The Story of the Commonwealth
of The Commonwealth Bank - Introduction - The
Story of The Commonwealth Bank - The Rise of
The Bank -
The Strangling of The Bank - The Bondage of
The Bank - The Rescue of The Bank - The
Betrayal of The Bank -
Commonwealth Bank Board - Authorities
of the Commonwealth Bank
hand-maiden, where once I ruled
A Queen from sea to sea!
No task too vile to set me to,
Who strove to make you free
God! Did I once stand upright
from My frightful servitude
And wear upon my beaten brow
The crown of nationhood?
As in a dream I see them pass,
My deeds of long ago.
My bright Homes, filled with happiness,
In peace and comfort glow.
My Credit flows in running streams
To help you in your need.
It saves you from the usurers grip,
And private bankers greed.
When Ruin turns his grim face
on Your primal industries,
My ships steam swift, and carry forth
Your produce overseas.
study of events leading up to the establishment of the Commonwealth
Bank, and subsequent developments, provides an understanding of a
vital, but comparatively little-known part of Australian history.
Events since the publication in 1948, of the twelfth (revised) edition
of The Story of The Commonwealth Bank, have both highlighted how
the bank could have been used to serve the Australian people, and
the authors fears about the implications of acceptance of the
Bretton Woods Agreement in 1947.
Much more is known today about the long-term strategy of those international
forces which created the International Monetary Fund and The World
Bank. For example, with the emerging programme to establish a New International
Economic Order, it has been revealed that the British economist, John
Maynard Keynes, who played a major role in preparing the Bretton Woods
Agreement, had in 1942 drafted a memorandum -
The International Control of Raw Materials.
This memorandum, listing those commodities which Keynes felt should
be under international control, remained unpublished until 1974, the
year when the United Nations made its Declaration for a New International
Economic Order. Another influential architect of the Bretton Woods
Agreement was Harry Dexter White of the American Treasury. White was
subsequently appointed as an American Director of The International
Monetary Fund. White allegedly committed suicide when he was exposed
as a top Soviet agent.
A fellow Marxist, Verginius Frank Coe, who had been Whites assistant
in the American Treasury Department, was technical secretary at the
Bretton Woods Conference and later appointed secretary of the International
Monetary Fund. Following his exposure as a Communist agent, Coe
left the U.S.A. and later worked as an economic expert for the Chinese
As pointed out in The Story of The Commonwealth Bank, the independently-minded
Past Governor of the Bank, Sir Denison Miller, used the banks
credit power after the First World War to save Australians from the
depression conditions being imposed in other countries. But with moves
to centralise banking globally under an International Monetary Fund
possessing the right to create a new type of international currency,
there is an open threat to the financial independence of all nations.
Mr. William McChesney Martin, a former Chairman of Directors of the
American Federal Reserve system, has outlined the shape of things
to come: Further evolution along the path toward a world central
bank will require nations to accept further limitations on their freedom
of independent action.
The story of the Commonwealth Bank had its origins with the arrival
in Australia late last century of one of the most colourful figures
ever to enter Australian politics, the American King OMalley.
From the beginning of the history of the U.S.A., the subject of banking
had been more openly discussed than in most countries. Thomas Jefferson
had openly attacked the threat of the Money Power. The basic cause
of the revolt of the American colonies against the British Government
was the fact that the colonists were creating their own money and enjoying
comparative prosperity compared with conditions in Britain.
Benjamin Franklin obviously understood the money question.
King OMalley had made a close study of the banking question and
upon joining the Australian Labor Party, made every endeavour to interest
his colleagues. King O'Malley was a Federal Minister in the Fisher
Labor Government before his long campaign for the establishment of
a government bank creating credit, was successful. There have been
many stories of the stratagems to which OMalley allegedly resorted
to persuade or cajole his reluctant colleagues to establish a bank,
one being that, in true American Western style, he wore two guns to
a Cabinet meeting, placing them on his desk to emphasise his point.
Although OMalley was certainly a colourful character in more
ways than one, there is no reliable evidence for the story about the
At the official opening of the Commonwealth Bank in 1912, William Morris
Hughes, the man who later became Australian Prime Minister and known
affectionately as the little Digger, said: It (the Bank)
stands here today as the outward and visible sign of the wealth and
substance of the whole people. It is indeed Australia commercially
translated in the terms of money. It is the symbol of our wealth: it
will stand as long as we stand. Of its solvency there can be no doubt
while the race that made Australia stands.
This realistic comment was echoed after the end of the First World
War, when Sir Denison Miller said, as reported in the Australian press
on 7th July, 1921, The whole of the resources of Australia are at the
back of this bank, and so strong is this Commonwealth Bank Whatever
the Australian people can intelligently conceive in their minds and
will loyally support, that can be done.
The Hon. King OMalley, who had maintained a keen interest in
Australian politics over the years, was stirred by what he saw as yet
another attempt to emasculate his beloved Bank. Although over 80 years
of age, King OMalley vigorously entered the 1939 Save The
Commonwealth Bank Campaign, publishing a little booklet in which
he demonstrated that he was still capable of the type of language for
which he was famous during his campaign to have the Bank established.
He wrote, I trust that good and patriotic Australians will swear by
the altar of their gods, the tombs of their Ancestors and the cradles
of their children, that they will never vote for Parliamentary candidates
whose secret mission is to destroy the Commonwealth Bank ... and whose
brains, if extracted, dried and placed in the quill of a cocksparrow
and blown into the eye of a bee, would not even make him blink.
In 1960 the Reserve Bank took over the role of Central Bank from the
Commonwealth Bank. Like other trading banks, the Commonwealth Bank
is today governed by Reserve Bank controls. The Federal Government
could direct the Reserve Bank to adopt a completely different policy
to that which results in ever-escalating debt, crushing taxation and
insidious inflation. For example, interest rates could be reduced to
the point where they were sufficient to meet the administration costs
of creating and administering credit. New money could be made available
as a credit, instead of a debt, for financing consumer discounts as
a major part of an anti-inflation policy. But none of these and similar
steps will be taken until a more enlightened public insists that the
disintegration of Civilisation can only be halted by a reversal of
present credit policies. Eventually this must happen.
When history is written, the name of D.J.AMOS, a distinguished Adelaide
professional man, will be given an honoured place for his contribution
to an understanding of a special Australian institution, the Commonwealth
Institute of Economic Democracy, 1981.
STORY OF THE COMMONWEALTH BANK
us consider the story of the Commonwealth Bank. It merits your attention,
for if the Commonwealth Bank had been allowed to function as it did
at the commencement of its career, Australia would have been helped
over the years of depression as it was helped over the war period
(1914-1918), many prosperous business firms would have been saved
from ruin and somewhere about one-third of our people would not have
had to eat the bitter bread of charity. Neither would the people
have had to submit to the ruinous debt and taxation imposed upon
them in the second war period (1939-1945).
1910, the Australian Notes Act called in all notes issued by the
private banks and by the Queensland Government. To all practical
intents and purposes, it confined the power of issuing bank notes
to the Commonwealth. But money is also created by banks making advances
of credit to people, then entering these advances upon
the opposite side of the ledger as deposits and telling
their depositors to draw against these credits by means
of cheques provided by the banks.
The money thus brought into existence is destroyed whenever a bank
chooses to call in its advances and by so doing to lessen
its deposits. Money is likewise created every time a bank
purchases securities (whether Government stock or shares in private
companies) and it is also destroyed every time a bank sells them.
The reader must constantly bear in mind that these means of increasing
or decreasing the currency at will were left in the hands of the private
The reason , says Mr. Butchard in his now world-famous lecture, why
the Government legislated regarding the bank note, is that they thought
they understood it, and the reason why the Government did not legislate
regarding the bank deposits (credit) is because they had no clear understanding
about it all. Small wonder that this was so in 1910, as we are only
beginning to realise now (1940) that all money is simply a promise
to pay either good or services on demand. Whether that promise to pay
is stamped on a coin, printed on a note, or simply written on the page
of a banks ledger, does not alter the fact that the vital thing
is the promise to pay, and not mere material upon which it is written.
the years 1914 and 1920 the Commonwealth Government increased the
note issue from in round figures, $19 million to $119 million, but
all these notes did not go into permanent circulation. Sooner or
later they fell into the hands of the associated banks, who imprisoned
in their vaults all of the notes that were not absolutely necessary
for the nations small change. Upon this imprisoned
national currency they based an enormous increase in bank credit
- a currency which comes into existence as a debt due to the banks
- for the use of which they charged a heavy rate of interest. By
1920 the banks held nearly $64 million in Australian notes and the
following table shows exactly what had happened:
IN CIRCULATION IN MILLIONS OF DOLLARS
(Coplands Currency and Prices in Australia Commonwealth Year
these same years the price level index number for food and house
rent in the capital cities of Australia rose from 1140 to 1785 and
the increase in the note issue is generally said to have been the
cause. It is very doubtful if it was the only cause, since there
was an actual shortage of many commodities during the war years,
but in the absence of social machinery for controlling prices, it
probably was an important factor.
The Commonwealth notes were issued in the following ways:
(a) A considerable quantity of them was
given to the banks in exchange for gold (sometimes $6 in Australian
notes were given for $2 in gold) for, by legal enactment the Government
was compelled to hold a reserve in gold equal to one-fourth of its
note issue. (b)
A number of short-term loans at interest were made to the States.
(c) A number of fixed deposits, bearing
interest at 3% to 5%, were made in different banks. These fixed deposits
amounted in 1920 to $10,853,200.
(d) More than half of the notes were
invested in Commonwealth stocks and State securities at various rates
of interest. The last two items - (c) and (d) formed the Australian
Notes Account, held in trust for the nation, which amounted in 1920
to $75,617,540 and returned an annual income to the Government of a
little more than $3 million - the profits on the Australian Notes Account.
(Commonwealth Year Book No. 14. p.691)
By utilising Australian notes in this manner the Commonwealth Government
avoided debt, interest charges, and taxation and before it finally
entrusted the Australian Notes Accounts to the Commonwealth Bank, it
made enough money out of that account to pay the greater portion of
the construction cost of the East-West Railway, the remainder coming
out of revenue.
(Hansard. Vol. 129. p. 1930)
RISE OF THE BANK
In October, 1911, the Labor Government of Mr. Andrew Fisher introduced
a Bill to provide for the establishment of a Commonwealth Bank
with power to carry on all the business generally transacted by
banks, including that of a savings bank, to be administered under
the control of one man (called the Governor of the
Bank) appointed for seven years.
The Bank was to have power to raise a capital of $2 million by the
sale of debentures (the security for which was the national credit)
and the profits were to be equally divided into two funds - a reserve
fund, to meet any liabilities incurred by the Bank, and a redemption
fund to redeem the debentures or other stock issued by the Bank in
order to obtain its capital. Afterwards this half of the profits could
be used to reduce the National Debt.
