by James Grant
Gladstone was, as charged, forever in motion. The Home Secretary who watched him execute his duties as a thirty-one-year-old vice president of the Board of Trade in 1841 recorded that “Gladstone could do in four hours what it took any other man sixteen to do and that he [nonetheless] worked sixteen hours a day.” Nor was it only at work that he seemed a man possessed. He was a famous walker, sea-bather, feller of trees, train-traveler, reader (a lifelong total of 20,000 books), churchgoer (daily, when possible), author, and redeemer and counselor of London prostitutes. He wrote his first book, The State in its Relations to the Church—a work of 500 pages—in just over a month (it prescribed that the British government should employ none but communicating members of the Church of England).16 His stamina was superhuman. One Friday evening in 1852, he made a late speech in the House of Commons, returned home after midnight, sat up all night to catch up on his correspondence, caught a 6 a.m. train to Birmingham, and walked 12 miles to his final destination. He was, he admitted, “sleepy enough” when evening rolled around.17
As Gladstone believed that he was put on earth to serve God, and as time was an irreplaceable resource, he husbanded minutes and hours. He called his diary, a seventy-year record almost as devoid of emotive color as Eliza Bagehot’s, “an account book of the all-precious gift of Time.”18
BAGEHOT DEALT WITH GLADSTONE in the many capacities of journalist, lobbyist, counselor, banker, and political candidate. Their journalistic relationship was, at first, a slightly awkward one, as Bagehot and the chancellor saw one another socially, sometimes at the Gladstones’ famous political breakfasts. For Bagehot, as for any journalist in a similarly enviable position, a question arises: How to use the rich material that falls from the lips of one’s knowledgeable host? Discretion is paramount, yet a precious quotation is never to be wasted. Besides, one’s illustrious friend (let us call him) is a man of the world. He may wish that the words he chooses to utter should find their way into print, even, perhaps, attached to his name. Yet to request his permission to quote runs the risk of the dreaded reply that all is off the record—or, worse, a glance that conveys a rebuke for the impertinence of asking.
Perhaps some of these thoughts passed through Bagehot’s mind as he wrote his finely wrought remembrance of Sir George Lewis, who died in 1863 while serving as Palmerston’s Secretary of War. Properly proud of his essay, which ran in the July 1865 issue of the National Review, the author sent a copy with his compliments to Gladstone, an interested party in Sir George’s career. He and Sir George had crossed swords over British policy toward America’s Civil War, with Lewis successfully arguing against Gladstone for a policy of nonintervention.19
Gladstone approved of the article—“I think in every or almost every case your commendations of character as well as of his intellect are within rather than beyond the mark.” He had, however, one question. Who was the unnamed authority that Bagehot quoted to draw a comparison between the formidable intellects of Lewis and Lewis’s friend, the historian Thomas Babington Macaulay (who many years earlier had attacked Gladstone’s The State in its Relation with the Church in the pages of the Edinburgh Review)?20 Gladstone only wondered because he himself had drawn the same interesting comparison.
Bagehot hastened to apologize. He admitted that Gladstone himself was the anonymous source. Pleading creative necessity, he added, “It is very difficult in writing of recent persons not to allude to recent conversations—Half the life of a description is given by such details.” Gladstone brushed the apology aside. “It was only that I aspired to the honor of having in whole or in part to do with the suggestion.”21
Their professional acquaintanceship ripened. Bagehot earned the honorific “Spare Chancellor” for assistance tendered to Gladstone on many occasions. To judge by Gladstone’s diary, that service was heavily concentrated in 1864–65 in the conceiving and drafting of legislation to regulate the circulating notes of the English country banks. The editor of the Economist and vice chairman of Stuckey’s had a vital interest in the subject.
It was, indeed, in the multifaceted capacity of banker–lobbyist–editor–political aspirant that Bagehot visited the chancellor on March 3, 1864. Today, such an overlay of professional roles might set in motion half a dozen ethics committees, but not then. Neither Bagehot nor Gladstone seemed to find anything objectionable in a journalist who pled his case—necessarily, an intermingled private and public one—before a ranking politician, who would endorse that journalist for elective office just a couple of years later.
