In James Grant, it sometimes seems, the nineteenth century has been resuscitated. Towering, gaunt, bow-tied, and pinstriped, he writes with a sly wit that recalls the novels of William Thackeray. His signal achievement is a fortnightly cult publication bearing the antique title Grant’s Interest Rate Observer. He is a nostalgic believer in the nineteenth-century gold standard. He eyes modern banking innovations with stern, starch-collared suspicion, as though peering at them through a monocle. Even traditional financial instruments elicit a wry scorn. “To suppose that the value of a common stock is determined purely by a corporation’s earnings,” Grant once wrote, “is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.”

Now, Grant has written a delightful biography of Walter Bagehot, the great nineteenth-century Englishman in whom Grant perhaps recognizes a grander version of himself: the would-be Victorian sage is paying tribute to the authentic one. From 1861 until his death in 1877, Bagehot served as the third and most famous editor of The Economist. He was a confidant of William Gladstone, the dominant liberal politician of the era, and his words exercised such sway over successive governments that he was regarded as an honorary cabinet minister. After Bagehot’s death, a contemporary remarked that he might have been the most fascinating conversationalist in London.

Like Grant, Bagehot was a vivid wordsmith and a cult figure. Unlike Grant, Bagehot was generally a modernizer, a believer in progress, and therefore an opponent of the gold standard. (Bagehot’s views on certain matters, such as gender and race, were far from enlightened.) In his slim 1873 volume, Lombard Street, Bagehot explained how central banks should quell financial panics by printing currency and lending it liberally—“to merchants, to minor bankers, to ‘this man and that man,’ whenever the security is good.” To Grant’s evident dismay, this formulation has proved wildly influential ever since. In his memoir of the 2008 financial crash and the bank bailouts that followed, Ben Bernanke, the former chair of the U.S. Federal Reserve, cited Bagehot more than any living economist.

If the tension between the hard-money biographer and the soft-money subject permeates Grant’s book, it is not the only theme that captures one’s attention. For just as Bagehot was the father of the lender-of-last-resort doctrine, so was he a progenitor of a wider political tradition. What U.S. President Bill Clinton and British Prime Minister Tony Blair called “the Third Way,” and what others sometimes label “the radical center,” Bagehot summed up in his favorite political watchword: “animated moderation.” He believed, as Grant writes, “in progress, religious liberty, limited government, clean elections, non-entanglement in foreign wars, [and] free trade.” Like other liberals of the time, he “opposed the brutal laws to punish free speech, crush delinquent debtors, hang shoplifters, and maim poachers.” Even as he defined the political center, Bagehot rejected the mystical traditionalism of conservatives and the leveling democratic ideals of revolutionaries. For the modern reader, living at a time when classical liberal values are in retreat, it is instructive to contemplate a giant who embodied them.


Although Bagehot has much to teach his political heirs, his liberalism was often selective—a reminder that even the greatest liberals are not always right and not always liberal.

Protesters on the Faubourg Saint-Antoine in Paris, December 1851. Painting by Louis-Ernest Pichio.
Protesters on the Faubourg Saint-Antoine in Paris, December 1851. Painting by Louis-Ernest Pichio.

Bagehot believed in progress and change but did not fancy too much of them. As a young man in Paris in the early 1850s, he witnessed Louis-Napoléon, the French president and a nephew of Napoleon I, disband Parliament and take the title of “emperor.” Bagehot defended the crackdown and the attendant executions, regarding them as a necessary response to the red specter and claiming that they commanded support among the “inferior people.” As Grant summarizes Bagehot’s perspective, “The overexcitable French were incapable of governing themselves in a parliamentary system; their national character did not allow it.” Democracy be damned. France needed a tyrant.

Nearly a dozen years later, at the onset of the American Civil War, Bagehot’s liberal values had apparently not deepened. He sided with the Confederates, partly because the Union’s tariffs on British manufacturers irked him. Claiming to abhor slavery, he nonetheless wondered if there were “any grounds for assuming that, as a body, the negroes would prefer being their own masters with Northern treatment to being cared for and occasionally maltreated by their Confederate owners.” After President Abraham Lincoln issued the Emancipation Proclamation, Bagehot accused him of encouraging a slave uprising. “To arm savages against your antagonist is to make war like savages, and to descend to the level of savages,” he wrote.

