BOOK REVIEW / Words, stocks, bonds and dirty water: 'The City of London I: 1815-1890' - David Kynaston: Chatto & Windus, 25 pounds

DON'T believe the propaganda: it was the sheer peacefulness of Britain, rather than native genius, that provided the City of London with an edge over its competitors. Moreover, it was waves of immigrants, from the Napoleonic through to the Jewish diaspora of the Thirties, that provided reinforcement for native British talents.

The Victorian City has been lucky. As he showed in his history of the Financial Times, David Kynaston is that rarity, a business historian who can write in a way which makes lively sense to non-specialists. He begins in 1815 and culminates with the magnificent set-piece of the Baring crisis of 1890, when only the coolness of the Governor of the Bank of England saved the City from melt- down. This was the last and most dramatic of the periodic 'smashes' which make Lloyd's present troubles seem small beer, for it was an unforgiving time with bankruptcy always looming

Kynaston is sometimes too much of an insider to explain to a layman the wider significance of such important themes as the continuous three-cornered battle involving the Bank of England, the City and governments anxious to raise money as cheaply as possible. 'Over the years,' he writes, 'successive governments could hope to escape from a certain subserviency to the City only if they were able to fight the good fight on the City's own ground, however 'narrow' and technical that might be.' This is a lesson still not fully learnt.

Nevertheless he does convey well the full flavour of markets dealing in every share and bond under the sun, the issuers ranging from innumerable foreign governments (and their railways, tramways and waterworks) to 'more local ventures like Bognor New Town, Westminster Fish and Economic Funeral'. These were not only of professional interest. Everyone lost money in the Great Railway Mania of 1845- 46, while Disraeli, a notorious gambler, declared: 'On the Mexican loans I rest my sheet anchor.'

London enjoyed one major advantage: the (relative) integrity of the market. But integrity referred only to the market, not its constituents. As one defender of the Stock Exchange wrote: 'The Stock Exchange is a channel, not a filter. It argues no fault in the construction of an aqueduct that the water it conveys is often dirty.'

This remark, like so much in the book, has a decidely contemporary ring. For it was in the period covered by Kynaston's book that we saw the origins of most of today's practices. Electronic trading began with the first Atlantic cables in the 1860s. Better communications meant centralisation, nationally as well as internationally. Already, in the late 18th century, merchants from provincial centres moved to London.

The City was, and is, a community with little contact with hard industrial reality. One journalist here recalls: 'Some dealer made many thousand pounds by continued dealings in the shares of some railway, and then on a sudden asked where that railway was.' With the trading, paper-led mentality went that other tendency - the desire for immediate profit. As Kynaston says: 'Short termism has a long history.'

In the end, the City authorities would invariably surrender to their members. 'After all, what is the point of a club unless it exclusively serves the interests of its members?' - the basic case against self-regulation. Yet the secret of the City's continuing success lay in its clubbiness. And 'clubs, like families, are capable of renewing themselves; but they still remain clubs'.