The question Bagehot raised now was whether banks like Stuckey’s should be allowed to continue to issue their own currency—a right that the Act of 1844 had severely curtailed. And if so, should those issues be taxed? Might the issuing bankers protest against such taxation less vehemently if, in exchange for that exaction, there were relief from certain regulatory restrictions? Gladstone set to work to draft a bill to resolve these evergreen issues of Victorian banking policy.
In the days before checking accounts, private currency did yeoman’s service in the English countryside. In exchange for his deposit, a customer received his bank’s own home-printed scrip in lieu of a credit to a bank balance. It was money that he could spend or hoard. Under law, the holder could convert the notes to gold coin or notes of the Bank of England whenever he wished, but it fell to the issuing bank to manage its affairs as prudently as Stuckey’s customarily did. Some banks fell short of the mark, in which case the note-holder might come running to convert his notes before his bank’s gold ran out.
In general, the English financial establishment was hostile to the country banks’ ability to issue notes: the Bank of England’s note issuance was taxed—not so the country issues. And the Bank of England’s note issue was adequately secured by gold and government securities—not so, or, rather, not invariably so, was the country scrip. Nor were the country bankers uniformly friendly toward the political and monetary establishment. Seemingly arbitrary laws thwarted sound business practice: one forbade a country bank of issue from putting itself up for sale, along with its note-issuing franchise; another barred a private bank, organized as a six-man partnership, from bringing in additional partners; still another barred joint-stock banks of issue from the lucrative London market.
There were many other anomalies in the crazy-quilt of English banking regulations. Gladstone, with Bagehot at his elbow, sought to begin the work of rationalization.
A committee of country banks of issue—in which Bagehot held an executive position—was only too happy to advise the chancellor on how to proceed. Between February and June 1865, the Economist produced five articles on the legislation,§ and over the same period, Bagehot met with Gladstone on thirteen occasions; the banker-cum-journalist-cum-lobbyist advised by post, too. In one letter the editor acknowledged his personal interest, and wondered if Gladstone was perhaps not smiling at the thought that “those who are to pay the tax are not exactly the people to judge how great it should be.” If so, said Bagehot in his own defense, “I can only say in answer that I really believe my reasoning to be true, and that hardly any one knows all the ins and outs of a trade who has not an interest of some sort or other.”22
Bagehot counseled not only Gladstone but also a senior civil servant in the Treasury office, George Arbuthnot. Arbuthnot, in correspondence with Gladstone, praised Bagehot for his clear thinking and the fairness with which he approached the Act of 1844, the Economist’s longtime legislative punching bag. He mentioned Bagehot’s “influence as the Conductor of an influential and ably edited Newspaper and withal his remarkable freedom from prejudice,” and reported that the deputy governor of the Bank of England “talked of the Economist, and said that Bagehot was writing well and honestly, in constant communication with them.”23
From Gladstone, via Arbuthnot, comes a historical revelation: Bagehot, the erstwhile advocate of minimal government interference in banking, broached a suggestion to Gladstone that anticipated the financial socialism of the twentieth and t
wenty-first centuries. He proposed that the government might guarantee the value of privately issued bank notes.
