by James Grant
since it is certain that whenever it has taken place houses which were insolvent and ought to have fallen beneath the attacks of their distrustful creditors have been enabled to weather the storm only to fall at length in greater ruin. Had permission not been given to violate the Act in 1857 the great leather-houses which failed a few years later would certainly have succumbed, it is not improbable that Overend, Gurney & Co., who were to a large extent their creditors, would have had to suspend payments, and that Sir S. Morton Peto’s firm would have been in the same condition. Can it be said that the country has benefited from keeping alive these houses? Is it not rather certain that if they had fallen in 1857 they would have been prevented from increasing, as they have done, the area of their mischief, and would have brought about far less misery by their failures.
The Times’s writer did not name Bagehot, but seemed to be not far from his mind. The editor of the Economist had protested that bankers could not continue to pay their accustomed dividends if a change in the rules required them to hold vaults of sterile gold. Well, The Times’s man countered, so be it: A banker’s first duty is solvency, not dividend disbursement. And as for the Bank of England, what is it except a joint-stock bank? How could it justify the policy of holding idle balances for the benefit of its London competitors? “Noblesse oblige is a motto at the Bank of England and the directors of that establishment think they should act the part of a paternal Government in banking,” said the critic. But, he continued,
Never was there a greater mistake. It is founded on a misconception of the position of the Bank, which differs in no essential particular from that of its neighbors. It tends to aggravate panics, since it encourages other banks to push their trade to the utmost, and so bring all the weight of the reaction upon the reserve of one establishment. The erroneous policy on the part of the Bank directors, which, though sanctioned by the language of the Governor at the last meeting, has perhaps never been distinctly conceived, should be at once repudiated; the directors of other banks should be warned that they must take care of their own solvency; and if such a lesson be learnt, the crisis of 1866 will not have happened in vain.
Strong and prescient words, but Bagehot’s would ring down through the years. In Lombard Street, the quotable phrases of the Economist’s most famous editor would serve to lighten the burdens of the directors of the very largest banks. In a crisis, the solvency of the institutions they directed would at last become the public’s business as much as their own. They would look not to their own reserve but to the central bank’s.
Bankers are mortal, said Vincent Stuckey, Bagehot’s astute uncle, but banks should live forever. No more than his famous nephew did Stuckey suspect that government succor would one day save from extinction the largest British bank, indeed the world’s largest bank, the Royal Bank of Scotland Group. It would not, however, have surprised Hankey.
* “In politics, in cricket, in Threadneedle Street, the cult of the disinterested amateur was only just approaching its apogee,” observes David Kynaston, historian of the Bank of England. David Kynaston, Till Time’s Last Sand: A History of the Bank of England 1694–2013 (London: Bloomsbury, 2017), 210.
† Viscount Cranborne, MP, later Lord Salisbury, the future Conservative prime minister, was one of these disappointed investors. “I have no reason to fear any ultimate loss,” he wrote hopefully to his father on May 14 in seeking a loan of as much as £6,000 to tide him over a period of temporary illiquidity. On May 17, Cranborne again wrote to his father to acknowledge that his ultimate liability, if the entire unpaid portion of the capital were called, could be in excess of £18,000. Besides his exposure to Overend, Gurney & Co., Cranborne was evidently an investor in the Imperial Mercantile Credit Association, a financial flotation with roots in the unhappy family of companies promoted by associates of the aforementioned Albert Grant, MP. Cranborne, thirty-six, who had not yet come into his substantial inheritance, was making a living by contributing articles to the Saturday Review. W.T.C. King, History of the London Discount Market (London: Frank Cass, 1972), 232. Cranborne archives; Smith, “Lord Salisbury on Politics,” 4.
‡ By which the Bank was allowed to issue notes uncollateralized by gold; in fact, no such increment of notes entered circulation.
§ The Stuckey’s directors’ minutes recorded shareholdings only intermittently. As of May 1, 1867, Bagehot owned 130 shares, 46 more than his father and 3.4 percent of the 3,830 shares issued and outstanding. If Bagehot had held that position in 1866, he would have earned £1,560 in dividend income alone, apart from his salary in the neighborhood of £400 a year. It appears that the Economist paid him on the order of £780 a year.
