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History of Banking in Scotland
Chapter XII - The Crisis of 1793 and 1797

THE Treaty of Paris, concluded between Britain, France, and Spain, in January 1783, inaugurated a period of ten years' peace. This was abruptly and terribly ended by the great French Revolution, which appears to have been only the most hideous manifestation of an almost world-wide disturbance in all departments of the civilised economy. Great changes had taken place in men's views; and with the progress of knowledge, and the increase of wealth, there spread a desire for liberty which rapidly developed into license. Comparatively isolated as Scotland was, it reflected in a marked degree the tendencies of the time. The rude and simple-living Scot had become luxurious as his wealth increased; and the vices of advanced civilisation manifested themselves in a corresponding ratio. This was particularly the case in Edinburgh, which had always been far ahead of the rest of Scotland. The city had spread out its borders to a large extent; and with the exodus of the higher classes from their pent-up alleys and courts to the spacious streets and squares of the new town, a complete change occurred in the manners and customs of the citizens. Scotland, like the rest of the European nations, had awakened to a sense of its inherent power. It cannot occasion wonder that this social revolution was accompanied by excesses; and it is matter for congratulation, that the natural good sense of the people kept them within comparatively moderate bounds.

In our second last chapter we traced the rapid development of banking in Scotland, which accompanied this progress of the nation in material prosperity. It remains for us on the present occasion to bring down our narrative to the close of the century, which terminated with the consolidation of the empire as the United Kingdom of Great Britain and Ireland.

In 1783, simultaneously with a large increase in their capital, the Royal Bank (who had refused in 1780 a proposal to open a branch in Paisley) for the first time departed from their policy of confining their operations to the Metropolis, by opening an office in Glasgow. It would appear, however, that this desirable and too long delayed operation was performed in a very humble manner. According to an interesting record of banking events in Glasgow, their first office was on the one side of a small shop in `Hopkirk's Land,' east side of High Street, five doors north from the corner at the Cross. Their agent carried on his ordinary business of a linen-draper on the other side of the shop. The rent paid by the bank was £2: 10s. annually. The agent had been originally a herd-boy, afterwards a weaver in Paisley, Hamilton, and Cambuslang, thereafter a clerk to a silk-mercer in Glasgow, and at the time the bank employed him, he was, as already said, a linen-draper on his own account." [Banking in Glasgow during the Olden Time, Glasgow, 1862 p. 23, note. Also 2nd edition, 1884, p. 16.] If this account of the commencement of their direct connection with Glasgow be correct, it is evident that they had no great faith in its success. Their subsequent policy in regard to branch extension shows a strict adherence to conservative views. It was not until the collapse of the Western Bank, in 1857, that they adopted in earnest the theory of a branch system.

With the exception of a slight panic which seized the depositors with private bankers in Edinburgh in 1788—a consequence of several severe failures among corn merchants and distillers, with whom they were involved—few incidents of importance fall to be considered until the year 1793. The private banking house of Seton, Wallace & Co. was established in Edinburgh in 1791. It does not seem to have existed for more than fifteen years, as the firm is not mentioned after 1805 ; probably owing to the death of Mr. Alex. Wallace on 12th June 1804. Bank stock seems to have commanded a high price at this time, as it is recorded in 1792, that "three shares of the capital stock of the Bank of Scotland, with the benefit of the new subscription, were sold at £740, which is £246:13: 4 a share. Besides this, the purchaser pays the auction duty, which makes it above £254 for each original share of £1000 Scots, or £83 : 6 : 8 sterling." About the same time the new stock of the Royal Bank sold at £240 per cent.

The rapid advance of the country in industrial projects, to which we have already referred, seems to have proceeded with more activity than discretion. The political disturbances in connection with the French Revolution, and the renewal of hostilities with France, gave a severe shake to the unduly extended system of credit. Numerous bankruptcies occurred throughout the country. These told heavily on the banks. This was more particularly the case in Glasgow, where the crisis led to the failure of the Glasgow Arms Bank (Murdoch, Robertson & Co.), and of the house of Andrew, George, & Andrew Thomson, which had been formed in 1785. The former bank stopped payment on March 14th, with liabilities to the extent of £183,000. These were eventually met in full without interest. The failure of the Messrs. Thomson did not take place until 5th November. Their debts, which are stated at £64,564 by one authority, and at £47,000 by another, were ultimately paid in full.

