NEW SOUTH WALES.
CAUSES OF THE RECENT DISTRESSES--CONDUCT OF THE
BANKS--MANIA FOR SPECULATION--LONG-ACCOUNT
SYSTEM--BAD SEASONS.
I will now proceed to offer a few remarks on the causes of the late
terrible distresses in New South Wales, and on what I consider as the
best means of preventing the recurrence of such lamentable scenes.
The three main causes of those distresses were, undoubtedly:--
First, Harsh and illiberal conduct on the part of the Banks.
Secondly, A wild speculation-mania that took possession of the
entire population.
Thirdly, The system that had obtained, of giving long credit to
purchasers of stock, &c.
While I look upon these three as the primary and principal causes of by
far the greater part of the suffering the Colony has recently undergone,
I must specify another, though certainly a secondary cause; namely, two
successive bad seasons. This last cause is, I am aware, by many
persons, regarded as the chief source of all their distresses and
losses; but I think I can shew that those parties are wrong in this
opinion, which springs from their anxiety to frame an excuse for their
very imprudent speculations.
In the first place, then, I accuse the Banks of harsh and illiberal
conduct; and I will state my reasons for this charge.
When I arrived in Sydney in 1836, the Banks, without exception, but more
particularly the Commercial Bank (then under the management of a
would-be shrewd Aberdonian), were doing every thing in their power to
induce parties to open accounts with them. Bills for discount were
eagerly sought after, and little attention was paid to the
respectability of the names of either drawer or endorser. Cash-advances
were publicly advertised by the Commercial Bank. Parties, to my certain
knowledge, were stopped in the street by the Aberdonian just alluded to,
who solicited their business with a very bland smile. In short, no stone
was left unturned by these money-seekers to add to their half-yearly
dividends. This system went on till the latter end of 1839. I need
scarcely say, that this unbecoming and greedy canvassing for business,
tempted many an unwary merchant and settler to venture beyond his depth,
and ultimately led to ruin and a prison. The amount of money represented
by absolutely valueless paper at this time, is quite beyond
calculation. Renewals were a matter of course. Cash payments, even in
part, were the reverse of common. Bank-directors overdrew their accounts
with perfect impunity to a large amount; and the whole Colony seemed
intoxicated with the fond notion that the Banks would never fail them,
and that, in those fountains, they would at all times find a
never-ending supply of "the needful." In the midst of this mad career,
the day of reckoning came suddenly upon them. The Banks took the alarm:
they began to think they had allowed the kite-flying system to go too
far; and they commenced a system of unparalleled harshness and
oppression towards their _gulls_. Cash advances were not merely stopped,
but those previously made were called in. Renewals would no longer be
accepted, even for half or a quarter of the amount due; and the
unfortunate "kite-flier" was, in hundreds of cases, ruined by the very
men who had in the most unprincipled manner led him into the mire, and
then left him.
The Banks now took up a position the very opposite of that hitherto
occupied by them; and, instead of trusting everybody, put no faith in
any one. This conduct ultimately recoiled upon themselves; their shares
fell in value; some of them became bankrupt, while the others had a hard
struggle to avoid that catastrophe; and the public lost all confidence
in banks and bankers. The worst part of the tale remains to be told;
namely, that many widows and orphans, whose all was invested in bank
shares, were utterly ruined and reduced to destitution by the failures
alluded to.
I come now to the second main cause of Australian distress, viz. the
speculation-mania that took possession of the entire population of this
fine Colony. No one who did not witness the effects of this mania, can
imagine to what an extent it was carried. Scarcely a day passed without
one or more public auctions of stock of all descriptions; and not a sale
took place, that was not crowded with eager purchasers. Many large
stock-holders took advantage of the high prices obtained at those sales,
to sell off, in the delusive hope that they would in this way be enabled
to retire from active life, and perhaps to return to their native
country. The terms offered at those public sales, were such as to induce
many persons who never even dreamed of sheep or cattle farming, to enter
the market and purchase to a large extent. These terms were, in general,
something like the following:--
Ten per cent, on the fall of the hammer;
Thirty per cent, by bill at twelve months;
Thirty per cent, by bill at two years;
Thirty per cent, by bill at three years: these bills bearing
interest at ten per cent, per annum.