The intention of the Bill was to make the national credit available
to anyone with decent security to offer, to reduce the charges made
on overdrafts, bills of exchange and current accounts by the private
banks, to provide a safe investment for savings and to help in the
reduction of the public indebtedness. As soon as the Bank was firmly
established, it was proposed to entrust to it the note issue , the
profits on which were to be paid into the general revenue of the Commonwealth
- and from the start it was to be the Bank of the Commonwealth Government.
The Bill, in spite of bitter opposition, passed through Parliament
practically without amendment and became law. It should be noted that
the very people who are now crying that the country will be ruined
if there is any relaxation in the close monopoly that the private banks
exercise over the currency, were loudest in their opposition to the
formation of the Commonwealth Bank. The country, according to them,
was going to be flooded with Fisherss flimsies. There
were to be sovereigns for everybody, prices would rise: the value
of money would depreciate to nothing and we would all go very quickly
to the dogs. Let us see what actually happened.
In June, 1912. Mr. (afterwards Sir) Denison Miller, a prominent official
of the Bank of New South Wales, resigned his position and was appointed
Governor of the Commonwealth Bank. He issued no debentures, but opened
savings banks throughout Australia and used the money he obtained in
this way as his capital, thus avoiding being indebted and paying interest,
to anybody but his depositors. The Bank was not opened for general
business until January of the next year, when, in one day, the Commonwealth
Government transferred $4 million from private banks to the Commonwealth
Bank, without causing any financial disturbance, the cheques being
simply cleared through the exchanges in the ordinary way.
Sir Denison Millers idea was to make the Bank a Government Bank
and Savings Bank and for the time being at any rate, to enter into
competition with the private banks as little as possible. Nevertheless,
he forced them to practically abolish their charges on currents accounts
and to keep their charges on loans and overdrafts within reasonable
Then, in 1914, came the war and with it an Amending Act (24 of 1914)
giving the Bank power to raise its capital of $20 million and to take
over other banks and savings banks. The Bank did not, at this period,
make use of either of these powers, but the services it rendered to
the people of the Commonwealth during the war were immense.
Under the regime of the private banks, the flotation expenses of a
loan in London, which Australian Governments had to pay were 6%; but
the Commonwealth Bank floated $700 million of loans ($500 million locally
and about $200 million overseas) for a charge of 0.56%, thus saving
Australians some $12 million in bank charges and then the Bank
made a profit of 0.2%.
It saved the Australian primary producer from stark ruin by financing
with (and sometimes without) the assistance of the private banks, pools
of wheat, wool, meat, butter, cheese, rabbits and sugar, to the total
amount of $872 million. It found $4 million for the purchase of the
Commonwealth Fleet of Steamers, which again saved the primary producer
from ruin through lack of transportation facilities to his market overseas
and it enabled Australia to transfer abroad, with the maximum of efficiency
and the minimum of expense, $7,121,902 for the payment of her soldiers.
(The Commonwealth Bank of Australia, p.157
and p. 162. by C. C. Faulkner, Hansard, Vol. 161. p. 976/7).
In November, 1920, an Amending Act (No. 43 of 1920) came into force,
by which the Australian note issue was entrusted to a department of
the Commonwealth Bank. This Note Issue Department was to
be kept distinct from all other departments of the Bank and was to
be managed by a Board of Directors composed of the Governor of the
Bank, an officer of the Treasury and two other directors. These two
other Directors were J. J. Garvan. Esq. and J. R. Collins, C.M G.,
both members of the financial world: but as they formed only 50% of
the directorate and the Governor of the Bank possessed a casting vote,
power remained with the Governor of the Bank as long as he could rely
upon the support of the Treasury official representing the Government
of the country.
Until 1924, when the Bank was effectually strangled, the benefits conferred
upon the people of Australia by their Bank flowed steadily on. It financed
jam and fruit pools to the extent of $3 million, it found $8 million
for Australian homes, while to local government bodies, for construction
of roads, tramways, harbours, gasworks, electric power plants, etc.,
it lent $18.72 million. It paid to the Commonwealth Government between
December, 1920 and June, 1923. $6.194 million - the profits of its
Note Issue Department while by 1924 it had made on its other business
a profit of $9 million, available for redemption of debt.
When, during an interview in 1921, Sir Denison Miller was asked if
he, through the Commonwealth Bank, had financed Australia during the
war for $700 million, he replied: Such was the case and I could
have financed the country for a further like sum had the war continued.
Again, asked if that amount was available for productive purposes in
times of peace, he answered in the affirmative.
(Australias Government Bank. p. 275 by L.C. Jauncey,
See also Treasurer Spenders speech in Hansard. Vol. 161. p. 976/7).
As a matter of fact, he had just given a striking example of the power
of the Bank in times of peace. In the latter half of 1920, the banks
in other parts of the world started their policy of deflation, in order
to raise the value of currency to such high levels that they, who possessed
the monopoly of it, could secure the real wealth of the nations for
themselves and in the winter of 1920-21, says Robertson, the price-level
was saying, like Alice as she shot down the rabbit hole, I wonder if
I shall fall right through the earth. The private banks in Australia
commenced to follow the example set by the banks abroad, but Sir Denison
Miller brought the Commonwealth Bank with a rush to the rescue of the
threatened people, partly by purchasing Commonwealth and other Government
securities and partly by increasing his advances, he released, between
June and December, 1920, $46 million of additional currency, as a slight
hint as to what he would do if necessary and deflation in Australia
was deferred. (Commonwealth Bank balance sheets)
Sir Denison Miller has left it on record that the relations between
the Commonwealth Bank and the private banks were always of a most cordial
character and doubtless he did all in his power to render them so;
but the fact remains that the private banks excluded the Commonwealth
Bank from their Clearing House, and forced it to make its clearings
through the Bank of New South Wales. We do not know what price the
Commonwealth Bank paid for even this concession, but we do know that
the interest it allowed on its deposits was always lower than that
allowed by private banks and Mr. Butchart shows conclusively that its
banking operations did not lower the rates that private banks charged
upon telegraphic transfers and overseas drafts.
In the very nature of things, the private banks must have watched the
progress of the Commonwealth Bank with ill-concealed rage and fear,
which was translated into action in 1924 - a disastrous year in the
annals of Australian economic history.
During the war the private banks had been granted the privilege of
getting three $1 Australian notes for every $1 in gold they deposited
with the Treasury, so that they were thus enabled to increase their
cash reserves by three, and therefore their loans, which were based
on their cash reserves, by a similar figure. The private trading banks,
I might mention, do not lend out their cash deposits at interest. They
keep them to meet any demands for cash made upon the banks, and give
credit for from nine to twelve times the amount of these cash deposits.
Therefore, if the private banks got $300 cash in Australian notes for
$100 in gold, they could give credit for about $3,000, instead of $1,000.
and so earn three times the amount of interest they were doing before
- a very profitable arrangement for the private banks (at rates varying
between 3% and 4%) and was repayable no later than twelve months after
the end of the war. This three-to-one arrangement was later reduced
to two-to-one and war bonds were deposited by the banks as security
for the additional $1 loaned: but the banks in may cases did not draw
the additional notes - they traded on their rights
to these notes as if they actually possessed them, and so avoided paying
interest to the Government.
These rights to draw, according to Anstey, amounted to $16 million
on 23rd June, 1923, and the Commonwealth Bank, which now controlled
the note issue, demanded that the banks should exercise their rights,
draw the notes, and pay interest thereon.
With one voice the private banks refused and prepared the battle. Sir
Denison Miller had died in June, 1923 - mourned as few public men in
Australia have been mourned - so that their most formidable adversary
had been removed from their path, while a Liberal Government, the Bruce-Paige
Administration, was now in power.
Early in 1924 the private banks demanded that their rights to
should be extended by another $6 million. The Chairman of the Notes
Board of the Commonwealth Bank described the proposition as madness,
and the Treasurer upheld that view: but the banks demand was
The hour of the private banks had struck, and they also struck - below
the belt! They used the Commonwealth Government to strangle the Commonwealth
STRANGLING OF THE BANK
June, 1924, the Bruce-Page Government brought in a Bill to amend
the Commonwealth Bank Act by taking the control of the Commonwealth
Bank out of the hands of the new Governor, and placing it in the
hands of a directorate consisting of the Governor of the Bank, the
Secretary of the Treasury, and six persons actively engaged in agriculture,
commerce, finance, and industry, to be appointed by the Governor-General
(which in practice meant the Bruce-Page Government) for different
terms of years.
The Bill provided that the Governor of the Bank should be merely the
chief executive officer of the directorate, which should elect its
own chairman, who should have a casting vote.
(The effect of these clauses was to place the Bank absolutely under
the control of a body of men who might be bitterly opposed to any competition
with private banking).
The Bill also provided, among other things:
1. That the new directorate should
control the Note Issue Department of the Bank
2. That out of the profits standing
to the credit of the Bank $8 million should be transferred to its Capital
Account, which was increased to $40 million, of which $12 million might
be loaned at interest by the Government and what was needed to make
up the $40 million might be raised by the issue of debentures. One
half of any profit the Bank should make was to be paid into the National
Debt Sinking Fund.
(The effect of these capital clauses, when put into effect,
would have been to impose such a tremendous drain of interest upon
the bank that they were never carried out in their entirety. The Capital
Account of the Bank was increased to $8 million, but no money was borrowed
from the Government, or raised by the issue of debentures).
3. That it should be obligatory
on the Commonwealth Bank to fix and publish the rates at which it would
discount and rediscount bills of exchange.
(The effect of this clause was that the private banks if their nominees
were in control of the directorate of the Commonwealth Bank could fix
the rates of rediscounting the bills which they had themselves discounted,
at a figure very favourable for themselves, and so make large profits
at the expense of the Commonwealth Bank).
4. The private banks were
permitted to settle the balances of their accounts among themselves
by means of cheques drawn upon the Commonwealth Bank, instead of keeping
a supply of bank notes in hand for that purpose. In other words, they
were permitted to make use of the Commonwealth Bank to settle their
mutual debts, and so keep all their legal tender currency for their
In introducing this Bill, Dr. Earle Page alluded to the conferences
which Ministers had held with the general managers of the private banks
Mr. Charlton told the House plainly that the Bill was nothing
less than an attempt to kill the Bank and Mr. Makin said: The
Government undoubtedly desires to place the Bank in subjection to private
banking institutions and to prevent it from fulfilling the real purpose
for which it was established. It is to be prevented, by unsympathetic
administration from functioning in the interests of the general community.
The debate was a stormy one, and it was only the declaring the Bill
urgent and by a liberal application of the closure, that
it was finally forced through the House.
