John Freame (1665-1745)
Capital & the Industrial Revolution. The new capitalists.
caution !! this is an initial draft ...
John Freame (1665-1745) was a Quaker, a banker, a lobbyist ... and the founding architect of Barclays Bank in Lombard Street, London in 1690 and the London Lead Company in Gadlys, Flintshire in 1704.
John Freame was well practised in evolutionary economics long before Adam Smith in 1759 & 76 and David Ricardo in 1836 and Charles Darwin in 1859 publicised their own insights ...
John Freame sold credit long before the industrial revolution.
John Freame provided financial services. But what were financial services? What better place to start than the beginning ... but long before the beginning there was money ... it seemed there was always money but money was changing all the time ... one place to start was 1345 ... it was all happening in Florence ... bankers there were making money make money.
The Quakers had no doubt heard about the great English staple and the wool trade and were perhaps perplexed as to why this dominant English trade was financed by Florentine bankers? Why Florence?
In 1345 the king was short of money for his wars & his grand schemes, but as taxes went up wool production went down; burdens were too onerous to bear. In 1351 'The Statute of Labourers' was an attempt of a desperate king to decree low wages which would enhance wool profits and thereby raise tax revenues? Why bother to clip coins and debased the specie if you can legislate wealth? Pass a law and create money out of nothing?
The devious ploy failed, it led to crowd trouble and the 'Peasants Revolt of 1381.
The bankers had all the money so the king borrowed from the bankers. In Florence they had a banking system which made money from selling credit to finance profitable projects. English wool was a profitable project. The bankers in Florence thought the king was a safe bet, he had all that beautiful wool. But the war went on for 100 years. The king defaulted, Bardi & Berruzzi went bust ... even the kings couldn't be trusted. Banking was a risky business.
Lending money to sustain bankrupt systems was a fools game. A lesson the Quakers took to heart when they refused to pay the tithes which went to prop up an established church & its corrupt regalia which they believed to be an immoral imposition.
The church was good at extracting money from working folk ... they threatened spiritual tyranny & damnation. The church sold indulgences.
The king was good at extracting money from working folk ... he threatened physical tyranny & violence. The king had the keys to the jails.
The Quakers went to jail for their beliefs. They believed money could not be created out of nothing.
Clearly money was important everybody seemed to want more.
'Money' supercharged the deals in the markets everywhere but often the production of goodies for the markets was restricted; 'those with the promising ideas had no money, and those with money had no promising ideas' and usury was a sin.
The Quakers knew money was all about trust & confidence in exchange, completely meaningless unless underpinned by exchange ethics.
But the powers that be certainly got their knickers in a twist over money.
Credit & Usury Act 1571.
The Quakers knew that Jesus drove the money lenders from the temple, selling money had been a sin since forever. Why get involved in such evil? But was credit money?
Usury was confirmed as a sin by the Bishops in The Act of Usury 1571, but 53 years later in 1624 they changed their minds? Why?
In ‘God and the Money Lenders’, Norman Jones describes how & why attitudes to morality in England changed over a span of just 50 years.
The question of money being lent at 'interest' for a 'guaranteed' return was one of the oldest moral & economic problems in Western Civilization. Towards the end of the 16th century the Dutch dominated international trade, with interest rates at 4% merchants borrowed cheaply to fund their lucrative voyages ... although Sir Francis Drake had done well the Dutch were on a roll trading spices ... English merchants were stymied paying 10% for their funding ... something had to be done?
In 1624 the English Parliament recognised that the rate of interest was all important to the national economic well being. The issue of usury as a sin was abandoned and lending was left to the conscience of the lender. The interest rate would be seen in the whites of the eyes during the hand shake that sealed the deal. Slowly lending at interest with collateral became a beneficial norm ... 'those with the money had no ideas and those with the ideas had no money' and opportunities for synergies were everywhere ... this morality thing was difficult ... had the Bishops really changed their minds? Can morality change?
Credit was now of mutual benefit ... but the Bishops still had plenty to worry about ... predators & parasites were everywhere ... evolved diversity saw to that! ... no wonder 'caveat emptor' and 'due diligence' were watchwords as unexpectedly, or perhaps expectedly, the Bishops, Princes, Generals & bureaucratic majorities also became infested with the evil beasties ...
Stop of the Exchequer 1672.
In 1672, following the long march of history, yet another Government default had been traumatic with reverberations which echoed throughout the city of London and the country ... 'Stop of the Exchequer' had a direct link to the 1688 revolution and the founding of the Bank of England in 1694 ... and Freame & Gould in 1690 were in the middle of this upheaval just at the time they were starting their new business.
On Tuesday 2nd January 1672 repayments of debt were suspended by decree. 'The powers that be' always seemed to succumb in a crisis; they clipped coins, debased specie, printed paper ... or just broke promises? The bankers of Lombard Street had been asked by the king for an 'advance' to finance the fleet ... the bankers refused to make the whimsical loan. A total 82 ships were to be prepared for sail 'in the cause of national defence' to attack the Dutch Republic in the Third Anglo-Dutch War (a religious war or a mercantilist war?). Due to the pressing need for money the king and his council resolved to find the money for the fleet by cutting other parts of the treasury's budget; monies that had been allocated for the repayment of bonds and securities were to be spent on the fleet. The result was great disruption and damage to the financial markets. A letter from Richard Langhorne to Lord Hatton was illuminating, banking without trust & moral sentiments was doomed to failure -
'I believe it certain that the trade of bankers is totally destroyed by this accident, for no man will ever hereafter run the like hazards when he shall consider upon what contingency he puts money into goldsmiths' hands' ...
