1843 - Chapman, H. The New Zealand Portfolio - LETTER TO JOHN ABEL SMITH.

       
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  1843 - Chapman, H. The New Zealand Portfolio - LETTER TO JOHN ABEL SMITH.
 
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LETTER TO JOHN ABEL SMITH.

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LETTER

TO JOHN ABEL SMITH, Esq. M. P.,

&c. &c. &c.

On the Advantages which would accrue to English Capitalists from the establishment of a Loan Company for New Zealand, similar to the Australian Trust Company.



DEAR SIR,

I address the following observations to you in the fullest confidence that they will bear the closest examination --the strictest scrutiny, even by one of whose means of judging correctly and impartially, and of whose qualifications for the task, there cannot be a question. Intimately connected with the capital of the country, any proposal which might bear the character of rashness or speculativeness could not find favour in your sight; no man in his senses would submit such a proposal to your decision; at the same time your connexion with the colony of New Zealand must naturally dispose you to give your sanction to any sound and reasonable plan which especially contemplates the benefit of that colony; whilst your position, as chairman of the Australian Trust Company, enables you to judge of the practicability of the means suggested, provided there be every reason--duly regarding the interests both of capitalists and colonists--to desire the attainment of the end proposed. I thus submit my case to a strict, but at the same time an impartial judge, --to one not merely qualified to detect but interested in detecting any fallacy in my reasoning; and I think I am entitled to point to this circumstance as a proof, that I, at least, am firmly and sincerely impressed with the

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belief that the institution I am about to advocate offers extraordinary advantages to the English capitalist, whilst it is calculated to confer lasting benefit on the colony.

One of the most conspicuous features in the financial and commercial history of this country is the great accumulation of capital since the peace, and the consequent lowness of the rate of interest which capitalists can obtain, either for comparatively permanent or temporary loans. It may be that capital has not increased so fast as population, and therefore that profits and interest have not declined as greatly or as rapidly as wages: but that is not the question here. Considered in relation to the field of production--the field for the employment both of capital and labour--both have no doubt increased, even to over flowing. In this place it would be idle to discuss the question of proportion, for proportion is not in question; and conceding all that need be conceded to those who are disposed to dwell on the superior increase of population, I am entitled to assert that the difficulty of obtaining a moderate interest without risk, and even a moderate profit with more or less risk, has increased and is increasing from day to day.

Let us first look at the interest and profit yielded by land. If the title to land be undoubted, it is notorious that any amount of money may be obtained on the mortgage of a sufficient value of land to render the security perfect, at four per centum. What does this show? Not that the difficulty lies with the borrower--not that there is any great competition among borrowers--but that the great competition is among the lenders, who have difficulty in finding sound and responsible borrowers, able to furnish unobjectionable security, and who are willing to give a reasonable rate of interest. My own observation forcibly convinces me that the difficulty lies with the lenders, and I am sure your

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experience in a more extended sphere will confirm me in what I state. Four per cent, is the utmost that a borrower can be induced to give, who has good security to offer, for a loan to any considerable amount; and he who offers more on a freehold security, must expect to be looked at with suspicion.

But even with the best mortgage there is understood to be some risk, so that part of the 4 per cent, must be deemed a sort of premium of insurance to cover that risk, and where land is purchased with unobjectionable title the profit derived is still lower. It was only last month that I heard of an estate, free of land-tax and tithe, sold at no less than thirty years' purchase. It is situated in the county of Surrey, and is let to a good tenant, so that it may be considered, in point of security, to be unexceptionable. Thus, assuming that there is no risk at all--an assumption against my argument --we have a capitalist willing to accept an interest on his capital of 3 1/2 per cent., and if we allow any--the smallest risk, from want of tenants and many other contingencies, we have a net interest of something less than 3 1/2 per cent.

Oh! but we, the capitalists of the metropolis, do not commonly invest in land: we prefer the funds, or the discount of good mercantile acceptances, or the advance of money on (genuine) Exchequer bills. Be it so: and let us examine the interest which the best commercial securities yield.

At the time I am writing, the price of 3 per Cent. Consols for money is 92, which is within an insignificant fraction of 3 1/4 percent., and this too in the face of a popular outbreak, which has a tendency to reduce the price of securities, and therefore to raise the rate of interest. The price of 3 1/2 per Cent. Reduced, at the same time, ranged from 100 1/8 to 101 1/8; that is, it required the payment of a trifle more than £100. to obtain £3. 10s. per annum. We may affirm, therefore, that 3 1/2 per cent, is the highest rate of interest that can be obtained in government securities; and in the favourite kind of security, namely consols, the interest is lower.

