Hostname: page-component-78c5997874-j824f Total loading time: 0 Render date: 2024-11-15T02:01:01.086Z Has data issue: false hasContentIssue false
  • English
  • Français

The Australian Bank Crashes of the 1890s Revisited

Published online by Cambridge University Press:  28 October 2013

David Tolmie Merrett
Get access Rights & Permissions [Opens in a new window]

Abstract

In the early 1890s, financial crises occurred in many countries, most of which were connected to international capital flows. Australia, a major importer of capital, had difficulty borrowing after the Baring crisis of 1890. This article argues that local factors shaped the consequences of the banking crash in early 1893. A fortuitous legislative change averted a calamity by allowing for reconstruction rather than liquidation of banks, economic activity was depressed as banks became more conservative lenders, and the reconstructions reduced the wealth of domestic bank creditors and shareholders. The article concludes by noting that there was no targeted policy response in the short or medium term to prevent a recurrence of such an event.

Type
Research Article
Information
Business History Review , Volume 87 , Issue 3 , Autumn 2013 , pp. 407 - 429
Copyright
Copyright © The President and Fellows of Harvard College 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 For a review of the historiography, see Merrett, David Tolmie, “Australian Banking Practice and the Crisis of 1893,” Australian Economic History Review 24 (Mar. 1989): 11Google Scholar; and “Preventing Bank Failure: Could the Commercial Bank of Australia Have Been Saved by Its Peers?” Victorian Historical Journal 64 (Oct. 1993): 122–25Google Scholar; and Hickson, Charles R. and Turner, John D., “Free Banking Gone Awry? The Australian Banking Crisis of 1893,” Financial History Review (Oct. 2002): 33Google Scholar.

2 Reinhart, Carmen M. and Rogoff, Kenneth S., This Time It Is Different: Eight Centuries of Financial Follies (Princeton, 2009)Google Scholar; Bruner, Robert F. and Carr, Sean D., The Panic of 1907: Lessons Learned from the Market's Perfect Storm (Hoboken, 2007)Google Scholar; Allen, William A. and Moessner, Richhild, “The International Propagation of the Financial Crisis of 2008 and a Comparison with 1931,” Financial History Review 19 (Aug. 2012): 123–47CrossRefGoogle Scholar. On the roots and wider implications of the recent US financial crisis, see Ryan, Andrea, Trumbull, Gunnar, and Tufano, Peter, “A Brief Postwar History of US Consumer Finance,” Business History Review 85 (Autumn 2011)CrossRefGoogle Scholar.

3 Grossman, Richard S., Unsettled Account: The Evolution of Banking in the Industrialized World since 1800 (Princeton, 2010)CrossRefGoogle Scholar.

4 Michael D. Bordo and John S. Landon-Lane, “The Global Financial Crisis: Is It Unprecedented?” Paper presented at 2010 EWC/KDI Conference on Global Economic Crisis: Impacts, Transmission, and Recovery, Honolulu, Hawaii, 19–20 Aug. 2010, Appendix 11, http://www.ssc.wisc.edu/~mchinn/01Bordo-Lane-Aug2010.pdf, accessed 15 Aug. 2012; Reinhart and Rogoff, This Time It Is Different, Appendix A3, 344–45.

5 Bordo and Landon-Lane, “Global Financial Crisis,” 6.

6 New South Wales Government Statistician's Office, New South Wales Statistical Register, 1893 (Sydney, 1894)Google Scholar, Public Finance, Table 21.

7 Economist, 6 June 1891, cited in Ferns, H. S., Britain and Argentina in the Nineteenth Century (Oxford, 1960), 461Google Scholar.

8 Boehm, E. A., Prosperity and Depression in Australia, 1887–1897 (Oxford, 1971), 315–16Google Scholar; Barnard, Alan, “Government Finance,” in Australians: Historical Statistics, ed. Vamplew, Wray (Sydney, 1987), 254–87Google Scholar.

9 Chay Fisher and Christopher Kent, “Two Depressions, One Banking Collapse,” Research Discussion Paper 1999-06, Reserve Bank of Australia, Sydney, 1999.

