Financial Revolution 1660 - 1750, The

Henry G. Roseveare

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317880875
• Edition: 1
• Topic: History
• Subtopic: British History
• Index: History

The financial revolution marked the end of medieval England, and through the major institutions such as Lloyds and the Bank of England, laid the foundations on which England's emergence as a world power was based. The subsequent changes radically altered English politics, and this book aims to provide a concise guide to them. The series provides analysis of complex issues and problems in important A level Modern History topics. Using supporting documents, the books aim to give students a clear account of historical facts and an understanding of the central themes and differing interpretations. It is aimed at A level, first year university students and those at polytechnics and colleges of higher education. It should also be of interest to the general public who have an interest in British history.

Part One: 1660-1685

1 The Legacies of the Interregnum

There has always been a temptation, to which few historians now submit, to restart English history in 1660 and let events unfold without a backward glance. But one of the most interesting features of the Restoration Settlement which followed Charles II's return is its assimilation of many of the most valuable financial legacies of the preceding decades, two of which were of profound and long-term significance.

Revenue

The first of these was the explicit recognition that the normal yearly costs of government could be accurately assessed and provided for by the nation's representatives in Parliament. Such calculations had rarely been attempted before the seventeenth century and were hardly possible in the early years of the Civil War, but by 1653 it was reckoned that, setting military expenditure aside, £200,000 p.a. should suffice for the ordinary costs of day-to-day government, and this sum was specifically written in to the 'Instrument of Government', the constitution under which Cromwell was to govern the British Isles. In 1657 his Parliament was prepared to be even more specific and declared

our willingness to settle forthwith a yearly revenue of £1,300,000, whereof £1,000,000 for the navy and army, and £300,000 for the support of the Government. . . and to grant such other temporary supplies, according as the Commons assembled in Parliament shall from time to time adjudge the necessities of these nations to require.

(11, p. 453).

Such a pledge was only possible in a carefully groomed assembly, but, unspontaneous though it was, it represents a notable advance on anything that had been achieved in preceding generations. No earlier English government had been able to elicit such a commitment. Conventionally, kings and queens had been required to 'live of[f] their own', meeting the undifferentiated costs of ruling from the medley of hereditary resources they were supposed to command. These ranged from the revenues of the once-vast crown estates to meagre fees from the custody of idiots, supplemented by the normal life grant of Customs* duties and occasional 'extraordinary' taxes voted by Parliament. The last major effort to reconsider this anachronistic mismatch between the growing requirements of government and the shrinking resources of the crown had been the abortive 'Great Contract'* scheme of 1610 which had foundered upon the House of Commons' reluctance to underwrite a government which they fundamentally distrusted. This traditional English reluctance to face up to financial realities makes it all the more remarkable that Charles II's first Parliament should have carried over to the restored monarchy the principle laid down by the republic:

That the present King's Majesty's Revenue shall be made up [to] Twelve hundred thousand Pounds a Year.

(15, vol. 8, p. 150)

Taxation

However, it was one thing to assert the principle; quite another to pay for it. But here too the Civil War was crucial in habituating Englishmen to unprecedented levels of taxation, prised from them by novel means. Fiscal innovation was, in fact, long overdue. The traditional forms of direct taxation by Parliament - the 'Fifteenths and Tenths' devised in the fourteenth century and the 'Subsidy' introduced in the early sixteenth century - were hopelessly out of touch with the actual levels and distribution of English wealth (181, 192). In 1645 they were, of necessity, superseded by a new and carefully calculated levy - the monthly 'Assessment' upon individual counties which in turn re-distributed the burden among their principal men of property. Although goods, chattels, stock and official salaries were supposed to be rated, this was, in effect, a tax on land, and a highly contentious one, which was only reluctantly revived by Charles II's Parliament in 1664 (24, pp. 670-5). It was to remain a major form of direct taxation until superseded by the more ambitious 'Land Tax' of 1692 (40).

Yet the most resented of the Civil War s fiscal innovations were the Excise* duties introduced in 1643. Falling initially upon a wide range of commodities such as meat, butter, salt, soap, spices and textiles, the Excise tended to draw the bulk of its yield from beers, ale, ciders and spirits, which was quite enough to offend a hard-drinking nation (43). But, worse still, it was an alien tax (borrowed from the Dutch) which was alarmingly effective and devoted largely to the upkeep of an unpopular standing army. It required another painful adjustment for MPs to admit that its buoyant yield and broad distribution made it difficult to discard, even in conditions of peace and normality. Thus the Restoration Parliament struggled only briefly with its natural distaste for the Excise before perpetuating it as a permanent element in the crown's revenues (50). Expected to produce over £400,000 p.a., the Excise soon rivalled the reformed Customs duties in yield, and with its skilled, up-to-date administration it outshone its rival as an efficient agency of strong modern government (43).

Borrowing

The restored monarchy was thus much the healthier for its fiscal legacies from the Civil War, but even new and effective taxation could not solve the most persistent financial problem of any government. For at all times and in all systems there remains an awkward hiatus between needing and receiving money which has to be bridged by borrowing - and for governments, as for individuals, the process of borrowing could be a delicate, painful and disappointing one which tested to the limit the tact, ingenuity and - above all - the credit of the borrower. It also required the existence of a lender.

