Sydney Morning Herald (NSW : 1842 - 1954), Monday 5 May 1879, page 3


BANKING ABUSES. H

TO THE EDITOR OF THE HERALD.

Sir,-I showed in my/ last from the evidence of gentlemen competent to judge that the panic of 1843 was caused by the influx of British capital inducing large speculations in land, the money being deposited in the banks at interest, and lent to the 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 remover speculation in land, not through the influx , of British, capital, but as the effect of Sir John Robertson's Land Act, by the deposit of the money in the banks at interest, and by the transmission of coin to England to pay

the interest on our public 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 the Treasury faster than ever it had done before ; the Government having a large surplus lent it to the banks, and some of the banks 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 shall have to trouble you with some figures in order to prove this part of my case, but I will condense them as much as possible. My first

table will show the 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 ... Australasia. 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 some 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

168

179

156,

156 224 224, 150

a66 818 818 222

810 818 626 629 643

6123,135

£187,624

123,135

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

I have not included the 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 New 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 than they had in March, 1875, by £64,489. The amount of money held on account of the Government by each bank is shown with the increase or decrease in the coin. The same bank returns from which these figures are taken show that the total liabilities of these banks have increased 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 the 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. The question then arises where is this coin to be found? It has not gone out of the colony because the the Mint and 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, be found some other mode of accounting for it, and the only solution of the difficulty 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 the 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 whole of the land sales as will be seen by the following simple, illustration. Ten squatters decide to buy 10,000 acres of land each,, at 20s. an acre, and arrange with their several bankers to give them an overdraft to that extent on the security of their promissory notes with the land or their stations and stock as collateral security. Squatter No. 1 has given his cheque to the Government on the Bank of Australasia, and the Government deposit it in their own bank, the Bank of New South Wales-that represents 10,000 sovereigns, because the moment it is presented at the Bank of Australasia they find the coin, and it goes to the Bank of New South, Wales but the Government finding they have more money than they require agree to lend the Bank of Australasia, £10,000 and so the coin goes back to the 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 are no sovereigns at all but a ledger balance against ten quarters of £10,000 each, and. a similar balance in each of these banks in favour of the Government. When the Government requires this money they give the bank notice, and the bank not having increased its capital or got any coin from extraneous sources to make large advances 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 sale, and as Mr. McEwen said in 1843 "All are sellers and no buyers." This it is of things is clearly demonstrated by the figures above which show that although £1,725,000 has been lent by the Government to the banks, they have less coin now by £6,489 than they had before they received this money. If you want further proof take the Statistical Register and you will find that as the land fund has increased so the mortgages England and live stock have increased

also.

Land. Sales.

Mortgages on Land

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

Totals £8,067,357' Deduct discharges ,

Balancesn.mortgage'.... I £8,003,207

£15,145,571

7,142,364

£7,142,864

. It will thus be seen that the whole of the land sold

during the five years is represented by mortgages on land and live stock, and if you want further proof take the Herald's digest of the Parliamentary returns published on 21st January last, and you will see that the colonial banks held 411 stations, covering 10,468,493 acres of land, while the English banks, and Loan Companies held 192 stations, covering 8,454,057 acres. Here then is proof beyond dispute of the existence of inordinate speculation in land of stored by the Government and bolstered up by the banks, which under adverse circumstances might plunge us head-long into financial difficulties. There is not, however, any danger of that at present, as the launching of our loan in England will supply all the coin that the Government require and prevent any demanded 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 advanced to the public more money than they received from the Government, and some of them four times as much, the Oriental Bank, has advanceçUless'bY,_£101-216, so that

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

somewhere else to make up for this deficiency in their acty

vances to the public.

Another cause of the present depression arises from the 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 is ported his goods through the same medium, the result was that the merchant did not advance the squatter more than the wool was worth, and did not import for that tradesman more goods than he could conveniently consumer and pay for. The banks had the business from the merchants, but it was surrounded with all the safeguards of the prudence which the merchant had exercised in making his advances. " Now, the banks advance to the squatter direct, and send his wool home to their branch in London) for sale, and let him draw here as much as he pleases against it. This is all very pleasant so long as the market keeps 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 come back for big figures which the squatter cannot conveniently pay, because he has spent the money, and the result is increased indebtedness to the bank. So the tradesman, in the, same way, imports his goods direct through the bank, and, having no check, and the bank advancing the full cost in London, he orders freely in the hope that a good market will repay him when the goods arrive ; but alas, for his expectations, he finds when the vessels come in other tradesmen have sent equally heavy orders with himself and the goods go into stock or go into store, until he can relieve the advance which they are liable for, and so we are! inundated with goods, because all the checks which should exist upon such operations are withdrawn. A

I hope in my next and concluding letter to give some

suggestions by which we may enjoy a more prosperous state

of things hereafter.

CAUTION

May 3.