THE ANGE STOCK* E __ OF 1 -^MELBOURNE J^TAN D THE ttjmISit»* VICTORIAN ECONOMY 185^ = 1900 The small-scale pastoral ancl commer­ cial community of Victoria in 1850 did not need a stock exchange; by 1900, however, the institution was a well-developed one. How did this change come about? Throughout the greater part of the period 1850-1900 the predominant business of the share market was in mining securities. Gold-mining de­ velopments made possible the for­ mation of Melbourne’s first stock exchange in 1861. Increasing activity in gold-mining shares enabled its suc­ cessor (1865-84) to establish itself in a more enduring way. Silver at Broken Hill, gold in Western Australia, and copper in Tasmania, were vital to the early history of the Stock Exchange of Melbourne, as it has been known since 1884. The early history of the share market was associated also with railways, banks, insurance companies, gas companies, and government securities. Dr Hall undertook the writing of this book at the request of the Stock Exchange of Melbourne. He has writ­ ten not only a history of the Exchange to 1900 but a lucid study of the economy that nourished its development. The book will interest economists and historians, and the general reader as well — particularly the investor who is looking for a deeper understanding of the way in which a stock exchange operates.

Jacket design - Robin Wallace-Crabbe

Printed in Australia

t -

$A7-95 This book was published by ANU Press between 1965–1991. This republication is part of the digitisation project being carried out by Scholarly Information Services/Library and ANU Press. This project aims to make past scholarly works published by The Australian National University available to a global audience under its open-access policy. The Stock Exchange of Melbourne and the Victorian Economy 1852-1900 By the same author Australian Company Finance: Sources and Use of Funds of Public Companies, 1946-1955 (A.N.U., 1956) The London Capital Market and Australia, 1870-1914 (A.N.U., 1963) The Stock Exchange of Melbourne and the Victorian Economy

1852-1900

A. R. HALL

AUSTRALIAN NATIONAL UNIVERSITY PRESS CANBERRA 1968 First published 1968 This book is copyright in all countries subscribing to the Berne Convention; reproduction, in whole or in part, without written permission of the publishers, is forbidden. Printed and manufactured in Australia Registered in Australia for transmission by post as a book

Library of Congress Catalog Card no. 68—29045 National Library of Australia reg. no. AUS 68—145 Foreword

Some three years ago the Stock Exchange of Melbourne invited men, prominent in financial thought and opinion—both from home and abroad—to discuss with its members in open forum the present and future role of this institution. By the very nature of our industry, we of the Stock Exchange look to the future; but it is surprising that, at this symposium of self-analysis, discussion did not lead to an examination of the historical adaptation of the Stock Exchange to the life and times of the state and community in which it had developed for more than a hundred years. Nor has any historian up to this point of time undertaken any comprehensive study, and the story of the Stock Exchange must be gleaned from twTo or three histories of older member firms. Dr A. R. Hall has now most adequately filled this need with a record of events from the time of the formation of our Exchange in the early fifties until the turn of the century. Inevitably his history must be that also of the political and economic life of the young colony of Victoria, for the Stock Exchange has always reflected the important events of the community just as it does today. Those with interest in our domestic affairs will be pleased with the light Dr Hall has thrown on the confusion which surrounds the division of members and their subsequent reunion in 1885. The prob­ lems associated with personalities and principles are reflected quite clearly in our procedures today. I am delighted with the portraits Dr Hall has drawn of the men who, with wisdom and leadership, guided the Stock Exchange through its formative years and set up the standards of conduct. Robert Wallen, John Watson, and Gavin G. Brown are names in this era that have been too quickly forgotten, although those of Jonathan Binns Were and William Noall live on. Foreword Dr Hall has written a book with no other official support from the Stock Exchange of Melbourne than the free availability of any records that may have assisted him. It is his own interpretation of our history, but he writes a record of which we are quite proud. I thank him for it and hope that this work will stimulate further inquiry and lead to the recording of the equally interesting events of the second fifty years. C. T . Looker Chairman, Stock Exchange December 1967 of Melbourne

vi Preface

There are two reasons why this work, which set out to be a history of the Stock Exchange of Melbourne, has taken its present form. The first relates to the necessities of the availability of official stock exchange data which are negligible before the foundation of the present Stock Exchange of Melbourne in October 1884, even though this exchange is directly descended from the Melbourne Stock Ex­ change (1865 to 1884) and perhaps directly from the Stock Exchange (1861 to 1865?). The second relates to the requirement that any stock exchange history must devote much space to an examination of the economy in which it functions. If there had been a greater supply of stock exchange records (and of records of individual broking firms), and if there had been in existence many more detailed research studies of the economy of Victoria than there in fact are, the period covered and the balance of emphasis on the history of the economy and on institutional history would probably have been significantly different. Even so the shift in emphasis would only have been a matter of degree. Because a stock exchange is a medium through which so many savings and investment decisions gain expression, its role can only be properly interpreted when its history is firmly embedded in the economy of which it is a part. However uneven the balance between these two aspects may be in this particular work, the intention that the evidence should be assembled so as to make clear the constant interplay between the stock exchange and the economy is assuredly the right one. The one major hostage to fortune which this approach to stock exchange history involves is that it makes it very difficult to give proper weight to the excitements of speculation, to the pleasures of individual profit-takers, and to the sufferings of individual losers. These inevitable attributes of life on the stock exchange, particularly in its nineteenth-century context, have not had justice done to them. This, perhaps, is not so

vii Preface much a matter of sheer necessity as of the temperament and literary skill of the author, which to this extent must be found wanting. As this work was intended from its outset for a wider than academic audience, and as an important part of the sources used is not freely available to the public, it has been decided to dispense with the scholarly paraphernalia of footnotes. Other than when use has been made of the private records of the Exchange, my indebtedness to the major public sources, especially to the files of the Argus and the Australasian Insurance and Banking Record, has been woven into the text as far as this is practicable. Any scholar familiar with the period should have little difficulty in retracing my footsteps if he so desires. Some guidance for the general reader on the nature of the sources used is given at the end of the book. In a work of this type the writer is naturally indebted to a large number of people, most of whom, including the authors of published material, will have to be satisfied with a general acknowledgment of the assistance they have provided. I nevertheless need to thank a few individuals: Mr G. Blainey for private comments as well as for his published work; Mr B. Shields for his assistance in locating stock exchange and stockbroking records; Dr D. T. Brash for some of the estimates of the market value of listed securities, and for his work, largely unrewarding, on an index of gold-mining company share prices from 1880 to 1900; Mrs J. Lynravn for her help in assembling the photographs used in this work. The tradition of the Stock Exchange against advertising, even though it was not fully developed in the period surveyed, forbids me to do other than thank the members generally for their assistance. Amongst the officials of the Exchange I am especially grateful to Mr E. L. Grimwood, who took a keen interest in the work from its beginning to its completion, to Mr C. J. Smith, and to the Secretary of the Exchange, Mr R. B. Lee. Finally I must thank the successive Chairmen and Committee members of the Exchange who have permitted me completely free access to the records of the Exchange and who have imposed no vetoes upon the uses to which their private records have been put. These acknowledgments would also be incomplete if there were no word of thanks to the Australian National University Press for the way in which it has converted my manuscript into this finished product. A. R. H.

viii Contents

page Foreword, by C. T. Looker v

Preface vii

1 The Emergence of a Share Market, 1852-1858 1

2 The Trials of Forming a Stock Exchange, 1859-1865 13 Preconditions for a Supply of Gold-mining Securities 13 Victoria’s First Mining Company Boom, 1859 18 The Formation and History of Melbourne’s First Stock Exchange 22 The Share Market and Its Economic Setting, 1860-5 35 Sharebroking in the Early 1860s 44

3 The Melbourne Stock Exchange, 1865-1884 48 The Shape of the Victorian Economy, 1865-84 48 The Interplay of the Economy and the Share Market, 1865-8 57 Economic Fluctuations and ‘Investment’ Shares, 1869-71 69 The Quartz Mining Boom, 1869-71 73 The Economy and the Share Market, 1871-9 84 The Economy and the Share Market, 1880-4 92 The Melbourne Stock Exchange, 1865-84 99

4 ‘Not often, nor for long . . . characterised by monotony’: 1885-1893 113 The Contours of Victorian Economic Development, 1885-93 114 Towards the Boom, 1885-8: a Narrative of the Economy 126 The Share Market, 1885-8 133 Slackening of Groiuth, Its Cessation and the Slump, 1889-93 147 The Share Market, 1889-93 161

ix Contents page 5 The Stock Exchange of Melbourne, 1884-1893 177 Vigorous Growth, 1884-90 177 Reactions to Depression, 1890-3 192 The Huh of Australia’s Financial Centre 197

6 Maturity through Adversity, 1893-1900 201 The Victorian Economy, 1893-1900 201 Fluctuations in the Economy 207 Rebirth of a Bond Market 215 The Share Market 221 The Response of the Stock Exchange 233

Appendixes 1 Stock Exchange Chairmen, 1861-1900 241 2 Number of New Company Listings at the Stock Exchange of Melbourne, 1887-1900 242 3 New Loans and Debentures Listed at the Stock Exchange of Melbourne, 1893-1900 243 4 Divide?ids from Public Companies in Victoria, 1867-98 244 5 Trading Banks: Deposit and Advance Rates in Victoria, 1866-1900 246 Notes on Sources 249 Index 255

X Figures

page

1 Melbourne bank clearings and Victorian imports, 1865-84 49

2 Selected employment series for Victoria, 1865-84 56

3 Bank interest rates in Victoria, 1866-84 71

4 Melbourne bank clearing house returns, 1879-84 92

5 and 6 Some economic indicators, 1885-93 115, 116

7 and 8 Some economic indicators, 1891-1900 202, 203

9 Prices of Stock Exchange seats, 1892-1900 222

MAP Gold towns of Victoria 16 (Based on a map that appeared in The Rush That Never Ended (1963) and reproduced by permission of the author, Geoffrey Blainey, and Melbourne University Press)

xi Plates

facing page

1 The Hall of Commerce, home of the Stock Exchange from 1862 to 1880 82

2 The Exchange when newly erected in Collins Street in 1880 82

3 The entrance to the Stock Exchange building, as it was from 1891 to 1924 83

4 The western end of Collins Street, with its ‘high rise’ buildings, in 1893 98

5 On the rostrum at a call room meeting, 1896 98

6 Chairmen of the Stock Exchange 99

Plates 1-3, Plate 5, and the portrait of John Watson are from the collection of the Stock Exchange of Melbourne, and reproduced with permission. Plate 4 is reproduced with the permission of Mrs U. Trumble and the State Savings Bank of Victoria. The portrait of William Noall is reproduced with the permission of Wm. Noall & Son. The portrait of J. B. Were is from a painting by William Dargie, and reproduced with the permission of J. B. Were & Son. The portrait of Robert Wallen is reproduced by permission of Clarke & Co.

xii Tables

page

1 Value of shares listed in Melbourne, July 1860 and April 1865 37

2 Male population, including Chinese, in Victoria, 1861-91: age distribution 50

3 Regional population changes in Victoria, 1861-91 53

4 Market value of Melbourne stocks and shares, 1865-84 58

5 Public company dividends in Victoria, 1868-71 74

6 New gold-mining companies registered, 1868-72 81

7 Victorian gold-mining companies: dividends and calls, 1871-9 89

8 Victorian gold-mining companies: dividends, 1880-4 97

9 New companies registered in Victoria in 1888 145

10 Stock Exchange of Melbourne: number of transactions at call room meetings, 1886-92 162

11 Market value of Melbourne stocks and shares, 1884 and 1889 169

12 Market value of Melbourne stocks and shares, 1889 and 1900 230

13 Twelve largest companies, September 1900 232

xiii 1 The Emergence of a Share Market, 1852-1858

Part of the fascination of the history of the stock and share market in Victoria is that, although surviving historical records are not as complete as one might like them to be, its growth can be traced ab initio in a way that is not possible in the much older European communities, or even in the slightly older settlement of New South Wales. Within months of its proclamation as a separate colony and on the eve of its gold discoveries the population of Victoria at the census of March 1851 was 77,345. Melbourne, with a population of 23,000, already showed signs of that degree of urban concentration which was to be a persistent feature of Australian economic life, but at this stage it was still no more than a provincial town, the commercial centre of a widely scattered pastoral economy. An economy of this type and on this scale clearly provided little scope for dealing in shares, but it was not without financial facilities. There were two well-established trading banks, the Bank of Aus­ tralasia and the Union Bank, and another, the Bank of New South Wales, was in the process of establishing a branch. Together with those individuals and partnerships which were to develop into the pastoral finance companies of a later period these banks provided more or less adequately the financial services that were necessary for the growing, shipping, and marketing of the wool clip. Related insur­ ance services were mainly provided by agents of English companies but there were also a few small local companies. Life insurance busi­ ness was conducted on a very small scale, either by the agents of these same English companies or by the agency of the Australian Mutual Provident Society which had been set up in Melbourne a year after the society’s formation in Sydney in 1849. Some attempt had been made to provide for the needs of small-scale borrowers and lenders by the establishment of a few terminating building societies and, more

1 The Stock Exchange of Melbourne importantly, by the formation of the Port Phillip Savings Bank (fore­ runner of the present State Savings Bank of Victoria). The latter, indeed, was approaching the end of its first decade of service. As befitted a society in which land was the main income-earning asset, a fairly well developed mortgage market, both rural and urban, had emerged, but partly because of the size of the economy and partly because of then prevailing attitudes towards forms of business organi­ sation, shares were a rarity and there was no share market, not even one comparable with that which had emerged in the older, larger, and more complex economy of contemporary Sydney. While the rate of growth of Victoria’s economy in the years immedi­ ately preceding 1851 was quite high, the growth was occurring on a small base, and the general impression of the pre-gold society that one obtains from such works as Gyles Turner’s History of the Colony of Victoria is one of a well-ordered provincial community. Into this small-scale, relatively placid financial and economic world erupted the gold discoveries of the latter part of 1851. Within a year Victoria’s population doubled. At first the traditional economy was thrown into almost complete turmoil, but this phase of severe dislocation was fairly short-lived. Alluvial gold prospecting was tough, back-breaking work and while a considerable number of diggers probably made earnings which were high by prevailing standards really large fortunes were relatively few and there were many who barely earned a living. It was therefore not long before there was a steadily growing stream of ex­ diggers returning to their original occupations either in the country­ side, in the new towns which were springing up in the goldfields, or in the older seaports of Geelong and Melbourne. The enormous increase in expenditure which accompanied the change from no income from gold in the first half of 1851 to some seven or eight million pounds’ worth in the second half of 1852 meant that there were ample employment opportunities for disgruntled ex-diggers or for that proportion of new immigrants that decided from the outset that life on the diggings was not for them. The major change in the level of Victoria’s national income which occurred during 1851-2, the doubling of its population and the pros­ pects of further rapid growth of both income and population, meant that some investment opportunities emerged which were relatively large-scale and which, in consequence, required the pooling of the capital resources of a large number of people. Foremost of these was the provision of rail transport from the port of Melbourne to the city itself and from Melbourne and Geelong to the major goldfields. The provision of additional banking services was another. So too was the

2 Emergence of a Share Market, 1852-8 need to establish roads and other municipal services in the ports of Melbourne and Geelong. It was the emergence of investment needs of this type that provided the background to the publication of what appears to be the first Melbourne stock and share list in the Commercial Intelligence columns of the Argus on 18 October 1852. It was published under the name of Edward Khull, ‘Stock and Share Broker’, who thus has the distinction of being Melbourne’s first broker. The list consisted of fourteen companies: five banks—the Bank of Australasia, the Union Bank, the Bank of New South Wales, the Commercial Banking Com­ pany of Sydney, and the Bank of Victoria; three railway companies— the Melbourne and Hobson’s Bay, the Melbourne and Mount Alex­ ander, and the Geelong and Melbourne; and five others—the City of Melbourne Gas and Coke Company, the Melbourne Water Company, the Victoria Insurance Company, the Victorian Gold Escort Company, and the Australasian Steam Navigation Company. This list, which continued in basically the same form for many years but which grew in size only gradually, was published at regular intervals until the end of the 1850s, when it was replaced by a list issued under the authority of a group of brokers. Its publication is the first clear sign that a market in shares as distinct from occasional ad hoc sales was beginning to take shape. Closer inspection reveals that this share list was something of a false dawn. Of the fourteen companies two were London-based banks, the shares of which were largely owned by British investors, and three were established Sydney companies, only one of which, the Bank of New South Wales, was dealt in at all frequently in Melbourne. Of the remaining nine local companies only two were to give shareholders prompt returns. Significantly both of them were financial companies, the Bank of Victoria and the Victoria Insurance Company, and both had the same chairman, the eminent local politician Henry (‘Money’) Miller. Of the others only two more, the City of Melbourne Gas and Coke Company and the Melbourne and Hobson’s Bay Railway Com­ pany were, in due course, to justify their shareholders’ original expectations. What were the conditions that account for the rather chequered record of these early Melbourne companies? A major part of the answer to this question is that the early 1850s was a most inauspicious time to be engaged on large capital outlays in Victoria. The discovery of accessible wealth of the order of that to be obtained on the Vic­ torian goldfields in the context of such a small community as that of Victoria in 1851 meant a rapid increase, more than doubling, of prices

3 The Stock Exchange of Melbourne and costs in a short period and great difficulty in obtaining and retaining the services of skilled workers. Difficulties of this type are most evident in the experience of the Melbourne and Hobson’s Bay Railway Company whose original capital of £100,000 was expected to be ample to build and equip a little over two miles of railway and an associated shipping pier. In fact the actual cost was a little short of £383,000, the cost per mile of track being £134,500. Such was the volume of traffic on this particular line that, despite these inflated costs, the company managed to pay quite high dividends in its early years and was to remain more or less profitable until it was finally absorbed into the government railway system in 1878. The much more ambitious Melbourne and Mount Alexander Rail­ way Company, which was floated with a nominal capital of £1 million and which was intended to run from Melbourne through the gold­ fields to the Murray River, was quite a different story. It managed to spend only £68,000 by the end of 1855, by which time public im­ patience virtually forced the government to take it over and so begin the history of the government railway system in Victoria. The Geelong and Melbourne Railway Company, intermediate in scale between the other two lines, was hardly more successful than the Melbourne and Mount Alexander. At a time when less ambitious projects were proving to be much more profitable it found difficulty in raising the required funds in Victoria. With the help of a govern­ ment guarantee of 5 per cent on its share capital it was in due course able to obtain the necessary funds, partly by share and debenture issues in London, but the line was ill-conceived and the volume of traffic, after it was opened in 1857, was insufficient to produce an income large enough to cover its interest bill, let alone to pay divi­ dends on its shares. To further complicate its story the directors of the company used the money received from the government under its 5 per cent dividend guarantee to pay debenture interest. This naturally incensed the British shareholders. Their reaction resulted in a com­ plicated dispute between the British shareholders, the company, and the government which was only settled by the government purchase of the line in 1858. Problems of unanticipated increases in costs, revisions of planned scale of operations, delays in establishment and construction, and difficulties in obtaining the required finance, were not confined to the railway companies. While the City of Melbourne Gas and Coke Company did become a profitable enterprise, some five years elapsed between its original formulation late in 1850 and the first production

4 Emergence of a Share Market, 1852-8 of gas at the beginning of 1856. In the intervening period it saw its original intended plant cost of £20,000 grow to approximately £150,000 (for a significantly larger plant); its initial request for incor­ poration by Parliament in 1852 refused (it was successful a year later); and such entries in its minutes as statements that the meeting had been abandoned because ‘The Secretary went to the diggings’. The conditions hindering the creation of securities suitable for the development of an active share market were not limited to the dis­ ruptive effects of the gold discoveries on the general organisation of the economy. At the time of the October 1852 share list not one of the local Victorian companies possessed limited liability for its share­ holders. Limitation of liability for companies via registration with the Registrar of Companies, more or less in the modern manner, was still twelve years ahead. In the early 1850s limitation of liability, which is virtually necessary for an active market in the shares of companies, if not for their formation, could only be obtained after investigation by a select committee of the legislature as the step towards obtaining an Act of Incorporation. Six of the nine local companies in the 1852 list were subsequently to obtain incorporation, three of them in the early months of 1853. In some cases, such as that of the Victoria Insurance Company, when the chairman of the company, Henry Miller, appeared before a select committee of which the same Henry Miller in his capacity as Minister of Customs was ex officio chairman of the committee, the obtaining of an act of incorporation was vir­ tually a formality. In others, such as that of the Melbourne Gas and Coke Company which has already been mentioned, it was not, and the process could and did involve costly delays. It was not merely archaic legal procedures that limited the forma­ tion of limited companies in the 1850s. Laws can be changed. The British Companies Act of 1855 could have been adopted in Victoria after a relatively short delay, just as the Victorian Trading Companies Statute of 1864 followed the British Act of 1862. Outside the gold­ mining industry, the special conditions of which will be examined in the next chapter, there was no widespread pressure for general limited liability legislation in Victoria of the 1850s. This lack of interest reflected the prevailing view that limited companies were appropriate only under special conditions. The dictum of Adam Smith, that joint stock companies should be confined to a limited range of activities, to those ‘capable of being reduced to what is called a routine, or to such a uniformity of method as admits of little or no variation’ such as banks, insurance, canals, and water works, was still widely accepted, though it had long been recognised that the same conditions applied

5 The Stock Exchange of Melbourne in public utilities like gas and railways. It is therefore no accident that the Melbourne share lists of the 1850s consist predominantly of financial institutions, banks and insurance, and of public utilities, gas and railways. Outside these fields the generally-held view, not only in Victoria but also in Britain, was that the form of business organi­ sation that was generally appropriate was that of the individual trader or of the small partnership. While this view prevailed, and it did for long after the 1850s in Victoria, there existed a significant limitation on the growth of the share market. Between 1852 and 1854 there was very little change in the Mel­ bourne share list. The only new additions were three English-based banks—the London Chartered Bank, the English, Scottish and Aus­ tralian Chartered Bank, and the Oriental Banking Corporation— which were of very little significance from the point of view of local share-dealings, and two apparently short-lived insurance companies, the Australian Marine Insurance and the Geelong Insurance Com­ pany. During the same period the Commercial Banking Company of Sydney, the Australasian Steam Navigation Company, the Melbourne Water Company, and the Victoria Gold Escort Company disappeared from the Melbourne share lists. One should not deduce from these few changes that there was no other company formation in these years. There certainly were attempts to form new companies. Thus the Votes and Proceedings of the Legislative Council in September 1853 include the names of six companies in the process of seeking acts of incorporation, but nothing more is heard of them. These companies and possibly others were presumably amongst the business failures that swept commercial Melbourne at the end of 1853 and in early 1854 as the tide of imports into Victoria became a flood glutting the market and causing widespread business havoc. In the subdued business scene of late 1854 it was the turn of public securities to contribute to the growth of the stock and share market. In order to finance very much needed urban improvements the City of Melbourne and the Town of Geelong issued 6 per cent debentures. Both institutions were induced to issue these loans by a London financial agent named Gabrielli. The loans were payable in London or Melbourne at the option of the holder and were guaranteed by the Victorian government, which also agreed to be responsible for their repayment in regular annual instalments. At first glance these securities seemed an attractive form of investment for banks, or so it appeared to the Bank of Australasia which took up half of both loans. The other two halves were floated in London, the Geelong by the Australasia and the Melbourne by the Union Bank.

6 Emergence of a Share Market, 1852-8 Thanks to Gyles Turner’s account of these operations in his History of the Colony of Victoria this episode is usually regarded as the pioneering step in Victoria’s long history of public borrowing abroad. So it was, but it also marked the beginning of a domestic market in government securities, for the Bank of Australasia was not long in selling part of its original Victorian holdings and was soon gratified to see the issues being quoted at a 4 per cent premium in Melbourne. S. J. Butlin’s account of the domestic side of these operations in his Australia and New Zealand Bank is a useful corrective to Turner’s lively but incomplete version, but he in turn exaggerates the impor­ tance of this step towards the development of a domestic government securities market. As will become apparent at a later stage it was to be a long time before the holding by banks of Australian public securities in Australia was to provide them with an asset which yielded a reasonably high return, was relatively liquid, and which was in plentiful supply. From the point of view of the development of a domestic bond market the trouble with government securities, which were payable in Melbourne or London at the option of the holder, was that they were virtually equivalent to an interest-bearing form of foreign ex­ change. As such they were not merely attractive to the Bank of Australasia but to anyone who wished to remit funds to London. It was therefore not long before a substantial part of that proportion of these securities issued in Melbourne found its way to London. The success of the Gabrielli operation and, in particular, the attractiveness of this form of security to Melbourne merchants, was noted by the Victorian government. Within six months or so of the municipal loans it took advantage of this situation without, needless to say, the willing but costly assistance of a Gabrielli. Towards the middle of 1855 it decided to fund the advances which it had already made for the construction of Melbourne’s first water supply system—the Yan Yean scheme—and to obtain finance for other public works by the issue of debentures for £600,000. These debentures were not placed on the market at one time but issued at intervals by public tender. As was to be expected from the experience of the municipal loans a large part of these offerings was taken up by merchants who wished to make immediate remittances to London or who wished to hold a 6 per cent security which at some future date could be so remitted. For similar reasons the trading banks were temporarily large holders. As much as £512,000 of government (including municipal) securities was held by them in the September quarter of 1855. This relatively large amount was reduced to about £20,000 by 1859. The one major

7 The Stock Exchange of Melbourne exception to this general rule occurred in June 1857 when £100,000 (£105,000 including premium) out of a total issue of £187,000 was taken up by the Commissioners of the Savings Bank (successors of the Port Phillip Savings Bank). This was an exceptional transaction for the Savings Bank, whose total assets at this time Avere £367,000 and which already held about £100,000 worth of government deben­ tures. It was not able to operate in government securities on this scale for another five years. This technique of indirect borrowing from London by the Victorian government, which followed earlier precedents set by the New South Wales government and which was clearly fostered by the offer for sale of the securities under headings such as ‘Transferable and remit- table debentures’, enabled it to raise a few hundred thousand pounds each year and was contributing towards the development of a small local market in government securities, but it was not a technique suitable for raising really large amounts. This was partly so because it was not the only claimant on the funds available for this type of investment. As early as 1854 the Newr South Wales government tried to tap the Melbourne market and in 1857 the South Australian government did likewise. When the consequences of the government’s take-over of the Melbourne and Mount Alexander Railway Company were fully realised, and it found itself faced, in 1857, with a commit­ ment to raise £8 million to finance its own trunk railway system, it had to seek alternative ways of raising funds. On this occasion Gabrielli, Avho had returned to the scene of his earlier triumph, was not so persuasive. Partly because of links between the trading banks and the government—the two major local trading banks wrere repre­ sented by directors in the Ministry—and partly because the banks now appreciated the threat to their control over the exchange market implied in optional Melbourne-London government securities, an agreement was reached with a consortium of all the then major banks in Victoria, henceforth knoAvn as the Associated Banks, whereby it would be responsible for floating loans in London for £7 million. These loans were to be payable in London only. The remaining £1 million wTas to be reserved for Victorian investors and was to be payable in Melbourne only. As the amount required for railway pur­ poses was not all raised at once, and as recourse was made initially to the London market, the next feAV years saw a marked decline in the turnover of government securities in the Melbourne market. While these developments were occurring in the market for govern­ ment securities, private company formation was not at a standstill. The commercial depression of 1854, following upon the excessive

8 Emergence of a Share Market, 1852-8 imports of 1853, had been accompanied by a decline in gold pro­ duction from about 3-1 million ounces in 1853 to about 2-3 million ounces in 1854, but this was a temporary decline. Increased population on the goldfields, new rushes, and new ways of re-working old ground, together meant a recovery of gold output to 2-8 million ounces in 1855 and to almost 3 million ounces in 1856. Under these conditions and with Victoria’s population still increasing at a very rapid rate— the net increase in the ‘depressed’ year of 1854 of about 90,000 is still the greatest absolute population increase during one year in Victoria’s history—the recession was short-lived. By the last quarter of 1854 there was certainly renewed interest in company formation. Thus in October 1854 there were four companies seeking limited liability through acts of incorporation. One, the Geelong, Ballarat and North Western Railway failed to get oft the ground, but the others, the Colonial Insurance Company, the South Yarra Waterworks Company, and the Melbourne Exchange Company, were reasonably successful ventures and all were to remain on the stock market lists for a number of years. With the possible exception of the Melbourne Exchange Company, which was formed to build a warehouse and provide meeting facilities for merchants alongside the Customs House, these companies clearly fall within those limits of acceptable public company formation that have already been indicated. This was to be true also of the majority of the new entrants to the stock market list for the remainder of the fifties. Most of the new public company formations of these years seem to have been stimulated by the success of companies already in operation. Thus the profitability of the Bank of Victoria was one of the reasons for the formation of the Colonial Bank of Australasia in the latter part of 1855 and of the National Bank of Australasia towards the end of 1858. The profitability of the Melbourne and Hobson’s Bay Railway Company, which within a year of its com­ mencing operations was paying dividends of 14 per cent, prompted the formation of other short suburban railway lines, the St Kilda and Brighton Railway Company in 1857 and the Melbourne and Essendon and Melbourne and Suburban in 1858. None of these newcomers lived up to the expectations of their founders. Finally, the success of the City of Melbourne Gas and Coke Company, and the high price which it charged for gas, induced a wave of provincial (Ballarat, 1856; Geelong, 1857; Castlemaine, 1858; Bendigo, 1859) and suburban (Collingwood and Fitzroy 1859) gas companies. To a modern reader the rate of company formation thus indicated will appear to have been slow\ It was slow, even when allowance is

9 The Stock Exchange of Melbourne made for the fact that by 1858 Victoria’s population was only atout half a million. One reason for this slow growth that has not yet leen mentioned was the cumbersomeness of the procedures involved even before application was made to the legislature for an act of incor­ poration. The formation of a new, relatively large, company at this time required a great deal of effort on the part of its promoters in organising public meetings, canvassing support, and in collecting the initial subscriptions. The details of these processes are well illustrated in Blainey’s narrative of the formation of the Colonial Ban! of Australasia and the National Bank of Australasia in the opening sections of his Gold and Paper. The preceding account of company formation is not an exhaustive description of company activity during these years. There were also a few oddities such as the St Kilda Sea Bathing Company which, with a proposed capital of £2,000, sought incorporation with limited liability in order to provide change-room facilities for the increasingly popular sea-bathing at St Kilda. Some of the older companies, such as the Melbourne Gas Company and the Melbourne and Hobson’s Bay Railway Company, raised additional capital either through new share issues or by the floating of debenture loans. There are also occasional references to companies which did not seek incorporation and to the sale of shares in non-Victorian companies such as the Tasmanian Steam Navigation Company (1855), the Burra Burra Mines (South Australia, 1857) and the London-based Port Phillip and Colonial Gold Mining Company (1858). Apart from the new issues of existing com­ panies none of the above-mentioned types of company added much to the volume of transactions in the share market. Despite the growth of securities available to the market until the middle of 1859 the opportunities for pursuing the career of a stock­ broker remained very limited. The total amount of securities issued in Melbourne was not very large and, as the high denomination of most of the shares issued indicates, the circle of investors was fairly confined. On both counts the volume of turnover was limited. Until 1857 or 1858 the only person who seems likely to have obtained a significant proportion of his income from share dealing was Edward Khull, whose original stockbroking address was 55 Collins Street. As we have seen he supplied the first formal ‘Melbourne Stock & Share List’ to the Argus in October 1852 and continued to provide this service for a number of years. In addition, almost throughout the fifties, he was the only broker who fairly frequently offered to buy or sell particular securities in the daily press. These advertisements grew in size from the four items offered early in 1853 to the eighteen

10 Emergence of a Share Market, 1852-8 items offered at the beginning of 1858. At this latter date sharebroking may have been his major source of income but it certainly was not earlier in the decade. At that time his main occupation was probably that of gold and bullion broker. His standing in this field is indicated by the fact that for a number of years he supplied the weekly commen­ tary included in the Argus Commercial Intelligence section on the Melbourne gold and bullion market. In 1852 he was also acting as a shipping and insurance broker. Apart from Edward Khull, the other people operating in the share market throughout most of the fifties appear to have done so in a very small-scale and intermittent fashion. The next firm known to have begun regular dealings in shares was W illiam Clarke & Sons. Its activities in this field can be traced back to 1854. By 1856 it was describing itself as a stock and share broker, but at this stage, like Edward Khull, it was primarily concerned with gold and bullion broking. As the present day firm of Clarke & Co. is directly descended from William Clarke & Sons it has the distinction of being the oldest existing firm with a continuous history of stock exchange dealings in Melbourne. Also making occasional share advertisements in 1856 were J. R. Fraser, whose chief occupation appears to have been that of estate agent, W. Philpott, auctioneer (and manager of the Hall of Commerce which began business early in 1856), and Vaughn and Wild, whose main transactions also appear to have been in real estate. In 1857 the unqualified description ‘stock and share broker’ appears more frequently. Hellicar and Comer, Danburghy and Baillie, and Baker and Renaud so describe themselves in the ‘Money’ section of the classified advertisements in the Argus in that year, but it is most unlikely that sharebroking was their sole activity. In a market in which sharebroking was more or less a sideline to auctioneering, real estate business, or gold broking, it was to be expected that buying and selling quotations were frequently wide apart, and that sales or purchases often could not be effected quickly without moving the price distinctly against the seller or the buyer as the case might be. The operators in this market were nevertheless not without resourcefulness. Thus in June 1857 the Argus reported: There has been more inquiry for money arising in great measure from the extent to which time bargains have been admitted into the stock and share market . . . Hobson’s Bay Railway have been done at £914 to £92 for cash and at £95 for account (three months). This attempt to encourage greater turnover in the market by copying some of the practices then prevailing on the London Stock Exchange failed, as was to be expected in a market as narrow as the Melbourne

11 The Stock Exchange of Melbourne market then was. It was not until much later in the century tlut time bargains (i.e. purchases and sales not for immediate delivery but for some specific future date) were to be a not uncommon mode of dealing. Lest this reference to time bargains should give a misleading impres­ sion of the degree of sophistication of the market another comment from a letter to the Argus in November 1856 should be reproduced. It runs as follows, giving a much more representative view: It has been a subject of constant and increasing complaint that while there are recognised marts and markets for every kind of produce, imported and otherwise, there is none for a larger and more important item in the wealth of the colony. We have banks established, railways formed, gas and other companies organising, all in shares, Government and corporation bonds; yet there is no recognised Stock and Share Exchange, where quotations of stocks and shares could be made to show a real market price . . . At present, stocks and shares are obliged to be hawked about, the same as any produce or article of consumption, causing irregularity in prices, without reference to the intrinsic value of the stocks and shares, and to the great dissatisfaction of both buyer and seller. From this time onwards the increasing volume of securities in the market, the growing circle of investors that this implied, and the larger number of firms engaged in stockbroking, were creating the conditions necessary for the establishment of a stock exchange. Tenta­ tive steps towards the formation of one were taken towards the end of 1857 but they proved to be premature. The then volume of tran­ sactions was simply not large enough to permit this degree of speciali­ sation of financial institutions. Thus for the greater part of the first quarter of 1858 the constant refrain of the weekly Argus share market reports was ‘The local stock and share market has been altogether without transactions’ . . . ‘without movement’ . . . ‘almost deserted’. Fairly clearly a few banks, a few insurance, gas and railway companies, and a relatively small volume of public securities (many of which tended to end up in London hands) did not provide a sufficiently broad base for a viable stock exchange. Yet within a year from the time when this description of the level of market activity applied, a largely increased population of brokers was giving very serious attention to the problems involved in the formation of a stock exchange. After still another eighteen months Melbourne’s first stock exchange was in fact to be formed. What was the catalyst that so transformed the share market?

12 2 The Trials of Forming a Stock Exchange, 1859-1865

Given gold's major role in the development of the Victorian economy it is only fitting that it should be directly responsible for the forma­ tion of Melbourne’s first stock exchange and for the continued exis­ tence of an exchange in Melbourne for the next twenty years or so. It was the different structure of the Victorian gold-mining industry, not merely its greater output, that accounted for Melbourne’s priority over Sydney in the formation of a stock exchange as distinct from a share market. The story of Victoria’s gold-mining industry is a complex one, but an essential preliminary to any further account of the Melbourne share market is an examination of those aspects directly relevant to the share market.

Preconditions for a Supply of Gold-mining Securities Two conditions had to be satisfied before the gold-mining industry could be in a position to act as a source of supply of securities suitable for the requirements of an organised share market. First, gold-mining operations needed to be conducted on a sufficiently large scale. Second, a suitable form of organisation of firms in the industry had to be developed. The first condition implies a demand for funds greater than that which could be provided by groups of working miners. The second involves the issue of negotiable securities. While in practice problems of scale and those involved in the development of negotiable securities were closely interrelated they are nevertheless analytically distinct. Moreover they required the evolution of two separate branches of mining law before both conditions could be satisfied. At the outset of the gold rushes the economic virtues of the division of labour and the common human desire for companionship soon ensured that the prevailing organisation of the gold-mining industry wras the small partnership. In the words of the 1855 Royal Commission

13 The Stock Exchange of Melbourne set up to report on conditions in the industry as a consequence of the Eureka uprising the original type of partnership was one where a number, varying usually from three to six individuals, agree to co-operate on equal terms in the various duties connected with excavating, transporting and washing. A division of proceeds [then] takes place either occasionally or after the working out of a claim; this latter occurrence terminating the concern; unless the parties are agreeable to resume upon another claim. While surface working prevailed and while, on average, the dif­ ference in returns from neighbouring claims was negligible, this system worked well. It neither required nor received specific legislative sanction. But before long this early simplicity ceased to prevail. By the time of the 1855 Royal Commission the situation had already become much more complicated. At Ballarat and at a number of other places a substantial part of the alluvial gold occurred not on the surface but in the beds of ancient rivers which were covered either with layers of clay, sand, and gravel or with layers of hard basalt. At Ballarat there was a distinct downward slope in the depth of working these ‘deep leads’ as they came to be called. Hence one major aspect of Ballarat alluvial mining, as distinct from the mining of its quartz reefs, was the search for gold at steadily greater depths. As early as 1855 the prevailing depths of working were from 40 feet to 110 feet and the average depth was steadily increasing. As the depth of working increased the accepted size of the average claim increased. So too did the number of partners necessary for reasonably efficient operations at these increased depths. Once again the effects of this on the organisation of the mining industry can best be summarised in the words of the 1855 Royal Commission. Deep sinking soon introduced complexities, which, as exemplified at Ballaarat, were still further increased by the accidents and un­ certainties of leads and gutters. The expense and delay of these sinkings rendered necessary a larger number in the copartnery, for the sake both of larger means and more effective staff. These under­ takings soon assumed the form of companies, with a ‘stock’ con­ sisting, besides the chance of gold, of some little plant, as slabs, windlass etc., and divisible into a fixed number of shares. These shares were transferable, and to meet the circumstances of all, were subdivisible. As the sinking proceeded the stock gradually acquired value, and, becoming marketable, was the subject of constant traffic. These developments occurred in a pragmatic fashion in response to gradually changing conditions and were still without legal recognition. Because it foresaw the development of mining on a still larger scale, rather than because it found the existing organisation inadequate, the

14 Forming a Stock Exchange, 1859-65 Royal Commission felt that the time was opportune for the govern­ ment to establish a set of rules to systematise the operation of mining partnerships. Its recommendations, which were guided by the system of ‘cost book’ mining partnerships which had a long history in Corn­ wall, were incorporated in the Mining Companies Statute of 1855 (18 Vic. No. 42). For reasons which are not yet clear the 1855 Act, despite its granting of limited liability to companies formed under it, failed to gain much acceptance. This was probably because of deep-seated political and economic conditions. Apart from the chance of ‘striking it rich’ the surface alluvial gold rushes of California and Australia of the mid­ nineteenth century presented independent-minded workers with the opportunity of earning a reasonable income on their own account or, as we have just seen, as an equal partner in a co-operative enterprise. Once freedom of this type was tasted by large numbers of diggers many of them were loath to return to normal wage labour. In consequence mining practices were adopted which would extend this ‘democratic’ phase as long as possible. These attitudes were reflected in the conventional size of claims which varied from time to time and from place to place but which always had as their object the maintenance of the minimum size of claim consistent with a reason­ able chance of earning a decent living from it. While co-partnerships were acceptable, involving as they did the amalgamation of a number of individual claims, companies, even if they were ‘cost book’ com­ panies, savoured of the ‘capitalist’ organisation of industry to which so many diggers were deeply opposed. When the whole administrative and legal structure of the gold­ mining industry was reorganised in 1855 the main mining statute, an Act to Amend the Laws relating to the Gold Fields (18 Vic. No. 37) vested authority for the detailed regulation of the goldfields in local mining courts whose members were elected by holders of a miner’s right. This naturally meant the maintenance of the tradition of the smallest possible claim for the largest number of diggers. Given the political strength of this view and its legal standing after 1855, and given that the depth of working of the mines was still within the practical limits of small mining partnerships whose mode of operation was determined by local conventions and regulations, there was little demand and little scope for the operation of the 1855 Mining Com­ panies Act. This remained true even after the important amending Gold Fields Act of 1857 (21 Vic. No. 32) separated out the judicial and executive functions of the 1855 mining courts by transferring judicial functions to a Court of Mines and leaving executive powers

15 The Stock Exchange of Melbourne with the local courts, which henceforth were to be described as mining boards. If the 1855 Mining Companies Act was a little premature in its timing and somewhat awkward in administrative structure, the vision

NEW SOUTH WALES

OVENS ST A*RNAUD BENDIGO GOLDFIELD HEATHCOTE • \ MARYBOROUGH • Mt A lexander I OMEO STAWELL " c a STLEMAINE

ARARAT CRESWICK® BLACKWOOD .WOODS POINT BALLARAT* •E G E R T O N • BUNINYONG •WARRANDYTE MELBOURNE •WALHALLA

GEELONG

MILES

Gold towns of Victoria that lay behind it w^as basically correct. Increasingly the early major alluvial fields were being worked out at readily accessible depths. None of the rushes of the middle and later fifties proved to be as

16 Forming a Stock Exchange, 1859-65 rich or as enduring as the older fields. At Ballarat the depth of work­ ing of the deep leads steadily progressed towards the 200 feet to 400 feet which was customary in the early 1860s, while at Clunes, Bendigo, Maldon, and a host of other places, an increasing proportion of the gold obtained was from quartz mining which, apart from a few rich surface outcrops, usually required relatively large-scale crushing machinery. As both deep lead and quartz mining increased in depth the difficulty of keeping flows of underground water in check in­ creased. Amongst other things the control of underground water involved the use of increasingly elaborate and more expensive pump­ ing machinery. In short the days of the independent digger on the major Victorian goldfields were numbered; for basic technical mining reasons the time of larger-scale operations, and with it the need for outside capital funds, was not far off. Larger-scale mining virtually depended upon the development of a system of Crown leasehold tenure of mining land and the granting of leaseholds over much greater areas than was permitted to holders of miners’ rights. Legal provision for Crown leases had been made as early as October 1852, but these regulations were not acted upon because of the violent opposition of the mass of the diggers. Similar provisions in the Gold Fields Statute of 1855 and in the 1857 Amending Act also proved inoperative. But the technical and economic facts of gold mining, as each year passed, increased the chances that leasehold tenure would become practicable in a political sense on the goldfields. By the mid-fifties the necessities of Ballarat deep leads mining had resulted in the practice of working mining partners pooling the areas of land to which they were entitled as holders of miners’ rights into a single proportionately larger claim. As the size of claims determined in this fashion increased it became progressively clear to working miners themselves that larger-scale land tenure was inevitable. Even for partnerships of working miners a single leasehold tenure of the appropriate size was much to be pre­ ferred to miner’s right tenure which involved multiple renewal each year. When this stage was reached it was but a short step to Crown leasehold tenure. In anticipation of the trend of events in 1858 the government published a model statement of the appropriate sizes and conditions of leasehold tenure as a guide to the local mining boards should they wish to adopt such a system. By the end of that year the Ballarat Board adopted basically this set of rules. Early in 1859 the boards for the Bendigo and Castlemaine districts followed suit. With the promulgation of these rules the last major obstacle to relatively large-scale mining disappeared.

17 The Stock Exchange of Melbourne Partly because the government increasingly recognised that the day of larger-scale mining was approaching, and partly because of the inadequacies of the 1855 Mining Companies Act, the year 1858 also saw a new Mining Companies Act (21 Vic. No. 56), commonly knawn as Ireland’s Act, after the minister who introduced it. The intention of this Act was not to repeal the 1855 Act but to ‘facilitate the Formation of Mining Associations’ under it. In this object it was only partially successful. While it simplified procedures for the formation of mining associations and transferred jurisdiction over them from the Court of Petty Sessions to the recently formed (1857) Court of Mines it also so modified the limitation of liability clauses thit it made it virtually impossible for a one-time holder of shares under the Act ever to be free from liability for debts of the company. At first this latter drawback was not realised and for a year or two most new mining companies were formed under this Act which thus provided the legal setting for the mining company boom of 1859. Two other groups of clauses of the Act, not directly related to the evolution of mining companies as such, should also be noted. The first set provided for the making of preferable liens on the first gold produced from a mine. The second provided for the issue of mort­ gages on the security of gold-mining machinery but not on other assets of the mine. The importance of these sections of the Act is that they provided the trading banks with an acceptable form of security against bank advances to the gold-mining industry. Considerable use was to be made of these facilities during the next decade or so. While it is somewhat in anticipation of the events with which we will be immediately concerned reference should also be made here to the 1860 Mining Companies Act (Pyke’s Act). It followed the general structure of the 1858 Act and its main purpose was to remove the ambiguity attaching to its predecessor’s limitation of liability clauses. Though it was to be further amended in 1864 and 1871 it contained the main structural provisions under which the majority of nineteenth-century Victorian gold-mining companies operated.

Victoria’s First Mining Company Boom, 1859 As a result of the changing technical and economic conditions on the goldfields, of the acceptance of leasehold tenure of mining land, and of developments in the law relating to mining companies, the stage was set early in 1859 for a burst of mining speculation in Melbourne. As is usually the case in such bursts many investors were to lose and relatively few to gain. This particular example was more fruitful than most because it had amongst its by-products the creation of the con-

18 Forming a Stock Exchange, 1859-65 ditions which made possible the emergence of Melbourne’s first stock exchange. It has not been possible to sort out the full details of this episode in Australia’s financial history and in any event only its broad outlines can be sketched in here. The general impression conveyed by the most recent description of it, in Serle’s The Golden Age, is that it was simply one of those bursts of speculative fever which occasionally affects the body financial. It is true that speculation was for a time important but this is much too one-sided a view of what was in fact a complex process in which an attempt was made to link Melbourne’s financial resources with the development of the gold-mining industry. The important fact is not that speculation occurred but that the episode is very revealing of the many institutional arrangements which had to be perfected before the company form of organisation could be adapted effectively to the supply of finance to the gold-mining industry. It is thus first necessary to discount the view that ‘many of the companies were sheer swindles’. Undoubtedly a few of the mines floated in late 1859 had no other purpose than to fleece unsuspecting investors, but by far the larger number were bona fides. The wide range of merchants, politicians, and professional men who made up the directorates of these companies may have been optimistic and ill- informed but they were rarely knaves. The greater part of the poor performance of this early group of gold-mining companies should be set down to the sheer physical difficulty of locating underground gold in payable quantities, and to inexperience and bad management, not to fraudulent practices. It was impatience for a share in the rich rewards which it was well known were being reaped on the goldfields that lies at the roots of the losses suffered by Melbourne investors in 1859-60. They had yet to learn the lesson (some of them never did) that it is only very rarely that completely new firms offer the opportunity for rich gains through share market investment. At that time there must have been a large number of rich gold mines actually in production. There were also many prospecting companies which in time were to show high profits. None of the former, and very few of the latter, were offered to Melbourne investors in 1859. Why should they have been? The rich producers provided their own funds for further development. Shares in the very good prospects, those for instance on the probable course of one of Ballarat’s numerous deep leads, found a ready sale amongst local investors, many of whom were quite wealthy and all of whom had a background knowledge of local mining conditions that was

19 The Stock Exchange of Melbourne possessed by very few Melbourne investors. So it was that the bona fide mines floated by Melbourne interests were largely marginal pros­ pects. In such a risky industry as gold mining there should be little surprise that the chances of reasonable profits under these conditions would be very low, and low indeed they were. Badly chosen locations were not the only cause of the losses suffered by the early Melbourne-controlled gold-mining companies. Quite a range of related conditions contributed to this result. The company form of organisation was still very much in its teething stages in Victoria. The rights, duties, and obligations of directors, managers, and shareholders were far from being clearly understood. Large-scale mining organisation, though none of the mines of this period was large by modern standards, was itself in its infancy and there was to be a good deal of trial and error before the well-organised mines of a decade later were to take shape. Knowledge of the technicalities of gold crushing and amalgamating was very limited as it was still in the process of being acquired. Why then were there so many gold-mining companies formed in Melbourne at this stage and why did investors take them up so readily? Obviously there was the prospect of profit. Any one of the companies formed might have realised its promoter’s expectations. Almost as important must have been the sheer lack of knowledge of the difficulties involved in company mining at this time. It was not long before these difficulties were clearly recognised and it was to be some years before Melbourne investors again invested freely in mines. Experience teaches but someone has to take the initial false steps before the lessons can be learnt. Finally there is the fact, as was to be proved time and again in the history of the Melbourne share market, that speculation breeds speculation. Once a speculative move­ ment proceeds a little way so that a number of people make capital gains, and once knowledge of this spreads, an increasingly wide range of people enter the market, not so much because they believe in the sound prospects of the real investment that is involved, but because they hope to make short-term capital gains. For a while the shares concerned are no more than gambling counters. It only requires an excess of expected profit takers over those who expect prices to rise still further for the price of the gambling counters to begin to fall. When this happens the whole price structure collapses and many are left to rue the day when the prospect of easy profits wooed them into the share market. The particular event which initiated Melbourne’s first speculative outburst was the formation of the Bendigo Waterworks Company late

20 Forming a Stock Exchange, 1859-65 in 1858. That it was this company rather than one of the Melbourne- based companies that was being formed about this time was no doubt partly accidental but it was not wholly so. The Bendigo Waterworks Company was a mixed one, part public utility, part mining company. As a result of its former aspect it was included in the Melbourne share price list long before any of the purely mining companies. It was the publicity achieved by its inclusion in the list and the history of its early price movements that triggered the burst of speculation. While its works were still in the course of construction it received consider­ able favourable comment in the press and its shares rose to a pre­ mium. When it made a new issue to its shareholders in June 1859 the same premium was expected to apply to the newly issued shares and this was at least one occasion when ‘thinking makes it so’. Easy paper profits of this kind for a company which was increasingly being associated with the gold-mining industry greatly encouraged others who were in the process of taking advantage of the new leasehold and mining company laws to form companies in a number of areas, but especially at Bendigo and Maldon. A contributory factor to the exact timing of the boom was the current pressure on the foreign exchange market which forced the exchange rate to a premium of 2J per cent for sixty-day bills early in July. This rise in the exchange rate, which carried it past the gold export point, increased the price of gold on the goldfields, so adding to the immediate attractiveness of gold­ mining investment. It was in this situation that the £2 paid shares of the Bendigo Waterworks Company, which had ranged between £3 5s and £3 10s for some months, rose in successive weeks in July to £5 10s, to £10, and finally to a peak of £14 10s in the week ending 16 July. This experience was more or less repeated by one of the first purely mining companies to appear upon the market. ‘Bagshot shares sud­ denly jumped up from £3 to £12 10s and enabled those who had secured allotments for speculative purposes only to sell out at an immense profit, everybody rushed into the market with the same object—to buy in and sell out while the mania lasted.’ By the last week of July it was reported: The Melbourne stock and share market has been kept in a state of continual excitement by speculation in the scrip of the mining companies recently introduced to public notice; and of the projects about to be launched, Chewton Sluicing Company’s shares, Bagshot Mining Company shares, Maryborough Waterworks Company’s shares and some others have absorbed the attention of jobbers to the exclusion of all other business.

21 The Stock Exchange of Melbourne Accounts of the excited state of the market continued throughout August. It is a misfortune that the attention of all classes of the community with a few pounds or a few thousands of pounds to spare for a short time has been attracted by the opportunities offered for speculation. When the excitement has subsided, and prices of the several projects have been established by rising to a premium, or falling to a discount, according to their deserts, it will probably be found that the field for the investment of capital in mining pursuits, at reasonable interest, is comparatively without limit. Sane comments such as that of the Examiner of 6 August 1859, quoted above, were ignored. The end of the month still saw ‘the usual amount of excitement during the past week’. The bursting of this particular bubble can be traced to the action of the trading banks. When the first mining companies were being formed some bank managers did not hesitate to take part in their formation but the spread of speculation soon induced a more cautious attitude. Early in September it became known that the banks would not accept mining scrip as security for advances. This decision was announced when calls on the new mining company shares began to be made with some frequency. Those speculators who had been rely­ ing on the banks to meet their calls were now forced to sell. The consequential fall in prices brought the speculative fever to an end. New mining companies did not cease to be formed. When mines were first added to the Melbourne share list in the middle of August eighteen companies were included. Three months later the list had lengthened to forty-two companies. A year later it included fifty or sixty companies and in the meantime some of the early formations had ceased to exist. But the newcomers to the market from September 1859 onwards had to face a far more critical public than the first companies had had to face.

The Formation and History of Melbourne’s First Stock Exchange The effects of this brief boom on the nature of the stock and share market are quite distinct. Before the boom there may have been up to a dozen firms occasionally dealing in shares. Only three or four firms, notably Edward Khull, William Clarke & Sons, and Baillie and But­ ters, conducted a share business of any magnitude. Some months after the boom about twenty to thirty broking firms were operating in Melbourne and there had been a rash-like formation of brokers’ offices throughout the towns on the goldfields. No doubt Bendigo, and especially Ballarat, had seen brokers operating well before 1859. 22 Forming a Stock Exchange, 1859-65 Evidence of their operations, even on some of the smaller fields, dates at least to 1855, but it was only from 1859 that they became a much more prominent feature of the goldfields economic landscape. The influx of newcomers to the profession and the rapid increase in the volume of transactions in Melbourne soon made evident the need for more organised methods of conducting operations in the share market. The first step in this direction occurred on 12 October when ‘The brokers assembled at Temple-court and discussed the propriety of establishing a daily official list of prices for buying and selling shares’. The necessity for this step is indicated by one broker’s comment on ‘the erroneous quotations in the share lists before the public and the dissatisfaction so frequently expressed as to the manner in which business is done’. On this issue, the centralised reporting of buying and selling quota­ tions, some degree of agreement was reached. Within a few days the Argus’s daily share price list carried the sub-heading ‘Corrected from the Brokers’ lists’. There were also more ambitious proposals under consideration, in particular for the formation of a stock exchange. Tradition has in fact located the beginning of a stock exchange in Melbourne to October 1859 but this is one of those occasions when tradition is not firmly based unless one equates ‘a stock exchange’ with ‘attempts to form a stock exchange’. By the end of that very month it was announced that the brokers had been unable to reach agreement. The established and leading broking firms held aloof. The ‘Melbourne Brokers’ Association’ which did emerge seems to have been composed of the newer entrants to the profession who did not have established investor clienteles like the older ones and who, in the rather more difficult times now being experienced in the share market, hoped to be able to offset the disadvantage of their newness by operating as an exchange. Meanwhile the established firms, apparently under the leadership of Baillie and Butters, began to take steps to establish a stock exchange. Baillie and Butters’ weekly share market commentary of 22 October 1859 describes their attitude as follows: An attempt is being made by several capitalists, with the co­ operation of the older brokers, to accomplish the same object [form a stock exchange], which, if successful, will be a great boon to the public. Brokers, by themselves, however much respected, are not the proper parties to have the entire power of conducting such an institution. We would rather see a committee of management, composed of capitalists and brokers combined, who would devote some attention to the necessary details. Such a constitution may be different from those in older communities, but we maintain it is not the less necessary here, where there are so many sudden 23 The Stock Exchange of Melbourne changes in our social condition that only men of known standing can command the confidence of the public. While these plans were still under consideration the group des­ cribing itself as the Melbourne Brokers’ Association finally became established. Buying and selling operations were conducted at regular meetings and, in emulation of the then practice of the leading firms, weekly market reports and details of sales were released to the daily press. By March 1860 these reports were described as being ‘published under the authority of the Committee of the Stock Exchange’. It is also apparent that the dealings of this group made up only a small proportion of total sales in the market. It was not until May 1860 that Baillie and Butters’ proposed exchange took on more definite shape. At meetings chaired by Edwin Bryant and attended by ‘about twenty gentlemen’ at the Criterion Hotel on 9 and 10 May the report of a provisional committee, which had drawn up a set of rules based on the procedures and practice of the London and Liverpool exchanges, was discussed and adopted. As foreshadowed by Baillie and Butters’ arguments of October 1859 this exchange was not in the form of a simple association of sharebrokers but was to be a company with 100 shares of £50 each. Applications for shares were to close on 1 June. For reasons which are not clear in detail this proposed exchange, despite the agreement reached at the May meetings, was not estab­ lished. Nor after 26 May 1860 are there any further reports published under ‘the authority of the Committee of the Stock Exchange’. The next step in the evolution of an organised share market was to be much more modest than one would expect from this outline of events between October 1859 and June 1860. It was the publication of The Stock and Share Journal, the first weekly issue of which appeared on 28 July 1860. The object of this journal and the reason for its coming into being can best be described in its own words: As a late attem pt to form a stock exchange in Melbourne has been unsuccessful, from want of extended support, and, as one of the ends of such an association would have been the publication of an official list of prices at stated intervals, it has been determined by some of the Stock and Share Brokers of Melbourne, not to permit this portion of the scheme to expire; they have, therefore, resolved to establish The Stock and Share Journal, to be issued weekly, which shall contain, in a condensed form, the information collected by each firm, and a list of prices based upon actual tran­ sactions, for the correctness of which they voluntarily hold them­ selves responsible to the public. The firms which sponsored the first issue of the Journal were: Baillie, Butters and Co., Brodie and Co., Gavin G. Brown & Co., 24 Forming a Stock Exchange, 1859-65 W illiam Clarke & Sons, W. H. Cropper, E. N. Emmett, E. Kliull and Co., Emil Polil, and J. B. Were. A week later they were joined by Horton & Everard. This list includes all the leading firms of the day. Four of those included, Gavin G. Brown, W illiam Clarke & Sons, W. H. Cropper and J. B. Were, were to become members of the present Stock Exchange of Melbourne. William Clarke & Sons (now Clarke & Co.) and J. B. Were (now J. B. Were and Son) are still members of it. A less obvious link with the future is the fact that the editor of the Journal was Robert Wallen. Then an employee of William Clarke & Sons, he was to become Chairman of the Melbourne Stock Exchange and the first Chairman of the Stock Exchange of Melbourne. His talent for financial journalism, already evident in the Journal, was to reach its full flowering when he became first editor of the Australasian Insurance and Banking Record from 1877 to 1885. From this point, so long as the Journal remained in existence, which unfortunately was only until 22 April 1861, it is possible to trace the further development of the market with some certainty. The necessity of preparing an agreed set of prices naturally pointed in the direction of regular meetings at which prices could be clearly established. It was soon recognised that the conduct of these meetings would be facilitated by an agreed set of brokerage rates. This whole process was described in the issue of the Journal of 22 October 1860: About a month since, a movement was initiated, having for its object the assimilation amongst brokers, of the rates of commission charged on the sale of shares, and a reduction on those of small amount,—the charge of one shilling per share having been found to press heavily on them, especially when at a discount. Several meetings were held, attended by the brokers under whose authority this journal is published, and one or two others: after consider­ able discussion, a scale of rates was fixed which received the approval of the majority of those attending the meetings: this scale being reduced to writing (with the avowed object of a printed copy being placed conspicuously in each brokers office), was carried round for signature, and had appended to it the names of all the Journal proprietors with the exception of one firm. During the maturing of this mutual understanding, a forenoon and afternoon meeting of sharebrokers had been established and found to work beneficially—the entire list of shares being gone through twice a day, giving each buyer and seller of shares, who entrusted his business to a broker attending these meetings, the advantage of the buyers and sellers of all the other brokers in attendance, and thus securing close quotations and bona fide market prices. At the first one or two meetings there was an understanding that shares should be bought and sold at nett prices, but as this, in effect, interposed two brokerages between prinicipals, it was ar-

25 The Stock Exchange of Melbourne ranged that in all transactions in the room the selling broker should allow one half his commission to the broker buying. Having arrived at this stage, it became evident, as brokerage was to be thus divided between the buying and selling broker, that to meet on equal terms a uniform and previously ascertained rate must exist amongst the brokers attending those meetings .... The agreed rates, significantly with one firm refusing to sign the agreement, were: On shares sold for £5 per share and upwards 1 per cent On shares sold for £1 and under £5 per share 1 /- per share On shares sold for less than £1 6d. per share On Debentures ^ per cent On sales of 500 Shares and upwards, the rates of brokerage may be reduced, by special agreement only, to not less than the minimum rate of 6d per share. When a brokerage at the above rates would not amount to 10/-, that sum will be charged. From this point it would appear to be but a short step towards the formation of a stock exchange, the rules of which would be binding on all members and to which all Melbourne brokers would belong. But it was not as simple as that. To appreciate why involves an understanding of the broad trends affecting the level of activity in the share market at this time and of some of its then special characteristics as a market. While, as is always the case in a share market, the volume of tran­ sactions in mining shares varied from day to day and from week to week, after the initial sharp peak of July-August 1859 the general trend in the level of activity was distinctly downwards. There were two phases in this decline. Until about the end of 1861 the volume of transactions remained fairly substantial in relation to the size of the market. During this period the majority of initial promotions became ‘progressive mines’, that is mines which were producing gold but not in sufficient quantity to meet all expenses. Sixteen out of the sixty-six listed at the end of 1861 became ‘dividend mines’. Movement towards this desired objective, which very rarely indeed implied an adequate return on capital invested, was not usually in a straight line, so that there were flurries of interest in individual mines from time to time. Each of these added its quota to the earnings of brokers. But the successive experiences of initial outright losses in those few com­ panies formed to mine in investors’ pockets rather than in the ground, of calls rather than dividends in the progressive mines, and of meagre dividends in the small remainder, eventually disillusioned the majority of Melbourne investors thoroughly. By the end of 1861 activity in gold-mining shares had become very limited and was to

26 Forming a Stock Exchange, 1859-65 remain so for the next year or so. For the time being Melbourne people were more or less content to allow Bendigo, and especially Ballarat, to monopolise dealing in gold-mining shares. The significance of this downward trend in the volume of activity in the share market for the formation of a unified stock exchange is quite clear. It is much easier for agreed practices to emerge in a rising market than it is in a falling one. The falling trend in earnings for the majority of firms made them reluctant to forgo practices which had been profitable in the past, even though objections to some of them were proving to be one of the major obstacles to the emergence of a unified exchange. In particular the declining market exacerbated the differences between those who believed that brokers should operate solely as agents and never on their own account and those who believed that honest share dealings could be conducted by firms which sometimes acted as agents and sometimes dealt on their own account—that is those who in stock exchange parlance sometimes acted as jobbers. In their recent history of the London Stock Exchange E. Victor Morgan and W. A. Thomas have somewhat tentatively suggested that the distinction between jobbers and brokers on the London Stock Exchange had its origin in the fact that until late in the nineteenth century brokers on that exchange were subject to the laws of the City of London relating to brokers, laws which were of medieval origin and which also covered forms of broking other than stockbroking. They suggest that the specialised function of jobber had arisen in order to avoid these legal restrictions. This contention is not disproved by Victorian share market experience, but the fact that jobbers appeared in the Melbourne market in 1859, were not entirely to disappear from the Melbourne scene until after the end of the century, and were prominent in the Ballarat and Bendigo share markets in the 1860s and 1870s, and the fact that Victoria did not have a set of city laws governing the behaviour of stockbrokers, clearly indicate that legal restrictions upon the way brokers should conduct themselves are not a necessary condition for the emergence of stock jobbers. Where there are no laws relating to stockbroking as in mid­ nineteenth century Victoria, or where the law was de facto ignored as would probably have been the case in London’s eighteenth-century coffee houses, all that is necessary for the emergence of jobbers is that some individuals in the market should decide to specialise in share market operations to such an extent that their primary source of income becomes the margin between the price at which they buy and the price at which they sell shares on their own account. The

27 The Stock Exchange of Melbourne ability of such specialists to earn an adequate income obviously depends on the volume of transactions in the market and on the number of firms amongst whom that volume of transactions is shared out. It is apparent from the facts—first that the emergence of share-jobbing in Melbourne was simultaneous with the appearance of gold-mining shares and second that this specialised function went into eclipse when gold-mining share dealing became relatively unimportant—that one of the conditions which is likely to make share-jobbing a feature of a market is the extent to which the major securities dealt in are of a highly speculative character. The securities of the relatively small gold­ mining companies which were the prevailing form of mining organi­ sation and which provided the bulk of share market business for the greater part of the nineteenth century in Melbourne were speculative par excellence. Partly because of the size of the companies, partly because of the geological character of the areas in which they operated, very few of the long-lived mines, and there were quite a few of these, were continuous producers of gold. Large numbers of the companies formed never found gold in payable quantities, though relatively few were outright frauds. When it is also realised that some companies, for part of their lives, were very rich producers and that it was never clear when a particular company was about to ‘strike it rich’ it is not surprising that the frequency and amplitude of fluc­ tuations in the price of gold-mining shares were very marked. It was the volatility of gold-mining shares and their almost infinite variety which provided the opportunity for some individuals in what was otherwise a relatively small market to specialise in share dealing and to obtain their living primarily from the margin between the prices at which they bought and sold shares. In nineteenth-century Victoria it was the highly speculative character of the most common ‘chips’ in the market, and not legislative restrictions on brokers, which gave rise to a form of jobbing in shares. In Melbourne, Ballarat, and Bendigo, then, whenever the volume of transactions in gold-mining shares became large in relation to the number of operators in the market, specialist jobbers soon made their presence felt. During these periods there was no particular conflict of interest between brokers and jobbers. Jobbers were not especially interested in dealing directly with the public and it was irrelevant to a broker whether or not the transaction placed in his hands was that of a jobber or of a member of the general public. The story was different when the market was experiencing one of its periodic slack periods. At such times at least some brokers were tempted on occasion

28 Forming a Stock Exchange, 1859-65 to deal on their own account while jobbers were not disinclined to earn a commission on purchases or sales from the general public. Hence it was in slack times that disputes between brokers and jobbers with regard to their respective functions were heated. Because of the stage of evolution of the Melbourne share market and the timing of its first after-boom slackness, the first conflict between brokers and jobbers in Victoria coincided with the steps being taken to form a stock exchange. It is this fact which makes the early constitutional history of the Melbourne share market such a tangled skein. While no comparable major disputes arose on the London Stock Exchange in the nineteenth century, partly because of the then much later stage of its constitutional development and partly because of the difference in the scale and frequency of transactions in the two markets, it was nevertheless the case in London right through to 1914 that dull periods in the stock market were likely to produce friction either between broking and jobbing members of the London Stock Exchange or between the authorities of the Exchange and the outside firms of ‘jobbing brokers’ which were an ever-present thorn in the side of London’s major stock market institution. Despite the marked differences between the London and Melbourne markets fric­ tion between jobbers and brokers was one feature that they had in common until, with the relative decline in gold-mining shares and with the increasing prestige of the Stock Exchange of Melbourne, which was operated by brokers on a call room system, specialised share jobbing fell into disuse in Melbourne shortly after the end of the century. This brief discussion of the origin and characteristics of share jobbing in Australia has been necessary because without the back­ ground it provides it is difficult to make sense of the halting develop­ ment of Melbourne’s first stock exchange. Other ingredients hindered this development. For some of those concerned the view that a broker should act simply as an agent was an article of faith rather than a rationally-developed view. In addition, in the years around 1860 Melbourne was still very much a provincial town. In this setting some of the more or less sophisticated practices of an organised share market were apt to give offence. That many influential citizens had burnt their fingers in Melbourne’s first stock market blaze is also relevant. These elements are all evident in the Melbourne share market’s first cause celebre, the case of Brown v. Cassius which was decided in February 1861. The chief victim of this dispute was not either of the direct parties to it but George Brodie, a broker who had recently been appointed Minister of Customs.

