The population of NSW in 1795 was 3,211 of whom 1,908 or 59 per cent were convicts. The remainder were largely military and administrative personnel and prisoners whose terms of servitude had ended. These expirees posed a problem for Hunter  and in June 1797 there were about 700 men supporting themselves, generally through casual labour, without government aid. There were only a dozen or so free settlers and the settlement was confined to a small region close to the coast, with its economic centre at Parramatta and much of the economic advances in the 1790s came from those expirees who successfully turned to agriculture. Although the colony was almost self-sufficient in grain if the harvest was good, it was dependent on overseas supplies for nearly all other essentials and the need to import cattle and sheep was stressed more strongly in Hunter’s instructions than in Phillip’s. Between the departure of Phillip and the arrival of Hunter, private enterprise had supplanted that by government as the main form of economic activity. In December 1792, the government cultivated by far the larger proportion of land and most people spent their days working under its direction either on the public farm or on the construction of roads and buildings. By late 1795, however, officers and small farmers combined cropped an acreage far exceeding that belonging to the government, produced the greater part of the grain supply and owned most of the livestock in the settlement. Many convicts were privately employed and insufficient were left for limited public works. Hunter claimed that the labour shortage was so acute that at least another thousand workers could be absorbed. NSW was becoming increasingly colonial in character with its penal role one of several often conflicting dimensions.
The problem facing smallholders was that if the government produced on its own lands sufficient food for that section of the population fed from government stores, then the farmers would have no market for their produce and it would be impossible to develop a self-reliant colony.
...if it is the wish or intention of Government to have this colony increase to a state of respectability, some encouragement must be held out to respectable settlers and industrious people of all descriptions. This can never be the case if it be the intention of Government to cultivate land enough for the maintenance of all the convicts sent here. The farmer will be labouring for a mere subsistence; he can never cloath himself and family if he has no market for his surplus corn, and if Government does not become his purchaser he can have no market. What then, my Lord, must be the consequence? A general indolence, a total inattention to farming, dissatisfaction with their situation, and a desire to quit the country by every opportunity which offers...
However, the British government, though anxious to encourage private farming, was firmly determined that the financial burden of the settlement on the Treasury should be limited. Portland insisted that Hunter should pursue a policy that in the long run could only harm local farmers. Hunter’s first action as governor was to disobey his instructions and to continue the practice established by Grose of allowing ten convict servants for agricultural and three for domestic purposes to each officer occupying ground. Other farmers were provided with from one to five assigned convicts. Hunter started from the position that government farming was wasteful and inefficient and was also initially impressed with the success achieved by some of the officers whose efforts he thought might prove the basis for future prosperity. It is easy to blame the governor for disobeying his instructions, and Portland had no difficulty in doing so, but Hunter recognised that the changes envisaged in London could only be effected at the expense of those who potentially were his principal supporters.
The actions of the NSW Corps were not without parallel in other parts of Britain’s colonies. Macarthur’s profits as regimental paymaster were far less than those often accumulated by similar officers in India. The difference between the commercial activities of Macarthur and his fellow officers in NSW and equivalent operations elsewhere was that in NSW they almost achieved a monopoly, whereas in other colonies this was rarely possible. The result was growing tensions between Hunter and the military. Hunter soon ended his association with Macarthur telling Portland that ‘scarcely nothing short of the full power of the Governor’ would satisfy him. It also became obvious that the soldiers of the NSW Corps resented the authority of the civil power.
Continually thwarted and worthless characters encourag’d almost into a state of resistance by those whose schemes might have been in some degree effected by the changes I was about to make, and which in few words may be said to be order and regularity for confusion and licentiousness.
Yet if Hunter failed as a governor, and Portland judged him a failure, the secretary of state was equally culpable. He was slow to answer dispatches and failed to understand Hunter’s position as an increasingly isolated individual with little physical or moral support thousands of miles from his home. Portland severely criticised Hunter for allowing more than two assigned servants to any military officer. He directed that these servants should be fed and clothed by their masters and not from the government store, and particularly required that the officers should cease to trade in spirits. Yet Portland also paid attention to correspondence from Macarthur, a known dealer in spirits, vehemently attacking the governor for refusing him 100 labourers instead of the two allowed by law.
By 1798, Hunter was clearly aware that trading by the officers had to be controlled if the settlers and in March sent a detailed account of the settlers’ grievances about inflated prices. This showed differences of as much as 700 per cent between the landing costs and the price of sale to the public. The problem was that his solutions, though satisfactory in a convict prison, were impractical in a developing free community. As government control of wages, prices and hours of work proved increasingly ineffective, Hunter called on a small group of supporters, Dr Thomas Arndell and the clergymen, Richard Johnson and Samuel Marsden, to prove to the British government that the deterioration in the public morals and economic progress of the colony was entirely due to the nature of the military government between 1792 and 1795. Although Hunter’s analysis was correct that a definite change of economic momentum and of political development had taken place in that period, neither the convict records nor the surviving letters from residents in 1793-1795 supported charges of increased crime, especially theft and excessive drunkenness, at that time.