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At the present moment, writing while on circuit, at a distance from London, I have no means of ascertaining the rate of interest by way of discount on the best bankers' and merchants' paper; but I know that, at times, when the character of the acceptors, drawers, and indorsers has been beyond the slightest suspicion, bills have been discounted at 3 per cent. The ready convertibleness of negotiable instruments, however, renders them favourites for temporary investment: so that, perhaps, I ought in fairness to rest my case on the more permanent loans as the best measure of the abundance of the supply of disposable capital, and the consequent lowness of the rate of interest in this country.

It is true that, under the name of interest or dividends, more is frequently made by investments in joint-stock banks and other companies, by railway shares, by the foreign funds, and so forth; but this is nothing to the purpose, because, although called "securities," they are sometimes anything but secure. If some pay more than the average rate of interest or rather profit--for what they pay is really interest and something more--some pay less than interest, that is, leave actual loss, even to the destruction, total or partial, of the capital originally invested. Indeed, two elements belong to these companies, which the simple lending of money on unexceptionable security is wholly free from: first, they involve the necessity of some personal superintendence; and second, they are subject to the ordinary fluctuations of trade, --not only fluctuations in the quantity and value of trade, but to such changes in the channels of trade as may bring the invested capital itself into jeopardy.

I do not say that it is not very praiseworthy to undertake this trouble and responsibility--I do not say that it is inconsistent with proper prudence to incur a reasonable degree of risk; what I do say is, that the superintendence and the risk are elements which require and receive their appropriate remuneration, and it is that remuneration which raises the dividends of joint stock companies above the rate of interest

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with which the mere capitalist is obliged to content himself, if he lend his money only on the best possible securities, subject to no risk and to no personal superintendence.

This rate, I repeat, cannot be stated at more than 4 per cent. If more be offered for any considerable amount, we may assume that there is some slight taint upon the security, which requires an additional remuneration for risk. A leasehold, for instance, is not so good a security as a freehold property; the amount of security in proportion to the loan being continually diminishing in the money market of the metropolis; hence the charge under the name of interest will, in effect, contain a premium of insurance to cover the annual depreciation.

I need not further multiply evidence to prove what every capitalist must be made daily aware of. Let any person who happens to have a few thousand pounds lying idle, and who is not disposed to incur trouble or risk, go to his own banker and advise with him how to invest it, so as to fulfil the desired conditions: will he not be told that "money is a drug," and that those only find it scarce who have but indifferent security to offer? What is called "scarcity of money," often means suspected credit.

This, then, is the state of that complex entity, called the money market, in this country: there is a vast and continually increasing amount of disposable capital in large and small lots, seeking investment without risk, and without personal superintendence to the owners, whilst the field of employment is comparatively narrow--a state of demand and supply which results in the low rate of interest I have named.

Let us now turn to New Zealand. It will be observed, that in what we call new countries, almost every circumstance, as compared with similar circumstances in the condition of old countries, is reversed. In old countries, as the

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countries of Europe are not inaptly called, labour and capital are abundant, land comparatively limited, and therefore dear. The necessities of a continually increasing population compel the resort to inferior soils, and to land remote from markets, both of which are cultivated with a diminished return. This diminution must fall either upon profits or wages, or both; and although there may be a tendency to cast the greater share of the loss upon the labourers, it is nevertheless true, that in the progress of population, whilst the limitation in the quantity of land causes both the price and the rent of land to rise, it causes both wages and profits to fall--and this feature it is, which is the most conspicuous cause of the low rate of interest.

In New Zealand, on the other hand, land is abundant, whilst capital and labour are comparatively scarce, and are well remunerated. I need not pause to enquire into the respective shares of capital and labour: it is sufficient for my purpose that rent, strictly speaking, scarcely yet has its birth; that tithes, land-tax, and every other burthen upon land and upon capital are unknown; and consequently that the whole produce which capital and labour united can draw from the soil, belongs to and is shared between the capitalist and the labourer, without deduction. In short, while the labourer gets high wages, enough remains to yield the capitalist very large profits.

I thus glance at the cause for the purpose of shewing that the high profits, and consequent high rate of interest which prevail in new countries, are not a mere temporary accident, but are inseparable from the abundance of fertile land, and the absence of all burthens upon industry, a state of things which must continue for an indefinite and unassignable time, until the progress of population produces all the phenomena which characterise the countries of Europe.

