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Business and Banking: Ethics and White-Collar Crime in Norwich, 1825–1831

Published online by Cambridge University Press:  11 July 2014

David J. Moss
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The industrial revolution greatly expanded opportunities to become wealthy, but not all opportunities were “legitimate.” Most writers emphasize that the context, or social structure, in which laws are framed make aspects of commercial behavior “illegal” or “criminal.” The context is an imposed evaluation of modes of behavior and action based on conflict resolution. This generalization has merit and, irrespective of ideological nuance, neatly packages the process through which social interest is said to attain legislative legitimacy. Such achieved legitimacy is, however, sometimes challenged, notwithstanding the participation of the challengers themselves in the process of formulation. The letter as well as the spirit of laws may be ignored, and illegal activities may flourish. These white-collar crimes—offenses against property committed by persons of “respectability and high social status”—tend to be ascribed to individual greed and opportunities created by weaknesses in the enforcement of the laws. Businessmen are damned by implication, and the solution usually recommended is more consultation, more laws, and better enforcement. Recent studies of the increasing incidence of such crimes in the late eighteenth and early nineteenth centuries have adopted this interpretation to criticize the new entrepreneurial culture. Complaints have been directed particularly at a “chaotic” banking system that abetted supposedly widespread speculation and fraud during and following the Napoleonic wars. Proofs of misconduct rest on contemporary calls to curb the extravagances of entrepreneurs and private bankers, on references to repeated financial crises, on a few famous cases of fraud and robbery, and on a more general indictment culled from literature's many mustache-twirling villains.

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Research Article
Information
Albion , Volume 29 , Issue 3 , Fall 1997 , pp. 373 - 398
Copyright
Copyright © North American Conference on British Studies 1997

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References

1 Emile Durkheim, in examining social norms, argues that the administrative and commercial legislation derived from the need to formalize the interdependence of individuals and the notion of social responsibility (The Division of Labour in Society [1893, 1964]). Vilheim Aubert emphasizes normative disagreements, clashing group interests, and “incipient social change” (1952). Other variations on the group conflict theme include Thorsten Sellin on clashes between divergent cultures (Culture, Conflict, and Crime [New York, 1938]Google Scholar); George Void on group alliances designed to secure dominance (Theoretical Criminology [New York, 1958]Google Scholar); and of Marxists (themselves offering a number of interpretations) who see the creation of laws as a means to protect class interests—for example, Hepburn, John, “Social Control and Legal Order: Legitimate Repression in a Capitalist State,” Contemporary Crises 1 (1): 77–90CrossRefGoogle Scholar.

2 Gatrell, V. A. C., Lenman, B., and Parker, G., eds., Crime and the Law: The Social History of Crime in Western Europe since 1500 (London, 1980), p. 1Google Scholar; Smith, D. C. Jr., “White-Collar Crime, Organized Crime, and the Business Establishment: Resolving a Crisis in Criminological Theory,” in White-Collar and Economic Crime, eds. Wickman, P. and Dailey, T. (Toronto, 1980), p. 33Google Scholar.

3 The term was coined by Edwin H. Sutherland in his presidential address at the joint meeting of American Sociological Society and American Economic Association, Philadelphia, 27 December 1939.

4 Robb, G., White-Collar Crime, Financial Fraud and Business Morality, 1845–1929, (Cambridge, 1992) chs. 1–3CrossRefGoogle Scholar.

