Conceiving Companies: Joint-stock Politics in Victorian England (Routledge Explorations in Economic History , No 9)

CONCEIVING COMPANIES

Since the early twentieth century, the joint-stock company and the state have stood together as exemplars of modern bureaucratic institutions. For at least as long, that co-existence has been uncomfortable, as companies and states have wound their way through an inconclusive cycle of proposals to regulate, deregulate, or otherwise adjust the boundaries between “private” and “public” spheres. Conceiving Companies offers a new perspective on the rise of large-scale companies in Victorian England by locating their origins in political and social practice. In the process, it challenges the clear division between the state and the market that has long informed regulatory theory and policy. The study is divided into three sections, each on a different facet of “jointstock politics.” The first section surveys the East India Company and the Bank of England, two expressly political institutions which needed to adjust to new tendencies in the nineteenth century to view companies as more properly part of the market. The second locates England’s early joint-stock banks in the voluntarist and regionalist political culture of the 1830s, then traces their departure from these origins through the end of the century. The final section argues that Victorian railways, in shielding themselves from state intervention, neglected their public relations with creditors, customers, and workers, and suffered economically as a result. Conceiving Companies offers a new perspective on an issue of great significance, not only for historians, but for political scientists and economists. Timothy L.Alborn is Associate Professor of History and Social Studies at Harvard University. He has published articles on economic language and culture, and on the history of science, in journals including Victorian Studies, Science in Context, and History of Political Economy.

ROUTLEDGE EXPLORATIONS IN ECONOMIC HISTORY

1. ECONOMIC IDEAS AND GOVERNMENT POLICY Contributions to contemporary economic history Sir Alec Cairncross 2. THE ORGANIZATION OF LABOUR MARKETS Modernity, culture and governance in Germany, Sweden, Britain and Japan Bo Stråth 3. CURRENCY CONVERTIBILITY The gold standard and beyond Edited by Jorge Braga de Macedo, Barry Eichengreen and Jaime Reis 4. BRITAIN’S PLACE IN THE WORLD Import controls 1946–1960 Alan S.Milward and George Brennan 5. FRANCE AND THE INTERNATIONAL ECONOMY From Vichy to the Treaty of Rome Frances M.B.Lynch 6. MONETARY STANDARDS AND EXCHANGE RATES M.C.Marcuzzo, L.Officer and A.Rosselli 7. PRODUCTION EFFICIENCY IN DOMESDAY ENGLAND, 1086 John McDonald 8. FREE TRADE AND ITS RECEPTION 1815–1960 Freedom and trade, volume I Edited by Andrew Marrison 9. CONCEIVING COMPANIES Joint-stock politics in Victorian England Timothy L.Alborn

CONCEIVING COMPANIES Joint-stock politics in Victorian England

Timothy L.Alborn

London and New York

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 Timothy L.Alborn All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Alborn, Timothy L., 1964– Conceiving companies: joint-stock politics in Victorian England/ Timothy L.Alborn. p. cm. Includes bibliographical references and index. 1. Corporation—England—History—19th century. 2. Stock companies—England—History—19th century. 3. Industrial policy—England—History—19th century. I. Title. HD2845.Z8E543 1998 338.7’0942’09034–dc21 97–33482 ISBN 0-203-45092-2 Master e-book ISBN

ISBN 0-203-75916-8 (Adobe eReader Format) ISBN 0–415–18079–1 (Print Edition)

CONTENTS

Acknowledgements List of abbreviations

vii ix

1 Introduction: companies and states

1

Part I

Sovereign companies 2 Democratic despot: the East India Company, 1783–1858 Reform from within, 1783–1833 23 Between corruption and deception, 1833–58 35 Conclusion 51

21

3 Reluctant sovereign: the Bank of England, 1797–1875 Gold and democracy, 1797–1844 56 Repoliticizing credit, 1844–75 70 Unchartered territory: beyond the Bank of England 79

53

Part II

Joint-stock banks 4 “Representatives of the people”: the politics of joint-stock banking, 1826–44 Institutional contexts of English joint-stock banking, 1760–1840 87 The rise of democratic banking, 1825–36 99 Banking legislation and administrative reform 108 5 Shifting gears: the rise of deposit banking, 1844–80 After democracy: banks, bills, and crisis, 1844–66 118 A second national debt: bank deposits and shareholder liability 130 v

85

116

CONTENTS

6 “Doing enormous things”: national banks, 1880–1914 The amalgamation movement 144 Deposits and democracy: the savings bank debate, 1890–1910 158 Conclusion: local power and the limits of joint-stock politics 165

141

Part III

Railways 7 Early railways and the machinery of joint-stock politics The mechanization of joint-stock politics 173 An uneasy peace: railway shareholders and City finance 187

173

8

Railway republics and bureaucratic visions, 1860–75 Shareholder activism and railway finance 202 A state guarantee: the fad of nationalization 211

201

9

Railways against democracy, 1875–1914 The railway rates debate, 1873–1906 228 Keeping shareholders happy: security and overcapitalization 237 A fate worse than debt: the nationalization threat, 1890–1914 245

225

10 Conclusion: going public

257

Notes Bibliography Index

261 268 290

vi

ACKNOWLEDGEMENTS

This project originated in the early 1990s, when I started to notice references to representative government, “Old Corruption,” and Parliamentary politics in the published advertisements of early Victorian joint-stock companies. I was struck by the contrast between the ubiquity of such references (once I started to look for them) and their relative absence in historical accounts which trace the rise of British banks, railways, and insurance companies. So I widened my search for examples of what I came to call “joint-stock politics” to include shareholder meetings, commentary and correspondence in local newpapers and trade journals, Parliamentary testimony, and early economic treatises. What I found turned into Conceiving Companies. To gain proper perspective on the evidence I was accumulating, it was necessary to dig deeper into what British historians have had to say about nineteenth-century political and economic developments. The political and social history of the period taught me to expand my definition of what counted as “political” at a time when “the state” in Britain self-consciously ceded most of its functions to local government, voluntary societies, and (as I will be arguing) joint-stock companies. Business and economic historians, despite focusing much less than I do below on the “political” identity of early corporate enterprise, reminded me at every step that things like regional markets and managerial strategy were anything but irrelevant to my story. As the project progressed, the challenge shifted from cataloging nineteenth-century articulations of joint-stock politics to using this evidence to work towards a new synthesis of existing scholarship on the Victorian political economy. Notwithstanding Robert Merton’s well-founded suspicion of those who claim to see farther when astride the shoulders of giants, my ability to make sense of Victorian companies owes much to the valuable contributions of a variety of historians in recent years. The work of Michael Collins, Philip Cottrell, and Terry Gourvish in business history, and of Martin Daunton, Boyd Hilton, and R.J.Morris in political and social history, has been especially helpful. A number of people and institutions have offered their unflagging support vii

ACKNOWLEDGEMENTS

and inspiration as this book has come together. I wish to thank Peter Buck, Brian Cooper, Barbara Rosenkrantz, and Frank Dobbin for reading the entire manuscript and offering their timely and very helpful advice. Deborah Cohen, Richard Grossman, Bill Kirby, Charles Maier, and Susan Pedersen also kindly read and commented on early drafts; and Phil Mirowski was a special inspiration in getting me headed in the direction of joint-stock politics. Over the past few years I have also learned much, about companies and other things, from my friendship and intellectual exchange with Simon Schaffer, Anne and Jim Secord, Judy Vichniac, Mary Morgan, Ted Porter, Margot Finn, Roger Owen, Frank Trentmann, Keith Crudgington, Amy Slaton, Margaret Schabas, Richard Adelstein, Paul Wendt, Pat Kelley, Harvey Rishikof, Will Ashworth, and Henry Atmore. I also owe a great debt (and have paid off a great debt) to Harvard University, where I have taught in history and in social studies for the past seven years. Harvard very generously provided funds and leave-time for travel and research. With this assistance, and with money provided by C. Boyden Gray, I have been able to spend many fruitful weeks in the British Library; and to employ gainfully, in order of appearance, Margaret Menninger, Mike Vazquez, Steve Blank, Steve Burt, Maia Gemmell, Chris Bavitz, Amy Cerrito, and Julia Torrie. They have kept me well supplied with photocopies and good conversation. Harvard has also brought me into contact with a constant stream of inspiring students, who always patiently encourage me as I try various ideas on for size. Among many others, I learned a great deal in the course of teaching Carrie Fox, Maya Jasanoff, and Ken Wainer. The staff of the Harvard history department, the Center for European Studies, and the Committee on Degrees in Social Studies have also been an enormous help, especially Sue Borges and Maia Low. Finally, I wish to thank the editorial staff at Routledge, especially Heather McCallum, who first expressed interest in the manuscript; and Simon Wilson and Dean Hanley, who have adroitly seen it through to publication. I regret that my father, Russell Alborn, did not live to see me publish my first book. I rejoice that Alix Cooper has been with me throughout the arduous process of writing and revising it, and has somehow managed to retain her patience and her sense of humor. I dedicate book number one, and hopefully many to follow, to Alix.

viii

ABBREVIATIONS USED IN NOTES AND BIBLIOGRAPHY

BH BM BPP EHR JIB JSSL RN RT

Business History Bankers’ Magazine British Parliamentary Papers Economic History Review Journal of the Institute of Bankers Journal of the Statistical Society of London Railway News Railway Times

All references to Hansard’s Parliamentary Debates (shortened as Hansard in references) are to the 3rd series (1830–92) unless otherwise noted.

ix

1 INTRODUCTION: COMPANIES AND STATES

Since the early twentieth century, the joint-stock company and the state have stood together as exemplars of modern bureaucratic institutions. For at least as long, that co-existence has been uncomfortable, as companies and states have wound their way through an inconclusive cycle of proposals to regulate, deregulate, nationalize, privatize, or otherwise adjust the boundaries between the “private” sphere of big business and the “public” sphere of democratic government. Historians who have studied the tense past of companies and the state have done relatively little to clarify this drawn-out boundarydrawing process. Theirs is either a heroic story of corporate growth, set against a backdrop of regulations and other outside impediments to maximum economic efficiency; or a story about the birth of the regulatory state, valiantly preserving democracy from the worst ravages of large corporations. Even when such accounts pause to consider the close similarities in structure and function between the company and the modern administrative state, these are most often used to illustrate the ultimate primacy of either the private or public sector in establishing a viable model for modernity. Hence one prize-winning account of American business regulation concludes that the best federal agencies have been those with a healthy respect for the laws dictating corporate efficiency (McCraw 1984); while another essay on Progressive-era business regulation concludes that “[t]he antisocial forces that regulation seeks to counter must always be resisted, even if they will always be present” (Keller 1981:94). By privileging either the economic laws of company performance or the political laws of regulation, these approaches lose sight of the crucial point that companies themselves have historically had to keep political practice firmly in view for their economic activity to succeed. Companies have never been merely profit-maximizing machines subject to recurrent breakdowns owing to the human error of inept state intervention, nor have they been merely selfish agglomerates of capital in need of supervision by accountable state authorities. Rather, they have always existed to an important extent as political institutions themselves, with some degree of accountability to 1

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a “public” composed of shareholders, customers, and workers, and sharing the modern state’s basic need of maintaining a semblance of legitimacy to survive. The choices companies make to secure that legitimacy have mattered in the past and continue to matter in the present day, as evidenced by the recent trend among companies to portray themselves as “ecofriendly” in order to stay abreast of changing political sentiments in favor of environmentalism. Of course, to some extent it is possible to subsume such apparent examples of corporate political culture by reading them as efforts to anticipate consumer preferences; just as, more generally, it is possible to subsume all political decision-making beneath the economic model of rational choice. But such interpretations do not change the fact that there is a wide and important range of practices undertaken by companies that have far more in common with actions typically performed in the public as opposed to the private sector. This book offers evidence from British history toward a new definition of the modern company, as an institution that proactively employs a balance of political and economic means to achieve economic ends.1 This definition preserves the most important (and obvious) distinction between companies and the modern state, which is that companies exist to make money while modern states are, as it were, the ultimate nonprofit organizations. At the same time, it confronts the precise mixture of political and economic actions performed by companies as a historical problem to be solved empirically, not by appealing to general rules gleaned from economics or political science. This definition of the modern company will not seem so new to those who are used to studying firms in non-English-speaking countries, where relations between companies and the state have usually been more self-conscious than in America and Great Britain. By telling the story of British companies in terms of their political as well as economic practices, it is possible to test the conclusions reached by historians of business organization in France, Germany, and Asia, whose work has already challenged the general model of companystate relations that is based primarily on Anglo-American evidence (Dunlavy 1994; Kocka 1981; Brown 1994). A leading strategy of those who minimize the political identity of AngloAmerican companies has been to equate politics with the modern state, and to adjoin the arguable assumption that the state in modern Britain and America has always been weaker than its counterparts in continental Europe and Asia. Since companies appeared in a climate so dominated by “market” relations, the argument continues, it would have been a waste of time for them to devote much energy to political as opposed to strictly economic activities. When this claim moves from the “laissez-faire” nineteenth century to the “regulatory” twentieth, its tone shifts from descriptive to normative, in one of two ways. Either the rise of New Deal agencies in America and nationalization in Britain is viewed as a series of costly mistakes, which have added the extra price of political posturing to industries already burdened 2

INTRODUCTION: COMPANIES AND STATES

with diminishing profit margins; or the failure of theAmerican and British states to combine political accountability with stable economic growth is viewed as an unfortunate legacy of a laissez-faire system that was allowed to outlive its usefulness. The first diagnosis points straightforwardly to “less government” as a solution.2 The second has tended to appeal to models from outside Anglo-American political culture (for example Japan or France), where stronger traditions of central government have allowed company-state relations to develop in a more co-operative manner (Lazonick 1991; Hall 1986a; Pollard 1982). Regardless of whether they point in the direction of less state involvement or a retooling of regulatory policy, these diagnoses of Anglo-American companies suffer both from narrowly identifying politics with central government, and from assuming that a weak state somehow allows companies to avoid “politics” altogether. They both assume, in other words, that companies only act in a political capacity when they enter into relations with the state, and that at most other times they are free (for better or worse) to pursue untrammeled the dictates of the market. Challenging these assumptions reopens a question that neither laissez-faire ideologues nor administrative reformers tend to ask: would liberation from the state really allow companies to interact with their public around a narrowly defined cash nexus, or would they instead need to be as conscious as at present of “political” pressures emanating from sources other than the central government? Clearly a new “joint-stock politics” outside the pale of state intervention would be very different from the regulatory patterns that have developed in America and Britain over the past century. But, as a few critics have begun to argue, such a politics might very well be an improvement on the atrophy that has resulted from the present-day combination of huge unaccountable companies, only slightly more accountable regulatory bodies, and (in Britain) the crumbling behemoths of nationalized industry.3 This book leaves the problem of envisioning a new joint-stock politics to others, and turns instead to a historical examination of a time and place when companies were incessantly involved in political activities which only occasionally had any reference to the state. Nineteenth-century Britain, as a paragon of the “laissez-faire state,” is an ideal point of entry for such a project. For one thing, much work in British history has already performed the preliminary task of blurring the assumed identity of politics and states, from Karl Polanyi’s classic inversion of “artificial” markets and “natural” society to more recent studies of municipal government, voluntary societies, and the “entrepreneurial politics” on display in towns, clubs, and factories (Polanyi 1957; Hennock 1973; Koditschek 1990; Morris 1990; Searle 1993; Daunton 1996a). By virtue of participating in this culture of voluntarism and regional politics, promoters of new companies arrived at their task with a specific range of assumptions about how to raise revenue and delegate authority. These provided them with new insights into what economists 3

INTRODUCTION: COMPANIES AND STATES

today would recognize as more efficient methods of organizing capital while,at the same time, forcing them to combine their strictly economic goals with subsidiary political aims.4 Once the focus of political history has been oriented away from “state” structures like Parliament and toward less formal manifestations of regional authority, traditional accounts of the rise of British companies become much harder to sustain. Such accounts typically emphasize the transition from eighteenth-century chartered monopolies like the Bank of England to the railways and “common-law” companies of the early-Victorian period, and from there to an era of general limited liability ushered in by a series of permissive laws. Each new wave of companies is described in terms of their superior economic efficiency, either owing to increased competition in a postmonopoly era or to improved economies of scale in contrast to smaller family firms. The mid-century laws which removed many obstacles to company formation are either presented as the product of wise legislators (Hunt 1936), or as the result of market-driven forces mediated through the courts (Butler 1986; Anderson and Tollison 1983; Sugarman 1985:204–344). Any economic drawbacks of nineteenth-century companies are attributed to imperfections in these laws, ranging from inadequate protection against fraud to a failure to recognize the proper stance for regulating “natural monopolies” (Foreman-Peck 1990; Foreman-Peck and Millward 1994:26– 8). Political agency, in these accounts, exists almost exclusively at the national level of Parliament, the Board of Trade, and the high courts, leaving the companies themselves in the embrace of economic forces and “externalities” beyond their control. All this assumes a clear distinction between the public and private dimensions of corporate enterprise, in a time long before such distinctions had emerged. New companies in the early-Victorian era were self-consciously not “public” in the same sense as their chartered predecessors which took shelter under the personification of the Crown. Nor, however, did they conceive of themselves as “private” in the sense which would start to appear by the end of the century, and which continues to inform their historians today. Instead, both the companies and the people in charge of regulating them most often appealed to existing “public” categories that seemed to represent more closely the functions actually performed by joint-stock enterprise at the time: namely, the various types of informal and regional politics mentioned above. One crucial consequence of this practice was that companies found it harder to depart from their original public identities, and faced different obstacles in making that switch, than most accounts imply. Since companies were thoroughly enmeshed in the political culture from which they emerged, it makes little sense to describe their plight as one of fighting against a “strong commercial prejudice in favor of ‘individual’ enterprise” (Hunt 1936:13). Furthermore, most successful Victorian companies were in sectors like financial service, or transport and utilities, 4

INTRODUCTION: COMPANIES AND STATES

which brought them into contact with more members of the general public than was the case in sectors like manufacturing where the family firm dominated. Having left a deeper imprint on society, their original public identities were all the more difficult to revise in the face of prevailing expectations. Besides allowing us to recover the modern company’s political past, a more accurate appraisal of Victorian politics also suggests a need to reexamine the parameters by which “successful” companies are judged. In other words: was it really in their own and the public’s best interest—and was it even realistic—for companies to try and depart from their earlier conception as public institutions which both originated in and were responsive to political concerns? That most companies did attempt to make that move is clear; as will be discussed below, some did so with more apparent success than others. In the British case (and the same holds for many American companies), however, this question is complicated by the fact that the older politics of regionalism was itself in the process of giving way in the nineteenth century to a new politics that was both more concentrated at the level of national government and representative of a wider cross-section of society (Hall 1984). In turning their back on “politics” at the end of the century, many companies were in fact making a calculated political decision to oppose the emergence of a more centralized democratic state. A company’s “success” at putting its political past behind it, in this context, signifies much more than an individual firm’s efficient elimination of costly externalities. Taken collectively, such efforts intervened in a major way in the rise of the British state, with important political and economic consequences. What counts as “success” needs to be remeasured accordingly. Most of this book (Chapters 4 through 9) is devoted to a history of two of these corporate forms, banks and railways, which were especially hardpressed to negotiate the political categories which they were partly responsible for bringing into being in the early nineteenth century.5 Both banks and railways struggled throughout the century to attract customers and operating capital, and to maintain a disciplined, low-cost labor force. To achieve these goals, they needed to solve many of the same political problems facing the middle-class institutions that were filling the gap left by the laissez-faire state and the waning local aristocracy. Which problems arose, and how they tried to solve them, depended on the companies’ structure, function, and location in the market. Joint-stock banks, which first appeared in England in the 1820s as regional suppliers of credit to industry and trade, shared many of the assumptions and practices of the voluntary association. Like the temperance society, the mechanics’ institute, and the mission, the bank acted as a “subscriber democracy” by maintaining a large overlap between borrowers and shareholders. Railways, in the course of building a standardized national network, were less likely to act as primarily regional institutions, and instead opted for the politics of the factory, with 5

INTRODUCTION: COMPANIES AND STATES

its emphasis on machinery, discipline, and efficiency. As new companiesconstructed their new political identities, they also constantly reminded the public of how much they differed from the shibboleths of “Old Corruption” and budget-busting militarism that were in the process of being discredited by the laissez-faire state. The contrasting fates of banks and railways also suggest how political constraints and decisions internal to the company could determine a firm’s economic fortunes, and could allow it to stave off government intervention once the laissez-faire state had shaded into the regulatory state of the twentieth century. A comparison between the profitable and powerful “big four” British banks of the late twentieth century and British Rail, a moneylosing weight around the taxpayers’ shoulders, would seem to be ideal fodder for the advocate of privatization: he or she might argue that the banks have succeeded so well because they have been left to their own devices, while the British state, upon taking over the railways in 1947, drove the network into the ground. Armed with a different conception of politics, however, it is possible to see the present-day contrast between British banks and railways as having less to do with state intervention than with the companies’ very different political practices which emerged in the nineteenth century. On this reading, banks were able to achieve stable political relations with their shareholders and depositors, maintain deferent relations with their largely clerical workforce, and lend money to a class of mainly foreign and colonial customers who had little political recourse either within the company or to the British government. Railways, conversely, took much longer to secure peaceful relations with their shareholders, employed workers who built local trade unions into a national political movement, and carried goods for traders and farmers who would become potent political foes in their struggle to keep rates at a minimum. Once these different political fortunes are taken into account, it is easier to see how later developments like nationalization, which are usually viewed as the cause of reduced economic efficiency, were partly the outcome of a company’s efforts to resolve its own internal political problems. To placate their investors, railways kept share prices high by raising new capital instead of diverting profits back into the industry. To fend off complaints by their customers and workers, railways played the two groups against each other, threatening the worse fate of socialism if traders and the Liberal state refused to support the companies’ costly policies. Nationalization, when it finally came in 1947, was due as much as anything to the weakened economic position in which railways had put themselves owing to their past political actions. All this is not to deny that British Rail added to the inefficiency of rail transport, or that competition with road and air travel played a major role in the declining fortunes of the network; merely to reintroduce the crucial part played by the railways’ own joint-stock politics. The ability of British banks to “modernize” without direct state involvement, often viewed as a 6

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triumph of economic efficiency, similarly needs to be revisited in lightof their nineteenth-century political past. On this reading, much of their success resulted from introducing, in the home market where politics most mattered, a relatively quiescent class of depositors in place of a potentially disruptive class of borrowers (the same traders and farmers who would make life so miserable for the railways). Economic efficiency was certainly part of this story, since the banks could not have kept their depositors happy without providing ample security and interest, but efficiency in this case was premised on political success. Recovering the thriving politics of Victorian joint-stock companies finally forces us to re-evaluate the place of the “premodern” chartered companies in British economic and political history. Firms like the Bank of England and the East India Company were clearly a breed apart from their “modern” successors: in terms of my previous definition, these were institutions which pursued expressly political ends by employing a balance of economic and political means. But instead of portraying the older chartered companies as wholly alien to the rise of the modern company, as is the tendency in most accounts of that rise, it is important to recognize the many ways in which the respective politics of the two types of institution informed each other. Precisely because of their clear status as exceptions in the nineteenth century, the East India Company and the Bank of England constantly reminded railways and banks what a company used to signify, but no longer did. They also reminded the Victorian state of its former self, by presenting remnants of eighteenth-century politics that were all the easier to detect because they were not lodged deep within Parliament or the Queen’s Bench, and as a result were constantly subjected to public criticism. In short, the Company and the Bank offered inviting premodern “others” that greatly assisted the efforts of both companies and the state to define their politics as thoroughly modern by contrast. But they also did more than that. Since they performed political functions (the administration of India, central banking) which a central government agency would otherwise have needed to perform, both institutions paradoxically acted as crucial supports of the ideal of a laissez-faire state. To play that role successfully, however, they needed to balance an instinct to preserve their “premodern” structures of patronage and chartered monopoly against a constant need to revise their administrative strategies to keep up with the changing needs of industry and commerce. The East India Company went too far in the latter direction, willingly casting aside its commercial monopoly in 1833 and eventually doing such an efficient job administering India that even mid-Victorian politicians decided that nationalization would be consistent with the goals of economic liberalism. The Bank survived, in contrast, by refashioning itself as a “modern” company which subordinated political means to economic ends: if it acted like a central bank, this was only incidental to its role as a profit-seeking institution. These contrasting outcomes 7

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were no different in kind from thosedistinguishing railways and banks in nineteenth-century Britain. In their cases as well, there was always the danger that a company’s political actions would count for more in the public eye than its goal of making money, leading people to think that the job would be better performed (or at least regulated) by the state. For these reasons the following two chapters of this book take up each of these “premodern” companies in turn, with an eye both to the stubborn persistence of eighteenthcentury politics which they embodied, and to their precarious efforts to reinvent themselves as “modern” political institutions while still maintaining contact with their origins in the market.

Companies and British historians My critical discussion of the historical literature has so far been limited to those approaches which essentially view companies as economic units, and which view “politics” in terms of the monolithic category of “the state.” Two more recent approaches to British history have more in common with the definition of joint-stock politics offered in this book: these appeal respectively to the institutional and cultural sources of business organization. The institutional perspective on business history is largely an American import, first tested on such firms as Standard Oil and Du Pont and then shipped overseas for further verification. It was pioneered by Alfred Chandler, who has ascribed the tremendous gains in efficiency that have followed from the modern company form to its system of “distinct operating units… managed by a hierarchy of full-time salaried executives” (1990:14). To understand both the importance and the limitations of the Chandler thesis, it helps to locate it in a larger historiographical debate pitting the “new institutionalism” against the “new economic history.” As many have noted, Chandler’s approach belongs to a century-old tradition in American economics which privileges institutional structure over individual choice as an explanatory framework for economic activity (Lee 1990; Ross 1995). Adolf Berle and Gardiner Means claimed in 1932 that “[t]he corporation has, in fact, become…a means of organizing economic life” (cited in Fisher et al. 1993:155); and Chandler and his successors have widened and deepened this thesis through a variety of rich case studies. Whether in its classic form or in its new incarnation in business history, institutionalism has offered a welcome means of broadening the conception of the firm passed down from economists like Alfred Marshall. Neoclassical and behavioral conceptions of the firm have bred histories relating input and output to overall performance, most of which have operated on the assumption that companies behave more or less like individual economic units. In contrast, institutionalists have pried open the business unit in order to ask comparative questions about organizational design and strategy. 8

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Institutionalism has informed British business and economic history in two divergent ways: it has produced optimistic, if somewhat muted, efforts to identify an indigenous “managerial revolution” in Britain, and it has inspired people to diagnose British decline in terms of a relative absence of managerial hierarchies. The first approach picks out the companies that did succeed (or can be portrayed as having done so) and tells the same story about them that Chandler and others told for American corporations. T.R. Gourvish claimed in 1972, in a study of the London & North Western Railway, that it was “not too much to apply to Britain Chandler’s claim that ‘railroads created modern administration’” (1972:267), and similar sentiments have appeared in more recent studies of such sectors as banking, brewing, electricity, and shipping (Gourvish and Wilson 1994; Holmes and Green 1986; Hannah 1979; Boyce 1995). More recently, historians have begun to focus more on what British industry failed to accomplish by way of business organization, and have connected that failure to the wider issue of relative economic decline. These studies reveal a “barely visible hand” that signified “the absence of leadership from within private industry” and forced the state into awkward attempts at infusing the private sector with managerial innovation (Elbaum and Lazonick 1986:10–11). Companies which achieved the same managerial revolutions as their German and American counterparts, according to this view, were cut off from the rest of the economy by high levels of market segmentation, and hence had little effect in reversing the general malaise (Kennedy 1987:110–15; Tolliday 1987). Turning from the handful of companies which won the battle of managerial efficiency, these historians ask why the British economy as a whole lost the war. If applications of institutionalist economics to the history of British business organization sometimes seem forced, especially for the period before 1900, one reason is that they suffer from an absence of either relevance or subject matter. The secret to the success of British industry into the twentieth century was its disorganization, not the reverse. Although historians who focus on British firms which meet Chandler’s criteria for success seldom lose sight of this point completely, it does tend to recede the deeper they get into company archives. As archival evidence accumulates about what managers did at this bank or that brewery, one tends to forget about their firms’ relatively marginal position in the British economy.6 Historians who seek to explain the institutional sources of general economic decline, as opposed to the minor triumphs of individual industries, do not make this mistake. Chandler speaks of “the continuing commitment to personal capitalism in British industry” (1990:239) and William Lazonick similarly discusses the staying power of “proprietary capitalism” in Britain (1991:25–7). They portray British capitalists as trying to hang on to their relative edge in skill and craftsmanship for as long as possible, only to see foreign competitors invariably undersell them with mass-produced copies of their original 9

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innovations (Elbaum and Lazonick 1986:7). But this is a largelynegative definition of business organization, tending to judge British business by a checklist of absent attributes. Since the point of institutionalism is to discover the “means of organizing economic life,” it would seem that a wider perspective is needed than the available internal company histories and obituaries of “personal capitalism” have so far provided. Barry Supple has observed that Chandler, in using the “American way” as a yardstick for measuring British economic performance, “cannot avoid touching on cultural institutions and attitudes” to account for the two countries’ discrepancies in output and efficiency. In particular, he continues, it is crucial for Chandler to expand his theory of the state to encompass much more than “questions of antitrust and competition policy”; and he concludes that a useful comparison between American and British economic development needs to locate the “vast case study” of big business in an even wider framework that includes “[t]he nature of markets and culture, the pattern of population movements and state intervention, the economic geography of the two societies, the vigour of small-scale firms or firms in the service sector, [and] the structural balance of activity in general” (1991:510– 11; see Wilson 1995:5–8; Alford 1976:62–6). This is a tall order. But much work and more debate have gone into clarifying the contours of a framework for discussing the social implications of modern British business. From perspectives stretching from Thatcherism to neo-Marxism, a consensus has emerged depicting British society since the mid nineteenth century, if not earlier, as dominated by a hybrid elite of City financiers, overseas merchants, high-ranking civil servants, and (in some versions) the landed aristocracy. These “gentlemanly capitalists,” it is claimed, consolidated their power through kinship ties and public-school friendships. In the process, they are said to have exerted a seamless hegemony over the rising bourgeoisie and, in the twentieth century, over organized labor. Most capitalists and workers are presented as either failing to break into the chambers of gentlemanly power or internalizing gentlemanly values as quickly as they won entry.7 P.J.Cain and Anthony Hopkins have lately extended the “gentlemanly capitalism” thesis to include the British Empire. Against earlier historians who credited the “informal” Victorian empire to bourgeois enterprise, only later to be propped up by active state involvement, they present an empire that was a product of conscious and continuous policy from the late seventeenth century through the Second World War, and which always favored the high political interests of the City and the aristocracy over that of industrial capital (Cain and Hopkins 1993). Most of these revisionist historians explicitly build on the new institutionalist paradigm in economic history. In the process, they have replicated the split between celebratory accounts of exceptionally “modern” British firms and pessimistic efforts to explain decline in terms of “institutional rigidity”—and they have done so with an edge that reveals 10

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their divergent political outlooks. For W.D.Rubinstein, everything the business historians say about British banking, insurance, and shipping proves his point that British economic power has always rested in the gentlemanly sectors of financial service and international trade. He presents these gentlemen as having prospered by jettisoning their Georgian predecessors’ infamous inefficiencies, and scolds their critics for painting them in such anachronistic colors: “nothing whatever now remains,” he argues, “of the pre-modern non-Weberian elements which formed so striking a part of Old Corruption” (1987:193). On the basis of these examples of “continuing and, internationally, possibly unique strength” (1993:37), he concludes that decline is in the eye of the beholder. The real anachronisms are the “manufacturing fetishists” who persist in wringing their hands over export returns and blue-collar unemployment (43). Remorselessly racing past Britain’s decaying factories in his company car, Rubinstein welcomes privatization as a final nail in the coffin of the out-of-date industrial north. A second set of revisionists, writing from the perspective of the new left, are firm believers in the decline thesis. Instead of looking for evidence of British strength amidst industrial decay, they are more interested in discovering what went wrong with working-class politics after the Second World War. Institutional rigidity, rendered even more unbending by cultural factors like monarchism, public schools, and Treasury control, strikes them as the likeliest suspect. These historians are sufficiently committed to Marx to accept his close identity between modernization and industrialization. At the same time, their entrenchment in British (as opposed to international) working-class politics has led them to view “gentlemanly capitalism” mainly in terms of its negative role in co-opting Liberal and Labour political elites, and hence preventing the emergence of a creative alternative to politics-asusual. There is little room here for discovering anything “modern” about the British service sector, nor for that matter is there much room for rescuing any indigenous traces of modernity in the rest of British society. The alternative, as Perry Anderson implies in his comment that the British state “acquired traits of the welfare officer, but never of the engineer” (1992:189), is to follow the institutionalists in calling for injections of modern business methods from abroad. Where these revisionist accounts of British culture touch on business history, the results have been mixed. We do find a more sustained argument about how British business has historically interacted with the state, the service sector, and “culture” in its various guises. But both in its “optimistic” and “pessimistic” versions, the new focus on gentlemanly capitalism takes us rather far afield from business organization per se. In Rubinstein’s story, and in the less barbed version of Cain and Hopkins, the service sector is painted with a broad aristocratic brush, which works well for elite City financiers but does scant justice to the values and skills of the clerks and middle managers who made the machinery run. Such writers are more than 11

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happy to carry British examples of successful managerial techniques over into their more general account of nonindustrial modernization. But their primary focus on high finance and high politics tends to relegate to the footnotes the nuts and bolts of management, without which “modernization” in Britain would have been impossible. The new-left historians similarly suffer from an overweening focus on central government and a simplistic identification of the service sector with the City, but with different consequences. Critics like Anderson have added a cultural component to the institutionalists’ negative explanation of decline, but two negatives in this case do not add up to a constructive account of political and social practice.8 What these failings suggest is a need for a perspective on British business history that more closely integrates the view from inside the firm with the political concerns implied in the polemics of Rubinstein and Anderson. One way of doing this is to widen our definition of “political” to include, in addition to the gentlemanly capitalists who pulled the strings, the clerks and managers who kept the strings patched together. Ted Porter’s recent observations on the politics of accounting are relevant here: “the large capitalistic business corporation is more like a government than it is like a small company,” he claims, since “[t]he ambit of accounting is first of all administrative and political” (1995:93).9 Here is a fair approximation of “joint-stock politics” as it is defined in this book, or at least an indication of where such a version of politics had arrived by the mid twentieth century. The business historian’s task, as I have set it out below, is to trace this version of politics back to its nineteenth-century roots. What starts to emerge does not comfortably fit the standard dichotomies of City versus Industry or gentleman versus philistine. The bank managers and railway directors whose strategies are examined in this book occupied a liminal space between Manchester mill-owners and London financiers, and from that position they forged a political perspective that was arguably as bourgeois as anything Manchester produced, but not typically very democratic. One place where a “gentlemanly capitalist” rendering of British companies would appear to be on firmer ground concerns the “premodern” companies like the East India Company and the Bank of England, which were nothing if not gentlemanly as they entered the nineteenth century. Their significant place in Victorian society, and their apparent ability to “modernize” without losing track of their social moorings, have been taken as examples of the persistence of aristocratic norms in the midst of industrialization. Historians of these companies tend to fill their narratives with gentlemanly visionaries who realized that their true course lay in casting aside their outdated economic functions and rationalizing their politics. Hence we find Thomas Macaulay and Charles Trevelyan using the East India Company as a staging ground for their more ambitious plans to replace “Old Corruption” with a modern civil service, and we find Montagu Norman flexibly adapting the Bank of England’s fiscal policies to meet the needs of empire and trade after 12

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the First World War. As I will argue in the next two chapters, such accounts neglect the pervasive influence, even in premodern companies, of the developing joint-stock politics of banks and railways. Most accounts of the East India Company in the nineteenth century present a relatively straightforward picture of progress toward modernization, culminating in 1858 when the India Office replaced the Company as chief administrative agency responsible for Indian military and civil rule. A generation ago, historians typically assumed this progress was the result of middle-class utilitarians like James and John Stuart Mill infiltrating the Company and convincing a set of absent-minded directors and government officials to implement a series of utilitarian experiments in land reform and taxation. This basic pattern of governance was assumed to reflect a more general trend in which the middle classes pulled the strings while aristocratic figureheads in Parliament enacted industry-friendly laws (Stokes 1959; Harnetty 1972). Like others of its kind, this version of events has been countered with evidence of a more active involvement in Company affairs by gentlemanly capitalists than was hitherto acknowledged. C.A. Bayly, for instance, has shown that most of the “utilitarian” projects and innovations that marked nineteenth-century Indian rule were actually introduced by “improving” Scottish landlords who took their new views on land use with them when they received civil service posts in India (1989:155–60). Cain and Hopkins have extended this argument to the nationalization of the Company in 1858, which according to them “signified the extension abroad of the new service order following the transition from Old Corruption, rather than the triumph of the industrial bourgeoisie” (1993:319). Whig and liberal Tory reformers, they argue, knew exactly what they were doing when they gave in to demands to reform the Company in 1853 by replacing its patronage system with a merit-based civil service. In doing so, they secured an Oxbridge monopoly of government posts, inculcated gentlemanly habits in India where “several Etons were founded” after 1858 (332), and hence secured a reform which “looked more radical than it was” (331). The fact that these changes also happened to provide an immense benefit to textile mills, which earlier historians have taken as evidence that the “Manchester Party” was behind them, is brushed aside as coincidental. Lancashire’s apparent mid-Victorian successes in pushing Indian policies “were achieved largely because its aims were congruent with those of India’s rulers” (336). This account of the demise of the East India Company is an improvement over narratives which feature “English utilitarians” at the expense of cabinet members like Trevelyan and Charles Wood. Cain and Hopkins are guilty of reading back from the late nineteenth century, however, when they argue that the Whigs’ primary goal in 1853 was to establish Cambridge and Oxford as a breeding ground for a “modern” variety of gentlemanly 13

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capitalism. This was certainly one result of civil service reform, just as a rapid increase in Indian textile imports was another. But as far as their intentions were concerned, Wood and his fellow Whigs were still very much acting within the mind set of Old Corruption when they set out to reform the Company in 1853. They hoped that a merit-based civil service would prevent Company patronage from passing into the hands of the middle-class radicals, who were using India as a way to stir up popular opposition against the Whigs. This was the extent of their thinking about India in the 1850s; it did not include much by way of sweeping modern visions of imperial government, gentlemanly or otherwise. What glimpses of modernity there were during the India debate in the 1850s belonged to the two thoroughly middle-class antagonists who were left to hash out the fate of the Company after the Whigs had made their move: John Stuart Mill, who defended the Company on the logic that nationalization would sidetrack British voters from more serious questions of democratic rule; and John Bright and Richard Cobden, who successfully pressed to abolish the Company in 1858 on the grounds that it stood between voters and the state.10 Moving from the East India Company to the Bank of England, Cain and Hopkins admit that the Bank’s “progress towards modernity was less simple,” especially before Norman’s tenure as governor (1993:144). They depict the Bank as backing into a set of sophisticated mechanisms for controlling international finance, while performing a central banking role for domestic trade with barely enough competence to maintain control over the nation’s gold reserves. It learned how to intervene in commercial crises “pragmatically,” and it was “extremely reluctant to accept the classic central banker’s role” (146). Commercial banks play an important supporting role in this story, since their increasingly conservative domestic lending policies after 1850 made it much easier for the Bank to control money supply in such a manner as to privilege international trade. This account is largely consistent with standard monetary histories, which have in turn seldom departed much from Walter Bagehot’s classic portrait in Lombard Street of the Bank as a sort of absentminded financial monarch which barely kept the money market stable enough for international trade to proceed without a hitch.11 Just as the revisionist account of the East India Company neglects the decisive role of middle-class political debate, this more standard story of the Bank of England loses plausibility by being forced into the dichotomy of City versus Industry. The main problem appears, in this case, when Cain and Hopkins move from the Bank’s fiscal conservatism to the supporting role played by joint-stock bankers, whom they require to choose sides between Manchester and Lombard Street. In contrast to Rubinstein, who gladly welcomes bank managers into the City’s inner circle with little evidence that they ever wished to join, Cain and Hopkins find room for them in the industrial bourgeoisie. Their account displays joint-stock banks reacting almost instinctively to the Bank’s policies after 1850. Like good 14

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industrialists in the institutionalist paradigm, they are portrayed as responding rationally to their political surroundings by reducing their riskier domestic loans in order to hedge against the Bank failing to bail them out. This depiction of company—Bank relations continues up to 1914 when the Midland Bank failed in its hope to “redistribute financial power by holding its own gold reserve” apart from the Bank (1993:148). There is no room for political strategy in this picture of joint-stock banking, only for the Bank’s political action and the bankers’ economic reaction. As I will be discussing below, joint-stock banks did not need to crash the City’s public-school party to develop and exercise financial power. To discover how they did this, however, one must first redefine the parameters of what counts as power. Political and economic power in British companies It would serve little purpose to clarify at the outset most of the terms used in this book, since the goal throughout is to reveal what political categories meant to people at the time they were introduced. Where I have found repeated examples of contemporaries calling the East India Company a “despot” or referring to joint-stock banks as “republics,” I have built a definition of political practice from collections of such expressons. One important exception, however, concerns my reliance on the term “power” to define what companies needed to achieve to succeed in the market. Since power did not enter political vocabulary as an important concept until around the time of Max Weber, it is clearly not an actor’s category along the lines of “despotism” or “voluntary association.” Still, it seems to capture better than any single term in use during the nineteenth century the wide range of challenges facing such disparate companies as are discussed below. To perform that function, though, power needs to be carefully defined in relation to politics. One place to start is with Weber, who defined politics as “striving to share power or striving to influence the distribution of power, either among states or among groups within states.” This definition refers us to his concept of a state: “a human community that (successfully) claims the monopoly of the legitimate use of physical force” (1946:78). By identifying politics with states, this definition precludes the notion of “jointstock politics” pursued in this book. Nor does Weber’s implicit equation between power and the use of force get us very far toward understanding how companies worked on a political level. Of much greater assistance is Weber’s discussion of how states come to achieve their monopoly of the use of force: namely, by collecting enough revenue to continue providing a set of mandated services (Weber 1978: chs 11–13). In recent years the politics of public finance has emerged as a central theme in studies of eighteenth-century British state formation and in the rise of the British welfare state in this century, while several shorter works on the nineteenth century have taken into account issues of how tax revenues 15

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were collected and spent.12 Public finance is also a crucial starting point for any discussion of joint-stock politics, since companies, like states, have always survived by raising and spending money. Like states, companies “tax” others by charging for goods and services, they borrow from third parties, and they rely on contributions from their voting constituents. As Weber was well aware, political leaders needed to adjust their strategies for collecting revenue to coincide with a number of different, and culturally contingent, bases of authority, which he defined as charisma, tradition, and legality (Weber 1978:115–16). Roughly speaking, the transition in British public finance after 1700 can be described in terms of a shift from a mainly traditional to a mainly legal basis of political power. This transition was closely related to a shift from indirect to direct methods of collecting taxes. The British state’s heavy reliance on excise and customs duties in the eighteenth century indicates that its leaders did not trust the masses to consent to the rational goal of raising a national budget. Instead they tacked extra charges onto imports and luxury goods, which the more “reasonable” merchants paid and passed on to their customers who, in theory, were unaware that part of their outlay went to finance the state. Under this system, the states authority was challenged at a local level, where the traditional authority of the landed gentry was at its strongest. With only a few exceptions, eighteenth-century popular protest in Britain was consequently about the price of commodities rather than the state’s intrusive powers of taxation (Thompson 1993: chs 4–5). Owing to the entrenchment of traditional authority, eighteenth-century debates over fiscal policy tended to be less about whether to impose indirect taxes than about how to minimize the risks associated with doing so. Adam Smith assumed that the worst threat was that merchants, as voting members of the community, would try and convince Parliament to adapt customs and excises to benefit their individual economic interests (Winch 1978; Teichgraeber 1986). An even greater threat, in the eyes of the younger William Pitt and his Tory comrades, was that the relative lack of accountability of national officials would lead them to abuse their power through various techniques of “Old Corruption” (Harling 1996). These two conceptions came to a head in the realm of the “premodern” joint-stock politics of the East India Company and the Bank of England. In the former case Smith, together with Charles Fox and Edmund Burke, demonized the Company’s mercantilist excesses and urged its swift abolition; while Pitt succeeded in preserving the Company as a means of diluting the greater evil of Parliamentary patronage. Smith’s liberal successors similarly opposed the new influence of the Bank during the Napoleonic War to do the bidding of self-interested farmers and profiteers, while Pitt defended the Bank’s traditional status as necessary for defeating the French. By the twentieth century, as Martin Daunton has recently reminded us, the British state’s financial methods of maintaining authority were reversed 16

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(1996b:169). Having gained electoral control over the collection of taxes, and having entrusted its collection to the legal-bureaucratic authority of the home office, “the people” were more willing to contribute directly to the state’s financial needs—and “the people” as opposed to elites also played a larger role in defining those needs. Within this framework, the nineteenth century can be viewed as a transitional phase in which direct taxation first arose at the local level, where the once-dominant “traditional” authority of the gentry was rapidly giving way to the local politics of middle-class radicalism: this came in the form of voluntary society subscriptions and local property taxes. Meanwhile, Britain’s national leaders continued to rely largely on indirect taxation until 1844, when Robert Peel first imposed a permanent income tax. This would appear to correspond with the “gentlemanly capitalist” thesis which claims, at least for national politics, a persistence of the “old regime” well into the nineteenth century. When joint-stock banks and railways first appeared in England in the 1820s, they faced the same challenges as their more explicitly political counterparts in determining fiscal policy. Of the two, banks achieved a closer fit with the political structures which were accorded the most authority at the time. In the primarily regional markets in which they operated, their close structural resemblance to the “subscriber democracy” form of middleclass voluntary associations gave them a competitive edge over the local private bankers whose appeals to traditional authority were starting to wear thin. As public enemies of the Bank of England, the early joint-stock banks also gained from local suspicions of the waning symbols of Old Corruption that played such a critical role in middle-class radical politics. All these factors made it relatively easy for banks to attract shares and find customers who were willing to borrow their money. The fact that many of their customers were also shareholders was an advantage in this regard, since it meant that the interest they paid on loans seemed like “direct” taxation. Railways faced different and more difficult challenges in trying to combine their national ambitions with their middle-class origins. As national institutions, they extended less participation to their shareholders and had a more ambiguous relationship with “Old Corruption” than did banks. As a result they had a harder time exercising power over the same industrialists who bought shares and borrowed money from banks. Railways partly made up for these disadvantages, however, by contrasting their modern administrative innovations with the still-suspect patronage networks of the British state. Also, their less democratic structure seemed less out of place in a national as opposed to a local setting: the alternative of participatory government being applied to railways never occurred to any of its critics until after 1850. By the twentieth century, both the political context and structure of banks and railways had undergone major changes. Banks, by and large, were no longer terribly regional nor democratic, and both banks and railways needed 17

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to adjust to the more general shifts in national political culture toward universal suffrage and direct taxation. Banks adjusted by shifting their “tax base” of borrowers who traded interest payments for financial services, from British merchants to foreign states. The fact that they reduced their borrowers’ input into management mattered less, in this context, than if they had held onto their previous constituents. Railways had a harder time adjusting to their newly democratic surroundings. Unlike banks, they had no disfranchised public to appeal to for revenue, but rather faced the reverse situation of increasingly politicized customers and workers. To come to terms with the crises engendered by their changing political surroundings, railways did what they could to please the one group of faithful constituents they had left, their shareholders. But even this group only conferred legitimacy at a price, namely a steady stream of marketable shares—which led many companies down the rash financial path of overcapitalization. Fifty expensive years later, railways would hand their autonomy, and their financially troubled network, over to a national government that finally wielded more power than they did.

18

Part I SOVEREIGN COMPANIES

2 DEMOCRATIC DESPOT The East India Company, 1783–1858

The East India Company presents a paradox that both symbolized and concretely influenced the politics of joint-stock companies in nineteenthcentury Britain. Once Adam Smith’s favorite example of how not to combine political and corporate functions, the Company eventually came closer to fulfilling his political ideals than any institution in the land—certainly closer than the House of Commons, which after the Reform Act of 1832 represented the public more directly than Smith and most others in the eighteenth century would have desired. By the time it finally succumbed its political duties to Parliament in 1858, the Company had indeed moved a great distance from its eighteenth-century constitution, which at the time had been maligned as overly “democratic.” To add to the irony, it was Smith’s own devastating attack on its dual role of sovereign and trader, an attack carried into the 1820s by free-trade advocates like James Mill, that pushed its directors into a system of government that increasingly corresponded with the political guidelines he had spelled out in The Wealth of Nations. Furthermore, those who brought Smith’s economic criticisms to their logical conclusion, like the Mills and David Ricardo, simultaneously worked to erode the eighteenth-century values of virtual representation in most political arenas other than India. If the Company eventually surpassed the House of Commons in approximating Smith’s constitutional ideals, this was mainly due to the unique domestic perception of Britain’s empire in India. John Stuart Mill spoke for most of his contemporaries when he argued that the Indians were neither like the British themselves, who were fully ready for more direct forms of representative government, nor like the British colonial subjects in Canada and Australia, whose European heritage made self-government a matter of time (Mill 1963–90:XIX, 562; see Mehta 1990:439–46). This consensus was based partly on the view, most clearly stated by Mill’s father in his History of British India, that Indians occupied a lower rung of civilization than their conquerors; and partly on the more gracious view that Indians were civilized but incapable of overcoming ethnic divisions without 21

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an outside force to keep the peace. Either way, in the words of the Company official John Malcolm, there was “an acknowledged necessity for those persons who fill the highest offices in India being vested with a power which is offensive to the feelings of an Englishman, and hardly in unison with any part of the character of our free constitution” (1826:II, 79). It was not until the late nineteenth century that this premise even became a point of serious debate back in Britain. What was debated, right up to 1858, was which British institution or combination of institutions could best determine what the interests of India were, and which could accordingly best administer India. The debate, in other words, was about selecting, from a number of British options, a natural aristocracy to rule India: the East India Company with its superior “experience” of Indian society; a Parliament-appointed minister who more or less directly acted out the wishes of the British people; or a “double government” in which the state and the Company divided the responsibilities of Indian rule.1 The first option lasted only from around the time of Lord Clive’s conquest of Bengal in 1766, when the Company’s presence in India shifted from being primarily commercial to largely administrative, to Lord North’s Regulating Act of 1773, which embarked on the process of setting some Parliamentary limits on Company authority. The second option did not appear until after 1857, when the Sepoi Rebellion eliminated any remaining public faith in the Company’s competence to rule. And even though the double government option was nominally in force during the 84-year interval, it left much room for bickering over the proper balance of power between the two arms of government. The debates that occupied this period of double government reveal the gradual development of new meanings of politics that more generally marked British culture in the first half of the nineteenth century. Throughout this period, the chief problem for Indian reformers lay in diagnosing the Company’s peculiarly democratic structure. For Adam Smith and Charles Fox, its chief manifestation was the ability of Company shareholders, through their directors, to maintain a monopoly on Indian trade. For William Pitt, democracy in the Company meant patronage: the directors’ readiness to trade official appointments for votes. These reformers tried to isolate the perverse effects of patronage in India in order to prevent this democratic disease from spreading to the English constitution more generally. In 1784 they won this round of the debate by presenting a continued Indian trade monopoly as an acceptable price to pay for ridding Britain of Old Corruption. After 1784, the contest between definitions of democracy moved from Parliament to electoral politics within the Company. British traders, eager to gain access to the Indian market, revived Smith’s critique of the Company’s monopoly—but in the process radically altered his conception of politics. Instead of faulting the Company’s weak constitution as a source of its mercantilist sins, these traders took advantage of its democratic 22

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structure to effect commercial reform. With help from liberal Tory trade ministers, who after 1815 favored opening colonial trade, reformers like James Mill went from buying Company shares (and hence the right to vote on its policy) to abolishing its monopoly by 1833. Pitt’s earlier definition of democracy, however, still made sense to a majority of their fellow shareholders, who continued to view their directors primarily as relatively powerless dispensers of patronage. The result was a stalemate for Company officials and Whig ministers who hoped to prevent patronage from getting in the way of administrative reform. Consequently, when its charter was next up for renewal in 1853, patronage continued to be the chief constitutional issue at stake for Aberdeen’s coalition government. This was the context of Charles Wood’s Act for abolishing patronage in the Indian Civil Service, to be replaced by a system of appointment by examination. In a narrow sense, Indian Civil Service reform accomplished what its architects had desired: no longer would patronage considerations deter officials from pursuing useful reforms in Indian economic and social policy. But more generally, Trevelyan and Wood were guilty of misdiagnosing what democracy had come to signify in Britain by the 1850s. Their allies in the campaign to abolish Company patronage, including John Stuart Mill and the “Young India” reformers John Bright and Richard Cobden, assumed that patronage was a relatively minor symptom of the Company’s glaring lack of accountability to an increasingly democratic electorate. The way these latter reformers defined democracy referred to the direct representation of the will of the country, not to the trading of influence among enfranchised elites. There was still room for much debate within this new definition of politics: Mill persistently defended Company rule as a means of preserving his vision of representative government back in England, while Bright and Cobden insisted that handing India over to Britain was crucial for their more general political goals to succeed. But this debate, along with the fate of the Company, hinged on conceptions of politics that left the original eighteenth-century vision of Indian government far behind. Reform from within, 1783–1833 Together with the American Revolution, the administration of India stood at the forefront of late-eighteenth-century British political debate. Just as the American colonists’ protests against inadequate representation provided a pretext for more general discussions about the structure and function of English government, the Company’s efforts to rule an entire subcontinent in the name of a few hundred shareholders spurred a debate that went far beyond the immediate issue. One of the most forceful attempts to locate the Company’s late-eighteenth-century role in a wider context came from Adam Smith, who added a lengthy section on India to the third edition of The Wealth of Nations (1784). Smith was mainly concerned to demonstrate 23

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the difficulty of establishing a “natural aristocracy” in a company that combined the duties of a merchant and a sovereign. His critique revealed a set of concerns that directly informed Parliamentary debate over its charter in the 1770s and 1780s. The “Rockingham Whigs” Edmund Burke and Charles Fox shared Smith’s fears of weak leadership. Upon winning power in 1782, they sought to transfer Indian rule from Company directors to government officials, on the assumption that England’s more balanced constitution would produce rulers who were better able to resist the temptations that came with governing India. This assumption was rejected by William Pitt and his Indian minister, Henry Dundas, who suspected Fox of pursuing a Whig plot to acquire a stranglehold on domestic political patronage. Pitt used India to unseat Fox’s coalition party, and his Regulating Act in 1784 preserved the Company’s patronage while further weakening its directors’ political authority. For Pitt and his allies, weak government in India was a price worth paying to preserve strong government back in England. As a short-term obstacle to the Whigs’ alleged designs for a coup, the Regulating Act was entirely successful: between 1784 and 1853 no minister in either party so much as hinted at a desire to hand over Indian patronage to the state. Over the longer term, though, Pitt’s Indian policy resulted in a Company with a constitution that was too weak to resist the erosion of its trade monopoly after 1813 and ultimately its own demise in 1858. The Company was the perfect breeding ground for middle-class free-traders, who recognized that they had a better chance to get what they wanted by buying the right to vote in its meetings than by lobbying a Parliament which excluded them. Their efforts in this regard had the ironic effect of encouraging democratic politics outside the Company, while making its own constitution increasingly less democratic as the century went on. The eighteenth-century debate Adam Smith’s perspective on the East India Company was shaped by his concern that the “science of the legislator,” especially as it related to taxation, could only be applied with requisite skill by a natural aristocracy that was relatively immune from popular clamor. The Company failed on two counts in this regard, concerning both the British purchasers of its imports and the Indian landowners who paid tax into its coffers. Smith spoke of the Company’s monopoly as an instance where “all the other subjects of the state are taxed very absurdly,” both by paying artificially high prices for imports and by losing out on the opportunity to enter that branch of trade themselves (1970:733–4). This was the worst sort of taxation, since it sacrificed potential profits from the prudent part of the population “to enable the company to support the negligence, profusion, and malversation of their own servants” (741). Besides charging undue profits that seemed like taxes, 24

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the Company also unjustly imposed actual taxes on Indian natives, earning what Smith’s contemporary Francis Russell estimated to be three-fourths of its revenue in the 1760s from that source (755). Smith’s view of the Company as an arch-villain of mercantilism also led him to criticize its directors’ abuse of patronage. The monopolizing spirit that Company servants had learned from their employers, he claimed, rubbed off on their duties as tax collectors and judges, creating the anomalous result that they could make more money from graft than shareholders could earn in dividends. Shareholders consequently had an incentive to encourage corruption among their servants, by pressuring the directors to hire relatives for such positions instead of clamping down on corruption in the name of efficiency. With little regard for the effect of their actions on their relatively insubstantial dividends, these proprietors paid in their £1,400 for “a share, though not in the plunder, yet in the appointment of the plunderers of India.” As in Parliament, patronage weakened the ability of legislators to act as a natural aristocracy: Company directors were “necessarily more or less under the influence of the Court of Proprietors, which not only elects them, but sometimes over-rules their appointments” (Smith 1970:640).2 And unlike Parliament, in which the cost of patronage in political independence was at least compensated by the benefit of allowing ministers to “manage” their fellow legislators, a company did not require that expedient to maintain a coherent policy; nor was corruption as much a problem in freedom-loving Britain. Hence Smith urged that the Company’s political functions be handed over to a cabinet department that would raise revenue in India “not by imposing new taxes, but by preventing the embezzlement and misapplication of the greater part of those which they already pay” (946). Smith’s concerns about taxation and patronage were the leading themes of Fox’s Indian policy during his brief ministry in coalition with Lord North in 1782–3. Yet while Fox and his allies concurred with Smith’s proposal to transfer Indian rule to the state, their location in the thick of practical politics made this decision more difficult to come to than it had been for Smith, and more damaging to their reputations once they acted on it. Their ambivalence about Indian politics is clear from the fact that they had actually opposed North’s moderate efforts at Parliamentary supervision in 1773, a decade before they would join him in supporting a much stronger bill. In attacking North’s earlier Regulating Act, Burke had warned of the dangers it posed to domestic liberties owing to an increase of ministerial patronage, arguments he would hear repeated against himself a decade later. This attack had been largely unjustified in North’s case. Although the Act did call for some new Crown appointments, most of its provisions merely proposed a shift in power within the Company from shareholders to directors, who were given longer terms and the informal support of North’s cabinet, and to a director-appointed Governor General and Council in India (Marshall 1968:33–5; see Sutherland 1952; Bowen 1991a; Elofson 1989). 25

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The fact that both North and Fox would support a much more farreaching bill ten years later was a tribute to the failure of North’s earlier strategy to work in India. East India shareholders had too much invested in preserving the Company’s weak power structure to allow any meaningful level of internal reform. After five frustrating years trying to implement the Act, North’s Treasury Secretary complained in 1778 that the Court of Proprietors was “the most democratic body that ever existed; who not only make laws…but interpose in the execution of these laws whenever they think proper.” To remedy the situation he urged that the Court’s powers be restricted to electing directors and voting on the dividend, to “reduce it as near as circumstances will admit, to the model of…the British constitution” (cited in Marshall 1968:118). The deterioration of North’s power during the waning years of the American war, however, made it impossible to effect any change for five more years.3 Finally in 1783 Burke and Fox called for Indian affairs to be handed over to a government board. Burke, in particular, echoed the Treasury Secretary John Robinson’s fears that the Company had far exceeded the liberties guaranteed by the British Constitution, contrasting its “charter to establish monopoly and to create power” with the Magna Charta’s promise “to restrain power and to destroy monopoly” (II, 438). He also made an impassioned plea to protect Indian natives from the firm’s youthful soldiers and tax collectors who “drink the intoxicating draught of authority and dominion before their heads are able to bear it” (II, 463). But despite including a clause allowing Parliament to recall the Commissioners at any time, Fox’s bill met with strenuous criticism from opponents who assumed that he intended to build on the patronage such a board would give him to make future opposition impossible. Although Fox’s foes failed to defeat his bill in the Commons, they convinced George III to secure its defeat in the Lords and to call for a new election, in which Fox’s supporters were voted out of power by an electorate who feared for their constitutional liberties (Marshall 1968:40–2). Pitt and Dundas, who took office in 1784, avoided the pitfall of transferring patronage to the Crown in their India Bill, which installed the Board of Control that would supervise the Company for the next seven decades. In doing so, however, they created new problems that would keep alive Smith’s criticisms for decades to come. One of these was the Company’s trading monopoly, which survived as a side-effect of the decision to retain its shareholders as an independent constituency. This arrangement allowed the Company to keep transferring tax revenue to its shareholders and creditors, but by blurring the line between politics and commerce it revived Smithian appeals to free trade. Smith’s criticisms of Company patronage also persisted after 1784, this time with the support of Pitt’s Indian advisers. Although Dundas could not actually deprive Company directors of patronage, he did implement many earlier suggestions for minimizing the 26

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risk that hiring decisions would interfere with the reforms he envisioned. To these cabinet-inspired reforms the Company added its own, the most tangible being the establishment in 1806 of Haileybury College, where students were taught the difference between earning patronage from “the Honourable Company” and receiving a license to plunder. A legitimate tax? The debate over the Company’s commercial monopoly Of Smith’s criticisms of the East India Company, the most enduring was his claim that its trading monopoly “taxed” British merchants and consumers unfairly. In 1829, for instance, Thomas Perronet Thompson claimed that “the people of England are taxed to the full amount of the gross proceeds of the monopoly, in order that the Company may discharge its debts to the proprietary” (16). This general claim usually accompanied an appeal to Smith’s more specific reference to the inefficiency that resulted from undertaking the volatile business of foreign trade on a joint stock. Citing a “far greater authority than the East India company, Dr. Adam Smith,” the radical William Spence contrasted the company’s “solemn, languid movements… doing every thing by line and rule” with “the activity and energy of a private trader—stimulated by the great spring of human action, interest” (1822:250, 246). Still others appealed to Smith’s doctrine that commercial monopolies were only justified in the early stages of economic development, or blended references to Smith with more general appeals to natural rights and philanthropy toward Indians. As one opponent of the Company summed up in 1812, “The Company will unwillingly admit Dr. Smith as their teacher, but the public will not hesitate to decide between them” (Lee 1812:16; see Ambirajan 1978:36–43). These efforts to link the Company’s monopoly with its oppressive methods of “taxation,” however, were usually based on a partial reading of Smith. Not included, typically, was any reference to his charge that the Company oppressively taxed its Indian subjects in the literal sense of collecting revenue, as well as metaphorically “taxing” natives and British alike with its high prices. Besides reflecting a lack of concern about the plight of the natives, this strategy also marked a recognition that Smith’s hopeful alternative of nationalization was untenable in the wake of Fox’s defeat.4 Instead of trying to replace the Company, its critics redefined it along lines that paralleled Smith’s model for how Parliament should work: as an enabling body providing conditions of revenue collection, education, and defense that would assist trade without interfering with it. That way free-traders could keep alive Smith’s powerful analogy between monopoly and “taxation,” just as they continued to do in debates over the corn laws and sugar duties, without challenging the orthodox claim that the Company was necessary to prevent the scourge of ministerial patronage. 27

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The new debate hence had less to do with whether the Company or Britain should assume political authority than with how to divide the generation and allocation of revenue among the sovereign, private companies, and individuals. After 1784, most people agreed that the Company and the Board of Control should take on the same functions of tax-collection, education, justice, and defense that the British government performed at home; when these issues were debated it concerned the division of responsibility within “double government” or the form these services should take. A second class of duties, including banking and public works, stirred more debate, with some arguing that the Company should take these on and others claiming that private companies could provide them more efficiently.5 For the most part, though, these questions did not feature significantly in Indian affairs until the 1850s, when the Manchester cotton interest criticized the Company’s failure to build railways for transporting raw materials. Far more debate focused on the market operations that Smith had claimed were best left to small firms. Everyone agreed after 1784 that the Company should stay out of all trade within the borders of India. At issue was whether it should continue to monopolize the trade route linking China and India with the West. Advocates of free trade pursued two lines of argument, with importers claiming that the Company’s monopoly oppressively taxed British consumers, and exporters claiming it cost jobs at home and prevented natives from purchasing cheaper and higher-quality British goods. In response, defenders of monopoly granted that it raised prices but claimed this “tax” was necessary to protect natives from the unrest that would surely result from unmediated contact with the West. When Pitt and Dundas first supported the Company’s monopoly in 1784, they were thinking more about the political stability of their ministry than the social stability of India. In order to preserve patronage in the Company, they needed to find a way for its shareholders to keep receiving dividends. The easiest way to do this, it turned out, was to allow it to keep selling Indian and Chinese goods in European markets. What the shareholders received under this system was not so much part of the Company’s profits as part of India’s tax revenue, since their dividends were substantially padded by export subsidies paid by native taxpayers for the sole purpose of converting rupees into gold. The Company could have performed the same remittance operation in a nonmonopoly context by using its rupees to buy bills of exchange, which could then be sold on the London market and converted into dividends; since if other firms were free to trade with India, bill-brokers would be able to reintroduce the rupees into circulation by selling them to import houses.6 But that mechanism would have taken time to develop, and Dundas realized that it was easier to rely on the already-existing remittance system that the Company had formed on its own over the previous two decades.7 As long as it kept producing a sufficient surplus, which it did between 1784 and 1793, he and his governors could focus on more pressing matters of administrative reform 28

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without worrying about the prospect of the Company adding to its already sizable debt (Barber 1975:108–13, 120). Despite its political convenience, the interdependence between the Company’s trade monopoly and its tax-collecting duties soon came under fire from British merchants trading within India, who faced the same remittance problems as the Company but lacked its access to British markets. Like the Company, they hoped to send their money home by buying Indian goods with rupees and selling them in Europe for gold. But to do this, their only options were to buy space on Company ships or send their goods to foreign ports. Most agency houses opted for the second choice, all the while complaining that they were being unfairly taxed by the Company’s monopoly (Ambirajan 1978:34–5).8 After 1793 the Company faced worse problems than disgruntled agency houses. Foremost of these was Lord Wellesley’s expansionist policy as Governor General between 1798 and 1805. Although his conquests increased revenue by establishing new territories, they were so expensive that the Company ran a deficit in all years but one between 1793 and 1807. Instead of converting extra revenue into “profits” that could be used to pay interest and dividends, these payments as well as some military bills came from newly acquired debt. Meanwhile the Company’s commercial fortunes, apart from the still-profitable China trade, sank lower than ever. To make matters worse, these financial problems appeared just as British manufacturers were seeking new markets to compensate for the wartime disruption of European trade, leading them to join the agency houses in attacking the Company’s monopoly. The Company’s commercial misfortunes after 1793, paired with the new pressures from the manufacturing interest, shifted the focus of debate from the preservation of British rights to the representation of Indian interests. Before 1793 the choice had been between English constitutional liberties, which Dundas hoped to protect by allowing the Company to continue using its monopoly to prop up its shareholders, and the rights of British merchants to trade freely. After 1793, when all the Company’s rupees stayed in India, its officials could no longer defend their monopoly as a means of retaining an autonomous proprietary. Instead, if they still defended the monopoly at all, they did so on the grounds that it would prevent a swarm of European traders from disrupting Indian society. As a Company petition warned, opening trade would restore “the ill usage which [Indians] had received from individual and associated Europeans roaming about without responsibility or controul” (Hansard 1st ser. 24 (1813):668). In making this claim the Company built on the now-conceded point that it was the best-qualified body for securing the Indians’ social welfare, by arguing that it was impossible to separate social control from commercial relations. Hence Robert Grant stated that allowing British merchants free entry into India, “though in appearance commercial, would in its effects be political, menacing both countries with dangers which ought at any price to be averted” (1813:vi). 29

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British manufacturers, who took over as the primary opponents of the Company’s monopoly after 1800, had nothing against the directors finally admitting Smith’s point that their mercantile and political duties were incompatible. What they denied was the implicit claim that private British traders, as well as the Company, should sacrifice “their interests as merchants” to its definition of what was best for India. To counter this claim the manufacturers, and their allies like James Mill, combined an older appeal to the rights of British subjects with the new claim that they were more qualified than the Company to represent the Indians’ economic (as opposed to political) interests. Smith’s language of unfair taxation appeared yet again in defense of the first point. The only variant, at least in the manufacturing centers of Birmingham and Sheffield, was that they changed the general category of victimized taxpayers from the consumers who paid too much for tea and spices to the textile workers who stood to lose their jobs unless new markets could be found for their products (Moss 1976). On the second point, Mill argued that the Company’s “interest in discouraging trade…must ever retain it in a depressed and wretched condition,” whereas if it truly cared for the natives’ welfare it would promote free trade “to the utmost; whence the country would be improved, and their revenues augmented” (1812:490–1). The fact that the Company would lose its monopoly on Indian trade in 1813 and on Chinese trade twenty years later had as much to do with its democratic structure as with Mill’s appeal to the universal applicability of political economy.9 It would be untenable to credit economic arguments alone with the Company’s defeat, since people like Mill were much less successful at applying their doctrines in England where Smith had intended them to be used. Rather, the Company’s worst enemy proved to be its failure to prevent free-traders from storming its barricades by the simple act of subscribing to its shares. In this sense the free-traders were in a much better position to effect change in Indian trade than they were to fight remnants of paternalism in England, since they could get a majority of the vote more easily in the former case. Reforms in the balance of power between shareholders and directors, which had achieved some success at preventing the more nuanced problem of patronage, had not been designed to prevent general shifts in the company’s commercial policy. The repeal of the Indian trade monopoly in 1813 gave a strong boost to private traders, who translated a twofold increase in exports to India into sizable electoral gains within the Company’s proprietary. At the same time, fewer opportunities for profiting from civil and military posts diminished the number of investors who had once worked in India. As its shareholder base shifted from retired servants to agents who did business with India but had never been there, directors were more likely to agree with Mill’s maxim that economic self-interest was a better qualification for governance than personal Indian experience. Only one of seven chairmen between 1822 and 30

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1829 had ever lived in India, a sharp drop from earlier years, although enough old-style directors remained at the Court to prevent a consensus (Philips 1940:192, 243–4). Such divisions weakened the Company’s ability to resist the Board of Control. The director John Malcolm lamented that the new blood had brought to the Company “party feelings, which must have a tendency to break that union which was once the strength of this body”; and worried that servants in India had consequently started paying more attention to the Board than to the Court (1826:II, 73). A compelling symbol of this new shift in the Company’s constituency was the appointment in 1817 of James Mill as examiner in the Leadenhall Street office. From his new post, Mill quickly recruited like-minded liberals like David Ricardo to buy shares, and revealed a new willingness to co-operate with administrators who supported free trade.10 The coming of Parliamentary reform in 1832 further polarized the respective claims of monopolists and free-traders to represent India’s true interests. The looming threat of middle-class political reform was the subtext for one conservative director’s claim, in 1829, that “the most accurate knowledge of the trade of Liverpool or Bristol will not qualify us to give a constitution to India” (Tucker 1853:3); while the Tory scribe Archibald Alison worried in 1831 that members of a reformed Parliament would “carry with them to the shores of the Ganges the fierce passions and unbending democracy of the mother state” (1850:I, 69). For such people, anything short of complete control over the Indians’ social and economic lives represented a defeat for their paternalist vision. But their fears of “fierce passions” obscured the limits that the circumstances of Indian rule had placed on the democratic language of James Mill and his radical friends. Where India was concerned, democratic ideals did not reach beyond the internal structure of the Company and the abolition of its commercial monopoly. As Donald Winch has observed, Mill envisioned social reform in India as “an arranged event,” in contrast to the spontaneous reordering of European society described in The Wealth of Nations. His only difference with the monopolists was to claim that market forces should assist the Company in doing the arranging (Collini et al. 1983:117–20; see Zastoupil 1994:22–6). Reforming patronage: the case of Haileybury College The same weak constitution that had made free trade with India a possibility diminished its chances of success, by ensuring that family connections rather than merit would continue to be the leading qualification for civil service appointments. For free-traders like James Mill the Company’s democratic constitution might have signified a positive link between radical politics and liberal economic policy; but for rank-and-file shareholders “democracy” continued to mean what it had throughout the previous century: weak directors who were quick to bow to their demands for patronage. Their 31

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definition of democracy conflicted with Mill’s, since the haphazard methods of selecting civil servants under a “democratic” patronage system undermined the Company’s ability to perform the “enabling” functions of taxation and education. Until 1833, while Mill and his allies were still relying on the Company’s weak constitution to abolish its commercial monopoly, administrative efficiency hence made little progress, much to the discouragement of reformers like Thomas Malthus and Charles Grant. After 1833 economic liberals no longer had any use for democracy as it affected the Company’s internal politics, and they could lend their full support to the antidemocratic process of civil service reform. The unique political conditions that prevented economic liberals from openly opposing patronage before 1833 had not been an issue for Adam Smith, for whom Company patronage signified the worst type of inefficiency and injustice. In the half-century following Fox’s India Bill, Company apologists met this charge in one of two ways. Their first response was simply to present Company patronage as a lesser evil than the dispensation of Indian patronage by a minister of state. A more positive response, initiated by Lord Wellesley and seconded by Malthus, pointed to an improved system of education within the Company. According to their plan, the right sort of training, in combination with other administrative reforms introduced by the Board of Control, would diminish the “plundering” proclivities of Company servants. Malthus further hoped that such training, in the form of the India College at Haileybury, would temper the shareholders’ unhealthy appetite for patronage by saddling patrons with the extra expense of tuition and with the risk that students would be weeded out before reaping their rewards in India. This approach to patronage, however, neglected to take into account the improbable alliance between economic liberals and wouldbe patrons, which was to persist as long as the Company’s trade monopoly remained intact. Pitt’s successful appeal to the greater evil of ministerial patronage stymied Smith’s critique of “plunderers” and their patrons without really answering it. When Company officials did act more constructively toward improving the situation, it was at the prodding of Lord Wellesley, who in his capacity as Governor General established a college in Calcutta in 1800. The directors, despite soon closing the college against the wishes of the Board of Control, eventually did respond to his implicit critique by founding Haileybury six years later. Simply establishing Haileybury did not directly address either the problem of plunder in India or the shareholders’ role in appointing the plunderers, since the directors retained final authority over determining which graduates to ship abroad.11 Indirectly, however, the college assisted in forming a constructive response to Smith’s concerns about patronage in two ways. First, it produced a set of professors, of whom Malthus was the most prominent, who took their jobs seriously enough to present the college as an important antidote to patronage, and who did their best to make its 32

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day-to-day administration live up to their rhetoric. Second, it introduced the principle of competitive examination, which would be taken up by an alumnus of Hailey bury, Charles Trevelyan, and applied to civil service reform in Britain as well as India. Echoes of both Smith and Burke were apparent in Malthus’s first public defense of Haileybury in 1813, when disciplinary problems there led Lord Grenville to suggest that Indian servants be selected from the usual run of public schools, and in his renewed apology four years later when further student riots led a group of shareholders to call for the College to be abolished. In pamphlets published at these times, Malthus departed from Smith s assumption that Company officials could never to be taught to be statesmen. All that was needed to ensure that “the feelings of the sovereign conspicuously predominated” over those of the merchant, he urged, was “to give them a superior education” (1970:246). His educational views displayed clear echoes of the creed of moral restraint that he was busy developing when not teaching future nabobs. “[I]nstead of being kept to their studies solely by the fear of immediate observation and punishment,” his charges learned “to be influenced by the higher motives of the love of distinction and the fear of disgrace” (258, 255). Just as he assumed that the self-interested motive of status was an acceptable means of resisting the youthful temptation to reproduce, so he assumed it could prevent young civil servants from falling prey to the parallel temptation of Oriental plunder. Malthus expressly linked the circumstances of a Haileybury education with the unique demands of Indian service. To prevent students from falling prey to “allurements” once they got to India, each was given “the opportunity of choosing his own society” and was taught “the habit of regulating his own time” (Malthus 1970:279). Conversely, expulsion produced the same positive check to plunder that early death provided in the comparable case of population. It “cannot surely be a matter of regret,” Malthus urged, “that those who have shewn headstrong, refractory, and capricious tempers… should not be allowed to go out to India, and be furnished with an opportunity of tyrannising over its suffering inhabitants” (299). Under the shadow of Burke s sexually laden assault on English adolescents serving in India, Malthus’s constant recourse to analogies from his writings on population took on an extra layer of meaning. This was the case, for instance, in his insistence that Haileybury s “specific object” was “to inculcate, gradually, manly feelings, manly studies, and manly selfcontroul, rather earlier than usual”—on the grounds that “[t]hose who go out to India, must and will be men the moment they reach the country…and there they will be immediately exposed to temptations of no common magnitude and danger” (317). Had Smith been alive, he might have suggested to Malthus that the East India shareholders were not acting terribly “manly” themselves when they 33

