THE PANIC AND THE PUBLIC.
THEpanic in the City is over, and people who last week looked suspiciously white about the lips are this week lecturing one another very comfortably for having shown so much fear. Certainly the excitement displayed throughout the country on the 11th and three following days formed an odd contrast to the apathy exhibited upon almost every political question, but the lecturing is for all that just a little unreasonable. It is very diffi- cult to be very brave about one's banker's balance, and it really seemed for twelve hours as if nobody would retain one, that we must all descend, temporarily at least, to a state of barter. It is all very well to say that trade was sound, that there was no reason for apprehension, and that it was a moral duty in the absence of evidence to stand by one's banker firmly, and it is all quite true ; but how if the banker does not stand by himself? Panics begin generally among the multitude and spread upwards like smoke, but this one began in the upper regions and spread downward like a shower. The failure of Messrs. Overend and Gurney did not directly affect the mass of the public at all. It affected the bankers, who feared lest they should not get cash quickly for the securities in their hands, and therefore while rivaling to the Bank of England for aid refused it to their own customers. To such a pitch did the fright rise, not among the public, but among the initiated, the very creme de is creme of the City coterie, that for a few hours advances could not be obtained on Consols, and money would have been refused on the security of uncoined gold. Of course that state of affairs frightened ordinary depositors. If it. had lasted three days longer every bank in London, three or four. excepted, must have suspended payment, and suspension is just as bad for the public, or at all events just as annoying, as actual failure. So perfect is now the system of economizing specie, that- five-sixths of the wage-payers in London are absolutely dependent on their cheque-books for the means of carrying on their daily transactions. They keep nothing in their houses, and rely on the bank just as completely for the week's resources as on their tills for the day's change. One may be worth thousands, and if the bank doors are closed be unable to pay for a cab. Eatables might, we suppose, be got, but. how pay wages? The wage-receivers want cash, and cannot wait,. - and there is scarcely a tradesman in London above the lowest to ‘. whom a week's inability to get cash would not have suggested the end of the world. How was he to know he would get it? Nothing is so little known to the average depositor, the man who uses as well as spends his money, as the real position of the bank in which he deposits his funds, and in this instance even knowledge was of exceedingly little help. A bank might be worth forty shillings in the pound, or have behind it half the wealth of the kingdom, and still if Consols could not be pledged might be unable to pay a series of small drafts. Cash reserves have for years been dwindling down to comparatively very small sums. To use every available pound increases the dividend so pleasantly, and on ordinary occasions it is so easy to get advances. The very per- fection of business arrangements, by diminishing the need for re- serves, for keeping, in humble parlance, the old stocking full, ex- asperates every panic, just as the perfection of new machinery makes even dust an obstacle to its working. It was just as likely that the richest would stop as that the poorest would, and stop- ping, even for a week, meant to average depositors ruin. Each man looked of course first to himself, then to the number of house- holds dependent on him, and strove to put himself and them beyond the possibility of harm. His demand, he thought, could not injure his banker, and after all was he not merely reclaiming his own? So far from wondering at the crush in Lombard Street, our only wonder is that every bank entrance in London was not besieged by the smaller depositors, and a ruin accomplished com- pared with which the actual calamity was a trifle. Our wonder is the greater because the fright, which spread downward from the bankers, was aggravated by the most extraordi- nary multiplicity of slanders, whispers, suspicions, and in some
cases direct and formal announcements. A traveller on Saturday evening walked into the coffee-room of a Paris hotel, which, as it chanced, was full of Indians, and an- nounced that a well known Indian bank had failed. They were just closing, he said, as he left London, and he had had a telegram since. That meant ruin, as it happened, to people in the room, and the statement was very quickly inquired into and refuted through the wires ; but the same kind of thing, in a less pronounced form, went on everywhere. What is an average de- positor to do when told by people "who know the City, Sir," that " Bullion and Co. will go yet, rich as they are," and that he will have nowhere to turn to for cash on Monday morning ? Cash is food to him, and you might almost as well ask him to sleep in a bed from which a patient with small-pox has just been carried, as ask him to wait patiently and risk his precious deposit. He has no means whatever of judging how matters really stand, and as for showing nerve, he prides himself upon his pecuniary timidity, and if he hears that his neighbour has brought all his cash home to keep in a cheat without hinges remarks, "Safe man that, Sir I" and does business with him more complacently than ever. The want of money is dreaded now quite as