Bagehot

by James Grant

  In banking, too, the Economist had proved prophetic. It had opposed Peel’s Bank Charter Act, arguing that the government’s narrow attempts to regulate the supply of bank notes ignored the growth in checks and credit instruments. It was fanciful to believe, as some of the more enthusiastic friends of the legislation suggested, that the certain and unquestioned convertibility of the pound would of itself protect lenders and borrowers from gross miscalculation. There was, besides, the correct and principled objection, as the Economist put it, “that people, resting satisfied and relying on the self-action of the new law, may consider themselves entitled to act with less private circumspection and caution than they otherwise would.”‡‡

  Peel had long defended the Corn Laws; the Tories he led regarded them as sacrosanct. But the Irish famine of 1845–46 brought Peel into the fold of Richard Cobden, John Bright, the Anti-Corn Law League—and the Economist. Wilson celebrated the prime minister’s conversion at the close of January 1846: “To the abstract science propounded by Adam Smith, Sir Robert Peel is the first minister who has given a full and unqualified practical application.” The Economist could confer no higher praise.31

  In this flush of journalistic vindication, Wilson published between hard covers a collection of Economist articles on the topics of money, banking, Peel’s Act, and the late financial crisis. The volume appeared in 1847, along with a new installation of Thomas Tooke’s History of Prices and a lengthy pamphlet in defense of Peel’s Act by Colonel Robert Torrens.

  The editor of the Prospective Review, the leading Unitarian journal of the day, commissioned Walter Bagehot to review all three titles. Readers of the resulting essay, entitled “The Currency Monopoly,” might have surmised that the unsigned author belonged to a banking family. They probably would not have guessed his age (twenty-two), his credentials in economics (slight),§§ or the number of his previously published works (none). From the certitude of his judgments and the fluency of his style, they could have formed the opinion that Bagehot was a man to be reckoned with.

  The stated purpose of Peel’s Act was not to foreclose the possibility of financial panic, but to reduce the chances of a crisis by ensuring the convertibility of the pound. Wilson and Tooke judged the act a failure, while Torrens defended it. The underlying question was one of political philosophy: what was the proper role of government in coining money and regulating banks, including the central bank? Precise technical issues likewise presented themselves. Bagehot masterfully dealt with all of them.

  The novice critic self-confidently began with a declaration of his own political prejudices. They were neither Tory nor radical but rather moderate and Whiggish. Laissez-faire had much to recommend it when confined to “its legitimate function,” said Bagehot, “viz. when watching that government does not assume to know what will bring a trader in money better than he knows it himself; but it is a sentiment very susceptible to hurtful exaggeration.” As an example of a proper function of government, the critic cited the enforcement of “a compulsory sanitary reform.” Wilson, reading him, might have winced; the Economist was on record opposing the creation of a board of health.32

  Bagehot was full of admiration for the work of the man he was soon to know very well, though he observed that Wilson’s writing (and copyediting) left something to be desired. The Economist’s position on the substantive monetary question was that bank notes, if carefully managed, could never be issued to excess. Bagehot brushed aside that contention with a banker’s worldly awareness of the propensity for error on both sides of the teller’s cage. It is curious, the young writer allowed, “that a distinguished practical man of business like Mr. Wilson” should fall into such an error, and he quoted David Ricardo as his authority—“a still greater authority” than the founder of the Economist.

  Bagehot’s essay was a tour de force. It anticipated some of the errors of modern monetary economics, as in the common-sense observation, sunk in a footnote, that the mere quantity of money tells you less than you think; no less important than the volume of pounds sterling in existence was the rate at which they move from hand to hand. Bagehot concluded that money was the government’s business. A twenty-first-century reader, borne down by central banks, may quarrel with that contention—though perhaps not with the critic’s charge that the monopoly power conferred on the Bank of England at its 1694 founding was a colossal historical mistake.

  * On a page of his mathematics notebook, Bagehot jotted, “[T]his professor is intoxicated.”

