William Lowndes left the Latin School in Buckingham in1667 at the age of 15 and was packed off to London.
Nothing is known then until 1675 when he appears in the records of the Treasury as an Under Clerk. Clerks were known as “gentlemen of the Treasury” and were entitled to describe themselves as “Esquire” and there were between 7 and 10 of them.
At that time the overall staff was small and even in 1711 numbered less than 30.
The Country’s mechanism for raising and spending money was The Exchequer, with The Lord Treasurer the original head of the office but from the time of Elizabeth 1 he became dissociated from it and the Privy Council with power resting with the King was the sole central executive body.
Charles 11 thought the Privy Council had too much power and could not cope with the country’s administrative needs and in 1667 an Order in Council gave the Treasury powers over money warrants for the supply of the armed forces, royal spending secret service and household funds and powers over Customs, Excise and taxes and over the patronage of revenue offices.
The government spending departments had to apply to the Treasury for money to be issued to them from the Exchequer and to obtain permission from the Treasury to actually spend the money they received.
When Lowndes joined the Treasury it was housed in Whitehall Palace which was also the official residence of the Monarch and Court and had almost 2000 rooms. In 1698 Whitehall Palace was burnt down by which time Lowndes had risen to Secretary and for 6 weeks the Treasury Lords met at Lowndes own house near the west door of Westminster Abbey.
It was 1686 when Lowndes was promoted to the rank of Chief Clerk who attended meetings of the Treasury Lords where he read out petitions and memorials and wrote minutes. He also drew up letters for the issue of funds to the navy, army and ordnance, examined all the state accounts and drew up accounts of the office fees. Many petitions to the Treasury came to him to establish the facts and make recommendations and attended to Parliamentary business. He also deputised for the Secretary from time to time.
In 1694-95 the Secretary to the Treasury Henry Guy was charged with corruption and in the Treasury Minutes of April 24th 1695 Lowndes wrote
“Memd this Eveningthe King was graciously pleased to bestow on mee the place of Secretary to the Treasury for wch I kisst his hand and his Majy at the same time approved the table of fees for the office” The King of course being William 111.
After the Glorious Revolution of 1688, the deposition of James 11, and his replacement by his daughter Mary11 and her husband William of Orange, all expenditure, tax and borrowing was to be sanctioned by the now sovereign Parliament. The nine years war with France from 1688 to 1697 put incredible demands on the new Parliaments finances. Before the war public expenditure was about £2 million a year and by the end was £6 million a year with state borrowing at £32 million. Expenditure was spiralling and taxes could not keep up with the borrowing.
The old system of recording debt was by the Tally system on Tally sticks.
A Tally was usually a stick to record information on. A bone Tally has been found in Africa dated 44,000 BC. In England they were usually Willow or Hazelwood sticks containing the names of the parties involved, the transaction and the date on each side of the stick which was then split in two along it’s length creating a unique jagged edge which only those two pieces could fit perfectly together.
The English exchequer used these to borrow money, in the early years they were only a few inches long but by 1729 one was cut for the Exchequer for £50,000 at 8 feet 5 inches reflecting the growth of public spending, taxation and inflation.
There were two branches of the Exchequer, the Lower Exchequer received and disbursed the revenues and the Higher Exchequer who audited the process.
The tax system worked by collecting taxes at Easter when the Tally cutter recorded the payment on a stick and split it. The longer part called “The Stock” was kept by the tax receiver and the shorter end of the stick “The Foil” was passed to the Higher Exchequer who at Michaelmas audited the whole process by matching “Stocks” and “Foils”.
For centuries the English state borrowed on security of the King. Lenders advanced cash to the Exchequer in exchange for the King’s promise to pay. The Civil War changed everything.
After the restoration of the monarchy in 1660 Parliament retained the sole power to tax and most of the power to spend with Charles 11 being granted tax revenues of £1.2 million a year which he spent largely unchecked. Foreign wars increased government expenses and the King spent more than his allowance but Parliament was unwilling to raise taxes so some creative accounting was needed.
An illustration of this came in 1664 when a number of the Royal Navy’s ships needed maintenance. The Navy went to the Lower Exchequer for cash, but the department had no coins, so instead the treasurer recorded a payment from the receivers of the customs tax and a cash disbursement to the navy. No actual cash was used but a tally was cut and given to the navy, who handed it to the shipyard. As it was a government tally backed by taxes the shipyard in turn could use the tally to pay their suppliers and it passed from hand to hand until finally being swapped for coins from the tax receiver 3 years after the issue of the tally stick.
A tally was worth less if it was not to be paid for another 3 years so various discounts applied so it was the case that goldsmith bankers like Hoare ended up with the tally at a discount in exchange for their banknotes who did the final exchange with the Lower Exchequer for coins and in the process making them rich.
