The Government of the Bank of England.
The Bank of England is governed by a board of directors, a Governor,
and a Deputy-Governor; and the mode in which these are chosen, and
the time for which they hold office, affect the whole of its
business. The board of directors is in fact self-electing. In theory
a certain portion go out annually, remain out for a year, and are
subject to re-election by the proprietors. But in fact they are
nearly always, and always if the other directors wish it, re-elected
after a year. Such has been the unbroken practice of many years, and
it would be hardly possible now to break it. When a vacancy occurs
by death or resignation, the whole board chooses the new member, and
they do it, as I am told, with great care. For a peculiar reason, it
is important that the directors should be young when they begin; and
accordingly the board run over the names of the most attentive and
promising young men in the old-established firms of London, and
select the one who, they think, will be most suitable for a bank
director. There is a considerable ambition to fill the office. The
status which is given by it, both to the individual who fills it and
to the firm of merchants to which he belongs, is considerable. There
is surprisingly little favour shown in the selection; there is a
great wish on the part of the Bank directors for the time being to
provide, to the best of their ability, for the future good
government of the Bank. Very few selections in the world are made
with nearly equal purity. There is a sincere desire to do the best
for the Bank, and to appoint a well-conducted young man who has
begun to attend to business, and who seems likely to be fairly
sensible and fairly efficient twenty years later.
The age is a primary matter. The offices of Governor and
Deputy-Governor are given in rotation. The Deputy-Governor always
succeeds the Governor, and usually the oldest director who has not
been in office becomes Deputy-Governor. Sometimes, from personal
reasons, such as ill-health or special temporary occupation, the
time at which a director becomes Deputy-Governor may be a little
deferred, and, in some few cases, merchants in the greatest business
have been permitted to decline entirely. But for all general
purposes, the rule may be taken as absolute. Save in rare cases, a
director must serve his time as Governor and Deputy-Governor nearly
when his turn comes, and he will not be asked to serve much before
his turn. It is usually about twenty years from the time of a man's
first election that he arrives, as it is called, at the chair. And
as the offices of Governor and Deputy-Governor are very important, a
man who fills them should be still in the vigour of life.
Accordingly, Bank directors, when first chosen by the board, are
always young men.
At first this has rather a singular effect; a stranger hardly knows
what to make of it. Many years since, I remember seeing a very fresh
and nice-looking young gentleman, and being struck with astonishment
at being told that he was a director of the Bank of England. I had
always imagined such directors to be men of tried sagacity and long
experience, and I was amazed that a cheerful young man should be one
of them. I believe I thought it was a little dangerous. I thought
such young men could not manage the Bank well. I feared they had the
power to do mischief.
Further inquiry, however, soon convinced me that they had not the
power. Naturally, young men have not much influence at a board where
there are many older members. And in the Bank of England there is a
special provision for depriving them of it if they get it. Some of
the directors, as I have said, retire annually, but by courtesy it
is always the young ones. Those who have passed the chair--that is,
who have served the office of Governor--always remain. The young part
of the board is the fluctuating part, and the old part is the
permanent part; and therefore it is not surprising that the young
part has little influence. The Bank directors may be blamed for many
things, but they cannot be blamed for the changeableness and
excitability of a neocracy.
Indeed, still better to prevent it, the elder members of the board--that
is, those who have passed the chair--form a standing committee of
indefinite powers, which is called the Committee of Treasury. I say
'indefinite powers,' for I am not aware that any precise description has
ever been given of them, and I doubt if they can be precisely described.
They are sometimes said to exercise a particular control over the
relations and negotiations between the Bank and the Government. But I
confess that I believe that this varies very much with the character of
the Governor for the time being. A strong Governor does much mainly upon
his own responsibility, and a weak Governor does little. Still the
influence of the Committee of Treasury is always considerable, though
not always the same. They form a a cabinet of mature, declining, and old
men, just close to the executive; and for good or evil such a cabinet
must have much power.
By old usage, the directors of the Bank of England cannot be
themselves by trade bankers. This is a relic of old times. Every
bank was supposed to be necessarily, more or less, in opposition to
every other bank--banks in the same place to be especially in
opposition. In consequence, in London, no banker has a chance of
being a Bank director, or would ever think of attempting to be one.
