pence sterling at the end of six months after the day of the demand and for ascertaining the demand and option of the Directors the Accomptant and one of the Tellers of the bank are hereby ordered to mark and sign this note on the back thereof.

By order of the Directors.

When the number of banks in the country began to increase, the risk involved by the use of this clause became apparent, and in 1765, as will be afterwards more fully described, an Act was passed declaring it to be illegal.

The history of Scotland during this period is full of interest, even of romance: it records the intrigues to replace the Stuarts on the throne, the landing of Prince Charles Edward, the gathering of the clans, their victorious march to Derby, their retreat, and the final disaster of Culloden. To the present hour, the enthusiasm evoked by the personal attractiveness of the central figure of the time lingers in a hundred songs and ballads expressing the nation's love of Prince Charlie and its sorrow for his misfortunes. Traditions about him are affectionately treasured up, and authentic records of his progress are always received with respectful regard. The most recent of these was privately printed this year, and is entitled "Leaves from the Diary of an Edinburgh Banker in 1745." This gentleman, Mr. John Campbell, was the cashier of the Royal Bank when the Highland Army occupied Edinburgh, and his diary contains a graphic picture of the events of his day, with a natural reference to his own special circumstances and duties. He tells us how the effects of the bank were transported to the castle to be kept safe from the Highlanders, and he appears to have acted with judgment and skill in his negotiations with their leaders as well as with the officers of the royal army. He does not forget the social side of the picture. The manner of his daily life is carefully recorded, and on one occasion the entry is peculiarly plaintive: "On my return from the castle din'd at home solus." I wish I could freely quote from this quaint and interesting morsel of history, but the time at my disposal forbids me to do more than refer to it. In two months the city was freed from the presence of the rebel forces, and the two banks took back their money and papers from the castle and resumed their business. The defeat of the Jacobites was followed by the subjugation of the clans and the final pacification of the country, with a security of person and property never before enjoyed. A spirit of improvement soon manifested itself among the trading classes. Under the new impulse business progressed by "leaps and bounds," and in a few years, under the conditions of freedom established in Scotland, several new banks and banking-houses came into existence.

The chief among these was the British Linen Company. This

company was incorporated by a Royal Charter, dated 6th July, 1746. As its name implies, it was originally established for the prosecution of the linen manufacture, and it was authorised by its charter "to employ all necessary artificers, and to buy or sell flax, yarn, and linen, and to do everything that may conduce to the promoting and carrying on the said linen manufacture," and also "to take up money upon bills, bonds, or obligations, under their common seal, at such rate of interest, from the borrowing thereof, as they shall think fit, so as tho principal money which they shall so borrow do not exceed at any time the sum of £100,000 stg." which amount was the limit of the capital to be raised. Its next charter was granted in 1806, and narrates that in the first years after "the institution of the company, they found it necessary, in making their payments for linen, to issue promissory notes, payable on demand; and they soon found that they would be of more utility and better promote the object of their institution by enlarging the issue of their notes to traders and manufacturers, than by being traders or manufacturers themselves." In succeeding charters, the company's powers and privileges were ratified, and its capital increased, "for the purpose of carrying on the business of banking as heretofore accustomed.” For some time after its foundation the company engaged in trading and manufacturing, but it gradually withdrew from these operations, and finally brought them to a close in the year 1763. Since that time the British Linen Company has confined itself exclusively to the business of banking.

The early years of the company were not disfigured by disputes and jealousies like those which marred the opening competition of the two senior banks. It appears to have gone quietly about its business, and gradually to have built up a connection and secured its position as one of the public banks of the country.

The British Linen Company does not seem to have had any part in an ill-judged attempt made by the two senior banks to put down the banking institutions first set up in the West of Scotland by the merchants of Glasgow. About the middle of the century the population of that city was about 23,000, but, modest though its proportions were, it was rapidly growing in wealth. Its prosperity was mainly due to its connection with America, and to the profits. of the trade in tobacco. Among its citizens were many wealthy men, tobacco lords as they were called; and some of the trading concerns which they set up acted as bankers for the receipt of deposit-money. But it was not till 1750 that a regularly organised bank was established in the place. In that year a few influential men formed themselves into a company, under the title of the "Ship Bank." and soon afterwards a second partnership of the same kind was formed, and called the "Glasgow Arms Bank." The notes of the Edinburgh banks had not hitherto circulated in

the West of Scotland, where paper money was unpopular and little known. The Bank of Scotland and the Royal Bank, nevertheless, resented the establishment of the new Glasgow banks, and combined in an endeavour to stifle them at their birth. For this purpose, they employed an agent to collect the notes of the Ship" and the "Glasgow Arms," with instructions to present these for payment in large amounts, and in the expectation that coin would not be forthcoming to meet them. Fortunately, these unhallowed anticipations were not realised, and the two western banks, supported as they were by the weight of public opinion, gained a complete victory over their eastern rivals. They in their turn were themselves subjected to the competition which commonly follows successful business. In 1761, the Thistle Bank, and, in 1769, the Merchant Banking Company began business in Glasgow. After this time, as we shall presently see, there arrived a period disastrous to banking in the West of Scotland, and accordingly we find that only two other local banks gained a footing in Glasgowone in 1785 and the other in 1809. Of these five Glasgow banks, two failed, but paid their creditors in full; the other three may be said still to retain their vitality, having at various times merged their respective interests in those of the Union Bank of Scotland by having become united with that great corporation.

Having made a digression to refer to the history of the Glasgow local banks, I return to the middle of the century, when, in the manner already described, the British Linen Company came into existence as a banking institution. It was not long before further competitors appeared on the field. The circumstances of the country had gone on improving, and the business of banking was apparently a favourite one with the enterprising men of the time. The Banking Company of Aberdeen was started in 1747. Several private firms in Edinburgh began the business of banking between 1750 and 1760. In 1763 the Dundee Banking Company was founded. And in several places of even minor importance local banks were opened by private firms.

