Tuesday, 29 April 2014

New Zealand's private central banking foundation of sand - The Truth About New Zealand - A N Field 1939

The Truth About New Zealand A N Field 1939 (Russell & Whitaker)
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When the colony of New Zealand was founded in 1840 one person in every seven in the British Isles was a pauper on the rates. Emigration offered a way of escape from the prevailing distress directly or indirectly affecting nearly all classes; and it so happened that at this juncture Edward Gibbon Wakefield came forward with a plan making the promotion of emigration attractive as a financial speculation.

Wakefield's plan was for an emigration company to' acquire land overseas, and to sell this land at a Sufficient Price, emigrating thereto both capitalists and labourers. The sufficient price was to be sufficiently low to attract the capitalists, and sufficiently high to be out of reach of the labourers without a period of careful saving from their wages. In this way the capitalists would be provided with a permanent supply of labour, to work their properties, and as the labourers saved enough to acquire holdings of their own, funds would be available from the money they paid for land to emigrate more labourers, and also to yield more profits to the promoters of the scheme.

The distress which was the driving force behind the emigration movement was due to the monetary manipulation after the Napoleonic wars, by which a heavy war debt incurred in paper money was made repayable in gold. The consequences were similar to those more recently experienced when the same thing
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was done after the European war of 19I4-18. Prices fell heavily, unemployment became widespread, and at the other end of the population much money was heaped up in the hands of a few men looking for investment and speculation.

To this moneyed interest in his day Wakefield successfully appealed for the means to conduct his scheme. In 1838 a New Zealand Association was formed with Sir Francis Baring, M.P., a financier of the first water, as its chairman, and the next year the association blossomed out at a meeting in a Covent Garden banking-house into the New Zealand Company with a board representative of both finance and philanthropy. The first chairman was the Earl of Durham, a Radical peer, who was presently succeeded in the chair by Mr. Joseph Somes, the greatest ship- owner in the world at this date.

The company founded an enduring settlement which remains as its monument, and it also achieved its object of making money. It began by selling in London a hundred thousand acres of town lots and country estates in New Zealand at a time when it had not acquired a single acre of land there. Just ahead of its first shiploads of emigrants it sent out an expedition which succeeded in inducing a number of Maori chiefs in return for presents of trading truck to place their marks on a document allegedly selling the company a million acres of land. When the company finally surrendered its charter to the Crown in 1850 it had not given legal title to one solitary piece of land to even one individual among the twelve thousand it had emigrated to New Zealand.

Six years later the colonists in their first Parliament were obliged to raise a loan in London to extinguish the company's claim on the colony for £200,000, which claim the Crown Commissioner on the company's board had described as established "by gross frauds,
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concealments, and misrepresentations, practised chiefly on Earl Grey and Sir Charles Wood, Chancellor of the Exchequer." Thus was the public debt of New Zealand born.

The Wakefield plan of a "sufficient price" for land was only partly applied. Such capitalists as emigrated presently began to find ways and means of acquiring very large blocks of land for very little, so that land monopoly became and remained a burning question. At the same time the price of small holdings was in general kept at such a point that the ordinary run of people were obliged to seek a path to landownership through the moneylenders' offices.

Almost every contemporary book on early New Zealand lists among the attractions of the colony as a place of residence the high rates to be obtained by lending money. Hursthouse (1857) speaks of ten per cent. as the average interest rate on mortgages in New Zealand, as against five on no better security in England. Another writer (Puseley, 1858) mentions ten and twelve per cent. as common, and in some districts fifteen and twenty per cent.

In the founding of New Zealand it was nobody's business in particular to see that there was a sufficient supply of money in circulation to meet the community's need. The Wakefield idea was that the emigrant capitalists would provide this, but they proved to he neither very numerous nor heavily endowed. The British Government considered it had done its part by remitting funds as needed for the expenses of the Governor. A Government Colonial Bank of Issue was set up in 1850 to do something to meet the acute shortage of cash, but as it was only empowered to issue notes in exchange for coin, this brought no augmentation. This hank was unpopular, and lasted only six years. Its main effect by monopolising the note issue was to cause the one commercial bank then in the
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colony almost to close clown. In Nelson province during this period almost the only circulating medium to be seen during eight years up to 1856 was notes issued by a firm of merchants: other districts carried on similarly.

