Timothy was the timid Forsyte, the one who retired at 40, anxious that his career as a publisher was sapping his reserves of energy. Energy was the greatest resource of his five incurious, unphilosophical brothers, the tea merchant, the solicitor, the estate agent, the mineowner and the rentier, who turned £30,000 into £1 million in the second half of the 19th century and were Galsworthy’s symbols of the middle-class backbone of Victorian England. As a Forsyte, Timothy had, needless to say, rather more energy than he feared: he saved £2000 a year and died aged 101, worth five times what he had been on retirement. But his brothers would have done more with his savings: Timothy put his money in Consols and earned a trifling 3 per cent per annum. From the 1870s onwards, government stock was regarded with little more than contempt by active investors; it was for widows and orphans.
It had not always been like that. Throughout the 1820s, in the aftermath of the Napoleonic Wars, over half of all government expenditure went on servicing the huge national debt, on paying high rates of interest to the fundholders who had financed the war. Taxpayers suffered badly in the post-war depression, and William Cobbett led a bitter national protest at the stockholding leeches who, he claimed, were sucking the lifeblood from John Bull. At times of economic tension over the following twenty years, the fundholder and the landowner competed to be the most vilified vested interest in the country. But from mid-century, unimagined national prosperity, assisted by Peelite finance, changed everything. Economic progress meant low interest rates and low tax levels, and on both counts the national debt (like the price of wheat) ceased to be an inflammatory political issue.
The class of Forsytes grudgingly conceded that this political stability was an achievement. It had its drawbacks, however: the richest middle class the world had seen was not going to accept Mr Gladstone’s 3 per cent on Consols. Where to turn instead? House property and local industrial enterprise absorbed some of its savings, but the middle class increasingly looked to the City as well. It did not look in vain. The City was already a great clearing-house for international trade – originally through its warehouses and middlemen, but then, as global communication made them increasingly redundant, through its offices, information networks and telegraphs. It was now becoming equally effective in doing the same job for capital, marrying up suppliers with those willing to pay for it – originally the British Government but then other nations who, lacking a Gladstone, were more satisfyingly profligate than Britain, and more willing to provide state help to fund their railways and other infrastructure.
By the beginning of the 20th century, the City was supplying capital for a vast range of initiatives across the globe: Japanese battleships, Egyptian and Chinese regeneration, South American and Canadian railways, Russian industry, Malaysian rubber and, more prosaically, municipal gas and water at home. There was a great deal here to whet the appetite of the Forsyte class. And the banks which held the rest of that class’s savings sought a decent return on their deposits, too. Moreover, they were well placed to play a large part in City life after the amalgamations of the 1890s, which threw up giants with large reserves like Barclays and the Midland. Foreign banks, from Kleinwort Benson and Schröders to Deutsche Bank and J.P. Morgan, also set up in London, seeking to invest their clients’ money profitably.
From the 1880s through to 1914, this pattern of constant expansion and migration consolidated London’s premier position in the organisation of flows of trade and capital. This was the City’s golden age, underpinned by Britain’s tripartite dominance – naval, commercial and in currency – and by the Square Mile’s cosmopolitan culture: 35 per cent of its leading firms employed foreigners. The City may have been chauvinistic, but it was not exclusive or insular. It was the latest and perhaps the greatest manifestation of the national myth that Britain’s world supremacy stemmed from her enterprising, outward-looking, seafaring and tolerant character. No wonder the traders on the floor of the Stock Exchange sang ‘Rule Britannia’ on the defeat of the Irish Home Rule Bill in 1893.
