directly corresponded with and were therefore indicative of the rise and fall of the retail trade in the colony. If any bank had inflated its note issue beyond the legitimate demands of trade, the over-issue would have been returned in one week by other trading banks, and payment would have been required in specie at their weekly settlements on Monday.

At the beginning of this period, in addition to bank notes, the principal circulating medium in country districts was the "orders" of individuals in payment for goods, wages, services, etc., which passed from hand to hand as currency. When the banks limited their discounts and the accommodation granted to the public, there was a general loss of private credit, and these "orders" practically disappeared from circulation. This change, associated with the decrease of the bank note issues, resulted in many districts being deprived entirely of all currency.

Financial readjustments were also necessary owing to the abolition of the transportation of convicts. The maintenance of convicts in the colony had caused the expenditure of large sums of money by the English treasury. The expenditure was financed by bills drawn in the colony by the commissariat department. These bills were sold to merchants, banks and others, and had formed a principal means of remitting money from the colony. This governmental expenditure on convicts was equal to and served in lieu of an article of export. With its abolition, the colony was forced to seek a substitute from its own resources.

Notwithstanding the large withdrawals from the banks in 1841, the colonial treasury was forced at the beginning of the year 1842 to raise money by debentures at 8 per cent. This issue was unpopular with the banks. The Commercial bank was the first to assist the government, and accepted debentures to the value of £16,000. Subsequently the other banks accepted collectively £50,000, the Union bank paying only £98 per cent. These debentures had a currency of twelve months; but, on due dates, the government was unable to meet them, and, by arrangement with the banks, the debentures were extended for a further period of twelve months.

There were additional contributory factors to the monetary confusion in the fall of the two staple colonial products-wool

and oil-in the world's markets, and the results of a drought in

the colony.

The price of wool fell one-half, and the interest on English capital borrowed and invested in grazing was as the result paid. largely from capital.

The drought, which prevailed in the colony during the years 1837-1842, caused the failure of the harvests. Large importations of grain were necessary. It was estimated that one-third of the wheat and flour consumed in the colony was imported in the years 1839 to 1842. The declared value of these was £820,000, but an expert estimated the actual cost at £1,600,000. This caused a direct cash loss of £400,000 a year to the colony for the four years.

When the position reached a crisis in the year 1843, the total amount of bills discounted was £2,340,000, bearing interest at 10 per cent. At this time, it was estimated that the private wealth per head for an estimated population of 150,000 persons was £125, or a total of £18,750,000; but the smaller capitalists or middle class" held the greater proportion of ready money.

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As the direct and indirect result of the monetary confusion there were many failures of public companies, the principal with the estimated respective losses to shareholders being the following:-General steam navigation company, £50,000; Sydney auction company, £57,000; Hunter river auction company, £20,000; bank of Australia, £300,000.

The general results of all these factors were that many persons of great reputed wealth were reduced to a condition of financial embarrassment; many became insolvent either from their own imprudent speculations or from the bankruptcy of others; as discounts had been granted most freely to the large capitalists, overspeculation had been greatest in that class, and accordingly the smaller capitalists became the most solvent class; and finally there was a general abolition of all confidence and credit, and the community became one of sellers and no buyers.

In August, 1843, a committee of the legislative council was appointed to consider "the means of staying the further evil consequences to be apprehended from the monetary confusion, lately and still prevalent in the colony." The evidence of experts was

taken by this committee. These experts deprecated any legislative interference, and held the opinion that no artificial remedy was of any value. They considered that the monetary confusion was due to an excessive disproportion between the profits of money and the profits of industry, and to the decrease of the latter without a corresponding decrease of the former. The principal remedy proposed was a voluntary reduction by the banks and mortgagees of the rate of interest from 10 to 6 or 7 per cent. Stress was laid also on the necessity for "more mouths" and "more markets"; for the reduction of expenditure to the lowest practical level; for the abolition of the lavish system of credit; and for the reduction of imports to a reasonable value which the colony could easily pay. It was also suggested that a producer was entitled to the benefit of a protective duty sufficient to meet taxation, but not to compete with the natural advantages of other countries.

Notwithstanding expert opinion, the committee recommended legislation for the introduction of the Prussian system of pfandbriefes or pledge certificates. This system was as follows:-" a landed proprietor wishing to raise money upon his property applies to a Land-board, which values it and agrees to lend him the credit of the State for one-half the valuation." The proprietor was then given one or more pfandbriefes or pledge certificates with halfyearly interest coupons attached. The interest on these certificates was fixed at a lower rate than the interest paid by the proprietor to the land board, and the difference was used by the land board as a sinking fund for the redemption of the certificate and the ultimate release of the proprietor.