Private banking companies stepped into the breach, and from this time onwards were left to supply the necessary medium of exchange for the expanding business of the colony. Under the charters given them the banks were required to hold coin to the value of one-third of their note issue, and bullion or Government securities for the remaining two-thirds; and it was laid down that their total liabilities must not of exceed three times their coin, bullion, and Government securities. This meant that on a bank opening up in a bank-less community, and the community paying in, say, £1000 in coin for safe-keeping in the bank, the bank could thereupon expand this into £9000 of notes in circulation and deposits to credit of customers. For example on deposit of the £1000 in coin, the bank could print £2000 in notes and expend these in buying Government securities. It would then possess £3000 in coin and Government securities, with liabilities of £1000 in deposits and £2000 in notes. As the law allowed total liabilities to be three times the amount of coin and Government securities, the bank could next advance to customers £6000 on overdraft, taking security over their property for the loans. As these customers wrote cheques against their overdrafts, the recipients of the cheques would pay them in, and presently the original £1000 in deposits would increase by £6000. The public would finish up with £7000 to credit in the bank and £2000 in notes in circulation as well, whereas before the bank came all it had was a beggarly £1000 in coin. The bank, on its side, would collect interest on £2000 in Government securities and on £6000 in advances, less any interest it had to pay for deposits, a not unprofitable result considering that all it really
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needed to find was the premises to do the business in.

In practice banking did not expand the means of payment to this extent. The law had another provision requiring the bank to redeem its paper in coin on demand at its head office in the colony. The banker's problem was not to exceed the maximum issue of paper that could be kept afloat without inconvenient demands for coin. This depended on the readiness of the public to accept imagined money for real.

These interesting arrangements, enabling the five loaves and two fishes to feed the multitude financially, had two important consequences on the history of New Zealand the banks naturally became particularly interested in increasing the stock of gold coin in the country. This meant increasing the export trade. With the settlers producing much more than they could consume, exports were bound to be a big item in any case. The currency arrangements on top of this made external trade the dominating interest of the banks. Local production for local consumption brought no increase of coined gold, and no expanded base for banking operations. The whole financial bias was thus heavily in favour of financing exports and imports, and the development of a one-sided national economy. This was intensified as time went on.

The second consequence was that financial expansion automatically meant debt expansion. The banks financed farmers to export, and they bought from the farmers with their notes the sterling received in London from the sale of exported produce. At the same time the banks advanced money on overdraft to traders to import goods from London, and they then sold to the traders the bulk of the sterling they had bought from the farmers, and with this sterling the bills for imports were paid in London.

Practically the whole of these advances made by the banks were payable on demand, and throughout its
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history the bulk of the leading citizens of New Zealand have necessarily conducted their business affairs on the basis of debt to the banks, their overdraft demand liabilities usually being very much greater than most of them could actually meet on demand. From men so situated a considerable portion of New Zealand's members of Parliament and other public leaders have been drawn—men who could be bankrupted at any moment by their bankers quietly calling up their loans.

This latter fact is important to bear in mind, for there presently arose in the colony a bank with far-reaching political interests.

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In 186o two banks were doing business in New Zealand, the Union Bank of Australia which had opened up in the colony in 184o, and a more recent arrival, the Oriental Bank, managed in New Zealand at this time by Mr. Falconer Larkworthy. Among the customers of the Oriental Bank was Mr. Thomas Russell, solicitor, of Auckland. Mr. Russell, a young man of thirty, born in humble circumstances, had built up an extensive connection in Auckland, and in this year he induced Mr. Frederick Whitaker to go into partnership with him. This was an important happening for Mr. Russell and for New Zealand. Mr. Whitaker was an English barrister who had arrived in New Zealand via Sydney; He had been a member of the Governor's Council from the foundation of the colony, and in 186o held the office of Attorney-General in the Ministry. Mr. Larkworthy in his memoirs (Ninety-One Years, Mills & Boon, 1924) says that Mr. Russell guaranteed his new partner no less than £5000 a year as his part-share of the profits. Law business was largely moneylending, and that one law firm should be able to make money at this rate speaks for itself as to the extent to which the handful of colonists were submerged in debt.

In the next year the Oriental Bank decided to retire from New Zealand, and the Bank of New South Wales entered the colony by buying its business. The new bank looked askance at Mr. Russell's large and speculative account, and Mr. Russell, in high indignation, persuaded Mr. Larkworthy to join with him in establishing a local bank, the Bank of New Zealand. No
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sooner had the new bank opened its doors than rich goldfields were discovered in Otago, and by the simple process of printing notes and using them to buy gold from the diggers, the bank was soon in possession of the sinews of war. It got on its feet at once, and became a flourishing success.

