Walter Bagehot’s Lombard Street examines the intricate and fragile nature of the British banking system during the nineteenth century. The text identifies London as a unique global hub where massive amounts of loanable capital are concentrated, allowing businesses to thrive on borrowed money. Bagehot emphasizes that this prosperity relies on the Bank of England, which serves as the involuntary custodian of the nation's sole cash reserve. He warns that this monarchical structure is inherently dangerous because the Bank’s leadership often lacks formal training and fails to recognize their duty as public trustees. To mitigate the risk of a financial panic, he argues the Bank must maintain a large reserve and lend freely to solvent traders during times of crisis. Ultimately, the work describes a highly advanced but delicate credit economy that requires consistent, transparent management to avoid total collapse.
