The passage from Clapham’s The Bank of England: A History captures a central truth about the birth of modern central banking: its close link with war finance.

Context:

In 1694, England was at war with France (War of the League of Augsburg). The government was desperate for funds: tax revenues were insufficient, and private credit markets were unreliable and expensive.

• A group of financiers (led by William Paterson) proposed creating a bank that would lend money to the government in exchange for a special charter granting privileges, including the right to issue banknotes.

• The government accepted, because war made access to stable financing essential.

• Thus the Bank of England was born: a private institution with public privileges, whose primary function from the outset was funding the State in wartime.

Clapham’s point is:

“Had the country not been at war in 1694, the government would hardly have been disposed to offer such a favourable charter to a corporation proposing to lend it money.”

In other words: without the urgency of war, the Bank of England probably would not have been created—or at least not with such sweeping powers.

In summary:

• The origins of central banking are inseparable from the need to fund wars.

• The Bank of England was not simply the natural evolution of finance, but rather the product of military and fiscal necessity.