by James Grant
he read during breakfast. He wrote history until dinner; he corrected proof sheets between dinner and tea; he wrote an essay for the Quarterly afterwards; and after supper by way of relaxation composed the “Doctor”—a lengthy and elaborate jest. Now what can anyone think of such a life—except how clearly it shows that the habits best fitted for communicating information . . . are exactly the habits which are likely to afford a man the least information to communicate.
Bagehot next reverts to the bluff, open-faced, gregarious Scott, the shining exception to the rule about study-bound authors: “If you will describe the people—nay, if you will write for the people—you must be one of the people,” he writes of the author of Rob Roy; “you must have led their life, and must wish to lead their life.”18 Shakespeare wrote from the same wellspring of human wisdom. He acquired it, as did Scott, Bagehot approvingly relates, by living his life among the common people. Had Shakespeare lived otherwise, there could have been no Falstaff: “all great English writers describe English people, and in describing them, they give, as they must give, a large comic element; and speaking generally, this is scarcely possible, except in the case of cheerful, easy-living men.”19
Bagehot’s authority for this generalization was his own eyes and ears. What follows is one of Bagehot’s most elegiac passages, as he pauses to observe that Shakespeare was not all hearty “flowing enjoyment”:
Thus he appeared to those around him—in some degree they knew that he was a cheerful, and humorous, and happy man; but of his higher gift they knew less than we. A great painter of men must (as has been said) have a faculty of conversing, but he must also have a capacity for solitude. There is much of mankind that a man can only learn from himself. Behind every man’s external life, which he leads in company, there is another which he leads alone, and which he carries with him apart. We see but one aspect of our neighbor, as we see but one side of the moon; in either case there is also a dark half, which is unknown to us. We all come down to dinner, but each has a room to himself.20
Bagehot never presumes to compare himself to the greatest English writer. But the aspects of Shakespeare’s writing—and intuited character—of which Bagehot most heartily approves are the ones that seem also to apply to himself. For instance, the quality of “boyish buoyancy.”21 Or the quality of “a certain constitutional though latent melancholy.”22 Or Shakespeare’s inferred reading habits: “He was a natural reader; when a book was dull, he put it down, when it looked fascinating, he took it up and the consequence is, that he remembered and mastered what he read.”23 How much like the brilliant young aspiring literary banker.
HOW DID BAGEHOT RECONCILE his life of the mind with his life in the bank? Another essay, “The First Edinburgh Reviewers,” which appeared in the National Review in October 1855,24 provides autobiographical clues. It describes the founders of the influential Whig quarterly journal the Edinburgh Review, and through these superb portraits, the twenty-nine-year-old essayist likewise sketches himself.
The cast of featured characters—besides, inferentially, Bagehot—includes Francis Jeffrey, Henry Brougham, Sydney Smith, and, as a Tory foil, Lord Eldon. Bagehot traces their literary and political contributions to English life while ruminating on the nature of mysticism. He comments on the ostensibly shortening attention span of the English reader, the weaknesses inherent in the very kind of essay that Bagehot had written, and the indescribable something that dies along with a vivid character—his “air or atmosphere.” There is Bagehot’s trademark hyperbole and condescension (“the multitude” need instruction), as well as his equally characteristic insights into the human condition.
The reader early on encounters a sentence astounding in its length, virtuosity, and incongruity. It is one of the greatest Bagehotian sentences, 213 words in length, written in support of the contention that “short views and clear sentences” are the imperative new thing in English letters. In its entirety:
There is exactly the difference between the books of this age, and those of a more laborious age, that we feel between the lecture of a professor and the talk of a man of the world—the former profound, systematic, suggesting all arguments, analyzing all difficulties, discussing all doubts—very admirable, a little tedious, slowly winding an elaborate way, the characteristic effort of one who has “hived wisdom” during many “studious years,” agreeable to such as he is, anything but agreeable to such as he is not; the latter, the talk of the manifold talker, glancing lightly from topic to topic, suggesting deep things in a jest, unfolding unanswerable arguments in an absurd illustration, expounding nothing, completing nothing, exhausting nothing, yet really suggesting the lessons of a wider experience, embodying the results of a more finely tested philosophy, passing with a more Shakespearian transition, connecting topics with a more subtle link, refining on them with an acuter perception, and what is more to the purpose, pleasing all that hear him, charming high and low, in season and out of season, with a word of illustration for each and a touch of humor intelligible to all—fragmentary yet imparting what he says, allusive yet explaining what he intends, disconnected yet impressing what he maintains.