I am here speaking of bankers in the English sense, and in the sense
that would surprise a foreigner. One of the Rothschilds is on the
Bank direction, and a foreigner would be apt to think that they were
bankers if any one was. But this only illustrates the essential
difference between our English notions of banking and the
continental. Ours have attained a much fuller development than
theirs. Messrs. Rothschild are immense capitalists, having,
doubtless, much borrowed money in their hands. But they do not take
100 L. payable on demand, and pay it back in cheques of 5 L. each,
and that is our English banking. The borrowed money which they have
is in large sums, borrowed for terms more or less long. English
bankers deal with an aggregate of small sums, all of which are
repayable on short notice, or on demand. And the way the two employ
their money is different also. A foreigner thinks 'an Exchange
business'--that is, the buying and selling bills on foreign countries--a
main part of banking. As I have explained, remittance is one of the
subsidiary conveniences which early banks subserve before deposit
banking begins. But the mass of English country bankers only give
bills on places in England or on London, and in London the principal
remittance business has escaped out of the hands of the bankers.
Most of them would not know how to carry through a great 'Exchange
operation,' or to 'bring home the returns.' They would as soon think
of turning silk merchants. The Exchange trade is carried on by a
small and special body of foreign bill-brokers, of whom Messrs.
Rothschild are the greatest. One of that firm may, therefore, well
be on the Bank direction, notwithstanding the rule forbidding
bankers to be there, for he and his family are not English bankers,
either by the terms on which they borrow money, or the mode in which
they employ it. But as to bankers in the English sense of the word,
the rule is rigid and absolute. Not only no private banker is a
director of the Bank of England, but no director of any joint stock
bank would be allowed to become such. The two situations would be
taken to be incompatible.
The mass of the Bank directors are merchants of experience,
employing a considerable capital in trades in which they have been
brought up, and with which they are well acquainted. Many of them
have information as to the present course of trade, and as to the
character and wealth of merchants, which is most valuable, or rather
is all but invaluable, to the Bank. Many of them, too, are quiet,
serious men, who, by habit and nature, watch with some kind of care
every kind of business in which they are engaged, and give an
anxious opinion on it. Most of them have a good deal of leisure, for
the life of a man of business who employs only his own capital, and
employs it nearly always in the same way, is by no means fully
employed. Hardly any capital is enough to employ the principal
partner's time, and if such a man is very busy, it is a sign of
something wrong. Either he is working at detail, which subordinates
would do better, and which he had better leave alone, or he is
engaged in too many speculations, is incurring more liabilities than
his capital will bear, and so may be ruined. In consequence, every
commercial city abounds in men who have great business ability and
experience, who are not fully occupied, who wish to be occupied, and
who are very glad to become directors of public companies in order
to be occupied. The direction of the Bank of England has, for many
generations, been composed of such men.
Such a government for a joint stock company is very good if its
essential nature be attended to, and very bad if that nature be not
attended to. That government is composed of men with a high average
of general good sense, with an excellent knowledge of business in
general, but without any special knowledge of the particular
business in which they are engaged. Ordinarily, in joint stock banks
and companies this deficiency is cured by the selection of a manager
of the company, who has been specially trained to that particular
trade, and who engages to devote all his experience and all his
ability to the affairs of the company. The directors, and often a
select committee of them more especially, consult with the manager,
and after hearing what he has to say, decide on the affairs of the
company. There is in all ordinary joint stock companies a fixed
executive specially skilled, and a somewhat varying council not
specially skilled. The fixed manager ensures continuity and
experience in the management, and a good board of directors ensures
general wisdom.
