Anne Murphy - Virtuous Bankers

Summary

A Book with Legs: Episode Summary – Anne Murphy on "Virtuous Bankers"

In the September 2, 2024 episode of the "A Book with Legs" podcast, hosted by Cole Smead of Smead Capital Management, the conversation centers around Anne Murphy’s insightful 2023 publication, Virtuous Bankers: A Day in the Life of the 18th Century Bank of England. Anne Murphy, a Professor of History and Executive Dean at the University of Portsmouth, brings a rich academic perspective coupled with practical experience from her 12-year tenure trading interest rates and foreign exchange derivatives in the City of London.

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1. Inspiration and Purpose Behind "Virtuous Bankers"

Anne Murphy delves into her motivation for writing Virtuous Bankers, emphasizing her academic curiosity sparked during her PhD studies. She was particularly fascinated by the intricate day-to-day operations of the 18th-century Bank of England—a topic rarely detailed in conventional banking histories.

“I was really intrigued by the process, by how things worked on a day to day level.”
— Anne Murphy [02:50]

Murphy aimed to uncover the minutiae of banking operations, such as the workings of bills of exchange, the filing processes, and the printing of banknotes, to provide a comprehensive understanding of historical banking practices.

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2. Decoding "Virtuous Bankers"

The title Virtuous Bankers initially caused some hesitation for Murphy, who contemplated alternative titles before publishers insisted on retaining it. Contrary to what some might assume, the term "virtuous" is not a direct commentary on modern banking ethics but rather reflects the Bank of England's esteemed reputation in the 18th century.

“Why the bank of England's directors could characterize the bank as something that demanded almost religious veneration.”
— Anne Murphy [03:04]

Murphy explores how the Bank's directors viewed the institution with profound reverence, considering it worthy of national protection and respect—a stark contrast to the more guarded and scrutinized central banks of today.

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3. The Bank of England in Historical Context

Founded in 1694 by Prince William III, the Bank of England emerged as a pivotal institution amidst the English financial revolution post-Glorious Revolution. Unlike its Dutch counterparts, the Bank was a joint-stock company from its inception and a note-issuing entity, setting it apart in structure and function.

Ann Murphy highlights the Bank's unique position as both a private company and a key financial contractor for the British government, managing public debt with greater efficiency than government mechanisms of the time.

“It is a true contractual arrangement here that continues right up until the mid part of the 19th century.”
— Anne Murphy [06:46]

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4. Contractor Status and Government Relations

The term "contractor" in this context refers to the Bank of England’s role in managing services the government could not efficiently handle, such as public debt management. This contractor relationship persisted until the mid-19th century when central banking functions became more entrenched.

“They are supplying a service that the treasury at this time or the Exchequer cannot provide for itself.”
— Anne Murphy [06:46]

Murphy posits that the Bank’s effectiveness in this role cemented its longevity and importance within the British financial system.

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5. Evolution of Location and Architectural Growth

Initially operating from borrowed premises near Grocer's Hall, the Bank of England gradually relocated to Threadneedle Street, eventually occupying an entire block. This expansion was driven by the need for more space to accommodate growing operations and enhance security against threats like fire and civil unrest.

“They need protection from fire, they need protection from rioters.”
— Anne Murphy [10:31]

The Bank’s physical growth paralleled the transformation of London’s financial district, influencing the urban landscape significantly.

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6. Symbolism: Britannia and Lady Credit

Murphy draws a fascinating parallel between symbolism and gender roles in finance during the 18th century. The Bank of England adopted Britannia as its emblem, embodying virtues such as stability, protection of the Protestant nation, and economic integrity. In contrast, Lady Credit personifies the fluctuating nature of credit and lending—sometimes dependable, sometimes unreliable.

“Britannia represents the Protestant nation... Lady Credit behaves very badly. She's very fickle.”
— Anne Murphy [14:49]

This dichotomy highlights how gendered perceptions influenced the Bank’s public image and functional representation.

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7. The 1783-1784 Bank Inspection

Amidst scrutiny similar to that faced by the East India Company, the Bank of England conducted a comprehensive inspection from March 1783 to 1784. Three directors meticulously examined all facets of the Bank’s operations, ensuring transparency and integrity.

“They can call any papers or any employees that they choose. And they do that very thoroughly.”
— Anne Murphy [20:31]

This proactive approach aimed to preempt potential governmental takeovers and reinforce the Bank’s commitment to ethical practices.

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8. Daily Operations and Employee Accountability

The Bank’s operational day began early, with preparations that included unlocking safes, setting up ledgers, and ensuring all tools (like quill pens) were ready. Employee punctuality was strictly monitored, with a 10-minute grace period before tardiness was reported to a disciplinary committee.

“The doorkeeper... draws a line in that book at 10 minutes after 9 and a note is then made of the people who come after that.”
— Anne Murphy [28:35]

Personal accountability was paramount, with employees required to bond personally against losses and misconduct, fostering a culture of responsibility and trust.

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9. Customer Demographics and Gender Roles

Contrary to modern assumptions, women played a significant role in interacting with the Bank of England. Approximately 15-20% of transactions in public debt involved women, often acting as agents for their families or managing finances on behalf of absent members.

“Some women you see there with men... single women who are acting for themselves.”
— Anne Murphy [56:49]

This inclusivity reflects the broader societal roles and the essential participation of women in financial matters during that era.

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10. Managing Public Debt and Pelham's Conversion

Pelham's Conversion was a strategic move in the late 1740s to lower interest rates by consolidating various debt instruments into more uniform, lower-yielding bonds. This initiative not only streamlined debt management but also facilitated a more active and transparent secondary market, essential for efficient government borrowing, especially during wartime.

“This creates a really active secondary market and really allows the government's debt to become much more transparent.”
— Anne Murphy [65:55]

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11. Security Measures: Locks, Keys, and Preventing Theft

Security in the 18th-century Bank of England was a complex affair, relying heavily on physical locks and keys. Each employee had access to multiple keys, and the management of these keys symbolized power and control within the institution. Remarkably, despite the high-value transactions and numerous employees, Murphy found no records of significant bank heists during this period.

“It's really difficult to manage because of 18th century technology.”
— Anne Murphy [74:33]

This robust security framework underscored the Bank's dedication to maintaining the integrity and safety of its operations.

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12. Reflections on Modern Banking Practices

Murphy offers a thoughtful comparison between historical and modern banking, particularly regarding transparency and information flow. While increased transparency today aims to build trust, Murphy suggests it may also lead to challenges like over-speculation and rapid, sometimes unmanageable responses to information.

“Crisis in the 18th century... allows a much more measured set of responses than we necessarily have now.”
— Anne Murphy [69:18]

This reflection invites listeners to consider the balance between transparency and stability in contemporary financial systems.

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Notable Quotes with Timestamps

• “I was really intrigued by the process, by how things worked on a day to day level.”
  — Anne Murphy [02:50]

• “They say this is an entity and an institution that we should protect with everything within our power.”
  — Anne Murphy [03:04]

• “Everything speaks to creating a sense of your personal connection to the corporate body...”
  — Anne Murphy [35:10]

• “Britannia represents the Protestant nation... Lady Credit behaves very badly. She's very fickle.”
  — Anne Murphy [14:49]

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Conclusion and Further Reading

Anne Murphy emphasizes the enduring relevance of historical banking practices in understanding modern finance. She encourages listeners to explore her work further and highlights the accessibility of Virtuous Bankers.