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sacrificed the interests of the company in order to secure patronage for underqualified family members. To address this problem, Malthus assumed that Haileybury, besides performing its basic preventive function with students, could also indirectly prevent jobbery from overly tempting the Company’s proprietary. Any shareholder would need to factor in tuition on top of the share price when deciding whether to buy a vote in the Company. Here the analogy to moral restraint was again clear: “the expense of the education would generally be considered by the parents and guardians of the young person appointed as a drawback upon the advantage received,” and might make them reconsider their motives for investing. Additionally, college education introduced the chance that the investment (measured in shares as well as tuition) would all be for naught, in the event that the student failed or was expelled (Malthus 1970:256–7). The limits of this solution soon became apparent when Haileybury’s virtuous agenda came up against the Company’s democratic constitution. Some directors, like Charles Grant and his son Robert, resisted the lure of patronage and defended the college as part of their evangelical aim of teaching students how to convert Indians to Christianity; significantly, these were the same men who were simultaneously fighting a losing battle against Mill’s efforts to liberalize trade. Most of their fellow directors were all too ready to bend to the wishes of sedulous parents who complained whenever one of their children was singled out for expulsion, just as they would bow to shareholders’ desires to abolish the Company’s monopoly. Outbreaks of riots and “combinations,” which disrupted the College in 1811 and again in 1816, left Malthus in the unfortunate position of chastening shareholders for preventing him from doing his job, at an institution many of them had always opposed as an obstacle to patronage. Ultimately he was forced to admit that East India shareholders, attracted to the stock market by the lure of patronage, were incapable of heeding “those general rules” that were necessary for the “greater and more general interests” that motivated the company’s directors (Malthus 1970:288, 299; James 1979:216–18, 241–2). When Malthus called on the directors to give college officials more say in ranking and disciplining students, he was in effect replaying within the walls of the Company Smith’s original solution to the problem of discipline; where Smith had called for an independent government board, Malthus called for an independent board of tutors. His proposals met with no more enthusiasm from the Company than Smith’s had. A plan for Haileybury to weed out a fifth of all incoming students was greeted with scorn by the director Jacob Bosanquet, who accused Malthus in 1817 of trying “to transfer the civil patronage of the company to the professors of the college” (cited in James 1979:243). It was not, in fact, until competition had been decoupled from patronage in the sphere of political appointments that anything like Malthus’s plan would work. Lord Grenville had learned this 34

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lesson in 1813 when his suggestion for a moderate level of competition for admission to Haileybury sank like a stone, and Thomas Macaulay would learn it twenty years later when he successfully enacted entrance exams only to see his law repealed once he went to India. Between corruption and deception, 1833–58 When Parliament passed the new India Bill in 1833, Archibald Alison feared it presaged “a total annihilation of the Company as an independent body or Government, and its reconstruction, with crippled powers, as a mere Board under the great democratic Legislature” (1833:792). Alison got the outcome right but the motivation wrong. Within twenty-five years the East India Company would indeed be turned into a government board accountable to an increasingly democratic Parliament, but this did not happen, as he suspected would be the case, because Whig ministers in 1833 had set out to pad their existing patronage with new political power. Despite Tory efforts to lump the India Bill with other apparent sources of Whig patronage like Henry Broughams law reforms and the New Poor Law, patronage was not the issue when Macaulay introduced his bill. The memory of Charles Fox still mattered, and Macaulay was not about to suggest that his proposals stood to enhance his ministerial power. His defense of the Company in 1833 “as a corporation, neither Whig nor Tory, neither highchurch nor low-church” sounded more than anything like Alison’s praise of it the same year as “a fourth estate in the realm” immune from “prostration before the power of Parliament” (1875:VIII, 123). Nor was the ultimate demise of the Company in 1858 the result of an about-face by later politicians who finally gave in to the temptation of patronage. Rather, the change in Indian administration was part of a larger shift in the workings of government that would eventually render patronage moot as a dominant political idea. By 1853, when the Company’s charter was again up for renewal, the new mechanism of competitive examination was starting to replace patronage as the principal means of filling offices, and most politicians settled on India as a convenient point from which to embark on the change. Hence Alison’s vision of an independent Company eroding into a servile government board had less meaning twenty years later, when government service no longer necessarily implied servitude to the party in power. When Charles Wood, as President of the Board of Control in 1853, succeeded in attaching a civil service reform clause to the new Company charter, the usual arguments against handing Indian government over to the Crown lost much of their force. Even had the Sepoi Rebellion not swung public opinion irreversibly against the Company four years later, its defenders would have had an uphill battle convincing anyone why civil servants who were selected by open competition should be appointed by a private company instead of the state. 35

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Still, such arguments did surface in the short time between the renewal of the Company’s charter in 1853 and its revocation in 1858, most prominently in testimony and memoranda provided by John Stuart Mill. For Mill, Indian politics had come full circle since his father had lobbied against the Company’s commercial monopoly. Before 1833, James Mill and his allies had done little about patronage, because their success had depended on directors who were too weak to fend off either their own proposals or other shareholders’ demands for favors. Having served the wholly destructive purpose of abolishing the Company’s monopoly, this style of shareholder democracy no longer had a useful role to play in the constructive task of administering India after 1833. The subsequent efforts of Trevelyan and Wood, furthermore, had rescued the Company from patronage-induced inefficiency, which had survived as its sole remaining democratic vestige. But where the Whigs went wrong, in John Stuart Mill’s view, was in assuming that what passed for democracy within the Company after 1833 was the same variety that prevailed in Parliament. They had forgotten that after James Mill and his first generation of middle-class radicals had used up their destructive energy within the Company they had moved on to other targets, like the old poor law and the corn law. The younger Mill was sufficiently impressed and alarmed by this form of democracy to give it a name, class legislation, and to ponder techniques to prevent its excesses from threatening democracy as he was in the process of redefining it. One of those techniques was to preserve the East India Company as a bulwark against the populism being pushed by radicals like John Bright and Richard Cobden. Their success at mobilizing large blocks of public opinion against the Company, according to Mill, threatened both Indian rule and the stability of representative government in Britain. On India’s behalf, he stoutly defended the Company as the one body that was sufficiently impervious to public opinion to maintain order in Britain’s largest colony. The fact that few politicians paid attention to India except during times of crisis, he argued, meant that the loudest and least informed voices would always carry the day if cabinet ministers were to possess sole responsibility over its affairs. A related argument was that the Company’s long presence in India had created a strong belief, among Britons and Indians alike, that it was in fact the legitimate authority in the region, and that to disabuse such people of this admittedly false notion would create more trouble than it was worth. This defense of electoral artifice, which Mill first developed in the course of arguing the India question, would reappear in a more nuanced form in the 1860s when he tackled the issue of democracy in Britain. The debate on double government In 1833 the idea of civil service reform had yet to achieve the legitimacy that would let Macaulay’s successors make it the centerpiece of Indian 36

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legislation. Hence although his bill did include a civil service component, its primary aim was to strip the Company of its remaining commercial functions while still preserving its status as a politically neutral corporation. This task was a steeper challenge for Macaulay than it had been for Pitt in 1784 or for Grenville in 1813, since he needed to come up with a new “property qualification” for the shareholders that would replace their former nominal contribution of trading capital. For half a century the Company’s joint stock had been maintained as a means of securing an autonomous propertied class to vote for directors, but the fact that the shares also signified capital for purchasing commodities had allowed politicians to treat them formally like those of any other commercial concern. By 1833, the growing force of free-trade sentiment on all sides of the question had irrevocably shattered the fiction that the Company’s share capital was needed for a profitable trade. This forced Macaulay to invent a new basis for electing its directors that was still free from the taint of ministerial influence. The fate of the Company’s remaining monopoly on its China trade was a foregone conclusion by 1833: in twenty years the Smithian aphorism that Company profits imposed “a heavy tax on the tea consumed in this country” had moved from Birmingham broadsides to the opening lines of Macaulay’s speech (Macaulay 1875:VIII, 112). But the decision to strip shareholders of monopoly profits while retaining them as an electoral body had many possible implications for the Company’s constitution, depending on how investors were to be reimbursed. The most simple plan, which had been favored by the Tories, was to open up trade but allow the Company to continue dealing in spice and tea, and force shareholders to be satisfied with the reduced dividends such a course would entail. Macaulay, who assumed along with Adam Smith that the Company could not compete without its monopoly, argued that it “would have been utterly ruined” by such a course (118)—an outcome that might have satisfied Smith, but that would have forced the Whigs to take on administrative duties that were even less tenable in 1833 than they had been in Smith’s day. Macaulay opted instead to pay off the shareholders with interest on the debt which the Company had contracted with the British government over the previous forty years. He thought this was the best way to make sure those who elected directors would continue to take an interest in the wellbeing of the Indians, since the best sign of “the happiness of their subjects” was the continuing ability of the natives to service the debt with their tax payments (1875:VIII, 112).12 Recasting the Company’s shareholders as public creditors would endow them “with the strongest motives to watch over the interests of the cultivator and the trader, to maintain peace, to carry on with vigour the work of retrenchment, [and] to detect and punish extortion and corruption” (131). In the more “civilized” context of British politics that had been the focus of Smith’s analysis, public creditors had ranked a distant second behind taxpayers in their ability and interest to secure political agency 37

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from elected officials: no Briton in his right mind would have suggested letting subscribers to the national debt elect all the Members of Parliament. But Macaulay concluded that since “all the innumerable speculators who have offered their suggestions on Indian politics” (most notably James Mill) were agreed that “representative institutions” in that country were out of the question, distant second was the best the Indians had a right to expect (120). It was certainly better than the alternative of compensating the shareholders with a share in the British debt, which would have guaranteed them a constant supply of income but done even less to encourage their interest in Indian affairs. Macaulay’s success at dealing with the revenue problem to Mill’s satisfaction was, ironically, directly connected with his failure to achieve a second aim of Company reform, to “introduce the principle of competition in the disposal of writerships” (1875:VIII, 131–2). His proposal for an entrance exam at Haileybury that would weed out three-fourths of the applicants, while preserving the directors’ right to select all the examinees, passed both Houses as part of the final India Bill but was never enforced. Its failure resulted from a number of causes, including continued public suspicion of Haileybury as a proper training ground for Indian servants and opposition by leading politicians to the idea of competitive examination (Philips 1940:295–7). But the core reason it failed was that, owing to the level of public apathy on the issue, Macaulay required the directors’ support to make his scheme work— and in this he faced the same constraints that had thwarted Malthus’s educational reforms. To make matters worse, Macaulay bore the self-inflicted burden of a proprietary for whom the sole motive for buying shares was now the prospect of patronage. At least Malthus had been able to count on support from middle-class radical shareholders who had bought stock in order to vote against the Company’s monopoly, not to get jobs for their friends. Having achieved their goal, these shareholders went looking for new ways to spend their time and money, leaving civil service reform bereft of even a minority of defenders within the Company. Adding insult to injury, one notable path taken by middle-class radicals after they had assisted in abolishing the Company’s trade monopoly was the “Young India” campaign to abolish the Company itself. Although being able to include James Mill as his ally in 1833 must have struck Macaulay as a political coup, this alliance counted for little to Manchester men like Richard Cobden and John Bright, who launched an all-out attack on the Company upon founding the Indian Reform Society in 1853 (Moore 1966:124–8). Their campaign rested on a reformulation of the joint-stock politics that had informed the earlier Indian debates. Most reformers before 1833 had been content to restrict their arguments to the Company’s foreign trade. Most of them, furthermore, had equated a free foreign trade with the limited goal of exporting British goods, on the assumption that nonIndian raw materials would always be adequate to the task of producing 38

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finished products. Now that Macaulay’s India Bill had finally granted these freedoms to the Manchester cotton bosses, they turned to the issue of public works within India. An American cotton famine in 1846 taught them the wisdom of developing an Indian import trade, which in turn required improved means for transporting goods from the interior. The natural place to look for such improvements, they concluded, was in a railway system of the sort that had already contributed to huge gains in both England and America over the past two decades (Silver 1966; Bearce 1961:215–20). Most criticisms of the Company’s poor record on public works were consistent with Smith’s prescription that the state should support such projects wherever private capital was insufficient, while staying out of trades where individual or company finance sufficed. This was the message of petitions presented to Parliament in 1853 by the Manchester and Newcastle Commercial Associations, which argued that the Company should be required to set aside 10 percent of its revenues for “the construction of trunk lines of railways…and all other engineering agencies required in a civilised and commercial country,” but “should not be permitted to become cultivators, manufacturers, or traders” (BPP 1852–3:XXVIII, 237, 241). In practice, their sentiment translated into a successful call by two new Indian railway firms for the East India Company to guarantee a 5 percent annual dividend to their subscribers, which they deemed necessary to attract the requisite capital (Westwood 1974:11–16). Such calls accompanied vocal opposition to the Company’s revived policy of territorial expansion, which had led to expensive wars against Afghanistan and Burma. These wars not only rerouted crucial funds from public works to the military, they also offended the passionate pacifism of Bright and Cobden. As the latter complained in 1853, “How could [the directors] be expected to make railways and other public works, when they could not prevent the President of the Board of Control, or the Governor General, at any time wasting the substance in war which should be applied to those improvements?” (Hansard 128:823). To give focus to their contrast between the need for public works expenditure and the trend of military expansion, critics of official Indian policy in the 1850s formulated two specifically constitutional arguments against the combined rule of the Company and the Board of Control. First, they alleged that City men had infiltrated the Company by buying up blocks of votes, which produced a majority of directors who cared more about delivering patronage promises than about governing India. These men, they claimed, exercised insufficient control over military personnel on the scene, whose actions often conflicted with the goal of Indian economic growth. Second, critics challenged Macaulay’s assertion that double government was a workable, if not ideal, strategy for achieving a balance of power between the state and the Company. To Bright, the system bred “secrecy and irresponsibility to a degree that should not be tolerated in a country like this, where they had a constitutional and Parliamentary Government” 39

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(Hansard 127 (1853): 1,173). These reformers accordingly set out to educate their constituents about actual conditions in India—to “get rid of [the] screen,” as Cobden concluded in 1853, so that “the real Government might stand before the House and the world in its proper character” (Hansard 128:816). Expressions of this view ranged from the vague mixture of empathy and philanthropy that was typical of Bright’s politics at the time, to more Socialist efforts to teach British workers to connect the need for state-subsidized public works in India with the desirability of increased government involvement in industry at home.13 This dual claim that the structure of Indian government encouraged both corruption and deceit was met by two overlapping responses from the Earl of Aberdeen’s cabinet and its supporters within the Company. MPs who were involved in Indian affairs, most notably Wood at the Board of Control and Trevelyan at the Treasury, focused on the charge that patronage had interfered with the chain of command between London and the subcontinent. Both their decision to single out corruption and their solution, which transferred the tutelage of Indian servants from Haileybury to Oxbridge, evaded the wider democratic implications of the Young India campaign. Having solved the patronage problem to their satisfaction, they assumed their task was done, and they saw no reason to add any more elaborate defense of double government. Against this approach, John Stuart Mill argued that defending double government was more important than ever now that India had become a matter of public debate. Although Mill defended Wood’s reforms, he was more concerned to refute the radicals’ claim that an informed British electorate could do a better job governing India than was presently the case with a “delusory” division of powers between the Company and the Board of Control. Far from denying that double government was deceptive, Mill presented a utilitarian justification for deception in the exceptional case of Indian politics. This argument proved futile. In 1858, under the shadow of the Sepoi Rebellion, Lord Palmerston conferred full power over Indian affairs to a newly constituted government board. This move, which struck Mill at the time as a dangerous blow to British authority in India, was accepted with equanimity by Wood, who in many regards had envisioned his reforms five years earlier as a prelude to terminating the Company. Civil service reform as a political solution When Aberdeen’s coalition debated the terms of the Company’s new charter in 1853, the relevant ministers focused most of their attention on the charge that a corrupt constitution had prevented the active promotion of public works. By combining a thoroughgoing reform of the Indian Civil Service with an energetic public works policy, they hoped to silence charges of corruption, “civilize” the natives, and turn India into the robust trading 40

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partner of the Manchester merchants’ dreams. They assumed these results would neutralize radicals like Cobden and Bright, while creating a model for how civil service reform in other administrative domains could similarly preserve politics as usual.14 Much of the evidence they collected in committee hearings during 1852–3 consequently laid bare problems that could easily be dispensed with by civil service reform, such as the costly process of canvassing the Court of Proprietors, while revealing wherever possible the few silver linings that could be discovered in the Company’s record on public works (see BPP 1852–3:XXVIII). Opponents of the East India Company in the 1850s certainly provided ample evidence that they thought corruption was the chief danger to be expected from continued Company rule. In the words of one anti-Company pamphlet, the subcontinent was “a carcase for a certain number of English to prey upon” and “a patronage preserve for a President of the Board of Control and twenty-four East India Directors” (Ellis 1852:50). But unlike Smith’s complaint of Indian servants returning home laden with ill-earned gain, this criticism hinted at a wider imbalance of power between the City and Industry that was becoming a cause for concern among Manchester politicians. The same pamphlet went on to urge that “members of banking and mercantile houses and of insurance companies should be expelled from that body” (67). Critics of the Aberdeen Coalition recited the same antiCity theme in their Indian speeches. Benjamin Disraeli called attention to all the “directors of insurance societies” who had been elected to govern India based on “their standing in Lombard-street” (Hansard 128 (1853):1,050); while another MP reported that “[m]any of the London bankers held large numbers of proxies, and by acting together they could almost ensure the return of any candidate; and so powerful was that interest, that it had already six representatives in the direction” (664). To Wood’s ears, such claims recalled an earlier era when Fox had waged war on the Company as a locus of City-bred corruption, and he hoped to make the most of the similarity in his opening address to Parliament. He implicitly compared the agitation against the Company to Fox’s efforts in 1783, when the Rockingham Whigs had nearly accomplished the patronage coup of nationalization, also on the premise that they understood India’s interests better than the Company did. Fortunately, he concluded, George III had acted quickly at the time by replacing the dangerous Fox with the patriotic Pitt, and since then party politics had “seldom [if] ever entered into the consideration of Indian affairs” (Hansard 127 (1853):1,148–9). Wood’s decision to concentrate on the corruption issue, however, was more than a cynical attempt to turn the tables on the radicals. A deeper source of his focus on corruption was the dilemma facing his entire political generation, who “continued to go through the ritual” of patronage despite its patently waning political significance (Parris 1969:71). The line he drew from Burke to Bright connected similar criticisms of the Company but vastly different 41

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premises. Pitt had beaten Burke because they both moved in an environment in which only a tiny portion of British subjects had the vote; at the most practical level this had meant that patronage was both workable and abusable as a system of dispensing government posts. By Bright’s time patronage had become at once more cumbersome as a means of appointing civil servants and less liable to abuse. The Reform Act of 1832 had curtailed the corrupting effects of patronage, by doubling the electorate and eliminating many of the boroughs that were small enough to allow a few favors to go a long way. Patronage had consequently lost much of its meaning as a powerful eddy in the vortex of party politics; yet, especially for a man of Wood’s generation, it surely still meant something, since cabinet members spent so much time perusing lists of candidates with nothing but family connections and party loyalty to guide them (Bourne 1986: ch. 2; Parris 1969). Exactly what patronage did mean in 1853 was not at all clear, however. For the former Prime Minister Lord John Russell, who chose to ignore the diminished ratio of benefit to cost, it remained the best system for “managing” Parliament in the old style. For Wood and Trevelyan, who recognized that patronage had lost much of its direct political influence, it still seemed capable of exerting a powerful moral force that could be used for good or ill. Trevelyan, for instance, complained that patronage was guilty of “corrupting Representatives and Electors at the expense both of their independence and of the public interests,” and looked forward to the day when it could instead “be employed in stimulating the education of our youth, instead of corrupting our Constituencies” (cited in Hughes 1949:68, 70). This was the view that informed his reform strategy, which aimed not to abolish patronage but to transfer it to a body where its dispensation would be both safer and more productive than before. As initially conceived, this body was to be an independent and permanent set of Civil Service Commissioners, who would be in charge of administering an open exam on which basis they would screen political appointments. Within a year of airing this scheme in the context of the Indian debate the values of university education would become embedded in the standards to be used by the proposed Civil Service Commission, but the principle would stay the same. The Indian Civil Service (ICS) struck Wood and Trevelyan as the perfect test for their more general strategy. It appealed to them partly because of the pressure they were feeling from critics of Indian corruption, but also because the East India Company was already close to embodying the principle of an independent agency in which patronage could be safely dispensed. All the Company needed was a gentle nudge along lines that had been pondered by cabinet members for decades, in contrast to the sharper break with tradition that Trevelyan would propose the following year. By 1853, moreover, it was more vulnerable to being nudged than it had been in past debates; if Macaulay’s proposed reforms had been at the cutting edge 42

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of political opinion, Wood could present his scheme as a moderate alternative to calls for abolishing the Company altogether (Dewey 1973:266). Nor would this claim have been far off the mark, had reform of the ICS been the only issue on the table for Wood and Trevelyan. Since they saw their Indian bill as a test case for greater things to come, however, the nudge they gave to the Company proved to be less gentle than either of them had originally intended. In 1854 Haileybury College shut its doors, to be followed by the Company itself four years later, in large part due to the momentum that Wood’s civil service reforms had provided to its foes. When Wood first looked into ICS reform in 1852, he assumed it would be possible to abolish patronage simply by taking Macaulay’s prior proposal to its logical extreme. Instead of calling for the directors to pick a surplus of candidates for admission, he proposed to open competitive exams for admission to Haileybury to all who cared to apply. One notable effect of this scheme was that the Haileybury professors, as administrators of the entrance tests, would have replaced their directors in the act of dispensing patronage. This transfer of power was fully consistent with Trevelyan’s more general aim to retain the moral influence of patronage but move it outside the executive branch. Tutors at the East India College, who were hired for life by the directors, occupied a place in the Company that was identical to the position to be filled by Cabinet-appointed Civil Service Commissioners; the only difference was that the Haileybury staff would provide the added bonus of what Trevelyan called in 1853 “a very satisfactory system of special instruction for the Indian Civil Service” (cited in Moore 1964:249). Within weeks of defending Haileybury in those terms, however, Trevelyan was won over to a new method of applying the principle of competitive examination to the ICS that eventually eliminated any need for Haileybury. With prodding from Charles Vaughn of Harrow and Benjamin Jowett of Oxford, he decided that the breadth of an Oxbridge education was a better criterion for choosing civil servants than the narrower training at the East India College. In the evolution of the new scheme, the maximum age for taking the entrance exam was first raised to twenty-three, which allowed Oxbridge graduates to compete with the usual crop of teenagers for special Indian training. From there, it was only a matter of time before Wood closed the College for being “altogether unsuited to the instruction of gentlemen, many of whom may have passed through the full course of education at one or the other of the universities,” and what had been an entrance exam to Haileybury turned into a final hurdle for university graduates to pass before heading directly to India (Moore 1964:250–7). As a clever solution to the narrowly defined problem of how to prevent patronage from interfering with the work of Parliament, Trevelyan’s scheme eventually, if only gradually, succeeded.15 As a response to the charge that the Company suffered from corrupt directors, though, his general approach and Wood’s specific application of it to India were far better adapted for 43

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fending off Burke’s eighteenth-century attacks than for appeasing the likes of Bright and Cobden. Had Burke been alive, he might well have approved of the principle behind Wood’s ICS reform, if not the details, since its goal was to remove corruption as a threat to the party system without weakening the bonds of deference that patronage encouraged. Just the opposite was true for Bright and Cobden, who grudgingly approved of the details of Wood’s plan but rejected its assumptions about representative government. Unlike Wood and Trevelyan, who assumed corruption would no longer be a problem (in either the Company or the state) once an autonomous elite took over the task of selecting, Bright and Cobden argued that corruption would persist as long as public institutions were shielded from the full force of democracy. So long as “enlightened public opinion was not brought to bear on Indian questions,” as Cobden complained was the case, it mattered little to them that Indian posts would be appointed by Civil Service Commissioners and university tutors instead of Company directors (Hansard 128 (1853):819). Hence although Wood managed to get Bright to admit that the civil service part of his plan was “an improvement on the present system…so far as that went,” Bright was quick to add that it did not go very far (Hansard 127 (1853):1,171). Cobden’s perspective on the problem of corruption was even more revealing of the divide separating the radicals from Wood, precisely because he shared most of Wood’s assumptions about patronage’s continuing potential to guide political decisions. His position, which corresponded to his minority view (even among reformers) that Indians should be free to govern themselves, perversely called for patronage to be handed over to a single minister of the Crown. He predicted that a minister in that position would have no other choice but to assign all the jobs to Indian natives, since “the people of this country would not endure that the vast patronage of India should be…distribute[d] amongst his political supporters here” (Hansard 128 (1853):824). Revealingly, Cobden’s plan omitted any reference to competitive exams, which in theory would have allowed a minister to appoint all the British officers he desired on the basis of “merit” and hence avoid the perception of favoritism. This omission can be accounted for only if “merit” is taken, as many of Trevelyan’s midcentury opponents did, as a code word for the substitution of one antidemocratic elite, the Universities, for another.16 Having rejected the possibility that competitive exams and democracy could ever be consistent, Cobden logically concluded that democratic rule in Britain could not survive without self-rule in India. In arguing his case for Indian reform, Cobden made it quite clear that the British people could not get rid of corruption until they had “got rid of the double government, and made the Minister for India responsible for the government of India” (Hansard 128 (1853):824). Wood and his political partners were not entirely oblivious to this criticism, nor did they ignore 44

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its close connection to attempts by Bright and Cobden to stir democratic sentiment among nonvoters. But when they did address this part of the question, all they accomplished was to alienate their conservative supporters while giving added momentum to the radical MPs’ call to abolish the Company. When Wood offered to supplement the Court of Directors with six Crown appointees, Bright curtly responded that this was tantamount to admitting that “the remaining twelve members of the [Court] were not fit for their office” (Hansard 127 (1853):1,191). A similar response greeted a clause in the Whigs’ India Bill allowing the newly granted charter to be revoked at the future whim of Parliament (Moore 1966:24–6, 33). In one sense it would be easy to follow Bright in thus writing off Wood’s compromise position on double government as typical of the Whigs’ overall failure to confront head-on the implications of democracy. But this tells only half the story. A more complete explanation of Wood’s tentative steps toward abolishing the Company in 1853 leads back to his assumption that politics could only be reformed by first isolating patronage from the party system. In that context his decision to move slowly on India makes perfect sense, since he would have deemed any complete transfer of power to be unsafe until the principle of competitive examination had time to diminish the influence of patronage. This continued obsession with the outdated moral economy of patronage, in turn, blinded Wood and his allies to the real implications of Bright’s populism. They failed to realize that the ability to appeal to “public opinion” would count for much more in British politics after 1850 than the power to dispense patronage. Among those who did not make this mistake were William Gladstone and Benjamin Disraeli, who eventually learned how to sway public opinion in more moderate directions than Bright had hoped to do, and John Stuart Mill, whose concerns about Bright’s popular appeal spurred his uncompromising defense of the East India Company. The Company as useful fiction: an antidote to class legislation? Although Mill had a better understanding than Wood of the real significance of “Young India,” his approach to Indian reform was no more successful than Wood’s at staving off what he called “class legislation.” He responded to the reformers by defending the Company as a virtual representative of the Indian people; despite supporting universal suffrage in Britain, he carried this defense much farther than the Whigs in Aberdeen’s Coalition bothered to do. The Whigs, who assumed that the virtual representation of all subjects (Indian or British) was the political bedrock of the nation, cared little who that representative was in India—if a minister of the Crown could represent the Indians’ interests without a significant increase in his patronage, they were happy to oblige that part of the reformers’ demands. For Mill, in 45

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contrast, a despotic Company acted as a vaccine, a relatively painless infusion of absolutism that would preserve the general well-being of British democracy. He consequently balked at any efforts to exchange it for what he assumed would be a more dangerously despotic system of government at home.17 Mill similarly departed from the Whigs by readily conceding the reformers’ point that double government was a deceptive screen. Wood and his colleagues said as little as possible about the allegedly deceptive character of the division of power between the Board and the Company, since to admit that much would come close to recognizing that virtual representation itself worked by deceiving voters into deferring to their rulers. Mill, in contrast, was ready to admit, as he did a decade later in Representative Government, that to maintain executive responsibility “there must be one person who receives the whole praise of what is well done, the whole blame of what is ill” (1963–90:XIX, 520). Instead of disputing the claim that India was an exception to this rule, he defended its exceptional status on the grounds that neither the British nor the Indian people would benefit from an Indian minister acting in full publicity. But just as Wood conceded too much to Bright when he went halfway toward abolishing the Company while waiting for his civil service reforms to start working, Mill conceded too much in his effort to save the Company from class legislation. In 1853 his arguments had provided useful support to Wood, who overlooked their differences to present such an influential ally to Parliament.18 In 1858, when Wood went over to the side of those who advocated nationalization, Mill found himself beaten by a set of politicians whose radical principles he supported but whose designs on India he could not tolerate. Mill’s defense of double government was based on the assumption that it was deceptive but useful in the limited case of India. The British people, he warned, were “unacquainted, or very ill acquainted, with the people and the circumstances of India” (1990:34). Their superstitious reverence of customary authority, the prevalence of which he condemned in most other contexts as “incrusting and petrifying [the mind] against all other influences addressed to the higher parts of our nature” (1963–90:XVIII, 248) offered hope for continued nonintervention in India. He hence did his best to present John Company in much the same light as such revered symbols as John Bull and, for that matter, Parliament itself. His emphasis on show was most evident in his last-ditch attempt in 1858 to prevent a new India Council from taking over the Company’s duties. “A new body,” he cautioned at that time, “can no more succeed to the feelings of authority which their antiquity and their historical antecedents give to the East-India Company, than a legislature under a new name, sitting in Westminster, would have the moral ascendancy of the Lords and Commons” (1990:85). This point needed to be urged, Mill assumed, since the Company’s foes claimed that it was possible to teach the British public all they needed to 46

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know for proper oversight of Indian government. For years reformers had argued that the hallowed principle of double government was in fact a delusive fiction, which administrators could use to lull the voting public into believing they had no cause to take interest in India. Fraser’s Magazine predicted in 1854 that “when there is no longer any confusion of Crown and Company…no bandying about of responsibility from one office to another, then men will begin to take interest in what will then be truly matters of Imperial concern” (Arnold 1854:463). A Young India MP similarly called it a “monstrous delusion” that “the government was carried on under the fiction of a supposed Company, which virtually ceased to exist in 1833” (Hansard 128 (1853):668–9). Along with these criticisms came descriptions of the plight of Indian natives who had been subjected to this allegedly irresponsible system—most of which, like Bright’s account in 1853 of “the destitution in which the cultivators of the soil lived,” directly bore on hoped-for imports of Indian raw materials (127:1,178). The implication was that British voters, once they realized Indian rule was as much a matter of political participation as their local elections, would help both the natives and themselves by forcing the Crown to improve the Indian economy. When Mill heard such professions of sympathy for Indian natives combined with the prediction that British workers would share that sympathy if only they knew the depths of Indian despair, he discerned only delusion piled upon delusion. For him, such claims signified the threat of class legislation, which he would later describe as “government intended for (whether really effecting it or not) the immediate benefit of the dominant class, to the lasting detriment of the whole” (1963–90:XIX, 446). Bright claimed India was “no question of Manchester against Essex” (Hansard 127 (1853):1,193); Mill suspected otherwise. In language that was deceptively similar to that which Wood employed to oppose Young India, he worried that recognizing the principle of Parliamentary rule in India would stir party feelings at home: “whenever it did happen that interest was excited in Indian questions, they would become party questions,” he predicted; “and India would be made (which I should regard as a great calamity) a subject for discussions, of which the real object would be to effect a change in the administration of the Government of England” (1990:50). What distinguished this complaint from Wood’s professed desire to keep the Indian debate from degenerating “into a contest of party feeling” (Hansard 127 (1853):1,093) were the different consequences the two men feared from partisanship. Whereas Wood worried that a politicized Indian debate in 1853 would threaten to tip the balance of patronage in the radicals’ favor before civil service reform had a chance to work, Mill was concerned that India would become a diversionary premise for debates that had more to do with class issues than with the welfare of the natives. He did not see such debates as bad in themselves, but he did think they needed to be balanced and rational, not clouded with references to a topic that could be 47

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exaggerated precisely because nobody had access to the facts. In 1853 he observed that in those “very few cases in which public opinion is called into exercise” concerning the natives, “it is usually from impulses derived from the interests of Europeans connected with India, rather than from the interests of the people of India itself (1990:34). In 1858 he repeated his suspicion that once lobbyists no longer had to compete with the Company in the task of feeding advice to the Crown, the India Council would be limited to a diet of one-sided arguments (84). Civil service reform was another case in which Mill employed arguments that only coincided with Wood’s up to a point. Much to Wood’s delight, Mill went farther than other Company officials in defending the proposal to hire Indian civil servants by means of open competitive exams—“the more the better,” as he put it in 1853. Still, he was careful to make it clear that these advantages needed to be weighed against the likelihood that directors without patronage would no longer “feel themselves, and be felt by others, to have a very important part in the Government.” He concluded that Indian appointments should be opened to public competition only if “the Court of Directors retained sufficient patronage to make them be still considered substantially the Government of India”—a position that fell short of Wood’s desire to neutralize Company patronage altogether (1990:59–60). Mill finally assumed that encouraging the popular misconception that the Company was the actual ruler of India would diminish the likelihood of unrest among the Indians themselves, whom he assumed to be highly prone to superstitious attachments. He argued in 1858 that Indian natives would equate the abolition of the Company with the abolition of all government in India: “They will be slow to believe that a Government has been destroyed only to be followed by another which will act on the same principles and adhere to the same measures” (1990:80). More generally, he argued that an increase in public discussion of Indian administration, despite its appealing similarity to what worked in domestic affairs, would not work the same way among the Indian people. Citing the resignation of Lord Ellenborough after the Sepoi Rebellion, he predicted that “[a]ll respect and fear of England as a nation will be materially weakened in the East; for, that…a government can be really formidable which allows itself to be bearded and its acts railed at to its face, is a truth which it requires a much higher civilization than that of Orientals to understand or credit” (198; see Hawkins 1987:135–41). The demise of the Company The Sepoi Rebellion of 1857, the violence of which confirmed the reformers’ worst fears and shocked many of the Company’s conservative supporters into rethinking their views, convinced most observers that something new 48

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needed to be done to improve the chain of command between London and India. Most of these people assumed that an India Council staffed by permanent civil servants and responsible to “public opinion” would be able to provide the necessary undivided authority without overly burdening Parliament with extra business or patronage. Lord Palmerston hence faced little opposition when he proposed a Bill in 1858 that pensioned off the Company’s shareholders and offered many of its directors a seat on the new Council. To Wood, for whom civil service reform had eliminated the threat that such a Council could be a source of old-style corruption, it appeared that the “substantial change now proposed…is in reality much less than it appears” (cited in Moore 1966:33)—hence depriving Mill of his last important ally in the fight to save the Company. Although Mill did his best to beat these odds with an eleventh-hour flurry of pamphlets and memoranda, his support from outside the Company had dwindled to a trickle. Henry Maine was the exception when he argued in 1858 that a Crown officer in charge of India would be guilty of “deferring ostentatiously to some transient prejudice of the British ten-pounder” (Maine 1858:32). More typical was the Economist editor who claimed it was “becoming more and more evident to the English people that the heavy responsibilities of our Indian Government must be more clearly defined and brought home to the right centre” (15 (1857):1,118). Ultimately even the Company’s defenders were forced to adapt to this shift in opinion. When prospects of saving the Company seemed dim, Mill turned his efforts to urging Parliament to maintain in the new India Office “a really independent Council…possessing all the essential powers of the Court of Directors” (1990:171). One director, Henry Rawlinson, favored abolition on the grounds that “a change of name” would allow a largely identical governing body to “condone the past…and to set out from a fresh starting point into a fresh career of empire” (cited in Bearce 1961:240), and Maine added that “a re-baptism of the East India Company… might perhaps mitigate the gross ignorance which is plainly attributable in part to the retention of a historical nomenclature” (1857:254). These hopes seemed to be justified by Palmerston’s scheme, which called for a council with fifteen permanent members, serving under the supervision of a Secretary of State for India who changed with each new ministry. Upon learning of this arrangement, Mill reported to a friend that “[t]he Company is to be abolished, but we have succeeded in getting nearly all the principles which we contended for, adopted in constituting the new government” (1963– 90:XV, 560). Such optimism only half-concealed the fact that the India question had marked an important victory for the populist politicians whom Mill so deeply suspected. In the wake of the Company’s abolition, radical figures like Bright, as well as older-school politicians like Gladstone who learned to adapt, turned to their own purpose the forces that Wood and Mill had hoped would 49

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prevent India from derailing their respective political ideals. Wood had assumed that the virtual representation of both Britons and Indians could be rendered safe from the corrupt influence of patronage by wholesale reform of the civil service. The events of 1858, even as they proved that civil service reform had solved the age-old problem of Indian patronage, demonstrated the rise of a new brand of populism and the corresponding decline of the Whig tradition of government by a “natural aristocracy.” Mill, similarly, had hoped to use the superstitious regard for the Company to preserve a vision of representative government that was both more democratic than Wood’s and more respectful of minority opinions than Bright’s. For him, the changing of the guard in 1858 showed that the Company was not the only institution which Britons or (in theory) Indians could be taught to revere. It turned out that while the Company’s administrative duties had been taken over by the India Council, its symbolic work was being taken over by the Queen, with the result that Britain’s self-fashioning as a virtual representative of India did not in the least suffer following the demise of “John Company.” Historians have recently taken a new interest in the story of Queen Victoria’s formal accession as Queen over India in 1858, followed two decades later by her carefully staged assumption of the title of Empress in order to “unite the British Crown and its feudatories and allies” (Cohn 1983:206). Preparation for this symbolic onslaught had in fact commenced in the decade before 1858, when Bright and his supporters contrasted the Indians’ alleged reverence for the Company with the new and improved reverence they would display toward the Queen if only she were given a chance to rule. One MP argued in 1853 that the Company’s nominal rule was “not less humiliating to the people [in] India, than insulting to the Queen,” and added that “Her Majesty ought to be proclaimed in every city of that vast empire as Queen of India” (Hansard 128:669). Another went further, claiming that the debate over the charter had “rent asunder the veil which had shielded the real position of the Company from the public eye,” and concluding that “it was not now to be conceived that the people of India, who considered themselves the subjects of the Queen, would in future consent to be in subjection to a Company which possessed no real power” (127 (1853):1,326). Such declarations, besides suggesting that the Queen was a better despot than the Company, also symbolized the new virtues of populism in Britain. The assumption Bright’s allies carried into the 1860s was that Victoria would represent the interests of the Indians as defined by “the people,” not by a small coterie of ministers. This was evident from a resolution passed by the Manchester Chamber of Commerce in 1866, stating that since most Indian trade passed through Lancashire, “a responsibility therefore rested on the mercantile body of Manchester as far as possible either to guide and influence the Indian Government, or to overhaul, if possible, whatever errors might 50

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be found in that Government” (cited in Silver 1966:20–1). This general premise accompanied a more specific call for the India Council to encourage Indian peasants to convert their subsistence farms into cash crops. Such an approach to decision-making made Mill fear for the future when he returned to the subject of India in Representative Government, in order to defend the principle of a permanent civil service as “one of the acquisitions with which the art of politics has been enriched by the experience of the East India Company’s rule.” In the same paragraph he worried that even that legacy of the Company was under threat, “destined to perish in the general holocaust which the traditions of Indian government seem fated to undergo, since they have been placed at the mercy of public ignorance, and the presumptuous vanity of political men” (1963–90:XIX, 523). Conclusion Such a “holocaust” as Mill feared did not, at any rate, transpire in the case of less obviously political companies like banks and railways. For many of these firms, the fate of the East India Company stood as both a model and a warning for their own efforts to solve the complicated administrative issues they faced. Especially after 1850, its authoritarianism offered a timely alternative to forms that had been partially modeled on democratic ideals. If Mill could claim that British voters neither cared nor knew enough about India to be trusted with watching over it, company managers could similarly question the financial interest and ability displayed by their shareholders and customers. Hence arguments that resembled those used to defend the East India Company contributed to a variety of internal reforms that helped companies achieve stability in an increasingly competitive market and framed their response to new regulatory proposals. As in India between 1773 and 1858, a sort of “double government” ruled British finance and transport during the late nineteenth century, in which prime ministers relied on the expertise of company directors to help reduce government costs and prevent crises from reflecting poorly on their party. In return, companies secured deals that reduced the level of scrutiny into their affairs. For the most part, especially in banking, this arrangement was very much to the companies’ liking. But the fate of the East India Company after 1858 also stood as a reminder that “double government” as a regulatory strategy posed risks for firms that were unable to hammer out a satisfactory division of responsibilities with the state. Railway executives would discover just how serious these risks could be from the 1860s on, when rate hikes, safety concerns, and labor disputes produced widespread calls for Britain’s rails to be nationalized, much as its Indian empire had been turned over to the Crown. As William Farr, himself a salaried state official, observed in 1873: “The East India Company and the Railway Companies fell into many errors, and even crimes, at their origin, but they have rendered imperishable services 51

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to mankind; and they have alike earned, and are destined to receive the same apotheosis—Absorption into the Sovereign Power” (Martin 1873:254–5). Three quarters of a century later, atonement for the railways’ crimes would finally come, under the awkward authority of the British Transport Commission. Around the same time, the Indian people were putting the finishing touches on an apotheosis of their own, which would liberate them once and for all from the vanity of British politicians.

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3 RELUCTANT SOVEREIGN The Bank of England, 1797–1875

When all else had failed, John Stuart Mill defended the East India Company on the grounds that its government had been “very much the growth of accident, and has worked well, in consequence of things which were not foreseen” (1990:36–7). The names were changed, but the sentiment was similar, in 1871 when Walter Bagehot defended “our one reserve system of banking” centered in the Bank of England as “not deliberately founded upon definite reasons” but rather “the gradual consequence of many singular events, and of an accumulation of legal privileges on a single bank” (1965– 86:IX, 98). Both writers were defending a company’s political role on the basis of an accidental chain of events that had created a bond of deference between it and its “subjects.” Mill worried that the Indian people would dangerously regard a change in that role, even if only nominal, as revolutionary. Bagehot similarly responded to the rhetorical question: “do you propose a revolution? Do you propose to abandon the one reserve system, and create anew a many reserve system?” by answering: “I do not propose it…. Credit in business is like loyalty in government. You must take what you can find of it, and work with it if possible” (81). The fact that both the Company and the Bank could be captured so eloquently in the language of social evolution said as much about the status of evolutionary ideas at the time as about the institutions in question. But these particular stories also shed light on each firm’s unique exemption from the democratizing tide that was then carrying along most other political organizations in Britain. This was so both in terms of putative social psychology and historical origins. Justly or not, accounts like Bagehot’s carried conviction by weaving Indian natives and holders of Bank of England notes into a single evolutionary scheme. The same imitative impulse that allegedly made Indians usually stationary but capable of occasional violent outbursts apparently explained “why Lombard Street is often very dull, and sometimes extremely excited” (Bagehot 1965–86:IX, ch. 6). Earlier writers made the same comparison less precisely when they discussed the propensity of British merchants to gamble away their capital unless prevented by a 53

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higher power. Such generalizations about the note-holding public produced the same defense of despotism in the money market that Orientalist assumptions produced for India. And just as despotic rule over India had seemed more safely entrusted to a trading monopoly in the days of Fox and Pitt, Victorian statesmen and financiers generally thought the Bank of England was a better candidate for wisely regulating the currency than either the government or a collection of competing banks. Besides shedding light on the assumptions that helped legitimate the East India Company and the Bank, the evolutionary narratives of Mill and Bagehot point to parallels in the firms’ historical development. Neither was a political company by design. The Company had been established to cut deals with native princes, not to collect taxes and administer justice for millions of people. The Bank, similarly, had been granted a charter for the limited purpose of making short-term loans to the state in the form of circulating notes, not to keep guard over the nation’s credit transactions. In both cases, Parliament backed into granting them extra political powers: in the former to prevent the Company’s accumulated patronage from passing to the Crown, in the latter to reduce taxes during the Napoleonic Wars by formalizing the Bank’s unspoken role as the linchpin of British credit. Each company was complicitous in creating a situation where taking on political functions seemed like an obvious choice, yet each resisted formally acknowledging its political role when the time came to do so. The East India Company, for all its military success under Clive and Hastings, continued to insist it was primarily a trading concern long after it stopped turning a real profit. The Bank, despite being the final resting point for British and foreign bills of exchange from the mid eighteenth century on, insisted right up until 1900 that its primary obligation was to its shareholders.1 Yet while these general similarities between the circumstances of the Bank and the East India Company reveal much about the survival of despotism in isolated pockets of an increasingly democratic British polity, certain contrasts between the two companies are revealing as well. To start with the most obvious, the Bank never suffered the equivalent of the Sepoi Rebellion: it survives in name to this day, and remained formally separate from the state up to 1946. It did so by striking a balance between its commercial and political functions that the Company never achieved. The East India directors went from being “very bad sovereigns” (Smith 1970:819) to being such good sovereigns that they could no longer defend their commercial trappings in the court of public opinion. Saddled by patronageinduced waste, competition, and debt, the Company gradually pared away its trading functions until only an efficient civil and military service remained. The Bank, in contrast, always did well enough as a private concern to avoid appearing redundantly similar to a government bureau. Also, the Bank’s continuing financial success gave it a stronger bargaining position than the East India Company in deciding the fate of its charter. Instead of being deeply 54

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in debt to the state, as the Company was from the 1770s on, Bank directors could always point to the millions in unpaid exchequer bills that sat in their vaults whenever they sat down to negotiate with Parliament (Hilton 1977:87–9). The Bank’s continuing commercial success made it harder for critics to distinguish between its economic and political functions the way their counterparts had done for the East India Company. In the case of India, it had been relatively easy to arrive at a consensus about which duties should be performed by either the Company or the state and which should be opened up to competing traders. People tried to make the same sort of distinction for the Bank, arguing that the job of issuing paper money was essentially “political” and should either be limited to the Bank or handed over to the state, and that the job of lending money to merchants was essentially “economic” and should be opened up to competing joint-stock banks. The result of such boundary-drawing in India had been to narrow the debate to a contest between different political ideals and definitions. Where the Bank was concerned, however, such distinctions between politics and economics were constantly in danger of unraveling. This was the case regarding the Bank’s power of printing money, which appeared to create a conflict between its directors’ “public” duty of keeping prices stable and their “private” interest in profiting from an inflationary currency. It was also the case regarding the Bank’s function as a creditor, since its dominance in the money market appeared to endow it with quasi-political functions even though it shared with other banks the ability to lend money. Most reformers agreed that issuing paper currency, while ostensibly a political duty, too closely resembled the economic act of dispensing credit to be entrusted to the discretion of a corruptible elite of Bank directors or government ministers. They responded to this problem in one of three ways. Early-nineteenth-century radicals encouraged the formation of a government note-issuing department that would be directly accountable to the will of the people, and hence immune to behind-the-scenes corruption. The new joint-stock bankers of the 1830s argued that it would be best to strip noteissue of its political character altogether, letting a free market in paper money bring about the desired stability of prices. And most influentially, the “currency school” populated by liberal Whigs and Tories voted to retain the privilege of note-issuing in the Bank, and to solve the problem of corruption by forcing the Bank to restrict its issues in accord with the volume of gold in its vaults. This strategy became law with Robert Peel’s Bank Charter Act of 1844. By limiting its discretionary ability to issue paper money, the currency school added to a growing perception that the Bank had largely ceased to be a political company. This impression was reinforced by the Bank’s failure to prevent a series of commercial crises between 1847 and 1866 (all of which receded only after timely interventions by the state), and by Bank directors’ 55

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allegations that Peel’s Act had turned it into “just another bank.” The increasingly volatile money market after 1845 convinced many in the City of a need to repoliticize the Bank: to endow it with regulatory duties which supplemented the inadequately stabilizing forces of the free market. Led by Walter Bagehot, these reformers claimed that it was possible to accomplish such a change without altering existing monetary laws. This was because the Bank already possessed the ability to regulate commercial credit in a quasi-political fashion due to its de facto position as Britain’s lender of last resort. All that was needed, claimed Bagehot, was to convince its directors to acknowledge what the currency school had failed to recognize: that commercial stability required them to act in a deceptive, despotic fashion over their less “civilized” customers. Bagehot’s defense of the Bank’s political role fared better than Mill’s comparable defense of the East India Company. By the 1880s, the Bank started to play a more active part in regulating commercial credit by manipulating its lending rate, at least in the domain of foreign investment. As had been the case previously, however, its success as an economic institution prevented its directors from performing a set of “political” duties to the full extent envisioned by Bagehot. In domestic lending, the Bank continued to sacrifice the security of an ample gold reserve to achieve a profitable volume of short-term loans. Looking ahead from 1871, Bagehot might have interpreted the Bank’s regulatory reluctance as a partial victory of “democratic” finance over the cautious policy of discretionary central banking—much as Mill had worried that the extinction of the East India Company would accompany a “holocaust” of class legislation. Neither observer, however, fully anticipated the contours of British democracy as it would develop by the century’s end. In Mill’s case, a newly populist Queen took over from the Company as a fitting Indian despot, in the process blunting the radicalism of Bright and Cobden. Similarly, the newly conservative lending policies of English joint-stock banks after 1880 belied Bagehot’s assumption that only the Bank of England commanded enough deference to keep commercial credit on an even keel. As the Bank continued to resist efforts to be either solely a political or an economic institution, a newly despotic cluster of banks supplemented its occasional regulatory lapses with a joint-stock politics of their own. Gold and democracy, 1797–1844 The Bank entered the nineteenth century hoping to follow the same rules Adam Smith had recommended to all joint-stock banks: always have gold available for redeeming paper money and lend only on real bills. Smith had claimed that a sufficient gold reserve would keep banks from overextending their credit, since a drain in gold would quickly tell them that their notes were falling in value relative to those of competing banks. He had defined 56

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“real bills” as those which represented actual commercial undertakings (like a purchase-order for goods on consignment) and had assumed that bankers could discern which bills qualified as “real” by keeping tabs on the regular habits of their customers. It soon became apparent, however, to outside observers if not the Bank itself, that what were ideal functions in a private joint-stock company ceased to be ideal when the company took on duties that Smith had assumed would be performed by the state. Changes in the structure of British credit made the “real bills” doctrine hard to follow in practice, as more merchants and private bankers came to Threadneedle Street during times of crisis seeking Bank notes to bail them out. Twice in the 1790s, when the Bank turned most of these applicants away to protect its gold, the state needed to intervene to prevent a national calamity. The second such intervention was William Pitt’s Restriction Act of 1797, which relieved the Bank from the requirement to offer gold in return for its notes.2 The Bank responded by insisting that Smith’s rules still applied while passing blame for price instabilities onto other factors. This response failed to satisfy many politicians and economists, who worried that the Bank’s expanded power to issue notes had made its directors prone to the corrupt influence of self-interested traders. The precise nature of their concerns and their accompanying suggestions for reform varied depending on their diagnosis of how far corruption had infected the Bank. More moderate reformers, some of whom had served in Pitt’s cabinet in 1797, accused the Bank directors of innocently listening to misguided advice, and argued that a return to the gold standard was all they needed to recover their ability to tell good bills from bad. Radicals like Thomas Paine, William Cobbett, and David Ricardo went further in identifying the Bank as a locus of Old Corruption, and hence called for it to be stripped of all note-issuing power. Neither of these critiques found much support among the conservatives who dominated Parliament during the Napoleonic Wars. Upon the restoration of peace, however, the moderate call for a return to gold won enough support among liberal Tories to result in the Restoration Act of 1821, which reacquainted the Bank with the discipline of the gold standard. Simply returning to gold did not address the problem that credit was even more concentrated in the Bank in 1821 than it had been before the war, nor did it address the fact that political and economic circumstances had altered dramatically during that time. These problems became clear in 1825, when a major liquidity crisis found the Bank unable to bail out more than a fraction of the country banks which appeared at its doorstep. Lord Liverpool’s ministry responded to the crisis by attempting a more thoroughgoing return to Smith’s original prescriptions for safe banking. To supplement the gold standard, the Tory finance minister William Huskisson eliminated the Bank’s ability to issue £1 notes and encouraged the establishment of wellfunded joint-stock banks in the provinces, which he hoped would diffuse the demand for credit in future crises. This response addressed the new 57

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economic context of the 1820s, but failed to recognize the continued potency of politically motivated claims that the Bank was a locus of Old Corruption. Furthermore, such attacks had moved from the fringes of political discourse into the Whig party, rendering inevitable further reforms of the Bank when the Whigs took over in 1830. Nor was Huskisson’s Smithian vision of competing provincial joint-stock banks immune to the rising political campaign against Old Corruption. Instead of working with the Bank to preside over credit, many of the new joint-stock banks led the way in an effort to imbue the money market with the spirit of middle-class radicalism. Gold and corruption: the politics of Bank Restriction When Smith defended the Bank in 1776 as a relatively safe agent for administering short-term government loans, he did so on the assumption that it was less likely than the state to deceive the public into accepting depreciated paper. Although he recognized that the obligation of issuing paper to public creditors forced it to act “not only as an ordinary bank, but as a great engine of state” (1970:320), he still hoped it was “ordinary” enough to follow the same rules that guided existing joint-stock banks in Scotland. The Bank’s charter obliged it to redeem its notes in gold, and Smith had every reason to believe that its directors lent their notes only to merchants who would regularly pay them back. By sticking to these rules, he assumed, the Bank would avoid issuing more notes to its customers than it could redeem in gold at any one time. The only time this was a threat was when its biggest borrower, the state, obliged it “to overstock the circulation with paper money” (320), and Smith implied that it could extricate itself from such a situation by restricting its credit until its noteissue was back in proportion to its gold. He assumed that the only alternative, a government bank of issue, was bound to be dangerous in Britain’s constitutional monarchy, combining as it did “slothful and negligent profusion” during peacetime with “thoughtless extravagance” in war (818). And he had a point, since the British voting public who would be the “shareholders” of such a bank had a poor record in preventing their elected officials from going into debt. Smith’s assumption that the Bank was the best institution of its kind on offer in England relied on two conditions, each of which was shattered in the 1790s: a decentralized system of credit and a “mixed” currency composed of gold and large notes. His first condition, a stable balance of power among the different banks, was apparently valid for Scotland, where competing joint-stock banks prevented any single firm from unduly influencing the rest by its lending policies. It was not nearly as clear that financial power was so balanced in England, where the Bank’s charter expressly forbade any competitor with more than six partners. Smith might have been justified in overlooking the impact of the Bank’s monopoly in 58

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1776, when English bank credit was still relatively undeveloped. The rapid extension of small provincial banking partnerships in the 1780s that culminated in the crash of 1793, however, led some to question his assumption that the Bank could safely attend to its own business without regarding the effect of its lending policy on other banks (Thornton 1802: chs 3–4). Smith’s second condition, a currency composed of gold and large notes, was already less tenable in 1793 when the Bank issued £5 notes for the first time, and was clearly absent after the Restriction Act of 1797, which suspended cash payments and introduced a flourishing small-note circulation. These new institutional and monetary circumstances placed the Bank, as Francis Horner claimed in 1802, in the position of “a national establishment, not merely influencing, by the superior magnitude of its capital, the state of commercial circulation, but guiding its movements according to views of public policy” (Horner 1957:51–2). And try as its directors might to disavow any intention or ability to act as a “national establishment,” their protests only accelerated the rush of suggestions that came their way regarding what its new public duties were and whether it should continue performing them. Debates over the Bank’s role were especially heated in the decade after 1800, which was marked by constant inflation and a skyrocketing public debt. During this decade the Bank’s defenders did their best to sever any link between its note-issuing policy and the rise in prices, arguing that the Bank directors were both wise and patriotic enough to fend off illegitimate applications for financial assistance (Bowen 1995:16–18). Responses to this claim ranged from the observation that the Bank was indeed patriotic, but was unfortunately not competent to discern proper loans without the discipline of the gold standard; to more radical calls to abolish the Bank’s note-issuing powers as a dangerous symptom of Old Corruption. Bank apologists after 1800 displayed its directors as natural aristocrats who had the same interests as the public and were fully competent to resist self-interested designs to divert them from their virtuous path. A typical effort was Henry Boase’s Letter to Lord King, which presented the Bank directors as “men of enlightened minds, actuated by the education and feelings of gentlemen” (1804:6). Nor were these directors likely to be deceived by those members of the public whose motives were not so pure, Boase claimed, since they relied on an “established routine of business” as a “check on the improper applications for discount” (9). This Smithian account of how Bank directors did their jobs had its limits, however, since Smith had assumed that a conscious adherence to routine would only work alongside the more instinctive checks of competition and the requirement to pay in gold. Hence Boase ultimately appealed to a form of instinct that did not depend on these now-absent checks, claiming that “the officers of the Bank…discover and distinguish, almost intuitively, between genuine and fictitious bills” (11). To add a semblance of empirical support to this faith in the directors’ discretion, such writers pointed to causes of inflation since 1797 that had not been 59

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caused by Bank note circulation, including payment of war subsidies, imprudent country bank issues, and exceptionally large grain imports (Fetter 1965:43–51).3 Against these claims, even the Bank’s moderate critics could not resist pointing out that its shareholders, and not just the merchants who received its liberal loans, seemed to have gained at the public’s expense since 1797. As Horner put it in 1803, “[t]he directors of this company are at all times susceptible of the same temptations to which other traders are exposed” (1957:79). They soon perceived, however, that slinging too much mud at the Bank could backfire unless they were willing to challenge the rest of England’s hallowed institutions along with it. When Lord King suggested that the Bank directors had abused their power “as a corporate body” (1804:68), Boase was quick to warn him to be careful lest people start leveling the same critique against his own corporate body, the House of Lords (1804:12). William Huskisson, who had served in Pitt’s cabinet in 1797, similarly needed to take care in accusing the Bank of gaining at the public’s expense when he headed the Bullion Committee a decade later. As Cobbett chided, he “put himself in a ticklish predicament, when he took up his pen upon such a subject” (1815:I, 322). All these people faced the same dilemma that had haunted Fox three decades before, when his assault on the East India Company had been perceived as an insult to chartered bodies in general. Unlike Fox, whose attacks had cost him so much political power, Huskisson and his allies survived by diverting their scorn to less venerable villains than the Bank, the merchants who had profited unjustly by paying back their loans in a devalued currency. These people had “a general interest in maintaining the legal standard of public currency,” observed King, “yet having frequent occasion to apply to the Banks for loans and accommodations, they have a stronger and more immediate inducement to support the credit of those establishments” (King 1804:48). Besides deceiving the Bank when they applied for funds, such people also tricked Parliament into supporting Bank Restriction as a wartime expedient. Since this sort of deception was no different from the political tricks traditionally played by merchants against the government, the task of undeceiving the Bank fit comfortably into Adam Smith’s “science of the legislator.” Even though Smith had intended his economic advice to apply only to the state, critics could argue that once the Bank no longer felt the pressure of the gold standard (and, some added, of competition) it was in exactly the same position as the state. Applying the “science of the legislator” to the Bank of England, however, suffered from two problems: it produced little solid advice, and the authority of political economy was at the time only accepted by a minority of politicians. The most “scientific” document produced by the moderate Bank reformers, the Bullion Committee Report, essentially called on the Bank directors to restore cash payments and then cross their fingers. The Report 60

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backed off any more precise prescriptions on the Smithian grounds that “[t]he most detailed knowledge of the actual trade of the Country… would not enable any man or set of men to adjust, and keep always adjusted, the right proportion of circulating medium in a country to the wants of trade” (Bullion Committee 1919:52). Instead it urged the Bank directors to return to the tacit rules they had followed before 1797, in which they “felt the inconvenience” of a high price of bullion “and obeyed its impulse” (45). These tentative conclusions further suffered from what many politicians at the time perceived to be their uncertain and dogmatic basis in political economy. George Rose expressed the opinion of the bipartisan Parliamentary majority which opposed resumption in 1810 when he derided the Bullion Committee’s exhibition of “blundering pedantry” in the face of exceptional wartime conditions (Fontana 1985:118–26). Thomas Paine and William Cobbett supplemented the economists’ pedantry with their own radical bluster. They went beyond moderate bullionism on the grounds that the Bank, far from being naively inveigled by unscrupulous merchants, was equally guilty of putting its own interests ahead of the nation’s. To the reply that this critique also applied to the state, they heartily agreed that Parliament was part of the problem. Paine, writing on the eve of the Restriction Act, assumed that the only solution was to teach the masses that paper money was theirs to spend as they wished, not the private preserve of corrupt elites. He claimed that bank notes, in the hands of “little shop-keepers” and “market-people,” were tangible instruments of revolution, far more effective than “popular meetings, or popular societies.” By demanding gold in exchange for their paper, noteholders would force the Bank to suspend cash payments and thereby force Pitt to legalize the paper pound—a policy that had produced “a revolution in governments” whenever it had been tried in the past (Paine 1969:670–3; see Wilson 1988:154–60). Once this paper-money revolt had cleared the ground, Paine hoped to rebuild society by diverting the national debt from war finance to social programs and by maintaining a paper currency that would be secured by the noteholders’ full participation in government (Thompson 1966:88–93). After 1797 William Cobbett took up Paine’s analysis of the Bank, calling for working people to use their paper money as a weapon to vanquish Old Corruption. He could carry on Paine’s strategy because the Restriction Act had not quite made the Bank note legal tender. Fundholders and debtors to the Bank could not demand cash payment, but everyone else was formally entitled to receive gold for their notes. This loophole allowed him to remind his readers that “any holder of a Country Bank note has it, at all times, in his power to compel the payment of it in gold or silver coin” (Cobbett 1815:I, 386). He assumed that once enough noteholders exercised that right, the state would be forced to require all holders to use Bank paper, “which, in the end, must ensure its total destruction” (I, 466). The only problem 61

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lay in convincing the noteholders that demanding their currency rights, and hence producing the “total destruction” of Bank of England notes, was a worthy goal. His solution to this problem followed Paine in proposing a post-bankruptcy utopia in which the Bank’s absence would not be missed. But in place of Paine’s future of social programs funded by a participatory paper currency, he posited an agrarian vision in which the King remained on the throne and the improved efficiency of paper money was an unnecessary luxury. As he lyrically concluded in Paper against Gold, the corn and the grass and the trees will grow without papermoney; the Banks may all break in a day, and the sun will rise the next day, and the lambs will gambol and the birds will sing and the carters and country girls will grin at each other, and all will go on just as if nothing had happened. (Cobbett 1815:II, 35) David Ricardo was less thrilled than Paine at the thought of a revolution in property relations and less concerned than Cobbett about the disposition of carters and country girls, but he did agree that it would be easier to teach political economy to the average noteholder than to the Bank. It was with this in mind that he announced to Parliament in 1819 that monetary policy was not “a question only between the Bank and ministers,” but rather “between ministers and the Bank on the one side, and the country on the other” (cited in Milgate and Stimson 1991:70). But instead of calling on “the country” to bankrupt the state, as Paine and Cobbett had done, Ricardo called on the state to strip the Bank of its note-issuing powers before things reached that point. He applauded the Bullion Committee’s efforts to return the Bank to the gold standard as a step toward a national bank in which note-issue would be entrusted to accountable ministers. Although resembling Fox’s call in 1783 for Commissioners to administer India, this scheme was actually much closer in spirit to the more radical calls to abolish the East India Company that would surface in the 1850s. Ricardo certainly sounded more like Bright than Fox when he suggested that voters would be fully capable of watching over a national bank once they realized that all the present Bank’s profits would revert to them in the form of lower taxes. “[A]s the State represents the people,” he concluded, “the people would have saved the tax, if they, and not the Bank, had issued” paper money (1951:I, 362). Ricardo’s proposal for a national bank marked an important, if unsuccessful, departure from the political assumptions that had informed Smith’s defense of the Bank of England. The crux of the matter was the “tax,” in the form of dividends, collected by Bank’s shareholders at the public’s expense in return for putting up capital to secure its note-issue. Smith had argued that this tax was needed to protect the public from the worse fate of ministers using a state bank as a cover for shady public finance. In effect, 62

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his defense of the Bank was an admission of the limits of virtual representation as a form of government, since it implied that even the best legislators in England could not resist defrauding the public in order to service their irresponsible debts. Ricardo opposed this claim on two grounds. First, events since 1797, in which the Bank had patently been unable “to withstand the cajolings of ministers,” had betrayed Smith’s confidence in its ability to fend off such pressure (Ricardo 1951:III, 282). Second, Ricardo claimed that switching to a system of direct representation would render moot the choice between greater and lesser evils to which Smith had resigned himself. Once he had turned the question into a choice between existing expedients and future outcomes, of course, he was just as free as Paine and Cobbett to speculate about the likely attitude of a reformed electorate toward paper money. In his case, the general public would conveniently recognize the wisdom of bullionism more readily than the Bank directors had done, since they were less liable to corruption, and the result would be a newly stable relation between noteissue and gold (Milgate and Stimson 1991: ch. 7). In the contest between calls for a return to the recent prewar past and calls for such futures as Cobbett and Ricardo envisioned, moderate bullionism had the decided advantage in winning over an as-yet unreformed Parliament. Cobbett experienced one dashed hope after another as the state consistently proved more adroit at propping up the credit of Bank notes than he was at agitating against the paper pound (Spater 1982:I, ch. 12). Ricardo’s call for a national bank, similarly, failed to make a dent in the Tories’ reigning premise that it “would not be consistent with the honour or welfare of the country, to make itself a partner” in the Bank’s profits (cited in Fetter 1965:84). Even the more moderate Bullion Committee members had to wait nearly a decade for conservative suspicions of political economy to recede enough to allow Robert Peel to enact a law calling for payments to be restored. And notwithstanding Ricardo’s celebration of that Act as a “triumph of science and truth in the great councils of the Nation” (cited in Marcuzzo and Rosselli 1991:19), its success had less to do with science than with its diversion of blame from the Bank to those merchants and farmers who had gained from the war. This diversion was an especially attractive strategy for liberal Tories who were anxious to put Pitt’s expensive wars behind them once and for all (Hilton 1977:56–70). Reforming the Bank, 1821–44 The Bank’s return to the gold standard after 1821 ended inflation but replaced it with the prospect of a succession of commercial crises. Most bullionists claimed that the Bank could now be counted on to protect its reserves during a period of “overtrading.” Since merchants could no longer deceive it into supporting them with devalued paper, they would have only themselves to deceive, and only themselves to blame if their projects proved 63

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delusory. The weakness of this argument appeared in the commercial crisis of 1825, which victimized innocent noteholders along with “deserving” bankrupts. The violence of the crash forced the Tories to clarify what had been an overly vague appeal to bullionism, which they did by reviving Adam Smith’s earlier proposals. This appeal to Smith resulted from the Tories’ commitment to preserve both the gold standard and the Bank in the face of continued political opposition. Departing from cash payments after so recently returning to them would have been politically untenable, in light of Cobbett’s tenacious calls for a paper-money revolution; and replacing the Bank with a more cautious state department, as Ricardo had urged, would have conceded too much to Whig and Radical attacks on Old Corruption. So they tried to reform the Bank’s surroundings instead of the Bank itself, by banning the issue of small notes and by encouraging the formation of Bank of England branches and provincial joint-stock banks. This strategy proved more than adequate in fending off their radical critics. It was less successful at anticipating the more daunting challenge of democratic monetary reform that would appear after 1830. The small-notes Act of 1826, which banned the new issue of any notes in England and Wales under £5 and forbade the continued circulation of existing £1 and £2 notes after April 1829, resurrected Smith’s concern that bankers could easily be deceived as to their true liabilities if too many notes circulated in the retail sector (Hansard 2nd ser. 14 (1826):145–7, 256–9). Perhaps the most positive consequence of the ban on small notes was simply that it did not drive the country to ruin, as its radical critics had assumed would happen. The paper-money champion Thomas Attwood predicted that the 1826 Act would ruin the private bankers who were “inwoven with the national vitals,” and hence lead to “an immense and unmanageable calamity to the country” (Sinclair and Attwood 1826:117–19); while Cobbett assumed that the new law, by temporarily preventing “the Country Banks from blowing up the Mother Bank, and from producing Parliamentary Reform” would only make the explosion all the more violent when it finally did take place (Political Register, 62 (1827):809–10). Both prophets had some explaining to do when their apocalyptic forecasts failed to come to pass. A second important reform passed by the Tories in 1826 encouraged the Bank to establish provincial branches. The provision for branches addressed a problem which had appeared in the 1825 crisis, namely that the Bank had been unable to distinguish which provincial firms truly required its assistance and which would be able to ride out the pressure without a loan. Forced to choose between increasing government involvement in crisis control and encouraging the Bank to set up quasi-”Commissioners” of their own in the form of branch managers, the Tories took the latter course. In Lord Liverpool’s view, Bank branches would be better able than either unqualified state officials or imprudent country bankers to discern between deserving and undeserving loan applicants, and he was able to convince the “reform” 64

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wing of the Bank, led by younger directors like G.W.Norman, to go along (Hilton 1977:223–5).4 In practice, instead of directly serving local financial needs, most of the new branches became “bankers’ banks,” discounting bills and issuing notes for local banks that were willing to play by the rules handed down from Threadneedle Street. While co-operation was never complete, and while business conditions in some districts led Bank branches to depart from the rule of avoiding direct competition, enough provincial banks went along to pressure other banks to move in the same direction— certainly more than the often hostile anti-Bank rhetoric of provincial bankers like Attwood would suggest.5 The final piece of Liverpool’s monetary reform package, the establishment of new provincial banking companies, approximated Smith’s call for the Bank to act as much as possible like an “ordinary” joint-stock company, in competition with similarly situated firms—as had already been the case in Scotland for half a century. As Liverpool informed the Bank, it was time to take “advantage of the experience of Scotland,” where banks were “conducted upon the general, understood, and approved principles of banking” (cited in Palmer 1837a:57–8). As will be discussed in Chapter 4, many of the new banks did not initially follow the trajectory the Tories had envisioned. Although some promoters did import the “Scottish” model of banking into England, many others opted instead for more democratic constitutions and policies. Ultimately, however, especially once provincial companies started co-operating with the Bank’s branches instead of insisting on issuing their own notes (as many did at first), these democratic undertones faded and something approaching the “Scottish” model did appear. Either way, the consequences were not good for the soon-to-be outmoded English private bankers. They could not decide what irked them more, the new banks’ “cumbrous Boards of Directors and Managers” that signified to them the inefficiencies of Smithian banking, or the “want of just discrimination” that came from joint-stock managers being answerable to an overly democratic proprietary (BPP 1831–2:VI, qs 5,199, 5,246). The liberal Tories’ response to the 1825 crisis, which had been based on the Smithian assumption that the Bank needed to be protected from panicprone consumers and deceptive merchants, did not survive the 1830s, when the new language of middle-class democracy posited a different relation between merchants and their representative institutions. These new ideas about representative government made their way into the banking system by two channels: the Whig Chancellor of the Exchequer Lord Althorp, who further weakened the Bank’s monopoly and increased its public accountability; and the newly permitted joint-stock banks, which subverted their original Smithian raison d’être by claiming to be able to represent directly their customers’ interests. The new animosity against the Bank’s monopoly, together with the rise of “democratic” joint-stock banks in England, spoiled the earlier Tory hope that the Bank and a handful of 65

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companies could work together to minimize overtrading. In its place appeared numerous proposals for what the Bank’s new role should be, each implying a different perspective on the merits and extent of financial democratization. “Democratic” participants in the Bank debates after 1832 (as well as those few, like Paine and Ricardo, who had suggested democratic reforms earlier) all started from the premise that virtual representation was inherently deceptive and worse than a suitably arranged system of institutions that directly represented the public. The question remained of which, if any, of the Bank’s functions should be performed by a public agency or by other banks. All who opposed the Bank’s status as a virtual representative assumed that the task of regulating commercial credit, which some of its directors were starting to claim as their duty, could not efficiently be performed by a central agency. They assumed this for the same reason most democratic reformers in the 1830s defended laissez faire: they could see no way of informing the electorate of complicated market relations in such a way as to make the state capable of representing their economic desires. Critics of the Bank were more divided on the question of note-issue. The majority followed Ricardo in arguing that the proper rules for note-issue were simple enough to be administered by a cabinet department or even the Bank, provided it was more accountable to the public. This argument prevailed over the claim that regulating note-issue was as complicated as regulating credit, and hence best left open to competition among joint-stock banks. These new perspectives came into conflict with pre-reform views and with each other after 1832, when the newly elected Whigs took up the question of renewing the Bank’s charter. In the ensuing debate the Bank signified either a throwback to pre-reform tyranny that needed to be disposed of as quickly as possible, or a rampart against the democratic despotism which was predicted to be the likely outcome of reform. To Thomas Perronet Thompson writing in the radical Westminster Review shortly before the Reform Act, the Bank was “an invention fitted and strung for the purpose of doing injury to the community, and of removing those checks on the rapine and tyranny of rulers, in which the people have been foolishly induced to put their trust” (1832:199). To Archibald Alison at Blackwood’s, the possibility of Bank reform signified that Smith’s fear of a despotic state bank was finally coming to pass. “Do they intend to appoint commissioners,” he asked, to manage the affairs of this great fountain of credit, and thereby give themselves as great a control over the fortunes and solvency of every mercantile or trading man in the kingdom, as the East India Commissioners, in 1784, would have had over the fortunes of every man in Hindostan? (Alison 1832:672–3) 66

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When Lord Althorp re-opened the Bank question in 1832, he tried to steer a course between radical calls to abolish the Bank and conservative appeals to keep things as they were. He enhanced the Bank’s “political” role as Britain’s leading bank of issue by declaring its notes to be legal tender, requiring it to publish monthly circulation statements and urging its directors to extend their paper by means of their branches. He also continued the Tories’ efforts to decentralize credit by legalizing non-issuing joint-stock banks within sixty-five miles of London (Gregory 1936:I, ch. 2; Clapham 1945:II, 128–30). Alison’s suspicions notwithstanding, these reforms bore little resemblance to Fox’s failed attempt in 1783 to turn the East India Company into a government department. A more accurate parallel would have compared the Bank’s new position with that of the Company in the half-century after Fox. In both cases the object of the reform was to isolate a set of duties that most people could agree were “political” and encourage the company in question to perform these as a quasi-state agency, while contrasting such duties with “trading” functions that would be more efficiently performed in a free market. Althorp’s attempt to grant sole note-issuing power to the Bank, on this reading, paralleled the Indian reformers’ concession that the East India Company should take primary responsibility for taxation and education. Similarly, when Althorp forced the Bank to compete with other London companies for its bill-discounting business, he followed the precedent of allowing British merchants to trade freely with India. Here the only difference was that the East India Company lost its trading capital along with its monopoly in 1833, whereas the Bank survived with its deposits and share capital intact. The Bank’s response to Althorp’s reforms also paralleled the Company’s self-defense in the years leading up to 1833. Like the Company, which vigorously (if sometimes errantly) pursued tax and education schemes from the late eighteenth century on, Bank directors uniformly embraced their new note-issuing duties, differing only as to how much publicity should accompany them. Also as in the East India Company, the Bank divided over the question of trade liberalization, with some urging that partial monopoly powers were justified on social grounds, and others claiming that the loan market was capable of taking care of itself. Relieved to learn that the Whigs had entrusted them with note-issue, Bank directors on all sides warmed to the task of justifying that trust. As governor of the Bank in the early 1830s, J.Horsley Palmer used the branch system to the utmost as a means of cajoling provincial issuers to switch to Bank of England notes (Moss 1995). G.W.Norman, for his part, departed from his usual free-trade stance to argue that “competition in the issue of paper money…would probably lead to great disasters” (BPP 1831–2:VI, q. 2,582). The only debate in this case was over the extent to which the political nature of note-issue rendered the Bank’s accounts liable to public disclosure. Palmer assumed that too much publicity would only worsen its noteholders’ 67

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periodical “apprehension” that the Bank was close to insolvency, and concluded that the only real security lay in “the discretion of the Directors of the Bank” (BPP 1831–2:VI, q. 721). Norman, conversely, was convinced that sufficient publicity “to inform the Public of the true situation of the Bank of England” was to be expected from “an institution established by the Legislature for the general advantage of the country” (q. 2,695, 2,770). As the Bank was constituted in 1832, Palmer had enough support to force Althorp into requiring an average statement of circulation over the previous three months instead of an up-to-date record of events; Norman and his allies would need to wait twelve more years for their suggestions to be enacted in law. Even the relative unity of purpose displayed by Bank directors on the question of note-issue dissolved when they debated whether to extend their “political” character into the wider arena of commercial credit. Some directors, led by Palmer, argued that the Bank was justified in interfering with credit during times of “overspeculation,” when merchants were likely to deceive joint-stock banks into offering easy terms. This sentiment came with the claim, typically honored only in the breach, that the Bank placed the public good above its own commercial interests. Hence Palmer worried that efforts to pressure the Bank into making the most of its securities would turn it into “merely a great Joint-Stock Bank” (1837b:9–10) and would detract from its efforts “to uphold the credit of the country” (BPP 1831– 2:VI, q. 198). In many regards, the argument that the Bank should lend money more to stabilize commercial credit than to turn a profit resembled the East India Company’s claim to value social order over trade figures. But the Bank’s position in the loan market was different enough from the Company’s role in Indian trade to qualify the analogy in important ways. For one thing, Palmer did not defend a monopoly on credit, merely an occasional intervention to restrain or supplement the credit offered by other joint-stock banks. For another, the Bank did not share the Company’s luxury of remaining aloof from the market in the name of social stability. Since the Company after 1793 relied mainly on tax revenues and loans to pay its dividends, it could consistently claim to be acting from political motives when it defended a monopoly on trade. In contrast, the Bank’s revenue from its “political” note-issuing function paid only a small fraction of its dividends. Although Palmer’s lending strategy in the 1830s was “political” in that he discounted bills below the market rate during panics, Bank directors were never immune from the charge that they profited by offering credit at inopportune times. The more consistent rule, in this light, was Norman’s call for the Bank to lend with an eye to “make as large a profit as might be consistent with prudence and good management” (1838:100) and hope that other banks do the same. Chief among Norman’s supporters on this point was the private banker Samuel Jones Loyd, who headed the “currency school” from the late 1830s. 68

