Part 2 — Chapter III. (These four articles abrogated by the four articles following them, 118-122.) Article 118. The Federal Constitution may at any time be amended. (continued 113)

(a) Mythological or religious representations, and (b) portraits of historical persons.

From the earliest times down to the age of Alexander the Great the types of Greek coins are almost exclusively religious. However strange this may seem at first, it is not difficult to explain. It must be borne in mind that when the enterprising and commercial Lydians first lighted upon the happy idea of stamping metal for general circulation, a guarantee of just weight and purity of metal would be the one condition required. … What more binding guarantee could be found than the invocation of one or other of those divinities most honoured and most dreaded in the district in which the coin was intended to circulate. There is even good reason to think that the earliest coins were actually struck within the precincts of the temples, and under the direct auspices of the priests; for in times of general insecurity by sea and land, the temples alone remained sacred and inviolate."

B. V. Head, Greek Coins Coins and Medals, edited by S. Lane-Poole, chapter 2.

MONEY AND BANKING: Early Banking.

"The banker's calling is both new and old. As a distinct branch of commerce, and a separate agent in the advancement of civilisation, its history hardly extends over 300 years; but, in a rude and undeveloped sort of way, it has existed during some dozens of centuries. It began almost with the beginning of society. No sooner had men learnt to adopt a portable and artificial equivalent for their commodities, and thus to buy and sell and get gain more easily, than the more careful of them began to gather up their money in little heaps, or in great heaps, if they were fortunate enough. These heaps were, by the Romans, called montes—mounds, or banks,—and henceforth every money-maker was a primitive banker. The prudent farmers and shopkeepers in the out-of-the-way villages, who now lock up their savings in strong boxes, or conceal them in places where they are least likely to be found by thieves, show us how the richest and most enterprising men of far-off times, whether in Anglo-Saxon or mediæval Britain, ancient Greece and Rome, China or Judæa, made banks for themselves before the great advantages of joint-stock heaping up of money were discovered. When and in what precise way that discovery was made antiquarians have yet to decide. … Perhaps Jews and Greeks set the example to the modern world. Every rich Athenian had his treasurer or money-keeper, and whenever any particular treasurer proved himself a good accountant and safe banker, it is easy to understand how, from having one master, he came to have several, until he was able to change his condition of slavery for the humble rank of a freedman, and then to use his freedom to such good purpose that he became an influential member of the community. Having many people's money, entrusted to his care, he received good payment for his responsible duty, and he quickly learned to increase his wealth by lending out his own savings, if not his employers' capital, at the highest rate of interest that he could obtain. The Greek bankers were chiefly famous as money-lenders, and interest at thirty-six per cent. per annum was not considered unusually exorbitant among them. For their charges they were often blamed by spendthrifts, satirists, and others. 'It is said,' complains Plutarch, 'that hares bring forth and nourish their young at the same time that they conceive again; but the debts of these scoundrels and savages bring forth before they conceive, for they give and immediately demand again; they take away their money at the same time as they put it out; they place at interest what they receive as interest. The Messenians have a proverb: "There is a Pylos before Pylos, and yet another Pylos still." {2202} So of the usurers it may be said, "There is a profit before profit, and yet another profit still;" and then, forsooth, they laugh at philosophers, who say that nothing can come out of nothing!' The Greek bankers and money-lenders, those of Delos and Delphi especially, are reported to have used the temples as treasure-houses, and to have taken the priests into partnership in their money-making. Some arrangement of that sort seems to have existed among the Jews, and to have aroused the anger of Jesus when he went into the Temple of Jerusalem, 'and overthrew the tables of the money-changers, and said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.' Bankers' or money-changers' tables were famous institutions all over the civilised world of the ancients. Livy tells how, in 308 B. C., if not before, they were to be found in the Roman Forum, and later Latin authors make frequent allusions to banking transactions of all sorts. They talk of deposits and securities, bills of exchange and drafts to order, cheques and bankers' books, as glibly as a modern merchant. But these things were nearly forgotten during the dark ages, until the Jews, true to the money-making propensities that characterised them while they still had a country of their own, set the fashion of money-making and of banking in all the countries of Europe through which they were dispersed."

H. R. Fox Bourne, Romance of Trade, chapter 4.

MONEY AND BANKING: Ancient Greece.

"Oriental contact first stirred the 'auri sacra fames' in the Greek mind. That this was so the Greek language itself tells plainly. For 'chrusos,' gold, is a Semitic loan-word, closely related to the Hebrew 'charuz,' but taken immediately, there can be no reasonable doubt, from the Phœnician. The restless treasure-seekers from Tyre were, indeed, as the Græco-Semitic term metal intimates, the original subterranean explorers of the Balkan peninsula. As early, probably, as the 15th century B. C. they 'digged out ribs of gold' on the islands of Thasos and Siphnos, and on the Thracian mainland at Mount Pangæum; and the fables of the Golden Fleece, and of Arimaspian wars with gold-guarding griffins, prove the hold won by the 'precious bane' over the popular imagination. Asia Minor was, however, the chief source of prehistoric supply, the native mines lying long neglected after the Phœnicians had been driven from the scene. Midas was a typical king in a land where the mountains were gold-granulated, and the rivers ran over sands of gold. And it was in fact from Phrygia that Pelops was traditionally reported to have brought the treasures which made Mycenæ the golden city of the Achæan world. The Epic affluence in gold was not wholly fictitious. From the sepulchres of Mycenæ alone about one hundred pounds Troy weight of the metal have been disinterred; freely at command even in the lowest stratum of the successive habitations at Hissarlik, it was lavishly stored, and highly wrought in the picturesquely-named 'treasure of Priam'; and has been found, in plates and pearls, beneath twenty metres of volcanic debris, in the Cyclatic islands Thera and Therapia. This plentifulness contrasts strangely with the extreme scarcity of gold in historic Greece. It persisted, however, mainly owing to the vicinity of the auriferous Ural Mountains, in the Milesian colony of Panticapæum, near Kertch, where graves have been opened containing corpses shining 'like images' in a complete clothing of gold-leaf, and equipped with ample supplies of golden vessels and ornaments. Silver was, at the outset, a still rarer substance than gold. Not that there is really less of it. … But it occurs less obviously, and is less easy to obtain pure. Accordingly, in some very early Egyptian inscriptions, silver, by heading the list of metals, claims a supremacy over them which proved short-lived. It terminated for ever with the scarcity that had produced it, when the Phœnicians began to pour the flood of Spanish silver into the markets and treasure-chambers of the East. Armenia constituted another tolerably copious source of supply; and it was in this quarter that Homer located the 'birth-place of silver.'"

A. M. Clerke, Familiar Studies in Homer, chapter 10.

"Taken as a whole the Greek money is excellent; pure in metal and exact in weight, its real corresponding to its nominal value. Nothing better has been done in this way among the most civilized and best governed nations of modern times. There is, indeed, always a certain recognized limit, which keeps the actual weight of the money slightly below its theoretical weight; and this fact recurs with such regularity that it may be regarded as a rule. We must conclude, therefore, that it was under this form that Greek civilization allowed to the coiner of money the right of seigniorage, or the benefit legitimately due to him to cover the expenses of the coinage, and in exchange for the service rendered by him to the public in providing them with money, by which they were saved the trouble of perpetual weighing. This allowance, however, is always kept within very narrow limits, and is never more than the excess of the natural value of the coined money over that of the metal in ingots. … Of course, the general and predominant fact of the excellence of the Greek money in the time of Hellenic independence is subject, like all human things, to some exceptions. There were a few cities which yielded to the delusive bait of an unlawful advantage, debasing the quality of their coins without foreseeing that the consequences of this unfair operation would react against themselves. But these exceptions are very rare."

F. Lenormant, Money in Ancient Greece and Rome (Contemporary Review, February; 1879).

"The quantity, particularly of gold, … was, in the earlier historical periods, according to unexceptionable testimony, extremely small. In the time of Crœsus, according to Theopompus, gold was not to be found for sale in any of the Greek States. The Spartans, needing some for a votive offering, wished to purchase a quantity from Crœsus; manifestly because he was the nearest person from whom it could be obtained. … Even during the period from the seventieth to the eightieth Olympiads, (B. C. 500-460,) pure gold was a rarity. When Hiero of Syracuse wished to send a tripod and a statue of the Goddess of Victory, made of pure gold, to the Delphian Apollo, he could not procure the requisite quantity of metal until his agents applied to the Corinthian Architiles, who, as was related by the above-mentioned Theopompus and Phanias of Eresus, had long been in the practice of purchasing gold in small quantities, and hoarding it. Greece proper itself did not possess many mines of precious metals. The most important of the few which it possessed were the Attic silver mines of Laurion. {2203} These were at first very productive. … Asia and Africa furnished incomparably a larger quantity of the precious metals than was procured in Greece and the other European countries. … Colchis, Lydia, and Phrygia, were distinguished for their abundance of gold. Some derive the tradition of the golden fleece from the gold washings in Colchis. Who has not heard of the riches of Midas, and Gyges, and Crœsus, the gold mines of the mountains Tmolus and Sipylus, the gold-sand of the Pactolus? … From the very productive gold mines of India, together with its rivers flowing with gold, among which in particular the Ganges may be classed, arose the fable of the gold-digging ants. From these annual revenues the royal treasure was formed. By this a great quantity of precious metal was kept from circulation. It was manifestly their principle to coin only as much gold and silver as was necessary for the purposes of trade, and for the expenditures of the State. In Greece, also, great quantities were kept from circulation, and accumulated in treasuries. There were locked up in the citadel of Athens 9,700 talents of coined silver, besides the gold and silver vessels and utensils. The Delphian god possessed a great number of the most valuable articles. … The magnificent expenditures of Pericles upon public edifices and structures, for works of the plastic arts, for theatrical exhibitions, and in carrying on wars, distributed what Athens had collected, into many hands. The temple-robbing Phocians coined from the treasures at Delphi ten thousand talents in gold and silver; and this large sum was consumed by war. Philip of Macedonia, in fine, carried on his wars as much with gold as with arms. Thus a large amount of money came into circulation in the period between the commencement of the Persian wars and the age of Demosthenes. The precious metals, therefore, must of necessity have depreciated in value, as they did at a later period, when Constantine the Great caused money to be coined from the precious articles found in the heathen temples. But what a quantity of gold and silver flowed through Alexander's conquest of Asia into the western countries! Allowing that his historians exaggerate, the main point, however, remains certain. … Alexander's successors not only collected immense sums, but by their wars again put them into circulation. … The enormous taxes which were raised in the Macedonian kingdoms, the revelry and extravagant liberality of the kings, which passed all bounds, indicate the existence of an immense amount of ready money."