“Virtuous Bankers is out in paperback. Soon it will be much more reasonably priced.”
— Anne Murphy [77:19]

Listeners interested in the intersection of history and finance will find Murphy’s detailed exploration both educational and enlightening.

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Anne Murphy's "Virtuous Bankers" offers a compelling glimpse into the operational intricacies and societal impacts of the Bank of England in the 18th century. Through meticulous research and engaging storytelling, Murphy bridges the past and present, providing valuable lessons for today's financial institutions.

Transcript

[Podcast Host]

You're listening to A Book With Legs, a podcast presented by Smead Capital Management. At Smead Capital Management, we advise investors who fear stock market failure. You can learn [e-mail] or by calling your financial advisor.

[Cole Smead]

Welcome to A Book with Legs podcast. I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management. At our firm, we are readers and we believe in the power of books to help shape informed investors. In this podcast we speak to great authors about their writings the late, great Charlie Munger prescribed Using multiple mental models and analysis, we analyze their work through the lens of business markets and people. Long before the world's most powerful central bank, the US Federal Reserve, was created in 1913, there was already a venerable institution in the bank of England or boe, modernizing the relationship between the government and the economy. One must wonder how does a central bank function before they become a world class central bank of the modern age? Joining us to discuss her 2023 book is Ann Murphy. The book titled Virtuous Bankers A Day in the Life of the 18th century bank of England. A little bit of background on Anne Ms. Murphy is a Professor of history and Executive Dean of the Faculty of Humanities and Social Sciences at the University of Portsmouth. Before her career in academia, she worked for 12 years in the City of London trading interest rates and foreign exchange derivatives. She has also authored another title, the Origins of the English Financial Markets. I really appreciate you joining me. We'll have some fun talking about this old bank if you will. But I have to ask you, coming from your background, what inspired you to tell this story of the bank of England in predominantly the 18th century?

[Ann Murphy]

Well, thank you for the invitation. It's really nice to be able to talk about the book. So I think what inspired me I'd been an academic for quite a long time before I decided to write this book and it was based on sources that I'd found while I was studying for my PhD and was really intrigued by. But what really inspired it was a desire to know how the 18th century bank of England worked. I think you, like me probably have read a lot of books about banking and they don't often get into the nitty gritty. So you know, how does a bill of exchange work? Who does the filing, how do you print a banknote, all of those sorts of things. And I was really intrigued by the process, by how things worked on a day to day level. And having tracked down sources that could tell me, I was then really keen to share that with others so decided to write the book.

[Cole Smead]

So you call it Virtuous Bankers. And I have to ask, I think what's the obvious question you're calling the 18th century bakers virtuous. Are you saying something about banking today in comparison?

[Ann Murphy]

So I keep telling this story but I nearly chickened out of calling it Virtuous Bankers. So it was the working title all the way through and the publishers liked it. And I have to say I had a little bit of crisis of conscience about it just before the book got published and I went to the publishers and said, can we call it something else? And they said no, we're going with Virtuous Bankers. I think they sort of recognized the pull of that. But I have to say I can justify it. I don't think I am trying to something about modern banking, although the inferences are there for people who care to find them. But what I think I was trying to get to was why the bank of England's directors could characterize the bank as something that demanded almost religious veneration. And that's what they say in the report that they write, that this is an entity and an institution that we should protect with everything within now power. So what convinced them to make that statement? To sort of create this idea of this is something that we can and should protect that is worthy of the country's veneration. I can't see even modern day governors of the bank of England being able to say that sort of thing and find themselves taken seriously. But in the 18th century they could. So I think that forms part of the argument for this question of virtuousness amongst bank of England clerks.

[Cole Smead]

So the bank was created in 1694 by Prince William III, obviously king of England, who were the early on rivals. What other institutions were around at that time that could even compete in some of these banking related, or call it credit related services.

[Ann Murphy]

Yes. So when we talk about the development of the English financial revolution, which was really this period after the Glorious Revolution where the government needs money so it's starting to set up more sophisticated state financial instruments. And the bank of England is one of those. The parallels are often made with Amsterdam and the Dutch and particularly Dutch banking. And I think that's a good comparison. I think that's something that we should pay attention to. But I think those projectors who were looking in the six to build this new financial system, they weren't only looking to the Dutch, they were looking to other precedents as well. So Sweden has interesting banking models and financial models. Italy of course and the French do as well they don't have banking, but they have other forms of public debt and debt maintenance that were interesting to people at the time. But where the bank of England is different is that it's a note issuing bank right from the start and that it is a joint stock company so it's beholden to its shareholders and its shareholders are really very active right at the start.

[Cole Smead]

You say that the bank of England was the most successful and longest lived contractor to the British government. It started in 1694. Like I mentioned earlier. When did this contractor status end and why? And also can you explain what you mean by contractor?

[Ann Murphy]

Yes. So contractor is a term that a lot of British historians of the fiscal, military, state use. And what they're generally describing is the contracting out of the business of war. So it's generally around things like Britain's naval capacity, the contracting out of victualling, so supplies for the navy uniforms, that sort of thing. And these contractors are doing the work that the government can't do and generally doing that much more efficiently than a government model could do. I thought it was really interesting to try and apply that to the bank of England. What the bank of England is doing is not supplying goods or food for example, but it's supplying a service and it's supplying a service that the treasury at this time or the Exchequer at this time cannot provide for itself. So the government is contracting out the management of the public debt and asking the bank of England to manage it for them. And of course the bank of England remains a private company at this time. So it is a true contractual arrangement here that continues I think, right up until the mid part of the 19th century when the central banking elements, if we could start to call it that, start to be put on a surer footing and they the nature of supporting the public debt starts to change because the imperatives of war aren't necessarily there at that point.

[Co-Host]

Sure.

[Cole Smead]

So let's just start with location. Because you talk, to your point, the nitty gritty of this, you talk a lot about locations, we'll talk about parts of that, but we talk about architecture, which I think you do a wonderful job of explaining. Now that I've read your book, I feel like I have to go visit the bank of England if I'm even allowed in. So you know, let's just start with location. It originally wasn't where it sits today in bank district in London. Where was it in London at its origin.

[Ann Murphy]

So it wasn't too far away. So it starts off in borrowed accommodation, sort of really just Just around the corner from where it is now in Grocer's Hall. And the reason, I suppose it ends up in borrowed accommodation is that it gets set up quite quickly there. There isn't a tradition of banking in London at the time, so there are no ready made premises that it can go and operate out of. I think also it's not a customer led bank, it's a bank that is really servicing government debt. So I don't think it wants to make itself overly visible early on in its career. It doesn't necessarily recognize the value of that visibility and it doesn't want, want to attract too many people in. Because when, you know, when you've got lots of customers, you have to manage them. And the business, the physical business of managing customers as you see in the 18th century, is quite taxing. You need, you need staff to sort of manage the flow of customers and make sure they're behaving properly and make sure you're not allowing pickpockets and other undesirables in.

