PA RT IV.
T he Present P osition
of t h e

I. T he

1.
2.
3.
4.
5.
6.

of the

B ank

as the

F inancial S ervant

S t a t e ..........................................................................................

220

bank as manager of the public money .

The concentration of the public revenue in the bank..............
The exchequer account....................................................................
The paymaster general and his accounts......................................
Provisions for covering the cash deficit.................................... . .
Methods of payment...........................................................................
The control over money transfers...................................................

II . T h e

222
225
231
242
244
249

b a n k as th e office for th e m a n a g em en t of th e public

DEBT ........................................................................................................

253

C onclusion ..................................................................................................

261

A ppendix I

T he

B an k of E ngland
...................................................

statuto ry b a sis of th e position of the

in th e

E n g lish

economic s y s t e m

271

A ppendix II

T he

settlement of the national land b a n k ...................................

28 i

A ppendix I I I

T he

p r e se n t forms of th e ex c h eq u er b il l s , t r e a su r y b il l s ,

AND EXCHEQUER BONDS . . . .................................................................

285

A ppendix IV

A v e r a g e amount of the public deposits at the B a n k of
E n g l a n d ...... ...........................................................................................

288

Appendix V
B ank




act,

1892..............................................................................................
4

290

IN T R O D U C T IO N
BY

H. S. F o xw bll .

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




N at ion a l

M on et a r y

Co mmi s s i o n

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 casemade; 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

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
L ’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. The Chamber
of London, classed in 1650 with the Bank of Amsterdam as




7

N at io n a l

M on et ary

Co mmi s s i o n

an example of the highest kind of security, had recently
“ fail’d to the Ruine of many thousands of all Ages and
Ranks.” They had been obliged to apply to Parliament
in 1693 for “ means of satisfying the Debts due to the
Orphans by their Orphans Fund,” which was then some
£600,000 in default. A bill was prepared to provide cer­
tain local dues for this purpose, and passed into law June,
1694. The extremity to which the city was reduced may
be judged from the fact that they paid Speaker Trevor
a bribe of 1,000 guineas to secure the passing of this bill,
no less a man than Sir John Houblon, afterwards first
governor of the Bank of England, being a witness to the
transaction. The bribe was discovered later, and the
Speaker expelled from the House. The whole business
left the Corporation gravely discredited.®
It is not so clear why the third type of bank did not
receive more consideration. This, whether under State or
private management, was to be a National, rather than
a London bank, and to have branches in every important
town. It was argued in favor of this plan that it would
give a much more general stimulus to industry and trade;
that it would tend to prevent their undue concentration
in the Metropolis (Bristol was greatly concerned on this
point); and that it would furnish invaluable facilities for
remittance, practically doing away with internal exchange
rates, then very burdensome. Numerous proposals had
been made for a bank of this type, most of them anony­
mous. Those by Daniel Beeckman, by John Cary of Bris0 “ The poor Orphans sufferings are still fresh in Memory,” says the author
of Anglice Tutamen, in 1695.




8

The

English

Banking

System

tol, the friend of Locke, and by Daniel De Foe were
distinctly able and well worked out. Most of the pro­
jectors laid stress upon the great services such a national
bank might render to the Exchequer, in the collection
of the revenue, and by preventing the loss sustained by
the State through idle balances. Cary was more con­
cerned for the effect on trade. “ Banks, as I humbly
conceive,” he writes, “ ought chiefly to be calculated for
the use of Trade, and modeled so as may best content the
Traders.”
But it was otherwise decided. At this time the purely
financial interest dominated. The trading and country
interest was to a large extent sacrificed, and administra­
tive facilities were not considered. It was nearly 150
years before the country had an adequate system of
banks, such as might have been founded in 1694, if one
or other of these proposals for national banks had been
accepted. The administrative economies possible in the
system of public receipts and payments were postponed
to the more urgent problem of obtaining money to pay.
As our author shows, the engrafting of Exchequer business
on the Bank grew up gradually, almost by accident;
possibilities of this sort were not taken into account in
deciding on the form to be given to the Bank.
It must be admitted that the State did pretty well
for itself. It derived substantial advantage from the
Bank, not only in the great emergencies of William’s
reign, but from time to time afterwards, and notably on
the occasion of Charter renewals; this too, without
depriving the Bank of its private character, and its




9

N at ion a l

Mo ne t ar y

Co mmi s s i o n

responsibility for losses. This, again, is characteristic
of English methods. The State prefers to exploit pri­
vate enterprise, rather than to engage in enterprise
itself. “ Heads I win, tails you lose,” is its attitude
toward private business. Considering how small is
the chance that the State will ever make any profit on
its own account, the attitude is not unwise.
The question of Exchequer methods, however, deserved
attention; and its importance had already been realized
by the English people. Whenever a great central bank
acts as an Exchequer, even if its range is only metro­
politan, there must be a great economy in the use of
money. This was carefully pointed out by many writers
of the time. They could remember the gross abuses of
the time of Charles II, when the receivers lent balances
to the goldsmiths long overdue to creditors of the State,
while the unhappy creditors were forced to go to these very
goldsmiths to borrow back their own money at usurious
rates. Down to a much later period, large fortunes
were made by revenue officials at the expense of the
State. Occasionally we come across complaints which
have a more modern ring. The large balances in the
hands of receivers of the revenue are alleged to have
caused a scarcity of money in the market. But as a
rule the receivers banked or lent their money; it was
their obvious interest to do so. The money was there­
fore not taken off the market, as is the case when public
moneys are held by an independent, non-banking, treas­
ury. Still, if there had been time for fuller consideration,
the question of the relation of the Bank to the Treasury
might well have received more thought. The Bank




10

The

English

Banking

System

was not only willing, but anxious, to undertake Treas­
ury business.0 If their suggestions had been acceptable
to Parliament, great advantages of economy and accounta­
bility might have been secured from the very foundation
of the Bank, which, as a matter of fact, were only com­
pletely realized by an evolution extending over more
than a century and a half.
In 1806, when the constitution of the Bank of France
was under discussion, this evolution was so far complete
that the greater proportion of revenue payments were
made through the Bank of England. It is interesting,
therefore, to consider the grounds on which Napoleon,
with the English experience before him, concluded that
the French Bank should not undertake Treasury business.
There is a graphic account of the discussions on this
question between Mollien and the Emperor in Mollien’s
Memoires (especially Vol. I, pp. 292-315, and Vol. II,
pp. 50, etc.). It is pretty clear that the Emperor allowed
himself to be persuaded by Mollien against his own con­
victions. The Emperor wished to see the Bank of France
undertaking the custody and remittance of the revenues,
and provided with branch offices throughout the country.
Mollien’s attitude was critical and ultra-cautious. He
seems to have feared that the Emperor would have made
the Bank a mere engine of State finance. Previous banks
of France had been wrecked by the demands of the State,
“ See A n Essay upon the National Credit of England, 1706: “ It has been
said that they would give a Million of Money for this Privilege, which has
never yet been granted, but expressly prohibited by the Parliament,
(excepting for a small time and in an extraordinary case), though some
think there are means found out, in a great measure, to evade that pro­
hibition’ ’ (p. 11). The surmise was not far wrong.




11

Nat i onal

Mo ne t ar y

Co mmi s s i o n

and the Bank of England itself had only narrowly escaped
disaster from the same cause more than once in its career.
Logically, of course, there was no necessary connection
between an Exchequer agency and advances to the State;
but it would be hard to say that in practice the former
might not be made a pretext for insisting upon the latter.
Mollien’s account of the conflict of opinion thus arising
is of almost dramatic interest. He says that the Emperor
had often conversed with him about the Bank he had
just established “ sous le titre pompeux de Banque de
France.” The Emperor had the highest expectations of
this Bank. Mollien was as cold on the subject as the
most severe doctrinaire of the “ Guillaumin school” could
be. The Emperor asks him if he still maintains his spite
against the Bank. Mollien replies by tendering him a
carefully prepared paper setting forth his views. Much
of this deals with points in the charter, to which he raises
sound objections. The French Bank ought to have paid
for its monopoly, as the English Bank did. Instead,
Government was a shareholder in it. If at the start the
Government did the Bank some service in subscribing
these 5,000 shares, it would now be doing it a greater
service if it would free it from the tutelage of such a
shareholder, who, sooner or later, might become suspect.
It was because the English Government was scrupulously
careful to fulfill all the obligations with which private
debtors had to comply that it was able, without endan­
gering the Bank, to obtain assistance from it. The
English Bank made payments and discounts for the
Government just as for private firms who had opened
accounts with it. The English Bank also collected cer­




12

The

English

Banking

System

tain portions of the public revenue, and especially those
pledged for the service of the debt; but it was rather as
“ Grand syndic des creanciers de VEtat” than as Govern­
ment agent that it made these collections. The State no
longer had the disposal of these revenues, because they
had been made over to its creditors; and it was to em­
phasize the unqualified character of this assignment that
the duty of collecting directly from the public receivers
the corresponding amounts was imposed on the Bank.
Moreover, owing to the fact that the bulk of the English
debt was in the hands of large holders, who kept accounts
with the Bank, the payment of interest was a very simple
matter. It would be otherwise in France, where the
average holding in 1806 was only 450 francs.
Mollien goes on to urge that the new French Bank
can not be usefully compared with the English Bank,
resting as the latter did upon a century of success. Eng­
land, he says, is perhaps the only country where the cre­
ations of credit enjoy so wide a currency that artificial
money itself does not degenerate into paper money. He
thought that the real guarantee of the English paper
was neither the shareholder’s capital nor the securities
held by the Bank, but the immense mass of goods stored
in the country. Napoleon here interposes his own expla­
nation. He sums up the matter in an admirable phrase,
worthy of his genius, which exactly hits the mark: “ Peo­
ple have sense enough to understand that bank notes are
not paper money. ’ ’ These half dozen words exactly express
the position maintained four years later by the Bank of
England against the Bullion Committee, and form the
best answer to the innumerable schemes for Government




13

Nat i onal

Mo ne t ar y

Co mmi s s i o n

Banks of Issue so constantly put forward. Government
paper is forced out in payment of the limitless expenses
of the State. Bank paper, whether bank notes, as in
those days, or checks to-day, is issued against, and more or
less limited by, sound and well-secured commercial
credit. Bank paper is normally convertible; State paper
always tends toward inconvertibility. It was a sound
instinct that led England in 1694 and France in 1800 to
make their public banks commercial companies instead of
departments of State.
To return to the question with which we are here
mainly concerned, it would appear that the Bank of
France in 1806, like the English Bank a century before,
was not unwilling, while retaining its independence, to
undertake a large part of the Treasury business. It is
not quite certain how far the governor, Cretet, repre­
sents the views of the proprietors, because in 1806, for
the first time, the governor of the Bank was appointed
by the Emperor, and Cretet therefore presided as Napo­
leon’s nominee. But in the discourse which Cretet
made to the general assembly of the Bank Direction on
the 13th of May, 1806, we find him a pronounced advo­
cate of closer relations with the Treasury. He expresses
the hope that the Treasury may be willing to concentrate
in the hands of the Bank revenue services now distributed
amongst so many intermediaries, estimating the econo­
mies which would result from such a centralization at
from 3,000,000 to 5,000,000 francs per annum. He even
congratulates the Bank on having secured a State lottery
agency, promising little profit, because it may lead to
more important connections. This, of course, was pre-




j

The

English

Banking

System

cisely what Mollien feared. So anxious was he to pre­
vent any advance in this direction that, against the
advice of the responsible minister, Marbois, we find him
supporting a proposal for constituting the receiversgeneral into a bank of their own. This bank was to
handle the public moneys and to make advances to the
Kmperor on the revenue. The proposal seems to have
been adopted. The circulation of short Treasury paper,
says Mollien later, is intrusted to the receivers-general.
For the time, therefore, Mollien had his way.
It is doubtful whether Napoleon was really convinced
by Mollien’s arguments, but he had a high esteem for him
and may have thought that there were grounds for caution.
After listening to Mollien, he sat silent for a few minutes
and then observed: “ The world is old; we should profit
by its experience. It teaches us that ancient practice is
often worth more than new theories.” In one way or
another, Napoleon is brought to say, in the end, that “ the
one thing that seemed clear to him was that there must
be no alliance between the business of the Treasury and
that of the Bank.’’ But if he thus adopts Mollien’s policy,
it must of course be for reasons of his own. “ Amongst
many good reasons, one had decided him,” he tells Mollien.
“ A simple movement of public moneys often carried with
it a State secret. He did not wish to increase the number
of his confidants in matters of this kind.” This is a
reason that would appeal to Napoleon; needless to say, it
was not influential with Mollien; so far as one can trace,
he does not even mention it. Mollien was really afraid
that relations with the Treasury would compromise the
stability of the Bank. This had often been the case in the




is

N at io n a l

M o n et a r y

Commission

past; no one was in a better position than Mollien to
judge of the probability that history might repeat itself
in the France of his day. Y et Napoleon’s ideas were in
the abstract sound enough, and the later history of the
Bank of France has justified him. The Bank now has,
as he desired, branches in every department, in fact in
every important town; and the Treasury makes large
use of its admirable organization for the service of the
revenue. The Bank of France, in fact, keeps the Gov­
ernment account.
The classical case of the Second Bank of the United
States, where a public bank, actually discharging these
exchequer functions, was in 1834 deprived of them, pre­
sents a still stronger contrast to the history of the Bank
of England. It need not be more than mentioned here, as
the circumstances are so familiar, and have been so ex
haustively chronicled. It is possible to insist too much
on these international parallels and contrasts. No two
countries can be strictly compared in a matter of this com­
plex character; each case must be carefully considered
with reference to all the pertinent political and economic
conditions. Perhaps the analogy is closer between the
English and French banks; but even here it would not do
to attempt to draw general conclusions from the divergent
policies adopted. The chief use and justification of such
comparisons is their tendency to stimulate further inquiry.
As far as the Bank of England is concerned, there is
little to be added to the very complete account of the his­
tory of its relations to the State given by Professor Philip­
povich. That account is brought down to the year 1885.
The only changes requiring note since that date are those




16

The

English

Banking

System

effected by the 55 & 56 Victoria, C. 48, usually known as
the Bank Act of 1892. This act is printed in an Appendix
to this volume. It made a new adjustment of the pay­
ments due to the Banks of England and Ireland for the
management of the debt, in which was now included the
local loans stock (municipal) and the guaranteed land
stock (Ireland). It was a natural time for a reconsidera­
tion of the question. The great conversion of the national
debt had been successfully carried through by Mr. (after­
wards Viscount) Goschen in 1888 and 1889. Both banks
had given invaluable assistance in the operations. Sir
E. W. Hamilton, in the official account of the conversion,
writes that “ the labour which the attainment of such
results imposed on the Banks of England and Ireland was,
as can readily be imagined, prodigious; and nothing short
of perfect organization and untiring zeal could have en­
abled those establishments to grapple with it.” To give
some idea of the magnitude of the necessary operations,
he mentions a number of interesting particulars. From
these we learn that the total number of accounts of holdings
inscribed in the books of the Bank of England was 169,235,
“ which varied in amount from £5,760,000 to the curiously
small sum of 1 penny.” Three hundred and eighty-seven
millions odd of Consols and Reduced Threes were converted
by the Bank of England. The Bank staff had to be largely
increased, and during some weeks 100 men worked until
11 p. m., and 50 throughout the night. Difficulties of
identification and verification of agency were specially
great. “ In spite of the immensity and the intricacy of
the work, no mistakes were committed; no delays occurred;
scarcely a complaint against the banks was preferred.”
68299°— 1 1 ----- 2




17




I

N at io n a l

M on et a r y

Commissi on

The remuneration received by the two banks was
£ 10 1,5 4 1 15s. 1 id.— £98,248 2d. to the Bank of England,
£3,293 15s. 9d. to the Bank of Ireland; a small part of the
total expenses of the conversion, estimated at £1,294,142
1 6s. 7d. This expense, together wdth the cost of an addi­
tional quarterly dividend, due to the change from half
yearly to quarterly payment, was almost wholly defrayed
out of the surplus revenue for the year 1888-89. The
work in connection with the redemption of unconverted
stock was much heavier, in proportion to the amount
handled, than the work of conversion itself. For this the
Bank of England received £ 14 ,0 11 n s . n d . and the Bank
of Ireland £500. Thus the Bank of England received
about £112,26 0 for its services in the double operation.
The payment was undoubtedly well earned.
The national debt had thus changed its form, and the
dividend upon the whole of it was now paid quarterly
instead of at alternate half-yearly periods on the two por­
tions, as before. Moreover, the dividend upon the debts
of the State to each Bank (£ 11,0 15 ,10 0 and £2,630,769
4s. 8d., respectively) was also in future to be subject to the
terms of the Conversion Act. These changes made it fit­
ting to reconsider the pecuniary arrangements between the
Government and the Bank for the service of the debt.
These arrangements had been revised by Mr. Gladstone
in 1861, when the payments to be made by the State were
reduced by some £50,000 a year. The terms of the exist­
ing arrangement will be found in the printed act of 1892.
They are not subject to revision until March, 1912. They
involve a further saving to the State of £45,700 a year.

18

The

English

Banking

System

Reference will be noticed in the act of 1892 to a possible
supplementary charter. This charter was applied for in
due course, and bears date August 19, 1896. It deals
exclusively with what may be called the internal affairs of
the Bank; and for this reason, perhaps, does not appear
to have been published. It seems to have been granted in
reply to a petition from the Bank, stating that much in­
convenience was caused in various respects by certain pro­
visions of the old charter. The new provisions substituted
give the Bank greater freedom in matters relating to its
internal government. The only one which seems to
concern the public is the first, dealing with the re-election
of directors. B y the first of the acts which conferred the
bank monopoly, the 8 & 9 Wm. I l l , c. 20 (1697), it was
enacted (sec. 52) ‘ that in all future elections of directors
there shall not be chosen above two-thirds of those who
were directors the preceding year.” This provision does
not seem to give adequate guaranty of due experience or
continuity of policy in the bank direction. The Bank
petitioned against the clause March 26, 1697, but it was
adopted by the House in spite of their protest. There was
at that time a widespread fear lest the power which their
position gave to the directors might result in favoritism
or trade monopoly, and this may have influenced the
decision of the House. No further statutory change
appears to have been made until the passing of the act
(35 & 36 Vict.,c. 34; Ju ly 18 ,1872) A n act to amend the law
relating to the election of directors of the Bank of England.
This provides that “ section 52 of the act, 8 & 9, Wm. I l l , c.
20 (which section relates to elections of directors of the




T9




N at ion a l

M o n et a r y

Commission

Bank of England) shall have effect as if seven-eighths had
been therein mentioned instead of two-thirds.” B y the
Bank Act of 1892 it was provided that the act of 1872
(with other acts scheduled) should be repealed as from
the date of the supplemental charter, if granted and
accepted. Accordingly the rule now in force is that laid
down in the first clause of the supplemental charter. It
reads, “ If a byelaw made by a General Court of the Bank
of England so provides, such proportion as is fixed by
that byelaw of the existing directors of the Bank of
England shall not be eligible for re-election at the then next
annual election of directors.” What the actual effect of
this curiously worded clause will be it would be idle to
speculate; it seems to leave the matter wholly at the discretion of the Bank court. The question has only an
indirect relation to the main subject of this work; but as
the charter is mentioned in the act of 1892, it was
thought that these brief explanations might be of interest.
H . S. F o x w ell .
J anuary 9, 1911.

20

w

T H E B A N K OF E N G L A N D AND IT S F IN A N C IA L


I


S E R V IC E S T O T H E S T A T E
BY

E U G E N VO N PH ILIPPO VICH

21




PREFACE TO THE FIRST EDITION.
A work which undertook to provide a complete and
systematic description of the history of the Bank of Eng­
land and its place in the economic life of the English
nation would certainly deserve a most favorable reception.
We should derive from it a deep insight into English eco­
nomic history, and should be able also to follow out in one
preeminently important case the connection between
banking and all other departments of economic life. The
Bank of England is the oldest of existing European banks.
It is the only bank which for nearly two hundred years
has enjoyed an undisputed reputation and a predominant
authority within its somewhat restricted field. The evo­
lution of credit and exchange in the economic organization
of England are unintelligible apart from the bank and its
monopolistic position, and therefore the influence exer­
cised by credit and exchange upon the general economic
development is part and parcel of the history of the bank.
No less important in the field of public finance were the
developing relations between the bank and the State.
From its establishment onward its interests and the inter­
ests of the State have been closely intertwined. Here
especially we notice a peculiarity in the relation between
the Bank of England and the English economic organism.
Legally the bank was free and independent of the Govern­
ment, but by undertaking public functions in the field of
exchange it gradually became an organ of State finance.




23

N at ion a l

M o net ar y

Co mmi s s i o n

Various continental States have imitated this relationship.
We see a tendency to generalize the principle of using
banks to make and receive payments for the States. It is
certain that the various advantages which this system
offers as compared with the system of State treasuries
entitle it to universal application. Hence this side espe­
cially of the history of the Bank of England is of consider­
able importance.
It is for this reason that from amongst the manifold
phenomena whose investigation is suggested by a study
of the history of the Bank of England I have singled out
the evolution of the bank’s position as the office for
administering the moneys and the debts of the State.
All previous descriptions of the history of this bank—
and there is hardly any work on banking which does not
handle some important part at least of its history—pay
no attention to this factor, despite its indisputable impor­
tance in the evolution of the bank.
It is the more deserving of attention in that the German
Empire has not yet completely elaborated a banking ad­
ministration of its funds, whilst in Austria the system has
not been introduced at all.
It seems, therefore, not undesirable to draw attention
to a bank which was the first to develop this relationship
to the State— at least if we confine our view to existing
European banks. It is true, of course, that the peculiar
economic conditions of this country make it impossible
to transfer in their completeness institutions which fit
the economic life of England, but the advantage of
studying foreign institutions is not exclusively found in
imitation. Such study is calculated rather to teach us


•a/.


24

T he

E n g l i s h

B a n k i n g

S y st e m

how universal phenomena develop particular forms under
the influence of individually differentiated circumstances,
and as we consider these connections we become able to
devise new applications of principle. This is the basis of
the fact that we so often look abroad with good success
for something which we require at home.
Dr . E u gen
V i e n n a , September, 1884.




25

von

P h il ip p o v ic h .




PREFACE TO THE SECOND EDITION.
Since the appearance of the first edition of this book
the system of administering funds by means of a bank
has been introduced in Italy and Holland. In the Ger­
man Empire since 1896 and in France since 1897 an unde­
niable advance has been achieved by bringing almost all
the monetary transactions of the State within the exchange
system of the note-issuing banks, although even to-day
the Imperial Bank and the Bank of France are used merely
to transfer, to mobilize public funds, not to administer
them. The rapid development of the check system in
the last generation inevitably demands that all public
business should become a part of the intercourse of the
money market. In the United States the independent
Treasury administration has led on several occasions to
serious disturbances of the business world, and has thus
directly suggested the reform of the note system and the
creation of a system of banking which would enable the
State to leave public funds in the market without risk.
In the present edition alterations have been made in the
introduction and the concluding chapter; the relation
between States and banks of issue have altered greatly
during the last quarter of a century, the question of
nationalizing central banks may be regarded as settled.
The concluding chapter considers the importance for the
London money market of the fact that the Bank of Eng­
land acts as cashier for the State. The numerous changes
in legislation have been thoroughly considered. The
numerous explanations given are from the chief cashier of
the Bank of England, Mr. J. G. Nairne, who should be
mentioned with especial gratitude.
M ay , 1 9 1 1 .




27




»

T H E B A N K O F E N G L A N D AND IT S F IN A N C IA L
S E R V IC E S TO T H E ST A T E .®
INTRODUCTION.

The relation of the State to economic phenomena may be
investigated from two points of view. If we regard the
State as the fountain of law, the authority which controls
the economic intercourse of individuals, we can examine
the part which it plays in shaping economic phenomena
and the reactions of this formative influence throughout
the economic life of the nation. Our attention will center
as a rule on problems of maintaining general as opposed to
particular interests, or of promoting the real as opposed to
the imagined interests of individuals. Secondly, we may
regard the State as itself forming an independent economic
unit and inquire what part it takes or ought to take in the
economic life of the nation. In this case we shall be con­
cerned with the economic interests of the State, and our
part will be to lay down the most effective—i. e., the most
economical—organization of its administrative activities
with regard to the matter in hand. Such problems belong
to the science of administration and their solution is
found usually in some change of administrative methods.
They have also a certain significance for the economic life
of the nation, since that life is so closely connected with
the economic activities of the State that a change in the
latter can hardly fail to react upon the former.
° Translated from the German by Christabel Meredith.




29

N at i ona l M on et a r y

Co mmi s s i o n

We may therefore examine the relation of the State to
banking from two aspects. We may investigate either
the influence which the State exercises over the growth
and development of banking, as representative of the
public interest, or the extent to which it shares in the
services of banking as an independent economic unit. We
shall inquire in the first case into the terms of the law of
banking, in the second into the advantage which the State
may secure by making use of the organized system of
loans and payments established by the banks. The
opinions which were held about banking at the time of
its first appearance display a mixture of confused ideas
about the functions of the State as a protector of com­
mon interests, and about the real or imaginary advan­
tages of economic organization which the State might
gain from the banks. The peculiar importance which
was ascribed to the banks in both these connections
caused the State to exercise a far-reaching influence
over their formation. Indeed it may be said that, in
central Europe, at any rate, until well into the nine­
teenth century, the State was regarded as the only
sufficient authority for the creation and direction of a
bank, while at the same time the name bank was used
to denote institutions of the most widely differing types.
This confusion in respect to the concept of a bank appears
in the notion that any establishment may be regarded
as a bank in which money can be deposited for safe cus­
tody under public guaranty, and removed again at any
time. This notion had, it is true, been modified here and
there by the end of the eighteenth century, but the




30

The

English

Banking

System

essential idea of a guaranty resting on the good faith of
the community was still universal.0
We may distinguish three fundamental causes which
led to the founding of public institutions authorized to
act as banks.
Earliest in time the necessity for regulating the mone­
tary system and maintaining order therein in the midst
of a general confusion of coins, induced communities to
establish institutions where specie or coin were accepted
at any time on the basis of a monetary standard, whether
actually coined or not, at a generally acknowledged value
and was kept as depositum irregulare. Since these insti­
tutions also undertook to make payments and allowed
a Nasse makes it probable that in Venice at least a banking system not
dependent upon the State existed until the end of the sixteenth century
(“ Jahrbuch fur NationalokonomieundStatistik,” 1879, P- 348). Butaccording to Endemann throughout Italy, even in the earliest times, to discount
and deposit banks were obliged to obtain a concession from the govern­
ment and to give security for this permission to carry on their busi­
ness. The bankruptcies which occurred in spite of this led men on in the
fifteenth and sixteenth centuries to the creation of state banks (“ Studien in
der rom. kan. Wirthschaftslehre,” 1874, PP- 99, 106 and 426). In Germany
even the business of the exchange of money, as arising out of the sovereign’s
right of coinage, was a monopoly of the ruler. (Cf. Becher, “ Ursachen vom
Auf-und AbnehmenderStadte” 3ded., 1688, p. 274; Poschinger,“ Bankwesen
und Bankpolitik in I reussen, Vol. I, 1878, p. 5 et seq.) Similarly in Eng­
land (Schanz, “ Engl. Handelspolitik,” Leipzig, 1881, Vol. I, p. 519). With
regard to the business of bill broking on the other hand, this can not be
proved. But all the statements relative to banks made by German authors
of the seventeenth and eighteenth centuries imply that these institutions
were guided or at least guaranteed by the Commonwealth. (Cf. Schroder,
“ Furstl. Schatz- und Rentkamrner,” 5th ed., 1752, p. 234; Becher, op. cit.,
p. 297; Marperger, “ Beschreibung d. Banken,” 1717, p. 352; Ju sti,’“ Staatswirthschaft,” Vol. I, 1758 pp. 190, 279; J . K . May, “ Einleitungin die Handlungswissensehaft,” Vol. 1, 1763, p. 258; Sonnenfels, “ Grundsatze der PolizeiundFinanzwissenschaft,” Vol. I l l , 1776, p. 275; “ Geschichtliche Darstellung
der Banken,” Hamburg, 1800, p. 3. Ample proof that this principle was
carried out in practice in the German States is afforded by the history of
banking in these States, as detailed by Poschinger in his valuable works.




3i

N at io n a l

M o n et a r y

Commission

checks to be drawn on them by their customers, they sup­
plied for the transactions carried on within the circle of
persons connected with them what the legal medium of
exchange in general did not supply, a secure and steady
means of payment. This constitutes the great economic
significance of these institutions and also explains the fact
that the community alone was looked upon as entitled to
create and administer them. Security of economic ex­
change in a town or throughout a country could not be
built up on the credit of an individual or of a private com­
pany. Thus these institutions appeared first in Italy
under the name of banchi del giro, and at the beginning
of the seventeenth century in rapid succession at Amster­
dam, Hamburg, and Nurnberg. Their powerful influence
upon national economic life is shown by the fact that their
characteristic functions—the custody of money and the
discharge of payments—dominated for nearly two hundred
years the conceptions of what constituted banking.
The idea of turning to account some portion of the idle
capital deposited in the girobanks must have followed
quickly upon their foundation. It is stated that a loan
bank was combined with the girobank in Hamburg soon
after the establishment of the latter.®
It must be assumed, however, that the conception of
banks as purely credit institutions belongs to the more
developed view of a later period and forms the second
stage in the development of banking. It did not become
part of the general thought of Europe until toward the
end of the seventeenth century. Here again we find the
State regarded as responsible for meeting the economic




a “ Geschichtl. Darstellung, etc.” , p. 78.

The

English

Banking

System

needs of the nation by the creation of institutions to sup­
ply credit, and to be no longer merely deposit or transfer
banks. Nearly all the projects which arose after the end
of the seventeenth century, out of a conception—a con­
ception at times fantastic—of the use and value of banks,
have this point in common. Loan offices (monies pietatis),
institutions for the issue of bills on the security of real
or personal property, are to be the means of fertiliz­
ing economic exchanges and enriching the community.
No one doubted that the creation of such institutions are
the exclusive privilege of the State. The view that the
function of the State ends with the foundation and
does not extend to the management prevailed in England
alone.
If we select for examination from among the institu­
tions actually founded on the basis of projects of this
kind, those which in virtue of their organization and
functions would still be called banks according to our
present day ideas, we shall find it at first sight impossible
to deny to the Governments of the eighteenth century the
merit of having furnished all possible support to the
organization of credit by the foundation of banks. No
single State was without its project for a bank, and there
are but few in which such projects did not multiply in
astonishing fashion, until at last a bank was established.
A closer examination shows us, however, that hardly any
of these banks owe their foundation merely to the desire
to promote the economic life of the nation. Indeed, it
appears to me that of all the banks whose history is known
the Banco di Depositi, established in Leipzig in 1698, was
alone not provided with other functions from the outset,
6 8 2 9 9 °— 1 1




-3

33

N at ion a l M on et a r y

Co mmi s s i o n

and was the one bank which, according to the law estab­
lishing it, was intended to make its way by combined
lending and borrowing transactions—the one bank, that
is, at whose establishment the advantage of fostering
credit was the one thing considered.
In the case of all other banks, and especially of those
giant institutions which appear in the annals of banking as
the centers of the credit transactions of entire nations, the
need of capital and credit in the economic life of the nation
was not the sole cause and occasion of their establishment;
the credit requirements of the State itself were an impor­
tant additional consideration which often turned the scale.
B y taking in hand the establishment of a bank the
State seemed able to increase the confidence of its credi­
tors whom it admitted to be shareholders in the institution,
to attract home and foreign capital through expectation
of profit, and in a certain sense to “ create” capital by the
issue of notes. Banking came to be regarded as a mys­
tery of State (Schroder), and no Government hesitated
to adopt that means of obtaining succor in financial
difficulties. Public credit became so closely associated
with bank credit that even in the minds of otherwise
clear-sighted persons the two conceptions could not be
distinguished.® The idea of gain to the general public no
longer appears in these cases; the leading motive for
establishing banks is rather the interest of the State.
This marks the third stage in the early development of
banking. Attempts were made, it is true, to defend the
conduct of the banks by arguments drawn from the needs
° Thus Sonnenfels in his “ Grundsatzen der Polizei-Handlungs- und
Finanzwissenschaft” writes: “ The constitution of a bank of this kind
(i. e., a loan bank) cannot be clearly described without defining public
credit.”




34

The

English

Banking

System

of business intercourse, but this did not save the banks
from being exploited by the State in a most unbusinesslike
manner; sometimes, indeed, their constitution was from
the first such as to make them institutions for the raising
and administration of public loans rather than banks.
The most striking example of a bank of this kind is the
Banco del Giro, established in Vienna by the Emperor
Eeopold I in 1703, and reconstituted in 1704. The essen­
tial functions of this institution were to accept the gov­
ernment bills issued by the Exchequer, to enter the sums
due to the creditors to their account in its books, as a
transfer capital, so that these amounts could be disposed
of in separate sums by means of transfers, and to discharge
state debts at fixed intervals by means of the taxes paid
in, or of such private deposits as might have come in for
investment. This is probably the clearest instance of the
creation of a bank with the distinct intention of strength­
ening public credit. A similar lack of significance for the
development of the economic life of the nation was dis­
played by many other banks of the period, which, although
founded with more judgment, came to a speedy end owing
to the excessive claims of the State, to which they were
expected to serve as an inexhaustible source of money.®
a ^ detailed examination of the history of banking in the eighteenth
century is not necessary for the purposes of this introduction, where it is
only intended to point out the share taken by the State at that time in
the foundation of banks. The examples cited are enough to show what
far-reaching effects on the erection of banks followed from the idea of
making them of service to public credit. For a complete treatment of
the history of banking in Austria, which is especially instructive in this
connection, see Schwabe-Waisenfreund, “ Versuch einer Geschicht der
osterreichischen Staatscredits und Schuldenwesens,” 2 vols., 1866; Biedermann, Die Wiener Stadt-Bank, 1858. For Germany, Poschinger’s works
on banking history are the most important source. France affords
only one example, the sufficiently well-known attempt under Law. The
position in Lngland will receive detailed consideration in what follows.




35

N at io n a l

M on et a r y

Co mmi s s i o n

It is a significant fact that the credit requirements,
whether of the nation at large or of the State, were met,
not by accumulation of capital in deposit banks—the few
experiments in this direction had little success—but by
issue of notes guaranteed by the State. An inquiry into
the reason for this would lead us too far. We may, how­
ever, emphasize the importance in the evolution of bank
notes of the fact that their use began at a time when the
prevailing opinion regarded banking as a state preserve.
The monopoly of note issue required no theoretical basis
when it was introduced. It arose naturally out of the
existing relations between the State and banking.
The now famous suspension of cash payments by the
Bank of England in the year 1797 and the resultant fluc­
tuation in the value of its notes gave rise to a theoretical
discussion and a veritable literature. Not until this had
happened did the relation of the State to note issues and
hence to banking in general become the subject-matter
of a systematic inquiry into fundamental principles.
Banking rose to increased importance in the nineteenth
century, owing to the development of commerce. Orig­
inally, banks had merely been distinguished, so far as their
function was concerned, into two classes, transfer {giro)
and loan banks, and the most varied types of loan institu­
tions had been grouped together; now this uniform con­
ception of banking and of the influence of the State over
banks came to an end. It no longer sufficed to speak of
banking in general when once the varied conditions of
credit facilities were recognized. Transfer, deposit, note
issuing, and mortgage banks were distinguished as sepa­
rate entities, each possessing its own economic function,




36

The

English

Banking

System

to which its constitution and management must be
adapted. Besides, a changed conception of the relation
of the State to economic phenomena in general had grown
up. State interference with economic relations was re­
jected as a superfluous and even as an injurious tutelage.
The economic advantage of the community seemed to be
best secured when each individual was permitted to assert
his own particular interest. The legal privilege of class
and guild had given place to a law which dismissed dis­
tinctions of personal position in favor of distinctions of
actual fact. The law merchant had given birth to com­
mercial law, while freedom of association and the law of
companies replaced the charters of individual corporations.
In banking, this liberating tendency made itself felt first
in the permission to establish banks subject to the ordinary
rules of law, and which did not desire to carry on the same
class of business as the banks which were either managed
by the State or had received privileges from it and were
strengthened by its guaranties. The privileges and mo­
nopoly of note issues, however, continued to exist as a last
survival of the state banking system of an earlier period.
They were not, however, based as formerly, on a belief
in the exclusive banking rights of the State, but on purely
econtnic reasons—on the need for a centralized monetary
system and for an organization which should afford strong
support to the money market in times of crisis.
The establishment of banks by the State supplied a
means for the easier raising of loans. Banks which were
destined to raise and repay such loans must inspire con­
fidence in the public creditors, and the economic charac­
ter of the institutions must offer a guarantee for the punc­
tuality of the Government payments. At the present




37

t

N at ion a l

M o net ary

Co mmi s s i o n

day confidence in the fulfillment of Government obliga­
tions rests on the constitutional nature of public admin­
istration, on the publicity of national expenditure, and
on the control of the latter by a representative Govern­
ment. A material guarantee is no longer needed.
The great increase in floating capital has continuously
narrowed the function of banks in respect to the issue of
public loans; in the mid-Eu.ropean States their share is
limited to the sale, either on commission or by a definite
undertaking, sometimes on a guarantee in case of deficit,
which, however, under existing conditions of the money
market, in no case results in permanent possession of
the stock, but only, in unfavorable circumstances, in a
temporary ownership; for such functions the deposit
banks and post-office savings banks, with their close
connection with investors, are better suited than the
banks of issue. In rich countries like England and France
the Government can sell its stock direct to the public, so
that the banks supply merely technical assistance—the
acceptance of offers of subscription—and no material
cooperation.
Except in the United States, where the note issue is
based on the possession of consols, the system of public
debt develops independently of the banks of issue. Dur­
ing the last generation no important State, except France,
has raised a permanent loan through its central bank, and
the loans so raised in the past now form an increasingly
small part of the total public debt.
Although the close connection between the State and
the banks which formerly existed in regard to the note
issue and the public debt has now ceased, the connection




38

The

E n g 11 s h B a n k i n g

Syst em

between the two in the matter of money transfers is con­
tinually strengthening. This is no matter of an excep­
tional relation between the Government and the banking
system, but of an extensive use of the latter for Govern­
ment payments on a basis similar to that employed for
private transactions. For the Government this means
a simplification of the system of payments and accounts;
for the community the inclusion of the Government
money transactions in those of the money market. The
wider the credit transactions and the more sensitive the
money market, the stronger will be the demand that
Government business should not be carried on outside
this organization.
The employment of banks as agents for public payments
began in different ways in the several European States,
and is still, except in England, a fairly recent practice.
Although the idea was not unknown in earlier times,® it is
only during the last century that banks have been defi­
nitely brought into the administration of public finance
as the channel through which state payments are made. In
England, France, Belgium, the Netherlands, Italy, and also
in the German Empire, public treasuries have been replaced
by banks, and hence the balance of public money in hand
° Maxpergcr, Beschreibung der Banquen, 1717, states that “ All pensions,
prize money, and important civil list payments which a government or
republic gives to its ministers and civil servants must be taken from the
treasure chamber or treasury in bank money to the bank,’ ’ where it
becomes the property of the individuals entitled to it (p. 116). The sov­
ereign also ought to have an account at the bank and to hand over his
revenue to it. This will not injure the financial system, but, just as a great
merchant in Amsterdam, Hamburg, or Venice looks after his business and
is supported by the bank, “ so will it be with the noble finance ministers,
who can well make use of the support of such a bank in order to lighten
their business” (p. 118).




39

N at ion a l

a

M on et a r y

Commission

has been combined with the capital which the banks have at
their disposal to meet the demands of the community for
credit. This leads to a diminution in the actual amount
of the public balances. They can be kept smaller when
the public money is managed by a bank than on the
treasury system. The maximum necessary amount of
these balances, having regard to the liabilities of the
State, is dependent at any given time on their geographical
distribution, on the amount of the receipts which may
be counted upon, and on the speed with which money
can be dispatched to the places where payment is to be
made. Alterations in regard to the geographical distri­
bution of public liabilities and the transfer of money
follow from the technical advantages afforded by the
banks, and this enables the State to reduce its balances.
The balances still retained and not required for the dis­
charge of liabilities are employed by the bank, and a
considerable sum thus ceases to be useless capital in the
public treasury. Among the payments due from the
State which are taken over by the banks, those arising
out of the public debt are not the least numerous, and
this has brought about a further intrusion of the banks
into the work of financial administration, though here also
it is the technical side only of debt administration with
which they are concerned. In particular, the bookkeeping
connected with loans raised on the system of a payment
of yearly interest is in the hands of banks in both England
and Belgium.
The extent to which banks are used as instruments of
financial administration, whether of debts or monetary
transactions, differs widely from one country to another.
In Germany and France the banks are used less for making




40

The

E ng l is h Banking

System

payments than for the geographical distribution of the
public cash balances. Only in England and in Belgium
has the business of the public treasury been entirely taken
over by the banks. And only in England is there any­
thing that can properly be called a history of this arrange­
ment. In Belgium it was carried out of deliberate pur­
pose, it happened all at once. In England it developed.
It grew up by degrees, in the course of a century, without
any legislative interference. Owing to the special way in
which public money was administered the Government
merely sanctioned what the personal administration of
its Ministers had already brought to pass. The comple­
tion of the system in matters of detail was brought about,
it is true, by legislative action in the nineteenth century,
but the principle was established by a process of practical
evolution.
Hence, even in the eighteenth century, the Bank of
England stood in a relation to the State entirely different
from that of the continental banks. Researches into the
history of this Bank, except as regards the account of its
foundation, usually begin only with the year 1797. The
events of this year for the first time attracted attention
to the Bank in Europe; but in the interval between the
date of its foundation and this year the Bank’s relation to
the State had developed to an important extent, and this
not only from a financial standpoint, but by an unsys­
tematic connection, which grew up purely through the
free action of the officials concerned with the whole
business of managing the public money. It was chiefly
in this way that the Bank secured that overwhelming
influence which subsequently dominated the history of
the English bank-note system, which does, it is true,




41

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Co mmi s s i o n

begin in 1797. This influential position is one of the main
bases of its brilliant history, and especially of the fact
that, unlike so many of the other banks founded at the
end of the seventeenth century, it had not a merely
ephemeral existence.
In the following chapters we shall describe the develop­
ment of these relations between the Bank of England and
the English financial administration, and the form which
they present to-day.
In so doing we shall fill up a gap in the history of the
Bank of England, and further shall demonstrate the great
advantages which even in our own day may accrue to the
State on the economic side from the organization of bank­
ing. We shall not enter into the history of the Bank
regarded as a factor in the economic growth of the nation.
Our special concern will be its connection with the eco­
nomic activities of the State. But in describing the foun­
dation of the Bank we shall deal briefly with both sig­
nificant aspects. The Bank arose as a result of the
requirements both of the State and of the community at
large. But a somewhat intimate analysis of these causes
is particularly desirable in view of the fact that incorrect
estimates are widely held of the importance of the Bank of
England to the public administration at the time at which
it was founded. These estimates claim for it a position
in those early years which it did not secure till more than
a century later.0
a It must be recognized thp.t Stein was the first to give a partially correct
estimate of the relations between the Bank of England and the adminis­
tration of public finance, but his explanation of the origin of these relations
is incorrect. (Cf. Stein, “ Finanzwissenschaft,” 4th ed., Vol. I, p. 97, Vol.
II, p. 484, et seq., and the statements in what follows.)




PA R T I.
THE FOUNDATION OF THE BANK OF ENGLAND.
I. T H E

D EVELO PM EN T

D U R IN G

THE

OF

E N G L IS H

SEVEN TEENTH

ECO N O M IC

CENTU RY

W IT H

O R G A N IZA T IO N
S P E C IA L

REFER­

E N C E TO T H E L O A N S Y S T E M .

We have already pointed out that with few exceptions
banks made their earliest appearance under the auspices
of the State. This state intervention was, however,
merely an external stimulus to the erection of such
banks—a necessary condition rather than the cause
thereof. No bank can be established or can prosper
unless it satisfies a widespread and clearly recognized
economic need. Such an institution if called into exist­
ence merely to satisfy the demands of a Government,
lacks from the outset the conditions necessary for its
success. The Austrian Banco del Giro was an example
of this. In England the conditions were different. Here
a steady growth in economic wealth and vigor and a
rapidly increasing commerce combined, during the seven­
teenth century, to arouse an undeniable demand for some
institution which should afford credit facilities.
The foundations of that English economic prosperity
which is so striking to-day were laid in the seventeenth
century. English history during this period finds its
significance in the transition from the limited production
and restricted trade of the Middle Ages to the world com­
merce of modern times. Moreover, an important change
in the position of England took place between the begin-




43

Nat i onal

a'

Mo ne t ar y

Co mmi s s i o n

ning and end of the century. How great the contrast
between the year 1609, when an attempt was made for
the first time a to replace, by a copper coinage, the lead
tokens, which had hitherto been used in minor trans­
actions,6 and the year 1694, when the first bank note
circulated in England!
In 1607 the royal fleet possessed but 40 ships of 50 or
more tons burden; in 1695 the number of such vessels
was over 200.c Before the Navigation Act English mer­
chants shipped their goods for the most part in Dutch
trading vessels.d After this act the trade to and from
England was in the hands of Englishmen, while the
tonnage of the English merchant service was doubled in
twenty years/ The legal rate of interest, which in 1600
was still 10 per cent, was reduced to 8 per cent in 1624
and to 6 per cent in 1661./ In 1600 the proceeds of the
land tax were valued at £6,000,000 only; in 1698 Davenant estimates them at £14,000,000. The English tex­
tile industry made slow but steady progress and won its
independence from the Dutch, so that whereas during
the first half of the century the cloth was sent to Holland
to be finished and dyed, in 1699 Davenant calculates that
woolen goods make up a fifth part of the total exports,
° [Sir R . Cotton proposed a coinage of copper coins in 1609. According
to Lord Liverpool, “ Copper coins were first made by royal authority
in the eleventh year of Jam es I, that is, 16 13 .” “ Treatise on the Coins
of the Realm ,” 1805, pp. 129-130.
These coins were farthings only.
H. S. Foxwell.]
6 Anderson, “ History of Commerce ” a. 1609. The prohibition of private
coins was repeated in 1625 and in 1649.
c Anderson, a. 1695.
d Jean de Witt. “ Mfemoires” 1709, p. 29.
« Anderson, a. 1688.
/ Schanz, loc. cit., p. 562.




44

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English

Banking

System

which total is estimated at £7,000,000. The persistent
political and religious quarrels which prevailed through­
out the country during the century did not prevent union
in economic matters. The economic strength of the Eng­
lish grew without interruption in spite of the numerous
changes in the form of government and of the conflict­
ing principles which dominated the administration.
A study of English economic history during the seven­
teenth century reveals two factors as determining the
economic greatness of the country—the colonial policy
and the regulations which accompanied it in the sphere
of economic administration. The great discoveries of the
sixteenth century were exploited during the seventeenth
century by the commercial nations in Europe. Holland
and England stood at the head of the movement. The
result was a transference to the northern States of the
economic supremacy in Europe, previously held by the
Italian Republics. The East, which was the legendary
home of the European peoples and which formed in addi­
tion the material basis of their prosperity, was visited
by newly discovered routes, and yielded its treasures to
the nations who proved able to use the advantages of
their maritime position with vigor and with economic
skill. The efforts to find the shortest route to wealthy
India led to numerous voyages for the discovery of a
northwest passage. The result was the colonization of
North America by the English, who had taken a leading
part in the enterprise. Although the East India Com­
pany had made regular voyages to the East Indies since
1600, the English were slow to settle in America. Vir­
ginia was founded in 1606; New England in 1620; Mary-




45

Nat i onal

Mo ne t ar y

Co mmi s s i o n

land in 1635. The settlements gradually spread toward
the north and south until, by the middle of the century,
the English possessions in North America had reached
their widest extent.® The colonies were wisely managed
and their permanent economic value wTas made the first
consideration in contrast to the Spanish thirst for gold.
This was the common opinion as expressed by numerous
writers, and it was recognized that England administered
her colonies with a view to slow but lasting profit and
not to secure sudden riches. b
As a consequence English relations with the colonies
were based upon a definite economic system of exchange.
The colonies were to supply England with raw materials
of all kinds. England was to find a market in her colo­
nies for her manufactured goods. Commerce and trade
in colonial products was not the only object; it was also
desired that these products should be worked up in Eng­
land. If this were attained England need no longer carry
on her foreign trade with gold, but could exchange her
industrial products for other goods and secure a consid­
erable surplus, turning the balance of trade in her favor.
Such ideas were frequently enough expressed in writings,
in speeches, and in Parliament, in reference to the accusa­
tion brought against the East India Company that it sent
large sums of gold out of the country every year. No
logical or consistent system of economic administration
was attained during this century. England produced no
Colbert before Robert Walpole. But the regulations for
a Cf. Roscher, “ Colonien, Colonialpolitik und Auswanderung,” 1856,
p. 208.
b Roscher, loc. cit., p. 243. “ Zur Geschichte der englischen Volkswirthschaftslehre,” Leipzig, 18 51, chap. 3.

'




46

The

English

Banking

System

the development and protection of home industry, of ship­
ping, and of commerce, led ultimately, by a succession of
efforts carried out piecemeal, to a similar result—an in­
crease in the production and commercial resources of the
country. The encouragement given to the settlements of
* French and Dutch emigrants through whom new knowl­
edge and skill were introduced into many industries, the
careful protection accorded to new branches of industry,
the active care of which the textile industries in particular
were the object, all were effective methods of competition
with Holland, the country of greatest economic impor­
tance at this time. How jealously the Dutch woolen
industry was watched is shown by the proposal made in
1651 to buy up all the Spanish wool in order to deal a
severe blow at Holland, where this wool was excellently
worked up.
This jealousy of Holland resulted, in the same year, in
the now famous Navigation Act. The object of this act
was to secure for England a monopoly of the carrying
trade from its own ports. The English nation was to be
forced to develop its merchant sendee under the protec­
tion of a draconian prohibition of the foreign carrying
trade. The Navigation Act was directed against the
English colonies as well as against foreigners, and this
especially after it was made more stringent in 1660 and
in 1663. No goods might be brought into the colonies
except in an English ship under an English captain. B y
this means a wider field was opened up for English indus­
tries as well as for English commerce. “ The colonies
were to remain undeveloped country, for which England




47

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Mo ne t ar y

Co mmi s s i o n

served as the industrial and commercial town.” ® Seldom
has an economic regulation been so completely justified
by its results as the Navigation Act, the magna charta
maritima, as Child called it.
The gradual and piecemeal fulfilment of desires leads
however to continually increasing demands for more com- 4
plete satisfaction, and complaints of the decay and ruin of
English commerce continued throughout the century in
spite of the undeniable and increasing development of
economic prosperity. And it is always the Dutch whose
freedom, whose industries, whose commerce, whose power
as capitalists are held up as models in every branch of
economic organization. The non-attainment of this ideal,
while it gives ground for complaint, serves also as a
stimulus for renewed effort. The jealousy, to which we
have already alluded, is nowhere more clearly shown than
in reference to the organization of credit. Mun, Culpep­
per, Child, Temple, all drew comparisons between Hol­
land and England, and never tired of pointing out the
advantages which Holland derived from the supply of
capital and the organized loan system afforded by its
Bank. A low rate of interest, such as prevailed in Hol­
land, was the causa causans of all commercial prosperity
and of all economic development; until England has
secured this, she can not hope to compete successfully
with the Dutch. Child triumphantly records that the
East India Company was able, in 1 681, to borrow £600,000
at 3 per cent, and can not refrain from adding that this
would be a most unwelcome piece of news for the Dutch.