A. Boeckh, The Public Economy of the Athenians, book 1, chapter 3.

MONEY AND BANKING: Phœnicia.

"Nearly all the silver in common use for trade throughout the East was brought into the market by the Phœnicians. The silver mines were few and distant; the trade was thus a monopoly, worth keeping so by the most savage treatment of suspected rivals, and, as a monopoly, so lucrative that, but for the long and costly voyage between Spain and Syria, the merchant would have seemed to get his profit for nothing. … The use of silver money, though it did not originate with the Phœnicians, was no doubt promoted by their widespread dealings. The coins were always of known weight, and standing in a well-known relation to the bars used for large transactions."

E. J. Simcox, Primitive Civilizations, volume 1, page 400.

"It is a curious fact that coinage in Phoenicia, one of the most commercial of ancient countries, should have been late in origin, and apparently not very plentiful. There are, in fact, no coins of earlier period than the third century which we can with certainty attribute to the great cities of Tyre and Sidon. Some modern writers, however, consider that many of the coins generally classed under Persia—notably those bearing the types of a chariot, a galley, and an owl respectively— were issued by those cities in the 5th and 4th centuries B. C. But it is certain, in any case, that the Phoenicians were far behind the Greeks in the art of moneying. With the invasion of Persia by Alexander the Great came a great change; and all the ancient landmarks of Asiatic government and order were swept away. During the life of Alexander the Great the coins bearing his name and his types circulated throughout Asia; and after his death the same range of currency was attained by the money of the early Seleucid Kings of Syria—Seleucis I., Antiochus I., and Antiochus II., who virtually succeeded to the dominions of the Persian Kings, and tried in many respects to carry on their policy. Of these monarchs we possess a splendid series of coins."

S. Lane-Poole, Coins and Medals, chapter 6.

MONEY AND BANKING: The Jews.

"It would seem that, until the middle of the second century B. C., the Jews either weighed out gold and silver for the 'Price of goods, or else used the money usually current in Syria, that of Persia, Phoenicia, Athens, and the Seleucidae. Simon the Maccabee was the first to issue the Jewish shekel as a coin, and we learn from the Book of Maccabees that the privilege of striking was expressly granted him by King Antiochus VII. of Syria. We possess shekels of years 1-5 of the deliverance of Zion; the types are a chalice and a triple flower. The kings who succeeded Simon, down to Antigonus, confined themselves to the issue of copper money, with Hebrew legends and with types calculated not to shock the susceptible feelings of their people, to whom the representation of a living thing was abominable—such types as a lily, a palm, a star, or an anchor. When the Herodian family came in, several violations of this rule appear."

S. Lane-Poole, Coins and Medals, chapter 6.

ALSO IN: G. C. Williamson, The Money of the Bible.

MONEY AND BANKING: Rome.

"In Rome the generic terms for money seem to have been successively, pecunia, As, nummns, and moneta. … Moneta … is derived from the name of the temple in which, or in a building to or next to which the money of Rome was coined after the defeat of Pyrrhus, B. a. 275, more probably after the capture of Tarentum by the Romans, B. C. 272. It probably did not come into use until after the era of Scipio, and then was only used occasionally until the period of the Empire, when it and its derivatives became more common. Nummus, nevertheless, continued to hold its ground until towards the decline of the Empire, when it went entirely out of use, and moneta and its derivatives usurped its place, which it has continued to hold ever since. Moneta is therefore substantially a term of the Dark Ages. … The idea associated with moneta is coins, whose value was derived mainly from that of the material of which they were composed; whilst the idea associated with nummus is a system of symbols whose value was derived from legal limitation. {2204} From the fact that our language sprang from the Dark Ages, we have no generic word for money other than moneta, which only relates to one kind of money. For a similar reason, the comparative newness of the English tongue, we have no word for a piece of money except coin, which, properly speaking, only relates to one kind of piece, namely, that which is struck by the cuneus."

A. Del Mar, History of Money in Ancient Countries, chapter 28.

The extent and energy of the Roman traffic, in the great age of the Republic, during the third and second centuries before Christ, "may be traced most distinctly by means of coins and monetary relations. The Roman denarius kept pace with the Roman legions. … The Sicilian mints—last of all that of Syracuse in 542—were closed or at any rate restricted to small money in consequence of the Roman conquest, and … in Sicily and Sardinia the denarius obtained legal circulation at least side by side with the older silver currency and probably very soon became the exclusive legal tender. With equal if not greater rapidity the Roman silver coinage penetrated into Spain, where the great silver-mines existed and there was virtually no earlier national coinage; at a very early period the Spanish towns even began to coin after the Roman standard. On the whole, as Carthage coined only to a very limited extent, there existed not a single important mint in addition to that of Rome in the region of the western Mediterranean, with the exception of the mint of Massilia and perhaps also of those of the Illyrian Greeks at Apollonia and Epidamnus. Accordingly, when the Romans began to establish themselves in the region of the Po, these mints were about 225 subjected to the Roman standard in such a way, that, while they retained the right of coining silver, they uniformly—and the Massiliots in particular—were led to adjust their drachma to the weight of the Roman three-quarter denarius, which the Roman government on its part began to coin, primarily for the use of upper Italy, under the name of the 'piece of Victory' (victoriatus). This new system, based on the Roman, prevailed throughout the Massiliot, Upper Italian, and Illyrian territories; and these coins even penetrated into the barbarian lands on the north, those of Massilia, for instance, into the Alpine districts along the whole basin of the Rhone, and those of Illyria as far as the modern Transylvania. The eastern half of the Mediterranean was not yet reached by the Roman money, as it had not yet fallen under the direct sovereignty of Rome; but its place was filled by gold, the true and natural medium for international and transmarine commerce. It is true that the Roman government, in conformity with its strictly conservative character, adhered—with the exception of a temporary coinage of gold occasioned by the financial embarrassment during the Hannibalic war—steadfastly to the rule of coining silver only in addition to the national-Italian copper; but commerce had already assumed such dimensions, that it was able in the absence of money to conduct its transactions with gold by weight. Of the sum in cash, which lay in the Roman treasury in 597, scarcely a sixth was coined or uncoined silver, five-sixths consisted of gold in bars, and beyond doubt the precious metals were found in all the chests of the larger Roman capitalists in substantially similar proportions. Already therefore gold held the first place in great transactions; and, as may be inferred from this fact, the preponderance of traffic was maintained with foreign lands, and particularly with the East, which since the times of Philip and Alexander the Great had adopted a gold currency. The whole gain from these immense transactions of the Roman capitalists flowed in the long run to Rome. … The moneyed superiority of Rome as compared with the rest of the civilized world was, accordingly, quite as decided as its political and military ascendancy. Rome in this respect stood towards other countries somewhat as the England of the present day stands towards the continent."

T. Mommsen, History of Rome, book 3, chapter 12 (volume 2).

In the later years of the Roman Republic the coinage became debased and uncertain. "Cæsar restored the public credit by issuing good money, such as had not been seen in Rome for a length of time, money of pure metal and exact weight; with scarcely any admixture of plated pieces, money which could circulate for its real value, and this measure became one of the principal sources of his popularity. Augustus followed his example, but at the same time took away from the Senate the right of coining gold and silver, reserving this exclusively to the imperial authority, which was to exercise it absolutely without control. From this time we find the theory that the value of money is arbitrary, and depends solely on the will of the sovereign who issues it, more and more widely and tenaciously held. … The faith placed in the official impress fostered the temptation to abuse it. … In less than a century the change of the money of the State into imperial money, and the theory that its value arose from its bearing the effigy of the sovereign, produced a system of adulteration of specie, which went on growing to the very close of the Empire, and which the successors of Augustus utilized largely for the indulgence of their passions and their prodigality."

F. Lenormant, Money in Ancient Greece and Rome (Contemporary Review, February, 1879).

MONEY AND BANKING: Mediæval Money and Banking.

