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The Exchange Business of the Irish Banks in the Eighteenth Century

1958; Wiley; Volume: 25; Issue: 100 Linguagem: Inglês

10.1111/ecca.1958.25.100.326

1468-0335

L. M. Cullen,

Irish and British Studies

Throughout the eighteenth century, Ireland was a peasant economy producing for export beef and dairy produce together with an increasing amount of linen cloth. With the passing of the English protectionist Cattle Acts of the 1660's, France and the foreign and English islands of the West Indies became the main outlet for Irish agricultural produce until about the middle of the eighteenth century, although exports of wool, woollen yarn and tallow to England remained at all times substantial. Despite this protectionism, however, England re-established itself after 1689 as Ireland's major foreign market, largely because of the Irish tariff system which favoured Anglo-Irish commerce above all others, and the growth of the linen trade. After 1758, the hegemony of the English market was further strengthened by the re-admittance of Irish pastoral products. The vicissitudes which characterised Irish exports to England were not, on the other hand, paralleled in the Irish imports from across the Irish Sea. Dublin and Cork were the main centres through which this trade was transacted, and though Belfast was a growing centre, it was dependent on Dublin as a point of shipment in the first half of the century and then, as later, for much of its foreign exchange business. The movements of commodity trade in this period were on the whole favourable to Ireland. Even the initial impulse of the Industrial Revolution was felt more as a demand for food for the growing industrial masses of England than as a herald of doom for Ireland's nascent and modest industry. Despite the sharp rise in population, and the country's grievous social and agrarian sores, it seems certain that there was some increase of prosperity in Ireland in the last four decades of the eighteenth century. There was, however, apart from the larger seaport towns, little urban development, the middle class remained small and the gentry largely absentee. In these circumstances, it is highly probable that the bulk of inland transactions was effected by cash of one kind or another; and in the early part of the period the inland remission of funds presented grave difficulties. This arose from the relatively underdeveloped nature of the economy which provided scant opportunity for a widespread growth of specialised financial institutions. In the seventeenth century there were no banks in Dublin apart from a few which specialised in mortgages on land. In the provinces there was only a bank of sorts, conducted by the Cork merchants Edward and Joseph Hoare, whose overseas trade at the end of the century enabled them to draw bills on merchants in Bristol and London and on the Commissioners for Victualling the Navy. But generally recourse was always had to merchants who were only prepared to draw on London as the course of trade enabled them to do so. In Dublin, as the chief centre of Irish trade, there was, however, already a class of “ exchangers “, loosely described as bankers, in the business between Ireland and London. It was around this foreign exchange activity that, in contrast to the position in England, Irish banking developed. As a consequence, most of the early banks were mercantile in origin. Such, for example, was the famous Dublin private bank of La Touche. David Digues La Touche established a silk, poplin and cambrick manufactory in Dublin at the end of the seventeenth century and also acted as a Dublin agent for many of the Huguenot manufacturers in the Irish provinces. It was thus but a small step forward to undertake the regular remission of funds between Dublin and various Irish provincial centres. Nor is it surprising that when the bank was established on a formal basis, the names of several of its correspondents were French : Vashon and Son in Waterford, Alexander Crommelin in Lisburn, William Crommelin in Kilkenny, Solomon Le Blanc in Lurgan. Once engaged in the internal remission of funds, La Touche was led as a matter of course into the remission of money to London. As several of La Touche's correspondents belonged to the Crommelin family, the founders of the Irish linen industry, it may not be altogether fanciful to surmise that La Touche's foreign exchange had its origins in discounting bills drawn by linen drapers and shippers. Certainly, La Touche's English correspondents were in London, Chester and Bristol, the three points of entry for the bulk of the Irish linen exports, and his sole continental correspondent was in Holland, from whence part of Ireland's supply of flax-seed came. Similar examples in the rise of Dublin banking are the bank of Dillon founded by a merchant family trading with Holland and France, and having members of the family established in Rotterdam and London; and the bankers James Swift, Thomas Gleadowe, Richard Dawson, William Lennox, John Macarell and Thomas Finlay. The mercantile origins of the provincial banks are no less striking. With perhaps one or two