The Joe Walker Podcast - Marvellous Melbourne And Australia's Darkest Depression — Graeme Davison

Episode Date: May 4, 2021

Graeme Davison is Australia's most eminent urban historian.Full transcript available at: josephnoelwalker.com/graeme-davisonSee omnystudio.com/listener for privacy information.

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You're listening to the Jolly Swagman podcast. Here's your host, Joe Walker. Ladies and gentlemen, boys and girls, Swagman and Swagettes, welcome back to the show. It's great to have you back. Now, regular listeners will know that I have abiding interests in asset price bubbles, housing markets, and real estate bubbles. In this episode, we take a look at an almighty land bubble which precipitated arguably the worst banking crisis in history, and it happened right here in Australia. This is the story of the Melbourne land boom of the 1880s. By the 1880s, Melbourne was the most magnificent city in the richest country on a planet that was then undergoing a second industrial revolution.

Yes, you heard that right. As economic historian Ian McLean notes, for some period during the latter half of the 19th century, Australia appears to have recorded the world's highest standard of living. If you look at GDP per capita, the United Kingdom held the top spot earlier in the century, while the United States had overtaken it by the First World War. But during that period in which the United States converges on and then surpasses the United Kingdom, Australia recorded a higher level of income than both. And then it all came crashing down. The scene of the crime was Melbourne. In the 1880s, visitors to Melbourne were awestruck.

One of them was not so much a visitor as a prodigal son. In 1857, William Westgarth, one of Melbourne's pioneering businessmen, retired to spend his colonial fortune back in London. When Westgarth first arrived in Melbourne on the 13th of December 1840, it was a town of insignificance. By the time he left, 17 years later, it was only a little more populous. But now it was time to enjoy the creature comforts of London. For 30 years he stayed in London until, in 1888, Australia's centennial year, he journeyed back to join in the celebrations. Landing in Melbourne, he wasn't sure that he'd arrived in the right city. In his 1889 volume, Half a Century of Australasian Progress, he wrote, quote, I now wandered through countless streets without encountering a single recognizable object.

The old Melbourne of my time, of a full generation past, had been entirely swept away and, but for the merciful acts of leaving the old street names, I might have been dropped in this modern Babel without any possibility of knowing where in the wide earth I had arrived, end quote. This was the height of the land boom. Melbourne increased its population from 268,000 in 1881 to 473,000 in 1891. The annual rate of house construction doubled between 1883 and 1888. New suburbs sprung up and were linked to the city centre by tramways and railways. In the city center itself, huge resplendent buildings were constructed or rebuilt, like the International

Exhibition Building in 1880 and the new Princess Theater in 1886. Collins Street was completely transformed. They express a certain sense of movement, of progress, of conscious power, Francis Adams exclaimed upon seeing the facades of Collins Street in 1886. New building technologies like hydraulic lifts and iron girders enabled Melbourne to rival the fabled 10-story skyscrapers of Chicago and New York. By 1891, the Australian property and investment company's new 10-story headquarters on the corner of Elizabeth Street and Flinders Lane became the city's tallest building.

Melbourne was hailed as the London or the Paris or the New York of the Southern Hemisphere. Travellers and tourists visiting the city were stunned that such a bustling metropolis could be hiding down at what Paul Keating would later call the arse end of the earth. Soon enough, it was being referred to by foreigners and locals

alike as marvellous Melbourne. But the land boom became a land bubble, as speculation intensified and metastasised. As James Service, the Premier of Victoria until 1886 later noted, there was not a man and hardly a woman in the colony who did not go in head over heels to make a fortune during the land boom. The bubble was probably pricked in October 1888 when interest rates were put up and thus unfolded the darkest depression in Australia's history. According to Ian McLean, per capita real GDP fell by 22% by 1895 and did not regain its 1889 peak for a full two decades. For Australia, the so-called Great Depression of the interwar years pales in comparison to the depression of the 1890s, both in terms of the extent of the fallen incomes and the number of years that elapsed before the

previous peak was regained. By May 1893, 15 out of 28 of Australia's trading banks, or more than half, had either failed or suspended. Economic historians John Turner and Will Quinn call this possibly the worst banking crisis the world has ever seen. It's easy to forget the countless social tragedies amidst the economic statistics. In his 1966 book, The Land Boomers, Michael Cannon cites Reverend J. Dorborn of Richmond, who tells the following story, quote, A woman, haggard and worn, with baby in arms, knocked at my door and asked for relief.

Questioning her, she stated that her husband, a mason, was out of work, that she had six children, and that they had scarcely tasted bread for three days. What had they lived on? End quote. Other families were not as fortunate. Cannon tells one story of a mother so completely destitute and unable to feed her children that she resorted to infanticide. And so it was that Melbourne, the city compared by William Westgarth to Babel, was subjected to a judgment of its own. The silver lining, of course, is that today Melbourne is one of the most livable cities in the world. I adore it and have never had a bad time there.

In fact, my last live event for the podcast was in Melbourne with Peter Singer just before the pandemic struck. If you walk the streets of Melbourne today, you can see for yourself the architectural vestiges of that distant land boom, which is what I did about a month ago, one Friday afternoon in late March. I was privileged that my guide was also my guest. Professor Graeme Davison took me on the Golden Mile walking tour, which he designed himself,

and we finished by recording a podcast in the State Library. Graeme Davison is one of Australia's most eminent historians. Now retired, his 40-year career saw him teach at the University of Melbourne, Harvard and Monash. He was a Rhodes Scholar, and he is the author of the brilliant book The Rise and Fall of Marvelous Melbourne, which was first published in 1978. I recommend it. Ladies and gentlemen, without much further ado, please welcome the great Graeme Davison.