° Roscher, “ Colonien, etc.,” p. 254.

48

The

English

Banking

Syst em

The acquisition of large colonial possessions, which
always means a demand for capital; the resulting oversea
commerce, the concentration, due to the Navigation Act,
of the entire carrying trade to and from England and its
colonies in English hands, must necessarily have given a
great stimulus during the second half of the century to
this demand for an organized loan system and for a safe
and cheap method of borrowing. England’s ability, not
merely to acquire colonies, but to make them prosperous;
the fact that she was in a position to undertake the trade
in her own products and those of her colonies in spite of
the decreased use of foreign, and especially of Dutch ships;®
the steady decline in the rate of interest; all show that
her control of capital was, even at that time, considerable.
But the existing institutions were quite inadequate to
secure a convenient interchange between the possessors
of capital and the seekers of credit. The increasing num­
ber of projects and schemes for the erection of a Bank,
which appeared during the second half of the century,
bear witness to this.
Ih e now famous goldsmiths afforded at this time,
though perhaps not before this time, the most important
source of credit. Italian merchants, particularly workers
in gold and silver, had settled in England as early as the
reign of Richard II, i. e., in the twelfth century. Since
the times of John and of Henry III, these merchants had
been employed to collect the customs duties and taxes for
“ It is true, indeed, that during the years immediately following the
passing of the Navigation Act England had to give way to Holland in the
trade to certain countries (Russia, Greenland), possibly in order to enjoy
the more profitable trade with the colonies; but her increased navy was
soon able to win back every market. (Cf. Anderson, a. 1660.)
68299°— 1 1 — —4




49

Nat i onal

Mo ne t ar y

Co mmi s s i o n

the Crown, and to advance money to the latter. After
the expulsion of the Jews in 1290 they acquired greater
importance in this connection.0 They made use of the
advanced commercial methods employed in their own
country, for it is said that even in the fifteenth century
they effected their payments almost entirely by bills of
exchange; payments in coin were the exception.0 What
share they took in early times in general monetary trans­
actions can not be accurately determined. The purchase,
sale, and exchange of coins had been from ancient times
a royal prerogative. A special office existed for the pur­
pose, the cambium regis, called also the Exchange. In
Henry V I I I ’s reign this office ceased to be filled and the
goldsmiths acquired the business of the exchange.
Whether the proclamation issued in 1627 by Charles I,
prohibiting the goldsmiths under severe penalties from
the sale and purchase of money and reestablishing the
business of the exchange as a royal prerogative, was ever
enforced it is impossible to determine.0 The statement
repeatedly made by English writers that the goldsmiths
were not generally employed as bankers by merchants or
as money changers until Cromwell’s time suggests that it
was enforced. In any case it is certain that private pero Schanz, “ Englische Handelspolitik,” Leipzig, 1881, vol. 1, p. 551.
b Schanz, i, p. 557.
c Schanz, 1, p. 522, is of opinion that the office was not filled after 1532.
In any case the bill business should be distinguished from the business of
money changing. Both bore the name of “ exchange.” The bill office was
permanently abolished in, perhaps, 1532, whilst the offices for exchanging
money were revived. Anderson states that the cambium regis was recon­
stituted in 1627 and 1628. The existence of the cambium regis, also
called Exchange, may account for the confusion made by Marperger
between the English Exchequer and the Royal Exchange. “ Beschreibung
der Banken,” p. 288.




50

The

English

Banking

System

sons deposited their money in the Royal Mint at the
lower as late as 1640. But after Charles I, in this year,
seized the whole amount (£200,000) so deposited, and ap­
propriated it as a loan for his own use, the scanty confi­
dence felt in this unpatriotic king seems to have vanished
entirely.® It is at any rate stated that from this time
forward the merchants deposited their money with the
goldsmiths. Other monetary transactions may easily
have followed from this. “ 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 Con­
don.” 6 And in 1672 the business of the bankers, who
made payments on behalf of merchants, is referred to by
a contemporary writer as something new and strange.0
But although the banking business may have been still
a novelty at this time it had evidently grown considerably
and was of great importance in credit transactions. In
the first place the goldsmiths received money on deposit,
probably originally only from merchants. They dis­
counted the merchants’ bills and lent a portion of the
deposits upon security. In time they were also entrusted
a William lemple says in one of his writings that the Mint “ had then
t ic credit of a bank, and for several years had been the treasury of all the
vast payments transmitted from Spain to Flanders.” (See Anderson, a.
1672.) The Exchequer seems also to have been used as a depository. In
1666, when George Downing proposed the introduction of an appropriation
clause which would have given Parliament the control (Tver the receipts
and issues and would have insured the proper application of the latter, he
justified his proposal on the grounds that it would excite a feeling of
security and confidence in the public. He would “ make this Exchequer
the best and the greatest bank in Europe,” and “ all nations would sooner
send their money into the Exchequer than into Amsterdam or Genoa or
Venice.”
6 Macaulay, "H istory of England,” 1889, vol. ii, p. 479.
c Anderson, a. 1672.




51




Nat i onal

Mo ne t ar y

Co mmi s s i o n

with the capital of private persons. They received the
rents of landowners which were sent to London, they
made payments for their customers, and when they found
that the deposits could be profitably employed they paid
interest on them. The merchants, however, who deposited
their money at call received no interest. Hence it appears
that the payment of interest on deposits was connected
with notice of withdrawal.0 The banking business
developed so rapidly in a short time that even in the sev✓
enth decade we find goldsmiths’ notes, payable upon
demand, circulating as currency. These notes were issued
up to large amounts. Thus in 1666 one goldsmith had
notes for £1,200,000 in circulation.6 They were consid­
ered so safe that, on account of their more convenient
form, people preferred them to coin.c
There is no doubt that the goldsmiths by forming a
center for loan transactions greatly benefited the whole
economic system. But it was in the financial embarrass­
ments of the State that these credit facilities proved of the
greatest service. Sometimes the goldsmiths made loans
direct to the King; sometimes they discounted the bills
issued by him and by the Government. They employed
the greater part of their capital in this way. The high
interest they paid to their creditors was based on the rate
which they charged to the King. Child accuses them of
keeping up the rate of interest artificially. Since they
0 Anderson, a. 1645, 1665, 1672.
6 Roscher, “ Zur Geschichte der englischen Volkswirthschaftslehre,” p. 144
(from “ A Discourse of trade, coyn, and paper credit and of ways and means
to gain and retain riches, London, 1697. To which is added the argument
of a learned counsel upon an action of the case brought by the East India
Company against Mr. Sand, an interloper, 1696” ).
c Law, "Considerations sur le commerce et sur l ’argent,” 1720, p. 150.
52

The

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Banking

System

themselves received 8 per cent they paid 6 per cent at a
time when it should have been possible to borrow at 4 per
cent.0 Experience showed, however, that the rate of
interest received and paid by the goldsmiths was not high
enough to protect them and their customers from the
disaster which resulted from these loan transactions with
the State, for in 1672 Charles II stopped all payments of
capital to his creditors and reduced the interest from 8 to
6 per cent.6 Many of the bankers, who were now pressed
from all sides with demands for payment, went bankrupt,
and numerous merchants and private persons connected
with them suffered severely. No fewer than 10,000
families were said to have been affected by this misfortune.
Public credit was destroyed for a long time to come, and in
addition the confidence which people had felt in the gold­
smiths was severely shaken.0
Ihese events, combined with the increased need for
credit, must necessarily have revived the demand for
some institution, independent of the royal caprice, which
should organize payments and supply loans.
In 1657 a project for the establishment of a Bank was
for the first time laid before Parliament by Samuel Lamb.
And from this time until the foundation of the Bank of
England various projects were discussed—some in pama Anderson, a. 1672.
6 [No interest was oilered till 1677, when 6 per cent was promised and paid
until 1683. H. S. F.]
c Burnet relates an incident in connection with this “ shutting up of the
Exchequer” which shows that the custom of depositing money with the
goldsmiths was usual even with those who were not merchants.' The Earl
of Shaftesbury, who had advised the King to take the step, had taken “ all
his own money out of the bankers’ hands, and warned some of his friends
to do the like” (History of his Own Time, London, 1724, I, p. 306).




53

N at ion a l

M one t ar y

Co mmi s s i o n

phlets, some in memorials to Parliament; as, for instance,
those of William Potter, Henry Robinson,Hugh Chamberlain, and others. A Bank was to be established which
should issue notes against the deposit of securities. The
projects differed more or less according to whether real
property or movables were to be taken as security and
whether forced or voluntary circulation was proposed for
the notes. None of these projects was accepted. But it
must not be thought that this was owing to a recognition
of their worthlessness. Many of the pamphlets received
high praise. The real cause was the fear lest the King
should raise a Bank to satisfy his financial needs without
the consent of Parliament. In the struggle with the
Stuarts the financial weakness of the King and his de­
pendence on parliamentary grants formed one of the most
powerful safeguards of the liberties of the people.
The opinion, widespread on the Continent even at a
later time, that a Bank was incompatible with a mon­
archy, a had grown to a veritable conviction in England,
owing to special circumstances. In England the founda­
tion of a Bank came to be a political instead of an economic
question. It was not founded for the benefit of English
economic organization, which had long needed some such
« For this opinion, held by nearly all the authors who wrote about Banks
in the seventeenth and eighteenth centuries, see Poschinger, “ Die Banken
im deutschen Reich, etc.,” Vol. I, p. 4, Vol. II, pp. 6, 25; “ Bankwesen und
Bankpolitik in Preussen,” Vol. I, p. 30; Schroder, “ Furstliche Schatz- und
Rentkainmer” (ed. 1752), p. 234; Marperger, loc cit., p. 107; “ Geschichtliche
Darstellung der Banken,” Hamburg, 1800, p. 3. May alone (“ Einleitung in
die Handlungswissenschaft,” 1763, p. 261) regards this fear as needless and
supports his position by reference to the Bank of England, in doing which
it must be acknowledged that he overlooked the difference between the
English and the continental monarchies.




54

The

English

Banking

System

great institution for the supply of credit facilities.® No
steps were taken to establish a Bank under Charles II or
under Janies II, the last two kings of the house of Stuart.
The complaints of merchants with regard to the longdesired Bank obtained no hearing until the “ glorious
Revolution” had taken place, and William III, a strong
king, but one who enjoyed the confidence of the people,
had come to the throne; until the liberties of the people
and the privileges of Parliament had beep confirmed by
the Bill of Rights, and the Government of England been
transformed from an attempt at absolutism to a parlia­
mentary system. The requirements of public credit gave
the essential inducement needed to prepare Parliament
to accept at length one of the many projects, and the
Bank was destined by the very circumstances of its founda­
tion to satisfy these requirements.
II. P U B LIC C R ED IT B E E O R E TH E FOUNDATION OF TH E BA N K .

English writers on finance are generally wont to refer
the origin of the existing English public debt to the foun­
dation of the Bank of England. They are so far justified
in that the debt incurred by the Government to the Bank
at its foundation was never repaid, and formed a basis to
which during the eighteenth century enormous additional
debts were added, the burden whereof still rests on the
English nation, while no previous debt has any direct
connection with the existing national debt. English
a To the great joy of the Dutch, Burnet remarks, “ I had heard the Dutch
often reckon up the great advantages they had from their Banks; and they
concluded that as long as England continued jealous of the Government
a Bank could never be settled among us nor gain credit enough to support
itself, and upon that they judged that the superiority in trade must still
lie on their side.” (“ History of his Own Time,” Vol. II, p. 124.)




55

Nat i onal

Mo net ary

Co mmi s s i o n

writers, however, do not always adopt this point of view.
They tend more frequently to represent the concept of a
national debt as first appearing in connection with the
foundation of the Bank. The term national debt in its
wider sense includes all forms of government debt, but it
frequently implies not so much that the creditor’s security
is legally based upon public credit as that the debt is such
that no provision is made for its redemption, and that
consequently it forms a permanent burden upon the
national income® In this latter sense, the government
debt to the Bank is regarded as the first embodiment of
a new principle of borrowing,6 and the history of the
English jiational debt is, as a rule, traced back no further.
This principle did not, however, come into being with the
Bank of England. It may rather be said to have origi­
nated with the Banker’s Debt of Charles II, for this King,
as we have already mentioned, ceased payment of the
capital debt in 1672 and undertook to pay interest only
thenceforward. But even apart from this fact, we should
have to preface our history of the Bank’s connection with
the national debt by a description of public credit before
its foundation. The forms of debt belonging to the earlier
period continue in the later one and are of the utmost
“ Thus Postlethwayt, “ The Universal Dictionary of Trade and Com­
merce,” London, 1766, article “ National Debt,” writes of “ that weak and
shameful maxim, that it is better for the public creditors to continue
perpetual annuitants only."
6 “ Thus the beginning of paper money and ‘ a Bank ’ was the beginning
of national debt, properly so called. There were before this time arrears
owing by Government and also some sums taken up on terminable annui­
ties for lives; but this (the government debt to the Bank) is the first sum
standing on the debit side of the national account for the redemption of
which no provision was made or attempted to be made and of which the
interest only was provided for.” (Doubleday, “ A Financial History of
England,” London, 1847, P- 7 3 -)




56

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Banking

System

importance with regard to the influence acquired by the
Bank over public credit.
Just before the foundation of the Bank a revolution had
been made in the entire system of public credit owing to
the essential differences which distinguished the consti­
tution and administration of William I l l ’s government
from that of the Stuart kings. After the accession of
William III a constitutional system of public finance
developed in England, whose legal basis was the Decla­
ration of Rights. Before the “ glorious Revolution,” on
the other hand, a continuous struggle had been carried on
with varying success between King and Parliament with
respect to the extent of their respective powers. The
Crown, however, maintained its supremacy. The conduct
of the entire administration and the determination of the
expenditure on the various public services were royal
prerogatives. Parliament had hitherto encroached upon
this prerogrative only in isolated cases and in dealing with
weak monarchs. To defray his personal expenditure and
the cost of the administration directed by him, the King
had the hereditary revenue and the supplies voted him
annually by Parliament. Parliament had no control over
the system of borrowing, with the exception again of
transitory interferences. Debts were incurred either by
the King or by one of the separate departments of the
administration. The King’s debts must be reckoned as
public debts so long as no distinction existed between his
personal income and the public revenue; but they ceased
to be part of the public debt so soon as this distinction was
made. The debts incurred by the public departments had,




57

Nat i onal

Mo ne t ar y

Co mmi s s i o n

as a matter of course, a public and equitable character
which they have always retained.
Loans to the Crown were in the seventeenth century
usually raised on the security of privy seals or letters
patent.
Privy seals or letters patent were either vouchers drawn
up for a particular occasion, or they were distributed in
great numbers throughout the country, being sent to
prominent persons who thereupon advanced money to the
King. They were drawn up in the usual clumsy form
and embodied the King’s pledge to repay the sum stated in
the rescript at a given date, for which he engaged his
“ word never yet broken to any,” and bound himself, his
heirs, and his successors. A space where the sum lent was
to be inserted remained blank, and was filled in by the
lender. On payment of the sum to the collector appointed
by the King the said collector acknowledged the receipt
on the rescript and the document thus acquired legal force.
It was not made out to order, and hence was negotiable.
After the date on which it fell due it could be presented at
the Exchequer where it served as a warrant for payment in
accordance with a clause inscribed on it.a No interest
was promised, nor was there any mention of a fund out of
which the debt could be paid. The raising of loans on
security of letters patent dates from the thirteenth
century. b Letters patent were also used in recognition of
° A privy seal of this nature issued by Jam es I on Ju ly 31, 1604, is
printed in the Return on Public Income and Expenditure, P. P. 1869,
366 II, p. 509.
bReturn on National Debt, P. P. 1858, No. 443, p. 87, quotes from an
issue roll of the Exchequer of the year 20 Edw. I (1292).




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an already existing debt. Thus in 1672 Charles II by
letters patent acknowledged the interest owed by him to
the deceived bankers.®
The debts of the public departments were incurred
either through anticipation of the receipts of the revenue
or through arrears of payment. A loan was raised by
assignments on anticipated receipts from the taxes, or
payment was actually made with such an assignment, or
arrears of payment were recognized, for which there was
legal liablity in case the claim was not satisfied.
Loans in anticipation of revenue can be traced far back
in English history. Madox mentions them as used in the
time of Henry II I (1242) in the same form as that custom­
ary in the seventeenth century. Pieces of wood called
tallies were issued, which, to distinguish them from the
tallies of sol used as receipts in the course of the adminis­
tration of public money by the Exchequer, were called tallies
of pro. The tallies of pro were at first used only in the proc­
ess of payment. They were instruments of payment which
were issued to the sheriffs and receivers of the Exchequer
as a charge on them to pay the sum inscribed thereon out
of the revenue in their hands. When the accounts of the
revenue were presented to the Exchequer the sums repre­
sented by these tallies of pro were assigned to the receivers
in question. The name was derived from the word “ pro ”
cut on the tally, together with the name of the person for
a Since letters patent under the Royal Sign Manual contained the sov­
ereign’s pledge of payment, an action could be brought if payment were not
forthcoming. The celebrated Bankers Case before the court of exchequer
under William I I I (Howell, State Trials, London, 18 12, vol. 14) was based on
such an action. Judgment was obtained against the Crown. Lord Somers,
the chancellor, set aside the decision, which was, however, finally upheld
by the House of Lords on appeal.




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Co mmi s s i o n

whom it was issued and to whom it was to be paid. These
tallies of pro were also used in the anticipation of taxes.
Anyone who advanced money on the security of the taxes
to be anticipated was given a tally on which was notched
his name, the amount advanced, i. e., the sum to be
repaid, and the head of the revenue on which the payment
was charged. From this use they received the additional
name of tallies of anticipation. They were also called
tallies of assignment, since in times when money was very
scarce they were used instead of actual payments.®
Until the reign of Charles II these tallies of anticipation
do not appear to have borne interest, and they were not
negotiable. B y 12 Charles II, c. 9 (1660), they secured
the first advantage, and 17 Charles II, c. 1., made them
negotiable instruments.
B y this latter statute an order of repayment, signed by
the lord treasurer, was assigned to all who should advance
money to the King, in addition to the tally acknowledging
the payment of the loan. This order of repayment bore
the same date as the tally, and contained, besides the
order to repay the capital, an order to pay interest (6 per
cent) and 6 per cent additional interest in case the payment
were delayed. A register was kept of all loans made on
such guaranties. The claims arising out of the tallies
and the orders of repayment could be transferred by
indorsement on the order. All such transfers must be
notified to the Exchequer for entry in the register.
a Madox, “ The History of the Exchequer,” London, 1769 (2d ed.). This
description is taken from Return on National Debt, 1858, 443, p. 88, and
Return on Public Income and Expenditure, 1869, 336, I, p. 340, where
also is given a drawing of a tally and its inscription.




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The tallies of anticipation were not always issued against
specified heads of revenue. As the financial administra­
tion fell more and more into the hands of Parliament, the
methods of borrowing became freer. In time acts of
Parliament made it legal for the Treasury to issue tallies
as soon as the taxes were imposed, in order to obtain the
money more rapidly. It was sometimes arranged that
these tallies should be repaid out of the supplies voted
and that the latter should be ear-marked for the purpose;
sometimes the act only gave a general authorization for
the anticipation. The latter form of loan on security of
the public credit in general was continued into a later
period.®
As soon as the tallies fell due they were presented for
payment by the last holder, either at the Exchequer or
to the revenue department on whose funds they were
charged. If the holder did not present himself it appears
that a public announcement was made that payment was
due.6
With regard to arrears of payment the Government
either left them until they could be paid out of the receipts
of the revenue and the parliamentary grants, or they were
met by tallies of anticipation in lieu of payment, or
finally, a formal acknowledgment of debt might take
the place of the delayed payment. In the latter case
the one debt was replaced by another of like amount but
“ Thus in 9 Will. IV, c. 44, 1 1 Will. I l l , c. 2, 12 and 13 Will. I l l , c. n ,
1 Anne, c. 12.
b Cf. a notice in the London Gazette, October 8 -12 , 1696, that three tallies
of pro in the names of George Toilet, Richard Uphill, and Sir Stephen
Evance, levied on the Hereditary and Temporary excise “ are ready to be
paid ’ ’ if presented to the cashier general at the Excise Office.




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possessing certain advantages for the creditor. Such
forms of debt developed in connection with the navy, the
army, and the ordnance departments and were the origin
of the navy bills and of the debentures. Unfortunately
the nature of these bills in early times cannot be exactly
determined. The following account may, however, be
regarded as substantially accurate:
The navy bills were issued by the commissioners of
the navy office in payment for stores and provisions pur­
chased. They were vouchers resembling bills of ex­
change, which fell due after a certain interval, and bore
interest, which interest was added to the amount of the
bill when it was made out. They are first mentioned in
1693 when £1,430,439 was outstanding in such bills.
The victualing and transport bills were similar forms of
recognition of delayed payments. They, too, were ne­
gotiable and were issued by the victualing office, a
department of the Admiralty, and by the transport office.®
Debentures are referred to in various parliamentary
papers as being of very ancient origin.6 But so many
kinds of transactions are referred to under this name that
it is difficult to determine their exact nature as a method
of borrowing. In the first place we must distinguish the
a William Fairman, “ An Account of the Public Funds,” London, 1824,
p. 15 1, gives a history of the navy and victualing bills from 1749 onward.
It appears however from the parliamentary reports of an earlier date, in
particular, the report of the Commissioners of Public Accounts, 1 7 1 1 , and
from a pamphlet ascribed to Robert Walpole (The Debt of the Nation,
stated and considered in four papers, I. “ A letter to a friend concerning
the Public Debt, particularly that of the N avy.” 17 12 , in Lord Somer’s
“ Tracts,” Vol. X I II) that the character of the bills had not altered since
the beginning of the eighteenth century.
b Return on National Debt, 1858, 443, p. 87, Report on Exchequer,
18 31, 3 13 , p. 94 (on p. 119 a reprint of a debenture is given).




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System

assignments of the auditors of the receipt, officials of the
Exchequer, which assignments are referred to as deben­
tures, and to which I shall return later. Neither are we
here concerned with the certificates which the customs­
house collectors gave to exporters of goods who were
entitled to a drawback, and by reason of which certificates
the drawback was duly paid at the proper office.® Deben­
tures in different forms appear also as floating debt. Thus
31 Chas. II, c. 1, provides that the commissioners for
disbanding the forces should discharge the payments still
outstanding by means of certificates or debentures.
These are to be issued under their hands and seals and
addressed to the lords commissioners of the Treasury, who
shall thereupon, without other warrant of the King, issue
an order for the payment of the sum so certified together
with interest at 8 per cent from the date of the order.
These orders for payment were assignable by indorsement.
In many cases, however, the Treasury was empowered to
issue debentures, which are described as vouchers signed
by at least three of the lords commissioners, and bearing
interest from the day of issue; they were classified and
paid on notice being given in the London Gazette. Finally
another form of debenture was customary in the ordnance
office; this was taken up in the ordinary process of pay­
ment and two sorts were distinguished: ready money
debentures and debentures in course.6
The former were merely orders from the public depart­
ment on the pay office, which orders were cashed as soon
as presented, the latter were classified, and whenever the
0 Postlethwayt, loc. cit. Art. “ Debentures.”
^ Similar forms for debentures are authorized by later acts, e. g., i Anne,
c. 107, s. x x x et seq.




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supply of cash allowed it—regularly every three months
toward the end of the eighteenth century—were called
in for payment, when the person entitled to the money
was allowed interest at an agreed rate.®
The arrears in the army and ordnance departments in
both the seventeenth and eighteenth centuries always
appear in the public accounts under the titles of army
and ordnance debentures. Whether the form of ordnance
debenture used at the end of the eighteenth century is
the same as that employed during the earlier period it
is impossible to determine. It is doubtful, even con­
sidering the great stability of all forms of commercial
currency in England; but the debentures of all dates
must have had one common characteristic since they all
embodied the recognition of a deferred payment on the
part of the ordnance office. In this respect they resemble
the army debentures, while the Treasury debentures
must be regarded as a unique form of floating debt. The
latter are only mentioned here in order to demonstrate
further the ambiguity of the word debenture; so far as
our researches have extended no instance of their use in the
seventeenth century has yet been authenticated.6 It has
already been pointed out in another connection how
important a share the bankers took in the system of public
loans. B y their means the above-mentioned bills were
put into circulation. Under Charles II the employment
a t2th Report of the Commissioners on Public Accounts, 1780, and 2i«t
Report of the Commissioners on Public Accounts, 1797.
b These debentures issued by the Treasury, also called loan debentures,
were first issued in 17 3 1, under the authority of 5 George II, c. 2. They
were rare in England, more frequent in Ireland, and continued to be
used even in the nineteenth century. Fairman, loc. cit., p. 147; Return
Public Income, II, p. 542.




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System

of bankers as intermediaries took the place of the direct
transactions with the public which had been usual earlier.
They were soon so useful to the King’s Ministers that the
latter declared “ that they were so necessary to the King’s
affairs that they knew not how to have conducted them
without that assistance.” ° As soon as the subsidies
were voted by Parliament, the King summoned the
bankers and consulted with them in person concerning
the sums which they were willing to advance on the
security of the revenue. If the King came to an agree­
ment with them, and if the interest and the date of repay­
ment were agreed upon, then, upon payment of the sum,
they received either public or royal securities, i. e., either
tallies with orders of repayment, or privy seals. The
interest which the King had to pay was usually 2 to 4
per cent higher than that paid by the bankers themselves.
So long as the Treasury punctually fulfilled its obligations
the bankers were always ready to make advances, and
Clarendon considers that the loans were perhaps obtained
too easily, so that there was too strong a temptation to
borrow rather than to save. After 1672 the bankers
drew back, rendered mistrustful owing to the reckless
violation of their rights by Charles II, and the King and
his Ministers were obliged once more to trust to such
confidence as they might enjoy with the general public,
and especially with the rich London citizens.
lh e military enterprises of William III soon required
more supplies than the Government could secure from the
proceeds of the revenue and taxes and by using the uncera Clarendon, "L ife ,” Vol. II, p. 218.

68299°—1 1 —


M___fcJsl


S

65




»

N at io n a l

M o ne t a r y

Co mmi s s i o n

tain and decayed credit of its bills. Attention was turned
to new methods of borrowing, which promised great results,
thanks to favorable circumstances and to the fact that
henceforth the consent of Parliament was necessary before
a loan could be raised, and that consequently the security
of the creditors was increased.
In 1689 a loan in the form of a tontine was, for the first
time, raised in France, and it is probable that this form
found its way thence to England, for in 1693 a project for
a similar loan was adopted in this country. A million
was to be subscribed for the purchase of shares at £100.
Each subscriber was to receive £ 10 a year for seven years,
and afterwards 7 per cent for life. The survivors were to
succeed to the rights of any subscribers who died until
the total number of claimants was reduced to seven.
About £900,000 were subscribed on these terms, the
remainder was borrowed on promise of 14 per cent interest
for a life.®
In the following year recourse to a loan was again neces­
sary, and once more an annuity was the form chosen; but
this time in connection with a lottery.5 There was to be
the usual purchase of an annuity for sixteen years, but as
an incentive the chance was thrown in of winning an ex­
ceptional sum by a lottery. The annuity was not high.
It amounted to 10 per cent, or £ 1 on every £10 , at which
price the tickets were issued. Out of the 100,000 tickets
2,500 were raffled for; these were fortunate tickets
and entitled their owners to extra annuities, the high0 The rules for the tontine loan were determined by 4 Will. & Mary, c. 3.
Those for the annuity connected with the remainder by 5 Will. & Mary, c. 5
b 5 Will. & Mary, c. 7.

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Banking

System

est of which amounted to £1,000, while the lowest was
only £ io .“
There was an important difference between the tallies,
bills, and debentures, and the form of loan last mentioned,
and the loans of 1693 and 1694 mark at any rate an ad­
vance in the technique of borrowing. The superiority of
these loans lay above all in the fact that Parliament had
undertaken the organization of the system, had voted
new taxes to cover the liabilities arising out of the loans,
and had determined the conditions upon which they were
to be raised. From this time forward parliamentary con­
trol over the raising of loans remained unrestricted. The
privy seals now became valueless as far as the public debt
was concerned, since loans could not be raised without the
consent of Parliament. The bills and debentures, how­
ever, remained in use, since they merely contained an
acknowledgement of a debt incurred in the course of ad­
ministration. Parliament could exercise no direct control
over debts of this kind, nor was the expenditure of the
different public departments controlled in detail or con­
tinuously. It was consequently possible to meet expenses
for the public services by loans raised by the administra­
tive departments, and the more so since the deficit was
not necessarily due to expenditure beyond that estimated
in the receipts. It was otherwise with the tallies. These
were orders for payment out of future revenue and cona The technical arrangements for the lottery were as follows: One hundred
thousand tickets, numbered in the order of their issue, were placed in one
box, and 100,000, of which half were blank and half inscribed with the
amount of the prize, were placed in another box; the tickets were drawn
from both boxes simultaneously, so that those numbers which were drawn
at the same time as a fortunate ticket entitled the holder of the annuity
certificate bearing the same number to the prize.




67

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N at ion a l

M o ne t ar y

Co mmi s s i o n

stituted an express claim on the latter even before it had
been voted by Parliament. Their issue was likewise regu­
larly controlled by Parliament. Permission was given,
when the act granting the taxes was passed, to issue tallies
for the amount voted, so that in view of its pressing neces­
sities the treasury might obtain the money at once. The
consequence often was that the taxes, when ultimately
paid, did not amount to the sum granted and hence did
not cover the tallies issued. The Treasury could only issue
tallies on its own authority in the case of taxes voted for
the lifetime of the King, in which case the receipts were
entirely at the disposal of the Crown, or in other words, of
the Treasury as empowered by the Crown. The Govern­
ment suffered from one great disadvantage with regard
to all these forms of floating debt, i. e., it was powerless
to determine the conditions of the loan. Driven to issue
the loan in times of need, it must accept the terms offered
by the public. In this unfavorable position it made mat­
ters worse by unpunctuality in repayment and by con­
tinual fresh issues, so that it is easy to understand that its
bills could often only be disposed of at great loss. This
had happened in the first instance with regard to the ton­
tine and lottery loans, and later on, at the foundation of the
Bank of England.I.
II I. TH E FOUNDATION OF TH E B A N K OF EN GLAND AND IT S
STATU TO RY R ELA TIO N TO TH E ST A T E.

The projects for the foundation of a Bank in England
which were brought forward during the Commonwealth
and the reigns of the two last Stuart kings, while they
look upon state intervention as essential, contain no sug-




68

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Banking

System

gestion of any financial connection with the Government.
The projects during the reign of William III, on the con­
trary, are remarkable in that they all contain the pro­
posal that the capital stock of the Bank should constitute
a loan to the State. Thus William Paterson in 1692, in
conjunction with several merchants, offered to advance a
million to the Government in return for a yearly payment
of £65,000. The stock certificates of the debt were to
have forced currency or to be legal tender; in which case
Paterson and his friends undertook to keep £200,000 in
hand for the regular exchange of such bills. This sum
was, however, to bear interest separately at 5 per cent.0
In 1694 Paterson made a second proposal. Two millions
were to be advanced to the Government at 7 per cent.
The subscribers were to have the privileges of a corpora­
tion. They were to provide a fund of £200,000 to keep
in circulation bills to the amount of one million, which
bills were to bear interest at 8 per cent. This proposal
also was not accepted, but a third project brought for­
ward by Paterson in the same year was finally agreed to
by the Government and by Parliament, and received legal
sanction in 5 and 6 Will. & Mary, c. 20.
lliis act established the Bank of England. It fore­
shadowed none of those important consequences which
were afterwards associated with the Bank. There is no
reference to any transference to the Bank of the manage­
ment of the public debt, nor of the administration of the
public money. Even the note circulation of the Bank
was only partially regulated. “ The scheme * * *
° H. Macleod, “ The Theory and Practice of Banking,” 3d ed., 1875, I,
P- 3 77 -




Na t ion a l

M on et a r y

Co mmi s s i o n

was smuggled under the long tail of an act of Parliament
for raising moneys generally ” (Doubleday); and there
is nothing in the title to suggest that the act provides for
the foundation of an institution for the supply of credit
facilities of great importance in public finance.®
After provision has been made for the levying of vari­
ous duties it is enacted that the sum of £100,000 shall be
set aside yearly from the proceeds of these duties for the
payment of any persons who shall advance £1,200,000 to
the Government before August 1, 1694. Their Majesties
are empowered to constitute the subscribers of this sum
into a corporation under the title of “ The Governor and
Company of the Bank of England,” and to grant them all
privileges as such, in particular the right to own property
of all kinds, including land. The shares of the subscribers
(stocks) are transferable in such manner as their Majes­
ties may think fit to determine. No one may subscribe
more than £20,000, a quarter to be paid at once and the
remainder before January 1, 1695. Should the final pay­
ment not be made the first becomes the property of the
Crown.
The corporation may deal in bills of exchange, may
buy and sell gold and silver bullion, and may lend money
on security of goods and merchandise with the right of
selling such security if repayment be not made within
three months after the time agreed upon. It may sell
other goods only if they are the produce of land belonging
0 See Appendix I; cf. also Leroy Beaulieu, who says of the foundation of
the Bank: “ Aussi ce n’est pas k cause d ’une n£cessit£ 6conomique sentie
et comprise, c’est a titre d’exp6dient utile a la couronne, que fut cr£6 le
plus grand et le plus solide 6tablissement de credit du monde” (“ Traits de
la science de finances,” Paris, 1877, vol. II, p. 504).




70

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B a n k i n g

Sy stem

to it. Trade in any kind of goods or merchandise, not
arising out of the above transactions, is forbidden under
penalty of a fine of three times the value of the goods.
Money may only be borrowed up to the amount advanced
to the Government; for any sum in excess of this the per­
sonal property of the subscribers is liable. All notes and
bills of credit issued by the corporation can be assigned
by one person to any other who shall voluntarily accept
the same by means of an indorsement. If the corpora­
tion purchase Crown property or advance money to the
Crown without the consent of Parliament, it is liable to a
penalty of three times the sum in question. The repay­
ment of the debt may be made after August i, 1695, upon
one year’s notice, and the privileges of the corporation
will then cease.
From the last clause it may be concluded that in found­
ing the Bank there was no thought of creating a loan
institution of permanent utility. Its economic value was
wholly unappreciated, since its existence was to cease a
year after it should become possible to cancel the govern­
ment debt. The reservation to the Government of such
a right to terminate at notice was not unusual where cor­
porations were concerned. It was, however, not usual
to make use of it unless the company exceeded its privi­
leges. It was only a threat by means of which the good
behavior of the corporation might be secured.0
The prerogative of erecting corporations belonged to the
Crown. The King exercised this prerogative either by
giving his consent to an act of Parliament declaring the
formation or by the grant of a charter in cases where the
0 Burnet, “ History of his Own Time,” Vol. II, p. 209.




7i

I

N at i o n a l M o n e t a r y

Co mmi s s i o n

act of Parliament permitted the erection of a corporation
i n futuro.a The Bank received its charter on July 27,
1694. No privileges were conferred upon it thereby ex­
cept those which it received by virtue of being a corpora­
tion ; the conditions regulating the election of officials, the
independence of the corporation’s property, the ability to
sue and be sued, a common seal, the right to make by­
laws agreeable to the general laws of the Kingdom. b
If the privileges granted to the Bank by act of Parlia­
ment are examined it will be found that they relate only
to the credit facilities afforded and to commercial transac­
tions. The latter are limited to trade in the produce of
the corporation lands, and in gold and silver bullion.
The loan transactions include: Dealing in bills of exchange,
loans on pledges deposited (with the right to sell such
pledges itself), and loans on mortgage. The borrowing
transactions were not specified. It might receive money
on any terms whatever, so long as its liabilities did not
exceed the amount of the government debt. This debt
formed its capital stock. Should the Bank wish to issue
notes, it might do so up to the amount of the debt. Notes,
bills of exchange, and other debts of the Bank were all
looked at from the same point of view. They were the
liabilities of the company, and their security rested upon
the government debt.
There is no indication of any intention to give the Bank
a share in the management of the public debt or of the
a Blackstone, Commentaries (edition 1830), Vol. I, pp. 272, 472.
6 See an extract from the charter of the Bank of England in McCulloch’s
“ Treatise on Metallic and Paper Money and Banks,” p. 455. Anderson,
a. 1694. [There is a reprint of the charter and by-laws in Lawson’s “ History
of Banking.” H. S. F.]




73

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S ystem

public money. To say that by the provisions of the act
which founded it the Bank undertook the functions of
the Exchequer, is untrue. This was neither embodied
in the act nor was it immediately put into practice. The
voluminous act, suffering in form from the usual clumsi­
ness of English laws, contained in fact only a few princi­
ples of administration and left it entirely to the practical
constructive powers of the Bank directors to find the
necessary rules for the development and conduct of the
Bank. The incomplete nature of the bank act certainly
appears as an advantage when constrasted with the
detailed provisions for organization and administration
with which the German banks of the eighteenth century
were equipped by law. It very soon appeared that the
Bank could be managed satisfactorily without such pro­
visions. It carried on its business with success and soon
its credit with the general public was higher than that of
the goldsmiths had been. It lent money at 5 per cent
on mortgages and on real security. Foreign bills of
exchange were discounted at 4 X per cent, inland bills at
6 per cent. The Bank’s customers could obtain discount
on the former at 3 per cent, and on the latter at 4 K per
cent. The goldsmiths had charged 10 per cent. The
bank bills were payable on demand and, like all other
credit notes, bore an interest of 2d. a day per £100—i. e.,
rather more than 3 per cent. The goldsmith’s notes had
carried no interest.0
0 Michael Godfrey, “ A Short History of the Bank of England,” London,
1695 (reprinted in John Francis’s “ History of the Bank of England,” London,
1848, and in Lord Somers’s Tracts, Vol. X I). Godfrey was a director of
the Bank in 1694.




73

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Monetary

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But the Bank was of most importance in relation to
the public credit. It cashed the government bills. Bills
when drawn on safe funds such as the land tax, and due in
three or four months, had usually been at a discount of
2 per cent, which discount had risen to 30 per cent in the
case of other funds, and when the interval before the bills
fell due was greater. But now the Bank raised the credit
of these bills so high that they were soon above par, and
since the Government paid 7 or 8 per cent on them, were
more sought after than bills of exchange. B y thus cashing
the bills representing the floating debt the Bank demon­
strated at once, and most clearly, its usefulness to the
Government. This usefulness appeared yet more clearly
when the government bills declined in value owing to the
bad state of the currency, and the Bank, in order to
restore the credit of the bills, proposed an increase of its
capital, as subscriptions to which the bills might be paid
in at their nominal value.
In 1697 a new bank act was passed (8 and 9, Will. &
Mary, c. 20) allowing the Bank to increase its capital stock
in the way mentioned. The subscriptions, which were
not limited in amount, were to be paid one-fifth in bank
notes and four-fifths in government bills. This is the
first consolidation of floating debt in England. The Bank
received interest at 8 per cent on the capital thus
obtained and was allowed to increase its note issue up to
the amount of the new subscriptions.
The provisions of the act of 1697 were an extension of
the original bank act. The privileges conferred by the
latter remained unaltered, whilst a new and important




74

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Syst em

one was added. It was enacted that, so long as the
Bank continued, no other bank, corporation, or company
of the nature of a bank should be allowed by act of Par­
liament. It was this act, therefore, which first gave
the Bank an exclusive privilege, a privilege limited in
time indeed, since after August i, 1710, the Bank might
be dissolved under conditions similar to those stated in
the original act; but, as we have already pointed out, no
definite significance was to be attached to such a warn­
ing clause. The privileged position of the Bank was not
yet, however, completely secured, since the undertaking
that no other bank should be authorized by act of Parlia­
ment did not prevent the transaction of banking business
by companies already in existence. But in 1708 the
Government was again in need of money and had recourse
to a loan; and the Bank then took the opportunity to
secure a full monopoly through the act which authorized
this loan. This third act (7 Anne, c. 30) authorized the
Bank to advance £400,000 to the Government and re­
duced the interest on the total debt to 6 per cent. At
the same time the Bank undertook to cash the exchequer
bills, a species of government note. In return it was
enacted that during its continuance no company consist­
ing of more than six persons should issue bills or notes in
England, which were payable on demand or within six
months of the date of issue. This clause was intended to
secure and protect the exclusive banking rights of the
Bank of England. Although in fact it only for the bene­
fit of the Bank of England forbade the issue of notes by
any other company having more than six members, it was
interpreted by contemporary opinion to imply that the




75




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Co mmi s s i o n

business of banking in general might not be carried on by
such companies. As is well known, this legal error was
not recognized until 1835.
These three acts together formed the basis of the Bank
of England’s position until the beginning of the nineteenth
century. It would be impossible to deduce this position
from the original act alone, but it is not necessary to take
into account the acts passed after 1708, since they add
nothing essential. The provisions set forth in these
original laws relate only to the economic condition of the
Bank.
The Government had conferred upon it banking rights
and had determined the sphere of its operations in accord­
ance with the opinions then held of the functions of a
bank; but had refrained from influencing the particular
form of its transactions, or the disposal of its resources, or
the creation of liabilities.
The restrictions of the note issue and liabilities to the
amount of the capital stock can not be looked upon as
an administrative principle any more than the permanent
clause forbidding loans to the Government without pre­
vious authorization from Parliament. The first rule was
only inserted in order that the extent and starting point
of the shareholders’ liability might be legally determined;
it was not repeated after 1708. The latter clause arose
out of the constitutional and not out of the economic
preoccupations of Parliament. The relation of the Bank
to the Government was thus marked off by no legal regu­
lation. The Bank is neither a government institution
nor under government influence, and in this respect differs
essentially from the continental banks founded either at
76

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B'a n k i n g

System

the same time or during the eighteenth century. Its only
connection with the Government was of an economic
character. For the State the Bank was an indispensable
institution for the supply of credit facilities, an institu­
tion which it had indeed created by the grant of a monop­
oly, but with regard to the conditions of whose existence
it troubled no further. The fact that in spite of this the
bond between the Bank and the Government has come
to be indissoluble is to be explained by the growth of
particular connections, which, however, have not affected
the legal relations of the two.
With regard to the Bank’s relation to the administra­
tion of finance in particular, we have seen that no refer­
ence is made to this in the original act. Nor was the
relation subsequently regulated by law. In fact the con­
nection grew up in the course of the next century without
receiving any legal regulation whatever. The practical
administration of the finances was gradually subjected to
such modifications as ended in the assumption by the
Bank of the functions of the Exchequer, while, owing to
the peculiar evolution of the system of public indebted­
ness, the Bank received a share in the administration of
the debt and ultimately took over its entire management.
This development had some connection with the eco­
nomic monopoly granted to the Bank, since the Govern­
ment was further stimulated by it to continue this
monopoly.




77

PA R T II.
TH E RELA TIO N S BETW EEN TH E BAN K AND TH E ADM IN IS­
TRATION OF TH E PU BLIC D E B T AND OF TH E PUBLIC M ONEY
DU RING TH E E IG H T E E N T H CEN TU RY.

Even a general history of the Bank of England must, in
reference to the eighteenth century, be concerned pri­
marily with the Bank’s relations to the Government.
And this not only because during this century its financial
assistance became specially important, but more particu­
larly because it was these relations which gradually
secured for the Bank a share in the financial administra­
tion, and hence, in the natural course of things, strength­
ened and maintained its monopoly. This transference
of public business to the Bank was made in two different
directions, in a completely independent way. Its par­
ticipation in the management of the public debt developed
quite apart from its participation in the administration
of public money. The one function did not lead to an
increased exercise of the other, except that the transac­
tion of government business in either department resulted
in a general increase in the importance of the Bank’s
position and the respect with which it was regarded. The
Bank’s cooperation in these branches of financial admin­
istration received no legal sanction during this century.
B y the end of the century it was, however, clear that the
natural strength of tradition and the influence already
won would secure it a permanent and definite share in the




78

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Banking

System

financial administration. But just as its administration
of the debt and its administration of the public money were
substantially distinct and developed independently in fact,
so the growth of its activities in these directions was not
uniform. The year 1751 marks the time after which it
seems to have been accepted that the Bank alone should
share in the management of the public debt, although this
opinion found no legal expression. Suggestions made at a
later date to withdraw the management of the debt from
it were without effect. As regards the public money, it
was not until much later, in 1780, that the Government
seriously considered the principle that this should be man­
aged by the Bank. The previous development had been
independent of any law or administrative order. The
measures taken after 1780 lose, however, all significance
unless they are connected with the working out of this
principle during the early decades of the nineteenth
century. Hence, it is advisable to arrange in chronolog­
ical order our account of the process by which the Bank
came to take part in the management of the public debt
and public money. However the several phases of this
development are distributed within our period, it is
indubitably the central characteristic feature of the his­
tory of the Bank during the eighteenth century. It was
not until the beginning of the nineteenth century that the
need for a reorganization of the financial administration
in both departments led to a legal recognition of the posi­
tion developed during the eighteenth century. Hence
the description of this position in what follows does not
end exactly with the century.




79

Nat i onal

Mo ne t ar y

Co mmi s s i o n

I . TH E EVOLUTION OF TH E NATIO NAL D EBT AND OF ITS
ADM INISTRATION.

A. The principle of the incorporation of public debt as
recognized at the foundation of the Bank, and its subse­
quent application.
I.

THE PRINCIPLE OF INCORPORATION.

Had there been any intention in founding the Bank to
create a loan institution by whose means money could be
more easily raised on the short-term paper, no disappoint­
ment need have been felt, as we have already remarked,
with regard to the Bank’s efficiency in this matter. The
very first return issued by the Bank, which was laid before
the House of Commons on November io, 1696, shows
clearly the important share taken in the business con­
nected with the government bills. The Bank held
£1,784,576 in tallies on various funds, out of total assets
amounting to £2,101,18 7.® But this assistance, repeated
a The return is published in the Journals of the House of Commons,
1696, and also by various writers, e. g., Fairman, loc. cit., p. 46, and is
as follows:
To sealed bills outstanding...............
To notes for running cash.............
To money borrowed
in Holland...........
To interest due on
bank bills outstanding...............
R e s t...........................




£
893, 800
764,196
300, 000

17,876

s.

B y tallies on several
parliamentary se£
cu rities.................. 1,78 4 ,57 6
10 B y half a year’s deficiency of the
fund of £100,000
per annum ...........
50, 000
B y cash, pawns,
mortgages, e t c . . .
266, 610

D 9 7 5 .8 7 2
12 5 ,3 15

10
2

2 ,1 0 1 , 187

12

2, 10 1, 187

80

s.
16

16

12

T he•

E n g l i s h

B a n k i n g

S y ste m

and permanent though it was, did not constitute the
chief significance of the Bank of England for public
credit. The Bank owed its very existence to a govern­
ment loan transaction. The loan act of 1694 bestowed
the privilege of a corporation upon the public creditors,
and this promise was carried out by the charter of July 27.
The Bank of England was thus formed into a company
for the transaction of banking business, whose capital
stock consisted of a loan to the Government. Over this
loan the Bank had no control. It could not be redeemed
as far as the Bank was concerned, but was only repayable
at the desire of the Government. This, if we neglect the
bankers’ debt, which owed its existence to a passing
impulse, marks a new principle in the administration of
debt. The foundation of the Bank of England forms the
transition from the system of floating to that of funded
debt, and it is perhaps not a mere chance that the method
selected was that of incorporating the government
creditors into a privileged company. Similar incorpora­
tions of government debts are phenomena which continu­
ally recur in the history of state systems of credit.
They are especially frequent in Italy, and it is most
probable that the banks of Genoa and of Venice came into
existence in this way.® It is not unreasonable to sup­
pose, considering the constant attention with which all
European banks were studied by Englishmen at the end
® Cf. Endemann, "Studien zur rom. Kan. Wirthschaftslehre,” p. 438, 455;
with reference to the Bank of Genoa, see a monograph by Prince Adam
Wiszniewski, “ Histoire de la banque de Saint-Georges,” Paris, 1865, p. 2
et seq., p. 17 et seq.; Vetor Sandi, “ Principii della storia de la republica de
la Venezia,” Vol. II, p. 148 et seq.; Vol. V I, p. 892 et seq. gives some par­
ticulars of the origin of the Bank of Venice.

6 8 2 9 9 °— 1 1 ----- 6




81




N at i o nal

M o net ary

Co mmi s s i o n

of the seventeenth century, that the history of the creation
of these banks influenced the manner in which the Bank
of England was established. Indeed, the repetition of
such loans during the decades immediately following the
foundation of the Bank makes it almost appear as if the
principle of incorporation had become a recognized rule
for the administration of debt. In any case, it became
of great importance in the later developments of the
administration of public debt in England, owing to the
type of management to which it led.
The few important loans which had hitherto been
authorized by Parliament, the annuity loan in 1693 and
the lottery loan in 1694, were managed by the Exchequer.
The Government, which was obliged to deal directly
with each individual creditor, had the books relating to the
loans kept at the Exchequer. In these books transfers
were recorded, reference to them determined claims of
ownership, verification of lottery tickets, etc., and in them
due payment of the interest was entered. The debt to
the Bank of England was different in form. In this
case the Government had but one creditor, the Bank, to
whom it owed the entire amount of the loan; but the
repayment was under its own control. The interest on
the loan had to be paid in a lump sum. Hence the
management of the debt passed out of the hands of the
Government. Its function was confined to the transfer
from the Exchequer to the Bank of the sum required to
pay the interest
The business formerly connected with the management
of the public debt passed to the Bank. But the Bank

82

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Banking

Syst em

merely administered its own capital like any other com­
pany. The individual who had contributed something
to the government loan and had thus become a member
of the corporation established by act of Parliament and
charter, had in fact no claim on the State; he was simply
entered in the books of the corporation as entitled to such
and such a share in the capital of the company, i. e., in
the public debt. He could not claim interest from the
Government, but the amount corresponding to his stock
was allotted to him out of the interest assigned to the
company by the Government. If he alienated his claim
to capital and interest and the corresponding transfer
was entered in the books of the Bank, the property thus
transferred was in fact a claim on a public debt. This is
the position which resulted from the “ incorporation of
the national debt.” The public creditors were formed
into a corporation in order to administer the debt, which
was managed like the ordinary working capital of a
company.
At the same time the management of the company’s
business appeared as an essential part of the transaction,
so that anyone who advanced money to the Government
might expect to receive a profit from the business trans­
actions as well as the regular interest paid by the State.
Hence, such loans could not fail to be a success, espe­
cially as the original subscribers had the prospect in any
case of a profit due to a rise in the price of the capital
stock. And indeed it must be attributed to this cir­
cumstance that, even during the times of scarce money
at the beginning of the eighteenth century, the Govern-




83

Nat i onal

Mo ne t ar y

Co mmi s s i o n

ment obtained supplies not only by adding to the capital
stock of the Bank of England, but also by the creation of
new companies.®
2.