  † In an 1838 address concerning the introduction of the natural sciences into the University College curriculum, Henry Malden, a professor of Greek, added a good word for the ancient languages: “If we prize exactness in the use of speech, even in our own language, we shall encourage our pupils to study it in languages which are in themselves more exact, and on which, as new and external objects, the mind can fix an attention, such as, without this discipline, it never can be taught to fix upon the mother tongue, which use has made all too familiar to be so contemplated, and the idioms of which have become confounded with its own modes of conception.” Henry Malden, On the Introduction of the Natural Sciences into general education: A lecture delivered at the commencement of the session of the faculty of arts, in University College, London, October 15, 1838 (London: Taylor and Walton, 1838), 5.

  ‡ The full birth name was a mouthful: the Economist: or The Political, Commercial, Agricultural, and Free-Trade Journal.

  § As was his father. In Langport, in January, Vincent Stuckey, addressing his fellow bank directors, ordered the charge-off of £13,362 of “absolutely bad” debt and the making of a careful inventory of the bank’s London-housed portfolio of government securities. The bank was sound enough, said Stuckey, but it must “of course partake of [the] general depression.” The “middling rich people” whose youths would supposedly furnish the University College student body were certainly feeling the pinch. Stuckey’s Banking Co. Ltd., Director’s Minutes, Royal Bank of Scotland Archives STU2.1 (28 September 1858–26 July 1877), 146.

  ¶ The chairman, too, served on the finance committee. Vincent Stuckey, by now a banker-statesman, had been spending much of his time in London rather than visiting branch offices in the county of Somerset. The chairman reported to his fellow directors that he had met with Sir Robert Peel, as well as with the chancellor of the exchequer and the chairman and deputy chairman of the Bank of England. “And from all,” Stuckey related, referring to himself in the third person, “he had received the most flattering Testimony as to the Principles on which the Company was originally formed, and as to the mode in which it has been conducted.” Stuckey’s Banking Co. Ltd., Director’s Minutes, Royal Bank of Scotland Archives STU3.2, 154.

  ** “The Bank directors are said to be now free from all responsibility as regulators of the currency, and to have no other duty to perform than to do the best they can for their shareholders, the same as other banking establishments,” commented the Morning Chronicle in January 1845.

  †† In investment language, “bull market” means rising prices, “bear market,” falling ones. The terms are thought to allude to the ways that the two animals attack: bulls with an upsweep of their horns, bears with a downward swipe of their paw.

  ‡‡ The article continued, “The railway share market might conceivably have got out of hand even if monetary factors had been comparatively unfavorable; but there is no doubt that the ‘secondary’ speculation, and the actual railway building, were very largely fostered, if not literally created, by the ease with which accommodation could be obtained at the Bank and in Lombard Street.” W. T. C. King, History of the London Discount Market (London: Frank Cass, 1972), 134.

  §§ At University College, he read—in a lively, thoughtful, and critical way, to judge by the notes he took—the work of Adam Smith, David Ricardo, John Stuart Mill, and John R. McCulloch.

  CHAPTER 3

  “VIVE LA GUILLOTINE”

  Was there anything more “hazardous or discouraging” than
an apprenticeship in the law? William Blackstone posed the question to an Oxford audience a century before Walter Bagehot completed his work for a master of arts at the University of London, in 1848. “A raw and inexperienced youth,” continued the great legal scholar,

  in the most dangerous season of his life, is transplanted on a sudden into the midst of allurements to pleasure, without any restraint or check but what his own prudence can suggest, with no public direction in what course to pursue his inquiries, no private assistance to remove the distresses and difficulties which will always embarrass a beginner. In this situation he is expected to sequester himself from the world, and, by a tedious lonely process, to extract the theory of law from a mass of undigested learning.1

