Tuesday, March 31, 2020

1150 Jack Lang on the Great Depression and Australia's publicly-owned Commonwealth Bank

Jack Lang on the Great Depression and Australia's publicly-owned
Commonwealth Bank

by Peter Myers, March 28, 2020

Newsletter published on March 28, 2020

This is from my webpage

Dr H. C. Coombs on bank loans:

{p. 10} Any given piece of expenditure can be financed from one of four
sources (or a combination of these sources): (1) new savings; (2)
accumulated reserves; (3) money borrowed, other than from a bank; (4)
money borrowed from a bank.

The last source differs from the first three because when money is lent
by a bank it passes into the hands of the person who borrows it without
anybody having less. Whenever a bank lends money there is, therefore, an
increase in the total amount of money available. ...

Monetary policy is not good or bad in itself. Almost any form of
monetary action can be justified in some circumstances and can be
utterly wrong in others. For instance, I can remember when people used
to get very agitated about a central bank lending to its government.

{p. 11} The government's military expenditure {during WWII} was financed
from the proceeds of taxes and public loans but also by borrowing from
the Central Bank. ... By the end of the war, the volume of money was 120
per cent higher than it had been at the outbreak of the war. Thus
throughout the war the role of the monetary authority was the largely
passive one of providing the financial needs of government to the extent
that these could not be met from taxes and public loans, and the task of
limiting other forms of expenditure and restraining the inflationary
tendencies inherent in this form of finance was undertaken primarily by
the government through direct controls.

- from Other People's Money, by H. C. Coombs (Australian National
University Press, Canberra 1971).

Dr Coombs was Governor of the Reserve Bank of Australia (originally the
Commonwealth Bank of Australia).

John Hotson, Professor of Economics at the University of Waterloo in
Toronto, says Money does not have to be a debt:

"... Money does not have to be a debt, nor does interest need to be paid
to keep it in circulation. The commodity monies of old -- gold, silver,
wine -- were not debts. Government or central bank currency is only
nominally a debt--a promise to pay with an identical piece of paper.

"... Governments can spend, lend, or transfer money into circulation.
They can lend at zero interest, or near zero interest. By wise use of
these powers governments and the international community can end the
debt slavery which is crippling the world economy."

More of Hotson at money.html .

Jack Lang on the Great Depression and Australia's publicly-owned
Commonwealth Bank

Lang was Labor Premier of New South Wales from 1925-27 and from 1930-32.
During his second term, in the Depression, he repudiated loans to the
London bankers, and was sacked by the Governor.

He was the Premier who opened the Sydney Harbour Bridge.

Here he tells the story of the creation of the Commonwealth Bank of
Australia, the first publicly-owned national bank in the British Empire
(later becoming a publicly-owned Central Bank), and how it financed
Australia's participation in the First World War.

He then tells how he took on the London Financial Establishment over
debt repayments in the early 1930s:

"I proposed that we should fund our debt as Britain had funded her war
debt to America. Firstly, America had agreed to suspend all interest
payments for three years. Then Mr. Baldwin had persuaded the Americans
to reduce interest charges from 5 per cent. to 3 per cent., rising to 3
1/2 per cent., with payments spread over 62 years. ... Belgium, Italy
and France all negotiated similar arrangements, Italy paying no interest
at all for five years. I proposed that we should issue a declaration
that we had decided upon a funding of the overseas debt, both principal
and interest, along the same lines as those accepted by the United
States." (p. 358).

The Great Bust: The Depression of the Thirties

by J. T. Lang

McNamara's Books, Katoomba, 1962

{p. 5} Borrow, Boom and Bust

DURING MY LIFETIME, I have been through two great depressions. The first
was the Big Bank Smash of 1893. The second was the Great Depression of
1929-32. Both left deep scars that took years to eliminate. Both found
chinks in our banking system. Both brought gr.at poelty and suffering to
the people, after both there were pledges that they could never happen
again.

During the first Depression, I was a lad, just left school, in my first
job in an accountant's office. I saw much of it at first hand. ln the
second I was Premier of the State. Again, I have every reason to
remember very acutely all that happened. I have discussed the history of
the Labor Party and politics in this State prior to 1928, in my first
book, I Remember. But the story of the Great Depression, is a story of
its own. The events, the momentous decisions that had to be made, the
human tragedies and the constant political struggles are deeply embedded
in our history. It is now possible to view them n their correct perspective.

Because the events leading up to the Big Bank Smash were so much like
those leading up to the Great Depression, it is necessary to turn back
the pages.

First came the Great Boom. Immediately prior to 1890 there had been a
period of unheard-of prosperity. Wages had reached the record level of
6/- a day. Export prices of wool and wheat were rising, and the seasons
were good. There were more jobs than workers. Parkes, O'Sullivan, and
other leading politicians of the time were great spenders. They called
E. W. O'Sullivan the "Great Owe" reversing his initials because he
believed that the chief function of government was to borrow all that it
could. Many splendid public buildings were erected in the city and
throughout the State. Schools, railway stations, Court houses and
Government Departments were going up everywhere. Much of the money was
borrowed in London. The State debt appeared to have no limits. "Charge
it up to loan funds" was the slogan of the times.

But biggest of all was the Land Boom. It was a new kind of gold fever.
It was much bigger than the more recent Uranium fever. Everyone wanted
to own land. There were fabulous stories of fortunes made buying and
selling land.

Land bought for £1 an acre, was being subdivided and sold for £2 a

{p. 6} foot. Every week-end, special Land Sale trains went out from
Sydney as far afield as Picton. As youngsters we looked forward to them
as a great picnic. Firms like Batt, Rodd and Purves would hand out free
tickets to likely buyers. Trains would be packed to the doors, and drawn
by two engines. There would be a big marquee on the site with free lunch
and at times even free beer for the adults. When bidding started there
would be a mad scramble. Only too often buyers didn't inspect their
lots. They would later find that they were on a cliff ledge. One
tailoring firm in the Haymarket even offered a certificate entitling the
purchaser of a new suit to a deposit on a block of land.

At the same time, builders were pushing up all kinds of structures.
Terraces were the vogue at the time. There was a saying that they were
built by the mile, and sold by the yard. In Redfern, Newtown, Stanmore
and Miller's Point can still be seen many of these structures, long rows
of cottages, joined together, identically the same, with only a common
dividing wall between them. The trade described them as "Queen Anne at
the front, and Mary Ann at the back." There was an attempt to make a
good show to the street to attract buyers, with wrought iron
balustrades, but once inside they were slap-dash structures without anv
attempt to make them comfortable or hygienic. Many lacked damp courses.
Still they couldn't fall down. If one was in danger of collapse, the
others would hold it up. Fancy prices were obtained for these dwellings
from home-hungry families. So prices went up and up.

To finance these land sales and building projects, a large number of
building societies were established. People deposited their money with
them. Investors from England put in quite a lot of money. The societies
worried little about costs or valuations. They had the money to lend,
and out it went. The private banks found themselves in competition with
these societies, so joined in the mad scramble to provide accommodation.

Borrowers didn't worry much about their prospects of re-paying the
loans. They believed that the Boom was certain to last. Then came
reports of a Depression overseas. There was a run on the banks in
London. Baring's Bank, one of the largest, was forced to close its
doors. British investrs started to withdraw their funds from Australia.
The price of wool fell. Those who had lent money to land and building
companies wanted their money back.

Soon there were signs of unemployment. The employers started to get
tougher with their workers. The Maritime Strike brought the fight right
into the open. The pastoralists were trying to beat down the shearers,
and introduced non-unionist labor.

Boom, Borrow and Bust. That was the cycle that the early pioneers of the
Labor Party had been predicting. Soon they were proved right. First a
number of the Land and Finance companies failed. Depositors lost their
money, and those building homes were unable to finish them.

As the number of workless increased, the plight of the average family
became more and more terrible. Foreclosures were the order of the day.
The bailiff became a figure feared by everyone. The landlords evicted their

{p. 7} tenants from rows of newly completed terraces. Soon the larrikins
started to wreck them. The roofing disappeared. Windows were broken.
They were stripped of everything moveable. Families huddled together in
single rooms.

There was no adequate system of social welfare. The Benevolent Society
did its best. It had a depot in the Haymarket from which it gave out
food rations. The Govermnent Railway sacked 600 men in a single week.
They joined the unemployed. Those who had money could buy a whole sheep
for two shillings in Oxford Street. There were literally thousands
sleeping in the Domain, Hyde Park, Belmore Park and in University Park.
The Government opened up its wool storage sheds at Circular Quay as
shelters. The Labor Party was formed, and scored its first spectacular
gains because people were looking beyond the existing Protection and
Free Trade Parties. They wanted some new party that would give them the
elementary needs of life. At the 1891 elections in the greatest
land-slide of Australian politics up to that time, no less than 35 Labor
members were returned out of 52 on the official ticket. That was the
immediate effect of the social discontent caused by the Depression.

Parkes tried to carry out the orders being given to him by the Labor
members upon whom he depended for his majority. He soon had to give way
to the Protectionists, because he said that it was not the duty of a
government to look after the unemployed. But Dibbs, Lyne and Sir John
See also said that it was not the duty of Parliament to feed people or
find them work. They believed that if they increased protective duties,
more work would be found by the establishment of new industries.

But it didn't work that way. Money was becoming more difficult to
obtain. Finally, the Government agreed to start some public works. They
couldn't find the money for major undertakings, so they improved work.
They paid men to shovel sand in Centennial Park and Moore Park. Only too
often they took it from one heap, and put it in another. They also put a
large gang on re-painting the railings in Hyde Park. First they had to
scrape the paint off. Then they painted them again the same color.

Still most of the unemployed had to depend upon charitable organisations
and religious bodies. They bought the rejects from the sales yards, and
boiled them down for soup. Some made arrangements with large grocers
such as Kidman's in Oxford Street to provide small rations of tea, sugar
and flour in exchange for coupons.

The workers were not the only people in trouble. Builders had to close
down. During the Boom, Allum Bros., one of the largest building
contracting firms, had secured advances from the Presbyterian Church
Trust to start the building of two and three-storeyed houses in Womerah
Avenue and Barcom Avenue, Darlinghurst. But the money ran out, and the
builders had to file their schedules. Eventually when they realised on
all their assets they paid their creditors 1/4d in the £. That was
typical of what was happening all over the country. Later those houses
became valuable property, and were sound

{p. 8} investments. Depressions are not selective in their effects. They
hit the good as hard as the bad. A sound proposition became bad over-night.

Although production generally was down, the Smash did provide a surplus
production of agitators and political reformers. People took more
interest in politics than ever. Bankrupt traders became Socialists
over-night. We even had revolutionaries and anarchists. Everyone had
some nostrurn to cure the ills of society.

Finally, the strain became too great for the banks. During the Boom they
had been lending more than their deposits. There were 22 banks, and
together they had lent out £156 millions, although their deposits only
amounted to £139 millions. People used the phrase "safe as the bank"
when wishing to refer to some assured investment. So many people in
addition to placing their savings in the banks on fixed deposits, also
invested in bank shares which they epected to bring in the income they
needed for their retirement. Such shares were regarded as gilt-edged
securities.

Sovereigns minted in the Royal Mint in Sydney were the basis of currency
and exchange. In addition, each bank had the right to print its own bank
notes, which were promissory notes pledging the bank to convert them
into gold sovereigns on demand. The banks had used the printing presses
too liberally during the Boom.

Then came the big scale withdrawals by British depositors to meet
demands in London. There were four English (including two under Royal
Charter) and four Australian banks with their head offices in Sydney.
Several of the Victorian banks also operated in this State. The Bank of
New South Wales had been the first to issue its own bank notes, having
done so since 1817 when a group of Sydney merchants had organised the
bank to get over the problems of the rum currency and Spanish "holey"
dollars, which had formed the first currency. At the beginning, as a
matter of fact, the Bank of New South Wales had used Spanish dollars and
cents as its monetary units, the English pound coming into popular favor
much later.

Some of the smaller banks had over-reached themselves. They just
couldn't redeem their outstanding bank notes with sovereigns, or even
silver currency. They had banked on the accepted idea that there would
never come a time when they would have to meet all their commitments at
the one time. But they overlooked the fact that once an impression gains
ground that a bank might be unable to meet its obligations, the news
spreads like wild-fire. That was what happened early in 1893.

People started to analyse some of the annual reports of the Banks. They
discovered that while they had made loans up to 137 per cent. of their
total reserves, they only had cash reserves amounting to 17 per cent.

All they had to stand behind them were their shareholders' funds, which
with their reserves and undistributed profits amounted to about £22
millions. In short, as soon as the pressure was applied practically
every bank in the colony was bankrupt. It is the word of mouth doubts
that create a bank panic. That was what happened in January 1893. The
first bank to suspend pay-

{p. 9} ment, closing its doors at the end of January, was the Federal
Bank of Australia Ltd. A meeting of depositors was held, and the
Chairman openly admitted that the bank owed more than £2 million to its
depositors and its shareholders, which it could not meet. Withdrawals
from the bank had exceeded deposits, and it was no use printing any more
bank notes, because they didn't have any gold in reserve to redeem them.
It was a gloomy story.

They had asked other banks to help them. They would have liked to have
been able to do so. But they all had their troubles.

A Bank Panic is like measles. It spreads very quickly. The next to fall
by the way was the Commercial Bank of Australia Ltd. It asked the
Victorian Government for help. But the Government didn't have the means,
even though it had the will. News spread like wild-fire that other banks
were tottering. By May the panic was well on. Throughout Sydney, the
pamphleteers were busy. They were denouncing the capitalist bankers.
Inside the banks, the capitalists were poring over dismal figures that
told their own story. In the banking chambers themselves tellers were
faced each morning with long lines of people demanding the return of
their money immediately.

The newspapers only made it worse when they appealed for confidence. The
E.S. & A. Bank, owned in London, closed its doors on April 13th. Three
days later the Australian Joint Stock Bank followed. Then followed the
London Chartered Bank of Australia, National Bank of Australasia Ltd.,
Colonial Bank of Australasia, Bank of Victoria, Queensland National,
Bank of North Queensland, Commercial Banking Company of Sydney Ltd.,
City of Melbourne Bank and the Royal Bank of Queensland.

Every State was hit. The position was completely out of hand. It seemed
that the entire country was ruined. Everyone in the community was hit.
The wealthy were as panicky as the poor. Each day large crowds
congregated in the middle of the city. Rumors were flying everywhere. As
soon as doubts were circulated about the solvency of a bank, the run was
on. The crisis reached its peak on Friday, May 17th. That day went down
in our history as Black Friday.

Bank officials were telling depositors to keep calm and that everything
was under control. But no sooner had many of them left the bank chamber
convinced that all was well, when there was a surge from the crowd and
the next thing they knew the doors were closed and there was a notice
pasted up outside that the bank had suspended payments until further notice.

The Premier, Sir George Dibbs, had been to London in an attempt to raise
money. He had come back with some, but not enough to compensate for the
withdrawals being made by London investors in Australia. Dibbs held
office with the assistance of the Labor Party. His brother, Thomas
Dibbs, was General Manager of the Commercial Banking Company of Sydney,
Ltd., with its head office in George Street.

At the height of the crisis there were strong rumors that the Commercial
Banking Company of Sydney was being kept afloat with the assistance of
the Savings Bank in Barrack Street, then under the control of a Board of
trustees.

{p. 10} Depositors were taking their money out of the Commercial Banking
Company of Sydney, and the Bank of New South Wales, and depositing it in
the Barrack Street Savings Bank. The Active Service Brigade, a body of
political militants who frequented the McNamara Book Shop, published a
paper called Hard Cash. It was violently opposed to the private banks.
Its principal contributor was a revolutionary character, Arthur Desmond,
who wrote under the pen-name of Ragnar Redbeard.

Hard Cash alleged that the Barrack Street Savings Bank on receiving the
money from the Commercial Banking Company's depositors and the Bank of
New South Wales, returned it by wheeling it in a tunnel below Barrack
Street back to the banks across the street.

One morning before the Barrack Street Savings Bank opened, Desmond hung
a large sign outside with the words "Gone Bung." He was arrested and
fined £2.

W. H. McNamara was also arrested and charged with a criminal libel in
Hard Cash. It was alleged that he had attemptcd to undermine the
solvency of the Savings Bank. He was convicted and sentenced to a term
of imprisonment. Actually he didn't write the article. Contributors to
Hard Cash took extraordinary precautions to see that their copy was kept
secret, and some of it was left at the McNamara Book Shop. The paper was
printed on a small hand press in Rose Street, Darlington, and I often
assisted in bringing it out. That was a real adventure, related more
fully in I Remember, the volume which precedes this book.

Hard Cash was crusading against the banks, because it believed they had
been responsible for the Boom, and then were unable to control the
forces they had set in motion. George Dibbs was under constant fire in
Parliament, and the Labor members who kept him there were being called
upon to explain why they continued their support. That was where Hard
Cash came in. It kept the first Labor politicians in constant awareness
of the duty they owed to the people who had sent them into Parliament.

No less than thirteen banks had closed their doors and suspended
payments to their depositors. No one would accept the bank notes still
outstanding, which had been issued by the banks as currency. There were
many slLicides. Some of them were quite bizarre. Elderly people found
that their life's savings had disappeared overnight. Even their bank
shares were worthless. They couldn't withdraw their money. Cheque books
were useless.

So some of them went over The Gap. Others were found on the train line.
Many hanged themselves. People who thought they were in comfortable
circumstances found that they couldn't even sell the homes in which they
lived. They had bank balances, but no money. They couldn't get work. So
many of them starved. Their plight was pitiable. They were avid readers
of Hard Cash.

The banks which had not suspended numbered nine. They included three of
the largest in the country, two owned in London (the Bank of Australasia
and the Union Bank), and the Bank of New South Wales. The

{p. 11} Commercial Banking Company of Sydney closed its doors on May
17th, but there was later evidence that it had no need to do so.

The banks that had closed included seven large institutions, notably the
E.S. & A. owned in England, the Commercial of Australia, National of
Australasia, Australian Joint Stock and Queensland National. In all they
had over £76 millions of money owing to the public, and £12 millions
belonging to their shareholders. It was no time to argue whether they
were solvent or not. The public had to be protected.

Dibbs saw the bankers. They told him that if the rush continued there
wouldn't be a bank with its doors open in a few days. That would mean
that the entire State would be bankrupt. It was Black Friday indeed.
Large firms in the city couldn't get money with which to pay their
employees. Cheques were valueless. The shops couldn't deposit their
money, because they were afraid that it would simply disappear. Even the
public servants couldn't cash their salary cheques. The economic life of
the State was at a virtual standstill. To the unemployed it didn't make
much difference. They had forgotten what money looked like. It meant
only that they had more companions in their misery.

Dibbs hastily called Parliament together for an emergency sitting. The
Parliamentary draftsmen had been working hard all day. The House met at
night, and the Premier announced that the legislation had to go through
in the same sitting. It was a last desperate effort to keep the
remaining banks open.

Dibbs introduced the Bank Issue Bill. It gave the banks power to issue
paper money which would be accepted as legal tender. They were under no
obligation to convert them into gold, or any other coinage. The banks
principally concerned were the Bank of New South Wales, the City Bank of
Sydney, the Union Bank and the Bank of Australasia. The emergency
legislation was to operate for six months. During that time they could
use the printing press to manufacture all the money they needed.

B. R. Wise and most of the Labor Party voted against the Bill. They said
Dibbs was bolstering up Directors who had betrayed their trust. They
demanded that he should take over the banks, lock, stock and barrel.
Dibbs refused and obtained the numbers from the Opposition to pass the Bill.

Another Bill provided that the State Treasury should advance to
depositors in the banks that had closed their doors, half the amount
standing at their credit when the bank had suspended payments. For that
purpose the Government issued Treasury Bills with a currency of five
years. It was the first public note issue of its kind. Bank notes were
also made a first charge on the banks' assets.

The Bills were rushed through both Houses, and on the Saturday morning
were signed by the Acting-Governor, Sir Frederick Darley. On the Monday
morning, the remaining banks were open for business and the panic was
virtually over. When the depositors found that the banks could meet all
their demands, they were no longer interested in withdrawing their
savings. The

{p. 12} public servants were able to cash their pay cheques. The workers
were paid once more.

Of course most payments were made with paper money for the time being,
although canny folk insisted on carrying out transactions in gold
sovereigns for some time. They were suspicious of paper money. But it
was the aftermath of Black Friday that left a nasty taste in the mouth
for years to come. This State had its first taste of real repudiation.

At the time, it was agreed that several of the banks that had closed
their doors were bankrupt in every sense of the term, and had lost their
depositors' money by over-speculating in land and inflated advances to
building societies. Their advances far exceeded their deposits. They had
been chasing what they believed to be easy profits. In short, they had
been gambling with their depositors' funds, and had been caught short.

All the banks that had closed, with the exception of the Federal Bank of
Australia, re-opened after delays extending over a period of three
months. But they were still not in a position to return their
depositors' funds. Instead they proceeded to "re-construct;" that meant
that they repudiated portion of their outstanding obligations. They
wrote-off capital, reserves and undistributed profits amounting to over
£7 millions. Their shareholders lost approximately half of their
investments.

The Commercial of Sydney found that its assets were greater than its
liabilities so met its obligations in full.

The other banks that had closed their doors still owed their depositors
large sums of money, totalling in all £68 million. Even paper money
could not bridge their difficulties, as they didn't have assets worth
that amount of money. So they proceeded to deal with the situation by a
system of compulsory loans.

Small deposits up to £50 were released without much delay. It was the
larger amounts that were causing them most concern. So they simply
repudiated their obligation to meet cheques issued on current accounts,
or return money on fixed deposit on the due date with interest. Instead
they gave their depositors certificates showing the amount owing to
them. Some of these were perpetual I.O.Us. Others were repayable in
instalments, the first due five years after the bank re-opened.

These certificates were negotiable. That meant the depositors could
realise on them by selling them to someone else. But that merely gave
the money-lenders a chance to pick up a share of their savings. At one
stage they were only bringing 10/- in the £. So the depositor in need of
money lost half the money he had placed in the custody of the bank. The
value of the certificates was quoted on the Stock Exchange, and varied
according to the prevailing view as to whether the bank would eventually
meet its obligations.

The Commercial Bank of Australia gave its depositors portion of their
money back in the shape of preference shares. They started off with a
maximum rate of 5 per cent, but later reduced the rate to a maximum of 4
per cent.

{p. 13} Some of the banks found that they could not keep their due
dates, so extended the time of repayment and reduced the rate of
interest at the same time. The depositors were without redress. They
simply had to take what they were offered.

The English, Scottish and Australian Bank Ltd., had a different formula.
It had the advice of its affiliates in London. It converted half of its
suspended deposits into perpetual stocks, without any obligation to
redeem them at any time. They were payable only at the option of the
bank, and the rate of interest was fixed so low that when the bank
returned to a profit-making basis it had no reason to pay off the debt.
It found that it could use the money more profitably itself. It simply
didn't worry about repudiation.

At the beginning, the E.S. & A. Bank was paying its old depositors up to
4 per cent, but three years later it obtained from the House of Commons
the right to reduce the rate to 3 per cent. It was a British bank so was
subject to British law, not that of the State of New South Wales.

As things improved, it started paying its British shareholders dividends
of 10 per cent to 12 per cent. But the holders of the perpetual stock
still received half-yearly dividends of 3 per cent only.

Eventually the old depositors, and those holding the perpetual stock,
held a protest meeting and formed a committee to protest. They had many
instances of elderly people who had been victimised. A representative
was sent to England to interview the Directors of the Bank.

The Bank wrote a very cold letter in reply, saying:

"To ask shareholders to give up rights to which their purchase of shares
legally entitles them, in the interest of people who can have no
possible claim on them, is not, it appears to the Board, a reasonable
proposition, and I am sure that the Board would not be a party to it.

"While we all sympathise sincerely with the deposit holders, we
sympathise even more with the former shareholders who lost every penny
of their original capital."

That letter was later read in the Legislative Council by J. Ryan M.L.C.,
a well-known Nationalist member, on behalf of the depositors who had
been bilked by the London Board of Directors. Sir Henry Braddon
supported him and said that, in 1893, depositors were under duress. The
Council decided to protest, but the bank did nothing. It even refused to
convert the securities into redeemable debentures, and thus pay off the
old debts. It took every advantage of the 1893 collapse.

Later when they were accusing a Labor Government of repudiation during
the Great Depression, I recalled the facts of the Bank Smash and what
had happened to the depositors of the E.S. & A. Bank. Black Friday had
taught the young Labor Party a great lesson. It had made an enduring
impression on me, and no doubt conditioned to a very great extent my
thinking on the subject of banking.

{p. 14} 2 King O'Malley's Dream

THE BANK SMASH had been a terrible disillusionment to those who had
never queried the infallibility of the banking institutions. No longer
did people rely upon the security of "safe as a bank." The bank had let
them down. They had to look elsewhere for a financial system that they
could trust.

The youthful Labor Party saw its opportunity. It realised that control
of savings could not be left in the hands of people who could gamble
those savings away. So Labor turned from the study of Socialism to the
study of banking. Those who had been reading Henry George's Wealth and
Poverty, Edward Bellamy's Looking Backwards and Robert Blatchford's
Merry England began to search for material on banking. There were few
books. But the practical experiences of the Smash could be seen all
around us.

The Labor Party reached two vital decisions. It decided:

(a) That private banks should no longer have a monopoly of the note issue.

(b) That there should be a Government-owned bank, in which the people
could put their savings with the assurance that the Government would
stand behind the bank.

So, when the First Annual Conference of the Australian Labor Party met
at the Federated Seamen's hall in Princes Street, off Grosvenor Street,
in November, 1893 to adopt a Fighting Platform for the Party no mention
was made of Socialism or Socialisation. Instead it confined itself to
six points. They were: -

(1) Crown land to be leased instead of alienated. (2) No royalties to be
paid for miner's rights on private property. (3) Abolition of Upper
House and introduction of Referendum. (4) Local Government by popular
vote. (5) An 8-Hour Day. (6) Establishment of a National Bank - to
secure State control of currency and transact all ordinary banking business.

It was the final point of that Fighting Platform that was to have a
lasting impact on Labor thinking for the next sixty years. Without a
Government Bank we realised that Labor would be helpless. The State must
not only run the Bank, but it must control the currency - the Mint and
the note issue as well.

 From the earliest days, there had been a Savings Bank. England had

{p. 15} established one in 1798, and the rulers of the young colony
thought it would be a good idea if there was a similar institution here
into which the settlers could place their savings, instead of wasting
them in rum and riotous living.

A meeting was held in the General Hospital, with Governor Macquarie
presiding, and it was agreed to set up a Savings Bank. In the beginning
the inhabitants called it Campbell's Bank, after Robert Campbell, who
had sponsored the idea. Out of it came the Savings Bank of New South
Wales, which was managed by a Board of Trustees.

Then in 1871 the Post Office Savings Bank of New South Wales was
established, with branches in every Post Office. It was the first
Government Savings Bank in the colony.

During the run on the banks, money was deposited with the Post Offlce
Bank for safe keeping. This bank did not use paper currency, and its
depositors believed that they could get their money back in cash at any
time. So they did not worry about it, and the bank remained solvent. The
Savings Bank of New South Wales, with its head office in Barrack Street,
and its six branches, also came out unscathed.

There had also been two other attempts to start small savings banks.
There was a Penny Bank in Woollahra, and the Wesleyan Penny Savings Bank
in Surry Hills. These banks paid small rates of interest on their
deposits, unlike the private banks, which paid no interest on current
accounts.

The Labor Party decided that a National Bank, backed with the assets of
the Government, would not fail in times of financial stress. It also
realised that such a bank would be a guarantee that money would be found
for home building and other needs. There was great hostility towards
landlords, and the Labor Party wanted to encourage workers to own their
own homes. After the collapse of the building societies, there was a
great scarcity of money for such purposes.

An attempt was made in the Legislative Assembly to permit banks that had
closed their doors to re-open, even though they were insolvent. It was a
bald proposition that they should be granted the right of note issue -
the right to print paper money to meet their debts. The Australian
Banking Company of Sydney was the one selected as the test.

The Labor Party voted against the Bill, which was defeated. Shortly
afterwards, the directors and manager of that bank were tried for
issuing fraudulent balance sheets. They were convicted and sentenced to
long terms of imprisonment. That gave further impetus to the cause of
banking reform. There was strong support from all sections. It was bad
enough to have a cheque bounce because the person signing it didn't have
sufficient funds, but it was unthinkable that a cheque should bounce
because the bank didn't have the funds to meet it. That was what had
happened.

By using the numbers, the Labor members forced the Dibbs Government to
set up a Select Committee into the question of converting the Post
Office Savings Bank into a National Bank. By that was meant a State Bank,

{p. 16} competing with the private banks. Leading members of the Labor
Party appeared as witnesses, including Holman, who had given much
thought to the proposition.

Holman agreed that such a bank would soon become a State monopoly,
because people would have more confidence in it than in the banks that
had failed them in their hour of need. He said that he would not be in
favor of paying compensation to the private banks. Other witnesses
stressed the fact that the State Government would be able to finance all
its loan needs, without going to London for money. The unemployed would
get jobs. New railways would be built.

The Select Committee found against the private banks. They decided that
the banks had attempted to create a land and building monopoly of their
own, and had wrongfully used their depositors' funds. The Committee
agreed that there should be a State National Bank of Issue. It also
agreed that the existing savings banks would provide the nucleus for the
new system. The Legislative Assembly adopted the report by 40 to 17.
That indicated just how unpopular the banks were at that time.

Dibbs fell shortly afterwards. The private banks took up a collection
and handed him the proceeds as a testimonial for his work in saving them
on Black Friday. But Dibbs soon succumbed to the fate of all leaders of
governments in power during a Depression. He was followed by George Reid
leader of the Free-traders, who promised much but refused to touch the
banking question.

It was at this stage that Federation became the dominant issue. The
draft Commonwealth Constitution provided that the Federal Government
would have control of all banking, except State banking. We believed
that would be sufficient to protect the State. Time was to prove that we
were mistaken. The Constitution also gave the Commonwealth control over
the issue of paper money. But no one at the Convention dreamed that such
powers would be used to crush a sovereign State. At that stage the
States were still supreme.

James McGowen, who had become leader of the Labor Party, was
slow-moving. After Federation came into being, interest centred largely
in how the new machinery could be used to achieve Labor's objective.
Banking was high on the list. Chief advocate of the cause of a
Commonwealth Bank was King O'Malley, a colorful Canadian-American, with
a picturesque turn of speech derived from Biblical phrases allegedly
belonging to some odd sect. Before coming to Australia, he had worked in
a small New York bank, owned by an uncle.

He later explained that there were two directors of the bank - his uncle
and himself. They were also the only two male employees. One day, his
uncle said to him, "There are too many directors in this bank. One will
have to go." After chewing it over King decided that he was about to be
sacked. So he caught the first ship out of New York. It happened to be
coming to Australia. Another version was that he came out for health

{p. 17} reasons. King was the last in the world to spoil a good story.
He preferred the first version.

He had been much impressed by the way that his uncle had created credit.
A bank could create the credit, and at the same time manufacture the
debit to balance it. That was the big discovery of O'Malley's banking
career. A born showman, he itched to try it out on a grand scale. He
started his political career in South Australia by advocating a State
Commercial Bank. In 1901 he went into the first Federal Parliament as a
one-man pressure group to establish a Commonwealth Bank, and joined the
Labor Party for that purpose. Chris Watson was the first Labor Prime
Minister in the Comrnonwealth. He didn't have power, although he had
office. In any case he refused to do anything about banking.

In 1908 the Federal Conference of the Labor Party meeting in Brisbane
agreed to a national postal banking system being placed on the Fighting
Platform. It was to be conducted as a Government department, free of
political control, the capital being provided both by Federal and State
Govermnents.

King O'Malley moved a large number of resolutions setting out the plan
in full detail. The bank was to have the power to issue bank notes,
which would be legal tender. It was to be responsible for all Government
banking. It was also to have the power to grant advances to Governments
and local governing bodies. There was to be a Board, comprising the
chairman elected by the Commonwealth Government, and one Director
nominated by each State. It was also to be a reserve bank, holding the
reserve funds of the private banks. The Commonwealth Treasurer was to
have the right to attend all meetings of the Board. The Bank was to sell
Government Consols.

It was a comprehensive plan, many of the details taking years to bring
to fruition. King O'Malley was well before his time. Most of the
delegates just couldn't follow him. But he impressed them greatly with
his sincerity. The New South Wales delegates backed him up. They still
believed in the State Government Savings Bank. They thought a
Commonwealth Bank would help it. That was their mistake.

King O'Malley also proposed a National Sinking Fund to liquidate all
outstanding loans. He proposed a fund of 2 per cent., invested at 3 per
cent., which would liquidate all loans in the 66th year. He suggested
that the trustees should be the Comptroller-General of the National
Postal Bank, the Chief Justice of the Commonwealth, the President of the
Senate, the Speaker of the House, the Auditor-General and the Chairman
of the Associated Banks.

Twenty years later, Sir Earle Page, when Treasurer of the Commonwealth,
took King O'Malley's draft and applied its essentials to the National
Sinking Fund. King O'Malley had also suggested what was later the
nucleus of the Loan Council Agreement, and had a plan to finance
short-term loans internally.

The politicians decided that King O'Malley was a 'crank" on finance. But
he had swayed the Federal Conference with his ideas. He certainly knew

{p. 18} his subject, and had a most constructive mind. On one occasion,
he spoke for more than five hours in the Commonwealth Parliament in
Melbourne explaining his ideas to the House.

In 1910 the Labor Party won both the Federal and New South Wales
elections. Andrew Fisher became Prime Minister and Jim McGowen became
State Premier. Most people regarded McGowen's position as the more
important. At that time, so far as their daily affairs were concerned it
certainly was.

McGowen was hard to shift. He believed in hastening slowly. Holman was
prodding him, but he refused to be hurried. Fisher was just as hard to
budge in Melbourne. King O'Malley expected to be Treasurer. Instead
Fisher, who had persuaded the Federal Conference that while Caucus had
the right to elect members of a Ministry, the leader had the right to
allocate portfolios, decided to make King O'Malley his Minister for Home
Affairs.

As it turned out, that gave Australia its national capital in Canberra,
on the Washington, U.S.A., plan. But as Fisher decided to be his own
Treasurer, it looked as if he had sidetracked the Commonwealth Bank.
Fisher was wary of the fast-talking Canadian-American. The private banks
started organising against the Commonwealth Bank. They invited Fisher
and W. M. Hughes to a private function, where they were told that there
was no profit in banking. They persuaded them to give up the
Commonwealth Bank idea.

Fisher agreed to take charge of the paper money position. An Australian
Bank Notes Act was passed in September, 1910, giving power to the
Commonwealth Treasurer to issue Australian notes which were to be
"payable in gold coin on demand at the Commonwealth Treasury at the seat
of government." At that time it was in the Treasury Gardens, Melbourne.
At the same time, the Commonwealth Government passed a Commonwealth Bank
Notes Tax Act, imposing a tax of 10 per cent. on all bank notes that had
been issued by the private banks, and not redeemed. That meant an old £
note was only worth 18/-. They were very quickly returned. The new notes
were to be legal tender.

King O'Malley was indignant and argued that it was impossible to have a
Commonwealth Bank unless it controlled its own note issue. Fisher and
Hughes indicated that they were no longer prepared to go ahead with the
King O'Malley Plan. King O'Malley was a tough organiser when roused. He
used the Federal Conference decision to its fullest effect.

So King O'Malley formed a secret group inside the Fisher Caucus. He
called it the Torpedo Brigade. He let it be known that he intended to
blow up the Government unless he got his bank. They threatened to drop
him from Cabinet, but he refused to be intimidated. Gradually he got the
balance of power inside the party. Dr. William Maloney, Member for
Melbourne, Frank Anstey, J. M. Chanter, J. H. Catts, Laird Smith, Ted
Riley, Senr., J. H. Scullin, Arthur Rae and Parker Moloney all supported
the rebel Minister.

Finally, at a party meeting they passed a resolution instructing Fisher

{p. 19} to bring in a bill forthwith. He was told that he had to obey
the edict of the Brisbane Conference. King O'Malley had the numbers, so
Fisher bowed to the storm. But he still ignored his rebel Minister.
Instead, he asked officials of the Treasury to prepare the Bill.

The first round had been won.

When Andrew Fisher introduced the Commonwealth Bank Bill into the
Commonwealth Parliament on November 1, 1911, the private banks were by
no means happy. They fought the measure as hard as they knew how. The
principal newspapers attacked the Bill. Sir Joseph Cook, Leader of the
Opposition, keynoted their attack when he interjected "Sovereigns for
all!" when Fisher rose to move the first reading.

Fisher dealt in detail with the Bank Smash of 1893, and said that t must
never happen again. He said that ultimately it would become the bank of
the banks rather than a mere money-lending institution. Australia was
prosperous at the time, and that was the right time to provide security
for the future. "This will be a bank belonging to the people, and
managed by the people's own agents," he told the House.

The debate was a bitter one. It lasted eight weeks. The Liberals
filibustered. They said that "red-raggers" would run the bank. The
country's credit would become worthless. The people's savings would
become valueless. The Socialists planned to wreck everything. Everyone
would be bankrupt.

On the front bench sat the Minister for Home Affairs, King O'Malley, who
refused to say a word. He had not been consulted by Fisher. He believed
that Fisher and Hughes were paying more attention to the bankers than to
the long banking resolution that, with the assistance of W. A. Holman,
he had been able to get through the 1908 Federal Labor Conference in
Brisbane. The Bill made no provision for the Commonwealth Bank being
able to issue its own bank notes. King O'Malley believed that it would
be vulnerable without that power. He was afraid that there had been a
sell-out to the private banks.

Eventually, on December 22nd, 1911, the Commonwealth Bank Act became
law. The bill had not been amended. The Fisher Government had its bank.
The next step was to get its banker.

Again Fisher ignored King O'Malley, whose views on banking he regarded
as altogether too unorthodox for safety. Instead he decided to seek
advice from the private banks, although the new bank would be their
competitor. They were rather flattered. Sir John Russell French, General
Manager of the Bank of New South Wales, was most helpful. He believed
that, with the right man appointed to the position of Governor, the
private banks could forget their fears. They would merely have to admit
another member into their ranks, and it would be a long time before it
would make the grade.

{p. 20} Sir John Russell French, to show his fairness and anxiety to
help, recommended that Fisher should appoint a very able officer of his
own institution - Denison Samuel King Miller. Denison Miller had been
his chief assistant, and had been promoted to the position of
Metropolitan Inspector of the Bank of New South Wales. Fisher asked him
to go to Melbourne and was immediately impressed by the assurance and
self-confidence of the banker. He was just the man for Fisher, although
he would not have appealed to King O'Malley, who would have wanted a
fire-eater. Fisher offered Miller the then princely salary of £4000 a
year for a terrn of seven years. He had just returned from a tour
abroad, and had made a study of banking practices overseas, so the Bank
of New South Wales was making quite a sacrifice.

The Liberals wanted a Bank Board. Fisher refused. He said that the
Governor would hold office, subject to good behavior. Asked who would
decide that, he said it would be a matter for the High Court.

Denison Miller was therefore going to be given almost absolute powers.
King O'Malley had suggested that each State Government should have the
right to nominate a representative to a Board of Management. Fisher
rejected that idea also. Denison Miller, even at that early stage,
resented any interference.

The private banks worked it out that with one of their own on the box
seat they had no further cause to worry. They were afraid that a Board
might become political. State representatives would also become
political. But Denison Miller was above politics. He was a banker. That
seemed to be the complete answer.

But they hadn't reckoned with their man. Denison Miller accepted the
position because he realised that it was his great opportunity in life.
He was a man of great ambition. Although quiet in manner, he knew what
he wanted. Once he left the employment of the Bank of New South Wales,
he decided that he no longer owed any loyalty to that institution. His
only concern had to be the development of its latest rival. He was
starting from scratch. But he was satisfied in his own mind that he was
bringing into life the greatest financial institution this country had
ever known. He was not going to allow anything to stand in the way of
its development. He was prepared to fiht all competitors - government or
private. To Denison Miller it was to be "my bank."

The first test came when a decision was required regarding the amount of
capital needed to start a bank of that kind. Under the Act, the
Commonwealth had the right to sell and issue debentures totalling £1
million. Some even thought that amount of capital would be insufficient,
having in mind what had happened in 1893. The Government was ready to
stand behind the debenture issue, and guarantee the payment of principal
and interest. That meant that, if necessary, the Government would raise
taxation to repay the investors.

When Denison Miller heard of it, his reply was that no capital was
needed. Mlller started work on June 1st, 1912, with one assistant and a

{p. 21} messenger sent over from the Treasury. In fact, Miller was the
only employee. He found a small offlce in Collins Street, Melbourne, and
asked the Treasury for an advance of £10,000. That was probably the
first and last time that the Commonwealth lent the Bank any money. From
then on, it was all in the reverse direction.

Next he opened the first branch of the Commonwealth Savings Bank, which
was in direct competition with the various State savings banks.

Miller didn't want to borrow money with which to start a general bank.
He knew that once he accepted deposits, he also had to have facilities
for cashing cheques and making advances. Rather than obtain Government
aid, he decided to wait until he had sufficient in the Savings Bank to
provide funds for his general banking business. He was wary about going
to the politicians.

By January, 1913 he had completed arrangements to open a bank in each
State of the Commonwealth, and also an agency in London. He decided to
establish the headquarters of the Bank in Sydney instead of Melbourne.
Collins Street was altogether too close to the top of Bourke Street,
where the Federal Parliament met. In Sydney there would be less
interference.

He obtained the first Head Office of the Bank in Stanway House, 77 King
Street, next to the head office of the Australian Bank of Commerce, on a
George Street corner. There on January 20th, 1913 he made a speech
declaring the new Commonwealth Bank open for business. He said:

"This bank is being started without capital, as none is required at the
present time, but it is backed by the entire wealth and credit of the
whole of Australia."

In those few simple words was the charter of the Bank, and the creed of
Denison Miller, which he never tired of reciting. He promised to provide
facilities to expand the natural resources of the country, and it would
at all times be a people's bank. "There is little doubt that in time it
will be classed as one of the great banks of the world," he added
prophetically.

The first cheque deposited was for £591,864 1s 9d, on behalf of the
Treasurer of the Commonwealth. The grand total for the day was
£2,368,126, of which the Commonwealth contributed £2,327,550. In the
first year the Bank showed a loss in this department of £14,606, and in
the second £46,637, but by the third it was on a profit-making basis and
has remained there ever since.

The private banks were still very nervous. Denison Miller tried to allay
their fears by fixing the rate paid by the Commonwealth Bank below that
quoted by the private banks, and his interest rates for advances were
also higher, except in one direction.

While outside borrowers had to pay 6 per cent., he agreed to lend
churches, trade unions and charities money for 5 per cent., while
municipal councils and other local government bodies could get it for 4
per cent.

He also decided that he would not join the ranks of the Associated
Banks, and refused to commit himself to carry out their decisions. It
was the first whiff of independence.

{p. 22} By this tirne he had partially appeased King O'Malley. Denison
Miller wanted to provide his bank with the most irnpressive office
building in Sydney in a central position. The site he selected was on
the corner of Pitt and Moore Streets. They tried to buy it at first, but
when negotiations collapsed King O'Malley resumed the area by compulsory
acquisition. On May 13th 1913, foundation stones for the edifice were
laid, one by Andrew Fisher Prime Minister, and the other by Governor
Miller. The plans were certainly not for a bank of modest pretensions.
The polished grey granite facade, the lofty white round pillars of the
banking chmber and the massive nature of the buildmg itself indicated
that Denison Miller really believed that his bank was going to be one of
the biggest in the world. Provision was made to accommodate politicians
with offices, including Ministerial offices. That was a concession and
also a justification for the Commonwealth Government being interested in
the building.

All that had happened with the bank less than one year old. Slowly it
began to dawn on the private banks that they may have harbored a viper.
They had been so intent on the risks of having to contend with bank
socialisation that they didn't realise they had much more to fear from
competition by an orthodox banker, with the resources of the country
behind him.

In 1913 the Fisher Government was defeated and Sir Joseph Cook took
over, in charge of a Liberal Government. The private banks believed that
the threat had passed. But they didn't reckon with Denison Miller. He
was only just beginning to feel his real strength.

One of the first demonstrations of his vigor came when the Melbourne
Board of Works went on the market for money to redeem old loans, and
also to raise new money. Up to that time, apart from Treasury Bills and
advances by their own Savings Banks, Governments had depended on
overseas loans from London.

The Victorians obtained their quote from London. In addition to stiff
underwriting charges, they found that the best they could expect would
be £1 million at 4 1/2 per cent., at 97 1/2 net.

They then decided to approach Denison Miller, who had promised to
provide special terms for such bodies. He immediately offered to lend
them £3 millions at 95 on which the interest rate would be 4 per cent.
They immediately clinched the deal. Asked where his very juvenile bank
had raised all that money, Miller replied, "On the credit of the nation.
It is unlimited."

Then in August, 1914 came the First World War. The first reaction was
the risk that people might start rushing to the banks to withdraw their
money. The banks realised that they were still vulnerable if that
happened They were still afraid of another Black Friday.

There was a hurried meeting of the principal bankers. Some reported that
there were signs that a run was already starting. Denison Miller then
said that the Commonwealth Bank on behalf of the Commonwealth would
support any bank in difficulties. In fact, he had already issued
instructions

{p. 23} to put on more tellers. That was the end of the panic. But it
put Miller on the box seat. Now, for the first time, the Commonwealth
Bank was taking the lead. It was giving, not taking, orders.

Meanwhile, the Cook Government had obtained its double dissolution,
because of a dispute with the Senate. Fisher gave his pledge to fight
the war against the Germans "to the last man and with the last
shilling," and went back with comfortable majorities in both Houses to
form another Labor Government. That meant that Denison Miller, as
Fisher's protege, was virtually in control of the financing of the war.
The Government didn't know how it was going to be achieved. Miller did.
So very quietly he roped in more power for himself. He drafted another
Commonwealth Bank Amendment Bill for that purpose.

King O'Malley was still growling that the bank was not as he had planned
it. It was still not in control of the note issue. "I look upon the
Commonwealth Bank as at present constituted as a financial autocracy,"
he declared. He still wanted State representation on a Board of
Management. He added that it was the safest bank in the world for the
capitalists, because its deposits were guaranteed by the Commonwealth
Government.

Still, it was the war that gave Denison Miller his real opportunity to
become virtual financial dictator of the Government.

3. Financing the First World War

WARS DO NOT COLLAPSE because either side runs out of money. An army can
run out of men or ammunition. But not out of money. It is a strange
paradox that times of great human destruction are invariab!y times of
great prosperity. While the war continues, the purse-strings are wide
open. Inflation is the counterpart of war. There is unlimited finance to
keep mankind in the most unproductive of all human enterprises.

Depressions come in peace-time. They are the aftermath of war.
Governments regard the sky as the limit when it comes to borrowing for
war. then a few short years later they quibble about a few millions to
keep men employed. The money machine breaks down. Families starve.
Businesses go bankrupt. Farm lands are stricken with a money drought. A
strange paralysis creeps into every form of economic activity. They call
it Depression. There is no money to keep production going. It is just
the opposite of war.

{p. 24} This terrible contradiction has always been to me the greatest
challenge of our times. Over a span of twenty years, this country
experienced both a Great War and a Greeat Depression. The people won the
war. They lost the Depression. Why? That is the question that still has
to be answered. Only by studying what actually happened can we hope to
find the solution.

In June, 1914 Sir Joseph Cook was Premier and Sir John Forrest was his
Treasurer. They had just finished a most disappointing financial year.
They had spent more than £23 millions and had to face Parliament with a
deficit of more than £1 million. They were very worried about the
finances of the country. Expendditure was altogether too great. There
was talk of pruning the public servijwice. There was even talk of a
Federal income tax but few took the threat seriously

The States were still much bigger than the Commonwealth. They spent
double the amount spent by the Federal Parliament. They affected the
everyday lives of the people much more than did the Commonwealth. What
happened in Macquarie Street was of much more importance than what was
being said at the top of Bourke Street, Melbourne.

The States did all their own financing. They had a monopoly of income
tax, and did their own borrowing in London. Sir George Reid had been
High Commissioner in London since 1910, but the London banks regarded
the State Agents-General as much more influential. They did business
with them direct. The Commonweaalth didnt borrow money. It even paid for
the East-West Transcontinental Railway Line out of revenue. Its only
standing debt was an amount taken over from South Australia when it
accepted charge of the Northern Territory. It met those charges out of
revenue.

At the outbreak of of war, the Commonwealth was relying on customs and
excise duties to finance its requirements. The States were paying out
£10 millions a year to the overseas bondholders, and most people agreed
that the limit had been just about reached. It was £2-10-0 a head of
population, or a whole shilling a week.

The basic wage in Sydney was £2-8-0 a week, which meant a shilling an
hour for the 48-hour week then ruling. A bank manager on £5 a week was a
man of substance. Living costs were in keeping with wages. Australian
currency was still in coin of the realm. The sovereign and
half-sovereign circulated freely. The sovereign case had not given way
to the wallet. Copper coins still were highly respected. A half-penny
reduction was really worthwhile for the housewife.

ln August, 1914 the Germans started marching into Belgium, and Australia
found itself at war with the Kaiser. Prime Minister Cook immediately
offered an expeditionary force of 20,000 men, and Andrew Fisher offered
the last man and the last shilling. But who was going to pay? How long
would it be before we had spent the last shilling? The financial
position looked grim.

At the beginning there was the threatened run on the banks. Denison
Miller halted that. But how could a country with a deficit in peace of more

{p. 25} than £1 million pay for a costly war? Some said that it would
last not more than six months. Others predicted that it would last
years. Andrew Fisher became Prime Minister on September 17th, 1914,
after the double dissolution. A fortnight later, Australia went off the
gold standard. Already it had been realised that there was not enough
gold in the country to meet the needs of a war. So the Government had
already started using the printing press.

Fisher summoned the private bankers to Melbourne, and called upon them
to hand over their gold reserves. He offered three pound notes for every
sovereign held by the banks. The Government promised that the banks
would get back gold for notes after the war. It was the first step
towards inflation. Fisher had carried out a decision previously made by
the Liberal Treasurer, Sir John Forrest.

That was the end of gold coins. The Mint stopped making them. Instead it
converted gold to bars, which it held as a reserve. Paper money made its
appearance, although on the face of each Commonwealth Bank note was
still the promise to redeem it on demand in gold at the Commonwealth
Treasury. Anyone who went along with a bundle of notes and asked for
sovereigns in exchange quickly found that he was on a merry-go-round. He
left without the sovereigns. In any case, as soon as the coins went into
the bank, they were exchanged for notes.

The note issue expanded immediately. Before the war it was less than £10
millions. By 1915 it had increased to over £30 millions, and by the end
of the war it exceeded £50 millions. That was only one way of paying for
the war. But it helped quite a lot.

Meanwhile the States had run into trouble in London. They were told that
there was no more money available for public works. The London money
market had its hands full keeping up the supply of money for war needs.
The British Government also had a say regarding how the money was to be
spent.