THE ATTEMPT TO ESTABLISH A LAND BANK.

Even in 1695 an attempt was made to found another
such institution. A land bank was to be created which
on the one hand was to raise a loan on mortgage, and on
the other was to supply the Government with means to
carry on the French war.
The act 7 and 8 Will. I l l , c. 3 1, made perpetual a law
passed in 5 and 6 Will. I l l imposing certain taxes
on salt and earthenwares, and set aside the sums thus
raised for the payment of such persons as should,
upon this security, advance £2,564,000 before August 1,
1696. The subscribers were to form a corporation
under the title of “ The Governor and Company of
the National Land-Bank,” and to have the right to
invest in landed property and to undertake the adminis­
tration thereof. The shares in the original stock were
divisible and transferable. The subscribers were to be
paid 7 per cent per annum out of the proceeds of the
above-mentioned taxes on the amount subscribed. The
Bank of England was expressly forbidden to subscribe.
No official of the one company might hold shares in the
a Persons were not wanting, however, who lamented this circumstance,
“ The Public Creditors, by being removed from the Exchequer, have not
the same Security of the National Faith and Justice for the punctual
Payment of their Principal and Interest, which they had before, but are
too much exposed to the Danger of becoming, one Time or other, the
Property of their Managers.” (“ Some Considerations on the National
Debt,” London, 1729. p. 72.)




84

The

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Banking

System

other; in fact no person might hold stocks in both com­
panies at the same time, under penalty of forfeiting them.
The company was forbidden to lend money to the Crown
without the consent of Parliament under penalty of for­
feiting the sum lent, one-fifth of which sum was paid to
the informer, while four-fifths were devoted to public pur­
poses. All the privileges of the corporation ceased on
repayment of the debt, which repayment was only pos­
sible after a year’s notice. The trustees elected by the
subscribers of the loan drew up, on August io, 1695, a
settlement determining the organization and adminis­
tration of the Bank, which was accepted by the share­
holders and registered by the court of chancery. This
authorized the trustees to take up mortgages on land up
to three-fourths of its value at an interest of 3 ^ to 4 per
cent. They might issue bills up to the amount of their
outstanding claims, which bills were to bear interest at a
rate fixed by the trustees. These bills were to be cashed
on repayment of the capital lent, and were to be called in
for this purpose. A reserve fund was, however, to be
established so that the convertibility of the bills might
not rest entirely on security in real property. Should the
loan not be repaid the trustees might use legal means to
recover it.
The land bank, however, never came into existence.
The act stipulated that a quarter of the subscriptions must
be paid at once and the rest before January 1, 1696, under
penalty of forfeiting the claim on the amount paid in.
The subscription list was filled within ten days of its




85

N at ion a l M on et a r y

Co mmi s s i o n

issue, but the money was not paid in, and hence the whole
project fell through. a
3. THE EAST INDIA COMPANY.

In 1600 Queen Elizabeth granted to a company of mer­
chants, by means of letters patent, exclusive rights to trade
with all countries between the Cape of Good Hope and the
Straits of Magellan. The capital of the company
amounted to £72,000 in £50 shares, and was, after some
years, amalgamated into a joint stock company (1613).
Under the name of “ The Governour and Company of
Merchants of London trading into the East Indies,” it
carried on its exclusive trade until the time of the Com­
monwealth. Cromwell dissolved it in 1655 and made the
trade free. In 1661 it was reinstated by Charles II and
its charter was afterwards renewed from time to time.
In 1693 it forfeited its privileges on account of the non­
payment of a 5 per cent tax imposed on its capital, but in
the same year it was reconstituted and its charter ex­
tended until 1701. The capital of the company now
amounted to £744,ooo.6 The granting of all these char­
ters was an exercise of the royal prerogative which laid
a In contradiction of the statement made by various authors that no
subscriptions were offered, see Ralph, “ History of England,” Vol. II, p. 658,
and also the settlement which was not drawn up until after the subscription
had taken place. This settlement is printed in Lord Somers’ Tracts, Vol.
X I, “ The Settlement of the Land Bank.” Although never carried out it is
of great interest as the first attempt at an institution for making loans on
mortgage, and its substance is given in Appendix II.
&Return on Public Income and Expenditure, II, p. 532. In 1772-3 the
House of Commons appointed a committee to inquire into the position of
the East India Company, the first report of which contains a list of the
charters granted to the company.




The

English

Banking

System

the company under no obligation to the Government and
did not make its existence depend on the fulfilment of
any such obligation. But in 1698 the rights of a corpo­
ration and trading privileges were promised to any person
or persons who should advance to the Government two
millions at 8 per cent. This proposal was embodied in
an act of Parliament, 9 and 10 Will., I l l , c. 44, as had been
done in the case of the Bank of England four years pre­
viously, and of the intended land bank.
This act of Parliament a increased and prolonged some
existing taxes, imposed new ones, and united the whole
proceeds into a fund out of which an annuity of £160,000
was to be paid to the subscribers of the two millions.
The subscriptions, from which the Bank of England was
again excluded, must be not less than £100 each. Onetenth of the sum must be paid at once and the remaining
tenths at intervals of two months. If the first tenth were
not paid in, the subscription was to be canceled. If the
remaining portions were not paid, the first payment was
to be forfeited and the £160,000 annuity was to be pro­
portionately reduced. In order that the Government
might obtain the use of the money sooner, it was empow­
ered to issue tallies, which were to be paid every three
months by the commissioners appointed to receive sub­
scriptions, and which bore interest at 8 per cent. The said
commissioners must enter all subscriptions accurately in
a book and send duplicates of these entries to the E x ­
chequer, which duplicates were there registered by the
0 The title is “ An Act for raising a sum not exceeding two millions'upon
a fund for payment of Annuities after the rate of eight Pounds per Centum
per Annum, and for settling the Trade to the East Indies.”




87

Nat i onal

Mo net ary

Co mmi s s i o n

auditor of the receipt and the clerk of the pells. Each
subscriber could obtain gratis a sealed copy of the entry
which concerned him. The money thus subscribed was
to form the principal stock of a corporation into which all
the subscribers were constituted by means of letters pat­
ent from the King. The corporation was to be called
“ The General Society intituled to the advantages given
by an act of Parliament for advancing a sum not exceeding
two millions for the service of the Crown of England,” and
under this name it was to enjoy “ perpetual succession and
the use of a common seal.” The subscribers were to elect
25 trustees in a general meeting, at which only those who
had subscribed at least £500 might vote, and none had
more than one vote. Each trustee must have subscribed
at least £2,000. The members of the society had exclu­
sive rights to trade to the East Indies and to such coun­
tries in Asia, Africa, and America as lie between the Cape
of Good Hope and the Straits of Magellan. But no one
might trade for more than the amount of his share in the
principal stock.
The claim to the annuity paid by the Government was
a claim owned by each individual member in proportion
to the amount of his share. If, however, the subscribers
wished to form a joint stock company they might be rec­
ognized as such; but the company so formed was to be
“ restrained to such portion of the trade in the whole as
all the particular members thereof would have been enti­
tled to ” had it not been formed. In this case the Gov­
ernment annuity would be paid to the company. The
members must trade only as a company and must take an




88

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Banking

System

oath to “ be faithful to the General Society” and not to
trade for more than the allowed amount. Out of regard
to the existing privileges of the Bank of England the com­
pany was expressly forbidden to advance money, to dis­
count bills of exchange or other bills or notes, or to borrow
any money beyond what was required to buy goods or
commodities for exportation, to issue bills of exchange
payable in less than six months, or to “ keep any books or
cash” for any person or corporation. In common with
the Bank of England, however, its annuities and shares
were exempt from taxes, and no member could be adjudged
bankrupt in respect of his stock only. The existing “ Com­
pany of Merchants” was to remain undisturbed until
September 29, 1701, notwithstanding the privileges
granted to the General Society.
The establishment of the new society was due to the
refusal of the existing company to make a loan of more
than £700,000, whereupon, at the request of the treasurer,
Montague, a number of merchants came forward and de­
clared their willingness to advance two millions at 8 per
cent in return for the privileges later set forth in the act.
In spite of various petitions from the East India Company
and vigorous opposition in Parliament, the act was
forced through.® On September 3, 1698, the corporation
received its charter as the “ General Society,” etc. But
on September 5 it was constituted at its own request into
a joint-stock company and received the name of “ The
English Company Trading to the East Indies.” The older
company, being unable to prevent the formation of the
°C f. Smollet, “ History of England,” London, 1758, Bk. vi., p. 245.




89

N at ion al

M on et a r y

Co mmi s s i on

new competing society, had itself taken part in the sub­
scription and had contributed £315,000.° This policy
proved advantageous, since the new company quickly be­
came prosperous and soon sent out twice as many goods as
the older one,6 though it always kept within the legal limits.
The relations between the two companies were, more­
over, friendly, so that on July 22, 1702, an indenture of
amalgamation, approved by the Queen, was agreed to.c
The older company agreed to purchase sufficient stock
from the English Company to make the holdings of the
two equal. For seven years the management remained
separate and the profits were divided. After this a single
company was formed under the name of “ The United
Company of Merchants of England Trading to the East
Indies.” This United Company advanced £1,200,000 to
the Government without interest and received in return
permission to borrow money to the amount of one and onehalf millions, or to call in money from its members. Also
its trading privileges were extended until March 25, 1726,
after which date the corporation might cease upon three
years’ notice, on condition that all government debts to it
were repaid.
The total government debt to the East India Company
was now (1709) £3,200,000, for which £160,000, i. e., an
interest of 5 per cent, was paid.
° This and the change of name is referred to in 6 Anne, c. 17.
&T. Cunningham, “ The merchant’s Lawyer or the Law of Trade in
General,” London, 1762, reckons the value at a million pounds, as com­
pared with £500,000 for the older company.
c The essentials of this indenture are contained in 6 Anne, c. 17. The
detailed settlement of all controversial points was intrusted to Sidney,
Earl of Godolphin, the Lord High Treasurer.




90

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B a n k i n g

Sy stem

4. THE SOUTH SEA COMPANY.

In spite of the enormous loans which were raised through
the foundation of the Bank of England and the General
Society, and through the union of the latter with the East
India Company, and in spite of lottery and annuity loans,
the government debt, through anticipation by tallies and
through arrears of payment, still continued. They were
extended from one year to another and led not only to a
heavy burden in interest, but to confusion throughout the
public finances. They consisted of bills issued in different
years, varying in amount and interest, falling due at dif­
ferent times, and charged on a corresponding number of
different heads of revenue. Whatever security was gained
by the creditors through the ear-marking of a definite fund
led to the insecurity of the whole floating debt, because,
owing to the uncertainty of the receipts, there was no
covering for certain debts, while in other departments
there was a surplus, which could not, however, be diverted.
The value of the short-term bills had consequently fallen
considerably, as had been the case before the foundation
of the Bank. As the act establishing the South Sea Com­
pany states: A “ great part of the tallies and orders * * *
are in the hands of the respective treasurers or paymas­
ters * * * and cannot be disposed of without great
loss and discount, and to the damage of the public credit;
and other part of the tallies and orders * * * are or
may be in the hands of such person or persons as may be
better pleased with the perpetual interest, after the rate of
six pounds per centum per annum, redeemable by Par­
liament * * *•”




91

N at ion a l

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Co mmi s s i o n

Hence in 1 71 1 it was decided to consolidate the whole
floating debt into an interest-bearing fund, which might
be repaid, but which could not be realized at the will of the
creditor. It was believed that this was impossible unless
the creditors received special privileges. Consequently
recourse was had once more to the approved method of
granting corporation rights and trading privileges to them,
The South Sea Company was thus established by 9
Anne, c. 21, which act, as usual, contained also other
disconnected provisions.0 The principal contents, so far
as they concern the South Sea Company, are as follows:
After enumerating all the outstanding unfunded debts,
certain duties referred to in 8 Anne, c. 13, which had been
imposed in previous acts continued thereby, were now
made perpetual; their proceeds were assigned to the pay­
ment of a 6 per cent annuity to the creditors, and were to
be handed over to the commissioners of customs, excise,
and stamps. The commissioners were to keep such mon­
eys apart and to pay them weekly into the Exchequer,
where they were to be assigned to a fund for the abovementioned payment. If this fund proved deficient in the
course of the year the deficit was to be made up by the
treasurer of the navy out of “ such public money, tallies,
orders, or other parliamentary securities” as were in his
hands at the time. The cashier of the corporation to be
erected was to give a receipt to the treasurer for these
sums, which receipt was to be admitted as sufficient
® The title is “ An Act for making good Deficiencies and satisfying the
public Debt and for erecting a corporation to carry on a Trade to the South
Sea and for the encouragement of the Fishery and for Liberty to trade in
unwrought iron with the subjects of Spain and to repeal the Acts for
registering seamen.”




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Sy s t e m

voucher for the treasurer’s accounts. In order to make
this transference of money as simple as possible, an esti­
mate, based on a three-yearly average of the amount the
funds would produce, was to be laid annually before Par­
liament, so that it might make “ good and timely provi­
sion” to meet any deficiency.® Any surplus was to be
applied to repaying the principal debt. All persons con­
cerned in the debts in question might be incorporated by
Her Majesty by letters patent.
The corporation thus formed was to have the exclusive
privilege of trading to the South Seas and to the east coast
of America from ‘ ‘ the river of Aranoco to the southernmost
part of the Terra del Fuego ” and to the whole of the west
coast and to all places within 300 leagues of the coast.
The Portuguese colonies were excepted, and the entire
trade of the company was to be confined to the districts
indicated. The stock was exempted from the operation
of the bankruptcy laws, and both it and the annuity were
exempt from taxes. B y Clause X L V III the transactions
of the company were limited out of regard to the privileges
of the Bank of England, in the same way as those of the
East India Company. No person might be at the same
time director or governor of the Bank and of the South
Sea Company. The company might issue bonds under its
® I his use of the money assigned to the navy was the less remarkable
since the navy was universally looked upon as the department whose
credit was the best. In the first of the four letters on the national debt
already referred to (“ The Debts of the Nation, stated and considered in four
papers, 17 1 2 ,“ Lord Somers’ “ Tracts,” Vol. X III) the amount of the navy
debt was accounted for by the fact that the deficiencies in public supplies
were met out of the money assigned to the navy. “ Y ou need not be told,
that far the greatest part of the other publick services admit of no credit
at all; nor could any other credit of any kind have been had at so easy terms
as in the n a vy ” (p. 310).




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common seal, by means of which its shares were transfer­
able on simple indorsement. After December 25, 1716,
the debt was repayable by the Government upon one year’s
notice, and the company’s privileges were to cease after
such repayment had been made.
The debt incorporated by this act consisted of three
parts: (1) Bills issued before March 25, 1 71 1 (with the
exception of exchequer bills); (2) arrears of payment for
the navy and army, for which such bills had not been
issued, also up to this date; (3) £500,000 which was still
needed for the current expenses of the year 1 71 1 . The
sums referred to under heads (1) and (2) already carried
an interest of 6 per cent, from the 25th of March to the
25th of December. The interest was to be added to the
capital, which, after this had been done, amounted to
£ 9 ,1 77,967, and on this a yearly sum of £550,678 was
paid.
The foundation of the South Sea Company was the last
time corporation rights were granted to public creditors.
Henceforth the grant of economic privileges ceased to be
a bait by means of which the capital of private persons
might be secured for the purposes of public finance. On
one other occasion only the grant of a charter was made
conditional on a money payment, when the Royal E x ­
change Assurance Company and the London Assurance
Company-were established by 6 Geo. I, c. 18. The first
was authorized to insure ships and merchandise and to
lend money on bottomry, and for these purposes to raise
a capital of one-half a million sterling. The latter was a
life-insurance company. They were to advance £300,000
to the Government, and Parliament reserved the right




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to withdraw their privileges within thirty-one years, on
repayment of the debt. After £ 1 50,000 had been paid no
further demands were made, and this sum became the
purchase money of the privileges, which were never with­
drawn.®
From this time forward the three great companies served
as a lever by which public credit could, in bad times, be
raised to the position required for the satisfactory con­
duct of public finance. The leading statesmen of the time
were accused of bribery and of seeking personal gain
through the foundation of the companies. Smollett calls
them “ the most mercenary and corrupt undertakers.” b
They had made a monopoly of the banking business, had
formally partitioned out and made a privilege of commerce.
They had not only not decreased the public debt but had
actually made it permanent by adherence to the prin­
ciple, once suggested, of an annuity debt. B y vigorous
efforts the nation might perhaps have paid off the debt
as it fell due on definite dates, and thus have freed the
present day from its burden.® But the converse is also
possible. There is no doubt that, from the point of view
0 Fairman, “ An Account of the Public Funds,” London, 1824, p. 140.
Return on Public Income and Expenditure, I, p. 62 et seq.
b Smollett, “ History of England,” Bk. V I, p. 246. See also Burnet, “ His­
tory of his Own Time,” Bk. II, p. 209. “ It was said that the Bank of England
and the East India Company being in the hands of Whigs, they would have
the command of all the money, and, by consequence, of all the trade of
England.” A reproach which in reality implied praise of the financial
system.
c Blackstone expressed a similar opinion: “ And if our ancestors in king
William’s time had annually paid, so long as their exigencies lasted, even
a less sum than we now annually raise upon their accounts, they would in
the time of war have borne no greater burdens than they have bequeathed
to and settled upon their posterity in time of peace, and might have been
eased the instant the exigence was over.” (Commentaries, Bk. 1, p. 328,
edition of 1830.)




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of administration of debt the course adopted was a right
one and was justified by its results. The development of
national life and the consequent increased need of money
made the management of loans an essential part of finan­
cial administration during the eighteenth century. Thus
from an economic as well as from an administrative point
of view, the three great companies were the main support
of the Government. Hardly any loan transactions could
be managed without their cooperation; loans were raised
either from their resources or by their intermediacy, they
administered the funded debt and helped to keep in cir­
culation the bills representing the unfunded debt. Their
respective relations to the State did not, however, retain
any similarity. The starting points of their careers are
much alike, but ultimately the Bank survived, in close
association with the Government, whilst the other two
ceased to exist. In the following section we shall inquire
into the causes which forced on the adoption of this system
of public loans. We must, however, first consider the
history of a form of debt which had great influence on the
general development of English financial administration
and determined the relation of the Bank of England to the
Government and its victory over the other companies.
B. History of the exchequer hills and their importance in the
system of public debt.
In 1696, when the silver coins which for several years
had been much depreciated from use and clipping, and had
fallen to one-third of their nominal value, were called in,
it quickly became apparent that there was not enough
available currency in the country. The minting did not




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go on sufficiently quickly. The new money was hoarded
by its possessors for fear lest they should get old and wornout coins. Bank notes were not suitable for small trans­
actions since £20 was the lowest value issued. Attempts
were made both by the merchants and by the Government
to remedy this scarcity of currency, which was universally
felt. An order that the public revenues should be remitted
to London by bills of exchange was issued at this time, and
this expressly “ lest in a time when so much money is
drawn from the People, to be Recoined, they should also
be deprived of the Lawful Money remaining amongst
them.” a The Bank of England undertook the business
of transfer in the autumn of 1696. “ Such who think it for
their Conveniency to keep an Account in a Book with the
Bank, may transfer any Sum or Sums not under £5 from
his own to any other Mans Accompt. ”6 Even before this
the Government had intervened very beneficially by the
issue of “ bills of credit payable upon demand at the
Exchequer,” or, as they were afterwards called, exchequer
bills.
The same act, which provided for a loan through the
foundation of a land bank (7 and 8 Will. I l l , c. 31) con­
tained a clause, inserted and passed through Parliament
by Montague, authorizing the Treasury to issue, from time
to time, bills of credit up to a total value of one and onehalf millions. These bills were to be worth an even
number of pounds (10, 20, 30, 50, 100, “ or such other sums
as shall be most convenient for the accommodation of
° Announcement by the commissioners of excise, London Gazette, Ju ly 9
to 13, 1692.
b The bank directors give notice of this in the London Gazette, November
23 to 26, 1696.
68299°— 1 1 -----7




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those that shall accept the sam e” ). They were to be
signed by an officer of the Exchequer, the auditor of the
receipt, “ sealed with the public seal appointed for the
service ” by the Treasury, were to be issued by the tellers
in the receipt of the Exchequer, and to bear the date of the
day of issue.® The bills bore interest from this date, of 3d.
a day per £100, i. e., about 4 ^ per cent. “ The voluntary
acceptance thereof shall be deemed to be good Payment
as if the persons receiving the same for Debt, Rent or other
cause whatsoever were paid in lawfull Coins of this King­
dom.” As much coin was always kept in the Exchequer
as was likely to be required to keep in circulation the
number of bills issued, and, since the land bank loan did
not come into existence, the receipts from the duties
perpetuated by the act referring to it were devoted to this
purpose. The sum of £4,000 was placed at the disposal
of the Treasury for expenses of management, and the
Treasury was made responsible for the due payment of the
bills and for the proper limitation of the issue. The Com­
missioners of the Treasury and the Exchequer officials were
liable to the amount of their whole property for any issue
exceeding the one and one-half millions.
In 1696 the issue of these bills only amounted to about
£ 160,000. b They proved themselves useful and were
favorably received. Arrangements had been made to
make them redeemable in other places as well as in Lon­
don. The manager of such an exchequer bank, as the
offices for the purpose were called, asked for fresh bills on*&
a Some information on the method of engraving and printing these bills
and binding them into books is given in a manuscript of the year 17 13 ,
which is printed in the Return on National Debt, p. 95.
&Return on National Debt, p. 95.
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September 7 and remarked that the people “ ardently
craved” exchequer bills, which they used in their com­
merce. The tuckers and traders paid them to the weavers
and combers, and these latter brought them to him.®
The basis of the bills was, however, changed by the
land-tax act of 1697 (8 Will. I l l , c. 6). The Treasury was
again empowered to issue bills to the amount of one and
one-half millions. These bills were to “ be current and
pass in all payments to any of His Majesties Receivers or
Collectors of any Aids Taxes or Supplies hereby granted
or that shall or may be granted for the service of the war
for the year 1697,” with the exception of the land tax.*6
They were to be paid on demand out of the receipts of
these taxes by all receivers, collectors, etc., to whom they
were presented, and payment of taxes with them was
good and legal payment. The clause concerning interest
was omitted in this act, but was added in the act passed
shortly (three months) afterwards (8 and 9 Will. I l l , c. 20).
This later act contained further important provisions.
The bills might be used in payment of all taxes and duties
whenever voted, with the exception of the land tax. The
interest was increased to 5d. per day on £100. It was,
0 Treasury Papers, 1696, Vol. X L , N. xo.
6 The form of these bills was as follows:
Exchequer,
“ B y virtue of an Act of Parliament passed in the V III year of his Matles
Reign, this Bill entitles the Bearer to Five Pounds, to pass in all payments
to Receiv" or Collectors of any Ayds Taxes or Supplys for the service of
the war for the year 1697 (except y e I I I Shilling Ayd) to be reed and
satisfied by y e said R e ce iv " or Collect" under y* Penalties in y e Act con­
tained” (Return on National Debt, p. 97). Similar government notes
covered by funded receipts from taxes were issued in Denmark as early
as 1673. Cf. Marperger, “ Beschreibung der Banken,” p. 321.




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however, only paid for such time as the bill remained in
circulation. Hence the bills were to be signed and dated
whenever they were paid into the Exchequer or any other
government office, or whenever presented by the holder
to be cashed, or on all occasions when they were reissued
by the offices concerned.® For the greater security and
convenience of the public the Treasury was authorized to
contract with any persons for exchanging and circulating
the exchequer bills. Such persons were to receive as a
bonus io per cent on the sums subscribed by them to
insure that the bills should always be cashed. On April
9, 1697, the Treasury deposited in the Guildhall books
for the registration of subscriptions. The amount was
for the time to be £400,000. On April 23 the subscribers
met and elected twelve trustees to manage the money
subscribed.6 The money promised was called in grad­
ually up to the end of July, and at the end of September
the trustees made up the accounts of their management
and paid 14s. iod. on every £100 out of the interest re­
ceived from the Treasury for the bills held by them.c In
the same year the amount for which the exchequer bills
were issued was reduced to £5. On May 21, 1697, the
Treasury instructed the auditor of the receipt, Sir R.
Howard, “ that in future you make forth no bills higher
° This gave occasion for frauds in the Exchequer since the officials
recorded erroneous dates for the reissue and appropriated the interest.
Such a fraud, perpetrated in the autumn of 1697, is circumstantially de­
scribed in the Return on National Debt, p. 97.
b See the announcement by the Treasury in the London Gazette, April
5-8 and 19—22. Among others the East India Company subscribed
£80,000. It called attention to this later when petitioning against the
establishment of a new E ast India Company.
c London Gazette, April 22-26, April 24-27, May 15 -Ju ly 19, August
30 -September 2.

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in value than £5 or £ io ,” ° and since it was known that
some of the bills were “ irregularly” indorsed, these were
called in at the end of 1697 and exchanged for new onesA
The exchequer bills secured a permanent place in Eng­
lish public finance from the moment of their first issue.
In 8 Will. I l l , c. 24, it was decided to issue another
£1,200,000 worth of bills. These were issued and kept in
circulation in the same manner as before. 9 Will. I ll,
c. 2, arranged for an exchange of the outstanding bills,
which were overcrowded with indorsements, and were thus
no longer fit for circulation; it was provided that these
bills should be retained as they were paid in from time to
time to the Exchequer, and new bills for a like amount
issued in their place. A recall of the bills for small sums
and an issue of bills for £100, £50, and £25 as ordered
by 12 Will. I l l , c. 1. Between April 26, 1697, and August
27, 1703, bills were issued to a total value of £3,060,000
of which more than £500,000 worth were outstanding at
the latter date.c
The issue of exchequer bills was originally intended to
provide a currency, to create money or a substitute for
money, in order to improve the economic position; later
on, however, their issue was regarded as a method of
borrowing, which succeeded well on account of the
security obtained by the public from the circulation con­
tract. People soon preferred the bills to money because
they bore interest. Moreover, at the time of the next
° London Gazette, 1697, No. 3345.
b Return on National Debt, p. 96.
c The Auditor of the Receipt had to keep accounts of the issue and repay­
ment, and of the taxes through the receipts from which repayment was
made. Such an account was laid before the House of Commons in 1703,




10 1

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Co mmi s s i o n

issue (1707) the national credit was more firmly estab­
lished. “ The credit of the nation was never raised so
high in any age, nor so sacredly maintained. The
Treasury was as exact and as regular in all payments as
and private banker could be.” a But a scarcity of money
again made itself felt. The war of the Spanish succes­
sion employed many troops abroad, who had to be paid
in coin, since the use of bills of exchange for foreign pay­
ments had not yet developed. The trade with Spain
and the West Indies, which had formerly brought much
money into England, was now interrupted.*6
The Government was able on this occasion (5 Anne, c.
13) to issue exchequer bills which bore no legal interest,
but which might be indorsed to bear such interest “ for
their better circulating.” The Bank of England was
empowered to determine whether interest should be paid
and to what amount, and this time an arrangement was
made with the Bank to circulate the bills issued, to the
total value of one and one-half millions. This was the
first time that the Bank undertook independently to
manage the circulation. In the first contract, in April,
1697, it seems only to have been concerned as the place
where the bills were cashed, for £100,000 was deposited
with it to effect the exchange.0
o Burnet, “ History of His Own Tim e,” Vol. II, p. 438.
6 Burnet, loc. cit.
cCf. Ret. Nat. Debt, p. 96. Here, after it has been mentioned that a
circulation contract was to be made, a treasury minute of April 16, 1697,
is quoted, with the remark: “ The following Treasury Minute refers to the
carrying out this last provision.” The minute quoted, however, refers
undoubtedly merely to the fact referred to in the text. A second minute
of April 20 refers to the election of 12 trustees, 6 elected by the Bank, 6
elected by the Treasury, to act as “ overseers” and to “ see daily that the
Bank has the sum of £100,000 by them for circulating exchequer bills.”




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The Bank now undertook to cash on demand all
exchequer bills issued in accordance with the act in ques­
tion. If it thought well to allow interest on the bills in
order to increase their credit, it must state this on the back
of such bills as were to bear interest. The interest so
determined must not only be paid by the Bank on presen­
tation of the bill at any time, but must also be added to
the value by the officers of the Exchequer when the
bills were paid in. As before, the interest was only paid
for the time during which the bills were in circulation, i. e.,
were not in the Exchequer. They must be cashed within
twenty-four hours at the headquarters of the Bank. In
case they were not cashed at all, or not at the proper time,
the holder of the bill might bring an action against the
Bank, and not only was “ the money so refused to be paid,
but also Damages, besides full Costs of Suit.” For
security against forgery, books containing counterparts
of the bills were handed over to the Bank. If the bills
became overcrowded with indorsements or otherwise
unusable the Treasury could withdraw them at the
request of the Bank and issue new ones for the same
amounts. Any issue of bills beyond the amount specified
in the act, either with or without the consent of Parliament,
must be agreed to by the Bank. In compensation for its
trouble the Bank was to receive 4y i per cent on the bills
issued at any time, reckoned for the period during which
they were not in the Exchequer. This allowance was
paid out of the proceeds of the house duty, which was
made perpetual by the act. As, however, this was already
burdened with a loan until 1710, it was provided that the
allowance as it fell due quarterly should be paid in newly




103

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issued exchequer bills, themselves bearing interest at
per cent, which interest was to be paid as soon as the
money from the house duty was available. The rights
and privileges of the Bank were secured so long as the
Government did not supply the money needed by the
Bank to cash the bills and so long as the government debt
to the Bank arising out of these transactions remained
unpaid. Such payment could only be made upon one
year’s notice of the conclusion of the contract.
The exchequer bills increased in significance through
these provisions. The earlier acts all contained the stipu­
lation that the bills, so soon as they were received in pay­
ment of taxes and the Treasury was in a position to order
it, should be canceled and the receipts of the fund upon
which they were paid in charged with the amount thereof.
The issue of exchequer bills was looked upon as an antici­
pation of revenue. But instead of cashing them people
agreed to receive them as payment. Instead of paying a
debt to the Government, a debt owed by it was canceled.
But this had hitherto been regarded merely as a tem­
porary expedient. Now the redemption and withdrawal
of the bills were made dependent on a future resolution in
Parliament, which, in its turn, could only take effect on
one year’s notice to the Bank of the cessation of the agree­
ment. The exchequer bills thus became a permanent cir­
culating medium in the country.
The Bank of England continued to be mainly respon­
sible for their circulation. It is true that the “ trustees
for circulating the old exchequer bills issued anno 1697’’
continued to act, but they were apparently chiefly con­
cerned with the cashing of the remaining bills of that




The

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Banking

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date.® In 1729 the then prosperous South Sea Company
undertook the circulation of about one million for seven
years without allowance, for 2d. per day per £100 (6 Geo.
II, c. 1). But it collapsed in the very next year and was
not only unable to maintain the bills in circulation, but
was obliged to borrow a million in such bills from the
Government (6 Geo. II, c. 10). There is, however, no
sign of further contracts with private persons. On the
contrary, by 7 Anne, c. 7 (1708), the Bank was again en­
trusted with the circulation of two and one-half millions
at 2d. per cent per day, for an allowance of 3 per cent.
The arrangements were otherwise the same as in 1707.
In this case, too, the allowance was to be paid in exchequer
bills until the whole debt was canceled. That of 1707
was never canceled, since by 7 Anne, c. 7, it was con­
verted into a funded debt to the Bank, bearing an interest
of 6 per cent. A much-used distinction was introduced
by the last-named act between nonspecie bills, which had
not been returned to the Exchequer after their first issue,
and specie bills, which had been reissued on one or more
occasions. The Bank was only bound to cash the latter.
This distinction was removed by 9 Anne, c. 7, and the
Bank declared itself ready to cash all bills, for which
purpose a fixed yearly payment of £45,000 was granted
to it, in addition to the allowance of 3 per cent, until the
total value of the outstanding bills should be reduced to
£1,900,000. To secure the necessary cash the Bank
might contract loans or make calls on its shareholders,
a The London Gazette, 1709, No. 4537, and 1710, No. 4684, mentions
this in connection with the fifteenth and sixteenth, respectively, renewals
of their contract. Their allowance was for the future only 1 per cent.




*°5

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Co mmi s s i o n

and might issue bank notes to the amount of the received
contributions or of the sums agreed in the contract, in
excess of the amount otherwise allowable. This act con­
tained other provisions of some interest.
For instance, exchequer bills for small sums of £6 5s.
were to be issued for the convenience of trade, but besides
these, bills of £5,000 each, not exceeding 50 in number,
were to be issued for transactions between the Bank and
the Exchequer. These bills afterwards played an impor­
tant part in monetary transactions. The Bank now
undertook to redeem the bills, but the Treasury was still
bound, as hitherto, to cash them on demand, and a special
officer was appointed in the Exchequer to pay the interest
which was due. Thus the Bank and the Treasury, respec­
tively, were under similar obligations to redeem the bills.
The arrangements with the Bank were repeated during
the rest of the century, whenever a fresh issue of bills
took place. But these new agreements established no
essentially new relationship. The only changes were in
the amounts allowed as interest on the capital held in cash
for the purpose of redemption, and in the rate of interest
on the exchequer bills themselves. This was naturally
fixed according to the general conditions of the loan
market, and had no influence on the real position of the
exchequer bills. From this time forward throughout
the whole century they remained interest-bearing govern­
ment bills which were legal tender as payment of the
public taxes and were redeemed in coin on demand.
A study of the evolution of the exchequer bills leads to
the following conclusions: At their first issue in 1696 they
were negotiable securities, payable on demand, without




106

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S y ste m

other guaranty than the public credit in general. In the
following year they received an additional guaranty, in
that they had to be accepted in payment of taxes by any
receiver or collector. Their security was increased by the
appointment of an association to cash them. Their value
now rested not only on the certainty that the State was
obliged to receive them in payment of taxes, but also on
the fact that a definite amount of private capital was set
aside for their redemption. No formal change was made
in the rights of the holders of exchequer bills when the
Bank undertook the duty of cashing them. But it was not
without influence on their value that the Government, in
issuing them, was no longer relying on the success of a sub­
scription, but could reckon on the support of a powerful
bank, which commanded general respect and possessed
valuable privileges. Moreover, the Bank, when it had
once undertaken the business, had no motive for refusing
it subsequently, since it received the additional right of a
voice in deciding the total value of the bills issued. The
exchequer bills thus acquired for the public the same value
as the Bank’s own notes, while they served as a bond
between the State and the Bank, which bound the two
together in ever closer relations through regularly repeated
loans and contracts and, finally, through the funding of the
bills into a permanent debt until the State should repay
the capital needed to cash them.
The value which the bills possessed as a circulating medium
caused them to be regarded as money even when first
issued. Thus it was stated in Pegasus of August 24, 1696,
that the exchequer bills “ will fill this nation full of money
and make trade flourish. ” Drake, a member of Parlia-




107

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■ ir ■

4#

M on et a r y

Co mmi s s i o n

ment, remarked that “ They created money without Bul­
lion, and distributed great quantity of coin without help
of the Mint. ” Parliament was especially congratulated
on having made money. It had “ laid a good foundation
for Paper Money to supply the place of our Silver Coin. ” a
The historians, Tindal, Smollett, etc., credit it with this.
But there were not wanting expressions of contemporary
opinion which estimated such beliefs at their true value.
The exchequer bills had never had a forced currency, their
acceptance in private business was voluntary and depended
on the confidence felt in their convertibility. An anony­
mous pamphlet written in 1710 on the nature and use of
money and paper credit b combated the notion that the
Government could create money by its bills. These could
be nothing but promises to pay money, and their worth
resulted only from the fact that trade required much less
money than was generally believed. The Dutch “ lock up
the great bulk of their money in the Bank of Amsterdam,
and make their payments by transferring from one man’s
account to another in the Bank’s books, so that in propor­
tion to their vast dealing there is nowhere so small an
appearance of money in specie as in the greatest trading
country in the world. ” The exchequer bills were valuable
because they effected a useful saving of specie. For this
reason the Government should avoid any disturbance of
the confidence felt in these bills, otherwise the demand for
actual coin would again make itself felt.*6
° “ A Short History of the Last Parliament,” London, 1699.
6 “ A Vindication of the Faults on both Sides with a Dissertation on the
Nature and Use of Money and Paper Credit in Trade,” 1710. It is a vindi­
cation of a pamphlet published earlier which attacked both Whigs and
Tories (Somers’s Tracts, Vol. X III).




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As a matter of fact the English Government always
regarded the exchequer bills as paper credit used as cir­
culating medium, whose value depended on the confidence
in their convertibility, and it was always careful to secure
this convertibility. No attempt was ever made to force
exchequer bills upon the public creditors. Thus in 1697
the Lords of the Treasury pointed out to the collectors
of the excise in the country that the bills which they
procured in order to remit the receipts from the excise
duties to London must not be exchequer bills, since the
creditors of the excise who must be paid with the remit­
tances could not be forced to accept such bills.®5
The exchequer bills fully served their purposes as a cir­
culating medium, and the loans which the Government
raised on critical occasions by means of these bills are a
proof that they were voluntarily and freely accepted in
commerce on all sorts of occasions. It has already been
noted that in 1720 the Government assisted the South Sea
Company by the advance of a million in bills in order to
enable it to resume its payments. Similarly in 1793
a Treasury Papers, 1697, Vol. X L V , May 4.
b This procedure shows the superior foresight and prudence of the
English financial administration as compared with the French. The notes
issued by the Banque Royale (1718 ), for which, as is well known, all the
outstanding government debts were exchanged, had, when first issued, a
value only for the State, since only the “ bureaux de recette du roi” were
obliged to accept them. But soon these became forced currency in com­
mercial transactions and “ enfin les billets de banque eurent cours dans
tous les payements qui se faisaient au public, soit par le minist&re des
notaires, soit pour les remboursements que les debiteurs voulaient faire
& leurs crdanciers.” Cf. “ Histoire g6n£rale et particuliere du visa fait
en France pour la reduction et l’extinction de tous les papiers royaux,”
Paris, 1743, I, p. 19. A forced currency was in Law ’s opinion indispen­
sable to the successful development of a paper currency. Cf. Law, “ Con­
siderations sur le commerce et sur l’argent,” 1720, C. V II, p. 135.




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Parliament agreed to issue £5,000,000 in exchequer bills
to assist the stagnant trade.0 £2,202,000 was lent to
the London merchants, Manchester received £25,000,
Liverpool £130,000, and Bristol £40,000. This made up
the total issued. The bills bore an interest of 2jTd. per
day, but the borrowers paid a higher rate to the Govern­
ment, as the South Sea Company had done. On the
present occasion the rate was 4 per cent; on the former
occasion, 5 per cent.
The exchequer bills were a wholly distinct type of debt.
Each bill was warrant for a legal, actionable claim on the
Government to receive the said bill in payment of taxes,
to pay the interest thereon, and ultimately to cash it, and
for a similar claim on the Bank to cash it for the amount
stated plus the interest due. The total issue of the bills
involved at the same time a government debt to the
Bank equal in value to the issued bills. This debt was
not legally reduced by the conversion of the bills at the
Exchequer, since its repayment was only possible after a
year’s notice. Such conversion merely resulted in a
counterclaim on the Bank, which was obliged to cash
the bills presented to it by the Exchequer. Hence from
the financial standpoint the bills were circulating share
certificates in a public debt to the Bank, which, when
cashed by the Bank, were retained by it, but when cashed
by the State gave rise to a counter claim.
The bills acquired a special significance, because from the
time of George II onward the Government, with the
consent of Parliament, used them every year to anticipate
0 [This is a misconception. The issue was made to allay panic arising
from excessive expansion of credit, etc. H. S. F.]




no

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the land and malt taxes, and they thus became the basis
of the credit allowed by the Bank to Government for
the purposes of current expenditure.
This circumstance, combined with the other relations
between the Bank and the Government which arose out
of the exchequer bills and which we have just described,
was the chief ground for that confidence which the Gov­
ernment must have felt in the Bank in order
% to intrust
to it the administration of the whole of the public debt.
For in this matter the Bank had to overcome the compe­
tition of the two other companies with which it shared the
administration during the eighteenth century.
C. The administration of the national debt by the companies.
I. THE DISTINCT CHARACTERS OP THE COMPANIES.

A comparison of the legal constitutions of the three
companies shows a striking similarity in their positions
at law. In each case the capital stock consists of a public
debt which was only redeemable after a certain notice;
no increase in this can be made without the consent of
Parliament; the said capital forms a joint stock the
shares in which are transferable in a similar manner in
each case; they are alike exempt from taxes; the pay­
ment of the interest on them by the Government is
similarly managed; each has a monopoly in its own
particular sphere of activity. The varying relations of
the companies to the Government must consequently
arise from the differences in these spheres of activity, and
in this respect the Bank at once stands out as distinct
from the other two companies. The trading privileges




hi




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of the two latter contrast with the banking privileges of
the former, banking privileges which were so carefully
protected when the other two companies were founded.
This contrast led to a fundamental distinction in their
respective relations to the Treasury. We have already
seen what an influence the Bank was destined to
exercise on the management of the public money through
its responsibility for the exchequer bills and its opera­
tions with respect to the various government bills. The
two others could not advance so far. The Bank exerted
a continual influence on public credit, though its current
business; and, in fact, its own credit became closely bound
up with that of the Government, owing to the exchequer
bills contract. The East India Company and the South
Sea Company, on the other hand, could only assist public
credit in isolated cases and in a restricted manner.
The two companies were not, however, on an equal
footing in this matter. The East India Company had
from the first made vigorous use of its trading privileges
and had carried out a consistent and successful policy, so
that its fortunes supply an important chapter in English
commercial history. It did not, however, concern itself
with the financial business of the State more than its loan
transactions with the Government demanded. It was
different with the South Sea Company. This company
traded only in two localities. In 1713, by the peace of
Utrecht, it secured the trading privileges of the French
Guinea Company, which had to provide the Spanish pos­
sessions in America with 4,800 negroes a year and to
dispatch thither yearly a ship of 650 tons. In 1724 it

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took over the whole fishing and trade of the Greenland
Company.® Both enterprises resulted in a loss, in the
latter case of £237,000 in eight voyages.
In 1748 the company gave up the contract with Spain
and after this carried on no trade whatever.**6 Thencefor­
ward it concerned itself still more with financial transac­
tions, in which it was already a dangerous rival to the Bank
of England. The trading companies could not legally carry
on banking business proper, so that these financial trans­
actions were only made possible by turning its capital
stock to account. This consisted of a government debt;
and the increased business of the South Sea Company, and
in certain cases also of the East India Company, resulted
from an increase in their capital by loans to the State or
by incorporating existing public debts in the original fund.
Hence their share in the administration of the public debt
consisted in the management of individual government
loans. Before we pass on to examine the nature of this
management and to determine the importance acquired
by the different companies therefrom we must briefly sur­
vey the general development of the forms of debt during
the eighteenth century.
2. THE DEVELOPMENT OF THE FORMS OF DEBT.

In spite of the free use made during the reigns of William
and of Anne of the sources of credit opened up by the erec­
tion of companies and the issue of exchequer bills the
national expenditure continued to increase, and more
especially in consequence of the war with France and
° Founded by 4 Will, and Mary, c. 17, without financial connection with
the State.
& S. Fairman, loc. cit., pp. 97-98.

68299°—1 1 ---- ^




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Spain. England, indeed, enjoyed only five years of peace
between the foundation of the Bank in 1694 and the death
of Anne in 1713. Hence the system of anticipations and
of deferred payments did not cease with any of the great
loans. We have already seen that the South Sea Com­
pany was founded in order to free the public finances
from a heavy burden of short date bills. Tallies of pro,
navy, victualing, and transport bills, army and ordnance
debentures were still used in the English financial system,
side by side with the exchequer bills, as methods of obtain­
ing credit. The tallies of pro did not disappear till
toward the end of the eighteenth century.® They were
then replaced partly by the more convenient exchequer
bills, which were now in regular circulation, and partly
by the loan debentures, a new form of debt introduced
in 1731 by 5 Geo. II, c. 2.
The army and ordnance debentures, which must not be
confused with the loan debentures, and the navy and ord­
nance bills remained in constant use. The issue of deben­
tures had been legalized by Parliament several times, but
they continued to be used only for the army and the com­
missariat departments, just as the navy and other bills
were confined to payments of the navy and of the trans­
port departments. These debentures and bills acquire a
different character as soon as, under William and Anne,
the appropriation of the supplies voted came to be deter­
a Tallies of pro are mentioned for the last time in the public accounts
for 1729 (Ret. on Public Income, etc., I, p. 80). But the anticipations of
the land and malt tax by exchequer bills and by “ loans in anticipation of
duties” continue to appear in these accounts until 1762. It is not clear
whether this distinction rests on the difference between exchequer bills
and tallies or on that between the land tax and other duties.




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mined by Parliament, and the necessity of presenting
accounts demanded careful organization in each depart­
ment. So long as there had been no legal distinction or
division made between the issues, each debt incurred by
any department of Government was a debt on the whole
Government, with which the department borrowing the
money was only especially concerned in that the sum was
repaid through it. But when a definite sum was appro­
priated every year for each branch of expenditure which
came under parliamentary control, as for instance for the
army and navy, the issue of debentures and bills, which
were essentially short date bills of exchange, became a
method of using credit for which each department was
responsible to its own creditors. This credit must not
exceed the total amount voted to each department for the
year, it must be covered by this amount. We have seen
in reference to the act founding the South Sea Company
that Parliament itself insisted on a strict classification of
the expenditure. This was carried out to a still greater
extent by the Ministry, so that at the end of the financial
year there was generally a considerable sum outstanding
in the form of such debts as were due to the employment of
credit. The next Parliament had either to provide means
for this repayment or to have it funded. These forms of
debt did not disappear until a new method of using credit
was provided, when the different public departments ceased
to manage their money independently, and a connection
was established between the financial system and the Bank.
The funding of debt led to a distinction between ex­
chequer bills and the other kinds of floating debts. The
exchequer bills, as has been already explained, were based




” 5

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upon a government debt to the Bank, and their funding
consisted in a statement that this debt would not be repaid,
so that they became a permanent interest-bearing debt
to the Bank. The other unfunded debts were either
transformed into additions to the capital stock of the
companies, which result was brought about by means of
a subscription, or into an independent interest-bearing
debt. In the latter case the Government, either directly
or through the intermediacy of the companies, allowed a
fixed annuity in return for the payment of a certain sum
in such unfunded bills. The development of the annuity
debt was the basis of both forms of consolidation, since
they created no independent type of government debt,
but consisted merely in the transformation of one type
into another.®
The annuity debts were either terminable or not. The
limit was either the life of the annuity holder (of which
form of annuity debt the tontine was a variation), or a
date previously fixed. Hence were distinguished: Life
annuities, tontine annuities, terminable annuities, and
permanent annuities.
Mention has already been made of the first tontine and
its reception. A second attempt was made in 1765.
Navy, victualing, and transport bills were to be funded
by means of a tontine. Six classes were made, each with
a capital of £50,000, every £100 of which was entitled
a The following account is based mainly upon the Return on Public
Income and Expenditure and upon the information given in the different
loan acts, in so far as these introduced entirely novel types of public debt.
An analysis, based upon this Return, of the English national debt from
1689 until the present time, is given by Leroy-Beaulieu, “ Trait6 de la
science de finances,” Paris, 1877, Vol. II. Bk. I I , ch. v. to viii. For the
increase in amount see ch. X I I .