5 Criticism of the banking system and entrepreneurial excesses were particularly sharp in the early 1820s. The classical economists had sought to restrict “speculation” by the return to the gold standard in 1821. Its failure to achieve that object led to a vigorous debate about the merits of central banking control and imprudent businessmen. Debate leaders included fund holders in London and the larger, established merchants who sought to restrict competition by restricting entry to the market. For further analysis of this debate, see Fetter, F., The Development of Monetary Orthodoxy, 1797–1875 (Cambridge, Mass., 1965)Google Scholar; Morgan, E. V., The Theory and Practice of Central Banking, 1797–1913 (Cambridge, 1942)Google Scholar; Goodhart, C., The Evolution of Central Banks (Cambridge, Mass., 1988)Google Scholar, originally published as The Evolution of Central Banks: A Natural Development (SunTory Toyota International Centre for Economics and Related Disciplines, 1985)Google Scholar; Ziegler, D., Central Banking, Peripheral Industry: The Bank of England in the Provinces (Leicester, 1990)Google Scholar. A detailed description of the government's thinking in 1826 can be found in Pressnell, L. S., Country Banking in the Industrial Revolution (Oxford, 1956), pp. 75–104Google Scholar.

6 Hansard, 14 (1826), 640Google Scholar. c.f. Robb, , White-Collar Crime, p. 19Google Scholar. Liverpool was wrong. While a bank might be set up by any individual, its ability to attract deposits and issue notes depended on the reputation of the partners, or, in the case of joint stock banks, the directors. If the cheesemonger was sufficiently reputable, why should he be barred from participation?

7 Evans, D. Morier, Facts, Failures, and Frauds: Revelations, Financial, Mercantile, Criminal (London, 1859; rep. New York, 1968), p. 5Google Scholar. In modern criminology, the propensity to ignore certain laws has been called structural functional ism (strain theory). Societies whose cultures overemphasize the goal of material success and underestimate the adherence to the legitimate means of achieving that success, have, by definition, the highest rates of institutional crime (Merton, Robert, Social Theory and Social Structure, 2nd. ed. [New York 1978])Google Scholar.

8 Such activities were not confined to castigated bankers and businessmen but also to their critics. One need look no further than the ambitious mulberry tree/silk worm farm promoted in the cold south of England by the prime minister, Lord Liverpool, among others, to appreciate the naked greed.

9 The notion that there is something unsavory about newly acquired wealth is common today among academics and those fortunate enough to be born with money.

10 In many instances, business trod warily on existing laws. Self-interest ensured support for property laws. See Emsley, Clive, Crime and Society in England, 1750–1900 (New York, 1987), p. 121Google Scholar.

11 For an understanding of business behavior and the role of the capital market in Yorkshire see, for example, Hudson, P., The Genesis of Industrial Capital: A Study of the West Riding Wool Textile Industry c. 1750–1850 (Cambridge, 1986), pp. 167–82CrossRefGoogle Scholar.

12 In 1825 the system almost collapsed. However, the problem was one of liquidity, and although the joint stock company bubble, partly fueled by unsound lending, was a major factor, the general weakness of private banks was not as bad as portrayed. For one example see: Moss, D. J., “The Private Banks of Birmingham, 1800–1827,” Business History 24 (1982): 79–94CrossRefGoogle Scholar.

13 The number of private banks outside London increased from about twelve in 1760 to almost 800 by 1810. Joint stock banks were authorized outside a sixty-five-mile radius of London in 1826 (Pressnell, , Country Banking, pp. 477–510Google Scholar). The London discount market where bills could be re-discounted by bankers also was growing.

14 Supporters of the free market, from Hayek to Friedman, argue that the market is better regulated by bankruptcy than by government regulation.

15 This was particularly true among members of religious groups. The Quakers, for example, were often prominent bankers and underwrote support for others in the local “Meeting.”

16 The embezzlement by Rowland Stephenson, a partner in the firm of Remington, Stephenson, Remington, and Toulmin of Lombard Street, London, in 1829, occupied the newspapers for months. (Norwich Mercury, 3 January 1829). Stephenson fled to the United States and attempts first to kidnap and later to extradite by the pursuing authorities created an international incident. No voices were raised in his defense.

