THE AUSTRALIAN PANIC. rPHIS banking crisis is a very serious
matter for Au. a- l_ tralia., and we Cannot say that we think the calamity is barn. g wisely auet. deposits together, It is stated that, taking shares and the failures affect ninety millions of capital ; and of this money it will be found, we fear, that a. fourth is totally lost and half so placed that, for banking purposes, it might as well be non-existent. Com- panies will be formed, we dare say, by-and-by for the realisation of assets, but, for the present, if a bank owned half the unfinished " shells" in Melbourne, it would be no nearer a dividend. Moreover, the banks which remain will be compelled for a long time yet to come to "protect . themselves," Which means to keep large sums always within call, to refuse advances for improvements of any kind, and generally to restrict the money in circulation. This means, in Australia, a positive restriction of energy. All business there is conducted on advances. The wool-growers, the vine-growers, the miners, the builders of the new towns which are springing up, the employers of labour in the great cities, all want a year's wages at least in hand; and they can get ia only from the banks, which have hitherto been competing for their custom, but now must leave them stranded. It is all very well to talk of "reconstruc- tions," but the reconstructed banks have lost through withdrawals, or have already advanced to customers all their old deposits, or they would not have sus- pended ; and where, in the total absence of confidence, is new money to come from ? It will come in the end, no doubt, for Colonies have great estates in their unoccupied lands, and revive as fast as Irishmen when knocked down with blackthorns ; but the question for business-men is the immediate future. The few solvent banks, or banks which the Colonial Governments protect, cannot supply every- body at once ; the hundreds of " branches " will be as poor as certificated bankrupts ; and raising the money indis- pensable for wages will be the most difficult and costly of operations. The men can wait for weeks, but they cannot wait for months ; and while they are waiting, all work is done in the loose, half-hearted sort of way you see in a concern whose employs have begun to doubt its solvency. We talk lightly, as we all did in 1866, of being "reduced to a state of barter," but none of us ever saw that state ; and we are apt to forget that barter-payments for wages are possible only to bakers, that to the wage-earners barter means starvation, and that a starving people means a people intent on plunder and revolution. Each Colony will for months, perhaps years, be like a waterlogged ship,—aftoat, but unable to advance, and in danger with every squall. It is natural, under such circumstances, that everybody should think first of restoring the circulation of money,—that is, renewing the supply of something that wage-earners will take ; and we are not sur- prised, therefore, to see the Colonial Governments trying to create a paper-currency. Every European and American Government has done that at one time or another, and, in fact, there is nothing else to do ; but we cannot admire the special method adopted in Australia. The natural course would have been to issue a moderate amount of paper- currency guaranteed by the State, and receivable in pay- ment of taxes, and then lend to the solvent banks the money that they require. The Government would thus restore a circulation of money, and yet would be master of the currency, which it could at a convenient time restore to a metallic basis. Instead of this, the Government of Sydney has authorised the strongest banks to issue paper, which shall for six months be legal tender, but is guaranteed only by the resources of the banks themselves. This is not money at all, its value might fluctuate from day to day, and if one of the banks went wrong, the panic would be worse even than that caused by the other banks' failure. The six-months clause, too, is either a blunder or an hypocrisy. Are the banks expected to give gold for all their notes in one day, or how is a rush to change the notes to be prevented ? The scheme unites the evils inherent in what is called "free banking" with the evils which belong to State paper-money, and will probably be found, moreover, a most inadequate relief. It would be far better, if the State cannot issue notes of its own, to adopt the English system,—have one bank in each Colony, guaranteed and partly controlled by the State, and allow it, and it alone, to issue paper, which in time of stress could be made in part or altogether inconvertible. Our system has its own defects, but at least it has this merit, that the supply of currency, solid while the State is solvent, cannot actually fail. In other words, work can go on, and. that is the first necessity of civilisation. Moreover, we do not see clearly how the future is to.be provided for. If the Colonies are to dispense with English capital, their progress will be wretchedly slow. The.con- dition of their advance is that everybody who establishes a solid concern should be able to borrow at moderate rates ; and that means that he should be able to borrow in England, where there is more money than people know how to