The Bank of England, valet of two mastersthe shareholders and the State (1694-1720)

The Bank of England was not created to function as a central bank. Indeed, when it was founded in 1694, the Bank was not even intended to be a permanent institution. It was merely one of a number of expedients designed to meet the immediate financial needs of a state locked in the ruinously costly Nine Years’ War (1688-1697). However, as Huw Bowen argues, during the eighteenth century the Bank of England did embark on parallel paths of development that were ultimately to draw it ‘close to the realm of modern central banking’. Firstly, and most importantly, the Bank of England developed its role as banker to the state and manager of the national debt, and secondly it became one of the city of London’s major financial institutions. But these functions were sometimes taken on with reluctance, and often led to conflict between the needs and demands of the Bank’s two masters: the shareholders and the state. The period between 1694 and 1720 was a time when these issues were to the fore. The Bank was in the process of developing its role in the English economy. Trust between the Bank and its shareholders was not yet firmly established, and its relationship with the state was highly complex and often antagonistic. This essay seeks to explain how the Bank of England successfully negotiated these problems and embarked on the path that would see it evolve from a temporary funding expedient to the ‘great engine of state’.