During the Financial Revolution that got underway in the 1690s, England and Scotland were linked by an integrated financial and mercantile community and a free flow of ideas. This helps explain how it was that the Bank of England and the Bank of Scotland could be formed almost simultaneously. Also, Scots in London, including one by the name of William Paterson, had a significant role in importing into Scotland other concepts they saw in England. One of these was the state-supported trading company. William Patterson became a major promoter of one such company, the Scottish Darien Company, which had a rather disastrous ending.
Little is known of William Paterson’s early life. He was born on a farm in the hamlet of Skipmyre in Dumfriesshire, Scotland in 1658. The social background of his family is not well known and no more is known about his education. However, his skill in writing suggests he got ahold of some decent education though he certainly never attended university. At around the age of seventeen, he left Scotland to join a relative of his mother in Bristol.
In his twenties, Paterson was a traveling merchant. He left for Jamaica after selling a small inherited property and lived there for seven or eight years. Upon leaving Jamaica, he was involved in promoting some trading scheme to various European governments and thus became familiar with commercial centers like Amsterdam, Brandenburg and Antwerp. By the time he was thirty, the Scot had lived in England, Europe, and the Caribbean.
In the 1680s, William Paterson was a London-based merchant, a member of the Merchant Taylors’ Company. From this career and his past travels, he became familiar with bond and stock markets and accounting and banking practices. He possessed an understanding of trading companies, like the existing Dutch and English East India companies, that would serve him in a later project. For now though, Paterson was keeping busy promoting the creation of what would become the Bank of England.
In 1692, Paterson proposed that the English government raise money through the creation of a new bank. In 1694, after advocacy by Paterson and other London promoters, such a bank was created, the Bank of England. Recognized as its leading promoter, Paterson became a founding director in the Bank. Nonetheless, after just a year, he left the organization he was deeply involved in establishing as the result of a disagreement on Bank policy. The apparent source of disagreement was that Paterson had wanted the Bank of England to create an interest-bearing fund for London’s orphans, so that the Bank could source money from the management of inheritances. Paterson had been interested in raising funds on a longer-term basis. After this, he attempted to create a rival English bank but was unsuccessful.
Paterson’s next major project would be in Scotland. In the late 17th century, the same rising interest in trade and finance that struck England was affecting Scotland. The conditions were therefore favorable for securing approval for a new Scottish trading company.
In the last years of the 17th century, Scots wanted to create a colonial trade similar to what England had. Scotland was technically a foreign country and so Scottish merchants had limited access to English ports abroad. Sensing an opportunity, Paterson was involved in efforts to establish a Scottish colony at Darién, where North and South America meet in modern-day Panama. The location looked good on a map. Near where the Americas were at their narrowest, Paterson reasonably hoped that a colony here could handle commerce between Europe and Asia. Unfortunately, the area of Darién is not an easy one in which to survive.
In 1695, Paterson contributed towards securing passage of an act through the Scottish Parliament named the ‘Act for a Company Trading to Africa and the Indies’. The company formed in its wake became better known simply as the ‘Company of Scotland’ or the ‘Scottish Darien Company’. It was given a monopoly on trade between Scotland and all of Asia, Africa, and America for thirty-one years and duty-free imports for twenty-one years. Paterson wrote much of the legislation himself. He had also assembled maps and information about the region, incorporating details from privateers who operated in the area.
The company was plagued by problems from the start. For one, early opposition in England on the grounds that the new Scottish company would interfere with the English East India Company’s monopoly in England threatened the project. Scotland was foreign enough to deny the country access to English ports but apparently not so foreign to consider the formation of a trading company there as a benign development. In any case, English investors understandably backed out. Paterson invested at least £3,000 in the company’s stock himself, the most any one investor was allowed to contribute. He also assisted in promoting the company’s shares to other investors.
Paterson lost his position with the Scottish Darien Company upon being accused of losing company funds. Another manager of the company had stolen money and while there is some truth to the assertion that the company was not very well managed, in large part because many of the directors were usually absent, Paterson himself was not personally involved. Still, he forfeited his stock and made up the remaining loss out of his own money.
Paterson joined the company’s first expedition to Darién in 1698; he was one of 1,200 settlers. His experience there reflected the failure of the scheme generally. During the cool season, things seemed off to a good start. Unfortunately, new supplies were slow to arrive and as temperatures warmed, starvation and illness set in. The colony was abandoned before fresh settlers and supplies could arrive when the Spanish, who controlled the region, offered easy terms to entice the beleaguered settlers’ surrender. William Paterson’s wife and child died in Darién and he returned to Britain himself very ill.
After returning, Paterson remained very active in financial projects. He had a role in founding the Royal Bank of Scotland which was a considerable achievement in those generally pessimistic years after the Darién scheme’s failure. Paterson also advocated for efforts to improve Scottish trade, new expeditions to the Caribbean, and the union between England and Scotland, which was achieved in 1707. The union also provided a means of financial restoration to those who had lost money in Darién. Under the terms of the Act of Union in 1707, money was allocated to compensate investors in the Scottish Darien Company.
Paterson donated his collection of economic books and pamphlets for a public library dedicated to economic subjects. He advocated for still other causes, ranging from universal education and the release of honest debtors from prison to providing employment to criminals. When it came to promoting causes to the government, Paterson advised on the creation of a sinking fund to repay the large national debt, the very debt which had been the main cause for the creation of the Bank of England, his first major project. William Paterson died in 1719.
William Paterson is chiefly remembered for his involvement in the Bank of England and the Scottish Darien Company. Measured by their longevity, one of these projects was enormously successful and the other an unambiguous and costly failure. Paterson’s ongoing involvement in the successful Bank of England was little and his contribution far greater towards the scheme that did not succeed. Paterson’s own abilities may or may not have been the reason for this but the often-observed maxim is probably true, namely that when it comes to establishing new enterprises, some are better at founding them, and promoting them, and others at seeing them through.
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1. Barbour, James Samuel. A History of William Paterson and the Darien Company, With Illustrations and Appendices. W. Blackwood and Sons, 1907.
2. Farrar, John. “A Conspiracy of Paper? William Paterson and the Mysterious Origins of Banking and Company Law.” Bond Law Review, vol. 32, no. 1, 2020, pp. 139–150.
3. Maley, Sonny. “The Darien Scheme.” Special Collections – Library and University Services, University of Glasgow, May 2005.
4. “William Paterson.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 28 Mar. 2023.
5. “William Paterson.” NatWest Group Heritage Hub, NatWest Group.