Graeme Davison, welcome to the Jolly Swagman podcast. Thank you, Joe. Thank you so much for coming on the show. I've been really looking forward to this. And we are in the State Library of Victoria in a room which has been specially put aside for this conversation. But before we came here, we did a walking tour around Melbourne and you showed me a lot of the old buildings that had been constructed

mainly during the boom of the 1880s and that was a fabulous experience. So thank you for that. Perhaps you could, I guess, just for the benefit of our listeners, give a brief sketch or outline of that tour that we just covered. Yes, well, we were following the route of a walking tour that I designed some years ago called the Golden Mile, which the Golden Mile is the name that's sometimes given to that,

sometimes called the Hoddle Grid, the central grid of Melbourne. And we were really focusing on the story of Melbourne in the 19th century. It's a story partly about the effect of gold and the gold rush. But after the gold rush comes a second wave, a bit like the baby boom. The baby boom generates an echo effect in the 1880s, which is the Melbourne land boom. That was the period when Melbourne got its title, Marvellous Melbourne, a title that Melbourne people, was given somewhat ironically originally,

but Melbourne people didn't get the joke and they still like to think of Melbourne as marvellous. So that was the period we were looking at. And we were particularly – I was interested in showing you, Joe, some examples of the buildings that reflect the character of that period, the optimism of that period. So we looked at some banks, some banking chambers, some commercial buildings like the Rialto.

And we started off at the beginning, really, with Melbourne in 1835, and we looked at some early examples of merchants' warehouses as well. And we finished up in the block, in the block arcade, which was where Fashionable Melbourne used to parade up and down the street in their finery in the 1880s. Doing the block was regarded as being one of the things to do in Melbourne in the 1880s, or really right through until about the 1920s. Possibly the most notable architectural feature of that experience, walking the Golden Mile, was the shift from the classic to the Venetian Gothic style. Yes, that's right. I mean, I think the architecture in some ways carries a sense of the mood of that period. And in the 1880s, this style of Venetian Gothic architecture, it looks just like

the buildings of medieval Venice with its pointed arches and its very highly decorated surfaces became the fashionable style in Melbourne. And this was Melbourne showing off, really. It was blatant advertising, really. Although many visitors thought when they came, they reflected on why is it that Melbourne, when it builds commercial buildings, makes them look like cathedrals or temples? And somebody said, gave the obvious reply,

well, that was where they were worshipping six days a week. These were the buildings that really affected that optimism of the time. And it was also, I mean, why Venice? I suppose Venice was once the commercial capital of the Mediterranean. And in that period, Melbourne thought of itself as being really the commercial capital of the South Pacific because its commercial reach went well beyond Victoria into the Riverina, of course, where railways penetrated. It was the headquarters of the mining industry. BHP is established during the Melbourne boom period. Melbourne investors control the sugar industry in Fiji and parts of Queensland,

timber industry in New Zealand. So there was a real sense in which Melbourne had become, for that period, the dominant commercial power in Australia. It even has some relevance, I think, to the story of federation. For a long while, New South Wales has reservations about Victoria's enthusiasm for Federation because they fear that that Melbourne will dominate it too much and it's only after Melbourne crashes in the early 1890s that New South Wales begins to get a little more comfortable with the idea of Federation. To go back to the birth of

Melbourne why was this particular site chosen? Yes, well, Melbourne, as you know, was the only Australian capital that was established illegally by a free enterprise, a head of government. And it's two rival speculators from Van Diemen's Land make their way across Bass Street. They've run out of really good pastoral land in Tasmania. So they're looking to find land across the strait and already human hovel and then Mitchell have come and they've already announced that

people know that there's very good pastoral land particularly in Western what's now Western Victoria so they come across they Batman makes a show of making a negotiation with the Aborigines. It was really a bogus arrangement. And they seized land in central Melbourne. And the reason they chose that site was that if you make your way up the River Yarra from Port Phillip Bay, you reach a point where you can't proceed further up the river because there's a rocky bar across the river,

the falls, as they were called, though they're not exactly Niagara Falls. They're just like a ford across the river, which, by the way, was also a convenient crossing for Aboriginal people. Aboriginal people lived around that site as well. It's also the highest... It's the highest point for navigation.

It's the lowest point on the river where you can get fresh water. So navigation, fresh water, a floodproof site just above the flood line, that really selected the site. And that became the gateway to Melbourne. The New South Wales government then catching up, send down a policeman and a surveyor, and a surveyor's assistant, and they lay out the city on the familiar grid pattern in the, it's more or less completed by the late 1830s, early 1840s. Land speculators descend in great numbers, as many of them from Sydney, I mean Sydney people bought lots of land in central Melbourne.

And it gets going. So the first boom in Melbourne really is one from about the late 1830s into about 1842 when there's a bit of a minor depression, the so-called land rush of the late 1840s. And that lays out much of the architecture of metropolitan Melbourne as well as central Melbourne. Hoddle lays out much of the surrounding country as well and people begin to buy and speculate in land. So the first boom is the 1830s, the second boom is the 1850s

and then the third boom is the 1880s. By how much does the population grow in the third boom? In the first boom, from 1835 boom, it's reached, from 1835, it has reached about 29,000 by the time the gold rush comes, so about the size of a small country town. Then in the 1850s, it really takes off. It grows between 1851 and 1861, it grows to about 125,000. And much of that growth occurs in just three or four years in the early 1850s.

So Melbourne is, to use a phrase, is an instant city. Wow. It really takes off very, very quickly. And for that period, of course, living in Melbourne must have been a bit like living in an Antarctic base or a space station because you're wholly reliant upon material that comes to you from outside. And so import-export business becomes the main business of the town through that first phase of the gold rush.

