Burke’s famous comment on provincial banks and subsequent historical research has made it clear that for the first half of the century, banks were essentially only to be found in
London.1 The previous chapter has indicated how the development of banking did not
occur in isolation in London, but was one of a number of advances in finance that were taking place in the capital. Before proceeding to an analysis of how banking developed during the eighteenth century, it is worth placing it in its proper context of London’s economy and the broader activities of the City in this period. London’s position as a central location for financial transactions, and as the nation’s payment centre, meant that developments there had the potential to affect banks all over the country. England’s largest city had a very diverse economy, encompassing substantial trade, manufacturing and services sectors, all requiring the provision of financial services, which the City was increasingly better placed to provide. The arrival of banks in the City of London, and of merchants increasingly assuming functions associated with banking and finance, was an essential and underappreciated reason for London assuming its position as a leading European centre for finance. However this relationship was symbiotic – the growth of other
parts of the financial cluster encouraged the emergence of bankers.2 A failure to
incorporate an analysis of the growth of English banking within the context of the acknowledged emergence of London as a financial centre would be to provide an incomplete analysis of both the causes and implications of that same growth.
The literature on financial centres places London’s initial emergence as a leading centre firmly in the eighteenth century, but few comprehensive attempts have been made at understanding the process behind or the reasons for this. As an example, the first volume of The Development of London as a Financial Centre, despite arguing that the City of London remained predominantly a commercial centre in this period, commences its analysis in 1700 and 11 of the 16 articles cover separate aspects of London’s growing
financial sophistication in the eighteenth century.3 Similarly Peter Spufford has argued that
the emergence of London as an international financial centre was a feature of the 1760s
and 1770s, although the seeds that drove it had been laid earlier.4 Most long-term studies
of the City’s growth provide a similar starting point, although the early years consistently receive the least attention. For example Cassis maintains that London’s financial architecture was ‘essentially in place by the second third of the eighteenth century’, but
begins his core analysis in 1780.5 David Kynaston equally acknowledges that London’s
position as the leading financial centre originated in the eighteenth century, with a chapter
1 For banking outside of London, see chapter 7, especially pp. 170-2.
2
Mollan and Michie, ‘The City of London as an international Commercial and Financial Center’, pp. 538-87.
3 R.C. Michie (ed.), The Development of London as a Financial Centre, volume I (London, 2000), p. v-
vi, xix.
4
Spufford, ‘From Antwerp and Amsterdam to London’, pp. 167-9.
5 Youssef Cassis, Capitals of Capital, A History of International Financial Centres, 1780-2005
50
touching on the emergence of what he regarded as the centre’s four key pillars: the merchants, the insurance market, the bankers (especially the Bank of England) and the
Stock Exchange.6 However in both instances the majority of the work then focuses on
nineteenth century developments. Such long-term studies have been complemented by
more targeted research on the eighteenth century as well, most notably by Larry Neal.7 In
an article building on Neal’s initial work, Carlos and Neal argue that ‘London had no problem maintaining its pre-eminence as a financial centre’ after 1815 and argue that this
position was established during the eighteenth century.8 It might be suggested that there
was a transition from a centre that was largely focused on its domestic role to one that
became increasingly internationally focused.9
Most of the historical literature addresses the position of London relative to other financial centres. Amsterdam’s leading position for the majority the eighteenth century is widely acknowledged. Michie claims that the City remained less important ‘than Amsterdam’s financial markets, institutions and firms’ and as an international payments centre until the
French Revolutionary wars.10 However over the last two decades of the century, a shift in
this balance clearly occurred and London assumed the position of ‘first-amongst-equals’ of European financial centres. Cities such as Amsterdam, Frankfurt, Brussels, Geneva and Paris all remained important in an era when markets remained regional or local given the
limitations that technology placed on communications.11 Explanations for this shift are
however often vague. Obviously the reasons behind a centre gaining or losing influence are
inherently complex, combining economic, political and social factors.12 Indeed, it has been
suggested that the ultimate failure or rise of a financial centre is determined by politics
rather than economics.13 The most common narrative usually attributes London’s rise to a
combination of a gradual weakening of Amsterdam’s significance from 1760 under political and economic pressures and London’s growing importance, driven at least in part by its
dominance of the growing Atlantic economy.14
The most recent discussion of the changing balance between the two centres can be found in Neal and Carlos’ recent article, which updates some of the points made in Neal’s
Financial Capitalism. They focus on the symbiotic relationship between Europe’s two most
important financial centres for most of the century. Between 1690 and 1780, London developed the continent’s leading capital market, while Amsterdam developed the knowledge to provide internationally focused merchant banking services for the rest of the
6
David Kynaston, The City of London, vol. 1: A World of its Own, 1815-1890 (London, 1995), chapter 2, especially pp. 12-17.