I have seen tens of thousands of sheep and cattle sold in this way, many
of the buyers being men who had never even seen one of the animals they
were bidding for, and who knew literally nothing about the management of
flocks and herds; being tempted to make the purchase by the long credit
given. But, strange to say, many old settlers were led, with their eyes
open, into extensive purchases at most exorbitant rates, thinking that
nothing could check the career of splendid prosperity upon which the
Colony was then supposed to have entered. How dearly those parties have
paid for their folly, the world generally, and their creditors in
particular, well know. Besides the numerous public sales of stock all
over the Colony, and the large amount of property that changed hands on
those occasions, many important private sales took place about the same
time. There was not a sheep, cow, or horse in the Colony, too old or too
bad to find a purchaser! Any thing would sell, provided only that _time_
was given to find the money. Nothing could exceed the madness of the
people, buying, selling, and exchanging accommodation-paper from end to
end of the land. Then came the land-jobbers, a set of sharks who did
great harm. It was a common practice with those jobbers, or rather
robbers, to apply to the Surveyor-General's department, to have lots of
land put up for sale, which they were aware that certain landed
proprietors could never allow to fall into the hands of strangers, and
then to go to the party whose estate the sale of the land in question
would injure, and demand a bribe to stop their bidding against him. If
this quietus was refused, these scamps would attend the sale, and bid
the land up to some exorbitant price, knowing that their victim must be
the buyer. Land once advertised by Government must be put up to auction;
and the jobber's victim was obliged either to purchase, or to run the
risk of having a stranger sit down as the proprietor of a few hundred
acres in the midst of his thousands. Another class of scamps used to
attend land-sales, who would conspire to keep down the prices of lots
they wanted, by not bidding against each other, and by playing various
other tricks, to the detriment of the revenue. The Attorney-General got
hold of half a dozen of those gentry in 1839, and prosecuted them for
conspiracy. He obtained a verdict of guilty against them, but assented
to their petition for a new trial. Again they were convicted, and they
were fined a hundred pounds each; the Court telling them, that the
penalty would have been much heavier, had not the judge taken into
consideration their humble petition for mercy, and the heavy expenses
they had incurred in standing two trials.
This system of selling by auction and by private sale, large herds of
cattle and flocks of sheep at high prices, went on till some of the
twelve-month's paper became due. Cash not being then forthcoming,
renewals were asked for in many instances, which somewhat damped the
ardour of speculation; but the wild career did not receive any very
serious check, till the two-years' paper began to come into play. Very
little cash could be got from the drawers, who were, in many cases,
obliged to bring a large portion of their stock to the hammer, in order
to meet their acceptances for thirty per cent, of the purchase money.
This alarmed people. The price of stock began to fall; and, long before
the three-years' paper became due, ewes that had cost the buyers 3l. per
head, could be got for 7s. 6d.
Thus, many a poor fellow, after labouring hard for three years to keep
his flocks and their increase together, had to part with the whole, and
still had not enough wherewith to satisfy his original creditors.
Hundreds of instances of this kind might be specified, did I feel at
liberty to publish names.
As to the operation of the third main cause of the distress, the system
that obtained, of giving long credit to purchasers of stock, the evils
arising from this practice have been partly exposed in the foregoing
remarks; but I will proceed to point out a few other evil consequences,
as they occur to me. To begin with one that more than once came under my
own notice; many persons of property, trusting to the long prices
obtainable for stock of every description when sold on credit, and
forgetting that there was absolutely no _cash price_ at the time, deemed
themselves much richer men than they were in reality. Giving to their
overseers the charge of their country residences, they took and
furnished houses in Sydney for their families, set up their carriages,
and commenced a style of living far beyond their means. This fact (the
want of cash) came upon them the moment the first half-year's bills for
rent, household supplies, &c., became due: these proved to the deluded
settler, that, though he had flocks and herds, he had no money, nor
could any be got, except at a sacrifice. To a man, they had to sell off
and return to their estates, where dire necessity has since compelled
them to remain, and where, I hope, renewed prosperity and common sense
will induce them to stay.
Another evil caused by the long-credit system, was its inducing many
persons to purchase stock for the purpose of raising money upon it. This
practice was carried to a ruinous extent, and caused immense distress in
this way. A hundred head of cattle might be parted with to day, by a
needy settler, say, at 3l. per head, six months' credit; the seller took
the buyer's note of hand for the purchase money, 300l., which was
immediately taken to the bank, and discounted; and the settler returned
to his farm, satisfied that he had made a good sale of his beasts. The
buyer, having no use for the cattle, re-sold them, taking the second
buyer's note for the money, which, like that of the first, went at once
to the bank. This transaction was frequently repeated six or eight
times, before the cattle found a _bonâ fide_ purchaser; and it was no
uncommon thing, to find paper in the market to the amount of 1800l. or
2000l., the only representative for which was the hundred head of cattle
originally sold by the settler; the whole of the parties concerned
being, with the exception of the first seller and the last buyer, mere
men of straw. When the six months expired, not a single bill of the six
or eight negotiated, was taken up, excepting, perhaps, the last one: all
the others had to be renewed; and it was the forcing the payment of such
bills, that ruined so many people, and ultimately shook the credit of
every bank in Australia.