29 The Stock Exchange of Melbourne The essentials of the case can be summarised very briefly. Cassius instructed Gavin G. Brown, a broker, to purchase 100 shares in a company for 14s or 14s 6d. Brown purchased them at 14s 6d each including brokerage from Brodie who at the time had no selling orders in this security but who believed that he could purchase them at a lower price before he was required to deliver the scrip. He did in fact purchase them the next day for 11s 6d each. The transfer from Brodie to Cassius was not made in Brodie’s name but in the name of a clerk in his office. When Brown delivered the scrip to Cassius the latter refused to pay on the grounds that the brokers were making an excessive profit on the transaction. The verdict naturally enough was in favour of Brown who had acted simply as a broker, but the chief sufferer was, as already indicated, Brodie who, because of the public outcry which accompanied the case, felt obliged to resign from the Ministry. Jobbing profits of 2s 6d per share on 100 shares thus carried a very high indirect cost. The three aspects of this case that then so disturbed public opinion were the fact that some brokers did make jobbing profits, that shares were sold when the seller did not in fact possess them, and that a clerk’s name was used to conceal the name of the real seller. None of these practices is in itself necessarily objectionable and Brodie him­ self felt so strongly that he had acted honourably that he allowed the case to come forward—he claimed that he could have had it settled out of court—even though this meant his resignation from the Ministry. In his speech in Parliament defending his actions after he had resigned as Minister of Customs he claimed that on each of the counts which had caused so much public concern he was merely following the customs of his trade. To act as a jobber and as a broker was not the most desirable practice but it was commonly pursued not only by Melbourne brokers but by many merchants and, moreover, he had been one of those who had assisted in the attempt to form a stock exchange which would permit a clearer separation of these two func­ tions. To ‘sell short’ was a long established stock exchange practice and also applied in a number of commodity markets. Clerks were used to provide ‘neutral’ names in share transfers, more often than not at the request of brokers’ prinicipals than on the initiative of brokers themselves. Each of these claims rings true. This particular case is significant more for the light it throws on then public attitudes to the share market than as an example of broking malpractices. The widespread public discussion of the share market that was current at this time, and its extremely critical tone, gave rise to con­ siderable ill-feeling amongst the brokers. For a while, early in March

30 Forming a Stock Exchange, 1859-65 1861, it even appeared that it would not be possible to continue the regular daily meetings. This threat was averted by an agreement to set up a committee whose object was to bring forward proposals for a stock exchange. The initiative in these discussions appears to have been taken by J. B. Were, who had a long history as a merchant and who had been operating as a broker since April 1860. Perhaps because of his merchant background Were soon emerged as the advocate of the view that brokers should act simply as agents, and that jobbers— as was the practice on the London Stock Exchange—should deal only with brokers and not at all with the general public. This extreme view did not find favour with the majority. It was a doctrinaire one that was in accord neither with the practice nor with the needs of the market at this time. There was, on the contrary, reason to believe that the existence of jobbing brokers reduced rather than amplified the range of price fluctuations in what was a very undeveloped market. That this was so was the view of Robert Wallen, who wrote in The Stock and Share Journal of 21 January 1861: With regard to the question of brokers being occasionally them­ selves buyers and sellers of shares, we believe that with an extended market it would be preferable that they should not be so; but we firmly believe that fluctuations would be much more violent were it not for those brokers who frequently buy when the general public are too panic-stricken to venture. That such purchases and sales may be, and are, effected honestly and without fraud, we unhesi­ tatingly assert. From the analysis of the British Royal Commission on the London Stock Exchange of 1878 of the workings of the London market at that date, which found that the separate jobber-broker system only worked efficiently in a broad and active market, it would seem likely that Wallen’s, rather than Were’s, view was closer to the requirements of the Melbourne market in 1861. After a series of meetings running through March into April, at least one of which was chaired by Brodie, a majority of the brokers agreed to a set of rules based on those of the London and Liverpool exchanges but adapted to the local scene. These rules of ‘The Stock Exchange’, sixty-three of them as published in The Stock and Share Journal of 8 April 1861, provided for control over activities of members of the exchange to be vested in a Committee for General Purposes (a distinct echo from the London Stock Exchange); outlined the procedures for admission to the exchange; defined the functions of brokers, jobbers, and subscribers; indicated the main procedures to be followed in the buying and selling of shares; provided for the treatment of defaulters and insolvents; announced the accepted scale

31 The Stock Exchange of Melbourne of commissions; stated the conditions governing the issue of an official price list; and prescribed the hours of business and scale of entrance fees and annual subscriptions. The chairman was William Baillie and the secretary Robert Wallen. The list of signatories to these rules is virtually a roll-call of Melbourne’s then broking community: William Clarke & Sons, William Clarke jr, Baillie, Butters and Co., W. G. Baillie, A. McLan- dress, James S. Butters, W. H. Cropper, Emil Pohl, Adolphus Pohl, Brodie & Co., George Brodie, W. F. A. Rucker, E. N. Emmett, J. M. Lynch, John Everard, David Lyons, Gavin G. Brown & Co., Gavin G. Brown, Howard Spensley, E, Khull & Co., Edward Khull, Robert Wallen, H. J. Clarke, Richard Walton, Houston & McDonnell, John Houston, F. McDonnell, Thomas Clay, Joseph Phillips, William B. Edlin, Chapman & Coggins, Thomas Coggins. But the qualification ‘virtually’ is significant. The next issue of the Journal, 15 April 1861, carried the following advertisement: STOCK AND SHARE BROKERS The members of the Brokers’ Association having adopted new rules for their future government, inconsistent in our opinion with the profession of a broker, inasmuch as the Association have refused to pass a rule prohibiting brokers from jobbing in shares, but on the contrary, recognize their dealings in shares, and further, that brokers shall be held as principals to each other,— In consequence of the foregoing, we have w it h d r a w n f r o m m e m ­ b e r sh ip , and declined to subscribe to the new rules, and we purpose continuing our business as stock and share brokers only, as we have ever done, in good faith with the public. We never have, neither will we, under any circumstances, deal in stock or shares, directly or indirectly as principals, and our con­ stituents may depend upon our strict adherence to these principles in all our transactions. We shall be ready to co-operate with other brokers who are willing to adopt the same principles as will guide us. j . b . w e r e j . h . w e r e J. B. Were’s objection to the rule that ‘brokers shall be held as principals to each other’ is puzzling as this is one of the fundamental rules of any stock exchange, but otherwise his stand is clear enough. On the broker-jobber issue he threw down his gauntlet in no un­ certain terms. Because Were was of such high standing in the com­ mercial community and because there was considerable, even if uninformed, public sympathy for the views which he expressed, Were’s refusal to join, and invitation to defectors, was a serious blow to Melbourne’s first stock exchange. Without such a major frontal attack

32 Forming a Stock Exchange, 1859-65 it was likely to have to pass through a difficult testing period; in the event of this attack its history was even more troubled. The next few years in the history of the exchange are not merely troubled but obscure. The Stock and Share Journal, with Were still one of its sponsors, survived only until 22 April. The stated reason for its disappearance was that the market had developed to such a point that a daily price list and share market information was essential and that accordingly arrangements had been made with the Age ‘for the production of the share list in extenso as well as for the publication of other statistical and general information hitherto to be found only in this Journal’. Publication of share market information by the Age, while it did result in a daily official list, was in fact not a genuine substitute for the specialised interest of the Journal. As no direct records of the Stock Exchange appear to have survived, information about subse­ quent developments has to be derived almost solely from the daily press. This almost inevitably results in a somewhat disjointed sequence of events. Thus, while on 20 April 1861 it was apparent that Were was not alone in his stand against the Stock Exchange—as on that date John Watson, Geo. T. Bold, R. G. Haig, and M. P. Blundell joined Were in announcing their activity as unqualified brokers—by Febru­ ary of the next year the Argus reported Were, Haig, and Watson at a meeting which included a number of leading members of the first Stock Exchange. It is not perhaps surprising that Were interpreted the decision of this meeting to be ‘That the Exchange be now dissolved and its affairs wound up’. Nor is it inconsistent with the history of the previous year that most of those present should have regarded Were’s interpretation as a minority view. Throughout this period and into 1863 the Age continued to publish the daily ‘official’ price list, but it was becoming increasingly doubtful exactly what this price list signified. From its proud beginnings in April 1861 with some thirty members, the exchange had dwindled to about half-a-dozen members by early 1863. The evidence for this low point in the history and probably in the morale of the exchange is to be found in the proceedings of a libel case between Moorhead (a broker) and Syme (editor of the Age) in June 1863, which was the occasion for a lengthy correspondence conducted between brokers in the Melbourne daily press. In the course of these legal proceedings and of the public debate it is apparent that Baillie and Butters, which with J. B. Were and William Clarke & Sons was the other leading firm in the market, had defected from the exchange early in 1862. In November of that year there was a run on the Colonial Bank

33 The Stock Exchange of Melbourne which Baillie and Butters attributed to members of the stock ex­ change. Apart from vehemently denying this the members of the Stock Exchange decided to boycott Baillie and Butters. It was Moor­ head’s refusal to abide by this ruling, and his subsequent expulsion, that gave rise to the libel case, the exact details of which do not need to be recorded here. While personal rivalries and the apparent readiness of brokers to jump into print undoubtedly account for some aspects of this difficult period in the history of the share market, it is probably true that the main trouble was the low ebb to which the volume of transactions in the Melbourne market had fallen and to the speculative character of the market in gold-mining shares. The latter fact is reflected in the relatively large number of insolvencies of broking firms during these years. The former fact, which was combined with a much higher turnover of gold shares in Ballarat than in Melbourne, meant a drift of jobbers away from Melbourne to Ballarat and very hard times for those brokers who had not been able to build up a sufficient volume of non-mining transactions. Whether it is appropriate or not to describe the meetings of the small number of brokers who survived these conditions as a stock exchange is somewhat doubtful. On the other hand too much emphasis can be given to the constitutional difficulties of the share market during these years. The important fact is that a few firms of brokers did survive, and that these survivors included William Clarke & Sons (among whose partners was Robert Wallen), J. B. Were and Son, Baillie and Butters, John Watson, W. H. Cropper, and Gavin G. Brown. In time all but one of these firms or individuals were to be amongst the leading firms of the Stock Exchange of Melbourne after its formation in 1884. In the early 1860s the majority of them continuously acted as a group, held regular meetings and made avail­ able their sales prices to the press. In acting in this way, whatever their precise formal organisation, they constituted a small but effective share market. It is the continuity of this market which is the important fact rather than its constitutional upheavals. The sharp decline in the numbers of Melbourne’s broking popu­ lation to the end of 1862 was halted at that point. No further change of any significance in the organisation of the market can be detected until on 16 March 1865, when it was remarked that ‘The brokers of the stock exchange of Melbourne held their first meeting under their new rules, at the Hall of Commerce, when Mr J. B. Were was elected Chairman, Mr R. F. Wallen, Secretary and Mr Wm Noall, as a new member'. From earlier share market reports it is apparent that

34 Forming a Stock Exchange, 1859-65 the other members of this exchange were William Clarke & Sons (known as Clarke & Co. after 1866), W. H. Cropper, Gavin G. Brown, and John Watson. This development was treated by the press in a very matter-of-fact way. There were no indications that it had any significant effect on the day-to-day operations of the market nor that it marked any observ­ able change in the general standing of the share market in the eyes of the community. Modest though this development appears to have been, in retrospect it was to gain some historic significance. The formation of this exchange or its reorganisation—it is not clear which —did mark the beginnings of an institution which was to have a continuous history until the foundation of the present Stock Exchange of Melbourne in 1884. And that latter institution, in the words of its first chairman (Robert Wallen), regarded itself as ‘the reorganisation of the Association of 1865’ (First Annual Report of the Stock Exchange of Melbourne, 12 October 1885). In deference to this view of knowledgeable participants in the actual development of the share market it thus seems appropriate to make a break at this point and to examine other aspects of the market in the years up to 1865, the treatment of which at an earlier stage would have distracted attention from the main theme that has so far been pursued, that is the general evolution of the formal organisation of the market. While the development of goldmining and the creation of negotiable securities which accompanied the growth of this industry were central to the history of the share market between 1859 and 1865 this does not mean that there was no activity in its other areas, as we shall see in the following section.

The Share Market and Its Economic Setting, 1860-5 The detailed economic history of the Victorian economy during these years has yet to be written, but the available evidence gives the impression that the lull in stock market activity is a fairly faithful reflection of the slow growth of the Victorian economy itself. From about 1858, the probable peak year of gold-mining employment, the economy went through a phase of what Serie has described as economic redirection. By and large there was a re-deployment of the use of labour rather than positive growth of the workforce. Until 1860 the decline in mining employment was more than offset by the expansion of employment required for the construction of the trunk railway system, by the high level of construction of substantial public and private commercial buildings in Melbourne (those buildings which give such an air of provincial solidity to S. T. Gill’s urban

35 The Stock Exchange of Melbourne scenes of the early 1860s), by the continued transformation of the chief mining centres from canvas towns to settled communities which so impressed the Governor, Sir Henry Barkly, on his visit of 1861 after an interval of three or four years, and by the substantial growth of agricultural settlement. After 1860 the continued decline in gold-mining employment was accompanied by an actual decline in the Victoria male workforce if W. H. Archer’s estimates, published by R. Brough Smyth in his Goldfields and Mineral Districts of Victoria, are at all reliable. The estimated decline between 1860 and the low point in 1863 was at an annual average rate of about 3 per cent. In 1865 the male popu­ lation aged twelve and upwards, estimated at 238,000, was still 13,000 below what it had been in 1860. For a variety of reasons this trend did not exert as depressing an effect on the economy as might at first be expected. The continued decline in money wage rates and prices in the early 1860s enabled mining companies to absorb diggers into regular mining employment at a faster rate than would otherwise have been possible and, more generally, did much to improve the cost position of Victorian industry relative to imports. Partly for this reason, partly because of the natural protection of high transport costs, the heavier demands for equipment and fuel required by the now much deeper mines fostered the development of the local timber and metal-working industries. The movement of Victorian diggers to the newly discovered New Zealand fields in 1861 enabled Victorian merchants to clear some of their otherwise excessive stocks and created, for a period, a substantial entrepot trade between Melbourne and New Zealand which was not unimportant as a source of com­ mercial employment in Melbourne. The fairly rapid growth of agri­ cultural employment that was notable in the late fifties continued into the early sixties. The re-location of population in new areas and the still inadequate quality of much of Melbourne’s housing meant that the diminishing workforce probably did not imply a corresponding lessening in building construction. All these processes did much to cushion the appearance of goldmining as a declining industry, but they were not sufficient to eliminate unemployment nor to prevent the emergence of protection as a trade policy for the majority of Victorians in 1864. This process of readjustment of the economy was poorly reflected in the market for stock exchange securities. That this was so is clearly indicated by a comparison of the securities nominally traded in the market in July 1860 with those listed about the time of the formation of the Melbourne Stock Exchange in April 1865 (Table 1). The

36 Forming a Stock Exchange, 1859-65

TABLE 1 Value of Shares Listed in Melbourne, July 1860 and April 1865 1860 1865 Type of security Paid up Value held Market and issuer value in Victoria* value Debentures (£’000) (£’000) (£’000) Government State 5,121 1,038 Local 525 Companies Railways 484 168 Gas 50 75

6,180 (500-1,000) 1,281 Shares Investment companies Banks (Victorian) 1,078 1,920 Gas 311 312 Insurance 250 401 Miscellaneous 130 62 Railways 1,080 503

2,849 (2,200)+ 3,198 Mines 805 (800) 3,626

Total 9,834 3,500-4,000 8,105

* Not accurate estimates. Merely probable orders of magnitude. f A fairly high proportion of railway shares was held in Britain. There were also British holdings of other types of shares, especially banks. Sources: The Stock and Share Journal, 28 July 1860; Argus, 4 April 1865.

increases in the value of Victorian banking shares and of insurance companies are the only ones which approximate to a real flow of funds through the Melbourne share market. In the main they reflect new issues by existing companies. The decline in value of government securities is essentially the result of the ending of the custom of quoting government securities payable in London on Melbourne share

37 The Stock Exchange of Melbourne lists—a recognition of the fact that there was no real market for these securities in Melbourne. The decline in railway company debentures and shares reflects, first, the completion late in 1860 of the long negotiations between the Geelong and Melbourne Railway and the Victorian government for the purchase of that company’s line and, second, the financial difficulties of the suburban railway companies formed in the late 1850s. By the end of 1864 all of the latter had disappeared from the share list, some to be absorbed by the Mel­ bourne and Hobson’s Bay Railway Company, some to be incorporated in the government railway system. By 1865 the one remaining listed private railway was the Melbourne and Hobson’s Bay which was to remain in private hands until it too became part of the government railway network in 1878. The increase in value of gold-mining shares is some indication of the volume of investment in this industry and of its importance for the Victorian share market as a whole. When it is appreciated that two-thirds of the value of mining shares out­ standing in 1865 consisted of Ballarat (deep leads) companies and that most of these shares were held locally, Melbourne’s role can be seen in a truer perspective. While the flow of finance into banking shares was of considerable importance for the operations of brokers, developments in government securities give a much clearer picture of the then nature of the share market. Whereas as much as 45 per cent of the total amount of debentures issued on the Melbourne market in 1855 had been made payable initially in Melbourne, and while some proportion of the issues made in 1856 and the first half of 1857 had also been made payable there, the option of being able to convert them into bonds payable in London was exercised in a fairly continuous fashion. With the cessation of Melbourne issues and the issue of the first government railway loans directly in London the stock of government securities held in Melbourne steadily diminished. By the end of 1859 it was reported that the few that remained were mainly held firmly by trustees of deceased estates. From this time onwards there was a steady volume of complaints in the financial sections of the press on the difficulties created by an inadequate supply of government securities in the market. Presumably if it were absolutely necessary for a trustee to obtain government securities under the terms of his trust deed then he could make purchases of Victorian government securities on the London market, but this, given the then delays in communications with Lon­ don, was obviously not a very satisfactory arrangement. It is this situation that explains the growing demand that the government

38 Forming a Stock Exchange, 1859-65 should proceed to offer part of the £1 million railway loan which was to be issued and made payable in Melbourne. Presumably because of the ease with which the London section of the railway loan was being floated—the 6 per cent debentures were now being placed at substantial premia in London—the government was in no hurry to meet these requests which became especially marked after a reduction of interest rates on bank deposits in September 1860. It was not until October 1861, when the greater part of the London portion of the railway loan had been issued, that the government decided to meet ‘The want of government stocks . . . severely felt by testators, trustees and others who desire a valid security and are content with a moderate rate of interest’. The initial issue of £250,000 was so successful that in November a further issue of £100,000 was announced. A feature of this latter issue was that part of it was to be made available in the form of £10 debentures, instead of the £100 debentures then customary, and was specifically aimed at attracting small investors not only in Melbourne but in the country districts. By the end of December it was announced that £22,660 of these small denomination debentures, which were offered at a 4 per cent pre­ mium, had been sold. It was not until mid-1863 that another £250,000 of the railway loan was offered in Melbourne. In the meantime there had been a further decline in bank interest rates which, amongst other things, meant that the announcement of the new issue was welcomed in financial circles. The fall in private interest rates was not fully reflected in the mini­ mum price (a premium of 54 per cent) accepted by the government. The largest group of tenders, made on behalf of the Bank of Aus­ tralasia, amounted to £75,000. While four broking firms were amongst the tenderers only one, J. B. Were, tendered on behalf of a number of clients, amongst which was the Bank of Australasia. Later in 1863 there was a further issue of debentures for £200,000. This loan was not part of the railway loan and reverted to the older practice of making payment optional in London or Melbourne. The reason for the reintroduction of the option is not clear. It probably indicates that the London railway loan issues were completed and implies a temporary weakening of the influence of the Associated Banks in government circles. There were other signs of the scope for dealing in bonds during these years. Mention has been made of the small-scale sale of New South Wales and South Australian bonds in Melbourne in 1854 and 1857 respectively. In 1865 it was New Zealand’s turn to approach the Melbourne market. In January of that year the broking firm of

39 The Stock Exchange of Melbourne Baillie, Butters and Co. complained that its attempt to dispose of £50,000 of Otago Harbour Trust 8 per cent debentures had been disturbed by an announcement that the New Zealand government itself was proposing to issue in Sydney and Melbourne £200,000 8 per cent ten-year debentures payable in Sydney, Melbourne, London, or New Zealand. Difficulties in the London market and the close com­ mercial ties that had developed between Australia (especially Mel­ bourne) and New Zealand after the gold rushes of 1861 prompted this venture on to the Australian market. It seems to have been moderately successful. While the amounts involved were relatively small, the attempt to make New Zealand issues is noteworthy as one of the earliest occasions upon which Australia was to be an exporter as well as an importer of capital. So long as the general structure of interest rates remained high, as is evidenced by the then usual bank overdraft rate of 10 per cent; so long as the Victorian government was unwilling to offer securities with a redemption yield higher than about per cent, which yield was set by its then standing on the London capital market; and so long as its demand for capital funds was of an intermittent character; there was little scope for a very active bond market in Melbourne. Even the 8 per cent securities offered by the New Zealand government were not rushed by Victorian investors. In this case, the sluggish response probably did not so much reflect unsatisfactory interest rate differentials as the more deep-seated aspects of the current financial scene in Victoria of the early 1860s. On the one hand investors in general were probably only willing to invest a small proportion of their savings in government securities. On the other it is likely that these years witnessed a rather slow rate of growth of total savings. It should not be deduced from the earlier account of declining mining share market activity in Melbourne at the beginning of the 1860s (p. 26) that actual mining activity was equally depressed. From the point of view of ‘large-scale’ mining the declining goldfields employment and total gold output are also misleading. Both these trends primarily reflect the gradual working out of surface deposits. In deep mining there was probably a more or less steady expansion through the 1860s. By 1862 the Ballarat deep leads were being worked at depths of over 350 feet, as were the quartz mines at Clunes and Bendigo. At Maryborough, the deepest mine in the colony, owned by the Mariner’s Reef Company, had been sunk to 550 feet. By the beginning of 1865 the Hustler’s Reef mine at Bendigo was in the process of sinking to a target depth of 600 feet. At depths greater than 350 feet miners met serious drainage problems which tended

40 Forming a Stock Exchange, 1859-65 significantly to slow up the rate of development, largely because the question was not merely one of more powerful pumping equipment but of allocating responsibility for pumping operations amongst a group of mines. From the point of view of the growth of the Melbourne share market it is important to realise that at this stage the expansion of deep mining was predominantly in the hands of local goldfields investors. A good illustration of this is to be found in the history of the Ballarat co-operative mining companies. It was these companies, many of which were still being conducted by working partners, which set the pace in following the deep leads to depths of 350 feet or more. It was only when they reached the dividend stage that they received much attention in Melbourne, and even then the bulk of activity in their shares was in Ballarat. Because of the small number of ‘shares’ involved, forty to eighty being the usual number, when the mines became profitable the price per share was very high. When some of these companies were first listed in Melbourne, in June 1862, the only share below £1,000 was priced at £375; the eight others ranged in price from £1,600 to £2,800. At this level of prices, and without the detailed knowledge of local investors, Melbourne invest­ ment interest was not sustained for more than a month or two. In August 1862 the Ballarat co-operatives ceased to be quoted in Melbourne. No precise date can be fixed but during the course of 1863 or 1864 a more continuing interest in gold-mining companies began to emerge in Melbourne. The total amount of gold-mining company dividends was rising. Melbourne investors had gained considerable experience and knowledge through such activities as that of the Association for the Protection of the Interests of Melbourne Mining Shareholders which was active in 1862. In addition specialist mining journals such as Dicker’s Mining Record (1861-70) and the press generally had done much to improve the quality of reporting on mining matters and to assist in raising the standards of mining company management. By the time of the foundation of the Melbourne Stock Exchange in March 1865 the increasing volume of mining share business in Melbourne, though still probably a relatively small proportion of the total, was beginning to provide a much firmer base for stock exchange operations than had been available to Melbourne’s first stock exchange. New issues by existing companies aside, the main impact of develop­ ments in the banking system during these years was of an indirect character. The formation in 1857 of the Associated Banks as a group for floating the Victorian government railway loan in London

41 The Stock Exchange of Melbourne encouraged closer ties between the banks than had hitherto been possible. In particular it now became customary, though far from universal, for the banks to act in unison when announcing changes in interest and exchange rates. Thus, for example, it was announced in September 1860 that the banks would no longer pay interest on current accounts nor on deposits at call, practices which had grown up in the more competitive days of the middle 1850s. From the reactions to this, and other announcements of changes in bank deposit rates, it was already apparent that these interest rates were coming to be regarded as the chief indicators of changes in the whole structure of interest rates in Victoria. Other developments in banking that were of relevance to the share market were the entry of banks, after the Act of 1858, into the field of financing the gold-mining industry through the use of preferable liens and mortgages on machinery, and the gradual emergence of banking control over the gold market. Perhaps because of its late entry (1858) to the banking scene the National Bank was amongst the leaders in the field of lending to the gold-mining industry. As Blainey vividly describes in Gold and Paper there were times when National Bank goldfields managers had a deep interest in the hoisting of those pit-head flags which signalled that a gold mine was about to pay a dividend. The increasing concentration of gold dealing in the hands of the banks needs to be noted because some of the share market’s main operators had also been leading gold brokers. The declining importance of the separate gold market, which was a consequence of the establishment by the banks of a network of branches in the gold­ fields towns and of the banks’ development of their own assaying facilities, was a spur to specialisation on sharebroking. Most other types of financial institutions, with the possible excep­ tion of the general insurance companies, lagged well behind the banks in maturity of organisation and influence on financial flows. Mention has been made of the Savings Bank’s entry into the bond market, but this particular action had only been made possible by the maturing of existing obligations or by relatively large-scale sale of its holding of mortgage securities. In general the flow of savings through the Savings Bank was as yet too small for it to be other than a minor institution. Similarly, while the A.M.P. Society had had an agency in Melbourne from 1850 and a separate branch in 1863, and while, with the establishment of the Victorian Life and General Insurance Com­ pany in 1858 local life assurance companies had appeared on the scene, the habit of taking out life insurance policies had not really become established. Moreover, the main outlet for life assurance funds

42 Forming a Stock Exchange, 1859-65 was in the mortgage market. The impact of the life insurance com­ panies on the share market at this time was indeed almost non­ existent, because of both their size and their choice of assets in which to invest. Finally, although terminating building societies continued to be formed on a small scale and by 1865 thought was being given to the formation of permanent building societies, the impact of this type of savings institution on the share market was to remain a development still well into the future. While the economy in general and the share market in particular were in the doldrums in the early 1860s this was not true of the activity of Victorian legislators. These years saw an impressive volume of new statutes, a number of which took the form of consolidating Acts tidying up the rather haphazard developments of the previous decade. It was in this context that Victoria’s first general Companies Statute was enacted in 1864. This Act, a fairly faithful copy of the English consolidating Companies Statute of 1862, was first introduced early in the 1863 parliamentary session some six months after the English Act came into operation, but more pressing local problems resulted in its being deferred until early in 1864. There is no evidence that there was a strong local demand in Victoria for such an Act at this time and it is quite clear that it was not to have a significant effect on the form of business organisation until another twenty years had passed. As it was only at about this latter period that the company form of organisation was becoming the prevailing one amongst British firms it is by no means surprising that a similar lag applied in the much smaller-scale economy of nineteenth-century Victoria. As evidence of the lack of real interest in the introduction of the 1864 Companies Statute (strictly the Trading Companies Statute) it is only necessary to point to the fact that the 1864 Act, in contrast to the proposed Act of 1863, repealed the 1860 Mining Partnerships Act. This change was not detected by parliamentarians in general until after the Act came into operation, when it was quickly brought to their attention by very indignant mining interests who found the 1860 Act under which they had been working much more appropriate to their needs than the Companies Statute which was obviously tailored to the requirements of relatively large-scale firms operating in England. Within six weeks, much to the chagrin of a naturally terse Attorney-General, the 1860 Mining Partnerships Act was re-enacted with some relatively minor amendments which post-1860 experience had indicated were desirable. Somewhat ironically, in the parliamen­ tary debates on both Acts no one noted that one of the major

43 The Stock Exchange of Melbourne exceptions to the jurisdiction of the 1862 Companies Statute in England was the body of mining law and practice which had de­ veloped, and which was to remain until 1895, under the jurisdiction of the stannary courts. Clearly both in England and Australia the special needs of relatively small-scale mining companies were better served by the body of law which had developed specifically to meet their problems. While the Companies Statute had little immediate effect on the organisation of business and of the share market, some comment upon it is necessary because it was the Act under which companies, apart from mines, were to be formed for the next generation in Victoria. Like its English counterpart this Act represented the minimum point of legislative control over the organisation of companies. From its having once been a very difficult matter to obtain incorporation, and the legal rights that went with it, under the 1864 Act all that was necessary to obtain it was that more than seven people should be involved, a memorandum of association defining the rules governing its scope and organisation should be drawn up, and the memorandum registered with the Registrar of Companies. Compliance with these basic conditions gave not merely incorporation but limited liability. While annual reports were required to be submitted the accounts needed to follow no prescribed form. The information necessarily available to investors was the very minimum. The wonder is that the subsequent frequency of fraudulent companies was as small, propor­ tionately, as in fact it was.

Sharebroking in the Early 1860s While, by 1865, the formal organisation of the share market was still at a somewhat uncertain stage, the market was nevertheless significantly more mature than it had been a decade earlier. Already a number of its long-term characteristics were beginning to take shape, notably its early adoption of the call room system of operating. There was still a long way to go before it would be appropriate to regard a share­ broker as a type of issuing house—in particular their later practice of underwriting new issues was still a long way off. But at least since the appearance of gold-mining companies brokers had begun to play an active part in the formation of new companies. Their names began to figure prominently on prospectuses, they acted as agents for accept­ ing subscriptions in the new companies, and they appear to have accepted responsibility for a good deal of the secretarial work neces­ sary in the initial stages of the life of a new company. With the later development of the secretarial and accounting professions they were

44 Forming a Stock Exchange, 1859-65 able to withdraw from some aspects of this work and concentrate more on their purely financial services. In the meanwhile their willing­ ness and ability to act, no doubt for a consideration, as jacks-of-all- trades at a time when company organisation was in an embryonic form meant that they made a substantial contribution to the develop­ ment of this institutional form in Australia. Also from an early stage the brokers played an important role in disseminating knowledge about the securities available in the market. Almost from the beginning of share dealings in Melbourne Edward Khull had published a regular price list. In the mid-fifties he also added a weekly commentary on the state of the market. When the mining company boom got under way in the second half of 1859 firms such as William Clarke & Sons and Baillie and Butters began to issue detailed weekly and monthly (for the English mail) reports on price changes, the state of the money market, new company for­ mations, etc. This practice was to be continued for a number of years. Between July 1860 and April 1861 about a dozen broking firms had combined to produce the weekly Stock and Share Journal which, while it lasted, added considerably to the quality and volume of information readily available to Melbourne investors. Finally, from 1861 onwards the Stock Exchange provided to the Age a daily official price list. In all these activities self-interest obviously played a promi­ nent part but not merely self-interest was involved. It was generally recognised, most obviously in the pages of the Journal, that for the share market to function efficiently it was necessary that investors as a group should be supplied with the most accurate information available. Finally, even in this early stage of their history in Australia, the brokers were beginning to feel some responsibility both for the financial requirements of the industries which were making use of the market that they were trying to establish and for the interests of investors. Thus in 1860 it was agreed that shares in mining companies would be dealt in cum calls. The object of this market rule, very imperfectly realised as the history of the next decade was to show, was to assist mining enterprises to obtain the funds they needed. In effect this rule reduced the marketability of shares upon which due calls had not yet been paid up. Again in 1861, in the belief that it would serve the best interests of both investors and of the government, the Stock Exchange, in the person of Robert Wallen as secretary, sought and obtained assurance from the Treasurer that the government would follow the English practice of determining the minimum price acceptable before the opening of tenders for government securities.

45 The Stock Exchange of Melbourne There is no direct evidence, though this is not in itself conclusive, that any of the Melbourne brokers had received their training on the London or one of the English provincial stock exchanges. They all appear to have learnt their trade by experience. Apart from pos­ sible purchases and sales as clients of English brokers their formal knowledge of stock exchange rules and procedures was presumably derived from a study of the rules and regulations of the London and Liverpool exchanges, copies of which were available in Melbourne at least from 1860. While the previous background of the brokers was diverse, it was in general of a mercantile character. It was as a leading merchant that J. B. Were first achieved prominence in Melbourne business circles. Robert Wallen began his career in Melbourne as a merchant. E. N. Emmett is first mentioned as the manager of the private Bendigo Bank in 1853. When this was absorbed by the Bank of Victoria he appears to have taken to auctioneering. He next achieved prominence as the promoter of the Bendigo Waterworks Company which was the occasion for the first mining company boom. It was after disagreements with the directors of this company that he com­ bined sharebroking with auctioneering. Of the other leading brokers W. H. Cropper had also been a successful auctioneer. Not unnaturally real estate agents also supplied their quota to the broking profession but none from this group seems to have had a continuing career as a broker. G. G. Brown was a shipping and insurance agent. But the other main training ground was gold-broking, which was the starting point for such leading firms as Edward Khull, Baillie and Butters, and William Clarke & Sons, though the last-mentioned firm was far more wide ranging than this description would suggest. For a time it showed signs of following the seventeenth-century English precedent of moving from bullion dealing into general banking business. Thus, in the late 1850s, apart from gold and share broking it was accepting deposits, making loans, and offering bills of exchange payable on demand in London by N. M. Rothschild. Nothing is known about the profitability of broking at this stage though it is apparent from the rush of new entrants to the industry in 1859 that expectations of profit were high. It is fairly clear that the brokers who survived did manage to obtain respectable incomes but the failure rate was very high. Amongst those who failed were not merely the new entrants of the highly speculative era but such apparently well-established firms as Edward Khull. Some idea of the scale which a broking business could achieve at this time is indicated by the following statement of his position at the time of his failure

46 Forming a Stock Exchange, 1859-65 in 1860: liabilities £38,372; assets £33,005. These figures need to be multiplied by a factor of five to give a rough indication of their equivalent mid-1960s purchasing power. While there is no way of knowing what proportion of these assets and liabilities represented his stock in trade as a broker, it would appear that even in the early 1860s the scale on which a broker could operate was by no means insignificant. On the other hand, as the survival of these very facts indicates, broking was a risky business and one in which there were long periods of dull trade. It is no doubt this latter aspect of their business that explains why so many brokers, in the sixties as well as in the fifties, found it necessary to devote part of their time to activities other than broking.

47 3 The Melbourne Stock Exchange, 1865-1884

The exchange formed in 1865, first known as the Stock Exchange of Melbourne, and then as the Melbourne Stock Exchange, has left very little record of its detailed activities. Our knowledge of it as a separate institution has to be pieced together in a very indirect and incomplete fashion. For the greater part of its history, until about 1880, it was a relatively small institution even in relation to the economy of which it was part. Its main rivals were not the outside brokers in Melbourne but the provincial stock exchanges, especially those of Ballarat and Bendigo, for it was primarily a gold-mining exchange, and its role in other industries was relatively limited until the closing stages of its career. This was not so much a commentary on its own narrowness but a reflection of the Victorian economy. Gold mining remained the colony’s largest individual industry almost until the end of the period here surveyed. While the share market’s bias towards gold mining was pronounced it is still possible to see mirrored in it the main general economic fluctuations of the time. To no small extent this was because the other main industry that provided share market business was banking, the strategic importance of which in the economy as a whole needs no elaboration.

The Shape of the Victorian Economy, 1865-84 The traditional picture of Australian economic development between 1860 and 1890 is one of sustained economic growth, and has come to be summed up in the phrase ‘the long boom’. While this is not a bad first approximation for Australia as a whole it is not a correct descrip­ tion of the trend of economic growth in its individual regions. In particular it gives a misleading impression of Victorian economic development. In the period which immediately concerns us, from 1865 to 1884, Victoria did not experience sustained economic growth. On the con-

48 T he Melbourne Stock Exchange, 1865-84 trary, there were two periods of relative stagnation interrupted by two bursts of rapid growth. The periods of slow growth were from 1865 to 1870 and from 1875 to 1879; those of rapid growth were 1871-4 and 1880-3. The general shape of these fluctuations in the rate of growth of the economy is probably most accurately reflected in the statistics of the Melbourne Bank Clearing House returns and of imports into Victoria, though notice should be taken of the important qualification that the early 1870s saw a quite rapid rise in the price level both in Australia and in Britain. Apart from the occasional lag in import

Victorian Imports /'

£ MM v* .E Melbourne a Bank Clearings 9) O c a 20

1 Melbourne bank clearings and Victorian imports, 1865-84 demand there is a surprisingly close short-term correspondence be­ tween movements in these two series (see Fig. 1). In so far as they do differ it is in their very long-term trend. This difference, a faster rate of growth of spending within Victoria than on imports, can probably best be explained by the operation of two distinct processes: on the one hand, a fairly direct trend towards import replacement of manufactured goods (most likely to be relevant in the decade starting in 1865); and, on the other, the indirect effects of a changing composition of domestic expenditure in the direction of a greater rate of growth of demand for goods with a relatively low import content (especially after 1880). There is no simple explanation of these divergences in Australian and Victorian economic growth but differences in investment opportu-

49 The Stock Exchange of Melbourne nities are probably the most important consideration. Thus in the mid-1870s the pull of New South Wales pastoral expansion diverted part of Victorian savings from use ‘at home’ to use over the Murray with consequential effects on investment spending in Victoria. More

table 2 Male Population, Including Chinese, in Victoria, 1861-91: Age Distribution

1861 1871 1881 1891 Age group (’000) (’000) (’000) (’000) 0-4 46 1 58-9 57-8 75-2 5-9 26-5 53-5 54-8 65-4 10-14 17-4 43-0 54-3 59-0 15-19 16 9 26-3 49-4 57-3 20-24 33 5 24-0 40-6 63-4 25-29 54-2 28-9 27-5 63-1 30-34 49-2 33 3 22-6 47-9 35-39 30-9 38-4 23-4 31-8 40-44 22-8 34-9 25-9 24-0 45-49 12 5 22 1 28-4 22 1 50-54 9-1 16 6 26-4 22-8 55-59 4-2 8-7 16 0 22 3 60-G4 3-2 6-3 12 0 20-2 65+ 2-1 6-2 12-8 23-5 Total males 328-7 401-1 452-1 598-1 T otal females 211-6 330-4 410-2 542-3 Total population 540-3 731-5 862-3 1,140-4

Annual rates of growth Selected groups 1861-71 1871-81 1881-91

% %% 0-14 5-6 0-9 1-8 15-39 -2-0 0-8 4-9 40-64 5-5 2-1 0-2 15-64 0-1 1-3 3-3 Total males 2-0 1-2 2-8 Total females 4-6 2-2 2-9 Total population 3-0 1-7 2-8 Source: Victorian Censuses 1861 to 1891.

50 The Melbourne Stock Exchange, 1865-84 generally, to some extent the reverse side of the preceding coin, account has to be taken of the steady decline in investment opportu­ nities in Victoria’s leading industry at the beginning of our period— gold mining. Almost without a break over the twenty years here being surveyed gold mining was releasing resources for use elsewhere in the Victorian economy rather than providing scope for its further expan­ sion, and it was doing so on a scale sufficiently large to have a direct impact on the rest of the economy. There needed to be a particularly vigorous expansion in other sectors of the economy and/or a tem­ porary halt in the process of decline for this retarding element in Victorian economic growth to be more than offset, and for the economy as a whole to experience rapid growth. In addition it needs to be recognised that the scope for further expansion of the pastoral industry in Victoria was limited relative to the comparable scope for expansion in New South Wales and Queensland. One other peculiarity of the Victorian economic scene in these decades needs to be given careful attention: the age structure of its population. As a result of the very rapid population growth of the 1850s, a growth which was concentrated amongst younger adults, Victoria entered the 1860s with a distorted age structure. This dis­ tortion was to affect significantly the timing and pattern of its economic growth for the next thirty years. The relevant figures are presented in Table 2. For convenience, and to indicate the full impact of the changing age structure, the statistics are taken through to the 1891 Census. If one looks merely at the total change in Victorian population in the 1860s, the increase from 540,000 in 1861 to 732,000 in 1871 gives the impression of rapid growth, at the annual average rate of 3 per cent. This, of course, was the case, but on closer inspection it is apparent that one cannot take the rate of growth of total population as a guide to the rate of growth of the economy. The high population growth rate was essentially the consequence of a large number of births to the young migrants of the 1850s and of the immigration of females. The male population of working age, which at this time would probably be more appropriately defined as the age group 12 to 65, experienced virtually no growth. When account is taken of the large Chinese element in the figures presented in the table the story does not change significantly. The population of European males aged 14 to 65 grew by only 0-5 per cent per annum between 1861 and 1871. Some of the more important economic implications of these figures are: that those types of investment which are linked with population growth, one of the most important of which is housing, faced weak

51 The Stock Exchange of Melbourne demand conditions; that the relative lack of this element of investment demand made the absorption of former gold miners into employment more difficult than it otherwise would have been; and that the com­ bination of the two preceding influences contributed to the significant emigration of males aged between 25 and 34 in 1861. On the other hand, the rapid growth of the juvenile population contributed to a major demand for education services. Thus the number of schools increased from 1,080 in 1865 to 2,050 in 1871 and the school popu­ lation from 74,000 to 165,000 in the same period. On top of this expansion was to come the 1872 Education Act which involved a further increase of about 40 per cent in the school population in 1873. In the 1870s the total annual population growth rate slackened from the 3 per cent of the 1860s to 1-7 per cent. Once again, though much less marked, the rate of growth of the male working population was less than that of the population as a whole. One reason for this situation was that young people were beginning to enter the workforce in large numbers and at a faster rate than employment opportunities were opening up. This competitive pressure in the Victorian labour market together with the pull of demand from New South Wales and Queensland induced further emigration amongst the 25-to-34 male age group. This in turn was linked, part cause and part effect, with the slow rate of growth of housing demand in Victoria in the 1870s. At the end of the 1870s a number of factors combined to produce in Victoria a much more expansive environment than had prevailed, on the average, over the previous twenty years. The long, almost continuous, decline of the gold industry meant that by about 1880 its relative weight in the economy was very much smaller than it had been. Apart from this in the years around 1880 gold was experiencing one of its temporary revivals. The Australia-wide recession of 1878-9 meant a temporary decline in the relative attraction of emigration to the other states. The ‘baby-boom’ of the late 1850s and early 1860s was becoming reflected in a sharp rise in the number of marriages. In 1880 came the expansionary impact of a sharp rise in wool prices. The boom which resulted from this conjuncture halted the net emigration of males of working age and even induced net immigra­ tion. The resulting burst of population growth which, as is apparent from Table 2, was highly concentrated in the age group 15 to 39, gave rise to Victoria’s great building boom of the 1880s. The continued decline of the goldfields towns, and less than average growth elsewhere in Victoria, meant that Melbourne’s population growth was consider-

52 The Melbourne Stock Exchange, 1865-84 ably greater than that of the colony as a whole. The examination of the implications of this situation belongs in another chapter. In the preceding account of population growth and its varying age structure the changing geographical distribution of Victoria’s popu­ lation is hardly mentioned. A number of important elements in Victoria’s economic growth were thus neglected, and they require some examination. Table 3 presents the regional distribution of Victorian population between 1861 and 1891. Three broad regions have been selected: Greater Melbourne, the goldfields towns and diggings (but not the associated rural areas), and the remainder of Victoria.

table 3 Regional Population Changes in Victoria, 1861-91 Greater Year Melbourne Goldfields Remainder Total (’000) (’000) (’000) (’000) 1861 140 228 172 540 1871 207 270 255 732 1881 283 231 348 862 1891 491 (220) (429) 1140 Annual Rates of Change %%%% 1861-71 40 1-7 40 30 1871-81 3-2 -1-7 31 1-7 1881-91 5-6 (-0-5) (2-0) 2-8

Source: Victorian Censuses 1861-91. Goldfields population in 1891 estimated by reference to 32 towns.

This method of presentation is revealing in a number of respects. In particular it brings to light a hitherto neglected aspect of the 1860s. Despite the large-scale decline of gold-mining employment in these years which involved, amongst other things, the emigration of 20,000 to New Zealand and some thousands to New South Wales and Queensland, the total population on the goldfields increased. Part of the discrepancy between these two sets of facts is accounted for by the increase in the number of women and children in the total goldfields population. But this is not sufficient to account for all of it. A significant number of the ex-miners must have moved no further than from the local diggings to the neighbouring goldfields town. One

53 The Stock Exchange of Melbourne reason for their being able to do this is to be found in the changing character of the gold-mining industry itself. The increasing depths at which the gold was worked and the steady shift from alluvial to quartz mining created a variety of related employment opportunities. One such was the manufacture and servicing of mining machinery and equipment in the major mining towns, a growth which was made possible even at this stage by the natural protection of high transport costs. Another was the employment involved in the cutting and trans­ porting of the large quantities of timber consumed by mining in the late sixties. At that time the annual expenditure on timber was some £500,000, or about one-tenth of the cost of production of gold. Part of the explanation of the growth of the mining towns in the 1860s lies outside developments in the mining industry. As can be seen from the table of regional population statistics the growth of population in the ‘remainder’ of Victoria, which approximates to rural Victoria and the towns serving rural industries, was as rapid as the growth of Melbourne. A large part of the growth of rural indus­ tries, especially after the important Amending Land Act of 1865, occurred in proximity to the goldfields, so that by 1871 the economic basis of many of these towns was more widely spread than the quali­ fying term ‘goldfields’ suggests. In the 1870s the growth of rural population, including the related country towns, once again more or less kept pace with the growth of Melbourne. The expansion of the railway system, which in this decade opened up the Wimmera, played an important part in producing this result. On the goldfields, however, there was no longer scope, either in agricultural expansion in their vicinity or in the changing structure of the mining industry, for non-mining employment growth to offset the impact of steadily declining gold-mining employment. The sus­ tained pressure of population movement out of the goldfields districts, both from the mines and from their associated towns, was an important element acting as a brake on the total growth of the Victorian economy. As a symptom of the declining relative importance of the gold­ mining industry the 1891 Victorian Census Report ceased to measure the goldfields population (towns and diggings) as a separate category. On the basis of the experience of thirty-two towns the rate of decline was much slower in the eighties than it had been in the seventies. This is quite consistent with the change in relative importance of gold mining and the rapid expansion that was taking place within the Victorian economy as a whole in the 1880s, most notably in Melbourne but also in the rest of ‘rural’ Victoria.

54 The Melbourne Stock Exchange, 1865-84 Finally some broad comments should be made on the changing structure of the Victorian economy. In the twenty years from 1861 to 1881, apart from the goldfields, rural and metropolitan expansion kept pace with each other. In these sectors of the economy growth was fairly rapid. Because information about the economy as a whole tends to stem from Melbourne sources, and because Melbourne itself was growing at a substantial pace, one tends to get the impression from the contemporary sources that the growth of the economy as a whole was faster than it in fact was. On the other hand one should not judge the pace of expansion simply by the roughly 1 per cent per annum increase in the male workforce that was the average experience between 1861 and 1881. To do so would involve no allowance for the growth of productivity. Contrary to the visions of affluence conjured up by the word gold, surface alluvial gold mining after its initial hey-day in the early 1850s was on the average a relatively unproduc­ tive occupation. The material cost of ‘independence’ from ‘capitalist’ masters was quite high. Partly because of technical improvements and partly because of the increasing relative importance of the more pro­ ductive quartz mining there was a substantial increase in the average amount of gold per worker produced by those who remained in the mining industry. Except, perhaps, at the end of the twenty-year period, there are good reasons for believing that the output produced by displaced diggers in their new fields of employment was, on the average, greater than it had been when they were gold miners. For reasons such as these the growth of employment clearly understates the growth of national output. A continuing source of supply of labour for the expanding sectors of the economy, in addition to that arising from natural increase and (for some of the period) from net migration, was provided by those diggers who left the industry and did not emigrate (see Fig. 2). In the 1860s, in terms of broad industrial groups, the greatest absolute increase in employment was in the rural industries, especially in the agricultural areas opened up along the new railway lines and in the vicinity of the goldfields. Next in importance was probably the range of service industries associated with the expansion of the inland towns and of Melbourne. Manufacturing, some sectors of which were assisted by the first protective tariff of 1866, probably grew fairly rapidly but it started from a relatively small base and much of it was on a very small scale. By 1871 it still played only a relatively small role as a source of expansion for the economy as a whole. In the 1870s this broad pattern of development was maintained. Most of the net increase in the workforce as well as the displaced

55 h Sok xhne f Melbourne of Exchange Stock The gold miners became employed in the agricultural industries and in in and industries agricultural the in employed became miners gold recorded statistics of manufacturing employment suggests—these latter employment manufacturing of statistics recorded expand at a faster than average rate, but by no means as fast as the the 56 as fast as means no by but rate, average than Melbourne. faster a in at and expand network railway expanding the along towns of the trade, transport, and service industries associated with the growth growth the with associated industries service and transport, trade, the auatrn, n lmn i te rwh f h tws cniud to continued towns, the of growth the in element an Manufacturing, Persons 100,000 10,000 Selectedemployment series 2 Victoria for Gold Mining Bricksand Timber • Manufacturing Manufacturing Farms and Stations , 1865-81 The Melbourne Stock Exchange, 1865-84 are seriously affected by successive improvements in the coverage of the statistics. Thus, it is significant that it was only in about 1880 that employment in the growing manufacturing sector began to exceed employment in the declining gold-mining industry. There was probably a greater demand for building and construction workers in the seventies as compared with the sixties, partly because of the much higher growth of government expenditure on railways and other types of public investment and partly because of the considerable amount of re-location of population in the latter period. Within the rural sector there was a shift of population from the older agricultural counties to the new areas of land being opened up in the Wimmera district and to the north-east in association with the extension of the railway system. To this was added the movement of population out of the declining mining towns. These trends continued into the early 1880s, but at this stage also there began a rapid expansion of house construction in Melbourne and with it a marked growth of that section of manufacturing industry concerned with building materials. The Interplay of the Economy and the Share Market, 1865-8 In the previous section an attempt was made to sketch in the broad outlines of Victorian economic development between 1865 and 1884. It is now time to narrow the focus of vision and to examine the fluctuations in the economy’s growth as seen from the vantage point of the share market. When the period opens the fields of private investment in which the market was directly interested were confined to banking, insurance, the gas industry, railways, and gold mining. As time passed the share market began to be of assistance in the financing of other industries but this broadening of its function was only really becoming apparent after 1880. Some rough indication of the changing character of the market is given by Table 4 which shows the market value of the securities listed at various dates between 1865 and 1884. This table should be read merely as an indication of orders of magnitude. The price lists from which the values are calculated never completely covered the range of securities in which dealings occurred. This was true not merely of mining securities but also of such securities as those issued by colonial governments other than Victoria. From the point of view of market transactions the table is also misleading because, with the partial exception of 1865, it markedly understates the importance of the mining market. This is a con­ sequence of the enormously greater rate of turnover of mining securities as compared with ‘investment’ securities (the term used in

57 The Stock Exchange of Melbourne TABLE 4 Market Value of Melbourne Stocks and Shares, 1865-84

Class of securities 1865 1870 1877 1884 Public (£’000) (£’000) (£’000) (£’000) Victorian government 988 1,371 2,314 1,957 Other A’asian governments 50 56 Local government 116 328 791

Total public 1,038 1,543 2,642 2,748 Private Company debentures 243 490 625 1,539 Ordinary shares Melbourne banks 1,920 2,442 3,689 4,711 Other banks 2,100 1,810 15,100 16,288 Insurance 401 463 448 770 Other finance 196 207 695 Pastoral 430 Gas 312 456 658 1,385 Breweries 333 Manufacturing 48 139 111 Trade 6 129 Railways 503 562 1,016 109 Other transport 101 408 Miscellaneous 62 36 47 98 Total non-mining 5,298 6,019 21,405 25,467 Mining (non-Vic. gold) 357 Victorian gold mines 3,626 1,716 n.a. 2,470 Total ordinary 8,924 7,735 28,294 Total securities 10,205 9,768 32,581 No. of non-mining companies 25 32 43 62 No. of mining companies 133 118 n.a. 93

Notes 1. Values as at middle of September except 1865 which is the beginning of April.

2. 'Other banks’ are banks with head offices other than Melbourne. Not much dealt in in Melbourne. Bank of New South Wales only one in this group 1865 and 1870.

3. Only dividend mines are included in Victorian gold mines in 3 884.

58 The Melbourne Stock Exchange, 1865-84 the market to describe non-mining securities). When turnover is taken into account, and it is this which is of primary interest to the broking community, it cannot be doubted that during these years the main business of the Melbourne share market took place in the mining section. Unfortunately it is virtually impossible fully to record activity in the mining market during these years. The following facts speak for themselves. In the mid-1860s there were over five hundred limited liability gold-mining companies in existence with mining assets worth about £3 million. In the next decade alone the number of new gold­ mining companies formed was to approach 4,000. Of those which existed in 1865, and of those which were formed afterwards, the great majority had a very transient life. Even so at any one time there were some hundreds of companies, the names of which were likely to figure in the financial pages of the press, and there would have been of the order of one hundred which were of considerable practical significance both in the industry itself and in the share market. Because an account of the individual fortunes even of only the more important mines would be quite unmanageable, reference to particular mines has here been reduced to the barest minimum. Some details of events in some of the major mines may be found in Blainey’s The Rush That Never Ended. A fuller account will have to await the appearance of a long overdue full-scale account of the Victorian gold-mining industry in the nineteenth century. An alternative measure of the importance of gold-mining companies in the market is available in the statistics of public company dividends to which reference will be made from time to time. The complete series is presented in Appendix 4. In 1866, which is the first year for which approximate figures are available, the dividends paid by public gold-mining companies were approaching £500,000. At least two-thirds of this amount was paid by Ballarat companies. Almost all of it accrued to Victorian investors. The dividends of all non-mining listed public companies in the same year were less than £300,000, and of this amount perhaps 20 per cent was payable outside Victoria. As dividend income at this stage was the most important single source of funds for reinvestment in gold-mining companies it is not difficult to appreciate why the Ballarat Stock Exchange was at this time Victoria’s premier exchange and why events in Ballarat companies dominated the Melbourne mining share market. While for a time the Melbourne market was second in terms of volume of business to that of Ballarat, w'hile on occasion it was to be second to that of Bendigo, and while it also had to share the available

59 The Stock Exchange of Melbourne business with such mining exchanges as those of Wood’s Point, Wal­ halla, Stawell, and elsewhere, as the period advanced Melbourne’s relative importance as the central mining share market for Victoria increased. This increasing concentration occurred for a number of reasons. First, in any one goldfield bursts of activity were usually followed by more or less lengthy periods of dullness during which the small volume of business made it very difficult for local brokers to stay in business. While Melbourne felt the impact of these particular periods of inactivity its interests came to be spread over the whole of the goldfields and it was relatively rare for fluctuations in the level of gold-mining share activity in each of the large number of separate Victorian goldfields to coincide completely. The amplitude of the fluctuations in the volume of mining share transactions in Melbourne was considerably less than that of any one field. This relative stability contributed to the strength of the Melbourne market. Second, partly because of Melbourne’s relative independence of the fortunes of any one goldfield and partly because the sources of funds available for investment in mining by Melbourne investors were more diverse than those of investors in the individual goldfields, Melbourne investors were able to exercise greater freedom of choice in the timing of their mining investment activity. Third, there was a greater concentration of wealth in Melbourne and, as a general rule, it was the well-to-do who were most able to afford an occasional flutter on such a specu­ lative form of investment as nineteenth-century gold mines. Finally, the growth of the communications system, both railways and tele­ graphs, its increased efficiency and its centralisation on Melbourne, cheapened travel, reduced the cost of acquiring reliable information, and lowered share transaction costs. On balance all these developments favoured Melbourne rather than the provincial mining centres. Against this general background it is possible to proceed to an examination of the course of events in the market and their relation­ ship to the economy. At the time when the Melbourne Stock Exchange was formed in March 1865 the mining market was experiencing one of its periods of considerable speculative activity. The Ballarat mines and those in the districts surrounding it were the chief attraction but interest in quartz mining was also evident, especially in Bendigo mines. The greater part of the total volume of transactions was occur­ ring on the local exchanges and amongst local goldfields investors. One aspect of this particular ‘boomlet’ in Ballarat was the conversion of many of the older-type co-operative mining companies into limited companies. An important reason for this change was that the co­ operative companies usually consisted of a very small number of

00 T he Melbourne Stock Exchange, 1865-84 shares. As a result, if and when the companies were successful, their price per share could rise to as much as £3,000. T he fact that a con­ siderable volume of transactions did take place in the shares of these companies at prices of this order is a fair indication of the wealth, and willingness to take a risk, of the goldfields’ investors. It is never­ theless not surprising that in time there was pressure to alter the capital structure of the co-operative mines in order to make them accessible to a wider range of investors. Nor is it surprising that this conversion process, which occurred at a time when the mines were yielding well, was a profitable one for the broking community. The year 1865 had opened with relatively low interest rates, bank advances were increasing rapidly, and there was a plentiful supply of money in the market. One expression of this situation was the price paid for 6 per cent Victorian government debentures (£105 10s) and the offering, in the Melbourne market, of New Zealand govern­ ment and semi-government securities. As the year advanced there was a distinct tightening of the money market. The countryside was afflicted by drought which particularly affected the wheat industry and there was a fall in wool prices, so that the 12 per cent increase in wool output (including trans-shipments from New South Wales) brought virtually no increase in wool export proceeds. Fortunately gold output, then by far Victoria’s most important industry, was maintained. The growing stringency in the money market was asso­ ciated with a decline in export receipts and a rising level of imports. The rise in imports seems to have been connected in part with a change in the structure of the import trade. Speculative importers on consignment from Britain were continuing in their old habits at a time when wholesalers were beginning to establish their own direct importing arrangements. General economic influences had relatively little impact on the Victorian gold-mining market of the 1860s and 1870s. It had its own logic of operation. To explain why this was so requires a rather extended aside. Given the nature of gold mining—an industry in which the deep lead being worked could change its course and run into someone else’s lease or in which the ‘make’ of gold in an ore-body could cut out to reappear some hundreds of feet further below—very few mines were continuous, profitable producers. If and when a number of mines struck rich workings simultaneously, speculative activity in the share market was likely to be one consequence. If this speculation had been limited to the mines actually producing gold nothing much would have happened except perhaps a certain amount of re-distribution of income and capital assets amongst mining inves-

61 The Stock Exchange of Melbourne tors. In fact the periodic bursts of mining speculation did much more than this. Owners of mines in the vicinity of the profitable ones were induced to test their claims further and investors became willing to pay the calls which further testing required. If the resulting specu­ lative glow really caught fire then promoters near and far, genuine and fraudulent, lost no time in putting their wares on the market. Almost immediately new companies began making calls. After a few months the returns of even the profitable companies failed to realise the extravagant hopes of speculative investors, share prices fell and the speculative atmosphere was replaced by caution and disillusion. But the demand for calls from the new mines continued. This demand absorbed the accruing funds which might otherwise have given buoy­ ancy to existing shares and effectually limited the formation, for the time being, of any new gold-mining companies. With the passage of time the flow of money into mining calls fell to a low ebb either because some of the new mines were sufficiently successful to find enough gold to pay for their further exploration expenses or because investors finally decided to stop throwing good money after bad. At this stage of the process, memories of past losses or disappointments were growing dim, funds were beginning to accrue which, given favourable circumstances, would be invested in mining shares, and the chances were increasing that some of the mines formed or revitalised in the preceding burst of speculation would ‘strike it rich’ and so set the stage for another round of the process. Cycles of this type, with a period of two to three years, were endemic in the nineteenth-century Victorian gold-mining industry. At least two features of this phenomenon deserve comment. First it should be noted that under the conditions then prevailing of, by modern standards, small-scale and frequently discontinuous operation the periodic bursts of speculation played a positive role in inducing bursts of real investment in the mining industry and in bringing about the level of gold output that was achieved. Without these periodic outbursts it is quite likely that both the level of investment in gold mining and its level of output would have been significantly less than they in fact were. On the other hand, apart from the redistribution of income to wily promoters from unsuspecting inves­ tors, there was some significant waste of real resources as a result of the speculative activity. Whether or not there was a net gain to the community from this particular technique of exploiting mineral resources is one of those questions that can never be satisfactorily answered.