The long line of history continued as the powers that be, in the name of 'national defence' or 'the British people', always seemed to run out of tax revenues, then resorted to borrowing and finally defaulted.
This default in 1672 must have been a remembered lesson to young John Freame who was desperately trying to serve his customers and set up his business of selling credit to finance some carefully chosen projects of his customers, everything was about trust & confidence ... but if the king couldn't be trusted?
.... the industrial revolution thrived on the mutual advantage of credit ... later banking matured but triumph often turned to tragedy ...
John Freame takes deposits.
In 1690 John Freame started trading as a goldsmith in Lombard Street, London. At this time London was still a tiny fraction of the modern conurbation, still focused almost entirely around The City, with the West End beginning to be developed. But John was in on the ground floor and seized his chance, just as the great expansion started.
At 21 he had completed his rigorous seven year apprenticeship and earned his spurs as a 'freeman' of the city of London. He had a trusted partner Thomas Gould, also a Quaker and freeman of the city. This famed partnership predated the 1694 launch of the Bank of England and lasted in various forms until 1896. John & Thomas married each other's sisters ... as if to cement the network in place.
John was a Quaker from quite ordinary stock, but practiced in trade and money; as dissenters his family were excluded from many other activities. As a teenager Freame had left Gloucester, where persecution of dissidents was rife, to learn his trading & metal working skills in a more tolerant environment in London under the watchful eye of Job Bolton, another Quaker.
The Quakers had a rich tradition in commerce where confidence & trust in dealing was fostered by a close knit 'club' of like minded folk. Life was not easy for innovative folk who were singled out as subversive and persecuted for their beliefs, but out of adversity came strength. John's dad Robert Freame was a textile merchant and John's education was a family priority. Robert insisted John worked hard during his apprenticeship to acquire a trade ... Robert also purchased land in Philadelphia to provide an escape route, should persecution persist ...
One of John's jobs would have been the issuing of receipts for cash deposits which customers were increasingly willing to place with respected goldsmiths for safe keeping. The goldsmith stocks were concentrated value and a persistent target for thieves ... expertise in safes and security became an important part of the apprenticeship. But the issued receipts from successful goldsmiths were beginning to be even more important ... they were being used as money ... a token of a promise to pay ... but who would trust a paper promise?
The tradition of 'freemen' goes back many centuries ... some citizens of towns & cities were granted rights to trade & other 'privileges' which were conceded by royal charters. The close connection between 'freemen' and London's government can be traced back to the Saxon folkmoot and to the 'Great Concourse' of the early Norman kings. As London grew, its trade & craft industries expanded to such an extent that it became impossible for all 'freemen' to be directly involved in the evolving structure of local government. As a result, the relationship between freemen and the government of London changed to a representation system through the Masters & Wardens of the Livery companies. The Worshipful Company of Goldsmiths was one of the twelve great Livery Companies in the City; these were associations of craftsmen developed to promote the trade by apprenticeship. The Freedom of the City of London became an essential requirement for all who wished to carry on business and trade within the Square Mile. As a result, the privileges of Freedom were eagerly sought after, and the duties & obligations were faithfully observed. It remains necessary to this day for all Liverymen to be 'freemen' of the City, and it was the liverymen who elect the Lord Mayor and the Sheriffs of the Corporation of London. Although it is no longer necessary to be a 'freeman' to work in the City, the proud history of the City of London is such that large numbers of men and women have regarded it a privilege to be admitted to the Freedom of the City. In John Freame's day freemen inherited, earned or purchased such independence from the 'powers that be' through their successful deals of mutual benefit; benefits for both freeman & city ... and Quakers with savings were not excluded! Essentially a voluntary club of trusted mates who co-operated for mutual benefit.
The goldsmiths, in particular, resolutely guarded their hard earned reputation and discovered that they were able to set up shop as sellers of credit. In the business of credit, satisfying customers was no mean achievement as Archimedes, Shylock and the Jews of history will attest!
Associations of traders in the city and the Livery Companies, like all trade unions, initially emerged to reward investments in hard work, honesty & thrift and to protect the reputations of craftsmen against the infiltrations of conmen and parasites ... more apprenticeships and improvement of standards were in the interests of everyone ...
But there were problems ... if associations were controlled by government edicts & revenue raising licences, such institutions tended to become rent seeking cartels where restrictive practices, particularly restrictions on entry & innovation, inhibited the proliferation of skills, learning and competition. 'Promotion of trade' became 'restraint on trade'?
Moral hazard was around in the City of London from the early days.
In 1690, his apprenticeship over, John Freame was 'allowed' set about his new business which inevitably required considerable capital reserves as the Quaker Meeting of 1688 recorded -
'none can launch into trading & worldly business beyond what they can manage honourably and with reputation; so that they may keep their words with all men ...'.
