Joseph Benedict Hockey, meet Edward William Foxall

Undertaking an analysis of the history of Australian monetary systems, I have been dutifully combing through original nineteenth-century literature examining the nuances of the free banking regime which once existed here. (For the record, I am a supporter of free-banking reform.)

One gem of a piece, though seemingly largely forgotten by modern economic historians, comes in the form of the pamphlet Financial Crises, Their Causes and Symptoms, by the Australian liberal, Edward William Foxall. The pamphlet was published by F. Cunningham & Co. in Sydney in 1895, and serves as a revised version of four articles printed in the Sydney Daily Telegraph newspaper in 1892 and 1893.

Briefly, Foxall widely spreads blame for the early 1890s Depression, with a particular focus upon landowners, mortgagees, other land purchasers, and lenders in fomenting an inflation of land values well in excess of what could be perceived as their ‘fundamental’ values. (Foxall, it should be noted, erroneously subscribed to Georgist notions surrounding land taxation, but he was not alone on that front. For those interested, an excellent critique of this perspective can be found here.)

Almost nobody is exempt from blame, to some extent, for the financial crisis, in Foxall’s view, but he did reserve particular scorn for the meddling role of colonial governments during the period.

Governments not only restricted land supply for the benefit of propertied interests, and imposed legislative edicts allowing financial institutions to reconstruct on terms disadvantaging shareholders and depositors, but unnecessarily contributed to general economic hardship, during a precarious time, through its excessive spending on low-value (and negative value) ventures:

at no former period of our history was there such a load of debt on the country – a debt which, although the burden of the interest upon it is an enormously heavy one, is yet more serious from other considerations in connection with it, closely affecting our industrial and social prospects. For the bulk of this debt has grown from the exercise by successive governments of functions totally foreign to the purpose of their existence.

Foxall referred to some questionable uses to which the borrowings had been put:

while most people are aware that this profligate waste has been going on to an alarming extent, how few ever think of alluding to it as one of the principal causes of the present crisis? Yet such it undoubtedly is. We boast of our town-hall, our post-office, our lands-office, custom-house, and other government offices. We admire their stately designs, their artistic carvings, their granite porticoes, their marble floors, and elaborate fittings, without considering that it is just as possible for a country to go beyond its means in the direction of indulgence in luxurious and palatial architecture – at immense cost – as it is for a private individual; and that the same result must accrue in each case.

This pamphlet contains a quite brilliant explanation of the underlying public choice properties underpinning the exuberant growth in colonial-era public sector debt:

the man who was considered most likely to be able to secure the expenditure of large sums of public money in his electorate was the most likely to be returned as its member. … in a house of parliament composed of a number of such ‘representatives,’ as they were humorously termed, the member for Dead Man’s Flat could only get a bridge against his principal constituent’s door by supporting a similar proposal of the member for Sleepy Hollow. And if the member for White Dog Crossing wanted a railway connecting his electorate with the metropolis, he could only obtain it by promising to support the proposition to divert the route of some other railway 10 or 20 miles out of its natural course, in order that it might go through the land of the aunt of the member for One-Horse Hill.

The insidious effects of the public sector debt boom, wrought by the interplay of political actions that end up spending for today, and shifting paying the bill to a later date, were described by Foxall as follows:

it is very evident that as the power and influence of the state increase, it is at the expense of the importance, the self-reliance, the independence, and manhood of the individual citizen. The state has in this colony been for long the largest employer of labour, and the funds for carrying out the works upon which this labour has been employed have been obtained by mortgaging the future earnings of future labourers, and making present ones pay the interest on it.

The bottom line for Foxall was this:

The days of fictitious prosperity by the lavish expenditure of borrowed money is over.

There is little question that, as a moderate Liberal, Mr Hockey might actually be quite inclined to read Foxall with some interest.

After all, Foxall wrote (thanks for the financial support of liberal politician Bruce Smith) the quintessential critique of the odious and disgraceful ‘White Australia Policy’ in 1903, Colorphobia: An Exposure of the White Australia Policy (an excellent summary of the book has been written by David Kemp). An excerpt from the book, to get a sense of the inherent soundness and basic morality of Foxall’s position:

Throughout the whole of this book no attempt has been made to placate the colour prejudice. It is a sentiment to be apologised for, not apologised to. It is for the man or woman who enunciates the doctrine that a dark skin is something to be abhorred, to show cause why he or she should not be committed for contempt in the Court of Common Sense.

Recent newspaper reports that the government is contemplating reforms to the Australian welfare state, which is a key underlying culprit for our contemporary governmental debt bulge, seems like a heartening good start (but strictly only a start).

But yawning public debts forecast to be stretching out into the never-never, especially when the statutory federal debt ceiling was so wantonly trashed only a few short months ago, necessitate that the government clearly, and very soon, outlines its plan to relieve future generations of the burden of ‘freebies’ enjoyed in the present.

