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Under Many Flags
Chapter IX. The Founder of the Bank of England

“William Paterson, of Dumfriesshire,” says one of his biographers, “was by profession a merchant, who in early life attained the highest success, in the midst of which he became the victim of a great reverse. But the difficulties to which he was long exposed, after being deservedly the object of almost national homage, have been even magnified through the strange indifference of posterity to his eminent qualities. Of his two chief works, the Bank of England and the plan of the Darien Colony, the former has proved a model of usefulness, whilst the latter was the grandest of conceptions, the failure of which is in no wise attributable to him. Other noble designs of his, developed with remarkable ability and most industrious zeal for the good of the three kingdoms, in their financial and commercial relations abroad as well as at home, even surpass these two objects in importance.”

This is the man whom Lord Macaulay describes as having been gifted by nature with fertile invention, an ardent temperament, and great powers of persuasion, and to have acquired somewhere in the course of his vagrant life a perfect knowledge of accounts.

This is the great financier of whom Hill Burton says—“ His memory has been revived and cherished in the present day as the prophet of the blessings of free trade, and the announcer of a currency system identical in its fundamental principles with that adopted in recent times after experience and inquiry. He was a man of quiet, retired life. He had travelled and seen much of the world, but it was as an observant tradesman, not as a courtier or ruffler. His pride was to call himself ‘ merchant in London,’ to circulate among his fellow-traders his views on commerce and finance, and to work practically in some of their adventures. He was a man of serious walk and conversation after the Presbyterian fashion.”

Of a man of genius of this kind, a brief memoir will probably be acceptable. Both England and Scotland are interested in him. both England and Scotland benefited by his schemes; but it cannot be said that either England or Scotland showed him gratitude.

William Paterson was born in April 1658, in the house of Skipmyre, in the parish of Tinivald, Dumfriesshire. His father’s family came of a respectable stock, which in his own time was represented among the leading Scotch Episcopalians and partisans of the House of Stuart; as, for example, his paternal kinsman, the last Archbishop of Glasgow, and another, Sir Hugh Paterson, who was attainted for his share in the Jacobite insurrection of 1715.

Of his early years we know but little, and that little is dubious; but it is evident from his writings that he must have received a solid, if not a very extensive, education, and made excellent use of it. Either an adventurous temper, or the res angustce domi, drove him from the “parental roof5’ when he was only in his seventeenth year; and we find him at Bristol in 1675, sheltered by one of his mother’s relatives. At her decease he came in for a legacy, which enabled him to gratify his longing to see the world. After a visit to Holland, he crossed the seas to America; where he remained for several years, busy with plans and projects of every kind, and already dreaming of the colonization of Darien. His adventures at this period are, however, mere matter of conjecture; and the obscurity that rested upon them emboldened his enemies in after years to accuse him of having been a buccaneer. From a letter written in 1699, it would appear that he at one time held business relations with the colony of New England; but where or how it is impossible to ascertain. His first wife, however, was the widow of Mr. Bridge, the Covenanting minister of that colony. In Paterson’s native county long lingered a tradition that he took part in the prohibited services of the Covenanters, but failed as a preacher; and it is certain that in the satires of the versifiers hired by the English Government to traduce him, he is ridiculed as “predicant Paterson.” In various names we may conclude that he was at one time settled at New Providence (in the Bahamas). At another, he was making himself acquainted with nautical affairs—I suppose on board ship; while he seems also to have taken part in Sir William Phipps’s successful venture, when he removed treasure to the amount of £300,000 from a Spanish galleon wrecked near New Providence.

But whatever may have been the true nature of his various avocations before 1685, we then come upon solid ground ; for in that year he conceived his great idea of a grand colony in Central America, independent of Spain, and based on the principles of religious freedom, and the abolition of commercial monopolies. This became the main object of his life, though many years passed before he could attempt its realization. For when, on his return to England, he submitted it to James II., who was not wanting in political sagacity, and regarded it with favour, the troubles in which that monarch became involved compelled him to dismiss it; and afterwards, when the Elector of Brandenburg was inclined to introduce it, he was prevented by the national jealousy of a foreign adventurer.

