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.’