17 Many businessmen in the period argued that the return to the gold standard in 1821 was a mistake. It was foisted on an unsuspecting public by those, including David Ricardo, with a vested interest in the status quo. Most believed that the London legislature had, at best, a poor understanding of the new industrial world. Ricardo, in fact admitted as much. See Moss, D.J., “Banknotes versus Gold: The Monetary Theory of Thomas Attwood in his Early Writings,” 13, 1 History of Political Economy: 34–36Google Scholar; Fetter, , Monetary Orthodoxy, p. 235Google Scholar.

18 Geis, G. and Stotland, E., White-Collar Crime Theory and Research, (London, 1980), ch. 7Google Scholar; “The Early Institutionalization of Ambiguity: Early British Factory Acts,” p. 142.

19 Ross, Edward, Sin and Society (Boston, 1907), p. 48Google Scholar.

20 Changing perceptions of business habits within the subgroup determine the point of legality, either increasing or decreasing the element of risk. The mechanism of movement is difficult to decipher, as is the point at which the businessman decides that the “game” is no longer worth the gamble. Support for this reading of behavior may be found in the way economists calculate business risks for their clients. Apprehension by the authorities for transgressions against perceived social norms is merely a charge to be set against expected profits (Wilkins, L. T., Social Deviance [Englewood Cliffs, N.J., 1965], pp. 46–47Google Scholar; Smith, D., “White-Collar Crime, Organized Crime, and the Business Establishment: Resolving a Crisis in Criminological Theory,” in White Collar and Economic Crime, p. 24Google Scholar; G. Geis and C. Goff, “Edward H. Sutherland: A Biographical and Analytical Commentary,” in ibid., p. 12).

21 Corruption was the key. Most freemen's votes, including those of weavers, were available for purchase.

22 Five new nonconformist congregations were raised in 1800–20 as a result of the evangelical revival. Sunday schools were among their first priorities. Methodism, new dissent, also won strong representation in the town's institutions.

23 For further information on these features see Fawcett, T., The Rise of English Provincial Art (Oxford, 1974)Google Scholar; Burley, T. le G., Playhouses and Players of East Anglia (Jarrold, 1928)Google Scholar; Legge, R. H., Annals of the Norfolk and Norwich Triennial Music Festivals, 1824–1893 (1896)Google Scholar.

24 There were, for example, six large breweries in Norwich in 1801. One, Patterson, had an output as large as the largest London brewers.

25 Twenty thousand people were employed in the preparation of the wool for the weavers.

26 The fabrics were beautifully colored and patterned—flowers for England, high glaze stripes for Russia and Tartary, and mixtures of reds, yellows, and greens for the southern Mediterranean.

27 Some branches of the trade continued to prosper and high-quality fresh products, such as shawls of silk and worsted, and crepes, were introduced.

28 A similar rescue had been made by Gurneys for Frys & Co. in 1812.

29 The bank had opened on 5 April 1827 and lost the whole of its capital in nine years. One of the main directors was Samuel Bighold, whose interests were mainly in the water transport trade but whose fingers were in most speculative ventures in the period (SirBignold, Robert, Five Generations of the Bignold Family, 1761–1947 [London, 1948])Google Scholar. The Bignolds had previously opened a private bank in 1806, but it had not lasted long. The joint stock business was sold to the East of England Banking Company in 1836. This bank went bankrupt in 1864.

30 The Crown bank, Hudson & Harvey, failed in 1870, and its chairman, Sir John Harvey, shot himself. Gurneys amalgamated with Barclay's in 1896.

31 A complete list of charges was published in the local paper. Most notable was the promise to discount bills with no more than three months to run and of good quality at 4 percent without commission (Norwich Mercury, 12 December 1829).

32 The Bank had been authorized to open branches in 1826. The plan was to improve by example the domestic banking system, replacement of the provincial currency with Bank on England notes, and improvement of business habits through a strict interpretation of what was or was not “real” business. The Norwich branch was one of the last to be opened.