7 Neal, The Rise of Financial Capitalism, is the key work, in particular chapters 2, 3 and 10.
8
Carlos and Neal, ‘Amsterdam and London as financial centres’, p. 24.
9
R.C. Michie, ‘London and the Process of Economic Growth since 1750’, London Journal 22.1 (1997) 63-90; R.O Roberts, The City, A guide to London’s Global Financial Centre (London, 2004), pp. 23-31.
10
Michie, London as a Financial Centre, p. Xxxv.
11 Ibid., p. xvii; Cassis, Capitals of Capital, pp. 19-22, 31. This international significance was achieved
despite London’s dominance of domestic markets declining somewhat, see Michie, London as a
Financial Centre, p. xiii-xiv, xvi. 12
Cassis, Capitals of Capital, p. 4.
13 Spufford, ‘From Antwerp and Amsterdam to London’, pp. 171-2.
14
51 continent. Amsterdam’s bankers’ speciality was in developing high-returning, reasonably
risk-free investment portfolios.15 The international importance of Amsterdam can be seen
through the fact that by 1772 it traded 57 Dutch and 39 foreign securities. However although foreign issues continued to do well in Amsterdam post-1772, financial crises in 1763, 1772-3 and civil war in the 1780s began the process by which Amsterdam’s
significance would be eroded.16 Dutch involvement in the listing of foreign securities was
not entirely voluntary: it also reflected constraints in the Dutch economy, where merchants’ surpluses found insufficient domestic outlets. Amsterdam’s domestic market was supply constrained, as the total debt of Holland remained effectively unchanged between 1713 and 1794, partly because the country had reached the limit of what their tax
system could service.17 In London by comparison, domestic demand for capital was still
growing, as seen most clearly in the debt issued by the government over the course of the century. Secondly Amsterdam’s international business arose partly from that city’s declining importance as a commercial and industrial centre, because it encouraged merchants to specialise more in financial services. This in particular encouraged the growth of the Handelshuizen in the Atlantic trade, which started to specialise in floating foreign
loans.18
Neal and Carlos argue that after 1780 this symbiotic relationship broke down, as difficulties
within the Dutch economy became ever more acute.19 The persistent provincialism of the
Netherlands impeded trade and added transaction costs to business, in an era where other
European states were breaking down internal barriers.20 Furthermore, the difficulties in the
Dutch economy were not confined to the non-financial sector. De Vries and Van der Woude believe that Dutch finance was over-reliant on the government bond market and did not develop a banking institution that could restore confidence and liquidity to the system. There was no equivalent central bank to the Bank of England in the Netherlands until 1814. 21
Alongside this shortcoming, they also argue that the lower branches of finance were not sufficiently developed. As in England, much lending remained localised in a ‘tangle of debt and credit’. Notaries were involved as financial intermediaries, although their precise role is unclear. In short these authors argue that ‘financial intermediation left much to be
desired’.22 Noticeably there was no equivalent to English deposit banking in the Dutch
system. These difficulties did not emerge out of the blue: signs of weakness can be identified before 1780, particularly amongst the prominent Dutch merchant bankers.
15
Neal and Carlos, ‘London and Amsterdam as financial centres’, pp. 30-7.
16
Michie, Global Securities Market, p 48; see also Jan de Vries and Ad van der Woude, The First
Modern Economy: Success, Failure, and the Perseverance of the Dutch Economy, 1500-1815.
(Cambridge, 1997); Marjolein ‘t Hart, Joost Joncker and Jan Luiten van Zanden, A Financial History of
the Netherlands (Cambridge, 1997). 17
Michie, Global Securities Market, p. 46. Government borrowing rose from 343 to 350 million guilders.
18
Joost Joncker, Merchants, Bankers, Middlemen, The Amsterdam money market during the first half
of the nineteenth century (Amsterdam, 1996), pp. 188, 191-4. These included W&J Willinh and J.
Hodshon & Zn.
19 Neal and Carlos, ‘London and Amsterdam as financial centres’, pp. 37-41.
20
De Vries and van der Woude, The First Modern Economy, p. 696.
21 Ibid., pp. 158, 697.
22
52
Systematic failures occurred in 1763, while 1772/3 brought the failure of Clifford & Sons, the fallout from which was severe enough to encourage a co-ordinated, albeit temporary, response to restore confidence. Others voluntarily left Amsterdam for London at an early
date, such Gerard van Neck and Abraham Ricardo.23 In short it can be argued that the
Dutch financial system itself had structural weaknesses, which combined with the difficulties of the rest of the economy, offered an opportunity from which London was eventually able to benefit.