For a time, therefore, Paterson laid it aside, and turned his attention to financial affairs. He settled in London as a merchant, was made a member of the Merchant Taylors’ Company, and appears to have gained the confidence of his fellow-traders by his energy and intelligence. Much of his business lay with the Dutch merchants, and he was well known on the quays and in the coffee-houses of Amsterdam. Enterprising as ever, he took up a scheme for the better supply of North London with water from reservoirs to be constructed south of the Highgate and Hampstead Hills, in which he was assisted by Sir John Trenchard (1690). By this time he had made himself such a position that he was summoned as an important witness before the Parliamentary Committee appointed to inquire into the economic condition of the country, and in his evidence advocated certain measures for its improvement, in which may be traced the adumbration of his scheme for a Bank of England.

At that time two public Banks were established in Europe; one, the Genoese Bank of St. George, which was completing its third century ; the other, the Bank of Amsterdam, which had an eighty years’ record. Why, it had been asked, should there not be a Bank of London as prosperous and as permanent? Even in Charles II's reign the question had been answered by several pamphleteers, but never in a practical form. A speculative Land Bank was proposed by Briscoe and Chamberlayne. But now came our Dumfriesshire adventurer with what was really a well-considered plan for a Bank of England —a plan which stood the test of the sharpest criticism. In Friday Street, at the Wednesday Clubs which then met there, it was discussed by merchants and financiers with growing favour; and at length was approved and adopted by Charles Montague (afterwards Chancellor of the Exchequer), an influential politician, and Richard Godfrey, one of the ablest, wealthiest, and most respected of

London’s merchant princes. The former undertook to manage the House of Commons, and the latter the City. Both were successful. “An approving vote,” says the historian, “was obtained from the Committee of Ways and Means; and a bill, the title of which gave rise to many sarcasms, was laid on the table. It was indeed not easy to guess that a bill, which purported only to impose a new duty on tonnage for the benefit of such persons as should advance money towards carrying on the war, was really a bill creating the greatest commercial institution the world had ever seen.”

Paterson’s proposition was that the Government should borrow £1,200,000 at what was then considered the moderate interest of eight per cent. In order to induce capitalists to come forward with their moneys, the subscribers were to be incorporated by the name and title of “The Governor and Company of the Bank of England.” But no exclusive privileges were to be granted; and they were prohibited from trading in anything but “bills of exchange, bullion, and projected pledges.” And in order that “the power of the purse” might not be transferred from the House of Commons to the new corporation, they were forbidden to advance money to the Crown without authority from Parliament, under penalty of forfeiting three times the amount of money so advanced, while provision was made that the Crown should have no power to remit any portion of the penalty.

There was much vehement discussion in Parliament and the coffee-houses; but eventually the bill passed through both Houses, and received the royal assent.

Such were the beginnings of the Bank of England. It sprang from the fertile and ingenious brain of the financier whom Lord Macaulay sourly and erroneously stigmatizes as an obscure Scotch adventurer. Paterson was one of the first directors of the New Bank, upon a qualification of £2000 stock, which, however, he sold out before the end of 1695, at the same time retiring from the Board. I have met with the assertion that wealthier men than Paterson took dishonourable advantage of his financial capacity in establishing the institution, and then defrauded him of his just reward. But I fail to discover any justification for it. Montague and Godfrey undertook those services which it was impossible for Paterson to have undertaken, because he did not possess sufficient commercial or political influence. Nor can I discover any justification for the statement that he was expelled from the directorate. What really happened was this. With characteristic activity he proposed to form what was practically another joint-stock company for the purpose of consolidating the perpetual fund of interest payable to “the orphans and other creditors of the city of London.” Such an operation his co-directors considered to lie outside the proper work of the Bank of England, and when Paterson found himself out-voted, he immediately resigned. The “perfervidum ingenium” of the restless Scot could not tolerate opposition. Perhaps he might have been more successful if he had had the support of his friend Godfrey; but the latter had been killed in the trenches at Marlborough’s siege of Namur. It is needless to say more on this subject than that Paterson contrived to float his new scheme by his own credit, and that it proved moderately successful.

