Chronicles and characters of the stock exchange

by of the Bank of England John Francis

The funds were said to be the nursery of fraud. In the leading companies the interest of the citizen was sacrificed to the jobber. The whole town was converted into a corporation of brokers and usurers, which could lie the government into credit one week and out of it the next. The magistracy of the city encouraged it, and the aristocracy of the city pursued it. ’Change Alley was called a gaming-house publicly set up in the middle of London, towards which the heads of our merchants and tradesmen were turned instead of to their legitimate pursuit; and it was said that £80,000 were paid annually by foreigners in the shape of commissions to the brokers of the Alley. But it was to the bargains for time that public attention was principally pointed by the city member. The origin of these bargains is obvious, and may be traced to the period of six weeks in each quarter, when the bank books were—as it was then thought—necessarily closed to prepare for the payment of the dividend. As no transfer could be made during this period, it naturally enough became a practice to buy and sell for the opening. The habit grew by what it fed on; and, in time, periodical dates for the payment of funds, purchased or sold when it could not be transferred, were fixed on by the Stock Exchange Committee, at intervals of about six weeks. As in these transactions the possession of stock was unnecessary, and the payment of the difference in the price was sufficient, bargains for time became common, and not only English, but foreign capitalists, were attracted by the chance of gain, while the Hebrews flocked to ’Change Alley from every quarter under heaven.

In consequence of the view which Sir John Barnard took of these facts, he succeeded in carrying that enactment which, intended to prevent gambling in the funds, has been utterly and singularly powerless in its effect. It provided that no loss in bargains for time should be recoverable in the courts, and placed without the pale of the law all such speculations. One hundred and sixteen years have passed, the act is still in force, and speculative bargains have not only increased, but form the chief business of the Stock Exchange. The greatest corporation in the world has availed itself of the principle, and the effect of the statute is, not to prevent respectable men from speculating, but to make rogues refuse to pay their losses, knowing that, while the law is inefficient, the blackboard of the Stock Exchange is their only punishment. To such men such punishment is ridiculous; they only feel through the purse, and in that they know they are safe by virtue of an act in which they rejoice.

That a feeling of gambling was encouraged is indisputable, and the attempt of Sir John Barnard was, therefore, honorable. But this propensity seems a natural principle of humanity. The savage in a state of nature, and the peer at the highest point of civilization, alike indulge in it. Every man who trades beyond his power to pay, every merchant who purchases goods on delivery, is, strictly speaking, a gambler; and it is well known to be a common practice of the first merchants to buy goods for arrival without the slightest intention of receiving them, and directly a profit can be gained, or too great a loss averted, they are resold without even the bill of lading being visible to the buyer.

It is these things which lead to disgraceful bankruptcies. The intelligent author of “Partnership en Commandite” says:—“On the banks of the Danube, the Vistula, the Rhine, and the Tagus,—on the shores of the Baltic and the Mediterranean,—on the plains of Poland,—I have met with men who have asked me for charity, because they had been ruined by connection with some of the first English houses.”

The first effect of Sir John Barnard’s Act was serious; and bargains for time, or the “race-horses of ’Change Alley,” as they were termed, were said to have expired. It was soon found, however, that to make the brokers responsible would answer every purpose; and business flourished as gayly as if the father of the city had never had an existence.

Though this measure was with difficulty passed, the wonder is that it passed at all, as the reasoning brought in its favor was very slight; and the following is a fair specimen of the speeches in its behalf:—

“The broker comes to the merchant, talks of the many fatigues and dangers, the great trouble and small profits in the way of trade. He then tells him if he will allow him to dig in the rich mine of ’Change Alley, he could get more in a day than he could by his trade in twelve months. The merchant is persuaded, he engages, goes in for some time, and is quite undone. His just creditors are surprised. ‘What,’ say they, ‘this man had a good stock to begin with, and he has had a good trade for several years; he never lived extravagantly; what is become of his effects and his money?’ They inquire, and find that the whole was gamed away in ’Change Alley.”

The fears of the brokers outran their discretion as soon as the bill passed into law; and the maledictions poured upon Sir John were loud, deep, and frequent. They thought that the principal and most profitable part of their trade was departed; and it was declared—how truly, time has since shown—that it would be only possible to get an estate by the slow, dull way of commerce. Every effort was made to ruin his reputation and his character; but both were too firmly established to receive any injury from the malevolent stories which were currently circulated.

A proposition was made in 1737, by the same gentleman, to reduce the interest on the national debt from four to three per cent. Nothing could be more just than this, as the public might either receive their principal in full, or one per cent. less interest. The House was at first disposed to entertain the proposal with the fairness it merited; but the moneyed men rose in a body, and Sir Robert Walpole, fearing to disoblige them, fearing to lose those votes on which he had hitherto relied, and envying also the popularity Sir John might acquire, determined to crush the scheme. He interested the king and queen; he employed his ministerial power; he intimidated some, he bribed others, he puzzled and persuaded more; until, his purpose being effected, the bill—than which nothing could be more reasonable—was rejected. The popular feeling attributed this opposition to the royal family, who possessed great funded property; but to popular feeling, unless it rose to a storm, as with the Excise Bill, Sir Robert Walpole was very indifferent.

In the same year, an inquiry being instituted into the books of the Bank of England, it was calculated that ten millions were held by foreigners in the English funds; a remarkable proportion of the amount at which the national debt then stood.