62 T he Melbourne Stock Exchange, 1865-84 The second aspect of this process that deserves comment is the role played in it by cheap money. In his The Rush That Never Ended Blainey has tended to give cheap money a significant causal role in the sequence of successive bursts of mining investment in Australia. One would not wish to deny that cheap money was on occasion a contributing factor. It is also possible that the relative importance of cheap money in increasing the willingness of investors to speculate in mining grew as the century advanced. It should, nevertheless, be noted that in the particular period and in the particular gold-mining in­ dustry which is of immediate interest here cheap money was not a necessary ingredient in the cycle of mining speculation and investment. It is possible that the burst of mining speculation in March 1865 was assisted by the then relative cheapness of money, but in September- October 1866 very dear money did nothing to prevent a much more violent outburst of speculation. In the latter case certainly, and in the former case probably, the central dynamics of the process were along the lines already indicated in which cheap money as such is not directly involved. To return to the actual sequence of events. In the mining market the burst of activity in the first quarter of 1865 was followed by a period of dullness. At the beginning of 1866 the reasons adduced for this continued dullness by contemporary observers were ‘the serious drain for calls in mining enterprises and the delay of remunerative returns from undertakings looked upon as very safe speculations’. Rising interest rates (by January 1866 the banks were giving 6 per cent for six months’ deposits and charging 10 per cent on four months’ bills) had become reflected in the prices of government securities but had not yet inhibited new company formation. In the case of the group of new woollen mill companies being formed at this time hopes were pinned, in the event justifiably, on Victoria’s adoption during the course of 1866 of a protective tariff, one of whose main intended beneficiaries was to be the woollen textiles industry. The growing tightness of money in which an indifferent harvest, rising imports, and slightly declining exports all played a part was the background to the formation of the first bank of issue since the appearance of the National Bank of Australasia in 1858. The claim in the prospectus (March 1866) of the Commercial Bank of Australia, the brokers of which were William Clarke 8c Sons and G. G. Brown, that it was intended to meet the needs of ‘manufacturers, small traders, vignerons and other producers’ whose business was too small to be attractive to the existing banks, gained for it appreciative comment

63 The Stock Exchange of Melbourne in the press and sufficient support for it to start business on 1 July 1866, but it was to find that it had done so at a very inauspicious time. Shortly before it was due to open news arrived from England of the failure of Overend Gurney & Co. Ltd, of 10 per cent Bank rate, and of the suspension of the Bank Charter Act, all of which were expressions of one of the classical nineteenth-century trade cycle crises. Unlike Queensland, which had become dependent on an increasing flow of British funds that was to be halted by the British crisis, the Vic­ torian economy took the news of these English commercial and mone­ tary difficulties more or less in its stride. Interest rates were tightened up a notch, the banks became still more selective in their granting of credit, and there was a further rise in the exchange rate to a premium of U per cent which brought it very close to the gold export point. Despite this combination of measures there was no accompanying out­ crop of failures of Victorian commercial firms. T he immediate effects were limited to a fall in the price of government debentures and of bank shares and very dull times in this sector of the share market. As if to compensate brokers for the loss of income which this implied, an active mining market developed during August and reached speculative proportions in September and October. In Sep­ tember, for instance, it was reported: ‘In the annals of the Melbourne share market business has never been more active than in the present month’. Clearly the occasion for this activity was not cheap money. On the contrary it was the discovery in one of the earlier deep lead mines in the centre of Ballarat, the Sir William Don Company, of a rich layer of ground some hundred feet or so above the deep lead. This ground, which had been passed through unwittingly in the search for the deep lead, the depth of which had been known approxi­ mately, was subsequently to be known as ‘reef wash’. It wTas not limited to the Sir William Don Company’s claim and, in fact, extended through the central ‘township’ group of Ballarat mines. As it was rich, extensive, and much easier to get to than the deep leads themselves it is not surprising that excitement developed in Ballarat mining circles nor, as ‘the metropolitan market is sensitive to fluc­ tuations in the local one’, that the Melbourne share market moved in sympathy. The sustained market activity in September-October not only pushed the prices of the directly relevant Ballarat companies to very high levels, it also resulted in a rash of new companies, far afield as well as in Ballarat itself. For reasons that have already been indicated the level of share market activity during these months could not be sustained in­ definitely and so the November share market reports were speaking of

64 T he Melbourne Stock Exchange, 1865-84 ‘the inevitable reaction to a period of over-excitement’. Widespread doubt about the validity of the title to their claims of some of the new company formations was an important ingredient in the rapid slump in prices and market activity that was now occurring. From the point of view of the brokers the decline in the mining market was only marginally offset by the decision of the banks on 18 December to lower their discount rates by 1 per cent. So long as there was no change in deposit rates, which were now standing at 7 per cent for twelve months’ deposits, little recovery could be expected in the ‘gilt edged’ sector of the market. In the latter half of 1866 there were some signs of increasing un­ employment amongst workers in commerce and trade in Melbourne. There are a number of reasons why this unemployment did not increase in a cumulative fashion. From the point of view of the supply of labour both net immigration and the net natural increase of workers aged 15 to 65 were at a very low ebb. More important were changes arising from the side of demand. The 1866-7 rural season was a very good one. The consequential demand for harvest labour con­ siderably eased the employment situation while at the same time low bread prices enabled townspeople to increase their expenditure on other goods and services. Apart from these effects the 1866-7 harvest is notable because it marked the first year when Victoria was virtually self-sufficient in the production of breadstuffs. The income effects of the good harvest did not completely offset the declines in wool and gold produced, nor uncertainty about the effects of the 1866 tariff which much disturbed commercial interests in Melbourne. The probable slow growth of consumer spending in 1866, in the context of the high imports of that year, meant a build-up of stocks. It is this situation which partly accounts for the maintenance of the high level of interest rates throughout the greater part of 1867. It was not until April that there was any reduction in short-term deposit rates and not until October that there was a 1 per cent reduction in bank lending rates. These high rates on bank deposits— throughout the year 6 per cent was available on deposits of six months’ currency—inhibited activity in ‘investment’ securities. Such borrowers as did appear had to offer very high interest rates. In March the Queensland government, urgently in need of funds at this stage, was offering 10 per cent Treasury bills and accepting tenders of £104 10s. Less im portunate borrowers such as Tasm ania managed to sell small amounts of 6 per cent debentures. The Dunedin Waterworks issued some at 8 per cent while the Melbourne Gas Company successfully placed a £50,000 7 per cent loan at par. The Stock Exchange of Melbourne In the first quarter of 1867 the gold-mining market, still suffering from the after-effects of the September-October 1866 burst of specu­ lation, was very depressed. At the end of April it was estimated that the twelve leading Ballarat mining stocks had suffered a market depreciation of nearly £2 million. The severity of this fall largely reflected the unrealistic prices which had obtained in October. There were, in addition, continued complaints of the depressing effects of calls in the mines then formed which were still not producing results. While there were short flurries of excitement in particular mines or groups of mines a generally dull tone continued in the mining market throughout the year. Apart from the drain of calls, one other explana­ tion offered for this dullness, in Ballarat rather than in Melbourne, was that in the speculative period of 1866 the banks lent heavily to the mining interest, both to companies and to investors. Ever since then they had been pressing for overdrafts to be repaid. It is probable that this is an important element of the story for, however dull the mining market may have been, the industry itself was in a flourishing condition. Whereas in 1866 dividends from public gold-mining com­ panies amounted to about £500,000, in 1867 they totalled over £820,000. A large part of this increase was accounted for by Ballarat companies, so that it is reasonable to accept as reliable the market comments that by September mining overdrafts in Ballarat were negligible and that by the end of the year a distinctly livelier tone had arisen in the market for Ballarat shares. The direct causes of this revival of interest were the settlement of a dispute which had dragged on for the greater part of the year concerning the right to mine the known rich deposits under some of the public reserves in the centre of Ballarat and the discovery of new rich ‘reef washes’ in claims which had hitherto been worked at different levels. Some comment is necessary on the apparent discrepancy between the dullness of the mining share market in 1867, the increase in mining company dividends, and the slightness of the decline in total Victorian gold output (a decline of 3 per cent to £5,733,000). The increase in dividends in this situation was partly a matter of the luck of the game and partly a consequence of the increasing proportion of mining activity now being conducted by public companies. The fall in gold output largely reflects the gradual working-out of surface alluvial gold. The sluggishness of the share market and the prosperous condition of the main mining fields were inter-connected. Heavy calls depressed the market but provided the finance for active mining operations. It must also be realised that there was little short-term connection between the gyrations of the share market and the amount

66 The Melbourne Stock Exchange, 1865-84 of work being done in the industry. It was only if the volume of calls being paid was affected by share market conditions that one could expect a reaction in the industry, and even then the response was likely to be a lagged one. The most significant change in the share market in 1868 was the sharp and sustained fall in interest rates. Why this fall should have occurred is not fully clear. On balance it appears to have been a consequence of a temporary sharp decline in the demand for investible funds in the context of a marked increase in their supply. There appear to have been two main factors contributing to the decline in demand. First, the 1867-8 harvest was a relative failure and high bread prices reduced consumption expenditure on other goods and services. Commercial circles, partly for this reason, regarded the year as one of depression and there certainly was considerable unemployment in com­ mercial trades in the first half of the year. In mid-year this unemploy­ ment was added to by the labourers thrown out of employment by the cessation of public works which was a by-product of the dispute between the Legislative Assembly and the Legislative Council over the payment of members of Parliament. The second, and probably more important, factor affecting the supply and demand for funds in the share market was the increasing unprofitability of wool growing. This was partly a result of sharply falling wool prices and partly of a temporarily excessive supply of livestock. The latter factor sharply reduced the price of sheep. The combined effects of both these pro­ cesses was a sharp decrease in the value of pastoral property. The banks, who were deeply involved in the finance of pastoral properties, were most reluctant further to add to their commitments in this sector of the economy. While the two preceding factors were operating either to reduce the demand for banking funds or to divert banking funds away from some traditional borrowers the total value of the wool clip increased and, for the first time in half-a-dozen years, there was a marked increase in gold output. It was against this background that there were three successive falls in bank deposit rates between January and May 1868, by which time the six months’ deposit rate (the longest currency allowed) had fallen from 6 per cent to 4 per cent. The full details of these changes in interest rates, and of other changes between 1865 and 1900, are presented in Appendix 5. In this situation, for the first time since 1858, activity in ‘investment’ securities in the share market rivalled mining shares as a source of income for Melbourne’s sharebrokers. Throughout the year there was a steady appreciation in the price of government securities and of ‘investment’ shares. Temporary halts in the process, the consequence

67 The Stock Exchange of Melbourne of investors’ feeling that prices fully reflected the earnings to be obtained in these fields, were very short-lived. Fixed term deposits were falling due all the time and the much lower rates offered for renewal continually forced investors to reappraise the acceptable price level of ‘investment’ stocks. Whereas for some years high (6 per cent to 7 per cent) deposit rates had accustomed investors to yields on bank shares of from 8 per cent to 10 per cent, by the end of 1868 the acceptable yields had been reduced to between 6 per cent and 7 per cent. A number of borrowers were not slow to take advantage of this situation. A municipal loan by Ballarat was readily taken. So too was a £50,000 6 per cent loan by the Melbourne Corporation which was disposed of at prices between £103 and £105 5s. There were few initial takers for a New South Wales 5 per cent loan whose minimum price was set at £99. Only tenders for £13,300 out of a total of over £200,000 were at this price or better but it was not long before considerable amounts, at the tender price, had been absorbed by the market. Amongst ‘investment’ companies it was the banks which led the way. The Commercial Bank of Australia made an issue to shareholders at a 5s per share (5 per cent) premium and then somewhat later placed 6,000 shares through Clarke & Co. at a 10s premium. The National confined its issue, at a premium, to its shareholders. Before long the low interest rates had more widespread effects than a change in the price level of shares and bonds. As early as March 1868 it was reported ‘There is an excellent demand for building society shares of all kinds where the companies have attained any size’. This, the first market reference to transactions in building society shares, was an early symptom of the effects of low interest rates and a plentiful supply of money on the demand for house building. By the end of the year, when still lower interest rates prevailed, there are clear signs of a much greater level of activity in the building industry. In particular, by December the unemployment evident in the middle of the year had disappeared. Increased private building both of houses and of commercial buildings was only partly responsible for this change. The constitutional dispute was now sufficiently resolved to allow a re-commencement of colonial government public wrorks, and considerable local government building had followed their successful loan raisings. One example of this was that Melbourne’s town hall was now under construction. Apart from this revival of building in Victoria the labour market had also been relieved by an expansion of Tasmanian public works. Some six hundred Victorian labourers

68 The Melbourne Stock Exchange, 1865-84 had been attracted there to assist in the making of the Launceston and Western Railway. In the gold-mining market the year 1868 opened with a burst of activity. Speculation developed in Ballarat in the mines surrounding one of the rich ‘reef wash’ companies. No sooner had this died down than a final settlement was reached over the right to mine under the public reserves in the centre of Ballarat. This settlement took the form of an amalgamation of the remaining disputants, the Band of Hope and the Albion Companies, into the Band and Albion Con­ solidated Company. The new company was heralded in Ballarat as the ‘largest and richest gold mining company in the world’. With a paid up capital of £449,000 it was certainly the largest Victorian gold mine and may have been the largest in the world, but it was certainly not the richest. Unknown to its initiators it was being formed at the point when Ballarat’s great days as an alluvial mining centre were coming to an end. While the Band and Albion Consols did pay a few relatively small dividends from its alluvial workings, and while a decade later it was to emerge as a significant quartz producer, its returns on capital were to be meagre alongside Walhalla’s Long Tunnel Company which was just emerging on the Melbourne market and which was to become in fact Victoria’s richest gold mine. Almost coincident with the formation of the Band and Albion Consols, yields and dividends from Ballarat’s alluvial mines began their long decline. One consequence of this was strengthened interest in quartz mining. Another consequence was the development of the view in Ballarat that its riches ought to be explored at much greater depths. The decline of local dividends and the costs involved in such an enterprise prompted a group of Ballarat mining men to offer their wares on the London market. This venture, which would have been unthought of a year or two earlier, turned out to be unsuccessful. The market for mining shares in London was much less developed than was anti­ cipated and London investors were alleged to be deterred by the high price of mining shares, still a feature of Victorian gold mines.

Economic Fluctuations and ‘Investment’ Shares, 1869-71 The year 1869 was one of those years of which there were to be several in the future, when the effects of a depression in rural industries was largely offset by prosperity in Melbourne and by an expansion of public investment. The sources of rural depression were partly a drought in the 1868-9 season which seriously affected both agriculture and the pastoral industry and partly a further significant fall in wool

69 The Stock Exchange of Melbourne prices. The effects of these conditions on the wool industry in Victoria have recently been described by J. D. Bailey in his A Hundred Years of Pastoral Banking: A History of the Australian Mercantile Land & Finance Company 1863-1963. The future lending policy of this pioneering British pastoral finance company was to be much in­ fluenced by the difficulties it experienced at this time. These very difficulties, also being experienced by the trading banks, effectively closed the pastoral industry as an avenue for new investment except in so far as additional finance was necessary in order to prevent wide­ spread bankruptcies amongst pastoral Arms. Under these circumstances there were further falls in bank interest rates in the early months of 1869. These had the effect of giving still greater impetus to building activity in Melbourne. The income creation effects of this investment did much to offset the effects of the rural depression. So much was this so that, as indicated by the returns of the Melbourne Bank Clearing House which rose from £68-8 million in 1868 to £71-9 million in 1869, the net outcome of these conflicting trends was probably an increase in national income. It was not long before the expansionary effects of low interest rates, together with the beginnings of construction outlays on the first extension of the government railway system for half a dozen years, began to place pressure on the available supply of funds. While interest rates had continued to fall in the first quarter of 1869 bank advances had begun to increase rapidly. They continued to do so for another twelve months. This expansion of advances in the context of a stable level of deposits induced the banks to start competing for deposits, and by May 1869 this competition was being expressed in the form of higher interest rates. By November a full 1 per cent increase in deposit rates had been established. A further fall in wool income as the result of the smaller, drought-affected output of the 1869-70 season, together with steadily falling gold production and gold-mining dividends, intensified pressure on available funds. A suc­ cessful loan-raising operation in London (for railway purposes) in January 1870 did little to relieve the local market. By the March quarter of 1870 the very restrictive lending policy of the banks was considered to be responsible for the crop of commercial failures that occurred in that month and for the widespread signs of commercial depression that accompanied them. For the remainder of 1870 the momentum of activity in the build­ ing industry served to moderate the increase in unemployment. This was so despite the serious interruptions to trade in the second half of 1870 caused by a series of floods which heralded the breaking of

70 T he Melbourne Stock Exchange, 1865-84 the long drought. So great was the disruption of communications caused by these floods (inland transport could only continue in the vicinity of railway lines) that the case of those advocating more rapid railway extension was considerably strengthened. At about the time of the floods came news of the outbreak of the Franco-Prussian War. This produced short-term uneasiness in commercial and monetary circles. The slightly declining interest rates from August onwards did little to offset these two factors. Nor wrere they sufficient to prevent an intensification of unemployment in the second quarter of 1871 when the stagnation in trade extended to the building industry. By this time the level of unemployment was such that the government was induced to set up a relief program, in the form of filling up disused quarries in the neighbourhood of Melbourne, for which pick and shovel men wrere paid 4s 6d per day. By the time this relief was no longer necessary, towards the end of 1871, some £6,500 had been spent in this fashion. The extent to which these changes in the level of employment reflected changes in aggregate income is not certain. Bank clearings show an increase from £68-2 million in 1870 to £74-4 million in 1871, but as the latter part of 1871 witnessed one of Victoria’s most hectic bursts of mining speculation this is one of those occasions when bank clearings are unlikely to be a reliable index of income movements. What is clear is that by the end of 1871 pastoral income, under the influence of a sharp rise in wool prices, was rising rapidly. The year

3 Bank interest rates in Victoria, 1866-84: six months’ deposit rate as a whole also saw a considerable increase in gold output. The com­ bination of these changes in export income in the context of an otherwise depressed economy meant a significant increase in the volume of savings. One aspect of this process was a large increase in

71 The Stock Exchange of Melbourne the amount of coin and bullion held by the banks. Jointly, these trends were reflected in falling interest rates. It was under these circumstances that signs of a general recovery in the economy became clearly evident in the last quarter of 1871. Some of the changes in the ‘investment’ sector of the share market between 1869 and 1871 can be deduced from the earlier discussion of the relationship between changes in bank deposit rates and the yields on securities of this type. When interest rates fell the price of ‘invest­ ment’ securities rose; the reverse happened when interest rates in­ creased. As far as bank shares were concerned this generalisation is subject to the qualification that investors also took account of changes in the margin between bank lending and deposit rates and had views about the likely changes in the volume of bank lending. When interest rates were low government borrowers tended to enter the market. Thus in February 1869 the Victorian government successfully placed a loan of £300,000, 5 per cent, 25-year debentures at and above the minimum price of £99 10s, but this was to be the only local offering by the Victorian government for some time. The bulk of its public works expenditure during the three years was to be financed either out of revenue from land sales (£200,000 per year of these proceeds were set aside for railway construction from 1869 onwrards) or by loans floated on the London capital market. Low interest rates also stimulated the formation of new enterprises in a variety of fields but almost no signs of this activity are evident in the Melbourne share price lists. New company formation, other than in mining, was still largely independent of the stock exchange. One exception to this rule should be noted. Early in 1869 ‘some spirited Americans’ organised Melbourne’s first horse omnibus com­ pany. Of the 10,000 original shares one-half were offered to the public w'ho viewed the project with such favour that applications for 19,000 were received. This response proved to be a justifiable one. The newr urban transport system was very successful. Within a year or so it was partly responsible for, amongst other things, a burst of suburban build­ ing activity along its routes, and was to be accorded responsibility for a reduction in the fares charged by the Melbourne and Hobson’s Bay Railway Company. In time it was to be transformed into the Mel­ bourne Tramways and Omnibus Company and to play a significant role in the final stages of Melbourne’s great building boom of the 1880s. It was not low interest rates but low prices for sheep that accounted for some of the few new entrants to the stock exchange list in 1869. The contemporary increase in the number of boiling-down establish-

72 The Melbourne Stock Exchange, 1865-81 ments was financed in traditional non-stock-exchange ways, but the more novel projects of setting up tinned meat preserving companies found it helpful to make use of share market facilities. Some half- dozen of these companies were formed. Most of them were profitable so long as sheep prices were low but they ran into considerable difficulties after the sharp rise in wool prices, and the related expan­ sion of sheep population in the Riverina, lifted sheep prices to high levels in 1871. A somewhat diverse group of events during these years are worth brief comment. First, in April 1869, interest rates had fallen to such a low level that there was a period during which the prices of securities quoted both in Melbourne and in London reversed their usual pattern to become higher in Melbourne than in London. Second, investors in bank shares did not have to contend merely with changes in interest rates as indicators of the level of prices for bank shares. When the banks were relatively small, and until their manage­ ment techniques had improved, they suffered a good deal from dis­ honest employees. A notable example of this occurred at the end of 1869 when the Commercial Bank discovered that its accountant had defrauded it of £16,000. As a result shareholders had to accept a write-down of their shares by 10s each. Finally, these years saw the foimation of the first Victorian mutual life assurance societies, the National Mutual in 1869, the Mutual Assurance Society of Victoria and the Australian Widows’ Fund in 1870, and the Colonial Mutual in 1871. After a separate existence of more than twenty-five years the first two institutions were to combine to form the present National Mutual Life Assurance Society in 1896. The Quartz Mining Boom, 1869-71 The key to the behaviour of the mining market between 1869 and 1871 and one measure of its relative importance in the share market as a whole is given in Table 5. These were the years during which quartz mining began to fufil its early promise as a major source of gold production in Victoria. By the same token they were years during which Ballarat was displaced by Bendigo as the leading mining town of the state, and in which Stawell and Walhalla joined Bendigo as focal points for the attention of mining investors. Walhalla’s relatively late entry on the scene, in 1868 as far as the Melbourne market was concerned, was largely due to its location in rugged country on the fringe of Victoria’s gold-bearing lands. In the case of the other leading quartz towns, especially Bendigo, the rise in gold output reflected the success of the miners in discovering rich ore-bodies at greater depths.

73 The Stock Exchange of Melbourne

TABLE 5 Public Company Dividends in Victoria, 1868-71 1868 1869 1870 1871 Mining companies (£’000) (£’000) (£’000) (£’000) Quartz 224 296 471 690 Alluvial 573 352 232 242 T otal 797 648 703 932 ‘Investment’ companies 299 322 281 281 Total all companies 1,096 970 984 1,213

Source: Argus, 1869- 72.

A feature of Bendigo’s geology was that payable quartz lodes did not continue downwards in a continuous fashion but were formed in successive layers in w'hat are technically known as saddle reefs. These reefs were separated, generally speaking, by hundreds of feet of more or less barren rock. It was not until the late sixties that this geological characteristic was clearly recognised, and it was the richness of the ore-bodies at depths of from 500 feet to 700 feet that made Bendigo the centre of mining attention in the early 1870s. It was not merely the vagaries of geological structure that accounted for the relatively late dominance of quartz mining. Considerable mining experience had to be acquired before economic production was possible at depths of the order indicated. Problems of mine management and mine technology had to be encountered and solved. Much of this experience, both of practical mining and of mine manage­ ment, was obtained in the shallower mines in the course of the sixties, not merely on the major quartz fields but also in Ballarat’s deep leads. Some account of the way in which these problems were solved is given in Blainey’s The Rush That Never Ended but the full story has yet to be told. It is not known, for instance, how much of the success of deep quartz mining in Victoria was due to the application of overseas technical developments, such as the replacement of gun pow'der by gun cotton and Nobel’s invention of dynamite in the mid 1860s, or to native practical inventiveness such as is indicated by Ford’s boring machine or in the whole range of local improvements in mining and crushing practice, details of which are scattered through Brough Smyth’s The Goldfields and Mineral Districts of Victoria. W hatever the source of the knowledge there can be little doubt that by the end of the 1860s the Victorian gold-mining industry had attained a high

74 The Melbourne Stock Exchange, 1865-84 level of technical competence. Brough Smyth, then Secretary to the Department of Mines, may have overstated the case when he claimed ‘Whether the vein is wrought by sinking shafts and driving from thence, or by tunnels, or by quarrying on the surface, all the best appliances, as used in other mining countries, are brought into use by our miners, who in perseverance, skill, and intelligence are not excelled by the same class in any country’, but he probably was not far off the mark. Equally important as purely technical changes was the develop­ ment of administrative machinery for the running of the relatively small mines economically and of techniques for organising an ade­ quate supply of risk capital. It was a decade after the first mining companies were formed before the combined legal, administrative, and financial organisation of the industry had reached sufficient maturity for investors to be confident that they were entrusting their money to well-managed firms. This confidence, of which there is a good deal of evidence in the contemporary financial commentary, was a necessary condition for deep quartz mining, partly because of its greater inherent risks and partly because the length of time between the initial outlays and the dividends (if any) was, on the average, much greater in quartz than in deep alluvial mining. The nature of the financial difficulties faced by mining companies during these years are partly illustrated by an account of the events leading up to one of Victoria’s few important legal ‘inventions’, the no liability mining company which reached the statute book almost at the end of the period here being surveyed—in May 1871. Initially, as described in the previous chapter, those concerned for the develop­ ment of the gold-mining industry had thought that its major financial problems would be solved by the granting of limited liability to mining companies. Investors would have the protection of limited liability, then very much a privileged possession, and because of this woidd be willing to supply the funds required. In the early days of company mining the normal practice was to issue shares of relatively high par values and subsequently to make a series of calls as finance was required, often in the hope that the number of calls would be few. But mining is a very risky type of business in which initial aspirations are often unreasonable and the cost of achieving even reasonable ones not insignificant. In the many cases where calls were in fact numerous and in which shareholders’ initial enthusiasm had long since been dampened, an increasing proportion of investors refused to pay their due calls. They were legally obliged to pay them under limited liability legislation and could be—and were—sued for

75 The Stock Exchange of Melbourne not doing so, but it was soon found that this was not a very satis­ factory procedure. The choice of the particular investors to be sued was open to abuse. The costs of legal proceedings were found to be high. In short, the net receipts obtainable from the enforcement of the calls provisions of the limited liability acts were in practice negligible. To make matters worse, on occasions when a proportion of the shareholders paid their due calls and saw the mine through to a profitable conclusion, they were likely to find that non-call payers would reappear on the scene, pay their overdue calls, and become entitled to a share of the profits. Under these conditions genuine investors were increasingly reluctant to invest in mining companies. Two techniques were devised to meet this situation. Companies included in their memoranda of association rules governing the forfeiture of shares for non-payment of calls. Forfeited shares, after due notice, became available for purchase by those who still had sufficient faith in the mine. This technique pro­ vided a more certain supply of funds to the mine and ensured that those who paid calls during the risky stages reaped such profits as were realised. Forfeiture of shares was becoming a normal feature of Victorian mining company practice from the early 1860s onwards. The other technique, a response from investors rather than from management and less satisfactory for the latter, was that known as ‘dummyism’, whereby investors entered themselves into the books of the company under fictitious names. If all went well with the company, calls were paid as required but if the company encountered hard times it found that it could not obtain funds from imaginary names. In addition, creditors found themselves in the same unhappy position on the occasion of the winding up of a company. The more important practice, from the point of view of main­ taining a reasonably adequate supply of finance for new investment in mining, was the forfeiture system. By the late 1860s it was a fairly integral part of the organisation of the mining industry. Hence the decision in 1869 of the Sandhurst (Bendigo) Court of Mines in the case Nolan v Annabella Company, that the company’s rules relating to forfeiture under its memorandum of association were inconsistent with the statute under which it was incorporated (the Mining Com­ panies Act of 1864), seriously disturbed the mining community. A host of transactions involving large potential losses for holders of forfeited shares and gains for those who had forfeited them appeared to have no legal standing. By the time the appeal of the Annabella Company to the Chief Court of Mines was decided, at the beginning of Septem­ ber 1869, against the company, sufficient support had been mustered

76 T he Melbourne Stock Exchange, 1865-84 in Parliament for a Bill to be hurriedly passed to legalise the illegal status quo. The Bill to amend the Mining Companies Limited Liability Act (21 September) declared valid all transactions in for­ feited shares prior to the decision of the Chief Court of Mines. It was to be another year or so before this legal mess was properly tidied up by the Mining Companies Law Amendment Bill of 1871. The novelty of this act and the name by which it is remembered lay in its use of the term ‘no liability’. Shareholders incorporated in mining companies under its provisions were not liable for anything more than they had already paid. This extension to the limit of the logic of limited liability would have horrified the mid-nineteenth- century sponsors of the limited liability system, and even in Victoria no liability provisions were restricted to mining operations. Never­ theless, as the experience of mining companies in the 1860s had shown (for no liability was simply the legal equivalent of the practice of the forfeiture system) there was much to be said for the use of this device as a method for maintaining the supply of funds for ventures which by their nature were subject to very high risks. Its continued use for almost a century is further confirmation of this. The Act of 1871 also contained sections directed at improving the winding up procedures of mining companies and at preventing the practice of ‘dummyism’. This latter restriction soon became de facto irrelevant. There is no point in being a dummy in a no liability mining company. Mention should also be made of one other technique for spreading the risks of mining operations and for ensuring a continuation of exploratory work which was of considerable importance in the 1860s and early 1870s. This was the ‘tribute system’. It was one in which groups of working miners (tributers) agreed to work a mine without pay in return for a fixed proportion, over a defined period, of the gross output of any gold that should be discovered as a result of their efforts. The appeal of this system to skilled miners is clear. It also had attractions for mine owners, especially at times when the prospects of a mine were very uncertain and when shareholders were corres­ pondingly unwilling to make further funds available. The tribute system had its greatest vogue in Bendigo in the 1860s. At the end of the decade, before the wealth of the mines at depth was clearly proven, the majority of the then dividend-paying Bendigo public mining companies were being worked on tribute. In the early 1860s the tribute system, which is another debt which Australian mining owes to Cornwall, had considerable political signi­ ficance. It was a half-way house between the ‘democracy’ of the 1850s and the necessities of the mature company mining of a later date.

77 The Stock Exchange of Melbourne With the passage of time this political ingredient in its use became less obvious and its primary function became that of economising on the use of outside funds in the development of the mining industry under conditions where, for geological reasons, the uncertainty of finding underground gold was fairly high, mining operations were conducted on a relatively small scale, and the local share market was in an undeveloped state. It was because all these conditions were more evident in Bendigo than in Ballarat in the 1860s that the former goldfield was the main user of the tribute system. In the early 1870s, when greater knowledge was acquired of the peculiarities of Bendigo’s geological structure, when mining operations there were conducted on a larger scale, and when the market in Bendigo shares was much better developed, mining directors were in a considerably stronger position to obtain a continued supply of funds in order to conduct further exploratory work. Under these conditions, while it was never completely absent from the Bendigo scene in the nineteenth century, the tribute system fell into relative disuse. As the year 1869 opened Ballarat’s alluvial mines were still the centre of attention of Melbourne mining investors but there were growing signs of quartz’s coming of age. In January the Australasian's Sandhurst correspondent was reporting: ‘The whistle of the engine and the music of the stampers resound throughout our reefs’. Similarly the quartz reefs in the vicinity of Ballarat were being worked with vigour. ‘Small villages [Egerton, Gordons, Clunes, Rokewood and Blackwood] that were scarcely known to any but their own inhabitants a few months ago are gradually springing into the form of respectable townships ... on which . . . the screaming whistle of a mining engine or two regularly supplies the place of the ship’s bell at sea in noting time . . .’. In March there was a minor speculative boom in quartz mines. As an example of what could happen when one of the quartz companies reached the dividend stage the New North Chines Com­ pany, which a year earlier had a market value of £20,000, was now worth £370,000. The volume of dealings in quartz companies con­ tinued to be large until June, with the centre of interest shifting from one field to another. Thus in June it was good yields from the Long Tunnel Company (Walhalla) that caused its price to rise from £60 to £75 per share. A year earlier the price had been £10. By about July the pressure of calls from many new quartz companies began to exert its usual depressing effect on the prices of shares in existing companies and for the remainder of the year the mining market was in a more restrained mood. Until the end of September this was due in part to the uneasiness investors felt about dealing in shares which may have

78 T he Melbourne Stock Exchange, 1865-84 been forfeited at some earlier date. The main exceptions to the general dullness were some of the Gippsland mines and the Bendigo mines; in September it was noted that ‘Bendigo is becoming much livelier in yields, dividends and business’. This increasing activity in Bendigo mines, which were still largely financed by local investors, was not fully reflected in Melbourne. By the end of the year even Ballarat was contributing to the growing interest in quartz mines. In December the Sovereign Company gave a boost to Ballarat’s hopes when it struck rich quartz at a depth of 430 feet. As can be seen from Table 5, the heavy calls in quartz mining in 1869 began to bear fruit in 1870. Quartz dividends almost doubled, though not all of this change can be attributed to additional real investment. As the wealth of the Bendigo district increasingly came to be recognised, the general price level of Bendigo mines increased. A number of the large private owners, who had been characteristic of the Bendigo scene in the 1860s, decided that the time was ripe for converting their mines into public companies. To some extent, there­ fore, the published figures overstate the actual increase in the dividend-paying capacity of the quartz-mining industry. This quali­ fication also applies to the further increase in quartz dividends in 1871. Three events at the beginning of 1870 are worth special attention. On 1 January 1870 there was a reduction in the charges for inland telegrams. When one remembers that trade generally was relatively depressed in 1870 the elasticity of response to the price change is quite remarkable. In 1869, 277,000 telegrams were sent; in 1870, 455,000. Part of the explanation of this jump is that the metropolitan mining brokers were probably the largest single group of private users of telegrams. Cheaper telegrams helped Melbourne to obtain a still larger share of the total market in mining shares and was one element in the high level of mining market activity that prevailed in this otherwise relatively depressed year. It was in January 1870, too, that the Ballarat School of Mines began to take shape. To no small extent its formation at this time was a symptom of the decline of mining activity in Ballarat itself, although not in the district of which it was the natural centre. Perhaps increased knowledge and skill could find new ways of prolonging Ballarat’s leadership as a mining town. As it happened, it was the well-tried techniques which provided most of the vitality in the Bal­ larat market in 1870. Towards the end of the year some of the older deep lead companies discovered further rich ground and for a month or two Ballarat alluvial companies were once again the centre of

79 T he Stock Exchange of Melbourne attention. For many investors the most notable event of the year was that they received their first dividend from the Band and Albion Consolidated Company. But a firmer guide to events during the next few years was the assertion in January by the Australasian’s Sandhurst correspondent that recem events provided ‘proof of the truth of the theory so often propounded by practical miners, that our reefs re-form and become auriferous at regularly recurring depths, forming as it were a suc­ cession of “saddles” with communications called “legs”.’ The theory was correct and it was not only the people of Bendigo who were coming to accept its correctness. Bendigo’s share market, ‘under the Beehive, was rapidly becoming much more well populated with brokers than it had been in the past. It was alleged in February 1870 that the number of brokers had quadrupled during the past three or four months. At the same time it was noted that ‘the attention of Melbourne s speculators has been drawn to this district’. Their manner of buying didn’t impress the locals. With the exception of a few who are, as it were, within the circle, most Melbourne people eschew Bendigo stocks at a moderate figure, but rush in as soon as they have risen very high, and from this very cause they often fail to realise any profit. It is necessary that more discrimination should be shown in investment. The particular mining event which helped thrust Bendigo stocks into the limelight was the discovery of a rich ore-body in the Great Extended Hustlers mine. In successive crushings in February and March 1870 the output of the mine was 659 oz, 1,323 oz, 1,740 oz, and 1,865 oz. If this level of output could have been maintained for a full year it would have produced over $1 million worth of gold at 1967 prices. In fact the next crushing yielded only 830 oz, and the price of the shares fell from 42s to 27s 6d. In a year or so it was once again to be the centre of investors’ attention. For the time being this particular burst of output proved to the world beyond Bendigo the richness of its quartz ore-bodies at depth. From this point onward there was growing interest in Bendigo quartz mines. By June 1870 they had come to dominate the Mel­ bourne mining market though not to the complete exclusion of other areas. A mine such as the Long Tunnel Company, which paid £60,000 in dividends in 1870 and was to pay £108,000 in 1871, was not without its followers in Melbourne. But, broadly speaking, from mid-1870 onwards it was Bendigo that was the centre of attention, for it was not only the Hustlers line of reef that was now showing rich returns. The same could be said for the Garden Gully, the Victoria, and the

80 The Melbourne Stock Exchange, 1865-84 Stafford lines of reef. As each new reef came into prominence it pro­ duced a swarm of new mines in its vicinity. Amidst the ups and downs, the swings of optimism and pessimism which appear to be an inevitable feature of mining investment, there was a growing cres­ cendo of interest and activity in Bendigo mines which reached its peak, partly because by this time cheap money was a contributing factor, in the months between August and October 1871. Probably the only other example of mining fever which has rivalled this outburst in Victoria was the Broken Hill silver-lead boom of the late 1880s. Mining speculators came to Bendigo from near and far. A special train was run to and from Melbourne on Saturdays especially for the con­ venience of speculators, though, in keeping with the acute Sabba­ tarianism of the day, Melbourne investors had to cut their speculative activities short because it left Bendigo at 10 p.m. In Collins Street crowds of speculators overflowed from ‘under the Verandah of the Hall of Commerce into the street, frequently blocking the tiaffic and giving rise to many heated exchanges between the Stock Exchange and the Corporation of Melbourne. In August the building known as the Beehive in which were located the offices of many of Bendigo s biokeis and managers of mining companies (and in consequence many share certificates and company registers) caught fire and burnt down. Share market business was interrupted for scarcely an hour.

table 6 New Gold-mining Companies Registered, 1868-72 1868 1869 1870 1871 1872 Number of companies 329 423 499 1,206 522 Number of shares (’000) 1,227 1,974 8,444 27,077 11,161 Total nominal capital (£’000) 3,719 5,235 6,022 16,989 6,813 Nominal capital by mining district (£’000) Ballarat 2,175 1,555 182 3bb T33 Beechworth 513 773 203 336 285 Sandhurst 131 584 4,707 14,404 3,037 Castlemaine 145 1,158 366 375 652 Maryborough 394 298 338 1,323 1,622 Ararat 312 606 74 68 303 Gippsland 50 261 152 118 482

Source: Mineral Statistics of Victoria, 1869-72, Victorian 'Legislative Assembly, Votes and Proceedings.

81 The Stock Exchange of Melbourne For those who like their history in the form of statistics, Table 6 gives figures from the annual reports of the Department of Mines, and provides an informative description of this episode in Victorian mining and share market history. For those who prefer to glimpse the people behind the figures it is fortunate that at least one vivid eye-witness account of the peak of this burst of speculative fever has survived. As it describes one of the really high points of speculation in Victoria and as it does this in a fashion that cannot be imitated at second-hand it is worth quoting at some length here. It was written by one of the Australasian’s regular feature writers who made a special trip to Bendigo (Sandhurst as it then was) to report on ‘Saturday Night at Sandhurst’. It was raining hard when, at half-past four on Saturday after­ noon, your contributor reached Sandhurst.... Multiply the Verandah of Collins-street by 20, and you will have a starting point from which to imagine the multitude. The pave­ ment round the two sides of the hotel was choked with people. Melbourne and Ballarat seemed to have emptied themselves of sharebrokers, and well known faces met the gaze of your contri­ butor at every turn. Poniatowski, tall, implacable and dandified, was there. If ‘Aegles’ [Robert Wallen], the terror of evildoers, had not been by profession invisible to mortal eye, he might have been seen ‘talking on Change’ in his habitual paragraphic manner. Cuth- bert Bede—otherwise Sir Thomas—rubicundly speculated, regard­ less of the stream of water which ran from the ruins of his hat. What were hats, indeed, to such fortunate fellows as he? The chairman of committees chatted with Mr Robinson, the Croesus of View Point, and no less than four members of Parliament revolved in the orbit of the late Minister of Mines .... Pushing through the mass of men, your contributor follows the broad back of a respected woolbroker and finds himself presently in the air and rain. Opposite him is the Pall Mall Reserve, with the poppet-heads of the City of Sandhurst Mining Company deri­ sively upstanding therein. The roadway is a mass of humanity, standing with its hands in its pockets, apparently doing nothing. But up from the crowd arises a murmur that makes itself heard above the steady ripple of the rain—the murmur of whispering voices. In the vast m ultitude—for surely a mob of 3,000 people boil­ ing over from the Shamrock to the Beehive, from William-street to Mitchell-street, may be called vast—is no shouting to be heard. Men stand about, move hither and thither, pluck others by the sleeve, flutter pocket books and transfer scrip with an ominous noiselessness that indicates business. Though the intensest excite­ ment prevails, it is part of the game of speculation to affect the true gambler’s indifference. The rapid walk which betokens anxiety, the fixed farseeing gaze which denotes mental pre­ occupation, the twitching fingers fumbling with metallic leaves, the

82 The Hall of Commerce, home of the Stock Exchange from 1862 to 1880

. ishtoil £ 2 The Exchange when newly erected in Collins Street in 1880 3 The entrance to the Stock Exchange building, as it was from 1S91 to 1924 The Melbourne Stock Exchange, 1865-84 hot dry hands, the incessantly renewed cigar, these are the signs by which we know the men who are risking their fortunes of yesterday upon the chances of tomorrow. “I have not been to bed for two nights” said one of these. “I shan’t go to bed to-night either if this keeps up; every hour of sleep is a dead loss to me”. He departs, and your contributor, splashing desolately through the red mud, meets him at the angle of the white fence again. “I have made a hundred since I saw you last”, he says; ‘‘let us drink”. .. . The emblazoned windows of mining agents meet us at every raising of the eyes, the banks display amalgam of magnitude and specimens of price. Behind the iron bars of the Bank of Victoria is a lump of golden pease-pudding ticketed 987 oz. The Union Bank displays 140 oz. from the Victory Company and 660 oz. from the Carlisle Company. In the banks themselves lights are already burning. They will not finally close until midnight. It is rumoured that ‘‘results” of certain looked for ‘‘meltings” will be declared at that hour. ... The very silence was the acme of excitement. The nerves of each one were so highly strung that no low note of vulgar interest could awake an echo from them. ‘‘I must go out” said one man, “this excitement makes me sick”. “I am going to Melbourne tonight” said another, “that I may see a sober man again; we are all mad here or next door to it”. ... Miners’ wives—or such one might guess them—pushed their comely way through the crowd, intent on marketing. . . With the remorseless common sense of their sex—that common sense which would scorn the prospect of an Eldorado to be purchased at the expense of the children’s supper—they saw but the immediate wants of the household, and extracted from their speculative husbands’ fingers the note already in fancy, invested in Moonshines and Ignes Fatui, to buy with it beef and greens for a prosaic Sunday’s dinner. So with music sounding from distant windows, with the light of cabs gleaming hither and thither through the wild wet night, with a maddening murmur of Golden Fleeces, New Chums, Avondales, Tributes, Bonatis, Sadowas, Eurekas, Hustler’s, Collman and Tacchi’s, Robin Hoods, G. V. Brookes, White and Black, two and three, four and six, eighteen, one and nine, five pounds, two shillings, two pence three farthings, wealth, ruin, bankruptcy, speculation and insanity, the hands of the watch stole mercifully to 10 o’clock and a special train. Speculation of this type could not last indefinitely. Early in November there were clear signs of decreasing activity. By the end of the year, as an increasing volume of funds became tied up in calls made by the large number of companies formed during the boom, the market became very depressed. While 1872 was to see an increasing volume of output and of gold-mining dividends the mining market was never again to see such activity in gold-mining shares as it had witnessed in 1871.

83 The Stock Exchange of Melbourne The Economy and the Share Market, 1871-9 It will be convenient to examine the period from 1871 to 1879 as a complete cyclical phase, from recovery at the end of 1871 to recovery from the next depression in the latter half of 1879. A sharp rise in wool prices as the European economy recovered from the disturbance of the Franco-Prussian War, together with the end of the drought, produced an increase in the value of the Victorian wool clip from about £3-9 million in 1870 to about £5-4 million in 1871. This change in income, occurring in a relatively depressed economy, flooded it with liquidity. There was a sharp fail in interest rates which continued through 1871 into 1872. Affluent wool growers reversed their almost traditional role as borrowers and repaid advances to the banks. The combination of low interest rates in Australia and a slack demand for advances virtually forced the banks to become lenders on the London money market. The result was one of those rare intervals before 1900 when the Australian banking system was a net holder of London funds. It was not long before cheap money, which lasted from the last quarter of 1871 to the third quarter of 1873, had its usual effects on the building industry both residential and non-residential. At the same time the government’s railway construction program gathered momentum. In due course, the high wool prices of 1872 and 1873 stimulated high levels of pastoral investment, more so in New South Wales than in Victoria, partly because of greater physical oppor­ tunities in New South Wales and partly because of a change in the law relating to land sales at this time. By the end of 1873 the pressure of investment demand, together with the financial consequences of a sharp increase in imports in 1873, began to force up interest rates. The flow of Victorian funds across the border into pastoral investment in the Riverina contributed significantly to the growing tightness of money in Melbourne and to a further rise in interest rates in the first quarter of 1874. For the remainder of 1874 the level of economic activity remained high in Victoria and there were constant complaints of labour shortage but, as measured by bank clearing statistics, the increase in national income in 1874 was considerably less than in the two preceding years. The limitations set by full employment output and a sharp decline in gold production probably account for this. Between 1875 and 1880 there was relatively little expansion of total output in Victoria. By the beginning of 1875 it was clear that the sharp upswing of the early 1870s had come to an end. Presumably as a consequence of high interest rates and limitations on the supply of funds a slackening in the tempo of building activity was noted in

84 T he Melbourne Stock Exchange, 1865-84 February 1875. In March increases in unemployment were reported in a number of manufacturing industries. In the same month, largely under the influence of growing tightness in the money market of the other colonies, including New Zealand, there was dissension amongst the Associated Banks which resulted in a further increase in interest rates. The pause of growth in 1875 indicated by the decline in bank clearings from £98-3 million in 1874 to £97 T million in 1875 was relatively mild because of the high level of public works activity. In particular public building activity in Melbourne prevented the slackening in private building that occurred early in 1875 from exer­ ting the downward multiplier effects that one would otherwise have expected. The maintenance of high levels of aggregate expenditure in turn meant that the inventory-type fluctuation in manufacturing in 1875 was short-lived. A new agreement amongst the Associated Banks in September 1875 and the reduction of interest rates that accompanied it also contributed to the recovery, evident in 1876, which continued into 1877. During these years the expansion of wheat cultivation and its shifting location, both of which were associated with the extension of the railway system, probably served to absorb a significant part of the increase in the workforce and of the men displaced from the steadily declining gold-mining industry. Even so the greater attractions of the more rapid growth of the New South Wales economy continued to be responsible for the maintenance of a net emigration of males aged between 15 and 64. The fairly prosperous conditions that prevailed by the end of 1877 were brought to a sudden end by the constitutional dispute between the Legislative Assembly and the Legislative Council that flared up at the end of that year. The sharp retrenchment of the public service in January 1878, which was one of the tactical moves in this dispute, and the uncertainty felt by the well-to-do at this time, resulted in an almost immediate cessation of new private building activity the multi­ plier effects of which were soon felt throughout the urban economy. The effects of this jolt to the economy were short-lived and a number of relief works helped to overcome the worst effects of the unemploy­ ment that had emerged. By the middle of the year there were signs that the economy was picking up again but this recovery hardly had a chance to gather strength. The drought which prevailed in 1878 resulted in a poor harvest and the value of the wool clip for the 1878-9 season was reduced both because of its smaller volume and because of the fall in prices which was one expression of the world­ wide depression of 1878-9. The high level of interest rates and the restrictions on advances that had prevailed since the end of 1877,

85 The Stock Exchange of Melbourne together with the general decline in incomes which was now becoming widespread, contributed to the depression which distinguished 1879. In the first half of that year there was widespread unemployment in the building trades, in manufacturing, and in commerce. This unemployment would have been more severe except for the continued high level of public building activity in Melbourne; ‘but for the works at Parliament House, the exhibition building and the law courts, there would be a great many tradesmen out of employment’ was the comment of the Argus in June 1879. This back-stop of a high level of public works expenditure, to which was added special relief works at the height of the period of unemployment and a temporary recovery in gold-mining employment, meant that the trough of the depression was reached by mid-year. By August there were signs of recovery. This was greatly assisted towards the end of the year by the heavy demand for farm labour required by the bountiful harvest of 1879-80—a harvest which heralded Victoria’s entry on to the world market as a wheat exporter—and by a rise in wool prices. From 1873 until 1880 imports of merchandise goods into Victoria were consistently in excess of exports. The appearance of this relation­ ship, and its maintenance, has sometimes been taken to mean that the Victorian economy was moving into a position of external imbalance. It has also been suggested that the depression of 1878-9 was a response to this growing balance of payments disequilibrium. While the available evidence has not been thoroughly examined it would appear that this view is not firmly grounded. The negative trade balance merely reflects the fact that during the 1870s the expansion of investment in Victoria came, in part, to be financed by British capital in the form mainly of subscriptions to government securities and of loans to banking and pastoral finance companies. That the surplus London funds of Australian banks which had ac­ cumulated in the early 1870s were also used up merely reflects a willingness of the banks to take advantage of London-Australia interest rate differentials and was not at this time, in itself, evidence of balance of payment disequilibrium. The only direct indicator of the relative balance of supply and demand for sterling, the exchange rate, exhibits no signs of external imbalance once it is appreciated that the relatively high rate that prevailed during part of 1877 was due to the imposition or expected imposition (it is not clear which) of a war insurance premium on gold shipments following on the out­ break of the Russo-Turkish War in that year. It is true that there were variations in the rate of exporting gold, other than those caused by changes in production, and that these movements were part of the

86 The Melbourne Stock Exchange, 1865-84 process whereby changes in the level of activity within Australia were kept in balance with those in other countries, but it is misleading and inappropriate to regard such movements as did occur as symptoms of structural disequilibrium. Fluctuations in the investment sector of the market between 1871 and 1879 followed the broad pattern that, as has already been indi­ cated, was characteristic of the Victorian economy during this period. Movements in the prices of government debentures and of bank shares generally speaking were inverse to changes in bank deposit rates. While interest rates were falling and expected to fall still further, there was a buoyant feeling in the market and, from the point of view of brokers, a healthy volume of transactions. The reverse applied when interest rates were rising and the money market became tight. Apart from this general pattern there are a number of particular events which are worth separate comment. The year 1872 saw the formation of the Provincial and Suburban Bank, the first new bank since the entry of the Commercial Bank of Australia in 1866. In February 1873 the Victorian government issued its first inscribed stock loan for £500,000. Partly because investors were accustomed to govern­ ment loans in the form of debentures payable to bearer and did not take kindly to the novelty of inscribed stock, and partly because of its low yield (4 per cent with minimum price par) the loan was an initial failure. Only £118,000 worth was applied for and of this only £13,000 was at or above the minimum tender price. The loan re­ mained available to investors at the Treasury and by June the public had subscribed almost £200,000. It should also be noted that during the period of very low interest rates in 1873 the yield on Victorian government securities rose slightly. This apparently perverse move­ ment arose because the attractions of the Melbourne market were then such that most of the other colonies, including New Zealand, placed some securities on this market, and they did so on a sufficiently large scale to weaken the demand for Victorian government securities. In addition some of the Victorian towns and municipalities began to take advantage of the borrowing powers they had obtained under the Boroughs Statute of 1869. The low interest rates of 1873 also promp­ ted new issues at a premium by some of the banks. Their ranks were further added to at the end of the year by the conversion of the Victorian Finance and Agency Company, formed at the beginning of the year, into a bank under the name of the City of Melbourne Bank. Amongst non-financial companies the price of gas companies’ shares moved against the general trend because keen competition kept the

87 The Stock Exchange of Melbourne price of gas down at a time when the world-wide rise in coal prices increased their costs. During 1874 the City of Melbourne Bank increased its capital and yet another new bank, the Australian and European, was formed. The market for bank shares was further widened by the decision of the various banks with head offices in England to open branch share registers in Melbourne, but dealings in these shares remained fairly limited. The Victorian government having vacated its home ground to float a loan in London the main governmental borrowers in Melbourne were the Government of Western Australia and the City of Melbourne Corporation. There was considerable speculative acti­ vity in the shares of the Melbourne and Hobson’s Bay Railway Company in the expectation, not realised, of its purchase by the Victorian government. In the tight money market of 1875, especially during the months from March to August when the banks were competing freely for deposits, activity in investment shares and deben­ tures was limited. Despite these conditions the Melbourne and Hob­ son’s Bay Railway was able to place a 5 per cent loan at £98 and a number of municipal loans were successfully issued. The easier monetary conditions of 1876 which arose in part from the floating of a Victorian government 4 per cent loan of £3 million in London at an issue price of £96 3s 6d saw a more active market in investment shares. New issues by municipalities became more frequent and this type of security gained greater acceptance in the market. The fairly prosperous conditions of 1877 and the maintenance, until the last quarter, of moderate interest rates gave rise to a fairly active market in investment shares and induced a number of the banks to make new issues. The share market event of the year was the decision of the three Melbourne gas companies—the Melbourne, the Collingwood, and the South Melbourne companies—to eliminate competition amongst themselves by amalgamating into the Metro­ politan Gas Company. Investors’ reaction to this move resulted in a 50 per cent rise in the price of the shares of the individual companies. In 1878 the depression in trade, the clash between the Legislative Assembly and the Legislative Council and the restricted availability of money at high interest rates which was the joint outcome of these economic and political conditions produced a sharp fall in the price of investment securities and a very depressed share market. To add to investors’ disappointments, the Metropolitan Gas Company suffered a fall in price of 25 per cent on news of the successful development of electric street lighting, and the accompanying rush of selling orders from London.

88 The Melbourne Stock Exchange, 1865-84 The improvement in market conditions which followed the success­ ful floating of a £3 million Victorian government loan in March 1879 was short-lived. Early in May the first failure of a Melbourne bank of issue occurred when the Provincial and Suburban Bank closed its doors. The difficulties of this recent, small bank drew attention to other newcomers in the banking field. Early in June the Australian and European Bank followed in the Provincial’s footsteps. Its failure induced a run on the City of Melbourne Bank which, however, was soon able to convince depositors of its solvency. Unlike the Provincial, whose manager and directors were to be prosecuted for fraud, or the Australian and European, which had suffered substantial losses, the City of Melbourne Bank was sound and deserved the support which it was offered but did not in fact need from the Associated Banks. Later in the year the partially reconstructed Australian and European Bank was absorbed, by means of an issue of shares, by the Commercial Bank of Australia. By the end of the year the air had cleared in banking and commercial circles, recovery of the economy was in progress, and the share market was exhibiting a firmer tone than it had done for many months. The broad outlines of the history of the mining market are indi­ cated in Table 7, which shows dividends paid by all public mining companies, and dividends and calls of Bendigo companies. It can

table 7 Victorian Gold-mining Companies: Dividends and Calls, 1871-9

All public companies’ dividends Bendigo district Year Quartz Alluvial Total Dividends Calls (£’000) (£’000) (£’000) (£’000) (£’000) 1871 690 242 932 390 230 1872 889 180 1069 585 390 1873 842 119 961 517 234 1874 807 45 852 411 118 1875 572 84 656 267 111 1876 659 72 731 345 104 1877 378 50 428 105 68 1878 417 63 480 164 61 1879 364 100 464 170 60

Note: Source for the public companies is the Argus Dividends of the Year, pub­ lished annually in January. The series of dividends in G. G. Mackay, The History of Bendigo, includes dividends paid by private companies.

89 The Stock Exchange of Melbourne be seen at a glance that, except in the very last year when alluvial mines in the Ballarat district became important again, it was Bendigo quartz mines that dominated the fluctuations and trend of total mining company activity. The significance of the industry for the Victorian economy is indicated by the fact that, in 1872, the one year in which Victorian gold-mining company dividends exceeded £1 million, the total value of the wool clip produced in Victoria was probably not much more than £4 million. The table also indicates why the market closed on a depressed note at the end of 1871 ‘under the weight of calls’, and why, despite the dividends of 1872 it remained depressed for a considerable part of the latter year. In order to receive dividends of over £1 million investors had to pay calls in mining companies amounting to well over £500,000. T he dividend-paying mines were relatively few in number, the call-demanding mines were legion. It is highly probable that the majority of mining investors were out of pocket at the end of 1872. Only a small group of the wealthier and better informed investors are likely to have done well out of the record dividends of that year. Those who had chosen well, or who happened to be merely lucky, and who held shares in the leading dividend payers may also have reaped a capital gain that was unrelated to the simple produc­ tiveness of the dividend-paying mines. Towards the end of 1872 the very low rates of interest and the high prices of ‘investment’ company shares ‘caused a good deal of money to be diverted to the mining share market, and first class dividend paying shares soon felt the impetus of a fresh set of buyers and rapidly advanced, some of them reaching prices so extreme that even the splendid dividends obtained could not sustain them’. The mining market opened in a dull fashion in 1873 but then flared up for a month or two under the stimulus of rich yields from a few of the Bendigo mines. This movement was exhausted by the end of April and the market then remained dull, except for the occasional flicker of activity in particular stocks, until June of 1874. Another period of considerable activity, which was partly stimulated by the low level to which mining share prices generally had fallen and partly by rich yields from the Garden Gully United Company (Bendigo), was then experienced. It continued with occasional lulls to the end of that year. Early in 1875 disputes amongst some of the Bendigo mines about their relative responsibility for draining their mines of water, and the prevailing drought which seriously limited crushing operations in a number of districts, served to bring about a low level of transactions in mining shares. In April and May 1875, the breaking

00 The Melbourne Stock Exchange, 1865-84 of the drought and the improved prospects of a number of leading mines ushered in a period of greater activity which was more or less sustained for the remainder of the year. This activity reflected inves­ tors’ anticipations rather than mining performance, because the year as a whole saw a sharp decline in mining dividends. The events which stimulated investors’ hopes were the discoveries in a number of separate districts of promising gold-bearing quartz at increased depths. At Bendigo one very rich lode was being worked at 750 feet and payable reefs were being prospected at depths of from 800 to 1,020 feet. At Clunes promising looking stone was reported at 1,000 feet. Stawell companies were regularly producing good yields from similar depths, but the excitement of the year was the discovery of gold-bearing quartz at a depth of 1,692 feet in the Magdala Company mine at Stawell. When this ore was finally crushed, after a delay of some months, it proved to be not payable. Payable or not, the crop of discoveries of gold at these new deep levels stirred the imagination of investors and gave a considerable lift to the mining market. This higher level of mining activity continued through to August 1876, but it was limited to dividend-paying shares or the shares of companies whose prospects were believed to be good. The very large number of indifferent mines were neglected. One consequence of this market behaviour was a severe depression in the prices of the neglected stocks and an inability of the companies concerned to raise calls. This in turn meant a sharp decline in purely exploratory work. By August, when yields in the dividend mines as a group began to fall, there were very few unanticipated discoveries, and little likelihood of them. By the end of 1877 the market was in a very depressed condition. Throughout 1878 transactions remained at a moderate level though, as usual, there were bursts of activity in particular stocks. Amongst the highlights of the year were the development of new deep leads at Kingston and Creswick, the use of a diamond drill in exploratory work, and the discovery of gold-bearing quartz at over 2,000 feet in the Magdala Company mine. Mining market activity was of greater extent in 1879 though by no means comparable with the levels which had prevailed in the early seventies. Amongst the events which led to a more hopeful feeling by the end of the year was the re-emergence of the Band and Albion Consols Company as a dividend payer, this time as a quartz mine. Its success was a con­ siderable stimulus to other Ballarat quartz companies. The new deep leads were proving to be rich in gold, and elsewhere there were a number of promising developments. The largest dividend payment of 1879 (£58,000) was that of the Long Tunnel Company. Its divi-

91 The Stock Exchange of Melbourne dends for the decade (£702,000) were only exceeded by those of the North Cross Reef Company, Stawell (£711,000), but while the North Cross Reef was to pay its last dividend in 1879 the Long Tunnel still had a long and profitable history ahead of it. The Economy and the Share Market, 1880-4 The final sub-period of this survey does not cover a complete cyclical phase in the history of the Victorian economy which was still in the process of expansion at the time when the Stock Exchange of Mel­ bourne was formed in October 1884. However, this work is not intended to be a history of the trade cycle as such. While there were signs of a pick-up in the economy at the end of 1879 the recovery was a very sluggish one. It was not until the final quarter of 1880, when Melbourne was in the midst of its 1880 Inter­ national Exhibition celebrations, that a distinct change came over the economy and it began to expand at a very rapid pace. The sharpness of this turning point, which can be corroborated by other evidence,

4 Melbourne bank clearing house returns, 1879-84 show's up clearly in the graph of Melbourne Bank Clearing House returns between 1879 and 1884 (Fig. 4). It is not unlikely that the

92 T he Melbourne Stock Exchange, 1865-84 free spending associated with the holding of the exhibition helped to trigger-off this burst of growth, but there were also much more powerful processes at work. In London in 1878 and 1879 a number of finance companies had been formed, the primary object of which was to invest in the pastoral industry. When a rise in wool prices combined with a good season in 1880 to produce a large increase in the value of the wool clip these companies were tempted to invest in Australia on a large scale. The funds which they provided enabled a number of pastoralists to pay off their debts to the banks. The banks’ advances to the pastoral industry were also being reduced directly from the increase in wool income. At the same time, their deposits increased rapidly because the increase in export income was much greater than the increase in imports, because of the inflow of British capital into the pastoral industry, and because of the successful floating of another Victorian government loan in London. As had been the case in 1871-2, the banks were temporarily unable to find profitable use for their funds in Australia; there was a sharp rise in Australian bank short-term lending in London, and a marked fall in bank deposit rates in Australia. This fall in interest rates began in February 1880 and did not come to an end until February 1882, by which time the twelve months’ deposit rate which had been 6 per cent in 1879 had become S per cent. This decline in interest rates could not have come at a more propitious time. The colonial youth born in large numbers in the late 1850s were now beginning to marry. The number of marriages, which had shown virtually no increase between 1873 and 1879, rose in 1880 by 6 per cent. In the next three years the successive rates of growth in the number of marriages were 10-4 per cent, 7 per cent, and 7-3 per cent. The conjuncture of low interest rates and a plenti­ ful supply of money with a marriage boom and a turnaround of net emigration into net immigration had a dramatic effect on house building activity. In August 1880 ‘The building of houses ... is almost at a standstill’, but in October 1881 ‘The building trades continue to have more work than they can accomplish’. Melbourne’s great build­ ing boom of the 1880s was in progress. As if a bout of pastoral investment and a building boom were not enough 1881 also saw a revival in public capital formation, largely in the form of increased expenditure on railway construction. By November 1881 interest rates were rising again. The effect of this burst of investment was to carry the economy to full employment levels of operation by the end of 1881. This was particularly noticeable in Melbourne. By April 1882 it was noted that

93 The Stock Exchange of Melbourne ‘the rate of wages has steadily increased in the factories during the last two years from 10 to 12£ per cent’. But the prosperity was not confined to Melbourne. The Victorian Statistician’s contemporary estimates of the value of agricultural production were £5,395,000 in 1880 and £6,440,000 in 1882. By the end of 1882 production bottle­ necks were appearing in a number of sectors of the economy. The twelve months’ bank deposit rate had returned to 6 per cent. A sharp rise in imports between 1880 and 1882 in the context of a stable level of exports had resulted in the exhaustion of the net banking assets held in London and the banking system had entered upon its late nineteenth-century phase of operation with negative ‘London funds’, a practice which was made possible by the ease with which the banks could attract deposits in London. In 1883 these restraining elements, together with rising wage costs which were the result not merely of rising wage rates but also of the widespread reduction in the number of hours worked as the eight-hour system spread from trade to trade, brought about a disappearance of the symptoms of over-full employment which had been evident in 1882. A decline in the level of government capital formation also contributed to the slackening in the rate of growth of the economy in 1883. Partly because the building boom continued this reduction of demand did not result in unemployment but simply in a return to balance between demand and the (increasing) supply of labour. Part of the tightness of money in Victoria in 1882 and 1883 had been accounted for by the pressure of demand for funds in New South Wales as Sydney’s major building boom gathered pace. This inter­ colonial demand for funds was reduced in 1884 as severe drought in New South Wales and Queensland reduced the attractiveness of pastoral investment and gave rise to some urban unemployment in these states. This reduction in demand for funds against a background of still rising British capital inflow induced the Victorian banks to reduce their twrelve months’ deposit rates to 5 per cent in the middle of the year. Because Melbourne’s building activity continued to increase there were no significant repercussions on the general level of activity in Victoria, and the economy as a whole remained in a prosperous condition in 1884. Apart from the fluctuations in the price level of ‘investment’ securities that were the joint product of fluctuations in interest rates and in the expected profitability of investment, the years after 1880 saw two important changes in the investment sector of the share market. Early in 1880 the Victorian government, which was in financial difficulties because of decreasing revenue and because the London

94 The Melbourne Stock Exchange, 1865-84 market was temporarily closed to it as a result of the guarantee which it had given in 1879 not to re-approach the London market for eighteen months, took advantage of the increasingly liquid money market conditions to raise £500,000 in 5 per cent Treasury bonds with maturities of one, two, and three years. There was to be only one other occasion in the next dozen or so years when it raised new money in Victoria. Henceforth, until the depression of the 1890s, its loan-raising activities were to be centred on London. In the early eighties this gap in the local gilt-edged market was partially filled by local municipal loans but in time they too were seduced away from the local market by the lower interest rates prevailing in London and its voracious appetite for Australia securities. The Victorian bond market which had not been without some vitality and significance for the economy in the 1860s and 1870s became a very anaemic affair. In a perverse but natural fashion it was only to revive again when London’s doors were closed to Victorian borrowers in the depressed years of the 1890s. One reason why the decay of the bond market passed almost unnoticed was the marked increase that began in 1881 in the supply of ‘investment’ shares on the Melbourne market. The low interest rates and the high prices to which existing investment securities rose in 1881 prompted a relatively large number of existing private firms to convert into public companies and offer some of their shares on the market. The most notable of these, because they set a fashion for their respective industries during the remainder of the decade, were two brewing companies, the Melbourne Brewing and Malting Company and Terry’s West End Brewery, and the Trustees Executors and Agency Company. The year 1881 also saw the amalgamation of the pastoral finance firms of the Australasian Agency and Banking Cor­ poration, which had been formed in 1877 and listed in 1879, and the hitherto private firm of Richard Goldsbrough to R. Goldsbrough and Company. Two new banks were formed in 1881, the Joint Stock Bank of Victoria and the Federal Bank of Australia. The former was soon to be absorbed by the City of Melbourne Bank. The latter, which embraced building society business in its activities, spread to Sydney in the following year by taking over the Sydney and Country Bank. The existing banks made new share issues and maintained their dominant place in the non-mining market but their pre­ eminence was in the process of being reduced by the non-financial companies that were now being listed, and by the beginnings of that rapid expansion of fringe land/bank institutions which was to be such a feature of the latter part of the 1880s.

95 The Stock Exchange of Melbourne This burst of investment company activity was brought to an end by the tight monetary conditions that developed at the end of 1882. For the greater part of 1883 the investment share market was lifeless. The most notable event of the year was the passing of a Tramway Bill in Parliament whereby a tramway system was to be established in Melbourne through the co-operation of private enterprise and the various Melbourne municipalities. This was the occasion for the Melbourne Omnibus Company, which had promoted the bill, to amalgamate with the Victorian Tram Company to form the Mel­ bourne Tramways and Omnibus Company. This company was to be one of the market leaders for the remainder of the 1880s. By the end of 1883 a decline in interest rates was being anticipated by the market but the reduction did not in fact occur until July 1884. One reason for this delay was the failure in May 1884, for reasons unconnected with its Melbourne business, of the Oriental Banking Corporation. The sudden failure of this large and long-established bank produced a good deal of temporary uncertainty and loss amongst its depositors and note holders in Melbourne, but before long the local banking system was operating as though no such untoward event had occurred. The year ended with the investment share market in a relatively buoyant state. The only other market event worth noting was the high favour which was being bestowed on the Trustees Executors and Agency Company by investors. Its success was such that emulation seemed to be in order, and two more trustee companies were formed in 1884. In the mining market in 1880 transactions were more numerous and share prices higher than they had been for a number of years. Falling interest rates improved the attractiveness of these risky securi­ ties and was an ingredient in this situation, but the more important elements were good yields from some of the older areas and promising new prospects on a number of fields. As the prices of mining shares began to rise investors became more willing to pay calls and a much larger volume of prospecting work was undertaken than had been the case for some time. Some of the Creswick deep lead mines were yielding well and the prospects of others seemed good, as in fact they proved to be, most notably in the case of the Madame Berry which at the end of 1880 was in the process of opening out its underground works, and there was considerable investment activity in this area. A new rich reef wash was discovered at Ballarat which for a time produced a speculative outburst that was reminiscent of palmier days. Ballarat’s quartz companies were also yielding well. At Bendigo a new quartz lode was discovered and a number of its older leading companies were paying healthy dividends.

96 The Melbourne Stock Exchange, 1865-84 A still larger volume of transactions occurred in the mining market in 1881. Some of the previous year’s prospecting work began to achieve results in the form of increased dividends. This stimulated a further general rise in prices of mining shares and there was large- scale floatation of new companies. For a time the consequential calls dampened activity but improved results towards the end of the year and the prospects of still better ones gave a very firm tone to the market as the year closed. This healthy state of the market was partly a consequence of technical changes which had been taking place in the gold-mining industry. These changes and the attitudes which they induced in the market are reflected in the following comment from the Argus at the opening of 1882: The extended use of the diamond drill for testing new ground by boring, and of improved machinery for sinking and driving in hard ground, have both lessened the time and diminished the cost of preliminary work, and is inducing a more prompt and extensive development both of alluvial and quartz mining than would otherwise have been the case. Delay and difficulty will no doubt still be experienced in tracing the course of the alluvial lead or of a quartz lode, but they will be of shorter duration and less costly than heretofore, and the extraction of the gold with the improved appliances now available will leave a larger margin of profit to the investor. That mining activity should have continued to increase in 1882 is not surprising in the light of these technical developments and in

table 8 Victorian Gold-mining Companies: Dividends, 1880-4

1880 1881 1882 1883 1884 (£’000) (£’000) (£’000) (£’000) (£’000) Quartz 484 500 566 489 545 Alluvial 145 190 298 222 244 629 690 864 711 789

Source: The Argus annual surveys of company dividends.

view of the fact that performance tended to live up to expectations as is illustrated in Table 8. But the improvement could not continue indefinitely. A good deal of the activity in 1881 and 1882 had been fostered by cheap money and supported by transactions on credit terms. In 1883 there was a

97 The Stock Exchange of Melbourne reaction to what was coming to be regarded as the over-speculation of 1882: interest rates had risen and money for speculative mining transactions became scarce. To these conditions was added a decline in yields from a number of the companies which had been amongst the favoured market chips. By the end of 1883 fifteen of the leading mining companies had suffered a depreciation in market value of almost £800,000 during the course of the year. Despite the rise in dividends 1884 saw a further decline in the volume of mining market transactions. Too many of the new com­ panies formed in the early 1880s had proved unprofitable and many mining investors became discouraged. Those who wished to exercise their speculative talents could now find an opportunity nearer home. The marked increase in speculative activity in the Melbourne land market with its ‘considerable facilities in the shape of long credits and light rates of interest’ withdrew investors from the mining market. The latter market was nevertheless not without its consolations. The Band and Albion Consols, now an established quartz mine, closed the year worth six times as much as it had been when the year opened. The shares of the Madame Berry mine rose from £16 5s to £18 and the company paid dividends of £3 15s per share. The Long Tunnel continued its unbroken dividend career from 1868 and lifted its total dividend pay-out to £925,000. Nor was the deterioration in the mining share market a good reflection of work done in the industry itself. Considerable prospecting work was being carried on throughout the major fields. Some idea of what this involved is indicated by the then scope of deep mining at Bendigo. By this time there were over twTenty-six shafts sunk below 1,000 feet, six below 1,500 feet, and one below 2,000 feet. Payable quartz was being worked in two mines at depths of from 1,500 to 1,650 feet. One other feature of the mining market in these years should also be noted. From the early 1860s Melbourne investors had shown occasional interest in non-gold, non-Victorian mines. From 1880 onwards mines of this type came to be of increasing interest. Thus 1882 saw a flurry of promotions in Tasmanian tin mines. Only those who invested in the long-established Mt Bischoff mine did not regret this interest in Tasmanian tin. In 1884 the centre of speculative attention in mines other than gold shifted to New South Wales silver mines. The Barrier Ranges Silver-Mining Association was floated in Melbourne as a prospecting company. At one time the price of its shares rose to five times the issue price, but by the end of the year it wTas in a languishing condition. It had merely given a hint of what was to happen when the Broken Hill silver-lead mines made their

98 4 The western end of Collins Street, with its ‘high rise’ buildings, in 1893

5 On the rostrum at a call room meeting, 1896: /. A. Roark, /A. E. Clarke, and Ben Rolls 6 CHAIRMEN OF THE STOCK EXCHANGE

I Vi Ilia m Noall Robert Wallen The Melbourne Stock Exchange, 1865-84 appearance in the market. The glowing interest of Melbourne inves­ tors in non-Victorian companies, mainly but not entirely mining companies, is further indicated by Clarke & Co.’s opening of a Sydney office with its own resident partner in May 1883. This, according to the Australasian Insurance and Banking Record, was the ‘first occasion of the opening of a Sydney Branch of a stockbroker’s office’. It was also a symptom of the Melbourne market’s increasing stature on the Australian financial scene.