In this respect early English governments had rarely been at a total loss. Large-scale borrowing had usually been possible — from Jews in the twelfth century, Italians in the fourteenth century, Netherlander in the sixteenth century and from wealthy Londoners and merchants at almost any time — but it had never been easy or particularly cheap. Sovereign princes always could, and sometimes did, repudiate their debts or enforce unfair terms of repayment, and their betrayals of trust tended to rebound on their successors. Thus the comparatively thrifty Charles I was made to pay a high price for the unreliability of his father, and during his 'personal rule' in the 1630s the domestic sources of government loans were confined to a steadily narrowing circle of companies, contractors and courtiers with vested interests in royal favour (34). Motives for lending to a sovereign prince were never pure, and hanging over many of the crown's solicitations for loans was a subtle threat of coercion — or, at least, a clear hint of the subject's obligation to lend money when asked (90). There was often little to choose between the notorious 'Forced Loans' of this reign and the seemingly spontaneous loans and 'benevolences' which accompanied them. The rate of interest consequently played little part as an inducement to lend. Fixed at a ceiling of 10% by the usury* legislation of 1571, the legal maximum was reduced to 8% in 1624, and while this was a fair reflection of the maximum price for private transactions it was an unreal index of the government's credit (34). Only the crown's privilege and power enabled it to enforce this inadequate rate for its extensive borrowing and tardy repayments.

The private sector

Contemporary opinion was not indifferent to these serious shortcomings in 'public sector' borrowing, but it was also becoming increasingly preoccupied with the limitations of the private sector. The 1620s in particular, with their experience of an acute commercial crisis, witnessed a vigorous debate on economic reform which addressed itself not merely to trade and industry but also to interest rates and exchange rates, currency and banking (24, 186). The solution of problems relating to the provision of credit was coming to be seen as an essential step in economic regeneration.

Yet credit - which was universally needed - was almost universally given. The poor sought and got credit at the pawnshops; the well-to-do got credit on bonds and mortgages; the merchant and tradesman habitually bought and sold upon credit. But at every level there were constraints, obstacles and deficiencies of supply. For the poor, the usury laws provided little real protection against extortion; for the well-to-do the legal penalties consequent upon default were very severe, and for merchants and tradesmen the supply of credit was always too tardy, too costly and too small.

There could be no single solution for all these problems, but out of the burgeoning literature of the 1620s which marks the birth of English economic theory, certain common themes for financial reform emerged (32, 199). One was the case for lowering interest rates by law - an idea which started a long debate that runs through John Locke to Maynard Keynes. Another was a plea for the foundation of banks. Both arguments derived much of their force from successful foreign examples, for with their experience of Italy, Germany, Spain and the Netherlands, writers such as Gerard de Malynes, Thomas Mun, and Edward Misselden were able to carry conviction by adducing the flourishing banks and moderate interest rates of the most successful economies in western Europe [doc. 1].

Banks and bankers

Bankers - men who lent their own and other people's money, who took and gave interest on loans and deposits, who dealt in merchants' bills of exchange* and guarded the savings of ordinary men and women — were no novelty in early modern Europe. The age of the great Renaissance bankers - the Fuggers, Welsers and Medici - had only just passed, and England itself could boast of several wealthy financiers who performed some of the functions we would recognise today as 'banking'. They were not specialists. They might be merchants, like Sir Paul Pindar, or lawyers, like Hugh Audley, or court jewellers like Sir Peter Vanlore, but several of the essential financial services which we require today were performed in some way by someone. Thus, one could lend, or borrow, upon mortgage through the agency of scriveners - professional lawyers skilled in drafting conveyances, who extended their functions to the introduction of clients and the investment of their funds (58, 139). One could transfer money across the country, either in cash through the network of drovers and carriers or more safely in paper, by an inland bill of exchange bought through a broker. And if one had a deposit account with a merchant or tradesman 'banker' one might draw upon it a written note which was a cheque in all but name. Paper documents, signed and sometimes sealed, were extensively used to record an obligation to pay up at a future date, and long before that date arrived the paper could be sold and assigned by an endorsement to a succession of owners, thus becoming in effect a cumbersome kind of paper currency. It has been ingeniously calculated that, by the beginning of the seventeenth century, the ratio of such paper credit to circulating coin was at least 12:1 (126, p. 99).

Why then was it necessary for Gerard de Malynes to lecture his adopted countrymen on the nature of banks and the shortcomings of England's commercial practices? Clearly, in both areas she still lagged behind the best Continental examples, and one can deduce that he and others had been particularly impressed by the recent foundations of civic and state banks abroad — at Genoa in 1586, Venice in 1587, Milan in 1593, Amsterdam in 1609 and 1614, and Hamburg in 1619. Malynes' definition of a bank in 1622 was therefore rather different from anything known in England [doc. 1] but answered a need which thinking men were beginning to discern. Thus, over the next three decades the proposal for a national bank, taking deposits, issuing loans and underwriting the private, public and international credit of the country resurfaced in tract after tract. By 1652, one of the most eloquent advocates for reform (Henry Robinson, 1605-73?) could hail such a bank as 'the Elixir or Philosopher's Stone' which could solve nearly all the country's economic problems (24, p. 651).

