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BANKING ABUSES.-IL

TO THE EDITOR* OF THE'HERALD.

Sir,-I showed in my/last from the evidence of gentlemen competent to ¿ndge that tho jjanio of 1843 was caused by the influx of British capital inducing large speculations in land, the money being deposited in tho banks at interest, and lent to tho squatters, and its sudden withdrawal for the purpose of remitting.to London in payment for immigration «and other demands. There- were also other causes such as

the low price of >wool and the cessation of transportation. I shall now proceed to show that the present depression arises , mainly fröm>over speculation in land, not through the influx , o£ British, capital, but as the effect of Sir John Robertson'i jLand Act, by tho*deposit of the money !n the banks at ' interest, and by tha-transmission of coin to England to pay

the interest on our publio debt, the cost of railway materials, and other expenditure of the Government. "We are also . affected by the low price of all kinds of produce, but the land business is responsible for the bulk of our distress. The mania for purchasing land commenced in 1873-money poured into vtho Treasury faster than ever it had done before ; the Government having a largo surplus lont it to the banks, and some of the hanks lent it to the squatters, .?and so it went on producing an apparent prosperity, but in ¡reality an amount of indebtedness which the country will . find it very difficult to pay. I sholl have to trouble you with some figures in order to prove this part of my case, but I-will condense thom as-much as possible. My first

.table will 6how tho coin and bullion of each bank

on the 31st March, 1875, before they had received any Government money, and on the 31st March, 1879, when ;they had at the credit of the Government, £1,725,000.

COIN AND BULLION HELD BY EACH BANK.

Banks.

31st March, ,31st March,

1875. 1870.

New South Wales ... Aubtralasia. union ...

Australian Joint Stock London Chartered ...

English, S., and A. C. Oriental . City .

Mercantile .

£771,526

138,401

70,442 352,450 29,051 63,906 141,409 123,037

90,786

£817,532

141,587 124,177 230,079

33,313 88,855 95,324 111,299

86,350

My next table will show the -increase or decrease of coin ' on the 31st March, 1789, as compared with the 31st March,

1875, and the amount of Government money deposited in each bank, and I think that a careful study of these figures will bring to light-eome very striking results :

COIN AND BULLION IN EACH BANK ON 31ST MARCH,

1879, AS COMPARED WITH 31ST MARCH, 1875.

Government

funds on deposit. New South Wales

Australasia . Union . Australian Joint Stock... . London Chartered

English, S., and A. C. ... Oriental. City . Mercantile .

Totals . Deduct increase ...

£ 10,003

3,183 44,735

4,262 24,949

122,371

49,085 11,738 4,480

£313

156

168Í

179

156,

156 224 224, 150

,6i6 ,818 ,818 222

¡810 ,818 ,026 .026 ,618

6123,135

£187,624

123,135

£1,725,000 Decrease on 31st March, 1879 ...|£64,4S9

I have not included tho'Commercial Bank or the Bank of New Zealand in these calculations, because neither of them have received any Government money. It will be seen that although the Bank of Kew South Wales has had to find £1,411,364 of coin for the Government to deposit in other banks, the coin in its own coffers has increased during the .four years by £46,000; and that although the other eight banks have received all this coin, they have less coin in their coffers now thanthey had in March, 1875, by £64,489. The amount of money held on account of tho Government by «ach bank is shown with the increase or decrease in the coin. Tho same bankTeturns from which these figures are taken show that the total liabilities of these banks have inoreased in the same period £3,169,564, so that beyond the £1,725,000 which they owe to the Government, they owe £1,444,564 to. the public; and thus their coin instead of decreasing should have materially increased. If we add tho Commercial Bank liabilities and coin to these figures it will make matters worse, because its liabilities .have increased by £1,351,809,.and' its coin diminished by £204,021. Tho question then arises where is this coin to 'be found? It has not gone out of the colony because tho 'the Mint ond'Custom House returns show that the country has produced, and there has been imported, almost as much gold as has been-exported-there must, therefore, bo found some other mode of accounting fur it, and the only solution of the difflcuty is that the coin never existed and does not exist now. It is composed of ledger balances only, and when it is wanted, ^unless some wonderful improvement takes place in tho* price of land, stock, and produce, it will DO difficult to find-the fact is that a very small portion of coin has- been made to do business for the wholo of the land sales as will be seen by the fol- lowing simple, illustration. Ten squatters decide to buy 10,000 acres of land each,, at 20s. an acre, and arrange with their soveral bankers * to give them an overdraft to thn.t extent on the security ktf their promissory notes with the land or their stations and stockas collateral security. Squatter No. 1 has given hils chequo to the Government on the Bank of Australasia, and the Government deposit it in their own bank, the Bank of ¡New South Wales-that repre- sents 10,000 sovereigns, because the moment it is presented at the Bank of Aubtralasia tiley find tho coin, and it goes tothe Bank of New South, Wales-but the Government .finding they havo moro money than they require agree to lend tho Bank of Australasia, £10,000 ; and so the coin goes back to tho Bank of Australasia. Squatter No. 2 gives his cheque on the Union, and that goes through the same process, and it returns to the Union in the same way ; and so on with the other eight squatters. And, finally, instead of their being 100,000 sovereigns to represent the 100,000 acres of land sold, there aro no sovereigns at all but a ledger balance against ten quarters of £10,000 each, and. a similiur balance in each of these banks in favour of the-Government. When the Govern- ment requires thismonoy they give the bank notice, and tho bank not having increased its capital or got any coin from extreneous sources to «make large advaaces upon land, apply to the squatter for the money they have lent him, and the result is that the market is flooded with property for salo, and as Mr. M'Earen said in 1843-"All are sellers and no buyers." This ita te of things is clearly demonstrated by the figures abovo ^vhich show that although £1,725,000 has been lent by t'be Government to the banks, they have less coin now by £64^,489 than they had before they received thiB money. If you^want further proof take the Statistical Register andyou will-find that as the land fund has incieased so the mortgages ontland and live stock have increased