The connection between the Bank of New Zealand and the Government of New Zealand was close and intimate from the start. The bank got the Government account almost immediately, and retained it until the establishment of the Reserve Bank in 1934. Mr. Whitaker (Sir Frederick after 1884) was solicitor to the bank from 1861 until 1889, and during the first thirty years of the bank's existence he was twice Premier of the colony, five times Attorney-General in different Ministries to 1890, and once Postmaster-General, Mr. Russell himself was also in Parliament for six years from 1861, and during part of the Maori war period held the important post of Minister of Colonial Defence.

The Maori war broke out in 186o in Taranaki in consequence of the Government taking possession of land which the Maoris contended they had not sold to the Crown. The Government's legal advisers, Mr. Whitaker being Attorney-General, held that the Crown had acquired title. Sir George Grey, hurriedly sent back to New Zealand as Governor on the outbreak of war, made inquiry into the matter after his arrival, and the documents and plans produced showed that the legal advice on which the Government had acted was definitely bad, and the Maori contentions in accord with fact.

This discovery was made too late to quench the flames, and the blaze presently spread from Taranaki northwards to the Waikato and other parts of Auckland province. Ten thousand British troops were called in, and the campaigns extended over ten years,
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costing the colony between three and four million pounds. The Hon. John Fortescue in volume xiii of us monumental History of the British Army (Maeniillan, 1930) records that many Imperial officers were of opinion that the military in these campaigns were being made use of for the purpose of effecting decidedly sordid land-grabbing operations.

Sir George Grey in his earlier first Governorship had been against a premature grant of representative government to the colony on the ground that the excessive claims of various colonists to Maori lands would lead to war between the two races; that to prevent the settlements from being wiped out, Imperial troops would have to be despatched: that the colonists had no means to pay the cost of any such campaign; and "that, on the contrary, these expenses must be paid by Great Britain, whilst the minority [of colonists] to whom the new powers are to be entrusted will benefit largely from such expenditure, and will have a direct interest in rendering it as great as possible." (Despatch of May 3, 1847).

In 1863 Mr. Russell became Minister of Defence in command of the channels through which the Maori war expenditure flowed. His partner, Mr. Whitaker, a few months later became Premier, and the two carried on in office until towards the end of 1864. Sir George Grey in a despatch of August 26, 1864, described his misgivings as to the position in which he found responsible government in New Zealand at this date. The inhabitants of the various scattered settlements knew no more of what was transpiring than Ministers thought fit to tell them. Of a Ministry of five members, one was absent in England, two others seldom at the seat of Government in Auckland, the remaining two being "two partners who comprise one of the leading legal firms in the town of Auckland". On the advice tendered him by these two Ministers the Gov-
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ernor was supposed to act in "affairs involving largely the interests of Great Britain in the employment of her military and naval forces, and the expenditure of their funds."

The Ministry thus composed floated New Zealand's second loan—the first recourse to borrowing since 1856. The amount authorised by Parliament was three millions for Maori war purposes, and the first million of scrip was disposed of in London through the agency of Mr. Russell's Bank of New Zealand, the Treasury netting £810,000 in cash, and flotation costs absorbing not far short of 4/- in the pound. The proceeds of this war loan appear to have passed through the Treasury so rapidly that there was no time to keep track of how the money went. The next Premier, Mr. Weld, is quoted in Saunders' History of New Zealand as saying in a speech at Christchurch: "Under the Whitaker Ministry a million and a half was paid out without any details being recorded."

One item in the war expenditure was a contract for the supply of hay to the Imperial troops. The contractor was a small farmer at Auckland. who was brother-in-law to Mr. Russell, Minister of Defence and ruler of the bank. The Weld Ministry cancelled the contract on the ground that the price was excessive. It was then discovered that the contractor had bought all the hay in the market (apparently having ample financial resources) and the Cyclopaedia of New Zealand relates that the Government was in the end obliged to buy from him at double the original price. Following on this transaction, Mr. Russell became sleeping partner with his relative in a property of about thirty thousand acres in the South Island, of which the relative, being a highly competent farmer, made a great success.

