Bank of England (independent)

The growth of clearly defined and opposing parties, which had taken the opprobrious titles Whigs (Scottish horse thieves) and Tories (Irish cattle rustlers), has been the most significant development in English political life over the last quarter century.

The Whigs support the Glorious Revolution and the Protestant succession.

The Tories, although supporting the new monarchs in a de facto sense, are disturbed by the disruption to the divine succession which the Glorious Revolution entails.

Along the Court/Country axis, court politicians are either in government or seek to be, and are thus supportive of centralized power and the dominance of Parliament by the executive.

Country politicians distrust centralized power and are keen to secure the independence of Parliament.

Parties had first formed during the exclusion crisis of 1679–81, but it is the Triennial Act of 1694, which reestablishes the principle of regular parliamentary sessions once every three years, that unintentionally gives life to party conflict.

The country now remains in a grip of constant election fever (ten elections in twenty years) and loyalties among MPs are difficult to establish, which increases partisanship and rivalry in Parliament.

This state of political instability has been called the 'Rage of Party'.

Lord Halifax establishes the Bank of England in 1694 with another set of loans from Scottish trader and banker William Paterson, who had made his fortune with foreign trade (primarily with the West Indies) in the Merchant Taylors' Company.

Paterson, having described in his pamphlet A Brief Account of the Intended Bank of England his proposal to found an institution to act as the English government's banker, proposes a loan of one million two hundred thousand pounds to the government; in return the subscribers are to be be incorporated as The Governor and Company of the Bank of England with long term banking privileges including the issue of notes.

The Royal Charter is granted on July 27, 1694, through the passage of the Tonnage Act of 1694.

Public finances are in so dire a condition that the terms of the loan are that it is to be serviced at a rate of eight percent per annum, and there is also a service charge of four thousand pounds per annum for the management of the loan.

The first governor is Sir John Houblon, a Lord Commissioner of the Admiralty.

The Bank is constructed above the ancient Temple of Mithras, London at Walbrook, dating to the founding of Londinium in antiquity by Roman garrisons.

Mithras was, among other things, considered the god of contracts, a fitting association for the Bank.

It will soon become a mighty engine of government: the institution of national debt provides a basis for England’s eventual financial domination of world markets.

Mary has acted in her own name but on William's advice when he is away campaigning; whenever he is in England, Mary refrains completely from interfering in political matters, as had been agreed in the Bill of Rights.

She has, however, participated in the affairs of the Church—all matters of ecclesiastical patronage pass through her hands.

She dies of smallpox on December 28, 1694, at Kensington Palace, and is buried at Westminster Abbey.

Baroque composer Henry Purcell is commissioned to write her funeral music, entitled Music for the Funeral of Queen Mary.

William, devastated by Mary’s death at thirty-two, is now the sole ruler of England.

Since he is also without a royal hostess, Mary's sister Princess Anne is summoned back to court.

Having been banished after an unseemly row with the queen, she is now nominated as the official heiress.

Isthmian America (1696–1707 CE): The Darién Scheme and Decline of Spanish Monopoly

The late 1690s mark a tumultuous era in Isthmian America, highlighted by the ill-fated Darién Scheme. Organized by Scottish financier William Paterson, founder and former governor of the Bank of England, the scheme aims to establish a Scottish colony, New Caledonia, in the Darién Gap on the Isthmus of Panama. Influenced by reports of easy passage across the isthmus and attracted by the prospect of controlling a trade route linking the Pacific and Atlantic Oceans, Paterson lands on the Caribbean coast of Darién in late 1698 with approximately 1,200 settlers.

Despite initial goodwill from the indigenous Guna people, who welcome non-Spanish settlers, the colony is unprepared for tropical diseases and harsh conditions. Furthermore, their goods—European clothing, wigs, and English Bibles—hold little interest for the local inhabitants. Within six months, the colony is abandoned. Reinforcements totaling another 1,600 settlers arrive unknowingly at sea, but the Spanish react swiftly, imposing a naval blockade that forces the Scottish to surrender and abandon the settlement by April 1700. The scheme's failure, compounded by inadequate planning, divided leadership, lack of meaningful trade relationships, and fierce Spanish opposition, plunges Scotland into severe financial ruin, significantly weakening Scottish resistance to the Act of Union in 1707.

This period also marks significant changes in Spanish colonial policy and regional dynamics. In 1700, the Bourbon kings replace the Habsburg dynasty in Spain, introducing measures intended to liberalize trade. However, these reforms arrive too late to reverse the decline of Spanish influence in Panama. Spain's rigid attempts to maintain a trade monopoly have become self-defeating. Goods from England, France, and the Netherlands, cheaper and more readily available through contraband channels, undermine official Spanish commerce, notably affecting the Portobelo trade fairs, where merchant attendance declines sharply.

