House of Representatives
20 March 1931

12th Parliament · 1st Session



Mr. Speaker (Hon. Norman Makin) took the chair at 11 a.m., and offered prayers.

page 482

QUESTION

AUSTRALIAN CRUISERS

Mr WATKINS:
NEWCASTLE, NEW SOUTH WALES

– Has the Prime Minister read the following cable message from London regarding the cruisers constructed to the order of the Bruce-Page Government : -

They constitute a hybrid type born of political expediency. They have been tried and found wanting and condemned by the highest naval opinion. They reproduced on an exaggerated scale all the defects of our early battle cruisers, three nf which blew up at Jutland under the fire of lighter armed ships.

Will the right honorable gentleman cause these allegations to be investigated.?

Mr SCULLIN:
Minister for External Affairs · YARRA, VICTORIA · ALP

– Similar opinions have been expressed on several occasions, and thu Defence Department is investigating the matter.

page 482

QUESTION

CARE OF ABORIGINES

Mr GABB:
ANGAS, SOUTH AUSTRALIA

– Has the Minister for Home Affairs seen the report of the statement made by theRev. Stanley Jarvis at the Methodist Conference held in the Adelaide Exhibition Building on the 3rd March in the course of which the reverend gentleman said -

The tragedy of Northern Australia was the increasing number of half-castes. Their young children were collected by the. sub-protectors who were police officials and placed in the Darwin institutional home which was merely a three-roomed house on half an acre of land. Sixty children were herded there.For years Federal Ministers had promised a new and better home, but the scheme was still pigeonholed.

As the boast of the Labour party has always been that the welfare of humanity is the first object of its policy, will the Minister take steps to ensure that sixty half-caste children are no longer herded in three rooms?

Mr BLAKELEY:
DARLING, NEW SOUTH WALES

– Since I took over control of the Northern Territory and the care of the aborigines, the Government has made generous provision for the welfare of full-blooded and half-caste natives. Large areas have been made available to them as reserves, and ordinances have been promulgated for their protection. I recognize that much more can be done for half-castes. A home is already provided for them at Alice Springs, and as soon as funds are available a similar institution will be established at Darwin.

page 482

QUESTION

WINE INDUSTRY

Mr GABB:

– Is the Minister for Trade and Customs yet able to announce his decision following his conference in this building on Wednesday last with grapegrowers and wine-makers in regard to the price of grapes? If not, when does he expect to be able to do so?

Mr FORDE:
Minister for Trade and Customs · CAPRICORNIA, QUEENSLAND · ALP

– Because of the many conflicting requests, some for a reduction and others for an increase of the price of grapes, a conference representative of those interested was convened. The suggestions made by the delegates have been receiving consideration, and I hope to be able to make a statement either to-day or on Tuesday next.

page 482

QUESTION

DUNTROON

Mr WARD:
EAST SYDNEY, NEW SOUTH WALES

– I ask the Minister for Defence whether it is true that nonunionists are employed as caretakers at Duntroon in preference to unionists who have the necessary qualifications?

Mr CHIFLEY:
MACQUARIE, NEW SOUTH WALES · ALP

– I am unaware of the facts. I shall make inquiries and let the honorable member have a reply.

page 482

QUESTION

PUBLIC SERVICE

Excess Travelling Allowances

Mr GREGORY:
SWAN, WESTERN AUSTRALIA

– Did an error creep into the reply given by the Prime Minister yesterday to a question by me regarding the travelling allowances of officers receiving under £450 a year? When merely sitting in a train between Melbourne and Canberra, are they paid an allowance of £1 12s.10d. as well as an allowance for meals ? If the answer was correct will the Prime Minister see that the allowance is amended?

Mr SCULLIN:
ALP

– I shall check the reply, and advise the honorable member later.

page 482

QUESTION

FEDERAL CAPITAL TERRITORY

Crown Lands Agistment

Mr FRANCIS:
MORETON, QUEENSLAND

asked the Minister for Home Affairs, upon notice -

  1. How many persons had sheep on agistment upon Crown Landa in the Federal Capital Territory, and what number of sheep did each have, in the years (a)1st January, 1928, to 31st December, 1928; (b) 1st January, 1929 to 31st December, 1929; (c) 1st January, 1930, to 31st December, 1930? 2, What agistment rates were charged against such agistors?
Mr BLAKELEY:

– The answers to the honorable member’s questions are as follow : - 1. (a) Thirty-nine persons agisted 19,588 sheep upon Commonwealth lands; (b) fortynine persons agisted 21,080 sheep upon Commonwealth lands; (c) thirty-five persons agisted . 15,023 sheep upon Commonwealth lands.

  1. One penny one-eighth of a penny per head per week upon fenced Commonwealth land and 1/4d. (reduced in April, 1928, from5/8d.) per head per week in respect of sheep agisted under shepherding conditions.

page 483

QUESTION

COST OF OVERSEAS DELEGATIONS

Mr R GREEN:
RICHMOND, NEW SOUTH WALES · CP

asked the Prime Minister, upon notice -

What was the cost of each of the following delegations from Australia: -

International Labour Conference (Geneva) 1930;

League of Nations (Geneva)1930;

Imperial and Economic Conference (London)1930;

Any other official delegation during 1930?

Mr SCULLIN:
ALP

– The expenditure brought to account in Australia to date in respect of delegations from Australia is as follows: -

page 483

QUESTION

WAR PENSIONS

Effect of Exchange Rates

Mr MACKAY:
LILLEY, QUEENSLAND

asked the Treasurer, upon notice -

  1. Whetherhe will explain the method adopted in the payment of pensions to exsoldiers resident in Australia by the British Government and the payment of pensions by the Commonwealth Government to exAustralian soldiers resident overseas?
  2. Is it a fact that British pensioners resident in Australia are paid in Australian currency, less exchange, and that when a pensioner remits the amount to dependants in Great Britain he is required to pay exchange at current rates?
  3. Has the Government any information to the effect that a representative of the British Ministry of Pensions is coming to Australia to discuss with the Commonwealth Government the position of the British pensioners in Australia?
Mr THEODORE:
Treasurer · DALLEY, NEW SOUTH WALES · ALP

– The answers to the honorable member’s questions are as follow : -

  1. The Repatriation Commission, acting as agent for the British Ministry of Pensions, controls the payments to pensioners of the Ministry in Australia, a large proportion of which are paid through post offices, in the same manner as Australian war pensions. The balance of the pensioners are paid by cheque by the Repatriation Commission. The British Ministry reimburses Australia by paying to the High Commissioner in London the amounts paid on its behalf in Australia. War pensions are paid to Australian pensioners overseas through the High Commissioner’s Office, London.
  2. Up to the present, British pensioners resident in Australia have been paid in Australian currency without any allowance for exchange. Arrangements are being made, however, under which these pensioners will receive the equivalent in Australian currency of the sterling payments made by the British Ministry of Pensions to the High Commissioner on their behalf. In this way the British pensioner will receive the benefit of exchange. If a British pensioner remits money to dependants in Great Britain, the transaction is purely a private one on his part, and is not connected with the system of the payment of his pension. If he desires portion of his pension paid in Great Britain, he should make arrangements to that end through the British Ministry of Pensions.
  3. A representative of the British Ministry of Pensions is at present on his way to Australia to discuss with the Commonwealth authorities details in connexion with the methods to be adopted to enable British pensioners to secure the benefit of exchange in connexion with their pension payments.

page 483

QUESTION

COAL OIL FUEL

Mr BERNARD CORSER:
WIDE BAY, QUEENSLAND

asked the Prime Minister, upon notice -

Will he institute investigations with the object of ascertaining what action should be taken by the Government to encourage the development of coal oil fuel in Australia?

Mr SCULLIN:
ALP

– The Government, arranged last year for Dr. A. C. D. Rivett, chief executive officer, Council for Scientific and Industrial Research, to conduct investigations in Great Britain and on the Continent in regard to the latest developments in connexion with the production of oil fuel from coal. Dr. Rivett’s report has now been received, and is being considered by the Government. It is expected that it will be possible to make an announcement in regard to the matter at an early date.

page 484

QUESTION

TRAVELLING EXPENSES OF AUDITOR-GENERAL

Mr LEWIS:
CORIO, VICTORIA

asked the Treasurer, upon notice -

  1. Did the Auditor-General, Mr. Cerutty, bring his report to Canberra in person?
  2. What period of time was occupied in coming to Canberra and returning to Melbourne ?
  3. Were travelling allowances and expenses paid to him for the trip; if so, what was the amount incurred?
  4. Could the report have been sent by registered post?
  5. What sum would have been saved had the report been sent by registered post?
  6. Will the Treasurer see’ that the AuditorGeneral does not put the country to unnecessary expense for a similar purpose in future?
Mr THEODORE:
ALP

– The questions are being brought under the notice of the Auditor-General.

page 484

QUESTION

PAYMENTS TO SOUTH AUSTRALIA

Mr LACEY:
GREY, SOUTH AUSTRALIA

asked the Treasurer, upon notice -

What is the total amount paid to South Australia by the Commonwealth Government for the years 1929-30 and 1930-31, by grants, agreements, acts of Parliament, or any other authority?