It was assented to on 20th August, 1924, and was to come into force
on a day to be fixed by proclamation, but the private banks wanted
it at once. So, in August, 1924, the Associated Banks notified the
Wool Councils that sales would not be financed without additional notes
or rights to draw them. The Commonwealth Bank gave them the
right to draw another $10 million but the Associated Banks
took it, and then demanded another $20 million before they would finance
anything. In the meantime, the price of wool dropped, because
buyers could not obtain bank credits, no matter on what security.
On 10th October, 1924, the new Commonwealth Bank Act was proclaimed
and a conference was held between the Bruce-Page Government, the Associated
Banks and the Commonwealth Bank Board. The Banks were given the right
to draw another $20 million, no interest to be paid except 4% on the
amount actually drawn. One naturally asks why it was that the Commonwealth
Bank yielded to the demands of the private banks for these rights
to draw in order to finance the wool sales, when the Commonwealth
Bank could so easily have financed them itself. That question has never
been answered, but the following facts may, or may not, throw some
light upon the subject.
Mr. Kell, who succeeded Sir Denison Miller, was only Acting-Governor
of the Bank before the Directorate was appointed, and so had neither
the status nor the power of his great predecessor. While after the
appointment of the Directorate, the Governor of the Bank was merely
its executive officer. Moreover, he was personally in a rather precarious
position for he had previously made things so unpleasant for Mr. M
B. Young, a leading official of the Bank, that the latter resigned,
and brought serious accusations against Kell. (Argus, 11th
October, 1924. p. 31, 4th September, 1925. p. 11).
The Bruce-Page Administration sided with Kell, refused to appoint an
independent tribunal to deal with the accusations and upon Kells
retirement in 1926 granted him a pension of $2,000 per annum.
The New Commonwealth Bank Board was composed (in addition to the Governor
of the Bank and the Secretary of the Treasury) of the following financial
magnates, who were appointed to control the destinies of the peoples
bank, although they might themselves be shareholders in private banks
and in spite of the fact that such institutions as those of which they
were directors are normally lenders of money at interest on a very
John J. Garvan: Managing Director, Mutual Life and Citizens Assurance
Co. Ltd. Pastoralist, Rochdale Station, Queensland
Sir Robert Gibson. K.B.E.: Vice President, Associated Chambers of Manufacturers,
Victorian Representative, Central Coal Board, Director Austral Manufacturing
Co. the Lux Foundry, National Mutual Life Assurance Co., Union Trustee
Co., Robert Harper & Co. Ltd., Merchants and Manufactures, Chamber
of Manufacturers Insurance Co.
Sir Samuel Hordern.Kt.: Director Anthony Hordem & Sons, Universal
Providers Australian Mutual Provident Society, Royal Insurance Co..
Robert Bond. President of various Woolbuyers Associations, Proprietor
of William Haughton & Co., Woolbrokers.
John McKenzie Lees: Fellow Institute of Bankers, London, (Formerly
Chairman of Associated Banks in Queensland and General Manager of Bank
of Queensland and of Bank of North -Queensland).
Richard S. Drummond: An inconspicuous gentleman appointed for inconspicuous
reasons. From the date of the appointment of this Directorate, the
Commonwealth Bank, as a peoples bank, ceases to function. It
becomes a bankers bank, an appanage and convenience of the private
banks, run for their special benefit. The following example was given
by both Mr. Charlton and by Mr. Anstey on the floor of the House, (Hansard,
1925. Vol. 3. pages 1696, 1725 and 1726), to show the spirit in which
the Bank was administered.
The rates charged for financing primary produce began at once to rise,
until they had more than doubled. The producers of the 1924-1925 season
had to pay $14 million in bank charges, as against $6 million for the
previous year. When the farmers in Western Australia formed a voluntary
pool, they applied confidently to the Commonwealth Bank to finance
it, as the Bank had done for similar pools in previous years, but it
was no longer the same Bank, and both it and the private banks alike
imposed conditions which were intolerable.
Finally, when the farmers, unable to secure the necessary money in
Australia, obtained it from the Co-operative Wholesale Society in England,
the concerted action of the private banks and their new ally, the Commonwealth
Bank, frustrated the scheme. When the Co-operative Wholesale Society
paid in the money to the London Branch of the Commonwealth Bank, the
Bank, instead of transferring the money to its Perth Branch, transferred
it in quotas to one-fifth to each of the five associated banks (private
banks) operating in Perth, so that each bank was enabled to exploit
the farmers by means of transfer charges.
The transportation of four million bushels of wheat from Australia
to England cost the Co-operative Wholesale Society 10 cents per bushel,
but for merely transmitting the money, the banks charged the farmers
practically 3.3 cents per bushel, amounting in all to some $120,000.
The roars of the primary producers, under the gentle treatment meted
out to them by the private banks and the new Directorate of the Commonwealth
Bank, were so terrific that the Bruce-Page Government shifted uneasily
on their Ministerial benches. At least a pretence of helping them must
be made, and if the Commonwealth Bank was damaged in the process well,
that could not be helped. So in 1925 the Commonwealth Bank (Rural Credits)
Bill was brought forward.
This Bill provided for a Rural Credits Department of the Commonwealth
Bank, to be kept distinct from other departments of the Bank. It was
empowered to issue short-term debentures up to the amount it advanced
on primary produce. These debentures would form a short-loan market
in Australia at about 4%, and be a steady drain upon the profits of
the Department, while the money subscribed could be utilised by the
private banks in their ordinary business, since the Commonwealth Bank,
through its Rural Credits Department, was authorised to advance loans
to private banks and financial companies, as well as to rural producers.
In effect, the Bill ensured that a primary producer who owned machinery,
land, buildings, and a coming crop, and who wanted a loan to tide him
over until he marketed his produce, would have to go to the private
banks to get it. Theoretically, he could go to the Commonwealth Bank
direct, but if he did so he would almost certainly be told that the
Commonwealth Bank did not accept that class of business so
he would have to lodge his security with a private bank, which would
take it to the Rural Credits Department of the Commonwealth Bank, get
the money at somewhere about 4% and then lend it to the primary producer
for as high as he could afford to pay or higher.
That, said Mr. Anstey in the House, is the fundamental and iniquitous
principle of the Bill. It is outrageous, and cannot be justified in
any way whatever.
It could not. Neither could the facts that both the Government and
the Commonwealth Bank were empowered to lend money at unspecified rates
of interest to this Rural Credits Department, and that $4 million of
profits from the Note Issue Department were, by the terms of the Bill,
given to the Department gratis.
The Bill was passed on 14th September, 1925. The Commonwealth Bank
issued no debentures, but between 1925 and 1932, gradually transferred
$4 million of its profits on the note issue to the capital account
of its Rural Credits Department, and up to 30th June, 1929, it financed
the department with credits from the Bank to the extend of $42 million.
Sir Robert Gibson states that this money was loaned by the Department
at, from 6.5% to 5.5%, and when the Department dealt direct with the
producer, it probably charged those rates, but $42 million at this
figure would show a profit of well over $2.4 million and the profits
on the Rural Credits Department during these years was only $649,560.
As we know from statements made in Parliament (Hansard. Vol. 114. pages
3759, 4297) that the Rural Credits Department generally acted through
the private banks, it is clear that the private banks must have obtained
the amounts they required at a merely nominal rate of interest, but
they charged the wretched primary producer 8%. and sometimes more,
for the money that had been made available for his relief. (Hansard.
Vol. 114. p. 4332).
Early in 1927 there arrived in Australia Sir Ernest Harvey, Comptroller
of the Bank of England, for the purpose of advising the Commonwealth
Bank as to certain phases of Central Banking. In other words,
in order to make the Commonwealth Bank, which was supposed to be a
national bank operating for the good of the people (as it did until
prevented), a central bank operating for the benefit of private banks.
He found the good work almost accomplished, but not quite.
The general deposits in the Bank amounted approximately to $64 million,
but it also had lodged with it roughly $94 million of the peoples
savings, so that financially it was in a strong position, and if by
any chance it could manage to release its neck from the strangling
clutch of its Directorate, it might still be used for the purpose for
which it was intended.
Therefore, Sir Ernest Harvey pointed out that the savings bank
business did not come within the ambit of the functions of a bank of
central reserve, and the BrucePage Government accordingly brought
forward a Bill for the Commonwealth Bank (Savings Bank) Act, 1927.
By the terms of the Bill, the business of the Savings Bank Department
(over 50% of the total revenue of the Commonwealth Bank) was taken
away from the Bank, and placed under the control of three Directors,
appointed by the Governor-General (which again meant, in practice,
the Bruce-Page Government), and it was specially provided, by altering
the definition of bank in the original Act, that the Commonwealth
Bank of Australia does not include the Savings Bank.
Much of the profit the Commonwealth Bank was still earning was made
in this Savings Bank Department, but the Bill did not merely lessen
the Banks profits, it took away the Banks cash reserves,
which enabled it to compete with private banks, terminated its trading
operations, and reduced it to a bankers bank not a reserve bank,
because no bank was compelled to keep its reserves there - so that
it became neither a trading bank nor a savings bank, nor yet a reserve
bank, but a thing of shreds and patches, at the mercy of private institutions,
and which could be destroyed at any time.
So said Mr. Charlton in the House: but he overlooked two important
1. The ownership of the Bank
was still vested in the people of Australia.
2. Power to create credit,
and the sole power of creating legal tender currency, was still vested
in the Bank.
While these facts remain unchanged, the Bank may be strangled and its
functions perverted, but it cannot be destroyed and it may be delivered.
The Bill specifically provided that the Commonwealth Savings Bank might
lend money to private banks, but the paragraph was objected to in Committee
and omitted, but the Bill also contained a paragraph, couched in general
terms, under which the same thing might be done. When asked if he would
omit this paragraph, Dr. Earle Page replied bluntly: No. (Hansard.
Vol 116. page 805).
BONDAGE OF THE BANK.
Commonwealth Bank (Savings Bank) Act became law 22nd December, 1927
and June, 1928. The Directors of the Commonwealth Bank sold to the
Commonwealth Savings Bank $7.6 million worth of securities, and at
the same time called in $8 million of advances, thus cancelling $8
million worth of currency and making inevitable in Australia that
depression which the banking system had already inaugurated
abroad. (Commonwealth Bank balance sheets).
It commenced in January, 1929, with a constantly accelerating fall
in the monetary value of Australias exports, fall out of all
proportion to the drop in the value of her imports. This meant that
there was soon not enough funds available in London to pay for our
imported goods, to say nothing of the interest on our overseas debt,
which stood then at approximately $56 million per annum.
In October, the Scullin Labor Administration came into office, and
the English Banking System promptly closed the London money market
to any further Australian loans. The election of a Labour government
under the Hon. J. Scullin brought about an immediate financial crisis
in Australia when the English banking system promptly closed the London
Money Market to any further Australian loans.
