The Sun.
London, England, 1866-11-30 00:00:00

SPIRIT OF THE PUBLIC JOURNALS.

TDlEs.—The story of Overend, Gurney, and Co.,
as told by one of themselves, is a narrative of deep
and painful interest. In many an impoverished
household in this kingdom it will be read with feel-
ings into which indignation and resentment will
largely enter, nor are we indeed prepared, notwith-
standing much that calls for commiseration, to say
that such feelings are without warrant in the facts
before us. The foundation of the great establish-
ment the fall of which has shaken the financial
world, was laid in the last century, and for 50 years
at least its business was conducted with extraordinary
success, reputation, and profit. The transactions of
the house were stupendous. At one time it used to be
said that a couple of millions passed through its cof-
fers every week, and the gains of the partners were
on a scale commensurate with the extent of the trade.
The Gurneys became one of the richest mercantile
families in England, and the renown of their wealth
was combined with signal respectability of character
and position. So, too, things continued with them
until the year 1857, after which period a new
management under a new system introduced the
decline recently consummated in a most appal-
ling ruin. To this part of the narrative we must
invite especial attention. One of the partners un-
der whose superintendence the affairs of the house
bad so marvellously prospered died in 1856; another
retired in the year following. Their successors ap-
pear almost at once to have entered upon a descrip-
tion of business known later days as "financing."
They made enormous advances to adventurous cus-
tomers on exceptional securities, until at length an
immense amount of capital was placed in jeopardy.
We must now state—and it is one of the most no-
table features of the case—that though the business
of the great house in Lombard-street was committed
to new and; as events proved, incautious managers,
there were still partners in existence whose experi-
ence and wisdom might have insured better things.
But " the Norfolk people," as they were called, pre-
ferred conducting local banks in their own county,
and only occasionally, or, as it appears, under
alarm, took cognisance of the London business,
which they were still competent to control. Thus
it was not until the beginning of the year 1861
that Mr. John Henry Gurney became fully ac-
quainted with the dangerous accounts to which
the Lombard-street house .had committed itself.
Then, however, he seems to have insisted that until
these accounts were liquidated no further division
of profits should be made, and that arrangement
was accepted, though it does not appear that
any interdict was placed for the future on the class
of transactions which had led to this necessity.
However, the partners divided no more money,
although the divisible amount had actually averaged,
for the five years ending with 1860, no less than
£190,000 per annum. We find, therefore, that the
great firm of Overend, Gurney, and Co. were re-
duced, so long ago as 1861, to a suspension of divi-
dends' among themselves in order that a fund might
be provided in compensation for losses incurred.
But this proceeding was insufficient for the purpose,
and we are now brought to the second chapter of the
story. The house in Lombard-street was seriously
shaken. A large amount of its assets was locked up ;
heavy losses had been experienced and more might
be apprehended. At this conjuncture, therefore,- it
was considered, says Mr. J. H. Gurney; " desirable
that the business should be strengthened by fresh
capital," and it was determined "that the mode of
accomplishing that object should be by the forma-
tion of a joint-stock company (limited), which
might take over the whole assets and liabilities of
the firm." This project was accordingly carried
out, and in it the first step was of course to ascer-
tain by what figures these assets and liabilities were
respectively represented. To do the old partners
justice, we can discern no suppression of the truth
in the revelations which they made to the incoming
directors of the new concern. It was found and
confessed that, on certain balances of the aggregate
amount of £4,199,000 due to the old firm, au aggre-
gate loss of not less than £3,117,000 was to be an-
ticipated. Besides this, the firm had become surety
for other parties in certain transactions, though
these risks, at the time of calculation, were belie red
to be covered by securities in hand. The question
was what the old firm was to do for the new limited
company with respect to these ugly accounts, and
it was agreed that all the private estates and sale-
able property of the old partners should be held
liable for the sum. On this footing the new com-
pany of Overend, Gurney, and Co. (Limited) was
established in August, 1865, the articles of the nego-
tiation being contained and expressed in two sepa-
rate deeds. One of these duly conveyed the busi-
ness of the old firm to the new company in conside-
ration of £500,000 purchase money ; the other
provided for the liquidation of the exceptional ac-
counts at the private expense of the old partners, as
before described. But when the public were in-
vited to find capital for the new concern, the first
half only of these negotiations was revealed to
them. The subscribers to.; the fresh capita of
£5,000,000 knew nothing of the proceedings by
which the old capital had been squanderel, of the
arrangements by which the losses were to be made
good. We think the public was hardly used. In
the sale and transfer of the business the old firm
appears to have acted with honesty, and though
its estimate of securities may not have been
realized, that kind of disappointment cannot be
thought surprising. Indeed, in the whole crash there
are no greater victims than the Gurneys. They have
been sold up to the last stick and stone, and one of
the chief houses of our mercantile aristocracy has
been utterly ruined. How it could ever have hap-
pened that experienced and wary partners should
commit to less competent or cautious hands the ma-
nagement of a business in which their all was in-
volved we cannot understand, but th i at s not a ques-
tion of public interest. It must rather be asked whe-
ther there was good justification for the invitation
given to the public by those managers of the new
company who knew the history of the old firm.
