LESSONS OF THE NINETIES

Evening Post, Volume CIV, Issue 68, 17 September 1927, Page 12

LESSONS OF THE NINETIES

A WARNING TO AUSTRALIA

"Evening Post/ 17th Septi-: Professor E. O. G. ■ Shann, of the University of Western Australia, has issued a timely warning to industrialists, tradera, and bankers of the Commonwealth. In his book "The Boom of 1890—and Now"' (Sydney: Angus and Robertson), lie calls upon all Australia to set about putting jts house in order—now—to give full heed to the lessons of history, beginning with the false prosperity of the latter 'eighties and culminating in the financial smash of the early 'nineties. The year 1888 was the year of the great Australian boom. The description "Marvellous Melbourne" had more in it than its alternative hold on public imagination; speculation in Melbourne suburban lands—even in waterlogged acres with nothing above water but estate agents' boards—-was at the point of incandescence; the Union Company's liner Mararoa was then brand new (thought, indeed, to be far in advance of her time), and everytrip she carried crowds of citizens from New Zealand to Melbourne, to the land where work was plentiful and wages high. Busy, frenzied, money-making days these, every one as. beautiful as a soap bubble, and just as substantial. Some observers of fhose days could see the crash coming, and said so, but, as Professor Shann remarks in his opening sentences to this timely and forceful little book, "The average man who loves a gamble turns a blind eye to any likeness between the sound prosperity on the continuance of which he budgets, and the booms and manias of long ago. Things are different now, he assures, you, as he shakes off the warning hand on his shoulder." The South Sea Bubble, John Laid's Mississippi scheme: these and many more bitter lessons which history teaches are lost on the mass of men and women who seem never to grow bbeyond years of adolescence when parental caution is usually dismissed with the, same remark, "Tilings are'different x now." But • human nature is immutable, and Professor Shann knows it, and says so; therefore, he insists that. "common prudence should bid us turn even the distasteful pages of our own history." He begins with that of the early 'seventies, showing how the eastern States of Australia had, prospered in their production of wool, gold, and other natural products. Falls occurred in the'price of wool, but they weir offset by occupation and improvement of new country, and good work was done in reducing cost of wool production, and cost of wool transport by rail instead of the expensive conveyance by bullock wagon. Gold production in 1880 was £4,897,000, in 1890 £5,231,000, in 1893 £6,215,472, and double the quantity of wool exported in 1886 was exported in 1891; the price level of imports in 1893 was SO per cent, lower than it was in 1873. Then in the early 'eighties British loan moneys set in with a rush to Australia, and public and private works were booming—all on borrowed money; work was abundant in all the cities; living not dear except for rent—and then not high as compared with the present rates for accommodation; and wages were cood. GAY SPENDING DAYS. Professor Shann describes how "this gay spending meant steady employment at wages rivalling those of the digging days for all hands, skilled and unskilled." Workmen flocked to the cities of Melbourne and Sydney, had plenty of employment, saved money, buiit homes. "The building societies were swollen beyond the co-operative task of pooling their members' savings, and took to accepting deposits for short periods in order to buy land and erect cottages in anticipation of the growing demand for them on hire-nurchase. Some of the castoralland companies began to dabble in this lucrative business, while wool prices were low and station improvement sluggish. Corn-' peting land-jobbers also warmed to the game. Building cottages .locked up capital until the time payments came in. Buying, subdividing, and selling land by auction was quicker work, especially with employees as bidders to help prices along." There were free lunches at sales with champagne! .and free conveyances to sections. Land boomed and boomed and boomed; land company prospectuses snowed down on Melbourne; the Stock Exchange worked overtime. The banks saw trouble coming, surely, speedily, and flarly in 1888 shut down on advances on real estate. But they were too late; the mischief had been done; the boom went on, howaver; deposits were diverted from the bona fide banks of issue to so-called "banks" engaged in land division, for the sake of an extra 1 or 2 per cent, of interest. But money from Britain came pouring in, Professor Shann says, these British deposits were "collected by agents, largely Scot lawyers, helped on by London boards of advice, with ex-Governors, ex-Premiers, and Agents-General as figureheads." ' .- ROOT CAUSE OF THE SMASH. But the immediate cause of the smash was "the sunken road" of the Battle of Waterloo, represented by the continuance of the fall in the price of wool. In London the Baring crash of November, 1890, resounded ' throughout the whole banking world; in December of the same year the Premier Building Association of Melbourne suspended payment. The debacle had begun! In Melbourne alone in between July., 1891 and August, 1892, twenty-one land and -finance companies crashed, and the Bank of Van Diemen's Land, an old-established and hitherto very strong institution, closed its doors; other banks followed in other parts of Australia. But some of them weathered the storm, saving themselves because they could not cave others. Professor Shann indicates certain analogies between the boom and smash of the eighteen-nineties and "our own spacious times." They are all, he says, traceable to the parallel growth of external debt; Australia is over-capitalised, and yet, a« in the 'eighties, production is slackening; Customs .revenue, as then, is expanding, affording the temptation to extravagant public expenditure. He regards borrowing in America as "piling Pelion on Ossa" in the nature of a second mortgage—money borrowed on heavier terms and stricter sinking fund provision than London demanded. Good prices, it is true, are now being received, for wool, wheat, and other products; but drought is taking its toll on output, and there is no certainty that world prices will remain stable. Now is the time to set Australia's house in order; next week, next 'year» may be . too late. Professor Shann's warning should not go unheeded in New Zealand considering how intimately the interests of this Dominion are connected with those of the Commonwealth of Australia.