BANKS FOR NEW ZEALAND. LETTER FROM ARTHUR T. HOLROYD.
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BANKS FOR NEW ZEALAND.
LETTER FROM ARTHUR T. HOLROYD, Esq.,
BARRISTER AT LAW,
On the necessity of further Banking Capital for New Zealand.
My DEAR CHAPMAN, --The untiring energy and zealous devotion you have always shown in advocating the interests of the colonists in the Company's settlements, and the powerful manner in which you have recommended, in a former number of The Portfolio, the advantages which would accrue to English capitalists from the establishment of a Loan Company for New Zealand, induce me to call your attention to a subject of equal importance to the settler and
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the capitalist, viz., the advantages which would mutually arise by an extension of banking accommodation.
As a Director of the Commercial Bank of London since the formation of that establishment, I have had many opportunities of witnessing the effect of a judicious distribution of capital amongst the sound, the solid, and the industrious; and I have also seen the crippling result of withholding advances from the honest tradesman who may require temporary assistance, and have many proofs before me of the pernicious tendency of monopoly. I do not use this latter term invidiously in applying it to the Union Bank of Australia, for Wellington owes a debt of gratitude to its directors for having been the first to open a branch for the district of Port Nicholson. Still competition in banking as in all other enterprises is of the utmost advantage to a community. I am not finding fault with the branch which is already in operation--from all I can learn it has afforded all the accommodation its means would allow--but the establishment of a second bank would contribute largely to the commercial prosperity of the settlements.
Could a more favourable opportunity occur for the formation of banks in New Zealand, with a parent establishment in England, than is offered at the present moment? You have shown, at page 27 of The Portfolio, that the price of 3 per Cent. Consols towards the latter part of August was 92. It is natural that they should rise towards Christmas, on account of the prospective dividend; but would any one on the Stock Exchange, or out of it, have been so bold as to predict that during the last three months they would have risen from 92 to 95, with every appearance of a further advance of 1 per cent, at least, between now and New Year's Day. I will not follow your line of argument as to the rate of interest at the present time upon government securities--you have placed the points clearly, and they require no additional elucidation--but if the interest
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derived from consols was then "within an insignificant fraction of 3 1/2 per cent." when consols were at 92, the rate of interest becomes still further reduced when consols are at 95.
The present state of the funds therefore shows that money is plentiful in England, and interest low. If another argument were required, it would be that money has been so abundant in the market lately, that it has been advanced for short periods at 1 1/2, and that the rate of discount upon good bills has not exceeded 3 per cent.
The success which has attended the Union Bank of Australia is a proof that capital may with safety, and with the certainty of large profit, be diverted from our own country and transferred to our antipodes. A bank for New Zealand, formed here on the same principle, is what the colonists solicit, and the result would be as satisfactory to its proprietary as it would be beneficial to the settlements.
The profit arising from the produce of the colony is enormous. I have seen a letter from a gentleman who has a large dairy farm at Wellington, and he mentions that if butter is reduced from 3s. 6d. a pound (the price it was at the date of his letter) to 2s., the profit upon his outlay would still be very great; and from the confirmation I have had of this statement from other sources, I have no reason to consider it too sanguine. Next let us see what Mr. Molesworth is doing. You have shown (Portfolio, page 32,) that his potato crop yielded £124. per acre net profit for the first year, after the expense of clearing the land and liquidating all outgoing charges. Is not this a proof of the fertility and luxuriance of the land, and must not potatoes be, for many years to come, an article of export to the Australian colonies? The rental of houses is another criterion by which we may be guided in estimating the prosperity of the colony. From all I can learn, the
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worst investment in this description of property yields 30 per cent., but some pay a much larger rental on the outlay; and I conclude 30 per cent is the lowest standard to adopt, for I noticed in the last file of the New Zealand Gazette that there were two houses to be let for £1. a week each, £300. being asked for the purchase of the two. Were not the colony in a flourishing condition, Dr. Evans could not let his frontage at 30s. per foot per annum, but the emigrants would be contented with a less eligible situation in a more remote part of the town.
Whilst we have heard of distress in South Australia, Van Dieman's Land, and Sydney, the accounts from New Zealand have shown that the Company's settlements have not participated in the almost universal panic. We have heard of farms being thrown up and innumerable houses untenanted and unoccupied in Adelaide, --we have received intelligence of a monetary crisis in Sydney which caused a stagnation to trade and a serious depreciation of agricultural produce, --but yet, with all these drawbacks and disadvantages, the hardworking, industrious emigrants in New Zealand have not been affected; they have not felt the "pressure from without;" and Mr. Heaphy mentions-- "Amongst the mercantile class but one failure has occurred, and in that case fifteen shillings in the pound, I believe, was paid." I was informed too, lately, that letters have been received from Wellington, and bearing date as late as June, which represent that "the colony never has been in a state of greater commercial prosperity than at the present time."
