The Economist

An Interview with James Grant

Octavian Report: Why a book about Walter Bagehot? Why now? Why is he, as the subtitle calls him, "the greatest Victorian"?

James Grant: Why Bagehot? Because he was one of the very few people of genius who ever practiced the somewhat humdrum craft of writing about financial markets. Financial journalism is among the humblest branches of journalism, and here was the incongruity of a man of considerable talent — indeed, I would say a genius — taking up that craft. That's nice to know: that someone in history did what one does today but did it ever so well. That was the reason for my interest in Bagehot. I, years ago, would go to the public library on 42nd Street and take out the bound volumes of The Economist during the years that Bagehot was running the place and would read his copy just for the sheer joy of the prose. He'd write 5,000 or 6,000 words a week. Every word placed where it ought to have been. It was a delight then, and still is a delight.

Why now? Because the conflicts, the successes, and the failures of finance in his day are still very much with us. Different institutional setting, different monetary structures, but the same human personalities at work. In Bagehot's time there was conflict over the question of what we now call moral hazard: who wears the loss in a time of financial upheaval? Is it the individuals who put their money at risk? Or is it the taxpayers? That is, perhaps, a question as old as the invention of financial markets. It was timely in Bagehot's day. Certainly it's as timely, and perhaps more timely, today.

As for his being the greatest Victorian, that laurel was placed on his head not by me but by a truly great historian, G.M. Young. "We are looking,” writes Young, “for a man who was in and of his age, and who could have been of no other. A man with sympathy to share and with genius to judge its sentiments and movements: a man not too illustrious or too consummate to be companionable, but one, nevertheless, whose ideas took root and are still bearing; whose influence, passing from one fit mind to another, could transmit, and can still impart the most precious element in Victorian civilization, its robust and masculine sanity. Such a man there was and I award the place to Walter Bagehot."

OR: What were the truly contentious politico-economic issues on the boil as Bagehot was embarking upon his career?

Grant: One was: what's money and who says so? Should the liabilities or the promises to pay of independent profit-making banks be money, or should money be defined entirely as gold and silver? That was one question. One of the great questions of the age is encapsulated in a single word, Reform: who gets to vote? Should it be only property holders of a certain amount with a certain amount of income or should it be most everybody? Should women vote, as John Stuart Mill shockingly suggested?

Another question was religious inclusion. One of William Gladstone’s early works was a tract arguing that only communicating members of the Church of England, that is to say members of the Church who took communion, should be eligible to hold office in the British government. Bagehot confronted this himself, as his father was a Unitarian. Bagehot was more or less a Church of England man. I say more or less because it wasn't quite clear what he believed. But he was prohibited by his father from applying to Oxford or Cambridge because those schools had religious tests. You had to sign off on the 39 articles of faith of the Church of England in order to be eligible to be admitted.

OR: What are Bagehot’s views as a young man and how do they change, if they do change, over his career?

Grant: Bagehot was an establishmentarian. He was of his age, as the quote from Young underscores. He was very much against the enthusiasms of the age, including the radical views of Karl Marx. I'm not sure if he ever engaged with Marx or his ideas by name. But he certainly would have not accepted them as valid. He was the son-in-law of James Wilson, one of the champions of free trade. Bagehot too, certainly as editor of The Economist, was all for free trade.

He was not for the leveling of society. He was not for the inclusion of all in the body politic. He was for gold and silver. They alone were money in Bagehot's view. Every banknote, whether it was from the Bank of England or whether it was from his own family bank, Stuckey's, were debt obligations. They were notes. A note is promise to pay what? A promise to pay money. Money being only gold and silver. Bagehot was a very much in the mainstream of the orthodoxy of the religion of the Victorian age. I'm not sure his views on money did change. I think he came to accept rather grudgingly the move towards the widening of the franchise. He was not one for fighting for lost causes. He was one for getting along.

OR: Why does there seem to be an eternal recurrence of the same in arguments about topics in economics — be it moral hazard, new technology, or anything else?

Grant: I would say that the cause of the recurrence of a familiar economic argument is owing to the persistence of us humans as inhabitants of this planet. Human nature changes little. The circumstances of people in the business of making a living or engaging with a state — those circumstances are certainly a little bit changed, because the structures of our politics change and the structures of our monetary affairs change. But when you get down to the root of things, they are very little changed over time. For example, the gold standard is a very different thing than the current regime, which we at Grant’s call a “Ph.D. standard:” discretionary monetary management by former tenured economics faculty. The gold standard is objective and has to do with the definition of money as a weight of gold bullion; the Ph.D. standard is more or less subjective. Money under the Ph.D. standard is undefined and can be dematerialized as easily as you can hit a computer keystroke. You would say that there could not be two more dissimilar monetary systems — except that in Bagehot's day, there was a great controversy over who should bear the cost of holding the national gold reserve.