Holman got the other State Premiers together and demanded to know what
the Federal Government was going to do. Fisher agreed to approach
Downing Street. He offered to guarantee the loan. That was the first
entry by the Commonwealth into State finances.

The British Chancellor of the Exchequer refused to find any money for
the States, but agreed to advance £18 millions to the Commonwealth for
war purposes. Fisher accepted, and then offered the money to the States
for urgent public works.

Holman insisted on New South Wales preserving the right to raise lts own
money. London said we should only operate through the Commonwealth.
Throughout the war there was a running fight, with the New South Wales
Government trying to preserve its right to borrow its own money. The way
was already being prepared for the Loan Council.

As the Commonwealth sent more men to Egypt, and later to Gallipoli and
France, the cost of the war continued to mount. In 1915 the Commonwealth
invaded the field of income taxation for the first time. By present day

{p. 26} standards the rate was microscopic. But even the threat of a tax
of 3d. in the £ caused a panic. In the first year it was estimated that
it would raise £4,000,000. At the same time, the taxpayers were assured
that it was to be only a temporary wartime measure. No patriot should
object. Men were dying on Gallipoli. Those who stayed home should not
object to a temporary tax.

Thus the Federal income tax was first levied by a Labor Government. In
the following year, the first Entertainments Tax was passed. The Hughes
Government followed up with a Wartime Profits tax, with special levies
on bachelors and widowers who had not enlisted for active service.

What with increased land taxes, and steep increases in death duties, the
Federal Government was right in the taxation business by the time the
war ended. But it was still not finding sufficient to pay for the war as
it went. When London said that it could no longer lend sufflcient money
to meet war needs, the question of raising money inside Australia was
raised. That gave Denison Miller, Governor of the Commonwealth Bank, his
big chance.

State Governments had always raised a certain amount of money from the
private banks and the Government Savings Bank by the issue of Treasury
Bills, which were really Government I.O.U.s. They were regarded as
forward advances against receipts from taxes. But no State Government
had floated a loan by selling bonds to the public.

Denison Miller first gave the Fisher Government an overdraft to meet
urgent Treasury needs. That in itself was a bold stroke from a bank that
was not yet properly on its feet. Miller realised quickly that the war
provided the Commonwealth Bank with the opportunity to secure a monopoly
of Government business, which after all was the biggest in the land. The
Army wanted money to buy horses to equip the Light Horse Brigade.
Denison Miller found it without demur. Wherever the troops went, there
was an agency of the Commonwealth Bank. All were handed Commonwealth
Bank passbooks. Their surplus pay went into Denison Miller's Bank.

In 1915 the Fisher Government launched its first War Loan. The
Commonwealth Bank handled it. Instead of the old semi-secret methods of
borrowing money, Denison Miller conducted his War Loan campaigns with
ballyhoo. There were rallies in Martin Place with brass bands,
actresses, V.C. heroes and politician speakers. The money came flowing in.

The London underwriters had charged the Governments up to £3 on every
£100 raised for brokerage, underwriting and advertising. Denison Miller
did it for 5/7d. per £100. In the process, he succeeded in badly denting
London's reputation as a source of finance.

One important factor was overlooked. As more money was raised, more
money was spent inside the country, and that created a wave of money
prosperity. It meant that prices of goods went higher, profits became
greater and there was more money available for the next War Loan. It was
a kind of endless money chain. More and more money was being pumped into
circulation. No one worried then about Inflation. No one complained about

{p. 27} the value going out of the sovereign. Few realised that there
was a process of depreciation in all values. Of course, everyone
complained about the increase in the cost of living. Most people agreed
that war had to be paid for, so accepted inflation.

In addition to conducting the War Loan appeals, the Commonwealth Bank
also financed the Wheat Pools, the acquisition of the wool crop, and the
pooling of metals for the war. It was in Big Business. Denison Miller
each day was gathering up more and more power for himself. He seemed to
be well on the way to his objective of making the Commonwealth Bank one
of the greatest in the world. He was also well on the way to taking over
the financing of government itself.

His boast was that he could do everything in the world of finance,
because he was backed by the entire resources of the Commonwealth. He
always talked in terms of the aggregate national wealth as being the
amount of the Commonwealth Bank's reserves. He was Empire-building in a
big way. He financed the wool growers, the wheat farmers, the
orchardists and the soldiers, and it was his proud boast that he never
once failed them. But he was doing it all by inflation.

By the end of the war the Commonwealth was spending £80 millions a year
to keep it going. They had promised every soldier a war gratuity. They
also promised to provide them with homes after the war was over. One
banker admitted that two-hirds of the money found its way back into the
banking system inside Australia. The private banks themselves made
subscriptions, and advances to their clients, which enabled them to
subscribe to the War Loans. In all, over £250 millions were raised in
four years, which was much more than the States had spent on public
works during the previous century. The Commonwealth Bank did all that
without having a penny capital of its own.

It was in 1916 that Denison Miller gave the Hughes Government the most
dramatic illustration of his real power. Hughes was in London. The
Government was having trouble with the overseas shipping interests. They
were trying to squeeze the Government for increased freights. Hughes
decided to do something about it himself. He employed an agent who
secretly got an option on 30 ships. He had twenty-four hours in which to
clinch the deal. The combine was out to beat him. Hughes sent a cable to
his Treasurer, W. G. Higgs, "Make available in London tomorrow morning
at 10 £3,000,000." There were no details. Higgs had no time to summon
Cabinet, Parliament was not informed. He sent for Denison Miller and
asked if he could have the money. Miller cabled the Commonwealth Bank in
London to make the money available to Hughes. That was how the
Commonwealth Shipping Line started.

So Australia financed the First World War by inflation. Money was
available whenever it was required. The Commonwealth Bank made handsome
profits. It found just on £500 millions for the various pools. The price
of wool and wheat soared. Never was the country more prosperous. There

{p. 28} was much talk of action against wartime profiteers, but nothing
much was done bout it. Everyone believed they were on the gravy-train.
Big businessmen made emotional speeches about the glorious dead, and in
private gloated over their own bank balances. Had the war continued, the
inflation would have continued, too. In fact, it did for a while. Then
came the terrible aftermath. That left the one big question. Why could
they not do in peace, what they had done in war?

Battle of the Government Savings Banks

HUMAN NATURE, with its caprices, its flaws, its prejudices and its more
desirable qualities, has always played a major role in the world of
government and politics. Ambition and jealousy too often come to the
surface. They not only affect the professional politician. They also
often motivate the senior public servant. Petty differences can cause
major upheavals in government. Prestige and face are factors that only
too often overshadow all other considerations.

They even invaded the banking world. Thhe Commonwealth Bank was always
conscious of the fact that it was the "new boy" in its early days.
Denison Miller was grasping for more and more power. He was encouraged
by Hughes, who was a Unificationist rather than a Federalist. Both aimed
at supreme banking power for the Commonwealth.

In their path stood the six State Savings Banks. They had weathered the
Bank Smash of 1893. They were all sound financial institutions. They
were institutions of the people. They encouraged thrift. They were all
operating at a profit. At the same time they were of great assistance to
the State governments.

When the Fisher Government passed its Commonwealth Bank Bill provision
was made for a Commonwealth Savings Bank. One of the immediate problems
was that most of it potential customers already had their money in the
State Savings Banks. There were just on 1 million depositors in the six
State Banks, and they had accumulated just on £50 millions. How could
the new bank get its hands on all that money?

Denison Miller argued that if he had that £50 millions in the
Commonwealth Bank, he would have all the banking that he required for
his new bank. He persuaded Fisher to call a conference of State
Premiers, which was attended by McGowen for New South Wales. Fisher put
up the proposition that the Commonwealth should take over

{p. 29} the State Government Savings Bank forthwith. In return they
offered to lend the States any money made available from loan money
outstanding at the time of the transfer, which might be redeemed by the
borrower. They also proposed that the State Governments should have
first call on three-quarters of the money available for investment from
deposits made in that State.

The State Premiers immediately jibbed. They said they were in business;
and that the Commonwealth should not invade their field of operations.
lt should confine its attention to general banking and leave the Savings
Banks to the States, which had managed them successfully. They made a
counter-offer to lend the Commonwealth money to start its operations in
the non-competitive field.

Fisher refused the compromise. Then four of the States said they would
accept the Commonwealth proposal if they were given an equitable share
in the management of the new Commonwealth Bank. McGowen agreed that he
would transfer the Government Savings Bank if the decisions of the 1909
Labor Conference put forward by King O'Malley and Holman were accepted
by the Commonwealth. But Denison Miller had no intention of allowing
either King O'Malley or Holman tell him how he should run his bank.
Already the forces of future combat were organising themselves.

The conference broke up without finding any solution. Fisher told
Denison Miller to go ahead and start his Commonwealth Savings Bank. Then
came the next obstacle. From the start the State Savings Banks had been
Post Office Banks. Apart from their head offices and principal branches,
they also operated through the Post Office, which of course, prior to
Federation, had been a State department. The Commonwealth now told the
States that they could no longer use the Post Offices. They had to make
arrangements elsewhere.

The Government Savings Bank in N.S.W. was ready for the new competition.
It was the big show. The Commonwealth started in business in January,
1913 but, at the beginning, made very little impact on the older
established business. Right from the start it was a fight. The
Commonwealth was out to be cock of the walk. The State was defending
what it had built up over the years. The Government Savings Bank was
under the control of a Board of three Commissioners - President W. H.
O'Malley Wood, and Commissioners H. D. Hall and Mr. Davies. O'Malley
Wood was a banker of the old school, who had no intention of
surrendering his baby without a fight. Neither had he any intention of
taking a back seat. He would fight political interference from within
the State, and was just as determined to fight it from Melbourne.

Tasmania was the first to surrender. It handed over its Savings Bank
business without a struggle. Its problem was housing the bank outside
the Post Office. The Commonwealth had an elaborate formula full of
promises. But there were two other Savings Banks in that State operating
on the trustee principle, who retained their independence.

{p. 30} The Government Savings Bank of New South Wales instead of
retreating went after new business. It had a monopoly of one very
important field. That was the School Bank. Children could bank as little
as a penny. They were given a regular Savings Bank passbook. They could
withdraw at will. The idea was not only to teach them thrift, but also
the process of banking. When they left school, the money was transferred
to the regular Savings Bank. The Commonwealth Savings Bank could not get
access to the schools, which were under State supervision. The
Government Savings Bank was also paying higher interest than the
Commonwealth. It was up to 4 per cent., while the Commonwealth offered a
maximum of 3 per cent. up to a maximum of £300.

The States were still anxious to get rid of the new competitor. At a
Premiers' Conference, held in Melbourne in 1914, the State Governments
offered a compromise. They proposed that Denison Miller should abandon
the Savings Bank branch of his business. In return they offered to
transact all their general business with the Commonwealth Bank. The
Liberal Prime Minister, Joseph Cook, agreed to the proposal. But it was
held up by the Labor Opposition, led by Andrew Fisher, who always backed
up his protege. In his policy speech for the 1914 elections, Fisher
pledged that the Labor Party would continue the Commonwealth Savings
Bank, and that a Labor Government would press for an amalgamation of
State and Commonwealth Savings Banks. Denison Miller promised his
support. The Liberals announced that they would prefer the Premiers'
proposal, to abandon the Commonwealth Savings Bank.

Fisher defeated Cook, but the fight was still not over. Holman for one
was not going to give away the Government Savings Bank. He introduced a
Bill to amalgamate the Government Savings Bank with the original Savings
Bank of New South Wales, believing that the combination would give them
greater strength to fight the Commonwealth.

Fisher amended the Commonwealth Bank Act to give Denison Miller power to
amalgamate with other banks, and even gave the Bank the power to
increase its capital if necessary. Fisher accused the Liberals of trying
to kill the Commonwealth Savings Bank. He then announced that an
agreement had been made to take over the Government Savings Bank of West
Australia. But the deal did not go through. The Commonwealth had to wait
another 17 years until the Depression before getting its hands on to the
West Australian institution.

During the War, Denison Miller pushed the Commonwealth Savings Bank
everywhere he could. Every soldier was offered facilities for opening an
account. It even provided the troops with loans when a transport ship
was torpedoed. Denison Miller lost no opportunity to establish goodwill
and push his institution, but he had to wait until after the end of the
First World War for his next step forward. Fisher had been such an
ardent advocate of the Commonwealth Bank, and the Fisher tradition was
so strong in Queensland,

{p. 31} that it was not surprising to find that State accepting Denison
Miller's sugar-coated purgative.

In December, 1920 it was announced that the Commonwealth Savings Bank
was to take over the whole of the business of the Queensland Government
Savings Bank. It was a great coup for Denison Miller. E. G. Theodore,
who had succeeded T. J. Ryan as Queensland Premier, also agreed that the
Queensland Government would in future transact all its business with the
Commonwealth Bank. That meant that more than a quarter-of-a-million
savings bank accounts were transferred to the Commonwealth Bank. Very
generously the Commonwealth agreed to find jobs for the staff, and lend
the State Government up to 70 per cent. on any increased deposits it
might receive. Theodore had fallen into Denison Miller's trap. Denison
Miller now had a monopoly of savings bank business in the third largest
State.

He was still not satisfied. He had his eyes on the Government Savings
Bank of New South Wales, and State Savings Bank of Victoria. It was at
that period that I became Treasurer in the Storey Government,
responsible for Government financial policy. Overtures were made to me
to agree to a similar arrangement as had been made by E. G. Theodore. I
refused. I pointed out that such a proposition would deprive this State
of an essential service. The Government Savings Bank of New South Wales
had a splendid record. In 1920 it had advanced £8 millions to the
Government in stocks and bonds. There was always the lag in income tax
collections when the Treasurer needed money urgently to meet wages and
salaries. The Government Savings Bank helped with advances against
future collections.

In 1920 we had a minor post-war recession. There was a drought. Prices
had fallen from wartime levels. There were many unemployed. It was then
that I had raised the first internal loan for local needs, instead of
going to the London money market. We raised the money to build
Parramatta Road and other urgent public works. The Government Savings
Bank had been one of the principal contributors. It had also advanced
£2,000,000 to help needy farmers and settlers. It had found £3 millions
for home building. It made a profit of £104,000 for the year. So my
reply to Denison Miller was that I dld not propose to abandon such a
strong prop to the State. Much as I admired his energy and his vision, I
was not prepared to hand over an instrument by which the State
Government could be destroyed. I was not a Unificationist. I believed in
the Federal system.

At the same time I refused to transfer the State Government's accounts
from the Bank of New South Wales and the Commercial Banking Company of
Sydney, where they had always been. Again, I did not trust the
intentions of the Commonwealth. I was afraid that once they got their
hands on our finances they could crush us. While I did not trust the
private banks, I still felt that it was sound defence strategy to play
one against the other.

At the same time, I told O'Malley Wood that he could go right ahead and
establish his Rural Bank, which he had been advocating for a long while.
He rushed the opportunity. There was considerable propaganda against

{p, 32} accepting farmers' accounts. They were too risky. There were too
many farmers going bankrupt. We ignored the propaganda. Within three
months the Rural Bank was operating 100 branches, mostly in the country.
It opened current accounts, drawn on by cheque books as used by the
private banks. It also accepted fixed deposits, and dealt in State
bonds. It gave overdrafts and discounted bills.

The other private banks accepted the new idea quite philosophically, but
Denison Miller was quite satisfied that we were out to smash his bank.
It was a most interesting situation. Both Denison Miller and O'Malley
Wood regarded the struggle as a tussle for personal supremacy. Neither
would give an inch. That suited me, as it enabled us to keep the
Government Savings Bank keen and alert after new business.

But the blow that really hurt Denison Miller and the Commonwealth more
than any other was the announcement that the Government Savings Bank
proposed to build magnificent new premises on the extension of Martin
Place. Up to that time the Government Savings Bank had its headquarters
in Martin Place next to the Commercial Travellers Building, in the area
now occupied by the Hotel Australia extension. There was a plan to push
Martin Place through to Macquarie Street with a large civic square at
the top. We resumed all the land from the Sun Office, then in
Castlereagh Street, to Hunter Street for the Bank Commissioners, but we
struck trouble in getting the City Council to go ahead with the Moore
Street extension scheme.

When Jim Dooley became Premier I took the matter into Cabinet, and they
agreed to allow me to proceed with the new bank building, whether the
extension went through or not. The foundation stones were laid on March
12th, 1922, one by Premier Dooley, the second by the President of the
Bank, O'Malley Wood, and the third by myself as Treasurer. Each weighed
seven tons and was of polished trachyte.

It was to be the finest bank building in Australia and large enough to
accommodate both the Savings Bank and the Rural Bank business for many
years to come. The architects were Ross and Rowe. It ran from
Castlereagh to Elizabeth Street, and contained nine acres of floor
space. It was a concrete building, with the lower floors faced in
polished Australian trachyte, and the higher floors faced with a million
ceramic bricks, the first of their kind in Australia. It took one
hundred thousand tons of cement. The plan provided for a tower on top,
giving a total height of over 200 ft., but the City Council rejected the
tower idea.

The foundation stones were laid just prior to the 1922 elections, and T.
R. Bavin issued a statement that the foundation stones were phony, and
that the bank would never be built. Jim Dooley brushed Bavin aside, and
told him he knew as much about foundations as he did about politics.
Denison Miller was on the platform, and O'Malley Wood didn't forget to
tell the audience that the Government Savings Bank was conducting over a
million transactions each year in its existing premises.

Dooley promised that the bank would become one of the greatest in the
world. That was stealing Denison Miller's thunder with a vengeance. "May
this stone last for a thousand years of peace, unity, happiness and
prosperity for New South Wales," declared Jim. Denison Miller politely
applauded.

But it was a challenge that the Commonwealth Bank did not intend to
ignore. The stage was being set for the real battle nine years later.
The Commonwealth already had its plan to capture both the Government
Savings Bank and its new head office.

33 The Liquidation of W. M. Hughes

THE WHIRLIGIG OF AUSTRALIAN politics has rarely thrown together two such
dissimilar characters as those of Stanley Melbourne Bruce and Dr. Earle
Christmas Grafton Page. On the surface they had nothing in common. Yet
they combined together to form one of the most determined anti-Labor
Governments this country has had. They not only preached Conservatism,
they practised it.

With the First World War over and won, William Morris Hughes had served
his purpose. He could never be a dyed-in-the-wool Conservative. He was
too much the individualist, who wanted to dominate, not take orders. He
had his personal triumph in Paris when the Treaty of Versailles was
being drafted. He had tormented the Big Four - Lloyd George of England,
Woodrow Wilson of the United States, Clemenceau of France, and Orlando
of Italy. He had fought for White Australia. He had opposed the
Japanese. But he had also antagonised the financiers who are in the
background of all such international conferences. They decided that he
was not a man to be trusted.

Hughes had been given his £25,000, to which London interests had
contributed through the shipping and insurance companies. But they had
no real voice in his Government. Sir Joseph Cook was an amiable though
negative leader of the old Liberal section. There were still too many in
the Hughes team who had come up in the Labor Party.

London capital had always dominated Australian finance and business.
Despite Federation the Colonial system had remained intact. Tribute was
levied by way of interest on Government loans and dividends from
pastoral, mining, banking, insurance and industrial investments, as well
as from imports. Hughes had done much to destroy the old idea that this
country was dependent on the City of London. He had used the
Commonwealth Bank to finance the war. He had threatened to smash the
shipping ring with

{p. 34} the Commonwealth Line. He had taken charge of wool, zinc and
other metals, and had fixed their prices. He had even dared to pit
himself against Whitehall's most trusted diplomats. He had insisted on
Australia sharing the phosphate deposits in Nauru. He refused to
conciliate the Japanese. In short, he had become a menace.

But where could they get someone to succeed him? They didn't want anyone
with a Labor background. That was in order during the war, when
investments didn't matter, and survival was then the only consideration.
But now they wanted someone who would put the workers in their places.
The unions were becoming too powerful. There had been too much
conciliation. There was the threat of a 44-hour week. The private banks
were losing ground, so they needed someone steeped in the traditions of
British Conservatism.

They found him in Stanley Melbourne Bruce. It was almost as if he was
one of their own. He had been captain of Church of England Grammar
School in Melbourne, and had gone to England to complete his education
at Cambridge University in 1904. He had graduated there after rowing in
the Oxford-Cambridge boat race. He had been called to the Bar in
England, but was sufficiently wealthy not to have to depend upon the law
for a crust. When war broke out he enlisted as an officer in the British
Army, serving with great distinction on Gallipoli and in France. He was
wounded on two occasions, getting both-British and French decorations,
and was invalided out of the Army in 1917.

He then decided to return to Australia to look around for a career. He
was 34. His family was interested in a softgoods firm in Flinders Lane,
and Bruce was admitted as a junior partner. But he had no great liking
for business. Had he remained in England, he would probably have gone
into the Commons as a Conservative. So why not enter Australian politics?

He was shrewd enough to engage the services of a trained journalist, who
persuaded Bruce that the best way would be to adopt a liberal policy. So
Bruce made a speech in favor of employee-employer partnership in
industry, announcing a form of profit-sharing. The journalist saw to it
that it was given a good run in the Melbourne Age, then the most
powerful political paper in the Commonwealth.

In 1918 Bruce nominated for selection as a Nationalistl for Flinders, a
Conservative blue-ribbon seat. To his surprise he won the endorsement.
Dt. He didn't realise how powerful were the interests who were already
working for him.

His entry into the Federal Parliament was most unimpressive. He had the
affected accents of the English University graduate. At times he even
wore spats. His clothes came from Savile Row. His favorite theme was
"Our Great Empire." There were times when he could have stepped right
out of a Wodehouse novel. But at that stage he knew nothing about
politics, and had all his speeches written for him. One story he told us
at several Premiers' Conferences about his entry into the field was
about a questioner at one of

{p. 35} his first meetings. He tossed up a curly one. Bruce stammered,
but didn't have a clue. The question was repeated, with a "Don't you
know the answer?" To which Bruce replied, "No, old chappie, I don't. Do
you?" He seemed to think that very clever, but we became very tired of it.

He went into Parliament claiming to be a great Hughes admirer. He
praised him extravagantly when the Peace Treaty was before Parliament.
But the clouds were banking up on Hughes' horizon. There were repeated
threats of revolt. The conspirators were whispering in the back rooms of
Parliament House, Melbourne. No one suspected the very elegant Stanley
Melbourne Bruce of being involved in such underground work.

By the end of December, 1921 there had been many major changes. Sir
Joseph Cook had gone to London as High Commissioner. Forrest, a captious
critic, had died on the way to the House of Lords. Then came an
ultimatum from within the Government Party for more changes. Walter
Massy Greene, Member for Richmond, had become the chief negotiator. He
was close to the Collins House group. After serving as Government Whip,
he had become Minister for Customs, but was not satisfied.

So Hughes was forced to effect drastic changes in his Cabinet. George
Pearce lost his Defence portfolio to Massy Greene and was shunted into
Home and Territories. But the biggest shock was the announcement that
Hughes had appointed S. M. Bruce as his Treasurer in place of Cook.
Hughes thought that he could treat Bruce with contempt, as he didn't
know anything about politics, and Hughes knew everything that there was
to be known. At the same time Hughes thought he would be placating
London. After all, Bruce was a "hee-haw Johnny" of the old school tie,
and Hughes didn't believe that he would get anywhere.

Meanwhile, there was still another new face in the Federal Parliament.
It belonged to a man who was always in a hurry, but who Hughes also
didn't think would ever get anywhere. Dr. Earle Page, with a brilliant
medical career already in his bag, as well as war service, returned to
his home town of Grafton to launch the New States Movement. Instead of
making Grafton a new capital, it had sent Page to Melbourne as Member
for Cowper. Hughes didn't want new States. By this time he had become a
Unificationist. He was backing referenda to obtain more Federal powers.
He refused to take the New Staters seriously. His comments were so acid
that he didn't realise just how deeply they were being resented, and how
dear was the price he was destined to pay for them.

Meanwhile, the New Staters were linking up in N.S.W. with Beeby, Ley and
other city critics of the Nationalist machine to form the Progressive
Party. On several occasions they threatened to turn Fuller out of
office. l offered to help them do it, and make Bruxner the new Premier.
At the last minute, they squibbed the offer and voted for Fuller. Dr.
Page had formed the Country Party and became its first leader. He was
full of plans. He had a formula for every occasion. He was ready to dash
them off like prescriptions. His political enemies had no chance of
catching up with him, because

{p. 36} before they could he had already started on a new path. That
happened with New States as soon as he became leader of a new Federal
Party. Hughes could expend all his irony, all his vituperative
imagination, all his colorful phrases, but the bustling doctor had
already disappeared in a new direction.

Hughes went to the country at the end of 1922, and spent considerable
time attacking the Country Party as a breakaway. There was more than a
suspicion that he was being egged on by Massy Greene and other country
Nationalist members who were afraid of the appeal Page was making to the
cockies. There was still trouble over the wartime wheat pools. The
graziers were still waiting for the wool pool, Bawra, to be wound up.
Returned soldiers settled on the land were hit by drought and falling
prices. The Country Party capitalised on them all. Hughes went to the
country with 38 in his party, which he said was not sufficient to carry
on government effectively. Hughes abandoned Bendigo and ran for North
Sydney, a blue-ribbon North Shore certainty. The Country Party attacked
his flank.

Page fought a clever campaign. When the numbers went up for the new
Parliament, it was found that he had returned with a party of 14, Hughes
had 31 Nationalists, there was an Independent Nationalist from Western
Australia and the Labor Party had 28.

Five of the twelve Cabinet Ministers were beaten. Massy Greene was
replaced in Richmond by Roley Green, a one-legged returned soldier
member of the Country Party. Postmaster-General Poynton, Trade and
Customs Minister Rodgers, Vice-President of the Executive Council Earle
and Assistant Minister Hector Lamond were amongst the slain.

Page had the balance of power and proceeded to use it. He served an
ultimatum. He demanded half the portfolios and at the same time said
that Hughes must not be in the new Cabinet. There were strong rumors
that Page also wanted to be Prime Minister. Hughes retired to his
cottage at Sassafras to plan his strategy. He denied that he would
retire from politics.

First alternative mentioned was the name of W. A. Watt, who had acted as
Prime Minister while Hughes was at the Peace Conference. But Hughes
leaked the story that Watt was opposed to Canberra and would not leave
Melbourne. He had been off-side with Hughes and had dropped out of
Cabinet. Page sounded him out, but Watt couldn't get the numbers.

Bruce gave a pledge of loyalty to Hughes. "Where he goes, I go,"
declared Bruce. He said that he would not serve under any other Prime
Minister. None was so staunch or fervent in his pledge. Of course, if
Hughes retired, that might be a different matter.

The Nationalists assembled in Melbourne in the middle of January, 1923.
They passed a unanimous vote of confidence in Hughes. They appointed
managers to confer with the Country Party. The delegation was headed by
Hughes and Bruce. The Country Party managers were Page, W. G. Gibson
(Deputy-Leader) and P. G. Stewart.

Page not only said that the Country Party would not support or join a
Hughes Government but would not serve in a Cabinet in which he was a
member. The discussions dragged on for days around that central point.
The Country Party was tough in its demands. Although it had a party of
only 14, it asked for 7 out of 12 portfolios. Alternatively, it
suggested that it would be satisfied with 5, if Page could be Prime
Minister. Negotiations had dragged on for more than a fortnight. They
then threatened to break down. Hughes could not give the
Governor-General an undertaking that he could carry on the government of
the country. It looked like another appeal to the people. The
Nationalists passed a resolution that they would not accept any deal
which required Hughes to retire. The door was slammed temporarily in
Page's face.

But he had found new allies inside the Nationalist Party. Most powerful
was H. E. Pratten, Member for Martin. Pratten was a master printer who
had started out by hawking calendars, and then had set up in business
printing them. He had helped to organise the Chamber of Manufactures. He
was a High Protectionist. He represented the manufacturers and was
personally ambitious. Hughes had ignored him. Pratten wanted to
eliminate the former Labor influence in the Government. He wanted
straight-out Conservatives only. It was Pratten who had delivered the
panegyric on Hughes. One reporter next day asked if it was wrapped in a
crown of thorns.

Hughes then made a tactical blunder. He said that he would be prepared
to stand down if the Nationalists and the Country Party could evolve a
policy that would satisfy both parties. The new members didn't want
another election. They included J. G. Latham, Member for Kooyong, who
had been at the Peace Conference with Hughes, and George Maxwell, a
blind barrister, both of whom were anti-Labor and anti-Hughes.

Pratten then moved that a new delegation not to include Hughes should be
elected to meet the Country Party. For the first time Bruce voted
against his leader. Pratten had persuaded him that the time had come to
change. The amendment was defeated by 25 to 14, but Hughes realised that
the numbers were up against him. He could count on no more than 20 to
remain with him.

Hughes then decided to submit, believing that Bruce could not hold them
together. So he told the party that he proposed to tender his
resignation to the Governor-General, Lord Forster, and advised that
Bruce should be asked to form a Government. Bruce merely said he would
do it in the interests of unity and Australia. He said he had a
sleepless night.

George Pearce proposed that they should meet Parliament and throw the
onus on the Country Party. Maxwell and Pratten both had intended to move
that Hughes be deposed as leader. Senator Millen told Hughes that he
should resign without further delay in the cause of unity.

Hughes said that the party must come first. He made a dignified exit. He
still believed that Bruce would hand back the leadership when the
ferment died down.

Bruce met Page, but insisted on becoming Prime Minister. A compromise
was arranged with Page as Deputy Prime Minister and Treasurer. The
Country Party received five portfolios to six to be held by the
Nationalists.

{p. 38} Patten became third in seniority with Trades and Customs in
recognition of services rendered. Senator Pearce was the only former
member of the Labor Party to survive. Pearce went to his old mate and
told him he had been invited to join the new Cabinet. He asked what he
should do. "You can b ......... well do what you have already made up
your mind to do," replied Hughes tersely.

The new team had taken charge. The Hughes era was over. The Bruce-Page
era had started.

The City of London for more than two hundred years dominated the
finacial affairs of the world. It had mastered the technique of the
management of money. London was the exchange hub of the world. With the
Bank of England, Lloyds of London, the great investment brokers, the
underwriters, insurance combine, and its shipping trusts, it was able to
gather together the intricate strands of the world's most efficient
money machine. Most countries paid their tribute in the form of
dividends, interest and premiums. The sun indeed never set on the
far-flung dependencies of the City of London.

 From the time I first came into contact with the system as Treasurer of
the then sovereign State of New South Wales, I had many opportunities to
study the machine in actual operation. One could not help but admire its
expert handling of the smallest details of a deal. At the same time, it
was impossible to ignore the inescapable conclusion that it was
leech-like in its methods.

It was the City of London that had established what was known as the
mercantile System out of the industrial revolution. The Victorian era
had been one of great commercial expansion. With that rare genius for
political invention, Gladstone, Disraeli and other British statesmen
sought a substitute for the old system of Crown Colonies. They found it
in the British Empire. Their formula was to hand to the colonies the
right to govern themselves, providing they did not break the financial
nexus with the City of London.

The City of London provided all the capital required for the development
of the colonies. The City controlled the ships, the wool and wheat
exchanges, the insurance houses and all the other machinery of trade and
commerce. Self-government for the colonies did not mean financial
independence. Just as the Medici Family had been the money-lenders of
the Middle Ages, so that their family emblem of the three golden balls
became the signpost of the pawn shop, so did the frock-coated gentlemen,
who worked in the City, become the money-lenders of the Empire.

It was still the day of the country manors, the ducal estates, the hunt
clubs and the stately London hide-outs of the aristocracy. They clipped
their coupons each quarter and cashed them for their interest on loans
raised for "poor colonies." They collected dividend cheques from
companies operating in places they couldn't even locate on the map.

The Old Lady of Threadneedle Street, as they called the Bank of Engand,
presided over the financial dynasty of the Empire. It was supported

{p. 39} by the Big Five, the major private banks. If a government in the
Dominions or the colonies wanted to raise money, it had to go through
approved channels. The financial world was divided into zones of
influence. The Houses of Nivison, Rothschild, Barings and Morgan,
Grenfell, all had their respective rights. If a government in the
colonies wanted to raise money, it could only approach one firm. It had
to meet a rigidly controlled scale of underwriting fees. It had to
accept the conditions and the interest rates dictated by its London
representatives. Every Government had its London agents, who were
actually agents for the British investors. There was no room for
argument. It was a case of taking it or leaving it. It was useless to
try another source. The City had its own underground communication
system. It was left to the underwriters to divide up the spoil. They
simply produced the clearing house.

In addition there were the big mortgage companies, who had invested in
colonial estates, handled colonial primary produce and advanced money to
colonial settlers. They were closely allied to the banks. They
specialised in mortgages. As they invariably reserved the right to
handle all the produce as well, they perfected a form of tied business
that left no loopholes for the client. Usually the banks and the
mortgage companies had interlocking directorates, who specialised in
colonial business.

So, in Australia, the graziers, the farmers, as well as most of the
import houses, the principal mining companies as well as banks,
insurance companies and shipping, all led directly back to the City of
London. That had been the complete picture when Australia entered the
First World War. All our railways, our power plants, our school
buildings and even our police courts and gaols had been built with money
supplied by the City of London. We were a debtor nation. The bondholders
never permitted us to forget it.

But during the First World War the centre of gravity changed slightly.
War finance is always inflationary. That is the only way it is possible
to pay for war. It is a non-productive enterprise. So money is pumped
into circulation for which there is no corresponding build-up of assets.
When the war is over the debt remains, but there is nothing to show for
it on the books. It has been dissipated in cannon fodder, in keeping the
army in the field and in paying for the havoc generally. So overseas
investments in war are not regarded as a good risk.

After war, there is invariably a depreciation of the currency. The
quickest way to balance the war debt is to depreciate the real value of
money. So values rise in terms of nominal currency. That was the
borrow-boom cycle of the First World War and the peace that followed.

The City of London came out of the war with the problem of the peace
still to be won. Germany, the defeated nation, was supposed to be
burdened with reparations that would make her pay the price of defeat.
Actually Germany had no intention of paying her reparations and
liquidated them as qulckly as possible by a planned, wholesale inflation
that destroyed the value of German currency. So the Money Machine had
many problems on its

{p. 40} hands. In particular there was the problem of Imperial finance.
During the war it had got out of hand. Because war loans were not
regarded as a good risk the City had refused from the outbreak of war to
underwrite Dominion loans. The colonies were told that they should
finance their own war requirements.

In Australia the war had been financed by the then newly established
Commonwealth Bank. It had found all the money to keep the armies abroad,
and also to finance the producers at home. It had financed the
Commonwealth Shipping Line deal for Hughes. Denison Miller had gone to
London after the war had finished and had thrown a great fright into the
banking world by calmly telling a big bankers' dinner that the wealth of
Australia represented six times the arnount of money that had been
borrowed, and that the Bank could meet every demand because it had the
entire capital of the country behind it. The Bank had found £350
millions for war purposes.

A deputation of unemployed waited on him after he arrived back from
London at the head office of the Commonwealth Bank in Martin Place,
Sydney. He was asked whether his bank would be prepared to raise another
£350 million for productive purposes. He replied that not only was his
bank able to do it, but would be happy to do it.

Such statements as these caused a near panic in the City of London. If
the Dominions were going to become independent of the City of London,
then the entire financial structure would collapse. The urgent problem
was to find ways and means of re-establishing the financial supremacy
that had been lost during the war.

The City was again ready to lend to the overseas dependencies. But it
had to meet a changed set of circumstances. If London was to retain the
monopoly of finance, it had to deal with such upstart competition as
that threatened by Denison Miller. Canada, South Africa and other
Dominions were causing a similar amount of concern.

Basically it was a problem of banking. Some formula had to be devised
which would enable such local institutions as the Commonwealth Bank of
Australia to be drawn into the City of London's net. The financial
experts studied the problem deeply. Out of their deliberations emerged
the plan to centralise the control of all banking throughout the Empire
by channeling it directly into the supervision of the Bank of England.

The Bank of England was to become the super Bankers' Bank. The
Commonwealth Bank of Australia was to be responsible for the local
administration of Bank of England policy. It was to be the junior
Bankers' Bank. The first step was to take control of the Note Issue
Department away from the Treasury and hand it over to the Commonwealth
Bank, as was the case in Britain. The Commonwealth Bank thus obtained a
monopoly over the note issue. and if this could in turn be controlled
the effective currency pool of the country could be operated like a
bathroom tap, to be either allowed to run free or turned off entirely.

The Bank of England took up the idea of Empire control most
enthusiastically. It was even decided to aim at a World Bank, to be run
by the League

{p. 41} of Nations, which would control the credit of the world. The
grand idea was that one single Board of Directors would make the
decisions which would determine the economic policy of the world. The
bankers were to be the supreme rulers. Naturally, the Governor of the
Bank of England expected to be at the apex of the system.

If, for example, the Bank of England could control thc Commonwealth Bank
of Australia there should be no impediment in the way of controlling the
Government of the country as well. The Genoa Economic Conference in 1922
took up the idea of this grand form of central banking, and extended its
approval.

Sir Denison Miller, foundation Governor of the Commonwealth Bank, died
on June 6th, 1923, shortly after the Bruce-Page Government took office.
He was succeeded by J. J. Garvan. a senior officer of the Mutual Life
and Citizens' Assurance Co. Ltd. The death of Miller removed at a
critical moment the one man capable of defending the citadel of
Australian financial independence. His vanity, as well as his ability,
would have assured a stout defence.

Shortly after the Bruce-Page Government assumed office, the British
Government called an Imperial Conference. Bruce did not require any
urging to go. It was the summit of his ambition to sit down at a
Parliament of Empire in Number 10 Downing Street. He was much more
English than the English. He could understand their feelings towards the
colonies.

British diplomacy reaches its highest level when it comes to handling
visitors. Whether it is a Coronation, a Royal funeral, a visiting
monarch, a trade union delegation from the Soviet, or an Imperial
Conference, the diplomats know precisely how to handle everything.
During the war they had handled Hughes and Holman. They had "duchessed"
them. Northcliffe had looked after Hughes with plenty of publicity. His
passion was speechmaking. It had been satisfied to the limit. Holman
wanted culture. He got it.

With Bruce it was different. He wanted atmosphere. So they set up a
dinner at The Ritz. It was a glittering occasion when all the Orders
were worn. The guests were carefully chosen. At the head of the table
was Lord Glendyne, of the House of Nivison, the Government's
underwriters. There were directors of all the leading banks, insurance
companies and pastoral firms with interests in Australia. It was
supposed to represent the cream of Anglo-Australia relations. By that
they meant the financial set-up. They talked about what a noble record
Australia had as a borrowing nation. The chairman, who also represented
one of the Big Five, expressed the hope that Australia's fine tradition
for honorable dealing would be maintained in the future as in the past.
Mr. Bruce didn't object to such a slur on Australia. It was a grand
occasion. Mr. Bruce departed fully convinced that he was a great Empire
Builder.

But the real work was performed inside the Imperial Conference.
Discussions revolved around the future of the Empire as an economic
unit. The matter of banking was raised. It was agreed that a Committee
should

{p. 42} be appointed to investigate the problems of Empire Exchange. Sir
Charles Addis was made chairman of the Committee. He was a Director of
the Bank of England and the President of the Institute of Bankers. He
was also Vice-Chairman of the Bank for International Settlements, and
appeared on every important banking committee of that period. It was
perhaps also only incidental that Sir Charles happened to be a Director
of the Peninsular and Oriental Steam Navigation (P. & O.) Line and of
Indian and Chinese banking financial and railway companies. He was just
the man for the job ahead.

The way was now clear for the Bank of England to take over. Bruce had
received his sealed orders.

6 Decay of Democracy

THE BRUCE-PAGE GOVERNMENT introduced into this country the idea that the
best form of government for a Conservative party was one in which the
machinery was handed over to a multitude of Boards. These suited the
philosophy and outlook of Prime Minister Stanley Melbourne Bruce, who
had been brought up to enter law and commerce, rather than politics. He
had the idea that the right people to run the government of the country
were business leaders and experts. He could put them on his Boards. They
were not public servants, as they still retained their own interests.

Bruce could see no point in the Gettysburg Address, in which Lincoln had
defined true Democracy. He didn't really believe that the people were
fit to govern themselves. Neither did he believe that some of his own
Cabinet Ministers were fit to run any kind of business. He much
preferred to look for the people to run the country in the Union Club,
Sydney, or the Melbourne Club. They were his kind of people. Bankers,
men of commerce, lawyers, accountants - they were the ideal managers.
Bruce was one of the first exponents of the Managerial State. He
revelled in creating new boards. Most of them are still with us. Bruce
was a great admirer of Lord Melbourne, who was Queen Victoria's favorite
Prime Minister. Melbourne's idea was that the best government was the
one that did the least possible amount of work itself. Bruce patterned
himself on Melbourne.

When we met him at Premiers' Conferences, he often boasted that he
always had a clean desk. He didn't believe in studying files. Chifley
loved the paper work of government, Bruce avoided it as the plague. The
Prime Minister's office did little work in those days apart from
attending to the

{p. 43} social engagements. All the heavy work was loaded on to the
Treasury, under Sir Earle Page. Bruce was the dilettante, yet he could
be a real martinet. He believed that his inferiors should be kept in
their rightful place. At Premiers' Conferences the senior public
servants were kept at a respectful distance. There was never the
slightest doubt as to who was the boss.

Bruce argued that as Prime Minister he should delegate responsibility.

He proceeded to do just that. Much of it went to the boards. The note
issue went to the Note Issue Board. The tariff was fixed by a Tariff
Board. There was a Fruit Board. A Film Censorship Board. A Repatriation
Board. A War Service Homes Board. An Air Board. A Military Board.

He inherited some of the Boards from Hughes, who had found that they
provided a very easy way of by-passing Parliamentary control. Others
Bruce created himself. Soon he had around him all kinds of business
advisers who were not dependent upon the Government as their employer.
The members of these Boards were almost entirely free of Ministerial
control. It was so easy to appoint a prominent party supporter as a
Government nominee on a Board and then leave everything to him. After
all, the Government was supposed to represent precisely those interests.
So why not leave it to them?

Responsible government in which Parliament is the supreme authority was
being undermined. Previously Cabinet Ministers had to do the work. They
had to answer for everything under their control. Under Bruce, the
Minister could only promise to consult the appropriate Board. Democracy
was forgotten. With the rapid rise of the Labor Party, the Conservatives
believed that it had become decadent anyway. Mussolini was busy
expounding that theory in Italy, and there were many secret admirers of
Mussolini here. The idea of a Corporate State with the trade unions
reverting to the old guild system seemed to be a most attractive
proposition. Bruce was the Man of Property. He had a profound respect
for the business methods of York St., Sydney, and Flinders Lane,
Melbourne. Even more he respected the institutions of Whitehall and the
City of London. So when he had a problem to solve, he invariably asked
himself what they would do if they had a similar problem.

On his return from London, he was under an obligation to do something
about the Commonwealth Bank. The Economic Conference had decided to
bring the Dominion banks under the control of the Bank of England. The
idea of a world-wide system of central banks was the core of the plan.
The British Government had set up a Currency and Exchange Commission to
work out the details. It comprised Lord Cunliffe, Governor of the Bank
of England, Lord Inchcape, Chairman of the P. & O. Shipping Line, R. W.
Jeans, of the Bank of Australasia, Sir Charles Addis, of the Bank of
England, Sir John Cadbury, Secretary to the Treasury, and R. H. Goschen,
Chairman of the Bankers' Clearing Committee.

The Committee had recommended a reduction in the amount of credit. It
urged a form of deflation. It had intimated that Government borrowing
should cease at the earliest possible moment. It said that credit expansion

{p. 44} was threatening Britain's national solvency. Cheap money and the
increase in the note issue were undermining the commercial fabric of the
country. They said that gold currency should not be used again. Instead
the gold reserve should be used as a basis for the note issue.

That was the plan as approved in London. Bruce thoroughly agreed with
it. He was not going to argue with such eminent men of finance and
business. They were his kind. The only problem was to find a formula.
That was where Dr. Page entered the picture. It didn't take him long to
work one out. The quickest way to control credit in Australia was
through the Commonwealth Bank. Why not make it into a central bank on
the Bank of England model? Why not hand over to it control of credit and
currency? Then it could adopt all the decisions of the Cunliffe
Commission. But it had to have the right kind of control of the
Commonwealth Bank. It so happened that when Sir Denison Miller (he had
been knighted for his war work in 1920) died in June, 1923, he left a
magnificent monument behind him.

Bruce decided that the quickest way to ensure the right kind of policy
in the Commonwealth Bank was to set up a Commonwealth Bank Board. He
assigned the task to Page. On the Board would be placed the right kind
of managers - men who understood the Conservative philosophy and who
would tune in to London. The Bill was introduced into the Federal
Parliament by Dr. Page in June, 1924. He said that its primary purpose
was to make the Commonwealth Bank a central bank.

The 1924 Act provided that the Commonwealth Bank should be managed by a
Board of directors. The Governor of the Bank and the Secretary of the
Treasury were to be members of the Board. Then there were to be two
representatives of commerce, two from primary industry and two from
finance or industry. The latter were not to be employees of a private bank.

The Bruce-Page Government tried to make certain of retaining political
control by providing that the directors would be appointed for a maximum
of seven years, with one director falling out each year. Two of the
directors in the original draft were supposed to have special knowledge
of currency matters. But where they were to be obtained was not very
clear. These two directors, with the Governor and the Secretary of the
Treasury, were to be a kind of Inner Board. The plan was dropped before
the Bill went through Parliament. f

So the Commonwealth Bank was being handed over to Big Business. It was
to be under the control of squatters and business magnates. It was a
safe bet that they had never used the Commonwealth Bank. Dr. Page
stressed the fact that it was to be a central bank. It had to be the
clearing house for the other banks. There was also the suggestion that
they should deposit a percentage of their deposits with it as special
reserves.

The Labor Party, under Matt Charlton, immediately pointed out that they
were altering the entire conception of the Commonwealth Bank. It had

{p. 45} started out as a People's Bank. The Bruce-Page Government was
converting it into a Banker's Bank. Page said that there was no
compulsion about the amount of funds to be held in the new central bank,
but pointed out that the Bank of England held all the cash reserves of
the British banks. He hoped that the Commonwealth Bank would do the same.

The Note Issue was the key to central bank control. Whoever controlled
the Note Issue to some extent controlled the private banks. The Note
Issue had been placed in charge of the Treasury by the Fisher
Government. The first Commonwealth Bank notes had been called Fisher's
Flimsies by the Liberals, who predicted that they would soon become
worthless. In 1920 the Hughes Government had placed the Note Issue under
a Note Board, with provision that they were payable on demand at the
Commonwealth Bank. The Labor Party didn't object because under the
original King O'Malley Bank Plan the Commonwealth Bank was to become a
Bank of Issue.

The 1924 Act provided that the Note Issue should be handed over to the
new Commonwealth Bank Board. That was in accordance with the plan
drafted in London. It meant that the control of all finance was being
rapidly taken over by the new Bank Board. The key to the situation was
to be in the hands of the men appointed by the Bruce-Page Govermnent. No
longer could the Bank Governor promise to find money for public works as
Denison Miller had found it. Had the Commonwealth Bank Board been in
existence from the beginning there would have been no Transcontinental
Railway Line and no Commonwealth Shipping Line.

The Labor Party attacked the Bruce-Page plan for a Commonwealth Bank
Board in strength. Charlton suggested that instead of a Board, the Bank
should employ financial experts. He was opening the way for the
economists and professors, who were to come later. But he was
particularly caustic about Bruce's adoration of Government Boards. He
said that Ministers should retain full responsibility for the
administration of their departments. "We should get back to responsible
Government, and the work involved in the acceptance of Cabinet
portfolios should be done by Ministers, who in their turn should be
responsible to Parliament," said Charlton.

That idea was rapidly becoming old-fashioned. Parliament was becoming a
rubber stamp for decisions made by boards and experts. The members of
the Bank Board were to receive £50 a sitting, which Charlton said was
exorbitant.

The Bill also provided for a board of advice in each State. That would
enable the Government to put more party supporters in key positions
where they could supervise the Commonwealth Bank in every detail. Later
it was found that the main board was not disposed to allow any of its
powers to be handed over to State boards.

Frank Anstey poured out a bitter invective and sarcasm. Turning to Page,
he said, "It may be the voice of Jacob, but it is the hand of Esau."

Speeches made by the Liberals when Fisher had introduced the
Commonwealth Bank Bill were revived. Sir Joseph Cook had then referred

{p. 46} to the proposal as a "piece of Dead Sea fruit." Bert Lazzarini
another keen student of finance, issued a warning that deflation would
end in Depression. He said that if money power was allowed to bring
about deflation, it would be the greatest crime that any financial
autocracy could commit. He was the one man in the National Parliament
who was able to anticipate the perils that were ahead of this country.
He said that 50 per cent. deflation meant doubling the value of the
private banks' assets. He recalled what had happened after the
Napoleonic Wars, and the American Civil War. He reminded the House of
the story of the American greenbacks when the Gold Standard was revived
after the Civil War.

Dr. Maloney, of Melbourne, and Frank Brennan took up the attack. But
Bruce had the numbers and was not very worried about logic or
vituperation. Dr. Page talked grandly about providing a "symmetrical and
well-balanced system of central banking." A Tasmanian member said that
the irony of the existing financial position was that while Australia
had produced £600 millions in gold from her soil, she still owed more
than £900 millions and the banks were still unable to finance the
current wool clip.

The exchange rate was another problem. In 1922 the rate to England had
reached £3. That had caused much indignation. No one would have believed
that under the proposed Bank Board it would go up to £30 and then remain
at £25 until this day.

In 1924 the position was in fact the reverse. London was having trouble
paying for our exports. Gold was actually being imported into Australia.
Some of it came from the United States. During 1925 the Australian banks
imported more than £10 millions in gold from New York and South Africa.

When the Bank Bill reached the Senate there was unexpected opposition
from Senator Massy Greene, who had been appointed to that chamber after
losing Richmond to fill a casual vacancy. Massy Greene was afraid that
Labor might capture the Bank Board and use the new powers being given to
it by Bruce to nationalise all banking. He said the Bruce Government
might unconsciously be paving the way for Socialisation.

But he need not have been perturbed. The Bank Board was established and
did the very job that Bruce wanted it to do. It virtually handed over
control of central banking to the Bank of England. That was the
beginning of deflation that was to end in Depression in this country.
Our banking machinery became interlocked with the real rulers of the
central bank of Threadneedle Street. Their blunders became its blunders.
The Australian people were destined to pay the terrible penalty.

{p. 152} Writing on the Wall

TWO POLITICAL LEADERS received the shock of their lives on October 10th,
1929 when the numbers started going up in the tally rooms giving the
results of the election that was destined to shape both the destiny of
the Labor Party and Australia.

One was Prime Minister Bruce, who had entered the campaign supremely
confident of the outcome. He was more concerned about the liquidation of
W. M. Hughes, Walter Marks and his own party rebels than fighting his
Labor opponents.

The other was the Labor leader, J. H. Scullin, who still regarded
politics as a forum providing him with an opportunity to display his
elocutionary talents rather than as a very grim business in which the
contenders staked their prestige and party existence every time they
were called upon to shape up to an important problem.

