I have been invited to deliver a lecture on the subject of a State Bank of Issue, and have much pleasure in complying with the request. The subject is important at all times, but more especially in a time of depression such as we are now labouring under. It has been a long continued state of depression, lasting now for five years with slight variations, and this leads every thoughtful man to investigate the cause in order to provide a remedy. Various theories have been propounded, and it is probable that each of the causes assigned has had something to do with the present untoward state of affairs. Over importation, speculation in land with borrowed capital, low prices for grain and wool, personal and colonial extravagance, have all had their share as factors in producing our unhealthy state. A general want of confidence has also been mentioned. We may trace the tap-root of the evil in the panic which ensued on the failure of the City of Glasgow Bank in 1878. In this panic confidence for the time was totally destroyed. A panic is the result of an unreasoning fear in the way of self-preservation. The merchant rushes to his banker with bills to provide funds for the dreaded scarcity; the banker, afraid of his own position, refuses discounts, and even withholds the continuance of the accommodation he had previously granted; business and enterprise are checked; men of wealth cannot obtain money at any cost; solvent men are involved in bankruptcy and ruin; and the result is a total prostration of trade. In the panic of 1847 banks in England boarded £4,000,000. The contraction of the usual circulation there produced disastrous effects, now a matter of history. This was exactly what took place in the colony in 1879. The banks, panic-stricken and afraid of their standing in London, immediately proceeded to fortify themselves by calling in advances. In two years, from 1879 to 1881, discounts were reduced 2½ millions, and other debts page 4 half a million, being in all a reduction of three millions, nearly one half of the whole discounts. In 1879 the discounts amounted to 6¾ millions; in 1881 to 4¼ millions. In 1879 the total discounts and advances amounted to 14 millions; in 1881 to 11 millions. This led to a derangement and contraction of the ordinary circulation. In 1879 the note circulation amounted to £1,028,525; in 1880 to £907,084, a contraction of £100,000, or one-tenth of the whole. This could not happen without serious mischief to everybody. Profits were restricted; labour was unemployed; property became depreciated; the savings of years disappeared. There was no elasticity in the money market; no demand for houses or land. Property was unrealisable even at a sacrifice. Mortgagors in numerous instances were in default. The help of the registrar was called in and valuable properties sold far below value—for what they would bring. In the restricted and defective circulation we thus see the main cause of the pressure which has existed. Believe the defect and confidence is restored, trade resumes its wonted channels, men of enterprise can rely on funds being available to carry out their plans—prosperity ensues. In England when, by the Act of 1844, the bank is in such a position owing to an outflow of gold that it cannot issue notes, the Government interferes and authorises additional issues contrary to the law. Immediately hoarding ceases, confidence is at once restored, and the panic passes away Here we have no Such safety-valve. The banks continue under the fatal influence of fear until depression becomes chronic and ordinary business is limited. In 1881 one foreign bank had half a million of deposits unemployed. We have laboured under the trouble of defective circulation for five years.

If our circulation had been in a healthy state it would have increased in five years in correspondence with our increase of population and production by at least £250,000. In 1865 it amour ted to £661,735; then came five years panic, termed the dark ages of N.Z., and in 1870 it only stood at £611,185. In five years after, in 1875. it had with one prosperity advanced to £895 518; and in 1879 it reached a million. In 1879 the population numbered 463,729; in 1882, 517,507. The increase of population in three years was 11 percent. The circulation should have been £1,110,000, but it was actually only £907,084, a decrease of 21 percent, below the normal level. Take exports as a test of production. In 1879 the value of exports was £5,743,126; in 1882 £6,658,608—an increase of exports in three years of 15 percent.; and there is a decrease of circulation at the rate of five per cent., which brings the total decrease below the normal level according to value of exports 20 per cent. Take another test—that of the ordinary revenue, excluding territorial. The total in 1879 was £2,816 244; in 1882, £3,408,351—an increase of 20 per cent.; but there was a decrease of circulation of 5 per cent., and it was therefore 25 per cent. below its normal level. Economists recognise two classes of money :—1. Money current with the merchant, such as foreign exchanges, with which we have no concern. 2. Tribute money, or the internal circulation of a country with which tribute or taxes are paid, wages paid, and all the domestic transactions of the country carried on. It stands to reason that the amount of domestic currency must always be regulated in some degree by the amount of revenue drawn by the Government. If our internal currency has not expanded with the increase of tribute it follows that a still greater proportion of the money in the hands of the people will be withdrawn from its ordinary use, and great inconvenience will be the result of this abnormal condition of affairs. This is precisely the state in which the people of New Zealand have been placed. They have had two drawbacks to contend against, operating conjointly to their serious page 6 disadvantage :—(1). A contraction of the usual circulation by the banks. (2). Increased demands for taxes on the part of the State, still farther lessening the amount in circulation. If you have followed me, you will agree with me in thinking that our continued depression is the result of a deficiency in the circulating medium. The body politic requires a certain amount and activity of circulation to be kept in health, just as our natural bodies require a proper quantity of the vital fluid to be maintained in vigour. We know the miserable condition we fall into in our frames if the circulation be defective, and I am fully satisfied our present commercial depression is mainly to be attributed to