33 Pressnell, , Country Banking, pp. 304–05Google Scholar.

34 Norwich Branch Letter Books (hereafter N.B.L.), 9 December 1829.

35 The branch received several applications for such advances (ibid., 19 December 1829).

36 It should be remembered that the Bank of England's reputation was not strong in the period. Many writers called for the creation of a rival, and the Bank was not absolved from blame for the various speculative crises.

37 Five percent discount plus 1/4 percent on bills paid in and drawn against to equal 6 percent total.

38 Issuers of bills drew on their London bankers at two months and postdated for fourteen to twenty-one days. To make the bills technically legal, they were drawn on a stamp of three months. The practice was also common in the West Riding of Yorkshire.

39 The discounter received cash for a bill written ostensibly by a customer to acknowledge the sale of goods; he used the cash to engage in business; then he met the bill himself at his bank. It should have been paid by the original customer but, in all probability, no goods had changed hands.

40 This type of speculation was believed by the government to have been responsible for the financial collapse of 1825–26. However, the “real bill” doctrine (bills of exchange that ostensibly denoted an actual exchange of goods) was virtually useless, even in London, as too many exceptions were allowed in the name of profit. After the banking crisis of 1837–38, this approach was thoroughly discredited.

41 Gurney RQG, 356, 491X2, 20 October 1828. Norwich Record Office.

42 Bagehot, W., Lombard Street, 14th ed. (London, 1927)Google Scholar. He praised an independent system with independent bankers and independent reserves.

43 This would be a running limit. As bills were met at the bank, new ones could be deposited. At no time should the outstanding debt total be above £1,000.

44 N.B.L., 24 December 1829.

45 Ibid., 24 and 31 December 1829.

46 Ibid., 17, 24, and 27 March 1830.

47 For a further discussion of this problem, see, Moss, D. J., “The Bank of England and the Country Banks: Birmingham, 1827–33,” Economic History Review, 2nd ser., 34 (1984): 540–33Google Scholar.

48 Many banknotes listed as in circulation were in large denominations and used only for remittances to London. They did not represent any penetration of the market. Gurneys' figure was reported in that bank's claim to the Bank of England charter committee in that year.

49 N.B.L., 28 June and 5 July 1830.

50 Ibid., 19 July 1830.

51 Ibid., 13 May and 7 June 1830.

52 Ibid., 24 August 1830.

53 The Bank's control of its various parts was totally inadequate and led to disaster in 1837.

54 N.B.L., 28 August 1831.

55 Letters on the Norwich fraud held in the miscellaneous discount book. No reference number.

56 Business ethics have long been a neglected factor in the study of legal changes. It is rare to find the term indexed (e.g. Wickman and Dailey, eds. White Collar). In this paper the terms “ethics” or “ethical standards” mean rules of conduct in which interests other than simple self-interest are recognized.

57 N.B.L., 24 September 1831.

58 Ibid., 25 October 1831.

59 Ibid., 22 October 1831.

60 An agreement to cease all private activity was demanded on appointment to a position in the Bank.

61 N.B.L., 24 December 1831, letter of William Thurbell requesting forgiveness for £1,700 in out-standing bills.

62 The Norfolk & Norwich's earlier experience had been while it was constituted as Bignolds.

63 N.B.L., 11 and 27 September 1830.

64 Norwich Fraud Papers, 1 September 1831, Samuel Hibbert to the Governor of the Bank.

65 Ibid., 28 September 1831 and 9 March 1832.

66 Ibid., 10 February 1832.

67 P.R.O., E. 140/43. Gurney versus Whitbread.

68 Norwich Mercury, 11 October 1828. The original story suggested that more than £12,000 had been obtained. At the trial the amount quoted was only £535.

69 Thomas Nimmo, Counter Hints in Reply to the “Hints” of George Farran, Esq. (London, n.d.).

70 In the initial rush to win market share the banks had bought local banks and left it to the previous owners to run the business. The crash of 1837 proved the error of these ways and forced a rapid reassessment as several collapsed.