After the industrial revolution which set in during the latter part of the eighteenth century, England took first place, commercially, among the nations of Europe, and London became the financial capital and center of her growing commerce. As the trade of Amsterdam declined, that of London increased, and as wealth accumulated, England gradually became a creditor nation loaning and investing extensively in various parts of the world. She is at the present time the great creditor nation of the world, loaning through the bankers of London large sums to foreign governments and citizens. These loans and investments necessitate the return of interest and dividends to the bankers of Lombard Street, in the aggregate amounting annually to many millions of pounds. Many of the largest transactions in the world are settled in London, and the world's supply of gold there finds its natural point of distribution. London has thus become, practically, the center of the exchanges of the world, and is not inappropriately called the "World's Clearing House." Whether this conditon of affairs is due to the general westward course of empire and commercial development; to the freedom of the British Isles from invasion and the ravages of war; to the genius of the people for finance and commerce; or to the money system and the Bank of England itself, or all of these combined, is not easy to determine, but there are many Englishmen who would ascribe it chiefly to the Bank of England. Certain it is, that the Bank of England is the center around which the commercial and monetary systems of the British Empire revolve, and the support of the whole fabric. The Bank of England, although a highly privileged establishment, is not a government institution. It has practically a monopoly of the note issuing power, and its notes are the only legal tender currency of the United Kingdom. It is the chief depository of a government which has no public treasury. It keeps the registry of the public debt, issues the consols and pays the interest thereon, and yet, withal, it is only a private corporation, subject to no government inspection or control, and managed by a board of directors who are alone responsible to the stockholders, the same as in the case of other corporations.

The Bank of England was founded in 1694 in very much the same manner as the Bank of Venice - as a result of the financial straits of the government. William and Mary were in sore need of funds to prosecute the wars against Louis XIV. Their treasury was empty and their credit weak. The increasing wealth of the country since Elizabeth's reign had been the cause of a large number of private banks springing up in London and other parts of the realm, each issuing its own notes to whatever extent they would be accepted by the public. The necessity for a great central bank, similar to that of Amsterdam or the Italian cities, was becoming apparent. The government desired a popular loan of a million sterling, and William Patterson, a Scotchman, crystallized the idea by proposing that Parliament should ask a loan by public subscription, and in order to make the proposition attractive, include a grant of incorporation, with banking privileges to be enjoyed by the subscribers and their successors. In this way £1,200,000 was raised at eight per cent. interest, and the subscribers were incorporated as the "Governor and Company of the Bank of England," with that amount as a capital.

The bank was to have the privilege of issuing notes, keeping the accounts of the public debt, and of transacting a general banking business, with almost a complete freedom from restraint.

Origin of the Bank of England

The entire capital was loaned to the government and thus the bank had a revenue of nearly £100,000 at the very outset of its career. It began at once to issue circulating notes based upon the government securities which it held, another productive source of income. These bills, however, were only transferable by endorsement, like ordinary promissory notes, and bore interest - two conditions which must have confined them to a very limited circulation. Three years later the bank was compelled to suspend specie payment, and the necessities of the government were such that in consideration of the stockholders advancing another million pounds to the government the bank's charter was modified. The new charter authorized the issue of notes payable to bearer on demand, thus laying the foundation for the present system of Bank of England notes. It also gave the corporation a monopoly of the banking business in the kingdom by providing that no other bank, or corporation in the nature of a bank, should be allowed to carry on business in the kingdom. The rate of interest on the government loan was then reduced to six per cent. Further loans to the government and corresponding additions to its capital were afterwards made by the bank from time to time, until in 1722 its capital stood at nearly nine million pounds, with a handsome surplus (called the "Best"), which enabled its dividends to be made uniform. In 1782 its capital had risen to more than eleven millions and a half, and in 1816 it had further increased to £14,553,000, or about $72,-000,000, at which figure it has stood ever since. Its loans to the government increased almost as its capital enlarged, but in 1834 the government paid about one-fourth, reducing the total to £11,015,100, which is its present amount. The interest has been reduced from time to time, until it has reached the present rate, 2 1/2 per cent.

The monopoly of the Bank of England, dating, as has just been stated, from 1697, was modified in 1742 so as to permit partnerships having six persons or less to issue circulating notes, and allow companies or partnerships of more than six persons to perform other functions of a bank. Under this law private banks were formed and notes were issued quite extensively during the latter half of the eighteenth century. About the year 1772 the check system was devised and brought into use, and proved such a convenience that many of the London banks discontinued the issue of notes. In 1826, owing to the general demand for better banking facilities throughout the kingdom, and the slowness of the Bank of England in establishing branches, Parliament passed an act giving to companies of more than six persons the right of issuing notes, when established at a greater distance than sixty-five miles from London, thus limiting the monopoly of the Bank of England in territory. Then in 1833 the law was again amended so as to permit companies and partnerships, although composed of more than six persons, to carry on the business of banking in London or within the sixty-five mile radius, provided they did not issue circulating notes. This act was followed by the formation of numerous joint-stock banks in London as well as throughout neighboring towns, and bank? of issue began business beyond the sixty-five mile limit. The London and Westminster Joint-Stock Bank, one of the leading banks of London at present, was founded at this time (1835).