The Melbourne Stock Exchange, 1865-84 It is now time to examine the institutional setting in which the preceding share market events took place. As the only direct record of the Melbourne Stock Exchange is a copy of the rules as they were in 1878 (published in the Australasian Insurance and Banking Record), this account of institutional developments will therefore be very incomplete. While many of the details are missing, sufficient evidence has nevertheless survived to make it possible to depict the broad outlines of the history of the Melbourne Stock Exchange with some confidence. This is largely because, by one of those quirks of fortune, the man who was probably Melbourne’s leading broker for much of the period was also one of its most distinguished journalists. It was because Robert Wallen, of the firm of Clarke & Co., was the first editor of the Australasian Insurance and Banking Record that some authoritative evidence has survived which otherwise probably would not have done so. Because Wallen also conducted a weekly column in the Australasian from August 1870 to January 1887 under the pen- name of ‘Aegles’ numerous other pieces of authentic information can be added to the general picture. Perhaps the first point to establish is the essential continuity, in an institutional sense, of the Melbourne Stock Exchange and the Stock Exchange of Melbourne. Whereas the general form and details of the sixty-odd rules of the 1861 Stock Exchange with a fewr excep­ tions bear little resemblance to the early rules of the present Stock Exchange of Melbourne there is a very close correspondence between the 1878 rules of the Melbourne Stock Exchange and the early rules of its successor. The majority of the 1878 rules were reproduced verbatim by the founders of the Stock Exchange of Melbourne in their own rules. Where variations occur they are usually of minor significance and of a fairly formal character. In so far as the 1884 rules were more complex than those of 1878 this was largely a result of more precise definition of the method of election of the Committee and of the Chairman, of the powers of the Committee, and of the way

99 The Stock Exchange of Melbourne in which the funds of the association should be managed. The break in the history of the Melbourne stock exchange institutions in 1884 did not reflect any change in their basic modus operandi. As in 1861, and as after 1884, the Melbourne Stock Exchange was in legal terms a simple association of individuals who agreed to abide by a particular set of rules. It was not an incorporated body, nor was it given any other statutory recognition. Executive management of the business of the exchange and control over the relationships of members with each other was vested in a committee which in turn elected its own chairman and vice-chairman. Disputes arising between members were to be referred to the committee whose decision was final. Failure to abide by the committee’s rules involved expulsion from the exchange. New members were admitted by ballot on pay­ ment of the prescribed entrance and subscription fees. More than 80 per cent of existing members had to support a proposed new member. When seeking admission as a member it was necessary for the appli­ cant to sign a standard letter of admission which, amongst other things, contained the clause ‘and I also agree, in case my conduct shall at any time be considered objectionable by the members of the Exchange, that I will not, in the event of my being suspended or expelled, raise any suit in equity or at law against any members or member of the Exchange’. Members resigning or being expelled ceased to have any claim on the property or funds of the Exchange. A member who became insolvent, or otherwise failed in his engage­ ments with his creditors, ceased to be a member, although he may not have been at the same time a defaulter on the Stock Exchange. The above account summarises the sixteen rules governing the structure and organisation of the Melbourne Stock Exchange. While the comparable section of the present rules of the Stock Exchange of Melbourne is more detailed and complex its central core remains the same. Far greater changes have taken place in the rules governing the conduct of the market which it is the purpose of a stock exchange to establish. In 1878 these rules (six in number) were confined to the very minimum necessary for the functioning of such a market. Apart from the central rule that in all contracts between members they were to be held as principals to each other, which in effect guarantees that a transaction initiated by either a buyer or a seller will be completed, there were four basic definitions: the period within which a transaction must be completed (three clear working days were allowed); the rights of purchasers; the rights of sellers; and the size of the ‘marketable parcel’, the latter being the accepted minimum

100 The Melbourne Stock Exchange, 1865-84 unit of volume in a securities market. The remaining rule specified the agreed rates of brokerage. On investment shares the rates charged were much the same as they had been in 1860 (cf. p. 26). On mining shares the nominal rates of brokerage had been approximately halved but, whereas the one rate of brokerage continued to be shared between buying and selling brokers on investment shares, in mining transactions the modern practice of separate payment of buying and selling brokerage had been adopted. That an institution conducting thousands of transactions each year could last so long and so successfully within this simple frametvork is a matter not merely for surprise but for respect. Smallness of the number of members—never more than forty and not more than twenty-five for two-thirds of its life time—is only part of the answer to this problem. It must also have been the case that investors of the day were expected to look after their own interests in a manner which is no longer fashionable. This change in fashion presumably reflects the gradual broadening of the income spectrum from which the investing class had been drawn and the complex change in social attitudes and organisation summed up in the phrases laissez-faire and ‘the welfare state’. This query aside, it is of more direct significance for the purposes of this history to note the difference between the elaborate rules of 1861 and the simplicity of those of 1878. The first set was obviously a scissors and paste adaption of the rules of the London and Liverpool exchanges with a slight dash of local colour. Whilst the 1878 rules can still be traced back to the practice of the London Stock Exchange, the particular selection of the London rules and their form of words obviously bears the stamp of local conditions. One is tempted to assume that the conflicts of the early 1860s were finally resolved by the leading Melbourne brokers facing up to the questions: What are the minimum conditions necessary for governing the operations of a market in shares? Can agreement be reached on these minimum conditions? Whether or not the questions were posed in a strictly logical fashion, this is clearly the outcome of the controversies of the 1860s. Conspicuous by its absence, for instance, is any reference to the respective functions of brokers and jobbers. It is not known whether the rules of 1878 were those of 1865 which Robert Wallen had ‘before us’ when writing his article on ‘The Use of a Stock Exchange’ which was published in the same issue of the Australasian Insurance and Banking Record (January 1878) as that in which the 1878 rules of the Melbourne Stock Exchange were

101 The Stock Exchange of Melbourne published. The fact that there was some controversy between brokers and jobbers in 1866 suggests that they may not have been exactly identical. All the same, the rules of 1878 were not then of recent origin and it is possible that they did not differ significantly from those of 1865. If this assumption is correct, granted the intimate connection between the rules of the Melbourne Stock Exchange and the early rules of the Stock Exchange of Melbourne, it is clear that there has now been a fundamental continuity in the organisation of the stock exchange in Melbourne for a hundred years. There is no doubt for instance that the call room system which came into being in 1861 was now the firmly-established technique of effecting a matching of buying and selling orders. This technique, which was to remain in use in Melbourne until the end of 1961, is a form of auction in which each security listed on the exchange is ‘called’ in order. On the occasion of each ‘call’ buying and selling quotations are made by members of the Exchange assembled in the call room, and a sale effected when the two quotations are brought together. So described it sounds a rather cumbersome technique but in practice it worked with a speed which was always a source of wonder to the casual witness. Despite its rapidity of operation in practice there were relatively few disputes about the sales effected under it. Its advantage as a method of operations was that at least once, and usually twice a day, there was an opportunity for dealing in every security listed on the exchange. This did not mean that every buying or selling order could be matched at any given time at acceptable prices, but it did mean publicity for such orders as did exist, even for securities which were seldom dealt in. But there were, too, important differences between the organisation of the market from 1865 and 1884 and its mode of operating in later periods; in particular the proportion of business actually conducted in the call room, which at no time has amounted to 100 per cent, was very much smaller than was subsequently to be the case. From 1862 to 1880 the call room was situated in the Hall of Commerce in Collins Street. It was not here, however, but under the verandah of this building that a good deal of Melbourne’s share transactions took place. So much was this so that for many years it was customary to speak not of stock exchange business but of business ‘under the Verandah’. Common usage of ‘the Corner’ for the Ballarat Stock Exchange and ‘under the Beehive’ for the Bendigo Stock Exchange indicates the widespread practice of not limiting dealings to the con­ fines of the call room. At times of great market activity, as was indicated by the eye-witness description of the speculation in Bendigo

102 T he Melbourne Stock Exchange, 1865-84 mines in 1871, the congregation of persons dealing in shares outside the exchange rooms was on a large scale. In the same way Collins Street was periodically congested with eager speculators. The con­ sequential interruptions to the flow of traffic were a constant source of bickering between the Stock Exchange and Melbourne City Council. The character of this relationship in 1871 is indicated by Wallen’s waspish comment ‘The ambition of the councillors would be gratified if Collins Street were as didl and empty as their heads’. This wide-open characteristic of dealing in shares, which is one reason why the broker-jobber issue became dormant, was part cause and part effect of the Stock Exchange’s then lack of authority in the financial world of the day. It is still legally possible for anyone to set up a stock exchange in Melbourne if they so desire but the occasions when this is attempted are now very few and the practical success of these attempts is negligible. In the 1860s and 1870s not merely were the costs of formal membership to the Melbourne Stock Exchange low—a ten guinea entrance fee and five guinea annual subscription in 1878—but there was the ever-present ability of a speculator to operate in the market at no initial cost at all. The nature of this possibility, albeit in an extreme form, is indi­ cated by one of Wallen’s paragraphs in his Australasian column ‘Talk on “Change” ’ in October 1871: A few days ago a person of dilapidated exterior solicited one of the numerous gentlemen who ‘look on’ under the verandah for some pecuniary help. To his surprise the person addressed cheer­ fully and promptly responded, ‘Help you: of course I will. I’ll start you in business’. The philanthropist then took his protege into Sands and McDougall’s shop, presented to him a pocket book and pencil, led him to the door, pointed out the surging crowd, and said, ‘Now launch yourself!’. Wallen obviously reported this incident with a twinkle in his eye but he was in a less humorous mood some seven years later when, in the Australasian Insurance ancl Bankhig Record, January 1878, he was examining the reasons why the Melbourne Stock Exchange had not yet been able to establish an official list of stock exchange securi­ ties comparable with that which then operated in London and which operates in Melbourne today. Yet the two facts were closely inter­ connected. So long as there was virtual freedom of entry to deal in stock market securities there was little chance that the flow of inves­ tors’ funds would channel through one major institution. Until this happened there was no particular advantage for potential borrowers to pay a listing fee to the Melbourne Stock Exchange. It was only when the Stock Exchange could feel, as the Stock Exchange was to

103 The Stock Exchange of Melbourne feel not many years after Wallen was examining this question, that its refusal to grant a quotation, that is to deal in a particular security, would carry some financial sanction that the practice of an official list could be introduced. This practice, once it was successfully introduced, would of itself help to foster the authority of the Stock Exchange in financial matters, the lack of which so concerned Wallen in 1878. Throughout its life the Melbourne Stock Exchange thus remained merely the largest centre for dealing in shares and its ‘official list’ was simply the list of shares called over at its daily meetings. On many occasions a high proportion of actual market activity would not have been in shares so listed, but in the speculative favourites of the moment that were being dealt in ‘under the Verandah’. An indication of the difficulty which the Melbourne Stock Exchange faced in establishing the required authority in financial matters is provided by the formation of the Victorian Stock Exchange in 1881. In 1880 the entrance fee of the Melbourne Stock Exchange had been raised from ten to twenty guineas. By 1881, partly as a consequence of the increasing relative importance of ‘investment’ companies in the total volume of transactions, a sufficient proportion of share market busi­ ness was being conducted by the Melbourne Stock Exchange for its members to decide to increase the entrance fee to fifty guineas, and to use its balloting for entry rules fairly stringently. These were the conditions that provoked the formation of the Victorian Stock Ex­ change which, it was proposed, would only charge a three guinea entrance fee. While the Victorian Stock Exchange did become estab­ lished, to judge from the proportions of its published sales to those published by the Melbourne Stock Exchange, it was never a really serious competitor. If that is a correct judgment then it is not surprising that it was not to be very much longer before the successor of the Melbourne Stock Exchange was able to establish and maintain listing requirements and obtain that stature in the financial com­ munity that was never fully achieved by its predecessor. The nature of the dispute which caused the break-up of the Melbourne Stock Exchange in October 1884 and the formation of the present Stock Exchange of Melbourne and a re-formed Melbourne Stock Exchange was of long standing. But why it was sufficient to break the exchange in two is not clear, especially when the two halves were to reunite within two years. The issue which caused the upheaval and which is enshrined forever in rule three of the Stock Exchange of Melbourne (forever because it requires 100 per cent agreement to remove it) was the principle of ‘freedom of quotation in the news-

104 The Melbourne Stock Exchange, 1865-81 paper press or otherwise, by individual members or firms’. The back­ ground to this principle, which in its original meaning has fallen into complete disuse, is the fact that Clarke & Co. (then William Clarke & Sons) from the late 1850s, J. B. Were and Son from the early 1860s, and a few other firms, had adopted the practice of regularly publishing in the press a list of the shares sold on the previous day and the prices at which business had been done. Increasingly some other members of the Exchange apparently regarded this activity as a form of advertising, which it was in a very innocuous way, and advertising by tradition is anathema in stock exchange circles. This dispute first llared into the open in March 1874, in the midst of one of those periods when the mining market had been very dull for some months, when the volume of transactions had fallen to a low ebb and when, one must guess, brokers’ tempers were on edge. Whatever the exact occasion for the dispute the second week of March saw two exchanges operating, each calling itself the Melbourne Stock Exchange. One of them advertised its new existence in the press. Significantly, not one of the brokers included in the list was amongst those who then customarily ‘advertised’ in the fashion indicated, and eight out of the nine who were still operating ten years later were members of the ‘Melbourne Stock Exchange’ half of the 1884 split. This list of members continued to be published until the end of March and then ceased. No reference has been found to the date of reconciliation, but there is fairly clear indirect evidence that it was effected before the close of 1874. This was the episode referred to by Wallen in 1878. ‘There has even been such an absurdity as two rival Stock Exchanges sitting simultaneously within one hundred yards of each other with relations as affectionate as those of the Legislative Assembly and of the Legislative Council just now’. At the time when these words were written the members of the Melbourne Stock Exchange ‘dw'elt in amity’, but not for long. Towards the end of 1880 a list of sales began to appear under the names of a group of brokers, at this stage thirteen of them, of the Melbourne Stock Exchange. This appeared alongside the sales of Clarke & Co., J. B. Were and Son, Gavin G. Brown and Company, and a few others. There is no clue for the uninitiated that all these separate advertisers were also members of the Melbourne Stock Exchange. This situation continued without a break until 1884. The number of separate advertisers increased. So too did the size of the joint list. On the single occasion when a one-time member of the joint list, F. J. Fleming, began to ‘advertise’ on his own account he

105 The Stock Exchange of Melbourne was immediately dropped from the joint list. It should perhaps be added that all this time the longest, and obviously the main, list of sales quotations, continued to be published by ‘the members of the Stock Exchange’. The persistence of the antagonism between those who quoted their own sales prices in the press and those who did not, which is revealed by this behaviour, probably broke into the open once again because of the depressed condition of the mining market in 1884, although it may have been sparked off by the heated arguments on advertising by brokers that were currently taking place in London. Whatever the specific occasion for the break, it occurred in the middle of October 1884. The first meeting of the present Stock Exchange of Melbourne was held on 16 October. The clearest expression of the strength of the views held by the two groups is to be found in the share market report of the Argus on 22 October: The one, the Stock Exchange of Melbourne, allows absolute freedom to its members to report their sales in the newspaper press or otherwise, either under their individual names or the names of their firms; the other, the Melbourne Stock Exchange, declares that if any member publish in any newspaper any statement of sales, or any report of the stock and share market, under his own name or the name of his firm, he shall be deemed guilty of objectionable conduct. The further history of this dispute and the subsequent recon­ ciliation of the two groups belongs to the next chapter. It is more appropriate here to turn to other aspects of the nature of the share market between 1865 and 1884. Of them, the first of some significance is that the period witnessed an important growth in the role of the broker as a key figure in the process of raising funds for borrowers who found it necessary to make use of the facilities provided by the stock and share market. The evidence for this change is very frag­ mentary, but taken together it is fairly convincing. One symptom can be detected in the one major change that occurred in the brokers’ agreed price lists during this period. In the early 1860s when the first agreed rates of brokerage were drawn up the rates referred simply to transactions in existing securities in the market. By the mid-1870s it had become necessary to add the further clause: ‘On the floating of loans, or of any public companies, brokerage as per arrangement with promoters’. In the early 1860s brokers’ names did appear on prospectuses of investment companies but other evidence suggests that their then function was simply that of an agent. With the passage of time, and with the accompanying growth of their clienteles of investors, the

106 The Melbourne Stock Exchange, 1865-84 more important firms began to play a more positive role in assisting in obtaining finance for new ventures. In the floating of Victorian government loans brokers seem merely to have acted for investors, advising them on the price which they should offer before the opening of tenders. The Victorian Treasury itself remained responsible for handling these issues. In the case of loans of other colonial govern­ ments, by the early 1870s leading firms were acting as brokers to the issue and presumably earning a fee for the service which they so provided. As examples of this practice, reference may be made to Clarke 8c Co.’s handling of the issue in Melbourne of the Queensland government in 1873, and J. B. Were and Son’s similar responsibilities for the New Zealand government in the same year. In a similar way the leading Melbourne brokers seem to have played an important part in the raising of the fairly numerous but relatively small amounts that Victorian municipal authorities began to place upon the market from the early 1870s onwards. By the early 1880s, if not earlier, reports of the floating of new investment companies indicate a con­ siderable degree of responsibility resting with the brokers for the placement of shares in the market, though there is no suggestion as yet that they were in a position to underwrite issues of this kind. From a fairly early date Melbourne brokers had assisted in the formation and introduction to the market of mining companies but in this sphere of activity they were very secondary compared with the brokers operating on the goldfields. New gold-mining company for­ mation was essentially a local phenomenon and a sphere of influence for the brokers of the locality concerned. The partial exception to this generalisation is that the brokers of Ballarat did not confine themselves to purely Ballarat mines, but operated throughout the mining district of which Ballarat was the centre. On occasion they were prepared to operate much further afield. In the 1860s, because Ballarat was then the major district of mining company activity and because gokl-mining shares then domi­ nated the market, it is possible that it was Victoria’s most active share market. It went into both absolute and relative decline towards the end of that decade. For a brief interval in 1871 Bendigo may have had pride of place but this was probably transitory. That this was so is indicated by the one direct estimate of turnover that is available for the whole period. In May 1872, some months after the peak speculation of 1871, the Bendigo press reported that its exchange with some 350 members had transacted business in 1872 worth £240,000. This induced Wallen, under his pen-name ‘Aegles’, to comment: ‘This is doubtless very good for Sandhurst. I have, however,

107 The Stock Exchange of Melbourne seen the books of a single firm of Melbourne brokers showing tran­ sactions for the first four months of this year exceeding £350,000, and this is but one of several firms transacting extensive business.’ Throughout this period share market transactions were conducted on cash terms, that is cash was paid for shares at the time when they were delivered, and the normal sale was effected within three clear working days. At times this practice served to dampen down specu­ lative activity but from the earlier account of events in the market between 1865 and 1884 it clearly was not a practice that could prevent speculation occurring. Investors could and did make their own arrangements for the supply of credit with which to speculate. Probably the main sources for such funds were the trading banks which on occasion financed both mines and speculators, but from the point of view of speculation as such the banks were not a reliable source of funds. When the speculative fever ran high the banks were likely to limit, so far as they could, the supply of bank finance. Thus it was remarked early in 1872 ‘Banks, which last year were severely affected with mining phobia, can now find it in their hearts to finance a fair mining share operation at 7 per cent’. There were also other more expensive and more risky ways of obtaining funds for speculative purposes. In the 1860s and early 1870s, when the bill of exchange was still in its hey-day as a credit instrument, the practice developed for active mining speculators to issue bills of exchange, get them accepted by some credit-worthy individual, and then discount them with one of the bill-discounters who had set up business in Collins Street. This type of financing operation, which had apparently been in operation for a decade or so, wras revealed wyhen one Felix Kabat, mining speculator and ‘broker’ failed early in 1873, allegedly with liabilities of £50,000 and virtually no assets. His particular activities were largely of a fraudulent character, but it is clear from the reports of witnesses examined during his trial that he was only one of many wrho made use of the facilities offered by the bill-discounters. That much more respectable brokers than Kabat wyere not immune to the risks of their trade is evident from the failure of Gavin G. Brown in 1866 with liabilities of £18,000 and assets of £15,000. After this bankruptcy Brown returned to his trade, and for the remainder of the period appears to have conducted a sizeable business. A further illustration of the possible changes in fortune wTas the failure of Baillie and Butters late in 1869 or early in 1870. This firm had been one of the most influential in the late 1850s and the early 1860s. Perhaps this failure w^as due to lack of attention to his broking

108 The Melbourne Stock Exchange, 1865-84 business by ‘the more brilliant’ partner J. S. Butters, who became Mayor of Melbourne in 1867, and then Member of the Legislative Assembly for Portland. In 1869 he was expelled from the House on alleged, but not completely proven, bribery charges, only to be immediately re-elected by the voters of Portland. After the failure of his firm he moved to Fiji in which he had become interested as one of the promoters of the Polynesia Company, formed in the late 1860s to establish plantations there. By 1871 lie had become Speaker in King Thakombou’s Parliament. In 1874 he was back in Melbourne operating partly in his old trade, but not as a member of the Melbourne Stock Exchange, and partly as a real estate agent. His partner, William Baillie, Chairman of the first Stock Exchange in 1861, also attempted to repair his fortunes in Fiji. Instead, early in 1871, much to the distress of his ‘numerous friends on “change”,’ news came to Melbourne that he had been murdered there. Not much evidence has survived of the brokers’ extra-curricular activities, but there are a few glimpses of them. In March 1874, just before the temporary break-up of the Exchange, at least as much attention seems to have been devoted to cricket as to shares. On 14 March the Argus Commercial Intelligence column reported ‘Scarcely any business done in this market today, the attraction of the All- England and Victorian cricket match causing an early exodus from under the Verandah’. Less than a week later came the following report ‘There was scarcely even an attempt at business in this market this morning, and about noon there was a general departure for the Richmond cricket ground to share in or witness the match between the brokers and the brokers’ clerks. In the absence of transactions we refrain from giving our usual list of quotations.’ A different aspect of the slower tempo of business, and of the way in which it was organised, was reported in 1870. In the days before the telephone came into use brokers employed youths to deliver messages and to collect and receive documents. At least one of them benefited from the exercise. In October 1870 there was much jubilation amongst his former colleagues when he won (on handicap) a long distance race against a visiting professional from England. It should also be noted that there was one form of competition in ways of making and losing money against which the Exchange soon lost out. Well before it acquired its present name and before it was proclaimed a public holiday no business was done on the Exchange on the day of the ‘Spring Race Meeting’ early in November. The habit of the Exchange of taking a long break at Christmas and New Year also goes back to the early 1860s.

109 The Stock Exchange of Melbourne While at this stage they were not of very great direct concern to the operations of the Exchange, brief mention should also be made of the developments that were occurring in other areas of the financial system. During the sixties and seventies the central position of the trading banks, or banks of issue as they were generally known, was confirmed and consolidated. By the end of the period there were few tricks in the bankers’ game which were not being used to control the operations of the monetary system. The role played by variations in interest rates has already been mentioned at length. In addition there were on occasion variations in their willingness to lend at the going rate of interest, qualitative controls over the direction of advances, variations of the exchange rate within the gold points, and movements of bullion between different colonies and between Australia and London. While there were occasions when the users of bank credit felt that competition between the banks was forcing the rate of interest up to unnecessarily high levels, and when high rates of discount were being maintained for too long, the general mercantile view was that the banks exercised their control over the monetary system judiciously. A more detailed examination of the working of the system would be necessary before this view could be confirmed with confidence, but the available evidence suggests that it was a correct judgment. Between 1865 and 1884 savings banks deposits in Victoria grew at a faster rate than deposits in the trading banks (8-9 per cent per annum compared with 6-3 per cent per annum) but by the end of the period the savings banks were still of relatively small importance compared to the trading banks, the former having estimated deposits at 30 June 1884 of £2,903,000, the latter having deposits in the June quarter of £26 million. One important change in the organisation of savings banks had occurred. In the early 1860s the Commissioners of the Savings Bank had advocated the adoption of the British system of Post Office Savings Banks in Victoria. In 1865 this system was adopted, but the Commissioners’ hopes that the post offices would become branches of their system were dashed. Instead the government decided to keep this useful source of savings within their own direct control, with the result that Victoria was to have twro savings banks for the next thirty years. From the point of view of this history the important aspect of this development was that a significant volume of savings (over £1 million in 1884) completely by-passed the market as Post Office Savings Bank deposits became directly available to the government via investment in trust funds. That the government appreciated the usefulness of this device is indicated by its unsuc-

110 The Melbourne Stock Exchange, 1865-84 cessful attempt in 1873 to absorb the Commissioners’ Savings Bank into the post office system. The main aspect of the flow of funds through the Commissioners’ Savings Bank, deposits in which amounted to £1,832,000 in 1884, is the way in which its accounts reflect the rise and fall of the domestic market in government securities. In 1862 the Commissioners had announced in their annual report that ‘they consider the government securities of the colony to be the most legitimate investment for savings bank funds’. Practical confirmation of this view is shown by their accounts in 1865 when £633,000 out of total assets of £770,000 were invested in government securities. On the few occasions after that date when the government raised new loans on the Victorian market they added to their holdings, but the greatest amount held (£715,000) was reached in 1873. From this point onwards the move­ ment in interest rate differentials between Australia and London was such that the government could normally borrow much more easily, cheaply, and on the scale which it now required, in London. Similarly the Savings Bank was naturally influenced by the much higher rate that it could obtain from lending on first-class mortgages compared with what the government was prepared to pay. Hence, from this point onward until the 1890s, the Savings Bank’s main channels of lending were either first-class mortgages or high-yielding fixed deposits with the trading banks. In neither of these avenues was there much grist for the stock exchange mill. During the 1860s and 1870s life insurance gathered strength as a form of institutional saving in Victoria. Before the early 1870s it is difficult to document its growth, though it is apparent that in the 1860s the field came to be dominated by the Australian Mutual Provident Society. Its success stimulated the formation of a number of Victorian mutual societies in the years around 1870. They were the National Mutual (1869), the Mutual Assurance Company of Victoria and the Australian Widows’ Fund (1870), and the Colonial Mutual (1871). This activity in turn induced the Victorian government to adopt virtually without change the English Life Assurance Act of 1870, and so in the Life Assurance Companies Act 1873 (Victoria) began the regulation of life assurance business in Australia. One result of this legislation was the publication of fairly complete statistics of the business done in Victoria. Apart from the Victorian Life and General Insurance Company and Savings Institute which did not report under the Act of 1873 and whose life assurance assets in 1884 were £220,000, the assets of the other life offices operating in Victoria had grown from about £270,000 in 1874 to about £1,400,000 in 1884. Once again,

i l l The Stock Exchange of Melbourne this growth was of little direct significance for the stock exchange as there were virtually no holdings of stock exchange securities. The major avenues of investment were in mortgages and, of less impor­ tance, loans to policy holders. To avoid misunderstanding it should perhaps be noted that this comment is limited to the investment policy of life offices in Victoria. Outside Victoria, the Australian Mutual Provident Society had relatively large holdings of colonial government securities in 1884. The areas in which the most significant changes in financial organisation occurred between 1865 and 1884 were pastoral financing and the financing of residential building. Both of these have been treated at length in N. G. Butlin’s Investment in Australian Economic Development 1861-1900; while J. D. Bailey’s A Hundred Years of Pastoral Banking provides a detailed study of one of the leading London-based pastoral finance companies that emerged during this period. Apart from the formation of the Australasian Agency and Banking Corporation in 1877, its merger with R. Goldsbrough & Co. Ltd in 1880, and the formation of the Squatting Investment Company in 1880, there was little direct link between the stock exchange and the financing of the pastoral industry, though the previous account of market developments has indicated that the indirect relationships were very important. Up to 1884 the growth of the building society move­ ment also largely affected the share market in an indirect fashion. In this case the links were somewhat closer because, while the permanent building societies were not yet formally ‘listed’, there was nevertheless a not insubstantial volume of transactions in their shares from time to time. When some of them immediately after the end of the period surveyed here became much more speculative institutions than their names implied there were well established avenues for dealing in their shares. In addition, by 1884 the stock exchange had been long familiar with the fringe land bank institutions, the spectacular multiplication and collapse of which were to be a feature of the years covered in the next chapter.

112 4 ‘Not often, nor for long, . . . characterised by monotony’: 1885-1893

The history of Victoria in the 1880s and 1890s is dominated by the building boom in Melbourne and by its aftermath. It has become customary to regard this concentration of resources in the develop­ ment of Melbourne as a major economic distortion which could have only one result—the great financial crisis of 1893 and the stagnation which followed it. Some contemporaries certainly regarded this sequence as cause and effect and saw the sufferings of the 1890s as punishment for the follies of the 1880s. This ethical interpretation of history is clearly evident in the pages of that repentant sinner, Gyles Turner (History of the Colony of Victoria). It is still evident in the much more convincing analysis in Coghlan’s Labour and Industry in Australia. More recently the severity of the depression has been traced to the excesses of the boom by means of more or less mechanistic models of the economic system. The most elaborate structure of this kind is N. G. Butlin’s Investment in Australian Economic Development 1861-1900. His analysis turns on alleged structural distortions which occurred during the course of Australia’s ‘long boom’ which could only be ‘corrected’ by a major readjustment, both real and financial, in the use of resources. In the process of examining the development of the Victorian economy with a view to understanding and interpreting the part played by the Stock Exchange of Melbourne in that development, evidence has accumulated which casts doubt on the common assump­ tion of these very different interpretations of Australian economic development in the 1880s and 1890s—namely that the severity of the depression was a direct consequence of the characteristics of the boom. On the contrary, as Blainey, viewing the process from the point of view of a historian of banking, has argued in Gold and Paper, it seems reasonable to believe that much of the severity of the depression

113 The Stock Exchange of Melbourne must be accounted for by events which were unrelated to what hap­ pened in Victoria in the 1880s and that given rather more favourable conditions in the early 1890s such readjustments as were necessary could have been achieved without such an economic collapse as did occur. The sequence, distortions of boom, severity of depression, is a case of post hoc but not of propter hoc.

The Contours of Victorian Economic Development, 1884-93 In order to give some coherence to the subsequent detailed survey of the interrelationships between the economy and the share market it is necessary to provide here a broad outline of the shape of the fluctuations that occurred and to make brief comments on some of the general issues raised by this pattern of development. The exact timing and determinants of the processes to be described are still very much a matter of learned dispute. What follows should be regarded as an interim assessment rather than a considered final judgment. At this point the most useful way of depicting the fluctuations in the economy is to present Figs. 5 and 6 to illustrate various aspects of the Victorian economy between 1884 and 1893. While there are variations in timing between the statistical series chosen, in itself an illustration of the complex processes which together make up an actual economy, the sequence in terms of changes in the general level of activity which emerges from a study of these graphs is as follows: fairly rapid growth in 1885 which is followed by a mild recession or stagnation in 1886; rapid expansion in 1887 which continues through to the end of 1888; a marked slackening of growth in 1889 which is followed by a levelling out in 1890; towards the end of 1890 or early in 1891 a process of decline sets in which gathers pace rapidly; it is still in progress in 1893, the end of the period surveyed here. Of the major Victorian industries for which suitable statistical series are available—wool, gold, wheat, and manufacturing—only one, manu­ facturing employment, has a respectable rate of growth (3-2 per cent per annum) in the period of expansion between 1884 and 1889. The trend rate of growth of wheat output in the same period, if this means very much given the marked fluctuations which occurred, was only T7 per cent per annum. Production of wool and gold declined. Why then is there general agreement that these were years of rapid growth? The answer to this question can best be seen in Fig. 6 showing various indicators of investment, both public and private. Clearly these years witnessed a major real investment boom, the most outstanding pro­ ducts of which were such public works as extensions to the railway system and new irrigation works and the whole complex of roads,

114 ‘Not often . . . characterised by m onotony’, 1885-93

Melbourne Bank Clearings

/Bank Advances

/■ '• / Imports

Exports

I Melbourne Tramways Passengers

2 0 cc

^'Victorian Government Revenue

1685 1686 1887 1888 1889 1890 1891 1892 1893 5 Some economic indicators, 1885-93 bridges, tramways, water and sewerage, office buildings and houses that in the course of a decade transformed Melbourne from a minor to a major city. W hatever else the generation of the so-called ‘land boomers’ did it built a city the physical outlines of which were still clearly visible seventy years later. It is only because of the incomplete­ ness of the statistical collections of the period, and of the inadequacies of the then industrial classifications of the Victorian Censuses that it is not possible fully to record the growth that must have occurred

115 The Stock Exchange of Melbourne

60,000

c 50.000 o <5 0. 40.000

5 3

3 0

2 5

6 Some economic indicators, 1885-93 in commercial, transport, financial and other services and in the construction workforce which accompanied or produced this major physical transformation. Why did Victorian economic growth take this form and to what extent did this burst of expansion necessarily involve a subsequent period of stagnation? These simple questions require very complex answers. Only some aspects of the processes involved can be treated here. If it is true that it was the massive investment activity which is the significant feature of Victoria in the 1880s, just as it was for

116 ‘Not often ... characterised by monotony’, 1885-93 Australia as a whole, as is evident from the estimates of N. G. Butlin, and if in the private sector it is reasonable to believe that the pattern of this investment was broadly the result of investors’ expectations about the relative profitability of different types of investment, what then were the conditions which produced the particular pattern of relative profit rates which obtained in the 1880s? No attempt has yet been made fully to explore this question. What follows is a very impressionistic attempt to isolate some of its main elements. Consider first the growing concentration of investment activity in Melbourne. The expansion of spending which followed the 1878-9 depression and which was significantly stimulated by a temporary rise in wool prices lifted the economy to full employment levels of opera­ tion. As a result the many young Victorians who were concentrated in the marriage age group were able to exercise an effective demand for housing. The resulting rapid growth of house construction meant good profit prospects for the important range of manufacturing industries concerned with building materials and house fittings. The concentration of population that already existed in Melbourne and the continued decline of a large number of the goldfields towns meant that housing and allied investment opportunities were centred in Melbourne. As the housing boom gathered pace the tendency for a disproportionate rate of expansion in Melbourne was accentuated and refuelled by rising net immigration into Victoria. The rapidly grow­ ing population of Melbourne and its steady geographical sprawl created an increasing demand for building sites at the fringes of the metropolis and rising urban land prices both at the fringe and in the central business areas. As this price trend continued pressure developed to economise on the use of land in the centre of the city so that by the end of the decade extensive re-building was undertaken in the form of what were then ‘high rise’ buildings. A major stimulus was given to this process by the ‘revolution’ in the urban transport system that followed the beginning of operation of cable trams in November 1885 and their progressive extension into the suburbs. There were also important additions to the metropolitan railway system. The speed at which this process of urban expansion took place and the simultaneous but slower economic development elsewhere in Victoria soon outpaced the growing supply of domestic savings. The gap was made good by an inflow of British capital to both the public and the private sectors. This inflow was in response to the much higher level of profitability and interest rates that prevailed in Victoria as compared with Britain for securities with much the same

117 The Stock Exchange of Melbourne apparent degree of risk. It is possible to regard this inflow as a passive response to the demand induced by domestic investment outlays and to consider that this demand was conditioned by events within Victoria. But such a view only makes sense because there was an appropriate inflow of capital. The very fact of capital inflow and the ease with which it was obtained shaped both the level and the pattern of domestic investment decisions. If it had not been forthcoming then the development of the Victorian economy would have been very different indeed. Apart from the reciprocal relationship between Victorian investment and British savings, attention should also be drawn to the fact that, although domestic investment was biased in favour of non-internationally traded goods, of itself this pattern of investment created no balance of payments problems so long as the capital inflow was sufficient to meet the import content of domestic demand. Under these conditions why did the urban building boom come to an end? The specific answer to this question is not yet clear, and is likely to be of a complex character, no single cause being respon­ sible. One element probably was the shape of the age distribution of the population which was such that, given stable marriage and housing demand habits, a point would have been reached during the course of the eighties when the rate of growth of demographic demand for housing would decline, but it is unlikely that this particular aspect of the situation was responsible for initiating the down-turn. Another was that the pattern of urban development had become dependent on the maintenance of an appropriate rate of inflow of capital. If that inflow should alter in its own right then some re­ arrangement of the pattern of consumption and investment outlays within Victoria would be required. The cessation of growth of capital inflow into Victoria in 1889 was thus associated with the levelling-out of building activity at this time, but it is also unlikely that this change actually brought about the process of decline. As a proximate first cause the break in trend was probably, in line with a number of traditional accounts, the cessation of land specu­ lation. It is of the nature of bursts of speculation, whether they occur in shares or in land values, that prices are lifted to levels in excess of those justified by rational calculations of capitalised future earnings including capital appreciation. Beyond this point, difficult though it may be to specify in practice, the whole system of values becomes unstable and is likely to react violently to a sudden shock. The particular sudden shock in this context was the apparently unexpected judgment of the trading banks in October 1888 that it was time to

118 ‘Not often ... characterised by monotony’, 1885-93 call a halt to the land speculation. Their decision was made more or less effective by raising interest rates and by simultaneously limiting their future advances for transactions in land. The halt to speculation in the land market was quite dramatic, but as speculation in land by itself involves a relatively small use of real resources, and as demographic conditions as indicated by the level of marriages and of net immigration were still favourable to housing construction, the initial effects of the ending of land speculation were primarily finan­ cial in character involving, amongst other things, the large-scale cancellation of recent land sale contracts. Despite this qualification the sudden break in land speculation did induce a more cautious tone in this sector of the economy. Early in 1889 this appears to have been reflected in a slackening, but no more than a slackening, in the tempo of private building construction. Whether or not an actual decline in private building occurred is uncertain because the only available reliable indicators of building activity refer to all buildings. In any event public investment activity in the Melbourne area, both state and local, was still growing and more than offset any decline that may have occurred in the private sector. It was thus not until late in 1889 or early in 1890 that total construction began to decline. The reasons for this very gradual process of transition, which even after the down-turn remained at a high level for some considerable time, are not clear, though they are probably a product partly of the different rates of change in the public and private sectors and partly of the very varied and lengthy periods of construction of different types of buildings. It was only in 1891 that distinct evidence of declining levels of construction becomes available, and with this decline growing evidence of excess capacity in different types of buildings. Whether or not this excess capacity was a product of the depression and whether or not it may have been negligible if growth could have been sustained are ques­ tions that are unlikely ever to be answered satisfactorily. The preceding summary of urban economic development gives some glimpses of the high levels of profitability that presumably existed for a time in a whole range of urban industries—building construction, housing, financial services, urban transport (public rail­ ways as well as private trams), and so on. It also indicates when the period of high profitability of urban industries began to come to an end. What were the effects of this situation on other sectors of the economy? Some accounts of the characteristics of the investment boom, which involved country railways and rural investment as well as the building

119 The Stock Exchange of Melbourne of Melbourne, place considerable emphasis on the way in which this process diverted resources, especially labour, from other uses. The investment demand for labour tended to raise its price and to reduce profitability elsewhere in the economy. That this type of pressure was present cannot be denied, but changes in costs do not by themselves determine relative profitability. Reference must also be made to price conditions and to profit expectations in their own right. Thus the decline in gold mining in Victoria, which involved the production of a good the real purchasing power of which was steadily increasing as the general price level fell, must be attributed not to general pressures on its costs but to the much greater profitability, or expected profitability, of the not very distant silver-lead mines of New South Wales and Tasmania. The reasons why wool production in Victoria declined are not clear but once again the relative attractiveness of the wool industry in other states was probably important. In wheat growing, while shortage of labour was one element increasing its costs there were other reasons why it was not an attractive form of investment in the middle and later 1880s. Just at the time when Victoria was achieving an export surplus in wheat, around 1880, a sustained fall in world wheat prices occurred. By 1885 world (and Victorian) wheat prices were 40 per cent below what they had been in the late seventies. The decline in wool prices, which had a similar pattern, was only about 25 per cent. In addition, the achievement of an export surplus introduced an era, which lasted until the turn of the century, during which Victorian wheat prices fluctuated violently about the trend set by the world market. The amount of variation, plus or minus, was determined by the level of freights to and from Victoria and by the level of pro­ tection granted to Victorian wheat. This serious price instability, which meant that farmers, though not the community as a whole, benefited little from good seasons, together with the sustained down­ ward trend of world wheat prices which continued to be more pro­ nounced than the fall in wool prices, meant that the prospects of profit in the wheat industry were far from encouraging to the grower. What is surprising about the Victorian wheat industry in this period is not that it expanded relatively slowly but that its expansion should have been as great as it was. As prospects for the main staples of the Victorian economy were not auspicious those interested in Victoria’s rural expansion did not simply stand by and allow the undoubted attractiveness of urban industries completely to dominate the scene. The eighties were the period during which Deakin, the Chaffey brothers, and others sought

120 ‘Not often . . . characterised by monotony’, 1885-93 through irrigation to diversify Victorian rural production. Increasingly successful steps were also being undertaken to encourage butter pro­ duction. This process of altering the pattern of the use of resources preceded the down-turn of the economy in 1891 and was not simply a consequence of it. The experience and knowledge gained in these fields in the eighties did much to permit the more rapid diversification that was ‘enforced’ in the nineties. Still more important was the fact that the physical boundaries of Victoria were very much an economic fiction. At least until the 1890s the Riverina was more a province of Victoria than part of the colony of New South Wales. This meant that the pattern of investment within Victoria did not reflect the pattern of investment of Victorian investors. The proportion of their funds invested in rural industries was considerably higher than one would deduce from an examination of purely Victorian statistics. This is particularly so when allowance is made for Victorians’ investment not merely in the Riverina but as far afield as pastoral Queensland. The spread of Victorian investment interest into the rural industries of other colonies is well known. What has come to be much less fully appreciated in general accounts of the economy was the importance to Victoria of mining investment outside its boundaries. In the course of the eighties the hitherto sporadic interest in non-Victorian mines became a more or less continuous one and ranged as the occasion demanded from Queensland to Tasmania and to South Australia. Of particular importance in the period up to 1893 was silver-lead mining at Broken Hill. In 1885, before Broken Hill mines began production, the value of silver-lead output in New South Wales was £108,000. In 1891, before the decline in silver and lead prices, the value of output was £3,485,000. This was over £1 million greater than Victorian gold production in the same year. No serious attempt has yet been made to estimate the amount of investment expenditure at Broken Hill. N. G. Butlin estimated new capital formation in all New South Wales mines between 1886 and 1890 inclusive to be £127,000, and this is obviously ludicrously small. On the other hand the claim of the Argus late in 1890 that £15 million had been invested at Broken Hill seems somewhat improbable, though in terms of orders of magnitude it is not likely to be far off the mark if it is meant to include the cost of building the township (about 20,000 persons in 1891) and the transport facilities involved in shipping materials to the mines and carrying away their output. In the absence of reliable investment expenditure estimates one or two facts must here suffice to indicate the scale of operations. In 1891 the Broken Hill Proprietary Company

121 The Stock Exchange of Melbourne claimed to be giving employment to 5,000 people and to be keeping in operation twenty-two steamers of 3,000 tons each. While it was by far the most important mine there were a number of others whose operations wrere on a fairly large scale. Geoffrey Blainey gives a good, if brief, account of the surge of investment interest in the Broken Hill mines in The Rush That Never Ended. Broken Hill was significant for the Victorian economy not merely as an important channel for the real investment of Victorian savings (very largely retained earnings in the case of B.H.P. itself) but also as an indirect source of export earnings and for its role in assisting to sustain the prosperity of the economy after the break in land speculation in October 1888. The estimated receipt in Victoria of dividends from Broken Hill mines in 1890 was over £500,000 and in 1891 over £750,000. The latter figure was equal to about one-quarter of the total value of Victorian wheat production in the same year. Clearly these dividends were a significant item in the balance of pay­ ments of the Victorian economy. On a wider field the floatation of parts of the Broken Hill Proprietary Company’s leases on the London market and the sale of its shares on the Melbourne market to British investors at high prices made up a not unimportant part of the capital inflow of the period. The sale of Australian registered shares on the London market does not figure in existing direct estimates of the capital inflow but indirect evidence suggests that at times these sales were very large. To take one example, whereas the Broken Hill Proprietary Company was initially wholly owned in Australia, by the end of the nineties about half of it was owned by British investors. As it is likely that the latter bought most of their shares at high prices, as heavy purchases were made on the Australian exchanges of Broken Hill mines other than B.H.P., and as the dividend commit­ ment of a considerable part of this total investment turned out to be negligible, Victoria’s investment in Broken Hill mines played an important but very complicated part in the late nineteenth-century balance of payments history of Australia. In addition the exact timing of the spurts of speculative interest in Broken Hill mines had a bearing on the behaviour of the rest of the domestic economy. The best-known burst of speculation was the so-called ‘silver boom’ in the first half of 1888, but that was not the only occasion on which interest in Broken Hill mines dominated the stock exchanges and contributed to the mood of the rest of the economy. There was an even larger burst of speculation in silver­ mining shares from November 1889 to May 1890. The two-pronged character of the speculative history of Broken Hill mines in Mel-

122 ‘Not often . . . characterised by monotony’, 1885-93 bourne is clearly evident in the double peak of bank clearings between 1888 and mid-1890. The importance for the economy as a whole of this second burst of speculation, which had its roots in the very great profitability of the Broken Hill Proprietary Company, was that it diverted attention from the early evidence of weakness of some of the land finance companies, provided a source of capital inflow when other avenues were not as popular as they had been, and helped to maintain general business confidence at a time when it would other­ wise have been in a state of uncertainty. In short the second burst of speculation in Broken Hill mines helps to explain the long lag between the end of land speculation in October 1888 and the begin­ ning of the depression which probably has to be dated from the closing months of 1890. One object of the preceding commentary on the Victorian economy before the breaking of the boom has been to show that, given the prevailing general level of prices and costs and given the then pattern of relative prices, neither the rate of growth nor the pattern of Victorian investment were demonstrably seriously distorted. The view expressed by contemporaries in 1890 that, while land speculation had been overdone and while a lower level of public investment was now appropriate, the economy was basically sound was not without sub­ stance. If the economy had continued to grow slowly or had merely suffered a minor recession comparable with those it had experienced on a number of occasions during the previous thirty years, then the excess capacity which was beginning to be evident in a number of areas would not have proved to be the burden that in the event it was. It is at this point that the traditional emphasis on such external factors as the fall in world prices for wool, wheat, and silver and the post-1890 loan raising difficulties on the London capital market becomes justified. It was these external events that converted a threatened mild depression into what was to become one of the two really serious depressions that the Victorian economy has suffered in the course of its history. Once it had become tied into the world-wide depression of the early 1890s there was no escape. After 1890 the loss of real income that resulted from the sharp adverse movement of the terms of trade, and the multiplier effects on the levels of income and expenditure which accompanied the now declining levels of both public and private investment, meant dis­ savings amongst the increasing number of unemployed. It was prob­ ably this drain on the deposits of financial institutions, occurring at a time when their assets structure was very illiquid and when there was increasing difficulty in obtaining an offsetting inflow of British

123 The Stock Exchange of Melbourne deposits, that brought about the crop of failures in land finance institutions from August 1891 onwards. The evidence of fraud and mismanagement in some of these institutions undermined public con­ fidence. The combination of a continued decline in national income and downwards variations in public confidence brought with it an intermittent widening of the circle of failed or suspended financial institutions, many of which were simply illiquid under these con­ ditions rather than basically unsound. The apparently inexorable process which engulfed first the speculative land banks, then the building societies, and finally the trading banks was intensified by weak political leadership and by a number of bad judgments in financial management. It was considerations of this type that were very important in the final collapse of the majority of the trading banks, a significant number of which, as Blainey and others have pointed out, need not have failed. That so many major financial institutions did fail or were forced to reconstruct seriously inhibited those ‘animal spirits’ which undoubtedly play a part in the process of economic growth. In this way the severity of the financial crash contributed to the hesitant manner in which the Victorian economy subsequently recovered from the depression of the early 1890s. It has been alleged for Australia as a whole and by implication for Victoria by itself that the decade of the eighties was a period of growing external disequilibrium in the balance of payments. This view needs to be regarded with considerable scepticism. It is true that, for Victoria until 1889, there was a growing deficit on current account. But this in itself was no more than the trade balance expression of rising capital inflow. So long as British capital flowed readily to Australia there was in fact no balance of payments problem and, naturally enough, no evidence in exchange rate movements nor in monetary gold flows of growing external imbalance. The ‘disequili­ brium’, such as it was, must be understood to mean an increasing vulnerability of the economy to any future changes in Britain’s willingness to lend. Once capital inflow began to decline as it did for Victoria after 1889 then the economy was under pressure to readjust its pattern of use of resources. Given sufficient mobility of resources and flexi­ bility of prices then in principle the necessary adjustments could have been achieved without the appearance of high levels of unemploy­ ment. Provided that it is reasonable to regard the great strike of 1890 as only partially determined by the changing economic circum­ stances, for a year or so the readjustment to declining capital inflow was achieved relatively painlessly. Disinvestment in imported stocks

124 ‘Not often . . . characterised by monotony’, 1885-93 helped to ease the immediate transition. So too did increasing pro­ duction from the prior investment in Broken Hill mines. For a while natural conditions were favourable and a series of good harvests and rising wool output added substantially to export income. In a much smaller wyay some benefit in the form of increased export receipts was obtained from the encouragement given to butter production a year or twTo earlier. But from the end of 1890 onwards the potential external problem began to be solved in a fashion that necessarily involved unemploy­ ment and declining domestic incomes. Nineteenth-century Victorian governments were expected to maintain balanced budgets and to finance the greater part of their public works outlays from loan raisings. After November 1890 it became increasingly difficult for the Victorian government to issue securities in London. This fact pro­ gressively shaped its public works programs. At the same time the decline in imports, necessarily associated with the decline in public investment and with the decline in national income that was simul­ taneously occurring, reduced customs and other forms of revenue and hence the ability of the government to increase public works expendi­ ture out of revenue. When the balance of public spending began to operate in a deflationary manner the pace of recession in the whole economy quickened and the ‘balance of payments problem’ was solved through a cumulative reduction in incomes and employment. Although the Victorian economy was a ‘pure’ gold standard economy in the sense that its gold coinage was legal tender in Britain, monetary gold movements were not called upon to play their theoretical equilibriating role. So much was it the case that the balance of pay­ ments problem was ‘solved’ by income changes that in 1892 a high proportion of the gold production of that year was retained in Victoria. By this time, at the cost of much suffering, there was no longer a problem of external imbalance. In 1893, as is shown both by the movement in the exchange rate to a selling rate of £97 sterling per £100 Australian in May 1893 and by the inflow of monetary gold, the Victorian economy was not experiencing a balance of payments problem but a major crisis in domestic confidence. It should be clear from even this very brief account of the boom of the eighties and its aftermath that certain features of the boom did contribute to the difficulties of the depression but this is not the same as saying that events up to 1888 determined the subsequent behaviour of the economy. After that date, and especially after 1890, there was an unfortunate combination of events, partly external to the Victorian economy, partly internal to it, which together with

125 The Stock Exchange of Melbourne some characteristics of the boom resulted in the severity of the depression. A deep depression followed a fairly hectic boom, but this historical sequence was not determined in a rigorous mechanical manner as one might deduce from simple mathematical models of the trade cycle nor even from complex mechanical structural relation­ ships. Good and bad luck, the vagaries of the seasons, human falli­ bility, events from 1890 onwards in Britain, the United States, India, and the Argentine all contributed something to the actual historical sequence of events in Victoria. While Victorians probably did have to suffer some unpleasant consequences as a result of their optimism and extravagance in the 1880s one needs to pay homage to a par­ ticularly malevolent economic deity in order to believe that what did happen in the nineties was an inevitable product of the way in which the economy had developed in the eighties.

Towards the Boom 1885-8: A Narrative of the Economy The year 1885 on balance should be regarded as a prosperous one despite a number of conflicting features. The divergence between more and less prosperous conditions turns mainly on the difference between the experience of rural industries and that of urban ones. The former had a rather difficult year; the latter were prosperous. The difficulties in the rural sector were a consequence of price changes rather than bad seasons. The average harvest gave rise to an export­ able surplus of wheat which in turn meant that the fall in world market prices in 1885 was reflected in the prices received by Victorian wheat exporters. The wool industry experienced prices ‘lower than any known for nearly forty years’. In Melbourne the land speculation which had been noticeable in 1884 became even more marked; large tracts of land were cut up into building allotments in every suburb of Melbourne, prices realised were higher than had been anticipated even a short time before, but even so buyers were readily found. The population of Melbourne was swollen by an inflow from the country­ side and from beyond its borders. The net effect of these conditions was that the building and allied trades enjoyed ‘unusually brisk conditions’. Periodic forecasts that the land market would collapse, as it was doing in Adelaide, showed no signs of being realised. The relatively low level of interest rates which had obtained from the middle of 1884 did nothing to inhibit this burst of land speculation and building activity. Early in 1886, while there was no alteration in deposit rates, it was reported that investment funds were becoming more difficult to obtain. The increased assistance required from the banks by traders,

126 ‘Not often . . . characterised by monotony’, 1885-93 pastoralists and farmers, was greater than they were willing to lend. This was particularly true in Queensland, New South Wales, and South Australia where a series of unfavourable seasons had resulted in difficult times in the cities as well as in the countryside. It was the competition of higher interest rates in these colonies that brought about a break-up of the Associated Banks in Melbourne and a rise in interest rates—up to 6 per cent on twelve months’ deposits—in June. Partly because of this rise in interest rates and partly because it had become apparent that the rate of creating new land subdivisions had exceeded the capacity of the market to absorb them, during the first half of the year there was a marked decline in the level of activity in the urban land market. Under these conditions, it is significant to note, the final purchasers, ‘consisting largely of clerks, mechanics, artisans and labouring men, who desired to have homes of their own, and were able to meet the very liberal terms on which the allotments were generally offered’, managed to maintain regular repayments, and there was little evidence that they had difficulty in doing so. This is a little surprising as there was a mild recession in some sections of manufacturing industry and complaints of unprofitable trading from merchants, some of whom were suffering from severe import competition from the excess stocks now held in the neighbouring colonies, while others were finding that the combination of the long drought, which had halted river traffic for a lengthy period, and the extension of the New South Wales railway system to the Murray, had made serious inroads into their hitherto lucrative trade with the Riverina. It seems likely that there was more than the usual seasonal decline in housing construction during the winter months but, if so, it was relatively short-lived, as a rising tempo of building activity was reported at the end of the year. That these declines were of a fairly limited character appears to be partly due to Victoria’s relative freedom from the effects of the drought and to the fact that the planned extension of the railway system, approved some two years earlier, was now wrell into the construction phase. The considerable increase in public works expen­ diture, financed primarily from loans raised in London, strongly counteracted such declining factors as were present. T he effects of this public spending together with funds raised in London by the private sector, including considerable sums raised through the sale of mining concerns on the London market, meant that by the end of the year there were growing signs of easier monetary conditions and an increasing expectation that the high bank deposit rates which were restraining activity in the land mortgage market would be

127 The Stock Exchange of Melbourne reduced early in the new year. It was believed that the main influence preventing such a decline was the relatively high level of Bank rate in London at the end of the year—a response to the then disturbed conditions in the New York money market. As had been anticipated bank deposit rates did fall in January 1887, to 5 per cent for twelve months, and this restraining influence was removed from the urban scene. Despite this fall in interest rates there was no slackening in the growth of deposits, and bank advances declined. Before long growing cash reserves made the banks anxious further to reduce interest rates, but difficulty in obtaining agreement with banks in the other colonies delayed such a reduction, to 4 per cent for twelve months, until August. This decline, to a low level of interest rates by nineteenth-century standards, arose naturally out of the then banking situation but, with benefit of hindsight, its timing was unfortunate. Almost at the time this decision was taken the pace of economic growth in the economy was quickening. The reduction in interest rates helped speed up a process which could have done without support of this kind. By the end of the year, after a pause of from about twelve to eighteen months during which transactions in land had been relatively limited but prices had not fallen, a renewed burst of speculative activity in land was in progress in Melbourne both in the suburbs and in the city. Amongst the many groups that were purchasing city land at the high prices prevailing was the Stock Exchange of Mel­ bourne, which paid £120,000 for the site of its proposed new building in Collins Street. That this activity was not mere speculation and was based on a burst of real construction activity can usefully be indicated by the following comment of the Argus at the beginning of 1888 referring to events of the preceding year. The comparatively new structure formerly occupied by the Oriental Banking Corporation and latterly by the Bank of New Zealand is in course of demolition, and a massive building will take its place. Throughout the City of Melbourne rebuilding has proceeded at a great rate, with the result that the principal business centres are distinguished by the handsomeness and imposing character of the office accommodation. In the suburbs the tran­ sactions in land, whether in allotments or acres, have been and are still very large, while at almost every point prices have advanced. The eagerness manifested by buyers, the multiplication of buildings, the drift of people to new districts, all indicate that the present movement, whether exaggerated or not, is based mainly upon the requirements of a rapidly growing population. The preceding reference to ‘the drift of people to new districts’ is one aspect of the boom in Melbourne of the late eighties which

128 ‘Not often . . . characterised by monotony’, 1885-93 has not been given the recognition it deserves. The conquest of the tyranny of short distances still awaits its historian in Australia. One important reason for the different timing of the Sydney and Melbourne urban building booms of the 1880s, the former occurring in the early eighties, the latter towards the end of the decade, was that the Sydney tramway system began to be constructed in 1879 and had its largest increase of mileage open to traffic in 1881, whereas Melbourne’s tramway system began operations in November 1885 and began largely to influence the pattern of suburban transport a year or two later. In Melbourne there was also a simultaneous expansion of the public suburban railway system which had a very practical justification as far as the finances of the whole railway system were concerned. New suburban lines at this time paid their running costs, including interest charges, within two years. The similar break-even point of rural extensions, even before the difficult conditions of the nineties, was well into the future. The profitability of the privately- owned Melbourne Tramways and Omnibus Company was such that on a number of occasions during the late eighties it rivalled gold and silver mines as a centre of speculative interest on the stock exchange. This experience was the occasion for the formation of a number of smaller tramway companies, the subsequent history of which was to be much less successful than that of the Melbourne Tramways and Omnibus Company. The effect of all these transport developments was to bring about major shifts in relative land values. Together with what then appeared to be the rapid secular growth of Melbourne and the expansion of house and other building con­ struction that accompanied this growth, there was considerable justi­ fication for speculative interest in Melbourne’s urban land market. At the time, apart from some excesses which were recognised as such, there was a firm basis for much of the behaviour which has sub­ sequently come to be regarded as a demonstration of sheer optimism and extravagance. One important reason why the bank deposit rate in Victoria ceased to be an effective regulator of domestic monetary conditions and one reason for the exuberance that was beginning to characterise building activity in Melbourne was the ease with which British savings were now being tapped by Australian borrowers. The colonial government, the banks, and the pastoral companies, which had developed the art of raising funds in Britain, were now joined by municipalities, in their own right and as the consortium financing the cost of laying the tracks of the tramway system, by the Metropolitan Gas Company, by merchants converting into companies on the London Stock

129 The Stock Exchange of Melbourne Exchange, and by some building societies. As though this were not enough considerable sales of gold- and silver-mining shares were made to British investors, and British money came seeking Australian investments in the form of British life insurance offices employing agents in Melbourne to locate suitable first mortgage securities. Under these conditions it is not surprising that the excess capacity and unemployment that existed in some fields when the year opened was soon re-employed, nor that there was a large inflow of workers from the still relatively depressed neighbouring colonies. Apart from the reservation that this generation of Victorians would have been wise to have looked the gift horse of capital imports in the mouth (and when have Australians ever been really prepared to do this?) because of its potential instability rather than because of its subsequent debt-servicing requirements, it is difficult to detect much mis-allocation of resources at this time. It is, for instance, not justifiable to regard the following comment by a really well-informed Argus journalist as simple optimism. The year [1887] is now closing with prospects similar to those which obtained four years ago. A large wool clip is being sold in London at fair prices; an abundant harvest is now assured. Mining is still one of the three leading occupations of the colony; the multifarious industries of Melbourne are generally in a healthy condition; and the employment furnished by public works— whether Government or corporation—continues to be extremely large. The prospects for 1888 are therefore better than brilliant— they are essentially solid. The year 1888—annus mirabilis—was regarded as extraordinary at the time and has been considered so ever since. Subsequent observers have been impressed chiefly by the speculative vigour both of the silver-mining share boom and by the final excesses of the long history of land speculation in Melbourne. Contemporaries were a good deal more conscious of the equally spectacular declines in speculation both in silver shares and in land. They, if not many subsequent commentators, were also well aware of the burst of real construction activity that formed the base on which the speculative superstructure was built. The burst of company formation which was another feature of the year and the fluctuation in silver shares can more conveniently be examined in the context of the history of the share market. The story of land speculation fits more appropriately into a general description of the economic events of the year. Not much needs to be said about production trends. They were almost all distinctly upward. This was especially true of building and

130 ‘Not often . . . characterised by monotony’, 1885-93 construction on both public and private account. What needs further discussion is the sequence of changes in the general tempo of the economy. The year opened on a buoyant note. Local savings were growing at a rapid rate and were being reinforced by the inflow of British capital. Both investment and consumption spending were growing rapidly, especially while the silver boom was in progress. Imports were increasing rapidly but opening stocks had not been excessive, and for the time being the expenditure on imports appears to have been in proportion to the growth of income. When the silver boom came to an abrupt halt in April speculative activity in general was not brought to an end. Some of it switched to the land market, reinforcing existing trends. Some of it was diverted to land mortgage companies and to the finance companies which were partly involved in the financing of land transactions and partly in more general financial transactions such as the floating of private concerns in a wide range of industries into public companies. It was believed that the land finance companies were charging high rates of interest and earning handsome profits. By the middle of the year there were signs that this type of activity had been overdone. Only land speculation now remained. As the year advanced the continued rise in imports combined with a slackening in loan raising activity in London began to produce tight conditions in the local money market. It would appear that the Melbourne banks wished to react to this situation by raising interest rates in August, but they were deterred from doing so by the unwillingness of the Sydney banks to take similar action. In September there was a seasonal increase in land subdivision activity. At this point the normal quarterly banking returns were being made up and, either because they now became fully aware of what was happening—a very rapid increase in advances, virtually no increase in deposits, and a significant loss of coin—or because they feared the public reaction when these trends were disclosed, on 22 October 1888 the Associated Banks without consultation with the Sydney banks raised interest rates by 1 per cent, which by this time was not unexpected, and at the same time agreed to restrict advances for speculative purposes (which then meant land transactions), which had not been anticipated. Within a week or two the Argus was commenting ‘The banks have adopted a very cautious attitude, and are discriminating closely between ordinary mercantile paper and bills based on transactions in land’. There are many other similar contemporary comments. Further

131 The Stock Exchange of Melbourne confirmation is to be found in the actual effects on land speculation. A useful index of this is the volume of space devoted to land sales in the columns of the Argus. Throughout the greater part of the year a page to a page and a half was occupied in this fashion. During September it rose first to two then to three pages. Early in October it was not uncommon for the Argus to devote four full pages to land sale advertisements. Yet within a week or so of the 22 October measures this had been reduced to two full pages. By the end of the year there was virtually no space required for land sale advertisements. It has sometimes been suggested that the Victorian land speculation of itself absorbed a considerable volume of funds and accordingly restricted the amount available for alternative uses. It is doubtful that this is true. Mere speculation doesn’t involve much use of real resources nor much absorption of savings. Its main financial effect is to speed up the velocity of circulation of money and to increase the volume of financial transactions. There is a rapid circulation of titles to ownership but no considerable use of real resources. Thus the main financial effects of the land speculation are to be seen in the major fluctuations in the bank clearing statistics and not in the series of bank deposits and bank advances. It is only through the secondary effects of speculation either on incentives to invest or to save or on incentives to spend out of capital gains that there are real economic effects as a result of sheer speculation. T hat this is so is evident from the immediate effects of the cessation of land speculation in Melbourne. For some considerable time after 22 October the volume of real activity, including the volume of building activity, continued to grow. In the short term the main effects of the end of land speculation were large-scale re-negotiations of contracts and forfeitures of deposits on recent land sales. It was not activity of this kind which much disturbed the economy as a whole. More important was the alteration in the attitudes to spending that accompanied a feeling of uncertainty that followed the end of speculation, and that was reinforced by the tight money conditions then prevailing. It was in this way that the end of speculation began to affect the economy and to give rise to reports at the end of the year that there were some signs of ‘a falling off in the volume of business both with shop-keepers and builders’ and some evidence that the volume of traders’ stocks was now too large. It is also worth noting that one reason why the end of land speculation had less effect than it might otherwise have done was the holding of Melbourne’s Centennial Exhibition which opened on

132 ‘Not often . . . characterised by monotony’, 1885-93 1 August and continued until 31 January 1889. This lavish display, which cost the Victorian government about £250,000, was attended by over 1,900,000 people. The interest it created prevented public attention from being too closely concerned about the possible after­ effects of the decline of speculation. It was also of some importance in that it gave a healthy lift to the earnings of the railway system and made 1888-9 an exceptionally profitable year for the Melbourne Tram­ way and Omnibus Company. Its effects on the timing of net immi­ gration, resulting in an overstatement for 1888 and an understatement for 1889 of ‘permanent’ migration, needs to be taken into account when these figures are being used to interpret the behaviour of the economy.

