The popular opinion in the Colony of Van Diemen's Land at this moment seems to have taken a decided turn in favour of the banking system. How far it may be generally understood, is not for us to say; but at the same time it occurs to us, that the true principles of political economy, as it regards the policy of banking, is by no means thoroughly comprehended by the majority of the people. To throw a proper light upon the subject whereon we now propose to offer a few remarks, it may perhaps be well, in the first place, to examine, with some minuteness, how the financial economy of the Colony now stands, and to trace the currency of the Colony from its first principles to the present time. Tasmania is a Colony of only twenty four years standing, a nation (if we may be allowed the expression) in embryo; therefore we must deduce all our conclusions from local circumstances, as a reference to the doctrines of political economy as applicable to great and grown up countries, except in a few self-evident instances, would rather confuse and perplex than serve to elucidate the matter. Under these circumstances, it is probable, that some of our opinions may clash with those which are and have been generally promulgated, but we have this much confidence in the truth of what we are about to put forth, that we flatter ourselves it will not be contradicted, although perhaps it may, in certain quarters, be opposed.
At the first establishment of any circulating medium within this territory, it consisted chiefly (there were some dollars) of store receipts, which were acknowledgements from the Commissary that he had received into His Majesty's Magazines so much wheat or meat, at such a price. These receipts (which it was known might be consolidated monthly at the pleasure of the holder, by Bills on the British Treasury), answered all the purposes of money. The people had little occasion for bullion, because the circumstances of the Colony at that early period did not require, nor would they admit of, great imports. Thus the store receipts passed from hand to hand, backwards and forwards, like a bank note. So long as it procured the things required, so long it answered the purpose of money, but when the Colony began to extend—when emigrants began to bring capital in bullion (dollars chiefly) to the Colony—when English goods became generally sold—when mercantile business to any extent commenced, it was found that something more than these store receipts were required.
It was a thing of daily occurrence, for real money to be wanted, therefore it became necessary for the Government to make its payments in bullion, as well as store receipts convertible into Treasury Bills, in order to keep up the proper circulating medium required in the Colony. At this time, General Macquarie finding that the dollars were very rapidly disappearing, in consequence of the high price of the precious metals, hit upon the expedient of giving the dollar a greater although a false value in the Colonies, than it intrinsically possessed, in order to keep the dollars in circulation within the Colonies. This was to cause a considerable number, from 100,000 to 200,000 to be pierced, by striking what is called the "dump" out of the centre. This "dump" was then to pass for a quarter dollar, which in reality it was, or near upon it, while the ring dollar had a Colonial current value of five shillings, (which was before the current value of the solid dollar), thus enhancing the value of the currency 25 per cent. This had the desired effect for some time, till at length it was deemed expedient for the Government to obtain specie by the sale of Treasury Bills.
During the first progress of this system, the exchange on England was occasionally as high as 28 per cent. currency in Spanish dollars at 5s., in favour of the latter, which even by calculating the true value of the Spanish dollar at fifty-two pence English, gave a percentage still against the Colony of 13 per cent, currency, or 11¼ (nearly) per cent, sterling. However, the supply of circulating medium was even then by no means adequate to meet the demand for internal purposes; to obviate which difficulty, the local note system was generally introduced. This was a general issue of private promissory notes, payable on demand, for sums of from six and four dollars downwards, by every shopkeeper who had sufficient credit to get their paper into circulation. This issue of these notes we believe came near to the amount of sixty thousand dollars, or thereabouts. This paper currency; in the absence of any other and better circulating medium, answered all the purposes of internal exchange, but it was nevertheless attended with much inconvenience, though not (as was anticipated) with any serious ultimate loss. This inconvenience was chiefly felt in the difficulty of getting any considerable sum of these notes consolidated at one time; the bills of one individual being frequently paid by the bills of another or others, and sometimes new ones of the same person's.