It is for the reasons above stated that the sober-minded, prudent, and industrious settler can afford, and is willing to

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give, at least three times the rate of interest which is usually given, with good security, in this country. Mr. Revans, a very intimate friend of mine, settled at Wellington, and on whose statements, always marked by the greatest caution, the most implicit reliance may be placed, writes to me on the 31st January, 1841, as follows:--

"There are many here with well-situated land, affording ample security, who would commence farming if they could procure loans of capital at ten or even fifteen per cent. We have valuable land, labour, and excellent markets; but in the want of capital, we lack the means of using them."

Again, on the 13th June, 1841, he says: "Our landowners want loans of a more permanent character than banks can furnish, to enable them to commence farming in earnest."

On the 17th July of the same year, he again writes: "Our fields of production are various; we are well supplied with labour of the best kind, but the other elements are defective. A loan company, prepared to grant loans on mortgage for a limited number of years, on the security of real estate, would be a blessing to us, and a source of profit to the lenders."

In this country, I have already hinted that where a very high rate of interest is offered there is reason to look with suspicion on the character of the security; and if the lender part with his money, it is because he is willing to run the risk, in consideration of a higher profit. It is known that the borrower cannot afford the interest he offers, consistently with the ordinary profits of commercial enterprise--it is surmised that he borrows to stave off some impending evil; and yet lenders can be found to part with their money on the same principle that the underwriter will take a heavy risk in consideration of a large premium.

But the New Zealand producer borrows not to avoid any evil, but to attain a good. On all productive enterprises

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hitherto tried at Port Nicholson, very large profits have been the result. The New Zealand Gazette, of January 12th, thus records the progress of agriculture on the fertile banks of the river Hutt: "Mr. Molesworth is digging his potato crop on the Hutt. He has tested the quantity produced upon an acre, and the result is most satisfactory. His calculations were made upon six tons to the acre, while the produce has been twelve. He has sold some of them at the rate of £12. per ton, or at the rate of £144. per acre. This price is of course not looked for. At £5. per acre, £60. would be received. The cost of clearing, fencing, putting in, hoeing up, and digging this crop, will not amount to £30. per acre; so that, at £6. per ton, 100 per cent, profit will be the return for the first outlay. This return too is for six months. The same ground will again be planted with potatoes, and the second crop in the year harvested about June. The expences of clearing, fencing, and for seed potatoes, may be deducted from this crop. These deductions should reduce the cost of the next crop to £16. per acre. Supposing the land to yield eight tons per acre, and that they fetch £5. per ton, £40. will be the return of the outlay of £16. for six months."

Now, supposing Mr. Molesworth should desire to extend cultivation beyond the extent of his present means, would he not be abundantly justified in giving 12 per cent, interest for a loan, even should his land yield much less than the lowest of the above calculations, and should the price of produce decline below what it has as yet been known and would not a loan society be safe with such a borrower, with the valuable security which he and such as he can offer? I do not single him out as an individual, I merely take his name because I find it connected with a fact, and as the type of, a class. I may mention the names of Bowler, Smith, Johnson, Watt, Revans--who has a dairy farm of forty odd cows,

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with about 400 sheep, Swainson the celebrated naturalist, Baron Alzdorff, and a host of others, who are giving value to their lands, who have ample security to offer, in whom the act of borrowing, at 12 per cent, interest, would be an act of the highest prudence; and in fact, who, with many others, are calculated to form just such a body of borrowers as a cautious and well managed loan company would desire to secure.

"The cultivation of the country," the New Zealand Gazette further assures us, "is proceeding to an extent, and with a degree of success, surprising to those who have not remarked how numerous are the persons who are raising produce on a small scale. - - - The combined, or rather contemporaneous, efforts of persons with smaller means, are producing unlooked-for results. We must soon have a show of cattle, pigs, and poultry. The quantity of poultry is already very large: almost every settler has a few, and some have two or three hundred head."