But in the Bank of England there is no fixed executive. The Governor
and Deputy-Governor, who form that executive, change every two
years. I believe, indeed, that such was not the original intention
of the founders. In the old days of few and great privileged
companies, the chairman, though periodically elected, was
practically permanent so long as his policy was popular. He was the
head of the ministry, and ordinarily did not change unless the
opposition came in. But this idea has no present relation to the
constitution of the Bank of England. At present, the Governor and
Deputy-Governor almost always change at the end of two years; the
case of any longer occupation of the chair is so very rare, that it
need not be taken account of. And the Governor and Deputy-Governor
of the Bank cannot well be shadows. They are expected to be
constantly present; to see all applicants for advances out of the
ordinary routine; to carry on the almost continuous correspondence
between the Bank and its largest customer--the Government; to bring
all necessary matters before the board of directors or the Committee
of Treasury, in a word, to do very much of what falls to the lot of
the manager in most companies. Under this shifting chief executive,
there are indeed very valuable heads of departments. The head of the
Discount Department is especially required to be a man of ability
and experience. But these officers are essentially subordinate; no
one of them is like the general manager of an ordinary bank--the head
of all action. The perpetually present executive--the Governor and
Deputy-Governor--make it impossible that any subordinate should have
that position. A really able and active-minded Governor, being
required to sit all day in the bank, in fact does, and can hardly
help doing, its principal business.
In theory, nothing can be worse than this government for a bank a
shifting executive; a board of directors chosen too young for it to
be known whether they are able; a committee of management, in which
seniority is the necessary qualification, and old age the common
result; and no trained bankers anywhere.
Even if the Bank of England were an ordinary bank, such a
constitution would be insufficient; but its inadequacy is greater,
and the consequences of that inadequacy far worse, because of its
greater functions. The Bank of England has to keep the sole banking
reserve of the country; has to keep it through all changes of the
money market, and all turns of the Exchanges; has to decide on the
instant in a panic what sort of advances should be made, to what
amounts, and for what dates; and yet it has a constitution plainly
defective. So far the government of the Bank of England being better
than that of any other bank--as it ought to be, considering that its
functions are much harder and graver--any one would be laughed at who
proposed it as a model for the government of a new bank; and that
government, if it were so proposed, would on all hands be called
old-fashioned, and curious.
As was natural, the effects--good and evil--of its constitution are
to be seen in every part of the Bank's history. On one vital point
the Bank's management has been excellent. It has done perhaps less
'bad business,' certainly less very bad business, than any bank of
the same size and the same age. In all its history I do not know
that its name has ever been connected with a single large and
discreditable bad debt. There has never been a suspicion that it was
'worked' for the benefit of any one man, or any combination of men.
The great respectability of the directors, and the steady attention
many of them have always given the business of the Bank, have kept
it entirely free from anything dishonorable and discreditable.
Steady merchants collected in council are an admirable judge of
bills and securities. They always know the questionable standing of
dangerous persons; they are quick to note the smallest signs of
corrupt transactions; and no sophistry will persuade the best of
them out of their good instincts. You could not have made the
directors of the Bank of England do the sort of business which
'Overends' at last did, except by a moral miracle--except by
changing their nature. And the fatal career of the Bank of the
United States would, under their management, have been equally
impossible. Of the ultimate solvency of the Bank of England, or of
the eventual safety of its vast capital, even at the worst periods
of its history, there has not been the least doubt.
But nevertheless, as we have seen, the policy of the Bank has
frequently been deplorable, and at such times the defects of its
government have aggravated if not caused its calamities.
In truth the executive of the Bank of England is now much such as
the executive of a public department of the Foreign Office or the
Home Office would be in which there was no responsible permanent
head. In these departments of Government, the actual chief changes
nearly, though not quite, as often as the Governor of the Bank of
England. The Parliamentary Under-Secretary--the Deputy-Governor, so to
speak, of that office--changes nearly as often. And if the
administration solely, or in its details, depended on these two, it
would stop. New men could not carry it on with vigour and
efficiency; indeed they could not carry it on at all. But, in fact,
they are assisted by a permanent Under-Secretary, who manages all
the routine business, who is the depository of the secrets of the
office, who embodies its traditions, who is the hyphen between
changing administrations. In consequence of this assistance, the
continuous business of the department is, for the most part, managed
sufficiently well, notwithstanding frequent changes in the heads of
administration. And it is only by such assistance that such business
could be so managed. The present administration of the Bank is an
attempt to manage a great, a growing, and a permanently continuous
business without an adequate permanent element, and a competent
connecting link.
In answer, it may be said that the duties which press on the
Governor and Deputy-Governor of the Bank are not so great or so
urgent as those which press upon the heads of official departments.