exceptions, they were all established by merchants and remained subsidiary in many cases to the trading activities of their founders. Apart from merchants who opened banking houses, there were others who, like Edward and Richard Weekes, merchants in Waterford, might issue promissory notes payable not as bankers' notes to bearer but to “ persons or their orders “. As these notes circulated’. it is obvious that the line dividing merchant and banker was tenuous. An Act of Parliament passed in 1756, shortly after the failure of three Dublin banks closely identified with the merchant community, prohibited bankers from engaging in trade as merchants1 : but loose in wording, it was ineffective in practice, because merchants could still issue notes, without assuming the formal status of bankers. The rapid growth of banking in the eighteenth century was partly in response to the development of trade and partly to the acute shortage of coin which made bankers more capable of forcing their notes on the community which, in turn, was ready to accept them in the place of the medley of worn or underweight English and foreign gold. From the start, exchange became their most important function. Dublin's first regular bank, that of Burton, embarked from its foundation on the discounting business, and as early as 1696 Sir John Lowther, writing from London, informed the agent of his collieries in Whitehaven that, “ if any money could be returned out of Ireland there is one Burton at Dublin which makes ye most returns and his correspondent here is one Haistwell of my acquaintance ”.2 Many other Dublin banks were to follow. A few were destined to have a long life, but many were ephemeral. Their pattern of business was, however, alike in all cases, and as London was the centre through which the greater part of Irish commercial finance was transacted, all had agents in the English capital. Thus, in their first year, Messrs. Swift & Co. spent £100 in “ charges in sending a person to London and [to] sundry persons in Ireland to fix upon proper persons for correspondents for the company ”.3 The amount of commission paid by them in that year to their correspondents for bills of exchange negotiated was considerable, being £672 9s. lid. It was far and away their greatest charge, amounting to 40 per cent. of their total expenses. La Touche and Kane's banking followed a similar pattern. They had correspondents not only in the principal towns of Ireland but also in Bristol, Chester and London; in whose hands were funds enabling La Touche and Kane to draw bills for their Irish customers.4 These balances must have originated in bills discounted by the bank and paid for by their own note issue, and the bills when honoured increased the funds in the hands of their correspondents in London and elsewhere. By keeping their discounting and drawing of bills at a fairly even rate, they maintained their London balances at a steady level, and a pamphlet of 1729 suggests that the varying of the exchange with this object in view was already a normal procedure among Irish bankers.5 The reasons for the prominence of exchange dealings in the business of the Irish bankers arose primarily from the pattern of Irish commodity trade. The balance appears to have been highly favourable under normal conditions, which meant that it was not always easy for a merchant to find a ready purchaser for a bill drawn on London. There was, of course, a large body of temporary or permanent Irish absentees, requiring the remission of their rents to London, but direct dealing between an absentee's agent and merchant was difficult. The merchant might not be in a position to draw at any time or for the amount the remitter might require. This provided the opportunity for the bankers. By taking bills from all merchants and at all times, it was possible for the banker to meet all requirements on him for remitting funds to London. To an increasing extent throughout the first half of the century, merchants seem to have discounted their bills with the banks rather than among their fellow-merchants, and remitters to London increasingly relied on bankers' bills. The abstract ledger of La Touche and Kane which survives1 throws some light on Irish banking of the early eighteenth century. Their business relates practically exclusively to the internal or external exchange of money, and of the quarterly balances in the hands of their correspondents those in England invariably form between 40 and 70 per cent. Their principal business was with London where they had two well known correspondents, Jonathan Gurnell & Company and John Puget, and intermittent dealings with Edward Flower & Son and Ellijad Edward. The balances in the hands of La Touche's agents there were far greater than those either in Bristol and Chester or in their largest provincial centre in Ireland. The size of the bank's English balances increased steadily over the years 1719–26. The following table reproduces a summary of their October-December balances, normally the largest of the year. These sums indicate a rather large business, and assuming that all bills were at 21 days' sight, as was the practice in Anglo-Irish payments, their