FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.

posted on 07 March 2016

How Stolen Treasure Kick-Started The Bank Of England

from The Conversation

-- this post authored by Martin Parker, University of Leicester

Most people think that the Bank of England has always been there, a national institution set in stone. The truth is much stranger. It began with the fortunes of a treasure hunter and the scheming of a get-rich-quick entrepreneur - and goes to show how the financial system has always been built on bets and speculations.

The man whose money kick-started the Bank of England was William Phips, originally from New England. Born in 1651, the son of a shipwright in Maine, Phips (who claimed to be one of 26 children) learned his fathers trade. He married a shipwright's widow, presumably coming into some money, and went to sea. In 1683 he came cap in hand to England to secure financial backing for voyages to search for Spanish treasure.

William Phips. Thomas Child

Phips was a "projector" - we would now probably call someone like this an entrepreneur, although, as Daniel Defoe said in his 1697 Essay upon Projects, Phips' ideas were usually long shots. After several fairly unsuccessful expeditions which combined a bit of piracy with some exploration and trade, Phips' tale caught the ear of Christopher Monck, the Duke of Albermarle, a disreputable aristocrat and pioneer of boxing who had squandered his family inheritance on horse racing and gambling. Monck backed the project in one last gamble to repair his fortune.

Phips's plan was to use the new "diving machines", a primitive kind of submarine (also one of Defoe's abortive investments) to search for the Spanish galleon, the Nuestra Señora de la Concepción, which had sunk 50 years before off the Bahamas. But the galleon was elusive - his crew searched in vain and finally in January 1687, Phips gave the order that they were to head for home, empty-handed.

The Nuestra Señora de la Concepción. Mart'n Amigo

On the last day of the expedition, some of the divers went looking for mementos of the trip. As they explored a relatively shallow reef close to the shore they chanced upon a spectacular plume of coral reef and decided to take pieces of it home. But when they dived to look more closely they saw beneath it the unmistakable shape of a large cannonball. The Señora had been found. And the booty was immense.

The treasure weighed in at 34 tons of silver and gold. Investors were paid 10,000% dividends, a sum equal to a fifth of the state's tax revenue.

A radical project

One of the investors in the expedition was William Paterson, another projector. Paterson had begun as a buccaneer in the South Seas, an adventurer who became a wealthy merchant. His latest scheme was to establish a new bank in order to provide funds for the king at the time, William III, to fight the French and protect trade routes. This would go on to become the Bank of England.

Builty by booty: the Bank of England. Anthony Devlin / PA Wire

Paterson's project was radical. £1,200,000 (the equivalent of more than a billion in today's money) was to be raised by subscription and paid to the king via the Treasury. The money was to be lent at 8% interest and the subscribers would be incorporated in order to manage "the perpetual fund of interest" which would be produced. The interest would be paid out of levies on ships' tonnage and wine and beer.

The huge bounty from Phips' voyage acted like a beacon to other projectors, including those from a society started by Paterson who met at the Sun Tavern, close to the Royal Exchange, to discuss the project of the bank. The adventure also flooded the market with bullion, the goldsmiths could not cope, and so it further emphasised the need for a bank.

Phips became the first significant figure in Paterson's society. The sunken galleon enabled the creation, in 1694, of the Bank of England as a private corporation to act as the government's banker and owner of the state's debt. It wasn't until 1946 that the bank was finally nationalised and the heirs of the original investors were then paid off - though many were difficult to track down. Someone who invested £100 in Bank of England stock in 1694, assuming all dividends had been reinvested and there were no taxes, would have yielded nearly £42m profit by 1945.

Bank of England chief, Mark Carney. Suzanne Plunkett / PA Wire

But it is worth remembering that the vaunted institution that is the Bank of England, which now seems timeless and above reproach, began as a projection - a speculative attempt to make a quick buck. This is how the very idea of a "national debt" began - a speculation and promise that has now grown to £1.5 trillion for the UK.

So next time you hear the bank's governor Mark Carney speak, remember that his position was born from a storm that caused a Spanish shipwreck on a coral reef in 1641, carrying treasure stolen from South America.

The ConversationMartin Parker, Professor of Organisation and Culture, University of Leicester

This article was originally published on The Conversation. Read the original article.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

You can also comment using Facebook directly using he comment block below.

Econintersect Contributors


Print this page or create a PDF file of this page
Print Friendly and PDF

The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.

Take a look at what is going on inside of
Main Home
Analysis Blog
Comments on Feyerabend’s ‘Against Method’, Part III
Taking a Wrench to Healthcare
News Blog
Top 10 American Misconceptions about China (Version 3)
Documentary Of The Week: Job Buffers Are More Efficient Than Unemployment Buffers
Typing Is The New Talking
Outsourcing Viewed As The Top Threat To U.S. Jobs
SOS, Extra Savings Needed For An Adequate Pension
Bob Dylan's Nobel Prize - And What Really Defines Literature
What We Read Today 25 October 2016
Baby Remarkably Survives Being Born With Heart Beating Outside Her Chest
October 2016 Conference Board Consumer Confidence Declines
Richmond Fed Manufacturing Survey Remains In Contraction In October 2016.
October 2016 Chemical Activity Barometer Continues to Signal Improving Economic Growth
Case-Shiller Home Price Index August 2016 Year-over-Year Rate of Growth Marginally Improves
Russia Falls Into Old Habits
Investing Blog
This Or That? Technical Report 25 October 2016
Opinion Blog
What Triggers Collapse?
The Beer Goggles Stock Market
Precious Metals Blog
Inflation Surging As Platinum Signals Stock Market Decline
Live Markets
25Oct2016 Market Close: US Stock Market Indexes Closed Down Fractionally, Investors Remain Concerned With Friday's Fed Rate Change, Crude And US Dollar Down, Gold Up
Amazon Books & More

.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Middle East / Africa
USA Government

Crowdfunding ....



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved