The Bank of England
The Bank England. Even a side view of the bank
shows the lavish imposing presence that it played on the public and private
economy, http://www.antiqueprints.com/Prints/london_prints.html
The founding of the Bank of England was crucial to the economic rise of England and created the fuel for England to develop into an empire. The role that the bank of England played in this transformation was its role as a moneylender to the public and private sector, which stimulated activity that pushed England forward as a world power.
The Bank of England was conceived by William Paterson to act as a moneylender to the government and to alleviate financial problems caused by the years of wars on the Continent. While banking has existed for millennia, the story of the Bank of England begins in 1689 when England was a war with France. As the war became more and more costly, England was faced with the dilemma of how to continue to finance it. Paterson proposed a way that the government could be able to borrow in perpetuity 1,000,000 pounds at 6 percent interest, providing a large amount of money that needn’t be paid back for a relatively small amount each year for the use of it. In 1694 Parliament passed a law stating that any group who could provide 1,200,000 pounds would be given 8 percent interest and the right to incorporate as Governor and the Company of the Bank of England. Within twelve days the sum had been collected from the individual lenders, essentially shareholders. Within five months the entire 1.2 million pounds had been transferred to the government, and with it a national debt. This strategy was so successful that over the next 60 years the amount available grew ten fold. The bank had been begun with the sole purpose of providing financial reserves for the government, but over time as the bank became more established and secure, it began to delve into engaging into private sector business. It lent money to all of the big companies of the time: the East India Company, South Sea, and Hudson’s Bay. Also, it encouraged business and financial transactions by making them easier. It provided accounts for deposit and individuals and businesses could transfer funds between accounts, making economic transactions easier and thereby increasing them. It provided its own currency which also helped ease and increase economic transactions. The Bank’s location in London allowed easy access to the other financial institutions which were also in London and access to the government and to the successfully developing businesses there. In addition, there were also numbers of small private banks in London that also did a lot of business.[1]
The Bank of England became a considerable and driving force of the
economy of London and England. “By 1781 the prime minister could describe
it as ‘a part of the constitution.’”
[2]
It funded the government to engage in wars
that would have been economically infeasible. It funded companies and allowed
for the important government projects like the development of the port of
London and of England’s transportation systems and railways that in turn increase
the amount of goods that could be moved around and thus the amount of trade
and income that was made. Its lending supported England’s imperial growth
by financing the exploration and trading companies that created the foundation
of the British colonies, territories, and outposts around the globe, thereby
also increasing England’s earnings from trade which further grew the economy.
The Bank of England created a whole new aspect of business and economic income
with the lending of money to the government and paving the way for bonds and the early exchanges.