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COLONEL Lachlan Macquarie, Governor-in-Chief of New South Wales and its Dependencies from 1 January 1810 to 1 December 1821, has been highly praised.* At a time when many were turning against him, his zeal and belief in the colony won this comment from his shrewdest contemporary: "Governor Macquarie is a man of unblemished honour and character, although it may not have been his lot to do that which I think no man ever will do—to give satisfaction to all".** His modern biographer, however, sums him up as "a man of very ordinary ability" *** and an official historian half complains that he "left the development of the colony's primary industries and the pioneer experimental work to individuals undirected by the fostering care of government".**** This he had been instructed to do. Yet, judging by his ideal of an emancipists' Utopia and his vendetta against free settlers, his forbearance sprang less from a thorough appreciation of his instructions than from "total incapacity" ***** to assess what the pastoral leaders could achieve. A splendid second-rater, he perceived things and hated opponents but could not judge the creative value of ideas.

[* As recent examples see (a) T. Dunbabin's Making of Australasia, p. 89, "Macquarie the Nation-Builder", "Second founder of Australia"; and (2) A. Jose's Builders and Pioneers of Australia, pp. 3-35.]

[** John McArthur. See Macarthur Records, p. 290. The opinion was expressed early in 1817.]

[*** Marion Phillips, A Colonial Autocracy, Preface, p. vii.]

[**** F. G. Watson, H.R. of A. series I, vol. VIII, Introduction, p. xvi.]

[***** The phrase is J. T. Bigge's. Macarthur Records, p. 324.]

Castlereagh's instructions plainly envisaged a colony developing its own economy.* There was to be an end of naval paternalism over all residents in the prison marooned on a distant shore. Fixed prices, government trading and public agriculture were to go. Macquarie furthered the new policy by providing a bank to keep the currency sound and by building roads to the wider hinterland which the pastoralists had spied out beyond, the mountains. But much remained, notably in transportation and the Navigation Acts, of an older system which had treated all colonies as distant depots tied to British trade, and the strong wine of despotic power let loose the Highland chieftain latent in Macquarie.

[* H.R. of A. series I, vol. VII, pp. 80 and 83.]

His first task was the unsolved riddle of rum. As his public works pay-sheets bear witness, it was still in use to pay wages. George Street between Brickfield Hill and Bridge Street cost four hundred gallons. Prompted by Castlereagh, Macquarie recommended the admission of all rum sent to New South Wales on payment of "high" duties, say three or four shillings a gallon. The home government, then contemplating a British duty of £1. 12s. 6d. a gallon, at once chose the higher figure. It also informed the East India Company, still in charge of licensing traders and whalers in the South Seas, that any who traded to "the colony of Botany Bay" might be allowed to carry spirits thither "for the consumption of the inhabitants of the said colony". Macquarie thought to take strict control over this consumption by cutting down licensed houses in Sydney from 85 to 20, and at the out-settlements in due proportion.

Like King he was caught by a return wave which engulfed every impediment. Official cancellation of licences made little difference to the sale of rum in "The Rocks" area, near the wharves. Macquarie granted fifty beer-licences and took the administration of all licensing orders out of the magistrates' hands, but the standards he required of their holders proved to be such that one trader was granted a licence who had been convicted of unlicensed vending four times in the two preceding years.