10 Butlin, Sydney James, Australia and New Zealand Bank: The Bank of Australasia and the Union Bank of Australia Limited, 1828–1951 (London, 1961), 288Google Scholar; Butlin, Noel George, Investment in Australian Economic Development, 1861–1900 (Cambridge, U.K., 1964), 4281–130Google Scholar.

11 Butlin, S. J., Australia and New Zealand Bank, 301Google Scholar.

12 For a summary of the initial schemes see Australasian Insurance and Banking Record (July 1893): 661–63, 688–91Google Scholar.

13 Butlin, Sydney James, Hall, Alan Ross, and White, Roland Charles, Australian Banking and Monetary Statistics, 1817–1945 (Sydney, 1971), Table 51Google Scholar.

14 Boehm, Prosperity and Depression, Table 67; Bailey, J. D., “Australian Borrowing in Scotland in the Nineteenth Century,” Economic History Review n.s. 12, no. 2 (Dec. 1959): 268–79Google Scholar.

15 Merrett, , “Preventing Bank Failure,” 129–30Google Scholar.

16 The Patterson Ministry assumed office on the 23 Jan. 1893. Hughes, Colin A. and Graham, B. D., A Handbook of Australian Government and Politics, 1890–1964 (Canberra, 1968), 105–176Google Scholar.

17 Wood, Rodney J., The Commercial Bank of Australia Limited: History of an Australian Institution, 1866–1981 (North Melbourne, 1990), 182Google Scholar.

18 Hughes, and Graham, , Handbook of Australian Government, 101Google Scholar.

19 Boehm, Prosperity and Depression, Chart 40.

20 Merrett, “Preventing Bank Failure,” 126. The Treasurer, Godfrey Downes Carter, was a director of the Bank of Victoria, which suspended on May 10, and also a depositor in the Commercial Bank. Wood, The Commercial Bank, 182; Henry Rosenbloom, “Carter, Godfrey Downes (1830-1902),” Australian Dictionary of Biography, http://adb.anu.edu.au/biography/carter-godfrey-downes-3174/text4573, accessed 15 Aug. 2012.

21 Australasian Insurance and Banking Record (Apr. 1893): 236.

22 Ibid., 239.

23 Rosenbloom, “Carter.”

24 Boehm, , Prosperity and Depression, 314–15Google Scholar; Australasian Insurance and Banking Record (July 1893): 662Google Scholar.

25 Blainey, Geoffrey N., Gold and Paper: A History of the National Bank of Australasia Limited (Melbourne, 1958), 212–15Google Scholar.

26 Waugh, John, “The Centenary of the Voluntary Liquidation Act 1891,” Melbourne University Law Review 18 (June 1991–1992): 174Google Scholar. For descriptions of commercial practices of the time see Serle, Geoffrey, The Rush to be Rich: A History of the Colony of Victoria, 1883-1889 (Melbourne, 1971), ch. 8Google Scholar; Cannon, Michael, The Land Boomers (Melbourne, 1966)Google Scholar.

27 Wynne, Agar, “Companies Act Amendment Act,” Victorian Parliamentary Debates, vol. 69 (1892–1893), 213Google Scholar; Waugh, John, “Company Law and the Crash of the 1890s in Victoria,” University of New South Wales Law Journal 15 (1992): 381Google Scholar.

28 Wynne, , “Companies Act Amendment Act,” 394Google Scholar.

29 Ibid., 1446.

30 Carter, Godfrey Downes, “Companies Act Amendment Act,” Victorian Parliamentary Debates, vol. 70 (1892–1993), 3014Google Scholar.

31 Much of this paragraph draws from “In re the Commercial Bank of Australia Limited,” Victorian Law Reports (1893): 333–80Google Scholar. Quote at 333. Emphasis added.

32 Australasian Insurance and Banking Record (July 1893): 688–91Google Scholar.

33 Barnard, , “Government Finance,” G51–75Google Scholar.

34 I am greatly indebted to John Waugh of the Melbourne Law School for his guidance on these matters. He bears no responsibility for my interpretation. Personal communication with the author on 8 Aug. and 11 Aug. 2012.