The low price of sheep and cattle, in New South Wales, has caused a large number to be imported into the several settlements of Port Nicholson, New Plymouth, and Wanganui. As yet it is too soon to speak of Nelson: but I know that some cargoes of sheep and cattle have been despatched from Sydney to that port; and so long as a low, and even a moderate, price prevails in Australia, the exportations thence to New Zealand will continue. Every importation of stock, of any kind, into the several settlements in New Zealand, gives increased value to the land, and so improves the security which borrowers can offer. According to official accounts published in Sydney, the value of exports of all kinds to New Zealand, in 1841, was £247,000.: a large portion of this was for permanent investment in the colony, and some was in the form of sheep and cattle. I may mention here, as an evidence of the profitableness of sheep farming in New Zealand, that the superior richness of the

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soil, as compared with Australia, has been found to improve the weight of the fleece. Some sheep kept on the island of Kapiti, near Port Nicholson, yielded 9 lbs. weight of wool; and the quality of a small quantity of wool from New Zealand, sold last year in London, was found to be very good. The growth of wool is thus becoming an important resource; and as it can be connected with agriculture, and especially with turnip culture, as in this country, it will more intimately connect itself with the land, and impart value thereto, than in Australia. There the land is comparatively of little value, apart from the sheep upon it. It is, for the most part, unfit for tillage; so that the security is rather that of a species of moveable property than a real security. If the sheep be sold from the land, what is the value of the security that remains? In New Zealand, the security of a breeding and tillage farm would be similar to that of a well conducted freehold farm in this country. The land itself would constitute the real substantial security, and the stock upon it would assume the character of a collateral security.

What I have hitherto said relates to the security afforded by the rural lands in the hands of respectable cultivators and stock-keepers--now a considerable body; but the improved town lands must not be lost sight of, in estimating the quantity of safe business which a loan company would at once command. The town of Wellington has now been established upwards of two years, and the progress of improvement within its limits has been most rapid. Mr. Heaphy, who left Wellington in January last, states, that there were then 445 houses, --some of them of brick, but most of them of wood: by this time, that number has increased to between 600 and 700. The parts of the town not built upon are laid out as garden ground; and most of the houses, except those on the shores of the harbour, have well stocked gardens attached to them. Along the beach, many valuable wharfs have been thrown out, so that in the town alone a value has

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been placed upon the surface sufficient to afford security to a considerable amount, and therefore to impart perfect safety to the operations of a loan company. The profitableness of investment in town buildings is not less than in agriculture. I learn that an extensive town proprietor has erected a considerable number of houses on his property, and that the rent he charges, and very readily obtains, is thirty per cent, on the amount of his outlay. I learn further, that this rent is considered by no means a large rent for the excellent and comfortable houses he builds. It is moreover his practice, and that of many others who are investing money in improving their town properties, to contract to build according to the taste of their intending tenants, with the understanding that the rent shall be a per centage charge on the capital employed. I cannot affirm that it is always thirty per cent., but as I know that charge is deemed reasonable, I am justified in saying the charge is more frequently above than below that per centage. It follows, that the act of borrowing, at 12 per cent., would be as much an act of prudence, as a means of extending their operations, on the part of the large and respectable body of town proprietors in the several settlements in New Zealand, as on the part of the agricultural class of land owners; and a loan company would have no difficulty in finding an eligible body of borrowers, who could give ample security, of the most unexceptionable character, for the loans they might require.

But, independently of these large and respectable classes of individual borrowers, there are other bodies which must necessarily become borrowers to a considerable extent, and it would be well worth the while of a body of English capitalists to provide an ample supply of capital for their demand alone: I allude to the municipal corporations, into which every settlement in New Zealand, having a population of

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2,000, has lately been erected. 1 Besides the power of imposing a borough-rate, conferred by the ordinance of the New Zealand Legislative Council, upon each municipality, the corporation will have a valuable real property, which they may pledge as security for a loan. The Governor of New Zealand has lately communicated to the council that he was instructed by the Secretary for the colonies to state, that all the rights of the crown to the sea and river shore, within the limits of each municipality, should be conveyed to each corporation in fee. 2

Now, the property thus to be conveyed to the corporations is of great value, or rather, is capable of being made so by the application of an adequate amount of capital. It is so situated as to be eligible for the structure of wharfs and other commercial water-side property. But this property can scarcely be considered available, unless money be expended upon it; and it is equally clear that the corporations, ex necessitate rei, will start into existence, with the power of raising a considerable income, but utterly without capital to promote the slightest improvement. They will present the apparent anomaly of prospective wealth without immediate means; and their very first step, if they do their duty to their constituents, will be to take up one or more loans for the purpose of improving the property of the corporation, and of bringing it into a state to yield profit: moreover, it is probable that they will be borrowers for some years to come.

For this purpose they may pledge, not merely the property

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of the corporation, but the rates, that is, the property may be mortgaged as security for the capital borrowed, while the interest may be made a charge on the borough-rates. Now, I will not say that the corporation securities are better than those which individuals can offer, because I really do not believe better could be desired; but I will say all that my purpose requires, namely, that with the power of charging the rates, the security is unexceptionable. Of this there can be no question.