George Fox had always insisted all are equal before God and nobody could make unacceptable claims on the people. Capital for young John Freame's new business had to be secured on a proper footing not on a whim. The capital would have come from reliable family & friends. The established Quaker practice was to invest heavily in education and the human capital of the future, not in mercantilist or religious wars ... John was not alone, that's what friends and partnerships were for ... and it seemed 'Freame & Gould' were a much better investment bet than governments ... hard work, honesty & thrift were needed for the selection of profitable projects and banking success ... government success seemed to depend on warfare & decrees and not on profitable projects?
In this way the Lombard Street location acted like a magnet attracting merchants, dealers and nascent bankers, to a club of like minds where regular interaction was intense. This close knit cooperation developed into a 'Gold Boy's Network' for inter bank lending and clearing of debts. What a service for customers!
And what better time to start a business than in the atmosphere of confidence following the Glorious Revolution of 1688 ... John Locke had clarified some inspiring principles of government -
first - no government could be justified by any divine, inherited or absolute right to lord it over others ... how the Quakers would have loved that
second - all men were created free & equal in a state of nature, but there was a moral caveat; free to deal & exchange but not free to harm others ... no man was free to do whatever he pleased ... this was not 'laissez faire'. Customary 'common law' & 'tort law' underpinned by innate morality, was the binding for the social fabric ... and the Quakers knew all about innate morality.
Following this Glorious Revolution emerged the rise of a new civilisation & new properties ... the only legitimate governments were those that had the consent of all the people ... 51% could not lord it over 49% as there existed inalienable rights ... but there was a rub; how to cope with folk who were different and disagreed and had joined another club?
100 years later Thomas Jefferson invented America to protect dissenting beliefs and wrote -
'Bacon, Locke and Newton are the three greatest men that have ever lived, they laid the foundation of those superstructures which have been raised in the Physical & Moral sciences'
... no wonder folk talked about a special relationship ...
Sure there were still wars being fought in 1690 ... in Scotland, Ireland & France ... but some wars could be profitable for bankers ... and everybody now knew spendthrift kings were a thing of the past? ... parliament now ruled over the national purse? ... and these were 'just' wars for the defence of the revolution?
Things were changing - spending on the kings whims was now controlled by Parliament and rent seeking slothful landlords had to compete with new capital accumulations from merchants with the confidence to invest in specialisations, scale & technology ... a social revolution as a middle class emerged intent on mass production ...
At this time, in 1694, the Bank of England was founded to provide £1.2 million at 8% for the wars & grand schemes ... and the Quakers were getting a sizable piece of the cake, maybe 25% of the population around Lombard Street at the time were Quakers ... and 8% was a good return ... ? Was the funding of a 'just war' a profitable project?
The Quakers were in a cleft stick? Was there a difference between a defensive bullet and an offensive bullet?
The Bishops, Princes, Generals & bureaucratic majorities were also in a cleft stick. The costs of pretentious wars & grandiose schemes always exceeded fugitive tax revenues & prohibitive borrowing costs ... and the last resort of coin clipping never seemed to work?
On the other hand the Quakers didn't seem to have any problem in funding profitable projects like The London Lead Company in 1704? What was the secret of their success?
John Freame's Business Ethics & Strategy.
Excluded from 'mainstream' activities, business was satisfying work which put crumbs on the family table. Short term prospects and gain through participation in parliament, the ancient universities, the legal profession, the army or the church was not on ... but Voltaire spotted that there were unintended consequences of such exclusions -
'Quakers were therefore reduced to the necessity of subsisting on trade' ...
The Quaker contribution to business development, the Industrial Revolution & wealth creation was immense.
Business ethics; dissenting equality, honest truth, peaceful co-operation & simple introspection -
EQUALITY before GOD as imposed authority was actively confronted wherever different beliefs
harmed & discriminated against family & friends. Quakers were
non-conformists. This always involved a respect for customary 'common law'
& 'tort law' underpinned by moral sentiments not by arbitrary whims.
New laws emerged as moral sentiments developed ... the abolition of slavery.
Economic behaviour was guided by individual introspection (an ‘inner light'); not by dictates from Bishops, Princes, Generals nor bureaucratic majorities; no one had a clue where the next good idea was coming from.
BUSINESS ETHICS were built on hard work, honesty & thrift. Human & financial capital were invested in education & technological innovation; the mass production of new goods & services for discerning global customers. Competitive success in business and institutional immunity helped to tackle 'moral hazard'. Science, the Enlightenment, commerce and education were all matters of economic behaviour which involved the 'acting out of conscience'.
SYNERGIES of COOPERATION were embraced in the creation of wealth, 2+2=5. The customer value of production exceeded the competitive production costs; wealth was created for the mutual benefit of both buyers & sellers.
TRUST in BANKING solved the business ‘funding’ problem. Quaker John Freame lent money to businessmen, wherever there was mutual trust. Exchange was initially between Friends but success soon spread to all who could be trusted. An expanding circle of morality. But trust had to be earned (hard work, honesty & thrift), it was never created ex nihilo!
A remarkable business 'machine' had emerged, however, this 'machine' was nothing mechanical but rather a complex social co-operative of associates, 'a club'; John Freame didn't grow things or manufacture widgets, he made money from selling money -
'I promise to pay the bearer, my word is my bond' ... a reputation for honesty enabled the bank to attract deposits for safe keeping ... as long as his reputation remained intact the receipts for the deposits began to be used as money for exchange ... it was all about trust & confidence ...