“This is the very model of our modern writing,” Bagehot adds. “The man of the modern world is used to speak what the modern world will hear; the writer of the modern world must write what that world will indulgently and pleasantly peruse.”25
No reader had far to look for a sterling example of a “writer of the modern world.” One had produced the essay itself.
In the first decades of the nineteenth century, the Whigs opposed the Corn Laws and the slave trade. They sympathized with the French Revolution, or at least with its ideals, and supported the emancipation of the Catholics. They opposed the brutal laws to punish free speech, crush delinquent debtors, hang shoplifters, and maim poachers.26
These were Whiggish doctrines, but Whiggism is not a creed so much as “a character,” Bagehot maintained. The Whigs are men “of a cool, moderate, resolute firmness, not gifted with high imagination, little prone to enthusiastic sentiment, heedless of large theories and speculations, careless of dreamy skepticism . . .”27 The legal reformer Sir Samuel Romilly, whose writings Watson Bagehot read aloud to his household at Langport, was an archetypical Whig, as was Francis Horner, who pressed for the early resumption of gold convertibility after the Napoleonic Wars. Horner’s death, at the age of thirty-eight, was everywhere mourned, Bagehot recounted, a fact that produced a memorable digression: “It is no explanation of the universal regret, that he was a considerable political economist: no real English gentleman, in his secret soul, was ever sorry for the death of a political economist: he is much more likely to be sorry for his life.”28
Bagehot’s portrait of Sydney Smith, a contributor to the first number of the Edinburgh Review and to many that followed, reads, again, like a description of a certain new hire at Stuckey’s: “There is as much variety of pluck in writing across a sheet, as in riding across a country. Cautious men have many adverbs, ‘usually,’ ‘nearly,’ ‘almost’: safe men begin, ‘it may be advanced’: you never know precisely what their premises are, nor what their conclusion is; they go tremulously like a timid rider; they turn hither and thither; they do not go straight across a subject, like a masterly mind. A few sentences are enough for a master of sentences; a practical topic wants rough vigor and strong exposition. This is the writing of Sydney Smith.”29
Smith was an Anglican cleric, yet, Bagehot judges, he missed his mark in theology. The Whiggish divine forgot that religion “has its essence in awe, its charm in infinity, its sanction in dread; that its dominion is an inexplicable dominion; that mystery is its power.”30 This was the blind spot of the Whig character. Bagehot took it as a guiding principle that “Taken as a whole, the universe is absurd.” There was an unbridgeable gulf between the sacred and quotidian, between “the human mind and its employments.” “The soul ties its shoe; the mind washes its hands in a basin. All is incongruous.”31
In the course o
f the essay, Bagehot demands, “How can a soul be a merchant?” As for his soul, it was housed in the body of a banker. Bagehot’s father, who saw no especial incongruity in a soul that held a job, had pressed his fellow directors to raise capital to support the bank’s bounding growth. In October 1854, the board assented, voting to issue up to 1,250 new shares on top of the 4,000 already authorized and, for the most part, issued. Existing shareholders, invited to buy one new share for every four they owned, would pay the prevailing price of £60 per share, while new shareholders would henceforth pay £70. If all went according to plan, the capital of the bank would expand by slightly more than half.