Neither Bruce nor Scullin had the faintest conception of what was ahead
of this country. Neither realised that Australia was heading for its
most terrible Depression. In October, 1929 they were still concerned
with the mechanics of arbitration instead of facing up to the
fundamental problem of who was going to run this country - the
international bankers or the people.

The leaders were so immersed in the bitter clash of personalities that
had led up to the crisis within the Nationalist Government that they had
no time to examine the alarming drift in economic conditions generally.

The coal lock-out had by that time lasted eight months. Thousands of
men, women and children in the Newcastle-Maitland area were becoming
gaunt, tattered and bitter. Unemployment throughout the country had
already reached 13.1 per cent., with the largest percentage in the
manufacturing industries at 18.6 per cent., because of the flood of
imports due to Bruce's policy of resisting increased protection.

Building was in the doldrums. Carpenters, bricklayers, plasterers,
plumbers and ironworkers had already been seriously affected by the
timber workers' fight for the 44-hour week. ...

{p. 153} The note issue was falling for the first time. Public works
were being reduced and the Loan Council reduced the amount of money
available to the States. Although wheat prices were falling, wool prices
were still holding well and the actual sales were better than for the
1926 season. But there were more wheat farmers than graziers and they
were closer to the breadline. ...

Then, on October 12, the numbers started going up. It was a landslide to
Labor. Hughes romped home in North Sydney. Marks held Wentworth, while
Maxwell and other Nationalist rebels withstood the official machine
successfully. ...

{p. 156} Theodore had been Premier and Treasurer of Queensland. ...

{p. 158} Theodore was a natural for Treasurer. He had given the
impression that he knew all the answers. He had the right contacts. He
read books on economics and could bandy all the phrases. ...

{p. 160} Scullin's new Cabinet did not have much time in which to enjoy
the honeymoon after their accession to office. As the big ministerial
cars whisked them back from the Governor-General's residence to meet
their staffs, most of them were pre-occupied with the problems ahead.

It was just dawning on them that they would be called on to handle a
major economic crisis. Industry had never been more dislocated than in
the final year of the Bruce-Page regime. One in every eight persons was
unemployed. The wheat farmers were talking bankruptcy. The Commonwealth
Treasury was sick and the outlook for loan money from London was bleak.

But the immediate problem was to re-open the coalmines. Theodore had
given his promise that the mines would be re-opened within fourteen days
of the elections. That made October 26th the deadline. ...

{p. 162} Finance was giving the Government much concern. Money was
needed for public works, the price of wool had fallen, the harvest was
bad and generally the Commonwealth was facing stern times. But Scullin
assured the people, through the Governor-General: "These causes,
important as they are in our economic life, are seasonal in character.
There is no reason to believe that a continuance of these conditions is
likely and there should be a return to normal prosperity in the coming
years."

Those few words were destined to be recalled with great bitterness
before another year had expired.

Although Scullin had a big majority in the House of Representatives, he
only had minority representation in the Senate. There the Nationalists
still outnumbered him by 30 to 6. Some of his followers already wanted
him to precipitate a double dissolution. They argued that their
opponents were off balance and would never be less prepared. By having
highly controversial legislation rejected quickly, the Government could
go to the people again in six months. Government without real power did
not appeal to some of his followers. But the majority of those in the
Cabinet were completely satisfied. They didn't want to take unnecessary
risks of losing their new positions. ...

{p. 172} 26 How the Gold Standard Slipped

HOW WAS THE SCULLIN GOVERNMENT going to handle the Commonwealth Bank
Board? That was the big query in the mind of every prominent member of
the Labor Party after the 1929 elections.

The Labor Party platform was emphatic on the point. Many, many speeches
had been made about the action of the Bruce-Page Government in setting
up the Bank Board. Labor still believed that the work of Sir Denison
Miller had been deliberately sabotaged. The Bank Board was composed of
nominees of Mr. Bruce and Dr. Page. They were completely out of step
with the Labor Party.

During the elections Ted Riley, Senr., Member for South Sydney, had
stated that the first action of a Labor Government would be to post
notices of dismissal to the Bank Board. While that was stretching a
point, the general feeling was that the Bank Board was doomed.

The real test was going to be who was going to control the finances of
Australia - the Commonwealth Bank Board or the Government, through the
Treasury.

With the Depression mounting in violent disturbance of every known
standard, it was the issue that was going to settle the fate of the
Government. It was also the ideal issue on which a double dissolution
could be sought.

{p. 173} At that stage a move to amend the Commonwealth Bank Act to
abolish the Bank Board would have been a challenge to the
Nationalist-controlled Senate. If they had thrown it out, there was the
ideal question on which to go to the country.

With the Senate loaded against them by 30 to 6, Scullin and Theodore
should have realised that they were living on borrowed time. The quicker
the showdown, the better their prospects. But they hedged.

The chairman of the Commonwealth Bank Board was Sir Robert Gibson, a
dour Scot, brought up in the iron foundries of Glasgow, who had migrated
to Australia in 1891, where he later established his own foundry and
manufacturing company. As he prospered, he took a keen interest in
Victorian politics.

By every instinct, he had little time for the Labor Party. He was candid
to the point of brutality. He believed in Capitalism with a capital C.
He was the typical ironmaster, very much like one of Galsworthy's
Forsyte clan.

In Melbourne he became prominent as an authority on management. He was
made chairman of a Commonwealth Commission on Economics, which was
intended to be a Commission of Economy. So when Dr. Page steered through
the Commonwealth Bank Board Bill in 1924 it was not surprising to find
Sir Robert Gibson among those invited to take their seats on the board,
to uphold the principles of Nationalism. At one time he was a director
of the Union Trustee Company, National Mutual Life Association, the
Chamber of Manufactures Insurance Company, and Robert Harper & Co. Most
of them had provided solid support for S. M. Bruce. In addition, Bruce
put him on the board of C.O.R.

He was also president of the Victorian Chamber of Manufactures, and for
a term president of the Associated Chambers of Australia. In 1926 he had
succeeded J. J. Garvan as chairman of the board of the Commonwealth Bank
and in that capacity had received Sir Ernest Harvey, Comptroller of the
Bank of England, during his visit to Australia in 1927.

By 1929 Sir Robert Gibson was thoroughly steeped in the management of
the Commonwealth Bank and had much more say in its control than the
governor, E. C. Riddle.

Now, with his friend S. M. Bruce out of politics, how was Sir Robert
Gibson going to handle the situation? Would he retreat and leave it to
the Labor Socialists? Or would he remain and fight? The Scotsman decided
to stick it out.

But, instead of waiting for Scullin and Theodore to tell him what he
should do, Gibson decided to take the initiative. He believed that he
was the expert and they were the amateurs. He wanted them to do what he
wanted. He wanted to give the orders. It was going to be his great
mission in life to save the country from the Red Raggers.

Sir Robert Gibson wasted little time in seeking Scullin and Theodore. He
realised that he had to win the first round. So he went armed with a
highly abstruse problem. It was whether Australia should do something
about the

{p. 174} gold standard. The British Government had been losing gold to
America, France and Germany. It had lost £40 millions in one year. So it
had given the Bank of England power to acquire any amount in excess of
£10,000.

The problem was whether Australia should abandon the gold standard.
Theoretically every Australian banknote could be cashed for gold at the
head office of the Commonwealth Bank.

The gold standard had been first introduced in England after the
Napoleonic Wars in 1816. Previously there had been a silver pound.
During the 19th century Britain's supremacy as a commercial nation had
been established on its willingness to convert its currency into gold
and to balance its exchanges with gold.

In 1914 the gold standard had to be suspended both in Britain and
Australia to stop a run on the gold reserves. People started hoarding
gold and refusing banknotes. Throughout the war sovereigns and
half-sovereigns became scarce and banknotes took their place. The wallet
replaced the sovereign case which used to hang on the watch chain.

Then in 1925 Britain had re-established the gold standard in both
Britain and Australia. That meant that the free export of gold was again
permitted. Actually it had another effect. It was deflationary.

During the First World War the value of the £ had declined to 13/6. All
the loans and the increase in the volume of money had caused quick
inflation. That had been accelerated after the war. By a proclamation
dated 24th April, 1925 the Bruce-Page Government had re-established the
gold standard. The £ automatically became worth a sovereign again. The
loans increased in value. In 1924 the Commonwealth Bank had over £56
millions in banknotes in circulation. By 1929 the note issue had
declined to £42 millions. The private banks had exchanged their
banknotes for gold to that extent.

At the same time sovereigns were being sold for 32/- in Shanghai and
Hong Kong, so that the speculators were doing handsomely, exchanging
Australian notes for gold and then selling the gold abroad.

By 1929 the private banks held £23 millions in gold while the note issue
department of the Commonwealth Bank held a further £22 millions. This
threat of the export of gold was the problem that Sir Robert Gibson
decided to place before Scullin and Theodore.

In Britain, the Labor Chancellor of the Exchequer, Mr. Philip Snowden,
had been faced with a similar proposition from Mr. Montagu Norman,
Governor of the Bank of England. It had tried to stem the flow of gold
out of the country by increasing its bank rate. In Australia the
exchange rate at one stage had gone from 5/- per £100 to £4 per £100, so
that the wheat farmers found they were losing 3d. on every bushel of wheat.

Mr. Philip Snowden, who was regarded as one of the British Labor Party's
brightest intellects, found the problem of understanding the gold
standard as explained by Mr. Norman so abstruse that he told the House
of Commons: "I have no doubt that all this seems as clear as mud to you,
but it is the simplest form in which I can express the position. I have
tried to explain to you as best I could the reason for the recent
increase in the bank rate. I do not profess to understand this question."

If Snowden could not understand the Bank of England's submission, what
hope had Scullin and Theodore when it was put forward by Sir Robert Gibson?

Finally Sir Robert Gibson wrote a long, involved letter to the
Government. He started off by saying that "For some very considerable
time past the board has viewed with much disquietude the financial
position, more especially as regarding the situation respecting the
availability of Australian credits in London." That was to be the
keynote for many further demands on the Government by Sir Robert Gibson.

He told the Government it could only meet demands in London by the sale
of exports or from borrowing in London. They had not only to pay for
imports but also interest and loans as well. The balance had to be "kept
on an even keel."

Then Sir Robert told the sad story about droughts, lower world prices,
drop in wool values, all leading to a loss in London funds. The exchange
rate had been increased to 35/- per cent. But the banks could not meet
the demand for funds. In addition, it would be cheaper to export gold
than pay exchange.

Importers had been cashing Australian notes for gold and shipping the
gold to London instead of paying exchange. The Bank Board had exhausted
every means of dealing with the situation. Then, ominously, he told the
Government:

"It has therefore become necessary to lay the matter before your
Government as you may deem it wise to take and, at the same time, offer
your Government such advice as seems to the Board wise."

Still, the Board thought that any action that could involve leaving the
gold standard should be taken as a last recourse, because "such measure
would reflect most adversely against Australia in respect of overseas
credit."

So Sir Robert proposed that the Commonwealth Bank should take control of
all gold in Australia, no matter by whom it was held. The bank was to be
the only authority.

Then, characteristically, Sir Robert finished by saying that as the
Government would want to give the matter its grave consideration and
that "needless to say any desire on your part to discuss these matters
with myself or my board can be arranged for at any time mutually
convenient."

Sir Robert had already decided that he was top dog. The Government could
wait on him. That was to be his future attitude.

Theodore rushed into the House with an amending Commonwealth Bank Bill.
He said the bill was drafted to meet the wishes of Sir Robert Gibson and
the Bank Board. Sir Robert had told him of one large firm that had been
planning to export £2 millions in gold. He could not understand how the
newspapers knew all about what the Government proposed. The leak had not

{p. 176} come from him. But even London newspapers had commented in
advance approving the bill. Sir Robert had him in the bag.

Dr. Page didn't like the idea of the Treasurer having any say. He wanted
a select committee. Everyone should work harder and produce more goods
for export. Tariffs were too high. Wages had to come down. The exchange
rate should be increased. Page accused Theodore of going further towards
making the Commonwealth Bank a bankers' bank than he had done. The gibe
hurt. In England it was still possible to cash up to £1600 for gold.
Page was afraid that the bill might prove a blow against the gold
standard. To keep the gold standard was a "matter of life and death" to
the Country Party. Free exchange was as vital to them as the air they
breathed, adding: "We must maintain our gold standard at all costs. The
gold standard has been defined as one in which, for all practical
purposes, all kinds of money are converted into full-bodied gold money
and is freely exportable."

Dick Crouch, Member for Corangamite, challenged the gold standard
theory. He said it had cost the Commonwealth £33 added to every £100 it
had borrowed before 1925. Other countries were digging up gold, while
America was burying it in underground vaults. London had smaller gold
reserves than Paris. "Gunner" Yates said the whole thing was a trick. He
said the Government should deal with the money jugglers if it wanted to
halt the depression.

Theodore brought in amendments drafted by the Commonwealth Bank, one of
which provided that the Treasurer could act only on the recommendation
of the Commonwealth Bank Board. The Bill then went through Parliament.

Sir Robert Gibson had won the first round. The Government had carried
out his directive. From that moment he knew that he had the upper hand.
He had the measure of both Scullin and Theodore.

27 They Tried to Kill Family Endowment in N.S.W.

THE HISTORY OF SOCIAL SERVICES in this country follows a consistent
pattern. From the time of Old Age Pensions, on through Widows' Pensions,
Workers' Compensation to Family Endowment the story has always been the
same. When they were first proposed by a Labor leader, our opponents
have always raised the cry that while such ideas might be socially
desirable the country could not afford them.

The Conservatives then produce tables showing how much the reforms

{p. 177} will cost. They will cripple industry. The Budget cannot afford
them. They will lead to immoral practices. They will even undermine
family life. How often did we hear those arguments?

Then, when the measures were forced through in face of bitter
opposition, what happened when the political wheel of fortune turned and
those who opposed them became the Government? Were they abolished
overnight? Time after time I have seen it happen. A Labor Government
brought in a great social reform. The anti-Labor forces fulminated
against it. Then when they became the Government they kept it on the
Statute Book. They did not have the moral courage to take away from the
people the benefits they had learned to value. Our opponents realised
that it would be political suicide. What would happen to a Government
now that even suggested withholding Old Age Pensions?

So the story of social reforms has been one of Labor pioneering, opening
up new social responsibilities, and then follows a period where no new
reforms are made while Labor's opponents are in office, but at the same
time the gains are consolidated and become woven for all time into the
fabric of our social life.

So it was with Family Endowment. Its introduction in 1927 caused a major
political upheaval. I was described as an extremist, a wild
revolutionary and a Bolshevik. One of my critics even suggested that I
was inviting married women to break their marriage sacrament to bring
into the world offspring outside the union so they could collect
endowment on them.

Then when Bavin became Premier in 1927 we waited to see what would
happen. We knew that the pressure was on. But every woman who had
collected an endowment cheque was standing guard over her rights. She
was not going to abandon it lightly. We had provided that the money had
to be paid direct to the mother. It was her own to spend as she wished.
It did not go into the family envelope.

With the Depression getting worse, endowment became the chief means of
finding ready money in thousands of homes. For that reason some
Nationalists wanted to abolish it. They said it was encouraging men to
remain stubborn in resisting demands for wage reductions. But even the
Bavin Government hesitated to take the final step of abolition. Instead,
it tried to pare down wages and whittle away benefits.

Mr. Justice Piddington was the tiger in its path. He had very decided
views on endowment. He had virtually fathered it. He did not regard it
as being part of the man's wages.

He regarded it as the mother's inalienable right and refused to take it
into the basic wage structure.

For many years the State basic wage had been computed on the basis of
the needs of a man, wife and two children. One of the compromises made
in 1927 when we introduced Endowment was that, in future, the basis was
to be a man and his wife without children.

{p. 184} 29 Over the Tariff Wall

AUSTRALIAN INDUSTRIES owe everything to a Labor Government. For years
they had been battling for recognition. They badly needed protection.
But they were always up against overseas competition. The importers had
the edge on the locals.

There was a deeply ingrained prejudice against the Australian-made
article. There had been a howl of anguish in 1927 when I had one out of
my way to help the Australian Industries Protection League. I had also

{p. 186} issued an instruction that Australian manufacturers should
receive a 10 per cent. margin of preference on all government contracts.
We had also run a special train through the country to exhibit local
products. I didn't get any thanks for my efforts. I didn't expect any.
They said I was using it as a lever for the 44-hour week.

Most of the newspapers were affected by their big advertising space from
powerful overseas companies. The wholesale houses dominated country
trade as well as most of the city. They were largely financed by English
capital. Flinders Lane, Melbourne, and York Street, Sydney, were not
keen on fostering new competitors.

So there was propaganda that the Australian article was shoddy. It was
the thing to buy the British, Italian, German, or even the Japanese
article in preference to the locally made.

Victoria was the stronghold of protection. The A.N.A. had done a good
job. It had fanned the spark of Australian nationalism. Melbourne had
its boot factories, its sweet factory and even did well in clothing.

But Australian manufacturers had found themselves up against a brick
wall when it came to convincing Bruce or Page that they should be given
breathing space. The Big Four had keynoted the British attitude.
Australia had no right to become the home of secondary industries.

Where would Manchester and Birmingham be if Melbourne and Sydney refused
to buy their goods? Australia's place was to supply the raw materials.
It was after all, only a Crown colony growing up. It couldn't afford to
cut the painter. Let it stick to its sheep and its wheat. It could
supply Smithfield with a small quota of its meat supplies. It could even
grow dried fruits for the English plum pudding. It had the right to
compete with the Danes for a butter price. But there it should start and
finish.

Pratten had put up a real fight for the Australian manufacturer. But he
had been overwhelmed inside Cabinet by superior forces. Page had been a
last ditch Free-trader. The Country Party wanted supplies for the farmer
at the lowest possible price, while demanding the highest price for
their produce. If India could supply cottons cheaper than Surry Hills,
or Tokyo sell stockings cheaper to the farmer's wife than she could buy
them from an Australian firm, then that was good and fair. The Country
Party stood for just that.

Bruce had been an importers' man. His family background had been in the
trade. But not to make it too obvious, he had hit upon the device of the
Tariff Board. It could hear all the evidence. That meant that hearings
would bog down for months. In the meantime the importers could flood the
market. Every tariff punch was telegraphed. The Australian manufacturer
had no chance.

Then the Scullin Government was returned. It was committed to high
tariff. Scullin himself was a fanatical High Protectionist. He was
bitterly anti-Imperialist. He was a man with a mission. That mission was
to give aid comfort to the Australian manufacturer.

He had a vision of Melbourne girded by new factories, all employing

{p. 187} labor which would vote Labor. He had been steeped in the
Protectionism of David Syme, of the Melbourne Age, of Alfred Deakin and
the Australian Natives' Association. That was why he had taken the
portfolio of Minister for Industry himself. It had nothing to do with
labor relations. He was, in fact, Minister for Manufacturers.

As soon as he was sworn into office in October, 1929, he tackled the job
with enthusiasm. He was going to show the manufacturers that he was
their friend. Theodore was at his side, urging him on. Theodore had a
special list of preferred customers.

The Minister for Customs was J. E. Fenton, another Victorian, easy-going
and rather unimaginative. His assistant was Frank Forde, who was quickly
sold on the Government's policy and thoroughly enjoyed himself basking
in the smiles of satisfied industrial leaders. He had a tariff speech
about towels that he trotted out at every opportunity.

But it was Scullin who was the real architect of the new tariff policy.
His first decision was that he would no longer leave the problem of
fixing the tariff to the Australian Tariff Board. It would become a
matter for Government action. He would take full responsibility.

For three weeks he kept on the job. Later he said that he worked day and
night. On November 22nd an amending schedule was tabled in the House of
Representatives. It provided for wholesale increases of duties to be
paid on imports. High on the list were whisky, gin, tobacco,
agricultural products, groceries, textiles, clothing, metals, machinery,
petrol and motor bodies.

It was a complete New Deal for Australian industries. For the first time
they could meet overseas competition and out-price them. On December
11th there was a further instalment, with a promise of more to come.

The tariff touts descended on Canberra like a plague of locusts. Labor
members found themselves drinking in the Hotel Canberra with men whom
they had previously regarded as their mortal enemies. The politician was
fixing the rate of duty himself. There was no longer a public hearing.
So many large firms spent their time seeing who could introduce them to
a politician who mattered. Some of the private members grabbed the
opportunity. They had clients. They became unofficial tariff
consultants. They were invited to exclusive city clubs. There were
promises of donations to campaign funds. It really was an amazing
episode in Labor politics. Scullin was acting because he really believed
in protection. But around him he had men pushing the strangest kinds of
political barrows.

There were orders for new factories. Although it was generally
recognised that the Depression was on, there were many keen brains alive
to the new opportunities. The local manufacturer had his chance to get
on his feet for the first time. At the same time there was a growing
suspicion inside the Labor movement that some of the politicians were
feathering their

{p. 188} own nests. The temptation was too great. The tariff could make
a new industry and break a local firm's trade competitors.

But what really worried older hands in the Labor Party was that it was a
one-way deal. The men with whom the Scullin Government was dealing on
the tariff side, would go out one door and come in another asking for
wage reductions for their employees. They were the same people demanding
a 48-hour week instead of a 44-hour week. They wanted a lower basic
wage. They were opposed in many cases to Workers' Compensation.

While they were talking wages and conditions, they were Depressionists.
When they were talking tariff, they paraded as good Labor supporters. It
just didn't make sense. The trade unions thought they should be cut in.
They wanted reciprocity.

If a Labor Government was going to hand-feed the interests whom they
were fighting every day in the arbitration courts, then it was up to the
Government to see that they were granted some concessions. Sydney trade
unions looked to Beasley and to Theodore to see it went that way. That
was the feeling in Labor branches.

But London did not take the new Scullin moves Iying down, either. It
regarded the new tariffs as hostile acts against British trade, which
was already in a bad way. A loss of markets at that stage could be critical.

Yorkshire struck back quickly. There was a drop in wool values. The Bank
of England was quickly on Scullin's hammer. He was reminded of his
obligation to meet interest payments on their due date. The Bruce-Page
Government had made many tariff concessions to British industries,
especially in the 1925 Act. Scullin did not remind them of that.

In early 1930 the squeeze was on. Scullin was caught in a pincer
movement. As imports of overseas goods dropped, his collections from
customs duties declined. He estimated that would lose between £5
millions and £6 millions in customs revenue at a time when he was
already facing a deficit of the same amount.

If he dropped the customs barrier the country would be flooded with
foreign goods. At the same time he couldn't get any more loan money from
England. He couldn't start any more public works for the unemployed.

I was constantly urging that the Government had to fight back, or go
down. In 1925, when wool prices had fallen 10d. a Ib., at that time a
stupendous fall, I had increased wages and reduced hours. This State had
recovered.

Scullin, however, believed that it was a long-range problem. He didn't
believe in quick remedies. He told a Victorian A.L.P. conference that
his tariff would establish industries of a permanent character, and that
those industries would provide employment for all the unemployed. But
could the workers wait?

He had been told that Australia had an adverse trade balance of £90
millions of imports over exports since 1923. He proposed to balance the
trade budget at any cost. He was determined to stand up to Australia's

{p. 189} obligations abroad and meet the debts that had been piled up.
His Government would see to it that interest payments were met on their
due date.

Already the pressure was having its effect. He was still thinking in
terms of overseas borrowing and debts, instead of making a stand on the
simple proposition that the Australian people had to come first.

Yet the Sydney Water Board was being offered a loan from the United
States on terms much more attractive than could be obtained in England.
The London money market was swinging hard against the Scullin
Government. The Loan Council Agreement provided it with the means of
concentrating its attack.

Early in 1930 the Scullin Cabinet again pondered over what was happening
to its overseas funds. The tide was swinging against its hope of meeting
its overseas debts.

On April 3rd, 1930 it introduced the most drastic tariff restrictions in
Australian history. A special customs duty of 50 per cent. surcharge was
slapped on the existing duties of most items.

Then, next day, on April 4th, the Scullin Government issued an emergency
proclamation prohibiting the importation into Australia of no less than
78 items. The principal items were spirits, cigarettes, manufactured
tobacco and wireless receiving sets.

The tariff wall had gone to the sky. British importers were furious.
They regarded it as repudiation of the British Preference Act. But
Australian manufacturers were jubilant. At last they had their big
chance. They were even more delighted when they realised that they were
going to build their industries with cheap Australian labor. The
unemployment position was playing right into their hands. They could
build their factories and then staff them on a surplus labor market.
That gave them all the bargaining power.

But the Scullin Government's troubles were only just commencing. He
could not become involved in a fight with British industries without
them calling out their allies. They had many big guns trained on
Canberra. The exchange rate was raised to £5/6/3 for every £100, which
helped exporters. But the London money market was withdrawing from the
Australian field. London had already made up its mind that it didn't
think it could stand a bar of Scullin. But it was prepared to suspend
final judgment until it saw a little more of him.

Meanwhile, the Australian manufacturers were planning new futures for
themselves. They realised that Scullin was their man. They forgot that
he had been the principal designer of the Socialisation pledge at the
Brisbane conference. He was now opposed to Socialisation.

Many of the greatest industries in Australia today owe their existence
to the Scullin Tariff. Without that start they would not have been ready
for the last war. Without them this country could have been lost. The
tragedy was that they didn't appreciate the advantages they had gained.
They were to line up with the enemies of Labor, instead of supporting
the people who had done so much for them.

{p. 190} 30 The Workers Took a Beating from Bavin

THE DEPRESSION didn't really hit the average home until early in 1930.
There had been increasing unemployment throughout 1929. The miners and
timber workers had been the principal victims. But in most homes there
was only uneasiness about the future. Business was slumping. Government
leaders were talking pessimistically about the future. Employers were
harping on the necessity of reducing the costs of production.

Overseas the New York stock market was jittery. The Great Boom was over.
Prices had slumped generally. Wages were falling in almost every
country. As wages fell the price of food came down. That meant that
Australia's export income was dropping.

I still believed that this country could weather the storm if it didn't
go into a panic. High wages were the sheet anchor. If the people didn't
have money in their pockets they couldn't buy. That would mean that the
primary producers would lose their home market as well as their overseas
market. If the overseas market was falling, then it was more important
than ever to boost the home market. Unfortunately, my opponents wouldn't
see it that way.

They seemed to have one obsession. That was that this country was tied
to London. Even Scullin had fallen quickly for that propaganda. They all
overlooked the necessity of maintaining internal purchasing power. To
the Nationalists, the slump seemed the heaven-sent opportunity to serve
demands on the workers. They had the upper hand. The more unemployed
there were the easier would be their task. "Empty bellies make willing
slaves" was their slogan. Starving men could be used as strike-breakers.
By keeping up the pressure, they believed that the workers could be
forced to surrender industrial gains that had been fought hard for in
previous years.

This section didn't realise that, while the short-range effect might
give them some benefits, they were destroying their own business. Empty
purses didn't produce profits. As the workers retreated, the factory
owners, the wholesale merchants, the retail stores all suffered. More
men were thrown out of work. More pay envelopes were lost. It was like a
centrifugal force. The circles were ever widening. More and more
families became affected by,. the deadly disease.

Wives began to dread Fridays. They could no longer look forward to a
regular pay envelope. They feared the insertion of the slip that there
would be no more.

{p. 191} In early 1930 the real offensive against the workers started.
The spearhead was Thomas Rainsford Bavin, Nationalist Premier of N.S.W.
He was the typical lawyer in politics. He could be pettifogging. He was
devoid of either humor or humanity. He worked from his brief. In this
instance the brief was prepared by a powerful group of died-hard
Conservatives, who believed they had to smash trade unionism in general,
and the Sydney Trades Hall in particular.

Bavin's first move had been against Motherhood Endowment. He eliminated
the first child. That saved the employers just on £600,000 a year. They
received it back in the form of the reduction in their pay-roll tax,
which was halved. Mothers also had to submit to a quarterly means test.
If the family income exceeded a certain amount, the mother lost the
endowment until the end of the next quarter.

Next Bavin had a nasty crack at Widows' Pensions, introduced in 1927 by
the Labor Government, which I led. Again the idea was a tough means
test. Bavin didn't think that the widow should be able to earn money in
addition to her pension plus the endowment. So he took the widow's mite
from those whose income was £3 a week or more.

The Widows' Pension was no longer a right. It had become a public
charity. It was the substitute for the poor house. Instead of becoming
inmates of public institutions, the widows could live on starvation
rations in their own homes.

The offensive had only just started. In April, 1930 Bavin decided to
make his big drive against the trade unions. He declared for wholesale
wage reductions.

In the previous December, Mr. Stevens, the Treasurer, had introduced a
Budget in which he had anticipated a surplus of £20,000. He said the
crisis was only temporary. At the same time he made a big reduction in
company taxes, amounting to almost £1 million. It was all based on
prosperity. Yet within four months his leader, Mr. Bavin, was back in
the House crying a poor mouth.

Bavin hid behind the import restrictions that had been imposed by the
Scullin Government. He talked about a grave financial emergency. He said
Mr. Scullin's action in prohibiting imports had shown just how serious
the position had become. Instead of alleviating unemployment, he
predicted that the Federal Government's action would make the position
worse.

Mr. Bavin was the first to talk about repudiation and wholesale default
on the public debt. "As Mr. Scullin has said, we must meet our
obligations overseas, no matter at what cost to our Australian people,"
declared Mr. Bavin. That was to be the keynote of the next two years.
The bondholder had to have priority.

Mr. Bavin said one of the first steps must be to reduce the cost of
government in Australia. He said that any default in paying the
creditors in London would mean "the total destruction of our national
credit."

Mr. Bavin was not worried about the unemployed in New South Wales.

{p. 192} But he was desperately worried about the bondholders in London.
He disclosed that Mr. Stevens thought there would be a big deficit. Mr.
Bavin was against any increase in taxation.

The Railways were already losing at the rate of £2 millions a year. They
were carrying over one million less tons of coal, 10,000 less tons of
wool and just on half a million less tons of wheat. Passenger traffic
was also down. Of course the more unemployed there were, the less people
could afford to travel. The lockout in the mines had strangled the coal
traffic on the railways.

Mr. Bavin said the trouble was that the railway employees were only
working 44 hours, yet were paid under an award which provided for 48
hours' work per week. He estimated that he could save another £600,000 a
year if he reduced railway employees wages. The fact that most of them
were not earning much more than the basic wage did not enter into his
calculations. All that he could see was a chance to save money.

The Government had all kinds of ideas on how to save money. The 10
minutes electric train service was to be made a 20 minutes service. The
electrification of the suburban lines was to be slowed down. The Eastern
Suburbs Railways was placed in a pigeon-hole. The Quay station extension
was suspended. Mr. Cleary was busy on the job already. One of the first
steps was to take Dr. Bradfield off the Railways pay-roll. He had been
Engineer-in-Charge of City Railways as well as Engineer-in-Charge of the
Harbor Bridge. They saved over £1000 a year by eliminating his first
title. They made him the cheapest Engineer-in-Charge of a £7 million
bridge project in the world. It was a petty action. It was also unjust
to a great Australian. Bradfield was down in salary to just over £1000 a
year. His plans for Sydney's transport future were suspended. We are
paying the toll today.

Bavin was also savage against the clerical staff of the Railways. The
Railways and Tramway Officers' Association at that time had an outspoken
president in Reg Winsor, later Railways Commissioner. He didn't hesitate
when it came to putting up a scrap for his members. Stevens said that
Mr. Cleary was reviewing the hours and salaries of that particular
group. "They cannot expect to retain their present conditions," he said.
He further pointed out that they should be working 48 hours a week, the
same as skilled tradesmen who had served an apprenticeship. Winsor
didn't hesitate. He took the platform against the Government, although
threatened with instant dismissal.

The tramways were also showing a heavy loss, because of loss of
patronage. Again the Government was thinking in terms of longer hours
and lower wages.

Bavin told Parliament: "We are satisfied that our production costs-in
this State can never be brought down to a level which will enable us to
compete with the industries of other States or of other producing
countries until a 48-hour standard is reverted to as the normal working
week. That is already the standard working week under Commonwealth awards."

{p. 193} Bavin described the 44-hour week as a "ridiculous and
unnecessary handicap." Yet during the world's greatest war this country
not only mounted a major effort on a 44-hour week, but actually brought
it down to the 40-hour week in many industries.

By this time the Government was not thinking only in terms of shorter
hours. It wanted lower wages even more. Its idea was that in lieu of
working 48 hours, employers could work their employees 44 hours and take
8 per cent. off their weekly wage envelope. It was just another approach
to wage slashing.

Stevens also indicated that he favored a system of payments by results,
or a bonus system. He wanted a speed-up system. The slaves had to run
faster.

Although there was, according to him, not enough work to go around, he
still was ostensibly trying to increase the hours of those still
employed. At the same time he was trying to make those with jobs work
harder. If he was logical, that would mean even fewer jobs, and the
dismissal of many of those who responded to his bonus system plan.

At the same time, Stevens announced that the Government favored a system
of rationing of work. That meant that awards would be suspended and
employees stood down one, two, three, or even four days a week. Others
would work one week in two. They would then be paid pro rata. They would
be paid only for time actually worked.

The Industrial Commission was also to be given power to set aside
conditions in existing awards. Mr. Bavin was satisfied that the
Commission would be most sympathetic to any requests made by the employers.

Finally, he announced that the Government was considering a levy on all
wages, which would be used for the relief of unemployed through public
works with special rates of pay - lower than existing awards.

Already the idea of shifting sand from one spot to another, and then
getting a gang to shift it back again to the original spot was beginning
to form part of the industrial picture.

Bavin's idea was to set up an Economic Council, dominated by the
employers and rural industries, but with some right of representation to
trades unions. At that time he actually hoped that the A.W.U. might
assist in such a scheme. He knew that the Labor Council would have
nothing to do with it.

Mr. Bavin's idea was that half a loaf of bread was better than no bread
at all in the home. We were not prepared to accept that simple piece of
arithmetic. The fight was just starting.

By April, 1930 it was obvious that the Bavin Government was working to a
timetable. It was giving the lead to the rest of the Governments of
Australia. It had a simple formula. That was "More Work for Less Pay."
Although Mr. Bavin was the front for the legislation and chief spokesman
for all the depression talk, it was just as plain that he was not the
real driving force. We realised that there was much more behind it. He
just didn't look

{p. 194} happy. With State elections due before the end of the year, why
should he be deliberately courting trouble?

We made inquiries. We then discovered that the employers had set up
their own organisation. It was described as an Economic Council. It was
dictating to the Bavin Government. It had only one objective. That was
to take advantage of the current economic position. They had the upper
hand against the workers, and proposed to use their new-found power. The
pendulum had swung in their direction.

I read to Parliament a list of those who had assembled in the Premier's
office for a secret conference to discuss the lines that legislation
should take. That conference had drafted and endorsed the views later
presented to Parliament by Mr. Bavin calling for the return to the
48-hour week the introduction of payment by results and the rationing of
work.

Amongst those at the conference were Messrs. Jimmy McMahon, of the
Master Carriers' Association, Schwilk of the Employers' Federation,
Cuthbertson of the Shipping Owners' Association, Myhill of the Metal
Trades Association, Sir William Vicars of the Woollen Trades, Silk of
Mort's Dock, Corke of the Timber Employers' Association, Dunlop of the
Wholesale Merchants, Bennett of the Retail Traders' Association, Howie
of the Building Trades, Sevier of the Chamber of Manufactures, and York
of the Hosiery Manufacturers.

It was one of the most powerful employers' groups ever to sit in a
conference with a Premier of this State. They were in thorough agreement
on the steps to be taken.

The policy was drafted by a sub-committee including Messrs. McMahon,
Corke and Myhill. They were unrelenting opponents of arbitration. I
described them in Parliament as three of the leading agitators in the
Commonwealth.

The conference discussed the possibility of suspending all awards in
this State on the grounds of national emergency. They were also agreed
on the lengthening of the working week. There was also a proposal that
the unemployed should be put to work at nominal wages instead of being
allowed to draw the dole. The idea was that it would be called relief
work and not subject to award rates. That, of course, was a quick way to
undermine all awards.

Their one theme was that costs must be reduced. That was going to be
done by reducing wages and increasing hours. That meant a reduction in
the standard of living. They just didn't appreciate what effect that
would have on their own businesses.

Had they taken the opposite course, and tried to improve the standard of
living. they would have saved this country from the brunt of the
Depression. They were bent on destroying their chief asset - the buying
capacity of the employee s wage envelope.

One of the first measures was to suspend rural awards. That enabled the
farmers to engage labor on an unrestricted basis. The rural basic wage
providing the regulation of hours on a 44-hour basis had long been a sore

{p. 195} point with the Graziers' Association. It had brought them into
conflict with Mr. Justice Piddington. Now Mr. Bavin was giving them what
the courts had refused - immunity from wage regulation.

Under the new set-up the grazier could engage labor at will, pay any
wage he liked, and work them as many hours as they could stand. It was
going back to the bad old days of semi-slavery outback. Yet the farmers
were no better off. They were asking for more and more Government
assistance. If the people in the towns couldn't afford to buy all the
meat, butter and other commodities their families required, the farmer
had to suffer in the long run, and he did.

I challenged Bavin to go to the country immediately and submit the
proposals drafted by the Economic Council of Employers. I asked him to
produce the minutes and the draft proposals of the arbitration
sub-committee of the same council.

The coal owners had given a lead by refusing to take their case into the
court. They simply ignored the award and delivered an ultimatum to the
miners. Now the other big employer interests were thinking along similar
lines. They wanted to avoid the courts. They expected the Government to
do their dirty work for them. If a Labor Government attempted to fix
wages or hours by law, there was a howl of Socialisation. But now they
were trying to use the Bavin Government for precisely that purpose.

The Government had abdicated. The Economic Council had taken over.

When I disclosed the existence of the Economic Council, Mr. Bavin
invited the trades unions to send delegates along to a conference. They
refused. They knew that they would be wasting their time. The Economic
Council had already captured the machinery of government. The campaign
was already on. I told the A.L.P. Conference: "The employers and the
financial ring are to be completely in charge of the Grand Economic
Council. The propaganda through the newspapers will be intense. Union
will be set against union. Every possibility of creating discord in
organised Labor will be taken. The purpose of the campaign will be to
create a feeling of panic and cause a stampede."

Bavin was still looking for some means of dramatising the situation. He
wanted to convey the impression of grave national emergency. There were
already 70,000 unemployed workers in New South Wales. But that was not
sufficient.

Now, if the politicians could only be offered up as a public sacrifice
that should convince everyone that things were desperate. Bavin agreed.
The idea of politicians voluntarily reducing their own salaries should
really make people worried. After all, didn't most people regard
politicians as selfish and self-seeking?

Bavin didn't consult his own party. That would have been fatal. He would
have been amazed to find how few altruists there were in his own party.
The only way was to bring down the Bill and then throw the onus on
individual members of voting against it.

{p. 196} Seldom has the atmosphere in Macquarie Street been so gloomy.
If Bavin wanted to create a panic, he certainly did it amongst his own
followers as well as amongst the Opposition.

The Bill provided for a 15 per cent. reduction in all parliamentary
salaries, including Ministers, the Speaker, and all officers of the
House. Bavin said that in view of the financial depression, Parliament
should set an example to the rest of the community. At the same time he
disclosed that the Public Service was also going to be cut. Government
spending had to come down. The politicians were taking the water first.

The Governor alone was to be exempt. My old opponent, Admiral Sir Dudley
de Chair, had just completed his term, and his successor, Air
Vice-Marshal Sir Philip Game, was just about to leave London. It
wouldn't have done to have repudiated his agreement before he set sail.
He would not have appreciated such action. So he was an exempt person.

In addition, because the Government had no money for public works Mr.
Bavin announced that the Public Works Committee was to be disbanded. As
they were paid £2/2/0 a sitting that was another blow directed against
the pillars of Democracy in this State.

Members had been drawing £875 a year since we had increased them from
£600 in 1926. Under the Bavin bill they were to be reduced to £744. At
that time Federal politicians were living in the lap of luxury on £1000
a year, while State members considered that they were working harder and
had much more responsibility. Now they had to break the news at home
that they were going to be more than £2/10/0 a week worse off.

There was general moaning at the Parliamentary bar. Jack Baddeley
reminded Bavin that in his younger days as a politician he had supported
a move by Holman to increase Ministers' salaries, but had opposed an
increase for private members. Bavin had then argued that private members
should have private incomes, and should have some other profession as
well as that of politician.

But many members of the Nationalist Party had no other profession. They
had become professional politicians depending on the Parliamentary pay
envelope. Charlie Lazzarini pointed out that the Government would only
save £40,000 a year, whereas its alleged deficit exceeded £2 millions. A
drop in the bucket, and Charlie didn't see why he should contribute his
drop. Would doctors and lawyers be called upon to reduce their fees by
15 per cent., he asked? Charlie Davidson suggested that the bill should
be thrown under the table.

Bavin's own followers remained silent and glum. But their faces told the
story. The guillotine was introduced so that there would be only time
for brief speeches by Bavin and Stevens on the Government side. They
were taking no risks of private members expressing their depth of
feeling on the subject.

When Bavin rose, there was uproar in the Chamber. His speech

{p. 197} was a record for brevity. It ran; "I don't propose to detain
the House long." (Hear, Hears from both sides.)

Bavin tried to make himself heard above the interjections. Then without
proceeding any further, he said, "I move that the Bill be read a second
time," and then sat down.

On behalf of the Opposition, I attacked the Bill for more than an hour.
I reminded the House of the concessions given by the Government to big
business in the budget. It had remitted £2 millions to wealthy
companies. Now three months later there is a different story; "Ministers
are running around the country shrieking out like parrots 'we are
ruined.' Each morning when Ministers arrive at their offices they call
in the reporters to announce 'The State is ruined.' At a given time each
day they sign another batch of dismissal notices for another batch of
Government employees. At night they go to their local Nationalists'
branches and again utter the parrot cry 'We are ruined'," I said.

"Minister after Minister tells the people: 'We have no money, and we
will have less tomorrow. There are 70,000 unemployed; there will be
80,000 by next week, and 100,000 by Easter."

In no other State were there cries of insolvency. Queensland had a Labor
Government, the 44-hour week and was still prosperous. The treasurer had
become lost in a maze of accountancy theory. Because he had reported
finances were drifting, the Government had gone into a panic.

I described the Bill as a trick to justify general wage slashing. The
Government was using the politicians to further the general attack on
all wages. It would then be able to say that Parliament had approved the
principle and had itself set the example. The Government was doing
everything possible to destroy confidence. The credit of New South Wales
was being undermined.

Mr. Bavin in his reply was more petulant and irritable than usual, and
he was noted for his churlish outlook on life. He had directed a bitter
tirade in my direction, trembling noticeably as he spoke. He blamed it
all on the Lang Government, forgetting that he was leading a Bavin
Government.

The Government moved the gag and the Bill went through by 45 votes to
41. Tom Mutch voted with the Labor Party. It was just on midnight. The
ghosts were already walking. Members were most depressed as they packed
their papers. The depression had really hit them where it hurt most.

{p. 210} One of the great financial mysteries of all time - the Marie
Celeste of economics - is just when and how the Great Depression
started. It was like the influenza epidemic that swept the globe in
1919. That even took its toll of remote centres without known means of
contact with the rest of the world. The Depression had a similar effect.
No country was immune.

By the beginning of 1930 it had become world-wide. In Great Britain, the
Ramsay MacDonald Government had an army of almost three million
unemployed. In the United States there were more than six million
workless and it was still rising. Germany was in a bad way. Unemployment
had reached the two million mark in 1929 and was soaring higher each month.

Ramsay MacDonald had made J. H. Thomas a special Minister for
Unemployment, with veteran Socialist George Lansbury and a very
ambitious young politician in Sir Oswald Mosley to assist him. It was
not long before Mosley resigned from the Labor Party to establish the
British Fascists, and his place was taken by Major Clement Attlee.

Seeking the reason for the sudden collapse, some blamed the return to
the Gold Standard in 1925. That had resulted in a drain on gold to the
United States, which did not know how to manage its frozen assets.

Others blamed the policy of Deflation. Britain was trying to reduce the
cost of living too drastically. Deflation meant falling prices. That
meant that overseas countries got less for their produce and were unable
to meet their debts.

{p. 211} J. M. Keynes blamed the policy of credit restriction. He
pointed out in a book entitled The Economic Consequences of Mr.
Churchill that any embargo on the raising of new money retarded the
circulation of that already in existence. He was also highly critical of
the part played by the Bank of England.

Keynes indicted those managing money who had been trying to carry out a
similar policy to that advocated by the Nationalists in Australia with
this scorching comment:

"The policy of deliberately intensifying unemployment with a view to
forcing wage reductions is already partly in force, and the tragedy of
our situation lies in the fact that, from the point of view of the
advocates of the gold standard, this is economically justifiable."

Then there was the big body of informed opinion that blamed the War
settlement at the Versailles Conference. The victorious nations had
demanded reparations from Germany. After scuttling the German fleet at
Scapa Flow, Germany had to hand over all war material and then meet a
huge indemnity to be paid in marks.

Under the guiding hand of Dr. Schacht, Germany set out deliberately to
wreck the economic clauses of the Peace Treaty. It embarked upon a
programme of deliberate inflation. It was not long before the United
States was rushing in to bolster up German credit to save the country
from collapse and its surrender to Bolshevism. A new currency was
established. Then there were several attempts to iron out the
reparations problem. First there was the Young Plan. Then the Dawes
Plan. It reduced the amount to one-seventh. Germany, having lost the
war, was already well on the way to winning the peace.

Britain had made huge advances to her allies, France, Russia and Italy,
totalling £1700 millions. The fall of the Czar cancelled the Russian
debt. Neither France nor Italy could meet their debts, and as soon as
the war was over the British Government had written off half the total debt.

At the same time Britain had borrowed heavily from the United States
which had made a belated entry into the war. The full amount was £850
millions. Leading American economists were agreed that these debts were
unsound in principle. There had been several attempts at settlement. In
the beginning the interest rate had been five per cent. That was reduced
in 1923 to three per cent. But still Britain was unable to meet the
commitments in full unless she shipped out most of her gold. Philip
Snowden had protested bitterly against the settlement.

In January, 1930, an international conference was held at the Hague to
deal with the problem of war debts. Snowden, on behalf of the British
Government, announced that it would prefer the complete cancellation of
all debts and reparations. He described them as Shylock calculations but
added that while they continued Britain must demand her pound of flesh
as well. He clashed violently with the French delegate, who took
Snowden's remarks as a reflection on his national honor.

{p. 212} Still the huge transfer of funds caused by war debt payments
did have a most damaging effect on trade generally. Britain was no
longer the world's great creditor nation. The United States had emerged
as the strong arm of finance. It was taking its toll of the gold
reserves. It over-gorged itself. At the same time it did not have the
technique of money management that had been developed in England.

The next step was the creation of an international banking ring. The
Bank of England was under the mystic leadership of a shadowy figure in
Mr. Montagu Norman. He was almost unknown in financial circles when he
was first given the job in 1920. Throughout his term of managing the
world's biggest central bank, he operated with the greatest secrecy.
When he visited the United States, he invariably assumed an alias - a
favorite being that of "Professor Skinner."

Montagu Norman was a close friend of Dr. Schacht, and persuaded the
other central banks to form a Bank of International Settlements with
headquarters in Switzerland. There they formed a super-government of the
world. Many of the worst mistakes could be traced directly to their
decisions.

In order to meet her external debts, Britain decided to cut down on
imports. Her people had to go without essential food in order to pay the
war debts. So the world's markets started to contract. Food began to
stockpile. Prices toppled. In Brazil the coffee market crashed.
Australia, Canada and the Argentine could not sell their surplus wheat
or meat, Cuba found her sugar left on the wharves. Sweden could not sell
her wood pulp. Even Japan could not get rid of her silk. In Britain
there were a number of sensational stock market crashes. The Clarence
Hatry scandal rocked the Stock Exchange. Other scandals were to follow.

Then the Americans clamped down on credit. They started to call
themselves the "world's suckers." They had lent money abroad without
stint and now they were beginning to fear that all they would get back
would be a huge pile of gold which might become worthless overnight.

The loan market dried up. Sir Philip Snowden was deluged with
pessimistic reports on the situation. The British Government had
operated through the American firm of J. P. Morgan and Co. who, as its
agents, had negotiated all the American loans. Montagu Norman had very
close association with the British representatives, Morgan, Grenfell and Co.

When Morgan and Co. told Mr. Norman that there would be no more American
loans, and that they were looking for prompt settlement of outstanding
dues, there was a near-panic in Whitehall. Restrictions became the order
of the day. There were even suggestions for the abandonment of Britain's
historic tariff policy and the placing of prohibitive tariffs on all
kinds of imports.

The Bank of England became the nerve of government. Ramsay MacDonald and
his Ministers waited nervously for it to give the directions regarding
the next move. Its one line of policy was deflation. A committee set up
by the Baldwin Government had found that since the Napoleonic

{p. 213} Wars there had been alternating booms and slumps and that the
slumps had to be expected every twenty-five years.

In Canberra, the Scullin Government was getting its full impact. Wheat
which had risen to 9s 6d a bushel in 1929 had fallen to 4s 5d per
bushel. Yet the Scullin Government had promised the wheat farmers 6s 6d
a bushel as the minimum price.

Daily Sir Robert Gibson received his financial and economic despatches
from the Bank of England. These were passed on with trimmings to both
Mr. Scullin and his Treasurer, Mr. Theodore. They were told that they
could expect no further loans from Britain until the balance of payments
had improved. If they could not meet their interest payments, that would
amount to repudiation.

They were on the defensive. Latham, Page and the Nationalists, who were
relieved of the responsibility of keeping the Depression at bay, didn't
leave them alone.

At that time the total debt of the Commonwealth was £374 millions as
against the 1955 Commonwealth debt of just on £2000 millions. The amount
borrowed abroad by 1930 was £160 millions, of which £93 millions
represented war debt and £75 millions had been borrowed for public works
and other purposes. Most of the latter had been borrowed by the
Bruce-Page Government for its Migration Development programme.

Australia's war debt to Great Britain was an interesting one. In 1914
Fisher had borrowed £18 millions, to equip the first A.I.F. It was
followed by further loans after the troops had reached Gallipoli, until
it had reached just on £50 millions. Then the Bank of England had
refused any further loans, and Denison Miller raised the rest in Australia.

The rest of the Bill was owing because of charges made by the British
Government for quartering the A.I.F. in England, and on account of
provisions supplied to the troops in France. That had also totalled just
on £50 millions.

In 1921 the Australian Government had agreed to fund this debt, and pay
interest at the rate of £4 18s 4d per cent., plus a charge for funding
purposes. The Commonwealth's interest Bill abroad, including that of the
States amounted to £28 millions a year. That became the fulcrum on which
this country's economic policy started to swing.

If Australia could not sell her wool at a satisfactory price, and her
wheat was left in the silos, how could she meet this bill? How could she
satisfy her war debt? It was a kind of chain reaction. Wall Street put
the screws on London. London applied the clamps on Australia.

Australia was also represented in New York by J. P. Morgan and Co.
Before the Loan Council was formed I had found that it was possible to
break through the tight money monopoly by getting independent quotes for
loans. But the Loan Council would only deal with J. P. Morgan.