I have now shown that a body of lenders--a loan company, for instance, --ready to lend money on mortgage, would find, ready to their hands, a large body of borrowers of respectable character, having ample security to pledge for such loans as they might require, and in whom the act of borrowing at what we are here entitled to call a high rate of interest, would be an act of the greatest prudence, because the average rate of profits in New Zealand is such as to leave a large and remunerative surplus, after paying such interest.

I will not, however, let my case rest here, I will further show why a continued demand for a floating capital is consistent with great prosperity; why, in fact, a considerable supply of capital in one shape creates a further demand for capital in another shape. In showing this--and it is almost self-evident at the moment I state it--I prove, that, whilst the demand for capital accumulates, and the business of such a body of lenders is subject to continued increase, the security at the disposal of the borrower thereby becomes daily better and better.

I have already said that the value of the property imported into New Zealand from New South Wales alone, was, in 1841, according to official returns, £247,000. Now, as production had then scarcely commenced in New Zealand, except in the case of the fisheries, there were no exports of any consequence to pay for this, and as many persons possessed of capital have settled in New Zealand from New

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South Wales--some merchants, some agriculturists, and some stock-keepers, 3 --we are justified in concluding that a very large proportion of this capital was imported for the express purpose of permanent investment in the colony, and is therefore not by the export either of the produce of the colony or specie.

It may seem strange to some persons who have not been called upon to keep in view the distinctive features of capital, to hear the apparent paradox--that capital may itself create a demand for capital; but not only may it be shown that one lot of capital may assume such a shape as to create a demand for capital in another shape, but it may be further shown that what enters a colony as capital may speedily lose its character, of a means to employ labour, by being exchanged for land, and when so exchanged be in part consumed as revenue, and in part remitted to this country to be expended in the importation of more labour.

Scarcely a paper reaches us from Port Nicholson without some account of the importation of cattle and sheep from Sydney. Some of these are no doubt for slaughter, but a large proportion are destined to remain as stock, and therefore must be deemed capital, --but of such a nature as to create a demand for capital in another shape, for the payment of the wages of stock-keepers and shepherds. The low prices of cattle and sheep in New South Wales have stimulated exportation, and have enabled the New Zealand

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settlers to stock themselves on the most advantageous terms. A large number of sheep have been sold by auction at an average price of 12s. each; and persons who have themselves gone to Sydney, and have purchased sheep there, taking the risk of the voyage, have laid them in at less. At one time, maiden ewes were sold, in New South Wales, as low as 3s. 9d. each; and cattle low in proportion. Now, under circumstances so remarkably advantageous to the infant purchasing colony, such of the settlers as may intend to become stock breeders, or sheep farmers, will be disposed to over stock themselves: hence, their very possession of capital in one form would render them distressed for capital in another form. In short, the existence of fixed capital constitutes the demand for floating capital; and this demand whilst it is evidence of the scarcity of capital in one shape, is a proof of its growing abundance in another, --the shape in which it exists, being that which especially adapts it to become security for a loan of capital in the shape required.

A steam engine, to whatsoever purposes applied, affords a very striking illustration of the manner in which fixed capital constitutes a demand for floating capital, --that is for capital in the form in which a body of lenders would furnish it. In the company's settlements there are now three--and perhaps four--steam saw mills; one is now working by a joint stock company, and the others are in private hands. What would be the condition of these mills, if the spirited proprietors had not sufficient capital to purchase saw-logs, or to send hands into the woods to bring them down, to employ the amount of labour necessary for the working of the mills, and to give some little accommodation to their customers in the way of credit? Why their mill capital must be idle, although the owners might be willing to pledge it for the necessary loan, and to pay what we should consider a very high rate of interest for the required accommodation. Again, what would be the condition of the owner of ten

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thousand pounds' worth of steam boats, of a class especially to fit them for the Australasian seas, if he had no opportunity of pledging his valuable property for the species of capital he required? -- His steam boats would be useless: and unless he could obtain some aid, his valuable property would perish on the beach at the very moment that he could afford to pay a rate of interest which, after all deductions for management and cost of establishments, would yield to the English capitalist more than double the profit he could obtain in this country, without risk or personal superintendence.