The directors thought it reasonable to suppose that the current semiannual dividend rate of £3 per share would continue to be paid. The reserve fund, soon to be £50,000, no longer required topping up: interest earned on its investments would provide adequate future growth. Future profits would therefore flow to the bottom line, thence into the pockets of the dividend-earning stockholders. All of this, naturally, was “dependent on the general trade and business of the country,” and on the “many contingencies to which that trade is exposed.”32
The stockholders fairly leapt at the directors’ offer, as well they might have. Among the new investors recorded at the start of 1854 was Walter Bagehot; his father had given him 25 shares. With a payout of £6 per share per year, Bagehot would earn more in dividend income than many senior Stuckey’s clerks did in salary. Secure in his vocation, virtuosic in his avocation, Bagehot was a most fortunate young man.
* Bagehot had not abandoned his studies before being “called to the bar,” that is, becoming certified to practice, which he never did.
† The ugly factory city of Coketown in Charles Dickens’s anti-Utilitarian Hard Times owed some of its inspiration to Preston, which Dickens visited in January 1854; the first serialized installment of the novel appeared that April. Thomas Tooke and William Newmarch, A History of Prices, vol. 5, 1848–1856 (London: Longman, Brown, Green, Longmans, & Roberts, 1857), 296.
‡ Nor were these apostles the most zealous. “Jesus Christ is free trade and free trade is Jesus Christ,” declared Sir John Bowring, the polyglot member of Parliament, man of letters, failed entrepreneur, and governor of Hong Kong. Ben Wilson, Heyday: The 1850s and the Dawn of the Global Age (New York: Basic Books, 2016), 240.
§ On its June 30, 1853, statement, the bank showed assets of slightly over £2 million; it had exceeded the £2 million mark six months earlier, having reached £1 million in December 1835. Loans against a variety of collateral, including securities, constituted 38 percent of those assets. Bonds and other interest-bearing obligations amounted to 30 percent, commercial bills 22 percent, and cash equivalents 10 percent. The stockholders’ capital represented on the order of 5 percent of the assets—by no means a large proportion, judged either by the standards of the Britain of Bagehot’s time or the America (or Britain) of our own.
¶ This was gross profit. Of income tax in the second half of 1853, Stuckey’s paid the grand total of £114 2s 17d. The bank earned what might be termed operating income of £40,459, out of which it set aside £3,000 for bad debts, £2,000 for the construction of new offices in Bristol, £4,424 for deferred expenses, £7,672 for the regular dividend, £3,836 for the bonus, and £3,894 for the reserve fund. Earnings—£24,826—were what remained. Stuckey’s Banking Co. Ltd., Director’s Minutes, STU3.2, 529.
** The world was unaware of Bagehot’s authorship until it was revealed by William Haley and Robert H. Tener in a letter to the editor of the Times Literary Supplement in the issue dated February 8, 1963.
CHAPTER 5
“THE RUIN INFLICTED ON INNOCENT CREDITORS”
There was, however, something missing. Precocious as he was in literature, Bagehot was reluctant in romance. He seemed to want nothing to do with it. At University College, in correspondence with his friend Richard Hutton, he invoked St. Paul to contend that celibacy was “essential to an absorption in the highest end of human action.” To his mother, he quipped that while a man’s mother “is his misfortune, his wife is his fault.” Whether from fear, unfamiliarity, or misogyny, Bagehot tended to speak slightingly of women, when he mentioned them at all.
He was a decade out of college—the date was January 24, 1857—when the still-confirmed bachelor presented himself at the door of the country seat of James Wilson. The founder and owner of the Economist was now member of Parliament for Westbury and the financial secretary to the Treasury in the Whig government of Lord Palmerston. Wilson had heard good things about the literary barrister and West Country banker; the time had come to meet him.