In London, the screws were applied by Lord Glendyne, of the House of
Nivison. He had been underwriting all the loans. But he was not interested

{p. 214} in dealing with the Scullin Government. He didn't regard it as
a good risk. He had had adverse reports from Australia about the
composition of the Cabinet.

So Scullin, told that he had to balance the London exchanges without any
new money, allowed himself to be drawn into the vortex. Once this
country was tied to the wheels of international exchange, the Australian
standard of living was going to be dragged down to the overseas
standard. If they had starvation in Britain this country would have
starvation.

That was how the war debts of Britain affected the Australian position.
When the United States clamped down on England, London in its turn
clamped down on the people dependent on her. Australia was well up on
the list.

Yet the amount actually owing by the Commonwealth was a mere bagatelle.
The war debts had been contracted in helping to defend Britain itself
and also America. But Ramsay MacDonald could not stand up to the titans
of finance. Neither could Scullin. They both had to carry the stigma in
the City of London of having risen to power as Labor Prime Ministers.
That made them the natural enemies of the giants of High Finance. They
were caught up in the toils. So were their people.

So far as Britain and Australia were concerned the origins and incidence
of the Depression were as much political as they were financial. The war
debts were only one of the excuses. Firms like J. P. Morgan and Co. and
Nivison just didn't like doing business with Snowden and Theodore, any
more than they had liked to do business with a man called Lang. But
neither Ramsay MacDonald nor Scullin were the kind of men who could be
relied upon to fight back. Snowden alone might have been equal to the
task. So might Theodore if he had the right backing. But their leaders
were the highly emotional types and so unstable in crisis. Both
countries were to suffer as a result.

34 Sir Otto Niemeyer's invitation to Australia

QUESTION TIME HAD PASSED uneventfully on June 19, 1930. Speaker Norman
Makin was in the chair. A Labor member wanted to know whether the
unemployed on the wallaby could draw rations in Canberra. Jack Eldridge
was curious about a reported grudge fight between Mr. Fisk (now Sir
Ernest), of the A.W.A., and Mr. H. P. Brown of the Post Office.
Postmaster-General Lyons didn't know anything about that and in those
days, Joe Lyons was not regarded as the brightest intellect of the
Cabinet. Dr.

{p. 215} Maloney wanted an Australian Legion of Honor for those
responsible for saving life, not in war but in civvies. Scullin didn't
think it necessary. Dick Keane was anxious to find out about the cost of
State Governors. There were questions about the whereabouts of the
Abrahams Bros.; The League of Nations; The Kellogg Pact and the Labor Daily.

In fact it was a typical day in Canberra. After Questions, Prime
Minister Scullin sought leave to make a short statement. Roland Green of
Richmond objected, but by 48 to five it was agreed to suspend Standing
Orders to hear what it was all about.

At that stage the rank and file of the Labor Party Caucus hadn't a clue
as to what was afoot. Scullin had told Latham. He had not told his own
party. He apparently regarded it as a simple routine matter. But the
announcement he was about to make was destined to bring about the most
serious schism in the Labor Party since Conscription.

It was generally known that the pressure was on the Government. The
financial position was bad. Sir Robert Gibson, Chairman of the
Commonwealth Bank Board, was seeing Scullin and Theodore frequently. The
Government's London bankers had also been sending out dire warnings that
Australia's credit was slipping.

Scullin's statement was short. It was couched in the usual official
jargon. He said:

"The Commonwealth representative in London has for some time been in
close consultation with the Bank of England and other financial
authorities with a view to finding a solution of the growing
difficulties of providing exchange to cover Australia's payments overseas.

"At the same time the Australian Loan Council has been in close
consultation on the same subject with the Commonwealth Bank and the
Associated Banks in Australia.

"The Government and the Banks have already taken important corrective
measures for adjusting the trade balance, and the banks have materially
assisted the Australian Governments to secure exchange on London."

Already could be seen defeatism in the Government's outlook. Instead of
asserting itself as the Government of the country, it was yielding to
its real masters - the banks. Parliament had not been told all the facts
at that stage. The High Commissioner in London was supposed to be the
go-between. But while Scullin was sending pleas to him for assistance,
Sir Robert Gibson had a direct line of communication with the Bank of
England. Yet the Bank of England was not a long term creditor.
Australian loans had never been negotiated through it. They had all been
floated independently. Questions were being asked in London whether
Australian Governments would meet their interest payments. It was
obvious that at the then existing rate of exchange, proceeds from the
sale of Australian produce would not be sufficient to meet the demands
of the bond-holders.

{p. 216} Scullin's statement continued:

"The Commonwealth Government is determined that the necessary steps
shall be taken to meet promptly all Australia's overseas obligations,
and as the Bank of England has expressed its willingness to assist
Australia to find a solution of the present difficulties, the Government
and the Bank have mutually agreed that there should be consultation in
Australia between a representative of the Bank of England, the
Commonwealth Government and the Commonwealth Bank Board.

"A representative of the Bank of England, Sir Otto Niemeyer, will
accordingly visit Australia. He left London yesterday accompanied by an
economist and an officer of the Bank of England."

That was the first time most Australians had heard the name of Sir Otto
Niemeyer. It was not to be the last. He was to become the symbol of
London Financial Imperialism. Elections were to be fought around him.
The messages passing between London and Canberra prior to his
appointment have never been divulged. They would make most interesting
reading.

Sir Otto Ernst Niemeyer was a typical product of the British Treasury
system. Educated at Oxford University, he had joined the Treasury and
had become Controller of Finance in 1922. In the same year, he was made
a member of the Financial Committee of the League of Nations and its
Chairman in 1927. He then transferred to the Bank of England and became
a Director.

Sir Otto had previous experience as a bailiff, realising on bankrupt
estates. He had been a British representative on the German Reparations
Commission. There his job had been to see how much he could get out of
Germany for the Allied Nations. It was a tough assignment.

There had in fact been some discussion regarding his background and
suitability for such a position in the House of Commons. A member of
that House had referred to correspondence between the Editor of the
London Financial News and the then Chancellor of the Exchequer, Mr.
Bonar Law. The question was whether certain Germans named Niemeyer had a
"relative occupying high position in the Treasury and married to a
German wife."

The Treasury had replied that a committee appointed by the Government
had considered the matter and had decided that it was in the national
interest that Mr. Niemeyer should continue in his job at the Treasury.
He was knighted in 1924.

Niemeyer became one of the key men in the new international banking
set-up. He was made a Director of the Bank of International Settlements
and Chairman of its Board, as well as being a Director of the Bank of
Egypt and several other international offshoots of the Bank of England.

So they were not sending out any minor official to Australia. He was a
key man. It was his job to assess the value of the collateral. Australia
was being treated as if it was a bankrupt nation, and Sir Otto was to
fulfil the role of Liquidator-in-Chief.

{p. 217} Neither Scullin nor Theodore had objected to his nomination. He
was to be given a free hand. On the face of it, all this country
required was a temporary overdraft to enable it to meet its payments to
the London bondholders. But the Bank of England, on behalf of those
bondholders, was preparing to foreclose. Sir Otto Niemeyer was to be in
charge of the liquidation of the assets.

Accompanying Sir Otto to Australia was to be an anonymous person,
described very simply by Scullin as "an economist." He turned out to be
a most important personage, Theodore Emanuel Gugenheim Gregory,
Professor of Currency and Banking at the London School of Economics. His
family name had been Guggenheimer, but like many others it had been
changed during the First World War. He had been educated in both England
and Germany, and became a Lecturer in the London School of Economics in
1913, later becoming Professor of Economics in the University of London.

I always referred to him as Professor Guggenheimer. It was a name that
lent itself admirably to use in a public meeting, and within the
following two years most Australians had heard of the Professor. He was
an authority on Gold Standard, and on Central Reserve Banking.

It is rather interesting to trace the influence of the London School of
Economics on Australian banking and political science. Dr. Coombs was a
student of the School, as have been many prominent scholastics who have
ventured into the near-political arena.

The London School of Economics was founded by Beatrice and Sidney Webb
(later Lord Passfield, Secretary of State for the Dominions in the
Ramsay MacDonald Government). It was the home of Fabian Socialism. But
the lecturers always seemed to be drawn from the International set.
Amongst the Professors at that time were Hersch Lauterpracht, Morris
Gingsberg, Hermann Finer, Frederick Rudolf Macley de Paula, Sir Henry
Herman Scloesser, Edward Westermarck, Bronislaw Malinowski and our own
Professor Guggenheimer.

In a lecture at Adelaide University after his arrival in Australia,
Professor Gregory said that all the magnificent cities and buildings
they could see around them were only an illusion.

"The real world, the world which matters in modern business is not the
actual physical structure at all. The real world which matters in
business, as in economics, is the balance sheet, which those physical
structures actually represent.

"In other words, whether we like it or not, in every state of society in
which money is used, all those concrete phenomena-farms and farmhouses,
and human beings, and buildings, and equipment of one kind or another
are in the final analysis plotted down in a balance sheet."

That was precisely what Sir Otto Niemeyer and Professor Gregory were
about to do in Australia. They were going to draw up the balance sheet.
They were going to value the assets at knock-down prices. The workers
were to be

{p. 218} assessed in terms of earning capacity. The unemployed were to
be written down in cold figures as liabilities.

They were going to reduce everything to money terms. Did Scullin and
Theodore realise just how far they were going? Probably they didn't. But
they were not left in suspense very long after the Financial Mission
arrived in Australia.

Meanwhile the Nationalists were jubilant. Scullin was doing the very
thing that Bavin and Stevens had been urging in New South Wales.

The Federal Leader of the Nationalists, Mr. Latham, rose immediately Mr.
Scullin had completed his announcement of the invitation to Sir Otto
Niemeyer and said:

"I desire only to congratulate the Prime Minister upon the action that
has been taken; and to express the hope that the results of the
consultation between the Australian financial and economic authorities
and the gentlemen who are coming here from England will be of great
benefit indeed to Australia."

It was certainly going to be of great political value to the Nationalist
Party.

Latham made the further suggestion that the Government might hold up its
central banking legislation until they could consult the visitors.
Scullin politely refused, saying that the visits had no relation to the
legislation. Latham knew better. One of Professor Gregory's first public
statements was to disclose that the Bank of England and the Bank of
France were both considering transferring their gold reserves to the
Bank of International Settlements at Basle. Mr. Norman could then meet
Dr. Schacht and other heads of reserve banks at Basle and no one would
take too much notice.

He said that he had been in New York up to the end of August 1929. Very
few people had believed him when he had predicted that a crash would
come before Christmas. But it had happened in October, 1929. The boom
had burst. There were over five million unemployed in the United States,
more than two million in the United Kingdom and three million in
Germany. There were already more than ten million unemployed throughout
the world.

He admitted that prices would have to rise. He didn't appear to have any
sound formula to achieve that end. But he was against inflation and
someone had suggested that Australia might try inflation just as Germany
had done.

That was why Professor Gregory was with Sir Otto Niemeyer. Firstly, they
wanted to make certain that British creditors would collect their
interest on due date. Secondly they wanted to make certain that
Australia would not inflate its currency.

The Scullin Government, having invited them, had to take responsibility
for their actions after their arrival. That was where the trouble
started within the Labor Party. Sir Otto Niemeyer was not the kind of
liquidator who

{p. 219} operated in silence. He believed that the quickest way to get
results was to deliver an ultimatum to the debtors. That was precisely
what he did.

But before Niemeyer and Gregory arrived in Australia another major
reverse had overtaken the Scullin Government. One of its leading figures
was under a grave cloud as a result of a Royal Commission, and had been
forced lo tender his resignation from the Ministry. If he had remained
inside Cabinet he may have proved big enough to handle the situation.
But Scullin was left to face the visitors alone. His inferiority
complex, when it came to major financial issues, began to operate. After
all the small country grocer found it difficult to think in terms of
millions instead of half-pennies. The one man in Cabinet whose mind was
always attuned to millions had to leave in a hurry.

As Treasurer of the Commonwealth, E. G. Theodore had just about reached
the summit of his ambition. He was wielding tremendous financial power.
He was mixing with the world of high finance. He was the real power
behind the Scullin Government. He was flattered when the bankers, the
economists and the brokers from the Stock Exchange deferred to his words
of wisdom on financial matters. In his own mind he was the financial
colossus of the Commonwealth.

But his political enemies believed that the colossus had feet of clay
and they were determined to topple him. He had made many enemies,
particularly in Queensland where he had the reputation of being very
clever, very ruthless, and not over-scrupulous. He was a machine
politician, and had studied the methods of Tammany Hall. He was also an
inveterate gambler and speculator, particularly in mining ventures.
While they might make him rich quick, such activities were highly
dangerous in association with a political career. The politician who
dabbles in mining deals invariably runs into trouble. Theodore was no
exception.

By the time he arrived in Sydney to take over the Dalley seat he already
had the reputation of being a very wealthy man. He bought a very large
home at Kirribilli, and his way of life was quite different to that of
the tough existence of an A.W.U. organiser in outback Queensland.

The changeover to Dalley had almost brought him down. He had emerged
from the Royal Commission with a "Not Proven" verdict, but still
sufficient adverse evidence to have rocked an operator of lesser
calibre. Theodore was hard to stop. He had convinced himself that
everything had its price, and that money was the ultimate means to all ends.

Theodore had survived the inquiry over Dalley and, after the 1929
elections, appeared at last to have things all his way. Scullin accepted
him as his man of finance. But up in Queensland his enemies were still
busy. They first tried to rake up an old party-funds scandal. It
misfired. Few people were interested in how the Labor Party was supposed
to have divided up its contributions from the Queensland breweries years
before, when Theodore was not even leader of the party.

{p. 220} Labor had been dislodged from power in Queensland after fifteen
years in office by a Nationalist Government, led by Mr. Moore. The
Nationalists had accused previous Labor Governments of being corrupt.
Moore believed that he had to prove his accusations to the hilt after he
became Premier. So he started pawing over the records of the previous
Labor Governments in that State. It did not take the Nationalists long
to strike something that they hoped would be pay dirt. It had all
happened ten years before. Theodore was at that time Premier of
Queensland. His Government had purchased certain copper-mining leases at
Mungana from a smelting company at Chillagoe, Queensland - about 130
miles south-west from Cairns. Government investigators reported to Moore
that they had evidence that Theodore and certain other prominent
Queensland Labor politicians were involved in the deal.

Moore appointed a Royal Commission, presided over by a retired
Queensland Judge, Mr. Justice Campbell, to inquire into the leases.
There was no mention of Theodore's name in the terms of reference.

During the early months of 1930, the Royal Commission heard evidence.
Theodore's name kept cropping up time after time. So did that of another
Queensland Labor Premier, "Big Bill" W. McCormack and that of the then
Minister for Mines, Mr. Alf Jones.

It was concerned with the appointment of a Mr. "Ranji" Goddard as
General Manager of the State Smelters at Chillagoe by the Theodore
Government and Theodore's alleged interests in certain of the mines in
that area.

Much of the evidence was technical. Queensland papers gave considerable
space to the inquiry. But the rest of Australia was hardly interested.
The Royal Commissioner didn't call Theodore as a witness. Theodore
himself didn't make an appearance and was not represented by counsel.
McCormack, Goddard, and other leading figures did have counsel.

Just why Theodore stayed away from the inquiry has always remained a
mystery. He was later to regret his failure to attend.

Few were prepared for the shock of the Commission's findings. They were
released by Mr. Moore on July 5, 1930. Mungana was completely unknown
previously in Southern States. But with the publication of the Royal
Commission Report it was to be on everyone's lips. With it was
automatically linked the name of Theodore. Had the Judge set out
deliberately to wreck Theodore's political reputation he could not have
performed a more devastating job of demolition.

The Commission found that Peter Goddard had been appointed Manager of
the Chillagoe State Smelters principally because it was thought by
Theodore and McCormack that he would be useful in ways and directions
not contemplated by the Act. Goddard had few qualifications for the job,
and Minister for Mines Jones claimed privilege when asked why Cabinet
had selected Goddard. Goddard had no engineering experience.

Judge Campbell said that during Goddard's management there had been
reckless extravagance, unscrupulous exploitation of the mines for private

{p. 221} benefit, misrepresentation in the balance sheets and cynical
transgressions of the law.

Goddard and a Frederick Reid were partners in a hotel at Cairns, as well
as timber merchants and sawyers at Tarzali while Goddard was managing
the mine. It was the association of Goddard and Reid with Theodore
during the same period that provided the really sensational twist to the
story. Theodore and McCormack were both actively financially interested
in the deals arranged by Goddard and Reid.

In 1917 the Chillagoe Mining Company had forfeited certain mining leases
at Mungana. On the same day Reid had applied for them.

Reid admitted that later he had a meeting with McCormack, who was then
Speaker of the Legislative Assembly. It was agreed that McCormack was to
have half of Reid's interest in the leases on condition that he was to
back him up. At the same time McCormack agreed to find the money needed.

At that time Theodore was Treasurer in the Ryan Government. In March
1918, Reid had written to Theodore seeking an advance of £10,000 from
the Government to restart the mines. Theodore immediately recommended
the application to the Minister for Mines. Theodore also stated that it
was proposed to restart the smelters, and the mines would be the
principal source of silver-lead ore. But the Inspector of Mines refused
to have anything to do with the proposition and reported adversely.
Cabinet agreed to advance £2800 towards the machinery needed, in spite
of the adverse report.

In the following September McCormack resigned as Speaker and became Home
Secretary, while in October 1919 Theodore took over as Premier,
Treasurer, Chief Secretary and Vice-President of the Executive Council.

Shortly afterwards the Mungana Mining Company was formed to acquire the
leases from Reid. They agreed to pay him with 10,000 fully-paid up shares.

The Royal Commissioner said it was all part of a plan to sell the mines
to the State Government. Theodore and McCormack were to remain as
undercover manipulators, while Peter Goddard was to do the job as front man.

Although it was stated that £15,000 was necessary to restart the mines,
the company had very little money of its own invested. Apart from the
£2800 provided by the State Government, McCormack contributed £200, of
which £100 came from Theodore, while Reid borrowed £1500 from his wife
and invested £200 of his own money. They started the Girolfa Mine, and
in October, 1920 whacked up £3000 between McCormack and Reid from the
sale of ore without paying any of the debtors.

The Commissioner found that Theodore had received £750 as his half-share
of McCormack's interest.

In December 1920, the Theodore Government passed a Bill enabling the
State to acquire the Mungana leases from Reid. About the same time they
floated the Mungana Mines Limited, with 10,000 fully-paid up shares
going to Reid.

Those shares were jointly held by Reid and McCormack, although

{p. 222} McCormack's 5000 shares were not disclosed in the filed share
register. Later most of McCormack's shares were transferred to his
sisters. In addition 1250 shares were made out to a Patrick John Mangan,
who was found to he holding them in trust for Goddard, the Manager of
the Chillagoe Mine. The wife of the Mining Warden also received 200 shares.

The next step by Reid and McCormack was to sell the Mungana leases to
the Theodore Government. The Commissioner found that Theodore,
McCormack, Reid and Goddard had acted corruptly and dishonorably, and
had dishonestly exploited the State in the sale of the Mungana Mines to
the Government for £40,000.

The Judge said that Theodore had concealed his interest in the
transaction. Theodore had received promptly and regularly from time to
time one-half of McCormack's share of the proceeds of all these
transactions.

He said that the Minister for Mines, Mr. Jones, "had neither the
strength of character nor the mental ability to cope with the
situation." Jones had admitted that he had heard of McCormack's interest
in the Mines, but he said it was not his responsibility to inquire into
the private actions of his colleagues.

There had been much lobbying inside Cabinet before the sale went
through, and Theodore had interested himself, exchanging many telegrams
with the Minister of Mines on the subject. Eventually the Government
agreed to buy the mine for £40,000. Although it had been stated that
there was a body of rich ore present, that later worked proved to be
consistently low grade, said the Judge.

Next came what were known as the Fluorspar Mining Company and the
Argentum Mining Company deals. They were floated in 1923. The promoter
and controller was Peter Goddard. He registered himself openly as the
Managing Director of the Fluorspar Company. The company in the beginning
did not do business with his State Smelter. In any case, Theodore, the
Premier, was his partner and that was good enough for Goddard.

Theodore had not disclosed his interests in the company. His name did
not appear on the return furnished to the Registrar of Shares until
after he had ceased to be a Member of the Queensland Parliament in 1927
and Goddard had ceased to be General Manager of Chillagoe. Theodore and
Goddard held practically all the shares between them.

The Argentum Mining Company was formed to take over a mine known as "The
Night Flower" from Messrs. Chong and Toomey. As the mine was selling ore
to the State Smelters, Goddard's name did not appear on the share list.
He was shown as having transferred 1200 shares to W. R. Forbes and Wm.
Mangan. They were his nominees and held the shares for him.

Theodore also held 1500 shares. His shares appeared in the return under
other names. The Commissioner reported that one improper and inexcusable
feature of Theodore's secret connections with these companies was that
both companies had applied for and obtained from the Government advances
in aid of their operations which could have been influenced by the fact that

{p. 223} Theodore had a personal interest in the accommodation. Then
when other markets had failed, Goddard as Manager of the State Smelters
bought the fluorspar as flux. He was actually buying from his own
company. The Judge added:

"It is not surprising that, at the close of Mr. Goddard's management,
there was a considerable debt owing by the Fluorspar Company to the
State Smelters that was supposed to have been balanced and paid by the
alleged delivery by the company of 188 tons of fluorspar, the existence
and whereabouts of which have oddly enough never been discovered up to
the present time."

The Commissioner said that Theodore and Goddard had been guilty of gross
impropriety. Their very secrecy proved that they were conscious of it.

Summing up, he found Theodore, McCormack, Goddard and Reid guilty of
fraud and dishonesty in procuring the State to purchase the Mungana
Mines for £40,000; that the moneys shared between them as the proceeds
of that transaction were fraudulently obtained, and that Theodore had
been guilty of grossest impropriety in becoming secretly associated with
Goddard in the Fluorspar Mining Company and the Argentum Mining Company,
when he must have known that Goddard's connections with them constituted
not only a serious breach of Goddard's duty as Manager of the State
Smelters, but as also a breach of the statute under which he had been
appointed.

That was the bombshell that hit Canberra in July 1930. While it may have
been ancient history in Queensland, it was right-up-to-the-minute news
in the Federal capital. The publication of the Report had smashed the
Theodore reputation. Everything that had seemed so close to attainment
simply vanished. It was almost a mortal blow to the Scullin Government.

It was no use brushing the Report aside with the statement that the deal
was ten years old, or that a Nationalist Government had started the
inquiry. Theodore was in a position of great public trust. He had to
have the public reputation of being like Caesar's wife. The Royal
Commission had stigmatised him as a crook. How could a crook be the
Treasurer of the Commonwealth?

Scullin was almost prostrated. He took the full impact of the blow.
Other Cabinet Ministers rushed for cover. None of them went to the
defence of Theodore. They were far too worried about their own futures.
They didn't want to be associated too closely with him. The men who had
been hanging on to his every word, as if he were a great financial
wizard, now went out of their way to avoid him.

Cabinet was summoned back to Canberra by urgent telegram. Frank Brennan
and Parker Moloney were so deeply engrossed in discussing what to do
next that they found themselves left on the Albury Railway Station
platform with the Limited Express clearing the station. They had to make
a car dash to get to the Capital.

I was asked for my views on the next move. I refused to comment. I had

{p. 224} no brief for Theodore. He had tried hard to upset my
leadership. He had used the A.W.U. in an effort to capture the A.L.P.
Conference. At the Easter Conference, his principal lieutenant in this
State, Organising Secretary Andy MacPherson had been deposed from his
position as an outcome of Theodore's activities. It had been alleged
that MacPherson had been using his position to assist Theodore
candidates in selection ballots. The Theodore faction had lost by 74
votes to 47.

So I could see no reason why I should commit myself. The Royal
Commission had spoken. It was up to Theodore to justify himself. I had
no brief. If he had been crooked, then there was no place for him inside
the Labor Party. At the same time, he was entitled to a proper trial. As
anything I might say would not be helpful, I decided to say nothing.

Theodore went down to the Sydney Trades Hall on the Saturday morning
after the report was published to see the President of the A.L.P., J. J.
Graves, and the Secretary of the Labor Council, Jock Garden. It was most
unusual for him to turn in that direction for assistance. Graves said
later that he believed that Theodore had a complete answer to all the
accusations, that he should be given every chance to state his case, and
that the report was a political judgment to help the Nationalists
destroy the Scullin Government.

Jock Garden even went further. He took it on himself to pledge complete
support for Theodore in getting a fair trial. He described the report as
"a piece of political gerrymandering by Labor's enemies," and that it
was typical of the despicable tactics employed by them.

But the A.W.U., who had fostered the Theodore career, remained on the
fence. It simply stated that the scandal had to be cleared up and the
stigma of infamy fixed where it rightfully belonged. That could mean
anything. Latham as Leader of the Federal Opposition phoned Scullin and
received an assurance that immediate action would be taken by him.
Latham said: "the honor and dignity of Parliament must be preserved."

The one man who remained outwardly cool and collected in his wits was
Theodore. He was a tough politician. He had been through many crises.
But this was the greatest of his career.

His first reaction was to demand a judicial inquiry into the charges
that had been made against him. The Queensland Premier, Mr. Moore,
replied that he had been given every opportunity. It had been a judicial
inquiry. It had been held in public. Those interested had been invited
to give evidence. Theodore had failed to come forward, the report had
been given and there it ended. At the same time, the question of further
criminal proceedings would be investigated by the Queensland Crown Law
Department.

What next should Theodore do? Firstly, there was his position as
Treasurer in the Scullin Government. That was patently untenable. His
first proposition was that he should be "temporarily relieved." But
Latham was not satisfied with that. It was made clear that the
Opposition would move in

{p. 225} the matter immediately Parliament resumed on the Tuesday, if
Theodore was still in the Government.

After another telephone call between Sydney and Canberra, Scullin
announced that Theodore had resigned as Treasurer. He told the Press:
"There seems some doubt about Mr. Theodore's resignation. Mr. Theodore
has tendered his resignation, I will act as Treasurer in his place."

The critical Budget was due to be delivered in the following week. It
was the Depression Budget. Theodore had worked hard on it. There was
also a very intricate Income Tax Assessment Act. Scullin had both dumped
right into his hands. He had to take them over from Theodore without
knowing much of the details.

The Opposition was satisfied to have it that way. There still remained
the question as to whether Theodore would resign his seat in Parliament.
He promptly scotched the suggestion. He told reporters that his
resignation as Member for Dalley had not entered his thoughts. In his
own mind, the resignation as Treasurer was only to be temporary. On
leaving his office he had said "good-bye. It is only for two months."
Whether he had a secret understanding with Scullin to that effect is not
known. It could have been.

The atmosphere when Parliament met on Tuesday, July 8, 1930, was tense
and expectant. The bull was in the ring waiting to be killed. There was
no broadcasting. Had there been, all Australia would have been
listening. As soon as Speaker Norman Makin finished prayers, without
waiting for questions, Scullin announced Theodore's resignation. He made
no comment on the report. He simply paid a very brief tribute to the
work performed by Theodore since he had been Treasurer, and his "immense
industry and great intellectual capacity" that he had devoted to his
job. Scullin also said that he would be failing in his public duty if he
did not give "public testimony to the loyalty, courage and ability"
marking Theodore's work.

But Scullin made no reference to Mungana. No suggestion of a
Commonwealth Royal Commission. No protest that he believed the
Commissioner had failed to hear both sides of the story. Scullin very
carefully refrained from associating himself with Theodore's cause at
that stage. He was satisfied to remain on the sidelines. At the same
time, Theodore was to remain a Member of his Caucus. It was a strange
settlement.

Then Theodore rose. He was quite equal to the occasion. He was not the
beaten cur. Neither was he prepared to fight right back by staking
everything on his own integrity. He didn't elect to go to the electors
of Dalley at that stage. He was banking on the improbability of the
Moore Government taking the matter any further. He knew just how
difficult it was to prove a case of conspiracy before a judge and jury.

He had admitted that the report had reflected so seriously on his
character and impugned his honesty so definitely that he had no
alternative but to resign as a Minister of the Crown and "await an
opportunity to vindicate my character."

{p. 226} A grave injustice had been done, he contended. He first tried
to clear himself of the charge that he had failed to take the
opportunity of appearing before the Commissioner. The terms of reference
had in no way involved him personally. Nothing in them had suggested
that the inquiry was in any way directed against him, or affected his honor.

After his name had been mentioned frequently in evidence, he had written
in May to the Department of Justice in Queensland suggesting that he
should appear as a witness. He had named two days as suitable. The
Commissioner had not invited him. Later he had been told that the dates
mentioned by him would not be suitable as the Commissioner would be in
North Queensland.

He was told that he should attend on June 17. He replied that it would
not be suitable. He was preparing the Commonwealth Budget. He said he
would not be free to visit Queensland until early in July. The Crown
Solicitor had written back saying that his letter was vague and
unsatisfactory. He had then sent an urgent telegram saying that he would
not go until the Budget had been delivered and measures associated with
it had been disposed of by Parliament. He suggested that the inquiry
should be adjourned until after that period.

Theodore also mentioned the fact that the Commissioner had called upon
the Bank of New South Wales to produce particulars of his private and
personal banking accounts. The Justice Department in Queensland had then
told him that June 28th was the latest date the inquiry would hear him.
So, according to Theodore, he concluded that the matter was not very
important, and he had no idea that the Commissioner contemplated
bringing in a damnable indictment against him.

Theodore must have been carried away by his own inflated sense of
importance, if he really believed that. Firstly, the inquiry had been
set up by his political enemies. Secondly, he was trifling with the
patience of a Judge. Thirdly, no one knew better than he did the
contents of the accounts submitted by the Bank of New South Wales. While
the details were not divulged, Mr. Justice Campbell did indicate that he
regarded them as of critical Importance. He said they helped him to draw
the conclusions reached in his report.

Theodore then made the elementary blunder of abusing the Judge. He
referred to him sarcastically as a "pensioner in retirement." Bitterly,
he protested that he had not received British justice.

"The Commissioner must have known how his mind was being affected by the
evidence, if he was taking notice of it. If his mind was being directed
in such a way as to inculcate me, is it not reasonable to assume that he
ought, as a concession to justice, to have done something to meet my
convenience? Is it any wonder, in the circumstances that I have come to
the conclusion that I have been the victim of a hired assassin?"

That still didn't explain away his own failure to put in an appearance.
If the gun was loaded, he should have made certain to get in first.

{p. 227} Theodore told Parliament he did not propose to answer any of
the findings relating to himself. Instead, he outlined the findings as
they involved Goddard, McCormack and Reid. But he did try to discredit
the Commissioner's finding by suggesting that the Commissioner had
mis-stated certain facts.

One was that McCormack was not a Minister when Goddard was appointed.
Actually the report did specify that McCormack was Speaker at that time.
His activities throughout seemed to be that of go-between, bridging the
gap between Goddard and Theodore.

Theodore also challenged the Commissioner's findings in relation to the
Tarzali timber contract on the grounds that it was made 14 months after
he had left State politics. Had Theodore studied the actual report, he
would have found that the Commissioner held that there was no evidence
on that issue adversely affecting anyone. So Theodore set up his own
Aunt Sallies and knocked them down. But he scrupulously avoided the real
issues affecting himself. He didn't deny his financial interests in the
Mungana Mines.

All of the charges were damnably false, he told Parliament. The evidence
had been tainted and malicious. He had received a telegram from two of
the counsel, Messrs. Fahey and Real, saying they had prepared a
statement that:

"The Commission's finding was absolutely unjustified and biased. There
was no oral evidence connecting Mr. Theodore in any way with the
charges, the Commission's finding was based on assumption and inference.
We regard it as a scandalous decision."

That prop did not remain long in position. The said counsel mentioned
issued a statement that night in Brisbane saying that Theodore must have
been entirely misinformed. No such conference had been held. They had
not prepared or taken any part in preparing such a statement. They had
given no opinion whatsoever on the Report. The solicitor joined them in
their denials.

So next day Theodore had to retract. He said it was based on a telephone
call from his Brisbane solicitor.

Theodore finished his statement to Parliament saying that he wanted a
trial by judge and jury. The Queensland Attorney-General should file an
indictment. To submit to such a course would be humiliating, but it was
the only way. He was prepared to submit to the intermediate disgrace and
humiliation. He was the victim of circumstances. He simply wanted a
chance to refute the charges.

"I have given a life-time to public service in this country. I have had
exalted ideals. I have kept my hands clean. I have acted honorably and I
shall prove it. I demand that the Queensland Government formulate an
indictment against me without delay to enable me to appear before an
unimpeachable tribunal in my defence against these calumnies and these
damnable charges."

But the Moore Government, having Theodore where it had always wanted
him, was not going to allow him to escape the net. It simply did

{p. 228} nothing. There were no criminal charges. Theodore didn't resign
from Dalley. He merely moved to a back bench. Parliament as usual turned
its back from high drama to more mundane matters. When Theodore sat
down, Roley Green rose to complain that Parliament House lifts were out
of order and wanting to know if the Speaker would have action taken to
put them in order.

Yet the eclipse of Theodore was to have a very big influence on the
events to follow. Scullin was left with the Budget. Niemeyer was already
on his way to Australia and Theodore would not be there to meet him.

35 They Bowed to Niemeyer, the Overlord

REPRESENTATIVES OF THE COMMONWEALTH and State Governments assembled in
Parliament House, Melbourne, on August 18th, 1930, for one of the most
momentous gatherings in the history of the country. They were to
consider the Depression. But they were also to receive orders from their
real master - the absentee creditor.

The chief business then was to meet the representative of the Bank of
England, Sir Otto Niemeyer, who was accompanied by Professor T. E.
(Guggenheimer) Gregory and Mr. T. N. Kershaw, an Australian who had been
attached to the Bank of England.

It was Niemeyer who dominated proceedings. The Commonwealth and State
representatives were treated like erring children. They were lectured on
the faults alleged against Australia. They were told they must bow their
knees. They bowed.

The Prime Minister, J. H. Scullin, was not present when proceedings
opened. He had been sick. The shock of Mungana had affected him deeply.
He was also packing his bags for his visit to London. It was his first
trip abroad. He was going to an Imperial Conference. Although often
accused of a bias against the British Empire, largely because he had
been identified with the anti-conscription fight in Victoria and closely
associated with Dr. Mannix, he wanted to do the right thing in London.
So he was being briefed on protocol and all the right things to do.

With Theodore out of the Ministry, the Commonwealth delegation during
the first two days of the Conference was led by J. E. Fenton, Minister
for Trades and Customs, who was to be Acting Prime Minister during
Scullin's absence abroad.

The Postmaster-General, J. A. Lyons was to act as Treasurer, so he too
went along to hear what Niemeyer had to say.

{p. 229} New South Wales was represented by its Premier, T. R. Bavin,
and Treasurer B. S. B. Stevens. They had already embarked on the
deflationary programme being sponsored by the Bank of England. They were
all for wage cuts, more taxes on the lower paid and withdrawal of social
services.

The Nationalists were in the majority. In addition to New South Wales,
they held Queensland, Western Australia and Tasmania. Premier A. E.
Moore and Treasurer W. H. Barnes came from Brisbane; Sir James Mitchell
made the journey from Perth, while Tasmania sent Premier J. C. McPhee
and Sir Walter Lee.

In addition to the Commonwealth, there were two State Labor Governments;
E. J. Hogan and J. P. Jones represented the Victorian Labor Government,
while Lionel Hill and J. Jelley were there from Adelaide.

When proceedings opened, it was decided to hold all sessions in camera.
The normal procedure was to have open sessions, with the right to go
into closed sessions when the conference was seeking to hammer out a
compromise formula or had some highly delicate inter-governmental business.

But Niemeyer thought it preferable that he should discuss all the
problems with them privately. He was accompanied by the Chairman of the
Commonwealth Bank Board, Sir Robert Gibson.

The report of the conference as later issued was a remarkable document.
In all other conferences, the views of the delegates are contained in
the published report. But for this vital conference, there are no
details. No one could later pin-point the views of any particular
government or any particular delegate. They took refuge behind a long
resolution which was carried unanimously. The report states that the
conference invited Sir Otto Niemeyer and Sir Robert Gibson to attend and
address members. It then gives the text of the resolutions carried, and
finishes with fulsome votes of thanks to Sir Otto and Sir Robert for
their valuable assistance, and sympathy for Mr. Scullin in his
indisposition, and wishing him God-speed on his journey to London.

In addition there was released a statement to the Press containing a
full report of Sir Otto Niemeyer's address to the conference on the
results of his investigations into the financial position of Australia.

It is the text of that address that provided all the political
ammunition we used in the State elections against the Bavin Government
two months later.

Niemeyer started by saying that the practical solution of Australia's
very serious problem was not rendered any easier by the natural optimism
of the Australian. So, after a few weeks in the country, he started out
by passing judgment on the people by way of generalisation. That is
always dangerous when applied to nations. It is even more dangerous when
used by a temporary visitor. He said that so long as Australians
believed they had an unlimited market for their goods and that something
would turn up, it would be difficult to face the realities of the
situation. In short, he inferred we were a nation of Micawbers.

At the outset he surveyed the Budgets. The Commonwealth and almost

{p. 230} all the States had had deficits for more than three years. The
Commonwealth had an accumulated deficit of £6 millions. Mr. Scullin was
trying to balance his Budget. Niemeyer then referred to a £3 million
floating debt, the loans that were maturing and the £36 million
short-term debit in London, half of which was owing to the Commonwealth
Bank. Deposits in Savings Banks were dropping, while tax receipts were
also suffering. Summing up on this count, Sir Otto told them:
"Australian credit is at a low ebb; on a six per cent. basis in
Australia itself and rather more abroad. It is, in fact, lower than that
of any of the other Dominions, not excluding India and even lower than
some of the Protectorates."

In short Australia didn't rate with the Cameroons or even British Guiana
as a credit risk.

He next reviewed the trade position. The balance was adverse and
becoming worse. Wool and wheat were declining in price - wool from an
index of 100 to 55 and wheat down to 70. The exchange rate had
depreciated. Even drastic tariff increases, prohibitions and exchange
rationing, which had been frequently tried elsewhere, would not be
solutions. Australia had a minimum period of two years to put her house
in order, because large external loans would then mature.

"In short, Australia is off Budget equilibrium, off exchange
equilibrium, and faced by considerable unfunded and maturing debts, both
internally and externally; in addition to which she has on her hands a
very large programme of Loan works for which no financial provision has
been made," said Sir Otto.

"These serious manifestations of financial malaise are, of course, the
reflection, and the inevitable reflection of deeper economic cause,"
continued the gloomy diagnosis.

His first objection then was "to the high standards of costs which the
rest of the world has long since found to be impossible." He was of the
opinion that wholesale prices must continue to fall. The world wheat
harvest was increasing. There would be big surpluses in the Argentine
and India, Canada and America. so Australia could not look forward to
any improvement in its return from wheat.

Australia's national income had already dropped. It would drop still
more. Yet more taxation was needed, and money would be required for
Loans and conversions in a time of Depression.

Niemeyer still assumed that Australia must live solely on its export
income. Internal purchasing power meant nothing to him. He was concerned
primarily in collecting money due in London, on time. He was of the
opinion that the "sheltered trades" of Australia - he didn't specify
them - were taking too much of the national income.

"As a debtor nation. Australia is interested in the world price level,
and the price level all over the world is falling rapidly and is likely
to go on falling he continued with his dirge of impending economic doom.

Bluntly he told them it was their job to see that the costs of
production were reduced. Bavin and Stevens had been reciting that
refrain for months.

{p. 231} A further depreciation in exchange would no doubt help the
primary producer, but "rising exchange rates prejudice the whole fabric
of national finance." How was he to know that the exchange rate would
soon be multiplied by almost five without wrecking the whole national
fabric. He was an expert, not a prophet.

Niemeyer could see no future in holding prices of primary products.
Rationalisation had meant an increased return per acre, and the markets
were not there. Again, how wrong he would prove to be. He also said that
the habits of the consumers were altering and people would need less
wheat in future. They would go off bread diets. So, Australia was losing
out in her capacity to bargain against the rest of the world.

Niemeyer also stated that Australia was falling behind in the race to
increase productivity on a per head basis. In the United States although
factory employment had fallen by five per cent., production had
increased by 15 per cent. Britain's industrial position was also much
better on a "per capita" basis.

"That, I believe, is a brief summary of the cold facts. I do not recite
them in any way as a reproach, still less as a pleasure; but I believe
they are the facts," added Sir Otto. "The fundamental question is the
extent to which Australia herself will make it possible for the present
picture to change. Australia must reassure herself as to the direction
in which she is going, financially and economically, and no one else can
do that for her," he emphasised.

Yet that was precisely why Sir Otto was in Australia. He hadn't come
12,000 miles without a formula. His despatch case contained all the
orders. He then told the conference:

"In discussions with you, certain suggestions were made for immediate
action. You will, I hope, allow me to express an opinion that these
proposals are wise and necessary. If they are publicly adopted by all
concerned, Australia would then be able to turn to the question of
gradually liquidating her outstanding obligations in London, which in
itself is not likely to be an easy operation, or one which could be
carried out except by stages."

The report does not contain his explanation of his proposals. Yet those
proposals became part and parcel of the Niemeyer Plan. He cleverly
allowed the conference to shoulder responsibility for them. All costs
had to be reduced. The regime of emergency tariff and rationed exchange
had to be eliminated. Budgets had to be balanced.

Niemeyer's chief thesis then emerged. Australia was essentially a
primary producing country. It had no real claim to be a manufacturing
country. Its chief function was to supply other countries with raw
materials. Those raw materials had to be produced cheaply in order to
find their place on the world's markets. The primary producer's power to
assist depended on the question of his costs, and those in turn depended
on general costs in Australia.

"I assume that everyone in this room is in agreement that costs must
come down," declared Niemeyer. Not a Labor Premier protested. No one
offered the suggestion that costs in India were low, but that did not
make the

{p. 232} coolies prosperous, well-fed or healthy. No one asked him if
his purpose was to make all Australians live like the coolies of Asia.
"There may be room for increased efficiency, but there seems to be
little escape from the conclusion that in recent years Australian
standards have been pushed too high, relatively, to Australian
productivity and to general world conditions and tendencies. If
Australia does not face that issue she will not be able to keep even
those standards which she might hope to carry by timely action, and she
will see an inevitable increase in unemployment."

Thus spake Sir Oracle Otto. No one protested. No one fought back. They
simply sat and took his medicine neat. They were supposed to be a
gathering of representatives of sovereign governments. But they allowed
the Man from the Bank of England to dictate to them how they were going
to run the country. His threat was that if they didn't do as he said
they would have more unemployment. Already one in every four Australian
workers was on the dole. They were the real victims. Not a word about
them appeared in the report of the proceedings. It was all High Finance.
How British bondholders were going to be able to clip their coupons on
the due date! That was the consummation to which the plan was directed.

Niemeyer didn't stop at delivering them a verbal chastisement. He
indicated what they had to do under dire penalty of losing face in the
City of London. So, meekly they considered the resolutions that had been
framed to deal with the situation. Niemeyer was the overlord. They were
the serfs. Dutifully they accepted his directions.

Sir Otto Niemeyer's lecture to the Commonwealth and State Governments
had quick repercussions. It cut right across Labor opinion. We were
amazed that a Federal Labor Government should allow its representatives
to sit and take it from the emissary of the Bank of England.

Niemeyer had butted right into Australian politics. He had denounced the
high tariff policy. It was the Scullin Government that had raised the
tariff barrier. He had attacked what he described as Australia's high
standard of living. His address could have been the carbon copy of the
political testament of S. M. Bruce. He had proposed that the Australian
people would have to accept a lower standard of living to meet the level
of Australian production and the fall in prices overseas.

Niemeyer was concerned primarily only with one thing - the meeting of
dues to the British bondholders on time. But he had invaded the
Australian political arena. He was a protagonist of the Bruce-Bavin
policy. His was a defeatist programme.

With one quarter of the workers unemployed what support did he expect
for a policy of reducing their standards even lower? The Labor Movement
believed that the Scullin Government should have sent Niemeyer about his
business. He should have been told that he should keep out of Australian
politics. He should have been reminded of the sacrifices made by this
country. We were not a mendicant race. Although he might regard us as a
debtor

{p. 233} nation, the help given by Australia to Great Britain during the
1914-18 war had been spontaneous and costly. It had strained the
economic resources of the nation. It was mostly for a war being fought
in faraway Flanders.

But there was no one at the Melbourne Conference prepared to put the
visitors in their rightful place. In this State I had been fighting
Bavin and Stevens on precisely the same issues. They had already
undermined the basic wage and increased hours. The effect had not bee n
to improve employment. More people were workless than ever before. The
Niemeyer programme had actually failed in this State before the
Melbourne conference. Yet there was not a single member of the
conference prepared to put the Australian Labor viewpoint.

Instead they all meekly submitted. Sir Otto dictated the terms of what
was later known as the Melbourne Agreement. They all signed on the
dotted line. The Agreement was in the form of a long series of resolutions.

It set out that the Commonwealth and States had unanimously agreed:

(1) That they would all balance their Budgets for the current year and
keep them balanced in future years. If there was any danger on Budget
equilibrium not being achieved, the Governments to take immediate action.

(2) The Loan Council would not seek any further overseas loans until the
existing short-term debt had been paid. That would also apply to
borrowings by large public authorities.

(3) That only reproductive public works were to be financed. By that it
meant public works that would earn sufficient to buy interest and
sinking fund charges.

(4) That all interest payments should be made to a special account in
the Commonwealth Bank to be used solely for such purpose.

(S) That all Governments would publish monthly statements of their
Budget position, their short-term debt and the state of their Loan Accounts.

All these measures were designed to protect the interests of the
overseas bondholders. Interest payments were to have priority over all
else. The welfare of the starving unemployed, and the plight of those
forced to live solely on endowment and the dole were not even
considered. The bondholder was to be the preferred creditor.

If any Government found itself unable to meet its interest and other
debt charges it faced the stigma of that dreadful word "Repudiation,"
already being bandied around.

A special committee was set up comprising the Treasurers of the
Commonwealth, New South Wales, Victoria and South Australia to police
the Melbourne Agreement. They were also given power to consult outside
finan-

{p. 234} cial and economic experts as well as the Commonwealth Bank. The
Professors were to tell the Governments how to run the country.

The official statement was approved in camera by all present - Prime
Minister Scullin was present when it was drafted and carried by the
conference - then concluded on this ominous note:

"The members of the conference represent all the Governments of
Australia. Their decisions have been arrived at apart from party or
political considerations and with the sole desire to avert the danger
which threatens Australia.

"Having heard Sir Otto Niemeyer and Sir Robert Gibson, they have no
doubt that the present difficulties in Australia's financial and
economic situation will be gradually relieved if the arrangements
outlined above are faithfully carried out, as they intend they shall be.

"This will unquestionably involve a heavy diminution in both revenue and
loan expenditure, and will require sacrifices on the part of all
sections of the community. But the voluntary acceptance of these
sacrifices is, in the opinion of the members of the conference, the only
possible way of avoiding the infinitely greater and more prolonged
sacrifices that would be involved in any failure to meet our national
obligations.

"Such a failure could, of course, not be contemplated. It would involve
not only national disgrace and dishonor but would mean immediate
financial disaster, with all its attendant human suffering. It is
confidently anticipated that the conference will have the full
co-operation of all classes of the community in its endeavor to prevent
such a catastrophe, and to place Australia on the road to prosperity."

Who was responsible for such a craven deed of surrender? It was signed
by the Secretary of the Commonwealth Treasury, H. J. Sheehan, as
Secretary of the Conference. But he was not the author. Was it Sir Otto
himself? Or did Scullin attempt to provide his own defence in
anticipation of what was certain to happen?

Fancy telling the unemployed on the dole that they must make further
sacrifices. They represented 25 per cent. of the Australian people. Yet
that was what the document had said, "substantial sacrifices on the part
of all sections of the community." Why? In order to meet the dues of the
bondholders.

There was nothing in the Melbourne Agreement about money for employment
- only the threat of less money. Nothing for the wheatgrower. Nothing
for Australian mothers trying to find sufficient sustenance for their
offspring. Not even a ray of hope for those needing pre-natal
assistance. It was cold and pitiless.

The Bavin Government announced that it was prepared to forgo the grant
of £365,000 that had been promised by the Scullin Government for the
relief of the unemployed. Their sacrifice was to come first.

Queensland and South Australia also agreed to forgo their share of the
£1 million unemployment grant. Victoria hedged and offered to hand

{p. 235} back one-quarter of the grant, Western Australia one-half and
Tasmania one-quarter.

The Melbourne Conference had lasted four days. It was followed by a Loan
Council meeting which agreed to reduce the amount of loan money for the
year from £24 millions to £15 millions "in keeping with the spirit of
the Melbourne Agreement."

In Sydney, I attacked the Agreement and denounced Niemeyer, whose
mission was costing the Australian taxpayers £1000 a week. I declared
that no matter what decisions the financiers and politicians might reach
in Melbourne, it was their duty to so order their finances that the
widows, the orphans, the disabled and the unemployed should have
shelter, food, clothing and a reasonable standard of comfort.

"The one God-given, inalienable right of man is the right to live. If
man or woman is denied the right to work, they still retain the right to
live. The Government that fails to realise that has forfeited the right
to exist."

That was to be the cue for the fight ahead. Every Australian must have
the right to live, even though it meant that absentee bondholders might
have to wait for the redemption of their coupons.

If the Bank of England believed that it only had to get the Scullin
Government, the Hill Government and the Hogan Government committed to
the Melbourne Agreement to pledge the Labor Movement to a reduction in
wages, pensions and a lengthening of hours of work it was for once sadly
misinformed regarding the realities of Australian Labor Politics.

The tactic was obviously the Nationalist Government plan. If Labor
politicians would subscribe to the programme of deflation they would be
guaranteed immunity from attack by their opponents.

Latham, Parkhill and Gullett as well as the Country Party, would support
Scullin if he agreed to slash wages. The bankers had done their best to
create the crisis atmosphere. There was no doubt that the Federal
Government was in a funk. It was afraid of having its resources cut off
by the banks.

But how could the trade unions go along with the Scullin Government on
such a programme. We had condemned Bavin and Stevens. Were we now
expected to praise Scullin for doing precisely everything that Bavin and
Stevens had advocated?

Meanwhile Niemeyer was barnstorming all over the Commonwealth in favor
of his plan. He was right inside Australian politics. The international
machine was at work.

The Sun published an editorial that three English banks - the Bank of
Australasia, Union Bank, and E.S. & A. Bank - could make Australia
bankrupt, and would do so unless the Governments balanced their Budgets.
That statement was duly cabled to London where it was featured in the
British newspapers.

London financial papers carried damaging slanders as to Australia's
credit. The appearance of the Niemeyer Mission had not improved the

{p. 236} position. Australian stocks were being quoted lower on the
London Stock Exchange than in Australia and many small investors sold.
The stocks were mostly bought up by the major investment houses.

Sir Otto, at a civic reception given by the Hill Government in Adelaide,
said that the only way Australia could keep her place in the world was
to reduce costs. "I am more and more convinced that the difficulty of
Australia is one that has arisen here and can be only remedied in
Australia and by its people."

