so we pass an unqualified condemnation upon the Usury Laws.

But if, with such an historical economist as DR. CunningHAM in his Growth of English Industry and Commerce, or PROFESSOR ASHLEY in his Economic History, we shift our stand-point, and go back in imagination to the state of mediæval society, and supply the circumstances of historical fact amid which these laws were enacted, we begin to qualify our condemnation. We see that there was no such opportunity for the investment of capital as there is now, and that the possessor of a large sum of money could scarcely apply it to any productive enterprise or use it himself in such a way as to realise a profit. If, then, he lent it, and the security were good and the money repaid, he rendered a service to another man, but sustained no loss himself. Nor was it the prosperous who would borrow, but the poor in distress, to relieve whom was the Christian duty of the rich. To ask, then, for more than the simple repayment of loans appeared to be extortion, and plainly immoral.

In this way the historical method conduces to a more tolerant judgment on the 'exploded' theories of the past; and the facts which its advocates have generally examined have hitherto been mediæval facts. So far as the analysis of the present is concerned the quarrel between the abstract, or deductive, and the historical, or inductive, economists does not appear to be based on any very real foundation, and seems to be now abating. Cliffe Leslie himself observes of Roscher, the most distinguished of those German economists whose method "is the investigation of the actual course of history, or the historical method," as opposed to the English method "of proceeding by deduction from certain postulates or assumptions," that the

"difference between Ricardo's work on the Principles of· Political Economy and Roscher's, lies rather in the amount of historical research in the latter than in fundamental diversity of doctrine," and that "so far as doctrine is concerned the difference is for the most part one more of tone than of principle, and often makes itself felt chiefly in the absence of dogmatic formula, and of the use of rigorous and infallible logic affected by Ricardo's school." When the difference is reduced to this narrow compass a fitting summary of the whole question may perhaps be found in Bagehot's remark that "rightly conceived the Historical method is no rival to the abstract method rightly conceived."

1 Economic Studies, p, 15.

CHAPTER VI.

WALTER BAGEHOT. 1826-1877.

THE MONEY MARKET.

A Difficulty of Political Economy-Bagehot as (1) a Man of Businessand (2) a Student-His Writings-His Imaginative Powers-His Phrase-Making-His Descriptive Ability-His Lombard Street— The Era of the 'Great Commerce'-The English Banking System

(1) Its Power-Lombard Street as a 'great Go-between '-(2) Its Delicacy-The Bank of England as the Keeper of the One Cash ́reserve-The Reasons for its Pre-eminence-Different Origins and Functions of Banks-(1) Negotiating Loans-(2) Supplying Good Money—(3) Remitting Money and (4) Issuing Notes—(5) Receiving Deposits-Danger of the English System at a Time of Commercial Crisis'-Differences between Old and Modern Trade-The Elasticity of Credit-The Urgency of the Demand for Cash-The Bank Charter Act-A 'Panic must not be Starved'-An Escape from the Dilemma-The Effects of Raising the Rate of Discount-Conflicting Interests of the Bank Directors-Subsequent Changes. THE author, whose contributions to the development of economics in England will occupy our attention in this chapter, remarks in a passage of his writings that political economy has one "inherent difficulty," "which no other science" "presents in equal magnitude." "It is an abstract science which labours under a special hardship"; and that hardship consists in the circumstance that "those who are conversant with its abstractions are usually without

a true contact with its facts," and "those who are in contact with its facts have usually little sympathy with and little cognizance of its abstractions." It is an analysis' of the world of business; and economists are seldom themselves men of business, and have to obtain their facts second-hand, while men of business, who know the facts, seldom, if ever, reason about them, or at any rate do not reason precisely. They act by instinct more than by argument, and they would be sorely puzzled to put into scientific language the origin, the course, and the results of their action. "And so the 'theory of business' leads a life of obstruction, because theorists do not see the business, and the men of business will not reason out the theories."

But Bagehot himself might be quoted as an instance of an economist who combined in his own person these desirable qualifications. He was a man of business and a student; and it is probably for this reason that he has sketched with a surer hand than perhaps any other writer the connection and the distinction between economic theory and the facts of every-day life. In his Economic Studies he has shown that the theory is limited in its application, that it starts from certain assumptions which should be tested by reference to fact, and that, reasoning from these assumptions, it reaches conclusions which should be brought to a similar test. But he has also shown that the theory is necessary, because we could not without its aid arrange the 'complex' facts of the business world in any intelligible order, or prepare practical problems for wise and reasoned solution.

He was, then, a man of business as well as a student. He was a man of business by descent, connection, and

occupation. He was born at Langport, in Somersetshire, in 1826, and was the only surviving child of a father, who, as Mr. Hutton states,1 was "for thirty years Managing Director and Vice-Chairman" of Stuckey's Bank, and, before he retired from his post, "the oldest joint-stock banker in the United Kingdom." His mother was the niece of the founder of the bank, Mr. Samuel Stuckey; and Bagehot himself, abandoning the idea he had entertained, after concluding his course of study at University College, London, of practising at the Bar, succeeded his father as Vice-Chairman of the Bank; and maintained to the end of his life that "business" was "much more amusing than pleasure." His marriage in 1858 to the daughter of Mr. James Wilson, the founder of the 'Economist' newspaper, resulted in his becoming editor of that paper; and in this position he had to keep in close and constant touch with 'city' men and 'city' talk.

To this editorial connection we may perhaps ascribe two consequences. It made him cultivate a habit of writing in such a way as to be understood by plain practical 'city' men; it made him select with this object the most appropriate and striking language, even if it was sometimes almost ungrammatical; it made him determine to be at all costs interesting. And it also led him to devote attention to the working of the Money Market, his description of which we may select for especial consideration, as forming his most complete contribution to economics. As a banker he had already been forced to study it on its practical side ; and now as the editor of a financial newspaper he was compelled to inquire into its theoretic bearings. Mr. Giffen

1 In a Memoir prefixed to Bagehot's Literary Studies.