THE TENTH EDITION OF "LOMBARD STREET."* IN spite of the
twenty years or thereabouts that have elapsed since its original publication, the late Mr. Bagehot's book on Lonzbard Street is still much the best description of the
* Lombard Street: a Description of do Money Market. By Walter Bagehot. Tenth Edition, with Notes, bringing the work up to the Present Time. By E. Johnstone. London: Kagan Paul, Trenoh, Trill:mar, and Co. 1892
Money Market with which we are acquainted. Its author, needless to say, possessed in the highest degree all the quail& oations necessary for such a task. He had a thorough acquaintance with Lombard Street itself in its practical working; a mind profoundly versed in economic theory ; and, what is rarer, perhaps, than either, the power of leading others through the mazes of an intricate organisation, of un- folding complicated details while keeping the central principle well in view, and of thus guiding his readers through all diffi- culties to a final comprehension of the whole. As in all Mr. Bagehot's works, extreme lucidity is the characteristic of the book from beginning to end. No one, however unpractised in economic studies, can find it necessary to pause over a sentence or feel a doubt as to the author's meaning. Sometimes, indeed, the very smoothness of our progress is apt, on a first reading, to prove a snare. Where a less skilful writer would have laboured at his explanations, and so impressed them on our minds, we move forward so easily under Mr. Bagehot's guidance, that all difficulties seem to vanish, and, under- standing everything at the moment, we find at the end that everything has eluded us.
In the present edition, the immediate interest and useful- ness of the work are greatly increased. Notes have been added from the very competent hands of Mr. Johnstone, pointing out the alterations that have taken place in our banking system since 1873, and, where figures are quoted, supplementing them, for purposes of comparison, with the latest available. The slightness of the additions which Mr. Johnstone has found it necessary to make, proves at once the original excellence of the book, and our conservatism in matters of commerce and finance. Indeed, in some respects, Mr. Bagehot's work is now a more faithful account of our Money Market than when it first appeared. To some extent it has helped to create the system which it undertakes to describe, or at least to bring into prominence, its central and governing feature. The point insisted on throughout, the principle which it was the object of the book to establish, is that our whole credit system depends on the Bank of England ; that that institution possesses the sole ultimate cash reserve of the United Kingdom, and that its government ought therefore to be conducted on principles quite different from those which regulate the management of an ordinary joint-stock bank. This fact was then very indistinctly recognised. When, some years before the publication of the present work, Mr. Bagehot wrote in. this sense in the Economist, his article provoked a atorm of criticism. Commenting on a speech of the Governor of the time, explaining the action of the Bank of England during the Overend and Gurney crisis, he tried to fasten on the Court of Directors an acknowledgment of their duty to support the banking community in a crisis. Among others who attacked this doctrine, Mr. Sankey, an ex-Governor, whose death at an advanced age was recorded in the Times a few days ago, declared it "the most mischievous ever broached_ in the monetary or banking world in this, country." The murmur of the controversy has hardly yet died away ; but thanks not a little to the influence of Mr. Bagehot's writings, few would now deny that in a special sense the Directors of the Bank of England are the holders of a national trust, and their action under Mr. Lidd.erdale at the time of the Baring crisis shows that they themselves have no desire to evade the responsibility.
There is one peculiarity of the present work which hardly, indeed, affects the general course of the exposition, but which its readers must have often noticed. Mr. Bagehot did good service by pointing out the special dangers of our existing monetary organisation, and the special safeguards by which it might be strengthened, but he nevertheless held it to be an unnatural and imperfect system. "The natural system of banking," he says in his last chapter, "is that of many banks keeping their own cash reserve, with the penalty of failure before them if they neglect it. I have shown. that our system is that of a single bank keeping the whole reserve under no effectual penalty of failure." As he insists no less strongly that, for good or evil, we are bound to the present system, and cannot change it if we would, but only "mend and palliate it," to regard it as essentially vicious and unnatural is a most uncomfortable doctrine, from which everybody would like to be delivered. And we suspect that on this matter Mr. Bagehot was guided to his views by a too close adherence to the political theories current at the time. Throughout
its history the principal factor in giving to the Bank of England its present shape has been the action of Government. To that it is owing that the constitution of our banking system is "monarchic," not "republican,"—" the natural system which would have sprung up if Government had let banking alone." Twenty years ago it was much more the fashion than it is to-day to regard the growth of an institu- tion as unnatural if it had been, subject in any way to the influence of Government. And however dearly we may hold the principle of laissez-faire, it is obvious that, if Government is to have any meaning at all, its interference cannot always be unnatural. Government must, under any system, keep a banking account, and be the chief power in the Money Market. And we have little doubt that Mr. Bagehot's republican system of numerous reserves would, if it anywhere existed, gravitate in the long-run towards the monarchic form. The separate banks could not really retain their independence of each other. The fall of one would mean danger to all, and there would 'be an inevitable tendency to guard against common peril and gain concentration of power by some sort of federal union or centralisation of authority. The imperfections of our present system are hardly inseparable from its monarchic form, but are rather due to the strange mingling in the Bank of England of public functions with private interests, By changes in the government of the Bank such as those which Mr. 13agehot suggested, and by the constraining effect of public opinion on its management, which will increase as the habit of regarding the Bank as a national institution strengthens, most of these imperfections may be removed.
Some of the changes which Mr. Johnstone has to chronicle are worthy of notice. Since the book was first published, the power of issue against Government securities possessed by the Bank of England has been increased. The limit was fixed by the Act of 1844 at £14,000,000, with provisions for increase as the powers of issue possessed by other banks should be allowed to lapse. By this process, the limit had been raised at the time when Mr. Bagehot wrote, to £15,000,000, and it is now B16,450,000. Again, in 1873, the Bank of England possessed the only great store of gold in Europe. It is still the only open market for gold, but the resumption of specie payments by the Bank of France and the founding of the Imperial Bank of Germany have to some extent deprived it of its solitary pre-eminence. In one place there is an interesting verification of a prediction of Mr. Bagehot's. He foretold the gradual discontinuance of private banking ; and, whereas, when he wrote, the number of private banks in Lombard Street ad- mitted to the clearing-house was thirteen, a note informs us that the number is now reduced to four, Among the improve- ments noted is a tendency on the part of the Bank of England to increase the proportion of reserve to liabilities. As a re- sult of the Baring crisis, there has also been a considerable increase in the reserves maintained by the joint-stock hanks, and they have now begun the more frequent publication of their accounts. In this, their example has been followed by the more important private banks, which were previously not in the habit of publishing accounts at all.
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