much as the plague was in old times, and most tradesmen especially would greatly prefer a week of fever to a week of search for the means to pay their daily dues. The confidence shown in sound banks under such circumstances, the confidence felt, for example, in the London and Westminster, strikes us as a marvellous instance of the instinct which in some matters protects ordinary people from the consequences of their own ignorance. The City men knew well enough why such banks should stand, but it is the mass whose rush is on such occasions so formidable, and they did not know. Half of them could not have given an idea in words of their reasons for tranquillity, but they smelt safety somehow, and were tranquil, or the panic would have produced five times the ruin it did. As it was, it affected a mar- vellously large circle. Scarcely anybody with money escaped scot free, losing either through the fall in the value of securities or the immense rate of discount, which, as we write, is twelve
per cent. on Consols with a broad margin, or the delay of pay- ments, or some one of the thousand ramifications of the effects of the panic. The aggregate of loss, in many instances nominal, but still just as much felt by the imagination, must have been enormous, more, we fancy, than the 120,000,000/. at which it was estimated by some City writers, so great that for once the fate of those worst off almost escaped commiseration. These are the share- holders in the concerns which have gone. Somehow the writers on money always sympathize first with depositors, and mention with a sort of glee that Paper and Co. will pay twenty shillings in the pound, but that satisfactory dividend is only obtained by calls which involve in many cases total ruin. A country clergy- man with two thousand pounds thinks himself very shrewd when he puts one in Indian Consols and buys with the other fifty shares, at 20/. each, in a " limited " company. If it goes, he thinks he Ain has the Indian thousand, and if it does not, the high dividend on one-half will give him an average ten per cent, all round. That is very comfortable, and he never reflects that the " limit " is that of the nominal, not of the paid-up capital, that the latter is only one-fifth perhaps of the former, and that he may be liable therefore for 801. on each of his fifty shares, which is for his means exactly equivalent to unlimited liability. Men who deal in money would not believe us if we recounted instances of the astounding pecuniary ignorance of investors, people with savings or inheritances, who in the ordinary affairs of life are sensible and well informed. They do not know half of them what is the difference between dividend and interest, and will buy shares on which the dividend has been "guaranteed" by a firm just like stock on which interest is guaran- teed by a government. The publication on any one day of the letters received by City brokers from their female constituents alone would, we believe, reveal an amount of ignorance, of downright crass stupidity, about the employment of money, which would lead to the appointment of a Trustee-General, an official cruelly wanted. Of course in a panic all this class, one with an immense aggregate capital, is frightened out of its wits, and sells till the public believes, seeing the rapid decline, that there "must be something unsound there, else why should the shares go down so ?" a most fallacious, though popular test. Considering the dire importance of their specie balance to most depositors, the marvellous ignorance of a great class of investors, the absurd hold which mere names, as in the case of Overend and Gurney, have over the average mind, and the astounding system of lying just now prevalent on Change, the public during this panic behaved rather well. It foamed and brattled about Lombard Street, but it did not go into a mad fit, for if it had, nothing would have stood, and business would for a week have ended.
And this is one of the unnoticed effects of the suspension of the Bank Charter Act. Business men know quite well what a letter from the Chancellor of the Exchequer, allowing the Bank to issue say 5,000,000/. of notes, means, and how far it will help the crisis, but the public knows nothing of the kind. All it sees is that "the Government," the mysterious entity which has all the taxes and can never be insolvent, is "helping the Banks," and it is comforted thereby. The power which they devoutly believe to be the strongest, and wisest, and most disinterested of the cor- porations is exerting itself on their behalf, and confidence revives among men who, if their lives depended on it, could not form an idea of what the Charter Act was intended to do. The only great financial authority in England sure to be disinterested is the Government, and the existence of a National Bank is good if only because, at any great crisis, the Treasury controls the situation. A committee of bankers could devise remedies for a crisis just as well as Mr. Gladstone, —who in fact acts as the mouthpiece of such a committee,—but it would not be trusted half as much by that mass of persons which, knowing nothing of banking, holds in its hands the fate of bankers. That mass is of necessity at once ignorant and timid, and when its leaders, the bankers and brokers, take fright, of course it is apt to go wild. In this instance the stampede did much less mischief than usual, the public recovering its confidence with a rapidity which testifies strongly to the sound monetary instincts of the great mass of Englishmen.
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