Banking and Bills of Exchange
By 1700 the requirements of government and commerce had given English banking and financial services, like those of the Netherlands, a certain degree of sophistication by contemporary standards. All eighteenth-century banking was fairly primitive. Most banking enterprises were small and local in their scope, and usually they were short-lived. The majority of bankers either went bankrupt or made a sufficient profit to allow a comfortable retirement, often to landed affluence, parliamentary influence and even a peerage. The purpose of banking in a pre-industrial economy was not to provide capital for major enterprises, but to facilitate the transfer of clients' money from one location to another. Thus early eighteenth-century banking usually developed out of some other occupation that gave the banker access to credit in another location.
To restrain usury, the official rate of interest was from time to time fixed by statute, for instance in 1721 8 Geo. I, c. 13, fixed interest at 7 per cent, with strict penalties for exceeding it. Credit was acquired in various ways. A merchant could act either on his own behalf or on a commission basis, usually 2.5 per cent of goods invoiced, but this varied with the goods and the circumstances. A merchant trading on his own account required sufficient capital not only to be able to tie it up for a period of time but even to stand losing it. The profits and the risks were less on a commission basis so many merchants hedged with commission business while also trading on their own account. For instance, Harper and Armstrong of Cork, about the middle of the century, were trading directly with Portugal while they also engaged in the Atlantic trade on a commission basis. These networks of commercial communications provided a means of exchange, making money acquired in one place available in another without the actual transfer of specie.
The easiest way to transfer money both within and out of the country was by bills of exchange written between various merchant houses or, most securely of all, between a merchant house and the government. For instance, Cork was the centre of the victualling trade for both the West Indian merchants and the navy. In the early eighteenth century the leading Cork provision merchants, Edward and Joseph Hoare, were in receipt of large bills of exchange from merchants in London and Bristol and, as they were also government contractors, they held bills on the Treasury in London and could sell bills of exchange drawn on these and other sources. For example, the agent of an Irish landlord who wished to transfer his rents to London would purchase a bill of exchange from Messrs Hoare in Cork and the landlord would present it to Messrs Hoare's debtors in London. They would acknowledge the debt and pay him within the number of days specified on the bill. This was a very basic transaction as a bill could, and often did, pass through a number of hands before it was actually presented.
Bills were bought and sold and their cost, or the discount on their face value, fluctuated according to the risk involved and the supply and demand of the market. Bills drawn by, and on, reliable houses were obviously more valuable than those drawn on unknown merchants. For instance, in March 1740/1 Falkner's Dublin Journal cautioned its readers against a promissory note for £20 passed by one Luke Taylor. But in July 1748 Lord Abercorn's agent, James McClintock, notified him that 'I send Messrs William and Marshall's bill on Wm Alexander in London £200, which cost £215 5s which I charged to your Lordship's account. I believe this is a very good bill and Mr Alexander will be found on the Irish Walk on the Exchange.'
The Irish Walk reflected the considerable Irish mercantile community in London. In the course of the century Irish trade became increasingly centred on England. Like other eighteenth-century statistics, customs figures are notoriously unreliable, but it has been estimated that 53.9 per cent of Ireland's imports were from England in 1700, while Ireland supplied 3.9 per cent of England's imports; by 1750 the figures were 60.1 and 7.9 per cent respectively, and in 1800 78.6 against 10.0 per cent. The export picture was similar, as in 1700 Ireland sent 45.7 per cent of her exports to England and received 4.2 per cent of England's exports; in 1750 the figures were 57.4 against 10.4 per cent; by 1800, 85.4 per cent of Ireland's exports went to England while the Irish market accounted for 11.1 per cent of England's export trade.
