12th Parliament · 1st Session
Mr. Speaker (Hon. NormanMakin) took the chair at 2.30 p.m., and offered prayers.
– Can the Prime Minister make any definite announcement regarding the length of the Easter adjournment? Members from distant States would like to know as early as possible whether they will have time to visit their homes.
– I said on Tuesday night that the Government proposes that the House shall adjourn this day week, and resume its sittings on the Wednesday following Easter Monday.
– In making that arrangement did the Prime Minister consider the convenience of members other than those from Victoria and New South Wales? The resumption of sittings on the 8th April will necessitate members from South Australia and Queensland leaving their homes on Easter Monday, whilst members fromWestern Australia will not be able to return to their States at all. Will the right honorable gentleman consider the advisability of meeting on the 9 th April, and, if necessary, compensate for the loss of a day by sitting until Friday of next week?
– The Government is anxious to meet the convenience of members from different States, but it also desires to push on with public business. If the House were not to meet until Thursday, the 9th April, it might as well adjourn until the following week.
– The House could meet on Monday, the 13th April.
– I am prepared to reconsider the arrangements, and decide later in the light of the progress made with public business next week.
– Has the attention of the Attorney-General been drawn to an inflammatory article published in the Canberra Times of to-day? Will he warn newspapers against inciting the peaceful victims of the Opposition to revolt?
– I have not enjoyed the advantage of reading the article; I have no doubt that the honorable member’s mind is wisely directed to it, but I suggest that probably he greatly exaggerates its effect upon the minds of the people.
– Will the Prime Minister make available to honorable members any correspondence relating to the £220,000 of interest that the New South Wales Government is in arrears to the Commonwealth Government?
– I shall consult with the Treasury, and let the honorable member have an answer later.
– I desire by personal explanation to correct a newspaper misrepresentation. The Melbourne Herald of yesterday published a statement that a levy was to be struck on ministerial members to defray the cost of the flight of certain members by aeroplane from Sydney and Melbourne to Canberra. My name was included. I did not arrive at Canberra by aeroplane, and I was in my place when the House met on Tuesday afternoon. I had been to Queensland, and had arranged with the Whip for a pair. Evidently the intention of the statement was to create the impression that I had been absent from my duties in this House.
– Will the Prime Minister make available to the House the correspondence between the Commonwealth Government and the Commonwealth Bank regarding the financing of the proposed guarantee of 4s. pen bushel to wheat-growers in connexion with the Wheat Marketing Bill of last year,so that all doubts and suspicions as to the actual undertaking given by the Commonwealth Bank may be cleared up ?
– I am not aware of any such doubts or suspicions. Usually correspondence between the Prime Minister or the Treasurer and the Commonwealth. Bank is confidential. If the honorable member will state in concrete terms -his doubts and suspicions we shall soon remove them.
– Is the Minister for Trade and Customs able to make available to honorable members the report which his officers were to prepare regarding increases by the tobacco combine of the prices of all tobacco and cigarettes manufactured in Australia after the tabling of the amended Tariff Schedule last year?
– I shall make further inquiries into the matter, arid probably shall be able to give the honorable member a .definite reply to-morrow.
– Has the Prime Minister received from Mr. J. S. Garden, or any other person; a request that the Government shall exempt from the immigration law delegates from China, Mongolia and other Asiatic countries to a suggested conference in Australia of the Pan-Pacific Secretariat or other Bolshevik organizations ? If he has, what reply has been given?
– Presumably if such a request were made it would go before the Minister for Home Affairs, who assures me that he has not received it. I have no knowledge of the matter, but if a proposal of the kind comes to my notice I shall let the honorable member know.
– I rise to make a personal explanation. The honorable member fer Herbert (Mr. Martens) is reported to have said that I speculated my money on the race-course, and then went along to root the public by laying the odds, investing my winnings in war bonds. Knowing that the honorable member is not usually taken seriously in this House, I did not concern myself over his statement, but friends who have read the reports in the newspapers have asked me to refute the statements or explain the matter. I have not been on a race-course for 30 years. I have not had a bet for 30 years.
– I also wish to make a personal explanation. Some time ago when I was discussing with the honorable member for Angas the subject of betting on race horses he informed me that he had not had a bet for a long time. He said that at one time he had done a bit of punting and had lost money thereby. Then he had “ swung a bag “ and had got his money back again.
– Has the attention of the Minister for Defence been drawn to a paragraph in last, night’s Melbourne Herald to the effect that a trial flight by a passenger aeroplane is shortly to be made from England to Australia, and that it is hoped later to extend the air mail service from India to Australia? It is stated that one difficulty in the way is the financial stringency at present prevailing in this country, which docs not permit the Government to subsidize the India-Australia section. Will the Minister consider a suggestion to induce the company which at present holds the contract for the east-west air mail service to exchange that contract for one on a mail route which would feed our railways instead of competing with them, and assist in maintaining imperial connexions?
– I have not seen tha paragraph referred to, and in regard to the second portion of the honorable member’s question, I ask that notice be given of it.
– Will the Minister for Trade ‘ and Customs state when honorable members will have placed before them the results of the investigation promised, first, in regard to the Broken Hill Proprietary Company’s refusal to supply traders outside the Traders Association ; secondly, the charge that Lysaght’s Galvanized Iron Manufacturing Company is making special rebates to those who are members of the association ; and thirdly, the re- ported increase in the price of galvanized iron since the embargo was placed upon further importations?
– I shall inquire what stage the investigation has reached, and inform the honorable member later.
asked the Minister in charge of war service homes, upon notice -
– The answers to the honorable member’s questions are as follow : -
Parks and Gardens Staff - Hotel Wellington
asked the Minister for Home Affairs, upon notice -
– The answers to the honorable member’s questions are as follow : -
asked the Minister for
Trade and Customs, upon notice -
– Inquiry will be made.
Travelling Allowances - Pay of Married Youths
asked the Prime Minister, upon notice -
– The answers to the honorable member’s questions are as follow: -
asked the Minister for Home Affairs, upon notice -
What action is being taken by the Government to encourage the development of oil fuel in Australia?
– Investigations are at present being conducted into the question of the development of the shale deposits of New South Wales and Tasmania, for the production of oil fuel. Dr. A. C. D. Rivett, Chief Executive^ Officer, Council for Scientific and Industrial Research, recently made extensive inquiries, in Great Britain and on the Continent, as to the possibilities of the production of oil fuel from coal. Dr. Rivett’s report is at present receiving the consideration of the Government. It is expected that it will be possible to make an announcement, at an early date, regarding the future policy relating to the extraction of oil fuel from shale and coal. This matter is under the control of the Prime Minister’s Department. So far as the search for petroleum is concerned, which is directly controlled by me, the Petroleum Prospecting Act and Regulations provide for certain forms of financial assistance by the Government. On the recommendation of the Commonwealth Geological Adviser, it was decided last year to discontinue the granting of subsidies for deep drilling and to confine government assistance to the granting of subsidies for geological surveys and other forms of preliminary investigation. Owing to the financial position, the Government has been compelled to suspend this form of assistance until the Estimates for 1931-32 are being considered. The Government has arranged for the services of the geological staff to be placed at the disposal of persons or companies in the inspection of their areas, provided that certain conditions are complied with. A large number of such inspections has been carried out and others are contemplated. Where inspections cannot be carried out, the technical knowledge of the geological staff is at the disposal of any persons interested, and is being extensively availed of. Mr. “Frederick Chapman, F.L.S., a paleontologist of high international reputation, is engaged in the examination of cores obtained from borings in Australia and its territories, with the object of pro viding definite markers to assist in determinations of geological structure. This officer’s services are extensively availed of by persons interested.
Mr. NELSON (through Mr. C. Riley) asked the Minister for Transport, upon notice -
What are the freight rates for the carriage of boring plant, fencing wire, cement, building material, and agricultural machinery, ob (o) Commonwealth railway from Quorn te Alice Springs; (6) Victorian railways; (o) New South Wales railways; and (d) Queensland railways.
Mi-. CULLEY.- The information is being obtained and will be furnished to the honorable the member for the Northern Territory as early as possible.
asked the Minister for Trade and Customs, upon notice -
What was the amount collected per month in each State as an export duty on sheepskins ?
– The answer is as follows : -
The duty ceased on 4th March and all the amounts collected are being refunded in accordance with my statement in this House on the 5th March, 1931. Collections (if any”) from 1st to 4th March are not immediately available, but must be small and will be notified to the honorable member by letter shortly.
asked the AttorneyGeneral, upon notice -
What is the amount of liability incurred by the Commonwealth Government for legal costs (including those of any other party to the litigation) in connexion with the proceedings in the High Court in relation to the export duty on sheepskins?
– In Dewez’s case the Commonwealth’s legal costs amounted to £15 lis. 6d. No costs were incurred in Kennon’s case.
Land Advisory Board
asked the Minister for Home Affairs, upon notice -
– The answers to the honorable member’s questions are as follow : -
Effect of Exchange Rates
asked the Treasurer, upon notice -
should receive the benefit of fluctuations in the exchange rates, and, if so, will he inform the House of the details of such arrangements?
– Arrangements have been made under which British pensioners resident in Australia will receive the equivalent in Australian currency of the sterling payments made by the British authorities to the High Commissioner on their behalf. In that way the British pensioners will receive the benefit of exchange. The details of the arrangements have not yet been settled. A representative of the British Ministry of Pensions is at present on his way to Australia to discuss the details with the Commonwealth authorities.
Dismissals of Officers
– On the 17th March the honorable member for Richmond (Mr. R. Green) asked the following questions, upon notice -
I am now in a position to inform the honorable member as follows : -
– Yesterday, the honorable member for Balaclava (Mr. White) asked me what arrangements were being made for the appointment of a staff for His Excellency the Governor-General, and whether the Defence Department was to bear the expense of that staff. The selection of the Governor-General’s personal staff is made by the Governor-General himself, and the expense of that staff is borne by the Governor-General. His Excellency has expressed his desire to engage only Australians, and, if possible, ex-members of the Australian Imperial Forces. In the case of permanent officers of the Defence Department who may be selected for positions on the Governor-General’s personal staff, payment of salary will be made by the Department, in the first instance, but the Governor-General will recoup the department monthly for each such payment.
The following papers were presented : -
Economic Conditions in Australia -
Memorandum on Present Problems, by Professors D. B. Copland, and L. F. Giblin and Messrs. E. C. Dyason and H. W. Gepp, September, 1930.
Memorandum on National Income by Professor L. F. Giblin, dated 11th February, 1931.
Plan for Economic Re-adjustment, by Professors D. B. Copland and L. F. Giblin and Mr. E. C. Dyason, dated 18th September, 1930.
Federal Capital Territory -
House Valuations - Report by the Committee on House Valuations dealing with re-valuations of houses owned by the Commonwealth in Canberra.
Rural Leases - Report by W. J. Lambert, Chief Valuer, Federal Taxation Department, dealing with Rural Leases in the Federal Capital Territory.
Meteorological Service - Report of the Commonwealth Meteorologist for year 1929-30.
New Guinea Act - Ordinance of 1931 - No. 2 - Superannuation.
Transport Workers Act -
Regulations - Statutory Rules 1930, No. 158.
Regulations Amended - Statutory Rules 1930, No. 159.
Regulations Amended - Statutory Rules 1931, No. 10.
Telephone Rental Charges - Arrowroot Industry - Excess Coal-Miners.
Question - That the Speaker do now leave the chair - proposed.
.- Undoubtedly most country members have been besieged by their constituents, as I have been, with the request that they should endeavour to secure an alteration of telephone rental charges in country districts. Especially in the dryer parts, there is an insistent demand that the Government consider the urgent advisability of reducing telephone charges, at any rate for the time being. I bring this matter before the Postmaster-General, because his department,with which I have already taken it up, is unable to reduce these charges, although it has signified its willingness to allow the payments to be made by instalments. Those who in country areas live at a considerable distance from a telephone exchange had their charges increased appreciably when the last alteration of rates was made. Many of them had their telephones installed only a short time before they became affected by the prevailing depression. A very large number of them are unable to pay the rental charges, and unless relief is afforded in the near future they will be compelled to have the service discontinued, although it is just as necessary to them to-day as it has ever been. In my district there are two cases in which probable disconnections will result in about 23 miles of telephone line being rendered idle, and becoming a liability instead of continuing as an asset to the department. The consent of the department to payment being made by instalments does not, in my opinion, meet the situation. The whole of the charges must be reconsidered. The residents of the suburbs of our cities have the benefit of postal facilities that are denied to country dwellers. They have two letter deliveries a clay, and can readily get in touch with any place with which they wish to communicate. Country people may have a letter delivery once a week or, as is the case in the remote portions of my district, only once a fortnight. Yet in many cases the rates and taxes which they pay are greater than those of city dwellers.
– “What amount is involved annually ?
– Some of those whose cause I am advocating, pay as much as £24 a year, and others £18 a year. A rental of £9 a year is common. Hitherto these persons have not complained; but the unfortunate position in which they ure placed impels them now to seek some relief. The aspect of this matter that gives me considerable concern is that many services will be discontinued in the next half-year unless some reduction of charges is made. I hope that the matter will be given the consideration that it warrants.
.- At the present time the arrowroot industry, owing to the general depression, and for other reasons, is finding it exceedingly difficult to develop and expand, as those who are engaged in it have a right to expect that it should. The difficulties of the industry have been seriously accentuated by the rulings of the Taxation Commissioner in regard to the application of the sales tax. Flour that is produced from wheat is exempt from the sales tax, but that which is produced from the arrowroot bulb is liable to the prevailing rates of tax. I have sent the department numerous communications on the subject, but have not been able to ascertain what justification there is for this differential treatment. Because of this unfair discrimination, making arrowroot flour subject to sales tax, the development of this important industry, and the prosperity of the farmers engaged in it, have been seriously interfered with. In any event the industry would have the utmost difficulty in carry ing on ; but this final impost will do it incalculable injury. I again ask that early consideration be given to this matter, with a view to seeing if it is not posible to deal out fair and equitable treatment to the arrowroot as well as to the wheat industry and remove this differentiation in treatment.
A promise has been frequently given by the Government to repatriate the excess coal-miners, and I desire to bring under notice the position of the excess coal-miners of Queensland. I discussed this matter on many occasions with Mr. Beasley, when he was Assistant Minister for Industry, and he assured me that at an early date a definite decision would be made. He indicated that the then Leader of the Senate (Senator Daly) had certain aspects of the matter under consideration, and he expressed the opinion that before Parliament re-assembled this session finality would be reached. After consultation with officers of the Queensland Colliery Employees Union, I recommended to the Government, through the Assistant Minister, that the best method of assisting to repatriate the excess miners of Queensland would be to deal with individual applications for assistance to establish them in industry. Many miners who were either on part time, or had very little work to do, endeavoured in their spare time to take up dairying, poultry farming, or general farming. Numbers of others had started work on dairy farms, but they were short of the plant and stock required to make a success of the industry. These men have asked for advances from the fund of £100,000 made available by the Treasurer to assist in the repatriation of the excess miners. Other applicants for financial aid have endeavoured to supplement their incomes by engaging in poultry farming, and they now desire to concentrate on this class of work. They ask for a grant to enable them to stock their poultry farms and earn a living that would justify their repatriation. Others again have made preliminary arrangements to conduct milk rounds, and they desire advances from the fund to enable them to complete the purchase of the necessary plant and pay off the present owners of these runs. There are also those who have the land, but require assistance to stock and equip it with machinery.
In most cases the granting of these applications would increase production. Great injustice has been done to these men by the unnecessary delay for which the department is responsible in reaching a final decision in the matter. Many weary months have elapsed since the promise of assistance was given. Almost weekly my correspondence contains applications from these men, who wish to know why their representations cannot be finally considered. When I submitted these cases to the then Assistant Minister for Industry prior to last Christmas, he informed me, by letter, that he would commend my suggestions to Cabinet, and he subsequently informed me that Cabinet had given them very favorable consideration. In view of these facts, I am at a loss to know why the matter has been so long delayed and finaliy has not been reached. The only explanation offered by the late Assistant Minister was that it was proposed to delay the granting of assistance to the excess miners in all States until the requirements of New South Wales and Tasmania for the development of the shale oil industry were definitely known. I submit that the applications of the excess miners, as well as the decision in regard to the shale oil industry, have been far too long delayed. If businesslike attention had been given to the applications to which I have directed notice a final decision would have been arrived at long ago. It is unjust to build up the hopes of these man, and then leave them in the lurch. I realize that the present Assistant Minister (Mr. Holloway) has not been long in office ; but I hope that early next week he will be able to announce the decision reached in the matter. Of course, an investigation into the Queensland miners’ claims will have to be made before any advance can be made, and I suggest that an inquiry be begun immediately, so that there may be no further delay in making the necessary funds available to the applicants. I have discussed this subject with the officials of the Queensland Colliery Employees Union, who are most incensed at the delay. I urge the Minister to give the matter his careful consideration, and I hope that early next week he will be able to announce that the application? are to be granted.
Debate (on motion by Mr. Scullin) adjourned.
Debate resumed from 17th March (vide page 319), on motion by Mr. Theodore -
That the bill be now read a second time.
.- No one will deny the importance of this measure. It is revolutionary and farreaching. I express the strongest objection to the action of the Government in forcing on the debate to-day. This measure was introduced only on the night before last. Copies of it had doubtless reached Sydney, Melbourne and Adelaide by this morning; but they have not yet been received in the capital cities of the other States. It is unprecedented that honorable members should be compelled to continue a debateof this importance before they, have even had the opportunity of reading the Hansard report of the speech made by the Treasurer in moving the second reading of the bill. It is unfair to the community as a whole as well as to honorable members. However, for reasons of its own, the Government apparently desires the debate to proceed at a time when it well knows that a great many honorable members must necessarily be unprepared to continue it.
This bill proposes that the Commonwealth Bank shall be directed to issue treasury notes to the amount of £18,000,000 as a fiduciary currency ; that is to say, irrespective of any provision for a gold reserve. There is to be no reserve of any kind behind them. The bank is to issue notes to this amount because this is the amount which the Government asks Parliament to say that it is desirable to issue at present. The Government is therefore introducing this measure deliberately for the reason which the Treasurer stated, to establish political control of the currency of the country. It is a deliberate measure of inflation which is said to he justified by present circumstances. It is true that it is provided in clause 10 of the bill that, in so far as the bank is prepared to make loans to the Government, notes shall not be issued; but that provision does not affect in any material manner the character of the bill.
The object of the bill is to compel the issue of currency or credit which the banking authorities of Australia are not prepared to make available without such compulsion. The principle of ihe measure, which is, undoubtedly, the political control of banking and currency, is represented as being very simple and easy to apply, and in a sense it is. For a start, the Government wants money to assist the farmers and to provide employment; but later it will want money for other purposes, lt cannot get sufficient money by taxation or by loan, owing principally to the policy which it has pursued, and owing also to the actions of some of its supporters. Therefore, it is asking Parliament to lend its authority to a measure designed to compel the Commonwealth Bank to create money in a new form of currency or credit, so that it may have money to spend. We have been told that the measure will revive industry, stimulate employment, and substantially help to restore prosperity. Indeed, one might conclude from the speech of the Treasurer that prosperity can be restored entirely by the adoption of the principle set forth in this bill. According to the Treasurer, it is obvious that all our troubles of to-day arise from what he describes as the breakdown of the monetary system.
This measure, it is said, will rectify that breakdown and, apparently, make the monetary system sound. That is a remarkable contention, indeed, to be submitted for the consideration of a body of responsible legislators. The first comment I wish to make is that this is a recent discovery on the part of the Government. Nothing was said about it during the last election campaign. T should have thought that during that campaign the Labour party had exhausted the possibility of making fresh promissory statements; yet in spite of the fertility and resource, and the remarkable degree of inventiveness shown by the Labour party during that period, in which they promised to make a paradise on earth for the electors, no one thought of this device to cure all our ills. We did not hear anything at that time about the breakdown of the monetary system. It is true that we have heard the honorable member for Adelaide (Mr. Yates) persistently and consistently advocate in this House the adoption of measures of this character; and we have been accustomed to hear the honorable member complain strongly and almost continuously of the refusal of the Government to adopt this policy. The Government did consistently refuse to adopt it. A useful critical examination of the proposal of the honorable member was made by the Treasurer himself on the 13th June last, when he showed that its adoption would necessarily bring about most serious evils to the community and incur the risk of disaster and ruin to the country. The Treasurer was not, at that time, dealing with the particular sum now involved. On that day he was discussing a proposal by the honorable member for Adelaide that £30,000,000 or £40,000,000 should be made available. But what is £10,000,000 in such a scheme as this? It would only involve the running of the printing presses for a few more hours.