Mr THEODORE:
ALP

– The following figures give the amounts paid in 1929- 30 and the estimated payments for 1930- 31 : -

page 484

QUESTION

SALE OF AUSTRALIAN COMMONWEALTH LINE OF STEAMERS

Mr THEODORE:
ALP

– On the 18th March the honorable member for Wentworth (Mr. Marks) asked the following question, without notice: -

Regarding the unpaid balance of the money for the sale of the Australian Commonwealth Lineof Steamers, has the Treasurer seen a cablegram which appeared in the Herald of the 14th February, 1931, to the effect that the purchaser from the Commonwealth, the Royal Mail Steam Packet Company, which is guaranteed by the White Star line, has asked for a six months’ moratorium, and that the White Star line has a deficit of £5,000,000. I ask the Treasurer if there is any doubt, in view of the facts that I have related, about our payments being continued?

I am now able to supply the following reply. The moratorium referred to by the honorable member is between the White Star line and the Royal Mail Steam Packet Company which, as guarantor, has been called upon to pay the preference dividend due to the White Star shareholders. The Australian Commonwealth Line of Steamers was purchased by the White Star Line Limited, and there is no reason to doubt that the instalments of purchase money of the Australian Commonwealth Line of Steamers will be paid as they fall due.

page 484

PAPERS

The following papers were presented : -

Oil - Report on tour of inspection of the Oilfields of the United States of America and Argentina, and on Oil prospects in Australia, by W. G. Woolnough, D.Sc, F.G.S., Geological Adviser to the Commonwealth Government.

Ordered to be printed.

Northern Australia Act - Central Australia - Ordinance of 1931 - No. 1 - Deputy Government Resident.

Post and Telegraph Act - Regulations Amended - Statutory Rules 1931, Nos. 19. 23.

page 484

NORTHERN TERRITORY (ADMINISTRATION) BILL

Motion (by Mr. Blakeley) - by leave - agreed to -

That in connexion with the conference with the Senate on the amendments insisted upon by the Senate in the Northern Territory ( Administration) Bill, Mr. A. Green, Mr. Theodore, and Mr. Anstey be discharged from attendance, and that Mr. Marr, Mr. Paterson, and Mr. Riordan be appointed managers in their stead.

page 484

FIDUCIARY NOTES BILL

Second Reading

Debate resumed from 19th March, (vide page 457) upon motion by Mr. Theodore -

That the bill be now read a second time.

Mr. SCULLIN (Yarra- Prime Minis part of a comprehensive financial plan to absorb the unemployed, and balance budgets by methods as equitable as possible. Accompanying it are other measures; this is the central proposal, and to consider it in its true perspective, it is necessary, briefly, to survey the problems that confront Australia, and the means by which they may be solved.

The difficulties which the Government had to face when it assumed office sixteen months ago were a serious adverse trade balance, falling revenue, increasing expenditure, growing unemployment, and a decline in the value of our exportable products. As a first step the Government had to take drastic measures to rectify the adverse trade balance. The only alternative was default. No country could continue to import more goods than it exported, thus piling up heavy debts and interest charges abroad, and hope to avoid default. For the seven years ending 1929-30 the imports of merchandise exceeded exports by £92,000,000. For the seven months ended 31st January, 1931, the exports of merchandise exceeded the imports by £6,613,000. Including bullion, Australia had a favorable trade balance for that period of £13,665,000. The second grave problem, which is still causing concern to honorable members and the people, was the considerable extent of unemployment. In addition, the Government is faced with the serious circumstances of the farmers, particularly the wheat-growers. There exists this extraordinary anomaly - widespread misery, unemployment and hardship, in a land of plenty. Recent seasons have not failed us; the methods and means of production are sound, but because of a worldwide depression, and a fall in world prices, Australia is suffering. The causes have been stated so frequently that I do not propose to review them now. We are confronted with the problem and the obligation of balancing the national budget.

Reference has frequently been made to a Melbourne agreement which emanated from a conference which I attended with the then Acting Prime Minister (Mr. Fenton) and the then Acting Treasurer (Mr. Lyons). It has been called the Niemeyer Agreement, which is quite a misnomer. There was no agreement entered into with Sir Otto Niemeyer.

Mr SCULLIN:
ALP

– I am merely stating the fact. The Governments of Australia would not enter into an agreement of that description with any individual; but an agreement was entered into between themselves that the seven Governments of Australia would balance their budgets. To show that the Commonwealth Government was in earnest I point out that we made available from Commonwealth funds £800,000 to enable South Australia to enter into the agreement. Without that assistance it could not have done so. I have been charged with running away from that agreement. I say, in reply, that the position in Australia got beyond the control of every government. We are still determined, given sufficient time, that the principles entered into at the Melbourne conference shall be observed by the Commonwealth Government and, I hope, by every Government in Australia, whatever political party it may represent. Immediately I left Australia prices began to fall more rapidly, and all the time that I was away they continued to fall. Unemployment increased to a ratio unprecedented in the history of this country. The revenues of every government collapsed, and when I returned from abroad in January last the position was desperate. It is still desperate. I took the responsibility of recommending that an experienced public man in this country should re-enter the Cabinet, and consequently the honorable member for Dalley (Mr. Theodore) became Treasurer again. Since then we have attacked our financial problems. We have worked assiduously, and while people have been condemning and criticizing one individual, he has gone ahead with his task. He is working as few men in the public life of this country have worked for Australia. My colleagues and myself have for weeks past been engaged eighty hours a week trying to grapple with this problem. Honorable members opposite glibly say that we have been sixteen months in office. They say it in such a way that one would imagine we had been in office sixteen years! We received an inheritance built up by our opponents during fourteen years of reckless expenditure, and we are expected to rectify the position in as many months! But I do not wish to traverse that ground. The outcry generally in Australia has been, and still is, “ cut expenditure.” “When we are up against difficulties we must cut expenditure. We never denied that, or refused to cut expenditure. We have cut, in our short term of office, administrative and departmental expenditure by about £2,300,000, and the pruning knife is still being used. Not satisfied with that, honorable members opposite are insisting on other cuts, and salaries and pensions are largely mentioned. But never a word is said about the reduction of interest payments. Let me say that the Government will not cut pensions. It will cut neither soldier, old-age, nor invalid pensions. We believe that this country is rich enough to overcome its difficulties without making an attack upon pensions. I reaffirm what I have affirmed from the beginning, that the basic wage, which is the living wage of the workers, must be maintained. The cost of living reductions in respect of the basic wage are being accepted by the workers just as in the past they accepted increased wages due to the increased cost of living, but the Government does not stand for a reduction below a living wage.

Mr White:

– Nor do we on this side.

Mr SCULLIN:

– I am glad to have the support of the honorable member, and I hope that his voice will be raised in protest against the 10 per cent, cut in the basic wage which is operating at the present time.

Mr White:

– That was determined by an award of the Arbitration Court.

Mr SCULLIN:

– That fact does not make the 10 per cent, cut just. Special reference has been made to the public servants, who, it is said, are a sheltered body of men enjoying reductions in the cost of living without any fall in their remuneration. It has been said that the Public Service is a close preserve, and that its members are in a sheltered position. There is, some truth in that contention, but there is greater truth in the statement that bond-holders are in a sheltered posi tion and enjoying interest payments which have an increased purchasing power to-day because of the fall in prices.

Mr White:

– Why not adjust the position for both public servants and bondholders ?

Mr SCULLIN:

– That is precisely what the Government intends to do. The Commonwealth Public Service will, as from the 1st July, automatically suffer a reduction, based upon the reduced cost of living, of £18 for adult male workers. The public servants are as good and loyal a body of men as any other in Australia. They have met in conference with the Public Service Board, and have agreed to approach the Public Service Arbitrator for a consent award for a variation, which, if granted, will bring the cost of living reduction into operation as from the 1st April instead of the 1st July.

Mr Nairn:

– That would be an automatic reduction in any event.

Mr SCULLIN:

– It will be automatic from the 1st July, but the public servants are accepting it as from the 1st April. We should give them some credit for their contribution, and not try to belittle their effort.

Mr Coleman:

– What will be the amount of their contribution?

Mr SCULLIN:

– To the basic wage worker, the reduction represents about 9 per cent. But the percentage will decrease on a graduated scale in respect of the higher salaries. The reduction is a flat rate of £18 for adult males, and on a salary of, say, £700, it represents one and three-quarters per cent, as against 9 per cent, on lower rates of pay. The Government has determined to make the contribution equitable. It is to be adjusted by. a salary tax graduating from 3 per cent, upwards, with an exemption of £250. Because of the consent award of the Public Service, and the consequent fall that will take place automatically as from the 1st July, together with the salaries tax, and adjustments that have been agreed to in respect of overtime - because overtime cannot be justified when there is so much unemployments - the budget will benefit in one complete financial year by approximately £1,000,000.

But there is another burden to be lifted from the community, and thai; is the burden of interest upon Commonwealth and State bonds. The bondholders are, in many instances, making no contribution to the revenue, and in other instances they are evading their just, contribution. The fact is that on all the interest received - something like £27,000,000- by the holders of Commonwealth and State bonds, only about £400,000 is paid in income taxation. It is proposed to’ introduce legislation to provide for a tax on interest, and I hope, when it is introduced, to have the support of honorable members opposite, who are so insistent upon a reduction in Public Service salaries. We all realize that property generally is taxed by the Commonwealth and the State; that interest is taxed in the main only by the Commonwealth; that the outside workers have suffered from retrenchments and cuts in the basic and other wages; that business men and the farmers have suffered; and that the bondholders, and) - it is suggested - the public servants are in a sheltered position. I make this definite statement that the tax upon Public Service salaries shall stand or fall with the tax upon interest. Thus, if both taxes are levied, the contribution will be spread.