The end of the seventeenth century also witnesses a marked decrease in pirate and buccaneer activity, influenced significantly by changing European political alliances and Spain’s weakened condition. Chronically bankrupt, suffering internal corruption, and population declines, Spain struggles to defend its colonies effectively. The failure of the Darién Scheme and the diminished significance of Portobelo reflect broader shifts in geopolitical influence, marking the onset of Isthmian America’s prolonged economic stagnation under declining Spanish control.

Robert Harley had left office, but his cousin, who had recently married, has continued in the Queen's service.

Harley employs her influence without scruple, and not in vain.

The cost of the protracted war with France, and the danger to the national church, the chief proof of which lay in the prosecution of Henry Sacheverell, are the weapons that he uses to influence the masses.

Marlborough himself cannot be dispensed with, but his relations have been dismissed from their posts in turn.

When the greatest of these, Lord Godolphin, is ejected from office, five commissioners to the treasury are appointed on August 10, 1710); among these is Harley as Chancellor of the Exchequer.

The government at this time has become reliant upon the Bank of England, a privately owned company which has obtained a monopoly to be the sole bank in England in return for arranging and managing loans to the government, but the government has become dissatisfied with the service it is receiving.

Harley, therefore, is actively seeking new ways to improve the national finances.

A new Parliament meets in November 1710 with a resolve to attend to national finances, which have suffered significantly from the costs of war with France.

Harley comes prepared, with detailed accounts as to the exact situation of national debt, which is customarily a piecemeal affair with different government departments arranging their own loans at need.

Harvey releases the information steadily, continually adding new reports of debts incurred and scandalous expenditure until in January 1711 the House of Commons agrees to appoint a committee to investigate the entire debt.

Members of the committee include Harley himself and the two Auditors of the Imprests, whose task is to investigate government spending, Edward Harley brother of Robert and Paul Foley his brother in law.

Also included are William Lowndes, Secretary of the Treasury, who had been significantly responsibility for re-minting the entire debased British coinage in 1696, and John Aislabie, who represents the October Club, a group of around two hundred MPs who have agreed to vote together.

Harley's first concern is to find three hundred thousand pounds for the next quarter's pay for the British army operating in Europe under Marlborough.

This is provided by a private consortium of Edward Gibbon, George Caswall and Hoare's bank.

The Bank of England has been operating a state lottery on behalf of the government which had not been particularly successful in 1710 and the one for 1711 has already begun.

This too is performing poorly, so Harley grants authority for selling tickets to John Blunt, a director of the Hollow Sword Blade Company, which despite its name is an unofficial bank.

Commencing March 3, 1711, tickets are completely sold out by the seventh.

This is the first truly successful English state lottery.

The new chancellor aims to frame an administration from the moderate members of both parties, and to adopt with but slight changes the policy of his predecessors; but his efforts are doomed to disappointment.

The Whigs refuse to join an alliance with him, and the Tories, successful beyond their wildest hopes at the polling booths, cannot understand why their leaders do not adopt a policy more favorable to the interests of their party.

The clamors of the wilder spirits, the country members who meet at the October Club, begins to be re-echoed even by those who are attached to the person of Harley, when, through an unexpected event, his popularity is restored at a bound.

A French refugee, the ex-abbé La Bourlie (better known by the name of the marquis de Guiscard), is being examined on March 8, 1711, before the privy council on a charge of treason, when he stabs Harley in the breast with a penknife.

To a man in good health the wounds would not be serious, but the minister has been ill and Swift pens the prayer, "Pray God preserve his health, everything depends upon it".

The joy of the nation on his recovery knows no bounds.

Both Houses present an address to the crown, suitable response comes from the queen, and on Harley's reappearance in the Lower House the speaker delivers an oration that becomes known throughout the country.

The success is shortly followed by another, larger, lottery 'The Two Million Adventure' or 'The Classis', with tickets costing one hundred pounds, a maximum prize of twenty thousand pounds and every ticket winning a prize of at least ten pounds.

Although prizes are advertised by the total amount, they are paid in the form of a fixed sum annuity over a period of years, meaning the government effectively holds the prize money as a loan until it is paid out to the winners.

Marketing is handled by members of the Sword Blade syndicate, Gibbon distributing two hundred thousand pounds of tickets and earning forty-five hundred pounds commission, and Blunt distributing nine hundred and ninety-three thousand pounds.

Charles Blunt (a relative) is made Paymaster of the lottery with 'expenses' of five thousand pounds.

The national debt investigation had concluded that a total of nine million pounds is owed without any allocated income to pay it off.

Edward Harley and John Blunt together have devised a scheme to consolidate this debt in a similar manner to that previously performed by the Bank of England, although the Bank still holds the monopoly on operating as a bank.

All holders of the identified debt will be required to surrender this to a new company, the South Sea Company, which in return will issue shares to the same amount.

The government will pay the company £568,279 10s, (6% interest plus expenses) annually, which will be distributed as a dividend to shareholders.