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to an interest of 3 per cent per annum. Within each class
the payments due to those annuitants who died were
divided amongst the survivors. This division into six
classes according to the age of the annuitants was repeated
in the last tontine in 1789. The annuities of the deceased
members were divided amongst the survivors until each
of these secured the sum of £1,000. The shares were
£100 and were entitled to £4 3s. interest in the first (the
youngest) class, and to £5 12s. in the sixth (the eldest)
class.
The life annuities, which became important in the
nineteenth century in connection with the sinking fund,
at first occurred very rarely as an independent form of
debt. Three such loans were raised in 1694, one in 1696,
and one in 1704. The principle is the same in all cases.
An interest at so much per cent was allowed on payment
of a fixed sum, £100, which interest decreased from 14 to
12 and to 10 per cent, according to whether the purchase
was made for one, two or three lives. The rarity of this
type of debt was due to the fact that the State had to
devote a large sum to the payment of the yearly annuity,
owing to the necessity of paying back the borrowed capital.
This obligation to repay in the present was avoided in the
case of the terminable and permanent annuities.
Although the terminable annuities were arranged so as
to repay the capital advanced, the repayment was under
the control of the Government and was generally spread
over so long a period that the burden was not unduly
heavy. Toans in the form of terminable annuities and
anticipations were the regular forms until 1715. At this
date ten such loans were raised by the sale of annuities




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Co mmi s s i o n

for 89, 94, 99, and, in one case only, for 32 years. The
principle upon which this sale was based was that a lower
or higher annuity was allowed for the payment of the
same amount of capital, according to whether the annuity
continued for a longer or shorter period of years, so that
the capital itself was repaid through the annuities.
They thus differed from the life annuities only in the one
point, viz, that in the latter the duration of the payment
was undetermined, whilst in the former it was decided in
advance. The terms long annuities and short annuities
were used according to whether the payments were spread
over a long or short period.
After 1761 they became more frequent again, but in
connection with permanent annuities and lotteries and
not independently.
The permanent annuities were by far the most impor­
tant of the English public debts. The first which was
created, with the exception of the bankers’ debt, was the
government debt to the three companies. In 1715 the
State for the first time made a similar arrangement with
private creditors. B y 1 Geo. I, c. 19 and 21, £1,079,000
was raised by a subscription loan, and £5 per annum was
to be allowed on every £100 until the capital had been
repaid. In the permanent annuities the possible repay­
ment of the capital was not ruled out, but it was not pro­
vided for in borrowing the money, whereas in the other
forms of debt account was taken in determining the
annuities of the repayment of the capital involved.
Various attempts were made in the course of the century
to repay the capital debt incurred through the perma­
nent annuities; an account of these attempts forms the
Ho

The

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Banking

Syst em

history of the different funds (general, sinking, aggregate,
consolidated, and new sinking fund). The proceeds of
certain taxes were appropriated to the payment of the
other annuities at their foundation. On this difference
rests the distinction between redeemable and irredeem­
able annuities, which are not new types of debt, but only
distinct names given to the debt according to the nature
of the public obligation involved. In the case of the
redeemable annuities the State owed the capital and a
yearly interest, but was only bound to pay the latter; in
the case of the irredeemable annuities the State owed a
yearly interest for a certain time. To the former class
belong the government debt to the companies and the
permanent annuities; to the latter the life, tontine, and
terminable annuities.
The yearly payment of the permanent annuities, since
the capital debt existed apart from them, corresponded to
the interest on the capital lent to the Government; hence
it was based on varying agreements, and might be changed
even in regard to a particular loan transaction. The
Government had the right to repay the capital though it
was not obliged to do so. Hence it could always dis­
solve its contract with a creditor who would not agree to a
change of interest. Such a conversion of the yearly pay­
ment was not so simple in the case of the irredeemable
annuities, for here the consent of the creditor was indispen­
sable.
The determination of the rate of interest in the case of
the permanent annuities naturally depended upon the
state of public credit. In the first of such loans the amount
of the yearly interest to be paid was fixed at so much per




J I9

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Co mmi s s i on

cent on the total capital paid in, and a proportional pay­
ment was made on every £100. From the time of
George II onward it was usual to fix the rate of interest
equally low (3, 3 K , or 4 per cent) whatever the state of the
public credit. Hence 0 this interest was not paid on the
actual capital of the creditor but was reckoned on a
nominal capital allotted to him. Thus stocks were
established, the first occasion being in 1747 by 20 Geo. II,
c. 3, viz, shares in a funded public debt, which shares bore
a fixed low rate of interest. When the Government
wished to borrow a certain sum, for example, £4,000,000
in 1747, it offered stocks which bore a certain fixed interest
on every £100, in this case 4 per cent. Thus it was not
the interest but the price of the stock which had to be
agreed upon between the State and the lender. If the
interest corresponded to the public credit, the stocks were
bought at par; if the interest were too low, less was paid
for stock of the nominal value of £100, i. e., the Govern­
ment had to issue more stocks in order to secure the
desired amount; in 1747, £4,400,000 had to be issued
instead of £4,000,000, and consequently £176,000 had to
be paid yearly as interest instead of £160,000, i. e., about
4>£ per cent. This type of loan made borrowing easier,
since it opened the door to speculation, and although it
was frequently abandoned later on, in order to avoid so
large an increase in the national debt, it was always
adopted again in times of bad credit, for example, at the
time of the American war.
Lotteries were a very frequent method of obtaining
money. They fall into two classes: during the first period




a Cf. Wilson, “ The National B udget," London, 1882, p. 25, et seq.
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they served only as temporary means of raising money
without bringing any profit to the State; during the sec­
ond they were used as an extra source of revenue. The
turning point is marked by 28 Geo. II, c. 15, by which
£900,000 of 3 per cent stocks were issued in a lottery of
100,000 tickets at £10 , so that the Government made a
profit of £100,000. The first of the ten lotteries which
occurred during this period has already been mentioned.
The remaining nine occurred between 1710 andiyip. In
all cases the capital was to be repaid in thirty-two years.
Only the two first, however, were arranged on the principle
of drawing lots for annuities (8 Anne, c. 4, and 9 Anne, c. 6).
The five following were so arranged that the fortunate
tickets did not carry with them a higher annuity but a
capital sum which was added to that paid (£10 on £100).
The total capital debt, as increased by the lottery, bore
the same rate of interest and was paid back in course of
time, so that those who did not win had a claim to the
interest on the sum they had subscribed and to its repay­
ment, while the winners had the interest on the sum sub­
scribed and on that won, and a claim to the repayment of
both. The two last lotteries (5 Geo. I, c. 3 and c. 9)
differ in that the drawers of blanks lost all claim while
the fortunate tickets carried with them proportionately
higher winnings. Hence the price of tickets for these two
lotteries was reduced to £3. In 1769, under Lord North,
the prizes were for the first time paid in cash, and subse­
quently, until 1824, the lottery served not only as an inde­
pendent source of revenue, but as a method of anticipating
the year’s receipts. Lotteries were connected with the
annuity loans at the time of the seven years’ war and




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again during the American war, being used to facilitate the
conversion, repayment, and borrowing of those loans.
Those who agreed to the reduction of interest or to the
repayment of the capital debt at less than the nominal
value of the stock received premiums in the form of lot­
tery tickets, the disproportionate gains on which were
attractive, while their payment laid no serious burden on
the Government. Thus by io Geo. I l l , c. 46, two and
one-half millions of 4 per cent annuities were converted into
3 per cents, and by 14 Geo. III,c . 76, it was made possible
to redeem a million of 3 per cent stock in such a way that
only £88 was paid on every £100 share. The raising of
loans in stocks was thus made less expensive: people either
drew lots for the amount in stock or—and this was the
method of procedure usual during the American wrar—ob­
tained for a given sum of money a somewhat lower sum in
stocks and a lottery ticket. This ticket, if successful, en­
titled the possessor either to a prize in money or to an
equivalent amount in stocks, or to an annuity. The annu­
ity lasted either for life, or for ninety-nine years, or for a
shorter time, and differed in amount accordingly. Stocks
were issued in this way in almost every year between 1758
and 1784.
Toward the end of the eighteenth century a plan fre­
quently adopted was to issue stocks in connection with
separate annuities. In 1757. by 30 Geo. II, c. 19, £3,000,000 of stock was issued, every £100 of which entitled the
holder to a life annuity of £ 1 2s. 6d. In 1762, by 2 Geo.
I l l , c. 10, £12,000,000 were issued in such a way that
every £100 purchased £80 of 4 per cent stock, which was
to be converted into 3 per cents in nineteen years, and
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which was combined with an annuity of £ i for ninetyeight years. During the concluding years of the century
such complicated devices were the usual methods of
raising loans.
3 . THE CONNECTION BETW EEN

THE COMPANIES AND THE MANAGEMENT

OF THE PUBLIC DEBT.

The connections possible between the three companies
and a public debt of the character described were three­
fold. They might become creditors of the State through
the purchase of government bills, or by making loans to
it direct; they might take over a government liability,
making under certain conditions a debt to themselves out
of a public debt already existing; or they might undertake
on commission to advance the subscriptions to a public
loan, to pay the yearly interest owed by the Government
or to repay the capital. It is this third proceeding which
is generally meant when reference is made to the manage­
ment of the English national debt by the Bank. But
throughout the eighteenth and during a part of the
ninteenth centuries this connection between a private
company and the Government was not confined to the
Bank; nor was the share taken by the companies in the
management of the debt restricted to acting as inter­
mediaries between other creditors and the States. The
debts to the company itself were not to be distinguished
from other debts, and the duties which it undertook—
of dividing amongst the individual shareholders the sum
paid by the State as interest on the total debt, or of
increasing this total debt by a loan to the State—were
the same as those undertaken in its administration of




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Co mmi s s i o n

the other Government debts. External distinctions—
such as, for example, the duty of presenting accounts with
regard to its expenditure on the management of the debt—
appeared only in the eighteenth century, and were never
consistently maintained. Hence, in speaking of the
administration of the English national debt by the com­
panies, the debts to the companies themselves must not
be excluded but must rather be regarded as the essential
starting point upon which all further connections between
the companies and the Government were based. It was
stated in a report of the House of Lords of June 2, 1733,
that nearly the whole debt of the Kingdom was incor­
porated in the three great companies. At that time the
Government owed over forty-two millions to the com­
panies, of which twenty-nine millions was owing to the
South Sea Company alone. The companies, in administer­
ing their capital stock, thus administered nearly the whole
of the national debt; and when in addition they acted
as intermediaries between the Government and other
creditors they were only performing a function which they
had already performed for their own shareholders for a
long time previously.
Two questions must thus be discussed in a study of the
relations of the companies to the system of public debt.
Firstly, how did the company itself regard the public
debt ? And here account must be taken both of the debt
due to a loan from the company, and of that resulting
from a transference to the company of debts belonging
to other public creditors. Secondly, what share had the
companies in the management of government debts to
other creditors?




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(а) The East India Company.—The least important part
in this matter was played by the East India Company.
With the exception of the sum of £3,200,000 at 5 per cent
owed to it since 1703, it made only one loan to the State,
namely, one million at 3 per cent in 1744, on the renewal
of its charter by 17 Geo. II, c. 17. In 1755 the interest
on the first debt was reduced to 3 per cent, and in 1793 (33
Geo. I l l , c. 47) the whole debt of £4,200,000 was com­
bined with the so-called 3 per cent reduced annuities
payable by the Bank into a single fund under the adminis­
tration of the Bank. The capital stock of the company
had grown by this time to seven millions, through in­
creased subscriptions, but its financial position had been
uncertain since 1773, when it had been obliged for the first
time to borrow from the Government. The conversion
of that part of its capital which consisted of a public
debt into a property in stocks which could be freely dis­
posed of, permitted greater flexibility in its financial
transactions. The history of this and of its other financial
relations to the State (payments into the Exchequer,
the raising of loans) do not concern us here. The East
India Company is of comparatively small interest in a
study of administration of the English public debt.
(б) The South Sea Company.—A much more note­
worthy part was played by the South Sea Company,
which grew to such importance during the first ten years
of its existence that the Bank of England sank into the
background in comparison.
In 1714, that is, only three years after its foundation,
a sum of £822,032, consisting of arrears of interest due to
the company and a government unfunded debt, was incor­




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Co mmi s s i o n

porated by a corresponding increase in the company’s
capital stock by i Geo. I, c. 21. The latter now amounted
to ten millions, on which a yearly interest, reduced in
1716 to 5 per cent, was paid by the Government. In
1719 (5 Geo. I, c. 19) its capital was further increased.
The proprietors of certain lottery annuities (created by
8 Anne, c. 4) of thirty-two years’ duration, were per­
mitted to exchange these for the company’s stock, £ 1 1
10s. being given in stock for every £ 1 annuity. £1,202,702
were subscribed. Besides this the company advanced
£544,142 in cash. Its capital and the government debt
to it were thus increased to £11,746,844. A more im­
portant project for consolidation and funding was brought
forward in 1720, when it was determined to convert the
various floating debts and the outstanding terminable
and permanent annuities into a great fund of permanent
annuities at 5 and 4 per cent. Both the Bank of England
and the South Sea Company competed for the privilege
of carrying out this scheme, which privilege the South
Sea Company finally secured by its extravagant offers.0
The company obtained permission, by 6 Geo. I, c. 4, to
carry out the consolidation by taking in through sub­
scription or purchase from the creditors: 1. The irre­
deemable debt, consisting of £666,821 yearly in long
annuities (96, 98, and 99 years) and £127,360 yearly in
short annuities (thirty-two years, the remainder of the
lottery annuities not subscribed in the previous year).
® The South Sea Company possessed a powerful friend in Mr. Aislabie,
who was then chancellor of the exchequer, and it is said that there was
some thought of transferring to it the whole debt owed to the Bank. “ Some
Considerations on the National Debt,” London, 1729, p. 7 1. Cf. with refer­
ence to the whole plan of consolidation and its consequences, Anderson
a. 1720.




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The long annuities were capitalized at twenty years’ pur­
chase, the short lottery annuities, which had still twenty three years to run, at fourteen years’ purchase. 2. The
redeemable debt, consisting of £11,779,660 at 5 per cent,
and £4,776,821 at 4 per cent, at such prices as might be
agreed upon between the company and the holders. For
this purpose the company might borrow money on its
bonds or on bills, make calls for money on its members,
or increase its capital by the issue of fresh stock. The
latter was allowed up to an amount corresponding to the
combined prices of the long annuities, at twenty years’
purchase, of the short annuities at fourteen years’ pur­
chase, plus a sum equal to the market value of the 4 and 5
per cent redeemable debt. In return it undertook to pay
the Government £4,156,306 for the cession of the redeem­
able debt, and £2,978,599 for that of the irredeemable
debt, or a total of over seven millions.
The company had to buy out any creditor who did not
wish to subscribe. The money for this purpose and for
its payment to the Government it hoped to obtain through
the sale of the stock, since it expected to make a profit by
its transactions with the public creditors. For although
the amount to which its capital might be increased was
limited as explained above, there was no limit set on the
price at which the stocks were to be sold. This consti­
tuted the risk of the whole undertaking, for the tempta­
tion to use every means to drive up the price of the stock
proved too great. And in actual fact, for a large number
of the subscriptions, the company raised the price of the
£100 share to £1,000 in money or government debt. In
spite of this exorbitant figure the greater part of the debt




127




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Co mmi s s i o n

was subscribed, and the capital of the company was
increased to £7,802,200, for which the Government had
to pay an annuity reckoned in part at 4 and in part at 5
per cent, and amounting in all to £ 1,8 6 1,114 . Only
£2,560,790 of the total redeemable debt and £16 1,38 0 of
the total irredeemable debt was not subscribed. These
amounts the South Sea Company could only secure by
purchase. The purchase was never made, for in the
same year the company was thrown into such financial
distress by the crisis which has since received the name
of the “ South Sea Bubble,” that the most vigorous efforts
on the part of the Government were required to save it
from complete ruin, and there could be no mention of any
payment from the company to the State.
The trade carried on by the South Sea Company proved
no source of income, and hence it had nothing but the
yearly interest from the Government and the profits on
the sale and purchase of its stock, out of which to provide
a dividend for the shareholders. In spite of this the
directors announced on August 3 1, 1720, “ that 30 per cent
in money should be the dividend for the half year which
would be due at Christmas following.” But not even the
Christmas dividend was paid, for by November the stock
had fallen between £600 and £800 and the “ bubble” had
burst. Parliament instituted proceedings against the
company’s directors, clerks, and bookkeepers. Mr. Aislabie and the secretary of state, Mr. Craggs, who were
found guilty of fraudulent relations with the company,
lost their seats in Parliament, the property of all of them
was confiscated and administered by trustees for the bene­
fit of the creditors. Finally Walpole proposed energetic
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Banking

System

measures to restore financial order. His project became
law by 7 Geo. I, c. 5. It provided for the transfer of
nine millions of the capital stock of the South Sea Com­
pany to the Bank, and of a like sum to the East India
Company, at a price to be arranged between the compa­
nies. This proposal was not, however, carried out; and
it was not until 1722 (8 Geo. I, c. 21) that the sale to the
Bank of four millions in stocks was decided upon and
actually accomplished. The Bank’s stock was increased
by this amount and an annuity of 5 per cent (4 per cent
after 1727) on the increase was paid to it by the State.
The reduced stock of the South Sea Company was sub­
jected to further changes in 1722. B y 9 Geo. I, c. 6, it
was divided into two portions of £16,901,100 each; half
only was retained as trading stock for the company, the
other half was to be regarded as a government annuity­
bearing debt held by the company. This debt continued
to be administered by the South Sea Company, under the
name old South Sea annuities, until its repayment.
Both debts were diminished through redemptions by
about two and one-fourth millions by 1733, when the
whole outstanding debt to the company amounted to
£29,302,200. B y 6 Geo. II, c. 28, a further portion of the
trading stock was added to the old South Sea annuities,
so that the two now amounted to £14,641,100 and
£15,651,200, respectively. Moreover, the trading stock
was divided into four equal parts and three-fourths of it
was converted into an unincumbered, negotiable annuity
stock. Hence, the company’s capital sank to £3,662,776
whilst the remaining £10,988,327 was converted into the

68299°— 1




12 9

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National

Monetary

Commission

new South Sea annuities which were placed upon the mar­
ket under the management of the company.
During the succeeding years £3,276,890 of the South
Sea debt was paid off. In 1751 the debt was again in­
creased by 24 Geo. II, c. 2, which allowed £2,100,000 to be
borrowed not from but through the South Sea Company.
The resulting 3 per cent annuities, 175 1, so called, were
administered by the company, and the total government
debt thus administered was now made up as follows:
£
Trading stock........................................................................................ 3, 662, 780
Old South Sea annuities..................................................................... 12,404, 270
New South Sea annuities................................................................... 8,958, 255
3 per cent annuities, 1 7 5 1 .................................................................. 2, 100,000
T o ta l........................................................................................... 2 7 ,12 5 ,3 0 5
Interest (3 per cent on all debts after 17 5 7 )................................
813, 760

After this time there was a break in the transactions
between the company and the State. No further loans
were raised through the company. It existed as a corpora­
tion until the middle of the nineteenth century, having no
other function than to administer a portion of the national
debt; with regard to which it undertook the paying off of
capital, the payment of dividends, and the transference
of stock. The principle of incorporating the national
debt was nowhere more strictly carried out than here.
A corporation consisting of a governor, a subgovernor, a
deputy governor, and 21 directors had no further reason
for its existence than a joint ownership of a government
debt, and no other function than to trade in this debt and
to carry out the technical duties connected with the pay­
ments.




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Syst em

The paying off of the South Sea debt proceeded but
slowly during the eighteenth century. In 1797 the total
was still as much as £21,182,285. A financial report of
the House of Commons for Ju ly 19 of this year is in exist­
ence, which shows clearly that there was still no distinct
intention to transfer the entire management of the public
debt to the Bank. The report remarks:
“ It may also deserve some consideration, at some future
period, whether a further saving might not be procured
for the Public, if the South Sea Company could, by the
consent of the Proprietors, be dissolved, as happened in
the recent instance of the Million Bank; in which case
the management of that part of the Public Debt which
consists in South Sea Annuities might be transferred to
the Exchequer, or to the Bank of England, in the same
manner as Parliament has recently transferred to the
Bank the management of that part of the Public Debt
which was previously under the management of the East
India Company.”
“ It may also become a question of great importance to
the public interest, if the South Sea Company should
prefer the continuance of its present corporate capacity,
whether it may not be enabled, under its present Charter,
to lessen the public burthens by taking under its manage­
ment any future augmentations of the Public Debt, and
transacting the necessary Transfers and Payments of Divi­
dends, at a lower rate of allowance than the Bank of
England may at any time be willing to accept.”
The development of closer relations between the Bank
and the Government explains why no such transfer was
ever made.




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Commission

(c) The Bank of England.—Two factors must be dis­
tinguished in describing the development in this case also;
the increase in the public debt to the Bank, and the
increase in the public debt which was incurred through
the Bank as intermediary. The former was never so
great as in the case of the South Sea Company, while the
latter was much more important.
The original capital, which bore interest at 6 per cent,
continued to receive yearly payment at this rate until the
middle of the century, by which time it had been increased
by other loans and consolidations bearing interest at lower
rates. The first funding of exchequer bills and their
interest, the peculiar character of which has already been
pointed out, was authorized by 7 Anne, c. 7, but at the
same rate of interest, which was then (1710) the usual
one. The national debt was thereby increased by
£1,775,027. In 1717 the rate of interest on this debt was
lowered to that paid on the East India and South Sea
debts, i. e., to 5 per cent. The same act (3 Geo. I, c. 8)
authorized the funding of £2,000,000 in exchequer bills
at a like rate of interest. Two years later the debt to the
Bank was further increased by the purchase already
referred to of four millions of South Sea stock, which
after 1727 bore interest at 4 per cent only. At the same
date the annuities on the debt due to the consolidation
of the exchequer bills were reduced to the same rate.
In 1728 and 1729 (1 Geo. II, c. 8, and 2 Geo. II, c. 3)
three millions (altogether) at 4 per cent were added,
while at the same time the whole of the debt funded in
1710 and half a million of that funded in 1717 was repaid.
Another million of the latter was canceled in 1738. The

T h e

E n g l i s h

B a n k i n g

S ystem

total 4 per cent debt thus amounted to £7,500,000. In
1742 (15 Geo. II, c. 13) the Bank undertook to advance
£1,600,000 without interest, if the annuity paid on its
original capital remained untouched, which annuity was
equivalent to an interest of 3 per cent on the total of
£3,200,000. In 1746 (19 Geo. II, c. 6) exchequer bills
to the amount of £986,800 were funded at 4 per cent.
In 1750 (23 Geo. 1 1, c. 1) the interest on the whole debt
was reduced to 3 ^ per cent, with the proviso that after
December 25, 1757, it was to be only 3 per cent.
The following table gives the debt to the Bank in a
way similar to that given above for the debt of the South
Sea Company:

!

1. Original capital:
Government debt in 1694..........................................................
Government debt in 170 8 ..........................................................
Government debt in 17 4 2 ..........................................................

£
i, 200, 000
400,000
1, 600, 000

2. Transference of part of the government debt owed to the
South Sea Company................................................................... 4, 000,000
3. Other loans:
17 17 . Consolidation of remaining exchequer bills..............
500, 000
17 2 7 ................................................................................................. 1,750 ,000
17 2 8 ................................................................................................. 1,250,000
1746. Consolidation of exchequer bills..................................
986, 800
Total........................................................................................... 11,6 8 6,8 00
Interest (3 per cent on all debts after 17 5 7 )................................
350, 604

The government debt to the Bank during this period
was thus not equal to half the debt administered by the
South Sea Company. It remained unaltered until the sec­
ond decade of the nineteenth century. During the whole of
the second half of the eighteenth century there was no
increase in the national debt through loans from the com­
panies. As we have already noted, lotteries joined to
annuities, and various combinations of annuity loans, were




13 3

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M on et a r y

Commission

then more in favor. The share which the Bank had so far
taken in the management of such loans dated from 1710,
when for the first time it received the subscriptions for a
lottery loan of one and one-half millions. Considering the
existence of a special “ lottery annuity” department in
the Exchequer, it is more than doubtful if it also undertook
the payment of the annuities connected with the loan.
It did, however, receive the subscriptions for the lotteries
in the two following years 17 11 and 1712. Whether or no
it had to pay the tickets and interest connected with these
loans, it was at any rate not long concerned in this business,
for in 1720 nearly all the lottery annuities were converted
into South Sea stock.
The Bank was again entrusted with the raising of an
annuity loan in 1714. 1 Geo. 1, c. 19 and 20, authorized
the raising of £910,000 and of £169,000, on which an inter­
est of 5 per cent was promised. The Bank kept the books
for the subscriptions, received the money, and sent it to
the Exchequer. This share in the work of receiving sub­
scriptions was undertaken in comparatively early times
and continued for all subsequent loans. On the other
hand, the payment of annuities through the Bank was a
policy not continuously adhered to. That this method
was adopted in 1714 is shown by the yearly payment made
to the Bank for its administration. The same arrange­
ment was made in 1726 for a loan of a million administered
by the Bank (12 Geo. II, c. 2), and again in 1731 for a sum
of £800,000 (4 Geo. II, c. 9), and after this frequently
until the middle of the century, although the payment
of annuities through the Exchequer was not altogether
discontinued.




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A different policy was initiated in 1751. This year
marks an epoch in the history of the English public debt.
The debts to the South Sea Company and to the Bank were
definitely set in order for a long time to come and the same
thing was done for the other debts not connected with
the companies. B y 25 Geo. II, c. 27, various 3 per cent
annual charges, payable some through the Bank and
some through the Exchequer, which amounted in all to
£9,137,821, were united in a single fund, the management
of which was entrusted to the Bank. The interest on these
“ 3 per cent Consolidated Annuities ” was paid by the Bank
half-yearly, on the 5th of January and the 5th of July.
In addition various 4 per cent annuities were converted
into 3J2 per cents, with the proviso that half of them
should be reduced to 3 per cent in 1756, and the other half
in 1758. After buying out the creditors who would not
agree to this reduction the annuities of the remaining credi­
tors were united into a fund of £17,701,323 under the
name “ 3 per cent Reduced Annuities.” This fund also
was administered by the Bank, which paid the interest on
the 5th of April and the 10th of October in each year.
Besides the above-mentioned stocks, there were still
the so-called bank annuities on the loan of a million in
1726, and £400,000 of 3J2 per cent annuities which were
redeemed in 1752. The total public debt administered
by the Bank was thus composed as follows:
£
Three per cent consolidated annuities............................................ 9, 137, 821
Three per cent reduced annuities.................................................... 17. 701, 323
Three per cent bank annuities.......................................................... 1, 000,000
T o tal........................................................................................... 2 7,8 39 ,14 4
Interest (3 per cent after 17 5 7 ).......................................................
835, 174




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Commission

To the above debts must be added the exchequer
annuities, annual payments for life or for a term of years
payable at the Exchequer, which had not been subscribed
to form any of the preceding stocks, and which could not
be redeemed without the consent of the holders. These
amounted to a yearly sum of £208,906. With this
exception the administration of the entire public debt
was practically in the hands of the companies. The
Bank of England took the most important share, exceed­
ing that of the South Sea Company by a sum of twelve
millions. The rate of interest on the whole of the debt
was reduced to 3 per cent.
This is not a history of the English public debt, but
merely a study of the growth of its connection with the
banking system, hence the abundant material available
for the history of the debt during the second half of the
eighteenth century need not be further examined.
The principle that the administration should be deputed
was established by the middle of the century. The policy
became definite, not by any further development of the
principle, but by its constant application when fresh
debts were contracted. No fresh light would be thrown
on the subject by following out in detail the numerous
payments, new loans, consolidations, and increases and
reductions of interest. It is, however, worth while to
trace the increase in the total public debt, since this marks
the growing importance of the Bank and the declining
influence of the South Sea Company. Repayments alone
were made to the latter, while the Bank was continually
entrusted with new loans, and the total public debt ad-




136

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E n g l is h

Banking

System

ministered by it as intermediary amounted in 1800 to
£393,114,680. After 1751 the fresh debt was generally
added to one of the two existing funds, and increased
either the 3 per cent reduced annuities, which had risen
to £56,850,983 in 1800, or the 3 per cent consolidated
annuities, which in the same year amounted to no less
than £244,983,444. Besides these there were 4 and 5
per cent annuities, forming separate funds and amounting
to £44,762,860 and £48,250,426, respectively. The mil­
lion of bank annuities and the so-called 3 per cent imperial
annuities (loan to the German Emperor), which amounted
to £7,266,967, made up the remainder of the permanent
annuities administered by the Bank. After 1761 it had
also the charge of terminable annuities, which, in 1800,
involved a yearly interest of £1,665,739. In comparison
with these important items of the debt, the exchequer
annuities, which only required a yearly payment of
£131,980, sank into insignificance.
These statistics of the development of the national
debt show the importance of the duty undertaken by the
companies in administering the debt. Hence arises the
question of what this administration consisted, and what
payment was made by the State for it.
4. THE DUTIES INVOLVED IN THE MANAGEMENT OF THE DEBT AND THE
INDEMNITY PAID BY THE STATE.

The position of the companies varied according to
whether the Government borrowed directly from them or
only used them as intermediaries. In the first case they
either increased their capital stock by the amount of the
loan, i. e., they issued stocks, or the debt simply became




137

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Commission

the property of the company, and was entered in their
accounts among the outstanding assets. The interest on
the loan was then reckoned as part of the income of the
company, and, with the rest of the income, was divided
among the shareholders as dividend. When the govern­
ment debt led to the issue of stock, the interest paid was
still reckoned as part of the income to be divided among
the shareholders, but the price at which the stock was
issued gave opportunity for profit. Hence for the indi­
vidual the amount of the annuity paid by the State was
not fixed, for this was paid in a lump sum to the company,
and he only received a share in it because* he was a mem­
ber of the company. The market price of that part of
the company’s stock which owed its creation to a public
loan was thus only indirectly determined by the state of
public credit; it was also influenced by the other business
relations of the company. The administration of these
stocks was, however, subject to the usual business forms—
registration of the names and capital of the holder in the
books, transference at will, close of the books before the
time for the payment of dividends, fluctuations in the divi­
dends corresponding to fluctuations in business transac­
tions, etc.
In the second case, when the loan was raised through
the companies as intermediaries, the companies had no
important influence; they could fix neither the amount of
the subscription, nor that of the dividend. The latter
was determined by the Government once for all, the
former, in cases where it was variable, depended on the
offers that were made. In the last resort, however, the




138

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Banking

System

State, i. e., the Treasury, had to decide this. The pro­
cedure carried out by the companies in these cases was
as follows: In the act of Parliament which authorized
the loans it was provided that the cashiers of the company
should receive subscriptions. They were instructed to
pay the sum received into the Exchequer and to give an
account of the same. The claims of the individual holders
to shares in these loans were made negotiable at the office
of the company and the money required for annuities or
other payments was advanced to the head cashier from
the receipt side of the Exchequer by way of imprest, and
upon account. The books which related to the govern­
ment stocks, and which were kept by the company, were
managed exactly on the same principle as the company’s
own books. The account of the holder was credited with
his share and debited with the sums withdrawn through
transfers, redemptions, etc. The payment of dividends
was managed as follows: At the date of payment a sum
equal to half the annuity due on the shares payable through
the company, was paid by the Exchequer to the company.
The latter had now to make the payments to the different
shareholders. Accordingly the books used for the regis­
tration of transfer were closed, the shares of each person
were copied from them and written on a sheet of paper
opposite the name of the holder. A dividend warrant
was filled up for each holder, giving his name, his share
in the capital, and the dividend due thereon. A dividend
book was then made up in duplicate containing in alpha­
betical order the names of the holders and the other data.
All these statements were verified by the officials at the
Bank, and the warrants, if found correct, were signed by




139

National

Monetary

Co mmi s s i o n

one of them. The holders demanding the dividend wrote
their names in the dividend book and signed the warrant,
which latter signature was certified by an official. The
warrants were then payable at the office. The warrants
paid were entered in a cash and audit book and their
amount was compared with that of the unpaid ones of
which a list was made out of the dividend books. The
total must equal the total annuity payable .3
The duty of presenting accounts on the receipt of the
loans and the payment of the dividends existed until the
end of the century, and alterations were made only in con­
sequence of the Report of the Committee of 1 780 on Pub­
lic Accounts. Until that time all the accounts were pre­
sented to the auditor of imprest, who had to audit them.
The fees for this audit amounted to £20,000, an unneces­
sary expense, since the payments were sufficiently con­
trolled in other ways. The subscriptions to a loan were
handed over to the Exchequer, where receipts were given
for them and in whose accounts they appeared. The pay­
ment of capital and of the dividends was checked by the
owners themselves, who could take legal means to enforce
payment from the company should it refuse the same.
Moreover, the presentation of accounts was not consist­
ently enforced. The Bank had to send in accounts of all
the money transferred to it from the Exchequer, as well as
of the annuities due on its capital stock; the South Sea
Company need only present them for the annuities of 1751,
the East India Company not at all. But, according to the
a An account of the duties performed by the companies in their admin­
istration of the public debt is given in the n t h Report of the Committee
on Public Accounts, 1780.




140

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B a n k i n g

S y ste m

proposal made by the committee of 1780, the matter was
so regulated that the companies presented no accounts on
the disposal of the annuities on their trading stock, but
only sent in a general account to the Treasury of all the
government annuities paid through them, which account
contained a statement of their receipts and payments in
this connection and of the remainder of the dividends and
shares still unpaid.
In theory the duties connected with the management of
the public debt were simple enough, but the resulting ex­
penditure of money and time by the companies was so con­
siderable as to entitle them to an indemnity. It was not,
however, till a century had passed that this was accepted
as a definite principle. At first such payment was con­
nected with the incurment of special expenses by the com­
pany for buildings, officials, servants, printing, etc. Thus
as early as 1694 the Bank received £4,000 “ toward the
expenses of the House, ” and in 1712 the South Sea Com­
pany received £8,000 for the same purpose. The East
India Company, on the other hand, was paid no indemnity
of this kind until 1751, when it received £1,687, while at
the same time its annuity was reduced from 4 to 3 per
cent. A comparison between this “ allowance for man­
agement’’ and the principal debt shows that there was no
fixed proportion between the two. Each increase of the
debt was accompanied by an increase of the allowance,
voluntarily agreed upon, while a corresponding decrease
followed any redemption of the debt. These alterations
were not always stated in the acts themselves, the deter­
mination of their amount being left to the Treasury; as,
for example, in the case of the East India Company when




141

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Commission

the debt to it was transferred to the administration of the
Bank, and so on.
In any case the compensation paid for the raising
of a loan and for its administration rested on no sys­
tematic basis. It varied according to whether it was
a question of raising an annuity or lottery loan or of
the administration of annuities. For the receipt of
subscriptions an indemnity was paid at first only to
individual officials of the company, who were specially
indicated (cashiers and bookkeepers). This was not
determined by law, but was settled by the Treasury.
Thus the chief cashier received £600 for the two loans
raised by the Bank in 1714. From 1719 onward the
amount was, with few exceptions, £805 10s. iod. per
million. For lottery loans it varied from £1,000 to
£2,000. The annual indemnity for the administration
of the annuities was also originally paid to the head
cashier and the head bookkeeper. Thus the former
received £650 and the latter £600 for the two annuities
in 1714. For the million in 1726 a yearly sum of only
£360 was paid, and that directly to the Bank (“ for
the use of the Governor and Company of the Bank of
England’’). In 1742 a yearly sum was again granted
to the cashier and bookkeeper, and the Bank received
nothing. The annual payment after the date of the
consolidation in 1751 was, however, made to the Bank,
and amounted to £562 10s. per million. Since this was
reckoned according to the amount of the capital and not
of the annuity, the terminable annuities were capitalized
at twenty-five years’ purchase and the yearly payment
calculated on the resulting amount.




142

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Banking

Syst em

The allowance to the South Sea Company was £21,397
after the great consolidation in 1720, and £ 1,18 1 for
the annuities of 175 1, i. e., £562 10s. per million. This
decreased in proportion as the debt was repaid.
The chief commissioners of audit made representa­
tions to the Treasury in 1781 with regard to the indemnity
paid to the Bank, and proposed the establishment of
an independent office for the administration of the debt,
by which proceeding the expenses would be decreased
by two-thirds. As a result of this an agreement was
made between the Bank and the Treasury which was
embodied in a treasury minute (legally confirmed by 31
Geo. I ll, c. 33). This fixed the sum for charges of man­
agement of all public debts administered by the Bank
at £450 per million. Only two payments were excepted
from this, the £4,000 which had been paid for the capital
stock since 1694, and £1,898 3s. 4d. which had been
paid since 1722 for the stock purchased from the South
Sea Company. The payments for receiving the sub­
scriptions to the loans continued at the rate of £805
10s. iod. per million for annuities and £1,000 for lot­
teries. The South Sea Company received its annual
payment undisturbed at the rates hitherto paid.I.
II. TH E

ADM INISTRATION

OF

PU B LIC

MONEY

AND

TH E

B A N K ’S SH A R E T H E R E IN .

The preceding account shows that the assumption of the
management of the public debt by the Bank, the East
India Company and the South Sea Company, respectively,
was directly connected with the raising of government
loans by these companies. There was no such point of




143




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Commission

departure for the transference to the Bank of the work
done by the pay offices. Owing to the peculiar way in
which the debt was managed, the former change involved
no alteration of the government offices. But the com­
plete transference of the management of public money to
the Bank necessitated a reform of the entire financial
administration. The system of public payments forms
part of a complicated process, in which three principal
factors can be distinguished, (i) The collection of the
public revenues and their distribution to meet the various
public liabilities; this we shall call the transfer of funds.
This process is controlled (2) by the power of disposing of
the public revenue—the right of assignment. Finally (3)
the system of public accounts and audit is concerned with
every alteration in the public assets, whether through
receipts or issues, in order to secure an economical admin­
istration of the finances and to prevent loss. The regular
performance of these three functions is the duty of a
special group of government departments. The transfer
of funds goes on within the system of pay offices; the right
of assignment is exercised by the administrative offices,
and other independent offices are occupied with the presen­
tation and audit of accounts. If a bank is to enter this
group of coordinated authorities, it is clear, first of all,
that there is only one of them, namely, the pay offices for
the transfer of funds, whose duties it can undertake. The
machinery of banking is unquestionably as well adapted
to carry out the transfer of funds as are pay offices. But
the extent to which the Bank can undertake this duty and
the problem of organizing it to carry out its share of the
work depend largely on the system of pay offices which it
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replaces and on the principles according to which the
transfer of funds is conducted. Both these matters, how­
ever, influence the development of the right of assign­
ment and the system of audit. Theoretically these latter
are not affected by the decision to employ a bank for trans­
fers of public money, but in practice their form is dependent
thereon. The alteration in the system of pay offices was
combined in England in actual fact with a change in the
extent and exercise of the right of assignment, at least as
regards the persons ultimately responsible for the manage­
ment of public finance, and in the system of public accounts
and audit. In many cases the changes were only parallel
reforms, but they were constantly connected, owing to the
unity which always characterizes the administration of the
public money.
We must consequently show', at least in the essential
stages, how the principle of administration of public
money by the Bank was introduced side by side with
reforms in the associated departments of the financial
administration. These occurred chiefly in the nineteenth
century. Until nearly the end of the eighteenth century
the financial administration remained unchanged, so far as
concerned the organization of public money, of accounts,
and of audit. We need here, therefore, only consider the
state of things which has arisen in the course of the nine­
teenth century.
(z) The central financial authorities.— The Treasury and
the Exchequer.
As early as the twelfth century England possessed a
strongly organized central authority for the whole admin­
istration, instituted with the establishment of the Norman
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10

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feudal State.® The most important function exercised
by this authority was the administration of finance. The
receipts and issues were regulated by it, the former being
concentrated in the public Exchequer, into which they
were paid by the collectors; the accounts of those who had
accounts to render were audited; financial disputes were
adjusted. In the course of time the other branches of the
administration were separated off, and the administration
of the central finance alone remained and was carried on
under the name of the ancient authority, the Exchequer.
And this office, too, was split up, though much later, into a
court of justice and departments of administration and of
cash and audit. The Court of Exchequer was fully organ­
ized under the Tudors and after this time had only a formal
connection with the financial administration. Adminis­
trative business left the Exchequer in the sixteenth cen­
tury. Only the management of Crown property, which
had been connected with the Exchequer from early times
remained under its control. On the other hand, the
authorities which were constituted to administer new
branches of revenue were no longer included in the E x ­
chequer. A clear distinction between the management
of the receipts and expenditure, and the audit of accounts,
was not made until the eighteenth and nineteenth cen­
turies, when the enormous increase in expenditure necessi­
tated methodical procedure, and the development of par­
liamentary control imposed responsibility.
° Described by Gneist, “ Engl. Verwaltungsrecht,” 18 6 7, 1 , § 193; Reinhold
Pauli, “ Geschichte von England,” 1853, Bk. II, § 136; both are based upon
Madox “ The History of the Exchequer,” London, 1769 (2d edition);
Thomas, “ The Ancient Exchequer of England,” London, 1845, from which
the following account is also taken.




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The original directors of this central authority were
the treasurer, for all receipts and expenditure, and the
chancellor, or “ chancellor of the exchequer,” as he was
called to distinguish him from the lord chancellor, for
accounts and audit. These officers may be regarded as
corresponding to the Handler and Gegenhandler of the
German treasuries in the middle ages. But owing to
the position of the Exchequer and its connection with
all other public business their importance far exceeded
that of mere revenue officials. Hence as public business
increased in extent they abandoned their close connec­
tion with the Exchequer, retaining only the ultimate con­
trol of finance as part of the administrative system which
had passed into their hands. It is said that under Lord
Burleigh, in the time of Elizabeth, the treasurer no longer
appeared in person at the Exchequer, to manage the busi­
ness there, but that his orders w^ere sent in writing. We
must regard this as the period when an independent
office, the Treasury, developed alongside of the Exchequer
for the management and conduct of the finance, while
the Exchequer itself continued to be the head office for
payments, accounts, and audit. The chancellor of the
exchequer was originally, so long as both were connected
with the Exchequer, an officer appointed to check the
treasurer; but as early as 1434 he was designated “ vice ”
or “ under treasurer.” He also, therefore, was trans­
ferred to the business of financial administration. Thus
in the sixteenth century the Treasury appears as a minis­
try of finance, in contrast with the Exchequer, which was
now a subordinate department for the management of
public money and accounts. Only one idea is continu-




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ously connected with the Exchequer, viz, that the assign­
ments of the Treasury shall be checked there. The E x ­
chequer is subordinate to the Treasury in regard to the
appointment of its officials and the organization of its
activities, but in one matter the two are on an equality.
Disputes between them are referred only to the court of
exchequer. On this single point depends at a later date
the whole of the reorganization of the system of control.
In the Exchequer itself the business connected with the
public accounts was carried on in two departments—the
receipt side and the account side of the Exchequer.
The receipt side was the central public Treasury. Its
duties were the receipt, the custody, and the issue of the
public revenue. All receivers and collectors must peri­
odically send their superfluous cash there, and thence,
on the authority of a royal warrant or treasury order,
the public money was transferred to the paymasters or
actually paid out direct. Periodic accounts of the receipts
and issues of public money were compiled there and
communicated to the Treasury, so that the management
of the revenue might be examined. The officers of the
Exchequer were:
(i)
The auditor of the receipt. This officer had re­
placed the treasurer, and his duties were “ to keep the
keys of the King’s Treasury, which belong to the Treas­
urer in his stead, and to enroll the Receipts and Issues
made in the Receipt, and to write the Tallies.® Thus in
his department the warrants for payment were registered,
the cashbooks were kept, and the accounts of the treas­
urer were compiled.
a Thomas, loc. cit., p. 129.

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(2) The clerk of the pells. This officer kept the books
and acted as a check on the auditor. All business con­
nected with the public money (assignment, receipt, and
issue) was recorded by him.
(3) The tellers, the actual cashiers.
(4) The chamberlains, who had to supply the tallies
used as receipts.
The persons hitherto named were the chief officers on
the receipt side.® There was naturally, as time went on,
an increase in the number of officers, but this of itself
did not affect their position. A rise in the status of an
officer may, on the one hand, be due to an increase in his
duties or, on the other, to the fact that the head officer
has acquired the right to appoint a deputy. Bach of the
above-named officers had a deputy at the end of the
seventeenth century and perhaps even earlier. The
actual duties of the office were transferred to the deputy.
The office of treasurer itself arose in ancient times in such
a manner. But no new functions were given to the indi­
viduals who thus freed themselves from their official
duties. Their posts consequently became sinecures.
a A more complicated organization grew up toward the end of the
seventeenth and beginning of the eighteenth centuries owing to the devel­
opment of the system of public debt. Thus in 1704 we find an exchequer
bills office with a head and under officers, an annuity office with two
departments—the bookkeeping office (three officials) and the pay office
(five officials)—a malt and a million-lottery office, the former with four, the
latter with three officials. These offices were created for certain special
purposes and were really special pay offices. But they formed part of the
receipt side of the Exchequer, i. e., a part of the public central treasury.
They were not permanent. The exchequer bills and the annuity offices
alone survived until the nineteenth century. These offices were origi­
nally intended to manage the whole of the exchequer bills and the annuity
loans, but their duties were limited by the intervention of the Bank to, in
the first case, the preparation of and payment of interest on the bills and,
in the second case, to the management of certain annuities.




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The examination into the expenditure of the public
revenue was made on the account side of the Exchequer.
The procedure, already described by Gneist, here took on
a semi-judicial form, since the barons assembled as the
court of the exchequer decided disputes on points of law
which had arisen in the course of the financial adminis­
tration, and swore in the officials who had to present
accounts and must affirm them on oath. The charging
and discharging of these public accountants and the exam­
ination of their accounts were the duty of a whole succes­
sion of officials representing the various audit authorities,
before the matter came before the barons and was judi­
cially decided. The system of accounting was, until the
nineteenth century, extraordinarily complicated, and
involved so many subordinate offices and special forms of
presenting accounts that an examination thereof would be
beyond the scope of this book. One distinction must,
however, be noted here, since it has become important in
connection with the further development of methods of
audit.
In very early times the clerk of the pipe and the con­
troller of the pipe, who assisted him and also supervised
him, were the only officials who exercised a control over
the expenditure. The former kept the great roll of the
pipe in which the different accountants were charged with
the sums debited to them, and after the presentation of
their accounts were discharged. This discharge, by enter­
ing the quietus est in the pipe roll, could only take place
with the controller’s consent. These two persons were
thus the only controlling officials and their competence
comprised the accounts of the entire country, as is shownl
ls°

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by the division of the pipe roll. But as early as the thir­
teenth century the foreign roll appears alongside of the
pipe roll. This roll obtained its name from the fact that
in it only such entries were made as had not been already
by custom assigned to the pipe roll. Thus in it were
registered the accounts arising out of the collections and
applications of the annual supplies voted by Parliament.
It was kept by officials called “ auditors.” In 1547
another division was made amongst these officials, the
audit of the accounts arising out of the administration of
the crown lands being assigned to special auditors of the
land revenue, while the auditors of the foreign roll were
called “ Auditors of Prests and Foreign Accounts,” and
later, “ Auditors of Imprest.” All these different offices,
which were not subdivisions of a single head office but
were independent audit authorities, continued to exist
side by side in the eighteenth century. The auditors of
imprest, however, became the most important, owing to
the increase in the parliamentary grants whose applica­
tion they had to control. This brought them into con­
tact with Parliament itself, and when the organization
of the system of audit was taken in hand, attention was
first directed to them.
It can not be shown that there was, properly speaking,
any dependence of the one side of the Exchequer on the
other. But there was necessarily a close connection.
The half yearly statement of accounts made by the audi­
tors of the receipt formed the basis on which the entire
audit and control of the account side was founded. The
receipt side charged the accountants, the account side
checked their discharge. The receipt side had to prepare




*5 *

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C o mmi s s i o n

the wooden tallies used as quittances. When such a tally
was used as a receipt for money paid, it was divided into
two parts. The one, the foil, was given out; the other,
the counterfoil, was retained. The collector in presenting
his accounts sent in the foils as vouchers. The foils, if
correct, must agree with the counterfoils. On each
return made by the collectors, the chamberlains noted
whether the foils belonging thereto were in order; then
the return was sent to the clerk of the pipe or to an audi­
tor. The close connection, formed by daily business rela­
tions, between the receipt side and the account side of the
Exchequer, must necessarily have caused any alteration
on the one side to be felt on the other.
(2) The position of the receipt offices and the Exchequer.
Until the seventeenth century the collection of the pub­
lic revenue was managed by local administrative offices,
such as, for instance, the self-governing bodies, the sheriffs,
ministers, and receivers, and the commissioners appointed
on one occasion or another, who were directly subordinate
to the Treasury and in direct connection with the Excheq­
uer.® As, however, the system of taxation developed
during the seventeenth and eighteenth centuries, the
formation of head revenue offices proceeded also, which
offices were indeed under the Treasury, but could act
independently within the limits set by acts of Parliament
and regulations. The Treasury remained as before the
head of the financial administration, but the duties were
discharged by these head offices. They developed as a
rule in proportion as the taxes when once imposed were




°C f. Gneist, loc. cit., B k. I, p. 326 et seq., p. 617; B k. II , p. 781.

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made perpetual, as the public expenses which were sep­
arately appropriated to separate heads of the revenue
increased, and as the complexity of the forms of taxation
demanded administration and no longer mere collection.
Thus in 1661 a board of commissioners was created to
administer the customs, and these for the first time came
entirely under the management of the State.® In a similar
manner by 12 Chas. II, c. 35, the postal administration
was reorganized and this culminated in the foundation of a
general post office in London. In the same year the taxes
associated together under the general name “ excise,”
which had hitherto been only temporary, were now by
12 Chas. II, c. 23 and 24, voted for the lifetime of the
King, and he was allowed to erect a head office in London
for the better administration, collection, and custody of
the receipts. Among the taxes afterwards administered
by this office was the salt tax, imposed in 1694, the man­
agement of which was separated off in 1702 and intrusted
to its own office, but in 1798 was again united with the
excise. b
The taxes imposed in William I l l ’s reign—stamp tax,
license for hackney coaches, house duty, tax on hawkers
and peddlers—were each administered by a separate head
office.c The land and malt tax occupied a peculiar posi0 “ The History of Taxes from William the Conqueror to the Year 17 6 1.”
In ancient times the farming out of the customs was usual. A definite
organization of the customs administration was not made until the century
above referred to, by 12 Chas. II, c. 4.
b The salt tax was imposed by 5 and 6 Will, and Mary, c. 7. Its admin­
istration was separated from that of the excise by x Anne, c. 7, and was
again united to it by 38 Geo. I l l , c. 88.
c The stamp tax was imposed by 5 and 6 Will, and Mary, c. 21, the tax
on hackney coaches bye. 22 of the same year, that on hawkers and peddlers,
etc., by 8 and 9 Will. I l l , c. 25.




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tion throughout the century, being collected, in accordance
with the annual vote, by receivers general for the different
counties, who were appointed in each year by act of Parlia­
ment. This branch of the revenue, which later formed a
basis for the income tax, was permanently organized only
in 1797.“
The receivers general—the chief receiving officers in the
different counties, under whom head collectors and col­
lectors managed the local revenue service— were subordi­
nated to the head offices. The local divisions of the
revenue offices were naturally not alike for all branches of
the revenue, but were formed according to the importance
of the different sources of supply.
After the erection of special head offices for the admin­
istration of the different branches of the revenue, the
receipts for the latter were accumulated first in their
respective offices, and thence delivered to the Exchequer.
In so far as the duties were paid in Eondon itself, the head
office served both as a receiving office for the local revenue
and as an accumulating office which was in direct con­
nection with the receivers general, who, in their turn,
through the head collectors and collectors, accumulated
the revenue collected in each county.6 The interval of
time allowed to the actual collectors in which to send
their money to the receivers and to the latter in which
to send it to the head office, as also the fees paid to the
0 B y 37 Geo. I l l , c. 35.
b The payment of the land tax and excise duties seems to have been the
only exception to this clumsy method. In their case the act imposing the
taxes provided that payment should be made to the Exchequer through the
receivers. These direct payments ceased again however when it became
common to use bills of exchange which could only be cashed at the head
office.