Mr Bayley:

– What will be the proportion of revenue from each?

Mr SCULLIN:

– We are still discussing the details of these proposals. We have already economized in administrative and departmental expenditure to the extent of £2,300,000.

Mr White:

– And £600,000 of that represents economy in the Defence Department.

Mr SCULLIN:

– Surely that is a department that can best stand a reduction. The proposed reductions in the Public Service will represent this financial year an additional saving of £1,000,000. We have not yet been able to estimate the effect of the interest tax upon the budget, but the Treasurer will, no doubt, be able to make a definite statement on that matter when introducing the bill. We are still effecting savings. As contracts have ended, and as terms of appointment have expired, we have terminated some of them and in other instances we have reduced high salaries. But we cannot undo in a few months what it took years to do. Any one who looks at the budget knows that it would be ridiculous to suggest that by reducing expenditure, or increasing taxation, we could approach anywhere near to balancing our revenue and expenditure. Even if we reduced expenditure and increased taxation, we could not balance the budget, although I confess that last August I believed that we would succeed in that. But the position has become desperate since. Prices have fallen and unemployment has increased. No one would now dare say that by cutting expenditure, and increasing taxation, short of ruin, we could balance the budget of the Commonwealth or of any State Government. The great problem that confronts us is how to stimulate industries in this country. We must produce and consume our wealth, to enable more people to be employed in industry.

Mr Bayley:

– And we must keep our existing industries going.

Mr SCULLIN:

– We must do all we can to maintain our industries. The governments of Australia, in their efforts to solve their problems, have contributed much to unemployment. They have been forced into that position. Our loan expenditure, Commonwealth and State, amounted to £43,700,000 in 1927-28; it fell to £27,800,000 in 1929-30; and it will be less than £15,000,000 this year. This fall is a contributing factor to the prevalent unemployment. It has meant the dismissal of thousands of men from public works, and of thousands of others from private employment.

The Treasurer and I interviewed the representatives of the Commonwealth Bank and the trading banks of Australia some time ago, and suggested to them that this problem should be attacked at its very foundation. We argued that industries must be stimulated and workers put back into production. The 300,000 workless men in Australia, who with their dependants make 1,000,000 souls in all, should be put in a position to become producers and consumers. Their purchasing power has been so seriously diminished that many of them have to-day a mere subsistence. Considering only the need for balancing budgets, we submit that it is essential that these men should be restored to industry. From the humane aspect it is far more essential. It is a tragedy that these people are in their ‘present position. We found the members of the conference speaking with different voices, although the discussion was not lengthy, nor in some respects illuminating. I listened intently to every statement of the subject that was advanced by the representatives of the banks. It was said by some of them that the banks were not in a position to make advances to stimulate industry. In support of this view, they quoted figures showing their advances and deposits. The Treasurer has dealt effectively with that part of the subject. Other representatives said, “ We are willing to make advances to assist industry, but those who are engaged in industry tell us that they cannot conduct their operations at a profit.” They said also that the manufacturers and producers were not applying for advances because no market was available for their production. We replied, “ Surely there is a market in Australia among 300,000 workless men and their dependants. If we could make these people capable of purchasing goods there would be a growing market here.” But private enterprise will only engage in production when it can see assured customers who will purchase the goods produced. We came to the conclusion that if that is so, and I believe it is so, an obligation rested upon the governments to give a lead, and to make a start by providing a certain amount of work to set the wheels of industry going and so help to provide a market.

After that conference the Treasurer and I had an interview with the chairman of directors of the Commonwealth Bank. We said to him, “ Private enterprise will only set industry going when it can find customers for the goods to be produced. Customers can only be found by increasing the amount of employment available. We can find employment for a number of the men who are out of work, though not for all of them. When these men and their families become purchasers, industry will be stimulated. A start must therefore be made by the governments, which are responsible for the well-being of the people and should not be unduly concerned whether their expenditure will show a profit or not.” We discussed this matter with the chairman, and he said to us, “If we made these advances for this purpose, and men are employed, that would set up a demand for goods. That demand for goods would mean an increased purchasing power. That would at once create a demand for increased notes, because the note is the workingman’s cheque. The more prosperity there is in the community the more currency it requires.” He went on to point out to us that the bank had very serious obligations to meet. He said that it was obliged to make advances to both Commonwealth and State Governments; that it had future obligations to meet; and that it was facing a position overseas that might make future demands upon it of a very serious character. He said that while the gold reserve of £15,000,000 would permit them to increase the note issue to some extent, they felt that it was required as a reserve for safety. He repeated that under existing legislation the bank could not make any further advances, as it was obliged to carry the governments; and added that unless legislation was passed for a fiduciary note issue without a gold backing the bank could not accept the responsibility for giving the impetus to industry which was so essential.

Mr White:

– But did the bank recommend the issue of fiduciary notes?

Mr SCULLIN:

– I have no desire to mislead honorable members. I shall tell them exactly what was said. I then asked the question, “ If legislation for a fiduciary issue is passed by Parliament will the bank operate it?” The reply was “ The bank will carry out the wishes and instructions of Parliament.”

I come now to the circumstances which which have led to the necessity for the introduction of this bill. During the world war there was a great deal of destruction, not only of human life, but also of wealth. In that period an inflation policy was in operation in every country, and numerous loans were floated. Those loans carried interest, which has been paid for a number of years. But in recent years there has been a return to the gold standard, since when a general policy of deflation has operated which has increased the interest burden on the people year by year. The ultimate result has been the world-wide depression from which Australia, in common with other countries, is now suffering. I have no hesitation in saying that this policy is largely, if not entirely, responsible for the great bulk of the evils from which we are suffering. Some people say that nothing would be wrong if wages and the price of goods came down together to pre-war level. They argue that in that event we should be in a relatively better position to compete overseas. That would be quite true if we could bring it about ; but we cannot do so because we have the burden of debt at home and abroad, bearing so heavily upon us. The burden of debt at home does not affect us in the same way as does the burden of debt overseas.

In considering the problems caused by these policies of inflation and deflation two things have to be borne in mind. One is the effect they have had on people in the community with fixed incomes, mostly from interest, but, in some cases, from salaries. These people have benefited enormously by the policy of deflation though some of them lost enormously while the policy of inflation was in process. On the other hand, we have to consider the effects upon people with fixed obligations such as the long-standing mortgages of persons who are buying their own houses, long-term leases, and other fixed responsibilities. Any policy of deflation adversely affects all such people. Take the position of the working man purchasing his own home, who, during the deflation period, is trying to pay the same amount weekly as he formerly paid, while his wages have been reduced by 20s. or 23s. per week. His is an impossible position. The very problem that has been raised with regard to war service homes is also confronting the great mass of the workers of this country who have to meet such fixed obligations. To them the policy of deflation is ruinous.

I have never hesitated to condemn both inflation and deflation, and I repeat that condemnation to-day. If necessary, I will repeat the same words that I used formerly. Any issue of credit may be technically described as inflation.

Any moneys that are advanced by the banks to increase the production and marketing of saleable goods would not, of course, have any effect upon prices. I have said, and I repeat, that if advances are made and expended on works which do not produce saleable goods, the result will undoubtedly be that prices will soar. That is the evil of inflation. Inflation is an injustice to those who have fixed incomes, whether as wage-earners or otherwise, just as deflation is an injustice to those who have to meet fixed obligations. Any inflation which is not balanced by goods produced, will have the effect of causing prices to rise. But to say that it is inflation to create currency or credit of a limited sum of £18,000,000 or £20,000,000, which is to be repaid ultimately by loans, is ridiculous.

Under this bill it is proposed merely to issue a certain number of notes, which will be redeemed by a future loan. There is no danger in that. As a matter of fact, the banks are doing it every day. They have quite openly said that they are doing it in order to arrest the downward trend in prices. If the inflation policy were carried to such an extent that it caused prices to soar, very great injury would be inflicted on many sections of the community. That is not what the Government contemplates doing. It has no intention of allowing prices to soar, for that would seriously affect the purchasing power of the pound. It is true that the purchasing power of the pound is higher to-day than it has been for very many years; but it is not so high as it was before the war; and if steps are taken to make it so’ high by further reductions in wages and prices an incubus will be put upon the country by bondholders which it will be unable to carry.

Mr Hughes:

– I am afraid that the pound has reached that point in England.

Mr SCULLIN:

– I fear that the right honorable member is right.

Mr Latham:

– What about wool and wheat? Let us face the facts.

Mr SCULLIN:

– When we are discussing a problem which is internal and a remedy for it which is also intended to be internal, there is no reason why we should consider how all the problems of other parts of the world are to be solved. Let us look at the logie of the position as it is in Australia. To try to get conditions in Australia down to those which prevail in other parts of the world, particularly in relation to prices, wages, and so on, is surely not contemplated by any honorable member.