[Co-Host]

Sure.

[Cole Smead]

So obviously it ends up in the location it now sits. I mean you have the board of directors sitting down and having to tackle this physical presence issue and they have to go out and find real estate at times to grow this institution's footprint. How did they do that? Because obviously London is tight now. It was even tighter back in the 18th century.

[Ann Murphy]

Yeah. So if you can imagine where the bank of England is now, so it's in Thredney street and it occupies an entire block. So it's a huge building and in fact a sort of set of buildings within a curtain wall. It gets gifted by one of its first directors, a house in the middle of Threadneedle Street. So right bang in the middle, it's a relatively small house, but they get it as a gift. They kind of keep it for around a decade, not really thinking to do anything with it. And eventually they make their minds up that they're going to move the bank's premises onto Threadneedle street, partly into this house, but also they need to start building in order to accommodate the expanding business. And that process of building carries on almost throughout its history. And I suppose the last bit of really serious building work that is done is post second world war where they pull down the Johnson's 18th century bank and then rebuild it again.

[Co-Host]

Sure.

[Cole Smead]

What type of businesses resided around the bank when it first moves on to Threadneedle? Because to your point, the structure in place today. I did some follow up reading, Ann, because I wanted to nerd out over Your book, to your point, Post World War II, they really changed what the bank building was and really the historical character of the building compared to the 18th century. But there were a lot more streets directly around it and the tenants were a kind of a wide swath.

[Ann Murphy]

Mm, yeah, they really were. So in. When the bank first moves into Threadneedle street, the buildings and residents around it would have been fairly typical London residents. So you've got shops, you've got, you have got the Royal Exchange just opposite the bank, which is really, really important center for trade. Surrounding that you've got lots of taverns, places where people go to drink, they go to eat as well. You've got residents. Right next door to the bank there's a church, St. Christopher Lestoc's Church. So you know that that occupies a significant part of the space that the bank of England now occupies and creates problems for the bank as well. So it's really a standard residential area and the bank of England buys up or takes over a lot of that land or surrounding it, partly because they need more space for the business, but also because they need protection. They need protection from fire, they need protection from rioters. And moving out a residential population gives them that, some of that protection. That area then, under the influence of the bank, is created into the financial district that we know today with very few residents, mostly businesses, mostly banking type businesses. And the businesses that serve that, sure.

[Cole Smead]

To follow on that, that continues to be. For example, I commonly will go to Bloomberg's new headquarters, which used to be Bloomsbury Square and is now right down there in bank district. So that continues to be leveraged as the financial cent. Let's talk about Britannia and let's talk about Lady Credit. Can you kind of introduce these two characters in the ethos or Lagos of the bank and what role do they play? And I guess the other question I would have is, are there times that they are similar people and other times when they're viewed very differently?

[Ann Murphy]

Yeah. So I think fascinatingly, and in fact I think I really reflected on this post 2008, 2009, after the financial cris there, where I think there was a lot of speculation about if Lehman Brothers had been Lehman Sisters, you know, they wouldn't have got themselves in so much trouble. 18th century historian. Actually, I found that really fascinating because in the 18th century all of the negative characteristics of finance were feminine, not masculine. We think of negative traits of finance and financiers as very masculine in kind of too much testosterone, very aggressive, not being able to control those sorts of emotions. In the 18th century, negative aspects of finance were being too sensitive, being too emotional, not being able to control your emotions in ways that allowed you to be business oriented. And all of those tropes were feminine, not masculine. So bad finance was female finance. And during the South Sea Bubble, there's quite a lot of real anxiety about women stepping in and becoming speculators. What's interesting about the bank of England is that it manages to rise above a lot of that negative feminine connection. And part of that is using its own logo. So, you know, its logo is Britannia. It's the Britannia of the 17th century, the Britannia that is introduced back into British discourse by Charles ii, because she, you know, Britannia ends up on the Charles II penny and then is used on the penny for a very long time after that. And the bank of England adopts Britannia right from the start, from 1694, as its logo. She's on everything. So she's on the notes, she's on the ledgers, she's on the letterheads. Everywhere you go in the bank, you see Britannia. You've got statues of Britannia kind of appearing around the bank as well. She's always virtuous. She represents the Protestant nation. It's really important that she represents the Protestant nation as well. She has a sort of warlike connection because she has a shield and a spear that she carries. She's often depicted as being relating to business because she either sits on a bag of money or she's got money next to her, or she's got a cornucopia and sort of pouring out the fruits of commerce. So all through the 18th century and beyond, the bank is being associated with Britannia, and Britannia never falls. So Lady Credit, who is sometimes. So it's. Lady Credit is a depiction of borrowing and lending, really. So, you know, it's Lady Credit who can gift you a loan if you need it, you know, and your relationship with Lady Credit is really important. And Lady Credit behaves very virtuously under some circumstances. But Lady Credit is also kind of, you know, as my granny would have said, no better than she ought to be. And so, you know, she. She behaves very badly. She's very fickle. Sometimes she's there and she's available for you, but sometimes she'll turn her back on you. But that. That kind of taint is not something that is associated with Britannia. So where Britannia stays virtuous, Lady Credit falls. The other feminine trope I think that's really interesting is when after the South Sea Bubble, the South Sea Company starts to be associated with a feminine trope as well. And she's very much, you know, South Sea Bo. The South Sea Company has a whore. So the South Sea Company has disgraced herself so much that she is now a fallen woman. And, you know, her reputation can't be rescued.

[Cole Smead]

Hi, I'm Cole Smead, CEO and Portfolio Manager here at Smead Capital Management and.

Host of this podcast.

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Not affiliated Much of your book is based on an inspection that was done, a bank examination, if you will. You know, this was not McKinsey. This was not Bain. This was a group of inspectors coming in on behalf of the board. Can you explain what year this was taking place and the reasons why? For this inspection?

[Ann Murphy]

Yeah. So it takes place in 1783, 1784. So the inspectors, who are three of the bank's directors, they start their work in March 1783. It takes them a year to complete, and they're empowered to inspect everything. So they can call any papers or any employees that they choose. And they do that, and they do that very thoroughly. And what they're doing is they're going around the bank, they observe, they talk to employees, and then they sort of double check. They have a process of then checking back with other employees about what the first employee said. So they're really sort of calibrating the way that the work is being presented to them. Why do they do it then? There is no smoking gun. But my best guess is that the reason they do it then is because the East India Company at that point is coming under significant scrutiny. The East India Company, as listeners might know, was not, you know, a kind of quasi government in India by this point, with a private army that is expanding its territory, but also operating not as a particularly useful and definitely not as a benevolent governance entity. And the government has it under scrutiny because of that and because of its poor financial performance. There's strong speculation around this point that the government will take over the East India Company, and it's starting to make inroads into much More active management and active direct management of the East India Company's work and its interests. And I think the bank's directors at that point are looking and thinking, could this be us? And let's make sure it isn't us. Let's put our house in order so that they can then demonstrate, we've been through this process, we understand how we work, we've looked for corruption, we know where we don't work so well, we know where we are working perfectly well.

