Revisions in Economic History: XIII. The Development of Central Banking after Bagehot
C O NONSIDERING that it is the outstanding theme in the monetary history of the nineteenth century, it is surprising that the development of central banking principles by the Bank of England has not yet been traced in a really satisfactory way. Parts of the story have, it is true, been convincingly expounded: for example, Sir John Clapham1 and -Prof. Viner2 have left little more to be said about the restriction period, and articles by Mr Horsefield3 and the late Prof. Whale4 cover much of the pre-1844 period. The later part oof the century, on the other hand, has received much less systematic and much less profound treatment. Important light has been thrown upon it, of course, by Clapham's official history of the Bank; and Prof. Hawtrey's Century of Bank Rate, published a few years before Clapham, made a great contribution, especially by his analysis of gold movements. Mr Wilfrid King's book5 and Prof. Victor Morgan's book6 had earlier covered the whole century, but they did not have the advantage of Clapham's access to the Bank's records.7 The period that cries aloud for further attention is the post-Bagehot period the generation following 1873. But, though the literature includes no systematic discussion, entirely new research would not be appropriate at this stage. It is more appropriate to take full advantage of Clapham, Hawtrey and the others, and to review the period from the single standpoint of the development of central banking. That is the purpose of this essay. The period to be covered begins at the publication of Bagehot's Lombard Street, in 1873. The appearance of this book is the appropriate starting-point because it closes one chapter and opens another-or at least, points out that another has opened. It settles once and for all the question of how the Bank should behave in a crisis. Though Thomson Hankey (who provoked Bagehot to write Lombard Street) remained in the directorate of the Bank for another two decades, no one could again put forward the doctrine of 1844 in all its nakedness. After Bagehot the Bank's special position is taken for granted. It is not 'just like any other bank'; it is the holder of the single reserve, the ultimate source of support for the country's financial structure in times of difficulty. What does this responsibility involve, and how can the Bank best shoulder the burden? That is Bagehot's