The private bankers in Edinburgh were greatly pressed for money. Sir William Forbes says, " The check to circulation, and the consequent demands for money, began to be felt by us, as well as by our neighbours, very early in the year 1793, and rose to such an alarming height as put the demands on the house that took place in the year 1788 totally out of remembrance." After referring to the failure of the Glasgow Arms Bank, and to the bankruptcy of "James Dunlop, of Glasgow, who was supposed to be one of the most opulent and cautious men of business in the West," he proceeds to state, that "on the 23rd April, the house of Bertram, Gardner & Co., of Edinburgh, also stopped payment, and to complete the confusion, the four banks of Newcastle, which were known to be opulent, were forced to shut up on the 12th April, owing to their not having had the precaution to keep in readiness sufficient funds to meet the demands that were made upon them. Their stoppage was accompanied by that of a great many country banks in England." Sir William is, doubtless, correct in giving 23rd April as the date of the stoppage of Bertram, Gardner & Co., but it is somewhat curious that their actual bankruptcy did not occur until 10th December following. Their creditors had granted a "deed of supersedere," under which, "followed by a very liberal subscription of guarantee in aid of the funds of the house," and the direction of a committee, they continued to conduct their business. [Courant, 2nd May 1793. It is probable that the Merchant Bank of Glasgow also ceased at or about this time.] Sanguine expectations were, however, disappointed; for the firm failed again on 10th November, and were made bankrupt a month later. They were the only bankers in Edinburgh who succumbed at this crisis. Their liabilities were about £145,000, of which their estates liquidated 17s. 6d. per £. The provincial bankers seem to have all stood this trial.

An interesting project, which unfortunately proved abortive, was formed about this time, for the establishment of a new bank at Glasgow. Recognising the superiority of corporate banks over banking companies, its promoters proposed that it should be erected under Act of Parliament. It was to have been modelled on the constitution of the Bank of England; but, had it been formed, it would probably have more nearly resembled the two Edinburgh banks. On 12th June, 1793, just when financial affairs were assuming a more satisfactory character, a meeting was held in Glasgow to consider the proposal. The decision appears to have been favourable, and steps were taken to carry out the project. But, whether from want of sufficient support, or on account of the unfavourable condition of commercial affairs in the West of Scotland, or refusal of Government recognition, or other impediment, the scheme fell through. This gives cause for some regret, for had the Glasgow Royal Bank—for so it was to have been styled—been actually established on the high-class footing which was sketched out, there is reason to believe that it might have been very successful, not only in a financial sense, but as fostering legitimate trade, and imparting a high tone to banking in the West of Scotland. It might have done much to mitigate, if not to avert, the consequences of the recklessness and speculativeness which have always been too characteristic of banking as conducted in Glasgow, more especially, but also elsewhere, by banking companies dominated by the mercantile spirit. Nearly, we might almost say-absolutely, all the banking disasters in Scotland can be clearly traced to too intimate a connection between the management of banks and the mercantile section of the community. Such a bank as was here designed would have been sufficiently independent.

The continuance of the war with France and the dread of invasion were the immediate causes of another crisis in 1797. This was a more general disturbance than that we have just referred to. [It was not, however, in the so-called "decennial" series. That occurred four years earlier-1793 being in the true periodical rotation. The present was a currency crisis.] A continuous and heavy drain of gold to meet expenditure abroad, and loans to foreign allies, had exhausted the bullion reserve of the Bank of England, and curtailed the metallic circulation throughout the country. The wants of the community led to extensive issues of local coins, tokens, and notes for small payments. Year by year the withdrawal of coin from the country had grown worse, prices had risen excessively, and at last the Bank of England was brought within a few days of stopping payment. Roused to action by the representations, often repeated, of the Bank Board, the Privy Council, on 26th of February, directed the Bank of England to suspend payment in specie. On the following day, in accordance with this order, the Bank Directors issued a circular declaring "the affluent and prosperous situation of the general concerns of the Bank," and stating that they would continue "their usual discounts for the accommodation of the commercial interest, paying the amount in bank notes." The suspension of specie payments was confirmed by Parliament, and lasted until 1821.

The news of this important event arrived in Edinburgh on the 1st March, by an express sent to the Bank of Scotland. The demands on all the banks in Edinburgh for specie were continually pressing; but they had hitherto maintained their ability to meet them. Now that access to the ultimate bullion reserve had been cut off, however, it was imperative that they should protect themselves by immediate action of an unusual kind. Sir William Forbes supplies a graphic and interesting account of the proceedings which took place. It was generally believed that "the nation was ruined beyond redemption." The public banks and private bankers met, and consulted with one another, "for all ceremony and etiquette of public or private banks was now out of the question, when it had become necessary to think of what was to be done for our joint preservation on such an emergency." It was resolved to follow the example of the Bank of England by suspending all payments in specie. The local authorities supported this resolution, and information of the fact was sent throughout the country. Sir William adds, that "the instant this resolution of paying no more specie was known in the street, a scene of confusion and uproar took place, of which it is utterly impossible for those who did not witness it to form an idea."