'those with ideas had no money and those with money had no ideas' ... later it became clear that depositors never wanted their money back at the same time and cash on deposit seemed to increase ... there was an opportunity the bank to risk lending deposit money to trusted customers with investment schemes ... and charge them for it ... but he had to be careful, to maintain trust & confidence there always had to be enough gold in the vaults to pay the bearers of the receipts on demand ...
'natural selection of profitable projects' ... lending was always a risky business but experience & expertise reduced the alarming problem of bad debts ... good loans were not about predicting the future or technology foresight rather they involved confining deals to trusted customers with profitable projects ... chasing profits & cutting losses and a diverse portfolio ...
'loans made deposits' ... the bankers found that as credit was spent from one account it immediately ended up in another account ... money circulated, it was spent but it was not lost ...
'deposits made reserves' ... with an income flow from profitable investments the bank now found it could afford to offer inducements to encourage more deposits ... and more deposits made more loans and more reserves ...
'endogenous money supply' ... the bankers then discovered that the money that came back as new deposits could be relent to someone else, each project picking up profit ... the whole shebang & caboodle was growing ... the money supply kept pace with economic growth, avoiding 'too much money chasing too few goods & services' ... there was no inflation ... the Balance Sheet balanced ... in this way interest rates were determined in markets for credit as commercial banks balanced their Balance Sheets or went bust ...
'bills of exchange & mortgages' ... as the money always seemed to move from one account to another the bankers realised that it would be cheap & easy to make payments between buyers & sellers simply by adjusting their deposit accounts instead of the risky business of transporting gold, coins or paper around the place ... all bankers knew the difference between a bill of exchange and a mortgage ... they knew about illiquidity & insolvency ... banking needed very careful management ...
This banking 'club' was sometimes ridiculed as the 3-6-3 system -
3% interest on deposits
6% return on investments
3 pm on the golf course
... sounds simple but it was a complex adaptive system of trust & confidence as promises were exchanged, credit was never created out of thin air!
Margaret Ackrill in 'Barclays: The Business of Banking, 1690-1996' summarised the scene -
'In the 1690s their new bank competed for customers in a London alive with opportunity during a war induced inflationary boom. Its money markets developed more rapidly than those in the provinces, and in this large urban market, Freame & Gould, had to build a reputation. Quaker businessmen were prominent in city trade at the time, and Freame & Gould would have had special confidence in their co-religionists with whom they were united by spiritual fervour and by shared experience of religious persecution. Equally other Quakers had a confidence in them, a distinct competitive advantage'.
The four part ‘Quaker strategy’ was immensely successful and contrasted hugely with the funding endeavours of the elitist Bishops, Princes, Generals & bureaucratic majorities. The funding of their pretentious wars and the grandiose schemes depended on the imposition of fugitive & burdensome tax revenues, prohibitive borrowing costs, the nationalisation of money, the myth of seigniorage and the misunderstanding of bank balance sheets ... and the last resort of coin clipping.
It was 1759-76 before Adam Smith described a generalised system of money in exchange. The description of business ethics & strategy as an economic system was based on what he called 'moral sentiments'. Adam Smith was not a Quaker, but he was a moral philosopher, and continued to revise and improve his 'Theory of Moral Sentiments' up until his death. Universal moral sentiments underpinned the money which helped the exchange deals. Money possessed miraculous properties as a unit of account (it measured things), a store of wealth (it could be used tomorrow) & a medium of exchange (it was generally acceptable). A system John Freame had developed years previously from 1690.
Perhaps, in more detail, after more lessons had been learned, John Freame's banking system was later described by Walter Bagehot in 'Lombard Street' in 1873.
It was clear to Walter Bagehot how the introduction of moral hazard undermined the business strategy of John Freame. Bagehot described the evolution of a generally accepted system of human behaviour based on Adam Smith's moral sentiments and encompassing customary common law, rights & obligations. A system which generated wealth in businesses as synergies emerged as cost effective alternatives to violence & theft. And with it co-evolved a competitive money & central banking system with audited Balance Sheets and the principles of caveat emptor & due diligence. As Walter Bagehot wrote -
'free banking, the natural system, would have sprung up if Government had let banking alone'
It would have been quite impossible for Bagehot's system to create money out of nothing.
Only the powers that be who printed the king's head on their paper could be arrogant enough to try to create money out of nothing ... and the evidence of history tells us that they always failed.
Did the political shenanigans lead to less production as each element of the Quaker strategy was successively undermined?
Certainly the powers that be had no understanding of some modern evolutionary economic theories -
moral sentiments, moral hazard, public choice, excess tax burdens, total factor productivity, comparative advantage, evolutionary stable strategies ...
An expanding circle of moral sentiments.
At the time John Freame's partnership prospered and was further cemented when John married Priscilla, Gould's sister in 1698, and Thomas married John's sister Hannah. A spate of issue followed, seven babies for Priscilla and ten for Hannah! As usual, despite the appearances of macho men, it was the girls who took the decisions. 54 Lombard Street although a substantial brick building replacing the ashes that followed the 1666 fire, was now too unhealthy for bringing up children and both families escaped to adjacent country houses in Bush Hill.
