Till Time's Last Sand

by David Kynaston

  What about the Bank’s larger responsibilities? Had the experience of the crisis changed its own conception of them? Not according to Morris. ‘I consider that with the powers that have been given to the Bank of England,’ the governor declared in the course of his evidence, ‘they are no more bound to support commercial credit than any other bankers are, except, that being a more powerful body, and having greater means, they are enabled to accomplish that object to a larger extent.’ And so too Cotton: ‘I think the Bank of England should be conducted upon the same principle as any other Bank is conducted.’ Even so, the eventual report of the Commons Committee made it all too clear that post-1847 this was likely to become a minority view, whatever the logical implications of the Act:

  It is true that there are no restrictions imposed by law upon the discretion of the Bank, in respect to the conduct of the Banking as distinguished from the Issue Department. But the Bank is a public institution, possessed of special and exclusive privileges, standing in a peculiar relation to the Government, and exercising from the magnitude of its resources, great influence over the general mercantile and monetary transactions of the country. These circumstances impose upon the Bank the duty of a consideration of the public interest, not indeed enacted or defined by law, but which Parliament in its various transactions with the Bank has always recognized and which the Bank has never disclaimed.7

  Given the Morris/Cotton evidence, those last few words may have been a bit of a stretch; but given also that the Bank had acted as lender of last resort as long ago as the 1760s, the phrase ‘has always recognized’ told a larger truth, albeit temporarily disguised during those somewhat errant – and arguably cussed – two and a half years before the crisis broke.

  The 1847 crisis also put squarely on the agenda the question of the Bank’s governance. As early as May that year, Russell was suggesting to Wood the desirability of governors serving longer than the usual two (occasionally three) years; but it was really the failure and enforced resignation in August of governor Robinson that raised the stakes. ‘It must expedite the period for those general discussions and arrangements respecting the future management of the Bank which could not under any circumstances have been long delayed,’ Loyd at once wrote to Wood. ‘A brother Banker of considerable eminence called on me today to ascertain my opinion whether this was not the proper time for a public movement in the City respecting a permanent Governor of the Bank, well paid, and unconnected in his private capacity with business. I recommended him to remain quiet.’ Then came the intervention of The Times’s City editor on 14 September, two days before the General Court’s half-yearly meeting. He called for the election of a permanent governor (‘one who shall have familiarised himself with the broad practical philosophy of commerce and finance, holding no plurality of directorships, free from the narrow views and daily anxieties of a local business, unbiased by the consciousness that the duties of a banker must often clash with the momentary gains of a trader, and uncontaminated by the petty but always active jealousies of commercial rivalry’); condemned the present method of choosing directors (‘the aristocratic plan of selecting the junior members of firms who inherit a mercantile name and fortune, but rarely or never the shrewdness and energy by which the name and the fortune were originally won, has been tried long enough to render its continuance intolerable’); and observed that ‘a disposition on the part of the institution towards self-reformation would be gladly hailed’.

  At the General Court itself, the proprietor who made the running was Parry de Winton:

  The unfortunate position of the gentleman who lately occupied the chair in the direction was a matter of notoriety. If the circumstance to which he now alluded was one which only happened occasionally, he should have looked upon it as purely accidental, for every man was liable to misfortune; but when he looked back during a period of 18 years, he found that out of nine persons who had passed the chair six had fallen into a state of insolvency. Now, he would ask any proprietor present what would have been thought thirty years ago if a governor of that establishment had been called before a court of bankruptcy to answer his creditors? It was a discredit to the Bank that such things should be allowed to occur, and they formed in the eyes of the mercantile world a sight as bad as would be that of the Bishop of London standing before a Bow-street magistrate for petty larceny. (Laughter.) The proprietors must try to prevent the recurrence of this evil, for, if they did not, they might depend on it, the matter would be taken out of their hands.

  Accordingly, de Winton wanted the governor to be elected for at least four years and to be ‘a gentleman of settled habits of thought, of a dignified bearing, of talent, and, by retirement from business, he should be free from all personal pecuniary distractions’; and he demanded a special meeting of proprietors to discuss the whole issue of the election of directors. This, governor Morris emphatically refused, while Loyd made a powerful speech insisting that any visible sign of disagreement between management and proprietors would be deeply damaging to the Bank and indeed to the City. The General Court thus ended inconclusively; but within days Wood was informing Loyd that he had written to Morris and Norman urging that the Bank’s constitution ‘be altered so as to get a better set of men into the direction and to provide for the situation of Governor being filled by persons chosen for some better reason than that of being next in succession’.8