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Loyd preached that credit could only be regulated by “the free competition of the community at large,” and should never be “entrusted to the unrestrained discretion of any single body” (Overstone 1857:190). Instead of concerning themselves with the Bank’s manipulation of the rate of discount per se, the currency school focused on the effect of its lending policy on the volume of notes it issued, which as a “political” function was an easier target. This relatively nuanced criticism was necessary because the Bank’s interference with credit was only partial, in contrast to the more clearcut case of the East India monopoly or the Bank’s own policy before 1821. Palmer’s opponents had trouble, for instance, consistently arguing that the Bank unduly influenced credit simply by acting as a lender of last resort. When it staved off a panic in 1838 by lending below the market rate, Manchester merchants found themselves alone among its critics in complaining that it had abused its strictly “commercial” discounting function. Loyd came to its defense in that case by pointing out that any bank was free to lend below the market rate, just as any merchant was free to undersell his competitors: since “the loss falls upon itself,” only the Bank’s shareholders had any grounds for concern (Overstone 1857:173). In the contest to define the limits of the Bank’s political role, the currency school won crucial support by tapping into the popular early-Victorian doctrine of atonement. In the moral context of mid-nineteenth-century financial opinion, which in turn owed much to the rising tide of Evangelism, the most common criticism of paternalistic policies like Palmer’s was that they blunted the hard lessons of business failure (Hilton 1988:ch. 4). Such critics either optimistically assumed that the experience of failure would quickly push the middle classes into a newly stable commercial climate, as when the manager of the National Provincial Bank claimed that “the good sense and increased experience of the public” would soon cure the instability of the 1830s (Scott 1837:107); or pessimistically assumed, with Loyd, that businessmen who were foolish enough to pool their money in joint-stock companies were doomed to suffer endless waves of bankruptcy. Neither scenario, however, left any room for someone like Palmer, whom Loyd once jokingly described as “standing upon piles of Bank Notes and supporting with Atlantean shoulders broad the vast fabric of Commercial Credit” (Overstone 1971:I, 225)—and this strictly negative assessment of paternalism was enough to unite, if only temporarily, optimists and pessimists alike. If the currency school succeeded in depoliticizing credit, however, its very success in that area reopened the debate about whether note-issue should be restricted to a central “political” agency. Here Loyd’s assumption that jointstock banks were doomed to act irresponsibly came up against the bank promoters’ rosier view of competition. The debate reached a head when it became clear, in a Select Committee convened in 1840, that Loyd hoped to convince Peel to force all issuing banks after 1844 to maintain a fixed proportion between their supply of notes and the supply of gold in the Bank. 69

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“Free banking” advocates responded by pushing Loyd’s defense of free trade in credit to its logical extreme. If it was true that credit was too complicated for a central agency to perform, they argued, the same was surely true for bank notes, which the bank manager J.W.Gilbart depicted as being “capable of expanding and contracting in all the localities throughout the kingdom, exactly as the wants of trade may require” (1841:12). From this claim that notes exhibited local fluctuations in supply and demand, bankers like Gilbart argued that any company foolish enough to issue more notes than the regional market could bear would soon be driven out of business by its competitors. But they had little chance of succeeding once Peel put currency school doctrine at the center of his economic strategy in 1844. Repoliticizing credit, 1844–75 To Charles Wood and his fellow Whig reformers, the East India Company was political only to the extent that it was guilty of the eighteenth-century sin of patronage abuse. Once civil service reform had solved that problem, they assumed, the Company would be free to pursue the neutral task of taxing and educating Indian natives without getting in the way of British politics ever again. To Loyd and the currency school, the Bank of England was political only to the extent that it was guilty of the eighteenth-century sin of mercantilism, which they defined as its tendency to disrupt natural credit fluctuations by unwisely issuing bank notes with a regulatory eye. Once Peel’s Bank Charter Act had solved that problem, they assumed, the Bank would be free to perform the neutral task of lending money like any other bank in lieu of any remaining political role. Each of these diagnoses suffered from an outdated definition of politics. The result, in Wood’s case, was to hand over the debate about Indian policy to the competing democratic visions of the Young India party and John Stuart Mill. More gradually, but no less inevitably, currency school doctrine dwindled in perceived relevance between 1850 and 1870, until it eventually gave way to more realistic assessments of the politics of British money and credit. As in India, the debate which came to replace the currency school’s brief orthodoxy featured two different reconceptions of a political company’s proper role in an increasingly democratic community. Of these, the earliest and most explicit was the “banking school” doctrine, which carried into the mid-Victorian period Horsley Palmer’s insistence that the Bank should extend its political role into the regulation of credit, owing to the dangers of democratic finance as practiced by the new joint-stock banks. As refashioned by Walter Bagehot in the 1870s, this view took on the more persuasive shades of social evolutionary thought. The only people who would defer to the Bank, by this logic, were those at the lower end of civilisation; this affliction of financial barbarism was endemic among foreigners and epidemic in England. Bagehot accordingly called on the Bank to act the part 70

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of a virtual representative whenever it dealt with such people, by which he meant that it should knowingly deceive them into believing the economy was doing well even when supplies of gold were diminishing. Combined with changes in the international money market, this argument did convince the Bank to intervene in the large volume of foreign transactions which passed through London after 1870. It also convinced a succession of subsequent monetary historians to grant Bagehot’s views the status of a late-Victorian “monetary orthodoxy” (Fetter 1965; Laidler 1988). Starting in the 1860s, however, there surfaced a different way of grappling with the problem of democratic finance which was less singularly focused on the Bank of England. Urged most insistently by joint-stock bank managers and their allies in the City of London, this view also reconceived credit as a political function, but assumed that it could be safely performed only by an informal cartel of large banks. Despite its relative absence in most later accounts of monetary history, this view possessed both an impressive intellectual pedigree and a powerful institutional base at the time. Notwithstanding some links with the democratic rhetoric of “free banking,” the vision of a handful of companies regulating credit alongside the Bank in fact had more to do with Adam Smith’s earlier, and politically more conservative, monetary views.6 Institutionally, declining competition in the money market after I860 put the larger joint-stock banks in a better position to share regulatory power with the Bank of England. Bagehot failed to predict this development because he persisted in the older view (shared by Palmer and Loyd alike) that joint-stock banks were dangerously committed to the grasping mentality of middle-class radicalism. The problem with this diagnosis was that these banks, while still thoroughly middle-class institutions in the 1870s, were no longer very democratic. It is understandable how Bagehot, who died in 1877, missed this change, which was just starting to appear in the rhetoric and practice of the day. Historians who persist in telling the story of late-Victorian monetary policy as though Bagehot got it mainly right, in contrast, would do well to look up from Lombard Street long enough to recognize alternative scenarios of joint-stock politics. In defense of deference: the banking school, 1844–66 While the currency and free-banking schools were debating the politics of note-issue in the 1840s, the banking school did their best to reintroduce the regulation of credit as a valid political duty of the Bank. Led by Thomas Tooke and centered in the City, they tried to undermine Loyd’s crucial distinction between note-issuing and lending functions by claiming that bank notes had become all but irrelevant in the rapidly changing money market. As Tooke’s ally John Fullarton claimed, “you cannot…include the bank-note under the generic designation of money, without finding yourself immediately embarrassed by the claims of bills of exchange, bankers’ checks, and a variety 71

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of other typifications of the same principle of credit” (1844:29)—all of which were more liable than notes to regulation by a central bank. Behind this specific monetary criticism lay a more general unease about the extent to which both democracy and gold were washing up on British shores. When Louis Napoleon’s military regime restored order in 1852 after four years of unrest in France, the Economist defended his actions and the antidemocratic principles they represented. “Grant that it is a despotism,” the paper remarked: “a strong Government can scarcely be anything else” (10 (1852):118). A similar yearning for stability appeared when the news of new gold between 1849 and 1852 produced anxieties about inflation that bore more directly on Bank policy. With the discount rate at 2 percent in 1852, Tooke’s assistant William Newmarch warned that the new gold, combined with Peel’s Act, had converted the Bank’s power to exert “a moral influence—an influence of example” from a force for good into a dangerous weapon (1853:39). Outside the City, these concerns were countered with relative ease into the 1850s by crude restatements of “currency doctrine.” The relative resilience of the Bank Charter Act’s popularity through the boom—bust cycle of the mid nineteenth century hinged on the fact that the currency principle, as stated by Loyd prior to 1844, contained a built-in alibi in case it failed to prevent panics. Given England’s “great spirit of speculation,” Loyd had argued in 1840, it was “impossible to avoid considerable oscillations in the rate of interest” (Overstone 1857:393). All anyone could do was prevent the Bank from adding to those oscillations through its misguided attempts to stabilize short-term interest rates. Hence in a perverse sense the fact that commercial credit went through its biggest boom and bust cycle ever immediately after the act did nothing to disprove Loyd’s logic. What was more, his claim that the Bank, in its nonpolitical lending capacity, was not immune to commercial speculation, allowed him to blame its “bad banking” along with the excesses of railways and other banks when the panic came (294–5). Into the 1850s, such rhetoric continued to appeal to a certain middle-class public whom Boyd Hilton has characterized as supporting free trade “as a way of stabilizing and containing the economy.” Such people tended to be early generation entrepreneurs who had earned their own fortunes, looked to Peel and William Gladstone as their political leaders, and were likely to assume that commercial crises taught beneficial moral lessons (Hilton 1988:263). Crucially, a majority of directors at the Bank of England also bought into Loyd’s justification of the Bank Charter Act. Its governor in 1857, Thomson Hankey, spoke for many of his fellow directors when he defended Peel’s Act as the only means by which bankers and merchants could be “undeceived” as to the limits of their reliance on the Bank in times of pressure. He claimed that they “must learn that the Bank of England cannot by any expedient be made to supply…ready money beyond what, under the ordinary good 72

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management of a Deposit Bank, it can retain in reserve,” and suggested that any departure from this policy would amount to “legislative enactments to try and make the trading community more prudent” (1867:20–1). Such statements allowed Hankey to avoid being lumped with many City men— including some fellow Bank directors, by the 1860s—whose support of discretionary central banking appeared to favor stable prices over growth. When Launcelot Holland, the Bank’s governor during a later crisis in 1866, defended a more discretionary policy, Hankey immediately distanced himself and the Bank from this stance. Such a policy, he complained, would encourage the impression that “one class of the country shall be benefited at the expense of the rest of the community” (30). This perspective, however, was already wearing thin in 1857, when for the second time in ten years a nationwide crisis abated only after the government promised to suspend the Bank Charter Act. No matter how much the Bank tried to hide behind a strict separation between “political” note-issue and “economic” lending, two crises in a decade suggested that no such line could be drawn in practice. Once such temporary abridgments of the Act became common knowledge, it seemed clear to many people that lending money was (if only periodically) a political as opposed to economic act. In determining when to intervene, the government was put in the position of making exactly the kind of hard choices which Hankey had avoided on the grounds that they were too “political” for a person in his position to take on. As William Gladstone remarked in 1857, the Bank Charter Act had “place[d] it in the breast of the Executive Government,” during times of monetary pressure, “to determine what houses shall be ruined and what houses shall be saved” (Hansard 148:607–8). Such discretion on the part of cabinet members, he claimed, was “foreign to English habits, ideas, and traditions” and was “fraught with mischief in itself” (645–8). But he could not deny that it was an unavoidable consequence of a monetary policy which relieved the Bank of that responsibility on a day-to-day basis. Despite admitting this much, Gladstone did not give in to the banking school’s call to repoliticize credit by returning regulatory control to the Bank. Rather, he sought to allay the “mischief” of suspending the Bank Charter Act by eliminating all remaining vestiges of the Bank’s “political” capacity as note-issuer. He did so by urging the same sort of nationalized note-issuing department that Ricardo had supported forty years earlier, which he argued would remove the Bank “from a false position in regard to the commerce of the country when crises occur” (Hansard 148:653). The political implication of a state bank, from his perspective, was that future crises could be met in full public view instead of through such private avenues as a letter from the Treasury Office to the Bank. Parliament would not be forced, as it had been in 1857, to “play false to the country” (650). To the banking school, Gladstone’s support of nationalized note-issue indicated that he was more concerned with his political reputation than with 73

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the future stability of commercial credit. A national bank of issue would solve the problem of behind-the-scenes negotiation every time gold supplies were on the verge of running out, but it begged the question of an enforceable monetary policy. As Walter Bagehot was quick to point out at the time, simply declaring that the state would take full responsibility in future panics did not make containment any more likely. “You may make a rigid rule easily enough,” he claimed; “but where will you find a rigid statesman to adhere to that rule?” (1965–86:X, 70). He chided Gladstone for assuming that the turmoil caused by the Treasury letter was a bigger political threat than the minister’s incorrect monetary views. By leaving the volatile business of bill-discounting entirely up to the free market, Peel’s Act virtually guaranteed future drains in bullion—and, from Gladstone’s perspective, future “delicate or unpleasant” choices by “a minister under a parliamentary government, who may…have to decide on the ruin or prosperity of his warmest and most important supporters” (73). The fact that these decisions were made out in the open, and not behind the Bank’s closed doors, would hardly alleviate the apparent conflicts of interest. Bagehot was a relative newcomer to the monetary debate when he made these remarks in 1858, but he was not alone in bringing the banking school’s reasoning to bear on the most recent crisis. In a Parliamentary debate on Peel’s Act, Benjamin Disraeli observed that “the moral influence which all laws ought to possess is, so far as this statute is concerned, absolutely dead” (Hansard 148 (1857):607), and urged that monetary regulation ought to find its way back to the Bank. It was, he argued, “in the discrimination and discretion with which advances are made by the Directors of the Bank, that a beneficial influence may indeed be exercised over the fortunes of this country” (629). Both the strengths and weaknesses of the banking school position were apparent in Disraeli’s accompanying remarks, which rehearsed prior concerns about the recent influx of gold and an increasingly impersonal business climate (610–13). By 1857 neither of these laments would have been disputed by the many people who thought Peel’s Act could not prevent further crises. By themselves, however, they were no better at defending a discretionary Bank of England than the earlier arguments of Tooke and Fullarton. Too many other appeals, like the call for an accountable state bank of issue and the clamor for bimetallism, made more sense politically at a time when even monetary theory was judged according to a democratic standard. It was Bagehot’s contribution to the debate to render the Bank’s “monarchical” status compatible with the nation’s newfound populism. Deception, home and abroad: Bagehot on the Bank On the surface, Bagehot’s defense of the Bank as a virtual representative was very similar to John Stuart Mill’s defense of the East India Company 74

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in the 1850s. Like Mill, Bagehot needed to confront the claim that the public should no longer be deceived into pledging allegiance to a private company acting in a public role. When Gladstone railed against the “false principle engrained in the practical part of the commercial life” that the Bank’s proper role was to act as a lender of last resort (Hansard 148 (1857):649), his reasoning was the same as when Bright and Cobden condemned the delusive effects of double government in India. Like Mill, Bagehot responded to such charges by concluding that it was better to accept a little deception in the Bank’s case than try to change habits that had become so engrained. The only obvious difference between the two situations was that Mill’s arguments failed to save his Company, while Bagehot’s claims on behalf of a discretionary Bank, although not completely successful as a policy prescription, remained relevant for decades to come. There were good institutional reasons for this divergence of fortunes between the Company and the Bank, the most important of which was that the British state owed the Bank as much money as ever in the 1870s, in contrast to its complete financial autonomy from the Company in the 1850s. But there were also conceptual differences separating Mill’s defense of the Company from Bagehot’s arguments that improved the Bank’s chances for survival as a lender of last resort. Mill’s idea of the Company as India’s customary sovereign almost immediately came into conflict with the much more popular image of Victoria as ruler over India. Bagehot, conversely, was able to present the Bank alongside Victoria, almost as an extension of the monarchy: nobody claimed that the Empress of India should add Queen of Lombard Street to her many titles. Furthermore, Mill based his defense of deception on starkly utilitarian grounds which stood in tension with his more general concern for democracy—unlike Bagehot, who located his defense of the Bank’s “monarchical” role in a context that was both more persuasive to his mid-Victorian audience and more consistent with the rest of his thought. Bagehot’s defense of the Bank marked a return to Palmer’s original focus on the need for deference and deception in the money market. Proponents of central banking in the 1850s, like the Whigs who defended the East India Company in 1853, had said as little as possible about such issues. To suggest that deference in the money market might be a problem that needed sorting out, or that its presence might allow the Bank to deceive commercial men into believing something that was not quite true, came dangerously close to questioning the very basis of virtual representation as a political system. Bagehot, whose career straddled the passage of the second Reform Act, assumed it was no longer possible to take political deference for granted; and thought the only plausible way to defend virtual representation was to take it apart and see what made it tick. The theory behind this strategy was that accidental events led to the creation of a “cake of custom” which formed national character, and from which societies graduated, if they were lucky, 75

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into a civilised “age of discussion.” In that stage, if it lasted, customs were debated but still respected as valuable elements of national identity. In Lombard Street, the accidental event was the Glorious Revolution, which had placed a new king on the throne with no money to pay for his wars. An aura of deference had subsequently surrounded the Bank, initially from the rational desire of City Whigs to avoid “upsetting the revolution settlement” but increasingly out of pure habit as time went on (Bagehot 1965–86:IX, 95; Alborn 1994:190–2). Bagehot wrote Lombard Street to convince the Bank to follow British politics into the age of discussion. It was for this reason that he scolded Hankey and other directors who claimed not to be responsible for bailing out trade during crises, even though the Bank in fact had acted as a lender of last resort in 1857 and 1866. “[T]hough the Bank, more or less, does its duty,” he claimed, “it does not distinctly acknowledge that it is its duty” (1965–86:IX, 78). Distinct acknowledgment was needed for two reasons. First, it would force the Bank to recognize the theory behind their past practices, which would in turn allow them to be more precise in their future interventions. Second, it would strengthen people s trust in the Bank, which was especially important now that so much of society outside Lombard Street had entered the “age of discussion.” Just as British democracy in general would continue to thrive only as long as it revered its national symbols, a powerful financial symbol like the Bank needed constantly to be set before the “increasingly democratic structure of English commerce” to keep that structure in one piece. Bagehot pointed out that the Bank itself had been largely responsible for the democratization of commerce by creating “the certainty of obtaining loans” (52); this security had allowed a “dirty crowd of little men” to prosper by keeping all their spare money in circulation. It was consequently its duty to preserve the bond of trust that had developed, by establishing “a clear understanding…that, since the Bank hold our ultimate banking reserve, they will recognise and act on the obligations which this implies” (82–3). Trust and discussion might create the conditions for financial democracy, according to Bagehot, but deception was necessary to preserve it. This was because the trust that the “little men” and their bankers had placed in the Bank was essentially irrational, and liable to disappear if the actual operations of the Bank were too transparently visible. Just as “Queen Victoria is loyally obeyed—without doubt, and without reasoning—by millions of human beings,” he wrote, so it was that “an immense system of credit, founded on the Bank of England as its pivot and its basis, now exists” (1965–86:IX, 81).7 The survival of unreason in modern society, whether among the Queen’s subjects or the Banks regular customers, substantially limited the extent to which people should actually discuss things in the “age of discussion.” Because managing the money market during a crisis required an appreciation for the irrational side of human nature, it 76

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would do no good at all to clue the public in on the evolutionary reasoning this entailed. To do so would be like explaining to a wild animal why it was performing its mating ritual in order to help it reproduce. Armed with a banking principle that was paradoxically rooted in both discussion and deception, Bagehot turned to the problem at hand: how to mitigate commercial crises, which from a central banking perspective translated into forestalling drains of bullion. The trick lay in locating crises in his evolutionary logic, then using that logic to determine what the Bank’s role should be. Foreign drains, he argued, resulted from Britain’s advanced money market coming into contact with less civilized societies, whose recently acquired capacity for trusting strangers was “of a delicate and peculiar nature” (1965–86:IX, 64). If these foreign customers demanded their gold all at once, Bagehot’s solution was for the Bank to make them pay for their panic with a much higher rate of discount. If they wanted gold they could have it, but not without sacrifice (70–1). Domestic drains, in contrast, were throwbacks to an earlier stage of society when people had not yet learned to trust each other. Unlike foreign depositors, who were prone to lose their heads at any time, British depositors only lost track of their habitual trust in the Bank every ten years or so. “In England,” he observed, “after a great calamity everybody is suspicious of everybody; as soon as that calamity is forgotten, everybody again confides in everybody” (113). For these customers, the Bank could afford to restore normalcy through the gentler means of deception instead of coercively raising interest rates. If the City’s savage interior ever flared up, Bagehot claimed, the Bank should lend freely in order to soothe its customers’ irrational fears until credit could be restored to normal. But for this to be the case there needed to be plenty of hard currency on hand—he would not say exactly how much, since that would defeat the deceptive purpose of implying there was more gold in the Bank than was actually there (208). Bagehot’s specific proposals for a larger Bank reserve and a ready policy to meet foreign and domestic drains repeated those of the banking school almost to the letter. The fact that he reached these suggestions from evolutionary premises, however, strengthened their influence on public opinion, which in the late-Victorian era tended to be well disposed to theories of progress that placed Britain atop the heap of “civilization.” The Bankers’ Magazine, for instance, which differed with Bagehot on other issues, was happy to follow him in blaming foreign drains on “the Eastern and other barbarian nations” who “prefer the worship of the golden calf to bowing down before a papier-maché image” (33 (1873):428). Bagehot’s advocacy of more stringent measures for dealing with nervous foreign depositors, in particular, accorded nicely with prevailing trends both in the City and in political circles that by the 1890s had become populated by City sympathizers. On that side of the question, consequently, the Bank went farther in pursuing a “central banking” strategy than they had since before 77

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1840. This was the case, for instance, when the Bank acted in unison with the Chancellor of the Exchequer in 1896 to force India onto the gold standard, in order to appease textile manufacturers who were complaining about plummeting exchange rates (Green 1988; De Cecco 1974:64–8). Bagehot’s advice was less influential in application to domestic crises. Much of the problem was that this was the part of his theory that called for a larger reserve; and in giving this advice he had overlooked the fact that the Bank was a joint-stock company, with shareholders who at the end of the day had more say in its policy than Economist editors. To raise its reserve from the £12 million that it averaged between 1869 and 1873 to the £15 million that Bagehot recommended in Lombard Street would have meant a 25 percent drop in the value of Bank of England stock. In actual fact, the Bank proved unwilling to make this sacrifice, and kept its reserve at the pre-Lombard Street level right up until England went off the gold standard in 1914 (Rockoff 1986:167–73). Bagehot’s ability to convince the Bank to take on a larger reserve that could be used to soothe a sometimessavage public was also impeded by the fact that London’s largest joint-stock banks, by the 1880s, had started to perform some of the “aristocratic” functions that he had assumed were the sole property of the Bank. The new conceptual basis for a decentralized regulation of bank credit had been articulated as early as 1860 in J.W.Lubbock’s scheme to convert the London Bankers’ Clearing House into a common reserve (Lubbock 1860). This scheme stood in marked contrast with Gilbart’s naturalist appeal to free trade on behalf of issuing banks in the 1840s. Instead of trusting that an unregulated market would prevent banks from overissuing notes, Lubbock appealed to co-operation and vigilance among elite City bankers. As monetary theory, his proposal was a few decades ahead of its time; when the plan was revealed few of his peers would have disputed Bagehot s rebuke that “if the money is to be lent at all, an intermediate agency is necessary”— namely the Bank of England (1965–86:X, 280–3). Bagehot would have done well to take Lubbock’s proposal more seriously, however, as a harbinger of new attitudes in the City. Although the Clearing House would never fully replace the Bank as the bankers’ “intermediate agency” of choice, a less formal consensus eventually did evolve that it was in their best interest to help each other during hard times. One reason for this change was that joint-stock banks had grown to mammoth proportions since 1860 and could much better afford to intervene in a crisis than in Lubbock’s day. As Youssef Cassis has observed, “[t]he increasingly gigantic size of the big deposit banks made it more and more necessary for the Bank of England to have their support if it was to maintain control of the money market” (1994:82). Necessary, but also convenient: more reserves in these “non-political” banks meant less were needed in the “political” one. A good example of how co-operation between the Bank and the leading bankers took some pressure off a single-reserve system was the 78

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City’s response to the crash of the Baring brokerage firm in 1890, which occasioned the only major nineteenth-century panic that occurred after Lombard Street. The Bank entered the crisis with slightly more than £10 million worth of bullion in its vaults, only two-thirds of Bagehot’s “apprehension minimum.” When the crash came, the Bank responded not by lending freely, but by cutting a deal with Parliament and the leading City bankers whereby Baring’s liabilities would be evenly absorbed by all the interested parties (Pressnell 1968). Unchartered territory: beyond the Bank of England Firms like the East India Company and the Bank of England, which were expected to subordinate commercial considerations to their quasi-political duties, were the exceptions in the Victorian period. Comparable trading firms, like the Hudson’s Bay Company and the Royal African Company, shared the East India Company’s fate of losing their charters around midcentury (Newman 1985–91; Davies 1970). A new set of explicitly “political” companies would not appear until the end of the century, in the context of imperial expansion into Southern and Eastern Africa, and these did so amidst a storm of controversy (Keppel-Jones 1983; Robinson and Gallagher 1981). Most companies that did form in the nineteenth century were expressly established for the purpose of earning dividends for their shareholders, and they factored any formal or informal political responsibilities into that bottom line. After a century spent either celebrating or demonizing Britain’s industrial pioneers (very few of whom took advantage of the company form), historians have only recently started to recognize the major economic role played by Victorian firms in those sectors where the corporate form dominated. All these companies broadly fall into what passes today as the “service sector”; for both economic and political purposes they can be usefully divided further into providers of financial services like banking, insurance, and investment; and “network” industries like telegraph and telephone companies, railways, and public utilities. In terms of collecting and disbursing Britain’s surplus capital, the banking and insurance sectors dominated their counterparts in other countries by 1900, leading revisionists to argue that the true revolution spawned in Britain took place in services as opposed to manufacturing (Rubinstein 1993; Lee 1984). In terms of fixed-capital outlay, companies specializing in transport and utilities dwarfed Britain’s factories by at least a 3:1 ratio every decade between 1850 and 1900 (Feinstein and Pollard 1988:290, 304–5), inspiring historians to undertake a sustained re-evaluation of their important supporting role in economic productivity (Wilson 1991; Hannah 1979; Byatt 1979). On the basis of their clear significance both in the capital market and as powerful (if not always reliable) allies of industry, most historians have rightly 79

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put economic factors first in their analysis of these firms. A recent study of Britain’s “network industries” lists as its leading themes their fixed and variable costs, number of distribution points, network capacity, and conditions of “natural monopoly,” all of which purportedly provided the “experience” which informed the decisions of managers and regulators alike (Foreman-Peck and Millward 1994:10–12). The performance of Victorian railways has long been a major source of debate on problems of co-ordination and economies in large-scale enterprise (Aldcroft 1968; Hawke 1970; Gourvish 1978; Irving 1978). And studies of banking and insurance have focused primarily on what happened to all the money that was collected: measuring the liquidity of bank assets, for instance, or tracing insurance office portfolios (e.g., Collins 1984, 1988; Supple 1970; Westall 1984). Such a focus is warranted up to a point. However they measured it, the bottom line of costs, capacity, and liquidity clearly played a major role in the day-to-day practice of Victorian companies; their strictly “economic” activities hence cannot fail to play a large part in explaining their historical significance. Too narrow a focus on economics, however, threatens to isolate artificially the economic experience of Victorian companies from an “external” realm of political cause and effect. To distinguish managerial strategy or transaction costs from the “externalities” of politics or social costs is to introduce categories that were only beginning to be constructed with regard to large-scale business enterprise at the time. This is especially the case once “politics” is reassessed in terms of its early-Victorian meanings of voluntarism and regionalism. No new company in the nineteenth century could ignore politics thus defined, in the images it pressed into service in a prospectus or pamphlet, in the way it ran shareholder meetings, or in its response to proposals for new company laws. Succeeding chapters will argue that this political side of Victorian companies was not mere window-dressing, put in place to stave off unwanted legislative interference; but rather played a constitutive role both in their own economic performance and in the composition of the English state. Saying that all Victorian companies were constitutively political is not the same as saying that they all shared the same political constitution. Jointstock politics varied greatly depending on when and where in the market a firm first appeared. A broad distinction can be drawn between network industries, which tended to be more closely tied to traditional political patterns, and the financial services, which were usually more “democratic” upon forming. The earliest network industries, including canals, gasworks, and waterworks, most closely resembled the older chartered trading companies in their structures and practices. When canal-building became a booming enterprise in the 1780s, the landed gentry was seldom as obstructive as would later be the case with railways, and they often provided important financial and political support (Ward 1974: ch. 6). The first gas and water companies, upon forming in the early nineteenth century, similarly 80

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benefited from their directors’ dual status as local (typically Tory) elites and as influential voices in Parliament (Wilson 1991:1–50). Before 1830, this mixture of private enterprise and political connections served companies well in their efforts to raise money and resist competition. With connections came constraints, however. Although most network industries formed by private Act instead of by renewable charter, and were hence free from future revision or revocation, their legislative creators did often attach maximum dividend levels and accounting guidelines (Edwards 1986:20–8). A more subtle, but no less challenging, constraint came from their vulnerability to charges of “Old Corruption” once their Tory or aristocratic origins came under fire after the Napoleonic Wars. The other major type of network industry to appear before 1850 was the railway, which formed under many of the same circumstances as its predecessors. Owing to the need to acquire property between termini, the railways also went through Parliament to achieve corporate status; before 1856 a private Act was also necessary to ensure limited liability for their shareholders, which was necessary in such a capital-intensive sector. Like canals and utilities, the legislative process imposed a number of restrictions on railway enterprise. And by the 1830s, the legal costs of enacting private legislation (especially when opposed by threatened landlords, as was often the case for railways) was far greater than for such projects a generation earlier. Railways compensated for these extra burdens by confronting, with more success than other network industries, the claim that their statutory origins necessarily signified Old Corruption. They did so by pointing to the largely middle-class composition of their proprietaries, the weight of aristocratic opposition which they faced in Parliament, and the patently “modern” image of their steam engines and iron rails. As will be discussed in Chapter 7, however, the railways’ ability to avoid the taint of Old Corruption diverted them from fully facing the more insidious threat of financial dependence on the City of London. Compared to the early network industries, companies specializing in financial services formed after 1750 with very little direct reliance on the formal political process, and in many cases were discouraged or excluded from entering the field by Hanoverian commercial and political elites. In life assurance, the leading obstacle was the Bubble Act of 1720, which had passed in response to a “mania” surrounding South Sea Company shares, and which ushered in a century of conservative policy regarding the granting of charters (DuBois 1938). When the Society for Equitable Assurances petitioned for a charter in 1761, it was lectured by the Attorney General that “trade…thrives better when left open to the free speculation of private Men” (29–30). The firm responded, and eventually prospered, by forming a common-law partnership which came to signify the emerging politics of middle-class voluntarism (Ogburn 1962). Although exceptions to the Equitable s governing style appeared in the insurance sector after 1760, 81

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especially when wartime inflation tempted new companies to use life policies as speculative fodder (Pearson 1990), voluntarism and “prudence” proved the rule for most life offices into the next century (Supple 1970; Alborn 1991: ch. 3). As will be discussed in the next chapter, the trajectory of English joint-stock banks was comparable to that of life offices; although it was delayed by virtue of the Bank of England’s legal monopoly and was complicated by pre-existing alternatives to “democratic” banking in Scotland and among small banking partnerships. From these varied origins, many Victorian companies would come to rely on practices that closely paralleled those used by their more explicitly political counterparts. Joint-stock banks in the late nineteenth century would start to consolidate their position in the money market by sharing quasipolitical duties with the Bank of England, which had always been frustratingly slow to act as lender of last resort. And around the same time, railways would learn less positive lessons from the East India Company, the nationalization of which in 1858 struck many as an apt precedent for increased state control over rail transport. These business practices, as they reached maturity by the end of the century, all shared one thing with Indian administration and central banking: a commitment to virtual representation as a governing principle. Sometimes to the company’s detriment, but usually to its advantage, managers came to assume that shareholders and customers alike were incapable of participating directly in their firm’s administration.

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Part II JOINT-STOCK BANKS

4 “REPRESENTATIVES OF THE PEOPLE” The politics of joint-stock banking, 1826–44

In 1853 the Bankers’ Magazine ran an editorial on the system of English joint-stock banking, at the time less than three decades old. Although on the whole supportive, the columnist did express concern about what he called “the excessive stringency of their present administration”—citing a private banker’s comment that his joint-stock competitors “pay such attention to the science of banking, they forget the art, and leave me the cream of the business; their wire-drawn regulations shoot over the heads of the people they are aiming to obtain as customers” (13:626). In the next number of the journal a joint-stock bank manager from Kent shot back this reply: It is true they have certain rules laid down, which every officer is obliged to carry out to the very letter, and which are not altered for rich or poor. And why?—Joint-stock banks were not formed for the purpose of accommodating those already in affluent circumstances, and totally neglectful of the tradesman and poorer classes. Joint-stock banks are in a position to accommodate all grades of society. The writer concluded that the practice of a customer “asking for money upon his ‘word of honour’” might be fine for private bankers, “but not for the representatives of the people” (13:781). In casting joint-stock banks as direct “representatives of the people,” the Kent manager did not, as he had hoped, end the discussion. Instead he only moved the debate to a different level, about the merits of democracy itself, and more precisely about the proper place of “wire-drawn regulations” in a democratic polity. Banking companies, like the British state, walked a fine line throughout the nineteenth century between claiming to represent “all grades of society” and losing track of these claims in the course of building an efficient administrative system. Much of their history can be told in terms of their early efforts to square democratic language with administrative 85

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practice, and their ultimate disavowal of democracy in favor of branch networks, sleeping partners, and autocratic managers. Into the 1840s these efforts appeared as a series of related questions. What role, bankers asked themselves, should regional companies play in a national network of banks, bill-brokers and the Bank of England; and what effect would this role have on the banks’ internal politics? To what extent did a bank’s directors, who were alleged to represent transparently the wishes of a larger body, still need to be held accountable to that body? And what blend of paternalism and “liberality” should bank managers hold out to their customers and depositors? Although none of these questions were even partially resolved until after 1850, each attempt to answer them had important consequences. The maxim that joint-stock banks acted as “representatives of the people” was, like most such claims, observed only in the breach, and in tension with other ideals and expedients. Adam Smith had largely based his original defense of joint-stock companies as “natural aristocracies” on the example of eighteenth-century Scottish banks, which survived with their conservative politics intact well into the nineteenth century and greatly influenced their new English counterparts. Another popular political style still circulating in the 1820s was the “republican” mode of self-government that stressed vigilance within a small, virtuous community. Originally offered as a lateeighteenth-century radical challenge to the politics of virtual representation, the republican emphasis on face-to-face relations was especially attractive to many of the family firms that went public after 1825. But these preexisting alternatives to “democratic” finance did not fully suit many of the new banks, which catered to a set of potential customers and shareholders who were likely to view both “Scottish” banking and the vigilance of the converted private bankers as politically behind the times. Riding the tide of the Reform Act of 1832, these banks claimed to embody the radical doctrine of direct representation, which would allow companies to combine the national scale of Smith’s joint-stock politics with the participatory goals of republicanism. Yet, as the Kent manager had to admit, the practical working of a more inclusive system on a large scale required certain rules, which were often difficult to distinguish from the strict routine celebrated by Smith. Hence by the 1840s, a gap began to develop between the new bankers’ democratic rhetoric and administrative practice. Part of the gap stemmed from pressures to improve economic performance, which apparently had suffered in the rush to appease those who bought shares and borrowed money from the new banks. Part of it derived from contradictions within the rhetoric itself. Managers and legislators alike eventually realized that bank promoters had been overconfident in predicting that shareholders would value their company’s long-term prosperity over their own short-term profits; in assuming that directors could combine open discussion with merchants’ demands for privacy; and in hoping that it would be possible to exclude 86

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certain members of society from the ranks of bank investors without disturbing the appeal of “full” participation. The emergent banking profession solved many of these problems only by supplementing the inclusive language of democracy with the often exclusionary machinery of modern management. In the process, banks emerged at the end of the century as updated versions of the virtual representatives Smith had once praised, in many ways more impersonal and less “representative” of the borrowing public than their Scottish forebears. Institutional contexts of English joint-stock banking, 1760–1840 Parliament first permitted banks with more than six partners to form beyond a 65-mile radius of London in 1826, in direct response to the severe commercial crisis of the preceding year. Although legislators at the time had clear ideas about what an ideal system of provincial joint-stock banks should look like, the law was more permissive than prescriptive: new companies were free to create any constitution they desired, and the diversity of banks that appeared in the next ten years attested to their promoters’ creativity. Shareholders in the new banks ranged from just a few more than the prior maximum of six to over 1,000; nominal share denominations ranged from £5 to £1,000, contributing to paid-up capitals varying between £7,000 and £750,000; and banks established as many as forty branches and agencies or none at all (BPP 1836:IX, 189–249). Nor were bank promoters after 1826 lacking in energy. After a slow start, which picked up after corporate banking was extended to London in 1833, 120 banks appeared in the eighteen-year period up to 1844, when newly restrictive legislation and market saturation reduced the rate of formation to a trickle (Sayers 1957a:17). Smithian virtual representation as practiced in Scottish banks, a “republican” commitment to vigilant superintendence, and direct shareholder representation all vied for a share of this diverse array of banking constitutions. All these new models offered “greater security than private banks,” as the London & Westminster manager J.W.Gilbart claimed (1837a:120), at least part of which rested on their firmer financial footing than the undercapitalized private country banks. In their own ways, all these models also promised a certain sort of independence from the aristocratic circle of London financiers who hovered around the Bank of England and whom most new joint-stock banks suspected to be tainted with “Old Corruption.” Beyond these common denominators, though, different banks promised to provide “security” in a number of often conflicting ways. The English banking heirs of Adam Smith sought security in an extensive branch network operating by a series of unbending rules, which they claimed would guarantee accountability. For many converted private banks, in contrast, security would result from an enhanced version of the face-to-face relations 87

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that had only proven inadequate before 1826 for want of sufficient capital. And for the new “democratic” banks that started to appear in the 1830s, security was equivalent to a board of directors who transparently represented the needs and desires of the public, and whose communication of sound financial principles would continually improve their customers’ ability to “be their own bankers.” Smith and the legacy of Scottish banking Apart from the Bank of England, the twenty-nine banking companies in Scotland in 1826 were the nearest existing models for English joint-stock banks to follow when they were first allowed to form (Munn 1982:113). As discussed in the previous chapter, William Huskisson expressly based his Act for encouraging provincial joint-stock banks on “the experience of Scotland,” and he received support for this view from a Lords’ committee the same year that inquired into Scottish and Irish bank notes (Gregory 1936: I, 11–14). Among the many Scottish defenses of their banking system, including Sir Walter Scott’s popular Letters from Malachi Malagrowther, the most important in shaping English policy was Adam Smith’s account of joint-stock banks in The Wealth of Nations. Especially in the 1820s, when banking reform needed to meet the approval of the liberal Tories who determined so much of the Liverpool ministry’s economic policy, the prospects for joint-stock banks in England greatly improved when their adherents capitalized on Smith’s ability to fit them into a wider context that combined economic liberalism with the politics of virtual representation. Smith’s analysis of banking was directly informed by his experience of the impact of joint-stock banks on the Scottish economy in the three decades prior to the publication of The Wealth of Nations. Over that period, he reported, Scotland had experienced “a very considerable addition to the quantity of [its] industry, and, consequently, to the value of the annual produce of land and labour,” much of which he attributed to “the erection of new banking companies in almost every considerable town, and even in some country villages” (1970:297). Together with the liberating effect of Scotland’s union with England in 1707, banks had gone a long way toward solving the problem of “backwardness” that had long been the bane of the Scottish economy (208–9, 336). To account for the role of banks in narrowing the development gap between Scotland and England, Smith applied the same formula linking political representation with the collection of revenue that he used in discussing the “science of the legislator” more generally. This formula isolated specific problems and possible solutions concerning the state’s ability to collect three different types of revenue: taxes from nonvoting subjects, taxes from voting subjects, and credit (Robertson 1989). And for each category he concluded that well-run banks were able to govern more effectively than the state in their respective jurisdictions. 88

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The first category of revenue generation, taxation of nonvoting subjects, had posed problems in Smith’s politics because he thought most nonvoters were “unfit to judge” the state’s financial requirements and hence needed to be deceived into paying their fair share (1970:266). This was less of a problem for banks, since they offered clearer benefits to their customers in exchange for the “tax” of interest payments. The mutual benefits of banking were clear, for instance, in the business of discounting bills, in which banks helped merchants purchase a larger inventory in exchange for part of the resulting profit in the form of interest upon repayment of the loan. The more heavily capitalized Scottish banks added to this benefit the further service of cash credits, which Smith described as issuing notes “to the extent of a certain sum…to any individual who could procure two persons of undoubted credit and good landed estate to become surety for him.” He singled out his country’s banks for offering “easy terms” on such advances that were without precedent in Europe. The popularity of such methods of raising money was clear from the rapid extension of banking throughout Scotland: “almost all men of business,” concluded Smith, “find it convenient to keep such cash accounts with them, and are thereby interested to promote the trade of those companies, by readily receiving their notes in all payments, and by encouraging all those with whom they have any influence to do the same” (298–9). The second category of revenue generation, taxation of voting subjects, signified for Smith the problem of mercantilism, whereby voting taxpayers placed their own short-term interests ahead of the long-term good of the state. This was potentially a serious issue for the joint-stock bank, whose electorate was composed exclusively of shareholders with every incentive to bend its general policy to assist their individual interests. The best evidence that Scottish joint-stock banks were up to the task of fending off mercantilism was that their directors seldom deviated from a “strict routine”: they issued notes only on “real” bills for short periods and gave cash credits only to people who made “frequent and regular operations with them” (Smith 1970:305). Scottish bank directors proved their mettle in the late 1760s, Smith argued, when they refused to discount longer bills despite being accused by their shareholders of exhibiting “contracted views and dastardly spirit” (308). This struggle was essentially about the directors’ ability to represent the Scottish people; and, as in most such contests, Smith took the side of the representatives against those who clamored for better representation as a ploy to further their selfish interests. The contrast between short-sighted shareholders and prudent directors was similarly clear from his description of protests against the banks that were leveled by straitened Scottish merchants following a spate of their own reckless overtrading in the early 1770s: “Their own distress, of which this prudent and necessary reserve of the banks, was, no doubt, the immediate occasion, they called the distress of the country” (312). 89

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Credit, the final type of revenue available to the state, came with the political problem of giving legislators a way to escape full fiscal responsibility for their actions. Although Smith was less worried than his friend David Hume about the dire consequences of public credit, he still warned that a large national debt would lead to the “pernicious subversion of the fortunes of private people” (1970:930; see Winch 1978; Hont 1993). Reliance on credit was at least potentially a concern for joint-stock banks as well. When banks issued notes to discount a bill or to lend money on a customer’s account, they acted as both creditors (to the original noteholders) and debtors (to all successive noteholders, who could cash in their paper for gold). The only time the creation of this debt caused banks any trouble was when their issues produced inflation, which made it worthwhile for people to exchange their devalued notes for hard cash (Smith 1970:300–6).1 In the context of Scottish banking, the danger of banks relying on credit in this way appeared most seriously in the late 1760s, when a number of banks lent money on “accommodation” bills that were only apparently backed by legitimate transactions. The result was a payments crisis which, in Smith’s account, demonstrated both the weaknesses and strengths of a system of virtual representation in banking. The weakness was that a natural aristocracy of bank directors tended to be more distant from their customers, and consequently more prone to being deceived; by conspiring to discount their bills “sometimes with one banker, and sometimes with another,” traders had “very artfully contrived to draw from those banks…without their knowledge or deliberate consent” (309–12). Once the banks had figured out what the traders were up to, however, their superior prudence had also allowed them to escape the resulting crisis unscathed. Most Scottish banks successfully called upon their shareholders to “tax themselves” in the late 1760s, in the sense of receiving lower dividends or meeting a new call on their shares, so they could redeem their extended issue of notes (Checkland 1975a: 121– 4). Their behavior in this regard paralleled what was for Smith the nearutopian scenario of a prudent government that borrowed money to pay for an expensive war, then successfully appealed to its voters to tax themselves in peacetime to repay the loan.2 After 1780, the major joint-stock banks in Scotland built on Smiths model by embarking on a process of branch extensions and large increases in their paid-up capital. Between 1774 and 1792 the Bank of Scotland set up nineteen branches from Ayr to Aberdeen and increased its capital from £80,000 to £600,000, and the British Linen Company established a comparable number of branches in the 1780s. The new branches added momentum to the formation of many local provincial banks, some of which had already started to form in the 1760s, and most of which copied the conservative lending policies of the older metropolitan banks. Although these banks raised less capital than the banks in Edinburgh and Glasgow, they still averaged more than three times the capital of private banks in England. Banking in Glasgow, 90

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meanwhile, continued to be dominated by the conservative Royal Bank between 1780 and 1830; while in Edinburgh both the Bank of Scotland and the British Linen Company, together with the newly formed Commercial Bank of Scotland, exhibited “caution and inflexibility” well after 1800 (Munn 1981:46–75, 121–6; Checkland 1975a:140–55, 283–304; Slaven 1975:52–4). When joint-stock banks were allowed to form in England after 1826, many inevitably appealed to Scotland for a wide range of practical and rhetorical resources. Most concretely, the Scottish banks offered their new English counterparts a ready supply of clerical labor, with higher English wages and the promise of immediate promotion luring many clerks southward (Sayers 1957a:61–3).3 At least for some banks, though, the real prize offered by Scottish banks was their administrative principles. Thomas Joplin, the unflagging founder of both the Provincial Bank of Ireland and the National Provincial Bank, sealed his case for a national branch network by contrasting the “great Scotch banks” with the much smaller joint-stock banks that had started to appear in England (1833:17). The Bank of England, as the closest thing to a “Scottish” bank south of the Tweed, also provided an important model for banks like the National Provincial. Unlike most other English joint-stock banks, which tended to oppose the Bank by departing significantly from its practices, the National Provincial and others like it tried to beat the Bank at its own game. Both Joplin’s National Provincial project and the similarly designed Northern & Central included “Bank of England” as part of their official name (Sheffield Mercury, 7 May 1836).4 Like the Scottish banks on which they were based, banks like the National Provincial sold themselves mainly as aids to economic development in those parts of England that lagged behind the major industrial centers. Unlike many other new joint-stock banks, which competed directly with private banks in the largest metropolitan areas, Joplin professed to see little reason for independent joint-stock banks in cities like Birmingham and Manchester “where private Banking exists in the greatest perfection” (1833:13). The “chief value of the Scotch system,” according to the National Provincial’s prospectus, came from its “great Metropolitan Institutions, which spread their branches to the remotest districts” (Withers 1933:34). The superior efficiency of metropolitan directors was assumed to depend on their ability to view the country’s financial transactions from a general perspective. As the National Provincial’s Ipswich manager remarked of his superior officers, “experienced persons are constantly on the round to inspect the transactions of every branch: they obtain a general view of the operations of trade in different parts of the kingdom, and communicate the results to the central board” (Scott 1837:81). Since the bank’s directors acted at their discretion, they could also respond flexibly to unforeseen circumstances. In the banking mania of 1836, the National Provincial “limited the discretionary power of the local boards and the managers very considerably,” according to its general manager (BPP 1837:XIV, q. 2,356).5 91

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The fact that banks like the National Provincial were avowedly not democratic did not prevent them from asserting their independence from the City. As mirror images of the Bank of England, supervising a national note circulation, they presented a direct alternative to City financiers that could not be claimed by many other new joint-stock banks. In theory, at least, the National Provincial’s notes prevented the need for such expedients as bill-brokers and London agents that had grown up over the previous halfcentury of private banking. Its directors called their branch network “the most convenient medium through which the redundant capital of a rich, is transferred to supply the wants of a poor district” and contrasted this system with local banks whose capital was “just as likely, through London Money agents, to be invested in foreign securities” (Withers 1933:58). As will be discussed in Chapter 5, this vision would eventually become an accurate account of the development of English banking in the late nineteenth century (although not in the sense of restricting foreign loans). But for most of the new joint-stock banks that formed in the first decade after 1825, Smith’s joint-stock politics were unfit for transplant on English soil. In a culture where the primary focus of political and social life was still the town or county, many inevitably bristled at the thought of establishing a system of nationwide branches. The joint-stock bank as local republic Some of these banks supplemented Smith’s politics with the middle-class radicalism that was in the midst of inspiring the Reform Act of 1832; others, especially in the provinces and among converted family banks, reached farther back to an older republican tradition that centered around the closeknit and expressly local voluntary society. When such associations appeared on the political scene in the late eighteenth century, in guises like the Society for Constitutional Information and the Society of the Friends of the People, they narrowed the usual political circuit from the national stage, with all its diverse factions and classes, to the local or regional, where consensus could be reached without coercion (Black 1963:174–222). At least in theory, republican associations circumvented the need for a natural aristocracy that, in Smith’s politics, had been required to get nonvoters to contribute revenue and to prevent voters from dividing the state into warring factions. Republicanism solved the revenue problem by extending full political participation to all who paid their dues, eliminating the need to collect funds from nonvoters. It solved the problem of factionalism by forming on a sufficiently narrow membership base to prevent different groups from interfering with the due execution of the association’s goals. Those whose character or social standing, in the eyes of the members, forbade them from contributing their fair share to the revenue or from sharing a majority of the group’s opinions simply did not, or were not allowed to, join the group. 92

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There was (again, in theory) consequently no need for virtual representation, because there was little or no perception of a gap between the interest of the group and the interest of any individual member. The advantages of republicanism were most evident in the realm of finance, where a narrow circuit of virtuous members could replace “irresponsible” aristocratic credit with a newly vigilant creditor-debtor relationship. Middle-class holders of “moveable property” found fault with three components of existing credit arrangements in particular: the role of credit in the aristocratic service economy, the state’s inability to preserve stable class relations that were necessary to uphold private credit, and the state’s reliance on credit to pay for its administrative costs. The first of these complaints, as John Brewer has argued, addressed the “hidden subsidy to aristocratic wealth” that resulted from upper-class consumers failing to pay their bills on time or not paying at all.6 The second appeared most markedly in the Peterloo Massacre of 1819, which signaled to many middle-class reformers that their independent efforts would be needed to preserve the future stability of society (Morris 1990:161). And the final “republican” complaint stemmed from a perception that public credit, by paying the unnecessary and corrupting cost of placemen’s salaries and military exploits, condemned the middle ranks to an ever-increasing tax burden and would ultimately lead to national suicide. Unlike gentry opponents of the state, who pinned their hopes for reform on the “permanent” interests of landownership, middle-class republicans sought an alternative form of permanence by pooling their funds and manpower in self-governing clubs and societies. These clubs added support to existing informal credit arrangements that were developing among merchants, manufacturers, and junior members of the professions. With the help of new credit instruments like bills of exchange and mortgages, as well as the more frequent use of face-to-face trade agreements, the new middle class gradually succeeded in extending the market for their goods and services beyond the reach of the aristocracy. These new conditions of trade and credit, however, created new risks of business failure and legal liability, which constantly threatened to unravel the loose ties of private credit that were in place. Voluntary associations, together with improved forms of transport and communication, created much-needed security in this context by providing common funds for members who were temporarily experiencing hard times and by establishing enough “credit-worthiness” among members to allow personal loans to be extended beyond their original due date. These clubs could also count on members’ indigenous legal expertise to provide clarity and permanence to their proceedings without compromising their autonomy from the state (Mathias 1984; Anderson 1972). The aims of the “republican” voluntary society resonated with those of many of the smaller joint-stock banks that formed in England after 1825, which offered their customers a sense of continuity with the network of 93

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private bankers whose only sins, they claimed, had been undercapitalization and an unfortunate reliance on the Bank of England. By pooling the resources of a region’s wealthier tradesmen, and by expanding their noteissue to allow for higher profits and larger reserves, smaller joint-stock banks could claim that they differed from the earlier system in degree, not in kind. 7 Vincent Stuckey’s Somersetshire Banking Company, which continued to be informally known as “Stuckey’s Bank” long after it went public in 1826, was the leading success story among such firms. Starting with eight partners, he gradually took on another thirty-two by 1836, bragging at the time that his bank combined “the local knowledge and other advantages of a small bank with the security and resources of a Company” (1836:28).8 Converted banks like Stuckey’s took care to stress the continuing presence of personal attention that the new companies would exhibit. When the private firm of Walkers & Stanley became the Sheffield & Rotherham Bank in 1836, its founding partners promised that they would “always feel the same deep interest in its prosperity, as if they were still the sole Proprietors” (Sheffield Mercury, 2 July 1836). This persistence of the personal element allowed “republican” banks to dispense with much of the administrative machinery needed for survival in more far-flung banks. Stuckey felt no compunction in lending on no security “when we know the man to be an honest and industrious one” (BPP 1836:IX, q. 1,369). “Republican” banks were able to make a selling point out of their continuity with the earlier system of local private finance because trade relations in England were still primarily regional in scope. Such factors as the post office, telegraph and railway would not become sufficiently advanced to alter traditional patterns of regional self-reliance in most branches of British industry for many years (Hudson 1989:98). In 1830, when practically all bankers still made the rounds to outlying branches on horseback, it made sense to restrict operations to a single county so as to give bank officers, in Stuckey’s words, “an opportunity of seeing the operations of that bank going on every day” (BPP 1836:IX, q. 1,326). This opportunity, in turn, allowed them to uphold the republican maxim of having “the whole of its concerns under their own proper vigilance” (1,424). If vigilance was the common denominator that smaller joint-stock banks shared with private banks, permanence was the crucial departure, and it was in this realm that the power of association showed its strength. Stuckey noted “how vastly important it is for the public that banks should be established on what may be termed perpetual principles” (1836:26–7). Also consistent with republican principles, Stuckey’s system replaced the destabilizing tug of competition among individual firms with the solidarity of face-to-face co-operation. Before Stuckey went public he had been a partner in several local banks, each of which was constantly “pulling against the other”; since then, a sympathetic commentator noted in 1833, his “power of uniting 94

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them” had proven to be “productive of the utmost convenience in all branches of his business” (Quin 1833:181). To their definition of security as permanence through time, bankers like Stuckey added a spatial dimension which retained, or at least took advantage of, provincial hostility to “Old Corruption” in London. While still blaming the failures of 1825 on the poorly developed principles of association among local tradesmen, they had enough blame left over to pass on to the Bank of England—thereby relaying the prevailing rural distrust of the Bank into loyal support of their own model of joint-stock banking. Although Stuckey was himself a Bank shareholder and claimed that he “did not distrust either the Bank of England or the Government,” he used his family’s long local pedigree to profit from those “small savings bank people” in his county who were more likely to be suspicious of the City. The most visible symbol on which to base a contrast between the Bank’s national branch network and his own local system was the bank note, which as the only common product of the two banks allowed locals to signal their preference. Hence despite offering partial support to central bank control in other cases, Stuckey firmly defended his right to issue notes. “[W]here a circulation has been conducted well for 50 years, and has been payable at all times, and, under all the storms we have had,” he claimed, “it has had what may be called a moral effect” (BPP 1841: V, qs 503–5). He supported this assertion, along with the more general republican point that only the self-governed security of local property could save a corrupt government from itself, by referring to the “political run” of 1832 when “hundreds of Bank of England notes were brought to our bank, and ours required for them.” At that moment, he concluded, “the country banker stood between the country and the Bank of England or the Government” (556). Communicating virtue: the voluntary association on the national stage However crucial the spirit of “republicanism” had been in the development of eighteenth-century British politics or in the early stages of English jointstock banking, by the 1830s its limits were starting to show. Most seriously, it was becoming harder by then to treat either politics or finance in a series of regional vacuums. In politics, especially concerning social issues like the poor laws and public health, the failure of local structures to provide services for rapidly growing industrial towns gave advocates of central government an excuse to claim such reforms under the umbrella of middleclass radicalism; in the process shifting the tone of radicalism from that of Cobbett’s pungent Rural Rides to that of Edwin Chadwick’s dry sanitary reports. In finance, the Bank of England’s increased power had given the lie to the idea of regional self-sufficiency. Many of the new banks formed by middle-class patrons in the 1830s hence worked to extend their circuit 95

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well beyond Stuckey’s strictly provincial boundaries, while looking toward a more integrated financial system that stressed co-operation, not competition, with London. Neither in politics nor banking, however, did the move toward a more national system accompany a return to the politics of virtual representation as articulated by Smith. Instead of defining politics as the job of an elite of virtuous governors, middle-class radicals in the 1830s viewed both virtue and governance as qualities within reach of all members of society. Instead of transferring virtue from one elite (Smith’s “natural aristocracy”) to another (a provincial enclave of vigilant republicans), the new radicals recast virtue as a commodity that could be diffused from their voluntary associations until it eventually marked the behavior of all Englishmen. With this new definition of virtue came a new attitude toward London, which the old-style republicans had variously equated with such Old Corruption hotbeds as the City, the Court, and the aristocracy. London still signified corruption for middleclass reformers in the 1830s, but it was also the home of the “philosophical radicals,” whose ideas provided the groundwork for social and political reforms at local as well as national levels (Nicholls 1985:426–7; Thomas 1979). A similar process was at work among many of the banks that formed in the 1830s. These companies still identified the Bank and aristocratic London private bankers with Old Corruption, as did their “republican” counterparts; but after 1833 they also looked to London for a new breed of “democratic” joint-stock banks that tendered their services to a willing array of provincial banks, in effect acting as “philosophical radicals” to the latter banks’ industrial owners. The philosophical radicals and their London-based organizations reinvigorated local politics and society by establishing a blueprint for provincial reformers to follow and, in some cases, providing support structures for autonomous local organizations. One of the reformers’ first targets was the provision of gas and water by private monopolies, whose legal form signified the old politics of winning local power by gaining access to an unreformed Parliament. Aided by the Municipal Corporations Act of 1835 and by the organizing efforts of the Health of Towns Association, local governing bodies across England hoped to improve the public health by establishing their own waterworks; in Liverpool this led to a £1 million project linking the city’s surrounding rivers (Paterson 1948; Sheldrake 1989:20–1). Municipalization of gas lighting promised safer streets and an opportunity to generate surplus revenue for other services. Between 1835 and 1875 dozens of local councils, typically dominated by Liberals and Radicals, took over private gasworks (Wilson 1991:197–203; Falkus 1977:152). The pattern of local groups working in relative isolation with occasional assistance from central agencies was also apparent in the loose national networks that developed after 1820 among such voluntary societies as mechanics’ institutes, missionary societies, and scientific societies. 96

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“Voluntarism,” claims a recent historian of Victorian Bradford, was imagined by the middle classes as “the central organizing principle of society [which] would replace the monopolist cultural and political establishments with a free market in competing associational agencies, among which each individual could and must choose” (Koditschek 1990:249). The new middle-class reformers also departed from earlier reform practices by working to extend their definition of virtue outward instead of jealously guarding it against the taint of corruption (Wahrman 1993). Extending middle-class virtue to “the people,” in turn, hinged on continuing advances in printing, railways, and journalism. As J.S.Mill argued in 1836: Hundreds of newspapers speaking in the same voice at once, and the rapidity of communication afforded by improved means of locomotion, were what enabled the whole country to combine in that simultaneous, energetic demonstration of determined will which carried the Reform Act. (1963–90:XVIII, 125) Besides transforming politics, the ongoing communications revolution also changed the way voluntary associations did business. Once local volunteers could instantly hear the latest word on social reform from London, they could hasten the spread of that information at home. These elites gloried in reading about virtuous traits in their social inferiors, then holding these traits up as examples for other workers to follow. Hence their associations were more inclusive than their republican forebears, albeit only to the extent that the “worker” could be equated with such character types as “the industrious part of the operatives who did not go into the beer shops” (cited in Morris 1990:168–9) or “the steady reading moral part of the workmen” (164). At a more theoretical level, this emphasis on communicating virtue resulted in an approach to representative government that departed from the aims of earlier political reformers, who were often satisfied with improving the accountability of existing virtuous legislators without changing the mold of the lawmakers themselves. While it is true that a complete radical political philosophy needed to include elements of representation and accountability, direct or “descriptive” representation was more about what elected officials said than what they did. Its purpose, literally, was to represent to constituents the behavior of governing agents, not directly to improve or inform agency itself. Radicals assumed that such a system, by teaching voters how government worked, would indirectly enhance the agency of politicians by improving the mold from which “representative” politicians were cut. The process was intended to be symbiotic: the more “the people” took an active interest in politics, the closer the fit would be between leader and led (Pitkin 1964:90, 55–61; Milgate and Stimson 1991:21–46). 97

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Whether in practice or theory, the ultimate success of the philosophical radicals hinged on their ability to educate a whole class of people up to a level of virtue that earlier radicals had protectively claimed for themselves, over a short enough time to avoid the problem of an as-yet unvirtuous electorate destroying the social fabric. The famous debate between James Mill and Thomas Macaulay on electoral reform was primarily about where to draw the line between who was educable in the near future and who should be left out of the polity for the time being in order to preserve social stability. Macaulay was able to strengthen his case against Mill by showing how even the most radical advocate of universal suffrage had his limits—in Mills case, his refusal to extend the vote to women and his claim that self-rule would be wasted on the subject races in India. These admissions allowed Macaulay to suggest that he and Mill were not in fact so different after all, and contributed to the radicals’ failure to implement their original electoral reforms (Mill 1955:73–4; Macaulay 1875:V, 258–60; Stimson and Milgate 1993). Both nationally and locally, reformers responded to their failure to create an instantly virtuous electorate by gradually departing from their initially inclusive vision of politics and society. Nationally, the compromise of the 1832 Reform Act led to the rapid decline of the philosophical radicals by the 1840s and the rising popularity of administrative reform after 1850 (Searle 1993: chs 2–3). Locally, R.J.Morris has recounted how voluntary associations underwent a process of “reaction and adaptation” whereby they gave way to a combination of government boards (like the General Board of Health and the Factory Commission) and joint-stock companies. He traces this shift to what might be termed a failure to compete in the “revenue market,” that is, a newfound difficulty in raising voluntary subscriptions owing to new forms of taxation and investment options (Morris 1983:96, 106–9, 117; Morris 1990:293–303).9 Part of this account assumes the appearance, by 1850, of government boards that were capable of taking up the slack from voluntary societies; this in turn raises the thorny question of how the early-Victorian “state” came into being, which is beyond the scope of this book. Part of Morris’s story, though, assumes a development that has seldom been discussed, let alone explained: the appearance, by 1850, of joint-stock companies that were administratively both distinct from and more successful than the voluntary societies they replaced. By Morris’s own admission, the original voluntary associations borrowed many of their rituals, such as the general meeting and the open subscription list, from joint-stock companies (Morris 1990:184–91, 280–1). But it would appear that the “survival” capacity of these companies far exceeded that of most of their nonprofit counterparts. One way of discovering why is to examine the timing of their own “reaction and adaptation” to the pressures brought on by their original commitment to a relatively inclusive constitution. Returning to joint-stock banks from this angle, one is first struck by the fact that their initial claim to be “representatives of the people” evaporated 98

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more quickly than the parallel claim made by many voluntary societies. The more rapid erosion of the banks’ democratic pretensions resulted from the even more competitive “revenue market” which they faced, and from the presence of legislative pressure from which most voluntary societies were immune. These pressures forced banks to adapt their politics more quickly to meet the new demands, resulting in more streamlined administrative hierarchies and less “democratic” constitutions. At their outset, large numbers of English joint-stock banks strongly stressed the importance of learning from the experience of democratic mentors in London and in the larger industrial centers; of communicating these banking principles to the people in their district, hence creating a virtuous class of customers who could safely take part in their own financial affairs; and of electing directors who would transparently represent their shareholders. The next section will discuss the context behind their decision to take banking in these directions. The final section will then explore the reasons why many banks started to depart from these principles within a few years after forming. The primary explanation that emerges for this swift departure is that time was, if anything, even more of the essence for joint-stock banks than for voluntary societies, since failure to teach “virtue” to their shareholders and customers within even a few years might result in bankruptcy. Banks tried to prevent these problems by hedging their bets against possibly “uncivilized” customers, much as James Mill had quietly introduced certain principles of exclusion around the edges of his democratic theory. As with Mill and Macaulay, “democratic” joint-stock banks reached an early consensus with advocates of virtual representation in banking around the issue of selfgovernment in a “colonial” setting. For banks, this issue appeared in the context of branch networks, the relative legitimacy of which was discussed in colonial language. And as with Mill and Macaulay, “democratic” banks eventually found room for further exceptions to their inclusive constitutions, both in the matter of suffrage and administration. Here, the debate on speculation in bank shares that accompanied the banking “mania” of 1836– 7 provided the context for banks to move toward higher property qualifications for their shareholders and toward more paternalistic administrative methods. The rise of democratic banking, 1825–36 The emergence of democratic banking in England was both gradual and incomplete. When joint-stock banks were first allowed to form after the 1825 crisis, most were either new banks that were patterned on the Scottish model or converted private banks that persisted in face-to-face finance. It was not until the early 1830s, when the first joint-stock banks were permitted to form in London, that direct representation became more relevant to banking discourse. Even then a constant stream of newly floated national banking 99

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schemes and converted private banks continued to jostle for position in the market. But in many regards the new model of banking, with its combination of local participation and national co-ordination, was better adapted to the political and commercial conditions of the 1830s. Politically, these banks could more easily co-opt the language of middleclass reform that was sweeping the country, especially in the large urban areas where banking was most profitable. Commercially, their emphasis on setting up national lines of communication among independent local banks was well suited to the oncoming railway age. The Reform Act, in conjunction with Lord Althorp’s decision to allow joint-stock banks in London, was a crucial context for the new banks because it provided a bond between provincial and London companies that shared common political practices. The relevance of political reform to provincial joint-stock banking was obvious: for every case of Vincent Stuckey jealously preserving his bank’s virtue against democratic excess, there were several cases of bank promoters who actively participated in the new middle-class radicalism. A month before the merchant-philosopher Samuel Bailey took the chair at the inaugural meeting of the Sheffield Banking Company, he took the podium at a public meeting in which he encouraged Sheffield Radicals to lend their united support to those politicians who had “placed themselves on the railroad of reform” (Sheffield Independent, 22 Jan. 1831, 4 Dec. 1830).10 Such sentiments easily passed from politics into banking, as when the general manager of the Manchester Joint Stock Bank argued that “merchants ought to be allowed to devise the best instrument for conducting the trade of the country which they can invent” (cited in Scrope 1833:400); or when a pamphleteer asked of MPs who were considering restrictions on joint-stock banking: “Do these country gentlemen modestly value their own talents as superior to mercantile men upon mercantile matters?” (anon. 1836a:5). For the first time, provincial bankers who held such views could look to London as a source of support and not merely as a repository of corrupt Bank of England directors. By 1832 a new class of radical politicians and reformminded clerks had set up shop in London and were anxious to support the new system of joint-stock banking. As a bank clerk in the 1820s, J.W. Gilbart belonged to the same debating society as such radical stalwarts as Edwin Chadwick and Edward Baines; in 1834 he transferred this enthusiasm to the expressly political task of leading the proposed London & Westminster through a series of fights with both the Bank of England and Parliament during its first decade (BM 23 (1863):652). David Salomons, a founding director and leading force behind the London & Westminster, was a vocal liberal who was constantly on the wrong side of political orthodoxy both in London and in Parliament for refusing to subscribe to a succession of religious tests.11 Such men energetically inserted themselves and their banks into the new rage for public association. It was owing to their “power of 100

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association,” Gilbart claimed, that joint-stock banks would “gradually extend their power, their influence, and their usefulness, through every class of the community” (1859:171–2). Communicating democratic banking Unlike Joplin’s National Provincial project or Stuckey’s Bank, which built from the past successes of Scottish and English banking, the newly “democratic” banks that formed in the 1830s self-consciously appealed to the future. Their advertisements rang with optimistic predictions of economic growth and confident asides to increases in population. As in J.S.Mill’s paean to “civilization,” the rapid progress of communication stood at the center of such pronouncements, in particular the prospect of imminent railway access between cities. An 1836 report from the Midland Bank’s provisional committee referred to the “rapidly increasing wealth, population and enterprise of the town of Birmingham, connected as it soon will be by new channels and facilities of communication with all the most important commercial and manufacturing towns of England” (cited in Crick and Wadsworth 1936:58); the West of England Bank’s prospectus conflated its efficient handling of money with railway travel when it listed the various counties served by the “LINE PROPOSED for the OPERATIONS” (Gloucestershire Chronicle, 23 August 1834). Improved means of communicating financial information provided additional support to the new banks’ rosy view of the future and gave them means to express those views. In Manchester, for instance, local merchants raised £3.5 million in paid-up bank shares between 1828 and 1836 by establishing a provincial stock exchange and flooding the region’s newspapers with advertisements (Jones 1975:17). Although such bursts were especially evident in industrial regions like Liverpool and Manchester, they also extended into the strongholds of alternative corporate forms. In Scotland the dominance of the Royal Bank and its Edinburgh counterparts began to lose ground to a group of more liberal Glasgow banks, including the Glasgow Union in 1830, the Clydesdale in 1838, and the City of Glasgow in 1839 (Checkland 1975a: 325–42). And in Bristol, the West of England formed in clear opposition to Stuckey’s company, which according to the new bank’s prospectus had “no one characteristic of a Joint Stock Bank” (Gloucestershire Chronicle, 23 August 1834; Ollerenshaw 1982). London managers like Gilbart encouraged this combination of local pride and national ambition among provincial banks. His comment that “a system of country joint-stock banks, without a central joint-stock bank in London” was like “a solar system without a sun” (1859:400) differed from Joplin’s vision of a national branch network in subtle but important ways. A solar system suggested independent banks orbiting London, not dependent branches firmly attached to a metropolitan office; the distant force of 101

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disseminated knowledge and hands-off agencies, not the proximate pressure of a board of inspectors. Gilbart and others in his position exerted their influence by writing popular manuals, contributing to lecture series, and otherwise passing along their accumulated financial wisdom to anyone who expressed interest in the new joint-stock system. When the London & Westminster first appeared, Gilbart recalled, “[t]he writers for the daily press found it necessary to instruct themselves in the general principles of banking, in order that they might be able to instruct the public.” In this they were aided by his bank’s annual shareholder reports, which “provided matter for practical comment, and for the enunciation of correct principles” (326). Part of the rapid growth of joint-stock banking after 1832 can be directly traced to the enthusiasm of financiers, whether in London or elsewhere, to advise others on how to start up a bank. Unlike officials at the National Provincial, whose promotional travels always came with the ulterior motive of adding branches to their network, bankers like Gilbart and Samuel Bailey offered their advice with no strings attached. Within a few years of founding his bank in Sheffield, for instance, Bailey was taking “an active part in the discussion and proceedings” of the proposed Chesterfield & North Derbyshire bank, which he furnished with “much valuable information connected with the new system” (Derbyshire Courier, 14 Oct. 1833). This sort of co-operation tangibly affected the rate of bank formation: thanks to communications from existing companies, the Midland Bank could commence operations in August 1836 just seven weeks after issuing its first prospectus, in contrast to the sixmonth formation period that had marked new joint-stock banks a decade earlier (Holmes and Green 1986:17). London joint-stock banks also initiated more formal connections with their “orbiting” counterparts by entering into agency relations with them, in which the London firm in effect acted as a bank of deposit for banks in the provinces. Although private bankers in London had been acting as agents in this way for years, the introduction of joint-stock banks politicized this aspect of the business as it did others.12 London companies went out of their way to act as agents for joint-stock banks in particular, often reserving shares for directors of such banks to secure their loyalty. Within three years of forming, the London & Westminster had opened accounts with sixteen provincial joint-stock banks (BPP 1837:XIV, qs 1,914– 17); the Commercial Bank of London formed in 1840 as “the head quarters” of outlying joint-stock banks, shunning the thought of setting up “a single provincial establishment” that might compete with its potential clients (Gregory 1936:1, 306). How-to pamphlets, model deeds, and London agencies still left ample room for local participation. As Michael Collins and Pat Hudson have argued, until after 1850 provincial financial institutions “remained essentially local banks whose direct impact was felt most strongly…in the immediate vicinity of their offices” (Collins and Hudson 1979:69). The Liverpool Commercial Bank offered shares “chiefly to residents in Liverpool…with a view of securing to 102

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the Bank, as far as possible, the profits arising from the business of its own Subscribers” (Liverpool Chronicle, 24 Nov. 1832). More formally, the Bank of Manchester petitioned Parliament to forbid joint-stock banks to establish branches farther than twenty miles from the parent bank, and the Leeds Joint Stock Bank’s prospectus set the same geographical boundary around its proprietary (Thomas 1934:I, 136; Leeds Mercury, 11 August 1832). By securing a relatively local sphere of influence, such policies guaranteed that “taxation,” in the sense of paying interest for a bank loan, did not take place without representation. Provincial banks in the 1830s and 1840s mainly lent money in the form of direct loans and overdrafts to their regular customers, instead of selling bills to London brokers in exchange for interest that was collected in a distant region (Hudson 1986:224–34).13 The most obvious sense in which banks combined “taxation” with representation was their common practice of lending on the security of their own shares—often, though not always, with sufficient regulations in place to prevent abuse (Collins and Hudson 1979:70–2; Hudson 1986:223–4). Less literally, the mere fact that a bank “represented” a particular region suggested that its lending policy would be more fair than the highhanded or risky practices of the Bank of England and local private banks. Such practices speak to a real sense of local pride and independence that led many shareholders to prefer “representative” banks over larger firms with a head office hundreds of miles away. But since these regions were also densely populated, “local” did not necessarily have the face-to-face connotations of the smaller “republican” joint-stock banks (Chapman 1979:56–65). The West of England Bank pointed out that the population in its district exceeded that of Scotland (Gloucestershire Chronicle, 23 August 1834), and the South Lancashire Banking Company listed census figures for the towns of Bolton, Oldham, Rochdale, Ashton and Bury on its way to promising to combine “exclusively the energies of these towns” (Liverpool Chronicle, 5 March 1836). “Democratic” banks also bore a different relationship than other joint-stock banks to the less-representative private bankers they replaced. Instead of absorbing both the partners and principles of private banks into their branch networks, as was the tendency of both “Scottish” and “republican” banks, these banks tended to form from scratch in direct competition with private bankers. Significantly, the two leaders on a list of joint-stock banks that had purchased private banks as of 1844 were the National Provincial and Stuckey’s (BM 1 (1844):217–19). From their local position, joint-stock banks enthusiastically transmitted the wisdom they received from London to others in their district, with constant encouragement from that source. The Bankers’ Magazine, for instance, concluded a review of one of Gilbart’s pamphlets with the admonition that “it would be a good investment for Bankers to purchase a few thousands, and distribute them to parties who are ignorant of the advantages which Banking affords to tradesmen and small capitalists” (2 (1844):14); and called 103

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another bank manual “an Essay which country bankers would do well to distribute in their districts, amongst the large class of tradesmen and farmers who do not at present avail themselves of the advantages of keeping a bank account” (9 (1849):100). This sort of dissemination of financial principles accorded with the avocations of many local bank directors, who took leading roles in philanthropies and offered their companies’ services to such groups.14 Voluntary societies also offered bankers a forum for exercising clerical skills that came in handy in their financial pursuits. Bankers regularly contributed financial papers to local statistical societies, and when an Ashton-under-Lyne banker published a survey of his town’s sanitary condition the Bankers’ Magazine recommended it to readers “as an example of the best mode of preparing a report on the business of their districts, &c., for their respective courts of directors” (3 (1845):52). The ultimate goal of relaying all this banking information to their customers was to create a constituency from which directors could be elected who were both representative and virtuous. In contrast to the Smithian model of banking, which relied on rules for keeping directors accountable, many English joint-stock banks in the 1830s sought to achieve security by redefining the banker as a transparent representative of his district.15 This redefinition started with the assertion of a subjective identity between the director and the individual proprietor. Viewed from one perspective, transparency suggested that “every man who is a shareholder becomes to a certain degree his own banker,” as one manager claimed (BPP 1836: IX, q. 567); an assumption that led most early Victorians to support complete shareholder liability for a bank’s losses. 16 Viewed from the banker’s perspective, transparency replaced Smith’s ideal of the natural aristocrat with the opposite ideal of the everyman. The banker, announced Gilbart, need not be a poet or a philosopher, a man of science or of literature, an orator or a statesman. He need not possess any one remarkable quality by which he is distinguished from the rest of mankind. He will possibly be a better banker without any of these distinctions. (1851:12) Representativeness did not, however, stop at putting “average men” in power; especially when political representation was sought, discussion among a diversity of types stood as an additional, if possibly contradictory, goal.17 If the ideal bank director should be so representative as not to stand out in a crowd, the ideal board of directors should be comprised of as many different types of businessmen as local circumstances allowed. Gavin Bell reported in his Philosophy of Joint-Stock Banking that only banks backed by “extended and diversified business and commercial resources” qualified as “public institutions” (1855:103). Like the private bankers they replaced, joint-stock banks were run by directors who combined banking duties with 104