But above all John Freame's success was as an entrepreneur and a major investment was in the London lead company at Gadlys in support of fellow Quaker, Edward Wright. This investment was an outstanding success and transformed the lead smelting industry in 1704, where scale and innovative technology were required if profits were to be earned.
Confidence & trust in the Freame & Gould operation was confirmed by the discounting of the London Lead Company's bills which were circulating as currency around North Wales at the time.
John Freame was also active outside of his business; he supported the Quaker cause as clerk at the 'Meeting for Sufferings' and in his writings which attempted to make folk 'sensible of the ill consequences of vice & immorality'.
In 1713 John Freame published a book, originally prepared for the education & enlightenment of his own children ... 'Scripture Instruction: Digested into Several Sections by Way of Questions & Answers in Order to Promote Piety & Virtue, and Discourage Vice & Immorality, with a Preface Relating to Education' ... from this it is possible to confirm that Freame's attitude to business was typical of the Quaker tradition ... hard work, honesty & thrift ... and education, education, education for the youngsters ...
John was particularly concerned with education and teaching his own children, just listen to the message in the Preface of this remarkable book -
'Although I write for my own children & family, some friends believe, if
published, this would benefit others. Most experts differ in their
controversial debates about education which are beyond the
understanding of children. But children are quickly capable of
distinguishing between right & wrong and these notions should be reinforced
with by teaching how the world works and why good will always be rewarded
and evil always punished. Not empty notions, mere speculation or disputable
points but simple back to basics. Don't take my word for it, children should
read the ancient scriptures and see that all questions can be answered by
interpreting for themselves what is good and what is evil. It is not rocket
The future is our children and we have a duty to educate them, which is far more important than giving them riches. Success will only come when parental guidance reinforces the innate difference between good and evil by example. Children have sharp eyes & ears and they imitate, above all Mum & Dad should not disagree, and endeavour to choose peers and friends with shared values. Censorship for youngsters is sensible. From the earliest of years draw reasonable lines in the sand and insist on consistency. Tough love must not involve cherishing faults nor satisfying every desire. At the table children are not served what they crave but learn to take contentedly whatever is offered. Children humoured in the cradle and indulged as they grow up will thereafter always insist on getting their own way. Always note temper and fault but always demonstrate approval of what is good. Demonstrate love and children will become fearful of offending, this is much more effective than fear of the stick. Nevertheless gross error, obstinacy, disobedience or lies, must be corrected but without anger and with explanation of the evil. Avoid chiding for every little offence, making it cheap and familiar, lessening authority and respect. Rational argument should convince by reason.
School is not a house of correction but a place of delight and recreation, reinforcing parental values.
Indulging children in their humours is comforting for parents but it lays the foundations of greater evils later ... idleness, dishonesty and extravagance. The work ethic ensures the enterprising generate an ongoing income stream ... the rich soon squander capital ... 'as soon as they have gotten their portions of riches into their own hands, they live so much in pride, idleness & extravagance that they quickly run out of all their estates and reduced themselves to poverty and so much in debt. But those that had been diligent and industrious in their business, live well by their trades and been a comfort to themselves and their relations, not through some desperate project they neither understood nor were capable to manage and which brought ruin on themselves and their families and others but by the industrious business they were bred to ... '
John Freame's philosophy of education struggled to survive when it confronted alternative teaching tactics -
|Imitation of successful behaviour of parents, peers & mentors||Instruction via a set curricula|
|Ethics of hard work, honesty & thrift||Regulation of idleness, theft & extravagant schemes|
|Institutional immunity from torts & treachery||Legislative control of criminal behaviour|
|Acquisition of valuable specialised skills & global scale||Protection from the poverty of unskilled labour|
In 1728, the Freame & Gould bank moved to 54 Lombard Street, and was identified by the 'Sign of the Black Spread Eagle' ... over the years this has become a core part of the bank's identity.
Interestingly in 1729 as John's son Joseph took a more active role in the bank, John himself became a Director of the London Lead Company and a large shareholder. He was responsible for orchestrating the exposure of skulduggery within the company following the South Sea Bubble of 1720 ... skullduggery which had been hidden by Edward Wright and a group of fraudulent Quakers. The resuscitated company re-established its reputation and profits. John Freame had an eye for honest business.
But things were always very difficult ... The South Sea Bubble and the later failure of Gurney were immediately condemned as fraudulent ... but ... Isaac Newton, eminent scientist and Master of the Royal Mint was an enthusiastic investor in South Sea Company, was reflective -
'I can calculate the movement of the stars but not the madness of men'
With hindsight ... yes a fraud! ... but at the time a simple error in the heuristic trial & error process of learning to be better? ... see Paolo di Martino ... was the knee jerk hysteria of the blame game a trap diverting effort from betterment? ... think about Antoine Lavoisier in Paris and 'The Terror' of 1793 & Charles MacKay's 'Extraordinary Popular Delusions and the Madness of Crowds' from 1841 ... what seems obvious with hindsight was a learning process.
Thomas Gould senior died in 1730 and the company continued as Joseph Freame & Co. Thomas' son Thomas junior started a separate banking business which went bankrupt in 1732. Quakers were harsh on bankrupts, seeing inability to pay as a betrayal of trust ... very embarrassing as it destroyed all important reputations.