Contemptuous of slaves, Bagehot was also heartily misogynistic. Addressing the question of the economic role of women, he declared himself “very favorable to their employment as laborers or in other menial capacity.” But he doubted that the female temperament was capable of taking on responsibility. “I am sure the nerves of most women would break down under the anxiety,” he asserted. In a prelude to his biography, Grant quotes the British historian G. M. Young, who saw in Bagehot “the most precious element in Victorian civilization, its robust and masculine sanity.” The second adjective was perhaps more fitting than the first.

Yet there is a lesson in Bagehot’s failings. For him, gradualism was a virtue: the iniquities of the status quo had to be balanced against the risks of rapid change, which might outstrip the human capacity for adaptation. In the cases of slavery and women, Bagehot got that balance very wrong. It was true that white Northerners in the United States abused free black laborers, but it certainly did not follow that slavery was more desirable; and one wonders what Bagehot’s contemporary Florence Nightingale, the pioneering British nurse known for her bravery during the Crimean War, would have had to say about the allegedly frail nerves of women. But in other instances, Bagehot balanced continuity and change in a more defensible way, proving the vital principle that there is more to wisdom than principles.

Although Bagehot has much to teach his political heirs, his liberalism was often selective—a reminder that even the greatest liberals are not always right and not always liberal.

Thus it was with the Victorian debate over the franchise. The democratic principle logically implied that everyone should have the vote; Bagehot nonetheless feared that a universal franchise would undermine democracy in practice. He favored relaxing the requirement that voters own property, but gradually. It would be counterproductive to extend rights to those who were not ready to exercise them. In 1866, when Gladstone, then the chancellor of the exchequer, introduced a bill that would allow more working-class men to vote, Bagehot criticized the proposal as overreach. The bill, he charged, would “enfranchise a very large number of persons who will consider their votes, and whose wives will consider their votes, as so much saleable property.” This was not a frivolous concern. Grant recounts a hilarious interlude in which Bagehot stood unsuccessfully for Parliament. Despite Bagehot’s express instructions that he wanted a clean race, his election agents bought votes on his behalf and then brazenly demanded repayment.

Herein lies an uncomfortable message for today’s liberals. A policy can be attractive in principle but mistaken in practice. Consider the 2003 U.S. invasion of Iraq: in principle, removing a dictator and replacing him with a democratic regime might have been a good idea; in practice, it was not. Following the same logic, if Bagehot were alive today, he might favor immigration restrictions in advanced democracies. In principle, liberal immigration policies enhance individual freedom and promote economic growth. In practice, too much of a good thing can sour the public on the project of an open society. Likewise, trade and technological progress are the drivers of prosperity, but their benefits must be weighed against the fact that citizens resent upheaval. A system that permits financiers to price and insure risk should serve economic growth, yet such a system can collapse under its own weight, with society suffering the consequences.

Liberalism, in other words, should not consist only of fealty to liberty, equality, and fraternity, the seductive abstractions of the French Revolution. It should also be about outcomes. A liberal has a responsibility to ask what works, what is efficient, and what produces results. Unless a political credo improves society’s fortunes, it deserves to be discarded.

The Bank of England in London, December 2017
Clodagh Kilcoyne / REUTERS


Bagehot’s pragmatism—his focus on what worked rather than what principle dictated—underlies his most lasting intellectual contributions. It runs through Lombard Street, Bagehot’s financial treatise, whose defense of bailouts so deeply offends Grant’s hard-money standards. Grant scolds Bagehot for “his embrace of the dubious notion, so corrosive to financial prudence, that the central bank has a special obligation to the citizens who present themselves as borrowers and lenders, investors and speculators. No other class of person enjoys access to the government’s money machinery.” Grant also has a soft spot for Bagehot’s contemporary antagonist, the justly forgotten Thomson Hankey, who worried about the moral hazard created by central banks acting as lenders of last resort. “The most mischievous doctrine ever broached,” Hankey called it.