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outside business interests; unlike private bankers, these outside interests would in theory cancel each other out and hence prevent one industry being supported at the expense of others. As Gilbart argued, the “dangerous virtue” (1859:179) of liberal accommodation that had led to so many private bank failures would be contained in a joint-stock bank, where no two directors defined liberality the same way: “As among many persons there is sure to be a difference of opinion on almost every question brought before them, it is certain that no measure will be adopted without having first received a full discussion” (1837a:123). This method of communication had its shortcomings, however, such as the fact that in a system relying on full and open discussion certain things could not be talked about. In the typical voluntary association, this difficulty stemmed from its members’ desire to “get things done” that might otherwise be sidetracked by the religious or political disputes that led to so much factionalism in national politics; more hypocritically, topics might also be left off the agenda to prevent working-class members from subverting a society’s efforts to define the parameters of a “virtuous” person (Morris 1983:112–13). Banks were not immune from this general policy of excluding “controversial” issues from their meetings, as when the Lincoln & Lindsey Banking Company’s promoters claimed in their prospectus that they had “not thought of politics or party in connection with their project” (Crick and Wadsworth 1936:253). But open communication also posed a more specific problem for banks, owing to their voters’ potentially dual role of electors of and competitors with their directors. In private enterprise, competition depended on secrecy. In a public company, success depended on access to information. Hence the tendency, as the Birmingham banker Paul Moon James put it, for shareholders to become “exceedingly jealous of having their private accounts laid before even all the directors, although they elect them” (BPP 1836:IX, q. 849). To address such concerns, companies either departed from the principle of direct representation by stocking their boards with men “out of business,” or enacted rules to prevent directors from examining the customers’ accounts (BPP 1836:IX, qs 1,910, 2,113; Hudson 1986:218, 306–7). The latter alternative undermined the ideal of open communication and prevented directors from doing their jobs. The Manchester District Bank, for instance, despite featuring a full set of local capitalists on its board, was scolded by an investigating committee in 1839 for paying “too great deference…to the out of door prejudice against publicity of accounts” (cited in Jones 1978:106). Testing democracy’s limits: branches, savings banks and the principle of exclusion Partly in response to some of these limits to communication and education, even the most “democratic” bank departed from its participatory ideals at 105

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certain points, in the process defining a common ground with the Smithian principles of banking advocated by people like Joplin. As in the example of James Mill excluding both Indians and women from the category of those immediately capable of self-government, banks excluded people on the basis of both geography and class. Most large joint-stock banks assumed that certain regions were unfit for “independent” banks owing to a lack of financial experience among local traders; in these cases they resorted to a modified version of Joplin’s system of branch banking as a suitable alternative to local participation. Banks also excluded on the basis of class, by defining customers below a certain level of means as better served by the philanthropic services of savings banks than by their own profit-seeking motives. As with the overlapping views of Mill and Macaulay, the common perspectives on branch networks held by joint-stock banks still left much room for dispute. For democratic banks, the Bank of England and its imitators defined the point where branches went beyond any allowable principles of exclusion. The Huddersfield banker Hugh Watt claimed that the newly established Bank branches suffered from “their carrying on business…by fixed rules and regulations devised in London” and were hence no match for regional banks that could respond directly to the needs of local trade (1833:44). The National Provincial provoked similar responses in the course of setting up its branches. When its secretary tried to convince the projectors of the Derby & Derbyshire Banking Company in 1833 to reconstitute as a branch office on the grounds that there were “advantages in a National Banking Company which could not accrue to a purely local establishment,” the smaller bank’s chairman responded by advising “the people at Derby not to be an appendage or auxiliary to any bank” (Derby Mercury, 6 Nov. 1833; Derbyshire Courier, 16 Nov. 1833). A promoter of the Northamptonshire Banking Company similarly declared that his project “had its birthplace in the county of Northampton” and that “no human being in Manchester or Liverpool knew of its existence, until it was advertised in the usual way” (anon. 1836b:14), and the promoters of the Bank of Liverpool hoped to prevent “the further introduction of branch banks, dependent upon the management and control of persons remote from us and having but slight participation in any of the local interests and feeling of the place” (cited in Chandler 1964:I, 252). The colonial discourse that helped clarify the terms of political debate between Whigs and Radicals performed the same clarifying role for bankers. Gilbart concluded a list of the disadvantages of branch banking with the claim that a branch office was “a mere colony” which “may be directed… to adopt measures more adapted to promote the welfare of the whole establishment than to advance the interest of that individual branch” (1837a: 135–7). But his reference to colonies also suggested points of agreement with Joplin about the need for the “virtual representation” of a head office. Just as James Mill fully backed Macaulay’s declaration that India was unfit for 106

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self-rule, most of the larger English banks supported branch networks in cases where “colonies” seemed justified. In rural districts, Wales or Ireland— any place that was “not sufficiently wealthy to furnish capital for a jointstock bank, and where the people have no banking facilities,” in Gilbart’s words (1851:119)—most English bankers declared branches to be fair game. Gilbart’s admission that “numerous branches require a peculiar mode of government, and a rigid system of discipline,” his plea for “experienced and unbiassed inspectors” in such cases, and his conclusion that branch banks “in a small town” would be managed better than similarly situated independent banks all converged with Joplin’s account of a well-run banking network (109).18 In addition to assuming that banks in certain regions lacked the potential for self-rule in the foreseeable future, English joint-stock banks also excluded customers and shareholders on the basis of class. One obvious example also validated their claim to be “democratic”: this was their proud exclusion of the landed and “monied” elites from both their share base and their lending policies. The Northern & Central Bank claimed to have rejected all applications for shares from “ladies who were rich” (BPP 1836: IX, q. 1,568), while the North & South Wales Bank sold only 2 percent of its shares to landowners, who comprised only 5 percent of its proprietary (Anderson and Cottrell 1975:610). If seeking middle-class participation at the expense of “ladies” and landed elites could be defended on democratic grounds, excluding lower ranks was clearly inconsistent with the claim to be bankers for “the people.” Yet joint-stock banks did this from the start, much as voluntary societies hedged their participatory claims by strictly defining terms for inclusion. At an informal level, banks defined such terms every day when they considered whether to accept loan applications. Their methods in such matters closely followed those of the voluntary societies, which welcomed exemplary working-class members with open arms as a means of exhorting less “virtuous” workers to change their behavior. Gavin Bell stated as an axiom that joint-stock banks offered their “favour, indulgence and assistance” to “young men of good morals” and “men of good motives” (1855:103); another bank manager remarked that an advantage of the “liberal system” of English lending was that since individuals “often obtain rank or cast in the town, by the extent of the bank credit they possess” they were all the more “eager to obtain it” (Watt 1836:16). Joint-stock banks established more explicit principles of exclusion in the matter of deposit accounts, by supporting the state’s efforts to create a boundary between “working-class” savings bank depositors and their own “middle-class” customers. In 1817 George Rose, who had founded the popular Provident Institution in Southampton, succeeded in convincing Parliament to require all savings bank trustees to lodge their deposits, up to a maximum of £30 per year, with the National Debt Office at a fixed rate of slightly more than 4.5 percent (Gosden 1973:207–25). The joint107

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stock banks’ position on state-assisted savings banks stood somewhere between Tory encomiums about the savings of the people henceforth being secure “in the strong box of the nation” (Taylor 1825:127) and Radical charges that under Rose’s Act the poor were “COMPELLED to become FUND-HOLDERS” if they wished to receive interest on their deposits (Political Register 77 (1832):174–6). They could afford to treat savings banks with equanimity, since they had nothing to do with the savings in question. Plowing working-class deposits into the funds, in fact, directly benefited jointstock banks by reducing the interest on the national debt, which (as Gilbart observed) induced capitalists “to sell out and to employ their money in trade and commerce” (1837a:253). As he was well aware, not all this surplus capital would be emptied directly into trade; some would first pass through the hands of the bank manager. Banking legislation and administrative reform Seeking a balance between local participation and national coverage, or cordoning off the “industrious classes” into savings banks, were strategies of exclusion that most joint-stock banks shared with little need for debate. When bank formation accelerated in the mid-1830s, however, these shared assumptions were not enough to defuse the public outcry over the “mania” that had allegedly beset English investors. In response to this “mania,” legislators and bankers converged on a further set of practices designed to exclude certain types of shareholders from the constitution of banks, and to reduce the ability of shareholders in general to interfere with bank management. Banks pursued the first of these strategies by increasing the denomination of their shares and by introducing related electoral reforms. They pursued the second by increasing the role of the manager in decisionmaking, inverting the putative relationship between shareholder agency and administration that had originally marked “democratic” joint-stock banking. The state was ready with suggestions for changes in banking policy in part because legislators were facing similar issues of exclusion in their own experience with political and social reform. Debates over reform hinged on forging a consensus about what proportion of “the people” could be educated into becoming voting members of society and how quickly such a learning process would take. The Reform Act, as it eventually appeared in 1832, represented a victory for moderate Whigs like Macaulay, who drew a sharp line between politically mature middle-class men and the rest of the public who were still many generations away from being fit to vote. Macaulay’s reform rhetoric succeeded in part because of its affinity with Malthusian views on prudence and “moral restraint” that pervaded contemporary middle-class culture. He claimed that the majority of “the people,” even if they did know what was in their best interests, did not look beyond their own lifetime; Mill’s ideal voter thought “only of the greatest 108

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number of a single generation.” The Malthusian implication was that most working-class voters would elect representatives who redistributed wealth in their own direction, owing to their habit of placing “the desire for immediate acquisition” over “the fear of remote ill consequences” that would result from such a policy (Macaulay 1875:V, 261–2). The most typical response to such a charge, which John Stuart Mill and other philosophical radicals made in vain, was that political participation would itself be the best means of educating the disenfranchised in the art of citizenship. Had this response exhausted the range of middle-class radicalism, 1832 would have been the end of their faith in perfectibility. But instead of disappearing, the radical impulse to educate “the people” within a single generation was rerouted into social programs which were geared to teach the working classes how to take care of themselves. Instead of learning how to be citizens by participating in national elections, “the people” would become virtuous members of society by taking part in their own social salvation. By acting on the advice of sanitary reports and useful knowledge tracts, workers would co-operate with the educational efforts of the administrative branch of the state. Although in one sense this new reform strategy was consistent with the radicals’ original emphasis on education, it also opened the way to a less democratic form of government by moving the learning process from active political participation to the passive reception of administrative decrees. As often as not, what began as a liberating scenario of self-help ended with state-sanctioned paternalism. With allowances for differences in timing, the politics of joint-stock banking followed a path in the 1830s and 1840s that converged with this trajectory of middle-class radicalism. The banks’ move toward higher share denominations resembled the electoral compromise of 1832; and their administrative reforms took the same path from education to exclusion as many of the middle-class radicals’ social policy experiments. Legislators actively encouraged these new practices. The major components of proposed bank legislation during the mania of 1836, drafted in large part by Henry Clay and the Chancellor of the Exchequer Thomas Spring-Rice, included calls to limit the “property qualification” of bank shareholders, on logic that closely echoed Macaulay’s arguments against Mill; and calls for administrative measures that rested on democratic assumptions but ultimately resulted in less participatory regimes. Even without the added incentive of outside legislative pressure, however, banks were moving toward many of these changes under their own power. Share speculation and property qualification: reaching a political consensus One of the central claims of “democratic” banking when it first appeared had been that their shares were priced low enough to be accessible to a wider 109

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wedge of society than the private partnerships they sought to replace. Of sixty-two reporting banks in 1836, thirty-five issued nominal shares of £25 or less and all but eleven required only £15 or less to be paid up on each share. As contemporaries noted, differences in share denomination were often of strictly symbolic importance, since investors typically purchased either several shares or none at all (Gregory 1936:I, 233). Still, as a pretext for democratic claims (and for finding fault with such claims), share denomination occupied a central place in the debates of the 1830s. Especially when supplemented with the proviso of local participation, many bankers were quick to defend issuing shares as low as £5, as when Thomas Nimmo of the Norwich & Norfolk Bank argued that small shares formed an “advantageous…connection” between a district and its banker (BPP 1836: IX, q. 512). A pamphlet similarly claimed that the “middling classes of traders” constituted “the most ‘respectable’ proprietary,” and argued that for such people “small shares are the most fitted to meet demand, as they cannot invest much money apart from their trade” (anon. 1836a:7). Indeed, the argument from demand was the hardest to refute, at least up through the “mania” of 1837. Even the National Provincial, which prided itself on its high £100 shares upon forming, had to offer £20 shares after 1835 in order to compete with local banks in many of the regions where it was trying to open new branches (BPP 1837:XIV, qs 2,000–3, 2885–91). Critics countered these appeals by claiming that smaller shares would lead to a shortsighted or “uncivilized” electorate, much as Macaulay had assumed that a lower franchise would swamp the electorate with shortsighted voters. “Weak” shareholders might exhibit a lack of foresight in one of two ways: using their status as voting members of the bank to promote a lending policy that would endanger its long-term stability, or buying shares solely in the hope of selling for a higher price at a later date—creating a class of “speculators” who would crowd out permanent investors. Spring-Rice raised the issue of credit when he asked, “[i]n proportion as the shareholders may be more or less weak will not the tendency be that the account will become an account of advance rather than an account of deposit?” (BPP 1836:IX, q. 728). And Clay charged that speculation was a problem in such firms because stock-exchange gamblers “like to have counters to play with that cost no money” (1,028). By 1836, when competition from new banks reached its height, many bankers were ready to agree with the verdict that a higher property qualification should be attached to company votes. The Gloucester County & City Bank, which formed in 1834, promised that its £500 shares (half paid-up) would produce a company of “individuals possessed of property, whose object in joining such a concern will be a safe, profitable, and legitimate investment, and not a precarious medium of speculation”; while the Royal Bank of Liverpool, which formed in 1833 with £1,000 shares, bragged that “[t]he Shareholder in this Bank will be a person of Capital and standing in Business or Society, and will not deem it his 110

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interest to transfer Shares for the sake of a trifling premium, like the small Capitalist” (Gloucestershire Chronicle, 13 Sept. 1834 and 27 Feb. 1836). A less formal way to achieve the same goal, deriving more from the republican tradition of personal vigilance, was for the directors to handpick shareholders from a pool of applicants. In this vein the Liverpool United Trade Bank promised “not to allot any Shares whatever to any Persons who may be considered as applying for them merely on speculative principles” (Liverpool Chronicle, 5 March 1836) and the manager of the Stourbridge & Kidderminster Bank claimed that stability “does not depend so much upon the amount of shares as upon the discretion of the directors who have to allot those shares” (BPP 1836:IX, q. 651). Another solution to shortsighted shareholders was to receive their capital without allowing them to vote—or if allowing them, making their vote less important. It was possible to do this because qualification to vote was not the primary signifier of share capital; if investors could be identified with creditors instead of voters, for instance, there was no reason to assume that their contribution carried any right of participation. With this in mind the Stamford & Spalding Bank provided in its deed that “No female being a Proprietor shall be entitled to vote at any of the General Meetings” (Matthews and Tuke 1926:298). Both the Central Bank of Liverpool and the South Lancashire Banking Company retained a relatively low £10 share denomination but set higher thresholds for voting—£100 in the first case, £50 in the second—and the Liverpool Commercial Bank allowed an investor to use his shares as security for a loan only if he was a “man of property” (Liverpool Chronicle, 14 May 1836 and 5 March 1836; Collins and Hudson 1979:71). Such tactics pleased many legislators and Bank of England directors, who favored preventive measures over simply waiting for a series of bank failures to educate would-be shareholders in the longer term. The Gloucester prospectus, for instance, dropped Lord Althorp’s name as a supporter of large denominations of paid-up shares (Liverpool Chronicle, 27 Feb. 1836), while the Bank’s Birmingham branch convinced the Midland to increase its share denomination from £10 to £50 in exchange for a lower discount rate (Holmes and Green 1986:20–1; Crick and Wadsworth 1936:61). Education and management: reaching an administrative consensus As with the movement away from low share denominations, administrative reform in joint-stock banking proceeded from a combination of outside legislative pressures and market incentives for improved efficiency. In both cases, banks salvaged some of the democratic principles on which many of their constitutions had originally been based, while at the same time depriving their constituents of the power to disrupt business routine. Tensions 111

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between shareholder agency and efficient administration, which had always been a potential problem in democratic banks, came to the fore during the “mania” years when a rash of failures alarmed shareholders in the banks that remained standing. Legislators and bankers converged in hoping to prevent such behavior by improving the publicity of shareholder reports, which they assumed would teach investors how their companies worked and remove the threat of shocking disclosures and violent meetings. An unstated corollary of the new emphasis on publicity was a movement toward streamlined administrative structures that erected barriers between the bank manager and the proprietary. The legislative face of administrative reform first showed itself in Clay’s committee report, which called for improved publicity in shareholder reports and recommended that “vigilance and attention” be “strictly exercised by the Proprietors.” Many bankers joined Clay in supporting the principle of improved publicity. Samuel Bailey, for instance, praised the report itself for revealing “the true principles of Banking, to the instruction of many parties engaged in the trade” and for “gathering statistical facts and illustrating economical principles for the guidance of commercial associations” (Bailey 1837:212–13). Banks responded favorably to this part of Clay’s report because it allowed them to contrast their “public” side with their private competitors whose accounts were completely hidden from view, and to blame the 1837 crisis on the correctable problem of shareholder ignorance instead of on more systemic flaws. The Committee’s remark that the joint-stock bankers’ “readiness to meet inquiry is in itself the surest pledge and guarantee of the sound principles on which these…Establishments are conducted” quickly made the rounds in subsequent pamphlets defending the banks (BPP 1836:IX, v). Such appeals to publicity pointed to an important convergence between the bankers’ “democratic” assumption that shareholders could learn from their mistakes and their critics’ efforts to interpret the mania in Malthusian terms. Both views started from the premise that banks failed when their proprietors were imperfectly informed about the long-term consequences of their actions. And the crisis of 1837 had convinced at least some bankers that the previous decade’s permissive legislation had not sufficiently guaranteed that all shareholders could acquire the requisite information to act as “their own bankers.” In granting their support to Clay, however, bankers moved away from the core democratic claim that constituents learned by participating in the political process, and not simply by passively receiving wisdom from their elected officials. An apparently neutral appeal to state-assisted publicity obscured the fact that they were calling for an outside agency to direct shareholders’ attention to certain features of banking that were assumed to be in their long-term interest. Just as Chadwick’s claim that a state-funded registry of vital statistics would direct “the mind of the Government and of the people to the extent and effects of calamities and 112

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casualties” (cited in Finer 1952:154) would soon shade into more interventionist public health reforms, bankers like Bailey reasoned from the collection of financial statistics to the surveillance and correction of the “weak banks” in their midst. As will be discussed in the next chapter, joint-stock banks were able to effect this departure from participatory politics more easily by passing much of the burden of antidemocratic administrative policy onto bill-brokers and the Bank of England. But the events of the mid-1830s also led to changes in the internal politics of joint-stock banks, particularly as they affected the role of the general manager. The “objective” expertise of bank managers, which had from the start stood in tension with the principles of direct representation, openly came into conflict with ideas of democratic banking after the 1830s. Hence Gilbart, who originally intended his Practical Treatise on Banking as a modest salvo in the service of banking reform, modified the identity of the manager in later editions to correspond with his own increasingly autocratic position at the London & Westminster. By 1851 he was recommending his Treatise and other “books on banking” to directors “who may have been appointed chiefly on account of their high character and local influence” as opposed to their business sense (viii); and contrasting his neutral perspective as a manager with that of elected officials whose tendency “to gratify…the feelings of the shareholders” had led them to “become too giddy for reflection, and recklessly engage in a course of action that ends in ruin” (123). Ultimately, such managers were forced to admit that their advice on the working of joint-stock banks had moved a great distance from the democratic principles they had originally embraced. “The constitution of joint-stock banks appears theoretically absurd,” concluded Gilbart in 1859, since it placed managers “under the command of a board of directors, whose knowledge and experience are supposed to be inferior to his own,” and since the directors in turn were “placed under the control and instruction” of even less knowledgeable shareholders. To defend the system in which he had invested so much prior rhetorical effort, he had to make the tortured argument that “[p]ractically…the system works well” only when its underlying democratic principles were ignored: “when an attempt is made to carry out the theory, the effects are injurious; and some jointstock banks have fallen into danger through the operations being too much regulated by the proceedings of the proprietors” (1859:228). These admissions were all the more significant because the competing practice of virtual representation had never fully disappeared from English banking. The Royal Bank of Liverpool, for instance, defended its highpriced shares by referring to the £1,000 shares issued by the British Linen Company and the National Bank of Scotland (Liverpool Chronicle, 20 Feb. 1836). Joseph Macardy, who had established the Manchester District Bank in 1828 on the Scottish model only to see it pass into more democratic hands within a few years, similarly had the last laugh in the wake of the 113

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mania of 1836. “By the adoption of my plan, in 1828,” he taunted in 1840, “the ‘degradation of our Joint-stock Banks’ ” would have been averted; “the stringent principles, and sound practice, of the OLD EDINBURGH BANKS” would have substituted “a placid mind for wild excitement—and a business routine for adventurous projects” (140–5; see Jones 1975). As these appeals to Scotland suggest, many onlookers in the 1840s took Gilbart’s opinion that democratic banking was “theoretically absurd” to mean that it was also irrelevant to the needs of commerce in early-Victorian England. Instead of continuing to pursue the contrary aims of virtual representation in practice and direct representation in theory, as Gilbart and many other joint-stock bankers would do for another generation, outsiders like Robert Peel reached back to Adam Smith to find a theory that corresponded more closely to the new practice. This was the real significance of Peel’s Joint Stock Bank Act of 1844, which accompanied his more famous Bank Charter Act and played a major role in nudging banks away from their democratic origins. The Act extended to newly forming banks most of the antidemocratic prescriptions that had been mooted in Clays committee, including a minimum paid-up capital of £50,000, a minimum share price of £100, a ban on the practice of lending on the security of shares, and a requirement that banks issue monthly statements of their assets and liabilities (Collins 1988:72–3). If the point of Peel’s Act was to inject English finance with Smithian principles of virtual representation, it succeeded—but not by creating a new breed of “Scottish” banks. In fact, the immediate consequence of the Act was to impose obstacles to bank formation, nearly putting a stop to new banks between 1844 and its repeal in 1857. Of the ten banks that did form under the Act during that time, the only one to rise to prominence was the ill-fated Royal British Bank, which formed on expressly “Scottish” principles in 1850 only to fail scandalously six years later (Toft 1970). Instead, the secret of the Act’s success lay in the effects this sudden absence of new banks had on the banks that had already formed prior to 1844. Relieved of the need to compete with new schemes, and capable by that time of withstanding any remaining competition from private bankers, joint-stock banks could dispense with much of the democratic rhetoric that had performed such a useful political function in their early days. Any contradictions between their principles and practice after 1837 were less glaring than they might have been in a more competitive market. Bank managers hence welcomed Peel’s Act as an unmixed blessing. Gavin Bell claimed that the Act had afforded “some guarantee that all future banks will be formed upon a safe principle, and be placed under more efficient control” (1855:128–9), while Gilbart praised the Act for preserving existing joint-stock banks “from conflicts with reckless competitors” (1845:16). When Peel imposed similar restrictions on bank formations in Ireland a year later, Gilbart’s response displayed the same frustrating sense of paradox that marked his more general analysis of bank 114

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administration at the time. The Irish Bank Act was “a violation of a sound general principle,” he concluded, “yet…one of those practical enactments which seem to show that, in political economy, some of its general principles…admit occasionally of beneficial exceptions” (1852:324). This conclusion reserved for a later generation of bankers the task of resolving any contradictions between theory and practice that Gilbart’s democratic origins had forbidden him from tackling.

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5 SHIFTING GEARS The rise of deposit banking, 1844–80

From their middle-class democratic origins in the 1830s, English joint-stock banks would enter the twentieth century representing far more people in far less democratic a fashion. Instead of encouraging an overlap among middle-class depositors, shareholders, and borrowers, many banks by 1880 were catering to a vast new depositing public. In place of the earlier system of “taxation with representation,” more banks were collecting interest (if only indirectly) from people who were not even British, let alone local borrowers. Just as their move into foreign loans replaced their earlier customers with a less politically influential public, the growth of deposits after mid-century reduced their creditors’ ability to demand direct representation. This political turnabout was more subtle and less complete than parallel developments in loan finance, and consequently has never been summed up in memorable phrases like Peter Mathias’s verdict that by 1900 “the City…had its back turned to industry” (1969:352–3). But in many ways the banks’ new relation to their creditors was more important, and requires less qualification, than their more famous about-face with regard to British industry. Since the latter story has been told (and qualified) so often, the primary focus of the next two chapters will be on the politics of British bank deposits, although reference will be made to the parallel “imperial” narrative where these two developments crossed paths. The political logic of domestic deposits was more subtle than in the case of the export of capital because it accompanied a transition that was at the time usually assumed to be inevitable, and hence unconnected to political contingency: the move from a credit system mainly consisting of circulating private bank notes to one relying on a mixture of notes, checks, and commercial bills.1 Under the old system, the first noteholders were always net debtors to the bank, since banks created new issues in the form of loans. Later noteholders were, at least potentially, net creditors to the bank—but not necessarily of their own free will, since their only choice was often between accepting its paper or losing out on wages or sales. Under the new system, banks issued notes strictly to fulfill the “small change” requirements 116

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of a region, not to initiate loans. Loans were increasingly signified by ledger transactions, whereby one account was debited and another credited with no cash changing hands. The banks could move to this system only once they had created a new class of creditors who received a variable rate of interest for their deposits. Financially, the rise of deposit banking created the “debit” side of the ledger that allowed banks to extend credit without issuing notes. Politically, the new system transformed the identity of the bank’s creditors from possibly involuntary holders of a third party’s promissory notes to willing depositors. The move away from “democratic” banking was also less complete for bank deposits than for foreign loans. One reason for this was that deposits did not create the same degree of separation between borrower and lender accomplished by foreign loans. In seeking relief from a British bank’s lending policies, Argentine or American debtors had less access to Parliament and the press than their British counterparts. Depositors, in contrast, were likely to live within a few miles of their bank, and could hence exert more pressure for a higher return on their savings. Banks tried to solve this problem by replicating their “imperial” loan policy in the domestic arena, expanding the space between which deposits were received and rules were determined. In the 1840s they achieved this distance with help from bill-brokers and Bank of England directors, whose outside rates prevented local banks from giving in to their depositors’ desires. Within two decades, though, the inland bill system started to outlive its usefulness. When competition between the Bank and the brokers led to a succession of debilitating crises, joint-stock banks started to pursue more direct methods of dealing with deposits that would eventually produce a small number of huge national branch networks after 1900. Another problem confronting banks after 1850 was that the imbalance of power between creditors and debtors, which financiers used to their advantage when lending money abroad, was reversed when they borrowed funds from depositors. It is true that much of the depositors’ power in this regard was diminished by their wide diffusion; the whole business of deposit banking, in fact, was based on the assumption that only a few people would call in their debts at any one time. But depositors had one advantage which the banks themselves did not possess with regard to their debtors, which was that they could, in most cases, withdraw all their savings on demand.2 If too many people acted on this option all at once, the result would be as dangerous as any run on bank notes. Banks tried to counter this threat by doing all they could to bolster their image as trustworthy “public institutions” that were as unlikely to endanger the security of their deposits as the state was to default on the national debt. George Rae’s message to branch managers in his popular textbook The Country Banker was hence quickly retailed to their customers: “Be less anxious for your dividend than solicitous about your financial safety” (1886:313). 117

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The precise nature of the banks’ promise of safety reinforced their departure from earlier democratic principles. Historically, they had guaranteed the security of their notes or deposits by appealing to the full liability of their shareholders for any bad loans. This appeal had been possible because there were enough shareholders who identified their property with their bank’s democratic constitution, and it had been necessary because relatively few depositors and noteholders in the early days of English joint-stock banking shared those shareholders’ political perspective. By the 1870s, and especially after the failure of two major banks in 1878, bank shareholders stopped being so willing to pledge all their property to institutions over which they had little control. But by this point depositors no longer needed the assurance of full shareholder liability to keep their savings lodged with banks—as the banks discovered to their relief in the 1880s, when most of them switched to limited liability without any permanent effect on the continuing rise in aggregate deposits. In place of shareholder liability, most banks by then could offer their depositors a long history of regularly paid interest, at higher rates and with easier access than comparably secure investment outlets. Once the conversion to limited liability had been successfully pulled off, banks finally achieved an effective harmony of interests between shareholders and depositors. As long as they maintained the trust of both these parties, high share prices and healthy interest rates consistently reinforced each other. Propping up shareholder confidence was easy under limited liability. The depositors’ confidence, on the other hand, needed to be secured by means that were more shrewd, at times bordering on deceptive. To some extent this strategy extended to other banks Walter Bagehot’s idea that the Bank of England should maintain commercial calm by manipulating its customers’ more “superstitious” side. One important strategy in this regard was to restrict the pool of bank depositors to those who were assumed to demonstrate sufficiently “civilized” behavior. This strategy, however, was only possible when banks managed to restrain competition among themselves for new deposits; otherwise aggressive banks would always be dipping into a class of depositors that was alleged to be overly prone to panic. After democracy: banks, bills, and crisis, 1844–66 The commercial and legislative pressures that led banks to depart from their prior practice of subscriber democracy have been discussed in the previous chapter; how they sustained their new politics after 1880 will be discussed in Chapter 6. In this section a preliminary question will be addressed: how did banks depart from “democratic” finance without alienating their original middle-class constituents? One answer is that they went through a period roughly lasting between 1844 and 1866 when they relied on brokerage firms and the Bank of England to act as buffers between their prior principles 118

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and their increasingly “imperial” practice. Although this strategy had its benefits, it came with the disadvantage of making banks dependent on third parties who, in their competitive pursuit of increased financial efficiency, were not always able to preserve stability. Bill-discounters and the Bank became so good at reducing the supply of unused capital in the 1850s that commercial banks periodically paid much more for their cash than they ever had before, a burden they inevitably passed on to their middle-class borrowers. Once competing brokers had taken on all that loan capital, though, and as long as they could find people willing to borrow at the higher rates, it was in their individual interest to keep up the pressure even after financial experts predicted it would result in crisis. In fact the result was not one crisis, but three: first in 1847, after the Bank and bill-brokers vied for business in the preceding “railway mania”; then in 1857, when a crash in the American bill market brought down English firms that had inflated domestic interest by lending on risky securities abroad; and finally in 1866, when the giant brokerage firm of Overend Gurney failed after lending profusely to British railway contractors. These crises provoked a variety of responses from financiers. Most brokers, along with the currency school, treated bills as a “natural” innovation that was responsible for more good than evil. Others in the City followed the teachings of the banking school, which praised the bill system’s efficiency but worried that it had grown too competitive. Their solution was to endow the Bank of England with special powers to regulate the bill market. Neither of these views sat well with jointstock bankers, who resisted the idea that instability was inevitable and who refused to defer to a discretionary central bank. In confronting crises, banks constructed a new politics that did not depend on the deus ex machina of bill-brokers or the Bank. Their solution, after several false starts, was to move the machinery of the bill system into the banks themselves: first by transforming the London Bankers’ Clearing House into a more inclusive agency for canceling checks, hence encouraging banks to lend directly to their customers; then by building up national branch networks, which reproduced the collective functions of the Clearing House in individual companies. “Perfect machinery”: the rhetoric of the inland bill system It is a commonplace of monetary history that inland bills of exchange replaced bank notes as the dominant form of currency in England some time around 1850. Instead of issuing paper to their customers as loans and subtracting for interest and fees, banks increasingly devoted their energy to collecting deposits which they handed over to outside brokers, who in turn passed them on to banks in other regions. As Walter Bagehot pronounced in 1857, bank notes were “not economised, but superseded” by the new system of inland bills (1965–86:IX, 334). Historians tend to view this change as part of a larger 119

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transition in English trade from an aggregate of regional markets to a single national network. Bills allowed merchants to buy goods from other parts of England, but since they were payable in three to six months they allowed ample time to accommodate any persisting miscalculations in supply and demand. According to this account, inland bills lost their central role in the money market once better forms of communication allowed traders to close transactions in a few days or less, either by writing a check or transferring funds by telegraph (Nishimura 1971).3 In treating the rise and fall of bills as preordained by economic forces, such accounts reinscribe the interpretation of the system that was provided by its nineteenth-century apologists, and consequently neglect the important cultural work that bills performed in the 1850s. In other words, they assume something that needs to be explained: why were joint-stock banks so willing to participate in a system that would have struck many of them as politically distasteful and economically unsound only two decades earlier? From this angle, it soon becomes apparent that banks were attracted to the bill system because it allowed them to move away from their earlier democratic claims, while passing along much of the expense, unpopularity, and risk of that departure on to a third party. By specializing in hooking up depositors with lenders, bill-brokers promised to absorb the expense that would otherwise result from banks trying to set up national branch networks on their own. They also absorbed the unpopularity that banks might otherwise have encountered had they departed from “democratic” banking on their own. Finally, the brokers’ national network promised to absorb risk, diminishing the impact of a “run” in any single region by multiplying the regions that were represented within the system. All these qualities of the bill system, and of the brokers who ran it, allowed banks the further luxury of identifying their new reliance on bills with the faith, which so many of their customers shared, in the emancipatory potential of machinery. The insurance secretary and future bank manager William Newmarch echoed many financiers in 1851 when he praised “this perfect machinery of credit…which regulates the distribution and modifies the influence of the bill currency” (1851:160, 165–6). Much as the railway had transformed transportation by harnessing carriages to moving steam engines, bills were likened to “the motive power of the currency—that which alone gives it movement” (BM 13 (1853):673). Like the railway, they promised to collapse time and space in the course of turning England into a single integrated market. “The invention of discounting bills,” claimed the economist H.D.MacLeod, was “the most ingenious method ever devised for accelerating production” (1855–6: II, 412); owing to this quickened interchange, the money market was “fast becoming an extended London” (Economist 18 (I860):894). If the bill system was a sterling example of financial machinery, the discounters who kept the machine in motion received the same respect 120

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accorded to early-Victorian entrepreneurs. Like the figure of the entrepreneur, as depicted by such apologists as William Nassau Senior, the bill-broker displayed special knowledge of his trade, a willingness to absorb risk, and the financial resources to keep the system running.4 Bill-discounting was not in itself new in 1850; brokers like Thomas Richardson had been performing this role since the beginning of the century (Black 1989). What had changed, in the eyes of many contemporaries, was the moral function of the discounter. Like the entrepreneur the broker was celebrated, and his dominance justified, on the grounds that he possessed special knowledge of the money market. Bill-brokers, claimed the Economist, acted as “the tasters for the entire community” by discriminating “on behalf of the public, good mercantile securities from bad” (18 (I860): 1,034); Newmarch praised their “great skill and circumspection” (1851:165). As the reference to “tasting” suggests, brokers were also valued for bearing other peoples’ risk. Unlike the assumption of special skill, risk-bearing was a new development among billbrokers, who originally had acted strictly as agents for debtors and only started covering bad debts after the 1840s. Bagehot pointed out in Lombard Street that the broker’s financial guarantee had evolved directly out of his prior role as trusted agent: “It was certain that the bill-broker, being supposed to understand bills well, would be asked by the lenders to evince his reliance on the bills he offered by giving a guarantee for them” (1965–86:IX, 194). Like good entrepreneurs, most brokers offered this guarantee in the form of their personal wealth, although Overend Gurney extended its personal security on over £7 million in deposits to the share market when it went public in 1865 (Shannon 1932:416–17). As the chief buyers and sellers of inland bills, joint-stock banks gained from their participation in the resulting national money market without appearing to be directly responsible for its operations. To illustrate the impact of bills on banking, Newmarch took the hypothetical case of a banker in Lincoln who had more cash in his vaults than he could profitably lend to local customers, but who realized that his surplus capital could find a high rate in a manufacturing district. At this stage the London broker entered the picture as a convenient go-between, borrowing money from the Lincoln banker and lending it to the Manchester house at a margin: “the wants of these different parts of the country” were thereby “easily, completely, and profitably satisfied…[b]y a very simple, but very perfect, arrangement” (1851:160–5). By celebrating the system as “very perfect,” banks could depict themselves as agents of progress, much as cotton bosses had located their use of spinning jennies in a larger celebration of material growth. The Economist, for instance, opposed those “rigid theorists” who “say a bank should employ the money left with it by depositors, and be content with that” (25 (1867):553). As in other celebrations of the progress of machinery, assertions of the inevitability of the national bill network accompanied an erasure of the system 121

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it replaced, in this case the loose network of regional note-issue. Regionally circulating notes had been integral to the “voluntary society” model of the bank, which had assumed an overlap between borrowers and voting shareholders. Under the old system “those who were the lenders at one time were the borrowers at another” (Economist 16 (1858):55): this was the essence of a circulatory system in which roughly the same number of note-holders were always demanding payment as there were borrowers accepting the paper as a sign of the bank’s credit. In contrast to locally circulating bank notes, bank deposits presented the less tangible quality of book credit, which could be just as easily lent across the country as across town.5 In strictly financial terms, it made little difference whether banks attracted creditors by creating notes payable on demand or by paying interest on deposits that were available on call. In both cases the bank needed to be a net creditor to make money, either by avoiding an inflationary issue of notes or by lending deposits out at a higher rate than it paid for them. In terms of the political identity of the bank’s customers, however, the difference between the two systems was crucial. Debtors and creditors in the latter case were not only distinct individuals (as in the former), they were also wholly different classes of people. Agricultural banks were deeply indebted to their depositors, who had the right to demand their savings at any time. The position in industrial districts was reversed: the local customers were indebted to the bank, which in turn owed money to the City. “What the bankers were in each district,” concluded the Economist in 1858, “the bill-brokers or money dealers in London became to the bankers themselves” (16:55). By sending out for bill-brokers to perform banking duties for them, jointstock banks could offer their customers all the advantages of a more efficient system without appearing to be directly responsible for any temporary inconveniences it might produce. In turning ordinary loans into marketable securities, bill-brokers offered banks a type of “near-cash asset” that paid interest but could still be recalled to meet sudden demands (Collins 1988:106)—just as the banks themselves had created an attractive asset when they offered their depositors interest-bearing accounts that were payable on demand. This was a clear gain over direct fixed-term loans, which could not be passed along to another party whenever a bank was short of funds. On the other hand, when loan requests were not deemed to be “legitimate,” a bank manager could call on the outside broker’s “special knowledge” to confirm his suspicions and thereby make it harder for wouldbe borrowers to cry foul. Nor, since most banks went through the same “first-class” billbrokers, could spurned borrowers simply take their business elsewhere. The Bankers’ Magazine pointed to this advantage in claiming that under the bill system, “directors are free from friendly obligations, and can decide on their advances on business principles alone, and not from prejudice or favor” (5 (1846):141). Such gains, however, assumed that the bill-broker, in his capacity as distant financial expert, was not himself prone to the same 122

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market forces and “democratic” pressures that made banks so happy to defer to him. When this assumption was dramatically refuted by the succession of crises between 1847 and 1866, banks would need to find a new method for privileging “business principles” over “prejudice or favor” in the British money market. Competition, crisis, and the remaking of “public” joint-stock banks The enduring paradox of the Victorian entrepreneur was that he personified both the rigid discipline of the machine and the warm passion of ruthless competition (Weiner 1993). The same paradox haunted City bill-discounters, whose powers to discriminate between “first class” and “accommodation” bills were often undermined by their strenuous efforts to collect interest on every deposit that came their way. In the competitive brokerage market that emerged by the 1850s, discounters needed to choose between subsidizing the dead weight of a cash reserve by lending on riskier securities, or keeping rates down and operating “on a difference exceedingly narrow,” as Bagehot observed in 1873 (1965–86:IX, 195). Which of these options brokers pursued depended on the state of the money market, but in either case they could only maintain liquidity by rediscounting a large volume of their bills at the Bank of England. Hence the brokers, on whom so many banks and bank customers depended for liquid assets and stable rates, were themselves “dependent money dealers” (195). What they depended on, in effect, was the sort of public-spirited central banking policy that Bagehot urged throughout the heyday of the inland bill system. Had the Bank consistently valued commercial stability over its own private interests, brokers need not have faced up to the contradictions between their own “public” impulse to provide banks with smooth-running financial machinery and their competitive urge to provide more loans at lower rates. Unfortunately for the brokers and their provincial clients, a discretionary central bank was exactly what the English money market lacked in the mid nineteenth century. Far from stabilizing the system, the Bank entered the 1850s as a leading competitor in the bill market. It played the same game of outbidding its competition by offering low-interest loans, with the only difference being that it had no outside reserve to lean on in case the loans fell due all at once. As discussed in Chapter 3, this situation had been the desired outcome of Peels Bank Charter Act, which by creating a separate Banking Department had prevented the Bank from subsidizing a regulatory lending policy by reaching into its profits on note-issue. With most of its cash earning no interest in the new Issue Department, the Bank had no choice but to follow the brokers’ example of making riskier loans in order to pay dividends on its share capital. The weakness of this system became apparent during times of crisis, when brokers faced the unpleasant prospect of trying 123

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to borrow from the Bank in order to liquidate their customers’ bills. “The discount-houses are the great rivals of the Bank,” as the journalist R.H.Patterson observed; “and the Bank is seldom loth to see one of these rival establishments brought to the ground” (1865:141–2). This sense of strife first flared up in 1857, when the Bank dragged its heels before finally lending the brokers more than £9 million to see them through; its delay worsened the pressure and was a source of lasting animosity. After 1857 the brokers took every opportunity to challenge the Bank’s status as a public body able to preserve commercial stability. In I860, upon deciding to start holding £2 million in their own reserves, they made a point to invest these funds in Consols instead of depositing them with the Bank, in effect holding themselves out as competing public lenders and, with their new reserve, as lenders of last resort to traders. This move alarmed both the Bank itself and advocates of central banking, who worried that two major reserves would dilute responsibility during crises. As Chancellor of the Exchequer, William Gladstone bowed to the resulting political pressure and persuaded the brokers to transfer their reserve to the Bank, although not without delivering a stern warning to its directors about acting less selfishly in the future. Far from learning its lesson, the Bank got its revenge on the brokers five years later when Overend Gurney, now a limited company, found itself stuck with over £5 million in long-term securities it could not unload. Instead of taking the securities off its hands, the Bank kept its discount rate at 7 percent for six months until the company failed in May 1866, then lowered the rate to save what remained of the British financial system (De Cecco 1974:79–82; Roberts 1995:157–9). The problem of competition between the leading bill-discounters provoked a variety of responses. Provincial traders either took it as a sign that industry should declare its independence from City credit or wrote it off as a necessary evil of progress. The first response, and its limited effectiveness, will be discussed below. The second response was mainly offered by older-generation capitalists who had already made their fortune and were able to ride out credit crises unscathed, and was shared by many in the City. As the broker George Goschen concluded in 1864, the pressure had “arisen, not out of artificial and abnormal, but normal and natural causes” (1905:16); he preached deference to those “living close to our banking centre” (13). This diagnosis stood in stark contrast to Bagehot’s warning in Lombard Street that “[w]e must not think…we are living in a natural state when we are really living in an artificial one.” As for deference to brokers like Goschen, Bagehot was dubious at best. Based on the example of Overend Gurney, he wrote, “one would think a child who had lent money in the City of London would have lent it better” (1965–86:IX, 57). What such childish brokers needed, he concluded, as well as the banks which depended on them, was a strong, paternal Bank of England to turn to in times of crisis. English joint-stock banks refused to greet the swings in credit between 124

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1845 and 1870 with Goschen’s stoic indifference, nor were they willing to entrust their fate to a discretionary Bank of England. Instead they presented themselves as public institutions that could restore stability to commercial credit by acting together for the good of their customers. Some persisted in the regional identity of customers embodied in the system of privately issued notes; these bankers combined for the strictly negative purpose of abolishing the concentration of financial power in the City, to be replaced by a decentralized system of “free banking.” Others redefined their constituency to accompany the mid-century explosion in bank deposits and the declining relevance of bank notes. These bankers, although not always above simultaneously persisting in the popular rhetoric of free banking, focused most of their efforts on developing a centralized mechanism for clearing checks that lay outside the purview of the bill-brokers. The free banking agenda, as articulated by its leading spokesman J.W. Gilbart, opposed the concentration of credit in the City by appealing to the “natural” laws of regional note circulation which were “not capricious or accidental, but…determined by the recurrence of the seasons and the state of trade in their respective districts” (1859:460). This argument worked as a diagnosis of the problem on several levels: loss of local autonomy had indeed resulted in a system that affected credit on a national scale whenever it broke down, and appeals to natural laws highlighted the increased volatility of trade under the “machinery” of the bill system. But owing to the bankers’ own complicity in that system, this diagnosis failed to produce realistic solutions. Reverting to the earlier system of regional note-issue would have required agricultural banks to curtail their deposits drastically, while leaving banks in industrial regions with a severe shortage of available credit. Ultimately, the free banking program only succeeded as a way to make easy points with customers who were frustrated at the City’s mismanagement of the money market. When a Bankers’ Magazine writer in 1845 contrasted the “good source” of credit provided by “public notes” with the “bad source” provided by “private bills” (3:143) or when his editor referred to accommodation bills as “the pests of commercial dealings” (Dalton 1843:20), they provided little more than a quick rhetorical fix for a serious crisis in the politics of joint-stock banking. A longer-term solution to this crisis needed to come to grips with the fact that joint-stock banks had, through the agency of the Bank and the billbrokers, moved a great distance from their democratic note-issuing origins in the 1830s. A more realistic alternative to the inland bill network was Thomas Joplin’s system of large-scale branch banking, which in theory at least could have taken on many of the functions that were being performed so unsatisfactorily by brokers and the Bank. The fate of that system, however, at least in the short term, had been sealed in the late 1830s by the failure of two of the three largest branch networks in England, the Commercial Bank and the Northern & Central. Although the National Provincial 125

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continued to prosper, its success was not enough to convince bankers to depart from their primarily regional identity. The rise of the bill system, by allowing them to retain that identity without sacrificing access to national financial services, had reinforced their sense that regional banking was adequate for England’s needs. When the bill system created problems of its own, the very fact that it had kept banks locked into a regional system left them unprepared to tackle the administrative challenge of extensive branches with any hope of immediate success. Instead, joint-stock banks responded to the weaknesses in the bill market by blaming its power structure rather than questioning the system itself. By forcing their way into the London Bankers’ Clearing House, which had been founded by private bankers in the eighteenth century, they hoped to salvage the salient features of the inland bill system while shedding the dependent relations that had been fostered by the brokers and the Bank of England. The Clearing House operated by allowing member banks to cancel a large volume of each others’ checks at a single time and place, instead of remitting funds separately every time one bank cashed another’s check. The obvious advantage of such a system was that it allowed banks to exchange only the difference owed on a much larger volume of transactions. In this way it acted as a “head office” for member banks just as the bill-broker had once done without recreating the dependent relations fostered by the bill system. In contrast to the aloof discount houses, joint-stock bankers viewed the Clearing House as a sort of parliament where delegates from different banks could periodically meet to monitor the general state of the money market as they canceled each others’ checks. However plausible this vision might have been, they still had to convince the City private bankers to accept it. The difficulty of this task was clear from the London & Westminster’s first attempt to gain access to the Clearing House in 1834, which met with the clearing bankers’ abrupt reassertion of their original self-definition as “altogether a private arrangement for the personal convenience of the bankers” (Gregory 1936:I, 168). Joint-stock bankers responded by idealizing the Clearing House as a public institution that represented “the people,” the immediate realization of which was only prevented by the obstinacy of the London private bankers. Gilbart argued that the Clearing was “for all practical purposes a public institution” (1851:282) and the Bankers’ Magazine claimed that “the important public benefits of the Clearing House” should be extended to “the Joint Stock Banks of London, which as public institutions are entitled to have these advantages placed within their reach” (2 (1844):82). Finally, after threatening to pull all their deposits from the Clearing banks en masse, the six joint-stock banks in London gained access in 1854 (Gregory 1936:I, 167–74). While they had been excluded from the Clearing, bankers like Gilbart could rail against it in the same anti-monopolistic vein that fueled their concurrent defense of “free banking.” Once they achieved their goal of 126

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inclusion, however, such rhetoric took a back seat to the task of creating a less competitive environment for the regulation of credit. Like the generation of middle-class reformers who entered Parliament in 1832 only to lead the fight against further reform a generation later, London joint-stock banks in the 1860s often took care to restrict entry to the “public” institution they had so recently joined. Within a decade of 1854, the question of exclusion came to the fore when the Clearing received membership applications from two recently formed banks, the Alliance and the Agra & United. It accepted the Alliance, which had been the product of a merger of several leading private bankers, but not the Agra, a colonial house (Economist 21 (1863): 676). As they had done with the bill-brokers, jointstock bankers could sometimes blame such “private” vestiges at the Clearing House on its original members, as when they protested their exclusion, as late as 1865, from its executive committee (BM 25:1260). But such infighting was the exception in the 1860s and 1870s, when the Clearing House came to signify a new power-sharing relationship among the elite joint-stock and private banks in London. More apt than the analogy to a reformed Parliament of bankers was one financier’s description of the Clearing in 1884 as “a huge co-operative society for facilitating the settlement of each other’s transactions by the creation of fresh debts” (Dick 1884:317). Only when it was convenient for their own needs did the clearing banks actively extend that sense of co-operation to the wider public. Replacing banks: credit and company reform While journalists and bankers in the City were arguing about the best way to work the new machinery that had developed along with commercial credit, industrialists and their political spokesmen looked for ways to restore to their credit transactions the ideal of self-government that had once been the trademark of English joint-stock banks. A solution many of them fixed on was company reform, the most tangible product of which was Robert Lowe’s Companies Act of 1856. A leading argument in favor of the law, which extended the option of limited liability to all firms with more than six partners, was that it would encourage companies to get their capital directly from shareholders instead of from creditors, which in turn would preserve enterprise from the frequent swings in interest rates that oppressed the British economy.6 By increasing the value and security of company shares, traders argued, general limited liability would divert deposits from banks into self-reliant firms, which would be able to avoid paying all the commissions that came from discounting bills. Company reform would bring about “a greater number of joint stock associations, each trading exclusively, or nearly so, on their paid-up capital,” as a Liverpool merchant testified (BPP 1854:XXVII, 219). In terms of the jointstock banks’ changing administrative strategies, the company reform 127

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movement was an unmixed (if unintended) blessing, since it absorbed energy that traders might otherwise have spent trying to hold banks to their original political claims. In the 1850s, many traders were too busy setting their sights on a world without credit to pay much attention to the bankers’ own efforts during that time to achieve a more conservative lending policy. The consequence was that when general limited liability failed to take off as a leading principle of late-Victorian business organization, traders returned to banks only to discover that the rules of the lending game had significantly altered in the interim. Imagining life without banks was no small departure for a class of people who had staked so much of their status and capital on the principle of “democratic” banking a generation earlier. In pursuing company reform, traders hinted at what had been an almost unconscious drift among banks toward catering to a new public composed mainly of depositors and fellow financiers, as opposed to noteholders and borrowers. When opponents of limited liability argued that “the public must be protected,” observed the bankruptcy judge Cecil Fane, “the word ‘public’ [was] used for ‘creditors’ (1845:3). Such critics refused to accept the City’s claim that the inland bill system, or a similarly centralized alternative, was an inevitable feature of economic progress. Concealed beneath this veneer of progress, they argued, lay a vicious cycle of dependence on outside credit. The Scottish merchant Richard Miller faulted unlimited liability for increasing “the amount of capital thrown into the hands of both public and private banks” which led them “to afford undue facilities for the creation of unwholesome competition” (BPP 1854:XXVII, 185). A banker lending to unlimited firms during times of monetary pressure posed the reverse problem of demanding “the full rate of interest, whether the year be good or bad, besides imposing the severest terms in his other relations with the concern,” according to another critic; the debts of a limited company, in contrast, would “not press so severely in periods of pressure” (anon. 1848:82). From this starting point, company reformers envisioned more general circles of financial self-sufficiency that extended outward from small firms to the wider commercial community. Like earlier “republican” critics of the national debt, they welcomed the prospect of small firms trading on their own capital, even if it meant that national interest rates would rise as a result (see Warner 1854:40–2). At least when presented in this form, though, their defense of a stable high interest rate generated enough opposition to suggest that the banks had been successful in claiming that Britain had indeed become a nation of creditors. Since credit was “one of the elements of the power and greatness of this country,” claimed the Liverpool shipping magnate William Brown in opposing a competitor’s application for limited liability, “anything that impaired it in the least was a positive injury to the State” (Hansard 123 (1852):1,073). The perception was gaining ground that British commerce was founded on its bank deposits, as indicated by a 128

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reference in The Times to Britain’s perennially low interest rate as evidence of its strong “creditor account in the great bank of the world” (29 Oct. 1847).7 More concretely, concerns to protect the British bank depositor forced Lowe to wait two years before extending the privilege of limited liability to banks, and prevented most existing banks from taking advantage of the new law for another twenty years after that. Partly because of the strong hold credit had achieved over Britain’s commercial relations, the facts of life under general limited liability did not always correspond to its proponents’ visions. For one thing, the companies which most often took advantage of the new law in the first decade after its enactment were credit-giving firms like Overend Gurney, as opposed to the credit-averse companies the reformers had envisioned. Even many limited firms that did not actively enlarge the stock of credit added to the City’s power, by creating high margins of uncalled share capital to provide maximum security for banks. An astute creditor could pick out companies in which the liability of shareholders, though “limited,” in fact extended quite far (Jefferys 1946:49; Hawes 1866:24). The failure of Overend Gurney was a case in point: upon going public the firm promised that no more than £15 would ever be called up on their £50 shares, so that when it failed shareholder liability was more than triple what they had expected (Todd 1932:68–9).8 Nor were the new limited companies very good at attracting money from the less astute creditors who deposited their savings in joint-stock banks. Far from converting their deposits into higher-yielding company shares, as company reformers had hoped would be the case, depositors were convinced by disasters like the Overend Gurney crash that a few extra percentage points of interest was not worth the risk of financial ruin.9 Owing to such shortcomings in the early working of the company laws, reinvestment of profits rather than the formation of self-sufficient limited firms was initially the most common alternative to trading on credit. British traders were aided in this regard by improved means of communication, most notably railways and telegrams, which accelerated their sales turnaround and made them less reliant on short-term loans (Birch 1887:508–10; Nishimura 1971:77–9). After 1867, when companies learned to restructure their finances to protect shareholders from expensive calls, more private firms started to take seriously the option of converting to limited liability. Improvements in communications and transport were again a factor by adding to the ability of provincial stock exchanges to raise capital for such firms (Thomas 1973:102–6, 114–27), while many new “private companies” formed by issuing a few limited shares to friends and family members (Ireland 1984:244–56; Wilson 1995:120). Whether a firm plowed profits back into its trade or attracted funds through local brokers, the bottom line was that traders’ self-sufficiency co-existed with the increasing power of credit after 1850: there was, in short, more than enough money to go around. 129

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“Traders had a long innings” during the two decades following the lean years of the 1840s, as one banker later recalled (Dick 1884:330); which had “made some houses independent of credit in any form” (Economist 36 (1878):1,001). Their success at paying their own way did little to prevent a continuing rise in bank deposits, which came less from trading profits than from all the wage-earners and salaried professionals who were opening accounts for the first time. When these developments are viewed from the perspective of joint-stock banks, who had earlier stood as the traders’ direct “representatives,” a question arises concerning the sense in which the City “turned its back on industry.” Many industrialists clearly felt betrayed by the City owing to the succession of crises. But what did these industrialists mean by “the City”? To the extent that joint-stock bankers were good at presenting themselves as friends of industry who just happened to be stuck with a set of faulty machinery, industrialists tended to exempt them from the category of dangerous outside forms of credit. That this was the case gains plausibility from the fact that many banks responded to the mid-nineteenth-century crises by replacing domestic bills with renewable direct loans, or by investing heavily in regional stocks. When banks like Lloyds or the Birmingham & Midland pursued such policies they invariably had little trouble attracting applicants, and in fact relayed their aggressive regional lending strategies into impressive gains in market share (Holmes and Green 1986:49–51, 80; Wale 1994; Cottrell 1980:212–28). In the time it took banks to convert to these new assets, though, traders had already settled into patterns of finance that required less short-term credit than they had used a generation earlier. Also in the interval, banks had continued to attract deposits, which by the 1870s had grown to a point where they began to look abroad for new sources of investment. Instead of pronouncing that the City turned its back on industry, consequently, more and more historians have come to the conclusion that the City and industry turned their backs on each other (Cassis 1994:175–7; Watson 1996; Collins 1988:116–17). A second national debt: bank deposits and shareholder liability English joint-stock banks after 1870 insistently claimed to be “public institutions” on a national scale, but had a harder time identifying exactly who their “public” was. As “democratic” institutions in the 1830s with shareholders, borrowers, and creditors living in the same region and occupying the same social class, the question of defining a public had been much simpler. By the 1870s these three publics had dispersed. In place of shareholders who thought of banks as a form of voluntary association, a new set of investors emerged for whom shares signified security more than participation. Alongside local loans, many banks had built cross130

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national or foreign bill portfolios, initially brokered through London but increasingly managed internally. Finally, most banks had all but replaced notes with interest-bearing deposits as a means of raising lendable capital. Deposits had swelled to over £400 million by 1878, “a sum nearly sufficient to pay off the entire national debt of this country” in the words of one contemporary (BM 38 (1878):464). Privately issued notes, which had once ranked as the largest single liability in most banks, counted for under 4 percent of all bank liabilities in 1875 (Collins 1988:93–4). According to the Economist, which first tried the phrase “depositing public” on for size in 1879, it was the class of people who contributed this sum who had “the deepest interest in the soundness of our banking system” (37:296). This “depositing public” created new problems of political representation. Earlier, bankers had always assumed that the note-holders who acted as their de facto creditors could take care of themselves, by demanding gold in exchange for their paper and relying on their shareholders’ unlimited liability when the gold ran out. When deposits first started to erode the primacy of notes in the 1840s, banks had turned to bill-brokers and the Bank of England to guarantee their new creditors’ security by acting as putative “lenders of last resort,” and continued to offer the assurance of their shareholders’ full liability. This dual strategy for securing their deposits started to falter after the Overend crash in 1866 and even more so after the failure of the City of Glasgow Bank in 1878. The first disaster, as discussed above, forced bankers to rethink their prior reliance on the City to deliver cash in times of pressure. The failure of 1878, by scaring droves of investors into selling their shares, called into doubt the backup mechanism of unlimited liability. Events of the 1860s and 1870s hence led banks to adopt new practices for continuing to attract deposits from people who were popularly seen to be more in need of paternal care than their earlier noteholders. “Progressive” banking opinion in England, most clearly heard from the growing joint-stock banks in the Midlands, suggested that better cooperation among banks would allow them to grow safely beyond the City brokers’ capacities. They gambled, correctly as it turned out, that if the big provincial banks could present themselves to depositors as “public” institutions that were more concerned with security than profit, not even their conversion to limited liability after 1878 would diminish their depositors’ trust. But this new trajectory brought them face to face with a political problem that the City’s prior intervention had allowed them to neglect: how to depart from their democratic past without alienating their original constituents? In the 1870s this question was posed in terms of national character, since the less democratic direction in which the bigger banks seemed to be headed had long been the norm in Scotland. The challenge, in this sense, was for English banks to make their constitutions 131

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more “Scottish” without appearing to lose their distinctive “Englishness.” The City of Glasgow failure cleared the way for such a redefinition. Most English bankers depicted its shareholders as too trusting in their pledge of full liability to a bank over which they had no real control; and also blamed its mass of small deposits, which even the most aggressive English bank dismissed as too costly to administer. In thus labeling all potential dangers of deposit banking as “un-English,” they could claim that they had only to rid themselves of these foreign elements to be free to pursue deposits themselves. This rhetorical strategy succeeded for the same reason that Walter Bagehot had been able, in Lombard Street, to combine a celebratory account of English banking with a warning cry about alien elements within English commercial culture. In each case a suitable “other” was invoked to make sense of existing problems in the system without giving the game away to conservative critics who wanted to freeze the system in its present position. Like Bagehot’s argument, though, sorting out a set of “superstitious” from truly English traits was an arbitrary process that could only be imposed by a powerful elite. Bagehot had hoped that the Bank of England would be able to perform the balancing act of deciding when Lombard Street was civilized and when its “savage” propensities required discretionary control. English bankers hoped their own nascent forms of co-operation, including the Clearing House, the Country Bankers Association, and the Institute of Bankers, would be able to perform a similar function in drawing the line above which shareholders and depositors counted as safely “English” for the purposes of banking. Until the merger movement of the 1890s reduced the number of large banks to a handful, the prospects for self-regulation of this nature remained mixed. The banks’ only early success in this regard was their switch to limited liability after 1878. In agreeing to take this step they also effectively committed themselves to a general move toward larger reserves and a higher share of paid-up capital, as a means of compensating their depositors’ increased risk. But these changes on the side of share liability left open the question of collectively determining the point beyond which attracting new deposits led to diminishing returns. However easy it might have been for bankers to join in condemning the City of Glasgow’s deposit policy, it was much harder for individual banks to resist the temptation to outbid their neighbors in the race for new customers. It was a tribute to the relative weakness of the bankers’ collective ties at this time that their spokesmen gave full support to the Post Office’s efforts in the 1860s to build a national savings bank network. This network, which bankers came to oppose bitterly once they had achieved more coherence, performed the useful function during the 1870s and 1880s of keeping all banks out of the market for “small” deposits and hence rendering self-regulation unnecessary. 132

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“Scottish” banking comes to England “The commercial success of the…Scotch banks,” observed the Manchester merchant Henry Baker in 1873, “has undoubtedly of late had a share in influencing English banks in the direction of closer contact with population, and in further relaxing the old idea of local and separate individuity” (1872– 3:97–8). The success to which Baker referred was indeed striking. Between 1840 and 1870 Scottish bank deposits rose from £30 million to £80 million, accompanying a vast spread of branches outward from Glasgow and Edinburgh. A shortage of local surplus capital allowed banks to switch to deposits as their main liability without abruptly altering their traditional pattern of lending directly to local trade. Only after 1870 did they start to imitate their English counterparts and lend their surplus either to London brokers or directly overseas to American or colonial firms. As J.S.Fleming of the Royal Bank claimed in 1875, home deposits had grown “considerably in excess of the requirements of Scotland, and London is the proper, indeed the only, outlet for this excess” (796). As in England, such rapid economic change threatened the political basis on which Scottish banks had been established—although, owing to their less democratic origins, a different sort of political crisis accompanied their shift from notes to deposits. The crisis appeared once they started shipping their deposits outside of Scotland, at which point the same tradition of virtual representation they had always brandished as their biggest asset became a serious drawback. In the past, shareholders had not needed to keep tabs on their directors because the competing banks were keeping tabs on each other. Once banks started lending their money to outside brokers, this balance of power was disturbed by the addition of foreign parties who did not play by the old rules. And once those rules lost their meaning, virtual representation ceased to be an adequate security for bank investors. This was the hard lesson learned in 1878 by the City of Glasgow shareholders, who found themselves called on to pay some £5.8 million in bad debts that had accumulated on their directors’ undisclosed loans. Investors in other Scottish banks reacted to the crash by selling their stocks in record numbers, driving the average share price down from £297 to £239 in under a month.10 English bankers and bank shareholders reacted by taking a second look at the merits of “Scottish” banking, at a time when many of them were already starting to question the extent to which the Scottish system was applicable to England. When the City of Glasgow Bank failed in 1878 it left behind the largest branch network in Great Britain, deposits in excess of £8 million, and a portfolio of bad loans spread over four different continents. To most onlookers in Scotland, who had until recently always prided themselves on their banks’ regional character, to fail from such causes (indeed, to fail at all) was to depart completely from all that was distinctly Scottish about 133

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finance. As one judge observed during the subsequent liquidation hearings, “a Scotch Bank buying and working a railroad in America” was “about as startling a thing as one can well conceive” (cited in Tyson 1967:387). This view was not shared by English bankers, who immediately felt the consequences of the failure in the form of plummeting share prices and the disastrous crash of the Western Bank, a large Bristol concern (Collins 1989, 1992; Ziegler 1992). Unlike their Scottish counterparts, who did what they could to sweep away the failure as an exception to their country’s proud financial heritage, many English bankers ascribed the crash to general flaws in the Scottish national character. By calling the failure an essentially Scottish event, these bankers hoped to avoid being lumped in with the City of Glasgow by conservative critics, and hence continue their departure from “local individuity” which Scotland had taught them prior to 1878. The conservative view was most strongly advanced by William Newmarch, manager of the private bank Glyn, Mills & Co., who called the failure “an extreme example of the perils of modern Deposit Banking” (1878:894–5). The same logic led Joseph M’Kenna, an Irish banker-MP, to respond with a proposal to tax interest on deposits in order to restrain “the improvident system under which money is borrowed by the banks from their depositors” (Hansard 243 (1879):1,756, 1,760–3).11 Such arguments were vented most frequently in London, where financiers worried that provincial banks were outpacing the ability of City brokers to accommodate, and thereby control, the new influx of capital. Banking machinery, for Newmarch, had implied the “perfect” system whereby bills of exchange were routed through respectable London firms; it did not include making long-term loans to Midlands merchants or American railways. This concern had been rehearsed three years earlier by A.J.Wilson in a widely discussed Fortnightly Review article that lamented the temptations facing “[b]ankers nowadays…to travel beyond the line of their safe legitimate business” (1878:290). He revealingly singled out for blame the rise in direct loans by Midlands and Lancashire banks, which he linked directly to a decline in the inland bill business (295–6). English bankers who were thus targeted refused to admit they had been acquiring deposits faster than could safely be employed. Just because they no longer shipped all their cash to the City of London, they argued, did not mean they were inviting the sort of catastrophe that had occurred in Glasgow. In response to M’Kenna, the Birmingham banker Sampson Lloyd claimed not to “see any reason why the banks should not have these large sums as deposits,” and urged that banks that held more bills than deposits had never proven to be better at lending money (Hansard 243 (1879): 1,763). This assertion, however, required an alternate diagnosis of the City of Glasgow failure, which moved from the general explanation of over-banking to the specific circumstance of Scottishness. What made Scottish banks uniquely and dangerously efficient at attracting deposits, according to this 134

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account, was that the Scottish people tended to display an irrational loyalty to their bankers. Give a Scotsman a gold sovereign, wrote the English banker James Dick in 1884, and it will “be tested by the teeth and other primitive methods.” Give the same Scotsman a branch bank on any “street of shopkeepers,” and it would be a safe bet that “its name is a household word, and its stability is believed in as a matter of course” (1884:323). In effect, he was locating the Scottish people in an inversion of Bagehot’s narrative about the “natural” place of superstition in banking: instead of moving from an unthinking trust in coin to a rational trust in banks, the Scots unthinkingly trusted their banks and suspected gold of being counterfeit. As Bagehot himself argued, this was a peculiarly Scottish trait: “the Scotch system of banking” was “in many respects, the best system that the world has seen; but if you ask me about the Scotch character, I think that the Scotch character was much the same before the present system of banking was established in Scotland” (1965– 86:X, 129). English onlookers discovered the same overtrusting “Scotch character” in the behavior of the City of Glasgow shareholders, whom the Economist accused after the crash of doing business “upon the silent and believing system” (36 (1878):1,373). The traditional deference that had been displayed by Scottish shareholders toward their directors had been shattered by the irresponsible and criminal actions of the City of Glasgow directors. For decades this “great Scotch idol” had been upheld as “a sort of national superstition,” which these directors had exploited for their thoroughly modern speculations (1,373). As in Bagehot’s recourse to “savage” traits in his account of Lombard Street, the bankers’ diagnosis of Scottish superstition allowed them to combine self-congratulation with a modicum of reform. The trick was to identify in the English system any lurking signs of Scottishness, the elimination of which would allow banks to pursue “progressive” policies with renewed vigor. The primary “Scottish” excrescence targeted by English reformers was the survival of full shareholder liability, which had moved from signifying vigilance to being a symptom of irrational trust in a directorate over which investors had little control. Many feared that the threat of unlimited liability had driven “solid” bank investors into competing limited firms like railways and finance companies, hence weakening onceformidable bank constituencies. In the City of Glasgow Bank, observed one banker, “one-fourth of the whole body of shareholders were women, and a third were professional men and small capitalists,” while a smaller English bank that had subsequently failed counted “no less than seven hundred women on the register” (Grenfell 1879:545). The Economist in 1879 similarly contrasted the relatively few “really solid men” who held shares in English banks with the “incredible…number of spinsters and widows” who alone were gullible enough to stake everything on their bank’s solvency (37:1,224). And when Scottish banks took longer than their English 135

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counterparts in switching to limited liability after 1878, they were portrayed as “clinging, with a tenacity displayed nowhere else, to their old constitutions” (BM 40 (1880):899). Also consistent with Bagehot’s financial views was the notion that a little superstition was fine as long as it could be manipulated to the banks’ advantage. Hence English bankers were less concerned that their depositors had developed strikingly “Scottish” habits over the past three decades when it came to entrusting their life savings to an impersonal company. Unlike the 1830s, when banks had deemed it necessary to promise unlimited liability in order to attract any deposits at all, bankers in the late 1870s could reasonably argue that the habit of depositing money was strong enough to diminish the importance of share liability. One banker pointed out in 1880 that depositors had not distinguished between limited and unlimited banks when they withdrew their savings after the City of Glasgow crash, concluding that “the old banks would have suffered no greater loss of confidence had they been limited” (BM 40 (1880):58). Six years after the move to limited liability was underway George Rae of the North & South Wales Bank concluded that “[a]ll fears…as to its effect on the minds of depositors have proved groundless, and have long since vanished” (1886:255). The combination of nervous shareholders and trusting depositors made it relatively easy for English bankers to convert from unlimited to limited liability, with the help of a timely Act of Parliament and a new sense of common purpose. Leading bankers like Rae and R.H.I.Palgrave worked closely with the Treasury to craft a bill that would secure the widest possible support, and Palgrave worked behind the scenes bringing tentative bankers into line, with swift results. The proportion of limited to unlimited banks went from 44 out of 130 in 1874 to 130 out of 139 in 1883 (Dick 1884:320), by which time even conservative City banks like the Union were “taking shelter under the wings of the Limited Liability Act of 1879” (Herapaths 44 (1882):592). Accompanying this change, bankers hedged their bet that depositors would remain loyal by publishing regular balance sheets, naming independent auditors, increasing their proportion of paid-up share capital, and beefing up their cash reserves. In the decade after 1876, English and Welsh banks increased their paid-up capital from £32.9 million to £39–8 million, and between 1877 and 1882 they increased their reserves by 42 percent to £19.7 million (BM 39 (1879):753–6; Sykes 1926:101). At a less public level, the 1878 crisis also reinforced a growing inclination of many banks to protect their deposits by converting their non-cash assets from illiquid direct loans into more readily convertible bills, either purchased directly or through London. Owing to the declining inland bill market, many of the latter assets funded foreign and colonial firms and governments, presaging the “export of capital” that would arouse such controversy in the following century (Collins 1990; Cottrell 1992:53–4). If the City of Glasgow failure convinced English bankers to act more or 136

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less in tandem to improve the security of their assets, these reforms ironically exacerbated the problem of attracting too many deposits. Although they disagreed among themselves about the line where healthy competition for new accounts turned into “overbanking,” all could agree that the City of Glasgow had crossed that line. In London, where competition for deposits was not as severe, the most popular solution to this problem was to “be content with such deposits as a lower rate would attract” (Economist 36 (1878):1,166). Owing to their closer ties and proximity to the Bank of England, the major City banks made headway in this area even before the crisis, joining to abolish all current account payments in 1877 and agreeing to pay a set rate of 1.5 percent below the Bank rate on deposit accounts in the 1880s (Collins 1988:80; Sayers 1957b:16–17). In the provinces such schemes were neither as popular nor as realistic, given the larger field for potential deposits and the poorer co-operation among banks. Country bankers hence tried to regulate deposits not by setting uniform rates, but by abstaining from seeking deposits below a minimum yearly sum. Unfortunately for them, even that consensus would have been difficult to enforce through any self-policing facility like the Country Bankers Association. Fortunately for them, a convenient minimum had already been set and was being enforced by an outside agency: the Post Office Savings Bank, which in its efficiency at attracting small deposits closed the door to hazardous competition by commercial banks. The superior competitiveness of the Post Office was a better means of regulating competition among bankers than would likely have resulted from any direct legislation (such as M’Kenna’s proposal) or any contemporary effort of self-policing. Dividing deposits: savings banks and competition Especially after the City of Glasgow failure, English bank directors and general managers agreed that there was a point beyond which the aggressive pursuit of new deposits did not pay. It was a long stretch, however, between this armchair consensus and the day-to-day competition for new customers carried on by branch managers whose views on finance did not extend beyond the bank down the street. To keep these necessarily shortsighted impulses from reducing their overall rate of return, bankers turned to the Post Office Savings Bank, a “bank down the street” that could outcompete the most ambitious branch manager in the hunt for small deposits. This bank, which began setting up branches in 1862, offered the unimpeachable security of Britain’s annual tax receipts for all its deposits, was not hampered by the need to pay dividends to private investors, and paid greatly reduced overhead expenses by virtue of being attached to preexisting postal facilities. All these features, which would later provoke joint-stock bankers to complain of unfair “government competition,” received their full support through the 1880s. 137

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Although bankers eventually came to appreciate the Post Office’s role in indirectly regulating competition for deposits, this was not their primary reason for supporting the new savings banks when they were first mooted in the 1850s. At that time they sympathized with the state’s claim to assist in superseding the haphazard network of voluntary societies that had served as England’s tattered safety net for the previous century. Gladstone’s goal of supplementing the existing local trustee savings banks with “the very extensive and extremely economical machinery of the Post Office” (Hansard 162 (1861):264) conformed with the bankers’ concurrent restructuring of private finance, with its implicit departure from a regional focus and “democratic” principles. The first serious scheme for a government savings bank, in fact, was authored by a joint-stock bank manager, Charles Sikes, who contrasted the small 7.5 percent increase in trustee bank deposits between 1846 and 1858 with the dramatic rise in both joint-stock bank deposits and postal money orders during the same time (1859:4–5). As he told a Parliamentary hearing in 1858, he was only asking that the state “step in and merely do that which private individuals cannot do” (cited in Perry 1992:56). Given the choice between private philanthropy and the state, he concluded, the state was more capable of doing for its “natural” customers the same sort of job joint-stock banks were doing for theirs. Bankers like Sikes assumed that a full government guarantee for deposits was far more likely than the best intentions of philanthropists to achieve the “political effect” of “attaching the masses to the side of order and law, and thus securing them in times of political convulsion” (BM 21 (1861):298). Furthermore, claimed the banker Frederick Seebohm, the Post Office’s superior security would allow it to attract capital away from trade unions and benefit clubs, hence giving workers “a better remedy” for their hard times—one that would “end the war between capital and labour in a more natural way” (1873:99). Such sentiments revealed a recognition of common goals and strategies that united bankers with the Gladstonian state. As bankers edged toward viewing their own depositors in a similarly paternalist fashion, the example of the Post Office reinforced their transition away from the ideal of participatory finance. The Bankers’ Magazine recalled in 1887 that during the Overend crash “the porters, servant girls and children who had their money in the Post Office knew nothing of the matter, and of course did not flurry the department nor the National Debt Commissioners by demanding money” (47:820). This was exactly the sort of behavior its readers had grown to expect from their own depositors. Only when English joint-stock banks stopped to think about competition for deposits did they begin to appreciate that the Post Office Savings Bank might help solve this problem as well. Collectively, English bankers recognized that “[t]he management of small accounts is really arduous” and that “banks lose little by getting rid of them to Post Office and Trustees’ 138

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Savings Banks” (BM 47 (1887):817). By the 1870s, they had added their willingness to encourage this useful service to the list of traits distinguishing them from their Scottish rivals. The extensive commercial branch networks in Scotland, which paid interest on trustee bank deposits as well as collecting small deposits of their own, had prevented the Post Office from making the same inroads there that had been accomplished in England (Payne 1967a). George Rae noted in 1875 that “whilst the Scotch banks have extended their branches into almost every town in the country, however small, and become in fact savings banks, we have allowed the business to be transacted by the Government of England” (BPP 1875:IX, q. 5,355). Rae was bending the truth when he implied that English bankers had “allowed” the government to handle small deposits as a conscious means of preventing overcompetition for deposits. But he was not alone in encouraging Post Office banks once he realized they performed that service. Nor was he alone in identifying the policy implications of this newly imputed division of labor. If it was true, as he claimed, that postal officials were “the best bankers for the small savings of the industrial classes, up to a certain point,” the leading challenge for commercial banks was to locate that point (BPP 1875:IX, q. 5,360). The Post Office, under the guidance of entrepreneurial civil servants like Frank Scudamore, kept this issue in the foreground through the 1880s by constantly lobbying to raise the annual cap on personal savings bank accounts from £30 to £50. Country bankers banded together to defeat such proposals six times between 1869 and 1891, before the Chancellor of the Exchequer finally recommended the increase in 1893. The recurring refrain in their effort to maintain the existing cap was that the ability to save more than £30 a year was the point where workers turned into small traders. The latter group, they claimed, already displayed habits of social order and were in no need of state-assisted paternalism (Perry 1992:66–71; Daunton 1985:100).12 As long as bankers harbored doubts about their collective capacity to control competition for deposits, they continued to view the Post Office with a mixture of gratitude and vigilance. After 1890, as they gained confidence in their ability to keep each other in line and got better at processing small deposits cheaply, they stopped thanking the Post Office for anything and their vigilance turned into active hostility. Once their “natural” customers included working men as well as self-reliant merchants, Post Office banks went from signifying convenient sponges of unwanted savings to appearing as state-subsidized competitors. As one banker claimed in 1893: “If our state officials think so much of, and thrive so well on, the humble pence, why cannot the bankers do the same?” (BM 55:90). With this new attitude toward small deposits came a more sweeping sense of responsibility over England’s surplus wealth. The state, once valued by bankers for its paternalistic vision of social welfare, now appeared in their speeches as too susceptible to democratic pressure to be trusted with the savings of the poor. 139

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As the proportion of government securities pledged against working-class deposits grew, bankers began to worry about what would happen to interest rates in the event of a run on the Post Office. Against this populist backdrop, joint-stock banks came to define themselves as the financial experts who alone were capable of protecting England’s depositors from their own irrational tendencies.

