by James Grant
Yet Bagehot himself was not an owner of the paper. It would be most irregular if he were, explained the one-time law student, as “I am one of the Trustees of Mr. Wilson’s will and of this very property and no permanent interest in it could possibly be given to me: trustees cannot convey to themselves.”
Bagehot and his co-trustees had decided to convey to the editor a salary of £400 a year, space rates for his articles, and half the profits above £2,000 a year. On average since 1862, that profit participation had yielded him £780. He had recently been paying a portion of Giffen’s salary out of his own pocket, “as I have not since my illness been able to do all which I used to do formerly.”†
“I hope therefore,” Bagehot closed his briefing, “that those concerned will not rely too much on their present prosperity, but that they will carefully bear in mind the nature of their principal source of income, and not regard that income as one which can be reckoned on in the same manner as one from funded property or land.”1
In 1875, Bagehot was voted vice chairman of Stuckey’s Banking Company, the high office that his father had filled. In 1876, the banker turned fifty. Outside the Stuckey’s offices, he was a short- to middle-distance writer who excelled at explaining things. His strengths were versatility, erudition, vividness of perception, critical judgment, and brilliance of style. His books, with the exception of Lombard Street, were built from the articles he had published in the monthly or quarterly press. He had produced no serious theoretical work; it was not clear that he had the stamina. His contributions to the literature of political economy, besides Lombard Street, consisted of hundreds of thousands of words in the Economist, which he necessarily wrote against the clock.
Now he resolved to spread his wings, to make a substantial contribution to economic theory. He would clarify Ricardian doctrine and push the science of political economy past the seemingly immovable figure of J. S. Mill. There would be three volumes: a treatise on method, a survey of classical theory, and biographical sketches of the leading economists.
“The Postulates of English Political Economy,” the first essay of the planned great work, made its appearance in the January and February 1876 issues of the Fortnightly Review.2 And there the project stopped. To John Morley, the Fortnightly’s editor, Bagehot confided his fear that he would never finish the job “except in pieces”; Bagehot was correct. He was not a theorist, but a user of theories and a critic of theorists. Sifting through Bagehot’s papers after he died, Giffen and Hutton found pages and chapters of the incomplete work. They pieced them together to form Economic Studies, a volume for which Alfred Marshall, Keynes’s teacher and the ruling English economist of his day, was persuaded to write a preface. (Eliza Bagehot proved a devoted, persistent, and most persuasive widow.) Marshall’s essay was dutiful, but privately, in 1889, the economist characterized the Bagehot fragments as “mostly brilliant, but very hasty and in reading him I alternately agree and admire much and differ and admire a little.”3 Bagehot’s first drafts were not for the ages.
In lieu of a second essay such as “The Postulates of English Political Economy,” Bagehot presented Morley with an upgrade: his commemorative profile of “Adam Smith as a Person” on the occasion of the hundredth anniversary of the publication of The Wealth of Nations. Bagehot was back to playing to his strengths: the reader comes first to feel as if he knows Adam Smith and, second, as if he would like to take the absent-minded Scottish scholar, European grand-tour guide, tutor, author, customs commissioner, and reasoner on free trade into his family. “Through life,” Bagehot relates, “there was about Adam Smith a sort of lumbering bonhomie which amused and endeared him to those around him.”4 As usual, Bagehot left clues about himself as he wrote about others. Smith, he observed, like the historian Thomas Babington Macaulay, could “describe practical matters in such a way as to fasten them on the imagination, and not only get what they say read, but get it remembered and make it part of the substance of the reader’s mind ever afterwards.” It was Bagehot’s gift, too.5
Bagehot deployed this talent to dazzling effect with another long essay that year. “Lord Althorp and the Reform Act of 1832” was history, biography, and Bagehot self-revelation built on the story of a fox-hunting nobleman who gave up the sport he loved in self-abnegating grief upon the death of his wife. Althorp was a bluff, rich, handsome Whig who would have no part of class-appropriate Conservative politics but championed radical reform in the ministry of Lord Grey. Bagehot describes the reactionary—the “savage”—spirit of the post-Napoleonic age and the turn against that ultraconservatism. He shows why the House of Commons voted to reform itself, even to the point of some members voting to extinguish their own constituencies.