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different offices, was usually specified in the act ordering
the collection of the revenue. To see that these regula­
tions were carried out was the duty of the head offices
and ultimately of the Treasury as controlling the entire
financial administration.
The provisions with regard to the head offices which
were made in the original laws establishing them, con­
tinued in force throughout the eighteenth century as is
shown by the facts brought to light by the commission
of inquiry in 178 0 “ The receivers general of the land
tax and of the direct taxes, which were collected at the
same time, must send the money for the land tax to
London within twenty days of its receipt, and the money
for the others within forty days of its receipt. In the
case of the excise the interval varied according to the
distance from London; it was twenty-one, thirty, and
sometimes fifty or sixty days. The customs had to be
forwarded immediately to the head office and no collector
might keep more than £100. At the beginning of each
week the head office transferred the receipts of the pre­
vious week to the Exchequer. The same procedure was
followed in the stamp and salt offices. The hawker and
peddler office paid into the Exchequer weekly, if it had
accumulated more than £200. The hackney coach
office paid in every three months, in case the receipts
amounted to more than £1,000. The post office paid in
£700 weekly and its entire balance quarterly.
After the end of the seventeenth century the revenue
was no longer sent in coin to London. In 1696 the como The first and second reports are concerned with the collection of the
revenue.




155

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Co mmi s s i o n

missioners of excise ordered that no collector in the countryshould send coin if he could obtain a good bill of exchange.®
This greatly simplified what had hitherto been a cere­
monious transportation of money under the escort of
armed men,6 and the other offices probably soon followed
this example.0 Although no legal regulation was made,
this form of transaction had already been generally
adopted by the revenue offices at the time of the commis­
sion of 1780 and the succeeding years. As happened
throughout the development of the English Exchequer,
the independence of the individuals intrusted with the
management of the public money led to the adoption by
the public offices of the ordinary economic methods of
exchange.
It does not He within the scope of this work to enter
upon a closer examination of the official rights of these
authorities. It will suffice to call attention to one axiom
which was of importance in the development of the
Exchequer—that all its officials were absolutely inde­
pendent in their application and employment of the
public money. Each official had to give security depend­
ing in amount on that of the money to be received. He
must present accounts of the receipts, and hand over
within the legal interval the amount stated in the account,
but there was no distinction drawn between his private
property and the public money in his possession. When
0 Announcement of the commissioner of excise. London Gazette, Ju ly
9 -13 , 1696.
b “ Treasury Papers,” 1697, Vol. X L V II, No. 8, and 170 1, Vol. L X X I X ,
No. 66, contain statements of the cost of transporting money in this way:
£ 7 6s. must be paid daily for a man and horse.
c In 1697 the collectors of a poll tax sent their money to London by bills
of exchange. “ Treas. Papers,” 1697, Vol. X L V II, No. 8.




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in 1 7 1 1 the Bank of England petitioned the lord high
treasurer to use his influence to induce the receivers to
conduct their business with it, the treasurer applied to the
commissioners and received the following answer: “ The
Commissioners will exhort the Receivers, which is all that
can be done, since they and their security are answerable
for all failures.” a The object of the Bank was probably
to get the business of exchange into its own hands, but
pressure on the part of the superior authorities failed,
owing to the independent responsibility of the receivers,
with whom a large liberty must be left to deal as they
thought fit with the public money, since the full responsi­
bility for it fell upon them.
The natural effect of this axiom was that the receivers
tried to keep back the money as long as possible and to
use it to their own advantage. When an inquiry into
the management of the public money was made in 1780
it was found, for example, that the receivers of the land
tax had in their possession balances to the amount of
£657,000 out of yearly receipts of £2,500,000. The
alleged reason for this was the difficulty of obtaining
good bills of exchange and the inadequacy of the pay,
which according to the old rate was 2d. for every £ 1
collected. People were forced to use the money for their
own purposes in order to secure a competence. b Besides,
these balances also served sometimes to meet liabilities
incumbent upon them.
The expenses which the revenue offices had to meet
consisted partly in their own costs of management,
o “ Treasury Papers,” 1 7 1 1 , VoL C X L , No. 4.
ft First report of the commission of public accounts, 1780.




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partly in expenditure authorized by law on behalf of
other branches of the public service. The former were
fixed by law or by royal order, and were allowed by the
Treasury accordingly; in the latter case the act grant­
ing the money generally provided that the receipts of
this head of revenue should be registered separately
from all others by the revenue officers and should be
regularly devoted to certain specified payments. This
led to direct transactions between the different public
services for which these payments were to be made and
the revenue offices, which transactions must however
always rest on a definite legal basis. Hence when the
accounts of the revenue offices were audited on the
account side of the Exchequer, the quittances for the
money paid in to the receipt side had to be checked,
and, in addition, the use made of the remaining money
had to be inquired into and compared with the provisions
of the corresponding act of Parliament. On the receipt
side only the net receipts of the public revenue were
accumulated.
The procedure there, which was of importance in
regard to the transference of the business connected
with the public money to the Bank, was based for the
later period upon 8 and 9 Will. I l l , c. 28, 1698; but this
act only confirmed in essentials the system in use from
ancient times.® The different receivers of the revenue
a It is entitled: “ An act for the better observance of the course anciently
used in the receipt of the Exchequer.” For the older procedure see
Gneist, whose account follows Thomas’s book referred to above. The
actual administration during the eighteenth and at the beginning of the
nineteenth century is described in detail in the “ Report on the E x ­
chequer, ” P. P., 1831, 431 and the “ Return on Public Income and Expend­
iture,” P. P., 1869, 336 1, p. 338 et seq.




I5&

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Banking

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paid their money, within the above-mentioned inter­
vals of time, to one of the four tellers, each of whom
was concerned with the receipt of a specified branch of
revenue. The teller then sent a slip of parchment, the
“ teller’s bill,” upon which the amount received was
specified to the so-called tally court. There the bill
was received by the clerk of the pells and entered in his
book of introitus, or receipt. A similar entry was made
by a clerk of the auditors of receipt in the bill of the day.
Finally a copy of the teller’s bill was made by marking
the name of the person paying in the money, the head
of the receipt, the amount and the date, upon the tally.
This certification of the payment (solutum) was called
a tally of sol, and was given next day to the person
who had paid in the money. At the end of the day the
bill of the day was again sent to the clerk of the pells,
who now entered all the receipts of the day in a cash
book. The book called Introitus appears to have been
a ledger, the entries in which were valid outside the office—
e. g., at the audit of accounts before the Court of the
Exchequer (“ it is held to be evidence in courts of law ”)—
the cash book was only for use in the office. It served
as a check on the tellers, who had to account for the
sums entered therein. The custody of the public money
was intrusted to the clerk of the pells and the chamberlain (in later times to the auditor of the receipt) in con­
junction with the tellers. At the end of each day the
cash in hand was examined by them, or rather by their
clerks, and compared with the amounts in the cashbook.
The teller had to render account by means of vouchers




i 59




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(orders of bills of assignment regularly issued) of the way
in which the difference had been disposed of.
(j) The right of assignment.
The receipts from all the heads of revenue were paid
into one central treasury, but they were not regarded
as a single fund, out of which money, as it came in, could
be used for the public expenses without regard to the
object of the payments. Each separate head of revenue
was charged with definite payments, and the different
subheads into which any head of revenue might be divided
were regarded, either each by itself, or several together,
as distinct funds. Thus, for example, the customs
duties for one year were divided into no less than 74
subheads, according to which the receipts of the customs
and the payments charged thereon were reckoned.
Thus instead of one large balance in hand, there were a
dozen, since the surplus under one head could not be
applied to meet the deficit under another.
Attempts at consolidation began with the increase
of the public debt, the receipts from various taxes being
united to pay the interest and for the redemption of the
debt. No less than six such funds were formed between
1697 and 1710. Their union into a single fund followed
in 1715 and in this way all the payments arising out of
the management of the debt ^ere in some sort charged
on a single fund. For in practice the separation in book­
keeping of the receipts and expenditure had had the
same effect as if there had been so many distinct funds.
The system of separate funds was continued for the
remaining branches of the public service until 1786,
when the consolidated fund was formed.
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Although the public money in the Exchequer was
assigned in this way to different objects, there was only
one authority competent to order its issue. As soon
as the revenues are paid into the Exchequer the King
alone can dispose of them, they become Crown property.
The “ King’s taxes,” the “ King’s revenue” are the
expressions used in the laws. The King orders the issue
of the money by means of the great seal or the privy
seal,® warrants under which are sent to the treasurer,
or rather to the lords commissioners, the chancellor of
the exchequer, and under treasurer. The warrants are
executed by the orders of these persons. Originally
this was done by word of mouth, but since the office was
put into commission it has been done by a written war­
rant signed by three or more of the lords commissioners.
This warrant instructs the auditor of the receipt to issue
an order of payment to one of the tellers. It refers
to the royal warrant and states the funds out of which
the money is to be paid. The oldest forms of these
orders which survived till more modern times were
called “ debentures.” They were payable at sight.
In addition however to these there were orders of pay­
ment, which had to be signed at the Treasury again
before they were honored and which, since Charles I I ’s
reign, must be accompanied by a letter of direction or
issuing letter. The salaries of the officers of the Exchequer
and payments made at the special direction of the Privy
a “ These (great seal) are the methods whereby the K ing’s pleasure is
to be known for the issuing of money.” (Speech of Lord Keeper Somers
in support of his judgment on the Bankers’ Case, 12 Will., III.) See
Howell, “ State Trials,” London, 18 12, vol. 15. This speech is celebrated
on account of the learning with which it describes the history and func­
tions of the Exchequer.
68299°— 1 1 ---- 11




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Council were excepted from this clumsy procedure and
could be made on the authority of a simple warrant
from the Treasury.
The King’s liberty to dispose of the money in the E x ­
chequer was limited after William’s time owing to the
appropriation by Parliament of the taxes voted, which
appropriation became the regular procedure. In the dis­
position of these revenues the Crown had a definite com­
mission to execute. “ The Crown becomes a trustee either
for the public uses and services to which the money is
appropriated or for the interest of the public creditors
who have a property in the several duties and revenues
purchased by them upon the faith of public credit and
the authority of acts of Parliament.”0 Hence a distinc­
tion grew up between the appropriated funds, the money
voted for the sendee of the current year, and that voted
for the expenses of the civil list. In the case of heads of
revenue permanently appropriated for definite objects—
e. g., for the redemption of debt—payment was made
through the auditor without a royal rescript, on the
authority merely of a treasury order citing the act of
Parliament in question. The latter condition was often
dispensed with in the cases, which were both frequent
and important during the eighth century, where credit
was employed. The individual creditors sometimes re­
ceived a treasury repayment order when the. loan was
raised, or the obligation to repay was legally regulated
and connected with the bills issued, without the inter­
vention of the Treasury.
o Robert Walpole. “ Draught of an Intended Vindication of Sir R . W.
by Himself” in “ Memoirs of Sir Robert Walpole,” by William Coxe,
London, 1788. Bk. III.




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The issue of the money voted for the service of the
current year was made by warrant under the privy seal,
the warrant was kept within the limits of a possible
appropriation and was executed by the Treasury.
The assignments for the expenses of the civil list were
made in the form anciently in use, until the restoration,
after which the procedure was shortened. Instead of
continually making new orders under the great and
privy seals for the regularly recurrent payments (expenses
of the household, salaries of civil servants, etc.) the King
issued rescripts in each of these forms which served as
standing authorizations to the Treasury to assign money
for certain heads of expenditures, or at any rate simpli­
fied the assignment. The provision of these letters
patent dormant or privy seals dormant is usually one of
the first ways in which the King exercises his authority.
In the case of letters patent under the great seal the
clause runs thus: the Treasury is requested to pay
“ such sum or sums of money as to you shall seem reason­
able and fit to be allowed and paid in such cases” ; in the
case of letters of privy seal: “ that you pay -------- such
sum or sums of money for any public or particular uses
and services as we by any warrant or warrants under our
royal sign manual shall direct -------- to be paid.” In
the latter case a special order of payment from the King
was also required, but it was supplied in the more con­
venient form of an order under the royal sign manual.
Thus the Treasury had only an indirect right of assign­
ment, whence the duty of the auditors of the receipt to
see that its orders agreed with the royal warrant or with
the act of Parliament. The importance of the royal right




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of assignment diminished with the growing custom of
appropriating the taxes as they were voted, and became
eventually a formality which was preserved as part of the
traditional fiction that the Crown alone has the right to
dispose of taxes.
Hence a strict centralization of the system of pay­
ment was necessary and this constitutes the real impor­
tance of the right of assignment vested in the Crown, so
far as it concerns administration of public money.
(4) The administration of money by the pay departments.
With the exception of the payments made by the
collectors and receivers, all money was issued through
the Exchequer. The issues consisted partly of actual
payments, partly of the transfer of public money with a
view to further employment and to be subsequently ac­
counted for. To the first belonged part of the salaries
of civil servants, pensions, royal bounties, and the pay­
ment of interest on, and the capital of, certain debts.
To the second belonged the remainder of the payments
to civil servants and all expenses for the army, the
details of which were managed by the treasurer of the
household, and the paymaster of the forces, respectively.
The payments made to the household need hardly be con­
sidered in connection with the development of the ad­
ministration of public money. Not only were they
unimportant in themselves, but they received little
attention. The civil administration was the business of
the Crown, but Parliament undertook the administration
of the army through its grants of the annual supplies.
The moneys assigned to the purpose were “ public moneys”
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in the strict sense. The greater part of the public debt was
incurred in this department and hence the management of
the money devoted to it was, throughout the eighteenth
century, the special object of parliamentary inquiry.®
According to the oldest Government balance sheet
extant the issues for the Custodia of England in 1421
amounted to £46,286 out of total payments of £62,236.6
In 1660 the proportion was £1,013,000 for army and
navy, against £42,400 for other expenses.6 During
James I I ’s reign the average for three years (1685 to
1688) was £ 1,111,8 3 9 for army expenses, £587,524 for
other expenses.d In the first three years of William and
Mary’s reign (1688 to 1691) the army expenses were
£8,957,299 as against £1,792,149 for the civil adminis­
tration.6 During the succeeding years and especially
under Anne, the expenses for the army and navy became
so heavy that, for example, in Anne’s reign the average
proportion was £5,591,329 : £749,656. These were war
“ These inquiries began as early as 1666 when the first commission was
appointed “ to examine all accounts of those who have received or issued
money for this war.” In 1691 we find commissioners for taking the public
accountsr out of which only the accounts of the army were subjected to
an inquiry. Under the same title in 1701, 1703 (Paymaster Ranelagh
expelled from the house), 1 7 1 1 (impeachment of Marlborough), 1712 (im­
peachment of Robert Walpole as treasurer of the navy), 17 13 (the com­
mission of inquiry, of the previous year, into the accounts of the army,
prolonged), 1726 (inquiry into the state of the public debt), 1746 (inquiry
into the state of the land and marine forces). The most important of the
committees appointed to inquire into the whole question of the adminis­
tration of public finance were those of 1780 and 1797.
b Printed in Hatsell “ Precedents,” vol. 3, Ap. 3, also in Rym er’s
“ Foedera,” Vol. X , pp. 113 , 114 . The receipts were £55,754 10s.
io ^ d , the issues £62,235 16s. ioj^d.
cCobbett, “ Parliamentary History,” 1806, vol. 4, p. 118 .
^Cobbett, loc. cit., vol. 5, p. 189.
« These and the following figures are taken from the annual public
accounts given in the “ Returns on Public Income and Expenditure” from
1688 to 1869.




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years, but even after a long period of peace (1738) the
proportion was still £1,780,000 : £880,000. This was the
lowest point of the expenditure on the army and navy.
After this it rose again, until toward the end of George
I I ’s reign (1760) it reached £13,500,000, as against an
outlay of £1,150,000 on the civil administration. Under
George III the expenditure on the army in time of peace
was three times that on the civil administration, while
in time of war the former rose to £20,000,000, £26,000,000,
£28,000,000, and even £41,000,000, against £2,500,000
for the latter.
Most of the expenses for the civil administration were
paid through the Exchequer. It can hardly be supposed
that the treasurer of the household attained much impor­
tance in this connection. On the contrary the develop­
ment of English financial management may be said to
be influenced only by the procedure evolved in the adminis­
tration of the forces combined with that which grew up
in the Exchequer. The administration of the forces was
early divided into the services of the army, the navy,
and the ordnance. The votes in Parliament, as well as
the assignments of public money for the administration
of the forces, were made under these three heads. Each
of these services had a head pay office which received
from the Exchequer the portion of public revenue voted
or otherwise assigned to the service in question, carried
out the detailed expenditure, and rendered accounts for
the whole amount. The three offices were that of the
paymasters-general of the forces, that of the treasurer of
the navy, and that of the treasurers of the ordnance.
The pay offices of the two hospitals of Greenwich and
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Chelsea were added to these in the eighteenth century.
The principle of complete independence in the application
and employment of the public moneys held good for the
pay offices as well as for the receipt offices.
The charge of public money entailed the duty of ren­
dering accounts, but the money passed into the possession
of the paymaster who was charged with it, and he was
only answerable for applying it in accordance with the
acts of Parliament or with special instructions received.
His whole property was liable for any neglect of duty.
His heirs and legal successors inherited this liability and
it only ceased when his accounts had been examined and
discharged by the auditors of imprest and he had received
his quietus. He was the accredited agent for the prop­
erty of the State. He received his instructions by an
order from the public authorities. He was discharged
after giving evidence that he had carried out these instruc­
tions in accordance with the legal provisions and the
established customs, public money was advanced to him
in order that he might so carry them out, and for this
money he had to present accounts.
It might happen that either the paymasters had to
make good in case the proof of correct application were
unsatisfactory or, on the other hand, that they might claim
the repayment of money to themselves. They were allowed
to make payments for which they had received no money
but were not obliged to do so.a
a The position of the paymasters is described in the numerous Reports
on public accounts already referred to, which were issued by Parliament
in the course of the eighteenth century. The advantages and disadvan­
tages of the system were brilliantly described by Burke, in a speech on
February n , 1780. Cobbett, “ Parliamentary H istory,” vol. 21, p. 1
et seq.




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The paymasters were usually persons of high rank,
members of the House of Commons or belonging to the
leading families in the country. This gave some security
for the exact performance of their duties. We shall,
however, have occasion to notice later the dangers to
public property which this system entailed. In general
it may be said that the rule which prevailed throughout
the English financial system of independent personal ad­
ministration of the public money by the receipt and issue
offices had the undesired result that people used for pri­
vate ends the money which they were supposed to ad­
minister in the public interest. It was a temptation to
the officials to keep large balances in order to enjoy the
interest on them, and in this way the State was deprived
of profit; moreover, the way in which the presentation
of accounts was managed led to confusion and insecurity
as to the position of the finances and resulted in actual
loss.
In the eighteenth century the originally arbitrary
assignment of the issues for the administration had
already grown into a systematic division, according to
estimates as between the different objects of expendi­
ture, of the money voted in large sums. Estimates had
indeed been made before ° with regard to the internal
a Thus as early as 1433 the lord high treasurer, Ralph, Lord Cromwell,
laid three “ establishments” before Parliament “ showing the particulars
of the whole revenues and profits of the Crown with the charge out of
them.” Cobbett, “ Parliamentary History,” vol. 1, Ju ly 8, 1433. This
was repeated frequently in the seventeenth century. Thus the lord chan­
cellor presented estimates on June 18, 1625, which contained: (1) The
estate the late King left. (2) The estate the King now stands in. (3)
How it will be in the future. The last division is divided into 10 sub­
divisions, specifying the claims for unpaid debts, outstanding payments of
subsidies, and the army. Cobbett, be. cit.




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objects of the financial administration, and the exact
development of the whole system of accounts in the
Exchequer points to their existence; but it does not
appear how far they served as the basis for expenditure.
From the time of William and Mary onward the votes in
Parliament were, however, based upon estimates, and also
the money so voted was assigned to the public offices in
accordance with these estimates.®
The expenditure on the administration of the forces
alone was the object of a special vote in Parliament,
while for the permanent expenses of the civil service the
Exchequer was supplied with permanent assignments;
consequently the making of estimates and the subsequent
division of supplies according to the establishments corre­
sponding to these estimates were confined to the navy,
the army, and the ordnance. The paymaster and treas­
urer made their claims to the Treasury in the course of
the year on the basis of the establishments, in order that
they might dispose of portions of the sums assigned to
them. The Treasury obtained the royal warrant for
this, and the payment followed according to the pro­
cedure of the Exchequer. The paymaster of the forces,
until 1758, used to receive a third of the amount for the
year every four months, subsequently he received from
a This is shown by the regular presentation of estimates and accounts
to Parliament, which estimates are given, some by Cobbett, some in the
reports of the commissions of inquiry referred to above. Thus Robert
Walpole in his “ Letter to a Friend Concerning the Public Debts, Particu­
larly that of the N avy, 1 7 1 2 ” (Lord Somers’s “ Tracts,” Vol. X I II, “ The
Debts of the Nation, Stated and Considered” ), says that in the case of
the land service “ estimates of the whole expense are given in to the
Parliament; according to those estimates the respective sums are granted
and pursuant to them establishments are made, regulating the whole
expense of the army and subject to no alteration or enlargement.”




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time to time the sums required for payment. The treas­
urer of the ordnance obtained the money for the ordnance
services every month.
The paymaster’s claims, at least during the second half
of the century, were accompanied by a statement of the
special head of the service to which the money was to be
applied and were examined by the auditor of the receipt
to see whether the sum demanded by the paymaster was
within the credit allowed him by the Treasury and whether
the latter was in accordance with the parliamentary grant.
But it was not within the province of either the Treasury
or the auditor to inquire whether there was need for the
transfer of the money at the time when it was demanded.
The way in which the money was assigned and ac­
counted for may be examined more closely in connection
with the pay office of the paymaster-general of the forces.
As soon as the supplies had been voted by Parliament
the secretary for war sent various establishments to the
paymaster-general of the forces. These stated the allot­
ment of the sum voted among the various regiments,
corps, and garrisons for officers and privates per day and
year. At the same time a royal sign manual was obtained
by the Treasury which authorized it to make over money
from time to time to the paymaster-general, out of the
money voted for the army by way of imprest, and upon
account.
This sign manual was discharged by a treasury warrant
and an order from the auditor of the receipt, and after it
had been registered by the paymaster was deposited in
the Exchequer. The paymaster was credited through the
sign manual with the amount of the sum specified therein,
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which, however, was only used through the intermediacy
of the Treasury. He stated the desired amount and the
object of expenditure to the Treasury, and received from
it an issuing letter by means of which he obtained the
money required. This continued until the credit was
exhausted. Then a new sign manual was obtained, and
so on. The last of the sums remaining out of the parlia­
mentary grant was issued under a privy seal which con­
tained in addition a confirmation of all the sums previ­
ously received. Provided that the stated objects of
expenditure corresponded to the establishments, the Treas­
ury raised no objection. The paymaster kept a cash
book in which were entered all the sums received from
the Exchequer and any other receipts (profits from bills
of exchange, deductions from salaries, etc.). He rendered
accounts of the expenditure which he had made, which
accounts were kept separate both for each object of
expenditure and for each year. Payments were made
on the basis of the accounts until the sum voted for that
particular object was exhausted. The accounts referred
to the payments made “ for the services of the year,”
not for those made during the year. Thus, with each
year fresh accounts were opened and the former ones
lapsed. A paymaster’s account were, however, never
completely discharged unless either the total sum allotted to
him had been expended or the object of expenditure no longer
existed. The payments on his accounts continued even if
he were no longer in office. Hence he and his family
retained the balance of cash for years and were also per­
manently accountable and liable for millions.




171

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It was the same in the other pay offices. In the pay
office for the navy the balance was further increased by
the fact that the money which was assigned to each sepa­
rate object was kept distinct. Hence there might be a
surplus in one case, while another object for which there
was temporarily nothing assigned that was available
remained unprovided for.
Moreover it was an old custom of the Exchequer, based
on an act of 51 Henry III (1266), that no one should be
received to account until the accounts of his predecessor
had been discharged.®
Suits between the paymasters and their subaccount­
ants, inevitable difficulties of collecting the vouchers for
accounts of payments which had to be made in all parts
of the world, and the slow procedure in the Exchequer
itself, each delayed the examination of accounts, so that
the liability of the paymasters often continued for decades
after their retirement, and throughout this time they were
obliged to have some balance in hand to free themselves
and their families from continual fear of a claim for com­
pensation.6
The commission of 1780 demonstrated clearly that the
public money was not managed in accordance with public
interests. Although its reports were at first only a state° The act runs: “ That when a sheriff or bailitt hath begun his accounts,
none other shall be received to account until he that was first appointed
hath clearly accounted and that the sum has been received.” (Burke’s
speech on financial reform, Feb. n , 1780.) Cobbett loc. cit. vol. 2 1, p. 1,
et seq.
b Thus the elder Pitt, Earl of Chatham who had retired from his
office of paymaster-general of the forces in 1755, in spite of strenuous
efforts and the prestige of his subsequent position as minister, only received
his quietus thirteen years later. (Fox, speech in Parliament, June 1 1 ,
178 1.) Cobbett, ‘ ‘Parliamentary H istory,” vol. 21.




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ment of facts which the officers of the Treasury must have
known anyhow, they became ultimately the basis of all
reforms in the management of the public money and
accounts.0 The account given in these reports of the
relation between the pay officers and the administration
of the public moneys corresponds with what we have
already stated in general form, and this is illustrated by
the following examples:
Lord Holland, who had resigned his office of paymaster
general of the forces in 1765, had received £64,000,000
during his time in office. In consequence of the pay­
ments which continued to be made on his accounts after
his resignation, the auditors of imprest did not examine
these accounts until 1776. In 1780 they were still undis­
charged and since he had died meanwhile, his heirs were
liable in his stead. The average cash balance in his pos­
session amounted to £450,000. The interest on the
balance which remained in his hands after his retirement
was reckoned at £250,000. His four next successors,
who meanwhile had themselves retired also, could present
no accounts until his were settled. The profit from
interest—i. e., the loss to the State— on their balances was
estimated at £290,000. Paymaster Rigby, who had held
the office since 1768, had had in hand since this time an
average balance of £453,000. For shorter periods larger
sums were of course held, thus Rigby during the last nine
o The commission as appointed by Lord North was non-parliamentary.
Burke, however, praised its reports thus: “ As pieces of literary compo­
sition he never saw style and manner so happily united to a subject— clear,
correct, nervous, and intelligible.” After Lord North’s fall the commission
was strengthened by parliamentary members and became the chief stimu­
lus to financial reform.




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months had had on the average £870,000. In the payoffice of the navy the payments and accounts of four
treasurers were still running on together. The first of
these had come into office in 1759, so that the accounts
for twenty-two years remained unsettled and the balances
were still in the hands of the respective paymasters.
In the case of accounts which were examined so long
after the payments had been made it was often out of the
question to obtain proof of such payment. Large sums
had to be noted as unaccounted for and payment enforced
by legal means if the Crown were not to suffer loss. Thus
since 1720, £473,000 had stood to the account of the Earl
of Lincoln as paymaster general of the forces. There
was, however, nothing in the Exchequer books referring
to the payment of the sum nor had the heirs any evidence
of payment, and they indeed declared and proved that they
had received nothing. Viscount Falkland, treasurer of the
navy, or rather his legal heirs, had been £27,000 in arrears
since 1689. It may well be understood that awakened
public opinion regarded the great paymasters as “ robbers ”
and “ plunderers,” “ enriching themselves with the spoils
of the people.” 0 The evil was not remedied until the
administration of the public money was transferred to the
Bank, and it was one of the causes which combined to
bring about such a transference.
a Robert Walpole had complained that people spoke of the “ publick
ministers” in these terms. “ Draft of an Intended Vindication of Sir Rob.
Walpole,” by himself (Walpole Papers in Coxe, “ Memoirs of Sir Robert
Walpole” ). Particularly serious accusations were made against Lord
Holland “ the grand defaulter cf unaccounted millions.” See the parlia­
mentary debates for March 8, 1780. Cobbett “ Parliamentary H istory,”

vol. 21.




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(5) The transactions between the public offices and the Bank.
Owing to the entire independence of the public payoffices as regards the expenditure and application of the
public money, no connection between the administration
of public money and the Bank was possible except by a
radical change in the principles on which the offices were
managed. The first step was to unite the public treasury
with the Bank. Such a policy had not been foreseen
when the Bank was founded. Nor were any legal measures
taken for the purpose during i\s subsequent existence.
It must be remembered that such an alteration in the
financial administration signified the abolition of the
Exchequer. The procedure of the latter was indeed com­
plicated and its business methods difficult, but its customs
had grown up in the course of centuries and use made
them appear a safe method of administering the public
finances. The right of the Crown to dispose of the public
revenue, the entire system of account keeping, and in par­
ticular the system of borrowing, were closely connected
with this procedure, which was moreover bound up with
the management of the different offices in the Exchequer;
hence the abolition of this central treasury and the crea­
tion or remodeling of a single large bank depot was impos­
sible. Such vigorous reforms, which destroy what is
customary at a blow, have never been undertaken by the
English Government at any time or in regard to any
department of the administration. Moreover, the Gov­
ernment was least of all likely to contemplate a reform of
its financial system at the time when the Bank was founded,
a time when every effort was needed to maintain a financial
system, which was threatened with chaos by the currency




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Commission

reform and the overburdening of the public revenue by
floating debts. The existing connection between the
Bank and public finance is thus a gradual growth, bound
up with the different changes made in the business meth­
ods of the Exchequer and with the development of the
management of public money by the receipt and issue
offices. And when the time came to regulate this con­
nection by act of Parliament it was merely necessary to
give legal sanction to a relationship which had already
grown up in fact.
The Bank had indeed been early concerned with the
carrying out of public monetary transactions. Its con­
cern was, however, at first, not with the Exchequer but
with the receipt and issue offices. These offices endeav­
ored to make profit out of the government money which
they had in hand so long as it was under their control,
and hence it was natural that they should look around for
a bank with which they could deposit the money. The
Bank made various efforts to secure these private deposits
of public money. It repeatedly requested the Treasury
to influence the paymasters and receivers to keep their
cash with it.® In December, 1 7 1 1 , it complained that
“ Some public offices kept their cash with others and not
with the Bank, and that the greatest part of the receiv­
ers transacted their affairs in other places, which ought
to cultivate a good understanding with the Bank from
the frequent services done them.” *6 The services thus
a “ Treasury Papers” (record office), Vol. C X V II, 23. In 1709 it
granted an advance to Sir Henry Furness, the paymaster general of the
forces, but begged him to keep his cash with it. In 1712 the same thing
happened in regard to the treasurer of the navy. “ Minute Book,” Vol.
X V II, p. 12 1.
6 ‘ ‘ Treasury Papers,” Vol. C X L, 4.

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S y stem

referred to, apart from the large advances made to, and
the loans which the Bank raised for, the Government, are
no doubt the advances which it made to the different
offices. The “ Treasury Papers ’ ’ record numerous instances
of such loans, which were made by the Bank, on security
of the usual bills, to the offices of the paymaster of the
forces and the treasurers of the navy and ordnance.
According to the records extant, these were in some cases
made through the Treasury, which negotiated with the
governor of the Bank.0 In other cases the paymaster,
after having applied to the Treasury, received from it an
order to hand over to the Bank a number of the bills
issued by the Exchequer and to receive from it the sum
required.6 The interest was agreed upon for each case
separately; c and the amounts were regularly repaid in a
short time, with interest. It sometimes happened that the
Bank refused an advance of this nature.d The Treasury
and the Bank were completely independent of one another.
During the eighteenth century the connection between
the Bank and the public offices grew continually closer.
It was, however, not the only financial institution with
which business was transacted. The elder Pitt for
example, when he was paymaster general, kept his cash
partly with the Bank of England, partly with other banks.®
But it is noteworthy that all other banks were known as
“ private” banks. And when in 1781 the renewal of the
a As in both the eases quoted.
b “ Treasury Papers,” 1709, Vol. C X L V II 7; 1 7 1 1 , Vol. X L V II, 7.
c In 17 12 the rate of interest was 6 per cent and corresponded to the
current rate on the public debt.
d “ Treasury Papers,” 1706, Vol. X C IX , 58; 1709, Vol. C X IV , 26.
f Fox, Speech in House of Commons, June 17, 1781 (Cobbett, “ Parlia­
mentary History,” vol. 21).
68299°— 1 1 —— 12




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Monetary

Commission

Bank Charter was discussed,® Mr. Ewer, the governor of
the Bank, was able to say that “ the public were by far the
best customers the Bank had.” Its credit, its power
of accommodating government, arose solely from its
being the cashier of the public.5 Lord North called the
Bank “ the public exchequer.” But it was expressly
stated that although nearly all the paymasters kept their
cash at the Bank, they could at any moment withdraw it
and place it with a private banker. The Bank acted
merely as a banker and the relation between the public
offices and the Bank was no more than that between a
private person and his banker.
But by this time it had relations with the State which
were not confined simply to the deposits of cash by the
receipt and issue offices. At the beginning of the eight­
eenth century the use of bank notes as currency had
become a universal practice. The Exchequer, or rather
its cashiers, the tellers, found themselves in possession of
a large number of these notes every day. They were,
however, liable for the balance of their money in cash,
and hence were obliged to present these notes immediately
to the Bank, in order either to obtain cash, or to be assured
that the notes were genuine. Possibly the receipt for a
payment in notes was not given until such assurance was
received. On the other hand the custom had grown up,
as early as the second decade of the eighteenth century,
a Cobbett, “ Parliamentary History,” vol. 22, debate of June 13, 178 1.
b According to the statement of the commissioners on public accounts
the following kept their cash with the Bank at that time: customs, excise,
stamp, post and salt offices, the various receivers of the land tax, the
paymaster general of the forces, the treasurer of the navy, and the treasurer
of the ordnance. Sixth report, 1781, Ap. 68.

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Banking

System

owing to the adoption as a form of currency of government
paper credit—the exchequer bills—of anticipating the
receipts of certain taxes (land tax, malt tax, sugar duty)
by an advance from the Bank on the security of such
exchequer bills, which advance was paid back as the taxes
came in. In return for bank notes or coin, a corresponding
number of exchequer bills were given back. In time also
the Bank had other claims, for the payment of the interest
and the management of the public debt owed either to itself
or to other creditors, and for the cashing of bills of ex­
change, etc. The paymasters who kept their cash with
the Bank had the money transferred to it; the receipt
offices which had deposits there or had bills of exchange
on it, drew money from it. Hence it was the center of a
great part of the system of public payments, each stage
in which (unless it was a payment from a paymaster to a
private individual third person) had to be notified to the
Exchequer, in order that the book entries which were
needed for the public accounts might be made. In this
way business relations grew up between the Bank and
the Exchequer which for a later period (the end of the
century) are described as follows:0
One or more clerks from the Bank are in daily attend­
ance at the Exchequer. The person paying in the money
deposits it with one of the bank clerks, from whom he
receives a ticket stating the receipt, the name of the person
paying in the money, and the head of revenue upon which
a “ Journals of the House of Lords,” Vol. X L I (36 Geo., I l l ) p. 196.
Inquiry into the loans made by the Bank to the Government. Interroga­
tion of the head cashier of the Bank. “ Report of the Commissioners of
Public Accounts, On the Exchequer,” P. P. 18 31, 3 13 . (Evidence of differ­
ent officers of the Exchequer, of the revenue offices, and of the Bank).




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it is paid. This ticket he takes to the teller’s office where
he himself registers the payment in a book. This entry
is checked by the teller and compared with the ticket, a
copy of which he then sends to the tally court. If the
person paying in the money has an account at the Bank
he previously obtains from the latter bank notes, rendered
unusable for ordinary circulation, for sums of £1,000 each.
At the end of the day a reckoning is made by the tellers
and the bank clerks, the payments to be made by the
Bank are compared with the money received and the
difference is paid. This payment is likewise made with
these “ cancelled ” bank notes if it exceeds £1,000. E x ­
chequer bills for a like amount can also be used. Small
sums are paid in coin. When the Bank has a larger pay­
ment to make to the Exchequer—e. g., in consequence of a
loan—this too is made with these cancelled bank notes or
with exchequer bills. These were only pass tickets which
were transferred hither and thither as evidence of credits
or debits, and to serve as a visible basis for the entries at
the Exchequer. Hence, the transactions in coin at the
Exchequer were very small. In 1797 they amounted to
between £50,000 and £60,000 a day.
It is most probable that this procedure was established
long before the time when the Bank legally took over, or
rather was charged with, certain receipts and issues. The
report of 1797 speaks of it as existing “ time out of mind, ”
and that of 1831 remarks that: “ For nearly a century the
Bank of England has sent down to the Exchequer persons
duly authorized to examine and receive its own notes.”
Also 9 Anne, c. 7, 1710, provides that exchequer bills, not
exceeding 50 in number, shall be issued for £5,000 each;
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which bills “ shall be current only as payments between the
Exchequer and the Bank of England.” It may indeed be
supposed that these payments were only made on account
of the loans which the Bank had at that time already
begun to raise, and of the obligation of the Government
to pay interest to the Bank and to cash the short-date
bills which were in the latter’s possession. As early as
1710 the Bank raised a lottery loan for the Government,0
and the floating debt which was paid off in the course of
the year amounted to over £3,000,000,* for a large part
of which the Bank was certainly the creditor.
The current payments into and withdrawals from the
Bank on the part of the receipt and issue offices may thus
have grown out of the kind of financial transactions which
arose between the Bank and the Exchequer owing to the
system of raising loans; and this to an increasing extent
as the Bank came to act more and more as a depository
of cash for these offices. But when most of the actual pay­
ments were undertaken by the Bank it seemed natural not
to give the money to the tellers merely in order that they
might hand it over to the Bank after they had subtracted
from it the balance required for their own use, but rather
to pay it direct to the Bank, which made payments for
the tellers and reckoned with them. Probably, however,
the old relation was maintained. Exchequer bills, and,
later, bank notes, were kept in the tellers’ chest, corre­
sponding to the sum which stood to their credit at the
Bank; and if the Exchequer had a payment to make, it did
this in fact by handing over to the Bank such bills or notes.




0 8 Anne, c. 4.
&Cf. “ Ret. Nat. Debt,” p. 4.
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Perhaps the exchange of exchequer bills and bank notes
may be traced back directly to the fact that the Bank was
originally a creditor of the Government. It possessed
the government bills. If the Government received money
it gave it to the Bank and redeemed its debt. Later,
when the Bank received payments, it became the debtor
of the Government. It gave up its notes, and if the Gov­
ernment made a payment through it the notes were
returned.
The date when this change occurred can not be deter­
mined. Between 1710, when the first large issue of ex­
chequer bills took place, and 1780, when the procedure
was fully developed, seventy years had passed during
which the Government had entered into the closest con­
nection with the Bank, mainly through the development
of the public debt. The reason why no legal regulation
of the administration of public money was made dur­
ing these years may be that this administration had
grown to a desired simplicity through the freedom of
action allowed to the pay offices. It is true that the
management of the public money was not legally handed
over to the Bank, but the tellers had in fact transferred
their chest to it, and managed their payments through it.
The great paymasters had done the same thing. The
final step which the Government had to make was to
declare that all such deposits in the hands of the Bank
were public deposits. The transformation of the E x ­
chequer into a mere office for keeping accounts and of the
offices of the paymasters into mere offices for assign­
ment, necessarily followed from this.

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PA R T i n .
THE LEGAL DEVELOPMENT

OF THE RELATIONS BETWEEN

THE BANK AND THE ADMINISTRATION OF THE PUBLIC DEBT
AND PUBLIC MONEY.

I. TH E B A N K AND TH E ADM INISTRATION OF TH E PU B LIC
M ONEY.

(i) The reforms in the administration of public money
between 1780 and 1834.
The financial disturbance due to the American war
and the bad administration of the North ministry led
toward the end of the eighth decade of the eighteenth
century to a general demand for a reform in the expen­
sive and insufficient financial organization, especially
with regard to the Exchequer and its dependent treas­
uries. Burke gave eloquent expression in Parliament
to this need in a speech on February 1 1, 1780, and ex­
panded his statement into a scheme for an important
financial reform.® Most of the reforms in financial ad­
ministration which were carried out during the next
fifty years owed their origin to this. Burke’s project
made appeal for a simplification of the Exchequer and
of the highly paid offices connected with it, which offices
had become mere sinecures; for parliamentary control
of the civil list, and the introduction of definite heads of
service for the civil administration; for the appropria­
tion of funds for that portion of the civil administration
which had not hitherto been under parliamentary control;
and for a reform of the pay offices of the army and navy.
In describing the latter he referred to the relations of
“ Cobbett, “ Parliamentary H istory,” vol. 21, p. 1 et seq.




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the paymaster and treasurer to the Bank. The method
of assigning money to the paymaster of the forces and the
treasurer of the navy must cease since it injured the
State and unjustly enriched private persons. The money
must no longer be paid to them but to the Bank, and they
must make their payments, with the exception of those
for small expenses, by drafts on the Bank. Both Bank
and pay offices must keep accounts which were to be
made up and audited at the end of the year. The balance
remaining was to be carried over to the next year, and
when a paymaster retired, was to be transferred to his
successor. In return for the profits made out of the
/
employment of the public money the Bank must under­
take “ the charge of the m int” and “ the charge of remit­
tances to our troops abroad.” If the Bank would not
consent to this the Treasury was to negotiate with any
other banker of repute. “ There is no banker, who will
not be at least as good a security as any paymaster of
the forces or any treasurer of the navy, that has ever
been banker to the public.”
The “ establishment bill,” which embodied these re­
forms, was thrown out by Parliament. But it led at
any rate to the appointment of a commission to inquire
into the financial administration, and after Lord North’s
fall in the following year, the new ministry, in which
Burke was appointed paymaster of the forces, began, al­
though very cautiously, to carry out reforms on the
basis of the report of the commission.
The Exchequer was first dealt with. Here the chief
advantage of the reforms was not a change in organiza-

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tion, but the fixing of definite salaries.0 In 1783 the
office of chamberlain was suppressed, and it was pro­
vided that instead of tallies, the auditor of the receipt
and the clerk of the pells should give indented cheque
receipts.6 Two years later the audit office of the audi­
tors of. imprest was abolished and in their stead com­
missioners for auditing the public accounts were ap­
pointed, whose duties, though no more extensive, were
definitely organized.0 Otherwise the receipt side of the
Exchequer continued to exist for some decades, with all
its formalities, and with the fiction that the government
money was collected in its chests, although in actual fact
the tellers’ chest had been transferred to the Bank.
The moneys of the paymaster general of the forces,
on the other hand, were transferred to the Bank in 1783/*
and this was soon followed by a similar change with
regard to the navy and ordnance offices. From this
time onward each pay office had an account at the Bank
through which sums were made over to it and out of
which its payments were made. But the conditions under
which Burke had proposed to hand over the administra­
tion of public money to the Bank were never imposed.
a The incomes of the persons holding offices in the Exchequer had
reached an unexampled amount, which was made up almost entirely from
fees. Thus in 1780 the auditor had £19,930; each of the tellers, £9,954;
the clerk of the pells, £9,543 (“ 6th Report, Com. Publ. Acc.,” 1780). On
the account side the income of an auditor, for example, amounted to
£15,000 a year (“ 8th and 12th Rep.” ). The actual work was done by
the deputies of the officers mentioned. The officers were deprived of the
right to appoint deputies by 23 Geo. I l l , c. 82, by which act also fixed
salaries were assigned to them.
b 23 Geo. I l l , c. 82. The tallies were not finally abolished until the
retirement of the last chamberlain in 1826.
c 25 Geo. I l l , c. 52.
d 23 Geo. I l l , c. 50.




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No profits accrued to the Government, neither was any
indemnity demanded by the Bank. The Bank was
still making the same tacit use of the deposits when, in
1806, its relations with the receivers-general were defi­
nitely regulated.® The excise, stamp, post, and customs
offices were ordered to pay into the Bank all moneys
received by them, with the exception of small sums,
fixed in amount by law, which might be retained for
current expenses. The account of each office was kept
in the name of the receiver-general concerned, who alone
could dispose of the money. This act also recognized
to some extent the custom which had grown up in the
practice of the Exchequer of making fictitious transfers
from the public treasury to the Bank. The payments
of the balances in the bands of the receivers into the
Exchequer was continued, but the act expressly instructed
the receivers-general to draw out the money at the times
specified in the instructions—i. e., to receive “ cancelled
bank notes,” and to pay these into the Exchequer, or,
as it might happen, to hand them over to the bank clerk
attending there on behalf of the teller. The clerk brought
the notes back again to the Bank. In spite of its com­
plexity this procedure continued unaltered until 1834.
During the period which elapsed between the regu­
lation of the receipt and issue offices and the transference
of the public treasury to the Bank a custom arose, which
was due partly to the concentration of the revenue at the
Bank, but whose original cause dates from a much earlier
time. This was the organization of those loans from
the Bank to the Government which were intended to
0 46 Geo. I l l , c. 75, 76, 83, 100.

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cover temporary excess of expenditure over income,
arising during a given financial period, when the total
expenditure during this period was covered by notes of
supply. Even in George I I ’s reign it had become usual
for the Bank to place each year at the disposal of the
Treasury, to be used as required and when convenient,
a sum in anticipation of the land and malt taxes, which
sum was specified in the act granting these taxes and was
advanced on the security of exchequer bills; it was paid
off in the course of the year as the receipts for these
taxes came in. The annual renewal of the taxes and of
the authorization of this loan from the Bank made this
running credit allowed to the Government at the Bank
play an important part in the administration of the public
moneys, and the more so considering the amount of the
receipts from the taxes. This credit did not, however,
afford the security of a regular cover for any cash deficit
that might arise. The formation of the consolidated
fund in 1787 was of importance in developing a relation
of this kind.
The disadvantages of the system of separate funds
had been pointed out in 1785 by the commissioners of
public accounts, who had suggested the formation of a
single fund into which all the public revenues should be
paid and out of which all public expenses should be met.a
This proposal led to the formation of the consolidated
fund by 27 Geo. I l l , c 13. A portion of the permanent
taxes was united under this name and was earmarked
for permanent expenditure, such, for example, as the
interest on the public debt. But the receipts covering




0 13th report.

187




the civil-list expenses were still kept distinct as was also
the revenue from taxes voted annually. The receipts
forming the consolidated fund might only be used for
the purposes to which they had been expressly assigned
by Parliament. With the exception of the interest on
the public debt these were mainly the payment of pen­
sions and of such expenses of the civil service as were not
already provided for in the civil list. The distinction
between those expenses of the civil list which concerned
public administration and the personal income allowed
yearly to the sovereign, the civil list in the continental
sense, was first made in 1830, at which date these ex­
penses were already charged upon the consolidated fund.
From this time onward there remained only the fund
and the annual supplies.
When the consolidated fund was formed it was chiefly
applied to meet quarterly expenses of a permanently
recurring type. The act establishing it provided that,
at the end of each quarter, no money was to be issued
from the fund until a sufficient sum had been set apart
to cover the specified quarterly charges. It was hoped
in this way, as far as possible, to retain the receipts
assigned to make up the fund until the end of the quarter.
Should there be a deficit it was made good out of the
annual supplies for that year. A surplus was “ applied
in the first instance to replace advances to make good
the deficiency of a previous quarter, and then as Parlia­
ment might determine.” This system had the serious
disadvantage that “ the surplus income of one quarter
could not be made available to cover the deficiencies of a
previous quarter until the termination of the quarter in

T he

E n g l i s h

B a n k i n g

S y ste m

which such surplus might arise.” ° This defect was
remedied in 1817 by 57 Geo. I l l , c. 48, which act author­
ized the Treasury to cover a deficit in the consolidated
fund by borrowing from the Bank on the security of
exchequer bills. These exchequer bills, usually called
“ deficiency bills,” were paid off in the course of the
quarter in which they were issued, being discharged by
degrees as the revenue forming the fund was paid in.
A similar plan was adopted to cover any deficiency
that might arise in the supplies voted yearly—the ways
and means. The malt and sugar taxes which were voted
yearly had for a long time been assigned to this purpose,
and “ it was the practice to include in the act granting
them a provision for raising money by the issue of E x ­
chequer Bills charged upon these duties, and thus to pro­
vide funds for making good any temporary deficiency of
these Ways and Means to meet current Supply charges.” h
These so-called malt or sugar bills could then be used to
meet a temporary deficit. This practice was altered in
1830. An act, 11 Geo. I l l , c. 2, then provided that a
sum should be assigned out of the consolidated fund as
“ Ways and Means for the Service of the year,” on such
a plan that exchequer bills might be issued up to the
amount so assigned and might be “ charged on the grow­
ing produce of the Consolidated Fund in the next succeed­
ing quarter to that in which they were issued.” The
Bank of England was authorized to make such loans to
the Government, from time to time, as the needs of the
supply services required and the exchequer bills were
0 “ Report on Public Income and Expenditure,” 1869, 366, p. 519.
& Ibid., p. 520.




18 9




N at ion a l

M o net ary

Commission

handed over to the Bank, which advanced the necessary
sums. These ways and means bills resemble the deficiency
bills, “ except that they were made payable out of the
growing produce of the Consolidated Fund in the following
quarter, and the money raised upon them was appli­
cable to Supply Services only.” Their issue has continued
since 1830 in the way described.®
These temporary advances from the Bank to the
Government appear in the form of an unfunded debt.
Had they been nothing further they could not claim
much importance. But they differed fundamentally from
the other temporary loans which the Bank made to the
Government at the end of the eighteenth and beginning
of the nineteenth centuries. They can not be looked
upon merely as unfunded debt. The reason for their
existence is to be found in certain operations in the
management of the public moneys, which were regularly
carried out in this way. They led to organized and regu­
larly recurring transactions between the Bank and the
Government, which transactions prepared the way for a
complete transference of the management of public money
to the Bank.
(2.) The union of the public treasury with the Bank {1834).
Notwithstanding the attempts to reorganize the special
offices and various points in the managment of the public
money, the Exchequer itself, although the object of
repeated complaints, had undergone no complete reforma­
tion. Its existence was no longer justified. Its actual
0 For the arrangement of these advances from the Bank to the Govern­
ment cf. “ Report on Public Income and Expenditure,” 1869, 366, 1, pp.
519 and 520.

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functions were to direct the Bank to transfer public
money to the paymasters, or to carry out such payments
as were, in accordance with custom, made by it; to check
the assignments made by the Treasury, and to keep the
public accounts, though it did not audit the returns
made by the accountants, which business had been in­
trusted to a separate audit office as early as 1786. These
functions required no such official apparatus and com­
plicated procedure as were still retained. During the
thirties this gave rise to continual demands for changes.
In 1830 a commission was appointed to inquire into
“ the charges of managing and collecting the Public
Revenue,” and this was followed in 1831 by a commis­
sion to “ examine into the practice of the Exchequer
with respect to the Receipt and Payment of the Public
Money and the mode of keeping the Accounts thereof.” 0
This latter commission presented its report in the same
year.6 Its proposals became law and the receipt side
of the Exchequer was entirely remodeled by 4 Will. IV,
c. 15 (May 22, 1834).
The offices of the auditor, the clerk of the pells, and
the tellers and the “ offices subordinate thereto” were
abolished, compensation being paid to those holding
them at the time, and the public moneys were to be paid
into the Bank to the account of the Exchequer. The
former exchequer staff was replaced by the following
officers:
a Thomas, loc cit., p. 29.
b The minutes of evidence, documents, and proposals of the commission
appointed on Ju ly 8, 18 31, are contained in the “ Report on the Exchequer,”
P .P ., 18 31, 313.


