by James Grant
Who was to blame for the shambles of English finance? Bagehot denied the very premise of the question. The joint-stock banks had sailed through the crisis. Compared to Hamburg, say, or New York, London was almost an island of calm. Even so, the City was not invulnerable: “Our hard capital is clothed in a soft web-work of confidence and opinion; on a sudden it may be stripped bare, and with pain to our prosperity,” he wrote.31 And it required no deep study of economics to follow his description of the intermediation of credit: “In its essence, the system is this: a man in the north is trustworthy and wants money; a man in the south has money, but does not know who is trustworthy; a middleman in London knows who is trustworthy, and lends the money of the south to the man in the north.”
Could Bagehot suggest any improvements for an already functional system? He proposed that, come a crisis, the Bank and the government jointly share responsibility for suspending Peel’s Act, rather than the government alone signing off on the emergency policy. This, in turn, raised a question as old as central banking. Should the directors of the Bank of England be bound by rules, or should their judgment be their guide? Bagehot favored judgment: “it may be an evil to have discretion; but the events of the last few months prove . . . the evils of a rigid rule which admits no discretion.”32
Hutton wasn’t the only critic who applauded Bagehot’s essay. Sir George Lewis told Wilson, “I have read several articles on the money crisis in reviews—all bad, except one in the National Review.”33
“IN A GREAT COUNTRY like this,” Bagehot coolly wrote, “there will always be some unsound banks, as well as some insolvent merchants.”34 Resignation in the face of human error was not Overstone’s approach. The crisis left him desolated. He fastened on the bankers and brokers who paid interest on demand deposits, the kind of liabilities that the depositors might remove on a whim. “It is an unsound and dangerous form of credit,” Overstone wrote to Lewis at the end of November; “it cannot permanently coexist with an honest and well-regulated Monetary system—One or other must succumb—If the credit system be too gigantic, and too powerful to be grappled with—we then only waste our time and labor in endeavoring to establish a sound Monetary system.”35
How much worse might things have been without the 1844 Act? Only look to America, Overstone bitterly charged, “the monetary cesspool from which the pestilence of inflated Credit has diffused itself over the trading world.”36 In this, Overstone made analytical common cause with, of all people, President James Buchanan, who would devote the opening paragraphs of his first annual message to Congress to an attack on “our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks.”
For his part, Overstone prophetically speculated on the remote consequences of that breach in monetary discipline. He singled out Overend Gurney for its massive draw on the Bank and its lobbying to suspend Peel’s Act:
Gurney’s, I am confident, will persist, with increased confidence, in their present course, in consequence of what has now occurred. Govt, they now know, will not allow them to declare their inability to discharge their debts at call to the trading world, when they amount to many Millions—and therefore they will have no misgiving or fear in again incurring such dangerous obligations—and the public also will be without the salutary lesson which should teach them not to rely upon such security. As it is, this system will be continued, and upon a more enlarged scale—The final, and not distant, result must be, a tremendous crash.37
Bagehot was not so wise as the old banker—at least, the younger man saw no cause to warn about the distant consequences of extraordinary government interventions in finance. In his rage and disappointment, Overstone might have exaggerated, but he didn’t entirely miss his mark.
* True to his laissez-faire convictions, Wilson advocated less regulation of the banking business, not more. He positively rejected, for instance, suggestions that British banks should be put under a government audit. In 1856, he wrote to G. C. Lewis: “Interferences with trade of this kind are mischievous not only inasmuch as they give to the community a false security and induce them to carelessness and laziness, but also inasmuch as they impose upon Governments responsibilities for which it is impossible they can do justice, but for which, in the event of failure, they will be called to account, and will become objects of popular discontent. They add one more and most difficult and odious element to the task of governing.” The chancellor replied that he agreed with Wilson’s “every word.” Emilie I. Barrington, The Servant of All (London: Longmans, Green and Co., 1927), 1:322–24.
