style’ to Robert Louis Stevenson, ‘who at the time was held to be our greatest master of words’; Johnstone removed the passage, not for going too far, but because ‘he feared Mr Bagehot’s family might think that the writer was not properly appreciative of Bagehot’s work if he compared it to that of Stevenson!’ Though a great journalist – Strachey reported with mild understatement – Johnstone was ‘not a man who had paid any attention to literature’.13
Instead his focus was on the Economist, which also provides our main clues about Johnstone. Its obituary to him makes this seem almost intentional, noting his ‘direct, forcible, and unassuming’ prose and ‘retiring disposition’, roused by hatred of ‘tautology’, ‘hyperbole’, and those he suspected of ‘writing for lineage’. His ‘fidelity to the high traditions which he had received from Wilson and Bagehot’ kept the Economist distinct in an era of intense competition – where ‘there was a danger that the English press might become shallow and subservient’, a ‘mouthpiece of financiers and share-pushers, the enemy instead of the friend of the investing classes’.14 Johnstone sought not to make ‘readers fortunes’, but to recall ‘governing principles’ and ‘guide them clear of blunders’. As the Financial News and Financial Times, founded in 1884 and 1888 respectively, battled over which ‘puffed’ shares harder (both took their rough-and-tumble tactics from the Wall Street press), the Economist was coolly ‘devoted to the higher interests of finance’.15
The Foreign Investor’s Friend
Johnstone became editor in the midst of the first Great Depression, a worldwide fall in prices and profits, which lasted roughly from 1873 to 1896. The deflationary trend puzzled contemporaries, in part because production, investment and trade continued to grow. Too much of the latter was, in fact, likely to have been responsible for the former, as foreign industrialists began to battle Britain for control of markets, advances in railroad and marine transport opened up farmlands in North America and Russia, lowering food prices, and the gold standard limited the money supply.16 Alongside a class structure that favoured savers over consumers, this malaise may also have spurred further overseas investment – which rushed forward in spurts, towards higher rates of return. British assets abroad grew from £200 million in 1850 to £700 million in 1870, £2 billion in 1900, and £4 billion in 1913. Capital outflow averaged over 4 per cent of national income over this period, at its close generating about £200 million in interest, or 8 per cent of national income.17 Bagehot had wondered how British loans and investments might affect ‘half-finished’ civilisations abroad. In the end, Britain was itself transformed. No other country has ever sent such a large portion of its wealth abroad, or received such a large share of it back.
The Economist had no doubt that it was profitable to invest overseas, and its weekly, monthly, and annual data sets have always been central references for economists and economic historians trying to determine the overall quantity and direction of capital flows to and from late nineteenth-century Britain – not to mention their possible causes and effects.18 Yet few have paid attention to how the Economist itself interpreted the data – a significant oversight, given its instrumental role not just in purveying information, but in constructing knowledge about the world as an interlinked market, which it wished to expand in and beyond the formal empire. The paper circulated, after all, among the most powerful class of Victorian and Edwardian savers, the ‘gentlemanly capitalists’ clustered in south-east England, who made their livings in finance, banking, trade, and shipping, or as politicians, administrators, and landowners, and showed a marked preference for income derived from safe overseas assets like railway and government securities.19 They turned to the Economist not for news in the narrow sense but for political analysis to help them evaluate the risks and rewards of placing capital abroad. What did they learn?
Revenues and yields were calculated annually, in part to defend ‘liberal imperialism’ against both its critics and those who wanted to pursue it for frivolous ends. Total colonial investments of £620 million yielded an average return of 5 per cent in 1883. Charts abounded, calculating total interest payments by region – Australasia, North America, India, Africa – and type: government loans, railways, provincial cities, harbours and gas, banking, mortgage, agency, and others. Colonial government loans brought in only slightly more than 4 per cent, excusable because low in risk; railway and municipal bonds and stocks were excellent at over 5 per cent; banks and mortgage companies were galloping away at over 6 per cent. ‘Nearly one half of our subscriptions in 1883 were to colonial loans and to colonial enterprise’, it reminded readers, ‘and the growth is so certain to continue, that the whole question cannot be too carefully considered.’20
The lack of movement on the Stock Exchange over the same period gave rise to similar formulas. An encomium to speculative virtues praised the social utility of the risk-taker who ‘will subscribe for new securities – such as the Indian gold mines and electricity companies already mentioned – which without him would certainly never have been subscribed at all’. In the midst of stagnating prices, one was obliged to wait until ‘the savings of the investing classes increase’. A dazzling securitized vista would then open up: ‘New Guinea and the Western Pacific may someday be pictured as teeming with wealth; South America, where we have already sunk over £150,000,000, will offer an indefinite field; so will all our colonies.’ 21
Weekly reports on the money market moved to the front page for the fin de siècle. Subsequent sections tied political news to investment. The headlines from 13 January 1883 were typical: ‘Suez Canal Dues and Traffic’, ‘The Finances of Eastern Roumelia’, ‘The Condition of the Peasantry of the Deccan’, ‘Roumanian Progress’, ‘Industrial Enterprise in Turkey’. Links were explicit. In the 1880s the Economist regularly assessed the creditworthiness of Russia and Italy, then embarking on major railway expansions. On Europe’s fringe, the instability of the Sublime Porte was a source of acute anxiety, even after it emerged from default in 1881 under the budgetary supervision of foreign bondholders. One appraisal of the Imperial Ottoman Bank concluded that its holding of government securities – despite high annual dividends and a stake in the profitable state tobacco monopoly – made it vulnerable in the event of political turmoil. ‘When the crash does come, it will be best for those institutions standing most clear.’22
Still greater scrutiny was reserved for Central and South America, where 20 per cent of British foreign investment was tied up by the 1880s.23 Brazilian and Uruguayan deficits it eyed warily on behalf of European bondholders.24 Past mistakes in Mexico were forgiven; the growth in railway stock revived hopes that, ‘with its vast natural resources, it would speedily become an orderly State, and therefore a State in which English capital might profitably be invested.’25 It anxiously watched Peru’s borders lest supplies of phosphorus-rich bat guano be disrupted.26 In Argentina it fretted not only over the government’s ability to finance its external debt – incurred largely through railway loans from England – but also at the erosion of British exports faced with goods emanating from France and Germany.27
News arrived regularly from Buenos Aires, as its share of British overseas investment bounded ahead between 1880 – when General Roca became president, pledged to ‘order and progress’ after his genocidal ‘Conquest of the Desert’ – and 1890, to 40–50 per cent of the total.28 Although the Economist hailed Roca’s administration, doubts grew under his successor, if not soon enough about the famed British merchant bank floating his loans.29 Baring Brothers actually blandished a politician with a free subscription to the Economist, and the governor of Buenos Aires with a stallion, to win this business. The horse, ten years older than advertised, and bandy-legged, turned out the wiser bet. The Economist rebuked the bank’s partners when the collapse of the property boom in Argentina revealed the extent of the risks they had taken: the bank was highly leveraged, invested in unstable mortgage-backed bank bonds, and overexposed, with 75 per cent of its portfolio in the River Plate region. As the value of its assets sank, Barings secretly