That of course was not true. Practically every country in the world was
in the throes of a Depression. Nowhere was it so bad as in England itself.

Niemeyer said that he had received word from London that they were
delighted with the Melbourne Agreement. It was the scaffolding on which
to build for the future. "The State and Commonwealth Governments must
balance their Budgets and keep them balanced," he declared.

"That is the foundation of all good finance. It was absolutely essential
that maturing debts should be met regularly." That was the voice of the
Bailiff from London. Again he harped on the need for reduced spending
and cutting down on public utilities.

But what use was it talking like that to starving people? In the same
issue of the Evening News, a Nationalist newspaper, that carried the
story of Niemeyer's reception in Adelaide, there was a report of the
position much closer to home. It read:

"Scores of children in the Granville district cry themselves to sleep
each night because they are hungry, and their unemployed parents have no
money with which to buy food, according to a statement made to the
Granville Council last night. Hundreds of other little boys and girls as
well as their parents have no underclothing. They have nothing but
ragged little frocks, or torn shirts and pants. Mr. W. Hughson,
organiser of the Granville Relief Society said that there were 6000
unemployed in the Granville electorate and the amount of distress was
appalling. A relief worker at Granville this week had heard a little
girl of five sobbing bitterly in the street, and he investigated, and
found that the only food the girl and her unemployed father had had that
day was four small biscuits."

So the problem for the Labor Movement was whether it should fight for
the right of these people to live, or whether it should tell the
Governments to go ahead with Niemeyerism. It was an issue destined to
bring great internal strife to Labor. It didn't take long to commence.
It began in this State.

{p. 237} The Labor Party Revolts Against Niemeyerism

AFTER THE RELEASE of the text of the Melbourne Agreement calling for
wage reductions, the cutting down of public works and sacrifices from
every Australian, employed or unemployed, at the dictates of the
Niemeyer Mission, the Australian Labor Party was faced with a serious
problem.

The Scullin Government was banking on the fact that Labor supporters
would not repudiate a Labor Government. To them it didn't seem to matter
that they were prepared to carry out the policy that had already been
introduced by Bavin and Stevens in New South Wales.

A question of party loyalty was involved. Some believed that a bad Labor
Government was still preferable to any kind of anti-Labor Government.
Others argued that unless a Labor Government stood firm to its Labor
principles, it was better to et rid of it. They contended that it was
better to allow the Nationalists to do their own dirty work. It would be
better for Scullin to get out of office altogether rather than become
the pawn of the international banking ring.

The argument went on everywhere inside the Labor Movement. Some trade
union secretaries thought that they had to remain silent out of sheer
loyalty. Others believed that the time had arrived for a showdown. Jock
Garden took the militant stand. He was with the Left Wingers. The
Unemployed Associations were becoming a dominant factor in Trades Hall
politics. They were beginning to organise themselves. Jock was
determined to be with the strength.

I had no hesitation in declaring myself. In Canberra some of the
Government thought I would go quietly because the State elections were
due to be held in two months. They believed that I would fall into line
on the Melbourne Agreement, although I had denounced the Bavin-Stevens
legislation. They argued that I would jeopardise our chance of winning
the State elections if I opposed the Niemeyer formula. Hogan and Hill
had concurred. Why shouldn't Lang? After all, they said, I only had to
keep off the subject. If I supported the Melbourne Agreement, the
elections would be a walkover for me. That was the argument they tried
to sell. It simply wasn't in line with my general attitude to politics.
I never was one to compromise.

So I came out in the Labor Daily with a scorching attack on the
Melbourne Agreement. I didn't attack Scullin. But I did get stuck into
the Bank of England's emissaries. I reminded them of a few facts
associated with the war debt position.

{p. 238} I reminded them that Niemeyer had been Mr. Chamberlain's
adviser when Italy's war debt of £400 millions had been compounded for a
token payment of £4 million a year for 60 years. France had failed to
pay up on £150 millions of Treasury Bills. I reminded them that Philip
Snowden, Chancellor of the Exchequer since, had declared that the people
of England had been swindled. I pointed out that Britain was only paying
the United States 3 per cent., but Australia was being charged 5 per
cent. The United States had reduced the interest rate from 4 per cent.
to 3 per cent. Why shouldn't Britain do the same instead of sending a
bailiff to Australia?

The A.L.P. Executive was therefore faced with the problem of whether
they were going to follow Scullin as their Federal leader and approve
the Melbourne Agreement, or whether they would support me in an all-out
fight against Niemeyerism. It was a critical moment for the Labor Party.

It was not the first time that a major issue had to be decided by the
N.S.W. Labor Party. The fight over Conscription had been principally
centred in this State.

At a meeting of candidates selected to contest the State elections, I
outlined the position and defined my attitude. Instead of reductions in
wages, I believed that the best way to fight depression was to restore
purchasing power. Wage slashing had failed as a nostrum.

But once again Jock Garden almost upset the apple-cart. He had set up a
Labor Committee at the Trades Hall, which was largely militant in
character. Jock had prepared a bombshell. He announced that he was in
favor of nothing short of "repudiating everything."

The Labor Committee then carried a resolution in favor of the
repudiation of Australia's war debts abroad, and the serving of an
ultimatum on the Scullin Government to withdraw its support of the
Melbourne Agreement under pain of the expulsion of every member who
supported it, from the Labor movement.

Frank Anstey, Federal Minister for Health, had come to Sydney where he
had discussed the war debts problem with the trade unions. Frank's views
on the "Kingdom of Shylock" were well-known. Jack Beasley, who was just
getting settled in nicely as an Assistant Minister, was in a dilemma.
How could he abandon his old mates at the Hall? Yet how could he remain
inside the Scullin Government and support the Garden resolution?

Contrary to general belief Garden and his supporters had not consulted
me regarding the ultimatum. He actually saw me on rare occasions. He was
hardly amenable to suggestions. Jock loved the headlines too much. His
Repudiation Resolution received headlines all over the world. That
pleased him no end. The London Daily Telegraph had scare headlines:
N.S.W. AND FINANCIAL CRISIS: LABOR DEMAND FOR WAR DEBT REPUDIATION:
NIEMEYER ECONOMY SCHEME REJECTED: EXPULSION OF ITS SUPPORTERS THREATENED.

The Conservative London Morning Post in an editorial said: "The
Australian Labor Government had accepted with good grace the unpalatable

{p. 239} truths set forth in Sir Otto Niemeyer's diagnosis, but while
the responsible leaders are showing readiness to comply with the
dictates of wisdom, menacing tones are issuing from their extreme followers.

"The conference of the industrial and political wings of the N.S.W.
branch of the Labor Party demanded the cutting of the Gordian knot by
the repudiation of the war debt and a moratorium on the service of
overseas Government loans. Neither Governments nor demagogues can flout
the inexorable behests of economic laws any more than they can deflect
the stars from their course."

They didn't know Jock in London. Inexorable economic laws didn't mean a
thing to Jock.

The London Daily Telegraph described it as a "shameful demand," and said
that it was only an attempt to maintain award rates of wages in all
circumstances. They foresaw a grave political crisis in the Labor Party.
The financial papers all praised the Scullin Government.

Sir Granville Ryrie, Australian High Commissioner, said he was very
concerned and suggested that Mr. Scullin should "repudiate the
repudiationists." He apparently didn't realise for whom he was working.

In Canberra there was a great flurry. As Acting Prime Minister, J. E.
Fenton declared that there would be no repudiation of the Melbourne
Agreement. He quoted from Scullin's speeches to emphasise that Australia
would honor all its obligations abroad. He said that Australian stocks
were recovering on the London Stock Exchange.

As Acting Treasurer, J. A. Lyons issued a statement saying that
repudiation was "unthinkable." He said that Scullin was against it. "As
far as I know the entire Cabinet is behind him. At any rate, I am, right
up to the hilt," he said in a very curious anticipation of what was to
come. "Right up to the hilt" was to have a peculiar significance later.
He was all for balancing the Budget. Actually no Government did balance
their Budget that year. Still Lyons was already grooming himself for the
role to come.

Professor T. E. Gregory, on behalf of the Mission, declared that
repudiation of debts would be disastrous to Australia. He said that such
talk would be absolutely fatal to Australia. The Australian banks would
suffer. So would the insurance companies.

"It would be the first time on record of a first-class British Dominion
repudiating its obligations," he said. The bondholders would bring legal
actions. They would sue the Governments. He even suggested it would
cause a bank panic. In fact, the professor was almost hysterical on the
subject. Jock's bombshell had had its effect. Fenton even suggested that
all statements made by him should be censored.

The A.L.P. decided that it was not going to be swayed either by Jock's
stunting or by the timidity of the Scullin Government. It accepted my
advice that we had to declare war on Niemeyerism. We would not fight the
Labor Government in Canberra. We would fight Niemeyer and the Melbourne
Agreement. We did not approve repudiation. But we did insist on Australia

{p. 240} getting the same fair deal that America had given Great
Britain, and that England in its turn had extended to France and Italy.

Our fight was against Niemeyerism. We did not propose to allow Jock to
divert public feeling on that issue. At the same time we did not
consider that the Scullin Cabinet should be immune from criticism.

So on August 29, 1930, the following resolutions were carried at a
meeting of the Central Executive of the New South Wales Branch of the
A.L.P.:

"This executive views with amazement the spectacle of the Commonwealth
Government, composed of members of the Labor Movement, permitting its
policy to be laid down for it by a conference of State Premiers, in
which Nationalist Ministers held a majority of the votes.

"While feeling confident that the Federal Labor Party will never
repudiate its election pledge to maintain and improve the standard of
living and the Arbitration system, we feel that it is necessary to call
on the Federal Labor Party to affirm that it does not accept as binding
any decision of the recent conference with the Nationalist Premiers,
which calls for a reduction of wages or a lowering of the standard of
living.

"We are of the opinion that the recent proceedings of the Loan Council
have demonstrated that this body is merely an instrument in the hands of
the loan mongers, which can always be manipulated to prevent a Labor
Government, Federal or State, from carrying out the platform of the
Australian Labor Party.

"It is desirable in the interests of the Labor Movement and the people
generally that steps be taken to amend the Financial Agreement and
dissolve the Loan Council.

"Further this Executive calls upon the Federal Government to instruct
the Prime Minister to take the first opportunity afforded a Labor Prime
Minister, to negotiate with the British Government with a view to
re-adjusting the burden of war indebtedness now borne by the Australian
people as a result of her participation in the late war.

"That in his negotiations the Prime Minister should be instructed to
discuss the following points: -

(a) That the British Government made a profit of over £250 millions on
the wool which it bought from the Australian producers at a fixed price,
and sold overseas at a tremendous profit.

(b) That all the other Dominions were relieved of all expenditure
relating to their troops upon embarking for overseas, whereas Australia
was charged with the whole cost of her troops from the day of enlistment
until they were discharged.

(c) That the British Government paid the Australian farmers less than
half the amount they paid to the farmers of other

{p. 241} Dominions for their wheat, and only one-third of the price they
paid to foreign countries for the same-commodity.

(d) That Australia made available to the British Government many
millions of pounds worth of gold, to enable it to buy Argentine wheat,
notwithstanding that Australian wheat was offering for sale at the time
the foreign purchase was made.

That the British Government had agreed to write off four-fifths of the
war debts owed to it by foreign countries, which were its allies during
the war, and allowed those countries to spread the repayments of the
balance over a period of 60 years.

(f) That while Australia's annual payments in regard to her war
indebtedness (interest and sinking fund) amounted to 7 per cent., the
annual payments made by Great Britain in regard to her war indebtedness
to America amount to only 3 per cent.

"That New South Wales members of the Federal Labor Party be instructed
to move and vote for the adoption by the Government of this resolution
at the next meeting of the party."

That was not repudiation. It was a hard-hitting statement of the actual
position. It was the counter-reply to Niemeyer. I was consulted prior to
the Executive meeting and had approved its context. I had suggested some
of the arguments to be used. It was intended to be the Case for
Australia. It was also the Case for Labor. We were determined that there
would be no retreat. If the Canberra politicians were not prepared to
listen to the governing body of the Labor Movement, we were prepared to
take the issue back to the rank and file.

{p. 252} When Bavin Threw in the Towel

By AUGUST, 1930, the Nationalist Government of New South Wales led by
Mr. Bavin was in desperate straits. He was the first victim of the
Depression and found himself completely incapable of standing up to the
pressure from the Deflationists. The Economic bricks were tumbling
everywhere.

For the past twenty-five years, I have grown accustomed to hearing
statements that all the troubles occurred while I was Premier. Some
Labor politi- ans who were on the outer fringe at that time have since
had a fear-complex. It has been with them now for more than a quarter of
a century. "We don't want a repetition of what happened to the Lang
Government" is the bogey they feed to the more youthful members of their
team, who have no real knowledge of the history of that period. I am
represented as the man who brought about all the troubles.

That does not cause me any concern. What is really disturbing, is that
it is invariably used as a clinching argument why a Labor Government
should not oppose the Big Battalions of finance. The inference is that
if you go quietly, they will look after you.

My crime is supposed to be that I stood up for the Labor principles.
Instead of surrendering to the demands of the Big Four, Sir Otto
Niemeyer and the Bank of England, I had the audacity to fight back. What
happened later was supposed to be the result of that decision.

So now as soon as these latter-day Labor leaders get into any kind of
trouble, they "tut-tut" their way through with dire warnings to their
followers that the penalty of fighting back is political oblivion. So
when it comes to a choice between standing up for basic Labor
principles, or going quietly with the strength, they invariably go
quietly. That eventually means acquiescence in the plans of those bent
on undermining the Australian standard of living. It means subservience
to plans concocted overseas. It means walking blindly towards the abyss
of financial despair.

If they had a better conception of the real history of the period, they
would at least know that New South Wales was in the throes of the slump
before the fateful elections of 1930. Unemployment, business stagnation,
have at different times been laid at the door of the Lang Labor
Government were all in operation under the Bavin Government.

Capitulation to the demands of the overlords of Threadneedle Street

{p. 253} had not helped one iota. It had only tied this State to the
world crisis that had broken with the dramatic collapse of the New York
Stock market in October, 1929. Wool which had averaged 16.44d. per Ib.
in 1928 had dropped to 10d., or a fall of £25 millions, while wheat
which had been averaging 5/- a bushel was down to just half its price.
They were already burning coffee in Brazil, and every country that had
depended on primary products as exports found itself pushing uphill. At
the same time, the British moheylenders had stopped the flow of overseas
loans to Australia which had averaged £30 millions a year since the end
of the First World War.

In fact there are many points of similarity between the post-war stories
of the ten years following both the First and Second World Wars. From
1919 to 1929 was a boom period. Similarly from 1946 to 1956 there was a
large scale development, plenty of loan money, high eport prices and a
general boom as the world reconstructed.

Then the cost of borrowing started to rise. Interest rates went higher
and higher. Not only did Governments have to find more money, but
farmers, businessmen and home owners all had to pay a bigger share of
their income to meet the demands of the financial institutions and
private moneylenders.

The banks became nervous at the trend of prices. They decided to draw
off advances and play safe. They were afraid of another collapse similar
to that of the nineties. One way was to increase the cost of borrowing.
So first mortgages went up to 6 and 7 per cent., with as much as 10 per
cent. for money advanced on second mortgages. They didn't talk then
about restriction of credit. But the bank managers were calling up their
clients who had borrowed money on call, to tell them that they must
reduce their overdrafts. It was happening everywhere. The gloom
merchants had plenty of material on which to work, while the financial
houses believed that they were simply playing it the safe way.

Naturally the employers blamed high wages. Yet under the Bavin
Government, the State basic wage in New South Wales was 12/6 a week
lower than the Federal basic wage in this State. Neither did the
advocates of lower wages mention the fact that the States with the
lowest wages had the highest number of unemployed.

The Bavin Government had acted as if the entire problem of the slump was
one of wages. The workers were expected to carry the entire burden of
what was happening overseas.

They simply didn't grasp the elementary fact that if overseas countries
couldn't afford to buy Australia's primary products, then every effort
had to be made to sell them within this country. That could only be
achieved if the purchasing power of the people was maintained. Cutting
wages only defeated that. It meant that the people would be able to buy
less.

The Bavin Government had accepted the Financial Agreement and the Loan
Council. It had swallowed the Big Four's recommendations. It had
described the Bruce-Page amendments of the Commonwealth Bank Act and

{p. 254} the new plan of central banking as the salvation of the
country's finances, and a permanent insurance policy against all future
bank crises.

The Bavin Government had not only endorsed Sir Otto Niemeyer's Melbourne
Agreement, but had actually implemented it as far as possible. It had
rationed work. It had reduced public service salaries by 8 1/3 per cent.
It had increased the hours of work from 44 to 48. It had pegged wages at
a time when wages were still trying to catch up with the cost of living.
It had stopped recruitment of Public Servants.

If any of these measures was going to help arrest the Depression, then
Mr. Bavin with the help of Mr. Stevens had done everything humanly pos-
sible to carry out the Niemeyer doctrine.

But instead of improving, things were rapidly going from bad to worse.
There had been 100,000 unemployed on the books of the Trades Hall in
June, 1930. By the end of August the number had reached 125,000. The
percentage had gone from 16.3 per cent. in February, 1930, to just over
25 per cent. A quarter of the people were depending on the dole.

Wherever it turned the Bavin Government was in trouble. Its transport
finances were in a shocking mess. In November, 1929, Mr. W. J. Cleary,
General Manager of Tooth's Brewery had started work as Chief
Commissioner for Railways on a salary of £5,000 a year for nine years.
Later he had offered to forgo half of his salary because of the acute
condition of railway finances.

When the Railways went on the 48-hour week, the dismissals started in
earnest. In all, four thousand railway employees were dismissed. Most of
those remaining were on rationed time.

But the finances didn't improve. By the end of June, 1930, the Railways
were in the red to the tune of more than £2,750,000. Mr. Cleary was
finding that it was very much easier to show a profit on making and
selling beer, than in carrying it. It was expected that the loss for the
next year would be con- siderably more.

If people couldn't afford to travel on the railways, then they had to
lose money. The Bavin Government had tried to solve the problem by
increasing fares. But the unemployed couldn't care less. People just
stayed home, and the railways lost more money. There was nothing that
Mr. Cleary or Mr. Stevens, both eminent experts on figures, could do
about it. No one knew better than I did, that "as go the rail finances,
so goes the State budget." The Railways could bankrupt any Government.
Road transport was eating into their revenue. Farmers were using the
railways to carry produce and heavy goods, taking advantage of the cheap
concession rates that had been obtained as the result of Country Party
pressure. But when it came to parcels, groceries, and such things as
fertilisers, where road transport offered cheaper rates, they gave their
business to the truckers. Because of the Country Party, the Bavin
Government was powerless. So nothing was done.

The farmers were also in trouble financially. The hostile Senate had
thrown out the Scullin Government's proposal to give them a guarantee of
4/- a bushel. Mr. Thorby, the State Minister for Agriculture then proposed

{p. 255} that the Commonwealth should offer three shillings a bushel.
This was below the cost of production, and only sufficient to guarantee
that the banks would collect their interest.

The Bavin Government's only plan to meet the crisis was to impose its
Wages Tax of 3d. in the £, which was paid into a trust fund, to be
administered by the Unemployment Council. This Council could ignore all
awards and union conditions. Its chief idea was to get labor on the
cheap, ignoring the fact that wages were the only means of keeping
business going.

The Council was formed. It comprised three Ministers, Messrs. Stevens,
Bruxner and Farrar, with Sir Henry Braddon, M.L.C., who had been General
Manager of the overseas' controlled Dalgety and Co., A. K. Trethowan,
M.L.C., representing the Farmers and Settlers' Association, and two
trade union representatives - George Buckland of the A.W.U. and Oscar
Bryant of the Trades Hall. It was loaded against Labor.

At the first meeting, the Council started to distribute its funds to
local councils and shires. Then the union representatives wanted to know
whether award rates would apply. On being told that was not in the plan,
they promptly resigned from the Council. They refused to be parties to
planned wage reduc- tions.

Many suggestions were put to the Council. One of the most fantastic came
from the Feminist Club. They proposed that workless girls should be
taught rabbit-trapping and pig-farming. Even the reactionary
Unemployment Council was not prepared to arm single unemployed women
with rabbit traps and set them loose in outback areas.

Another suggestion was that uncleared Government land might be im-
proved by setting up semi-military camps in the bush where girls could
be employed on the work in return for food rations. That such a
suggestion could be seriously debated by responsible citizens showed
clearly to what sorry straits this State had been reduced.

Mr. Bavin was himself a sick man. The real leader of his Government was
his Treasurer, B. S. B. Stevens. There was a stage when the Premier was
recuperating on the estate of General James Macarthur Onslow, at Camden,
when the seat of Government was temporarily shifted there. Sir Otto
Niemeyer also turned up at the estate as a house guest.

There was great consternation when a statement appeared in the Sun and
Evening News to the effect that the Melbourne Conference had agreed to a
tax on interest, including bonds and mortgages, and that the Bavin Gov-
ernment was prepared to implement it.

It was one occasion on which the visiting emissary of the bondholders
moved with lightning speed. There was a call from Camden Park, and the
statement was withdrawn from the morning newspapers. No more was heard
of it.

It had earlier been announced that the Government would submit the
Melbourne Agreement to the State Parliament for ratification. But the
tide was running out. Mr. Bavin realised that he would have to stand up to a

{p. 256} withering attack. Some of the Nationalist members were unhappy
at develop- ments. Mr. Weaver was understood to be resisting the
Agreement inside Cabinet.

While all this was going on the Stock Exchange was reflecting the
growing uncertainty. Mr. Stevens made a gloomy speech at Epping, and
next day there was a heavy fall in security quotations on Exchange.

On September 19, 1930, Mr. Bavin skied the towel. He announced that he
would not meet the House again, but had advised Sir Philip Game to
dissolve Parliament. He was leaving office with the State rapidly
heading towards chaos.

That then was the actual state of affairs when we joined issue in
September, 1930, for one of the most momentous elections in the history
of New South Wales. The facts are completely against those who would
represent the story of the Depression in this State as the handiwork of
a Labor Government. We were unlucky enough to be called upon to inherit
the mess.

The stage had been set for one of the most exciting elections when
Premier T. R. Bavin entered the Soldiers' Memorial Hall at Killara on
September 18, 1930, to deliver the policy speech for the Nationalist
Government.

State politics completely overshadowed those of the Commonwealth. The
newspapers gave them much more space. New South Wales had become the
centre of political gravity. It was to be a battle with no punches pulled.

It was a time of crisis. There were two ways of dealing with the
situation. Bavin represented one line of thought - the Conservative,
orthodox school of finance, and reflected the views of those who
believed that the only way was to reduce wages, pensions, social
services and the cost of Government.

I represented the other line of attack. I subscribed to the belief that
we had on our hands a man-made Depression, and that the only way to get
the country back to normal was to fight back against the alien financial
intruders who were trying to reduce us to slave status.

So there was a gulf between us. Frankly, we didn't like each other.
There had been no beg-pardons in our relations. He had never forgiven me
for my exposure of the Khancoban Fishing Expedition, related in I Remem-
ber. I regarded him as the tool of outside interests. That helped to
give color to the conflict.

Political meetings attracted huge audiences at that time. Mr. Bavin's
was no exception to the rule. The North Shore rallied in their
thousands. Killara had never seen such a gathering. Inside on the
platform were the elite of the Nationalist Party. Prominent among them
was William Holman, K.C. He had gone over completely. While Hughes had
declared against Niemeyer, Holman was all for him. It was characteristic
of their final phases in politics. They were in Hughes' electorate. So
the Nationalists called on Holman to move the vote of thanks and give
the pledge of loyalty to Bavin at the close of the meeting. He was
thankful for even such a minor role. While those on

{p. 257} the platform cheered Bavin at every opening, my scouts reported
that most of the audience became more concerned as his recital proceeded.

The North Shore was just as much worried about the Depression as
Balmain. They too were seeking some hope for the immediate future. The
liquidators and the mortgagees were not class-conscious. They were
foreclosing on the big mansion in Wahroonga just as eagerly as on the
unemployed worker's cottage in Bankstown. So Mr. Bavin's audience went
along hoping to hear something to their advantage. They were bitterly
disappointed.

It proved a dreary recital of what had happened. Bavin never was very
jovial. Sir George Fuller would have glossed over the situation and
attempted to put everyone in a happy frame of mind. Not Bavin. He
revelled in political gloom. With him as pall-bearers, he had such dour
characters as Treasurer Stevens, Attorney-General Frank Boyce, and his
swashbuckling Minister for Mines, R. W. D. Weaver. There was also the
very idealistic Minister for Health, Dr. Arthur, who had dismissed the
pliht of the unemployed by saying that after all Australians did eat too
much and that they wore too much clothillg. Aiso on hand to see that the
Nationalists didn't run off the tracks were representatives of the
Country Party oligarchy.

Mr. Bavin didn't leave his audience long in doubt as to the issue. He
had decided to fight on a single plan. It was to be the Melbourne
Agreement reached by the PremieIs' Conference.

The Nationalists sought a mandate to ratify the Agreement. Their
strategy was to isolate me from the Federal Govermnent, led by Mr.
Scullin. Already they were trying to divide the Labor Party into two
factions - the politicians prepared to swallow the programme of wage and
social service cuts as offered to the trade unions, rank and file, and a
few Labor politicians who had rejected the policy of defeatism.

Mr. Bavin wanted the people of New South Wales to treat me as the odd
man out. First he had to explain the failure of his own Government. In
particular why it had repudiated pledges not to abandon the 44-hour week
or interfere with Widows' Pensions and other social services. It was
heavy going. Naturally he attempted to unload most of the blame on my
Government which had gone out of office three years previously. He also
blamed the coal strike. Also there was not enough self-sacrifice,
co-operation and hard work in the community.

Still he agreed that there had been a heavy decline in national income
because of a heavy fall in staple prices, and the cessation of overseas
bor- rowing. He admitted that these had brought about unemployment on an
unprecedented scale. Later, of course, his party tried to pass all the
blame on to me also.

He rejected the suggestion that unification of the States and Common-
wealth might be one way out. He was against absolute powers for the Com-
monwealth Parliament. He said it wouldn't reduce the cost of government.
The history of the past twenty years has proved him right on that.

Dealing with the Government's financial position, he said that the most

{p. 258} important factor was the railways. After telling how he
appointed Mr. Cleary as Commissioner, he admitted that, with the decline
in revenue, the financial position of the railways had become well-nigh
desperate. In whichever direc- tion he turned the story was the same.
Then came this amazing admission which completely refutes every
suggestion that I was responsible for the Depression. Mr. Bavin told his
Killara audience:

"Thousands of honest, industrious men, able and willing to work, most of
them with wives and families, find themselves for the first time in
their lives without the means of paying off the obligations they have
incurred for the purchase of their homes or their furniture, and with
nothing to meet the daily needs of themselves and their families.

"It means actual physical privation for tens of thousands of women and
children - or what to most people is even worse - dependence on charity.
It means the disappearance of their life's savings and the wreck of
their hopes and plans for the future of their families."

That was the stark truth. But what did Mr. Bavin propose to do? He had
reduced members' salaries by 15 per cent. He had cut public service
salaries by 8 1/3 per cent. He had repealed the 44-hour Act. He had
removed rural industries from all awards. He had legislated an
Unemployment Relief Act which enabled men to be given jobs for nominal
wages only. He had legalised rationing of work. He had cut social
service payments. He had also proposed an All-Party Council to find
other ways of reducing costs. What next was to be on the list?

What he didn t say was that every one of these measures had been
followed by an increase in the number of unemployed.

He then narrated how a Director of the Bank of England, Sir Otto
Niemcyer, had been invited by the Scullin Government to Australia. "It
should be clearly understood that the Bank of England is not a creditor
of Australia, and has ro direct interest in our finances," he added.
Then how the Premier had framed the Melbourne Agreement with the
assistance of Sir Otto Niemeyer and Sir Robert Gibson, Chairman of the
Commonwealth Bank.

He disclosed that the Melbourne Conference had been told that Aus-
tralia could not meet its London obligations, which were falling due in
a fortnight. There was a floating debt of £36 millions due, including
arrears of interest, bank overdrafts and Treasury Bills. The money could
not be raised in London, and Australia could not pay either in gold or
in goods. Then Mr. Bavin made this astounding disclosure:

"Default would have meant not only national disgrace, but immediate and
irreparable financial disaster. As soon as the decision

{p. 259} of the Melbourne Conference was published in London, the price
of Australian stocks immediately rose, and we were able to renew within
a few days £5 millions of Treasury Bills."

That was how the squeeze was operated. The City of London was playing
hard. Sir Otto didn't make a move without due preparation.

After devoting considerable time to a bitter attack on W. M. Hughes, Mr.
Bavin said Australia must pay its way. It had been living beyond its
means. It could not go cringing to its overseas creditors. The limits
had been almost reached. The banks were finding the gravest difficulty
in meeting the needs of their own customers. They had stated they could
not continue to meet the needs of either the Commonwealth or State
Governments, all of which had growing deficits. The only way out was to
reduce expenditure. So the Governments had decided that the only
possible road of escape from national bankruptcy was through the
Melbourne Agreement. The alternative was national insolvency.

If the Melbourne Agreement was repudiated, the State would go broke. If
rejected by New South Wales, it would fall to the ground. Mr. Bavin told
his audience that the New South Wales elections were to be the Battle
for Australia. That was the mandate he sought. He didn't give the
details of the further cuts and sacrifices it would entail. He did say
they would be spread "as equitably as possible over the entire
community." There would have to be a further reduction in the standard
of living. He gave a general under- taking that reduced wages would
bring about reduced prices, but didn't suggest how that was to be done.

He did however promise to bring in what he described as a "limited
moratorium" to assist those who through no fault of their own could not
meet their obligations. But the relief was to be confined to "those who
have made an honest attempt to pay their debts or where excessive rates
of interest are demanded for a renewal of a loan." It was very vague.

Then in his peroration, came what he regarded as his clinching argument
- the statement that he was fighting side by side with Scullin, Lyons,
Fenton, Hogan, Hill and others who accepted the Melbourne Agreement.

"For the first time in our political history - I am sorry it is the
first time, and I hope it will not be the last - I take my stand side by
side, shoulder to shoulder with the Labor Prime Minister, the Federal
Labor Government, and the Labor Governments in Victoria and South
Australia, in asking the electors to endorse a policy to which all the
Governments of Australia, Labor and Non-Labor alike, are solemnly
committed - a policy which they have all agreed is the only policy to
save us from grave and immediate disaster - a policy from which none of
us can recede without grave breach of faith and the most serious
consequences."

That was the challenge. I did not propose to shirk. I was ready to
answer it.

{p. 260} Labor's policy speech delivered by me in Auburn Town Hall on
September 22, was interpreted in London by the financial interests as a
declaration of war.

The Nationalist Government and Mr. Bavin quickly receded into the
background. It was to be a grim struggle for financial survival. I knew
that the overseas interests would do everything in their power to
prevent me be- coming Premier. So the only logical tactic was to take
the offensive first. That is precisely what I did.

If London proposed to make Repudiation the issue, then I intended to
make Sir Otto Niemeyer my political chopping block. He had asked for it.
He had butted into our domestic affairs. So the fight became centred
around the Niemeyer Mission almost exclusively.

It was almost as if Sir Otto was himself standing for election. Through
default he had become the real leader of the Nationalists. The people of
this State were to vote for or against his programme. It was rather a
unique position for a Director of the Bank of England to find himself in.

I pointed out that the State's granaries were bulging with unsold wheat.
The stores were crammed with unsold wool. A record harvest had been
predicted. Yet the Bavin Government was seeking a mandate to reduce
wages, that would only increase the appalling number of unemployed. It
would result in more wheat being unsold. More wool left in the stores.

The sole justification for such a policy had been the speech delivered
by Sir Otto Niemeyer. His treatment of the Governments of Australia had
been the most humiliating to which any self-respecting, self-governing
community had ever been subjected. He had actually summoned the heads of
Government to Melbourne. He had lectured and castigated the Premiers as
if they had been schooboys.

Sir Otto had claimed that he did not represent the British Government,
the British people or the British investors. The only assumption could
be that he had come in his capacity as a member of the Board of the Bank
of England.

Yet Australia did not owe a bent sixpence to that institution. He had,
in effect, told the Governments of Australia that unless they abandoned
the Scullin tariff, and lowered our standard of living, the London
financial interests would take advantage of Australia's temporary
embarrassment to squeeze her on the London money market.

He had further predicted that the financial embarrassment would not last
beyond 1931. He even had a time-table of the Depression at his elbow. So
the London financier had a bare 15 months in which to degrade Australians.

Their immediate aim was to bring the Australian standard of living down
to that of agrarian Argentina. There the peons were living on the smell
of an oil rag.

British investors had a large stake in the Argentine at that time. They
made huge profits from Argentine meat. But they were not interested in
the welfare of the Argentine people. The peons were living like gypsies. The

{p. 261} Niemeyer doctrine was to bring Australian rural workers down to
a similar gypsy standard.

By herding Australian rural workers into ramshackle, insanitary
buildings, and reducing their wages to a miserable few shillings a week,
Australian agricultural workers would be providing labor competitive
with that of the Argentine. Mr. Bavin had already cleared the way by
abolishing rural awards. But would Australia be able to get out of her
difficulties that way?

Despite their low wages, and their gypsy standard of living for the
peons, Argentine wheat farmers were no better off than Australian wheat
farmers. There was in fact a revolution raging in the Argentine because
the Government had been unable to find markets for the surplus wheat and
other pro- ducts.

Or, again I asked, would a reduction of wages save the tin industry at
Tingha? The largest tin mines in the world were in Malaya. The wages
paid for labor in Malaya consisted of a bowl of rice and a loin cloth.
Yet the Malayan tin fields had ceased production because there was no
market for tin.

Did Sir Otto suggest that Australians should be satisfied with a bowl of
rice and a loin cloth? If we reduced to that standard would we be able
to sell our produce?

Even Mr. Holman, at the first suggestion of the Niemeyer Plan, had said
that he did not see why we should sell ourselves into slavery for £36
millions. Under pressure he had recanted his heresy against the dogma as
laid down by the Bank of England.

Australia was being used by the London money market as a horrible
example. It was being held up to the Argentine and other countries to
show what happened to countries who tried to make their standard of
living too comfortable for the people. If Australia could be forced to
depress wages and living standards, the other colonials would be easier
to keep in subjection.

The Australian Governments should have told Sir Otto that having
resisted government from Downing Street for more than 100 years, we did
not now propose to accept government from Threadneedle Street. Instead
there had been an unholy scramble by the Premiers to obey the dictates
of Sir Otto, with Mr. Bavin and Mr. Stevens outdistancing all their
colleagues.

Sir Otto was taking advantage of two factors. Firstly, the fact that
there was a floating debt in London. Secondly, the adverse trade
balance. Neither was new. What difference was there between an adverse
and a favorable trade balance? When Australia had a favorable trade
balance we didn't dun Britain as a debtor nation. It was almost
impossible to conduct business on a strictly balanced trade balance. It
never worked out that way.

The Loan Council had given the London financial interests a lever they
had long been seeking. Previously State Governments had acted
independently. They were competitive. But now the entire financial
operations of the seven Governments had been drafted into the one
channel. Down the years they all

{p. 262} had floating debts. Now they were lumped together, and London
was talking as if Australia was insolvent.

On two occasions Labor Governments in New South Wales had rejected the
advice they had received from London that credit would not be available.
In 1920 the banks had refused to underwrite a loan of £2 millions to
help the farmers. I had gone direct to the public and had raised £3
miilions without the cost of London underwriting. In 1927 the London
underwriters had refused to undertake a £12 millions Conversion loan.
They said they could raise only £5 millions. We had ignored their
advice, and had gone on to the market and had no difficulty in raising
£13 millions.

By going into the Loan Council, the Bavin Government had tied up this
State with Federal finance. We had become involved in such questions as
tariffs, and trade balances. Previously we had raised money on the basis
that it would be invested in works that would be productive - would
return their capital and interest.

The Harbor Bridge was an example. It had been financed on the basis of a
toll that would liquidate the capital debt as well as pay the interest.
The electrification of the city railways was already more than paying
their interest in direct return through savings effected on the railways.

Every penny of money invested in New South Wales could return the
interest on the money borrowed. My policy was to get rid of the shackles
of the Loan Council and recover our financial independence. State
Governments could not be servile to Federal Governments and remain
sovereign States.

What applied to private business also applied to governments. Private
firms borrowed all the money they needed to develop their enterprise.
Their test was whether or not they could use it profitably. Governments
shou]d operate under the same principle. Most large firms depended on
borrowed money. So did Governments. But if the overdrafts were called up
too quickly, then the firm was in trouble. That was happening everywhere.

Governments had to have more borrowed money if they were to expand. The
alternative was to reduce spending and paralyse development. That meant
more unemployment and stagnation. To put men back to work, money would
have to be raised locally if London refused to make money available.

Dealing with repudiation, I pointed out how the Bavin Government had
repudiated its 1927 pledges. It had repudiated the contract of
employment given to A. D. Kay and had then debarred him from the rights
granted under Magna Charta giving him access to the courts. Mr. Bavin's
only excuse was that he didn't like A. D. Kay.

It had repudiated my agreement with St. Andrews' Cathedral to exchange
the George Street site for a new site at the Mint.

It had repudiated its pledge not to interfere with Widows' Pensions. He
had recanted on his pledge not to interfere with the 44-hour week. He
had promised the mothers he would not interfere with Child Endowment,
but had robbed them of 5/- a week for the first child. He had said he
would not re-

{p. 263} duce wages but had done so legislatively. He had promised to
uphold Abitration and had then passed a law to disallow awards of tbe Court.

That was his ignominious record of repudiation, I told my Auburn
audience. "Who was he to talk about repudiation? Labor is against the
repu- diation practised by Mr. Bavin as well as against the repudiation
preached by Mr. Garden."

Mr. Bavin had previously stated that a Moratorium was fraught with
menace for the whole of the Australian people. In his policy speech he
said that if returned he would consider such a proposal. At the same
time his Treasurer, Mr. Stevens, was saying that the rate of interest
could not be fixed by Parliament.

In the previous twelve months thousands of people had lost their homes
and their businesses. The Government had done nothing to help them.
While wages had risen, no action had been taken to bring prices down. It
had just entered into a contract for the purchase of cement at 3/6 a ton
higher than when the 44-hour Act was operating, and when award wages
were higher. The Nlemeyer Plan seemed to mean that the workers would
have to pay 1930 prices out of 1914 wages.

That then was the issue we put before the people. They were to vote for
or against the Niemeyer Plan. The Bank of England was right in the front
line.

40 State Savings Bank Became an Election Pawn

THERE IS NO CHAPTER in the political history of this State more tragic
than the circumstances under which the Government Savings Bank of New
South Wales became a pawn used in the 1930 election campaign. It quickly
resulted in the wrecking of a great institution. It also deprived this
State of one of its greatest assets.

The Government Savings Bank of New South Wales had always been regarded
by the Labor Movement as the People's Bank. Its activities had been
fostered by Labor Governments. Its depositors were principally the
people on low incomes.

Labor Governments had extended its activities so that it provided
finance for building homes on as little as 10 per cent. deposit. We had
also authorised it to go into rural finance to assist the small farmers.
We had encouraged the opening of school bank accounts, so that most
children attending school had small deposits and were educated in
thrift. We realised that the Common- wealth Bank was jealous of all
these activities and envied the State Savings Bank, as it was generally
known.

{p. 264} In addition, it was competitive with the private banks, and
Labor had decided that the time had arrived to transfer Government
accounts to the institution owned by the State. All these provided
reasons why our opponents were opposed to the Bank.

In spite of their opposition it had grown. We had provided it with the
most modern banking chambers in the Commonwealth on the Martin Place
extension. At the time of the 1930 elections it had no less than
1,300,000 depositors, and was the second largest savings bank in the
world. Beside it the Commonwealth Savings Bank was only a pygmy. Our
State Bank was showing handsome profits, its deposits exceeded its
advances and it had large accumulated reserves. It had built more than
25,000 homes and had advanced money to more than 50,000 farmers.

The Depression had had an adverse effect on savings. People who were
unemployed could not get the dole until their savings had been
completely exhausted. In all, approximately £6 millions were withdrawn
during the period of the Bavin Government.

Still there was nothing alarming about that. No bank can ever repay all
of its depositors all of their credit balances at the one time, any more
than an insurance company could redeem every policy in case on the same day.

The assets of such institutions are divided roughly into two parts. The
larger portion is lent out at a profit to various types of borrowers.
The Bank retains, in liquid form, sufficient to meet all predictable
demands. It is when the demands on those liquid assets become too heavy
that the bank has to look elsewhere for assistance. Otherwise there is a
run.

ln 1893 the run had started with the building societies. Then, on Black
Friday, all but one of the private banks had closed their doors because
they didn't have sufficient cash to meet the demands of depositors
trying to make withdrawals.

A bank panic is a terrible experience. It never occurs while there is
confidence in the institution. But once confidence is undermined, then
the bank is in trouble. One of the claims made by Dr. Page in 1924, when
altering the Commonwealth Bank Act, was that the Commonwealth Bank would
be able to avert all runs.

As the election campaign became hotter, the Bavin Government found
itself on the defensive trying to justify its wage and pension reduction
legislation. So it fell back on the old political habit of manufacturing
bogeys. It started simply enough. They decided first that they would
attack me as a Repudiationist, and attempt to link my name with that of
Jock Garden. But they had tried that before, and as more and more people
flocked to our meetings, they became more and more worried. They were
particularly dis-urbed to find that the public servants were on the
platform advocating the overthrow of Bavin and Stevens.

Their scouts reported that amongst those attending Labor meetings were
people who had previously supported the Nationalists. When more than
20,000 people turned up to one of my meetings in Waverley, when there were

{p. 265} similar crowds in Drummoyne, North Sydney, and even Manly, it
became apparent to their headquarters that things were becoming really
desperate.

It was then that they decided to throw the Government Savings Bank into
the ring. For them it was simply a scare stunt. If they could convince
everyone with a Government Savings Bank passbook that the return of a
Labor Government would imperil their savings, they believed they would
quickly regain the advantage.

So their campaign was launched. At first it was principally a whispering
campaign conducted by door to door canvass. The housewife would be asked
"Do you or your husband happen to have any money in the Government
Savings Bank?" If the answer was "Yes," then she was told that she
should be very careful about returning "that man Lang." He would steal
their savings.

 From the platform, the story went another way. "Where is Lang going to
get the money to finance the State? He is repudiating the Niemeyer
Agreement. He won't be able to get it from the trading banks. So where
will he get it?"

Then they proceeded to answer their own hypothetical questions. Lang had
said he was going to raise the money locally. Well, of the £89 millions
that had been raised locally no less than 34 per cent. had been provided
by the Savings Banks. "If he wants more money, won't he take it out of
the Savings Bank? Will your deposits be safe?

The Premier, Mr. Bavin, told an audience that the return of a Lang
Government would destroy this State's credit in London and effect the
finan- cial stability of every institution.

The Sydney Morning Herald wrote leaders aout repudiation, Jock Garden,
and the terrible risks of a Lang Government.

The Treasurer, MJ. Stevens, told an audience at Cowra: "It should be
remembered that this year the Governments are spending £15 millions of
loan money and this money has to be raised in Australia. That can only
come from the savings of the people."

 From platform after platform, the phrase "from the savings of the
people" was hammered home. To the average person it had only one meaning
- from their deposits in the Government Savings Bank. Sir Daniel Levy
predicted that if we won there would be a financial panic, not only in
New South Wales, but all over Australia.

The campaign was getting warmer all the time. The Sydney Morning Herald
refused to accept some of our advertisements. It was getting so worried
about the outcome that election propaganda crept into the strangest
parts of the paper. One story was headed: "The Blue Mountains;
Magnificent Scenery; Peril of Mr. Lang as Premier." On reading it, it
was found to be a boost for the Sydney Mail, the illustrated paper of
the period. But sub-editors were expected to get anti-Lang propaganda in
everywhere possible.

Finally, the Nationalist headquarters threw all discretion to the winds
and published advertisements warning electors that if Labor was returned,

{p. 266} Lang would seize their savings. They didn't mention the words
"Government Savings Bank." But their meaning was quite clear.

Colonel Bruxner in a speech said that repudiation would "deprive
thousands of our fellow citizens not only of their promised interest on
their investments, but of the savings themselves." Nothing could be
stronger than that.

I realised just how damaging all this propaganda was to the Savings
Bank. I issued an emphatic denial that we proposed to steal the people's
savings. I reminded them that in 1910, Andrew Fisher had been just as
viciously attacked over the baby bonus, and that the Liberal
propagandists had said that Federal Labor would break the marriage tie
and steal the people's children. Now they were only accusing us of
stealing their savings.

Meanwhile, all the propaganda was having a most damaging effect on the
Bank itself. During the quarter ending September 30, withdrawals hd
amounted to £3 millions of which over £1 million went into a
Commonwealth Loan. During the election month of August, withdrawals
amounted to just on £1 million.

The propaganda was not doing much harm to us politically, but it was
doing great harm to the Savings Bank.

The President of the Savings Bank, Mr. H. D. Hall, became so worried
about the trend that he rushed down to Cootamundra to interview the
Premier, Mr. Bavin. He told him that the Commissioners could not be
responsible for the future of the Bank if the political propaganda
continued. Mr. Bavin expressed great concern, and gave an assurance that
he would not coun- tenance any attacks on the Bank. In fact he did ban
one speech by one of his most prominent supporters, which was predicting
a run on the Bank. He also made a speech denying that he had made or had
authorised any state- ment that Lang would appropriate or confiscate the
savings of the people. "Not even Lang is mad enough for that," he added
venomously. But the more they talked about it, the more the propaganda
sank in.

The Commissioners again met and were so worried about the increased
withdrawals, that they issued a public statement:

"The administration of this bank and the absolute control of its funds
are vested in three Commissioners appointed by the Governor. They can
only be removed from office by the Governor, supported by resolutions
passed by both Houses of the State Parliament. Their tenure of office is
therefore the same as that of the Judges. "The Policy of the
Commissioners and their administrators is not subject in any way to
direction, control or veto by the Government."

(Signed) H. D. Hall, President; R. W. May, A. W. Turner, Commissioners.

But the damage had already been done, and the three Commissioner Canutes
could not hold back the tide.

Their position was not made any better when on the day before the elec-

{p. 267} tions, the Acting Labor Prime Minister, Mr. Fenton, in a speech
at Ballarat, said he had been told that the Savings Bank of New South
Wales was about to close its doors. Who told him? He did not say. The
Savings Bank did weather the State elections, although it had been
undermined and left in a perilous state. The Commissioners were still
trying to save it from the wreck.

All this happened while Mr. Bavin was still Premier. The Savings Bank
had been dynamited by the Government as part of its election campaign.
Yet for years later I was to hear the parrot cry "The Lang Government
wrecked the Government Savings Bank." I will tell who really did the
wrecking. It wasn't the Labor Government.

41 London Was Shocked When I Won

IT IS ALMOST IMPOSSIBLE to realise at this distance of time, the great
interest that was taken in the New South Wales elections in London.
Already I had been built into an ogre. "That man Lang" had become a
bogey man. The London financial papers all predicted dire ruin for New
South Wales if Labor ousted the Nationalists. Federal politics were not
mentioned.

I had attacked the private banks, three of which had their headquarters
in London. I had campaigned against the Niemeyer Mission. That was an
assault on the financial citadel of Threadneedle Street itself. I had
questioned the rights of overseas bondholders to exact tribute for war
debts at higher interest rates than the British Government was itself
paying. All these things upset the firmly-held conviction in London that
the colonies had been given self-government in name only, and that
Dominion politicians should realise their proper place in the scheme of
things - and that they should render due tribute to their betters.

"Lang is a Repudiationist." That was the tenor of most stories appearing
in English newspapers. The London Times, the Financial Times, Morning
Post and other papers all published dire warnings which were then cabled
back to Sydney to appear in the Sydney Morning Herald. It was almost as
if I had proposed to cut the painter.

Nothing I had said was in any way as violent as statements that had been
made many years before by Dr. John Dunmore Lang or Henry Parkes. My
offence was that I insisted on placing the needs of our own people
before the dictates of the City of London.

If there was any conflict with London then it was neither of my making
nor my seeking. They were trying to enforce their will on the people of

{p. 268} Australia. I refused to believe that the Australian people
could not work out their own destiny without their interference. So the
battle was joined. My appeal to the electors was for the preservation of
Australian ideals and an Australian standard of living.

As a final effort, the Nationalist Party tried to make me out as a
Communist. In full page advertisements on the eve of the poll, they
screeched: "Destroy This Communism and its Friends."

The advertisement took this line: "Garden boasts he is a Communist.
Garden supports Lang. So Lang must be a Communist." "Beasley supports
Lang. Beasley was President of the Labor Council. The Labor Council is
affiliated with the Moscow Red International of Trade Unions. So Lang is
a Communist."

It was all so very naive. Yet they thought that it would sway votes. The
final line was "To Protect Your Jobs, Your Homes, Your Savings - Vote
Nationalist."

But neither Bligh Street, Sydney, nor Threadneedle Street, London, could
stop the tidal wave. The people had made up their minds. They were not
prepared to accept Depression without a fight. They were not interested
in the Melbourne Agreement. They refused to accept Sir Otto Niemeyer as
Sir Oracle.

The election was held on October 25. That night as the figures were
posted in the Tally Room the result was not long in doubt. By 9.30 p.m.
it was all over. The Nationalists had been routed.

Labor had scored a record victory. ...

The people of New South Wales had rejected the policy of deflation. They
had given Labor a mandate to fight the Depression. They had also
rejected the frightened men of the Federal Labor Government in Canberra.

Of the Curtin Government only four Ministers had supported Labor. They
were Frank Anstey, Arthur Blakeley, Senator Daly and J. A. Beasley. They
had all appearcd on my platorm at Canberra. Curtin, still a back
bencher, came to Sydney and made many brilliant speeches against
Niemeyerism.

{p. 269} J. A. Lyons and Acting Prime Minister Fenton had tried to
sabotage the Labor Party here. At a critical stage during the elections,
they had actually called a special Cabinet meeting for the purpose of
considering the financial position of the Commonwealth. They had
conferred with Sir Robert Gibson, whom I had already been told would do
anything to defeat me. But Fenton and Lyons didn't have the numbers at
that stage, so the meeting was deferred until after polling day. I had
to go to Canberra myself to make certain they would not sell us out.

On election night, the Labor supporters were jubilant. All over the
State could be heard the popular song of the period "Happy Days are Here
Again," with appropriate references to both Mr. Bavin and myself.

While there was gloom at Nationalist Headquarters, it was nothing to the
gloom in other places. Mr. Bavin took his defeat quite weU. He said
there was no need for panic. He even thought I still might come around
to implementing the Melbourne Agreement. He still didn't know me. The
Acting Labor Prime Minister, Mr. Fenton, broke his silence to say "Well,
it's a wonderful win." His Acting Treasurer, Mr. Lyons, refused to
comment but I had no illusions about his feelings. For him it was a defeat.

The Sydney Morning Herald was very sour. The national honor had been
besmirched. Default was inevitable. It refused to withdraw anything it
had said about me during the campaign. It oozed forth crocodile tears
about the unfortunate unemployed.