In some cases, notably in Edinburgh, the private banking houses used the notes of the public banks and issued none of their own, but generally they added banking to their other business by reason of the credit raised by the issue of their notes. And now, for the only time in the history of Scottish banking down to 1845, did the legislature interfere for the purpose of regulating the note issues. This step was rendered necessary by the abuses which had recently crept in. The optional clause already described had produced its natural result in affecting the convertibility of the currency. A motley swarm of notes for sums under £1 fluttered through the land. It was common to receive 10s. and 5s. notes, and we read of a co-operative society in Perth which actually condescended to an issue of notes for one shilling Scots or one penny sterling. In 1764

there were in Scotland sixteen banks or so-called banks of issue. A depreciation of paper money set in, the County Committees took action, the old banks petitioned in favour of legislation, and the Act of 1765 was passed. This measure prohibited the issue of notes under £1, abolished the optional clause, and ordained that all notes should thenceforth be payable in coin on demand. The result was beneficial, inasmuch as the growth of the small mushroom houses was checked. But it could not prevent over-speculation and unsound trading; and in a few years, from these causes, a disaster occurred which had a great influence on the future of banking in Scotland. This was the failure of Douglas, Heron and Co., of Ayr, Dumfries, and Edinburgh, a bank with the name of a firm, but with a partnership of 140 individuals. It began business, in 1769, with a capital of £96,000, but its constitution and management were radically unsound. Its three offices were independent of each other, and were without a proper head. The business must have been carried on with a reckless disregard of caution, for the concern failed in 1772, with liabilities to the public of £1,120,000, a very large sum for those days. The stoppage produced something like a commercial panic, and was attended with dire consequences to the Edinburgh bankers, all of who failed, excepting the three public banks and the three private houses of Forbes, Mansfield, and Cuming. In Glasgow, the consequences were not so serious, for, as we have seen, the banks established there were few in number, and on a firm basis. Douglas, Heron and Co. eventually paid their creditors in full. One great advantage followed from the suspension of this house. Previous to that event most of the private bankers had also been manufacturers or merchants, but those of them who stood the strain of the pressure which arose out of it, afterwards confined themselves to their own proper business. Sir William Forbes, in his "Memoirs," thus describes the position taken up by his house a few years before :-" The first resolution which Mr. Hunter and I formed, on finding ourselves practically the sole conductors of the house, was to wind up the corn speculations then existing, and to relinquish that trade entirely, so as in future to confine the house to its proper and natural business of exchange and banking, by which prudent resolution, and by unrewitting assiduity and attention, we were enabled to go on without any apparent diminution of business."

In spite of this disaster, the extension of local banks continued during the last part of the century, the natural outcome of the settled times and the increase of wealth. From 1772 till 1783, the country had been at war with the American Colonies, and with France, Spain, and Holland, and as a natural result trade and commerce had been temporarily retarded in their progress. The peace of 1783 was instantly followed by a great revival of business. Scotland had its share of the improvement. The public revenue in

1788 rose to £969,000; the Excise alone was £340,000, having been quadrupled in forty years. There was a great change in the style of living. In Edinburgh the upper classes had up to this time lived in the Old Town, in the primitive economy of the houses which were entered from the lanes or "closes and were to be found at various altitudes in the " common stairs." Now they began to build large and expensive houses in the New Town, and to live in a corresponding style of luxury. And in the oldfashioned provincial towns there are to be seen many comfortable residences, built during this prosperous time. The history of banking in Scotland may be said to emerge during this period from its secondary stage. Though the foundations of the system had been firmly laid a century earlier, it was only now that it began to take definite shape as regards those principles and details which are its main features at the present day. The suitableness of the joint-stock principle to the wants of the country and the ideas of the people was coming to be felt; the practice of allowing interest on deposits and the use of cash credits were in full operation; the institution of branch banks had been fairly inaugurated. In the "Wealth of Nations," Adam Smith speaks of the erection of new banking companies in "almost every considerable town, and even in some country villages." The Bank of Scotland had between 1768 and 1776 opened branches in Glasgow, Dumfries, Ayr, Inverness, Kilmarnock, Kelso, and Stirling; the Royal Bank established its first branch in Glasgow in 1783. In Galloway, Ayrshire, Renfrew, the Lothians, Aberdeen, and even Shetland, private banks were planted, and for a time flourished in the general sunshine. The three public banks. increased their capital. The Bank of Scotland raised the amount to £200,000 in 1774, to £300,000 in 1784, to £600,000 in 1792, to £1,000,000 in 1794, and to £1,500,000 in 1804; of this last sum £1,000,000 was paid up. The capital of the Royal Bank was increased to £300,000 in 1783, to £600,000 in 1788, to £1,000,000 in 1793, and to £1,500,000 in 1804. The British Linen Company doubled its capital in 1806 by enlarging the amount to £200,000.

This widening of the basis of the credit of the banks was called for by the expansion which had taken place in their business. In those days their accounts were never published, and it is therefore impossible to present any statistical statement of their progress. In 1804, the obligations of the Bank of Scotland to the public amounted to £1,500,000, and it may be safely assumed that the whole liabilities of the three old banks to the public did not at that time exceed £4,000,000. Indeed, it was not long since they had begun to receive money on deposit at all. The history of the rise of the deposit system is curious. In 1728, the deposits of the Bank of Scotland amounted to £418. In 1729, money was received on deposit on the bank's bond or bill, with interest at 5 per cent.