Things went on in this way, the value of Treasury Bills fluctuating, until the year 1824, when the "Bank of Van Diemen's Land" was first established, by a body of the principal persons (merchants more particularly) in Hobart Town, under a Charter from SIR THOMAS BRISBANE. This Establishment, with a joint stock of forty thousand dollars, and authority to issue bank notes of one quarter dollar and upwards, to one hundred dollars, and to discount the bills of private individuals at the rate of 10 per cent. put a stop to the circulation of the currency notes of large amounts. The 1s. and 6d. and 3d. bills continued in circulation until it was positively enjoined by the Home Government that only one sterling denomination of currency should be established throughout the British Dominions. This regulation fixed the value of the Spanish dollar at 4s. 4d., and the Executive Council passed an Act for establishing sterling payments, whereby a penalty of £25 was levied on any person who should circulate any bill or note whatsoever, for any amount under the sum of twenty shillings English; and at this time a large sum of British silver and copper money was sent out to the Commissary, which for some time created a dearth of Treasury Bills. Thus was the Colonial Currency at once and for ever put down.
The sudden change thus occasioned in the circulating medium, and the abolition of the small note currency, was seriously felt at the time; but on the whole, we believe, considering the circumstances of the Colony, that it was a very wholesome measure, and occasioned far less pecuniary loss and inconvenience, by taking place when it did, than it would have done had it been longer delayed.
Having now traced the circulating medium to its present state, we will recur to the "Bank of Van Diemen's Land," which, with its contemporaries, the "Tasmania" and "Derwent" Banks, it is our object to examine.
The Bank of Van Diemen's Land, or the " Old Bank" as it is more generally called, has certainly been conducted with much skill and benefit to the Colony, but in consequence of the limitation of its capital, it was compelled to limit its discounts, and we are given to understand, from pretty good authority, that bills of good responsibility, to the amount of some thousands weekly, have been turned away. To obviate this, when the Charter expired, with the late year, the Directors determined to throw open the concern to the public—make each share £50 sterling, instead of 200 dollars, and increase the joint stock capital to £30,000, which was accordingly done. The amount of paper money which it has been estimated that this Colony is capable of keeping in circulation is from £20,000 to £30,000, certainly under the latter; for argument's sake we will take the mean, and say £25,000. This sum was from the establishment of the Old Bank until the year 1826, (when Messrs. Gellibrand and Son opened the " Tasmanian Bank"), supplied by the former, but the Tasmanian Bank could not greatly alter the matter, because it was a private concern. The known responsibility of the firm has kept its notes in circulation, but not to any great extent; for it is obvious, that in all cases, where persons having deposits in, and being proprietors of, the Old Bank, (and most of the monied men here are such), received any quantity of Tasmanian Bank notes, they would forthwith pay them into the Old Bank, as cash, and draw a check upon that Bank, in order to get its own notes in circulation, whereby the notes of the Tasmanian Bank, in a great majority of instances, are only paid from that Bank to an individual, from that individual to the Old Bank, and the next day are presented for payment to Messrs. Gellibrand and Son, thus only travelling down Macquarie-street and back again.
This must necessarily give the Old Bank such a command (having deposits from most of the shareholders) that the firm of Messrs. Gellibrand and Son could not much interfere with the extent of its paper circulation. In respect to discounts, the latter could not possibly obtain more than what the former could not do, on account of its limited capital. This, however, must now be much less certain; for, in consequence of its increase of capital, the only limit which the Old Bank have now any occasion to fix for its limit is this, that they shall not issue more notes than what will, not only circulate, but keep in circulation. It cannot be of any considerable advantage for any Bank to issue money which will probably be returned on the following day.
Taking this view of the circulation of the Colony, and the paper of the Old Bank and that of Messrs. Gellibrand, it comes now to be considered how the establishment of a third Bank will operate, 1st. upon the circulating medium of the Colony; 2d. upon the interests of the Old Bank; 3d. as to the convenience of the public ; and 4th. as to the benefit of the Colony. That the circulation of paper will be greatly increased there is little doubt, but will the transactions of the Colony support that increased issue of paper? We are inclined to doubt it.
There is already in the Colony a sufficient degree of credit, upon the strength of which all her internal trade is earned on, and upon the strength of which the Derwent Bank has been proposed and opened. What this Colony wants is capital. She is drained of her dollars and other specie by every ship that arrives, and was it not for the Government disposing of their Treasury Bills, and for other private drafts on England, in six months not a coin of any description would remain in the Colony. It is, therefore, capital which we want, and not credit; but these two things are so very frequently confused, that the terms are used indiscriminately, the one for the other. If, then, supposing that it is capital which the Colony requires, and that the measure of credit is full, so far as regards a solvent state of things, the present paper circulation be increased in amount, it will, of necessity, be decreased in value. This may perhaps be better understood by a comparative view; we therefore quote a calculation made respecting the value of the English bank note, by an indigenous writer, on the subject: —
"During the war with the French Republic, — that is, from 1793 to 1801, inclusive — the average amount of the Bank Advances to the Government was £11,148,539; and the period at which these advances stood the highest was in the year 1801, and the average throughout that year was £13,118,989.