By 1736 there were at least nine merchant houses of the London-Irish: one of them, Kirwan & Trant, was established in the late seventeenth century. By 1758 this number had risen to between 15 and 25. Their names read like a register of the Irish mercantile families: Kirwan, Blake, Lynch, French, Arthur, Dillon, Nesbitt, Cairns and Black, to name a few. London was the centre of a web of mercantile connections, consolidated by family and matrimonial links, spreading through Europe, North America and the West Indies. Although Catholic mercantile banking houses were not unknown in Dublin - for example Lennox & French and also Dillon, Catholic families tended to adopt a lower profile in Ireland.
Reliable correspondents were a vital part of eighteenth-century business, and personal links played an important role. In the 1720s the Dublin bankers Swift & Co. wrote off £100 for 'charges in sending a person to London and sundry persons in Ireland to fix upon proper persons for correspondents for the company'. A natural national and international connection, such as often developed within Catholic, Quaker, Huguenot and other Nonconformist families, was of inestimable value. In 1748 the Protestant John Black wrote from Bordeaux to his brother Robert in Cadiz; in giving the family news he outlined the immediate family network:
son George ... he is at Belfast and to enter partnership with Mr James Hamilton, an intelligent young trader who had been servant to brother Arbuckle; my two other sons there Sam and Tommy, the family at Aberdeen, our physician Joseph at Glasgow, the family at Dublin and sons Robert at Douglas, Jamey at Rotterdam are all very well.
In 1766 John Black wrote to James and another son, Alexander, who were then in London. During the 1770s and 1780s both George and Samuel Black were on a number of occasions sovereign of Belfast.
In 1766 the Catholic merchants in Youghal annoyed the Protestant merchants by claiming that 'they had more correspondents in foreign countries', implying a greater commercial success. Many Catholic families in Waterford, Cork, Limerick and Galway had well-established connections with the continent before the eighteenth century. For instance, in Bordeaux there were seven established Irish merchant houses at that time, and about 20 by the middle of the century. Groups of Irish merchants, protestant as well as Catholic, were established in ports from Dunkirk to Cadiz. Many of these commercial families were linked by marriage, as family alliances played a considerable part in business. The linkages could be extensive: their ramifications connected various enterprises in North America, the West Indies and Europe. Moreover, the mercantile community was often very mobile. The classic examples of this mobility are the East Indian nabob and the West Indian planter, but there were examples nearer home. De Latocnaye commented that at Cork: 'the principal merchants are nearly all foreigners, Scotch for the most part, and in the short period of ten years are able sometimes to make large fortunes.'
Daniel Mussenden of Belfast was typical of a successful provincial merchant. He would cover his risks by investing a small stake in a number of enterprises. At various times these included a wine company, a salt company, construction materials for the burgeoning building trade, various aspects of the linen trade and other goods where he could make commission or a direct profit. Mussenden did business as far away as Trondheim and Danzig, conducted through a chain of agents, for instance Allan and Marler in London, Rocquette and Van Zeylingen of Rotterdam, Egbert and Anthony Vandenberg in Amsterdam, A. C. Friedlieb in Dronton (Trondheim?), and Andreas de Ruyter in Danzig.
Mussenden was the leading Belfast merchant of his day, and his will gives some indication of his wealth. He made his will in the late 1750s, leaving his wife Martha an annuity of £200, his personal possessions and the use of their house for her lifetime. His six granddaughters received portions of £600 sterling each to be paid at the age of 18 or on marriage with their parents' consent. The legacy of those who died before the age of 18 was to be divided among the rest but none was to inherit more than £700 sterling. His grandson William, the second son of his son William, received £700 sterling at the age of 21 years, and all grandchildren born subsequently were to receive similar legacies from the estate. Apart from a number of small bequests, including three to Meeting Houses and one to the parish of Belfast, he left the residue of what must have been a substantial estate to his son William.
