Depression of the 1840s
The Depression of the 1840s, experienced Australia-wide, was a major halt to rapid economic growth in Van Diemen's Land. The continued low price of wool in the London market after 1837, the 1839 English recession, the collapse of the mainland markets for grain and livestock, and the downturn of Tasmanian capital invested in Port Phillip speculations led to the Depression. Goods piled up in shops as lower earning power led to reduced spending. The influx of British capital ceased. Banks restricted credit. By 1843, bankruptcies no longer involved mainly small retail traders and merchants, but extended to the landed interests. Two banks closed.
The Depression saw the first major crisis in public finance, when lessening land revenue and settler demand for labour combined with increasing costs of supporting the penal system. Lt-Governor Eardley-Wilmot was unable to meet expenditure and was forced to borrow on the money market. Free immigration was encouraged on the basis that newcomers would bring money and stimulate consumption and investment. Rather, it glutted the labour market as free workers competed with ticket-of-leave men and probation passholders who congregated at the hiring depots on an unprecedented scale – resulting in mass unemployment. A public works system was instituted to create a demand for labour, with prisoners employed on water works, irrigation and the bridge at Bridgewater. By 1845, land sales had ceased, and new taxes imposed to raise finances led to the resignation of the 'Patriotic Six' from the Legislative Council. Fortunately rising wool prices brought returned prosperity.
Further reading: R Hartwell, The economic development of Van Diemen's Land 1820–1850, Melbourne, 1954.