The Bank of England owes its origin to the financial straits to which the government of William and Mary found itself reduced in carrying on the war with Louis the Fourteenth. The revenues of the kingdom were small, the public credit weak, and the very title of the dynasty unsettled. The growing wealth and business of the country had caused private banking houses to spring up. The paper given by these houses to their creditors had acquired a circulation, limited indeed, but sufficient to show its convenience,1 and projects for the establishment of a public institution on the scale, if not on the model, of the great continental banks had been discussed for rival. Further loans to the government and additions to the capital of the Bank were made in quick succession. In 1722 its capital stood at nearly nine millions, and it was also able to establish from its profits the surplus fund now called "the Rest," and thus to save its dividends from serious fluctuation. In 1782 the capital had risen to more than eleven millions and a half, and in 1816 it had risen to £14,553,000, at which figure it has stood ever since. Of the loans to the government, which had risen in nearly the same proportion as the capital, one fourth was repaid in 1834, reducing the total to £11,015,100, which is its present amount. By the year 1750 the government had succeeded in reducing the interest on most of its debt to the Bank to three per cent., and it has since used the opportunity afforded by the periodical necessity for a renewal of the charter, to lessen still more the burden of its interest, by requiring from the Bank an annual bonus and other pecuniary concessions, in consideration of the extension of its monopoly.

1 McLeod, Theory and Practice of Banking, i., p. 210, prints a "goldsmith's note" which is still preserved, dated 1684. And see Macaulay's History, vii., p. 134. A curious pamphlet of 1676 (?) on the introduction of private banking in London is given in facsimile by Martin in The Grasshopper (history of Martin & Co.'s bank), London, 1892, p. 285, and was also reprinted in the Quarterly Journal of Economics, January, 1888. And see ibid., July, 1888, p. 482, for notes of schemes for a national bank, broached at various dates in the seventeenth century.

many years.1 Under these circumstances, as an expedient for raising a million sterling, for which no other resource could be found, the government in 1694 adopted the scheme proposed by William Paterson, a Scotch adventurer, and proposed to Parliament that a loan should be offered for public subscription and made attractive by a grant of incorporation, with banking privileges to be enjoyed by the subscribers and their successors. The measure seems to have been contested chiefly, although not wholly, on party grounds, and was passed after a severe struggle, and thus the Bank of England came into existence as a Whig corporation.

The act of 1694 provided for a loan to the government of £1,200,000, bearing interest at eight per cent., and incorporated the subscribers, with this amount of nominal capital, as the Governor and Company of the Bank of England, - a title which has never been changed. The corporation was empowered to deal in coin, bullion, and exchange, and to lend upon security, but was forbidden to deal in merchandise in any form. It could not borrow nor give security by bill, bond, or agreement, for an amount exceeding its capital; no provision was made for the transfer of its bills, "obligatory or of credit," except by indorsement; nor was any monopoly created in its favor. In this form the charter of the Bank gave little promise of its future importance. Three years later, however, the necessities of the government and the embarrassments of the Bank, which had been obliged to suspend payment in 1696, led to a revision of the charter, in which the outlines of the great structure begin to appear. The issue of notes payable to bearer on demand was authorized, thus laying the foundation for a true bank-note circulation1; the monopoly of corporate organization was granted by providing that, during the continuance of the charter, no other bank or corporation in the nature of a bank should be allowed in the kingdom; and, on the other hand, the capital was doubled by a fresh advance from the stockholders to the government, and the interest payable by the latter was reduced to six per cenL From this point the growth of the Bank and the increase of its influence were rapid. The corporation became the chief depository of the public money, and the agent of the Treasury in many financial operations. In 1720 it carried on a mad struggle with the South Sea Company for the control of the business of refunding the national debt, and managed, although with difficulty, to save its own credit in the crisis which destroyed its

1 These institutions, among which the Bank of Amsterdam and the Bank of Venice were the most important, were not banks in the complete modern sense of the term since they were not authorized to make loans.

1 The notes issued under the act of 1694 appear to have borne interest, and, being made to order, could have had but a limited circulation. No notes of less than £20 were issued until in 1759 the Bank began the issue of notes for £15 and £10. Anderson's Origin of Commerce, ii., p. 413.

This monopoly, dating, as has just been said, from the act of 1697, and confirmed by the act of 1707, was further defined by the act of 17421 as the right of "exclusive banking," the true intent being, as is declared in the latter year, that for any Body Politick 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 Continuance of such said Privilege to the said Governor and Company.