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History of Banking in Scotland
Chapter VI - Ramsays, Bonars & Co., - Rebellion of 1745 - The British Linen Company

CONTINUING our reference to private bankers, the next firm which falls to be treated of is that so well known in the early years of last century as Ramsays, Bonars & Co. The business dates from the year 1738, and the founder was James Mansfield, who is designated as a "little draper"; but whether the adjective had a personal or a business signification is not stated. [From Sir William Forbes' references it would appear that his drapery business was of a humble character.] One of the partners, John Mansfield, died in September 1760, and, presumably in consequence of that event, in 1761 the firm appears as Mansfield, Hunter & Co. It was subsequently changed to Mansfield, Ramsay & Co., and so remained until in 1807 it became Ramsays, Bonars & Co. This continued as the style until the dissolution of the firm in 1837—an event brought about partly by losses in speculations, and partly by the growing public disfavour with which private banks were regarded. The partners, however, continued in the enjoyment of considerable wealth. In the twelve years from 1826 to 1838 the number of private firms was largely reduced, seven having merged in joint-stock companies, six having failed, and two having voluntarily given up business. Only six private banks survived this period; and all of them, except Alex. Allan & Co. (who were extant in 1855) disappeared within a few years thereafter — two through failure, and three by amalgamation. Joint-stock banks were springing up all over the land, and the older banks were pushing out their branches. Private banks were looked on—not without reason—with increasing suspicion; and their joint-stock rivals —many of whom were hardly more deserving of confidence—enjoyed in inverse ratio the esteem of the public. From 1825 to 1840 a fever, or rather mania, raged in Scotland regarding the profitableness of joint-stock banking; and during that time eighteen new establishments were formed, of which number only six now exist. This was, of course, only a manifestation of the general joint-stock epidemic rampant in the United Kingdom at the time. Much reckless competition and general mismanagement characterised the direction of these new companies; and although only two—the Western and the City—reached the point of stopping payment, several of those which were absorbed by stronger offices have been generally considered as in an insolvent condition when they transferred their businesses.

It does not appear whether or not the two firms who stand out as the pioneers of private banking in Scotland had any rivals during their early years. It is possible that one or two houses, such as the Fairholmes and the Cumings, were not much if at all behind them; but on this point there is no certainty. A. dozen or more firms were in business fifteen years later, who all disappeared ere the close of the century, for the most part in the memorable year 1772. With very few exceptions these firms were merchants and commission agents as well as bankers—a combination of business which characterised Scottish private banking more or less throughout its career, and which proved very destructive to it. They were, moreover, not exactly in the position of competing with the joint-stock banks. While transacting all the operations of bankers, they acted as a sort of medium between the latter and the public. On the one hand, they were always customers of one or other of the public banks, whose notes they issued (it was not until a later period that some firms issued their own notes), and whose funds they borrowed to lend out on their own responsibility. We shall find that this system resulted in a very grave danger; but it continued uninterruptedly for the greater part of a century.

Notwithstanding the efforts of the two banking corporations and their private coadjutors and rivals, the trade and manufactures of Scotland do not seem to have thriven to any considerable extent during the first half of the eighteenth century. It is probable that the people were generally more comfortable than they had been previously, as the comparative serenity of political affairs permitted them to work to more advantage than they had been able to do at any former time. But they were still very poor, and far behind their English neighbours in the arts of civilisation. Even the Irish appear to have been ahead of them in some branches of manufacture. A contemporary writer even goes the length of stating, in what it may be hoped is somewhat exaggerated language, that "luxury, corruption, avarice, and ambition are as rampant as ever. Our taxes are as high, and our debts, I am afraid, not much diminished. Our trade and manufactures continue in the same languishing condition . . These causes have spread a face of poverty over the whole nation, especially the distant manufacturing ones, which hath excited multitudes of poor wretches to several acts of violence, notwithstanding our army, as well as the Riot and Black Acts." [Scots Magazine, 1739, p. 9.]