The Sydney Sun which had been almost hysterical in its hate, suddenly
became wise to its own circulation problem. After studying the figures,
it announced that it was above all a non-party paper. That was the jest
of the aftermath.

But it was the reaction from London that was most illuminating. With
Bourbon-like consistency, the leader writers of Fleet Street refused to
withdraw a single sentence. To put it mildly, they were shocked. They
didn't think that it could possibly happen in the Empire. It caused them
to doubt the loyalty of the people of New South Wales. For God, King and
Country seemed to have lost all meaning in such a benighted region.

The London Times devoted itself to a leader which was apparently at that
stage written more in sorrow than in anger. The anger was to come later.
The Thunderer declared, 'Mr. Lang's return to power in New South Wales
is doubly unfortunate."

It didn't explain precisely why it believed that it had suffered the
double blow. No doubt many of its friends believed that it was a
knock-out. It was probably thinking of poor Mr. Scullin, who was due to
be admitted to the ranks of the Privy Council. I had been having enough
trouble from him al- ready. But could Scullin handle Lang? The Times had
its doubts. It had been tough enough getting Scullin on the dotted line.
Now all the work seemed to have been wasted.

The London Daily Mail, then the paper with the biggest mass sale in
Britain, was just as disarming. It said "Mr. Lang's victory will be received

{p. 270} with regret." Again it didn't particularise. It wasn't speaking
on behalf of the British working people. It may have been worrying about
the effect it might have on Ramsay MacDonald or Philip Snowden.

The London News Chronicle gave its readers a pen-picture of me. "Lang is
one of the wilder opponents of the only possible basis of settlement."

That came from a paper that had in its time represented the Whigs as
against the Tories. But it was above all for the bondholders.

The London Morning Post - since defunct - reflected Tory opinions when
it told its readers "The win registered by the party led by Mr. Lang is
serious and cannot fail disturbingly to affect Australian credit."

The fact was that when the Sydney Stock Exchange opened for business on
the Monday following the polls, most quotations hardened and prices rose
generally.

But it was left to Sir Otto Niemeyer himself to add the final touches.
He had lost the elections. So who was better qualified to make a
statement? The Bank of England could not regard a defeat as anything
less than most serious. So the only way out was to deny everything. Had
I been defeated, he would no doubt have been exultant. Now he had to
retreat, in military parlance, to a previously prepared position,
awaiting the next offensive. His statement in full read:

"While the New South Wales elections hung in the balance, it did not
seem proper for me to make any comment which might be taken to have a
bearing on domestic political issues with which I neither have nor
desire to have any concern. But now that those issues have been decided,
I should like to state categorically the following facts: -

(1) I came to Australia at the invitation of the Commonwealth
Government, arising out of that Government's having asked the Bank of
England for advice in dealing with its maturities.

(2) "There has never been any question of the Bank of England taking
over Australia's overdrafts in London. It will be obvious that the
problem is how to deal with those overdrafts and short debts by issues
in the market.

(3) "Mr. S. M. Bruce had nothing whatever to do with my coming, of which
he, no doubt, heard for the first time on the day when it was announced
by the Commonwealth Prime Minister.

(4) "Such advice as I have given was given at their request to the
members of the Loan Council at Canberra early in August, and to the
Premiers of the six States and the Commonwealth Premier later in August
at Melbourne. It was for these gentlemen to decide whether or not to
accept that advice; and it was they, and not I, who published the
statement which I had made to them. The Melbourne Agreement was not an
agreement with me, but an agreement between the seven Premiers

{p. 271} on what they considered to be the best policy to follow in the
interests of Australia.

(5) "I do not represent either overseas bondholders or British
manufacturers, and have never in Australia discussed the position of
either of those bodies of persons. The only institution which I
represent is the Bank of England, which has no interest in Australian
finance other than a desire to serve the public interest by averting
serious financial difficulties. The advice which I have given was based
solely on the consideration of what is in the best interests of all
parties and classes in Australia, so far as 25 years' practical
experience of public finance enables me to form any conclusions on this
matter.

(6) "I have neither said nor implied that Australia must be a hewer of
wood and a drawer of water for other countries. What I have said is that
for a considerable period of years Australian manufactured goods are not
likely to play any effective part in her export trade.

"Australia has a number of serious problems to face, and my reason for
writing this statement is the undesirability of time and energy being
wasted on a number of irrelevant matters based on incorrect information."

If that was the position, the only mystery that remained to be solved
was why he had come here at all. If the Bank of England had no intention
of assisting, what right had he to summon the Premiers to the Melbourne
Conference? His views were not a garbled version, pin-pointed by
newspaper reporters. They were in the official record of proceedings
issued by the Com- monwealth Government. Sir Otto hedged on phrases
used. But the content of his plan was there for everyone to read. He was
altogether too innocent after the event.

The fact remained that London had tried to butt into the politics of New
South Wales and had been rebuffed by the electors.

42 Taking Over a Bankrupt State

WITH THE DEFEAT OF MR. BAVIN, I had no illusions about the task ahead
for a Labor Government. The State of New South Wales was virtually
bankrupt. The Budget was nowhere near balanced. The cost of feeding the
unemployed was heavy. There was no money in the Treasury for public works.

{p. 272} The Scullin Government was completely confused. We had been
left the legacy of the Niemeyer Agreement.

One of the healthiest signs was that the Stock Exchange recovered
quickly after polling day. Businessmen were looking for the slightest
sign of a possible recovery. Conditions had never been worse. The dole
ticket had become the principal instrument of currency.

I was not left long in doubt as to the kind of resistance I was going to
encounter. From Melbourne came a statement by the Chairman of the
Associated Banks, Mr. C. H. Tranter. He said:

"I think it is a great pity that Mr. Lang won. It will delay the
adjustments needed to meet falling prices. But it will have no more
effect than that. Mr. Lang will be able to do very little. Anything like
a panic is to be deplored. People must not be foolish and throw away
good securities just because a reactionary happens to become Premier of
an Australian State. Certainly no one will sell good securities on a
weak market to raise money to invest in Mr. Lang's schemes. He will not
be able to float loans abroad even at fabulous rates of interest. The
effect of Mr. Lang's win on the position abroad would be bad. Mr. Lang
is a reactionary and opposed to good economics. People had been saying
that Australia had touched rock bottom. Now they did not know what was
going to happen."

That made it perfectly clear that I was not going to receive any
assistance from the private banks, who were operating as a combine. But
to call me a reactionary, seemed to put the bankers on the same side as
my Communist critics. They also called me a reactionary. Most other
people seemed to regard me as a radical or an extremist.

C. M. McDonald of the Employers' Federation, and John Storey of the
Chamber of Manufactures both promised they would co-operate with the new
Government. Storey said everyone realised that the Government had a most
difficult task ahead of it, and they would do everything in their power
to help bring the country back to normal conditions. ...

{p. 275} 43 Federal Caucus Had Marathon Struggle

WHILE lT IS QUITE TRUE that political hindsight is much easier to
acquire than political foresight, it is almost incredible at this stage
to believe that the Labor Movement was split in 1930 because of the
Niemeyer demand that the Scullin Government should reduce expenditure by
approimately £4 millions.

When the amount raised by the Commonwealth to wage the World War II is
considered it assumes astronomic dimensions in comparison with the
amount needed then to provide work for the unemployed.

Under the Melbourne Agreement, better known as the Niemeyer Plan,

{p. 276} the Commonwealth, as well as the State Governments, was
committed to balancing its Budget. The Acting Prime Minister, Mr.
Fenton, and the Acting Treasurer, Joseph Aloysius Lyons, were both eager
to comply. For weeks they prepared plans and figures. They called in
experts. Increased tariffs had not brought in increased revenue. Imports
were dropping because people could not afford to buy the goods that were
already in the country.

The leader of the Nationalist Opposition, Mr. J. G. Latham, was the
first to submit a plan. He proposed that the Public Servants, Post
Office and members of Parliament should contribute £1 million towards
meeting the deficit.

He next proposed that the Maternity Bonus should be reduced to save
£200,000. Next, that the grant of £1 million made by the Scullin
Government for unemployment relief should be withdrawn, and that the
vote for new roads should be reduced by £1 million. His other
recommendations covered reductions in the amounts paid for bounties,
coal subsidies and industrial peace tribunals to make the total Budget
cut of £3,990,000.

Fenton and Lyons both agreed that the amount should be around that
figure if not more, and went about drafting their proposals. Cabinet had
a meeting in Sydney. That was most unusual. The real purpose was to meet
the Commonwealth Bank Board, which comprised Sir Robert Gibson as
chairman, E. C. Riddle, Governor, R. B. McComas, J. McKenzie Lees, R. S.
Drummond, J. T. Heathershaw (Secretary of the Treasury), and Maurice
Duffy. With the exception of Duffy, they were all Bruce-Page appointees.

Duffy was Scullin's nominee, being Secretary of the Melbourne Trades
Hall Council. The Scullin Government had just given Sir Robert Gibson
another term to the consternation of most members of Caucus.

The Fenton-Lyons draft plan provided for: Reduction of all Ministerial
salaries by 15 per cent. Reduction of salaries of members of Parliament
by 10 per cent. Pensions to be reduced by 10 per cent. Economies in
Australia House, London. (These would only be trifling.) Reduction of
Commonwealth Public Servants' salaries on a graduated scale with an
average cut of 12 per cent.

There was also a suggestion that there should be increased taxation on
income derived from property or interest.

Sir Robert Gibson had delivered the Bank Board's ultimatum. It was, that
the Bank was no longer prepared to provide unlimited finance for the
Commonwealth Government until such time as it had reduced its
expenditure. He insisted that the Melbourne Agreement had to be
implemented all the way.

The Rump Cabinet left behind by Mr. Scullin was still hopelessly split.
The majority, comprising Fenton, Lyons, Forde, Barnes and Blakeley were

{p. 277} prepared to submit to the Niemeyer dictates. Anstey, Beasley,
Texas Green and Senator Daly refused. Cabinet broke up without finality
pending a meeting of Caucus in Canberra.

Anstey was fighting mad at the suggestion that a Labor Government should
surrender to the banks. He referred to Sir Otto Niemeyer and Professor
Gregory as "those cormorants and vultures of finance whose sole aim is
to devour the living standards of the Australian workers."

Lyons, slowly emerging as the leading reactionary of the period, took
the stand that the country had reached a critical stage and that no
measure that would help the Commonwealth to balance its Budget should be
considered to be too drastic.

Anstey and Beasley wanted Cabinet to agree to a bill to cut all interest
rates in the Commonwealth. At that stage they were branded as Repudia
tionists. Later Lyons was himself to bring in a Bill proposing just that
course of action.

Fenton was bewildered at the turn of events. He had two parties - the
Niemeyer Party and the Anti-Niemeyer Party. Which was to prevail?
Scullin was too far away to be helpful. The newspapers were hounding
Fenton. He just refused to talk. The country was without even a shadow
Prime Minister.

So on October 27, two days after the defeat of the Bavin Government,
Caucus assembled in Canberra. It was one of the most historic of all
Federal Labor gatherings. These days it is usually thought that the
split occurred at the time of the Premiers' Plan. It was on long before
that. It first emerged at the Caucus Meeting to consider implementing
the Melbourne Agreement.

One of the major factors was to be the role of the A.W.U. It virtually
had two Ministers in the Cabinet. John Barnes, Minister for Works, was
still its President, and Arthur Blakeley, Minister for Home Affairs, had
pre ceded him in that position.

The A.W.U. was ultra-conservative. Its General Secretary, Ted Graynper
dler, had bucked the other unions when he went to the United States on a
Bruce-Page mission. The 1927 faction fight in New South Wales still
rankled. Jack Bailey was still a force behind the scenes. Scullin had
been a member of the A.W.U., and the John Wren interests in Melbourne
were right behind the A.W.U. because Scullin was also a Wren man.

Had there been two opposing parties they could not have been more
divergent than the two sections of the Federal Labor Party. It was
almost as if Lyons had already decided to cross the floor to join the
Nationalists. He was even more of a Conservative than Latham.

The Caucus meeting turned into a marathon. For almost three weeks they
argued, made threats and put up alternative schemes. I was not in it,
although I was kept fully informed of what was happening. Anstey,
Beasley and Daley knew they had my support. But the fight itself was
within the Federal Caucus. To be or not to be - that was the question as
to whether the Niemeyer Agreement was going to be swallowed by the
Scullin Government.

{p. 278} My win had given Anstey and Beasley their mandate. It was proof
that the Australian people did not want Niemeyerism. Had the Scullin
Cabinet at that stage decided to fight against the Depression as it
should have been fought, the entire history of the Labor Movement would
have been different. There would have been no Premiers' Plan split. The
Scullin Government would have survived.

But Lyons and Fenton were afraid of the Commonwealth Bank Board. They
were more worried about what Sir Robert Gibson might say than what the
people of Australia had so clearly said through the ballot box of New
South Wales. That had been the test, and the only test.

At the same time they were prepared to compromise on their adoption of
the Latham Plan. Their alternative was to resign immediately. At one
stage it had even been rumored that Texas Green and Frank Forde might
follow them out of Cabinet. That was highly improbable to anyone who
knew the gentlemen concerned.

There were all kinds of suggestions about how the split could be
averted. One proposal was that public servants who accepted voluntary
salary reductions could be given special tax exemption. Cabinet agreed
on one plank finally. That was to accept a 15 per cent. reduction in
their own salaries. But they were not prepared to insist on the 10 per
cent. reduction for private members, who were at that stage receiving
£1000 a year. Cabinet didn't think that Caucus would accept that
recommendation. The alternative suggestion was that private members
might be invited to make a voluntary cut of their own. So it went on.

Meanwhile Fenton was in touch with Scullin in London. He wanted Scullin
to return immediately. But the Prime Minister decided to remain in
London. He had too many engagements. One was to be admitted to the Privy
Council and another was to visit his ancestral home town in Ireland. In
any case Scullin never did have any stomach for crises involving making
personal decisions.

There was a big roll up in Caucus, as both sections of Cabinet canvassed
for rank and file support. Theodore made his first re-appearance after
Mungana. J. Mathews, the member for Melbourne Ports, who had become an
invalid, was brought to Canberra specially. A single vote might sway the
day.

Cabinet held another meeting to see whether they could reconcile
differences and present a united front to Caucus. The meeting lasted
from early morning until 3 p.m. when Caucus had been summoned. Lyons and
Fenton reluctantly agreed to drop the proposals previously carried by a
majority of one, to reduce salaries of Ministers, Members, and the
Commonwealth public servants. Lyons agreed to revise his Budget
proposals and to include a provision to tax what were called the
"sheltered-incomes," as well as to provide a new tax on property. He was
still determined to cut the Budget by £4 millions.

For the time being it looked as if they had bridged the gap. But Caucus
was in no mood for compromises. They had interpreted the defeat of
Niemeyerism at the hands of the electors of New South Wales as a mandate to

{p. 279} stand up against overseas domination by any banking combine or
any Bank of England dictation of our domestic politics.

In the Federal Caucus of 55 members present, there were 23 members from
New South Wales. All were answerable to the N.S.W. Executive for their
actions. Sid Bird, Secretary of the A.L.P. was in Canberra, while
Grayndler and Buckland went along to look after A.W.U. interests.

Fenton opened proceedings with a message from Scullin in which he stated
that the remedies open to Caucus might be unpleasant, but he did not
regard them as unreasonable. Scullin was so far away from the centre of
things that like most absentee Prime Ministers he had difficulty in
keeping up with the trend of things in Australia.

But the pact arranged by Cabinet did not last long. The two groups were
too far apart. With Scullin, Brennan, Parker Moloney and Percy Coleman
all abroad, the way was wide open for new leaders to emerge. It was in
that atmosphere that they settled down to a consideration of the Budget,
the principles to be adopted, and to how the Melbourne Agreement was to
be implemented. Lyons and Fenton were determined to carry out their
pledges to Niemeyer. Anstey, Beasley and Daly were just as determined to
resist them at all costs. The battle of tactics was to last for almost
three weeks.

The Federal Labor Party was rapidly approaching the parting of the ways
and at that stage I had not started on my real work as Premier.

The longer the Caucus meeting to decide Labor's Depression policy
lasted, the more obvious it became that a split was inevitable. Joseph
Aloysius Lyons was completely out of his depths in the Treasury.

Caucus had taken business out of the hands of the Ministry. When the
House assembled on October 30, Fenton as Acting Prime Minister, had to
play for time. He still didn't know what the party would decide about
the financial programme. So he moved for a week's adjournment out of
respect for Sir Neville Howse and Sir James McCay, two former Ministers
who had died during recess. Latham and Page protested bitterly about the
delay.

Time after time it appeared that a Caucus deadlock was imminent. Lyons
was talking revolt. Every time he prepared a plan of action, Caucus
rejected it. There were fervent appeals for unity. Lyons was told that
he must carry out the policy framed by Caucus. But when Caucus changed
its own mind so often, he protested about the re-drafting of legislation.

At last on November 5, Lyons was able to go into the House with his
Financial Statement of the Government's proposals to carry out the
Melbourne Agreement. He reminded the House of promises made by Scullin
and Theodore to balance the Budget. But the deficit for the first
quarter had exceeded £6 millions. He then went through the story about
the decline in national income, the reduced loan programme, the fall in
the price of wool and the drift in employment.

Later he then outlined the Government's proposals. As a first step it
proposed to reduce spending on works and services by £1,230,000. Next it
chopped off almost £2 millions from the Sinking Fund payments. It increased

{p. 280} customs and excise duties to bring in another £3 millions. It
introduced a super-tax of 7 per cent. on all property income, including
interest, with an exemption down to £100. It also provided for the
special taxes on Parliamentary salaries and on public servants receiving
more than £725 a year - then in the higher income brackets.

In addition, a special grant was made to South Australia. There the
Labor Premier, Lionel Hill, was supporting Niemeyer, but could not
balance his own accounts. Canberra wanted Hill to be used against any
demands I might make, so they were getting in early for his support.

The increased customs and excise duties were on tobacco, tea, coffee and
many so-called luxury items.

It was the first time that a second Budget had been introduced in the
one financial year. The precedent was adopted by the Menzies Government
in 1956 on very much the same grounds.

The Nationalists were delighted. Latham said that Scullin had promised
the people the sun, the earth, the moon and the stars and had left them
grovelling in the mud.

Then had come the Anstey bombshell. The idea of legislating to extend
the life of the loans, due to mature, by twelve months, was seized upon
by the newspapers. They regarded it as first class evidence of the
Government's intention to repudiate. The leader writers got busy. The
headlines were hostile to the Government. Anstey and Beasley were
labelled as wild men.

Latham went into the House and, on the grounds that "the matter
profoundly affected the credit of the Commonwealth and the solvency of
its citizens," demanded to know whether the Government proposed to
default. Fenton replied that the House and the people would receive full
information as to the Government's intentions in due course. Latham then
wanted to know whether Fenton had been in communication with Scullin
regarding the "grave peril to the credit of the Commonwealth." Fenton
said he had been in constant communication on government policy.

In actual fact, it was Lyons who had been in communication with Scullin.
No sooner had Caucus adjourned than Lyons rushed out to send a cable to
the absent Prime Minister. It was virtually an ultimatum. If the Anstey
resolution was to be binding on the Government, he did not propose to
remain a member of the Government. Scullin was, in reality, being
invited to choose between Lyons and Anstey. Lyons had previously thrown
down the gauntlet in Caucus after the Anstey motion had been carried.
Fenton had adjourned Caucus for a week in order to see whether the
difference could be resolved.

In his cable to Scullin the Acting Treasurer was quite definite about
his intentions. His cable read:

"This is absolute repudiation. I immediately notified the party that I
would not be prepared to carry out their decision, but would communicate
with you and ask you, if you approved their action, to relieve me of my
position in Cabinet and appoint a successor

{p. 281} to submit the necessary legislation which will inevitably crash
the credit of Australia. Pending your decision, I propose to carry out
my previous intention to recommend a loan to the Loan Council on Tuesday.

"During the discussion an effort was made and received considerable
support to demand the Commonwealth Bank to take up the whole £27
millions, failing which demands should be made that the Board resigns.
Fenton informed of this message. - J. A. Lyons."

There was no doubt of the effect of the message on Scullin. He was being
told only one side of the story. Would he choose between his majority or
his two deputies? All the time the London end was working on him.
Everywhere he went he was told about the crisis in Australia. The London
papers all featured the Anstey story and the drama in Canberra. In the
end, Scullin decided to stick to Lyons and sent him the following reply:

"I do not approve and will not support resolution of party, which I
agree is repudiation, which is dishonest and disastrous. Brennan and
Moloney concur. We agree that you are right in recommending to the Loan
Council issue of loans, as party's resolution has demoralised Australian
stocks here, and unless rescinded will rende} renewal of bills here, as
well as conversions in Australia impossible. Inform Fenton of this
message. Will telephone early as possible."

It was rather remarkable that Scullin didn't address his message to
Caucus. Instead he sent it to Lyons. But it wasn't enough. Lyons told
him that unless he persuaded Caucus to reverse the Anstey motion, it
would be futile for him to remain as Treasurer. He told Scullin that it
was imperative that he should send a message to Caucus.

It was typical of Scullin to drag in Brennan and Moloney, who were with
him in London. "Brennan and Moloney concur" became his theme song in
most despatches.

It was at this stage that Scullin addressed a message to Caucus, which
goes down as one of the most amazing documents in the annals of the
Labor Party. It was a plea of a Labor Prime Minister for the banks and
bondholders at a time when more than a quarter of the people of
Australia were without jobs.

Scullin's message to Caucus read:

"I appeal to the party to reconsider its resolution which has
demoralised Australian stock here, rendering renewal of Treasury bills
irnpossible. I came to London with the consent of the party. Apart from
the Imperial Conference my most important mission was to restore
Australian credit so that we could fund the floating

{p. 282} debt, and, if possible, raise some new money to relieve our
economic position.

"My efforts would have succeeded had party support been maintained.
World depression affecting the price of our exports, combined with the
inability to obtain loans, hits Australia very hard. I found in London a
desire to assist, and plans were maturing to approach the loan market
when Budgets were balanced.

"Although there was disappointmen in financial circles that our udget is
not quite balanced, the door was not quite closed and I still had hopes
of success until the appalling resolution was passed last Thursday. That
proposal was disastrous.

"It is a reversal of the party's declared policy to honor national
obligations, and no self-respecting overnment could agree to it. Our
Government floated a loan and guaranteed the public a safe investment.
Thousands of people withdrew heir savings from the Savings Bank to
assist the Labor Government. To default on this loan would weaken the
value of their investments, would destroy public confidence, and would
delay for years the restoration of economic prosperity. i

"If, however, wiser counsels prevail, and the Government is given a
chance to obtain credit, a debacle may yet be avoided, but if we are
frustrated by our own supporters by resolution of statement creating
financial panic, our position becomes intolerable and our efforts to
govern in the pcople's interest, hopeless. The Government proposal is to
ask the bondholders voluntarily to renew their bonds. To enforce renewal
by refusmg to pay the debts for a year is repudiation. The law would not
permit that in private transactions, and no one mindful of his personal
honor would do it in private life. I know and share members' feelings
regarding the sufferings of the unemployed, but the extinction of our
credit will spread that suffering tremendously. Brennan and Moloney
concur J. H. Scullin."

So Scullin had ranged himself alongside Lyons. Now the party could only
dump Lyons if they were prepared to dump Scullin as well. Scullin had
gone overboard for the bondholders. His reference to the unemployed was
almost an afterthought.

What could Caucus do in the face of his cable? To continue the fight
meant dropping Scullin as Prime Minister and destroying the Government.
Some were prepared to go that far. Others urged caution. They thought
that when Scullin returned to Australia they would be able to handle him.

Some said that Anstey's tactics had been wrong. Others said that the
Senate would throw out Government Legislation and force a double
dissolution. Others resented Scullin's "wait and see" policy on finance.
Lyons

{p. 283} said that he and Scullin would both be prepared to go out of
public life rather than be parties to a dishonorable act.

The Labor Daily told Blakeley, Chifley, McTiernan and Cunningham that
they were headed for political oblivion if they followed Lyons. It
didn't know then that Scullin was following Lyons, and that Lyons was
following the bankers.

When Caucus met on November 11, there was a motion for the recommital of
Anstey's resolution. But the dissidents still had the numbers. Finally,
a compromise was accepted that the matter be deferred until Scullin's
return to Australia.

Meanwhile the loan was to be floated. Theodore said that Cabinet should
carry out Caucus decisions. Chifley, who had voted against Anstey's
motion, agreed with Theodore. Norman Makin finally smoothed down
feelings with a motion denying that the Federal Labor Party had anything
to do with inflation and would "faithfully discharge all lawful
obligations." It was passed unanimously, and from London there came a
cable from Scullin congratulating the party. But the fight had only been
postponed. The big issues were still to be decided.

44 Curtin on Black Magic of Money Power

SEATED ON A BACK BENCH in Canberra watching the Scullin Government fall
to pieces during those hectic days of November, 1930, was the frustrated
member for Fremantle, John Curtin.

Curtin was one of the most fluent and convincing speakers in the
Parliament. He was a man of considerable personal vanity. He was a
self-educated intellectual. In many respects he was badly hampered by an
over-sized superiority complex. That antagonised many of his colleagues
who were apt to suffer from the whiplash of his sarcasm.

Curtin had fully expected to make Cabinet rank. But Texas Green had been
given the place reserved for West Australia. That irked Curtin badly. He
believed that on his own merits there should have been no question as to
who should get into the Ministry. The result was that he became a lone
wolf, suffering spells of black pessimism and having his entire
political outlook clouded by great personal bitterness.

Yet Curtin was one of the few Federal politicians with a national
consciousness. He could rise to a big national issue. During the State
elections he was one of the only interstate politicians to come into New
South Wales.

{p. 284} His speeches were regarded as brilliant. He identified himself
with my fight against Niemeyerism when most of the Federal Labor Party
were afraid to offend Scullin and Theodore. To him it was a crusade, and
Curtin was a born crusader. But at no time could he be regarded as a
practical politician. He was too much up in the clouds of his own rhetoric.

At that stage in his career the worst thing his enemies could say
against Curtin was that he was a "Lang man." That was not so. The
reality was that he was a Curtin man.

Curtin had graduated in the Victorian school of Socialism. He had come
under the influence of Frank Anstey, whose protege he had become in the
Melbourne Trades Hall. Anstey had a flair for journalism. So had Curtin.
He had opposed compulsory military training at the outbreak of the First
World War and had spoken on the Yarra Bank against the war-mongers.

Then came the Conscription fight, and Curtin became Secretary of the
No-Conscription Committee of the Melbourne Trades Hall. He was called up
as a Hugheslier, but failed to answer the call-up and a warrant was
issued for his arrest. It was executed after the Referendum was defeated
and he was quickly released. It all helped to make him feel that he was
a martyr to his Labor beliefs. He had been secretary of the then
unimportant Victorian Timber Workers' Union's militant body. But it was
word-spinning on the Yarra Bank, writing fiery pamphlets and embracing
such causes as Rationalism that took up most of his time.

Curtin studied Colonel Robert Ingersoll and Edward Bellamy as his for
putting his thoughts on paper. He was influenced by the fiery Celtic
school of oratory. Sunday was the big day of the week for Melbourne
spruiking. In the afternoon on the Yarra Bank, and at night in one of
the city vaudeville theatres. It was Anstey who recommended him for the
position of Editor of the West Australian Worker, official organ of the
A.W.U. in the State. There he quickly established a reputation as an
aggressive leader writer.

He obtained a trip to the International Labor Office in 1924, and became
a member of the Legal Commission on Cild Endowment, established by the
Bruce-Page Government. With Anstey, he published a Labor pamphlet called
The Heritage and won the Fremantle seat for Labor at the 1928 elections.

That had been his career in brief. Still only aged 49, he was anxious to
go places in the Labor Party. But with Labor in Government there were
few opportunities for a speaker with his talents. It had been different
in Opposition. But Labor was now on the defensive. Normally, the back
bencher has few opportunities while his party is in office. Ministers
take the picked positions in debate, leaving the back benchers minor
roles only.

When Latham attacked the Financial proposals presented to Parliament by
Acting Treasurer, J. A. Lyons, there was a stalemate on the front
Cabinet bench.

Latham had used precisely the same arguments against the Scullin

{p. 285} Government, as the Scullin forces had used against Bruce and
Page when Labor was in opposition. Labor had then said the Nationalists
were responsible for the unemployment. That they had caused a fall in
prices. That they had failed to use loan money soundly. That the fall in
prices of Australian securities had been due to loss of faith in the
Government of the day.

Now Latham turned all those arguments against the Labor Government.
Unemployment had become worse. Prices were still falling. More farmers
were bankrupt. Security prices were still falling in London, in fact 15
per cent. below the prices of New Zealand bonds. The London price for
£100 Australian bonds had fallen to £75.

The Nationalist attack was vicious and sustained. The Country Party
followed the Nationalists. Archdale Parkhill let forth his invective,
protesting that the new Customs duties would injure the worker, with
taxes on tobacco and tea.

No one on the Government front bench rose to defend the proposals.
Fenton did not want Anstey or Beasley to air their views. Other
Ministers were afraid of the mounting resentment in their own
electorates. Latham reminded them that Scullin had accepted the
Melbourne Agreement at a special meeting of his Cabinet in his own home
in Melbourne. Parkhill gibed about the jaunts of Ministers and Percy
Coleman, and the effect of the sales tax on the cost of living. No
Minister felt himself equal to the task of defending his own Government.
They remained seated.

It was then that Curtin took the floor. Instead of defending, he
attacked. He assailed the record of the Opposition, and then proceeded
to analyse the root causes of the Depression sweeping right across the
world.

He called it the financial bankruptcy of civilisation. No country was
escaping. Budget equilibrium was not the cause, it was the effect. The
masses were suffering because no country could market its produce. So
were Governments. America, England, Germany, Belgium - everywhere the
story was the same.

There was nothing wrong with the physical productive machine. The
Australian people were not lazy. The paradox was, never had productivity
of the soil been greater. In the midst of plenty people were starving by
the millions throughout the world.

Curtin declared that there could be no balancing of Budgets while there
were 200,000 Australians out of jobs. Deficits were not matters of
national dishonor. The Bruce Government had shown deficits. Did they
believe they were dishonorable men?

The Melbourne Agreement was being held up as a sort of Ten Commandments
for governments. But every step the governments took along the road to
the Niemeyer Plan took them further away from the final solution. Every
reduction in wages, each rationing of employment reacted on the
purchasing power of the community. They meant the Governments would
collect less taxes.

Out of every £ in fares and freight collected by the Railways, no less

{p. 286} than 7/- was needed to pay for interest and sinking fund
charges. The Governments were spending 62 per cent. of their revenue
similarly. Yet the only solution being offered was that wages should be
still further reduced in order that the bondholders might be paid these
gigantic sums.

The Scullin was a Conservative Government, Curtin insisted. That
admission was most significant in the light of subsequent history. He
reminded the House that during the war millions of men in the world had
been withdrawn from the fields of production and that their places had
been taken by junior labor and young women. The men had become consumers
instead of producers. When they returned to civil life there had been
established a reserve of labor. Yet t~e only solution advanced was to
ask them to work harder for less pay. He refused to accept the idea that
the claims of the bondholders should be superior to those of these men
and women. When wages fell the value of fixed income depreciated. It
took a bigger share of the national income to meet the cost of the debt.

Curtin agreed that the war debts were crushing the country. He adopted
the Keynes statement that orthodox methods would not pay such debts. He
refused to believe that interest obligations should be sacrosanct. Why
should bondholders be treated on a different basis to wage earners,
pensioners or any other section of the community?

He then proceeded to show how "bear" raids on the Stock Exchange had
depreciated bond values and how the speculators were selling short in
order to create a panic atmosphere in which they could make big profits
in the future.

Curtin propounded the idea that the exchange rate should be unpegged. He
also wanted more Australian notes printed. The note issue was at that
stage down to £7 a head of population as against £9 a head prior to the
recession. He had very little idea of the true function of currency and
the real meaning of bank credit, which actually governs the volume of
money available to the community. The note issue at any time is only
insignificant. But at that time Curtin still accepted the doctrine that
money in actual circulation was the sole basis of prosperity. He didn't
realise that the financial institutions either create or destroy credit
balances by extending overdrafts or calling them up.

Curtin was on the right track but had no real conception of banking.
Nevertheless he was all for some positive action.

It was his peroration that was prophetic and hit the crux of the
national problem. Curtin said:

"I conclude with this observation. If, next week or next month,
Australia became involved in a great war, those controlling our various
banks and financial institutions would not talk about Australia's
impaired credit which, we are given to understand, makes it now so
difficult to finance the wool clip and grain crops but, without any
apparent difficulty, they would be able to finance the frightful tragedy
of an international war with all that celerity which, in the history of
a nation, marks the black magic of money power policy."

The irony of it was, it was Curtin himself who was destined to prove the
truth of his own prediction a little more than a decade later. The
"black magic" of money worked for him then as it refused in 1930 to work
to provide food and shelter for the unemployed.

{p. 349} 57 The Crepe Hangers Gathered in Canberra

IT WAS MORE LIKE A CONVENTION of professional mourners than a meeting of
the heads of government in Australia. Mr. Scullin had called us to
Canberra to deal with the financial crisis. We met in the House of
Representatives on Friday, February 6th, 1931.

{p. 354} Theodore said that the conference could not ignore the interest
burden. How could wages be reduced without touching interest, rents and
other charges? How else could there be equality of sacrifice? To
increase national income, prices had to be increased. The quickest way
was to put the 250,000 unemployed back to work. Unless that could~be
done, the end must be national bankruptcy. If they cut public service
salaries again, they would only get a negligible contribution. At the
end, the financial position would be worse, instead of better.

Theodore said that exchange, credit supply, interest rates and costs all
had to be considered. ...

It was at that stage that Theodore stated the case against deflation and
against the current banking policy. He took as his theme that the banks
could create credit. They could expand credit at will. When they made an
advance they also created a deposit. When business was brisk, most of
the deposits came from overdrafts created by bank credit. During the
First World War, loans amounting to £283 millions had been subscribed
not out

{p.355} of people's savings, but from advances made by the banks. They
could even advance money without security. The nation's currency
amounted to less than one-fifth of the credit in use. The chief currency
was cheque currency. The drop in prices had resulted in the value of
money owned by people on fixed incomes increasing by 30 per cent.

The big task was to get money values back to the 1929 level. That would
provide work for all. Business turnover would improve. So would State
revenue. Deflation had to end before prosperity returned.

They could not expect the workers to agree to their wages being cut
while the bondholders were having their interest payments increased in
value. It was an excellent diagnosis of the position. No Labor man could
object. Neither could any of the non-Labor representatives see any flaw
in the Theodore argument. The way was wide open for a positive lead. Had
it been given, even at that late stage, the Labor Movement would have
rallied behind the Scullin Government. In conclusion, Theodore said that
there was need for a comprehensive scheme. Then he added the fatal flaw.
It would have to be under the control of the Commonwealth Bank. That
meant Sir Robert Gibson. It would also have to be acceptable to the
commercial community. That meant the private banks. Theodore had
squibbed that fight before. He squibbed it again.

{Curtin was Australia's wartime Prime Minister in World War II}

{p. 357} 58 Birth of the Lang Plan

DURING THE WEEKEND in Canberra after listening to two days of fruitless
argument, I decided that the time had arrived for a showdown. Who were
the real enemies of the Australian people? I was not prepared to load
the blame on to the workers. They were under attack all the time. They
were being blamed for the depression. Their wages were said to be too high.

Theodore and Scullin were hedging. They were not prepared to face up to
Labor policy. On the one hand they were afraid of the bankers, and on
the other hand did not want to antagonise the trade union movement. They
were trying their hand at tight-rope walking. But their umbrellas were
already exposed to the rim. The usurers were certain to win.

I always believed in the old principle that the best form of defence is
attack. For six months the bankers had been on the attack. Theodore was
no more anxious for a showdown than Lyons. I realised that if someone
did not put up a fight we would all go down, and with us the Australian
economy.

I also realised that if I took the stand, which was the only possible
one for a self-respecting Australian to take, it would raise a political
hurricane. The propaganda that Australians must make further sacrifices
to the Moloch of Mammon had been sown so deeply that anyone challenging
the idea was certain to be pilloried. Still, it had never been my habit
to indulge in speculation regarding the consequences of my political
actions. If I believed that a certain course of action was right, then
it was not for me to trouble about the consequences. After all, I had
only one political life to live. The people had trusted me, and I was
not prepared to betray that trust.

Sir Otto Niemeyer had said that the trouble with Australia was that the
workers were enjoying a champagne standard of living on a small beer
income. I had countered that his aim was to reduce it to the rice bowl
standard. Now I felt that the onus was fairly upon me to show that there
was an alternative way.

As soon as the conference assembled on Monday, February 9th, I took the
floor and said that desultory talk would get us nowhere. I said that I
not only proposed to place suggestions on the table, but would also
indicate what the Government of New South Wales proposed to do. Scullin
and Theodore looked stunned. They hadn't a clue as to what was in my
mind. The other Premiers were just waiting to pounce.

{p. 358} The people were confused and bewildered. One day they were told
that there was to be deflation. Next day that a small dose of inflation
was needed. The word repudiation was bandied around. Everyone agreed
that all that was needed was a return of confidence. Yet at no stage was
it known what Government policy was to be. The Governments themselves
did not know. How, then, could the people? I suggested that a policy
covering five years was needed. At that, Mr. Barnes, of Queensland,
suggested that the term should be three years.

I agreed that we should not quarrel over the time period. We had all
agreed that expenditure had to be reduced or we should all go bankrupt.
Again I was not going to raise any dispute. But when it came to the
actual reductions, two principal items emerged - wages and interest. Of
these, interest was the greater.

Under the Niemeyer plan, interest was to be sacrosanct. I countered that
wage reductions would not do the job. In New South Wales civil servants
had been cut 8 per cent. by the Bavin Government. If they were reduced a
further 10 per cent., we would save only £1 million. That would mean the
State deficit of £8 millions would fall to £7 millions.

Even if we reduced wages by half we could not bridge the gap. If for the
following six months we paid no salaries or wages to police, asylum
attendants, teachers and other public servants, we would still be in the
red.

If we dismissed every railway employee the position would only be worse.
There would be no revenue to pay the interest bill. We could not even
feed the workless. Every Premier was in precisely the same position.

The other item was interest. For my Government alone, it amounted to £8
millions, to which had recently been added an additional £1 millions
exchange. It was a burden that we could not and should not be asked to
carry in such abnormal times. Much of it was due to the war. The loans
had been floated when prices were high, and had to be repaid at deflated
prices. Where two shiploads of wool were required to pay a bondholder in
1929, four shiploads were needed in 1931. The debts had doubled in terms
of goods, although still nominally the same amount.

I proposed that we should fund our debt as Britain had funded her war
debt to America. Firstly, America had agreed to suspend all interest
payments for three years. Then Mr. Baldwin had persuaded the Americans
to reduce interest charges from 5 per cent. to 3 per cent., rising to 3
1/2 per cent., with payments spread over 62 years. Even then there were
critics in London who suggested that not more than 2 per cent. should
have been offered. Belgium, Italy and France all negotiated similar
arrangements, Italy paying no interest at all for five years.

I proposed that we should issue a declaration that we had decided upon a
funding of the overseas debt, both principal and interest, along the
same lines as those accepted by the United States. The causes of our
troubles were precisely the same as those which had compelled Britain to
compound with

{p. 359} her overseas creditors. If we could do as she had done on the
same conditions, our troubles, internationally, would be over.

Many Australian unemployed had soldiered in France. They had made
sacrifices on the battlefield. Now they were repeating them in
Australia. Why should they face another ten years of misery and
privation? There would have been no hardship and suffering had Australia
not gone to Britain's aid. Should the men who had done the fighting now
go without the necessities of life in order that the international money
ring should have its pound of flesh? I suggested that the British
investor should be paid back no more than he lent in terms of goods.
Otherwise we were penalising Australia for having gone to war. It would
mean that of all countries on the Allied side, Australia would be
singled out for a form of reparations akin to that being exacted from
Germany through the Versailles Peace Treaty. We were being treated like
a vanquished foe, instead of an ally.

If we could cut our interest bill in half we would have enough to find
jobs for our unemployed, and enough to save the farmers from bankruptcy.
So that was the first step - adjustment of our overseas commitments.

The second point concerned internal interest payments. Rent and interest
had become the greatest factors in maintaining the costs of production,
about which everyone was complaining. Even the banks had admitted that
interest charged was too high. The only reason they had given for not
reducing their charges was that the government rate was too high. I
proposed that we should cut government interest payments by half.

Then, if the bankers were playing the game, the interest bill for every
farm, home and business would be cut in two automatically. It was the
only way to tackle the problem. An employer could sack men and close
down his factory, but his interest on his overdraft did not stop.
Whether his factory was working to capacity, or whether every machine
was idle, the interest charge was the same. The bank had absolute
priority. Interest had become an intolerable burden. Governments,
businessmen, farmers, home owners and workers were all being crushed.

Thirdly, I said that we had to do something about our currency problem.
Australia had not gone back to the gold standard in 1925 because she
wanted it. Britain had dictated the move. We were not consulted. We were
never in the picture. The return to gold had proved the greatest blunder
of the Bank of England. Agrarian countries suffered most.

The artificial movement of gold dominated price levels. Costs depended
on the amount of gold taken out of the ground, or hoarded in a central
bank vault, instead of being based on the value of labor and other
costs. Even the price of bread was determined by the scarcity or
plentiful supply of gold. Yet at every test the gold standard had
collapsed. Mr. McKenna, of the Midland Bank, had admitted that it had
failed again. Mr. J. F. Darling was proposing a Super-Empire Bank with a
bi-metallic of gold and silver.

I proposed that the Australian paper pound, based on the value of goods
produced - our primary and our secondary production - should be substituted

{p. 360} for the out-of-date gold standard. At that stage it was rank
banking heresy. The danger was that we would be ground by the banks and
great financial institutions between the upper millstone of usury and
the lower millstone of financial speculation. In conclusion, I submitted
formally my proposals.

1. That the Government of Australia decide to pay no further interest to
British bondholders until Britain has dealt with the Australian overseas
debt in the same manner as Britain settled her own debt with America.

2. That in Australia interest on all government borrowings be reduced to
3 per cent.

3. That immediate steps be taken by the Commonwealth Government to
abandon the gold standard of currency, and set up in its place a
currency based on the wealth of Australia, to be termed the Goods Standard.

That was the Lang Plan. It was both positive and challenging. It was not
to be left long in doubt as to the way in which it was to be received.

An experienced politician learns to watch his audience. He has to be
sensitive to its reactions. I had learned that it was essential to state
every proposition in the simplest possible terms. That applied to a
meeting of Premiers and experts just as much as it applied to a street
meeting.

So as I unfolded the Lang Plan I kept my eyes moving around the table.
To say the impact was a shock would be an understatement. If someone had
let loose a death adder in the room it could not have caused greater
consternation.

I had fully expected the Nationalist Premiers to get steamed up over my
proposition. It struck directly against all the things which they
regarded as sacred. I was proposing to reduce interest payments by
legislation. To them that was rank heresy.

But my attention was principally rivetted on Scullin and Theodore.
Scullin paled perceptibly. That was the day he became His Grey Eminence
as he was called later. He realised that I had deliberately offered him
the choice of doing something for the unemployed and sticking to the
wage earners, or siding with the banks and the bondholders. That was
precisely the decision he had no stomach to reach.

Theodore, on the other hand, was bland. He fully realised that he was in
the rat trap. But his immediate reaction was that I had euchred his all
too nebulous plan of a Fiduciary Issue. He was already thinking ahead
for the next move.

Sir James Mitchell, of West Australia, was the first to speak. He just
ahout exploded.

"I desire to dissociate myself from every word and every sentiment
uttered by Mr. Lang. Australia would be discredited in the eyes of the
world.

{p. 361} It is repudiation. If a speech, similar to that of Mr. Lang,
were made by a Bntish Minister, there would be disaster. There is not
one word uttered by Mr. Lang with which I would agree. I know that the
rate of interest is far too high, but we have agreed to pay it. We must
pay it."

At least there was no doubt as to where Sir James stood. His simple idea
was to reduce government spending by £15 millions. He wanted reductions
in what he called the "free services." They included war pensions, age
and invalid pensions, education, hospital services, the police and penal
services. He didn't specify how we were going to cut down on any of them
- least of all the penal services. Still, that was his only way - with
hands off interest. He was quite confident that the high rate of
exchange would not last long. To himrepudiation was a real live bogey.
So he shied away from the Lang Plan in sheer horror.

Theodore was next. He would not go so far as Sir James and say he
disagreed with every word I had uttered. In fact, he believed my
diagnosis of Australia's troubles was an accurate explanation of the
position. Interest was the real problem. Its burden became heavier the
more that prices fell. He even agreed that if they followed my
suggestion and cut interest payments by half, vast financial resources
would be released to help industry, the governments, and the unemployed.

He admitted that Britain had scaled down her payments to the United
States on her war debts. He said that Mr. Scullin was taking up the
question of similar treatment for Australia's war debt with the British
Chancellor, Mr. Snowden. But it only represented £82 millions.

But when he came to the big hurdle of the private bondholders, Theodore
said he would not be a party to forcing them to accept less than the
bonds provided. That would be repudiation.

That then was to be the rock on which the Labor Party was to be split.
He still believed that he could do a deal with the bankers on the
short-term debt. He was full of optimism. He was going to see Sir Robert
Gibson himself.

But he would not interfere with the interest paid to the private
bondholders under any circumstances. With regard to the gold standard,
he told us "Frankly facing that position, we have to admit between
ourselves that the gold standard has already been abandoned in
Australia. Not one of us would say that the Australian notes in
circulation could, or would, be redeemed in gold." That statement was
typical of Theodore. Why should such an admission be kept confidential?
He simply didn't trust the Australian people.

With regard to my proposal to legislate for a reduction of interest,
Theodore said that if New South Wales did that, under the Loan Council
Agreement, the Commonwealth would have to make up the difference. The
banks would then refuse to give New South Wales any more accommodation.
Theodore was already hinting at a Commonwealth-bankers' alliance against
my government. He said I had taken the first step towards the inevitable
smash. He agreed with me that the first duty was to feed the citizens.

{p. 362} A quarter of a million were workless and dependent on the worst
form of charity. Even that was not sufficient to persuade him to take
the bold step that would provide immediate relief.

Ned Hogan of Victoria read out the decisions of the Melbourne Agreement
reached at the Niemeyer Conference. He would have none of my plan. It
was straight out repudiation. Not that he didn't think interest should
be reduced at such a time. Oh no. He suggested that the Commonwealth
should take over taxation, and tax interest at its source. Just why that
would be different to my proposal, he didn't say.

Scullin said Theodore had spoken for his government. He agreed with what
I had said about the difficulties. No government could balance its
budget simply by reducing wages and salaries.

Scullin said that when he arrived in England, there had been newspaper
posters and front page stories that the Labor Council in Sydney had
proposed the repudiation of our war debts.

"I was able to allay the uneasiness by pointing out that the resolution
did not represent any responsible body of opinion in Australia; that it
emanated from a gathering of individuals who spoke only for themselves,"
said Scullin, the erstwhile supporter of Sinn Fein, who was much more
sensitive to what they were thinking in Whitehall, than what they might
be thinking in Richmond, Victoria. He agreed that we had obligations to
our own flesh and blood in Australia. But we also had obligations to the
bondholders overseas. He agreed that we had the right to obtain the same
treatment on our war debts as Britain was herself obtaining. In England
there had been the suggestion that Britain had erred in not sticking out
for better terms. He had said that if that were so, then Australia had
even a better case. But there must be no talk of repudiation. They must
aim to restore confidence. Like Theodore, Scullin had baulked at the
only fence that could bring him to both political and national safety.

Mr. Moore, the National Premier of Queensland, said my proposal was
unthinkable. There must be more sacrifices. Wages must be cut again.
Australia had had depressions before and they had all disappeared with
the operation of natural conditions.

Lionel Hill, the South Australian Labor Premier, said that on Friday he
had been despondent, on Saturday he had been cheerful, and now on Monday
he was despondent again. He agreed that my proposals would be most
desirable. But he didn't think they would work. Did Mr. Lang propose to
break away from the Financial Agreement.

I replied, "I have no objection at all to that; in fact, I desire it."

Hill said that I could not do that. His government had cut expenditure
below bedrock. They could get no lower. They had even cut the education
vote. Instead of getting better, things were getting worse. He thought
the best idea would be for Mr. Theodore to see the bankers. But he was
also against repudiation.

Mr. McPhee, the Nationalist from Tasmania, was also a dissenter from

{p. 363} my ideas. He said that Theodore's ideas were vague and
nebulous, whe mine were repudiation and nothing less.

I said that I could see no future in pleading with the banks. As leaders
of responsible governments, we should accept our responsibilities.
Instead, the others wanted first to go cap in hand to the Commonwealth
Bank, and if it agreed to help, then to go cap in hand to the private
banks. Yet simply by reducing interest down to 1919 levels, we could all
balance our budgets and the bondholders would still be getting the same
value for their money in goods as when they lent it.

"You say my plan is partial default. That does not scare me. Nor does it
scare me if you call it repudiation. Repudiation is only a word coined
for the defence of certain interests. Why not be honest and admit that
we could not meet our interest obligations." I suggested that we should
tell everyone: "We cannot meet our present obligations. They are
impossible. But we can meet half the interest charges without disturbing
a penny piece of capital. The whole of your money will remain intact. If
you refuse, the alternative is complete default. If we could pay 20s in
the £ we would be happy to do so. But we are not going to do it at the
expense of the unemployed and the workers.

"The bondholders are like any other mortgagees. They have a mortgage on
your sweat. When that sweat does not produce sufficient to meet the
interest charge, then you cannot pay it. Every government agrees that we
are in that position. Why not face up to it and do something? The other
way is cowardice. I am not going to run backwards and forwards to
Canberra telling my people that something will be done, when all the
time I know nothing is being done."

But no one budged. I had mentioned the unmentionable. For that I was to
be treated as a political Ishmael - at war with the rest of the
governments. No one wanted to get too close to me. I could see them move
away. I was sent to Coventry in Canberra. Yet that did not solve their
problems. The next move was up to Theodore. Could he deliver the goods?
Having rejected the Lang Plan, could he produce a Theodore Plan that
would work?

While I knew that I was going it alone in Canberra, I believed that I
would get support from the people. The issue was quickly crystallising.
So was the fight looming inside the Labor Movement.

{p. 364} Sir Robert Gibson Became Australia's Dictator

THE ERA OF THE DICTATOR was not ushered in by Lenin, Mussolini or
Hitler. From the dawn of history there have been dictators. The struggle
for Democracy has been long and very often bitter. In times of adversity
the opportunities for the ruthless individual are created because people
lose faith in established institutions and seek escape. That was what
happened during the Depressions. The opportunists then seized power.

The essential difference between democracy and dictatorship is that
under democracy the people rule through their elected representatives,
while under dictatorship there is govermnent by the non-elected
individual responsible to no one.

