Our banks, we trust, are built on sure foundations, though we have reasons to doubt this. Here is a one which, almost literally, was built on sand. Whisper the word “Darien” and even Sir Fred Goodwin will turn in his comfortable bed.
In June 1695 the Scottish Parliament voted to turn Scotland into a colonial power. Portugal, which was hardly any bigger, had done so, and so had England. “The Company of Scotland Trading to Africa and the Indies” would allow the country to muscle in on all wealth flowing into Europe from Africa and the East Indies.
The lynchpin was to be a Scottish colony in Central America, close to where the Panama canal now runs. Instead of making the perilous voyage around the Cape of Good Hope, merchant ships from the East Indies would dock in Scottish territory, where the goods would be transferred across to the Atlantic.
The creator of the scheme – William Patterson – had not seen the site of the proposed colony, but it looked fine on the map, and he had a golden tongue. The colonists would grow yams and maize for sustenance and to generate income.
The gleam of a sure-fire investment shone in many a Scottish eye, and up to £400,000 was subscribed in the scheme. Chicken feed to Sir Fred, but in the 1690s it represented almost half of the disposable income of the country.
In July 1698, 1,200 colonists, including Patterson, set forth from Leith to the land they called “Darien”. So desperate were the immigrants to start a new life they did not even know where they were heading. The destination was kept secret until they passed Madeira.
The project turned out to be a disaster. Not only was there local hostility to their presence, the crops refused to grow and the merchant ships did not call. To rub salt in the wounds the English colonies in America were instructed not to offer assistance. Only six months after its creation, the colony was abandoned.
No one told Scotland that Darien had failed, however, and a second fleet set sail, taking 1.300 more colonists. They fared little better. By April 1700 Darien was wound up. It had cost the country a quarter of its assets and 2,000 lives.
The Scots, of course, blamed the English: they had not supported the scheme financially, and left Darien to rot when it was in trouble.
The lesson was clear. If the two nations could not work independently, then let them become one nation instead. In 1707 the Act of Union brought England and Scotland together, and £398,000 found its way north of the border, both to smooth the path to marital harmony and as a kind of apology for what had happened at Darien. A body of Scottish commissioners was established to distribute the money, though they issued more debentures than bank notes.
Finally, in 1727, the commission was formerly dissolved, and replaced instead by a bank, based in Edinburgh, which would lend money. They called it – you have probably already guessed – The Royal Bank of Scotland.
* Dr Chris Upton is counting his savings at Newman University College in Birmingham.