English Public Finance from the Revolution of 1688: With Chapters on the Bank of England

By Harvey E. Fisk | Go to book overview

CHAPTER V
The Joint-Stock Banks

IN 1697, Parliament evidently intended to give the Bank a virtual monopoly, since no other corporation of the nature of a bank was to be established thereafter by Act of Parliament. However, this Act did not forbid the formation of joint-stock companies for other purposes nor forbid them to undertake a banking business. Shortly thereafter a corporation, called the Company of Mine Adventurers of England, issued circulating notes, and apparently in so doing was quite within its legal rights under the Act of 1697. In 1708, to clear up this situation Parliament enacted, "That during the continuance of the said corporation of the Governor and Company of the Bank of England, it shall not be lawful for any body politic or corporate whatsoever * * * or for any other persons whatsoever, united or to be united in covenants or partnerships, 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 at demand, or at any time less than six months from the borrowing thereof."

As the issuing of notes was at that time considered to be the very essence of banking, this Act was popularly taken to forbid the organization of any other bank. In fact it only forbade the organization of banks of issue by strong corporations, but left the door open for any group of six persons or less, however irresponsible, to engage in banking and to issue notes. It was thus that the great number of mushroom country banks came into being whose failure precipitated or accentuated commercial crises for more than a century and whose note issues increased the redun

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