Lombard Street | Page 9

in six years they lost all their own
wealth, sold the business to the company, and then lost a large part of
the company's capital. And these losses were made in a manner so
reckless and so foolish, that one would think a child who had lent

money in the City of London would have lent it better. After this
example, we must not confide too surely in long-established credit, or
in firmly-rooted traditions of business. We must examine the system on
which these great masses of money are manipulated, and assure
ourselves that it is safe and right.
But it is not easy to rouse men of business to the task. They let the tide
of business float before them; they make money or strive to do so while
it passes, and they are unwilling to think where it is going. Even the
great collapse of Overends, though it caused a panic, is beginning to be
forgotten. Most men of business think'Anyhow this system will
probably last my time. It has gone on a long time, and is likely to go on
still.' But the exact point is, that it has not gone on a long time. The
collection of these immense sums in one place and in few hands is
perfectly new. In 1844 the liabilities of the four great London Joint
Stock Banks were 10,637,000 L.; they now are more than 60,000,000 L.
The private deposits of the Bank of England then were 9,000,000 L.;
they now are 8,000,000 L. There was in throughout the country but a
fraction of the vast deposit business which now exists. We cannot
appeal, therefore, to experience to prove the safety of our system as it
now is, for the present magnitude of that system is entirely new.
Obviously a system may be fit to regulate a few millions, and yet quite
inadequate when it is set to cope with many millions. And thus it may
be with 'Lombard Street,' so rapid has been its growth, and so
unprecedented is its nature.
I am by no means an alarmist. I believe that our system, though curious
and peculiar, may be worked safely; but if we wish so to work it, we
must study it. We must not think we have an easy task when we have a
difficult task, or that we are living in a natural state when we are really
living in an artificial one. Money will not manage itself, and Lombard
street has a great deal of money to manage.

CHAPTER II.
A General View of Lombard Street.
I.

The objects which you see in Lombard Street, and in that money world
which is grouped about it, are the Bank of England, the Private Banks,
the Joint Stock Banks, and the bill brokers. But before describing each
of these separately we must look at what all have in common, and at
the relation of each to the others.
The distinctive function of the banker, says Ricardo, 'begins as soon as
he uses the money of others;' as long as he uses his own money he is
only a capitalist. Accordingly all the banks in Lombard Street (and bill
brokers are for this purpose only a kind of bankers) hold much money
belonging to other people on running account and on deposit. In
continental language, Lombard Street is an organization of credit, and
we are to see if it is a good or bad organization in its kind, or if, as is
most likely, it turn out to be mixed, what are its merits and what are its
defects?
The main point on which one system of credit differs from another is
'soundness.' Credit means that a certain confidence is given, and a
certain trust reposed. Is that trust justified? and is that confidence wise?
These are the cardinal questions. To put it more simplycredit is a set of
promises to pay; will those promises be kept? Especially in banking,
where the 'liabilities,' or promises to pay, are so large, and the time at
which to pay them, if exacted, is so short, an instant capacity to meet
engagements is the cardinal excellence.
All which a banker wants to pay his creditors is a sufficient supply of
the legal tender of the country, no matter what that legal tender may be.
Different countries differ in their laws of legal tender, but for the
primary purposes of banking these systems are not material. A good
system of currency will benefit the country, and a bad system will hurt
it. Indirectly, bankers will be benefited or injured with the country in
which they live; but practically, and for the purposes of their daily life,
they have no need to think, and never do think, on theories of currency.
They look at the