The Australian banks blindly followed the example set abroad. They
began to contract their advances and call in their overdrafts, even
in cases where securities had been lodged with them to the value of
three times the amount of the overdraft. (Hansard. Vol.122.p. 313).
They also deflated the currency by selling securities to the extent
of $8 million.
(Australian Banking Commissions Report. Para. 180).
The Scullin Administration found itself faced with unemployment and
poverty at home, and possible default in interest payments abroad.
It met the overseas situation by a sort of tacit alliance with the
manufacturing as against the pastoral and importing interests of the
In October, 1929, and again in April 1930, it imposed prohibitions
upon a number of imports, and raised the duties on a still greater
number. The T. T. rate on Bills of Exchange stood in November, 1930
at 3.5%, but as Australia had returned to the gold standard in 1925,
this rate was above gold point (i.e., the point at which
it paid to buy gold instead of bills of exchange with which to settle
overseas debt), and Australian importers began to buy gold and ship
it abroad. (Hansard. Vol. 122, p. 427-8).
The Australian banks held in their reserves at this time some $96 million
(Hansard. Vol 122. p. 430), the remaining $40 million being in circulation,
but they did not want their gold to be used in this way, for the following
1. They would lose all their
profits on the trade in Bills of Exchange.
2. They might want to use
some of the gold themselves in foreign investments, the dividends on
which were free form Federal Income Tax, and formed from about 30%
to 60% of the total dividends paid by the banks.
(Official Record. Melbourne Stock Exchange, February, 1928).
3. The gold might be useful
as an instrument of coercion over the Commonwealth Government, if the
latter could not obtain overseas currency to pay its overseas debt.
So on 28th November, 1929, Mr. Theodore brought a Bill to amend the
Commonwealth Bank Act. It was not initiated by the Government, said
he, it originated with the Board of Directors of the (Commonwealth)
Bank, and but for their urging, would not be before the House.
The excuse for the Bill was that it had become necessary to safeguard
Australias gold reserves, and it gave the Commonwealth Bank Board
power to commandeer, in exchange for Australian notes; the total gold
supply of Australia, whether in private hands or those of institutions.
It forbade the export of gold, without permission of the Board, under
The Bill became law (Act No. 31 of 1929) on 17th December, 1929
The result of this Act was:
1. Australia was now definitely
off gold and the Australian note was inconvertible.
2. The Commonwealth Bank
possessed a virtual monopoly of all the gold in Australia.
3. Importers were rationed
and the rate paid by them for Bills of Exchange rose from 3.5% to 13%.
4. The Commonwealth Government,
if it could not find overseas funds to pay the interest on its overseas
debt would either have to default, or, in order to get the necessary
gold, submit to any terms the Commonwealth Bank Board chose to dictate
(Hansard. Vol. 130. p. 2702 to p. 2708).
Having tied its own hands with regard to the overseas position in this
fashion, the Scullin Administration now turned its attention to home
affairs, which were going steadily from bad to worse. Obviously, nothing
could be done unless the Government possessed the power of the purse
which was now in the hands of the Commonwealth Bank Board.
What the Government had given, the Government could take away if it
were not for that unfortunate majority against it in the Senate -yet
even with that majority ruling the Upper House, if one walked with
circumspection, it might be done.
Since the establishment of the Bank of International Settlements at
Basle, early in 1930, central reserve banks (more or less independent
of the Governments of the countries in which they were situated) had
been springing up like mushrooms all over the world, amid a chorus
of approval from deluded Governments and people whom these banks were
intended to reduce to servitude. Why not, reasoned the Scullin Administration,
under cover of establishing one of them in Australia, get back into
the hands of the Government the powers given away in 1920? On 2nd April,
1930, Theodore brought forward his Central Reserve Bank Bill. The new
bank was to control the note issue and the gold reserve. All other
banks, including the Commonwealth Bank, were to keep 10% of their current
accounts and 3% of their fixed deposits with it.
The capital of the reserve bank was to be $4 million, transferred from
the Commonwealth Bank, which was to become simply a Government trading
and savings bank competing with the private banks.
The Reserve Bank was to be the clearing house of the other banks, and
it was to be managed by a Board appointed by the Governor General.
This Board was to consist of a Governor, two Deputy-Governors, the
Secretary of the Treasury and five other Directors, representing agriculture,
commerce, finance, industry and labor.
The Governor was to be the Chairman of the Board and Chief Executive
Officer of the Bank and the five other Directors were to retire in
rotation. There was great diversity of opinion as to the value of such
a bank among Labor members, but the consensus of opinion in the ranks
of the Opposition was that the Government intended to use the
Central Reserve Bank to supply large sums of money to carry out the
schemes of Labor Administrations, both Federal and State. (Hansard.
Vol.124. p. 2682/3).
That opinion was probably correct. If not, it is difficult to understand
why the Bill was brought forward at all. It passed the Representatives
in June, 1930, but was referred to a Committee in the Senate, and finally
lapsed in April, 1931. By February, 1930, the difficulties of finding
overseas money to cover Australias payments abroad had become
so acute that the Commonwealth Government appealed to the British Treasury
for assistance in finding credit to meet a small loan falling due.
The Chancellor of the Exchequer referred them to the Bank of England,
which, apparently found the necessary credit, but suggested sending
Sir Otto Niemeyer for a report on the financial position of Australia.
(Hansard. Vol. 127. P. 387)
He arrived in Melbourne on 19th July, 1930, where he was met
by Sir Robert Gibson, Chairman of the Commonwealth Bank Board, (Argus, 19/7/30
p. 22). As a result of that meeting and of another one held in Sydney
with the managers of the trading banks (Argus22/7/30.p.
9), it appears that the Scullin Administration was handled with velvet
gloves and hoodwinked into believing that Niemeyer and Sir Robert Gibson
intended to help it through the depression.
Sir Robert Gibson was reappointed to the Commonwealth Bank Board for
another seven years on 4th August, 1930, although his existing appointment
did not expire until the following October. (Hansard. Vol. 129. p.
This done, Niemeyer attended a meeting of the Loan Council and the
Premiers Conference in Melbourne (August, 1930) and laid his
demands before them, There were five main provisions (Parliamentary
Papers. 1929-3 1. Vol. 2. No. 81, p. 45).
to be balanced at any cost in human suffering
of overseas borrowing until the then short-term indebtedness had been
3. No public works,
which would not pay for interest and sinking funds on loans, to be
put in hand.
4. All interest payments to be credited to a special account in the
Commonwealth Bank, to be used only in favour of the bond-holders.
5. Monthly accounts to be published in Australia and overseas, showing
summaries of revenue and expenditure, also state the short-term debt
and loan account.
The Conference seems to have accepted these terms with a good many
mental reservations, but outwardly, at any rate, their submission was
complete, not to say abject. Today, writes Mr. H. N. Brailsford (quoted
in Hansard, Vol. 127. p. 576), you may behold a continent on
its knees. It is bowed to his (Niemeyers) dictation. It will
cut down its imports. It will lay the axe to all its expenditure on
social services, including education. It will reduce the salaries of
its civil servants. It will cut wages all round. It is prepared for
an increase in unemployment from the present 18% to a possible 30%.
It is kissing the rod that chastened it.
On all hands, we read,the help of Sir Otto Niemeyer
is warmly appreciated.
In desperation, the Scullin Administration besought Sir Robert Gibson
to increase the note issue by $40 million, so as to enable them to
fight the depression which was now advancing like a landslide, but
Sir Robert, secure in his recent appointment, no longer troubled to
be polite. Said he, Mr. Prime Minister and Members of the Cabinet,
you ask me to inflate the currency by issuing another $40 million in
notes. My answer is that I bloody well wont. (Smiths
It is difficult to believe that the Scullin Administration did not
know that they had the power to deal with this hectoring individual
by other means than getting a Bill through the Senate but if they did
know their power, they did not use it. After some ineffective attempt
at revolt, they submitted and Sir Robert Gibson in company with the
trading banks, fixed up what is known as the Exchange Mobilisation
Agreement. This was to the effect that each trading bank should hand
over to the Commonwealth Bank, out of its sterling receipts in London,
month by month, an amount sufficient to meet the overseas commitments
of the Australian Government, the rate of exchange to be fixed by the
This agreement eased the overseas position considerably, so far as
the Government and the bond-holders were concerned and it still exists.
But the position of the Australian importer and exporter became desperate.
The banks would not sell the importer enough Bills of Exchange in London
to enable him to pay for his imports, while he could no longer buy
gold and ship it abroad.
As for the exporter, the banks saw to it that he only got the face
value of his bills, although its value was really much higher. Owing
to this pegging of the exchange, importers began to approach
exporters direct, and to offer them more for their bills than the banks
were doing. Middlemen sprang up, who acted as exchange operators, independently
of the banks and a free outside market was formed. It grew
steadily stronger and in January, 1931, it smashed the bankers ring
and unpegged the exchange.
Premiums on Bills of Exchange drawn on London rose to 30%, and to the
great joy of exporters, remained unchanged to December, 1931, when
the exchange was repegged at 25%. (Australian Banking Commissions
Report. paras. 117, 118 and 150).
During the year 1931, three banks which set out to fight the deflation
policy pursued by the Australian banking system as a whole, were smashed
under that system. The banks in question were the Government Savings
Bank of New South Wales, the Primary Producers Bank of Australia
Ltd. and the Federal Deposit Bank Ltd.
The story of the first will serve as a more or less accurate illustration
of what befell all three.
In 1930, the Government Savings Bank of New South Wales was the second
largest bank of its kind in the British Empire - the Post Office Savings
Bank in England being the largest. Its assets exceeded $208 million
and it had a net annual income of $800,000. It was controlled by the
New South Wales Government and it started to finance homes for the
people. It also assisted primary producers by means of advances through
a trading branch it possessed, known as the Rural Bank. By doing this,
of course, it placed itself in opposition to the deflationary policy
of the Commonwealth Bank and the trading banks. It was destroyed and
its assets seized in the following manner.
The bank was a splendidly solvent institution, but, like any other
bank, its cash in hand and at short call was only a fraction of its
liabilities ($34 million to $142 million) and if a run upon it could
be brought about, it would finally have to borrow Australian notes
from the Commonwealth Bank or else close its doors. The opportunity
to bring about this run came in October, 1930, when, at the New South
Wales State elections, Mr. Lang was returned to power and announced
The three main planks in it were:
1. That until Great Britain
agreed to fund Australias overseas debt in the same manner as
America funded that of Great Britain, no further interest upon her
overseas debt should be paid by Australia.
2. That the interest rate
on this debt should be reduced to 3%, and that all interest rates on
private finance should be correspondingly reduced.
3. That the existing system
of currency be altered from a nominal gold standard to one more suited
to modern conditions, preferably the goods standard.
