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In the gild the members really constituted a species of benefit society, whereas marine insurance was conducted by persons who had no special connection, outside that transaction, with those assured.

It is difficult to determine how early this species of transaction began. It may have been a development of the foenus nauticum of the later Roman Empire; or, on the other hand, the loan on bottomry may have been called into existence independently to meet the exigencies of the case. A loan on bottomry inverts the modern practice in marine insurance. The assured or borrower obtained the advance of a specified amount of capital, on condition that he should repay it, together with a premium on the return of his ship-the ship itself being the security. If the vessel were lost, there was no obligation to make good the sum lent. During the Middle Ages the position of the church with regard to usury made this form of investment a favorite one for persons who had capital at their disposal and who did not wish to undertake the trouble of management in a partnership.

It would seem that at first marine insurance was conducted as a part of a general financial business, either by a body of merchants, such as those of the Steelyard, or by the goldsmiths. It was not until the eve of the South Sea period that joint-stock marine insurance, as far as is known, came into existence. Although marine insurance, on a non-mutual basis, was earlier, it was the last of the three groups to be developed by means of joint-stock companies.

After marine insurance came some form of provision against certain adverse life-contingencies. It is stated by Francis that persons who intended to make pilgrimages to distant countries were in the habit of effecting a bargain before they started by which in consideration of a certain payment, the assurer agreed to provide a ransom for the assured, in the event of the latter being taken captive. Similar arrangements were made by merchants who went on trading voyages. Or again, the contract might be of a different nature, when the traveller would deposit a sum of money on the understanding that, should he return to claim it, he was to receive a large addition to his deposit; if he failed to arrive home, the assurer retained the amount lodged with him.

There remains one species of insurance as yet undealt with, namely the provision against loss in the case of fire. It seems that, for several centuries after the dissolution of the gilds, there was no organization to carry on this class of business. Proposals for establishing fire insur

ance were made in 1635 and 1638; but, though as early as 1591 the system was in operation at Hamburg, it was not until after the Great Fire of London that offices began to come into existence in England. The earliest undertaking that can be traced is that established in 1667 by Dr. Nicholas Barbon, a prominent building speculator and the author of A Discourse of Trade (1690). This office was at first known as "Barbon's" and it continued in Barbon's hands till 1680 when it was transferred to a company, and it was then described as The Insurance Office at the Back-side of the Royal Exchange.

Up to 1706 fire insurance had been confined to provision for losses on buildings, and in that year Charles Povey first founded offices to insure against losses of goods and merchandize. One of these was for London and the other for the country. Both were eventually transferred to the Company of London Insurers, which became known as the Sun Fire Office.

The period of excitement at the time of the South Sea Bubble was marked in London by many insurance proposals. Some were intended to rival the existing fire, life, and marine undertakings, while others branched out in new directions. Amidst schemes that were chimerical there were some that anticipated developments realized later, such as burglary insurance, the insurance of debts and of live stock.

See also 191. Some Functions and Effects of Insurance.

80. THE RISE OF FINANCIAL MIDDLEMEN IN ENGLAND' Now, in a general manner, may be presented the rise in the volume of capital handled in commercial transactions, the rise of a specialized class of financial middlemen, and the rise of modern business methods with respect to commercial paper. The capitalistic quality so permeates the middlemen's business that some attention to this phase is required in a treatment of their work. The most characteristic thing of modern industrial and commercial life is the dominant importance of capital and credit. Quite the opposite fact characterized the mediaeval market system. A momentous transition in the nature of commercial and manufacturing activity was in progress in the two centuries preceding the Industrial Revolution in which event the capitalistic régime was established.

'Adapted by permission from R. B. Westerfield, "Middlemen in English Business," Transactions of the Connecticut Academy of Arts and Sciences, XIX, 369-82. (Yale University Press, 1915.)

With minor exceptions the great system of modern credit in the business life of the English people arose in the century before 1760. International exchange, book-credit, promissory notes, and a few other representatives of credit had a meager use before 1650, but the real age of credit was inducted by the goldsmith banker during the Civil War and the Puritan régime.

Book-credit was the simplest, earliest, and most general form of credit. Nearly every seller was likely to grant credit of this kind occasionally or customarily to buyers. Traders bought on time rather than borrow money directly at interest; in fact the two practices were alike, except that book-credit usually drew a higher but implicit rate of interest, double or more. Shopkeepers and larger tradesmen and merchants carried running accounts with one another and with their customers. The clothier was a considerable giver and taker of this sort of credit.

Loans attested by promissory notes were facilitated in two respects about 1700. Greater security was provided by the introduction of fire-insurance. It at once became the practice to refuse to lend money upon houses unless they were first insured; by 1723 it was said that not one in a hundred would lend otherwise. A means of greater security was also procured by the initiation of a system of public registry of deeds, mortgages, and conveyances. The country gentlemen had suffered many inconveniences and abuses in borrowing money on their land's security. The passage of this law gave a legal standing to a registered mortgage which made it sound collateral for loans.

