WELLINGTON NEWS

Hokitika Guardian, 14 February 1930, Page 7

WELLINGTON NEWS

:\ USTRALLAN FINANCE

(Special Correspondent.)

WELLINGTON, Fob. 11

The Commonwealth and the States appeir to have ost the confidence of the Lonodn money market, and when

lack of confidence develops into ugly rumours that a moratorium is about to be declared, or that both the Coui- ! momvealth and the States contemplate the postponement of interest payments, it is safe to conclude the economic conditions in Australia are worse than appears on the surface. This makes one wonder whether Australia is about to experience as serious a slump as in 1893, for the conditions then and now have a great ‘imilnritv. Air E. 0. G. Sharp, M.A., rofoss r of Economics at the University of Western Australia, caused to printed a small booklet entitled “The Boom of 1890, Then and Now,” some two or three years ago, contains a wealth of information regarding the boom of 1888-90 and the crash that followed, what caused the smash in 1893, at the end of rush down hill from 1890 on is attributed by the Professor to the following: (1) An acceleration of government and other capital expenditure after 1887, in providing for a continued progress that did not hallen, because of (2) A deep rut in the value of staple exports—the firm road on which progress hitherto moved from strength to strength. And to emphasise this he points out that to lay out within five years 100 millions of outside money on capital works in a community at most of 3 million people, as was done between 1888 and 1890 was to boost wages and material costs of construction and to retard the success of enterprise along established lines. That mistake has been repeated during the past five years and the Commonwealth was warned again and again that slue was borrowing and spending in a dangerous and lavish manner. The late Mr CUghlan, New South' Wales Statistician., Vriting of that period said; “Lulled phfbVa false security by bis reputation’ close calculation the business community gave itself up to the fascinating game of expansion on • time pavrpent, It’s private borrowing added to [Government spending on irrigation', and rail,ways, etc.', and, above ally, ornate stiicco mansions on every ; hill top- ■ round , Melbourne's .outer' * suburbs. This gav spending meant steady employment at. wages rivallingi.’thoso of the'digging days for all hands skilled and unskilled. The building/socities took to accepting deposits for short periods in order to buy laud - and erect cottages in anticipation* for the growing'.demand for them on’ liirepurclirse. Some of the pastoral land companies began to gamble in, this lucrative business, while - wool prices Were low and station in (provemcut sluggish. Competing land jobbers soon warmed to the game. Building cottages locked up capital until the time payments came on. Buying, subdividing and selling land by auction was quicker work, especially, with

employees as bidders to help prices along. Free conveyances curried the peoplo to the sales. They were usually held on a Saturday afternoon—champagne lunches' gave them encouragement to bid and extraordinary terms of credit reconciled them to their purchases.

Professor Shaun .says that the bank had foreseen danger in 1887 am early in 1888 they shut down on a-1 further advances on real estate, lie fusals to lend more on real estate onh threw their depositors into the arms of the worst offenders. In 1888 the 1 Victoria Bank was amended permitting any incorporated banking company to advance or lend money on the security of lands, houses ships and pledges of merchandise. Mushroom land banks sprang up. James Munro, who became Premier oi Victoria in 1890 and Agent-General, formed the Real Estate Bank with a capital of £1,000,000 to help “the industrial and thrifty classes to participate in the distribution of real estate.” In 1891 British deposits in Australian banks totalled £39,800,000, besides- £4.500,000 in building societies and £5,000,000 in other trading companies. The immediate cause of the smash was the belated realisation that the fall in wool prices had come to stay and that a continuance of the low prices for wool and other exports would soon stop high spending and make the liquidation of public and private obligations overseas ' heavy work. The, average price of greasy wool fell from 121 d per lb. in 1884 to 6£d in 1924. The fall was continuous. The margins on advances to pastoralists were swept away and many stations fell into the hands of the banks. Twenty-one land and finance companies went down in Melbourne between July and August in 1892 with liabilities of £13,500,000 including 31- million of British deposits, In August., 1891, the Bank of Van Diemansland failed. In March, the Mercantile Bank of Victoria, followed and in January 1893 the Federal Bnnd went undei;. On April 30, 1893, the Victorian Cabinet issued a proclamation declaring five days bank holiday, but. the Bank of Australia, the Bank of New South Wales refused to accept the moratorium and kept open for ;business. as usual; Practically, all the .them .existing banks, accept- those named., clojsed their,doors, and those old. enough jitio recall the chaos that followed 1 ■ the crash will fervently hope that another such crash' may not occur, now/ Of course New Zealand felt, the- effects of the Australian debaucle. v'