This policy was greeted with a howl of mingled rage and fear from private
banks, the insurance companies and the bondholders in general.
The press denounced Lang in the most unbridled terms, as a swindler
and a thief, whose proper place was goal. It published scare
such as Lang will confiscate Savings Bank deposits, Lang
will smash your bank and seize your savings, while politicians
vied with each other in prophesying the banks ruin in every newspaper
- one Federal Member publicly stated that he gave the bank four days
to run (Hansard, Vol. 128. P. 1087/8, 1181).
Finally, the run upon the bank started. For seven months the bank put
up a splendid fight, and paid out all its liquid assets - then it appealed
to the Commonwealth Bank for assistance. Sir Robert Gibson replied
that he was only prepared to consider merger proposals and his terms
were so harsh that the New South Wales Government refused to accept
(Hansard, Vol. 131. p. 4593-4, 4616).
The Bank closed its doors, 23/4/31, but the run upon both the Commonwealth
Bank and the trading banks which immediately followed was by no means
part of the scheme, and caused grave misgivings in banking circles
generally. So serious did the position become that Sir Robert Gibson
was forced to make a memorable announcement.
He made it on Sunday, 13th May, 1931, in the form of a broadcast address
in all States simultaneously. Said he, The Government Savings Bank
of New South Wales was forced to close its doors because the people
who had deposited their money in that bank were led to believe by the
foolish statements of those who should have known better, and the statements
of those who desired to bring about disaster, that, that bank was not
in a safe position. ... The Government Savings Bank of New South Wales
was in a perfectly sound position. There was no good reason, on account
of lack of soundness, why it was compelled to close its doors.
He spoke the truth. The reason had nothing to do with the Banks
soundness, and it was entirely bad.
Meanwhile, a committee, known as the Rehabilitation Committee, had
been formed to represent both the depositors and the citizens generally.
This committee, having verified the solvency of the Bank (Hansard,
Vol. 132. p. 1326), began to ask such awkward questions that it became
seriously embarrassing to the money powers; so the Commonwealth Bank
offered amended and more liberal merger terms, which were finally accepted.
The Savings Bank was then re-opened, and in a few days was prepared
to pay depositors in full, for it was soon discovered that deposits
exceeded withdrawals and that extra bank notes from the Commonwealth
Bank were not needed. Had Sir Robert Gibson chosen half a year earlier,
to say a few words in support of the Bank, the whole sorry business
might have been avoided, but the Rural Bank, with nearly 200 branches
competing with the private banks in every town in New South Wales,
was endangering their policy. It had to be destroyed and the Commonwealth
Bank was the instrument used to bring about that destruction.
(Australias Curse, pages 13,14 and 15, by G.
and also the now famous article in Smiths Weekly, 8/9/34).
In November of this year the Western Australian Savings Bank was also
absorbed by the Commonwealth Bank under very similar circumstances.
(Australian Banking Commission's Report, para. 71).
At the beginning of 1931, Australia found herself faced with a complete
breakdown in her monetary system, owing to the deflationary action
of her financial institutions. The prevailing depression was, in fact,
world wide, and had the same root cause, being entirely independent
of Government policies, whether free trade or protectionist, conservative
or labor. With a vast amount of work waiting to be done, there were
hosts of people unemployed. Industries were intact, markets organised,
transport services efficient, warehouses and wharfs in readiness for
handling goods. There were no devastations by war, pestilence, drought
or flood, yet the whole world was commercially and industrially paralysed
through sheer lack of currency to put the wheels of progress in motion.
On 6th February. 1931, a conference of Premiers and Treasurers was
held in Canberra and the Government placed the following proposals
before the Commonwealth Bank Board and the representatives of the private
1. Bank credit to be provided
for the support and extension of industry and enterprise where sound.
2. Inflation to be prevented
by the stabilisation of prices at the average price level for the five
years ended 1929 (index 1800) until the new goods, produced as the
result of No. 1 came into the market.
3. Existing Government overdrafts
to be funded. The Commonwealth Bank issue against these securities
credit or notes to one-third of their value and to purchase Government
securities on the market to the extent necessary to bring them up to
a reasonable value.
4. On the recovery of the market, the Commonwealth Bank to underwrite
a 5% loan (to be supported by the trading banks) for farmers relief
and for public works to absorb the unemployed.
5. Substantial reductions to be made on rates of interest on bank deposits,
loans and overdrafts.
6. London exchange
to be unpegged, and allowed to go to its natural level,
but the exchange pool to be maintained to provide funds for overseas
7. The banks margin
on exchange transaction to be reduced to 0.75%.
8. An attempt to be
made at an early date to fund the short term London debt.
9. In consideration of above items, the Commonwealth and States to
pledge themselves to rigid economy in expenditure and elimination of
duplication in all kinds of services.
These proposals were received with hostility by both the Commonwealth
and the trading banks. Sir Robert Gibsons reply was that, subject
to adequate and equitable reductions in all wages, salaries, 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. The reply of the trading
banks, though not so blunt was to the same effect they thought that
the Government should follow the advice given by the Committee of Experts.
(Minute of Conference, pp. 76/7).
The Committee in question consisted of the Under-Treasurers of various
States and three professional economists under the chairmanship of
Sir Robert Gibson. It had already drawn up a scheme of retrenchment,
recommending an immediate cut of $30 million per annum - to come out
of wages, salaries, pensions, maternity allowances, education, public
health and charities. As however the Chairman had eliminated many of
the suggestions made by the members of the committee from the report,
and would not sign it himself, the conference disregarded it and authorised
the Scullin Administration to bring before Parliament a Fiduciary
(Minutes of Conference, pp.13, 14 and 77. Appendix 2).
On 5th March, 1931, therefore, Mr. Theodore introduced his Fiduciary
Notes Bill to the House. It provided for a fiduciary issue of notes
by the Commonwealth Bank to the extent of $36 million, of which $12
million was to be applied to the relief of wheat growers and $24 million
(at the rate of $2 million per month) was to be employed on public
The notes issued were to be credited to a Fiduciary Notes Account,
which was to be debited with any amounts raised to redeem and cancel
the notes. If the Commonwealth Bank chose to notify the Government
that it was prepared to advance loans to the extent of the whole or
any portion of the total amount of the issue, the issue would be correspondingly
(Hansard. Vol. 128. p. 300).
The Bill passed the Representatives, but, in spite of its conservative
and conciliatory nature, was thrown out by the Senate on 17th April.
As soon as he was certain of what its end would be, Sir Robert Gibson
decided that this refractory Labor Government must be brought to heel,
and taught to remain there. He had already requisitioned from the trading
banks practically all the gold that they possessed and he had shipped
this precious metal and more also, abroad.
(Hansard. Vols. 128 and 129. pp. 519-522. 2285: Australian Banking
Commissions Report, pp. 324-5).
The Commonwealth Bank Amendment Act of 1929 gave him first claim on
all gold that was left in Australia and the Commonwealth Government
(destitute of English currency) had to meet a loan of $10 million which
was about to fall due in London.
(Hansard, Vol. 129, p.l6l7).
The ball was at his feet and he kicked it. On 2nd April, 1931, he notified
all the Australian Governments that the sums he had advanced to the
Commonwealth amounted to $102.99 million, while the accommodation he
had provided for all the Governments and public bodies of Australia
amounted to $260.59 million. The fact that it was the Commonwealths
own credit that he had made available in the form of money he omitted
to mention but he definitely refused to provide any further accommodation
at all in London and only another $50 million in Australia. Theodores
reply put in the clearest possible light the relationship between representative
Government and organised finance existing in Australia today. He said
that in February, 1931, he had submitted to the Commonwealth Bank Board
comprehensive proposals adopted by the Government as a means to ease
the financial stringency and assist the nation towards budgetary stability
but the Bank had refused to co-operate with the Government and now
proposed, without any consultation or prior discussion to cut off money
supplies to the Government beyond a point that would be reached in
a day or two.
That could only be regarded as an attempt on the part of the bank to
arrogate to itself a supremacy over the Government in the determination
of the financial -policy of the Commonwealth, a supremacy which had
never been contemplated by the Australian people.
In financial, as in all other matters of public policy, the Government
was responsible to the electorate and not to the banks, and it could
not change this responsibility without exposing to grave danger the
democratic principles of the nation. The Government would not be a
party to any attempt of the Bank Board, or any other authority, to
take from the peoples representatives in Parliament what had
hitherto been regarded as an essential prerogative of the people -
the control of the public purse.
He went on to point out the the present financial difficulties had
been brought about by the circumstances over which the Government had
no control but which had been largely caused by the action of the Commonwealth
Bank and the private banks themselves, for they had blindly followed
the overseas banks in pursuing a deflationary policy, which had forced
down prices the world over and brought in its train a collapse of trade,
loss of commercial profits, thousands of business bankruptcies and
the creation of unemployment on a scale wholly unprecedented in the
history of the country.
That was within the power of the banks to remedy this state of things
could not seriously be denied. In a communication from the Commonwealth
Bank Board February, the undertaking was given that, conditional upon
wages, salaries, pensions and social services being adequately reduced,
the banks would provide funds to sustain industry and restore employment.
The banks had drained vast sums of money from the Australian public
by their high charges for their services, doubled their declared annual
profit in recent years and in addition, built up colossal inner reserves
and palatial premises at the expense of the community.
Most of the debt due by the Government to the Commonwealth Bank had
been incurred by the non-Labor Governments, and it was not on record
that the Commonwealth Bank had threatened arbitrarily to stop their
credit unless they agreed to a financial policy approved by the Bank.
His Government therefore, was not going to be deflected from its definite
policy by the unwarranted action of the Bank Board.
(Hansard, Vol. 128, pages 990/993).
These were brave words, but how was that loan of $10 million falling
due in London to be met unless he could get hold of some gold to pay
it with?. Theodore might have the right upon his side, but Sir Robert
Gibson had the gold and wrote again to say, My Board desires me to
state that a position may rise in London in the near future which the
Bank would be powerless to meet (it having shipped all its gold abroad,
except the Statuary Reserve which it was legally compelled to hold
against the note issue).
(Hansard, Vol. 129, p. 1619).
On 24th March, 1931, Theodore brought before the house the Commonwealth
Bank Bill of 1931. It gave the Government power, in order to pay its
commitments in London, to commandeer the Commonwealth Banks
gold reserve, which it held (quite unnecessarily, in view of the fact
that the Australian note was now inconvertible into gold) against the
The Bill passed the Representatives and in view of the urgency of the
situation, seemed likely to pass the Senate also but the ultra-conservative
element in that Chamber summoned Sir Robert Gibson to the Bar of the
House, and asked him point blank if there was no alternative to the
Bill but default.
He replied, There is an alternative (meaning acceptance of his terms),
and the Senate threw the Bill out. When Senator Daly said to Gibson,
You might have let the child live, the grim old man answered, It is
not my child, and departed - the real ruler of Australia.