CHAPTER 11
THE GREAT SCRUM OF REFORM
The Economist went to press on Friday night, panic or no panic. On Black Friday, May 11, 1866, Bagehot put to bed twenty-eight pages of text, advertising, and statistical matter. Editorial coverage ranged from Overend Gurney to foreign affairs, the Irish land question to practical farming, including a lengthy how-to article which ran out under the plain-Jane headline “Horse-Breeding.”
A good editor would have read all this copy and reviewed the crowded pages of statistics, those data being much improved and expanded by the contributions of the economist William Newmarch.* Bagehot was a superb editor. What he lacked in patience for detail, he more than made up for in verve, facility, and speed.
He was, of course, a writing editor. His stylistic watermark was obvious in the panic articles, which he must have composed on a hot deadline: “The State Of The City,” which led the paper, and a follow-up analysis, “What A Panic Is And How It Might Be Mitigated.” A third essay, likewise in his voice, commented on the Russell government’s legislation to reform British elections (“The Distribution Of Seats Bill”). These three articles encompassed 6,128 words, the equivalent of twenty-four and a half double-spaced typewritten pages. Bagehot wrote fast and fluently—and with a steel pen. The Remington typewriter would not arrive in Britain for seven more years.1
But on that crowded Friday, the editor had more on his mind than the ticking journalistic clock—more, even, than the Stuckey’s London operation, which was his to oversee. Walter Bagehot was going to become a politician.
The Bridgwater Liberals had recently approached him to stand for Parliament in the upcoming June election. The town, a seafaring and manufacturing center, was a dozen miles southeast of Langport; as it had a Stuckey’s branch, Bagehot knew the monied residents. He was to meet a visiting Liberal delegation at his London home on Saturday afternoon. Thoughts of that imminent appointment might have distracted a banker–editor–commentator even in the midst of a financial panic on a press day.
Bagehot’s credentials could hardly have been better. In a “speaking and writing age,” as the candidate himself described the time in which he lived, who better to shine? Bagehot was forty years old, nice to look at, financially comfortable. He was a hunter and horseman, or at least had been as a younger man. He was the husband of the eldest daughter of the late, distinguished James Wilson. His connection to Stuckey’s was similarly to his credit. And if his speaking voice lacked power, that was not so very important; it could hardly give out in the few short days allotted to electioneering.
Bagehot also knew well the significance of the ripe political moment. He had lived through many. The 1832 Reform Act almost doubled the size of the parliamentary electorate, while still leaving half the middle class and virtually the entire working class voteless. The 1846 repeal of the Corn Laws marked the dawn of free trade and the beginning of the end of rule by the landed aristocracy. British military reverses in the Crimean War in the mid-1850s provoked a public outcry against the incompetence of the aristocratic officer corps. A decade later, the American Civil War cleaved British ideological loyalties, the Lancashire cotton workers siding with the North and Lincoln, the rich and well-born supporting the South and Jefferson Davis.
The Union victory emboldened the rising democrats. “Slavery has m
easured itself against freedom, and slavery has perished in the struggle,” John Bright, that relentless exponent of free trade and working-class suffrage, jotted in his private journal upon receipt of the happy news from Appomattox. “The friends of freedom everywhere should thank God and take courage—they may believe that the world is not forsaken by Him who made it and who rules it.”2
For Bright and his Radical allies, the struggle for reason in public affairs had begun with the victory of free trade over protection in the matter of the Corn Laws. Perhaps the fight would never end, but it certainly could not end until the multitudes gained their political voice. In 1865, few Englishmen, and not one English woman, had the vote in a parliamentary election; a property qualification debarred the poor, virtually all agricultural laborers, and most of the working class. Long-outmoded electoral constituencies virtually disenfranchised many eligible voters who lived in the newly populous industrial cities. To the Radicals, it was galling and absurd that tiny Knaresborough, with 271 electors, or Thetford, with 223, should be as strongly represented in Parliament as the cities of Birmingham, Manchester, and Liverpool, thronged with striving, intelligent, skilled, politically mute workmen. Forty boroughs with a combined 200,000 people and 16,000 voters returned sixty-four members to the House of Commons; the county of Lanarkshire, with a population of 530,000, sent but one.3 What was to be done? Much, the reformers cried, and now was the time to do it.