And perhaps, in point of mere labour, the Governor of the Bank has
the advantage. Banking never ought to be an exceedingly laborious
trade. There must be a great want of system and a great deficiency
in skilled assistance if extreme labour is thrown upon the chief.
But in importance, the functions of the head of the Bank rank as
high as those of any department. The cash reserve of the country is
as precious a deposit as any set of men can have the care of. And
the difficulty of dealing with a panic (as the administration of the
Bank is forced to deal with it) is perhaps a more formidable instant
difficulty than presses upon any single minister. At any rate, it
comes more suddenly, and must be dealt with more immediately, than
most comparable difficulties; and the judgment, the nerve, and the
vigour needful to deal with it are plainly rare and great.
The natural remedy would be to appoint a permanent Governor of the
Bank. Nor, as I have said, can there be much doubt that such was the
intention of its founders. All the old companies which have their
beginning in the seventeenth century had the same constitution, and
those of them which have lingered down to our time retain it. The
Hudson's Bay Company, the South Sea Company, the East India Company,
were all founded with a sort of sovereign executive, intended to be
permanent, and intended to be efficient. This is, indeed, the most
natural mode of forming a company in the minds of those to whom
companies are new. Such persons will have always seen business
transacted a good deal despotically; they will have learnt the value
of prompt decision and of consistent policy; they will have often
seen that business is best managed when those who are conducting it
could scarcely justify the course they are pursuing by distinct
argument which others could understand. All 'city' people make their
money by investments, for which there are often good argumentative
reasons; but they would hardly ever be able, if required before a
Parliamentary committee, to state those reasons. They have become
used to act on them without distinctly analysing them, and, in a
monarchical way, with continued success only as a test of their
goodness. Naturally such persons, when proceeding to form a company,
make it upon the model of that which they have been used to see
successful. They provide for the executive first and above all
things. How much this was in the minds of the founders of the Bank
of England may be judged of by the name which they gave it. Its
corporate name is the 'Governor and Company of the Bank of England.'
So important did the founders think the executive that they
mentioned it distinctly, and mentioned it first.
And not only is this constitution of a company the most natural in
the early days when companies were new, it is also that which
experience has shown to be the most efficient now that companies
have long been tried. Great railway companies are managed upon no
other. Scarcely any instance of great success in a railway can be
mentioned in which the chairman has not been an active and judicious
man of business, constantly attending to the affairs of the company.
A thousand instances of railway disaster can be easily found in
which the chairman was only a nominal head--a nobleman, or something
of that sort--chosen for show. 'Railway chairmanship' has become a
profession, so much is efficiency valued in it, and so indispensable
has ability been found to be. The plan of appointing a permanent
'chairman' at the Bank of England is strongly supported by much
modern experience.
Nevertheless, I hesitate as to its expediency; at any rate, there
are other plans which, for several reasons, should, I think, first
be tried in preference.
First. This plan would be exceedingly unpopular. A permanent
Governor of the Bank of England would be one of the greatest men in
England. He would be a little 'monarch' in the City; he would be far
greater than the 'Lord Mayor.' He would be the personal embodiment
of the Bank of England; he would be constantly clothed with an
almost indefinite prestige. Everybody in business would bow down
before him and try to stand well with him, for he might in a panic
be able to save almost anyone he liked, and to ruin almost anyone he
liked. A day might come when his favour might mean prosperity, and
his distrust might mean ruin. A position with so much real power and
so much apparent dignity would be intensely coveted. Practical men
would be apt to say that it was better than the Prime Ministership,
for it would last much longer, and would have a greater jurisdiction
over that which practical men would most value, over money. At all
events, such a Governor, if he understood his business, might make
the fortunes of fifty men where the Prime Minister can make that of
one. Scarcely anything could be more unpopular in the City than the
appointment of a little king to reign over them.
Secondly. I do not believe that we should always get the best man
for the post; often I fear that we should not even get a tolerable
man. There are many cases in which the offer of too high a pay would
prevent our obtaining the man we wish for, and this is one of them.