Nor were the wholesalers less adroit in finding the Governor's blind spot. Early in 1811 ministers at home were astonished to learn that Macquarie had granted a legal monopoly in the importation of spirits, other than on government account, to three men—Blaxcell, Riley and D'Arcy Wentworth! Blaxcell and Riley were typical speculative traders, but Wentworth, though by voluntary exile he had narrowly escaped transportation on a charge of highway robbery, was now Principal Surgeon and Superintendent of Police. He was taken into partnership by the other two during the negotiation of the contract. The three undertook to erect a large general hospital, including excellent surgeons' quarters, at no cost to the government other than (i) the grant to them of the sole right to import spirits for three years up to 45,000 gallons and (ii) the services of 20 assigned servants and 80 oxen. The Governor's enthusiasm for fine buildings (of which more anon) must have blinded him temporarily to the inconsistency of this monopoly with the policy of open imports subject to duty, and to the impropriety of making the Principal Surgeon and Superintendent of Police, with his repute as a retired highwayman, a partner in profits from the lavish sale of rum and the cheap erection of the hospital. Temporary blindness or no, when the Governor permitted breaches of this contract the partners exacted from him two extensions of the term of their monopoly. The "Rum Hospital" was duly built. Part of it still stands in the facade of Parliament House, hallowed to the legislators of to-day by the traditions of Wentworth junior, Robertson, Parkes, Dalley and Reid.

The four years of its building were an Indian summer to the rum-monopolists. Ruefully Hannibal McArthur reported to his Uncle John in England how they were making hay. Whereas he (Hannibal) had been forced under the terms of the monopoly to sell a consignment of spirits to government at 9s. a gallon, duty free, these contractors, after paying a duty of 3s. a gallon, were getting 36s. for theirs. Licensed houses increased more than threefold, and all complaints of disorder in them met with the cynical contention from Wentworth senior that the thriving trade meant good revenue for the police fund, Judging from the total of 144,000 gallons imported during the four years, a third of which may have been on government account, the monopoly imported more than was allowed in the original bond.

Earl Bathurst peremptorily ordered Macquarie to set importation free at the expiry of the contract, to raise the duty, and to put an end to the issue of rum at a fixed price to officials and military, "a practice which even under your Prudent Administration of it has the Appearance if not the actual Effect of encouraging the Barter of that Article". The contrite Governor raised the duty to seven shillings a gallon, and in 1818 to ten shillings.

Reduced consumption did not speedily follow the substitution of duties by no means severe for legal prohibition of import. Consumption during the Hospital Contract seems to have been about three gallons two quarts per head of population. From 1815 to 1820 it actually rose to over four gallons a head, apart from smuggling, illicit stills and beer. In England, though the consumption of spirits rose during the wars, the quantity drunk per head was in 1830 less than a gallon.

The provision of sound money and a central control of credit proved, a more effective antidote. Governor King had dreamed of coin as an antidote to rum as early as November 1800. He, proclaimed the approaching end of barter "when a sufficient quantity of copper coin is received in the colony". But the cart-wheel pennies were local tokens only In December 1804 a British whaler, the 'Policy', captured near Amboyna a Dutch supply ship with fifteen chests of dollars aboard, worth £20,000. This was good silver money acceptable anywhere—a fact which disquieted the master of the 'Policy' who brought his prize into Port Jackson. He asked King to buy the silver and pay him in bills on London, a safer booty to carry on the open sea in time of war. King declined "so mighty a responsibility". He had apparent reason for his caution. Sealskins were, as he said, "the only staple yet discovered here", and, in the absence of exports, the more good money put into circulation the sooner was it drained out to pay for visiting traders' goods. So disappeared those of the 'Policy's' dollars that its master and crew spent in Sydney.. Not even the cutting of the Spanish dollars into eight or ten parts kept them in circulation.*

[* Spanish dollars were minted freely at Mexico City from 1535 and had become an excellent international cash in use from Maine to India. Little sterling silver was minted in Britain during the first half of George III's reign.]

Ministers at home were too much absorbed in war-finance, currency depreciation and "scarcity of specie" to pay heed to the monetary troubles of an obscure colony on the Pacific. Yet the principle of laissez faire, which Castlereagh enunciated for Macquarie's guidance, presupposed an honest and stable medium of exchange. In their search for a money less difficult to carry than rum or copper pence the colonists had already taken to issuing private "notes" or "cards", which circulated as "colonial currency".** A settler wishing to buy goods from a private trader tendered the receipt the Commissary had given him for his pigs and grain, and instead of taking out the change in rum, carried away an I.O.U. from the trader. Possibly the first issuers were the more reputable traders. To most ex-convict shopkeepers every settler was "fair game" and his store-receipt showed what he was worth to rob. Such a trader would count himself a failure if the whole amount were not promptly "melted down", i.e. taken in rum, Thus private notes may once have been prima facie evidence of a self-restraint akin to honesty.