– My scheme would not involve the running of the printing presses at all, and the Leader of the Opposition knows it.
– The address of the Treasurer was directed against the principle involved in the proposal of the honorable member for Adelaide, and he condemned it root and branch. But even since the election, the Prime Minister (Mr. Scullin) has himself expressly condemned all proposals for inflation. The right honorable gentleman referred to this proposal in a cablegram which has only recently been published. At that time it was suggested that the Commonwealth Bank should be compelled to issue notes or create credit to the extent of £20,000,000. In view of the interjection of the honorable member for Adelaide, I remind him that I am addressing myself to the question of the creation of currency or credit, and the same principles are involved whichever method is adopted. The political control of the creation of currency or credit is bad and radically vicious. On the 5th November last, the Prime Minister sent the following cablegram to the then Acting Treasurer (Mr. Lyons) : -
Banks are expected to carry any shortage in budgets, also to underwrite loan conversion.
That, together with responsibility to finance harvest, will be a heavy strain on banks. To create credit for £20,000,000 for loan works is unsound and I expect banks to refuse to do so. Government cannot deliberately coerce administration of banks.
This bill proposes deliberately to coerce the administration of the Commonwealth Bank by forcing it to make fiduciary notes available to the extent of £18,000,000. The cablegram continued-
Such proposal means permanent inflation which could not be checked as is implied and would demand further inflation.
I accept that statement by the Prime Minister as being perfectly sound and quite true. The cablegram continued -
Inflation is a desperate attempt at a remedy and will re-act seriously on all sections. The first ill effect is upon our credit. All this talk about creating credits and inflation ‘is most damaging and will seriously prejudice conversion maturing loans and treasury -bills.
The Government has now gone beyond the stage of talking about inflation. Mere talk about inflation was doing almost irreparable injury to Australia’s credit, and now this very Government is introducing measures for deliberate inflation. The cablegram continued -
Since inflation was suggested, efforts are being made here by men withdraw their money from Australia, as they would lose by payment in depreciated currency. Depreciation in currency would decrease values of savings bank deposits and insurance policies. Property would increase in price, and there would bo a rush to sell bonds for investment in properties. Financial panicmay result.
That cablegram - admirable and concisely expressed as it is - is a complete reply to the present proposals of the Government. We have heard from time to time in this House many comments upon the existing credit of the Commonwealth. It has been suggested, I think, principally by the honorable member for Corangamite (Mr. Crouch), but without ever producing a scintilla of evidence to support his suggestion, that some unspecified statements made by honorable members on this side have in some way injured the credit of Australia. I shall, therefore, read the words of the Prime Minister, with reference to a resolution passed by his own party, so that there may be no doubt as to where the responsibility rests for the destruction of the credit of Australia overseas and at home in recent months. In reply to a cablegram of the 7th November, in which the Acting-
Treasurer (Mr. Lyons) described a particular motion moved by the honorable member for Bourke (Mr. Anstey) as absolute repudiation, which, he said, he was not prepared to carry out, the Prime Minister cabled as follows : -
Your wire 7th received. I do not approve and will not support resolution of party which I agree is repudiation which is dishonest and disastrous. Brennan and Moloney concur. We agree that you are right in recommending to Loan Council issue of loans as party’s resolution has demoralised Australian stocks here and unless rescinded will render renewal of bills here as well as conversion in Australia impossible.
I refer to this aspect of the matter, as the need for this bill arises because the Government finds it utterly impossible to obtain sufficient money by loans or by further taxation. There is no confidence in the Government, in this House or anywhere else, and no one will lend it money. On the 10th November the Prime Minister sent a striking cablegram in respect of a resolution passed by the caucus of the Labour party to the effect that the party proposed to, postpone payment of interest for twelve months, and to refuse to repay loans on clue dates. The cablegram reads -
Appeal to the party to reconsider resolution which has demoralized Australian stock here rendering renewal of treasury-bills impossible. I came to London with consent of party. Apart from Imperial Conference my most important mission was to restore Australian credit so that we could fund floating debt and if possible raise some new money to relieve our economic position. My efforts would have succeeded had party support been maintained. World depression affecting price of our exports combined with inability to obtain loans hits Australia very hard. I found in London a desire to assist and plans were maturing to approach London market when budgets were balanced. Although there was disappointment in financial circles that our budget is not quite balanced, door was not quite closed and I still had hopes of success until appalling resolution was passed last Thursday. That proposal was disastrous. It is a reversal of the party’s declared policy to honour national obligations and no selfrespecting government could agree to it. Our Government floated loans and guaranteed the public a safe investment. Thousands of people withdrew their savings from the savings bank to assist the Labour Government. To default on this loan would weaken the value of their investment, would destroy public confidence, and delay for years the restoration of economic prosperity. If, however, wiser counsels prevail, and the Government is given a chance to obtain credit, a debacle may yet be avoided. But if we are to be frustrated by
Our own supporters by resolutions or statements creating financial panic our position becomes intolerable and our efforts to govern in the people’s interest, hopeless. The Government’s proposal is to ask the bondholders voluntarily to renew their bonds. To enforce renewal by refusing to pay the debt for a year is repudiation. The law would not permit that in private transactions and no one mindful of his personal honour would do it in private life. [ know anil share members’ feelings regarding the sufferings of the unemployed but the destruction of our credit will spread that suffering tremendously. Brennan and Moloney concur.
The condition of Australia’s credit abroad and at home is fully explained by the words of the Prime Minister himself, and it is unnecessary to seek any other cause for the low condition of Australia’s credit as compared with that of other countries also in difficulties, but whose stocks are not so low as our own at the present time. I shall now return to the main thread of my speech.
I was pointing out that at the last election this wonderful discovery that all our difficulties could be made to disappear by creating currency or expanding credit had not been made. When was it made? It was being made from time to time last year, but. as I have shown honorable members, up to November at least, it was absolutely rejected by the leaders of the then Government, and of the present Government. In January a byelection took place in the constituency of Parkes. It was some time before the Labour candidate for Parkes was game to face the electors. This allegedly virile energetic and vigorous party selected a candidate, yet he did not appear on the platform for a fortnight after he was selected. The party was trying to discover a policy. The Australian Labour Party executive met in Sydney and discussed the whole matter, and an interesting address was given by Mr. J. J. Graves, the president of the Australian Labour Party in New South Wales. He said that it was perfectly hopeless for the Labour candidate to submit himself to the electors on the performances of the Government. I am glad to say that events have shown that he was right, and I welcome the new and old member for Parkes (Mr. Marr) in this House. What Mr. Graves said in his speech, which probably all honorable members have read, is reported in the Labor Daily, which is a useful newspaper on occasions. The points that Mr. Graves made in his speech are, shortly, that the Government has failed in everything ; that there is nothing that it can say in justification, palliation or defence of its policy, and, therefore, something new must be discovered; it must get some new policy. That policy was developed with much travail and trouble. It was when the Prime Minister and the Treasurer were permitted to speak in Parkes, that we saw the difficult birth I of this policy of inflation. That policy did not prove a very great , success in the Parkes electorate from the Labour point of view, although it was a great success from the point of view of the Nationalist party. If the Opposition were looking for political advantage only nothing would suit it better than to allow the Government to go on as it proposes; we know that it would go to its destruction. But we believe that its policy would involve the ruin of the country also. For that reason we oppose this bill. Evidently regarding the Parkes policy as a wash-out, the Government was not even prepared to nominate a candidate for East Sydney, although that seat had been held by the Labour party for twenty years. Although the honorable member for West Sydney (Mr. Beasley) and his latest recruit are now enjoying the success of their policy in East Sydney, I do not think that the actual figures of the polling afford them much ground for self-congratulation. However that may be, the Government was not prepared to nominate a candidate. It had repudiated repudiation, it had next tried inflation, and apparently was again wobbling, and did not put one Minister or supporter on an election platform during the campaign.
– But it accepted the votes of the left wing to save it from defeat.
– In this House the Government is willing to accept any help that will keep it in office. I have shown that the Government, whatever it may say about stabilizing prices, is quite incapable of stabilizing its own policy. It has wobbled in all directions over since it has been in office. My first comment on this bill, therefore, is that the policy it contains is a new discovery, and we have every reason to doubt its sincerity.
My second comment is that the bill proposes a suspiciously easy and simple means of dealing with national difficulties and distress. Apparently all we have to do is to pass a measure of this kind to make money available in the form of currency or credit. It is a remarkable fact that, no other country has successfully adopted this easy procedure. If prosperity can be restored and unemployment abolished, or even substantially reduced by an expedient of this description, are not honorable members entitled to ask why it has never been employed elsewhere in the world? Surely any government in any country would willingly accept so simple a method of solving acute national difficulties. Th-, Treasurer has called attention to the world-wide depression. He has emphasized the fact, that regardless of their form of government or of the character of their trade or industry, all countries are suffering from depression. Yet this remedy is left to be discovered during the last few months by the honorable member for Dalley and a few of his associates. It is true that the honorable member had the hardihood to suggest that in France a similar policy had been deliberately adopted. Anybody with the slightest acquaintance with recent French history knows that France was brought to the verge of national disaster by a policy of inflation. Honorable members may recollect the dramatic occasion when, France having hardly a franc in its till, its Prime Minister went to the Chamber of Deputies and asked for complete and unfettered power to deal with the crisis. So imminent was the national danger that the Chamber of Deputies passed the required legislation, and left absolute power in the hands of one man; he managed to save the country, but the distress and the suffering of its people were most acute. France escaped ultimate disaster, but not before it had suffered enormous losses. I am quite content that the universal experience of politically-controlled inflation should be expressed in the words’ used by the Treasurer in June last, when speaking in regard to a. proposal of the honorable member for Adelaide (Mr. Yates), which was almost indistinguishable from this bill. The honorable gentleman said then -
Ho did not see how what he proposed in the issue of currency or the creation of credit could be done without bringing about u currency inflation similar to that which brought disaster and financial ruin to many other countries.
I invite honorable members to read the report submitted by four Treasury experts to the conference of Commonwealth and State Ministers held in Canberra and Melbourne in February last. Those gentlemen said -
The table of national income in paragraph 23 shows that the national income of the na’tion has shrunk from £045,000,000 in 1928-29 to £525,000,000 in 1930-31, a fall of the order of 20 per cent.-
Many experts say that it is now 25 per cent.- lt would be only too easy to gloss over our loss of prosperity by an alteration in the purchasing power of the currency-
That is what this measure proposes -
This is not a road to recovery, but to collapse. A progressive expansion in the currency, though at first hardly perceptible inside Australia, could not fail to have a marked and unfavorable effect on credit, and would in the end cause a collapse of industry and trade. Symptons of excessive expansion of the credit-currency are, indeed, in evidence already- -
I commend that passage to those honorable members who say that our troubles are wholly due to deflation. There is deflation, but there is inflation also, and accordingly we experience a mixed effect-
Fear of a continuance of such a process has heavily affected the exchange rate. It is thus evident that no local alteration in the monetary unit can alter the fact that within our diminished national income we must live and meet our financial commitments, both as individuals and as governments organized for common ends.
What the Treasury experts have said in that paragraph is perfectly true and sound. I take this opportunity to quote some of their remarks regarding the policy of the banks -
Our rrivate and national difficulties are sometimes attributed to a policy of deflation deliberately pursued by the banks, involving a refusal to employ their loanable funds. The recent decline in bank advances and deposits (see paragraph 20) accompanying a general fall of prices and of the cost of living, may seem to support this view. But these changes are the direct outcome of forces against which Australian banks and the community generally have contended in vain. They originate in the fall in export prices and the consequent unprofitable character of business. Australian staple .products, mentioning wool, wheat, butter, and metals in the order of their importance, have fallen so heavily in market value that their production and sale offer little margin for the repayment of advances. To uphold the productive activity of their customers the banks, between March, 1928, and October, 1929, greatly extended their credits or advances. The persistence of the fall in prices, however, has “ frozen “ many of these, advances also. Borrowers cannot to any large extent repay them from the proceeds of current production. Such advances have tended to increase deposits in that the cheques drawn against them have been paid into the accounts of others. But openings in commerce and industry for the profitable use of deposits are few. Turnovers are very sluggish.
The action of the banks in supporting private customers may be more accurately described as an effort to check deflation. By the creation of additional “cheque currency” they have put a brake on the fall of .Australian prices. Yet the subsequent continuance in other lands of the fall in prices and the loss of business confidence in Australia haw:, despite the action of the banks, resulted in falling Australian prices. The added credit cannot he put to active and profitable use in industry. The Australian banks are thus concerned equally with the rest of the community in the restoration of confidence.
– At what point would the honorable gentleman declare that inflation ceased and deflation began?
Mv. LATHAM. - I am not prepared to allow either credit or currency” to be under political control, and if T were in charge of financial policy I would be chary of consenting to any creation of credit or currency apart from the production of valuable goods or useful marketable services. That is the fundamental test. The report of the Treasury experts shows that the banks have been endeavouring to stop the process of deflation, and I dissent entirely from the attitude of the Treasurer towards those institutions. At Brisbane on Saturday night last he said that the banks were willing that the community should sink into the mire. Such a statement by a responsible Minister exceeds the limits of common sense. There is room for legitimate differences of opinion upon the problems of currency and credit: but everybody must realize that the interests of the banks are bound up with the prosperity of the community. To suggest that they are deliberately trying to ruin the country is to suggest that they are deliberately conspiring to ruin themselves. Considerations of self- interest alone must impel them to adopt the very opposite policy.
The Treasurer referred to many authorities on currency and finance, and suggested that they supported the scheme which is now submitted to the House. I shall leave it to others to deal with those authorities in detail, and content myself with referring to the remarkable claim that this scheme has thb support of Professor Copland. Professor Giblin, and Mr. Dyason.
– I did not say that the scheme was supported by them. I quoted their words to show that the same ideas were supported by them.
– I have no desire to say anything which is not strictly accurate. The Treasurer said that their report supported “ almost everything the Ministry had been contending for, and was striving after for financial and monetary reorganization “. The claim of the Treasurer was that these and other authorities supported in principle the proposal now before the House. Of course no one was acquainted with the details of the proposal until it was submitted, except the members of the Government, its supporters and certain Treasury officials. Professor Copland has made a statement which is published in this morning’s issue of the Sydney Morning Herald.
– Professor Copland has somersaulted from his previous opinions.
– I shall not read the whole of the article, because it is lengthy, but the extracts I shall quote are, I believe, a fair indication of the professor’s opinions.
– Lay the paper on the table.
– The interjection of the honorable member for Warringah (Mr. Parkhill) reminds me that portions of a number of memoranda were read by the Treasurer in the course of his speech, and he promised to make the memoranda available to honorable members. They were placed on the table only at the beginning of this sitting, so that honorable members have really had no opportunity to peruse them. I obtained access to them at 1 o’clock only by special application. In the course of his statement Professor Copland said -
I ann astounded that Mi-. Theodore should quote me in support of his present scheme, which is even worse than the one I hare already criticized.
The professor refers to an article in the Economic Record, a London publication dated November, 1930, which embodies the full plan of this group of economists, lie quotes from this article as follows - “ The monetary policy proposed must not be divorced from the general scheme, of which reduction of wages and salaries, public economy, and high taxation of fixed incomes are essential parts.”
He continues -
Mr. Theodore publicly declared during the Parkes election campaign that he was opposed to the reduction in wages. Ho has refused to carry out our recommendations, and those of the experts’ committee that prepared data for the recent Premiers’ Conference. These recommendations included drastic reductions in public expenditure, and Mr. Theodore’s main duty as Treasurer is to undertake this part of the general scheme. The Treasurer is not in control of the monetary system of the Commonwealth, and there is ample experience in all lands to demonstrate the folly of political control of the currency, and no economist in Australia has suggested such control.
The professor concludes by saying -
Mr. Theodore proposes in effect to devise a fresh weapon for meeting Government expenditure, namely the printing of £13,000,000 notes. There is no need for this legislation. If Mr. Theodore, as his statement indicates, regards mc as an authority on monetary policy, I shall bo happy to show him how a satisfactory monetary policy can be devised without amending legislation and without placing the currency under political control. He has never consulted me in any way about his proposals, and he is not entitled to claim any support for them from what I have written or from any documents I supplied to Mr. Lyons, his predecessor. If Mr. Theodore had been as interested in my views in September as ho seems to bo to-day he would have realized that the proposals presented to the federal caucus by Mr. Lyons last October formed an organic whole providing an adequate measure of relief, an equitable spread of the loss of national income, and n basis for economic reconstruction. My views have not changed since that time, and I would be interested to know why Mr. Theodore should bc anxious to quote them now, when at a critical stage last year, he, as a member of the Labour caucus, did nothing whatever to.assist Mr. Lyons.
I think I am entitled to be saved from my now friend.
– Will the honorable member now read the report which I tabled?
– I am sorry to say that I have not had time to read it, as it was not made available in time. I am prepared to take Professor Copland’s word as to what is his own opinion rather than the Treasurer’s statement of what he thinks it is. The Treasurer quoted other authorities, most of them very general in terms, and nearly all of them expressing a desire for stability in prices. I suppose everybody except those who aim to make money by speculation at the expense of the community desires stability in prices. Everybody wants it, and no country has ever achieved it. I agree that by the co-operation of central banks, or of banks discharging the functions of central banks such as the present Commonwealth Bank of Australia, something in this direction can be done. I also agree that by international action something might bc done with reference to the gold accumulation, particularly in three countries of the world, in order to relieve the credit situation; but those things depend upon international action, and no country acting alone is able to deal with these matters. To argue that we in Australia can fix prices at a pre-determined level by manipulation of the currency is simply to chase a will o’ the wisp. The supply of money has relation to the price of commodities, but obviously it is not the only factor influencing prices. When there is a tremendous supply of wheat, more than is required for world consumption, low prices will prevail whatever is done with the currency in Australia. We are an exporting country, and we are unable to alter world prices by any action of ours. No manipulation of currency, no artificial expansion of credit here, can affect world prices. It is a serious thing to take action the result of which will destroy the normal relation between the currency in Australia and currency overseas. It is impossible to deal with prices in Australia over a period, regardless of the general level of world prices. The authorities to whom the Treasurer (Mr. Theodore) has referred say, in effect, only this: That banking policy and supply of currency and credit are profoundly important in the economic and financial system of a country, and have a real effect on prices.
These authorities are directing their observations to what they think should be the policy of banks, and those who control currency. There is not one word in any of the quotations which the Treasurer hits made to support the suggestion that the authorities are in favour of any form of political control of banking and currency. I am fairly familiar with the stated opinions of a number of these authorities, and I know that they hold the exactly contrary view, namely, that there must not be political control cither of banking or of currency. It is impossible to have a sound policy, either of banking or of currency, so long as there is government-controlled inflation for political purposes. There is only one proper course for the Government to adopt: It should withdraw this bill, which is a danger to every interest in the community that is worthy of protection. It means necessarily the deliberate depreciation of the currency. That is one of its objects. Of course, it is said that the purpose of the measure is only to bring prices back to the 1929 level, and then the necessary readjustments would be made to meet the altered conditions. Does any one really believe that such a manipulation of the currency will be able to maintain prices of commodities at any predetermined level? If it were possible to do so, it would have been done somewhere else long before this. This measure involves the depreciation of the currency, and, as the Prime Minister (Mr. Scullin) pointed out in his cablegram, if this Government remains in office - which I hope it will not - this will inevitably be followed by other similar measures. Surely no one believes that it would be possible to pay £1,000,000 a month in paper money for twelve months for the relief of unemployment, and then to cut off the supply abruptly. This measure would certainly be followed by others of a similar kind whenever the Government wanted to spend money, and did not have it to spend.