The leading City institutions were singularly lacking in self-consciousness, and, then as now, far too busy doing business and earning commissions to worry much about public relations – and no honeypot the size of the Late Victorian City was ever without its flies. There was Barney Barnato, self-made diamond entrepreneur, who thanks to brilliant salesmanship puffed the great South African boom of the mid-1890s, became a byword for financial genius, enticed thousands of small investors into his bank and, when it crashed, jumped overboard south of Madeira, setting a standard for flamboyant exits which few of his imitators have managed to match. At much the same time there was Ernest Hooley, who promoted a score of fashionable enterprises, such as the Dunlop Tyre Company (on the back of the cycling boom). Many of them were wildly over-capitalised, but he bribed several Dukes of Plaza-Toro to sit on their boards, thus conferring a spurious respectability on them; he believed that he could dupe the City brokers into supporting the flotations (with some reason, until the inevitable collapse). And there was Whittaker Wright, who used Lord Dufferin, the most urbane and plausible diplomat of his generation, in the same way, trotting him out to reassure investors in his rickety mining company, until the bubble burst, ruining Dufferin’s wealth and health with it. (The joke ran: ‘Why was Whittaker Wright? Because he took a Dufferin.’)
The City’s golden age was also a golden age for its left-wing critics, who gained much moral satisfaction from inventing a ‘plutocracy’ and denouncing it as a conspiring and corrupting influence on public life. George Gissing believed that the ‘brute force of money’was blocking more humanising influences and producing mere mechanistic amorality. A.G. Gardiner was shocked at the ‘feverish excitement’ which gripped the public mind at the time of the South African boom of 1895, and found it a convenient excuse for the Liberal election defeat that year. J.A. Hobson famously blamed the Boer War on the greed of investors who had sought high returns on capital exports and then used their clout to press government and taxpayer to defend their interests. The propriety of exporting so much capital became a matter of great debate in the 1900s, and some Liberals proposed taxing it – a proposal not designed to endear their already suspect party to the City.
There were also those who criticised investors for preferring safe and good dividends on foreign loans to risky speculation in domestic industrial shares. This preference was hardly surprising when it was so easy for unscrupulous men like Hooley to float stocks, when city editors were sometimes bribed to promote issues, when investors had no right to elementary financial information about the companies they’d invested in, and when stockbrokers lacked the resources or incentive to undertake serious research into them. In 1896, Harry Lawson launched his unsound motor-car stock not with anything so mundane as a realistic prospectus, but with the dual attractions of the cricketer Prince Ranjitsinhji’s name and a London-to-Brighton car race. The Forsyte class stuck to ‘respectable’ issues like Lipton’s (much sought after by the aristocracy when it was floated in 1898): speculative stock was for those like that ‘man of the world’, the Forsytes’ in-law Dartie, who, having already lost his character, had no defence against losing his shirt as well.
Historians have long argued about how much damage was done to the British economy by bankers’ preference for easy commissions and safe dividends abroad, and about other contentious questions involving the Late Victorian City. Did British industry lack cheap capital? How powerful a vested interest was the City? Was its prevailing culture one of ‘gentlemanly capitalism’? Did it hold the political whiphand? In the second volume of his trilogy on the City since 1815, David Kynaston repeatedly shows his familiarity with the controversies. But his technique is to deal fair-mindedly and unexceptionably with them, more or less in passing; the book makes no claim to be an incisive or provocative analysis of the City’s role in the national economy, of the sort provided, say, by Ranald Michie’s much sprightlier The City of London (1992). Kynaston’s approach is pointilliste, anecdotal and, for the most part, relentlessly chronological. His extensive research in the City columns of newspapers throws up a large amount of interesting and amusing material, but this is not a romp. He has a lot to say about Barnato, Hooley and Ernest Cassel, but he does not focus on their personalities and social significance as neatly as Jamie Camplin did in The Rise of the Plutocrats (1978).