Though I have instanced Mr. Molesworth as busily engaged in the cultivation of the potato, his agricultural operations are not confined to the potato alone; "he has steadily persevered under all discouragements," has many acres cleared in the Valley of the Hutt, and his example has induced others to follow farming operations. And here I
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cannot help quoting from Mr. Heaphy's work, which shows clearly the impulse which Mr. Molesworth's labours had given to agriculture:--
"When I left Wellington in November, 1841, the following gentlemen were engaged in clearing land and cultivating in the different valleys about Port Nicholson, viz.:
"In the Valley of the Hutt. --F. A. Molesworth, Esq., F. Johnson, Esq., C. Von Alsdorf, Esq., G. Shand, Esq., G. White, Esq., R. Barton, Esq., Mr. Smith, Mr. Bowler, Mr. Eaton, Mr. Poole, Mr. Turner, Mr. Mason, Mr. T. Cook, Mr. S. Cook, Dr. Relph.
"In the Porirua District. --F. Johnson, Esq., Mr. Hay, Mr. Johnstone, Mr. W. Buchanan, Major Hornbrook, J. Swainson, Esq.
"In the Karori Valley--Messrs. Yule.
"In the Ohiro District. --J. Watt, Esq., Captain Daniell, -- Harrison, Esq., Messrs. Guyton and Earp.
"Round the Harbour. --Mr. Deans, Mr. Tod, Mr. Crawford, Mr. Jackson, Mr. Bannister, Mr. Scanlan.
"Lyall's Bay. --Mr. Hulke.
"Although this number is small, yet on considering the short time it had been known in Port Nicholson that the settlers were to have a full and conclusive title to their land, it does not appear that they had been tardy in availing themselves of their security by entering into agricultural pursuits."
Thus we see that activity is prevailing amongst the agricultural settlers, that clearing has lately been on the increase, and production is now becoming considerable. And what is the effect of production? Besides supplying home consumption the colonists will export; and the moment a colony can export, then its prosperity becomes more firmly and permanently established. But oh! say the unthinking and inconsiderate, it must be a long time before a new country can spare its produce; all the superabundant food must 1
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be retained in the country to meet the wants and demands of the fresh arrivals. True; but suppose that after making such provision there is a surplus--why, then export--and such is the fact at Port Nicholson. I have seen a letter, in which it is stated that the settlers at Port Nicholson have undertaken to export 5,000 tons of potatoes during the present year. This quantity appeared incredible to me at first; but when I considered the fertility of the soil, and the earnestness and activity of the agriculturists, the mystery was solved, and the difficulty removed.
The effect of exporting the produce of New Zealand will be a commercial demand for articles of importation; and the most valuable is live stock, of which I have reason to know that an enterprising colonist has made arrangements for a monthly supply from Sydney to the settlements of Wellington and Nelson.
But the commerce of New Zealand does not depend altogether on the production of the settlers. The native population are large producers; before agriculture could be brought into play, they nearly supplied the settlers with food, and their demand is very considerable. The New Zealander has also learnt the value of money and time. He has begun to work for wages, and when he has earned a trifle he purchases European products. The extension of the value of English comforts and necessaries, which many already appreciate, must cause an increased demand for imports.
For these reasons the commerce of New Zealand is much larger than might be inferred from the extent of the European population, which now amounts to about 12,000. The trade of Wellington is to be measured by a large European and native demand; and if it had not been for this circumstance, there would have been a glut long ago. There has however been none. Trade has been prosperous; and although the quantity of goods sent out has been large and various, as the advertisements in the New Zealand papers testify, yet the
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complaint is that the supply has been below the demand; and had not the glutted markets of Australia sent their surplus stock, there would have been a distress for goods in the Company's settlements, rather than a distress in the ordinary sense of the word, of which, up to the present moment, there has not been a symptom.
Lastly, I may mention that the number of ships which touched at Port Nicholson during the year ending in April last amounts to 203, measuring 32,815 tons.