Bankers and Bankruptcy
The leading early eighteenth-century Dublin bank was that of Ben Burton (0292). Burton died on 13 May 1728 and the bank crashed in June 1733. The repercussions of this failure lasted for decades and a number of statutes were passed with reference to it, for example 9 Geo. II, c. 27 in 1735 and 31 Geo. II, c. 12 in 1757. There was no limited liability until the mid-nineteenth century, and the crash of Burton's Bank highlighted the liability of a banker's estate for the bank's debts. This was a complicated story. One of the partners, Francis Harrison (0973), had bought estates with money from the bank. He had died in 1725, thereby dissolving the partnership, which had existed since the late seventeenth century. A new partnership was formed which took over the liabilities of the old, including its debts, which were serviced by the bank's new creditors. When the bank failed, the Burtons were saved by marriage settlements and inheritances that lay outside the bank's assets. Meanwhile, Harrison's estates had, by dubious means, passed into other hands. Primate Boulter compared the impact of this débâcle to that of the South Sea Bubble, pointing out that 'it had very nearly overturned all our paper-credit here ... and at the same time we have so little specie here that without paper credit our trade cannot be carried on, nor our rents paid.' Shortage of specie encouraged the issuing of paper until the middle of the century, when there was a series of bank failures.
The most famous eighteenth-century Irish bank, and the only one that operated throughout the century, was the La Touche Bank - one of the ancestors of today's Allied Irish Bank. It developed from the poplin business of the Huguenot David Digges La Touche, who, about 1710, divested himself of his other occupations to become solely a banker. When he retired about 1740 his son, David La Touche, took over what had become a family concern; by 1745, when the founder died, his grandson - another David La Touche - was also part of the firm. Throughout the century the La Touches were the bankers of many of the nobility and gentry. To facilitate their business they had correspondents in most of the capital cities of Europe, as well as in many English towns. They were also the Dublin agents for a number of major London banks and for various Huguenot merchants. The La Touche family was famous for its business integrity and political uprightness. The bank never closed its doors and members of the family, although they sat in parliament and controlled parliamentary boroughs, consistently refused to accept a peerage. Before the foundation of the Bank of Ireland, they occasionally acted as the government bankers. For instance, during the 1778 crisis they lent the administration £20,000 to purchase provisions for the army, but, shortly afterwards, when the government tried to obtain a further loan, it was politely refused.
Eighteenth-century banking was very unstable. Rumour and perception played, as always, a leading role in the behaviour of financial markets, and authentic information was often difficult to obtain. Bank closures were frequent and could be triggered by a variety of local, national or international events. Three periods of marked financial instability highlighted specific banking problems: the early 1730s, the late 1750s and the period of the American war and its aftermath.
The years following the Peace of Aix-la-Chappelle in 1748 saw a wave of unprecedented prosperity, and by the 1750s Dublin had eight banks. This boom ended in the major financial crisis of 1754-5, triggered by the failure of the Rotterdam correspondent of Dillon's bank. Parliament reacted to this crash, in which three Dublin and two small Galway banks failed, by trying to organise Irish banking on a firm basis. A statute was passed to prohibit active merchants from being bankers. This not only upset the delicate balance between cash flow and credit, but also removed the commercial infrastructure that facilitated the transfer of money. The gentry-dominated House of Commons failed to realise the connection between the two. But, although the 1756 act stopped merchants from calling themselves bankers, they continued to remit money. Probably after the double crisis of the 1750s they would have been cautious about issuing bearer promissory notes anyway. In any case, this aspect of banking appears to have been curtailed until the suspension of specie in 1797.
The 1756 acts, 29 Geo. II, c. 21, 22 & 23, made arrangements for the crashes of specific houses, while 29 Geo. II, c. 16, separated merchants from bankers. This was probably not entirely altruistic as, throughout the century, the gentry showed an interest in banking and a number of MPs were actively involved in it at various times. Almost immediately after the acts, in 1758, Anthony Malone (1336 ), the Chancellor of the Exchequer and Nathaniel Clements (0414), the Deputy Vice-Treasurer along with John Gore (0869), later 1st Lord Annaly,attempted to establish a bank based on land rather than commerce. This venture, which folded after a few months, resulted in an act, 33 Geo. II, c. 4, prohibiting persons holding public funds from engaging in banking on their own behalf. The failure of Malone, Clements & Gore was the prelude to a further series of crashes in 1759-60. These came so soon after the 1754-5 crisis that only the expressed support of parliament maintained confidence in the three Dublin banks still solvent. A declaration of official confidence was a device for stabilising the market. To the same end local newspapers sometimes printed lists of prominent customers supporting certain merchants whose credit had for some reason, reliable or otherwise, become suspect.