This incident is mentioned as, according to Mr. Larkworthy's memoirs, it headed Mr. Russell on to
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his colossal land speculations in the North Island--which speculations a benevolent Liberal-Labour Government at the turn of the century spent ten years in liquidating as a liability saddled by it on the backs of the taxpayers, there being no longer any prospect of Further profit for Mr. Russell or his bank in the ventures.

This heavy military expenditure in the adjacent portions of the North Island put the City of Auckland firmly on its feet as a banking and commercial centre. An additional lucrative branch of business not revealed in the official figures was the supply of arms and munitions necessary to enable rebellious Maoris to hold the field against the British military throughout this prolonged period. The profits on the other side of the account being so great, there was room for considerate treatment of the Maori in view of his more restricted financial resources. The veil over the terms of these transactions has never been lifted.

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Relations between Sir George Grey and the Whitaker Ministry were never cordial. Breaking point came when Ministers asked the Governor to approve a plan to confiscate eight million acres of Maori lands, regardless of whether the local Natives had been in arms against the Crown or not. Sir George Grey flatly refused to agree, and the Ministry fell.

A large but greatly reduced area was eventually confiscated under the succeeding Weld Ministry. This Ministry in 1865 gave way to one under Mr. Stafford. Mr. John Bridges, acting-general manager of the National Bank, in 1875 deposed in evidence before a Parliamentary Committee that the Weld Government fell following a decision by five members of Parliament who were also directors of the Bank of New Zealand, that a remittance urgently needed to pay interest on the public debt would be given by the hank to a Stafford Government, but not to the Weld Government. Mr Bridges said he was Wellington manager of the Bank of New Zealand at the time, and he had personally conveyed the decision to Mr. Weld. (The seat of Government had been removed from Auckland to Wellington in 1865.)

A rising star in the political firmament at this time was Mr. Julius Vogel, a journalist who had formed one of the numerous company of Jews which flocked into New Zealand following on the discovery of gold in 1861. Establishing in Dunedin the colony's first daily newspaper, Mr. Vogel presently entered politics, and by 1869 was Colonial Treasurer, succeeding to the
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Premiership in 1873 and holding office for three years. Friendly relations existed between Mr. Russell and Mr. Vogel, warm discussion taking place in Parliament in consequence of the Premier's unannounced departure for England in company with Mr. Russell in 1874. Mr. Vogel was on the opposite side from Mr. Whitaker, and from 1869 to 1890 when one was out of Cabinet the other was commonly in.

Mr. Bridges, in his evidence in 1875 just referred to, said that for a period of years up to 1873 when he resigned the Wellington managership of the Bank of New Zealand, Mr. Vogel had had a private account with the hank there, with an overdraft limit of £200, and that "frequently", "much more than five or six times a year" as far as he could remember, the limit would be reached, and the indebtedness thereupon wiped out by transfer to the head office of the bank at Auckland. The bank sent a letter to the Parliamentary Committee saying there was nothing improper in this as Mr. Vogel had another account at Auckland; but it presented no evidence, nor did the Committee re-examine Mr. Bridges, whose charges it affirmed to be "absolutely unwarranted and without foundation"—the usual termination of Parliamentary inquiries touching the Bank of New Zealand.

The law with respect to the sale of the confiscated Maori lands after the war laid it down that they must be offered at public auction at an upset price of 5s. per acre. In 1876 the Vogel Government in face of this law obligingly permitted Mr. Russell and some of his banking friends to purchase the Piako block of over 80,000 acres, privately and without competition, for 2s. 6d. per acre, the transaction taking place after the Government had decided to build a railway through the middle of the block. This property was presently floated off as the Waikato Land Association, nominal capital £600,000, of which £300,000
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was allotted to the vendors in fully-paid shares as payment for their valuable property.

The Patatere block of about 250,000 acres, south of the Piako, was presently acquired by Messrs. Whitaker and Russell on similarly inexpensive terms, and in 1882 floated off into the Auckland Agricultural Company, nominal capital £800,00. A South Island provincial newspaper proprietor who had the audacity to refer to this transaction in his journal as "another swindle", was summoned to the bar of Parliament and also sued for libel by Mr. Whitaker, the jury unkindly returning a verdict for the defendant newspaper. "Either Mr. Jones ought to be placed in gaol or I should be turned out of Parliament," said Mr. Whitaker. Neither event transpired.

Mr. Russell also floated another large block of 150,000 acres, east of the Piako, into the Thames Valley Land Company, nominal capital £500,000.

