RDP 9303: The 1893 Bank Crashes and Monetary Aggregates 4. Alternative Series of Monetary Aggregates within Australia 1893–1914

Having estimated the amount of deposits ‘locked up’ under the various schemes of arrangement it is possible to present an alternative series of monetary aggregates net of such liabilities. The data must be treated with caution. Even M1, currency in the hands of the public and current accounts in trading banks, is subject to biases. As noted above, the estimates of currency in the hands of the public in the 1890s rest on a projection of post-1900 per capita figures. Hoarding during the panic would not be reflected in the series being used. On the other hand, the current account figure is overstated to an unknown extent as most current accounts were swept into reconstruction schemes at their formation although they were released considerably faster than were fixed deposits^[11].

It is now possible to compare the revised estimate of monetary aggregates with the series produced by Schedvin. Netting out the deposits locked up in long dated liabilities and stock suggests a significantly more severe contraction in monetary aggregates than the earlier series shows. Table 4 shows that the contraction is centred on the year 1893 when M2 falls by more than 47 per cent and M3 shrinks by 41 per cent. While the extent of the decline in monetary aggregates is far greater than that shown by the series based on the Butlin, Hall and White data, the length of time taken to rebuild monetary aggregates is virtually identical.

Footnote

See ‘Special Terms to Current Account Depositors’ in ‘Synopsis of the Schemes of Banking Reconstruction’, AIBR (1893) pp. 766–769. [11]