*Replenishing the Earth*, by James Belich

by on October 11, 2009 at 3:50 pm in Books, History | Permalink

How is this for a real estate bubble?

At peak in 1888, over 80 per cent of Victorian private investment went into Melbourne buildings.  Expenditure on housing was even greater than that on rail, and many houses were built without people to live in them, or without jobs for those who did.

In the 1890s Melbourne was an impressive place.  With 500,000 people, it was eighty percent bigger than San Francisco and nine hundred percent bigger than Los Angeles.  Three hundred trains a day serviced the suburbs.  The city had three hundred buildings with elevators and Melbourne was reputed to have more large public buildings than any British city outside of London.  There were plans to build a replica of the Eiffel Tower.

That is all from James Belich's Replenishing the Earth: The Settler Revolution and the Rise of the Anglo-World, 1783-1939.  I'll discuss this book more soon, but I'll tip my hand and say it is one of the very best non-fiction books of the year.  Imagine Jared Diamond or Greg Clark (albeit more measured, in each case) but applied to the settlement of the colonies rather than to Europe itself.  This book also has perhaps the best explanation as to why the Argentina growth miracle fell apart.

david October 11, 2009 at 5:01 pm


The brash boosterism which typified Melbourne during this time came to a halt in 1891 when the start of a severe depression hit the city’s economy, sending the local finance and property industries into chaos during which 16 small banks and building societies collapsed and 133 limited companies went into liquidation. The Melbourne financial crisis helped trigger the Australian economic depression of 1890s and the Australian banking crisis of 1893. The effects of the depression on the city were profound, although it did continue to grow slowly during the early twentieth century.

Gee, Australian banking crisis? Let’s see. *click*

The 1893 banking crisis occurred in Australia when several of the commercial banks of the colonies within Australia collapsed.

During the 1880s there was a speculative boom in the Australian property market. Australian banks were operating in a free banking system, in addition to few legal restrictions on the operation of banks, there was no central bank and no government-provided deposit guarantees. The commercial banks lent heavily, but following the asset price collapse of 1888, companies that had borrowed money started to declare bankruptcy. The full banking crisis became apparent when the Federal Bank failed on 30 January 1893. By 17 May, 11 commercial banks had suspended trading.

Ouch. I’m certain many free-banking proponents read MR. Any comments?

E. Barandiaran October 11, 2009 at 5:25 pm

Tyler, in relation to what you say about Argentina. I’ve read only the product description in the Amazon page and my first reaction is that Argentina was very much part of the settler revolution albeit with some important differences. One key difference acknowledged by politicians and economists (including Raúl Prebisch) was that Argentina was not part of the Commonwealth and therefore it was excluded from the quota system of trade imposed during the Great Depression. This forced Argentina to negotiate bilateraly with UK the Roca-Runciman treaty of 1933 that was later denounced by most politicians as a terrible deal for Argentina. The severe impact of the Great Depression on Argentina should not be underestimated, but the main problem of my country was the failure to take advantage of the new opportunities after WWII (in part this failure was due to the reluctance of the US and UK governments to accommodate Perón because the successive governments of 1939 to 1945 had failed to declare war to Germany, Italy and Japan–you should not dismiss the importance of US&UK efforts to punish Argentina, for example, we were left without the World Soccer Cup of 1950 which was given to Brazil and Perón retaliated by denying our national team’s participation, something that I still regret because of the many great players we had at that time).

dearieme October 11, 2009 at 6:24 pm

Unless I were mighty rich, I’d rather live in Melbourne today than LA. Perhaps even if I were mighty rich.

Andrew October 11, 2009 at 7:01 pm

“I’m certain many free-banking proponents read MR. Any comments?”

Yeah, what’s the matter with saying ten times as large instead of “900 percent bigger”?

mobile October 12, 2009 at 1:38 am

If sports books are an efficient market, how can there be upsets?

Winton Bates October 12, 2009 at 3:01 am

The government of Victoria was not blameless.

Edward Shann’s account suggests that even after the money market hardened in 1889 the Gillies-Deakin Government in Victoria “tried busily to paper over the cracks by raising more loans” in London to spend on public works. “In 1891 the Munro Governmnent was only stopped by London’s reluctance to find more money, even at higher rates of interest” (quotes from E. Shann, “An Economic History of Australia”).

Winton Bates October 12, 2009 at 8:06 am

It might also be worth noting that for financial regulation to have prevented the bubble it would have needed to have covered building societies and land companies as well as banks.

Edward Shann made the point magnificently: “When at the close of 1887 they [the larger banks] refused further advances on land, the ball was in play and they merely left the field. Others played on and the crowd still cheered” (“An Economic History of Australia”, 1930).

Gabe October 13, 2009 at 2:32 am

What was the “federal bank” doing in 1892 and the 1880′s? Someobody was obviously juicing the money supply…if it was just fraudulent banks lending out promisary notes that they didn’t have then at least the fraudulent banks failed and we didn’t get a 15 year depression like in America 1930-1945.

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