The linen trade, however, received much attention, and seemed only to require the application of capital to develop into a national industry of a remunerative nature. An Englishman, writing in 1739, and subscribing himself "A hearty well-wisher to Scotland," alludes to a satisfactory increase and improvement in that branch of manufacture, and states that "the increase and improvement lately made in the linen manufacture of Scotland, has afforded the most solid satisfaction to every friend of the interest of Great Britain. And the quantities of fine cloth that have been sent hither of late hath very much altered the judgment of people here, who, from the large parcels of slight goods you have hitherto sent us, were apt to conclude you incapable of furnishing linen of any considerable fineness." [Ibid. p. 361.] He goes on to recommend the establishment of a society in Edinburgh for the prosecution and encouragement of the trade. As we shall see, this idea was realised a few years later, though on somewhat different lines from those suggested.

Meanwhile the rebellion of 1745 broke out, and thoughts of mercantile and financial progress gave place to the instincts of safety. All the records seem to show that the sympathies of the Lowland middle class and the townspeople generally were on the side of the reigning power. The little progress they had made was owing to the security and peace they had enjoyed at home (the almost continual foreign wars were borne as a chronic evil immeasurably preferable to the constant unrest at home from which the nation formerly suffered), so they were little disposed to rejoice at the advent of their legitimate sovereign, although his efforts were aimed at their unloved English rulers. Accordingly, we find that the approach of the rebels upon Edinburgh was regarded with dread by the citizens; and the banks and some private persons, as well as the Government departments, removed their effects into the Castle for safety. This was about the 14th September. Three days later the Pretender's army took possession of the city. In a contemporary account, it is recorded that on the 25th September "a proclamation was issued, in which, upon a narrative that great inconveniences had attended the removal of the two banks into the Castle, and from an opinion industriously spread, as if the Chevalier intended to seize on money wherever it was to be found; he declared that the money lodged in the banks should be entirely sure under his protection, and free from all contribution to be exacted by him in any time coming, so that the banks might return to their former business with safety; and that he himself should contribute so far in the re-establishment of publick credit, as to receive and issue bank-notes in payments." Notwithstanding this polite, but by no means disinterested, manifesto, the bank directors continued to regard the security of stone walls and cannon as more reliable than the words of a prince.

They were not left undisturbed, however, for, finding invitations and assurances of no avail, Prince Charles Edward sent his officers to the bank managers, demanding payment of a considerable amount of their notes in specie. Many interviews took place, and eventually it was agreed that, if safe access could be got to the castle, payment would be made. To understand the position aright, it must be remembered that the Prince's power extended from Holyrood House to the city end of the castle esplanade, and intermittent conflict raged between that point and the fortress. A truce having been arranged between the Government forces and the rebels, the bank managers, with their assistants, advanced under a white flag, and were admitted to the castle. Having counted out the necessary amount of coin, they proceeded to utilise the opportunity by destroying notes which they had deposited with the coin; but it would seem that the authorities of the castle were anxious to get rid of them, and so hastened them that they had time only to tear the notes in pieces instead of burning them. Perhaps the Government commanders disliked this wholesale destruction of negotiable securities, which, at some turn of Fortune's wheel, might prove useful to them. These visits were repeated on several occasions, as the rebels were doubtless anxious to convert the Scotch notes they possessed into a more marketable commodity, in prospect of their advance into England. It seems a little curious that the Government authorities should have allowed the Prince thus to secure the sinews of war; but, perhaps, their object was to avoid reprisals on the city.

The battle of Prestonpans took place on the 21st September, five days after the prince entered Edinburgh ; and on the 31st October he left it with his army for the south. By the middle of November, the law officers and other Government authorities had returned to the city from Berwick, where they had sought safety, and the banks resumed business. It was not until February of the succeeding year, however, that affairs were so far settled as to allow of the full resumption of their operations by the banks.