As regards the monetary system of the Middle Ages, the precious metals, when uncoined, were weighed by the pound and half pound or mark, for which different standards were in use, the most generally recognised being those of Troyes and Cologne. Of coined money there existed a perplexing variety, which made it almost impossible to ascertain the relative value, not only of different coins, but of the same coin of different issues. This resulted from the emperor or king conferring the right of coinage upon various lords spiritual and temporal, from whom it was ultimately acquired by individual towns. The management was in most cases entrusted to a company, temporary or permanent, inspected by an official, the coin-tester, originally appointed by the sovereign, but afterwards by the company, and confirmed by the king or bishop. The house where the process of coining was performed was called the mint, and the company who held the rights of coinage in fee was known as the Mint House Company, or simply the House Company. Very generally the office was held by the Corporation of Goldsmiths. The want of perfect supervision led to great debasement of the currency, especially in Germany and France; but in England and Italy the standard was tolerably well maintained. {2205} Payments in silver were much more common than in gold. Before the Crusades the only gold coins known in Europe were the Byzantine solides, the Italian tari, and Moorish maurabotini. The solidi, which were originally of 23 to 23½ carat gold, but subsequently very much deteriorated, were reckoned as equal to twelve silver denars. They passed current in Southern and Eastern Europe, Hungary, Germany, Poland, and Prussia. … Solde, sol, and sou are only repeated transformations of the name of the coin, which have been accompanied by still greater changes in its value. The tari or tarentini derived its name from the Italian town where it was originally struck. It was less generally known than the solides, and was equal to one-fourth the latter in value. The maurabotini or sarazens were only of 15 carats gold. The name survives in the Spanish maravedi, which, however, like the sou, is now made of copper instead of gold. In the thirteenth century augustals, florentines, and ducats, or zecchins (sequins), were coined in Italy. The first-mentioned, the weight of which was half an ounce, were named in honour of Frederick II., who was Roman Cæsar and Augustus in 1252. The florentines, also known as gigliati, or lilies, from the arms of Florence, which they bore on one side, with the effigy of John the Baptist on the reverse, were of fine gold and lighter than the solidi, about 64 being reckoned equal to the mark. The ducats or zecchins were of Venetian origin, receiving their first name from the Duca or Doge, and the other from the Zecca or Mint House. They were somewhat less in value than the florentines, 66 or 67 being counted to the fine mark. Nearly equivalent in value to these Italian coins were the gold guilders coined in the fourteenth century in Hungary and the Rhine regions. The Rhenish guilder was of 22½ or 23 carats fine, and in weight 1/66; of a mark of Cologne. The silver guilder was of later production, and the name is now used as equivalent to florin. … In silver payments, the metal being usually nearly pure, it was common to compute by weight, coins and uncoined bullion being alike put into the scale, as is still the case in some Eastern countries. Hence the origin of the pound, livre, or mark. The most widely diffused silver coin was the denarius, which was, as in ancient Roman times, the 11/240 of a pound. The name pending or pennig, by which the denarius was known among the old Teutonic nations, seems to be connected with pendere, to weigh out or pay; as the other ancient Teutonic coin, the sceat, was with sceoton, to pay, a word which is preserved in the modern phrases 'scot free,' 'pay your scot.' … Half-pennies and farthings were not known in the earliest times, but the penny was deeply indented by two cross lines, which enabled it to be broken into quarters or farthings (feordings or fourthings). From the indented cross the denarius was known in Germany as the kreutzer. … With such a diversity of coinage, it was necessary to settle any mercantile transaction in the currency of the place. Not only would sellers have refused to accept money whose value was unknown to them, but in many places they were forbidden to do so by law. Merchants attending foreign markets therefore brought with them a quantity of fine silver and gold in bars, which they exchanged on the spot for the current coin of the place, to be used in settling their transactions; the balance remaining on hand they re-exchanged for bullion before leaving. The business of money-changing, which thus arose, was a very lucrative one, and was originally mostly in the hands of Italian merchants, chiefly Lombards and Florentines. In Italy the money-changers formed a guild, members of which settled in the Netherlands, England, Cologne, and the Mediterranean ports. In these different towns and countries they kept up a close connection with each other and with Italy, and at an early period (before the thirteenth century) commenced the practice of assignments, i. e., receiving money in one place, to be paid by an order upon their correspondents in another, thus saving the merchant who travelled from country to country the expense and risk of transporting specie. In the thirteenth century this branch of business was in extensive use at Barcelona, and in 1307 the tribute of 'Peter's pence' was sent from England to the Pope through the Lombard exchangers. From 5 to 6 per cent., or more, was charged upon the transaction, and the profitable nature of the business soon led many wealthy and even noble Italian families to employ their money in this way. They established a member of their firm in each of the great centres of trade to receive and pay on their account. In Florence alone (about 1350) there are said to have been eighty such houses. Among these the Frescobaldi, Bardi, and Peruzzi are well-known names; but the chief place was taken by the famous Florentine house of the Medici, who had banking houses established in sixteen of the chief cities of Europe and the Levant. In the north of Europe, before long, similar arrangements were established by the merchants of the Hanseatic League. … Assignments of this kind were drawn out in the form of letters, requesting the person by whom the money was due to pay it over to another party, named in the bill, on account of the writer, specifying also the time within which and the form in which the payment was to be made. They were thus known as letters, billets, or bills of exchange, and appear in Italy as early as the thirteenth and fourteenth centuries. Among the earliest examples in existence are a letter of exchange, dated at Milan in 1325, payable within five months at Lucca; one dated at Bruges, 1304, and payable at Barcelona; and another, dated at Bologna, 1381, payable in Venice. … 'The first writers who treat of bills are Italians: the Italian language furnishes the technical terms for drafts, remittances, currency, sight, usance, and discount, used in most of the languages of Europe.' … Of other branches of banking the germs also appeared in the Middle Ages. Venice seems to have been the first city to possess something answering to a deposit bank. The merchants here united in forming a common treasury, where they deposited sums of money, upon which they gave assignments or orders for payment to their creditors, and to which similar assignments due to themselves were paid and added on to the amount at their credit. The taula di cambi (exchange counter) of Barcelona was a similar institution, as also the bank of St. George, at Genoa."

J. Yeats, Growth and Vicissitudes of Commerce, appendix F.

The name "Lombards" was frequently given, during the Middle Ages, to all the Italian merchants and money-lenders—from Florence, Venice, Genoa, and elsewhere—who were engaged throughout Europe in banking and trade.

{2206}

MONEY AND BANKING: Florentine Banking.

"The business of money-changing seemed thoroughly at home here, and it is not surprising that the invention of bills of exchange, which we first meet with in 1199 in the relations between England and Italy, should be ascribed to Florence. The money trade seems to have flourished as early as the twelfth century, towards the end of which a Marquis of Ferrara raised money on his lands from the Florentines. In 1204 we find the money-changers as one of the corporations. In 1228, and probably from the beginning of the century, several Florentines were settled in London as changers to King Henry III.; and here, as in France, they conducted the money transactions of the Papal chair in conjunction with the Sienese. Their oldest known statute, which established rules for the whole conduct of trade (Statuto dell' Università della Mercatanzia) drawn up by a commission consisting of five members of the great guilds, is dated 1280. Their guild-hall was in the Via Calimaruzza, opposite that of the Calimala, and was litter included in the buildings of the post-office, on the site of which, after the post-office had been removed to what was formerly the mint, a building was lately erected, similar in architecture to the Palazzo of the Signoria, which stands opposite. Their coat of arms displayed gold coins laid one beside another on a red field. At the end of the thirteenth century their activity, especially in France and England, was extraordinarily great. But if wealth surpassing all previous conception was attained, it not seldom involved loss of repute, and those who pursued the calling ran the risk of immense losses from fiscal measures to the carrying out of which they themselves contributed, as well as those which were caused by insolvency or dishonesty. … The names of Tuscans and Lombards, and that of Cahorsiens in France, no longer indicated the origin, but the trade of the money-changers, who drew down the ancient hatred upon themselves. … France possessed at this time the greatest attraction for the Florentine money-makers, although they were sometimes severely oppressed, which is sufficient proof that their winnings were still greater than their occasional losses. … The Florentine money market suffered the severest blow from England. At the end of the twelfth century there were already Florentine houses of exchange in London, and if Pisans, Genoese, and Venetians managed the trade by sea in the times of the Crusades, it was the Florentines mostly who looked after financial affairs in connection with the Papal chair, as we have seen. Numerous banks appeared about the middle of the thirteenth century, among which the Frescobaldi, a family of ancient nobility, and as such attainted by the prosecutions against it, took the lead, and were referred to the custom-house of the country for re-imbursement of the loans made to the kings Edward I. and II. Later, the two great trading companies of the Bardi and Peruzzi came into notice, and with their money Edward III. began the French war against Philip of Valois. But even in the first year of this war, which began with an unsuccessful attack upon Flanders, the king suspended the payments to the creditors of the State by a decree of May 6, 1339. The advances made by the Bardi amounted to 180,000 marks sterling, those of the Peruzzi to above 135,000, according to Giovanni Villani, who knew only too well about these things, since he was ruined by them himself to the extent of 'a sum of more than 1,355,000 gold florins, equivalent to the value of a kingdom.' Bonifazio Peruzzi, the head of the house, hastened to London, where he died of grief in the following year. The blow fell on the whole city. … Both houses began at once to liquidate, and the prevailing disturbance contributed not a little to the early success of the ambitious plans of the Duke of Athens. The real bankruptcy ensued, however, in January 1346, when new losses had occurred in Sicily. … The banks of the Acciaiuoli, Bonuccorsi, Cocchi, Antellesi, Corsini, da Uzzano, Perendoli, and many smaller ones, as well as numerous private persons, were involved in the ruin. 'The immense loans to foreign sovereigns,' adds Villani, 'drew down ruin upon our city, the like of which it had never known.' There was a complete lack of cash. Estates in the city found no purchasers at a third of their former value. … The famine and pestilence of 1347 and 1348, the oppressions of the mercenary bands and the heavy expenses caused by them, the cost of the war against Pope Gregory XI., and finally the tumult of the Ciompi, left Florence no peace for a long time. … At the beginning of the fifteenth century industry was again flourishing in all its branches in Florence, financial operations were extended, and foreign countries filled with Florentine banks and mercantile houses. … In London the most important firms had their representatives, Bruges was the chief place for Flanders, and we shall see how these connections lasted to the time of the greatest splendour of the Medici. France is frequently mentioned. The official representatives of the Florentine nation resided in the capital, while numerous houses established themselves in Lyons, in Avignon (since the removal of the Papal chair to this town), in Nismes, Narbonne, Carcassonne, Marseilles, &c. … The house of the Peruzzi alone had sixteen counting-houses in the fourteenth century, from London to Cyprus."