turnover must have been substantially greater than the actual balances in the hands of their correspondents at the end of the quarter. The drawings on the bank's resources were severest in the first half of the year, but as one would expect from the nature of the Irish economy, they were always able to increase their balances in the second half, when their discounting was most active. By the early ‘thirties there were as many as six or seven banks in Dublin, and the growth in their number and volume of business is to be associated with the high exchange of the ‘twenties. This high exchange led to a disappearance of most of the exportable specie; and thus the greater demand for, than supply of, bills was an important factor in forcing many remitters to have recourse to the bankers. A sure sign of the progress of Dublin banking is that the bankers were now remitting government money to England. The sums involved in official transfers were too large for merchants to handle and for that reason recourse was had in the seventeenth century to London goldsmiths to effect these transactions. The growth of banking in Ireland, however, meant that there were now individuals in Dublin with sufficient resources to remit large sums. In 1730, for example, £40,000 was paid to the bankers Henry and Burton to remit to England.1 Another proof of the prominence which the bankers of the ‘twenties were acquiring in exchange is that they were able to charge a rate for their bill-drawings which was about 1 per cent. higher than that charged by merchants. This suggests that merchants' bills were becoming relatively few in Dublin compared with demand, partly as a result of the increased tendency of merchants to pass their bills to the bankers, and that the bankers were therefore in a position normally to force a higher rate for the bills they drew. In 1726, for instance, a land agent promised to remit a sum of money to an absentee “at the easiest and surest terms I can and to be sure it will be at least ¼ per cent. less than from the bankers ”.2 The Dublin banker Henry was described as “ one of the dearest in town, always 1 per cent. dearer than one could get good merchants' bills ”.3 Bankers were able to draw so freely only as a result of the large numbers of bills which they discounted and which, being at very short sight, meant that a perpetual stream of funds was becoming available to them in London. As merchants' drawings were largely to the order of remitters, the bankers were the sole persons to charge a regular discount; and in 1727 the agent, Owen Gallagher, informed his landlord that the reasons why bankers took bills at “ a quarter or half per cent. less [exchange] than others is that they take bills every post from such as have bills to pass, and others take bills but now and as their occasions require”.1 Bankers' rates being high, remitters who had the necessary acquaintance among merchants and who were not under immediate pressure to remit, often sought merchants who were in a position to draw. Where an absentee or agent was likely to have frequent sums remitted, and a merchant had funds regularly accruing to him in London, an agreement between the two parties was at times possible. The merchant then drew bills at a fixed and lower rate than the current course of exchange in return for cash regularly placed at his disposal. Less important, but still very significant, was the inland exchange business. Swift's bank in its first year appointed country correspondents, and over the eight years 1719–26, La Touche and Kane had 19 correspondents in 15 provincial centres. Their dealings with Cork and Limerick were by far the most important, and there was apparently a separate course of exchange on each of these centres. Dealings with agents in other centres were much smaller and appear to have been effected under a single course of “ country exchange “. The more important towns comprising this country exchange were, in rough order, Clonmel, Galway, Waterford, Belfast, Kilkenny, Sligo, and there were smaller and more intermittent dealings with agents in Londonderry, Youghal, Lisburn, Lurgan, Carlow, Drogheda and Birr. These correspondents were, in most cases, and perhaps in all, merchants and manufacturers, some of whom were eventually to enter banking on their own account. Thus, John Bagwell was a merchant in Clonmel, and was the founder of a well known local bank. Caleb Falkiner, merchant of Cork, was the father of Riggs Falkiner, merchant, who opened Falkiner's bank in Cork before 1760 ; and the Boyle, who as partner with Lenox, was another of La Touche's Cork correspondents, is almost certainly of the firm of Boyle, Calwell and Barrett, merchants in the provision trade and embryonic bankers. Again, the names of La Touche's Waterford correspondents, Newport and Knuckle, suggest the origins of the Waterford bank of Newport. From the early decades of the century, the existence of the Dublin and provincial agents contributed to the ease of internal exchange, as was the case in a rather similar manner in England. As the provincial banks became more numerous after the middle of the century, and generally selected a Dublin