35 Ruth Campbell, “Madden, Sir John (1844–1918),” Australian Dictionary of Biography, http://adb.anu.edu.au/biography/madden-sir-john-7453/text12981, accessed 30 July 2012.

36 Victorian Law Reports (1893): 369Google Scholar.

37 Ibid., 369.

38 “The Commercial Bank,” The Argus, 16 June 1893, 7Google Scholar. John Waugh brought this quotation to my attention.

39 Merrett, “Preventing Bank Failure,” Tables 4 and 5.

40 Meudell, George, The Pleasant Career of a Spendthrift (London, 1929), 79Google Scholar.

41 Beever, Margot and Beever, Alan, “Henry Gyles Turner,” in Australian Financiers: Biographical Essays, ed. Appleyard, Reginald Thomas and Schedvin, Carl Boris (South Melbourne, 1988), 130–32Google Scholar.

42 Teare, H. E., A Digest of the Banking and Currency Acts, Proclamations, Orders, etc. of Australia and New Zealand: Showing the Development of Banking and Currency from 1788 to Date (Sydney, 1926), 58Google Scholar.

43 Waugh, , “Company Law,” 366, 369Google Scholar.

44 Reconstructed Companies Act 1893, Victoria Act no. 1356, section 8.

45 Fisher and Kent, Two Depressions, One Banking Collapse, 3–6.

46 Boehm, , Prosperity and Depression, 322–25Google Scholar.

47 Ibid., 325.

48 Bordo and Landon-Lane, “Global Financial Crisis,” 24, 28. Michael D. Bordo and Joseph G. Haubrich, “Deep Recessions, Fast Recoveries, and Financial Crises: Evidence from the American Record,” Working Paper no. 18194, National Bureau of Economic Research, Cambridge, Mass., 2012, 1–2, 11.

49 Advances by colony from Butlin, Hall, and White, Australian Banking and Monetary Statistics, Tables, 13-18. Capital write offs from Merrett, “Preventing Bank Failure,” Table 5.

50 Boehm, Prosperity and Depression, ch. 11; Sinclair, William Angus, Economic Recovery in Victoria, 1894–1899 (Canberra, 1956)Google Scholar. For a recent account of the complexity of this episode see McLean, Ian W., Why Australia Prospered: The Shifting Sources of Economic Growth (Princeton, 2012), 113–32Google Scholar.

51 Butlin, Hall, and White, Australian Banking and Monetary Statistics, Table 51.

52 Ibid., Table 12, and Table 4 in this article.

53 David Tolmie Merrett, “The 1893 Bank Crashes and Monetary Aggregates,” Research Discussion Paper 9303, Reserve Bank of Australia, Sydney, 1993, Tables 4 and 6.

54 Schedvin, C. B., Australia and the Great Depression: A Study of Economic Development and Policy in the 1920s and 1930s (Sydney, 1970), 207, Table C-1Google Scholar; Schedvin, C. B., “A Century of Money in Australia,” Economic Record 49 (Dec. 1973): 601–5CrossRefGoogle Scholar.

55 Schedvin, , Australia and the Great Depression, 209–10Google Scholar.

56 Merrett, “The 1893 Bank Crashes,” Table 3.

57 Hall, Alan Ross, The Stock Exchange of Melbourne and the Victorian Economy, 1852–1900 (Canberra, 1968), Table 12Google Scholar.

58 Yule, Peter, William Lawrence Baillieu: Founder of Australia's Greatest Business Empire (Melbourne, 2012), Part 2Google Scholar.

59 Boehm, Prosperity and Depression, Tables 65 and 67.

60 Ibid., Table 64.

61 Butlin, N. G., Investment in Australian Economic Development, 159Google Scholar.

62 Australasian Insurance and Banking Record (Sept. 1893): 847–49Google Scholar.

63 Butlin, N. G., Investment in Australian Economic Development, 436–40Google Scholar. For an account of the reconstruction schemes of the pastoral financiers see Merrett, David, Morgan, Stephen, and Ville, Simon, “Industry Associations as Facilitators of Social Capital: The Establishment and Early Operations of the Melbourne Woolbrokers' Association,” Business History 50 (Nov. 2008): 783–84CrossRefGoogle Scholar.

