Three Reasons Why Walter Bagehot is the Greatest Victorian

Event Recaps | Oct 02, 2019 | Cynthia Ramsaran

During the 2008 financial crisis, there was one influential business and political icon who Fed Chairman Ben Bernanke continually invoked: Walter Bagehot.

The inventor of the Treasury bill, Bagehot lived from 1826-1877 and was a British banker and editor of The Economist. Bagehot held many opinions on financial matters, but what he was best known for was his ability to inspire those in position to lead during the world’s worst financial crises (The Great Depression of 1929 – 1939 and the Financial Crisis of 2007-2008).

On Sept. 25th, The Gabelli Center for Global Security Analysis presented his biographer, James Grant (founder and editor of Grant’s Interest Rate Observer), who explained why he and quite a few other historians call Bagehot “the greatest Victorian.” Grant shared a few takeaways on why he feels Bagehot’s contributions to the political economy were embraced by so many, according to his latest book, Bagehot, The Life and Times of the Greatest Victorian.

1. He “Banked” on Literature

Bagehot studied law for three years post-graduation but never pursued it. Many attribute his experience in law school to his passion for writing. A Unitarian, he penned a series of articles describing Napoleon’s coup d’etat. He stirred a bit of controversy by defending Napoleon in a time and place where his English readers condemned Napoleon’s effort to overthrow the French government.

He continued to write even while settling down as manager of Stuckey’s Bank. He considered his role at Stuckey’s bank to be easy enough that he could focus most of his attention to writing. The bank held its own, remaining liquid and profitable with close to 30 percent return on equity.

He wrote essays about politicians, philosophers, poets, and historians. Though he had a broad interest in subject matter, he consistently wrote about economics. At the age of 22, he penned “Currency Monopoly,” and wrote “Money and Morals” a few years later. A series of economic articles then caught the attention of James Wilson, founder of The Economist.

2. Literature Became His Legacy

As a banker, Bagehot had written various economic articles that had attracted the attention of Wilson, financial secretary to the treasury in Lord Palmerston’s government and an influential member of Parliament. Wilson founded The Economist in 1843. Through this acquaintance, Bagehot met Wilson’s eldest daughter, Eliza.

Bagehot loved banking and writing, but fell in love with and married Eliza. Grant said Eliza called Bagehot the “young gentleman in Ms. Austen’s novels,” and through their relationship, he forged a deeper tie with her father, James. After his father-in-law passed, Bagehot led the business journal and ultimately transformed it to become one of the world’s most notable business and political publications. His name lives on in an eponymous weekly column.

3. He was Influential Among Political Circles

Bagehot’s influence extended beyond financial matters when he published The English Constitution. Some say the series of articles that were later published in book form in 1867 was an explicit critique of the American Constitution. Critical of Abraham Lincoln during the war, Bagehot was quoted, saying the war was unnecessary and the Constitution deeply flawed: “A rigid document unsuited to changing social conditions.”

This persuasive and precocious point of view held sway in political circles. Bagehot then began making high-profile friends – including William Gladstone, who referred to Bagehot as an “Old Homer” – and enemies, such as Lord Overstone and Benjamin Disraeli.

Throughout his life and career as a financial literary legend, Grant says Bagehot’s strong point of view on financial crises and the banking system have been revered and deemed relevant by many current financial leaders. Bagehot’s stance on lending and interest rates may have foreshadowed the tone of banking as we know it today.

“The idea that the Fed should cut short financial panic by filling the pockets of the very people who arguably caused it didn’t come from nowhere,” said Grant. “Walter Bagehot deserves some of the credit and some of the blame.”