If we apply that test, then Australia passed into a period of
dictatorship early in 1931. The elected governments of Australia
abdicated. Sir Robert Gibson, Chairrnan of the Commonwealth Bank Board,
started issuing the orders, and the governments jumped through the hoops.

After rejecting my proposals, the Canberra Conference settled down to
wait until Mr. Theodore reported back from his discussions with Sir Robert.

I refused to have anything to do with the proceedings as soon as the
banker moved into the picture. I had objected to Theodore going to
Sydney. I objected even more to the Prime Minister and Premiers sitting
around in Canberra twiddling their thumbs until Theodore returned with
news as to how far the Commonwealth Bank was prepared to assist the
country in its dire crisis.

To me the idea of the Commonwealth Treasurer rushing to Martin Place to
wait on His Serene Eminence, the Chairman of the Commonwealth Bank,
placed the governments in the role of suppliants. It was Theodore's
pilgrimage to Canossa. I decided to wash my hands of the strange affair.
I had wanted to summon Gibson to Canberra. But Scullin was afraid of
offending the banker. He didn't seem to realise that Sir Robert was his
own appointee, and that the Commonwealth Bank was the property of the
people. Unfortunately, Sir Robert insisted on regarding the Bank as his
personal property in which he functioned as the high panjandrum,
responsible to no cne. His Board encouraged him in that attitude, while
the Governor of the Bank had become a figurehead only.

Theodore expected Sir Robert to agree to his proposal to release
additional credit. He had a long rigmarole about using price index
figures to

{p. 365} justify additional funds for the governments and industry. As a
first instalment he wanted £6 millions for the wheat farmers and £12
millions for the unemployed.

I realised that I was taking risks by cutting adrift. But I had no
illusions about Sir Robert Gibson. He was out to get me. My only chance
was to fight back. I had no intention of backing down and allowing Sir
Robert to take over the government of New South Wales without a fight. I
was firmly of the opinion that had Scullin and Theodore ranged
themselves with me, Labor would have pulled Australia through the
Depression quickly. But they had funked it.

Theodore went to Sydney expecting a handout. Instead, he was met with an
ultimatum. Sir Robert was ready for him. He had been in touch with the
representatives of the private banks, and they had formed a tight ring
to present a united front to the governments. Gibson was their
spokesman. Theodore reported back to the Canberra Conference on the
Friday. His tidings were not good. It was quite obvious that he had been
put through the wringer by Sir Robert. In fact the picture was so
gloomy, that Scullin decided that Theodore's report should be considered
in camera, and that no report of the discussions should be kept.

Theodore brought with him a letter written by Sir Robert the previous
day. Its terms proved just how power had passed from governments to the
chairman of the Bank. It was an instrument of dictatorship. It even laid
down terms and conditions of government. To me it was incomprehensible
that any self-respecting conference of Premiers should even be prepared
to receive such a letter, let alone accept it. The letter read:

Dear Mr. Theodore. - With reference to your discussions with the
Directors of the Bank Board on the subject of rehabilitation of the
financial and industrial position of Australia when it was agreed that
some concerted effort must be made to cope with the situation, and so
avoid, if possible, the ultimate disaster which will otherwise
eventually face the country, I am requested by my board to convey to you
a resolution of the board as set forth hereunder: -

Subject to adequate and equitable reductions in all wages, salaries and
allowances, pensions, social benefits of all kinds, interest and other
factors which affect the cost of living, the Commonwealth Bank will
actively co-operate with the trading banks, and the Governments of
Australia, in sustaining industry and restoring employment.

My board realises that this resolution in itself can be taken as only a
comprehensive objective which it is desirable to aim for, and
necessitates practical co-operation and effort in its attainment.

This necessitates some definite movement and the creation of
constructive plans for accomplishment.

I am requested to state that my board desires me, as Chair-

{p. 366} man, to co-operate with you in every way possible to this end,
and join with you in calling together a conference of the trading banks,
when general measures might be adopted for the purpose of giving effect
to this resolution, and the creation of a sub-committee to be approved,
representing the government, the Commonwealth Bank and the trading
banks, to watch developments and advise upon methods to be adopted which
wiU further help the attainment of the return of prosperity to the
country. Yours faithfully, Sir Robert Gibson.

There it was. Take it or leave it. If the governments refused to accept
the ultimatum what was the next step? Sir Robert made no bones about it.
The Commonwealth Bank would refuse to co-operate with the governments.
In short, he would apply the squeeze. There would be no more
accommodation from the Bank. That would mean that the Commonwealth would
be required to redeem its outstanding Treasury Bills. The primary
condition stipulated by Gibson was that all governments must reduce
salaries, wages, pensions and social benefits of all kinds. That could
be taken as including the dole.

How could any Labor Government accept such a programme. I had already
refused in advance. What would Scullin and Theodore do now? The trade
unions had already been shocked by their refusal to intercede to halt
the Arbitration Court's reduction of award wages. How could they remain
in office and reduce pensions and even the maternity allowance of £5?

Above all, how could they hand over their responsibilities to a
committee such as that proposed by Gibson. There was no mention of any
representative of the State Governments. It was to be a Triumvirate.
Theodore, Gibson and a representative of the trading banks. Their job
would be to police the governments to make sure that they were carrying
out the reductions stipulated.

On such a committee, Gibson would be the real ruler. He would be certain
of the support of the private banker. He would be the Dictator of Australia.

Canberra surrendered without a token fight. Tamely it adopted a Three
Year Plan. Without explanation it issued it in the following form:

NATIONAL EMERGENCY PLAN

The conference is convinced that immediate action is necessary to avoid
default in government payments and to restore confidence. It has,
therefore, agreed to adopt a three-year plan, to meet the national
emergency and bring about an adjustment of burdens.

The objects aimed at are: (a) Re-absorption in industry of workers at
present unemployed (b) Maintenance of national solvency

{p. 367} (c) Restoration of budget equilibrium (d) An equitable spread
of the loss of national income over aU sections of the community.

To enable this to be achieved, mutual co-operation between all
governments and all interests in the community, is essential.

The Three Year Plan

1. Governments and the banks to make adequate provision for the
rehabilitation of industry and restoration of employment.

2. Substantial reductions of rates of interest on deposits and advances
to be effected by the banks in consultation.

3. A flat rate of 3s 6d in the £ tax without rebate to be imposed at the
source on interest derived from Commonwealth and State loans subject to
tax. This is to replace the super tax of 1s 6d in the £.

4. Exchange rate to be discussed with the banks.

5. Salaries and wages of all public servants to be reduced to bring
total reduction into line with the percentage drop in the cost of living.

6. Rigid economy by aU Governments, with elimination of duplication in
Government services.

7. Interest on overseas payments to be provided through the exchange pool.

8. The floating debt to be funded on overseas loan market.

9. Establishment of an Employment Council to discover and recommend
every possible means for the creation of employment, the Governments and
banks to co-operate on the Employment Council.

That was it. But would the banks be satisfied? Or would they regard it
as a smoke screen? The conference adjourned for a fortnight so that
Theodore could get the required reactions. Even though they had accepted
wage reductions, they were still in doubt as to Gibson's attitude. So
Scullin and Theodore agreed to see the bankers again. By this time they
had lost all sense of dignity. They were grovelling at Gibson's feet.
The dictatorship was operating.

{p. 368} 60 Ted Ward was the First of the Lang Planners

RETURNING TO SYDNEY from Canberra after the abortive Premiers'
Conference, we had the car radio tuned in for the news. Towards the end,
there was the report that the A.L.P. Executive that night had selected
its candidate for the by-election in East Sydney. He was Alderman Eddie
Ward of the City Council.

That did not surprise me. But the next announcement did. It was that the
East Sydney Federal Electoral Council of the A.L.P. had also met that
night and had decided that the by-election was to be fought on the Lang
Plan.

There it was. No one had consulted me at any stage. I had not inspired
the move. It was a rank and file decision. The Labor Movement in New
South Wales was becoming fed up with the vacillation of Scullin and
Theodore in Canberra. They wanted action.

East Sydney was predominantly industrial. It comprised Paddington, Surry
Hills, portion of Darlinghurst and Woolloomooloo. Some of its waterfront
was much more aristocratic. But it had some of the largest A.L.P.
branches in the Commonwealth. They were politically alert and loved
nothing better than a good old-fashioned political Donnybrook. As a
result, it produced some of the best natural debaters in the Labor Movement.

Its slums were really slums. Almost half the people in the area were
unemployed, and those who were working were severely rationed. Farnilies
had pawned their possessions to keep body and soul together. The
Churches were running soup kitchens. Many of the children attending
Bourke Street, Crown Street and Paddington Public Schools were shoeless,
with clothing that could stand no further patching, and not getting
sufficient to eat.

That was why the people inside the Labor Movement were so determined to
have a showdown. They believed that the Scullin Government was hedging.
They were tired and disappointed with Scullin's high faluting phrases,
and Theodore's glib promises that never were realised.

So when I announced the Lang Plan they saw in it an opportunity to fight
back against the powers whom they believed to be their enemies. They
were tired of being on the defensive. If Scullin wouldn't fight, then
they believed that I would. So whatever the consequence, I could not let
them down.

At the same time, I realised that Scullin would regard it as a hostile
move. He always believed that I had deliberately planned it that way in
order

{p. 369} to embarrass his Government and prejudice his negotiations with
the bankers. It was no use trying to convince him that we were taken by
surprise as much as he had been.

Jack West, the former Member for East Sydney, had been one of the
originals in the Labor Party, who started life as an active trades union
official and later became an employer. He had represented East Sydney
for 21 years, and had been an easy-going, kindly personality, who
managed to keep aloof from the factional differences.

There was quite a struggle for the selection. At one stage it looked as
if it would go to Alderman Reg Bates, an employee of the Labor Daily and
President of the Paddington A.L.P. But Reg was not aggressive enough for
his times. He had not been forthright enough in some of the internal
upsets. The Labor Movement was looking for bold spirits to lead it.

Having made up their minds, that there was nothing to be gained from
Scullin, the local Executive didn't want to choose someone who might
take the easy way out and tag along with Scullin. They were looking for
someone who would be prepared to stand him up to Labor principles.

That was when their attention focused on Ted Ward. He was regarded as a
militant, or Left-Winger. No one could doubt that he would be willing to
stand up for a more vigorous financial and economic policy. The
immediate demand was for loan money to provide work. Ward had himself
been a Member of the Unemployed Organisation. He had taken up their
cudgels at every opportunity and was regarded as one of their leaders.
At the same time, he had rejected the overtures of the Communist-led
Militant Minority Movement. He was as scornful of their stunts as he was
of the phony alibis of the Federal politicians.

Ward had made his reputation on the floor of the A.L.P. Conference,
where he had been regarded as one of the Left-Wingers. The Conference
floor was a tough testing ground, especially when under the control of
such a keen organiser as Jock Garden. Time after time Ward and Sol
Rosevear refused to be steam-rollered by Jock and his trade union
supporters. They gave it a go. As a result they had the gallery on their
side. One of Ward's most 'enthusiastic supporters was his wife who was
also very active in East Sydney.

Ted Ward had been reared in Surry Hills and had acquired a tough
education in the University of Hard Knocks. He had started work with the
Railways at Eveleigh and at eighteen had become one of those involved in
the 1917 Railways' strike. He was among those whom the Fuller Government
ordered to have their papers marked "Never to be Re-employed."

After that he had gone to Lithgow, where he tackled work in Hoskins'
iron foundry. Then when my Government had ordered the re-instatement of
the 1917 strikers, Ward was given a job in the electrical section of the
Tramways. He quickly became active in the Tramways' Union, and a
delegate to the Labor Council where he cut his debating teeth in tough
company. He also edited the union journal for a time. Then when the City
Council was reconstituted, he nominated for

{p. 370} Flinders Ward and was successful in being elected to the
Council. He had resigned his position with the Tramways on nomination
day, when someone took the point that he was a Crown employee and
therefore ineligible to sit in the Council.

So he became unemployed just at the time when things were getting tough
industrially. Unlike one well-known Labor alderman of an earlier period,
he did not regard membership of the City Council as his living.

So he decided to branch out for himself. With wheat down to 1s 6d a
bushel, there was widespread belief that the price of bread was too
high. It was alleged that the bakers had formed a trade agreement to
keep the price up. Most of the trade was in cashing dole coupons. Bread
was a staple ingredient of the diet.

To break the bread combine, Ward went into partnership with another
prominent official of the Surry Hills A.L.P., Alec Riley, and
established a bakery business in Surry Hills. They proceeded to undercut
the combine. They called it the A.L.P. Bakery.

Naturally, the combine fought back. They boycotted the newly-established
A.L.P. Bakery, which had already been finding that some of their best
political supporters expected to get their bread on credit. Now their
flour supplies were cut off. At one stage Alderman Tresidder, a
Nationalist Member, came to their rescue through his cake factory at
Kensington. He was always fair minded in his politics. After some
trouble, they were able to get a further supply of flour from Victoria.
But it was a constant struggle to keep the business going. But with
energy and determination, they were able to continue and to sell bread
cheaper than any other baker in the city.

At the same time, they had been organising inside the Bakery unions.
They contended that the unions were too close to the combine.

Conservatives on the City Council didn't know how to handle Ward. He
neither smoked nor drank. He was always on the job, a keen student who
refused to compromise on the floor of Council. Most other Labor aldermen
had softened in the Lord Mayor's locker room where aldermen find that
they have so much in common. But Ward didn't patronise it.

That then was the calibre of the candidate whom the Executive had
decided to run for East Sydney. The announcement that he was to run on
the Lang Plan platforrn suited him to the ground. It didn't please many
of the Federal Members who had been rail-sitting.

The Federal Members were veering towards the Theodore policy which had
the Fiduciary Issue as its central theme but no time-table for action.

The Lang Plan involved immediate cessation of all interest payments to
Britain, pending an adjustment of the overseas debt and reduction of all
internal interest to three per cent.

All over New South Wales branches of the A.L.P. were passing resolutions
endorsing the Lang Plan and rejecting the Theodore Plan. The split was
becoming inevitable.

{p. 371} Already the East Sydney by-election was assuming significance
both to the Labor Movement and to the country at large. It was no longer
possible to conceal the schism that was developing.

Ward was much more than an endorsed candidate. He represented a powerful
school of thought that was quickly growing within the Labor Movement.
Unless the Labor Party recognised the growing discontent within its
ranks as the result of the appeasement path set by Scullin, many good
Labor people would have been thrown right into the arms of the Communist
Party. Ward believed that the struggle had to be decided within the four
walls of Labor. His followers in East Sydney looked to me to provide
that leadership. It was an appeal that could not be ignored.

So Ted Ward's introduction into Federal politics was destined to be a
stormy one. He was only 31 at the time. The Sydney Morning Herald
described him as "Imbued with the exuberance of youth, he is an
indefatigable worker, and is considered a rising force in the Labor
Movement."

The prediction was destined to be realised. Surry Hills was giving
Federal politics not only one of its stormiest petrels, but also one of
its most indefatigable workers. The passage of more than a quarter of a
century has not altered him much. But before the East Sydney election
was finally settled, the history of the Australian Labor Party itself
was to be profoundly affected. At that stage no one could have forecast
what the future held - least of all Scullin and Theodore.

East Sydney was to be much more than a by-election. It was a challenge,
with Ward the challenger in the name of the Labor people of this State
who wanted action to meet the inroads of Depression. Ward was to be the
forerunner. He was to be the first apostle of the Lang Plan.

61 Beasley's First Clash with Scullin

WITH THE SELECTION OF E. J. WARD to fight the East Sydney by-election on
the Lang Plan, the struggle inside the Labor Party to decide which
course the party should take to meet the Depression, could no longer be
deferred.

Theodore was trying to dicker with the bankers, and they were getting
tougher all the time. It was already evident that they would accept
nothing Iess than reductions of wages, pensions and all social services,
as the price for granting sufficient money to enable the governments of
the country to continue in business. Scullin had already accepted their
proposition.

{p. 372} In New South Wales we had decided that we had to fight for
survival. The East Sydney Electoral Council had given the lead.

In Canberra there was near-panic amongst the Federal politicians. They
were in mortal fear of a double dissolution. Scullin told them that the
Nationalists would use their majority in the Senate to force the
government to the country. There was the added risk that sufficient
Labor members would cross the floor to form a National Government.

Theodore was exploiting these fears to re-establish himself inside the
party. He was at once persuasive and domineering in his methods. He
either bull-dozed or talked his way through the resistance of the
rail-sitters. Labor members with marginal seats realised that they could
not hold them on the Scullin record. Rather than risk a showdown, with
an election to follow, they elected to follow Theodore. He was still
promising to lead them to safety and security. We could only offer them
a road on which they would have to fight every inch of the way. We
believed that Labor should adhere to its platform whatever the
consequences, so that there should still be a Labor Party when it was
all over.

The first clash came over the question as to who was going to open
Ward's campaign. The East Sydney Electoral Council didn't want Scullin
at any price. They said that he had sold out in Parkes, and that debacle
was due solely to his refusal to carry out the decisions of Caucus and
the Anstey resolution.

They asked me to open the campaign. I said that it was a Federal seat
and it would be wrong for me to usurp the rights of the Federal
politicians. l had kept out of Parkes, and thought that it would not be
right for me to go into East Sydney over the heads of the Federal
politicians. At the same time, I made it quite clear that my services
would be available as soon as the campaign started.

They then decided to ask Jack Beasley to start the ball rolling. Beasley
held a junior portfolio, being an Assistant Minister in the Scullin
Government. He was following the Sydney A.L.P. Iine and supporting the
Lang Plan. In Parkes by-election he had been the only Minister to put up
a scrap and had emerged as an aggressive leader of the Federal group,
not prepared to buckle down to Sir Robert Gibson's demands.

Beasley had been brought up in the industrial movement. He had come from
Werribee in Victoria, where he had served his time as an apprentice in
the electrical trade, under an employer who had ardently supported Dr.
Mannix during the Conscription fight.

On arrival in Sydney, he obtained employment in the Electricity
Department of the Sydney City Council, and his natural ability as a
public spealcer soon brought him to the fore in the affairs of the
Electrical Trades Union. Under the tutelage of Donald Black and Jock
Stewart, experienced officials of that body, he was advanced in the
union until he became its president.

But it was as delegate to the Labor Council that he won his political
spurs. His dynamic style appealed to Jock Garden, who took him under hls

{p. 373} wing. Beasley was an ideal foil for Garden. Jock did the
thinking and Beasley did the talking.

By 1922, at the age of 27, Beasley had become President of the Labor
Council. At that stage of his career, Garden had embraced Leninism and
visited Moscow. In fact, Jock was first Secretary of the Communist Party
in Australia. It was only a microscopic body, but its Pan-Pacific
Secretariat and the prestige of having discussed international Socialism
with Lenin, gave Jock standing as a militant. Jock, as a confirmed
individualist, above all valued his reputation of being a Red when the
proletariat thundered during Emancipation Night proceedings at the
Trades Hall on Thursday nights.

Beasley never joined the Communist Party. Still he tagged along with
Jock on most other things. He was a member of the Glebe A.L.P. and
already had ambitions for a political career. He realised that he could
never achieve it in any other way than through the Labor Party.

He was serious-minded, enthusiastic and determined to make a career in
politics. The trade union was to be his stepping stone. A non-drinker,
and non-smoker, he was in most respects ultra-cautious. He never
believed in taking unnecessary risks. Yet few young men in the Labor
Movement ever developed so quickly. To get on politically was the
all-consuming objective of his life.

Inside the A.L.P., Beasley was also soon accepted as an up-and-coming
young man. At Easter Conferences, he always supported the machine. He
was quickly recognised as a floor leader with a rare capacity of stating
a case succinctly and authoritatively. His most enthusiastic admirers
were the elderly ladies of the Women's Central Organising Committee.

He served a record term of five years as President of the Labor Council,
and in 1926 had been selected as Australian workers' delegate to the
International Labor Conference at Geneva, and was the first Australian
to be elected Vice-President of that body. He was elected president of
the Worlers' Group at the same time, in itself evidence of his ability
to make his way quickly to the fore as he defeated all the oldtimers.

It was while returning from Geneva, that he was able to obtain for me
the crucial McTiernan vote against Peter Loughlin in 1927, as related in
the volume of I Remember. In the following year when West Sydney had
become vacant on the death of former Lord Mayor, Bill Lambert, he had
won the selection for Labor's ace blue-ribbon seat, thanks to "Plugger"
Martin's organising.

In Canberra Beasley's hustling methods and undoubted skill in debate had
won him a place in the Scullin Cabinet. In the process of gaining it, he
had defeated John Curtin from West Australia. Scullin made him an
Assistant Minister and gave him New Guinea to look after, instead of
using his knowledge of industrial affairs.

Beasley had supported Anstey throughout the fight against Lyons during
Scullin's absence in England. He had believed that Scullin would throw his

{p. 374} weight behind them on his return because of his Victorian
background. But he was bitterly disappointed when Scullin walked out.

Next, Beasley had supported Theodore's return to the Treasury. He still
believed in Theodore's promises at that stage. The let-down that
followed immediately after Scullin reinstated Theodore, disillusioned him.

The Lang Plan meant that Beasley would have to define his own attitude
towards Scullin's policy. It had become a question of just how soon a
break would come between the Sydney Trades Hall, headquarters of New
South Wales A.L.P. and the Scullin Government.

As a realist, Beasley knew that when the moment of decision arrived, he
could make only one choice. He had to remain with his own people. Yet it
meant the inevitable sacrifice of everything for which he had worked.
His one hope was that the split would not develop any further. That was
rather futile at best. The rank and file had taken the bit into their
teeth. They were determined to have it out with Scullin.

So the invitation to open the East Sydney campaign brought Beasley right
into the firing line. He couldn't refuse it. Yet in accepting it, he was
obviously running under the neck of Scullin. Pressure was exerted from
several unexpected quarters to keep him from going to Paddington. On
form, it was realised that Beasley would go with the New South Wales
body. That meant widening the breach.

Scullin and Theodore were manoeuvring for position. If they could
capture Beasley they had a chance of winning. But the Sydney Executive
clinched the matter when they decided to instruct Beasley to make the
opening speech in Paddington Town Hall. That left him with no alternative.

Scullin himself made one attempt to sway him. While Beasley was writing
his speech at the Commonwealth Bank, he was told that the Prime Minister
was on the phone from Canberra, wanting to speak to him urgently.
Beasley didn't accept the call. He was still hoping against hope that
the crisis could be averted.

Meanwhile, both Theodore and Scullin had publicly denounced the Lang
Plan. They had followed the daily newspapers' line that it meant
repudiation. Scullin added the piquant touch that he was in
communicatlon wltn Mr. Montagu Norman of the Bank of England and that
the Lang Plan was upsetting his hopes of getting help from that quarter.
Just how Mr. Montagu Norman could assist him when Sir Robert Gibson was
turning him down, he did not attempt to explain. Still it suited him to
try to make me the vlllam of their tragedy.

Beasley conferred with the A.L.P. Executive and then came down to see
me. I told him that there was no turning back. Scullin and Theodore were
committed to the proposals of the financial experts. They were prepared
to swallow the bankers' ultimatum. We were not going to take the sarne
road. I warned him that they would get him out of the Ministry. He
assured me that he could only recognise one authority - the New South
Wales Executive. He would carry out their instruction. I then assured
him that I would throw my

{p. 375} weight behind him whatever happened. It was his job to convince
other Labor members that Anstey and he had taken the right line from the
beginning. "It looks like the 1917 fight all over again" was my final
comment. "Labor came out of that because it didn't abandon its
principles. It is now our turn to see that it survives this crisis."

62 Labor Split on Rock of Finance

THE SPLIT THAT DEVELOPED in the Labor Party by the middle of February,
1931, was not a battle of factions in which rival leaders were mustering
stregth to grab control of the party machine. It was much deeper than
that. It was a question as to which policy should be adopted to finance
the needs of the people against the terrible inroads of depression.

Naturally, personalities clashed. Labor supporters rallied behind
different leaders. Scullin, as Labor's Prime Minister, found that he
could no longer command the respect and following of the Labor Movement
in New South Wales. Yet Scullin, ironically enough, now had the numbers
inside Federal Caucus. That was simply because he now had Theodore's
support. While on the outer, Theodore had free-wheeled and had done his
best to embarrass Scullin. He had inspired militant financial proposals.
As soon as he was back in the Treasury, he again became the
ultra-conservative.

There had been three distinctly different policies enunciated to deal
with the situations:

(1) The Theodore Plan to stabilise prices at 1929 levels by use of a
Fiduciary issue;

(2) The Experts' Plan as adopted by Lyons and insisted upon by Sir
Robert Gibson to reduce wages, salaries, pensions and social services
and save £15 millions a year on the Federal Budget;

(3 ) The Lang Plan to suspend overseas interest payments pending debt
adjustment; reduce internal loan interest to three per cent.; and
thirdly to create a new currency in lieu of the Gold Standard then
operating, such to be known as the Goods Standard and based on the
wealth of the country.

Had the bankers been prepared to accept Theodore's proposals, there
would have been no immediate split in the Labor Movement. But they were

{p. 376} adamant. They insisted on the reductions - even to the
Maternity Allowance, then £5 for each birth to pay medical and hospital
expenses.

It was when it became evident that Scullin and Theodore were going to
sell out to the bankers that the New South Wales Executive decided to
insist on the Lang Plan being accepted as the official policy and to
fight the Past Sydney election on the issue.

At no stage did Scullin want a split. He tried desperately hard to avert
it. Yet he was not prepared to stand up to Sir Robert Gibson and the
private bankers' ring. We could understand Lyons. He was standing up for
a principle. But Scullin was simply trying to save his Government. If he
believed that Theodore had the right idea, then why didn't he insist
upon a fair trial of the Theodore proposals?

After all, the Federal Constitution gave the Government control over
banking and finance. The only alibi was the hostile Senate and the fear
of a general election.

With Gibson's letter on his desk telling him that the govermnent would
not be financed unless they adopted the Experts' Plan, Scullin became
more jittery than ever when confronted with my proposals. The
Nationalists only had to whisper "Repudiation" - and they were certainly
not whispering, but screeching it through every available propaganda
means - for Scullin to get the political shakes. More and more he was
leaning on Theodore.

The New South Wales Executive had already decided that East Sydney had
to be fought on the Lang Plan. How then could Theodore and his followers
take the platform? They had to make up their minds whether they were
going to obey the New South Wales Executive, or whether they would defy
the instruction. That would mean risking espulsion. Theodore was quite
confident that he was much bigger than any State Executive. While some
of his closest admirers, such as Ted Riley in South Sydney and Percy
Coleman in Reid, had their doubts, they were too much under the Theodore
spell to throw him aside at that stage.

Scullin decided to make a bold last minute effort to avert a split. He
called in the Federal Executive of the A.L.P.

The Federal President was J. J. Kenneally, a Member of the West
Australian Parliament, who had been President of the Perth Trades Hall
Association, while the Federal Secretary was Dinny McNamara from Melbourne.

At that stage the Federal Executive was still a nebulous body. It had no
real authority. New South Wales had never accepted the idea that small
States like Tasmania and West Australia should have equal representation
and be able to out-vote the large industrial States. It was too much
like the Senate system. All the major social and industrial reforms had
come from the larger States, and there was a strong opinion that the
Labor Party in a state like Tasmania was as conservative as the
Nationalist Party itself. After all Lyons had been a Tasmanian Labor
Premier.

Theodore persuaded Scullin that the Federal Executive could over-ride

{p. 377} the authority of any State Executive. He was already preparing
his own defence in depth. But Scullin's only motive as always was to
foist his own problems on to some other body.

If Scullin and Theodore epected Goulburn Street to be over-awed by the
Federal body, they had a very poor knowledge of Labor politics in this
State.

The momentous conference was held in the Prime Minister's suite in the
Commonwealth Bank, Sydney, on February 15. It was all-in. The Federal
Eecutive was there. Scullin was in the chair. Theodore sat beside him to
prompt him. I was on the opposite side of the table. With me were Jimmy
Graves, then President of the New South Wales Eecutive, Sid Bird, the
Secretary, and "Plugger' Martin, the Organising Secretary.

Theodore had also invited Forgan Smith, then leader of the Labor
Opposition in Queensland and a big force in the A.W.U. But invitations
were not sent to Anstey, Beasley or anyone else likely to stand up for a
policy of positive action.

Scullin said the purpose of the conference was to formulate a policy on
which to fight the by-election. He appealed for consideration of the
difficult position in which his Government had been placed. He said that
the Parlces election had proved that Australia did not want wild
financial schemes or any short cuts to prosperity. He appealed to us not
to pursue the Lang Plan any further. It would wreck his Government and
the Labor Party.

I reminded them that Parkes had been fought out on the Scullin policy,
and I had not intervened at any stage. I had left it all to Scullin and
Theodore. How then could I be asked to accept responsibility for the result?

As far as I was concerned, there was only one issue. That was to keep
the country afloat. The bankers had taken control of the government. The
only hope for the people was for the governments to assert their
authority and finance their needs. We had to stand between the people
and starvation. If we agreed not to go any further with the Lang Plan,
what was the Scullin Government prepared to do about that problem? Our
only aim was to get sufficient money to end the depression. We had to
restore hope to the people. We had given pledges, and they expected us
to honor them.

Scullin then said that Theodore was prepared to go ahead with his
Fiduciary issue plans. I asked what would happen if the Senate rejected
them. Scullin did not reply directly. He said that was a matter for the
future. I insisted on knowing whether he would proceed to cut wages and
social services. He replied that he was bound by the Premiers'
Conference decisions.

I then said we couldn't fool the Labor Movement. We had been elected to
do a job and we couldn't shirk it no matter how bitter the consequences.
We ad a policy and we had to carry it out.

Dinny McNamara, who was Victorian Secretary and an admirer of Frank
Anstey, was all for peace at any price. He appealed to Graves not to
fight East Sydney on the Lang Plan. It would wreck the party. Graves
asled whether it was proposed to ban all mention of the financial issue.
That was

{p. 378} the only way the Lang Plan could be ignored. What did they
propose we should talk about instead of finance? Why be dishonest about
it? No one could ignore the issue.

Theodore said that the Lang Plan would destroy me politically. The
people would have none of it. They would rally behind Scullin and I
would be finished. I replied that if that was so, then I would have to
put up with the consequences. But instead of worrying so much about my
future, I suggested that he should worry about his own. The Labor people
of Dalley might have different ideas on the subject. Theodore insisted
that we would lose East Sydney if we went ahead.

Scullin intervened to suggest that we should form a sub-committee to see
if we could bridge the gap. Theodore, Kenneally, McNamara and I formed
the committee. We had one meeting. We were hopelessly divided. Theodore
and I both refused to budge from the positions we had adopted. I said
that unless we were both bold and courageous we would destroy Labor.

When we reported back, Forgan Smith appealed to us not to fight on the
financial issue. He was being used as a prop by Theodore.

Jimmy Graves put the final kibosh on proceedings by saying that the New
South Wales Executive had no intention of fighting on any other issue.
The Lang financial policy was the official pohcy for East Sydney. No
advocate of the Scullin-Theodore policy of appeasement would be allowed
to take the platform in East Sydney. That ended the conference.

So the delegates filed out of the Commonwealth Bank around midnight with
the Labor Party virtually in two conflicting sections, in addition to
the Lyons-Fenton group who were even further to the Right. Scullin was
still confident that the bankers would relent. He said the Gibson letter
was not an ultimatum. Theodore was going to see the private banks. But
he admitted that there had to be further sacrifices by the community.

Meanwhile, the Federal Executive was still in Sydney. One of its
problems was whether it would run a separate candidate against E. J.
Ward. lt decided not to take the risk. It did decide to take action to
denounce Ward's adoption of the Lang Plan as his principal plank. It
carried the following resolution, which it handed to the newspapers:

"In the event of Alderman Ward, in his campaign in the East Sydney
by-election, advocating a policy contrary to that of the A.L.P., as
announced by the Federal Executive, this executive declares that he is
not a candidate of the A.L.P. and does not represent the aims or policy
of the party."

That was the challenge to New South Wales. At the same time, the Federal
Executive invested its officers with "full power to take any action
necessary to cope with the position." The fight was on.

{p. 379} 63 The Paddington Town Hall Meeting that Rocked Scullin

THERE WAS ONLY ONE JURY which could settle the dispute between Scullin
and Theodore on the one hand, and the New South Wales Executive and
myself on the other hand, as to the policy that should be followed to
deal with the Depression crisis.

That jury consisted of the rank and file of the Labor Movement. It
didn't matter in the final analysis what politicians said or executives
decided. The real test was, which way the people would elect to go.

Scullin had already told his party in Canberra that if they adopted the
Lang Plan an early election was inevitable and they would be decimated.
Federal Caucus agreed to support the Theodore Plan for a Fiduciary
issue. They dodged the question of further wage and pension reductions.
They appointed a delegation of four Federal members, headed by the
Minister for Markets, Parker Moloney, to wait on the New South Wales
Executive to put the case for Theodore, and a request that we should
reconsider our decision to fight East Sydney on the Lang Plan.

Moloney pointed out that the 21 New South Wales members of the Federal
Caucus were bound to carry out the decisions of the Caucus and Federal
Executive when in Canberra.

Yet when they returned to Sydney they had to obey an entirely different
Executive and carry out an entirely different policy. Their position had
become intolerable.

The New South Wales Executive didn't waste much time. They censured the
Moloney delegation and then issued an ultimatum to every Federal member
ordering them to take the platform in East Sydney in support of the Lang
Plan. Each was sent an itinerary.

The Federal Executive decided to call an Interstate Conference to deal
with the internal crisis. One prominent member was reported as having
said that they were hopeful of Ward being defeated in East Sydney,
because approval of the Lang policy would bring about an early Federal
election.

Meanwhile, Scullin and Theodore had found themselves up against a brick
wall with the private banks, and sent an S.O.S. to Mr. Montagu Norman of
the Bank of England, seeking his aid.

Scullin called a Cabinet meeting in Melbourne and deliberately omitted
Beasley from the list of Ministers to whom notices were forwarded.
Theodore called New South Wales Labor members together for a Saturday
morning

{p. 380} meeting at the Commonwealth Bank in Sydney, and both Beasley
and Senator "Digger" Dunn were excluded. At that stage, Theodore was
supremely confident that he had the numbers to win.

That then was the position when I addressed my first meeting in the East
Sydney by-election. To say the least, the political atmosphere was
charged with high voltage electricity. The Federal Government was hoping
for a black-out.

The meeting was held in Paddington Town Hall on Monday, February 23rd,
1931. It was one of the greatest I had ever addressed. Not only was the
hall packed like a tin of sardines, but Oxford Street was jammed tight
as far as the eye could see. The police estimated the overflow at
30,000. My car driver had trouble getting me to the hall. The crowd was
on its toes from the start. At no stage did I have any reason to doubt
precisely where it stood in the dispute.

The only Federal members present were Beasley, Bert Lazzarini and
Senators "Digger" Dunn and veteran Arthur Rae. Men, women and children
had waited for hours. Many had taken their tea with them.

If ever there was living proof that the people were waiting for a lead,
Paddington Town Hall provided it that night. The people had no time for
craven compromise. They were fed up with alibis and vacillation. They
didn't want any further double-talk. They wanted action. The issue was
simple - The People versus Money Power. There were times when I thought
their responses would lift the roof off the Town Hall.

For months many of them had been without work. Many had been evicted
from their homes. Only the dole stood between them and death by
starvation. What use was it talking to those people in fancy phrases
about fiduciary issues, or warning them that the Bank of England might
become disturbed at the suggestion of repudiation?

My theme was that it was high time that Australian Government began to
think in terms of Australia and Australians, and give priority to the
needs of those Australians.

Niemeyer had said that Australia could stew in its own juice. That was
the Bank of England's attitude. Our obligation was to state the case for
Australia. There was no argument. The banks could help Australia if they
so desired. They made one stipulation. The costs of production must come
down. We were prepared to accept that doctrine. But we stipulated that
interest reduction must lead the way. The banks wanted wages and
pensions to be cut. Labor could only take one road.

As the banks would not accept the scaling down of interest voluntarily,
we proposed that all interest payments abroad should cease until they
gave Australia the same terms as America had given England.

We had two reasons. Firstly, we believed the money would be better
employed finding work for Australians out of jobs. Secondly, our
financial woes arose from the debts we had contracted going to the help
of Britain in her dark days when Kaiser Wilhelm menaced her. We were
suffering from

{p. 381} the aftermath of that war and should not be crucified by the
very people whom we had aided.

Then there was the talk of repudiation. Had the overseas financial
interests never repudiated anyone? Australia had put returned men on the
farms to grow wheat. They had risked everything. Now they could not sell
their wheat.

The overseas financial interests had lent money to Russia and then
bought Russian wheat. Yet Russia had repudiated all her war debts to
Britain.

I then dealt with all the press hysteria about the risk of default. Had
not Britain herself defaulted in her time. Had not the Bank of England
been declared a common bankrupt. France, Germany and even the United
States had all seen their names written on the scroll of international
defaulters.

They said for Australia to withhold interest payments would be
dishonorable. Was it honorable to take the pension from the war widow
and give it to the London bondholder? Was it honorable to close the
public hospitals, throw nurses out of employment and turn the sick into
the street, in order to keep up the fiction of treating the bankers
honorably?

Must wages be reduced; the maternity allowance withdrawn, the aged
forced to look to their families for nourishment before we defaulted in
one penny piece to the absentee investor?

"I am here to say that the Labor Party in New South Wales will never
subscribe to such a policy. We will not abandon the Australian people to
the dictates of international finance," I declared. There was little
doubt that the vast audience found itself in complete agreement with me
on that point.

There were three contracts to be honored. One with the workers to pay
award wages, one with the returned men to pay them pensions for their
disabilities, and one with the bondholders. We refused to repudiate the
first two in order to honor the third.

Let us then tell the overseas interests we were unable to pay them their
interest until such time as they again started buying Australian goods.

Australia was paying Britain five per cent. interest on her debt.
Britain was paying the United States 3.5 per cent. Belgium was getting
off with 1.7 per cent.; France 1.6 per cent. and Italy, which was
supposed to have lost the war, less than per cent.

The Italian statesmen had stood up for Italy and the French statesmen
had put up a fight for France. Then surely it was time that someone
stood up for Australia.

We simply proposed that until such time as Australia got a fair deal the
£36 millions interest that was sent out of the country each year, should
be kept here to find jobs for the unemployed.

The Commonwealth Bank Board had issued an ultimatum that if the
Governments would reduce wages and pensions, the Banks would co-operate
in sustaining industry and providing employment. That was a lockout of
the needs of the Australian people by the financial institutions. Unless the

{p. 382} Governments and the people bowed their knees and gave homage to
the banks, the lock-out would continue.

"The Labor Movement in New South Wales will go out of existence before
it will permit the people to be sold into bondage to the financial
institutions," I told that vast Paddington audience, and they responded
in one mighty crescendo.

Reduction of interest was essential to restore a balance. There could be
no privileged area in the community. Lower interest would save the
tenants, home purchasers, storekeepers and farmers from liquidation. If
only the Scullin Government had the courage to do it, then the bonds
would be severed, and the strangle-hold broken. It did not require
Senate approval to hold back overseas interest payments. Neither did it
require Senate endorsement to issue notes against the real wealth of the
country. The alternative was to slide over the precipice into complete
chaos. The plan I proposed would not solve all the difficulties. But it
would provide immense relief.

Then I dealt with the newspapers which had been inciting people not to
pay their taxes. "When you see a staid old newspaper like the
grand-motherly Sydney Morning Herald inciting revolution; when you read
a paper like the Sun urging people to take up arms against
constitutionally elected Government, you must realise how desperate and
how ruthless these financial institutions are. It would be far safer for
them not to inflict such ideas on the people, as a rising would be as
disastrous to them as that of Dr. Jameson was to their kidney in the
Transvaal. We will not govern to the orders of the financial
institutions or because of fear of the revolutionary urgings of any
newspapers. We intend to govern according to the law of the land and in
the interests of the people."

"Will you be Australians?" I asked. The response was thunderous. "Then
there is a way out. We will not hoist the white flag. We will fight out."

As the great crowd roared itself hoarse, Paddington gave its answer to
Scullin and Theodore. From that moment on, the issue was never in doubt
in New South Wales as to where the rank and file of the Australian Labor
Party stood in the great crisis.

{p. 383} 64 Scullin Took Cabinet for a Spill

PRIME MINISTER SCULLIN was much more sensitive about his own prestige
than the standing of his Government with the Labor Movement. So when
Beasley agreed to open the East Sydney campaign and the New South Wales
Executive refused to have Scullin, he was highly incensed.

At one stage it was suggested that Sullin should defy the New South
Wales Executive and address a meeting arranged by the Federal Executive.
But after my Paddington meeting that pln was hastily dropped. Scullin's
scouts who were present reported that there wasn't the slightest doubt
as to the enthusiasm of that crowd in Paddington Town Hall. Scullin was
not prepared to risk a hostile reception in the same area.

He then decided that the only way he could re-establish his authority
was by disciplining Beasley. Prior to East Sydney, he had bcen high in
his praise about the work that Beasley had done for him during his
absence abroad.

Scullin still believed that he could win by keeping to the middle of the
road. He had already parted company with Lyons and Fenton.

The break with Lyons came when he decided to re-admit Theodore to his
Cabinet, notwithstanding the lack of finality over Mungana. That meant
that Lyons had to vacate the Treasury and go back to the Post Office. As
soon as the numbers went up in Caucus and Theodore was reinstated, Lyons
went off to his home in Devonport to consult his wife, who exercised a
profound influence in every decision he made in politics.

On Canberra Railway Station there was a dramatic scene. As the train was
about to pull out for Sydney, Defence Minister, "Texas" Green, rushed on
to the platform. Running beside the train he called "Don't do it. For
God's sake don't do it, Joe! Come back." Lyons waved his hand in
farewell and that was the end. Joe did it.

Almost immediately after reaching his home, Lyons sent a telegram to
Scullin tendering his resignation. Scullin urged him to reconsider it.
Lyons again replied that in view of all the circumstances he could not
remain a Member of Cabinet while Theodore was in it.

James Fenton, who had been Acting Prime Minister in his Cabinet, also
decided to hand in his portfolio as Minister for Customs. He was still
following the Lyons' lead.

At the same time Moses Gabb, the volatile Member from South Aus-

{p. 384} tralia, who had his own ideas about ethics in the Labor Party,
announced that he had withdrawn his support from the Scullin Government
because he believed that was the right thing to do. Neither Lyons nor
Fenton went that far at that stage. They remained Members of Caucus for
the time being.

There had been some intensive lobbying for the two vacancies. The names
mostly mentioned were those of E. C. Riley and Percy Coleman, both
staunch Theodore supporters. Instead of asking Caucus to appoint two new
Ministers, Scullin had filled the vacancies temporarily by making
"Texas" Green his Postmaster-General, and promoting Frank Forde to take
charge of the Customs portfc;io, to which he had been Assistant Minister
under Fenton.

That left a num,r of aspirants still waiting. They urged Scullin to take
action against Beasle. The best way to achieve their objective was by
means of a spill.

A spill occurs when a party leader hands in his commission to the
Governor-General and then calls upon Caucus to conduct another ballot
for all positions.

With the support of Theodore and the A.W.U. assured, Scullin now had the
numbers for a spill. He could get rid of his critics within Cabinet. But
by driving them to the cross-benches, he would have them more active
than ever inside Caucus.

Scullin called a meeting of his Cabinet without Beasley. After it had
concluded, he announced that it had been decided to pool all Cabinet
positions. Theodore rushed back to Sydney where he had a meeting with
Arthur Blakeley, Minister for Home Affairs, Ted Riley Snr., Percy
Coleman, E. C. Riley, Jim Tully (Barton), W. J. Long (Lang) and Senator
J. B. Dooley. They were all his personal associates and he employed all
his persuasiveness to get them to defy the Sydney Executive.

Caucus met on Monday, March 2nd, 1931. Scullin opened proceedings by
stating that the party should reconsider the personnel of the
Government. He was prepared to allow his own name to go into the melting
pot. A secret ballot might clear up some of the problems.

Theodore then addressed members on the financial position. He told them
how disappointed they were with the attitude of the banks. He then
proceeded to outline his proposals for a Fiduciary currency.

Beasley and some of the New South Wales members tried to pin Theodore
down on the question as to whether he was prepared to go ahead with his
proposals by administrative action, or whether he proposed to rely on
the hostile Senate passing the measure. Theodore replied that he had
been glving the matter the most serious attention, but the only way out
seemed to be legislation. Caucus then agreed to a Theodore motion "That
as a first step to give effect to the Government's financial proposals,
a bill be introduced for the purpose of creating a Fiduciary note issue
of £18 millions." It was carried.

Then the ballot was held. Most notable absentees were J. A. Lyons and
his fellow Tasmanian, J. A. Guy. There was already talk of an attempt to

{p. 385} form a National Government, to which Lyons had given the
cryptic reply: "I am prepared to put the interests of my country and its
people before any party considerations."

The first ballot was for leader, which Scullin won without difficulty,
Beasley scoring five votes only. His supporters were Senators "Digger"
Dunn and Arthur Rae, and in the Reps. Bert Lazzarini and Jack Eldridge.
Rowley James was away ill.

Next came the ballot for the two Senate positions in Cabinet. The
previous occupants had been Senator Daly, who was Vice-president of the
Executive Council as well as Attorney-General, and John Barnes, the
Minister for Works as well as President of the A.W.U.

Daly had fallen out of grace over the Evatt and McTiernan appointments
to the High Court. He had also refused to become involved in the faction
fight. He was not very happy over Theodore's re-instatement.

An approach was made to Senator O'Halloran, also from South Australia,
to run against him, but he refused to dump Daly. So the Scullin-Theodore
ticket substituted the name of Senator J. B. Dooley from New South Wales.

Dooley belonged to the Bailey faction in the A.W.U., and was an
organiser of the Railways' branch of that organisation. He had found his
way into the Senate as a gesture by Theodore to the A.W.U. That the very
able Daly should have been dropped for the newcomer Dooley, demonstrated
just how strong the ticket was at that stage. There were only seven
Labor men in the Senate. Barnes and Dooley were returned, which meant
that Barnes became leader for the Government.

Then came the struggle for the Representatives nominees. Word was passed
along that Beasley and Anstey had to be dropped at all costs. Theodore,
Moloney, Forde, Blakeley and Brennan were all returned on the first
ballot. Then came the ballots for the remaining five vacancies. Beasley
and Brennan dropped out early. They had no chance of escaping the axe.

John McNeill, who was Scullin's brother-in-law and a prominent member of
the A.W.U. both in Victoria and Queensland, was included on the ticket,
although he had had an in-and-out career in Federal politics as Member
for Wannon. Still he had the two most desirable qualifications for
success in the ballot, one by marriage and the other by political
affiliation.

To placate the Victorian Trades Hall and attempt to wean it away from
Sydney, a place was made for E. J. Holloway, who had upset Bruce's
applecart in Flinders. Holloway was a champion of compromise, as were
most of the Victorian trade union leaders, and was an easy mark for
Theodore.

Next came J. B. Chifley, who had won Macquarie in 1929, as an
industrialist. He had been trying to sit on the fence, but had been won
over by the promise of being included on the ticket.

The other newcomer was C. E. Culley, who was included to appease
Tasmania as he represented Denison.

Fenton only obtained five votes. Last man in the count was "Gunner"

{p. 386} Yates from South Australia, who polled 22 votes to the 24
gained by "Texas" Green to win. Daly had tried to get his revenge
through Yates, but failed.

D. C. McGrath who had been Deputy Speaker, was dumped also, because he
had opposed the Theodore restoration.

Amongst the also-rans again was John Curtin from West Australia.
Curtin's sin was that he had supported Anstey, and Scullin and Theodore
were determined to root out Ansteyism. Curtin was so incensed that he
withdrew his name from the ballots for committees, all of which went to
the ticket.

Also disappointed were Percy Coleman and E. C. Riley. On ability and
records they should both have made the grade before McNeill or Culley.
But Theodore had dumped them cold, despite their loyalty to him. Riley
became Government Whip while Lou Cunningham was elected Chairman of
Committees.

The ticket had won hands down. But the loss of Anstey, Beasley and Daly,
in addition to Lyons and Fenton, had further weakened the strength of
the Government. No one believed that the fight was over.

Still Scullin had taken the first hostile move. It was one that he lived
to egret. He allowed Theodore to use the sword on his opponents. How
then could he complain when they took the first opportunity to get revenge?

65 Lord Rothermere Gave Unexpected Support

AS SOON AS I HAD DECLARED in favor of a counter-offensive against the
overseas interests trying to drive Australia into insolvency, I found
myself fighting on two fronts. All my opponents in the financial world
gathered their full strength in an attempt to establish me as a
defaulter, a charlatan, a repudiationist and a menace to the country.
The Scullin-Theodore faction in Canberra were no less hostile.

Mr. Latham described my proposals to deal with the war debt as "a policy
of dishonor, disgrace and degradation." Another prominent Nationalist
said that Australia needed a Mussolini to deal with me as the Italian
dictator had dealt with the Italian Socialists. Even the Sydney Morning
Herald said the situation was so ominous that if repudiation occurred
the country must be careful to avoid armed conflict. There was more and
more talk of the possibility of forming a branch of the Fascist Party in
Australia. At that time our political opponents had a great admiration
of all forms of Fascism. Mussolini was their model. Hitler had not as
yet stepped upon the stage.

{p. 387} Louis Bonaparte had described the process of grabbing power by
force in defiance of a country's constitution as a "coup d'etat." There
were many already thinking in terms of a "coup d'etat" in New South Wales.

Mr. Latham told an audience in East Sydney that the woollen mills at
Albury were to be removed immediately across the Murray to Wodonga to
"get out of the Lang area." Of course they are still in Alburv. There
was more talk about a run on the Savings Bank, and the wrecking of
financial institutions.

In London the Council of Foreign bondholders became active. London
newspapers started giving considerable space to political affairs in
Australia. Returning visitors told how the mere mention of my name
resulted in freely expressed comments that I was a menace to the Empire,
and some kind of ogre. They even doubted whether I had any human
instincts. I was regarded as being some kind of denizen of another
world, waiting to prey upon th innocent financiers of the City of London.

Mr. A. M. Samuel, a Conservative Member of the House of Commons had an
interview cabled back to Australia, in which he declared that elderly
widows and pensioners were frightened out of their wits by my proposal
to withhold interest payments until the bonds had been funded. "Part of
my parents' savings and my own are invested in Australian bonds," he
confided. Then for good measure he added: "Every time Mr. Lang opens his
mouth it costs Australia £250,000 in London." Such statements were
typical of the way in which the brief for the Council of Foreign
bondholders became tangled.

The issue on which I appeared to have upset them most was the way in
which I had raised the question of the cancellation of war debts. Yet my
case was fully documented. I had the papers revealing how the Baldwin
Mission to the United States had resulted in a funding to Britain's war
debt at 3 per cent., although Philip Snowden and other critics alleged
that it could have been arranged at 2 per cent.