(Hansard, Vol. 129, p. 1631).
He is now dead and gone, but the verdict of history must lay upon his
shoulders the responsibility for the sufferings of the people during
the terrible years of the depression. There was nothing for it but
default or surrender, and the Scullin Administration chose the latter
alternative. They submitted to Sir Robert Gibsons terms
(Hansard, Vol. 130, p.2708),
and at a conference of Commonwealth and State Premiers, held in May
and June, 1931, agreed to bring in immediately the necessary legislation
to put these terms (known as the Premiers Plan) into operation.
Then, and not until then, was the Commonwealth Bank Bill of 1931 allowed
to become law. (Act No. 6 of 1931).
It provided that the Bank should accept $10 million worth of Commonwealth
securities in exchange for that amount of gold, taken from the reserve
against the note issue, to redeem that pressing debt in London which
had been used to bring a Labor Administration to its knees in utter
Two more measures this unhappy Government was forced to pass at the
bidding of its financial master: the Financial Emergency Act (bringing
the Premiers Plan into effect), and the Debt Conversion
Act (persuading and finally compelling Australian citizens to
renew old loans at a lower rate of interest -a necessary but unpopular
measure), and then it was swept off the stage into political oblivion
(6th January, 1932).
On 11th May, 1932, another Commonwealth Bank Bill was introduced by
Mr. Bruce, to enable the Commonwealth Bank to hold the note issue reserve
either in gold or sterling, or partly in gold and partly in Sterling
(sterling meant English money or claims to it).
The Bank Board, said he, has asked for these powers, and the Government
considers it advisable to grant them. It was, apparently, not his Governments
business to ask for particulars of the foreign securities the Bank
intended to purchase with this Australian gold, or to point out that
if it was used to purchase Australian securities in this country, the
depression might be arrested.
The Bill became law (Act No. 16 of 1932) on 21/5/32 and since June,
1933, there has been practically no gold held by the Commonwealth Bank,
either as a reserve against its note issue or for other purposes. As
for the private banks, they have been without gold since September,
1930, yet people still say that our currency is sound because it
is backed by gold.
(Australian Banking Commissions Report, pages 324-5).
After the defeat of the Scullin Administration, Australia was to all
practical intents and purposes, governed by the Commonwealth Bank Board,
and on 25th November, 1938, the Hon. R. G. Casey brought before the
House a Bill to further amend the Commonwealth Bank Act. It represented
the final stage in a 15-year plan to deprive the people of Australia
of the power to control the money supply of their own country.
Part Vic provided for the establishment of a Mortgage Bank Department
with a capital of $56 million, of which $8 million was to come from
the profits of the note issue, and of the various other departments
of the Bank and $48 million was to be raised by the issue of debentures
and inscribed stock secured upon the general assets of the Bank.
From the inception of the Bank, its profits had returned to the people,
in one form or another, as their absolute property, but the proposed
legislation handed most of these profits over to private bondholders
in the form of interest on the debentures and inscribed stock which
it was intended to issue. Moreover, what was infinitely worse, the
majority of these securities might be held by international financial
institutions, which would become in fact, though not in name, the real
owners of the Bank.
It is difficult to see how the Bank could be used for any other purpose
than to earn interest for its bondholders if it became mortgaged itself,
in order to start its Mortgage Bank Department. Yet the hope of the
Commonwealth lies in a wise use of its Bank, not for the purpose of
earning interest, but in order to bring about the welfare of its people.
Fortunately for Australia, the years of the depression had
left it honeycombed with small bodies of monetary reformers who were
loosely knit together in an association which supported two or three
weekly newspapers. These people organised a storm of protest against
the Bill, protests directed not to the Government, but to the individual
members of the different constituents. They printed demand forms
of a more or less peremptory character, and distributed them in thousands
throughout the country. The people signed them, and forwarded them
to their respective Parliamentary representatives, who found it advisable
to swim with the torrent rather than struggle against it.
For the time being, at least, the Bill was shelved, and Australia entered
the war still owning the Commonwealth Bank. If the Australian people,
therefore, still desired to make a proper use of their Bank, they could
do so, and in this connection, the following paragraphs from the report
of the Royal Commission on the Australian Monetary and Banking Systems
(appointed by the Lyons Administration in 1935) may be studied with
The words in parentheses are those of the author.
Paragraph 516 - The general objective of an economic system for Australia
should be to achieve the best use of our productive resources, both
present and future (i.e. actual and potential). This means the fullest
possible employment of power and resources under conditions that will
provide the highest standard of living (i.e. debt - and - interest
- free conditions). It means, too, the reduction of fluctuations in
general economic activity (i.e. no booms and slumps).
Since the monetary and banking system is an integral part of the economic
system, its objective will be to assist with all the means at its disposal
in achieving these ends.
Paragraph 503 - The Central Bank in the Australian System is the Commonwealth
Bank of Australia. The Bank is a public institution engaged in the
discharge of a public trust. As the central bank, its special function
is to regulate the volume of credit in the national interest, and its
distinctive attribute is its control of the note issue. Within the
limits prescribed by law (and those limits have been extended in the
past when circumstances demanded it, and may be extended again), it
has the power to print and issue notes as legal tender money, and every
obligation undertaken by the Commonwealth Bank is backed by this power
of creating the money with which to discharge it.
Paragraph 504 - Because of this power, the Commonwealth Bank ... can
even make money available to Governments or to others free of any charge.
(Interpreting this last and most vital statement, a letter from Mr.
Justice Napier, Chairman of the Commission, received through Mr. Harris,
of the Commonwealth Sub-Treasury, who was Secretary to the Commission,
says, This statement means that the Commonwealth Bank can make money
available to Governments or to others on such terms as it chooses -
even by way of a loan without interest, or even without requiring either
interest or repayment of the principal.)
Paragraph 530 - The Federal Parliament is ultimately responsible for
monetary policy, and the Government of the day is the Executive of
Parliament ... The Government should give the Bank an assurance that
it accepts full responsibility for the proposed policy, and is in a
position to take, and will take, any action necessary to implement
it. It is, then, the duty of the Bank to accept this assurance, and
to carry out the policy of the Government. The financial cost of the
second world war to Australia (excluding damage to property) was as
Interest-bearing money borrowed for war:
$ Million 3,074,614
taxation levied by the Commonwealth Government,
Increase over 1938-9
Increase over 1938-9
Increase over 1938-9
Increase over 1938-9
Increase over 1938-9
Increase over 1938-9
Financial cost of war
Statistics Bulletins 179, 180 and 188)
Had Australia decided to create the money
herself that she borrowed ($3,074 millions in round figures),
she would have been free of a very solid lump of debt, and her
people would have been spared the necessity of finding an annual
interest charge upon it of $79,110,098 (about $40 for every family
In its circular to the Loan Council in March, 1939, the Commonwealth
Bank Board refused to create money for defence, even in the
form of a loan, except if there was no alternative and
in the last resort.
Men and women, whose sons died in Malaya, Java, New Britain
and New Guinea in the early days of the war, for want of planes,
guns and war-preparedness generally, if nothing else will turn
your thoughts to finance, let this circular of the Commonwealth
Bank Board, on the very eve of war, focus your attention upon
The Reports of the Board during the war years make dismal reading.
They show it pre-occupied above all else with the following
1. How to create as little
Central Bank Credit as possible.
2. How to raise as
much money as possible by means of loans and taxation.
3. How to reduce
the purchasing power in the hands of the people to the minimum
necessary to keep them in good health and working, and in cases
where this could not be done.
4. How to prevent
the people from getting more consumption goods than just sufficient
to enable them to live and work.
Of course, during the war, the Commonwealth Bank Board, had,
from time to time, to create some money. Of the $3,074 millions
of borrowed money, $776 millions were in the form of Treasury
Bills (Australian Statistics Bulletin 188) and the Board also
increased the Note Issue from $95 million in 1939, to
a peak circulation of $405.4 millions in 1945 (Commonwealth
Bank Report 1945).
It had also in its Special War-time Deposit Account, at June
30, 1945, $482 millions of the private banks surplus
funds, on which it paid interest at three-fourths of one per
cent, and it is more than likely that these funds had to earn
interest. In general, however, it can be stated that the Commonwealth
Bank Board created as little money as they could and apparently,
worried a good deal over what they did create.
Whilst on this subject, it might be well to remind Australians
that at 30th June, 1947, the national debt stood at the imposing
figure of $5,534,248,000 ($731.66 per head), while the
annual interest on this debt was $162,417,446 (about $80 for
every family of four). These figures constitute a magnificent
testimonial to the insanity of our financial system. Every
blow we struck for freedom during the war shackled our limbs
with another chain of interest-bearing debt.
The Labor Administration of Mr. John Curtin had come into office
on 7th October, 1941, and as he had a substantial majority
in both Houses, he could have stopped this plunge into debt
had he chosen to do so. There is some excuse for his inaction,
as, during the years of his administration, Australias
very existence depended upon keeping on good terms with the
financial magnates who rule America; but by the time he died
(5/7/1945) that necessity had long passed.
There can be no excuse at all for the continuance of his financial
policy by the Chifley Administration, and that it was so continued,
forms the darkest page in the history of the Australian Labor
In September, 1942, a Bill to provide a Mortgage Bank Department
for the Commonwealth Bank was brought before Parliament, but
was subsequently withdrawn, amended and reintroduced in
February, 1943. The periods for which loans could be made were
not less than five years or more than forty-one; the amounts
that could be advanced against any property were not more than
two-thirds of its value, or $10,000 whichever was the less,
but the funds placed by the Commonwealth Bank Board at the
disposal of the new Mortgage Bank Department ($2 million down
and another $6 million to be paid in instalments) were quite
inadequate for the rehabilitation of rural industry as a whole
- the purpose for which the Department was supposed to be formed.
If it seriously attempted to carry out this purpose, it would
have to borrow money at sufficiently high rates of interest
to prevent advances being made at sufficiently low rates to
compete with the present mortgagees.
During the course of the debate, Sir Earle Page made a determined
attempt to finance the Mortgage Department by the general assets
of the Commonwealth Bank, but Mr. Calwell politely reminded
him that it was the intention of the Government to provide
a Mortgage Department for the Commonwealth Bank, not to mortgage
the Bank itself.
The Bill was assented to on 20th March and proclaimed law on
27th September, 1943, but the policy of the Commonwealth Bank
board who would not create the funds necessary for the proper
functioning of its new Department, rendered it of very limited
use to those it was intended to serve.