Bagehot floated this idea in a meeting with Gladstone on March 3, 1864. Gladstone relayed the gist of the discussion to Arbuthnot: “I have seen Mr. Bagehot. He thinks we might: 1 make the Notes a first charge [i.e., the senior-most liability of the issuing banks]. 2 require the periodical exhibition of a certain portion of Assets [i.e., demand more financial disclosure from the issuing banks]. 3 give State guarantees to the Notes.”24
As it was, the country issuers had to bear the cost of providing collateral to support their outstanding note issues. Such collateral either earned no interest, as with gold, or minimal interest, as with government securities. A sovereign guarantee would be a boon to the profitability of banks that, like Stuckey’s, funded a portion of their assets with circulating notes.¶
Whether Bagehot was advocating for a reasonable policy or a wild, mind-expanding possibility, the chancellor did not say. Either way, in the context of the economic orthodoxy of Victorian Britain, it was a radical suggestion. One might well have asked, what gave a privately owned bank any claim to the credit of Her Majesty’s Treasury? The question, long dormant, would rise up to torment the politics of the twenty-first century. A state guarantee of the bankers’ notes in 1864 would have brought the taxpayers into the banking business several generations before deposit insurance, the too-big-to-fail doctrine, and the rest of the modern machinery of socialized financial risk came to fruition.
The legislative broth that these innumerable cooks prepared finally took the form of a proposition that the issuing banks could take or leave: they could elect to pay a tax of one percent of their circulation for fifteen years, in exchange for regulatory relief, and at the end of that period, Parliament could make new demands on them. Probably, Bagehot predicted in the Economist, Parliament would do just that, boosting the one percent tax on outstanding bank notes or requiring more collateral to protect note-holders against default.25
In the end, Bagehot’s and Gladstone’s hard work was for naught. On June 1, the chancellor withdrew the legislation, which had pleased no one. The proposed tax had especially displeased the bankers.26
BAGEHOT HAD ONLY JUST succeeded Richard Hutton at the Economist when the American secession crisis erupted in 1860. It was the biggest story in the world, and the Economist was bound to cover it, certainly its many financial and commercial facets. Whose side was Bagehot on?
The new editor had never visited the United States. He had said his piece against the vulgarity of American politics in 1859 (“men of refinement shrink from the House of Representatives as from a parish vestry”). As for Americans in general, he had conceived a general disapproval from his knowledge of a sample of the brash and thrusting Yankees who passed through London. He held a dim view of Abraham Lincoln and the politicians who remained in Washington after the southerners decamped: “How can men who have risen to power by low means be expected to use power for lofty purposes?” he demanded of the Economist’s readers in August 1861. “How can men who are where they are because they have truckled and temporized and cajoled and cringed and fawned upon the mob, now coerce the mob to do its duty, or overawe it into obedience and order?”27 He opposed slavery, while clinically observing that the peculiar institution at least afforded the slave-drivers the leisure for cultural development.28
Editorial writers don the mantle of omniscience as judges do their robes. Standing over his desk—for he worked on his feet—the editor of the Economist wrote with the confidence of a man who had read the as yet unwritten history of the Civil War. Away from his office at No. 340 Strand, Bagehot would have had no quarrel with the observation that as human events are unforeseeable, the prudent forecaster must deal in probabilities, not certainties. At his post, attired in editorial vestments, Hutton’s successor kept up professional pretenses.
The Economist had no correspondent in the United States. Its principal source of reportage on the war, like that of many Britons, was The Times, whose American reporter for the Northern states, Charles Mackay, a Scotch versifier, journalist, and anthologist,** sent home dispatches that confirmed the biases of his rabidly anti-Northern editors. Bagehot labored under the further disadvantage that the Palmerston government made him privy to official information. On the eve of the bombardment of Fort Sumter, Sir George Lewis, Palmerston’s secretary of war, wrote to Bagehot to vent his frustration over the vagueness of the North’s strategic aims. What would the Union do if it won, he asked:
To restore the old Union would be an absurdity. What other state of things does that village lawyer Lincoln contemplate as the fruit of victory? It seems to me that the men in power in Washington are much such persons as in this country get possession of a disreputable joint stock company. There is almost the same amount of ability and honesty.29
Bagehot took the argument to heart. He was still quoting from the letter in 1864: “After nearly three years of experience, it would be difficult to describe Washington more justly.”30
It was Bagehot’s view at the time that the Queen’s ministers possessed “special information, long consultations, skilled public servants to guide them.” No doubt Sir George, a devoted friend of Bagehot’s late father-in-law, and Gladstone, the chancellor, whom Bagehot likewise consulted, knew things that others didn’t. The trouble was that those things were often wrong.