Then it evens out a bit. Most of the people who came in the 1850s were young people, young men on the make in the first instance, and then women began to follow them in sizable numbers and form families. And the reason that you get another boom in the 1880s, well, there were more than one reason, but one of the main reasons was that it's an echo effect of the gold rush. The young people who've come in the 1850s have families by the early 1860s. Those children in turn grow to marriageable age,

enter the workforce, want houses and homes of their own and that sets off the boom of the 1880s. There's a lovely quote in your book, The Rise and Fall of Marvellous Melbourne, where someone is contrasting the energy and drive of Melbourne businessmen with the lethargy of their Sydney competitors

the quote is the Melbourne man is always on the lookout for business the Sydney man waits for business to come to him the one is in a hurry the other takes life more easily this is Richard Toupany who was interesting. He was a young Englishman, educated in England. He comes out first of all to Adelaide

and then he comes across for the great exhibition in Melbourne in 1880. Clearly he's probably describing something that was really there but he's also clearly flattering his potential readers. That was the way Melbourne people liked to think about themselves and there was probably an element of truth in it. Did they have a sense of themselves as Melbournians? Was there a real civic pride? Yes, I think there was.

I think they certainly had a sense of themselves as an extraordinary generation. If you think about it, if you'd come as a migrant, say, 2025, in 1850, 1853, 1854, like that, then in only about 30 years' time, by the time you're in your 50s you've seen the city grow up to a population by the end of the of the third boom in the about 1890 it's reached a population of approaching half a million people so you've literally seen it grow from something that was like a small country town into one of the biggest cities of the British Empire one of the biggest cities of the British Empire, one of the big cities of the world.

So that generated an enormous sense of pride and of civic identity. Civic identity also implies, of course, a sense of attachment and pride in the institution. And I think that was there as well. I think some of the... We're sitting at the moment in the State Library of Victoria. The State Library, the University of Melbourne, they were largely a creation of this gold generation.

And so along with the pride in the commercial development of the city, there also went a degree of pride and also a sense of responsibility to build the public life and the cultural life of the city. Outside the State Library there's a statue of Redmond Barry who was both the original creator of this library and also probably the most significant person in the foundation of the University of Melbourne. So he was very typical of the sorts of people

who'd come in that generation. The 1880s is also a period in which the West is experiencing a second industrial revolution. Many new technologies coming through. Very exciting time. And many of those technologies became a part of this new booming city. That's right. I mean, there's an argument to be made that I think at that point, Melbourne, particularly perhaps Australia more generally,

is closer to the leading point of innovation than it had been before or since. So when new buildings go up in Melbourne, those new office buildings that we saw this afternoon like the Rialto, they incorporate hydraulic lifts. Hydraulic power is one of the new... Along the streets there are cable trams. Now cable trams were again an invention of this period.

Inside the offices they had typewriters and telephones. By the standards of that time were, again, leading technology. The building techniques of that period also begin to be abreast of those in the rest of the world. So, yes, I think technology is a very important part of it. Another example, the new Princess Theatre in spring street had the world's first sliding ceiling which they'd open up on hot nights yes that's right that's right i mean it must have just been an amazing time i think it was i think i think and it's not as i say it's not surprising that people felt um optimistic about its its future as well yeah and so how much did the

cityscape change from the early 1880s to the peak about 1890? Oh, quite a lot. I mean, if you look at photographs of Melbourne as it was in that period before the boom, that's like, and there's really excellent photographs taken sometimes from the tops of buildings as well as of the streets in the 1860s and 70s. And you can see already they've swept away the very flimsy

sort of buildings that would have existed at the end of the gold rush, a lot of timber buildings and makeshift buildings. So it's already got a solidity about it. But the 1880s really, it reaches a different stage, particularly both architecturally, the quality of the architecture, the height of the buildings, solidity of the buildings. So it really advances pretty rapidly through that decade. And yet despite all of this opulence and the ornate architecture, there's a smelly underside to Melbourne. I mean, Melbourne actually had typhoid rates that were as bad as just about any city in the world.

Right. So while they were boasting of being marvellous Melbourne, the Sydney Bulletin was calling it marvellous Smelbourne because of the pongs in the streets. We still didn't have underground sewage. Now, Sydney was able to deal with that a bit more easily because basically they piped the shit out into the ocean. In Melbourne, they had to overcome some more significant engineering problems

to produce a really good sewage system. But at the height of the Melbourne land boom, they're still collecting the sewage by the nightmans coming in at night or by going down the lanes and collecting it and having to transport it out in trucks in the dead of night until they actually get the underground sewage system constructed. And it only really begins after the crash of the 1890s. The Melbourne Metropolitan Board of Works is established in 1890 and they really only get the scheme underway in the late 1890s and it's completed by the early 1900s. When we were walking the Golden Mile, you pointed out the back of the Rialto building,

there are these what were wooden balconies on the side of the building which you told me were used as urinals for the men. They were made of urinals, yes. They were kind of tacked on the side of the building, which you told me were used as urinals for the men. They were made of urinals, yes. They were kind of tacked onto the back of the building. And many people, when the building was eventually converted into a four- or five-star hotel, the owners understandably wanted these things to be removed. And at the time, the Heritage Council,

which I happened to be chair at the time the Heritage Council, which I happened to be chair at the time, pointed out that these were actually part of the original structure. They were on the plans and they'd undertaken to retain the whole of the external structure and so they remain there. And they still figure as a little stopping point on tourist opportunities. So you once did some original work investigating home ownership rates during this period.