On the 16th April 1746, the rebellion practically ended with the battle of Culloden; and soon thereafter we find that the suspended proceedings in connection with the linen trade were resumed. This manufacture had for long been the most important in Scotland; but it would seem that at the time of the formation of the Board of Trustees for Manufactures (1727) it had very largely fallen off. By a system of premiums and bounties, they endeavoured to encourage it in a similar way to that pursued in Ireland, although not at a proportionate cost to the State. Whether owing to this nursing, or to the more satisfactory process of spontaneous energy on the part of the people, a gradual improvement manifested itself. During the five years, 1727-32, the value of linen cloth stamped for sale within Scotland is stated to have amounted to 662,938; and so rapidly did the trade increase that, in the five years 1746-51, it had risen to 1,607,680. In this latter period, several manufacturing companies were formed for the prosecution of trades hardly attempted previously. Among these were rope and sailcloth manufactories, ironworks, gold and silver lace companies, sugar refineries, herring and whale fisheries. We are, however, principally concerned with the establishment of a corporation for the encouragement of the linen trade, but which has for fully a hundred and twenty years been better, if not exclusively, known as a bank.

The British Linen Company was incorporated by charter of George II., dated 5th July 1746. The authorised capital was 100,000, but of this only 50,000 was offered for subscription at the outset. No decisive movement appears to have been made until 17th September, when a general court of the proprietors (presumably few in number) was held to settle "the method of proceedings at elections, the forms of oaths, and several other rules and bye-laws." It was agreed "that a seal be made for the company in the figure of a Pallas," and that the subscription books for the capital should be kept open at Edinburgh and London until 50,000 were subscribed for. Of these subscriptions 10 per cent was to be paid by 1st December, and the court of directors was authorised to borrow money, "in case of need," on bills or bonds under the company's seal, and they were required to meet at least once a week. The first managers appointed were Ebenezer Macculloh and William Tod, merchants in Edinburgh. In the warehouse there were to be "a book-keeper and an accomptant, two staplers to give out the yarn and receive the cloth, and a porter." These four officers were endowed with "salaries not exceeding 150 in whole"; and they were prohibited from receiving gratuities or keeping public-houses or pawnshops.

In the disposal of profits a more liberal system was adopted, and it was evident that the projectors calculated on a very remunerative business from the outset. The proprietors were to get 5 per cent per annum on their paid - up stock preferentially. The managers were to get 2 per cent, and the directors per cent, on the sales, and losses were to be provided for out of the remainder. [Report of meeting, Scots Magazine, 1746, p. 624.] To our modern ideas these arrangements savour of reckoning without the host; but doubtless the company knew very well what they were about. They gradually engrafted banking on to their original business. In 1750 they began issuing their own notes, and they doubtless engaged in general financial business from an early period; but, although their name occurs in the earliest lists of Edinburgh bankers, their banking business seems to have been (until a comparatively late period) of a semi-private nature, and to have resembled that of contemporary private bankers. They gradually withdrew from all mercantile and manufacturing operations, which were brought to a close in the year 1763. But it was not until 19th March 1849, when they obtained a new charter, that they were formally recognised as a banking corporation.

Ten years later than Messrs. Mansfield & Co., another important private banking house arose. It was that of Messrs. Thomas Kinnear & Sons, who first began their business as bankers in 1748. The house maintained a good position during all the private banking era, but signs of weakness seem to have shown themselves towards the close of their career. They passed through the fiery trial of the Douglas, Heron, & Co. period, when almost all the private banks in Edinburgh were swept away; but they could not withstand the current of the public mind towards joint-stock banking, which became strongly developed in the first quarter of the present century. In 1831 they were joined by the much younger firm of Donald Smith & Co., as Kinnears, Smith & Co.; but the amalgamation was of little avail, for on the 24th July 1834 the firm closed their doors. They did not issue their own notes, but used those of the Bank of Scotland.

About this period forgeries of bank notes appear to have been frequent. The punishment inflicted was usually transportation to the plantations; but occasionally the more summary and effective preventative of hanging was inflicted. In the former case, if the convict returned to the country, he was to be whipped periodically until re-transported. These forgeries seem, however, to have been poorly executed and readily detected.

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