L


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(1) The comptroller-general of the receipt and issue of
His Majesty’s Exchequer. The comptroller had an assist­
ant comptroller and various other officers under him. He
exercised the combined powers of the auditor and of the
clerk of the pells. He kept the books and records referring
to the receipts and expenditures. All orders for issuing
public money must pass through his hands and be regis­
tered by him. He must satisfy himself that such orders
were in conformity with the royal order or with the par­
liamentary grant. He had direct control over the
exchequer account at the Bank, and presented accounts
himself to the Treasury.
(2) The Bank of England. The Bank undertook the
duties of the tellers. It received the public moneys and
managed the issues under the warrant of the comptroller.
It was responsible to the comptroller and to the Treasury.
(3) The paymaster of the civil services. A single pay­
master was appointed by the Treasury to make such pay­
ments as had hitherto been “ payable in detail at the
Exchequer,’’ viz., salaries, allowances, pensions, etc. These
payments were all connected with the civil service, since
the army already possessed its own paymaster-general.
The paymaster of the civil services and his subordinates
had no independent position but constituted a department
of the Treasury.
The principles adopted for the management of the pub­
lic money were as follows:
(1)
All moneys payable to the Government were paid
into the Bank either directly or through the intermediacy
of the receivers.

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(2) All public money held by the Bank was to form a
single fund known as the “ account of His Majesty’s
Exchequer.” But separate accounts were to be kept for
the public offices corresponding to the separate services.
(3) The exchequer account was available to the comp­
troller-general only and he employed the same on the
receipt of warrants from the Treasury, which warrants
must rest either on an order under the royal sign manual
or a grant of Parliament.
The paying in of money was accompanied by duplicate
specifications or statements of the particulars thereof,
which had been countersigned by the comptroller. One
of these duplicates was signed by the cashier receiving the
money for the Bank, the other was retained by the Bank.
At the close of the day the Bank transmitted the specifica­
tions received to the comptroller, and sent a copy to the
Treasury as a statement of the money received by it, the
issuing of which was now managed by a new method of
assignment.
The distinction between appropriation, supply, and
civil list services had already been simplified, through the
formation of the consolidated fund, into a division between
the expenses charged to this fund and those not so charged.
But when the old exchequer offices were abolished and the
comptroller-general was appointed, the method by which
this assignment proceeded was changed. The issue of
money for the consolidated fund services was made by the
Bank on the authority of an exchequer warrant from the
comptroller-general, who was in his turn empowered by a
treasury warrant referring to the act of Parliament by
which the expenditure in question was assigned to the
682990— 1 1 ----- 13




193




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Monetary

C o mmi s s i o n

consolidated fund. The assignment of money for the
supply services was based upon a procedure specified in
detail by 4 Will. IV, c. 15, the stages of which were as
follows:
(1) The annual supplies are granted to the Crown by
the House of Commons in committee of supply and placed
at the disposal of the Treasury by a special act—the ways
and means act.
(2) The Crown transfers to the Treasury the right of
making issues of public money by royal order, which
empowers the comptroller of the Exchequer to assign the
whole amount of each separate vote under the direction of
the treasurer.
(3) The Treasury authorizes the comptroller by warrant
from time to time to issue exchequer warrants, and by
these to empower the Bank to place at the disposal of a
paymaster the full amount of any separate vote. This
procedure constitutes the general basis for the credit
allowed to the paymasters at the Bank. In order that
this may be used—
(4) The Treasury instructs the comptroller from day
to day to authorize the Bank to place at the disposal of the
paymaster the sums demanded by the latter.
(5) The comptroller then issues the warrant correspond­
ing to this demand, and
(6) The Bank finally withdraws the required sum from
the total revenues entered to the exchequer account and
transfers it to the account of the paymaster.
No fundamental alteration was really made by these
provisions. Instead of the separate appropriations
hitherto usual, the greater part of the expenditure was
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now, once for all, appropriated to the consolidated fund.
The inclusion of the civil list expenses in this appropria­
tion was a fundamental extension of the right of appro­
priation, but did not alter the right of assignment which
was determined by the appropriation. The control of as­
signment formerly exercised by the ancient Exchequer was
now naturally transferred to the comptroller. The special
assignment orders used when loans were raised, ceased
of themselves with the organization of the public debt.®
The payments were made by the Bank on checks from
the pay offices, and the sums paid debited to the accounts
of the latter. The Bank sent a daily return of such pay­
ments to the comptroller and a weekly return of the
receipts and payments of the latter to the Treasury.
The separate accounts at the Bank and the powers
of the public offices to use the same were regulated by a
treasury minute of September 26, 1834.6 The accounts
of such public offices as had possessed them since 1806
were once more expressly recognized as public accounts;
payments into these had to be made daily by the offices;
their own expenses of management might be met partly
by the retention of a small cash balance, partly by checks
drawn on their accounts; transfers from the exchequer
account were made three times a week. In addition to
the exchequer account and to the already existing accounts
of the paymaster-general of the forces and of the exchequer
bills, four fresh credit accounts were opened as a pre­
liminary measure, with the following “ public account­*1
edThe forms for royal orders, treasury warrants, and exchequer warrants
were determined by a minute of Sept. 26, 1834. (Printed in “ Rep. on
Public Money,” 1856, Ap. 1, p. 479.)
&This minute is printed in the “ Report on Public Monies,” 1856, Ap.
1, p. 471.




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ants” : the paymaster of the civil services, the master of
the mint, the commissioners for the reduction of the
national debt, and the governor and company of the Bank
of England.®
The internal constitution of these accounts was some­
what different from that hitherto customary. The re­
ceipts of the offices possessing accounts and the pay­
ments made from one office to another in the course of
administrative business were distinguished from the
transfers made from the Exchequer, and the Bank was
instructed to open a cash account for the former and an
exchequer credit account for the latter and to place them
at the disposal of the offices. Payments could be made
from both, but the rule was that the cash account must
be exhausted before the credit account was drawn upon.
This separation of accounts made it for the first time
possible to check the issues of money from the central
treasury, which was represented by the exchequer account.
The ancient central treasury was entirely abolished by
these changes. After 1834 it was no longer possible to
speak of a central public treasury unless by this the Bank
was meant. There was nominally no official of the old
receipt side of the Exchequer remaining. Its functions
were, however, partly exercised by the comptroller-general,
who, indeed, retained the name of the original central
authority for administering public money and accounts—
the Exchequer—although he was only “ a sort of shadow
of the Ancient Exchequer.” The audit office had long
ago been separately constituted, and now the Exchequer,
as an office for managing the public money, disappeared.
0 “ Report on Public Monies,” 1856, Ap. 1, p. 476.
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It continued merely as a bookkeeping office for the con­
trol of the Treasury, the position and further develop­
ment of which are connected with those of the audit
office which will be dealt with below.®
(j) Reforms in organization and administration between
1834 and 1866.
The act of 1834 gave legal recognition to the principle
that all public money should be intrusted to and adminis­
tered by the Bank until it was actually expended. This
plan had already been adopted in practice, so that there
was a positive advantage in the resulting abolition of the
Exchequer. The consequences which might have followed
from a complete reorganization of the system of making
payments were not entailed. The evils of earlier times
were only in part removed. The receivers paid in their
net receipts only. The issues were still managed as
before by a division of the money among numerous special
offices, each of which was authorized and, indeed, obliged
to keep a large balance in its account in order to meet
the current claims for payment. The receivers were
under the control of the Treasury. The issue offices were
supervised by their respective administrative authorities.
Ih e comptroller-general controlled only the net public
revenue and the payments made from this in lump sums
to the numerous pay offices, which sums had been assigned
to the different services by parliamentary vote.
But a basis was now secured from which the whole
system of expenditure might be simplified, an economical
use of the cash balances might be made, and a single
a The name “ Exchequer” is still always used to denote a nominal con­
centration of the public revenues. The expressions, issues from the E x ­
chequer, loans to, and payments into the Exchequer, are still always used.




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effective control be maintained. Reforms aiming at
these results were in fact carried out zealously during
the next decades, and especially by parliamentary
activity. When the Bank undertook the entire adminis­
tration of the public money, all the technical advantages
of banking were placed at the disposal of the Government;
hence the question naturally was how to use this connec­
tion with reference to the aims specified above. For this
purpose the essential requirement was to centralize the
system of payments as far as possible, so as to give to the
Treasury and audit office the necessary check on the
position of the finances. This task was accomplished
by various acts of Parliament and orders, which form
the transition to the present system.
The consolidation in 1836 of the pay offices of the pay­
master of the forces into the single office of the paymastergeneral was the first step toward a consolidation of the
system of issues. The abolition of the paymasters of the
civil services and of the exchequer bills in 1848 and the
transference of their functions to the paymaster-general
completed this process. All issues for administrative
purposes were concentrated in one hand. The functions
of this consolidated pay office were regulated by treasury
minutes, not without opposition on the part of the comp­
troller-general.0
° The most important of these treasury minutes printed in the “ Report
on Public Monies,” 1856, Ap. I, p. 491 et seq. are those of Aug. 19, 1836, and
Nov. 19, 1836, on the consolidation of the separate pay offices of the
paymaster of the forces, and of Dec. 22, 1848, by which the abolition of
the remaining special offices and the final regulation of the head pay office
were accomplished. Lord Monteagle, the comptroller - general, raised
objections to the latter minute on the ground that it concentrated the
public monies in the hands of the paymaster-general and allowed him
to apply it at will to the different public services.
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S y s t e m

Whereas hitherto the public money had been trans­
ferred from the exchequer account to those of the dif­
ferent paymasters, in accordance with the demands
which the latter made to the comptroller-general through
the Treasury, now only the account of the paymastergeneral was supplied from that of the Exchequer. The
more the issue accounts were divided and the more
completely the payments from the Exchequer were sepa­
rated, so much the more readily could the comptroller
follow the course of the payments. Thus in the civil
service the practice had hitherto been followed of open­
ing an account at the Bank for every separate vote of
Parliament. The balance standing to the credit of one
account might not be used for payments which had to
be entered under a different vote. Thus a check was at
once put upon any misapplication of the money. When
the consolidated pay office was created, however, this
useful system was not only extended no further, but was
completely done away with. The gain in simplicity and
distinctness seems the less valuable owing to the loss of
any method of checking the assignment of money, that is,
so far as a strict subsequent control does not render the
earlier check superfluous. The development of this
branch of the system of control since the institution of
the commissioners of audit in 1785 must be briefly de­
scribed here in order to make what follows more com­
prehensible.
The commissioners of audit succeeded to all the official
duties of the auditors of imprest. They were subjected
by law “ to the same control to which the auditors of the
imprest were then subject or liable by law, usage, or




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custom.” And by their patent they were empowered “ to
audit and determine accounts by and with the advice,
authority, and consent of the Lords of the Treasury and
Chancellor of the Exchequer.” Thus they were entirely
dependent on the latter, except in so far as their functions
might be widened -by law. This happened as early as
1799 when, by 39 Geo. I l l , c. 83, the auditors of the
land revenue were discontinued, and their powers trans­
ferred to the commissioners of audit. a In the following
year their powers were still further increased.6 but this
audit had always one great defect; it was not independent
and did not extend over the whole of the public expendi­
ture.
2 Will. IV, c. 40 marked the beginning of changes of a
different type. This act transferred to the auditors the
detailed audit of the navy accounts on such terms that
they not only checked the actual payments but also the
correspondence of these with the parliamentary vote.
This was the appropriation audit, the audit whose object
it was to ensure that the money was spent according to
the appropriations made by Parliament. It marks the
transition from a system of administrative to one of
a In consequence of reports issued by select committees from 1792 on­
ward, with regard to the position of the finances and especially to the
system of public accounts. See in particular the report in 1797 on audit­
ing the accounts of the public receipt and expenditure. “ Reports of
Committees of the House of Commons,” Vol. X II, Rep. 22. [The Reprints
of 1803, 16 vols., fol.]
b B y 39 and 40 Geo. I l l , c. 54, they were empowered to recover balances
due to the public accountants after the accounts had been audited, and to
charge interest in case of delay. 45 Geo. I l l , c. 91 and c. 14 1, regulated the
technical procedure of the audit; by 2 and 3 Will. IV, c. 26, the audit
of the colonial accounts, and by 2 and 3 Will. IV, c. 99, the audit of the
Irish accounts were entrusted to them.

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legislative control. The latter, however, was still very
limited. The auditors had no connection with Parlia­
ment and could not express their opinion publicly about
abuses, but only through a memorandum to the Treasury.a
The total expenditure was of course subjected to that
control which, since the abolition of the public treasury
and the transference of its functions to the Bank of
England, had been vested in the comptroller-general.
But this afforded no satisfactory check on the applica­
tion of the money voted by Parliament and thus had to
be extended by the appropriation audit of the auditors.
This was itself unsatisfactory in its existing form. The
remaining offices on the account side proved themselves
more and more superfluous in connection with the growing
functions of the commissioners of audit. The accounts
of the clerk of the pipe might be replaced by the books
kept by them and by the comptroller; the associated
offices might be simplified. This was accomplished by
3 and 4 Will IV, c. 99, which abolished all head and
subordinate offices on the account side with the exception
of that of the King’s remembrancer, so-called, which was
united with the Court of the Exchequer.
During the following years all attempts at reform
were directed toward extending the audit and making
it more efficient, while at the same time improving the
system of accounts. The powers of the auditors were
increased by 10 Viet., c. 92, which act introduced the
appropriation audit into the departments of the War
Office and Ordnance. In 1849 they were empowered to
“ Report of the Audit Office on “ The Functions of the Committee of
Audit,” 1851, in “ Report on Public Monies,” P. P. 1858, 375, p. 836.




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present a yearly return to Parliament of the appropria­
tion audit.0 Bookkeeping by double entry was gradu­
ally introduced b and the whole system of account keeping
and audit was subjected to a detailed inquiry.0 Two
tendencies become evident from this. From the tech­
nical standpoint the aim was to simplify both the offices
and their functions and to secure a proper exercise of
the latter; but from the legal and political standpoint
the aim was to strengthen the control of the Treasury
and to combine this with the right of Parliament to
control the application of the public money.
English parliamentary history contains instances, dat­
ing back to the ear best times, of the exercise of parlia­
mentary control over expenditure.d The numerous com­
missions of inquiry and interpellations of ministers supply
a continual series of assertions of this right during the
eighteenth century. But no fundamental conception
a “ Treasury Minute,” Apr. 13, 1849.
b “ Treasury Minutes,” Sept. 26, 1834, Aug. 19, 1836, May 9, 1837, Aug.
22, 1848; “ Report on Public Monies,” P. P., 1856, 375, p. 476 et seq.
c In addition to the twenty-second report of the finance committee of
1797 the following reports for the earlier period should be noticed: The
fifth report of the committee of 1810 (P. P., 371), the tenth report of
the committee of 18 11 (P. P., 253), the fifth report of the committee
of 1819 (P. P., 539), the evidence before the committee of 1821 (P. P.,
284). Further: for the naval and military accounts, P. P., 1856 N. 160;
for the whole system of public accounts and public money the “ Report
on Public Monies,” 1856 N. 375 and 1857 N. 279, and, finally, the yearly
reports of the select committees on public accounts since 1861.
d The earliest instance was in 14 Edw. I l l (1340). William de la Pole
and John Charnels were summoned to appear before certain persons
specified by Parliament and present accounts of their receipts and expen­
diture (Hatzell “ Precedents,” 'vo l. 3, p. 72). Richard II appointed a
commission in 1380, at the request of Parliament, and authorized it “ examinandi et supervidendi quascunque summas et modum expensarum ac
statum hospitii nostri” (Rym er’s Foedera,” Vol. V II, p. 250). These
instances become much more numerous during the succeeding years.

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of a control extending over the entire management of
the public money was attained until the middle of the
nineteenth century, just as it was only in this century
that the whole administration of finance began to be
organized on one definite principle. Parliament, when
it has secured complete power over the public revenue
and expenditure, ought also to control the administration
of this money. But since it can not undertake this
itself, the controlling authority must be made entirely
independent of temporary governments and put into
direct connection with Parliament.0
This was the state of the system of control when,
owing to the consolidation of the pay offices and the
problems connected therewith, Parliament had the oppor­
tunity to make a thorough investigation. In 1856 and
1857 the organization of the receipts, issues, and audit
was carefully examined by the committee on public
monies. The chief object was to solve the problem
connected with the consolidation—i. e., to determine
in what way this concentrated pay office could be sub­
jected to an effective control. Owing to its history,
the Exchequer, or rather the comptroller-general who
aThese ideas are most clearly expressed in the “ Observations” by the
comptroller-general, prepared at the request of the select committee on
public monies in 1857, on the “ Memorandum on Financial Control,”
by the chancellor of the exchequer laid before the committee in the same
year. The comptroller states: “ I deny that such confidence in the Execu­
tive Government is, has been, or ought to be recognized in any free State.
On the contrary, it is constitutional jealousy and not confidence upon
which our institutions are founded and on which the safety of the liberties
of England depends. * * * The Comptroller-General of the Exchequer
is an officer of the Crown, but he is also, most wisely, made responsible (4
Will. IV, c. 16, s. 2) to both Houses of Parliament. On the maintenance of
this principle the very existence of our constitution depends.” “ Report
on Public Monies,” P. P., 1857, 279, pp. 67, 68.




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had replaced it, already, in relation to the assignment
of money, checked the legality of the payments made
in consequence of this assignment. So long as the E x ­
chequer was still the public treasury this check was
simple and natural. But after the transference of the
public money to the Bank, and the formation of the
single financial office of the paymaster-general, the power
of the Exchequer was limited to the opening of accounts
at the Bank, and the actual payments were made outside
its sphere of observation. If its control were still to
extend over these latter, the facility with which pay­
ments could be made must be thereby lessened. The
most important opponent of control through the E x ­
chequer has stated these contradictory demands in
expressing his adverse judgment: “ The worst part of
the Exchequer system is the attempt to carry out a scheme
of separate Exchequer Credits upon hundreds of heads
of service through the daily operations of cash, instead
of confining the credits, as the French do, to the annual
votes or “ Legislative credits. ” The breaking up of annual
votes into daily credits with a specific appropriation of
each daily credit, which must not be extended, would be
fatal to simplicity and regularity of payment and account,
even if the plan could be carried out in practice. ” a
In answer to the just complaints about the financial
administration, which were made by the controlling
authority, viz, that it disregarded the appropriation made
by Parliament, that it permitted illegal application of
money and even allowed payments for purposes not
“ W, G. Anderson, principal clerk of the financial business of the Treasury,
in his “ Rem arks” on Lord Monteagle’s “ Memorandum on the Exchequer,”
1854, “ Report on Public Monies,” 1856, Ap. 1, p. 560.
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System

sanctioned by law,® the main argument was that no control
ab ante could prevent such abuses. The result was that
the positive proposals made by the select committees of
1856 and 18576 were to leave to the comptroller-general,
as before, the control of the general assignments, but in
addition to appoint officers under the commissioners of
audit for each department of the public service, who
should check the daily payments of the department and
report on any irregularities. Moreover the accounts of
the public departments were to undergo an additional
examination and two accounts were to be submitted to
Parliament: the finance accounts, which were merely
an unaudited statement of the receipts and issues of the
Exchequer, on the part of the Treasury, and the appro­
priation accounts—i. e., public accounts based on an
examination and checking of the actual expenditure.
These proposals were carried out in 24 and 25 Viet., c. 93;
28 and 29 Viet., c. 93, and 29 and 30 Viet., c. 39, and form
the basis of the present system of accounts and audit.6
The position of the pay offices remains undisturbed thereby ,d
and the control is in principle satisfactory.
a Thus in the year 1852-53 a contract was concluded by the Admiralty
for the cession of the patent for a ship’s screw for £10,000. This sum was
paid out of one of the grants for the civil service. It was not included in
the estimate until 1853-54 when the money was refunded out of this vote.
b “ Report on Public Monies,” P. P., 1857, 279, p. 3 el seq.
c B y 54 Viet., c. 24, the Treasury was authorized to apply charges and
fines paid into the Exchequer to services for which notes had been granted,
subject, however, to the subsequent approval of Parliament.
d “ Report on Public Monies,” P. P. 1857, 279, p. 3 et seq. “ Your com­
mittee are satisfied, from the evidence taken before them, that the consoli­
dation of the Pay Departments has been attended with public benefit;
that it has diminished the balances left in the hands of the public account­
ants to the crown; that it has increased the security of public money and
promoted economy.”




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Next to the consolidation of the pay departments the
organization of the payments of the revenue departments
has been the most important step taken since 1834 with
regard to the administration of public money. The sys­
tem which had prevailed in earlier times of earmarking
different heads of revenue for specific purposes was
adhered to for many payments until the middle of the
nineteenth century.® Hence the revenue coming into the
Exchequer was diminished not only by the expenses of
collection and management but also by those payments
which, owing to this system, were not checked by the
comptroller-general before they were made. The com­
missioners of 1831 had already recommended “ that the
gross receipts of public money from any sources should
be placed without deduction in the custody of the E x ­
chequer and be accounted for to Parliament, whose au­
thority should be necessary for the appropriation of the
whole.” 5 This proposal was, however, with the exception
of minor provisions,0 not carried out until 1854 when
Gladstone caused an act to be passed dealing with the
matter. B y 17 and 18 Viet., c. 94, all payments still
charged upon certain specified branches of revenue were
transferred to the consolidated fund. Although it was
not stated in the act, the necessary consequence was that
a A list of the payments made'directly through the revenue departments
is given in Schedules A and B of 17 and 18 Viet., c. 94.
i> “ Report on Exchequer,” P. P., 18 31, 113 , p. 4.
c B y a treasury minute of May 2, 1848, the custom pf the army and navy
departments of deducting from their yearly claims the sum received from
the sale of old stores was discontinued. The receipts were transferred to
the Exchequer and the expenses stated fully. B y 14 and 15 Viet., c. 42, it
was enacted that the costs of managing public property should be provided
by Parliament.

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now the gross revenue of the State was paid into the
Exchequer, through which all payments had to be made.
But to pay in actually to the exchequer account at the
Bank, the revenues raised throughout the country, and to
pay them out again to the collectors or other local officials
(agents, commissioners) to meet local expenses, would
have been exceedingly difficult and fatal to an economical
administration. The object in view was merely to place
all receipts and all issues under a central control and under
Parliament, which latter must secure a knowledge of the
total payments from the public accounts which were based
on the exchequer accounts. Only in bookkeeping was it
necessary that all the receipts should be paid into the
Exchequer, and all payments be made from it.
It was with this aim that the payments of the revenue
departments were regulated by the treasury minute of
August 22, 1854.® The minute distinguished between pay­
ments and advances. The former are, as before, deducted
from the sum to be paid into the Exchequer; the latter
are partly expenses of management, partly expenses for
other public departments, which have to be returned to the
revenue departments, and are paid in to the Exchequer as
part of the receipts.
The “ exchequer and audit departments act 1866”
(29 and 30 Viet., c. 39) 6 provided a definite organization
for the system of receipt, issue, and audit. Section 10
provided expressly that the total gross revenue shall be
a “ Report on Public Monies,” 1856, Ap. 2, p. 578.
b The act is entitled: “ An Act to consolidate the Duties of the Excheq­
uer and Audit Departments, to regulate the Receipt, Custody, and Issue of
Public Monies, and to provide for the Audit of the Accounts thereof.”
Supplemented by the Public Accounts and Charges Act, 1891, 54 Viet.,
c. 24.




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paid into the exchequer account, a rule hitherto onlyapplied indirectly through the charging of all expenditure
to the consolidated fund. At the same time the revenue
departments retain their right to advance money, for
themselves and on behalf of other departments, to be
repaid subsequently. As regards the management of the
issues it is stated as a principle that the moneys paid into
the exchequer account are to form one fund in the books
of the Bank. Without prejudicing the control exercised
by the comptroller-general in reference to the separate
assigments, the Treasury is authorized to check the
issues and to restrict to the money required for making
current payments the sums transferred to the paymastergeneral and by him to the different departments. Thus
the rule, which had been followed in the management of the
public money since the beginning of the century as the
chief axiom of an economical system, was now legally
recognized.
The right of assignment and the manner of using it
remained unaltered. The act itself distinguished between
the right of disposing (i) of the issues for supply services
(s. 14) and (2) of the credits for the supply services
(s. 15). The Treasury obtained a right to the former on
royal order, and to the latter on the authority of the
ways and means act. The procedure was that already
described.
The system of audit was fundamentally altered, the
office of comptroller-general being united to that of the
chairman of the commissioners for auditing the public
accounts. The office thus constituted, that of the
“ comptroller and auditor-general,’’ resembled that of the
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S y s t e m

president of the highest court of audit in a continental
country. He and his deputy held their offices “ during
good behavior,” and could only be removed by the Crown
on an address from both Houses of Parliament. They
might hold no other office nor be members of either
House of Parliament. The comptroller-general organized
the internal arrangements of his department and, in con­
cert with the Treasury, prescribed the accounts and books
to be kept in each department of the public service.
The centralized bookkeeping managed by the comp­
troller-general was abolished. But all the departments
paying money into the Bank had to send accounts of
these payments to the comptroller-general, who also
received a daily return from the Bank with regard to the
exchequer account, made out in the form prescribed by
the Treasury. These enabled him to learn the position of
the total finances and helped to form the basis of the con­
trol which he exercised.
The auditor-general exercises a double control:
(a) The sums voted for the annual supply services are
placed at the disposal of the Treasury by the Bank upon
his authority alone; and only by his instructions may
the Bank advance money to meet a deficit.
(6) He also exercises the controlling functions which
belonged to the auditor, and in an extended form. He
audits all the accounts of the public expenditure “ on
behalf of the House of Commons” (s. 27). He audits
the accounts of the receivers only so far as the Treasury
assigns him this duty. He has access to all documents
relating to the accounts. He examines firstly whether
the assignment was correct; secondly, whether the pay682990-- IX ----- 14


L


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Co mmi s s i o n

ment thus assigned has been made, and, thirdly, whether
it was in accordance with the appropriation. The ac­
counts of the civil service are audited each year in detail.
Those of the army are too complicated, and hence only a
test audit is made by which in each year about one-sixth
of the total expenditure is checked in detail.0 Every year
he prepares an appropriation account over the actual pub­
lic expenditure, compares it with the sums voted, and lays
it, together with his own comments, before Parliament.
II. TH E

BANK

AND TH E

ORGANIZATION

OF TH E

PUBUC

DEBT.

The administration of the English public debt during
the eighteenth century acquired its distinctive character
from a variety of causes. The creation of the com­
panies through the incorporation of debt; the varying
share taken by them in its administration; the creation
of a special form of debt through the exchequer bills and
the various forms of ay loannnuits; and the growth of
the public debt itself, all contributed to this. During the
nineteenth century, on the other hand, no new feature
was added to the character already formed. Two points
should be noticed with respect to the growth of the
English public debt during this century—on the tech­
nical side the ever-increasing connection with the Bank
of England; and, as regards the actual administration,
the endeavor to take in hand seriously the problem of
redemption. The eighteenth century witnessed the forMinutes of Evidence Taken before the Committee Appointed to
Inquire into the System of Military Account and Estimate in India,”
1880. Evidence of R. E. Welby, assistant financial secretary of the treas­
ury, on the procedure in England.

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mation of the enormous English debt; the nineteenth
century marked the beginning of its systematic repay­
ment. There were no ftesh issues until at the beginning
of the 20th century—due to the South African War and
the China Expedition.
The history of the administration of the English public
debt so far as the peculiar character of its technical
organization is concerned, really ends with the eighteenth
century. The further developments are only the results
of the principle established in the course of this hundred
years. They are merely applications of one fundamental
idea to new cases. Hence our account may here be brief,
and the more so since the most important part of the
history of the English debt during the nineteenth century,
viz, the account of its redemption, falls outside of the
scope of a work which is concerned only with the admin­
istration of the debt through the Bank.®
In consequence of the French war the English Govern­
ment was continually forced to raise loans; both funded
and unfunded debt increased to an enormous extent from
1790 onward into the first decade of the nineteenth cen­
tury. It was obvious that it was impossible under the
circumstances to think seriously of breaking the connec­
tion with the Bank of England and handing over the man­
agement of the public debt to, say, the South Sea Company,
as was proposed in 1797. The Bank was indeed the most
effective support of public credit at this time, being always
a For an account of the redemption see Leroy-Beaulieu, “ Traits de la
science des finances,” Vol. II, Bk. II, ch. ix. This account, however,
is incomplete in regard to the history of the different sinking funds. (See
also Report by the Secretary and Comptroller-General of the Proceedings of
the Commissioners for the Reduction of the National Debt, from 1786 to
Mar. 3 1, 1890, 1891, C. 6539.)




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able to supply the needs of the Government either from
its own resources, or by acting as an intermediary for others.
The South Sea Company decreased in importance and
subsisted on the remnants merely of its early significance.
Its administration of the £20,000,000 of debt intrusted
to it continued into the nineteenth century. No further
sums were borrowed from it. The debt still owing to it
was diminished by frequent repayments, so that by 1853
it was reduced to £9,000,000. Finally in this year Glad­
stone brought forward a project to pay off this debt alto­
gether, or rather to transform it into an annuity-bearing
debt under the management of the Bank. More than
£7,000,000 was paid back in cash to creditors who would
not agree to the project, the rest was converted, partly
into 2F2 per cent annuities, partly into a debt created by
the same act (16 Viet., c. 23)—the exchequer bonds.
Neither was redeemable by the State until 1894. The 3
per cent consols were converted into 2 ^ per cents from
April 5, 1889, by Mr. Goschen, and into 2 % per cents from
April 5, 1903. Three large issues of consols were made at
the beginning of the twentieth century, owing to the Boer
war and the China expedition. Since the end of the
eighteenth century the Bank had continually acted as
intermediary in raising loans for the Government, and the
total public debt administered by it amounted to nearly
£800,000,000 at the conclusion of the French war. Thus
all external motives for depriving it of this function had
now completely disappeared and it has since continued
undisputed administrator of the public debt.
Since 1750 the government debt to the Bank had, with
the exception of a temporary loan (1816) which was soon
2 12

The

E n g l i s h

B a n k i n g

S y s t e m

repaid, only undergone one alteration: In 1834, £671,700
had been paid back, so that it now amounted to £ 11,0 15 ,ioo.° The interest was paid out of the permanent annual
charge for the National debt.6 The government debt to
other creditors, administered by the Bank, was reorganized
many times, but the same work was required from the
Bank after these changes as before; it raised fresh loans,
opened books for the public creditors, paid the interest,
redeemed the capital, arranged for the exchange of bonds
when there was a conversion, etc. These duties were
much simplified when the public treasury was united
with the Bank. The earlier assignments from the E x ­
chequer to the Bank and from the Bank to the Exchequer
became simple transfers from one account to another.
The transference to the Bank of the management of the
public money had besides much influence in increasing
the Bank’s share in the administration of the debt. No
further demand was made for any alteration in this already
existing connection. The intrusting of an important
part of the management of public expenditure to private
corporations must have been regarded in earlier times as
a peculiarity in financial administration, but this man­
agement naturally formed part of the duties taken over
by the Bank when the latter assumed entire administra­
tion of the public money and of the payments connected
therewith. Thus the Bank secured a monopoly of the
administration of the funded debt. This connection,
according to English custom, has never been stated as a
o [In 1816 the Bank advanced a further £3,000,000 at 3 per cent, making
the total debt £14,686,800.
In 1834 one-quarter was paid off, i. e.,
£3,671,700, leaving the debt as now £ 11,0 15 ,10 0 . Cf. the Report of 1891,
p. 9 3 .- H . S. F.]
b 50 Viet., c. 16.




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Co mmi s s i on

principle, but has frequently been confirmed in individual
cases. Hence the administration of the public debt has
become so closely bound up with the Bank by the nature
of the system of public finance and by tradition, that the
connection may be regarded as permanent.
No change has been made during the nineteenth cen­
tury in the methods of borrowing or in the administration
of the funded debt. The steady redemption of the latter
is the only feature of importance to notice. But through
alterations in the organization of the unfunded debt the
sphere of the Bank’s influence has been extended in this
direction also.
The unfunded debts of the eighteenth century were of
two kinds: the bills and debentures of the various depart­
ments of the public service, forming special debts of each
department respectively, and the exchequer bills and loan
debentures issued by the Treasury and representing the
debts of the Government. We have already pointed out
that, owing to the development of an organized system
which involved the appropriation of separate sums for the
separate departments of the public service, the former had
become simple book debts of the department issuing them,
and merely entitled the creditors to receive a payment
warrant. As the whole administration of the public
money took on the form proper to payments made by
private individuals, the public money was intrusted to the
Bank, and the payments were made by the Bank on orders
from the public authorities. Consequently the bills and
debentures issued by the latter also lost their original charac­
ter and became bills of exchange through which the admin­
istrative authorities of the time, whenever it seemed to
214

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them impossible to pay cash, referred the person making
the claim either to the Treasury, the paymaster-general
or the Admiralty. The bill was then accepted and handed
over to the Bank to be cashed.®
The loan debentures, which were issued by the Treasury,
never amounted, in 1813, to as much as a million at any
time and, when these were repaid in 1816, disappeared
entirely from the history of the English debt.6 But the
raising of money by exchequer bills continued to be the
method usually adopted by the Government and of which,
often, excessive use was made.
The methods of issuing, of cashing, and of paying
interest on the exchequer bills and the claims arising out
of them, were determined by 48 George III, c. 1, (1808)—
that is, the provisions which had hitherto been repeated
in each act of Parliament which authorized the issue of
exchequer bills were now permanently embodied in one
special act.c But this act placed the Bank in no specially
favored position. It was still left to the Treasury, as in
the case of the first Exchequer Bills act, “ to enter into
any contract or contracts for obliging any Person or
Persons, Body or Bodies Politick or Corporate, to circu­
late and exchange at some Publick Office in London or
Westminster for ready Money all such Bills as shall be
demanded, * * * ” for which service an indemnity was
to be paid. But immediately afterwards, with a clear
® See below p. 248. Fair man, loc. cii., p. 155, speaks of the navy bills as
early as 1794 as “ being negotiated as bills of exchange.”
ft Fairinan, loc. cit., p. 147. ‘ ‘Ret. Nat. Debt,” p. 42 et seq., “ Ret., Publ.
Inc. and E x p .,” II, p. 547.
c An act for regulating the issuing and paying off of exchequer bills
“ Whereas it is expedient that permanent Regulations should be estab­
lished in relation to the making out” etc.




21S




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Commission

reference to the custom hitherto followed of making these
contracts with the Bank, it was stated that the governor
or directors of the Bank of England should not be debarred
from sitting in Parliament if they made such a contract
with the Government “ on Behalf of or for the Benefit of
the Governor and Company of the Bank of England.”
As before, the exchequer bills must be received in pay­
ment of taxes and bore interest reckoned at so much
per cent per diem.
A new' form of floating debt came into existence, side
by side with the exchequer bills, at the end of the eight­
eenth century, viz., treasury bills of exchange, issued by
the Treasury. The opposite thing happened here to what
wras the case with the navy bills, ordnance debentures,
etc. The latter became mere book debts when the man­
agement of the public money was so organized that the
total issues of the public departments concerned were
completely covered by the total revenue assigned to them.
The government bills, on the contrary, so long as they
were only used to meet expenses covered by the receipts,
were regarded merely as a special form of payment, but
they became unfunded debt in cases where they were not
covered by the ordinary receipts. Even in the last decade
it had become an established custom of the Government
in case of need, to draw bills of exchange on the Bank of
England, which were honored by the latter to the amount
of £20,000 or £30,000. This accepted maximum for the
current bank loan rose to £50,000 in 1793. It is well
known how these advances to the Government, which
increased in December, 1795, in connection with the loan
on security of exchequer bills, to nearly £13,000,000,
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prepared the way for the crisis of 1797 and the consequent
restriction of cash payments. Definite regulations con­
cerning the credit to be obtained by the Government from
the Bank were not, however, issued until 1817 and 1819.
The provisions contained in the act of 1817 we have
already noticed in another place; they led up to the pro­
vision of a satisfactory cover for the cash deficit. B y
59 George III, c. 76, the Bank was forbidden, except in
case of a mere book deficit, to advance any sum to the
Government on the security of exchequer bills, treasury
bills, or other similar security, without the express consent
of Parliament. In case of need the first lord of the treas­
ury or the chancellor of the exchequer must present a
written request to the Bank, and a copy of this as well as
of the answer of the Bank must be laid before Parliament.
In addition it was provided that statements of all advances
made, and of all the exchequer or treasury bills purchased,
must be presented to the House of Commons. From this
time onward the government bills of exchange—i. e., the
treasury bills—represent unfunded debt, which must be
voted by Parliament, and which is used, like the exchequer
bills, as an exceptional source of revenue. The latter, in
so far as they served this object, and to distinguish them
from the deficiency and ways and means bills, were called
“ supply bills,” since they were used to cover the expendi­
ture voted annually, the supplies.
A new form of loan, which must be regarded sometimes
as funded and sometimes as unfunded debt, was created
in 1853, when the South Sea Company was dissolved and
a portion of the debt to it was converted into negotiable
bonds. These, called “ exchequer bonds,” could be re-




217




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Co mmi s s i o n

deemed by the Government, bore interest at 3^4 per cent
until 1864, and afterwards at 2 /x 2 per cent, and ran until
1894. In the National Debt and Loan Act (50 Viet., c. 16)
arrangements were made for the interest, by way of ex­
ception, to be included in the permanent annual charge
for the national debt; the irredeemable capital of these
bonds was thus included in the funded debt. Since then
there have been repeated issues of similar bonds running
for short periods previously determined, and which must
be counted as floating debt on account of their short
duration. Thus, since 1853 there have been three forms
of unfunded debt—treasury bills, exchequer bills, and
exchequer bonds. The nature of these bills has been de­
termined in modern times by three acts of Parliament—
29 Viet., c. 25 (1866), 40 Viet., c. 2 (1877), and 4 Ed.
V II, c. 21 (1904). In 1866 the exchequer bills and bonds
were regulated; in 1877 the treasury bills; in 1904 spe­
cial regulations were made for the exchequer bonds. The
following are the essential provisions of the acts: 0
The treasury bills resemble bills of exchange; they are
either payable to order or to bearer, they are made out
for a definite sum, and must be cashed within twelve
or, at the outside, fifteen6 months of the day of issue.
They bear no fixed interest but are subject to such dis­
count as may be agreed upon between the person receiving
them and the Government, when they are issued.
The exchequer bills entitle the holder, or, if they are
made out in some one’s name, the person in whose favor
a The forms in which these bills are issued are given in a treasury minute
of Mar. 16, 1877, f ° r the treasury bills, and a treasury minute of Mar. 9,
1867, for the exchequer bills and bonds. See Appendix III.
b Three months after the end of the financial year. (7 Ed. V II, c. 20.)

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System

they are issued or his order, to the payment of the sum of
money stated in the bill together with all outstanding
interest, at any date after twelve months and within five
years from the day of issue. The interest is not stated on
the bill, but is announced by the Treasury in the Tondon
Gazette every quarter, for the succeeding quarter. It never
exceeds 5 per cent on the nominal capital. These bills
have a special value in that they may be used for the pay­
ment of taxes in the second half of any year commencing
from the day of issue.®
The exchequer bonds are payable to bearer and are
issued for a round sum, which must be repaid within six
years of the date of issue.**6 The interest is paid on pres­
entation of the coupons attached to the bonds.c
The same acts transferred the preparation and issue of
these bills, which had hitherto been managed by the
Exchequer or, after its abolition, by the comptrollergeneral, to the Bank. This arrangement had been pro­
posed as early as 1857 by the then chancellor of the
exchequer, d but was not immediately carried out. The
transference of these duties to the Bank in 1866 and 1877
a The limitation in the use of exchequer bills for the payment of taxes
dates from i Viet., c. 26, 1838, which provides that they may not be so used
until a year after their issue.
6 57 Viet., c. 27, orders that: Where an act authorizes any sum to be
issued out of the consolidated fund of the United Kingdom towards making
good the supply granted to His Majesty for the service of any year, every
sum issued in pursuance of that act shall be applied towards making good
the supply so granted at the time of such issue.
c On two occasions, after the South Sea Company was dissolved, ex­
chequer bonds of longer date were issued, by 39 Viet., c. 1, for the pur­
chase of the Suez Canal shares, which bonds run till 1912, and by the naval
works act, 5 Ed. V II, c. 20, by which annuities running till 1925 might
legally run for a period of thirty years from the date of borrowing.
d “ Report on Public Monies,” 1857, 279, Ap. 1. p. 43.




219




National

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completes the list of public functions which it can per­
form. It now undertakes the entire business of a central
public treasury and administers the funded and unfunded
debt, and there remains no branch of public financial
administration in which it is not the center or starting
point of all activities.
PA R T IV.
THE PRESENT POSITION OF THE BANK AS THE FINANCIAL
SERVANT OF THE STATE.

We have attempted in what precedes to show how the
principle of an administration of public money by the
Bank has been evolved. In what follows we shall describe
how this principle works in practice at the present day,
how the important departments cooperate under its guid­
ance, and how transfers of money, assignments, and issues
are carried on. We shall, however, only consider this
process in so far as the Bank of England forms its center.
The almost complete centralization of all public payments
in London, and the direct hold of the Bank on the process of
payment, lend an importance to the central organization
of public financial administration in England such as it
possesses in no other country. One characteristic of the
English financial administration, which is only explicable
by the peculiar nature of the administrative organization,
and is only possible owing to the part played by the Bank,
is that the public revenues, without being collected in
provincial treasuries, are transmitted direct by the receiv­
ers to London after local expenses have been met. The
Bank of England thus actually receives the surplus cash
of all the revenue departments. And it is a peculiarity of

220

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S y s t e m

the method of public payments that the greater part of
the budget is paid in London itself, and that for expenses
which have to be met outside London, and which can not
be paid by the receivers, the money is always remitted
from London. This appears to be a disadvantage, but
through the intervention of the Bank it becomes perfectly
simple. In any case the result is that the most important
part of the management of the money is in the hands of the
central authorities.
The Treasury, the center of the whole financial system,
naturally stands at the head of the administration of the
public money. Its function and especial duty is to insure
the accurate balancing of the financial system—i. e., to
secure a constant correspondence between the receipts and
issues. Like the head of a large business firm it must
continually balance the current receipts against the liabili­
ties of the State, and must take care that the former are
ready in hand to meet the latter. Hence it keeps in touch
with the position of the public assets at the Bank and with
the claims which present themselves, and disposes accord­
ingly of the balance at the Bank. The comptroller and
auditor-general cooperates with it, acting as a constant
check. To carry out the Government’s obligations in
detail is the duty of the public offices. But these have no
direct connection with the Bank, on the contrary the pay­
master-general stands between them and the Bank, and
satisfies the demands of all public offices by drafts which
the Bank honors. The Treasury, the auditor-general, the
paymaster-general, and the Bank are thus the authorities
through whose cooperation public payments in and from
London are managed. I do not propose in what follows




221




N at io n a l

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Co mmi s s i o n

to distinguish the various powers and functions of these
authorities. I shall only give an account of the process
by which the public revenues are daily concentrated in
the Bank of England and thence distributed amongst the
public services, and shall describe the simple machinery
which is thus set in motion.
I. TH E B A N K AS M ANAGER OF TH E P U B LIC M ONEY.®

(i) The concentration of the public revenues in the Bank.
Each of the head offices concerned with the adminis­
tration of the various branches of the revenue (customs,
inland revenue, post, and Crown lands offices) has an
account at the Bank. All the money received by these
offices is in the first instance credited to one of these
accounts. Only miscellaneous receipts, which are man­
aged by the Treasury, are paid direct to the exchequer
account. b
The procedure is simple so long as both receipts and
expenditures take place in London. Payment is made
either to the receivers general and other receivers of taxes
or direct to the Bank, In the latter case the Bank must
receive a written authorization from the office.0
The revenue received by the collectors d in the provinces
is remitted to London by means of bills of exchange,
° The following account, except where special authorities are referred to,
is based on R . Welby’s “ Memorandum,” of Feb. 3, 1882, to the Swedish
Government, and on information received on the spot.
& With one exception; the receiver of the hereditary revenue, which
belongs to the miscellaneous receipts, has a separate account.
c Minute of Sept. 25, 1855 (“ Report on Public Monies,” 1856, p. 587).
d The collectors are appointed by the Commissioners of Inland Revenue,
established by 53 Viet., c. 21. The office of Receiver General of Inland
Revenue, instituted after the French model by the same act, was abolished
again in the next year by 54 Viet., c. 24.

222

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Banking

System

which are made out to the head office to which payment
is to be made. Should there be a branch of the Bank of
England in the neighborhood of the collector, he deposits
his money there, and the amount is at once credited to the
general account of the Commissioners of Inland Revenue
in the books of the Bank. (54 Viet., c. 24.) But as
the Bank of England has only nine branches® remit­
tances are more usual. The bills run for two or three
days and are sent to the Bank by the Commissioners of
Inland Revenue to be cashed. When they have been
honored the Bank credits the account of the office with
the amount in question.
The Commissioners daily b transfer the money in hand,
with the exception of the balance required for the next
day, to the general account of the Commissioners of Inland
Revenue, from which it is transferred to the Exchequer
account. For this and for the transfers made by private
persons under the instructions of the receivers—i. e., for
payments into the Exchequer account—special authority
from the comptroller-general is no longer necessary.
They are made on written assignments from the office
concerned.0
Certain payments are, however, made both by the
head offices and by the collectors before the money is
transferred to the Bank. These payments were limited
by 29 and 30 Viet., c. 39, s. 10, to drawbacks, repay­
ments, and discounts. No other expenditure, expenses of
0 Manchester, Liverpool, Birmingham, Bristol, Leeds, Plymouth, New­
castle on Tyne, Hull, and Portsmouth (Whitaker’s “ Almanack,” 1883, p.
232).
b Minute of Mar. 2, 1855 (“ Report on Public Monies,” p.583).
c Minute of Sept. 25, 1855, “ Report on Public Monies,” p. 587. Gneist
has overlooked this, cf. loc. cit., Bk. II, p. 847.




223




N at io n a l M on et a r y

Co mmi s s i o n

management, or payments on behalf of other depart­
ments, may be permanently charged on the revenue re­
ceipts. Hence the procedure is as follows: The expenses
of management, which are voted by Parliament, are paid
out of the current receipts in accordance with this vote.
From time to time, however, the head office applies to the
Treasury and has the sum expended out of the parlia­
mentary vote transferred through the comptroller from
the exchequer account. This sum is transferred back as
receipts. When payments are made on behalf of other
public departments the sums are transferred by the head
office concerned, on production of vouchers, from the
account of the office receiving the advance to that of the
office paying the money, and thence again to the exchequer
account as receipts.
Suppose for example that the customs officer in A col­
lects £ 1,000 on January i. This £1,000 must be paid
into the exchequer account. He pays, however, £200
toward the expenses of the customs office in A, £100 for
the army, and another £10 0 for the navy. Out of the
£1,000 he now has £600 for which he obtains from his
bank a bill of exchange payable in two or three days’
time in London. He forwards this bill for £600 and
vouchers for £400 to the head customs office in London.
The bill is sent to the Bank of England, is cashed by it
when due, and the sum is credited to the account of the
customs department at the Bank. On the same day on
which the bill is cashed the department transfers the
amount from its account to that of the Exchequer.
Thus £600 out of the £1,000 collected in A on January 1
has been paid into the consolidated fund, while the
224

The

E ng l is h

Banking

System

remaining £400 is only represented by vouchers. The
customs department in London now forwards the vouchers
for the £100 which have been paid for the army and navy,
respectively, to the departments for the army and navy,
which in their turn, by means of the paymaster-general,
through whom they receive the money voted for them,
transfer each £10 0 to the account of the customs depart­
ment. The latter immediately transfers the £200 thus
realized to the exchequer account. In the way already
described it also receives the £200 for its own expenses
and transfers this back again. Thus finally the whole
£ 1,000 is paid into the consolidated fund and at the same
time the local expenses are met on the spot.
(2.) The exchequer account.
The government account has been kept by the Bank of
England since 1834 under the name of “ The account of
His Majesty’s Exchequer.” Into this all the public reve­
nues are paid in the shortest possible time after their col­
lection, and from it all issues are made. The account has,
like every other account, whether public or private, kept
at the Bank, a credit and a debit side. The receipts
are entered to the former, the issues to the latter. Both
have subdivisions, subaccounts for the various heads of
revenue, and for those accountants to whom public money
is assigned, either as final payment or for further distri­
bution. This specification of the account was ordered by
a treasury minute of March 2, 1855.® The credit side had
then nine subdivisions, which represented the receipts
under the various heads of revenue without distinguish0 "R ep ort on Public Monies,” 1856, Ap. 2, p. 585.

68299°—n ---- 15




225




N at io n a l

M on et ary

Commission

ing the ordinary from the extraordinary. The debit side
distinguished the payments for the consolidated fund and
supply services, and subdivided the latter into the expen­
ses for army, navy, and ordnance. This plan was retained
in essentials, but changes in detail have been made which
particularize the receipts and expenditure a little further.
At present the credit side has 25 subdivisions, the debit
side 6. The appearance of the government account is
now as shown below. (See pp. 230, 231.)0
° This form is printed from that used by the Bank in sending its daily
statement of the position of the exchequer account to the Treasury. Hence
it is not exactly like the form described above. For each heading a sepa­
rate sheet would probably be used. But the number of headings corre­
sponds to the number of subaccounts.

the

IQ— .
Cr .

£.
To payments as follows, viz:

Consolidated fund services—
Bank of England--------quarter ending
19— •

National debt commissioners................
Master of the mint.................................
Paymaster general (supply account),
quarter ending--------, 19—...............
Local taxation (England), account,
quarter ending------- , 19—.................
Local taxation (Scotland), account,
quarter ending------- , 19—.................
Road improvement fund account, quar­
ter ending ------- , 19—.......................

Supply services—
Paymaster general (supply account),
year--------, 19—............................
Customs general account, year------- ,

19—....................................
Inland revenue general account, year

---- . 19—.............................
Postmaster general's account, year

Sh.

d.

£.
By balance brought from ------- , 19—..............
By revenue and other receipts under the
following heads, viz—
Customs.............
Excise................
Estate and duties
Stamps..............
Land tax, etc__
Property and in­
come tax.........
Land v a l u e
duties.............
Post office..........
Crown l ands
(commission­
ers of woods,
etc.)................

Sh.

The




The Account of His Majesty’s Exchequer at the Bank of England on —
Dr.

d.