What were they? Home ownership rates were very high by international standards. Probably about in the middle of the Melbourne land boom, around 45% of Melbourne households had either bought or were buying the houses they lived in. Now that's at a time when in British cities there would have been less than, well, less than 10%. Even in American cities, very few, only a few in the Midwest would have got to anywhere near 40%. So it was very high by international standards.

And what's in some ways more striking about it is when you analyse the material, you find that home ownership rates among working people, people like tradesmen and clerks, were almost as high as they were among managers and professional people. So it was remarkably evenly distributed by our standards. So it was a kind of democratic, I think, really central to the objectives of people migrating at that time. And it remained true right through the Second World War.

If you ask people why they were migrating to Australia, the opportunity to have a bit of land and a house that you owned and no longer to be beholden to a landlord who could kick you out, that was a really important objective for working people. And it was part of the ethos of Melbourne from the beginning. You found that building societies were already being established in the 1850s with that objective. Remember that in England, until the late 19th century, working people couldn't get a vote unless they were freeholders. Freeholders, it conferred a political right as well. So there was an underlying there,

there was a sense that, and the building societies reinforced this point, that owning your own house had enhanced your citizenship, it enhanced your position in society. And that was one of the things that really strengthened the building society movement, which became one of the key institutions in the 1880s boom. If you step back to the 1870s and you find the people who became the land boomers of the 1880s, you'll find that they're mostly, you know, they rise into prominence in politics and usually as local councillors and so on because of the way they identified with this aspiration for people to get their own homes and the building societies themselves were originally voluntary cooperative institutions it's only in the 1880s that they

become really what we would now describe as corporate institutions much more beholden to their borrowers and shareholders than they were to the people who borrowed from them. And that means that the land boomers themselves, people like James Myrams and Munro and the Davies brothers, are transformed from being people who are thought of as public benefactors into people who become big-shot business people. When, in turn, the companies and building societies that they headed crashed in the 1890s,

they became exposed in the minds of the people who had borrowed from them as villains. And maybe insofar as they were very imprudent, they were villains, but I don't think that was the way they saw themselves or the way they started out. Melbourne was also a different city to Sydney with respect to its religious demographics. Yes.

How was the temperance movement tied up with these relatively high home ownership rates? Well, the people who came to Victoria, I mean, in Sydney I would have thought the dominant religious groups would tend to be Anglican or Catholic and Irish. So it's English and Irish. In Victoria from the beginning, even before the gold rush, the Presbyterians, the Scottish element, becomes very strong. And then with the gold rush, people who came from places like Cornwall as gold miners very often came from Methodist or Baptist or congregational backgrounds. So what the English called non-conformist religions were much stronger in Victoria than they were in New South Wales and went and with that went their attachment to things like the temperance movement you can see can't you why if you're wanting to promote home ownership

what you're really saying to people is that you have to be more frugal you have to be prepared to put more money aside and save and take a long view of your prospects rather than to you know spend it all at once so there was there there was a link between the morality that was promoted by the so-called non-conformist churches and the behavior that people wanted to encourage economically and that was that was the secret of the nexus so if you looked at the map of melbourne in the late in the boom period the suburbs that expanded mightily and reflected these values tended to be for example of the so-called what became known as a kind of bible belt in eastern melbourne the the band of suburbs that runs out through hawthorne camberwell

that sort of area these were the areas that also by the way around the time of the First World War became dry areas they banished pubs and that was all part of the same ethos we were looking a few moments ago we had a map a place that called itself the Temperance Township

on the this time on the northwest side of Melbourne. That was, again, a creation of land boomers in the 1880s where they actually said if you buy land in this area, you can be guaranteed that there won't be a pub. You know, you'll be free of the noise and temptation of a public house. So that was, I think, an important part of the ethos of the city at that time. Not that I wouldn't want to convey the impression that everybody in Melbourne was a wowser by

any stretch of the imagination. They weren't at all. But those groups were particularly powerful in creating some of these building societies and land banks that became prominent in the 1880s. I'm interested in the meme of Marvellous Melbourne for a couple of reasons. Firstly, it's another charming example of the Great Australian tradition of strangely inverting a pejorative or ironic term

into a positive self-congratulatory phrase. Another classic example. A bit like the lucky country. Exactly, yeah. Maybe the tyranny of distance, although I think that the connotations there are still probably more negative. But I think some people might delight in that.

Maybe it's the liberty of distance rather than the tyranny of distance for some people. But Marvelous Melbourne is another example of that. It's also an example of what the economist Bob Schiller calls new era thinking or new era economic narratives. There are many examples of these through economic history, the Celtic tiger, that myth sort of underpinning the Irish real estate boom.

There were new era narratives around the Florida land bubble in the 1920s, a big land bubble in California, in Los Angeles during the 1880s. What's your sense of the flow of causality? Was it Marvellous Melbourne driving the land boomers into their investments or was Marvellous Melbourne just sort of a reflection of what was already happening well i think it was a bit of both i mean it clearly clearly some of the forces that it in order to coin a phrase like that it has to make a recognizable connection

with something that people feel that already exists yeah so when when it was george salo who was a i mean what it really is is a very good example of another Australian tray, which is our tendency to wait upon the verdict of eminent outsiders. A bit of cultural cringe. That's right. I use the phrase the imaginary grandstand. Australians are always performing for an imaginary audience somewhere. It's clearly true on the sporting field, isn't it?

When we go to the Olympic Games and we win a gold medal for trap shooting, we imagine that the whole world is watching in admiration, when in fact half the time they're not. But we waited upon distinguished outsiders to come and to deliver a verdict. So the moment the celebrity got off the boat or the plane, there was usually a journalist waiting, asking them to give their, what do you think of Melbourne, what do you think of Sydney? That was that tendency.