The Share Market, 1885-8 From the formation of the Stock Exchange of Melbourne in October 1884 until mid-1888 there was a strongly rising trend in the volume of transactions conducted in the share market. Until November 1885 the existence of two rival exchanges operating on a not dissimilar scale was of considerable inconvenience both to the brokers and to the public. The transaction of business was made more difficult and prices were more irregular than they would otherwise have been. Recognition of these weaknesses, and the fact that the Melbourne Stock Exchange half of the break-up was obviously not being success­ ful in preventing brokers from ‘advertising’, led to the reconciliation in November. The details of this development will be considered at a later stage. Despite this institutional difficulty the share market as a whole in 1885 saw a large volume of business and one which was of a diversi­ fied character. The one really dull period was from March to May when it was a matter of considerable uncertainty whether or not war would break out between Britain and Russia. During this period dealers in the market preferred to operate on a small scale. After the foreign political situation clarified in May a large volume of business developed and this was considerably encouraged by a halving of the cost of telegrams from 1 July. Its chief feature was the increas­ ing proportion of business conducted in investment stocks. At the same time this long-standing market distinction between securities which were more or less ‘safe’ and whose prices tended to vary with changes in interest rates, that is investment stocks, and risky mining securities, began to become a very misleading one. In 1885 the most speculative stock in the market—the one in which most business was

133 The Stock Exchange of Melbourne done, which experienced large fluctuations in its price, and which ended the year at a price 40 per cent higher than its opening one— was the investment stock of the Melbourne Tramways and Omnibus Company whose trams, it has already been noted, began running from Richmond to the city in November 1885. Henceforth investment shares in Melbourne stock exchange parlance simply meant ‘non­ mining’. The increasing relative importance of investment shares in the market was partly a consequence of declining activity in gold-mining shares and partly of the steady increase in the proportion of business firms which had been transformed from partnerships into companies and whose shares had become available in the market. It was noted in the previous chapter that this trend had become evident round about 1880. It was to be a still more marked feature of the period at present being discussed. While it is important to recognise this trend it should not be exaggerated. Even at the end of 1888 the greater part of the private sector still lay outside the direct influence of stock exchange dealings. Part of the background to the conversion of partnerships into companies listed on the stock exchange (it is usually one of the pre­ conditions of this type of activity on an extensive scale) was the rising trend of share prices amongst already listed companies. As the year witnessed no change in interest rates this price trend was largely the consequence of the generally increased profitability of business and/or of the expectations of such an increase. But it was not the only influence at work. Amongst the contributing factors were the success­ ful floating of a Victorian government 4 per cent loan for £4 million in London and the redemption in the Melbourne market in October of the government’s outstanding 6 per cent debentures. The main effects of this latter event were felt in the bond market. It was cleared of 5 per cent municipal bonds more or less at par and what was left at the Treasury of ‘on tap’ 4 per cent inscribed stock. Even so some of the redemption money spilled over into the gilt-edged end of the share market. The effect of this redistribution, together with the relatively large amount of funds raised in England by pastoral land mortgage companies which eased the pressure of demand on bank advances, partially offset the tendency towards a tighter money market of which there were some signs towards the end of the year. As already indicated transactions in mining shares in 1885 were below average. A fair amount of business was conducted in the leading gold mines, especially those in the Creswick district which

134 ‘Not often . . . characterised by monotony’, 1885-93 supplied the highest mining dividend payer of the year, the Madame Berry mine with a dividend of £101,700. Lesser mines, particularly those in the minor goldfields, were inactive and many of them dis­ appeared from the market. Among the disappearances was the Magdala Company at Stawell. It had spent £130,000 during the course of its eighteen years’ life, sunk its shaft 2,500 feet to the greatest depth yet reached, and bored yet another 600 feet without finding payable gold. The main speculative interest amongst gold mines wras in the Creswick district where a number of companies were trying to trace the further extensions of the Madame Berry deep lead. There was little activity in tin mines except towards the close of the year when a rise in tin prices stimulated interest in the Tasmanian tin-mining companies. Much more attention was being devoted to silver-mining companies at Broken Hill and Silverton. The companies which attracted the most interest were Broken Hill Pro­ prietary, Day Dream, Apollyon, Pinnacles, Lubra, and the Barrier Ranges Association. It was remarked of the Day Dream and Broken Hill Proprietary Companies that they were ‘obtaining very large quantities of ore of high quality, and with cheaper rates of carriage and cost of smelting have the prospect of a very prosperous future’. While Day Dream did not live up to this expectation Broken Hill Proprietary certainly did. In 1886 the trend towards an increasing proportion of business in investment shares was reversed. The investment share market opened actively and prices continued to rise during the first two months of the year. But by about March the market became dull as it began to anticipate a rise in interest rates. The now downward trend of prices was intensified, especially for the banks, by the failure of the Commercial Bank of South Australia. This was so even though the Melbourne market did not deal in its shares nor were any of the Melbourne banks directly involved in its failure. When the 6 per cent bank deposit rate became operative in June business in invest­ ment shares became very limited. It remained lifeless for the rest of the year. Activity in the old stand-by, gold-mining shares, also remained fairly limited. There was a considerable falling off in market activity in Bendigo shares. The new Creswick deep lead companies did not fulfil expectations partly because they encountered difficult mining conditions in the form of excessive water and shifting sand in the areas where they were trying to work. In addition the Madame Berry’s dividend fell to £69,300. There was considerable activity in some of

135 The Stock Exchange of Melbourne the Ballarat quartz companies and some new deep lead companies at Majorca. One of the events of the year was the marked fluctuation in price of the Long Tunnel Company which was reported to have worked out one of its best areas. It opened at £115, fell to £51, and recovered to £66. In July it paid its 188th dividend. This brought dividend payments per share to £417 and lifted its aggregate dividends to £1,000,800. The market development that accounted for the declining propor­ tion of dealings in investment shares under these conditions was the rapid increase of activity in silver-mining shares. While the number of silver companies was very much smaller than the number of gold­ mining companies, towards the end of the year daily transactions in the former frequently exceeded the latter. At the centre of this activity was the Broken Hill Proprietary Company which was registered in Melbourne and initially largely owned there. In 1886 the promise that had been shown at the end of the previous year began to be realised. In May the company began to conduct its own smelting operations. Between then and the end of the year it produced 1,036,430 ounces of silver and 2,504 tons of lead from 13,714 tons of ore, the average yield of silver per ton of ore treated thus being 75-6 ounces. It paid four dividends of £1 each on its then 16,000 shares of £20 each and was expected substantially to increase its rate of dividend. Its market valuation at the end of the year, £1,328,000, was thus quite conservative. Recognition of its great wealth by the market was a gradual process and was reached in a very uneven fashion. The Argus commented: The market price of the shares has fluctuated greatly from time to time with the varying accounts of the prospects of the mine, of difficulties of carriage, delay in erection of plant and machinery, and other hindrances incident to a large undertaking in a new and out of the way district. Prices have also been temporarily affected by ‘bearing’ operations on the part of dealers, who after the unsatisfactory experience of the Barrier Ranges mines, could not believe in the permanency of the Broken Hill. The sequence of peaks and troughs in the upward trend of its price is worth noting as a matter of interest in itself and as an indication of the earnings which a skilled dealer could make if he bought and sold more or less at the right times. It was: an opening price of £15, then £27, £20, £46, £29 10s, £45, £36, £83, £78, £96, and a closing price of £83. Naturally enough a mine of this calibre was surrounded by others which hoped to share in its wealth. Of these mines, not all of which were in close proximity to the Broken Hill Proprietary

136 ‘Not often ... characterised by monotony’, 1885-93 mine, the ones which attracted most attention in the market were Broken Hill Souths, Norths, Junctions, Round Hills, Pinnacles, and Central Brokens. At the end of the year, presumably because they were somewhat uncertain about its profitability, the directors of North Broken Hill took steps to float their mine in London but were un­ successful in doing so. Despite the further rise in tin prices during 1886 there was little interest in tin companies apart from some in the neighbourhood of Broken Hill. It is nevertheless of interest to note that one of the three new tin companies added to the official stock exchange list was the Melbourne Tin Company Ltd, Straits Settlements. There is no further record of this early venture of Melbourne investors into the Malayan tin-mining industry. In its review of the share market for 1886 the Argus had noted ‘To a very large extent, and in an increasing degree, the business of the market has been transacted at the meetings of the Stock Exchange [of Melbourne], three of which are now held daily, except on Saturdays, when only the morning one takes place’. In its comparable review of the market in 1887 it recalled its remarks of the previous year and added: ‘with the great increase both in the number and extent of transactions, the membership of the exchange has been much sought after, and a seat is now worth £1,000’. As the proceeds of newly created seats (twenty-seven, of which only the last two were at £1,000) were received by the Stock Exchange for the first time since the beginning of the operation of a stock exchange in Melbourne it was now possible for its members to contemplate ownership of their own building, and its site in Collins Street was in fact acquired at the end of the year. Because the Stock Exchange now kept some records of the number of transactions conducted it becomes possible to give some quantitative indication of changes in the volume of stock exchange activity. The background to the increased value of a seat on the Stock Exchange, which had been fixed at only £200 at the beginning of 1887, was an increase in the number of transactions recorded in the call room from 6,494 in the year ending September 1886 to 14,913 in the corresponding period for 1887. These figures can only be used as an index of the change because they do not include the business done at one of the three daily meetings, that is those at the ‘mid-day informal Meetings’, nor the ‘large business arising out of the inter­ change of quotations in the [call] room’. The year ending September 1887 is also the first year for which the number of companies added

137 The Stock Exchange of Melbourne to the official list is available. T he num ber added was ninety-two of which seventeen were investment companies. Of the mining companies there were sixty-one gold, eleven silver, and three tin. These latter figures are very misleading. The gold mines were usually very small companies while the investment companies were comparatively large. Thus one of the leading aspects of 1887 for contemporaries was not the large increase in new gold-mining com­ panies which was by no means abnormal but the increase in the number of investment companies. As the Argus stated: One of the most prominent features of the past year has been the great success which has attended the movement for changing private manufacturing and trading businesses into registered com­ panies with share-capital and limited liability, all of which have been placed on the market as payable going concerns, and under responsible management have been readily subscribed for both by small and large capitalists, the applications being in many cases far in excess of the number to be allotted, and they have since mostly risen to a good premium. While it is true existing firms were taking advantage of the rising market to convert into listed public companies the suggestion that this applied widely to ‘manufacturing and trading’ concerns needs to be treated with some reservation. Of the thirty new companies listed on the Exchange in the calendar year 1887 seventeen were financial companies of one type or another. Of the remainder eight were breweries. As in Britain at the same time conversion to limited liability companies spread in an uneven way between different types of industries. Why at this time breweries should have set the pace amongst manufacturing business both in Britain and Australia is somewhat puzzling. In Britain there was market pressure on the then large number of breweries to merge into bigger units and the tied house system made brewing a capital-intensive industry. Rearrange­ ment of the ownership of breweries and the provision of additional funds for expansion were both facilitated by the limited company form of organisation and by stock exchange listing of the resulting public companies. Whether or not similar market pressures stimulated the Victorian transformation of private breweries into public com­ panies is not clear. The answer to this question must await a detailed examination of the history of the brewing industry in Victoria. Share market commentators at the time emphasised rather different influ­ ences. The particular reason offered in Melbourne for its burst of brewery company formation was the success of some of the older public companies, indicated notably by the 25 per cent dividend paid by the Castlemaine Brewery of Melbourne. This encouraged a favour-

138 ‘Not often . . . characterised by monotony’, 1885-93 able attitude amongst investors towards brewery shares and gave other existing breweries an opportunity to capitalise their earnings at prices which made conversion to public company status attractive to them. When promoters became aware of this situation they did not limit their activities to Victorian breweries. Amongst those listed in Mel­ bourne in 1887 or early 1888 were the Swan Brewery (Perth), the Castlemaine and Quinlan Gray and Co. Ltd (Brisbane), and the Lion Brewery (Adelaide). Whereas high interest rates in the second half of 1886 had helped to produce a dull market in investment shares, the successive falls in bank deposit rates in 1887 to 5 per cent on twelve months’ deposits in January and to 4 per cent in July provided a strong stimulus to this section of the market. The rising price level of existing investment shares in 1887 was an important element giving rise to the burst of conversions to limited companies that has already been mentioned. In the most important group of these conversions, the transformation of private syndicates dealing in land into continuing public com­ panies, the falling interest rates had a two-fold effect. On the one hand they gave a strong stimulus to building activity of all types. On the other hand they resulted in low yields on existing quoted companies. In a situation where conversion to limited liability status was something of a popular novelty it was not long before a number of land dealers saw the opportunity of making a double profit—on transactions in land and in the shares of companies formed to deal in land. Towards the end of the year an increasing number of companies of this type was being formed. While investment shares attracted an increasing volume of tran­ sactions the market in government securities became more and more restricted. The Victorian government was now firmly wedded to the London market and it is doubtful whether it would have had much success with new loans in Melbourne at rates comparable with those it could obtain in London. Similarly, while local governments did make new issues they did so essentially to a captive market—to trustees for deceased estates and to the trading banks which were competing strongly to obtain the ordinary banking business of the numerous Victorian municipalities. Even in this field the larger local government authorities, possibly on the advice of their bankers who handled their loan-raising activities in London, were increasingly turning their gaze to that city as a source of funds. In the mining market in 1887 Victorian gold mines gave rise to only a moderate amount of business. The prices of the leading companies were well maintained but for large numbers of the lesser

139 The Stock Exchange of Melbourne companies the quoted prices became more or less nominal ones. For a while some attention was given to gold mines in the Kimberley district, Western Australia. Several were placed on the Melbourne market but none lived up to the promises of their promoters. An important reason for the lack of attention to gold mines was the rapid rise of silver mines as the centre of speculative attention. The reason for this switch in attention can be accounted for by the amazing richness of the Broken Hill Proprietary mine. During the year the company floated parts of its original lease as separate companies. First Broken Hill Proprietary Block 14 was formed, then blocks 15 and 16 were floated on the London market as British Broken Hill. Existing shareholders received both cash and shares in each of these new formations. When account is taken of these changes the mine which had a market value of £1,328,000 in December 1886 had an equivalent market value of about £3,800,000 in December 1887, shareholders had received £616,000 in cash for the sale of parts of the mine and £192,000 in ordinary dividends. It was also becoming obvious that the wealth of Broken Hill was not limited to the Proprietary Company and its offshoots. Centrals, Junctions, Norths, and Souths, to name only the most important of the mines in its immediate vicinity, also had very good prospects. This was the back­ ground to the increasing flood of new silver-mining companies and to the wildly fluctuating prices in Broken Hill mines that were rapidly coming to dominate activity in the share market. It was the very large increase in transactions associated with this development that so increased the attractiveness and price of membership of the Stock Exchange of Melbourne and put it in a position whereby it could take active steps towards the purchase of a site for the construction of its own building. The initial burst of interest in Broken Hill mines came to a climax during the first three months of 1888 during the so-called silver boom. Week after week during this period there was enormous activity in the shares of Broken Hill mines and in the new silver mines elsewhere, and enthusiastic investors could not resist taking them up. Domi­ nating the scene was B.H.P., which hived off yet another company, Block 10, near the peak of the boom. At the end of 1887 the Proprietary Company by itself had been priced at £173 per share which gave it a market value of £2,760,000. Two months later, before the Block 10 company was formed, its shares reached a peak of £413, which meant a market value of about £6,600,000. Oddly enough even at this peak price it was not really over-valued. That price gave a then dividend yield of 5-8 per cent, earnings were well in excess

140 ‘Not often ... characterised by monotony’, 1885-93 of dividends and there was reason to believe that they would rise still further. The very high price of the shares and Victorians’ lack of experience of a mine of this calibre presumably account for this rather conservative boom market valuation. While the price paid for Broken Hill Proprietary shares may have been justified, as may also have been the case with some of the other major prospects at Broken Hill, there can be little doubt that specu­ lators were simply gambling in many of the minor silver companies formed at this time. The ebb and flow of this speculation were described by the Argus as follows: The fever of speculation, however, was not limited to Broken- hill, but raged over scores of companies all over the Barrier district for many miles around. The shares of all these companies being much more numerous and of much lower prices than the Pro­ prietary, were more within reach of ordinary dealers, and the result was that transactions in them became extremely numerous and the fluctuations in price great and incessant, especially in the case of South Broken and Central Broken, in which differences of as much as £4 per share sometimes took place in the course of a single sitting of the Exchange. The large profits thus made, with almost the celerity and apparent ease of a throw of the dice, tempted hundreds if not thousands, to try their hands at the game, and so the silver boom came into being, each speculator trusting that the company he backed—whether on the Broken-hill lode or not and whether near or far off—would prove a good second to the Proprietary, and that in any case the wave of speculation would carry prices far enough for him to get out at a large profit. When, after a time, however, the futility of these expectations became apparent, and holders tried to convert their scrip into money, a severe and long continued relapse set in, and prices receded rapidly, even for companies with the best assured prospects, while for most of those outside the Broken-hill line the demand ceased entirely, and sales could not be effected even at heavy reductions. The large volume of transactions that resulted from these develop­ ments, allegedly three times greater than during any previous year, placed considerable strains on the organisation of the Stock Exchange. The nature of these changes and the mood of the market are well illustrated by the following Argus comment: For a considerable period the meetings of the Exchange lasted over two hours each, the brokers being thus occupied in the call room over four hours per day; and their time was so altogether taken up in the actual execution of orders, coming as they did by letter and wire from all parts of Victoria, and also from the neighbouring colonies of New South Wales and South Australia, that it was difficult for their Melbourne clients to get a few minutes’ interview for personal consultation. Outside the Exchange, filling the vestibule, and blocking the access to the public reading-

141 The Stock Exchange of Melbourne room there met and surged daily a large and noisy crowd of jobbers and hangers-on, seeking to profit by such scraps of information as they could pick up, and dealing mostly in low priced shares, but whose domicile was in many cases difficult to find when the course of the market went against them. So great and sudden was the rush of business that it severely taxed the ability of the clerical staffs of nearly all the brokers to accomplish the necessary work connected with the registration and rendering of contracts, the delivery of scrip, and the settlement of accounts. For a long time, indeed, most of the brokers’ offices had to be kept open late into the night, and, through hurry and want of necessary supervision many mistakes and defaults occurred which were only discovered long afterwards and this led to reclamations, trouble and loss. This hectic activity, which was concentrated in silver mines but which was supported by a substantial volume of business in investment shares, was more or less continuous for the first three months of 1888. The particular event which brought it to an end was the decision of the brokers to give themselves and their staff a chance to recover from ‘the hurry and excitement’ of the preceding three months by proclaiming an extended Easter holiday. The Exchange was thus closed from 29 March to 9 April. While it was closed not only did the brokers and their staff obtain a well-earned rest, but specu­ lators and investors had ample time to review the market in a relaxed manner. When it was reopened it became obvious that the profes­ sionals had made the judgment that the price level was too high. A series of ‘bearing operations’ were conducted and there were a number of substantial falls in the prices of silver shares, some of which were never to regain their former levels. The silver boom was over. Even so this section of the market did not collapse. There were still periodic bursts of activity accompanied by those marked fluctuations in the prices of individual stocks which had long been a feature of the Melbourne mining market. As the decline in the price level of silver shares had relatively little effect on actual silver-mining operations (Broken Hill Proprietary was in the course of achieving very large increases in its fortnightly pro­ duction of silver from about 100,000 ounces a fortnight in March to about 160,000 ounces a fortnight in June); as the gains and losses from speculation involved a redistribution of income and assets rather than a loss in aggregate income; and as the economy as a whole was still in a very prosperous condition; the next three or four months saw a shift of interest amongst investors and speculators rather than a great absolute decline in share market activity. Interest now centred on the urban land companies and the assorted financial companies

142 ‘Not often . . . characterised by monotony’, 1885-93 that were intimately associated with the finance of land subdivision and building operations. Once again the Argus provides a convenient summary of this process and of the factors contributing to it: Not only did moderate rates for money prevail during the greater part of the year, but credit was very easily obtained, prin­ cipally because the new financial institutions, in their anxiety to push business, were not over particular as to the nature of the securities loaned upon, and in order to secure accounts, gave unusual facilities to borrowers. The second condition was the excitement in the public mind regarding the land boom, the almost daily reports of marvellous profits realised on purchase and resale of city and suburban lands, and in a lesser degree of country lands, attracting attention not only to the shares of land distribution and land dealing companies, but also to those of the financial insti­ tutions concerned in carrying out the monetary arrangements re­ quired, and which were understood to be receiving not only extra rates of interest, but considerable commissions on all the operations involved. So great was the attraction that not only were ordinary share dealers drawn into the speculation, but many of those who had looked upon mining transactions as little, if any, better than pure gambling, were unable to resist the temptation to join in the race for abnormal profits, covered as it was by the respectable and apparently safe designation of business in investment stocks. Many also of those who had made money by the silver boom thought to make their money safe, and to increase their profit, by transferring their capital into investment stocks. The combi­ nation of these circumstances caused a large demand which induced a rise of prices, developing afterwards into a rush, which after a large business at greatly advanced prices culminated in most extreme rates [prices] in July. To complete this picture it is only necessary to note that a major building boom was in progress, both in houses and in office and commercial buildings, that the economy was fully employed, and that national income was growing strongly. As in all bursts of speculative activity prices sooner or later reach an untenable position. On this occasion signs of hesitation became evident towards the end of July. Contributing factors to the halt in the rising prices of land and land finance companies shares were the large volume of new issues by both new and existing companies and the increasing uneasiness of the trading banks. By July there was growing evidence that investors were either unable or unwilling to subscribe to new issues. Many of them were also finding it necessary to sell part of their existing holdings in order to meet their commit­ ments for calls. From this point onwards there was a steady downward

143 The Stock Exchange of Melbourne pressure on prices and a gradual reduction in the volume of tran­ sactions rather than a sudden break. Now came the final shift of speculative interest. This time it was in land rather than in shares. In nineteenth-century Victoria there was a normally quite marked seasonal decline in building operations in the winter and recovery in the spring. While the decline in actual building operations in 1888 was less than usual the land companies, great numbers of which had been formed during the first half of the year, still delayed their major advertising campaigns until about September. With the arrival of spring there was an enormous out­ break of competitive advertising as the new companies tried to justify their existence. Just how successful they were in disposing of the land that they had already purchased at high prices is not clear. There is some suggestion that this climax of advertising was partly in response to an extremely sluggish market as the supply of new subdivisions began to be clearly in excess of demand. Whether this was so or not the appearance of active speculation, only too evident to the casual reader of the Argus in the early weeks of October, was presumably what finally provoked the Victorian banks to ignore the reservations of the banks in other colonies and to introduce higher interest rates and restrictions on advances for land on 22 October. Because the land market must have been in a very exposed condition this action proved to be very effective. Nor were its effects confined to the land market. In December 1888 the Aus­ tralasian Insurance and Banking Record illustrated the decline that had occurred in the shares of land and land finance companies by a table of share prices as at 14 July, 14 October, and 8 December of a dozen leading Melbourne companies. When converted into a series of total market valuations the experience of this group was as follows: value in July about £5,350,000, in October about £4,670,000, and in December about £2,450,000. The really speculative phase of Victorian economic development in the 1880s was now over. While land and land-finance companies were the most common type of new company formed in 1888 the industry grouping of new com­ panies was wider than this. As is indicated in the table of new companies registered in Victoria under the 1864 Companies Statute between 1874 and 1893 in N. G. Butlin’s Investment in Australian Economic Development 1861-1900, the process of conversion of private firms into companies reached its peak in 1888. Whereas new company formation had averaged about 75 per annum in the early 1880s it rose to 145 in 1887 and to 345 in 1888. Further details of the nature of these companies are provided in a return to the Legislative

144 ‘Not often . . . characterised by monotony’, 1885-93 Assembly in June 1888 covering the 270 companies formed in the twelve months ending 31 May 1888. The companies were classified as in Table 9.

table 9 New Companies Registered in Victoria in 1888 Industry No. of companies Nominal capital (£’000) Banks 6 8,000 Insurance 5 420 Finance and agency 44 14,877 Land 67 12,083 Mining* 20 3,770 Trading 122 12,892 Miscellaneous 6 211

Total 270 52,253

* The item ‘mining’ does not include the much larger number of gold-mining companies registered under the 1871 No Liability Mining Companies Act. Source: Argus, 29 June 1888.

Both the number of companies formed and their nominal capital provide some indication of the scale of activity, though the latter figure is of limited meaning. It was, for example, still a common practice for financial companies to intend never to call up their full nominal capital. A large part of it was intended to remain as a reserve liability and as backing for the deposits and debentures which they hoped to raise. M’Cracken’s Brewery used the same technique to provide security for its £500,000 issue of debentures in London in 1889. Apart from this element of overstatement, account needs to be taken of the fact that a high proportion of these ‘new’ companies were conversions of existing firms. This means that a considerable amount of the new nominal capital was in the form of vendors’ shares which had been issued as part payment for existing assets. When allowance is made for these qualifications it is still apparent that boom conditions had encouraged a significant alteration in the form of business organisation. In having this effect it created much new business for members of the Stock Exchange both as brokers to the many new issues and through subsequent dealings on the now rapidly growing official stock exchange list.

145 The Stock Exchange of Melbourne Quite a large number of the new firms incorporated as companies in Table 9 were not public companies in the modern sense. This was particularly true of the smaller companies. Amongst these were the group of butter and cheese factories which were pioneering what was to become an important new export industry for Victoria. Of the public companies the largest ‘trading’ company was M’Cracken’s City Brewery. Its nominal capital was £2 million. Of this £500,000 was paid up. Of the paid up capital £200,000 had been issued as vendors’ shares. One or two of the other new companies worth noting were Swallow and Ariell (nominal capital £300,000) and an Electric Light and Power Supply Company (nominal capital £500,000). Of the minor firms mention should be made of Daniel White and Co., a Melbourne coach and carriage manufacturer. In the prospectus issued when this company was seeking listing on the Stock Exchange it was noted as one of the reasons for its transformation into a company that additional funds were needed for ‘introducing sale of vehicles under the Time Payment system’. One aspect of the process of conversion of private firms into public companies deserves further comment. It was usual in these cases for part of the payment for the existing firm to take the form of vendors’ shares and for part of it to be cash. The amount of new money used for expanding the business at the time of the conversion was usually a relatively small proportion of the total. The issue of vendors’ shares, so long as they are held by the old owners, has no particular economic significance. It is merely a change in the form of ownership. The amount of cash going to vendors as payment for existing assets is also initially only a change in the ownership of bank deposits and has no immediate economic effect. It is nevertheless probable that the recipients of this cash would be unlikely to hold it in the form of bank deposits. It is to be expected that they would wish to reinvest it in equities. The process of converting private firms into public companies whereby ownership of assets is transformed into cash which in turn is transformed into the ownership of equities in different companies creates supply and demand conditions in the share market which tend to develop into a self-generating process. One conversion makes it easier for the next and so on. The rapid growth of con­ versions of private firms into companies was thus a major ingredient in the rising share market of the later 1880s and of its final burst of speculative activity. It is now time for a brief reference to the Cinderella section of the market in 1888, gold-mining shares. Amongst Victorian gold mines activity was generally listless and confined to a few leading

146 ‘Not often . . . characterised by monotony’, 1885-93 mines such as Berry Consols, which had finally solved the problem of excess water that had long delayed the working of its known rich deep lead. In general the speculative attractiveness of Victorian gold mines could no longer compare with that of silver mines nor for a while with that of land and land finance companies. In addition habitual investors in gold-mining shares were disappointed with the long sequence of calls in the many companies which had failed to produce either results or worthwhile prospects. The one really bright spot in the gold-mining market was the outsider, Queensland’s Mount Morgan mine which was first listed on the Stock Exchange of Melbourne in March 1888. Dealings opened at £8 per share, reached a peak of £16 10s and closed the year at £12 10s. As the company consisted of one million shares the peak market valuation of this mine was £16,500,000. This market value, which at the time was based on expectations and not on its actual record of production, was not to be sustained, even though in 1889 the company paid £1,100,000 in dividends. To a considerable extent the peak prices of 1888 reflected the high proportion of the shares held initially by some half- dozen people. The public market began operating with a very restric­ ted supply of shares. The final feature of the share market in 1888 that needs to be mentioned was the development of new institutional forms for the marketing of shares. Even the Stock Exchange of Melbourne was not immune to the fashion for limited liability. A few groups of its members converted themselves into limited liability companies but continued to operate as members of the Exchange. Of still less appeal to the great majority of members who did not follow this lead was the formation of a number of public companies by non-members, the object of which was to compete with the Stock Exchange. A similar bid for a portion of the obviously profitable business of share­ broking was made by some real estate agents who saw in sharebroking yet another item of commission in the now very involved business of financing sales of land. Details of these developments will be considered later on in the book.

Slackening of Growth, Its Cessation and the Slump, 1889-93 As already indicated the initial impact of the banking measures of 22 October 1888 was largely confined to financial aspects of the economy. Despite the undoubted halt to land sales building activity remained brisk for the remaining months of 1888. The chief matter of interest amongst workers in the building industry was the dispute between carpenters and master-builders over the proposed intro-

147 The Stock Exchange of Melbourne duction of a forty-four-hour week (Saturday a half-day). When this demand was refused by the builders the carpenters held a mass meeting on 19 December to decide whether or not to strike on the issue. Dissension between the two main unions concerned, the Amal­ gamated Society of Carpenters and Joiners and the Progressive Society of Carpenters and Joiners, resulted in no decision on strike action being reached. When building work resumed in the new year after the holiday break which was now a well-established custom in the industry, it was apparent that the October measures and their after­ effects were beginning to have some real influence on the economy. The tempo of building activity was not as brisk as it had been. Under these conditions the carpenters decided that the time was no longer appropriate to attempt to force the issue of a forty-four-hour week. The decision to strike was postponed until a more favourable opportunity presented itself. While this incident reflected a change in the balance of supply and demand for labour in the building trades it should not be interpreted as evidence of a positive decline in building operations. There may have been some decline in housing construction as some of the building societies had ceased to make advances for a while, but by June 1889 they were reported to be lending again in a cautious fashion. By November it was being reported: ‘Transactions in real property are almost limited to building requirements, which are considerable’ (my italics). While the seasonal unemployment amongst unskilled workers in the winter of 1889 had been more pronounced than in the previous year it is fairly clear that it was primarily seasonal. In general the qualitative evidence indicates slower growth of building activity rather than a positive decline. These impressions thus support the judgment derived from the statistics of brick production that building activity reached its peak in 1889. The production of bricks in that year in Victoria was 277,000,000. Partly because of changes in the relative use of building materials this figure was to remain a production record until 1960. Unfortunately bricks are used for many purposes and the peak of total production probably conceals different trends in different sectors of the building industry. Their then use in office and commercial building is indicated by the fact that the seven-storied, 500-room Federal Coffee Palace which was completed in 1888 had used three million bricks. Similarly at this time bricks were largely used in the buildings and cuttings associated with railway construction. It is thus not improbable that the peak output of bricks in 1889 reflects the peak level of government and municipal investment outlays of that

148 ‘Not often . . . characterised by monotony’, 1885-93 year, the increase in this form of spending being sufficient to more than offset the probable decline in private expenditure on buildings. The important point in the present context is that aggregate invest­ ment expenditure appears to have increased though at a much slower rate than in the previous year. The increase seems to have been sufficient to offset the possible deflationary after-effects of the end of land speculation and to have maintained employment at approxi­ mately full employment levels. The consequential continued increase in national income created an environment in which the considerable short-term financial readjustment consequent upon the end of the land boom could be made without serious disturbance to the general structure of the economy. It must nevertheless be realised that one of the conditions which allowed investment growth to continue was a further increase in capital inflow. In so far as one can tell from the balance of merchan­ dise trade 1889 was the year of peak capital inflow into Victoria. Governments, local and semi-government authorities, breweries, banks, pastoral companies, building societies, and land finance institutions were all successful borrowers in London. In addition there were large- scale sales of Australian registered mining shares to the London market. About £1 million worth of Mount Morgan shares were reported to have been transferred to London where active dealings in this company were highlighted by the purchase of 20,000 shares at a cost of £170,000 by Rothschilds. Amongst the considerations which influenced the relative ease with which this capital inflow was obtained was the rise in wool prices in 1889. Together with an increase in output this price rise produced a substantial increase in Australia’s export income and so helped to improve its borrowing status. For Victoria alone the increase in wool exports in 1889 is illusory. It simply reflected a greater flow of imports from New South Wales. Victorian pastoral income by itself does not appear to have increased. The other major rural industry, wheat growing, gave rise to a number of economic cross-currents which increase the difficulty of interpreting the behaviour of the economy at this time. The harvest for the year 1888-9 was a poor one. The wheat export surplus of over £500,000 in 1888 was reduced to one of less than £100,000 in 1889 and was thus one element giving rise to the peak capital inflow of the latter year. Still more important was the increase in domestic wheat prices from 3s 9^d to 5s 2jd a bushel. This price movement meant that wheat farm income was maintained at the expense of a substantial shift of income from urban consumers. The substitution

149 The Stock Exchange of Melbourne effects of high bread prices were of some importance in helping to produce the growing signs of excess holdings of imported stocks of a wide range of goods that were becoming evident towards the close of the year and in confirming the declining trend in private building activity. The year 1890 was one in which the conflicting trends already evident in 1889 became still more marked. Partly because 1889-90 was a reasonably good harvest year, and partly because the increase in quantity of wool sold in 1890 was greater than the fall in prices that occurred gradually through the year, the rural sector of the economy was reasonably prosperous. Because of the fall in wheat prices that accompanied the better harvest back to 3s 9^d a bushel, town dwellers recovered the loss in real income that they had suffered during the previous year as a result of high bread prices. The decline in private building operations apparent early in the year appears to have halted and stabilised at a relatively high level. While there was some decline in public works expenditure it was relatively small. There was virtually no change in total manufacturing employment during the year. The Broken Hill mines benefited significantly from the rise in the price of silver that accompanied the efforts of the United States to ‘rehabilitate’ the value of silver in relation to gold. The higher price for silver plus increased output resulted in an increase of the Broken Hill Proprietary Company’s dividend from £608,000 to £1,024,000, while some of the other Broken Hill mines also began to produce a flow of dividend income. On balance it would appear likely that there was a small increase in Victoria’s real national income in 1890. As the workforce probably grew at a faster rate than did the increase in employment opportunities it is to be expected that unemployment began to increase. While income was either maintained or increased slightly in 1890 there was a marked decline in imports in the course of the year. It is not clear whether this was the result of an excessive build up of stocks in 1889 or because the more sober mood of the economy had resulted in a decline in the proportion of income consumed. Whatever the cause, the steep decline in imports in the first half of the year sharply reduced the commercial demand for bank advances. The tight money conditions of the early part of the year became pro­ gressively easier. This process was quickened by the announcement in April of the successful floating in London of a Victorian govern­ ment loan for £4 million. This news was accompanied by ‘a feeling of relief, the course of public finance being now pretty clear for twelve months to come’. By May the share market was anticipating

150 ‘Not often . . . characterised by monotony’, 1885-93 a decline in interest rates and it was reported that the Melbourne and Adelaide banks’ desire to effect a reduction was being frustrated by the Sydney banks’ unwillingness to take such a step. While the nominal rates for bank deposits remained unchanged the banks were refusing to accept large deposits at those rates. The building societies which were not hampered by intercolonial agreements, and which found their deposits accumulating in face of a slack demand for advances, reduced both their advance and deposit rates. It was not until July that the official reduction (to 4 per cent for twelve months) in bank deposit rates occurred. Presumably it was the rapid appear­ ance of cheap money that helped to sustain the level of private building activity. This breathing space did not last for long. By October the Argus was commenting that the period of maximum ease in the money market had probably passed. This judgment was based partly on the grounds that the normal seasonal demand for bank advances to finance the movement of the wool clip was approaching and partly because of the unusually dear money conditions that had developed in the London money markets. This expectation was more than confirmed in November when the Baring Brothers involvement in Argentina’s financial difficulties became known. Local Australian con­ cern about this development was given no formal expression in official interest rates but effective advance and discount rates, which had fallen below their nominal level, were raised by half of one per cent. The year ended on a very cautious note in financial circles. Between August and October trade and industry were much disrupted by the effects of the long-drawn-out maritime strike. In particular the cut in the supply of coal to Melbourne caused a con­ siderable disruption to industry. Some months later some contem­ porary observers were to attribute the then depression to the effects of the strike. It is possible that it was the proverbial last straw but the accounts of recovery from the strike in October and November make this interpretation difficult to accept. The final down-turn in the economy is just as likely to have resulted from the sudden tightening of the Victorian money market that has just been described. Whatever the proximate cause there is little doubt that the economy entered upon a cumulative downward trend in the opening months of 1891. Whereas early in November 1890 the Argus’s com­ mercial column had reported ‘a better demand for timber and other building materials’, early in February 1891 it was reporting restricted building activity. A fortnight later it was clear that it was not

151 The Stock Exchange of Melbourne building alone that was depressed, rather, ‘a general complaint of contraction of business has been heard’. Victoria’s depression of the 1890s was about to gather pace. Throughout 1891 the growing depression was limited to Melbourne and its suburbs for ‘the producing interests of the country are in a pretty healthy condition’. This was especially true of the wheat industry which experienced the rare combination of increased output and rising prices. The relatively large export surplus, an increase in value of £1,300,000 on the previous year, coincided with harvest failures in France and Russia, and there was a substantial increase in world wheat prices. The proceeds of the Victorian wool clip were also about £1 million greater than those of the previous year. This was the result of a large increase in the volume of exports (partly swollen by portion of the previous year’s clip held up by the maritime strike) in the face of steadily declining prices. Butter production continued to grow rapidly and butter exports began to be of some quantitative significance. Despite these increases in aggregate value of production the rural scene was not one of unalloyed prosperity. As it is unlikely that costs declined in proportion to the fall in prices, rates of profit in the wool industry probably declined. Partly because of the declining profitability of the wool industry, not only in Victoria but elsewhere in Australia, there was a slackened demand for live­ stock and a sharp fall in sheep prices. As the increase in stock was an important component of the profits of sheep stations the combi­ nation of falling wool and sheep prices made station properties virtually unsaleable. Though not a rural industry and outside Victoria’s borders mention should also be made of Broken Hill. Silver prices had begun to fall but they were still at a relatively high level and there was a large increase in output. As a result the spending of some Victorians wras sustained by the increase in dividends of the Broken Hill Proprietary mine to a record £1,152,000 and by the £250,000 increase in dividends from the Block 10 mine. The contracting trends within the Melbourne economy at the beginning of 1891 were intensified in March by a rise in bank deposit rates to 5 per cent for twelve months. This rise was initiated in Sydney but was followed by the Melbourne banks for fear of losing deposits. Building society rates were increased almost immediately to a level one-half per cent higher than the corresponding bank rates even though at this stage they were ‘well supplied with money’. The stimulus to building activity from low interest rates no longer applied. It was at this point that the disruptive effects of the Baring crisis on the market for Australian government securities in London began

152 ‘Not often . . . characterised by monotony’, 1885-93 to exert its depressing influence on the Australian economy. The Victorian loan floated in April met with a disappointing reception and was ‘filled’ only because a large part of it was taken up by the Associated Banks. Their action saved the government’s face but until they could dispose of their holdings, which would be a gradual process under then market conditions, their ability to finance the government by advances was correspondingly limited. As the conven­ tions of the day required, in principle, that the major part of public works should be financed by loans, and as it was now apparent that London was not receptive to a high rate of loan raisings, the govern­ ment was forced to reduce its rate of public works expenditure. A declining level of public investment began to add its depressing influence to the trend of the economy. In addition falling current revenues consequential upon a falling national income, and the pre­ vailing belief in the virtues of a balanced budget, meant that trends in current public expenditure reinforced the income effects of the downward trend in public investment. The first clear sign that can be detected in the financial system of the effects of the now declining national income was the action of the major building societies in raising their deposit rates by another half of one per cent in June 1891. Depositors with reduced incomes or those who had become unemployed were now dis-saving. Hence the attempt of the building societies to halt the steady drain on their deposits by raising interest rates. While this action may have slowed down the rate of withdrawals it was not sufficient to offset the effects of the steady decline in employment and income. For a while this process was concealed from the public gaze by the willingness of the trading banks, especially the Commercial Bank of Australia which had achieved the unenviable position of being banker to a large group of building societies, to make advances to them. By December the Commercial Bank was beginning to feel the strain on its resources of this continued pressure. Apparently on the advice of Grey Smith, manager of the National Bank, it then decided to make no further advances to its building society clients. The effect of this action was the suspension of payment of a substantial section of the building society movement. Earliest to go on the first Monday in December was the respected City of Melbourne Building Society, whose chairman since 1888 had been Alfred Deakin, M.L.A. Others followed in quick succession. By Thursday of that week panic had set in. It was only quelled, so contemporaries believed, by the action of Parliament in rushing through legislation, the effect of which was to put depositors in a

153 The Stock Exchange of Melbourne position whereby they could not force an institution into liquidation. This was done in the belief, no doubt correct, that forced liquidations at this time would result in certain loss to all concerned. Because a large number of members of Parliament were directors of building societies it is possible to interpret this action as yet another expression of the then debased commercial morality of Victoria. On the other hand if the judgment of contemporaries that this legislation quelled the panic was correct, and if there were also reasonable grounds for believing (as it appears that there were) that the majority of building societies affected by the panic were illiquid rather than insolvent at the time of its introduction, it was a justifiable emergency measure and not in this case another example of corruption in high places. Criticism, if any, should be directed towards the lengthy period it was allowed to stand—about a year—rather than to the fact that such legislation was introduced. There may even be extenuating circumstances for the delay in repealing it. Just as the building societies had begun to feel the pressure of withdrawals on their deposits about the middle of the year, so too did the land banks. The first of these to suspend in 1891—towards the end of July—was the Imperial Banking Co. Ltd. It was closely followed in August by the British Bank of Australia Ltd and the Anglo-Australian Bank Ltd. Another batch of land banks failed simultaneously with the outburst of building society suspensions in the first week of December. By about March 1892 the process of extermination was virtually complete. Unlike the building societies which were essentially sound, the majority of the land mortgage banks had only survived for so long by crediting their profit and loss accounts with unearned interest and by using cash from further borrowings from depositors and others to pay dividends from these apparent profits. Under certain conditions and for short periods this practice, while very risky, may be justifiable. Virtually from the time that it started in the case of these particular companies it could only be condoned by taking an extraordinary lenient view of the optimism of the directors concerned. In most cases, as Cannon has argued at length in The Land Boomers, the dividing line between optimism and fraudulent behaviour is very difficult to discern. Most of the land companies that failed during 1891 and early 1892 had been formed at or near the peak of the period of land speculation and had bought land all too often from directors or associates, at prices which could only have been re-sold to yield a profit on the condition that a high rate of growth of Melbourne and its suburbs would be maintained. Once that growth rate slackened, as it did

154 ‘Not often . . . characterised by monotony’, 1885-93 almost immediately after their formation, the chances that they would remain solvent institutions for any length of time were very small. The real victims of the excessive optimism—or fraudulent behaviour —of the directors of these companies were the depositors, British and Australian, who subscribed deposits after October 1888. Apart from the losses suffered by these depositors and by the much smaller number of shareholders unconnected with the promoters of these companies, which for the people concerned were far from negligible, and which, as far as British residents were concerned, were to have long-term effects on the ability of Victoria to raise funds in Britain, it is probable that the economic importance of the meteoric rise and fall of the land banks has been exaggerated. The ‘land boomers’ made large paper profits and suffered large paper losses. Their real income gains for a short period meant real income losses for many depositors and shareholders at a later date. But apart from these distribution of income effects it is reasonable to believe that the course of economic events in Victoria between 1887 and 1893 would not have been markedly different if the land boomers had operated as syndicates and private groups throughout the period and not indulged in the fashion of forming themselves into companies in the hope of increasing still further their expected profits. Some land would not have achieved the unrealistic price that it did, some indi­ viduals would not have suffered from gambling in land values or from lending to apparently safe institutions, but the course of the building boom and of the boom in public investment outlay would not have been very different nor would the sequence of events leading up to the collapse of the land banks have been appreciably altered. There is a greater probability that the after-effects of the collapse of the land banks were of some importance in prolonging the period of stagnation after 1893, but even here it was probably the suspension of the building societies and the collapse of the banking system that were most responsible for the difficulties of the recovery in so far as these difficulties were a result of financial considerations and general lack of business confidence. Needless to say these assertions cannot be proved, but to disprove them would be just as difficult as to prove them. By the end of 1891 the depression was of a severity then unprece­ dented in Victorian economic history. Some thoughtful contemporary observers tended to attribute the harshness of the depression to the disparity which had emerged between capital values and the level of current earnings. The problem, as they saw it, was one of excessive capital values. Earlier speculation and boom time values were the

155 The Stock Exchange of Melbourne sources of the current depression. But this is only one way of inter­ preting the facts which, on this issue, are not in dispute. It is arguable that it is the level of profits which determines capital values and hence that it was the decline in profits which ‘destroyed’ the hitherto prevailing structure of capital values, not high capital values which made it difficult to earn profits. In so far as the latter relationship was operative it followed an initial fall in profits. From this point of view relatively greater weight needs to be attached to the course of events in 1891 and 1892 rather than to the situation preceding these years. Past capital values, through the liability of interest commitments appropriate to those values, certainly cast their shadows into the early 1890s, but by themselves were not sufficient to cause the economic havoc of the time. The roots of this lie in the reduction of the current earnings and earning prospects of the Victorian economy. Once this viewpoint is accepted then appropriate weight must be given to the impact on Victoria of the then world depression. Whereas in 1870 and in 1880 depressed Victorian economies had benefited from sharp rises in wool prices and whereas the difficulties in the private sector in 1885-6 had been offset by rising public expenditure, neither of these types of assistance was available in the early 1890s. In 1892 decreases in wool, wheat, and silver prices, and drought in western New South Wales which affected wool and silver output, exerted considerable downward pressure both on current earnings and on prospects for future earnings. The direct impact of market processes was reinforced by the variety of considerations combining to reduce the level of public investment. Amongst these perhaps the most important was the reluctance of British investors to add to their holdings of Victorian (and other colonial) government securities. The London market certainly was not closed to Victoria. Considerable sums were being raised both by the colonial government and by semi­ government and local government authorities, but the amounts raised were not sufficient to prevent substantial falls in the level of public investment. Despite the decline in the availability of funds from Britain during 1892 the local money market became progressively easier. Once the batch of failures of financial institutions of early 1892, which included the important Davies group of land banks and the Mercantile Bank, was over, and as soon as the public had been reassured on 28 March by the announcement ‘that the Associated Banks in Melbourne have agreed upon mutually satisfactory conditions on which they will extend their joint support to any one of their number requiring it’,

156 ‘Not often ... characterised by monotony’, 1885-93 the evidence of this easier money market became unambiguous. In the middle of April the banks reduced their deposit rates to \\ per cent for twelve months and proportionately for shorter terms. The reason that this action was taken at a time when it was becoming more difficult to raise funds in London was simply that the decline in demand for investible funds was falling at a faster rate than the decline in their supply. While no further change was made in nominal rates of interest during 1892, by the end of the year a further fall was widely anticipated and a number of banks were refusing to give more than 4 per cent for deposits of large amounts. Early in 1893, despite the eddies of lack of confidence that began to swirl around the banks, for some of the major banks the supply and demand for funds situation was such that they forced through a reduction in interest rates to 4 per cent for twelve months. The year 1893 saw yet another downward movement of the real income of Victoria. Wool prices fell below those of 1868 which had long been a reference point for low wool prices in Victoria. Wheat prices moved to the lowest point in the span of time covered by the history of the colony. Silver prices continued downwards. So too did the levels of both public and private investment. On top of these price, income, and expenditure processes came the great financial crisis of April and May when all but one, and that a minor one, of the trading banks with head offices in Victoria suspended payment. Apart from the minor bank, the Royal Bank of Australia, only three major intercolonial banks, the Bank of Australasia, the Union Bank, and the Bank of New South Wales remained continuously open for business in Victoria. Important though this crisis is in Victorian financial history it can only be examined in a cursory way here. For fuller accounts, which tend to supplement each other, reference should be made to Blainey’s Gold and Paper which tells the story through the eyes of a banker who was forced to suspend payment, Grey Smith of the National Bank, and S. J. Butlin’s Australia and New Zealand Bank which provides the perspective of two successful banks—the Bank of Australasia and the Union Bank. The great tragedy of this crisis which sapped the vitality of the Victorian economy for a decade or more and which influenced Vic­ torian (and Australian) attitudes to the banking system for a very much longer period was that it was not really necessary that virtually the whole local banking system should have collapsed as it did. One or two of the suspended banks should have been wound up but the majority of those which closed their doors were not insolvent. They were the victims of a major crisis of confidence in the banking system

157 The Stock Exchange of Melbourne and not, except to a minor extent, badly managed institutions receiving the payment they deserved. Despite the failure of the Mercantile Bank early in 1892, which had temporarily threatened a loss of confidence in the banking system, the remainder of the banks with one or two exceptions stood up to the difficult conditions of that year without undue strain. Reference has already been made to the downward trend of bank interest rates. One expression of that trend was a corresponding rise in the banking system’s ratio of cash to deposits within Victoria from 17-9 per cent in December 1891 to 20-6 per cent in December 1892. On the eve of the crisis the cash reserves of the banks as a group were stronger than they had been for many years, and were ample even for the difficult con­ ditions which the economy was then experiencing—ample, that is, for all conditions except a major crisis in confidence in a banking system for which the lender of last resort was twelve thousand miles away. The trouble during 1892 had been imminent rather than actual— the confidence of depositors in financial institutions was sorely tested not merely by suspensions and failures of one kind or another but by the magnitude of the crimes committed against their depositors by the Davies group of companies which was progressively made public knowledge during the course of their liquidation proceedings. If such apparently respectable and trustworthy public figures as Sir Matthew Davies, Speaker of the Legislative Assembly, and his fellow directors could commit such fraudulent and/or foolish actions where was one going to draw the line? Increasingly doubts were being felt about one of the banks of issue, a member of the Associated Banks, the Federal Bank of Australia. This was so partly because of its past connection with building societies and partly, perhaps, because shrewd observers guessed correctly that it was insolvent. By January 1893 the end was in sight for the Federal Bank. Various other banks of issue were approached with a view to a takeover of whole or part of its business but upon investigation none was willing to shoulder the certain losses involved. Even as a group the Associated Banks were still not prepared to do so and at the end of January it sus­ pended payment. In adopting this course of action, which was probably justifiable, the Associated Banks nevertheless nullified the sense of security engen­ dered by their public statement of less than twelve months earlier that they would stand by a member of their group which was in difficulties. The general public was not aware either of the extent of the insolvency of the Federal Bank or of the implied limitations of

158 ‘Not often ... characterised by monotony’, 1885-93 the original statement. Their fears now became directed towards the Commercial Bank of Australia, Victoria’s largest bank, which had achieved this eminence during the boom period and which was known to have extensive building society accounts. The price of its shares began to fall relatively more than those of the other banks in the second half of 1892. It had been under intermittent pressure from local depositors for a long time and had probably only been able to stand the strain by its successful deposit raising program in Britain. Now the local drain gathered pace. Evidence of this pressure on the Commercial Bank of Australia and of a growing lack of confidence in it became known not merely to the other banks, which naturally became increasingly concerned about the possible consequences of failure of such a major bank, but also to members of the Stock Exchange. According to the Argus it was John McWhae, then Chair­ man of the Stock Exchange of Melbourne, who took the initiative in inducing the Victorian Treasurer, G. D. Carter, to enter into discussions with the Associated Banks to help to restore public con­ fidence. Out of these discussions came the announcement in the press on 14 March that The Associated Banks, having considered the position of affairs, have agreed to act unitedly in rendering financial assistance to each other should such be required, and that the Government of Victoria have resolved to afford their cordial co-operation. On that day, at the first call room meeting, the members of the Stock Exchange enthusiastically carried a motion congratulating McWhae on the success of his endeavours. But their enthusiasm was to be short-lived. As S. J. Butlin has pointed out in his Australia and New Zealand Bank, at almost that very moment the apparent willing­ ness of the Associated Banks to assist each other regardless of the consequences was in the process of being made known to be a very limited commitment. The background to this sudden qualification of intentions has been described by Butlin. The relevant point for our purposes is that the good, in terms of public confidence, of 14 March was more than undone on 15 March. The run on the Com­ mercial Bank of Australia gathered strength. Despite the offer of large scale assistance by the Associated Banks its management decided that the only satisfactory solution from its point of view was suspension. It therefore closed its doors on 5 April, at the same time announcing its proposed reconstruction and the general nature of that reconstruction. Whether or not the remaining solvent Victorian banks could have withstood the consequential weakening of public confidence is un­ certain. A number of them may have done so. They could not in

159 The Stock Exchange of Melbourne the light of the tragedy of errors that followed the suspension of the Commercial Bank. Four days after its closure, in an endeavour to minimise its loss of customers, the Commercial Bank reopened in a limited fashion. The effect of this action was to provide a haven for the frightened depositors of other banks and a means of withdrawing cash from circulation amongst the existing still solvent banks. At the same time the prospect of deposits being frozen for a long period in a suspended bank made clearly evident by the Commercial Bank’s reconstruction scheme increased the panic of depositors. It also pointed the way out of immediate trouble for the next bank to find itself the object of a loss of confidence by its depositors. Its actions intensified the crisis of confidence and smoothed the way for a similar solution of their difficulties by other banks when they became the object of depositors’ panic. When the next important bank, the National Bank of Australasia, decided that it must close its doors as protection for those depositors who were not joining in the rush on its cash reserves, the occasion arose for another major error of policy, this time by the government of Victoria. Foolishly believing that a week’s grace would solve the problem it declared a week’s bank holiday. This offered no solution to the banks with a major part of their business outside Victoria, and the three banks in this position, the Australasia, the Union, and the Bank of New South Wales ignored the proclaimed holidays. The National, presumably for the same reason, was not deterred from closing its doors as intended. If only the Victorian government had appreciated, as did the government of New South Wales, that the only way to stop a crisis in confidence of this type was to drown it in cash and had taken the action required, in the circumstances of the day, of declaring bank notes legal tender, the National may well have opted to remain open and the other major Victorian banks may have been able to avoid the suspensions that were virtually made inevitable by the government’s inept decision. In the event it declared its week’s bank holiday only to find within another week or so that the banks which it had hoped to save, with the honourable exceptions already mentioned, had joined the Commercial and the National in what was proved to be a very lengthy and painful process of recon­ struction. During this week the Stock Exchange of Melbourne re­ mained open, the only variation in its procedures being the extension of time of delivery of documents from three to seven days. For those who see in the economic events of this period an inevit­ able progression the banking crisis of 1893 is the fitting end to their

160 ‘Not often ... characterised by monotony’, 1885-93 second movement. For those who believe that more than one response can be made to any given set of economic circumstances 1893 is a monument to the damage that can be done to an economic system when the wrong choice amongst possible courses of action is adopted.

The Share Market, 1889-93 The Argus annual review of the Melbourne share market for 1889 began with the sentence from which the title of this chapter has been taken. It was ‘The Melbourne share market has not often, nor for long, been characterised by monotony.’ The writer was probably Joseph Thomson, chairman in 1886-7 and at the time a member of the committee of the Stock Exchange of Melbourne. His comment was prompted by the large volume of share market transactions that had arisen by the end of 1889. After the hectic activity of 1888, during which there had been a boom in silver shares, much speculative activity in land and land finance company shares, and a mania for new company formation, and after the relapses which had occurred in each of these fields during which dealers and speculators had suffered heavy losses, one would have thought that the share market would have endured a lengthy period of lifelessness before investors recovered their confidence. While there was a decline in activity during the first three or four months of 1889 it was a decline relative only to the heavy volume of transactions in the first part of 1888. In relation to earlier years, as can be deduced from the graph of Melbourne bank clearings (Fig. 7), it was still very high. Not only was this the case but from the second quarter of 1889 there was a renewed surge of dealing in shares that was to reach a very high level between November 1889 and May 1890. It was confined to a fairly narrow range of securities, principally the more important Broken Hill mines and a few investment companies such as the Melbourne Tramways and Omnibus Company, but even so was to result in a greater volume of share market transactions than there had been in 1888. Some indication of the timing and scale of this fluctuation in share market activity is provided in Table 10, which gives the number of transactions recorded in the Stock Exchange of Melbourne at the morning and afternoon call room meetings. Transactions at the noon ‘High Change’ meeting, which in 1891 were equal to about 25 per cent of those recorded at the main meetings, and transactions off change, are not included. The fact that the stock exchange year ends on 30 September should be noted.

161 The Stock Exchange of Melbourne

TABLE 10 Stock Exchange of Melbourne: Number of Transactions at Call Room Meetings, 1886-92

Year ending No. of 30 September transactions 1886 6,494 1887 14,913 1888 59,411 1889 45,118 1890 77,282 1891 57,018 1892 36,440

Source: Records of the Stock Exchange of Melbourne.

While from the vantage point of the calendar year as a whole share business was good in 1889 it was still true that the first quarter of the year was a very difficult one for operators in the share market. From 22 October 1888 onwards the banks were very selective in their attitude towards securities pledged for advances. While share dealings within the confines of the Stock Exchange of Melbourne were still strictly on a cash basis much of the outside business was conducted for delivery a month or six weeks ahead. Dealers who had been opera­ ting on bank advances and who had pledged the securities of land companies or land finance companies now found the banks calling in the advances so secured. This condition of the money market which continued into the early part of 1889 was ‘fatal to individuals who had purchased beyond their means, largely on credit, and had no chance of realising to meet their engagements’. These same conditions, which had resulted in the more than halving of the prices of land company shares in the latter half of 1888, not only affected individuals but forced a number of land and land finance companies into liquidation. Ten or so companies of this type failed either at the close of 1888 or early in 1889. Melbourne’s investors then had their first taste of the consequences of speculating in companies of this type. The Argus was not alto­ gether sympathetic to their predicament: At some of the indignation meetings held in connection with the land and finance companies formed during the boom period, reve­ lations have been made concerning their initiation, flotation and management, which show how large an element of what some call smart practice, but which is morally, if not legally, dishonest, has

162 ‘Not often ... characterised by monotony’, 1885-93 pervaded the conduct of many promoters and been winked at by shareholders, while they expected to profit by it, but fiercely denounced afterwards, in the hope of escaping liability . . . While not directly affected in the same way as the land and land finance companies by the caution of the banks, the majority of the other products of the company formation mania of 1887-8 were also experiencing a very depressed market. Most of their shares, once at premia, were now at discounts. The market had become rather scep­ tical that the high rates of dividend guaranteed for a number of years, which had been a commonly used device for attracting share­ holders amongst the companies converting from private to public status, would in fact be received. The suspicion that many of these firms had been over-capitalised was probably gaining ground. These were the conditions, together with a depressed market in silver shares, that prevailed during the first quarter of the year— the after-effects, from the point of view of the share market, of the cessation of land speculation and of the mania for company formation associated with it. But, as was indicated in the preceding section, in 1889 the Victorian economy was still growing. Domestic incomes and savings were still increasing and the economy was being fertilised by its peak level of capital inflow. Before long these real economic flows began to outweigh the more or less superficial financial disturbances, however distressing these may have been to a relatively small group of individuals. The Argus could therefore report: By April the bulk of the loss had been provided for, or was in course of arrangement—in some of the large land transactions by cancellation of contracts—savings and profits were again beginning to accumulate and seek an outlet, and in the latter end of April and beginning of May came reports of further rich developments in the great silver lode at Broken Hill. From this point onwards the trend of activity in the share market quickly recovered. Later in the year when the Melbourne Tramways and Omnibus Company revealed its very high profits for 1888-9, the result of the intensive usage of the tramway system during the holding of the Centennial Exhibition from August 1888 to January 1889, it temporarily eclipsed silver mines at the centre of speculative interest and as a source of share market activity. It was around this time that J. B. Were and Son put through the largest call room transaction for many years to come, a sale of Melbourne Tramways and Omnibus shares worth £130,000. For the majority of dealers and brokers 1889 was turning out to be a more profitable year than its predecessor. In the last weeks of December the market was somewhat disturbed as large numbers of time transactions were due to be settled and

163 The Stock Exchange of Melbourne some of the professionals operated to take advantage of this situation, but the resulting widespread fall in share prices was of this technical character. Once the bulls and bears had settled their accounts all was clear for the continued rise in share market activity that was a feature of the opening months of 1890. The six months period of relatively slack dealings between October 1888 and April 1889 had enabled the Stock Exchange of Melbourne to consolidate its position in the Melbourne market. Its numerous ‘bubble’ competitors of early 1888 suffered the brunt of the decline in transactions and few, if any, managed to survive. The Stock Exchange of Melbourne was not immune to this fluctuation in share market business. Whereas one new seat had been sold at £1,650 in 1888, transactions in existing seats occurred at £1,000 early in 1889. With the recovery of share business by the end of the year the Exchange had sold four more new seats at £1,650 and two at £2,000. T he market revival also brought renewed competition. ‘Some of the leading members of the other exchanges which have been wound up have formed themselves into the Victorian Exchange, which has made a good start, has about £2,000 in hand, and has raised its entrance fee to £200.’ From subsequent developments it would appear that this exchange was much more a scene of operations for jobbers than was its considerably more powerful rival. After the market began to pick up from April onwards interest in investment shares remained confined to selected areas of the market. Bank shares remained firm and a number of the local banks made new issues at substantial premia. Land shares were virtually com­ pletely neglected. Finance company shares were somewhat more active and recovered some of the losses which they had suffered in the first three months of the year, but their December closing prices still showed a very large depreciation over the previous December. Build­ ing societies, many of which had been listed during the previous three years, had moderate business and maintained their prices—with one exception, that of the Premier Permanent Building Society. It had speculated wildly in land and become heavily involved in advances to speculative builders. In the process of borrowing in order to keep afloat it exceeded its borrowing powers and was forced by its banker to suspend payments towards the close of the year. Its failure, which was properly attributed to lax if not fraudulent management and to serious involvement in land speculation, had little effect on the other listed building societies ‘which are under­ stood to be generally carefully managed on safe building society lines’. Speculative activity amongst investment shares was largely confined to

164 ‘Not often . . . characterised by monotony’, 1885-93 the Melbourne Tramways and Omnibus Company, for reasons already indicated, and to the Silverton Tramway Company which was proving to be a very profitable venture. From these comments it follows that the primary cause of the large volume of transactions in the share market in the latter half of 1889 was the revival of interest in Broken Hill silver mines. Contrasted with the activity of the silver boom of 1888, relatively few new silver companies were formed at this time. Existing mines were the real centre of attention. While the Block 14 mine paid its first dividends (£52,500 for the year), and while three or four others were reaching a position where they were about to do so, the basic influence in the market recovery was the steady growth in profits of the Broken Hill Proprietary mine. For the year ending in November it paid dividends of £608,000 and it was expected to lift its rate of dividend, as it did, early in the new year. Its increased market value was not merely a product of its profitability. In March its £20 shares were subdivided into ten shares of £2 each. This had the effect of considerably widen­ ing the range of investors able and willing to purchase its shares. Price per share fell from £300 to £30. Despite this change Pro­ prietary shares were not long to remain within the means of small investors. By the end of the year the market price had risen to £92, which meant that the market value of the mine had risen to about £14,500,000. For a mine which was to pay dividends of over £1 million in each of the next two years this was a high price, but hardly an excessive one. The pronounced upward trend of the market value of the Proprietary mine did much to restore the confidence of the market and dealers in it. For those who bought and sold at the right time really handsome capital gains could be made. Perhaps the most celebrated example of this was the transaction put through by Clarke & Co. which was long to remain the largest single mining market operation on the Exchange. On 28 August 2,250 Broken Hill Pro­ prietary shares were bought in one line at a cost to the buyer of £112,500. At the close of the year this purchase was worth £207,000. Victorian gold mines continued to give rise to a useful volume of transactions but they were far outshadowed in market interest by their silver rivals across the border. This transfer of interest made it extremely difficult for them to obtain the volume of calls that was now a necessary ingredient in sustaining the production of gold. Market attention tended to be confined to a few leading producers, the Madame Berry and Berry Consols mines at Creswick, the Long Tunnel Extended mine at Walhalla, and the Star of the East at Ballarat. While Bendigo’s affairs had fallen to a low ebb this was

165 The Stock Exchange of Melbourne more a market than a mining problem. By this time there were almost twenty mines at Bendigo with shafts to depths greater than 2,000 feet. Much prospecting work was being carried out at these depths and Lansell’s 180 mine, privately owned, had the distinction of being the first Australian mine to be sunk more than half a mile below the surface. As in the previous year the one gold mine which really commanded market attention was the Mount Morgan mine, ‘the richest gold mine in the world’. Despite its dividend of £1,100,000, made up of eleven monthly dividends of £100,000 each, and the large- scale buying on London account that was referred to in the previous section, it was unable to sustain its opening price of £10 a share, and drifted steadily downwards. On the announcement that no December dividend would be paid the price slipped to £6 2s 6d before it recovered to £7 at the close of the year. By this time its market valuation was less than half that of the Broken Hill Proprietary Company. As already mentioned the volume of transactions in the share market in 1890 was very high until about the end of May. It was, indeed, to be the peak volume of transactions in the nineteenth century and at least up to 1914. Silver mines occupied most attention but as the year advanced the market began to anticipate a fall in bank interest rates and considerable activity also developed in the ‘investment’ sector of the market. Towards the end of May a major ‘creep’ (underground movement of rock) occurred in the British Broken Hill mine which forced a halt to smelting operations and in­ volved a new issue to make good the damage, while the Central Broken Hill mine reported poor assays in its deeper workings. The depressing effects of these events were not limited to the particular companies concerned, but had sympathetic effects on the prices of other Broken Hill shares. From this point onwards silver share prices had a down­ ward trend and a declining volume of dealings. In August the long- drawn-out maritime strike commenced. Its effects on the share market were widespread. In time work had to cease at Broken Hill because the supply of timber was interrupted and because the output of the mines could not be shipped abroad. Industries dependent on coal in Melbourne were forced to close down. Apart from these particular effects on certain types of security, the general level of share prices was not much affected. What was sharply reduced was the volume of transactions. The market barely had time to begin to recover from the effects of the strike, which was not settled until October, when news began to arrive of very tight conditions in the London money market which culminated in November in the so-called Baring crisis.