Credit, either locally or nationally, depends on confidence and the market was easily disturbed. It was particularly vulnerable to famine, rebellion or war, all of which were liable to cause a run on the banks as people tried to convert notes into intrinsically valuable specie. The financial vicissitudes of the late 1750s engendered a degree of caution, but the period of the 1770s was another difficult decade. In 1773 Colebrooke's bank failed, and the political and economic disruption caused by the American war brought another series of failures. Thereafter, no new private bank was to open its doors in the capital until the Beresford Bank in 1793, the year that Lawless & Coates closed its doors. It was hardly surprising that Irish banking remained very unstable throughout the century as even Britain and the Netherlands, the most sophisticated bankers in Europe, had not solved the problem of credit.
Any hint of a financial crisis affected the transfer of money. The impact of the 1754-5 crisis was reflected in a letter that Lord Abercorn received in 1754 from his agent, John Colhoun, illustrating the difficulties of trying to remit money during a financial crisis. Colhoun wrote that 'money is grown very scarce and it has been difficult of late to get bills that's good; there are so many dalers [sic] broke in this country and more suspected, that one in ten can hardly be trusted.' As financial practices developed, discounting houses emerged that specialised in this trade, balancing the risk inherent in the bill of exchange, which depended on the debtor's solvency, against the discount charged; to an extent they replaced the prohibition on combining the roles of merchant and banker. The failure of a discount house, like that of a bank, had a serious domino effect. For instance in 1781 Marler, Stewart & Boyd failed in London, and the Annesley agent wrote that it: 'will do infinite mischief in this country as a vast number of merchants and linen drapers were connected with Marler. The people in Belfast are I already know taken in for many thousands.' When bills of exchange could not be obtained the only alternative was to send specie and this had obvious dangers, not least shipwreck and highwaymen.
The financial crises of the 1770s again saw government intervention to restore public confidence. For instance, when Sir George Colebrooke failed in the 1772 recession the Lord Lieutenant and the leading members of both Houses of Parliament declared their confidence in the remaining banks. A number of bankers failed in the difficult financial climate caused by the American war, and in 1778 the Lord Lieutenant responded favourably to Finlay & Co.'s request for public support. One of the most spectacular bank closures occurred in 1784, when, following the end of the American war and a run of poor harvests in the early 1780s, the richest bank in the history of Cork - the Tonson-Warren Bank - failed for nearly a quarter of a million pounds.
The Bank of Ireland
An unsuccessful attempt to establish a Bank of Ireland had been made as early as 1719, but the American war had finally highlighted the need for a government banker to provide the Irish government with a financial service equivalent to that provided for the British government by the 1696 Bank of England. In 1782 both the government and the financial interests of the country, among them David La Touche, pressed for the establishment of a national bank, and the Bank of Ireland was established. An act of parliament authorised the capital of the bank at £600,000, subscribed by a group of directors incorporated as the Governor and Company of the Bank of Ireland. The clause in the Act of 1756 restricting the private banks to not more than six partners was waived for the Bank of Ireland. All the directors had to take the oaths of allegiance, supremacy and abjuration, and Catholics and Presbyterians were thereby excluded.