So when George Sala, who'd been, by the way, he'd been very famous as a journalist in his time. He was a friend of Dickens and so on. But by the time he arrived in Melbourne in 1885, he was really, he wasn't altogether washed up, but he's well past his peak. But his reputation hung on enough in Melbourne for him to feel that he could come on a lecture tour

and make a bit of a killing. So naturally, Melbourne people were terribly, when they learned that Mr. Sala was going to be writing newspaper articles about his travels, they were desperately anxious to know what he thought of them. And when he coined this phrase, Marvellous Melbourne, then of course that was just exactly what they were looking for, what they were waiting for. And the phrase immediately takes off. It's immediately being circulated even though the tour itself by the way was not particularly happy and least of all from him because his wife actually died in the tour and he had to bury her in the Melbourne

General Cemetery so he was probably a bit of a failure but the phrase hang on and then of course critics enemies in Sydney they of course then twist the phrase so you've marvelous mel becomes marvelous smelban or marvelous smell enemies in Sydney. They, of course, then twist the phrase. So Marvellous Melbourne becomes Marvellous Smelban or Marvellous Smell Boom when the crash occurs. The double whammy. Yeah, so you can play around with this phrase. But it unquestionably strengthened the thing. Now, by the time the crash comes, the phrase pretty well disappears

and it reappears again in the 1920s when somebody or other revives it and even more in the relatively recent past. So it's still around. It's probably now been displaced to some extent by the world's most livable city, which we apparently were for a while. You know, in those polls of livable cities, Melbourne was scoring very high. We've now slipped a bit.

I think we've fallen behind, is it Vienna or some other European city. But it had a powerful reinforcing effect. I would not say that it was in itself a cause or anything like it. Was Australia the richest country in the world during that period? It depends how you try it. I mean, Noel Butlin calculated per capita incomes and argued that in this period per capita incomes were the highest in the world and probably remained so

even through after the 1890s depression. They probably remained so until the very early 20th century. And then we kind of began a fairly rapid slip down in relative terms. So you were talking before about some of those technological developments and so on that powered our development through that period. I think what was happening later on was that many of those resources were becoming available to the rest of the world and we were remaining relatively where we were i originally read your book the rise and fall of marvelous melbourne as a reaction against the earlier book michael

cannon's the land boomers which i think was first published in 1966 where he sort of takes the view of the melbourne land boom as being the result of kind of financial crooks and greedy mischief makers. You're more looking at the sort of popular upswelling and the desire to be a part of a new suburban way of life. What do you think we should take from the land boomers and which parts do you think we should sort of overlook well when my book was first published in 1978 and then we published a new edition in 2005 and i

i wrote a new introduction to it where i said um that i was actually now i was coming around more to michael cannon's perspective or point of view than I have been previously that I thought that I was probably a bit too easy on the on the land boomers and the villains but what I was really trying to do was not so much a rebuttal as a as a kind of corrective I really wanted to say uh Cannon is a good muckraking journalist wanted to nail the villains and he did it you know pretty successfully I suppose I really want to say you need to look a bit behind the villains and you need to look at the people who are signing up and find out what are what are the things that are driving them what are the things that propel them and so when we discussed previously the importance of religious attitudes, of social attitudes,

the aspirations of immigrants, unless you factor in those things you can't really understand why people were engaging in what in hindsight was perhaps looked like irrational or imprudent behaviour. You've got to think about why if you'd come as a migrant in that period you'd come out of an English city where you were subject to the rule of the landlord where you couldn't make your way economically and you came to a place where there seemed to be the opportunity to do those things it's no wonder people fell fell for it why they wanted it so that that was really what I was trying to inject into the discussion was a stronger sense that the land boom was not just evidence of a racket

by a few unscrupulous people. It was a manifestation of a popular desire for a particular way of life, for a particular way of living. By 1851, Melbourne's population is 29,000 and then that swells to half a million by the peak of the land boom. That's right. It's difficult for me to imagine what that would be like to see my city grow at such a pace.

But I imagine people probably extrapolated that rate of growth forward into the future. And we have a habit of doing that even now, don't we? We tend to simply project a current trend and imagine that it's going to last forever. And there certainly were people who thought I mean there there are two great moments in Melbourne's history in that in that 1880s period one in 1880 and one in 1888 when we have grand international exhibitions I was talking before about the imaginary grandstand these these were sites for the imaginary grandstand effect. We imagined that the whole world was going to come to our exhibition. We were going to show off what we'd done.

And in those moments, I think there was a kind of rhetoric around that often did exactly that. They projected what was happening. They had visions of what the future Melbourne would be like and they were often extravagant pictures. Now, when the crash comes, of course, they often think back to examples of other cities that have had great crashes. You know, they think of the great empires of the ancient world, Rome and so on, which had had their moments of glory and then, you know, the Vandals and the Goths

or the other forces come and bring them down. And I think that was... There's a much more sober mood by the 1890s, so much so that I think that it really took... It knocked the wind out of Melbourne and people even, you know, as late as the First World War and beyond who can remember the crash, remember it with a very rueful sense of, you know, they'd learned a very hard lesson.

And I don't think that Melbourne ever quite regained the sense of momentum it had at the top of the boom. Many of the people kind of retired from public life. Prominent figures like... A figure like Alfred Deakin, who becomes one of the great politicians of Australia, a great prime minister. But his fingers were badly burned through that period

and he retreats, he goes back, retires for a while from really... He lowers his profile, gets out of public life he resigns ministerial office he has to really rebuild not just his reputation but he has to rebuild his morale you know before he can re-enter public life so i think um and melbourne i mean we all play the melbourne sydney comparison game mel Melbourne, I think, lost out to Sydney. There were larger forces at work. We were talking before about technology.