[Cole Smead]

We just got done doing Richard Blakemore's book, Enemies of all, which touches on the piracy involved with the East India Company. And obviously it was. There were some very unscrupulous points that they had to deal with throughout their history. So let's set the tone. So when I think of the bank opening in the 18th century, the bank's going to open at 9:00. What is going on at the bank up until those gates open at 9:00? I think of. I'm originally from Seattle in the Pacific Northwest of the United States. In the winter months, it's dark when you get up and you go to the office at early hours. And I think of that very much in England, as these porters and the gatekeepers are getting ready for the people of the day to walk through those gates. Can you kind of teach who some of those players were and what the preparations were prior to the gates opening?

[Ann Murphy]

Yeah, so the bank opened at 6:00 in the summer, 7:00 in the winter. So just as it would be starting to get light in London in the winter, the night watchmen would be heading off to other jobs, actually. So these poor guys would have been working pretty much 24 hours in order to keep themselves alive. So the night watchmen who'd been there all night would head off to their other jobs. The gate porter lived at the bank, so it was his job to open the gates. Porters would turn up and they would finish off bits of cleaning and tidying that would have been left to them by the night porters. Night porters would do some of it and the day porters would do others. The first staff would arrive around about that time when the gates are opening so that they can set up the bank. One of the jobs is. Is disgorging the safes. So there are various different safes and storehouses where the ledgers are kept and where the cash is kept. So the process of setting up for the day is about kind of getting all of those out and getting those ready for when the Customers come in, there's lots of mundane things that need to be done, things like winding clocks, getting pens ready. So, you know, it's we sit there and wait for our laptop to fire up and for us to log on. But for our 18th century clerks, it would have been making sure that your pen, which would be a quill pen, was sharp enough that you've got ink, that you've got all of the things that you need as well. Feels like there might have been some scrabbling around for keys. So often the last man out of the office would take the key to various things home in his pocket. So you can imagine that if he's not in at his desk on time, there would be a little bit of, well, who's got the key for this drawer? Who's got the key for this cupboard?

[Cole Smead]

Yeah.

[Ann Murphy]

And there, you know, there are other things, I guess, about sort of making sure that the bank is kind of clean and tidy and ready and waiting for customers. They also clean up around the bank. So they clean up the streets and yards around the bank as well. And another part of them displaying the kind of virtuousness or their good citizenship is that process of keeping their area tidy.

[Cole Smead]

Sure. And I think you mentioned that there's no modern plumbing in this building. So all the way out to that someone has to take care of the human waste on top of this. As a normal function of the data day of the bank.

[Ann Murphy]

Yeah, there's some lovely. In the bank's archives, there's some lovely plans of the bank which I sort of poured over in the desperate hope that I would find the toilet somewhere. It's not marked on the bank. It was one of the things that kind of interested me was if you're going to write an understanding of the day and how the day works, well, where does one go when one needs to go? There would have been kind of latrines outside in the yard. My best speculation, given some very prominent customers and the fact that water closets, indoor water closets, were quite common by this point, is that there would have been an indoor water closet somewhere as well. But I can't find it on any of the plants.

[Cole Smead]

So when people showed up late, how was that dealt with? You know, how did they account for this? Because, you know, and you touched on this earlier. I'll mention this probably throughout our discussion today, but there's a lot of people here at the bank. And the reason, what the inspectors are really doing is they're asking questions of people, but really of processes. How do those People and processes interact and play together. And so one of the initial processes would be, you know, what's the accountability of people showing up on time? Was there one person, was that the chiefs? How did the. The timeliness of employees play into accountability?

[Ann Murphy]

Yeah, so it's the doorkeeper who is keeping a check on that and he keeps a book where he records when people come and he draws a line in that book at 10 minutes after 9 and a note is then made of the people who come after that. So you've kind of got a 10 minute grace period to turn up to work and then if you're more than 10 minutes late, then that will be reported to the directors who are managing what they call the committee for house and servants, which is basically the disciplinary body. There's a reasonable level of excuse, I think, for being late to work because some of these individuals are walking quite long distances through London in order to get there.

[Cole Smead]

So then, and by the way, I'm going to use that with my colleagues, I'll say you could be 10 minutes late because it was good for Britannia. It's good for me. So that'll be my new line. So I appreciate that a lot. And give us a sense, you know, the bank is not operating on the same kind of bank hours that you'd see today in London. What were bank days and then how many bank holidays were used back then?

[Ann Murphy]

Yeah, so they are working 9 to 5 ish from Monday through to Saturday. They're open on Saturdays as well. I was quite surprised actually. The bank, bank hours are not dissimilar, I suppose, to the sort of nineteen 1970s kind of bank hours. And so 9 o'clock start, a 3 30ish finish for most of the business. Most of the senior men go home and are around 3:30 in the afternoon. Most of the work that takes place after that is updating the record for the next day. What I found interesting was the sort of bleed into other parts of the day. So the people who come quite early in order to get set up, but the people who are updating the record at the end of the day are staying sometimes late into the evening. So when it's a particularly busy day and there are lots of accounts that need to be updated, the clerks who are doing that start at about 4 o'clock in the afternoon and sometimes go on till 7, 8, 9, 10 and then the bank is locked down by 11, so they've got to be done by then. But there is a kind of late evening shift there. Bank holidays very few, but Things like Christmas, Easter, other religious festivals would be. So the bank wouldn't have a full staff during those times, but it would keep a skeleton staff on for most religious holidays because it was conscious that customers still needed to do business then.

[Co-Host]

Sure.

[Cole Smead]

I'm going to read a quote that comes from the statue of William III that was obviously in the bank for restoring the efficacy of the laws, authority to the courts of justice, dignity to the Parliament, to all his subjects, their religion and liberties, and ascertaining them to posterity by the accession of the illustrious race of Hanover to the British Empire, to the most excellent Prince William iii, the royal founder of the bank. When I read that and got through the book, I really felt like that was the ethos that in some respects, the bank took on. For example, they gave dignity to Parliament. Parliament had all kinds of crazy ideas, and yet the government borrowing to fulfill those plans were given dignity by the bank's processes and credibility. Is that a fair way of thinking about the statue of William iii?

[Ann Murphy]

Yeah, I think it is. I think when you sort of go back to the 1690s, not clear how much William III really cared about the bank of England as anything other than a way of raising money to prosecute his wars, which some would argue is.

[Cole Smead]

The only good reason for central banks across the ages.

[Ann Murphy]

I would say, too, yeah, reasonable to do so, I think. And he, William was one of the first investors. But I think what that statue represents really, is the purpose of the bank across most of its history and its really strong connection with the state, as part of the apparatus of state finance, but also as distant from the state and as an entity that can hold the state to account for the way that it manages its finances. It's a kind of. I've described it before as the servant of two masters. So it's the servant of the public and the public creditors who rely upon it to maintain their investments and maintain the value of their investment investments. But it is also the servant of a state who, if the state doesn't need money, it doesn't need the bank. So had Britain been a less warlike nation in the 18th century, the bank of England might have been wrapped up very early on in its history and we might have had a completely different banking history in the uk.