A very high pay of prestige is almost always very dangerous. It
causes the post to be desired by vain men, by lazy men, by men of
rank; and when that post is one of real and technical business, and
when, therefore, it requires much previous training, much continuous
labour, and much patient and quick judgment, all such men are
dangerous. But they are sure to covet all posts of splendid dignity,
and can only be kept out of them with the greatest difficulty.
Probably, in every Cabinet there are still some members (in the days
of the old close boroughs there were many) whose posts have come to
them not from personal ability or inherent merit, but from their
rank, their wealth, or even their imposing exterior. The highest
political offices are, indeed, kept clear of such people, for in
them serious and important duties must constantly be performed in
the face of the world. A Prime Minister, or a Chancellor of the
Exchequer, or a Secretary of State must explain his policy and
defend his actions in Parliament, and the discriminating tact of a
critical assembly--abounding in experience, and guided by
tradition--will soon discover what he is. But the Governor of the Bank
would only perform quiet functions, which look like routine, though
they are not, in which there is no immediate risk of success or
failure; which years hence may indeed issue in a crop of bad debts,
but which any grave persons may make at the time to look fair and
plausible. A large Bank is exactly the place where a vain and
shallow person in authority, if he be a man of gravity and method,
as such men often are, may do infinite evil in no long time, and
before he is detected. If he is lucky enough to begin at a time of
expansion in trade, he is nearly sure not to be found out till the
time of contraction has arrived, and then very large figures will be
required to reckon the evil he has done.
And thirdly, I fear that the possession of such patronage would ruin
any set of persons in whose gift it was. The election of the
Chairman must be placed either in the court of proprietors or that
of the directors. If the proprietors choose, there will be something
like the evils of an American presidential election. Bank stock will
be bought in order to confer the qualification of voting at the
election of the 'chief of the City.' The Chairman, when elected, may
well find that his most active supporters are large borrowers of the
Bank, and he may well be puzzled to decide between his duty to the
Bank and his gratitude to those who chose him. Probably, if he be a
cautious man of average ability, he will combine both evils; he will
not lend so much money as he is asked for, and so will offend his
own supporters; but will lend some which will be lost, and so the
profits of the Bank will be reduced. A large body of Bank
proprietors would make but a bad elective body for an office of
great prestige; they would not commonly choose a good person, and
the person they did choose would be bound by promises that would
make him less good.
The court of directors would choose better; a small body of men of
business would not easily be persuaded to choose an extremely unfit
man. But they would not often choose an extremely good man. The
really best man would probably not be so rich as the majority of the
directors, nor of so much standing, and not unnaturally they would
much dislike to elevate to the headship of the City, one who was
much less in the estimation of the City than themselves. And they
would be canvassed in every way and on every side to appoint a man
of mercantile dignity or mercantile influence. Many people of the
greatest prestige and rank in the City would covet so great a
dignity; if not for themselves, at least for some friend, or some
relative, and so the directors would be set upon from every side.
An election so liable to be disturbed by powerful vitiating causes
would rarely end in a good choice. The best candidate would almost
never be chosen; often, I fear, one would be chosen altogether unfit
for a post so important. And the excitement of so keen an election
would altogether disturb the quiet of the Bank. The good and
efficient working of a board of Bank directors depends on its
internal harmony, and that harmony would be broken for ever by the
excitement, the sayings, and the acts of a great election. The board
of directors would almost certainly be demoralised by having to
choose a sovereign, and there is no certainty, nor any great
likelihood, indeed, that they would choose a good one. In France the
difficulty of finding a good body to choose the Governor of the Bank
has been met characteristically. The Bank of France keeps the money
of the State, and the State appoints its governor. The French have
generally a logical reason to give for all they do, though perhaps
the results of their actions are not always so good as the reasons
for them. The Governor of the Bank of France has not always, I am
told, been a very competent person; the Sub-Governor, whom the State
also appoints, is, as we might expect, usually better. But for our
English purposes it would be useless to inquire minutely into this.