Banking was inaugurated by the goldsmiths. They had long done a pawnshop business in connection with their smith work. About 1645 they became buyers and exporters of bullion. During this period of insecurity due to the civil wars the merchants deposited their cash and plate with the goldsmiths for safekeeping. By an inducement of four pence a day interest paid on deposits they soon. acquired large holdings, and set up "running cashes," making loans to merchants and others for weeks and months and trusting "some to come as fast as others were paid away." By discounting merchants' bills of exchange at high interest they made a considerable profit. They loaned to Cromwell and Charles II; loaned on pawns and bottomry; loaned on "notorious Contracts, or upon personal Securities from Heirs whose Estates" were "in expectancy"; the rates in these cases were exorbitant.

In 1677 the list of all the goldsmiths keeping "running cashes" numbered forty-four. From this time to 1690 there was a progressive differentiation between banking, pawn-broking and goldsmithing. Francis Child, "the Father of the Profession," was the first to devote himself exclusively to banking.

It seems that the fundamental purpose or function of banks was the transfer of ownership of money by the assignation of deposits, "without the danger and trouble of keeping, carrying, or telling it." The original of this was likely the use of safety deposit vaults as depositories for valuables. The goldsmiths performed both these services. They received on deposit gold and silver plate and coin, as well as government tallies, and gave the depositors book-credits and -notes. The earliest known record of a goldsmith's note issued for an amount of money deposited with him dated from 1667. These were the original of the modern bank-note. The principle of the check and check-system was also devised at this time by the goldsmiths.

Throughout the latter half of the seventeenth century there was a growing demand for a commercial bank as an aid to merchants. It appears that the merchants resorted to the goldsmiths with reluctance; but the dispatch of trade forced them, in spite of extensive losses, to use goldsmiths' notes.

In 1676 there was formulated a plan for a "Bank of Credit" and proposed to the Mayor, Aldermen, and Common Council of London. After several examinations it was undertaken as a project "highly conducing to the general good." It provided for a subscription to a fund under the care and management of trustees chosen by the subscribers; and "many Considerable and Wealthy Inhabitants" subscribed a "Fund more Substantial than any Bank abroad." Subscriptions were paid in kind, e.g., tin, lead, copper, iron, raw silk, wool, cotton, etc. These wares were put in warehouses provided for the purpose, for one year, and substitutions of other goods were allowed during the year. Credit was allowed on such deposits up to two-thirds or three-fourths of their market value, depending on the durability of the goods and the stability of price. The "bank" failed in 1683.

It was also frequent for merchants about '1670 to enter into partnerships among themselves and give joint bonds for security to all persons who offered to deposit money with them. With these deposits they ventured in all sorts of undertakings. The above-cited

[citation omitted] Thompson, for example, dealt in wine and silk, was an interloper in the India trade, traded to Russia, and ventured in mines, Irish manufactures, and international exchange. This firm failed in 1675. The business world had learned a lesson. The charter of the Bank of England prohibited it from trading directly or indirectly.

The Bank of England was founded in 1694 primarily as a revenue measure to sustain the government of the Revolution in its foreign wars. The Bank at once became "the very heart of the economic life of the country," and performed invaluable functions with com

merce.

The Bank added to the available capital of the country and gave wider opportunity for trading on borrowed capital. In conjunction with the reform of the currency in 1696 it corrected the disadvantageous rate of foreign exchange. But it did not perform as many functions as commercial banks might and many extensions of service were suggested, such as advances to importers to pay duties, loans on landed security, etc. By the middle of the eighteenth century, however, it was agreed that the methods of business employed by the Bank of England were more satisfactory to the commercial world than those of any foreign country.

Banking institutions extended themselves very little in the first half of the eighteenth century. The following numbers of banks existed in 1677, 44; 1738, 21; 1754, 18; 1763, 23; 1736, 21; 1740, 28; 1759, 24; the fluctuations were caused by failures, amalgamations, and foundations.

See also 53. Mediaeval Currency.

128. Various Services of Banks.

81. THE EXCHANGE IN ENGLAND'

Exchange, as Bourse: (a) A place where merchants, bankers, brokers, etc., assemble at certain hours for the transaction of business; and (b) the assemblage itself. In both senses the word is commonly contracted into 'Change.

"The last yere, I shewyed your goode lordeshipe a platte, that was drawen howte for to make a goodely Bursse in Lombert strette for marchaunts to repayer unto. I doo suppose yt wyll coste ii. M. li

Taken by permission from George Clare, "Exchange, as Bourse," in Palgrave's Dictionary of Political Economy, I, 767-68. (Macmillan & Co., Ltd., 1910.)

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