INTRODUCTION. SIR GEORGE GIPPS. DURING the administration of Sir George Gipps, there were important changes in the social and economic conditions in the colony, which materially affected the current and future development and administration. The immediate cause of many of these changes was a condition of monetary confusion which began to develop about the year 1839 and became acute in the year 1843; but the secondary causes were numerous and far-reaching, and some had been in process of development for many years. During the first three and a half decades of the colony, land had been granted to settlers subject only to a small annual quit rent which was irregularly collected. The settlers obtained labour by the assignment of convicts which was subject only to the cost of maintenance. Many of the crops were purchased by government for the maintenance of convicts in public employment. The prospects of the accumulation of wealth were thus attractive to immigrant free settlers as the government supplied the land and labour virtually free and purchased most of the products of farming. When free land grants were abolished in favour of sales of land by auction, the prospects were still attractive. Colonial banks were established, and bills were easily discounted. Capital was then invested largely in wool-growing; in 1832, 1,515,156 lb. of wool were exported and in 1842, 9,428,036 lb., and in 1833 the price of wool increased to 3s. per lb. In the year 1834, an act of council, 5 Wm. IV, No. 10, was passed whereby the rate of interest was fixed at 8 per cent. for all agreements in dispute in the supreme court when the rate of interest was not specified in the agreement. By the same act, it was declared that the usury laws of England were not in force in the colony; therefore any rate of interest could be enforced if specified in a mortgage. The prospects of the profitable employment of capital thus created in the colony led to an immense influx of British capital, with a consequent drain on the colony for interest and dividends. This new capital was introduced principally by the establishment of new banks of issue, deposit and discount, and of loan and trust companies. This influx of capital created a fictitious prosperity; there was a period of progressive rise in prices of land, live stock and commodities; over-speculation was prevalent under the belief that the prospects of the colony were unlimited, and that anything purchased could be resold at a higher value at a later date. Personal extravagance prevailed and there was a remarkable and excessive growth of the city of Sydney. Whilst these changes were being effected, there were great changes in the principles of governmental administration. These changes were the abolition of the transportation and assignment of convicts, the systematic promotion of immigration, and monetary adjustments in consequence thereof. Transportation of convicts to the colony was abolished in the year 1840 by an order-in-council,* and the system of assignment in the following year. The labour market was provided thereafter entirely by free labour. The costs of production, therefore, were increased by the costs of wages, and merchandize was affected in the same way. Immigration was promoted under two systems (a) the government and (b) the bounty. Under the government system immigrants were selected in England and sent to the colony in ships chartered by government. Under the bounty system, immigrants arrived by any ship by arrangement with private individuals, who received bounties on their introduction. The financing of the first system was arranged chiefly in England by advances from the English treasury, which were repaid by the colonial treasury to the military chest of the commissariat at Sydney. The financing of the second system was effected in the colony by payment from the colonial treasury direct to shipowners or to others entitled to the bounty. The funds to meet this expenditure were provided by the revenue from the sales of land, and large areas were sold to maintain a constant flow of immigrants both to relieve distress in England and to provide free instead of convict labour in the colony. Over-speculation in land unfortunately developed.. *See page 701 et seq. These changes necessitated readjustments in public finance. The following sums were realised annually from the sale of land:-In 1836, £105,163; in 1837, £120,171; in 1838, £116,324; in 1839. £154.744; and in 1840, £313,052. When these sums were received, a portion was lodged in the banks, and a portion in coffers in the treasury vaults. At the beginning of the year 1836, it was the practice to keep about £5,000 in each of the four banks then in Sydney; but these deposits were rapidly increased, until in September, 1837, three of the banks held £124,000, whilst at the same time there was £245,250 in the treasury coffers. In the year 1838, there was a diminution owing to the payment of large sums for immigration, the average for the year being £90,000 in the banks and £180,000 in the coffers. In the year 1839, there was constant fluctuation, and at the close of the year there was £75,000 in the banks and £124,000 in the coffers. In the year 1840, the number of banks had increased to five, and there was an extraordinary increase in deposits in them. By payments to shipowners and their agents, the deposits fell to £66,000 in the banks and £38,900 in the coffers in February. In May, the deposits in the banks had risen to over £120,000, and in July to £188,000, the money in the coffers remaining at £38,900. In August the deposits in the banks increased to £248,000, and in October they reached the maximum at £281,000. On the government deposits, the banks paid at first 22 per cent. and afterwards 4 per cent. In the beginning of the year 1841, the government withdrew the large deposits and made special deposits of £15.000 at 7 per cent. in each of eight banks then trading. In August, 1841, it was necessary to reduce these special deposits to £8,000 each to meet current expenses, and, before the end of the year, these special deposits were cancelled also. The total effect of these operations was that the government, between November, 1840, and November, 1841, withdrew £260,000 from the banks to finance the expenditure on immigration. The accumulation of these large amounts of government deposits bearing interest forced the banks to discount liberally, and the freedom of discount caused an increase of over-speculation. The large withdrawals by government in the twelve months preceding November, 1841, forced the banks to reduce their discounts rapidly. To show the effect of this, the strength of the collective banks must be realised. In 1843, the total liabilities of the banks to the public amounted to £1,076,319, and the total assets £2,718,507. Of the deposits (£853,593), fully two-thirds (£569,062) formed the current accounts of customers who were also discounters, and the banks held a set-off in current bills. At the same time, the banks held £380,066 in coin. If the coin and two-thirds of the deposits be deducted from the general totals, it is evident that there were general assets of £1,769,379 to meet liabilities of £127,191. It is evident also that the trading position of the banks collectively was very strong. The position of the banks from the shareholders' position is also of interest. Public opinion is shewn by the value of the shares on the open market. In October, 1843, these values were as follows:-Bank of New South Wales and bank of Australia, sixty per cent. discount on the amount of the instalments paid on the shares; Commercial banking company of Sydney, forty per cent. discount; bank of Australasia and Union bank, par; Sydney banking company, fifty per cent. discount; Port Phillip bank, not quoted. As has been noted, the effect of the banks accepting large deposits at interest from the government was to force the banks to increase their discounts. A proportion of the proceeds of the bills discounted was invested in the purchase of land and paid to the colonial treasury, which redeposited the money in the banks; and it again became available for further discounts. A vicious circle was thus established, which assisted considerably the mania for over-speculation in land. This mania continued until the government were compelled to withdraw large sums to finance immigration, and the banks were forced to reduce their discounts. The colonial banks at this period issued notes of various denominations, which formed the staple currency of the colony whilst little gold was available. During the first half of the year 1838, the value of bank notes in circulation was £117,300 16s. 2d. During the succeeding quarterly periods, there was a progressive increase until the value reached a maximum of £228,802 1s. 8d. in the first quarter of the year 1841. There was then a rapid progressive decrease until, on the 30th of September, 1843, the value of the bank notes in circulation was only £155.626. There was thus a decrease of twenty-nine per cent. in the value of bank notes in circulation during the short period of two and a quarter years. It must, however, be remembered that the fluctuations in the note issues were not due to any concerted action by the banks, and |