The Evening Star. MONDAY, AUGUST 19, 1872.

Evening Star, Issue 2964, 19 August 1872, Page 2

The Evening Star. MONDAY, AUGUST 19, 1872.

AMONGST the ninny good intentions in law making, spoiled by over-loading with details, is the National Currency and Banking Bill now under consideration of Parliament. There can be no doubt that the stagnation which prevailed in commerce and industry some eighteen months or two years back, was very much aggravated by the adverse action of some of the banks in the Colony. The excitement that prevailed during the early development oi our goldtields and the influx of population that resulted, led to advances being made to particular industries, and to inducements being offered to invest money, particularly in pastoral pursuits, at high prices. The experience of Victoria should have led the direc tors of our banking institutions to the knowledge that many to whom advances were made could not succeed ; for all who have studied the question of currency and banking, know that apart from exceptional circumstances in the world’s competition, the tendency of prices of wool, corn, mon«y, or any commodity, is to the lowest price at which it can be profitably produced. To make advances, therefore, to enable men to invest in station property at unnaturally high rates, was a fault that, with the experience of Australia to guide them, should not have been committed, But if it was a fault to foster rash investments of that character, it was an intense aggravation of it to withdraw support from, the pastoral or any other interest at a period of exceptional depression. John Stuart Mill says ; In the first place, a large extent of credit by bankers, though most hurtful when, credit being already in au inflated state, it can only serve to retard and aggravate the oollajjse, is most salutary when the collapse has come ; and when credit, instead of being in excess, is in distressing deficiency, and increased advances by bankers, instead of being au addition to the ordinary amount of floating credit, serve to replace a mass of other credit which has been suddenly de stroyed.

Instead of acting on this sound principle, several of our Banks added to the pressure by refusing to support those who had depended upon their good faith when advances were made, and the failure of several respectable firms, that with proper assistance would have been still in business, was the consequence. There can be no question that the knowledge of this fact has induced the Legislature to turn its attention to the 'subject of banking, and Mr Bathgate has set himself to devise a plan by which the banking institutions of the Colony may become more thoroughly identified with its advancement, than those branch establishments which so,coldly dole out help for the profit of European capitalists. We are not of those theorists who imagine that it is any loss to the Colony to pay for the use of foreign capital, * It has been a great advantage. Without foreign capital progress would have been slow. The Colony is too young to be independent of it. Through its aid many have become enriched who would otherwise have labored in vain ; public works can be constructed without disturbing other industries, and every industry can be extended much more rapidly than if we depended solely on our own accumulations. At the same time there is in all probability a large amount of unemployed wealth afloat, which if converted into bank stock and judiciously distributed, might retain a large amount of banking profits in the Colony. Mr Bathgate's Bill proposes to give the opportunity of utilising this wealth. It contains the germ of a useful measure, but seems to us overloaded with safeguards. We can see no good reason, for instance, for limiting the value of shares to twenty pounds. Two ten pound shares, or oven four fives, would just be as useful, and might possibly interest so many more people in the success of the bank. We think it far more objectionable to encourage the establishment of petty institutions with small capitals in small out-of-the-way towns, 'whose management is likely to be defective, and must necessarily be expensive in proportion to the business to be done. Yet we fear such would be the effect of a bank with X 12,500 capital in a town of five thousand inhabitants. Then, with regard to the circulation of notes, the pains taken to secure the public is excessive. We consider the principle of giving security for the redemption of the notes in circulation

a good one. It was wliat we advocated at Home, without effect, in lieu of the monopoly of the Bank of England. The public have a right to be protected against mismanagement. The notes fall into the hands of persons who receive them in good faith, who have no direct interest in giving credit to the bank, and who ought not to be subjected to the risk of loss. But when in view of the security given the notes are made a legal tender, and when in default of redemption of notes in gold on presentation, such serious couse-; quonces must follow as are prescribed by the Bill, it seems to us that the amount of bullion held in the Bank to meet the circulation might very safely be left to the manager. The Colony differs very widely from Great Britain. Its foreign relations are different j its banking system is different; its industries are different. There is not the like risk of a sudden disturbance of the circulation as at Home. In England a drain of* bullion for a foreign loan, speculation in foreign securities, large speculative investments in foreign produce, or the necessity for importing food, drawing upon the Bank reserve, require tightening the strings by raising tlie rate of interest, lest the Bank itself should be drained of its gold. But no such sudden action need occur here. We are producers of raw material, and consequently our chief business is exportation. In England, the Bank of England itself trades upon capital represented only by a debt due by the Government. The ' money was really spent a century ago in gunpowder, bullets, and human blood. This Bill contemplates bona ’ fide capital only, being utilised. England needs the very bullion that forms one of the commodities we export, and which, if retained in the Colony, would prove an unprofitable dead weight. There are many inconsistencies and unnecessarily restrictive clauses which i require correction before the Bill can be made workable. If these were ex- ■ punged, we think very possibly advan- , tage might result from its adoption.