A considerable quantity of the capital imported into New Zealand from the Australian colonies -- driven from the latter by the temporary depression of all kinds of trade and industry, and attracted to the former by the high rate of profits--is invested in land, -- "speculating in the real estate," as the Americans call it, or "land jobbing," as its enemies designate it, being a favourite occupation with the Sydney, folk. The imported stock being sold in the market, the proceeds go to the purchase of land. The stock so sold continues to be capital, though in a shape to require other capital to render it available; but if the price--that is the portion of capital in another shape received in exchange for that stock--be invested in land, it ceases from that moment to be capital. A purchaser of land for money or money's worth, may, in ordinary language, call his land part of his capital; but in an economical sense, though it is his property, though it has a positive value, and may be exchanged at any time for capital, it has ceased to possess any of the features of capital. It is a field for the employment of capital as well as labour; but it is no more capital than it is labour; on the contrary, it helps to swell the demand for capital, and having positive value, it affords ample security for loans. If the proceeds of the stock so imported be exchanged for land in the hands of individuals, the capital so imported is saved whole; for, though the im-

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porter sinks the proceeds in land, the amount becomes liberated in the hands of the purchasers of his stock, but still so liberated as to create a demand for floating capital, in the manner already shown. But if the proceeds of the imported stock be paid to the government, or to the company, for land, there is, it is true, an importation of most useful property, but it ceases to be capital from the moment it passes into the hands of the government or the company. It becomes, for the most part, a value withdrawn from capital for the purpose of consumption, and from that moment ceases to contribute to the employment of labour-- the proprium, so to speak, by which capital is distinguished. In the case of the government sales, half the price is to be remitted to this country, to be expended in conveying labour to the colony. It will here be exchanged for ship accommodation and provisions for the voyage, to be consumed by the emigrants, and will therefore make its appearance in the colony, not in the shape of capital capable of employing labour, but having undergone an entire and very natural metamorphosis into the actual flesh and blood, the bone and muscle of the labourer, it has become the very labour itself, destined to join the owners of the land, and of the fixed capital of the colony, in the demand for more capital. In like manner, the first £100,000. paid for land to form the first colony, though often inaccurately referred to as part of the capital of the colony, never was capital in the only intelligible sense of the word. Three-fourths of the amount has been expended in conveying labour to the colony, and the only portion which has retained the characteristic of capital is that which has gone to pay the salaries and wages of the surveying staff, and to provide them with rations--a portion which at length ceases to be capital, when it is sunk in the immaterial form of metes and bounds, highly useful in giving marketable value to the land, and imparting thereto the character

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of an unexceptionable security, but no longer efficient in employing labour.

I have dwelt thus long upon a somewhat dry discussion, because I wished to show that the capital--generally be it observed, moderate in amount, --which is carried out by settlers, has a tendency so to fix itself as to create an immediate demand for more capital. If this be true--and it seems to me to be almost self-evident, several important consequences flow from it. In the first place, the louder the demand for capital in one shape, the greater may we infer its amount to be in another. In the next place, capital having a tendency to fix itself, as I have shown, each lot of capital supplied to the colony will tend to create a demand for more capital; to raise, rather than depress, the interest which prudent borrowers can afford; and to create and improve the securities which a prudent body of lenders must require. From these several considerations arises the expediency of providing a fund of floating capital, for loan on mortgage to capitalist-settlers--a fund too, subject to increase with the increasing wants of the colony, so as to meet that perpetual tendency which capital always has in new countries, to assume the fixed or vested form, and to create a continuing demand for fresh supplies of floating capital.

I now come to the means of enabling the English capitalist to avail himself of the advantages I have pointed out, and at the same time to confer lasting benefit on the colony. On this latter topic I do not think it necessary to dwell, as it has sufficiently appeared in the course of the foregoing observations; I may mention, however, that it is the peculiar property of such aid as I now contemplate, to improve the security at every step. Every loan expended on the land.

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yielding a considerable surplus over and above the interest paid for that loan--which surplus is, in a great measure,, expended on the soil--has the effect of adding, from year to year, to the value of the securities which the lenders hold in their possession. For example: suppose a colonist has a property, partly improved, which is worth £1,000. It is a rule of the Australian Trust Company, and it is a very wise rule, not to lend to a greater extent than half the value of the property, except under extraordinary circumstances. Under this rule, let us suppose that £500. is borrowed, and is immediately expended in a way to give additional value to the laud--in an extension of clearing and cultivation, for instance. The value of the security is thus raised in the loan company's hands from £1,000. to £1,500. The borrower would now be in a condition to go to the office of the company, and say: "my land is now worth £1,500., and is therefore good security for £750., instead of £500.: let your surveyor go over it, and report upon it, and if you are satisfied, I am willing to take, because I can advantageously use a further sum of £250." Thus, as each lot of capital is expended in clearing the waste portion of the borrower's possessions, the company acquires the incalculable advantage of a regular body of customers, with whose punctuality and mode of managing their property they become well acquainted.