"During the war with French empire — that is, from 1803 to 1814, inclusive, — the average amount of the Bank advances to the Government was £17,503,910; and the period at which these advances stood the highest was in the year 1813, and the average throughout that year was £25,817,589.
"But throughout the whole period from 1803 to 1814, the Bank note was depreciated, and its average value was about 17s.; and therefore the real value the average advances from the Bank to the Government from 1803 to 1813 was — £14,878,323 16s.
"And with reference to the year 1813, (when the Bank advances to the Government were at the highest), the Bank note was still more depreciated; the average price of gold throughout the year was £5 6s. per ounce; and therefore the Banknote was worth only 14s. 8d.; and therefore the real value of the £25,817,589 in paper, advanced by the Bank to the Government in 1813, was £18,932,838 12s.
"And then this will be the result—that throughout the whole period of the war, (that is, from 1793 to 1801, and from 1803 to 1814), the average amount of the Bank advances to the Government was £13,279,844; and that during the year 1813, when these advances stood at the highest, they amounted to £18,932,898 12s."
We are not prepared to determine what may be the value of a Bank note in Van Diemen's Land, but from the above it must be quite clear, that as far as increased advances of paper from the Bank of England to the Government depreciated the value of that paper, so far will our increased issue of Bank paper (over and above what is requisite for the maintenance of a sound and permanent state of things) in this Colony, whether in the shape of discounts or otherwise, decrease the value of that paper, and thus falling the price of money, raise proportionally the price of other commodities.
With regard to the operation of the Derwent Bank upon the interests of the old one, we have only one or two very brief remarks to make, which are, that which-soever obtains the greater deposits, will obviously, as has been already shewn, get the greatest circulation for their notes. So far, the Old Bank does not seem to us to be at all affected. Neither are we of opinion that the old can by possibility have its discounting operations curtailed by the New Bank, provided that there is no underhand or back-door work between the Directors of the Derwent Bank and a certain influential quarter.
This introduces us to our third point; how far the conveniences of the Public will be increased or diminished by the operations of the New Bank. Our chief apprehension on this score is, as to whether the facilities of obtaining money will not be too great for the solvency of the Colony. It is too clear to require any illustration, that facility of borrowing gives rise to all manner of extravagance, public as well as private, and creates a speculative mania, in mercantile transactions, which it is reasonable to expect will bring ruin and desolation in its train. The great "crisis," so much hammered at in England, was, if we are to believe the public writers upon the subject, brought on solely by the readiness with which money could be obtained, it was the superabundant quantity of paper which is stated to have done this, and to have enriched a few to the ruin of many. Should the issues of the Derwent Bank be productive of that effect it is certain that the Public will be very greatly injured by its establishment; but it will, doubtless, by competing with the Old Bank, liberalise the principles of both in favour of the Public, as each will, without doubt, strive to accommodate the community more than the other, in order to gain a greater share of popular favour than the other. Jobbing and huckstery will be checked, and we are of opinion that the thirty-five per cent. Gentlemen will also receive a check in their extortion. Several of these, however, we understand to be connected with the New Bank, but if the principles be adhered to which have been laid down, nothing will be done in the Derwent Bank at a higher discount than eight per cent. This is tolerably fair, indeed, very liberal.
Another thing is, that the New Bank proposes, as we have been informed, to open Cash Credits upon the principle adopted by the Scotch Banks, which has raised them far above any other Banking Establishments in the United Kingdom, besides being a most extensive benefit to the Public. Should the New Bank pursue this plan, it might be highly desirable for the old one to adopt it also; as it seems quite clear that cash credits are far more beneficial and far less dangerous than extensive discounts, while at the same time the example of Scotland distinctly shews that it is by no means prejudicial to the Establishment, but quite the reverse.
