The Vogel Era
The enhancement of the country's capital assets which gold bequeathed, real though it was, was not adequate to guard against the possibility of falling incomes for the now much larger population, especially when gold production declined and the price of grain and wool fell in the later 1860s. Colonists who had been intoxicated by the stimulus of gold won from the hills and rivers of the South Island, were very ready to believe in the power of credit to solve the country's problems; and in Julius Vogel, Finance Minister in the Fox administration in 1870, and subsequently Prime Minister, they had the man who could show them the way. Vogel announced grandiloquently that “the great wants of the Colony are Public Works in the Form of Roads and Railways, and Immigration”. He proceeded to provide these with the help of massive overseas borrowing, upwards of £21 million being raised on the London market between 1870 and 1881. In the same period population (excluding Maoris) doubled from about a quarter to a little under half a million inhabitants; the railway milage leaped from a nominal figure to over 1,300; and there were comparable improvements in roads. Alongside the massive public borrowing which financed these developments, went a vigorous expansion of private credit which almost transformed the country's banks into mortgage institutions. As always in New Zealand, the course of land prices reflected and magnified this expansive environment, soaring in the later 1870s to levels quite unwarranted by the course of export prices. In Canterbury the index of agricultural land values rose more than four and a half times between 1870 and 1878. There was, it is true, a more local reason also for an exceptional rise of land values in that part of the country, namely the profits which were being made in the late seventies and early eighties from “bonanza” wheat farming in Canterbury and Otago. As the price of wool fell, many of the larger estates were broken up and devoted to wheat cropping with the help of the American reapers and binders which were introduced in the 1870s. At first, the lightest cultivation of soil freshly put to the plough gave good yields for a minimum effort; but as cultivation extended to the less suitable soils, and as fertility declined with overcropping, yields fell. Faced with this trend, and with falling prices as production in North America and in Russia soared, the wheat boom soon played itself out. The peak year was 1883, when nearly 5 million bushels out of an output of 10½ millions were exported, and grain accounted for some 18 per cent of total exports. After that the decline was rapid; from 1893 exports were normally below the 1 million bushel mark, and by the First World War New Zealand found itself with a small wheat deficit. Yields per acre, however, rose again substantially from about the mid-1890s as acreages were restricted, and as a new and less predatory pattern of mixed farming was evolved on the plains and downlands of the eastern South Island. Grain and root crops alternated with several years of sown grasses, which provided lusher feed for the fattening of lambs than could the coarser native pastures. From the 1890s onwards, then, wheat growing in New Zealand has been closely linked with the frozen lamb industry, to be discussed shortly.
The optimism engendered during the Vogel borrowing period ignored, however, the fall in the prices of staple exports, wool and grain, in the later 1870s and the continued decline in gold production. Between 1870 and 1881 the value of exports rose only from a little over £4.5 million to not much over £6 million – a fall, on a per capita basis, of about one-third. During the 1880s such sobering facts could no longer be ignored, especially since the London market began to have its doubts about the ability of the young colony usefully to absorb, or to service, such large quantities of capital. With the continuing fall of export prices, and of total exports on a per capita basis, the bottom dropped out of the land market; mortgagees were unable to foreclose even if they wished – they could no more have sold the land profitably than could the owners – and the banks found themselves with a structure of illiquid assets which precipitated a notable banking crisis in 1894–95. Unemployment reached serious proportions, and the level of wages dropped so low that, for a time in the eighties, some manufactured goods were able to be exported. Many immigrants were disillusioned by such conditions and there was a small net outflow of migrants in the later 1880s. Yet even in this, by far the most gloomy decade the colony had yet experienced, the means of salvation were at hand; for in 1882 the first cargo of refrigerated meat was successfully shipped from Port Chalmers to London, and the prospect of new and valuable exports of frozen meat and dairy produce was translated from the realm of airy visions to that of sober economic possibility. The consequent demand by unemployed townsmen for land was thereby rendered all the more insistent; and this helps to explain the success at the polls in late 1890 of a Liberal Party with radical opinions on land policy and labour legislation.