The committee also recommended the issue of "land-board notes" to a limited extent in lieu of pledge certificates. It was proposed that these notes should be legal tender and convertible into coin on demand at the treasury; that half of all payments to government, except for the purchase of land, should be made in these notes; and that the total issue of these notes should be limited to half (viz., £200,000) of the estimated annual revenue of the colony.

On the 7th of November, 1843, a "Bill to restore public confidence and to provide for and regulate the issuing and lending of Land-board notes and pledge Certificates, and for other purposes therein contained," was introduced by the chairman of the

SER. I. VOL. XX-c

committee, R. Windeyer, and read a first time in the legislative council. The bill was strongly opposed within the council by the official members principally, and without the council by a large section of the press and the public. It was considered that the bill was in direct opposition to the expert evidence given to the committee, and that it was an attempt to pledge the credit of the community in favour only of a section. On the 6th of December, it was proposed in council that the "Bill be read a third time this day six months." This motion was negatived by eleven votes to nine, and the third reading was passed on a similar division. The majority consisted of the unofficial members of council, who were settlers and merchants. On the 12th of December, the council was informed that Sir George Gipps had withheld Her Majesty's assent from the bill.

. Further legislation on finance was unsuccessfully proposed. On the 25th of August, 1843, W. C. Wentworth introduced into the legislative council "A Bill to regulate the Interest on Money, and for other purposes therein mentioned." On the 20th of September, the Revd. J. D. Lang presented a petition in support from certain colonists to the council" praying the council to pass a Law, restraining the rate of interest to a fair and reasonable amount. On the following day, however, on the bill introduced by W. C. Wentworth, the council, by twenty-one votes to twelve, carried an amendment "That the Bill be read a second time this day six months." The proposal for legislative interference with the rate of interest was thus shelved.

An act of council was, however, passed, which contributed largely towards the relief of the graziers; and the principle, then initiated, has had an important and beneficial influence on the development of the grazing industry to the present day. This was the act of council, 7 Vict., No. 3, entitled "An Act to give a preferable Lien on Wool from season to season, and to make Mortgages of Sheep, Cattle and Horses valid without delivery to the Mortgagee." It was introduced into the legislative council on the 10th of August, 1843, by W. C. Wentworth for the express purpose of increasing the credit and affording relief to owners of live stock. It was passed on the 15th of September, 1843. The principle was elaborated by a subsequent act of council, 9 Vict., No. 30, passed on the 8th of November, 1845.

Whilst these various proposals for the relief of the monetary confusion were under consideration, a proposal for the establishment of a “national bank" was brought forward. It was suggested that a "Colonial National bank" should be established founded entirely on "government securities." This bank was to be managed by a board of commissioners. It was to be a bank of issue and deposit, and was to be prohibited from discounting. Notes of the value of £1 and upwards, payable on demand in silver coin, were to be issued, and the private banks were to be prohibited from the issue of any notes. It was contended that no private bank should have any power to create or to regulate a currency, and that the profits derivable from a circulating currency were rightly the profits of the community. A petition from certain residents in the district of Hunter river was presented to the legislative council on the 8th of November, 1843, in favour of such a bank. The proposition, however, never became the subject of practical politics.

The issue of government notes by the colonial treasury was also suggested in the press, but without practical result.

The financial restoration of the colony was thus left to natural evolution in the hands of private financiers. An important step was taken by the Commercial banking company of Sydney and the Union bank. From the 1st of October, 1843, these banks reduced the interest on one hundred day bills to six per cent., and on bills over one hundred days to eight per cent. At the same time, the same banks fixed the interest on the lowest daily balance in each month to the credit of current accounts at two per cent., and on deposits, subject to three months' notice of withdrawal, at three per cent. The bank of Australasia also strengthened its position by making a further call on the shares.

Great relief was obtained by graziers by the introduction of the practice of boiling down. This practice was introduced in 1843' by Henry O'Brien, a settler in the southern districts. It was found that, by boiling down a full-grown sheep, the value of the products in tallow, hides, mutton hams, etc., was fourteen shillings. The effect of this discovery was that sheep, formerly unsaleable, soon acquired a value from five to eight shillings per head.

If the community is regarded as divided into three classes, wage earners, small capitalists, and large capitalists, it will be noted.