The Civil War

Not surprisingly, such an ambitious solution remained beyond the reach of a nation embroiled in civil war. Just before its very outset, in 1640, Charles I had struck an ill-considered blow against any such development by appropriating the commercial bullion reserves held in the Tower of London. He thus ensured that for generations to come men would wonder whether any modern bank was safe under a king. Even under the Parliamentary republic established in 1649 the state's credit was little better, and in the calmer waters of 1657 it could be said that 'the Public Faith [i.e. credit] of the nation is now become a public despair' (24, p. 662).

The Parliamentarian cause, strongly entrenched in London, had indeed been favourably placed to call upon superior financial resources, able to raise loans from the corporation of the City, the great livery companies and from the syndicates of businessmen who managed the collection of the Excise* and the Customs*. The state appealed repeatedly to the loyalty and self-sacrifice of its supporters, but in a context of deficient tax yields and unpredictable expenditure, it could offer little sound security to its creditors, and the financial history of the Cromwellian Protectorate is littered with delayed and dishonoured public debts (33, 88).

Yet even in these troubled waters there were rich pickings for private speculators, for despite heavy taxes and the spoliations of war there was evidently money about, seeking and finding profitable reinvestments. The huge land sales of confiscated crown, church and Royalist estates created a speculative market in which the soldiers, paid in paper 'debentures', were obliged to sell at a discount* (87). Some proportion of mercantile capital, immobilised by a succession of foreign wars, was probably available for just such opportunities, and it is perhaps indicative of the supply of money that the rate of interest was again reduced in 1651 from 8 to 6%.

The beginnings of English banking?

In channelling these liquid resources towards interest-bearing investments the scriveners* played their customary role and Robert Abbott, one of the most successful, is known to have handled clients deposits totalling £1,137,646 in the course of the three years following 1652 (139). Much of this may have been loaned on mortgages* to his Royalist clientele, for the defeated supporters of Charles I were often successful in repurchasing their estates before the Restoration in 1660. Some, indeed, may have been successful in holding on to their more liquid assets, for it is a long-established belief that the origin of English banking lies in the guardianship of Royalists' wealth by the goldsmiths of Lombard Street [doc. 5].

This celebrated account of the origins of 'goldsmith-banking' has been rightly questioned as rather too neat and far too dramatic. The truth is probably less exciting: that the goldsmiths had been quietly developing their financial activities for some time, and that the 'safe-deposit' function was only the most basic of the services they performed. They had long been dealing in gold and silver bullion and in the 1630s, when London merchants began to handle large quantities of Spanish silver, they were drawn more actively into the international exchange market which was shared with bills of exchange* (125, 191). In the domestic market for credit they could dispose of growing resources placed with them for safe-keeping or explicitly for reinvestment. On the latter they could afford to pay interest, and on both kinds of account they could issue their 'banknote' receipts and accept written 'drafts'*. All these activities are identifiable among the pre-Civil War goldsmiths (34).

But the Civil War unquestionably fostered the growth of these functions, and by the 1650s several goldsmiths had conspicuously emerged as large-scale, full-time bankers serving extensive clienteles which included government departments and the state itself. One of these men was Thomas Vyner, or Viner (1588-1665), whose financial services drew honours from the City (as Lord Mayor in 1653), from Cromwell (a knighthood in 1654) and from Charles II (a baronetcy in 1661). Another was Edward Backwell (? 1618—1683), briefly a London alderman but never knighted, although his services to the Protectorate and the crown were little inferior to Vyner's. Both men collaborated in some of the major financial operations of the Interregnum and by 1660 they were to prove indispensable to the restoration of Charles II (33, 54-5, 165).

2 The Reign of Charles II

Charles II thus inherited a legacy of financial principles and practice which had matured considerably beyond those endowed upon his father. During the quarter-century of his reign their evolution was to acquire increasing momentum. There were to be three distinct lines of development:

1. The first was essentially a constitutional process within the public sector which began to shift control of the purse more distinctly towards the House of Commons. It established principles of parliamentary scrutiny of revenue, expenditure and borrowing which were the foundation of all future financial controls (174).
2. The second consisted of administrative developments which were potentially in conflict with the first, for they greatly strengthened the machinery of government in general and its financial machinery in particular. The Treasury now emerged, not merely as a distinct department of state but as the dominant one which could sometimes coerce others (39, 173).
3. The third occurred within the private sector of the economy, and consisted of an unusually benign set of conjunctures at home and abroad which increased England's prosperity, facilitated its savings and also concentrated its mind upon a more sophisticated system of financial services (199).

In each case the processes of change were not smooth or particularly deliberate, but their lines of development were beginning to become interdependent, and any account of them must necessarily move freely between the one and the others.

Perhaps the most disappointing of Charles II's legacies from the Interregnum proved to be the principle of an assured annual income. ...