[Cole Smead]

You talk a lot about the personal liability that clerks had to take upon themselves and then you talk about how they had to bond, obviously, and how they did that. I was just thinking about of insurance today and those kind of situations versus then I think you talked about they raised the Money from personal family to bond themselves for that. How? You know, as you've studied markets in England and you've thought about this idea of personal liability. I mean, we think it's important for all of risk taking. We are your classic. We eat our own cooking, we have skin in the game with our investors. It's really all we believe in. But that hasn't always been true in every part of the financial world. For various reasons, not criticizing any one of them, but obviously for the bank that personal liability was paramount. And I think I could argue after reading your book that it is one of the devices that kept everything together with all these people and all these processes. Is that a fair assumption?

[Ann Murphy]

I guess yes, I think it is. And I think you. And there are lots of tentacles to this as well. So, you know, it really starts off with an interview process and the way that they scrutinize the financial means of the people that they employ. You know, everybody who is employed by the bank takes an oath to, you know, to do their job well, to keep the bank secret. As you were saying, everybody is expected to provide a bond against both losses, but also poor behavior, embezzlement, etc. So everything speaks to creating a sense of your personal connection to the corporate body and also your personal responsibility for ensuring that that works well and that you are doing your best to support it. I think, as in all of the best of these kinds of models, the bank doesn't pursue people unduly. So there are a number of instances where they acknowledge that there has been a real sort of rush in the banking hall or something else has gone on or there's been a crisis and a bank clerk might have lost money, but often they'll waive that obligation. But they will pursue the men who have been careless and are not doing their job properly, and they will definitely pursue the criminal. And they pursue the criminal to the ultimate punishment, which at this time is capital punishment. So the bank is responsible for personal prosecutions of clerks who stolen money from them and always calls for the ultimate penalty.

[Co-Host]

Sure.

[Cole Smead]

You share some of the numbers of the accounts the bank had. To your point, you know, part of the facilities that the bank was providing to the public was really just transfer agent services for government securities. Right. They would be, you know, paying the dividends due and holding customer assets that obviously were owning government debt and consoles that you talked about in the book. But it looked like, you know, again, this symbiotic relationship between government and the bank. You know, if the bank wanted to grow, they just needed the government issuing a lot of debt because it brought a lot of people to the bank. Is that a way of thinking about that interaction between borrowing and customers?

[Ann Murphy]

Yes. And you can. And it really is government borrowing that spurs the growth of the bank and you can kind of trail you trace. The growth in state debt across the 18th century is growth that absolutely aligns with periods of war and the growth in the bank of England, number of clerks, the footprint of its premises, absolutely the same. It's growing at the same time as the bank is extending its debt, it is doing other things. It's never very keen on just lending to the public. The discounting bills of exchange does a lot of that and there's a real significant growth there. It's doing quite a bit around supporting a paper money economy within London, not necessarily in the provinces, but its main job is banker to the state.

[Cole Smead]

We hope you're enjoying the podcast. You know, we work hard putting together this show, but we work even harder for our investors at SMEAD Capital Management. At Smead, we believe in disciplined investing, which is why the SMEAD funds have a proven track record of long term outperformance. If you're an investor who fears stock market failure like I do and want to invest in wonderful companies to build wealth, we invite you to visit smeadcap. Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. SMEAD funds distributed by UMB Distribution Services llc.

Not affiliated on the discounting. Were there other people in the market markets that would discount? Because I think of, I mean other other books that come to mind is like Lombard street and talking about the money market functions of London. Looking back the last 200 years, were there other people in those discounting markets? And then we're kind of back to what. What is what does Britannia do for the public versus what does Lady Credit do in discounting, if you will?

[Ann Murphy]

Yes. So I, I think and there's lots of interesting argument about this. So when does the bank of England first start functioning as the lender of last resort through this process of discounting. So they're one of many discounters and growing and shifting markets through the 18th century and then into the 19th century as well. But at points of crisis, so around the 1770s where you've got the air bank collapse and in other places it seems like and many historians would argue that it's the bank of England with the Capacity there to become the lender of loss, resort to try and stabilize the market through its discounting activities. So I suppose that's your difference between your lady credit kind of people who are the sort of bigger and smaller banks or other discounting entities and Britannia, its size, capacity and willingness and kind of the beginnings of a felt obligation to stabilize the London economy as well.

[Co-Host]

Sure.

[Cole Smead]

And just so our listeners know, when I say Lombard street, that was written by Walter Bagehot and then obviously James Grant has also written a book solely about Bagel and the construct of the modern bank of England and what that was to badgett, you know, what was being discounted. In other words, you mentioned bills. What types of bills were these?

[Ann Murphy]

So these were mostly bills of exchange. So these are generally merchants and other businessmen who essentially are being given IOUs, counterparties. So the IOU will be I owe you £100 and I will pay you in three months time. You could go to the bank of England, you could say I've got this iou, I need my money nil. And the bank of England would give you £95 worth of that. So a kind of, you know, they, they take off a discount, the spread. Yeah, yes, yeah. And you know, you, you would have your cash immediately. Then at the end of the period you come back and you settle because you've got your £100 from the person who originally owed it to you.

[Co-Host]

Sure.

[Cole Smead]

So let's say I'm going to own a console, call it a 3 or 4%, who cares what the yield is on it? How did I actually walk into the bank and clip that coupon, if you will, and go to get my govies income from the bank.

[Ann Murphy]

So there were certain days when, you know, when everybody would be doing this because it would be kind of dividend day, but you could go in at any time to do it. You had to come in after the market was closed, so it was a kind of early afternoon business. But you came in, you went to the clerks at the relevant desk. There were, the books were separated by letters of the Alphabet. So kind of A to C, you know, T to Z. So you would go in, you would find, depending on the instrument that you held, you would find the desk that related to your name. You would present yourself, you didn't have anything that said that you owned this. Everything was recorded in the bank's ledgers. So you would give your name, they would know, they would look up in the ledger what you were owed, then you could collect and you basically collected a chit and Then you went and got a note or a cash or cash for it from within the banking hall.

[Cole Smead]

Gotcha. Yeah. Because you mentioned the book letters I was trying to sort out are these special codes. And now that you mention all the alphabetization of the names, I realized that I completely missed that. What happened if you didn't collect your payment? We call this a sheetment nowadays where you have something you do that hasn't been collected. I think you note in the book that classically back to the William III comment to keep Parliament at bay. I think Parliament tried to take a half a million pounds of effectively, you know, non collected dividends from the bank, as you know, pretty much property estate. Was that a big problem for people that had never collected this because they had forgotten about it or whatever?

[Ann Murphy]

Yeah. It's not clear necessarily why people aren't collecting, whether they're just, you know, whether they think, I don't need it at the moment, I'll just accumulate it kind of, you know, that will sit in my account and people die and the bank doesn't necessarily know about it. So then there's an accumulation there, as you say, people might forget about it. I'm not sure how you could, but it's possible that people forgot about it. So there was an accumulation and the bank by the late 18th century had accumulated quite a significant level of unpaid dividends. And it was Pitt the Younger who was desperately trying to pay down the debt. Late 1780s, early 1790s, before they have to give up because they go to war with France again and kind of all bets are off. But he's desperate at this point to try and pay down the debt as much as possible and reduce the government's outgoings. And so he hits on this kind of super idea which is, well, they haven't come for it, so we'll have it back, please. And the bank's directors are horrified by this. They're absolutely adamant that, that no, you can't have it back. That's not government money. That is money that is owed to the public creditors. The fact that they haven't collected it is neither here nor there. We are the custodian of that money. And you know, they talk about the bank at that point as being the guardian of public credit, that the entity that must hold the government at bay. Now they come to another accommodation and they say, okay, well if you're so desperate for the money, we'll lend it to you, but you can't have the public creditors money.