† Karl Marx would later do the same for the New York Daily Tribune. The difference between his monetary critique and Bagehot’s—the difference, in general, between Marx’s and the Economist’s coverage of the 1857 crisis—is that the co-author of the Communist Manifesto seemed to cheer on the crisis as if it were a racehorse on which he had put down a large bet. Thus, Marx on December 15: “While on this side of the ocean we were indulging in our little prelude to that great symphonious crash of bankruptcy which has since burst upon the world, our eccentric contemporary The London Times was playing triumphant rhetorical variations, with the ‘soundness’ of British commerce as its theme.” Marx was, of course, no member of the Palmerston government, as was Wilson. Nor was he a stock-holding executive of Stuckey’s Banking Company, as was Bagehot.
‡ By refusing to join in the citywide default, Chemical Bank earned both the resentment of the New York banking fraternity and the doughty honorific “Old Bullion,” on which moniker it traded into the early part of the twentieth century. Having absorbed Chase Manhattan, Chemical became a component of JPMorgan Chase in 2000.
§ News that a delegation of frightened Scottish mill owners and merchants was coming to London to plead for emergency government relief elicited a more-in-sorrow-than-in-anger reproof from the Economist: “We thought that our countrymen north of the Tweed had formed too sound opinions as to any influence which the Government can exercise in matters of trade, to have come to such a resolution.” Emilie I. Barrington, The Servant of All (London: Longmans, Green and Co., 1927), 2:61–62.
¶ Few were so provoked as the unsigned commentator in The Times who condemned the abusers of bank credit: “The speculator in produce, without capital or talent, assuming to be a millionaire, certain of a large fortune if the market advances, and trusting to the fears of his banking accomplices to uphold him if his game goes wrong—the bank with its ‘wealthy proprietary’ (irrespective of a score or two of widows and orphans) gambling by means of re-discounts to ten times the extent of its available resources, so as to make large dividends and surplus profits to cover the most disgraceful losses—the popular manager to whom everything is entrusted, usually an upstart, proud of his power to crush the business of any respectable house by backing up with unlimited loans a set of penniless protégés to counteract its operations—and the money firms who assist the process only so long as it is thoroughly safe; all alike are conscious that between them and the Bank Charter Act there can be no quarter.” The Correspondence of Lord Overstone, 2:807; “Money-Market and City Intelligence,” The Times, November 12, 1857.
** A mark of Bagehot’s coming of age in journalism was his facility in the labor-saving device of self-quotation. “A correspondent of The Economist who writes under the signature ‘A Banker,’” he wrote in preface to a self-plagiarizing line on the paucity of cash reserves at British financial institutions. The Collected Works of Walter Bagehot, ed. Norman St John-Stevas, vol. 10 (London: the Economist, 1978), 53.
CHAPTER 6
“THE YOUNG GENTLEMAN OUT OF MISS AUSTEN’S NOVELS”
Well might “A Banker” have taken a hopeful view of life, and monetary life among its other aspects, in that year of panic. The bank that employed him survived very nearly unscathed. It required no assistance from the Bank of England—far from it—and continued to pay its regular £3 per share dividend along with the by now customary
£1 per share bonus.
Bagehot was a part of the enlightened management that delivered those results. He might have owed his job to his father, but he advanced on merit. In 1856, the directors named him secretary to a new permanent committee of management, at a salary of £200 a year; he likewise formed half of a two-man committee to investigate problems at the branch in Bristol.1 Promotion to the position of secretary of the board of directors quickly followed.2 In 1857, it was Walter Bagehot whom the directors selected to appear on behalf of Stuckey’s at the Parliamentary Bank Act hearings, though it appears that Bagehot was never called to testify. At the end of the year, he was named co-manager of the Bristol branch; he would work there three days a week, the other days at Langport. His salary leapt to £500 a year.
There was more than money on the mind of the rising financier. Eliza Wilson had made fast work of the woman-scorning bachelor. He found that he could not erase the image of her loose hair flying in the wind. Naturally cheerful, he had never before been so discombobulated—nor, in alternating moments, so joyous. When he was apart from her, he read, reread, and kissed her letters, “till I begin to get wild.”3 If a Victorian courtship resembled a pair of simmering kettles, Bagehot’s had come to a boil.