The name 'Barclays' became associated with the Joseph Freame business in 1733, when James Barclay, John Freame's son-in-law, became a partner. Like many Quaker business men the Barclays followed a strategy of extensive networks of trusted connections and the occasional judicious marriage. They made their original fortune from linen drapery ...
The dynasty of Quaker bankers sired by Robert Freame, merchant of Cirencester and Robert Barclay, the Apologist of Urie, was reinforced by remarkable interbreeding and several alliances with other banking families. Banking was built on trust and who do you trust if not the family especially if they were all Quakers ... the Bevans were Welsh Quakers, Swansea merchants; the Trittons were Yeomans from Kent; the Gurneys, originally in linen & wool, were in Norwich; Jonathan Backhouse, linen & worsted in Darlington; ... on it went remarkable extended networks of trust & reputation creating a distinct Quaker competitive advantage ... Margaret Ackrill suggested that Quaker wealth from hard work, honesty & thrift plausibly combined with individual self discipline and Religious sanction to produce the capital accumulations necessary for the scale of the industrial revolution ... but there were many other entrepreneurial streams ... however one generalisation was clear, the Quakers contributed quite disproportionally to 18th century entrepreneurial propensity and business success ... perhaps a result of social exclusion ... (akin to the Jews, Huguenots & Asian trading minorities?) ... or perhaps a result of the stigma of bankruptcy as an immoral broken promise, rather than any direct effect of religious belief ...
England first accumulated 'new' capital out of international trade which followed the voyages of discovery and typically the industrial revolution in Cheshire was financed by the merchants of Liverpool.
Freame, Barclay and the new capitalists organised hitherto unimaginable amounts of capital. Gathering in capital first from trusted friends for investment in fixed plant & equipment for risky ventures, but that was only the first problem to be solved. Such capital was locked up but the entrepreneur also required working capital for wages, materials, transport, energy and the inevitable tax long before a return was secured from customers. The demand for investment funds and credit was immense ...
Middle class entrepreneurs now had access to capital and credit which previously had been monopolised by the landowners.
John Freame died in 1745 but what a band wagon had started to roll ... John Freame built up an investment and credit business which powered the industrial revolution, wealth creation & endogenous economic growth. Deals between those with ideas but no capital and those with capital but no ideas. An extensive network of trust based on legal rights & obligations enabling the exploitation of the 3-6-3 rule. Borrow at 3%, lend at 6% and be on the golf course by 3pm!
But Margaret Ackrill hit the nail on the head -
'the fundamental impetus to develop as financial intermediaries, especially strong for Quakers, was that their reputation for probity & trustworthiness meant that they could borrow more cheaply than they could lend' ...
Many Quaker business homilies also helped to explain their success -
management of excessive risk - 'some perceiving their trades were not sufficient to answer their expenses, have run upon desperate projects' ...
accumulation over time and the magic of compound interest - 'business with a little profit and entire regularity is happiness to the true merchant' ...
balanced Balance Sheets - 'we feel it desirable & important in principle that the amount of Bills drawn should be covered by a similar amount of Bills in hand unless the deficiency were made up by a deposit of Exchequer Bills, if however you should want an occasional advance as far as £15,000 we should be happy to meet your wishes' ...
banking rule, a bill of exchange or a mortgage - 'the cousinhood rule had always been that measured relief might come to banks that were illiquid, but never - except in post bankruptcy charity - to the insolvent' ...
Successful in trade generally these early banks started to specialise in taking deposits, arranging loans, discounting bills and clearing debts ... there were only 24 banks in London in 1725 ... this profitable business specialisation was possible only after trust & confidence had been painfully established over time ... initially within a network Friends and then extended, with care, to other reliable socially inclusive counterparties ... quality of the client base was fundamental, 'would you but a second hand car from this man'? ... risk was reduced by diversified portfolios ... and quality improved with a keen ear for gossip in the local coffee houses and broadsheets ... all these activities were undertaken by general merchants, but specialisation & scale enabled the new banks to offer a better service ... crucially the marginal productivity of capital increased and the supply of money was matched by the flow of goods and services!
In this way English capital eventually deserted agriculture and was invested in the industrial revolution.
Capital also eventually deserted North Wales as mines became exhausted & water logged, and steam engines replaced waterpower. Capital went into innovation ... new ventures which the old landlords had missed, some didn't bother to search ... why should they ... they were rich? ... others did invest in their pet projects but the effect of the new capital was to open up a plethora of new opportunities as everyone and anyone with a good idea could have a go and try to attract some capital. Those with the ideas didn't have the capital and those with the capital didn't have the ideas, John Freame and the bankers solved the problem ... they were 'coining their credit' ... perhaps the rise of the 'dissenters' and the repeal of the Corn Laws were the final nails in the coffin of feudalism?
Of course there were failures, a bill broking business of the Gurneys nearly finished off the whole cousinhood on 'Black Friday' in 1867 ... but failure was the only way that evolution could work, as innovations proliferated the unsuccessful were weeded out ... how else could the successful thrive? ... think about it ...