[Cole Smead]

Yeah, because I was trying to think of like the cost of capital. Because I love banking when it's done right, obviously not everybody does it right. But I was sitting there thinking, wow, there's this quote unquote, money on deposit that I hold on my books. I'm definitely not accruing interest because they should have come and picked up their dividend. This is like free equity capital for a bank to lend on. If you lend to the government, you know you're going to get paid back. The question is, in what kind of future currency? And it's just free leverage for the bank to lend on. I thought, what a beautiful system for the bank of England. I wish everybody didn't accrue interest on their dividends, frankly. You also touch on the idea of a black book. The bank had to keep records of people that it didn't want to associate with. Who was on that.

[Ann Murphy]

Yeah. So they don't seem to have survived. So I can't tell you for sure who was on that. But what this is associated with is discounting bills of exchange. And there's. So historians are really quite interested in how the process of credit worked in the 18th century. And there's a sort of sense of credit was very much a personal thing early on in the period. So early late 17th century, early 18th century, it was about having a personal relationship with the people that you were lending to. So you knew who they were, you knew who their family was, you knew where they lived, you kind of judged them by their behavior because you knew their behavior. And the argument has always been, you get to the end of the 18th century, that personal relationship has gone on. So I was really interested in exploring how decisions were made in the bank of England. And it does appear that there is. There is a sort of depersonalization that's going on because they're looking at the customers records within the ledgers and making a decision based entirely on their credit history. But there's also enough hints to say, oh, we know so and so, no need to check him. You know, you sure? Anybody can lend to him. And there is this sort of, you know, there's this mysterious black book where you're writing down people who you're not going to lend to. Now, again, I don't know who's on it, but my speculation is that some of that comes from their credit history and their record and they've not paid back. But some of it must come from. Have you heard so and so is not doing too well. You know, there's a bit of speculation. His name goes in the black book.

[Cole Smead]

Sure.

[Ann Murphy]

And it's worth remembering that there are 24 directors of the bank of England. These are merchants, they're bankers, they are London businessmen. So they have their ear to the ground. They'll know when people are in trouble and will be obliged to pass that information on.

[Cole Smead]

So we've talked about some of the activities, but one of the things that's in your book that I think is outstanding because you really are also giving an architectural history and a geographical history of the inner areas of the bank. So I want to put up actually a slide here where we're going to look at the map of the Great Hall. So pardon me, but I just, I couldn't find this on the Internet so I had to literally take it right out of your book. But you know, so just to use this as a picture, you know, if I'm going to walk into this room and I'm going to go pull out, let's say money I have on deposit, where would be the places I would traffic in? In this hall, right.

[Ann Murphy]

So you kind of have this oriented the way it should be oriented. And you can see that marked there is the hall door. So you're walking through that door and you see this kind of big space open up in front of you. It's a really grand space as well. The number 11 in the middle there is the stove. So that's the kind of heating system. But you see various desks around. So directly in front there is the cashier's desk. So if you've got notes that you want to change, you would go to the cashier's desk. You see tellers off to the right hand side. So if you've got cash that you want either to deposit or you want to exchange your notes for cash, you kind of operate there. So other elements around the bank. So again off to the right hand side there are desks where you can take your money, your cash money, your precious metal coins. So there'll be gold and silver coins at this time. And there are scales there where you can weigh them so that you know that you're not getting short weight. And there are other desks around the hall where, where you can go and you can write out your notes and you can even kind of make, you can sort of check what notes you have or any forms that you need to fill in. There is space. So it's, you know, it's very much like the way a banking hall would have looked, I suppose up until 20 odd years ago when everything started to go digital.

[Cole Smead]

Sure, I'm Going to show another picture here because I don't think that map does justice. What you explained to what this was for the person walking in. So here's a look at the great Hal. Obviously, you know, here's a, is a picture of that. You called it a sensory experience. And while we're looking at this, what do you mean by sensory experience?

[Ann Murphy]

Yes, so I think so just to kind of orientate listeners, you can see the kind of the screens on the right hand side of the. So that's where the door is. The big ornate domed thing is the stove and the people, people on the left hand side of the screen, they're, they're talking to the cashiers and kind of putting their notes through the railings there. But what I mean by a sensory experience is, and I think, you know, it was really important to me to try and think about this as a place not just of kind of flat representation of go here and go there and do this and do that, but an assault on your senses. So it would be noisy and people would be talking and you would see people that you know. So it would be a social space, a place where you might connect. If you don't, if you're not coming to the bank on a regular basis, it would be intimidating, sort of where do you go and what do you do when you get there? So one of the reasons that the map been produced is because it's part of a guidebook to what to do when you're at the bank. Remember also that you're in 18th century London, so it's been quite smelly. You've got the stove in the middle, so you might, you know, there might be that might be smoking, you might have smoke in your eyes. People around you might be clean, they might not be. They might be tracking all sorts in on their feet. And we know that pickpockets hang around this area as well. So you'd be keeping your hand on your pocketbook to make sure that your pocket is not being picked. There's also lots of indications in the inspector's reports that people suffer from, from real irritation at being kept waiting in this space. So just like we do, if you're in a queue to get something done, you know, these 18th century actors were irritated by that and could get quite cross with the clerks for not operating faster. There's also indicators that they'd go off elsewhere, they'd go to other banks to get their notes exchanged if the bank wasn't operating fast enough.

[Cole Smead]

Hey, I want to give a big shout out to everyone who's been working so hard on the show. You know, we recently hit the top 10 investing podcasts on Apple Podcasts and even number one in the business category in several countries. As you may know, this show is brought to you by SMEAD Capital Management. Smead Capital Management understands how frustrating and illogical the stock market can be. Viewers searching for funds with a proven track record. Give the SMEAD funds a look. Or better yet, reach [e-mail] and don't forget to mention that you're a fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principal. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing SMEAD funds distributed by UMB Distribution Services.

Llc Not affiliated what I think another point you make and you have some really good data that you put in your book. You know, what were the customers that were interacting with the bank? What was the makeup of those? I think back to our discussion of kind of gender roles. There were far more women than I would have thought would have been interacting with the bank. And now some of those, as you noted in your data, were as either widows or wives. But again, I think the other thing is you think about the socioeconomic rungs of London. This was just not wealthy people alone that were interacting with the bank. There were a lot of people, even it down to people that were assisting families with their finances, coming into the bank to deal with day to day needs of the customer. I guess is this just commerce casting a wider angle than a lot of the social circles?

[Ann Murphy]

I think it is. A lot of my data actually comes from who's buying and selling in public debt. So there might be, you might think of that as kind of having a much wider customer base than discounting bills of exchange, for example.