[** Hence the mildly contemptuous terms "currency lad" and "currency lass" for children born in the colony.]

Soon they varied as much in value as in style, or more. Some were in writing; others promised in impressive copper-plate future payment in sterling for value received. One group of leading firms tried printing in hot type as a precaution against old Sydney's expert penmen. With every precaution taken, however, such "petty banking", as Macquarie dubbed it, left open by its very, nature "a door to grievous frauds and impositions". Traders who were still convicts on ticket-of-leave managed by free issue of currency notes to get hold of many commissariat receipts and to change these into substantial property, in goods or land. Then, declaring themselves insolvent, they would employ confederates to buy up their notes from their defrauded creditors, at a heavy discount. Apart altogether from such deliberate fraud, the general issue of colonial currency caused all its units to depreciate.*** Governors strove in vain to limit to approved persons the right to issue "notes". Who was to draw the line and—a task still more difficult—to maintain it when it had been drawn? "Strong personal laws" ordering redemption in specie did no more under Bligh and Macquarie to stop fraudulent "currency" than they had done under King and Bligh to check the excess of rum. A spate of imports in 1812 made silver so scarce that in January 1813 it was at a premium of 75 per cent.****

[*** For Macquarie's first impressions of colonial currency, see H.R. of A. series I, vol. VII, p. 264, Macquarie to Castlereagh, 30 April 1810.]

[**** Sydney Gazette, 27 January 1813. "A difference of 15s. in the pound has been the present week demanded and no article laid in at the market price of the day can afford the difference."]

At his first coming, Governor Macquarie advocated the institution of a bank for the provision of notes secured against land.* His advocacy of a plan avowedly derived "from the famous Bank of Pennsylvania" and promising a result "Eleven per cent. above what the Exchequer Bills yield in England" must have read like a lesson to the Old Lady of Threadneedle Street in sucking eggs. The Board of Trade, to which Lord Liverpool referred the proposal, would have none of it. New South Wales was a very different place from the Cape of Good Hope. The Board suggested that its Governor be sent £10,000 in dollars, through the East India Company. They arrived by the sloop 'Samarang' in November 1812, and Macquarie solved the problem of keeping them in circulation by punching a large hole in each, giving the ring or "holey dollar" an official value of five shillings, and the dump one of fifteen pence. As bullion the dollar was then worth five shillings for oversea trading. The government undertook to redeem "holey dollars" and dumps at the end of every two years by giving for them good bills on London. Thus they formed a local token currency, being in effect metallic promises to pay. But the supply was inelastic, and the way still remained open for creations of private "currency". Those who had no occasion to make payments to oversea traders passed on the depreciated notes.

[* H.R. of A. series I, vol. VII, p. 265, Macquarie to Castlereagh, 30 April 1810. His Secretary, J. T. Campbell, had been in the service of the Bank of Ireland and had "had a principal part in the establishment and conduct of the Bank at the Cape of Good Hope".]

By the Sydney Gazette the Governor warned issuers of currency that their safety and advantage lay in giving out no more. The main burden of a local money issued in excess fell upon dealers who had to pay importing merchants in sterling yet must sell their wares at retail for the depreciating currency. But, plain as the collective interest of the traders might be in calling a halt, the temptation upon each individual remained. So many tried to outrun the general disaster that the depreciation of "currency" was accelerated.