166 ‘Not often ... characterised by monotony’, 1885-93 Once again the main effect in the share market was not so much to reduce prices but to engender a feeling of caution which was reflected in a low volume of transactions. More enduring results, not fully appreciated at the time, were the loan market problems which the government now began to face. Maturing debentures in London for £850,000 had to be repaid on 1 January 1891 with the assistance of the Associated Banks and not, as had been intended, by a new loan. It was the prospective financial problems of the government that were an important influence in the banks’ decision to raise effective interest rates and to pursue a very cautious advance policy. The reduction in the volume of share market business in the second half of 1890 was reflected in the activities of the Stock Exchange of Melbourne in a number of ways. Early in the year the three new seats remaining available at £2,000 each were purchased. This brought total membership to 130. Five new seats were created and the price fixed at £2,500, but none of these new seats was taken up. With the decline in market activity the price of existing seats, which became available through resignation or retirement, fell well below this figure. Transfers occurred at prices ranging from £1,500 to £1,850, the actual price depending on the state of the market and expectations about its future at the time when the transfer occurred. In order to encourage a greater volume of dealings and to foster greater con­ fidence amongst investors the brokerage scale was revised and made somewhat cheaper, and a stricter examination was conducted of the bona fides of companies seeking inclusion on the official list. While not directly connected with the state of the market the majority of members were pleased to witness the voluntary winding up of the remaining two limited liability firms operating within the ranks of the Stock Exchange of Melbourne. Competition from the Victorian Stock Exchange continued, and it had felt strong enough in the prosperous stages of the year to raise its newr membership fee to £500. In July another exchange, the Australian Open Exchange Company, was registered as a limited liability company and held daily meetings open to the public. But its sense of timing was poor. The market was now moving in a downward direction and it had little opportunity to attract customers. By the end of the year the business that it conducted was very limited. In the investment sector, apart from the general influences already mentioned, the only market event worth noting here was the experi­ ence of the Melbourne Tramways and Omnibus Company. Its Cen­ tennial Exhibition year earnings had created a fictitious price level for its shares. Towards the middle of the year (its accounts closed

167 The Stock Exchange of Melbourne on 30 June), knowledge began to circulate that its 1889-90 earnings would not justify its then price level and there was much critical comment in the press and in brokers’ circulars. By the time its accounts were published and these expectations confirmed, the amount of profits on a considerably enlarged capital was only the same as in the previous year, and it had suffered a severe depreciation in market values. As it had long been one of the market leaders of the day these events had a widespread depressing effect on the market. In fairness to the historical record of the company it should be noted that on this occasion the ‘fault’ lay more in unreal market expecta­ tions than in bad company management. Some idea of the scale of the market and of the extent of the diversification of the types of securities that had taken place during the period from 1884 to 1889 is indicated in Table 11. Like previous tables of this type it needs to be treated with considerable caution and regarded only as an indicator of the appropriate orders of magni­ tude. In particular it should be noted that ‘other banks’, those with head offices outside Melbourne, were primarily owned in the other colonies or in Britain; that the ‘debentures’, consisting mainly of issues by pastoral and land companies, were chiefly held in Britain; and that the preference shares had been issued in London by a London-based company. Share market activity in Victorian gold mines in 1890 was below that of the previous year. Dividends from the Creswick alluvial mines dropped away sharply but were more or less offset by increases from Bendigo mines. While a number of mines in the latter area had more promising prospects they were not sufficiently attractive to give this section of the market the stimulus it needed. For the time being, too, Mount Morgan did not attract much attention in the Melbourne market. Apart from the adversities suffered by particular mines, and in spite of the rise in silver prices that was associated with the United States Silver Bill of August 1890, the trend of silver-mine share prices was downwards for two main reasons. The novelty of Broken Hill had worn off and the market was beginning to appraise the mines more critically in terms of expected dividend yields. It was also becoming appreciated that the long-term future of the mines depended on the discovery of satisfactory techniques for smelting the deeper ore- bodies which were chemically and metallurgically different from those nearer the surface. The companies were actively engaged in finding a solution to this problem but it was not yet in sight.

168 ‘Not often ... characterised by monotony’, 1885-93

TA B LE 11 Market Value of Melbourne Stocks and Shares, 1884 and 1889

Class of securities 1884 1889

Public (£’000) (£’000) Victorian government 1,957 1,478 Local government 791 861

Total public 2,748 2,339 Private Company debentures 1,539 11,578 Preference shares 653 Ordinary shares Melbourne banks 4,711 9,328 Other banks 16,288 17,439 In s u ra n c e 770 856 Other finance 695 5,554 Building societies 2,143 Pastoral 430 3,831 G as 1,385 2,446 Breweries 333 2,502 M anufacturing 111 1,394 T ra d e 129 574 R ailw ay s 109 660 Other transport 408 2,855 Miscellaneous 98 122

Total non-mining 25,467 49,704 M ining (non-Vic. gold) 357 13,908 Victorian gold mines 2,470 1,775

Total ordinary 28,294 65,387 Total securities 32,581 79,957 No. of non-mining companies 62 153 No. of mining companies 93 78

Notes: 1. Values as at middle of September. 2. Only dividend gold mines are included in Victorian gold mines. Source: Calculated from data in the Australasian Insurance and Banking Record.

169 The Stock Exchange of Melbourne As far as the Broken Hill Proprietary was concerned its ore treat­ ment problem lay in the future. It still had large reserves of easily worked ores. As a result of its increased scale of operations and of the rise in silver prices it wras able to lift its dividend from £608,000 in 1889 to £1,024,000 in 1890. Once again its market value was affected by share subdivision. In February its £2 shares were converted into five shares of 8s each. At the same time a separate issue was made of 160,000 shares for a London register. The new shares opened at £13 15s, fell to £10 5s, recovered to £14 15s and finally closed at £12 13s. The peak market valuation was thus somewhat over £15,500,000 and was the smallest proportionate increase that had occurred in the short history of the mine. The closing market value was about £1,500,000 less than the closing value for 1889. Most of the other leading Broken Hill mines had suffered greater relative price falls than this. While this was the market experience of Broken Hill mines, one which did not encourage new company formation in this area, the year 1890 nevertheless saw a boomlet in new silver companies. But they were situated in Tasmania, not in New South Wales. Interest had been developing in the rugged, heavily timbered country at Mount Zeehan and Mount Dundas, to the north of Mount Lyell, for some years but access was very difficult and the cost of working the mines was high. It was the prospect of the construction of the Mount Zeehan Railway and the high price of silver in 1890 that transformed these prospecting operations into a score or so companies, some of which had quite active dealings in the Melbourne market. This was a welcome though minor addition to the business of sharebrokers in an otherwise rather unrewarding year. There can be no doubt that the volume of transactions in the share market passed its peak during the course of 1890 and that the general level of share prices began to move downwards during that year. It is nevertheless difficult to attribute either of these trends to the onset of a general downward movement in the level of activity of the economy. These trends were essentially the outcome of a series of particular events or situations that occurred or arose as the process of growth began to come to a halt. It is not until 1891 that there is unambiguous evidence in the behaviour of the share market of a definite decline in general economic activity. As is the way of share markets the decline in share prices in 1891 was even more precipitous than the decline in income and employ­ ment during that year. A ‘modest’ estimate by the Argus of the decline

170 ‘Not often . . . characterised by monotony’, 1885-93 in market values during 1891 was that it was considerably more than £20 million. The relative scale of this decline is indicated by the 1889 valuation of the share market presented a few pages above, provided it is remembered on the one hand that the aggregate market value of securities increased between September 1889 and December 1890 and on the other hand that the Argus market depreciation estimate is confined primarily to Victorian-owned elements of the market. Some of the details of the Argus’s estimate are worth record­ ing, partly because they illustrate the relative incidence of the decline in different industries and partly because the individual companies mentioned virtually provide a roll-call of the market leaders on the eve of the depression. Almost the only exception was the Bank of Victoria. The principal items in this large depreciation are £1,338,224 for six banks of issue (City of Melbourne Bank, Colonial Bank of Australasia, Commercial Bank of Australia, Federal Bank, Mercan­ tile Bank and National Bank of Australasia), £1,251,000 for four financial institutions (Colonial Investment and Agency, English and Australian Mortgage Bank, Mercantile Finance Trustees and Agency and Real Estate Mortgage and Deposit Bank), £3,168,000 for Melbourne Tramways and Omnibus Company, £1,605,072 for seven other investment companies (Metropolitan Gas, Trustees Executors and Agency, Melbourne Hydraulic Power, Melbourne Storage, Silverton Tramway, Tarrawingee Flux and Tramway and Goldsbrough Mort), £4,135,830 for seven gold mines (Band and Albion Consols, Berry Consols, Grand Duke, Egerton, Star of the East, Earl of Hopetoun and Mt. Morgan—the Mt. Morgan ranking for £3,650,000), and £7,658,750 for seven silver mines (Block 10, Block 14, British Broken Hill, Broken Hill Proprietary, Central, Junction and South Broken Hill—the Proprietary ranking for £5,280,000). (The names of the companies in brackets have sometimes been given more fully than in the original to aid indentification by modern readers). No account is taken in the preceding list of fourteen building societies and land banks which suspended payment or which went into liquidation during December. The panic which these events induced and the panic legislation that arose out of them have been examined in the preceding section. By the end of the year, apart from the South Melbourne Building Society which was forced into liquidation by the discovery of heavy defalcations by some of its senior executives, the remaining building societies, having been granted extensions of time for the repayment of deposits, were carrying on business. Most of the land finance companies affected were being wound up.

171 The Stock Exchange of Melbourne Some of the Argus’s comments on these failures are worth recording if only as a reminder that the more things change, the more they remain the same. Investigation of the affairs of some of the suspended institutions disclosed two very unsatisfactory features—the almost entire absence of business-like supervision, and the utter uselessness of ordinary audits. The actual disclosures of fraud are no doubt limited to a few, but there is an uneasy feeling that it might exist in others without being discovered by audits as usually conducted. A Govern­ ment audit, as proposed by some, would be a remedy of doubtful efficacy and would produce a false sense of security. It is high time, however, that the present careless system should cease; that only duly qualified and certified auditors should be employed; that they should be appointed by the shareholders, not by the directors; that they should be adequately remunerated; and that they should not merely certify to the arithmetical accuracy of the statement of accounts, but as to whether the balance sheet gives a true and full representation of the position of the company. The means for giving effect to the final clause of this comment are still being hotly debated three-quarters of a century later. The effect of share market trends in 1891 on Stock Exchange business are roughly indicated in Table 10 (p. 162), though the change between the calendar years 1890 and 1891 is substantially understated. Contemporaries estimated that for this period the volume of transactions almost halved. It is therefore something in the nature of a freak, expectations associated with the opening of the Stock Exchange building, that one of the new vacant seats was sold for £2,500, a price which was not to be exceeded again, in equivalent purchasing power, until the mid-twentieth century. Significantly it was not until about the same time that the actual number of members of the Exchange was to exceed the nominal total membership of 131 that was marked by this sale. Apart from this exceptional sale the average price of seats transferred in 1891 was £1,773. The sharp down­ ward trend of business prevented members from fully appreciating their imposing new building which was formally opened for business on 6 July, but its spaciousness did allow them to adopt procedures which enabled them to obtain a greater volume of business than otherwise would have been the case. On the payment of a quarterly fee jobbers were allowed the privilege of attending and dealing in the great hall of the exchange. By the end of the year forty-five had been admitted. The greater amount of space also allowed admission of reporters to the call room for the first time. In this sense pro­ ceedings at the meetings became open to the public and members

172 ‘Not often . . . characterised by monotony’, 1885-93 hoped that this would help to create a better public image of their calling. As in the previous year depression dealt more hardly with its competitors than with the Stock Exchange of Melbourne. The Vic­ torian Stock Exchange continued in business but with a very much reduced turnover. Its entrance fee, which had been £500 in 1890, was reduced to sixty guineas during 1891. The premises of the other rival, the Australian Open Exchange Company, were burnt down in January 1891 and by the end of the year the company had ceased to hold meetings. The other main influence on the market in 1891 not already noted was the impact on it of the difficult market conditions that had arisen in London for Australian government securities. Initial tenders for the Victorian government issue of £3 million in April only amounted to £2 million, and the price realised per £100 raised was about 4 per cent less than in the previous year. Similar or in some cases worse results were obtained by the other Australian colonies. This experi­ ence was attributed in part simply to tight money conditions in London after the Baring crisis and in part to a perceptible decline in the final demand for Australian government securities. The whole­ salers, who for many years had intervened between the government and the investing public taking up the new issues in bulk and then releasing them gradually as demand accrued, now found Australian government securities building up in their hands. It was their absence from the initial tenders which resulted in the much publicised ‘failures’ of the Australian government loans in London in 1891. This market indigestion, as London financial writers termed this experi­ ence, affected the Melbourne market by inducing tighter money locally than would otherwise have been the case and by causing the government to revise downwards its public works program, the depressing effects of which were not fully to be felt until the next year or so. The depreciation in the market value of gold and silver shares did not reflect a decline in mining operations. The continued sharp fall in the general price level was causing a corresponding appreciation in the purchasing power of gold. As a result prospecting operations were being carried on vigorously in the main Victorian goldfields. This did not show up in total gold output which once again fell, but the decline was smaller than in the previous year and it was con­ fidently expected that 1892 would show, as it did, better results. Similarly mining operations were being vigorously conducted at

173 The Stock Exchange of Melbourne Broken Hill. The Proprietary paid a record dividend of £1,152,000 and Block 10 paid its first large dividend of £265,000. The problem of the sulphide ores had not been solved but many experiments were in hand. The most difficult immediate problem facing the industry was the drought in western New South Wales which forced the smelters of a number of companies to close down for lack of water. To overcome this difficulty plans were being prepared to organise a supply of water from the Darling. At the close of 1891 market commentators were of the view that by that time the worst was over. The rural industries were relatively prosperous. Hard times were encouraging much more careful manage­ ment. Before long the economy would be operating on a generally sound basis. In fact economies in operating more often than not took the form of reducing the level of employment and with it final demand. Public works expenditure was slowing down rapidly and having the same effect. In addition there were further falls in wool, wheat, and silver prices, falls which were at a faster rate than the similar decline in import prices. Thus it was that commentators on the market at the end of 1892 had to report ‘The hope of recovery has been grieviously disappointed’. Considerations other than those already mentioned which brought about this disappointment were the long drawn out strike at Broken Hill which meant a major interruption to output and the budgetary difficulties of the government. Additional taxes were ill-received. Nor did they solve the problem and the government had to issue £750,000 of short-dated Treasury bonds to balance its current account. At the time this event was taken as a sad comment on the way in which the public finances of the colony were being managed. Finally company earnings now began to fall sharply. This decline was reflected in company dividends (see Appendix 4), and naturally enough in share prices. The net result of all these trends was a further depreciation of share market values of some £15 million. The broad industry com­ ponents of the principal items in this decline, as estimated by the Argus, were: Victorian banks £2,780,375 Investment stocks £2,257,209 Broken Hill silver mines £4,785,250 Included in the latter were declines of £2,424,000 for the Proprietary mine and £915,000 for Block 10. Apart from these price falls, in part responsible for them, numerous shareholders were facing calls on

174 ‘Not often . . . characterised by monotony’, 1885-93 shares in the many land and land finance companies which were in the course of liquidation. The more important financial events of the year 1892 were incor­ porated in the discussion of the economy between 1888 and 1893 (pp. 147-61). The above figures, and the further decline in Stock Ex­ change transactions indicated in Table 10 provide some quantitative measure of the impact of these events. The sections of the market which warrant further comment here are the gold and silver share markets. Partly because the price of gold was still appreciating relative to other commodities, and partly because the industry was beginning to feel the benefit of cheaper costs of production, the gold­ mining share market was the one bright spot in the market as a whole. Victorian gold output increased, so too did the dividends paid by Victorian gold mines. By this time Ballarat’s fortunes also depended on deep quartz mining. The prospects of its then leading mine, the Star of the East, were much improved by the discovery of rich stone at a depth of 1,720 feet. At Bendigo a number of the leading mines showed good prospects. Amongst them was Johnson’s Reef mine which by this time had been in and out of the dividend list for twenty-seven years, and the Old Chum mine which was cross­ cutting for rich ore at a depth of 2,300 feet. Declining silver prices were, as already mentioned, beginning seriously to affect the profitability of the Broken Hill mines. In an endeavour to offset this price decline, and the falling average yield of the ore treated, the mining companies sought to reduce wage rates not directly but by introducing a system of contract mining. Opposition from the unions, in the event unsuccessful, resulted in the bitter strike that lasted for eighteen weeks. At the end of the year it was claimed that the new system was allowing the Broken Hill Proprietary mine to achieve its pre-strike output with five hundred fewer men. One other particular event which depressed the market in general and Block 10 in particular was that this mine found very suddenly that its easily worked ores were virtually exhausted. Still no technique had been found for treating sulphide ores. With the fall in silver prices, and no satisfactory solution of this problem, the future of the majority of the Broken Hill mines, with the exception of the Proprietary which still had large reserves of easily-treated ores, was looking very bleak. One aspect of the general share market history of 1893 is best examined here, although the subject receives more detailed treatment in the next chapter. Mention was made on p. 159 of the part played by the Stock Exchange of Melbourne in the last-moment attempt to

175 The Stock Exchange of Melbourne stave off the suspension of the trading banks. As this contribution, abortive though it was, has come to be neglected by later historians of the banking crisis it is worth adding a few more details here. One expression of the disquiet felt by investors after the suspension of the Federal Bank in January 1893 was large-scale selling of bank shares. This was naturally accompanied by rapidly falling prices. Under these conditions the extent of the growing crisis in confidence was readily apparent to members of the Exchange. Their reaction was to appoint a committee consisting of the Chairman, J. McWhae, R. Wallen, W. Noall, J. Thomson, and J. Goodall, who were all leading members of the Exchange, to enter into negotiations with the Treasurer and the managers of the Associated Banks ‘in order that something might be devised of a nature to allay the uneasy feeling and to restore confidence’. The outcome was the agreement published on 14 March to which reference has been made. Despite its undoing by the almost immediate re-statement which showed how ineffective the agreement really was, it was nevertheless fair comment when McWhae reported on this episode at the Exchange’s annual meeting in October: ‘We have however as an Exchange the satisfaction of having done all that could be done to avert the approach of this the Greatest financial disaster the Colony has ever experienced’.

176 5 The Stock Exchange of Melbourne, 1884-1893

In the preceding chapter there were glimpses of the impact between 1884 and 1893 of changes in the economy and the share market on the organisation of the Stock Exchange of Melbourne. It is now time to examine in more detail its development as an institution. For a little over a year after its formation its members and their former colleagues in the reconstituted Melbourne Stock Exchange suffered in power and prestige from their differences in opinion. Once the two halves reunited the Stock Exchange of Melbourne soon acquired wealth and status on a scale and to a degree that must have startled its founders. This transformation not only meant substantial profits for its members, it also involved new responsibilities both in terms of internal control over the organisation of the work of the Exchange and in terms of the Exchange’s relationship with the public which it served. When, with the rest of the community, it encountered bad times instead of good ones it managed to adjust to them at consider­ able cost to its members but without suffering the loss of standing that was the fate of so many of the other financial institutions of the day.

Vigorous Growth, 1884-90 On 16 October 1884 a meeting was held at Number 4 Room, the Exchange building, Collins Street, to consider a draft set of rules for a new stock exchange, the Stock Exchange of Melbourne. The meeting was chaired by Robert Wallen. The other nine persons present were T. W. Beckwith, A. E. Clarke, G. G. Brown, G. S. Griffiths, H. Wolfe, D. Willder, C. M. Fisher, J. Thomson, and C. E. Clarke. All had been members of the Melbourne Stock Exchange which had recently been disbanded because of the disagreement about the right of members to publish their sales in the press. After lengthy discussion agreement was reached on the proposed rules and a decision was taken to have

177 The Stock Exchange of Melbourne them printed. It was then decided that the entry fee for membership of the new exchange would be twenty-one guineas for new members and ten guineas for former members of the late Melbourne Stock Exchange. The final business was to admit six new members, two of whom did not in fact join the association. By 20 October three other new members had joined. There were thus seventeen individuals of whom eight were in four partnerships in the list of members of the Exchange which was published in the Argus on 22 October and which announced the new exchange’s existence. The other half of the old exchange re-formed itself as the Melbourne Stock Exchange and continued to occupy Number 1 Room in the Exchange building. It was slower to announce its existence in the press, and it was not until the first half of December that its list of members was published under the name of the Chairman, F. W. Howard. Amongst its twenty-two members were J. B. Were and F. W. Were of J. B. Were and Son, William Noall, and John Watson, to name only a few of the better known members. From a comparison of the list of members of the two exchanges one would have thought that the balance of strength lay with the Melbourne Stock Exchange. In fact it was the junior partner which experienced the greater rate of growth and which was to absorb the initially larger group. Why this was so is not clear. One can only observe that Clarke & Co. (Robert W allen and A. E. Clarke) was then alleged to be the largest broking firm in Victoria and guess that the ‘advertising’ firms (which until the break included J. B. Were and Son) were amongst the more enterprising members of the profession. The division of the share market into two roughly equal parts after October 1884 was not appreciated by the investing public and was strongly criticised in the financial press. It was expected that it would become more difficult to effect sales quickly and that the margin between buying and selling quotes would be greater than in a single larger market. Later it was claimed that these expectations had been realised. From the point of view of the exchanges neither one coidd be expected to become the recognised channel for share business while the other existed and neither could develop the financial power that goes with control over the official list of a major stock exchange. There is no evidence to indicate which of these considerations most influenced the decision to seek an amalgamation of the two exchanges but little doubt that the initiative came from the Stock Exchange of Melbourne. At a meeting of members of the latter institution held on 3 September 1885 it was decided to appoint a committee of three

178 The Stock Exchange of Melbourne, 1884-93 to meet with an equal number from ‘the other room’ with the object of determining the conditions under which the two exchanges would amalgamate. The committee appointed consisted of Robert Wallen, the Chairman, J. Thomson, and G. G. Brown. On 23 September the assembled members debated alterations to ten rules which the joint committee had agreed would provide a basis for amalgamation. Eight of these alterations were accepted but not the alterations to Ride 1 (that the title of the Stock Exchange of Melbourne be altered to the Stock Exchange) nor to Rule 3 (which was the controversial freedom of quotation in the press rule). In the formal reply by Wallen to John Watson, who was now Chairman of the Melbourne Stock Exchange, advising him of the decision of the Exchange, it was explained that alterations to these two rules could not be accepted because ‘the Members have not the power to alter [them] under existing rules’. At the same time an invitation was issued to all members of the Melbourne Stock Exchange to join the Stock Ex­ change of Melbourne, which would revise its rules to the extent indicated. Admission would be granted without ballot and on pay­ ment of an amount equal to that standing to the credit of the members of the Stock Exchange of Melbourne. The invitation re­ mained open until 1 October. When the Melbourne Stock Exchange refused these terms as a body the invitation was extended to its members as individuals. On 1 October the closing date was extended to 8 October. The only individuals to accept in the first period were F. W. Were and A. B. Were who, since J. B. Were was seriously ill, were the operating partners in J. B. Were and Son. The only other acceptance, on the last day that the offer was open, was that of the Chairman of the Melbourne Stock Exchange, John Watson. It is not known why these three accepted the invitation but one presumes they felt that amalgamation was desirable and that the members of the Stock Exchange of Melbourne had shown sufficient willingness to adjust its rules in accordance with their views. The strengthening of the Stock Exchange of Melbourne by the transfer of allegiance of these influential brokers meant a corres­ ponding weakening of the Melbourne Stock Exchange. While there is no direct evidence one may deduce that discussions for a complete amalgamation continued. Thus on 6 November the earlier invitation to join the Stock Exchange of Melbourne was repeated, this time with a closing date of 16 November. On that date, pride presumably determining that the decision be left to the last moment, the remain­ ing twenty-three members of the Melbourne Stock Exchange were

179 The Stock Exchange of Melbourne accepted as members of the Stock Exchange of Melbourne. Once again the majority of the leading brokers in Melbourne were members of the same institution. It was not long before the enlarged Stock Exchange of Melbourne began to give expression to its now much more powerful position. Whereas on 26 October 1885 there had been considerable discussion whether or not the entrance fee should be raised from twenty-one to twenty-five or to thirty guineas, the lower one being chosen, on 26 November there appears to have been no difficulty in agreeing that the entrance fee should be raised to one hundred guineas. Shortly afterwards there was a clear indication why it was felt that the Exchange now had the financial power to require such a fee, which was not much less than the then average worker’s annual earnings. The Metropolitan Gas Company was required by statute to make new share issues by open tender. When it issued 10,000 new shares early in 1886 nine-tenths of the accepted tenders were in the hands of members of the Stock Exchange of Melbourne. The show of strength and the suggestion that broking was a profit­ able profession, both of which found expression in the increased entrance fee, were not without disadvantages. In 1886 the title Melbourne Stock Exchange was once again in use by a new exchange. One of its members was J. S. Butters, who had been such a leading figure in the share market of the 1860s. As the precise date of its formation is not known it may not have been the high entry fee of late 1885 which specifically provoked the formation of this new exchange but the decision of the Stock Exchange of Melbourne to limit its numbers and to increase its entrance fees still further. These questions were being considered jointly by the Committee towards the end of the 1886 stock exchange year (30 September) and there was no increase in membership while the discussions were in progress. Its recommendation was that the membership be increased from sixty to seventy-five and that five new seats should be made available at £200, five at £300, and five at £400. This recommendation was accepted by members on 3 May 1887. The then upward trend of the market and the known progressive increase in the cost of member­ ship combined to give rise to a rapid growth of new members. All of the fifteen new seats were taken up within seven weeks. The last- comer was the notorious B. J. Fink, who is much better known as a land boomer than as a sharebroker. As the Stock Exchange as an institution became relatively wealthy from the proceeds of sales of new seats at rapidly increasing prices it was natural that its members wished to give expression to their

180 The Stock Exchange of Melbourne, 1884-93 new standing in the community by the erection of their own exchange building. Nor, given the conditions of the time, is it altogether sur­ prising that the final result was what one of its members was later to describe as a white elephant. At a meeting of members on 29 September 1887 it was decided to form a company to construct the required building. The company which was privately formed was the Stock Exchange of Melbourne Company Ltd. A large part of its capital was subscribed by the Stock Exchange through the Committee. Most of the remainder was subscribed by some of the members as individuals. Initially it was decided that the subscribed capital of the company would be limited to £100,000. When plans crystalised in the first half of 1889 it was expected that the total cost would be £185,000, of which £120,000 was the cost of the site. A large proportion of the cost, £100,000, had been raised on mortgage from the Australian Mutual Provident Society. It is alleged by Cannon in The Land Boomers that the price paid for the land had yielded to B. J. Fink a profit of £55,000 within six months. If that were in fact so then the Exchange was doubly badly served by Fink. Later in the year he became Chairman of the Stock Exchange of Melbourne Company Ltd. It was presumably under his influence that the building pro­ posals became much more ambitious. By the end of the year the total cost of the land and building, which included a public safe deposit to cost £11,000, was expected to be £226,000. By the time the building was occupied, in July 1891, the actual cost had become £254,000. The difference between these two figures was partly represented by the excess of the tender prices over the architect’s estimate and partly by the capitalisation of interest charges incurred during its long period of construction. Most of the additional costs were borne by the Stock Exchange, partly through new share issues to it and partly by an intended medium term deposit of £13,000. While the final structure was suitably imposing, while its basement provided facilities for and income from the Stock Exchange Club, and while the safe deposit and 150 offices in addition to those required by the Stock Exchange did earn income, it was nevertheless an unfortunate investment both for the Stock Exchange and for the company’s mortgagor. The final cost was such that continued general prosperity was necessary if the building were to prove to be an economic proposition, and this was not to be. Within two years of its opening both the A.M.P. Society and the Stock Exchange had to accept a reduction of the interest rate charged on their loans. The prospect of the Stock Exchange receiving any dividend, let alone one

181 The Stock Exchange of Melbourne sufficient to pay its own rental charges, had become a very distant one indeed. Like so many other institutions of the day the Stock Exchange’s investment of the boom was to result in a building that was uneconomic in relation to the low level of business activity that was to prevail in Victoria for the rest of the nineteenth century. This discussion of the evolution of the Stock Exchange building has anticipated a number of developments to which it is now necessary to turn. The £6,400 which the Stock Exchange had in hand in September 1887, when the membership stood at seventy-five, was not sufficient to finance the building to which members thoughts were now turning. It was therefore agreed that membership should be increased to one hundred, with each of the new seats costing £1,000. At first the demand at this price was slow to appear. Only one new member joined in November 1887 and only one in December. But now the ‘silver boom’ came to the aid of the Exchange. Five new members joined in January 1888 and then in rapid succession eighteen new members were added by 22 February. It seems likely that the ease with which this addition to the funds of the Exchange was obtained encouraged the members to plan their building on a scale and with a lavishness of detail that in the longer term were to prove unfortunate. This was so not merely because of the difficulty in obtaining a satisfactory yield on the funds invested in the building but also because there was a strong incentive further to increase the membership of the Exchange. By the time this interacting process was completed in 1891, when there were 131 members and a nominal upper limit of 135, the membership had increased to a point where the number of members was such that only a sustained high volume of transactions could justify both the high level to which the price of membership had risen and the size of its membership. For some decades a sufficiently large volume of transactions was to be the exception rather than the rule and the number of members of the Stock Exchange of Melbourne was to be excessive in relation to the normal volume of share market business. It is this fact that explains why it was to be almost seventy years before prospective members to the Exchange were again prepared to pay a price for membership, in equivalent purchasing power, equal to that paid in 1891 and why it was that it was not until the second half of the twentieth century that the Exchange was once again willing to increase the size of its membership above 131 members. The steps whereby the early peak level of membership was attained and the conditions influencing the upward movements of both prices

182 The Stock Exchange of Melbourne, 1884-93 and numbers are worth brief mention. On 9 March 1888 provision was made for twenty new members, ten at £1,250 each and ten at £1,500 each. Within weeks of this decision the silver boom came to an end, but the switch of speculative attention to land and other companies still made sharebroking an attractive career. Within six months the twenty new seats had been sold. On 23 August 1888 another five seats were made available, this time at £1,650 each. Even after the break in land speculation in October one of these seats was purchased in November. For the next twelve months no more new seats were sold as existing members were then prepared to sell their seats at a lower price. By November 1889 the second period of large- scale transactions in silver shares was approaching its peak. The remaining new seats at £1,650 were quickly taken up, as were the five new seats created on 3 December 1889 at a price of £2,000 each. As if there were no end to the process five more were made available on 29 January 1890 at a cost of £2,500 each. At this very high price (of the order of $25,000 or more in prices of the late 1960s) new applicants had second thoughts. It was not until June 1891 that the vision splendid of the new Stock Exchange building, ready to open for business, put out of focus the declining trend of the share market. At this point a handful of transfers of existing seats were made at prices greater than £2,000, and one individual paid £2,500 for a new seat. Looking back, it is apparent that the Exchange grew too large and that excessively high prices were paid for membership of it. Yet it is understandable that this was not appreciated at the time. Those paying high prices were aware of the capital gains of those who had joined before them, and their decisions, with the odd exception, were clearly influenced by the prevailing volume of transactions in the market and by the expectations of current earnings which this implied. From the point of view of the seller of seats, the Exchange, there was the background of its expensive building which was taking a very long time to construct and which was accumulating interest charges not balanced by current earnings. Equally important, throughout most of the relevant period the Exchange was faced with the threat of strong competition from other stock exchange institutions. Was it not preferable, at the time, to charge what the market would bear and to meet some of this competitive pressure by successive increases in its own size? It may even be that the later prices set were intended to choke off demand as much as possible. If that were so, and the evidence of the minute books is quite unrevealing one way or the

183 The Stock Exchange of Melbourne other, then the ‘excesses’ of size and price were the product of peculiar market conditions and not necessarily evidence of false optimism as far as the Exchange as an institution was concerned. The problem of the undue size of the Exchange was only being felt in the closing stages of the period here being examined. Before then the main issues that the Exchange had to face were those that were a consequence of rapid growth. As was indicated in Chapter 4 the structure and early rules of the Stock Exchange of Melbourne were based on those of the Melbourne Stock Exchange. For a while the experience gained in the early, much smaller, institution was sufficient to guide its successor. But when the Stock Exchange of Melbourne began to become a much larger institution than its pre­ decessor had ever been a variety of new problems had to be faced for which new solutions had to be found. As with its predecessor the Stock Exchange of Melbourne was, and is, governed by a Committee of members of the Exchange. A pro­ portion of the Committee retired each year but was eligible for re-election. The Chairman and Deputy Chairman of the Exchange were elected by the Committee. The original Committee consisted of five members with Robert Wallen as first Chairman. With the enlarge­ ment of the Exchange by the amalgamation with the reorganised Melbourne Stock Exchange the Committee was increased to seven members. When the size of the Exchange had increased to one hundred members and twenty more seats were in the course of being created (9 March 1888) the Committee was increased from seven to nine members. With the further growth of the Exchange and the increased complexity of its business the Committee holding office in 1891, when F. W. Were was Chairman, decided that it needed to be made still larger and that it should be given greater responsibility over the affairs of the Exchange than the rules then allowed it. Accordingly the rules were extensively redrafted and submitted to the members for their approval. The examination of the new rules by the assembled members was a rather lengthy business as each was considered in turn. After the individual items were approved the whole set of rules was considered as one motion. A majority was in favour but the contrary vote was sufficiently large to ensure that they could not become rides of the association. As the new rules had been unanimously supported by the Committee they felt that the adverse final decision showed a want of confidence in them, and accordingly resigned in a body. Despite requests to reconsider their decision they stood firm. At the resulting new elections only one of the old Com­ mittee agreed to be nominated. Amongst the resigning members was

184 The Stock Exchange of Melbourne, 1884-93 Robert Wallen, Chairman for the first two years and a continuing member of the Committee thereafter. This incident has been related because it throws considerable light on the way in which the Stock Exchange of Melbourne was run during its early years. It is improbable that in not giving sufficient support to the proposed new rules the members of the Exchange really felt a lack of confidence in the Committee. What the vote did affirm was a preference for the democratic way in which major decisions in Exchange policy had hitherto been reached. The one really important amendment to the rules of the Stock Exchange, which had been adopted in 1885 in the process of reaching terms for agreement with the Melbourne Stock Exchange, was the addition to the rule relating to the alteration of the rules—to the effect that any alteration required a majority of three-quarters of the members. This right to a decision on major policy matters by individual members was rigorously upheld. Attendance at the relevant meetings was normally a high proportion of total membership. While the minutes of these meetings are usually uninformative about the arguments preceding the final decision there is sufficient evidence to show that a wide range of members took an active part in the process of reaching agreement. While the powers of the Committee were limited in this fashion and were not, as a consequence, as far-reaching as those possessed by the committees of the London and New York Stock Exchanges, within the framework of the existing rules the Committee’s powers were extensive. Either as a Committee or through the Chairman its decisions on disputes between members were final and it was respon­ sible for the effective day-to-day running of the exchange. When policy issues of any complexity were raised, either in the course of business or at meetings of members, it was normal practice to refer them to the Committee for report back to members. On such occasions it was most unusual for the Committee’s recommendations not to be accepted. Amongst the more important additional powers granted to the committee as the organisation of the institution became wealthier and more complex were responsibility for the investment of the funds of the association and in particular for investments in the Stock Exchange of Melbourne Company Ltd, and the responsibility for disposing of the seats of deceased members and for acting as trustees for their heirs in relation to the proceeds resulting from the sale of such seats. In the early days of the Stock Exchange of Melbourne, as had always been the case with its predecessor, insufficient funds were

185 The Stock Exchange of Melbourne available for the payment of a secretary or for the reader and recorder at call room meetings. Both these functions were performed on an honorary basis by members of the Exchange. At the end of the Exchange’s second year an honorarium of £50 was paid to the honorary secretary, and this was increased to £100 the following year. Similar grants were made to the recorder, B. Rolls, who continued to perform this function on an honorary basis until 1891. Early in 1888 it was decided that the time had come to appoint a paid official as secretary who would also be required to act as reader. The first appointment was to M. J. Keane who had previously been employed at the Royal Mint. By 1892 it had become apparent that this appoint­ ment had been an unfortunate one. In that year irregularities in the accounts were discovered. The Committee may also have become concerned that Keane was speculating on his own account. He was therefore asked to resign. Significantly one of the conditions for the appointment of his successor, J. Kemp, was that the secretary ‘shall not buy or sell shares either through a member of the room or an outsider’ under threat of instant dismissal should he do so. One problem of which the members of the Exchange were very conscious as the tide of share dealings rose during the late 1880s was the threat of competition from other stock exchange institutions. The emergence of competition from the Melbourne Stock Exchange of 1886 has already been noted and reference was made during the examination of the course of events in the share market (Chapter 4) to some aspects of this development. The basic conditions which gave rise to the competition were the rapid spread of share dealing in the community and the increased profitability of sharebroking as a result of a major increase in the volume of share transactions. The increases in the price paid for seats on the Stock Exchange of Melbourne in 1887 was both a symptom of these conditions and a spur to new entry into the industry. As the Stock Exchange of Melbourne had not yet fully established its authority as the centre for share-dealing, and as its membership became increasingly costly, an unusually high proportion of the newcomers into the industry made their entry through institutions other than the Stock Exchange of Melbourne. Competition was most acute in the first half of 1888. The Melbourne Stock Exchange had developed sufficiently to be described as ‘the No. 2 Exchange’. A Federal Stock Exchange Company Ltd was formed which was alleged to have over a thousand members. The Public Stock Exchange Company Ltd made its appearance in July 1888, just at the time when conditions were ceasing to be favourable for this form of enterprise.

186 The Stock Exchange of Melbourne, 1884-93 It is impossible to tell how much business was diverted from the Stock Exchange of Melbourne to these institutions and some other lesser institutions. It is not at all unlikely that the chief adverse effect of their development on the Exchange was the bad name which some of them gave to the profession. They were the haunts of jobbers rather than brokers and it seems unlikely that supervision of the activities of members of these exchanges matched that of the Stock Exchange of Melbourne over its own members. It is significant from this general point of view that of the list of thirty-five brokers who failed in the early 1890s, given in Cannon’s The Land Boomers, only one-third were members of the Stock Exchange of Melbourne. Apart from the possible adverse effects of these institutions on the attitudes of investors to shares as a form of investment their direct impact on the Exchange was of only limited duration. Little was heard of the new institutions after the first six months of 1888. In addition during 1888 the members of the Melbourne Stock Exchange had yielded to the temptation to form their exchange into a public company. Presumably some of the jobbing members wished to get access to additional funds to finance their transactions. The expected attractions for investors were expert investment management of the funds raised from them and a share in the profits of sharebroking. The latter element of the company’s income was obtained from a monthly charge on the turnover of each broker-member of the Exchange. But even experts make mistakes. In mid-1889 shareholders were highly critical of the management which had bought at the peak and failed to get out in time. ‘The No. 2 Exchange’ had ceased to be a rival of any significance. By the middle of 1889, then, the rivals of the previous year were no longer of serious concern to the Exchange. Whether it was because of this absence of competition or whether it was because it had become over-confident, in mid-1889 the Exchange was induced to pass a motion forbidding members to attend auction sales of shares other than those prescribed by statute. The occasion for this decision was the advertisement of the sale by auction of £40,000 worth of listed securities from the estate of the late J. B. Watson, a wealthy gold-mining magnate. This announcement was naturally accompanied by a decline in the volume of transactions on the Stock Exchange of the relevant securities. It may have been that the trustees of the estate were unwise to make this decision, that they were unlikely to obtain as high a price by a sale in this fashion as they would through the normal services of the Stock Exchange, which is what its members believed. Perhaps so, but it was equally unwise for the Exchange

187 The Stock Exchange of Melbourne publicly to object to such action which was obviously within the rights of the trustees. The public regarded the Exchange’s decision as high-handed, attended the auction in numbers, and paid full market prices for the securities wdiich they bought. On top of this rebuff came the second silver-mining boom and with it the formation of a new competitor, the Victorian Stock Exchange, which was mainly composed of brokers from those exchanges which had not managed to survive the after-effects of the land speculation credit squeeze. For a year or two this exchange showred signs of becoming a serious rival to the Stock Exchange of Melbourne, but the depression gathered strength before it had had an opportunity fully to establish its position. In 1894 most of its remaining members were to take advantage of a relaxation of the rules governing the admission of jobbers by the Stock Exchange of Melbourne and join that institution in this category. The Australian Open Exchange Company, which operated by means of a regular series of auctions, never became a serious competitor, and failed during the early years of the depression. Another form of competition which worried the majority of mem­ bers of the Exchange during the late eighties was competition within its own ranks through the use of the limited liability company as a form of business organisation by some members of the Exchange. Three firms—H. Wilson and Co., J. Donaldson and Co. and Chapman and Wakley—formed themselves into limited companies during the company mania of 1888. Of these J. Donaldson and Co. was the most enterprising and for some time published monthly reports on the share market under the title Donaldson’s Investor’s Guide. In June 1888 it was announced that Clarke & Co. was considering incorpora­ tion and amalgamation with the Australian Financial Agency and Guarantee Company, the shares of which accordingly rose by 40 per cent. This flirtation with the latest fashion by Clarke & Co. is surprising as Robert Wallen, then still a member of the Committee, would have been well aware of the distaste with which the majority of his fellow members regarded this development. Perhaps the partners thought they could see in the new form of organisation a means of still further consolidating their leading position in the market. It is interesting to speculate on what might have been the subsequent history of limited liability firms on the Stock Exchange if they had taken the plunge. Their example may well have forced others to follow suit. In the event, for reasons that are not known, they decided to remain unin­ corporated. When this decision was made public about a month after the original announcement the shares of Australian Finance returned

188 The Stock Exchange of Melbourne, 1884-93 to their former price level. In a year or so’s time the members who had formed limited companies either resigned or severed their con­ nection with the companies they had formed. As soon as the final one had done so the members of the Exchange introduced a new rule, which had been under discussion for a considerable time, to the effect ‘No Member of this Association, nor his partner, shall be a partner in any Limited Liability Company formed in future for the purpose of doing a stock and share broking business’. This rule with a somewhat different form of words is still in force. One final form of competition should be mentioned. By about 1887 the Stock Exchange of Melbourne had not merely failed to establish itself as the only real market for shares; its members had also not secured a virtual monopoly of handling new company issues. In this field also its members met strong competition in 1887 and 1888. The leading competitors were firms such as Mercantile Finance Trustees and Agency Co. Ltd and Australian Financial Agency and Guarantee Company Ltd, which tended to set the pace as promoters and ‘issuing houses’. It was firms such as these which took the initiative in convert­ ing a number of established businesses into listed public companies. The details of this process have not been examined but it seems likely that their record as promoters will be found to be somewhat un­ savoury. Another area where competition was acute was in the for­ mation of land companies. To the credit of the members of the Exchange in this area they were easily outdone as ‘brokers’ to the issue of these companies by firms of the type just mentioned, by the groups of auctioneers who had converted themselves into public companies and who then acted as ‘brokers’ to their offspring, and by unincorporated auctioneers such as Munro and Baillieu who were not to be outdone by their limited liability brethren. Apart from the then very inadequate provisions in the company law relating to prospectuses, one reason for this state of affairs was the slow development of the status of the Stock Exchange’s Official List. From the introduction of listing fees by the Stock Exchange (14 January 1887 for mining companies and 13 August 1887 for invest­ ment companies) official listing had become a useful source of revenue for the Exchange, but the sanction of refusal of listing or removal from the list did not yet carry much weight. Partly because of the threat of competition from other exchanges and partly because many members still felt that the Exchange’s powers should not exceed the then requirements of the company law, the information required at the time of listing was minimal. There was nevertheless a gradual increase in the amount of information required and a tightening up

189 The Stock Exchange of Melbourne of formal conditions for listing. Refusals of listing were not infre­ quent amongst the lesser mining companies, but when in 1891 Gavin G. Brown, a member of the Committee, proposed a by-law of the Exchange which would have meant a radical improvement in the quantity and quality of information formally required from a com­ pany at the time of listing, the matter was simply referred to the Committee. Possibly because this Committee resigned shortly after­ wards for reasons already indicated this improvement in the formal listing requirements of the Exchange was not to be adopted for some years. While this was so it was also true that at the annual meeting of the Exchange in October 1891 the Chairman could report: Your Committee considered during the year the question of having a more strict supervision over the applications of Companies applying for quotation than had hitherto existed. Stringent require­ ments are now made in the forms of such applications and the Committee carefully investigate them prior to their being submit­ ted to the Members. Unless a Company can satisfactorily prove that it is a bona fide Coy no recommendation is made to the Members for its quotation. Standards change and what was then regarded as stringent would no longer be so considered. This qualification apart, there can be no doubt about the intentions of the Exchange from this point onwards. Before 1891, when a separate class of jobbers was granted per­ mission to conduct business with members in the Exchange building, there was no reference in the rules of the Stock Exchange of Mel­ bourne to jobbers and hence no hint of the broker-jobber controversy of the early 1860s. It should not be deduced from this that jobbing brokers had ceased to exist on the Exchange. In 1889 the Australasian Insurance and Banking Record took it for granted that they did exist and defended their existence on very much the same grounds as those advanced by Robert Wallen in 1861. The Record was never­ theless concerned that the recent increase in the size of the Exchange may have resulted in the entry of members who were rather too apt to engage in jobbing operations. It hoped that the Exchange would act to ensure that speculative operations within its confines were kept within reasonable limits. The occasion for this comment was what was known at the time as ‘the Dix Affair’. Towards the end of 1889 W. F. Dix, a member of the Exchange, had attempted to ‘corner’ other Exchange specu­ lators in the mining company, Round Hill. He bought heavily, forcing the price up rapidly from £9 2s 6d to £150 per share in the belief that his opposing numbers had sold short and that he and/or

190 The Stock Exchange of Melbourne, 1884-93 his principals held enough shares for these short-sellers to be forced to pay very high prices in order to complete their contracts. He miscalculated. The next day his office was besieged by those who had sold him shares at the high prices he had offered. Temporarily losing his nerve, for the next few days he was not to be found. When he did reappear he claimed that a fellow broker had instructed him to act in the way that he had done. Both brokers made statutory declarations which were published in the Australasian Insurance and Banking Record. At least one of them was not merely lying but had committed perjury. The Committee had the unenviable task of sorting out these conflicting statements. To do so it questioned thirty-eight witnesses and ended up with 243 typed foolscap pages of evidence. Its verdict was against Dix, who was ordered to pay a number of accounts to fellow brokers. When he failed to carry out the Committee’s ruling he was given notice that by a specified date he was liable to expulsion from the Exchange. At this stage Dix started proceedings for damages against the Committee and sought an injunction forbidding the Exchange to proceed with his expulsion. The appeal for an injunction was heard in chambers in the Supreme Court at the end of December. The injunction was granted but Dix was not allowed to buy or sell on the Exchange until a decision had been reached in his case for damages. Dix soon began to have doubts about the successful outcome of his case. He first attempted to seek the Committee’s agreement to a settlement out of Court. When this was refused he withdrew his claim for damages. His injunction then lapsed and he was required to pay the costs of the proceedings. Not long afterwards he was formally expelled from the Exchange. Either because of the experience of this case or because of the changing tone of the share market there was to be no further evidence of dealing operations on this scale during the remainder of the period covered in this work. While this attempt to corner a well-known mining security was the most dramatic expression of speculative activity in the boom period it was by no means the only one. Examples of much smaller speculative rises and falls, especially in mining securities, were legion. Early in 1891 the Minister for Mines held a conference with members of the Exchange in the hope of discovering ways of preventing ‘spec- selling’. At first the Exchange thought that these discussions had been fruitful. They were sadly disabused when they saw the Bill which the Minister presented a month later in order to prevent excessive specu­ lation. The Share Brokers Bill, Victoria, was an ill-conceived piece

191 The Stock Exchange of Melbourne of legislation. In order to prevent abuses in a system which as a rule worked reasonably well a number of procedures was to be required of sharebrokers which would seriously interfere with the efficient conduct of business and which would provide no guarantee that the admitted abuses would be checked. Some of the provisions were simply silly, such as the one which required applications for brokers’ licences to be endorsed by six municipal rate payers. Others served no useful purpose but would seriously clog up the business of transferring securities. The relevant provisions were that which required brokers to disclose the names of principals at the time of making a purchase or sale and that which required the numbers of the security to be stated on the contract note. Neither of these conditions adds value to a valid contract and the Minister should have known that the British act requiring share numbers on sales of bank shares had been ignored by the London Stock Exchange from the moment it was introduced in 1867. The brokers of the Stock Exchange of Melbourne were much dis­ tressed by the proposed Bill. They objected to being singled out as the only type of brokers to be licensed at a time when it was common for brokers in commodities to sell futures in the markets in which they operated. Much more important they feared that Melbourne’s hard-won place as the leading share market in Australia would be jeopardised by the delay in effecting transfers which would necessarily result if the law were enforced. A number of senior members—Noall, Wallen, Slade, Were, and Thomson—were co-opted to assist the Committee to prepare the case against the Bill, and members did what they could individually to arouse public criticism of it. Whether it was because of these activities, or whether it was simply that the Exchange had a good case, there was widespread public criticism. T he Australasian Insurance and Banking Record thought so little of the provisions of the Bill that it cynically remarked that there was no chance of its being adopted and that it was presented simply to provide the minister with an excuse for doing nothing and to give members of Parliament ‘texts for multifarious speeches’. As it turned out the Bill was dropped and the issues with which it was concerned were not to be examined again in Parliament for decades.

Reactions to Depression, 1890-3 The discussion to date has primarily been concerned with the effect on the Exchange of the growth of the market and of boom conditions. It is now time to examine some of the effects of a falling market. The extent and severity of the decline is illustrated most dramatically

192 The Stock Exchange of Melbourne, 1884-93 by the changes in the price of a seat on the Exchange. In June 1891 one new seat sold at £2,500 and a couple changed hands in the next month or so at about £2,200. By the end of the year the June price had been halved. After a few sales early in 1892 at about this level there was a further decline to £1,000, at which level the price was held until the end of the year. By the time the next sale occurred, in June 1893, the price had fallen to £350, and the year was to close with sales at £250. With the decline in the incomes of brokers, which was reflected in the falling value of seats, the Exchange had difficulty in obtaining members’ subscriptions, levies, and fines. T he Committee’s powers in this respect had to be strengthened, and in one or two instances the final sanction of disqualification had to be invoked. In addition there was a decline in Exchange revenue from fees charged for registration of companies on the official list. At the same time, from July 1891, there were the demands of the upkeep of a building which was much larger than the premises that had previously been occupied. The natural effects of these conditions were retrenchment of office staff, reductions in salaries of staff, and a thorough-going attem pt to economise on all forms of expenditure. While the new building was more costly to run and involved higher rental charges, it did offer some compensations. Its design included a large Exchange hall in addition to the call room proper. Originally this had been intended as a place where the public could do business with members outside call room meetings and it was used for this purpose. ‘Subscribers’ who could only do business with brokers were allowed entry to the Exchange hall on payment of an annual fee of five guineas. In addition, probably because of the changed circum­ stances of the share market, jobbers were also allowed entry on the payment of an annual fee of £25, paid quarterly in advance. From one item in the minute books it is apparent that one object of this move was to attract business from the Victorian Stock Exchange. One of the original conditions for entry as a jobber was that neither he nor his partner(s) could be members of another stock exchange located within twenty miles of Melbourne. Later in the year this condition was withdrawn, presumably on the grounds that the Ex­ change gained sufficient competitive advantage from the presence of members of other exchanges operating as jobbers on the Exchange’s premises and under its supervision. From a comparison of the one available incomplete list of members of the Victorian Stock Exchange it is apparent that a number of its members took advantage of this relaxation. So successful does the Exchange’s policy appear to have

193 The Stock Exchange of Melbourne been that in October 1892 the Chairman and Committee of the Vic­ torian Stock Exchange, then consisting of 108 members, approached the Committee of the Stock Exchange of Melbourne with a case for admission of the members of the Victorian Stock Exchange as a body on payment of a lump sum in order to transact business in the Exchange hall as jobbers. When this proposition was put to the members of the Exchange it was overwhelmingly defeated. For the next half-dozen years the presence of jobbers in the Exchange hall was to give rise to a useful addition to revenue in the form of the quarterly admission fees and to a larger volume of transactions by members than would otherwise have been the case. Some of the jobbers, notably J. J. North, S. Tonkin, and L. C. Robinson, were to graduate into the ranks of full members. Still later L. C. Robinson and his partner W. Clark were to become members of the London Stock Exchange. As the depression deepened on the Stock Exchange as elsewhere in the community there was an increasing number of insolvencies amongst members. This did not become a serious problem for the Exchange as an institution until 1894 but it was becoming an issue by 1892. In particular it was necessary to devise a set of rules govern­ ing the disposal of the proceeds of the sale of seats of insolvent, disqualified, or suspended members of the Exchange. As was to be expected the detailed execution of the business was left to the Com­ mittee in line with a rule which laid down a system of priorities for the payment of outstanding debts to the Exchange and to the members. The balance, if any, became the property of the Exchange. From 1889 onwards, initially as a consequence of a growing number of insolvencies amongst investors, of the liquidation of some of the land companies, and of the process of developing the Broken Hill silver mines—most of which had been incorporated as limited liability companies under the Companies Statute and not as no liability mining companies—the brokers had been much troubled by liability for calls made on shares which had passed through their hands at some earlier date. So long as the custom of blank transfers between members was the rule the brokers appeared as owners of the shares at one stage in their movement from investor to investor. If a subsequent holder or holders was unable to pay a call then the liability for the call could end up with the broker. In order to limit the chances of such claims being made, a rule was passed in 1889 to the effect that no mining company—other than coal mining companies—was to be listed on the Official List of the Stock Exchange unless it was registered

194 The Stock Exchange of Melbourne, 1884-93 under a no liability mining company act similar to that in force in Victoria. This was henceforth of benefit to members but it did not meet the problem which still arose in ordinary limited liability companies. Consultation with the Exchange’s solicitors and other learned counsel which went on for some years failed to produce a satisfactory solution. In 1892 these cases were so frequent and involved such calls on its time that the Committee refused to adjudicate further in cases of this type. In 1893, after much discussion and legal consultation, a form of rules defining brokers’ liability during the transfer of shares was adopted which, it was hoped, would solve the problem in the future. A matter of a different kind was of considerable concern to brokers in 1892. The government, in an attempt to find new sources of revenue to offset declining yields from traditional taxes, introduced a bill to charge stamp duty on brokers’ contracts for the sale of shares. Although the broker paid the duty in the first instance it was chargeable to the principal in the transactions and hence was not a direct tax on brokers as such. The reason why the brokers objected and conducted lengthy negotiations with the government in order that the tax should not be introduced was that they feared the consequences which the tax would have on the volume of share transactions. They were not successful in having the proposed tax withdrawn but they did manage to obtain agreement on a lower scale of duty on transactions involving small amounts and to have mining shares excluded from this form of tax. In view of the relative volume of mining transactions in total turnover this was a substantial victory for the interests which they represented on this occasion. The activities of the Stock Exchange of Melbourne in opposition to the Share Brokers Bill of 1891 and against the imposition of stamp duties on share transfers in 1892 were the most notable instances of the Exchange’s concern for the interests of investors and for the efficient operation of the market which it was their business to organise. They were not the only ones. Mention has already been made of the hesitant steps whereby the financial power of official listing began to be used in the interests of sounder company forma­ tion. Reference has also been made to the Exchange’s attempt to discourage purely gambling transactions by its own members. In addition there were numerous examples of more or less routine steps to reduce variations in company practice in order to minimise the occurrence of disputes in daily transactions. Thus at one stage the

195 The Stock Exchange of Melbourne Broken Hill Proprietary Company was more or less exceptional in charging a fee for share transfers. A deputation was sent to the com­ pany’s directors to dissuade them from this practice. Much more important, the Committee was always ready to investigate bona fide charges against the actions of their members. They did not waste time on vague undocumented charges but there is no reason to doubt their impartiality when faced with concrete evidence in specific cases. Lest this comment should give the wrong impression it should be noted that claims against members from the public were very infrequent. As the Exchange grew older so too did its earlier members, a large proportion of whom were immigrants of the 1850s. Over a dozen well-known members died in the period up to mid-1893. One who had arrived even earlier than the 1850s and whose name is still commemorated in the sharebroking firm which he founded was J. B. Were, who had had a distinguished record as a merchant, as one of the organisers of the Melbourne Chamber of Commerce, and as an early member of the Legislative Assembly before he took up the career of stockbroker in 1860. For many years his firm had been one of the leaders in the market. His death early in December 1885 was marked by the closing of the Exchange on the afternoon of 8 December as an indication of the respect of his fellow members. Others of the better-known members of the Exchange who died during these years were John Hood, Chairman on a number of occasions of the Melbourne Stock Exchange, and D. Willder and C. M. Fisher, two of the ten original members of the Exchange. The latter was also noted as one of Victoria’s leading chess players of the day. One other aspect of the Exchange’s life is worth brief comment. Apart from the charitable acts of members as individuals the Exchange was also generous as an institution on occasions of major disasters. For example, in 1887 the Exchange contributed one hundred guineas to the fund for the families of the miners killed in the Bulli Colliery disaster, and in 1891 £250 to the victims of the Yarra floods. Those who regard a stock exchange as a den of capitalist iniquity may ponder the suggestion put to the room in 1889 that £250 be sent to the distressed families of the London dock strikers. This motion was in fact lost in favour of a privately organised collection from members for the same purpose. Before the amount raised was sent off to Britain a serious fire occurred in the store of George and Genger in which a number of firemen were seriously injured. As the London dock strike was almost over it was decided that it was preferable to donate the funds raised for this purpose to the families of the injured firemen.

196 The Stock Exchange of Melbourne, 1884-93 The Hub of Australia’s Financial Centre In terms of strict chronology this chapter should end with reflections on the effects of the depression of the nineties on the organisation of the Exchange, but this would tend to give an unrepresentative picture of this whole phase in the history of the institution. Viewed as part of a longer sequence the distinguishing feature of the period between 1884 and 1893 was not the difficulties of the depression but the Exchange’s achievements during the phase of expansion. In par­ ticular there should be some discussion of the processes whereby it established itself as the leading institution of its kind in Australia and became an integral part of what was then the financial centre of Australia. As the relevant statistics were never recorded in Melbourne and presumably were not recorded in Sydney, the possible rival as Aus­ tralia’s leading stock exchange, one cannot be categorical about the relative importance of the Stock Exchange of Melbourne. It would nevertheless appear that the frequent contemporary comments in Melbourne sources towards the end of the 1880s to the effect that Melbourne had become the financial centre of Australia were justified. The nature of these comments and the reasons advanced in support of them may be illustrated from the Argus at the beginning of 1890. Melbourne, from the enterprise of its capitalists, its banking facilities, the magnitude and growing importance of its Stock Ex­ change, and the far reaching agencies of its brokers, is rapidly becoming the financial centre of Australia. If pastoral properties in any part of the interior are to be stocked and developed, if companies for manufacturing and for other purposes are to be formed for Brisbane, Sydney or Adelaide, it is Melbourne that is looked to for a large share of the capital required. If owners wish to sell, or speculators to buy, say shares in the Mount Morgan Gold mine of Queensland, the Broken Hill silver mines of New South Wales or the Bischof! & Briseis tin mines of Tasmania, as well as the gold mines of Victoria, it is to Melbourne their orders are sent as the best market where quotations are closest and business most probable. This rise to relative eminence in the financial sphere was largely a product of the decade of the eighties. As far back as the early 1860s there is evidence of an extension of the range of interest of Victorian investors beyond the boundaries of the colony, but this interest, until the end of the 1870s, had concentrated on the pastoral industry and had little direct impact on stock exchange activity. With the growing relative interest in the local Victorian economy in the early 1880s and the fairly rapid enlargement of the range of industries represented on the stock exchange list Melbourne investors had become accus-

197 The Stock Exchange of Melbourne tomed to taking up shares in industrial and trading enterprises and there had been a rapid growth in the size of the share market. The Melbourne Stock Exchange and the Stock Exchange of Melbourne had grown in proportion to this development. There had been only twenty members of the Melbourne Stock Exchange in 1880. In 1891 there were 131 members of the Stock Exchange of Melbourne. The experience which Melbourne brokers had gained in introducing new companies, and the clienteles of investors which they had built up, placed them in an advantageous position when firms located in other colonies began to follow the Melbourne example and become public companies. While brokers on the exchanges of Brisbane, Adelaide, Sydney, Hobart, and, after 1888, Perth, might be approached in the first instance on these occasions, if the undertakings were of any magnitude the firms usually found it to their advantage to use the services of a Melbourne broker and make an intercolonial new issue. On numerous occasions Melbourne brokers were wholly responsible for the floating of an intercolonial firm. It was not merely the growth in size of the Melbourne share market and of the experience of its brokers that accounted for Melbourne’s relative eminence in the late 1880s. This end-decade development also reflected the greater relative prosperity of the Victorian economy from about 1884 onwards. Before then the main growing points of the Australian economy had been in Queensland and New South Wales. This was true not only of rural but of urban development. In the early 1880s it was the building of Brisbane, and especially the building of Sydney, that had dominated the urban scene. Both these bursts of building activity, and for a time rural development, were halted by the drought of 1884-5. For this and other reasons New South Wales had experienced a deeper and more prolonged depression in 1886 and 1887 than had Victoria where the depression of 1886 was barely noticeable. While recovery was proceeding in New South Wales and Queensland in the final years of the 1880s their economies did not match the tempo of that of Victoria. This long period of growth meant growing local profits and local savings. It was the relative wealth of Victoria in the middle and late eighties, as well as Mel­ bourne’s growing importance as the major single channel through which British private investment flowed to Australia, that was the precondition for the growth in the relative stature of its stock exchange. Part cause and part effect both of the expansion of scale and influence of the Stock Exchange and of the then prosperity of the Victorian economy was the ‘speculative spirit and “haste to be rich’’ ’

198 The Stock Exchange of Melbourne, 1884-93 of Victorians of the 1880s. It is impossible to put a quantitative measure on these ‘animal spirits’, but their significance for the development of the economy should not, for that reason, be ignored. Just as it is difficult to measure its impact so it is difficult to identify the causes of the optimism and willingness to take risks which dis­ tinguished Victoria in the 1880s. The long period of prosperity and growth, almost unbroken from 1880, was in itself important. There was only one very minor halt to growth to give to Victorians’ invest­ ment decisions the acid test of bad times. Expectations and decisions, explicitly or implicitly based on the continuance of growth, seemed almost always to be confirmed. Apart from this general influence considerable weight also needs to be given to the role of the Victorian gold-mining industry both as a training ground for speculatively inclined investors and dealers and for its significance in developing the expertise and clienteles of Melbourne’s brokers relative to those in other capital cities. Partly because of the limited range of other industries customarily available to stock exchange investors and partly because of the normally much greater rate of turnover in mining as compared with ‘investment’ securities, almost throughout the nineteenth century mining shares provided the bread-and-butter business of Australian stock brokers. Until the mid-eighties no other colony could rival Victoria as a gold producer and none could provide the same volume and continuity of dealings of gold-mining shares as the basis of a share market. It was this characteristic of the industrial structure of Victoria that was responsible to a large extent for the much greater degree of develop­ ment of the Melbourne share market compared with that of other colonies and which placed it in a position whereby it was able from 1885 onwards to capture the cream of the Broken Hill silver-mining business and even, perhaps, that of dealing in Mount Morgan shares. The boost that Broken Hill gave to speculation in general in the later 1880s still further encouraged the relative growth of Melbourne’s share market. With the onset of the depression, which was more or less Australia­ wide but which was most severe in Melbourne, some of these pre­ conditions for the relative eminence of Melbourne were to disappear. In consequence, as will be apparent from the discussion of the next chapter, the Stock Exchange of Melbourne lost ground relatively on the national scene. But for the scale of operations that had been developed and for the expertise that had been acquired during the expansionary period of the eighties it is likely that the relative loss of standing would have been greater than it was. This is not the

199 The Stock Exchange of Melbourne place to enter the continuing but unrewarding dispute about the relative importance of the Stock Exchanges of Sydney and Melbourne. It should merely be noted that the fact that this question remained an issue long after Sydney displaced Melbourne as the greatest con­ centration of population and wealth in Australia is in part a tribute to the skill and enterprise with which Melbourne’s sharebrokers of the 1880s took advantage of the opportunities presented to them. There is one question which remains to be examined even though the answer to it must be of a provisional nature. Did the Stock Exchange of Melbourne through the increase in its scale and in its efficiency of operation facilitate the excesses of the boom and exag­ gerate the depths of the depression? Apart from the qualification that it was not the only stock exchange of the day this question turns on the issue of whether the improvement in stock exchange facilities resulted in better knowledge of and a cheaper flow of finance towards the most profitable avenues of investment or whether it provided a distorted view of them. If it was the former the Stock Exchange could be expected to have contributed to the process of efficient economic growth; if the latter the reverse applies. Thus if the view is held that major structural maladjustment of the economy developed in the course of the eighties then it is fairly clear that the growth of the Stock Exchange, which contributed to this pattern of use of resources, was partially responsible for the resulting distortions. On the other hand if, apart from some inevitable but marginal waste of real resources, it is judged that the pattern of use of resources in Victoria until about 1890 was roughly in accordance with the then pattern of relative prices, then there is a prima facie case that the improvement in the facilities of the Stock Exchange of Melbourne made a net contribution to the economic growth of the colony. If, as the author suspects, there is a presumption but not a certainty that the latter view is correct then it is reasonable to consider that the growth of the Stock Exchange of Melbourne assisted rather than further dis­ torted the economic development of Victoria between 1884 and 1893.

200 6 Maturity through Adversity, 1893-1900

If Victorian capital investment was as misdirected in the 1880s as many writers would have us believe then one would expect the recovery from the depression to have been a very hesitant one. The recovery was in fact a slow business but this was not a simple con­ sequence of the errors of the boom. While there was a legacy from the past which impeded growth, events which were quite unrelated to the previous history of the economy were of comparable impor­ tance. Thus in 1894 the further fall in the prices of wool, wheat, and silver did much to prevent revival in that year. Of considerably greater importance, no sooner were there signs that recovery was in progress than external events intervened in the form of a major drought. It lasted two to three years, caused a serious reduction in real national income, and temporarily halted the growth of the economy as a whole. When account is taken of the strictly contem­ porary difficulties of the Victoria economy in the mid and later nineties one should be impressed more by its adaptability to changing economic conditions than by its having been victimised by the dead hand of the past. The Victorian Economy, 1893-1900 As there is much less scope for controversy about the pattern of the Victorian economic development between 1893 and 1900 as compared with the previous period, and as a detailed survey is available in Sinclair’s Economic Recovery in Victoria 1894-1899, the present dis­ cussion of the general shape of the recovery can be relatively brief. A great deal of the story is told in Figs. 7 and 8. As Sinclair and others have shown, one of the central features of the recovery was a significant re-direction of the use of Victoria’s resources. There are a variety of ways in which the explanation of this change in the pattern of the use of resources may be approached. Probably

201 The Stock Exchange of Melbourne

Exports

Imports

Melbourne Tramways Passengers

Melbourne Bank Clearings

Total Government 2 0 -5 Expenditure..