Qrq

V*.
*3ba
ft

3

<*}
Inland revenue (miscellaneous receipts)...

Co
Vi
V-*.

--------» 19— ...............................................

a

the

1 9—.—Continued.
Cr .

£.

Sh.

Total payments........................

228

To balance carried to next account.

1

Commissi

By bank advances on account of deficiency of
consolidated fund.........................................

Balance on local taxation account (England)...
Balance on local taxation account (Scotland)...

Sh.

M on e t ary

Receiver of hereditary revenues................
Secretary of state for India........................
Paymaster general.....................................
Suez canal share receipts...........................
National debt commissioners.....................
Master of themint (extra receipts, etc.).. . .
Master of themint (bullion), 33 V., c. 10....
Treasury bills.............................................
Bank of England........................................

To repayment of deficiency advances.




£.

d.

National

The Account of H is Majesty’s Exchequer at the Bank of England on
Dr.

•O

—

The

■ ■ ■

English

Banking

System

The subaccounts on the credit side of the exchequer
account include almost all the heads of revenue which
appear in the yearly finance accounts. The divisions
are not however made on the same principle. The former
are distinguished according to the department by which
the money is paid into the Bank, the latter according to
the nature of the receipts.
The subaccounts on the debit side are likewise dis­
tinguished according to the offices which are paid direct
from the Exchequer. The arrangement of the offices
has not been altered since 1834 except by the consolida­
tion of the pay offices. The paymaster-general’s account
has taken the place of the accounts of the separate pay
offices, the rest remain unaltered. Since all payments
must be made through the paymaster-general, money is
placed at his disposal both out of the consolidated fund
and out of the supplies. Hence two subaccounts are
opened for the assignments made to him.
The exchequer account for any given day contains on
the credit side all the receipts paid in up to that time, and
on the debit side all the public issues made during the
same period. Hence if the two are compared, the result
gives the actual cash balance at the disposal of the Govern­
ment, or supposing the receipts are less than the expendi­
ture, the cash deficit. As we have described above, the
receipts are remitted directly after collection and are paid
into the exchequer account in the course of a few days.
In the case of the issues, on the other hand, it is the rule
that only the sums required for current expenses are
transferred from the exchequer account to the paymastergeneral. It follows that all the sums transferred to the




229




N at ion a l

M o net ary

Commission

issue departments for distribution are in fact actually
spent already;' no receiver or paymaster has a surplus
balance of any importance, and the balance on the
exchequer account represents the actual sum at the disposal
of the Government for administrative purposes.
The exchequer account is not the account of a dis­
tinct central treasury as opposed to various other treas­
uries. It is the repository for all public money. The
money in the hands of the paymaster-general, of the
army agents, and of the under-paymasters of the navy,
is assigned for the payment of public liabilities which
already exist. The balances, which must naturally be
kept in hand in these cases, are small, and are kept small
by estimates made in advance as accurately as possible.
The exchequer account of the English financial adminis­
tration at the Bank of England is the finest example of
an economical centralization of public receipts and issues.
It gives the Treasury the advantage of an unusually clear
oversight of the financial position, and enables the audit
department to check all the movements of receipts and
expenditure. Taken in conjunction with the remaining
public receipt and issue accounts at the Bank, the ex­
chequer account also supplies a basis for the control
exercised by the Treasury over the revenue and issue
offices. As regards the latter, however, the central
administration is concerned only with the offices which
appear on the debit side of the exchequer account. And
amongst these the office of the paymaster-general is the
only one of importance as a pay office. The others are
not pay offices; the transfers to the Bank constitute pay­
ments in themselves. In both these other cases there is no

230

The

English

Banking

System

question of payment transactions; what happens is merely
a transfer of bullion through the mint, a repayment of pub­
lic debt through the commissioners for the reduction of the
national debt, and so on.
(3.) The paymaster-general and his accounts.
The paymaster-general is connected with every depart­
ment of the administration. All demands for money
from these departments are made to him. It is his duty
to have the required sums transferred through the
Treasury—i. e., through the auditor-general—from the
exchequer account, and then to undertake their assign­
ment. But he not only receives money from the E x ­
chequer. Deposits are frequently transferred to him
from the public offices, and a portion of the various
receipts are paid in through him. All payments of
advances and repayments of arrears arising amongst the
various branches of the public sendee pass through his
hands. Thus it is through him that the public assets,
which are concentrated in a large sum in the exchequer
account, are applied to their proper purposes and dis­
tributed amongst the different public services. So far
as possible he carries out the payments in detail. For
payments made outside London the public offices are
assisted by the accountants and revenue officers sub­
ordinate to them.
The army department has agents by whom the pay­
ments within certain districts are undertaken. They
are charged with the sums allotted by the accountantgeneral of the war office and must present accounts of
their expenditure. These agents in their turn distribute




231




i

t ion a l

M onet ary

Commission

the money to the paymasters of the regiments. The same
method of distribution is employed in the navy.a The
civil service is managed rather differently. In this case
the Treasury determines which departments shall render
accounts in connection with the different parliamentary
votes—i. e., shall undertake the distribution of the money
voted.6 The accountants receive the money in large
sums from the paymaster-general and themselves under­
take the detailed payments, making use of the banks at
which the district paymasters have accounts.
In order to meet his liabilities the paymaster-general
has four accounts at the Bank of England: The supply
account, the cash account, the drawing account, and the
bill account. He uses these as follows:
Into the supply account he pays all moneys transferred
to him from the Exchequer. Nothing is booked here
except these transfers.c
° The agents employed by the army department are bankers. At the
present time there are 8 army agents and 9 navy agents. See Whitaker’ s
“ Almanack,” 1883, p. 163. [There are now 3 army agents (p. 223) and 4
navy agents (p. 250.)] The proportion of payments for the army made
by the agents and by the paymaster general, respectively, in 1879 was as
follows: B y agents at home, £8,500,000; abroad, £4,000,000; by the pay­
master-general, £5,500,000 (“ Minutes of Evidence before the India Com­
mittee,” 1880. Evidence of Mr. White, the accountant-general in the
war office, on Ju ly 29.).
b The Budget of the civil service is divided into seven classes and each
class is arranged according to the different services for which the special
vote is made. This arrangement divides the contents according to the
objects of the administration. For purposes of issue and accounts, how­
ever, the votes for different classes are paid into one office, since the arrange­
ment of offices does not correspond with this division. A corresponding
arrangement of the parliamentary votes is always used for the civil service
estimates. In 19 11, 70 accounting officers made payments and presented
accounts for 109 votes and 3 revenue departments for 7 votes.
c A transfer to this account is indicated by the wTords “ Supply account”
inserted next to “ paymaster-general” on the debit side of the exchequer
balance sheet as printed on pp. 230, 231.
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In the cash account are collected all sums deposited byother public departments, the repayments of advances
made by one department to another, or money paid direct
to the paymaster-general as collector; in brief, all receipts,
whether actual or for transmission, which do not have to
be paid to the Exchequer, and the receipts of the paymaster-general himself.
These accounts are intended as sources of supply for
the two others, and their balances are diminished only by
deductions and transfers to the latter, not by payments.
The payments are debited to the drawing and bills
accounts, which are consequently also called the “ working
accounts.”
All sums used to cash the paymaster’s checks are deb­
ited to the drawing account, whilst the bill account sup­
plies the money needed to meet bills of exchange as they
fall due. The separation of those accounts which are
only required to act as reservoirs, and those actually used
in making payments, serves to simplify the control of the
receipts in hand and the payments made, and also is a
protection against fraud. The position of the supply and
cash accounts is known only to the paymaster-general, or
rather to the assistant paymaster. He transfers money
from these accounts to the two working accounts from
time to time, daily or it may be hourly, when demands
are pressing. The checks by reason of which the actua
payments are made by the Bank are issued by a subor­
dinate official, the paymaster. Since the latter is ignorant
of the balance in the drawing account, he would run the
risk, in case of an intentional fraud, of overdrawing. The
distinction between exchequer credit and cash receipts,




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represented by the supply and cash accounts, respectively,
has already been explained in describing the division.
The cash account serves, however, a special function, which
makes it, as we shall see later, particularly important in
the transactions of the paymaster general.
The whole administrative system makes demands daily
on the paymaster-general. For the army the controlling
organ is the War Office, for the navy the Admiralty, for
the civil service the administrative authorities supervis­
ing the accountants. The paymaster-general must be
supplied with the funds necessary to meet these demands.
For this purpose he applies daily to the Treasury, to which
he sends a statement of the payments made on that day
and of those which will probably have to be made on the
next day. This estimate is based partly on the amounts
actually known to be needed to meet bills of exchange
falling due, partly on a calculation of external transac­
tions, of the requirements in previous years, and so on.
The demands of the different departments on the pay­
master-general are accompanied by a specification of the
vote on account of which the issue is required, and of the
fund (consolidated fund or supply) to which the payment
is charged. The paymaster demands money from the
Treasury in the same form. The actual transfers are
made in a lump sum. Suppose, for example, that £50,000
is needed for the army, £50,000 for the navy, and £50,000
for various civil service expenses; the comptroller-general,
acting on the instructions of the Treasury, would transfer
£150,000 from the Exchequer account to the supply ac­
count of the paymaster-general. Then the assistant pay-

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master transfers the required sums at intervals to the
drawing and bill accounts.
Although the paymaster-general regards as a single
fund the sums standing at his disposal for issue, and meets
all demands out of the one balance, he is not justified in
regarding them as all alike without further examination,
and in satisfying every claim. In his books, on the con­
trary, the various votes are distinguished. This separa­
tion of votes is, however, carried out only in so far as
the appropriation of money by Parliament demands the
application of definite amounts to definite objects. The
army and navy have the right to make transfers within
their respective votes, provided that the total amounts
voted for the two services are adhered to.° The pay­
ments made on the civil list are carried out according to
the classes established by i Viet., c. 2. The expenditure
for the civil service is divided according to the different
parliamentary votes, which are distinguished in the books
of the paymaster-general according to the separate serv­
ices for which they were made. b
When a claim is made for the civil service the pay­
master-general’s own officials, the so-called examiners,
compare it with its accompanying voucher. If the ex­
aminers find nothing of note they forward the papers to
the officer responsible for the assignment of the money—
a “ Provided always that the Issues for Army and N avy Services shall
be made under the general Heads of ‘ A rm y’ and ‘ N a vy ,’ respectively.”
(29 and 30 Viet., c. 39, s. 15.)
b These agree in substance with the arrangement of parliamentary votes
used in the existing civil service estimates. But there they are distin­
guished by reference to the persons responsible, the accountants, whilst
in the books of the paymaster-general the arrangement in classes is
adhered to and each class is credited with the amount of its vote.




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i. e., to the paymaster, whose business it is to issue the
checks. He in his turn sends them to the assistant pay­
master, by whom they are arranged according to the dif­
ferent votes to which they belong and are entered in a
book, which book is also looked at by the examiners on
the following day. The sum to be paid is at the same
time booked in the assistant paymaster’s office. At the
beginning of the year, after the opening of the general
audit, each of the separate classes mentioned above is
credited with the whole sum allotted to it. The account
is then debited with each payment made in the course of
the year. This method of bookkeeping used by the pay­
master-general makes it possible to control the whole
expenditure of the Government in as much detail as is
desired, from the one standpoint. It is still possible for
the department making the demand to misapply the
money assigned to it under a particular vote. Such
transfers are indeed allowed, if subsequently justified, in
the case of the most important departments, the army
and navy; in the civil service they are rare because most
of the payments in this case are made in London by the
paymaster-general direct.
It frequently happens that the claims made on the
paymaster-general do not correspond with the sums which
he has demanded from the Treasury. If we refer again to
the example given above, it may happen that he has
demanded £50,000 for the army, navy, and civil service,
respectively, while the actual claims made are £40,000
for the army, £60,000 for the navy, and £40,000 for the
civil service. He will, however, making use of his general
authorization, satisfy the increased demand from the

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navy, debit it with the same in his books, and make good
the difference by demanding an additional £10,000 for
the navy on the following day. So long as the credit
allowed in the books of the paymaster-general for the
different public services is not exceeded it is absolutely
unimportant whether the demands of the departments for
these amounts are covered by the transfers made by the
Treasury, or rather by the auditor-general. The transfers
of the latter are made merely in order to supply the pay­
master-general with the required balance. The appro­
priation for the public services is made through him and
is only known subsequently to the Treasury and to the
audit department through his statement. Hence these
appropriations can not be controlled beforehand by the
Treasury and Audit department, because the paymastergeneral has always, in his cash account, sums which he
must use before demanding an exchequer credit. His
payments are thus to a certain extent independent of the
assignments from the Exchequer. In the cash account
accumulate deposits from the public offices, repayments
of advances from one office to another, and so on. The
money in it has always been assigned already to certain
public services. The following example will show how
these sums are used by the paymaster-general for his
payments.
It may happen that the fleet has made over to a foreign
country a portion of its accumulated stores. This loan is
repaid in course of time, not in kind but in money. The
money belongs to the navy, which has temporarily dis­
posed of, and afterwards received back again, a portion of
the amount voted for it in Parliament. Suppose it is a




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matter of £100,000. This sum can not be paid into the
Exchequer—i. e., into the consolidated fund—for it does
not represent revenue. It is merely a sum whose expen­
diture the department has deferred and which will in the
future be used up again. The £100,000 is thus paid into
the account of the paymaster-general, and is placed by
him in the cash account. At the same time he credits the
amount to the account of the navy.
As long as this sum is in the cash account the drawing
account must be replenished from it. The payments
which are made during the next few days will be met out
of it. But the money thus used to meet all demands from
all departments belongs to the navy. The consent of
Parliament must have been obtained for these same
demands in order that they may be met at all. The
money from these votes must be assigned to these de­
mands, which must ultimately be brought into agreement
with the amounts voted. This correspondence is shown
in the books of the paymaster-general as soon as the
payments have been made. In the Treasury, however,
the credits of the departments concerned appear no fur­
ther affected in spite of the satisfaction of the claims. In
the daily statement sent to the Treasury by the paymastergeneral, these demands will, however, appear; they will
be noted as “ overdrawn”— i. e., as provided with no
funds from the Exchequer. After a few days the pay­
master will demand credit for the departments which
were overdrawn. He will receive this through his supply
account and will now continue to work in the usual man­
ner. The navy is assured of its £100,000 since it had
been credited with this amount by the paymaster-general;

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a confusion between permanent and temporary receipts
is prevented by the separation of the cash account from
the others, and the retention of an unnecessary balance is
avoided by the speedy employment of the money in the
cash account. The principle of a single fiscal treasury—
i. e., of the concentration of the supplies in a single fund,
divided in the books according to the different services for
which it is intended—is thus carried out to its fullest
extent.
The method described above of meeting claims against
the administration is applicable only where grants have
been made in the budget. It happens, however, in a
country like England, whose fleet and troops are scattered
throughout the world, that demands are made on the
Government for which no provision has been made by
parliamentary grant, and whose satisfaction can not be
deferred until the consent of Parliament has been obtained.
In such a case the paymaster-general must refuse to pay
out the money from the Exchequer, since the sum de­
manded is not charged on the consolidated fund, nor can
any parliamentary authority be claimed for its payment.
In order that the Government may not be left entirely
helpless in such a case Parliament itself has provided a
way of escape. “ The public interests require that the
Government should possess the power of incurring
expenses of indispensable necessity, although Parliament
may not have previously provided for them. * * *
Unforeseen events may happen and lead to an expendi­
ture beyond the provision made by Parliament for the
ordinary service of the year; and it must be for the
interest of the public that no delay should occur in taking




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the necessary measures, and in defraying the expenses
which such events may entail.” ®
A fund exists called the “ treasury chest fund” bwhose
purpose is to supply money for the service of the army
and navy abroad and for the colonial governments, in
unforeseen emergencies. This fund must amount to not
less than £700,000 and not more than £1,000,000 (56
Viet., c. 18). The sum is fixed by the Treasury in a
minute which is laid before Parliament. The Treasury
is authorized to use it as “ a Banking Fund for facilitating
Remittances and for temporary advances for Public and
Colonial Services to be repaid out of the monies appro­
priated by Parliament to such services or otherwise appli­
cable thereto.” The governors of the colonies are per­
mitted to take advances, in cases of urgent need, out of
the treasury chest, which advances must be paid back
out of money voted. The treasury chest is controlled
by the Treasury Chest officers. (In 1911 there are 11
of these in the Colonies and Egypt.) They have how­
ever no separate fund kept apart in the Bank as a treas­
ury chest fund. The money is not divided. Neither
have they a direct power of assignment. They must on
the contrary apply like anyone else to the paymastergeneral—i. e., to the Treasury—stating the total demands
a See Parliamentary Report quoted by Alphaeus Todd, “ Parliamentary
Government in England,” ed. 1892, Vol. II, p. 244.
f>It arose out of the “ army extraordinaries” from which in earlier times
advances were made to the public accountants and other departments abroad.
“ Memorandum on Commissariat Chest Account” by Mr. Anderson, 1840.
“ Report on Public Monies,” 1856, p. 589. “ Memorandum,” 1850, loc
cit., p. 607. “ Draft of a Bill for Limiting and Regulating the Commis­
sariat Chest Fund,” 1851, loc. cit., p. 613. “ Minutes of Evidence before
the Select Committee,” 1856. “ Report on Public Monies,” 1856, p. 7.
Treasury Chest Fund Act, 56 Viet., c. 18.

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which he has received on the treasury chest. They are
however obliged to see that the money taken from the fund
and the advances made are repaid out of the sums voted
for the army and navy, or, in the instances cited, for the
colonies. The treasury chest is intended only to make
it possible to meet expenses until such times as Parlia­
ment has made further provision for them.0
Besides this there is a second fund to meet similar
necessities in the civil service. This is called the “ civil
contingencies fund” and is limited to £120,000.b The
Treasury controls this fund and it alone is empowered to
draw out money occasionally to meet “ new and unfore­
seen expenditure for civil services at home, for which no
votes have been taken, or to meet unforeseen deficiencies
on ordinary votes. * * * No expenditure may be per­
manently charged to this fund. All such payments form
the subject of subsequent votes, and the money advanced
must be repaid out of these subsequent votes.” c B y the
paymaster-general act (53 Viet., c. 53) the commissioners
of the Treasury were authorized to make regulations to
transfer to the Bank any of the duties of the paymastergeneral; to alter the existing regulations for the conduct
of business in this office; and, in the case of funds which
had to stand in the name of the paymaster jointly with
that of any other person, to substitute for the paymaster
any officer of the Bank of England. All such regulations
must be laid before Parliament within three weeks after
“ The balance of the Treasury Chest Fund for 1909-10 is printed in the
Appendix.
b it arose out of the “ civil contingencies votes,” yearly grants for a
fund to be applied to the purposes stated (index to “ Report on Public
Monies,” 1886. Voce “ Civil Contingencies,” pp., 33 and 34.)
°Todd, loc. cit., pp. 244, 245.
68299°—1 1 -----16




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they are made. The paymaster-general act seems to
show a tendency to eliminate this office of middlemen by
degrees; hitherto the act has received no practical
application.
(4) Provisions for covering the cash deficit.
It was customary until the middle of the nineteenth
century to vote certain taxes annually, and to apply them
to meet the expenditure agreed to annually, in contra­
distinction to the revenues which were combined in the
consolidated fund. The sugar tax was voted in this way
until 1846. Since that time, however, the total public
revenue has been paid into the consolidated fund. The
expenditure agreed to yearly is met out of the surplus of
the consolidated fund over the payments charged to it.
There is no division of the receipts but only of the issues,
and the ways and means act which assigns the money for
the outlay voted yearly—i. e., the supply services— does
this by appropriating the surplus from the consolidated fund
for these purposes. Thus for bookkeeping purposes the
consolidated fund services and the supply services are to
be regarded as distinct. The former has the priority,
and if the public receipts are insufficient to cover the
expenditure, fresh provision must be made for the supply
services. This difference is shown clearly by the manner
in which a deficit is covered in each case.
Thus at the end of each quarter (the first ending on
Mar. 31), the Treasury draws up a return of the receipts
and charges on the consolidated fund. In the charges are
included the interest on the public debt which will fall
due during the first days of the succeeding quarter. The
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balance between the receipts and expenditures shows
whether the revenue paid in during the past quarter is
sufficient to meet all those charges, or how great the final
deficit will be.
A copy of this return is forwarded to the comptroller
and auditor-general, who, after he has convinced himself
of its correctness, notifies the Bank of England of the
amount of the possible deficit. This notice empowers the
Bank to advance during the next quarter, on a written
demand from the Treasury, a sum not exceeding the
amount of the deficit. The rate of interest on this ad­
vance is agreed upon between the Bank and the chancellor
of the exchequer. Usually it amounts to 2 or 3 per cent.
This loan is made by crediting the exchequer account
with the sum advanced: the loan has to be repaid out of
the growing receipts of the consolidated fund during the
quarter in which the advance is made. The repayment
is made by simply writing off the debt. This is the socalled deficiency advance, which has taken the place of
the deficiency bills. It is repeated almost every quarter,
since the Treasury finds it more convenient to borrow
money for short periods than to keep large balances during
a long period. The receipts and issues connected with
the consolidated fund are so steady that they are balanced
without any difficulty in the course of the year.
It is otherwise with the supply services, which can more
easily lead to a disturbance in the financial system. An
unexpected declaration of war, for example, leads to
sudden demands on the public money for wffiich no pro­
vision has been made. In such a case the Treasury can
demand a loan from the Bank in the same way as in the




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case of the deficiency advance; it is bound to pay this
back out of the current receipts during the succeeding
quarter. If this is impossible, i. e., if the demand is so
large that it can not be met by a possible increase in the
receipts during the following quarter, application must
be made to Parliament to supply the necessary money.
For in such a case the cash deficit is not merely due to a
disparity of time between the outlay and the receipt of
the revenue, but is a real deficit resulting from the inade­
quacy of the total revenue as compared with the total
expenditure.
This kind of loan is called a ways and means advance,
and has taken the place of the ways and means bills. It
also leads merely to a debt in the books and is of a tem­
porary nature unless its peculiar character causes it to
be converted into a genuine unfunded debt. B y 50 Viet.,
c. 16, the interest on these advances, in so far as they
then existed, was included in the permanent annual charge
for the national debt.
(5) Methods of payment.
The connection between the public treasury and the
Bank naturally leads to the use of the forms customary
in banking for most of the government payments. These
payments may be classified as book transfers, payments
by check, and payments by bills of exchange.
Transfers can necessarily only take place when the
office making the payment and the payee have accounts
at the same bank. They are not, however, confined to
the Bank of England, since both offices and individuals,
outside London, where it is necessary, have accounts at
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local banks. But this is done as little as possible, as the
aim is to make all payments through the Bank of Eng­
land. In addition to the accounts already mentioned,
viz, those of the Exchequer, the revenue department, the
paymaster-general, the master of the mint, and the com­
missioners for the reduction of the national debt, we
must notice that accounts at the Bank are possessed by
the commissioners of loans and public works, the receiver
of the metropolitan police, the seven state prisons, and
some others. Other accounts which, though not public
accounts, are of importance in payment transactions, are
those of the individual agents who keep tjieir cash at the
Bank although not obliged to do so. All payments which
the said offices and the agents have to make amongst
themselves are managed by simple “ writs-off”— i. e.,
by written instructions to the Bank to transfer a sum
from one account to another.
The transfers a in the books of the paymaster-general
must be distinguished from these book transfers at the
Bank. B y the former, repayments are made from one
department to another by a simple process of book entry.
This process has already been referred to in connection
with the cash account. It is convenient to distinguish it
from the other form of book transfer because it is really
a question of refunding by a method of bookkeeping and
not of actual payments. Both have, however, one advan­
tage in common—they avoid the transfer of coin.
A ll transfers of money between the head offices of the
Government are thus accomplished by book entries merely.
a They were regulated by the Treasury on December 22, 1848, §10. Cf.
also Mr. Anderson’s “ Remarks on Lord Monteagle’s Memorandum on the
Exchequer,” 1854. “ Report on Public Monies,” 1856, p. 556.




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It may happen also that an individual claimant has
an account at the Bank.
In this case, too, pay­
ment will be made by book transfer.0 This process
consists merely in writing off the sum from the one
account and crediting it to the account of the payee; it
is accomplished on the spot, and can be immediately
checked by both offices.
The employment of bills of exchange for the transfer
of money by public authorities has, as we have seen,
been usual in English finance for about a hundred years.
The revenue is now remitted to London entirely by bills
of exchange. Payments abroad and also contractual pay­
ments are made almost without exception in this way.
Payment by bill of exchange has been expressly ordered
by act of Parliament in the case of some payments at
home.6 These are drawn either on the Treasury, the
paymaster-general, or the Admiralty; are accepted by
a stated official there, and are always payable at the
Bank of England from the bill account of the paymastergeneral.0
Each day the paymaster-general sends the Bank a list
of bills about to fall due. This list is signed by an offi­
cial appointed for the purpose by the paymaster-general,*IV
,
a This was provided by a treasury minute of December 22, 1848, §134.
“ But where claimants have accounts opened at the Bank of England, the
payments are in all practicable cases to be made by a writ off or transfer
order in preference to a check payable to bearer.”
b 1 1 Geo. IV, c. 20, 1830, provides that certain pensions may be paid
by bills of exchange, which can be drawn on any collector; 2 and 3 Will.
IV, c. 106, 1832, makes a similar provision for army pensions, at the same
time limiting the right to persons residing on English soil.
c Minute of Dec. 22, 1848, §19: “ All bills of exchange, whether accepted
at the Treasury, at the Admiralty, or at the Pay office itself, are made payable
on the Paymaster-General’s Bill Account.”

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and serves as an order to the Bank to honor the bills
included therein when they are presented.
Unless a special form of payment is ordered by Parlia­
ment, the method is left to the discretion of the various
authorities. There is no single rule determining the
payments for the whole Government. Hence the use of
bills of exchange is specially regulated for each branch
of the public service.®
Payments by check, like the book transfers, require
a bank account, but the payee need not possess one.
Hence payments by check are much more widely used
than book transfers, and in particular for small payments,
whereas book transfers are generally, though not always,
made for large sums. In this connection the payments
of the paymaster-general are specially to be noted, for
the payments of all the public departments are made
through him whenever possible. When it is necessary,
indeed, he places large sums at the disposal of the different
departments, leaving to them the further distribution,
but he also takes a considerable share in the detailed
a In the case of the navy, which most often has occasion to use bills of ex­
change, the provisions referring to their use are contained in “ TheQueen’s
Regulations and Admiralty Instructions for the Government of Her Majesty’s
Naval Service” (Feb. 13, 1879, pp. 499-515). The accountant officer of
every ship has the right, subject to the consent of the captain, in ports
where there is no navy office, and no treasury chest, to draw a bill falling
due three days after sight on the accountant-general of the Admiralty.
The rate of discount must be certified upon the actual bill by the British
consul or two reputable merchants. At the same time a “ letter of advice, ’ *
countersigned by the captain, must be dispatched to the accountantgeneral. To meet chance expenditures the accountants carry ready money
with them, the total being limited, however, to £65 in the smallest ships
and £300 in the largest. Further, every member of a ship’s company can
transmit money home through the accountant, who draws a bill upon the
paymaster-general for the sum which is handed to him, and dispatches it to
the address indicated.




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payments. Local payments are made through the col­
lectors; the repayments to the revenue departments are
made by the paymaster by means of book transfers;
naval expenses abroad, and contractual payments, are
managed through bills of exchange which the paymaster
has to honor by an order on the bill account. There
remain the payments of the civil list and of the civil
service and army, so far as these obligations are not ful­
filled in the ways already mentioned. If the payments
fall due in London they are made through the paymastergeneral, and, with few exceptions, by check.0
All sums over £50 must in fact be paid by check. For
sums between £5 and £50 the payee may choose whether
he will take a check or coin. Sums under £5 are always
paid in coin. For sums which exceed a certain amount
the check is crossed. Each check is signed by two of the
officials of the paymaster-general, examples of whose
signatures are kept at the Bank.6 All checks are paid
from the drawing account. For payments by coin the
paymaster-general daily receives from the Bank a sum
in coin corresponding to the amount he expects to need.
a As early as 1836 a treasury minute of Aug. 19 states that: “ No payment
whatever is now made by the Army Pay Office, be the amount ever so small
except by means of a check on the Bank of England.” By the consolida­
tion of the pay offices, the paymaster-general succeeded to this practice
within the limits stated in the text. The ordnance pay office pays in cash
salaries, half-pay, pensions; the navy pay office, sums under £5.
(“ Report on Public Monies,” 1856, p. 498.)
&A general authorization is sent beforehand to the Bank: “ You are
authorized to pay on the countersignature of Mr. So-and-So checks for
public services drawn upon my drawing account by the person thereby
appointed to that duty.”

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(6) The control over money transfers.
Without describing the bookkeeping itself in more
detail, it is necessary to explain how and to what extent the
Treasury and the audit department supervise the transfers
of money between the various offices. It is clear from
what precedes that the whole financial system is so cen­
tralized that all public receipts are entered in the exchequer
account and all issues must be made from this account.
But it is evidently not sufficient for the Treasury to super­
vise this account alone, noting the variations in it due to
the in and out flow of money. Except in cases where the
receipt and issue offices manage their own money inde­
pendently, the Treasury must see that the former hand
over their balances correctly, and that the latter make a
proper application of the money supplied to them. For
purposes of finance it aims at preventing the accumulation
of any superfluous cash balance, while for purposes of con­
trol it aims at hindering or quickly detecting any fraud,
and finally, for purposes of administration, it must have a
grasp of the entire position of the public finances as regards
both revenue and expenditure.
Since the revenues are remitted to London and credited
to the accounts of the revenue departments, the contents
of the latter at any time show the exact position of the
receipts throughout the country during the preceding days.
The Treasury obtains in addition full information concern­
ing the local expenditure from the system of accounts
which we have described. All other issues are managed
by the Treasury itself, and, since they involve alterations
in the accounts at the Bank, and in the books of the pay­
master-general, an examination of these books and of the




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bank accounts gives complete knowledge of the monetary
transactions at the public offices.
The miscellaneous receipts are managed by the Treasury
itself, so that the revenue departments which remain to be
supervised are the customs, inland revenues, post and
crown lands offices. Each of these offices sends a daily
statement to the Treasury of the receipts transferred by it
to the exchequer account, but not of the receipts actually
collected by it. The Treasury receives a weekly return
from the inland revenue office specifying the total receipts
under their various heads. This furnishes an exact
account of the receipts collected by the office in the course
of the week. The customs office sends in a similar state­
ment every month. Finally the offices of the inland reve­
nue, the customs, and the post0 send the Treasury four
times a year a balance sheet, so-called, which contains a
specific account of the receipts paid in, the payments made,
and the transfers to the Exchequer. ‘B y means of these
various returns the Treasury learns (i) daily, how much
the offices have paid into the exchequer account; (2)
weekly or monthly, the amount received during the period
under the different heads, at the two most important
revenue offices; (3) quarterly, how great the receipts and
issues have been during the last three months, under which
heads the issues have been made, and what balance the
three revenue offices hold.
All these returns can be verified by comparison with the
returns which the Bank must supply to the Treasury, and
they in their turn are intended to serve as a check upon the
statements of the Bank. The Bank forwards a daily
a

The crown lands office forwards no special specification.

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return of the exchequer account.0 This specifies on the
credit side the various heads of the revenue, and thus shows
how much has been paid into the account under each of
these. The sums here specified must correspond with
those given in the returns of the revenue departments
themselves, and any discrepancy is at once inquired into.
A detailed comparison of this return with the weekly and
monthly returns of the inland revenue and customs offices
shows also how large the daily balances at these offices
have been. Besides this daily statement the Bank also
sends in a weekly return, showing the position of all the
public accounts, from which the Treasury can see at once
the position of the various revenue departments. This in
its turn serves to check the statement of the balance in
hand, which may be shown in one of the quarterly returns
which have to be presented by the revenue departments.
The returns of the paymaster-general combined with those
of the Bank make it possible to supervise the management
of the issues. Together with the daily claims for money a
return is sent in which states the amounts credited to the
different public services out of the moneys assigned to
them in the books of the Exchequer. The position of the
various public services can be learned by combining this
return with that for the preceding day, and with the sums
demanded and transferred from the Exchequer for such
services. The assets of the previous day are increased by
the latter. They form the balance for each service at the
beginning of the day for which the return is now presented.
A comparison shows by how much this has decreased in the




“ See the form given above, pp. 230-1.

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course of the day. The sums demanded from the Excheq­
uer for the different services are merely credited to the
latter by a book transfer, but since the money forms a fund
from which demands can be met for which nothing has
been transferred, it frequently happens that the different
services appear in the return as “ overdrawn.” This
means that more has been paid on their behalf than was
demanded. It follows then that other services must have
used less than the amount credited to them, since the total
of all the amounts credited forms the whole cash balance
standing at the disposal of the paymaster-general.
The bank return on the position of the exchequer
account contains on the debit side the statement of the
transfers made on that day from this account to the sup­
ply account of the paymaster-general. These transfers
must agree with the demands sent in by the paymastergeneral on the previous day—i. e., with the assignments
made by the Treasury through the auditor-general. Thus
the Treasury checks the proper execution of the assign­
ments. This daily bank return contains however no in­
formation on the state of the supply accounts, since the
transfers made by the paymaster-general to his working
accounts are not given in it. But the weekly return of
the Bank on the position of all the public accounts, does
give particulars of the four accounts of the paymastergeneral, the amount of which must agree with the total
amount of the balances of the different services as stated
by the paymaster-general in his last return.
The daily return of the paymaster general gives no par­
ticulars of the votes, but is arranged under the general
heads, army, navy, civil services, etc. But each month he
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forwards a specific statement to the Treasury. The
statement of the position of the four accounts at the Bank
follows a combined statement of the balances of the public
services, as in the daily return. This general abstract is
the only return made for the army and navy, since in
these cases the payment of the money is not classified
under the different heads. The expenditure from the
civil list and the civil services, on the other hand, is par­
ticularized according to the various classes and parlia­
mentary votes.
The Treasury supervises the expenditure made through
the Mint and the national debt commissioners in the same
way as that of the paymaster-general, and keeps a check
on the proper crediting of the money transferred to the
Bank of England.
All the above-mentioned returns of the Bank and of the
receipt and issue offices supply the basis for the public
bookkeeping managed by the Treasury, which follows,
step by step, the course of the receipts and expenditures.
All the returns are forwarded to the auditor-general, who
has however no right of intervention. He may only use
them as a basis for the control which he exercises ab ante
on the issue of money from the Exchequer, and for his
subsequent control of details.
II. THE BANK AS THE OFFICE FOR THE MANAGEMENT OF THE
PUBLIC DEBT.

We have shown that the position held by the Bank of
England with regard to the management of the public
debt has remained unaltered in essentials since 1750. At
that time its permanent loans to the Government had




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come to an end and, with the exception of the loan raised
in 1816 and repaid within three years,® the Government
has not made use of the Bank’s resources since this date.
The connection between the Government and the Bank
developed much more actively with respect to temporary
loans, for which application was regularly made to the Bank
until about 1817 or 1819. After this time the short date
loans were divided into those raised to cover a cash deficit,
which were obtained always from the Bank in the manner
provided by law, and the unfunded debt proper, in which
the Bank might share when specially authorized to do so
by Parliament. The acts of 1866 and 1877 already
referred to, which transfer to the Bank the management
of the debts, contain a clause by which the Bank is per­
manently authorized to make advances to the Govern­
ment on treasury bills and exchequer bills or bonds, issued
with the consent of Parliament.
The relations of the Bank to the various forms of public
debt are then as follows: Since 1816 it has not been
employed to raise a permanent funded debt out of its own
resources. It is authorized to provide loans on the secur­
ity of government bills of the form described. It invari­
ably supplies the temporary advances required to equalize
current expenditure with current receipts. Finally the
entire public debt, whether it has a share therein or not,
is entrusted to its management.
The function of management involves, in the case of the
unfunded debt, the following activities:
On the order of the Treasury the Bank supplies the
required number of treasury bills, and exchequer bills
“ [This loan was not paid off till 1834.—H. S. F.]
2 54

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and. bonds, made out for the amounts demanded by the
Treasury and marked with numbers showing the order
of issue of the bills, and sees that each separate paper is
signed by the comptroller and auditor-general. It has
then to hand over the bills so prepared to the persons
appointed by the Treasury for the purpose, and to transfer
the sums they represent to the exchequer account. The
payment of interest on the cashing of a bill is done with­
out a special order from the Treasury on presentation of
the interest coupons whose payment is due, or of bills or
bonds, after the date of payment has been announced by
the Treasury in the London Gazette. The sums needed
for this are transferred by the Bank from the exchequer
account at the same time as the money required for
paying the interest on the funded debt.
The duties of the Bank as manager of the funded debt
are tiresome, though very simple in principle.0 As soon
as a loan has been subscribed and the payments have
been made, the chief cashier of the Bank issues a scrip
certificate for each subscriber, giving his name, position,
and residence. The name and amount given on this
scrip are entered in a journal and copied from this into
the ledger, which is arranged in alphabetical order. As
soon as this is done the mere scrip certificate becomes
stock—i. e., a freely transferable share in the public
debt, which carries with it certain rights (a claim to
interest, exemption from taxes, etc.). The purchase and
sale of these stocks is managed through stockbrokers;
“ These duties are expressly regulated by the National Debt act, 33
and 34 Viet., c. 71 (Aug. 9, 1870). A description of the whole procedure
is given by Thomas Hankey, “ The Principles of Banking,” 2d ed., London,
1873. P- 78,




et seq .

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the necessary legal transfers of the shares from the seller
to the buyer are managed by the Bank. The stockbroker
sends to the Bank a transfer ticket, stating the names of
the buyer and seller of the amount to be transferred.0
This is checked at the Bank to make sure that the seller
holds the given sum, and then the transfer to the buyer
is entered in the transfer book. A duplicate of this list
can be seen at the office of the National Debt Commission.
A stock receipt corresponding to this entry is signed by
the seller, who also signs the entry in the transfer book,
and the former is given to the buyer. B y the signature
to the stock receipt the Bank is freed from liability toward
the seller for the value disposed of, while by obtaining the
same receipt the buyer secures a claim represented by the
entry in the ledger. Such transfers may be either of the
whole value entered to any one person, or of any portion,
however small, of this value. The transfer, like all the
transactions connected with the stocks (receipt of inter­
est, repayment, etc.), can be made by power of attorney.
Transfers on account of death, or as presents, etc., can
be made without the help of stockbrokers. There is a
separate office for the registration of provisions made by
will and arrangements between living persons, where the
discharge of the original owner and the transfer to the
claimant takes place.
The Bank shall allow any holder of consols to have
more than one, but at most four accounts in the same
name, but each account must be distinguished by a
° These transfer tickets are kept, so that in case the ledgers were acci­
dentally destroyed they could be re-compiled by means of the tickets and
of the dividend books, which are also preserved, but in a different place.

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number or some similar designation.® Trustee holdings
are excluded.5
The name “ stock ” is applied both to the separate shares
and to the whole loan, in so far as it carries with it a per­
petual annuity. The stock is generally added to one of
the already existing stocks bearing the same rate of inter­
est.0 The stocks now existing are: Two and one-half per
cent consols, 2^4 per cent consols, 2% per cent consols
(16 Viet.), terminable annuities for life and terms of
year, terminable annuities created by the National
Debt Act, 1887, and the Finance Act 1899 (savings bank
annuities and book debt annuities), sinking fund an­
nuities. The interest falls due on January 5 and Ju ly 5.
In order to make all preparations for the payment of the
dividends the ledgers of the national debt are closed for
transfers before the date of payment, but not for more
than 37 days.d Any person who, on the day of closing,
is entered in the books as a holder of stock is entitled to
the half yearly interest falling due.0 The method of pay­
ing the dividends is as follows: “ The name of each pro­
prietor is entered on a ‘ slip,’ with the capital stock belong­
ing to him, the half yearly interest, the amount to be de­
ducted for income tax, and the net sum payable after the
said duty has been deducted. These slips * * * are
a National Debt Act (51 Viet., c. 2) and Stockholders’ Relief Act (55
Viet., c. 39).
b Trustee Act, 56 and 67 Viet., c. 53.
C33 and 34 Viet., c. 72, I, p. 3. “ Stock means the several capital or
joint stocks of perpetual annuities * * * and includes any share or
interest thereon respectively.”
d [Since 1861 stock may be sold and transferred any day in the year,
holidays excepted. Hankey, loc cit., 3d ed., p. 9 1.— H. S. F.]
« Nat. Debt Act (Stockholders’ Relief), 55 Viet., c. 39.

68299*— 1 1 -----1 7




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then printed, and eventually made up into volumes form­
ing the dividend books.” ® The total stock on which
dividend is to be paid and the total amount of the latter
can be found by adding up the different columns. After
the entries have been checked the dividend warrants are
issued. These state the amount of stock and the portion
of dividend due thereon. They also are printed, bound
up together, and checked by the entries in the dividend
books. The dividend books thus prepared are taken to
the dividend room where the claimants of dividends or
their representatives receive the dividend warrants on
declaring their name and the amount of stock to which
they lay claim. They must sign the dividend book and
the warrant, their signature to which is certified by one
of the bank clerks. The warrant is payable at once in
the adjoining dividend pay office, or may be used as a
negotiable instrument, since it is payable to bearer.*6
The holders of stock may also have their dividend war­
rants sent bv post; for this purpose they must send a
signed request to the Bank, giving an address at some
place in the United Kingdom, the Channel Islands, or the
Isle of Man. The despatch of the warrant by the Bank,
on the authority of such instruction, is regarded as equiva­
lent to delivery, as is also a transfer to another bank.
The dividend warrants, as they are paid off from time
to time and collected at the Bank, are registered in a
special office, the check office, according to the numbers
they bear. When these are compared with the warrants
still outstanding in the dividend rooms the result gives
a Hankey, 3d ed., p. 82.
6 32 and 33 Viet., c. 104; 33 and 34 Viet., c. 71, p. 20

258

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the total dividend actually paid, still unclaimed, and
drawn but not presented for payment. All money due
as dividends which is not claimed within ten years is
transferred to the account of the national debt commis­
sioners® as well as the stocks on which it is due. But
claims to it can still be made at any time. The unclaimed
dividend office at the Bank examines such claims and
is the only office at the Bank whose expenses are paid
by the Government.6 At the demand of the Treasury
the National Debt Commissioners must pay into the ex­
chequer from the account of unclaimed dividends such
sums as may be desired up to £1,000,000. (4 Ed. V II,
c. 7.)
The number of public debt accounts kept by the Bank
is at present about a quarter of a million, but it naturally
varies with the consolidation and repayment of the various
stocks.
These variations are increased to no small extent by the
possibility of procuring negotiable certificates instead
of stock.0 It is provided in Part V of 33 and 34 Viet., c.
71, that any holder of stock may obtain a stock certifi­
cate—i. e., a certificate of his claim to his stock or to a
part of it—with coupons annexed entitling the bearer
to the dividends on the stock or part of the stock. These
certificates are issued for no sum less than £50 or a mul­
tiple of £50, and when issued are not made out to order.
“ Since 56 Geo. I l l c. 60 (1816). Unclaimed interest at the Bank of
England was first claimed as public property in 1790. In the case of the
South Sea Company this was not done until 1844 (Cf. “ Rep. Publ. Inc.
and Exp.,” 1869, II, p. 497).
b 52 Viet., c. 6.
c Their issue was first allowed by 26 Viet., c. 28.




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Hence they entitle the bearer to the stock described in
the certificate, but he can change them into a “ nominal
certificate” at any time by inserting a name in the pre­
scribed place.® These certificates can be changed into
stock at any time. Should the certificates be lost, the
Bank, before issuing a duplicate, may require evidence of
ownership and of the loss or destruction, the advertise­
ment of the loss or destruction in two London daily papers,
and the transfer of an equivalent sum of stock or the
execution of a bond of indemnity, with guarantees; not
more than a year must have passed since the loss. Six
years after the transfer of stock or the execution of the
indemnity the facts must be advertised again, and only
after this can the stock be released and the indemnity
canceled. (Stockholders’ Relief Act, 53 Viet., c. 39.)
The sum paid by the Government to the Bank for the
expenses connected with the management of the public
debt has been regulated by various acts of Parliament
during the nineteenth century and has been fixed at a
definite rate in proportion to the amount of the debt.
B y 55 and 56 Viet., c. 48, the rate was fixed as follows:
For the first £500,000,000 a yearly sum of £325 is paid;
for each million in excess of the amount, £100 is paid.
B y 24 Viet., c. 3, it was ordered that annuities for terms of
years should be reckoned at a capital sum and should be
“ valued at Fifteen Years Purchase, if originally granted
for a Term of Fifty Years or under.” The yearly sum of
£4,000 “ Towards the Expenses of the House,” which had
been paid since 1694, was discontinued as was also the
a The manner of issuing the certificates is regulated by the Finance Act
of 1902. (2 Ed. V II, c. 7, s. 11.)
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additional £1,579 paid on account of the transfer of
South Sea debt.®
For the administration of the floating debt the Bank is
paid as follows: £100 per million of exchequer bills and
exchequer bonds and £200 per million of treasury bills.6
The rate of payment is calculated thus: The sum out­
standing on the last day of the financial year, according
to the computations of the Commissioners of the National
Debt, forms the basis for reckoning the sum to be paid
to the Bank.c In the case of treasury bills the reckoning
is based on the maximum sum which has been outstand­
ing at any period of the past financial year„d
C o n c l u s io n .

B y a process of gradual evolution, lasting for almost
two hundred years, England has arrived at a point
where its public finances are inseparably united with
those of the Bank, and the latter has taken its place as-an
indispensable part of the financial organization. A t an
early stage in this process it was demonstrated that a
bank could be more usefully turned to account by the
State than in raising irredeemable loans, issuing wortha The sums received by the Bank in consequence of this act amounted
to £200,066 in 1862-63. Two years previously, in i860, the Bank’s
expenses of management were £126,445, so that assuming them to be
the same for 1862-63, it made a profit of £73,621. But since the Bank
has to refund all the losses suffered by the public creditors through fraud,
forgery, etc., its expenses are frequently much greater. For instance,
in 1830 it had to pay £214,000 in consequence of a great fraud. The
average yearly loss on this account was £7,000 between 1808 and 1862.
(“ Rep. Publ. Inc. and E x p .,” 1869, II, p. 581.)
b A separate payment is made in case of a conversion.
c 56 Viet., c. 48.
d 6 Ed. V II, c. 10, and 7 Ed. V II, c. 20.




