The Money Men Chris Bowen (the red fox clan .txt) 📖

In the lead-up to the 1934 federal election, both Labor and the Country Party had campaigned on the platform of a public inquiry into Australia’s banking system. Both parties were still very much affected by the 1890s crisis, which had seen farmers and workers severely affected by the collapse of the banking system, and by the lack of a central bank as a lender of last resort or any mechanism to ensure liquidity in the system. Labor in particular had an understandable and justifiable bitterness towards the obstructionism of the Commonwealth Bank and the trading banks in blocking the Scullin government’s actions to stimulate the economy during the Depression. As prime minister Lyons needed Country Party support to form an administration after the election, he reluctantly agreed to hold a royal commission into the monetary and banking systems in 1935.

This was a serious undertaking. Justice John Napier of the South Australian Supreme Court was appointed as its chair. Professor RC Mills, the eminent economist and dean of Economics at the University of Sydney, was also appointed. A young economist who would one day become governor of the Reserve Bank was appointed economic adviser—JG Phillips. In keeping with the conventions of the time, the government also invited the leader of the opposition to nominate a representative to sit on the commission alongside the five other commissioners. Scullin’s retirement had resulted in the election of Chifley’s close friend John Curtin as leader, and it fell to him to make the decision. Curtin’s mentor, the radical Frank Anstey, lobbied heavily to be appointed. But Curtin came to the (correct) conclusion that Chifley would add considerable value to the commission, whereas Anstey would treat it more as a retirement lap of the country. The prime minister showed good judgement and some courage in choosing Chifley over the man who had nurtured and mentored him during the early part of his career.

Not only did Chifley throw himself wholeheartedly into the commission’s considerable workload; he also treated it as an opportunity to formalise his extensive knowledge of economics by closely questioning witnesses. Most importantly, he befriended both Professor Mills and Phillips and soaked up their views and knowledge as they fraternised while going around the country taking evidence.

The commission began its work in January 1936 and spent nine months gathering evidence, including hearings in each state capital. There was much for it to examine; the performance of the banks during the Depression was not the only area of controversy for the commission to consider. The Douglas social credit movement, for example, was experiencing growing political popularity, and the commission was obliged to test its efficacy. Inspired by English engineer Clifford Douglas, social credit was a complex but populist theory that called on economics, philosophy, history and accounting to justify democratic control of credit. Douglas, who had a colourful and inspiring turn of phrase, argued that if his system was adopted, every citizen would benefit from improved financial security, and ‘they shall sit every man under his vine and under his fig tree; and none shall make them afraid’. The social credit movement even spawned a significant political party in Canada (it developed into the current Canadian opposition, the New Democrats).

The royal commission did not endorse social credit, but it was critical of the performance of the Commonwealth Bank and the trading banks during the Depression and recommended a series of measures to deal with the identified shortcomings. Getting to the heart of the matter, and seeking to avoid a repetition of the Commonwealth Bank’s refusal to cooperate with the government of the day, the commission recommended that in the case of a disagreement, the views of the government should prevail. It was also recommended that banks be licensed. And touching on a long-running controversy, the commission recommended that private banks be required to hold a level of deposits with the Commonwealth Bank that could be varied in accordance with the government’s economic objectives.

Chifley signed the royal commission’s report, indicating his endorsement of its recommendations. Indeed, Phillips described Chifley’s role in the process of drafting the majority report as ‘vitally important’.8 But Chifley also brought down his own minority report that found that the operation of profit-motivated private banks was inconsistent with the objective of a fair and stable banking system. He did this succinctly, but University of Sydney economics lecturer (and Mill’s successor as chair of economics) Sydney Butlin argued in 1937 that ‘Mr Chifley made out, even in his three pages, a better case for nationalisation than the majority did for private ownership.’9 There is some conjecture over whether Chifley, having heard all the evidence, still subscribed to this view or whether he was merely supporting longstanding Labor Party policy. The subsequent turn of events is instructive: Chifley did not attempt to nationalise the banks when he returned to office as treasurer. Instead, the reforms he introduced by regulation during World War II and by legislation at the conclusion of the war mirrored the majority recommendations of the royal commission. It was only when the operation of the new regime looked to be threatened by the prospect of successful High Court challenges that he moved to nationalise Australia’s banks. It would be his biggest mistake. But this was still several years in the future, and he had big challenges to deal with in the meantime.

Into the Furnace of War

The 1940 federal election was important to Australia’s wartime and postwar future for two reasons: prime minister Menzies’ government lost its majority on the floor of the parliament, and Ben Chifley returned to it.

The election was called earlier than Menzies had planned. The tragic loss of three Cabinet ministers in an aeroplane crash meant that Menzies had to choose between facing three by-elections or a general election; he chose to call a general election. While Labor suffered a 3 per cent swing against it, it won an extra three seats. Lang Labor—now rejoicing in the name