I wish to quote briefly some observations by Professor J. B. Brigden, an economist of high standing in Australia. 1 do not agree with all the views of this gentleman, but in addressing the Brisbane branch of the Economic Society on the 14th March last, he said -

What is required at present is that enterprising persons slia.ll take risks. The world wait.-, for constructive speculation. While leaders of industry are holding back and buying from hand to mouth, the fall in prices which they fear continues its devastating progress. Nothing can stop it but the opposite policy of buying more than from hand to mouth, of buying speculatively, and of buying for a rise in prices. As soon as sufficient people take this personal risk, prices will, at least, stop falling. The risk will then have been removed; others will come in, and prices will improve.

And that is quite sound. A rise in prices from the present comparatively low level will not injure Australia, and the issue of £18,000,000 of new money cannot possibly have the effect of bringing prices back to the level at which they stood during the five years preceding 1929.

Mr White:

– The authority which the honorable member has quoted does not endorse inflation.

Mr SCULLIN:

– Nor do I endorse inflation. Under the British Currency and Bank Notes Act the Bank of England is eni powered to issue notes without any gold security up to the value of £260,000,000. They are based merely on Government securities. To those who ‘sneer at the term “fiduciary issue,” or who shy at a name, I point out that the description of those notes in the act is “ the fiduciary note issue.” The other day I read a wellreasoned and capable article in the Melbourne Age. in the course of which it was stated -

A.s a result of war-time experience, the gold standard is becoming less sacrosanct.

There is a great deal to be said for that opinion. This fiduciary issue will not be used to meet budget shortages, but will be devoted to making advances for the employment of those now out of work, on reproductive undertakings instituted by

State Governments and public bodies, and also to provide a bounty on the export of wheat. A portion of it will be devoted to the relief of necessitous farmers. The issue is limited to £18,000,000. Of this sum £6,000,000 is to be ear-marked for the wheat-farmers, and will be spent in the proportion of £3,500,000 for the bounty, and £2,500,000 for relief, through the States, of necessitous wheat-growers. It is proposed to spend upon reproductive works for the relief of unemployment, £1,000,000 a month for twelve months. The notes are to be issued pending the flotation of loans for their redemption. The £6,000,000 of notes issued for the benefit of the wheat-growers will be promptly cancelled when a loan is floated, but the loan to cover the remaining £12,000,000 will become a revolving fund for the prosecution of further public works.

At the last Premiers’ Conference we discussed with the State representatives a programme of public works for the relief of unemployment. In considering suitable reproductive work we went further than merely to require that such works should return interest and sinking fund payments. We maintained that work for unemployment relief should, where possible, be of such a nature as to increase the production of real wealth. It is proposed that the State Governments shall employ the money allocated to them on sound public works, and in the development. of important industries. For example, the Premier of Queensland mentioned a ring-barking scheme that had been approved in his State. I do not know the merits of the proposal, but it has been claimed for it that it would add greatly to future production.

Mr Francis:

– And the proposal wis turned down.

Mr SCULLIN:

– Yes, because we had not the money to proceed with it. If this bill is passed we shall get the money. The Director of the Development Branch has been asked to prepare a list of schemes, not necessarily all of them public works, but to include proposals which, in the opinion of the State Governments, will increase production. Another matter referred to was the clearing of land for tobacco growing. How far such a proposal can be carried is worthy of exploration. The Tasmanian representatives suggested other works for which their governments would take the responsibility of making advances if the money were provided by the Federal Government. Both the Treasurer and I stressed to the Commonwealth and private banking representatives the importance of advancing money for production so that the employment of men would result in an increase of real wealth and consuming power. If that were done it would have the effect, not only of stimulating industry, but of making the revenues of the Commonwealth and States more buoyant. At the present time, prices are low, and trade and commerce is sluggish. Governments are losing their income and land taxes, and the Commonwealth Government in particular is losing in its sales tax, excise tax, and through the Post and Telegraph Office. The States are losing heavily on their railways and public enterprises. W e now have an opportunity of stimulating industry. One million pounds a month spent on reproductive works would provide employment for 40,000 to 50,000 men. Indirectly, it would employ as many more. Each man may be taken to have dependent upon him at least two other persons, and when spending power is restored to them a great demand will set in for food, clothing and other necessaries.

Mr Maxwell:

– Has the Government tried to raise a loan in the usual way?

Mr SCULLIN:

– The honorable member must know what happened when we proposed to raise a loan for £6,000,000 to assist the wheat-growers. At the Premiers’ Conference, and at the Loan Council, it had been agreed to place a loan on the market in conjunction with the Commonwealth Bank, which was to back the enterprise. The Premier of the State of New South Wales then put forward his proposal for the repudiation of interest payments, and it was no longer possible to go on the market. We hope, however, that a favorable opportunity will arise at an early date. Our financial advisers informed us that it was not a suitable time for going on the market, and we were not prepared to take the risk of going against their advice.

Mr Maxwell:

– I understand that the last loan was over subscribed.

Mr SCULLIN:

– That is true, but the honorable member is aware of what has occurred since then - something for which this Government is not responsible.

Mr White:

– The Lang plan was propounded.

Mr SCULLIN:

– Yes, and this Government has repudiated that plan. Fifteen members of our party have taken their political lives in their hands rather than support it. This Government is prepared to accept defeat rather than stand for dishonour, and honorable members opposite can only sneer when they ought to commend.

Several honorable members interjecting,

Mr SPEAKER (Hon Norman Makin:
HINDMARSH, SOUTH AUSTRALIA

– I have allowed a great deal of latitude this morning in regard to interjections, but I am not going to permit them any longer. If honorable members do not remember that the Prime Minister has the call and is entitled to speak, I shall assert my authority.

Mr SCULLIN:

– Were it not for the fact that politics get so mixed up with the consideration of important national questions, there would be in the public press of the country, and in the statements of honorable members opposite, at least some commendation of the stand which the Government has taken for the honour of the nation. The power to issue fiduciary notes will not be exercised if the Commonwealth Bank is able to finance the requirements of the Government by other means. The bank, operating with this legislative power behind it, may be able to make all the advances necessary without issuing a single note, but with the knowledge that it has the right to issue notes up to £18,000,000 if necessary. I believe that it may not be necessary to issue any notes in connexion with these proposals. The bank, however, must safeguard its position ; it cannot go to the very limit of its power. It is possible that the bank may require to print some notes as industry responds to stimulation, because currency expansion naturally follows trade expansion, just as it contracts when trade becomes bad. When a loan is floated, the fiduciary notes will be redeemed.

Mr Paterson:

– Has the Chairman of the Commonwealth Bank expressed any opinion regarding the percentage of gold which should be held as a backing?

Mr SCULLIN:

– On more than one occasion the chairman has said that the position might arise when, in order to meet our obligations overseas, we should have to ship abroad all our gold, and that he might have to ask for special legislation to amend the Australian Notes Act to enable this to be done. I believe that such a position has practically arisen now. I do not think that there is an honorable member in this House who would keep locked up in the vaults of the Commonwealth Bank, gold that was not serving any purpose, while Australia failed to meet her obligations on the other side of the world. When the Treasurer said the other day that he would ship every sovereign a’broad to meet our obligations, some financiers in London sneered at his statement, and quoted the Australian Notes Act, which requires a certain reserve of gold to be held. The Treasurer will have something to say about that later, and so will I. Our attitude is that while we have a sovereign in the bank we will not default.

Mr Gregory:

– It is a proud boast.

Mr SCULLIN:

– Does the honorable member agree that that is so?

Mr Gregory:

– Yes, I agree with it.

Mr SCULLIN:

– The honorable member should not sneer if he agrees with me. I make that declaration for two reasons ; first, because I have some pride in my country and in its honour, as I think all honorable members have; and secondly, I think that it would be mighty bad business if we repudiated our overseas debt. The old copy-book motto that honesty is the best policy still holds good. If we are to trade with overseas countries we must observe the ordinary decencies of public and commercial life. I should imagine that when we are passing through troublous times like these, and when dangerous beliefs and theories are gaining ground because of the desperate needs of the people, honorable members opposite, if they really stand for the honour of their country, ought to accept the declaration of the Government through its leader that it is prepared to meet its obligations.

Mr Archdale Parkhill:

– We do not believe that you are sincere; that is the point.

Mr SCULLIN:

– The honorable member measures other people’s corn by his own bushel.

The main features of the Government’s financial and economic policy may be summarized as follows : -

The maintenance of effective tariff protection and restrictions, to improve and ensure the continuance of a favorable trade balance; the establishment of a central reserve bank, having for its object the maintenance of stability and security in the monetary and credit system of the Commonwealth; the extension of the Commonwealth Bank, and increase of its activities; the control of rates of interest on future deposits and advances; the provision of loan moneys from this fiduciary issue to governments and public bodies for employment and production, thus adding to private industry and employment; the taxation of interest on Commonwealth and State bonds and the graduated taxation of public servants’ salaries over £250 per annum.

This balanced plan should enable budgets to be balanced, and employment to be increased; and it should establish a decided forward movement in the nation’s progress.