Wilson’s six daughters were politely curious. Not catching his last name, they judged their father’s guest to be singular, if not exactly handsome. “He was,” one of them recalled,
tall and thin with rather high, narrow, square shoulders; his hands were long and delicate and the movements of his fingers very characteristic. He held his fingers quite straight from the knuckles and would often stroke his mouth or rub his forehead when he was thinking or talking.1
At dinner, the eldest, Eliza, twenty-four, insisted on hearing his unpronounceable name spelled out so that she wouldn’t forget it. “Headache” was the excuse for her nonappearance at breakfast the next morning. Disappointed, Bagehot sat with her three younger sisters in the family schoolroom. “Your governess is like an egg!” he announced, and yes, the delighted bevy of Wilsons realized, she exactly resembled an egg. “He became one of us,” remembered Emilie, the youngest. “We were six sisters without a brother. It was something strangely new, delightful and nutritious that he brought into our lives.”2
The visitor felt much the same way about his hosts. Numerous, cheerful, petticoated, and sane, the Wilsons presented a happy contrast to the sparse and complicated Bagehots.
James Wilson, confined to his bed by a riding injury, was sizing up Bagehot for a contributor’s role at the Economist. Hutton, to whom Wilson had offered the editorship of the paper, swore by the genius of his friend. Wilson must have taken Hutton’s point, as Bagehot’s work soon began to appear in his paper. The new correspondent signed his opening essay, on February 3, “A Banker.” It ran out under a headline that nobody could have called sensational: “The General Aspect of the Banking Question.”
The essay’s thesis was indeed very general. Credit grows as civilization advances, Bagehot propounded: “certain individuals, of whom the world thinks better than it does of others, induce those who have dealings with them to take their promise of payment instead of actual payment.” The creditworthy required fewer gold coins than the uncreditworthy mass—the promises of substantial people were a kind of weightless gold which they alone could spend. The bullion thereby conserved represented a savings for rich and poor alike. It would be wrong, then, to tax the IOU-worthy minority, who “obtained their credit, I do not say by the practice of all the moral virtues, but by decency, regularity, by being always seen in the same place every day, and never failing in pecuniary engagements when called on to discharge them. This ‘respectability’ may not be the highest of virtues, but I do not perceive why it should be mulcted of its natural profitableness.”3
It soon became clear that the moral bar for obtaining a loan was not so high as “A Banker” believed it to be. Many had borrowed without suitable collateral, and many had lent, or guaranteed the payment of others’ lending, without adequate capital. Such financial malpractice was not confined to England but was prevalent in America and Europe as well.
Perhaps the lenders and borrowers had forgotten the lessons of the railroad mania of 1847. Financial crises had occurred in 1825, 1837, and 1847, as The Times, peering ahead in a New Year’s Day 1857 essay, reminded its readers. On form, the outlook for the next twelve months was guarded; so it seemed to the German diplomat Klemens von Metternich, on whom Henry Reeve, longtime writer on foreign affairs for The Times, went calling in August 1857. The eighty-four-year-old eminence of the long-ago Congress of Vie
nna talked first about the rebellion in India, then switched subjects. “After all,” said Metternich, “what alarms me most in the present state of the world is not a Hindoo revolution or a Sepoy mutiny, but the consequences pending over us from a false system of credit and from the speculation which this system has encouraged both in Germany and in France.”4
The August failure of the Ohio Life and Trust Company—the news reached London in early September—proved the crack of the starting pistol of the Panic of 1857.
It was a worldwide event, with mutiny in India—a general nationalist uprising against the rule of the British East India Company—complementing the bank runs, industrial distress, and commercial failures in America and Britain, and on the Continent. There was no particular novelty in transatlantic financial difficulties—the United States and Britain had suffered together in 1819 and 1837. What was new in 1857 was the connective tissue of telegraph wires, railroads, and steamships, though not yet a transatlantic cable: “so closely united now are the monetary transactions of all the great commercial countries in the world, that whatever affects one less or more affects the whole,” as the Economist put it.5
Gold, the international money, likewise connected the advanced financial nations. It imparted information as it shunted back and forth between gold-standard countries. Nations lost gold when they over-issued bank notes and other paper claims against that treasure; they regained gold by restoring themselves to competitive trim. Naturally, moneyed people preferred to hold their wealth in countries where prices and wages were low, banks sound, and interest rates attractive. Central bankers who knew their business therefore tightened credit in response to the earliest signs of a gold exodus, in particular, a foreign or “external” drain.6