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By the end of the nineteenth century English joint-stock banks were well on their way to forging a new set of political relations with their borrowers, depositors, and shareholders, and were starting to recognize that these changes had put them on a new footing with both the state and the elite private bankers in London. The most notorious of these revisions came in the banks’ lending policies, which played a major role in the “export of capital” that marked British finance at the end of the nineteenth century. By substituting foreign borrowers for British traders as the source of much of their revenue, they avoided the kind of direct democratic pressure that was experienced by firms like railways, which continued to collect funds from a largely British public. To assume, however, along with J.A.Hobson and his successors, that late-Victorian banking should be mainly identified with the goals and achievements of imperialism neglects the politics of bank deposits—the ultimate source of “oversaving” that Hobson associated with the excesses of empire.1 When deposits are factored in, the obvious but underappreciated point emerges that banks at the turn of the century performed two significant public tasks, not one: paying interest on domestic savings as well as collecting it on foreign loans.2 The new examination of the joint-stock banks’ cultivation of a depositing public offered in this chapter suggests a need for some qualification to financial histories that focus on the men who shipped capital overseas. These histories give pride of place to “gentlemanly capitalists” whose social connections and political allies never strayed far from the City, and whose success at modernizing their sector is contrasted with the fading fortunes of industrialists to the north. They relate this process of modernization with similar changes in the highest echelons of the civil service, the members of which went to the same schools and belonged to the same clubs as the Rothschilds, Grenfells, and Barings who dominated England’s richest square mile. The City is next taken to stand more generally for a “service economy” at which England excelled, even as Britain’s erstwhile captains of industry were quietly giving up the ghost to America and Germany (Cain and 141

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Hopkins 1993:107–60; Davis and Huttenback 1986; Edelstein 1982; Rubinstein 1993; Lee 1984). Such accounts tend to marginalize the bank managers who were instrumental in keeping these men well-fed with deposits. Typically these managers, even those in charge of the biggest jointstock banks, were not part of the close-knit social circle encompassing other “City bankers” (Cassis 1994:126). Yet they were indisputably “modern,” in the same sense that other City institutions and the British civil service have merited that title. And it was they, not private financiers, who found themselves in direct control over a group of banks that ranked among the world’s largest and strongest on the eve of the First World War. The joint-stock banks did not stumble unawares into their newly powerful social role, nor did they take on that role at the beck and call of the City. In 1891, when the Midland had already grown to sixty-one branches, its chairman announced that his intention was to “build up a strong Bank, one which should command the confidence of the public in every way” (Holmes and Green 1986:100); upon merging with Lloyds in 1889 the Birmingham Joint Stock Bank issued a circular with the same message that “the two combined will, in respect of capital, reserves and connexion, constitute a bank of more than ordinary strength” (BM 49:386). This message of strength and security apparently got through to its intended audience of depositors: deposits in the ten largest London banks grew from £316.5 million to £681.6 million between 1899 and 1914, while total deposits in England and Wales rose from an estimated £409 million in 1875 to more than £1 billion in 1914 (Cassis 1994:47; Crouzet 1982:335). To process all that money profitably, banks improved their efficiency with the help of better planning and new technological aids, allowing them to offer their services to a much larger proportion of the saving public after 1880 than had ever been the case before. Such figures speak to a revolution in administrative efficiency, but they also attest that banks were securing the trust of their depositors as never before. To do this, they needed to persevere in the conservative lending policies they had started pursuing after mid-century.3 Banks steered this course by combining good fortune with political savvy. They were fortunate to employ a largely clerical workforce, whose devotion to the ideal of professional advancement minimized the labor unrest that was endemic in railways and heavy industry. They were also lucky that the growing market in foreign securities, initially cultivated by City brokers, absorbed their surplus deposits like a sponge. Under these conditions, the only part of their business banks needed to treat with any degree of care was domestic lending. With their more conservative rules that came from amalgamation, branch managers risked alienating the large number of local traders who still applied to them for loans. They responded by cloaking their administrative changes in the disarming rhetoric of imperial conquest and technological progress, which made it harder for traders to dispute the new rules as “un-English.” Also, they argued that stricter and shorter terms for loans would teach 142

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traders the useful virtue of self-reliance. British businessmen, who had preached the gospel of self-help to themselves and their employees for most of the century, had trouble resisting this claim. Instead of raising their voice in political protest, as they did when faced with similar constraints from railways, they raised equity and formed joint-stock companies of their own. The new politics of the joint-stock banks was on display in the aftermath of the Barings crash of 1890. If commercial banks needed any proof that City brokers were just as capable of engaging in ruinous competition as at mid-century, the Barings crash supplied it. But several developments since 1866 had placed their new relationship with the City on a sounder footing. For one thing, the social ties binding City financiers with each other and with the state had strengthened, greatly improving their ability to contain crises. Also, the fact that the bulk of the bill market had traveled overseas since 1866 made it easier for City brokers to cut their losses when things fell apart. Unlike the mid-century crises, which needed to be handled gingerly in the face of domestic middle-class discontent, it was relatively easy to pass much of the fiscal burden of the Barings crash on to the unfortunate Argentines who had failed to repay their English loans on time. If the jointstock banks bore little responsibility for the new social stability in the City, this did not stop them from turning it to their advantage. As at mid-century, they made up for their lack of influence in haute finance with a keen instinct for public relations. In the 1860s they had managed to situate themselves as friends of domestic trade who had been stuck, just like the traders themselves, with a poorly working bill mechanism. In the 1890s they basked in the glory of the City’s success at containing the Barings crash, and converted that reflected glory into a new image as public servants whose ability to speak and act on matters of pressing financial concern vied with that of the state and the City’s more “private” sector. Another sign that joint-stock banks were starting to behave in a markedly different public capacity after 1890 was their new stance on government savings banks, which they had once welcomed as a convenient means of absorbing bothersomely small deposit accounts. After 1890, the Post Office’s banking operation abruptly appeared in trade journals and shareholder meetings as a sinister threat to the nation’s financial security. Bankers, newly confident that they could efficiently manage the funds of even the smallest saver, accused the Post Office of unfair and dangerous competition. The Post Office Savings Bank was allegedly unfair because any losses were subsidized by the taxpayer. It was dangerous, according to the joint-stock banks, because the newly politicized Treasury was unable to resist offering high rates to their depositors, even if doing so would devalue the very Consols that were being offered to them as security. By contrasting their own conservative rules with the Treasury’s “democratic” policy, joint-stock banks hoped to present themselves as the only truly secure resting place for the savings of the nation. 143

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The amalgamation movement The most striking development in English finance in the last quarter-century before the First World War, both to contemporaries and to subsequent historians, was the immense concentration of domestic banking services in a handful of huge companies based in London. In 1850 there were ninetynine English joint-stock banks with 576 offices, comprising less than a quarter of all banking firms and only fifty-eight more branches than their private competitors. By 1913 the number of joint-stock banks had dropped to forty-nine and their branches had risen in number to 6,426, of which nearly 2,000 were operated by only eleven banks (Collins 1988:70, 74–5; Capie and Rodrik-Bali 1982). The expansion of branches was even more dramatic among the leading banks that would congeal after 1918 to form the “Big Five” (later Big Four) that have come to dominate British banking. The Birmingham & Midland grew from ten local branches in 1887 to 630 in 1908, by which time “London” had replaced “Birmingham” in its name (Collins 1988:79; Holmes and Green 1986:86–9). Lloyds similarly expanded from 61 to 554 branches in the two decades after 1888 (Sayers 1957a:36); already in 1892 its director could refer to it as “a great concern, occupying not only a magnificent trading district in the Midlands, but important positions in North and South Staffordshire, in London, in South Wales and in other places” (BM 53 (1892):457). In some cases banks grew by opening new offices in areas with insufficient banking facilities, but for the most part they took over smaller banks. On average, a dozen mergers a year transpired between 1890 and 1902 (Sykes 1926:63). It remains a matter of dispute why the merger movement among English banks occurred when it did and what its implications were for industry and trade. Many historians have followed the banks themselves in assuming the change was an inevitable result of more efficient managerial styles superseding the previous split between regional and London banking; one early account speaks of “the unrelenting pressure of structural evolution” (Crick and Wadsworth 1936:321). In such stories the Bank of England’s reluctance to acknowledge central banking duties, the City of Glasgow scare and declining interest rates after 1880 all loom large, since they forced banks to improve liquidity and cut costs wherever they could (Collins 1988; Holmes and Green 1986). Similarly, the overcapitalization of banks with a strictly London base has been suggested as a reason for their willingness to join with underfinanced counterparts in the provinces (Gregory 1936:I, 292–7). The diminishing importance of note-issue to a bank’s profits removed a further obstacle to mergers, since under the Bank Charter Act a bank that was absorbed was forced to relinquish its privilege to issue notes (Sykes 1926:19–22). There is less of a consensus on the consequences of amalgamation. Some have followed William Kennedy in claiming that bank mergers created in Britain “a short-term money market of unrivalled 144

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efficiency,” but one which was too segmented to match the ability of German and American banks to “concentrate resources in areas strategic for rapid development” (1987:116). Others have argued that few English industrialists were looking for such resources, at least not from banks, and that sources of decline need to be sought elsewhere (Edelstein 1982:62–5). In all these accounts, whether relating to the motives or effects of the merger movement, economics pushes politics to one side. Throughout this book, joint-stock politics has referred both to practice (how a firm accomplishes its economic goals through public and social relations) and to self-conception (how a firm identifies itself with other, more explicitly political, institutions). This section concentrates on the first of these meanings, by discussing the banks’ stated motives for expansion; by examining how banks prevented traders’ complaints about inadequate accommodation from threatening their autonomy; and by observing how they made political capital from a crisis over which they had very little control. The next section will then address the banks’ self-conception, by discussing their debate with the Post Office Savings Bank after 1890 and analyzing its implications for their changing political constitutions. The chapter closes with remarks about how all these developments put banks at a distinct economic advantage in contrast to similarly situated companies at the time, including public utilities and railways. National ambitions Few turn-of-the century onlookers doubted the larger joint-stock banks’ ambitions to become national financial institutions. The financial journalists who helped shape public opinion on such matters often referred to these ambitions in the language of imperial conquest. The Financial Times asked in 1892 “how long this conquering career of Lloyds will go on” (cited in Sykes 1926:55); and the columnist Francis Steele (who would later become a bank manager himself) took note of “the manner in which powerful and expanding provincial banks have found outlets for their energies in the absorption of metropolitan institutions” (1897:119). The bankers’ response to such descriptions did little to alter these perceptions. George Marten of the London & South Western Bank praised the “healthy spirit” that had “trained our managers into becoming good pioneers in the new districts they are called upon to work in” (BM 63 (1897):477). John Dun of Parr’s, which had displayed exactly such spirit in the 1890s, claimed in 1897 that the “personal and professional ambition” of managers in the hunt for new branches and mergers was perfectly in tune with the ruling political passion for imperial conquest. To secure his point Dun posed a question which few Britons would have disputed on the eve of the Boer War: “What leads the statesman to serve his country to the best of his ability? What led a man

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like Cecil John Rhodes to do enormous things for the British Empire? Is it not ambition? Truly a worthy motive” (Steele 1897:131). Such ambitions moved branch banking in two directions from provincial centers like Birmingham and Manchester: closer to London and deeper into the countryside. As Philip Cottrell has observed, “England’s centralized domestic commercial banking system was to a substantial degree the product of ‘provincials coming to town’” (Cottrell 1992:46). Between 1884 and 1896, Lloyds, Midland, and Barclays all established a presence in London and started the gradual process of edging out strictly metropolitan banks with few or no ties to the provinces. By 1908 joint-stock banks with branches in both London and the provinces held nearly four times as many deposits and had more than twice as many offices as exclusively London or provincial banks (BM 86 (1908):11–12). The larger of these banks combined their newfound prominence in London with a wider geographical expanse than ever before. Of the “Big Five” that emerged after the First World War, only the Westminster had most of its branches in London. Between 1877 and 1901 commercial bank branches opened in 1,108 towns and villages where no bank had existed before; during half that time (1889–1901) the Midland bought up smaller joint-stock banks in Coventry, Derby, Leeds, Manchester, Preston, Carlisle, Huddersfield, Liverpool, Oldham, and Sheffield (Easton 1904:229; Crick and Wadsworth 1936:328). These changes dramatically transformed the provision of financial services in the provinces and, more subtly, in London. As bigger banks absorbed regional branch networks, bought up local private firms, or set up new branches of their own, the services on offer in most towns and suburbs were both more extensive and more impersonal than before. Londoners met with fewer outward changes in their banking services, but behind the scenes the amalgamation movement was turning London finance upside down. The older family banks in the City disappeared one after another; of the ten private banks belonging to the Clearing House in 1890, only Glyns remained in business by 1914. The new banks in town dominated the Institute of Bankers, which they used to refine their organizational innovations. And they shared equally in the formation in 1895 of a Central Bankers Association, which acted in a limited but efficient capacity as a pressure group in the rare cases where the City’s interests conflicted with official policy. With Lord Hillingdon of Glyns as its first Chairman and Richard Wade of the National Provincial as its first Vice Chair, the Bankers’ Magazine was accurate in calling it “a representative body capable of speaking with great weight on behalf of all the banks of the country” (59 (1895):550). If provincial banks discovered new avenues for co-operation once they got to the City, what led most of them there in the first place was the desire to gain easier access to the market in foreign loans. As Steele observed, as long as London could claim to be “financial capital of the world,” provincial banks would desire to “obtain that representation in London which will 146

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enable them to compete for a share in the huge international business which London still transacts” (1896:538). More specifically, provincial banks angled for mergers with City banks which belonged to the Clearing House. Thomas Salt admitted as much upon moving the head office of Lloyds to London in 1884, claiming that his bank “could employ our spare funds to better advantage and more economically and profitably on the spot than from Birmingham” (cited in Sykes 1926:38). Once in the Clearing, erstwhile provincial banks could dispense with the agency services that London banks had once routinely performed. As one banking textbook put it, “the London agent, already a rare bird, will soon be as extinct as the dodo” (Pownall 1914:10). Besides literally providing provincial banks with access to the foreign loan market, the Clearing House symbolized membership in an imperial club. As Halford Mackinder told the Institute of Bankers, it was in order to maintain London’s status as “the world’s clearing house” that “we have been driven to increase our Empire” (1900:155); the Committee of London Clearing Bankers was “the ‘Cabinet’ or ‘War Council’ of finance” (Pownall 1914:38). Joint-stock banks took full part in the informal side of empire-building by increasing their direct stake in the foreign loan business. At the turn of the century both the Midland and the Union Bank accepted foreign bills at a volume comparable to the biggest international brokers, and the London & Westminster issued government stock for Australia and South Africa. Other banks with provincial roots lent heavily to Japan, China and Germany, often by forging strong ties with rising “colonial” banks like the Bank of Australasia or the National Bank of India. As the merger movement progressed, banks also inherited much personal experience in colonial and foreign trading in the form of private bankers who joined them as part of amalgamation deals. By the 1920s, English joint-stock banks had established branches in France, Germany, South America, and Africa (Cassis 1994:52– 60, 74–7, 109, 133; Cottrell 1990:32–5; Cottrell 1992:50–2; Goodhart 1972:137–8). One indication of the new political prominence of the leading bankers was their tendency after 1900 to use Institute sessions and shareholder meetings as forums for their political and social views. Spencer Phillips of Lloyds vented on the Boer War and business cycles and Felix Schuster of the Union Bank spoke out against death duties and tariff reform, to cite two examples. Especially after 1906, civil servants frequently solicited jointstock bank directors for their advice, and the bankers freely gave it. Highlevel civil servants also found their way into banks: in the decade after 1900 banks welcomed onto their board such major figures as Sir Michael HicksBeach (Chancellor of the Exchequer from 1895–1903), Alfred Milner (High Commissioner for South Africa after the Boer War) and George Murray (Secretary to the Treasury from 1903 to 1912) (Sayers 1957a: 37, 55; Cassis 1994:298–306, 65–7, 119–20). 147

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All these changes in administration and co-operation depended on and reinforced the banks’ uniquely fortunate position regarding their shareholders, depositors, and workers after 1880. Bank shareholders after 1890 were both more diffused and less likely to protest (either verbally at meetings or by selling their stock) than ever before. The number of Midland shareholders grew from 2,049 to 5,387 between 1890 and 1897; the London & Westminster, which saw its average holding diminish from £500 in 1867 to £210 in 1898, passed 10,000 shareholders in 1900. The Midlands general manager forbade individual holdings of more than 600 shares and pensioned off two large investors in a Liverpool bank upon taking it over in 1897, and the Union restricted the number of votes of all shareholders to 20 regardless of the size of their holdings (Holmes and Green 1986:101; Interviews 1910:36; Gregory 1936:I, 385).4 In contrast to the “democratic” banks of the 1830s, larger proprietaries and smaller holdings did not signify more widespread participation; rather, as was also becoming the case with railways, the typical bank investor was now a passive recipient of dividends whose bank shares were part of a diversified portfolio. Unlike railway stock, though, bank shares gained in both yield and value after 1895. Published net profits of English and Welsh banks increased steadily from 3.4 to 5.2 percent between 1894 and 1907, while the market price of bank shares rose from 167 to 189 over the same period (Capie and Webber 1985:38, 44). In contrast, “ordinary” stock in railways plummeted in value from 194.6 to 120.4 between 1896 and 1907, as did practically all “gilt-edged” securities other than bank stock (Lawson 1907:327). Besides holding on to their shares, bank investors held their tongues at shareholder meetings, which tended to be much more peaceful affairs than railway meetings at the turn of the century.5 The joint-stock banks’ imperial bravado and impressive levels of cooperation also kept them in good stead with their depositors. Their “bigness,” once it was suitably adapted to meet provincial demands, was itself very effective in winning customer loyalty. Few commentators on amalgamation failed to mention “[t]he power of large figures to attract business” (BM 86 (1908):5). But national status needed an extra coating of local color to sell in the provinces. Like the British army, which improved volunteer rates dramatically after 1900 by combining strident nationalism with a strong regional focus at the regimental level, the more successful banks maintained a delicate balance between their national image and their roots in local communities. This task was made easier by the fact that most banks grew by taking over smaller firms, which could be portrayed up to a point as the same staff working under a different name. Most customers noticed nothing new after a merger apart from “the alteration of name on the bank’s doors and in their cheque books,” noted Steele in 1909. “Their credits are received and their cheques paid by the same cashiers, who chat to them on the same subjects, and are not less obliging than of yore” (33). The fact that branch managers and inspectors did not tend to be local men might 148

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be a sore point among some borrowers, but it was less of a problem for customers who seldom ventured beyond the teller’s desk. One very tangible benefit of the bankers’ “bigness” in the provinces was their improved capacity to open checking accounts. Before the habit of writing checks caught on among depositors, provincial branches had little means of competing for new savings apart from raising their deposit rate; this was potentially dangerous and not always effective, as the continuing competition from savings banks illustrated. Check-cashing services gave these banks a unique market niche which they were well positioned to fill, owing to their efficient clearing operations and growing clerical staffs. Provincial clearing houses had formed in Liverpool, Manchester, Newcastle, and Birmingham by 1887, and new clearings opened in Bradford, Leeds, and Sheffield between 1887 and 1896. The Bankers’ Magazine welcomed these “country clearings” as a necessary prerequisite for “the whole system of clearing cheques to be assimilated all over the surface of the United Kingdom” (47 (1887):587, 593; 62 (1896):2).6 As they did with almost everything, bankers put a nationalist spin on this new service. Owing to the “prodigious” extension of bank branches, observed William Fowler at the Institute of Bankers, it was now the case that “many small traders keep banking accounts, and use cheques instead of cash, who, in former times, would have kept gold and notes in their houses, as the French still do” (Fowler 1900:240–1). Although small checks might have won favor with provincial depositors, they were less popular among the clerks who processed them. Even those who sympathized with amalgamation admitted that it “caused much additional work to bankers without additional payment” (Jones 1910:611). In stark contrast to railways and docks, however, banks generally avoided any labor unrest or even union organization. Outside organizing efforts went nowhere at the turn of the century, and a proposed National Association of Bank Clerks in 1914 failed to survive the War. One way to account for this difference is that the overall size of the banking workforce lagged behind that of the railways. Bank staffs after 1900 were huge by mid-nineteenthcentury standards, with over 40,000 employees overall in 1909 and as many as 2,880 on staff at the major banks. But such numbers paled in comparison to railways, and the fact that so many clerks were newly hired deprived them of the sense of community experienced by lifetime railwaymen. Once employees signed on with a bank, strictures against seeking employment from rivals and the threat of forfeiting pension contributions tended to keep them there, hence reducing their ability to compare notes with workers at other banks (Cassis 1994:134; Holmes and Green 1986:64–5, 112; BM 52 (1891):497). Another difference in labor conditions at banks and railways was that bank employees were practically all clerks, as opposed to the mixture of clerks, porters, and engineers who worked for railways.7 As such, all young men 149

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seeking employment from a bank could look forward to a career noted for its “clean-handedness, its respectability…[and] its comparatively easy hours” (BM 63 (1897):41). Like civil servants, bank clerks were recruited from the best public schools, they needed to pass written and medical exams before joining the bank, and they self-consciously joined a first generation of workers who were hired on the basis of merit as opposed to family connection. Once accepted into the trade, there is every reason to believe that many clerks retained their meritocratic mind set. “Gilbart Lectures” on banking practice, which were “a great source of instruction to bank clerks in the City,” regularly rewarded the most attentive attendees with monetary prizes (BM 63 (1897):48–50). Banks paid for their clerks to join the Institute of Bankers, where they could listen to more scholarly papers and win further honors; in 1893 a sister institute was established in Manchester, which soon arranged for an annual lecture course at Owens College (BM 128 (1929): 202). Many clerks, especially in Scotland, took their employers’ imperial rhetoric literally, seeking work in colonial banks after a training spell at home.8 The politics of conservative lending The joint-stock banks’ success in dealing with their shareholders, depositors, and workers was as much a tribute to their marketing ability and financial prosperity as anything obviously “political.” Their ability to remain in the good graces of their domestic borrowers required more political acumen. Unlike depositors and bank clerks, traders in late-nineteenth-century England were not known for their submissiveness in the face of new rules. As railways discovered to their distress, traders and farmers had the potential of stirring up considerable trouble in Parliament, especially once they had organised themselves into stronger chambers of commerce and new groups like the Mansion House Association. And although all the evidence is not in, it is at least arguable that English merchants and manufacturers had as much reason to complain about their financial services as about their freight bills. One of their leading charges against the railways, that they granted special rates to foreign traders, applied at least as much to the bankers’ “export of capital.” And in terms of perceived changes in policy, erstwhile customers of private or small local banks could not have responded favorably to the new regulations handed down by head offices, nor to the succession of nonlocal branch managers who passed through town on their way to London. To some extent, the joint-stock banks’ relative success at keeping traders quiet can be attributed to their ability to brandish their new organizational techniques as the latest in financial machinery, much as they had once sold traders on inland bills of exchange. Similarly, they could confidently claim that they were the only show in town: no other institution in 1900, either surviving private banks or projected “people’s banks,” could come close to 150

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competing with the resources of the expanding branch networks of the major joint-stock banks. The case of railways, however, which also boasted superior organization and market dominance, suggests that banks needed to be able to bring something extra into their relations with traders. That something was the idea that stricter banking rules would help industrialists help themselves, by prodding them to discover new ways to finance their business. Sometimes independently but often with direct guidance from their banker, industrialists took this rhetoric of self-help to heart. Instead of combining to ask Parliament to reverse the concentration of banking companies, English traders joined together, awkwardly and not always very efficiently, to form large-scale companies of their own. The banks’ new office machinery often quite literally embodied the latest technology. Unlike the bankers’ earlier rhetorical appeal to machinery to sell traders on the inevitability of the inland bill system, there was nothing rhetorical about the telephones, wire services, and calculating machines that greatly improved the ability of a head office to monitor its branches on a national scale. Felix Schuster, whose Union Bank grew from four London offices when he joined the firm in 1888 to 130 nationwide branches by 1910, illustrated the close ties between technology and an extensive branch network: we have 80,000 clients in the bank—90,000 probably—but I can ring this telephone now and send up to my country branch manager, “How is so and so’s account in Bristol?” or in Nottingham, and he will tell me how that account stood and what the security was at the end of last week. (Interviews 1910:46) Circumstantial evidence suggests that banks made more progress than insurance offices and railways in the use of accounting machines and typewriters, and they clearly made good use of the newly expanding telephone and telegraph industries (Alborn 1991:312–16; Campbell-Kelly 1993). Bankers claimed that their more disciplined approach to lending would encourage self-discipline among traders. Schuster admitted that the local borrower did not “get perhaps the exceptional treatment that he might have had under the old conditions from a private bank,” but concluded that this was for his own good. “I do believe the indiscriminate granting of credits to the individual is injurious to himself,” he asserted; lending fixed capital to a firm was “bad for the trader” (Interviews 1910:47). Such public pronouncements clashed with the often unstated claim that risk aversion, not moral welfare, was really behind the banks’ stricter adherence to conservative lending rules (Goodhart 1972:162–5). Although the Midland told local borrowers that its rapid growth was for their own good, its chairman privately described his policy as being 151

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“to spread our risks as much as we possibly can, avoiding all large and unwieldy accounts” (cited in Holmes and Green 1986:82). Or, as Charles Gow of the London Joint Stock Bank more frankly put it in an imagined manager’s response to a loan applicant: “I have enough of that kind of accommodation; I have 100 shipbuilders or shipowners; I am not going to give out more than a proportion of my money into that particular trade” (Interviews 1910:82).9 Some traders responded to the diminished flexibility of national banks by trying to establish local alternatives, much as they concurrently built ship canals to compete with the railways. In industry, such schemes either never got off the ground (as was the case with the Birmingham arms merchant Dudley Dockers proposal for an “industrial bank” in 1907) or were swiftly driven to merge with a larger joint-stock bank (as was the case with the short-lived City of Birmingham Bank). 10 More splashy, but equally ineffective, were proposals for co-operative banking by farmers, who were quicker than most industrialists to blame their economic woes on inadequate bank lending. German-style “people’s banks” for agricultural credit attracted periodical waves of support from the 1880s on, often accompanied by sharp words against recent developments in commercial banking. One Times correspondent, for instance, who lamented that “the big banks” were “practically affording no financial assistance to farmers,” called for the establishment of “local banks with managers who know something of agriculture” (Sykes 1926:154). The Bankers’ Magazine reprinted letters on behalf of such schemes throughout the 1880s, but concluded that “[w]e cannot think that banks of this description could ever succeed”—rightly pointing out that “people’s banks” would necessarily be even more dependent on the City than the people who composed them presently depended on banks (59 (1889): 218).11 Merely being able to outcompete upstart industrial or agricultural banks, however, did not in itself render the joint-stock banks’ market position secure. As will be discussed in Chapter 9, railways were starting to learn this lesson in the 1880s, when they easily survived the ship canal movement only to face a much more difficult challenge when traders diverted their energies into forming pressure groups. Owing in large part to the financial position and political traditions of their domestic customers, joint-stock banks never had to face anything close to the sort of political scrutiny experienced by the railways. Unlike the railways’ freight customers, who in most cases wholly depended on them for carriage, most bank customers possessed the alternative of meeting their long-term capital needs by raising equity. Although not as convenient as bank loans, this option had long appealed to many traders as a symbol of independence from City finance. When their local banks grew harder to distinguish from the City, it seemed an obvious move for many of them to go public. Indeed, the same improvements in communications technology that had allowed banks to improve their services 152

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to depositors transformed the ability of stock exchanges in both London and the provinces to facilitate company flotations (Michie 1985). Both in its timing and substance, the English company movement was at least partly a response to the constraints on bank credit that resulted from the bank mergers of the early 1890s. English industrial firms tended to go public after banks combined, not before. Bank mergers peaked at an average of nearly sixteen per year in 1890–2, followed by a relative lull of under ten a year the rest of the decade; the number of newly registered limited companies, in contrast, increased from 2,513 in 1893 to 5,148 in 1897. A similar pattern of bank mergers followed by company formations was repeated in 1900–10 (Sykes 1926:194–5; Payne 1967b:527–36; Capie and Rodrik-Bali 1982:286, 291). And when companies did form, they owed more to the voluntarist politics that had marked company flotations in the past, as opposed to the managerial innovations that typified concurrent bank mergers at home and industrial mergers abroad. The English merger movement also appeared in different industries—brewing and textiles—than was the case in America and Germany, where the new companies mainly specialized in heavy industry. In brewing, the new English firms culminated a decades-long process whereby London brewers had gradually increased control over retailing by acting informally as banks via the “loan-tie” system; substituting financially dependent pub-owners with shareholding franchises was the next logical step (Gourvish and Wilson 1994:268–86; Watson 1995:214–22). In textiles, new companies like English Sewing Cotton were typically loose conglomerates of existing family firms. As one historian has concluded, the new British companies were “more in the nature of an existing trade association given a single legal entity than they were effective operational units in a management sense,” and consequently “were, on the whole, inefficient and unprofitable” (Mathias 1975:41–2; see Hannah 1983:20–8). When commercial bankers stopped to consider the company movement, they were quick to recognize its fortunate political and economic implications. Politically, it was more beneficial to banks that industrialists formed trade associations as opposed to pressure groups. Economically, it generally improved the value of their assets. The Bankers’ Magazine commented that the rise of self-sufficient companies had occasioned “an immense shrinkage in loans made by the banks” (63 (1897):254–5). But what companies took away from banks in direct loans they gave back in the form of debenture stocks, which were easier to unload than loans and nearly as safe. Since the banks continued to be better than the general public at discriminating between good and bad securities, they could profitably employ part of their “surplus deposits” by skimming the best company shares off the top. In lending money to a company, concluded Felix Schuster, “the position of the banker or any other creditor becomes quite different” than when dealing with an individual borrower: the banker was “entitled to ask for security where in former cases there might have been no necessity” 153

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(Interviews 1910:43). Many banks also turned a profit by acting as registrar for new company issues, a service which the Midland performed for the Chesterfield Gas and Water Board and the Bradford Dyers’ Association (Holmes and Green 1986:115–17). By selectively propping up the slow-developing British company movement, joint-stock banks maintained what they claimed to be a safer distance from direct industrial loans without, in the process, overly alienating too many industrialists. Those industrialists who did feel the pinch lashed out at more prominent targets in the City, such as the gold standard and the Liberal Party’s continuing faith in free trade, leaving the joint-stock banks more or less untouched. These impulses found a voice in such organizations as the Bimetallic League and the Tariff Reform League, which produced volumes of propaganda but little by way of practical results. In these debates, bankers quietly took up a position that was firmly on the City’s side but far enough out of the limelight not to be noticed. Their main contribution to the bimetallic debate, for instance, was to lobby for a remintage of gold sovereigns to replace the underweight coins then in circulation, hence binding Parliament to a large investment that would depreciate to nothing if the gold standard was ever abolished (Alborn 1991:316–21). Banker-MPs made speeches on behalf of free trade at their private meetings, but generally kept quiet when the issue came up for discussion in Parliament (Cassis 1994:301–7). Under these circumstances it is revealing that on two of the rare occasions when English banks were blamed for economic decline, reformers suggested that depositors, not shareholders or managers, were ultimately responsible for effecting change. The engineer Leopold Joseph appealed to Germany as a case where depositors had been willing to sacrifice some security to the greater good of long-term industrial credit. He was well aware that Britain’s new industrial companies, in contrast to those in Germany, had suffered from their retention of localism and voluntarism. They were “more or less under the direction and control of the pre-owners,” he complained, unlike German companies which benefited from the investment strategies of state-supported banks (1911:7). Recognizing that British banks were only acting in their interest by catering to their depositors’ demand for financial security, he lay much of the blame for their weak industrial ties on the depositors themselves. Unlike continental bank customers, who were more willing to let banks use their savings for the benefit of national industry, English depositors feared the “undue risks” that went with industrial credit and tended to “withdraw their deposits momentarily” from any bank that pursued such a policy (10). He concluded that English depositors acted this way “by reason of traditional custom more than by their own thought and conviction” (10): the same custom, ironically, that Bagehot had praised as the cornerstone of Lombard Street. Hence he found himself in the unenviable position of getting depositors, one of the more diffuse interest groups in England, to value 154

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industrial finance above their own personal security; and from there, to convince banks to change their lending policy accordingly. Like Joseph, J.A.Hobson hoped that depositors and other “small investors” might one day convince their bankers to adopt a more rational lending policy. The problem, in his eyes, was that the “investing and speculative classes” (which by implication included depositors) were “the cat’spaws of the great financial houses” who formed “the central ganglion of international capitalism” (1987:56). Shielded from the democratic process by civil servants and by its close ties to the City, the state would continue to annex foreign lands “as special preserves for companies of investors,” resulting invariably in “strife between nations.” When he first introduced this idea in 1900, as part of his larger condemnation of imperialism, he doubted if small savers could dictate financial policy to the City, just as he suspected that the masses more generally would never break themselves of the habit of militarism. By 1911 he was more optimistic that the “small investors” who valued long-term security more than short-term profit would realize the close connection between peace and financial security. The mainsprings of permanent peace, he predicted in 1911, were the “[t]housands of middling citizens” who were directly interested, “as owners of securities, in the welfare of one another’s country” (111, 123). This diffusion of capital, he hoped, would be enough to blunt the future impact of the arms dealers and shipbuilders whose political manipulations had caused the Boer War. Like his short-lived optimism on behalf of world peace, however, Hobson’s newly benign attitude about the agency of bank depositors would not survive the First World War.12 The Barings crash: joint-stock banks and City brokers If the banks succeeded in avoiding much political criticism of their move toward a conservative domestic lending policy, as of 1890 they still faced the problem that much of their increasingly important foreign bill business was handled by City brokers over whom they had little control. When the ancient house of Baring Bros failed to collect on a huge array of Argentine loans, it appeared to confirm the bankers’ worst fears that the new foreign bill market was no more stable than the old inland bill trade had been. Within a year of the Barings crash, however, bankers made two pleasant discoveries. They first found out that the City in 1890 was better able to take care of itself than it had been thirty years earlier. The Bank of England directly intervened to bail out Barings, instead of making the situation worse as it had when Overend got into trouble in 1866, and the other City brokers and private bankers quickly closed ranks to prevent the panic from spreading. The Barings crash also taught the joint-stock banks that it was possible to take credit for a financial recovery which they had little role in bringing about. While the City was busy patching up personal rifts and 155

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plotting imperial policy, bank directors made the rounds at their shareholder meetings to brag about how much money they had pledged on behalf of the Barings’ debts. There was much in the Barings case that resembled the crash of Overend Gurney a generation earlier. In each instance commercial banks had entrusted millions in deposits to a broker whose reputation exceeded its ability to lend money safely. Each firm abused its position as a caretaker of bank deposits by engaging in excessive competition; in the case of Barings this came in the form of a cut-throat struggle for Argentine loans with French and Belgian banks during the early 1880s. Finally, each firm failed when its strategy of lending on high-interest, long-term securities resulted in a severe liquidity crisis. For Overend Gurney the culprit had been newly projected British and American railways; for Barings it was Argentine railways and other public works commissioned by the ruling Gaucho ministry. The involvement of the Argentine state added an explicitly political dimension, in that a July coup was among the proximate causes of the crash. This allowed critics to claim, in more or less chauvinist fashion, that the Barings loans had encouraged a culture of economic growth that exceeded the Argentine state’s capacity to raise sufficient tax revenue through democratic means (Thompson 1992:425–9; Ziegler 1988:234–43; Bendana 1991:263–9). The one crucial difference between the two failures lay in the City’s relative ability and inclination to contain them. In the earlier case, Overend’s imprudence provided the Bank of England with an ideal opportunity to eliminate a major rival in the inland bill market; with little heed for wider ramifications, the Bank had kept up the pressure until its competitor was dead. In the case of Barings, the Bank valued the overall stability of the money market more than its own standing as a bill-discounter, and took the lead in a City-wide guarantee of the firm’s liabilities. The Bank’s relationship with the state was also markedly different in the two crises. Unlike his predecessor, who had gladly accepted Gladstone’s offer to suspend the Bank Charter Act in 1866, the Bank Governor Lord Lidderdale thrice refused George Goschen’s proposal to extend the same favor in 1890. All this is not to say that hard feelings among City brokers, and between the City and the government, had disappeared completely by the 1890s. But in none of these cases was a single financier’s intransigence sufficient to crack the City’s otherwise unified front (De Cecco 1974:91–4; Pressnell 1968:204– 5; BM 52 (1891):53; Ziegler 1988:253, 263). The centerpiece of the Barings bailout was the guarantee fund that Lidderdale and Goschen collected upon receiving word of the firm’s insolvency. After a week of secret negotiations with Bank officials, the leading London houses pledged more than £8 million (later rising to £15 million) to “make good to the Bank of England any loss which may appear whenever… the final liquidation of the liabilities of Messrs. Baring Brothers & Co. has been completed” (BM 50 (1890):1,934). The timing of the 156

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contributions testified to the persistence of an aristocratic hierarchy among City houses. Bertram Currie of Glyns was the first to add his firms pledge (of £500,000) to the Bank’s own offer of £1 million, having first satisfied himself of its safety from a personal inquiry into Barings’ assets; in so doing he “shamed” Rothschilds into matching his pledge. Nine other private banks and brokers followed with pledges that brought the total up to £3.25 million; only on the following day was the hat passed on to the London joint-stock bankers, whom Lidderdale had spurned in favor of Currie when he was seeking advice about the guarantee. The five joint-stock banks made up for their lateness with largesse: their individual contributions matched or exceeded those of every financial institution save the Bank of England. Three of them promised £750,000 and the other two set aside £500,000 (Cassis 1994:19; De Cecco 1974:93–7; Ziegler 1988:252–4; Pressnell 1968:204–7). In the aftermath of the bailout, joint-stock bankers did their best to blur the social distinctions that continued to segregate them from their more venerable colleagues in the City. At the Institute of Bankers, Thomas Salt pointed to the Barings affair as a sterling instance of “the capacity of Englishmen to stand side by side in a time of peril” (1891:612). Salt and other bank chairmen carried this message to their individual shareholder meetings in 1891, taking care to put the joint-stock banks’ role in the guarantee on the same footing as that of the other City bankers. Frederick Francis at the London & County announced that he “did not think that the governor of the Bank of England would have had the courage to undertake the liquidation of Messrs. Baring Brothers’ affairs without the support of the joint stock banks” (BM 51 (1891):539), while Donald Lamach at the London Joint Stock Bank gave his shareholders “the satisfaction of knowing that they had done ‘a good turn’ to a first-class house” (308). Other chairmen spoke of “doing their part” (292), acting in “the general interests of the country” (The Times, 15 May 1891), and taking a share in “the responsibility assumed for the public benefit in a grave crisis” (BM 51 (1891):530). All were quick to praise the Bank of England profusely, which had the consequence (intended or not) of placing private, joint-stock, and merchant bankers alike under the umbrella of its governor’s “splendid management” (307). More than anything, such rhetoric shored up support among shareholders for the major administrative changes the banks were undertaking. Salt extended the language of English camaraderie to those shareholders who would “alike find themselves contributors to the patriotic effort so timely and so forcibly pressed upon the great banks by the Governor of the Bank of England, by the Chancellor of the Exchequer, and by the press” (1891:615). The directors of the North & South Wales Bank similarly called on their shareholders to approve a £100,000 pledge in order to help “avert what might have been a European calamity.” When a stubborn proprietor worried that the Barings guarantee would be turned into a precedent for 157

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more costly bailouts in the future, a director successfully silenced him by claiming that “if anything were to occur requiring at the hands of the North and South Wales Bank equal national and patriotic vigour, we have men on the board fully equal to any action that may be requisite at any time” (BM 51 (1891): 550–1). If the rhetorical appeal of patriotism helped the leading joint-stock banks win support from shareholders for their new policy direction, it also improved their ability to browbeat recalcitrant fellow bankers into line. In proposing the formation of what would become the Central Association of Bankers, one manager asked: “Our bankers have stood bravely by Messrs. Baring in and since the crisis of two years ago; is it a ridiculous thing to suggest that they should make a compact to stand by each other?” (BM 55 (1893):90). One way bankers tried to convert the Barings’ experience into improved co-operation concerned the level of cash reserves held by London joint-stock banks, which had slipped from 12.9 percent in 1879 to 10.3 percent in 1888. Prior to 1890, Goschen had scolded the joint-stock banks for letting their depositors down in a well-publicized speech in Leeds, and after the crash he stepped up his efforts to get the banks to improve their liquidity. Although no formal arrangement ensued, most London banks were showing more than 13 percent reserves by 1891. Also in response to an informal suggestion from Goschen, joint-stock banks agreed among each other in 1892 to supplement their usual half-yearly reports by publishing monthly balance sheets, while provincial banks consented to quarterly reports (Pressnell 1968:211; Easton 1904:226). Deposits and democracy: the savings bank debate, 1890–1910 The heady combination of the merger movement and the Barings bailout gave joint-stock banks new self-confidence, which translated into a new relationship with the state. In the 1870s, when they were still getting used to their newly national identity, the larger banks had little choice but to allow the government to play a major role both in laying the basis for their collective move to limited liability and in informally regulating, through the Post Office Savings Bank, their competition for small deposits. By the 1890s, commercial banks realized that they were now in a good position to compete for smaller accounts, and consequently cried foul when it looked like the state was covering savings bank deficits with tax revenue. After 1890 the larger joint-stock banks had also redefined themselves politically as conservative anchors of the British Empire, and it was from this bully pulpit that they preached dire warnings about the Treasury’s apparent willingness to subordinate the savings banks’ financial security to the masses’ transient whims. Although the savings bank debate only lasted from the early 1890s until the end of the Boer War, it revealed much about the banks’ changing 158

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self-image in that crucial decade. As such, it raises an important point about the priority typically granted to the “gentlemanly” City as opposed to the branch managers and clerks who supplied the City with deposits. Unlike the more famous events in the turn-of-the-century banking world, this controversy was specifically a joint-stock affair. As a result it has tended to receive less attention by most historians who either focus on single banks (hence losing track of collective endeavors) or on the City (hence losing sight of issues that concerned joint-stock banks alone). Competing for deposits Although the extension of joint-stock bank branches in the 1890s had been impressive, it could not touch the achievement of the Post Office Savings Bank, which had grown to 14,000 branches by 1900. This extension, paired with a fall in the interest allowed on Consols, meant that what had been a profitable venture in the 1860s had turned into a money-losing operation. Having committed to a fixed rate of 2.5 percent on all deposits, the Post Office found itself running a small deficit by 1896—a situation that was bound to get worse once Goschen’s plan to reduce interest on Consols took effect after 1900. To stay afloat, postal officials constantly lobbied for increases in the maximum annual and total deposit levels, in the hope that this would leaven their costly small accounts with better-off savers. In 1891 they achieved half their goal, convincing Parliament to raise the maximum total deposit from £150 to £200; two years later the Chancellor of the Exchequer, Sir William Harcourt, successfully backed a bill increasing the yearly minimum from £30 to £50. Besides lobbying Parliament, postal officials helped themselves by aggressively and ingeniously marketing their services to the masses. Henry Fawcett, the celebrated blind postmaster, introduced the idea of stampbooks to encourage schoolchildren to save, and circulated over a million copies of his Aids to Thrift at no cost (Perry 1992:70–4). Against this backdrop, statistics of steadily increasing savings bank deposits underwent a crucial change in meaning for joint-stock bankers after 1890. Once a sign of improved thrift and social order, the growing habit of saving among artisans, women, and children now signified an untapped resource for the increasingly efficient branch networks of the big commercial banks. In 1890 the Bankers’ Magazine published a regional breakdown of deposit statistics in order to show bankers “in each place mentioned how far the Post Office is competing with them,” and to urge them to “consider whether they cannot contrive in some degree to tap the source from which the Post Office has drawn so abundantly” (50 (1890):1632). Later in the decade an Institute prize essay called on the banking community “seriously to consider whether it can meet the Post Office authorities on their own ground as competitors” (Cherry 1894:420). The Midland, at least, was 159

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apparently listening: in 1894 its Board discussed “a scheme for receiving Small Deposits on the lines of the Post Office” (Holmes and Green 1986:100–1) and in 1900 it made bids on two Yorkshire banks upon being apprised of the growth in savings bank deposits in that region (106). The chairman of the Liverpool Union Bank likewise mentioned “increasing savings bank and other competition” as the spur behind the bank’s decision to maintain “a full minimum deposit rate” (BM 57 (1894):464). If banks had cause to thank the Post Office for teaching them how to compete more efficiently for deposits, though, they sorely resented what they viewed as special legislative allowances that had enabled the state to poach on their territory. In 1895 the chairman of the London & Yorkshire Bank noted that the Post Office presented “competition of a kind which we have all a right to resent” (BM 59:472–3). Owing to Harcourt’s Act, complained Salt to his Lloyds shareholders the same year, “we bankers are compelled to pay a rate of interest which we cannot afford in the present state of the money market, otherwise the money goes to the Post Office” (467). The same concern came to the fore at the annual meeting of the National Provincial in 1896, where Richard Wade complained that Harcourt had given “advantages…to a totally different class of the community who were perfectly well able to take care of themselves” (The Times, 15 May 1896). As Wade’s comment suggests, such complaints assumed (incorrectly, as it turned out) that the state, in allowing larger annual deposits, had encouraged “small tradesmen” to withdraw their accounts from joint-stock banks or had led tradesmen who were first-time savers to plump for the Post Office instead of the local branch of Lloyds or the National Provincial.13 The joint-stock banks’ impression that they were losing their customers to the government, however, receded as quickly as it had appeared. After 1900 interest rates had risen enough to make the Post Office offer of 2.5 percent seem less threatening, and the Treasury refused to grant any increases to that offer. Bankers who worried about competitors for small deposits started putting co-operative societies and town councils at the top of their list instead of savings banks (BM 86 (1908):554–5). Even when the bank rate did dip below 3 percent, they were gaining confidence that their increasing array of marketing devices, such as low-minimum checking accounts, would keep smaller deposits coming their way. In 1908 the Yorkshire banker A.H.Gibson observed that the “inrush” of new depositors following Harcourt’s Act “had in the main spent itself by 1900,” showing that the growth rate in Post Office deposits since 1901 was just a third of what it had been in the seven years after 1894 (1908:18). He also pointed to the establishment of Savings Bank Departments at joint-stock banks in Birmingham, Halifax, and Nottingham. Others had simply advertised that they would receive smaller deposits; but Gibson urged that “the words ‘Savings Bank Department’…will probably, in the long run, appeal more to the public mind” (26–7). The ever-adaptable joint-stock banks were well 160

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on their way to learning an important lesson from the entrepreneurial British state, which they used to beat the government at its own game. Competing for safe investments In laying claim to a class of deposits which they had formerly ceded to the savings banks, joint-stock bankers implied that their improved administrative efficiency would allow them to compete for these deposits without diminishing profits. A similar claim, with more explicitly political connotations, was that joint-stock banks had come to be better able than the state to protect the nation’s savings against the threat of “irrational” bank runs. This claim surfaced in a second argument against further growth of the Post Office Savings Bank network, concerning the increasing share of Consols pledged on behalf of its deposits. The banks had strictly financial reasons for worrying about Consols, since their conversion to limited liability had necessitated larger holdings of liquid assets, of which Consols were the most popular. But they also worried that Treasury officials were newly vulnerable to democratic pressures, now that the state had committed itself to pledging the full security of the nation’s tax revenues against the threat of a savings bank run. In expressing this concern, joint-stock banks completed their departure from their original political moorings. Financial security and democratic participation, once closely allied in the politics of joint-stock banking, became completely severed in their debate with the government over savings bank deposits. The proportion of savings bank deposits to the national debt rose from 4 to 11 percent between 1852 and 1882 (Baker 1882–3:47–8), and it would double once again in the next decade. At the same time, commercial banks after 1879 moved ever closer to the savings banks’ conservative investment practices to help maintain the trust of their own depositors, which had threatened to waver following their move to limited liability. Banks invested much of the extra reserve funds that they added after 1878 in Consols, which they valued as being much more liquid than bills of exchange or even foreign government stock (Goodhart 1972:127–9). “[W]e have filled ourselves up with good English Government securities,” as Salt told a Lloyds meeting in 1891 (BM 51:534). Consequently they started to see themselves as legitimate competitors with the savings banks for a declining pool of public funds. In this sense, at least, they had moved a great distance since the 1830s, when they had preferred loans to industry as securities over the high-priced, low-yield securities offered by the state. In 1837 J.W.Gilbart had praised savings banks for raising the price of Consols and causing “some of the holders to sell out and employ their money in trade and commerce.” In 1894, when banks themselves were major fundholders and were reluctant to invest too heavily in domestic trade, the banker Albert Cherry called Gilbart’s defense of savings banks “somewhat far-fetched and by no means selfevident” (Cherry 1894:413). 161

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Bankers were convinced that savings bank deposits had permanently unsettled the market in public funds. The growing fraction of government stock held in trust for savings bank deposits abetted an artificial increase in the value of Consols, which peaked at 110 in 1896 and hence diminished by 10 percent the real return on newly purchased funds. Although bankers could respond by trading in their Consols for higher-yielding municipal and railway bonds, these less-liquid stocks weakened the absolute level of security they could offer depositors. An opposite problem appeared soon after, when the enormous fiscal demands of the Boer War (among other factors) drove the price of Consols down to 94 by 1901, finally bottoming out at 71 in 1913. This downward spiral made Consols even less enticing to banks, hence depriving them of a major type of near-cash asset (Goodhart 1972:130–3; Crick and Wadsworth 1936:192; Pownall 1914:5, 26–7). A second consequence of pledging so much of the national debt to the Post Office was that it restricted the Treasury’s ability to redeem the debt without disrupting the money market. In the past, noted the Bankers’ Magazine in 1895, the state had always “kept the date of repayment of its debt strictly in its own hands” (60:710); this had allowed Goschen to reduce interest on Consols in 1888, a time when a host of alternative securities were readily available, without unduly affecting their price. The large proportion of savings bank deposits that were payable on call, however, threatened to subordinate any foresight future Chancellors might possess to the short-term interests of “the people” (BM 59 (1895):377–8). This criticism of debt management revealed a more general suspicion that democratic passions had finally breached the once-unassailable Treasury. The unintended irony of this verdict was that joint-stock banks had pursued precisely such a course seventy years earlier. Like the Treasury in 1900, the early joint-stock banks had preferred to define financial security in terms of democratic participation, not marketable debt. And like the Treasury, they had been willing to bet that their customers would share their shareholders’ confidence to a sufficient extent to accept their notes. In rejecting the government’s savings bank policy, they were rejecting their own democratic past. The joint-stock banks’ new precepts for maintaining depositors’ trust, which had more to do with deception than with participation, were on display in their alarmed forecasts of savings bank runs under the new Post Office regime. They darkly warned that “depositors are not of a reasonable class as a rule, and the diversion of savings bank deposits into ‘old stockings’ is no impossible contingency” (BM 56 (1893):400). Such alarm was linked to the suspicion that the Treasury had become too imbued with democratic leanings to be capable of diverting irrational depositor behavior into less threatening directions. Its apparent willingness to subsidize deposit interest with tax revenues indicated to George Pownall that the “chastening fear of the ballotbox” now prevailed over its traditional concern for financial stability (1903:176). Without accusing the Treasury of ever directly 162

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occasioning a panic, bankers implied that it had created the conditions under which a panic was far more likely. Imagining how such a run might unfold, the retired bank director Alfred Marks described “an angry crowd kicking at the door of the Post Office Savings Bank, temporarily closed while the Postmaster General…[sought] to transmute into golden sovereigns the statutory charge upon the Consolidated Fund of the United Kingdom” (1905:16). Pownall similarly asked the Institute of Bankers “what would be the state of society if nine millions of depositors…were waiting at the doors of rural and urban post offices for their money, or for explanations as to the meaning and value of Government IOU s” (1903:183). This apocalyptic vision of nine million bewildered depositors demanding their money was intended to shame the government into laying its populist tendencies to rest. The Bankers’ Magazine lamented in 1895 that the modern member is no longer a national representative, but a local delegate. He is not sent to Parliament to speak and vote as he thinks best in the interests of the empire, but to voice the aspirations of Eatanswill or Slocum-Pogis. (BM 60 (1895):139–40) For proof, it pointed to the government savings bank’s 2.5 percent deposit rate, “which is quite unjustified by the state of the money market, but cannot be lowered for fear of political consequences” (144). Unlike MPs, joint-stock bankers spoke entirely as they thought best, and presented themselves as more qualified to take care of the nation’s savings until Parliament changed its ways. “Breadth of view, unrestricted by local compulsion,” was one manager’s statement of normal banking practice at the time (Chisholm 1910:339). Bankers were especially keen to point to the virtual absence of any cash reserves in the Post Office as evidence of government irresponsibility. Salt, recalling Goschen’s criticism of the small reserves of the London banks, gave the Chancellor of the Exchequer a dose of his own medicine in 1895 as Post Office deposits continued to grow: “against these immense liabilities,” he chided, “the very gentleman who thought fit to lecture us on the subject of our reserves does not keep one single sovereign, and in some cases he has not even till-money” (BM 59 (1895):467). With such proclamations, the condemnation of “democratic finance” turned into a debate about the politics of fiscal responsibility. Proponents of the savings banks urged that taxpayers not only should be willing to subsidize any and all savings bank losses, they would willingly do so out of sympathy for their fellow citizens. According to Alfred Harvey, a former Treasury official who worked for Glyns, pledging Consols against a run on savings banks or making up the banks’ yearly deficits out of tax revenue counted as necessary social provisions of a democratic polity: it was a “question on all fours with the housing of the poor and other problems in 163

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Parliament which will not be settled by any hard and fast declaration of doctrinaire political economy” (Pownall 1903:205). Like joint-stock banks had done in the 1830s, the subsidized savings banks of the 1890s invoked the principles of self-help and participatory democracy, claiming that the taxpayers’ financial liability for a “run” was purely nominal since the guaranteed and guaranteeing parties were the same. Harvey, identifying his former department with the public at large, argued that “the Treasury believes in the Consolidated Fund, and thinks that a depositor who has the Consolidated Fund behind him will not ‘run’ on his Savings Bank” (Pownall 1903:207). Other observers claimed that any savings bank panic could be easily allayed by suspending the Bank Charter Act or by issuing government lOUs, which they implicitly assumed could be safely accomplished without endangering political stability (Housden 1892:505). Such rejoinders, whatever their continuity with the bankers’ own democratic past, made little impact on banks by the turn of the century. Their own experience since the 1870s had taught them that taxpayers who serviced the national debt should not have to subsidize a savings bank panic, any more than shareholders should be fully liable for a bank run—nor would they need to if deposits were administered properly. They assumed it was the duty of a financial institution to protect against any potential losses by avoiding overcompetition for deposits and by keeping a sufficiently large cash reserve. This defense of “limited liability” for taxpayers had its limits; bankers did concede that there were some branches of social policy that taxpayers should be asked to support in an “unlimited” fashion. Admitting the need for some exceptions to what Harvey called “orthodox individualism,” Pownall shunted these over to policies that did not interfere with “the maintenance of London as the chief financial centre of the world, and the unquestioned stability of our banking system.” He defended old age pensions, for instance, as “an economic need created by changed conditions in the earning power of capital dissociated from work” (1903:189). The implication was that OAPs and other forms of national insurance would redistribute wealth without disturbing the short-term transactions in which banks specialized. As he concluded: “If the State is to be charitable, it must not muddle its charity and its banking” (166). Although there is no evidence that the Government paid attention to Pownall or his fellow bankers after 1903, it certainly did distinguish more clearly between banking operations and social services in the decade before the War. The Post Office requested no further relaxations of minimum deposits after 1893 and nixed efforts to make it easier for depositors to transmit and withdraw money. In 1911 the Postmaster General turned down a proposal by the Postal Clerks’ Association to market giros (lowdenomination checks which were first introduced by the Austrian state savings bank) on the grounds that joint-stock banks were capable of handling much smaller checks in Britain than in Germany (Daunton 1985: 112–13). 164

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Comforted by these political signs, and also by the lower rate of incoming savings bank deposits, bankers gradually stopped worrying about a run on the Post Office. A.H.Gibson took heart in the fact that the Post Office paid out only 4 percent of its total deposits between 1897 and 1906, which demonstrated that its customers “save to purchase” and displayed very little of “the purely hoarding instinct which never fails to have a most injurious and narrowing effect on the mind” (1908:23). The joint-stock banks’ battle with the Post Office testifies to the distance they had come from their prior democratic practices. This path away from democratic banking paralleled that taken by political reform in the nineteenth century, from James Mill’s utilitarian utopia to the hard-nosed commitment to expertise espoused by the National Efficiency movement (Searle 1971; Tomlinson 1994, ch. 2). Like the new civil servants who learned social science with their Latin, the new bankers proudly presented themselves as being less vulnerable to democratic currents than the state and less prone to market forces than their customers. In the savings bank debate, they pointed to their role as “a small expert class” that was “rarely heard, although its judgment is really meant to help the whole community” (Pownall 1903:179). In political terms, this approach to banking was the consequence of a failure of the first generation of joint-stock banks to educate their shareholders and customers up to the “rational” level that might yet make self-governing banks a reality. As Pownall informed his banking students at the LSE: If one could pass every person through a school of economics, and so train his judgment, and so control his feelings that he always referred to and was prepared to abide by the teachings of economics, then panics and all emotional events would disappear, but that day is not yet. (1914:46) Bankers may not have trained their customers very well, but they had certainly succeeded in training themselves, as evidenced by their ability to restrict dangerous levels of competition. This allowed them to regard the transformed British political scene with the patience of the schoolmaster, intruding in public debate only occasionally while their customers learned the hard lessons of economic life largely on their own. Other companies were not so fortunate. Conclusion: local power and the limits of joint-stock politics The political trajectory of late-Victorian joint-stock banks, and their ability to put it to their advantage, is all the more striking in contrast with the 165

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concurrent experience of firms which hoped to provide tramways and electric power to Britain’s towns. In their efforts to counter resistance from local authorities, these companies appealed to many of the same arguments banks had used in the course of shedding their local origins. With the financial backing of national holding companies, they promised to build large regional networks that would provide services in the cheapest and most efficient manner. Unlike the banks, however, these companies generally failed to gain a foothold in the new market for their services, the bulk of which passed to “municipal traders” who financed power and transport undertakings out of loans and local rates, then ran them at a profit. Instead of being in a position to lecture customers on the merits of national efficiency, the tramway and electric companies were left to regard the public with disfavor as irrationally bent on putting parochialism above efficiency. This posture did little to improve their ability to break into the market, in a political climate in which the virtues of local democracy continued to prevail. Nor did it help rescue the British power supply industry from its inefficient patchwork of service provision which saddled it into the 1940s. The immediate prehistory of Britain’s first tramway and electrical companies did not bode well for their political fortunes. The option of municipal trading in gas and water, which town councils and improvement commissions had sporadically pursued since the 1830s to counter inefficient or unpopular companies, became much more widespread in the 1870s. Between 1865 and 1885 the number of towns providing their own gas lighting rose from 28 to 110, while municipally owned waterworks increased from 61 to 195. Many of these new undertakings were financed by Local Boards of Health (which Parliament had newly enabled in 1858), both to improve sanitation directly and to raise funds for other activities. The most famous conversion was in Birmingham, where Joseph Chamberlain put “gas and water socialism” on the map, and major purchases also took place in Bradford and Glasgow. The bulk of the new municipal trading, however, came in smaller, revenue-starved towns like Padiham or Skelmersdale, which viewed utilities as a way to pad their yearly budgets (Falkus 1977:154; Wilson 1991:204–7; Hennock 1973:116–24). Municipalization was far from complete in these industries (local officials ran only 37 percent of gasworks and 80 percent of water by 1912), but made enough impact in the 1870s to shift the balance of public opinion against the newer utilities when they subsequently appeared (Foreman-Peck and Millward 1994:162).14 On the face of it, tramway and electrical companies should have had little trouble distancing themselves from the unpopular private gas and water providers which preceded them. Far from representing the decaying remains of pre-Victorian local enterprise, the new companies typified everything “modern” about business in the 1890s. They were securely financed by holding companies like Emile Garcke’s British Electric Traction Group; they promised to import the latest in American tramway designs and in German 166

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electrical technology; and they aspired to form large regional networks like the Newcastle-upon-Tyne Electric Supply Company, which was supplying one-eighth of Britain’s electricity by 1910 (Byatt 1979; Hannah 1979:25– 33). Most of these companies readily admitted that provision of water, if not always gas, was a valid branch of local government (BPP 1900: VII, q. 834). They appealed to technology and political structure, not private enterprise per se, to justify themselves. Tramways made much of the need to link neighboring towns, especially where suburbs adjoined city centers; power companies appealed to the superior load that could be generated by larger plants (Byatt 1979:42–4, 205). As the Liberal MP and power company director Lord Avebury concluded: “if power is to be distributed in the cheapest possible manner, it must be from some considerable centre…and therefore no single municipality is likely to be able to do it so cheaply” (BPP 1900:VII, q. 1,562). As with late-Victorian banks, the new utility companies defended their immunity from democratic currents as the best recipe for efficient management. They contrasted their own directors with the “men with axes to grind” who served on town councils (Towler 1909:100). Other company apologists variously referred to local officials as overworked, corrupt, or secretly “socialistic” (e.g., BPP 1900:VII, qs 840–1; 3,284). Ratepayer input, they claimed, burdened municipalities with protests from public employees and extra borough fund meetings. Such things, complained one Chesterfield merchant, subordinated any improvements to “the capricious change of mind of the ratepayers…which certainly would not have affected the shareholders in a company” (q. 2,588). Just as bankers had warned about a political system devoted to representing local interests, Garcke urged that the provision of new electrical supply should be determined “by engineering conditions or the interests of the public,” and not, as was too often the case, “by the parochial spirit and the ambitions of local authorities who failed to take the broad and statesmanlike view of the movement” (cited in Hannah 1979:27). By and large, such arguments failed to bring the provision of tramways and electrical power under private control. By 1922, with the major exception of London, only three British cities with more than 60,000 people received electricity from a company (Hannah 1979:221). Tramways, despite their almost exclusively private origins, were run by local governments in 80 percent of cases by 1904 (Byatt 1979:35–6). In both industries the pattern of municipalization was similar: a private company tried to enter a town where services were underutilized or non-existent, and was either prevented entry from the start or purchased by the town at a later date. In 1898 a number of towns near Chesterfield succeeded in tabling a planned regional utility company which had promised to supply electricity to over a million people; in 1915 Leeds and surrounding towns defeated a plan by the Yorkshire Power Company to provide electricity beyond their town lines 167

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(Hannah 1979:25, 43; Roberts 1984:26–7). Even London, which lagged behind the provinces owing to long delays in the concentration of municipal authority, took over tramways in 1896, eight years after the London County Council had been established (Falkus 1977:138). Clearly, the power companies and tramways had much less success than bankers in convincing their would-be customers of the merits of national efficiency. To some extent, their failure can be described in terms of economic differences between the services: theirs were natural monopolies, banking was not. But this explanation only goes so far, especially since most utilities and tramways were willing to accept high levels of public supervision (BPP 1900:VII, qs 1,592–7; 3,293–4). A more full explanation points to crucial differences in local political context. Joint-stock banks were newly national in 1900, but they were not new. Most branches in any given town had once been part of a smaller company with local origins. As a result, they could clothe their “modern” advantages of efficiency in the comforting assurance that these would be offered at the same old corner bank. Tramways and electrical companies conjured few of these positive associations. Their appeal to modernity had a distinctly foreign sound to it: “American Invaders” rather than the indigenous expertise of Lloyds or the Midland (Mackenzie 1902). The only local associations that were attached to the new utilities were of the negative variety, namely the precedent of private gas and water companies. By 1880 this precedent was all the more damning, because it had become the target of Tory as well as “progressive” town councils (Wilson 1991:209). Instead of being about power struggles between local elites, with the companies supported by the conservative side, municipal trading had come to signify a unified sense of “civic pride in civic enterprises and institutions” (Crawford 1906:3)—as when Bolton’s Tory council, looking for funds to build “a wedding cake of a Town Hall,” purchased the local gas company in 1872 (Wilson 1991:210). Companies, in this context, were guilty of depriving a town of potential revenue until proven innocent. Furthermore, they were often in the bind of having to influence local politics in order to gain entry into the market, while somehow not appearing to be “political.” Local politicians were quick to take advantage by deriding any such attempt as evidence of incurable corruption. Citing the case of the Norwich Town Council, one member of which was also on the board of a “continental” tramway company “with no local interest in Norwich,” the journalist Robert Donald drew what was, for him and many others, the obvious conclusion: “Wherever you find a company in municipal life in England you find a little bit of corruption in its business” (National Civic Federation 1907:II, 654). Joint-stock banks after 1900 seldom faced even the occasional aspersion of corrupt methods, let alone the oppressive array of obstacles which lay in the path of tramways and electric companies. This put them in a position to lecture local governments without getting mired in political controversy, 168

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much as they lectured their customers about financial responsibility without, in the end, denying too many of them savings accounts or loans. The bank manager Francis Steele, for instance, in the course of warning branch officers to be wary of municipal loan requests, identified ignorance as the leading sin of local politicians. Town councils overflowed, he lamented, with “amateur financiers”; the typical local official had “about as much idea of the financial requirements of his council as the second-rate suburban builder has on a Monday of how his Friday’s wages are to be provided” (1909:95). To rectify the situation, bankers sometimes appealed to improved political mechanisms at the national level, as when they lobbied for the Local Government Board to tighten its policy on approving the issue of municipal bonds (Roberts 1984:30–1). More often, they urged their own branch managers to exercise especially close supervision when handling a municipality’s finances (Steele 1909:2, 92). In general, banks combined this stern public posture with a more pragmatic lending policy in practice, whether the recipient was a motor company or a town council (Holmes and Green 1986:179–80). All of Britain’s major clearing banks provided generous, if sporadic, long-term finance in sectors such as cotton textiles, coal and steel, chemicals, and electrical engineering (Ross 1990:56–64). From the banks’ perspective, this mixture of a conservative public face and a more liberal lending policy in private led to many positive results. It improved their ability to keep potential political threats at bay, to stay out of politics themselves, and to build on their impressive turn-of-the-century profit levels. About the only significant negative consequence was that it led some interwar politicians (in particular the Macmillan Committee in 1931) to accuse them of failing to be as supportive of domestic industry as their German counterparts. A side effect has been to confuse the historical debate about what exactly the banks’ role in industrial finance has been in the twentieth century (Ross 1996). These were the sort of costs that most depositors and shareholders have apparently long been willing to pay in exchange for secure savings and healthy dividends. If a focus on joint-stock politics helps clarify the sources of the debate on bankers’ alleged failure to help rationalize British industry after 1920, it also provides useful insight in sectors where the fact of poor integration between companies and the economy is less in doubt. The electricity supply industry, for instance, clearly fell far short of peak efficiency, whether measured against the contemporary performance of foreign suppliers or in terms of available technology. The only debate among historians has been over where to lay the blame: completely with the municipalities, for sacrificing a national grid to their parochial interests (Byatt 1979), or with the companies and towns alike for failing to see past their differences to solve the necessary technical problems (Foreman-Peck and Millward 1994:165–6; Hannah 1979:48–51). The brief discussion above suggests that 169

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the companies should share at least part of the blame, if nothing else for their inability to appreciate fully what sort of political challenges were posed by municipal trading. In the case of towns, “parochialism” moves from the realm of namecalling to cogent explanation when located in the context of joint-stock politics. As with family firms, which responded to changes in the mid-century money market by diverting their voluntarist ideals from banks to new company laws and other forms of self-finance, the towns’ defense of municipal trading attests to the staying power of democratic principles in Victorian business. Revealingly, one of the central metaphors employed in apologies for municipal trading was the joint-stock company, and more specifically the participatory company which had become little more than a nostalgic ideal in sectors like banking and insurance. Robert Donald called municipal ownership “a corporative undertaking in which all citizens are shareholders and directly or indirectly participate in the benefits” (cited in Roberts 1984:25). When towns performed commercial operations, argued the Liverpool alderman Thomas Hughes, they made “the people whom they represent partners in the concern, who become interested in its welfare and support” (BPP 1900:VII, q. 2,085). Such analogies on their own were inadequate as a response to the private utilities’ celebration of “modern” management principles, something which few town officials were so “parochial” as to ignore completely. When local politicians addressed this point, however, they did so without switching out of the language of joint-stock politics. Glasgow’s provost claimed that municipal corporations could match the efficiency of large companies by observing that towns delegated authority to “a committee precisely in the same position as railway directors” (BPP 1900:VII, q. 2,769). This further comparison won back some points against the power companies only by sacrificing the towns’ original voluntarist ideals. In the end, those ideals were strong enough to prevent towns from taking the next logical step: had they acted like railways beyond their own territory as well as internally, they might have combined with other existing utility providers (both private and public) to build a national grid. Then again, even a consistent appeal to the model of railway politics might not have solved the problems facing British electrification. As will be discussed in the next three chapters, railways did figure out how to set up a national network in a regionalist political context, but in doing so they produced a number of less tractable problems concerning their creditors, customers, and workers.