It may be thought that the formation of a bank would afford the readiest means of employing English capital, with every prospect of large advantage, without the trouble of superintendence, and with only moderate risk. I will not for a moment deny that the New Zealand settlements offer extraordinary advantages for the employment of banking capital. The Union Bank of Australia has a branch at Wellington, and I believe the directors intend to open one at Nelson. The Wellington branch has been profitable, and has been conducted without loss, but the amount of capital employed

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is utterly inadequate to the large and growing commerce of the commercial metropolis of New Zealand, which still presents an open field for the advantageous employment of banking capital, well worthy the attention of the English capitalist. But a bank does not perform the functions which a loan company fulfils. A loan company is to the land owner and agriculturist what a bank is to the merchant; and however beneficial to the latter class a bank may be, it does not meet the wants of the agricultural body. In trade the credit given is short. The retail dealer requires of the merchant only such a length of credit as will enable him to give a reasonable credit to his customers. He calculates the time which is necessary for this purpose, and he gives a written engagement to pay at the end of the period. The time which experience shows to be necessary soon grows into a custom, and in the commercial langage of continental Europe, the period at which a bill is usually drawn is called usance, a word denoting that which is customary. When written acknowledgments are called into existence, as they are at the very foundation of a colony of English lenders, the merchant finds it convenient to anticipate the day of payment, by borrowing the money which these instruments represent. To enable him to do this, a bank is an efficient instrument.

But the very essence of a sound system of banking is to lend money for periods as short as possible. A bank which discounts two months' bills, appears to give twice as much accommodation as one which takes four months' paper; and to lend money for long periods, on the security of land, or indeed on any security not negotiable, would be an unwise departure from the ordinary business of banking. 4

To give full effect to the productive resources of New Zealand, on the one hand, and to enable the English capi-

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talist to reap all the benefit which the abundant resources of New Zealand hold out, on the other, an institution is necessary which shall grant loans for longer periods--for years in short, where a bank, if prudently conducted, can only afford them for months.

If the capital of this country were limited, I might perhaps be expected to draw a comparison between the respective advantages to the capitalist of a loan company and a bank, but this country has enough--and to spare--of capital to supply both. Both appear, to me, to offer very great advantages: there is at present a slight balance in favour of a loan company, arising out of the fact that there is less prospect of competition--that the field is wholly unoccupied; but to say a word that would warrant a suspicion that there is not an admirable field for banking also, would be invidious and unjustifiable.

The existence of the Australian Trust Company, its successful career, the vast benefit it has conferred and is conferring on the colony of New South Wales--always an important consideration with our spirited capitalists, for "our merchants are princes"--and lastly, its profitableness to the shareholders, all fortunately contribute to release me from the necessity of describing minutely the nature of the institution. I may mention however, that in the eye of the capitalist it possesses a double advantage, for he may either become a shareholder and so take part--a slight part, I admit, --in the superintendence or control of the company; or, abandoning the superior profit which such trifling superintendence as belongs to a shareholder enables him to obtain, he may become one of the body of lenders to the company; thus, avoiding all trouble and the small risk which all financial business involves, he may secure a good though not an enormous rate of interest, by contributing to the loans which such a company from time to time may take up.

The full advantage capable of being derived from a loan

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company choosing New Zealand for the field of its operations, would no doubt be reaped by the shareholder only. Besides obtaining a very high rate of interest upon his own capital invested therein, he would reap the profit derived from borrowing here at a comparatively moderate rate, and lending in the colony at a high rate. But the lender would enjoy some advantages which the shareholder would be precluded from. The mode in which the Australian Trust Company take up loans, and the character of the acknowledgment which they give to the lender--namely, a negotiable instrument, --enables the lender, at any moment he may wish, to reconvert his security into money. This the shareholder cannot at all times do. The securities of the company are in fact as convertible as a banker's acceptance or an exchequer bill; and when they become thoroughly known in the market, I have no doubt they will become a very favourite security for temporary investment. A merchant, or a banker, having a sum of money which he will require to use on a given day, will readily invest the same in a security which would pay him a good interest, and at the same time secure the free convertibility of the principal at a short warning. At no very distant period, if the Australian Trust Company give five per cent, on the money they take up, the great convenience of the negotiability of the instruments issued by them will probably cause them to bear a premium; and this, speaking comparatively, will be a further benefit to the shareholder, and not a disadvantage to the lender, because it simply pays for a real and substantial advantage. In short, I feel convinced that when the Australian Trust Company has been long enough before the public to allow its negotiable notes to become known in the market, they will perform all the functions of Exchequer bills, except in such cases as render government securities necessary.