The company is also given a monopoly to trade with South America, a potentially lucrative enterprise but one which is controlled by Spain, with whom Britain was at war.

At this time, when continental America is being explored and colonized, Europeans apply the term "South Seas" only to South America and surrounding waters, not to any other ocean.

The concession both holds out the potential for future profits and encourages a desire for an end to the war, necessary if any profits are to be made.

The original suggestion for the South Sea scheme has sometimes been credited to Daniel Defoe, but it is more likely the idea originated with William Paterson, one of the founders of the Bank of England and the Darien Scheme, the disastrous failure of which had contributed to Scotland agreeing to Unite with England.

Harley is rewarded for the scheme by being created Earl of Oxford on May 23, 1711, and is promoted to Lord High Treasurer.

With a more secure position, he begins secret peace negotiations with France.

From a commercial perspective, some of the debt consolidated under the scheme can be bought on the open market before the scheme is announced at a discounted rate of £55/£100 nominal value.

This allows anyone with advance knowledge to buy in debt and sell at an immediate profit, and allows Harley to bring further financial supporters into the scheme, such as James Bateman and Theodore Janssen.

Daniel Defoe commented: "Unless the Spaniards are to be divested of common sense, infatuate, and given up, abandoning their own commerce, throwing away the only valuable stake they have left in the world, and in short, bent on their own ruin, we cannot suggest that they will ever, on any consideration, or for any equivalent, part with so valuable, indeed so inestimable a jewel, as the exclusive trade to their own plantations".

The originators of the scheme know that there is no money to invest in a trading venture, and no realistic expectation there will ever be a trade to exploit, but the potential for great wealth is widely publicized at every opportunity so as to encourage interest in the scheme.

The objective for the founders is to create a company that they can use to become wealthy, and which offers future scope for further government deals.

The Charter for the company is drawn up by Blunt, based upon that of the Bank of England.

Blunt is paid three thousand eight hundred and forty-six pounds for his services in setting up the company.

Directors will be elected every three years while shareholders will meet twice a year.

The company employs a Cashier, Secretary and Accountant.

The Governor is intended to be an honorary position and will later be customarily held by the ruling monarch.

The charter allows the full court of directors to nominate a smaller committee to act on any matter on its behalf.

Anyone who is a director of the Bank of England or East India Company is disbarred from being a director of the South Sea company.

Any ship owned by the company of more than five hundred tons is to have a Church of England clergyman on board.

The exchange of government debt for stock is to occur in five separate lots.

The first two of these totaling two and three quarters of a million pounds  from about two hundred large investors had already been arranged before the company's charter is issued on September 10, 1711.

The government itself exchanges three quarters of a million pounds  of its own debt held by different departments (at this time, individual office holders hold responsibility for money in their charge, and are at liberty to invest it to their own advantage before it is required).

Harley exchanges eight thousand pounds of debt and is appointed Governor of the new company.

Blunt, Caswall and Sawbridge together provide sixty-five thousand pounds, Janssen twenty-five thousand pounds of his own plus a quarter million pounds from a foreign consortium, Decker forty-nine thousand pounds, Sir Ambrose Crawley thirty-six thousand nine hundred and seventy-one pounds.

The company has a Sub-Governor, Bateman, Deputy Governor, Ongley and thirty ordinary directors.

In total, nine of the directors are politicians, five are members of the Sword Blade consortium and seven more financial magnates who have been attracted to the scheme.

The company creates a coat of arms with the motto 'A Gadibus usque ad Auroram' (from Cadiz to the dawn) and rented a large house in the City as its headquarters.

Seven sub-committees are created to handle its everyday business, the most important being the 'Committee for the affairs of the company'.

The Sword Blade company is retained as their banker and on the strength of its new government connections issues notes in its own right, notwithstanding the Bank of England monopoly.

The task of the Company Secretary is to oversee trading activities, the Accountant, Grigsby, is responsible for registering and issuing stock, and the Cashier, Robert Knight, acts as Blunt's personal assistant at a salary of two hundred pounds per year.

The minister Robert Harley becomes Baron Harley, of Wigmore in the County of Hereford, and Earl of Oxford and Earl Mortimer (the latter, despite its form, being a single peerage), on May 23, 1711.

Harley claims the title of Oxford because of his relationship through marriage to the previous holders, the De Veres.

The title of Earl Mortimer has been added in case a claim is laid to the Oxford earldom.

He is on May 29 appointed Lord Treasurer, and on October 25 becomes a Knight of the Garter.

Well might his friends exclaim that he had grown by persecutions, turnings out, and stabbings.

A further attempt is made on his life in November with the Bandbox Plot, in which a hat-box, armed with loaded pistols to be triggered by a thread within the package, had been sent to him; the assassination attempt is forestalled by the prompt intervention of Jonathan Swift.