Learning from lessons of history

2008-11-28 00:00

Had bankers in the United States taken time to read J. Forsyth Ingram’s The Story of an African City, the sub-prime crisis might have been averted. Then again, it might not have because people have a habit of ignoring the lessons of history. The Pietermaritzburg crisis occurred between 1864 and 1867 when the city experienced what the author described as a “period of great commercial depression”. In those days, one was far less precious about whether economic circumstances should be defined as a “depression” or a “recession” or neither. The reality was, and still is, that when times become so tough that people lose their jobs and companies close down, it is superfluous to try to find the most correct technical term to define the big hole of despair.

The historian ascribed the depression to “unusual facilities for borrowing money” offered by banks and other financial institutions, which resorted to these in an attempt to outsmart their competitors.

Ingram opined that enterprise was stimulated to an “unwholesome degree”. In a business context it is not easy to conceive of enterprise having a downside of this nature, but the high failure rate of new businesses illustrates that enterprise requires the moderation of good sense and reason. It is as well, perhaps, that our lending agencies are circumspect in this regard, whether by their own intent or by the enforcement of the National Credit Act. Criticism of this much maligned piece of legislation has abated now that it has been shown to have prevented our banking sector from following the too-liberal international credit trends. This success aside, there is a good deal of irony in the persistent clamour for the extension of credit to all and sundry and, simultaneously, the legislative entrenchment of the concept of “reckless lending”.

Some of the “unproductive ventures” in our city, apparently, were the building of houses by people who, prompted by high rentals, were able to borrow money too easily to become property owners themselves. The effects of this were threefold: the city had a surfeit of housing, there was over-speculation and landlords suffered from diminished income streams. In the meantime, the banks, described as “complacent” while they made so many advances, reversed their strategies and proceeded to “exercise the utmost severity towards their debtors”. Large companies fell, taking with them many employees, while a large number of individuals “sought refuge in the insolvency court”. No doubt things would have looked up in time anyway, but it was the discovery of diamonds that caused the city’s fortunes to be revived. Apparently many hard-hit Pietermaritzburgers flocked to the new diamond fields where they revived their fortunes and then returned home to invest in previously abandoned homes and farms.

In the meantime, the city government (called the “corporation” at that time and for about a century afterwards) had to deal with its fall-out from the crisis. It failed to collect more than a third of its revenue and had no choice but to resort to an overdraft. This amounted to £10 000. In the 21st century we are unable to imagine this amount which represented, by the way is more than two year’s income for the city. Such was the value of money in the 19th century.

In 1861 it had cost the colonial government and the city £11 000 to establish the school that became Maritzburg College, while improvements to Alexandra Park, also done prior to 1864, were accomplished at a cost of £9 000.

The city government had revenue of about £5 000 each year and was able to spend this amount, plus a further amount on the park, before encountering the income problems associated with the Depression. It must have been prudent to a fault. But the city fathers all served without remuneration and, perhaps, without reward. Who knows?

A story goes that in a property in Florida Road, Durban, formerly owned by the man who was the mayor at the time the Durban City Hall was built, one may see stained glass windows of exactly the same design as those in the city hall.

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