In principle, of course, Grant and Hankey have a point. It seems offensive that the Federal Reserve should bail out Wall Street fat cats and yet allow hard-pressed homeowners to suffer the disaster of foreclosure. It seems evident that bailouts only weaken borrowers’ incentives to restrain themselves, thus compounding the fragility of finance. But the answer to these arguments is that in practice, bailouts work: by furnishing a panicked system with money, they prevent a freeze in payments that would cause a depression. For this practical reason, governments repeatedly suspended the gold standard during financial crunches, even as the authorities, acknowledging that the likes of Grant and Hankey were correct in principle, fervently pretended that each suspension was a one-time exception. The British government made supposedly one-off exceptions in 1847, 1857, and 1866. Even in 1971, when U.S. President Richard Nixon abandoned the dollar-gold link, his administration claimed that the break was temporary.

Liberalism should not consist only of fealty to liberty, equality, and fraternity, the seductive abstractions of the French Revolution. It should also be about outcomes.

Back in the 1870s, Bagehot’s contribution to this debate was to observe what was happening, rather than comment on what theoretically ought to be happening. In principle, a gold standard that ruled out the possibility of bailouts might be expected to deter reckless financial risk-taking. In practice, it did not: “In a great country like this,” Bagehot remarked, “there will always be some unsound banks, as well as some insolvent merchants.” Because reckless behavior persisted, the central bank had to respond. And respond it did, even as it refused to admit that it was bound to do so—“though the practice is mended the theory is not,” as Bagehot put it. The stability of the financial system thus depended on the actions of a central bank that formally denied responsibility for it.

It would be better, Bagehot urged, to recognize reality. Banks would inevitably need bailing out, so the important question was how to do it properly. To this end, Bagehot propounded his famous formula: central banks should lend liberally but at high interest rates and against good collateral. To an extent that Grant is unwilling to acknowledge, this formula has worked well. Even the Fed’s enormously openhanded 2008 bailouts were made on terms that were sufficiently Bagehotian to generate a profit for taxpayers.

Queen Elizabeth II and the Duke of Edinburgh at the State Opening of Parliament at Westminster Abbey in London, June 2001
Queen Elizabeth II and the Duke of Edinburgh at the State Opening of Parliament at Westminster Abbey in London, June 2001
ROTA / Camera Press / Redux


Bagehot’s second lasting achievement was his 1867 book, The English Constitution. As he had done with central banking, he took aim at a phenomenon that had not been codified (the British having never adopted an official constitution) to explain how it actually functioned. Bagehot’s central observation was that the British government consisted of two parts: the “efficient” and the “dignified,” or “theatrical.” The efficient segment—the cabinet, administrative departments, and the committees of Parliament—did the work. The theatrical segment—the queen, the nobility, and the decorative rich—might appear, “according to abstract theory, a defect in our constitutional polity,” but these apparently superfluous adornments played the vital role of inspiring deference from the “vacant many.” The wisdom of learned statesmen—here Bagehot was no doubt thinking of himself—could be turned into government policy thanks to the narcotic properties of bejeweled duchesses.

Which brings one back to the liberalism of the present. Bagehot’s ruminations on the theatrical branch point to the role of emotion in politics. The United Kingdom’s largely ornamental monarchy mattered precisely because it bypassed reason, making it devilishly potent. “So long as the human heart is strong and the human reason weak,” Bagehot explained, “royalty will be strong because it appeals to diffused feeling, and republics weak because they appeal to the understanding.” If that judgment is accurate, this century’s largely postmonarchical democracies are in trouble. Today’s most potent emotional manipulation comes not from scenic royals but from online provocateurs and conspiracy theorists. Their efforts serve not to legitimize sages like Bagehot but to sow skepticism about the expert establishment.

Grant has written a gem of a book: entertaining, wry, and gloriously eccentric. Readers learn that the mud in London was 57 parts horse dung and that Bagehot played “zestful games of cup-and-ball” wearing—yes—a monocle. Along the way, they get a nasty feeling that even the greatest liberals have feet of clay and that the Victorian version of the radical center enjoyed a deference that is inconceivable today. But there is also a positive lesson to be drawn, one that is less about policies than about temperament. Liberals, as Bagehot himself put it, should be “heedless of large theories and speculations.” Their duty, above all, is to be right—not theoretically but practically.

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  • SEBASTIAN MALLABY is Paul A. Volcker Senior Fellow for International Economics at the Council on Foreign Relations.
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