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Part III RAILWAYS

7 EARLY RAILWAYS AND THE MACHINERY OF JOINT-STOCK POLITICS

The first British railway companies were established between 1825 and 1835, the same decade joint-stock banks started to appear in England. Although there was much overlap among the people who invested in banks and railways, the conditions under which the two forms of enterprise emerged produced several differences which would profoundly influence their respective political claims. Geographically, the logic of rail transport entangled companies in an interlocking national network, compelling levels of co-ordination that would not be achieved for several decades among the English joint-stock banks. Legally, railways faced a problem of property acquisition which was all but nonexistent for banks: to connect Britain’s major cities, they needed to win Parliamentary permission to carve long swathes out of the privately owned countryside. Financially, the railways’ larger capital demands forced them to appeal for funds from Liverpool merchants and City financiers as well the local elites who purchased the lion’s share of bank stock. In terms of labor relations, railways employed vastly more people than banks, supplementing a common core of clerical workers with navvies, porters, guards, and engineers. And even the railways’ paying customers, whom they initially assumed would be the same traders who borrowed money from banks, ended up being far more demographically diffuse. All these differences stamped railways with a primarily national identity in contrast to the banks’ early identification with regionalism, and brought them into contact with more people than was the case with early joint-stock banks. The mechanization of joint-stock politics Both their commitment to uniform national coverage and their wider social contacts led railways to act in political capacities that sharply contrasted with those of banks. Even railway promoters who otherwise upheld middle-class values lacked the banks’ immunity from “high politics” owing to their dealings with aristocrats, City lawyers, and financiers. Similarly, when railways catered to the needs of their workers and third-class passengers, they entered a realm 173

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of social relations that was foreign to the early banks. Here they departed from a different tenet of middle-class radicalism, the “principle of exclusion” which left most of society to one side until they could be educated up to the level of rational political discourse. Faced with a large, uneducated workforce for whom eventual enlightenment was an unsatisfactory substitute for social control, railways replaced the more pristine political logic of direct representation with a rough-and-ready paternalism. These contrasting political practices, in turn, led to different Parliamentary responses to the financial hazards which befell early-Victorian banks and railways alike. The banks’ democratic leanings led politicians to connect their problems to the contemporary fear that an extended franchise would weaken the state by empowering irresponsible voters; this resulted in calls to increase share size and to diminish shareholder participation in management. The legislative response to the railway “mania” of and the subsequent crash in 1847, in contrast, had almost nothing to say about shareholder agency. Instead, moralists and MPs tried to make sense of the crisis by conjuring up the political demon of “Old Corruption,” which long predated the relatively recent threat of a democratic electorate. In this scenario, the railways had been corrupted by their contact with landlords and lawyers, and could only get rid of the taint with the help of a strict regulatory regime administered by a newly confident set of government servants. Compared to joint-stock banks, railways emerged from the legislative scrutiny of the 1840s with more of their original constitution intact but with worse prospects for continued autonomy from the state. Because Parliament had inaccurately diagnosed their problems, railways could more easily evade the regulations that materialized after the crash of 1847. Identification with Old Corruption was a half-truth which they could deny by drawing attention to the incorrect half. They admitted that their associations with landlords and lawyers had led to corruption and waste, but wrote this off as the fault of Parliament which had, after all, sanctioned all the property transfers in question. To supplement this evasive tactic, railway directors more constructively presented their companies as radical departures from older aristocratic norms of social organization. How could they be accused of Old Corruption, they asked, when the very essence of railways was modern, from their famous success in taming the physical world to their promised transformation of human nature? This argument was especially good at staving off state interference for two reasons. It appealed to indigenous innovations in administrative machinery, as opposed to the civil servants’ ideals for state machinery which could be depicted as foreign imports. And it presented a concrete model of administrative efficiency in the form of institutions like the Railway Clearing House, against which any efforts to build up regulatory agencies from scratch paled in comparison. In the short term, this aggressive counterattack was quite successful. Politicians like Gladstone were sufficiently cowed to defer to the railways’ 174

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collusive strategies for recovering from the 1847 crash—such that it soon appeared that the railways might succeed in passing on to their customers much of the fiscal burden for their expensive network. In the longer term, though, it could be argued that Parliament did both the railways and the general public a disservice by viewing the mania through the clouded lens of corruption. By letting the railways off so easily, its diagnosis prevented them from addressing latent problems in their political relations with customers, workers, and most importantly the City. The first two of these groups would rebel by end of the century, once the railways’ initial identification with indigenous machinery had worn thin through overuse, and once trade unions presented an alternative to corporate paternalism. City financiers and journalists, in contrast, posed problems for the railways almost immediately after the “mania.” They rebuked the companies and their shareholders for trying to escape responsibility for their actions. And when railways tried to recoup their losses by hiking rates, the City had the last laugh by financing new companies to undersell the older ones. These “contractors’ lines,” which were almost wholly the creation of engineers and discount houses, turned the railways’ once-agreeable shareholders against them. Local railways, national aspirations Through the mid-1830s railway and bank promoters tended to be the same people. Both groups featured a majority of manufacturers and traders, usually from the provinces, often influential in local politics. Both bought shares mainly in order to improve their overall trading position, and only secondarily to earn dividends. Yet from this common pool of projectors two very different institutions emerged. Few Liverpool merchants would have dreamed of buying shares in a Yorkshire bank; yet enough took an interest in the Midland Railway to unseat George Hudson, its popular chairman, when they deemed his policies to be against their interests. This “Liverpool Party” was only the most notorious example of a unique trend among investors to conceive of railways as national and not merely regional undertakings. The first order of business was almost always to secure railway accommodation to one’s own town. But other matters had to be taken into account as well, such as further connections to distant ports. If a railway from Liverpool to Manchester boded well for textile exports, a line stretching on to Hull boded better. However powerful the image of a national railway network would soon become, it remained the case that the initial stirrings of British railway enterprise were almost wholly regional in emphasis. The Stockton & Darlington, the first joint-stock railway to be completed in England, was not at all out of place in the culture of family firms and informal credit that pervaded northern England when its first trains ran in 1825. Dominated 175

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by two local Quaker families, this small mineral-carrying line got what extra capital it needed from fellow Quakers like the Gurneys in Norfolk and the Bevans in London (Kirby 1993:47–53, 79–81). The Glasgow & Greenock Railway, which opened twelve years later to carry goods and workers up and down the River Clyde, similarly boasted that “an entirely local board” was “the best guarantee against extravagance” (cited in Gourvish 1972:58). The obvious reason for such blatant localism early on was that railways had to start somewhere, and they had to start small. The first decade of British railway construction was almost entirely devoted to short lines connecting neighboring towns, supported by local elites in one or both communities. Between 1830 and 1837, for instance, individual companies were formed to link Preston with Wyre, Wigan, Longridge, Lancaster and Bolton (Reed 1975:81, 170–4; Broadbridge 1970:11). As long as the capital demands were small enough, such companies had little trouble raising funds within county lines, as when the Leeds & Selby raised 98 percent of its £174,200 in share capital from Yorkshire residents (Brooke 1972:244). Countering the undeniable fact of the railways’ local origins, however, was a deep sense of national scope which many of the larger companies envisioned from their earliest stages. The Liverpool & Manchester line, according to its prospectus, was “a national undertaking of great public utility” which promised “increased economy and despatch…diverging, in ramifications, to the north and the south” (Booth 1831:25; Carlson 1969:84). In 1831 the London & Birmingham drew attention to “the rich pastures of the centre of England” and prospects of Irish sea communication, without even mentioning West Midlands industry (Steel 1914:50). Its first chairman, George Carr Glyn, referred to his company as “this great national line” (Bagwell 1968:34); and the London & Southampton promised in its prospectus “to carry this great National object into immediate effect” (Williams 1968:I, 13). At times the claim of national service preceded even the bottom line of profits. When the London & Birmingham sought a government grant to help pay for an extension to Holyhead, on the grounds that it would assist “the internal improvement of Ireland” by opening up another port on the Irish Sea, a shareholder supported the extension (which ended up being built, at a loss, without the grant) “as a great national undertaking, and not as one that could be very profitable to the Company in the way of traffic” (RT 7 (1844):891, 894–5). Many railways presented themselves as national institutions in order to attract funds that were unavailable in their immediate district. Railways were more expensive than banks, and unlike banks their shares needed to be fully paid before any profits could be divided. Consequently towns like Birmingham and York, which had no problem finding local money for jointstock banks in the 1830s, needed to attract fresh railway capital by selling themselves to nonlocal traders as important links in a cross-country network. Liverpool merchants proved especially eager to fund railways as an 176

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improvement over canals for carrying goods to and from England’s interior. Although their closest ties were with local firms like the Liverpool & Manchester and the Grand Junction, they also held major interests in more distant lines like the Great Western, the Eastern Counties, and the London & Southampton. They held three times as many shares as people living in the termini of the London & Birmingham, and over £1.6 million in the Midland. They attached strings to such impressive contributions, as when a cohort of Liverpool men forced George Hudson to resign from the Midland in 1849, or when another Lancashire group remade the Eastern Counties board in their own image in 1841. London, which housed England’s only stock exchange in 1825, was another important nonlocal source of capital for many lines. “Impersonal” stock exchange funds combined with large holdings by “gentlemanly capitalists” to account for sizable London shares in such lines as the Manchester & Birmingham, North Midland, and Great North of England (Thomas 1973:31–2; Lewin 1936:358; Broadbridge 1970:160–1; Reed 1975). Another strong motive for railways to present themselves as national undertakings was to avoid being held liable to pay excessive local poor rates. Parish authorities took advantage of the railways’ obvious profitability to soak them for all they were worth, in the process radically shifting ratepaying responsibility away from the local gentry. By one estimate in 1849, assessed rates per acre of railways stood at more than 30 times the national average. When railways took local parishes to court over such fees, their lawyers minimized their strictly “local” identity in an effort to reduce their responsibility for parish relief. In particular, they urged that parishes wrongly assumed that a railway’s profits were equally derived from all sections of land covered by its tracks—which was patently not the case, especially where “feeder” lines acted as loss-leaders for major thoroughfares. By and large such reasoning made little impact on English jurists’ and legislators’ faith that local parishes knew best (Kostal 1994:222–53). What their protests arguably did accomplish was to nudge the railways themselves farther from the regionalist and voluntarist ideals that were the norm in joint-stock banks. Banks, which seldom owned enough rateable property to make litigation pay, never listened to their lawyers claiming that they were essentially national concerns. Attracting capital and resisting poor rates were important motives behind the railways’ national identity, but that identity ultimately rested on their commitment to run through trains from one end of Britain to the other. In contrast with joint-stock banks, which continued to issue hand-signed paper money in all shapes and sizes well past mid-century, railways confronted the problem of uniform standards from very early on. The fact that they did so was not preordained, although advocates of national standards often presented it that way. The Great Western, as will be discussed below, persisted in regional politics well past mid-century, and many Welsh lines 177

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were quite content to ferry coal from the mines to the sea without giving much thought to what their counterparts in Sussex or Lancashire were doing. But such instances faded as more lines began to share each others’ termini. In Dionysius Lardner’s view the construction of the Grand Junction Railway, connecting Birmingham with Warrington, was “inevitable” once the London & Birmingham and the Liverpool & Manchester had materialized (Lardner 1834:111). When those three lines joined in 1846 to form the colossal London & North Western Railway, Glyn celebrated the “uniformity of system and concentration of authority” that would ensue (Steel 1914:138). Once railway promoters started to think in terms of through communication, they faced several challenges which further clarified their national ambitions. Distinct sets of carriages, tickets, and schedules were clearly inconvenient for travelers and traders, who found themselves subject to long delays as people and goods were moved from train to train. Solving these problems led railways to achieve levels of administrative uniformity that far exceeded the rules which loosely bound joint-stock banks in the 1830s. The most striking embodiment of railway standardization was the Railway Clearing House, formed by Glyn and George Stephenson in 1842, which enabled trains to make through trips on different companies’ lines by means of a complicated accounting system and a huge clerical staff. Its nine original members represented lines stretching from London to York and Leeds; by 1849 the number of member companies had grown to forty-five, including all major lines except the Great Western. Paid for by members’ dues, the Clearing allowed traffic, in Lardner’s words, to “pass over part of any or all of the lines of the combined companies with as much continuity of progress as if the whole system were under the government of a single company” (1850:154). It soon became a forum for ambitious proposals to standardize wagon design, tickets, signaling, and classification of cargo (Gourvish 1972:145; Bagwell 1968:37–8, 145–6, 221–32, 260–8). The railways’ newly forged national identity gained strength from its convergence with changing meanings of British nationality. Railway promoters were well aware of their central place in an ideology of Britishness that was largely built, as Linda Colley has argued, “on the triumphs, profits and Otherness represented by a massive overseas empire” (1992:6). According to its promoter, a proposed line between Newcastle and Carlisle in 1824 was a “public and national work of virtually uniting the two seas,” which would complete the circuit joining “the products of the West Indies and Ireland…and the imports from the Baltic, Germany, and Holland’ (Chapman 1824:4). Owing to Britain’s “chain of iron,” observed the Athenaeum, “[p]rovincial disadvantages and distinctions rapidly wear away; local antipathies become forgotten; and the great unit of British industry, commercial enterprise, wealth, and wisdom, is becoming more firm, more energetic, more powerful, and more promising of prolonged health and permanent stability” (RT 4 (1841):1,113). The Great Exhibition of 1851, 178

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which lastingly symbolized this new vision of national power, linked its exhibits with a miniature railway and provided a booming excursion business for companies willing to arrange the cross-country fares (Richards 1990:29). The one significant case where regionalism guided a major railway’s administrative practice was the Great Western, the exception which proved the rule of a uniform national network. With its tracks connecting London and Bristol measuring over two feet wider than the “narrow gauge” that already linked London and Manchester, the new line was built with the express aim of resurrecting an eighteenth-century definition of British trade at the same time as it restored Bristol’s past greatness as a port town. Worried by the prospect of an imminent rail link between London and Liverpool, delegates from Bristol’s five chartered corporations met in 1832 to form the new company, which they hoped would preserve “the prosperity of the City of Bristol in particular” (Extracts 1834:1, iii). Local investors responded by purchasing 511 of the first 853 placed shares, although matching funds from London had to be recruited before construction could commence (Reed 1975:154). The Great Western’s main attraction was its gauge, the brainchild of its engineer Isambard Kingdom Brunel. The new gauge, claimed Brunel, would allow trains to make the journey to and from London within a single business day, which none of the slower and more distant narrow lines could claim for their respective port termini. “Bristol has, for some reason or other, fallen far behind Liverpool,” he wrote. “Will it be of no advantage to the trade of this port, and thereby to the revenue of the railway, that it should have superior facilities of communication with London?” (1838:31–2). It was precisely because Brunel and the Great Western threatened to replace the developing “modern” idea of the railway with an earlier conception of trade that their detractors were so vocal and numerous. When a narrow-gauge advocate predicted that the Great Western would never attract as many passengers as lines serving the more populous industrial regions, a defender of the company retorted that the “millions of weavers and spinners, and operatives” in the north who padded the census returns were “as little productive to railway income as flocks of sheep” in comparison to the proud Bristol traders and dignified Bath vacationers who traveled west from London (RT 4 (1841):32–3; 8 (1845):1,131). A later critic of the “gentlemen’s wide gauge” argued that such reasoning was out of touch with modern democracy: while “great Parliamentary landlords and their stewards” rode their express trains, “yeomanry and peasantry got nothing but kicks for their halfpence” (Barker 1977:118). To such populist appeals, engineers added the authority of science in favor of a uniform national network. The army engineer Richard Mudge predicted that “[t]he consequences from the want of uniformity in the breadth of rails, will prove a fatal interruption to the public convenience” (1837:38). Called in as a consultant by the Great Western, the Manchester engineer John Hawkshaw observed in 1838 that “three-fourths of England is already being 179

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traversed by railways to the narrower gauge,” and cautioned that “any Company deviating from this gauge will be isolating themselves to a certain extent” (11–12). He was especially careful to dispute Brunel’s appeal to the uniquely flat landscape separating Bristol and London as a legitimate excuse for a different gauge, claiming that it was “rather an untenable doctrine to hold, that the gauge of each line is to be determined only by reference to its curves and gradients, for by such a rule it would follow that no two lines could be alike.” The “mutual dependence one upon another” that would soon be displayed by railways, he concluded, meant that Brunel’s insistence on local difference would be a costly mistake (21). With friends like these…: railways in society The gauge debate, and the fact that it would not be resolved until the Great Western finally started converting its tracks in the 1870s, indicates that differences between “national” railways and “regional” banks were mainly a matter of degree. A more common thread connecting railways was their interaction with a wide range of people with whom most other joint-stock companies seldom came into contact. Of these, the most prominent were those who owned the land across which the companies hoped to lay their tracks. The whole point of statutory incorporation was to give railways compulsory power to acquire property. But property needed to be “fairly” compensated, and fairness was defined by a majority of votes in both Houses. It was between the stage of drawing a line between two points on a map and that of winning a private bill that early-Victorian landowners made most of their social and political influence felt. In negotiating compensation for the width of soil on which a railway was projected, landlords benefited from the inviolability of property rights in the English constitution, which cast suspicion on the railways’ ambitions from the outset. As one MP claimed in 1825, their claim on private property threatened “the strongest safeguard of our public liberty” (cited in Dobbin 1994:168–9). Such concerns were enough, at any rate, to justify granting all landowners locus standi to plead their case at the committee stage, a practice which could lead to endless debates and hefty legal bills. It was to avert such debates that railways tended to include the interests of the gentry prominently among those “national benefits” that accrued from rail transit. Most landlords tried to define these benefits in strictly monetary terms, often measured in the thousands of pounds in the case of large estates. Railway promoters did their best to avoid the full force of this definition by pointing out potential benefits other than cash payments that came from having an iron track running through one’s field. Joseph Pease, for instance, informed one bill committee that many landlords along his Stockton & Darlington line had sold him gravel and timber from their land, saved on poor rates, and used cuttings for drainage 180

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(Cundy 1834:136–9). Sometimes railways reconciled landlords to their loss of property by offering them company shares, even if this meant departing from a more thoroughly “middle-class” constitution. The Liverpool & Manchester only obtained Parliamentary permission after it convinced the Marquis of Stafford to take up £1,000 in company stock, despite an original clause in its prospectus restricting individual holdings to £10 each (Pollins 1952, 1954). Railways also relied on lawyers to a degree seldom found in other contemporary companies. In his thorough survey of railway law, R.W. Kostal has observed that “railway entrepreneurs had first to enter and emerge from this lawyer-dominated world” before they could achieve commercial success (1994:6). Railway law was also a London-dominated world, at least more so than in banks or insurance offices. Local solicitors were often already in the employ of landowners who opposed railways, leading railways to appeal to the more specialized market in company law that was developing in London. In any case, they needed a lawyer physically in London to guide the company through the private bill process, and usually to cut deals with landowners’ counsel while the bill was being debated. Railway lawyers charged steep fees for their services, often more than ten times the going rate for common-law practice, and theirs was a seller’s market. All these developments had an impact on railway organization. Higher legal fees, for instance, encouraged larger companies at expense of smaller regional firms by presenting a set of high fixed costs (33, 115–27, 142, 145). Another instance of the railways’ closer contact with the more “gentlemanly” denizens of early-Victorian England concerned the City. Not all railways led to London, but enough did to create a stronger City presence in early railway finance than was the case with contemporary joint-stock banks. The private banker George Carr Glyn, besides being the central force behind the London & Birmingham, acted as chairman for the North Midland and helped promote the Newcastle & Carlisle; at the London & Birmingham he was joined by the private banker Pascoe Grenfell and the foreign merchants Thomas Tooke and John Prevost (Reed 1975:208; Francis 1968:I, 180–2). Glyn imported the idea of the Railway Clearing from the London Bankers’ Clearing House, which in 1842 was still closed to joint-stock banks (Campbell-Kelly 1994:52–7). The strong ties between railways and the City were especially evident in the case of bank finance, at least for lines with termini in London. 1 Glyn, Mills bought a fifth of the London & Birmingham’s loan notes in 1838 (worth £100,000) and agreed to assist the Great Western on the condition that it stay away from London joint-stock banks. The Bank of England purchased £100,000 in London & Brighton debentures in 1842 and held as much as £2.4 million in railway loans between 1842 and 1846 (Reed 1975:237, 242; anon. I960). One feature of railway demography that was harder to predict from the outset was their great popularity as a means of passenger travel. Most initial promoters 181

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ignored passengers, focusing instead on urging middle-class traders to ship with them instead of by canals (Sandars 1825:14; Carlson 1969:32, 143– 4). This proved to be one of their more famous miscalculations. Within four years of opening, the Liverpool & Manchester was already taking in five times its projected annual passenger receipts, leading new lines hurriedly to change their plans, and by 1845 British railways took in nearly £4 million in passenger receipts as opposed to only £2.3 million from goods and cattle (Gourvish 1972:34; Porter 1912:551). The incentive to meet this demand for passenger travel led to a series of important contrasts in the way railways and joint-stock banks were socially and politically perceived. One important distinction was the railways’ inegalitarian practice of dividing passengers into three classes. Railways invited more people into their trains than banks encouraged to come to their offices; but once there, they physically segregated their customers into different compartments based on how much they paid. Banks, in contrast, pledged equal treatment once a loan was approved: this was the point of their strict lending rules which allegedly distinguished them from the more discretionary private bankers. Finally, and crucially in terms of their relations with the state, the booming passenger traffic also heightened the perception of risk associated with railway travel (see, e.g. Economist 5 (1847):725). A final distinction between railways and banks concerned the railways’ paternalistic labor relations. Where an early-Victorian bank might have a dozen clerks on staff at its head office, the railway servants needed to run even a small line numbered in the hundreds. The London & Birmingham hired 8,000 men to build its trunk line in 1836, and the Grand Junction employed 1,150 at their works in Crewe alone when it opened in 1843 (Porter 1912:551; Drummond 1995:40). Their supervision of these workers paralleled, and often went beyond, standard practice in contemporary British factories. They commonly provided low-rent housing for their men near the lines, both because they already owned the property and as security against vandalism (Kingsford 1970:121–7). An obvious extension of this policy was the railway town. Constructed de novo in a central spot on the trunk line, the railway town was typically more populous than contemporary factory towns and a more ambitious provider of social services. In recruiting workers to construct or maintain their rolling stock, railway managers consciously tried to make up for the absence of family and community bonds. Since the London & Birmingham had been obliged “to collect at Wolverton a population from nearly every part of the kingdom, who, of course, settled there without any local attachments,” claimed Glyn, it was “desirable to organize a plan for the moral and religious improvement of the residents there” (RT 7 (1844):123). The result, a journalist noted in 1853, was “a railway colony” furnished with “hundreds of pretty red-bricked model cottages, a neat model church, a model school-room, and an operatives’ library, a mechanics’ institute, shops, and even an apothecary’s store” 182

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(Capper 1853:413). Although some shareholders complained that railways usurped such tasks from voluntary societies, most tolerated the companies’ efforts. In defense of a London & Birmingham school, the Railway Times commented that the plan was politically harmless in Glyn’s hands and economically justified “from the establishment of a sort of moral police” (3 (1840):92,139–40). “Moral policing” or discipline was another feature of railway work that differed in degree, if not in kind, from the typical experience of the bank clerk. Disciplinary impositions like fines and dismissals were certainly an important part of bank employment, but they tended to supplement more internalized methods like double-entry book-keeping, which clerks even in the earliest days of banking were expected to have mastered as a prerequisite for the job (Alborn 1991:69). The purpose of discipline in railways, which like textile mills were far more likely to recruit inexperienced workers from outlying rural areas, was to change the very rhythms of workers’ lives. The stakes of a breakdown in railway discipline were also higher in human, if not financial, terms: a clerk’s error could only lose the bank money; a mistake by an engine driver or signalman could be fatal to a passenger or to himself. As a result, railway rules were legally enforceable to a much greater extent than in banks. Typically a bank could press charges against an employee only in cases of embezzlement or fraud. On many lines railwaymen found guilty of intoxication were fired and fined by the local magistrate, and a typical company rule stated that it would “immediately arrest and convey before a magistrate, any engine driver or other person who shall disobey the Stopping or Caution Signals” (cited in Kingsford 1970:17–18). As the railway network grew after 1850 so did its workforce, from 47,000 men in 1847 to 275,000 in 1873 (Pollins 1971:74). As railways added more staff, the disciplinary component of their operation would start to count for more in the eyes of their workers than their continuing paternalism. Also, both paternalism and discipline became more impersonal as time went on. Fines became smaller and more frequent, and the most common offenses changed from failures to obey rules to more consciously subversive acts like destruction of property and insubordination (Kingsford 1970:25). As will be argued in Chapter 9, this routinization of paternal authority would seriously weaken the railways’ ability to control their workmen by 1900. In forums like the Amalgamated Society of Railway Servants, these workers would take the principles of self-help and discipline which they had learned and turn them against their masters. Indigenous machinery: railways against the state All these extra dealings with landlords, lawyers, passengers, and workers led the state to attribute far less political agency to railway shareholders 183

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than had been the case for banks, and to be far more likely to interfere with railway management. The British government blamed a succession of bank failures in the late 1830s on what it perceived to be the banks’ overly democratic constitutions, and it responded by urging them to improve the stature of their constituents. In considering what to do about railways in the 1830s and 1840s, it produced very different diagnoses and prescriptions. Instead of blaming shareholders for railway problems, politicians and moralists blamed the presence of Old Corruption in the new companies, which they described in terms of wasteful expenditure, nepotism, and shady stock-market dealings. Their proposed solutions revealed a greater intent to intervene than in the case of banks, ranging from moderate calls for a stronger Board of Trade and a government audit to more radical appeals for nationalization. The first such intervention, Lord Seymours Railway Regulation Act of 1840, established the Railway Department of the Board of Trade, which would survive through several reincarnations into the twentieth century. Parliament’s attention was initially attracted by the apparently vulnerable position of railway passengers and workers, especially concerning their safety. The Railway Department’s chief original mandate was to investigate the causes of accidents and suggest means of preventing their recurrence. Its officials accomplished these goals mainly by acting in a supportive role, such as informing companies of new safety techniques used by other lines. These more benign efforts accompanied a sterner attitude by the judiciary, which awarded monetary compensation to victims—typically siding with the railways’ claim that employee injuries were their own fault and finding the companies liable for passenger safety. Beyond accident prevention, Gladstone imposed minimum standards of accommodation for third-class travellers in his Railway Act of 1844. This resulted in the so-called “Parliamentary Trains” which were required to make regular trips to all stops and to afford such basic amenities as seats and protection from inclement weather (Parris 1965:29, 43–8, 94–9; Kostal 1994:255–316; Dobbin 1994:180–6). To administer even these basic levels of safety and service, state officials needed to present themselves as better guardians of the public than the railways. They did so by tainting railways with Old Corruption, against which the reformed House of Commons appeared to be at least slightly preferable. This was a plausible claim because the railways mixed so closely with many of the landowners and professionals who had long been a target of anticorruption rhetoric, and also sent an increasing number of their directors to Parliament: eighty-one by 1854. The railway MPs’ new notoriety was poorly timed, since it put them in the apparent position of wielding undue influence just as power was being lost by older interests. One critic, writing during the India debate of 1853, warned of “a body of railway representatives in the House of Commons, backed by a more powerful constituency than the Indian servants, and disposing of a patronage…more 184

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valuable than that of India” (Brown 1853:39). Another pointed to the railways’ “radically defective” constitutions and diagnosed “a chronic gangrene, which is perpetually gnawing the very vitals of the system, and preventing the free growth and developement of sanatory action” (RT 3 (1840):1,112). Railway executives and their lawyers tried to pass such charges along to the landowners whose financial demands had played such a major role at the companies’ inception. With as much insinuation as he could muster, the lawyer Edmund Denison fulminated against “the parliamentary intrigues connected with compensation,” an account of which “would be a woful picture of English manners” (1849a:609). He cited the case of one “noble lord” who “took advantage of his peculiar and exclusive position, to forward his own ends—and those ends he did accomplish in his character of a peer of parliament—and the end was the receipt of an enormous sum of money” (611). Directors gratefully appealed to the scourge of corrupt landlords whenever a proposal for government oversight loomed. A state audit would never be free from “the paralyzing influence of corrupt patronage,” according to one Liverpool director, who conjured the image of “the auditors of railway accounts selected from among the officers of the army or navy, or, perhaps, the family circles of the aristocracy!” (RT 12 (1849):1142) Such reasoning worked up to a point, especially among economic liberals who tended to demonize landlords first and ask questions later. In an influential article on “Railway Morals and Railway Policy,” Herbert Spencer put “the self-interest of landowners” first on his list of “illegitimate agencies” that had led to the “continual squandering of shareholders’ property” (1874:262–3). Once such writers got going, however, it was hard to keep them from adding other villains to their list. Spencer quickly moved on from landlords to Parliamentary agents, “third-rate engineers,” contractors, and solicitors (267– 75). The Economist extended blame to “[t]he rich solicitor who puts a dolt as a nominee director on the board to serve his purpose” (12 (1854): 1,149), and William Newmarch attributed the railways’ problems to “the contracts entered into with Engineers, Builders, Excavators, and others” (Tooke and Newmarch 1928:V, 233).2 It was only a matter of time before such accusations spread to the railway directors themselves. The most famous example of a corrupt director was George Hudson, “the Railway Napoleon” who went from being a Yorkshire draper to heading four major regional railways, before revelations of improprieties in 1854 forced him to flee the country. Already in 1843 “George the 1st” was being paraded forth through the railway press as the “railway autocrat, with power greater than the Prime Minister” (RT 6:1,059, 1,084) and by 1849 he was “the Arch-Jobber” immortalized by Thomas Carlyle as an embodiment of democratic despotism (The Times 7 Sept. 1849; Carlyle 1893:225). Another class of directors came under fire, often legitimately, for lending their titled names to support “bubble” schemes which they knew to be swindles (Kostal 1994:57). 185

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To many politicians, such widespread criticism about the low state of “railway morals” legitimated their mandate for intervention. Rawson Rawson at the Board of Trade, for instance, wondered out loud “whether the control of the state is likely to be more absolute than that of the directors of a chartered railroad” (1839:49). Recognizing that corruption was a team sport, most official policy was equally weighted to restrain landlords and lawyers as well as the railways themselves. Hence in 1844 Peel replaced locally dominated private railway committees with smaller, more diverse sets of MPs whose decisions were less likely to be guided by personal and financial interest. The short-lived Railway Board of 1844–5, which issued nonbinding recommendations to the committees, was intended as a further check against the undue influence of local landlords. As for lawyers, Gladstone’s Companies Act of 1844 singled them out for punishment in cases where railways failed to register properly, and in 1847 Parliament imposed a curtailed fee scale for solicitors in the railways’ employ. But railway directors did not succeed in deflecting all state intervention onto landlords and lawyers. Besides the safety regulations already mentioned, legislation in 1844 and 1845 set standard rules for book-keeping and private audits, and Lord Monteagle’s more sweeping proposal for a government audit of railway accounts in 1849 explicitly questioned the companies’ ability to police themselves (Parris 1965:19, 84; Kostal 1994:26, 125–6; Pollins 1966:336–42). To meet these political impositions, railways needed a more effective response than accusing MPs of being more corrupt than they were. They found one in the image of modern machinery which they indisputably embodied. Railway machinery was indigenous, not imported from abroad; and it was up and running, not still on the drawing board. The banker David Salomons assumed it was a sufficient argument against state intervention to claim that “the railway system is an English invention, worked out and perfected in England, not by the Government or with Government means; but by private enterprise and with the resources of individuals” (1847:25). When an MP proposed to hand over the selection of new railway lines to the state, as was the policy in France, The Times replied: In this country there exist advantages which France and other countries of Europe would willingly avail themselves of if it were possible…To throw away all these advantages for the adoption of a foreign system would be madness. (13 Feb. 1845) Railway reformers, in contrast, were in the uncomfortable position of always referring to France and Belgium for examples of superior administrative models. Henry Labouchere, the Vice-President of the Board of Trade in 1838, noted that both France and America had already “taken measures to secure 186

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the interests of the public” (Parris 1965:26). More generally, advocates of centralization like John Austin, Edwin Chadwick, and John Bowring often left themselves open to charges of Francophilia (Austin 1847; Bowring 1837; LaBerge 1988). The railways’ administrative machinery also had the benefit of producing tangible results, which was more than could be said for the halffulfilled visions of Benthamite reformers. The railways could contrast their Clearing House, with its voluminous accounts and hundreds of employees, with the Railway Department’s five-member staff and uncertain mandate. Railway apologists also appealed fondly to the scientific merits of their home-grown engineers when the Board of Trade appointed Frederick Smith, a Royal Engineer with no railway experience, as its chief safety inspector in 1840 (Parris 1965:69; Morning Chronicle 16 Oct. 1840). Civil servants also fell prey to their own ambivalence about the role of the state in the economy. Most state officials half believed the railways’ claims to administrative superiority, and consequently half doubted their own defense of central government. In his capacity as state statistician, G.R.Porter spent as much time defending the railways as suggesting reforms (Porter 1844). At a more personal level, Charles Pasley of the Board of Trade “drank champagne with the Secretary of the G.W.R.” and the Board more generally consulted the Railway Clearing and individual companies before coming out with most of their recommendations. While such behavior has been plausibly presented as a sign of administrative savvy on such an understaffed government department as the Board was, it still shows that they needed to play by the railways’ rules to get anything done (Parris 1965:34, 172–3). An uneasy peace: railway shareholders and City finance However ineffectual it was in practice, the constant threat of state intervention did distract the railways’ attention from a more insidious threat: their ever-increasing dependence, starting in 1845, on the financial power of the City. Instead of spending all their time ascribing moral blame to railway directors, landlords, and the like, London brokers and sympathetic journalists developed political arguments about what concerned them most: railway shares. These arguments were less about the electoral implications of shareholding than had been the case with banks. Analogies between railways and political institutions instead pointed to changes in fiscal policy. The fading “fiscal-military” state and its successor, the laissez-faire state of Peel and Gladstone, offered two very different ways to make sense of railway shares. To some, railway shares recalled the infamous speculative bubbles that had propped up eighteenth-century war finance. To others, they appeared to be even more secure than the Consols, which had come to signify the opposite of speculation since 1815. 187

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The first meaning of government finance equated servicing the debt with unproductively gambling on the fluctuations of a perpetual war economy. This meaning of the national debt faded with the absence of warfare after 1815 and the liberal Tories’ new fiscal conservatism. During the decade before 1845, it came to seem more relevant to railways than to the state. In pleading this case, critics argued that railway investors had tied up too much capital in a single type of undertaking, hence turning a national boon into a disastrous mistake. Provincial brokers and the railway press countered this criticism with a different spin on the analogy between railway shares and Consols. While admitting that initial uncertainties had produced a fair amount of trading in railway futures, they were quick to contrast investment in “bona fide” trunk lines with gambling on the fluctuating prices of “bubble” shares. Stock in the major lines compared favorably even to the newly secure Consols, since their arterial location between Britain’s major commercial centers guaranteed a steady influx of revenues. The only danger was that investors, by failing to buy shares with enough discernment, would bring down the bona fide companies along with the bubbles. Critics who condemned all new railway investment were accused of being speculators themselves, who hoped to “bear” the market, buy low, and sell high when trade picked up again. After 1847 it was time to start building the many railways that had been pledged in the preceding years. The effect on railway politics was immediate. Supported by their provincial brokers, shareholders facing calls lobbied the railways to stop construction on dubious lines. Many in the City opposed this move by reinvoking the distinction between speculation and investment at a more personal level. Only “speculators” would want to break their contracts; “investors” would patriotically bear the burden of their actions, even if it meant temporary financial loss. For the most part, directors supported the City in this campaign, at least until the lines had been constructed, by refusing to cease building and by suing shareholders who resisted paying calls. Once the trains were running, though, they gave in to shareholder demands to increase fares in order to recover their losses. From that point until the crash of Overend Gurney in 1866, directors, shareholders, and the City would participate in a three-way battle for control over Britain’s railways. Wayward information: securities in government and in railways The OED tells us that the speculator, in the sense of “one who engages in commercial or financial speculation,” first appeared in the English language in 1778. Speculators came into their own, however, with the onset of the railway age fifty years later. Although railway speculation had its share of precedents, in particular the Hanoverian “time bargains” in government annuities and the canal craze of 1791–94, the manias of the 1830s and 1840s 188

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induced many more people to spend much more money than any of their forbears.3 It was this diffusion of stock exchange activity that alarmed so many onlookers. In the past, wrote R.Z.Mudge, “a certain quantity of speculation, and perhaps gambling” had always been “happily confined within narrow limits, [and] witnessed by few.” Now, he warned, “the dicebox is put into the hands of the small tradesman, in the remotest corner of the kingdom” (1837:35). After the market crashed a decade later, D.M. Evans of the Bankers’ Magazine concluded: “so great was the madness of all classes, that from the peer to the peasant, few ultimately escaped unscathed” (Evans 1849:52). Besides being more widespread than anything which preceded it, speculation in early-Victorian railways was also qualitatively different, both in volume and political meaning, than trading in other company shares at the time. Much of this difference resulted from the railways’ unique political circumstances. To win Parliamentary approval, they needed to present a subscription list of people who had pledged to buy shares, and various standing orders required them to sign contracts for between half and fivesixths of their capital as a precondition for approval by both Houses. Such requirements created a huge national market in salable securities, whether in the form of the “scrip” certificates, letters of allotment, or bankers’ receipts, which might thrive for the months or even years it might take for a private bill to pass. Furthermore, scrip was not limited in liability the way shares in incorporated railways were, which tended to keep permanent investors out of the market. Hence during the long period between projection and incorporation, railway investors were traders, pure and simple: they either held on to their scrip in anticipation of future stable returns, or they sold at a profit (if they were lucky) when the market price changed. Until incorporation, they had no explicitly political role to play within the company; although sometimes scripholders did form loose associations to protect their legal rights (Reed 1975:88–91; Kostal 1994:77–91). Few of these conditions existed in joint-stock banks, insurance companies, and the many other common-law corporations that formed in England between 1825 and 1844. A bank could commence operations as soon as enough people were convinced to take its notes and borrow its money. This did not put a stop to speculation on short-term gains in share price, but it did provide an earlier opportunity for shareholders to see themselves (and be seen by others) as participants in the bank’s internal government. Even when people did worry about speculation in bank shares, it had more to do with how speculators would use their votes within the company. Those who were only interested in propping up the market value of their shares might support a riskier lending policy, which would result in an impressivelooking balance sheet until bad debts started piling up. In railways there was a clearer distinction between the “speculative” period when the line was still being debated in Parliament and when cost estimates were being bandied 189

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about, and the “construction” period when permanent investors settled down to pay calls and collect dividends. These different meanings of speculation in railways and banks were related to a difference in the sort of information available to potential investors. Although both companies had a common basis in local commercial knowledge, a railway investor needed to know numerous other details on top of that. People invested in the first English joint-stock banks on the basis of a perceived demand for improved financial accommodation. Theirs was almost always a local, even personal, perception from which they generalized to infer profitability. To the extent that bank promoters bothered to provide any information at all beyond a list of officials, they tended to use census data to contrast a region’s growing population with its backward banking facilities. Many railway shareholders purchased shares on the same basis. Most backers of the Liverpool & Manchester line, for instance, were Liverpool merchants who anticipated a sufficient demand for a new inland route on the basis of their personal frustration with canal transport. All railways tried to reinforce these personal calculations with their own traffic projections, often relying, as banks did, on census data and trade statistics (Williams 1968: I, 15; Cundy 1834:134). But for railways, neither the information itself nor the people receiving it stopped at this point. Besides sensing the need for faster or cheaper transport, railway investors needed to sift through reports by engineers and surveyors, calculate the probable cost of property, and factor in the legal expense of Parliamentary hearings. This was hard enough for a shareholder who was on a first-name basis with the promoters and local gentry, but might not be an expert in conveyancing or locomotive construction. It was harder still for nonlocal investors, who would be hard pressed to find many listed railway companies on a map. Mudge warned that such buyers were “almost entirely dependent on local surveyors, of whom they have known previously little or nothing” (1837:49). People in this position could only speculate about the chances of a railway’s future success. In fact, the only new thing about railway speculation was its extent. Analyses of the phenomenon, based on past bouts with speculation, were consequently ready at hand when time bargains first became the fashion in the railway world. Like railways, only far more literally, the fixed-term annuities issued by the Hanoverian state had been put to a national use. And like railways, which promised to continue attracting traffic indefinitely, the national debt signified a basic level of confidence that the state would continue to pay dividends out of tax revenue (Brewer 1990:117–26). Railways also inherited less positive eighteenth-century meanings of the national debt, like its alleged encouragement of unproductive expenditure. Adam Smith had claimed that government loans were “spent and wasted… without even the hope of any future reproduction” (1970:924), and concluded that fundholders would be better off lending their money to private industry (1978:514–15). Another parallel between railway 190

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speculation and eighteenth-century public finance involved the communication of financial information. Just as nineteenth-century brokers did with railway shares, their Hanoverian predecessors took advantage of their ability to influence—and at times, wholly concoct—the flow of information so as to keep the price of securities moving in the same direction. In his Lectures on Jurisprudence, Smith depicted the buying and selling of public funds as a sort of free market in tall tales. The jobber who hoped to sell at a premium “spreads reports at Change Alley that victories are gained,” while prospective purchasers “propogate such reports as will sink the stocks as low as possible, such that war will continue” (537). These creatures would evolve into the “bulls” and “bears” of the nineteenthcentury railway share market. By the 1820s, company shareholders were starting to take the place of fundholders in this disturbing display of financial shadow over substance. By then the state had frozen the debt at around £800 million and fund-holding had taken on its modern meaning of “security” as opposed to speculation. There was, in fact, a direct connection between the disappearance of the creditor-speculator and the rise of the shareholder-speculator, in that the company craze in the first half of the 1820s was due in part to the leveling off of the debt and the consequent dispersion of new investors into different stocks. Some of these people gravitated toward loans to newly declared South American and European republics, to the extent of £84 million between 1815 and 1825; others took their speculative proclivities with them to the many new joint-stock companies (including thirty railway schemes) that formed and folded in the period between 1822 and 1826. Some evidence exists to suggest that a large part of the sizable portion of the national debt once held by provincial traders found its way into railways after 1830 (Hilton 1977:205; Reed 1975:49–50, 74; Kostal 1994:19). In the face of speculation’s apparent move after 1820 from Consols into company shares, railways did their best to present their stocks as anything but speculative. Joseph Sandars defended the Liverpool & Manchester in 1825 by claiming that it was “only by the aid of this and of every other improvement” that Britain, “loaded with an immense debt” and “heavily taxed,” could escape postwar economic crisis (Sandars 1825:27). Liberal Tories, anxious to put the war behind them, were happy to lend their support to such statements (Huskisson 1831:II, 290–5). The foreign-loan “mania” of 1825, which could be presented as an overseas equivalent of Britain’s recent fiscal past, offered another convenient point of contrast for railway shares. In 1840 the Railway Times crowed that “railways are no longer viewed with suspicion as the mere speculations of a day, to be spoken of in the same breath with Spanish bonds”; instead, they were “real and valuable investments in the soil” (3:507). Such arguments had their share of converts. John Francis remarked that the typical railway investor in 1845 “saw the money which in his youth had been thrown into war loans, and 191

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in his manhood wasted on South American mines, forming roads, employing labour, and increasing business” (1968:II, 136). As more investors listened to this advice after 1840, however, many politicians began to revive older suspicions about government stock and direct them to railway finance. Such concerns first appeared in Gladstone’s JointStock Companies Act of 1844, which applied to railways in the committee stage. Based on hearings that vividly catalogued every variety of promotional misinformation, his act accorded projects applying for full registration (or, in the railways’ case, Parliamentary approval) with “provisional” status, to allow prospective investors to watch over their proceedings. Gladstone’s Committee hoped that this precaution would deter people from supporting companies which were “faulty in their nature, inasmuch as they are founded on unsound calculations” (BPP 1844 (7):iii). The “early publication” of such firms’ designs, it hoped, would “doubtless be useful in controlling such undertakings at their outset” (v). In practice, however, the resulting Act gave scores of company promoters the appearance of government approval without providing any real test of accountability. The Times claimed that “‘provisional registration’ has actually added to the number of schemes” by appearing to give “a real substance to the shadow” (31 Oct. 1845). Likening provisional registration with the similarly official title of “‘patent’ on a bottle of quack medicine,” the paper observed that such qualifications “really denote an act, not of Government, but of the projector, and do not even imply that the places in his scheme have any real existence.” Gladstone’s newly refurbished blue books, it concluded, “cannot keep pace with speculation.” City journalists had their own go at a diagnosis of speculation in 1845, focusing on the problem of productivity instead of information. Led by James Wilson at the Economist, they argued that the railway mania was channeling too many resources from Britain’s “floating capital” into temporarily unproductive railway construction. Although he admitted that railways were productive in the long run, Wilson argued that too much expenditure even on a productive undertaking could “so far derange the application of the capital of the country in other more important and regular channels, as to do much temporary mischief” (Wilson 1847:xvi). He also claimed that railway expenditure had destabilized foreign trade. Just as the bulk of British war expenditure had gone to provision European troops, much railway capital found its way to Europe to pay for the large volume of imported goods consumed by railway workers. Unlike textile mills, railways did not produce any exports to offset all that consumption (xxiv–xxvi). Wilson meticulously filled his Economist articles with tables comparing total railway investment with exports, legacy duties, and other rough estimates of national income, in an effort to underscore the imbalance of fixed capital (iv–x). W.F.Spackman supplemented these statistics in 1845 with an alarming national railway balance sheet in The Times, the bottom line of which revealed “total liabilities” approaching £600 million. The accompanying 192

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editorial drew attention to “the stupendous—the infinite sums,—if infinity can be summed up,—that appear in our synoptical view” (17 Nov. 1845). Instead of suffering from Gladstone’s problem of implying that all railways were secure, these diagnoses led to the opposite effect of driving investors to sell indiscriminately. Critics of The Times argued that its “City panic-article man” had kept pace with speculation all too well, by destroying faith in the best companies along with the bubbles (RT 10 (1847):214). To many writers and brokers who had made a fortune propping up the market, the forebodings of The Times smelled like a bear. In late 1845 the Railway Times started the rumor that “attachés of the ‘Times’ have been largely Bearing the market—that is, selling at high prices stock which they did not possess—intending to purchase the same for delivery, when a downfall in value should make the operation highly profitable” (8:2,058). Although the motives of City journalists during the mania continue to be a matter of debate, the consequences of their actions are harder to deny.4 Part of the problem was due to their reliance on aggregate data. Once the sum total of railway capital had been deemed unproductive, it was hard for investors to disaggregate the data and decide whether their own line stood to pay. Wilson and Spackman’s reliance on statistics also exposed them to charges of improper data manipulation—and, in Spackman’s case, of plagiarism. The compiler Henry Tuck created a minor stir when he claimed that Spackman had stolen his statistics from page proofs of a revised edition of Tuck’s Railway Shareholders’ Manual, and had skewed them to exaggerate the amount of capital already pledged for construction. As Tuck rightly argued, by including all applications for new lines in his chart, Spackman had produced a figure for “total liabilities” that was several times greater than the actual capital requirements (RT 8 (1845):2,286). What these accusations amounted to, in part, was a rebellion of competing tipsters, who were arguing—reasonably enough but also with a shrewd eye to their own livelihoods—that shareholders were wrong to sell en masse just because some shares were speculative. This led them to solidify a distinction between “bona fide” and “bubble” companies that had developed over the preceding years. Between these extremes, occupied by patently profitable companies like the London & North Western on one side and obvious jobbing fodder on the other, there was ample space for a cottage industry of brokers and journalists who specialized in advising shareholders what to buy. Proper dispensation of insider knowledge, in this presentation, appeared as a far more valuable public service than creative applications of Smithian economics. “Our desire has always been to distinguish the good from the bad,” claimed the Morning Chronicle, so as to promote “the progress of schemes of real national utility.” Had The Times followed this example and advised on “the safest means of separating bubble from bona fide undertakings,” added the County Chronicle, “a great public advantage would be achieved” (RT 8 (1845):2,287–8). 193

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Who should pay? Construction costs and shareholder relief, 1847–50 Between the first warning signs of 1845 and the suspension of the Bank Charter Act in 1847, railway shares continued to lurch uncertainly from one extreme to the other. Exhausted by the subsequent commercial distress, those directors who had achieved Parliamentary approval settled down to the chore of constructing tracks and locomotives. An even more arduous chore, it turned out, was that of extracting calls from their shareholders, many of whom had subscribed beyond their means and most of whom were feeling the effects of the wider downturn. For different reasons, City financiers and railway directors agreed that construction should continue at all costs, even though “all costs” in this case fell almost solely on the shoulders of their shareholders. These costs included wages to navvies, interest on loans, and salaries to lawyers, engineers, and directors. If there was any money left over after all this, it first went to preference holders, a new categ’ory of investor which was growing larger as railways found it more difficult to raise money on “ordinary” stock. As the proportion of new stock issued as 4 or 5 percent preference shares rose from 4 percent in 1845 to 66 percent in 1849, ordinary shareholders in the 17 largest companies saw their average dividends diminish from 6.3 to 3.3 percent over the same period (Thomas 1973:42; Broadbridge 1970:173).5 City brokers had a strong motive to encourage immediate construction because they cornered the market on preference shares and loans. As more railways were driven into that market to complete their lines, the City stood to win back some ground from the upstart provincial exchanges (Bryer 1991:446). Directors’ motives were more complicated, involving promises to local residents and a legal liability to pay landlords and salaried professionals. Between 1844 and 1851 railway companies collected £182 million in calls on £285 million in authorized share capital, and in the five years after 1846 the total mileage of track in Great Britain increased from 3,036 to 6,890 (Gourvish 1972:104–6). Ordinary shareholders found themselves subject to these calls during a time of deep economic depression, often at risk of legal action if they failed to pay. Many reacted by petitioning their companies to stop construction or at least delay it until the crisis had passed. One shareholder, for instance, complained of the “remorseless manner in which [directors] have pressed calls upon their half-ruined proprietary,” as a result of which “the calls have been engulphed in a discount (that insatiate grave)” (RT 11 (1848):68). The Manchester Chamber of Commerce offered its support, petitioning Parliament to provide railways with powers to defer completion and encouraging railways “to dissolve themselves” if needed. At least in some regions, provincial stockbrokers also assisted. The Liverpool Stock Exchange deputized the directors of several companies in 1847, urging “the necessity of suspending as far as practicable, during the present pressure, 194

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all unproductive work, and to withhold making all calls that can possibly be avoided” (RT 10:1,371). Stock exchanges in Leeds, Birmingham, and Hull made similar gestures (Thomas 1973:41). Such pleas were enough to convince the government to pass legislation in 1846 allowing railway scripholders to dissolve a company by a threefifths vote, and another bill in 1850 authorizing the further abandonment of 1,500 miles of previously approved lines (Evans 1849:38–44; Pollins 1971:40–1). City brokers and journalists, in contrast, had nothing but scorn for the shareholders’ complaints, and responded by insinuating that anyone who opposed going ahead with construction had never intended to see their investments through to the end. In 1846, when a group of Glasgow and Liverpool traders banded together to petition Lord Dalhousie “in favour of relinquishing those undertakings in their present stage” in order to postpone the oncoming calls, the Economist was adamant that the government stand pat: “nothing could be a worse precedent than for Parliament to depart from its own prescribed rules, in order to cover the imprudence of these individuals” (4 (1846):403). When Dalhousie tried to amend his dissolution bill in 1846 from a three-fifths to a simple shareholder majority, The Times complained that this would “place bona fide subscribers at the mercy of speculators” and would amount to “a piece of legislative ‘stagging,’ and a Parliamentary recognition of the Yankee doctrine of repudiation” (14 April 1846). This comparison of railway bankruptcy with public debt repudiation also surfaced at the Railway Times, which likened efforts to suspend construction to “an appeal to her Majesty’s Treasury to suspend the collection of any of those imposts sanctioned for the wants of the Government… by the Legislature itself (10 (1847):1,278). Since many of these critics were the same people who had so recently worried about an oversupply of fixed capital, their motives in urging continued construction appear to be paradoxical, if not sinister. The “sinister” claim, that journalists at The Times and Economist were in league with City brokers who wanted to clean up on new preference issues, would in any case be difficult to prove. Even if that had been the case, however, such writers needed to couch their criticisms in terms that would appeal to an audience extending far beyond the City. The argument they employed, sincerely or not, was entirely consistent with their earlier analysis of the railway mania. The post-1847 distress was in many ways analogous to the state of the war-weakened British economy after 1815. At that time, recognizing that the damage of war finance had been done, Huskisson and Peel had not let a recession get in the way of returning to the gold standard; instead they had confidently—and apparently correctly—assumed that a policy of free trade would rescue Britain from its doldrums without having to rely on artificial monetary props. By invoking the patriotism and pluck that British industry had displayed between 1815 and 1830, and by ceaselessly repeating the doctrine of personal responsibility which was such 195

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a core component of free-trade rhetoric, journalists and politicians hit upon a convincing and self-consistent argument for why shareholders should finish what they had started. Shareholders who bit the bullet and dutifully paid their calls, in this scenario, were brightly painted in patriotic colors. As William Newmarch recalled in 1857: “The Railway Calls acted in the same manner as an extra per-centage added to the Income Tax,” which “threw the pressure of the crisis on the Middle and Wealthier classes; and those classes, finding themselves hemmed in by formidable responsibilities, resorted to new methods of economy, or put forth greater efforts” (Tooke and Newmarch 1928:V, 369). Regardless of “the ruin and loss of the actual shareholders,” concluded one City lawyer, “the country has not been a loser because they have formed delusive hopes” (Denison 1849b:112). And the Railway Times equated patriotism with dutifully meeting calls by contrasting the huge sums that “we (the British nation, viz.)” raised during the Napoleonic Wars with the comparable amount that shareholders were presently spending “upon pacific engines of national wealth and strength” (10 (1847):1,519). While construction was under way, railway directors used this sort of reasoning to reinforce their efforts to collect on calls. When the Liverpool Stock Exchange delegation made the rounds at the railways’ London head offices, the directors’ responses ranged from underwhelming to hostile— especially where the directors also had strong City ties, as with John Lewis Ricardo of the North Staffordshire line. Such directors filled their responses to shareholder demands with the same appeals to patriotism and sanctity of contract which appeared in the City papers. The Great Northern refused to consider breaking engagements with the public which were “as binding in their nature as any that could be contracted between one merchant and another” (RT 10 (1847):1,250–1). And when the Manchester Guardian ran an editorial supporting a moratorium on new calls, the chairman of the Lancashire & Yorkshire Railway preached patience by contrasting railways, which were “unproductive only for a time,” with the insatiable “consumption of war” (1,255). At times, such claims might have attested to the railway directors’ willingness to put their own class and financial affiliations with the City above their shareholders’ interests. More often, though, it was probably enough that directors felt pressure to complete construction from the engineers and lawyers they had promised to pay, from local elites whose towns they had promised to hook up to a trunk line, or from their own conviction that the line would eventually pay if it could only be built. Directors were also legally liable for such contracts to an extent which shareholders seldom were. In the years immediately following the crash in 1845, they faced a succession of lawsuits from stationers, printers, and others who sought to collect on the bills that had accumulated during the promotional boom. Once they had paid those bills, they discovered that it 196

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was harder than before to renegotiate purchase agreements with landowners. This was because the Land Clauses Consolidation Act of 1847, which Peel had drafted as a concession to conservative Tories, gave landlords increased legal grounds for demanding their original price (Kostal 1994:58–75, 162– 73). It is little wonder, in these circumstances, that J.L.Ricardo’s opposition to a proposal to extend construction deadlines was entirely based on his fear of endless litigation: “All the attorneys in the country would be busy in getting up actions for compensation,” he worried; “and if the damages in any case were laid at only 5l., directors would gladly give 100l. to avoid going before a jury” (Hansard 95 (1847):603–4). None of this convinced large sections of ordinary shareholders, who recognized a double standard at work. One shareholder, urging the formation of a national association, asked: “What Company would have the hardihood to attempt to carry on worthless undertakings, or make unnecessary calls, if exposed to the disapprobation of 50,000 united shareholders?” (RT 11 (1848):68). Sometimes they directed their scorn against the City, by opposing the issue of new preference stock to make up for their own inability to meet calls (Evans 1936:103–5). When the Caledonian unveiled a new preference issue in 1848 its existing shareholders opposed it on the grounds that this would further delay their ability to start earning a return on their investment. The fact that they were offered first pick of the new shares mattered little, wrote one critic, since they had no extra money to invest after calls were paid (RT 11:246, 762). To support such efforts at resistance, shareholders tried to turn the “taxation” analogy against those who had employed it to preach selfsacrifice, and they tried to put a more sympathetic spin on their critics’ severe formula which labeled as “jobbers” all shareholders who opposed new calls. “[V]ery great allowance ought to be made,” wrote one straitened investor, “for the way in which the honest part of the public were led into these concerns” by deceptive promoters. Some of the worst hit were “maiden ladies and widows having narrow incomes” who had exchanged their Consols for railway shares after the government had reduced interest on the national debt (RT 10 (1847):1,322). Besides trying to remove themselves from the category of speculator, many shareholders were also plainly not interested in being praised for their patriotism. A Manchester investor protested that he had spent enough time suffering for the greater good of the British economy: If a railway in progress has employed some hundreds of labourers for many months, and the shareholders have (without profit to themselves) maintained these men and their families during all that period, until they themselves are nearly ruined, surely it cannot be expected that they are to continue to do so, to their own destruction! 197

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Shareholders who were “themselves on the verge of pauperism,” he concluded, had every right to ask local rate-payers to take over the burden for a time by granting poor relief to temporarily unemployed navvies (1,429). A permanent peace? Diplomatic directors and deferential shareholders By the early 1850s, and even earlier in the case of larger lines like the London & North Western, many railway directors started to come around to the shareholders’ side regarding the proper division of financial responsibility for railway construction. By that point they had fulfilled most of their legal commitments and were in a position to start considering questions of operation like wages, fares, and rates. On such matters, shareholders and directors converged in trying to recover some ground on their reduced dividends by cutting pay and raising prices. Directors from competing lines also started to make halting attempts to work with each other where they shared common interests. Often these efforts were informed by the strictly defensive motive of putting down mutual enemies, as was the case with the London & North Western merger in 1846 or with George Hudson’s creation of the Midland the same year. Other times the agreements among railway directors were more far-reaching, and pointed to the later emergence of a solid “railway interest” after 1870. An early leader in the move toward improved co-operation was the London & North Western, which had the luxury of negotiating from a position of strength. Upon joining forces in the merger of 1846, George Carr Glyn and his new general manager Mark Huish tirelessly worked to cut deals with their closest competitors, either to fend off upstart companies like the Great Northern or to diminish the threats of canal competition and state control (Gourvish 1972:132, 145, 208). When Glyn entered negotiations with Charles Russell of the Great Western to try and end their longtime rivalry, Russell responded that he was “quite as weary of war as you can be, and should gladly see an arrangement made which should secure a permanent peace” (Great Western 1846:42). In later years other railway directors followed the London & North Western’s lead, often with the Great Northern being the only company that refused to take part. The Yorkshire & Lancashire could report in 1852 that “friendly relations” had been “fully maintained” with all neighboring lines bar the Great Northern (Broadbridge 1970:34). And in 1856 even the Great Northern consented to join with six other major English lines in a pooling agreement for their Scottish traffic, accounting for almost £1.5 million in yearly income. The scheme, which enforced proportional limits on member companies’ receipts, lasted for thirteen years with the support of judges and government officials (Channon 1988:78–84). Eventually, even the shareholders were convinced that the companies were in earnest and started to support their lobbies against 198

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government intervention. In 1857 over 1,000 shareholders “representing about four millions in capital” signed a memorial blaming the Board of Trade entirely for harmful competition, and linking their drop in dividends with such excesses of state machinery as mandatory accident insurance and taxes on passenger fares (Railway Memorial 1857:5). Such hopeful signs of accord, however, seldom lasted long in the 1850s. An epitome of this short-lived peace was William Malins’s Association for Railway Reform, which formed early in 1856 and had all but disbanded by the end of the year. The point of the group, as the Saturday Review noted reprovingly, was “emphatically…to act in co-operation with directors, and by no means to engage in hostility with them” (Hemming 1856:225). Specifically, Malins sought to persuade railways to reverse the diminution in fares that had accompanied the competitive 1840s. The directors’ professions of peaceable intent were fine as far as they went, he argued, but “all the harmony in the world will do us no good unless we get remunerative tariffs” (RT 18 (1856):99). His plan was for directors to include a fixed 4 percent dividend as part of their cost estimates for each year, and calculate fares for goods and passengers accordingly. In effect, this would have endowed the fluctuating “ordinary” shares in railway companies with the same guaranteed interest that only creditors presently collected. The Association rehearsed the same suspicions of directorial corruption that such groups had always raised, but its central message had more to do with increasing overall income than with reducing the directors’ share of the takings. Malins justified the need for a better audit system on the grounds that it would be able to detect and stamp out special discounts given by local managers, not owing to its potential to eliminate waste (98–101, 858). The Association’s difficulties were rooted in its inability to stay on the right side of the line between working with the companies and taking on some of the destructive aspects of the directors whom they sought to reform. Malins, an eminent London solicitor with large holdings in both the London & North Western and the troubled Eastern Counties railways, personified this problem. Less than four months into the Association’s short career, he had routed most of its meager resources into a fruitless campaign to unseat the Eastern Counties’ autocratic chairman. That autumn Malins himself ran unsuccessfully for a spot on the company’s board, after spending his summer engaged in a letterwriting campaign against the chairman’s allies (RT 18 (1856):468–9, 858, 1,312–13). By December the Association was “thoroughly disorganised, if not positively broken up” amidst grumbling that the whole thing had been a vehicle for Malins’s personal ambitions (1,512). Such debacles did little to allay the suspicions of many northern investors that true reform could only come about once shareholders started participating directly in individual companies. When Malins brought his message to Manchester early in 1856, he could not convince the local reformer Thomas Wrigley that the Association’s goals were “of a practical nature, and calculated to secure the 199

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sympathy and co-operation of the shareholders” (128). A decade later Wrigley would form his own national Railway Shareholder s Association, with a more popular (if not much more “practical”) program of investor self-rule.6 Railway directors similarly spent as much time privately squabbling as they spent proclaiming the virtues of co-operation. Negotiations between Russell and Glyn collapsed in 1848 after two years of intermittent recriminations when the Great Western refused to budge from its demand for equal representation on the new board. Companies also suffered from Parliament’s uncertain stance on amalgamation, which had a tendency to shift from strident opposition to benign neglect every few years (RT 11 (1848):1,273–5; Dobbin 1994:202). Such internal entropy was encouraged by many City onlookers, who had never supported this new attempt to reclaim lost dividends. The Times covered the talks between the London & North Western and Great Western in language it usually reserved for Louis Napoleon: the two companies’ directors were “desperate, incurable reprobates, who cannot even promise, after all their suffering, for their future good conduct” (21 August 1852). City journalists were hardly less vocal in condemning the apparent defensive alliance between shareholders and directors. The Times called the new shareholder activism “a TIMOCRACY” with “an utter and unavoidable absence of the higher motives”; in such a group “railway patriots” were bound to be in a minority (24 January 1856). The Economist, for its part, protested that Malins was not justified in passing the railways’ “prodigality” onto customers, and concluded that they “must make up their minds to submit to their present losses, providing, by economy and judicious control, for better management in future” (14 (1856):83). While editors fulminated, brokers acted. When they were not busy tempting directors with low-cost stocks and loans, London brokers circumvented existing railways altogether by supporting new companies. In this case the free-trade ideology which had shielded railways from state intervention in the 1840s worked against them, since it was relatively easy for these new railways to win parliamentary and legal approval on the grounds that “competition” was necessary to avoid price-hikes by monopolistic railways. Their efforts contributed to an explosion in new railway construction in the 1860s, culminating in a record number of 366 companies in 1866 (Kostal 1994:214–21; Simmons 1978:I, 239). As long as investors kept providing the capital, this policy severely restricted the older railways’ efforts to focus on cost-cutting exercises that were only possible through peaceful co-operation. Into the 1870s, the chaotic state of British railways yielded a wide range of reformulations of joint-stock politics— ranging from efforts by ordinary shareholders to reconstitute railways as locally managed “republics” to calls for nationalization. Although few of these proposals stood much chance of succeeding in the economic and political context of the time, they did help shape a more stable setting for the railway system that emerged after 1880. 200

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The wave of City-supported competition that greeted British rail transport after 1860 would keep railway politics up in the air for the next two decades. The pressure of competing lines led many directors to betray their post-mania vows of efficiency and co-operation, so as to focus on the more immediate issue of maintaining a stream of paying customers. During the 1850s expensive acquisitions of smaller lines, allegedly for strictly “defensive” purposes, ate into profits and produced widespread uncertainty among the “ordinary” shareholders who were the first to feel a decline in dividends. While these shareholders were still looking for new ways to restore their own financial security, a nationwide financial crisis in 1866 caught many debt-ridden railways without means to pay back loans when panicked creditors asked for their principal. Ordinary shareholders responded by reverting to the republican politics of an earlier era, opposing the debt-ridden “warfare” of their irresponsible directors with a nostalgic ideal in which a vigilant proprietary would closely supervise a scaled-down system of local lines. Owing to the national connections which the railways had irrevocably established, however, this response eventually gave way to a new call for companies to improve their efficiency—without shareholder participation, if that was what it took. The crash of 1866 posed an even greater dilemma for those in the City who had profited from the issue of guaranteed and preference shares in the previous decade. The new class of rentier investors, who had been happy to buy stock in competing lines as long as they were promised full security, fled from railway shares of all types after 1866. City brokers hoped to restore security to railway property by means of state-guaranteed loans; these efforts partly converged with more radical calls for state purchase which appeared at the time. What seemed like a perfect solution on paper, though, failed to survive in the political climate of mid-Victorian England. As long as the City had stayed out of the debate over state intervention, it had greatly influenced share speculation and competition. But once the City’s financial interests came to be explicitly linked to the state, railways could respond 201

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as they had always so successfully done: by claiming to be better able to cater to the nation’s transport needs than anything having to do with government control. With this move, they would finally (if only temporarily) achieve independence from the City. These changes in railway politics replayed, in microcosm, a more general set of political developments during the 1860s, and hence operated within the same categories of “individualism” and “collectivism” that would, by the end of the century, be so closely linked to the fate of the liberal state (Collini 1979; Bristow 1987). The two main advocates of railway reform at this time, ordinary shareholders and City brokers, echoed combatants in the contemporary debate on electoral reform. The shareholders’ narrow appeal to self-government resembled that of erstwhile radicals like Robert Lowe, who praised the Reform Act of 1832 but refused to go further. Similarly, in switching gears from republicanism to administrative reform they shared a common middle-class disillusionment with the original promise of participatory government. City brokers, in contrast, made a different departure from middle-class radicalism, which was most evident among the growing class of state-employed civil servants. Instead of restricting their ethic of efficiency to the parameters of the company’s profit and loss account, brokers defended their call for state intervention by appealing to a wider definition of the public which extended to passengers and workers. Shareholder activism and railway finance British railway shares emerged from the mania of 1845 free from their earlier taint of “speculation” only to suffer from the opposite problem of low yield. A puff piece on public companies in 1864 had little trouble concluding that “dealings in railway shares are not regarded generally as mere speculations” (BM 24:242); a more complete analysis might have gone on to warn of heavy debt burdens and consequent low dividends on practically every line. Far from ceasing to issue guaranteed stock once the initial wave of construction was over, as brokers in the 1840s had assumed would be the case, most railways actually increased their reliance on preference shares and fixed-term loans in the two decades after 1845. The result, as Herbert Spencer was one of the first to detect, was a permanent split within the railways’ onceunited proprietaries. “[B]y raising one of these mortgages,” he predicted in 1854, “a Company is forthwith divided into two classes” (1874:287). He pointedly included railway directors among the “richer” holders of preference stock (287), and concluded that “the belief which leads the majority of railway shareholders to place implicit faith in their directors, is an erroneous one” (289). Many holders of “ordinary” shares, whose dividends rose and fell depending on the profits left over after preference stock was paid, shared Spencer’s suspicions that “the system of guaranteed shares” placed their directors “under a positive temptation to betray their constituents” (290). 202

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The way these shareholders turned their feelings into action paralleled the trajectory of middle-class radicalism in the 1830s through the 1850s. The first shareholder reform groups convened, in the venerable tradition of republicanism, to complain about their directors’ corrupt use of funds to pay for expensive extensions and wasteful debts. Then, when it became apparent that this line of attack assumed the unrealizable goal of “local government” for what was patently becoming a national network, they shifted their emphasis from participation to administration, much as the administrative reform movement in the 1850s was doing in response to the state’s inept handling of the Crimean War. But just as the reformers in the wider political arena experienced serious problems translating their entrepreneurial ideals into governmental practice, and soon gave way to a competing professional civil service ideal, the shareholders’ strategy for improved management soon gave way to a new deference to the expertise of company chairmen and goods managers. Splitting shares: the divide between ordinary and guaranteed dividends By the 1860s much of the new railway development in Britain had passed from the larger trunk lines to smaller “contractors’ lines,” built by construction companies that paid for their costs by issuing a small amount of guaranteed shares then borrowing heavily on their security (Pollins 1969; Cottrell 1975).1 These firms specialized in attracting capital for out-of-theway regions like Wales, East Anglia, and Ireland, where local subscriptions were harder to raise, then selling out to a nearby trunk line once construction was over. By rerouting share capital from existing railways into newly formed finance companies, the availability of general limited liability after 1856 made it easier for the contractors’ lines to raise fixed-term credit on their debenture stock. This strategy, however, required constant City co-operation, and when finance companies refused to renew the new railways’ loans in 1865 many were unable to complete construction. The most noteworthy of the failed lines was Morton Peto’s London, Chatham & Dover company— which, as the Economist observed, “was made by borrowing money, not by subscribing capital” (24 (1866):1,189), and which generated enough negative publicity to make railway debentures in general an unpopular investment.2 The threat of competition posed by contractors’ lines forced existing railways to respond either by building “defensive” lines of their own or by buying the upstart railways as soon as they were built. Either way, the older companies needed to borrow money or issue preference stock, owing to their difficulty in raising ordinary shares at a time when most paid well below the market lending rate; additionally, the purchase or lease of connecting lines often came with a high price tag (Gourvish 1980a:50; Kenwood 203

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1965:317; Hughes 1960:185–90). These new commitments, in turn, needed to be paid off before any profits could be split with holders of ordinary shares who had remained loyal to the company. In Scotland, where the North British and Caledonian waged a decade-long battle for territory in the 1860s, the proportion of preference stock and loans hovered around 77 percent for each line (Wood 1867:4). Similar figures accompanied the struggle for traffic south of London between 1860 and 1867, where the three lines in question (the Brighton, the Southeastern, and the Chatham) went from holding mostly ordinary shares to over 70 percent debentures and preference stock (England 1867:5–6). Even the more conservative lines started to rely more on guaranteed stock by the early 1860s, enough at any rate to alarm their ordinary shareholders (Address 1863:9). Paying the interest and guaranteed dividends on these new sources of capital resulted in a continuing downward spiral in most ordinary dividends, preventing any chance of a recovery from the shock of 1847. The immediate aftermath of the crash had been hard enough on shareholders whose returns varied with the companies’ profits: London & North Western shares paying 10 percent in 1846 had fallen to 5 percent by 1853, while “ordinary” profits in the Great Western fell from 6 to 2.5 percent between 1849 and 1855. Although some dividends recovered ground or at least stabilized after the mid-1850s, others continued to plummet. The Great Eastern, for instance, in going from one administrative fiasco to another after 1850, saw its dividend on ordinary shares hover around two-thirds of 1 percent between 1863 and 1873, despite pulling in a 4.15 percent net return on its traffic; most of the difference went to pay steep charges on loans and guaranteed stock. Astute reformers were quick to remind investors who had purchased shares in the mid-forties at a steep premium that they were actually earning even less than the reported dividend. A 5 percent return in 1863 on depreciated London & North Western stock that had been purchased for over £200 a share in the early forties, for instance, in fact produced less than 2.5 percent on the initial investment (Steel 1914:151; anon. 1857:8; Gourvish 1980b:130; Address 1863:28). Such tangible losses in income created a beleaguered atmosphere among ordinary shareholders, who looked on as their companies’ original promises of security and profitability disappeared before their eyes. The railways’ increased reliance on preference shares and debentures after 1850 transferred the category of the “secure” railway investments to an entirely different set of people; the availability of higher-paying limited shares in finance companies (after 1856) and in American and Indian railways (starting in the late 1840s) moved British railways well down on the list of “profitable” investments as well (Pollins 1971:49–50). Both these shifts led ordinary shareholders to attack their own directors, instead of blaming low dividends on government meddling. In openly doubting their directors, they only barely concealed a deeper self-doubt, an identity crisis wrought by their dramatic 204

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experience of the late 1840s. Although the “typical” ordinary holder after 1850 is difficult to recover from the historical record, those who were most vocal in the new antidirector stance presented themselves as proud representatives of the industrial north. Imagined or not, it was this identity that was called into question by the falling dividends on ordinary shares and the increasing presence of fixed-return investors as voting members in the company.3 Little had separated the London & Birmingham’s 10 percent dividend in the early 1840s from the profit to be made in private business; its leading investors could consequently think of themselves as part-owners. This sense became harder to maintain when dividends fell to 5 percent or less and when so many original investors had either been forced to sell to avoid bankruptcy or had opted to trade their shares for more lucrative returns overseas. Ordinary shareholders in the 1850s and 1860s presented a consistent diagnosis of what had gone wrong with their once-profitable companies. Their directors, they claimed, had lost sight of the original function of railway transport, which had been the relatively modest goal of improving trade and communication among Britain’s major industrial centers. After spending decades fighting each other and fighting landlords in Parliament, warfare had become an ingrained habit for many directors, an expensive drug subsidized by declining ordinary dividends. Furthermore, directors managed to persist in their warlike ways by swamping the once-proud shareholder assemblies with holders of preference stock: women, professionals, and trustees who did not directly feel the consequences of their directors’ policy. Based on this diagnosis, ordinary shareholders appealed to two possible solutions, which co-existed in their rhetoric from the mid1850s but which shifted in emphasis over time. The first pointed to a much earlier republican ideal, whereby high-handedness and corruption could only be weeded out at the local level. They translated this impulse into calls, many of which were hopelessly nostalgic on their face, to return railway management to an imagined regionalist past. Once the impracticality of these plans became clear, they gave way to a second response to waste and corruption that was in the air at the time among the more general middleclass public: the appeal to administrative reform, which had grown into a national movement in the wake of the botched Crimean War. Railway republics: the rise of shareholder activism During the two decades between the “mania” of 1845 and the crash of 1866, the once-united “railway interest” increasingly took on the appearance of a house divided. As The Times remarked, instead of joining ranks with their companies against state interference as previous shareholder groups had done, now “the protection which the shareholders propose to establish is not against any hostile or rival class so much as against their own Directors” 205

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(16 April 1868). Such pleas for protection often shaded into calls for improved political representation, commonly invoking the shared memory of life before and after the Reform Act of 1832. As one Great Eastern shareholder observed: The state of things may be compared to the condition of the political world previous to the passing of the great Reform Bill. No matter how earnestly the people might desire an economical administration they were powerless to stop their rulers from borrowing, spending, or wasting, or from increasing the already intolerable burden of taxation. Nevertheless the English Government was called representative! No doubt it was—in the sense that Railway Boards are representative. The members of it possessed a self-elective power. (Phillips 1877:17) The shareholders’ primary practical response to this deficiency of representation and resulting corruption similarly paralleled the path taken by so many middle-class political reformers in the 1830s. They established voluntary societies, in the form of a number of local Railway Shareholder Associations and, in 1868, a national assembly that was intended to coordinate the efforts of the smaller groups. The image of the local voluntary society was especially potent in the 1850s and 1860s because it allowed shareholders to think of themselves at the farthest remove from their “statesmanlike” directors, and hence to reaffirm their provincial, mercantile identity. Like the earlier voluntary societies of the eighteenth century, the new shareholder associations directed most of their scorn against their leaders’ irresponsible reliance on credit to pay for expensive “wars”—in the railways’ case, using debentures and preference shares (and the proxy votes that came with the latter) to pursue a reckless policy of costly expansion. Henry Lees, who had been secretary of the Edinburgh, Perth & Dundee line before it was bought by the North British Railway, accused the latter company of being “aggressive; ambitious of territory, reckless in expenditure, and not over-scrupulous in the use of the means employed to attain its ends” (1866:2–3). Its policy, he concluded, had left ordinary shareholders holding “a load of debt, the accumulation of years of extravagance” (11). As another critic remarked: “The directors have the whole of the excitement of the fight, and the shareholders have to defray the major part of the expense” (Rae 1862:352). The way to solve this problem, shareholders argued, was to hand railways back to their “real” owners. Economy would only come when railways were financed “to a much greater extent direct from the pockets of the shareholders,” according to Thomas Wrigley of the London & North Western Shareholders’ Association (1862:4). And the best way to return railway finance to the shareholders was to adopt the system of subscriber democracy that was 206

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still a prominent feature in the political identity of many middle-class investors. It was, he wrote, “only by concert and association for some specific object” that shareholders could “ever hope to bring their legitimate influence to bear” (4).4 As in the voluntary society, though, association signified a certain type of shareholder to the exclusion of others. Calls like Wrigley’s introduced a clear, often highly gendered, distinction between ordinary and preference shareholders: “the real men of business” who attended meetings as opposed to “the unreflecting portion of the shareholders” who sent in their proxy forms and received fixed dividends (Phillips 1877:14; Report 1868:6). These “real men,” if only they could be energized, would inject “the most jealous and vigilant watching” into the company’s affairs, in direct opposition to the passive preference holder (anon. 1867a: 6). If the voluntary society’s democratic financial structure appealed to railway reformers as a means of opposing their directors’ reckless spending, its local quality offered them ammunition against their directors’ forays into opposing territory. Shareholder groups frequently invoked nostalgia for a time when companies were satisfied to build local feeders to their limited stretch of trunk line and when local residents had real input into company affairs. This sentiment appeared, for instance, when the Somerset MP and Great Western shareholder William Miles accused his company of deserting “the fair and legitimate field of your enterprise…for the mere hope of speculative results in competitive transactions,” and suggested that the company would be far better off sticking to the Bristol—London route than extending into the Welsh mining regions (Great Western 1857:42).5 Even when a shareholder’s appropriation of a railway’s “local” past was tenuous at best, such images still performed the useful task of exhibiting the ideal of financial security through personal vigilance. The London & North Western’s long-standing national ambitions did not prevent Wrigley from declaring that when “the local lines, made for local purposes, and conducted under local supervision, preserved their individuality and independence, they paid satisfactory dividends” (Report 1868:14). Although such claims often exaggerated the contrast between past and present, accusations that railways had turned their back on their local origins were at least plausible in many cases. Miles, for instance, could point to Brunel’s original promise to remain content with the traffic between London and Bristol, and shareholders in regional lines that were absorbed by giant companies could even more plausibly regret the resulting loss of local input. When the Eastern Union was being courted by the Eastern Counties Railway, an investor lamented that when the E.U. had been “worked independently, it endeavoured very strenuously to develope its district” in contrast with the proposed new Board which included “only a single member who has any connection with any part of Suffolk or Norfolk” (anon. 1860:35). A threatened buyout of the Glasgow & Southwestern by the Midland in 1873 brought a similar reaction from the smaller firm’s shareholders, only this 207

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time with a Gaelic twist: since the Glasgow company was “the almost sole possessor of a district, and managed locally” (Campbell 1873:14), argued a proprietor, “any reason except gross mismanagement… that will put the control of the £5,000,000 of revenue derived from the Scotch Railways into the hands of a London or Derby Board will be a thoroughly bad arrangement” (11).6 Administrative reform and the restoration of directors’ rule Regardless of how valid such appeals were as stories about the railways’ local origins, they fatally neglected to take into account the increasingly accepted truth that railways were more efficient as part of a national network. Even the Great Western, after all, was pressured into converting most of its 2,000 wide-gauged miles to narrow gauge between 1868 and 1876 (Simmons 1978:I, 84–5). Shareholders hence found themselves in the same position as those bankers in the 1850s who reacted to their increased dependence on bill-brokers by presenting joint-stock banks in an unrealistically local light. Miles’s vision of a Great Western Railway that was content to ferry passengers and goods from Bristol to London, in this regard, was no more tenable than J.W.Gilbart’s claim that the primary function of banks in the 1850s was to provide a local note circulation. The only difference was that bank shareholders and directors acted more or less in unison when they first appealed to, then gradually abandoned, their primarily regional identity. Railway shareholders, in contrast, clutched to the myth of relatively isolated local lines long after their directors had resolutely turned their backs on such a policy. Hence when they did eventually admit that the ideal of local self-government was unrealistic, they turned to an alternative model that embraced the principle of strong central management while continuing to condemn the practice of their directors. This response resulted in a long string of leadership contests in which each new chairman was greeted as the best hope for sorting out the railway’s troubles, then eventually cast aside for failing to do so quickly enough. Railway shareholders were not alone among mid-Victorian middle-class reformers in displaying this confusing hybrid of democratic and authoritarian urges. The same confusion and consequent lack of effectiveness was evident in the fad of administrative reform that swept the middle classes in the 1850s, evidenced most tangibly in the short career of the Administrative Reform Association. Just as many of the shareholder associations had formed in response to their leaders’ expensive “warfare,” the ARA’s origins can be traced to suspicions on the part of many industrialists that the Crimean War had been an aristocratic “great game” ineptly waged, and nearly lost, at the expense of middle-class tax revenues. They responded by trying to supplement, or even replace, the state’s methods of running the country with 208

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“sound business principles.” This response was flawed by its failure to articulate a process by which “business principles” could be translated into statecraft. It “lacked a political strategy,” as G.R.Searle has concluded, and this failure allowed its critical position to be taken up by people who had such a strategy (1993:109). The gainers, in this case, were career civil servants at newly streamlined governing boards like the India Office and the General Board of Health. These people, many of whom expressed initial sympathy to the goals of government by private enterprise, turned the ARA’s failure into professional success, and emerged with an administrative branch that was far less democratic than most entrepreneurs had ever imagined. Like the ARA, railway shareholders in the 1850s and 1860s constantly tried to energize their directors with “business principles,” usually failed to translate these principles into practice, and emerged with a similar case of political confusion. Wrigley, for instance, called on railways to “adopt the principles and follow the practices of ordinary business, instead of apeing the follies and the vices that characterise all Government management” (1868:7). As in the ARA, it was far from clear how methods that worked for a warehouse or factory were applicable to running companies that, in some cases, collected more revenue than small European countries. Even Wrigley’s most committed allies found it hard to support him once he translated his appeal to “the practices of ordinary business” into more concrete proposals. His call for a separate Board of Trustees, for instance, which would oversee all new expenditures and leave the existing directors in charge of revenue only, was picked apart by his fellow reformers for adding an extra layer of officious machinery to an already top-heavy operation (Report 1868:10–13, 28; Lees 1868:18). The only difference between the political dead-end of “administrative reform” of railways and the dilemma facing the ARA was that in the shareholders’ case there were no civil servants waiting in the wings with a sufficiently persuasive alternative vision to take their place. The only candidates for this role were advocates of railway nationalization who, for reasons discussed below, were unable to achieve the same success as their counterparts in colonial government and social service. The resulting vacuum was filled, in many cases, only when outsiders stepped in to take over as railway directors, in the process winning over many shareholders who had become disenchanted with their home-grown reforms. In 1867 the Shareholder Association of the near-bankrupt Great Eastern Railway, despite going through the usual motions of demanding better publicity and condemning proxies, put most of its efforts into convincing Samuel Laing of the London, Brighton, & South Coast line to take over the reins. The Association was confident that “the services of a gentleman possessing, like Mr. Laing, a great financial reputation, would tend to the advantage of the Company in any future negotiations” (Great Eastern 1866:6). When Laing backed out after only a few months on the job, taking his £5,000 director’s 209

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fee with him and leaving the Company further in debt, a new “great man” was found in the future Prime Minister, Lord Cranbourne, whose utter lack of railway experience did not prevent his supporter Edward Watkin from promising that he would quickly learn how to run the firm “better practically, and from a higher point of view than those who call themselves ‘practical men.’ ” Finally, after Cranbourne bowed out in 1872 to pursue a full-time career in Parliament, Watkin himself took the helm (Barker 1978:90). To outside observers, the shareholders’ relentless search for better leaders ultimately invited comparisons to the violently changeable variety of democracy to be found across the Channel. The Bankers’ Magazine, for instance, reported in 1856 that an Eastern Counties Railway meeting has become a by-word for noise, uproar, and confusion. Revolution after revolution they have accomplished, but it has invariably resulted in the deposition of King Stork for King Log, and again of King Log for King Stork. (16:8) Another case in point was the Great Eastern, where Watkin’s autocratic style created new problems within five years of his taking over the line. In 1876 the brewer-MP Michael Bass spearheaded another reform movement to remedy the company’s “inefficient management” (Bass 1876:5). He collected on his behalf shareholder testimonials that urged investors to “make short work of the petty dabblers at railway management in all parts of England” (cited in Phillips 1876:6) and to “combine to pull down from their pedestals those useless chiefs who now block the way to prosperity, and put in their places men after their own heart—men who hold those enlightened views on railway management, which…have been found so beneficial on the Continent” (4). The chaotic efforts of shareholder activists like Bass to send out for chairmen ultimately had no more impact on the future of railway politics than the ineffectual schemes of reformers like Wrigley. More promising was the fate of the Midland Railway. Unlike most of his counterparts, its manager James Allport succeeded in raising millions for a London extension without the hint of shareholder agitation, despite the fact that the first installment of £2.3 million came exclusively from debt and preference shares. Unlike Cranbourne at the Great Eastern, he was no outsider. Because the Midland showed steadily rising dividends in the 1860s, its ordinary shareholders were less predisposed than most to oppose new extensions. And as the manager of a well-positioned, medium-sized line, Allport could claim that extension was both viable and necessary for retaining the Midland’s “independence” from larger companies like the Great Northern and the London & North Western. Although other lines delivered similar warnings about impending 210