When people all over the country—ladies, clerks,
servants, and workmen—were asked to embark their
savings irtithe new establishment, they could not have
suspected the real truth of the affair. They never
supposed themselves to be strengthening a shattered
concern by fresh capital drawn from their little
hoards. They believed themselves to be entering
into participation in the large and well-established
profits of an approved and stable house, and we
cannot see how it is tobe denied that their subscrip-
tions were given under a misapprehension of the
truth. Of course it will be said that to have pub-
lished the second deed, and divulged the history of
the firm for five years previous, would have been
fatal to the new undertaking. Granted ; but this
very argument assumes that if the public had known
what they were doing they would never have done it.
The new directors, no doubt, concluded that they
had balanced the liabilities of the old firm by the
private property of the old partners which had been
assigned to them, and then assumed that the ordi-
nary profits of the business would yield a handsome
revenue available for dividend. The whole question
of profits appears to us obscure, nor can we well
understand what were the net gains of the firm for
the five years preceding the transfer. Apart, how-
ever, from this point, on which the new directors
may be supposed to have informed themselves, it
is certainly unfortunate, as events have happened,
that so very much should have been disguised of a
bargain which the unsuspecting public was invited
to share, and this fact alone is enough to explain
the distrust and aversion with which all such invest-
ments are now regarded. Who, after this precedent,
can assure himself that behind an attractive pro-
spectus there may not lie a few secret articles affect-
ing the complexion of the whole affair? Who can
tell that the directors of a concern submitted with
apparent confidence to his approbation may not be
cognisant of circumstances which, if openly known,
would deter him from the bargain ? The assumed
excuse of commercial necessity, good as far as it
goes, will carry very little consolation to a ruined
investor. In this case the public were asked to con-
tribute a capital of no less than £5,000,000, in
100,000 £5O shares, and, as on each of these shares
£35 was left unpaid, the liability of the subscribers
was virtually unlimired, and it is now, indeed, but
too painfully felt to be. Into this terrible risk the
subscribers practically went blindfold ; and it is
said, as said it may be, that except with this re-
ticence the new Limited Company would never have
been established, our answer is that under such con-
ditions its establishment should never have been
attempted.
POST.—Of all the points submitted to the Re-
cruiting Commission for their consideration, un-
doubtedly the most important was that which re-
lated to the formation of a reserve force; but the
commissioners not unnaturally felt that this very
importance made it impossible for a body consti-
tuted as they were to come to any practical useful
decision upon so " very large" a question. The
consequence is that, as regards the means to be
adopted in order to create an efficient army of re-
serve, we are no further advanced than we were
before the commission was appointed. The report,
however, although it indicates no plan of proceed-
ing, points out the necessity for something being
done, and if it only has the effect of calling atten-
tion to the subject we shall have cause to be grate-
ful for the short paragraphs which have been de-
voted to the reserve force. " The military history
of this country shows," we are told, " that it has
been our practice during periods of peace to reduce
all our military establishments to the lowest pos-
sible point. . . . No preparations for a state of
war were thought of, and the consequence has been
that when war occurred everything had to be done
in a hurry at the most lavish expense." Such a
state of things, it must be admitted, can hardly at

any time have discovered great wisdom or fore-
sight on the part of our military administrators.