The Wilsons encouraged him. After that first meeting in the country, Eliza’s mother, Elizabeth, urged him to visit their London home at 15 Hertford Street, Mayfair. Early on, the sisters called him “the young gentleman out of Miss Austen’s novels,” though Bagehot, at thirty-one, was not so very young.4 There were poetry readings, chaperoned walks, sightseeing parties including an expedition to Millbank to view the immensity of the Great Eastern, and dinners with literary and political celebrities.
George Ticknor, a Boston scholar of Spanish literature, was one of these visitors. The American described “a very luxurious table as far as eating and drinking are concerned,” and Eliza and two of her sisters, he recorded, spoke French “as few English girls can.” After dinner, “de Tocqueville came in . . . and we all changed language at once, except the Master [Wilson] who evidently has but one tongue in his head, and needs but one, considering the strong use he makes of it.” Ticknor remarked, too, on the presence of “a barrister whose name I did not get.” The name was Bagehot.5
When Parliament disbanded for the summer, Bagehot visited the Wilsons at Claverton, their rented country home, with its twenty bedrooms and paintings by, among others, Sir Joshua Reynolds. When the sun shone, the young people picnicked on the Wiltshire Downs, Eliza mounted on the back of a donkey. She was not up to walking, she believed. “On wet days,” recorded Emilie, the youngest Wilson sister, “there would be games of battledore in the picture gallery, Walter’s characteristic eyeglass floating about in the air on its black string as he ran hither and thither after the elusive shuttlecock.”
The pace of the courtship was unhurried—to the younger sisters, hoping for a wedding, it was drawn out exasperatingly. On September 27, Bagehot solemnly took Eliza aside to make a clean breast of something that he felt she had to know. Eliza describes the moment in her spare and quotidian diary: “Sat in the conservatory where Mr. Bagehot told me his mother was mad.” On October 3, Eliza records, “I took Mr. Bagehot to see the view and lost the donkey.” On October 8: “Mr. Bagehot read us Morte d’Arthur and Ulysses in billiard room, seated on stove. He is going to publish his essays.”6
Her narrative continues:
Oct. 28th. I walked with Mr. Bagehot before the house. Beautiful moon. Fall of Delhi [a reference to British forces retaking Delhi during the Indian Mutiny].
Oct. 31st. Papa received a letter from Mr. Bagehot with an enclosure for me and invited him to come here.
Nov. 2nd. Mr. Bagehot came at 2.30. He gave Papa a letter detailing his affairs and Papa sent him out riding with me, Julia and Mr. Greg. Papa and Mr. Bagehot had a long talk before dinner, and settled that he would speak to me next morning. Papa quite ill. Mr. Bagehot and I played at Beggar my Neighbour, and he gained a queen’s head from me.
Nov. 4th. Mamma held a consultation with Mr. Bagehot in the library before breakfast, and then he got me in there under the pretext of looking for a book, and proposed to me.
Nov. 5th. Talked over my proposed marriage with mamma and went to bed at 9, but did not sleep till 3.
Nov. 7th. Mr. Bagehot came at 10 for my answer. I was in the dining room and engaged myself to him then and there.
Ten years earlier, Bagehot had recorded his thoughts on the institution of marriage in a letter to Hutton: “To those who have to lead a secular life, marriage is, I suppose in the majority of cases, an assistance in the performance of duty . . .”7 A very different Bagehot now sallied forth to tell Hutton, still his best friend, the happiest news in the world.8
The financial position of the prospective bridegroom was promising. No longer a mere staff officer, “A Banker” was about to become an actual lending officer. His Stuckey’s shares yielded him £210 a year in dividends. All told, including salary and £50 a year from his interest in the National Review, he brought in (or would soon bring in) roughly £1,000 a year, a comfortable living. On a promising path to earn money, Bagehot also liked to save it. Hutton said that he had the “anti-spending instinct.”