John Stuart Mill, the great philosopher, economist, author, and feminist, had accepted an invitation to stand as a Liberal candidate for the borough of Westminster, in central London, in the general election of July 1865. He did so on three conditions: he would incur no election expenses, conduct no campaign, and deliver two speeches only, one to the electors and the other to the disenfranchised.
The slim, sandy-haired man who faced the voteless citizens of Westminster on the night of Saturday, July 8, 1865, had never been to school, perhaps like some of them. Born in 1806, the eldest of nine children, Mill got his education at home. His formidable and irascible father, James Mill—radical reformer, economist, historian of British India, chief exponent of Jeremy Bentham’s utilitarian philosophy, collaborator of David Ricardo, abettor of the 1832 Reform Act—set him to learning Greek at the age of three, reading Plato by eight, Virgil and Horace by twelve, political economy and Tacitus at thirteen. Young Mill wrote and read all day long, except, between the ages of four and nine, during a daily afternoon walk with his father, with whom he would discuss Gibbon’s The History of the Decline and Fall of the Roman Empire and other such incidental reading. Arithmetic, as Mill recalled, “was the task of the evenings, and I well remember its disagreeableness.” As for a university education, his father said it was out of the question—the boy already knew more than Cambridge could teach him. So John Stuart Mill, at the age of seventeen, followed James Mill into the Examiners Department of the East India Company, invariably beginning each day at his desk with a boiled egg, bread, butter, and tea, the only food that passed his lips until a simple dinner at 6 p.m.4 Now a retired Chief Examiner—in this, too, he succeeded his father—Mill rose to address his non-voting public.
If he had had his way, they could surely have voted. He declared that he was standing to protest the “money power.” It was wrong that the rich dominated Parliament, he said, even if those fortunate people performed commendable acts of charity toward the many who lacked the political means to help themselves. “[T]hey had,” said Mill of this elite, “a kind of patronizing and protective sympathy for the poor, such as shepherds had for their flocks—[laughter and cheers]—only that was conditional upon the flock always behaving like sheep [renewed laughter, and ‘Hear, hear.’]” Mill arraigned the English upper classes for their affinity for the Confederate slave-drivers in the recently concluded Civil War.
Under questioning, the candidate admitted to having written the provoking words that the British working classes, “though differing from those of some other countries in being ashamed of lying, are yet generally liars.”5 Mill explained himself: “the passage applied to the natural state of those who were both uneducated and subjected. If they were educated and became free citizens, then he should not be afraid of them. Lying was the vice of slaves, and they would never find slaves who were not liars. It was not a reproach that they were what slavery had made them.” At least, he told his admirers, the British “lower classes” were ashamed to lie. “[It] was more than he could venture to say of the same class in any other nation which he knew.”6
All should be represented, one way or another, Mill went on. Suppose that a certain constituency had 5,000 electors, of whom 3,000 voted Tory and 2,000 Liberal. Quite properly, the majority should send their man to the House of Commons. What about the other 2,000? Well, said Mill, if they could find another 1,000 who agreed with them, they should band together to elect their own representative. Combining thus, all Englishmen—whether in the majority or minority in their own particular constituency—would enjoy direct parliamentary representation.7
IT WAS ONE THING to be cheered, as Mill was cheered in Westminster that evening. It was another to be adulated, as Giuseppe Garibaldi, the Italian nationalist and soldier, had been during his visit to Britain a year previously, in 1864. All classes, all parties, hailed the man who had liberated Sicily, marched on Rome in order to unify Italy, and fought for the cause of liberation in South America. Trade unionists, City bankers, members of the Reform Club, and ministers of state competed to do him honor. Garibaldi dined with Gladstone, sailed on the yacht of the Duke of Sutherland, received the freedom of the City of London, and earned the editorial blessing of The Times, which could find no similar republican virtue in Abraham Lincoln.