No English statesman would consent to be responsible for the choice
of the Governor of the Bank of England. After every panic, the
Opposition would say in Parliament that the calamity had been
'grievously aggravated,' if not wholly caused, by the 'gross
misconduct' of the Governor appointed by the ministry. Or, possibly,
offices may have changed occupants and the ministry in power at the
panic would be the opponents of the ministry which at a former time
appointed the Governor. In that case they would be apt to feel, and
to intimate, a 'grave regret' at the course which the nominee of
their adversaries had 'thought it desirable to pursue.' They would
not much mind hurting his feelings, and if he resigned they would
have themselves a valuable piece of patronage to confer on one of
their own friends. No result could be worse than that the conduct of
the Bank and the management should be made a matter of party
politics, and men of all parties would agree in this, even if they
agreed in almost nothing else.
I am therefore afraid that we must abandon the plan of improving the
government of the Bank of England by the appointment of a permanent
Governor, because we should not be sure of choosing a good governor,
and should indeed run a great risk, for the most part, of choosing a
bad one.
I think, however, that much of the advantage, with little of the
risk, might be secured by a humbler scheme. In English political
offices, as was observed before, the evil of a changing head is made
possible by the permanence of a dignified subordinate. Though the
Parliamentary Secretary of State and the Parliamentary
Under-Secretary go in and out with each administration, another
Under-Secretary remains through all such changes, and is on that
account called 'permanent.' Now this system seems to me in its
principle perfectly applicable to the administration of the Bank of
England. For the reasons which have just been given, a permanent
ruler of the Bank of England cannot be appointed; for other reasons,
which were just before given, some most influential permanent
functionary is essential in the proper conduct of the business of
the Bank; and, mutatis mutandis, these are the very difficulties,
and the very advantages which have led us to frame our principal
offices of state in the present fashion.
Such a Deputy-Governor would not be at all a 'king' in the City.
There would be no mischievous prestige about the office; there would
be no attraction in it for a vain man; and there would be nothing to
make it an object of a violent canvass or of unscrupulous
electioneering. The office would be essentially subordinate in its
character, just like the permanent secretary in a political office.
The pay should be high, for good ability is wanted--but no pay would
attract the most dangerous class of people. The very influential,
but not very wise, City dignitary who would be so very dangerous is
usually very opulent; he would hardly have such influence he were
not opulent: what he wants is not money, but 'position.' A
Governorship of the Bank of England he would take almost without
salary; perhaps he would even pay to get it: but a minor office of
essential subordination would not attract him at all. We may augment
the pay enough to get a good man, without fearing that by such pay
we may tempt--as by social privilege we should tempt--exactly the sort
of man we do not want.
Undoubtedly such a permanent official should be a trained banker.
There is a cardinal difference between banking and other kinds of
commerce; you can afford to run much less risk in banking than in
commerce, and you must take much greater precautions. In common
business, the trader can add to the cost price of the goods he sells
a large mercantile profit, say 10 to 15 per cent; but the banker has
to be content with the interest of money, which in England is not so
much as per cent upon the average. The business of a banker
therefore cannot bear so many bad debts as that of a merchant, and
he must be much more cautious to whom he gives credit. Real money is
a commodity much more coveted than common goods: for one deceit
which is attempted on a manufacturer or a merchant, twenty or more
are attempted on a banker. And besides, a banker, dealing with the
money of others, and money payable on demand, must be always, as it
were, looking behind him and seeing that he has reserve enough in
store if payment should be asked for, which a merchant dealing
mostly with his own capital need not think of. Adventure is the life
of commerce, but caution, I had almost said timidity, is the life of
banking; and I cannot imagine that the long series of great errors
made by the Bank of England in the management of its reserve till
after 1857, would have been possible if the merchants in the Bank
court had not erroneously taken the same view of the Bank's business
that they must properly take of their own mercantile business. The
Bank directors have almost always been too cheerful as to the Bank's
business, and too little disposed to take alarm. What we want to
introduce into the Bank court is a wise apprehensiveness, and this
every trained banker is taught by the habits of his trade, and the
atmosphere of his life.