  The events of the next few weeks allowed little time for questions of governance, but towards the end of the year the Committee of Treasury prepared a report, ready for consideration in January by the directors as a whole. ‘The Court are aware,’ it reminded them, ‘that it has been the custom to expect each Director in rotation to offer himself to fill the offices, first of Deputy Governor and then of Governor; and Directors not willing so to offer themselves have, with few exceptions [including Norman], retired from the Direction.’ This, however, ‘has occasioned (and might again occasion) the withdrawal from the Court of many valuable Members’; and therefore, ‘for this and other reasons to which it is not necessary more particularly to allude, The Committee of Treasury are of opinion that Gentlemen should be selected to fill the Chairs [the governorship and deputy governorship] upon some other principle than that of rotation’ – that, instead, the principle should be ‘the persons who may be deemed most qualified, without regard to their seniority in the Direction’. Although silent on the question of a permanent governor, the report argued that a further advantage of this reform would be ending the tendency to elect directors ‘below the middle age’, given that it would no longer be necessary to wait a set period of years before becoming governor, and thus ‘the field for the choice of suitable Candidates [to become directors] would be enlarged’. Moreover, likewise in the interests of widening the field, the report advocated ‘no longer to require as an indispensable condition that Candidates [for directorship] should be actually engaged in business, although, at the same time, they are still of opinion that persons who have been members of Commercial Houses should alone be selected’. The Court duly accepted all these proposals, subsequently endorsed by the General Court in March 1848; and, even if hardly revolutionary, they undoubtedly, taken in the round, put the Bank in potentially a better state to cope with the demands of the second half of the century.

  Anthony Howe’s examination of the changing composition of the Court – comparing the twenty-seven directors elected between 1848 and 1873 to the twenty-three directors elected between 1833 and 1847 – suggests in practice a sluggish pace of change. Governors did get appreciably older (59.5 years old at the start of their tenure, compared to 53.2), but directors barely so (35.2 years old at point of election, compared to 34.8); while in terms of the hereditary aspect, there were only three sons of directors in the earlier cohort, but five in the later. Merchants meanwhile remained the dominant occupational group, but whereas in the first cohort there were eighteen merchants to three merchant bankers, the respective figures in the second cohort were thirteen to nine, reflecting t
he increasing importance of merchant banking in the City at large, with one of those nine being Alfred de Rothschild, elected in 1868 as the Bank’s first Jewish director. Out-and-out commercial bankers, whether private or joint-stock, continued – despite their obvious potential expertise – to be barred from the Bank’s direction, seemingly (though never or seldom explicitly stated) on the traditional grounds of potential conflicts of interest. As for other characteristics, the Bank’s directors were not yet on the whole overwhelmingly wealthy (only four of the 1848–73 cohort leaving fortunes of over £½ million, though that was four more than the previous cohort); but they were becoming better educated (half of the later cohort going to Oxford) and increasingly politically active (no fewer than ten of the directors in 1863 also being MPs, still mainly of Liberal rather than Tory persuasion, reflecting perhaps the City’s deep Whig roots). Were they also moving socially upwards? To a degree, perhaps. ‘As near the true idea of aristocratic perfection as is permitted to imperfect mortality,’ was how an American visitor in the 1860s would describe the Hampshire country house of the merchant banker Tom Baring, a director between 1848 and 1867; while in the early 1870s it was estimated that ten directors possessed landed estates of 2,000 acres or more. Even so, Bonamy Dobree, on the Court between 1835 and 1863, was probably more typical. Becoming deputy governor and then governor in the late 1850s, this Tokenhouse Yard merchant continued doggedly to fulfil his London duties, as a governor of Charterhouse School as well as of Guy’s Hospital; and not long afterwards, a contemporary would nicely describe the Dobrees as ‘immensely wealthy & seem to have a very nice position, not among swells, substantial but not fashionable’.9

  If 1847 was the year of commercial and financial crisis, 1848 was the year of threatened revolution. The Bank took no chances. On Friday, 7 April, with the great Chartist demonstration due to take place at Kennington Common on the 10th, all able-bodied members of staff were sworn in as special constables, followed on the Sunday by the rapid preparation of extra defences – so that on the day itself the Bank was, in the Morning Chronicle’s words, ‘not only defended by an extra garrison, but its parapets were surmounted with a breast-work of sand bags, so placed as to defend and cover the besieged, but allowing apertures sufficiently large to permit him to take deadly aim upon his assailants’. That Monday morning, an anxious Stock Exchange Committee was informed that ‘the Bankers in Lombard Street [which had become shorthand for the money market] were sending over their Securities to the Bank of England’; while outside the Bank a large crowd of spectators ‘most vociferously cheered’ whenever soldiers entered the building. In the event, there was no trouble – whether from the 12,000-strong Chartist contingent who marched down Bishopsgate on their way to London Bridge and Kennington, or subsequently from the massed demonstrators, who quietly dispersed instead of marching on Westminster. The episode marked, undeniably, a turning-point of modern British history. ‘England has only to be quiet,’ wrote confidently next day the Morning Chronicle’s City editor, ‘and the trade of the world must centre in her.’10