A. van Reumont, Lorenzo de' Medici, book 1, chapter 4 (volume 1).

"The three principal branches of industry which enriched the Florentines were—banking, the manufacture of cloth, and the dyeing of it, and the manufacture of silk. The three most important guilds of the seven 'arti maggiori' were those which represented these three industries. Perhaps the most important in the amount of its gains, as well as that which first rose to a high degree of importance, was the 'Arte del Cambio,' or banking. The earliest banking operations seem to have arisen from the need of the Roman court to find some means of causing the dues to which it laid claim in distant parts of Europe to be collected and transmitted to Rome. When the Papal Court was removed to Avignon, its residence there occasioned a greatly increased sending backwards and forwards of money between Italy and that city. And of all this banking business, the largest and most profitable portion was in the hands of Florentine citizens, whether resident in Florence or in the various commercial cities of Europe. We find Florentines engaged in lending money at interest to sovereign princes as early as the first quarter of the twelfth century."

T. A. Trollope, History of the Commonwealth of Florence, book 4, chapter 1 (volume 2).

{2207}

MONEY AND BANKING: Genoa. The Bank of St. George.

"The Bank of St. George, its constitution, its building, and its history, forms one of the most interesting relies of mediæval commercial activity. Those old grey walls, as seen still in Genoa, begrimed with dirt and fast falling into decay, are the cradle of modern commerce, modern banking schemes, and modern wealth. … This Bank of St. George is indeed a most singular political phenomenon. Elsewhere than in Genoa we search in vain for a parallel for the existence of a body of citizens distinct from the government—with their own laws, magistrates, and independent authority—a state within a state, a republic within a republic. All dealings with the government were voluntary on the part of the bank. … But, far from working without harmony, we always find the greatest unanimity of feeling between these two forms of republics within the same city walls. The government of Genoa always respected the liberties of the bank, and the bank always did its best to assist the government when in pecuniary distress. … To define an exact origin for the bank is difficult; it owed its existence to the natural development of commercial enterprise rather than to the genius of anyone man, or the shrewdness of any particular period in Genoese history. The Crusades, and the necessary preparation of galleys, brought into Genoa the idea of advancing capital for a term of years as a loan to the government on the security of the taxes and public revenues; but in those cases the profits were quickly realized, and the debts soon cancelled by the monarchs who incurred them. However, the expeditions against the Saracens and the Moors were otherwise, and were undertaken at some risk to Genoa herself. … Now large sums of money were advanced, the profits on which were not spontaneous; it was more an investment of capital for a longer term of years, which was secured by the public revenues, but the profits of which depended on the success of the expedition. In 1148 was the first formal debt incurred by the government, and to meet the occasion the same system was adopted which continued in vogue, subject only to regulations and improvements which were found necessary as time went on, until the days of the French Revolution. The creditors nominated from amongst themselves a council of administration to watch over the common interests, and to them the government conceded a certain number of the custom duties for a term of years until the debt should be extinguished. This council of administration elected their own consuls, after the fashion of the Republic governors. Every hundred francs was termed a share (luogo) and every creditor a shareholder (luogatorio). … Each separate loan was termed a 'compera,' and these loans were collectively known as the 'compere of St. George,' which in later years became the celebrated bank. Each loan generally took the name of the object for which it was raised, or the name of the saint on whose day the contract was signed; and when an advance of money was required, it was done by public auction in the streets, when the auctioneer sold the investment to the ever ready merchants, who collected outside the 'loggia,' or other prominent position chosen for the sale. In a loud voice was proclaimed the name and object of the loan, and the tax which was to be handed over to the purchasers to secure its repayment. So numerous did these loans become by 1252, that it was found necessary to unite them under one head, with a chancellor and other minor officials to watch over them. And as time went on, so great was the credit of Genoa, and so easy was this system found for raising money, that the people began to grow alarmed at the extent of the liabilities. So, in 1302, commissioners were appointed at a great assembly, two hundred and seventy-one articles and regulations were drown up to give additional security to investors, and henceforth no future loan could be effected without the sanction of the consuls and the confirmation of the greater council of the shareholders. … During the days of the first doge, Simone Boccanegra, great changes were to be effected in the working system of the 'compere of St. George.' To this date many have assigned the origin of the Bank of St. George, but it will be seen only to be a further consolidation of the same system, which had already been at work two centuries. … In 1339, … at the popular revolution, all the old books were burnt, and a new commission appointed to regulate the 'compere.' … Instead … of being the origin of the bank, it was only another step in the growing wish for consolidation, which the expanding tendency of the 'compere' rendered necessary; which consolidation took final effect in 1407, when the Bank was thoroughly organized on the same footing which lasted till the end. Every year and every event tended towards this system of blending the loans together, to which fact is due the extensive power which the directors of the bank eventually wielded, when all interests and all petty disputes were merged together in one. … As time went on, and the French governor, Boucicault, weighed on the treasury the burden of fresh fortifications, and an expensive war; when Corsican troubles, and the Turks in the East, caused the advance of money to be frequent, an assembly of all the shareholders in all the loans decided that an entire reorganization of the public debts should take place. Nine men were elected to draw up a new scheme, in 1407, and by their instrumentality all the shares were united; the interest for all was to be seven per cent., and fresh officials were appointed to superintend the now thoroughly constituted and re-named 'Bank of St. George.' And at length we behold this celebrated bank. Its credit never failed, and no anxiety was ever felt by any shareholder about his annual income, until the days of the French Revolution. … This Bank of St. George was essentially one of the times, and not one which could have existed on modern ideas of credit; for it was a bank which would only issue paper for the coin in its actual possession, and would hardly suit the dictates of modern commerce. It was not a bank for borrowers but for capitalists, who required enormous security for immense sums until they could employ them themselves. … One of the most interesting features in connection with the dealings of the bank with the Genoese government, and a conclusive proof of the perfect accord which existed between them, was the cession from time to time of various colonies and provinces to the directors of the bank when the government felt itself too weak and too poor to maintain them. In this manner were the colonies in the Black Sea made over to the bank when the Turkish difficulties arose. {2208} Corsica and Cyprus, also towns on the Riviera, such as Sarzana, Ventimiglia, Levanto, found themselves at various times under the direct sovereignty of the bank. … It is melancholy to have to draw a veil over the career of this illustrious bank with the Revolution of 1798. The new order of things which Genoa had learnt from France deemed it inconsistent with liberty that the taxes, the property of the Republic, should remain in the hands of the directors of St. George; it was voted a tyranny on a small scale, and the directors were compelled to surrender them; and inasmuch as the taxes represented the sole source from which their income was derived, they soon discovered that their bank notes were useless, and the building was closed shortly afterwards. In 1804 and 1814 attempts were made to resuscitate the fallen fortunes of St. George, but without avail; and so this bank, the origin of which was shrouded in the mysteries of bygone centuries, fell under the sweeping scythe of the French Revolution."

J. T. Bent, Genoa, chapter 11.

See, also, GENOA: A. D. 1407-1448.

MONEY AND BANKING: 16-17th Centuries. Monetary effects of the Discovery of America.