Melbourne is born in the great age of sail. If you think of the world as it was in the 1850s, the sailing ships came from England round the Cape of Good Hope. They descended through the Roaring Forties and then they approached Australia. Melbourne was Australia's front door in those days. Then comes, of course, the Great Age of Steam, which begins really in the 1880s.

Sydney has got coal mines all around about it. It's got a beautiful harbour that's well fitted for the age of steam. So in some ways Sydney begins to take over because some of the industries that it represented were also better placed than Melbourne, so Melbourne loses a bit of momentum. And it really, it's only come back twice in the subsequent period. In the 1960s, Melbourne again has a period of mass migration, industrialisation, modernisation, when it probably in some phases begins to lead the country.

And then again in the last 15 years is Melbourne more than keep pace with Sydney. Earlier we were reading a study by Silderberg of 100 Melbournian land investors examining how much they bought and sold a piece of suburban land for and it found that during the 1880s the average annual return on land was 39.8 percent which is astronomical if you compound compound that for a few years. And then the crash happens beginning around 1890. What causes the crash? Well, I mean, the causation is still a hotly disputed question among economic historians. The traditional explanation tended to focus upon the effect of contraction on the London

money markets, the bearing crisis contraction on the London money markets, the bearing crisis, when the bearing bank loses money, particularly in South America, and it begins to draw in funds, especially to those institutions which had been lending long and borrowing short. They got badly caught. And that creates a knock-on effect where the, first of all, the building societies come under pressure, and ultimately the trading banks are also. And there was no system,

of course, of central banking to stabilise the system. The other argument, one that was advanced particularly by Noel Butlin, was that as important as these external forces were, there was also a sense that by the top of the boom, the pattern of investment had got badly out of whack. We were over-investing in things that were going to – if they were going to produce returns, they were going to produce returns only in the long term. So huge investment in railways, not only in the cities, but Melbourne built a huge amount of suburban railway. We built tramways system. But there was also a lot of investment in rural areas as well, in fencing and all sorts of things that don't look very spectacular, but which amounted to an awful lot of money. So the investment pattern had got out of sync,

and that meant that the whole economy was subject to structural weakness and ultimately like a bridge that was badly constructed or had structural flaws. And once you put any weight upon it, it was likely to fall down. So I think it was being not a really professional economic historian, I'm inclined to think there was probably a bit of both. The external pressures were very important, but so I think was the pattern of internal investment. I think some of the most rash investments, for example, in railways, was actually in

rural railways. A lot of railways were built into what was going to be wheat country, which never really worked all that well. Of the suburban railways, if you look at those that were losing money in the subsequent period, there are only a relatively few. The most famous example is a railway that was called the Outer Circle Railway. The commissioner at the time wanted to build not just radial railway lines, as was usual, but he wanted to build a big circular line around Melbourne.

Now, that line lost money from the beginning. The only reason it was ever built was that by the time that it had been announced, land speculators had begun to buy up land around about it and they brought political pressure to complete the construction of the railway, even though it was really very rash investment. So there were, to be sure, some bad investments made. But on the whole, most of the radial transport system that was constructed in Melbourne at that time has served the city well for another century or more. At the peak of the Melbourne land boom,

more people per capita are travelling by public transport in Melbourne than in London. We were a big public transport city. Was that mostly trams? No, it was trams and trains. Yeah. Trams and trains. And they kind of interlocked. So trams were ideally suited for street transport in the inner city.

Trams stopped frequently. Trains were ideally suited for street transport in the inner city. Trains stopped frequently. They could only take a limited number of passengers, but they served the inner city very well. Trains were much more readily adapted. They travel faster, but they stop less frequently. But they really anchored the development of suburbs in the outer part of the city. So Melbourne was not as confined by its geography as Sydney. Sydney is very circumscribed by water and sand and sandstone.

Melbourne could spread much more readily on three of the four sides. And so the tentacles of the railway expanded out. Like the tentacles of an octopus, somebody called the act under which these railways were constructed the Octopus Act. It was like the tentacles of an octopus reaching into the suburbs. Melbourne house prices bottom around 1895. And the 1890s is a period in which australia experiences its worst ever economic

depression there's a great paper by the rba which compares the depression of the 1890s with the great depression and for australia the great depression sort of pales in comparison to the era of the swagman which my podcast is uh is after, begins because itinerant men are sort of wandering around looking for work. A lot of people, of course, move interstate. I mean, this is the period when a lot of Victorians move to Western Australia because mining is often anti-cyclical. You know, the falling prices makes the mine so people go to Kalgoorlie and so on. No, it's very hard to estimate the depth of the depression,

for example, by unemployment because there's no decent unemployment statistics. The only series we've got is for engineers and that suggests that probably about 20% of the population was unemployed, but I suspect it was much higher in some occupations. And a lot of people, as perhaps in the present time, you know, a lot of people were on short time. They may have nominally had some kind of a job, but they were probably on short time. So I think they're probably on secure ground in saying that it was more severe in the 1930s depression.