Not only would there be depreciation of the currency, but wage levels would be smashed. Inflation of the currency is the most certain, as it is the most insidious, method of reducing wages. Whenever governments wish to pretend that they are maintaining wage levels, and have not the money with which to do it in so far as such wage level is affected by their administrative acts, they are tempted to resort to currency inflation. The adoption of such a policy results in financial uncertainty, with consequent business instability and increased unemployment. The Government cannot get money. Why? The cablegrams I have read show the danger of- the mere talk of inflation; but here is inflation in reality. It is impossible .for Australia to recover so long as this is the deliberate policy of any government in charge of the Commonwealth finances. It appears to me that the Government is introducing this measure because it realizes that it is on the eve of defeat. It does not expect that the bill will be passed, and it hopes that it will be able to go before the electors at a general election with the cry that it would have provided millions only that it was prevented from creating money by a callous, hard-hearted Opposition. That would be a false claim. I doubt whether any honorable member sitting on the Government side of the House, with the exception of the honorable member for Adelaide (Mr. Yates) and the honorable member for Werriwa (Mr. Lazzarini), believes in his heart that the Government’s proposal is sound.
– It means cheap money for the farmers.
– I shall add the honorable member for Eden Monaro (Mr. Cusack) to that distinguished company if he so desires.
The claim that, by these means, prosperity can be restored’ and unemployment abolished or greatly reduced, is, I believe, a false one. If the Government were to withdraw this bill and, as I said last night, were to set its face and direct its policy as resolutely against inflation as it has against repudiation - because I d” not expect that the party, headed by my honorable friend the member for West Sydney (Mr. Beasley), will increase very substantially at any election-
– Time will determine that.
– I agree that time will determine it; but I am venturing to make the prophecy that the Australian people are sufficiently sound not to be misled into those paths that the honorable member for West Sydney asks them to enter
If the Government were to withdraw this bill and to declare that it would have nothing to do with inflation, it would be supported by the whole of the Opposition ; security and stability would return to the country, and I believe - I can almost say that I know - that there would be no difficulty in raising a loan for immediate necessities. But so long as these proposals are put forward, or are regarded with favour by the Government, it will be impossible to raise a loan either here or elsewhere, except upon what normally would be regarded as prohibitive terms. I know that my appeal to the Government to withdraw the bill is likely to fall upon deaf ears. It will probably say that it has nailed its colours to the mast. It has taken a long time to determine which mast, and what colours ! I suppose that it intends to support this policy, and to try to see it through. If that be so, I ask all honorable members, in the interests of Australia as a whole, to reject the bill, and to refuse to have anything to do with the principles that it represents.
.- The Leader of the Opposition (Mr. Latham) has made about the weakest speech that has ever been delivered in this House on a matter of such paramount importance. It was purely a political speech directed at the Treasurer, whom he accused of lack of sincerity. The honorable gentleman endeavoured to. make it appear that there is no desire on the part of honorable members, who sit on this side, to deal with existing circumstances, but he made no attempt to discuss the merits of the proposal contained in the bill. I challenge any honorable member who follows me to fill in the blanks that he left, and to supply some real, tangible criticism of the principle that he so cursorily dismissed.
What is the real reason for the introduction of this bill? I candidly admit that, at the beginning of this Parliament-, the Treasurer and the Prime Minister did not see eye to eye with me. I had a specific remedy in my mind and would have applied it, but they did not think it was right that we should go so far as I proposed. But did they wilt on their job? They did not. They brought down legislation designed to meet the circum stances as they saw them, and to rehabilitate the Commonwealth, and they had it carried by this House; but when it was submitted in another place, the friends of honorable members who sit opposite ignored the parlous condition of the Commonwealth, and did not even deal with it fairly. They used their strength illicitly to refer it to a select committee, with the result that action which was necessary to give effect to the will of the majority of the people, as expressed at the last election, has been delayed for months. Will any honorable member say that that is not a plain, unvarnished statement of fact? Honorable members opposite, through their friends in another place, have held the Commonwealth by the throat, and they are responsible for its present parlous condition. Although I disagreed with the Government, I place on record my opinion that it has done its best to meet the situation. A crippling process has been going on over a period of years. Every year the trade balance, from the point of view of Australia, became steadily worse. In other words, instead of employing our own artisans in the production of what was required, we had huge importations. On the hustings I, and other honorable members, have made it quite clear that £80,000,000 worthof the £160,000,000 worth of goods that we import, could be manufactured in this country, thereby absorbing our own people in useful employment. But concurrently with that policy we must have a central reserve bank to place our finances on a proper footing. The tariff certainly served the purpose for which it was designed ; but without complementary legislation it was not possible to keep our people usefully employed, because of the absence of the necessary purchasing power to absorb what was produced. [Quorum formed.] That the Government was not unmindful of the necessities of the Commonwealth is shown by the fact that the Prime Minister exhorted all farmers to grow as much wheat as possible. They patriotically did so, and, as a result, we had a record harvest. The position was then further complicated, however, by a factor that neither this party nor any other authority could control or prevent; the bottom fell out of the wheat market, and the price of wheat readied such a low level that it became unprofitable. We all know of the desperate straits in which the wheatfarmers find themselves to-day. But did the Government sit down and make no attempt to minimize the baneful effects of that reduced price? It certainly did not. The Wheat Marketing Bill was brought down, and the wheat-farmers were guaranteed an adequate price for their product. I have appealed to honorable members opposite, by interjection, to tell me what happened on that occasion. It cannot be argued that the Government had not a constructive policy to meet the changed circumstances, or that it did not try to give effect to it. Its efforts were frustrated by a brutal majority in another place.
– It sat down for a long time.
– The whole of these events occurred within a period of .17 months. There has been only one wheat season, and the harvesting has just been completed. Therefore, the honorable member for Echuca (Mr. Hill) cannot charge the Government with having sat down on its job. It was on the job before the wheat was reaped or bagged. Could a government of his political persuasion have taken action more rapidly? ‘ He knows that the weakness lies in a hostile Senate, and that that hostility is responsible for the position in which we find ourselves to-day. But even then the Prime Minister and the Treasurer endeavoured to deal with the situation* without resorting to the present proposal. They met the banks in every way, and sought to persuade them to use the enormous power that they possess, not only in Australia, but -throughout the world. No one who is fair or -honest can say that the Government has not- used every means at its disposal to do what was necessary.
In my opinion, this bill is a challenge to honorable members opposite, and their action in regard to it will show whether they are prepared to allow this country to wilt in the midst of plenty. Some honorable members, with tongue in cheek, are trying to make it appear that they would welcome a general election. The people are not such fools as is often sup posed, and if an election were held the composition of another place would be altered considerably, and this Government would be able to do something.
I wish to reply to a few of the statements that are made from time to time, and to place on record facts that relate to the present position. Some honorable members have said that the Government cannot make money; and others claim that money and credit are based upon wealth. This Government is the only authority in this country that has the power to make money. Money is merely a measure of value, and it is for the Government to determine whether that measure shall be in gold, paper, copper or silver. Whatever it may be, the Government makes it legal tender, and invests it with the power to purchase, and to discharge any obligation in which money plays a part. Therefore the Government can make money. Some persons say, “ If this is so easy, why do not other countries try it “ ?
When the note issue of this country was taken over by the Commonwealth authorities, similar arguments were advanced against the change. But let me remind honorable members of what was said in 1910 by Mr. G. B. Edwards, who formerly represented North Sydney in this House, a seat which I believe has never been held by Labour. He was referring to the Guernsey Island experiment in building an asset out of created money, and his remarks were never challenged. The success of the experiment was indisputable. Mr. Edwards said -
The little island of Guernsey has a legislature of its own. The community there is very small, and one can trace the operations in such a community with far less mental effort than is necessary to trace a similar operation in a larger community. Guernsey, which had a Parliament of its own, as well as an executive, and all the paraphernalia that we have for administering the affairs of this Commonwealth, felt the need of a new market. It was found that it would cost £4,000 to reconstruct the old building for the purposes required, and the Government said, “ We cannot raise the money.” A man named John Jacob, however, came to them, and said. “ I will show you how to find it. Issue £4,000 paper currency, pass a law to make the notes legal tender, pay your workmen and buy your material with that £4,000 of legal “tender paper currency, and you will succeed. All the people will take the paper, for they want to secure this market.” His advice was followed, and in twenty odd years the notes were all paid off from rents of the markets. The market was built, the paper currency was retired, and the people had the satisfaction of securing market buildings, and of obtaining from them a revenue for all time. I ask the critics of the paper currency to point to a flaw in that operation.
I repeat that challenge in this House.
Certain Americans, given to the consideration of this question, and applying to it keen minds and close scrutiny, have said that it would have been possible for the Government of the United States, by the adoption of the same system, to have built the transcontinental railway, so that it would not have cost the American people one cent.
The East- West Railway is the only railway which the people of Australia own. All the other lines in this country have been built by means of borrowed money; they belong to the bondholders. Will any honorable member deny that? The Commonwealth Transcontinental Railway was built on the same plan as that on which the Guernsey Island markets were established.
– That can only be done once. It was made possible because the Commonwealth Government took over the note issue from the private banks.
– That is true; but I shall show that the point raised by the honorable member for Angas does not dispose of my argument. The notes taken over from the private banks were required throughout Australia in connexion with the business of those banks. The notes remained in circulation until they were withdrawn, and some of them have not yet been withdrawn. They were still part of the currency of the country and were not the money with which the East- West Railway was built.
In submitting this bill to Parliament, the Government is not putting forward an entirely new idea. Finance is one of the subjects that the people, generally, least understand, and honorable members opposite are not justified in suggesting that this measure would have the effect of debasing the currency, or robbing savings bank depositors of their interest. On the 16th August, 1910, in the same debate as that in which he made reference to the Guernsey Island experiment, Mr. G. B. Edwards, conservative as he was, advocated a radical policy such as this bill connotes. [Quorum formed.] When the bank charter was being revised in England in 1S66 - that should be far enough back to go for support of the present measure - the honorable W. E. Gladstone remarked -
All the profits of the banknote issue belong to the State, and, what is more important than the profits, the responsibility of issue belongs to the State.
If the profits of and the responsibility for, the note issue of the Commonwealth belong to the Government, why talk of government interference with the financial system, since the Government can say what shall and shall not be legal tender? The Government has the right to see that the note issue is properly used, and made the servant, not the master, of the people.
The Treasurer quoted what was held by opponents of the bill to be an example of the awful results of inflation in other countries. It is strange that honorable members opposite almost invariably go to other countries for their illustrations, instead of recalling British experience, on which this bill can be effectively supported. Take the most recent and glaring experience of government interference with the currency. Germany has not been disturbed by revolution as Russia has, and it was regarded as a country of most advanced culture until the late war. Let us consider what occurred there in regard to inflation. On the 19th January last, an article appeared in the Melbourne Argus in anticipation of what the Treasurer might say in a speech to be delivered in Sydney. The heading was, “ The Turn to the Left - What Inflation Means - The German Experience - The People’s Bitter Lesson.” The writer was Norman H. Tucker, and I presume that he knew Germany, or otherwise it would have been audacious on his part to write authoritatively on German finance. He stated- -
A little practical experience of a turn to the left to the by-paths of inflation and repudiation might disturb the cocksureness of the experts of the caucus . . . Germany took this turn in 1922. On all hands one heard that conditions were serious. The French Poilu and the English Tommy were occupying some of the richest and most productive lands of the country. Reparations were heavy, trade was poor; money was scarce; interest was high. The country was disorganized and the motto seemed to be, “ Let us eat, drink, and be merry; for we now live but for the foreigner; and to-morrow we may die”.
That was the incentive for debasing the currency ; but we are not in that condition in Australia. We have no need to do that kind of thing. We are not suffering under the” tyrannous yoke of a foreigner. Honorable members are not prepared to investigate too closely the experience of France. I suppose that that country has now rid itself, to some extent, of the incubus of the war profiteers. At any rate, she is in a better position to-day than Australia. The reason why German currency was debased is plain. The people adopted this trick deliberately to relieve themselves of the burdens which they were carrying because the foreigners, the French and the English, were in occupation of their richest, coal-mines, and because the Dawes and other reparation plans were operating so harshly. They were being called upon to carry an intolerable burden, and they decided, they would debase their currency and so rid themselves of their load.
But there i3 something to be said on the other side. The people, the workers of Germany, who were not responsible for the war - this was engineered by those who sat in the seats of the mighty in Germany - determined that they would adopt this unorthodox means of overcoming their enemies. The second article which was published in the Argus, tell: of what happened after the mark had been stabilized, following upon the debasement of the currency. From it I quote the following extract : -
Wages still remained at almost pre-inflation face values. Transport charges also lagged behind. The foreigner paying higher wages with a normal currency could thus easily be undersold both in Germany and in his own country. The export trade, therefore, began to flourish and to-day it is believed that it was from this money so received that the German factories have been brought so thoroughly up to date in their machinery and all their equipment. A similar explanation is offered for the magnificent state of the railways in Germany. In Stuttgart one will see a station of grandly massive new architecture “the biggest in Germany”. Liepsig, on the other hand, claims “ the biggest in the world”. Each has been built, along with many others, since the war, and the whole of the railways have been re-conditioned and brought up to date with the paper from the printing presses of the Government, and by the labour of starving workmen.
It will thus be seen that the German people were better off after the debase ment of their currency than before it. I do not deny that they had to suffer in the intervening period; but they overcame their difficulties. If we do not do something to overcome our difficulties - I do not suggest that we should debase our currency; no government worthy of the name would do that - we shall find ourselves in even worse straits than we are in to-day. In spite of all that this Government has tried to do to meet the situation by orthodox means, the proportion of unemployed people in our community has grown from 12 per cent, to 20 per cent. It will be higher than that in another twelve months if something is not done speedily. It is simply absurd to imagine that the mere reduction of wages by another 20 per cent., or the reduction of old-age and invalid pensions, will meet the position. If the life-sustaining fluid flowing in the body politic is withdrawn from it, suffering must follow. Currency is undoubtedly the life blood of the community, and we must provide sufficient of it to meet the needs of the people. We should take every legitimate, reasonable and commonsense step to revive prosperity in the Commonwealth, so that our people may enjoy life as the Almighty ordained that they should enjoy it.
– What point has thu honorable member endeavoured to make by his two quotations?
– I read the first quotation to show that the German currency was not inflated, but deliberately debased for a special reason.
– That was not the original intention of the German people.
– The honorable member for Angas (Mr. Gabb) has never been in Germany and knows nothing about it. All he has endeavoured to do is to secure the German vote in his constituency to place him where he is. The gentleman whose words I have quoted evidently knew the position at first hand in Germany. It is ridiculous to suggest that this Government, or any other government which has the interests of our people at heart would deliberately debase our currency by issuing fiduciary notes to the extent of £18,000,000, and subsequently without any reason for doing so repeat the issue, and later again repeat it. The currency of Germany was debased in order to relieve that nation of the dominance of the foreigner. If I had known that this aspect of the question would have been raised I could have equipped myself with figures to show the rapidity with which the debasement occurred.
– But did not the inflation of the German currency lead to its debasement ?
– I cannot accept the honorable member’s inference from the facts; hut whatever happened in Germany, no Australian Government would dream of debasing the currency in that fashion. The debasement in Germany occurred at an extraordinary rate. What could be bought for 1,000 marks one day required for its purchase 1,000,000 the next day and 2,000,000 marks the day after. As Mr. Tucker said, the policy of the Germans was “Eat, drink and be merry for we are only working for the foreigner and to-morrow we may die”.
– What was the object of the honorable member’s second quotation?
– It was to show that the Germans received some substantial benefits from the debasement of their currency. If we could say, like the Germans, that we had the most up-to-date railway station in the world, and that our railways and factories had been reconditioned and brought up-to-date it would be a good thing for us.
– But this was done at the cost of the misery and degradation of the people.
– The process may have been an agonizing one for the people. But are we not forced to say that the experience of the Australian people to-day is agonizing? They, like the Germans, are suffering because of the breakdown of the capitalistic system. I could quote the German unemployment figures to show that the people there are not yet out of the mire; but my main point is that the German currency was not merely inflated, but deliberately debased in order to rid the people of foreign oppression.
This Government has no intention of doing anything of that kind, although honorable members opposite may declare that that is its desire. I well remember when the first Commonwealth Bank notes were issued, lt was said by the Opposition of that day that the £1 note would not be worth 12s. 6d., and would be sold on the street corners. I have heard honorable members opposite say that these fiduciary notes will not be worth the paper they are. printed on. For my own part, I would have no fear in using fiduciary notes, and I make bold to say that I would be able to buy as much with my notes as honorable members opposite could buy with their sovereigns. For the purposes of internal currency the fiduciary notes will meet all our needs.
It is said, I know, that our notes are negotiable in England only at a heavy discount; but when the balance of trade is reversed and we become a creditor nation and Britain a debtor nation, the British note will be at a discount here just as our notes are at a discount in England to-day. As a matter of fact, the fault is not with the currency of the country, hut with the system. Circumstances have been brought about which have reduced the value of our £1 note ; but, later, circumstances may change, and our £1 note may become worth 25s. or 30s. in England. The trouble is not with the currency, but with the manipulators of it. It has been said that the currency of a country is valueless unless there is real wealth behind it. On that point I desire to quote some remarks by Mr. Wickens, which are apropos. Honorable members know very well that if this bill becomes law the Commonwealth Bank will be obliged to give effect to it, and it is nonsense to say that it will lead to the furious working of the printing press. For my own part, I do not care whether we issue something like the English “ Bradburys,” or whether we mark the fiduciary notes in some manner which will distinguish them from the existing notes, because it is not intended that this currency shall be distributed broadcast. It is to be used by the Government for the purpose of creating profitable employment. In my opinion, all necessary government work is profitable work. It is not likely that governments of repute will waste the wealth of the nation. This fiduciary note issue will be used only for purposes approved by the
Commonwealth. It will circulate only in the channels in which the Government, desires it to circulate. After all, why should we not use our own money in preference to money for which we would have to pay 6 per cent.?
Some little time since the honorable member for Henty (Mr. Gullett) made some observations at Campsie in regard to the raising and expenditure of loan moneys. He said, “ Australia would not be able to raise another loan for half a century; no one would lend her a bob”. I hope that no one will. Is Australia, with its intelligent man power, its vast expanse of country, its educational system comparable with that of any other part of the world, to cease to progress because no one will lend it a bob? This Government has decided otherwise. We are not going to be held by the throat by the money lenders who refuse to lend us a bob. We shall use a bob of our own, and make more bobs. That we can do that is beyond dispute. We have the backing for controlled inflation. I suggest to the representatives of the primary producers on the other side of the House that they should stand out of the way, and let the Treasurer (Mr. Theodore) get busy in affording assistance to the farming community.
– If those honorable members do not stand out of the way they will be pushed out of the way.