RESCUE OF THE BANK
in March, 1945, a Bill for the Commonwealth Bank Act of 1945 was
introduced into the House of Representatives. It repealed all existing
Commonwealth Bank Acts and provided:
1.That it should be the duty of the Commonwealth Bank, within the limits
of its powers, to pursue a monetary and banking policy directed to
the greatest advantage of the people of Australia, and to exercise
its powers under this Act and the Banking Act, 1945, in such a manner
as, in the opinion of the Bank, would best contribute to
(a) the stability of the currency
(b) the maintenance of full employment
in Australia, and
(c) the economic prosperity and
welfare of the people of Australia.
2.That the Bank would, from time to time, inform the Treasurer of its
monetary and banking policy, and, in the event of any difference of
opinion between them as to whether the policy of the Bank was directed
to the greatest advantage of the people of Australia, the Treasurer
might inform the Bank that the Government accepted responsibility for
the adoption by the Bank of a policy in accordance with the opinion
of the Government, and would take such action (if any) within its powers
as the Government considered to be necessary by reason of the adoption
of that policy.
The Bank should then give effect to that policy.
3. That there should be an Advisory Council in place of the Commonwealth
Bank Board, and that this Council should consist of
(a) the Secretary of the Treasury and also a permanent official of
the Treasury, appointed by the Governor-General, and
(b) the Deputy Governor of the Bank and
also two other officers of the Bank appointed by the Treasurer on the
recommendation of the Governor. The Governor of the Bank was to preside
over the monthly meetings of the Council, but was not to vote.
4. That an additional Department
should be formed for the financing of industry.
The provision of the original Act that required the Note Issue to be
backed by a 25% Gold Reserve was not included in the Bill. This meant
that Australian currency ceased to be tied to gold.
At the same time as the Bill for the Commonwealth Bank Act of 1945
was before the House, Mr. Chifley brought in a Bill for the Banking
Act 1945. This Bill provided that no person other than a body corporate
should carry on banking business in Australia, and that within six
months after the Bill became law, every body corporate carrying on
such business should apply for a licence to do so. This licence could
be granted by the Governor-General either unconditionally or subject
to conditions, and these conditions could be revoked, or varied or
No bank could carry on banking business for a State or Local Authority
except by permission of the Treasurer (Clause 48).
The private banks had to satisfy the Commonwealth Bank as to their
financial stability, and submit to inspection of their books and records
by the Commonwealth Bank as to their financial stability, and submit
to inspection of their books and records by the Commonwealth Bank if
the latter saw fit. They had to lodge in a Special Account of the Commonwealth
Bank, every month, such sums as the Commonwealth Bank might in writing
direct, and also a required amount in sterling. They could only withdraw
money from this account with the consent of the Commonwealth Bank.
The Commonwealth Bank was given power at need to determine the policy
in regard to advances made by the private banks. It could stop them
inflating the currency by means of the purchase of securities - but
no provision was made to stop them deflating currency by means of the
sale of securities. It could control absolutely, if necessary, all
dealings in foreign exchange and in gold. It could demand detailed
balance sheets, profit and loss accounts, and statements of investments,
which would make a banks accounts as comprehensible as those
of a merchant.
There was an ugly little clause (47) which gave power to the Treasurer
to grant any bank exemption from this last provision, and clause (48)
was afterwards declared invalid by the High Court. (Advertiser, 14/8/47)
These two Bills were assented to on 3rd August, 1945 and on the 21st
the whole of the Banking Act 1945, and all the parts of the Commonwealth
Bank Act, 1945, except those dealing with Industrial Finance and Housing
Loans, came into force by proclamation.
These two last parts of the Commonwealth Bank Act did not come into
operation until 2nd January, 1946.
It is obvious that, on the passing of these two Bills, the Commonwealth
Government possessed complete control over Australian currency and
could expand or contract it in accordance with the needs of her people.
It could have used this power to create better conditions in Australia
than the world had ever seen before, to step, with some effort perhaps,
but safely enough, from an old civilisation based on scarcity into
a new one based on plenty. The older nations were exhausted by a terrible
war and had enough troubles of their own to keep them from interfering
with us in a military sense, while both as a manufacturing and a primary
producing nation our economic position was very strong.
The necessary mechanism for the change had been discussed and criticised
for nearly twenty years and was now ready for use. In the year 1945
Australia had an opportunity such as no nation ever had before. Why
was it not used?
BETRAYAL OF THE BANK
the end of 1943, that group of international financial magnates who,
as the delegates to the Peace Conference at Versailles after the
first world war had discovered to their cost, were the real rulers
of the world (see Lloyd Georges Memoirs) must have been feeling
very perturbed. Douglas had been lecturing in Japan as early as 1929 (Straits
Times 18/5/33). His works had been translated into Japanese,
and more copies of them were sold in that country than in all the
rest of the world put together
(New Economics, 19/1/34, page 8).
In the early thirties Japan began to create her own financial
credit, and used it to so subsidise her industries that she could undersell
her commercial rivals in the worlds markets -which she did with
When the economic boycott was used against her (Australia applied it
in 1936 - Argus, April, 1936 and leading article,
July 27, 1936) she went looking for raw materials with a gun. Also
there was that Hitler person in Germany with his blocked accounts which
benefited Germany immensely, and, but for the fact that Hitler seems
to have been constitutionally incapable of playing any game without
stacking the cards, would have been of equal benefit to the countries
with whom he traded.
In essence, blocked accounts are a bilateral method of
exchanging goods between nations without the aid of international finance.
(Bank of N.S.W. Circular, 2nd August, 1937).
Finally, in 1943 under the stress of war, England and America began
to do the same thing by means of Lend-Lease Lend-Lease soon
became a great international clearing house for commodities and
the quantity of them cleared (contrad against each other
without the use of money) reached enormous proportions.
Well might international financiers say to one another with pale faces
This sort of thing has simply got to be stopped. The first intimation
that we, in Australia, received of their intention to stop it, was
an article in the daily press of 15th March, 1943, stating that Lord
Keynes and the officials of the U.S. Treasury were engaged on plans
for an International Monetary Fund and Bank. Among the conditions
necessary for the working of the plan, would be the willingness of
participating countries to sacrifice some of their autonomy in monetary
affairs. Subsequent articles in April, 1943, revealed that the
U.S. Treasury officials were Mr. Morgenthau, Secretary of the Treasury,
and Mr. Harry White, its monetary adviser. Commenting upon these two
plans, Professor K. S. Isles, of the Adelaide University, stated in
the Advertiser, 9th April, 1943, that The U.S. method
would tend to be deflationary, the Keynes method expansionist.
The representatives of 34 United and Associated nations met at Washington,
U.S.A. on 22nd April, 1944 and being invited to choose between the
broad outlines of the two plans, decided for the American one, apparently
because it did not relegate gold to a minor role. (Advertiser, 24/4/44)
On 1st July, 1944 the delegates from 44 nations met at Bretton Woods
in the U.S.A. There they found an Agreement already prepared for their
signatures and they were asked to sign upon the dotted lines. It took
three weeks to induce them to sign, but eventually they all did so.
The Australian Delegate (L. G. Melville) made it clear that his signature
was not to be taken as a recommendation to the Commonwealth Government (Advertiser,
25/7/44), and Mr. Curtin definitely stated that no Australian Delegate
had been authorised to sign any agreement, but only a report concerning
certain recommendations, which did not, of course, bind the Australian
Commonwealth in any way. (Advertiser, 23/7/44)
The Bretton Woods Agreements, whether by accident or design, are couched
in highly technical language which is meaningless to anybody without
a financial training. They take away from all nations the power of
either increasing or decreasing their currency (except within very
narrow limits) without first obtaining the assent of an International
Monetary Fund - which international financiers will control through
its directorate, as Australian financiers, until recently, controlled
the Commonwealth Bank.
This International Monetary Fund is backed by an International Bank
(similarly controlled) which will, for interest, and to the extent
that it sees fit, lend us money for reconstruction purposes, provided
always, that those purposes are productive and profitable for the Bank
- that is specifically laid down in the first paragraph of Article
The security for the loans will be, in the last analysis, the combined
assets of all the nations who have ratified the Agreements. Money-lenders
and financial institutions throughout the world are cordially invited
to subscribe to these loans.
As both their capital and their interest can be guaranteed by the Bank,
whose shareholders are intended to be all the nations of the world,
we can imagine the enthusiasm with which they will respond. The world
will spin upon its course with all the financial morning stars shouting
for joy and binding all the activities of mankind in chains of interest-bearing
debt, for money will be made scarce by again tying it to gold, and
what money is in existence they, and they only, will control.
The fact that the Governors of the two institutions will consist of
delegates from the nations who combine to form both the Fund and the
Bank, will not trouble them at all. Power will remain with the Managers
and the Executive Directors and they will be men whom the financial
morning-stars will select.
On 27th December, 1945, 30 out of the 44 nations who had sent
representatives to Bretton Woods, ratified the Agreements at a ceremony
held at the State Department in Washington, U.S.A.. (Advertiser,
29/12/45) Great Britain was among the number. Her Labor Government
had been partly stampeded into ratification by the fear of the effects
of semi-starvation among her people - following on the American Presidents
abrupt cancellation of Lend-Lease as soon as the Axis of
powers had surrendered - and partly bribed by the promise of an American
loan of $3,500 million at a low rate of interest.
(This loan when, after a long delay, it eventually materialised, was
found to have lost much of its value, owing to the fact that the Americans
had utilised the interval to inflate their currency.)
The principal nations remaining outside the Agreements at this date
were Russia, Sweden, Switzerland, Spain, Portugal, Argentina, Australia,
New Zealand, Denmark and the Axis Powers.
Australia was given until 31st December, 1946 to ratify the Agreements.
Some Cabinet Ministers were in favour of doing so, but many Members
of Parliament and Trade Union Executives saw clearly that to do so
was to prove false to their promise to bring the Commonwealth Bank
back to its original position of financier for the people of Australia.
The matter came before Cabinet on 17th January, 1946, but no decision
was arrived at and it was referred to a later meeting by 10 votes to 7.
Mistrust of the Agreements was deepened by the contrast between the
lofty sentiments of American public men, and American dollar technique
in the more recent negotiation with the war-ravaged Great Britain in
respect to the American loan.
Meanwhile the first meeting of the Board of Governors appointed to
establish the International Monetary Fund and Bank, took place at Savannah,
in Georgia, U.S.A. on 18th March, 1946. It was stated officially, that
ratification of the Agreements would not be considered until Mr. L.
G. Melville and Senator Keane, who were attending this meeting simply
as observers on behalf of the Commonwealth, reported back to Australia. (Advertiser, 2/3/46)
What they reported is unknown as the Prime Minister, Mr. Chifley, refused
to make public Mr. Melvilles report (Advertiser, 21/11/46)
but what happened at the meeting is a matter of common knowledge.