Extensive cultivation and good crops, speaking generally, but not a barn, granary, or storehouse, wherein to preserve those crops even thought of yet. No mechanics in the colony to erect them; most of the convicts out of their time, and discontented at being hinder'd a single day from providing for themselves; in short, I am apprehensive that great part of our bountiful harvest may be lost. Our boats gone to ruin and decay; butts or houses, formerly the property of Government, leas’d away, and continual applications making to me to furnish others for those who are intitled to them. But I will not fatigue you. I only hint those few circumstances to satisfy you that there does exist great ground and cause for vexation.
The era of military rule seemed very profitable for the agricultural community and the majority of contemporaries commented positively on the material progress, something mirrored in Hunter’s early dispatches. Hunter’s first attempt to reduce the military power saw a return to a civil regime. Hunter’s return of the chaplains and the medical men to the bench of magistrates, even though they were in a minority, was regarded as a limitation on the military power and, in Hunter’s words led to
...frequent indirect and some direst attempts have been made to annoy the civil officers officiating as magistrates, with a view to the lessening that respect and influence over the minds of the lower orders of the people so highly necessary in our situation.
In the military-civil struggle for power Portland reserved his strongest criticism of Hunter for his behaviour in the case between John Baughan and the NSW Corps.  Portland ‘could not well imagine anything like a justifiable excuse for not bringing the four soldiers who were deposed against to a court-martial and punishing them with the utmost severity’. Baughan had been transported in 1787 on the First Fleet and by the early 1790s had established himself as a master carpenter and builder especially of mills.  On 4 February 1796, overhearing himself being abused by a sentinel who apparently bore him a grudge, Baughan slipped out of his workshop, collected the soldier’s arms from his deserted post and handed them to the guard. The sentinel was immediately arrested. Next morning, as an act of reprisal, Baughan’s cottage was stormed and extensively damaged by a military rabble. He and his wife ‘suffered much personal outrage’. Hunter expressed himself forcibly about this ‘daring violation of the public peace’.  The offenders, through Captain John Macarthur, expressed ‘their sincere concern for what had happened’ and agreed to indemnify the sufferer. That Hunter accepted this showed that he grasped the realities of the situation, whilst his Government and General Order together with his dispatches clearly revealed a full appreciation of the problems created by a disorderly soldiery though he did not include the officers in his sweeping denunciations.
Although Hunter was concerned by the troublesome nature of the Irish sent out as a result of the United Irishmen’s conspiracy and rebellion he showed much sympathy and humanity, by the standards of the day, towards the convicts in general, and especially towards their wives and children. Much of his strong feelings against the rum trade and the prevalence of private stills were based on these humane sentiments. The severe criticism of his failure to control the rum trade, to keep down prices, to lower government expenditure and to control the trading of the military officers was grossly unfair, especially since with the dismissal of Richard Dore in January 1799, Hunter had to act as his own private secretary. In addition, his aide-de-camp, Captain George Johnston, although at one time in temporary command of the NSW Corps, was arrested in 1800 for refusing a general court martial in the colony on a charge of forcing spirits on a sergeant as part of his pay at an improper price. Whilst he was probably no more censurable than any other officer of the corps save Paterson, nevertheless the charge implied habits at Government House similar to those elsewhere in the colony. When Paterson returned from overseas leave in November 1799 he arrived with strict instructions to prevent further trading by the corps, especially in spirits, and he assured the governor that he was being obeyed. It was odd that the opportunity to make an example of one of the officers should be seized at the expense of the governor’s aide-de-camp.
There had been a persistent, often anonymous campaign against Hunter almost from the start of his period as governor. This was evident in Portland’s letter to Hunter in early 1799 stating that certain charges had been made anonymously against Hunter and that he needed to satisfy the government that these were false. The letter reached Hunter in November 1799 and he replied immediately not knowing that the decision had already been made to replace him. His recall was in a stern dispatch from Portland dated 5 November 1799 that he did not receive until 16 April 1800. It was acknowledged by Hunter on 20 April 1800 and he handed over the government to the Lieutenant-Governor Philip Gidley King on 28 September. His final months in the colony were poisoned not only by his feelings of failure and undeserved blame, but also by the obvious eagerness of his successor to assume office. Portland’s actions can hardly be called just in that Hunter was condemned unheard having been given no opportunity to answer the criticisms that had been made of him.
Why Hunter was recalled is not difficult to explain, though whether the reasons were justifiable remains a matter of debate. First, Hunter was regarded as an honest individual, but he was seen, especially by King as lacking in firmness and was too willing to accept the advice of individuals who used their influence for their own advantage. King believed he was ‘sadly duped and deceived’ by his friends. Secondly, and perhaps more damaging, was his unwillingness to implement his Instructions from London where they clashed with the interests of the major colonists, especially the officers of the NSW Corps. While Hunter rightly argued that his decision reflected the particular circumstances in NSW, it led to tensions with Portland that Hunter’s opponents in the colony were able to exploit. It is hardly surprising that Hunter sought to restore his reputation after 1800 and that, to some extent, he was successful. 