– There is no doubt about that. The honorable member for Gippsland (Mr. Paterson) last night said that if a flour tax were imposed, the banks would immediately advance money for the relief of the wheat-growers. A tax on flout could not be paid immediately into the Treasury. It would have to be collected gradually. Therefore, if the banks are able to finance the farmers under those conditions, they are able to do so under present conditions. The farmer lias failed, not because he has not produced wheat, but because the financial institutions have him by the throat as they have other primary producers. The wheat-growers can be given relief bv the issue of fiduciary notes, which will not add ls. a head to the national debt, or place any burden upon the primary producer. I am sorry that I have not with me the sworn evidence of a farmer in respect of the burden, of interest, and what it means to the man outback, who is trying to increase the wealth of this country, and starving in consequence. The imperfections of our present monetary system have placed us in the hands of the interest-mongers, but we are standing up to our obligations in spite of the vicissitudes that have befallen the Commonwealth. Australia’ still survives, despite the fact that socialistic governments are in power. We are still in a favorable position compared with other countries. In support of my contention, let me quote Mr. Wickens, the Commonwealth Statistician, because it cannot be said that he is likely to draw a fanciful picture of out actual position. At the PeaceinIndustry Conference held in Sydney on the 19th February, 1929, Mr. Wickens was invited to inform the delegates of the true economic position of Australia, and his address was reported, as follows : -
At the request of the Joint Management Committee of this Industrial Conference, I am before you to-day to give you, amongst other things, some particulars concerning the statistical aspects of Australian industry and production in all its branches. . . . The total value of primary and manufacturing industry combined was estimated, at £114,000.000 or £30 per head of population in 1901, as compared with £440,900,000 or £73 per head of population in 1920-27. . . . These figures indicate, roughly, that the total quantity produced in primary and manufacturing industries in 1.920-27 exceeded that of 1901 by 116 per cent., and the total quantity per head produced in 1920-27 exceeded that of 1901 by 33 per cent. . . . Until 1919, the pastoral industry occupied the position of chief producing agency, and was usually responsible for some 30 per cent, of the total value of Australia’s primary and manufacturing production. From 1921 onwards, however, the manufacturing industry has assumed the lead and now represents more than a third of the total. . . In the last eight years of the last century the average production of wheat per annum” was 31,000,000 bushels, and the maximum for any one year 41,000,000 bushels. In the last eight years of the present century, the average yield per annum was 133,000,000 bushels and the maximum 105,000,000, approximately a fourfold increase in quantity in each case. . . . During the ten years from the season 1910-17 to the season 1920-27, the total quantity of wool produced per annum increased from 030,000,000 pounds of greasy wool to 924.000,000. A tentative estimate for the season 1928-29 is 950,000,000, which, if correct, is the record wool production for Australia.
. In 1901 the total production of butter in Australia was 104,750,000 pounds,, and for the year 1927-28 it has increased to 280,000,000 pounds. . . The production al cheese increased during the period under review from 11,000,000 pounds to 20,000,000 pounds, and bacon and ham from 32,000,000 pounds to 73,000,000 pounds. . . . Comparing for different dates the estimates of Australian private wealth referred to earlier, it is of interest to note that the estimate of 1903 gave an average per head of population of £252, that of 1915, £327, that of 1921, £397, that of 1923, £420, and the latest made for 1925, gave £4.78.
That wealth backs our currency. Let me tell any one who fears any expansion of our note issue that we have behind it wealth which represents money. We have wealth in plenty.
– Does not the honorable member know that since 1925 there has been an enormous deflation of the wealth of this country?
– There has been an enormous deflation of the wealth values of this country, but because our monetary system has gone under, are the people to starve in the midst of plenty? The system has broken down. Is there any legitimate reason why the price of wool should have fallen to the extent that it has?
– The people are not starving.
– I shall allow other honorable members to disprove the honorable member’s contention.
– The honorable member must admit that nothing that we could do would have prevented a fall in the world’s prices of wool.
– I grant that. That is one of the things that we cannot prevent. The Treasurer (Mr. Theodore) has stated that the reduction in wages represented by the 10 per cent, cut as determined by the Arbitration Court, means a loss to the workers of £44,000,000. What has become of that money? We have also to take into consideration the fact that 25 per cent, of our workers are receiving no wages at all. There are many aspects of our monetary system that we cannot understand or explain. During the war my wife wrote to tell me that she was paying 13s. 3d. a bushel for wheat to feed her fowls, while I was fighting to protect the interests of those who were charging that price. When I have told the farmers of this their reply has been that they did not receive that amount. I ask the honorable member for Wimmera (Mr.
Stewart) to explain that position. The Government has tried to do its job, but every effort that it makes to assist the farmers is opposed by honorable members opposite. The honorable member wishes to stabilize the wheat industry in the same way as the sugar and butter industries have been established. The wheat industry will, eventually, have to be stabilized, and I shall have no objection to that. The workers of this country have no right to ask the farmers to sell their wheat at unprofitable prices.
– The flour millers are doing all right.
– It is possible that they are. Somewhere there is a discrepancy, but we have not yet placed our finger upon it.
An attack is being made by honorable members opposite on soldier pensions, and in that regard I have received a letter from the Returned Soldiers League asking me to oppose any inroad into these pensions. Let me state now that I oppose any reduction of pensions, although I admit that there may be some anomalies. Some returned soldiers are working and also receiving pensions. I look upon the pension as compensation for war injury or disability that a man may carry to his grave. I say “ Hands off the soldiers’ pensions.” They did their job and we have to do ours. Yesterday I asked the Treasurer what was the amount paid in war pensions, and I was informed that in 1929-30 it was £7,897,292. But what was the amount paid to the money lenders who were never injured at the war at all, and did not do a hand’s turn to win it? They were paid in the same year £17,175,893. I also asked the Treasurer what losses have war loan stock or bondholders suffered to date, and he replied -
Interest on all loan holdings has been paid in full as it fell due, and the principal has been repaid on maturity or converted into a new loan at the holder’s request.
The bondholders have not suffered, yet to bring about financial equilibrium honorable members opposite advocate that soldier pensions should be reduced. The total amount paid to returned soldiers from 1915-16 to date, is £92,938,663. That was paid for the loss of eyes, legs, arms, and ribs, and the contraction of tuberculosis and other diseases.
The accompanying disablements have to be suffered until Gabriel’s trumpet has sounded. But the man who suffered no casualty, who did not even trip over a gutter, has been paid as interest £228,606,000, and the principal is still owing to him. I asked the Treasurer (Mr. Theodore) also for particulars of the war-time profit tax collected during the years 1917-18 to 1929-30. The answer shows that this tax is still being collected from those who profiteered at the expense of the soldiers; last year, the amount received was £14,678, and the total to date is £7,903,693. The Government takes only 75 per cent. of these profits, and thereby it condones a felony. The £228,000,000 of interest, and the many millions of pounds of war-time profits, have been paid to those who exploited the war for their own advantage. A portion of the money must be paid by soldiers or dependants of soldiers, but when budgets have to be balanced the modest pensions of these people have to be reduced ! There was much rejoicing on the part of the then Acting Treasurer, and those who supported him, because the £28,000,000 conversion loan floated in March last was over subscribed. The fact is that £25,000,000 of the amount was converted at 6 per cent. for the next two years. I have not yet been able to interrogate the Treasurer (Mr. Theodore) regarding the flotation costs, but those for the previous loan of £10,000,000 were - underwriting, £50,000; commission to the hanks, £16,115; advertising, £8,260; printing, £1,257 ; stationery, £1,466 ; brokerage, £8,745; a total cost of £85,843 to borrow £10,000,000. The expenses in connexion with the £28,000,000 loan must have been much greater, and will have to be incurred again two years hence when the loan has to be redeemed or converted. Is it any wonder that those who get such a handsome “ rake-off “ by the present system accuse the Government of all sorts of ill motives, but will not give it credit for a genuine desire to put the country on an even keel, and bring about a return of prosperity? I intended to deal with another aspect of the note issue, but that will occupy more time than is at my disposal. I propose, however, to read to the House some information showing that the exactions of the money lenders are universal. The very evils which we are experiencingin Australia at the hands of the bankers and other’ moneyed interests are being suffered by other countries. I quote from The League of Bankers, one of the white papers issued by the Labour Research Department from 162 Buckingham Palace-road, London. It contains illuminating comment on the methods adopted by the banks for the financial restoration of Europe. Dealing with the Austrian loan, it says -
In the first place the League of Nations insured the economic ruin of Austria by using its powers under the Versailles Peace Treaty to forbid the linking up of Austria and Germany. The Austrian Coalition Government, rejecting a working-class solution, based its policy on the hope of aid from foreign capital. The plan worked out by the League of Nations was accepted by the Austrian Government in 1922. The total amount to be raised by the Austrian Government guaranteed loan, issued in 1923, was fixed at £32,623,500. Various portions were taken up by the different financial groups of the world, including America, and the amounts raised in each country were guaranteed by the State. The nominal amounts taken byeach were: - Great Britain, £14,000,000; United States of America, £5,400,000; Austria, £3,807,700 ; Czecho-Slovakia, £3,573,000 ; France, £2,659,000 ; Italy, £1,905,000.
Of the total nominal amount of £32,623,500, the “ effective return “, according to the Austrian Minister of Finance, or the amount that actually reached Austria was only £25,000,000. Where did the balance of £7,500,000 go? For answer let us turn to the £14,000,000 raised in England.
First of all, in order to make the issue more “ tempting “ for each £100 stock issued, only £80 had to be paid. Secondly, there were deductions for underwriting commission (1 per cent.) and advertising expenses (2 per cent.). Thus, for each £100 debt to English capital the Austrian Government only received £77. The nominal rate of interest was 6 per cent., but considering that the “ cent.” in this case was £80, the amount paid for £100 of stock, the yield works out at 7½ per cent.
I turn now to the Hungarian loan -
A similar reconstruction in Hungary was carried out through the League of Nations in 1924. The main principles of the control established were identical with those in the case of Austria, a commissioner-general, Mr. S. Smith, of Boston, United States of America, being appointed by the League Council “ to supervise the execution of the whole programme of reform “.
The total amount of the loan which Hungary has to repay and on which she has to pay interest is £14,386,583. The “effective sum “ obtained by Hungary “ after providing for expenses of issue of negotiation and of delivery” was £11,709,602. Thus, in this case, £2,070,981 was paid to allied bankers and capitalists for their help in stabilizing conditions under the completely reactionary Government of Hungary.
The British portion of £7,902,700 was issued by Varing Brothers, N. M. Rothschild, and S. Henry Schroeder. Interest was at 7i per cent, which, allowing for the price of issue, “£S8 cash for £100 stock,” and effect of the redemption clauses, gave an average yield of 8.8 per cent. The loan was secured on the customs, sugar tax, tobacco and salt monopolies.
The third illustration is the “ refugee loan to Greece “ -
The third of the purely League loans is the so-called Greek Government 7 per cent. Refugee Loan of 1924. This loan, ostensibly raised for the settlement of refugees in Greece under a commission of the League of Nations, amounts to £12,&00,000, of which part was issued in Athens, part in America, and £7,500,000 in London. The issue price was £88, and the actual interest nearly 8 per cent., payment being guaranteed by the Greek Government and secured on certain monopolies and customs. The loan issue in Great Britain, handled by Hambro’s Bank in London, was over-subscribed in a few hours.
The foregoing extracts show the need for breaking the financial shackles that have been placed by the bankers upon this country. The Government’s proposal is a sincere and real attempt to meet existing circumstances by a departure from this crippling system. I shall not be satisfied until we have made a complete change over, and have had an opportunity to finance the country by the control and use of currency. I hope that honorable members will offer no obstacle to the passage of the bill. Let it be tested by its results and not merely by the doleful predictions of its opponents. The country demands that action be taken, and if we do not allow somebody to do something to save the nation the fault will lie at our door. I hope that the opponents of the bill will endeavour to be honest in their criticism, and not talk of things which they know cannot happen. One member of the Opposition said, in relation to another matter, that any government which exceeded the brief given to it by the people, and so affronted public opinion, would not survive the next election. That is true. Any government that was suspected of toying with the currency in the manner predicted by honorable members opposite, could not possibly survive an appeal to the people. I give to the bill my blessing, and
I hope that it will have that rapid despatch which the seriousness” and urgency of the situation demand.
.- It was remarkable to hear the honorable member for Adelaide (Mr. Yates) bestowing his blessing upon the bill, having regard to the fact that a few months ago the principles he advocated, and which are now, in effect, embodied in the bill, were condemned by the Treasurer as fallacious. The honorable member recognizes in this measure the first acceptance of a scheme he has advocated for many years inside and outside this House. He foresees that, if this scheme of inflation be adopted, before long Australia will not only be lifted out of the existing depression, but will become a creditor country. I shall make no attempt to combat such reckless optimism, but shall confine myself to the Treasurer’s proposal, which is, at any rate, within the bounds of practical politics. I feel obliged to congratulate him on having introduced this measure in a very able speech. It was a pity, however, that such a very fine advocacy should he wasted on so discreditable a cause. The Treasurer is not really an inflationist, but by force of circumstances, he feels constrained to introduce the inflation principle to this House in a series of homoeopathic doses. I do not believe that this proposal, limited as it is to £18,000,000, represents what the Treasurer would bring down if he thought there was any chance of getting a larger measure of inflation carried. I cannot forget that he was a supporter of what has become known as the “ Gibbons plan.” In fact, he is said to have sponsored it, and I have heard no denial from him. That plan involved inflation to the extent of £80,000,000 or £100,000,000, and the present proposal seems to be only a first instalment of it. The true opinion of the Treasurer on inflation has been stated on many occasions. As late as the 13th June of last year, when speaking on the central bank proposal, he refuted the arguments of the honorable member for Adelaide (Mr. Yates), which were very similar to those he himself advances to-day. He then described those arguments as fallacious, and in the course of his speech he said -
The honorable member referred frequently to what happened during the late war. At that time there was a great deal of dependence on the note issue on the one hand, and, on the other, upon the artificial creation of credit. That operation resulted in inflation of a deliberate kind. The governments resorted to that method, and the countries suffered. The consequence of it was shown in the enormously increased price levels and the tremendous instability of the financial system. A great deal of hardship and injustice was the inevitable result of our wartime finance, and our wartime inflation. Many became millionaires; that is one of the evils that arise from any deliberate policy of inflation.
The bill which he has now introduced to the House is admittedly inflation, and is undoubtedly deliberate inflation. The reservation that the Treasurer makes is that it is not unlimited inflation. He proposes for the present to issue notes only to the value of £18,000,000, something so small, in fact, that it will hardly be noticed. This, however, is only the first instalment, and if the bill gets through there is not much doubt that by the end of the year there will be a demand for still more inflation. That has been the experience of every country which has adopted this policy.
It is proposed that one-third of the money created will be devoted to helping the farmers, and two-thirds to the relief of unemployment. I regret very much that the position of the farmers should be used in an endeavour to introduce a scheme which would not otherwise be acceptable to the farmers or any other class of responsible person. The farmers are in great need. Every honorable member of this House recognizes that, and it is a grave scandal, that any measure designed for their benefit should be associated with contentious proposals which render effective assistance impossible. Proposals for the relief of the farmers should be entirely divorced from contentious measures of this kind. If the Government is in earnest, if it really desires to help the farmers, let it go on the market and borrow £6,000,000 exclusively for their use. Any measure having that as its object, and dissociated from schemes of inflation, compulsory pooling, and the like, would, I believe, pass this House unanimously. Moreover, I feel confident that if the Government made a patriotic appeal to the people of Australia for such a loan, they would respond to the appeal as they did recently in connexion with the £28,000,000 conversion loan. It is no proper excuse for refraining from attempting to raise such a loan to say that the Premier of one State has talked of repudiation - with which this Government says it will have nothing to do - and has thereby spoiled the market for Government borrowing. I appeal to the Government to issue a straight-out loan of £6,000,000 to help the farmers.
Of course, we recognize that the main object of this bill is not to help the farmers. They are being used only as a stalking horse. It is hoped that through this scheme they will be used to lead the unemployed of Sydney and Melbourne and the other large cities back to their soft government jobs. The Treasurer said that if this bill was passed it would enable employment to be given to 40,000. Suppose that number of men were employed, what is to happen when the money gives out at the end of the year? Is it not certain that there will be a powerful demand throughout the country for a renewal of the inflation process, so that their employment may be continued? The Treasurer has tried to persuade honorable members that this is only a very small dose of inflation; but what guarantee have we that if the principle is once accepted the process will not be continued? If the Labour party continues in power I have no doubt that the process will be continued indefinitely. This disposes effectually of the contention that this measure of inflation represents only a temporary infusion to counteract the fall in prices. I believe that the whole scheme is merely political windowdressing for the next election. If the Government gets its 40,000 men employed, these persons, who are now cursing the Government, will become its ardent supporters in the expectation of still further benefits to come. [Quorum formed.] I deny that there is any responsibility upon governments, and particularly on the Commonwealth Government, to provide employment at large for any class of the community. The nucleus of all groups of unemployed in Australia to-day are ex-government employees, the men who have, for long or short periods, been engaged on public works. I remember some years ago the trouble that occurred in Victoria when the Government’s ambitious railway construction. programme was terminated, and thousands of men - navvies and such like - were thrown out of employment. They immediately became a burden on the State. It is a cruel thing to gather large bodies of men together on public works in that way. Eventually the money gives out, and the men who have been drawn away from other occupations are thrown out of employment. The future before them is, first the dole, and eventually the old-age pension. It is said that the money raised under this proposal is to be spent on reproductive works. There are no reproductive works which Governments in Australia can properly engage in at the present time. Moreover, the Treasurer did not hint at any specific works which it was proposed to undertake. A great deal of the financial trouble in Australia to-day is due to the fact that millions of pounds have been spent upon unproductive public works. The most notorious example, of course, is the railways, but there are many others which do not produce anything like interest on cost of construction.- I defy any honorable member to point to any public work of the kind upon which this money would be spent which would be reproductive at the present time, or within any reasonable number of years.
– The honorable member for Adelaide (Mr. Yates) propounded the extraordinary proposition that all government expenditure was reproductive.
– The honorable member is responsible for his own opinions. This bill provides that £12,000,000 shall be ear-marked for providing employment on reproductive works. That forbids the use of any part of the money in furnishing assistance to industry in general, and confines its use exclusively to relief works such as road-building, construction of sewers in city suburbs, and other works of the kind which have never in the past been reproductive, and which have no prospect of ever becoming so. At the end of the year, when the £12,000,000 has been spent, we shall be so much worse off, and the 40,000 workers will again be unemployed.
– What about the Hume Weir? Is not that reproductive?
– The Hume Weir is a magnificent example of an unproductive public work.
The Treasurer in his speech resorted to the familiar condemnation of the banks. Coming from the Treasurer, such condemnation is, I think, rather ungrateful. The private banks are keeping him in his job to-day; they are financing the Government, and if they were to withhold supplies, Government administration would collapse.
– In what way are the private banks supplying this Government with funds?
– I have seen a return issued by the honorable gentleman which shows to what a large extent the private banks have taken up treasury-bills.
– These have been taken up for the States, not for the Commonwealth.
– That, after all, is only a quibble, and not a real objection to what I have stated. The financing of the Commonwealth, which includes the States, should ordinarily be done by the Commonwealth Bank. Apparently, the Treasurer wishes to make the distinction that where the Commonwealth Bank has to find money for the States, it obtains the assistance of the private banks, but that Commonwealth financing is undertaken by the Commonwealth Bank.
– The honorable member apparently does not understand the position. Private banks finance those State Governments which bank with them.
– Has not the Commonwealth Bank borrowed money in London ? I have read of an amount of £5,000,000 being due to the Westminster Bank.
– That is owed by a State Government.
– The financing of governments in Australia hinges on the capacity of the Commonwealth Government to provide whatever funds are needed. If it cannot find the money, no other authority can do so. Should a State Government be unable to obtain finance, the Commonwealth Government must come to its rescue; it cannot afford to allow any State to default. The Commonwealth Bank is obliged to make funds available if the private banks, upon which a State Government has been relying, fail to do so. Therefore, it is beside the question to say that the money is being loaned by the private banks to the States, and not to the Commonwealth.
Recently the Treasurer propounded a scheme whereby he hoped to enlist the cooperation of the banks in effecting an improvement in trade; but the banks rejected it. I am not surprised that they did so. Roughly, the scheme provided1 that the private banks should lend money on the guarantee of the Commonwealth Bank. What security does the Commonwealth Bank possess that will enable it to guarantee private banks, or any one else? In its efforts to finance this Government it has practically exhausted its resources. It cannot find sufficient to pay 4-Jd. a bushel to the wheat-farmers. It would be a very poor reed for the private banks to rely upon, particularly at the present time.
The Treasurer also referred to the export of gold, and showed a willingness to depart from his oft-repeated advocacy of the retention by the banks of sufficient reserves to meet their liabilities. He said he was prepared so to alter the law as to make it unnecessary’ for the Commonwealth Bank to retain the reserve of gold that it has had for many years, and, if necessary, to export from Australia the last ounce of gold held here. Let us compare that statement with another that the honorable gentleman made on the ‘ 13th June last. Discussing credit, he showed that the power to create credit resided mostly in the private banks, and that they could not look for too much from the Commonwealth Bank. His exact words were -
It will be seen, therefore, that the Commonwealth Bank has, after all, only a limited control of the creation of additional credit. Sound banking practice requires that there must be a certain percentage of cash reserves to meet any liability incurred in respect of expanded assets. 35Tow, however, instead of following safe lines, he has given himself over to inflation, and has announced his intention to do away with the necessity for retaining reserves, and, should he think it expedient, to export the last ounce of gold from this country.