But exactly how severe, I'm not... I think it's hard to estimate. And how does that depression affect Melbourne? Well, I think... I mean, I think it's a severe psychological blow. It rebuilds... I mean, by... The process of economic recovery gets underway in the late 90s

and it's helped a little bit by the fact that, of course, under Federation, Melbourne remains the temporary capital of Australia through until 1927 and that means the growth of federal government. It begins from... We now think of what a huge thing the federal government was and we forget how small in economic terms it was at the beginning but nonetheless it was a growth industry so Melbourne profits quite well from that for a period but it takes a long while for it to regain anything like the self-confidence that it had previously. It's been forgotten that Sydney had its own boom and bust

in land prices that paralleled Melbourne's. I guess the Melbourne myth sort of juts out of the historical record because it was so extreme. But Sydney did have its own sort of boom and bust. Was that connected in any way to what was happening in Melbourne or did that occur for separate reasons? Well, it gets underway. I mean, Sydney begins to have economic difficulty

from about the mid-1880s, and it's partly because of the expiry of an investment boom that builds a lot of railways and other things in the early 1880s, and then it begins to run out of puff. So Melbourne's boom is sustained longer, but the amplitude of the swing in Melbourne is greater than it was in Sydney. So it's really – it's not so much that one has –

certainly not true that one has a boom and bust and the other doesn't. Sydney, of course, follows a similar cycle and to some extent they're influenced by similar factors. Yeah, yeah. Those international factors. Yes, that's right. Yeah, yeah. And so when the Bering crisis occurs,

that sort of cuts the flow of credit to the Australian. Yeah, it's a chance for both. That's right. Yeah. Now, you mentioned the building societies. This was kind of an interesting institution because that facilitated the purchase of land and homes by people who wouldn't normally have access to that credit,

right? The building society is much more catered towards the middle class and lower class homeowners. Yeah, it's a bit hard to, I mean, again, the economic historians have tried to find out more precisely where all the money went and it had more, although it purported to be primarily geared to looking after working men, it's clear that by the peak of the boom, more of the fund is going not only to middle class borrowers but into more speculative activities. So the important point about the building societies originally began as so-called terminating societies. society. So what would happen is that a group of people would pool their funds, paying so much each week, and then for example sometimes simply by drawing lots, once they'd amassed collectively enough for one to build a house, he went to build his house, he continued to of course pay for it, and it was a way of advancing them in the queue. If each of them

had to save until they got sufficient funds to buy the house, they would all have been buying them at the end of, let us say, 10 years. Whereas if you enabled them in turn to get access to the funds, it was a way of actually advancing them. Now, the big innovation that occurs in the 1880s is the creation of so-called permanent societies and that really had the effect of rather than being a little Club of people who pooled their fundings until they'd all got their houses They tried to put it on a much more permanent basis and they also became much more active in borrowing funds from other sources not just from the people who were they know the borrowers and that really

Really what it really meant was that these institutions were being transformed from like little clubs on a mutual basis into financial institutions potentially of great financial power and and they and they grow margaret so an institution like the modern permanent building society which happens to be one we know a lot about because its records were were kept um it's lending funds to you know thousands of people and sometimes for purposes other than building houses it begins it becomes a much more speculative it becomes much more like a bank do you have any favorite anecdotes if you recall any, of the speculation on land and houses during the 1880s?

I mean, there were instances of people who, I mean, there's certainly instances of people who borrow a lot. In my book, I talk particularly about one character, J.W. Hunt, who was the secretary of the Modern Permanent Building Society. And he was another one of these deeply religious people. He'd grown up with the institution in the stages when it was like a self-help thing, and then it became transformed. We know a lot about him because his records,

he was reporting back in letters to borrowers and to supporters in London and so he's monitoring what's happening to the institutions and you can monitor his mood as this occurs and eventually of course he finds himself in this position where a lot of the people who borrowed money to build houses find themselves in the position where they have negative equity. Their houses are worth less than they actually owe to the building society and the building society becomes a great reluctant landlord. And he reflects a lot on that

and it led him into a kind of desperate sort of position. Now, at the time when I was researching this book, I began researching this book, his daughter was still alive. And I was able to interview her. And I was able to get an insight into the crushing effect that this had. I mean, it meant not only that he the company lost so did he personally he became from being riding the boom and being a you know a spectacular success he became um a poor man and disgraced um and she even though she you know her personal

fortune she married well into a good family and so on, nonetheless she could still recall, this is in the, I suppose I was talking to her in the late 60s, when she was a very old woman, she still remembered the effect of that crash. What did she say in particular? I don't know whether I can quote her words, but I think essentially she talked about the effect it had on her. I mean, for example, she and her sister had to go and earn a living. They'd grown up with the expectation that they were a wealthy family and didn't have to, and she'd talk about the shame of having to go. Wow.

Yeah. We were talking earlier about Edward Shand, the great economic historian and economist who passed away in 1935 when he fell out of his office window at the University of Adelaide. But he has a famous monograph called The Boom of the 1890s and Now, which I think was published in 1932. Yeah, I think so, yeah.

Yeah. He was kind of regarded as the Robert Schiller of his day for sort of predicting the Great Depression. Yes. And he was able to write that monograph because he himself had been personally burned by the Depression of the 1890s. The family moved from Tasmania to Melbourne when he was a kid.

Yeah, so I mean it's interesting how that collective memory can kind of continue to inform subsequent generations but then after maybe two or three generations, it does start to fade. It does, although when Michael Cannon's book came out in the 1960s, of course it highlighted the financial adventures and misdeeds of a number of families that were still prominent in 1960. I mean, the Beaulieu family, who are a wealthy family

and still famous and recent premier from that family, they were badly burned by the crash of the 1890s. So it did send about a kind of collective shudder through sections of the Melbourne upper middle class because there was within families a recollection of the crash, but it was something they would dearly have liked to have forgotten. And when Canon brought it back to recollection, there was a bit of a flutter.

