CRISIS OF 1840-3 15 
It indicated, at the same time, the close connexion existing 
between capital imports and land speculation. 
The financial disasters which followed have been laid at the 
door of the government of the day, but very little blame can 
be assigned to that quarter. The most that can be said is that 
the crisis was accelerated and accentuated by the land policy. 
The considerable fund resulting from land sales, an amount 
that for some time exceeded £350,000, was placed by the govern- 
ment in the banks; and in this way imported capital became 
available for private loans based, for the greater part, upon the 
security of land. Thus the vicious circle of land purchases— 
government deposits in banks—bank loans for further pur- 
chases —government deposits in banks—was complete; and 
by this means the flame of speculation was kept burning so long 
as the government maintained its balances at the banks. 
The actual crisis was, however, precipitated by the govern- 
ment’s action. The immigration policy had made large demands 
upon the resources of the government, and it was forced to 
withdraw all its deposits at very short notice. To meet this 
sudden call the banks were forced into an unexpected restriction 
of credit that gave the initial and inevitable downward impulse 
to the whole structure, and sent it reeling to collapse. The 
banks, however, had been under no delusion as to the possibility 
of the recall of these deposits at any moment that they might 
be required. Over-speculation and over-trading alone made the 
outcome inevitable. The drainage upon productivity in order 
to pay for imports, the cessation of exports of capital from 
Great Britain, the withdrawal of the imperial subvention of 
£200,000 per annum, the protracted drought and the steady 
fall in the price of wool were the factors? that had far more 
to do with setting the stage for the ultimate tragedy than the 
action of the government in withdrawing its deposits. 
The effects of the collapse are worth relating. Signs of 
financial distress were noticeable in the first quarter of 1840. 
! For a careful and exhaustive account of the industrial and financial condition 
of Australia at this time see T. A. Coghlan's Labour and Industry in Australia, vol. i. 
? The apprehensions of English capitalists concerning the fate of their Australian 
Investments was deepened by the drought of 1838-40, which caused the failure of 
two successive harvests. By 1840 large imports of grain from South America and 
the East had been made, and these had to be paid for in gold. The price of wool fell 
from two shillings a pound to 14% pence in 1839.