In the identical speech in which he advocated the removal of the cash reserves, the honorable gentleman also advocated a very wide expansion of the trad ing business of the Commonwealth Bank. What regard has he for the interests of its depositors - looking at the matter from the point of view of a trading bank - when he is prepared to export the last of the bank’s reserves?
Another of the Treasurer’s specious proposals is summarized in the heading “ Exchange pooled, and controlled by the licensing of exports^’. 1 trust that when the farmers are asked to rise to the bait represented by the proposal to make available to them £6,000,000, they will realize exactly what is meant by the licensing of exports, and the controlling of the exchange. Any person who wishes to export will have to obtain a licence, and one of the conditions of the granting of the licence will be that the Government be given control of the credit created abroad. With those funds at its disposal, it will be able to control the exchange. If such a proposal were in operation at the present time, the effect of it would be to deprive the farmers of an advantage of 30 per cent. Perhaps I should credit the Treasurer with having said that the farmer would not necessarily lose the whole of that advantage; that he would be given what was fair and equitable. I cannot imagine the farmers relying on the honorable gentleman for what is fair and equitable. In the future, if the policy of inflation reached the fruition intended, they would find themselves in an absolutely desperate situation. Any inflation involves devaluation of local money. My authority for that statement is the Treasurer himself. Where there is devaluation of money, the exchange inevitably operates against that country. The position of the farmers would be an impossible one if they had to produce on the money scale that exists in their own country, and to sell on the money scales of other countries. They would have to produce at the higher cost caused by the lower purchasing power of our money, but when they sold their products in Great Britain, the basis of payment would be equality of exchange, or, at the most, that equality plus the little that the Treasurer might think fit to give them. Consequently, if inflation became at all serious, primary produce could not possibly be grown for export. That has been proved in Russia. I expect that the Treasurer obtained from
Russia the idea of controlling exchange and licensing exports, because it has operated there for some time. The diminution in the value of the rouble, and the control of exchange, made it impossible to export wheat from Russia at anything like profitable rates, and export absolutely ceased. The Government of Russia met the situation by terminating all the private holdings of wheat, and establishing one big national wheat farm. To-day, the Russian farmers are simply employees of the Government of that country. They produce the wheat for the Government, and it is sold abroad at prices at which we cannot compete. I venture the opinion that if the policy that it is now proposed to initiate to a limited extent in Australia expands to anything like the degree contemplated, our farmers will find that it is utterly impossible for them to produce either wheat, wool, or any other produce for sale abroad, and before long they will be merely employees of the Government.
The Treasurer has a second barrel to his proposal, which is expected to be very effective in the electorates when an election takes place. He has made an attack on the bondholders. Why he has tried to represent them as an undesirable class, I cannot understand. Only this financial year the people were invited by advertisement, by speeches, and by every method that could be devised for appealing to their patriotic sentiments, to lend money to the Government. Is it not dishonest that, within a month or two of raising that loan, the Government should be making an attack on the bondholders? The Treasurer has made a feature of the advantageous position in which the bondholders would stand in the event of reduced wages and general deflation. He and his followers are not alone in the view that the bondholders must accept their fair share of the general reduction of income which I feel sure will be experienced. Already there has been a great reduction in the value of property and in rents. Many wage-earners already have suffered a substantial reduction of income, which is the almost universal experience of the business community. Very soon it will be necessary for those Commonwealth public servants who have not yet had their salaries or wages reduced to be brought into line with private employees.
– What about the money lender ?
– Of course, he should have his income reduced, even to a greater extent than the average citizen. No section should be protected from the reduction of income necessary to place Australia in a position of stability. I would allow no class to be sacrosanct in that respect. When that reduction comes about, the holders of bonds will be in a much more advantageous position than the rest of the community by reason of the peculiar circumstances that have arisen in Australia.
I also see that the payment of interest on the national debt may prove a burden that we cannot bear. Our annual interest bill amounts to £55,000,000, and renewals of loans are being made on the basis of 6 per cent. Before long, that £55,000,000 will be £60,000,000, and more. I quite agree that the interest burden becomes increasingly difficult to bear, owing to the fall in the national income. It becomes larger in proportion to that income, and the time may come when we shall have to say openly that the people of Australia are not able to pay the full amount of interest, even that which has been bargained for. A certain proposal that is receiving support on both sides of th, House is, in my opinion, not altogether creditable. I refer to the proposed tax on interest, including the interest of bondholders, at the flat rate of 3s. 6d. id the £1.
– A special tax.
– Yes; but it is not easier to bear because of that. That tax would reduce interest from 6 per cent, to 5 per cent, in one stroke. What is the difference between cutting down the interest of the bondholders, and saying to them plainly, “ We cannot pay the whole amount ; the most that the country can pay is 5 per cent.”? I see no real difference. If a reduction of interest has to be made, I prefer the honest method of going openly to our creditors, and telling them that the conditions of th» country are such, and the alteration in the financial position is such, that it i.* necessary to make a reduction of the rate of interest payable on our capital debt.
The proposal to tax interest would bring about an undesirable result. A high rate of interest is detrimental to industry, and the taxation of interest would tend to raise the rate rather than lower it. So long as the Government’s rate of interest is nominally 6 per cent., we can never obtain cheap money for industry in. Australia. In my opinion, it was a great mistake ever to offer 6 per cent, for government loans. We should not at any time agree to pay so much as that. We should face the interest position quite fairly, and not attempt to get ahead of our bondholders or escape our liabilities by a mean process such as is embodied in this bill. Under a system of inflation, as has been proved in other countries, the return to the bondholders is seriously reduced ; they get back nothing like the equivalent of the sum originally subscribed. Inflation is one of the methods resorted to by dishonest governments, such as that of France, to evade their obligations to not only their own people, but also those of other countries. Germany attempted to escape its obligations to the rest of the world by a policy of inflation. It is utterly dishonest to do anything calculated to reduce the value of government bonds.
I admire the ability of the Treasurer, but I am not at all confident that he is a proper person to be in charge of the financial affairs of this country. His record is merely that of a borrower. While he was Premier of Queensland he trebled the taxation of that State, and enormously increased its national debt. He came into this Parliament as Treasurer last year, and, although he ought to have known that Australia was undergoing a period of severe depression, he budgeted in his first year to spend more than had been disbursed in the previous year. His incapacity to estimate the revenue likely to be received by him was shown by the fact that, within a few months, it was necessary for the Prime Minister to summon Parliament, and impose new taxation to the extent of £12,000,000. Then the Treasurer produced a second budget, in which he similarly over-estimated the revenue likely to be obtained. Eight months of the present financial year have expired, and already the finances have gone to the bad to the extent of over £13,000,000. I shall be no party to the wholesale spending of borrowed money for the purpose of employing men on government works. To that extent the purpose of the measure is wrong, and the bill is wholly wrong in principle. Therefore, I trust that the House will reject it.
.- The Treasurer (Mr. Theodore), in introducing the bill, referred to other measures relating to the financial proposals of the Government. It appears, therefore, that this hill marks the inauguration of a new financial policy. First of all, I shall refer to some of the statements made by the Treasurer in introducing it, and to some of the provisions of the measure itself, and I shall indicate a new clause which I hope to have an opportunity, in committee, of submitting. I heartily congratulate the Treasurer on his partial conversion to radical ideas of finance, though I am afraid it will be many years before he “ sees the light.” He said that the distress being experienced in this country is due to the false monetary policy pursued by past governments. Has he just discovered that? He and his Government have been in office seventeen weary months. When certain honorable members on this side prophesied that he would get nowhere, our statement was jeered at. A year ago we drew attention, both inside and outside this chamber, to the distress that is rampant throughout Australia, and we pointed out that the policy then indicated by the Government would be useless. Events have proved that we were right, and that the Government was wrong. The Treasurer now awakes to the fact that the monetary policy is responsible for the woeful amount of unemployment. He is aware of it because he has been forced to recognize it by happenings in the Labour party, in the country, and in his electorate. I am sorry that this Government has sat in office for seventeen months, and ha? failed to realize, although informed on many occasions, what is wrong, with th*3 monetary policy. It has brought many of our people hunger and misery, and some of them absolute starvation. The Treasurer seems to have awakened only within the last week or so to the fact that the monetary policy of the country is on entirely wrong lines, and , should be adjusted. It seems as though a thunderbolt has struck the honorable gentleman. But he lias made a very poor attempt at readjustment. This Government has been guilty of a lot of loose thinking. It has had to re-adjust its policy time after time, and now it has been stampeded into bringing forward a new financial plan. The Treasurer is now saying to the country that if this fiduciary notes plan is agreed to he will be able to lead the people out of the wilderness into the promised land. The honorable gentleman is misleading the people, and building up in them high hopes which can never be realized. This scheme will never provide our people with employment, or relieve them of their distresses.
In the party -room and in this chamber, I and others have tried time after time, without success, to get the Government to proceed with a financial policy in conformity with the platform adopted by the federal conference of the Australian Labour Party. I am not revealing any caucus secrets in making that statement. “When Ave asked that credit to the extent of £20,000,000 should be released the Treasurer asked how far £20,000,000 would go to meet the requirements of the situation. Yet now, when the depression is 100 per cent, greater than it was twelve months ago, when we asked for £20,000,000, the honorable gentleman is submitting a proposal for the provision of £18,000,000, and is telling the people that if his scheme is accepted everything will be well! He and those who are supporting him are misleading the people, and the Opposition is like an ostrich with its head in the sand.
All the talk about mass production as the solution of the problem of the primary producers is ridiculous. If honorable members opposite, who advocate this policy, would take a common-sense view, they would see that mass production has landed the primary producers where they are. Surely the Treasurer must realize that it is necessary to secure control of the industrial machine. There must be a big reduction in the hours of labour and the complete socialization and mobilization of industry before the country can be restored to prosperity. Mass production has landed tens of thousands of workers on the scrap heap and is landing more of them there every week. In these circumstances it is cruel deception, though I do not say conscious deception, to encourage the people to believe that the financial policy of the Government will bring them relief. I cannot understand the Treasurer even suggesting that his policy will meet the needs of tens of thousands of people who are on the verge of starvation.
If fiduciary notes to the amount of £18,000,000 are issued to-day the Government will require the issue of a like amount in three or four months’ time, and still the depression will go on. Yet these men are regarded as leaders, and have a following ! The wonderful Labour movement has produced leaders in the days gone by, and the people expect it to produce intelligent leaders to-day. The honorable member for Herbert (Mr. Martens) may laugh. If he is not careful I may remind him of something that he said about the Treasurer in the party meeting. He had better keep his mouth shut.
The Treasurer desires to restore wholesale prices to the 1929 level; but not a word is said about restoring wages to that level; not a word is said about the 10 per cent, slash which the Arbitration Court has made in wages; and not a word is said about all that the Government has taken from the people since it has been in office. “ Let us get the price levels back to the 1929 level, and all will be well,” says the Treasurer. But there is no attempt to do even that in this measure. This Government has made no attempt to deal with the reactionary forces which have brought about the present economic depression, and which have slashed at real wages. If this were a real Labour Government - I apologize to Labour for even calling it one, yet it has the cheek to call itself a Labour Government
– This will not get the honorable member anywhere.
– It has got the honorable member for Adelaide somewhere. I am amazed at the way it has swallowed him. I could quote from Hansard to show how the honorable member has shifted his ground; but I shall not spend my time in doing so. If this Government dares to attempt to restore the 1929 price levels without at the same time re-adjusting the value of real wages; if it dares to leave the financial institutions of the country in charge of affairs as they are to-day; if it dares to permit slashes at the wage standards of this country ; if it dares to go on as it is going to-day, it will earn not only the opposition, but the condemnation of all the people of the country. It is -tragic that men who were returned to Parliament with the object of putting a specific financial policy into effect should try by this “ guff “ to mislead the National Parliament. When the Treasurer talks of the ruinous policy of the bankers he is like the devil quoting scripture. During the last fifteen months he has had conference after conference with the hankers. Perhaps the devil is not as bad as the bankers. The honorable gentleman promised that he would fight the bankers tooth and nail. We were told that they would ultimately eat out of his hand. But now he finds himself helpless, and the bankers still in charge. Nevertheless, we are still to wait a little longer. There is always the hope, so we are told, that something will turn up to-morrow. The honorable gentleman is now having heaped upon him the results of his own ineptitude and procrastination. Having sat down and done nothing for so long he is now trying to hurl the blame upon some one else, a practice which is not altogether new or novel with him.
The one man largely responsible for the policy of the Commonwealth Bank, who is admittedly one of the strong and dominating personalities of the institution, and who, I believe, could do a great deal to influence the bank to cope with the present situation, is Sir Robert Gibson. I could quote from Hansa-rd the remarks which certain honorable members on this side of the chamber have made in regard to this gentleman. In Opposition they were bold lions prepared to do everything and anything; but now they are tame domestic cats. I could quote from the speeches of some of these honorable members to show what they thought of the re-appointment of Sir Robert Gibson. They repudiated the gentleman in every sense. Yet to-day if any one man stands in the way of giving effect to their policy it is he. But they knew all about this gentleman’s views before they re-appointed him chairman of the board.
– He is a good man.
– I have not met the gentleman, and so do not know him; but if the honorable member for Forrest (Mr. Prowse) says he is a good man from the financial point of view, that is the worst recommendation he can have, so far as I am concerned. If he has no more knowledge of the financial needs of this country than the honorable member, he is woefully lacking in the equipment necessary to do his work. If any one man is responsible for the policy of the Commonwealth Bank, which is to-day thrown athwart the track of the Government, it is Sir Robert Gibson.
– The Treasurer said he was against the reappointment of him.
– Yet the Prime Minister said that he acquiesced in the appointment. I wonder why the bankers and honorable members opposite are opposing this bill, for it is in conformity with their own conservative policy. This bill protects the present loan flotation practice. Under its provisions the notes will he circulated once. They will be paid to the workers in wages, or paid to the farmers for produce, or paid to the banks to satisfy overdraft requirements. Within two or three months they will all come into the possession of the banks. The worker will pay them to the butcher and the baker, and these will pay them over the bank counter on the Monday morning, and before very long the Government will have to redeem them by raising a loan. For these reasons I consider that the opposition of the bankers to the proposal is not a real opposition. It is intended merely to create a psychology. It is intended to cause the people to resist the adoption of any currency proposal which may react on the cheque-pound system of the banks. These notes, if issued, will certainly and rapidly find their way into the hank strong-rooms, and so will be lost to the general public and another issue will be needed to replace them. This means that the present financial system will be perpetuated. I cannot understand how the honorable member for Adelaide can accept the system, because it continues the loan policy and the payment of interest^ to which he has been so strongly opposed. The notes will be redeemed by loan in parcels of £12,000,000, and the first and all subsequent loans of that amount will be added to the national debt. The interest will be piled up, and so the vicious circle will continue. If I were anywhere else but in this chamber I should describe the bill as a confidence trick.
Sitting suspended from 6.15 to 8 p.m.
– That interesting subject, the gold standard, has been referred to many times in this House, and it is not necessary for me to tell honorable members my opinion of it. I have frequently stated in definite terms what I think of the gold standard, but I was quite astounded to hear it described by the Treasurer as a fetish. I look upon him as a worshipper at the shrine of the gold standard. I have made speeches in this House and elsewhere, and the Treasurer has told me that I was talking damned nonsense. He has said that on the floor of this chamber. I am quite willing to destroy this stupid fetish of the gold standard, but I am suspicious of any death-bed repentance, and because of that, I may be pardoned if I say that I do not take the Treasurer seriously.
The subject of inflation has also been dealt with by honorable members. Only twelve months ago efforts were made to obtain some measure of financial reform from this Government. I recollect that almost every time some of us opened our mouths the word “ inflation “ was hurled at us, and we were told that we were advocating the destruction of the value of the currency and the ruin of Australia. That was said not only by members. of the Opposition, but also by members of the Government. It was stated last night that the press, honorable members opposite, the bankers and kindred interests, by their frequent references to inflation, had done much to destroy the credit of this country. The Prime Minister and the Treasurer had a full share in that propaganda. During the Parkes byelection I sat on a platform behind the Prime Minister, and I heard him say that the men in the Labour party who were advocating financial reform were advocating the printing of hundreds of millions of notes. He has stated repeatedly that to. utilize the resources of this nation in order to release credits to the extent of £20,000,000 instead of borrowing from, the Commonwealth Bank would be unlimited inflation. It is only because of the political exigencies and the clear and, definite attitude of the Premier of New South “Wales that this Government hasbeen forced to attempt a thing which it previously stated was impossible. Credit should be given where it is due, and in. this case it should be given to the Premier of New South Wales. Some of us in the’ Labour party have repeatedly been reminded of the position that obtained in. Germany because of inflation. I remind’ honorable members that that nation deliberately inflated its currency so as todestroy the national credit. It did that by printing millions and millions of notes. If any honorable member says that I haveadvocated a similar process in Australia,, he is either dishonest or too foolish to be able to understand plain English. I have been told, when I advocated the utilization of our national credit without printing one note, that I wished to do in Australia what was done in Germany. If weprinted one hundred million notes to-day we could not use them. The financial and”commercial interests of this country refuse to use notes; they prefer to operate the cheque system, which is a fraudulent) currency. If I am bitter to-night it isbecause the Government did not takeaction twelve or fifteen months ago. Had it done so, it would have prevented much of the woe and desolation that have since occurred. The members of the Government are to-day adopting the policy of inflation, not because they wish to alleviate the sufferings of the community, but because they are anxious to save their miserable political lives. The Treasurerhas said that there must be a limit to inflation, but I defy him to show where the limit begins. There is no economist or financier in the world who can mark the border line where safety ends and inflation begins. No one is able to decide what amount will suffice for the currency needs of a nation. Therefore, what is the use of any honorable member in this chamber saying that there must be a limit to inflation ? It is hopeless to attempt toset a limit while the capitalistic cheque’ system remains. Economics, except in the matter of collecting data and statistics, is a speculative science and a jumble of ideals. It can never be anything else. The theories of honorable members opposite are just words, words, words, and the Leader of the Opposition (Mr. Latham) spins thom better than any one else. The Government talks of controlled inflation, but I shall produce figures to show that that objective is impossible of achievement while the banker is able to operate the system of cheques. Under that system, our financial institutions decide what industry shall flourish and what industry shall languish to enable a similar industry to flourish in another country in which their interests are more centred. Any effort to improve our financial position, short of eliminating this financial evil, will be simply beating the air, and an evidence that the Government is votecatching instead of fighting for a principle. Mr. Reginald McKenna, president of the Midland Bank of Great Britain, and Chancellor of the Exchequer in the Lloyd George Government, speaking at a meeting of shareholders, said that the amount of money in existence depends solely on the attitude of the banker in increasing or diminishing deposits; that every bank loan creates a deposit, and that the destruction of a bank loan means the destruction of a deposit. He produced a table of figures to prove that the banks of England create the British currency. In 1887 Mulhall, who is recognized as one of the greatest statisticians of his day, perhaps of all time, showed by statistics that 97 per cent, of the British currency was cheque pounds, and only 3 per cent, was gold, silver and banknotes. The statements of McKenna and Mulhall are borne out by the statistics of our own banking operations. According to Commonwealth statistics, on the 29th December, 1930, the associated banks possessed only £47,000,000 of legal currency. Currency created by the Government .is the only legal currency in the world. Heal money is produced from the Government press or mint. Let me give an elementary example. If I were to make a sovereign and put in it three times the amount of gold that the Government mint puts into a sovereign, it would still be counterfeit, and if I attempted to pass it over the counter, I would be liable to imprisonment as a counterfeit coiner. The value of the gold in the sovereign would not be taken into account; I would be punished because I had infringed the law which provides that legal tender can bo provided only by the Government. If I printed a counterfeit note, I would be sent to gaol, even though I had £1,000,000 to back it. The total amount of legal currency in Australia, including that held by the banks, public treasuries, business people, and private citizens does not exceed £55,000,000. The associated banks, holding £47,000,000 of that amount can lend to the people the huge sum of £257,000,000, and bleed them for interest on that amount. Their deposits, at call, total £96,000,000, and their fixed deposits £208,000,000, making a total of £304,000,000, to meet which they hold only £47,000,000 of legal currency.