64 Butlin, Hall and White, Australian Banking and Monetary Statistics, Table 4(ii).

65 Hall, Alan Ross, The London Capital Market and Australia, 1870–1914 (Canberra, 1963), Table 11Google Scholar.

66 Cottrell, Philip L., “Great Britain,” in International Banking, 1870–1914, ed. Rondo Cameron and V. I. Bovykin (Oxford, 1991), 28–29Google Scholar.

67 Wilkins, Mira, “The Free-Standing Company, 1870-1914: An Important Type of British Foreign Investment,” Economic History Review n.s. 41, no. 2 (1998): 259–82Google Scholar.

68 Forster, Colin, Industrial Development in Australia, 1920–1930 (Canberra, 1964), Appendix 3Google Scholar.

69 Love, Peter, Labor and the Money Power (Melbourne, 1984), 20Google Scholar.

70 Butlin, Hall, and White, Australian Banking and Monetary Statistics, Tables 1 and 53 (ii).

71 Merrett, David Tolmie, “Paradise Lost: British Banks in Australia,” in Banks as Multinationals, ed. Jones, Geoffrey (London, 1990), 62–84Google Scholar; Merrett, David, “Global Reach by Australian Banks: Correspondent Banking Networks 1830–1960,” Business History 37 (July 1995): 70–88CrossRefGoogle Scholar.

72 Schedvin, , “Century of Money,” 598Google Scholar; Merrett, , “Australian Banking Practice,” 83–84Google Scholar.

73 For the Commercial Bank, see Beever, and Beever, , “Henry Gyles Turner,” 129–32Google Scholar. For the Union Bank see Butlin, S. J., Australia and New Zealand Bank, 318–19Google Scholar; and Merrett, David Tolmie, ANZ Bank: A History of the Australia and New Zealand Bank and Its Constituents (Sydney, 1980), 47–48Google Scholar.

74 Merrett, David Tolmie, “The State and the Finance Sector: Evolution of Regulatory Apparatus,” Australian Economic History Review 42, no. 3 (2002): 270CrossRefGoogle Scholar.

75 Butlin, S. J., Australia and New Zealand Bank, 142–45, 178–81Google Scholar. Bernard Attard, “Imperial Central Banks? The Bank of England, London & Westminster Bank, and the British Empire before 1914,” paper presented at the Eighth International Conference of the Historical Mission of the Bank of France, Paris, 15 and 16 Mar. 2012, http://www.banque-france.fr/la-banque-de-france/histoire/mission-historique/colloques-et-publications/8eme-colloque-international-de-la-mission-historique.html.

76 Gollan, Robin, The Commonwealth Bank ofAustralia: Origins and Early History (Canberra, 1968), 27Google Scholar.

77 Reserve Bank of Australia, Documents on Australian Monetary and Financial History, vol. 1 (Sydney, 1993), Documents 4–9, 5–15Google Scholar.

78 Sawer, Geoffrey, Australian Federal Politics and Law, 1901–1929 (Melbourne, 1956), 89–91Google Scholar.

79 Ibid., 91.

80 Faulkner, C. C., The Commonwealth Bank of Australia: A Brief History of its Establishment, Development and Service to the People of Australia and the British Empire under Sir Denison Miller, K.C.M.G., Governor, June 1st, 1912–June 6th 1923 (Sydney, 1923), 63–94 and 101–260Google Scholar.

81 Schedvin, , Australia and the Great Depression, 130–68Google Scholar.

82 For a perceptive account from the point of view of the private banks in their dealings with the Federal government and the Commonwealth Bank of Australia, see Butlin, S. J., Australia and New Zealand Bank, 340–54, 356–59, 366–76Google Scholar.

83 Goodhart, Charles, The Evolution of Central Banks: A Natural Development? (London, 1985), Appendix B, 90–174Google Scholar.

84 Coleman, William, Cornish, Selwyn, and Hagger, Alf, Giblin's Platoon: The Trials and Triumphs of the Economist in Australian Public Life (Canberra, 2006), 107–30CrossRefGoogle Scholar.

85 Boehm, , Prosperity and Depression, 275Google Scholar.