  Bagehot concluded his formal education with a flourish, taking the gold medal in intellectual and moral philosophy, a branch of knowledge then encompassing political economy. To receive his award, the winner was obliged to rise from his seat and walk the distance to the head of the convocation. The exertion was more than Bagehot’s strength would allow—his exact illness is unclear—so he leaned on a friend’s arm. His health restored after a visit to Langport, he returned to London later that year to study for the bar in the chambers of Sir Charles Hall.2

  Very quickly, Bagehot noticed how little had changed since Blackstone. One hundred years on, an aspiring barrister still applied for admission to one of the only four Inns of Court. He dined at that imposing institution—in Bagehot’s case, Lincoln’s Inn—but took no classes there, as virtually none were offered, and prepared for no examination, as he was not, and never would be, examined. He worked in a law office by day, not in “reading” the law, exactly, but in copying documents about which he understood nothing.

  “A heap of papers is set before each pupil,” Bagehot recalled of his days of drudgery,

  And, according to such light as he possesses, and with perhaps a little preliminary explanation, the pupil is set to prepare the document for which these papers were sent . . . A precedent is set before each pupil, out of which he is to copy the formal part, which is always much the same in such documents, especially in the easier ones set before the younger pupils. As to all the non-formal part, the firm precept given to a beginner is one not so much of deep jurisprudence as of simple practice. He is told to “write wide,” which means that the lines of the pupil’s writing should always be at so great a distance from each other that the preceptor should have ample room to strike them out if he pleased, and write his own words in between them. And of this room he largely avails himself.3

  Bagehot acknowledged the possibility that one might absorb useful legal information in this fashion. A superb student himself—to study had been his one and only job in life—he could learn almost anything he set his mind to. But he presently came to doubt that the law was one of those things.

  On a visit to Langport in March 1851, the family put Bagehot to work researching an obscure point of ecclesiastical law. The issue touched on a troubled £1,000 loan that Stuckey’s had extended to a church on the security of future taxes, or “rates,” on the congregation. The transaction was by now a source of regret all around: Stuckey’s had gone unpaid for five years, as the vestrymen and wardens quarreled about how to raise the funds with which to service the debt. The bank wished it had never lent the money, and the encumbered church surely regretted that it had ever borrowed it.* Bagehot, though he was coming to wish that he had never picked up a law book, contributed such advice as he could.

  At the age of twenty-five, the reluctant barrister-in-training knew he could not live at home. Then again, what awaited him in London was more of the work he wanted no part of. What were the alternatives for a brilliant former student? Church, army, navy, teaching, trade, banking were among the few, and none appealed to Bagehot. There was a bank in his family, of course, but joining it would entail living under his parents’ roof. He could write as few others could write, but he had seemingly rejected—if he had even considered it—a life of professional authorship.

  He unburdened himself to his friends. William Caldwell Roscoe, another reluctant law student, was one of these soul mates, Richard Holt Hutton another. The three of them criticized one another’s writings (“Yours ever speaking plainly,” Bagehot signed himself to Roscoe at the end of an uninhibited critique of the other’s play, “Violenzia”), and exchanged notes on religion and God. Hutton had upbraided Bagehot for his arrogance† while they were students together at University College, but there was nothing supercilious in Bagehot’s professions of faith and Christian devotion: “the highest life is an imitation of Christ’s,” he had written to Hutton in their undergraduate days.4

  Hutton had begun to study at Manchester New College with the intention of following his father into the Unitarian ministry. For Roscoe, too, religion was at the center of life—“I have a profound conviction that to be in all things a child of God is the highest and ultimate object of life,” he told Hutton.5 Concluding that the law would require him to shade the truth rather than to profess it, he resolved to throw over his legal studies. Roscoe and Hutton were friendly cousins and more: in 1851, Hutton married Anne Roscoe, his friend’s sister (and also, necessarily, his own cousin).

  In August 1851, Bagehot did Roscoe one better. He not only quit the law, but also—pulling up such stakes as he had—moved to Paris.