– The honorable member desires to destroy all that credit?
– I am not proposing to destroy anything. I am exposing the inconsistency of those who, whilst prepared to allow their political friends to practise this sort of roguery, declare that the issue of a few million pounds of additional credit by the nation would be dangerous inflation. With only £47,000,000 of legal currency in their possession, the associated banks are able to circulate through the clearing houses in the capital cities only, not taking into consideration the transactions in country branches, credit instruments amounting to no less a sum than £2,018,000,000. That is inflation; yet the bankers are allowed to play ‘ducks and drakes with the currency of the country, because they ?.re political friends of honorable members opposite. Deducting the £47,000,000 of legal tender, the banks have in circulation £1,971,000,000 of spurious money. They have no legal right to issue cheques and expand credit in that way. They have usurped the prerogatives of government, because stupid laws, enacted in the past, and still in operation, prevent the provision of more than about one-hundredth of the legal currency needs of the people; the huge currency vacuum thus created is filled by the bankers with spurious cheque pounds. The cheque has become so bandy and useful an instrument in the commercial life of the community that it cannot be eliminated. If the Government printed £1,000,000,000 worth of notes, it could not use them, because the people would continue to operate the convenient cheque system. The bank note is like the metallic currency, legal tender only because it is created by the Government; all legal currency is protected by very strict laws. The cheque system also should be controlled and operated by the Government, but that can be done only by eliminating the private banks, and permitting the Commonwealth Bank to do the whole job for the nation. Then every cheque, like the bank note, will be a legal instrument; it will be an implement of credit created by the Government to satisfy the needs of the community. The cheque system originated out of an attempt to defeat a law enacted by the British Parliament in the interests of the Bank of England.
– The cheque system was in use long before the Bank of England was established.
– The honorable member is misinformed. Bills of exchange and other credit instruments have been long in use, but the cheque and the banking system, as we know it to-day, originated out of the necessities of the British people in connexion with the financing of foreign wars. A law was passed by the British Parliament to give a monopoly of banking to the Bank of England, and to make it illegal for any other banking institution to issue notes. This was expected to destroy the joint stock banks, but they merely placed the notes of the Bank of England in their vaults, as the associated banks do with the notes issued by the Commonwealth Bank to-day, and on that basis extended credits by the cheque system to the extent of four or five times their holding of legal tender. So rapid was the extension of the cheque system that 100 years later cheques represented 97 per cent, of the currency of Great Britain.
– A cheque is not of much good if the bank endorses it N.S.F.
– Does the honorable member believe that the £304,000,000 of deposits in the associated banks to-day was made in the form of currency? Only £55,000,000 worth of legal currency is in existence. Does the honorable member know how a banker fakes deposits? If a person deposits £3,000 worth of deeds as security for an overdraft of £1,000 surely the security and not the bank creates the credit. Yet on the books of the bank, although the client owes £1,000, he will appear as having deposited £1,000 of currency.
The statistics I have quoted tell their own story, which can be understood by any common-sense person who studies them with an unbiased mind. They corroborate all that radical writers have said regarding the fraud and faking that is behind the manipulation of credit. Allowing /or the differences in the volume of trade, the spurious currency in circulation in the Commonwealth is proportionately as great as in the United Kingdom and America. My reading tells me that the cheque system is not operated on the Continent to anything like the same extent as in the British Empire and America. That is why the French people are able to issue banknotes <to the huge amount of £1,000,000,000. The Continental banks have not advanced so far along the path of evolutionary progress of the cheque system as have the financial institutions in English-speaking countries.
The Treasurer stated that parallel with this bill other legislation will be introduced to give full effect to the Government’s programme. It will be necessary, he said, for certain restrictions to be lifted from the Commonwealth Bank so that it may launch out in open competition with the private banks, and thus carry out Labour’s policy. Such competition, with the object of eventually destroying the private banks, is a puerile attempt to give effect to the Labour party’s platform. It might eat them up in a million years. They might bring about their own destruction long before that, if the capitalistic system is allowed to run its course. That, however, is not the Labour party’s policy. Our platform is the socialization or nationalization of banking, not as a result of competition, but by direct legislative action. I believe that it is quite possible to open branches of the Commonwealth Bank in every suburb, in every town, and every hamlet throughout the country by the 31st December of this year if the Government is really in earnest. It is not necessary to erect palatial buildings. Such buildings have been put up for banking purposes in the cities merely to create a psychological effect of solidity; to create public confidence in the counterfeiting institutions which carry on their operations there. Owing to the depression, there are plenty of buildings available in all country towns to-day sufficient to house branches of the Commonwealth Bank. If necessary, part of the post offices could be used for the time being. All that is really required to carry on banking operations is a reasonably secure building, a chair, a counter, a pen and ink, a good safe, and the word “bank” across the front. When a bank building is destroyed by fire the banking authorities do not wait until they can erect a magnificent building before recommencing business; any temporary structure will do. Because the use of the cheque system, and the expansion of credit through this means, is the manner in which the banks make their profits, I desire to foreshadow an amendment which I propose to move at the committee stage of this bill. I intend to vote for the second reading of the bill, because it is at least one step in the right direction. The bill might be compared to the body of a motor car without the engine. We hope later to put the engine in so that it may take us where we wish to go.
– Is the honorable member going to vote for a measure which he has described as a confidence trick?
– The honorable member does not understand plain English, or he would not ask that question. I propose later to move the following amendment : -
On and after the 3lst December, 1931, no person, institution or association of institutions shall operate a cheque system - penalty fourteen years’ imprisonment.
Honorable members opposite see fit to laugh. The bill already provides a penalty of 14 years’ imprisonment for any person who counterfeits even one of these fiduciary notes; but the banks are allowed to counterfeit by means of the cheque system millions of pounds worth of notes, and honorable members opposite think it amusing’. No wonder the bankers of this country can afford to laugh at Parliament when they know there are such duds in it.
– The honorable member must not apply such expressions to members of this Parliament.
– I withdraw the expression. It will be necessary in the bill to define cheque currency to mean the use of paper instruments for the purpose of transferring bank credits, and/or currency credits from one person to another for the discharge of debts and payment for goods or services, and the creation of cheque credits against the deposit of securities.
– The honorable member must know that such an amendment would be out of order. This bill deals with the note issue; not with the control of banking.
– The bill provides penalties against the issue of fraudulent notes, and I desire that it shall also make it illegal to issue fraudulent cheque pounds. I do not think that such an amendment would be ruled out of order. Unless something of the kind is done this bill will have no beneficial effect at ail. We were told by the Treasurer that if the banks had agreed to the Government’s proposal this bill would not be necessary. The banks, we know, would have agreed to the proposals of the Government if their conditions had been accepted, namely, the whittling down of the workers’ standard of living, the reduction of old-age and invalid pensions, maternity allowances, &c. Needless to say, I do not approve of having any truck with the hanks on such terms. I would not confer with them upon any consideration, any more than I would confer with counterfeiters. The banks are prepared to assist in the rehabilitation of industry only on condition that the workers in industry carry on at lower wages for longer hours, and that pension benefits are reduced.
I desire to know how it is proposed to relieve unemployment under this proposal. What works are to be instituted? Eighteen million pounds is a very small amount, and it can he spent only once. It is proposed to use £12,000,000 for the relief of unemployment, and £6,000,000 for the relief of the farmers. Is it intended to spend £12,000,000 on national works? If so, that is against the declared policy of the Prime Minister, which is that unless this money is expended upon the creation of immediately consumable wealth it will be wasted. There is no use in giving the farmers money with which to grow more wheat for which there is no market; nor is it of any use helping manufacturers to produce more goods when the shelves of shops and warehouses are already crammed with goods for which there are no customers. The money should be spent on some national undertaking, the character of which is to be determined, which will assist in the consumption of the goods already existing. It cannot be effectively used in any other way. How does the Government suggest it might be employed? Are we to advance it to the wool-growers? There is already more wool in existence than there is a market for. Are we to use it to assist secondary production ? Factories are already closing down, and thousands of men are being thrown out of employment because the community does not possess sufficient purchasing power to buy the goods produced.
– That is because the goods are too dear.
– What does it matter whether the price of a hat is ls or £1 if the would-be purchaser has no money? This bill is hopelessly inadequate. If twenty million pounds was no good twelve months ago, £18,000,000 is no good to-day.
– How many millions does the honorable member want?
– I ask the honorable member to consult the works of his own conservative economists, McLeod, McKenna and the rest on this very point. All of them assert that there can be no currency inflation so long as the credit created is used for the production of wealth. That is true no matter what volume of credit is created. That is what I meant when I said that it does not matter whether credit expansion takes place to the extent of £1,000,000 or £1,000,000,000, provided it is used in the production of real wealth. Inflation occurs only when a nation prints notes, and keeps on printing them, to pay for services, overhead governmental charges and those things which do not represent the creation of wealth. The bankers said twelve months ago that £20,000,000 credit could not be created as was proposed by members of the Labour party. Since then the banking institutions, which described that proposal as inflation, have carried the Treasurer of the Commonwealth and the Treasurers of the States by means of unsecured overdrafts for £55,000,000, to pay for services. This money has been spent, and no value has been created for it to the extent of even a packet of cigarettes. That is what the banker has done, and because it has been done behind the backs of the people he has been able to secure- a stronger economic grip on this country. But £20,000,000, it was said, could not be spent to create wealth, to put bread and butter into the mouths of little children whose fathers were unemployed ! That is the hurdle which honorable members opposite have to surmount, and until they do so they should withhold their cheap sneers.
When I commenced my speech I felt that, because of certain happenings, it was my duty to place before this House the views that I believe in and from which I have not deviated in the last twelve years. Whether I am right or wrong, is another question. To some extent I have had to cross swords with the Prime Minister and the Treasurer, and that has given unbounded satisfaction to honorable members opposite. In thi* mean, petty game called politics, men will use any weapon upon which they can lay their hands.
– The honorable member’s time has expired.
– The Government has apparently come to the end of its tether financially, and now proposes what history shows that certain other nations have done in similar circumstances. By means of this bill, it proposes to increase the supply of paper money; and it applies to that’ new money the high sounding title “fiduciary issue.” According to a dictionary that I have consulted - a combination of Webster, Wilkie and Worcester - the meaning of “ fiduciary “ is “ endeavouring to gain salvation by faith, without work.” The Treasurer could not have chosen a better title for this proposed new issue of currency. It is amazing to find a Government, which a few months ago was such an uncompromising opponent of the financial creed of the honorable member for Adelaide (Mr. Yates), now sitting at that honorable member’s feet. I share the amazement of the honorable member for Werriwa (Mr. Lazzarini), at the Government having come round to his view that there is no need to worry about a gold standard. The Treasurer on Tuesday night showed how little regard he has for the maintenance of the gold standard. I do not know that I can congratulate the honorable member for Adelaide upon having persuaded the Government to see eye to eye with him. That honorable member certainly preaches with a great deal of fervour his beliefs in regard to currency and money matters generally; but I do not think that any logic or any argument of his induced the Government to accept his view. In my opinion, it has simply followed the line of least resistance, and has adopted what it believes to be the easiest means of obtaining a further temporary respite from the fate that awaits all governments and all individuals who continue for too long a period to live beyond their means. This is not the first instance of a nation having sought to obtain some respite in that way. I shall quote briefly from a statement by Professor Bowley, Professor of Statistics at the University of London, in relation to this trait, which is observable in various governments that have been similarly circumstanced. Reviewing the causes of inflation in Europe, Professor Bowley says -
When the pressure on governments to finance operations is very great it is impracticable to increase taxation quickly enough to supply this money, and the power of the banks to advance money is soon exhausted. Nor can loans be organized in time to meet the expenses as they fall due. A government is presently forced to create new currency to meet its expenses, and this is done by printing currency or Treasury notes. The currency notes themselves come into circulation either by the Government using them to pay its own expenses, or by the banks issuing them instead of gold.
Given that convertibility into gold is suspended, there is no automatic limit on the amount that can be issued, and unless very strict control is exercised, a vicious race is set up between increase of prices and of currency. As is nearly self evident, and is explained in detail in all books dealing with the subject, prices rise, as the amount of currency in circulation increases more rapidly than the goods that exist for purchase, higher prices result in higher wages, and higher wages call for more currency, and more currency raises the prices further.
I draw particular attention to the opinion that, unless very strict control be exercised, certain results must follow. Is this Government capable of exercising strict control over anything? Is it capable of exercising control over even its own members? It has proved itself absolutely incapable of doing any such thing. A sufficient number have merely to raise their voices for further inflation, and an additional issue must follow this proposed issue. The Prime Minister told an audience, which listened to him with close attention, in the Yarra electorate, that his practice as Prime Minister was to walk into the party room, tell the party what he thought should be done, and then leave it to decide. To me this bill affords indisputable proof of the truth of that statement. Nothing could have been stronger than the right honorable gentleman’s denunciation of inflation of this character, and of its results. Nothing could have been more effective than his protests against any proposal to coerce the banks. And nothing could have been more uncompromising than the contemptuous and absolute condemnation by the Treasurer a few months ago of the policy of the honorable member for Adelaide (Mr. Yates). Yet both the Prime Minister and the Treasurer are ranged to-day alongside the honorable member for Adelaide in propounding a policy that they 30 roundly condemned! This House is asked to believe, and it finds it as difficult to believe, as did the honorable member for Werriwa (Mr. Lazzarini), that the Prime Minister and the Treasurer have any faith in their own proposals. If they have, their minds must be as plastic as clay, and can he moulded into any shape which the caucus decrees - minds that are not their own, but are made up for them by a counting of heads rather than a weighing of facts.
– A plastic mind is a virtue, not a vice.
– A mind can be over plastic, and produce changes of policy so rapid that the public cannot follow them. The Treasurer selected certain passages from various authorities, and quoted them as arguments in favour of his proposal. When quoting Professor Brigden, however, he did not trouble to tell this House that that gentleman was associated with the committee of treasury experts that was appointed to draw up certain recommendations for the consideration of the Premiers of the States, and that he was one of those who urged that expenditure, both Commonwealth and State, should be reduced by at least £15,000,000, as a starting point. The admission that he was a member of that committee was dragged from the honorable gentleman by an interjection from this side of the House.
– Does the honorable gentleman mean that the £15,000,000 cut should be merely the first of a series of cuts?
– I do not mean anything of the kind. My understanding of the recommendations of that committee is that, in order to put ourselves right, in order to make a step that will take us towards the road that leads to recovery, our first action should be to reduce our expenditure, Commonwealth and State, by £15,000,000 per annum.
The Treasurer quoted extensively from Professor Copland, and claimed that that gentleman also was in favour of these fiduciary proposals. I have in my band a cutting from the Melbourne Argus of the 23rd February last, containing an article by Professor Copland, headed “Mr. Theodore’s plan; It’s fundamental weaknesses; The Ministry’s first task; Balancing the budget.” There is a column of splendid arguments against the Treasurer’s proposals, but I shall content myself by quoting only extracts from it. It reads -
There are four fundamental conditions of economic recovery in Australia -
Export production must be maintained, and for this purpose costs of production in the export industries must be reduced.
Budgets must be balanced.
The rate of interest must fall.
There must be some extension of Australian secondary industries to employ population formerly dependent upon the expenditure of loan money derived from abroad.
Any plan of economic recovery must fulfil these conditions if it is to be successful, and Mr. Theodore’s plan should be judged accordingly.
The maintenance of export production is vital because it supplies the funds from which interest on the overseas debt is paid, and necessary imports are financed. Export prices have now fallen by about 50 per cent.; prices of commodities which enter into the primary producer’s costs have not fallen appreciably. Figures showing movements in a selected group of farm products and industrial products, though not fully portraying the position, are useful as an illustration of the point. On the basis of 1911 as 100, farm products in June were 172, and industrial products 176. The industrial products rose to 184 in November, 1930, and the farm products fell to 118 at the same date. Now Mr. Theodore proposes to restore the price level of 1929. To do this he must raise both groups of prices or one of them. If industrial products rise in price the disparity between farmers’ receipts and costs is increased with injury to the primary industries. Pending a spectacular and unlikely recovery in overseas prices of exports, Mr. Theodore can raise export prices only by allowing exchange rates to go even higher than they are to-day, and this will have a disastrous effect upon Budgets. Thus either course involves grave difficulties. The first will destroy some export production, reduce our capacity to pay interest abroad, and tend to reduce the national income. The second places even further ahead the day when Australia will be able to balance Budgets. . . .
By refusing to accept the report of the experts’ committee and the advice that has been given during the last six months, the Scullin Ministry is raising an effective barrier to economic recovery. Apart from the Lang Ministry it is the only important authority that steadfastly refuses to do its duty in the crisis. . . . No manipulation of the currency can restore the real income of the country, and as long as national income is deficient recipients of income from the Government, whether they be public service officials or pensioners, whose incomes have not been reduced, are not sharing in the loss of income.
Mr. Scullin cannot square this result with his oft-repeated statement that there must be equality of sacrifice. Bond holders have already had to pay a higher rate of tax upon income from property, and this weapon can be used in the degree required to secure a just contribution from them. The simple and obvious fact remains that revenue cannot be raised to pay salaries and social services on the old scale. But Mr. Theodore’s plan will increase the difficulties of all Treasurers. . . .
The rate of interest is greatly affected by the degree of confidence in the future financial position of an enterprise. The failure of the Government to reduce expenditure will destroy confidence, and interest rates must then rise. The Government would not be able to convert maturing loans; any failure to do so would have a serious effect. . . .
In every respect Mr. Theodore’s plan must, therefore, be considered to fail. . . . Monetary policy has always been an important feature of this plan, and there was always the possibility that attention might be concentrated upon monetary policy to the detriment of the success of the whole plan. . . . The duty of the Government in propounding such a plan is confined largely to balancing its Budget. By concentrating upon monetary policy which goes beyond its sphere, and in failing to perform its real functions it destroys the basis of confidence upon which monetary policy could be of real assistance in alleviating our difficulties.
– That article is merely a manifestation of political prejudice.
– Its author was quoted at considerable length by the Treasurer on Tuesday, to show that he was right behind the Treasurer’s fiduciary proposals. The Treasurer further told us that such inflation as this measure involves was easily controllable. He remarked that if we proceeded cautiously all would be well. One is reminded of a man who experiments to see how many strong drinks he can take before intoxication is produced. The Treasurer went on to tell us that, in Germany, the inflation troubles were not the result of the monetary policy getting out of hand, but were due to a definite policy desired and aimed at by the German Government. Does the Treasurer suggest for a moment that the ultimate result of inflation in Germany was deliberately aimed at and desired by the Government of that country? Does he remember that inflation reached a point when the entire output of 30 paper mills was required to provide the additional banknotes that had to be printed every day, and it was practically impossible for a man to wheel in a barrow sufficient notes to pay for a haircut ?
The Treasurer proceeded to speak of France’s policy of inflation as achieving desirable results; yet he said that the policy adopted there was no doubt one which set out deliberately to injure the bondholders. Does he wish us to understand that the injuring of bondholders who have lent money to their country is desirable? The honorable member for Maribyrnong (Mr. Fenton) gave us some interesting figures, which show that a great many of the bondholders in Australia are working people, since bonds have been taken up largely by friendly societies, savings banks, trade unions, and organizations of various kinds whose funds are provided mainly by working men. Are we to understand that the Treasurer regards it as desirable to adopt a policy such as that which enabled France to pay her debts to Great Britain in a currency that was worth something like 5s. in the £1? “Whatever the Treasurer may do in debasing our currency, we cannot follow the example of France in regard to our external debts, because they must be paid in full in British money, and we must make up the difference due to the adverse exchange.