"From 1492, the year of the discovery of the New World, to 1500, it is doubtful whether [the mines of Mexico and Peru] … yielded on an average a prey of more than 1,500,000 francs (£60,000) a year. From 1500 to 1545, if we add to the treasure produced from the mines the amount of plunder found in the capital of the Montezumas, Ténochtitlan (now the city of Mexico), as well as in the temples and palaces of the kingdom of the Incas, the gold and silver drawn from America did not exceed an average of sixteen million francs (£640,000) a year. From 1545, the scene changes. In one of the gloomiest deserts on the face of the globe, in the midst of the rugged and inhospitable mountain scenery of Upper Peru, chance revealed to a poor Indian, who was guarding a flock of llamas, a mine of silver of incomparable richness. A crowd of miners was instantly attracted by the report of the rich deposits of ore spread over the sides of this mountain of Potocchi—a name which for euphony the European nations have since changed to Potosi. The exportation of the precious metals from America to Europe now rose rapidly to an amount which equalled, weight for weight, sixty millions of francs (£2,400,000) of our day, and it afterwards rose even to upwards of eighty millions. At that time such a mass of gold and silver represented a far greater amount of riches than at present. Under the influence of so extraordinary a supply, the value of these precious metals declined in Europe, in comparison with every other production of human industry, just as would be the case with iron or lead, if mines were discovered which yielded those metals in superabundance, as compared with their present consumption, and at a much less cost of labour than previously, just in fact as occurs in the case of manufactures of every kind, whenever, by improved processes, or from natural causes of a novel kind, they can be produced in unusual quantities, and at a great reduction of cost. This fall in the value of gold and silver, in comparison with all other productions, revealed itself by the increased quantity of coined metal which it was necessary to give in exchange for the generality of other articles. And it was thus that the working of the mines of America had necessarily for effect a general rise of prices, in other words, it made all other commodities dearer. The fall in the value of the precious metals, or that which means the same thing, the general rise of prices, does not appear to have been very great, out of Spain, till after the middle of the 16th century. Shortly after the commencement of the 17th century, the effects of the productiveness of the new mines and of the diminished cost of working them were realised in all parts of Europe. For the silver, which had been extracted in greater proportion than the gold, and on more favourable terms, the fall in value had been in the proportion of 1 to 3. In transactions where previously one pound of silver, or a coin containing a given quantity of this metal, had sufficed, henceforth three were required. … After having been arrested for awhile in this downward course, and even after having witnessed for a time a tendency to an upward movement, the fall in the value of the precious metals, and the corresponding rise in prices, resumed their course, under the influence of the same causes, until towards the end of the 18th century, without however manifesting their influence so widely or intensely as had been witnessed after the first development of the great American mines. We find, as the result, that during the first half of the 19th century, the value of silver fell to about the sixth of what it was before the discovery of America, when compared with the price of corn."

M. Chevalier, On the Probable Fall in the Value of Gold (translated by Cobden), section 1, chapter 1.

MONEY AND BANKING: 17th Century. The Bank of Amsterdam.

"In 1609, the great Bank of Amsterdam was founded, and its foundation not only testifies to the wealth of the republic, but marks an epoch in the commercial history of Northern Europe. Long before this period, banks had been established in the Italian cities, but, until late in the history of the Bank of England, which was not founded until nearly a century later, nothing was known on such a scale as this. It was established to meet the inconvenience arising from the circulation of currency from all quarters of the globe, and to accommodate merchants in their dealings. Anyone making a deposit of gold or silver received notes for the amount, less a small commission, and these notes commanded a premium in all countries. Before the end of the century its deposits of this character amounted to one hundred and eighty million dollars, an amount of treasure which bewildered financiers in every other part of Europe."

D. Campbell, The Puritan in Holland, England, and America, volume 2, pages 323-324.

MONEY AND BANKING: 17th Century. Indian Money used in the American Colonies.

Sea shells, strung or embroidered on belts and garments, formed the "wampum" which was the money of the North American Indians (see WAMPUM). "Tradition gives to the Narragansetts the honor of inventing these valued articles, valuable both for use and exchange. This tribe was one of the most powerful, and it is asserted that their commercial use of wampum gave them their best opportunities of wealth. The Long Island Indians manufactured the beads in large quantities and then were forced to pay them away in tribute to the Mohawks and the fiercer tribes of the interior. {2209} Furs were readily exchanged for these trinkets, which carried a permanent value, through the constancy of the Indian desire for them. The holder of wampum always compelled trade to come to him. After the use of wampum was established in colonial life, contracts were made payable at will in wampum, beaver, or silver. … The use began in New England in 1627. It was a legal tender until 1661, and for more than three quarters of a century the wampum was current in small transactions. For more than a century, indeed; this currency entered into the intercourse of Indian and colonist. … Labor is a chief factor in civilized society and the labor of the Indian was made available through wampum. As Winthrop shows, 10,000 beaver skins annually came to the Dutch from the Great Lake. The chase was the primitive form of Indian industry and furs were the most conspicuous feature of foreign trade, as gold is to-day, but wampum played a much larger part in the vital trade of the time. Wampum, or the things it represented, carried deer meat and Indian corn to the New England men. Corn and pork went for fish; fish went for West India rum, molasses, and the silver which Europe coveted. West India products, or the direct exchange of fish with the Catholic countries of Europe, brought back the goods needed to replenish and extend colonial industries and trade. … As long as the natives were active and furs were plenty, there appears to have been no difficulty in passing any quantity of wampum in common with other currencies. The Bay annulled its statutes, making the beads a legal tender in 1661. Rhode Island and Connecticut followed this example soon after. … New York continued the beads in circulation longer than the regular use prevailed in New England. In 1693 they were recognized in the definite rates of the Brooklyn ferry. They continued to be circulated in the more remote districts of New England through the century, and even into the beginning of the eighteenth."

W. B. Weeden, Indian Money as a Factor in New England Civilization, pages 5-30.

MONEY AND BANKING: 17th Century. Colonial Coinage in America.

"The earliest coinage for America is said to have been executed in 1612, when the Virginia Company was endeavoring to establish a Colony on the Summer Islands (the Bermudas). This coin was of the denomination of a shilling, and was struck in brass." The "pine-tree" money of Massachusetts" was instituted by the Colonial Assembly in 1652, after the fall of Charles I. … This coinage was not discontinued until 1686; yet they appear to have continued the use of the same date, the shillings, sixpences, and threepences all bearing the date 1652, while the twopenny pieces are all dated 1662. … After the suppression of their mint, the Colony of Massachusetts issued no more coins until after the establishment of the Confederacy. … The silver coins of Lord Baltimore, Lord Proprietor of Maryland, were the shilling, sixpence, and fourpence, or groat."

J. R. Snowden, Description of Ancient and Modern Coins, pages 85-87.

See PINE TREE MONEY.

MONEY AND BANKING: 17-18th Centuries. Banking in Great Britain. Origin and influence of the Bank of England.

"In the reign of William old men were still living who could remember the days when there was not a single banking house in the city of London. So late as the time of the Restoration every trader had his own strong box in his own house, and, when an acceptance was presented to him, told down the crowns and Caroluses on his own counter. But the increase of wealth had produced its natural effect, the subdivision of labour. Before the end of the reign of Charles II. a new mode of paying and receiving money had come into fashion among the merchants of the capital. A class of agents arose, whose office was to keep the cash of the commercial houses. This new branch of business naturally fell into the hands of the goldsmiths, who were accustomed to traffic largely in the precious metals, and who had vaults in which great masses of bullion could lie secure from fire and from robbers. It was at the shops of the goldsmiths of Lombard Street that all the payments in coin were made. Other traders gave and received nothing but paper. This great change did not take place without much opposition and clamour. … No sooner had banking become a separate and important trade, than men began to discuss with earnestness the question whether it would be expedient to erect a national bank. … Two public banks had long been renowned throughout Europe, the Bank of Saint George at Genoa, and the Bank of Amsterdam. … Why should not the Bank of London be as great and as durable as the Banks of Genoa and Amsterdam? Before the end of the reign of Charles II. several plans were proposed, examined, attacked and defended. Some pamphleteers maintained that a national bank ought to be under the direction of the King. Others thought that the management ought to be entrusted to the Lord Mayor, Alderman and Common Council of the capital. After the Revolution the subject was discussed with an animation before unknown. … A crowd of plans, some of which resemble the fancies of a child or the dreams of a man in a fever, were pressed on the government. Pre-eminently conspicuous among the political mountebanks, whose busy faces were seen every day in the lobby of the House of Commons, were John Briscoe and Hugh Chamberlayne, two projectors worthy to have been members of that Academy which Gulliver found at Lagado. These men affirmed that the one cure for every distemper of the State was a Land Bank. A Land Bank would work for England miracles such as had never been wrought for Israel. … These blessed effects the Land Bank was to produce simply by issuing enormous quantities of notes on landed security. The doctrine of the projectors was that every person who had real property ought to have, besides that property, paper money to the full value of that property. Thus, if his estate was worth two thousand pounds, he ought to have his estate and two thousand pounds in paper money. Both Briscoe and Chamberlayne treated with the greatest contempt the notion that there could be an over-issue of paper as long as there was, for every ten pound note, a piece of land in the country worth ten pounds. … All the projectors of this busy time, however, were not so absurd as Chamberlayne. One among them, William Paterson, was an ingenious, though not always a judicious speculator. Of his early life little is known except that he was a native of Scotland, and that he had been in the West Indies. … This man submitted to the government, in 1691, a plan of a national bank; and his plan was favourably received both by statesmen and by merchants. {2210} But years passed away; and nothing was done, till, in the spring of 1694, it became absolutely necessary to find some new mode of defraying the charges of the war. Then at length the scheme devised by the poor and obscure Scottish adventurer was taken up in earnest by Montague [Charles Montague, then one of the lords of the treasury and subsequently Chancellor of the Exchequer]. With Montague was closely allied Michael Godfrey. … Michael was one of the ablest, most upright and most opulent of the merchant princes of London. … By these two distinguished men Paterson's scheme was fathered. Montague undertook to manage the House of Commons, Godfrey to manage the City. An approving vote was obtained from the Committee of Ways and Means; and a bill, the title of which gave occasion 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 that the world had ever seen. The plan was that £1,200,000 should be borrowed by the government on what was then considered as the moderate interest of eight per cent. In order to induce capitalists to advance the money promptly on terms so favourable to the public, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The corporation was to have no exclusive privilege, and was to be restricted from trading in any thing but bills of exchange, bullion and forfeited pledges. As soon as the plan became generally known, a paper war broke out. … All the goldsmiths and pawnbrokers set up a howl of rage. Some discontented Tories predicted ruin to the monarchy. … Some discontented Whigs, on the other hand, predicted ruin to our liberties. … The power of the purse, the one great security for all the rights of Englishmen, will be transferred from the House of Commons to the Governor and Directors of the new Company. This last consideration was really of some weight, and was allowed to be so by the authors of the bill. A clause was therefore most properly inserted which inhibited the Bank from advancing money to the Crown without authority from Parliament. Every infraction of this salutary rule was to be punished by forfeiture of three times the sum advanced; and it was provided that the King should not have power to remit any part of the penalty. The plan, thus amended, received the sanction of the Commons more easily than might have been expected from the violence of the adverse clamour. In truth, the Parliament was under duress. Money must be had, and could in no other way be had so easily. … The bill, however, was not safe when it had reached the Upper House," but it was passed, and received the royal assent. "In the City the success of Montague's plan was complete. It was then at least as difficult to raise a million at eight per cent. as it would now be to raise forty millions at four per cent. It had been supposed that contributions would drop in very slowly: and a considerable time had therefore been allowed by the Act. This indulgence was not needed. So popular was the new investment that on the day on which the books were opened £300,000 were subscribed; 300,000 more were subscribed during the next 48 hours; and, in ten days, to the delight of all the friends of the government, it was announced that the list was full. The whole sum which the Corporation was bound to lend to the State was paid into the Exchequer before the first instalment was due. Somers gladly put the Great Seal to a charter framed in conformity with the terms prescribed by Parliament; and the Bank of England commenced its operations in the house of the Company of Grocers. … It soon appeared that Montague had, by skilfully availing himself of the financial difficulties of the country, rendered an inestimable service to his party. During several generations the Bank of England was emphatically a Whig body. It was Whig, not accidentally, but necessarily. It must have instantly stopped payment if it had ceased to receive the interest on the sum which it had advanced to the government; and of that, interest James would not have paid one farthing."