  The 1850s duly turned out to be the transformative decade. ‘The world,’ reflected Joshua Bates of Barings on his birthday in October 1852, ‘seems very prosperous since the discovery of Gold in California & Australia, & the extension of railways & navigation by Steam are working great changes in the world.’ He was right. British exports doubling, the international economy’s holy trinity of capital, goods and labour flowing in unprecedented quantities around most of the known world, the City of London as the ever more indispensable hub of that global wheel, providing as it did unrivalled entrepôt facilities, credit accommodation and access to capital – these were indeed transformative times, inevitably presenting challenges as well as opportunities to the world’s leading bank, in some ways still an institution learning on the job.11

  Arguably it was in the 1850s that the Bank began to stop trying to be all things to all men. Although it opened in 1855 its ‘Western branch’, in Mayfair’s Burlington Street, its policy in the provinces was increasingly one of retrenchment, with across the branches after 1848 ‘not a single one’ (to quote Ziegler) ‘whose turnover of bankers’ bills of exchange exceeded its pre-1844 level’. More generally, the clear need felt by the business world at large was for greater consistency from the Bank, certainly to judge by the heartfelt evidence in 1848 of Joseph Pease, a prominent railway owner and industrialist, to one of the parliamentary committees. ‘It being connected in some way or other with the government,’ he said, explaining his frustration with its ‘ambiguous’ position, ‘it frequently appears to me to act as a private individual would act, and then at other times it appears to act as having certain national objects to sustain or difficulties to meet; so that a country tradesman, like myself, has no idea what the policy of the Bank is.’ The Bank’s response, in relation to the all-important money market, was to start distancing itself. ‘After the 1847 crisis,’ notes King in his history of the discount market, ‘the Bank’s open market activities definitely ceased to have any quality which could possibly be described as “aggressive” … Within a short period its discount business could hardly be deemed competitive at all – it was competitive only when there was a definite shortage of discount facilities elsewhere.’ Put another way, the Bank was behaving more like a central bank, standing above the fray, and less like a commercial rival, while always trying to make sure that Bank rate was not too far removed from market rate. The process may or may not have been entirely deliberate, but altogether the Bank (in King’s words) ‘evolved a technique which would enable it to play the role of impartial regulator and disciplinarian of a market which was moving rapidly towards a high degree of organization, cohesion and centralization’.12

  The 1850s also saw the emergence of a long-term thorn in the Bank’s flesh. When William Gladstone became chancellor in 1852, he did so having already imbibed from his master, Peel, a very distinct historical perspective, one that he would put on paper near the end of his life in retrospective justification of his strongly critical attitude towards the Bank. He asserted that back in the seventeenth century ‘the state was justly in ill odour as a fraudulent bankrupt’ in its relations with the City; and that after the Glorious Revolution of 1688, when ‘in order to induce moneyed men to be lenders’ the state ‘came forward under the countenance of the Bank as its sponsor’, there developed a ‘position of subserviency which it became the interest of the Bank and the City to prolong’. Thus according to Gladstone, in return for ‘amicable and accommodating measures towards the government … the government itself was not to be a substantive power in matters of finance, but was to leave the money power supreme and unquestioned’. Since then, Peel himself of course had fought the good fight, in 1819 and 1844, while Gladstone by the mid-1850s was explicitly envisaging the creation of a ‘Ministry of Finance’ under whose authority the Bank would have to bow. The first outright clash came in 1854 – involving certain longstanding conventions allowing the Bank to benefit through the timing of payments to it of dividends on the national debt – and saw Gladstone displaying what his first great biographer, John Morley, would call ‘a toughness, stiffness, and sustained anger that greatly astonished Threadneedle Street’. The chancellor was adamant that (as he told the deputy governor) ‘public monies continue to be public monies until … disbursed’; and although he won this particular battle, thereafter he never forgave the Bank for what with some justification he regarded as its obstructive attitude.

  Nor, further afield, was the Bank hugely popular around this time with the Bank of France. Experiencing in October 1855 a serious drain of gold, Paris asked London for a loan of between £2 million and £3 million in the precious yellow stuff; but regrettably, explained the governor, Thomas Weguelin, in his reply, the Bank Charter Act did not permit the Bank to employ its reserve in support of foreign currencies. ‘Allow me to add,’ concluded Weguelin, ‘that it would have given me the highest satisfaction, if I could have had the means of conducti
ng an arrangement in favour of the Bank of France similar to that in which the Bank of England was indebted to its assistance in the year 1839.’13 No doubt he was sincere, but it was still a significantly retrograde step for embryonic central bank co-operation.

  The Bank itself was also under some continuing bullion pressure by this time, and Bank rate was at 7 per cent when in the autumn of 1856 almost all the directors responded to Weguelin’s request and gave their individual views on the subsequent workings of the 1844 Act and whether they would recommend any changes to it. Predictably, Horsley Palmer yielded not an inch – ‘I have entertained an unfavourable opinion of the Act of 1844 from the period of its enactment and which is confirmed by its operation to the present time’ – but he was in a distinct minority: