6
‘I do most sincerely congratulate you and Sir Robert Peel on the good which has already resulted from the bold & comprehensive measure of the last session,’ William Cotton – in many ways the co-architect of the Bank Charter Act – wrote to Henry Goulburn in January 1845 shortly before stepping down as governor. ‘I think it is generally admitted by the great money dealers,’ he added, ‘that the effect of the measure up to the present time has been eminently beneficial.’ Much of Cotton’s valedictory letter was about the financial aspect to the Bank of the working out of the Act; but he ended with some sentiments hard to imagine coming from the pen of many Victorian governors:
You will I am sure rejoice with me in knowing, that, for many years, we have not had so small a number of prisoners in gaol at this season of the year. In the manufacturing districts the past year has been profitable beyond any former example. Some of the Cotton-spinners have, I understand, made a profit of £100,000. I wish they would devote a tithe of their profits to improve the spiritual & temporal condition of those who have been working for them.
Closer to home, a key concern for Cotton and his successors, in the new world of the Bank Charter Act, was what would be known in due course as Bank rate. Given that the Act meant that the Bank’s power over its note issue was now much reduced, the obvious concomitant was to put the discretionary emphasis instead on short-term interest rates; and indeed it was later in 1844 that the decision was taken to fix the discount rate on a weekly basis, with the Committee of Treasury noting that such an approach would be ‘essential for the proper management of the circulation’. More generally by this time, the second quarter of the century, a new phase had been developing in the Bank’s relationship with the money market – especially from 1830, when the Bank had consented to bill brokers, forerunners of the discount houses, opening discount accounts with it, formally embedding an arrangement by which these specialist dealers in bills of exchange could come to the Bank and exchange bills for Bank notes. ‘The realisation by the Bank of England,’ reflects W. M. Scammell, historian of the London discount market, ‘of its own position as the ultimate source of cash; of the need for a means of channelling cash to the economy in times of need; and the conscious choice of the discount market as that means, marks a definite step in the direction not only of the modern discount market but of the modern banking system as a whole.’ Over the next three decades, the 1830s through to the 1850s, the discount market expanded considerably, largely on the back of the ‘call loan’ system, by which the rapidly growing joint-stock banks lent large sums to the bill brokers; and the Bank’s relationship with those bill brokers, now armed with a right to rediscount at the Bank, would become far from unproblematic.1
This was so not least during the immediate years after the 1844 Act, as the Bank – now invested with apparently complete freedom on the banking side of things – discombobulated the money market by pursuing an unexpectedly competitive discounting policy on its own behalf. The Bank’s directors, commented the Bankers’ Magazine in April 1845, were ‘now anxious to push their business, as bankers, to an extent hitherto quite unknown to their system of management’; and undoubtedly the policy played a part in stimulating the growth of easy money and fuelling the railway mania, at its peak that year. By 1846 stormclouds were on the horizon, as the mania conclusively burst and the repeal of the Corn Laws took place against a background of rapidly deteriorating corn supplies (European and Irish crops failing, the English harvest poor), requiring by the end of the year rising imports of increasingly expensive wheat and the start of a serious drain of gold. The Bank would subsequently be much criticised for its seemingly irresponsible discounting policy, coupled with equally aggressive short-term lending, with Wilfred King, pioneering historian of the discount market, reflecting in the 1930s that ‘the frantic railway speculations did not, apparently, raise even the faintest doubt in the minds of the Bank directors as to the expediency of their free policy, far less any suspicion that it might be the actual cause of the prevalent excesses’. It is possible, though, that such criticism was not wholly fair; and in the fullest examination yet of the causes of the 1847 crisis, H. M. Boot has argued not only that the Bank’s ‘new’ discount policy was in reality appreciably more passive than has generally been assumed, but that anyway ‘the low market rates of discount charged between 1844 and 1846 were not the result of the Bank’s discounting activities but of the large inflow of bullion arising from the strong balance of payments surplus of these years’. Even so, Clapham probably has the right of it. ‘Corn and railways; these were at the back of the crisis of 1847 – corn and railways, and to a certain though disputable extent the Bank’s new competitive policy and its failure to realize the amount of control that it might exercise over the market.’ And in a striking metaphor true to the nautical preoccupations of the merchant directors: ‘The Bank had not whistled for the wind that brought up the storm, though it had carried on too long with no reef in its topsails, and by example had encouraged others to do the same.’2
The ‘too long’ criticism especially applied to the early – and in retrospect disastrous – months of 1847 itself. Notwithstanding the stark fact of falling reserves between the start of the year and early April (note reserves down from £8.2 million to £3.7 million, and bullion down from £14.3 million to £9.6 million), the Bank signally failed to tighten its monetary policy, prompting The Times to note on 7 April that ‘the extraordinary apathy of the Bank of England from January last up to the stage we have now reached in our monetary affairs is beginning to excite universal comment, and to be regarded with universal apprehension’. The far from flattering explanation for this policy failure is revealed in George Warde Norman’s autobiography:
During the course of the year [1847] I did not fail to impress upon the Court my views of the propriety of acting earlier, and more efficiently by raising the rate of discount. I did this especially by a formal motion in March of this year, by which and my subsequent conduct, I acquired no little obloquy and unpopularity on the part of certain members of the Court, some of whom had overtraded and regarded an easy state of the money market as vitally important to them. The fact that I was out of business, and could thus look without alarm as to my private interest upon the storm raging around, did not tend to make my counsels more acceptable.
‘Among my fiercest objurgators,’ added Norman, was the former governor James Pattison, ‘with whom I had one regular shindy, having put up with a great deal, before I thought it right to stand upon my defence.’
The volte-face, when it came, was abrupt and, because it had been delayed so long, more severe than it would otherwise have been. First, on 8 April the Bank raised its minimum discount rate to 5 per cent (compared to 4 per cent since January and the historic low of 2½ per cent the previous autumn). Then, immediately afterwards, it took (in Feavearyear’s words) ‘violent action’:
In London only very short bills were taken at 5 per cent, and others were charged at 5½ per cent or 6 per cent, while at the branches the Bank fell back on the old-fashioned method of restricting discounts, agents being told to cut the amount of paper taken in by half. There was some peremptory calling in of advances, and £1,275,000 of Consols were sold for cash and bought back for the account.
Unsurprisingly, all this induced widespread panic about the shortage of available credit, as the pressure on bill brokers like Overend Gurney became intense and trade at large more or less ground to a halt. To an extent, of course, the about-turn did its job, with doubts disappearing for the moment about the Bank’s ability to maintain convertibility, as its ratio of bullion reserves to deposits recovered from under 20 per cent in mid-April to well over 30 per cent by early June; but at the same time, with substantial gold outflows still continuing in order to pay for imported grain, the cost of credit remained inordinately high. So much so that in early July a ‘Petition of the Merchants, Bankers, and Traders of London against the Bank Act’ was presented to government, describing the ‘extent of monetary pressure’ as ‘without precedent in the memory of the oldest living merchant’ and, as the petition’s title suggested, blaming the City’s woes on the 1844 Act – of which, it had been said in April, only three defenders were left in the square mile. Staunchest of all defenders remained Samuel Jones Loyd, who that summer did not hesitate to pin the blame on the Bank’s earlier failure to protect its banking reserve of notes during the months of unavoidable bullion drain. ‘I could at any time,’ he wrote in June to the Whig chancellor of the exchequer Sir Charles Wood, ‘convulse Manchester by gross mismanagement of my banking business – and the Bank of England, acting with infinitely larger powers, can and recently has convulsed the whole Country by mismanagement of its banking affairs.’ Against this, he insisted, ‘the Bill never pretended to afford any protection’.3
The new factor in play by the second half of the summer was the much improved corn situation – welcome to most, but producing havoc in the corn trade, as the price of wheat almost halved. The Bank’s recently elected governor, William Robinson, was senior partner of the merchants W. R. Robinson & Co; and on 19 August his firm’s bankers Prescott, Grote & Co, alerted to ‘imprudent operations in Corn’, spent most of the day inspecting the books. Naturally the bankers wanted to avoid the failure of a house in such a ‘high position’, but eventually (stated their subsequent report) they were ‘compelled to inform Mr Robinson, that they could not assist him, as they took an unfavourable view of his affairs’:
It would seem that we have entertained a very erroneous impression of the amount of Mr Robinson’s private property; we entertained the idea, from whence we derived we know not, that he was a Man worth upwards of £100,000, independent of his business; whereas it would appear his private property, including his Directorial qualification [his holdings of Bank stock] and a landed Estate in Gloucestershire, cannot be estimated at more than £25,000. His capital in the business is not more than £22,000; the stoppage of the House we fear is inevitable.
So it was, and with his firm went Robinson’s governorship, being replaced in due course by his deputy, James Morris. The sense of shock in the City was profound – ‘it has created an extraordinary sensation’, reported one eye-witness on 24 August – while, according to an unsympathetic Loyd, the governor’s fall was due to ‘extensive Corn Speculations, entered into and very foolishly conducted by his Son and partner and not properly controlled by himself’, though Norman more generously reflected that ‘his official duties have kept him from his counting-house in critical times’.
Worse followed in September, with a whole run of mercantile failures, including two firms closely associated with Bank directors: Gower, Nephews & Co (merchants over-committed in Mauritius sugar estates) and Reid, Irving & Co (East and West India merchants); and as a direct result, both Abel Lewes Gower and Sir John Rae Reid had to follow Robinson’s example and walk the plank, temporarily leaving three vacancies on the Court. Compounding the crisis atmosphere was the stoppage, with liabilities of over £2.6 million, of the bill brokers Sanderson & Co. Never, declared on 24 September one well-informed City figure, John Abel Smith, had he known such ‘general alarm, discord, and distrust’; five days later Punch published a pointed cartoon, ‘The Effects of Tight Lacing on the Old Lady of Threadneedle Street’, showing the Bank (its gold reserve less than £9 million) about to go pop unless the constraints of the Bank Charter Act were relaxed.4
Things did not improve in October, with Magniac, Jardine & Co informing Hong Kong on the 11th that ‘since the departure of the last mail the money difficulties have been progressively becoming worse, & the additional failures of important mercantile houses have been to an alarming extent’. A list followed, and then came the crux:
You may suppose how severely such disasters must cripple the means of other houses, while, though the resource of the Bank of England have been liberally afforded to the extent of its safety, the pressure has been so great as to compell the Directors occasionally to suspend assistance entirely, and other usual sources of accommodation are locked up. We confess we cannot see how the evil is to be arrested, unless by Government interference with the stringency of the currency act, of which there appears to be no present prospect. Want of confidence is extreme.
Two days later saw the first significant bank failure (Abingdon Old Bank), before on Saturday the 16th there assembled at the chancellor’s all the key players: Wood himself, the prime minister (Lord John Russell), the colonial secretary, governor Morris, deputy governor Henry James Prescott, his brother the private banker W. G. Prescott, the Bank directors Norman and Cotton, and the inevitable Loyd. ‘The Governor stated,’ noted the record kept by W. G. Prescott, ‘that it was quite within the means of the Bank of England, as far as that establishment itself was concerned, to carry out the provisions of Peel’s Bill [that is, maintaining convertibility], but that they could not consistently with their own position as Bankers afford further extensive aid.’ Accordingly, explained Morris, ‘they would afford what aid they could, but their present power of assistance was in fact limited to the amount of their daily receipts’. Eventually, after Loyd had stressed that ‘no aid which did not effect the restoration of confidence would be of any service’, all were agreed that ‘there was no remedy for this within the law’ – and accordingly, ‘after much discussion the conclusion was arrived at that the government might direct an unlimited issue of Bank Notes by the Bank of England on condition that no advance was made by them under a high rate of Interest’.
For the moment, though, no action was taken. And during the following week, Monday the 18th to Friday the 22nd, other provincial banks (including the Royal Bank of Liverpool) stopped payment; the money market ‘suffered severely’ (with 9 and 10 per cent commonly charged on best short bills, and one merchant telling another, ‘I would not advise you to take bills on Barings even’); the Stock Exchange remained ‘a scene of continued alarm and excitement’; deputations from all over the country steadily poured into Downing Street; and at the Bank itself, which had lent well over £2 million since mid-September, the banking reserve was down by the Friday to £2.3 million, of which only £1.6 million was in London.5
Saturday the 23rd began with John Horsley Palmer writing from his home at Hurlingham House a lengthy letter to Sir Robert Peel, no longer in office but still a powerful political presence. Not quite resisting the obvious I-told-you-so temptation, the former governor reminded Peel that in 1844 he had pointed out to him and Goulburn ‘the possibility of such a discredit as we are now sustaining’; asserted that since that fateful year ‘every endeavour has been made to carry out the principles of the Bill with no other effect than the creation of that general panic which pervades the whole Country’; claimed that the Bank was now ‘placed in a critical position unable to sustain the increased demand without endangering its own safety, or by refusing the requisite accommodation to mercantile solvent firms, incurring the hazard of an universal stoppage’; implicitly called on Peel to support a relaxation of the Act; and finally, after declaring that ‘the enormous sacrifice of property daily made by the mercantile community is literally heart-rending’, concluded with all due solemnity: ‘In my 50 years experience I never witnessed so perilous a position as that in which the Country is now placed. The reports from the North today are full of danger.’
In Downing Street, meanwhile, similar sentiments were being expressed by a high-level City deputation, before at noon Morris and Norman waited on the ministers:
The Governor stated that in his opinion, the Bank was still in a position to maintain itself within the limits of the Act of 1844, but that he did not feel confident that this could be done without resorting to some active measures such as a Sale of Securities, or, the limiting accommodation in the way of Discounts.
Lord John Russell and the Chancellor of the Exchequer considered any restrictions in the way of Discount &c &c to be highly inexpedient and expressed a strong wish, that the Bank should act liberally today, with an emphatic assurance that happen what might, the letter authorising a possible deviation from the Law of 1844 should be sent to the Bank on Monday morning.
Such was the Bank’s own record of a historic meeting, at which Morris had come as close as he could to asking for suspension of the Act without actually doing so. ‘The Question was put to me over and over again whether we were able to take care of the Bank,’ he would recall about that and previous conversations with ministers. ‘I always stated that, so far as the Bank itself was concerned, we had no Difficulty; but that, whether Her Majesty’s Government might have any political Reasons, such as Fear of Mills being stopped, or Riots in the Country, was a Question for them to decide, and one which we could not answer.’ In any case, after whatever version of winks and nudges, a Treasury letter to the Bank was duly published on 25 October. This in effect suspended the Act, with Russell and Wood encouraging the Bank to grant as much accommodation as it needed to, free of concerns (including financial concerns, with the promise by government of an indemnification arrangement) about increasing the fiduciary issue above the legal maximum – a freedom which indeed it had been practising since the oral assurance of Saturday. ‘The deed is done; and I hope it will succeed, but, I never did anything so unwillingly in my life,’ the reluctant Wood wrote that Monday to Loyd. ‘I am very curious to know the effect in the city. I am afraid that it will be too much approved.’6
In the event, de facto suspension did the trick immediately. ‘It was only after the Government suspended clause II of the Bank Act and allowed the Bank to issue notes to an unlimited quantity that the situation was brought under control,’ observes Boot. ‘The Government’s action effectively convinced the money market that the Bank’s reserve was inexhaustible. Once convinced of this, private institutions recognised themselves to be highly over-liquid and within a few days money was readily offered on the money market. By the end of November the market rates of discount had fallen to 6 per cent and there were complaints of difficulty in employing money.’ Altogether, commented Disraeli characteristically in the speech that he would claim made him Conservative leader, the process had been the equivalent to the liquefaction of St Januarius’ blood – ‘the remedy is equally efficient and equally a hoax’. Yet even as the general outlook rapidly improved, leading to the suspension being removed after only a month, there were those expressing regret. ‘It will be impossible to destroy a feeling which for many years must pervade the public mind,’ sternly predicted the Economist at the end of October, ‘that the pressure must only be severe enough, and the demands loud enough, in order to procure a suspension of any restriction which may exist.’ Others focused on how the deep commercial crisis – one that had brought down over thirty-three important mercantile houses in London alone, with liabilities of over £8 million – had happened in the first place. Committees of inquiry of both the Commons and the Lords were under way by February 1848, and inevitably much blame was attributed to the Bank for both its overly competitive discounting policy and its tardiness in changing tack. The Bank Charter Act itself, though, was still regarded by the Whig government as necessary to preserve, as indeed it was by the Bank.
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 the 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 conducting 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:
Productive of great advantages and has fully answered the main purposes for which it was devised. (Sheffield Neave, deputy governor)
Has worked admirably and been productive of vast benefit to the Public. (John Hanson)
Highly beneficial in its operation, by maintaining the convertibility of the Bank Note, and in preventing any discredit of the paper circulation of the Country. (Thomas Smith)
I should strongly advocate its renewal for a term of years as it now stands. (James Currie)
Crises and Panics will arise under any system, whether Metallic or any other; and in my humble opinion founded on long and extensive connection with Commercial affairs, I am satisfied the Act has greatly mitigated those that have occurred during its existence, and to which they were in no degree owing. (James Malcolmson)
Weguelin himself, forwarding the replies to the chancellor (by now the generally more accommodating Sir George Cornewall Lewis), contrasted the safety of the Bank’s reserve with that of the very rapidly growing joint-stock banks. Citing the Joint Stock Bank of London – £30 million of deposits, £3 million capital, £31 million ‘invested in one Kind of Security or another’, thereby ‘leaving only £2,000,000 of Reserve against all this mass of liabilities!’ – he asserted that ‘it is impossible to foresee the consequences of the failure of one of these large establishments’; and that, he claimed not altogether implausibly, was a subject that ‘more pressingly requires the attention of Parliament’ than ‘any alteration’ in the 1844 Act.
The governor’s tactic failed, and from March to July 1857 a select committee of the Commons took evidence on how the Bank Charter Act had played out in practice. Weguelin and Neave (the new governor from April) were the Bank’s two main witnesses, with the former the more articulate, not least as he conceded, contrary to the literal interpretation of the Act, that the Bank’s banking department was the ‘pivot of the whole banking system of the country’ and thus should eschew active competition with other financial institutions, let alone any form of speculation. Gladstone pressed him at one point:
Will you describe to the Committee what you consider to be the difference between the Bank of England and a private banker with regard to the management of their deposits? – The chief difference, perhaps the only difference, is that the Bank of England makes a much larger reserve than a private bank finds it necessary to do.
So that the Bank of England has to apply prudential considerations of a public order to cross and qualify to a certain extent the simple pursuit of profit? – That is so.
It must therefore be a matter of great difficulty at times for the Court of Directors, having the interest of the Bank proprietors to attend to on the one hand, and these public considerations on the other, to balance the one against the other? – No; I have been a Director of the Bank of England for 20 years, and I can never yet remember a discussion in the Bank Court in which the interests of the proprietors were considered irrespective of the public interests.
Still if I understand you rightly, it is the fact, that to a certain extent under certain circumstances, the interests of the proprietors have to give way to what you deem prudential considerations immediately connected either with the welfare of the State or with the welfare of commerce at large? – I think that the interests are identical; I do not think that the Bank Court could manage its affairs well for the interests of its proprietors, and at the same time manage them badly for the interests of the public. The interests of the public are the same as the interests of the proprietors, namely, that the Bank should be in an effective position of the highest possible credit.
Is the Committee then to understand that there is a real, or that there is only an apparent conflict of interest between the two? – I think that there is only an apparent conflict of interest between the two; and that has been the invariable opinion of the Bank Court.
What, asked another questioner, about the bullion aspect? ‘I think the result has been satisfactory,’ answered Weguelin. ‘In no case has our reserve declined below 3 millions; and on the whole, I think, there has been no anxiety in the public mind with regard to the state of our reserve.’ It was not a reply that satisfied the up-and-coming journalist and commentator Walter Bagehot, though at this point, writing in June, he blamed the legislation rather than the Bank itself:
The bullion which the Act of 1844 compels the Bank to keep is, to speak absurdly, bullion in a straight waistcoat. It appears to be tied up for something, and there is no confidence that it can be made available for the actual liabilities of the concern … We have seen that even while the notes are in good credit, the bullion might be reduced to less than one seventh of the liabilities. In general the Bank ought not, I imagine, to hold less than one third of its liabilities in bullion; it ought never, perhaps, to have less than one fourth. Occasions might arise in which they should have more than either.
After all, as Bagehot concluded, ‘the great wish on the part of the English people as to currency and banking is to be safe’.14
Within months, the Bank was facing the first major crisis for all of ten years – a crisis occasioned largely by the collapse of American banks and railroads. It was, as so often, an autumnal affair. ‘We clearly are going to have a heavy Squall & we must take in every reef we can,’ governor Neave, laid up at home in Hampstead, wrote on 9 October 1857 to his deputy, Dobree, shortly after Bank rate had gone up from 5½ to 6 per cent and shortly before it jumped to 7. From the start, the Bank’s primary focus was on the discount houses. ‘My almost only fear is whether the great Bill Brokers are in such a position to bear a considerable drain on their resources,’ one senior director, Thomson Hankey, confided to Dobree on the 20th, the day after Bank rate had been raised again, this time to 8 per cent, the rate imposed during the 1847 crisis; and Hankey was right to be fearful, especially after the failure a week later of the Borough Bank of Liverpool, prompting the joint-stock banks to recall their call money from the money market, which in turn left the discount houses struggling to finance their bill portfolios and having to look to the Bank for help. King of the discount houses was Overend Gurney, whose David Barclay Chapman, senior partner since the recent death of Samuel Gurney, dropped in to Threadneedle Street on the 29th in order, noted Dobree in his diary, ‘to know whether they could rely on the Bank for unlimited assistance if pressed’. As usual, Norman (in his fourth decade as a director) kept Loyd (now Lord Overstone) in the picture. ‘The bill brokers’, he reported in late October, ‘now find themselves up to the ears in their Bills’ and ‘expect the old Lady to cash every thing’; while by Guy Fawkes Day, with Bank rate hoisted to 9 per cent, ‘things in the City’ were ‘very sick, and more likely to be worse than better’, so that ‘we may again see Lombard St knocking at the door in Downing St’. Saturday, 7 November brought the news that Dennistoun, Cross & Co, an important firm of American bankers and exchange brokers based in Liverpool, London, Glasgow, New York and New Orleans, had stopped payment – news that Neave and Dobree presumably took with them late that afternoon when they went to the Foreign Office at the request of the foreign secretary, Lord Clarendon, who was under pressure from Emperor Napoleon III to be told what was going on in London and likely to transpire. ‘The Governor replied [recorded Dobree] that as regarded the Bank of England’s Position it was one of considerable anxiety: that the Figures of the Bank as nearly as possible corresponded with those existing at the memorable period in October 1847 when the celebrated Letter authorised an unlimited issue of Notes on Securities: that the difficulties of the Moment were gravely aggravated by the total Suspension of all Credit in the U States …’15
Then came the week of third time pays for all. On the late afternoon of Monday, 9 November, with Bank rate up to 10 per cent, Neave and Dobree were summoned to see Lewis in Downing Street. ‘Chancellor stated that a Deputation from Glasgow was to have an interview with him Tomorrow. Asked in general Terms whether or no the Bank of England have any thing to suggest in regard to the Action of the Bill of 1844. The Govor replied that they had none.’ Such was the first of the week’s three key meetings, with neither side blinking. Next day the significant event was recorded in Dobree’s terse diary entry – ‘Gurney’s asked for a dis: of 30 day Bills 400m [that is, mille, the old-fashioned term for thousand]. Granted’ – before the crisis was further ratcheted up on Wednesday the 11th by two dramatic developments: the stoppage of the City of Glasgow Bank (causing huge consternation in that city) and the failure of the discount house Sandersons, with liabilities of at least £3½ million. By late afternoon governor and deputy governor, accompanied by Weguelin, were again in Downing Street. Lewis asked ‘if the time had arrived to adopt the measure resorted to in 1847’, mentioning that earlier in the day Chapman had urged him to do so; to which Neave and his colleagues replied that ‘the period had not arrived for such a Step’ and that ‘a strong opinion was entertained by the Court of Directors to maintain the Bill of 1844 at any sacrifice’. As they left the room, Neave remarked to his deputy that his impression was that the government ‘were prepared to issue 50 Letters and all they wished was that the Governors should make such a request’. The decisive third meeting was not long coming. Thursday the 12th saw discounting virtually non-existent, the joint-stock banks unwilling or unable to make any advances, two major discount houses (Gurneys and Alexanders) under severe pressure, the Bank’s own banking reserve down to under £1 million: unsurprisingly, Neave and Dobree were in Downing Street by 2 o’clock. After some discussion – during which Neave admitted that certain directors were starting to waver, but refused either to reveal names or to make a formal request – it was Lewis of his own accord who produced the Treasury letter once again in effect temporarily suspending the 1844 Act.16
The relief produced by its publication was not quite so instant as in 1847, but even so it broadly turned the tide, notwithstanding the American house George Peabody & Co (forerunner of the merchant bank Morgan Grenfell) having a week later to borrow at least £250,000 from the Bank in order to keep going. A trio of immediate codas to the crisis was telling. One was Norman’s reluctant pragmatism, for almost certainly he was the anonymous director – ‘a consistent and heretofore staunch supporter of the Bill and well capable of judging the actual condition of affairs,’ as Neave explained to Lewis at their final meeting – who on the crucial Thursday morning ‘declared to his great regret that he saw no safety to the Bank or to the Mercantile Interest but in a relaxation of the restrictive Clause’. Second was the revelation, by an Overstone informant, that very soon after the letter’s publication Chapman had ‘avowed to his friends that he had threatened to compel the Bank to stop unless the Directors should obtain from Government a suspension of the Act’. And the third came from Overstone himself, who on the 24th, two days after Lewis had rather ingenuously told him that prior to suspension ‘no pressure was applied to the government which they could not have resisted as easily as an application for a postponement of the hop duty’, and that ‘the pressure which was applied to them was the pressure of facts’, sent a reply amply suggestive of unfinished business on the Bank’s part:
The Bill brokers have been in the habit of holding probably from 15 to 20 Millions of Money at call!! The whole of this sum they invest in the discount of Bills and in advances upon Goods and Produce. – When general pressure arises, and calls for Money are made upon them by all their depositors – they have no source from which to meet these calls, except that of rediscounting at the Bk of England. Hence the enormous demands upon the Bank – The Bill-brokers cease to discount – they send overwhelming masses of Bills to the Bank – and if this process sustains the slightest check – they at once exclaim, the world must stop payment, because there is an inadequate supply of money. In one, the last day before the Letter, Gurneys obtain 800 from the Bank!! and then they go to the Govt to urge the suspension of the Law, because the Bank is exhausted and can do nothing for trade. Either this system must be broken down, or it will in its turn break down any and every Monetary system which can be established …17
Crises notwithstanding, the Court’s doors were always open – if the timing was right and the face fitted. ‘Mr W. Goschen called to ask if there would be any objection to his son being considered a candidate for the Bank direction,’ recorded Dobree on New Year’s Day 1858 following a visit from the elderly co-founder of the successful merchant bank Frühling & Goschen. His son was George Joachim Goschen, just twenty-seven but already a partner in the family firm, and he duly became a Bank director that spring. Quickly tagged ‘the fortunate youth’ by the City at large, he published three years later The Theory of the Foreign Exchanges, an instant classic owing at least something to his assurance to its readers that ‘the object proposed is by no means to propound any dogmatic theories’; in 1863 he was returned unopposed as a Liberal member for the City, having been nominated by two fellow Bank directors; and two years later he became vice-president of the Board of Trade, compelling him to retire from business and relinquish his position at the Bank.
Back in January 1858, a week after Goschen senior had put out his feeler, it was the turn of Horsley Palmer, who the previous spring had stepped down from the Court after a combative and often successful, but in the end somewhat marginalised, forty-six years. He explained to Dobree the new set-up of Dent, Palmer & Co (somewhere on the border between merchants and merchant bankers) following his own retirement – essentially, that the senior partner would be the sixty-year-old Thomas Dent, but with a major role for his own forty-five-year-old son Edward Howley Palmer, whose capital in the house would be at least £60,000. Accordingly, Palmer senior (who would die only a few weeks later) had two requests to make of the deputy governor. First, in relation to Dent, that ‘it would be very desirable he should be chosen as Director of the Bk of England & for which Mr D has declared himself a Candidate, and if his Age should not be deemed a disqualification & he should be recommended by the Comme of Treasury’; second, in relation to his son, that ‘should Mr Dent not be accepted a Candidate (on a/c of his Age), then in such Case Mr Edw H. Palmer would be a Candidate’. Horsley Palmer’s suspicion was correct: Dent was indeed considered too old – and accordingly Edward Howley Palmer joined Goschen that spring as one of the new directors.18
By then, Neave and Dobree had appeared thrice before the Select Committee on the workings of the 1844 Act, reconvened in the wake of the previous autumn’s crisis. Inevitably, Neave was pressed hard about the exact circumstances during the critical week:
What would have been the effect upon the Bank, if the Act of 1844 had not been suspended by the Treasury letter? – The Bank had evidently gone beyond what a mere ordinary joint-stock banker would have done. The Bank would not have risked what she did, if she had been certain that by no possibility would Government give any relief; but feeling that she was bound, as a public institution, to make common cause with commerce, she certainly gave greater assistance. If she had only had to think of herself, and selfishly to protect herself, she would have refused discounts at an earlier period altogether …
Then, as I understand you, the Bank acted upon the conviction that the Treasury would suspend the Act, in case of difficulty? – I think it must have weighed with them within the last few days, that the Government would probably interfere, if the action of the Bank was unsuccessful.
And again, later in the same February 1858 session of evidence, with Sir Francis Baring (a former chancellor) continuing to put the questions:
A few days before it was issued, did you, on the part of the Bank, represent to the Chancellor of the Exchequer the necessity of issuing such a letter? – No; we did not take upon ourselves to urge upon him a measure for which we considered the Government entirely responsible; but we gave him every information from which he could make a correct judgement.
You went as near the wind as you could, I suppose? – No; I do not use that expression ‘near the wind’; but we gave him every information which we possessed ourselves.
You did not give him your advice or opinion, but you gave him the facts? – We gave him all the facts.
It fell to the Committee’s chairman, Edward Cardwell, to ask Neave whether, in terms of the suspension of the Act, ‘it might not be as well to leave the power with you as to throw it upon the Executive Government’. To which Neave carefully replied, ‘I would place it chiefly in the hands of the Government.’ A final exchange followed: ‘That the responsibility would, in your opinion, be too great if it were cast upon you? – I think the Bank would rather be without it.’ Given that in day-to-day practice the Bank had been able since 1844 to exercise a significant degree of discretionary monetary control, almost certainly more than Peel would have wished or intended, Neave’s was a sensible – and politically realistic – reply.
The Committee itself reported in July, with only two members dissenting from its recommendation (tacitly accepted by the Commons, which failed to debate the report) to retain the Act as it stood. ‘A new generation were taking charge who saw no practical difficulty in operating under the Act, particularly since they realized that it would be suspended if necessary,’ would be the helpful gloss of Elmer Wood in as the 1930s, adding that anyway ‘the problem of monetary control was becoming less pressing as the supply of gold increased’. Even so, the 1858 report had its tantalising might-have-been – namely, an appendix considering the merits of implementing Ricardo’s proposal (in a posthumously published pamphlet) for a National Bank of Issue, distinct from the Bank of England. The decisive voice against came from Lord Monteagle, the former chancellor Thomas Spring Rice. Such a bank, ‘charged also with banking functions on Government account’, would, he insisted, ‘rest on no defensible principle whatsoever’; and he resoundingly declared that ‘the honour and independence of the Bank of England, and the sense of duty invariably manifested by that great Corporation in fulfilling the trust confided to it by Parliament, furnishes a security which may not always be found in a mere executive department of the State, bound to obey the commands of a superior authority’.19
For Neave personally, no less than for Overstone, what had really stuck in his gullet about the previous year’s crisis was what he saw as the grossly irresponsible conduct of the discount houses. On 11 March 1858 the Court met to decide whether to forbid bill brokers from discounting any bills at the Bank whatever, but instead only to be eligible (at the Bank’s strict discretion) for advances; and by the governor’s casting vote, this policy was carried, controversial from the start. The Times signalled its approval – ‘if those houses choose to receive money at call to an unlimited extent, they must themselves bear the responsibility of being at all times prepared to meet the engagements into which they may enter’, no longer able to rely ‘on their immediate ability in times of sudden pressure to throw the onus of any difficulty on the Bank’ – but the Economist was far more doubtful, contending that the new approach not only failed to take into account ‘the character of the house or the quality of the bills it may offer’, but might be dangerously inflexible in times of monetary strain. Neave himself, however, had no doubts about its justice, as he explained to the Select Committee within days of the announcement:
The object is to keep the resources of the Bank more within her own compass, and not to give the opportunity to the discount brokers, who accumulate such very large sums in their hands, to rely entirely and totally for cashing their bills upon the Bank of England. When those [mainly the joint-stock banks] who have deposited money with them want it, the discount brokers have been in the habit of considering that they could repay their loans at an hour’s notice by merely coming over to the Bank, and asking for the cash to do it with. The immense drain upon the Bank in the last panic has shown that that power is an inconvenient one.
Did this really mean that the Bank would not necessarily be lender of last resort to the discount houses? Not according to Wood, who argued that ‘the main object of the rule was to threaten the brokers vaguely, with the idea of forcing them to maintain reserve balances at the Bank’; while Bagehot at the time, writing in the Economist in early April, asserted, ‘I own that I question whether the rule recently laid down will much diminish the real advances which the Bank of England will think itself obliged to make during a crisis of difficulty,’ even if the bill brokers could no longer approach the Bank directly and had to secure accommodation from the Bank via their own bankers.20
Which is not to say that the bill brokers themselves were not immediately resentful, feelings that deepened as the money market began to show signs of tightening in early 1860. Overend Gurney took it hardest. ‘Mr Gurney had an interview with the Governors to urge a Relaxation of the Bank’s Exclusion of Discount Houses,’ noted Dobree (by now governor) at the end of January. ‘The Govrs did not give him the smallest hope that an Appeal to the Court would be attended with any success.’ A dramatic denouement unfolded in April, starting between the 9th and 11th with Overend Gurney deploying its powerful Quaker connections in the City to make £1.6 million of withdrawals (all in £1,000 notes) from the Bank and soon openly boasting, a Stock Exchange source informed Dobree, of their intention ‘to reduce the Bank’s Reserve to the lowest possible Amount’. Monday the 16th saw the conflict further escalate. ‘If the Rule excluding the dis Houses should be modified,’ the message went to Dobree through an intermediary, ‘the Notes withdrawn & still locked up in Lombard St shall be returned to the Bank “tonight”.’ The governors refused ‘to entertain any such proposal’; but next morning there arrived on Dobree’s desk a sinister anonymous message: ‘Overends can pull out every note you have, from actual knowledge the writers can inform you that with their own family assistance they can nurse seven millions!!’ This proved, however, the final threat, for later that day Dobree learned that the firm had told John Masterman (City MP and banker) that ‘if it would be considered a conciliatory step on their part, they will at once return to the Bank the Million, Five Hundred & Fifty Thousand Bank Notes locked up in Lombard St’ and that ‘they are sorry for what they have done’. On Wednesday the notes were indeed returned to the Bank, ‘identical but all cut into halves’; and next day a relieved Court ‘approved of the Course pursued by the Govrs in this disreputable Affair’.
Were Overend Gurney truly repentant? When, a couple of months later, two directors of the Sheffield and Hallamshire Bank spent the best part of a week in the City calling on leading figures, their highlight was a visit to the ‘Corner House’, on the corner of Lombard Street and Birchin Lane, where they found ‘Mr Gurney junior the most intelligent & business like, & Gentlemanly Person, we had up to this time met with’:
He entered on the subject of their controversy with the Bank of England & said – that he thought this subject was not understood by the public – who thought that the question was solely between Bank of England and Overends, whereas it was between the Bank of England and the Commercial public. The latter would have to pay in inconvenience & the price of money for the restrictions now in force.
If the Bank of England did not relax, Peel’s act would again have to be broken; but – not by them, but by the Bank of England, for its own salvation.
‘We now do business on the principle known & acknowledged of taking care of ourselves,’ added Henry Edmund Gurney; and he stressed again to his suitably impressed visitors, ‘all must take care of themselves in any future Panics’.21
By this time the Bank’s less than favourite politician was back at the Treasury, with the Bank once again finding itself quickly on the back foot. John Hubbard, governor in the mid-1850s, had suffered particularly at Gladstone’s hands – friends though the two men were through religious affinity – and at the end of 1860 he wrote to Dobree complaining of the chancellor’s continuing ‘aggression’ and regretting that ‘the defenders of the Bank bulwarks have demolished them at the first blast of the trumpet sounded by this modern Joshua’. A few weeks later, the trumpet sounded louder than ever, as Gladstone on 31 January 1861 sent Dobree and his deputy (Alfred Latham) a ten-page letter detailing his proposals for the management of the national debt over the next twenty-five years, involving a significant reduction in the Bank’s annual remuneration. ‘A veritable skinflint’ was Neave’s private reaction, writing to Dobree on 5 February; but next day the Court reluctantly acceded, with the governors informing Gladstone that the directors did so ‘mainly because the combined management of the National Debt, and of the collateral Departments of Issue and Banking, enable them to exercise a very important economy in the labor charge, and in the other expenses of Bank administration’. The proprietors still had to ratify the decision, and a General Court met on the 7th to do so. ‘They were called upon to make a sacrifice it was true,’ argued Prescott, ‘but in return for that sacrifice they would secure the good will of the country, and the permanence for 25 years of the arrangement, which he regarded as a valuable consideration’; though for R. Mills ‘the proposal was unjust’ and ‘his submission was certainly unaccompanied with any feeling of cordiality’. Gladstone’s victory was further cemented in 1861 by his successful creation of the Post Office Savings Banks, their deposits (accessible to the Treasury) reaching £15 million as early as 1870. ‘I had an object of first-rate importance, which has been attained,’ he would reflect with satisfaction shortly before his death in 1898. That object was, he went on, ‘to provide the minister of finance with a strong financial arm, and to secure his independence of the City by giving him a large and certain command of money’.22 Gladstone never wavered from his conviction that the Bank was a vested interest, at best only semi-reformed; and his relationship with it was destined, like his relationship with Queen Victoria, to remain star-crossed.
In the financial world at large, the next few years, especially 1863 and 1864, were far from Gladstonian in spirit, as a sustained bull market raged and the City was awash with speculative froth, including an array of new-fangled finance companies. Somewhere near the heart of the action was Overend Gurney, whose response to the Bank’s exclusion had been to diversify radically away from its core business, becoming shipbuilders, shipowners, grain traders, ironmasters, railway financiers and probably much else. Too many of these new lines, though, involved ill-judged lock-up investments, and by July 1865 it was probably as a desperate final throw that it converted to a limited liability company, seeking to concentrate again on its traditional discounting business. ‘It is an extraordinary change,’ reflected the private banker Robert Fowler. ‘They have lost a good deal of money, but they must have a splendid business at bottom.’ The following winter, they sought to borrow money from Glyn Mills at a special rate on securities which seemed to that bank’s Bertram Currie of uncertain value. When he ventured to express qualms, Henry Edmund Gurney retorted indignantly: ‘Do you presume to question the credit of Overend, Gurney and Co?’23 But by the spring of 1866, it was not only Currie who was asking the question.
The memorable Overend Gurney crisis was played out during the second week of May.24 By Wednesday the 9th, with the money market in a lather, the key question on everyone’s lips – or at least everyone in the know – was whether Overend Gurney would be rescued by the Bank, which had appointed a committee of three wise men (Kirkman Hodgson, a recent governor, and two private bankers) to scrutinise the books. On the 10th their answer became known to all: the business was essentially rotten and there could be no possibility of the Bank offering a helping hand. The formal announcement of the stoppage was made late that afternoon. ‘The fatal day, the long expected day has come & O.G. has put up his shutters,’ Currie informed his father. ‘For some weeks I have ventured to predict this event … The panic is pretty smart & and beats 47 or 57 … I think some of the new Banks will have a hard time & financial companies & contractors must go right & left.’
It was indeed the third big crisis in twenty years, and next morning – the City’s Black Friday – The Times anticipated that the shock of Overend Gurney’s failure ‘will, before this evening closes, be felt in the remotest corners of the kingdom’. The atmosphere was certainly bad enough in the City itself, recorded by the partners of Prescotts as ‘a day of most intense excitement and panic, in fact such a day has never been experienced in the memory of any one’, while The Times described ‘throngs heaving and tumbling about’ as by noon ‘the tumult became a rout’ and ‘the doors of the most respectable Banking Houses were besieged’. Gladstone was still chancellor, still an austere Peelite to the core, yet he could not but take notice when he received that morning a hasty scribbled note from Bagehot (by now the esteemed editor of the Economist) about ‘a complete collapse of credit in Lombard Street and a greater amount of anxiety than I have ever seen’, anxiety accentuated by several serious stoppages. The Bank for its part, responding manfully to what was a serious credit crunch, lent to banks, discount houses and merchants in the course of the day the very considerable amount of £4 million; but the pressure on Gladstone to authorise yet another de facto suspension of the 1844 Act came less from the governor (Lancelot Holland, a linen-yarn manufacturer) than from a series of urgent deputations, including country bankers as well as what Gladstone in his diary called ‘a stream of City magnates’. As in 1847, as in 1857, it was essentially psychological relief that was craved, and once again a Treasury letter did the necessary. ‘The Government allowing the Bank to issue Notes at 10% gave relief,’ recorded the young banker Richard Biddulph Martin at the close of Saturday, 12 May, ‘& the panic subsided to a great extent.’ Bank rate remained at 10 per cent until August, and there was a handful of further significant banking stoppages, but the crisis itself was over.
Had it been solely for objective financial reasons that the Bank had let Overend Gurney go down? Certainly those reasons were compelling enough. ‘The Governor took the view,’ reflects King in his history of the discount market, ‘that the Bank could not assist one concern unless it was prepared to assist the many others which were known to be in a similar plight.’25 Yet remembering the history of an intensely strained relationship from at the latest 1857, culminating in 1860 in the infamous £1½ million gun held at the Bank’s head, it is hard not to feel that other considerations – conscious or unconscious – were involved. After all, the mid-Victorian City was in many ways a club, run along strictly hierarchical lines; and it would never do if that club’s ex officio chairman allowed such blatantly disrespectful behaviour to go unpunished.