As was to be expected, the bank was from the beginning a profitable concern. From 1699 to 1728, dividends varying from 6 to 30 per cent. were paid to the proprietors, and though for two years no dividends were declared, the average over the period was 16 per cent. It was natural that other people should wish to embark in so good a business and to break in upon the monopoly held by the bank. A kindly hand, writing at the time, describes how the popular mind was prepared for a change. We are told that “a spirit of envy appeared in some of a projecting genius in this manner,-groundless and unreasonable complaints were raised and spread to the disadvantage of the bank, such as these, that the directors are too much restrained in extending the company's credit, that they are too scrupulous in taking securities, that they demand too high interest," and so forth. The opposition appears to have begun so early as 1696, for in a letter written in that year by the London directors to Mr. Holland, they say that they are sorry to hear of any designs of the African Company against us (ie., the bank), having resolved to assist them to the best of our power, they containing themselves within the bounds of their Act." The company here spoken of was founded by William Paterson, the enterprising Scot who has gained historical fame from being the reputed projector of the Bank of England, and was constituted by an Act of the Scottish Parliament in June 1695, under the name of "The Company of Scotland trading to Africa and the Indies." Paterson went so far as to issue the company's notes in defiance of the bank's exclusive privilege, but his energies must soon have been fully taxed in connection with its ill-fated expedition to Darien, and no more is heard of its engaging in the business of banking. After the Union it would appear that various proposals were made to the bank directors for enlarging the capital and the proprietorship, but no countenance was given to any of them. The most noteworthy came from the Equivalent Company. The origin and objects of this company require a word of explanation. At the Union several stipulations on behalf of Scotland had been bargained for. She was to be recompensed for submitting to be taxed like the richer country, and for undertaking her share of the burden of the English public debt of £16,000,000, while her own debt was but trifling. The old Scottish worn coinage was to be replaced by an imperial coinage of full weight. The losses of the Darien Company were to be made good. In security of these provisions, England was to pay Scotland the sum of £398,000; and commissioners were to be appointed for the management of the fund, which was called "the Equivalent." The losses of the Darien Company were met and the other provisions in the contract were carried out; but a further debt having become due to Scotland for the equalisation of additional claims, an Act of Parliament was passed in 1718 (5 Geo. I. cap. 20), entituled-"An Act for settling

certain yearly funds payable out of the revenues of Scotland, to satisfy public debts in Scotland, and other uses mentioned in the Treaty of Union, and to discharge the Equivalents claimed on behalf of Scotland in terms of the same treaty, and for obviating all future disputes, charges, and expenses concerning these Equivalents." Under this Act an annual charge of £10,000 was laid upon the public revenue of Scotland, for the purpose of paying interest at the rate of 4 per cent. on the debt referred to, amounting to £248,550. Os. 91d., and the proprietors of the debt were incorporated under the title of the Equivalent Company.

In the following year a proposal was made by a mutual friend of the company and of the bank, for an amalgamation of the two corporations on terms which were deemed advantageous to both, but the bank directors were determined to stick to their monopoly, and would listen to nothing. Their £10,000 of capital was yielding a good return and they would let well alone. They went on their way, making good dividends and suspecting no evil till the year when their monopoly expired. They had not sought a renewal of the privilege, being persuaded, as we are told by a contemporary writer, that "no set of Scotsmen who had the nation's welfare at heart would ever attempt to disquiet the bank." Pleasant dream! At this very time the managers of the Equivalent Company were busily engaged in carrying on negotiations in London for a royal charter with full powers of banking in Scotland. Of course the bank, as soon as the movement in London became known, did its best to prevent any invasion of its preserve, but its opposition was unsuccessful. For a long time it smarted under the humiliation of defeat. Its partisans were violent, and predicted all manner of evil to the younger institution. They declared that it was "impracticable to support and carry on two banking companies in one country; no nation did ever attempt it." "England, where banking is as well known as in any part of the world, did never try it." "If Scotland can bear two banks, it naturally follows that England could bear ten." Much more was said in the spirit of bitterness natural to the occasion, but the promoters of the new bank went steadily about the preliminary arrangements, and began business in December, 1727. Such was the origin of the Royal Bank of Scotland. Its charter is dated the 31st May of that year, and confers "full power and liberty to exercise the rights and powers of banking in that part of the United Kingdom called Scotland only." The corporation was to consist of proprietors of the Equivalent Company, who were empowered to subscribe such part of the share or stock of the company as they might think proper "for and towards raising a fund for the more effectually carrying on the said trade and business of banking there," and it was further provided that the stock of the company so subscribed should be placed under the order, management, and direction of

the bank. An express power is given to the corporation to issue notes-or in the words of the charter "to borrow, owe, or take up in Scotland, on their bills or notes payable on demand" any sum or sums of money whatsoever.”

66

The Royal Bank began its career under very favourable circumstances. The proprietors of the Equivalent Company were a powerful body for these times, for they had a capital of £250,000 invested on Government security. Of this sum they subscribed £111,000 to the bank, which with £55,000 of additional liability, formed the original capital of the institution. It was necessary to have some cash to start with, and a call of £22,000 was therefore made upon the proprietors.

