lack legitimate employment. Dealings in Bills of Exchange without the intervention of a broker were exceptional.1 The English agents invariably include brokerage in their statements, whether they are borrowing money on interest ("taking it up on interest" is their usual phrase), selling Bills of Exchange ("taking up money by exchange "), buying Bills of Exchange ("delivering money by exchange "), effecting insurances, or buying stores. The rate varied from 4s. 2d. per cent. (d. in the £) to 20 shillings per cent.

2

Procedure was straightforward. The merchant needing money offered through his broker a bill on his (the borrower's) factor in, say, London. It was bought through another broker by someone needing money in London, who at once sent it over to his own factor there, who presented it for acceptance. Presumably the agent on whom it was drawn had a standing arrangement for such accommodation, unless the bill was actually drawn against goods. He would therefore accept the bill and prepare to meet it at the stated time. For this there had grown up certain usances which varied with the distance the bill had to be sent, or according to local custom. Between London and Antwerp, usance was one month. Between London and Seville it was two. Bills were commonly drawn at sight, so many days after sight, usance, half usance, or double usance. They were sent in duplicate or triplicate (sometimes quadruplicate or more) by different posts for greater certainty of delivery.

The form was:

At usance pay by this my first Bill of Exchange, my second not being paid, unto George Wolfe or the lawful bringer hereof the sum of £100 sterling in money current, for merchandise and for the value thereof received here, and put it to mine account, and make sure payment at the day. The bill would appear to have had no further history until it matured. If its holder were short of cash he would supply

1 Exceptional enough to receive special mention in the Italian merchants' petition quoted below.

2 The majority of the bills surviving in the papers on which this is based are purely financial bills and have no relation to trade. The English Government paid its foreign agents by authorising them to draw upon its financial agent in Antwerp (or by ordering him to send bills on local merchants to them), and Sir Thomas Gresham often obliged travelling nobles with the loan of his credit in the same way. The example given below comes from a letter sent by Richard Clough, Gresham's Antwerp factor, to Thomas Cecil's tutor, explaining how to draw a bill. Clough runs more to words than did most merchants. (State Papers Foreign, 1563, 23.)

himself in Lombard Street, by selling a new bill on his own foreign agent. At maturity the drawee would meet it (or have it “protested" and be therefore ruined), either out of a balance to its drawer's credit in his books, or by selling a bill on the latter, and so returning the indebtedness to its source. This last was the process of "rechange."

'And so," proceeds a memorial presented to a Royal Commission in 1576, "in the time of a usance of Antwerp, a usance of Venice or a Fair of Lyons, the matter might be compassed with little loss, and they (the petitioners' principals in Italy) might help themselves with their money of their wares long before it were due."1 The same petition also explains how in the case of "outward commissions" the factors who were instructed to buy, received the money entirely by exchange, either by means of a bill sent them from abroad, or by their own bill drawn on their principals; further, the exchange enabled a merchant to keep all his capital employed, and yet pay his debts promptly by taking up money for Antwerp or wherever he had goods for sale; any interference with the cost, or the liberty of exchanging, would compel him to contract his operations in order to keep a reserve of money by him.

It was only to be expected that attempts would be made to subject the exchange to control. The means employed were, in the absence of clear ideas on economic theory, necessarily arbitrary and generally bad in their effect. They were, in fact, historically, the regulations of the money-changing business applied to Foreign Exchange, and were inseparably connected with the Mint regulations. For a long time the offices of Keeper of the Royal Exchanges and Master of the Mint were combined in the hands of one person.

The purpose of the control of money-changing was to prevent the export of English coin, in order to maintain its standard. The method was to establish fixed exchanges which all travellers were required to use, and where money was changed or gold and silver bought at rates fixed by the Government. Thus depreciation of the English coin was believed to be prevented, and at the same time precautions could be taken against breaches of the law against carrying oversea more than a limited sum of money. The almost continuous series of proclamations against unauthorised exchanges shows, however, the failure of the policy, or suggests that Bills of Exchange were regarded as a means of

1 Remonstrance of the Italian Merchants in London against the Imposition and Order set upon the Exchange: printed by Schanz, II. 642.

evading the law, and of passing coin to and fro invisibly. The suggestion that Foreign Exchange and money-changing were regarded as one problem becomes certainty in 1508, when the Keeper of the Exchanges was styled "Custos Cambii, Escambii, et Recambii," and more clearly in 1509 when that official, under the title "Keeper of the Exchange between England and Foreign Parts," was directed to take all the money which travellers or merchants required to send abroad, giving in exchange Bills of Exchange on the centres they named.1 Henceforward, Exchange clearly meant Foreign Exchange proper, but at first there was no alteration in the official method of control, which still relied on monopoly or prohibition, and regarded Foreign Exchange as a means of exporting gold and silver. There were strong influences at work, however, to secure freedom of exchange. In 1538 Sir Richard Gresham protested that " For lack of exchanges I do suppose there will be some conveyance of gold. I am sure that these exchanges and rechanges do much to the stay of the said gold in England." 2 Imperceptibly, such views worked a change in the balance of opinion, until in Elizabeth's reign little more was attempted than the maintenance of a favourable Rate of Exchange. The official method of doing this still tended to be by Proclamation, and numerous Projectors" came forward from time to time, each with a cut-and-dried scheme for his own appointment as "Chief Broker for Strangers or similar post, in which capacity he guaranteed to prevent negotiation of Bills of Exchange at rates less than the True Value of English coin in foreign money. The agitation produced in 1575 a Royal Commission, and the appointment of Lord Burghley as Keeper of the Exchanges for twenty-three years. The chief interest of the episode attaches to two Memorials presented to the Commission by Italian and English merchants of London. The former has already been drawn upon for details of exchange practice. It concludes with remarks on the Rate of Exchange, to the effect that this is fixed on the market by the plenty of Deliverers and Takers (i.e. by Supply and Demand), and that if sometimes they accept a rate which represents less than the true value 5 of the