The great Reform Act of 1832 did much, Bagehot allows, but perhaps undid more. The infamous pocket boroughs had sheltered a class of elevated statesmen who were spared the ordeal of having to face the voters, as the aristocrat in whose pocket the borough resided could command the requisite votes. “The reformers of 1832 destroyed intellectual constituencies in great numbers without saying, indeed without thinking, that it was desirable to create any,” Bagehot writes.
They thus by conspicuous action, which is the most influential mode of political instruction, taught mankind that an increase in the power of numbers was the change most to be desired in England. And of course the mass of mankind are only too ready to think so. They are always prone to believe their own knowledge to be “for all practical purposes” sufficient, and to be emancipated from the authority of the higher culture.6
Althorp, then, was of a type—the heedless type who has no conception of the unintended consequences of well-intended acts.
Being without culture, they do not know how these institutions grew; being without insight, they only see one half of their effect; being without foresight, they do not know what will happen if they are enlarged; being without originality, they cannot devise anything new to supply, if necessary, the place of the old.7
Bagehot was always a tough critic, but perhaps the repeatedly frustrated seeker of parliamentary office wrote with special vehemence against the irreversible tide of the popular, and now twice reformed and enlarged, electorate.
Early in 1877, R. E. Welby, principal clerk of the finance division of the Treasury, paid a call at the Economist’s office in the Strand. Finding Bagehot at his post, Welby sat down to talk. The Economist had broached an idea that piqued the interest of the chancellor, Sir Stafford Northcote: to let the British government raise short-term debt by issuing a new kind of security. Treasury bills, as they came to be called, would run for three months, rather than, as with exchequer bills, twelve months. The chancellor could issue them whenever the need arose—not that the purpose of creating the new security was to enlarge the public debt. Treasury bills would look like London commercial bills, or the French government’s bons de Tresor. Exchequer bills had been the Treasury’s standby since the days of William and Mary, but they were antiquated, inflexible, and, because sparsely owned and thinly traded, illiquid. They came to market only in March and June and bore interest rates higher than those paid by prime commercial borrowers. It was a telltale fact that Her Majesty’s Government paid higher money-market rates than the house of Barings did. Welby recalled Bagehot saying something like this:
The Treasury has the finest security in the world, but has not known how to use it. The market where you borrow deals in bills of exchange and is accustomed to that form of security. The security which you offer should resemble as nearly as possible a bill of exchange both in form and method of negotiation.8
Bagehot continued to press the idea in the pages of the Economist, though Sir Stafford needed no persuading. On March 7, 1877, Parliament enacted his legislation to allow the first issuance of Treasury bills. Neither the chancellor nor the Economist breathed a word about who had had the bright idea.