As Mr Hockey himself stated, in one of the most important political speeches in Australian history, the ‘age of entitlement’ is over. And so it is. But if he reads the 1895 Foxall pamphlet, as he ought to, he would surely also arrive at the conclusion that ‘the days of fictitious prosperity by the lavish expenditure of borrowed money is over.’

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20 Responses to Joseph Benedict Hockey, meet Edward William Foxall

  1. Driftforge

    For those interested, an excellent critique of this perspective can be found here.

    Apologies to the author, but it’s not a particularly incisive analysis of the way Georgist Land Rent works. Mind you, a lot of so called Georgist’s aren’t entirely aware of how it works either, so no fault there.

    The author is quite right that it isn’t a free lunch. It cannot be done ‘with impunity’. What land rent does is shift value from a capital asset into an variable annuity. From our starting point of freehold land title, the imposition of a land rent is, in practical terms, the outright theft of capital currently stored in land.

    But neither is there no rent to be had; if there was not, there would be no value in owning land. The capital value of land is the present value of the expected benefit of holding certain limited rights to the monopoly use of that land — including in a freehold title system the capacity to on-sell that title at some point — discounted by some proportion in light of risks.

    The basic claim that George made was that the contract between community and monopolist that land title forms should not be framed as a perpetual transfer of rights for a fixed sum, but rather a perpetual transfer for an ongoing rent, based upon the market value of the land each year.

    The difference between that stream and the capital originally paid for the land, at first grant is the unearned rent that flows to a land title holder, that under a Georgist arrangement would instead be being collected on behalf of the community who are the ones providing the forbearance of allowing monopoly use that land.

    The value is real, and substantial, and is hidden in plain sight on the assets and liabilities page of the books. Georgism (correctly) claims that there are benefits to pulling that off the A&L page and onto the current accounts. There are also a whole host of complications that need to be sorted through.

    Under Georgism, if land supply is restricted, then the government receives less in total and the ‘landed interests’ pay more.

  2. johanna

    the man who was considered most likely to be able to secure the expenditure of large sums of public money in his electorate was the most likely to be returned as its member. … in a house of parliament composed of a number of such ‘representatives,’ as they were humorously termed, the member for Dead Man’s Flat could only get a bridge against his principal constituent’s door by supporting a similar proposal of the member for Sleepy Hollow. And if the member for White Dog Crossing wanted a railway connecting his electorate with the metropolis, he could only obtain it by promising to support the proposition to divert the route of some other railway 10 or 20 miles out of its natural course, in order that it might go through the land of the aunt of the member for One-Horse Hill.

    Thanks for sharing this wonderful quote with us, Julie.

  3. Walter Plinge

    Bernard Woolley: “This M40 is a very good road.”

    Jim Hacker: “So is the M4. I wonder why we got two really good roads to Oxford, before we got any to Southampton, Dover or Lowestoft or any of the ports?”

    Bernard Woolley: “Nearly all our Permanent Secretaries went to Oxford, Minister. And most Oxford Colleges give very good dinners.”

    Jim Hacker: “And the Cabinet let them get away with it?”

    Bernard Woolley: “Certainly not, they put their foot down. They said no motorway to take civil servants to dinners in Oxford, unless there was a motorway to take Cabinet Ministers hunting in the Shires. That’s why when the M1 was built in the fifties it stopped in the middle of Leicestershire.”

  4. johanna

    Heh, Walter, I had forgotten that classic exchange.

    It reminds me of a certain Queensland Premier who had a sealed road built to his farm.

    Despite all the media fluff about the importance of Twitter and so on, at the fundamental level politics doesn’t change very much, if at all.

  5. H B Bear

    Hockey better deliver after all this BS rhetoric.

    Apart from whacking the boaties, there isn’t a lot of stuff to give you hope that they will.

  6. David

    Must be a “Premier” thing. Henry Bolte had the road to his farm sealed when he was Premier of Victoria.

    Having said that old Henry was a “get it done” Pollie. Not too many of those around now.

  7. stackja

    ‘the days of fictitious prosperity by the lavish expenditure of borrowed money is over.’

    Julie, a quote I have seen in Liberty Quotes says something about educating the people to accept the impossible, as I remember. Joe needs all the help he can get to get the message across about budgets. MSM will not help. It is up to the knowledgeable here and at other allied sites to do the job. I know about household budgets but will leave the national budget to others. Although a national budget should be like the household budget most people follow.