The Economist, at least, succeeded in maintaining its English reserve. Yes, Bagehot acknowledged, Garibaldi was “a great and true-hearted patriot,” and faith he had to spare. “But unfortunately his faith is promiscuous and unsifting. He has faith in special providences, in wild schemes, in weak men and bad men. He is easily impressed, easily bamboozled, easily misled. He is, in fact, an intensely amiable, affectionate, believing, unsuspecting child.”8
It was in the wake of his dinner with this supposed child that Gladstone uttered the politically prophetic words, “I venture to say that every man who is not presumably incapacitated by some consideration of personal unfitness or of political danger is morally entitled to come within the pale of the constitution.” So saying, the chancellor presaged his own, failed reform bill in 1866, as well as Benjamin Disraeli’s successful, incongruous retort, the Reform Act of 1867.9
BETWEEN THE TIME OF Garibaldi’s visit and Mill’s election—the philosopher won by 701 votes out of 12,883 cast—Bagehot began to apply his powers to a study of the body of law and custom known as the English Constitution. The first fruits of that work, an essay entitled “The Cabinet,” appeared in the maiden issue of the Fortnightly Review, in May 1865. Bagehot’s article was, in fact, the lead article in that first number, with essays by Anthony Trollope, F. T. Palgrave, and George Eliot filling out the magazine.†
Bagehot developed his constitutional thinking in subsequent issues of the Fortnightly. Somehow, between Economist deadlines, he found time to write the articles—later chapters—entitled “The Prerequisites of Cabinet Government, and the Peculiar Form which they have assumed in England”; “The Monarchy”; “The House of Lords”; and “The House of Commons,” which would form slightly more than half of The English Constitution, published in 1867. Alongside his later works Physics and Politics and Lombard Street, The English Constitution forms the bedrock of Bagehot’s reputation as the keenest political, social, and financial observer of his day.‡
The visiting emissaries from Bridgwater therefore need not have wondered which political and constitutional principles Bagehot would carry with him to the House of Commons, as the author–candidate was literally an open book. He was, of course, a Liberal, meaning one who believed in progress, religious liberty, limited government, clean
elections, non-entanglement in foreign wars, free trade, and, at least in Bagehot’s case, free banking, meaning the right of an individual to found a bank with minimum state interference. Staking out the political middle ground, he was as impatient with the mystic Burkean conservatism of the Tories as he was with the leveling democratic ideals of the Radicals. Society was bound to change—in a time of capitalist innovation, it could hardly be otherwise—and as it changed, so must the composition and distribution of the electorate. Let some of the workers have their vote, Bagehot and the Economist therefore concluded. But universal manhood suffrage? Woe betide Britain if the lower orders ever gained the whip hand.
At University College, Bagehot had been all for laissez-faire, but had gradually come to believe that it was the government’s business to rationalize—even to nationalize—competing railway lines, to educate the poor, and to sweeten the public health.§ He insisted that the Bank of England should hold the nation’s bullion reserve (relieving banks of that costly necessity) and serve as lender of last resort. “I often ventured to say to him,” recalled John Morley, successor to George Lewes as editor of the Fortnightly, of Bagehot, “‘You have only one defect; you do not feel the inherent power and glory of the principle of Liberty.’”10
The Liberal Party was large enough, inclusive enough, and fractious enough to contain Mill, a kind of democrat who, by the time of the publication of the third edition of Principles of Political Economy, was espousing some sympathy for socialism; Robert Lowe, a kind of aristocrat, a pure anti-democrat and free-market-adhering capitalist; and Bagehot, whose political watchwords were “animated moderation.” The party made room even for Bright, a free-trader whose affinities toward the ballot were perhaps to the left of Mill’s. Gladstone led the unruly bedfellows in Parliament.