Lord Macaulay, History of England, chapter 20.

"For a long time the Bank of England was the focus of London Liberalism, and in that capacity rendered to the State inestimable services. In return for these substantial benefits the Bank of England received from the Government, either at first or afterwards, three most important privileges. First. The Bank of England had the exclusive possession of the Government balances. In its first period … the Bank gave credit to the Government, but afterwards it derived credit from the Government. There is a natural tendency in men to follow the example of the Government under which they live. The Government is the largest, most important, and most conspicuous entity with which the mass of any people are acquainted; its range of knowledge must always lie infinitely greater than the average of their knowledge, and therefore, unless there is a conspicuous warning to the contrary, most men are inclined to think their Government right, and, when they can, to do what it does. Especially in money matters a man might fairly reason—'If the Government is right in trusting the Bank of England with the great balance of the nation, I cannot be wrong in trusting it with my little balance.' Second, The Bank of England had, till lately, the monopoly of limited liability in England. The common law of England knows nothing of any such principle. It is only possible by Royal Charter or Statute Law. And by neither of these was any real bank … permitted with limited liability in England till within these few years. … Thirdly. The Bank of England had the privilege of being the sole joint stock company permitted to issue bank notes in England. Private London bankers did indeed issue notes down to the middle of the last century, but no joint stock company could do so. The explanatory clause of the Act of 1742 sounds most curiously to our modern ears. … 'It is the true intent and meaning of the said Act that no other bank shall be created, established, or allowed by Parliament, and that it shall not be lawful for any body politic or corporate whatsoever created or to be created, 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 on 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, who are hereby declared to be and remain a corporation with the privilege of exclusive banking, as before recited.' {2211} To our modern ears these words seem to mean more than they did. The term banking was then applied only to the issue of notes and the taking up of money on bills on demand. Our present system of deposit banking, in which no bills or promissory notes are issued, was not then known on a great scale, and was not called banking. But its effect was very important. It in time gave the Bank of England the monopoly of the note issue of the Metropolis. It had at that time no branches, and so it did not compete for the country circulation. But in the Metropolis, where it did compete, it was completely victorious. No company but the Bank of England could issue notes, and unincorporated individuals gradually gave way, and ceased to do so. Up to 1844 London private bankers might have issued notes if they pleased, but almost a hundred years ago they were forced out of the field. The Bank of England had so long had a practical monopoly of the circulation, that it is commonly believed always to have had a legal monopoly. And the practical effect of the clause went further: it was believed to make the Bank of England the only joint stock company that could receive deposits, as well as the only company that could issue notes. The gift of 'exclusive banking' to the Bank of England was read in its most natural modern sense: it was thought to prohibit any other banking company from carrying on our present system of banking. After joint stock banking was permitted in the country, people began to inquire why it should not exist in the Metropolis too? And then it was seen that the words I have quoted only forbid the issue of negotiable instruments, and not the receiving of money when no such instrument is given. Upon this construction, the London and Westminster Bank and all our older joint stock banks were founded. But till they began, the Bank of England had among companies not only the exclusive privilege of note issue, but that of deposit banking too. It was in every sense the only banking company in London. With so many advantages over all competitors, it is quite natural that the Bank of England should have far outstripped them all. … All the other bankers grouped themselves round it, and lodged their reserve with it. Thus our one-reserve system of banking was not deliberately founded upon definite reasons; it was the gradual consequence of many singular events, and of an accumulation of legal privileges on a single bank which has now been altered, and which no one would now defend. … For more than a century after its creation (notwithstanding occasional errors) the Bank of England, in the main, acted with judgment and with caution. Its business was but small as we should now reckon, but for the most part it conducted that business with prudence and discretion. In 1696, it had been involved in the most serious difficulties, and had been obliged to refuse to pay some of its notes. For a long period it was in wholesome dread of public opinion, and the necessity of retaining public confidence made it cautious. But the English Government removed that necessity. In 1797, Mr. Pitt feared that he might not be able to obtain sufficient specie for foreign payments, in consequence of the low state of the Bank reserve, and he therefore required the Bank not to pay in cash. He removed the preservative apprehension which is the best security of all Banks. For this reason the period under which the Bank of England did not pay gold for its notes—the period from 1797 to 1819—is always called the period of the Bank 'restriction.' As the Bank during that period did not perform, and was not compelled by law to perform, its contract of paying its notes in cash, it might apparently have been well called the period of Bank license. But the word 'restriction' was quite right, and was the only proper word as a description of the policy of 1797. Mr. Pitt did not say that the Bank of England need not pay its notes in specie; he 'restricted' them from doing so; he said that they must not. In consequence, from 1797 to 1844 (when a new era begins), there never was a proper caution on the part of the Bank directors. At heart they considered that the Bank of England had a kind of charmed life, and that it was above the ordinary banking anxiety to pay its way. And this feeling was very natural."

W. Bagehot, Lombard Street, chapters 3-4.

ALSO IN: J. W. Gilbart, History and Principles of Banking.

H. May, The Bank of England (Fortnightly Review, March, 1885).

MONEY AND BANKING: 17-18th Centuries. Early Paper issues and Banks in the American Colonies.

"Previous to the Revolutionary War paper money was issued to a greater or less extent by each one of the thirteen colonies. The first issue was by Massachusetts in 1690, to aid in fitting out the expedition against Canada. Similar issues had been made by New Hampshire, Rhode Island, Connecticut, New York, and New Jersey, previous to the year 1711. South Carolina began to emit bills in 1712, Pennsylvania in 1723, Maryland in 1734, Delaware in 1739, Virginia in 1755, and Georgia in 1760. Originally the issues were authorized to meet the necessities of the colonial treasuries. In Massachusetts, in 1715, as a remedy for the prevailing embarrassment of trade, a land bank was proposed with the right to issue circulating notes secured by land. … The plan for the land bank was defeated, but the issue of paper money by the treasury was authorized to the extent of £50,000, to be loaned on good mortgages in sums of not more than £500, nor less than £50, to one person. The rate of interest was five per cent., payable with one-fifth of the principal annually. … In 1733 an issue of bills to the amount of £110,000 was made by the merchants of Boston, which were to be redeemed at the end of ten years, in silver, at the rate of 19 shillings per ounce. In 1739, the commercial and financial embarrassment still continuing, another land bank was started in Massachusetts. … A specie bank was also formed in 1739, by Edward Hutchinson and others, which issued bills to the amount of £120,000, redeemable in fifteen years in silver, at 20 shillings per ounce, or gold pro rata. The payment of these notes was guaranteed by wealthy and responsible merchants. These notes, and those of a similar issue in 1733, were largely hoarded and did not pass generally into circulation. In 1740 Parliament passed a bill to extend the act of 1720, known as the bubble act, to the American colonies, with the intention of breaking up all companies formed for the purpose of issuing paper money. {2212} Under this act both the land bank and the specie bank were forced to liquidate their affairs, though not without some resistance on the part of the former. … The paper money of the colonies, whether issued by them or by the loan banks, depreciated almost without exception as the amounts in circulation increased. … The emission of bills by the colonies and the banks was not regarded with favor by the mother country, and the provincial governors were as a general thing opposed to these issues. They were consequently frequently embroiled with their legislatures."