invest. But how is English money now to be transferred to the Colonies ? The old.. system, as long as it lasted, was absolutely perfect in its ease and rapidity. If you had money to spare, you paid it into the English office of an Australian bank, received a deposit-receipt, and were thenceforward sure of your 4 per cent. Even if you wanted the money itself, the receipt could always be sold, and you were in practice in the position of a holder of State bonds, with this advan- tage, that the price did not fluctuate much. The money itself went to Australia, and was lent again to open farms, build houses, pay wages, or assist any undertaking which, in the opinion of experienced bank managers, was likely to pay. Nothing could be better ; but if the confidence of depositors is destroyed, how is this system to be recom- menced, and how can confidence revive under these " re- constructions," which are in practice refusals to pay back deposits for five years ? When an English bank fails, the depositors come upon the shareholders, and after some delay get their money, or most of it, back again ; but under these reconstructions they have no security of that sort. They are told that to press a liquidation would be ruinous, that they must go on depositing for five years longer—in a recent scheme we see it is actually ten years—and that then, if the bank can pay, which is always represented as certain, they will all be paid. They will not all be paid, for if they all want to withdraw at once, the banks will no more be able to pay them off than they are able now. How should they be, or whence is the new resource to be obtained ? It is all very well to say, as half the City Editors are saying, that in future the Australian banks will prosper because they will "keep their resources liquid ; " but the statement is the merest verbiage. Australian banks are not established to lend money on Consols, even if Consols were saleable in Melbourne or Sydney during a panic, but to lend money, like our old country banks, on half-cleared farms and half-built houses, and every variety of unfinished under- taking. It is capital business if wisely managed, with large interest in it—the Commercial Bank of Sydney paid 25 per cent. for seventeen years on end—and -except when "a booming fit" seizes the people, with very little risk ; but if the bankers want money in masses at a day's notice, they simply cannot get it. They might as well try to get it from farmers six weeks before harvest. Even if they force sales they get next to nothing ; and transfers of their rights of foreclosure involve excessive losses, and are sometimes as impossible as foreclosures themselves. They are all in one boat, all doing the same thing, and all, therefore, want money just at the same moment. We do not see how money lent to Australia can be exempted from this risk, except, indeed, by a system of insurance ; and confidence in insurance seems to us heavily hit by these reconstructions. The great companies which insure do not, as we understand the matter, pay up at once the deposits insured and take over the depositors' claims, but only say they will pay if the depositors are not ultimately repaid. That is not what the regular ruck of depositors want ; and if the system cannot be improved, we may rely on it that money will not go to Australia, as heretofore, in millions for 4 per cent., or anything like that interest. We may judge of the extent to which confidence is at present shaken by remembering that the very last bank which suspended closed its doors on receipt of advices that the whole of its Scotch depositors intended on the next term-day to call in their deposits, an event which would bring down any bank in the world.
We are wholly unable to see any scheme under which the lending of money to Colonies can be made safer than it is. The Colonial Governments would not accept the position of Auditors-General ; and if they did, their audit, beyond preventing dishonesty, would produce but little result. How are they to know that the rise of values in Melbourne has been carried too far ? or that there is a great fall coming in the wool-trade ? Governments rather believe in "booms," as proofs that they are governing wisely ; and think, as the Government of Bombay thought just before the cotton " boom " smashed everybody, that prosperity once set going will last for ever. The trust companies will not run the risk of peremptory insurance— that is, insurance against every form of loss—without asking prohibitory rates ; and as to an improved method of business, that is a promise merely. Depositors cannot send their own chairmen to Australia to see that itheir bank does not lend its money too fast, nor can committees of depositors here govern directors' action in Melbourne. Banks are not set up in play ; they must make dividends ; and if they will not in Australia lend on real property, or crops coming once a year, no profits can be obtained. We suppose a way out will be found, for the Colonies, as we have observed, possess rich estates, and no doubt con- fidence will return ; but until it returns, Australia will advance very slowly indeed. She has been hit on a vital point,—her ability to borrow money from England for industrial purposes at English rates.
Previous page