Only a Bank with exclusive right to issue could maintain the value of paper money at a par with specie and keep trade on credit sound. Unlimited credit means unlimited belief, an imprudent attitude in any community. In 1816 Macquarie succeeded in calling a halt to the unscrupulous. A fresh consignment of 40,000 silver dollars from India enabled him as a first step to re-enact Bligh's order that notes were to be redeemable at demand in sterling, then understood as including all specie. Prices and wages, too, were to be stated in sterling. But how was redemption to be made customary and easy? A general meeting of traders agreed early in 1817 that all contracts in existence were to be re-adjusted, two-thirds prices in sterling being substituted for those quoted in "currency". So much for past contracts. But who was to sustain for the future the collective interest in the equivalence of paper money and specie, of credit and international cash? Public meetings agree, resolve, dissolve and disagree. The responsibility for restraint in the issue of paper currency was placed and shouldered only when it was announced that a group of leading traders and officials had been granted a charter to form a bank.*

[* H.R. of A. series I, vol. IX, pp. 217 et seq.]

The capital of the contemplated Bank of New South Wales, gathered in the form of 200 shares of £100 each, was to be charged with the redemption on demand of all notes which the bank deemed it prudent to issue. Overissue would thus endanger the bank's foundation, its stock of international cash. In issuing notes or otherwise granting the right to draw cash from its strong-box, the directors of the Bank were in this way made the colony's financial watchmen. They would hurt themselves first if they granted credit, i.e. the use of productive resources on condition of future repayment, to men unable or unready to put those resources to effective use. The bankers became in a sense the trustees of their clients' wealth and the guarantors of their honesty. They encouraged trade between the most dependable, and were bound by the special circumstances of the colony to pay good heed to its external trade.

In March 1817 the need for such a regulator of note issues had grown so clear that Macquarie, with the cautiously worded support of Judge-Advocate Wylde, granted a Colonial Subscription Bank a seven-years' charter on his own initiative. He advised the Colonial Office not merely to confirm the charter but to become party to the subscription of capital, only £12,600 of which had been found in the colony. Government, he urged, "should at least make the Bank the Depository and Medium of all Government Monies and payments".

Though the Governor's secretary became its first President and deposits flowed in steadily,** the paid-up capital at opening day was but £3625, and troubles soon came upon "my favourite Measure", as Macquarie termed it. The Colonial Office reported the opinion of the Crown's legal advisers "that you were not legally empowered either by your Commission or Instructions to grant such a Charter, and that it is consequently null and void".*** Holding that no good purpose could be served by any "interference" in banking on the part of government, the Secretary of State ordered Macquarie to "intimate to the gentlemen composing that establishment that they can only consider themselves in the situation of persons associated for the purposes of trade, and as such not entitled to any of those special privileges which it was the object of the Charter to confer".

[** The first depositor was Sergeant Jeremiah Murphey of the 46th Regiment, £50, the second John Harris of Ultimo, £138. 1s. 4d., and the third William Redfern, £51. 15s. 7d.]

[*** Bathurst to Macquarie, 29 October 1818, H.R. of A. series I, vol. IX, p. 840.]