J. J. Knox, United States Notes, pages 1-5.

MONEY AND BANKING: 17-19th Centuries. Creation of the principal European Banks.

"The Bank of Vienna was founded as a bank of deposit in 1703, and as a bank of issue in 1793; the Banks of Berlin and Breslau in 1765 with state sanction; the Austrian National Bank in 1816. In St. Petersburg three banks were set up; the Loan Bank in 1772, advancing loans on deposits of bullion and jewels; the Assignation Bank in 1768 (and in Moscow, 1770), issuing government paper money; the Aid Bank in 1797, to relieve estates from mortgage and advance money for improvements. The Commercial Bank of Russia was founded in 1818. The Bank of Stockholm was founded in 1688. The Bank of France was founded first in 1803 and reorganised in 1806, when its capital was raised to 90,000,000 francs, held in 90,000 shares of 1,000 francs. It is the only authorised source of paper money in France, and is intimately associated with the government."

H. de B. Gibbins, History of Commerce in Europe, book 3, chapter 4.

MONEY AND BANKING: A. D. 1775-1780. The Continental Currency of the American Revolution.

"The colonies … went into the Revolutionary War, many of them with paper already in circulation, all of them making issues for the expenses of military preparations. The Continental Congress, having no power to tax, and its members being accustomed to paper issues as the ordinary form of public finance, began to issue bills on the faith of the 'Continent,' Franklin earnestly approving. The first issue was for 300,000 Spanish dollars, redeemable in gold or silver, in three years, ordered in May and issued in August, 1775. Paper for nine million dollars was issued before any depreciation began. The issues of the separate colonies must have affected it, but the popular enthusiasm went for something. Pelatiah Webster, almost alone as it seems, insisted on taxation, but a member of Congress indignantly asked if he was to help tax the people when they could go to the printing-office and get a cartload of money. In 1776, when the depreciation began, Congress took harsh measures to try to sustain the bills. Committees of safety also took measures to punish those who 'forestalled' or 'engrossed,' these being the terms for speculators who bought up for a rise."

W. G. Sumner, History of American Currency, pages 43-44.

"During the summer of 1780 this wretched 'Continental' currency fell into contempt. As Washington said, it took a wagon-load of money to buy a wagon-load of provisions. At the end of the year 1778, the paper dollar was worth sixteen cents in the northern states and twelve cents in the south. Early in 1780 its value had fallen to two cents, and before the end of the year it took ten paper dollars to make a cent. In October, Indian corn sold wholesale in Boston for $150 a bushel, butter was $12 a pound, tea $90, sugar $10, beef $8, coffee $12, and a barrel of flour cost $1,575. Samuel Adams paid $2,000 for a hat and suit of clothes. The money soon ceased to circulate, debts could not be collected, and there was a general prostration of credit. To say that a thing was 'worth a Continental' became the strongest possible expression of contempt."

J. Fiske, The American Revolution, chapter 13 (volume 2).

Before the close of the year 1780, the Continental Currency had ceased to circulate. Attempts were subsequently made to have it funded or redeemed, but without success.

See UNITED STATES OF AMERICA: A. D. 1780 (JANUARY-APRIL).

ALSO IN: H. Phillips, Jr., Historical Sketches of American Paper Currency, 2d Series.

MONEY AND BANKING: A. D. 1780-1784. The Pennsylvania Bank and the Bank of North America.

"The Pennsylvania Bank, which was organized in Philadelphia during the Revolutionary War, was founded for the purpose of facilitating the operations of the Government in transporting supplies for the army. It began its useful work in 1780, and continued in existence until after the close of the war; finally closing its affairs toward the end of the year 1784. But the need was felt of a national bank which should not only aid the Government on a large scale by its money and credit, but should extend facilities to individuals, and thereby benefit the community as well as the state. Through the influence and exertion of Robert Morris, then Superintendent of Finance for the United States, the Bank of North America, at Philadelphia, was organized with a capital of $400,000. It was incorporated by Congress in December, 1781, and by the State of Pennsylvania a few months afterward. Its success was immediate and complete. It not only rendered valuable and timely aid to the United States Government and to the State of Pennsylvania, but it greatly assisted in restoring confidence and credit to the commercial community, and afforded facilities to private enterprise that were especially welcome. … The success of the Bank of North America, and the advantages which the citizens of Philadelphia enjoyed from the facilities it offered them, naturally suggested the founding of a similar enterprise in the city of New York." The Bank of New York was accordingly founded in 1784.

H. W. Domett, History of the Bank of New York, chapter 1.

ALSO IN: W. G. Sumner, The Financier and the Finances of the American Revolution, chapter 17 (volume 2).

MONEY AND BANKING: A. D. 1789-1796. The Assignats of the French Revolution.

"The financial embarrassments of the government in 1789 were extreme. Many taxes had ceased to be productive; the confiscated estates not only yielded no revenue but caused a large expense, and, as a measure of resource, the finance committee of the Assembly reported in favor of issues based upon the confiscated lands. But the bitter experience of France through the Mississippi schemes of John Law, 1719-21, made the Assembly and the nation hesitate. … Necker, the Minister, stood firm in his opposition to the issue of paper money, even as a measure of resource; but the steady pressure of fiscal exigencies, together with the influence of the fervid orators of the Assembly, gained a continually increasing support to the proposition of the committee. … {2213} The leaders of the Assembly were secretly actuated by a political purpose, viz., by widely distributing the titles to the confiscated lands (for such the paper money in effect was) to commit the thrifty middle class of France to the principles and measures of the revolution. … Oratory, the force of fiscal necessities, the half-confessed political design, prevailed at last over the warnings of experience; and a decree passed the Assembly authorizing an issue of notes to the value of four hundred million francs, on the security of the public lands. To emphasize this security the title of 'assignats' was applied to the paper. … The issue was made; the assignats went into circulation; and soon came the inevitable demand for more. … The decree for a further issue of eight hundred millions passed, September, 1790. Though the opponents of the issue had lost heart and voice, they still polled 423 votes against 508. To conciliate a minority still so large, contraction was provided for by requiring that the paper when paid into the Treasury should be burned, and the decree contained a solemn declaration that in no case should the amount exceed twelve hundred millions. June 19, 1791, the Assembly, against feeble resistance, violated this pledge and authorized a further issue of six hundred millions. Under the operation of Gresham's Law, specie now began to disappear from circulation. … And now came the collapse of French industry. … 'Everything that tariffs and custom-houses could do was done. Still the great manufactories of Normandy were closed; those of the rest of the kingdom speedily followed, and vast numbers of workmen, in all parts of the country, were thrown out of employment. … In the spring of 1791 no one knew whether a piece of paper money, representing 100 francs, would, a month later, have a purchasing power of 100 francs, or 90 francs, or 80, or 60. The result was that capitalists declined to embark their means in business. Enterprise received a mortal blow. Demand for labor was still further diminished. The business of France dwindled into a mere living from hand to mouth.' … Towards the end of 1794 there had been issued 7,000 millions in assignats; by May, 1795, 10,000 millions; by the end of July, 16,000 millions; by the beginning of 1796, 45,000 millions, of which 36,000 millions were in actual circulation. M. Bresson gives the following table of depreciation: 24 livres in coin were worth in assignats April 1, 1795, 238; May 1, 299; June 1, 439; July 1, 808; Aug. 1, 807; Sept. 1, 1,101; Oct. 1, 1,205; Nov. 1, 2,588; Dec. 1, 3,575; Jan. 1, 1796, 4,658; Feb. 1, 5,337.

At the last 'an assignat professing to be worth 100 francs was commonly exchanged for 5 sous 6 deniers: in other words, a paper note professing to be worth £4 sterling passed current for less than 3d. in money.' The downward course of the assignats had unquestionably been accelerated by the extensive counterfeiting of the paper in Belgium, Switzerland, and England. … Now appears that last resort of finance under a depreciating paper: an issue under new names and new devices. … Territorial Mandates were ordered to be issued for assignats at 30:1, the mandates to be directly exchangeable for land, at the will of the holder, on demand. … For a brief time after the first limited emission, the mandates rose as high as 80 per cent. of their nominal value; but soon additional issues sent them down even more rapidly than the assignats had fallen."

F. A. Walker, Money, part 2, chapter 16.

ALSO IN: Andrew D. White, Paper-money Inflation in France.

MONEY AND BANKING: A. D. 1791-1816. The First Bank of the United States.