When the Derwent Bank was established, the people of Launceston wished to have a Branch Bank there, but this was refused, on the plea that the profits of the Bank would not pay the expenses necessary in carrying on the Branch. This circumstance being the second refusal of the kind which they have had, induced the gentry of the north to commence banking themselves. Thereupon a meeting was convened — shares subscribed for—resolutions moved and carried—and the business done in no time whereby a Cornwall Bank was established! The want of some convenient mode of remitting money to and from Launceston has been long severely felt, and is calculated very much to check the progress of trade between the two towns. When Messrs. Gellibrand and Son, of the Tasmanian Bank, opened a Branch Establishment at Launceston, they were opposed in consequence of their demanding so high a percentage for remitting money; this, however, might arise from the inadequacy of private means to carry on public banking at a low rate, and we trust will be quite obviated by the liberality of the Cornwall Bank. That establishment has certainly a fair prospect of success, and seems to promise much good to the public. It has little to contend with, having no opponents in Launceston, and if conducted on fair principles of justice and liberality between man and man, it must be beneficial, particularly to the people of Launceston and the other side of the Island.
Now let us see what is likely to be the effect of the Banking system, which has been introduced among us with such spirit. Its objects are stated to be, and are doubtlessly good. The projectors had, we feel convinced, every wish to accommodate and benefit the Public, as well as to fill their own pockets, but we do not think that our Hobart Town Banking Establishments will, increased as they are, eventually be productive of any real good to the Colony. We fear that they will not only create a superabundance of paper, and consequently credit, but that they will lead to the formation of other Establishments of the same description, which will unitedly subvert that sound state of things which to the present time has existed, and place this Colony in a similar alarming state to that of England, at the time of the crisis.
We have already stated that the Colonial traffic is only sufficient to keep in circulation a paper currency, to a given amount, say £25,000. This has hitherto been supplied by the Old Bank, and Messrs. Gellibrand's; therefore, supposing that the New Banks obtain a circulation for their notes to the amount of £10,000 more, it is self-evident that there must be in consequence £10,000 of unemployed capital, or a proportionate depreciation of the value of paper money. If the former be the case, the value of interest will be accordingly less for a time, and the value of the paper itself will not for a time materially be depreciated; but let this sum of unemployed money break loose, let it commence its action on the state of trade, and then the evil of a depreciated currency will be sufficiently apparent.
That a depreciated currency is injurious in the highest degree, it requires no more than the example of England to prove, for the vast increase of paper in that country, having created an immense sum of unemployed capital, formed as it were, a financial water spout, which bursting over the people in consequence of a spirit of false speculation, ultimately carried ruin wheresoever it went. The prices of commodities were raised to the manufacturer, thereby increasing his expenses. Foreign competitors started up: he was therefore compelled to lower the market prices of his manufactured goods, and consequently his profits were decreased. Machinery was introduced to lessen the expense of manual labour—low wages followed—discontent among the operatives subsequently appeared—and the ultimate result has been the present wretchedly low state of trade in the Mother Country. How long it will be before such an effect was produced in Van Diemen's Land, by a superabundance of paper, it is not for us to determine. When the storm will burst, we pretend not to predict—but burst it will, and destruction will follow, which, although not so great as that experienced in England when the crisis came, its effects will be proportionately felt by the people of this little community; for greatly are we deceived, if any sum of capital, created by an issue of local Bank paper, to an unnecessary extent, will long remain pent up, and without employment.
Under these circumstances, we conceive that the Derwent Bank may be a source of convenience to the Public for sometime; it will operate as a check upon the Old Bank;—it will by competition create liberality, but no further have we the slightest anticipation of its being a public good. On the other hand, it will, by adding to the facilities of borrowing, create extravagance and improper speculation, — it will by increasing the paper currency, depreciate its value as regards the price of other commodities, and it will create a mass of unemployed capital, much to the ultimate prejudice of the Colonists. Such is, and such must unquestionably be, the effect of the Banking system, when carried to too great a height. If our remarks are productive of any good in averting the evil, we are contented, as we write for the Public at large, and and not for Party, or either Bank.
Source: The Banking System (1828, April 1). Colonial Advocate, and Tasmanian Monthly Review and Register (Hobart Town, Tas. : 1828), p. 5.
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