About this time our persevering projector—this hard - headed, warm-tempered, sanguine - spirited Scotchman—seems to have thought that the opportunity had come for realizing his life-long dream of a Central American Colony, and initiating the world into the advantages of Free Trade. The capitalists shut out from the rich field of operations monopolized by the East India Company—the free-traders or “interlopers” of those days—would eagerly welcome the opening of a new channel of commercial adventure. The good-will of the King might be relied upon. The success of the Bank of England would facilitate the raising of the necessary funds. And a novel character would be given to the latest project because it would be centralized in Scotland, the commercial interests of which had, it was generally admitted, been too much and too long neglected. It was in those circumstances that Paterson brought forward the scheme for establishing “The Company of Scotland trading to Africa and the Indies”—the African Company, as it was afterwards called—which received the sanction of the Scottish Parliament on June 26, 1695. This Act conferred on the Company the fullest trading powers, and other powers of a more extraordinary character. As, for instance, they were authorized to equip vessels of war, either in Scotland or in any other country not at war with the British Crown; to make settlements, and build cities, harbours, and fortifications, in any uninhabited place in Asia, Africa, or America, or wherever they obtained the consent of the natives, or were not met by the claims of any European Power; to resist when attacked, and make reprisals; and to form alliances with parties holding sovereign rights in the three quarters of the globe already specified. Further, this Company established as a protest against monopolies, became a monopoly itself, for all other Scotsmen were prohibited from trading within its jurisdiction without licence from it, and the Company were empowered to seize on all such trespassers, “by force of arms and at their own hand," a favour which they afterwards used in a manner dangerous to the vital interests of the empire.

It was arranged that half the capital should be raised in England, and half in Scotland. It was speedily subscribed, and then the English Companies awoke to the fact that a new and formidable competitor had sprung into existence, and began a vigorous campaign against it, appealing for support to the national jealousy. The House of Commons was quickly roused to take measures to crush the audacious project. The Lords were not slow to co-operate, and both Houses having met in conference, they united in an address to the Crown against the Scots Company. The agitation led to the withdrawal of the English capitalists; but the national spirit of Scotland then came to the front, and poor as was the northern kingdom in the last years of the seventeenth century, it contrived to furnish the necessary funds, though when the Company got into difficulties, the latter instalments of the subscriptions were not forthcoming, and the whole sum actually paid in reached only £219,094 8s. 11d.

Impelled by Paterson’s enthusiasm, the new Company set to work with patriotic energy. They engaged in plans for extending the Scots fishery to Greenland and Archangel; for the development of home manufactures; for opening up commercial relations with the Gold Coast and Negro Coast of Africa; and the establishment of colonies and factories. In the last category it took up Paterson’s project for a Scots colony on the Isthmus of Panama, on the narrow neck of land which separated the two great oceans, the Atlantic and the Pacific, and seemed designed by nature to command the commerce of the world. “There would naturally be concentrated the mutual trade of the two coasts of America. Much more, it would be a stage in the shortest means of communication from Europe to China and Japan, and the unknown regions of the Eastern seas. In later times it has been prophesied that the Panama railway shall open a new track to New Zealand and the Australian colonies [and the present generation has seen a noble attempt to cut the isthmus by a navigable canal.] The availabilities of Darien, which inspired the ardour of the Scots London merchant a hundred and eighty years ago, are still a deeply interesting problem—unsolved.

