Walter Bagehot (1826-1877): In 1860 he became he editor-in-chief of ‘The Economist’; his father-in-law was the founder of ‘The Economist’.
In ‘Lombard Street: A Description of the Money Market’ (1873) Bagehot was one of the early thinkers to suggests that, when a financial crisis occurs, a Central Bank should be actively involved in restoring stability through injections of liquidity (a Deus ex machina role that central bankers now describe as the ‘lender of last resort’). However, in the advent of a panic, central banks should make loans at high interest rates and against good collateral so that banks are not given the perception that they are enjoying a ‘free lunch’.
In ‘The English Constitution’ (1867) Bagehot claims that one way to understand power in Britain is to differentiate between the ‘dignified’ and ‘efficient’ parts of the institutions. The ‘dignified’ parts are those giving legitimacy and authority to the rulers of Britain (for instance the monarchy), while the ‘efficient’ parts are those where decisions are actually made (the prime minister and the legislative powers).
Bagehot also warns the reader that when the nobility will lose its prestige, then the masses will start to adulate people with big amounts of wealth: “The fancy of the mass of men is incredibly weak; it can see nothing without a visible symbol, and there is much that it can scarcely make out with a symbol. Nobility is the symbol of mind…..
The order of nobility is of great use, too, not only in what it creates, but in what it prevents. It prevents the rule of wealth — the religion of gold. This is the obvious and natural idol of the Anglo-Saxon. He is always trying to make money; he reckons every thing in coin; he bows down before a great heap, and sneers as he passes a little heap. He has a “natural instinctive admiration of wealth for its own sake.” And within good limits the feeling is quite right. So long as we play the game of industry vigorously and eagerly ….we shall of necessity respect and admire those who play successfully, and a little despise those who play unsuccessfully.”