The historian Hugh Brogan has shown how the Economist and The Times erred in lockstep. Evidently under the influence of the government, they were the purveyors of “fashionable English fallacy.”31 Each publication predicted a Southern victory; each asserted that, in any case, the North could never coerce the South back into the Union; each overestimated the human cost of the war, terrible as it actually was. Bagehot, an admirer of Lincoln’s secretary of the Treasury, Salmon Chase, spared himself the embarrassment of duplicating The Times’s prediction that the North would spend itself into bankruptcy.
It rankled the free-trading Economist that the Union was raising its tariffs on English manufactures. Richard Cobden and John Bright, the Economist’s old comrades from Anti-Corn Law days, were similarly disapproving of the Union’s insults to free trade. What the old radicals did not begrudge the North was the necessity of financing its war. It was a war—so Cobden and Bright saw it—against slavery. To Hutton, too, now happily settled at the Spectator, the war was as simple as slavery.
It was not so simple to Bagehot. In the Economist of August 17, 1861, which appeared shortly after news of the Federal defeat at Bull Run, Bagehot asserted that, really, the South was only fighting to choose its own government, something that no democrat—and the North, by its own estimation, was nothing if not democratic—could honestly deny it: “the abolition sentiment has nothing to do with the quarrel,” Bagehot propounded, “and the Protection tariff a great deal, and the mere lust of dominion and of empire more than either.”
Far from supporting slavery, as Bagehot argued early the next year, the Economist wished for emancipation. So did John Elliott Cairnes,†† but whereas the rising Irish economist wanted to see the South defeated, the Economist hoped to see it victorious. “It is because,” Bagehot tried to explain,
we wish well to the Africans—because we are ardently bent upon their immediate improvement and their ultimate emancipation—that we wish for a dissolution of that Union which has hitherto crushed them down by its banded, undivided, and resistless might.
“Sometimes,” notes the historian of the Economist, Ruth Dudley Edwards, “Bagehot’s propensity for paradox led him down peculiar paths.”32
AT 6 P.M. ON Monday, October 7, 1862, Gladstone stood before an enthusiastic dinner crowd of 500 in the Town Hall in the northeast English constituency of Tyneside. He addressed them, in part, on America’s Civil War. “We may have our own opinions about slavery,” said the chancellor; “we may be for or against the South, but there is no doubt that Jefferson Davis and other leaders of the South have made an army; they are m
aking, it appears, a navy; and they have made what is more difficult than either, they have made a nation.”33
Years later, Gladstone could hardly believe that he had said it—a ranking minister of Her Majesty’s Government seeming to commit his Cabinet colleagues, whom he had not consulted, to the recognition of the Confederacy, a course of action that might have led to a diplomatic rupture with the United States, quite possibly war.34 Others reached the same conclusion the moment they read Gladstone’s shocking words. The Spectator, the Morning Star, and the Daily News, among other pro-Federal journals ranging from establishment to working-class, rushed to condemn them.35
Bagehot did not condemn. He excused Gladstone’s intemperance—the chancellor was known to be “impulsive”—and, besides, “an orator, especially an eloquent orator, when on his legs is apt, unless he be cool as well as experienced, to say rather what he thinks and feels than what he intends.” Sir George Lewis had quickly followed Gladstone’s speech with a denial, on behalf of the Palmerston government, of any intention to recognize the Confederacy, and this position the Economist approved. But as for the political and strategic premises on which Gladstone based his ill-advised remarks, the paper was one with the chancellor:
that the independence of the Southern Confederacy is a certain fact if not a fait accompli; that Jefferson Davis and his coadjutors have made the Confederacy a nation; that there is not the slightest prospect of their subjugation or forcible re-annexation; and that both by the resolution they have shown, the strength they have put forth, and the victories they have won, they have shown that they can earn, if they have not yet fully earned the right to be admitted into the society of the world as a substantive and sovereign State.36