In former times we have managed to get through
somehow or other, and, thanks to our staying
powers, have generally come out of our Wars
stronger than we went in. But to organise and
bring up our strength we have always required
time, and, as the report reminds us,. time P
precisely what we shall not get in any future
war in which .we may be engaged. The shoe,'
of nations henceforth will be short, sharp'
and decisive, and the ten -days' campaign ill
Bohemia shows how short and sharp thel,
an be even where the nations are so powerful
and warlike as those then enuiiged. It is neb
pleasant to think of the probable duration of the
resistance which our own forty or fifty thousand
regulars, and one hundred thousand- militia, could
oppose to a similar invasion. It appears. thee'
that if ever we should unhappily find ourselves
again at war, it would be of the last importance to
be able to lay our hands immediately and at once, In
addition to our regular forces, upon a sufficient nuns-
her of fully-trained soldiers capable of maintaittivg,
whether by defence of our own or invasion of other
shores, the honour and position of the country. '1.11,8
only force to which such a description is in any AM
applicable is the enrolled pensioners, who number
some 14,000 men, hut these are mostly men pasties'
prime of life, and could not be relied upon for any
but garrison and other light service, and therefore
we may positively be considered to be at the present
moment utterly destitute of anything like a reserve
force coming up to the standard we have described
Among the Continental nations, who are now 50
earnestly engaged in the reorganisation of their
armies, this point has received a share of attentloll
proportioned to its importance ; but with us scarcely
any attention at all has hitherto been bestowed upon
it. Now, it is worthy of remark that the systems
which have been found best to answer their purpose
are those in which the soldier is subjected originally
to a very short term of actual service, but is at the,
end of it relegated into a reserve liable to be callea,
out whenever needed. The principle of this is that
the army should be considered as a school and not
as an occupation, and that as many men as possible
should be passed through it ; a system which give!,
the State the command of a large force of efficient
soldiers ready-made to hand in the hour of nee'',
Ile first necessity of an army of reserve is precisely
this, that the men composing it must be fully
trained, and that can only be attained by a constant
flow into it of men who have been subjected to the
training of the regular army. This result is attained
most fully by the Prussian system, in which the sol-
dier has but three years of actual service with the reii
gular army, and is at the end of that time drafte
into the reserve for six years. The French amoral
now contemplating to move in the same directioni
and it is expected that one of the main features of
the scheme which will be proposed by the commis-
sion now sitting in Paris will be the reduction °f
the term of actual service from seven to six YearAsii
with an additional four years in a reserve force.
this should be instructive to us, who are less of a
military nation than either of those mentioned, and
,
may serve to indicate the direction which tuv
attempt to form our army of reserve should take'
The present term of service in our regular array 1",
from ten to twelve years, with a second period
O
optional re-engagement of from nine to twelvi
'
years, according to the branch of the service and
the Recruiting Commission recommend that these,
two periods should be made to consist in future '3'
twelve and nine years respectively for all branchesi
Now, experience has shown that if, at the end of
twelve years, a soldier has not become a non- coin-
naissioned officer, he must be absolutely -worthless;
and in fact a private with twelve years' service 1,„
considered to be, as a rule, not fit to stand ill ;
sentry-box. It would then be no loss but a gain tt,
the service if the power of re-engagement we r,
taken away from all but the non•commissiotleu
officers. This is already a step beyond the cora; •
mission in the Prussian and French direction, bu
the creation of an army of reserve, which is the mat-
tertPo
now in question, would necessitate going step
further, and breaking up even the twelve years in
two periods, one of actual service in the regult
army and one of service in the reserve. ProbablY
convenient division would be into terms of eight an
c`
four years, the former to ke spent in the regli%
army and the latter in the reserve. The soldier vionio
thus fall into the latter force at a time when .
was at his highest efficiency, and would not remain
in it long enough to lose the training he bad
~51;";
quired ; and the War Minister would have a
power of assembling at any moment a trained 3.nr
efficient body of men sufficient in numbers
any emergency, and equal in soldier-like quali-
ties to any oilier portion of our regular forces. u 3
requirements of the colonial service, which is
peculiar feature of our military system, would ucce';
sitate probably some modification of the plan ; bu
this might be met by a provision for granting ad 1-
tional bounty such as the commissioners have recom-
mended, and by breaking up the twelve years soule;
what difLrently into three years of home and nn"
of foreign service. Of course such a scheme as 0-'l_s'
since it rests upon the condition of a shorter tern:
of service, would involve the necessity of securing
larger number of men, and woulu consequently
in-
volve the carrying out of the recommendations f
the commission, or the adoption, at any rate, °3
some plan by which to make the army popular nte
profession. As we cannot endure conscription, the
recruiting sergeant should be able to enter the lute
ket and offer equal pay and advantages with tud
other callings open to the young men he seeks, au
the lessening of the term of service would add lair;
mensely to the attractions of a soldier's life. Sb?,;,
service, at any rate, is the basis of all the best inlfd
tary systems with which we are acquainted, a%
there is every reason to believe that it is a priucill.lo
both sound in itself and specially applicable W the
requirements of our army.