Another contemporary account states that, "in consequence of the measures adopted by the banks, of refusing to give out specie for notes, resolutions have been entered into by a great number of gentlemen to receive bank notes in all payments; for this purpose, subscription papers lay open for several days in the Merchants' Hall. There seems little doubt that the great scarcity of specie in this part of the island is occasioned by the fear of an invasion, operating too powerfully on the ignorant and desponding part of the community. The responsibility of the Banks, joined to a renewal of confidence, from a short trial, will, we doubt not, set all to right very soon. While individuals hoard up, and deprive the banks of their usual supplies, it cannot be expected that they should exchange in their usual way. A little more liberality, in giving small sums to such as they know, we think would be right and proper." [Scots Magazine, 1797, p. 212,]

One of the most distressing features of the situation was the want of small currency. For sums of £1 and upward the bank notes were still available, but for smaller sums there was no medium of payment. The commonalty, and indeed the whole community, were thereby placed in a most painful situation. Tradesmen could not pay wages, and small purchases could not be made. People resorted to the expedient of tearing £1 notes into halves and quarters, a practice which appears to have been tacitly recognised by the banks. Eventually an Act was passed to permit banks to issue notes of less than 20s. value for a limited period. Under the provisions of this Act, the Bank of Scotland, Royal Bank of Scotland, and British Linen Company (who are specifically mentioned), and all other banks or banking companies in Scotland, in operation, and issuing notes on or before 1st March 1797, but no other persons, were empowered to "issue notes, bills, or tickets, in the nature of bank-notes, payable to the bearer on demand, for any sum whatever, under the sum of 20s. sterling." The banks were indemnified for having so issued before the passing of the Act; but the powers of issue conferred by the Act were to cease on 15th May following. By a subsequent Act the latter provision was extended to 5th July 1799. In accordance with the powers thus given, the three old banks, and probably many of the other banks, made an issue of 5s. notes, and the excitement gradually subsided. It does not appear that any other denomination of fractional notes was issued. Indeed, it is probable that the banks were reluctant to do more in this matter than was absolutely required in the public interest. For, while the expense of making these notes would be as great as for larger denominations, the profit from them would be proportionally smaller.

The action of the Scotch bankers in suspending payment in specie was, of course, quite illegal, and any creditor could have prosecuted his claim for payment in legal tender. The authority granted, or rather the order given, to the Bank of England did not extend to other bankers. It is noticeable, however, that notwithstanding the public excitement which ensued on the promulgation of the resolution, no attempt was made to enforce claims by appeal to the law courts. It would appear, moreover, that while the notes of the Bank of England fell to a discount, the Scotch circulation always maintained its par value. In fact, after the first excitement had worn off, the public accepted the notes of the banks in an inconvertible form as readily as they had formerly done when they were exchangeable for specie on demand. Such a circumstance would be impossible now; and rightly so, for an inconvertible note is essentially an abomination. But it was not ignorance on the part of the public that tided the banks over this dangerous epoch. It was that spirit of true national patriotism which, relying with confidence on the solidity of the banks, recognised that the action of the latter was occasioned by a common emergency, and called for the support and not for the opposition of their creditors. We now live under more selfish, if more logical conditions; but to the repeated forbearance of our ancestors in regard to the conduct of the Scotch banks, and to their sometimes overtaxed confidence in their respectability, Scotland owes no small part of its subsequent prosperity. Had our forefathers overturned the banking system whenever it went a little agee, the industrial life of the nation would have been subjected to repeated paralytic strokes, which would have dwarfed and stunted the national growth.

It would seem that up to this period the impression of the duty stamps on bank notes, newspapers, etc., had to be performed in London ; for it is stated that, in September 1785, there was an agitation to have arrangements made for carrying out that part of revenue work in Edinburgh instead of requiring papers to be sent to London. The agitation was renewed in 1805, and some time before 1812 the Edinburgh Stamp Office seems to have been authorised to impress. At least this may be inferred from the narrative of an unsuccessful attempt then made to exact new license dues on changes of partners in banking companies.

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