In April 1783 the corporation was established by letters patent; it received a royal charter in May and it opened for business on 25 June 1783. The initial subscription of £600,000 was advanced to the government as a permanent loan at 4 per cent. The bank could borrow a further £600,000, which was secured against, and serviced by, the government loan. Anything above this figure was the responsibility of the stockholders. No eighteenth-century enterprise enjoyed limited liability as such: this came only with the Joint Stock Companies Act of 1856. However, the Bank of Ireland's capital was extended twice before the end of the century, in 1791 and 1797, and its capacity to borrow similarly adjusted. From 1797 it managed the national debt. In that year, when it suspended specie payment, its paper issue equalled that of all of the Dublin private banks.
As there was no Irish mint, there was a chronic shortage of specie throughout the century, particularly of small-denomination silver coins. There was no coin of the realm, and the very restricted circulating coinage was liable to debasement; this was the ostensible reason for the storm that broke out in 1722-4, over Wood's Halfpence. In 1750 one of his agents explained to Lord Abercorn that 'the guineas have been very troublesome of late; those that does not weigh 5 pence weight and 3 grains does not pass for any value in coin.' Although a money economy was developing, particularly in the eastern part of the country and coastal areas around the ports, much trade was still done by barter and this custom was prolonged by the shortage of specie.
All sorts of coins circulated, regardless of their country of origin. Their worth was pegged to their metallic value. This was the reason for the harsh statutes against forgery and debasement of the coinage, for instance 8 Anne, c. 6. John Carr, visiting Ireland in the early nineteenth century, reported that:
Upon entering a shop to purchase a pair of gloves, I observed, with no little degree of curiosity, that upon my presenting the money for them, my fair shopkeeper placed a little brass weighing machine upon the counter, and weighed my shillings, all of which, as well as four or five more which I had in my purse, proved deficient in weight. Nothing can impress a stranger more forcibly than the want of a mint coinage in Ireland, and (with the exception of certain portions in the north) the deplorable want of metallic specie throughout that country.
The northerners were suspicious of banks and demanded to be paid in specie. The relationship of the various coins in circulation to the nomenclature of the coinage of the realm was fixed by proclamation. However, the proclaimed value was often at variance with the real or intrinsic value, particularly in the early part of the century. This upset the discounting system and encouraged speculators to play the Anglo-Irish money-market, as for example during the period 1717 to 1737 when the coinage was substantially composed of overvalued Portuguese gold moidores; the silver coinage, which had greater utility because of its smaller denominations, was undervalued and, throughout the century, extremely scarce. Finally, in 1737 a proclamation adjusted the value of the moidores to a more realistic level and officially discounted the Irish pound against the pound sterling at 8.33 per cent - a differential that was retained until 1826, when the Irish currency was merged into that of the United Kingdom and the exchange ratio ceased to exist.
The chronic shortage of specie led not only to the diversity of coinage but also to the issue of notes and tokens. For example, in 1736 Edward Smyth (1946), a merchant and MP for Lisburn 1743-60, issued a token with his family crest, a unicorn, on one side and 'I owe the bearer two-pence' on the other. Tokens of this kind were quite common and reflected the credit-worthiness of the issuer. At the beginning of the nineteenth century, Carr advised travellers to the south-west of Ireland to carry notes from the merchant house of Roche, and warned that 'musquito bankers' 'are almost as common as potatoes in the counties of Limerick, Kerry and Cork. At a village not far from Limerick, a blacksmith issues sixpenny notes, which circulate in the village and no further.'