[Cole Smead]

Sure. Okay.

[Ann Murphy]

So on bills of exchange, I think with there you're looking at the London business people, not necessarily elites, they'd be anybody from elite businessmen down to kind of jobbing carpenters, those kinds of people who might be having their debts paid or their money for their services paid in that way. So they might be using the bank services, but the people who are going there to buy and sell public debt, they are everybody from the aristocracy to domestic servants. And some of the really interesting elements that I found within there, or transactions that I found within there was you can, you can see the master of a house and servants within that house coming to buy and sell public debt on the same day So I think it's really interesting to speculate kind of what, what, what's happening there is the master advising, you know, that hit. This is payday. This is kind of your annual payday. I advise you to go and put your money into 3% consoles. I'm going to the bank today, why don't you come with me and we will do that. As you said, lots more women than you would expect. But fairly typical for public debt and other transactions. Again throughout the 18th century, about sort of 15 to 20% of women in most of public debt instruments. And we know that women act as brokers, they act as financial agents as well, particularly for naval officers and for sailors. So they often commission their wives to manage their financial affairs while they're away.

[Co-Host]

Sure.

[Cole Smead]

I'm going to show our next slide here because I want to mention the rotunda because back to the architectural significance. Here's a picture of the rotunda. Rotunda. And where would this have sat in relation to the great hall and what was the importance of this space in the bank?

[Ann Murphy]

So this is a space that becomes co opted in the bank for the market in the financial debt. So apart from the great hall. So you can't get from the great hall to this space because the architects of the bank during this time they try to create a sort of physical separation between the business of banking and the business of managing public credit. So imagine this space, this kind of the rotunda is a round space and it's got the offices of the various different elements of the debt around it. So the biggest office is at 3% consul's office. But there would be other offices there as well. What's interesting in the depiction you have here is it looks like a really sort of nice refined kind of space here. There are other images of it where it looks, you know, much more raucous. And in the bank reports, yeah, very, very full in the bank's reports. It's definitely reported as quite a raucous space, a space that needs careful management and they have porters stationed in it to try and keep the peace as much as they can. But again you kind of, you do see women here and that definitely is a kind of true depiction. And some women you see there with men. And there is, there's, there's a, there's a nice guide to the market which is produced in the mid 18th century that suggests that a decent gentleman will go to the market for his wife, his kind of sisters, his daughters, and protect them from having to do this business themselves. But what we do see otherwise is, as you can see more towards the centre of the screen, that there are clearly women who were there on their own account, single women who are acting for themselves.

[Cole Smead]

So to step back because I think a lot about where the bank of England sits today, I'm going to show another, I think our last slide here of the exterior. And I think this is a picture in 1910. You can obviously see the Royal Exchange on the right side of the screen there, obviously where the London Stock Exchange was next. Now it's a beautiful high end boutique shopping area for those that want to know. And then on the left there, down Threadneedle, obviously you have the bank of England or the boe. You notice I've always thought to myself, these buildings aren't standing next to each other looking out to the public. It's the bank of England standing perpendicular to the market, if you will, as though it almost has a parochial or patrol over its activities in a big brotherish way. I've always thought of the architecture as that even into today with how they are, you know, obviously, you know, put against each other. Is that a fair way of thinking about some of the relationships of this? Because as you, we talked about earlier with, you know, you talk about in your book Exchange Alley, places like Jonathan's, which were very customary places for people to, you know, trade stocks or I love your term, which has always been the historical term jobbing or stock jobbing, which is just a super cool term. Is that really how the bank felt they had to stand at times almost as brother or oversight to those functions?

[Ann Murphy]

I think it is, yeah. They were always really uncomfortable or appeared to be really uncomfortable with the siting of the market within the Bank's walls and they didn't quite know what to do with that. And it did put them in a somewhat compromising position as well with that. And I think more as time progresses and more as you get into the 19th and then into the 20th century where the stock market itself starts to regulate itself a little bit better that the bank of England's distance and its feeling of responsibility to the maintenance of a calm and orderly economy within London and that, you know, that that becomes a much more prominent part of the way it's managing its business. So I think, you know, as you quite rightly say, by the time you're looking at sort of this presentation with the bank of England really kind of growing up to be a real dominant presence, that it is looking over to the Royal Exchange in the medal and then Exchange Alley is just off to the other side of the Royal Exchange. And it kind of, you know, it, it's as you say, it is sort of looking over and it is, it's, it's, it's, it's keep, it's keeping its eye on the city. Sure. When I worked in the city in the 80s and 90s, the bank of England England was definitely still there, keeping its eye on.

[Cole Smead]

You mentioned something in the book, Pelham's Conversion. I always think of the annuity swap that the monarchy did to get rid of the government debt in the South Seas Company's formation. That's talked a lot about and I think it's been studied a lot. But I hadn't heard of Pelham's conversion. So I'd love for you to just to briefly explain what this idea was.

[Ann Murphy]

Yeah. And so this happens in the late 1740s, early 1750s and by that time the country has accumulated quite a significant level of debt, building a whole bunch of different instruments and expensive instruments as well. Now right from the 1690s there'd been various different expeditions to try and control the costs of the public debt. So in fact the bank of England buys up various forms of debt and kind of converts it into shares in various ways. You mentioned the South Sea bubble with the South Sea Company attempting to do that on a grand scale. Buy up lots of different elements of debt, convert them to shares, make it easier for the government to manage them, but also make it much cheaper as well.

[Co-Host]

Sure.

[Ann Murphy]

Pelham's Conversion comes at a time where there's a sort of hiatus in conflict and there is, there's real thought about how, how we make that happen. And what they do is they force through a reduction in interest rates. So they take instruments that are, you know, yielding sort of 4, 5, 6, a higher percent and they say, right, we are converting all of this and you will have a 4% interest rate. And they, you know, they manage to control the public conversation in a way because there is quite a bit of resistance to this in order to make that conversion. And what's born out of that essentially is the constant, so the consolidated debt. And I think. So if you look at the way that debt trades up until that point, I think this is the thing that creates a really active secondary market and really allows the government's debt to become much more transparent and much more cross credible. Because it's then so easy, easily alienated. You've got an instrument that everybody wants, you can go to the market, you're not scrabbling around to try and Find somebody else who's got the same instrument as you've got or that you want. Everybody's trading the same thing. The market really takes off and Britain is put in a position where. Where it's got good debt control, it's got a really active secondary market. It then finds it much easier to continue raising debt through the wars that come, particularly the American War, what we call the American War of Independence, and then the later wars with Revolutionary and Napoleonic France.

[Co-Host]

Sure.

[Cole Smead]

Which makes sense because you'd pay less interest on something that's more liquid because there's a benefit to obviously, the owner and as most people I think know on this podcast, but money travels in depth. So the deeper a market is, the quicker it moves. So I think all those principles hold true. Let's see. I have this kind of a bigger picture question because obviously at the time, the bank of England did not have to disclose its financial position to the public. The directors would know what that was, obviously. But I guess, you know, watching where, you know, a bank like the bank of England's come from to today, have we reached a kind of a paradigm where we've gone from being, you know, as dark and hidden in these banks to now so transparent that we're causing distrust on the other end? Where I'm going to tell you what I think is coming in the future now, whether that's of any value to you or not, we can debate. But that transparency, even my forward vision, might actually hurt you more than it helps you do. You feel in that pendulum of where we were in, say, 1710 to where we were in 2010, that pendulum swung too far. Just as a student of the markets and what you've seen with the bank.