private bank as one of their correspondents, it is easy to understand how the passing of the century witnessed a growing ease of internal remittance. Some contemporaries writing after the crash of the bank of Malone, Clements and Gore in 1758, were led to believe that the main business of Irish banking was lending on mortgages,1 and later writers have been misled into following the same beliefs by applying to the bankers of the period in general the terms of two subsequent Acts of Parliament.2 There is, however, not the slightest evidence to substantiate this view, and it is certainly one which was not held by most contemporaries. Early eighteenth-century pamphleteers accused the banks, because of their interest in exchange, of having wilfully exported the country's supply of silver and English gold. At a still later date, a hostile critic claimed that the banks had wrested the business of exchange from the merchants,3 and a writer in 1780 stated that “ the principal object of the banking trade in Ireland is the business of discounting ”.4 Indeed, the Bank of Ireland itself was in the early years of its existence primarily a discounting bank.5 The real weakness of the Irish banks arose from the general shortage of specie which, as all the Irish banks were committed to exchange dealings, made them extremely vulnerable during a period of high exchange rates. The supply already scarce in 1660 was reduced still further as a result of the unfavourable rates of exchange in the decades following the Cattle Acts of the 1660's. At the opening of the eighteenth century it was even found necessary to enlarge by Act of Parliament the time for purchasers of forfeited estates in Ireland to make payment of the purchase price, because immediate payment had ceased to be possible on account of the want of money.6 Though the coinage appears to have increased in the early years of the century, mainly as a result of a favourable balance of payments over the years 1706–15, the increase barely corresponded to the growth of domestic and external trade.17 Cash remained acutely scarce, especially silver, and in some cases tenants were unable to pay their rents through sheer scarcity of coin. In the poor trading conditions of the ‘twenties, worsened by bad harvests and at times famine conditions, exchange became unfavourable to Ireland, even allowing for the fact that the bulk of the coinage now consisted of overvalued foreign gold. There was thus a strong demand for specie to remit abroad, which imposed a great strain on the banks. They were, therefore, ill prepared to meet a run by holders of their notes. The fact that notes continued in circulation and that only two important banks succumbed to “ runs “, may perhaps be attributed to the replacing of guineas and silver by overvalued foreign gold. This now formed the mainstay of the Irish circulation, and its cost of transfer would have equalled the high cost of bills. Favourable conditions returned in the ‘thirties and the devaluing of the foreign gold in 1737 brought the exchange below par. This encouraged the inflow of guineas though, as silver continued underrated, the scarcity of the smaller coins remained. Exchange remained favourable for the next 15 years, and during this period, with a probable inflow of gold, no difficulties were encountered by the bankers, apart from a run due to political causes in 1745. After the Peace of 1748, however, imports increased sharply and reached a climax in 1753 and 1754. The balance of trade itself did not become unfavourable, but as the volume of remittances to absentees was a constant factor, or in years of increased exports, a rising one, exchange now became unfavourable. This led to a demand for guineas to remit, and the bankers were again in difficulties. A pamphleteer, writing in 1760, six years after the failure of Dillons' bank, declared that £300,000 in guineas, which they had imported in two years, had been exported as fast.1 But Dillons' circumstances were exceptional as the holders of the bank's notes had become aware of the financial difficulties of the bank's foreign correspondents and partners in trade. However, all the Irish banks were affected by a general shortage of cash. This was due in part to the stop put, in 1751, to the currency of the Spanish pistoles which, as they had been slightly overvalued in the proclamation of 1737, now formed a large part, and perhaps the bulk, of the Irish coinage. The shortage was further aggravated by the rise in the rates of exchange,2 and by the fact that the Portuguese gold reduced in 1737 was much more readily exportable. The want of cash was acutely felt in the country, and as the balance of payments deteriorated, pressure to remit forced exchange in the absence of a sufficient stock of specie to a high level; “ but even at that rate bills are very scarce and 10 per cent. has this day been given; this proceeds from ye great scarcity of money among us ”.3 It is not surprising that the Dillons failed at this juncture. Their collapse made the task of the other banks more difficult, and in March 1755, the banks of Willcocks & Dawson and Lennox & French succumbed. The merchants agreed