The permanent Governor ought to give his whole time to the business
of the Bank. He ought to be forbidden to engage in any other
concern. All the present directors, including the Governor and
Deputy-Governor, are engaged in their own business, and it is very
possible, indeed it must perpetually have happened, that their own
business as merchants most occupied the minds of most of them just
when it was most important that the business of the Bank should
occupy them. It is at a panic and just before a panic that the
business of the Bank is most exacting and most engrossing. But just
at that time the business of most merchants must be unusually
occupying and may be exceedingly critical. By the present
constitution of the Bank, the attention of its sole rulers is most
apt to be diverted from the Bank's affairs just when those affairs
require that attention the most. And the only remedy is the
appointment of a permanent and influential man, who will have no
business save that of the Bank, and who therefore presumably will
attend most to it at the critical instant when attention is most
required. His mind, at any rate, will in a panic be free from
pecuniary anxiety, whereas many, if not all, of the present
directors must be incessantly thinking of their own affairs and
unable to banish them from their minds.
The permanent Deputy-Governor must be a director and a man of fair
position. He must not have to say 'Sir' to the Governor. There is no
fair argument between an inferior who has to exhibit respect and a
superior who has to receive respect. The superior can always, and
does mostly, refute the bad arguments of his inferior; but the
inferior rarely ventures to try to refute the bad arguments of his
superior. And he still more rarely states his case effectually; he
pauses, hesitates, does not use the best word or the most apt
illustration, perhaps he uses a faulty illustration or a wrong word,
and so fails because the superior immediately exposes him. Important
business can only be sufficiently discussed by persons who can say
very much what they like very much as they like to one another. The
thought of the speaker should come out as it was in his mind, and
not be hidden in respectful expressions or enfeebled by affected
doubt. What is wanted at the Bank is not a new clerk to the
directors--they have excellent clerks of great experience now--but a
permanent equal to the directors, who shall be able to discuss on
equal terms with them the business of the Bank, and have this
advantage over them in discussion, that he has no other business
than that of the Bank to think of.
The formal duties of such a permanent officer could only be defined
by some one conversant with the business of the Bank, and could
scarcely be intelligibly discussed before the public. Nor are the
precise duties of the least importance. Such an officer, if sound,
able, and industrious, would soon rule the affairs of the Bank. He
would be acquainted better than anyone else, both with the
traditions of the past and with the facts of the present; he would
have a great experience; he would have seen many anxious times; he
would always be on the watch for their recurrence. And he would have
a peculiar power of guidance at such moments from the nature of the
men with whom he has most to deal. Most Governors of the Bank of
England are cautious merchants, not profoundly skilled in banking,
but most anxious that their period of office should be prosperous
and that they should themselves escape censure. If a 'safe' course
is pressed upon them they are likely to take that course. Now it
would almost always be 'safe' to follow the advice of the great
standing 'authority'; it would always be most 'unsafe' not to follow
it. If the changing Governor act on the advice of the permanent
Deputy-Governor, most of the blame in case of mischance would fall
on the latter; it would be said that a shifting officer like the
Governor might very likely not know what should be done, but that
the permanent official was put there to know it and paid to know it.
But if, on the other hand, the changing Governor should disregard
the advice of his permanent colleague, and the consequence should be
bad, he would be blamed exceedingly. It would be said that, 'being
without experience, he had taken upon him to overrule men who had
much experience; that when the constitution of the Bank had provided
them with skilled counsel, he had taken on himself to act of his own
head, and to disregard that counsel;' and so on ad infinitum. And
there could be no sort of conversation more injurious to a man in
the City; the world there would say, rightly or wrongly, 'We must
never be too severe on errors of judgment; we are all making them
every day; if responsible persons do their best we can expect no
more. But this case is different: the Governor acted on a wrong
system; he took upon himself an unnecessary responsibility:' and so
a Governor who incurred disaster by disregarding his skilled
counsellor would be thought a fool in the City for ever. In
consequence, the one skilled counsellor would in fact rule the Bank.
I believe that the appointment of the new permanent and skilled
authority at the Bank is the greatest reform which can be made
there, and that which is most wanted. I believe that such a person
would give to the decision of the Bank that foresight, that
quickness, and that consistency in which those decisions are
undeniably now deficient. As far as I can judge, this change in the
constitution of the Bank is by far the most necessary, and is
perhaps more important even than all other changes. But,
nevertheless, we should reform the other points which we have seen
to be defective.