IN MARCH 1877, the equinoctial wind penetrated the undressed windows of the Bagehots’ new London house at 8 Queen’s Gate Pla
ce. William Morris had the commission for the curtains, wallpaper, and furniture, and the artist was not to be rushed. The eminent designer and poet was, said Bagehot, “composing the drawing-room as he would an ode.”9
In that chilly March, Bagehot caught cold. No matter—he was often unwell. Eliza and he would still take the train to Langport to spend Easter with his widowed father. By the time the couple reached Herd’s Hill, Bagehot was presenting the symptoms of his chronic bronchitis. A physician visited on March 24, morning and afternoon; he judged the prognosis favorable. After the second visit, Eliza took up station in the bedroom on a sofa behind a curtain, so as not to disturb her husband’s rest. Bagehot complained of extreme weakness. At about 4 p.m., he struggled to sit up. He waved Eliza off when she leaned over to help—“Let me have my own fidgets.” A moment later he called to her, then fell asleep “across the bed, breathing loud and hard.” At 5:25, she knelt to take his pulse. “While I counted a little purple came on his lips and he became still and white; I called his aunt—then poured brandy down his throat. She said—it is of no use & I knew that he was gone.”10
In London, they thought the reports of Bagehot’s death were garbled. Surely, the deceased was the editor’s father? The Times got the facts right but failed to grasp their significance. Its paragraph-length obituary resembled “the measure of the tribute that would be paid in the regular way to a deceased rear-Admiral or Colonial Bishop,” said the Irish radical journalist E. D. J. Wilson. In the pages of The Examiner, Wilson did Bagehot justice:
His friends used to say of him, and there was little exaggeration in the saying, that for a dozen years at least he was an unofficial member of every Cabinet, Conservatives as well as Liberal, which has governed these kingdoms. Successive Chancellors of the Exchequer and Secretaries of the Treasury called him into their counsels as a matter of course . . . And the most illustrious of the statesmen who thus consulted a journalist without a place in Parliament or any strength of party connection, would be the first to acknowledge how much they owed to the “white light” of his pure and clear intelligence.11
Gladstone was ready enough to credit Bagehot with some of the best advice he ever received in the chancellor’s office, and he wrote Eliza to say so. Many years later, Welby, the Treasury official who in retirement had been created Lord Welby, told Emilie Barrington how much Bagehot had contributed to the government’s finances: “The machinery of our financial administration is complicated, and Mr. Bagehot is the only outsider who had thoroughly mastered it. Indeed he understood the machine almost as completely as we who had to work it. This knowledge added to the soundness of his economical judgment, gave a special value to his opinion and advice.”12
In the weeks, months, and years that followed his death, Bagehot’s friends gave tribute. They marked the gift of his conversation (Lord Bryce to Hutton: “Is it going too far to say that he was the most interesting man in London to talk to?”),13 the power of his thought, the glory of his prose. His posthumous fame spread to America. In 1889 Woodrow Wilson, then a professor at Wesleyan University, extolled Bagehot’s writing in public lectures, saying that “you receive stimulation from him and a certain feeling of elation.”14
In the same year, the Travelers Insurance Company of Hartford, Connecticut, published Bagehot’s collected works in an edited, indexed, and annotated five-volume set, priced at $5. The scholarly president of Travelers, James Goodwin Batterson, assured policyholders that the company disowned any intention of proselytizing for Bagehot’s favorite institutions—the gold standard, cabinet government, free trade. Its motive was simply to spread the fruits of “one of the foremost minds of any century.” If it was a labor of love for Batterson, it was something very different for Forrest Morgan, the editor of the project, who devoted the first eight pages of his preface to raging against the long-deceased author for errors of commission and omission. Morgan wanted the readers to know—he really wanted them to know, as he had spent years of toil—that within the front ranks of English authors, Bagehot was the all-time, hands-down worst speller, fact-checker (he did not actually check facts), quotation-verifier (he made them up), and proofreader (he didn’t even bother).‡
WHEN HE HAD BEEN elected to membership in the Athenaeum in 1875, Bagehot had playfully wondered why: “By the rules they can only elect nine persons a year,” he wrote to Eliza, “and those ‘who have attained eminence in Science, Literature, the Arts or public services.’ I wonder what my eminence is?”15
His eminence was the near-literature of high journalism. Financial journalism is not so high, nor success, when achieved, so lofty. In that quotidian branch of the writing business, Bagehot was a superior commentator, though a middling seer—for every financial writer must squint into the future. His attitude was perhaps too cautionary in the short term, and much too complacent for the long term. He worried too much about the single gold reserve, and not enough about the distant adverse consequences of government control in banking and credit.
Bagehot lived and wrote in an era of monetary controversy and banking turmoil. For Britain, the wrenching failure of the City of Glasgow Bank in 1878 marked the close of the age of runs and panics. (Lidderdale, by then governor of the Bank of England, led a successful intervention to smother the effects of the Barings collapse in 1890.) Bagehot foresaw neither the calm that was to settle over the City during the rest of the nineteenth century, nor the upheaval that was to frighten the world half out of its mind in the twenty-first century.