to accept the notes of the remaining banks and this succeeded in tiding them over their difficulties. But in 1759–60 exchange rose above par again amid a shortage of coin, and two further banks collapsed. Later, in 1770, in somewhat similar conditions, there was a very severe run on the banks. The shortage of money would, under any circumstances, have made banking perilous in Ireland, but it was the bankers' interest in exchange which made them most vulnerable. Under unfavourable external payment conditions the bankers had to protect themselves by charging a higher exchange on their bills on London, but this increase itself encouraged the cashing of bankers' notes by private individuals now more anxious than ever to remit specie on their own account to avoid the loss on bankers' bills. Almost all the Irish banks which collapsed did so in periods of high exchange, when specie was short, the only clear exception being the bank of Malone, Clements & Gore. During the last 30 years of the century the balance of payments was definitely favourable and the ensuing low exchange led to the inflow of gold, often in large quantites. With a growing stock of gold in the country, the banks were free from danger and more able to survive by lessening their discounting of bills in time of commercial or political crisis. The security for their outstanding notes lay in cash, in other bankers' notes and in bills discounted. Cash in hand and other bankers' notes taken together formed a fairly stable ratio of about 30 per cent. to their liabilities. However, though the total percentage of cash and bankers' notes remained steady, the proportion contributed individually by the two items followed a sharply contrasting trend. Their cash in reserve, which amounted to as much as £20,000 to £34,000 quarterly in the years 1719 and 1721, had in 1725 dwindled to £7,000, whereas on the other hand, bankers' notes grew from £1,262 in the quarter 1 January, 1721–31 March, 1721, the first quarter in which this item is indicated, to £22,946 in the same quarter of 1725, and to £30,991 in the next quarter (1 April—last June 1725). This is a reflection of the acute scarcity of money in Ireland, and of the increasing circulation of bankers' notes in Dublin. By the first quarter of 1725, La Touche & Kane eliminated their liabilities other than that to their note issue. This had the effect of reducing the amount of their outstanding commitments, raising the proportion of cash and other bankers' notes to between 40 and 60 per cent. of their assets. The items eliminated included acceptances and some commitments of a relatively long-term nature. The fact that banking profits were buoyant suggests that La Touche & Kane were concentrating on the more liquid and more bill trade. The growth in the number of issuing banks led to an expanded note issue, and the import “ boom “ from 1749 onwards witnessed an increased use of paper pumped into circulation in the discounting of merchants' bills.3 The subsequent failures produced a painful contraction of credit which was a cause of Parliamentary concern. Though the Irish circulation gradually recovered in the following decades, the provincial note issue with banks in only three or four towns other than Cork must have remained relatively insignificant, and in Dublin itself the private banks can at best have barely regained by 1797 their circulation of the ‘fifties.4 In part this resulted from the founding of the Bank of Ireland, which in 1797 had a paper issue equal to that of all the Dublin private banks combined; in part from the steady inflow of specie under a favourable course of exchange both on private account and for the account of the Bank of Ireland.1 Because the Irish banks were primarily discounting houses, the issue of notes was, in a sense, only incidental and had been adopted by the want of specie. Even allowing for some development of provincial banking in the second half of the century, and for the additional accommodation provided by the Bank of Ireland, itself a bank of moderate size and confined in the main to the Dublin area, the discounting facilities made available by the banks were failing to keep up with the growth of internal and external trade. This gave rise in the second half of the century to a class of merchants with a specialised bill trade. Their functions were similar to those of the Irish banks, the only real difference being that they did not issue notes in discounting, largely because of an enlarged supply of gold coins. In an enquiry before the House of Commons in 1772 into the bankruptcy of William Howard, a wine importer, for instance, a witness stated that Howard had “ set up the bill trade, that is to say, that he had become an acceptor and discounter of bills, and that country gentlemen lodged their money with him ”.2 One landlord, Pollard of Castle Pollard in Co. Westmeath, had since 1767 been in the habit of paying his rents into Howard's hands, and drawing on him as often as he required. Howard was frequently in advance of receipts from Pollard, and at times when there was pressure on Howard himself, he drew on Pollard in London.3 These bill merchants also tended to