In an early part of his speech the Treasurer said that, if we all bear a fair share of the burden due to the diminution in the national income, there will be no great economic loss or suffering. That is true; but he failed to show how his proposal would bring about such a result that the burden would be evenly distributed. On the contrary, the Treasurer’s proposal must result in an increase in the costs of production. If those costs rose, and the exchange rates were pegged again, our exporting industries would be destroyed. The Treasurer told us, also, that the workers of this country had suffered to the extent of some £40,000,000 by way of reduction of income. I submit that, if we practised inflation, the workers would suffer much greater loss than they have already been called upon to bear. The payments to pensioners would be reduced by a back-door method which I regard as contemptible. The amount they receive would be made worth very much less than its present value, and this at the hands of a Minister who pretends to regard those payments as sacrosanct.
The Treasurer went on to compare thb proposed fiduciary issue with that which obtains in Great Britain. He reminded us that the notes in circulation in Australia to-day amount to about £45,750,000, and he said that the proposed fiduciary issue of £18,000,000 would not be a very substantial proportion of the notes already in circulation, if a comparison were made with the notes in circulation in Great Britain, backed with gold, and the British fiduciary issue. He said in Great Britain there is £140,000,000 worth of notes in circulation backed by gold, and £260,000,000 of the fiduciary issue, and he argued that, as Great Britain’s fiduciary issue is nearly twice as great as its ordinary issue, which is backed with gold, Australia, with an ordinary issue of £45,750,000, backed to some extent with gold, could have a fiduciary issue of nearly double that amount. There is a statutory requirement that our note issue must be backed with at least 25 per cent, of gold, and, as a matter of fact, we have a greater amount of gold than the statutory minimum. We have about £15,000,000 of gold at present against the circulation of nearly £46,000,000 worth of notes. So gold to notes in Australia to-day is in the ratio of about 34 per cent. In Great Britain, the ordinary issue of notes to the value of £140,000,000 is pound for pound, backed with gold, and, on taking into account the fiduciary issue of £260,000,000 we find that the backing of £140,000,000 of gold is equal to 35 per cent, of the total note issue of £400,000,000. Therefore, the ratio of gold to notes in Great Britain is slightly greater than that in Australia on the notes already in circulation. Obviously, any fiduciary issue of notes on the strength of the present gold backing must reduce the ratio of gold to notes still further.
– The honorable member implies that the British fiduciary issue is regarded as being backed with a proportion of the gold behind the ordinary notes; but that is not the legal position.
– Perhaps not; but it is sound common sense. The fiduciary issue in Great Britain is backed with securities, silver and many other things, and every note has, in a sense, been fully paid for. I did not put that aspect of the subject to honorable members. I merely submit the proposition that the British ordinary note issue of £140,000,000 is backed £1 for £1 by £140,000,000 in gold, and if, for the purpose of this argument, we disregard the solid backing of Government securities, silver, &c., behind the British fiduciary issue of £260,000,000, and if we regard the total British note issue of £400,000,000 as merely having a gold backing of £140,000,000, the percentage of gold to all British notes is better than we have in Australia to-day without the addition of a single fiduciary note.
Some time ago, it may be a year or two, the League of Nations appointed a finance committee which consisted of about a dozen men representing as many countries, to work in co-operation with a number of international experts on finance. The committee was instructed “ to examine into and report upon the causes of fluctuation in the purchasing power of gold and their effect upon the economic life of the nations “. Such an inquiry is wide in its scope. We must realize that fluctuations occur in the value of some commodities which may not have the effect of altering their value in relation to each other, but which would alter it greatly in some other relationships. Wool has dropped enormously in value and so has wheat. Yet it is still possible to exchange a bale of wool for about the same quantity of wheat as could be obtained when prices were higher, because the diminution in the value of each of those commodities has been proportionate, but the value of these commodities in relation to gold has altered tremendously. Gold seems to be almost the only commodity which has not been reduced in value. With an ounce of gold it is possible to buy far more wheat, or wool, or base metals, than previously. The investigations of the League of Nations expert committee should throw a great deal of light upon this problem and upon other economic difficulties which beset the world. The committee is endeavouring to discover the causes of the heavy slump in prices. Naturally some enlightening comments have been made upon the subject by the committee. With regard to the gold standard, the committee has made this arresting comment : -
An agricultural country or a country whose exports are confined to a small number of commodities the prices of which are liable to wide variations will naturally want a larger proportion of reserve than one which enjoys a more varied economy or a stronger creditor position.
Those words might almost have been written with Australia in mind. The committee has also laid down that -
In every country with the gold standard the purchasing power of the national monetary unit must remain equal to the purchasing power in that same quantity of gold represented by that monetary unit. The rates of exchange on other gold standard countries indicate whether and to what extent that parity obtains. When the purchasing power of the national medium of exchange is less than that of gold, money must be made scarcer.
Our national medium of exchange has fallen very much below the value of our gold, and in that circumstance this committee of international repute advises that money “ must he made scarcer “, whereas it is proposed by the Government that we shall travel in quite the opposite direction.
The Treasurer (Mr. Theodore) indulged in an attack upon the banks. He accused them of attempting to dictate to the Government, and questioned their right to do any such thing. The honorable gentleman worked himself into a fine state of indignation in discussing the action of the banks. I hold no brief for the banks. I believe that the present credit system is capable of improvement. But I also believe that there is more hope of achieving that end by concerted international action along the lines of the investigation by the committee of the League of Nations, by attempting to do something through central banking practice of a world-wide character, than by any one isolated country like Australia attempting to act for itself. Surely it will be admitted that, if a government wishes to borrow money, the prospective lender has the right to fix the conditions under which he will lend his money. The Chairman of the Commonwealth Bank has made it plain that if governments will adopt the policy of reducing their expenditure with the object of bringing it more into conformity with our straitened means; the Commonwealth Bank Board will be prepared to use all its resources to assist in rehabilitating the primary and secondary industries of the country. I ask the Treasurer, who is reputed to be something of a capitalist, what his attitude would be if a person who was living hopelessly beyond his income came to him to borrow money. Would not the Treasurer as a business man refuse to accommodate the applicant unless he made it plain that he intended to put his house in order and to find a means of living within his income ? What applies to the individual applies to the nation. While I do not think that banks have any right to lay down in general terms the policy which must be followed by the nation, for to do that would be to go entirely beyond their province, I think that if they are importuned by governments to lend money they have the right to name the conditions under which the money shall be lent.
The Treasurer has told us that the issuing of fiduciary notes, as proposed in this bill, is the only means by which the farmers of this country, who are in a desperate plight, and the unemployed people in our midst, can be immediately assisted. I refuse to believe that that is so. In my opinion, there are other means much more ready to our hands, which would be much more rapid in achieving this end, than the issue of fiduciary note9. I do not believe that the Government expects that it will be possible to pass this legislation to issue fiduciary notes in the near future. It cannot regard this proposal as a likely method of immediately relieving the distress of either the farmers or the unemployed.
– It is the only means since the banks have refused to assist us.
– The banks would not refuse to assist the Government if it even made an endeavour to balance its budget. I do not expect the Government to balance its budget this year. It would be impossible to balance it now. But if the Commonwealth and State Governments would show a determination to do the best they could to achieve that end, I believe that money would be quite readily obtainable from the banks and from overseas sources at very reasonable rates of interest.
I wish to make a brief reference to sub-clause 3 of clause 7 of the bill, which reads as follows: -
Upon the raising of any loan for the redemption of the securities issued under the last preceding sub-section, the proceeds of the loan, after payment of the expenses of borrowing, shall be applied to the redemption of those securities, and those securities and treasury notes of an equivalent amount shall thereupon be redeemed and cancelled.
Does the Treasurer expect that within the life of his Government, or within the life of a government of a similar political complexion, this issue will be replaced by an interest-bearing loan ? Does he expect that the honorable member for Adelaide (Mr. Yates), for instance, would assist him in replacing interest-free paper with interest-bearing bonds? A man would be a super optimist who regarded that provision of the bill as anything other than political window dressing.
The Treasurer told us that no practicable proposition had been made apart from this one to get us out of our difficulties. I am quite unable to put forward any novel plan for lifting Australia out of her trouble. But I believe that there is one old-fashioned way - and it is the only way - of overcoming our difficulties. Our first duty is to show a determination to honour the agreement made in Melbourne last year by responsible members of this Government, including the Prime Minister. We must show a determination to cut our coat according to our cloth, and not make an attempt to cut it on such a scale that we must resort to shoddy material to supplement the real cloth. If we will cease attempting to resort to shoddy methods of finance, and adopt reliable methods, confidence will quickly be restored, credit will be readily obtainable, money will begin to flow, and employment will soon be made available. Because I believe that this is the case, that inflation of our currency is dangerous, that there is no necessity for it, and that this Government could never control it, I shall vote against the bill.
.- Before proceeding to discuss this measure I wish to refer to a remark made by the honorable member for Gippsland (Mr. Paterson). He said that the Government was not capable of controlling a fiduciary note issue, because it could not control its own supporters. The honorable gentleman appears to forget that in the closing days of the life of the last Government it found it impossible to control its followers. I have a distinct recollection that a number of its supporters crossed the chamber when a vital vote was being taken. Honorable members opposite are now trying to upset this Government because it is endeavouring to arrest the policy of deflation which is in operation in Australia to-day.
I have been rather astounded by the antagonism shown by members opposite to this bill. They have endeavoured to make a great deal of capital out of the words “ inflation “ and “ repudiation “ ; but they have carefully refrained from directing attention to the similarity of this measure to certain British statutes which deal with the same subject. The honorable member for Gippsland (Mr. Paterson), who dealt extensively with the British fiduciary currency, comparing it with the present Government’s proposal, showed that there was very little difference between the two so far as the proportion of notes to gold is concerned. How can it be a crime to suggest for Australia what is evidently regarded as a virtue in Great Britain? The similarity between this bill and the British Currency Act 1928 is very marked. The only difference between them that I can see is that the British Parliament entrusted the control of the fiduciary issue to the Bank of England, whereas the bill before us gives control to the Commonwealth Treasurer. And who should have a better right to control a fiduciary issue than one who is directly responsible to the Government and Parliament, and in the final analysis, to the people who create the Parliament? Not one member of any bank board in any part of the world is, as such, responsible to any elector. The following provisions are contained in the British act: -
– (3.) The following provisions shall have effect so long as sub-section (1.) of section 1 of the Gold Standard Act 1925 remains in force -
Whatever our differences may be, I am sure that honorable members opposite will agree that something must be done very quickly to assist the people of this country. The Government believes that something can be done for them by this bill, and I welcome the measure as a step in the right direction. Mr. Frank Lock, a well-known author on financial subjects, in his book, The Nationalization of Credit - The Only Cure for Industrial Unrest, said in 1919 -
The banking system which is controlled by the supply - or rather by the lack of supply - of gold, stifles enterprise, impedes exchange, prevents production, and robs producers of the fruits of their toil, on a gigantic scale.
We in Australia have a great deal of unemployment, suffering, privation and want. Here is the cause explained -
In 1015, out of a population of 4,931,988 persons, 17 i per cent, drew 52 per cent, of the total net income and 82J per cent. drew only 48 per cent, of the total net income. This 174 per cent, of the population not only fail to contribute to the general welfare, but they annex the major part of .the good things produced by the industry of others. This condition, according to our laws, is legal; but I challenge all and sundry to show that it is either just or wise.
The scheme by means of which we can adjust social inequalities, and cure industrial unrest is shortly - (a) The abolition of gold as a medium of exchange.
The issue of paper money by the Government, such issue to be backed by tangible wealth, plus the credit of the whole country.
The nationalization of credit - the Government extending banking operations to satisfy in full the financial needs of the whole community.
He concludes -
As I am familiar with the conditions which govern the finance of the Commonwealth of Australia, I regard it as my duty to make my views known. On 1st January, 1919, the total quantity of gold held by the six principal nations of the world was as follows: -
According to returns compiled by Mr. Baker, United States Secretary for War, the actual cost of the late war to all the belligerents amounts to £39,000,000,000, which is more than four times the total amount of gold held by those nations. I use Mr. Baker’s estimate as an illustration of the very small part which gold plays in the conduct of human affairs; and as a proof that our real currency is paper, and that gold is but a thin veneer used to hide the fact.
Immediately prior to the declaration of war in’ 1914, all the gold held in Great Britain was less than £60,000,000, yet war was carried on for four and a half years at a cost of approximately £10,000,000,000, or 166 times more than all the gold she possessed; or more than ten times greater than all the gold owned by the six wealthiest nations on earth.
Mr. Arthur Kitson, a manufacturer and an employer of large experience, said: Our banking system is a product of greed, ignorance and superstition.
If this huge amount of paper money - it was not even fiduciary currency - could be utilized to enable the belligerent nations to engage for four and a half years in the destruction of life and property, and the maiming of humanity, what tangible objection can honorable members opposite have to the present Government’s proposal to utilize a fiduciary issue in order to relieve unemployment in Australia, and help necessitous farmers, and at the same time help to lift Australia out of its present troubles? At the end of October, 1930, the Australian notes in circulation amounted to £45,153,426, of which the banks held £22,341,731, and the public £22,811,695. The gold reserve was £16,285,193. The outstanding gold reserve was actually 36.07 per cent., and the active reserve 71.39 per cent. There is, therefore, very little justification for the fear of honorable members opposite that the Government’s proposal to issue fiduciary notes to the extent of £18,000,000 will hinder the advance- . ment of this country. As an alternative, honorable members opposite have brought forward a suggestion that should be anathema to every one who has at heart the welfare of the people on the lower rung of the ladder. In a communication addressed by the Commonwealth Bank Board to the Treasurer is the cure which honorable members opposite would advance for Australia’s ills. This letter says, inter alia -
Subject to adequate and equitable reductions in all wages, salaries and allowances, pensions, social benefits of all kinds, interest and other factors which affect the cost oi living, the Commonwealth Bank Board will actively co-operate with the trading banks, and the Governments of Australia in sustaining industry and restoring employment.
No suggestion is made that there should be any reduction of interest rates. I shall now quote from a letter which appeared in the Sydney Sun of the 19th January over the signature of Mr. Trantor, who, I understand, is chairman of the associated banks. The concluding paragraph of that letter reads -
Again with regard to wages there should be in these times a free market for labour. If there were this free market to establish industry on a payable basis it would lead to a big cut in unemployment. The Government should waive arbitration and bring wages down.
The previous Government met its fate at the hands of the electors because it endeavoured to give effect to the policy advocated by Mr. Trantor . The letter continues -
It would be hard on some but only for a time. When prosperity returns wages would rise and interest would automatically be reduced. Reduction of interest arbitrarily is only disguised repudiation.
Of course there is no suggestion of repudiation in the indiscriminate attacks upon the wages of the workers of this country ! Mr. Trantor further said -
It would have a very direct effect on savings banks and other institutions. After all what are we making such a song about? Wheat levels are not far below pre-war levels, and wool is about the level we were used to before the war - a level at which we prospered exceedingly. Why should we not prosper today by getting back to the production costs of 1913 . . . There is one way and one way only to bring down interest. That is a method which must begin with the governments. The whole thing hinges on the governments getting their budgets squared.
I ask honorable members opposite, in view of the fact that they stand behind every word contained in that letter, how many times did the previous governments, of which they were the supporters, balance their budgets over a period of thirteen years? I do not think that the budget was balanced during any year of that period.
– Is not that all the more reason why it should be balanced now?
– I suggest to the honorable member that, as a supporter of the Bruce-Page Government, he should have used that argument during its regime.
In reply to the suggestion of Mr. Trantor that if wages were reduced, interest rates would automatically fall, let me say that the workers, because of the excessive onslaughts upon their wages, contributed £44,000,000 towards the balancing of the Commonwealth budget last year, and yet there has been no suggestion of lowering interest rates. How much further are the workers’ wages to be reduced before there is to be a downward trend in interest rates? The honorable member for Gippsland (Mr. Paterson) said that the inability of the Government to control its own members was clear evidence that it was not fit to control a fiduciary currency. Let me remind him that the honorable member for Henty (Mr. Gullett), before he became a member of this chamber, advised the Government of the day to adopt a bold financial policy for the development of this country by expending £50,000,000 on public works. Since becoming a member of this House he has carefully refrained from repeating that advice. We must judge people by the company they keep, and be guided as to their future movements by their efforts of the past. The honorable member for Henty (Mr. Gullett), during the budget debate on the 16th November, 1927, said -
I congratulate the Treasurer on the form of his budget. It is admirably brief, clear, and easy to understand. I am in complete agreement with many of the individual actions of the Treasurer in the past. He has a remarkable record in that respect, But beyond that I cannot go. To my great personal regret I find myself in almost complete disagreement with the honorable gentleman in regard to his management of the Commonwealth finances.
Yet the honorable member sat in this House as a member of the Government, of which the right honorable member for Cowper (Dr. Earle Page) was Treasurer for six years. He further stated in regard to the right honorable member’s taxation proposals -
But here is his record. For the first clear financial year that ended June, 1924, he did reduce it. Evidently his conscience was at work then. The reduction amounted to 2d. a head! He was on the road towards redeeming his promise; but it was his expiring effort as an economist. In the year ended June, 1925, he increased the per capita taxation by 3s. In 1926 he recovered a little, and increased it only by ls. 7d. For the year ended June last it was increased by lis. 7d., and the net performance is a total increase of £9,000,000, or 16s -.a head of the population. I cannot follow a “Treasurer who increases per capita taxation on a country so overburdened and impoverished by debt and taxation as Australia is at the present time.
Much of our taxation to-day is a legacy from the war, the winning of which meant more to some people than to others. It meant infinitely more to the rich than to the poor. Had Germany won the war and been able to collect reparations from us and impose other exacting conditions which the Allies were not able to impose on her, the burden would not have been felt very much by the labourer, the artisan, the salaried man, or even the professional ; but the millionaire and the men with £10,000 a year or £5,000 a year would have been very hard hit indeed. Therefore, it was for the rich more than for any other class that the war was fought. [Quorum formed.”]
There “was certainly some justification for the criticism levelled at the then Treasurer by the honorable member for Henty, because the amount of new borrowings by the Bruce-Page Government during its term of office amounted to £55,378,000 overseas, and £3,407,000 within Australia, totalling £58,785,000. I am not suggesting that the public debt of the Commonwealth was increased by that amount, hecause the increase in the public debt for the seven years ended the 30th June, 1929, was £12,782,000, the difference between that amount and the total borrowings - £58,785,000 - representing reductions of public debt, provision of sinking fund and other expenditure. But the sum of £58,785,000 was entirely new money borrowed by the right honorable member for Cowper when Commonwealth Treasurer. Mr. Robert Kitson is a well known financial writer and also an employer of labour on a large scale, and I shall quote from his book Trade Fallacies, written in 1915, to show how Australia’s financial difficulties were increased because of the excessive borrowings of the Bruce-Page Government. He says -
As to financing by means of loans, this is eventually the most ruinous of all methods - although the most popular, because its evil effects are not immediately perceived and the burdens entailed are spread over a wide area and a long period of time. Financing a world crisis like the present by the method of the loan, means the inevitable enslavement of this and future generations.
There is no question about that. From day to day the position of Australia becomes worse, and more people are being thrown on the scrap heap of unemploy ment. This country is retrogressing in every way - and not as the result of the activities of this Government.
To expose the fallacy of the arguments advanced by the honorable member for Gippsland (Mr. Paterson) as to the gold standard, I quote the following extract from an article written by the editor of the London Daily News, of the 15th January, 1916. It is headed “ Money for All “, and reads -
When the war came, the false bottom fell out of our banking system and we made a startling discovery. We found that the banks were an imposing fair-weather structure which tottered like a house of cards when a storm came and only survived because in one swift hour Mr. Lloyd George gave them the security of the nation. It was discovered that behind all the appearances of strength, the banks were a fiction and the reality on which they traded was the credit of the State, yours and mine, and everybody’s. Gold disappeared from circulation, and there flowed forth a torrent of notes issued by the Treasury and representing nothing but the credit of the nation.
Walter Besant once said that “ the art of banking was to get other people’s money and use it for your own advantage “. There has been no more illuminating revelation during the war and the question for us to ask is whether this private monopoly of the national credit can be permitted to continue. Can we start the future with a “ corner “ in money ? Or must we not see that money like political power must be democratized? If money is only a symbol representing the whole credit of the community, why should that symbol not be at the command of the whole community whose credit it represents?
