I have never been sure how to pronounce the surname of Walter Bagehot (1826–77), and that, combined with my belief that he worked somewhere on the interface of economics and politics (to me a slough of total despond), had not made me keen to know more about him. But I read an article the other day which claimed that his writing was very funny, so I picked up our copy of Lombard Street (of which, I discovered to my astonishment, we have sold a gratifying number of copies), and though I can’t claim that my ribs are much tickled, I find myself smiling wryly quite often.
The great thing about Bagehot is that he explains things very clearly. I read and re-read a lot of Anthony Trollope, and for some time have been urging my new-book editorial colleagues to publish something which explains all the dodgy financial dealings of Mr Sowerby and his ilk – ‘just sign this note and it’ll all be fine’, and the next thing the hapless victim knows is that the bailiffs are in possession of his house, even though he never at any stage had any financial benefit from the transaction. Lombard Street does not deal much with the dodgy end, but I now begin to see the circumstances – the ways in which money is put to work – that allow the dodgy end to flourish.
The other interesting thing is the ‘plus ça change’ element. Of the spectacular crash in 1866 of the house of Overend and Gurney, which ‘stood next [in reputation] to the Bank of England in the City of London’, Bagehot says that ‘these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better’. Toxic debt, Northern Rock, RBS, Lehman Brothers, anyone?
Overend’s head office was in fact in Lombard Street, which Bagehot uses to denote the money market, ‘because I wish to deal, and show that I mean to deal, with concrete realities’. Lombard Street took its name from a piece of land granted by Edward I to some north Italian goldsmiths. Presumably when Italian bankers/money-lenders began to set up business in England in the late fifteenth century, they congregated in an area where their countrymen were already prospering.
Until Canary Wharf sucked the big financial firms out of the City, most of them had their headquarters in Lombard Street, and it was the original home of Lloyd’s coffee-house, from which the British insurance industry sprang. And it was in Lombard Street in early May 1866 that large crowds gathered, desperate to withdraw their deposits before it was too late. When Overends ceased trading on 10 May, the knock-on effect saw over 200 other companies, including other banks, fail as well.
Writing in 1873, Bagehot, who had become editor of The Economist in 1861 and continued in the post until his death, was concerned to make people understand that in spite of such apparent disasters, and regular banking panics, the banking system in Britain was in fact very sound indeed, not merely because of the huge amounts invested in it but also because of the flexibility which enabled it to respond quickly to changing financial circumstances: ‘Thus English capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level’. (Interesting analogy: Bagehot was born in Langport, Somerset, on the banks of the now notorious river Parrett.)
So, enticed by chapter titles such as ‘Why Lombard Street is often dull, and sometimes excited’, and tantalised by questions such as why the Mediterranean nations took no advantage of the opening of the Suez Canal, I am reading on. There is quite a lot of useful pub-quiz material: Q. ‘Why do some Scottish banks print their own notes, which are not necessarily accepted in England?’ A. ‘Because Scotland was exempted from the 1844 Bank Charter Act, which stopped the practice of note-issuing by private banks, which was believed to fuel inflation.’ Reverse quantitative easing, in fact?
After this, I will tackle Bagehot’s Physics and Politics of 1872, and I think we should also ‘do’ The English Constitution (1867), if only for my benefit. I’m still not sure how to pronounce his name, though.