The credit system also led many mercantile men into speculations which
they never would have entered into under a wholesome system of trade.
From these many serious losses resulted, which have led to ruinous
failures. Any man with a hundred pounds in his pocket, could get credit
for a thousand; and numbers of adventurers of all descriptions, taking
advantage of the times, opened stylish shops well-filled with goods
bought on credit, carried on a flourishing trade till within a few days
of their bills falling due, and then decamped, leaving their
unfortunate and silly creditors to get paid from the wreck of the stock
left in the shop. I knew an auctioneer who played this nefarious trick,
leaving his creditors _minus_ the enormous sum of 70,000l. He did not,
however, long retain his ill-gotten wealth: how he got rid of it, I do
not know; but I found him two years ago in Singapore, where he kept a
small grog-shop, and lived in great wretchedness; and I have since met
with him knocking about the streets of Macao, a disgrace to his country
in a foreign settlement. The credit system ruined two thirds of the
respectable auctioneers in Sydney, and upset the Australian Auction
Company, absorbing every shilling of its paid-up capital.
In addition to the evils inflicted on this Colony by these main causes,
great losses were sustained by settlers through their becoming shippers
of their own wool. At the time I speak of, wool was worth, in Sydney,
from 2s. 1d. to 2s. 2d. per pound, and, in England, some 6d. or 8d.
more. These high rates would not satisfy some settlers, who foolishly
took an advance upon their clips, letting them go home on their own
account, and at the risk of the agents of the parties who advanced the
money in Sydney. In the meantime, wool fell in the English markets to
1s. and 15d. per pound. The nett proceeds of the shipment did not nearly
cover the advance made; and the hapless shipper, already in debt to his
agent for supplies, and without a penny of cash at his command, was
called upon to make good the difference, which he was unable to do. His
agent, pressed by others, must press him; his flocks are brought to the
hammer, and sold at the now ruinous current prices; and he becomes a
bankrupt. Dozens of cases like this, occurred during the late wretched
times.
I come now to the consideration of the bad seasons of 1838-39 and
1839-40. While I maintain that they were far from being the sole, or
even the chief cause of distress, I allow that they added to it very
materially. To shew that they were not the sole cause, I may mention,
that, among my own personal friends in the Colony, not one who avoided
speculation and putting his name on paper, has failed; while those who
followed the stream have sunk, every one of them. During those years,
every thing the unfortunate grazier had to sell, was cheap beyond all
precedent; while every article he was compelled to purchase, was very
dear. Tea, owing to the China war, rose from 5l. to 15l. per
half-_pecul_ chest of hyson skin. Flour of the very coarsest description
could not be had under from 30l. to 35l. per ton of two thousand pounds
weight,--a colonial cheat, calling two thousand pounds a ton! Sugar and
other necessaries were equally high; and many a poor settler who had
never refused his hard-worked servants their tea, sugar, and tobacco,
was compelled to stop those indulgences.
To the working-classes in Sydney and other towns, the bad seasons were
ruinous. Provisions were so dear, that many a father of a family found
his earnings far from sufficient to provide food for his wife and
children. Building was almost entirely put a stop to; and thus, hundreds
of industrious men were thrown out of employment. To so serious an
extent did this distress reach, that Government was called upon to
afford pecuniary relief to the starving poor; a circumstance altogether
unprecedented in Australian history.
So low had these evils sunk the Colony and all its inhabitants, that
failures of merchants and settlers continued to be of almost daily
occurrence up to the end of the year 1843. No one durst push his
neighbour for payment of debt: were such a thing attempted, an immediate
surrender of his affairs to the official trustee of the Insolvent Court,
was the consequence. Several of the first and oldest merchants in the
Colony have sunk under the long-continued pressure; and, at the date of
the last accounts, more failures were looked for. These, however, were
expected as the result of old causes, not of new or recent transactions.
Upon the whole, I am disposed to think, that Australia has seen its
darkest day, and that things are likely soon to improve, if, indeed,
they have not already mended. The price of stock was looking up; and
ewes that had actually been sold as low as 9d. each, were worth 7s. 6d.
Men of capital lately arrived from England with ready money, had
commenced purchasing land and stock; and their operations had given an
impetus to affairs in general, that could not fail to be beneficial.