I also had full details of Churchill's deal with France by which that
country was relieved of all interest payments on its war debts, except
such amounts as it recovered by way of reparations from Germany. That
deal had been arranged by Winston Churchill in 1925 with Sir Otto
Niemeyer as his principal adviser. My challenge to the overseas
financial interests was summed up in a speech in the Maccabean Hall as
"Treat us as you treated your Allies, or even as you treated your
enemies, but do not single us out for harsher treatment than both."
Because we had spent all our resources on war - to the tune of over £700
millions, we were now being left to stew in our own juice. I then gave
further details of the Russian deal thus:

"Russia deserted the Allies half way through the War; Australia stuck to
them. Russia was denounced then and Australia was cheered. Russia
repudiated all her debts - Australia paid hers.

Russia was again ostracised and Australia was again cheered. Next

{p. 388} we find Russia offering British buyers cheap wheat on condition
that she received a large loan and cheap shipping rates.

"The financial interests gave the loan to Russia; they gave her the
cheap shipping rate; they bought her wheat. They put up the shipping
rate for the Australian soldier-farmer, refused loan money to his
country, let his wheat rot.

"When it became a matter of profit, financial interests overseas
repudiated all they said about Russia and bought the Russian wheat."

While I was being roundly abused for such sentiments, many people in
Britain were beginning to wonder whether they had not been suckers. A
book with the title The Dupe as Hero, by a well informed economist
writing under the pseudonym of "Logistes" obtained widespread
circulation. It cited Bonar Law's estimate that the way in which the war
debts had been handled would cripple the country for two generations.
Americans had benefited most, financially. When America refused to lend
money to the Allies, Britain had borrowed in New York and then re-lent
it to Italy and France. Yet Italy and France had repudiated five-sixths
of their war debts.

My objection was not to the discharge of our debts. It was based on the
rate of interest we were being called upon to pay - an average of
£5.11.3 per cent. I reminded my audiences of the Balfour Declaration of
August 1922, which stated that the British Government was prepared to
surrender its share of German reparations and writing off, in one great
transaction, the whole of inter-Allied indebtedness.

Mussolini had been given preferential treatment by all Italy's
creditors. Washington had not only cancelled the bulk of its debt, but
Mussolini had been given a special New York loan as a reward for
accepting the cancellation.

Yet because I was demanding an adjustment of our debts to obtain the
same conditions as Britain herself had obtained from Washington, I was
the target for an unprecedented hymn of hate from both Britain and
Australia.

Just when the Australian newspapers had convinced their readers that I
was trying to destroy the Empire, I received from London a cable that
indicated that I was not alone in my thinking.

It came from a most unexpected quarter. Its sender was Viscount
Rothermere, brother of Lord Northcliffe and publisher of the London
Daily Mail, then the newspaper with the largest circulation in the
world. It was a copy of a cable that he had sent to the leading
newspaper editors in Australia. It read:

"A mischievous statement purporting to have been made by the President
of the National Council of Women at a full meeting in the Melbourne Town
Hall has been circulated in London. She is reported to have said: 'The
whole of the British Press with the exception of the Times has been
taking a vigorous part in insidious propaganda against Australian
prestige. This is

{p. 389} proceeding in the most damaging way through the length and
breadth o the land.'

"I wish to assure you that there is absolutely no truth in such a
statement," continued Lord Rothermere's cable. "The British newspapers
have taken a most helpful and sympathetic attitude throughout your
crisis. Even the austere financial critics in the financial weeklies
have shown the same spirit. I do not know of a single instance to the
contrary.

"The newspapers under my control with an aggregate sale of 26 million
copies weekly, are replete with sympathetic references to Australia.

"In association with Lord Beaverbrook, I have been for the last twelve
months pressing upon the electorates of this country to give Australian
wheat, meat and other products a large preference over the products from
foreign countries.

"We are continuing this campaign and are hopeful of successful results
within the next two years.

"I can assure you as one in charge of the greatest engine of publicity
in Great Britain, there is throughout this country a desire to stand
shoulder to shoulder with Australia in all her difficulties."

Then came this most unexpected postscript to the cable:

"I am entirely in favor of the cancellation of all war debts between the
constituent members of the British Commonwealth. I believe by this
elimination a great step forward will have been taken towards the
extinction of all war debts between the Allies and their associates who
fought together in the Great War - Rothermere, Daily Mail."

He followed it up with editorials in the London Daily Mail supporting
our case for debt revision to the hilt. Of course he was odd man out
with the financial ring, but that was not unusual. Commenting on the
suggestion that a release of credit in Australia might result in
inflation, Rothermere commented that such a course was entirely a matter
for Australia herself, but it had to be remembered that a restricted and
carefully adjusted measure of inflation had helped France and Italy
overcome their financial troubles.

His intervention was timely. It did prove that thinking people in
Britain were also turning their minds in the same direction I had
advocated. The Lathams, Gibsons, Bavins and Scullins were so afraid of
Threadneedle Street that they quivered at the slightest suggestion of
tackling the bondholders. Yet the biggest newspaper magnate in Britain
was prepared to publicly endorse the stand I had taken.

To say the least it was encouraging. The fight had to go on.

{p. 390} The Private Banks Rebuff Theodore

THEODORE HAD PERSUADED the State Premiers that he could sell the banks
on a Three-Year Plan. It didn't include any mention of his Fiduciary
issue. Instead it was to be a compromise of all the ideas that had been
submitted.

The Scullin Government would be prepared to reduce wages, if the banks
would agree to reduce interest rates and agree to a tax of 3s 6d in the
£ on all interest from Government loans that were issued, subject to
taxation. The banks were also to agree to extend additional credit to
find work, and the Scullin Government would take up with the States the
question of closing down Government departments which were duplicated by
the Commonwealth and States.

Finally, Theodore attempted to steal my thunder by suggesting that the
floating debt overseas should be funded, and interest on overseas
obligations should be provided through an exchange pool.

If he could get away with his ideas, he stood a very fair chance of
survival. But Sir Robert Gibson had already banged the door closed.
Theodore was still satisfied that his friend, Sir Alfred Davidson, would
stick to him. He didn't realise that Sir Alfred was only an employee,
and the final say came from the Bank's directors, whose chairman, Sir
Thomas Buckland, was hardly an admirer of the Labor way of life.

Scullin agreed to go along with Theodore to meet the Associated Banks in
conference, while the Treasurer sold his scheme. There was really only
one problem. That was to get money quickly. The Nationalist Premiers
were just as anxious as the Labor Premiers. But the banks had the big
stick. They knew precisely what they wanted.

Theodore thought he could drive a wedge between the Commonwealth Bank
and the private banks. But if he couldn't get his way with the
Government-owned Commonwealth Bank, how was he going to prevail upon the
privately owned banks to be more helpful?

There were nine privately owned banks in the ring. Three of them - The
English Scottish and Australian Bank Ltd., the Bank of Australasia and
the Union Bank of Australia Ltd., were wholly owned in Great Britain.
Their directors came from the mortgage and trustee companies, the
shipping companies and the insurance world. They were solely interested
in dividends on their Australian investments and had very little contact
with the life of the Australian people. My moratorium legislation had
hit them hard. It prevented

{p. 391} foreclosure of station and farm property just as it prevented
the selling up of the small home-owner.

Then there were six Australian-owned banks - The Bank of New South
Wales, Commercial Banking Company of Sydney Ltd., Australian Bank of
Commerce Ltd., National Bank of Australasia, Commercial Bank of
Australia Ltd., and the Queensland National Bank Ltd.

The Australian banks were afraid of another 1893 collapse. Most of them
had been through reconstructions. Their directors came from the trustee
companies, pastoral industry, sugar industry, shipping companies and the
older families of wealth. On the one hand they were anxious to keep
their doors open. On the other, they were dependent upon the
Commonwealth Bank for aid if the crisis got any worse. Finally, they
were astute enough to realise that the financial interests that survive
a financial avalanche invariably emerge much wealthier than ever before.

Theodore was most anxious to give a good impression. He believed that
his best letter of recommendation would be some evidence that he was
fighting me tooth and nail. If he could only persuade them that he was
going to destroy Lang, he was quite satisfied that they would go along
the Theodore path.

He had already become a close personal associate of Sir Alfred Davidson.
There was more than a suggestion that most of the Theodore proposals had
been drafted in the Economics section of the Bank of New South Wales.
Theodore used their research facilities freely.

But he badly needed some positive proof of his good faith. How could
they believe that he would be prepared to destroy me, when they knew
that as Member for Dalley he owed his political life to the New South
Wales Executive of the A.L.P., which the newspapers never ceased
describing as the "Lang machine." Of course, if Ward could be beaten in
East Sydney, there might be a chance of Theodore, with A.W.U.
assistance, capturing the next Labor conference. But that was only a
remote possibility.

Theodore knew he had to make some overt move against me. At that stage
of the game, he really believed that if he could convince them that he
was anti-Lang, they would be pro-Theodore.

New South Wales needed £737,733 to meet Treasury Bill commitments. These
had been part of the legacy left by the Bavin Government, but they were
up for renewal. The Bank of New South Wales and the Commercial Banking
Co. of Sydney informed me that they could only make advances under the
new Loan Council arrangement with the backing of Commonwealth securities.

I had written asking what course the Commonwealth proposed to adopt. I
was not left in doubt very long. Theodore told the Treasury that he was
not prepared to make any further advances, but would convene a special
Loan Council meeting to consider the situation. I realised it was to be
a declaration of war.

If Scullin and Theodore were prepared to use their numbers on the Loan
Council and their control of the banks to starve New South Wales into

{p. 392} submission, shouldn't that satisfy the banks? That was the
position when Scullin and Theodore went into conclave with them.
Theodore used all his talents. But the bankers were not prepared to
bargain. They wanted all, or would fight to the limit.

They sent Scullin and Theodore away without an answer to their
Three-Year Plan, which was less than a week old. They then went into a
Bankers' Caucus. Next day Mr. Tranter wrote a letter to Theodore. It was
a unanimous decision turning the Government down flat. Mr. Tranter said
that they had considered the Three-Year Plan. They agreed with its
stated objectives o providing work for the unemployed, maintaining the
solvency of the nation and restoring balanced budgets, and finally
spreading the loss of national income over the entire nation.

They were fully in agreement with all the cliches. That was as far as
they would go.

The second paragraph of their letter was a right to the solar plexus for
Theodore's hopes. It read:

"The banks regret, however, that they cannot agree with all the methods
suggested by the Treasurer, as, in their opinion, these are not on sound
banking or economic lines.

"The carrying out of the ideas therein, would, in the opinion of the
banks, not alleviate the position, but would rather increase the
difficulties by which the country is beset. The banks are quite willing
to co-operate with the Government providing that what is done will be of
lasting benefit to Australia."

Then in very blunt terms they laid down their conditions. But their
ideas on that subject did not coincide with the plans of theScullin
Government.

At that stage Scullin had refused to include reductions in pensions and
social services in the Three-Year Plan. He had not accepted the idea
that the budgets should be balanced forthwith. He wanted a three-year
breathing spell. The banks curtly told him that confidence could only be
restored if governments balanced their budgets, and that Government
expenditure had to be reduced to meet shrunken incomes. They insisted
that the ideas of the experts should be adopted. That included wage and
pension reductions.

They would be willing to co-operate with the Commonwealth Bank to find
finance if the Government accepted the experts' proposals and there was
no attempt to impair the monetary system. In other words they would not
be willing to accept the Theodore Fiduciary issue.

They expressed the belief that perhaps some reduction in interest rates
mioht be possible. They also agreed that a funsling of the overseas
floating debt was advisable, but thought the Governments would have to
balance their budPcts first. But they issued a warning against the
Government proceeding with its plan to tax interest on bonds. They said
that would damage the loan market. Finally, they said that the exchange
pool would finance overseas

{p. 393} interest payments "as long as it is within the power of the
banks to do so."

The letter was signed on behalf of all the banks. It amounted to a curt
rejection of the Theodore Three-Year Plan.

Sir Alfred Davidson tried to soften the blow a few days later with a
much lengthier statement. But he was not prepared to back the bankers'
combine, even after saying that "most people will ardently support the
objectives of the Prime Minister and the Treasurer."

Davidson said that the exemption of pensioners and those receiving
Government allowances or salaries from the general cuts would create a
privileged class. Any special taation on Government securities would be
regarded as a breach of contract.

The returned soldier pensioners, the T.P.I. who on the shores of
Gallipoli, had lost his capacity to earn his own living, had no contract
with the Government so he could have his pension reduced. But the
investor who only put his savings into war bonds had a sacrosanct contract.

Sir Alfred was even more emphatically against any suggestion that the
Government should control exchange rates. He described that proposal as
"both mischievous and tutile." He wanted complete freedom for the bank
but said that it should extend credit wherever possible and co-operate
in reducing interest rates.

The bankers' rejoinder was a complete rebuff for Theodore. He had tried
appeasement and failed. He was no closer to obtaining the finance every
government in the country needed than when he had first called the
Premiers together. So he decided to call them together again. He was
already on the bankers' merry-go-round.

67 I Was Exorcised by Bell, Book and Candle

THE PREMIERS HAD HARDLY REACHED THEIR HOMES after the protracted and
abortive Canberra Conference, when they received another summons from
Mr. Scullin to go to Melbourne for a further Premiers-Conference to
consider the results of discussions with the bankers.

Wearily, Sir James Mitchell in Perth packed his bag again for the long
haul over the Transcontinental. By the time he reached Melbourne he was
not in a good mood.

I refused to go. I had already said that there was only one answer to
the crisis and that was money. Passing long-winded resolutions was
getting us nowhere. I was dividing my time between the East Sydney
campaign and preparing a few shocks for the State Parliament. I believed
that it was time we stopped talking and took some positive action.

{p. 394} My absence appeared to give my opponents new heart - not to
embark on a further struggle against the people creating the crisis, but
against me. Needing some excuse for their own failure, they decided that
the Lang Plan was the best available.

They were only in agreement on one subject. That was that I was the evil
genius responsible for their plight. So with Scullin and Theodore in
charge of the ritual, I was to be exorcised by bell, book and candle.

Had I known of their intentions, I would probably have made the train
journey to Melbourne. But the incantation would then probably never have
been delivered. Somehow they were always far more aggressive in my
absence, than when I was seated at the table.

Firstly, they dealt with my request for permission to deal with the
State Government's own bankers for an advance of £737,000 to meet
retiring Treasury Bills.

The banks had decided that they could no longer negotiate directly with
State Governments. Everything had to go through the Loan Council. There
was to be complete centralisation of lending.

I had refused to join the Loan Council. I still insisted that a State
was no different to any other borrower. It should be dealt with on its
merits and not its membership of some exclusive club. Still they had
blocked the path and it seemed to be good tactics to place the onus of
refusal on them. I asked the Premiers to define what course had to be
taken by a non-member Government to obtain funds.

They decided that as the banks would only advance money on Commonwealth
securities, any such advance had to be approved by the Loan Council and
not the Commonwealth Government.

Secondly, as I had announced that we did not propose to pay any further
interest on overseas borrowing, the Loan Counl would not agree to issue
any further loan money to New South Wales until it had obtained a
retraction of my stand. Theodore was exultant and issued a statement to
the papers acclaiming the decision. He had voted in favor of the resolution.

They next turned their attention to their Government's own dilemma.
Theodore reported at length on his negotiations with the Associated
Banks. He had to admit complete failure to raise the wind. For two days
they canvassed the possibilities.

Theodore was still in favor of his Three-Year Plan. After all Lenin had
worked on a Five-Year Plan. It was fashionable to name a time period.
What Lenin had set out to do in five years, why couldn't Theodore
accomplish as much in three years?

Then he revived the proposal for a Fiduciary Issue. If he couldn't get
the money from the private banks, why couldn't he obtain it from the
Note Issue Department of the Commonwealth Bank?

He started off by suggesting an issue of £25 millions. He said that it
was no use trying to float any Govermnent loans because of the Lang
Plan. Both

{p. 395} in the resolution and in his statements to the Conference, he
very conveniently overlooked the detail that my proposal for the
suspension of interest applied only to overseas loans, and not to
internal loans.

Even Labor Premiers, Ned Hogan from Victoria and Lionel Hill from South
Australia, were nervous about the implications of using the printing
press to get money. They said they would support Theodore if he agreed
to reduce the amount to £18 millions - £1 million in notes each month to
find work for the unemployed, and £6 millions for a wheat bounty to help
necessitous farmers.

They also insisted on other safeguards. They demanded a sinking fund to
redeem the issue. Today when the Note Issue climbs unnoticed to around
£300 millions, it is rather ludicrous to recall how alarmed the
governments were about an additional £18 millions which would still have
left less than £40 millions of notes in the hands of the public.

Theodore read Hogan and Hill a long lecture about how the risks of
inflation had been grossly misrepresented. Once again he sounded almost
a radical of finance. He quelled their fears, and on his assurance that
there would be no inflation, they agreed to vote for his Fiduciary Issue.

But he was not so fortunate with the Nationalist Premiers - Moore of
Queensland, McPhee of Tasmania and Sir James Mitchell from the West.
They had been stiffened in their attitude by the banks. Although they
needed money just as desperately as did the Labor Premiers, they said it
would only result in inflation.

They were full of stories of the horrors of worthless paper in Germany,
Austria and Russia. They told how the only use for old German money had
been to use it for wallpaper. The bogey of galloping inflation was very
real to them. To make their point crystal clear, they said that
Theodore's scheme was only the Gibbons Resolution in a new disguise.
They said that while abroad, Scullin had denounced the Gibbons
resolution but was now prepared to sponsor it. They accused Scullin of
back-tracking on his principles.

As an alternative, Moore suggested that the Governments should agree to
reduce their total expenditure by £15 millions a year, and this money
should be used for unemployment works and the farmers. They would get it
from public service reductions, and lower social service payments. It
would give them almost as much money as the Theodore Plan.

When the vote was taken there was a deadlock, with Theodore, Hogan and
Hill supporting the Fiduciary Issue, while Mitchell, Moore and McPhee
voted against it. Scullin then exercised a casting vote in favor of the
resolution. But the passing of the resolution still didn't provide the
money.

Sir Robert Gibson told them that his Board had given very serious
attention to the proposal to provide £1 million a month for public works
and £6 millions for the farmers. Unfortunately, the Board was not in a
position to comply with such a request under existing legislation. What
that meant, he did not clarify.

But quite naively he suggested that the Scullin Government should

{p. 396} introduce the necessary legislation to create an issue of
Fiduciary currency to be devoted to this purpose. The issue should be
limited to £18 millions. Sir Robert further suggested that advances from
the fund should be covered by loans as soon as the market was favorable.

Sir Robert was a crafty old fox. No one realised better than he did that
the Senate had the right of veto over such a proposal. Yet Scullin and
Theodore fell for it. At no stage did they insist on the Bank Board
carrying out a direction from the Government to create the issue without
further ado. Theodore, in fact, said that he couldn't dream of the
Senate rejecting his proposal. "This Fiduciary issue is based on the
faith of the people in their own country. Why, in Great Britain there
has been a Fiduciary Issue of £260 millions in circulation ever since
the war," he said. Sir Robert Gibson was most careful not to mention his
own opposition to the proposal.

Having accepted the Fiduciary Plan resolution by a majority, the
Conference again turned their attention to me. Instead of being divided,
they were again unanimous. They all agreed that the time had arrived to
denounce the Lang Plan publicly. It was getting far too much support
from the people in the electorate. A good stiff resolution was needed.
Scullin and Theodore agreed. So did the Labor Premiers. The Nationalists
were only too delighted to give their support. So on to the records of
the Premiers' Conference went this resolution denouncing the Govermnent
of New South Wales.

This conference denounces the policy of repudiating interest payments on
public debt as declared by the Premier of New South Wales, Mr. Lang. The
proposal involved a deliberate breach of contract between the government
and those who subscribed to the public loans, and would bring dishonor
on the /ation if given effect to. It would be destroying public credit,
and would render it impossible for the State of New South Wales to raise
future loans or converting existing loans; and further by creating
financial chaos would enormously increase unemployment.

Apart from the doubtful quality of its syntax, it was rather an amazing
resolution to find its way into the records of such a gathering which,
at that stage still depended upon mutual co-operation for success.

Conference next adopted a long explanation of the overseas debt
position, attempting to prove that the £36 millions a year in interest
being sent abroad were not due to the war at all. It added that Mr.
Scullin had been negotiating to obtain a review of the terms on which
the war debts had been scttled in 1921, adding "Whatever the outcome of
the negotiations may be, thcre is neither legal nor moral basis for
action by any government in Australia to repudiate obligations to
private bondholders in Great Britain or elscwhere."

{p. 397} So although I was absent in the flesh, I was very much in the
minds of those attending the conference. But passing resolutions of
denunciation did not get them any closer to the money they needed.
Scullin and Theodore still thought they could soft-soap the bankers. I
still believed that the only way was to fight our way out. That was the
difference dividing us.

68 East Sydney Gave Mandate for Lang Plan

THE FINAL DAYS OF THE CAMPAIGN in East Sydney were as exciting as any in
Australian politics. The two candidates, E. J. Ward for Labor, and L. J.
Courtenay for the Nationalists, were almost forgotten. It had become a
struggle to decide which way the Labor Party was going to take.

I had become the central target. The London Daily Telegraph described me
as the "Mad Dog Premier of New South Wales." Every newspaper with the
exception of the Labor Daily thundered and ranted. There were
predictions of Black Fridays and immediate financial collapse if Ward
won. The Nationalists poured thousands of pounds into the fight. They
were not only out to get me, but also hoped to destroy the Scullin
Government at the same time.

Yet Scullin and Theodore were both fervently hoping that Courtenay would
win. Theodore issued a vitriolic statement attacking my attitude at the
Premiers' Conference. The Federal Executive remained in Sydney hoping
that they could take over the affairs of the New South Wales Party.
Canberra was quite convinced that the people of East Sydney would have
nothing to do with my policy.

But the voting was not going to be done by either the newspapers or the
politicians. It became a question of what the people of Darlinghurst and
Paddington wanted. They would give the decision.

East Sydney was far from being a blue-ribbon seat for Labor. It could be
tight. In 1925 the Nationalist R. B. Orchard had run Jack West to a
margin of 2635. The average majority had been around 4000. The exception
had been the 1929 landslide when West had increased his lead to 13,722.
So if the Labor Party was disunited, there was every chance that the
Nationalists could win. If Labor people were prepared to back Scullin
and Theodore, Ward wouldn't be in the race.

Darlinghurst was in fact a Nationalist stronghold. Many unemployed were
disenfranchised because they were tramping the roads looking for work.
We were depending on Paddington and Surry Hills.

Our case was a simple one. Australia was being throttled by an

{p. 398} intolerable burden of interest. We simply could not afford to
find £55 millions a year for that one item. We had to take a choice
between feeding the people, or meeting the interest bill to the last
penny. I argued that the honest thing to do was to treat the bondholders
precisely the same as we were prepared to treat other sections of the
community. There must be no super-privileged class. We could not afford
an aristocracy of usurers.

Wages had been reduced by the decision of the Arbitration Court. Public
servants had had their salaries reduced. Farmers were getting less than
their costs of production for their output. Practically everyone.had
suffered a lowering of their standard of living. Yet the bondholders
were never better off. Their interest coupons were buying twice as much
as before the Depression. The Bank of Australasia had just declared a 12
per cent. dividend for its London stockholders out of profits made on
its Australian investment.

If we had to choose between finding more millions to pay exchange on our
London remittances or maintaining child endowment and widows' pensions,
then I was not going to shirk the choice. Our proposition was that all
interest charges should be scaled down to meet current values. I
contended that if governments reduced their interest payments to three
per cent., all interest charges would come down. It would bring about an
end of usury.

The Nationalists were talking about negotiating for a funding of debts.
We said, quite simply "Your interest charges are too high. We cannot
afford to meet them. Therefore let us meet the position honestly. Tell
the people who lent the money in the first place that they must accept
their share of a common sacrifice." If there was anyone to be blamed,
then they could blame the Niemeyers and those responsible for the policy
of deflation.

The electors had to decide whether they were on the side of the
moneylender or those seeking jobs. My method was legislaion. My
opponents wanted negotiation. But what was going to happen if the
negotiations failed as Scullin and Theodore had failed when they went,
hats in hand, to the banks?

Latham had said that any such move would endanger Savings Bank deposits.
I pointed out that the average depositor was lucky if he had £100 in the
bank. A reduction of interest on Government bonds might mean a loss of
3d a week to such a depositor if his interest rate fell. But it could
also mean a chance of saving his job.

The next objection was that insurance companies were big holders of
Government bonds and they would suffer. I pointed out that one very
large Australian insurance company had started with capital of £88,000.
Its assets had climbed to £19 millions and its profits for the previous
year had been £200,000, or more than double the amount of capital
invested. That had all been made out of lending money at current
interest rates. Would its policy holders object to its profits being
reduced in order to help the afflicted in the community? Its directors
were mostly big names in the Nationalist Party. Was that why the
Nationalist Party was so hostile to my proposals?

Why so much worry about bondholders who had made excess profits

{p. 399} during the World War, which they had invested in tax-free war
loan bonds? They had large incomes that were worth more than at the time
of the original investment. Yet the unemployed were expected to shed
tears for them if they had to accept three per cent. instead of six per
cent. on their investments.

The financiers of the State were the same people who had tried to kill
child endowment, who had withdrawn the widows' pension, had tried to
destroy workers' compensation and had reduced wages by Act of Parliament.

If it was right that they could reduce award wages by legislation, what
was wrong with my proposal to reduce interest by Act of Parliament? Why
was one called repudiation and the other accepted as perfectly
justifiable by these wealthy workers? They did not toil for their incomes.

The Nationalists had said that East Sydney must decide between honor and
dishonor, between honest government and dishonest government, between
upright men and a gang of swindlers. Was it dishonorable to stick to
your own people? Was it dishonest to put the widow on the same priority
as the wealthy bondholder? Should people be swindled out of their right
to live in order that the overseas banks could maintain record dividends?

When Britain was in danger, Australia had staked its "last man and its
last shilling" to help her survive. Should the sons of those Australians
be now made to pay the penalty for those sacrifices? It was Australia
herself that now needed assistance. Should not Australians fight for
their own rights as they had fought to maintain the rights of others?
Was the bondholder to be treated as a member of a race apart?

If an employer told his banker that he could not meet his wages bill in
full, the banker invariably told him "You will have to put some of them
off." If the Government said "We cannot meet our Pensions Bill," the
banks said, "Then you will have to cut the pensions."

But if either the employer or the government told the bank that it could
not meet its interest on the due date, the banker said "You are
bankrupt. You must make a further effort even though you starve yourself."

That was the issue as I put it to the electors of East Sydney. The
response was not confined to workers. I was surprised to find just how
popular my fight had become with all sections of the community.

Night after night huge crowds packed every centre where I was billed to
speak. One of the greatest receptions was that given to Jack Beasley,
who had returned to East Sydney from Canberra, where he had been ousted
from the Scullin Cabinet. He brought with him "Digger" Dunn, Arthur Rae
and Jack Eldridge. Instead of being treated like outcasts, they were
given the kind of receptions reserved for heroes. The cheering should
have been heard in Canberra.

Long before the polling started there was no doubt as to where the rank
and file of the Labor Party stood. I had pledged myself to accept their
verdict. We were now right in the middle of the ring with the money
combine. If it could destroy me, it would have been acclaimed throughout
the financial world as a magnificent victory.

{p. 400} In my final speech at Kings Cross on the eve of the poll to an
audience of over 20,000, I said that as governments could no longer
afford to pay both wages and interest, they had to choose between them.
That was my challenge. The International Bankers' Committee had given
Mexico a two years' moratorium on its interest payments. Why shouldn't
Australia get the same consideration?

On polling day our opponents put a huge fleet of cars into the
electorates. But women with shoes hanging off their feet refused to ride
in them. They believed it was just as much their fight as that of their
menfolk.

Then came the count. It was a clear cut victory for E. J. Ward, with a
majority of 3600, the vote being:

Ward (Labor) .....................19,975 Courtenay (Nationalist)
..........16,333 Mountjoy (Communist) ........611

It was a bitter blow for our opponents. East Sydney had given a mandate
for the Lang Plan. It had given its answer to the croakers of Canberra.
The men who had booted Beasley and Anstey out of their Cabinet had been
tried by a rank and file Labor jury and found guilty. We had only
campaigned for a fortnight. We had gone into the fight against the
prestige of a Labor Prime Minister as well as against the Federal A.L.P.
Executive. The result left them dumbfounded. Eddie Ward was now a Member
of the Commonwealth Parliament.

69 Bitter Blow for British Bond-holders

WHEN I ENUNCIATED the Lang Plan at the Canberra Conference, my opponents
thought I was bluffing. They didn't believe that I would have the
temerity to fight the sacred bulls of the inner temple of High Finance.

But to my mind there was no choice open to any man in office at such a
period. To be an Australian, his first duty was to the people. They were
in sore straits. The Scullin Government had let them down. No attempt
had been made to provide them with the things they so badly needed. All
the responsibility for providing food relief rested on the State
Government. They called it the dole. That was what it was. But it still
kept them alive.

While Sir Robert Gibson refused to release credit, and while Scullin and
Theodore were prepared to bow to his dictatorship, there could be no
change in the economic outlock.

I had given due notice of my intentions. I was not going to allow over-

{p. 401} seas interest take priority over the subsistence needs of our
own people. Of course I realised that I would become the target for
venomous hate. But how could I allow men, women and children in
Paddington, Glebe, Auburn and even in the so-called middle class suburbs
of Chatswood, Ashfield and Manly starve in order that we might have good
credit standing with Lloyds Bank of London?

To me it was a very simple proposition. I only had to follow the course
of action which I believed to be in the best interest of the people who
had trusted me when they made me Premier of N.S.W. If in the process of
carrying out hat belief, l was destroyed politically, then we still had
a chance of saving the Labor Movement.

But once the Labor Movement lost faith in its leaders, it would itself
be destroyed. The Labor Movement was not any coterie of officials, or
trade union executives. It was made up of the people who regarded the
Labor Party as standing for their protection and advancement. They were
the people who gave their services day and night without looking for any
reward. They had manned the election booths on polling day; they had
t,ramped from house to house asking for votes for the Labor Party, even
while in the process their shoes were wearing thin.

I was not unmindful of the fact that thousands of the people who had
given their time voluntarily to the cause of getting a Labor Goverm11ent
into :ffice were themselves unemployed at the time.

This was no question of Socialism, Communism, Fascism or any other Ism.
I had very little time then or ever for those who sought refuge in
high-sounding theories of social reform. I was satisfied to leave such
matters to the philosophers, the University and the Domain orators. To
me it was all a simple question of government. The government was there
to serve the people. It was supposed to represent their needs and their
beliefs in how the country should be run.

The fact that the machinery had broken down was patent to all. It was no
use arguing about who was to blame for the break-down. Someone had to
start it running again. That happened to be my job. It had become a
question of finance. If we couldn't get sufficient money to keep the
work of government going, then some section had to suffer.

If we paid the overseas bond-holders, then we couldn't pay our own
public servants unless we could obtain additional credit from the bank.
So as the banks controlled credit, it looked as if the most equitable
and practical course of action was to make them suffer first for the
witholding of bank credit. That was precisely what I proposed to do.

At no stage was I prepared to stop food relief payments, withold widows'
pensions, or default on child endowment payments to mothers who needed
the money so desperately.

Had I been prepared to do any of those things, I would have received the
greatest sympathy from the representatives of the banks. But they stiil

{p. 402} wouldn't have given me the money we so badly needed. That had
been proved when they rejected the Scullin's Government's request for
more money for public works and the wheat farmers. I wasn't looking for
sympathy or the easy way out. Mr. Lyons had taken that road. All I had
to make up my mind about was whom we would pay first. There was not a
Government in the whole of Australia that had not reached the stage
where it owed more than it had in the till.

I had already had the Reduction of Interest Bill advanced as far as it
was humanly possible to take it. The Governor was the only person
standing in the way of that bill being fully implemented.

Next I faced up to my declaration that we would suspend payment on all
overseas debt charges until such a time as the overseas debt had been
funded to the same basis as that negotiated by Britain in dealing with
her American creditors.

On April 1st 1931, the Government of New South Wales had two large
amounts of interest falling due in London. One amounted to £186,000
which was payable through the Westminster Bank Ltd.

It was the Bank of Westminster which had put the pressure on the Scullin
Government to redeem outstanding Treasury Bills. In other words it had
already called up its overdraft.

With respect to our dues, it didn't wait until April 1st. Perhaps it was
conscious of the significance attached to the day. At all events, on
March 21st it got in touch with the Australian High Commissioner in
London wanting to know whether the Lang Government proposed to meet its
obligations eleven days later.

Australia House immediately cabled to Theodore. Other States had
interest payments due. The Loan Council had agreed to find the money for
them. I had not been present at the meeting.

Scullin sent me a telegram asking whether I desired the Loan Council to
make similar arrangements for New South Wales. He even went out of his
vay to suggest that if we didn't have sufficient funds in London, he
would be prepared to negotiate with the Commonwealth Bank on our behalf.

That would have played right into Sir Robert Gibson's hands. I already
knew only too well the terms and conditions on which the Commonwealth
Bank was prepared to co-operate. In a letter to Theodore on March 6th,
the Bank Board had admitted that it did not have sufficient funds to
meet the claims of the Westminster Bank Ltd., yet it was now suggesting
that it might be able to negotiate on our behalf.

So I promptly replied to Scullin's telegram telling him that he could
advise the High Commissioner that he was free to inform the Westminister
Bank Ltd., that we did not propose to pay out any money on April 1st.

It was not the first time that an Australian government had failed to
meet interest charges on due date. The Bevan Government had been unable to

{p. 403} scrape together sufficient to pay interest due on soldier
settlement loans to the Commonwealth on March 1st 1930. The payment was
made fifteen days later. Then in December 1930, the Scullin Government
had not been in a position to redeem an outstanding loan, and was forced
to make payment by instalments after the due date as money came into the
Treasury.

But this was the first time a Government had suspended interest payments
to London bond-holders. It was apparently a much more heinous offence to
default to the Bank of England than to Australian bond-holders. If the
hullabaloo that followed my decision was any indicator, it was if I had
decided to demolish the entire financial temple.

Scullin didn't wait for me to make a public statement on the matter.
Instead on March 26th he made a long statement in the House of
Representatives during the adjournment debate. He was very much
flabbergasted. He hadn't expected me to carry out my promise.

As might have been expected he was high-souled on the issue. He called
it an "impending default." It was of vital concern to all governments,
and added: "It will undoubtedly have highly detrimental effects on the
good name of our people and our credit as a nation."

At that stage the people were much more interested in getting enough for
breakfast than worried about how their credit rating was in Threadneedle
Street.

My own version was given to a deputation from the unemployed which met
me in Sydney. A procession of about 5000 had marched from the Trades
Hall to Macquarie Street. I stated that the Government could not afford
to pay interest and feed the unemployed with the funds at its disposal.

We were spending £3 millions a year from State taxation on relief of
distress. If we sent £3 millions overseas to meet interest payments, we
would have to stop issuing dole tickets, and put men off public works
being maintained for the relief of the unemployed. I had no intention of
doing that. So the bond-holders would have to wait their turn. It was
simply a question of whether the unemployed would be left to staNe or
whether the bond-holders went unpaid.

I believed that it was the first duty of the Government to see that no
Australian was allowed to staNe to death because the banking system had
failed. That was that. But it was not a reply that appealed to the veN,
self-righteous Scullin Government.

70 They Said I Gave Them Cold Shudders in London

SCULLIN'S ANNOUNCEMENT in the Commonwealth Parliament that I did not
propose to pay interest to the Bank of England and Westminster

{p. 404} Bank Ltd., on April 1st 1931, on loans outstanding by the State
of New South Wales caused as big a sensation in London as in Australia.
None of the posters were exactly flattering.

The Secretary for the Dominions at Question Time in the House of Commons
told Mr. L. S. Amery that he had received the news with "pained
surprise" and that he had immediately cabled Mr. Scullin for more
details. He might have added that he was also applying pressure on
Scullin to do something quickly about it.

London was not worried about my motives. It was not interested in what
was happening in Australia. It had no obligation to feed and clothe the
people. It was interested only in getting the money for the bond-holders
on the due date.

A leading London financial writer gave a special interview to the Sydney
Morning Herald summing up the reaction of the City of London.

"Repudiation is a word of terror in international finance. It gives cold
shudders to everyone who hears it. That it should be used by the Premier
of one of the States forming a British Dominion seems particularly dreadful.

"Obscure foreign nations, no doubt, could do this for a time without
exciting special surprise, but it is difficult and more alarming when we
find it happening in the family.

"The British public at present is like a placid house-holder who reads
without concern the report of a horrible crime, but who ,would be
thunder-struck to learn that his Uncle William had been arrested for
murdering Aunt Jane."

While I might have seemed like Uncle William in Lombard Street when the
bankers gathered to discuss the dire tidings over their glass of sherry,
served by Jeeves at exact room temperature, I doubted whether the
average Englishman became very excited over my dreadful crime of trying
to look after my own people. At that stage people were starving in
Britain. It is only necessary to read a book like Love on the Dole to
appreciate that conditions in Depression Britain for the mass were very
little different to conditions in Depression Australia.

One London report was cabled back that I had gone mad. The High
Commissioner in London, Sir Granville (Bull) Ryrie could only tell the
Fleet Street brigade that he "hoped things would turn out all right in
the end."

The London Times thundered that Scullin must pay to save Australia's
good name. The Economist called the same tune. The Sunday Times
predicted that I would not last long in office, and that there would
soon be political changes in New South Wales. In view of our record
majority which was intact, it was rather difficult to imagine on what
information such confidence would

{p. 405} be based. Perhaps they had a leak from Mr. Thomas about cables
that had been received from Sir Philip Game on the subject.

The financial editor of the London Observer called my proposal action:
"A deliberate challenge to the principal of national honesty." For good
measure it attacked Theodore's plan to abandon the gold standard and
said that every European country that had tried to operate a managed
currency had found it to be unmanageable.

"Although the financial brigand has momentarily gained the upper hand in
one corner of the Commonwealth, sanity will return even there" was the
pious conclusion of the Observer.

Meanwhile the Scullin Government was under pressure. The Nationalist
leader, Mr. Latham, pointed out that under the Financial Agreement the
Commonwealth had certain obligations in the matter. He said that on
behalf of the Opposition, he would promise the Scullin Government that
they would do everything in their power to assist and support the
Government in any steps they might take to meet the situation.

Roley Green said that he had heard with horror the statement made by
Scullin. He said that the people of northern New South Wales would not
be parties to default. "In due course certain action will be taken by
them" he added. It sounded very much like a threat of revolution.

Fenton reminded Scullin that he only remained in office because he had
the votes of Beasley, Eldridge, James, Ward and Lazzarini. Those members
all supported Lang's action.

Walter Nairn of Perth suggested that Australia had its Anniversary, Day,
Anzac Day and other important occasions. He suggested that it should now
have a Repudiation Day. It was another reason why West Australia must
secede from the Commonwealth.

Next day the Scullin Cabinet had a long session in the Commonwealth Bank
in Sydney. He conferred with Sir Robert Gibson. They called in the
Commonwealth Solicitor-General, and then had outside legal advice,
including G. E. Flannery, K.C. The Financial Agreement was carefully
examined to see what action could be taken against New South Wales.
There were long cables from London. That night, Scullin received the
Press at the Wentworth Hotel.

Scullin stated that acting on legal advice he had received, it had been
decided that the Commonwealth would pay the money due. He had sent a
cable to the Secretary of the Dominions, Mr. J. H. Thomas, giving him
that assurance.

In fact Scullin had consulted everyone connected with the matter, except
one person. That happened to be me. Of course there was a proposal that
action might be taken in the High Court to recover the money, and
perhaps Scullin didn't want to be compromised as a potential litigant.

Naturally he was getting support from the quarters that would do him

{p. 406} the least amount of good as a Labor leader. J. A. Lyons rushed
into the fray, calling for cessation of political strife in Canberra so
that they might have a united front against me. He appealed for the
co-operation of all parties to meet the situation - by that he meant all
parties other than the Labor Party of New South Wales. We were to be the
quarry. It was quite clear that Lyons was already visualising a National
Government with himself as Prime Minister, and with Scullin, Latham and
Theodore all serving under him.

His support was most embarrassing to Scullin. But his appeal was
headlined in all the London newspapers as that of a former Commonwealth
Treasurer and a decared anti-Lang man. In fact he was already finding
his vocation in that role.

As soon as the news was received in Westminster, the Secretary of the
Dominions, Mr. J. H. Thomas, rose to make the announcement that the
bondholders would receive their money as usual on April 1st. He said
that he felt sure that the House and the country would be deeply
relieved and gratified by the message from Mr. Scullin. It was as if
another great crisis had passed.

Yet at that stage Mr. Thomas was no doubt aware that his colleague, the
Chancellor of the Exchequer, Mr. Philip Snowden, was already waging a
last stand defence of the gold standard. Britain was perilously close to
default herself.

The statement by the Secretary of Dominions was received with cheers,
Conservatives joining the Ramsay MacDonald Labor Government. Yet I had
every reason to know that there were plenty of British Labor members
prepared to support my stand.

Sir Hugh O'Neill, a Conservative, then asked the Secretary if he would
give an assurance that Australia would get every help fro, m, the home
government. Thomas: "A more undesirable question I cannot conceive. It
would be a tragic mistake to try to answer it because of the possible
repercussions in other places."

The London Press was exultant over Scullin's action. The Morning Post
thought that it was the end of the Scullin-Theodore policy of compromise
and that Lyons would soon get the job.

The News Chronical gloated: "Sir Otto Niemeyer advised a major
operation. The patient disliked the advice, but as the months pass the
grim alternative becomes more evident to the whole world."

The Times stated that Thomas' statement had been received in the City of
London with relief, while the London Daily Telegraph commented that
Australia's name had been vindicated. "Mr. Lang has become a name of
contempt throughout the Commonwealth. The best solution would be to throw

him out neck and crop before he does any more damage." it added bitterly.

Only the Labor Daily Herald reminded them that Australian public opinion
was inflamed over the raw deal we had received on interest

{p. 407} rates compared to Britain's own success in getting a reduction.
Even the Herald still didn't like my rough and ready remedies.

For my part, if the Scullin Government wanted to pay the Bank of
England, I could have no objection. What did interest me was how
different was the attitude of the Commonwealth Bank in finding the money
to the stand it had taken on local money needs.

A fortnight before the Commonwealth Bank had told Theodore that it could
find no further money to meet Government commitments. But as soon as the
Bank of England bond-holders were in the firing line, the cash was found
immediately. At least I had proved that the money was available if the
need was in line with the bankers' own policy. They believed in
preference for their own union. They were not in the slightest
interested in our people. But they were ready to go to the limit so that
they would not suffer themselve.

71 They Called it Financial Blackguardism

AS THE SECOND INSTALMENT of the Lang Plan, we introduced a Reduction of
Interest Bill in the Legislative Assembly. It was to deal with the
problem of international interest. We had already struck the first blow
against overseas interest. My announcement that the Government of New
South Wales proposed to take action to reduce interest rates caused a
storm of abuse from the newspapers to break around my head. The Herald
called it "interest confiscation" and "financial blackguardism." The
catch-cry of "repudiation" was worked to death. We were told that we
were robbing the widows, orphans and the elderly people. Apparently they
believed that they were the only people who invested money. Didn't the
Fairfaxes invest their surplus wealth? Or did they bury it in tins?

My Government was accused of being extravagant. They said we had been
extravagant in building the city railway. We had been extravagant in
committing the State to the cost of the Harbor Bridge. We had been
wilfully extravagant in spending money on irrigation. They even said we
had been extravagant when we settled men on the land.

If we attempted to control or limit interest rates on Government bonds
there would be a flight of capital, they predicted. People would not put
money on fixed deposit. They would not invest in Government bonds.

Yet these were the same people who were telling us to cut out the child
endowment at a time when the only real income in many homes was the
money coming in for the children. They were saying that wages had to be
cut to the bone. They objected to the payment of the maternity bonus,
even to mothers

{p. 408} whose husbands were unemployed. They wanted all awards
suspended so that employers could pay less wages.

They said that to interfere with interest rates was breaking the
sanctity of a contract. What then was the repudiation of a law which
promised that widows should receive a pension? Or that mothers should
receive endowment for children? Or that trade unionists should not
receive the protection of awards they had won in the courts?

There had been much talk about equality of sacrifice. I proposed to test
the sincerity of those who had been preaching it. If a Government could
reduce the salaries of its own employees as the Bavin Government had
done why shouldn't it also reduce the amount it paid to the bond-holders?

So on St. Patrick's Day 1931 I sought leave to introduce in the
Legislative Assembly a bill entitled the Reduction of Interest Bill. It
had to be drafted very carefully to avoid the constitutional and legal
traps.

It was designed to deal both with Government and private borrowings
within the State. It was strictly in accordance with the Lang Plan. As
the banks had restricted credit, interest rates had risen. It was the
old story of supply and demand. As money became scarce, its price became
higher. So from 1928 interest rates had risen steeply.

Those with bank overdrafts had suffered most. Many people who had been
paying 5 per cent. for advances on their homes had their rates increased
to 8 per cent. on first mortgages. When the banks closed down on
advances, the loan companies had a killing. Second mortgage money had
risen as high as 15 per cent., while as much as 122 per cent. was
demanded on some forms of securities. The sky had become the limit for
personal loans. The usurer was reaping a harvest. Even the pawn shops
had a killing as pcple sacrificed their personal possessions for a few
pennies with which to buy little extras for their families, or even
clothes for the baby.

Yet my proposals to give these people some protection was described by
the Sydney Morning Herald as "financial blackguardism" and there was
obviously inspired incitement for those affected to rise up in revolt to
seize the reins of Government by illegal means. They already had their
own ideas of a new kind of blackguard.

As our greatest burden was interest, then the first step out of
depression had to be a measure to lift its burden off the community
generally. It could not be confined to the government. It had to treat
everyone alike. That was precisely what the Reduction of Interest Bill
proposed. Its chief provisions were:

o Rate of interest on all Government borrowings to be reduced to 3 per cent.

o Interest on first mortgages to be not more than 5 per cent.

o Maximum on 2nd or subsequent mortgages to be 6 per cent.

{p. 409} o Verdict or judgment debts, 5 per cent.

o Interest on hire purchase agreements or money borrowed from
money-lenders, 5 per cent.

o Interest on land purchased by instalments, 5 per cent.

The Bill also dealt with charges made by the banks, and interest paid by
them on their fixed deposits. A maximum of 1 1 per cent. was fixed for
deposits of less than 3 months; 2 per cent. for 3 month; 21 per cent.
for six months and for 2 years and more 3 per cent.

The Governor of the Commonwealth Bank declared that State legislation
would not cover charges made by his institution. To be on the safe side,
we excluded the Government Savings Bank because we had the machinery by
which its rates would be regulated.

The bill provided that any agreement for the payment of interest charges
in excess of those fixed in the bill would be void, and could not be
enforced at law. It did not apply to interest owing before the Act was
passed, but did apply to all future payments under old agreements.

The Commonwealth admitted that default stared the country in the face.
It was prepared to accept national bankruptcy. I was not.

In dealing with Germany, France and Italy, the one rule had been the
capacity of the debtor to pay. I suggested that was the rule that should
be applied to a country so heavily in the toils of depression as
Australia. If other countries, much larger and more powerful than ours,
were prepared to deal with debt settlement as a practical problem, why
shouldn't we?

Mr. Stevens said that the bill would cause a flight of capital. It would
fly not only from New South Wales to other States, but also to other
countries. Just how they were going to export their capital without
exchange he did not explain. He said the bill would create fear and
panic. It would destroy confidence in all kinds of investment.

In fact, Mr. Stevens was satisfied that we were trying to destroy the
entire social system. By some strange process of reasoning, he decided
that it was socialisation of industry.

Then in the next breath, he admitted that there could be no recovery
until all charges going into the cost of production were reduced. He
even included interest. But how was he going to persuade the
money-lenders to accept 5 per cent. when they could get 15 per cent?
They would have told him that they were not philanthropists.

I said they would only reduce interest if they were forced to do so by
Act of Parliament, or if the banks made more money available. As the
banks were tightening, instead olE relaxing credit, then my way was the
only way.

Ted Kinsella, now Mr. Justice Kinsella, told Mr. Buttenshaw that
repudiation of obligations was being practised throughout the civilised
world.

{p. 410} Even Mr. Buttenshaw's own supporters, the farmers, were
repudiating. They had no alternative. They were bankrupt. So were the
Governments of Australia.

Jack Tully recalled that a deputation of farmers had come to him to ask
that the State Government should reduce the rate of interest on closer
settlement blocks by 15 per cent. The people who had wanted these
concessions were now running around the State preaching sedition and
secession.

George Booth said that if members of the Opposition tried to meet the
position with armed force, they would be met with armed force and
beaten. It was rather strange to hear the very mild-mannered George
talking about the use of armed force but that kind of talk already was
in the atmosphere, and it was not coming from the Government side.

Matt Kilpatrick, another Country Party member, agreed that reduction of
interest was necessary but said that it should be a Federal, and not a
State masure.

Mr. Bavin said the people of New South Wales would in future be called
New South Welshers. It was stealing.

I pointed out that the farmer who had bought a property for £4,000 on
wllich he had borrowed £3,000 had an equity of £1,000 apart from all his
hard work and improvements. Then came the deflation. The property went
down to £3,000. The farmer lost his entire equity, but the mortgage
remained intact. From small loans to the very largest that was happening
everywhere. That was the real repudiation. Loan money and interest
should not remain aloof. Everything else was depreciated. My proposal
was for a real "equality of sacrifice". That was why it was being
resisted so bitterly. The financial interests had been callous and
ruthless. Now it was their turn. Instead of wages being reduced,
overhead should be reduced. Thatwas why we were starting with interest,
and it was the natural corollary to the Moratorium Act.

They had talked about the immorality of the bill. What about the
immorality of the usurers. The farmers were paying £10 million a year in
interest. The entire wheat harvest that year would bring only £10
millions. The farmers would get nothing. The money-lenders would take
the lot.

If we didn't reduce our interest charges, we would not afford to pay
railway employees a miserable £3 a week. The interest bill was greater
than the wages bill. The Interest Reduction Bill was passed by the
Assembly by 51 to 26. But the fight had only started.

{end}

We all laughed at Yes Minister, and watched it many times. But in
retrospect we can see that it was encouraging us to sell of our public
assets and hand the economy to Big Business.

In 1911 and 1931, many cartoons were similarly aimed at O'Malley and Lang.

Have a laugh, but don't forget the serious intent.

King O'Malley, founder of the Commonwealth Bank of Australia:

O'Malley cartoons:

The above are from Australia's Government Bank, by L. C. Jauncey Ph.D.,
Cranley & Day, London 1933 (note that it was published in London).

These Lang cartoons and photos are from The Great Bust, by J. T. Lang.
The first one alludes to Communist  infiltration of the Labor Party.
Lang himself was anti-Communist and later wrote a book Communism in
Australia to try to stop it:


Here are some photos of Jack Lang addressing meetings, as Labor Premier
of New South Wales, at odds with the Labor Federal Government over (as
he saw it) their subservience to the Bank of England during the Depression.

 From the front cover. This could be during a Parliamentary debate

Lang addressing public meetings during the Depression (probably in Sydney):



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