CHAPTER XI.
The Bill-Brokers.
Under every system of banking, whether that in which the reserve is kept in many banks, or one in which it is kept in a single bank only, there will always be a class of persons who examine more carefully than busy bankers can the nature of different securities; and who, by attending only to one class, come to be particularly well acquainted with that class. And as these specially qualified dealers can for the most part lend much more than their own capital, they will always be ready to borrow largely from bankers and others, and to deposit the securities which they know to be good as a pledge for the loan. They act thus as intermediaries between the borrowing public and the less qualified capitalist; knowing better than the ordinary capitalist which loans are better and which are worse, they borrow from him, and gain a profit by charging to the public more than they pay to him.
Many stock brokers transact such business upon a great scale. They lend large sums on foreign bonds or railway shares or other such securities, and borrow those sums from bankers, depositing the securities with the bankers, and generally, though not always, giving their guarantee. But by far the greatest of these intermediate dealers are the bill-brokers. Mercantile bills are an exceedingly difficult kind of security to understand. The relative credit of different merchants is a great 'tradition'; it is a large mass of most valuable knowledge which has never been described in books and is probably incapable of being so described. The subject matter of it, too, is shifting and changing daily; an accurate representation of the trustworthiness of houses at the beginning of a year might easily be a most fatal representation at the end of it. In all years there are great changes; some houses rise a good deal and some fall. And in some particular years the changes are immense; in years like 1871 many active men make so much money that at the end of the year they are worthy of altogether greater credit than anyone would have dreamed of giving to them at the beginning. On the other hand, in years like 1866 a contagious ruin destroys the trustworthiness of very many firms and persons, and often, especially, of many who stood highest immediately before. Such years alter altogether an important part of the mercantile world: the final question of bill-brokers, 'which bills will be paid and which will not? which bills are second-rate and which first-rate?' would be answered very differently at the beginning of the year and at the end. No one can be a good bill-broker who has not learnt the great mercantile tradition of what is called 'the standing of parties' and who does not watch personally and incessantly the inevitable changes which from hour to hour impair the truth of that tradition. The 'credit' of a person—that is, the reliance which may be placed on his pecuniary fidelity—is a different thing from his property. No doubt, other things being equal, a rich man is more likely to pay than a poor man. But on the other hand, there are many men not of much wealth who are trusted in the market, 'as a matter of business,' for sums much exceeding the wealth of those who are many times richer. A firm or a person who have been long known to 'meet their engagements,' inspire a degree of confidence not dependent on the quantity of his or their property. Persons who buy to sell again soon are often liable for amounts altogether much greater than their own capital; and the power of obtaining those sums depends upon their 'respectability,' their 'standing,' and their 'credit,' as the technical terms express it, and more simply upon the opinion which those who deal with them have formed of them. The principal mode in which money is raised by traders is by 'bills of exchange;' the estimated certainty of their paying those bills on the day they fall due is the measure of their credit; and those who estimate that liability best, the only persons indeed who can estimate it exceedingly well, are the bill-brokers. And these dealers, taking advantage of their peculiar knowledge, borrow immense sums from bankers and others; they generally deposit the bills as a security; and they generally give their own guarantee of the goodness of the bill: but neither of such practices indeed is essential, though both are the ordinary rule. When Overends failed, as I have said before, they had borrowed in this way very largely. There are others now in the trade who have borrowed quite as much.
As is usually the case, this kind of business has grown up only gradually. In the year 1810 there was no such business precisely answering to what we now call bill-broking in London. Mr. Richardson, the principal 'bill-broker' of the time, as the term was then understood, thus described his business to the 'Bullion Committee:'
'What is the nature of the agency for country banks?—It is twofold: in the first place to procure money for country bankers on bills when they have occasion to borrow on discount, which is not often the case; and in the next place, to lend the money for the country bankers on bills on discount. The sums of money which I lend for country bankers on discount are fifty times more than the sums borrowed for country bankers.
'Do you send London bills into the country for discount?—Yes.
'Do you receive bills from the country upon London in return, at a date, to be discounted?—Yes, to a very considerable amount, from particular parts of the country.
'Are not both sets of bills by this means under discount?—No, the bills received from one part of the country are sent down to another part for discount.
'And they are not discounted in London?—No. In some parts of the country there is but little circulation of bills drawn upon London, as in Norfolk, Suffolk, Essex, Sussex, &c.; but there is there a considerable circulation in country bank-notes, principally optional notes. In Lancashire there is little or no circulation of country bank-notes; but there is a great circulation of bills drawn upon London at two or three months' date. I receive bills to a considerable amount from Lancashire in particular, and remit them to Norfolk, Suffolk, &c., where the bankers have large lodgments, and much surplus money to advance on bills for discount.'