These ventures by no means exhausted the interests of the partners. Mr. Russell at the time of founding the bank had also played a leading part in the important New Zealand Insurance Company. He and Mr. Whitaker were interested in some 13,000 acres of coal-bearing land later floated off into the Waikato Coal Company. Extensive Whitaker interests in gold-bearing land at the Thames, and in timber properties, became the subject of acrid debate in Parliament.

Second only to the bank itself in importance was the great New Zealand Loan and Mercantile Company formed by Mr. Russell in 1864 with a share capital of half a million, and with about two millions more raised by selling 4% debentures to widows, spinsters, clergymen, etc., in England, the money so obtained being loaned to farmers in New Zealand at from 8 to 10%, according to statements in Parliament. The company was formed to take over the accounts of farmers who had got so deeply into the books of the
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banks as to have small chance of ever getting off again.

These loan companies held security over their farmer-debtors' possessions, sold their produce, and supplied their farm and household needs, paying over such cash balances as might remain from time to time after deduction of charges levied at their discretion and interest compounded as often as the law allowed. Farmers who got into the hands of such concerns were apt to find themselves there for life.

Within a few years of its establishment about half the banking in New Zealand was done by the Bank of New Zealand, and its offspring the loan company had Farmers and sheep-station owners in its debt from end to end of the colony. Criticism of the doings of the bank was heard from time to time in Parliament in the first thirty years of its existence, numerous inquiries were held, but invariably the result was the same—complete exoneration of the bank and the Government of the day. Now and then even the docile Government majority on a Parliamentary inquiry would timorously add a rider that although everything under inquiry was perfectly proper, it was highly desirable that the same thing should never be done again. Evidence was tendered at times showing the charges levied by the bank for operating the Government account as of an exorbitant character, and alleging that the other banks were never given opportunity to tender for the account on level terms.

When the Bank of New Zealand, potent dispenser to industry of the means of payment, desired a particular course of action to be followed, Parliament was Seldom prepared to say it nay. An early instance of its power was in the consolidation of the provincial loans in 1867. Floated at heavy discounts and almost unmarketable, it was felt that these loans were an injury to the credit of the colony. The Government had no responsibility for the loans, but decided to get
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them out of the way by buying up the scrip at market price, finding the money for the purpose by sale of Government stock.

Mr. Russell appeared before the Parliamentary Committee considering the Bill, and presented it with another Bill, which new Bill was duly reported back to the house and passed into law. The new Bill gave all holders of provincial stock new Government stock to the face value of their provincial stock, the Government stock being marketable at £106, and the provincial down to £80 and less. Mr. Russell admitted that he represented bondholders of upwards of £400,000, and the profit made by the bank out of this transaction was estimated at from £50,000 to £100,000. Although

hotly denounced by a minority in Parliament as a fraud on the colony and robbery of the tax-payers, the Bill went through as desired by the bank.

Mr. Saunders in his history quotes Mr. Fox, who was several times Premier, as saving of this enactment of the Stafford Government: "How it was clone under the influence of a certain bank deeply interested in the result, and by threatened expulsion from office of certain members of the Legislature, is a matter of history, and little creditable to the Government which forced the Act through the Assembly by such illegitimate means."

A book might be filled with details from the public records of the numerous specific allegations of misuse by the bank of its financial power to the public prejudice. ` Sir George Grey, living in retirement in the colony after his second Governorship, entered politics in 1874 at the request of the people of Auckland to resist the Vogel policies, and spiritedly denounced bank control of politics. In Parliament the next year he said, with reference to a certain incident:

"I believe, for reasons which I shall presently show, that it would be actually in the power of one wealthy
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establishment in New Zealand to have any person they chose sent out here as Governor who would be likely to support their interests" Sir George Grey had been five times Governor in various' parts of the Empire, and knew what he was talking about.

Speaking in Parliament in 1883 during Mr. Whitaker's second Premiership Sir George Grey said "I conscientiously believe that two or, three great' establishments, all really under one directorate, do' exercise in the Legislature of this country an undoubted and dangerous influence. I sincerely believe that the existing Government is maintained in its place by those bodies... I say that even among the voters it will be a long time before that independence can come about which ought to prevail, because I fear many of them are in some manner entangled with engagements' which will place them at the mercy of those persons who rule those different great bodies of which I speak.