The book offers something else, of great significance, however, for it is the best institutional and cultural history of the City that we possess, operating on a grand scale, genuinely kaleidoscopic and supported by a wealth of fascinating detail. A close reader will gain from it enormous insight into the workings and attitudes of the many component parts of the City. Kynaston describes the dingy, cramped stockbrokers’ offices, part of a world of small, amateurish, overstaffed firms whose younger clerks endured a genteel poverty, and, on the floor of the Stock Exchange, the crush of hearty minor public-schoolboys, staving off boredom with weak practical jokes, jeering at the attempt by the temperance campaigner Mrs Ormiston Chant to close the Empire music-hall, and welcoming the first coloured clerk with a spirited rendition of the old plantation ditty, ‘Down where the darkies are a’weeping’.
Paradoxically, by writing on such a scale, Kynaston’s achievement is to cut the City down to Size. Even when it deals with the élite institutions, the effect of his work is to puncture extravagant notions about their omnipotence and far-sightedness. Most successful City bankers, stockbrokers and solicitors were not all-seeing manipulators: they were stolid, shrewd, conservative. At almost all levels, money was made by steady application, by collecting innumerable small commissions; this was how Klein-wort and Schröders made themselves into two of the City’s greatest merchant banks. There were so many clients to whom their capital could be lent: the art was in discriminating between the good risks and the bad, between the thrifty, energetic stayers and the untrustworthy flash-in-the-pans. Kynaston makes good use of Kleinwort’s invaluable and unillusioned reports on their suitors for credit. What was ultimately being judged was an applicant’s character. Gaspard Farrer of Baring’s wrote that ‘character is part and parcel of credit.’ The City’s predominance was not exactly won on the playing fields of Eton, but its capitalism was by no means ungentlemanly. Indeed, some City princes, notably the Rothschilds, became too complacent, too lazy to chase business, expecting fat commissions on loans to friendly foreign governments by right, and unwilling to tolerate any risk. When the Rothschilds refused to advance the Egyptian Government money for the building of the Aswan Dam, or even to underwrite a loan to Britain’s new ally Japan, it was an omen of their coming decline.
The relationship between the City and the Government was based on mutual self-interest, but also on something that can only be called patriotism, which again reminds us that the financial institutions were not all-powerful but were constrained by politics and by cultural values. When a loan was in the interests of foreign policy, the City made it: when it was not, as with Turkish, German and Persian issues in the pre-war years, institutions tended to shy away. This is not to deny that the City often had the freedom to disregard politics. In addressing it in 1906, Asquith remarked, sardonically but also in a fine Liberal tradition, that the best Chancellor of the Exchequer could do the City very little good and the worst very little harm. The City princes disliked the People’s Budget of 1909, but used it to advantage, to justify the lucrative export of capital. Lloyd George was a bête noire; but the greatest shock during the Marconi scandal of 1912-13 was caused not by his insider share dealings but by his naivety in buying too late and selling too soon.
The City élites were suspicious of Liberal financial policy after 1906, but this was not the main reason for their Conservatism, which went back to 1886 and centred on the Liberals’ perceived weakness in defending national interests abroad. To a large extent this Conservative bias – which was by no means electorally insignificant – was from their point of view quite rational. The City’s global supremacy was founded on Britain’s formal and informal imperial presence and on her massive naval power. So Irish Home Rule, and Gladstone’s attempts to limit naval spending in 1893, were opposed vigorously, and the City was in the vanguard of the campaign for increased estimates in 1909. But its pride in nation went beyond reasoned calculation. Escalating defence expenditure and international tension carried a high financial price, jeopardising low taxation and interest rates and eventually the whole edifice of open trade, the gold standard (reserves were worryingly low) and commercial stability on which City power rested. The Stock Exchange anticipated the Boer War with an optimism which was soon confounded by its cost. In 1914, it was much more alarmed. But there was no serious attempt to prevent British military intervention, and this despite the obvious damage that war, however limited, would inflict on trade. To rock the boat would not have been the done thing. The City’s various patriotisms – of the public school, the shooting-lodge and the music-hall – carried the day. Institutional culture proved more powerful than cold logic; political pressures triumphed over strict economic theory. The Forsytes shook their heads, subscribed to their War Loans, and prepared to meet their doom.