Lombard Street: A Description of the Money Market

by Walter Bagehot

And not only is this constitution of a company the most natural in the early days when companies were new, it is also that which experience has shown to be the most efficient now that companies have long been tried. Great railway companies are managed upon no other. Scarcely any instance of great success in a railway can be mentioned in which the chairman has not been an active and judicious man of business, constantly attending to the affairs of the company. A thousand instances of railway disaster can be easily found in which the chairman was only a nominal head—a nobleman, or something of that sort—chosen for show. 'Railway chairmanship' has become a profession, so much is efficiency valued in it, and so indispensable has ability been found to be. The plan of appointing a permanent 'chairman' at the Bank of England is strongly supported by much modern experience.

Nevertheless, I hesitate as to its expediency; at any rate, there are other plans which, for several reasons, should, I think, first be tried in preference.

First. This plan would be exceedingly unpopular. A permanent Governor of the Bank of England would be one of the greatest men in England. He would be a little 'monarch' in the City; he would be far greater than the 'Lord Mayor.' He would be the personal embodiment of the Bank of England; he would be constantly clothed with an almost indefinite prestige. Everybody in business would bow down before him and try to stand well with him, for he might in a panic be able to save almost anyone he liked, and to ruin almost anyone he liked. A day might come when his favour might mean prosperity, and his distrust might mean ruin. A position with so much real power and so much apparent dignity would be intensely coveted. Practical men would be apt to say that it was better than the Prime Ministership, for it would last much longer, and would have a greater jurisdiction over that which practical men would most value, over money. At all events, such a Governor, if he understood his business, might make the fortunes of fifty men where the Prime Minister can make that of one. Scarcely anything could be more unpopular in the City than the appointment of a little king to reign over them.

Secondly. I do not believe that we should always get the best man for the post; often I fear that we should not even get a tolerable man. There are many cases in which the offer of too high a pay would prevent our obtaining the man we wish for, and this is one of them. A very high pay of prestige is almost always very dangerous. It causes the post to be desired by vain men, by lazy men, by men of rank; and when that post is one of real and technical business, and when, therefore, it requires much previous training, much continuous labour, and much patient and quick judgment, all such men are dangerous. But they are sure to covet all posts of splendid dignity, and can only be kept out of them with the greatest difficulty. Probably, in every Cabinet there are still some members (in the days of the old close boroughs there were many) whose posts have come to them not from personal ability or inherent merit, but from their rank, their wealth, or even their imposing exterior. The highest political offices are, indeed, kept clear of such people, for in them serious and important duties must constantly be performed in the face of the world. A Prime Minister, or a Chancellor of the Exchequer, or a Secretary of State must explain his policy and defend his actions in Parliament, and the discriminating tact of a critical assembly—abounding in experience, and guided by tradition—will soon discover what he is. But the Governor of the Bank would only perform quiet functions, which look like routine, though they are not, in which there is no immediate risk of success or failure; which years hence may indeed issue in a crop of bad debts, but which any grave persons may make at the time to look fair and plausible. A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected. If he is lucky enough to begin at a time of expansion in trade, he is nearly sure not to be found out till the time of contraction has arrived, and then very large figures will be required to reckon the evil he has done.

And thirdly, I fear that the possession of such patronage would ruin any set of persons in whose gift it was. The election of the Chairman must be placed either in the court of proprietors or that of the directors. If the proprietors choose, there will be something like the evils of an American presidential election. Bank stock will be bought in order to confer the qualification of voting at the election of the 'chief of the City.' The Chairman, when elected, may well find that his most active supporters are large borrowers of the Bank, and he may well be puzzled to decide between his duty to the Bank and his gratitude to those who chose him. Probably, if he be a cautious man of average ability, he will combine both evils; he will not lend so much money as he is asked for, and so will offend his own supporters; but will lend some which will be lost, and so the profits of the Bank will be reduced. A large body of Bank proprietors would make but a bad elective body for an office of great prestige; they would not commonly choose a good person, and the person they did choose would be bound by promises that would make him less good.