3

66

1 Macpherson, Annals of Commerce, II. 31, 35.

2 Cott. MSS. Otho E 10, 45.

3 State Papers Domestic (addenda) Eliz. IX. 47; XXIV. 45. Domestic, Eliz. CVI. 6.

Both printed by Schanz, loc. cit.

State Papers

This phrase means Metallic Par, and is characteristic of the general attitude of the time towards exchange. It compares with the parallel conception of Just Price.

1

English coin they are very sorry and would gladly it were otherwise; a truism which was not regarded as such by the ultrapatriotic English at the time. The English remonstrance is shorter and dwells on the legal aspect. It points out that the wording of the ancient statutes which were cited as authority for the revived control policy proves that they referred only to the public exchangers ancient, called Lombards," who keep open shop to exchange gold for white money or strange coin for native. The proof is that the statutes lay down the true value of the foreign coin in English money, which consideration has nothing to do with exchange as we do use it." These men were not far from the light, but it was to be some time yet before their conception became as articulate as the older one which they here deny without being able to support their own with logical force. Their champion appeared in the reign of James I, when Edward Misselden published his "Free Trade" and "Circle of Commerce," against which the dying theory raged in the shape of Gerard de Malynes' vituperative publications.

Meanwhile the Government had already turned away from the theorists, and for over twenty years followed the advice of a practical merchant in its exchange policy. This was Sir Thomas Gresham, who discredited all idea of direct interference with the exchange, and appears to be the first to rely on the manipulation of the market for the purpose of keeping up the rate. His opportunity arose from his employment as agent to the English Crown in Antwerp, where for over twenty years he had charge of the whole of the financial interests of his sovereign, both in the matter of the borrowing, prolonging and repayment of loans, and in the spending of the proceeds upon munitions of war, secret service and other business.

It must be understood that the service of these loans involved much greater operations in exchange than that of their modern prototype, because of their essentially temporary character. There was no investing public. The money was lent entirely by the big financiers, who treated the loans as speculations, and expected to turn their capital over at least as often as in business, while if at any time commerce offered better openings, they expected to transfer their money without difficulty. Thus the longest-dated loan raised for the English Crown on the Antwerp market was for twelve months, and the majority were for six. Every six months, therefore, the Crown agents came on the exchange (except in the rare cases when they carried out the operation in bullion) for enormous transfers of credit between

England and Antwerp. Every effort was made to minimise this by paying off loans with newly borrowed money, or by prolonging loans, but with all allowances the exchange had to carry many times the business that would have been involved by payments of interest only.

Sir Thomas was a merchant with considerable opportunities for gaining experience in foreign trade. The view of his father, Sir Richard Gresham, upon Foreign Exchange has been noticed above, and there can be no doubt that he gave his son the advantage of a long start on the road to clear apprehension of commercial problems, since we learn that he regarded it as essential that Thomas should serve an eight years' apprenticeship in the service of his uncle, Sir John Gresham, though his freedom of the Merchant Adventurers was not dependent upon it, he being free "by his father's copy."

Like the Italian merchants already quoted, Sir Thomas appreciated the fact that the Rate of Exchange was governed by the amount and character of the business done. His aim was therefore to control this business to bring it about that in Antwerp there should always be a shortage of bills on London for sale, while in London there would be more bills than money. He would do this by purely financial operations, independent of the state of trade, and he did not understand that if he succeeded in raising the rate, it would operate upon trade in such a way as to counteract his efforts. Not that he failed to realise that it would cheapen foreign wares, but he seems not to have admitted the consequent stimulus to imports and depreciation of the exchange. His letters on this subject, therefore, are a curious mixture of sound practical knowledge and unsound or half-correct theory.

In brief, his aim was to take full advantage of the effect upon the exchange of his borrowings in Antwerp while minimising by various devices the contrary effect of the repayments. In fact by means of one of his devices he believed he could make even payments from London to Antwerp serve the purpose of raising the exchange. His first precaution was to use the exchange with discretion; to pick his times for remitting money, and to do it cautiously a little at a time (" by little and little as the exchange goeth"), so that his own operations never sent the exchange appreciably against him. He preferred his operations on the open exchange to pass unnoticed when he was remitting to Antwerp. In the other case, although he never courted publicity, he minded it much less, because its effect on the rate was what he desired.