also.

Land. Sales.

Mortgages on Landi

and Live Stock,

Discharges.

1873 1874 1875 1876 1877

£774,500 1,048,000 1,627,000 2,250,000 2,907,857

£2,484,651

2,789,016 8,018,085 3,560,632 3,313,137

£1,120,560

872,748 1,093,302 1,623,913 2,415,841

Total."| £8,067,357' Deduct discharges ,

Balancesn.mortgage'.... I £8,003,207

£15,145,571

7,142,364

£7,142,864

. It will thus bo seen-that the wholo of the land sold

during the five'years is represented by mortgages ou land and live stock, and if you want turther proof take the Herald's digest of the Parliamentary returns published on 2l8t January last, and you will see that the colonial banks held 411 stations, covering 10,468,493 aores of land, while the English banks, and Loan Companies held 192 stations, covering 8,454,057 acres. Here then is proof beyond dis- pute of the oxistonco of inordidato speculation in land f ostored hy the Government and bolstered wo by the banks, which under adverse circumstances might plunge us head- long into financial difficulties. Thero is not, however, any danger of that at present, as the launching of our loan in England will supply all the ¿oin that the Government require and prevent any demandaor the money deposited, in

the banks.

There is another extraordinary feature about these bank returns in the fact that while all the other banks have ad- vanced to the publio more money than they received from the Government, and some of them four times as much, the Oriental Bank,bas advanceçUless'bY,_£101-216, «o tàat

£100,000 of the Government money must be doing dntj

somewhere else to make up for this deficiency in their' acty

vanees to the public.

Another cause of the present depression arises from thrf banks having destroyed the business of the merchants by! acting as merchants themselves. In the good old days when we were all prospering, the squatter sent his wool home through the merchant, and the tradesman i--j ported his goods through the same medium, the resulB was that the merchant did not advance the squatter mor« than the wool was worth, and did not import for that tradesman more goods than he could conveniently consumai and pay for. The banka had tho business from the! merchants, but it was surrounded with all the safeguard* of the prudence which tho merchant had exercised in making) his advances. " Now, the banks advance to the aquatte* direot, and send his wool home to their branch in Londun) for sale, and let him draw here as much as he pleases against! it. This is all very pleasant so long as the market keep» up, and the squatter feels justified in living well and spends ing his money freely, but let seasons such as we have had for the last two years occur, and ugly reclamations com* back for big figures which the squatter cannot cottvenienti« pay, because ho has spent the money, and the resradt is in-* creased indebtedness to the bank. So the tradesman, in th«, same way, imports his goods direct through the bank, and, having no check, and the bank advancing the full costin London, he orders freely in the hope that a good market will repay him when the goods arrive ; but alas, foi his expectations, he finds when the vessels come in othe^ tradesmen haye sent equally heavy orders -with h_asclf¿ and the goods go into stock or go into store, unta he canl relieve the advance which they are liable for, and so we ara! inundated with goods, because all the checks which ahoulds exist upon such operations are withdrawn. \

I hope in my next and concluding letter to give eome/

suggestions by which we may enjoy a more prospérons stataj.

of thingB hereafter.

CAUTION

May 3.

Digitisation generously supported by
Vincent Fairfax Family Foundation
Digitisation generously supported by

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