In commenting on the statement, Mr. Kitson said -
Now the remarkable thing about this article is not that it should be written at this time when “ sham reputations “ are falling in all directions, but that the writer did not make these discoveries and disclosures sooner. During the past 40 years quite a library of publications have appeared, exposing the rotten foundation of Britain’s financial system and predicting a collapse sooner or later.
A little further on in the same work a reference appears to the opinion of another financial authority, “Walter Bagehot, the author of Lombard Street. It states -
The Bank of England … is known as the Bank of the Bankers. “ All our credit system depends upon the Bank of England for its security,” says Walter Bagehot . . . On the wisdom of the directors of that one Joint Stock Company, it depends whether England shall be solvent or insolvent. This may seem too strong, but it is not. All banks depend on the Bank of England, all merchants depend on some banker “.
The honorable member for Gippsland dealt at some length upon the alleged stability of a gold reserve. I venture the opinion, which is justified by many eminent authorities, that if the whole of our gold were to disappear from the earth to-morrow, no one would be one whit the worse off. Mr. Kitson further states in his book -
Just prior to the war the total amount of gold available throughout the country was estimated at less than £00,000,000. The volume of credit resting upon this ran into hundreds of millions. The bank deposits alone - subject to withdrawal at sight - was at least ten times all the gold available. It is safe to say that altogether the volume of credit redeemable in gold on demand on 1st August, 1914, was more than 25 times all the gold that the bankers could possibly scrape together! The truth is that ever since the passing of the Bank Charter Act, every bank in this country has been doing business on a margin of bankruptcy!
He continues -
The present safety and strength of British banks is due neither to the so-called “ gold basis “ nor to the ability or honesty of the mcn who manage them, but to the public belief that underneath the ridiculously small quantity of gold, which is nothing more than a very thin veneer, in comparison with the credit resting on it, rests the national credit comprising the entire wealth of Great Britain. Our legal tender paper money is “ as good as gold “, not because the Bank of England holds sufficient gold for its redemption, which, of course, it never does, nor anything like sufficient - but because this money is backed by over £18,000,000,000 of wealth of every description.
Australia has a wealth potentiality of approximately from £2,000,000,000 to £3,000,000,000. If it is logical that Great Britain should establish a fiduciary currency on the strength of its wealth reserve, is it not equally logical for the Commonwealth of Australia, through its Government, to establish a fiduciary currency on a similar basis?
– England had no option in the matter, as its banks fell down on the job.
– Precisely. I have already quoted that as the opinion of Mr. Arthur Kitson. That gentleman also declared -
Cheque currency is the cheapest form of money ever known, and has driven out gold currency to an extraordinary extent. And but for our legal tender laws gold currency would disappear entirely. As long as it per forms the function of money, cheap money is the best money, and must of necessity drive out dear money.
Later, he stated -
The late Chancellor of the Exchequer is reported to have boasted in a recent speech in the House of Commons that every £1 note issued by the Government is redeemable in gold on demand. It is to be hoped the public will not take Mr. McKenna at his word, otherwise we shall have a repetition of the midsummer crisis of 1914. The inference the Chancellor wishes us to draw from his statement is, that our legal tender notes are valuable because they can be redeemed in gold. So long as this superstition prevails, so long will our producing classes be taxed for the use of credit and currency, which, under more enlightened conditions, they might have at practically little or nothing save the cost of service plus a small tax for insurance.
Let us face the actual facts. If in the future our currency and credit are to be based on gold, and if they are to be made redeemable in gold on demand, then our industries, our trade and commerce must be restricted. In other words, the limit of enterprise and industry must be the amount of gold that our banks are able to control and are willing to make available, and as for capturing German trade, we may as well abandon all our efforts. On the other hand, if the people of this country hope greatly to increase their trade and commerce, if they have any serious intentions of capturing German trade, the gold basis will have to be abandoned as being insecure and insufficient, and the much safer and broader basis of the national credit will have to replace it.
I have quoted the opinions of these eminent authorities because I think they justify the introduction of this measure. Unquestionably, the monetary system has broken down, and the repercussions of the collapse are injuring particularly those on the lower rungs of the social ladder, including the man on the land. We have been told that the national income has diminished by £120,000,000. That is due to the actions, not of the Government, but to a large degree at any rate, of those who control the banking system. To offset the effects of that loss the Government has submitted this proposal in the hope that a fiduciary currency, backed by the wealth resources of Australia, will substantially help to arrest the evil effects of deflation. All parts of the Commonwealth tell the same story of depression; Australia appears to be in the position of a business without a buyer. Honorable members opposite have often contended that we must aim at further production. I suggest that to a certain extent the community is suffering from over-production and underconsumption. Our factories and warehouses are filled with goods for which there is no market. But surely new works can be undertaken to stimulate industrial activity in other channels. I have in mind, particularly, the primary industries, because although I represent a metropolitan constituency, I realize the interdependence of primary and secondary production. “We must stabilize the primary industries in order to create a healthy market for the secondary industries and vice versa. The bill proposes to make available £6,000,000 for the assistance of the wheatfarmers, and a further £12,000,000 to be advanced at the rate of £1,000,000 a month for necessary public works. If that policy is put into operation, with a consequent rehabilitation of industry and the introduction of new money, many thousands who are earning nothing, and, therefore, cannot spend, will be set to work and become productive units, instead of being, against their wish, drags upon the community. I am convinced that 99.9 per cent, of those who are unemployed want work, and an opportunity to earn a livelihood, instead of being submitted to the degradation of receiving the dole. This proposal, if adopted, will give them the opportunity to earn and spend. In the final analysis liberal spending is of the greatest benefit to a community, because it stimulates the circulation of money. If this bill will provide even a partial solution of the monetary problem, it will be a substantial factor in helping Australia out of its difficulties. Many public works could, with advantage, be put in hand; amongst them are water conservation and irrigation, the development of natural resources in the back country, the extension of sewerage, shipbuilding to link up different parts of Australia with a Commonwealth-owned line of steamers, and the unification of the railways, which would make Australia a nation in truth, instead of a mere aggregation of States warring with each other. I desire this legislation to be put into operation as soon as possible. The honorable member for Gippsland (Mr. Paterson) said that a considerable time must elapse before results can be expected from it. He was a member of a government which was in office for thirteen years, and did nothing to stop the disastrous downward trend. About five years ago the then Prime Minister (Mr. Bruce), in his policy speech, promised to provide £20,000,000 for the better housing of the people. That scheme was never proceeded with. The only undertaking resembling house construction that I can recollect was the building of a dog-kennel, which is no longer required because the dog is dead. [Quorum formed]. “Whilst I do not claim that the bill will solve the whole of our problems and absorb all the unemployed, I believe it to be a step in the right direction. Because it proposes to do something tangible in the interests of the whole community, I shall’ give to the measure my wholehearted support.
– “Whilst I appreciate the importance of the bill and realize how far-reaching will be its effect if put into operation, I regret that the Treasurer has not seen fit to follow the usual practice of allowing a reasonable time to elapse between the motion for the second reading, and the resumption of the debate. The Leader of the Opposition (Mr. Latham) pointed out this afternoon that copies of the bill have npt yet reached some of the capital cities; unless sent by aeroplane they cannot reach my own electorate before tomorrow. I hope that the procedure adopted by the Government on this occasion will not constitute a precedent to be followed in connection with future measures of unusual importance.
After giving to the bill and the Treasurer’s explanatory speech the fullest consideration, my considered opinion is that the Government, in proposing to inflate the currency by the issue of £18,000,000 worth of fiduciary notes, is contemplating the crowning injury to the fair name of Australia, and to the means of livelihood of every citizen. The Treasurer’s proposal can only be described as pure inflation, because admittedly the fiduciary note issue will have no gold backing; there will not be ls. worth of assets behind it. The project simply means that notes to the value of £18,000,000 will be added to the existing note issue of approximately £45,500,000.
In his second-reading speech, the Treasurer cited the fiduciary note issue of the Bank of England as justification for his proposal. The honorable gentleman said that a form of fiduciary currency came into operation in England during the war, and that it had no gold backing. I think I am correct in saying that really the first fiduciary issue was introduced in Great Britain as far back as 1844. The Treasurer went on to point out that the fiduciary currency, introduced in the war years in Great Britain, was now authorized under the British Currency Bank Notes Act of 1928. On this point I should like to quote briefly from the second-reading speech of the Financial Secretary to the Treasury, Mr. Arthur Michael Samuel, delivered in the House of Commons on the 14th May, 1928. When introducing the Currency and Bank Notes Bill, to which the honorable the Treasurer referred, Mr. Samuel said -
The House is aware that the Bank of England issue for 70 years before the war, from 1844 to 1914, was governed by the provisions of Peel’s Bank Charter Act of 1844. The basis of that act was that it established a fixed fiduciary issue, beyond which no notes could be issued except in exchange for gold. With the outbreak of war, however, face to face with a catastrophe and difficulties of unforeseeable magnitude, it was necessary for us to abandon temporarily, and, as time has proved, fortunately only temporarily, some of the most vital principles of the 1844 act. May I refer to some of the vital principles which had to be abandoned? In the first place, the paper currency, which in England and Wales was limited, up to the outbreak of war, to Bank of England notes of £5 and upwards, was, at the outbreak of war, supplemented by an issue of £1 and 10s. currency notes. There was no statutory regulation as to the amount of the issue, nor was there any statutory provision as to the gold reserves to be held against those notes. Secondly, power was given to the Treasury to suspend temporarily the fiduciary limit of the Bank of England notes. The gold standard itself was maintained in operation until the end of the war. But gold movements were so hampered, and the world market in gold so disordered, that the gold standard had ceased to work.
Under the 1928 measure, the Bank of England was permitted to issue notes up to a fiduciary limit of £260,000,000, thus bringing the total issue of currency notes in England to approximately £400,000,000. To give some measure of elasticity to the British currency system, it was enacted that the bank might obtain the permission of the Treasury to exceed the limit, but such permission could only be given for a period of six months, and for not more than two years in all. Section 3 of the 1928 act provides that, in addition to the gold coin and bullion for the time being in the issue department, the Bank of England shall, from time to time, appropriate to, and hold in, the issue department securities of an amount in value sufficient to cover the fiduciary note issue for the time being. It states further that such securities may include silver coin to an amount not exceeding £5,500,000, and that the bank shall give the Treasury information when required with respect to the securities held in the issue department. There is a marked difference between the Treasurer’s proposal to raise an additional £18,000,000 and the fiduciary issue in England, which was introduced in 1914 and confirmed by the 1928 measure. The total issue of Bank of England notes on the 11th of March last amounted to approximately £400,000,000, including the fiduciary issue totalling £260,000,000, and the note issue, backed £1 for £1 by gold, of £140,000,000. It is, I think, important and only fair to remember that the Bank of England holds assets of equal value to the total amount of the fiduciary issue, and that it is called upon from time to time to furnish particulars of such assets. There is, as I have shown, a definite backing other than gold, for the total of the fiduciary issue in Great Britain.
– Those notes are legal tender. The bank is not obliged to redeem them in gold.
– That is so. As I have stated, the total of our present note issue is £45,653,426, for which there is a gold backing of £15,385,710. The difference between the total note issue and the total of gold holdings - approximately £30,000,000 - is, in a sense, a fiduciary note issue. It must, however, be remembered that, against this fiduciary issue, the note issue department holds debentures in Australia. The ratio of gold to notes in Australia is lower than in England, and yet the Treasurer proposes to add to the present issue notes totalling £18,000,000. This undoubtedly is a form of inflation which the history of the world shows it will be impossible to control.
We have been told that the proposed fiduciary issue will be made legal tender in Australia, and that the notes will go into circulation side by side with the present notes ; otherwise they would not be worth the paper upon which they would be printed. The adoption of the Treasurer’s scheme will injure the credit of Australia, and also lower the standard of living of all sections of the people. This proposal, if given effect, must rob every employee of a portion of his wages. If £18,000,000 worth of notes are added to the £45,000,000 worth already in circulation, the total of £63,000,000 will represent an increase of approximately 40 per cent. Seeing that behind the additional £18,000,000 worth of notes there will be ho backing other than the fiduciary backing, which is illusory, it must follow that each £1 note will have only three-fifths of the purchasing power of the notes now in circulation. That, I think, the Treasurer will himself admit.
– That is a mistaken deduction.
– I have considered the proposal to the best of my ability, and I do not see how there can be any other result. A note has no intrinsic value. It is only a token, and if we require five notes to do the work which three are doing now, each note must become of correspondingly less value. I am also convinced that one result of this scheme will be a reduction of wages. An employee who now receives £4 a week will receive, in the new currency, the equivalent of only £2 8s. That may not be the immediate result, but it must come about eventually. Every pensioner in the Commonwealth, whether drawing an old-age, invalid or war pension of £1 a week will have that pension reduced to an effective 12s. a week. Similar injury will be suffered by all others in receipt of wages and fixed incomes, such as public servants, &c.
Moreover, that will be only the first loss. We know something of the experience of countries such as France,
Germany and Russia, which have embarked upon a policy of currency inflation. They found it’ extremely difficult, in fact, almost impossible, to stop once they had begun. Once the Government of any country tampers with the currency a landslide begins, which as history shows, it is well nigh impossible to stop or regulate short of actual financial chaos. It is amazing that a government having a regard for Australia’s good name should favour this proposal, and it is still more amazing to me that the proposal should emanate from a government which is professedly desirous of maintaining the standard of living. An artificial increase of the note issue to-day must bring about certain ruin to all sections of the community. The workers would, undoubtedly, be the first to suffer.
We must also consider the task of redeeming these notes as provided for in the proposal. Consider what will be the position twelve months hence. Is it proposed to borrow money for the redemption of the notes? It is very difficult for a government which inflates the currency to borrow either at home or abroad. That has been proved over and over again.
– Why should the Government borrow when it can issue more notes ?
– I am now considering the proposals contained in the bill. If the money for redemption is not borrowed there is only one other way of obtaining it, namely, by increased taxation. Does any honorable member believe that it would be possible to-day to raise, by fresh taxation, the money which would be necessary to redeem these notes once they had been circulated? To debase the currency in a country is easy enough; but it is a terrific and almost impossible task, once having debased it, to bring it back to a sound basis again.
The Treasurer, in his speech, criticized the banking institutions of this country, and his criticism, in my opinion, was not justified. Not only did he criticize the banks when he was introducing this measure, but in a speech which he delivered in Brisbane last Saturday, which was broadcast by wireless, he said that the banks were prepared to let Australia slip into the mire. -There was no justification for such a charge. The last report of the directors of the Commonwealth Bank, dated the 5th of March of this year, contains the following passage : -
It cannot be gainsaid that the position to-day is definitely worse than when the last report was issued six months ago. We quote the following extract from our last report: - . . We know that other parts of the world have faced and are emerging from difficulties which were relatively much more serious than those facing this country. Given the necessary effort and determination to rectify the economic position there is no reason to anticipate failure on the part of Australia to eventually emancipate herself from her difficulties.
This is as true of to-day as it was of the date when written.
The calls made upon the banking resources of Australia to meet the general position have never relaxed, and the very serious aspect of this matter reflects itself in the heavy drain on banking funds to carry over governmental budget deficits.
The fact cannot be disguised that this process is of an inflationary nature, and continual indulgence must eventually lead to the undermining of our monetary system.
The directors are fully alive to this aspect of the matter and the conditions have been a cause of anxiety to them on account of the continual demands which have been made upon the bank’s resources. The directors, however, fully realize their obligation to protect the monetary system of the country which has been placed in their control and the limitations of the Bank Act will automatically terminate the bank’s ability to grant further accommodation if adequate measures are not adopted to stem the national drift. At the end of the year the unfunded debts of the Governments of Australia represented by overdrafts and treasury bills in Australia and London amounted to £53,000,000. In view of the fact that government budgets do not make adequate provision for meeting the current expenditure and, therefore, must add to the floating indebtedness, when liquidation thereof should be in process, it requires no over-statement to indicate how parlous the position is.
The internal business of the country shows progressive shrinkage, as was only to be expected in the absence of purchasing capacity. There is a lack of confidence on the part of the community generally and an absence of enterprise.
That is sufficient to show the gravity of the position. In a leading article which appeared in the Brisbane Daily Mail, of the 16th March, the following reference is made to the opinions expressed by the
Treasurer (Mr. Theodore) concerning the banks : -
Mr. Theodore accuses the banks pf having failed Australia in the present emergency. Never was there a more grotesque charge. It is instinct with political animus and ingratitude. The incontrovertible facts are that the banks have dared to trust the Government considerably further than the public would. They have strained their capacity to carry governmental deficits in both the Federal and State spheres. They have striven to minimize the damage done to Australia’s good name abroad by political incompetency, dissension, and drift at Canberra. Far from having forced deflation, which Mr. Theodore alleges, they have stood between Australia and the worst effects of world-wide deflation. Only at the expense of productive industry and intensified unemployment could the banks do anything more to help a government which cravenly refuses to cut its expenditure. Mr. Theodore’s way of putting the situation to his Brisbane audience was that the Government needs more money; the banks will not supply it; therefore the Government must manufacture more money. In olden days there were many instances of absolute monarchs or autocratic governments who found themselves- in such an extremity” as Mr. Theodore postulates to-day. They resorted to the device of debasing the currency. The people then had not the protection of a powerful, independent banking organization. The best they could do was to pay the demands of the Government in its own coin, and to husband good coin for the needs of private trade. Mr. Theodore’s plan is on all fours with that of spendthrift kings notorious in history. He would debase the currency, but, thanks to the safeguards of modern monetary legislation, the banks are able to forbid to the Government of the day unrestricted control of the national income.
The Government is not the people; it is only an instrument of the people. It is a great spending agency. How much it spends of the national earning depends upon the extent to which the people consent to be taxed and the extent to which it can borrow on the security of present and future taxation. Those are the principal checks on governmental expenditure. The fact that a government must compete with private industry when it borrows is the people’s surest safeguard against ruinous extravagance. Mr. Theodore’s plan would sweep that safeguard aside. Inflation is not borrowing. It is taxation without control and confiscation without redress. Every issue of new fiduciary currency manufactured by the Government in excess of the requirements of trade would clip so much off the value of previously existing currency, whether received as wages or pensions or held as savings. Mr. Theodore speaks with his tongue in his cheek when he proclaims the determination of the Government not in any circumstances to reduce pensions. He knows full well that one of the first effects of inflation would be to reduce the real value of pensions and wages as well as interest from government stocks, and that it would relieve the Government of a part of those charges.
I also wish to quote from a speech delivered a few days ago in Brisbane by Professor Brigden, director of the Queensland Bureau of Economics and Statistics, at a meeting of the Queensland branch of the Economic Society of Australia and New Zealand. He said -
In creditor countries,such as Great Britain, France, and the United States of America, there had been during the crisis a gradual accumulation of savings normally invested abroad, and which were available for investment at home or abroad as soon as confidence returned. No such accumulations existed in Australia and, indeed, to some extent this country’s savings had been exported through fear of predatory action on the part of governments. They could not expect to recover in the same way as creditor countries, and needed either again to borrow from abroad or to follow the more dangerous expedient of expanding currency. Before either of these courses could be attempted with any safety, they needed to restore confidence and business security.
There is no doubt that the progress of this country, and our ability to overcome the difficulties with which we are now confronted, particularly the problem of unemployment, depend solely upon the restoration of confidence and business stability. As I am firmly convinced that this measure will not assist in the restoration of confidence or in any way facilitate the return of business stability, I sincerely trust that honorable members will recognize their responsibilities and vote against the second reading of the bill.
Debate (on motion by Mr. Scullin) adjourned.
– I move -
That the House do now adjourn.
I wish to announce that in response to a number of urgent appeals from honorable members on both sides of the chamber, the Government has decided that the House will resume its sittings after the Easter adjournment on the 14th April. This decision has been reached on the distinct understanding that honorable members will assist to facilitate the despatch of business.
Question resolved in the affirmative.
House adjourned at 10.47 p.m.
Cite as: Australia, House of Representatives, Debates, 19 March 1931, viewed 22 October 2017, <http://historichansard.net/hofreps/1931/19310319_reps_12_128/>.