I go further and say-and in saying this I know, of course, that I create, and must create, a great many enemies-I firmly believe that the same persons by monetary influence control a great portion of the press "One great central power in New Zealand oppresses it from end to end. That central power is moved by the Premier, and the Premier is the solicitor of these great moneyed corporations. Is it just? Does it give the people of New Zealand a fair chance? Is it not hard for a man to know that if he cries for justice some debt upon his estate may he made the cause of his ruin instantly? Is it right for us to feel degraded by knowing that such is the case here? ... As long as this continues I see' no hope for ourselves or our country."

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In 1870 New Zealand, at the instance of Mr. Vogel, embarked on its policy of systematic annual borrowing in London for public works purposes, which policy sixty years later enabled international finance to dictate to its Parliament the establishment of a Reserve Bank and a Mortgage Corporation as parts of a twin network of world control.

Mr. Vogel dazzled the colony with a proposal to borrow ten millions over a period of ten years. Three-quarters of this sum was to be spent on building 1500 miles of trunk railways, a million on miscellaneous works, and a million and a half on immigration. In addition it was proposed that two and a half million acres of undeveloped Crown lands to be opened up by the proposed railways should be set aside as an endowment to help largely to defray the cost by ultimate enhancement in value.

At the time these proposals were made New Zealand had a population of a quarter of a million, already laden with eight millions of Government debt absorbing a third of the public revenues in interest charges; and the individual colonists were also largely conducting their affairs on borrowed money.

Although a few far-seeing men protested against the entire scheme as a snare and delusion, Parliament swallowed it—hook, bait, line and sinker—by 45 votes to 7 against. To quiet criticism, Mr. Vogel announced his readiness to modify his proposals in detail provided their "broad features" were retained. The event showed that the chief broad features to which import-
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ance was attached were: (1) borrowing money, and (2) spending the proceeds. The schedule of trunk railways to be built was detailed in expounding the scheme, but was completely absent from the legislation enacted, and the land endowment (a great talking point) was left an optional matter of which nothing more was ever heard in a practical way.

At the end of the ten years twenty millions had been borrowed, instead of the projected ten, and about a thousand miles of railways had been built, part of it unprofitable branch lines constructed for political vote catching purposes. To-day some of the listed trunk railways still remain incomplete, but this has not prevented the public debt from climbing up to £290 millions.

Having got his loan authority, Mr. Vogel packed his bag and departed for London next year to supervise flotation operations. Although New Zealand stock was quoted at par at this time, colonists were somewhat surprised to find the Treasurer had been obliged to float his loan at a discount of four per cent. Another surprise was a bill by the Colonial Treasurer for £3163 for travelling expenses in addition to salary: it was noted that Mr. Vogel had done himself extremely well while abroad, sporting a carriage and pair with footmen in livery carrying wands, and living in "regal grandeur," as a country member put it.

In 1873 Mr. Vogel became Premier, and a few days after the close of the session of 1874, without any announcement to Parliament of his intention, he suddenly departed for England again, this time in company with his friend Mr. Russell of the Bank of New Zealand. Arriving in London, Mr. Vogel took the business of loan flotation right out of the hands of the Crown Agents for the Colonies, and despite their emphatic protests at the unwisdom of the course, traded away to his co-religionists, the Messrs. Roths-
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child, £4,000,000 of New Zealand 4 1/2 per cent stock at a discount of £352,000. Immediately following on this financial feat Mr. Vogel was rewarded with a knighthood in recognition of his public services. He did not return to the colony for sixteen months, recuperating from his exertions at the Continental casinos of Hamburg and Wiesbaden. The bill presented to Parliament for this unauthorised excursion was £8390 for travelling expenses, on top of salary. After a considerable amount of very plain speaking, Parliament slashed off £2750 from the total, to the intense disgust of the honourable gentleman.

Half the proceeds from the four million loan (after Messrs. Rothschild had finished with it) was placed on deposit in Mr. Russell's Bank of New Zealand, not being wanted for some considerable time to come, the interest payable on the deposit being 2 1/2 per cent., a rate equal to little more than half what the colony was paying on the money actually received. The Crown Agents again irritated the Premier by telling him that they considered it grossly improper to place nearly two millions of public money on unsecured deposit in a bank with a capital of no more than £600,000.

By 1876 Vogelism had resulted in the annual charges on the public debt swallowing up about two-thirds of the revenue, and bankruptcy was imminent. Sir Julius Vogel saved the situation by abolishing the provincial system of local government, and seizing the provincial revenue from the sale and rental of Crown lands to balance his budget. Thus the soil itself was being sold to keep the public creditor quiet.