Not Eliza: in a sense, spending was her occupation. The Wilsons consumed conspicuously. When they made their seasonal migration from Claverton to Mayfair, they took, by Eliza’s actual count on January 31, 1852, fifty-seven pieces of luggage. When they entertained at Mayfair, dinner guests could number eighty.9 It was not cheap to move in Mayfair society. Preparation for being presented at court required the extensive services of Miss Rutherford, the dressmaker, and a month’s worth of instruction in the art of the curtsy, under Madame Adelaide.10 There were theater tickets, Italian lessons, Queen’s balls,11 and Continental travel, including visits to the famous Paris salon of Madame Mohl.12
Wilson was fond of Bagehot, but he doted on his daughter. Once he knew of Bagehot’s intentions, he took her aside, not exactly to dissuade her from marriage, but to remind her of how happy she was at home.13 And when she finally decided to accept Bagehot’s proposal, the father of six took to his bed.
In mid-November, as the financial panic was beginning to subside, Eliza and her sister Sophie, along with their mother, set out for Edinburgh. Like their mother,14 the Wilson sisters suffered from headaches—Eliza had borne them since the age of eleven. What awaited them in Scotland was state-of-the-art phrenology under a certain Dr. Beveridge. He would massage the flesh, crunch and “grind” the bones. A friend of the Wilsons, the beautiful Lady Kinnaird, vouched for the doctor’s efficacy: he had cured her. Bagehot was suspicious—“rubbing,” he called the doctor’s technique. Prone to headaches himself, he wondered why Eliza couldn’t be rubbed in London.
James Wilson wasn’t long in his grieving bed. He and Bagehot put the three Wilson ladies on a train for Edinburgh and dropped into the British Museum to inspect the antiquities of Halicarnassus, just arrived from Greece. Dining together, they talked about currency. Returning from dinner, they stood on the Hertford Street doorstep till half past one discussing bimetallism in France.* As for Dr. Beveridge, Bagehot wrote to Eliza, “I hate him. He will try to keep you in Edinburgh under pretense of curing you.”15
For her part, Eliza was trying to get used to addressing “Mr. Bagehot” by his Christian name. She told him that she loved him and asked him to thank his mother for the friendly message that Bagehot had passed along at his mother’s request. Wrote Eliza: “Please give her my ‘respectful love,’ if you think that the proper thing.” He replied that it was futile: his mother would not be shaken from the belief that Eliza had broken off the engagement—why else would she fly off to Edinburgh?16
“My dearest Eliza,” he wrote on November 22,
I fear you will think the answer I wrote yesterday to your most kind and delicious letter, was very superficial, but I wrote it at once while people were talking and bothering me. I have now read yours over and over more times than
I should like to admit. I awoke in the middle of the night and immediately lit a candle to read it a few times again. It has given me more pleasure than I ever received from a letter, and infinitely more than I thought it possible I could receive from one.
I fancy that it is not now an effort to you to write to me—at least it reads as if it was written without effort. Yet it tells me things which with your deep and reserved nature it must have cost you much to put on paper. I wish indeed I could feel worthy of your affection—my reason, if not my imagination, is getting to believe you when you whisper to me that I have it, but as somebody says in Miss Austen, “I do not at all mind having what is too good for me”; my delight is at times intense. You must not suppose because I tell you of the wild, burning pain which I have felt, and at times, though I am and ought to be much soothed, still feel, that my love for you has ever been mere suffering. Even at the worst there was a wild, delicious excitement which I would not have lost for the world.
He closed on a note of Wilsonian laissez-faire. “I hope the Doctor does not think there is anything seriously the matter with your sister. Do not let him do much to her. I am more afraid of remedies than diseases.”17
In Edinburgh, Eliza was bored to tears. The doctor forbade his patients to read—it was bad for their eyes—though he did not prohibit writing by eye-straining gaslight. She wrote to tell Bagehot how glad she was that he had immersed himself in the currency question. “I have a strong feeling too that you will distinguish yourself on ‘Money’ somehow or other; I don’t mean by making much of it—I care far less about that than about people knowing that you understand it. I fancy we have both a little ambition of the right kind; do you think so?”18