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

- Peter Myers, Augist 15, 2019

My comments are shown {thus}; write to me at contact.html.

You are at http://mailstar.net/Jack-Lang-Banking.html.

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. Such loans, like any other form of monetary action, are good or bad according to the circumstances in which they are made. We must beware of an approach to monetary policy in terms of rigid rules. The test of monetary policy is in its effects.

{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 term 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. Miller 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 impressive 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 building 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:


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.


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.

Here is a photo of King O'Malley, founder of the Commonwealth Bank of Australia: king_omalley.jpg

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).

The following 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 (Sydney): lang_cover.jpg

Lang addressing public meetings during the Depression (probably in Sydney):



Dr H. C. Coombs on Central Banking, Wartime Finance, and Monetary Policy in Australia: coombs.html .

How Banks Create Money; Why We Can Never Get Out of Debt: money.html .

The Money Masters: How International Bankers Gained Control of America - COMPLETE TEXT: money-masters.html .

Michael Hudson on Tax Havens PLUS F. William Engdahl on the politics of the Gold Standard: tax-havens.html .

Copyright: Peter Myers asserts the right to be identified as the author of the material written by him on this website, being material that is not otherwise attributed to another author.

Write to me at contact.html.