___>■ Government Revenue uj er 1891 1892 1893 1894 1895 1896 1897 1898 1899 1900 7 Some economic indicators, 1891-1900 the most useful is along the following lines. From the late eighties through to 1890 the Victorian economy had experienced very high levels of investment outlays and a high level of consumption. This happy combination had been made possible by the willingness of British savers to finance a high proportion of the investment outlays. When, between 1890 and 1893, they became unwilling to continue to lend on the same scale and when many of the fruits of the earlier investment were destroyed by the decline in Victoria’s terms of trade associated with severe world-wide depression and by Victoria’s own

202 Maturity through Adversity, 1893-1900

■+->

_c2 £

8 Some economic indicators, 1891-1900 interrelated fall in national income and employment, there was no alternative but a substantial reorganisation of the structure of the economy. Under the conditions of the 1890s this transformation was achieved by the relatively free play of market processes. Apart from the destruction of capital values which was part of this process and which meant amongst other things a substantial writing off of prior British investment and of the interest claims on that investment, the major market ‘mechanisms’ which altered the pattern of relative profitability within the economy and hence the future pattern of use of resources were the appearance of excess capacity and

203 The Stock Exchange of Melbourne hence low expected future yields in a wide range of urban industries and a marked reduction in the level of domestic prices and costs. To cite just two examples of the change in costs: within a few years of the onset of the depression farm labour costs had been reduced by more than 25 per cent and rates of wages and salaries paid by the Melbourne Tramways and Omnibus Company had been cut by 30 per cent. The cost reductions had two types of effect. First, real consumption per head was reduced and with it the demand for imports. Second, industries whose prices fell less than the general fall in wage costs found their relative profitability increased. This was notably true of gold, the price of which did not fall at all. Presumably it was also true of a range of export and import competing industries. The latter were also probably assisted by a greater willingness to accept lower quality domestic production in place of higher quality but more highly priced imports. The reduction of aggregate income and employment and of the real income of wage earners and profit recipients who remained in employment were painful experiences but, for the reasons just indi­ cated, the ‘medicine’ of the free play of market processes was effective. By about the end of 1893 the cumulative decline in income was coming to an end and the new level of prices and costs was opening up investment and employment opportunities which would provide a basis for the process of recovery. That this was so did not become apparent immediately partly because 1894 saw still further declines in wool, wheat, and silver prices and partly because the doctrine of a balanced budget now held powerful sway in parliamentary, business, and financial circles. Government revenue was still falling and with this decline went further retrenchment of public expenditure and the introduction of new taxes, notably an income tax and a death duties tax. The implementation of both these types of measure, it would now be recognised, was not appropriate for the conditions of the day. Despite these adverse influences and even despite the very severe drought of 1895-6 and 1896-7 which drastically reduced wheat output, significantly cut back the output of wool and of sheep and lambs for the growing frozen meat industry, and checked the growth of butter and cheese output which had been expanding very rapidly in the early 1890s, the trend towards a more diversified economy became progressively clearer. Whereas the 1880s had seen a concentration of development on non-traded goods—housing, commercial and office buildings, a wide range of urban facilities and railways—the growing points in the 1890s were the ‘new’ industries such as dairying, frozen

204 M aturity through Adversity, 1893-1900 meat, and, on a smaller scale, coal mining; the wheat industry, the trend of whose output was strongly upwards and which, from the point of view of the growers, but not the rest of the economy, gained more from price rises in the drought than it suffered from reduced output; gold mining, whose previous thirty-odd-year downward trend of output was reversed for almost a decade; and what may broadly be described as consumer goods manufacturing industries. Some idea of the scale on which these changes occurred is indicated by such facts as: by 1900 the consumer good manufacturing industry was probably of the order of 40 per cent greater than it had been before the onset of the depression; by 1893 gold had regained its place as the colony’s major single industry, a position which it had lost to wool in the early eighties; dairying by the late nineties rivalled wool for a year or two as a source of rural income and in 1899 displaced wheat from its position as the third most important export industry of Victoria. Important though these areas of growth were they were not suffi­ cient in face of the stagnation of the major rural industry, wool, and of the difficulties of many urban industries to do much more than allow the economy to return to a slightly greater level of real income and employment a decade after the onset of the depression in 1890. The specific difficulties of the Victorian wool industry, its apparent inability to benefit very greatly from the cost reductions of the decade, are not fully clear, but the drought from 1895 to 1898 and the very low level of wool prices that prevailed for every year except 1899 were conditions which explain a large part of the industry’s failure to contribute much to the additional growth of the economy. The retarding effect of depressed urban industries, especially in Melbourne, was not continuous throughout the period. The greater part of the contraction in urban investment had taken place by 1893. In that year it is estimated that Melbourne’s population declined by some 30,000. By the end of 1894, when the process appears to have come to an end, the population of Melbourne was about 50,000 below the 491,000 of the April 1891 Census. W hether or not there was excess capacity in Melbourne’s urban investment in 1890 there undoubtedly was a considerable amount in 1894. Despite the recovery of manu­ facturing activity in that year and its continuous growth from then onwards it was not until 1898 that there were clear signs of a modest revival in the building industry, represented in Fig. 8. By the end of that year ‘handsome brick red-tiled villas’ were being built at St Kilda, Hawthorn, and Malvern; ‘two large city firms and one of the

205 The Stock Exchange of Melbourne largest houses in the suburbs are arranging either very large exten­ sions or new establishments’; brickmakers’ wages which had fallen at one stage to £1 5s a week rose twice in 1898 and by the end of the year averaged £2 a week. With the end of the drought and the big jump in wool prices in 1899 both town and country enjoyed the most prosperous year since 1889. By the time the next census was taken early in 1901 Melbourne’s population had more than recovered from its steep decline of the early nineties to stand at 496,000. While the strength of the recovery of Victoria was creditable under the difficult conditions encountered it does not compare very favour­ ably with that of any other of the eastern colonies. Amongst the reasons for its relatively poor performance was its greater vulnerability at the time of the onset of the world depression. Further, because the difficulties of the economy in the early nineties were largely attributed by contemporaries to excessive government borrowing in the eighties rather than to the impact on the economy of the world depression, the Victorian government came to pride itself on its abstention, peculiar to itself amongst the colonial governments, from further borrowing in London. At no greater cost than somewhat higher interest charges it could have borrowed moderately in London and quickened the pace of recovery but, with the backing of the rele­ vant public opinion of the day, it chose instead a more austere path. Probably of still greater importance as an explanation of Victoria’s relatively poor performance was the timing of the Western Australian gold discoveries at Coolgardie and Kalgoorlie in 1892 and 1893. If these rich discoveries had occurred two or three years earlier they might have been developed by Victorian rather than by British capital, and much of Australia’s economic history in the 1890s might have been significantly altered. As these gold discoveries occurred when Victorian investors had neither the current income nor their former willingness to take risks, their exploitation was largely left to others. At the same time the growing employment opportunities in the west acted as a safety valve for Victoria’s unemployment problem. Because Victoria’s intensively worked alluvial goldfields did not provide the same oppor­ tunities for unemployment relief as did those in New South Wales and Queensland, because transport costs to the west were cheaper from Victoria than from Queensland or New South Wales, and because the timing of the Western Australian discoveries was so appropriate, the movement of unemployed Victorian gold fossickers was inter-, rather than intra-colonial. Rather than demand relief works in Melbourne many of the more vigorous workers preferred emigration to the west. If this choice had not been available then

206 Maturity through Adversity, 1893-1900 the Victorian government might not have been able to abstain from the London capital market as long as it did. Apart from the reduction in political pressures the strong flow of labour to the west kept in­ creasing the level of unused building capacity in Victoria and, by the same token, reducing the chances of revival in this sector. Against these trends allowance needs to be made for the flow of remittances from Victorian diggers in Western Australia to their families in Victoria. At a later date, in 1896, the general gold-fostered develop­ ment boom in Western Australia appears to have been a stimulus to the recovery in Victoria. Before then, on balance, the Western Aus­ tralian gold discoveries probably helped to intensify the Victorian depression. The final reason for Victoria’s sluggish growth in the 1890s is fairly clear but it is impossible to give it any precise quantitative weight. It is the weakening of confidence amongst Victorian business­ men as a group, as a result partly of the depth of the depression in the early 1890s and partly because of the very poor performance of most of the financial system during these difficult years. Whereas in the eighties the optimism of their clients was roughly matched by that of the bankers and other financial intermediaries, after 1893 not merely were bankers very understandably cautious in granting loans but businessmen were reluctant to seek them. Investors generally placed a high premium on security and discounted very heavily riskier forms of enterprise. These attitudes, which do not foster rapid growth, were not peculiar to Victoria in the 1890s but there seems to be little doubt that they gained fullest expression there. Fluctuations in the Economy By the middle of 1893 interest in the development of the Victorian economy centred on the banking reconstruction schemes which were in the course of being negotiated in a complicated fashion between shareholders and depositors in Melbourne and in London. While these schemes differed in detail they had two broad features in common. Shareholders were required to pay calls on shares; depositors were required to accept repayment of their deposits in the more or less distant future. Amongst the more important variations on the latter theme was the requirement in some schemes that deposits be converted into preference shares and in one scheme that deposits be converted into interminable deposit stock. Illiquid assets were made secure by making liabilities equally illiquid. But security is not equivalent to profitability. The high rates of interest offered to depositors at this time were to be responsible for further adjustments

207 The Stock Exchange of Melbourne of the original reconstruction schemes and, in one case, the City of Melbourne Bank, its liquidation. While the banks were in the midst of their reconstruction pro­ ceedings they were joined by two of the leading pastoral finance companies, Goldsbrough Mort & Co. and the New Zealand Loan and Mercantile Agency Company. These reconstruction schemes were drawn up upon similar lines to those of the banks. That of Golds­ brough Mort, as Cain has shown, was to have a very tortuous history of further revision as drought and rabbits compounded the problems created by careless management in the late eighties and early nineties. These schemes, together with a large new issue of shares made by the Bank of New South Wales at about the same time, had a con­ siderable effect on invisible items in the balance of payments. British depositors found themselves with very illiquid assets. It was to be some years before they could hope to withdraw their funds. Of much greater importance, in the short and medium term, was a significant enforced capital inflow into Australia. According to estimates made by the Argus, which, to judge from the details provided are probably quite reliable, British shareholders in the reconstructed banks and pastoral companies and in the Bank of New South Wales were required to pay calls amounting to almost £2,900,000, the greater part of which was payable in the second half of 1893 and during 1894. In addition, when the banks’ reconstruction schemes were completed, bank deposit receipts became negotiable securities, but initially at a discount amounting to as much as half their face value. In time the majority of them were to reach par. If, as seems not unlikely, a substantial part of the British-owned deposit receipts were sub­ sequently bought by Australian investors in the period when they were at heavy discounts, a part of Australia’s overseas debt would have been repatriated at a relatively cheap rate. The condition of trade in the latter half of 1893 was as one would expect. The movement of population out of Melbourne was at its peak rate. All forms of metropolitan retail and wholesale trade were in a very depressed condition. In addition Melbourne’s important entrepot trade with the other colonies was seriously disturbed by the government’s thoughtless imposition of a 1 per cent primage duty on merchandise imports which was not accompanied by refund pro­ visions for re-exports. The good wheat harvest of 1892-3 brought with it lower wheat prices. Even so the value of wheat output was relatively high. In general the rural sector of the economy was fairly prosperous and was the one bright spot in the otherwise gloomy Victorian economic scene.

208 Maturity through Adversity, 1893-1900 It was in 1893 that the quest for security in investments first became marked. Naturally enough it was the Victorian government that bene­ fited most from this switch in investors’ preferences. At the beginning of the year it issued £750,000 5 per cent Treasury bonds in order to match its expected current account deficit. During the course of the year it was also able to place ‘over the counter’ almost £420,000 of 4 per cent local inscribed stock. Finally a large part of the increasing flow of funds into savings bank deposits ended up in the government’s hands. Apart from the colonial government, the Melbourne and Metropolitan Board of Works was also able to raise £500,000 in 5 per cent debentures. It is not clear what the net effect of this diversion of funds from the private to the public sector was. It seems unlikely that the local availability of funds lifted public investment expendi­ tures to a level higher than they would otherwise have been. If that is so, the main effect of Victorian investors’ increased preference for safety was probably to enable the government to keep away from London as a borrower of new funds and at the same time to maintain public expenditures at a level that was politically acceptable. It is thus apparent that the local preference for safe (i.e. public) securities was an important part of the mechanism whereby the Victorian economy shifted from high to low dependence on British capital inflows. From his detailed study of the Victorian economy between 1894 and 1899 Sinclair came to the hesitant conclusion that the recovery should be dated from the second quarter of 1894. This probably is the appropriate turning point but, as can be seen from the graphs of imports, tramway passengers, government revenues, and bank clear­ ings in Figs. 7 and 8, it signalled the end of falling activity rather than the beginning of a definite upward movement. By and large the Vic­ torian economy marked time in 1894 and 1895. On an annual basis 1894 should be regarded as the trough of the depression—the ‘year of exhaustion’ as the Argus described it. It had this character partly because the surgery of the bank and pastoral company reconstruction schemes had seriously disturbed the body economic and partly because in 1894 the economy had to withstand the impact of the last stages of the world depression-induced falls in the price of wool, wheat, and silver. Such expansion as was occurring, notably in gold production and some sectors of manufacturing industry, were sufficient merely to offset these deflationary pressures. A significant symptom of the state of the economy was the four successive reductions in bank deposit rates which brought the twelve months’ rate down from 5 to 3 per cent, and which saw the disappearance of three months’ deposits and

209 The Stock Exchange of Melbourne a wider margin between six month and twelve month deposits. Also important were a number of revised arrangements with creditors made by some of the building societies whereby the interest rate payable by them was reduced to 2.\ per cent. They were forced into this position by the wholesale abandonment of properties by borrowers and by the very low rents which now prevailed. It was partly this state of affairs that enabled the Argus at the end of 1894 to see some prospects of recovery. Improvement would only come with population growth. By the end of 1894 Melbourne did have some positive attractions. ‘Melbourne is now by far and away the cheapest colonial city to live in, a condition that must tell in the long run.’ The upturn which had probably occurred during 1894 became visible, but only just, in 1895. Annual Melbourne bank clearings rose from £126 million to £131 million, the first increase since 1890. This could merely reflect the revival in stock exchange transactions but probably does fairly indicate the changed direction of movement of the economy. The most auspicious event for the Victorian economy in 1895 was the recovery of export prices from the very low level of the previous year. The rise in wool prices was of the order of 20 to 25 per cent. But the full stimulus of this rise was not felt because serious drought had clearly set in by the end of the year. It was almost certainly the onset of the drought that prevented the recovery from gathering much momentum. In the continued hesitant state of the economy the main monetary events of the year were the successful re-negotiation of lower interest rates on its deferred deposits by the locally-owned Colonial Bank of Australasia and the failure of similar negotiations between the Melbourne shareholders and the predomi­ nantly British depositors of the City of Melbourne Bank. As agree­ ment could not be reached on lower deposit rates the City of Melbourne Bank went into liquidation: the payment of \\ per cent on a substantial part of its deposits was beyond the earning capacity of the Bank. The year 1896 is a year of conflicting trends and of conflicting evidence. According to the municipal returns Melbourne’s population was recorded as increasing by about 2 per cent, but 1896 was the year that sawT the largest outflow of Victorian population to Western Australia. As there is other evidence of the deflationary impact of the population exodus, including qualitative evidence of a rise and fall of building activities in Melbourne, one must regard the muni­ cipal population returns at this date with considerable suspicion. At the same time the flow of people to Western Australia was accom­ panied by a flow of Victorian manufactured goods and by a return

210 M aturity through Adversity, 1893-1900 flow of earnings from a substantial number of gold miners who had left their families in Melbourne. While one cannot be sure, the net effect of the 1896 Western Australian boom appears to have been a net stimulus to the Victorian economy. A minor conflicting trend was the further easing of interest rates in Melbourne, some but not all the banks giving only 2^ per cent for twelve months’ deposits. This decline occurred at a time when interest rates were beginning to rise abroad. On a range of securities yields were now lower in Melbourne than they were in London. Despite this reverse interest rate differen­ tial 1896 appears to have seen a distinct revival in net capital inflow into Victoria. London’s expectation of profit from Victorian gold mines was not influenced by minor differences in interest rates, and to the extent that there was an increased net capital inflow it was gold mining that must have accounted for the greater part of it. The other disturbing cross-current which afflicted the Victorian economy in 1896 was the impact of the drought during the 1895-6 crop season. This deserves somewhat more lengthy treatment, partly because of its importance in its own right and partly because it is one aspect of the Victorian economy in the nineties about which Sinclair is misleading. In 1895-6 for the first time for many years Victoria had no export surplus in wheat. There was a virtual loss of export income for the economy as a whole amounting to perhaps £1 million. The failure to receive income of this order was a serious blow to the economy, but because of the peculiarities of the pricing of wheat in Victoria (it was a protected industry) it was not a serious blow to the wheat farmer. The price of wheat increased more than proportionately to the decline in output. The ingredients of the price change were something like this. When there was an export surplus the price of wheat in Victoria was the world market price less freight, for example 2s 9d per bushel less 9d per bushel freight equals 2s per bushel. With an unchanged world market price the Victorian wheat price during a drought was the world market price 2s 9d plus freight 9d equals 3s 6d plus import duty of Is 9d per bushel equals 5s 3d. The actual price change between 1894-5 and 1895-6 as estimated by the Victorian Statistician was one from Is 74d to 4s 5^d per bushel. Despite the fall in production from 11-4 million bushels in 1894-5 to 5-7 million bushels in 1895-6 the Statistician’s estimate of the value of wheat production as received by farmers rose from £930,000 to £1,258,000. Other agricultural products did not have the same degree of price response. Even so the total value of agricultural production was estimated to have increased from £5T million to £6-1 million. The members of the community who suffered most from high wheat

211 The Stock Exchange of Melbourne prices were urban consumers. This redistribution of income from city to farm in 1896 was one reason for the still hesitant growth of Melbourne at that time. The persistence of the drought into 1897 was sufficient to maintain major braking pressure on the growth of the economy. The value of agricultural output rose again to £6-9 million but, as the further rise in price of wheat to 5s 3Jd indicates, this was more a result of price increases than of increased output. The increase in wheat output from 5 • 7 million to 7 • 1 million bushels still left total output well short of domestic consumption. Once again income shifted from the town to the country and there was no contribution to export income. In addition the export income earning capacity of wool, meat, and dairy products began to be seriously affected by the drought. Fortu­ nately gold production had one of its largest increases of the decade, manufacturing output continued to grow, and total public expendi­ ture was now following a distinctly rising trend. While monetary gold stocks were dipped into to the tune of £1,131,000 in order to balance the international accounts, the banks were flush with cash and saw no occasion to tighten domestic credit in response to this monetary gold outflow. While the drought broke in 1898 it did so at too late a date to have much effect on export receipts for the calendar year. Indeed, earnings from the newer rural export industries, dairying and frozen meat, continued to decline. These declines were barely offset by modest increases in wool and wheat exports. As was to be expected the re-emergence of wheat exports saw a large fall in local wheat prices. Before the yield of the 1897-8 harvest could be estimated with any accuracy the price had stood at 5s 6d a bushel. By January 1898 the price had fallen to 4s 5d; by mid-year it stood at 3s 3d. Speculative holding of wheat stocks appears to have been responsible for the somewhat slow response to the reappearance of a wheat export surplus. The sharp fall in wheat prices meant a significant increase in the real income of townspeople. Their increased spending on non­ food products, together with the continued upward pressure of public sector expenditure, appears to have brought about the long-awaited revival in building activity. The increase in building activity that was evident at the end of 1898 (referred to in the previous section) was modest by the standards of the 1880s. By those of the 1890s the increases in employment in the building trades and in the production of building materials that were now occurring, together with greater prosperity elsewhere in the economy, were sufficient to induce a more

212 Maturity through Adversity, 1893-1900 cheerful tone in contemporary economic reporting than had been the case for almost a decade. A number of events conspired to make 1899 more than fulfd the fairly optimistic expectations of late 1898. The steady growth of the capacity of the Victorian wheat industry to produce output given favourable weather conditions now became apparent. The 1898-9 yield of 19-6 million bushels was the largest in the nineteenth century and exceeded previous peaks by some 4 million bushels. The further fall in the domestic price of wheat to 2s 2d a bushel, this time a reflection of the fall in world market prices, meant that farmers scarcely benefited at all from their record output. Their net income was probably smaller than in the previous year. But townspeople did benefit and so too did the Victorian economy in the sense that there was an increase in export income from wheat of some £900,000. Of still greater importance, during the course of 1899 merino wool prices rose by the order of 60 per cent. The shrinkage of supplies during the nineties, the current high level of prosperity in Europe and the United States, and interruptions of supply from both the Argentine and South Africa, appear to account for this price rise. As it occurred gradually over a period of twelve months or so, and as cross-bred wool did not rise in the same proportion, Victoria’s wool exports during 1899 did not increase quite so dramatically, but they did rise by some 45 per cent from £2,407,000 to £3,494,000. Many of the expenditure effects of this increase in income would have been delayed and are unlikely to have become effective until 1900, but there would have been some increase in spending in 1899 and there was no time-lag in the response of business confidence to the unexpected windfall increase in the economy’s real income. When it is appreciated that butter exports also rose by almost £700,000, which meant that they exceeded wheat exports by about £150,000, it is not difficult to appreciate why 1899 was the most prosperous year of the decade. There were still pockets of excess capacity here and there and the economy’s labour resources were still not fully employed. For these reasons 1899 could not be described as a year of boom. It merely saw a return to the levels of real income which had prevailed a decade earlier. The feature of 1900 that deserves most emphasis in this impres­ sionistic commentary on movements in the Victorian economy was its condition of monetary ease. The particular aspect of banking statistics that caught the attention of financial commentators was the fact that for the first time in almost twenty years deposits within

213 The Stock Exchange of Melbourne Victoria exceeded advances. When this had last happened, in 1880-1, it had been a very temporary phenomenon. What was happening in 1900 had the appearance of an inevitable trend. In a sense it was because since that date deposits have always exceeded advances and, for the greater part of the intervening years, have done so by a large margin. While there are a number of complications which make the follow­ ing statement an over-simplification, the basic reason for the banking system’s switch from a position in which advances in Aus­ tralia were normally in excess of deposits to one in which the reverse applied can be summed up along the following lines. First, the composition of banking assets within Australia had changed. Whereas in 1891 the ratio of coin and bullion to deposits in Victoria was 17-9 per cent in 1900 it was 25-4 per cent. Second, before 1900 the Australian banking system had relied heavily on British deposits and had invested its funds predominantly within Australia. After 1900 the banking system obtained only minor amounts from British depositors and increasingly, as the twentieth century advanced, became a net holder of banking assets abroad. At a later date the growing role of Australian government securities as an asset of the banking system was further to undermine the importance of advances relative to deposits, but this was only a minor consideration at the turn of the century. The significant facts accounting for the change in the structure of the banking statistics around 1900 that so interested contemporaries were, first, the long-term decline, since 1892, in British deposits in Australian banks and, second, the temporary increase in banking assets in London arising out of the very successful 1899-1900 exporting season. The longer-term trend has not yet been fully explored but its basic components are clear. The peak holdings of British deposits in Australian banks of the early 1890s had been markedly reduced by 1900 because British depositors had sustained substantial losses in the banks forced into liquidation, because large amounts of deposits had been converted more or less compulsorily into preference or ordinary shares, and because British deposits had been withdrawn in large quantities as soon as it was possible for such withdrawals to be made. By 1900 therefore there was not much scope for further reduction of Australian banking liabilities in London. It was in this situation that the sudden flow of export proceeds became available in 1899- 1900. Private investment in Australia was still sluggish. What then was to be done with the rapid growth of banking funds? This was the problem to which the Australasian Insurance and Banking Record

214 Maturity through Adversity, 1893-1900 was addressing itself in 1900, asking, in all seriousness, whether or not it was wise for Australian banks to invest, not merely in the London money market, but to take up long-term investments in London. Hesitantly it came to the conclusion ‘It might be possible, however, to utilise a certain proportion of colonial banking resources in London without much risk’. Whether or not the Australian banks were lending in London on long term or on short term, they were lending. In 1900, for the first time since 1881, when the phenomenon had been a very transitory one, Australian banks in London had a small net balance of ‘London funds’ which they could call their own. It would be stretching a point to giant the appearance of this small positive balance as of much economic significance. It was not the first symptom of Australian national economic independence and its occurrence almost simul­ taneously with the inauguration of the Commonwealth should be regarded as no more than an interesting coincidence. What was important about the appearance of net London funds at this time was that it was a symptom of the then relative unprofitability of investment in Australia. Clearly it was not merely in Victoria in 1900 that local private enterprise was still languishing. The restrained prosperity of Victoria in 1900 must also have been shared by its neighbours. Rebirth of a Bond Market London’s market indigestion for Australian government securities after the Baring crisis of November 1890 had the immediate effect, not of cutting off completely the flow of British capital to Australia, but of sharply reducing its rate of inflow. By 1892 the technical marketing difficulties had been overcome, but in their place there now existed a much smaller preference amongst British investors for Australian government securities. This change in the willingness to lend was reflected in a slower rate of absorption of new issues into the hands of ‘firm holders’. The institutions in the London market respon­ sible for making new issues—in the case of the Victorian government they were the London and Westminster Bank and its brokers in the Consols market—naturally became aware of this situation. Once it was appreciated that this was so their advice must have been of the character: refrain from further borrowing for the time being. From past experience it would have been apparent to the Victorian govern­ ment that it would be wise to accept the judgment of its advisers. For the moment the London market was closed to it. The mechanics of this operation are worth noting: even in such a highly developed

215 The Stock Exchange of Melbourne capital market as London’s then was, an orderly market was main­ tained not so much by the completely free play of market forces but by a little discreet rationing by the institutions responsible for a particular borrower’s new issues. The ‘closure’ of the London market at this point had relatively little impact on the economy. By this time the real damage had already been done. The funds raised in London in 1892 had either already been spent or were fully committed to a public works program that was being progressively wound up. With planned public works grinding to a halt there were no narrow financial commitments requiring the government to borrow for long term investment. On the other hand, as it had foreseen when presenting its 1892-3 budget, a short-fall in revenue might require borrowing to enable the govern­ ment to balance its accounts in accordance with the conventions of the day. Within three or four months of bringing down the budget it was clear that borrowing of this type would be necessary. With London closed, and in any event unsympathetic to loans of this type, recourse had to be made to the local market. Thus in January 1893, for the first time for many years, the government offered a loan to the Victorian public. The amount required was £750,000. It was at a nominal rate of interest of 4J per cent and was available in curren­ cies of three, four, or five years. But a bond market, which had been neglected for years and in which such local moneys as had been sought had been obtained in driblets ‘over the counter’ or via the enforced investment of Post Office Savings Bank deposits in government trust funds, could not be expected to spring into being simply because the government now had need of it. Despite what was then an attractive rate of interest, especially given the government’s willingness to accept tenders at £99 or above, and despite the then high community preference for safe securities, when the tenders were opened it was found that appli­ cations at or above £99 amounted to only £372,800. This relative failure gave the Stock Exchange of Melbourne an opportunity to demonstrate its financial power of which it was quick to take advan­ tage. When the results were announced the Committee of the Stock Exchange undertook to raise the balance by the following day. It lived up to its promise. Despite the ease, once the Stock Exchange had taken an active part, with which the government raised this £750,000, it did not revise its expenditure plans upwards in the light of the availability of local savings. As far as current expenditures were concerned the weight of

216 Maturity through Adversity, 1893-1900 influential public opinion still decreed that they should be kept in line with receipts which continued to fall until the mid-nineties. For the time being, too, many of the financial troubles of the colony were being attributed to earlier excessive public works expenditures. A revival of public capital expenditure was thus at this stage not politically feasible. When expansion of public works spending did begin, from 1895 onwards, it did so in a gradual fashion and could easily be financed from the growth of Post Office Savings Bank deposits and other trust funds. It was not until after 1897 that the level of public works expenditure rose high enough to require new loans to be floated. By this time the Post Office Savings Bank had been absorbed into the State Savings Bank of Victoria and was not directly available as a source of funds as it had been during the previous thirty years. When by 1898 public capital expenditures had risen to a level that required loans to be raised a modest approach was made to the London market. This re-entry was on a much smaller scale than is at first apparent. Loans to the value of £2,100,000 nominal value were floated in London in that year but only £500,000 of this amount was new money. The remainder was required to repay an earlier loan. With this one exception funds required by the Vic­ torian government between 1893 and 1900 were raised in Melbourne. There were a number of reasons why Melbourne displaced London as the major source of funds for the Victorian government. Even when public spending had revived, from 1897 onwards, it was on a very much smaller scale than had been customary in the 1880s. In other words the claims made on Victorian investors were consistent with the growth of local savings. Partly because of investors’ prefer­ ences for safe securities and partly because of the weak growth of private investment the proportion of local savings available to the government was relatively high. Because the total demand for inves- tible funds in Victoria was small relative to the growth of local savings, interest rates fell to a low level and remained there. Thus in 1897 the Victorian government was able to convert its 4 per cent stock into 3 per cent stock and was able to place new loans at this low rate. Meanwhile, in London, interest rates began to rise from the mid-nineties. In contrast with the 3 per cent yield in Melbourne 3£ per cent was the required yield in London in 1898. With the rising claims on British savings of its own domestic boom and from the recovery of world trade, still higher rates would have been required at a later date. The result of this combination of circumstances was that sufficient funds could be obtained locally and those funds could

217 The Stock Exchange of Melbourne be obtained more cheaply in Melbourne than in London. The local bond market developed as it did after 1893 because it was the cheapest market in which the Victorian government could borrow. If the bond market had been dependent for its supply of securities solely on the Victorian government it would have led a very fitful existence. Fortunately from the point of view of its evolution as an organised market there were other borrowers who offered securities of similar quality and whose appearance on the market was a good deal more regular than that of the colonial government itself. By far the most important of these borrowers was the Melbourne and Metro­ politan Board of Works. It had been established in 1891 to take over the colonial government’s existing responsibilities for metropolitan water supply and sewerage and, still more important for our present purposes, to implement a major program for the development of M elbourne’s sewerage system. In the first year or so of its existence the Board had raised the greater part of the funds that it required in London but it too then shared in the general distaste in London for Australian governmental securities. From 1892 onwards it was thus forced to obtain its funds locally. Between 1893 and 1900 inclusive the Board borrowed £3,650,000 in Melbourne and was absent from the market as a fund raiser in only two years during this period. Both because the amount of funds raised by the Board was considerably greater than that raised by the colonial government itself and because of the regularity of its appearance in the market its financial needs were of very great importance for the development of the local market in government securities. Its initial experience in the period here surveyed was not very auspicious. In July 1893 it approached the market with a per cent loan for £500,000. This offering was an almost complete failure. Only £72,310 was raised. As with the Treasury bond issue of January of the same year the Board’s difficulties presented an opportunity to the Stock Exchange. After consultation with the Committee of the Stock Exchange in September the Board issued a £300,000 loan at 5 per cent, at the same time allowing holders of the recent 44 per cent loan to convert into the new one. This loan, which had the support of the Stock Exchange, was over-subscribed. So too was its second instalment, issued towards the end of the year, amounting to £200,000. The average price per £100 issued for the September loan had been £98 4s 2d; that for the December loan was £100 3s Id. The condition which the Stock Exchange had required for its support was that on

218 M aturity through Adversity, 1893-1900 loan applications obtained through members of the Exchange, broker­ age at the rate of \ per cent was to be paid. For the next five years this relationship between the Board and the Stock Exchange worked admirably. By 1898 the interest rate offered by the Board had been brought down to 3^ per cent. Every loan offered had been heavily over-subscribed. Normally about 95 per cent of the amount allotted was to clients of members of the Stock Exchange of Melbourne. These apparently mutually satisfactory relationships were nevertheless disturbed in 1898. On 5 January of that year members of the Exchange were granted permission to tender for a £500,000, 3 | per cent loan in the usual fashion. On 25 January the right of members to tender for the loan was withdrawn by the Committee when it learnt that the Board had entered into a secret underwriting agreement with the banks, the underwriting commission being 2j per cent. The Committee’s view, which was widely supported in the ensuing discussion in the press, was that the banks had been placed in an improperly advantageous position as against the general public and that, if there was to be any price concession, it should have been made available to the public and not simply to the banks. After this taste of the Stock Exchange’s power, which had not been extended to the limit of refusing quotation, the Board reverted to its hitherto normal practice. In doing so it returned to a situation where the costs of issue were little more than \ per cent as compared with the 24 per cent cost involved in bank underwriting. Apart from the vigour of the Exchange’s reaction to what was then a new financial device, the puzzling aspect of this incident was the Board’s willingness to pay higher issue costs than appears to have been necessary. Towards the end of the century, when the national income was growing more strongly again, and with it domestic savings, the Stock Exchange found its function as the medium through which loans should be raised being challenged. Funds under the control of insti­ tutions were now of some absolute significance and suitable investment outlets remained restricted. There was thus a tendency for institutions to deal directly with potential borrowers in the loan market. The offer of the banks to underwrite the Metropolitan Board of Works loan was an early example of these changing circumstances. Another example, which involved the Exchange in heavy legal expenses, was a Bendigo 3^ per cent loan for £34,750 in April 1900. The Bendigo Council had agreed to the now customary terms required by the Stock Exchange whose members had been granted permission to tender for the loan. When the results of the tenders were announced

219 The Stock Exchange of Melbourne it was found that bids by two members at prices greater than par had not been accepted and that the whole of the loan had been taken up at par by the Colonial Bank and the Australian Mutual Provident Society, both of which had tendered directly. It was because the \ per cent commission on the brokers’ tenders meant that the net proceeds from their bids were at a rate slightly less than par that the Bendigo Council had accepted the lower nominal bids of the bank and the life assurance society. The Exchange took the view that in accordance with custom and under the terms of the prospectus of the loan the highest tenders should have been accepted and that unless this commonly held view was sustained the Exchange’s role as a marketing institution for loans of this type would be undermined. In the hope of obtaining legal confirmation of its view that tenders should be given to the highest bids it supported the particular brokers concerned in two legal test cases, first in a case argued before the Chief Justice and then in an appeal to the Full Court. Both cases were lost, on different grounds, both of which were regarded by the Exchange as legal quibbles. While it thus failed to obtain the legal support to which it felt entitled the Exchange was nevertheless not defeated. When it learnt that the Kew Council was intending to allot tenders in the same way as the Bendigo Council had done it promptly notified the Council that if it allotted tenders on a net of brokerage basis its debentures would be refused quotation on the Exchange. The Kew Council decided that minor savings in brokerage were not worth the loss of marketability which no quotation would involve and agreed to allot tenders on the terms required by the Exchange. While difficulties of this type, and the one-sided decision of the Victorian government to pay brokerage on its loan in 1900 at \ per cent, indicated that by 1900 the Exchange had not gained full accep­ tance of the conditions under which it wished the local bond market to operate it had nevertheless advanced a long way towards the situation envisaged by the Chairman in 1893 when he expressed the hope that ‘the Exchange will become in the future the recognised medium for the flotation of all Government and Municipal loans’. In 1900 loans to the value of £1,640,000 were floated through the Stock Exchange of Melbourne by the Victorian and New South Wales governments and by four local and semi-governmental borrowers. In 1901 the amount raised was to be £2,750,000. By the turn of the century a viable market in government securities had emerged and the Stock Exchange of Melbourne was the centre of it.

220 Maturity through Adversity, 1893-1900 Whereas the prosperity of the mid-eighties had brought the embryo bond market of the 1860s and the 1870s into almost complete disuse, the depression of the 1890s gave the bond market a new lease of life. The basic conditions accounting for its revival—the ‘closing’ of the London market, Victorian investors’ preference for safe securities, the sluggish revival of private investment, the interest differential between London and Melbourne in favour of the latter—were outside the control of the Stock Exchange. Even so it should be recognised that the Exchange responded quickly to the new opportunities and that its members were active in mobilising funds for governmental borrowers. In acting in this fashion the Exchange established a standing in the financial community that it had never quite succeeded in obtaining in the more prosperous 1880s. The advice of its members was now sought by governmental authorities on loan raising matters. The Chairman was now in frequent consultation with the Treasurer about the terms of government loans and the form of security which the Treasury should issue. The Exchange’s new standing in the com­ munity was, in its own eyes, perhaps the most valuable by-product of the development of a bond market out of the financial ashes of 1893.

The Share Market At no time during the period from 1893 to 1900 did the level of activity in the share market approach that which had prevailed in the late 1880s through to 1890. Apart from government securities the investment sector of the market never provided any great volume of business. Banks, which had hitherto been the market leaders in this section of the market, remained under a cloud for the greater part of the period. Most of the other investment companies had become over-capitalised during the boom. The profit-earning experience of those that survived was not such as to endear them to investors. Once again it was mining share transactions that provided the bulk of share market business. Neither Victorian gold mines nor New South Wales silver mines retained their former eminence but there were times when the volume of transactions in them were quite substantial and there was always some business to be done in Victorian gold mines. In addition there was a range of newcomers to the mining list. The most important of these were the Western Australian gold mines, the Mount Lyell copper mine, and the host of smaller copper mines which appeared either in the wake of Mount Lyell or when rises in copper prices gave this form of mining a speculative impetus.

221 The Stock Exchange of Melbourne As was to be expected the general pattern of depression and recovery in the share market reflects that of the economy as a whole. This can be seen most clearly in Fig. 9 which shows the prices paid for membership of the Stock Exchange of Melbourne. The prices

1893 9 Prices of Stock Exchange seats, 1892-1900 plotted are averages for each quarter with occasional interpolations for quarters in which no transfers occurred. No new seats were created, and for most of the period the Exchange was below full strength because the Committee had at its disposal seats belonging to deceased members or of members who had failed during the depression. It was not until the middle of 1899 that the Committee was able to free itself of seats of these types. This condition of an excess supply of seats means that the prices recorded in the graph do not so much reflect short-term market conditions as the Committee’s judgment of the state of the market. While, for this reason, the graph is an incomplete guide to the exact timing of changes in share market expectations it nevertheless clearly reflects the main changes in the market, notably the trough of 1894 when the price of Stock Exchange seats fell to £200; the first distinct recovery in the last four months of 1895; the more sedate improvement of 1896 which was followed by relative stability in 1897 and for the greater part of 1898; and finally the more prosperous conditions ushered in by the end of the drought and the rise in export income in 1899. At the end of the century seats were changing hands at £1,000 (about $10,000 in current

222 Maturity through Adversity, 1893-1900 prices), which indicates that by this time new members expected to have an opportunity to earn a substantial income from their member­ ship of the Exchange. Such an expectation certainly did not obtain in 1893. Market events leading up to the banking crisis of May have been dealt with in an earlier chapter. While the reconstruction schemes were being imple­ mented from May to August this section of the market was virtually non-existent. Dealings were also limited in a bank such as the Bank of New South Wales which had survived the crisis but which nevertheless decided to strengthen its position by making a new issue of shares. The prospect of meeting calls on its shares and the realisation that it would be a long time before any bank would be able to earn high profits were amongst the conditions which brought its share price down from £60 at the beginning of the year to £29 at the end of it. In the case of the reconstructed banks and the pastoral companies that were reconstructed shortly after the banks, Goldsbrough Mort and New Zealand Loan, their shares were virtually unmarketable. Build­ ing society shares were dealt in so infrequently that they were now scarcely ever called at meetings of the Stock Exchange. Most gas shares were in the same condition with the exception of the major company, the Metropolitan Gas Company. The low price to which it had fallen attracted a fair demand from London buyers. The other investment companies all suffered sharp price falls and gave rise to very few transactions. In the mining market Victorian gold-mining shares felt the impact of the depression but their falls in price were much more limited and as always in this market some individual companies moved against the trend. The industry, as distinct from the share market, was pros­ perous. Output was increasing and much prospecting work was being carried on especially in the Rutherglen and Steiglitz districts. Apart from the effects of the depression the main reason why the market in Victorian gold mines did not reflect conditions in the industry was the diversion of speculators’ attention towards Western Australian gold mines. A number of companies were formed in Melbourne to carry out prospecting operations in the west and there were some signs that Melbourne would account for a significant proportion of mining development in these new fields. The other main section of the mining market, Broken Hill silver mines, had a very depressed year. There was a further fall in silver prices and considerable doubt whether mining was profitable at the new low level of silver prices. Block 10 fell in price from 56s to 15s 6d per share; South Broken Hill from 13s 6d to 2s. Even the Proprietary company suffered con-

223 The Stock Exchange of Melbourne siderably. Its price fell from 91s to 51s. It had been as low as 42s but at this price attracted some considerable London orders. The principal monetary event of 1894 was the fall in interest rates. When the banks were emerging from reconstruction during the second half of 1893 the twelve months’ deposit rate had risen to 5 per cent and was at this level when 1894 opened. As the year progressed there was some return of confidence in the banking system. Still more important the banks now found that their funds were excessive in relation to the demand for accommodation from what they now re­ garded as credit-worthy customers. Competition for the available advance business forced down bank lending rates. At the same time the banks began to suffer from holding too many high-priced deposits. It was under these conditions that 1894 saw four successive reductions in bank deposit rates. By the end of the year the rate on twelve months’ deposits had been reduced from 5 to 3 per cent; on six months’ deposits from 4 to 1| per cent; and on three months’ deposits from 3 per cent to nil. On earlier occasions in Victorian economic history 3 per cent on twelve months’ deposits had been very short­ lived phenomena. Investment demand had reacted quickly to the stimulus of low interest rates. This was not to be so in the 1890s. These low rates continued, with the proviso that on occasion 24 per cent was offered instead of 3 per cent, until the end of the century without any apparent significant response from private investment. As similar low rates prevailed elsewhere in Australia the dearth of private enterprise was not a peculiarly Victorian phenomenon. In the share market the volume of business, for which no figures are available, w^as reported to be the lowest for many years. The fall in interest rates was reflected in a marked rise in prices in the bond market but did not have much effect on share prices. Business in bank shares was small, the prospect of having to pay calls being a strong deterrent to purchasers. Much greater was the business in bank deposit receipts of the reconstructed banks, which had become negotiable securities on the Stock Exchange. At the beginning of the year deposit receipts paying nominal interest at 44 per cent could be bought to give current yields of 7 per cent and possible redemption yields of about 12 per cent. While yields on these securities did not fall pro­ portionately with the general fall in interest rates they were not immune to the influences that were producing this latter effect. This extension of the market in fixed interest securities was, in the medium term, to be a useful source of business for members of the Stock Exchange. Elsewhere in the investment share market business was limited. The one redeeming feature was that prices appeared to have

224 Maturity through Adversity, 1893-1900 touched bottom. In some cases, notably the Melbourne Tramways and Omnibus Company which managed to pay a 5 per cent dividend, there was a recovery in share prices. The market in Victorian gold mines remained depressed during 1894. The increase in gold production for the year was more the result of the work of unemployed gold fossickers than of company mining. Established mines whose future development depended on further prospecting had great difficulty in obtaining the calls necessary for developmental work. At Bendigo, still the largest producing area, a more hopeful tone was evident at the end of the year. This was largely the result of the discovery of gold at a depth of 3,100 feet in Lansell’s private 180 mine. This was alleged to be the deepest ore body being worked in the world. Business in Western Australian gold mines proved to be much less than expected in 1893 and there were reports towards the end of the year of increasing difficulty in floating new companies for operation in Western Australia. The further decline in silver prices, by about 15 per cent in 1894, meant an additional large decline in the market value of Broken Hill shares. Hopes for the future of these mines were now pinned on the discovery of a technique for smelting the sulphide ores. The one bright spot in the mining market was the Mount Lyell mine, whose develop­ mental costs as a future copper producer were being largely financed by its small but very rich lode of silver ore. On its entry to the Melbourne market its price had been 25s per share. After fluctuations ranging between 48s 6d and 18s 9d it closed the year at 39s. Also important, though of much less significance from the point of view of share market transactions, was the further development of Victorian coal mines which were now in a position to supply a substantial part of the Melbourne market. During 1895 the investment share market remained lifeless. The main events were connected with the re-negotiation of bank recon­ struction schemes. These were made necessary because the original interest rates had been set at a level which was no longer within the earning capacity of the banks. As already noted, in one case, that of the City of Melbourne Bank, the negotiations were unsuccessful and this bank went into liquidation. The recovery in the share market that became evident in the increased price of stock exchange seats from September onwards thus had its origin in the mining section of the market. The greatest stimulus came from the Broken Hill mines, partly as a result of a recovery in silver prices and partly because new techniques for the working of the low grade ores were proving profitable. Within three or four months much of the market deprecia-

225 The Stock Exchange of Melbourne tion of the previous year or so had been recovered. In the process a substantial volume of share transactions had been generated. While there were no major new developments in Victorian gold mines, output continued to grow and the prospects of a considerable number of mines improved, especially at Bendigo, Walhalla, and Creswick. The rise in the silver market was thus supported by an increased turnover of Victorian gold-mining shares. Finally there was a further improvement in Mount Lyell’s prospects. In a widely fluctuating fashion typical of the mining market its share price rose from 39s at the end of 1894 to 78s at the end of 1895. Apart from speculation in its shares the company, apparently on the advice of G. Meudell, a member of the Stock Exchange of Melbourne, provided additional speculative interest in 1895 by issuing debentures convertible into ordinary shares in the ratio of thirty-three shares per £100 debenture. This early forerunner of the convertible note of the 1950s was to be very profitable to those who subscribed initially and held until conversion. The one cloud over the mining market as far as the Stock Exchange of Melbourne was concerned was its failure to participate in the boom in Western Australian gold mines that was now reaching major pro­ portions. Its relationship to this market in October 1895 was described by the Chairman as follows: ‘Unfortunately so far we have only been working on the fringe of a great market, but it does not seem likely that the pluck and enterprise of Victoria has so far departed that her people will allow South Australia very long to take the lead.’ In fact, partly because Adelaide speculators had been in on the ground floor on such Kalgoorlie mines as Ivanhoe, Great Boulder, and Lake View, Adelaide continued to maintain its lead over Melbourne, but it in turn was rapidly being displaced by London as the major market in Western Australian gold mines. Tutored since the late 1880s in the thrills and disillusionments of gold-mining speculation by South African mines in the Kaffir Circus, British investors were increasingly turning their attention to Western Australian mines which, during 1895 and 1896, came to dominate the speculative section of the London market. The prices which British promoters could and did offer for good, bad, and indifferent prospects and the volume of buying and selling orders which could arise in London were such that even a prosperous and speculative Melbourne market would have found it virtually impossible to secure for itself the leading position as a centre for dealing in Western Australian gold mines. Depressed and lacking in speculative spirit as it was, and without the direct local knowledge that enabled the Kalgoorlie Stock

226 Maturity through Adversity, 1893-1900 Exchange to flourish both as a local exchange and as a ‘feeder’ to London, Melbourne continued to remain on ‘the fringe of a great market’. Such was the pull of the London market that not merely gold-mining shares flowed to it. Some of the more active and speculative-minded of Melbourne’s brokers such as W. Clark and L. C. Robinson also migrated first to the Adelaide Stock Exchange and then to the London Stock Exchange where they flourished as specialists in Australian securities. During 1896 the volume of transactions in the share market was not sustained at the level of the final quarter of 1895 but it was quite substantial. This is indicated by the recorded number of transactions in the call room which rose from 26,836 in the year ending 30 September 1895, to 42,465 in the similar period for 1895-6, figures which may usefully be compared with those for earlier years given on p. 162. There was a better tone in the investment share sector of the market, partly because of the successful re-negotiation of their recon­ struction schemes by the Commercial Bank of Australia and by the English Scottish and Australian Bank and partly because the National Bank and the Bank of Victoria felt sufficiently strong to release deferred deposits at a faster rate than required under their reconstruction schemes. The resulting increase in market activity was nevertheless limited because of the small volume of high class invest­ ment shares that now remained in the market. This in turn meant that the greater volume of share transactions in 1896 was the result of dealings in mining shares. These now included gold, silver, coal, copper, and tin mines located in Queensland, New South Wales, Victoria, Tasmania, and Western Australia. Most business was done in Victorian gold mines and in Tasmanian copper mines. Of the latter Mount Lyell was by far the most important. As an indication of the market’s judgment of its prospects the £100 debentures issued in 1895 reached a price of £405 before they were converted into shares late in 1896. In 1897 the volume of transactions was reported to have increased still further, but no direct measurement of the increase appears to have been recorded. The continued low level of interest rates and further advance releases of deferred bank deposits had some effect in increasing the willingness of investors to contemplate more risky investments and in providing dealers with cheap funds with which to speculate. As in the previous year the main beneficiaries of these developments were mining companies. In the case of Victorian gold mines there was also some stimulus deriving from the interest of British investors who from 1896 onwards had shown considerable

227 The Stock Exchange of Melbourne interest in gold mines not merely in Western Australia but throughout Australia and New Zealand. The highlight of the year was the interest in Tasmania copper mines. Mount Lyell’s maiden dividend at the rate of over 23 per cent on its paid-up capital provided the main stimulus. To this was added the formation of the Emu Bay Railway Company which was intended to open up the rugged metal-rich north­ western corner of Tasmania. The prospect of much reduced transport costs and the success of Mount Lyell were sufficient to raise investors’ hopes and to provide considerable opportunities for mining company promoters and for speculative dealers in mining shares. According to the Argus there was a further increase in the volume of share market business in 1898 with transactions in the call room approaching some 50,000. There was rather more interest in bank shares as investors judged that past losses had been covered and that moderate dividends could be expected in the next few years. Else­ where in the investment share market transactions were relatively limited, with the exception of the Emu Bay Railway Company. For climatic reasons the difficulties of completing the line proved to be greater than expected and the company was forced to make a new issue of 8 per cent preference shares. Mount Lyell and its associated companies continued to be the centre of speculative interest in the market. Broken Hill mines, their hopes of solving their metallurgical problems not realised, were once again encountering falling silver prices, and had a very restricted market. Victorian gold output was continuing to rise partly through the increasing use of the cyanide process to re-treat dumps of old mine tailings and partly through the sustained fairly large-scale investment of British capital, but the pros­ perous condition of the industry did not stimulate a general rise in activity in Victorian gold-mining shares. There was somewhat greater business in Western Australian gold mines but it was restricted to a fairly narrow range of securities. The feature dominating the share market in 1899 was the rise in price of base metals that occurred in that year as a consequence of the high level of demand in the United States, Britain, and Europe. Most spectacular of the rises was that in copper which increased from £48 per ton in 1898 to £78 per ton in 1899. Prices of copper-mining shares, most notably those of Mount Lyell and of Chillagoe Railway and Mines Ltd (Queensland), rose in sympathy. At the peak of specu­ lative interest Mount Lyell’s 300,000 shares were valued at £11 each. Its market value of £3,300,000 was considerably in excess of that of the Broken Hill Proprietary Company at the same date. While most

228 Maturity through Adversity, 1893-1900 interest centred on Mount Lyell and on Chillagoe Railway and Mines, copper producers and prospective producers throughout Australia benefited from the rise in metal prices. The percentage increase in the price of lead was comparable with that of copper, but partly because the price of silver increased in a much lesser proportion and partly because the mines were still troubled by ore treatment problems the Broken Hill companies did not share fully in the heightened interest in metal shares. Despite the relative fall in the price of gold that was now occurring, 1899 also saw a speculative boom in Western Australian gold-mining shares. This was essentially a London pheno­ menon. Its echoes in Melbourne were quite muted. Of more signi­ ficance for the local market, especially in the first half of the year, was the continued rise in the price of bank shares. Towards the end of 1899 the share market was seriously disturbed by the outbreak of the Boer War. The interruption to South African gold supplies, at a time when world trade was at a high level, seriously disturbed the London money market. The high interest rates which resulted in London, together with a sharp depreciation in South African gold shares, created difficult conditions on the London Stock Exchange. As London buying and selling orders which had been providing a substantial part of the business transacted on the Stock Exchange of Melbourne were now considerably reduced, the Mel­ bourne market was not long in reacting to London’s difficulties. There were, however, no corresponding increases in interest rates in Australia and the economy in general remained fairly prosperous. Under these conditions the main effect of the Boer War on the local share market was a general reduction in the volume of transactions rather than a decline in the level of share prices. For the greater part of 1900 base metal prices remained at the high levels established in 1899. Even so Mount Lyell, probably the company whose shares were most dealt in during the final years of the decade, suffered a substantial fall in share prices. This was so partly because the high prices of 1899 had not really been justified by earnings prospects, even with the then high price of copper, and partly because the mine was being forced to treat lower grades of ore, with the result that its profit margin was steadily declining. Elsewhere in the market the main item of interest was the continued strengthening of the position of the banks, a number of which had returned to the divi­ dend list in 1899. Despite the high level of base metal prices in 1899 and 1900, relatively few non-gold-mining companies were added to the Melbourne share list during these years. New listings of non-

229 The Stock Exchange of Melbourne

TA B LE 1 2 Market Value of Melbourne Stocks and Shares, 1889 and 1900

Class of securities 1889 1900

Public (£ ’0 0 0 ) (£ ’000) Victorian government 1,478 2 ,798 Local government 861 3,560 Semi-government — 3,472

Total public 2 ,3 3 9 9 ,8 3 0 Companies D e b e n tu r e s 11,578 4,561 Preference shares 653 3,075 Ordinary shares Melbourne banks 9 ,3 2 8 1,838 Other banks 17,439 10,290 I n s u r a n c e 856 4 7 6 Other finance 5 ,5 5 4 643 Building societies 2 ,1 4 3 124 P a s to r a l 3,831 1,400 G a s 2 ,4 4 6 1,836 B re w e rie s 2 ,5 0 2 954 M anufacturing 1,394 990 T r a d e 5 7 4 95 R a ilw a y s 66 0 1,054 Other transport 2 ,8 5 5 1,010 M iscellaneous 122 4 6 6

Total non-mining 4 9 ,7 0 4 2 1 ,1 7 6 Base metals r 10,185 W estern Australian gold 13,908 { 9,673 Queensland gold [ 4 ,9 0 0 Victorian gold 1,775 1,667

Total mining 15,683 26,425 Total ordinary 65,387 4 7,601 Total securities 79,957 6 5 ,0 6 7 No. of non-mining companies 153 68 No. of mining companies 78 62

Sources: As described in text.

230 Maturity through Adversity, 1893-1900 mining companies also continued at the low level which had prevailed almost throughout the nineties. Of those listed in 1899 the Dunlop Pneumatic Tyre Company Ltd is worth noting. As will have been clearly evident from the preceding survey of the share market, transactions between 1893 and 1900 were dominated by developments in the mining industry. There were a few signs of reviving interest in industrial and trading companies towards the end of the decade but they were of an essentially minor character. With private investment other than investment in mining languishing, and with a strong investor preference for security, transactions on the Stock Exchange of Melbourne in the late nineties were concentrated at the extremes of the risk spectrum. The bond market flourished; so too in a somewhat subdued way did speculation in mining shares. In between these limits only the banks provided a substantial volume of stock exchange business. As financial institutions other than the banks had virtually been eliminated from the Stock Exchange by 1893, as trading and industrial companies had also been seriously reduced in number and quantitative significance by the events of the early nineties, and as none of these groups experienced much growth from 1893 onwards, by the turn of the century the stock market was of a very skewed character. That this was so can be seen clearly in Table 12. The main source, as for previous years from 1877 onwards, was the Australasian Insur­ ance and Banking Record, though on this occasion it was supple­ mented by the list of shire and municipal loans published in J. B. Were and Son’s Australian Stock Exchange Intelligence. Like the tables of this type earlier in the book it gives an incomplete coverage of the stock exchange list but it preserves the intention of the Record list which was to include those items on the Melbourne list which were either predominantly owned in Melbourne or in which there was a significant volume of dealings in the Melbourne market. Such a basis of selection seems appropriate for a history that is primarily concerned with the Melbourne share market. The main exclusions in 1900 are a considerable number of minor Victorian gold mines, a number of base metal mines in other states, and a number of invest­ ment securities, the market in which was virtually confined to the share market of the state (other than Victoria) in which the company was registered. Deferred bank deposit receipts which were still avail­ able for dealings but on a much smaller scale than in earlier years are also excluded. Shire and municipal securities, as stated in the J. B. Were and Son publication, have been added to the table because the Record list included them in 1889 but not in 1900.

231 The Stock Exchange of Melbourne The main changes in the relative use of different types of security as reflected in this table as compared with that for 1889 (see p. 168) were a decrease in the use of debentures and an increase in preference shares. The decline in debentures largely reflects the fact that the primarily London-owned debentures of the pastoral companies with the exception of those of Dalgety and Company Ltd, were no longer listed in Melbourne. Dalgety’s debentures account for a large part of the 1900 total. The increased use of preference shares was essentially a by-product of the banking reconstruction schemes. It was not a reflection of the growth in popularity of this type of security similar to that which occurred in London late in the nineteenth century. An alternative, and in some ways more revealing, tabulation of share market values is that in Table 13, which lists in order the dozen largest companies in 1900 as measured by the market value of their ordinary shares. The significant feature of this list, apart from its

table 13 Twelve Largest Companies, September 1900

Market Value Rank Company (£’000) 1 Mount Morgan 4,900 2 Bank of New South Wales 4,450 3 Bank of Australasia 3,000 4 Great Boulder (W.A.) 2,890 5 Lake View (W.A.) 2,813 6 Broken Hill Proprietary 2,400 7 Mount Lyell 2,310 8 Union Bank 2,270 9 Ivanhoe (W.A.) 2,100 10 Associated Mines (W.A.) 1,870 11 North Mount Lyell 1,750 12 Metropolitan Gas 1,395 confirmation of the dominance of mining companies and banks in the share market, is the fact that of these twelve companies only the Broken Hill Proprietary Company, Mount Lyell, and the Metro­ politan Gas Company could be regarded as ‘Victorian’ companies and of them only the Metropolitan Gas Company was by this time pre­ dominantly owned in Melbourne. More generally, of the major com­ panies listed in Melbourne in 1900 Victorian investors owned a

232 Maturity through Adversity, 1893-1900 smaller proportion of the capital than had been the case with the main listed companies in 1890. Conditions in the Melbourne market after 1893 had re-created a bond market and had enabled a less expansion-minded public sector to achieve virtual independence of London, but in the share market the story was different. Local private enterprise had been hesitant and very little new private capital formation had been financed through the stock exchange. What there was consisted primarily of mining investment. At the very time when local private investment was of this character London acquired a taste for Australian mining securi­ ties. While other forms of British investment in Australia languished there was a relatively large flow into mining. The combination of substantial British investment in the one expanding area of the share market and of a relatively small growth of local savings, a high proportion of which was channelled into the public sector, meant that the local Australian share markets, and Melbourne’s in particular, became dependent on London transactions to a considerably greater extent than had been the case before 1890. At the turn of the century the emergence of a stock and share market in which the pattern and level of activity in both sections of the market, bonds and shares, were primarily determined by local conditions still lay well into the future.

The Response of the Stock Exchange The development of a local bond market was partly at the expense of loss of control over the active section of the share market, but on balance by 1900 the Stock Exchange of Melbourne was a more mature institution than it had been in 1893. The strengthening of the local bond market rounded out the financial services which the Exchange could supply. The loss of control in the share market to London, in the sense that prices of the major shares in the market were largely influenced by London buying and selling orders, was a matter of degree. It did not impair the ability of the Exchange to offer share market services to the private sector. The weakness in the structure of the market in 1900 was primarily a reflection of conditions within the economy external to the Exchange rather than a weakness in the organisation of the Exchange itself. As noted earlier, with the onset of the depression in 1891 the Exchange as an institution had been faced with a difficult financial situation. Revenue from such sources as new listing of companies, sales of new seats, and Exchange charges on the transfer of seats fell dramatically. To meet this situation salaries wrere reduced, functions such as that of the reader and the recorder at call room meetings were

233 The Stock Exchange of Melbourne once more performed on an honorary basis, and all forms of expendi­ ture were reduced to the minimum consistent with the effective work­ ing of the Exchange. In addition in 1893 and again in 1895 substantial reductions in the rent paid for the use of its section of the Stock Exchange building were negotiated with the Stock Exchange of Melbourne Company Ltd. These reductions were not merely internal accounting devices. On each occasion the main mortgager of the building, the Australian Mutual Provident Society, agreed to reduc­ tions in its interest charges. Another declining source of revenue, especially in 1894, was that obtained from members’ annual subscriptions. This was so not because of reduced charges but because of an accumulation of seats of deceased members and, still more important, of the seats of insolvent members, in the hands of the Committee. The first part of this problem was handled by an alteration in the rules which made subscriptions a charge on the sales proceeds of the seats of deceased members. The second had a more complicated history. It was a long-standing rule of the Exchange that a member who became insolvent immediately ceased to be a member. Naturally enough some members of the Exchange, especially those who com­ bined jobbing with sharebroking, did not escape the financial difficul­ ties which were endemic in the Victorian economy in the early 1890s. Between early 1892 and mid-1895 seventeen members of the Exchange became insolvent. In relation to the peak membership of 131 and to the financial difficulties of the day this failure rate could hardly be described as excessive, though it certainly was to be exceptional in the history of the Exchange. Partly because of the financial diffi­ culties of the Exchange which resulted from its much reduced membership, and partly because it was believed that the majority of the failures were simply the result of abnormal, adverse business risks, it was decided in 1895 to readmit members who had failed at a reduced fee of £25, on declaration that they had been insolvent, and subject to the normal rules of ballots for new members. Twelve members were readmitted under this ruling. Two who applied under it were rejected at the stage of the members’ ballot. One of these was B. J. Fink. Contrary to Cannon’s assertion that Fink’s secret composition (insolvency) of 1892 was widely known throughout Mel­ bourne it was not until May 1895 that it was alleged and then proved to the satisfaction of the Committee that he had been an insolvent, and it was not until June of that year that the members of the Stock Exchange gave their verdict on the nature of his insolvency.

234 Maturity through Adversity, 1893-1900 The combined effect of all these measures, including the additional income from jobbers’ fees as described in an earlier chapter, was that by 1895 a reasonable balance between the Exchange’s receipts and expenditure had been achieved. This was sufficient for the members to feel it appropriate to give £100 of the Exchange’s funds to the families of miners killed in the South Broken Hill mining disaster of that year. The recovery of the share market from 1895 onwards meant a return to a more satisfactory financial position for the Exchange, but even in 1900 it was still a very much more economy conscious institution than it had been in the affluent days of the late 1880s. The organisation of the market which had developed out of the difficult conditions of 1891 and of the facilities that became available at that time in the new exchange building remained basically un­ changed. In addition to call room meetings at which market prices were primarily determined, subscribers, who were introduced by brokers and approved by the Committee, continued to frequent the Exchange Hall and jobbers continued to be permitted to do business there. Sub­ scribers, of which there were 2,530 by 1899, gave the Committee little trouble, though there were a few occasions on which their right of entry was withdrawn because they had infringed the rules under which they were permitted admittance to the Exchange Hall. This was not so with jobbers, control over whom engaged the attention of the Committee and of members on a number of occasions. The conditions governing the entry of jobbers had been further relaxed in 1894. Shortly afterwards the Chairman claimed that vir­ tually everyone of any significance conducting share business in Melbourne now did so either as a broker or a jobber on the Stock Exchange of Melbourne. That this was a correct judgment is con­ firmed by the fact that for the remainder of the period there is no hint of effective outside competition to the Exchange. It is interesting to speculate whether, if market conditions had been more buoyant in the late nineties, jobbers on the Stock Exchange of Melbourne might have developed in relative status and come to perform the functions of jobbers on the London Stock Exchange. As it was they remained second-class citizens. Their licences were on an annual basis and renewal was not completely automatic. The conditions under which they were allowed to do business were carefully defined in 1895. When, in 1896, they sought greater status by requesting the right to make claims against the sales proceeds of the seats of insolvent members in a manner comparable with that available to members (i.e. brokers), and also the right to charge a transfer fee for their

235 The Stock Exchange of Melbourne licences, their case was quickly dismissed by the Committee. In the quieter market of 1897 a number of them decided to try their luck elsewhere and migrated interstate, especially to the Tasmanian stock exchanges where dealings in the minor Mount Lyell companies created an active business. Those that remained induced the Com­ mittee to reduce their annual fees. With the recovery of the share market in 1898 jobber membership rose again to reach a peak of sixty-one. This enlarged jobber population posed new problems when quieter conditions returned during 1899. Thus in January 1899 it was reported to the Committee that some jobbers were infringing the conditions under which they were supposed to operate; in particular, that they were acting as brokers and as such were charging lower rates of commission than those allowed by the rules of the Exchange. Upon investigation these allegations were confirmed, with the result that the whole question of the function of jobbers was re-examined. It was concluded that while jobbers provided a useful service by bringing additional business to members this was only so on condition that they acted simply as jobbers. It was therefore decided that the existing rules, which amongst other things forbade them to act as brokers, should hence­ forth be strictly enforced. When this policy of tighter control coincided with a depressed share market, as it did in the early years of the twentieth century, jobbing became an unrewarding occupation. Job­ bing alone did not provide an adequate livelihood for the risks involved. Numbers steadily declined. From 1908 onwards, while exist­ ing licences were renewed, no new ones were granted. Under these conditions it was only a matter of time, though not until 1925, that the last jobber disappeared from the Stock Exchange of Melbourne. Apart from the evolution of control over jobbers there were no major changes in the internal organisation of the Stock Exchange between 1893 and 1900. There were some minor increases in the powers of the Committee in 1893. Separate buying and selling broker­ ages were introduced on debentures in 1895 but the single shared brokerage on investment shares was continued. In 1897 the rules were altered so that the Chairman of the Exchange was elected at the annual meeting by the assembled members instead of by the Com­ mittee as had hitherto been the practice. In 1899 concern over the reputation of an outside partner of a member resulted in the present major rides governing outside partnerships. Apart from these changes the other revisions of the rules and regulations that were made were essentially either of a very technical character or directed towards eliminating ambiguities in the existing form of words. While not a

236 Maturity through Adversity, 1893-1900 rule but a convention it is also worth remarking that the 1890s saw the beginning of a lengthy period in the history of the Exchange when the Chairman customarily held office for relatively long intervals. Thus John McWhae was Chairman in 1893 and 1894, and again from 1897 to 1900 inclusive. In the period up to the mid-nineties, when calls on shares of existing companies were fairly frequent, brokers continued to find themselves liable for calls even though they had only been acting as agents at the time when the shares had passed through their hands. In the hope of getting brokers cleared of this form of liability the Exchange backed Clarke & Co. in the case Wilcox v. Clarke 8c Co., regarding it as a test case. When the final decision went against Clarke 8c Co., brokers were deemed liable for calls, even though they had only acted as agents. The Exchange sought permission to appeal to the Privy Council but the right of appeal was not granted. It was this experience that accounts for the phrase in small print on present-day contract notes issued to principals to the effect that ‘All calls and other liabilities to be paid to date’. While the legal position was still rather uncertain the Exchange found that one of its self-imposed rules, intended to prevent the problem of brokers’ liability for calls from arising, was causing it to lose a good deal of business. This was the rule (in operation from 1889 and applying to companies formed after that date) that only no liability mining companies could be included on the official list. On its first approach to the Exchange early in 1894 the Mount Lyell Mining and Railway Company Ltd had to be refused quotation because this rule was still in force. After further consideration it was decided to alter the rule to the effect that limited liability mining companies would be admitted if their shares were fully paid up. This change in the rules enabled Mount Lyell and a number of other companies in a similar position to be listed towards the middle of the year. In the difficult market conditions of 1894 the consequential additional business was judged well worth the possible risks involved. With regard to the development of the share market outside the confines of the Exchange itself two important developments were taking shape in the late 1890s. The practice of underwriting, which was just beginning to become formalised on the London capital market, was introduced to Australia. Mention has already been made of its use for a Metropolitan Board of Works loan in 1898. In 1899 J. B. Were and Son and William Noall and Son were joint under­ writers for the preference share issue of the Dunlop Pneumatic Tyre Company. While the full development of this practice was not to

237 The Stock Exchange of Melbourne occur until much later it is clear from this event that the stage had been reached when Melbourne brokers were able to perform the function of issuing brokers, that is they were able to guarantee the initial success of a new issue. Under Australian conditions brokers were to perform this function so effectively that it was not until the 1950s that specialised issuing houses appeared on the Australian scene. Even after their appearance the bulk of new share issue business continued to be conducted by sharebrokers. The other important development was the progression towards an Australian share market as distinct from six separate state share markets. Despite the strength of federal sentiments in the 1890s the Australian exchanges did not contemplate, any more than they do now, a single federally organised stock exchange. What they were becoming increasingly concerned about was the desirability of develop­ ing Australia-wide practices and conventions for the conduct of share dealings. From the late 1880s onwards there is a steadily growing volume of correspondence in the records of the Stock Exchange of Melbourne between it and the stock exchanges of Adelaide, Brisbane, and Sydney on matters of this kind. As one expression of this interest in uniform practice in 1897 the Committee of the Stock Exchange of Melbourne wrote to the Liverpool Stock Exchange in order to learn how the Associated Exchanges in Britain organised their affairs. Once again the full development of this process lies beyond the period surveyed. It was not until 1903, on the initiative of the Stock Ex­ change of Melbourne, that the first conference of Australian Stock Exchanges was held. It should nevertheless be recognised that the substantial degree of agreement that emerged at this meeting, in­ cluding agreement on such matters as uniform listing requirements and simultaneous listing on more than one exchange, was only pos­ sible because by 1903 there already existed a long history of discussion of exchange problems between the individual exchanges, most of which had occurred during the 1890s. The years between 1893 and 1900 saw the deaths of another group of those members who had played important roles in the history of the institution from its earliest days onwards. Amongst the more distinguished men in this group who died in the years before the turn of the century were F. W. Howard, Gavin G. Brown, William Noall, and Robert Wallen. Howard had been Chairman of the Melbourne Stock Exchange on a number of occasions in the 1870s and early eighties. He was Chairman of the Stock Exchange of Melbourne in 1887-8 and a member of the Committee for a number of years.