On the organization of the government of the United States, under its federal constitution, in 1789 and 1790, the lead in constructive statesmanship was taken, as is well known, by Alexander Hamilton. His plan "included a financial institution to develop the national resources, strengthen the public credit, aid the Treasury Department in its administration, and provide a secure and sound circulating medium for the people. On December 13, 1790, he sent into Congress a report on the subject of a national bank. The Republican party, then in the minority, opposed the plan as unconstitutional, on the ground that the power of creating banks or any corporate body had not been expressly delegated to Congress, and was therefore not possessed by it. Washington's cabinet was divided; Jefferson opposing the measure as not within the implied powers, because it was an expediency and not a paramount necessity. Later he used stronger language, and denounced the institution as 'one of the most deadly hostility existing against the principles and form of our Constitution,' nor did he ever abandon these views. There is the authority of Mr. Gallatin for saying that Jefferson 'died a decided enemy to our banking system generally, and specially to a bank of the United States.' But Hamilton's views prevailed. Washington, who in the weary years of war had seen the imperative necessity of some national organization of the finances, after mature deliberation approved the plan, and on February 25, 1791, the Bank of the United States was incorporated. The capital stock was limited to twenty-five thousand shares of four hundred dollars each, or ten millions of dollars, payable one fourth in gold and silver, and three fourths in public securities bearing an interest of six and three per cent. The stock was immediately subscribed for, the government taking five thousand shares, two millions of dollars, under the right reserved in the charter. The subscription of the United States was paid in ten equal annual instalments. A large proportion of the stock was held abroad, and the shares soon rose above par. … Authority was given the bank to establish offices of discount and deposit within the United States. The chief bank was placed in Philadelphia and branches were established in eight cities, with capitals in proportion to their commercial importance. In 1809 the stockholders of the Bank of the United States memorialized the government for a renewal of their charter, which would expire on March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in which he reviewed the operations of the bank from its organization. Of the government shares, five million dollars at par, two thousand four hundred and ninety-three shares were sold in 1796 and 1797 at an advance of 25 per cent., two hundred and eighty-seven in 1797 at an advance of twenty per cent., and the remaining 2,220 shares in 1802, at an advance of 45 per cent., making together, exclusive of the dividends, a profit of $671,680 to the United States. Eighteen thousand shares of the bank stock were held abroad, and seven thousand shares, or a little more than one fourth part of the capital, in the United States. {2214} A table of all the dividends made by the bank showed that they had on the average been at the rate of 8 3/8 (precisely 8 13/34) per cent. a year, which proved that the bank had not in any considerable degree used the public deposits for the purpose of extending its discounts. From a general view of the debits and credits, as presented, it appeared that the affairs of the Bank of the United States, considered as a moneyed institution, had been wisely and skilfully managed. The advantages derived by the government Mr. Gallatin stated to be, 1, safe-keeping of the public moneys; 2, transmission of the public moneys; 3, collection of the revenue; 4, loans. The strongest objection to the renewal of the charter lay in the great portion of the bank stock held by foreigners. Not on account of any influence over the institution, since they had no vote; but because of the high rate of interest payable by America to foreign countries. … Congress refused to prolong its existence and the institution was dissolved. Fortunately for the country, it wound up its affairs with such deliberation and prudence as to allow of the interposition of other bank credits in lieu of those withdrawn, and thus prevented a serious shock to the interests of the community. In the twenty years of its existence from 1791 to 1811 its management was irreproachable. The immediate effect of the refusal of Congress to recharter the Bank of the United States was to bring the Treasury to the verge of bankruptcy. The interference of Parish, Girard, and Astor alone saved the credit of the government. … Another immediate effect of the dissolution of the bank was the withdrawal from the country of the foreign capital invested in the bank, more than seven millions of dollars. This amount was remitted, in the twelve months preceding the war, in specie. Specie was at that time a product foreign to the United States, and by no means easy to obtain. … The notes of the Bank of the United States, payable on demand in gold and silver at the counters of the bank, or any of its branches, were, by its charter, receivable in all payments to the United States; but this quality was also stripped from them on March 19, 1812, by a repeal of the act according it. To these disturbances of the financial equilibrium of the country was added the necessary withdrawal of fifteen millions of bank credit and its transfer to other institutions. This gave an extraordinary impulse to the establishment of local banks, each eager for a share of the profits. The capital of the country, instead of being concentrated, was dissipated. Between January 1, 1811, and 1815, one hundred and twenty new banks were chartered, and forty millions of dollars were added to the banking capital. To realize profits, the issues of paper were pushed to the extreme of possible circulation. Meanwhile New England kept aloof from the nation. The specie in the vaults of the banks of Massachusetts rose from $1,706,000 on June 1, 1811, to $7,326,000 on June 1, 1814. … The suspension of the banks was precipitated by the capture of Washington. It began in Baltimore, which was threatened by the British, and was at once followed in Philadelphia and New York. Before the end of September all the banks south and west of New England had suspended specie payment. … The depression of the local currencies ranged from seven to twenty-five per cent. … In November the Treasury Department found itself involved in the common disaster. The refusal of the banks, in which the public moneys were deposited, to pay their notes or the drafts upon them in specie deprived the government of its gold and silver; and their refusal, likewise, of credit and circulation to the issues of banks in other States deprived the government also of the only means it possessed for transferring its funds to pay the dividends on the debt and discharge the treasury notes. … On October 14, 1814, Alexander J. Dallas, Mr. Gallatin's old friend, who had been appointed Secretary of the Treasury on the 6th of the same month, in a report of a plan to support the public credit, proposed the incorporation of a national bank. A bill was passed by Congress, but returned to it by Madison with his veto on January 15, 1815. … Mr. Dallas again, as a last resort, insisted on a bank as the only means by which the currency of the country could be restored to a sound condition. In December, 1815, Dallas reported to the Committee of the House of Representatives on the national currency, of which John C. Calhoun was chairman, a plan for a national bank, and on March 3, 1816, the second Bank of the United States was chartered by Congress. The capital was thirty-five millions, of which the government held seven millions in seventy thousand shares of one hundred dollars each. Mr. Madison approved the bill. … The second national bank of the United States was located at Philadelphia, and chartered for twenty years."

J. A. Stevens, Albert Gallatin, chapter 6.

MONEY AND BANKING: A. D. 1817-1833. The Second Bank of the United States and the war upon it.

"On the 1st of January, 1817, the bank opened for business, with the country on the brink of a great monetary crisis, but 'too late to prevent the crash which followed.' The management of the bank during the first two years of its existence was far from satisfactory. It aggravated the troubles of the financial situation instead of relieving them. Specie payments were nominally resumed in 1817, but the insidious canker of inflation had eaten its way into the arteries of business, and in the crisis of 1819 came another suspension that lasted for two years. … It was only by a desperate effort that the bank finally weathered the storm brought on by its own mismanagement and that of the State Banks. After the recovery, a period of several years of prosperity followed, and the management of the bank was thoroughly reorganized and sound. From this time on until the great 'Bank War' its affairs seem to have been conducted with a view to performing its duty to the government as well as to its individual stockholders, and it rendered such aid to the public, directly, and indirectly, as entitled it to respect and fair treatment on the part of the servants of the people. … But the bank controversy was not yet over. It was about to be revived, and to become a prominent issue in a period of our national politics more distinguished for the bitterness of its personal animosities than perhaps any other in our annals. … As already said, the ten years following the revulsion of 1819-25 were years of almost unbroken prosperity. … The question of the continuance of the bank was not under discussion. In fact, scarcely any mention of the subject was made until President Jackson referred to it in his message of December, 1829. {2215} In this message he reopened the question of the constitutionality of the bank, but the committee to which this portion of the message was referred in the House of Representatives made a report favorable to the institution. There seems no reason to doubt the honesty of Jackson's opinion that the bank was unconstitutional, and at first he probably had no feeling in the matter except that which sprang from his convictions on this point. Certain events, however, increased his hostility to the bank, and strengthened his resolution to destroy it. … When President Jackson first attacked the bank, the weapon he chiefly relied on was the alleged unconstitutionality of the charter."

D. Kinley, The Independent Treasury of the United States, chapter 1.

The question of the rechartering of the Bank was made an issue in the presidential campaign of 1832, by Henry Clay. "Its disinterested friends in both parties strongly dissuaded Biddle [president of the Bank] from allowing the question of recharter to be brought into the campaign. Clay's advisers tried to dissuade him. The bank, however, could not oppose the public man on whom it depended most, and the party leaders deferred at last to their chief. Jackson never was more dictatorial and obstinate than Clay was at this juncture." Pending the election, a bill to renew the charter of the Bank was passed through both houses of Congress. The President promptly vetoed it. "The national republican convention met at Baltimore, December 12, 1831. It … issued an address, in which the bank question was put forward. It was declared that the President 'is fully and three times over pledged to the people to negative any bill that may be passed for rechartering the bank, and there is little doubt that the additional influence which he would acquire by a reelection would be employed to carry through Congress the extraordinary substitute which he has repeatedly proposed.' The appeal, therefore, was to defeat Jackson in order to save the bank. … Such a challenge as that could have but one effect on Jackson. It called every faculty he possessed into activity to compass the destruction of the bank. Instead of retiring from the position he had taken, the moment there was a fight to be fought, he did what he did at New Orleans. He moved his lines up to the last point he could command on the side towards the enemy. … The proceedings seemed to prove just what the anti-bank men had asserted: that the bank was a great monster, which aimed to control elections, and to set up and put down Presidents. The campaign of 1832 was a struggle between the popularity of the bank and the popularity of Jackson."