  8. Michel Lasouris

    This time,I really would like someone who reads Catallaxy, and knows what she/he is talking about to explain to me in simple terms why, when the Stock indices of all those countries that Swan said envied Australia ( US, UK, Japan. France ,Germany et al) long since recovered their pre-GFC levels……while Australia STILL hovers at about 80% of that high point, (5500/6600)
    Along with this glaringly poor performance, my pension fund is also only 80% of it’s previous worth.
    The high Oz$ has done incalculable damage to our economy when many of our global competitors deliberately kept their currencies below par ( Japan, China, US)
    My income ( largely derived from a State Pension in the UK) has also suffered egregiously; who else would tolerate a 10% swing in their basic income? Meanwhile, those who scuttled off to their original “motherland” on retirement, bleed Australia whilst living high on the hog in so called “developing “economies, or European basket cases.
    Perhaps I sound a bit negative? Too damn right!
    Would not a quietly applied spot of quantitative easing help Australia along?

  9. stackja

    Liberty Quotes
    Unlike private enterprise which quickly modifies its actions to meet emergencies — unlike the shopkeeper who promptly finds the wherewith to satisfy a sudden demand — unlike the railway company which doubles its trains to carry a special influx of passengers; the law-made instrumentality lumbers on under all varieties of circumstances at its habitual rate. By its very nature it is fitted only for average requirements, and inevitably fails under unusual requirements.
    — Herbert Spencer

  10. johanna

    Michel Lasouris

    The high value of the Aussie $ significantly reflects international confidence in our economy. Would you be happier if it was down with the Argentinian peso?

    The performance of currencies and stock markets cannot be supported for any length of time by “quantitative easing”, aka printing money. If only it was that simple. In reality, the chickens eventually come home to roost, because currency without the substance to back it always comes to the same, sticky, end.

  11. Eyrie

    Michel Lasouris, you mean we should debase our currency and steal from savers? May I politely suggest you fuck off back to the UK.

  12. hzhousewife

    Liberty Quotes
    Unlike private enterprise which quickly modifies its actions to meet emergencies — unlike the shopkeeper who promptly finds the wherewith to satisfy a sudden demand — unlike the railway company which doubles its trains to carry a special influx of passengers; the law-made instrumentality lumbers on under all varieties of circumstances at its habitual rate. By its very nature it is fitted only for average requirements, and inevitably fails under unusual requirements.
    — Herbert Spencer

    Much like hospital emergency departments….

  13. I am the Walrus, koo koo k'choo

    A great find, Julie, well done. Good to see that common sense survives through the ages, even if it is only rare.

    Extra points for knowing that the correct past participle of ‘wreak’ is ‘wrought’.

    Michael Lasouris: following the crash of equity markets from September 2008 to March 2009, and the freezing of many commercial lending markets, the local banks asked their debtor companies to raise new capital on the equity markets, in order to be able to pay off their debts.

    The subsequent raisings diluted existing shareholdings. This dilution is he reason why, while market capitalisation has recovered, the market indices have not.

    I think, however, that the accumulation index is above where it was in September 2008. Got to reinvest this dividends, my boy ;-)

  14. I am the Walrus, koo koo k'choo

    ‘those dividends’

    Fracking spellcheck.

  15. stackja

    Liberty Quotes
    Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
    — Adam Smith

  16. stackja

    hzhousewife
    #1264786, posted on April 14, 2014 at 6:08 pm

    Liberty Quotes
    Unlike private enterprise which quickly modifies its actions to meet emergencies — unlike the shopkeeper who promptly finds the wherewith to satisfy a sudden demand — unlike the railway company which doubles its trains to carry a special influx of passengers; the law-made instrumentality lumbers on under all varieties of circumstances at its habitual rate. By its very nature it is fitted only for average requirements, and inevitably fails under unusual requirements.
    — Herbert Spencer

    Much like hospital emergency departments….

    Since Gough changed the hospital emergency departments. Out went the efficiency.

  17. Since Gough changed the hospital emergency departments

    Don’t know that story.. what happened there?

  18. Tel

    But if he reads the 1895 Foxall pamphlet, as he ought to, he would surely also arrive at the conclusion that ‘the days of fictitious prosperity by the lavish expenditure of borrowed money is over.’

    The observation that we have spent more than a hundred years re-learning what was already well known would suggest it isn’t over. We could perhaps hope for some temporary relief.

  19. Michel Lasouris

    Eyrie, you completely miss the point. As with most of your ilk, there is no shade of grey in your black and white world. Nobody ever suggested that the Oz$ should equate with the Argentine peso.
    The Yanks managed Q E well. and it assisted in keeping their currency competitive enough to rebuild a damaged economy; likewise the Japs and the Chinese. You don’t even manage to answer the basic question. As to your wish to be polite, don’t you think you rather spoiled your argument? Truth is that I contribute more to the Australian economy than you ever could. Please be civil in future, or go and explete where people like you revel in insulting each other

  20. wreckage

    The observation that we have spent more than a hundred years re-learning what was already well known would suggest it isn’t over. We could perhaps hope for some temporary relief.

    Everyone wants to believe that if they just vote in The Good King, he will fix everything. Now, if government spending couldn’t magically fix the economy, the whole fantasy would disintegrate, leaving people staring at a (to them) very frightening world. They don’t like that. Therefore government spending must be able to fix the economy.

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