Paterson’s idea was that of a free port—as open to ships of all nations as London is to-day; so that the merchandise of the whole world was to be drawn to that favoured centre, and accumulated there without restriction or distinction. It was a grand, a noble idea; but everything was against its successful realization. The spot chosen for carrying it out was apparently most favourable; but in reality it was surrounded by difficulties and dangers. It was in the midst of the Spanish settlements—Panama, Portobello, Carthagena—and thus drew down upon the Company the vindictive jealousy of Spain. It was deficient in natural resources, and offered no means of sustenance to a young colony; and it was cursed with a climate which apparently concentrates all the pestilential elements of Tropical America. Then, Paterson’s vivid imagination was unaccompanied by the faculty of organization; so that the expedition was sent forth without any proper provision having been made for the government of the new colony and the preservation of order. And as he had no personal knowledge of the isthmus, no precautions were taken against pestilence or famine. The truth is, the disastrous failure of the expedition was due, not to external causes—not to the jealousy of England and Spain—but to the incapacity of its leaders and the want of suitable equipment.

The Company purchased three Dutch ships, which were fitted up as vessels of war, and with six thousand two hundred picked men on board, sailed from Leith, amid the cheers of an excited multitude, whose bosoms throbbed with patriotic pride, on July 26, 1698. On November 4 they landed on a rocky peninsula in the Gulf of Darien, which seemed to offer great capabilities of defence. Their first business was to build a strong fort, so as to command the Gulf. Then they marked out on the mainland, where the commercial colony of New Caledonia was to spread indefinitely, two sites for towns, to be called respectively New Edinburgh and New St. Andrews. So far all was well, but troubles soon arose. Some gentlemen had been appointed to act as the council and governors of the new State; but they were not backed by any substantial power, and possessed no means of enforcing their authority. The colony, therefore, was practically without any head, and the wilder and more daring spirits acted with absolute independence. A quarrel with the Spaniards added to the pervading embarrassments. Then the expected supplies from Scotland did not arrive ; and no provisions could be obtained in exchange for their merchandise, because much of it was damaged, and for the rest there was no market. Disease and privation began their fell work among them. In the spring of ’99 the survivors, perceiving no hope of relief, came to a resolution to abandon the settlement, and embarking on board their three vessels, set sail for the first port Providence should send them to. Two of the ships reached New York in August, having each lost above a hundred men on the voyage ; the third, not less unfortunate, arrived at Jamaica. Whether many of the miserable adventurers ever found their way back to Scotland may well be doubted.

Meanwhile, the directors at home, filled with a blissful sanguineness, had fitted out a second expedition, though in much too dilatory a fashion. Two ships sailed in May, and four others early in August, and all were well found with provisions and stores. A third expedition, consisting of one thousand three hundred men, was dispatched in September, just before the earliest rumours reached the directors of the disaster that had befallen the first. These rumours attributed the abandonment of the settlement to fear of the Spaniards; and in a mood of patriotic indignation the Company equipped a fourth or auxiliary expedition, which they placed under a veteran soldier, Campbell of Finab, and dispatched with belligerent instructions. Neither of these expeditions retrieved the situation, and the melancholy issue was the capitulation of Campbell and his companions to the Spanish governor of Cartha-gena, who had blockaded the colony with five men-of-war (March 18, 1700). And thus Paterson’s great conception of a free port and an independent Scottish colony in the isthmus between the two oceans, faded away into the oblivion of failure.

Paterson accompanied the first expedition—not, however, in his proper position as leader, owing to some pecuniary difficulties which had arisen between him and the Company, but as a voluntary and uncommissioned settler. He was one of the survivors who reached New York; and after suffering so severely from distempers and troubles of mind, that for some time his life was despaired of, he sailed for Scotland on October 12, and arrived at Edinburgh on December 5, 1699. He had gone out to his Land of Promise accompanied by his wife and only child, a son; he returned, wifeless and childless. He had gone out with his hopes in full blossom; he returned with his hands full of dead leaves.

No private affliction, however, and not even the failure of his life’s great aim and purpose, could break down the spirit of this indomitable man. He did his best to allay the national enmities that had been excited by the untoward fortunes of the Darien Company; nor were his services in this direction unacknowledged or unrewarded by the Government. The Duke of Queensberry, the royal commissioner in Scotland, writing on August 31, 1700, says—“The poor man acts with great diligence and affection to the King and country. He has no bye-end, and loves this Government both in Church and State. He knows nothing yet of my having obtained anything for him; and I am a little embarrassed how to give him what I am allowed for him, lest his party in that [the Darien] Company should conceive any unjust jealousy of him, or he himself think that I intend as a bribe that which is really an act of charity.”