In place of the nine provinces a multitude of small counties was created, the number gradually increasing to over a hundred. These counties ' were too small to stand on their own feet financially and had to be spoon-fed with annual Government grants. This immensely increased the Government power of patronage, and
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members of Parliament thereafter became largely canvassers for annual grants from loan moneys for works in their districts. It became a recognised thing that constituencies returning Government members had first claim to the plums in the annual free-for-all in scattering around the latest London loan. A member's value to a district was rated by what he brought home from the scramble.

From an early date the annual interest bill began to climb up towards a level with the annual new loan, and inspection of the two sides of the account shows by about 1885—fifteen years after its inception—all benefits from the Vogel public works borrowing policy had expired. As much thereafter was paid away on an average in interest as was gained by new borrowings. During the past half-century the country has simply been borrowing money to pay the interest on what it was owing before. In other words, the public debt has been compounding, and in this way rose from about £30 millions in 1885 to £290 millions to-day. If we had owed nothing in 1885 we could have paid cash for everything the Government has borrowed money for from that day to this, and we would have required less taxation—for we would have cut out all the waste of money in loan flotation costs, (inversions and renewals, and the other charges which come thick and fast around moneylending transactions. As it is we have hung £290 millions of debt around our necks for very much less than £30 millions of benefit, for even while we were borrowing that £30 millions about half that sum or more had flowed away in debt charges prior to 1885.

New Zealand's Parliament did its very worst day's work in its history when it listened to the blandishments of Sir Julius Vogel.

The Crown’s Engagement with Customary Tenure 4.1
Page 52 Waitangi Tribunal Native Lands Act Report

4.1 The Native Lands Act 1862
The Governor and ministers lost interest in their latest scheme for unlocking Maori lands when it became clear that it would not succeed, yet when Parliament met in 1862, Fox still had ideas of using the runanga system as the basis of new land legislation. On 22 July he introduced his Native Lands Bill to Parliament, and it was read a first time but lapsed when the Fox Government resigned a few days later. 11 Fox’s Bill would have enabled Maori to determine their own land titles and alienate their land directly to settlers; and it would have prevented speculation by delaying the granting of freehold title for 10 years to one economic block per
settler, conditional on occupation. Such far-sighted restrictions on wholesale alienation of Maori land were bound to find little favour among settlers, speculators, and most parliamentarians.
Within a month there was a new Native Lands Bill before the House, ‘more calculated to suit European tastes’. 12 It was brought in by Dillon Bell, Native Minister in the Domett ministry, with the backing of Thomas Russell and Frederick Whitaker. Sewell, Attorney-General in both the Fox and Domett ministries, voted for the Bill, but he had grave reservations about it and regretted the loss of the safeguards built into the earlier Bill. 13 He predicted that within five years it would be worth £10,000 a year to Russell. ‘I am frightened of it all’, he wrote. ‘I detect influences at work out of sight which are not simply dangerous, they are corrupting’. 14 His qualified acceptance of this legislation led to his replacement as Attorney-General on 1 January 1863 by Whitaker, a member of the Legislative Council, who took the position, ‘but not in a ministerial capacity’. 15 It was typical of Whitaker to accept an appointment to office on his conditions, which did not include denying himself time and space to continue the lucrative legal and land speculation practices he conducted in partnership with Russell. It was also indicative of the ministry’s intentions: there would be no impediment to the alienation of Maori land.
All signs of Fox’s ‘peace policy’ were swept away in this new Native Land Bill. This was a hard-line ministry. Alfred Domett, the Premier, was a Wakefieldian settler and one of Nelson’s early leaders; he had told the House ‘he still believed that, if the Natives had been taught first to respect the power of English arms, the schemes proposed for their benefit would have had much better chance of success’. 16 Now he explained that he would still argue in favour of the theories of Vattel and Arnold, but it would be ‘of very little use nowadays to assert and prove their correctness . . . unless we could get the natives to take the same view as ourselves’.

11. NZPD, 1861–63, pp 421–426

12. Ward, p 152

13. NZPD, 1861–63, pp 686–691

14. Sewell journal, 9 September 1862 (quoted in J Rutherford, Sir George Grey KCB, 1812–1898: A Study in

Colonial Government, London, 1961, p 478)

15. Statistics of New Zealand 1891–93, pt 1, p 5

16. NZPD, 1861–63, p 516

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