Tally cutters were working overtime with the spiralling government spending which was demanding evermore actual coins until the Scot, William Paterson came up with plans to establish a “Bank of England”. He submitted 3 different schemes to Parliament between 1691 and 1694 whereby the Treasury would guarantee a steady stream of future tax revenues to a fund managed by Trustees . These Trustees would then borrow money against the future cash flows and advance large upfront payments to the government. The calculations he made were to advance £1 million in exchange for £65000 of tax revenues a year.
William Lowndes as Secretary to the Treasury was a central adviser to Parliament who turned schemes down 3 times.
Eventually a scheme was devised to set up a Corporation who would lend it’s whole capital to the Exchequer.
There were monied people in Parliament who would subscribe for the Equity capital as well as others in the City of London who would be attracted. These subscribers though would have to pay coins to subscribe for their shares but the Corporation would not pay the coins to the State but merely issue promises to pay in the form of banknotes and the coins would stay in the Corporation’s coffers where it could swap notes for coins on demand.
William Paterson’s final agreed scheme was a winner which Parliament approved under “The Tonnage Act of 1694” and instead of the State borrowing from the public, the State was funded by borrowing from the Corporation who had been funded by selling it’s own Equity to the public.
The Corporation was also permitted “ to trade in gold and silver bullion, to deal in Bills of Exchange and to loan on pledges and mortgages”
Shareholders in the Bank could sell their shares on the market when they wished.
So the question is Why ,if William Patterson invented a scheme to form the Bank of England which Paul Zanoni in his book Money and Promises describes as one of 7 events which changed the world, and Sir John Houblon was the first governor of the bank, is the Portrait of William Lowndes taking pride of place in the Court Room of The Bank of England and not the other two?
Jennifer Moss’s paper entitled “Ways and Means”( Which was a saying often used by Lowndes to find enough money to finance Kings and Wars) gives a full story of William Lowndes career progression in London and the name is still used by the parliamentary committee discussing every budget to this present day.
Subscriptions for the Bank of England Corporation were opened on 21st June 1694, the monarchs William and Mary were early subscribers of £10,000. Lowndes subscribed £1000 on the first list of subscribers.
On 1st May 1695 the Monarchs whole holding of was transferred to Lowndes by a Privy Seal Warrant. So why was this?
One of the duties of Secretary to the Treasury was the responsibility of overseeing the distribution “Secret Service Funds”. These were not for intelligence gathering but for making payments on behalf of the Crown for a wide variety of purposes which were not controlled by Parliament.
Monarchs had always had great trust in Lowndes since the times of Charles 11 and his dual role as an MP in Parliament and as Secretary to the Treasury and his dealings with both the Budget process in Parliament and the Bank of England gave him an almost unassailable position during his lifetime, and thus the justification of his portrait in the Courtroom of the Bank of England.
He gradually sold off the investments in the Bank so that by 1701 he held neither shares of the Monarchs or on his own account.
Another problem for the country as a whole was the matter of debasing the circulating coinage which were used in all commercial and official dealings . Traditionally coins had been hammered or stamped with images and the value of the silver coinage depended on it’s weight.
Since 1600 ,silver had been coined so that 1 Troy ounce of silver produced 5 shillings and 2 pence but people clipped the edges of coins such that it might take 6 shillings and 3 pence to by an ounce of silver bullion.
Around 1663 a new technique had been used to mill coins with an edge so that they could not be clipped but when they circulated with old coins, as they contained more silver they were melted down.
By Act of Parliament anyone could take bullion to the Mint and have it turned into coin so Gold Bullion was turned in to guineas which were then exchanged for silver coins, but the mismatch of the relative values of gold and silver on the continent and Britain meant that gold brought into Britain could be sold for 10% more in silver coins than on the continent.
In January 1695 William Lowndes made a report to the Treasury Board in which he envisaged that a full recoinage would cost an immediate loss of about £150,000 which would have to be met by taxation.
After a great deal of public debate a decision was taken to write down the value of golden coins in terms of silver confirmed by an Act of Parliament in January 1696, the public had to bear the cost and William Lowndes and the Treasury had to oversee the execution of the recoinage.
Dates were fixed when crowns and half crowns were only to be used to pay taxes, followed by dates for other coins and from April clipped coins ceased to be legal currency except receivers of taxes could receive clipped coins until May 1696.
Every other Wednesday one or more Treasury Lords went to the Exchequer where the money taken in the previous fortnight into each fund and remaining there was counted in the presence of Treasury Lords, the Clerk of the Pells, two Deputy Chamberlains, a clerk appointed by Lowndes, the Clerk to the Melters and about 30 tellers.
The money was bagged in £100 lots and weighed in 4’s. £400 filled a melting pot and delivered to melters who weighed it again both before and after smelting to establish any waste. 10 furnaces were set up at the Treasury to melt the clipped coins. When the coins were melted down into Ingots they were marked to show which fund they came from and each Ingot was assayed with Lowndes keeping records of the assays. The silver was then refined to standard purity before the new coins were minted. The new money was then used first to pay interest and capital of the money lent to the Exchequer.