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mergers, few were able to act on these warnings the way Allport did (Channon 1972). Once other railways came closer to achieving the Midland’s fortunate financial and political circumstances, Allport’s easy command of his shareholders’ deference would move from being the exception to being the rule. These circumstances appeared, in the case of finance, when dividends finally stabilized after 1866. Politically, other railways eventually followed the Midland’s example by diverting potential shareholder scorn onto outside threats to share property, with the only difference being that the new threats tended to be identified with traders’ organizations instead of larger competing railways. A state guarantee: the fad of nationalization Concurrent with the shareholder association movement, a different criticism of railway “warfare” emerged in the 1860s that appealed to the state instead of to shareholders themselves to restore peace and security to railway property.7 These appeals rested on the assumption that investors acting on their own would not be able to restore the companies’ credit, and might lead to policies that went against the interests of the wider public. As the London banker Richard Biddulph Martin claimed in calling for a state buyout in 1873, the shareholders’ ideal of the local voluntary society utterly failed to apply to railways: railway enterprise is as far as possible removed from local selfgovernment as any scheme could devise. The shareholders and directors of a railway may have nothing whatever to do with the district in which the railway is. The shareholders of the SouthEastern Railway are not required to be men of Kent, or those of the Caledonian to be Scotchmen. (1873:241) In thus questioning shareholder agency in general, this approach grouped ordinary, preference, and debenture holders under the same umbrella as equally in need of government assistance. The apparent irrelevance of local self-government, combined with the incorrigibly bellicose habits of most directors, suggested to these reformers that state intervention was the only remaining option for restoring financial security to the railways. The most popular versions of state intervention in the 1860s called either for a guarantee of interest on debenture loans, which would calm creditors and help ordinary shareholders by subsidizing their dividends; or for an outright state buyout, which also promised to improve the security of railway property but included the further promise of reducing the “tax burden” and the risk of accidents that the companies were presently imposing on passengers. What distinguished buyout calls from the more moderate calls 211

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for guaranteed loans was a more expansive definition of the relevant public in questions of railway politics. Advocates of state purchase also went farther in derogating the shareholders’ alternative vision of financial security through self-government. These differences in definition, in turn, were related to the sort of people who respectively argued on behalf of guarantees and state purchase. People who made the former argument often held a direct stake in the value of railway credit and share capital as an investment: hence they were careful to define “security” as narrowly as possible while still allowing room for state assistance. Those who advocated state purchase, on the other hand, commonly spoke on behalf of a rising class of professional civil servants, who looked to rail transport as yet another social service that could be included under the general rubric of government management. These vocal calls for nationalization in the 1860s and early 1870s, however, disappeared as quickly as they had arisen, leaving historians to conclude that they were faddish and little else. Nationalization, Harold Perkin has remarked, was “only mooted, never enacted, during the nineteenth century” (1977:116). This does not, however, mean that the nationalization debate was a moot point. The issues raised during the debate, such as the agency of shareholders, the security of railway credit, and the status of railways as public institutions, continued to inform railway politics well into the twentieth century. On all these issues the push to nationalize that briefly appeared in the 1860s transformed the framework of possible categories that could be applied to future railway questions. No longer, after 1870, could shareholders claim that local selfgovernment was a reasonable reform strategy, nor could their directors refuse to be held accountable to a wider “public.” The reasons for the failure of nationalization also reveal much about the changing political climate of the mid-Victorian period and the consequent dilemmas that would face railway reformers at the end of the century. Like the middleclass democrats who wrongly assumed that extending the suffrage in 1867 would bring about a new harmony between employer and employed, the nationalizers quickly learned that their vision of a “people’s railway” could not survive the increasingly divisive politics of class legislation that would come to dominate the debate after 1880. Helpless investors: the case for a state guarantee of railway debentures Calls for state-guaranteed railway loans, moderate as they were compared to concurrent nationalization schemes, still marked an important challenge to the railway politics that shareholders were articulating in the 1850s and 1860s. Most calls for guaranteed loans were based on the premise that it was unrealistic to expect either railways or the state to pay back the principal on their debt in the near future. As one writer argued in the Quarterly 212

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Review, “all companies have renewed their debentures…as they came due, and have no intention whatever of paying them off, and there is no reason that they should, any more than that the country should pay off the National Debt” (Hennell 1867:501). But unlike the Consols, the railway debt was especially liable to swings in the business cycle, causing the companies to suffer if the renewal date fell due during a time of especially high interest rates. To account for the discrepancy between the panic that beset railway creditors in 1866 and the persistent calm of government annuitants over the same period, critics pointed to the companies’ imperfect political constitutions. Unlike the British government, which secured its debt with the promise of annual tax revenues collected from a loyal and ever-expanding population, railways often put their creditors in the uncertain position of trusting in the vague securities of nominal shares and projected traffic receipts on lines that had not yet been completed (490–2; Coles 1866:4). In drawing attention to their “misapprehension of the true nature of their security,” critics of railway finance compared debenture holders to depositors in trustee savings banks, who had been similarly deceived as to the security of their funds. Like savings bank depositors, railway creditors were portrayed as “widows and orphans” whose reliance on debentures as a stable source of income moved their securities into a class that transcended merely “speculative” credit (Hennell 1867:496). A further parallel was that debenture holders, once they realized the true limits to their security, were overly prone to panic. The fixed terms of most railway loans and consequent potential for nonrenewal occasioned an analogy to bank deposits which could be withdrawn at a moment’s notice. As one critic put it following the crash in 1866: “The effect is like that of a run on a bank by the depositors; it is more gradual, but it is a process which no company could stand against if continued sufficiently long” (Hennell 1867:503). This fear of a “run” on railway credit seemed justified, since the failure of weak lines like the London, Chatham & Dover resulted in higher rates for all lines when their loans came up for renewal. “From an erroneous impression that all Railway Debentures were ‘as safe as the Bank of England,’ “lamented the broker John Coles in 1866, “the public seem to have gone to the opposite error in regarding them as generally more or less unsafe” (1866:4). The obvious solution to the imperfect financial security offered by trustee savings banks had been to introduce a competing variety of “loans” to depositors administered by the Post Office banks, which would replace the faux guarantee of the existing institutions with fully secured shares in the national debt. A similar solution presented itself in the case of railway debentures, in the form of loans that would be guaranteed against bankruptcy by the government. As one reformer concluded, debentures had become “a source of almost universal disquietude, and to attempt its removal is a national concern” (anon. 1867b:6); it was up to the state, wrote another, 213

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to “re-establish that credit which it has had its share in damaging, by substituting for it a State guarantee” (Thomas 1867:11). To achieve this, several proposals appeared in the mid-1860s for converting the existing companies’ debt (as opposed to their share capital) into a single “Railway Consolidated Debt Stock,” usually paying an interest of 3.5 percent, which was 1/2 percent higher than government Consols but 1 percent lower than most existing railway loans. This stock would be “assimilated to the Government funds, so as to afford to the public the same facilities for investment as they now have in Consols,” according to one proposal, producing a surplus that could then be set aside “for the ultimate extinction of the debt without increasing the expenditure of the companies in the meanwhile” (Livesey 1866:8).8 As with reforms of the savings bank system in the previous decade, such calls for a state guarantee of railway loans implied a weakening of the companies’ traditional appeal to the principle of voluntary association to solve their financial problems. With savings banks, the failure of trustees to provide their depositors with sufficient security led to calls for a new form of security provided by the Post Office. With railway loans, the shareholders’ ideal of “republican” self-government as a means of restoring their companies’ credit came up against the more tangible security of a government guarantee. Those who made this latter appeal did their best to dispute the ability of shareholders to end the railways’ periodic debt problems all by themselves. The shareholders had been “helpless in the hands of the directors,” wrote the engineer Joseph Mitchell, and would hence be only “too thankful to retire into the safe haven of a Government guarantee” (1867:8; 1865:iii-iv). Offering a government guarantee to creditors, in turn, translated into calls for more direct government supervision of the railways’ finances, although not to the extent implied by calls for state purchase. Typically topping such a list of proposed interventions was a more formal system for settling disputes between competing lines, hence reducing the likelihood of costly territorial battles. As early as 1856 one pamphlet suggested that a stronger government board, armed with the threat of withdrawing its loan guarantee, would be able to effect a “re-adjustment of territorial relations…effected by amicable interchanges of mileage between one territory and another” (Civis 1856:18–19). Another popular suggestion, with more obvious connections to the increased liability that the state would take on under such a scheme, was to require all lines that raised money with guaranteed loans to submit to an official audit. This had long been a common feature of reform schemes, and it was assumed that guaranteeing interest payments would be the wedge needed to force directors of the weaker lines, at any rate, to relent. As these calls for an audit implied, a loan guarantee was the perfect reform for those seeking a middle ground between thorough state supervision and complete laissez faire. Loan guarantees started with the 214

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weakest link in railway finance (its overreliance on credit) and promised to move into the rest of the system at a moderate pace. If extra government machinery appeared to improve the position of lines like the London, Chatham & Dover and the Great Eastern, shareholders in the stronger lines would be in a better position to decide for themselves if it was worth trading in their relative autonomy for improved financial performance (Thomas 1867:11; Mitchell 1867:16–18). Proposals for state-guaranteed railway loans were moderate enough, and might have survived the legislative process had railways not intervened with an even less “political” solution to unstable credit relations. In a financial coup, which came with the major advantage of increased autonomy from the City, railways after 1866 converted their limited-term debenture loans into permanent mortgages. These could be raised at relatively low rates, and they obviated the risk of being renewed when the market rate was high. Parliament, glad to approve any plan that did not involve active state intervention, assisted this strategy with permissive legislation in 1868. As a means of raising capital and restoring security to railway credit, this single expedient, combined with a fortuitous long-term flattening of the business cycle after 1866, proved very successful: by 1882 the new mortgages accounted for 90 percent of railway credit, on which interest rates steadily declined. As for security, the Manchester statistician Henry Baker remarked that railway debentures, the volume of which had increased by 24 percent between 1873 and 1882, had become “a register of the solidarity of the country, as have consols of the whole empire” (1882–3:57–8).9 As Baker’s reference to Consols implied, the national debt had more than one lesson to teach. The railways’ critics had chosen to focus on the fact that the British state, owing to its loyal subjects and frugal ministers, could raise money far cheaper than any company. The railways had discovered a more basic difference between their finances and the national debt: their loans were renewable, and Consols were not. It had been over a century since the state had made the fortunate discovery that permanent mortgages were better suited to its needs than fixed-term annuities (Brewer 1990); better late than never, the railways discovered the same thing in 1867. As will be discussed in the next chapter, however, this short-term solution came at the expense of the railways’ permanent financial well-being. To maintain the marketability of their new stocks, companies needed to show consistently stable profits. And this was only possible, in many cases, by continuing to issue new shares to pay for upkeep instead of dipping too far into revenues. In this sense as well, but with more negative implications, railway shares followed the same trajectory of British government securities. After 1900, rising costs (for both railways and the state) and a glut in “gilt-edged” securities would drive down the price of railway debentures and Consols alike. In both cases, the advantage of cheap credit counted for little in comparison to a diminishing supply of willing creditors. 215

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Public security: the case for railway nationalization With rare exceptions, arguments on behalf of guaranteeing railway debts were carefully restricted to the benefits such a policy would bestow on two sorts of property: loans and railway shares. Creditors needed state protection lest they panic, hence bringing down the value of solid railways along with weak contractors’ lines; shareholders required assistance because they were incapable on their own of instilling sufficient confidence in the typical creditor. While these arguments were circulating, more extreme ideas surfaced that called for the state to purchase either some or all of the existing railways outright. These claims stemmed from a more general definition of “security” that included the personal rights and property of passengers: the people, in other words, who received services instead of future earnings in exchange for their contribution to railways. Corresponding with this broader definition of the relevant public was a new definition of shareholder agency that went beyond the cautious criticisms leveled by proponents of state guaranteed loans. Not only were shareholders incapable of keeping up the credit of their companies, claimed advocates of nationalization, they were incapable of keeping passenger fares within the realm of a “reasonab” tax on transport. By purchasing the railways, the state would be helping shareholders and passengers at the same time. The former would no longer be prone to the dramatic swings in dividend that had resulted from the tyranny of their unrepresentative directors, while the latter would enjoy the benefits of a railway network that truly responded to their interests. Nationalization, claimed one of its chief proponents, William Galt, would create “a more direct connection between the interests of the public and those of railway proprietors” (1865:42). Although most people ultimately defended state purchase of the railways by appealing to a broad definition of public security, such arguments first needed to address the more narrowly defined security of railway property to receive the all-important support of the shareholders. In the most concrete sense, this part of their argument replicated the case for guaranteed loans. Galt concluded that under nationalization “the sure and comparatively unfluctuating credit of the State” (1865:165) would replace “the uncertain and ever changing credit of commercial undertakings” (188); another reformer concurred that the “new government stock” created by a buyout “would necessarily be more saleable and more secure than the present railway shares” (Brandon 1871:3). Arguments in favor of state ownership departed from calls for guaranteed loans, however, at the more general level of means versus ends: the latter defined the financial security of share capital as an end in itself, while the former defined it as a means to the far more noble aim of securing the person and property of “the public,” primarily defined as railway passengers. Unlike stockbrokers like Coles, who slept soundly as long as debenture loans were earning a constant commission, 216

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reformers like Galt and Edwin Chadwick would not rest until third-class passengers could travel on express trains for a penny a mile, free from the abiding fear of a fatal accident. To resolve the first of their concerns, cheap fares, reformers needed to move railway travel from the category of a rich man’s luxury to that of a necessary social service. Once they made this move, they could depict railway fares that sacrificed cheap travel for the sake of a fractional increase in dividend as a misguided “tax” acting against the public interest. Existing fares, according to Galt, constituted “a HOSTILE TARIFF” that prevented millions from using the best form of transportation available in the country (1865:11), leading him to ponder “the load of railway taxation under which this country labours” (16). Besides complaining of illegitimate taxation, reformers often argued that privately run railways were hazardous to the health. The most frequent version of this claim pointed to railway accidents. As R.B.Martin claimed in 1873, “for many years safety was made quite subservient to profit” under the existing system (183); while the variety of uncertain jurisdictions created by so many mergers had produced a “noman’s land” at many junctions that could only be prevented by “a general supervision by superior authority” (185–6). Chadwick suggested a more constructive public health benefit of state ownership when he argued that it would allow commuter lines to be built at a loss, leading to improved sanitary conditions for urban workers (1865:4). By expanding their definition of security to include passengers as well as shareholders, advocates of nationalization added an extra edge to the presentation of railway investors as incapable of solving their problems without help from the state. If railways could be recast as social service providers or even public health auxiliaries, shareholders could no longer claim that they only hurt themselves when they insisted on running railways on their own, or that, at most, they hurt stronger companies that might get caught in a general credit crunch. Instead, shareholders who insisted on upholding the fiction of local self-government stood to injure a far wider “public” who entrusted their lives and livelihoods to railways on a daily basis. Advocates of state purchase reacted to the “republican” model of shareholder reform, in this context, either by arguing that it was hopelessly impractical or by denying its existence. Both responses assumed that shareholders were only valuable as a source of funds, not as “partners” in company administration. As an Economist column claimed in 1864: “The body of railway shareholders have no more knowledge of railway management than the body of the fundholders have of statesmanship. The fundholders would be very little fit to choose the Cabinet, and railway shareholders are almost as unfit to choose the directors” (22:1,514). A more moderate, but no less conclusive, way to make this same point was to allege that shareholders were inherently unable to process political, as opposed to strictly financial, information. The Westminster Review 217

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blamed the “wholly ignorant and careless” position of most shareholders with regard to management on the fact that “the sole pledge of prosperity the directors can hold forth is palpable profit, and that the only recognisable form of that profit is a quick return to capital invested” (anon. 1866:318). Although apparently betraying the same recriminatory tone that had predominated during the “mania” of the 1840s, the emphasis here was more on the investors’ inability to receive information than on their failure to resist temptation. Resignifying shareholder agency with such terms as “palpable profit” and its “only recognisable form” transferred blame from the individual investor to the political constitution of companies, much as Herbert Spencer had done a decade earlier in blaming excessive railway extension on “the comparative laxity of the corporate conscience” (1874:262). Unlike Spencer, however, whose abhorrence of all things corporate had kept him from making any constructive suggestions, reformers in the 1860s assumed that different types of “corporate conscience” were able to process different kinds of information. If investors spoke only the language of share price and dividend levels, the expanded constituency of a state railway (i.e., the taxpaying public) could appreciate the value of benefits that were measured in long-term social goods rather than shortterm economic gains. Lecturing shareholders on their relative incapacity for self-government went hand in hand with assertions that most shareholders in fact had no desire to pursue such a quixotic goal. In practice, this strategy amounted to an erasure of the vocal, but increasingly less numerous, shareholders who persisted in professing other motives for subscribing to railway stock than the passive receipt of dividends. In these accounts the rentier holders of preference stock silently took center stage, where they waited patiently for the state to appear with government guarantee in hand. Galt scoffed at the notion that shareholders might feel a sense of local pride in the companies they supported, contrasting “joint-stock property, constantly changing hands in the market” with “the sale of houses, land, or other property” into which “many considerations enter besides that of actual value.” Begging a question that shareholder reform associations insisted on leaving open, he concluded: “A shareholder has no sentimental attachment to ‘North-Westerns,’ ‘Brightons,’ ‘South-Easterns,’ or ‘Great Northerns’” (1865:129). Galt’s definition of investors as a single body for whom “[t]he whole affair is a question of price,” in turn, led him to predict their support of “an operation by which railway stock would…be converted into Government stock, and its market value thereby increased in the proportion of 3 1/2 to 5” (xx).10 By refuting the idea that shareholders might play a constructive administrative role, reformers revealed their new vision of the railway as a thoroughly public institution. Railways catered to “the social necessities of the people,” claimed the Westminster Review, and as long as shareholder dividends rose and fell with traffic receipts their interests would conflict with 218

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the “adverse and unsympathizing” views of the “governing public” (anon. 1866:311, 322). This public vision of railways was a leading factor behind an analogy commonly drawn at the time between hoped-for state purchase and the recently nationalized East India Company. As The Times argued in the midst of a feud with the Great Northern, that railway was “no more a private firm than the East India Company. It has its rights and privileges, which are most extensive, and it has its corresponding duties, which it must be made to fulfil” (The Times 23 April 1858). The Company presented reformers with a body of investors who had completely accepted Galt’s narrow signification of shares as a pool of passive capital. Not since 1833 had holders of East India stock let their interest in changing dividends get in the way of the Company’s stated political function; this had been the point of converting their shares into fixed-interest annuities. Consequently when state takeover became an issue in 1858, East India shareholders had no grounds whatever for resisting the change, just as Galt hoped would be the case with railway investors.11 The experience of the East India Company also allowed reformers to propose nationalization as a means of resolving the railways’ often confusing connection to the state in the 1860s and 1870s. Just as the complicated system of “double government” between the Company and the Board of Control had helped fuel anti-Company sentiment in the 1850s, reformers contrasted their vision of unitary government management with the haphazard succession of regulatory agencies that had been charged with overseeing railways since 1844. This vision gained in popularity after the inconsequential Regulation of Railways Act of 1868 gave way five years later to the Railway and Canal Traffic Act, establishing a new Railway Commission with quasi-judicial powers to resolve disputes between traders and companies. Martin worried at the time that the new Commission, with its “excessive and arbitrary powers,” would “practically be a board of control similar to that famous board which only existed as the precursor of imperial power” (Martin 1873:187). As the Quarterly Review concluded, it was therefore far better to nationalize “at once, or as speedily as may be, without a preliminary process of irritation” (Mills 1873:390); a view that was shared by the government statistician William Farr, who warned that without immediate nationalization “exasperation may arise such as animated Fox, Burke, Sheridan, Francis, and latterly Mr. Bright, in their attacks on the directors and servants of the East India Company” (Martin 1873:254). Populist utopias and practical politics: the demise of nationalization Despite the outburst of support for railway nationalization in the 1860s and early 1870s, and despite the apparently persuasive precedent of the India Office, all the talk never generated any action. By the 1880s most of the 219

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talk had vanished as well, not to return for another decade; advocates of state purchase in 1888 failed to get Parliament even to discuss the issue, let alone enact any legislation (Hansard 322:717–18). In contrast to the calls for guaranteed loans, which fell prey to a competing financial strategy, calls for nationalization foundered on a set of more general political assumptions they shared with the middle-class reform rhetoric of the 1860s. As Patrick Joyce has argued, advocates of an extended suffrage like John Bright bought into a populist “utopia” in which class divisions would melt away once “the people” came to participate in governing (Joyce 1994). Like earlier local forms of middle-class radicalism that preceded it, the “collectivist” visions for national education and housing reform were populated exclusively by virtuous artisans and their benevolent masters; they required a certain myopia to the growing urban “underclass” and the increasingly obvious divisions between groups organized along class or local rather than national lines. This myopia, in turn, led to the undoing of many “populist” policies, as evidenced by the disappointing reversal suffered by Gladstone in 1874 six years after his post-reform victory at the polls; the increasing animosity expressed by capitalists and working-class voters alike toward much of the “collectivist” legislation of the late nineteenth century; and the destabilizing effects of foreign competition and Irish nationalism on much liberal policy (Hawkins 1989:661–9). Calls to extend “collectivism” to railway politics shared both the strengths and weaknesses of the more general reform agenda. Like other middle-class radicals, railway reformers sought to elevate virtuous artisans to the same social level as enlightened employers, but relegated the underclass “residuum,” quite literally, to second-class status. Like the civil servants who translated “collectivism” into successful careers, advocates of nationalization assumed that passengers would be happier entrusting their safety to an army of railway servants who answered to the state instead of a private company. On both these points, however, the demands of practical politics prevented nationalization from ever making it off the drawing board. The vision of state railways catering to the passenger’s every desire quickly gave way to class legislation, when new sections of the public (first traders, then laborers) shunted railway politics in different directions. Predictions about the popularity of state-employed railway servants similarly backfired when British politicians refused to include railways in the same category of civil service as imperial rule and welfare administration. One utopia that informed proposals for state ownership was that railways rightly belonged to “the people.” This brand of populism entailed a denial of class legislation, based on Bright’s assumption that “the time has come when the middle classes, who are mainly liberal, shall unite and can unite with the great body of the working class” (cited in Nicholls 1985:431). Galt claimed, for instance, that in the event of nationalization, “we may rest quite assured that the country and Parliament will take good care to settle it on 220

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such a basis as to deprive it of all political significance” (1873:598). This predicted negation of class extended to the huge increase in state employment that would proceed from nationalization. There was no reason to doubt the railway workers’ loyalty to their new employers under state ownership, since they would in effect be self-employed. Under nationalization, claimed Michael Bass, “the conduct of railway employés would compare favourably with that of any other body of men”; he “did not at all fear their acting unreasonably if employed by the State” (1876:610). As with Bright’s claim on behalf of the “great body of the working class,” assertions of a harmony of political interests among railway constituents were only plausible once that body had been defined narrowly enough to approximate a model of middle-class virtue. A good example of what went into such a definition, utilizing the well-worn analogy between social class and railway carriages, appeared in efforts to replace the railways’ existing three passenger classes with two (a change most people assumed would only be undertaken by a more “democratic” state-owned network).12 Since “[t]he railway carriage” was “the only place where the different classes of men can meet naturally and easily,” claimed the reformer A.J.Williams, railways stood to be of vast utility in supplementing formal education by introducing “closer and more friendly relations with the wage-earning class.” Like electoral reform in 1867, though, railway reform in 1869 had its limits—hence Williams stopped short of the “American” system of one carriage for all. The one “fair distinction which should be maintained in travelling” was that “those who are clean and wholesome in person and habits are kept apart from those who are not.” Once the unclean residuum had been safely stored in the secondclass carriages, though, the way would be open for “the respectable artizan” to “meet on common ground those whom he now never meets at all, except in the relation of employed and employer” (1869:47–9). If even advocates of state-run railways found room for class divisions within their claims on behalf of a unified “people,” it was relatively easy work for their critics to argue that the divisive force of class legislation would make state railways the focus of political unrest. Such warnings repeated John Stuart Mill’s argument that abolishing the East India Company would weigh down colonial administration with a constant stream of extraneous political discontent. As one writer argued, a railway accident was at least as good a reason for bringing down a minister “as that some colonial official has made a political blunder at Hong Kong” (Mills 1873:382). But as this example suggests, mid-Victorian calls for nationalization assumed that political pressure on a state railway, if it came, would be legitimate because it would express the unanimous voice of “the people.” Bright had gotten away with that assumption in his debate with Mill, because neither socialists, Company men, nor Indian nationalists were strong enough to challenge the Manchester school’s definition of what “the people” thought about India in the 1850s. Railways, in contrast, were already showing signs of generating 221

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a variety of powerful and conflicting political claims in the early 1870s, as traders and companies lined up to wage battle over the provisions of the Railway and Canal Traffic Act. In this context simply referring to the prospect of traders’ complaints was perhaps the easiest and most damaging criticism of railway nationalization that could be made. The Economist, which under Walter Bagehot had defended state purchase, reversed its position in 1878 on the grounds that newly politicized traders would turn state railways into a political travesty. When the British government moved from merely guaranteeing dividends on Indian railways to buying them outright in 1878, the paper pointed to British democracy to show why such a scheme was unfit for import. In India, nationalization could proceed “free from either the appearance or the reality of popular pressure, or of inexperienced but powerful advice”; at home, even the once-stately model of the Post Office had recently found itself “greatly harassed by organised opposition of the ‘Granger’ kind” (36 (1878):1,312). Advocates of state purchase were not prepared for this sort of criticism, because their definition of railways as providers of a social service had led them to single out passengers as the only relevant “public.” Few of them had given more than passing mention to goods traffic, and if they did it was only to urge the same uniform rate schemes for goods as for passengers, a system that neither railways nor traders favored (Williams 1869:88–98; Galt 1873:595–7). Their failure in this regard paralleled Gladstone’s disappointing efforts at “populist” legislation in the 1870s: like the railway reformers, he had assumed a univocal mandate for national education and temperance, only to see the former policy attacked on all sides by religious factions and the latter policy lambasted by brewers and beer-drinking workers alike. For all these reforms, an idealized “public” of enlightened liberals and virtuous artisans proved far too narrow to ensure smooth political sailing. A second assumption that backfired on reformers was their claim that “the people”, once they had direct input on railway politics, would abandon their traditional suspicion of state machinery.13 The primary public concern the reformers needed to address was the fear of excessive government patronage, until recently such a dominant trope in political debate. In the mid-1860s, they assumed, simply referring to the gains of civil service reform would dispense with that concern. Railway servants under state control would be spurred on by “a rivalry of efficiency,” claimed Henry Tyler (Martin 1873:215–16); another reformer suggested that if state railways adopted “the pedagogue system of appointments to the Government offices” it would be “an advantage, in strengthening her Majesty’s executive” (Lister 1859:13). And as on many other occasions, advocates of a state-employed railway service appealed to India, where competitive exams had politically neutered the comparably vast army of East India Company servants without sacrificing their ready-made expertise. Galt, who envisioned a 24-member General 222

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Railway Board “formed of the best materials, the élite of the directors and managers of our principal railways” (1865:218), observed that it would hence be no different from the newly fashioned India Office, composed of “the élite of the extinct Board of Directors” of the moribund Company (226). If reformers hoped their appeals to exams and experts would convince people to support state railways, they were sorely disappointed. The fact that there was no significant difference between methods of state and private railway management made individualists more nervous about collectivism, not less. Entrepreneurs could accept Trevelyan’s meritocratic makeover of imperial rule, or Chadwick’s health inspectors, because these did not overlap significantly with industry and trade. Imperial machinery had earlier been lodged in the East India Company, which Adam Smith himself had banished from the ranks of self-respecting enterprise, while “collectivist” welfare administration had been preceded by the now-abandoned middle-class network of voluntary associations. Railway administration, in contrast, could claim direct links to the still-dominant private organization of trade. Although much railway property had since passed from entrepreneurs into more passive hands, this counted for less symbolically than the fact that the machinery had originally been paid for by the pooled resources of active capital. “If you say you are entitled to do this because railways are a vast interest,” as one trader asked of a state buyout scheme in 1865, “[w]hy may not Government interfere with the Manchester trade…and take it out of the hands of the merchants?” (Plimsoll 1865:543–4). Edward Watkin’s more pithy version of the same sentiment earned loud cheers from the Manchester Chamber of Commerce in 1872: the nationalization of railways “was simply a proposition to take the very soul out of industry, by taking away the motive to excel” (Herapath’s 34:549). What was apparently a convincing analogy between imperial rule and railway administration hence made no more converts than appeals to French state ownership had done in the 1840s. Referring to the empire and the welfare state drew people’s attention to the least “British” parts of the constitution, where the age-old tradition of self-rule had most obviously eroded; turning that attention to railways dangerously suggested that this erosion was progressing still farther. This perceived danger moved traders to invoke “the great constitutional principle of self-government and selfmanagement” (Plimsoll 1865:549) when confronted with the possibility of state-owned railways, while taking care to avoid any reference to the palpable failure of self-government to correct flaws in the existing network. Hence the Westminster Review’s observation that the principle of stateowned railways was “accordant with the ideas and institutions on the other side of the Channel,” but was “not likely to be viewed with favour by Englishmen” (Rae 1862:368) was as valid in 1862 as it would have been twenty years before. Under such a system, worried James Allport, “we should soon become un-English” (Martin 1873:235); or, as the merchant J.H.Elliott 223

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claimed the same year, “placing such enormous power in the hands of the Government would be another of those fatal steps which were now being taken in the course of national decline” (Galt 1873:603). As it turned out, the railways would jealously and successfully preserve power in their own hands for nearly a century to come. Their political success, however, arguably hastened the “fatal steps” which Elliott feared were leading to Britain’s relative decline.

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After 1870, British railways finally could no longer escape the charge that their political structure was, more than anything, like the “fiscal-military” regime that had all but disappeared from most other realms of British society. Such charges had been a fact of life for railways since their inception fifty years earlier, in their relations with politicians, brokers, and shareholders. But through the 1860s, they had always been able to brush off the “fiscalmilitary” label by contrasting their venial sins of officialism with the more serious variety committed by aristocrats in Parliament or by despots across the Channel; while at the same time deriding proposed alternatives to railway rule, including shareholder participation and nationalization, as either impractical, un-English, or both. By the end of the century this strategy was wearing increasingly thin, especially for the traders who depended on railways for goods carriage and for the newly politicized workers who depended on them for wages. These groups stopped wasting time on schemes that stood no chance of challenging the companies’ political authority, and instead built pressure groups and unions to publicize their plight. Public expressions of outrage came easily, especially for media-savvy groups like the Mansion House Association or the National Union of Railwaymen. It was harder for traders and workers to refine their rage into coherent schemes that could reform railways without undermining other political ideals which they held dear. This was especially the case because railways and their critics continued to share many of the same core political principles long after the railways’ legitimacy as institutions had started to wane. Traders and farmers, for instance, accepted the railways’ imagined “greater evil” of a corrupt, despotic national transportation system well into the twentieth century. Hence they shied away from proposals to nationalize the railways, or even to force railways to abide by the state-imposed costaccounting techniques practiced in America and India. Instead they fought with railways—usually without much success—over who had authority to set rates that approximated “natural,” market-constrained prices. Trade union leaders also continued to adhere to certain of the railways’ 225

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general political strategies after they started to challenge their institutional authority, but they retained exactly those which the traders despised. Instead of trying to peel away any lingering “fiscal-military” traces from the railways, workers embraced the companies’ uniform national structure as a model both for their own organization and for an improved transport system. Workers learned this lesson because the railways, far from denying hierarchy in their labor relations, had always held up their quasi-military structure as a model deserving respect. This strategy had succeeded when workers had few incentives or opportunities to imagine alternative modes of political participation, and when competition among “warring” lines allowed railways to cultivate loyalty among their troops. It worked less well after 1880, when railway unions went from presiding over local displays of corporate self-help to staging class conflict on a national scale. Union members took heed of the companies’ claims that workers should think of themselves as civil servants, whose strikes affected all Britain and not just their employers. They assumed that nationalization followed logically from their public status, and called for sweeping administrative changes which would extend decision-making to the rank and file. Like the traders, railway workers only partially achieved their goals, and like the traders, their successes and failures were both related to the close affinities between those goals and pre-existing patterns of railway politics. Despite being invited by union leaders to take part in their envisioned state railway network, most traders shuddered at the thought of a board that would combine, in their view, the worst features of railway management with the subversive principle of trade unionism. Railway directors reinforced these suspicions with forecasts of party intrigue which they claimed would follow from democratic control. In thus playing workers and traders against each other, they put their contradictory political legacy to good use. Traders had always defined railways in opposition to the state, a distinction which seemed even more welcome once the state could be portrayed in workingclass colors. Hence instead of supporting nationalization at the expense of their own free-market ideals, traders settled for creating a forum where they could always air their disputes, but where railways most often had the last word. To workers, railways had long seemed like an extra arm of the state, so much so after 1900 that many assumed state purchase to be just around the corner. This misguided hope led them to devote their limited energy and financial resources to a fruitless nationalization campaign, and protected the railways from less sweeping but more realistic reforms. Political success, however, did not always translate into economic gain. It is common knowledge among economic historians that British railways, after a reasonable recovery from their mid-century financial woes, commenced a steady decline in efficiency and profitability after 1900. Their poor economic performance poses an especially striking contrast with commercial banks, which (whatever their alleged disservice to domestic 226

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industry) certainly prospered to a degree that was the envy of railway executives. Many historians have suggested direct links between the railways’ declining economic fortunes and their political entanglements.1 These entanglements are most often viewed as outside impositions that diminished the railways’ optimal economic efficiency. One account, for instance, privileges “the ‘public service’ image the railways were increasingly forced to adopt” over “managerial shortsightedness” as an explanation for diminishing profits (Gourvish 1978:198–9; see also Cain 1980; Irving 1971; Gourvish 1980b). And even the historian of the North Eastern, the most self-avowedly “public” railway in its pricing policy and labor relations, calls its “public face” a “political charade” which went “beyond what was needed to secure long-run profits” (Irving 1976:114, 137). Such interpretations are half-right, in that they point to a clear shift in British public opinion away from the long-held consensus that the organization and social relations of railways had more in common with private firms than with the state. But they are also half-wrong, either by failing to allow that railways brought much of their new public image onto themselves, or by recognizing the railways’ agency in shaping their new identity but faulting their actions as unprofitable blunders. This chapter confronts the first assumption with evidence that challenges the view that railways were unwillingly forced by hostile interest groups to fit a procrustean “public” redefinition. Although railways after 1870 did continue to contrast their “private property” with their opponents’ “socialist” proposals, they also claimed special insight into the economic health of the whole nation (as opposed to their own self-interest) when traders complained about unfair rates; and they tried to forestall strikes by calling railwaymen “public servants” with a higher duty to stay on the job than that of a mere factory worker or miner. As long as they persisted in such rhetoric, they deserved to be held up to a different standard of political accountability than was the case with “private” firms. There remains the claim that railways actively took part in their lateVictorian political makeover, but that this act was a costly exception to an otherwise rational set of business strategies (Irving 1971, 1976). According to this view, railways came to believe in the “charade” which they had initially assumed would play a strictly diversionary role in silencing political protest, thereby clouding their better economic judgment. This view preserves the normative assumption that companies should keep politics at arms’ length whenever possible, without denying the evidence that British railways did willingly present a “public face” after 1870. In other words, it saves an ideal type of the company as a politically neutral technology by jettisoning the railways’ claim to be acting in a fully “rational” manner prior to the First World War. The problem with this position is that many of the most important “public” moves made by British railways were rational from an economic perspective, and hence cannot be written off as cases of political 227

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posturing that got in the way of sound business strategy. As I have argued above, the organization and social relations of railways were constitutively political, such that they could not ignore politics without hampering economic performance. Unlike previous chapters, though, which have mainly told of political practices which were commercially beneficial, this chapter suggests that a company’s political acts do not always lead to long-term beneficial economic outcomes. Hence the lesson to be learned from the railways’ experience is not that they should have stayed out of politics altogether—to do so would have been untenable—but that they should have pursued a different political course, either after 1870 or earlier.2 The case of English joint-stock banks showed how the right political choices could consolidate a company’s already-strong position in the market; this chapter shows how railways tried to salvage their commercial fortunes with a series of seemingly reasonable (and generally successful) political strategies, only to see their economic situation gradually worsen over time. The first and third sections of this chapter discuss how the railways’ political strategies both informed and were shaped by their respective struggles with traders and laborers between 1870 and 1914, and suggest some economic constraints and consequences of these strategies. The middle section examines a different sort of politics, concerning the railways’ efforts to maintain shareholder loyalty after 1870. These efforts, by presenting loans and shares as vulnerable to “confiscation” at the hands of the traders, accomplished the short-term political benefit of winning votes in Parliament, but did so only at a long-term economic loss. Property that was worth confiscating needed to pay high dividends; and to prop up dividends during a period of rising working expenses, railways continued to raise funds despite engaging in little new construction. The result, which only became apparent after 1900, was an oversupply of capital and a heavy debt burden, which continued to eat away at railway income well into the twentieth century. The railway rates debate, 1873–1906 The last quarter of the nineteenth century rang with criticisms from British traders who claimed that unfair railway rates were driving the economy into the ground. Such acrimony had, of course, persisted in varying degrees for years. After 1870, though, railway customers abandoned their earlier strategies of supporting competing lines or trying to reform the companies from within, and instead turned to the Board of Trade to enforce reform from the outside. Among their grievances were fares for terminal services that exceeded statutory limits when added to the carriage rate; higher rates for small traders than for larger shippers; and, above all, the granting of concessions to foreign firms in order to win their business away from canals and steamship companies (Irving 1976:113–38; Cain 1990). Most of these complaints relied on the same two-stage strategy. The first stage identified 228

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railways as statelike institutions which had combined so as to render competition inoperable, and which were guilty of “taxing” the public with their pooled rates. The second called on the Board of Trade to force railways to achieve the same equitable policy in setting rates that had been achieved at the national level by Gladstonian finance. The first of these strategies was relatively easy to achieve, in part because the railways themselves supplied rich evidence of their statelike character. The second, to hold the railways up to the model of statecraft practiced by the British government, suffered from a serious conceptual flaw. The problem with remodeling the railways’ “taxation” policy along Gladstonian lines lay in its core analogy between railway rates and state-imposed taxes on trade. When traders complained of being unfairly taxed by railways, they implied that a significant part of the rate was inefficient: this was the margin that made railways a hindrance as opposed to an aid to prosperity. The same could be said about excessive customs duties or bounties on foreign imports. But a state-imposed tax was separable from the other parts of a commodity’s price in a way that the “inefficient” part of a railway rate was not. No trader could say for sure exactly where a railway rate stopped being bearable, only that at some point it was bad for trade. Hence when it was asked to abolish the railways’ “taxes” on commerce, the Board of Trade had no way of knowing where to draw the line. Far from straightforwardly extending laissez faire to a new variety of statecraft, the result was a messy conflict of interests evidenced by a series of failed bills and futile efforts at compromise. In 1884 Joseph Chamberlain, as Gladstone’s President of the Board of Trade, tried unsuccessfully to increase the powers of the decade-old Railway Commission; in 1885 his misguided invitation to the railways to submit private bills cost them huge amounts of time and money and led only to a new round of recriminations; and the chances of a trader-friendly bill passing in 1886 were lost amidst the Home Rule crisis. When an ineffective Railway and Canal Traffic Act was produced by Lord Salisbury’s Conservative ministry in 1888, neither railways nor traders could say they had managed to convince the public of the justice of their position. Mercantilist railways To abolish a hidden tax on trade, the tax must first be exposed and then stamped out. Traders had little trouble exposing railway rates as a “tax,” but stamping it out was another matter. Between these two tasks lay the problems of defining exactly what part of the price was in fact a “tax” and convincing the public that their definition was more legitimate than the railways’. Consequently, critics of railways more often simply claimed, as loudly and frequently as possible, that they were indeed being charged excessive rates, and left it up to the Board of Trade and the Railway Commissioners to sort out exactly what that meant. The first thing they 229

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needed to do on this score was redefine railways as institutions with the same level of public accountability as the state. If this could be accomplished, then at least the same standards of justice and efficiency could be applied to the railways’ fiscal policy as to the actual scheme of taxation employed by the British state. The railways themselves made this part of the job much easier, owing to a clear pattern of combination that had ensued following the financial crash of 1866. Both in word and deed, railways entered the public sphere as never before in the 1870s. The increasingly public character of railways after 1870 had many manifestations. To start with there was the matter of concentration: by 1904, fourteen companies owned 85 percent of the railways in Britain (Cain 1972:623). These companies agreed among each other to set rates, holding monthly conferences after 1873 to that end as well as continuing to work out pooling agreements among individual lines. Greatly assisting such efforts was the Railway Clearing House, which by 1900 processed more than £26 million in annual receipts and served as a forum for meetings of superintendents, general managers, and engineers (Bagwell 1968:120–39, 301). With economic concentration came new levels of political cohesion. The United Railway Companies’ Committee formed in 1867, which after changing its name to the Railway Companies Association three years later continued to represent the “railway interest” in Parliament into the 1940s; by 1873 its chairman, Harry Thompson of the North Eastern, could boast of “a more moderate and give & take feeling into the relations between different companies” (Alderman 1973:17–23). Railway directors supplemented these tacit departures from an earlier “private” model of business organization with candid admissions regarding their firms’ exceptionally “public” character. Whereas prior railway politics had mainly been an enclosed affair between the companies and their shareholders, the huge growth of the system had led many directors (at least when they let their guard down) to sound remarkably statesmanlike. In the words of Samuel Laing, a company chairman with Board of Trade experience: “The public are hardly aware to what an extent the conditions of their daily life, as affected by railways, depend…upon the good sense and good feeling of the mere handful of men who happen to be the directors and managers of railway companies” (1886:449); or as Richard Moon of the London & North Western put it in 1880, “there was hardly a life in England with which railways were not concerned” (Herapath’s 42:715). The Great Western goods manager James Grierson was an expert at fending off charges of unfair trade practices by referring to the railways’ selfless desire to act in the public interest. The Clearing House’s rate classification scheme was the result of long negotiations in which “the goods managers of the various districts…do all they possibly can to meet the requirements of the public, and to get the goods classified reasonably” (BPP 1881:XIII, q. 12,524); company-owned docks, which traders often linked to price 230

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discrimination against ports with municipal docks, had come into being only because “the public are exceedingly anxious to induce the railway companies to construct them” (q. 12,725). Such expressions of public duty, combined with diminished competition, led traders to rethink their strategies for reforming railway policy. Between 1860 and 1890, they never departed from the model of the voluntary society as a means of reducing the burden of high transport costs. But instead of envisioning the railway itself as a focus for internal reform, they began to ponder new associations external to the railway. A less successful side of this movement resulted in a series of local proposals to build ship canals and other regional transport links to compete with the larger railway network, under the banner of “popular capitalism.” Preston, Chester, and Newcastle promoted ship canals in 1883, and by 1888 similar projects were afoot in Sheffield, Birmingham, and Nottingham (Herapath’s 45 (1883):46; Belisha 1888:178; Economist 46 (1888):1,505). The most successful of the schemes was the Manchester Ship Canal, which was mooted in 1882 as part of an intended “silent revolution” of populist finance and which opened with much fanfare in 1894. Its middle-class projectors enlisted the aid of local trade unions and formed auxiliaries like the Cooperative Shares Distribution Company to ensure the widest possible financial participation. By the time construction was complete in 1894 the Manchester Town Council had also signed on with promised subsidies (Harford 1994). Despite their effectiveness as symbols of regional autonomy from the major railway lines, however, most ship canal schemes failed to generate enough capital to get off the ground. Those which succeeded, ironically, only did so by selling a majority interest to City financiers, hence merely passing control over regional transport from one distant board room to another.3 They all faced the problem that it was more cost-effective to send goods by rail in all but a few cases, and railways were often willing to go out of their way to secure even that business. This concern led traders to redirect their energy into forming pressure groups, including local chambers of commerce and agriculture, regional lobbies like the Midland Counties and District Canal and Railway Freighter’s Association, and sectional groups like the Farmers’ Alliance and the British Iron Trade Association. These were supplemented by national umbrella groups like the Railway and Canal Traders’ Association and the Mansion House Association (Alderman 1973:98–100, 126–7). These pressure groups accused railways of pursuing a wrongheaded economic policy, and of combining in such a way that allowed them to impose that policy at will. The Clearing House rate scheme, complained one reformer, was “produced under the authority of a railway parliament” which adjusted rates “not only without consultation with traders, but without notice” (Parsloe 1886:465). Such complaints were most often expressed in terms of unfair “taxes” levied by railways. One Clearing House 231

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reclassification of farm equipment fares was called “nothing less than another tax upon agriculture” (Hinnell and Pease 1885:32), and traders similarly complained that extra charges for loading or unloading goods at terminals exceeded the railways’ authority as spelled out in their Acts of Incorporation. The most pervasive charge of unfair “taxation” concerned the railways’ practice of giving “bounties” to foreign shippers. The London Chamber of Commerce condemned their “heavy bounty…in favour of foreign producers” in 1886 (Edwards 1898:53), and the Evening Standard claimed “it would be every bit as fair for the Government to pay a direct bounty on imports as to allow Railway Companies to pay it by means of preference rates” (58). The implication of such claims was that the “free market” would more effectively determine rates than the arbitrary discretion of goods managers. As the Economist argued in 1888: “Our railway managers are a body of very able men, but to suppose that they can regulate trade better than it will regulate itself if left free to take its own course, is absurd” (46:946). This critique of railways echoed Gladstonian fiscal policy, which assumed that lower taxes would spur economic growth and avert a revenue crisis; and that lifting protective duties on raw materials would make the affected firms more efficient. Railways could avoid a similar revenue crisis by abandoning their “bounties” on imports and giving up that business to the steamship companies. They could then concentrate exclusively on their only “natural” customers, the domestic traders. “The object of the railway managers,” concluded the Economist, “would then be to enable the home producer to fight the foreign producer on the most advantageous terms, so that the home traffic, on which they would mainly depend, might be developed and increased” (44 (1886):296). With more faith in Parliament than in railway managers, W.A.Hunter concluded that the state needed to “attain by its action the result which is otherwise obtained where there is no monopoly by the higgling of the market” (BPP 1881:XIII, q. 610). Railway officials responded to the charge of unfair taxation either by claiming that they did in fact experience market constraints, or by arguing that even in the absence of competition they were still in the best position to “tax” traders in such a way as to encourage economic growth. Grierson claimed that most special foreign import rates “naturally arise out of sea competition” (1886:25), and concluded that “[i]f railways in England did not compete with transport by the sea they would in many cases be of comparatively little use to manufacturers and merchants” (30). Even when railways did set rates in common, it was alleged that they competed for services, varying speed and service to win a higher market share (Acworth 1891:150). And even if the market did fail to secure the public interest in some cases, railway apologists argued, goods managers could be trusted to set rates with the public interest in mind. Grierson observed that granting preferential rates for carriage of necessities like milk was “to the interest of the consumers as well as to the distant farmers” (BPP 1881:XIII, q. 232

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12,691). Such arguments forced traders to include as many people as they could in their complaints. At times this was more difficult, as when a Montrose fish dealer could only harmonize his interests with “the northeast coast of Scotland and the district generally “(BPP 1881:XIII, q. 1,249). Other times traders made a stronger case, either by demonstrating the national importance of a local market or by appealing to the wider social consequences of economic depression. To bolster his claim that Liverpool was “the milch cow of the railway companies,” its mayor elaborated that “a third of the trade of the kingdom” passed through the city (1,995, 1,649). To underscore the “really disastrous” effect of railway rates on the regional iron trade, the Sheffield manufacturer Frederick Brittain instanced recent job losses and noted that “in the iron districts nearly half the houses were empty” (7,733). But however compelling such claims might have sounded to constituents back home, they failed to link all the dire effects they described to high railway rates. As was the case with many other panaceas which surfaced during the lean years of the 1880s and 1890s, including bimetallism, the single tax, and protectionism, the claim that the railway monopoly was the single greatest cause of economic distress could easily be denied by pointing to a long list of other factors. Railway MPs suggested to Brittain, for instance, that his region’s economic woes really had much more to do with the foreign invention of the Bessemer process for making steel, Sheffield’s distance from ironstone mines, and “the stagnation of trade generally” (7,717, 7,690, 7,688). Besides the need to demonstrate a link between high railway rates and sagging trade, traders faced the even more difficult challenge of discovering the point at which a railway rate qualified as an unfair “tax” as opposed to a fair price. Actual bounties and customs duties were much more vulnerable to political criticism because they were, by definition, separable from the taxed goods’ base price. Traders had no such luxury when they imported the language of unfair taxation into their fight against the railways. Even discovering whether a rate was in excess of a railway’s statutory limit could be a chore, since all the larger companies had accumulated dozens of different rate-setting powers in the process of buying up smaller competitors (Cain 1973:67). As one manufacturer complained, it was “almost impossible for an individual trader to know whether the charge made by a railway company is an overcharge, or not” (BPP 1881:XIII, 3,001).4 Lacking hard evidence to the contrary, and unwilling to dig up any on their own, the Board of Trade typically concluded that “competition” was doing its job as an arbiter of fair prices, and that their own job should therefore be limited to tracking down exceptional cases of abuse (Farrer 1882). Under these circumstances, railways and traders gradually grew resigned to an arduous process of informal negotiations, in which both sides brandished “experts” whose vague claims to authority seldom converged.5

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Tacit authority: in search of objective rates In the absence of rates which everyone could agree to be “naturally” determined by freely competing companies, and with little mention of the possibility of using cost accounting to discover a fair price, messy litigation and political negotiation took center stage as the only plausible method of setting domestic railway rates. The railways hoped to locate rate-setting authority in the expertise of their goods managers, who were depicted as being “watchful that fair competition between different ports and towns shall be effectively preserved” (Beale 1884:711). What made the manager’s expertise especially hard to contest was that it was tacit. As “the fixing of rates is not an exact science,” claimed one apologist, “there must be left a discretion somewhere” (Acworth 1891:103); Grierson added that “no trustworthy data as to the cost of conveying each consignment or each class of goods in the actual intricacy of business could be obtained” (1886:9– 10). The railways also contrasted their managers’ merits with caricatured habits of government officials, as when a Herapath’s correspondent contrasted the “hard practical weather beaten experience of veteran railway men” with the “trim official velvet cushioned experience” of Board of Trade officials (46 (1884):604). Few heads of factories and trading firms, especially the larger ones which led the fight against railways, could wholly disregard a goods manager who was thus idealized. This person was, after all, little different in either training or character from their own shopfloor superintendents. The Manchester merchant John Harwood, for instance, was “fully aware that, in meeting the representatives of the Railway Companies they were talking to experts” (BPP 1881:XIII, q. 3,006). Their case was further weakened by the fact that the traditional fora for challenging rates had always been either courts or quasi-judicial Railway Commissions, which valued detailed knowledge of case law over day-to-day facts of management. As a result, the traders’ leading “experts” during the 1880s were lawyers, who knew more about precedents than produce. At a Parliamentary hearing in 1882 the law professor W.A.Hunter could do little more than quote Chief Justices ad nauseam as Edward Watkin taunted him with questions like “are you aware how many eggs there are in a ton?” (BPP 1881:XIII, q. 579). Only rarely did traders claim any pretensions to general expertise themselves. More often they tossed out vague hopes that “a small commission of experts” might be appointed by the Board of Trade to revise rates (Herapath’s 51 (1889):763), or that the railways themselves “should adopt some system” instead of appealing entirely to discretionary knowledge (818). Even though traders often had little choice but to admit that goods managers generally knew best, they were quicker to fight specific tolls which adversely affected them. Such fights either took place before the Railway Commission or an appeals judge. Railways preferred the “common sense 234

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and justice” of judges, who could be counted on to uphold a strict reading of the companies’ original contracts (Herapath’s 47 (1885):696). Traders held out for a more flexible set of Commissioners who would take into account changes that had transpired since the railways’ statutes had been enacted. When traders tried to move the Board of Trade in that direction, railways responded by criticizing the “non-judicial, and what we may term loose, nature of the proceedings” under new Commissions (Herapath’s 51 (1889):667). The railways had a point. Lord Stanley’s Railway Act of 1888, which required companies to submit revised rate schedules, called on the Board of Trade to dispose of any traders’ objections to specific changes. When over 3000 separate objections arrived at their doorstep by June 1889, Board officials threw up their hands and arranged a series of head-to-head meetings between railways and traders to reduce their workload. Hence administrative incapacity led to a solution which removed the rates question from the jurisdiction of experts, judicial or otherwise (Alderman 1973:106– 7, 124–8). Traders’ groups spent the rest of the summer organizing local chapters “to thrash out the matter with the railway companies before they went further and asked the Board of Trade to intervene” (Herapath’s 51 (1889):733). Such thrashing did not stop with the rate scheme that emerged after two years of local meetings and minimal Board of Trade input. In 1892 the Board issued a series of Provisional Orders which standardized the railways’ maximum statutory charges, usually to a level somewhat lower than their previous maxima but higher than most actual charges, and ordered the railways to modify their rates accordingly by the end of the year. The companies responded by announcing across-the-board increases up to the new maxima, partly because they were unable to co-ordinate new pooling agreements under the Board-imposed time constraints, but partly to counter the declining revenues they had been experiencing since 1889. Owing to the immediate outcry from traders that this move produced, Stanley’s Act gave way to another law in 1894 that froze all rates at their 1892 levels and shifted the burden of proof from traders to railways in future hearings. From then until 1913, companies needed to convince the Commissioners that any proposed rate increase was “reasonable” (Cain 1973; Alderman 1973:144– 60). The result was to make an already politicized Commission even more prone to deciding cases on political, as opposed to strictly legal, grounds. Although the new rules superficially stacked the deck against railways, in practice they opened up room for railways to shift blame for higher rates onto political constraints having little to do with themselves. Most directly, railways took advantage of the newly politicized definition of “reasonable” rates to forge temporary alliances with pressure groups who could tip the balance in Parliament against the traders. After 1894 the Commission approved a series of rate hikes which were linked to improved passenger safety, the provision of workmen’s trains, and shorter hours for 235

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railway workers, among other “public” considerations (Simmons 1978). At a more subtle level, the railway lobby also used the new standard of “reasonable” rate determination to weaken the ability of farmers to convince government officials that their freight charges were unduly high. They did so by claiming that farmers had not made a good faith effort to reduce expenses on their end of the shipping process—in particular, blaming high domestic food prices on inadequate levels of co-ordination among farms, and expressing this complaint in the politically potent language of self-help. The railways implemented this strategy by promoting co-operative schemes like the London & North Westerns Egg and Poultry Demonstration Train, the North Eastern’s milk collecting station, and most ambitiously the Agricultural Organisation Society—which boasted 24,000 members in nearly 500 local branches a decade after its establishment in 1901 (RN 100 (1913):790; Pratt 1912). By encouraging farmers to “adapt themselves to modern requirements,” as one goods manager put it, railways shifted the burden of responsibility for equal rates away from themselves. Whenever they got the chance, railway officials complained about the farmers’ failure to take advantage of such opportunities, as when a London & South Western executive lamented that every English farmer “will persist in sending his own stuff separately to separate salesmen” (RN 85 (1906):908). The commercial effects of such propaganda were mixed at best (Cain 1990:197–8). Politically, however, the railways’ support of agricultural co-operation achieved its objectives. By pointing to the few cases in which farmers’ co-ops had achieved “European” packing standards, the railways convinced the Board of Agriculture that farmers who had not done so were to blame for all remaining price disparities. In 1906 the Board vindicated the railways against the charge of granting preferential rates to foreign farmers, concluding that “[t]he local trader cannot expect for small, irregular, and often ill-packed consignments, the same rates…as are given to the large, regular, and well-packed consignments with which he is in competition” (RN 85 (1906):899). This sort of strategy only worked, however, in a sector like agriculture where efforts at commercial co-operation were still relatively undeveloped. It was useless to preach the same message to industrialists, for instance, who had already expended so much energy pursuing alternative avenues (like ship canals) for transporting their goods. Although there was, in theory, still much room for improved efficiency in the shipping and handling of minerals and manufactured goods, these results would have required more interaction between railways and traders than was the case in agriculture; and crucially, they would also have required a much larger capital outlay for things like larger wagons and new warehouses (Aldcroft 1968:169–70). A potential basis for such a consensus, and for a longer view which would demonstrate the ultimate cost-effectiveness of such changes, did exist at the time, in the 236

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form of contemporary calls for “ton-mile” statistics to be employed by railway goods managers.6 A few Englishmen urged that these new methods, which were already the norm in the United States and India, would demonstrate the need for basic changes in the structure of railway carriage (Paish 1902; Acworth 1902; see Irving 1976:215–23). But no such consensus appeared in England owing to the complicated politics of expert knowledge that had emerged in the preceding two decades. Nearly all respondents in a Railway News poll on ton-miles reiterated their faith in the tacit knowledge of the goods manager. The Great Western’s general manager contrasted the “questionable advantage” of ton-miles with the constant vigilance of “the responsible officers who are furnished with periodical returns” (83 (1905):325). According to a Welsh manager, “[a] far more effective unit than the ton mile is to have ‘the right man’” (481). In all these examples—new expenses, farmers’ resistance to higher rates, and calls for accounting reforms—a pattern emerged in which railways achieved their short-term economic goals by successful political maneuvering. These successes were interlinked, in that the railways’ ability to win political battles on one front affected their political and economic possibilities elsewhere. Hence the consensus over the value of personified (as opposed to “objective”) expertise, which formed the basis of political negotiations between railways and traders in the 1880s, made it easier for railways to block proposed accounting reforms after 1900. If, in retrospect, such maneuvers were shortsighted—a case of “politics” getting in the way of sound economic planning—it should be recalled that the railways unavoidably made decisions based on political as well as economic considerations. In the case of personified expertise, for instance, it is hard to see how a more “forward-looking” focus on cost-accounting methods could have aided the railways’ economic fortunes in the 1880s, given the framework in which rates were disputed at the time. Similarly, it would have been unrealistic to expect goods managers to depart from their commitment to tacit knowledge after 1900, regardless of the strictly economic arguments in favor of tonmiles—since to do so would have meant sacrificing the considerable political advantages that such a commitment had engendered. The next section will discuss an even more compelling case in which a wholly rational political strategy—the railways’ depiction of their share capital as vulnerable to “confiscation” by traders—led to the even more dubious financial outcome of overcapitalization. Keeping shareholders happy: security and overcapitalization British railways took advantage of the crash of Overend Gurney in 1866 to declare their independence from the City of London. Against the advice of City brokers, who argued that government-backed loans would be the 237

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only way to restore security to railway property after 1866, Parliament sanctioned a new experiment in company finance that the railways were quick to carry out: the large-scale issue of permanent mortgages, which railways used to replace the fixed-term credit that had led to so much financial uncertainty in the 1850s. Between 1865 and 1875, the volume of fixed-term debenture loans to railways diminished from £97.8 million to £40.4 million, while the volume of permanent debenture stock rose nearly tenfold from £13.8 million to £123 million (Herapath’s 39 (1877):469). The conversion, noted Herapath’s, had “placed railway property completely above the fluctuations of the money market” (13). Having secured their securities from financial manipulation, the railways maintained their continuing independence from the City by banding together to oppose further competition. Besides making life difficult for disgruntled traders, their pooling arrangements and increased influence in Parliament also diminished the opportunities for City bankers and brokers to support competing lines. The railways’ new financial footing produced clear benefits, both for their internal stability and their ability to retain autonomy from outside political pressure. Through the late nineteenth century, their contented shareholders and bondholders provided a welcome reprieve from the complaints of farmers and traders. In large part, this change in behavior resulted from a change in social composition. In the past, the most outspoken shareholders had been the merchants who had hoped to reform the companies from within in order to harmonize the interests of transport and trade. When their efforts failed, many moved their capital to municipal bonds and ship canals and shifted their invective from shareholder meetings to chambers of commerce. Left behind were the more passive rentier investors who were less concerned to voice their opinion on the railways’ function in the economy. What mattered most to these investors was secure and marketable stock, not larger issues like the effect of railway rates on the “public good.” In their appeals to Parliament, railway officials presented their new suppliers of capital as especially vulnerable to the traders’ “confiscatory” requests for strict rate regulation. But this new world of railway finance spun on an expensive axis. The new railway shareholders might not speak out at public meetings, but they could be counted on to sell if their net returns fell too quickly; this stood in contrast to the mid-century activists who were so vocal at meetings precisely because they felt bound to the company by more than the latest stock list. Owing to the economic downturn, operating receipts after 1873 failed to cover costs and still produce stable returns. The only way railways could keep investors on their side in this situation was to keep issuing new shares and hope for a steady stream of buyers. For thirty years, the buyers kept coming. Assisted by state-mandated exceptions to borrowing limits, British railways added £130 million to their nominal capital in the 1890s, a period when construction of new lines was at an all-time low (Pollins 1971: 238

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110–11). This capitalization policy, as much guided by political as economic ends, worked well while it lasted, both at keeping shareholders content and continually adding to the list of potential victims of “confiscation.” But eventually the railways ran out of willing buyers, leading existing shareholders to feel the full brunt of rising expense ratios for the first time— ratios which were substantially padded by the higher proportion of new capital on which interest and dividends needed to be paid. They responded by selling in record numbers, driving share prices down and driving many railways back to the City for fresh capital. Property worth confiscating Railways after 1870 added to their supply of newly loyal shareholders with a steady stream of new investors, despite a fall in published dividends from an average of 5 percent in 1873 to 3.3 percent in 1900. More than anything else, this fact attests to the dramatic change in character of the typical railway shareholder, who now paid more attention to security and marketability than to the level of return on investment. As long as dividends hovered slightly above the 3 percent they could get from lending money to the British state, most shareholders were satisfied to hang on to their stock for dear life. Evidence of their satisfaction was the consistently high price of railway securities into the mid-1890s: London & North Western “ordinaries” which had sold in the 120s thirty years earlier stood at 199 in 1896, and several other stocks doubled in value in the 1880s (Irving 1976:155; Lawson 1907:327). The identity between Consols and premium railway shares grew even stronger when companies began issuing “consolidated” stocks to simplify the vast array of shares they had inherited from smaller lines. One such “Consolidation Act” in 1878 enabled the London & North Western to convert thirty-six different stocks into a single 4 percent guaranteed stock and twenty-two more into a 4 percent preference stock. Most of the converted stocks had previously paid 5 percent or more, some as much as 10 percent (Steel 1914:368–71). The railways made political capital out of their shareholders’ new collective identity. Comparing railway shares with the national debt allowed the companies to present their shareholders as passive victims in need of protection from their customers’ demands. Directors referred to their equity as “small savings” invested by “the weaker and less wealthy portion of the public” (Herapath’s 48 (1886):350–1); or as securities upon which “mostly poor men, women, and children [were] dependent greatly for their daily bread” (49 (1887):319). A rise in institutional investment after 1900 made their job that much easier: a 1913 article entitled “British Railway Stocks: Over 20,000,000 Beneficial Holders” reached this figure by including Prudential Assurance Company policy holders, shareholders in the Stock Conversion and Investment Trust Company, and even dues-paying trade 239

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union men—all of whose institutions held preferred or guaranteed stock in railways (RN 99 (1913):660). By such means directors ritually announced, as Sam Fay of the Great Central did, that “[t]hese investments and others of larger amounts represent the savings of the great middle class of the country, and much of it the savings of the lower middle class” (87 (1907):861–2). This politically inspired resignification of railway securities first appeared in 1873 in response to the newly established Railway Commission’s ratemodifying powers. Samuel Carter, a Coventry MP and lawyer with ties to many railway directors, headed a campaign in the 1870s to convince permanent debenture holders that their stock was under siege. It was “not possible,” he wrote, “that the affairs of a great Railway Company can be conducted by its responsible directors and managers with the faintest hope of success if a superior and irresponsible authority has the power of revising the rates” (1877:14). In essence, he was reversing the earlier claims by advocates of state-guaranteed loans that creditors were more likely to find security in the state than with the companies that owed them money. Carter tried to get debenture holders, who “think they have got their Parliamentary security, and are safe under the sanction of the law…to doubt how far that is so” (1877:17). He called the new traders’ activism “a ‘Grangers’ Movement’ in England,” which differed from its American counterpart by not being “‘barefaced’, but so masked as not to be intelligible at first sight to any but experts” (cited in Railway Legislation 1874:16–17). At the time, the relatively poor organization of traders and the “safe” composition of the Railway Commission led many railway apologists to wonder what Carter was so worried about (Herapath’s 39 (1877):928). Their ambivalence faded fast, however, once A.J.Mundella took over at the Board of Trade in 1885 and worked closely with traders to increase the Commission’s authority. His new railway bill in 1886 united the companies in a storm of violent reaction, marked by mass mailings and free first-class shipments of shareholders to protest meetings. The bill was “absolutely confiscatory in its character,” according to a London & North Western circular (Herapath’s 48 (1886):321), and Lord Grimthorpe of the Great Northern discerned in it “the principle of forcible confiscation” (323). The fact that it coincided with widely publicized debates about Irish land reform and employers’ liability added fuel to the fire. For a London & North Western director, Mundella’s offering “was own brother to the Irish Land Bill, except that it was even more hideous in its proportions” (352). Such language stoked Conservative opposition as the bill wound its way through Parliament during the volatile final months of Gladstone’s third ministry. When the Home Rule crisis of June 1886 put an abrupt end to any further Liberal progress on railway reform, the new Conservative government immediately assured the railways that their property was safe with them (Alderman 1973:112–15). 240

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The events of 1886 indicate that MPs took note of the railways’ plaintive appeals on behalf of their beleaguered shareholders. It is less clear what sort of notes the shareholders were taking, despite the fact that an important secondary aim of all the “confiscation” talk had been to mobilize them to the side of the railway interest. As a London & North Western circular warned in 1886: “Supineness on the part of owners of railway stocks will, at this grave crisis, prove most disastrous to railway property” (Herapath’s 48:322). At a later meeting its chairman Richard Moon offered the encouraging hope that “[t]he Shareholders would not sit down like Egyptian fellaheen, and be robbed of their property—(Cheers)” (352). The problem with such exhortations was that most shareholders only knew one way to express disapproval, and that was by selling their shares—which they would do in record numbers after 1896. By presenting shareholders as helpless, the railways helped keep their political autonomy intact, which produced obvious short-term economic benefits. But once the gold had worn off the edges of their gilt-edged securities it was the railways’ turn to be helpless, as they gradually surrendered their recently won autonomy back to the City. Virtual shareholders: financial crisis revisited It was “a curious circumstance,” remarked the Railway News in 1903, “that the role of censorious critic of the railways of the United Kingdom has been transferred within the past few months from the trader—who complained of the rapacity of the companies—to the stockholder, who is not content with the return upon his investment” (79:523). The railways blamed this uncomfortable new situation on what they hoped was a temporary downturn in dividends and share value, which they attributed to exceptional circumstances like the Boer War and the high price of coal. Although such factors doubtless played a role in their misfortunes, this diagnosis underrated a more general decline that had stretched back to 1896 and would last through the 1910s. In focusing on narrow issues of economic cause and effect, the railways missed a more complicated shift in political and financial alliances that was underway. At the end of the day, railways found themselves caught in the same cycle of dependence on the City they had escaped a generation earlier. At least initially, the railways brought much of their new contact with the City onto themselves. In the mid-1890s, when the value of railway securities was at an all-time high, railways took advantage of the bullish market by issuing new shares by the thousands. Their stock market activities caught the attention of a number of new “investment trust” companies, precursors of today’s mutual fund companies that specialized in buying up large issues of company stock and selling them at a margin to small investors. When the bottom fell out of the railway share market after 1896 and these companies were left holding the bill, they took out their frustrations on the railways by 241

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mobilizing shareholders to call for improved efficiency and co-operation. Although their efforts failed to energize many shareholders into the sort of activism that had been the norm in the 1860s, it did produce the unintended consequence of driving down the market value of shares even further and rendering the railways even more dependent on City-generated finance. In 1896 the value of railway shares and debentures, along with most other “gilt-edged” stock on sale in Britain, had reached record highs. To take advantage of the rising market, which had only temporarily been sidetracked by the Barings crash of 1890, many railways had hit on the strategy of “watering” or “splitting” their stock. Typically this involved issuing new lower-yield stocks at an inflated price and allowing, or requiring, existing shareholders to trade in their old securities on a share-for-share basis. In 1889, for instance, the Taff Vale line replaced their ordinary shareholders’ old £100 holdings with £250 shares, worth 40 percent as much in dividends. Similar cases of “splitting” appeared a decade later at the South Western and the Midland companies, with the latter line requiring its ordinary shareholders to split and inviting its 4 percent preference holders to convert to 2.5 percent returns at £160 per £100 share (BM 62 (1896):165; Ross 1907:218). Investors who converted their stock in this way lost nothing, and the higher price attracted notice on the stock exchange. “Split” stocks were a frequent by-product of the consolidation schemes mentioned above, since they maintained the marketability of railway shares despite reducing dividends to a uniform level. Although the practice of stock-watering drew a modicum of criticism, in most cases it amounted to little more than a book-keeping operation. Problems only appeared when investment trusts bought railway shares en bloc and converted them independently of the companies. The danger was not financial; as was pointed out at the time, the only people who lost on the deal were the investors who were content to let trust companies keep a share of their dividends (Economist 52 (1894):668). Rather the danger to railways was political. The new trusts represented a foreign element in a railway’s internal politics, a consolidated bloc of votes with interests not always identical with the company’s. The diffusion of railway shares, once one of the pillars of the railways’ strength, was starting to give way to the rise of the institutional investor. One such firm that would prove to be a special problem for railways was the Stock Conversion and Investment Trust Company, founded in 1889 by Nathaniel Spens, a transplanted Glasgow stockbroker. One of a number of new trusts which were in the process of increasing their capital from £6 million in 1882 to over £130 million a decade later, the SCIT specialized in turning railway “ordinaries” into preference and debenture stock, then selling the new shares to small investors. Its first major purchase was £500,000 of London & North Western ordinary stock paying 6.5 percent in dividends, which it reissued as £1.25 million

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in gilt-edged stock paying between 3.5 and 4 percent (Economist 47 (1889): 596; Morgan and Thomas 1962:132, 177–8; see Cassis 1990). As share prices continued to rise into the late 1890s the SCIT and other investment trusts continued to build up portfolios with the larger railways, apparently to everyone’s advantage. The railways had discovered yet another way to take advantage of the buoyant share market; the trusts had little trouble disposing of their converted stocks; and their customers gladly paid the finders’ fee and one-eighth percent annual commission in exchange for the convenience. All this changed in the five years after 1896, when railway debentures fell in value by 18 percent and ordinary shares dropped by 16 percent, and comparable falls in the value of Consols, municipal loans, and Indian stock made it hard for investors to bail out into other securities (Lawson 1907:325– 7).7 Middle men like Spens, who found it difficult to hang on to their customers as their portfolios continued to plummet in value, took their frustrations out on the railways. One manifestation was the London & North Western Shareholder Committee, the brainchild of Spens and his business partner Charles Burdett-Coutts. Together with another investment trust, the SCIT held nearly 40 percent of the property “represented” by the Committee, which regaled the London & North Western between 1902 and 1906 with a constant stream of verbal abuse (RN 79 (1903):325).8 Spens and Burdett-Coutts, and whatever shareholders they could win over, were among the handful of British railway observers to take seriously the alternative styles of management being pursued in America and elsewhere. Spens lectured London & North Western directors about the advantages to be gained from large wagons, ton-mile statistics, and other reforms that had taken effect in the U.S. and were then being retailed in England by the journalist George Paish (Economist 62 (1904):1,066–7). He also signaled his preference of accounting reforms by trying to divert SCIT funds into the North Eastern Railway, whose manager George Gibb had started to implement some of Paish’s ideas (63 (1905):221). As might be expected from shareholder activists primarily drawn from the professional classes, what impressed them most about both Paish and the American methods he hoped to import was their academic pedigree—the same pedigree, in fact, which had so alienated most English railway managers. William Lawson, who would later go on to form a national Railway Shareholders’ Association, marvelled in 1902 at the American railways which “took young men from Yale and Harvard, and passed them through the accountant’s office” (Acworth 1902:656). The London & North Western board easily put down Spens’ tenacious attacks by declaring his allegedly disinterested motives to be partisan at the core and by deriding his lack of “practical acquaintance with these difficult and technical questions” (RN 79 (1903):262). This tactic swung a majority of financial opinion sharply against Spens. The Economist chastised him for trying to “distract the attention of the directors from their real business” 243

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and concluded that “[i]t would, obviously, be highly improper for the directors of a railway to favour any section of shareholders”—especially jobbers of Spens’ stripe (61 (1903):380). At a more concrete level, railways were able to use their autocratic constitution to limit Spens’ popularity among investors. In 1906 the London & North Western issued proxies, at the company’s expense, which refuted Spens’ criticisms line by line and provided return postage to shareholders who checked a box reaffirming their support for the Board (64 (1906):1,917).9 A combination of outside opinion, institutional structure, and shareholder apathy hence seriously reduced Spens’ ability to instigate reform. A decade after the controversy, Spens’ allies were still lamenting the “narrow and short-sighted point of view” that led most shareholders to stay out of politics “provided the dividends are adequate” (Acworth and Paish 1912:691). Despite their disappointing performance as members of civil society, railway shareholders voted in a different way after 1900: by continuing to sell their company stock. Between 1900 and 1907, while the declining values of comparable securities were leveling off (and in the case of foreign railways actually improving), the fall in railway share value accelerated. A sample of fourteen “ordinaries,” which had already dropped in average price from 195 to 163 between 1896 and 1901, fell a further 26 percent to 120 by 1907. Debentures and preference stock similarly declined at a higher rate than competing colonial and foreign bonds in the decade after 1900 (Lawson 1907:325–7). All these changes greatly improved the position of City brokers and bankers in relation to railways. The North Eastern, which had resolved in 1871 never to issue any fixed-term loan stock again, was “actively considering the issue” of such stock in 1913. Already by that point, the company was starting to turn to its London bankers as never before for cash advances and overdrafts, the latter of which stood at more than twice the usual level in 1904; its capital deficit ballooned from £606,375 in 1897 to over £5 million in 1914. Another sign of sluggishness in railway shares after 1900 was a revival of Lloyd’s Bonds, quasi-legal short-term loans which had last been popular in the 1860s as a way to circumvent restrictions on the extent of railway credit. Lines like the Great Central, which relied heavily on these bonds at the turn of the century, siphoned off thousands of pounds in preference dividends to cover their interest fees. To make matters worse, even these loans were getting harder to raise after 1905, with the result that many pressing outlays for rolling stock refurbishment and safety improvements had to wait until after 1918. After reaching an all-time high of £20.6 million in 1900, British railways saw their average annual capital expenditure fall to £5.7 million in 1909–12 (Irving 1976:153–4; Irving 1971:43–4, 50–3; Economist 60 (1902):1,245–6). The railways’ response to this new financial crisis underscored the thoroughly political space which they had come to occupy. Their first impulse was to lobby for further powers of amalgamation, to supplement the 244

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informal pooling agreements that had been the norm for decades. They defended this explicit departure from the principle of laissez faire by arguing that the resulting economies of scale would restore dividends to their pre1900 levels and thereby attract much-needed private capital back to the railway system. All this argument accomplished, however, was to offend both Liberal politicians, who had always supported the railways as long as they had paid lip-service to laissez faire, and socialist critics, who claimed that the state could better effect economies than any set of private firms. Unbowed, the railways supplemented their strictly economic arguments about profitability with a new focus on the political implications of state purchase. Having been challenged by social democrats to justify their existence, they repackaged the issue as a political choice, between committing private credit to a cartel of regulated companies and embarking on the potentially dangerous experiment of publicly financed transport. The British state’s failure to nationalize in 1918, and the poor financial condition of the system once it finally became public property in 1947, were both largely determined by the railways’ ability to make a convincing case that poor economic performance was a price worth paying to keep democracy from corrupting the nation’s transportation network. A fate worse than debt: the nationalization threat, 1890– 1914 Railway officials entered the twentieth century fearing democracy like never before, and with every intent to spread that fear to as many others as possible. Their brush with traders in the 1880s had already made them suspicious of democratic institutions, which they identified with noisy pressure groups and Parliamentary delays. After 1890 they added an even more threatening symptom of democracy to this list, in the form of the burgeoning trade union movement. A classic example of the drive for national unions was the Amalgamated Society of Railway Servants, which went from being a loose federation of local self-help societies in 1871 to a robust organizer of national strikes after 1900. Between 1905 and 1914, a decade punctuated by threatened national strikes and vocal calls for nationalized transport, railways succeeded in spreading the message that unionism in their sector of industry posed a unique threat to the British political system. Despite the railways’ best efforts to present unionism as a wholly alien transplant, the ASRS was as much a product of the companies’ own political culture as a result of outside labor agitation.10 Two overlapping transitions in the companies’ economic and political practices furthered the transformation of the ASRS and its members’ embrace of nationalization. The earliest of these was the emergence of industry-wide charities and selfhelp organizations, in which companies pooled their resources to modernize 245