I still take my stand, as I have always done, against either inflation or deflation, and most emphatically against repudiation. I am also opposed to the dread policy of stagnation. This proposed note issue is part of a general plan to restore industry. There is nothing in it to cause fear. It is controllable and manageable. All around us in Australia to-day are to be found destitution and desolation. Stagnation, decline and destitution is the only outlook without this or some alternative proposal, and no alternative has been advanced in any other quarter. Australian Governments must choose a safe and progressive course between wild inflation and deadly stagnation. I do not say that this legislation will solve our problems; but it will go some way towards that goal, and will bring a ray of hope into the homes of thousands of destitute, workless men and women, as well as necessitous farmers.

Dr EARLE PAGE:
Cowper

.- No one could listen to the Prime Minister this morning without feeling that business has less to fear from the existing depression than from the well-intended, though ill-conceived, proposals of the Government to relieve the depression.

The right honorable gentleman has at last unfolded the financial policy of the Government. This is not the policy that the Government adumbrated at the elections held in 1929, nor is it that which was given expression in the budgets of last July and November, or in the August and February agreements made in Melbourne. It is founded upon a fantastic scheme of finance, that owes its origin to foreign countries. It is utterly opposed to British tradition, and has never been given effect in any part of the British Empire. However it may appeal to the Treasurer because of his origin, one would think that it would have no appeal for the Prime Minister, who has only British blood in his veins.

Mr Curtin:

– Does the right honorable gentleman consider that a reasonable observation to make?

Dr EARLE PAGE:

– In the whole history of British government, no instance can be found of an inflationary method being adopted to meet a situation such as that with which we are faced; but, unquestionably, it has been repeatedly used in many Latin countries, and has brought ruin in its train. It is not applicable to our present circumstances.

The scheme enunciated by the Prime Minister involves a couple of main issues. The right honorable gentleman said that it is proposed to reduce, by £1,000,000 this year, the cost of the Public Service. Yet last year, when the Leader of the Opposition (Mr. Latham) proposed that Public Service salaries be reduced by that amount, he said that it was quite impossible to do that. He announced this morning that the lower rates of pay would operate automatically from the 1st April next, instead of coming into force at the » beginning of July. Is that to be done by means of an award of the Federal Arbitration Court or the Public Service Arbitrator, or under an act of this Parliament? Last year the Government claimed that it could not, by Parliamentary action, interfere with Public Service salaries; hut appar ently the intention now is, either to adopt that course or to move the Public Service Arbitrator to effect the reduction. “Whatever form the proposal may take, it will be absolutely contrary to the principles enunciated by Labour candidates at the last election, that whatever came or went a Labour Government would not attack salaries in any way.

Another suggestion of the Government is to cut interest rates. This and the last proposal, according to the Prime Minister, hang together. I venture to assert that there is not a man outside of the Public Service whose income this year will not be smaller than it. was two years ago, quite apart from the hundreds of thousands of unemployed who are not receiving any income and are entirely dependent on the dole. These persons are to be thrown into the discard if either of the Government’s proposals are turned down. Surely they are entitled to consideration on their merits! Relief can be given only by the reduction of governmental expenditure.

Mr Curtin:

– Cannot governmental expenditure be reduced by the lowering of interest rates?

Dr EARLE PAGE:

– There are many ways in which it can be done. But according to the Prime Minister, the reduction of interest rates and the reduction of Public Service salaries are to stand or fall together. The right honorable gentleman said that there are some high salaries that unfortunately cannot be reduced because of statutory obligations which, in a number of cases, were entered into many years ago. He made no reference to two salaries that have to be paid on account of appointments that were made quite recently, although both he and his Cabinet believed them to be unnecessary: I refer to the appointment of Mr. Justice Evatt and Mr. Justice McTiernan to the High Court. The Prime Minister cabled his colleagues that those appointments should not, in any event, be made immediately, because the court would have no work to do for some months.

The last point made by the right honorable gentleman was that something must be done to stimulate industry. To that end it is proposed to inflate the currency of this country. The right honorable gentleman has stated that certain bankers have informed him that they have an abundance of money available that would provide manufacturers with the wherewithal to carry on their undertakings, but that there is no buying power in the people because they lack confidence. Yet he proposes action that is opposed to the traditional attitude of the people of this country and of the British Empire, and will destroy confidence! The mere provision of more money, by such doubtful means, will not create confidence, but, on the contrary, destroy what now exists. It will have the effect, not of stimulating, but of stagnating industry. Confidence in the use of money is necessary if business is to prosper. In New York, call money is down to 1^ per cent., and an abundance of it is available; but because it is believed that we have not reached the bottom of the depression or of prices, practically no use is being made of it. A similar position exists in London, where an abundance of call money is available at 2 per cent., because so few enterprises are being carried on. Yet, because of a lack of confidence, that money is not being utilized. Here in Australia we are doing what will absolutely sterilize the confidence of the people.

Mr CHIFLEY:
MACQUARIE, NEW SOUTH WALES · ALP

– There is unemployment in Great Britain and the United States of America.

Dr EARLE PAGE:

– But those Governments are not adopting this particular method to overcome their difficulties; they are dealing with the matter along lines that past experience has shown will ultimately make for success. Under the guidance of this Government, Australia is being pushed deeper into the mire, from which we shall never emerge so long as we continue our present practices. I am glad that the deletion from the Commonwealth Bank Act by the Bruce-Page Government, at the suggestion of the honorable member for Swan (Mr. Gregory), of the power that previously resided in the Treasurer to take over the note issue simply by proclamation has made it necessary for this Government to justify to Parliament its inflationary proposals, before being given the power to issue new notes. Everybody who listened to the Treasurer and the Prime Minister must have realized that they did not make out a good case for this proposal. This is not in any way a permanent solution of our difficulties; at the best, it is merely a stop-gap scheme. If we are to bridge the present period of depression, revive trade, and stimulate employment generally, it is essential that confidence be restored. But the proposals of the Government will have a tendency to destroy rather than to restore confidence. Despite the grandiloquent manner in which the Prime Minister this morning dealt with the matter, the bill embodies nothing more than the proposition to print more money. The establishment of a central reserve bank was debated in this House months ago. It will be remembered that when it was suggested during the course of that debate that the measure would give an opportunity for inflation to be practised at the behest of the Government, the Treasurer replied that nothing was further from the mind of the Government, which would not stand for inflation in any shape or form. Yet it is now admitted that, upon its reintroduction, that bill will be designed to facilitate the operation of this particular scheme. Either the Treasurer was not telling the truth last year, or he is not doing so now.

Mr Archdale Parkhill:

– Both.

Mr SPEAKER (Hon Norman Makin:

– An honorable member may not express himself in those terms. I warn the honorable member for Warringah that if he interjects further I shall take immediate action.

Dr EARLE PAGE:

– All that is suggested by the Treasurer and the Prime Minister is that the effect of this inflation, whether it be called controlled inflation, a fiduciary issue, or the “ Gibbons “ plan, will be to maintain an artificial condition of high prices in Australia. It will remove us further and further from a position in which we could measure ourselves up alongside other countries in our monetary standards. It is contended by Ministers that this policy would stimulate business m Australia. Though it might have that effect for a time, it would materially penalize Australian exporters by increasing the prices of all the goods which they use, and by adding to the cost of production generally. The Treasurer says that the producers would be reimbursed because of the advantage gained through the exchange; but I point out that, in France, which seems to be the pattern on which this precious scheme is designed, the exchange is under control. In war times we have found out that, when the subject of government control is under consideration, the big primary industries are controlled, not the other industries which provide the thousand and one things used in Australia. In periods when the prices of wheat, flour, and bread were fixed, there was no talk of’ fixing the price of harvesting machines or of pins. Although the producers might be compensated to a certain extent, if the exchange were absolutely free, it would be found that exchange would not be allowed to remain absolutely free because of the effect of the increasing amounts necessary for the payment, of interest overseas. Consequently, i hi- exporters of primary products would hu vp co submit to increased prices for the goods they use. 1 shall now examine, for a few moments, the exact position in which Australia would be placed under this bill. I propose to refer to two impartial investigations. The first was that made by Sir Otto Niemeyer, prior to the conference of State and Commonwealth Ministers in August last. *[Quorum formed. * I regret that members on the Government side, who have a large majority in this House, are not sufficiently interested in this important subject to listen to the debate. The statement of Sir Otto Niemeyer to the Premiers’ Conference was published, not at his own request, but at the request of the conference. He said that Australia’s position could be summarized in a few words. He pointed out that Australia was off budget and exchange equilibrium, was faced with tremendous unfunded maturing debts, both external and internal, and in addition had a huge programme of public works for which no loon provision had been made.

Mr CURTIN:

– Was that not rather the responsibility of the previous Government?

Dr EARLE PAGE:

– - Here is a phase of the subject that the honorable member for Fremantle might incorporate in one of his speeches at some time, for reference to it is conspicuously absent from the speeches of Ministers. It has been pointed out that the year before the present Government came into office there was a favorable balance of trade to the extent of £1,500,000. Ministers speak of six months when borrowing was curtailed, not by their own action, but because they had provided for a loan programme which they were not able to fulfil, during which period there was a drop in the prices of the products of the great exporting industries of this country. Ministers take to themselves credit, for an improved balance of trade when the purchasing power of the people lias been lowered by millions.

Mr Latham:

– It is a measure of our poverty, and they are proud of it!