6

And now the Old Bank" and the "New Bank," as the Bank of Scotland and Royal Bank were then called, set their forces in array, and for long there was a hard fight and a bitter feud between them. At the outset victory declared for the younger combatant. Mr. Chambers in his "Domestic Annals " says: "The conflict between the Bank of Scotland and its young and pretentious Whig rival, the Royal Bank, led to a temporary stoppage of payments at the former establishment, the last that ever took place. The Royal Bank, having all the public money given in to them, has at present worsted the Bank of Scotland and run them out of cash.' In their own advertisement on the occasion, they attribute the calamity to the great embarrassment that has been upon credit and circulation of money in payments for some months bygone, arising from causes and by means well known both in city and country.' The stoppage took place on the 27th March, 1728. Immediately, the directors published a balance-sheet, drew in a great part of their assets, and made a call of £10,000 on the proprietors. Business was resumed on the 27th June, and though the rivals soon had a lawsuit which was carried to the last Court of Appeal, they gradually got on better terms, and in a few years amicably divided the banking business of the country between them. But it was well, in the interests of Scottish banking and of Scotland, that the monopoly held by the Bank of Scotland had been allowed to expire at the end of its legal term. For from that time dated the leading principle of banking in Scotland, freedom, by which the system was so clearly distinguished from that which existed in the sister country for a hundred years afterwards. Had the monopoly of banking and of issue been continued to one institution, it must have been accompanied by restrictions in its favour bought by aid given to the State, and to the exclusion of unfettered competition. Fortunately the projectors of the Royal Bank cast out the monopoly, and the boon of free banking was secured to the Scottish people.

For nearly twenty years the two banks may be said to have had no competitors. The field was not so attractive as it had been.

The country was unsettled and verging on civil war, and the people were still very poor. At the Union, the population was estimated to be a little over one million, and in 60 years it had not increased more than 200,000. The public revenue from the Customs, Excise, and Post Office, was under £70,000 at the Union, and in 40 years it made small progress, for in the middle of the century the whole excise revenue was no more than £75,000. Banking was not so profitable as formerly, for the dividends of the Bank of Scotland from 1729 to 1743 ranged only from 33 to 61, and averaged exactly five per cent. In 1731, that bank again essayed the planting of branches at Aberdeen, Dundee, and Glasgow, and again was the enterprise unsuccessful. During this period, no attempt was made to establish a new public bank, but two private banking-houses were founded, one in 1731, and the other in 1738, which remained in existence for a long period. These were the houses of Kinnear Smith & Co. and James Mansfield. Like the private banker elsewhere, the Scotch private banker has usually had a humble origin. It is impossible to draw a more graphic picture of the Scottish brethren of his period than is done by Sir William Forbes in his "Memoirs of a Banking-House

:

"The other principal banking-houses in Edinburgh at that time were Messrs. Mansfield & Co., William Cuming, William Hogg & Son, and William Alexander & Sons. The two first contined themselves strictly to the banking business, in which they rose to great eminence from a very obscure origin. From a slender outsetting as a draper, old Mr. James Mansfield began to deal a little in bills of exchange, and by degrees founded a banking-house of the first celebrity in Scotland. In the same manner William Cuming succeeded to his father, old Patrick Cuming's cloth shop in the Parliament Close, which he afterwards converted into a countinghouse, where he confined himself entirely to the transacting of money business, and after a long life, left a very large fortune. William Hogg & Son were not in very extensive business, and they managed it very confusedly, William Alexander & Sons were very considerable money dealers, though their chief employment was the purchasing tobacco for the farmers-general of France. A few years afterwards, a number of other inconsiderable houses started up, who transacted money business-such as Samuel Foggo, Johnstone & Smith, Scott Moncreiffe & Ferguson, John Fyffe, and W. Sinclair & Co.-most of whom, along with several of those formerly mentioned, became bankrupt in the famous year 1772. Thomas Kinnear was originally an insurance broker, but laid the foundation of a banking-house of eminence, afterwards carried on by his sons. Seton and Houstoun sprang out of a society who dealt in the manufacturing of woollen goods."

It was during this time that the cash credit system was first introduced. The Royal Bank has the merit of having originated

it, having opened the first cash credit account in the year 1728. The Bank of Scotland followed in 1729. For a poor country this mode of providing capital is peculiarly economical, easy, and attractive to traders, and it has proved an eminently useful feature of the banking business of Scotland. After the experience of a century, a parliamentary committee,* reporting on the Scottish banks, described its nature and results in the following terms:

"There is also one part of their system, which is stated by all the witnesses (and in the opinion of the committee very justly stated) to have had the best effects upon the people of Scotland, and particularly upon the middling and poorer classes of society, in producing and encouraging habits of frugality and industry. The practice referred to is that of cash credits. Any person who applies to a bank for a cash credit is called upon to produce two or more competent securities, who are jointly bound; and after a full enquiry into the character of the applicant, the nature of his business, and the sufficiency of his securities, he is allowed to open a credit, and to draw upon the bank for the whole of its amount, or for such part as his daily transactions may require. To the credit of this account he pays in such sums as he may not have occasion to use; and interest is charged or credited upon the daily balance, as the case may be. From the facility which these cash credits give to all the small transactions of the country, and from the opportunities which they afford to persons who begin business with little or no capital but their character, to employ profitably the minutest products of their industry, it cannot be doubted that the most important advantages are derived to the whole community. The advantage to the banks who give these cash credits arises from the call which they continually produce for the issue of their paper, and from the opportunity which they afford for the profitable employment of part of their deposits. The banks are indeed so sensible that, in order to make this part of their business advantageous and secure, it is necessary that their cash credits should (as they express it) be frequently operated upon, that they refuse to continue them unless this implied condition be fulfilled."

At this time an innovation of a dangerous kind was made in the form of the bank-note, by the introduction of the optional clause, in virtue of which the obligation to pay became alternative,—i.e., either on presentation or after six months with interest at the legal rate. The note having this provision ran as follows:

The Governour and Company of the Bank of Scotland constituted by Act of Parliament do hereby oblige themselves to pay to or the bearer one pound sterling on demand or in the option of the Directors one pound and six

* Lords Committee, 1826.