  It was not the most obvious thing to do at the time. England had at last put the “Hungry 40s” behind it. Crops were abundant, the banks were repaired,‡ and the operational promise of the railroads, as distinct from their speculative razzle-dazzle, was well on its way to being realized. The 1848 revolutions that had convulsed Europe had passed over the British Isles. Drunkenness, crime, and poverty had peaked years earlier. Many noticed that, by the early 1850s, the workmen were dressing like gentlemen, or—as the French painter Delacroix put it—the gentlemen were dressing like workmen.6

  The first world’s fair, the Great Exhibition, opened in the Crystal Palace in London on May 1, 1851, to celebrate “the works and industry of all nations”—and arts, too, especially those of Great Britain and the British Empire. More than 40,000 people a day paid their shilling to enter Joseph Paxton’s astounding 990,000-square-foot temple of glass and iron, a structure conceived in June 1850, built in less than a year, and completed on budget and on time for the opening-day walk-through by Queen Victoria and Prince Albert. The Crystal Palace and the 100,000 objects it displayed, including high-speed printing presses, sculptures, a cigarette-making machine, finely engineered machine tools, locomotives, Colt’s repeating firearms, “tangible ink” for the blind, and a folding piano, were a tribute to invention, ingenuity—Paxton’s ingenuity, not least§—and the optimism of the age. To James Wilson, the Great Exhibition was a symbol of the triumph of peace over war, enterprise over barbarism. The Economist predicted that opening day, May 1, would go down as “one of the most memorable days in the history of Great Britain, and of the whole human race.”

  Why a high-achieving Englishman would exchange this splendor for an indefinite stay in Paris was a question for which Bagehot had a ready answer. To learn French, he would reply. Luckily for the future journalist, he arrived in Paris on the eve of a coup d’état.

  Bagehot settled in the home of the Meynieux family, once friends to his mother. To Madame Meynieux, Edith Bagehot was no crazy lady but a person of radiant charm, as her son had the pleasure of reporting back to Langport. His hostess claimed the honor of being the greatest of Edith’s “idolateurs” and “idolatrices.” Hearing this “heathenish” praise, Bagehot playfully told his mother that he was at a loss for a “Christian” reply. ”7 Neither could the visiting Englishman waltz. This fact, he said, he had proved to the satisfaction of innumerable bruised dancing partners (“It’s very amusing running small French girls against some fellow’s elbow, it’s like killing flies years ago”).

  His talents lay instead in the art of journalistic observation.

  The president of France, Lou
is-Napoleon, the unprepossessing nephew of the late Napoleon Bonaparte, was living in exile in London when France erupted in revolution in 1848. “I’m going to Paris,” Louis-Napoleon announced to his cousin Marie, “the Republic has been proclaimed. I must be its master.” “You are dreaming, as usual,” Marie replied.8 But his cousin was not the last person to underestimate the man whom Adolphe Thiers, a political adversary to the would-be master of the Republic, would call “that cretin.”9 Defying the predictions of France’s political elite, Louis-Napoleon won the presidential election of December 1848 with 74.2 percent of the vote. “The nephew of the great man, with his magic, will give us security, and save us from misery,” ran one of the victor’s campaign slogans.10

  The new French constitution allowed the president one four-year term, but the new incumbent had other plans. He lobbied the lower house of Parliament, the National Assembly, to amend the constitution to allow him to continue in office. He instituted controls on speech, free association, and the press. His administration placed eight departments under martial law.11 Bagehot had not been very long in Paris before it became evident that the scheduled 1851 presidential contest would be conducted without the ballot box.

  The radical left, the principal target of Louis-Napoleon’s emerging police state, countered repression with muttered threats to finish the work left undone by the Terror of 1793. “Vive la guillotine!” some roared. Many conservatives judged that there were worse alternatives for France than the statism of Louis-Napoleon.

  The incumbent, unable to imagine any acceptable alternative to himself, gathered loyal elements in the army and police. It was no ordinary coup d’état they were plotting—Louis-Napoleon was already the president—but a kind of self-coup against the constitution and the National Assembly as well as an anticipatory stroke against the socialist left, the spectre rouge.