I venture therefore to suggest, either the establishment of a loan company for New Zealand similar in principle to the

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Australian Trust Company, or the extension of the operations of that company to New Zealand, by means of a branch. A company, with a capital of £250,000., in shares of £25., so as to promote the aggregation of small capitals, of which £100,000. should be at once paid up and with power to borrow to twice or thrice the amount of its capital, might secure a very profitable business. As the operations of the company extended with the rapid march of colonization and cultivation, a further portion of the capital might be called in, and a further amount of money be taken up in the market. In this way the capital of the company might, at all times, be nicely adjusted to the extension of its business. Should no body of capitalists be disposed to set on foot an independent institution, it appears to me that the establishment of a branch of the Australian Trust Company in Wellington, and the assignment of a specific portion of capital to the branch in question, would be as profitable to that excellent institution as it would undoubtedly be advantageous to the colony. If such a course were to be determined on, I believe a considerable number of persons interested in New Zealand would become shareholders in the company, and would perhaps also contribute as lenders. The New Zealand Company have a strong interest in promoting the object in question; and the English proprietors of land in the company's settlements, whose purchase-money has conveyed labour to the colony, but who do not convey thither the means of employing that labour, would not fail to perceive that, by contributing to the funds, either of a separate company or of the contemplated branch, they would promote an immediate increase in the value of their own lands, and otherwise subserve their own interest.

I believe there is nothing in the terms of the charter of the Australian Trust Company to prevent the adoption of this proposal. The term Australia has, on many occasions, been held, legally, to include New Zealand, --it was so acted upon in the case of the Union Bank of Australia, and

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it has recently been declared so to do by an Act of Parliament.

Should a separate company be ultimately preferred, I see no reason why the business of a banking and of a loan company should not be united by the same company, and under the same roof. There should be a distinct apportionment of capital to each, and each business should be confided to a separate department: a manager well qualified to judge of the stability of the parties to a bill of exchange, would not be the proper person to report on the validity of a title to land. But there is, I repeat, no good reason why a company, with an adequate capital, should not fulfil both functions, that is, why a loan company should not have banking-powers; and there are some reasons for believing, that the one might very materially aid the operations of the other.

In conclusion, I will observe, that I have been extremely careful to set down nothing for which abundant evidence does not exist. I have, in a great measure, avoided general reasoning, and have been studious to deal only with well ascertained facts. Apologizing then for the claim I have laid upon your attention,

I am,
DEAR SIR,
With much respect.
Your faithful Servant,
H. S. CHAPMAN.
Farrar's Buildings, Temple,
29th August, 1842.

In the last number of the New Zealand Portfolio, containing a letter to Lord Stanley, on the administration of justice in New Zealand, I ought, in the note at the foot of page 10, to have placed the name of the Attorney-General, W. Swainson, Esq., at the head of the Auckland bar. I had occasion to allude to the labours of my learned friend in the body of the pamphlet, and the omission arose solely from the circumstance, that I copied the names from a printed list of the entries under the ordinance there alluded to--a ceremony not required of the law officer of the crown.

1   The population of Wellington now exceeds 4,500, and that of Nelson, by the time all the emigrants, on their way, have arrived, will be about 2,500.
2   A right to the soil of the sea-shore can only be acquired by the subject by a direct grant from the crown, which grant will not be presumed as against the crown by any easement, such as right of fishing, of digging sand, &c., for which a subject may lawfully prescribe.
3   Mr. Watt, a respectable settler from New South Wales, was the first to begin the business of clearing land and cultivating in the fertile and beautiful valley of the Hutt; and another gentleman from the same Colony, Mr. Crawford, was the first who pronounced the neighbourhood of Port Nicholson to be admirably adapted to the business of breeding and stock-keeping, and who proved the sincerity of his opinion by establishing a stock station on the peninsula formed by Evans Bay. These gentlemen, and others of their class, have imported stock and capital in other forms for investment in the Colony; and it is their operations which make up part of the amount of £247,000. imported into New Zealand, and not to be paid for by exports.
4   Of course I do not allude to the banks in this country, which, through their customers, have an unlimited command of capital.

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