[Ann Murphy]

Of England, I think it's a really interesting perspective and I suppose I'd add another element to it. It. It's not just the provision, perhaps, of way more information than necessarily that we need or way more kind of speculation than we might need. It's also the speed at which that information travels.

[Co-Host]

Sure.

[Ann Murphy]

You know that. And the speed at which we can respond to it.

[Co-Host]

Sure.

[Ann Murphy]

So Crisis in the 18th century, you can, I think you can see it travel around the City of London very quickly. But in order to. In order for that crisis to be exacerbated, it then has to travel out to the provinces, which takes a while, and then you've got to get back to the market, which you have to attend personally. This is not on your laptop. Just press a button and you can buy and sell. So all of that slows down the response to these issues, which then I think allows a much more measured set of responses than we necessarily have now. Which is not to say that you don't see serial crises throughout the 18th and 19th century, but I think they were more manageable at that time. I think that the bank of England and now it does have an obligation to be transparent and to work and operate with the tools and instruments that we have. I think if it tried to slow down the flow of information, the backlash probably would be worse than disseminating the information in the first place.

[Co-Host]

Sure.

[Cole Smead]

No, and I don't disagree with you in terms of when I think about the transparency, like hard, concrete data that we can see on a trailing basis. No question whether that has to be. I think there's also the interest in transparency to the point of predicting, which we're not very good at. And what's the transparency of predicting might be the actual problem. I think the bank of England or the Federal Reserve trying to tell us what they thought the future was going to be. And obviously they were frankly completely wrong. Did that serve the public trust in the way that we would like? Because ultimately we're all humans and we can't predict the future, which is kind of the butt of the joke, if you will. And so a couple of things. There's a lot I didn't get into. I was going to. You mentioned fire quickly earlier. I think of fire as cybersecurity today. It's an existential risk. You have to plan accordingly and you have to do a lot of redundant processes to fight that issue back then and as we do now. So I thought a lot about those as analogous situations. The other thing we didn't talk about was I thought a lot about the out tellers and swift messaging. Those were just the same thing in my head. The outers were glorified swift message. And it was obviously on a very local, hyper local basis compared to what we do in our banking system now. Is there anything particularly to your storytelling that you think needs to be mentioned that we didn't touch on? And obviously noting obviously many things we didn't touch on from your storytelling.

[Ann Murphy]

So I went down huge rabbit holes on fire prevention and it was one for me, it was one of the most fascinating elements of managing work within the bank. I think for me, if I may, the other thing that I found absolutely fascinating was locks and keys and that kind of that physical security, partly because in the 18th century there was a real strong sense of the matriarch or the patriarch of a house Would own the keys and would possess the keys and then giving somebody else the key is a kind of exchange of power. So the management of the keys is really about the expression of power and control within a household. At the bank of England there seem to have been so many keys. And even when you had control of a key, you tended not to because you'd have control of a key or you'd be able to lock something up and then you put that key in a drawer and you would lock it and then you'd give that the draw key to somebody else who would. You know, they might put it in their pocket or they might take it home or they might just leave it in a desk or sort of leave it lying around. And I think for me that it sort of speaks to the fascination of how you manage something on such a scale as the bank had in the 18th century. I'm fairly convinced it would have been the largest white collar entrance enterprise in the world at this point.

[Co-Host]

Sure.

[Ann Murphy]

And there are so many things that I think it just, it did wonderfully, but it was really difficult to manage because of 18th century technology.

[Co-Host]

Sure.

[Ann Murphy]

That you had to work with treasure chests and locking drawers and cupboards and that kind of thing. And none of that would work unless 15 people had a key to everybody. And you know, and you, and you could never guarantee that, you know, Jack wasn't going to take the key home or just leave it lying around or. And the other thing that you might be interested in is I spent a long time looking for bank heists and they never happened. I really wanted there to be a sort of hold up or something where, you know, some, somebody would have committed robbery against these clerks who are walking through the streets of London all of the time with lots and lots of money kind of in their pockets or the means to make money in their pockets. But I never found one.

[Cole Smead]

Well, I was going to say maybe they left that to some of the American western banks. So really quickly I, you know, to your point about this being white collar, I took, again, I'm just a, I kind of nerd out on some of the stuff you mentioned. One of the higher paid people in the bank was making I think £250 a year in service to the bank. I went to a calculator, I think I googled it. I said, okay, what was $250 at that date? And compounded it to Today, I think 250 pounds at that point would have became 47,000 pounds today, which in dollar terms would be about $65,000 or $60,000 or something around there. And I thought to myself, wow, I'm so glad real incomes have grown over time because there's no way that someone would be doing that for £65,000 or £60,000 today. And so it also made me very hopeful for how much real incomes have grown, obviously since even the bank of England was created, which I think is a marvelous way of thinking about the prosperity and commerce that have come with these large financial institutions. For our listeners, Anne, if they look and say, okay, I love this book of Anne's, I want to go read her prior book. Where can they follow your writing or what you're doing in your work going forward?

[Ann Murphy]

So I have a website with all of their publications on it so that they can have a look there. As you mentioned, my previous book was about 1690s, the origin of the Financial Markets Virtuous Bankers is out in paperback. Soon it will be much more reasonably priced. It's fairly reasonably priced. I have to say at the moment it is.

[Cole Smead]

Yeah, yeah, I, I think it's very well priced.

[Ann Murphy]

Yeah, yeah. Princeton I have nothing but praise for Princeton University Press. They did a fabulous job with it. I unfortunately though, I don't spend so much time researching any anymore. So the job that I have now in universities is much more of a kind of management administrative role and that takes up way too much of my time. So maybe come back to me in sort of eight or nine years time when I've retired and I have a list of things that I want to do after I retire.

[Cole Smead]

Well, to your point with managing people though, I think you have a pretty good, I'll call it textbook to study in your writing here. Your book makes me think of the complexity of running a financial institution 300 years ago compared to today. I believe we have it so easy. Our listeners should go out and buy a copy of your book Virtuous Bankers to think about the simpler processes that we deal with today in finance, in business to strike the delicate balance of trust and speed. Inspecting our processes for issues issues is a regular need for all and I think this book is a is a great textbook to study that for organizations. If you enjoyed this podcast, go to Apple, Spotify, YouTube or wherever you listen to a book with legs, give us a review, tell others about the books and great authors like Ann Murphy that we have the opportunity to understand and study the world with and through for our tribe. If you have a great book that you'd like to recommend, email Podcast Meadcap that's podcast meadcap.com. you can also send your suggestions to us on X. Our handle is Meadcap. Thank you for joining us for A Book with Legs Podcast. We look forward to the next episode.

[Podcast Host]

Thank you for listening to A Book with Legs, a podcast brought to you by Smead Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice. You can learn more about Smead Capital Management and its [e-mail] or by calling your financial advisor.