Foremost of these was the privilege of indemnity "against all risk or liability beyond the amount of the Shares respectively taken by each in the Capital Stock of the said Bank". Among banks of issue such limited liability was then the exclusive privilege of the Bank of England. In its absence the subscribers would become ordinary partners liable to an unlimited extent for the debts of the bank. Macquarie had hoped that the privilege of limited liability would induce the sound and cautious to subscribe adequate capital. A new currency chaos, he foresaw, would follow the denial of the charter's validity, and he fought with success, though in a somewhat disingenuous fashion, against the dissolution of his Bank. Possibly his reply to Bathurst was written promptly, but it was not sent until 1 September 1820. The Bank, it then announced, had succeeded beyond his most sanguine hopes. Its dissolution "would be attended with the most embarrassing circumstances to every member of the community". "So great a number of proprietors", he believed, "could not be legally united together otherwise than by a Charter of Incorporation".* In the dilemma of "venturing on the suspension of your Lordship's instructions" or producing "little short of a General Bankruptcy" by giving effect and publicity to them, he "ventured to take the weighty responsibility of embracing the former Alternative". Wherefore he asked for "direct sanction to his measures for the unexpired portion of the Original Charter of Seven Years". He did not get it; the question was referred to Commissioner J. T. Bigge, then conducting a general inquiry into the colony's affairs. In Bigge's report of 1823 ** a conflict is evident between accomplished facts in Sydney and Whitehall's new dogma of laissez faire, forbidding all legal privilege save to the Bank of England. Bigge bore testimony to the utility of the Bank in evolving order out of the commercial chaos of paper based on the honesty of individuals, and to the high credit it enjoyed. This had survived the loss of half the subscribed capital (£12,600) through defalcations by its chief cashier, discovered in January 1821. That credit, he thought, had grown in part from the belief in its possession of a royal charter, but as he could not be "insensible to the consequences of insufficient control that a chartered immunity from the ordinary risks of commercial partnership has a tendency to produce", he did not recommend the charter's renewal.*** Yet in Brisbane's statement of action taken on Bigge's reports appears the bald entry: "Relative to renewing the Charter of Incorporation to the Sydney Bank after its expiring in the Year 1824: Charter renewed in 1824".

[* The right of "exclusive banking" granted to the Bank of England by the Act of 1697 and further defined by that of 1742 was interpreted as banking through the issue of notes "payable on demand or at any less time than six months from the borrowing thereof". No partnership of more than six persons could lawfully carry on such business "in that part of Great Britain called England'. Macquarie seems to have been advised that he could do nothing repugnant to the laws of England, and was therefore bound by this second rule. See H.R. of A. series I, vol. X, p. 351. Cf. A. Andreades, History of the Bank of England, p. 171, note 2, and A. F. Dunbar, Chapters on Theory and History of Banking, p. 195.]

[** J. T. Bigge's Report on Agriculture and Trade, January 1823, pp. 65-7]

[*** J. T. Bigge, op. cit. p. 67.]

Whatever its standing in the eyes of the law, the Bank proved a vigorous custodian of the community's financial interests. It was an early example of the young society's power to create, independently of the state, organs for collective action. The coins that passed over its counter would have seemed to a modern teller fit only for a museum. In 1821 the Bank's clients were warned against such illegal and counterfeit money as "Dollars and Dumps which are not silver; Dollars having the usual holes in the centre but without the Colonial Stamp on them; Colonial Dollars from which a portion of Silver has been taken round the Centre; and Dollars that bear a counterfeit Stamp, intending to imitate the Colonial one surrounding the Hole in the centre, many of which may be detected by the figures for the date of the year being transposed from 1813 to 3181".****

[**** These descriptions will be made more intelligible by reference to an engraving of the original issue of Holey Dollars and Dumps, e.g. in the Australian Encyclopaedia, vol. I, p. 345, or in the View of Premises of the Bank of New South Wales, 1907.]

It was not merely the opening given by imports of Spanish dollars for such private issues of mutilated coin which caused the Bank to take a strong line in advocating a purely British currency. Governor Brisbane displayed high enthusiasm for the Spanish dollar. To his scholarly mind it was "an invaluable coin which has for centuries been disseminating its benefits over every other portion of the earth—a coin which from the extension of its circulation over every part of the commercial globe may justly be defined the money of the world". As Governor, he answered the Bank's dislike of the holey dollars by their recall and re-issue at 3s. 9d. But he admitted fresh dollars in great quantities, about 400,000 in number, making them legal tender at five shillings apiece. This official rate of exchange was more than the bullion value of the silver in them, and, as the colony's trading prospects improved, Spanish dollars were poured in to take advantage of the local over-valuation. In May 1825 the rate at the colonial treasury was lowered to 4s. 4d., and after Brisbane's departure in that year British silver was sent out in adequate quantity. Holey dollars were finally redeemed at 3s. 3d., and the unmutilated dollar was accepted only, as so much bullion then worth 4s. 2d.