In 1858 limited liability was extended to joint stock banks and new competition was around. Eventually by 1896 the businesses scale was just too big for partnerships to support and Barclay & Co was incorporated ... to strengthen links and expand resources ... some were reluctant to lose their independence and the pride of their own note issues ... however in 1896 Barclay & Co, a limited company based on the prestigious Lombard Street address, was formed from an array of successful firms -
Barclay, Bevan, Tritton, Ransom, Bouverie & Co, Lombard Street, 1888-1896
Barclay, Bevan, Tritton & Co,1690-1888
Spooner, Attwood & Co, Lombard Street, 1801-1863
Ransom, Bouverie & Co, Pall Mall, 1786-1888
Lockhart & Co, 1787-1798
Bouverie, Murdoch, Bouverie & James, Haymarket, 1813-1856
Hall, Bevan, West & Bevans [Brighton Union Bank], 1805-1894
Wigney & Co, [Brighthelmstone Bank], 1787-1842
Backhouse, Jonathan & Co, Darlington, 1774-1896
Gurneys & Co, Norwich, 1775-1896
Tompson, Barclay & Ives, Norwich, 1792-1832
Copeman & Co, Aylsham, 1809-1855
Harvey & Hudson & Co, [Crown Bank], 1792-1870
Allday & Kerrison, 1768-1808
Taylor & Dyson, [Norfolk & Suffolk Bank], 1802-51
Ipswich Bank, Alexanders, 1744-1878, & Gurneys to 1896
Wallis Miles, Ipswich ?-1776
Bridges & Co, Manningtree, 1790-1816?
Riches & Collet, [Woodbridge Bank], 1797-1805, Alexanders & Collet 1805-1826
Cooper & Co, [Woodbridge & Suffolk Bank], 1797-1805
Huddlestone & Co, Bury St Edmunds, 1776–1880
Round, Green, Hoare & Co, Colchester, 1774-1891, & Gurneys to 1896
Mills, Bawtree & Co, Colchester & Essex, 1774?-1891
Gurneys, Birkbeck, Barclay & Buxton, Wisbech, 1782 - 1896
Gurneys, Birkbeck, Barclay, Buxton & Orde, Yarmouth, 1781-1896
Gurneys, Birkbeck, Barclay, Buxton & Cresswell, Kings Lynn, 1782-1896
Everards & Co, Kings Lynn, 1764-1861
Jarvis & Jarvis, Kings Lynn, 1808-1888
Gurney, Birkbeck, Barclay, Buxton & Orde, Halesworth, 1782-1896
Gurney, Birkbeck, Barclay & Buxton, Fakenham, 1792-1896
Goslings & Sharpe, Fleet Street, 1650-1896
Sparrow, Tufnell & Co, Chelmsford & Braintree, 1803-1896
Giles James, Rochford, 1828-1853
Bassett Son & Harris, Leighton Buzzard, 1812-1896
Sharples, Tuke, Lucas & Seebhom, Hitchin 1820-1896
Gibson, Tuke & Gibson, Saffron Walden 1824-1896
Searle, Sons & Co, Saffron Walden, 1797-1826
Fordham, Gibson & Co, Royston, 1808-1896
J Mortlock & Sons, Cambridge, 1780-1896
Veasey, Desborough & Co, Huntingdon, 1804-1896
Molineux, Whitfeld & Co, Lewes, 1789-1896
Woodall, Hebden & Co, Scarborough, 1788-1896
What an astonishing amalgamation ... apart from Goslings, all had a Quaker background and although most had quietly abandoned their roots by this time there remained an enduring value in traditional Quakerism ... an intensive, interconnected network of alliances & support ... a financial revolution to match the industrial revolution ... scale, diversity, spread and growth ... confirming the essential co-evolution of industry & finance ... of technology & capital ... all underpinned by strong moral sentiments.
The personal bonds of confidence & trust were explicitly emphasised and protected in the merger announcement -
'the local management will remain in the same hands as heretofore, the private character of the Banks being thus preserved' ...
Barclaycard, the first credit card in the UK, was launched in 1966 and in 1967 Barclays unveiled the world's first ATM cash machine at Enfield, north London.
Notably Barclays survived the 2008 crisis with recourse to Government bailout and picked up the Lehman Brothers investment bank for peanuts. But Barclays never profited from the demise of RBS, and others who overreached themselves, because the failures were rescued. Worse than that instead of being part of the solution they became mired in a general perception of unethical practice and agonising moral hazard.
The Quaker network ranged far and wide and there was an impressive list of individual independent spirited Quakers who made their contributions to the industrial revolution.
John Freame's Legacy; Financial Services. Sources of capital.
Technology, the application of science to production, fired the industrial revolution. However, from the very early days of the London lead company in 1704, the capacity and skill to raise investment capital was vital for large scale manufacture. And what was the use of productivity improvements from specialisation without economies of scale?
During the industrial revolution it was clear that technology was far more easily transferred to competitors than the ability to raise capital. In Flintshire and the North West innovative technology was blossoming but it was in London where most of the investment capital was raised. Patents protected technology innovations for a while but capital accumulations were rare and difficult to copy ... why?
Interestingly it was London's 'comparative advantage' in financial services which moved much of the English economy from manufacturing to financial services during the 20th century. This evolutionary change was exactly the same process which moved the economy from agriculture to manufacturing during the 19th century.
The history of the change & decline in the fortunes of Crewood Hall farm in Cheshire provided an interesting case study as did the somewhat later traumas of Edward Budd at Hafod on the Swansea coalfields.