The purpose of this chapter is not to challenge the importance of Amsterdam as a financial centre during this period, for in certain respects it is self-evident. In certain areas, such as merchant banking, London arguably only matched Amsterdam by the end of the century, at
which point London based houses did start to feature more prominently.24 However in its
entirety, London was equally obviously developing into a broader, deeper financial cluster and the question of how and why this happened in the eighteenth century still remains inadequately explored. Youssef Cassis suggests a true history of a financial centre needs to encompass ‘the history of all financial activities without being that of any of its constituents in particular… [in] a way that helps us group both its global nature and its intimate
association with its environment.’25 However such a comprehensive account of London’s
financial centre does not really exist. The remainder of this chapter therefore seeks to improve understanding as to how London established its own infrastructure that allowed it to exploit Dutch problems between 1760 and 1796. It will focus in particular on core areas of development and specialisation: international finance, government finance, and banking.
I – London’s economy
Any explanation of London’s significance as a financial centre within England and internationally has to be linked partly to the fact that it was by some considerable distance the largest and wealthiest city in the country. A strong underlying economy is essential for the successful emergence of a financial centre, although eventually the centre may develop an independent momentum of its own. This point is often neglected in the financial literature on London in this period, partly because London’s eighteenth century economy has been largely by-passed by economic historians, who have instead tended to focus on the late seventeenth century or on the nineteenth century. As Schwarz observed over fifteen years ago, this was not just a feature of London’s economy as a whole, but also of
various economic interest groups, such as the bourgeoisie and merchants.26 Some general
relevant points can however be made.
At the beginning of the eighteenth century, London was the most important part of the English economy. For most of the seventeenth century, it had been developments in the capital that had served to drive economic growth in the whole of the country. This position has been accounted for in two ways. Firstly, London’s population was growing faster than
23 Ibid., pp. 154-7.
24 Cassis, Capitals of Capital, pp. 20-1. The first Schroders firm was established in 1800, while the
Rothschilds became active in London between 1808 and 1811.
25 Ibid., p. 6.
26
53 that in the provinces, which drove investment and the division of labour. This also had a
significant impact in encouraging economic development in the Home Counties.27 The
second point, more interesting in the context of this study, was that the capital had benefited from a shifting trading pattern that had become dominated by imported goods, where the merchant became the dynamic element in trade and which was centred on
London, partly for geographic reasons.28 During the seventeenth century, London had
already assumed a crucial role in the British financial economy, as has already been shown for example in the case of the English land market. In this sense it is not surprising that Clayton was able to develop his business into a ‘brokerage house specialising in mortgage
loans’, able to procure loans from a wide variety of counties.29 London benefitted because
it had a wider potential market for loans than the provinces and because all transfers of land ownership needed to be registered in London courts: this made it almost inevitable
that the capital would come to sit at the heart of the English banking industry.30
Although the impact of some of these driving forces diminished in the eighteenth century, and London’s economy became relatively less significant, it remained the largest single centre of consumption and an important industrial centre. London remained at the heart of
the English economy, being its chief port and manufacturing centre.31 The population
continued to grow rising from an estimated 575,000 in 1700, to 600,000 by 1750 and
900,000 in 1801.32 This consistently represented about 10% of the total population of
England and Wales.33 London’s dominance of the urban hierarchy is obvious: in 1700 its
population was much bigger than that of the next largest town (Norwich with 30,000), and indeed its population was comfortably larger than all the towns with a population in excess
of 2,500 put together.34 Similarly in 1801, the next largest English town was Liverpool,
which had a population of 82,000, while Manchester had 75,000 people and Birmingham
71,000.35 Thus although other towns were closing the gap between them and London, it
remained considerable. London’s economy behaved differently to that of provincial cities, and the eighteenth century saw a divergence in the secular growth patterns of London and
27 F. J. Fisher, ‘London as an “Engine of Economic Growth”’, in F.J. Fisher, London and the English
Economy 1500-1700 (London, 1990), pp. 187-8. L.D. Schwarz, London in the age of industrialisation: Entrepreneurs, labour force and living conditions, 1700-1850 (Cambridge, 1992), p. 101-2, argues
that London’s influence within the English economy peaked in the middle seventeenth century. See also Wrigley, ‘‘A Simple Model of London’s Importance in Changing English Society and Economy, 1650-1750’, Past and Present 37 (1967), pp. 44-70.