In these adjustments the Bank of New South Wales—"Macquarie's Bank", as it was called in lively reminder of his services, in founding it—took a strong line in support of its first aim and reason, stable money. It denounced Brisbane's use of Spanish coins in government payments as a rejection of sterling cash payments in favour of a currency of fluctuating value. Now that the British had resumed specie payment on a gold monometallic basis, and war-expedients and depreciation (1798-1821) were no more, the Bank was right.* The colony's main trade being with Britain, a stable relation, even identity, in the standard money of the two countries was the first desideratum, whatever benefits may have been conferred "on the British and North American Colonies, on the French and Papal Canadas, on Mahomedan India and on the whole world" as scanned by the benevolent Brisbane.**

[* For the memorials and correspondence which passed between the Bank and Governor Brisbane in 1822, see H.R. of A. series I, vol. X, pp. 730-44.]

[** For two years, 1824 to 1826, the Bank issued notes in dollar denominations 1, 3, 5, 10, 20, 50 and 100. They were withdrawn in 1826 in favour of sterling notes for £1, £2, £5, £10 and £20.]

The same primary aim of sound currency was urged by W. C. Wentworth in support of a reduction of the discount rate in 1825 from 10 to 8 per cent., against a minority of bank shareholders greedy for maximum gain. Out of this conflict arose the rival Bank of Australia to which many leading officials and squatters adhered, such as ex-President J. T. Campbell, John Oxley and John McArthur. Their knowledge of the inner counsels of the older bank and perhaps its record of independence explain but hardly excuse the partisan line taken by Governor Darling against the Bank of New South Wales. The success of the old Bank and the growth of the wool trade were attracting intending competitors from far and near. The promoters of a third bank in Sydney announced that their shareholding lists, in pointed reflection on the "pure merinos" who founded the Bank of Australia, were to be open to every free colonist. They were persuaded, however, to coalesce with the Bank of New South Wales by the offer of additional shares in it. While the terms were under discussion, Darling "discovered" a despatch (July 1823) forbidding his predecessor to renew the old Bank's charter. A run set in. Darling would agree to advance money from the Treasury to ward off panic only on conditions amounting to the compulsory liquidation of the Bank of New South Wales. Opinion rallied to its support. D'Arcy Wentworth and W. Redfern successively presided, and though the charter was declared invalid on the ground that Brisbane had had no right to grant it, the first president J. T. Campbell returned to pilot the Bank into re-organization as a joint-stock co-partnership, as from 1 January 1828. Even so the damage to its credit seemed likely to be mortal, and a government loan was accepted in the following year on the drastic condition that the Bank be wound up within twelve months.*** But a new cashier and secretary, John Black, succeeded before the year was out in repaying both the Government loan and declaring a dividend. It is said that in doing so he depleted the cash in the Bank's chest to twenty-nine pounds! Under Black's management, however, Macquarie's Bank was to outlive the Bank of Australia and to outgrow in resources its competitors of British origin. The temporary superiority of the Bank of Australia by virtue of the favour and deposits of the Government did not save it from collapse in 1843.**** The co-partnery form of the senior bank was strengthened in 1830. At the dawn of the gold boom it was incorporated afresh under a local act, with an augmented capital.

[*** Sydney Gazette, quoted in View of Premises, 1907.]

[**** See The Hobler Papers (Mitchell Library), 18 October 1848, vol. VI, p. 52, as to its liquidation. For the later history of the Bank of N.S.W. see the above cited View of Premises, 1907, passim.]

Macquarie's way of providing and regulating the colonial currency, as its determined survival shows, had taken early and deep root. The chief danger of Australian banks thenceforward may be traced to the multiplication of such regulators. The phase of competition was perhaps inevitable, but the rule of sound money like the rule of law calls for a single sovereignty.*****

[***** A. S. J. Baster, The Imperial Banks, a study of the development of colonial banks with headquarters in London, was published after this chapter was written. It is strongly recommended to students.]