The court of directors would choose better; a small body of men of business would not easily be persuaded to choose an extremely unfit man. But they would not often choose an extremely good man. The really best man would probably not be so rich as the majority of the directors, nor of so much standing, and not unnaturally they would much dislike to elevate to the headship of the City, one who was much less in the estimation of the City than themselves. And they would be canvassed in every way and on every side to appoint a man of mercantile dignity or mercantile influence. Many people of the greatest prestige and rank in the City would covet so great a dignity; if not for themselves, at least for some friend, or some relative, and so the directors would be set upon from every side.

An election so liable to be disturbed by powerful vitiating causes would rarely end in a good choice. The best candidate would almost never be chosen; often, I fear, one would be chosen altogether unfit for a post so important. And the excitement of so keen an election would altogether disturb the quiet of the Bank. The good and efficient working of a board of Bank directors depends on its internal harmony, and that harmony would be broken for ever by the excitement, the sayings, and the acts of a great election. The board of directors would almost certainly be demoralised by having to choose a sovereign, and there is no certainty, nor any great likelihood, indeed, that they would choose a good one. In France the difficulty of finding a good body to choose the Governor of the Bank has been met characteristically. The Bank of France keeps the money of the State, and the State appoints its governor. The French have generally a logical reason to give for all they do, though perhaps the results of their actions are not always so good as the reasons for them. The Governor of the Bank of France has not always, I am told, been a very competent person; the Sub-Governor, whom the State also appoints, is, as we might expect, usually better. But for our English purposes it would be useless to inquire minutely into this. No English statesman would consent to be responsible for the choice of the Governor of the Bank of England. After every panic, the Opposition would say in Parliament that the calamity had been 'grievously aggravated,' if not wholly caused, by the 'gross misconduct' of the Governor appointed by the ministry. Or, possibly, offices may have changed occupants and the ministry in power at the panic would be the opponents of the ministry which at a former time appointed the Governor. In that case they would be apt to feel, and to intimate, a 'grave regret' at the course which the nominee of their adversaries had 'thought it desirable to pursue.' They would not much mind hurting his feelings, and if he resigned they would have themselves a valuable piece of patronage to confer on one of their own friends. No result could be worse than that the conduct of the Bank and the management should be made a matter of party politics, and men of all parties would agree in this, even if they agreed in almost nothing else.

I am therefore afraid that we must abandon the plan of improving the government of the Bank of England by the appointment of a permanent Governor, because we should not be sure of choosing a good governor, and should indeed run a great risk, for the most part, of choosing a bad one.

I think, however, that much of the advantage, with little of the risk, might be secured by a humbler scheme. In English political offices, as was observed before, the evil of a changing head is made possible by the permanence of a dignified subordinate. Though the Parliamentary Secretary of State and the Parliamentary Under-Secretary go in and out with each administration, another Under-Secretary remains through all such changes, and is on that account called 'permanent.' Now this system seems to me in its principle perfectly applicable to the administration of the Bank of England. For the reasons which have just been given, a permanent ruler of the Bank of England cannot be appointed; for other reasons, which were just before given, some most influential permanent functionary is essential in the proper conduct of the business of the Bank; and, mutatis mutandis, these are the very difficulties, and the very advantages which have led us to frame our principal offices of state in the present fashion.

Such a Deputy-Governor would not be at all a 'king' in the City. There would be no mischievous prestige about the office; there would be no attraction in it for a vain man; and there would be nothing to make it an object of a violent canvass or of unscrupulous electioneering. The office would be essentially subordinate in its character, just like the permanent secretary in a political office. The pay should be high, for good ability is wanted—but no pay would attract the most dangerous class of people. The very influential, but not very wise, City dignitary who would be so very dangerous is usually very opulent; he would hardly have such influence he were not opulent: what he wants is not money, but 'position.' A Governorship of the Bank of England he would take almost without salary; perhaps he would even pay to get it: but a minor office of essential subordination would not attract him at all. We may augment the pay enough to get a good man, without fearing that by such pay we may tempt—as by social privilege we should tempt—exactly the sort of man we do not want.