Now, with the Company's settlements enjoying the advantages of agriculture, commerce, and shipping, in a healthy and flourishing condition, backed by enterprising and energetic individuals who have overcome every obstacle in placing the colonists in their present favourable position, the next question that arises is this:-- Is the banking accommodation in New Zealand adequate for the extent of trade? And the settler answers, No. It is true, that, with the branches of the Union Bank of Australia, the colonists are better off than if they had no bank at all; but divided, as the business of this establishment must necessarily be, its proportion of capital to each individual settlement is too small to meet the exigencies of the settlers at any one particular settlement. This bank, with all its advantages, and many it certainly possesses, resembles a parent with ample and abundant means, but crippled with a numerous family, so that the share or proportion he can give to each is reduced. The management of its affairs have been conducted with prudence and circumspection; the profits to its proprietary have been steadily increasing since its formation, and the value of its stock has always evinced a tendency to rise; but still, with all these proofs of prosperity, the advantage to the colony is comparatively small, and the capital supplied to it limited. There is a general complaint by the settlers of the inadequacy of banking capital. Trade has increased and is still increasing; but the accommodation
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offered by the bank bears no proportion or ratio to the demands of the mercantile and agricultural colonists. They must be assisted from this country, or the colony will only in a minor degree prosper. They have tried the experiment of forming a bank amongst themselves--they have not overlooked a thing of such importance--they have used their best efforts to carry out their intentions. Their object has failed, and it could not have been otherwise: in fact the colonists require all the capital they can scrape together for their own operations, for actual production. They are not in a position to subscribe a capital themselves to give a bank the semblance of stability; and a bank has not a solid reputation unless it can shew that it has a paid-up capital equivalent to its operations, or nearly so. Indeed, were they to establish a bank in the present infantile state of the colony, it would be like borrowing with the left hand from the right hand pocket; --there would be no addition of capital, and the settlers require more than they at present possess; it would, in fact, be merely a diversion or transfer from one employment to another. The settler now engaged on his farm and benefitting the settlement by steady agricultural pursuits, would be obliged to withdraw a portion of his capital from the channel in which it at present flows, and restrict his operations; a bank, therefore, formed and carried on by the colonists exclusively, without assistance, will not afford the kind and extent of accommodation required.
Whence, then, is he to obtain this assistance, but from those who are interested in the prosperity of the colony, and from the parent country, where superabundant capital remains unemployed? The "absentee proprietors" cannot expect to let their lands speedily, and receive large and regular rentals, if they passively regard the present condition of the settlements, and do not bestir themselves and lend their aid to afford greater facilities in banking transactions. Many of them have a deep stake in New Zealand, but they must go
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still deeper if they really wish to see their estates become valuable. If the landed proprietor resident in this country cannot spare the capital himself, he can, without pecuniary sacrifice, bring his influence to bear in promoting an object so beneficial to his property. Oh, but he may say, of what use is my influence unsupported? Of very little--but by an union amongst the proprietary a bank might be started--a nucleus might be formed. In this country there is always a very large amount of inactive capital seeking employment, so that the inactive class supplies the active producers; and from the present high state of the funds, and the low rate of interest, no period since the formation of the Company's settlements has presented a more favourable opportunity for carrying the proposition I have recommended into effect. In New Zealand there is no inactive class. The emigrants have left England with the intention of bettering their condition; they did not go out to remain idle and indolent; and backed with energy, zeal, and enterprise, they must not have their agricultural pursuits contracted, their shipping interests destroyed, and their commercial operations restricted, for want of temporary supplies of capital. Much of the capital which the settlers took with them to New Zealand, has been parted with to pay for imports, and the balance of capital has only been maintained by that introduced from fresh arrivals. This, however, bears no proportion to numbers; for if the capital now in the colony is no larger than it was three years ago, it has the disadvantage of being distributed over the settlers in smaller quantities. Exports will cause capital to return; but unless supported by adequate and increased facilities in banking, the drainage will continue until the tills of the capitalist are emptied, or the colonists can obtain banking capital elsewhere.
Now the present low rate of interest of money in this country, and the high rate in New Zealand, offer large inducements to English capitalists to form a bank for the
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settlements in New Zealand. I have already shown that during the first two years only one failure took place at Wellington, and that the estate paid fifteen shillings in the pound. Banking, too, may be carried on with the greatest security: in small communities, like the Company's settlements, the affairs of every individual are carefully scanned, scrutinized, and investigated, and caution may be observed to a much greater extent than in large, overcrowded, and populous mercantile districts.
I have now urged sufficient arguments to show the necessity and advantage which would arise from the establishment of a bank for New Zealand exclusively, as well as the benefit that would accrue to the proprietor of land, the capitalist, and the emigrant. The parent establishment should be in London, conducted in a similar manner to the Union Bank of Australia--the routine of management would be easy, safe, and simple. The branches should be at Wellington, Nelson, New Plymouth, Auckland, and the Bay of Islands: they should be under the direction of local boards, so as to give greater confidence, and to relieve the manager from partial responsibility.
I think I have said enough to ask you to give the subject your attention: it is one of paramount importance to the settlers and the "absentee landlords;" their interests are mutually blended together; and if you can afford assistance in carrying out the proposition I have suggested, must tend speedily to increase the value of property in New Zealand, and confer inestimable benefit upon the colonists.
I am, my dear Chapman,
Yours very truly,
ARTHUR T. HOLROYD.
Farrar's Buildings, Temple,
29th November, 1842.