First, the London bankers should not be altogether excluded from the
court of directors. The old idea, as I have explained, was that the
London bankers were the competitors of the Bank of England, and
would hurt it if they could. But now the London bankers have another
relation to the Bank which did not then exist, and was not then
imagined. Among private people they are the principal depositors in
the Bank; they are therefore particularly interested in its
stability; they are especially interested in the maintenance of a
good banking reserve, for their own credit and the safety of their
large deposits depend on it. And they can bring to the court of
directors an experience of banking itself, got outside the Bank of
England, which none of the present directors possess, for they have
learned all they know of banking at the Bank itself. There was also
an old notion that the secrets of the Bank would be divulged if they
were imparted to bankers. But probably bankers are better trained to
silence and secrecy than most people. And there is only a thin
partition now between the bankers and the secrets of the Bank. Only
lately a firm failed of which one partner was a director of the
London and Westminster Bank, and another a director of the Bank of
England. Who can define or class the confidential communications of
such persons under such circumstances?
As I observed before, the line drawn at present against bankers is
very technical and exclusively English. According to continental
ideas, Messrs. Rothschild are bankers, if any one is a banker. But
the house of Rothschild is represented on the Bank direction. And it
is most desirable that it should be represented, for members of that
firm can give if they choose confidential information of great value
to the Bank. But, nevertheless, the objection which is urged against
English bankers is at least equally applicable to these foreign
bankers. They have, or may have, at certain periods an interest
opposite to the policy of the Bank. As the greatest Exchange
dealers, they may wish to export gold just when the Bank of England
is raising its rate of interest to prevent anyone from exporting
gold. The vote of a great Exchange dealer might be objected to for
plausible reasons of contrary interest, if any such reasons were
worth regarding. But in fact the particular interest of single
directors is not to be regarded; almost all directors who bring
special information labour under a suspicion of interest; they can
only have acquired that information in present business, and such
business may very possibly be affected for good or evil by the
policy of the Bank. But you must not on this account seal up the
Bank hermetically against living information; you must make a fair
body of directors upon the whole, and trust that the bias of some
individual interests will disappear and be lost in the whole. And if
this is to be the guiding principle, it is not consistent to exclude
English bankers from the court.
Objection is often also taken to the constitution of the Committee
of Treasury. That body is composed of the Governor and
Deputy-Governor and all the directors who have held those offices;
but as those offices in the main pass in rotation, this mode of
election very much comes to an election by seniority, and there are
obvious objections to giving, not only a preponderance to age, but a
monopoly to age. In some cases, indeed, this monopoly I believe has
already been infringed. When directors have on account of the
magnitude of their transactions, and the consequent engrossing
nature of their business, declined to fill the chair, in some cases
they have been asked to be members of the Committee of Treasury
notwithstanding. And it would certainly upon principle seem wiser to
choose a committee which for some purposes approximates to a
committee of management by competence rather than by seniority.
An objection is also taken to the large number of Bank directors.
There are twenty-four directors, a Governor and a Deputy-Governor,
making a total court of twenty-six persons, which is obviously too
large for the real discussion of any difficult business. And the
case is worse because the court only meets once a week, and only
sits a very short time. It has been said, with exaggeration, but not
without a basis of truth, that if the Bank directors were to sit for
four hours, there would be 'a panic solely from that.' 'The court,'
says Mr. Tooke, 'meets at half-past eleven or twelve; and, if the
sitting be prolonged beyond half-past one, the Stock Exchange and
the money market become excited, under the idea that a change of
importance is under discussion; and persons congregate about the
doors of the Bank parlour to obtain the earliest intimation of the
decision.' And he proceeds to conjecture that the knowledge of the
impatience without must cause haste, if not impatience, within. That
the decisions of such a court should be of incalculable importance
is plainly very strange.
There should be no delicacy as to altering the constitution of the
Bank of England. The existing constitution was framed in times that
have passed away, and was intended to be used for purposes very
different from the present. The founders may have considered that it
would lend money to the Government, that it would keep the money of
the Government, that it would issue notes payable to bearer, but
that it would keep the 'Banking reserve' of a great nation no one in
the seventeenth century imagined. And when the use to which we are
putting an old thing is a new use, in common sense we should think
whether the old thing is quite fit for the use to which we are
setting it. 'Putting new wine into old bottles' is safe only when
you watch the condition of the bottle, and adapt its structure most
carefully.