RDP 9303: The 1893 Bank Crashes and Monetary Aggregates 1. Introduction

The suspension and reconstruction or liquidation of twelve of the Australian banks of issue in 1893 had direct and important implications for the behaviour of monetary aggregates for the next quarter of a century. Estimates of the money supply contained in the Butlin, Hall and White (1971) study of Australian Banking and Monetary Statistics 1817–1945 provide data for this period that have been widely accepted. But estimates provided in this paper suggest that these data are flawed with respect to the period from 1893 up to World War I. This is primarily because the reconstruction schemes of the Australian banks in 1893 changed the nature of their liabilities to the holders of term deposits^[1]. The data for term deposit liabilities in Monetary Statistics include very large amounts of liabilities that were in effect debentures, and which consequently should not be counted as part of the stock of money. Revised estimates of the stock of money defined broadly (M2 and M3) from 1893 until 1914 differ significantly from the earlier estimates. In addition, it is possible to estimate the market value of the deferred deposit receipts and stock in the hands of depositors. If this sum, which might be thought of as roughly approximating a certificate of deposit liability, is added back as part of the money stock the resulting contraction is still significantly greater than that shown in series drawn from the Butlin, Hall and White data.

Footnote

An earlier flawed estimate presented in Merrett (1988), pp. 20–24 and Table 4, has been used by Pope (1989), pp. 26–28 and Figure 14. [1]