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their traditionally paternalistic labor relations.11 A second change took place in the companies’ quasi-military work routine. Militarism had been a feature of railway employment dating back to the earliest navvies, but it underwent a change in emphasis after 1900, from a style of corporate patriotism that stressed preparedness for inter-company combat to a “public service” ethic modeled on the police and the Post Office. This change only further fueled the union’s national ambitions and the workers’ support of nationalized transport. As in their experience with the traders, railway officials put themselves in a position where working closely with the Board of Trade appeared to be the best strategy for preventing a more radical transfer of political control. And as in the rates debate, directors and managers convinced themselves—and, more importantly, a succession of leading Liberals—that the political costs of democratic control were high enough to justify propping up a relatively inefficient private cartel. The nationalization of railway politics The early trunk lines had secured the loyalty of their workers by providing them with social services and job security that could not be matched by the laissez-faire state. As discussed in Chapter 7, the railways’ willingness to supply their workers with model houses, libraries, and gardens added crucial support to their celebration of the superior capacity of private enterprise to refashion social relations. A key aspect of this history was that any such benevolent acts were performed by individual companies, and hence did not contradict the overarching ideology of free trade. As competition among companies waned after 1870, the company-specific focus of railway paternalism eroded as well. Under the banner of improved efficiency, the railways unveiled a series of national charities in the late nineteenth century that pooled the resources of earlier company efforts. The Railway Servants’ Orphanage, founded in 1879, had by 1902 admitted 873 children whose parents had lost their lives working for twenty-seven different railways (RN 77 (1902):103); membership in the United Kingdom Railway Temperance Union increased from 2,000 at its founding in 1881 to 58,000 in 1911, by which time it included fourteen companies (98 (1912):1,325). With their top-down structure and streamlined finances, such groups were praised by railway officials as leaders in the lateVictorian movement to modernize the provision of charity. At a meeting in 1906, George Gibb referred to the Railway Benevolent Institution as a “model charitable institution” which boasted the same managerial principles as “our great Railway Clearing House.” As a result, he assured prospective donors, it dispensed charity with an overhead of less than 5 percent, in stark contrast to other private charities in which “probably half their gift will be muddled away by bad management” (85 (1906):1,136).12 The rise of industry-wide railway charities contributed to an ethic of selfreliance among workers that extended beyond company lines. The obvious 246

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case in point was the ASRS, founded in 1871 as a worker-supported superannuation society which pledged to provide members with “temporary assistance when thrown out of employment, through causes over which they have no control” (Bagwell 1963:61). The Society formed under the close tutelage of the brewing magnate and railway reformer Michael Bass, who convinced its leaders to work with Liberal railway MPs to achieve their goals instead of resorting to more militant actions (73). Few early ASRS campaigns departed very far from the middle-class voluntary ideal, focusing on selfimprovement and on the collection of statistics (99–100, 117). Within two decades, however, its leaders (in common with most Labour politicians) had grown disillusioned with the promise of a fruitful Liberal alliance, and allocated their resources in more radical directions. In 1890 its secretary Edward Harford described the organization as “a trade union with benefit funds, not a friendly society with a few mutual protection benefits” (149). The rival General Railway Workers’ Union, which catered to unskilled laborers and promised upon forming in 1889 that it would “not be encumbered with any sick or accident fund,” did much to push the ASRS in this new direction (Cole and Arnot 1917:16). Militarism, like paternalism, had always been a leading feature of the railways’ labor relations, and like paternalism its meaning started to change as competition ceased to inform their political claims. Prior to the 1880s, railways presented their staff as “military” in the sense that they were prepared to compete against other companies in loyal service to their line. In this sense, the same rivalries that had prompted shareholders to rebuke their companies’ “warlike” tendencies often played the opposite role of reinforcing labor discipline by instilling a sense of patriotic duty. As with the railways’ original appeal to paternalism, this variety of militarism stood in pointed opposition to the “fiscal-military state.” James Allport of the Midland remarked in 1871 that the “army” of railway servants was “much better employed in working the railways of this country than in fighting the people of other nations” (Herapath’s 33:479). A corollary was that British railways, as late as the 1890s—and in contrast to their German counter-parts—kept their distance from the armed forces. When the Secretary of War asked the railways in 1892 to go out of their way to employ army reservists, the Midland insisted that there was “no more reason why they should be asked to take an army man through patriotic motives than any other private manufacturer” (54:529). The radicalization of the ASRS after 1890 served as a warning that “corporate patriotism” alone was not enough to ensure worker loyalty. The railways responded not by spurning their quasi-military structure, but by altering its justification. Military-style discipline, they now claimed, was needed to provide adequate service to the general public, not to give individual railways a leg up against competitors. The railway director Herbert Maxwell expressed this new sense of railway service in 1890, in 247

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response to a Scottish strike that stymied regional economic activity for six weeks: “if… companies are to perform their double duty of serving the public with locomotion and of managing shareholders’ funds,” he argued, “their servants must be under restraint to a degree not necessary in private concerns” (1891:249). And the “safety of the public” counted for more than competition when George Findlay of the London & North Western told a labor commission in 1893 that “the discipline and the regulation of the railways must be left to the manager, who corresponds to the colonel of a regiment” (cited in Perris 1898:26). More concretely, railways after 1900 reversed earlier efforts to distinguish their workers’ identity from that of state-employed soldiers. In contrast to its refusal to hire reservists a decade before, the Midland informed the War Office after the Boer War that “any vacancies…shall be offered first to any ex-soldiers who may be qualified for and are wishful to join the Company” (RN 80 (1903):697). As was the case with corporate philanthropy, the railways’ new emphasis on disciplined public service (combined with increased levels of economic combination) also moved their workers closer to supporting nationalization. Combination produced regular contact between workers from rival lines, which had the important political consequence of shifting their identification from the railways to alternative corporate cultures like the ASRS and the Independent Labour Party (Howell 1983:70–1). As they compared notes, union members took the “fighting spirit” which railways had encouraged them to exert against rival companies and collectively channeled it against their employers. Under the right social conditions, company-inspired militarism passed easily into militancy; after the strike of 1890 was over, the Scottish ASRS sold gold medallions to participating members, bearing the inscription “A.S.R.S. for Scotland” (Bagwell 1963:147). And the railways’ long-standing recourse to pomp and discipline became a potent weapon to be used against them. The severity of the union’s rules vied with those laid down by the railways, often matching company fines for unruly behavior with fines of its own (141). For militancy to succeed as a bargaining strategy, closer co-operation among branches of the ASRS was essential—to an extent that reinforced its members’ growing sense of national purpose. The union’s earlier emphasis on superannuation and fact-finding had allowed for a fair amount of financial autonomy among member branches. This changed after 1890, when it became clear that central reserves were necessary to allow local strikes to last long enough to have an impact, or (after 1907) to provide for national work stoppages. When the Scottish workers went on strike in 1890, their regional ASRS branch had less than £5,500 to its name. The strike lasted as long as it did only with help from England and Wales, and the experience led the Scottish branch to abandon its independent status. A different sense of national identity appeared in 1906, when the Labour MP Keir Hardie engineered the passage of a Trades Disputes Act which limited a union’s 248

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financial liability for the actions of its members. This Act reversed the infamous Taff Vale decision which had cost the ASRS £41,892 in damages, and solidified growing ties between the union and the ILP With national means came national ends. After 1890 the ASRS periodically pushed for some version of a “National Programme” or all-grades movement, and staked much political capital on the principle of being recognized by the railways as a national union, with bargaining powers independent of members who were in the employ of individual companies (Bagwell 1963:143, 149, 225–74; Gupta 1966:134–52). The ILP’s successful appeal to Parliament on the railway workers’ behalf in 1906 made them more receptive to its urgings that nationalization was the best way to force the companies to meet them on equal terms. The ASRS was consequently an early and active supporter of the Railway Nationalisation Society, which had been formed in 1907 by Labour politicians and traders in response to a series of recent merger proposals by the railways.13 Early on, workers did what they could to preserve the Society’s support among traders; a union resolution in 1907 included “all other sections of the community” along with workers as those likely to benefit from state purchase (Pratt 1908:144). But their democratic vision of nationalization soon threatened to diminish such support. The socialist Emil Davies argued that union delegates on a state board should not “merely… voice the views of their fellows with regard to the conditions of labour,” but should “take an actual part in the control of the railway system” (1914:200–1). A union official similarly resolved that “no system of State ownership of the railways would be acceptable to organised railwaymen which did not guarantee to them their full political and social rights” (RN 101 (1914): 1,249). Even more than their advocacy of full participation, the workers’ increasing recourse to strikes after 1907 turned many traders from cautiously supporting nationalization to lining up against it. In 1914, three years after a national strike, a poll of London Chamber of Commerce members came out 147 to 26 against state purchase (733); the National Chamber of Trade expressed its preference for “State control” over “State ownership” the same year (644). “The moral-loss account”: railway finance as private sacrifice Railway officials worked this new split among their recently joined critics to their advantage, by focusing on the political dangers that allegedly would result from handing the railways over to the masses to do with as they pleased. Echoing earlier rebuttals of nationalization in the 1860s and 1870s, they modified its alleged dangers to correspond with turn-of-the-century political fears. Instead of identifying state purchase with “French” bureaucratic despotism, railways now linked it with the threat of corruption. 249

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Nor did this invocation refer to the “Old Corruption” of the 1840s. By 1900, corruption in British politics had come to signify the more recent, and more foreign, threat of party machinery interfering with Parliamentary practice (Searle 1987). With traders, travellers, and especially workers all clamoring for concessions, the railways warned, nationalization would entail a hefty increase in taxes, prices, or both. In contrast to the expensive prospect of party politics, they presented the less costly image of their own passive proprietaries. The companies claimed that they could take advantage of their shareholders’ deference to pay for improvements by setting aside surplus profits. On their investors’ sagging shoulders, private railways would save British taxpayers the expense of nationalization. Not surprisingly, a popular strategy for exposing the political costs of state railways after 1900 was to exhibit them at work in non-English settings. Xenophobia had been a standard feature of British opposition to the regulation or nationalization of railways since the 1830s, but there were subtle differences in this new version. In the past, the specter of state railways as a foreign “other” hovered over continental Europe—partly because the first statesupported railways to appear were in France and Belgium, but also because the allegedly despotic nature of railway administration in those settings could be more readily contrasted with England’s weak state. After 1900, the favored examples of suspicious foreign railways shifted from Europe to Britain’s colonies in Australia and Canada, and the perceived danger switched from despotic “red-tapeism” to the corrupt excesses of political parties. State railways in Europe, in contrast, received increasingly positive reviews in the British financial press as legitimate responses to exceptional political circumstances. The Prussian government’s railway subsidies, for instance, appeared to be justifiable on military grounds during the Franco-Prussian war, and nationalization in Austria similarly made sense to British observers in light of that country’s claims against Servia (Bilbrough 1914:422). A leading target in the nationalization debate was Australia’s railway system, nearly 90 percent of which was owned and operated by the state. The Railway News pointed to the “largesse of power” in Victoria, where “46 miles of line, costing £387,424, built in accordance with…local pressure, had to be closed as unremunerative” (100 (1913):421). Edwin Pratt recounted a case from 1902 when the ruling Labour Party in New South Wales sacked one of its Railway Commissioners for refusing to grant the staff an eight-hour day. He concluded that this was “the invariable attitude when ‘Labour’ gets a controlling or even an influential voice in the management of publicly-owned enterprises” (1908:124–5). Reporting from Canada, an Economist correspondent similarly preached the dangers of democratic control in his indictment of the state-run Intercolonial Railway there: The evils of State-ownership in Continental Europe are probably nothing like so glaring as those to which we are accustomed [in 250

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Canada], where, instead of a bureaucrat independent of the people, we have the people themselves—the travelling and shipping public, the employés and office seekers, the supply houses and local politicians—in control. (Economist 63 (1905):1,794) Working his way through a list of abuses, including secret rebates to political supporters and “campaign tribute exacted from coal mines and other supply firms,” the correspondent concluded that “[w]hat may be termed the moralloss account, the deadening of the public conscience,” was even more costly to the Canadian people than the huge public debt which the Intercolonial had accumulated (1,794). Some of the Intercolonial’s faults—like the fact that it was “employed as a sort of donkey-engine in behalf of Protection”—could also be ascribed to European state railways, and opponents of nationalization gladly did so when the opportunity presented itself (Economist 63 (1905):1,794). But the main thrust of the Edwardian attack on state purchase was against the new, and almost wholly Anglo-American, threat of pork-barrel politics. Nationalization, argued Pratt, would result in “‘political’ lines, designed to serve the particular interests of…specially favoured localities, or…to provide employment for electors.” A new railway-servant “interest” would materialize overnight, who would “use their influence in Parliament to secure for them exceptionally favourable conditions of labour, at the expense, if necessary, of the general community” (1908:121). The implication was that railways were immune from democratic pressures in a way that Parliament, ever since the rise of party politics, had ceased to be. This point was clearly stated by the railway writer Lord Monkswell: “The existence of companies not amenable to direct political pressure must increase the difficulties of instituting wild experiments, which some political combination might endeavour to force upon the Government, and to this extent at least must be acceptable to reasonable people” (1913:25). The railways’ immunity from outside political pressure allegedly stemmed from the wholly passive nature of their shareholders, who had shown little interest in involving themselves in the railways’ internal affairs for nearly half a century. As they had done in the Spens controversy, the railways took advantage of shareholder apathy to stay a step ahead of their critics. The only difference was that this time they elevated their investors’ inaction to a positive good, to be contrasted with the worrisome meddling of “the people” in the affairs of Parliament. Pratt argued that the tendency of railway investors to look on passively in the face of declining dividends would not persist once their shares were converted into Consols: “those investors who are sufferers from this position,” he predicted, “would be much less tolerant if they had to deal with the State than they are in the case of a company” (1908:306–7). 251

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What Pratt envisioned was a system in which economies derived as much from lower acceptable profit margins as from efficient management. Unlike the railways, the state would have no trouble raising capital to pay for new construction and upkeep, since the City could be assured that the interest would be forthcoming. As George Gibb predicted, if the state ever ventured into the capital market on behalf of its railways, “the interest would have to be paid in full, whether the expenditure proved remunerative or the reverse” (1908:21). And railway apologists left little doubt that the state would, eventually, be forced to borrow large amounts of money to cover lapses in the railways’ profit column, for two reasons. First, direct pressure from workers for higher wages and from passengers for accommodation would make state railways a much more expensive undertaking than an amalgamated private system. Second, pressure from traders and taxpayers would prevent the government from covering their losses by means of rate hikes or new taxes (Pratt 1908:324–30, 422–6). The result would be to drive the price of Consols, already selling at 25 percent below par in 1912, even lower. Under the extra burden of a railway deficit, predicted the Railway News, “the national security would fall to a price which would have further disastrous effects on the national credit” (98 (1912):539). To preserve public finance, and in the process preserve themselves, the railways were prepared to sacrifice the future earnings of their shareholders if that was what it took. Gibb admitted that the railways’ existing debt burden “undoubtedly represents a loss to the community,” but he softened the blow by reasoning that “[i]t falls on those who voluntarily spent their money in the hope of gain” (1908:21). This financial argument bore obvious similarities to the criticisms of the Post Office that joint-stock bankers had initiated a few years earlier. In that case, the bankers had claimed that the state was too vulnerable to political pressure to run savings banks without lowering the market value of Consols, and had pointed to their own immunity from party politics as a reason why small deposits were safer in their vaults. The railways’ appeal on behalf of the marketability of public funds was both more disinterested and less realistic than that of the banks. It was more disinterested because, unlike banks, railways had none of their own money locked up in Consols. It was less realistic because the railways—again, unlike the banks—had no business claiming they would be any better than the state at reducing their debt burden. In the decade before the First World War, the only argument the railways had on their side in this regard was the dubious claim that nobody was interested in lending them any more money. This alone was not enough to justify the additional promise that they could, by amalgamating, keep rates under control and still store up a sufficient reserve for future maintenance. To make this further claim, they needed to enter into much closer relations with the state than their banking counterparts ever dreamed of. And not even government support, which continued into the 1930s, 252

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would be enough to keep railway finance on a solid footing, as interwar labor unrest and motor-car competition ate into the companies’ revenues. Prior to 1900, the railways had typically viewed government intervention, and in particular Board of Trade supervision, as at best an annoyance and at worst an infringement of their property rights. This attitude gradually faded as company executives realized that government boards could be valuable allies in their efforts to keep traders and workers from protesting too loudly. Their dependence on the good will of cabinet ministers increased after 1907, when the Board of Trade was their only ally in their attempt to obtain legally binding pools (Cain 1972:629–36). Board officials also indicated their support of the railways’ new political vision when handling labor disputes. Railway shareholders cheered when Lloyd George remarked that “the less the Board of Trade knew of politics the better” (Economist 65 (1907):506); a stance which informed Liberal efforts to keep labor issues confined to the realm of “impartial” administrative expertise. Within this arena, they conceded just enough to the workers to keep union executives, if not always the workers themselves, satisfied until the next round of talks. In 1911, when the Prime Minister, Lord Asquith, personally intervened during a threatened national railway strike, he assured the ASRS that the state was “completely impartial as regarded the merits of the various points of dispute,” and promised “the promptest investigation by a perfectly independent tribunal” (Economist 73 (1911):417). Lloyd George eventually convinced the union to hold off until the Committee issued a report, which led to a revised conciliation scheme with Board officials acting as arbitrators. His successor at the Board of Trade, Winston Churchill, similarly supported unions as “necessary guardrails” against arbitrary capitalist power, but firmly opposed all union proposals that smelled of socialism (Davidson 1978:577– 81). The same strategy of moderate, top-down solutions to labor problems persisted among Liberal ministers during the War (Searle 1995:103). Liberal politicians were not always prepared to offer their full support to the railways’ vision of the civil service as an extra obstacle between private enterprise and party politics. Speaking to the Trades Union Congress before the War, Asquith expressed concern that nationalization was not the best plan “from the point of view of the taxpayer,” but assured them that his mind remained “perfectly open” to the idea (RN 99 (1913):662). During and after the War, when the Board of Trade took control of rail transport while continuing to pay dividends to the companies’ shareholders, it was even harder for Liberals to resist pressure from their Labour allies to take the next logical step and buy the railways outright.14 Churchill and Lloyd George both pledged their party to imminent nationalization in 1918, and a House of Commons committee that year urged that Britain’s “main railway systems…should be brought under unified ownership and managed as one system.” When push came to shove, though, all Lloyd George’s coalition government could offer was a new Ministry of Transport which formed in 253

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1919 with no clear mandate, ultimately leading to a Railways Act in 1921 which divided Britain into four privately owned companies (Bagwell 1963:405–14). Politicians after 1921 typically defended the new Railways Act by repeating the companies’ prewar claims that keeping the railways private would save taxpayers and customers money by preventing cost overruns and new deficit spending. A report issued in 1931 argued that the law had “merely carried to its logical conclusion the practice of railways in the past, the object being operating economy and administrative efficiency” (cited in Crompton 1995:117). Thus defined, the law achieved its goals: expenses in the reorganized companies declined by £40.2 million between 1922 and 1931—although, as Gerald Crompton has pointed out, most of these savings came under the less praiseworthy heading of “economy” instead of “efficiency” (117). The companies also appeared to make good on their promise to store up reserves, hence rendering future appeals to the capital market unnecessary: such a fund existed to the extent of £45 million in 1931. Behind these apparently rosy results, however, lurked a pair of less positive developments which the railways had not factored into their prewar predictions of administrative efficiency: continuing labor unrest and competition from road traffic. The first of these—especially in the General Strike of 1927—prevented railways from carrying passengers and goods, and the second pushed passengers and goods out of trains and into motor cars and lorries. Both these factors contributed to a decline in railway revenues by over £50 million in the 1920s, resulting in net profits which paled in comparison to the British economy’s concurrent overall growth rate (117– 19; Pollins 1971:158). The new competition from road traffic, in particular, revealed the economic and political downside of the railways’ newly achieved rapprochement with the state. From one point of view, the new access to motor cars and lorries relieved the railways (and by implication, the state as well) from direct political pressure to reduce rates and improve services. For the first time since the 1840s, passengers and traders could finally express their dissatisfaction with fares and services by taking their business elsewhere, instead of complaining to the nearest politician. As the accompanying decline in revenue attests, however, this relief came at a steep price, one which the companies could only afford to pay by dramatically reducing services. A significant proportion of the branch lines that had been built since 1870 were closed in the two decades after 1918 (Simmons 1978:I, 255). Many of these closures, of course, merely eliminated the duplication inherent in the prior system of competing companies; others reflected the ascendancy of cost-accounting methods after 1920, which finally allowed managers to weed out routes which acted as a drag on profits. But the bottom line, which was all that counted to those customers who had not yet made the switch to the motorway, was that trains and terminals after 1930 were fewer and 254

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farther between. And even more to the point, those closures which did more than eliminate duplication marked a clear departure from the railways’ prewar promise that amalgamation would allow them, at the very least, to maintain services at existing levels. By cutting into railway revenues, road competition forced the state to choose whether to rethink transport policy more generally, or to stand by their original decision to leave railways under private ownership. This result speaks to the fact that the railways’ interwar exercises in cost-cutting, besides making life difficult for customers and workers, failed to deliver the hopedfor net profits. Dividends on ordinary shares, which had already been a matter of complaint before 1918, sunk even lower as a result; the proportion of ordinary to guaranteed shareholders also dwindled, hence further reducing the potential for internal criticism (Crompton 1985:227–8). Through the 1930s, the British government’s consistent response to this poor financial record was to stack the deck against road transport, and to brush off persistent Labour appeals on behalf of nationalized transport. Two Road Acts in 1930 and 1933 erected a licensing system for motor cars and lorries, and the state footed the bill for railway expenditure on electrification and docks (Gourvish 1986:14; Crompton 1995:125–32; Pollins 1971:186–9). Although the companies were grateful for whatever help they could get, their new reliance on the state delivered a severe blow to their prewar promise that keeping the railways private would prevent new taxes. A later critic in 1946 typified the more general disillusionment surrounding this broken promise when he referred to the railways’ “degeneration into a poor law frame of mind” over the previous two decades (Crompton 1995:132). A final political effect of road competition was that it entrenched railway workers’ support of nationalization as a central strategy for protecting their job security. Unlike passengers and traders, workers had no obvious “economic” means of protesting the companies’ continued inefficiencies, which affected them in the form of lower salaries and fewer jobs. Between 1921 and 1931 railway wages fell more than 20 percent, and the number of railway employees fell from close to 750,000 to less than 600,000. In the depressed climate of the 1930s, these dislocated workers could not find better jobs elsewhere in the same way that customers were on their way to finding better means of transport. Hence the relief which railways experienced from customers’ political pressure was counterbalanced by their workers’ persistent appeals to the state to protect their livelihoods. These appeals most frequently took the form of renewed calls for nationalization, either of railways by themselves or of transport more generally. The unions got their wish in 1947, when the Labour government placed the nation’s railways under the authority of a newly established British Transport Commission (Pollins 1971:167–8, 195–6). Nationalization failed either to correct the railways’ inability to pay their own way or to fulfill the workers’ long-anticipated vision of full participation 255

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in management. After a decade of modest operating gains, British Rail experienced an uninterrupted string of annual deficits between 1956 and 1968, typically exceeding £60 million and reaching £102 million in 1962. Workers continued to be as cut off from management decisions under state ownership as ever, and continued to resort to strikes to protest line closures and wage cuts (Pollins 1971:172, 200). State purchase, in short, had the same underwhelming impact on British railways as was the case with nationalization of the coal, steel and iron industries. And as in those industries, the continued decline of the railway system has spurred a tendentious debate about the proper role of the state in the British economy. One side in this debate points to British Rail and other state-owned industries to make the point that all government intervention should be discouraged. Another claims that these isolated failures should not be used to indict state intervention in general, but rather to warn against using economic policy to try and revive industries which are already in irreversible decline (Hall 1986b). Since these policies date back to the postwar Labour ministry when the influence of trade unions on government was at its height, the implication of this latter view is that Labour ministers allowed the immediate calculations of party politics to blind them to the larger economic picture. Either of these perspectives would have appealed to Edwardian railway apologists, who had predicted disaster if the demands of party politics ever got in the way of “objective” economic planning. This alone suggests a need to re-evaluate nationalization’s disappointing results in light of the longer view of railway politics offered in this chapter. Between the 1870s and their demise seventy years later, British railways justified their existence by arguing that they provided a much-needed bulwark between the economy and an increasingly democratic state. This was the case in their self-defense against traders’ complaints in the 1880s, and it was even more prominently on display in their later campaign against nationalization. It was not the Labour Party’s fault, nor even the fault of “party politics” more generally, that the railways succeeded in convincing a succession of cabinet officials that the “moral-loss account” of corruption was too high a price to pay for an experiment in state ownership. Acting on that conviction, the state stood by as railways did their best—but ultimately failed—to undo the financial damage of decades’ worth of overcapitalization and unresolved labor disputes. Labour’s political wisdom in spending even more money presiding over the further erosion of the railway system may certainly be questioned; but so too must we question the railways’ political strategy before 1947 to celebrate their financial decay as a worthy antidote to democracy.

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This book is about the political origins of public companies in Victorian England. At the same time, it has told the genealogy of a strikingly different phenomenon: the fact that British companies today are public without being overtly “political.” Companies commenced the Victorian era by blurring the boundaries between politics and markets, and entered the twentieth century by doing their best to distance themselves from politics. Railways started by embracing the least liberal features of early-Victorian politics, barely maintaining autonomy by continually presenting themselves as a lesser evil than the “fiscal-military state”; and ended by sacrificing their shareholders’ earnings to prevent democracy from interfering with business. More subtly, but more effectively as a result, banks traded their middle-class democratic origins for a cautious conservatism by the end of the century, as they honed their abilities to supervise the nation’s savings. As each of these companies put space between themselves and democracy, they also solidified what has since become a hard and fast distinction between the “state” and the “economy.” This distinction has made it harder for historians to appreciate the political past of banks and railways, and of business organization more generally. Yet that past is important, for a number of reasons addressed in this book, and across a number of subdisciplines in history, economics, and political theory. Most significantly, it takes us back to a time when it was difficult, if not impossible, for people to imagine large-scale commercial operations as belonging wholly in the social construct known as “the market.” All historical precedents for such institutions resisted such an easy categorization. The East India Company and other chartered trading firms were “monstrous” precisely because they were unable to use their shareholders’ capital as a basis for foreign trade without becoming enmeshed in political intrigue. The establishment of the Bank of England in 1694, similarly, was a striking experiment in public finance precisely because it circumvented taxation’s normally direct route from subject to sovereign. Between the monarchy and the people’s money, for the first time, stood a joint-stock 257

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company, hence rendering that company a “great engine of state” (Smith 1970:320). The rise of joint-stock banks and railways in Victorian England similarly depended on a whole series of crucial political contingencies. These connected the companies’ strictly “economic” considerations with challenges that were more likely to be mooted in Parliament or by local political authorities than to be a concern of family firms. Politics, for these companies, went deeper than a purely reactive accommodation to legislative decrees or judge-made law. The urban capitalists who established the first English jointstock banks did so by relying on the same political categories that they were also using to set up voluntary societies and to transform local government. When the banks came to define themselves in opposition to democratic currents, as in the controversy over the Post Office Savings Bank, it was both a response to “outside” political pressures and a difficult departure from their own political past. The political origins of railways, in contrast, had less to do with regionalism or voluntarism than with middle-class fears of a decaying “fiscal-military” state. Railways put these fears to their advantage by defining their internal politics in opposition to the alien, bureaucratic alternative of a state-owned and operated network. This definition shielded British railways from state control to an extent which was unrivalled among nineteenth-century railway systems; but in the process, the companies neglected to forge more constructive political relations with their creditors, customers, and workers. As a result, their ability to stave off nationalization proved to be neither permanent nor capable of delivering the economic benefits which they had proclaimed would be the case. To gain focus on what this book’s perspective on “joint-stock politics” has to offer historians, I would like to suggest a thought experiment. Imagine a series patterned after Hansard’s Parliamentary Debates, which has been authoritatively documenting speeches in the Houses of Commons and Lords since 1803. Instead of being devoted to what Members of Parliament had to say about England’s finances and foreign policy, however, this series would record the proceedings of annual shareholder meetings held by England’s major joint-stock companies. It would allow historians to consult Thomas Salt’s defense of bank amalgamation, or Richard Moon’s efforts to preserve railways from their customers’ “confiscatory” demands, without digging through the back pages of Bankers’ Magazine or Railway News. Being able to move quickly from Parliamentary to corporate debates would help political and social historians discover the crucially relevant connections linking these two different forms of public discourse. And it might entice business historians to look up from the archives long enough to appreciate more thoroughly how companies operated in the public sphere, in the process suggesting an alternative to economic theory as a means of reaching general conclusions from their case histories. An awareness of joint-stock politics would affect the writing of general political history at its most basic levels. Consider, for instance, recent historical 258

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debates on the rise of the British state, which typically either foreground pioneering efforts in public administration (e.g., MacLeod 1988) or trace an evolution from local to national voluntary societies, and from there to state supervision (Lewis 1996; Morris 1983; Harris 1983). This debate would be enriched by recognizing that nineteenth-century companies also generated an “expert” class of public officials, and also moved away from local and voluntarist ideals. As companies evolved in these directions, joint-stock politics became part of the very language of state formation. Walter Bagehot prefaced his conservative celebration of the English Constitution by remarking that “[t]he board of directors of the political company has a few slight changes every year, and therefore the shareholders are conscious of no abrupt change” (1965–86: V, 167); W.S.Gilbert had a foreign king ask, in utopia, Ltd.: “do I understand you that Great Britain/Upon this Joint Stock principle is governed?” (cited in Hunt 1936:159). Political historians might well respond, with Gilbert’s Mr. Gold, that “[w]e haven’t come to that, exactly” (159); but they would do well to recognize the fluid boundaries between companies and states that such language implies. Closer attention to the working of joint-stock politics also offers a new perspective on an old debate among economic and business historians: namely, what to do with all the commissioned case studies which have been accumulating for the past generation? In posing this question, many historians have come down on the side of using case histories to test economic theories of business organization, such as Oliver Williamson’s ideas about firm size and internal transaction costs, or recent work on market failure (Lamoreaux and Raff 1995; Foreman-Peck and Millward 1994; Coleman 1987; Lee 1990). Many business historians have responded that it would be premature to draw theoretical conclusions from a still-sketchy record, or that economics alone does not account for questions of timing and cultural context (Collins 1995:89–90; Supple 1991). Taking up the question from the perspective of companies’ political origins is one way to identify general and comparative themes in business organization, without requiring the universalizing assumptions which often accompany economic theory. By moving the analysis from inside the firm to the firm’s public relations, this approach provides a useful corrective to the “‘single cases’ and ‘inveterate empiricism’” of business history (Coleman 1987:142). At the same time, it complicates many of the categories in economic thought which appear to do short shrift to the historical record. Perhaps the most obvious place where a better appreciation of the political past of companies is needed, finally, concerns present-day political theory and practice. This is the case precisely because companies have succeeded so well in distancing themselves from their political origins. An impoverished awareness of where companies came from has led to unrealistic expectations about the liberating effects of privatization or deregulation, followed by inevitable frustration at the unresponsiveness of “big business.” And where 259

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this frustration has bred modern-day echoes of joint-stock politics, as in Tony Blair’s populist appeal to corporate reform during his recent election campaign, these have suffered from a failure to appreciate the limitations of such appeals in the past.1 Phrases like “stakeholder democracy” roll as easily off the tongue today as they did when bank shareholders talked about democracy in the 1830s while handing real power over to their managers; or when railway workers allowed their visions of a participatory state-run network get in the way of more practical goals. Only by learning from these past experiences can modern rhetoric about joint-stock politics lead to real change in today’s mixed economy.

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NOTES

1 INTRODUCTION: COMPANIES AND STATES 1 The legal definition of the company in nineteenth-century England was changing and multivalent. After 1856 all British companies had at least six shareholders, possessed legally transferable shares, were required to submit to regular public audits, and were empowered to limit their investors’ liability (most companies apart from banks were limited after 1856, and banks followed suit in the 1880s). Some companies, including railways and utilities, formed by virtue of an Act of Parliament and were liable to extra regulations; others throughout the century formed by virtue of a royal charter. See my further definitional remarks at the end of Chapter 3. 2 Strong historical support for privatization in Britain is easier to find in the 1970s (e.g., Bacon and Eltis 1978). For a more tempered defense of market liberalization published after Thatcher’s policies had started to produce results, see Dornbusch and Layard 1987. 3 On alternatives to the company-state dichotomy see, e.g., Lindblom 1977; Boswell 1990; Marquand 1988; Vietor 1994; Schrader 1993. 4 For a related discussion of the role of “political culture” in British business organization see Dobbin 1994:160–5. 5 I have chosen to focus only on banks and railways because of their important contrasts in political strategy, because they represented the two leading sources of investment in nineteenth-century Britain, and to allow for more detailed analysis. The third leading type of company in Victorian Britain, the insurance industry, closely approximated banks in their political strategies and economic achievements (Alborn 1991: ch. 3). 6 My aim in this book is to offer a reinterpretation of this historical material, not by delving further into the archives, but by turning instead to an underutilized body of published sources, including reports of shareholder meetings, textbooks and manuals, company advertisements and promotional pamphlets, and “leaders” in financial journals. To the large extent that I have relied on available secondary sources in business and economic history, my goal has been to juxtapose these findings with the new evidence, and in the process to suggest new questions for future archive-based company histories. A further argument for the longer look at the published record taken by this book is that a company’s “political” as opposed to its “economic” practices rely almost exclusively on statements intended for public consumption. The clear line between a manager’s strategy and (for instance) a journalist’s opinion, which normally justifies the business historian’s archival priorities, is much harder to draw in the realm of political action and reaction. 261

NOTES 7 Some important contributions to this growing body of literature are: Weiner 1981; Anderson 1992; Wood 1991; Rubinstein 1993. 8 For a critique of Anderson along these lines see Wood 1991. 9 See also Daunton (1996a:255), on the need “to rescue accountants from the condescension of posterity.” 10 Howe 1992 makes a similar criticism of Cain and Hopkins’ assertion that the City took the lead on early Victorian free-trade legislation. 11 Bagehot 1965–86: IX, 45–233. The classic histories of monetary policy and the Bank in the nineteenth century are, respectively, Fetter 1965 and Clapham 1945:I. 12 On the eighteenth century see Brewer 1990 and O’Brien 1988; on the nineteenth century see, e.g., Ghosh 1984 and Hawkins 1983; and on the twentieth century see Cronin 1991 and Daunton 1996b.

2 DEMOCRATIC DESPOT: THE EAST INDIA COMPANY, 1783–1858 1 “Double government” also referred at the time to the principle of sharing power with native Indian princes; in this chapter I will only be using it in reference to the division of power between the Company and the Board of Control. 2 £1,400 was the going premium on a £1,000 share in the Company as of 1776; after 1773 this was the minimum holding necessary to vote for directors. 3 On the democratic nature of the Company’s constitution see Bowen 1991b. 4 Lord Grenville’s threat to abolish the Company in 1813 was most likely a bluff to coerce conservative directors into accepting his proposed charter (Marshall 1968:101). 5 On banking see Ambirajan 1984; on public works in the 1820s and 1830s see Rosselli 1974. 6 English tax collectors turned the local bank notes they received into gold and Bank of England notes in much the same way, by using the notes to buy bills that were redeemable in London (Pressnell 1953a). 7 Robert Clive had introduced this remittance system in the 1760s, when the tax surplus thus remitted added to an already substantial division of unsubsidized company profits (Bowen 1987:909). 8 On the Indian agency houses see Chapman 1992:107–13. 9 Another factor in the Company’s failure to preserve its full monopoly in 1813 was a new interest by Tory ministers in liberalizing the import of raw materials from India in order to meet war-induced scarcities (Webster 1990). 10 On James Mill at the Company see Barber 1975:157–9. 11 For background on Haileybury, especially during the period 1811–17, see James 1979:214–22, 228–43. 12 Since private traders had been freely exporting goods to India for the previous twenty years, remitting this revenue to Britain was not the problem it had been in 1784. 13 On Bright see Joyce 1994: ch. 10. A representative Socialist effort was Ludlow 1858. 14 On the political dynamic of the 1853 East India debate see Conacher 1968: ch. 4. 15 It was not, measured by its own goals, an instant success (Wright 1969:54–73). 16 For examples of such criticisms see Wilson 1854:4–6 and sources cited in Wright 1969:62–4. 262

NOTES 17 For more details and background on Mill’s defense of the Company in the 1850s and 1860s see Zastoupil 1994:159–62, 176–83. 18 Mill’s testimony was glowingly cited by Wood in Hansard 127 (1853): 1,140, 1,147–50 and by Sir J.Graham in Hansard 128 (1853):845–7.

3 RELUCTANT SOVEREIGN: THE BANK OF ENGLAND, 1797–1875 1 The only exception was the Bank’s policy during the 1830s, discussed below. 2 On the Bank’s adherence to “Smithian” doctrine in the two decades after 1793 see Horsefield 1953. 3 Duffy 1982 describes the Bank’s actual lending practice at this time. 4 On the changing social composition of the Bank’s Court of Directors in this period see Howe 1994. 5 See the general survey in Ziegler 1990:4–31 and local studies by Moss 1981, Roberts 1958, and Collins 1972. 6 With little regard for their clearly different views on political representation, White 1984 draws a continuous line from Smith to the “free banking” school. 7 See Bagehot’s very similar discussion of monarchy in The English Constitution (1965–86:V, 229–30).

4 “REPRESENTATIVES OF THE PEOPLE”: THE POLITICS OF JOINT-STOCK BANKING, 1826–44 1 Checkland (1975b:513) observes that the widespread issue of bank notes was equivalent to “an interest-free loan from the public.” 2 An exception to this rule among Scottish banks was the ill-fated Ayr Bank, founded in 1769, which tried to ride out the credit crunch by issuing notes on the security of their shareholders’ property, but failed to meet its obligations to noteholders three years later. 3 The large number of recently failed English private banks offered a competing labor pool. 4 On Joplin at the National Provincial see O’Brien 1993:30–8. 5 The National Provincial could not set up an actual banking office in London owing to a ban on note-issuing London joint-stock banks; its affairs were, however, controlled by a London-based board of directors. 6 This paragraph and the following are largely drawn from Brewer 1982:197– 200 and sources cited therein. 7 On private banking in the years immediately preceding 1825 see Moss 1982. 8 On Stuckey’s banking career see Ollerenshaw 1982:58–70. For other examples of converted private banks see Sykes 1926:9–12. 9 On the competition for revenue among missionary societies see Stanley 1983. 10 Bailey stood unsuccessfully as a Radical candidate for Sheffield in 1831 and 1834 (Leader 1916:63–4). 11 On Salomons see his entry in the Dictionary of National Biography. 12 On the agency system before 1825 see Pressnell 1953b. 13 An exception to this rule was Liverpool, where the heavy trading in foreign commodities generated a much higher proportion of bills to overdrafts even before 1850 (Anderson 1983). 14 See, e.g., Sayers 1957a:47, 52, on the philanthropic activities of James Lister of the Liverpool Union Bank, and on Nathaniel Hartland of the Gloucestershire Banking Company. 263

NOTES 15 For evidence of “democratic” bankers’ suspicion of the principle of accountability see Gilbart 1851:111. 16 On bankers’ support of unlimited liability see, e.g., Gilbart 1837b: 78; Bailey 1837:190–1; and Hunt 1936:65–72. Significantly, neither Joplin or Stuckey went along with the bankers’ consensus in favour of unlimited liability (Stuckey 1836:37; O’Brien 1993:174–6). 17 On the tensions between the ideals of “average man” and diversity in early Victorian liberalism see Cooper 1997. 18 A further convergence between the larger “democratic” joint-stock banks and “Scottish”-style banks like the National Provincial took place at the level of architecture, where both types of banks self-consciously imitated the opulent public buildings in the process of being established by Bank of England branches (Girouard 1990:232–5).

5 SHIFTING GEARS: THE RISE OF DEPOSIT BANKING, 1844–80 1 Bills of exchange were lOUs issued on the security of commodities that were purchased on consignment by the borrower, usually payable within two to six months of issue. Inland bills circulated within England, often changing hands as collateral for other loans; foreign bills were issued on imported goods. Both types were often “rediscounted” by a provincial bank, that is, originally issued by a City broker then purchased with a commission to provide capital for local loans. The best account of the Victorian inland bill system is Nishimura 1971:26–54. 2 Banks did, in fact, possess this advantage with regard to brokered inland bills, but not with cash advances and other fixed-term loans. 3 The estimated volume of inland bills drawn dropped from £721 million in 1870 to £494 million in 1894 (Nishimura 1971:3). 4 On the early Victorian depiction of the entrepreneur see Berg 1980:120–4. 5 This was especially the case following legislation in 1858 that repealed a discriminatory stamp tax on checks cashed more than fifteen miles from their point of origin (Collins 1988:74). 6 This argument dovetailed with other defenses of company reform, including the claim that people should be able to contract freely with each other and the argument that limited liability would encourage co-operation between workers and employers by encouraging profit-sharing schemes (Cottrell 1980:39–53; Saville 1956; Hilton 1988:255–67). 7 On divisions within the middle classes over company reform see Searle 1993:187–92. 8 On company law between 1856 and 1900 see Cottrell 1980:56–75. 9 The failure of Overend, paired with its recent conversion to limited liability, had the further result of diverting legislative attention from monetary policy and the banking system to imperfections in the company laws (as indicated by the 1867 Parliamentary committee on limited liability). See Hunt 1936:154. 10 On the City of Glasgow crash see Alborn 1995; Checkland 1975a:469–80; Forbes 1979. A good contemporary account is anon. 1879. 11 M’Kenna had originally proposed his scheme in 1875, then revived it in response to the City of Glasgow crash. 12 As Perry points out, Scudamore and his successors sought to increase the deposit cap in order to help the Post Office compete with trustee banks, not as a shot 264

NOTES against joint-stock banks. Scudamore’s proposal in 1869 was to increase the yearly maximum to £100 and the total to £300.

6 “DOING ENORMOUS THINGS”: NATIONAL BANKS, 1880–1914 1 See Hobson 1987 and, most recently, Cain and Hopkins 1993. For estimates of British foreign investment ca. 1900 see Wilson 1995:122. 2 Ross 1996 makes a similar point about English banking in the 1930s. 3 Or at least they needed to appear to be increasingly conservative. Capie and Mills 1995 provide econometric evidence that the banks’ lending policies through 1914 produced returns on their assets that were just as volatile as in the 1870s. 4 A striking exception to the tendency towards a dispersion of bank shares was Barclays, with only 110 shareholders in 1896 (Cassis 1994:24). Its origin as a combination of private family banks makes Barclays stick out as a more general exception in my narrative about provincial banks moving away from their democratic political moorings. 5 This general assertion is based on a comparison of shareholder meeting reports in the Bankers’ Magazine and Railway News between 1890 and 1910. 6 These “country clearings” should not be confused with the Country Bankers’ Clearing, a London office established in 1858 to clear provincial checks drawn on City bankers (see BM 50 (1890):741–51). 7 In 1913 railways employed just under 100,000 clerical workers in a total labor force of 643, 135 (Cole and Arnot 1917:11–12). 8 On clerical labor at banks see Cassis 1994:134–7; Sayers 1957a:67–8; Holmes and Green 1986:112; Green 1979. 9 For examples of specific regulations imposed on branch managers see Cottrell 1980:237–9 and Capie and Collins 1996. 10 On Docker see Cassis 1994:177–8; on the City of Birmingham Bank (1897– 1907) see Crick and Wadsworth 1936:80. 11 On agricultural banks see Yerbaugh 1897–8 and Hake 1889. 12 On changes in Hobson’s views on these subjects between 1900 and 1914 see Offer 1983:127–9. 13 In fact, as the Postmaster General reported in 1897, less than 20 percent of Post Office depositors fell in the “industrial” category and only 8 percent were listed as “tradesmen and their assistants”; fully 59 percent were housewives, widows, children, and domestic servants (Economist 55 (1897):1500). This detail made little impact on bank directors’ speeches. 14 Foreman-Peck and Millward provide several economic and political reasons for why certain towns continued to rely on private providers (1994: ch. 5).

7 EARLY RAILWAYS AND THE MACHINERY OF JOINT-STOCK POLITICS 1 Companies without a London terminus, like the Manchester & Leeds, tended to receive short-term credit from provincial bankers (Broadbridge 1970:91–4; Reed 1975:231). 2 For examples of diatribes against railway lawyers in the 1840s see Kostal 1994:41–8. 3 On the canal mania see Ward 1974. 4 The debate has recently been reopened by Bryer 1991. 265

NOTES 5 Preference shares as a percentage of total shares issued since 1826 rose from 9 percent to 14 percent between 1843 and 1848 (Evans 1936:84). 6 On Wrigley see below, ch. 8.

8 RAILWAY REPUBLICS AND BUREAUCRATIC VISIONS, 1860–75 1 These shares often required only a small fraction to be paid up in order to meet the legal requirement that three-fourths of a railway’s nominal capital had to be raised by shares as opposed to credit. 2 The Great Eastern and the London, Brighton & South Coast Railways also went bankrupt in 1866. 3 Only preference shares came with voting privileges; debenture holders, legally defined as creditors, had no more voice in railway elections than, for instance, banks that lent railways money. 4 Wrigley was a Manchester paper manufacturer who pursued a career of shareholder reform after failing to reform the East Lancashire Railway from within as a director: see RT 18 (1856):128. 5 As a contemporary critic was quick to point out, Miles’s criticism of the Great Western’s extension into Wales was undoubtedly related to his financial interest in two local Welsh railways that specialized in mining traffic (anon. 1857:35–6). 6 On these two attempted amalgamations (of which only the first succeeded), see Simmons 1978:I, 68–9. 7 For a concise summary of the nationalization debate between 1864 and 1874 see Barry 1965:82–91. 8 Conversion at the same rate was proposed by Mitchell 1865:7; Coles 1866:6; anon. 1867b:9; Pictet 1868:7; Lister 1859:10. 9 For examples of such conversions see Gourvish 1980a:19; Broadbridge 1970:109–11. 10 Galt’s projected increase in market value assumed that the existing 3 1/2 percent average dividend of railways would be raised to 5 percent in a government compensation package. 11 As discussed in Chapter 2, preventing shareholder resistance to nationalization in the East India Company also hinged on stripping them of their role in patronage, which had been accomplished in 1853. Although patronage was also an issue in railway politics (Bourne 1986:30), the much larger number of railway shareholders rendered the incentive of patronage practically nonexistent for all but the largest holders of stock. 12 This assumption proved to be unjustified; between 1872 and 1874 the Midland made the switch to a two-class system with no government prodding, and other railways soon followed suit (Pollins 1971:96–7). 13 As with the more general defense of “collectivism,” those who favored railway nationalization were often state-employed themselves, with a vested interest in locating the source of state agency in the administrative branch. In a discussion of Martin’s paper, Henry Tyler, Edwin Chadwick, William Farr, and Frederick Hill numbered among his state-employed supporters: see Martin 1873.

9 RAILWAYS AGAINST DEMOCRACY, 1875–1914 1 Others, like Alderman 1973, go into much useful detail about the railways’ political entanglements, but only incidentally discuss economic outcomes or the 266

NOTES

2

3 4 5 6 7 8 9 10 11 12 13

14

political language used by the participants. On the limits of the pressure-group approach to regulatory history see Skowronek 1982:125–30. It is of course impossible to know whether the commercial consequences of alternative political decisions would have resulted in an improvement over the course actually taken. As I argued in Chapter 7, however, it seems likely that railways would have gained commercially had they spent less time staving off the threat of intervention from a weak government and more effort declaring their independence from the City. This was the case with the Manchester Ship Canal, which was bailed out by the Rothschilds in 1887 (Harford 1994:8). The same problem of inadequate data faced late-Victorian protectionists, whose statistics purporting an unfavorable balance of trade were easily dismissed by free-trade advocates as mere guesswork (Friedberg 1988:43–5). See Porter 1995 on the varying claims to political legitimacy of different forms of “objective” knowledge. The “ton-mile” system broke down aggregate freight figures into weight and distance traveled for each type of cargo, and was alleged to be better at detecting cases of underloaded wagons. Percentages are taken from a sample of nine debentures and fourteen “ordinaries.” The London & North Western dividend fell from 7 1/8 percent to 5 1/2 percent between 1899 and 1901 (Economist 59 (1901):1,495). The Railway News for 1902–3 provides a detailed record of the debate as it developed in shareholder meetings and letters to the editor. On the railways’ claim that unionism was a foreign contaminant see, e.g., Herapath’s 52 (1890):578; 53 (1891):168; and RN 76 (1901):92. For a more detailed survey of this transition see Fitzgerald 1988:30–6. On other national railway charities administered through the Clearing House, see Bagwell 1968:154–69, 182–7. Barry 1965:91–104 interprets the turn-of-the-century campaign for railway nationalization as a top-down exercise in which Labour Party leaders struggled to enlighten the rank and file of the ASRS. This view makes sense of the timing of public statements in favour of state purchase, but does not address the changes in the workers’ experience that led them to be more receptive to the idea of nationalization. As if to make a down payment on Gibb’s prophecy, the state allocated £126 million to railway shareholders between 1919 and 1921 before disengaging from its wartime deal with the companies to keep dividends at pre-war levels (Aldcroft 1961:91).

10 CONCLUSION: GOING PUBLIC 1 A similar lack of historical awareness mars several more theoretical articulations of “joint-stock politics” in recent years (e.g. Dahl 1985; Unger 1996). The most promising recent analyses of the politics of mixed economies have succeeded precisely by taking into account the historical rise of large-scale firms (e.g., Roe 1991; Boswell 1990; Galambos 1988).

267

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289

INDEX

Aberdeen Coalition 23, 40–1, 45 accounting see public accountability administrative reform 98, 108–9, 111–12, 203, 208–11 Administrative Reform Association 208–9 agency houses (India) 29–30, 262 Agricultural Organisation Society 236 Alison, A. 31, 35, 66–7 Allport, J. 210–11, 223, 247 Althorp, Lord 65–8, 100, 111 Amalgamated Society of Railway Servants (ASRS) 183, 245–9, 253, 267 Anderson, P. 11–12, 262 architecture 264 Asquith, Lord 253 Association of Railway Reform 199 Attwood, T. 64–5 Austin, J. 187 Avebury, Lord 167

155–7, 181, 257, 263; branches 64–5, 67, 105–6, 111, 263–4; gold reserves 56–7, 63, 77–8, 123–4; monopoly 58, 65–8, 82; note issue 53–70, 73, 95, 262; shareholders 54, 60, 62, 69, 78 Bank Restriction Act (1797) 57, 59, 61 Bankers’ Clearing House (London) 78, 119, 126–7, 132, 146–7, 181 Bankers’ Magazine 77, 85, 103–4, 122, 125–6, 138, 146, 149, 152–3, 159, 162–3, 189, 210, 258, 265 Banking and Joint Stock Companies Act (1879) 136 banking school 70–4, 77, 119 banks, joint-stock 5–8, 14–15, 17–18, 55–8, 64–71, 78–80, 82–179 passim, 181–2, 252, 257–60, 263–5; amalgamation 144–9, 152–3, 258; branches 87, 90–2, 94, 101–3, 106–7, 125–6, 133–5, 139, 142–51, 159–60; clerical staff 149–50, 183, 265; depositors 116–22, 128–43, 148–9, 154–5; directors 65, 89–91, 104–5, 111, 113, 122, 147, 157–8; managers 113, 142–5, 169, 265; note issue 70, 89–90, 92, 95, 116–18, 122, 125, 131, 177, 208, 263; reserves 78, 136, 158, 161, 163; Scottish 58, 65, 86–91, 101, 113–14, 131–6, 139, 263; shareholders 89–90, 104–13, 118, 130–6, 148, 157, 162–5, 189–90, 265

Bagehot, W. 14, 53–4, 56–7, 71, 74– 9, 118–19, 121, 123–4, 132, 135– 6, 154, 222, 259, 263 Bailey, S. 100, 102, 113, 263 Baines, E. 100 Baker, H. 133, 215 Bank Cash Payments Act (1821) 57, 63 Bank Charter Act (1844) 72–4, 123, 144 Bank Charter Amendment Act (1826) 64 Bank of England 7–8, 12, 14–17, 53– 79 passim, 82, 86–8, 91–2, 94–6, 100, 117–19, 123–6, 131–2, 144, 290

INDEX ship canal movement 152, 231, 238, 267; see also speculation Carlyle, T. 185 Carter, S. 240 Cassis, Y 78, 264 Central Association of Bankers 146, 158 central banking 56, 75, 77, 95, 123–4, 144; see also banking school Chadwick, E. 95, 100, 112, 187, 217, 223, 266 Chamberlain, J. 166, 229 Chancellor of the Exchequer 78, 124, 157, 162 Chandler, A. 8–10 Cherry, A. 161 Churchill, W. 253 City of Glasgow Bank 101, 131–7, 144, 264 City of London 10–12, 14–15, 141–3, 146–7, 155–9; and bank credit 71–3, 77–9, 122–6, 128–31, 134; and industry 116, 130, 152–4; and politics 39, 41, 201–2; and railway finance 175, 181, 187–8, 192–7, 237–9, 241–2, 267 civil servants 141–2, 147, 150, 155, 165, 187, 209, 220, 222, 253; see also East India Company class legislation 36, 45–7, 56, 212, 220–1 Clay, H. 109–10, 112, 114 Clive, R. 22, 54, 262 Cobbett, W. 57, 60–4, 95 Cobden, R. 14, 23, 36, 38–41, 44–5, 56, 75 Coles, J. 213, 216, 266 “collectivism” 202, 220, 223, 266 Colley, L. 178 Collins, M. vii, 102 commercial crisis 55, 72–9, 123–4, 143; (1825) 57, 63–5, 87, 99, 191–2; (1837) 112; (1847) 119, 194–5; (1857) 73–4, 119, 124; (1866) 73, 119, 124, 131, 155–6, 201, 203 communication 93, 97, 99–102, 105, 120, 129, 152, 178–9, 191 companies 151–5, 189–91, 261; and the state 1–3, 5, 158–65, 183–7; as political institutions 1–7, 12, 17– 18, 80–2, 170, 187; chartered 4, 7, 26, 79–81, 179; private 129;

banks, private 57–60, 64–5, 85, 93, 102–5, 126–7, 146–7, 151, 155–7, 181, 263, 265 Baring Bros 78–9, 141, 143, 155–8, 242 Bass, M. 210, 221, 247 Bayly, C.A. 13 Bell, G. 104, 107, 114 Berle, A. 8 bill brokers 117–27, 131, 208 bills of exchange 56–7, 59, 68, 89–90, 103, 131, 161, 263–4; foreign 28, 54, 136, 147, 155–6; inland 65, 93, 119–21, 123, 125–6, 130, 133, 264 bimetallism 74, 154, 233 Birmingham 30, 37, 91, 101, 144, 146–7, 149, 152, 160, 166, 176–8, 195, 231 Blair, T. 259 Board of Agriculture 236 Board of Control (India) 26, 28, 31–2, 35, 39–41, 46, 219, 262 Board of Trade 199, 228–30, 233–5, 240, 246, 253; Railway Department 184, 186–7 Boase, H. 59–60 Boer War 145, 147, 155, 158, 162, 241, 248 Bosanquet, J. 34 Bowring, J. 187 Brewer, J. 93, 262–3 brewing 153, 222 Bright, J. 14, 23, 36, 38–42, 44–7, 49–50, 56, 62, 75, 219–21, 262 Bristol 31, 101, 134, 151, 179–80, 207–8 British Rail 6, 256 British Transport Commission 52, 255 Brittain, E 233 Brougham, H. 35 Brown, W. 128 Brunel, I. 179–80, 207 Bubble Act (1720) 81 Bullion Committee 60–3 Burdett-Coutts, C. 243 Burke, E. 16, 24–6, 33, 42, 44, 219 business history vii, 2, 4, 8–12, 79–80, 141, 144–5, 159, 227, 258–9, 261 Cain, P.J. 10–11, 13–14, 262 canals 80, 177, 182, 190, 198, 228; 291

INDEX regulation of 4, 87, 99, 108–15, 127–9, 136, 192, 264 Companies Act (1844) 186, 192; (1856) 127, 203, 264 competition 4, 37, 254–5; among banks 133, 137–9, 158–61; among bill brokers 119, 123–4, 156; among railways 200–1, 203–7, 228–9, 232–4, 238, 246–8; and Bank of England reform 55–60, 65–70; foreign 9, 232, 236 competitive examination 33–5, 38, 42–5, 48, 150, 222 confiscation 228, 237–41, 258 Consols 143, 159, 161–3, 187–8, 197, 213–15, 239, 243, 251–2 corruption 25, 37, 40–2, 61, 63, 93, 167–8, 185–6, 249–50; see also Old Corruption Cottrell, P. vii, 146, 264 Cranbourne, Lord 210, 229 Crompton, G. 254 currency school 55–6, 68–72, 119 Currie, B. 157

East India Company 7, 12–16, 21–56 passim, 60, 62, 67–8, 70, 74–5, 79, 219, 257, 262–3; civil service 13–14, 23, 31–3, 35–6, 38, 40–4, 48, 51, 262; monopoly 22–3, 26–32, 36–8, 67–8, 262; nationalization 7, 13– 14, 82, 221–3, 266; patronage 22–8, 30–6, 38–45, 47–8, 54, 70, 266; public works 28, 39–41; shareholders 22–3, 25–6, 28–34, 36–8, 49, 219 Eastern Counties Railway 177, 199, 207, 210 Economist 49, 72, 78, 121–2, 131, 135, 185, 192, 195, 200, 203, 217, 222, 232, 243, 250 Edinburgh 90, 101, 113, 133 education 42, 220–2; of Indian civil servants 32–3, 38, 42–3; of Indians 27–8; political 40, 97–8, 108–9, 111–12, 165, 174 electric power companies 166–70 Ellenborough, Lord 48 Elliott, J.H. 223–4 entrepreneurs 3, 121, 123, 203, 208–9, 223, 264 Evans, D.M. 189 evolution 53–4, 70, 77, 144 exclusion 92, 98–9, 105–9, 126–7, 174, 207, 220

Dalhousie, Lord 195 Daunton, M. vii, 16, 262 Davies, E. 249 deception 46, 58–60, 63–6, 75–7, 89, 118, 162, 213 democracy 1, 14, 35–6, 44–6, 56, 66, 70–2, 74–6, 141, 161–7, 170, 179, 210, 256–8; and railway nationalization 221–2, 245–6, 249–51; in banks 65–6, 85–8, 96, 98–120, 130–1, 260, 264; in East India Company 21–3, 26, 30–2, 262; see also subscriber democracy Denison, E. 185 despotism 46, 50, 54, 56, 72, 249–50; democratic 66, 185 Dick, J. 135 direct representation 23, 63, 85–7, 97, 99, 104–5, 113–14, 116, 174 Disraeli, B. 41, 45, 74 Docker, D. 152, 265 Donald, R. 168, 170 double government 22, 28, 36–40, 44–7, 51, 75, 219, 262 Dun, J. 145 Dundas, H. 24, 26, 28–9

Fane, C. 128 farmers 103, 152, 231–2, 236–7 Farr,W. 51, 219, 266 Fawcett, H. 159 Fay, S. 240 finance companies 135, 203–4 Findlay, G. 248 fiscal-military state 187, 225, 247 Fleming, J.S. 133 Fowler, W. 149 Fox, C. 16, 22, 24–7, 32, 35, 41, 54, 60, 62, 67, 219 Francis, F. 157 Francis, J. 191 free banking 70–1, 78, 125, 208, 263 Fullarton, J. 71, 74 fundholders 37–8, 61, 108, 161, 190–1, 217 Galt, W. 216–20, 222, 266 Garcke, E. 166–7

East India Charter Act (1833) 35–9 292

INDEX Holland, L. 73 Hopkins, A. 10–11, 13–14, 262 Horner, F. 59–60 Hudson, G. 175, 177, 185, 198 Hudson, P. 102 Hudson’s Bay Company 79 Hughes, T. 170 Huish, M. 198 Hume, D. 90 Hunter, W.A. 232, 234 Huskisson, W. 57–8, 60, 195

gas companies 80, 96, 154, 166–8 gentlemanly capitalism 10–15, 17, 141, 159, 177, 181 George III 26, 41 Gibb, G. 243, 246, 252, 267 Gibson, A.H. 160, 165 Gilbart, J.W. 70, 78, 87, 100–4, 106– 8, 113–15, 125–6, 161, 208, 264 Gilbert, W.S. 259 Gladstone, W. 45, 49, 72–5, 124, 138, 156, 175, 184, 187, 192–3, 220, 222, 229, 240 Gladstonian finance 229, 232 Glasgow 90, 101, 133–4, 166, 170, 195, 208 Glyn, G.C. 176, 178, 181–3, 198, 200 gold standard 57, 59–60, 62–4, 78, 154, 195 Goschen, G. 124–5, 156, 158–9, 162–3 Gourvish, T.R. vii, 9, 266 Government of India Act (1853) 23, 42, 45; (1858) 49 Gow, C. 152 Grand Junction Railway 177–8, 182 Grant, C. 32, 34 Grant, R. 29, 34 Great Eastern Railway 204, 206, 209– 10, 215, 266 Great Exhibition (1851) 178 Great Western Railway 177–81, 187, 198, 200, 204, 207–8, 230, 237, 266 Grenfell, P. 181 Grenville, C. 33–4, 37, 262 Grierson, J. 230, 232 Grimthorpe, Lord 240

imperialism 10, 13–14, 50–1, 79, 116–18, 141–2, 145–8, 150, 155–6, 178, 219–20, 223 India 13–14, 21–51 passim, 98, 105–6, 147, 184–5, 221, 262 India Bill (1783) 26, 32, 62 India Council 46, 48–51 India Office 13, 49, 209, 219, 223 Indian Reform Society 38 information 188–92, 217–18 Institute of Bankers 132, 146–7, 149–50, 157, 163 institutionalism 8–11, 15 insurance companies 41, 79–82, 170, 239, 261 investment trusts 239, 241–3 Ireland 88, 91, 107, 114, 176, 178, 203, 220, 240 James, P.M. 105 Joint Stock Bank Act (1844) 114 joint-stock politics vii, 3, 12–13, 15, 38, 56, 71, 80, 92, 145, 169–70, 200, 258–60, 267 Joplin, T. 91, 101, 106–7, 125, 263–4 Joseph, L. 154–5 Jowett, B. 43 Joyce, P. 220, 262

Haileybury College 27, 31–5, 38, 40, 43, 262 Hankey, T. 72–3, 76 Harcourt, W. 159–60 Hardie, K. 248 Harford, E. 247 Harvey, A. 163–4 Harwood, J. 234 Hastings, Lord 54 Hawkshaw, J. 180 Hicks-Beach, M. 147 Hillingdon, Lord 146 Hilton, B. vii, 72, 264 Hobson, J.A. 141, 155, 265

Kennedy, W. 144 King, Lord 59–60 Kostal, R.W. 181, 265 Labouchere, H. 186 Labour Party 247–9, 253, 255–6, 267 Laing, S. 209, 230 laissez-faire state 3, 5–7, 187, 246 Lamach, D. 157 Land Clauses Consolidation Act (1847) 197 293

INDEX landed gentry 10, 13, 16, 80, 93; and bank shares 107; and railway property 81, 173–4, 177, 179–81, 185–7, 194, 197 Lardner, D. 178 Lawson, W. 243 lawyers 93, 173–4, 177, 181, 185–6, 194, 196–7, 234–5, 265 Lazonick, W. 9 Leeds 103, 146, 149, 158, 167, 178, 195 Lees, H. 206 Liberals 96, 154, 167, 240, 245–7, 253 Lidderdale, Lord 156–7 limited liability 4, 81, 127–9, 153, 164, 203–4, 261, 264; in banks 118, 131–2, 136, 161, 264 Liverpool 31, 96, 101–2, 106, 146, 149, 173, 175–7, 179, 190, 195, 233, 263 Liverpool, Lord 57, 64–5, 88 Liverpool & Manchester Railway 176–8, 181–2, 190–1 “Liverpool Party” 175 Lloyd, S. 134 Lloyd George, D. 253 Lloyds Bank 130, 142, 144–7, 160–1, 168 London 28, 67, 87, 92, 95–7, 99– 103, 106, 120, 126–7, 131, 133, 136–7, 144–7, 150–3, 164, 167, 177, 179–81, 207 London & Birmingham Railway 176–8, 181–3, 205 London Chamber of Commerce 232, 249 London, Chatham & Dover Railway 203, 213, 215 London & North Western Railway 9, 178, 193, 198–200, 204, 206–7, 210, 230, 236, 239–44, 267 London & Westminster Bank 87, 100, 102, 113, 126, 146–8 Lowe, R. 127, 129, 202 Loyd, S.J. 68–72 Lubbock, J. see Avebury, Lord Lubbock, J.W. 78

machinery 5, 119–23, 125, 134, 150–1, 186–7, 199, 222–3 Mackinder, H. 147 MacLeod, H.D. 120 Maine, H. 49 Malcolm, J. 22, 31 Malins, W. 199–200 Malthus, T. 32–4, 38 Manchester 12, 47, 69, 91, 101, 106, 121, 146, 149–50, 175, 180, 199, 223 Manchester Chamber of Commerce 50, 194, 223 “Manchester Party” 13, 28, 38–9, 221 Manchester Ship Canal 231 Mansion House Association 150, 225, 231 manufacturing 5, 11, 29–30, 39, 78–9, 121 Marks, A. 163 Marshall, A. 8 Marten, G. 145 Martin, R.B. 211, 217, 219, 266 Marx, K. 11 Maxwell, H. 247 Mathias, P. 116 Means, G. 8 mercantilism 16, 22, 25, 70, 89; by railways 229–33 Merton, R. vii Midland Bank 15, 101–2, 111, 130, 142, 144, 146–8, 151, 154, 159, 168 Midland Railway 175, 177, 198, 208, 210–11, 242, 247–8, 266 Miles, W. 207–8, 266 militarism 246–8 Mill, J. 13, 21, 23, 30–2, 34, 36, 38, 98–9, 106, 109, 165, 262 Mill, J.S. 13–14, 21, 23, 36, 40, 45–51, 53–4, 56, 70, 74–5, 97, 101, 109, 221, 263 Miller, R. 128 Milner, A. 147 Mitchell, J. 214, 266 M’Kenna, J. 134, 137, 264 modernization 6, 11–13, 141, 168, 245–6 monetary history 14, 71, 119, 262 Monkswell, Lord 251 Monteagle, Lord 186

Macardy, J. 113 Macaulay, T. 12, 35–9, 43, 98–9, 106, 108–10 294

INDEX Moon, R. 230, 241, 258 Morris, R.J. vii, 98 Mudge, R.Z. 179, 189–90 Mundella, A.J. 240 municipal government 3, 96, 160, 167–70, 231, 238 municipal trading 96, 166–70 Murray, G. 147

Palmerston, Lord 40, 49 Parliament 4, 7, 39, 42, 73–4, 100, 163; analogy with companies 25, 27, 36, 38, 46, 126–7, 231, 258–9; and railway construction 81, 173–5, 189–90, 195, 200, 215, 238; and railway nationalization 220, 250–1; reform of 31, 61, 64, 221 Parliamentary Trains 184 Pasley, C. 187 paternalism 30, 109, 139; in banking 86, 99, 131, 138; in India 31; in monetary policy 69, 124; in railways 174–5, 182–3, 245–7 patronage 16, 41–2, 45, 184, 222, 266; see also East India Company Patterson, R.H. 124 Pease, J. 180 Peel, R. 17, 63, 69–70, 72, 114, 186–7, 195, 197 “people’s banks” 151–2 Perkin, H. 212 Peto, M. 203 philanthropy 104, 106, 138, 245–6, 263, 267 Phillips, S. 147 philosophical radicals 96–8, 109 Pitt, W. 16, 22–4, 26, 28, 32, 37, 41–2, 54, 57, 60–1, 63 Polanyi, K. 3 political economy 30, 60–3, 114, 164 populism 219–22, 231 Porter, G.R. 187 Porter, T. viii, 12, 267 Post Office 222, 246; Savings Bank 137–40, 143, 158–65, 213–14, 252, 258, 265 power 15–17 Pownall, G. 162–5 Pratt, E. 250–2 Prevost, J. 181 property qualification 37, 99, 109–11 public accountability 97; of banks 87, 112, 114, 158, 264; of companies 1–3, 7, 12, 81; of railways 186, 192, 212, 214, 230, 237; of the Bank of England 65–8; of the British state 16, 46, 62, 73–4 public finance 15–17, 37–8, 58, 62, 88–90, 93, 161–2, 191, 252, 261; see also national debt; fundholders public health 95–6, 112, 217, 223

Napoleon, L. 72, 200 national debt 61, 90, 117, 131, 190–1, 197; and railway stock 213, 215, 239, 251; and savings banks 108, 161–2, 164; repudiation of 195; see also fiindholders National Debt Office 107, 138 national efficiency 165–6, 168 National Provincial Bank 69, 91–2, 101–3, 106, 110, 125–6, 146, 160, 263–4 nationalization 2–3; see also East India Company; railways natural aristocracy 50, 92, 96, 104; in banking 86, 90; in India 22, 24–5; in the Bank of England 59 natural monopoly 4, 80, 168 Newmarch, W. 72, 120–1, 134, 185, 196 newspapers 97, 101, 192–3 Nimmo, T. 110 Norman, G.W. 64, 67–8 Norman, M. 12, 14 North, Lord 22, 25–6 North Eastern Railway 227, 230, 236, 243–4 North & South Wales Bank 107, 136, 157–8 Northern & Central Bank 91, 107, 125 Old Corruption 6, 11, 13–14, 16–17, 59, 61, 64, 81, 87, 95–7, 174–5; 184 Overend, Gurney, and Co. 121, 129; failure of 119, 124, 131, 138, 155–6, 188, 237, 264 Overstone, Lord see Loyd, S.J. Paine, T. 57, 61–3, 66 Paish, G. 243 Palgrave, R.H.I. 136 Palmer, J.H. 67–71, 75 295

INDEX public opinion 36, 44–5, 48–9, 77, 227 public vs. private 4–5, 55, 68–9, 73, 80, 112, 123, 125, 227–8, 257, 261

238–44, 247–8, 250–3, 255; stateguaranteed loans 211–16, 240 Railways Act (1921) 254 Rawlinson, H. 49 Rawson, R. 186 Reform Act (1832) 21, 42, 86, 97–8, 100, 108, 202, 206; (1867) 75 regionalism 3–5, 80, 103, 106–7, 148, 166–8, 170, 231, 258; and bank credit 122, 125–6, 130; and railways 207–8; in industry 94, 120 Regulating Act (India) (1773) 22, 25–6; (1784) 24, 26 Regulation of Railways Act (1868) 219 republicanism 92–3, 96–7, 128, 203; in banks 93–5, 103, 111; in railways 205–7, 214, 217 “revenue market” 98 Rhodes, C.J. 145 Ricardo, D. 21, 31, 57, 62–4, 66, 73 Ricardo, J.L. 196–7 Richardson, T. 121 rights 27, 29–30, 111, 180, 216, 249, 253 Robinson, J. 26 Rockingham Whigs 24, 41 Rose, G. 61, 107 Royal African Company 79 Rubinstein, W.D. 11–12, 14 Russell, C. 198, 200 Russell, F. 25 Russell, J. 42

Radicals 57, 64, 96, 106 Rae, G. 117, 136, 139 Railway and Canal Traffic Act (1873) 219, 222; (1888) 229, 235 Railway Clearing House 174, 178, 181, 187, 230–1, 246, 267 Railway Commission 219, 229, 234–5, 240 railway interest 198, 230, 241 “railway mania” see speculation Railway News 237, 241, 250, 252, 258, 265, 267 Railway Regulation Act (1840) 184 Railway Shareholders Association (1860s) 200, 206; (1910s) 243 Railway Times 183, 191, 193, 195–6 railways 5–6, 17–18, 51, 72, 79–81, 94, 97, 100–1, 119–20, 129, 134–5, 141, 156, 170–260 passim, 265–7; amalgamation 200, 244–5, 249, 252, 255, 266; and traders 143, 150, 152, 220, 222–3, 225–38, 240–1, 249–50, 252, 254, 256; as ratepayers 177, 181; calls 188, 190, 194–7; contractor’s lines 200, 203, 216; debentures 181, 203–4, 211, 213–16, 238, 240, 242–4, 266; directors 170, 184–6, 194, 196–200, 202–11, 214, 230, 243; engineers 179–80, 185, 187, 190, 196; Indian 39, 204, 222, 225, 237; labor 142, 149, 173–4, 182–4, 192, 197, 221, 225–6, 246–50, 252–5, 265; managers 199, 230–2, 234, 236–7, 243, 248; nationalization 52, 184, 200, 209, 212, 216–26, 245–6, 248–51, 253, 255–6, 258, 266–7; ordinary shares 194, 197, 199–207, 210–11, 239, 242–4, 255; passengers 173, 178–9, 182–4, 216–17, 220–2, 252, 254–5, 266; pooling 230, 235, 238, 244, 253; preference stock 194–7, 201–7, 210–11, 218, 242–4, 266; rates 228–38, 240, 253–4; safety 184, 244, 248; shareholders 148, 175–7, 179, 181, 187–219,

Salisbury, Lord see Cranbourne, Lord Salomons, D. 100, 186, 263 Salt, T. 147, 157, 160–1, 163, 258 Sandars, J. 191 savings banks 95, 106–8, 138–9, 161, 213–14, 264; see also Post Office Savings Banks Act (1893) 159–60 Schuster, F. 147, 151, 153 Scott, W. 88 Scudamore, F. 139, 264–5 Searle, G.R. 209 Seebohm, F. 138 Senior, W.N. 121 Sepoi Rebellion 22, 35, 40, 48, 54 service sector 4, 10–12, 79–81, 93, 141 Seymour, Lord 184 296

INDEX Tooke, T. 71–2, 74, 181 Tories 13, 16, 23, 35, 37, 55, 57, 63–5, 67, 80–1, 88, 107, 168, 188, 191, 197 trade unions 138, 149, 225–6, 231, 239–40, 245–9, 253, 255–6, 267 tramways 166–8 Treasury Office 73–4, 136, 143, 147, 158, 160–4, 195 Trevelyan, C. 12–13, 23, 33, 36, 40, 42–4, 223 Tuck, H. 193 Tyler, H. 222, 266

Sheffield 30, 100, 102, 146, 149, 231, 233 ship canals see canals Sikes, C. 138 Smith, A. 16, 21–8, 30, 32–4, 37, 39, 41, 56–60, 62–6, 71, 86–90, 92, 96, 104, 114, 190–1, 223, 263 Smith, F. 187 Spackman, W.F. 192–3 speculation 68, 72, 81, 155; in bank shares 110–11; in canal shares 188, 265; in public finance 191; in railway shares 119, 187–93, 195, 197, 202, 207, 213 Spence, W. 27 Spencer, H. 185, 202, 218 Spens, N. 242–4, 251 Spring-Rice, T. 109–10 Stafford, Marquis of 181 Stanley, Lord 235 state formation 15–17, 80, 85, 98, 258–9 Steele, F. 145–6, 148, 169 Stephenson, G. 178 stock exchanges 101, 129, 153, 189, 194–5, 342; Liverpool 194, 196; London 177 Stockton & Darlington Railway 175, 181 Stuckey, V. 94–5, 100, 263–4 Stuckey’s Bank 94, 101, 103 subscriber democracy 5, 17, 92, 98, 170, 207; see also democracy superstition 46, 48, 50, 118, 132, 135–6 Supple, B. 10

Union Bank 136, 147–8, 151 Vaughn, C. 43 Victoria, Queen 50, 75–6 virtual representation 66, 82, 96; by banks 86–90, 99, 106, 113–14, 133; by the Bank of England 66, 71, 74; in British politics 62, 75, 92; in India 21, 45–6, 50 voluntarism 3, 5, 17, 80, 93, 96–9, 105, 138, 223, 258–9; and bank formation 17, 92–3, 104, 107, 122, 130; and company formation 81, 153–4; and railways 183, 206–7, 211, 214, 231, 247 Wade, R. 146, 160 warfare 39, 57–61, 63, 76, 147, 187–8, 191–2, 196, 206, 208 Watkin, E. 210, 223, 234 Watt, H. 106 Weber, M. 15–16 Wellesley, R. 29, 32 Whigs 13–14, 23–4, 35–7, 45, 50, 55, 58, 64–7, 70, 75–6, 106, 108 Williams, A.J. 221 Williamson, O. 259 Wilson, A.J. 134 Wilson, J. 192–3 Winch, D. 31 Wood, C. 12–14, 23, 35–6, 40–50, 70, 263 Wrigley, T. 199–200, 206–7, 209–10, 266

taxation: analogy with corporate revenue 17–18, 24, 27–30, 37, 89–90, 103, 116, 196–7, 216–17, 229–33, 262; in British politcs 16–17, 54, 62, 88, 93, 98, 134, 156, 158, 161–4, 190–1, 199, 206, 233, 250, 252, 255, 257; of Indians 24–9, 32, 54, 67–8, 70 Thompson, H. 230 Thompson, T.P. 27, 66 Times, The 129, 152, 186, 192–3, 195, 200, 205, 219 timocracy 200

Young India 23, 38, 40, 45, 47, 70

297