238 Maturity through Adversity, 1893-1900 Brown’s name recurs time and again from the early 1860s onwards. He never seems to have served as Chairman but he was one of the ten foundation members of the Stock Exchange of Melbourne and was an active member of the Committee for a number of years, almost until the time of his death in 1899. William Noall, founder of one of the oldest surviving firms on the Exchange, had become a member of the Melbourne Stock Exchange at its first meeting in March 1865. He later served as Chairman of that institution and as both Chairman and Committee member of the Stock Exchange of Melbourne. With Wallen in 1889 he was entrusted with revising and consolidating the rules of the Exchange, a service which was much appreciated by their fellow members. Important though the contributions of Howard, Brown, and Noall were to the development of the Exchange they were not equal to that of Robert Wallen. Partner in the Exchange’s oldest surviving firm, Clarke & Co.; secretary to the first Stock Exchange in 1861; first secretary and later Chairman of the Melbourne Stock Exchange, Wallen was obviously a central figure in the history of the Exchange until his death towards the end of 1893. Apart from his full business career he found time to write a weekly column of comment on men and affairs in the Australasian from 1870 to 1887; to become first editor (1877-85) of the Australasian Insurance and Banking Record, during which period he established those standards of accuracy in statistical collection and objectivity in reporting that, for a generation, made this journal a major influence in Australian financial affairs; and to serve as a trustee of the National Gallery and of the Public Library. With regard to the Stock Exchange of Melbourne narrowly defined, he chaired its foundation meeting; was its Chairman for its first two years of existence, and a member of the Committee until 1891 when with all his fellow members he resigned in accordance with the basic principle that the Committee must have the full support of the mem­ bers. With Noall he helped revise the rules of the Exchange in 1889 and he was frequently called upon to represent the Exchange in dealing with the government and other business institutions. To quote the words of John McWhae, Chairman at the time of Wallen’s death, ‘his enthusiasm was great and his labour untiring for the consolidation and expansion of the Association’. In such an institution as a stock exchange, which is in principle an association of equals and whose development depends on the contri­ butions of many people, it is invidious to select one as its ‘founder’. If, nevertheless, it were necessary to bestow that title on one man in

239 The Stock Exchange of Melbourne relation to the Stock Exchange of Melbourne, then that man would surely be Robert Wallen. Acknowledgment of his contribution, and of that of men like Howard, Brown, and Noall, seems a fitting note upon which to draw this history to a close.

240 Appendix 1 Stock Exchange Chairmen, 1861-1900

The Stock Exchange, 1861-5 1861 W. G. Baillie

The Melbourne Stock Exchange, 1865-84 1865 J. B. W ere 1879 F. How ard 1866 J. W atson 1880 J. Hood 1876 J. Hood 1881 W. Noall 1877 R. W allen 1882 not known 1878 R. W allen 1883 J. W atson

The Stock Exchange of Melbourne, 1884-1900 Year Year ending ending 30 Sept. 30 Sept. 1885 R. W allen 1893 J. W. McWhae 1886 R. W allen 1894 J. W. McW hae 1887 J. Thom son 1895 R. H. Clarke; W. Noall 1888 F. Howard 1896 W. Noall; J. H. Menzies 1889 W . Noall 1897 R. H. Clarke 1890 W. Slade 1898 J. W. McWhae 1891 F. W. Were; 1899 J. W. McWhae J. Watson; J. Arthur 1900 J. W. McWhae 1892 J. Arthur 1901 J. W. McWhae

Sources: 1861 The Stock and Share Journal, 1860-1; 1865 Argus; 1876-83 T he Australasian Insurance and Banking Record; 1884-5 onwards, Records of the Stock Exchange of Melbourne.

241 242 Appendix 2 * j~H •3'S •5 3 u -g u g Z +_> , 4 C/O c b Ö flj u bO

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245 246 Appendix 5

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•s 8 . 1 « o o « n m w n «« n n n » w n ZZZZZZZI Q s o . CO 3 CM I>* 00 C l> oo o —* cm co CD O O ^ 00 00 CO CO oo CO CO CO o 0 0 00 0 0 0 0 0 0 0 0 00 00 co Ü S £ £ “ S c 248 Notes on Sources

From 1884 onwards the detailed institutional history of the Stock Exchange of Melbourne is based on the Exchange’s private records. The most useful of these were the minute books of the meetings of members and of the Committee which are complete back to October 1884. Unfortunately, while they provide an unambiguous record of the decisions taken, it is only rarely that the discussion preceding the reaching of a decision is included. They are, as a result, of much less value to the historian than one might at first think. In addition the Exchange has a formidable collection of records in the form of the Secretary’s letter books, daily price lists, sales records, cash books, records of membership of the Exchange, and company data associated with new listings. Inevitably much of this data has been sampled rather than examined exhaustively. Finally there is a miscellaneous collection of correspondence with other stock exchanges, an assorted collection of the rules and regulations of other Australian stock ex­ changes, and some of the records of the Stock Exchange of Melbourne Ltd, the company formed to acquire the building in which the Exchange operated from 1891. Before 1884 the records of the Exchange and of individual brokers are very slender. This phase in the institutional history of the ex­ change has had to be pieced together essentially from information published in the daily press and in specialised financial journals. For the critical period from early 1860 to early 1861 The Stock and Share Journal edited by Robert Wallen (copy in the possession of the Stock Exchange of Melbourne) was invaluable. More generally the Argus (from 1852) and the Australasian Insurance and Banking Record (from 1877 on) proved to be indispensable. For the periods for which they are available The Examiner (July 1858-June 1863) and its successor the Australasian (from April 1866) were useful. Occasional reference was made to the Age.

249 Notes on Sources At no time before 1900 is there adequate evidence on the detailed operations of share broking firms as distinct from the Exchange itself. Two privately produced firm histories (R. N. Hughes-Jones, Wm. Noall & Son (Melbourne, 1959) and J. B. Were & Son, The House of Were, 1839-1954 (Melbourne, 1954) provide some glimpses of the required information but it is, in a technical sense, very incomplete. Other published information on stock exchange history in Australia is very scrappy. G. R. Bruns, The Stock Exchange (Sydney, 1951) and F. O. Steel, Short Sketch of the Early History of the Sydney Stock Exchange (Sydney, 1939) contain some useful information. Valuable for its insights into the attitudes of professional operators on the stock exchange is G. D. Meudell’s somewhat scandalmongering The Pleasant Career of a Spendthrift (London, 1929). Meudell was a member of the Stock Exchange of Melbourne during the 1890s. Michael Cannon’s chapter on the stock exchanges in The Land Boomers (Melbourne, 1966) is inaccurate in many important respects both on the history of the economy and on the stock exchange’s role at the relevant time. He fails to distinguish clearly between the Stock Exchange of Mel­ bourne and its more speculative competitors and tends to equate business failure with dishonourable dealings. A background knowledge of the way in which the London Stock Exchange operated in the nineteenth century is essential for an under­ standing of the history of stock exchanges in Australia. A useful history, which contains further references, is E. V. Morgan and W. A. Thomas, The Stock Exchange : Its History and Functions (London, 1962). Some of the more specific links between the London and Australian share markets are indicated in my The London Capital Market and Australia 1870-1914 (Canberra, 1963). In the periods both before and after 1884 reference to the periodi­ cals mentioned earlier was essential in order to provide the narrative of share market events. From this point of view pride of place must be given to the Argus, whose annual collection of company dividends from 1867 to 1898 (see Appendix 4) came to be supplemented by annual reviews of the share market. By the 1880s, when these reviews appear to have been written by J. Thomson (Chairman of the Exchange in 1886-7), they are exceptionally knowledgeable commen­ taries on events in the market. Daily, weekly, fortnightly, and monthly comments are also available in the Argus at various times in the half- century surveyed. Towards the end of the period J. B. Were and Son’s Australian Stock Exchange Intelligence (from 1895), a microfilm copy of which is in the Menzies Library, Australian National University, was useful.

250 Notes on Sources Just as there are no previous studies in depth of stock exchanges in Australia, so too is much of the history of the other institutions, which together make up a capital market, unwritten. S. J. Butlin, Australia and New Zealand Bank (London, 1961) and G. Blainey, Gold and Paper (Melbourne, 1958) are extremely valuable firm his­ tories and, in their method of treatment, usefully supplement each other, but there is still no ‘technical’ survey of the banking system in the second half of the nineteenth century comparable with S. J. Butlin’s Foundations of the Australian Monetary System 1788-1851 (Melbourne, 1953). There is much valuable information on building societies and the financing of the pastoral industry in N. G. Butlin, Investment in Australian Economic Development 1861-1900 (Cam­ bridge, 1964). The latter field has also been explored by J. D. Bailey, A Hundred Years of Pastoral Banking. A History of the Australian Mercantile Land & Finance Company 1863-1963 (Oxford, 1966); by N. Cain, ‘Capital Structure and Financial Disequilibrium: Pastoral Companies in Australia 1880-1893’ (Australian Economic Papers II, June 1963) and ‘Financial Reconstruction in Australia’ (Business Archives and History IV, August 1966); and by A. Barnard, Visions and Profits (Melbourne, 1961); but none of these writers would claim that their respective accounts of building societies and pastoral finance fully explore these fields. Much less satisfactory is the history of savings banks. There is a brief historical perspective in the relevant chapter in R. R. Hirst and R. H. Wallace (eds.), Studies in the Australian Capital Market (Melbourne, 1964), and T. Craddock and N. Cavanough, 125 Years: the Story of the State Savings Bank of Victoria 1812-1966 (Melbourne, 1967) is useful, but from many points of view one is forced back to the State Savings Bank’s (and its pre­ decessor’s) annual reports which are available throughout the period in the Votes and Proceedings of the Victorian Legislative Assembly. The history of the life insurance companies as investors is still un­ explored though the statistical information is fuller (Votes and Pro­ ceedings) than for other colonies. Also still untouched is the history of Victorian public finance. N. Lamb’s work on New South Wales public finance, largely unpublished, provides some guidance in this area; see, for example, his ‘Early Overseas Borrowing by the New South Wales Government’ (Business Archives and History IV, February 1964). There is no satisfactory history of company law in Victoria and in particular no work has been done on the history of Victorian mining company law. The story told here has been gleaned from the relevant statutes, from the Victorian Parliamentary Debates, from reports of

251 Notes on Sources legal decisions, mainly in the press, and from general comments in the press. Of particular use for the earl) history of mining law was the collection of statutes and mining regulations in Acts of Parliament, Bye-laws and Orders in Council relating to the Goldfields (Melbourne, 1862). Also useful was F. Strahan, ‘The Growth and Extent of Company Mining on the Victorian Goldfields in the 1850’s’ (B.A. Hons thesis, Melbourne, 1955). The history that was of most relevance to the history of the stock exchange clearly was that of the Victorian gold-mining industry. Its full history has yet to be written. Fortunately the broad outlines of its growth can be traced in G. Blainey, The Rush That Never Ended (Melbourne, 1963), which is also invaluable for its account of the history of the other major minerals in Australia, all of which signi­ ficantly influenced the course of stock exchange history. While refer­ ence had to be made to many works on the history of gold mining all of them, with the exception of R. Pauli, Old Walhalla (Melbourne, 1963) and J. H. M. Salmon, A History of Gold Mining in New Zealand (Wellington, 1963), are discussed in Blainey’s bibliography. Repetition of their titles here would not serve any useful purpose. The general histories of Victoria that were of use were G. Serie, The Golden Age. A History of the Colony of Victoria 1851-1861 (Melbourne, 1963) which is essential reading for its period; H. Gyles Turner, A History of the Colony of Victoria (2 vols., London, 1904) which is valuable partly because Turner was one of the colony’s leading bankers during the last quarter of the nineteenth century; and J. Grant and G. Serie, The Melbourne Scene 1803-1956 (Melbourne, 1957). The account of the economic development of Victoria has naturally benefited from the standard economic histories of T. A. Coghlan, Labour and Industry in Australia (4 vols., London, 1918), E. Shann, An Economic History of Australia (Cambridge, 1930), and B. Fitz­ patrick, The British Empire in Australia (Melbourne, 1941), of which the oldest is still the best. Though 0111' interpretations differ in many respects I am naturally also greatly indebted to N. G. Butlin and his major works Australian Domestic Product, Investment arid Foreign Borrowing 1861-1938/39 (Cambridge, 1962) and Investment in Aus­ tralian Economic Development 1861-1900 (Cambridge, 1964). One of the main drawbacks of all these works from the point of view of this history is that they have all tended to concentrate on the economic history of Australia, with the result that the distinctive regional elements of the Victorian economy sometimes get blurred.

252 Notes on Sources These general works have been supplemented by the more specialist studies of J. D. Bailey, Growth and Depression: Contrasts in the Australian and British Economies 1870-1880 (Canberra, 1956), which contains a separate chapter on the Victorian economy, and of W. A. Sinclair, Economic Recovery in Victoria 1894-1899 (Canberra, 1956). Of these the latter is the more useful. For these and other periods the distinctive Victorian flavour of the development of the Australian economy has also been sought in the press, especially in the Argus. Its annual surveys (1886-98) and its monthly (later fortnightly) reports of events for the European mail boats provide a very convenient running commentary on many aspects on the economy. These com­ mentaries have been supplemented by the mass of statistical data incorporated in the Censuses of the Colony of Victoria (1861-1901), the Victorian Statistical Registers (1860-1900), the Victorian Year Books (1873-1900), and T. A. Coghlan, A Statistical Account of Australia and New Zealand 1903-4 (Sydney, 1904). Apart from these official statistics, series have been collected on the banking system and the assets of the life assurance offices (mainly from the Australasian Insurance and Banking Record) and on company dividends (Appen­ dix 4), interest rates (Appendix 5), the exchange rate, and Melbourne bank clearings, from the Argus and the Record. A study of these assorted statistical series, together with the qualitative press reports, has sometimes led me to an interpretation of economic events in Victoria that is different from that of other professional economic historians, but it is not a simple task to explain how and why these differences have arisen. Rather than enter into lengthy technical debate which would have hampered the telling of the story for those for whom it is primarily intended I have preferred to let my narrative speak for itself and to state my own position as clearly as possible. Those who see the story differently should be able to make their own judgments about the strengths and weaknesses of my argument.

253 Index

Act to amend the Laws relating to the Australasian Insurance and Banking Gold Fields (1855), 15 Record, 25, 99, 101, 103, 144, 190, Adelaide, 126, 151, 197, 226 191, 214, 231, 239, 241, 248 Adelaide Stock Exchange, 198, 238 Australasian Steam Navigation Com­ Admission, rules of, 31, 100, 179, 180 pany, 3, 6 Advertising of shares, 10, 105-6, 133, Australian and European Bank, 88, 89 177, 178 Australian economy, see Economy ‘Aegles’, see Robert Wallen Australian Financial Agency and Age, 33, 45 Guarantee Company, 188, 189 Age structure of Victorian population, Australian Marine Insurance Com­ 51-3, 118 pany, 6 Agriculture, 36, 54, 55, 56, 94, 211, 212; Australian M utual Provident Society, see also Harvests, Wheat industry 1, 42, 111, 112, 181, 220, 234 Albion Company, 69 Australian Open Exchange Company, Alluvial gold mining, 14, 15, 16, 54, 167, 173, 188 55, 66, 69, 74, 75, 78, 79, 89-90, 168, Australian Stock Exchange Intelli­ 206, 244-5; see also Deep leads gence, 231 Amalgamated Society of Carpenters Australian Stock Exchanges, conference and Joiners, 148 of, 238 Anglo-Australian Bank Ltd, 154 Australian Widows’ Fund, 73, 111 Annabella Company, 76 Annual subscriptions, 32, 103, 234 Bagshot Mining Company, 21 Apollyon Company, 135 Bailey, J. D., 70, 112 Archer, W. H., 36 Baillie, Butters and Co. (usually Bail- Argentine, the, 126, 151, 213 lie and Butters), 22, 23, 24, 32, 33-4, Argus, 3, 10, 11, 12, 23, 33, 37, 86, 89, 40, 45, 46, 108; see also Baillie, W. 97, 106, 109, 121, 128-74 Passim, 197, G. and Butters, J. S. 208, 209, 210, 228, 245, 248 Baillie, W. G., 32, 109 Arthur, J., 241 Baker and Renaud, 11 Associated Banks, 8, 39, 41, 85, 89, 127, Balanced budgets, 125, 153, 204, 216-17 131, 153, 156, 158-9, 167, 176 Balance of payments, 122, 208, 212; Associated Exchanges (Britain), 238 disequilibrium in, 86-7, 118, 124-5 Associated Mines (W.A.), 232 Ballarat, 14, 17, 19, 22, 27-41 passim, Association for the Protection of Mel­ 59-79 passim, 90, 96, 107, 136, 165 bourne Mining Shareholders, 41 Ballarat Board of Mines, 17 Auction sales, 187-8 Ballarat Gas Company, 9 Australasian, 78, 80, 81, 99, 103, 239 Ballarat School of Mines, 79 Australasian Agency and Banking Cor­ Ballarat share market, 27, 41, 48, 64, poration, 95, 112 66, 107

255 Index Ballarat Stock Exchange, 59, 102, 107 135, 165-6, 168, 225, 226 Band and Albion Consolidated Com­ Bendigo Bank, 46 pany, 69, 80, 91, 98, 171 Bendigo Council, 219-20 Band of Hope Company, 69 Bendigo Gas Company, 9 Bank advances, 61, 70, 84, 85, 93, 108, Bendigo share market, 27, 34, 48, 78, 110, 119, 128, 131, 132, 134, 144, 150, 80-3, 107 151, 162, 167, 214, 224, 246-8 Bendigo Stock Exchange, 102, 107; see Bank Charter Act, 64 also Beehive Bank clearings, 71, 84, 85, 123, 132, Bendigo Waterworks Company, 20-1, 161, 209, 210; see also Melbourne 46 Bank Clearing House Berry Consols, 147, 165, 171 Bank credit, 64, 108, 110, 212 Bill-discounters, 108 Bank deposit rate, 65, 67, 72, 87, 93, Bills of exchange, 46, 108, 131 94, 126, 128, 129, 139, 151, 152, 157, Bill to amend the Mining Companies 209-10, 211, 224, 246-8; see also In­ Limited Liability Act, 77 terest rates Blainey, Geoffrey, 10, 42, 59, 63, 74, Bank deposit receipts, 208, 224, 227, 113, 122, 124 231 Blank transfers, 194 Bank deposits, 39, 42, 63, 65, 67-8, 70, Block 10 Company, 140, 152, 171, 174, 88, 93, 110, 111, 127, 128, 131, 132, 175, 223 139, 151, 157, 160, 207, 210, 211, 213- Blundell, M. P„ 33 14, 224, 227; in Britain, 208, 210, 214 Boer War, 229 Banking reconstructions, 159-60, 207-8, Boiling-down establishments, 72 209, 223, 224, 225, 227, 232 Bold, Geo. T., 33 Banking shares, 37, 38, 64, 68, 72, 73, Bond market, 7-8, 95, 134, 215-21, 224, 87, 88, 95, 159, 164, 176, 192, 208, 231, 233; see also Government secu­ 223-31 passim rities Banking system, see Monetary system Boom, 113-14, 125-6, 128, 155, 159, 182, Bank investments, 6, 18, 22, 42, 108, 200, 201, 207, 213, 217 214-15 Boroughs Statute (1869), 87 Bank of Australasia, 1, 3, 6, 7, 39, 160, Branch share registers, 88, 170 232 Bread prices, 65, 67, 150 Bank of issue, see Banks Breweries, 58, 95, 138-9, 149, 169, 230 Bank of New South Wales, 1, 3, 58, Brick production, 148 160, 208, 223, 232, 245 Brisbane, 139, 197, 198 Bank of New Zealand, 128 Brisbane Stock Exchange, 198, 238 Bank of Victoria, 3, 9, 46, 83, 171, 227 Britain, 37, 49, 61, 117, 124, 126, 129, Bank rate, 64, 128 133, 138, 155, 159, 168, 228; see also Bankruptcy, 108 England Banks, 2, 5, 12, 41-2, 48, 57, 58, 63-72 British Bank of Australia Ltd, 154 passim, 83-96 passim, 118-19, 124, British Broken Hill, 140, 166, 171 126, 143-69 passim, 174, 197, 213-15, British capital, 64, 86, 93, 94, 117-18, 219-25 passim, 244-5; see also other 124, 131, 198, 206, 209, 214, 228, 233; Bank entries see also Investors, British, Capital Baring Brothers, 151; crisis, 152, 166, imports, London capital market 173, 215 British Investors, see Investors Barrier Ranges Silver Mining Associa­ British life insurance offices, 130 tion, 98, 135 British savings, 118, 129, 202, 217 Base metals: companies, 230, 231; Brodie and Co., 24, 32; see also Brodie, prices, 228, 229 George Bearing operations, 142 Brodie, George, 29, 31, 32 Beckwith, T. W., 177 Broken Hill, 81, 121-3, 135, 136, 140-1, Beehive, the, 80, 81, 82, 102; see also 152, 163, 166, 168, 174, 199 Bendigo Stock Exchange Broken Hill Proprietary Block, 14, 140 Bendigo, 17, 22, 27, 28, 40, 59, 60, 73- 165, 171 83 passim, 89, 90, 96, 98, 102, 107, Broken Hill Proprietary Company,

256 Index 121-3, 135, 136, 140-2, 150, 152, 165, Cash transactions, 108, 162 166, 170, 171, 174, 175, 196, 223, 228, Castlemaine, 17 232 Castlemaine and Quinlan Gray & Co. Broken Hill silver mines, 98-9, 122, Ltd, 139 125, 140-2, 150, 161, 165, 166, 170, Castlemaine Brewery, 138 174, 175, 194, 197, 199, 223-4, 225, Castlemaine Gas Company, 9 228, 229 Census, Victorian, 1, 50, 51, 53, 54, Broken Hill South, 137, 140, 141, 171, 115, 205, 206 223, 235 Centennial Exhibition, 132-3, 163, 167 Brokers, see Sharebrokers Central Broken Hill, 137, 140, 141, Brokerage rates, 25-6, 32, 101, 106, 167, 166, 171 219, 220 Chairmen of the Stock Exchange, 99- Brown, Gavin G„ 25, 30, 32, 34, 35, 46, 100, 184, 185, 190, 194, 221, 236-41 63, 108, 177, 179, 190, 238-9, 240; see passim; Baillie, 109; Hood, 196; Mc- also Gavin G. Brown & Co. Whae, 159, 176, 220; Noall, 226; Brown v. Cassius, 29-30 Thomson, 161; Wallen, 25, 177, 179; Bryant, Edwin, 24 Were, 34 Building boom, 52, 72, 93, 94, 113, Chapman & Coggins, 32 118-19, 128, 143, 155, 198; ‘high rise- Chapman & Wakley, 188 buildings, 117 Charitable acts, 196-7, 235 Building industry, 35, 36, 57, 68-72 Cheap money, 63, 64, 80, 84, 97, 151; passim, 84, 85, 86, 93, 94, 118, 119, see also Interest rates 126-32 passim, 139, 143-52 passim, Chewton Sluicing Company, 21 198, 205-6, 207, 210, 212 Chillagoe Railway and Mines Ltd, 228, Building societies, 1, 43, 68, 95, 112, 229 124, 129, 148-54 passim, 158, 159, City of Melbourne Bank, 87, 88, 89, 164, 169, 171, 210, 223, 230 171, 208, 210, 225 Bullion dealing, 46; see also Gold City of Melbourne Building Society, brokers 153 Burra Burra Mines Company, 10 City of Melbourne Gas and Coke Butlin, N. G„ 112, 113, 117, 121, 144 Company, 3, 4-5, 9, 65, 88 Butlin, S. J., 7, 159 City of Sandhurst Mining Company, Butter production, 121, 125, 152, 213; 82 butter and cheese industry, 146, 204; Clark, W„ 194, 227 see also Dairying Clarke & Co., 11, 25, 35, 68, 99, 105, Butters, J. S., 32, 109, 180; see also 107, 165, 178, 188, 237, 239; see also Baillie, Butters and Co. William Clarke & Sons Clarke, A. E., 177, 178; see also Clarke Cain, N., 208 & Co. Call room: system, 25, 29, 44, 102, 172, Clarke, C. E., 177 186, 233, 235; transactions, 102, 137, Clarke, H. J., 32 161-2, 227, 228 Clarke, R. H„ 241 Calls on shares, 22, 45, 62, 63, 66-7, Clarke, William, jun., 32 75-7, 78, 83, 90, 91, 96, 97, 143, 145, Clay, Thomas, 32 165, 207, 208, 223, 224, 225, 237; Clerks (of brokers), 30, 109 brokers’ liability for, 194-5, 237 Cluncs, 17, 40, 78, 91 Cannon, M., 154, 181, 187, 234 Coal, 151, 166, 205 Capital appreciation, 118 Coal-mining companies, 194, 225, 227, Capital exports, 40; Victorian, 84, 94 242 Capital gains, 20, 90, 165, 183 Coggins, Thomas, 32 Capital imports, 40, 118, 124, 130, 149, Coghlan, T. A., 113 163, 208, 211, 233 Collingwood Gas Company, 9, 88 Capital inflow, see Capital imports Collins Street, 10, 81, 82, 102, 108, 128, Capital values, 155-6, 203 137, 177 Carter, G. D., 159 Colonial Bank of Australasia, 9, 10, Cash reserves, 128, 158, 160, 212 33, 171, 210, 220

257 Index Colonial Insurance Company, 9 Dairying, 204, 205, 212; see also Butter Colonial Mutual, 73, 111 production Commercial Banking Company of Syd­ Dalgety and Company Ltd, 232 ney, 3, 6 Danburghy and Baillie, 11 Commercial Bank of Australia, 63, 68, Daniel W hite and Co., 146 73, 87, 89, 153, 159, 160, 171, 227 Davies, Sir Matthew, 156, 158 Commercial Bank of South Australia, Day Dream mine, 135 135 Deakin, Alfred, 120, 153 Commercial buildings, 35, 68, 143, 148, Debentures, 4, 10, 26, 37-8, 39, 65, 72, 204 87, 88, 134, 145, 167, 168, 220, 226, Commissioners’ Savings Bank, 8, 42, 230, 232, 243; remittable, 8, 38, 39; 110-11 see also Company debentures, Committee for General Purposes, 31 Government securities Committee of the Stock Exchange, 24, Deep leads, 14, 17, 19, 38, 40, 41, 61, 99-100, 161, 180-96 passim, 216-22 64, 74, 79, 91, 96, 135, 147 passim, 234-9 passim Defaulters, 31, 100 Companies Act (British, 1855), 5 Denomination of shares, 10, 25, 39, Companies Statutes: British (1862), 5, 165, 170 43-4; Victorian (1864), 43, 144, 194 Depositors, 89, 96, 153-5, 158, 159, 160, Company debentures, 4, 10, 37, 58, 65, 207 145, 168, 169, 232, 243 Deposits, 46, 123, 132, 145, 151, 153, Company directors, 19, 20, 78, 89, 154, 171, 181; in Britain, 94, 123-4 158, 172 Department of Mines, 81-2 Companies: formation, 2-6, 8-10, 44, Depression, 8-9, 52, 64, 67, 70, 71, 79, 59, 62, 63, 65, 72, 95, 97, 107, 130, 84, 85-6, 95, 110, 117, 119, 123, 125-6, 131, 134, 138, 139, 144-6, 163, 170, 151-61, 172, 188, 194, 197-209 passim, 189, 195, 198, 223, 225, see also Gold­ 221, 223, 233 mining companies; law, 43-4, 76-7, Diamond drill, 91, 97 189, see also Companies Statutes, Dicker’s Mining Record, 41 Mining law; management, 19-20, 41, Discount rate, 63, 65, 110, 151, 246-8; 124, 162, 168, 208 see also Interest rates Completion (of stock exchange tran­ Disputes between members, 100, 185, saction), 100, 108, 160 190-1 Confidence, business, 124, 125, 155-9 Dissavings, 123, 153 passim, 161, 176, 207, 213 Diversification, 121, 201-7 Consumer spending, 65, 67, 118, 131, Dividend mines, 26, 77, 90, 91, 169 150, 202, 204 Dividends, 41, 42, 59, 66, 69, 70, 74, Contract note, 192, 237 79-98 passim, 122, 136, 140, 147, 150, Convertible note, 226, 227 152, 165, 170, 174, 175, 225, 228, Coolgardie, 206 229, 244-5; guaranteed, 163 Co-operative mining, 15, 40, 60-1 Dix, W. F., 190-1 Copper, 221, 225; mines, 221, 227, 228, Donaldson’s Investor’s Guide, 188 242; prices, 221, 228, 229 Drought, 61, 69, 70, 71, 84, 85, 90-1, ‘Corner’, the, 102; see also Ballarat 94, 127, 156, 174, 198-212 passim, 222 Stock Exchange ‘Dummyism’, 76-7 ‘Cost book’ mining, 15, 16 Dunlop Pneumatic Tyre Company Costs. 4, 36, 60, 69, 94, 120, 123, 152, Ltd, 231, 237 170, 175, 204, 205; of issue, 219 Court of Mines, 15, 18 Earnings of brokers, 26, 46-7, 64, 107, Court of Petty Sessions, 18 180, 193 Credit transactions, 97, 108, 162, 163 Economy: Australian, 48, 49, 52, 113, Creswick, 91, 96, 134, 135, 165, 168, 117, 124, 149, 152-3, 198, 206, 208, 226 214-15. 224, 233; urban, 85, 119; Vic­ Cropper, W. H., 25, 32, 34, 35, 46 torian, 2, 35-6, 43, 48-57, 61, 69-71, Crown leasehold tenure, 17 84-7, 90, 92-4, 113-33, 144, 147-61, Cyanide process, 228 163, 197-200, 201-15, 224, 233

258 Index

Edlin, W illiam, B., 32 Financial companies, 3, 58, 93, 123, Education Act (1872), 52 138, 142, 145, 230, 231, 244-5 Egerton, 78, 171 Financial crisis (1893), 113, 124, 157-61, E. Khull & Co., 25, 32; see also Khull, 223 E. Fink, B. J., 180, 181, 234 Electric Light and Power Supply Com­ Fisher, C. M„ 177, 196 pany, 146 Fitzroy Gas Company, 9 Electric street lighting, 88 Fleming, F. J., 105 Emigration, 52, 53, 55, 85, 93, 206 Ford’s boring machine, 74 Emmett, E. N., 32, 46 Foreign exchange, 7, 8, 21; see also Employment, 2, 35, 36, 40, 52-5 passim, Exchange rate 71, 86, 114, 122, 125, 149, 150, 153, Fortfeiture system, 76-7, 79 170, 174, 203-6 passim, 212; see also Forty-four-hour week, 147-8 Full employment Franco-Prussian War, 71, 84 Emu Bay Railway Company, 228 Fraser, J. R., 11 England, 64, 88, 109, 134; see also Fraud, 89, 124, 154-5, 164, 172 Britain Freedom of quotation, 104-5, 177, 179 English and Australian Mortgage Freights, 120, 211 Bank, 171 Frozen meat industry, 204, 212 English Scottish and Australian Bank, Full employment, 84, 93, 94, 117, 143, 227 149, 213 English Scottish and Australian Char­ tered Bank, 6 Gabrielli, —, 6, 8 Entrance fees, 32, 100, 178, 234; see Garden Gully United Company, 90 also Annual subscriptions Gas, 6, 9, 57, 58, 88, 230; companies, Entrepot trade, 36, 208 5, 9, 12, 37, 58, 87, 88-9, 169, 223, Europe, 213, 228; European economy, 230, 244-5 84 Gavin G. Brown & Co., 24, 32, 105; Everard, John, 32 see also Brown, Gavin G. Examiner, 22 Geelong and Melbourne Railway Com­ Excess capacity, 119, 123, 130, 203, 205, pany, 3, 4, 38 213 Geelong, Ballarat and North Western Exchange building, 177, 178 Railway Company, 9 Exchange rate, 21, 42, 64, 86, 110, 124, Geelong Gas Company, 9 125; see also Gold points Geelong Insurance Company, 6 Expenditure, 49, 65, 85, 125, 127, 153, Gilt-edged securities, 65, 95, 134; see 157, 213 also Bond market, Government secu­ Export prices, 210; see also individual rities commodities Gippsland mines, 79 Exports, 61, 63, 71, 86, 93, 94, 120, 122, Gold, 2, 9, 13-18, 21, 40, 43, 52, 54, 55, 125, 126, 146, 149, 152, 204, 205, 211- 61-73 passim, 78, 83, 84, 86, 96-8, 14 passim, 222 121, 175, 204-12 passim, 225, 229; see External imbalance, 86-7, 124, 125; see also Alluvial gold mining, Gold­ also Balance of payments mining industry Gold brokers, 11, 42, 46 Factories, see Manufacturing Goldfields, 2, 4, 9, 22-3, 40, 41, 52, 54, Failures, business, 6, 70, 89, 96, 108, 60, 61, 107, 117, 134, 173, 206 124, 135, 153-5, 156, 158, 162, 164, Gold Fields Act (1857), 15, 17 172 Gold market, 11, 42 Farmers, 120, 127, 211, 213; see also Gold miners, 17, 54, 55, 56, 77, 211 Wheat industry Gold-mining companies, 15-22, 28, 36, Federal Bank of Australia, 95, 158-9, 40, 43-4, 58, 59, 62-3, 66, 69, 75, 79, 171, 176 81, 89-92, 96-8, 107, 138, 139-40, 145, Federal Coffee Palace, 148 169, 223, 225, 242, 244-5 Federal Stock Exchange Company Ltd, Gold-mining industry, 5, 13, 19-20, 35, 186 36, 40, 41, 48-63 passim, 66, 69, 73-

259 Index 83, 85, 86, 90-2, 96-8, 114, 120, 125, Horton & Everard, 25 129, 173, 175, 199, 205, 221-8 passim; Housing, 112, 204; inadequacy, 36; in­ Co-operative mining, 15, 40, 60-1; crease in construction and housing depths of working, 14, 15, 16-17, booms, 68, 84, 117, 129, 143; slacken­ 40-1, 54, 69, 73, 79, 91, 98, 134, 166, ing of demand, 118, 119, 127; slow 175, 225; financial difficulties of, rate of growth and demand, 51, 52, 75-8; organisation of, 20, 74-5, 77-8; 148; slump, 93 scale of operations, 13, 17-18, 40, 62, Houston & McDonnell, 32 78; technical change in, 17, 20, 74-5, Houston, John, 32 79, 97, 228 Howard, F. W„ 178, 238, 241 Gold-mining shares, 13-18, 26-7, 28, 29, Hustler’s Reef mine, 40, 83 37-8, 40, 41, 58, 61, 90-1, 96-8, 130, II. Wilson and Co., 188 134, 135, 139-40, 146-7, 165-6, 173, 175, 197, 199, 223-31 passim Gold points, 21, 64, 110 Immigration, 2, 51, 52, 55, 65, 93, 117, Gold rushes, 2, 9, 15, 17, 40 133 Goldsbrough Mort & Co., 171, 208, Imperial Banking Co. Ltd, 154 223; see also R. Goldsbrough & Co. Import prices, 174; see also Terms of Ltd trade Gold standard, 125 Import replacement, 49, 204 Goodall, J., 176 Imports, 6, 36, 49, 61, 63, 65, 86, 93, Government borrowing, see Govern­ 94, 124, 125, 127, 131, 149, 150, 208, ment securities 209 Government capital formation, see Income, 65, 70, 71, 84, 85, 93, 123, 124, Public investment 125, 131, 142-57 passim, 163, 170, Government expenditure, 57, 86 201-5 passim, 211, 212, 213, 219, 222 Government railways, 4, 8, 38; see also Incorporation of companies, see Com­ Railways panies (formation) Government revenue, 94, 125, 153, 174, Industries, urban, 119, 120, 126, 204, 195, 204, 209, 216 205-6 Government securities: Australia, 152, Inscribed stock, 87, 134, 209; see also 173, 214-15; New South Wales, 8, 39, Government securities 68, 220; New Zealand, 39-40, 61, 107; Insolvents, 31, 46-7, 194, 234 Queensland, 65, 107; South Aus­ Institutional saving, 111, 219 tralia, 8, 39; Tasmania, 65; Victoria, Insurance companies, 1, 5, 6, 12, 37, 6-8, 37-40, 45, 58, 61-7 passim, 70, 42, 57, 58, 145, 169, 230, 244-5 72, 86-95 passim, 107, 111, 123-34 Interest rates, 39, 40, 41, 61-73 passim, passim, 139, 150-6 passim, 167, 169, 84-96 passim, 98, 110, 111, 117-18, 173, 174, 206, 207, 209, 215-21, 230, 119, 126-35, 139, 143, 144, 151, 152, 243; Western Australia, 88 153, 157, 158, 166, 167, 181, 206, 207, Great Boulder mine, 226, 232 210, 211, 216, 217-18, 224-9 passim, Great Extended Hustlers mine, 80 246-8; London-Australia differential, Griffiths, G. S., 177 111, 117-18, 211, 217-18, 220; see also Guaranteed dividends, 163 Bank deposit rate, Cheap money Interminable deposit stock, 207 Haig, R. G„ 33 International Exhibition (1880), 92-3 Hall of Commerce, 11, 81, 102 Investible funds, 65, 157, 217 Harvests, 63, 65, 67, 85, 86, 125, 126, Investment, 2-3, 50, 52, 60, 62-3, 70, 76, 130, 149, 150, 152, 208, 212; see also 84, 86, 93, 94, 114, 115-16, 117-23, Agriculture, Wheat industry 130, 149, 199-205 passim, 208, 224; Hellicar and Comer, 11 see also Private investment, Public ‘High Change’, 161 investment Hobart Stock Exchange, 198 Investment opportunities, 2, 49, 50, Hood, John, 196, 241 204 Horse omnibus company, Melbourne’s ‘Investment’ securities, 37, 57-9, 65-72 first, 72 passim, 87, 88, 90, 94-6, 104, 133-43

260 Index passim, 161, 164, 165, 174, 189, 199, Land sales, 72, 84, 128, 132, 143, 144, 221, 224-31 passim, 242, 244-5 147, 154 Investors, 8, 10, 12, 19-20, 26, 39, 40, Land speculation, 118-19, 122, 123, 126, 41, 44, 45, 59-73 passim, 75-6, 78-9, 130, 131, 132, 143-4, 149, 154-5, 161, 80-3, 88, 90, 91, 96, 97, 98, 101, 106, 163, 164, 183 108, 137-43 passim, 161, 162, 165, Lansell’s 180 mine, 166, 225 176, 187, 194-9, 206, 207, 208, 217, Legislative Assembly, 67, 85, 105, 109, 221, 227, 228, 231, 232; British, 3, 144-5, 158, 196 122, 129, 155, 156, 203, 208, 215, 223, Legislative Council, 6, 67, 85, 105 226, 227 Life Assurance Act of 1870 (England), Ireland’s Act, see Mining Companies 111 Act (1855) Life Assurance Companies Act 1873 Irrigation works, 114, 121 (Victoria), 111 Issuing houses, 44, 107, 189, 238 Life insurance, 1, 42-3, 111-12, 220; Ivanhoe mine, 226, 232 British offices, 130; see also indivi­ dual firms J. B. Were and Son, 25, 105, 107, 163, Limited liability, 5, 9, 15, 18, 44, 59, 178,179,231,237 75-7, 138, 139, 147, 188, 189, 194-5, J. Donaldson and Co., 188 237; companies, 5, 6, 20, 43-4; see Jobbers, 27-32, 34, 101-2, 103, 142, 164, also Companies (formation), No 172, 187, 188, 190, 193-4, 234, 235; liability mining companies jobbing brokers, 29, 234 Limited liability broking firms, 147, Johnson’s Reef mine, 175 167, 188 Joint Stock Bank of Victoria, 95 Lion Brewery, 139 Joint stock company, see Companies Listing of companies, 134, 137-8, 146, (formation) 167, 189, 233, 238; new companies, Junction mine, 137, 140, 171 241; see also Official list Liverpool Stock Exchange, 24, 31, 46, Rabat, Felix, 108 101, 238 Kalgoorlie, 206, 226 Loan raising, see Government securi­ Kalgoorlie Stock Exchange, 226-7 ties Keane, M. J., 186 Local government: building, 68, 119, Kemp, J., 185 148; securities, 58, 61, 68, 139, 149, Khull, E., 3, 10-11, 22, 32, 45, 46; see 156, 169, 220, 230, 243 also E. Khull & Co. London, 4, 6, 7, 27, 29, 37, 38, 40, 41, Kimberley district gold mines, 140 70, 73, 88, 93, 95, 110, 125-34 passim, 137, 145-57 passim, 167, 168, 173, Labour market, 52, 65, 84, 86, 94, 120, 206, 207, 211-18 passim, 224, 226, 148, 204; see also Employment, Full 229, 232, 233, 243; funds, 84, 86, 93, employment, Unemployment 94, 214-15; money market, 84, 151, Labour supply, 55, 65, 148; see also 166, 215, 229; see also London capi­ Immigration, Population tal market Lake View mine, 226, 232 London and Westminster Bank, 215 Land Act, Amending (1865), 54 London-based companies, 3, 6, 10, 112, Land bank institutions, 95, 112, 124, 168 154-5, 156, 162, 171 London capital market, 38-9, 69, 72, Land boom, 143, 149; land boomers, 94-5, 122, 123, 127, 139, 140, 149, 115, 155, 180 156, 207, 215-17, 221, 226, 227; see Land finance companies, 123, 124, 131, also British capital, Investors, Bri­ 139, 143, 144, 147, 149, 154-5, 161, tish, London, London Stock Ex­ 162, 163, 171, 175, 189, 194; urban, change 142 London Chartered Bank, 6 Land market, 98, 117, 119, 126-31 London Stock Exchange, 11, 24, 27, passim, 143, 144, 148 29, 31, 46, 101, 103, 129-30, 185, 192, Land prices, 128, 143, 144, 154, 155, 194, 227, 229, 235 181; urban, 117 ‘Long boom’, 48, 113

261 Index Long Tunnel Company, 69, 78, 80, Melbourne Stock Exchange (1865-84), 91-2, 98, 136; see also Walhalla 34, 36, 41, 48, 60, 81, 99-110, 177, Long Tunnel Extended mine, 165 178, 184, 196, 198, 238, 239, 241; Lynch, J. M., 32 costs of membership, 103, 104; free­ Lyons, David, 32 dom of quotation dispute, 104-6, 177-9; official list, 103-4; rules and regulations, 99-102 M’Cracken’s City Brewery, 145, 146 Melbourne Stock Exchange (1884-5), McDonnell, F., 32 104, 133, 177, 178-80 Mackay, G. G., 89 Melbourne Stock Exchange (1886-9— McLandress, A., 32 No. 2 Exchange), 180, 186, 187 McWhae, John, 159, 176, 239, 241 Melbourne Storage Company, 171 Madame Berry Company, 96, 98, 135, Melbourne Tin Company Ltd, 137 165 Melbourne Tramways and Omnibus Magdala Company, 91, 135 Company, 72, 96, 129, 133, 134, 163, Malayan tin mining, 137 164, 167-8, 171, 204, 225 Maldon, 17 Melbourne Water Company, 3, 6 Manufacturing, 49, 54, 55, 56-7, 58, Membership of the stock exchange, 63, 85, 86, 94, 114, 117, 127, 138, 146, 100, 101, 107, 137, 140, 172, 178, 180; 150, 169, 197, 205, 209, 210, 212 costs of, 103, 164, 173, 178, 180, 234; Mariner’s Reef Company, 40 see also Seat ‘Marketable parcel’, 100-1 Menzies, J. H., 241 Marketing of shares, 147; see also Mercantile Bank, 156, 158, 171 Issuing houses, Sharebrokers Mercantile Finance Trustees and Market reports, brokers’, 23, 24, 45, Agency Co. Ltd, 161, 189 168, 188, 231 Merchants, 7, 19, 30, 46, 127 Marriages in Victoria, 52, 93, 117, 118, Metropolitan Gas Company, 88, 129, 119 171, 180, 223, 232 Maryborough, 40 Meudell, G., 226 Maryborough Waterworks Company, Miller, Henry, 3, 5 21 Miner’s right, 15, 17 Melbourne and Essendon Railway Mining Companies Acts (1855) 15-16, Company, 9 17, 18, (1858) 18, (1860) 18, 43, (1864) Melbourne and Hobson’s Bay Railway 43, 76 Company, 3, 4, 9, 38, 72, 88, 245 Mining Companies Law Amendment Melbourne and Metropolitan Board of Bill of 1871 (No Liability Mining Works, 209, 218-19 Companies Act), 77 Melbourne and Mount Alexander Mining company booms, 18-22, 45, 73- Railway Company, 3, 4, 8 83, 226, 229; see also ‘Silver boom’, Melbourne and Suburban Railway Mining market Company, 9 Mining exchanges, 59-60 Melbourne Bank Clearing House, 49, Mining investment, 121, 125, 233; see 70, 92, 161; see also Bank clearings also Gold-mining industry Melbourne Brewing and Malting Com­ Mining law, 13-18, 21, 43-4; see also pany, 95 Companies (law), Limited liability, Melbourne Brokers’ Association, 23-4 Mining Companies Acts, No liability Melbourne Chamber of Commerce, mining companies 196 Mining machinery, 17, 54, 97, 136 Melbourne, Corporation of, 68, 81, 88, Mining market, 57, 59-60, 61-6, 69, 71, 103 73-83, 89-92, 96-8, 106, 108, 134-6, Melbourne Exchange Company, 9 139-42, 146-7, 163, 165-6, 168-70, Melbourne Gas Company, see City of 173-4, 175, 195, 223, 225, 226, 227, Melbourne Gas and Coke Company 233; see also Gold-mining shares Melbourne Omnibus Company, 96; see Mining shares, 133, 149, 173-4, 189, also Melbourne Tramways and Om­ 199, 221, 227, 231, 233; see also Gold­ nibus Company mining shares

262 Index Mining Partnerships Act (1864) see New Zealand Loan and Mercantile Mining Companies Act (1864) Agency Company, 208, 223 Monetary gold movements, 124, 125, Noall, William, 34, 176, 178, 192, 238, 212 239, 240, 241 Monetary system, 110, 214-15; see also Nolan v. Annabella Company, 76 Banks No Liability Mining Companies Act Money market, 61, 63, 85, 87, 88, 131, (1871), 77, 145, 195 134, 151, 157, 162; see also Interest No liability mining companies, 75-7, rates 194, 237 Moorhead, — (broker), 33-4 Non-internationally traded goods, 118, Morgan, E. Victor, 27 204 Mortgages, 1, 43, 111, 112, 127, 130, North Broken Hill, 137 181; on gold-mining machinery, 18, North Cross Reef Company, 92 42; see also Banks North, J. J., 194 Mount Bischoff mine, 98, 197 North Mount Lyell, 232 Mount Dundas, 170 Mount Lyell, 170; Mount Lyell Min­ Office buildings, 115, 128, 143, 148, 204 ing and Railway Company Ltd, 221, Official list, 3, 5, 6, 9, 21, 23, 32, 33, 225-9 passim, 232, 237 45, 72, 103-4, 137, 145, 167, 178, Mount Morgan, 147, 149, 166, 171, 197, 189-90, 194, 197, 219, 229-31, 237 199, 232 Old Chum mine, 175 Mount Zeehan Railway, 170 Ordinary shares, 58, 169, 226, 230 Municipal investment, see Local Oriental Banking Corporation, 6, 96, government (building) 128 Municipal loans, 3, 6, 7, 68, 87, 88, Otago Harbour Trust, 40 95, 107, 129, 134, 139, 220, 231; see Overdrafts, 66, 246-8; see also Bank also Local government (securities) advances Munro and Baillieu, 189 Overend Gurney & Co. Ltd, 64 Mutual Assurance Society of Victoria, Partnership, 1, 6, 13-15, 17, 41, 134, 73, 111 189, 236 Mutual life assurance societies, 73, Pastoral finance companies, 1, 58, 69, 111; see also Life insurance 86, 93, 95, 112, 129, 134, 149, 168, 169, 208, 209, 223, 230, 232 National Bank of Australasia, 9, 10, Pastoral industry, 50, 51, 69-70, 84, 93, 42, 63, 68, 153, 160, 171, 227 112, 149, 197 National Mutual Life Assurance Pastoral investment, 67, 84, 93, 94 Society, 73, 111 Perth Stock Exchange, 198 Negotiable securities, 13, 35, 208, 224 Phillips, Joseph, 32 Net banking assets, see London (funds) Philpott, W., 11 ‘New companies’, 145; see also Com­ Pinnacle mining company, 135, 137 panies (formation) Pohl, Adolphus, 32 Pohl, Emil, 25, 32 New issues, 10, 21, 41, 87, 88, 145, 164, Polynesia Company, 109 180, 189, 198, 208, 216, 223, 238; see Population, 1, 2, 9, 10, 36, 50-5, 57, also Companies (formation) 117, 126, 128, 200, 205-6, 208, 210 New loans and debentures, 243 Port Phillip and Colonial Gold New North Clunes Company, 78 Mining Company, 10 New South Wales, 1, 84, 85, 94, 121, Port Phillip Savings Bank, 2, 8 127, 141, 160, 170, 198, 206, 227; Post Office Savings Bank, 110, 216, 217 drought, 156, 174; imports from, Preferable liens on gold, 18, 42 149; mines, 120; pastoral expansion, Preference shares, 168, 169, 207, 228, 50-3 passim-, see also Government 230, 232, 237, 244-5 securities Premier Permanent Building Society, New York Stock Exchange, 185 164 New Zealand, 36, 40, 85, 87, 228; see Premium on shares, 21, 22, 68, 87, 138, also Government securities 163, 164

263 Index Prices, 3, 36, 49, 88, 118, 120, 123, 124, Railway companies, 3, 4, 6, 9, 12, 37, 126, 152, 157, 173, 200, 204, 205; see 38, 58, 72, 169, 170, 230, 244 also individual commodities Railway loans, 8, 37-9, 41, 70, 72; see Primage duty, 208 also Government securities, Rail­ Principal (of broker), 25, 30, 32, 100, ways 191, 192, 195 Railways, 2, 4, 6, 12, 37, 54-60 passim, Private investment, 57, 114, 123, 130, 69-72 passim, 84, 85, 93, 114, 119, 157, 214, 217, 221, 224, 233; see also 127, 129, 133, 148, 204; metropolitan, Investment 117, 129 Profits, 20, 120, 131, 134, 141, 152, 156, Real Estate Mortgage and Deposit 163, 168, 198, 204, 223, 229; see also Bank, 171 Relative profitability Recession, 114, 123, 125, 127 Progressive mines, 26 Recorder, 186, 233 Progressive Society of Carpenters and Recovery, 72, 85, 89, 92, 151, 155, 174, Joiners, 148 198, 201, 206, 209, 217, 222 Promoters, 10, 20, 46, 62, 140, 155, 162, Redemption loans, 134 189, 226, 228 Reef wash’, 64, 66, 69, 96 Prospectus, 44, 63, 106, 146, 189 Registrar of Companies, 44 Prosperity, 69, 94, 122, 181, 198, 212, Relative profitability, 117-20, 200, 221, 222 203-4 Protection, 36, 54, 120, 211 Relief works, 71, 85, 86 Provincial and Suburban Bank, 87, 89 Rents, 210, 234 Provincial stock exchanges, 46, 48, 60 Residential building, see Housing Public capital formation, see Public R. Goldsbrough & Co. Ltd, 95, 112; investment see also Goldsbrough Mort 8c Co. Public companies, see Companies Riverina, 73, 84, 121, 127 (formation) Roads, 3, 114 Public company stock exchanges, 147 Robinson, L. C., 194, 227 Public expenditure, 153, 156, 204, 209, Rolls, B„ 186 212, 216 Rothschild, N. M., 46, 149 Public investment, 57, 93, 94, 114, 119, Round Hill mine, 137 123, 125, 130, 148, 153, 155, 156, 157, Royal Commissions: on the Goldfields 209, 216, 231; see also Public works (1855), 13-15; on the London Stock Public securities, see Government Exchange, 31 securities Rucker, W. E. A., 32 Public service, retrenchment of, 85 Rural industries, 54, 55, 69, 119-21, Public Stock Exchange Company Ltd, 126, 150, 152, 174, 198, 205, 208, 212 186 Russo-Turkish War, 86 Public tenders (of securities), 7, 45, 68, Rutherglen, 223 87, 107, 173, 180, 216, 219-20 Public utilities, 6, 20 Saddle reefs, 74, 80 Public works, 67, 68, 72, 85, 86, 114, St Kilda and Brighton Railway Com­ 125, 127, 130, 150, 153, 173, 174, pany, 9 216-17; see also Public investment Sandhurst, see Bendigo Pyke’s Act, see Mining Companies Act Sandhurst (Bendigo) Court of Mines, (I860) 76 Savings, 40, 50, 71, 110, 117, 118, 122, 130, 132, 163, 198, 216, 217, 219, 233 Quartz gold mining, 14, 17, 40, 54, 55, Savings bank: deposits, 110, 209, 216; 60, 61, 69, 73-83, 89-91, 96-8, 136, investments, 8, 42, 110, 209, 216, 217 175, 244-5 Schools, 52 Queensland, 51, 52, 53, 64, 94, 121, Seat, stock exchange, 137, 164, 167, ~ 127, 147, 198, 206, 227, 228; see also 172, 180, 182-3, 186, 193, 194, 222, Government securities 225, 233, 234 Quotation, stock exchange, 219, 220, Secretary of the Stock Exchange, 186 237; see also Official list Selling short, 30

264 Index Serie, A. G., 19, 35 see also Government securities Service industries, 55, 56, 111 South Melbourne Building Society, 171 Sharebrokers, 3, 10-12, 22-6, 38, 42, South Melbourne Gas Company, 88 44-7, 67, 87, 99, 101, 106-9, 133, South Yarra Waterworks Company, 9 141-2, 145, 147, 163, 168, 170, 177- Sovereign Company, 79 200, 220, 224, 227, 231, 233-40; and ‘Spec-selling’, 191 jobbers, 28-32 Speculation, 18-22, 28, 61-3, 64, 66, 69, Share Brokers Bill, Victoria (1891), 71, 78, 80-3, 88, 98, 102-3, 108, 112, 191-2, 195 118-19, 122-3, 128-33 passim, 140-4, Share dealing, 28, 102-3, 133, 136, 141, 146, 155, 161, 164, 199, 223-31 pas­ 143, 161, 163, 165, 172, 186, 227, 231 sim; see also Land speculation Shareholders, 3, 4, 20, 73, 75-6, 77, 140, Spensley, Howard, 32 155, 162, 172, 187, 207, 210 Squatting Investment Company Ltd, Share market, 1,2, 13, 48, 57, 72-3, 99, 112 106, 110. 112, 114, 130, 178, 186, 192, Stannary courts, 44 193, 195; beginnings and develop­ Star of the East mine, 165, 171, 175 ment in Victoria, 3, 5-6, 10-12, 23-7, State Savings Bank of Victoria, 1, 217; 59-60; in the 1860s, 34-5, 36-8, 40-3, see also Port Phillip Savings Bank, 44-7, 64-8; in the 1870s, 87-9; in the Commissioners’ Savings Bank 1880s, 133-47, 161-76, 198-9; in the Stawell, 60, 73, 91, 135 1890s, 221-33, 235, 236, 237; in Aus­ Stock and Share Journal, 24, 31, 32, tralia, 238 33, 37, 45, 241 Share market transactions, volume of, Stockbroker, see Sharebrokers 10, 12, 23, 26-8, 34, 57-9, 60, 61, 78, Stock exchange, 102, 103, 196, 238, 239; 87, 88, 90, 91, 96, 97, 98, 104, 105, building, 137, 140, 172-3, 181, 183, 133-42 passim, 161-2, 165-75 passim, 190, 193, 235; establishment, 12, 13, 182, 183, 186, 187, 194, 195, 210, 221- 19, 22-7, 29, 31, 33-5, 41; limitations 31 passim on role of, 72, 111, 112, 134, 197-200, Share price list, see Official list 231, 233; rules, 24, 26, 31, 46, 99-101, Share prices, 22, 23, 25, 28, 62-8 177-8; securities, market value of, passim, 72, 78, 87, 90, 91, 95, 96, 36-8, 58, 112, 168-9, 171, 174, 230, 133, 134, 135, 143-4, 147, 159, 162- 232 70 passim, 174, 176, 188, 223, 224-6, Stock Exchange 1861-5 (?), 22, 31-5, 41, 228, 229, 233 45, 239, 241 Sheep: population, 73; prices, 67, 72-3, Stock Exchange Club, 181 152 Stock Exchange of Melbourne, 25, 29, Silver, 123, 136, 152, 156, 163, 223, 225; 34, 35, 92, 99, 106, 113, 128, 133, prices, 123, 150, 152, 156, 157, 168, 137, 140, 147, 159, 160, 161, 162, 164, 170, 174, 175, 201, 204, 209, 223, 225, 167, 172, 175, 177-200, 216, 218-21, 228; mines, 98, 129, 136, 138, 140-2, 229, 231, 233-40, 241, 242, 243; 147, 163, 165, 166, 170, 227, 242; admission of jobbers, 188, 190, 193, mining shares, 130, 136, 140-2, 161, 235- 6; attitude to limited liability 163, 168, 170, 173-4, 175, 183, 225 firms, 147, 188-9; Australia’s finan­ ‘Silver boom’, 122, 130, 131, 140-2, 143, cial centre, 197-200; building, 140, 161, 165, 182, 183 172, 189-90, 193, 194-5, 237; com­ Silver-lead, 81, 120, 121, 136 petition from other exchanges, 164, Silverton, 135; Tramway Company, 167, 186-7, 188, 193-4, 235; member­ 165, 171 ship, 178, 180, 182-4, 196, 222-3; Sinclair, W. A., 201, 209, 211 relations with Melbourne Stock Sir William Don Company, 64 Exchange, 177-80; role of Chairman Slade, W., 192, 241 and Committee, 184-5, 193, 194, 196, Smelting, 136, 166, 168, 174, 225 236- 7; rules, 177, 179, 184, 234, 236-7, Smith, Adam, 5 239; see also Melbourne Stock Ex­ Smith, Grey, 153 change Smyth, R. Brough, 36, 74-5 Stock Exchange of Melbourne Com­ South Australia, 121, 127, 141, 226; pany Ltd, 181, 234

265 Index Stocks, 36, 65, 124, 127, 131, 132, 150 Treasury bonds, 174, 209, 218 Strikes, 124, 148, 151, 152, 166, 174, 175 ‘Tribute system’, 77-8 Subscribers, 31, 193, 235 Trustee companies, 96 Suburban development, 72, 117, 126, Trustees, 38, 39, 139, 187-8 128, 152, 154, 205-6 Trustees Executors and Agency Com­ Sulphide ores, 174, 175, 225, 229 pany, 95, 96, 171 Swallow & Ariell, 146 Trust funds (government), 110, 216, Swan Brewery, 139 217 Sydney, 1, 2, 94, 95, 99, 129, 131, 151, Turner, Gyles, 2, 7, 113 152, 197, 200 Turnover, 107-8 Sydney and Country Bank, 95 Sydney Stock Exchange, 13, 197, 198, Underground water, 17, 40-1, 90, 135, 200, 238 147 Syme, David, 33 Underwriting, 44, 107, 219, 237-8 Unemployment, 36, 65-71 passim, 85, Tariff, 55, 63, 65; see also Protection 86, 94, 123, 124, 125, 130, 148, 150, Tasmania, 68, 98, 120, 121, 170, 197, 153, 206, 225 227, 228; see also Government Union Bank of Australasia, 1, 3, 6, 83, securities 160, 232 Tasmanian stock exchanges, 236 United States, 126, 150, 168, 213, 228 Tasmanian Steam Navigation Com­ Urban expansion, 117, 198 pany, 10 Urban industries, see Industries Taxes, 174, 195; income, 204 Telegrams, 79, 133 Telegraphs, 60 Vaughn and Wild, 11 Terms of trade, 123, 202 Vendors’ shares, 145, 146 Terry’s West End Brewery, 95 ‘Verandah’, 81, 82, 102, 103, 104, 109; see also Melbourne Stock Exchange Thomas, W. A., 27 Victorian economy, see Economy Thomson, Joseph, 161, 176, 177, 179, Victorian Finance and Agency Com­ 192, 241 Timber industry, 36, 54 pany, 87 Time bargains, 11-12 Victorian Gold Escort Company, 3, 6 Time payment system, 146 Victorian government, see Government T in mines, 98, 135, 137, 138, 197, 227, securities Victorian Insurance Company, 3, 5 242 Tonkin, S., 194 Victorian Life and General Insurance Towns, 2, 36, 52-7 passim, 78, 79, 87, Company and Savings Institute, 42, 117, 121, 206, 212, 213 111 Trade, 65, 70, 79, 127, 151, 169, 208, Victorian Statistician, 94, 211 217; balance, 86, 124, 149; cycle, 64, Victorian Stock Exchange (1881) 104, 84, 126 (1889-94) 164, 167, 173, 188, 193-4 Trading banks, see Banks Victorian Tram Company, 96 Trading companies, 58, 138, 145, 146, 198, 230, 231 Wage rates, 36, 94, 175, 204, 206 Trading Companies Statute (1864), 5, Walhalla, 60, 69, 73, 165, 226 43 Wallen, Robert, 25, 31, 32, 34, 35, 45, Tramway Bill, 96 46, 99, 101, 103, 105, 107, 176, 177, Tramways, 96, 115, 117, 119, 129, 134, 178, 179, 184, 185, 188, 190, 192, 238, 163, 209 239-40, 241 Transaction costs, 60 Walton, Richard, 32 Transport: companies, 58, 169, 230; War insurance premium, 86 costs, 36, 54, 228; industries, 56, 71, Water and sewerage, 7, 115, 174, 218 116, 121, 169; urban, 72, 117, 119 Watson, J. B., 187 Treasurer, Treasury, Victorian, 45, 87, Watson, John, 33, 34, 35, 178, 179, 241 107, 134, 159, 176, 221 Were, A. B., 179 Treasury bills, 65 Were, F. W., 178, 179, 184, 192, 241

266 Index W ere, J. B„ 25, 31, 32-3, 34, 39, 46, W im m era, 54, 57 178, 179, 196, 241; see also J. B. Wolfe, H., 177 Were and Son W ood’s Point, 60 Were, J. H„ 32 Wool, 1, 61, 65, 67, 69-70, 84, 85, 90, W estern Australia, 140, 206-7, 210, 227, 93, 114, 120, 125, 126, 130, 149, 150, 228; see also Government securities 151, 152, 156, 204, 205, 212, 213; Western Australian gold mines, 206-7, 210, 221, 223, 225, 226 prices, 52, 61, 69, 71, 73, 84, 85, 86, W heat industry, 61, 85, 86, 114, 120, 93, 117, 120, 123, 126, 130, 149, 150, 122, 126, 149-50, 152, 157, 205, 208, 152, 156, 157, 174, 201, 204, 205, 206, 211-12, 213; prices, 120, 123, 126, 209, 210, 213; see also Sheep (prices), 149-50, 152, 156, 174, 201, 204, 208, Pastoral industry 209, 211-12, 213; see also Harvests Woollen mill companies, 63 W ilcox v. Clarke & Co., 237 W orkforce, 35, 36, 51, 52, 55, 65, 85, W illder, D„ 177, 196 150 W illiam Clarke & Sons, 11, 22, 25, 32, 33, 34, 35, 45, 46, 63, 105; see also Clarke & Co. Yan Yean water supply, 7 W illiam Noall and Son, 237; see also Yield on securities, 39, 40, 68, 71, 87, Noall, William 139, 140, 168, 211, 217, 224

267 ABOUT THE AUTHOR

Dr A. R. Hall graduated Bachelor of Economics in the University of Sydney in 1947, and later studied at the London School of Economics where he obtained his Ph.D. At present he is Senior Fellow in Economics in the Australian National University. He is the author of Australian Company Finance: Sources and Use of Funds of Public Companies, 1946-1955 (A.N.U., 1956) and The London Capital Market and Australia, 1870-1914 (A.N.U., 1963).

Text set in 10/12 Baskerville with 18pt Baskerville headings, and printed on Periotone 85gsm by Riall Print Pty. Ltd., Melbourne Dr A. R. Hall graduated Bachelor of Economics in the University of Syd­ ney in 1947, and later studied at the London School of Economics where he obtained his Pli.D. At present he is Senior Fellow in Economics in the Australian National University. He is the author of Australian Company Finance: Sources and Use of Funds of Public Companies, 1946-1955 (A.N.U., 1956) and The London Capital Market and Australia, 1870- 1914 (A.N.U., 1963).