support one another, because following different trades, one might have resources free while another was actually under pressure. They also had recourse to the banks. Abraham Grier, for example, drew on the bank of Colebrook to the amount of £50,000 a year, and owed £4,000 at the time of Howard's failure.4 From the beginning of the century onwards, provincial merchants had begun to have enlarged financial and commercial dealings with Dublin correspondents. This gave rise to an increased circulation of inland bills of exchange, and some of the Dublin merchants who acted as correspondents gradually developed a bill business to meet the various requirements of internal payments, as well as of external exchange. In 1770 the Cork merchant, Richard Pope, employed the bank of Thomas Finlay & Company as his Dublin correspondents, but had also some financial dealings with the Dublin firm of Williams & Sadleir, with whom “ I do all my merchandise business … and some bill business ”.1 The large Dublin merchant house of Joshua & Joseph Pim discounted bills on a very extensive scale. In the ‘nineties they were discounting bills on English merchants for Courtenay & Ridgway, provision merchants in Waterford, and accepting drawings on them by butter merchants in the river valleys converging on Waterford, from whom Courtenay and Ridgway purchased corn and butter. Their discounting for Courtenay & Ridgway in 1792 amounted to almost £43,000 and when drawings on them tended to be in advance of bills discounted, they drew on. or had sums remitted from, one or other of two London discount houses who also operated for Courtenay & Ridgway.2 The Dublin firm of Robert Shaw & Son had a country-wide business, dealt with large provincial firms and country bill merchants, and even acted as a correspondent for two banks in Cork, one in Limerick and one in Waterford. Shaw negotiated and rediscounted bills for the bankers, accepted their drawings on him, and regularly dispatched large consignments of guineas to the country. The volume of this business was large, amounting in the case of the individual bankers to annual totals varying between £80,000 and £200,000. At times the country bankers allowed balances to accumulate in Shaw's hands, but he also advanced them large sums. In April, 1792, for instance, Shaw agreed to extend the credit of Maunsell & Company, the Limerick bankers, to £20,000 “ on particular occasions “. His dealings with his correspondent in London were rather limited, arising mainly from transactions on behalf of his country customers. Shaw was a merchant in a single branch of the inland grain trade, and advanced money to country merchants on receipt of their flour in Dublin. This was at the origin of his bill trade, and as early as 1785 he had developed a fairly considerable business which was totally unrelated to his commodity trade. By the ‘nineties Shaw's commodity trade had become a mere sideline to the growing volume of his discounting and accepting activities.3 In 1797, his son wound up business on his own account and became a member in the partnership of Thomas Lighton & Company, which opened a bank in Dublin in the following year. The Shaws' business was exceptional only in its extent, for the nature and evolution of their operations was reflected in other Dublin and provincial mercantile houses at this time. The pattern of Irish payments was to change radically in the nineteenth century. One of the most important features was, of course, the abolition of the separate Irish currency in 1826, which in the absence of an Irish mint had, in any case, been purely conceptual and not a physical reality. The existence of a course of exchange on London had imposed a great strain on the Irish banks, which even the Bank of Ireland, despite its relatively large resources, felt severely.1 The abolition of the Irish currency and hence of the exchange strengthened the Irish banking system and, in conjunction with other factors, altered the character of its business. Dublin, Cork and Belfast had all been centres of exchange with London in the eighteenth century, of which Dublin was overwhelmingly the most important, being linked by an organised bill trade with the provincial towns. The early nineteenth century, however, witnessed the decay of this structure in its internal, as well as its external, branches. One of its first manifestations dates from 1797, when the suspension of gold payments in Ireland made the Belfast linen shippers, who had still to find gold to purchase their linens in the North of Ireland, where payment in gold remained the rule, decline to accept bills on Dublin from their English customers.2 Direct financial relations from the various parts of Ireland continued to develop in the following years, and in 1822 the Court of Directors of the Bank of Ireland noticed that the inland bill trade was in decline, and direct payment to England more common than formerly.3 This indicated an increased reliance on London, which was now beginning to replace Dublin in the control of the Irish financial system—a change which corresponded to the increased dependence on England in political and economic matters generally.