28
Fisher, ‘London as an “Engine of Economic Growth”’, pp. 189-95.
29 Melton, ‘Robert and Sir Francis Gosling’, p. 69.
30 Melton, Sir Robert Clayton, pp. 20-3.
31
T.C. Barker, ‘Business as Usual? London and the Industrial Revolution’, History Today 39.2 (1989), pp. 47-9; Michie, ‘London and the Process of Economic Growth since 1750’, pp. 64-7.
32 Leonard Schwarz, ‘London 1700-1870’ in Peter Clark (ed.), Cambridge Urban History, vol. 2, 1540-
1840 (Cambridge, 2000), p. 650. The population in 1750 may have been as high as 675,000.
33 Based on the population figures for England and Wales from P. Deane and W.A. Cole, British
Economic Growth 1688-1959 (2nd ed, Cambridge, 1978), p. 104.
34 Barker, ‘Business as Usual? London and the Industrial Revolution’, p. 47. These 67 towns totalled
395,000 people.
35 B.R. Mitchell, British Historical Statistics (Cambridge, 1988), pp. 26-7. Edinburgh was slightly larger
54
the provinces, with London witnessing a prolonged depression between 1720 and 1760.36
Equally bankruptcy data for the eighteenth century suggests that the links in the cyclical
economic trends between London and the provinces were weak.37 Thus London’s
emergence as the world’s leading financial centre actually corresponded with a period of relative domestic weakness.
Despite London’s economic troubles during the mid-eighteenth century, the city still dominated the English economy of the century to a remarkable extent. Specific GDP figures for London are not available; however other assessments do illustrate this dominance. Rubinstein suggested that 39% of all British income taxes paid in 1806 were paid in
London.38 Although supposedly based on data from the 1815/16 Parliamentary papers,
these estimates appear too high. The gross estimates and gross assessments for 1806 available in a parliamentary report of 1813 suggest that a figure of around 20% of total taxes is more appropriate. The dominance is significant and is reinforced when one examines schedule D more closely. Schedule D represents the tax paid on industrial and commercial profit and the 1806 net assessment shows that London accounted for 43% of total value assessed (Schedule D itself represented about a third of all income taxes paid). The City accounted for about half of London’s total net assessment (or 22% of the total
value payable).39
As an industrial centre, London continued to feature prominently in the eighteenth century economy. In the mid-1770s, it has been estimated that there were about 10,000
manufacturing and construction firms (or about one third of all businesses in London).40
London’s greatest advantage remained its proximity to consumers, its low transport costs
and its ‘downstream’ production (finishing).41 Although much of this activity was at the
higher end of the value chain, other labour-intensive activities, such as shipbuilding, also retained their importance. As an example of the industrial strength of the city, it was the fifth or sixth largest user of steam engines at the end of the eighteenth century, with 136
steam engines, in an era where their principal use was still in mining.42 In all it has been
suggested that London was a growing manufacturing centre in the period 1775-1825, in
36 See below, p. 71.
37
Schwarz, London during the age of industrialisation, pp. 92-3.
38 W.D. Rubinstein, ‘Wealth and the wealthy’, in John Langton and R.J. Morris, Atlas of Industrializing
Britain, 1780-1914 (London, 1986), pp. 158-59. 39
British Parliamentary Papers Online, 1812-13 (64) Accounts Relating to the Property Tax (February, 1813), pp. 26-9., pp. 26-9. London is defined as London, Westminster and Middlesex. This figure is similar irrespective of Scotland’s inclusion. For the background on the income tax and some
assessment of its overall introduction see P.K. O’Brien, ‘The Triumph and Denouement of the British Fiscal State: Taxation for the Wars against Revolutionary and Napoleonic France, 1793-1815’,
Christopher Storrs (ed.), The Fiscal Military State in 18th Century Europe (Ashgate, 2008), pp. 167-
200.
40 David Barnett, London, Hub of the Industrial Revolution, A Revisionary History 1775-1825 (London,
1998), pp. 28.
41 Schwarz, London during the age of industrialisation, pp. 231-2.
42
John Kanefsky and John Robey, 'Steam Engines in 18th-Century Britain: A Quantitative
Assessment', Technology and Culture 21.2 (1980), p. 175. London engines were used in the brewing industry and in foundries, as well as waterworks.
55 terms of the number of activities undertaken, as well as the specialization and size of the
firms.43
As a service centre, London was if anything even more important. The service sector, which included bankers, merchants, lawyers, drapers and mercers was exceptionally prominent in