Major Developments (3)
A credit-based economy
One particularly significant development around this time lay
in the perception of credit or 'imaginary money' as it was then
called. It represented a fundamental and distinctive principle
in the new thinking that was so prevalent during this age of
ideas and experiments. Projectors had begun to recognise the
existence of an untapped source of assets, albeit non-metallic,
such as stocks of merchandise, tax receipts, revenues on land
and commercial obligations, against which 'credit' or 'imaginary
money' could be raised. Credit could be, they argued, the seed
corn of wealth. But what was the money? To the man in the street,
money simply meant coins, but the new thinking was overturning
that Shibboleth: it was suggesting that money could take other
forms which would have no intrinsic value and yet still possess
qualities to enable it to be used to make payments thereby fuelling
and lubricating the economy. It was inevitable, therefore, that
when theory became practice and the funded National Debt was
born that crucial element, paper money, almost simultaneously
completed the equation.
Banker to Government
The 18th century was a period dominated by governmental demand
on the Bank for finance: the National Debt grew from £12
million in 1700 to £850 million by 1815, the year of Napoleon's
defeat at Waterloo. Reliance by government on the Bank had developed
to such an extent that at the renewal of the Charter in 1781
the Prime Minister, Lord North, described the Bank as "from
long habit and usage of many years………a part of
the constitution", and that it was "………to all
important purposes the public exchequer". North went on to explain
that "……..all the money business of the Exchequer"
was "done at the Bank, and as experiences had proved, with much
greater advantage to the public, then when it had formerly been
done at the Exchequer."
Eventually, though, prudence and discretion proved insufficient. The Bank was the nation's bank, and at times of natural crisis its gold reserve was needed for national purposes.
