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The winding-up of the Ayr Bank, 1772-1827

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)165-190
Number of pages26
JournalFinancial History Review
Issue number2
Early online date17 Jul 2014
StatePublished - Aug 2014


The British Society for Eighteenth Century Studies Annual Conference (Oxford, 2013) The Scottish dimension of the 1772-3 credit crisis has attracted most of the limited academic attention addressed to this episode, due in main part to the almost explicit references to it in Adam Smith’s monetary analysis in Book II of the Wealth of Nations. A secondary source of interest concerns the 1778 report by the Committee of Inquiry set up by the proprietors of the Ayr Bank (Douglas, Heron & Co), the most celebrated victim of the crisis, which blamed the collapse on the alleged dishonesty of the bank’s directors rather than the monetary fallacy of the Smith argument. By comparison, the scope of the Ayr Bank’s failure has not been studied as closely. Specifically, it is evident from the financial records and associated correspondence available in various Scottish archives that although the bank’s business model was certainly flawed and its eventual failure probably inevitable, the scale of the losses befalling the partners became truly ruinous only as a result of the ill-advised attempt to keep the company afloat after the first stop of June 1772 by raising £450,000 in redeemable annuities in England at an effective interest rate between 12 and 15 per cent, and from the inability to sell mortgaged land in a depressed market at a satisfactory price. Furthermore, far from being the definitive account as it is sometimes described in the literature, the report by the Committee of Inquiry may have only represented the opinion of a part –and not necessarily the major part- of the bank’s shareholders, and could be approached rather as a piece of pamphlet literature regardless of the validity of the arguments it contains. In this paper we reconstruct the narrative of this often contentious liquidation process, from the planning stages while the bank was still fighting for its survival in 1773, to the retirement of its banknotes by the two Edinburgh banks in 1773-4, the legal and political manoeuvring behind the forcible redemption of the annuities by Act of Parliament in 1774, and the thirty years of gradual asset unwinding that followed it.

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