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Quote of the Week: Walter Bagehot

Sina Odugbemi's picture

Walter Bagehot, portrait“The peculiar essence of our financial system is an unprecedented trust between man and man; and when that trust is much weakened by hidden causes, a small accident may greatly hurt it, and a great accident for a moment may almost destroy it.”

- Walter Bagehot, a British journalist, economist, political analyst and essayist, who wrote extensively about government, economics, and literature. In 1860, he became editor-in-chief of The Economist, which had been founded by his father-in-law, James Wilson.  In the 17 years he was editor, he expanded the publication's reporting on politics and increased its influence among policymakers, transforming the journal into one of the world’s foremost business and political publications. 

Quoted March 5-6, 2016 in the Financial Times print edition in an article by John Plender, "Uncertainty principles", which reviews The End of Alchemy: Money, Banking and the Future of the Global Economy, by Mervyn King, the former governor of the Bank of England and Chairman of its Monetary Policy Committee from 2003 to 2013.  King quotes from Bagehot's Lombard Street: A Description of the Money Market to underscore how confidence in the value of money and the soundness of banks was lost in the financial crisis of 2007-09.

Photograph by by Norman Hirst, after Unknown artist, mezzotint, published 1891, Given to National Portrait Galler by Messrs. Thomas Agnew, 1960 via Wikimedia Commons

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Submitted by aldo matteucci on

Not wrong, but limited.

Human society as a whole is built on trust.Trust is emotional, not rational. Sudden, willful emotions will destroy trust just as much as financial manias.

It is the enduring tragedy of Adam Smith to have ignored trust, and thought that arms' length transactions could lead, not just to individual pursuit of happiness but, as by an invisible hand, also to a felicitous and sustainable social outcome.

Hence, his downplaying the need collectively to sustain trust among members of the social group. Lack of trust leads to anger, as we can currently see.

See: Albert O. Hirschman - The interests and the passions.

Submitted by David Hurst on

Adam Smith didn't ignore trust. We largely ignore what he had to say about it in The Theory of Moral Sentiments. Instead we have focused on one paragraph of The Wealth of Nations. The Enlightenment concept of reason was much broader then the narrow concept of rationality that we have become used to. Reason in the sense of reasonableness allows one to embrace humankind's ecological rationality and come up with a glass half-full perspective rather than the glass half-empty "heuristics and biases" approach. See Stephen Toulmin's Return to Reason.

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