Dr EARLE PAGE:

– Yes. During the period of excess of imports, there was less unemployment in Australia than at the present time. In 192S-29, when there was a favorable trade balance, unemployment began to increase, and it increased immediately this Government took office. Over a long period, the excess of imports over exports will bear close relation to the percentage of unemployment, because imports, rather than being the awful things which members of the Opposition would have us believe, are the means whereby we are paid for our goods, or by which the new capital needed for our development has been brought to this country.

Some two months ago a committee of experts, called together by the Loan Council, also examined the position. They pointed out that, in the last eighteen months, the advances by the banks, plus treasury-bills, had increased from £5,500,000 to £53,000,000 ; that the Commonwealth itself was this year facing a deficit of some £10,000,000; that the States had a deficit of over £5,000,000; that it was evident that New South Wales would have a deficit of another £5,000,000, making a total of £20,000,000 for all governments; that the exchange had become adverse to the extent of 30 per cent., indicating depreciation of the currency; that, during the past three years, Commonwealth and State taxation had been increased 15£ per cent, of the total increase, excluding the special unemployment relief; and that the exchange rates had caused the interest payments to rise by from £8,000,000 to £10,000,000.

They said that this position could only be met by stimulating production and reducing the cost of government by £15,000,000 a year, and added these words -

Employment must be made profitable. This cannot be done by government relief works or subsidies to private industry, but only by removing obstacles to reduced costs, and by the restoration of confidence. The first essential is to promote such action as will accelerate the absorption of the unemployed into industry, and for this, the first requisite is the adoption of such financial measures as have been outlined.

In another statement the committee showed clearly that, if there were an abuse of bank credit to bring about inflation, the position would rapidly become worse, and be absolutely uncontrollable. Those are views of independent experts, men with no party axe to grind, and whose job was to collate all the information at their disposal, and furnish the result to the Loan Council, which is composed of members of all parties. The first suggestion is that we should try to increase private employment by economy in government which would substantially reduce taxation. Professor Copland said that this was the only plan that would get us anywhere; that there should be economy so as to bring about a reduction of public expenditure, taxation of fixed incomes and, finally, a free exchange. I was surprised to receive a memorandum from the Treasurer yesterday which, I understood, supported the proposals that he is now making to this Parliament ; but I find that Professors Copland and Giblin and Messrs. Dyason and Gepp stated in their report -

The internal problem may be expressed as one of balancing the budgets, Commonwealth and State, , the external problem is that of meeting overseas obligations promptly and in full. These ends can only be achieved by drastic retrenchment of all expenditure, public and private, and the reduction of the standard of living throughout the community, with no certainty of recovery except gradually by intensity of efforts and increased efficiency. Australia accepts the position with all its implications, including reduction of real wages even for the basic wage earners, and the curtailment of social services which have become by long custom the rights of every citizen.

That statement appears at the beginning of the memorandum distributed by the Treasurer, and is quite a different proposition from that brought down by the Treasurer.

Mr Fenton:

– When that report was tendered to me, nothing had been said about a fiduciary issue.

Dr EARLE PAGE:

– The Prime Minister stated that retrenchment would be practised to the extent of £1,000,000 in the Public Service, if the House would impose a tax on interest, and we were led to believe that the statements in the report from which I have quoted, indicated that the country should adopt the Treasurer’s policy. Now, however, he has brought down an absolutely revolutionary policy, and it is for him to justify it before Parliament. Nobody who has listened to his speech, or to that of the Prime Minister, would claim that he has said one word that would induce an openminded man to support the Government’s proposal. If because it is controllable it differs from ordinary schemes of inflation that have ruined other countries, they should show that it can, and will be, controlled.

Mr Maxwell:

– The excuse is that it provides for only a little inflation!

Dr EARLE PAGE:

– But we have no guarantee against a large measure of inflation. We know that the Cabinet has brought down proposals to its caucus; and backed them with the whole weight of its authority, but the caucus has turned them down repeatedly. The export duty on sheepskins is a case in point. Twenty-four hours before the schedule was tabled in the House, the matter had not been considered by the Government. The duty had been hurriedly forced through caucus against the Cabinet’s will, and introduced in the House on the last day before an adjournment for an indefinite period. On the first day that the House re-assembled we were informed that the Government intended to allow the duty to lapse. Apparently, Cabinet had proved that its first attitude was right, and that caucus had forced it into a mistaken policy. It is clear that the Government is not master of its own actions. Even if the Prime Minister and the Treasurer were in favour of strictly limiting the fiduciary note issue, how could there be any assurance of its control when the final word rests with an irresponsible caucus, which will do as it is urged from outside - a mob of opportunists who will put expediency before principle?

Mr SPEAKER (Hon Norman Makin:

– The honorable member is not in order in referring in those terms to honorable members. I ask him to withdraw that statement.

Dr EARLE PAGE:

– If it is unparliamentary I withdraw it. The Treasurer’s suggestion - it is not a policy - will not solve our problems; it may postpone the day of reckoning, but delay will only, increase the difficulties of the ultimate solution. The Government does not claim that this proposal was part of the policy it put before the people. It cannot claim to have any mandate for this measure. Inflation has always proved to be the meanest form of taxation, because it is covert, and hits most severely the poorest in the community. “Wherever it has been tried, prices have risen much more rapidly than wages, and the man on the bread line has had to bear the first brunt of the attack. In effect, it is a compulsory loan, without interest, obtained surreptitiously from the people; no provision is made for its retirement, and it never will be repaid. Once this system is put in operation prices will start to rise, and there will be no means of keeping them in check. We shall experience a continual increase in prices and a continual depreciation of currency. Thus, it will become a system of legalized robbery, injuring everybody in the community, but most severely the wage and salary earners and pensioners.

Mr SPEAKER:

-The right honorable gentleman is not in order in speaking of proposed legislation as robbery. I ask him to withdraw that statement.

Dr EARLE PAGE:

– Is it not permissible to refer to this proposal as a scheme for legalized robbery?

Mr SPEAKER:

-It is not in order to characterize any legislation of this Parliament as robbery. The honorable member must withdraw the remark.

Dr EARLE PAGE:

– I do so, and substitute the statement that the Treasurer proposes a means of withdrawing, by legal processes, money from the pockets of the people without letting them know that the money is being extracted. One of the worst sufferers from this system will be the old-age pensioners. We should take warning from what happened during the war period. Under a system of inflation, price levels were forced up and wages lagged far behind. In 1911 the index figure for the cost of living was 111 ; in 1919 it was 247. In that period the old-age pension was increased from 10s. to 12s. 6d. Prices in 1919 were two and a half times greater than in 1911, yet the pension rose by only 25 per cent., with the result that 12s. 6d. in 1919 had a purchasing power equivalent to that of only 5s. in 1910. The pensioner was one of those who were fleeced by the inflation process, and not until 1925, when the Bruce-Page Government increased the pension to fi, did it approximately overtake the advance in prices. For fourteen years the aged and indigent who were dependent upon Commonwealth pensions suffered the full effects of war time inflation. Yet honorable members suggest that we should revert to that expedient.

I turn now to the effects of inflation on wages. While the price level advanced from 100 to 247, wages in New South Wales increased merely from £2 8s. to £3 3s., and, finally, to £4 5s., when the rate should have been £5 17s., if the purchasing power of 1911 was to be restored. The prices of goods had doubled, but wages had risen by only 25 or 30 per cent. It is the invariable experience that wages lag behind the advance in prices, and, therefore, the worker has to pay for inflation. By this subtle form of taxation, which misses scarcely anybody in the community, money is taken out of the pockets of those who are in receipt of wages or salaries without their knowledge. The only persons who have benefited from the system have been the shrewd people - the .speculators and ‘manipulators ; the men who had huge stocks bought before prices rose, and were able to get their profits out of the country. During the last two years of the war Australia experienced unexampled industrial unrest. Strikes were occurring in connexion with railways, coal-mining, shipping and many other industries. For this ferment all sorts of reasons were advanced, but the real one was that the workers could not live on the wages they were receiving, because owing to inflation the purchasing power of their money had diminished. Commodity prices had increased faster than wages.

An insurance policy-holder who for 40 years had been paying premiums on a policy of £100, to be drawn when he was 60 years of age, found that, at maturity, the benefit was worth only £40 in the purchasing power of the time he made his contract of insurance. When the policy was taken out money had a real value, but at maturity, owing to wartime inflation, the £100 policy would buy only £40 worth of goods. The savings bank depositor was in like case. For many years he had been cautiously adding a few pounds to his savings account, and had thus gradually accumulated £200. In the evening of his life, when he wanted that money to support him, he found its purchasing power was equal to only £80. These are some of the consequences that follow from a policy of inflation. The Treasurer (Mr. Theodore) says that the Government will control the inflation, but he does not say that unfortunate sufferers, such as those I have mentioned, will be compensated. On the contrary he says that one of the reasons for introducing this system is that nominal wages may be maintained at their present level while prices rise, although he knows that this must mean a decline of real wages.

Mr Gabb:

– That was involved in the Gibbons scheme also.

