Britain’s North American colonies in the 1600s found money a volatile topic. In a financial crisis, a currency shortage would freeze commerce. So Massachusetts routinely issued currency. But its exchange rate with gold fluctuated wildly. The result: inflation.
Merchants, who sold on credit to their customers, hated it when the government issued fresh batches of currency. Then someone who bought goods could pay for them later in devalued currency worth less than it was at the time of the sale.
Many in Massachusetts clamored for a private bank to begin issuing currency. They not only saw it as a way to stop inflation, but also to profit from lending.
Thus, the idea of a bank was proposed. Investors would put up money or land or other valuables for a share in the bank. The bank would issue its currency based on the deposits, then lend it and demand repayment on the set value it established.
The opportunity for profit drew together a group of investors and supporters, including Joseph Dudley, then a powerful judge and president of the Council of New England. They put together a plan by which they would divide profits from the bank into 112 shares. One hundred shares would go to the investors and administrators who ran the bank. Twelve shares would be set aside for “friends” of the bank who put up no money or land, but would still receive profits.
Dudley was cagey about who these friends were, writing in a letter to one supporter: “Further speech about the matter I judge not convenient until we get further advanced and have received your direction to attend to a very good and large dividend of profit.”
Historians surmise Dudley intended the money to go to Royal Governor Sir Edmund Andros, much despised by colonists for his efforts to raise taxes and begin charging rent for land. Andros’ whole scheme collapsed by 1688, and the colonists sent Andros back to England after William of Orange overthrew King James II.
But the idea of a bank did not die. In 1714, a group of investors emerged again to try to revive the more-than-30-year-old idea. By this time, Dudley had risen to the rank of governor of the Massachusetts Bay Colony.
Now, however, Dudley was on the other side of the push to establish a private bank. By the 1700s, the cost of ongoing war with the Native Americans was straining Massachusetts’ budget. The state issued currency to pay bills, watering down the value of existing money. Again, this currency depreciation worked to the advantage of borrowers who could repay their debts with devalued bills.
The Private Bank Returns
Property holders, however, taxed to support the government’s issuance of bills of credit, wanted change. This group of investors lobbied the Massachusetts General Court to consider a private bank once again. Heated debates arose over the merits of a private bank in pamphlets, newspapers and town meetings. Families and towns split over the question.
With Dudley now opposed, the General Court issued £50,000 more bills of credit and forbade anyone from starting a private bank without the monarchy’s permission.
By 1714 Dudley’s long career was drawing to a close. His commission expired after the death of Queen Anne that year. He first won reappointment as governor from King George I, but had it stripped away when his political enemies lobbied England to replace him.
Jeremiah Dummer, the colony’s agent in England, led the crusade to persuade King George to reappoint Dudley. But he failed, and the bank’s backers succeeded in getting a rather unsavory character named as governor: Elizeus Burges.
Burges had a history as a drunkard, womanizer and probably a murderer. But the bank advocates suspected they could bring him around to their side.
Dummer and Jonathan Belcher finally paid Burges £1,000 to give up the governorship, keeping the government in the hands of an anti-bank governor. Dummer and Belcher had a frayed relationship, but they agreed Burges was not fit to govern Massachusetts, and so they bribed him to decline the job.
For the private bank backers, the setback was painful. However, the idea of a private land bank, backed by land or other securities, would not go away. In 1740 a group of investors briefly launched such a bank, which operated until Parliament specifically outlawed it.
Thanks to: Currency and banking in the province of the Massachusetts-Bay by Andrew McFarland Davis and The Public Life of Joseph Dudley: A Study of the Colonial Policy of the Stuarts in New England, 1660-1715 by Everett Kimball. This story updated in 2022.