 This is evident in Hunter’s general orders concerning robberies; see, the order for 26 September 1796, for example, HRNSW, Vol. 3, p. 139 and Portland to Hunter, 2 March 1797, HRNSW, Vol. 3, pp. 195-196 where Portland asks Hunter to take immediate action against bush-rangers.
 Hunter to Portland, 20 June 1797, HRNSW, Vol. 3, p. 226.
 The problem of labour shortages is evident in setting rates of pay for free labourers in general order 14 January 1797, HRNSW, Vol. 3, pp. 189-190. That this proved difficult to enforce is clear from subsequent general orders.
 Hunter to Portland, 25 October 1795, HRNSW, Vol. 2, p. 328.
 Hunter to Portland, 28 April 1796, HRA, Series I, Vol. 1, p. 559.
 Portland was especially critical in a despatch to Hunter, 31 August 1797, HRA, Series I, Vol. 1, pp. 108-109.
 Hunter to Portland, 14 September 1795, HRA, Series I, Vol. 1, pp. 661-663.
 Hunter to Portland, 12 November 1796, HRA, Series I, Vol. 1, p. 670. See also Hunter to Portland, 25 July 1798, HRA, Series I, Vol. 2, pp. 160-171 for further criticism of Macarthur.
 Government and General Order, 29 June 1796 reduced the number of assigned convicts to two: HRNSW, Vol. 3, p. 57.
 Settlers’ petition to Hunter, 18 February 1798, HRNSW, Vol. 3, pp. 367-370.
 HRA, Series I, Vol. 2, pp. 178-183.
 HRA, Series I, Vol. 2, pp. 185-188.
 It was one of Macarthur’s criticisms of Hunter that ‘...the interest of Government is utterly disregarded, its money idly and wantonly squandered, whilst vice and profligacy are openly countenanced.’ Macarthur to Portland, 14 September 1796, HRNSW, Vol. 3, p. 133.
 Hunter to Portland, 20 August 1796, HRA, Series I, Vol. 1, p. 589.
 Hunter to Portland, 12 November 1796, HRNSW, Vol. 3, pp. 171-172 explains Hunter’s change from a military to civil regime.
 Hunter to Portland, 12 November 1796, HRNSW, Vol. 3, p. 171.
 Hunter to Portland 26 August 1796, HRNSW, Vol. 3, p. 87: ‘...I strongly suspect there are some person or persons in this colony (whose situations are probably respectable) extremely inimical to the necessary influence and authority of the civil power, and to that respect which is due from the public to the civil magistrates.’
 Portland to Hunter 31 August 1797, HRNSW, Vol. 3, p. 294.
 Gray, A.J., ‘Baughan, John (1754? -1797)’, ADB, Vol. 1, p. 74.
 The attack on Baughan led to an immediate response in a general order issued on 5 February 1796 and Hunter’s immediate response: HRNSW, Vol. 3, pp. 15-16. Hunter’s letter to Captain Paterson on 7 February 1796 and his general order a week later illustrated his clear anger at the situation: HRNSW, Vol. 3, pp. 17, 18-19. Hunter to Portland, 10 April 1796, HRA, Series I, Vol. 1, pp. 573-577 includes two enclosures on the Baughan affair.
 See undated memorandum written by Hunter, HRNSW, Vol. 3, pp. 19-22. It was written after 7 March 1796.
 See Hunter to Portland 28 April 1796, HRNSW, Vol. 3, pp. 41-42 but especially Hunter to Portland, 10 August 1796, pp. 64-67.
 See Hunter to Portland, 15 February 1798, HRNSW, Vol. 3, pp. 359-361.
 Allars, K.G., ‘Dore, Richard (1749-1800)’, ADB, Vol. 1, pp. 313-314.
 On Dore’s dismissal, see Hunter to Portland 21 February 1799, HRNSW, Vol. 3, pp. 547-575, HRA, Series I, Vol. 2, pp. 244-278.
 Portland to Hunter, 26 February 1799, HRNSW, Vol. 3, p. 636, HRA, Series I, Vol. 2, pp. 338-340.
 Portland to Hunter, 5 November 1799, HRNSW, Vol. 3, pp. 733-738, HRA, Series I, Vol. 2, pp. 387-392.
 King to Under Secretary King, 8 November 1801, HRNSW, Vol. 4, p. 613.
 Hunter, John, Governor Hunter’s Remarks on the Causes of the Colonial Expense of the Establishment of New South Wales. Hints for the Reduction of Such Expense and for Reforming the Prevailing Abuses, London, 1802 represented a vindication of his conduct, associated with his consistently useful advice on all that concerned NSW, the realisation that his successors faced equal or greater difficulties and that the government was regularly misinformed of conditions in the colony, led to a reappraisal of his position.