Because Bagehot’s words are so easily quoted, they are often misquoted. His prescription that, in a panic, a central bank should lend freely at a high rate of interest against good collateral has virtually become, following 2007, “Lend freely at low rates of interest while materializing immense sums of fiat money with which to raise the prices of financial assets in order to stimulate spending by the people who own the assets.”
Can a man, even a genius, be fairly charged with failure to predict the distant evil consequences of the things he said, or didn’t quite say, or said in a setting so foreign to that of his posterity that he was bound to be misinterpreted? Bagehot wrote in the context of the gold standard: of fixed foreign exchange rates, balanced budgets, convertible currencies, and the personal responsibility—either limited or unlimited—of bank shareholders for the solvency of the institutions in which they were invested. His world was one of institutionalized discipline. Today’s world—one of paper currencies, floating exchange rates, enormous budget deficits, and governmental policies to protect both investors and depositors against the consequences of a bank’s mismanagement—is largely one of institutionalized indiscipline.
In his indictment of the reformers of 1832, Bagehot said, “Probably they will do some present palpable good, but they will do so at a heavy cost; years after they have passed away, the bad effects of that which they did, and of the precedents which they set, will be hard to bear and difficult to change.”16 So, arguably, with Bagehot’s ideas on central banking. If he did not invent the doctrine of the lender of last resort, he did canonize it. His epigrams did not lead today’s central bankers to take actions that they would not have otherwise taken, but those words put the gloss of conservative authority on unprecedented monetary experiments.
Viscount Blakenham, former chairman of Pearson and chairman of the Financial Times from 1983 to 1997, was an environmentalist and a lover of the English countryside. Some time ago, on a visit to the FT’s offices, the then president of Italy told the chairman how much he admired Walter Bagehot, the great Victorian editor of the Economist. Not quite getting the name, Blakenham exclaimed, “Oh, I love badgers, too.”
His name was impossible. His words live.
* Just why the trustees had chosen to concentrate so much of the money they managed in the equity of a single bank, and a bank in which one of the trustees was so deeply interested, did not figure in Bagehot’s presentation.
† In 1873, the circulation of the Economist stood at 3,690. Thirty years
later, it averaged just 3,541. Today, it tops 1.1 million worldwide. Ruth Dudley Edwards, The Pursuit of Reason: The Economist, 1843–1993 (Boston: Harvard Business School Press, 1993), 951.
‡ “No one,” Morgan averred, “who does not—as probably no one save a future editor ever will—compare this edition, word by word, with any former ones, can form any adequate conception of the shocking state of Bagehot’s text as heretofore given to the world; there is nothing even remotely approaching it in the case of any other English writer of high mark since Shakespeare’s time.” Forrest Morgan, ed., The Works of Walter Bagehot, vol. 1 (Hartford: The Travelers Insurance Company, 1889), ii.
Illustrations Insert
The Old Lady of Threadneedle Street, dressed in Bank notes and perched on a double-locked treasure chest, fends off the advances of the spindly prime minister, William Pitt the Younger, in James Gillray’s famous 1797 cartoon.
Walter Bagehot: the one and only contemporary likeness.
Benjamin Disraeli, novelist and prime minister, whose changeable views on trade and electoral reform incurred Bagehot’s contempt—he possessed “the most ingenious and manipulating intellect of his generation.”
William Ewart Gladstone, four times prime minister, four times chancellor of the exchequer, frequent seeker of Bagehot’s advice and booster of Bagehot’s run for Parliament—“your fitness must stand without dispute in the first rank.”
Augustus De Morgan, the brilliant and fanciful mathematician who taught Bagehot at University College London: “We have been discussing the properties of infinite series, which are very perplexing.”
James Wilson, founder of the Economist, champion of free trade, and father of six daughters, of whom the eldest married Bagehot. His new paper, vowed Wilson, would be “perfectly philosophical, steady and moderate—nothing but pure principles.”