But what was this evolutionary change all about? What were financial services?
John Freame cottoned on to the business of selling credit and founded Barclays Bank and The London Lead Company. And Adam Smith explained all in 1759 & 76 -
'The division of labour was limited by the size of the market'
and in the 'pin factory' the synergies of specialisation & scale were secured by mass production, mass distribution & mass marketing. Productivity per man rocketed ... projects were profitable.
The underpinning insights of Adam Smith's wealth creation from the synergies of specialisation & scale, and his universal moral sentiments together with David Ricardo's comparative advantage have all too often remained shrouded in mystery and strangely misunderstood in curricula and discussion ... in 1996 Paul Krugman made a valiant attempt to explain why these concepts, including evolutionary change were 'difficult ideas' ...
The industrial revolution required finance not only for working capital to fill the impossible gap between procurement & sales but also investment capital for the necessary systems of buildings, plant & equipment, distribution channels, communication in the markets ... and all manner of human capital ... particularly the organisational skills needed to coordinate the non-market hierarchies of the firm, where entrepreneurs confronted the difficult principle / agent problem.
Then there was a second, and often overlooked, 'impossible gap' which had to be financed, the gap between the creative ideas of invention and the product innovation - the thinking, experimenting, testing, improvement, debugging and redesign.
No wonder the entrepreneurs struggled to attract capital for their risky projects; as Peter Mathias succinctly noted -
'Most technical change took place in a commercial context where profitability was a condition of existence. Advance therefore became analogous to a process of 'commercial Darwinism' as well as 'technological Darwinism'.
Was there a shortage of capital or was there a shortage of profitable projects? Or were they both the same thing?
Certainly it seemed that -
' those with the ideas didn't have the money and those with the money didn't have the ideas'.
Technology and commerce were inextricably intertwined as Peter Mathias pointed out -
'Expensive machinery and large plant increased fixed costs which were incurred whether goods were produced or not. Industrialists with expensive machinery therefore had rising incentives to keep their plant running at as near full capacity as they could. The increased output from the machines increased the flow of goods; but so also did this new commercial incentive. Both led to the need to extend the market, and to cut prices to sell more'.
The industrial revolution was all about mass production in factories ... productive output did not involve luxuries for the elites but goodies for the masses ...
This was an intensely cooperative effort with universal benefits from the start with ... and the banks didn't get into top gear until 1750.
The early Quaker contributions to the provision of capital to finance the industrial revolution was typical in the flintshire situation where capital came in from outside the poverty stricken local population. The Quaker cabal were also involved in Bristol brass and Coalbrookdale iron.
Things were quite different with the earlier financing of wool in yorkshire where the wherewithal came from indigenous landowners, artisans and merchants who had accumulated capital from the ancient wool trade.
Foster described how capital was accumulated in North Cheshire.
This was different again from the partnerships of technology and finance which were necessary for the launch of Brunner Mond at Winnington in 1873.
PS 2008 Crisis -
The strong Quaker presence in banking stemmed from their exclusion from professions such as the law and, because of their pacifism, the army. They derived a competitive edge from their reputation for integrity and mutual trust. These sober values of the Barclays, Bevans, Gurneys, Tukes, Trittons, Thomsons and other Quaker families that helped turn Barclays into a great national institution over 300 years.
No longer outsiders and in a 'club' which worked surprisingly well despite its flaws as disillusioned meritocrats departed.
Then with the Big Bang, Barclays Merchant Bank, bought two of London’s best known securities houses, Wedd Durlacher Mordaunt and de Zoete & Bevan and BZW started ... and Lehman Brothers made Barclays big on Wall Street.
But Commercial banking & Investment banking were different cultures.
During a momentous fortnight the US and UK authorities fined the bank £290m for manipulating - 'tax avoidance', 'misselling insurance' and 'LIBOR rigging' ...
Was 'ring fencing' the solution to the problem of 'subsidised bailout' and 'cross funding'?
Gurney, 'A little business with a little profit and an entire regularity, is happiness sterling to the true merchant; while a large business, expecting large profits, but in confusion and disorder, may be flattering but creates much anxiety and little comfort.'
BUT too much blame was put on bankers. Yes, they were overpaid and took excessive risks, but they were dealing in a monetarily dysfunctional world. Global imbalances and monetary policy, whereby central banks put a safety net under falling markets but no cap when prices rose, created a global property bubble.
'The Industrial Revolution in North Wales' by A H Dodd, 1933.
‘The First Industrial Nation, an economic history of Britain 1700-1914’ by Peter Mathias, 1969.
'The Genesis of Industrial Capital' by Pat Hudson, 1986.
‘God and the Money Lenders’ by Norman Jones, 1989.
‘Scale & Scope, the Dynamics of Industrial Capitalism’ by Alfred D Chandler, 1990.
'Barclays: the business of banking, 1690-1996' by Margaret Ackrill & Leslie Hannah, 2008.
'The Fabric of Society and how it creates wealth - wealth distribution & wealth creation in Europe 1000—1800' by Charles F Foster & Eric L Jones, 2013.
'Quakernomics: an ethical capitalism' by Mike King, 2014.
'The Bank that Lived a Little: Barclays in the Age of the Very Free Market' by Philip Augar
Any corrections and additional information gratefully received contact john p birchall