The Stock Exchange and Insurance
As the national debt grew, it became increasingly obvious that some method for dealing with the growing volume of government stocks was required. In 1790 the Bank of Ireland, the government banker, made an issue of stock that was not fully subscribed, and it ordered that the £38,750 should be 'sold by the Notary Public of the Bank at market price'. The 1790s were a difficult time, as the French Revolution and the ensuing war produced an extremely volatile financial climate. Apart from the dislocation caused by the war, the international exchange rate was disrupted by the inexperience of the French government, which, in order to stabilise its currency, inflated the price of gold. To counteract the drain of gold the British government, in February 1797, went off the gold standard except for the payment of the armed forces abroad. In March the Bank of Ireland also suspended cash payments. The 1798 rebellion and the growing agrarian unrest made land a less attractive investment and probably increased interest in government stocks. Thus, in 1799 the recently established Dublin banker, John Claudius Beresford (0117), and the Chancellor of the Exchequer, Isaac Corry (0497) introduced a bill 'for the better Regulation of Stock Brokers'. The bill, substantially amended during its second reading, was withdrawn and subsequently reintroduced by Beresford and another Dublin banker, Sir William Gleadowe-Newcomen (0853). It became law on 1 June 1799. The preamble states that:
Whereas the establishing of regulations by which proper persons only will be permitted to act as stockbrokers, for the selling and buying of government stock and government securities, and by which the prices at which such stock and securities shall be bought and sold, shall be known to the sellers and buyers of such stocks and securities, will be beneficial to the proprietors and purchasers.
Insurance was another financial service that developed during the century. Among the Mussenden papers there is a pro forma draft of a 1744 wartime insurance policy at 6 per cent of the value of the cargo of the Draper from Bristol to Dublin, with an additional premium and endorsement for a possible voyage to Danzig, Göttenburg, Hamburg and Bremen. It reads as follows:
Touching the adventures and perils [insured against] ... they are of the Seas, Men of Warr, Fire, Enemies, Pirates, Rovers, Thieves, Jettizons, Letters of Mart [marque], Surprizalls, takings at Sea Arrests, Restraints and Detainments of all Kings, Princes and Peoples ... Barretry [fraud or gross negligence] of the master and Marriners and all other Perils, Losses and Misfortunes.
The four participant assurers agreed to contribute on a pro rata basis to the 'rate and quantity of his sum herein assured', viz. £50 each Digges La Touche and John Hutcheson and £25 each Jonathan Cramp and another. The 1771 Almanac listed the Dublin Insurance Company with a membership of 20 and, outlining its background, stated that:
In the year 1750 a number of merchants associated themselves for the purposes of insuring lives, ships, and merchandise, under the above title; which business is carried on at the office of their Secretaries, Messrs Thwaites and Boursiquot.
Among Mussenden's papers there is an affidavit for insurance purposes made in the early 1750s for a damaged cargo of flax-seed from Riga. Two Belfast merchants, John Smith and Hugh Andrews, swore to the price Mussenden ought to have received and what he got, while William Catherwood, the Master of the Martha of Belfast, reported on his inspection of the damage to the hold of the Pelican in which the flax had been carried.
Marine insurance was also obtainable in Cork and Dublin. In 1747 an insurance office in Cork advertised that it 'operated under the same regulations that are practised in England'; in 1791 a Cork marine insurance company advertised its capital as £50,000. However, much marine insurance was effected through London correspondents, who had long experience in underwriting marine insurance. European or Atlantic shipping was usually insured but not, except in time of war, Irish cross-channel freight, as insurance was considered an undue erosion of profits. Coastal shipping was more often insured: possibly the risks from shipwreck and wreckers were greater than on a quick channel crossing. Smugglers occasionally took out insurance in France. Insurance for all types of freight was much more popular in time of war, particularly when there were privateers lurking in the Irish Sea, and sometimes the buyer and seller of the merchandise would share the risk, each contributing half of the premium.
Apart from life and marine insurance, the main insurance business was fire. Insuring plant capital was becoming an accepted commercial expense. For instance, in 1803 Arthur Guinness arranged to increase the fire insurance on his brewery by £5,000 and on his other business, the Hibernian Flour Mills at Kilmainham, by £3,500. These mills, which at this time accounted for about a quarter of Guinness's profits, were supplied with wheat from Tipperary transported via the Grand Canal. There were some unusual insurances: for example, one insurance office insured against its clients being called up for the militia, which could be a serious inconvenience for a breadwinner or businessman. Finally, there was mutual and friendly insurance, where social or occupational groups insured against individual misfortune. For example, the Friendly Society at Cork enabled poor labourers, by paying a small monthly subscription, to support themselves in sickness or old age.