Initial stages of the operation caused a great shortage of coin in circulation but things were speeded up when Sir Isaac Newton was appointed Master of the mint.
Overall the operation caused a loss of some 40% and a tax on glass windows was imposed which raised £1,200,000 to cover the loss but the result was that sterling became the hardest currency in Europe.
Wars always cost governments a huge amount of money which has to be covered in one way or another, usually a build up of the National debt, and in between Lowndes purchasing Hollows Manor in 1720 and the Crawley Grange Estate in 1723 in North Crawley he was involved in resolving another financial scandal which was called the South Sea Bubble. This was not the south seas that we imagine but trade with Spanish South America anticipated when peace with Spain was achieved.
The background was that in 1691 , 3 years before the establishment of The Bank of England , a company received a charter for making grooved swords in the north of England with the power to hold land and issue stock. By 1700 the ownership of the Sword blade company had changed and was reconstructed as a finance corporation and among the backers were two men named John Blunt and George Caswell. In 1704 the Bank of England served notice on the Treasury that the monopoly clause in it’s 1697 Act was being infringed but took no further action. The company got into considerable financial difficulties and blamed the Bank but the Government was also having difficult in raising funds.
After the general election of 1710 a committee was formed to look into the whole question of unsecured government debt and Lowndes was described as an indispensable member of that committee.
Our friend John Blunt was involved in the 1711 fundraising lottery which “ Mr Lowndes called unintelligible and was with great difficulty brought to comply with” as it included annuities as well as lump sum prizes. A further lottery followed in which the Bank of England was excluded.
The Chancellor of the Exchequer Robert Harley then brought forward a scheme to incorporate the whole of the governments unsecured debt of £9,000,000 as a company with a monopoly to carry on the trade expected in the south seas once peace with Spain had been achieved and named it The South Seas Company. The Government agreed a 6% payment on the debt but stockholders in the company were not guaranteed a dividend. This created a serious rival to the Bank of England with Sword Blade the chief of the private banks handling the conversion
Part of the Treaty of Utrecht which ended the War of the Spanish Succession gave trading rights to the company. However the company found that the transport of slaves from West Africa to South America proved less profitable than anticipated and in 1718 war resumed between England and Spain and the companies assets in South America were seized and the company became just a financial institution.
The South Sea company then came up with ambitious plans to take over annuities covering the National Debt paying the Exchequer and agreed sum. They first took over government 5% annuities marketed in 1710 and then after a battle with the Bank of England took over the rest of the debt by creating new stock but no terms of conversion were yet specified. The scheme was well publicised and the success of the scheme depended on the stock continuing to rise. At the time the legislation was passed South Sea stock was trading at 330 and then fell back so the Cashier, Robert Knight set in place issues of stock to important people including probably royalty which were not paid for but issued at market price with a right to sell back to the company whenever they chose taking the profit between the issued and sale price.
After the initial publicity John Blunt then issued new stock only 20% paid and then declared a dividend of 10% and the stock rose to 350 and after a huge public speculatory frenzy issued a second tranch of stock at 400 payable by instalments to marketed to Directors , Governors and the King and the Prince of Wales. Importantly people were allowed to borrow on the security of their stock
Stock leapt from 610 to 870 and this was followed by a third issue at 1000 with only 10% paid with most of high society involved all of whom were entitled to borrow against the security of their holdings .
More issues took place at 1000, 20% paid with the rest payable over 2 years and again people borrowed against the holdings.
As people became more sceptical the price waivered ands then those paying instalments at inflated prices could only pay by selling stock which depressed the stock further. It was Autumn when the bubble burst with many in high society facing ruin but George 1 and his court were on their annual visit to Hanover so government action was delayed.
The South Seas company banker “The Sword Blade Company” suddenly found that The Bank of England, the company that Sword Blade was trying to surplant had to step in.
Fraud reached into Government and the Court. In 1721 a change of government took place with Sir Robert Walpole becoming both The First Treasury Lord and Chancellor of the Exchequer. A clean sweep of all personel at the Treasury apart from William Lowndes.
Walpole and Lowndes first took action against the former directors of the South Sea company, forfeiting net assets after existing liabilities. Some fled abroad to evade prosecution.
Lowndes then drew up a plan for reconstruction of the company which was a very complex, rearranging a network of private transactions by parliamentary fiat.
Lowndes scheme was quickly passed through all it’s stages in Parliament within 3 days and it was fortunate for the ongoing financial stability of Britain that a man of his experience and ability was in office at this time.
He then had to concentrate his efforts on the acquisition of the Crawley Grange Estate which was one of his biggest property transactions before he died in 1723.