The Real Story behind the Founding of Canberra

Imagine frontier America of the 1800’s.

They must have been exciting times.

The coming of railroads and the opening up of the western frontier.

The railroad barons had a big impact on shaping the future of the United States.

But these men were called rail ‘barons’ or ‘tycoons’ for a reason.

They got enormously rich.

And the question is, how did they get so rich?

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Why the rail barons got so rich

Because if you can answer this question, you’ll know the dilemma our founding fathers of Federation had in establishing a new capital city.

The first problem they had was where to build the new capital city.

And the second problem was this.

Our founding fathers knew, the first thing that would happen, once the location of the new capital city became known.

People (really insiders) would rush in beforehand to get the land.

Farmland in the middle of nowhere could be bought for a song and insiders could sit back and capture all the increase in land value.

So if you didn’t know already, you know now why the rail barons got so rich. They knew where rail lines would go, where the stations were to be built.

They could acquire the land around the proposed stations and capture all of the increase in land value which was created by population increase, settlement and infrastructure improvement.

The English novelist, Anthony Trollope, who visited America during the civil war remarked:

Railroad companies were in fact companies combined for the purchase of land. They purchased land, looking to increase the value of it fivefold by the opening of the railroad. It is in this way that thousands of miles of railroads in America have been opened.’

Perhaps a better title would be the ‘land’ barons.

Anyway, now you see the problem the founding fathers of federation had.

Once the location was known, there would be a big rise in population and an even bigger rise in land values.

How to stop the insiders and speculators from making a huge windfall?

What to do?

The politicians of the day were determined not to play into the hands of the speculator.

So here’s what they did.

Land in and around the new capital would not be sold, but let. And the rents would be used to fund and build the new city.

The boom and bust of a real estate cycle

Boy, the politicians were smarter back then!

Barton and the politicians of the day knew what they were doing.

Collect the land rent and land ceases to have a price altogether.

There is no land price to speculate in — and the rent from the land could be used to build the city.

Alas, that original vision of our founding fathers never really came to fruition.

For a couple of reasons.

Firstly, it took so long to settle on a site, that the personal changed. And the original vision of our founding fathers had started to get lost. Eventually they settled on a sheep station called Canberry, roughly halfway between Sydney and Melbourne.

And when the plan was finally implemented in the 1920s, it was badly handled. Instead of land being valued every year it was only reappraised every 20 years. That allowed the land to generate a price. Something our founding fathers didn’t want!

Anyway, whilst land has a price, we must get the boom and bust of a real estate cycle. It really is that simple.

Wherever there is a price on land, a real estate cycle must develop as speculators chase land prices higher.

And this cycle simply repeats.

That cycle knowledge has been distilled in our 18-year real estate clock.

And since the 1800s, the real estate cycle has unfolded just as our clock describes.

Therefore, you can know what’s broadly coming up next for the economy.

While it isn’t fool-proof, it is very useful I can say, when it comes to making your share trading decisions.


Terence Duffy,
Chartist, Phil Anderson’s Time Trader

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Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come.

Money Morning Australia