The Americans dominated the proceedings. Secretary of U.S. Treasury,
Vinson, taking charge of the newly delivered international twins, spanked
and shook them in a way that left some of the other attendant midwives
(U.S. Nation, 25th and 30th March, 1946)
Executives drawn from the financial world were appointed for both the
Fund and the Bank, and Eugene Meyer, former President of the U.S. Federal
Reserve Board, was made President of the Bank.
The war-time debts incurred by Great Britain to her Dominions, Dependencies
and other countries, are known as the sterling debt, or sterling balances.
The United States demanded, as a condition of her loan to Great Britain,
that the latter should repudiate a considerable portion of those debts
(scale down was the expression used) and later on this
was done - in the case of Australia, to the extend of $850 million.
That was Australias first taste of dollar diplomacy. Her people
thought they were making a gift to help Great Britain -
they did not know that they were merely carrying out an order imposed
by the United States (Advertiser, 7th, 9th, 14th
August, 1946 and 5th March, 1947) who saw danger in this vast accumulation
of sterling ($5,318 millions) easily transferable through the sterling
area, but not transferable to the United States for the purchase of
goods. (The Banker, June, 1946)
On 19th November, 1946 Cabinet Ministers decided, after nine hours
discussion, to recommend to the Labor Caucus that Australia should
ratify the Bretton Woods Agreements. Mr. Chifley led the move for ratification,
but it is said that seven out of the nineteen Cabinet Ministers voted
against it. (Advertiser, 20th and 21st November,
The West Australian, the South Australian and the Tasmanian branches
of the Australian Labor Party declared their hostility to ratification,
and instructed their delegates to the Federal A.L.P. Executive Meeting,
held at Canberra on 27/11/46, to vote against the recommendation. The
Western Australian delegates disobeyed their instructions and Messrs.
Burke and Davies were the mover and seconder respectively of the motion That
Australia shall be a signatory to Bretton Woods. The motion was
carried (voting seven to five), but despite the efforts of the Prime
Minister (Mr. Chifley) the Minister for Post-War Reconstruction (Mr.
Dedman) and the Attorney-General (Dr. Evatt) - the last named disregarded
an express direction by his Electorate Council to oppose the motion
- Caucus, led by the Minister for Transport (Mr. Ward) decided, by
a margin of three votes, to defer their decision pending consideration
of the issue by a special interstate A.L.P. Conference.
(Advertiser, 5th and 7tth December, 1946).
For the moment the danger was averted, but an ominous sign for the
future was the fact that several members from different States, showed
their contempt for the State Branches of the ALP. by defying their
decisions. Another ominous sign was a campaign in the daily press,
and over the air, in favour of the Agreements. Such campaigns do not
arise spontaneously, and a correspondent of the Author, writing from
Canberra on 29/11/46, stated:
This place is full of Yankee lobbyists
Three out of six of the State Branches of the A.L.P. when summoned
to attend a special conference to ratify or reject the Agreements,
shrank from accepting the responsibility which Caucus wished to place
upon their shoulders. They declined the invitation and instead of stiffening
the backs of their representatives in Parliament, they stood aside
and washed their hands.
No Conference could be held, and Caucus was left to decide the issue
by itself. (Advertiser, 27/2/47).
On 7th March, 1947, it was announced in the daily press that the Federal
Labor Caucus, by 33 to 24 votes, had decided in favour of the Bretton
Woods Agreements and that legislation to that effect would be introduced
into the Federal Parliament. The motion by Dr. Gaha, seconded by Mr.
Duthie (both of Tasmania) that the issue should be made a non-party
one in Parliament, so that members should be free to vote in accordance
with their sincere beliefs, was defeated on the voices.
On 20th March, 1947, the International Monetary Agreements Bill, formally
ratifying the Bretton Woods Agreements, was passed by the House of
Representatives after a perfunctory debate. The voting was 55 for to 5 against.
The Bill passed the Senate on 25th March, 1947, and became law.
It is very difficult to give satisfactory reasons for the action of
the Chifley Administration and the Australian Labor Party.
The Author has examined the three generally advanced:
1 The rise of 50% of
Federal Members salaries, first mooted just prior to the passing
of the Agreements. (Advertiser, 27/2/47)
2 The fear of bringing about a split in the Labor Party
which might throw it again into the wilderness of opposition.
3 The desire to form
part of a world-wide organisation which might possibly result in an
organised and peaceful world.
He has come to the following conclusions:
1 There is no evidence of any connection between the rise of Federal
Members salaries and the passing of the International Monetary
2 There is evidence of a desire to avoid a split in the Party. This
is known as Party Politics and consists in placing the
interests of the party before the principles for which the party stands.
3 There is a whole
lot of evidence that the One-world carrot, consistently
dangled before the donkeys nose, was of great use in sending
the donkey down the road that international finance desired it to travel.
On 6th August, 1947, Australia, in the person of Mr. Makin, signed
the articles of the International Monetary Fund and the International
Bank at Washington, U.S.A. She was the forty-fifth victim. The
Gallup Poll, taken upon the subject, revealed that only one Australian
out of ten had even rudimentary knowledge of the Bretton Woods Agreements,
51% admitted that they had never heard of it; only 4% of women could
answer questions on it, and of the 10% who had some knowledge of the
subject, only one half were in favour of Australia signing it.
Here ends the story of the Commonwealth Bank and three features in
it stand out very clearly.
1 That of all the Administrations which
have carried on the government of Australia, two of them are prominent
for the injuries they have inflicted upon the people they were appointed
to serve - the Bruce-Page Administration of 1923-29 and
the Chifley Administration of 1945-49.
The first enslaved to domestic financiers an institution which stood
between Australia and ruin during the first world war, and could have
been used to create permanent prosperity in times of peace. The second
rescued that institution from domestic slavery only to hand it over
to a far harsher servitude abroad, from which it can be freed, if at
all, only with extreme difficulty.
2. That institutions, no matter how excellent they may be, are of little
permanent use to a people who do not understand the value of them.
The right of the people of this Commonwealth to expand or contract
financial credit in accordance with their needs, by means of the Commonwealth
Bank, was something that Australians should have safeguarded with the
same jealously as they safeguard the right to vote. They did not do
this, so when the artificial depression of the thirties burst
upon them, they were exposed without defence to the mercy of domestic
and foreign financiers who knew no mercy.
Today, thanks to the International Monetary Agreements Act of the Chifley
Administration, they are just as powerless to help themselves against
future depressions which those same financiers may be preparing for
them. That International Finance now has complete control over the
policy of the Commonwealth Bank - and through it over the policy of
the entire banking system of Australia - no matter in whose hands the
administration of the various banks may rest, it will matter not a
whit whether the private banks are nationalised by the Government or
remain as they are now. International Finance can be trusted to see
to it that the banking system in Australia is used, not for the benefit
of the people of Australia, but in furtherance of its own policy, whatever
that policy may be. We will prosper or we will starve, as that policy
|Sir Claude Reading
||Banking, Big Buisness
|Sir Clive McPherson
||Banking, Big Buisness
||Banking, Big Buisness
|Dr. H. C. Coombs
|Mr. S.C. McFarlane
|Mr. M.B. Duffy
|Mr. W.C. Taylor
|Mr. H.T. Armitage
||Governor The Bank
|Dr. H.C. Coombs
|Mr. S.G. McFarlane
|Mr. G.M. Shain
||The Bank Deputy Governor
|Mr. E.B. Richardson
||The Bank Secretary
|Mr. L.L. Melville
||The Bank Economist
|Mr. H.T. Armitage
||The Bank Governor
to The Commonwealth
to The Treasury
in the past record of these economists would appear to indicate any
special fitness for giving advice. In the days of the Depression,
they amply demonstrated that they did not know how to distribute
an abundance of food and goods among a people greatly in need of
them. They still seem to be under the impression that money must
never be created except as an interest-bearing debt, and that under
no circumstances must the people be allowed to possess very much
of it. Yet a Labor government appoints them as guides of its financial
policy, in a period when our actual and potential production combined
is greater than ever before.)
ON INTERNATIONAL MONETARY AGREEMENTS BILL,
1947 House of Representatives - Hansard, 20th March, 1947, p.1004
Alderman, C. F., Anthony, H. L., Barnard, H C., Beale, H, Beazley,
K. E. Bowden, G. J., Burke, T. P. Caiwell, A. A., Chambers, C., Chifley,
J. B., Clark, J. J., Corser, B., Daley, F. M., Davidson, C. W., Dedman,
J. J., Drakeford, A. S., Duthie, G. W. A., Edmonds, F. W., Evatt, Dr.
H. V., Fadden, A. W., Falkiner, C. W. J., Francis, J., Fraser A. D.,
Hamilton, L. W., Harrison, E. J., Haylon, L. C., Holloway, E. J., Holt,
H. E., Hoxvse, J. B., Hutchinson, W. J., James, R., Johnson, H. V.,
Langtry, J. T., Lawson, G., Lazarini, H. P., Lemmon, N., McBride, P.A.,
McEwen, J., McLeod, D., Menzies, R. G., Mulcahy, D., OConnor,
W. P., Page, Sir Earle, Pollard, R. T., Riordan, W. J. F., Russell,
E. H. D., Ryan, R. S., Scullin, J. H., Scully, W. J. Sheehan, T., Sheehy,
T. M., White, T. W., Williams, T. F., (Tellers) Fuller, A. N., McDonald,
Blackburn, Mrs. D. A., Cameron, A., Turnbull, W. G. (Tellers) Lang,
J. T., Rankin. G. J.,
Hansard, 25th March, 1947, pages 1059-1084
Bill was introduced by Hon. W. P. Ashley before a House containing
the following Senators: Cooper, W. J., Large, W. J., MacDonald, Hon.
A. N., OFlaherty, S. W., Leckie, Hon. J. W., Grant, D. McLe.,
Hays, Hon. Herbert, Nash, R. H., Brand, C. H., Finlay, A., Sheehan,
J M., Sampson, Burford. Question was resolved in the affirmative. The
Bill was read a second time and passed through its remaining stages
without amendment or debate.
|The Commonwealth Bank Acts
|The Banking Act
|Official Year Books
|Australian Statistics Bulletins
|Commonwealth Bank Balance
|Bank of New South Wales Circulars
|Reports of The Royal Commission
on The Australian Monetary and Banking System
|The Official Record, Melbourne
Parliamentary Papers 1930
'Financial Requirements of The Commonwealth'
'Conference of Commonwealth and State Ministers'
|Documents relating to Bretton
|The Commonwealth Bank of
||by C.C. Faulkner
|Australia's Government Bank
||by L.C. Jauncey, Ph.D.
|Facts and Theories of Finance
||by E.R. Anstey, M.P.
||by E.R. Stettinius,
|Monet Credit and Exchange
(The Joseph Fisher Lecture, Adelaide University 16/5/23)
||by J. Russel Butchart
|The 'Argus' Newspaper
||1930 and 1934