Dr EARLE PAGE:

– It is involved in all schemes of inflation, and it is well that the people should know that. During and subsequent to the war every government in every country was devising means of taxing excess profits made as a result of inflation. But experience has shown that it is almost impossible to get from them their ill-gotten gains. Australia imposed a wartime profits tax of 80 per cent.; yet the profiteers still had much more than they had before, whilst the poor people had become poorer. The workers suffer most where inflation is due, not to rising prices, but to the exigencies of government finance, and to endeavours by this means to wipe out deficits. In Great Britain, the United States of America, and most neutral countries, the expansion of the currency was due to the continual rise of commodity prices. At the same time those countries tried to control their currency on a sound basis. France, Italy and Germany, however, were using the currency to avoid the necessity for increased taxation. They used the printing press to cope with their deficits. The effect on the cost of living in three countries are shown in the following table : -

Honorable members will see that, whereas in France the wholesale prices increased sixfold and in Italy seven-fold, in the United Kingdom the cost of living increased by only 250 per cent. Germany cannot be brought into the comparison, because its enormous increase of the currency was an effort by fraudulent bankruptcy to wipe out the external debt. The inflation in Great Britain, owing to the increase of price levels, was not nearly so damaging as in France and Italy, where inflation was deliberately engineered to assist government finance. The objections to this bill if its purpose were to assist private finance would not be of the same order, but it is entirely for the purpose of bolstering up government finance, and the report of the Treasury experts proves that that expedient would not be helpful.

I come to the attitude of the Government towards the banks. When I heard the Prime Minister (Mr. Scullin) speaking this morning of honour and honesty, I could not understand the miserable attacks which he and the Treasurer are continually making on the banks. During the last eighteen months, the Government has been able to finance its undertakings and convert loans only by the assistance rendered by the banks. The prospects of the recent £28,000,000 conversion loan had been seriously prejudiced by the wild proposals of the Labour caucus in regard to compulsion and repudiation. But. the banks unitedly stood behind the Acting Treasurer (Mr. Lyons), and because of their support the loan was over subscribed. Yet I have not heard the Prime Minister or the Treasurer utter one word of appreciation of their help.

Sitting suspended from 12.^5 to 2.15 p.m.

Dr EARLE PAGE:

– The charge has been made against the banks that they have unduly restricted credit, but any one who cares to examine the figures for the last two or three years will find that a charge exactly the reverse really should be urged against the banks, because of their failure to bring about an earlier restriction of credit. Had that happened, the chances are that the boom would not, have risen to the height that it did. At present the banks are straining the whole of their resources to give assistance to the community, and to mitigate the severity of the depression now that the slump has come. That is shown by the figures given in the Insurance and Banking Record of 21st. February, 1931, which show that the deposits for the December quarter of 1929 were £361,000,000, and for the December quarter in 1930. £337,000,000; or a diminution of £24,000,000; while the advances in the December quarter, 1929, amounted to £387.000,000, and for the December quarter, 1930, £376,000,000, or a decline of about £10,000,000. “While the deposits declined by £24,000,000, the advances decreased by only £10,000,000. The following comment is contained in that journal : -

The decrease in advances largely reflects the diminution in the volume of imports and business generally. Country accounts, however, do not show the reduction usually to be expected on the realization of the season’s production-, this applying both to producers and traders in the country districts, and it is only to be expected that these classes will continue to require support for some time to come. In granting accommodation to their customers, the banks have carried the proportion of advances and securities to deposits to a higher level than formerly, the latest ratio being nearly 105$ per cent, against 90 per cent, in 1929, and this has involved a corresponding change in the relative proportions of their resources employed locallly and in Loudon. Altogether the banks have dealt liberally with their customers in Australia and New Zealand. In addition to supporting the Governments in a variety of ways, including the assistance which they have rendered to the latter in meeting their exchange requirements.

The position is that the advances to clients of the banks represent 105f per cent, of the deposits with the banks. It is usually recognized in banking circles that advances should represent not more than 80 per cent, of the deposits, so that it will be seen that the banks at present are straining every nerve to make available credit for their customers. I hold no brief for the banks, but I wish to state the position fairly. During this crisis the banks have done their utmost to finance the Governments of Australia, and also private enterprise, to prevent price levels falling to any considerable extent. If they continue to finance government deficits a considerable degree of inflation will be brought about, because the providing of credit for a government is quite different from the providing of credit for private enterprise. In making advances to private individuals security is demanded which can be realized if necessary, but there is no realizable security offered in respect of advances to the Government. The banks cannot force the Government of their own country to default. The genera] effect of a continuation of the financing of government deficits will be to increase arbitrarily and permanently the volume of credit and buying power in the community. The smaller proportion of saleable goods that are manufactured must increase price levels and bring about inflation. The scheme of the Government resembles not so much the provision of food as an injection of strychnine. It may stimulate industry for a while, but what is needed i3 something solid and substantia], not a temporary stimulant.

There is little in this grandiose scheme about which there has been so much talk during the- last few months. The Treasurer has supported various proposals, including the Gibbons plan, for the stabilization and rehabilitation of industry in Australia. His present scheme is to obtain £18,000,000 from the printing press. Of that sum £12,000,000 is to provide work for the unemployed through government agencies, and £6,000,000 is for the benefit of the farmers. The scheme would be greatly improved if £12,000,000 were made available for the farmers and £6,000,000 directly for the relief of the unemployed, because in the hands of the farmers the purchasing power of the money would be considerably enhanced and more work would be made available by private effort than by governmental agency. It would provide more useful and reproductive work for the people of Australia than is likely to be provided by merely making advances to the various Governments of Australia. In New South “Wales an unemployment relief tax of ls. in the £1 is being levied on the wages and incomes of the citizens of that State. That tax is expected to raise £6,000,000 a year, yet no one in New South Wales has yet recognized any good effects from the spending of that money. Instead of reducing the distress and suffering of the people of that State, that expenditure seems to have created more unemployment. It has not been of any real relief to the unemployed.

Mr Hughes:

– Is £6,000,000 the amount expected to be raised by the unemployment relief tax in New South Wales ?

Dr EARLE PAGE:

– That is the amount that Mr. Lang suggested would be raised by the tax. Month after month this money is being expended, and its effect in lessening unemployment is imperceptible. One cannot find any beneficial results at all, and I have no doubt that that will be the case at the beginning and end of the Treasurer’s scheme. This morning the Prime Minister justified the Government’s proposal by saying that if it were a departure from ordinary established practice it was a small departure. Evidently that is all that can

De said in support of it. I could understand the Government proposing a complete monetary re-organization, but it was because the honorable member for Bourke (Mr. Anstey) and the honorable member for West Sydney (Mr. Beasley), advocated such a scheme that they were kicked out of the Cabinet. One of the arguments used by the Treasurer in favour of the issue of fiduciary notes is that it would be the beginning of the reorganization of our monetary system. Yet he also argued that this issue would be identical with the fiduciary issue of Great Britain. I would remind him that the British issue has a gold basis, and is entirely different from the proposed issue in Australia. Therefore, the defence of this great re-organization of our monetary system on the ground that it resembles the fiduciary issue in Great Britain, is utterly futile. In Great Britain the fiduciary currency has been more than covered by securities which are readily liquifiable. In fact, before 1928, it was found that there was more than enough in the currency note redemption fund to pay off the notes and special legislation was passed to take this excess into the exchequer when the note issue was transferred to the Bank of England. At present the English currency note is covered by readily liquifiable securities, which are earning appropriate interest and dividends. There is no inflation involved, because to obtain these notes one must pay full value for them. In Australia the issue of £18,000,000 of notes would have no backing. Treasury-bills might be issued for them immediately, but it would be scarcely possible for the bills to be taken up. Already the banks have some £6,500,000 of these bills on their hands. The Prime Minister has said that later there will be a loan floated to cover the issue. The whole of the security behind this issue is prospective. In England the security behind the fiduciary issue is wealth actually in existence. Therefore, there is no analogy whatsoever between the two systems. This issue is really being provided to assist the Governments of Australia to meet their deficits, but it is an impracticable scheme, because the very suggestion of inflation will preclude the. possibility of floating future loans and will enlarge our expenditure, and so create bigger deficits. We have shortly to meet a £17,500,000 short call loan in Australia, and £38,000,000 in London. The trading banks hold £6,500,000 in treasury-bills, and that fact is already causing a certain amount of inflation, which unfortunately has had no appreciable effect on unemployment. These fiduciary notes may be put into circulation, but the experience of the world is that when inflation takes place deficits continue to increase. Expenditure rapidly overtakes revenue, and ultimately some one will have to cut governmental expenditure. This process must, sooner or later, come to a halt, either by voluntary or by compulsory action on the part of the Government, because the banks will find themselves unable to continue to finance Government deficits. The Prime Minister has said that the banks are unprepared to make further advances, but that this legislation, if carried, must be taken by the Commonwealth Bank as a direction from Parliament. There is, therefore, to be dictation by the Government as to the amount of currency that ought to be provided and this Parliament will take control of the monetary system of this country. I have a great respect for the intelligence and ability of members of Parliament, but I contend that we have no right to set ourselves up as financial experts, able to handle The general question of currency. A member of Parliament knows no more how much currency should be in circulation than the man in the street knows about operations for cancer or any other disease. This scheme stands condemned by the action of the Government itself, because it dare not go whole-hoggedly for inflation. It is prepared to issue only £18,000,000 of fiduciary notes. It said that we have in Great Britain a precedent for this issue, and that the re-organization of the monetary system is not really in the Government’s mind. It seems to me that this Government will get nowhere. Yet we have to get somewhere as soon as possible. I am anxious to arrive at a workable solution of our difficulties. “We must restore confidence in the minds of the people. There are two ways of doing that. The first is for this Government to say that it abandons completely, and for all time, all schemes of repudiation and inflation. If it will not do that, there is only one alternative; we must change this Government for one which does not stand for repudiation or inflation. The Prime Minister said that he does not stand for repudiation, and I welcome that declaration; but this scheme must ultimately lead to repudiation, though by a more subtle process.