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less paper, and other similar financial operations. Some
countries have attempted in the course of the nine­
teenth century to imitate the system, indisputably a
good one, on which English finances are managed. Its
advantages for the Government are evident—a decreased
cash balance, a simplified system of office organization, a
speedy and cheap method of money transfers, etc. But
to produce these advantages it is essential that the whole
organization of the public money and not merely indi­
vidual sums should be transferred to the Bank. The
Bank must be used as the institution where public pay­
ments are actually made, not merely as a place through
which money passes in the course of transfer from one
public treasury to another. This mistake underlies, for
example, the relations of the German Reichsbank to the
German Empire and the Federal States. The latter are
expressly restricted to the mere drawing of orders of
transfer on the Reichsbank, and the position of the
Imperial Central Treasury as a section of the Bank serves
only to conceal the fact that the relation of the Empire
to it is but little better. The Bank, by its splendid organ­
ization and its branches, would be specially suited to
undertake the financial business of the Empire, but in
actual fact the payments which it makes on behalf of the
Imperial Government are very few, and it is chiefly
employed as a connecting link between the independent
public treasuries. Hence there is no question of employ­
ing the cash balance in Germany to the extent to which
this is done in England. And it is this feature which
constitutes the special merit of a complete union between
the management of the public money and the Bank, as
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this is exemplified in England. B y the transference of
the management of public money to the Bank of Eng­
land, the whole of the Government’s cash balance, in so
far as this is not applied directly to the making of pay­
ments, has become available to supply credit facilities for
the community. Moreover the cash which must be kept
in hand for payments is much reduced, owing to the
technical adjustment of the methods employed, which
have come to resemble exactly the forms of exchange used
in private transactions.
It is, indeed, remarkable that the English Government
has made no provision for employing this surplus balance
on its own account, but has resigned it entirely to the
Bank. With the exception of the proposal, to which we
have referred elsewhere, made by Burke in 1 780, and which
was not acted upon so far as is discoverable, it has appar­
ently never been suggested that the State should reclaim
the profit arising out of the cession of this balance. In
this respect the method adopted in a similar case by
another State, Belgium, shows a decided advance.
According to the law of May 20, 1872, and the agreement
of Ju ly 17, 1872, the National Bank, which acts as state
banker, is bound to employ the sums available for the
benefit of the State. All the regulations of English
financial administration pass over in silence the very
question which makes the entrance of the Bank into the
service of public finance an important economic matter,
viz, in what manner and to whose profit the State ought
to employ its surplus balance. The advantages which
consequently accrue to the Bank of England are in fact
no small ones. It may, however, certainly be admitted


http://fraser.stlouisfed.org/
Federal
Reserve Bank of St. Louis
1

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that the question who ought to obtain the advantage
resulting from the application of banking methods, is a
secondary consideration as compared with the indubitable
profit which is obtained in any case by the trading com­
munity as a whole. In England this profit is of an
importance not to be despised, even taking into account
the magnitude of the English money market. Owing to
the central position of the Bank of England in regard to
the English banking system the public revenue is treated
in the same way as the surplus cash which a private
individual places in a bank, and the public payments pass
through the same channels by which that surplus returns
to its source. The importance of this union of private
and public methods of payment can not be given in
figures, for statistical data are lacking from which the
saving in cash transactions could be reckoned; but we
can obtain an idea of it by examining the process of
public payments in general.
The revenue is collected by the collectors. They
receive it for the most part not in cash, but in cheques.0
They present these cheques to a bank and obtain instead
a bill of exchange which is forwarded to the Commis­
sioners for the collection and management of the inland
revenue in London. The Commissioners send the bill
to the Bank, where it is taken up. The Bank does
not, however, as a rule, receive coin for the separate
bills, since the transaction is usually with a bank be­
longing to the clearing house, and thus a process of
“ compensation” takes place in the well-known manner.
° All the demand notes for payment used by the collectors state the
name of the Bank in favor of which cheques should be crossed-

264

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The sum with which the bank is credited by the per­
son upon whom the bill is drawn is at once placed by
it to the credit of the account of the revenue depart­
ment. The latter transfers it to the exchequer account.
In this way the great reservoir of the revenue is filled.
From thence the sums needed for the public services
are transferred to the account of the paymastergeneral. This is all accomplished without employing a
single coin. The process of issue now begins. Bills of
exchange on the Government are presented. They are
made payable at the Bank. Whether the claimant
receives coin or not makes no difference as far as the
administration of the public finances is concerned. In
any case the sum will be debited to the bill account.
Probably, however, the person presenting the bill is some
great banker who has business relations with the Bank
of England. In most cases a process of compensation
will be possible. On another occasion the paymastergeneral may give cheques to the claimants. These
cheques are crossed and will be sent by the possessors to
their bankers who will credit them with the values thereof.
Perhaps at the same time the possessor draws a cheque on
these same assets, in order to pay a tax which has fallen
due in the meanwhile, and the circular process begins
anew. The bankers themselves, if they are country
bankers with only a small business, have relations with
the large banks. The cheques issued by the paymastergeneral are deposited with these latter like all the others,
i. e., they are transmitted to be placed to the credit of
the possessor. But the great bankers take part as before
in the process of compensation, in the center of which is




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the Bank of England. In yet a third case the amount is
transferred from the Exchequer account to that of the
commissioners of loans for public works. This constitutes
a loan to a company. If the latter has its headquarters
in London it will also have a banker there; if in the
provinces, an account will be opened for it at some
country bank. The Bank of England will again transfer
the amount in question to this bank by the method usual
between bankers. When the Bank has to pay the
interest on the national debt, the money is assigned to it
by means of a book transfer. The payments made in
coin by the Bank itself amount to but little. In by far
the greater number of cases it need merely transfer the
sums to the accounts of the bankers.
Two advantages are inherent in the system of having
the public money managed by the Bank of England:
Clearness and the avoidance of cash payments. The con­
centration of all transactions in the exchequer account
allows not only the Government and the bank, but, by
means of the weekly return, the public, to know the actual
condition of the public assets. The fluctuations in the
account afford a sure guide to the times of inflow and out­
flow of money, and both the bank and the open money
market can confidently base their operations upon the
experiences of previous years.
The avoidance of cash payments is of primary impor­
tance in a country like England, where payment by check
has been so widely adopted and where the extensive oper­
ations of the money market rest upon a small reserve in
the bank of issue. Although the monetary transactions of
the Goyemment do not constitute a large proportion of
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the total English transactions, yet the withdrawal of even
this small part of the total operations of the market would
be intensely felt. The serious disturbances which have
been repeatedly caused in the United States by the inde­
pendent position of the Treasury show with sufficient
clearness the important economic effects of a separation
between the Government transactions and the money
market under a system where check payments prevail.
The safety of check payments demands a universal money
market. Where private transactions are still largely car­
ried out in gold or notes, the partial adoption of a cash
system by the State is much less felt than under a system
of deposit banking.
The Bank of England manages the public deposits in the
same way as the other deposits intrusted to it: 60 to 70
per cent are lent out at bank rate, the rest is kept unem­
ployed at the bank. The retention of even this proportion
as a reserve is regarded by the market as the withdrawal
of so much wealth and is resented; and during the last
decade frequent complaints have been made of the
method of administering the public deposits on two
grounds, that of the importance of the unemployed
reserve and that of the high rate charged for loans. The
practice of the English bank of issue deprives the market
of about a third of the deposits intrusted to it. This policy
is felt much less in the case of the other deposits—which
consist partly of deposits for other banks, cash balances,
and assets temporarily not available, such as those of the
Colonial Governments, and partly of fairly constant private
deposits—than in the case of the public deposits, which
are almost entirely withdrawn from the market to the







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bank during the first two months of the year. The
continuance of the autumn “ dear money” over the end
of the year and on to March is, not without justice,
attributed to the accumulation at the bank during this
period of the money collected in taxes. The retention of
about a third of the money deposited seems, at any rate,
to indicate too strict a business policy, and the demand that
the public deposits should be more freely placed at the
disposal of the market appears not without justification.
The high loan rate at which the bank advances money
is also frequently the subject of severe criticism. The
public money, so it is often argued on the open market, is
placed at the disposal of the bank without any counter
payment on its part, and although the expenses connected
with the management of the public money are not incon­
siderable, yet the Bank of England, by its connection with
the State, secures freely the largest deposit account con­
trolled by any English bank, without having to undergo
any expenses in earning it; hence there is no justification
for making the bank rate essentially higher on the average
than the market rate.
The Continental Governments which have intrusted the
management of their money to their banks of issue, have
in some cases— Belgium—made regulations as to the dis­
posal of the money deposited; m other cases—e. g., Bel­
gium, Italy, and the Netherlands—reserved for them­
selves counter advantages. In England the Govern­
ment has left the disposal of the surplus balance entirely
in the hands of the bank, and except for the proposal
referred to elsewhere, made by Burke in 1780,
no suggestion can be discovered to claim any profit for

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the State from the balances thus intrusted. An English
financial authority has, on the other hand, pronounced
before the American Commission on Banking, in favor of
the investment of a portion of the deposits in bills, accord­
ing to the Belgian plan,1 but to this the prevailing opinion
in the city objects on the ground that foreign bills are not
always a perfect security for obtaining gold. The fact
that no interest is paid on public deposits corresponds
with the custom of London banking, according to which
no interest is allowed on current accounts. The high rate
of interest charged for loans is due, apart from purely
monetary considerations, to the position of the bank;
interest has to be provided on a heavy capitalization,
there is no reserve capital, and the privilege of note issue
has for a long time brought no advantage to the bank, but
on the contrary has hindered it appreciably in its regular
business.
The policy of centralizing the Government assets in
London has contributed to an important extent toward
the concentration of the transactions on the money
market. In spite of the great wealth of provincial Eng­
land, for more than a century no place except London has
been able to produce a money market, and the ruling
position of the capital in the matter of short date credit
transactions has contributed greatly to the amalgamation
of the country banks with London establishments and has
considerably strengthened the tendency to a centralized
system of deposit banking, which is an essential feature of
English economic organization. The desire to secure the
1 The English Banking System, National Monetary Commission, 61
Cong., 2d sess., Washington, 1910.




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greatest possible fluidity of capital has led the Bank of
England to favor loans on stock securities and the dis­
count of short date bills, and thus to limit its loan trans­
actions with regard to speculation in stocks and to genuine
trading credit. This procedure arises, however, merely
from the general business policy of the English bank of
issue and is not directly connected with the management
of the public money; the concentration of money at the
bank would not necessarily postulate any local concentra­
tion of its capital.
According to Bargehot’s opinion the English chancellor
of the exchequer “ created” the money market by his
deposits; the management of public money was bound up
with the banking system before check transactions super­
seded note payments. On the Continent the order of
development was reversed; here the gradual transfer of
the management of the money of private individuals to
the banks created the money market and developed it to
a point at which the complete transference of the Govern­
ment operations is demanded, not only in order to save
cash payments, but also to promote the security of the
money market.




270

A P P E N D IX

I.

T he S tatutory B asis of th e P osition of th e B ank of E ng ­
land in th e E nglish E conomic S ystem .
(i)

THE

A C T E S T A B L IS H I N G T H E B A N K .

[5 and 6Will, and Mary, c. ao.J

“ An act for granting to their Majesties several Rates and
Duties upon Tonnage on ships and vessels and upon beere ale and
other liquors for securing certain recompences and advantages
in the said act mentioned to such persons as shall voluntarily
advance the sum of fifteen thousand pounds towards carrying
on the war against france.”
Sections I to XVII inclusive, with the customary prolixity of
old English statutes, contain provisions relating to the duties
imposed; their amount, methods of collection, duration, etc.
Sections X X X III to XLVII (the last) provide for the applica­
tion of the money paid in to the purposes set forth in the act,
contain general administrative enactments with regard to cer­
tain branches of the revenue and finally make provision for the
raising of a life annuity in case the form of loan which is described
in further detail in Sections X V III to X X X II should not prove
successful. The latter sections alone affect the Bank of England,
and we reproduce them here, with all their wearisome repeti­
tions, in order to give a complete account of the legal position of
the Bank at its foundation.
“ s. X IX . A n d be it further enacted by the authority aforesaid ,
That it shall and may be lawfull to and for their Majesties by
commission under the Create Seale of England to authorize
and appointe any number of persons to take and receive all such
voluntarily subscriptions as shall be made on or before the first
day of August which shall be in the yeare of our Lord One thou-




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sand six hundred ninety four by any person or persons Natives
or Foreigners Bodies Politicke or Corporate for and towards
the raiseing and paying into the Receipte of Exchequer the said
sume of Twelve hundred thousand pounds and that the vearely
sume of one hundred thousand pounds parte of the said yearely
sume of one hundred and forty thousand pounds ariseing by and
out of the said Duties and Impositions before mentioned shall
be applied issued and directed and is hereby appropriated to the
use and advantage of such person and persons Bodies Politicke
and Corporate as shall make such voluntarily subscriptions and
payments their Heires Successors or Assignes in the propor­
tion hereafter mentioned . . . .
“ XX. A n d be it further enacted, That it shall and may be
lawfull to and for their Majesties by Letters Patents under the
Greate Seale of England to limitt directe and appointe how and
in what manner and proportions and under what rules and direc­
tions the said sume of Twelve hundred thousand pounds . . .
and the said yearely sume of one hundred thousand pounds . . .
and every or any parte or proportion thereof may be assigneable
or transferable assigned or transferred to such person or persons
only as shall freely and voluntarily accepte of the same and not
otherwise and to incorporate all and every such Subscribers
and Contributors their Heires Successors or Assigns to be one
Body Corporate and Politick by the name of the Governor and
Company of the Banke of England and by the same name of the
Governor and Company of the Banke of England to have perpetuall succession and a Common Seale and that they and theire
Successors by the name aforesaid shall be able and capable in
Lawe to have purchase receive possesse enjoye and retaine to
them and their Successors Lands Rents Tenements and Heredi­
taments of what kind nature or quality soever. And alsoe to
sell grant demise alien or dispose of the same. And by the same
name to sue and implead and be sued and implead answere and
be answered in Courts of Record or any other place whatso­
ever and to doe and execute all and singular other m atters and
things by the name aforesaid, that to them shall or may
appertain to do, subjecte neverthelesse to the proviso and
condition of Redemption herein after mentioned.
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“ X X I. P rovided alwaies and it is hereby enacted , That in
case the whole sume of Twelve hundred thousand pounds . . .
shall not be advanced and paid into the Receipte of Exchequer
before the First day of January which shall be in the yeare of
our Lord One thousand six hundred and ninety four that then
the Subscribers and Contributors shall only have and receive
so much and such parte and proportion to the said sume or
sumes soe respectively paid and advanced as shall be after the
rate of eight pounds per Centum per Annum. And that at
any Time upon twelve months notice after the first day of
August which shall be in the yeare of our Lord One thousand
seven hundred and five upon repayment by Parliament of the
said Sume of twelve hundred thousand pounds . . . or such
parte thereof as shall be paid or advanced as aforesaid under
the respective Subscribers and Contributors . . . and of all
the arrears of the said yearely payments of One hundred thou­
sand pounds . . . or such proportionable parte thereof
according to the sume, which shall be paid and advanced as
aforesaid then and from thenceforward the said yearely pay­
ments and every of them . . . and the said Corporation
shall absolutely cease and determine any thing herein contained
in any wise to the contrary notwithstanding.”
X X II provides that the Treasury shall regulate the payment
of the yearly income without further royal warrant and that
the officers of the Exchequer shall issue it without fees.
“ X X III. P rovided alwaies and be it further enacted by the
authority aforesaid , That noe person or persons Boddyes Politicke or Corporate shall by themselves or any other person or
persons in trust for him or them subscribe or cause to be sub­
scribed for and towards the raiseing and paying the said sume of
twelve hundred thousand pounds any sume or sumes of money
exceeding the sume of twenty thousand pounds and th at every
such Subscribers shall a t the time of such subscription pay or
cause to be paid unto the Commissioners who shall be author­
ized and appointed for takeing and receiving subscriptions as
aforesaid one full fourth parte of his or their respective sub­
scriptions and in defaulte of such payments as aforesaid every
such subscription shall be utterly void and null. And th at the
residue of the said subscriptions shall be paid into the Receipte
68299°—1 1 ---- 18




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of theire Majesties Exchequer as theire Majesties shall directe
before the said first day of January next. And in defaulte of
such payments that then the forth parte first paid as aforesaid
shall be forfeited to and for the benefit of theire Majesties theire
Heires and Successors.
“ XXIV. P rovided alsoe and be it enacted, That it shall not be
lawfull to or for any person or persons, Natives and Foreigners,
Bodyes Corporate or Politicke at any time or times before the
first day of July next ensueing to subscribe in his her or theire
owne name or names or in any other name or names in trust for
him her or them for or towards the raiseing and paying into the
Receipte of the Exchequer the said sume of Twelve hundred
thousand pounds . . . any sume or sumes exceeding in the
whole the sume of Tenne thousand pounds; anything in this
Act conteined to the contrary in any wise notwithstanding.
“ XXV. P rovided alwaies and be it declared and enacted to be
the true intent an d m eaneing of this Act, That in case the whole
sume of Twelve hundred thousand pounds or a moiety thereof
be not subscribed on or before the First day of August One
thousand six hundred ninety four as aforesaid, th at then the
powers and authorities in this Act for erecting a Corporation as
aforesaid shall cease and determine anything herein conteined
to the contrary notwithstanding. And in such case soe much
of the said yearely sume of One hundred thousand pounds as
shall belong to the said Subscribers according to the meaneing of
this Act shall be transferrable and may be from time to time
transferred by the respective persons, soe subscribing, advanc­
ing, and paying any parte of the said Twelve hundred thousand
pounds into the Exchequer or their respective Heires, Succes­
sors or Assignes to any person or persons whatsoever by any
writeing or writeings under the hand and seale of the person or
persons transferring the same attested by two or more credible
Witnesses and entered within Twenty dayes after the sealeing
thereof in a Booke or Bookes to be for that purpose kept in the
said Exchequer by theire Majesties Remembrancer for the time
being (for the entering whereof nothing shall be paid) which
entries the said Remembrancer is from time to time upon
request directed to make; and such parte of the said yearely
sume of One hundred thousand pounds as shall by this Act be
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due to the said subscribers, shall not a tt any time or times
hereafter be made use of or be a fund or security for or lyable
or applyed to raise pay or secure any more further or other
sume or sumes of money whatsoever save only such money as
shall in pursuance of and according to the intent of this Act be
advanced and paid into their Majesties Exchequer within the
time by this Act limited for the same.
“ XXVI. A n d it is hereby enacted by the authority afore­
said, That the said Corporation so to be made shall not
borrow or give security by Bill, Bond, Covenant or Agreement
under their Common Seale for any more further or other sum
or sumes of money exceeding in the whole the sume of Twelve
hundred thousand pounds, so that they shall not owe at any
one time more then the said sume unless it be by Act of Parlia­
ment upon funds agreed in Parliament, and in such case only
such further sumes as shall be soe directed and allowed to be
borrowed by Parliament and for such time only until they shall
be repaid such further sumes as they shall borrowe by such
authority and if any more or further or other sumes of money
shall be borrowed taken up lent or advanced under theire
Common Seale or for payment of which any Bond Bill, Cove­
nant or Agreement or other Writeing shall be made sealed or
given under the Common Seale of the said Corporation soe to be
made then and in such case all and every person or persons who
shall be a member or members of the said Corporation, his and
theire respective private and personall capacities be chargeable
with and lyable in proportion to theire severall Shares and
Subscriptions to the repayment of such moneys, which shall be
soe borrowed taken up or lent with Interest for the same in such
manner as if such Security had been a Security for payment of
soe much money and Interest for the same sealed by such
respective member or members of the said Corporation and deliv­
ered by him or them as theire respective Acts and Deedes in
proportion to theire severall Shares or Subscriptions as afore­
said and that in every such case an Action of Debt shall and
may be brought commenced prosecuted and mainetained in
any of their Majesties Courts of Record a tt Westminster by the
respective Creditor or Creditors, to whom any such security




27s




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M on et a r y

Commission

under the Common Seale of the said Corporation shall be made
or his or theire respective Executors or Administrators in pro­
portion to theire respective Shares or Subscriptions as afore­
said and therein recover and have judgement for him or them
in such and the like manner as if such security were respectively
sealed by the respective person or persons, who shall be soe
sued or his or theire respective Ancestor or Testator or Intes­
tate and by his and them executed and delivered as his or theire
respective Acts and Deedes any condition covenant or agree­
ment to be made to the contrary thereof in any wise notwith­
standing. And if any condition covenant or agreement shall
be made to the contrary, the same shall be and is hereby de­
clared to be void any thing herein contained or any Lawe or
Usage to the contrary notwithstanding and in such Action or
Actions soe to be brought noe Privilege Protection Essoign or
Wager of Lawe nor any more then one Imparlance shall be
allowed.
“ XXVII. And to the intent that theire Majesties Subjects
may not be oppressed by the said Corporation by theire monopo­
lising or ingrosseing any sort of Goods, Wares or Merchan­
dizes, Be it further declared and Enacted by the authority
aforesaid, that the said Corporation to be made and created by
this Act, shall not a tt any time dureing the continuance thereof
deale or trade or permitt or suffer any person or persons what­
soever either in trust or for the benefitt of the same to deale or
trade with any of the Stock moneyes or Effects of or in any wise
belonging to the said Corporation in the buying or selling of
any Goods, Wares or Merchandizes whatsoever and every
person or persons who shall soe deale or trade or by whose
orders or directions such Dealeings or Tradeing shall be made
prosecuted or managed, shall forfeite for every such Dealeing
or Tradeing and every such order and directions treble the
valy of the Goods and Merchandize soe traded for to such
person or persons who shall sue for the same by Action of Debt,
Bill, Plaint or information in any of theire Majesties Courts of
Record at Westminster wherein noe Essoigne, Protection nor
other Privilege whatsoever nor any Injunction Order of restrainte
nor Wager of Lawe shall be allowed nor any more than one
Imparlance.
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System

“ X X V III. Provided that nothing therein contained shall
any wayes be construed to hinder the said corporation from
dealing in bills of Exchange or in buying or Selling Bullion, *
Gold and Silver or in selling any goods, wares or merchandize
whatsoever, which shall really and bona fide be left or deposited
with the said corporation for money lent and advanced thereon
and which shall not be redeemed at the time agreed on or
within three months after or from selling such goods as shall or
may be the produce of lands purchased by the said Corporation.
“ XXVIX. Provided alwayes and be it enacted by the authority
aforesaid , That all and every Bill or Bills obligatory and of creditt
under the Seale of the said Corporation made or given to any
person or persons shall and may by Indorsement thereon under
the hand of such person or persons be assigneable and assigned
to any person or persons who shall voluntarily accepte the same
and soe by such Assignee toties quoties by indorsement there­
upon and that such Assignment and Assignements soe to be
made, shall absolutely vest and transferre the Right and Prop­
erty in and unto such Bill or Bills Obligatory and of Creditt and
the moneys due upon the same and that the Assignee or Assignees
shall and may sue for and maintaine an action thereupon in his
owne name.
“ X X X. P rovided alwaies and it is hereby f urther enacted, That
if the Governor, Deputy Governor, the Director, Managers, Assist­
ants or other Members of the said Corporation so to be estab­
lished shall upon the account of the said Corporation at any time
or times purchase any lands or revenues belonging to the Crowme
or advance or lend to their Majesties, theire Heires or Successors
any sume or sumes of money by way of Loan or Anticipation on
any parte or parts, branch or branches, fond or fonds of the
Revenues now granted or belonging or hereafter to be granted
or belonging to their Majesties, their Heires or Successors other
than such fond or fonds, branch or branches of the said Revenues
only on which a credit of loan is or shall be granted by Parlia­
ment that than the said Governor, Deputy Governor, Directors,
Managers, Assistants or other Members of the said Corporation
who shall consent agree to or approve of the advanceing or lend­
ing to theire Majesties, theire Heires or Successors such sume or







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Co mmi s s i o n

sumes of money as aforesaid such and each and every of them
soe agreeing consenting approving and being thereof lawfully
convicted, shall for every such offence forfeite treble the value
of every such sume or sumes of money soe lent whereof one fifth
parte shall be to the informer to be recovered in any of their
Majesties Courts of Record at Westminster by action of Debt
Bill Plainte or Information wherein no Protection Wager of
Lawe, Essoign, Privilege of Parliament or other Privilege shall
be allowed, nor any more than one Imparlance and the residue
to be disposed of towards publicke uses as shall be directed by
Parliament and not otherwise.
“ X X X I. Provided alwaies and be it enacted, That all Amercia­
ments, Fynes and Issues against the said Corporation and theire
Successors had charged or estreated in or upon account of any
suites or actions to be prosecuted or brought against them shall
not be pardoned acquitted or discharged by any Letters of
Signet, Privy Seale or Greate Seale of theire Majesties, theire
Heires or Successors or otherwise howsoever and in case any such
Amerciaments Fynes or Issues shall be estreated into their
Majesties Exchequer against the said Corporation upon any
Processe for non-appeareance a tt the suite of any person or
persons that then it shall and may be lawfull to and for the Offi­
cers of their Majesties Exchequer for the time being who are
hereby directed to pay the said yearely sume of One hundred
thousand pounds to the said Corporation to detaine soe much
money as the said Amerciaments, Fynes or Issues shall amount
unto out of the said yearly sume of One hundred thousand pounds
payable to the said Corporation.
“ X X X II. A n d be it further enacted, That if a tt any time
hereafter any person or persons shall obtaine any Judgment or
Judgments in any Court of Lawe against the said Corporation for
any Debte or sume of money and shall bring execution or execu­
tions thereupon unto the said Officers of theire Majesties Exche­
quer, that then it shall and may be lawful to and for the said Of­
ficers of the said Exchequer, to pay and they are hereby required
to pay the said sume or sumes of money in the said executions
mentioned to the Plaintiffe or Plainetiffes therein named or theire
Assignes whose Receipte shall be a sufficient discharge for the
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Syst em

same and that the said Officers of the Exchequer shall and may
detain soe much of the said yearely sume of One hundred thou­
sand pounds as the said Debt or Debts shall amount unto.
“ X X X III. . . . and whereas some Doubts may arise
whether any Member or Members of Parliament may be con­
cerned in the Corporation to be erected in pursuance of this Act
be it therefore declared and enacted by the authority aforesaid,
that it shall and may be lawfull to and for any Member or Mem­
bers of the House of Commons to be a Member or Members of
the said Corporation for the purposes in this Act mentioned any­
thing in the recited Act conteined to the contrary in any wise
notwithstanding. ’’
(2)

THE LATER

A CTS.

Among the statutory enactments subsequent to 5 and 6
Will, and Mary, c. 20, it is only necessary to call attention to
those which limited, improved, or in any way altered, the legal
position of the Bank. Doan acts pure and simple and the
merely formal acts which prolonged the Bank charter, and
which were moreover generally combined with arrangements
for loans, need not be referred to here. Among the former
we need only notice those provisions which relate to the exclu­
sive privileges of the Bank. Thus it is stated in 8 and 9 Will.
I ll , c. 20, s. X X IX , 1697:
“ A n d be it further enacted, That during the continuance of the
Corporation of the governor & company of the bank of England
no other Bank or any other corporation, society, fellowship,
company or constitution, in the nature of a bank shall be erected
or established, permitted, suffered, countenanced, or allowed by
act of parliament within this kingdom.”
This provision was further extended in 7 Anne, c. 7 (1708).
“ That during the continuance of the said corporation of the
governor and company of the bank of England, it shall not be
lawfull for any body politic or corporate whatsoever, erected or
to be erected (other than the said governor and company of the
bank of England) or for any other persons whatsoever united
or to be united in covenants or partnership, exceeding the num­
ber 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




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or notes payable at demand, or at any less time than six months
from the borrowing thereof.”
And was again expressly repeated in 15 Geo. II, c. 13, s. 5, 1742:
“ And to prevent any doubts, that may arise concerning the
privilege or power given by former acts of Parliament to the said
governor and company of exclusive banking, and also in regard
to the erecting of any other bank or banks by parliament or re­
straining other persons from banking, during the continuance of
the said privilege granted to the governor and company of the
bank of England as before recited; it is hereby further enacted
and declared by the authority aforesaid, That it is the true
intent and meaning of this act, that no other bank shall be
erected, established or allowed by Parliament and that it shall
not be lawful for any body politik or corporate whatsoever,
erected or to be erected, 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 at demand, or at any less time
than six months from the borrowing thereof, during the contin­
uance 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. . . . ”

A p p e n d ix

II.

T H E S E T T L E M E N T OP T H E N A T IO N A L L A N D B A N K .

The settlement of the National Land Bank was drawn up on
August io, 1695, by the “ trustees and managers” of the bank,
elected by the subscribers of the land bank loan. The draft
was made by two of them, Nicholas Barbon and John Asgill,
and, by way of acknowledgment, £ 2,000 in bank stock was
voted to the former and £3,000 to the latter. The statute is
printed in Lord Somers’s “ Tracts,” Vol. X I, as “ The Settle­
ment of the Land Bank,” and its principal contents are as
follows:
It was proposed to raise the credit of owners of land “ by
conveying the legal estates thereof unto trustees, and preserving
and continuing the same in them; and dividing the values
thereof into greater or lesser sums and making such values
assignable and reassignable in register books * * * and
giving power unto such trustees to issue out bills of charge on
security of the said values.”
The value of the lands conveyed to the trustees was to be
divided into four parts. Three of these were called “ The
values of the register” and the fourth part “ The equities of
redemption.” The values of the register were to be divided
into sums of thousands, hundreds, fifties, etc., and each £100
of this value of the register was to be “ esteemed and taken as a
security for one hundred pounds principal money, and interest
secured on the lands to which such values shall relate by books
and numbers.”
“ When such conveyance shall be executed the auditor, for
the time being (by warrant of the trustees and manager for the
time being, in writing, and not otherwise), shall adjust the
whole value of the lands so conveyed at such values thereof as
shall be expressed in the said warrant, and shall sign such valu­
ation in the margin of the said conveyance, and of the counter-




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part thereof * * * which valuation shall be called ‘the
value of the auditor.’ ” The register was then to reduce this
valuation to three-quarters. This reduced value was to be
called “ the value of the register,” and was intended as “ a limita­
tion to the trustees and managers for the time being, to restrain
them from lending monies, or issuing out bills of exchange on
security of the said lands for any greater sum of money than
such reduced values of the register”—i. e., than three quarters
of the estimated value of the property.
The names of the owners of the properties, together with a
statement of the value of the auditor, were then to be entered
in a book in alphabetical order. The credit allowed by the
Bank was then to be entered in a separate book called “ the
value ledger,” in which a debit and credit account was to be
opened for each owner and on the credit side an entry was to
be made in the following form: “ Cr. A. B. f o r ---------pounds
value of the register, secured on the lands rents and estates
entered in libro A. No. —.”
The values of the register only amounted to three-quarters of
the value of the auditor, and the remaining quarter formed the
equity of redemption, so that the owner was credited with the
latter in another book, the “ purchase ledger,” in the following
form: “ A. B. creditor for the equity of redemption of the
lands rents and estates entered in libro A. No. —.”
Besides this there was yet another book, the “ voucher book,”
for “ transferring the credit of the said values and the right and
title thereof.” This formed an annex to the value ledger, and
served especially for the registration of the documents by
reason of which the value of the register with which the landowner was credited was gradually transferred into the hands of
the Bank. Thus whenever a landowner took advantage of his
credit to borrow a sum of money from the bank, he had to sign
a warrant from the trustees to the register authorizing the
latter to transfer to the B anka portion of the value of the register
equal to the sum borrowed. On repayment of the loan an
equivalent amount was to be transferred back again.
The trustees and managers for their part had the right to
borrow money on the security of the values of the register, but
to amounts not exceeding the value of the advances made by
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them. This borrowing was to be managed by the issue of
bills in the following form :
‘‘This bill, pursuant to the settlement of the Land Bank enrolled
in Chancery anno dom. 1695, doth charge one hundred pounds
value of the register secured upon the lands rents or estates
entered in libro No. — and the stock of monies and funds of
insurance annexed to the said Bank with payment of one
hundred pounds and interest to A. B. By order of the
trustees and managers of the Land Bank, established Anno
Dom. 1695.”
The bills were to be secured upon a definite estate only by
book and number, but this reference was to be as effective as
if the lands referred to were expressly named and described in
the bill.
The equities of redemption were at the free disposal of the
owner even should the values of the register be completely
charged, but they were liable in the first instance for the credit
which the owners might have received on these values of the
register.
The trustees and managers could recall the loans a t a year’s
notice. They must accept repayments at any time but for
amounts liot less than £100. The bills issued bore interest, the
first payment of which fell due six months after issue. If pay­
ment was not demanded within thirty days after it was due, the
bills ceased to bear interest until the day on which they were
again presented. Should a property lose in value, the bills secured
on it were to be redeemed. For this purpose the trustees and
managers were to issue monthly announcements in which all
pay offices were ordered to retain and pay off the bills (as
described in detail). In this way also outstanding interest and
capital were to be claimed. So long as the interest was paid
regularly no debtor might be disturbed in his possession of the
land. It was especially stated that each estate was chargeable
only with the value secured on itself.

For the security of the bills issued the trustees and managers
were to “ lay out and employ ten shillings per annum, out of the
interest of every one hundred pounds by them lent * * *
to be a fund of insurance.” This fund was in particular to be




283

National

Monetary

Commission

charged with such bills as, having been for any cause whatever
called in, had yet not been presented for payment. The notices
calling in bills were to be published monthly for six months.
Should the bill not be presented within six months after the last
notice, the lands on which the bill was charged were to be freed
and the bills were thenceforth to be charged on the funds of
insurance. If the debtors of the Bank failed to pay interest or
capital when due the trustees and managers might use the ordi­
nary legal means to recover the debt.
The administration of the loans was organized as follows:
The trustees and managers, 21 in number, were to be selected
each year on November 21. The election was to be by a major­
ity of votes and each person who had £ 1,000 or more in the
stock was to have 5 votes and no more; £500 to £1,000
entitled the holder to 3 votes, £300 to £ 500 to 2 votes, and £100
to £ 300 to 1 vote.
Anyone might be elected who had at least £1,000 in the
stock. If the share of one of those elected should fall below
£ 1,000 his office ceased ip so facto. Not more than 15 out of the
trustees for the previous year might be re-elected.
The trustees were to make decisions by a majority of votes.
They might, however, elect a committee to manage the current
administration. The appointment of all the officers of the
Bank was in their hands. No one might be auditor or register
who did not hold at least £ 1,000 in stock. The income of the
trustees and the yearly dividend were to be settled by the
general assembly of the shareholders.




A p p e n d ix
THE

PR ESEN T

FO R M S

OF

THE

III.

EXCH EQ UER

B IL E S ,

TR EA SU R Y

B I L L S , A N D E X C H E Q U E R B O N D S .0

Exchequer bill.
[Stamp]: B y virtue of an
act 29 Viet. c. 25 1
Dated the — day o f -----

£1,000.

[Stamp]: B y virtue of an
act 29 Viet. c. 25 1
Dated the — day o f -----

This Exchequer Bill entitles6---------or Order to claim payment
of One Thousand pounds at the Bank of England out of the Con­
solidated Fund, at the expiration of any period of Twelve months,
not later than five years from the date hereof.
Interest on this Bill will be paid half-yearly at the Bank of
England, at such rate per centum per annum as shall be notified
from time to time in the “ London Gazette ” by the Commissioners
of Her Majesty’s Treasury.
This Bill may be paid for the sum of One Thousand pounds,
and interest accrued thereon, to the Receivers and Collectors in
the United Kingdom, of any of the Public Revenues, Aids, Taxes,
or Supplies, or to the account of Her Majesty’s Exchequer at the
Bank of England, at any time in the last six months of every
year, commencing from the day of the date hereof, in which it
shall have currency by law.
S ign ed in the presence of —

Exchequer bill interest certificate.

No. 1.

£1,000.

10.

[Act 29 Viet. cap. 25.]

This Coupon entitles the Bearer to Interest on the above sum
for half year t o --------Comptroller and A uditor General.
a According to the treasury minutes of March 9 (exchequer bills and
bonds) and of March 16, 1867 (treasury bills).
b If the Blank is not filled up, this Bill will be paid to bearer.




I

N at i on a l

M on et a r y

Commission

[On th e b a c k o f th e b ill.]

The holder of this bill, when intending to claim payment of
the principal money at the expiration of any year, must give
three days’ previous notice and deposit the Bill (together with
the Interest Coupons not due) at the Bank of England for
verification.
{Exchequer bond.)

£100.
[Stamp]: A 1,000. Principal to be paid of at p a r--------- 18— . Per act—
Viet. Reg. cap.— Interest at the rate of — per cent per ann. Dated
at th e ------on th e ------- 18— .

Exchequer bond.
This Bond entitles the Bearer to One Hundred Pounds, with
the Interest due and payable thereon half-yearly, and the
Principal Sum secured by this Bond, to be repaid out of such
Moneys as shall be provided by Parliament in that behalf.
The several Sums in respect of Interest mentioned in the
annexed Certificates are transferable by delivery of such respec­
tive Certificates, and will be payable to the persons producing
and delivering the same at the Bank of England.
{To be signed by the Comptroller and Atulitor G eneral .)
---------------------------- [E X C H E Q U E R S E A L .]

Signed in the presence of—
N. B.

The Cheques must not be cut off.

Interest certificate.

No. 1,000 A.

£---------

Interest certificate on exchequer bond per act — Viet. c a p .— for £100.

This Certificate entitles the Bearer t o ---------p o u n d ---------shillings, Interest at £— per cent per ann., payable at the Bank
of England, for half a year ending---------18—.

% for FRASER
Digitized


Comptroller and A uditor General.
286

The

English

Banking

Syst em

T reasury bill.
A . o o o o .i.
£ ------

D u e Ju n e 28, 18 7 7 .

By virtue of an Act 40 Viet. c. 2.

A . 0000.1

£------

L o n d o n , M arch 28, 18 7 7 .

This Treasury Bill entitles 0 ---------or order to payment
o f---------pounds at the Bank of England out of the Consolidated
Fund on the 28th June, 1877.
( S i g n e d ) ------------------Comptroller and A uditor General.

In presence of—
a If this blank be not filled up, the Bill will be paid to bearer.




287




A p p e n d ix
AVERAGE

AM OUNT OF T H E

P U B L IC

IV.
D E P O S IT S A T T H E B A N K

OF

EN GLAND .

The report of the committee on renewing the bank charter,
1831, gives the average amounts of the public deposits at the
Bank of England for the years 1807 to 1831, as follows:
[000 omitted.]
Year.

Amount.

£12,647

1807
1808
1809
1810
18 11
1812
1813
1814
1815
1816
1817
1818
1819

I I , 76 1
11.09 3
1 1 . 95°
10 ,19 1
10,390

10,393
12 .15 8

1 1 .737
10,807
8, 699
7, 066

Year.
1820
1821
1822
1823
1824
1825
1826
1827
1828
1829
1830

Amount.
£ 3,7 13
3.920
4,1 07
5 .5 26
7, 222

5,34 7
4 , 214
4. 223
3,821
3,862
4,761

1831

3 .9 4 8

4 . 538
Total

133 . 43 °

Total

5 4 ,6 64

Average from 1807 to 1831 , £7,523.

The following table refers to the last nineteen years. The
estimates for the years 1869 to 1879 are taken from the Econo­
mist, December 13, 1879, No. 1894. The averages for the
remaining years are based on the weekly returns of the Bank
for th at period, which returns are given in the corresponding
numbers of the Econom ist:

The

English

Banking

System

[ooo omitted.]
Amount.
£6,7 89

1864
1865
1866
1867
1868
1869
1870
1871
1872

6 .5 5 6
5 . 290
6,423
4.856
5. 129
7.635

7, 071
8,875

Total

Year.
1 8 7 3 ..........................................
1 8 7 4 ..........................................
1 8 7 5 ..........................................
1 8 7 6 ..........................................
1 8 7 7 ..........................................
1 8 7 8 ..........................................
18 7 9 ..........................................
1880..........................................
1 8 8 1 ..........................................
1 8 8 2 ..........................................
Total.............................

58,624

Amount.
£ 9 ,4 22
6. as'i
5. 223
6, 793
5.838
5 . 56 o
5.867
6. 851
6. 535

5.47 9
63.819

Average from 1864 to 1882, £6,444.

Since 1882 the developm ent has been as follows:
[000 omitted.]
Amount.

Year.

£ 6 , 924

1883
1884

7. 288
6, 196

1885
1886

1892

5.856

1893
1894

6, 969

1889

5.697

189 s
1896

7.601

Total, 1883-1896.

£ 9 , 982
1 0 , sox

1 8 9 9 ....................................................
I 9 0 0 ....................................................

IO, 042

1902 ....................................................

V ’ »Oj
1 1 , 06 9

1 9 0 3 ....................................................

8.834

1 9 0 4 ....................................................

8, 454

1 9 0 5 ....................................................
1 9 0 6 ....................................................

11.8 37
1 0 , 387

1 9 0 7 ....................................................
1 9 0 8 ....................................................




19

9 . 22s

10,418

1 9 0 9 ....................................................
1 9 1 0 ....................................................

10.519
13.078

93.38i

Total, 1 8 9 7 - 1 9 0 0 ............

142, 134

Average from 1883 to 1910 £8,4x2.

68299°— 1 1

9. 285

Os

6, 6 1 0

1888

1 8 9 7 ....................................................
1 8 9 8 ....................................................

Os

18 9 1

1887

Amount.

00

1890

4 . 983
5.377
6, 443
7 . 179
5 .84 0

Year.

289




A p p e n d ix

V.

BANK ACT, 1892.
[55 & 56 V ict. CH. 48.)

CONTENTS.
S ec . i . Remuneration to Bank of England for management of unre­
deemed debt inscribed in books.
S e c . 2. Remuneration to Bank of Ireland for management of unre­
deemed debt inscribed in books.
S ec . 3. Remuneration to Bank of England for management of Exchequer
bonds and bills and Treasury bills.
S e c . 4. General provision as to payments for management of unre­
deemed debt and of Exchequer bonds and bills and Treasury bills.
S e c . 5. R ate of interest on Government debt to the Banks of England
and Ireland.
S e c . 6. Mode of dealing with dead Bank of England notes.
S ec . 7. Internal regulations and stock of Bank of England.
SEC. 8. Short title, commencement, and repeal.
Schedule of Acts repealed (presenting a convenient index to the Acts
regulating the relations of the Bank to the State).

CHAPTER 48.— An Act For making further Provision respecting certain

Payments to the Banks of England and Ireland, and for other purposes
connected writh those Banks. [27th June 1892.]

BE it enacted by the Queen’s most Excellent Majesty, by
and with the advice and consent of the Lords Spiritual and
Temporal, and Commons, in this present Parliament assembled,
and by the authority of the same, as follows:
1. There shall be paid to the Bank of England, during the
period in this Act mentioned, as remuneration for the manage­
ment of the National Debt inscribed in their books an annual
sum calculated at the rate of three hundred and twenty-five
pounds for every million pounds of such debt up to five hundred
million pounds, and at the rate of one hundred pounds for every
million pounds of such debt above the said five hundred million
pounds: Provided that during the said period the said annual

The

English

Banking

Sy s t e m

sum shall not be less than one hundred and sixty thousand
pounds.
2. There shall be paid to the Bank of Ireland, during the
period in this Act mentioned, as remuneration for the manage­
ment of the National Debt inscribed in their books an annual
sum calculated at the rate of four hundred and twenty-five
pounds for every million pounds, if such debt does not exceed
thirty million pounds, and if it does exceed that sum, then at the
rate of three hundred pounds for every million pounds of such
d eb t: Provided that during the said period the said annual sum
shall not be less than eight thousand pounds.
3. There shall be paid to the Bank of England, during the
period in this Act mentioned, for the management in every
financial year, of Exchequer bonds, Exchequer bills, and Treas­
ury bills, an annual sum calculated at the rate, as respects
Exchequer bonds and Exchequer bills, of one hundred pounds,
and, as respects Treasury bills, of two hundred pounds, for
every million pounds of bonds or bills outstanding on the last
day of the previous financial year.
4.
— (1.) The annual sums fixed by this Act for the manage­
ment of the National Debt inscribed in the books of the Bank
of England or Ireland and of Exchequer bonds, Exchequer bills,
and Treasury bills shall be payable in respect of that manage­
ment for every financial year up to and including the year ending
the thirty-first day of March, one thousand nine hundred and
twelve, and thereafter from year to year until Parliament other­
wise directs.
(2.) The annual sums for the said management in any financial
year shall be paid before the fifth day of July in the following
financial year.
(3.) The National Debt Commissioners shall certify the amount
of the unredeemed National Debt which on the last day of every
financial year is inscribed in the books of the Bank of England
and Bank of Ireland, respectively, and the annual sums or the
management of the Debt in the following financial year shall be
calculated on the amount so certified.
(4.) Such certificate shall state the nominal capital amount of
all the unredeemed National Debt so inscribed, and shall state the




2 QI

-

---------------

National

Monetary

Co mmi s s i on

capital amount of every terminable annuity at fifteen years pur­
chase thereof if originally created for a term exceeding fifty years,
and at ten years purchase thereof if originally created for a term
of fifty years or under.
(5.) The said annual sums shall continue to be payable out of
the permanent annual charge for the National Debt.
(6.) For the purpose of calculating the said annual sums, the
National Debt shall include the Local Loans stock and Guaran­
teed Land stock, but such proportion of those sums as is payable
in respect of the management of the two last-mentioned stocks
shall be paid to the Bank in the case of the Local Loans stock out
of the Local Loans fund, and in the case of Guaranteed Land
stock out of money provided by Parliament for the service of the
Irish Land Commission.
5.
Whereas the Bank of England and the Bank of Ireland
respectively have consented to the annuity or interest on the debt
to them from the public being reduced to the rate of two and
three-quarters per cent per annum until the fifth day of April one
thousand nine hundred and three; Be it therefore enacted as
follows:
(1.) The annuity or interest payable as part of the permanent
annual charge for the National Debt—
(a) in respect of the debt due from the public to the Bank of
England, (which at the passing of this Act amounts to eleven
million fifteen thousand and one hundred pounds); and
(b) in respect of the debt due from the public to the Bank of
Ireland, (which at the passing of this Act amounts to two million
six hundred and thirty thousand seven hundred and sixty-nine
pounds four shillings and eightpence), shall be a t the rate of
two pounds fifteen shillings per dent per annum, until the fifth
day of April, one thousand nine hundred and three, and after
th at day, at the rate of two pounds ten shillings per cent per
annum: Provided that if the Bank concerned by notice in
writing to the Treasury six months before the said day decline
to accept such lower rate of interest, the debt to that Bank may
be paid off without further notice, and until payment, the said
annuity or interest shall continue to be payable at the rate of
two pounds fifteen shillings per cent per annum.




2 Q2

The

English

Banking

System

(2.) The said annuity or interest shall be paid by equal quar­
terly payments on the fifth day -of January, the fifth day of
April, the fifth day of July, and the fifth day of October in each
year.
6.
— (1.) Where Bank of England notes issued more than forty
years have not been presented for payment, the Bank of England
may write off the amount, or any proportion of the amount of
the said notes from the total amount of notes issued from the
issue department, and the Bank Charter Act 1844 shall apply
as if the amount of notes so written off had not been issued;
Provided that—
(a) a return of the amount of notes so written off shall be
forthwith sent to the Treasury and laid by them before Parlia­
ment; and
(b) this section shall not affect the liability of the Bank to
pay any note included in the amount so written off, and if it is
presented for payment the amount shall either be paid out of
the bank notes, gold coin, or bullion, in the banking department,
or, if it is exchanged for gold coin or bullion in the issue depart­
ment, or for a note issued from the issue department, a corre­
sponding amount of gold coin or bullion shall be transferred from
the banking department and appropriated to the issue depart­
ment.
(2.) This section shall be construed as one with the Bank
Charter Act, 1844.
7.
— (1.) It shall be lawful for Her Majesty the Queen to grant,
and for the Bank of England to accept, a supplemental charter
regulating the internal affairs of the corporation of the Bank
of England, and if such charter is granted the Acts specified in
P art III. of the schedule to this Act shall be repealed as from
the date of such supplemental charter to the extent in the third
column of that schedule mentioned.
(2.) Notwithstanding the repeal of any enactment by this Act
the capital stock of the Bank of England as existing at the
passing of this Act shall be subject to the enactments so far as
unrepealed which relate to stock of the Bank of England, and
the holders of the stock shall be members of the corporation of
the Bank of England.
8. — (1.) This Act may be cited as the Bank Act, 1892.




293




(2.) This Act shall take effect as from the beginning of the
current financial year.
(3.) The Acts set out in Parts I. and II. of the schedule to
this Act are hereby repealed to the extent in the third column
of that schedule mentioned.
S c h ed u le of E n a c tm en t s R e p e a l e d .
P art

I.— Enactments relating to the debt from the public to and
the stock of the B a n k of England.

Session and chapter.

Title or short title.

Extent of repeal.

5 & 6 Will. & Mar.c. 20. The Bank of England act. 1694.... Section 21; section 32; and
section 34.
8 & 9 Will., 3. c. 20. . The Bank of England act, 1696. .. Section 26. from “ or for
whom such subscrip­
tions shall be made’’
down to “ twentieth day
of June be and,” and
from *at all times”
down to “ June;” sec­
tion 32, down to “ by
virtue of the said recited
act and;” and the words
“ from and after the
completing the said
subscriptions;” section
33 down to “ ninetyseven;” section 37; sec­
tion 47; section 48.
6 Anne, c. 59. (c. 32. An act for regulating the qualifica­ The whole act.
in the old editions).
tions of the elections of the gov­
ernor, deputy governor, direc­
tors, and voters of the Governor
and Company of the Bank of
England.
7 Anne, c. 30. (c. 7. in The Bank of England act, 1708__ Preamble; sections 1 to 5,
section 67 down to “ per­
the old editions).
sons, and that” and
from “ and the said
allowances” down to
“ Governor and com­
pany,” and from “ al­
lowances and” down to
“ governor and company
as aforesaid;” section
68.

294

The

English

Banking

System

P art I .— Enactm ents relating to the debt from the public to and
the stock of the B a n k of E n glan d —Continued.
Session and chapter.

Title or short title.

3 Geo. 1, c. 8 .............. The Bank of England act, 1716....
11 Geo. 1, c. 9 ............ An act the title of which begins
with the words “An act for con­
tinuing the several annuities,”
and ends with the words “ re­
deemable by Parliament.”
An act for granting an aid to His
1 Geo. 2, Stat. 2 , c. 8
Majesty by sale of annuities to
the Bank of England at £4 per
centum redeemable by Parlia­
ment, and charged upon the
duties on coals and culm.
2 Geo. 2 , c. 3................ An act for raising the sum of
£1,250,000 by sale of annuities
to the Bank of England after
the rate of £4 per centum per
annum, redeemable by Parlia­
ment, and for applying the pro­
duce of the sinking fund.
IS Geo. 2. c. 13.......... An act for establishing an agree­
ment with the Governor and
Company of the Bank of Eng­
land for advancing the sum of
£1,600,000 toward the supply
for the service of the year 1742.
19 Geo. 2, c. 6 ............ An act the title of which begins
with the words “An act for es­
tablishing an agreement,” and
ends with the words “ one
thousand seven hundred and
forty-six.”
23 Geo. 2, c. 1............ An act for reducing the several an­
nuities which now carry an inter­
est after the rate of £4 per cen­
tum per annum to the several
rates of interest therein men­
tioned.
23 Geo. 2, c. 22.......... An act for giving further time to
the proprietors of annuities after
the rate of £4 per centum per
annum to subscribe the same in
the manner and upon the terms
therein mentioned, and for re­
deeming such of the said annui­
ties as shall not be so sub­
scribed.




295

Extent of repeal.
Section 45.
Preamble and sections 1
and s.

Section 5.

Do.

Sections 6 and 7.

Section 3 ; section 5 ; sec­
tion 8; sections 13 and
14.

The whole act, except sec­
tion 8.

The whole act, except sec­
tions 8 and 14.




N a tio n a l

M o n e ta r y

Commission

P art I. — Enactm ents relating to the debt from the public to and
the stock of the B a n k of E n g la n d — Continued.
Session and chapter.

Title or short title.

An act for establishing an agreement with the Governor and
Company of the Bank of England, for advancing the sum of
£3,000,000 for the service of the
year 1816.
24 & 25 Viet., c. 3 . . . . An act to make further provision
respecting certain payments to
and from the Bank of England,
and to increase the facilities for
the transfer of stocks and annuities, and for other purposes.
29 & 30 Viet., c. 25... The exchequer bills and bonds act.
1866.
33 & 34 Viet., c. 71 • • • The national debt act, 1870...........
40 & 41 Viet., c. 2 . . . . The treasury bills act, 1877...........
56 Geo. 3, c. 96..........

National debt and local loans act.
1887. •
S i & 52 Viet., c. 2 . . . . The national debt (conversion)
act, 1888.
S2 & S3 Viet., c. 4. • • • The national debt redemption act,
1889.

50 & 51 Viet., e. 16...

Extent of repeal.
Section 3, down to “ sen'ice as aforesaid,” and
from “ making an encrease’’ to the end of the
section; and section 5.
The whole act, except sections 4, 5, 9, and 10.

Section 29.
Sections 40 and 64.
Section 11 and section 12
from “ The allowance”
to the end of the section.
Section 18.
Section 31.
Section 17.

P art II. — Enactm ents relating to the debt from the P u b lic to the
B a n k of Ireland.
28 & 29 Viet., c. 16. .. An act to make further provision The whole act.
for the management of the unredeemed public debt in Ireland
and for the reduction of the interest payable on certain sums
advanced by the Bank of Ireland
for the public service.

296

Jr

Th e
P art

English

Banking

System

I I I .— Enactm ents relating to internal affairs

of B a n k of

En glan d.
Session and chapter.

Title or short title.

Extent of repeal.

8 & 9 Will. 3, c. 20 . . . The Bank of England act, 1696. .. Section 34 from “ within
seven days’’ to the end
of the section; section
52 .
15 Geo. 2, c. 13.......... An act for establishing an agree­ Section 13.
ment with the Governor and
Company of the Bank of Eng­
land for advancing the sum of
£1,600,000 toward the supply
for the service of the year 1742.
24 Geo. 2, c. 4 ............ An act for enabling the Bank of The whole act, so far as
unrepealed.
England to hold general courts
and courts of directors in the
manner therein directed
7 Geo. 3, c. 48............ An act for regulating the proceed­ The whole act, so far as it
ings of certain public companies
applies to the Bank of
England.
and corporations carrying on
trade or dealings with joint
stocks in respect to the declaring
of dividends, and for further
regulating the qualification of
members for voting in their re­
spective general courts.
35 & 36 Viet., c. 34 ••• The Bank of England (election of The whole act.
directors') act, 1872.




297