His active intellect soon found new fields of exercise. He published Proposals of a Council of Trade with the view of promoting the development of the national resources. He conceived the idea of a Sinking Fund ; and warmly advocated the legislative union of England and Scotland. Removing to London, he was admitted to the confidence of William III., and held more than one conference with the King—of which he has left an interesting record, illustrative both of our Scottish adventurer’s intellectual alertness, and William’s readiness to listen to suggestions even from an uncourtly adviser.

“In the last months of the life of this great, but then uneasy prince,” he says, "I had access to him, when, finding him in much perplexity and concern about the state of his affairs, I took opportunity to represent that his misfortunes did not so much proceed from the variable tempers or humours of his people, as some pretended, but rather from the men of his house, or those he had trusted with his business, who, either for want of capacity or experience, or that they preferred themselves to him, had brought the affairs of the kingdom into such confusion as made his subjects uneasy; and now, at last, instead of removing the causes of complaint, they had presumed to employ his treasure and authority to silence the com-plainers; that as matters stood there were no reins of government, no inspection, no inquiry into men’s conduct—every man did as he pleased, for nobody was punished nor indeed rewarded according to merit; and thus his revenue was sunk, and his affairs in the utmost confusion.”

[I find it difficult to believe that Paterson addressed the King in such exceedingly frank language as he here reports. He wrote his narrative in 1709, and probably by that time had forgotten the exact terms he used, putting down what he thought he had said not less than what he actually did say.]

“He owned this,” continues Paterson, “but asked for remedies ; upon which I proposed that, in the first place, he should put the management of the revenues on the right footing, without which all other remedies would prove ineffectual. The first step towards reforming the revenue was that of restoring the public credit, by making provision of interest for all the national debts, and taking care for the time to come such should be granted as to prevent further deficiency.

“The next thing I proposed was an attempt upon the principal parts of the West Indies, by which he might be enabled not only to carry on the war at the expense of the enemy, but open a secure and direct trade for ever between those rich and vast continents of Mexico and Peru, and this kingdom. I added that to secure the Spanish monarchy from France, the true way was to begin with the West Indies, since it was more practicable to make Spain and other dominions in Europe follow the fate of the West Indies, than to make the West Indies, if once in the power of France, follow the fate of Spain. Besides, France would thereby be enabled to carry on the war by the bullion and other wealth of the West Indies.

“The third thing I proposed was our union with Scotland, than which, I convinced him, nothing would tend more to his glory, and to render this island great.

“The fourth thing was a present commission of inquiry, by which he would see by whom his affairs had been mismanaged, and who they were who, under pretence of mending matters, perplexed and made them still worse: in particular he would be at a point how far the present debts had arisen from mismanagement, or from deficiency of funds.”

The good sense of these proposals was readily recognized by William’s sagacious mind. But Paterson’s ill luck followed him on this as on every other occasion. King William died; and though Queen Anne’s ministers took up the chief points of his policy, they neglected to reward the man who had helped to shape it. Paterson, however, was employed by them to conduct the financial arrangements involved in the Act of Union.

From 1703 until his death in 1719, Paterson resided in Queen Square, Westminster. For some years he lived in comparative poverty, for though Parliament admitted his claim to be indemnified for the losses he had sustained in the public service, estimating them at £18,241, he received never a penny until after the accession of George I. As late as 17n, one reads in Dryasdust Boyce’s Political States, a complaint “that this great politician, the chief projector of the Bank of England, the main support of the Government, should be so disregarded that even the sums due to him are not paid. He was very instrumental" it is added, “in bringing about the Union, when he was the person chiefly employed in settling the national accounts.” However, this period of adversity came to an end in or about July 1715; so that Paterson’s last years were spent in comfort. He died on January 22, 1719.

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