And that's probably partly why the Great Depression wasn't so great for Australia. Yes, I think that's right. I mean, it's interesting, isn't it? Our memories of the Great Depression don't attach themselves as much to the careers of notorious speculators. I think lending was much more muted in the 1920s than it was, for example, in the United States.

Yes. Yeah. They didn't have a similar crisis during the 1890s you had to go back a few more decades to their last real estate mediated crisis which I think was the panic of 1857 but they'd all forgotten about that by then are there any lessons or parallels for today from I'm conscious it's kind of it's a bit of a it's a bit of a lazy kind of archetypal question, you know, what are the parallels we can draw? But I'll put it out there in case you think there are any.

Well, I suppose I've always been wondering whether or not we were going to at some point, I mean, at the moment, real estate values are so out of whack with people's earnings that it's tempting to think that we're, again, in a vulnerable position where anything could bring the whole thing down. But the counter-argument there is that interest rates have fallen so much. That's right. So historically, we've never had interest rates as low. Yeah. Which also, of course, means that we're in uncharted territory there too

because we've never, as far as I know, we've never been in a position where that's been so true. But there have been other occasions. I mean, in the early 90s when interest rates were much higher and where there was a similar – some of the financial institutions were also fragile, like the State Bank of Victoria. It was tempting to think that we could have a bad outcome. Certainly once you get into a position where people's...

I mean, if we were to have a severe and prolonged shock to employment where a large number of people would find themselves in hock for very large sums of money and with no prospect of repaying even at lower interests, then you could get into a jam but um but no i i mean i think the probably the the more significant lessons are really about um not so much about whether the financial institutions are weak or strong it's it's more about people's aspirations and behaviors and how we invest in in our hopes in certain ideals.

And one of the things that's really interesting is that although we've had a significant shift in the way our cities are organised and structured so that the suburban ideal has receded and the inner urban ideal has risen, nonetheless Australians remain as devoted as ever to investment in real estate. I mean, some people have suggested it's particularly true of Melbourne but perhaps of Australians generally that from the beginning getting a piece of land, getting a piece of property

has been right at the centre of what we've striven for. When Sydney began, you couldn't own land. You know, the government owned it all. Same in Canberra, for that matter. But very quickly, that imperative of people to get hold of land and to speculate in land began to take over. You know, even by 1810, 18 in in sydney it's it's outed and and um yeah governor mccoy i think puts a ban on land speculation around that time that's right

but then but then very quickly people begin to undermine it and so by the time governor darling comes along he has to rationalize the whole what had become a de facto private land market. What do you make of that interest in real estate? Is that a peculiarly Australian thing? Well, I mean, I think it's particularly strong in Australia. Why so? Well, I think it partly goes back to the point that I made about immigrant aspirations, that why do you come to Australia? I mean, my grandfather came to Australia in 1912.

He'd never... He'd rented all... He was 43 years old, he'd rented all his life, he had no expectation while he lived in England of renting. But somehow or other, when he came here, that was his aspiration. So he was... By this stage in his 50s, insurance policy matured and he put it in 1928 into a house. That was probably what he thought he'd come here for. And I think a lot of people would still feel that way.

What troubles me most about the current thing is not so much that, I think the desire to have a place of your own which you can control, where you don't have to consult a landlord before you dial a picture on the wall, where you can have a space that you feel is your own, I think that's an entirely fitting human aspiration to have. What's happened, of course, now is that the value, the intrinsic value, the use value of real estate has become so detached, or that value has now become so detached from the speculative value, which is what now more and more people see houses and real estate in terms of their wealth-creating potential

and less in terms of what they can contribute to their ongoing daily lives. And it's that disjunction that I think is, from my point of view, more troubling. So the size of homes today, the increasing size of our homes, do you view that as a form of conspicuous consumption? Well, I think it's pushed. Conspicuous consumption really was a phrase that really had to do

with the way you wanted to project yourself to the rest of the world. I mean, this is Weyblen's phrase. You know, he was thinking in terms of how you announce yourself or promote yourself in the rest of the world. That's certainly true, but there are plenty of other ways, I suppose, of doing that, cars and what have you. I think it's much more now tied up with the fact that it's been rewarded through the wealth creation mechanism as well.

So you build that huge house or you build – you have a house now. I mean, I'm struck, for example, by the phenomenon of tennis courts on houses. Now, what's the point of the tennis court? People are not playing all that much tennis, not so much that it would really reward you. What it is is a way of having a use for a piece of land, which continues, of course, since land has been the most significant factor

in the increase in prices, then it's a way of keeping that piece of land and keeping it free since your principal house is not subject to capital gains. It's a way of holding that property free of a capital gain. So that's the way it looks to me anyway. Yeah. So it's a long way, isn't it, from the houses?

We're talking about the people who came in the 1850s and 60s and at the end of their life if they had a three-bedroom house which might have a dunny in the backyard and a tin bath and that was success. Well, they're a long way from that now, aren't we, when you've got the house with a bathroom for every bedroom and an entertainment centre. A couple of tennis courts.

Well, Graeme, i've really enjoyed this conversation and the golden mile walk as i said was a real treat so thank you i really appreciate that i've really enjoyed our conversation and the the walk and um thank you for coming along i hope you enjoyed that conversation as much as I did. Two things before you go. One, if you want to read the transcript or the show notes for this episode, you'll find them on my website, thejspod.com. Number two, please subscribe to the show. It means that you won't miss new episodes like this one, and it also makes it easier for other people to find us,

and I would appreciate your help. The audio engineer for the Jolly Swagman podcast is Lawrence Moorfield. Our dehydrated video editor is Al Fetty. I'm Joe Walker. Until next week, thank you for listening. Ciao.