Full text: Borrowing and business in Australia

we see the growth and maturity of those seeds sown in the 
previous decade which were now to ripen to the catastrophe of 
1893. So important were the issues involved, and so well do 
the developments of the period illustrate and verify the teach- 
ings of economic theory, that it is proposed to examine the 
circumstances of the time in greater detail. The first phase of 
this examination merely constitutes a survey of the financial 
machinery by which the community was served, and by the 
breakdown of which so much dislocation and distress was 
As the period progressed the apparently inexhaustible supplies 
of capital, the splendid seasons, and the growing sense of pro- 
ductive power, brought about an appearance of bounding 
prosperity which was fatally deceptive. The ease with which 
money was borrowed overseas, or rather, the eagerness with 
which the British investor poured his savings into Australian 
financial institutions, induced in the eastern states an orgy of 
speculation which was indulged in by every class in the commu- 
nity. It is quite impossible to comprehend the causes, or, more 
precisely, the accompaniments of the crisis of 1893, without 
some study of the banking developments of the period. 
By this time there were more than a score of banks, twenty- 
five to be exact, engaged in the transaction of ordinary banking 
business in the Australian colonies. Of these some, such as the 
veteran Bank of New South Wales, were domiciled in Australia ; 
while others, such as the Union Bank of Australia, had their 
head-quarters in London. The characteristic feature of Austra- 
lian banking was the practice of making advances against land 
and farm stock. Hard experience had taught English bankers 
the dangers of this type of business, and their traditional views 
of the difference between bills and mortgages compelled them 
to leave it to land companies. Some precedent for this and 
other features of the Australian practice is to be found in the 
‘cash-credit’ system of the Scotch banks, a method designed to 
attract and accumulate the small blocks of uninvested capital 
in the community. It is only fair to say that the Australian 
bankers recognized the danger of the procedure, and were 
accustomed to hold a greater ratio of gold than that regarded 
as necessary in Britain. It should be noted, too, as a funda- 
mental circumstance, that very different methods of treating

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