‘Country Rag Merchants’ and English Local Currencies in the Late Eighteenth and Early Nineteenth Century

Date01 December 2015
AuthorIain Frame
Publication Date01 December 2015
ISSN: 0263-323X, pp. 588±610
`Country Rag Merchants' and English Local Currencies in
the Late Eighteenth and Early Nineteenth Century
Iain Frame*
In the late eighteenth and early nineteenth century, communities across
England used country bankers' notes almost as much as they used
coins and Bank of England notes. Accounting for the relative success
of these alternative currencies is challenging, however, due to the
frequency of financial crisis during the period. If, during a crisis, all
note holders attempted to enforce the promise to pay in gold coin
against the issuing banker, the `law-finance paradox' would leave
some note holders with gold coin, but would leave many more with
merely `country rags' or worthless pieces of paper. Building on both
the credit approach to money and the relational approach to contract,
this article shows note-using communities successfully responding to
financial crisis. They frequently did so by formalizing the bonds of
reciprocity and trust tying the community to its note-issuing banker ±
bonds sometimes made all the stronger by legal enforceability.
In 1801, a Mr Grigsby presented for payment in gold coin one of the notes
issued by a country banker, Oakes & Co., in Bury St Edmunds. The banker
refused to pay. Grigsby responded to the banker's refusal by taking the
matter to court.
Both at the local level and on appeal, the court sided with
*Kent Law School, Eliot College, University of Kent, Canterbury, Kent CT2
7NS, England
For comments on earlier drafts of this paper, I thank Laura Binger, Christine Desan, Tom
Hadden, Didi Herman, Iain Ramsay, Toni Williams, and two anonymous referees.
1Grigsby v. Oakes (1801) 126 E.R. 1420. See, also, L.S. Pressnell, Country Banking in
the Industrial Revolution (1956) 156; F.W. Fetter, `Legal Tender During the English
and Irish Bank Restrictions' (1950) 58 J. of Political Economy 241, at 242±3; and J.K.
Horsefield, `The Duties of a Banker ± II. The Effects of Inconvertibility' (May, 1944)
11 Economica 74, at 76. In 1797, owing to the commencement of hostilities with
ß2015 The Author. Journal of Law and Society ß2015 Cardiff University Law School
Grigsby and insisted the banker honour his promise by converting the note
into gold coin. Yet despite siding with Grigsby, the judgment of the appeal
court was not entirely sympathetic. By demanding gold coin, Grigsby only
added to the already difficult situation facing country bankers given the
recent commencement of hostilities with France, a point recognized by the
court when it added with emphasis, `Thank God few such creditors as the
present Plaintiff have been found since the passing of the Act!'
One way of comprehending the court's unease in Grigsby v. Oakes is to
view the decision it faced through the lens of what Katharina Pistor has
labelled the `law-finance paradox'. According to Pistor:
[l]aw and finance stand in an uneasy, paradoxical relation to one another. Law
lends credibility to financial instruments by casting the benevolent glow of
coercive enforceability over them. But the actual enforcement of all legal
commitments made in the past irrespective of changes in circumstances would
inevitably bring down the financial system. If, however, the full force of law is
relaxed or suspended to take account of such changes, the credibility law lends
to finance in the first place is undermined.
The country banker's note held by Grigsby was lent credibility by the
`benevolent glow of coercive enforceability' offered by the court: should the
holder of the note wish to enforce the banker's promise to pay in gold coin
on demand, the courts would ensure the banker kept his promise. Yet, in the
same moment as the court lent its authority to the note held by Grigsby, it
also breathed a sigh of relief: thank goodness Grigsby alone was asking for
the backing of the court. In a world of frequent financial crises, the
credibility of country bankers and their notes was hard to sustain if too many
individuals like Grigsby exercised their formal legal right to demand
payment in gold coin. Without access to the Bank of England, too many such
demands ± a run on the bank ± could leave the banker bankrupt and the note
holder with a worthless piece of paper: hence the pejorative name given to
bankers outside of London ± `country rag merchants'.
France, parliament suspended the obligation requiring the Bank of England to convert
its notes into gold coin on demand by enacting the Restriction on Cash Payments Act
1797 (37 Geo. III c. 45). Left unclear by the legislation freeing the Bank of England
from this obligation was whether it also applied to country bankers such as Oakes &
Co. It was against this legislative background that Grigsby presented the note for
payment. On the suspension of convertibility, and its resumption in 1819, see J.
Clapham, The Bank of England: A History. Vol II (1944) 1±74; and A. Feaveryear,
The Pound Sterling: A History of English Money (1963) 173±227.
2Grigsby v. Oakes, id., p. 1421.
K. Pistor, `A legal theory of finance' (2013) 41 J. of Comparative Economics 315, at 323.
4 The phrase was used by William Cobbett, the radical and widely read journalist (as
well as farmer, soldier and, in the 1830s, Member of Parliament), who at every
opportunity attacked paper money. See W. Cobbett, Rural Rides . . . during the years
1821 to 1832,Vol. I (1885) 17; and W. Cobbett, Paper Against Gold (1815) 25.
Others refer to banking as the `rag trade', see, for example, Anon [W. Reid], The Life
and Adventures of the Old Lady of Threadneedle Street (1832) 8.
ß2015 The Author. Journal of Law and Society ß2015 Cardiff University Law School

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