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

inflationary consequences. Hayden initially won the day in Cabinet, but then Cameron threatened to ‘ask the Caucus to elect a new Cabinet and get rid of the Treasury stooges now masquerading as a Labor Government’.6 Hayden lost that argument. It was an unfortunate debate for him to lose, as wages growth had lost any connection with productivity growth and was highly inflationary. Whitlam himself was later to concede, ‘The chief economic failure of my Government resulted from the wage explosion of 1974.’7

Hayden consistently argued for a more economically conventional approach than that which was being implemented by the Whitlam government, both formally through Cabinet processes and in private. One incident occurred on 7 August 1974. Hayden, returning from a dinner at which he had drunk more than usual, sought Whitlam out in the House of Representatives chamber to tell him that his attitude to the incorporation of the Baltic states into the Union of Socialist Soviet Republics (USSR) was unacceptable, and while he was at it, he gave Whitlam the benefit of his views on the failures of the government’s economic management. As the political journalist John Stubbs describes it, Hayden

told Whitlam the Government was overspending and that this was creating an intolerable squeeze on private suppliers at a time of tight money supply. Just to make sure Whitlam got the message he marched back to his office and dictated a long letter to Whitlam, putting his angry views on the record. That was it as far as Whitlam was concerned. ‘He barely spoke to me for six months’ Hayden later said.8

A Huge Task

Whitlam obviously overcame his anger at Hayden’s temerity, as he appointed him treasurer ten months later, in June 1975. The previous treasurer, Jim Cairns, had been sacked when it was discovered that he had provided a Melbourne businessman with letters authorising him to seek financing for the Australian Government, unbeknown to his prime minister or the Treasury. Hayden was the obvious replacement. He had been acting treasurer on nine occasions and was the most economically literate member of the Cabinet.

Hayden was transiting through Sydney Airport when he received word that the prime minister needed to see him in the airport’s VIP area. Hayden told me in late 2013 that he had no inkling that Whitlam was about sack Cairns, despite what Hayden, a long-term Cairns friend and supporter, called his ‘acute consternation’ at Cairns’ performance. Hayden described the conversation with Whitlam as ‘brief and to the point’, although he admitted to being tempted to yell ‘Holy Jesus!’ as Whitlam revealed he was about to take over the Treasury. Whitlam, perhaps, did not immediately recognise the size of the undertaking, as he told Hayden: ‘Of course, you will continue to be responsible for bringing in Medibank and negotiating all the hospital agreements.’ This prompted Hayden to think to himself, ‘Bloody hell’.9

The task that Hayden was inheriting was indeed huge, even without the responsibility for Medibank. Hayden had become treasurer at the time of the worst global outlook since Theodore had had to confront the Depression. The world economy was in turmoil. Domestically, inflation and government spending were both increasing at an unsustainable rate. The OECD published an economic outlook in July 1975 that highlighted the seriousness of the situation, noting that the world was experiencing the worst downturn in production and the highest unemployment in thirty years:

The present recession in OECD countries is the most serious since World War II. It is remarkable for not only its length and depth—a third consecutive half year of negative growth has now been recorded for the area as a whole—but also for its widespread nature; virtually every OECD country grew by less than its medium term average rate in 1974, and no country is expected to take up the slack in 1975. The margin of idle resources in the OECD area is now the largest in the post-war period, with unemployment at record levels. Industrial output in the major countries fell very sharply in the last quarter of 1974 and the first quarter of this year. The extent and simultaneous nature of the decline was unlike anything recorded in the post-war period.10

This global environment was a challenge for every Western government, each of which was removed at the first available opportunity by electorates around the world that were incredulous at the remarkable economic deterioration of their nations. Hayden’s inheritance was, of course, made all the worse by the dysfunctional nature of the treasurerships of his predecessors, particularly that of Cairns. There had simply not been enough rigour around Cabinet decision-making when it came to spending. In 1973/74, expenditure had increased by 20 per cent, the largest increase in twenty years. Successive treasurers had warned Whitlam and the Cabinet of the dangers, to little avail. As the historian Troy Bramston explains:

In 1974, Crean had argued to Cabinet that the proposed 32% increase in expenditure for 1974/5 was ‘economically irresponsible’ and would lead to the worst of all worlds. In February 1975, Cairns would warn Cabinet that expenditure would increase by 42%. He said the deficit would be ‘several times’ the estimated $570 million. But it was evident that Cairns had no effective strategy to deal with runaway expenditure and inflation.11

Complicating matters further was the breakdown in relations that had occurred between Cairns and the government on the one hand and the Treasury on the other. Former Whitlam speechwriter Graham Freudenberg also believes, with what appears to be good cause, that the Treasury was deeply concerned to hear that Whitlam was considering appointing the secretary of the Department of Prime Minister and Cabinet, Sir Lennox Hewitt, as head of the Treasury, in what was seen as a hostile takeover.12 The mistrust between Treasury and the government culminated in the highly unusual (and completely unforgivable, in any circumstances) development of senior Treasury officials systemically leaking information. Using the codename ‘Mr Williams’, the officials began regularly briefing opposition leader Malcolm Fraser and shadow treasurer Phillip Lynch about government decisions and their concerns.13

Hayden had a