When we have restored confidence in the country we would be able to obtain assistance immediately to deal with our deficits, and so relieve the banks of some of their burdens of government overdrafts and enable them to give more assistance to industry. The next most important thing to do, it appears to me, is to replace the gold which has been sent away from Australia. I believe that we could do that immediately if the Government would make the definite statement that it would have nothing whatever to do with any scheme of repudiation or inflation. Such a statement would, in my opinion, enable it to obtain a gold loan from France or England of £15,000,000, at about 4 per cent, at £94 or £95 with a term of 40 years, repayment on ordinary sinking fund terms. This would not interfere with the production of goods here. If we could obtain this gold we should be able to use it as the basis for additional credit on a pound for pound backing. Those who desired the credit would have to pay in actual value for the notes that they received, which would only be issued to the extent we had gold backing, pound for pound. Here is a proposal which would definitely lead us back to the gold basis, and ultimately bring our monetary conditions into conformity with those which prevail in other parts of the world. This is a scheme which would enable us to get out of the bog, whereas the Government’s proposal will lead us further into it. This plan, combined with a declaration by the Government against repudiation or inflation, would at once make help available to primary producers. It would restore confidence in the country generally, and prevent capital from leaving Australia as it is doing at present, because those who possess it are so uncertain about the conditions which will prevail here in the immediate future.

Let us go back for a few moments to a consideration of the 1897 American crisis, which was almost as grave to America at that time as this crisis is to Australia to-day. Capital was leaving the country rapidly, and gold was being shipped abroad at an extraordinary rate, when Mr. Pierpont Morgan offered a gold loan of £20,000,000, at 3 per cent., which .stabilized industry and restored confidence within a few days. I submit that we could do the same thing.

We could, by the adoption of orthodox methods, achieve the very ends which the Treasurer is trying to achieve by these new-fangled ideas. By the adoption of orthodox methods such as I have suggested, we should ensure a rapid return to the gold basis in this country, and so to conditions comparable with those prevailing in other parts of the world. Why should we adopt fantastic, unorthodox methods when a straight-out orthodox procedure would get us out of all our difficulties, and enable us to avoid the pits into which other countries have fallen through the adoption of inflation as a means of getting out of their desperate straits? The Treasurer desires us to try a scheme which France adopted after having followed a policy of inflation for very many years. On the very night when the French inflation policy was submitted to the legislature there, a proposal was also brought forward for the imposition of a tax on cats - the only remaining avenue of taxation open to the Government. I contend that we could rectify our troubles without following the undesirable methods of the French people - methods which they have persisted in for the past three years simply because inflation previously had rendered their position desperate. The French plan has worked, we should remember, only because of the huge gold backing of tlie Bank of France and of foreign creditors, which enables them to regulate exchange. Even if we could regulate the exchanges of this country, even if we could start some scheme which would involve ultimately some measure of central reserve banking practice with the backing of a huge mass of gold, even if we could adopt some system of determining price levels, it would be found before very many months had elapsed that all the benefits which have accrued to the primary producer and exporter through the present . exchange position would be filched from them because of the heavy increase in interest rates overseas which would be inevitable. Government necessities would take precedence of the interests of exporting industries.

We are a part of the great British Commonwealth of Nations. London, the capital of the Empire, has in the last 300 years operated a financial system which has made possible wonderful improvements in the lot of the people, and wonderful extensions in production. With the aid of this financial policy, Great Britain came safely through the industrial revolution and determined the financial policy of the world. In these circumstances we should think seriously before departing from this policy. Why should we, in a time of emergency, throw such a proved policy overboard, and adopt some new idea, simply because some other countries have done so? The British system has been sufficiently elastic to meet the needs of the great expansion of industry and commerce in Great Britain, and we should be foolish if we departed from it in order to avail ourselves of a new scheme which has been in operation in France for only about three years, lt must be remembered that the countries which have adopted these new systems of finance still have their times of crisis, which are more severe than the crisis through which we are now passing. We should not be so foolish as to imagine that, because distant hills are green, distant schemes of finance are also attractive. Let us pursue orthodox methods in accordance with the greatest traditions and practices of our race, and we shall safely overcome our troubles with the least damage to our people.

Mr CURTIN:
Fremantle

– I had hoped that, before he resumed his seat, the right honorable member for Cowper (Dr. Earle Page) would have given us some more specific information regarding the practicability of his proposal for raising a gold loan of £15,000,000, at 4 per cent., from France. Such a proposal requires a great deal more elaboration before it can be regarded as in any sense practical. If I understand the right honorable member correctly, he argued that the presence of a considerable gold reserve would be useful in relieving our difficulties only if it could be used for the purpose of considerably expanding the credit and currency of the nation. Unless that credit and cur- rency led to 1111 enormously increased proAction we should still have some kind df inflation. But the right honorable member condemned all inflation as unsound. Every stimulation of the monetary ‘resources of the country, whether in an accepted or in any new form of currency, which is not accompanied by a corresponding increase of production, is decidedly inflation. As a matter of fact, the whole story of war finance in this and other countries is the story of the use of orthodox methods of hanking, and the use of orthodox monetary principles in order to borrow from future production to provide funds for carrying on the enormously expensive business of war.

The right honorable member was at some pains to explain that it was not necessary to resort to the issue of fiduciary notes in order to inflate the currency. I recollect reading the report of a speech which the right honorable member made in this Parliament on the 13th June, 1924, in which he questioned the policy the banks pursued in 1914-18. He explained what took place in the early stages of the war, and roundly condemned what was done. We all know now- orthodox economists as well as others - that in the last decade the bankers and financiers practised a method of debt inflation which has led, in these days, to the collapse of prices, widespread unemployment, and a demoralization of markets, in the face of which it is impossible for the country to avoid some form of inflation, even though it be upon the basis laid down by the right honorable gentleman. Even if we had gold us a hacking for the issue of notes, it must be apparent toeverybody that we could not increase production immediately, because the available supply of goods is already in excess* of the world’s demand for them.

What we have to remember is that the purpose of the proposed fiduciary note issue is lx> provide employment, for the most part, on public works, because in this crisis, which is an emergency iri the history of the country; the old orthodox’ principles of finance have proved themselves incapable of meeting- the situation. This: is shown by the fact that the extraordinary increase in the capacity of the people to produce has outstripped the purchasing power of the world, nt least temporarily. If there ia to be any effective utilization of surplus labour at present it cannot be in further adding to the glut of goods, because that would simply increase the present disparity between production and consumption.

Mr Bell:

– The honorable member seems to be in disagreement with the Prime Minister.

Mr CURTIN:

– I om not in disagreement with the right honorable gentleman. I am simply putting the case as I sec it.. I contend that to use this money for the purpose of providing work for the unemployed will bt? of little avail in the economy of the country if the work is designed to increase the production of boots, suits of clothes, or other similar goods of which there is already an excess production. The important thing to do at this stage is to develop the social services of the people, construct public utilities, such as schools, health clinics, and water schemes, the provision of which is an .obligation of the nation as distinct from the private individual. .If human labour could be diverted into these channels rationally and profitably, the .workers would have a purchasing power which would enable them to consume some of the excess goods already produced. If we can transfer labour from surplus production, and give the people a purchasing power which will make them consumers of this surplus production, we shall be able, to some extent at least, to restore the equilibrium between production and consumption. That seems to me to be the way iu which we should use our national resources in this time of emergency. 1 do not expect in this time of crisis to establish perfectly logical principles of economics and apply item. I do not see in this bill ‘any proposal for the complete change of the monetary system. The right, honorable member for Cowper (T)’-. Earle Page) seemed to find the bill weak, because it did not carry ‘ out what he expected it would, namely, the Labour party’s platform for the nationalization of banking. The truth is that the world generally- is passing through a difficult period of transition, iu which the system of individualism, and the corporate control of the monetary system independently of (he nation, is being examined fi; the light of its evident failure. Whether the world is in a position completely f© scrap that system has not yet been determined. In the meantime, however, millions of people in this and other countries are suffering as a result of the collapse of the old system, quite irrespective of their social position or personal qualifications, or whether they .are workmen, farmers, tradesmen, or business men. All are to-day in the fell clutch of circumstance. The right honorable member for Cowper (Dr. Earle Page) summed up his entire attack on tho bill by saying that if the Government abandoned all schemes of repudiation and inflation, confidence would be restored in Australia, and we should be able speedily to get out of our difficulties. There has never been any suggestion that the Government of Canada - to take an illustration from the family of the British Commonwealth of Nations - has committed itself to any scheme of inflation or repudiation. No Canadian government, whether Mr. Bennett’s, or that led by his predecessor, has ever been suspected of any desire to tinker with the monetary system or the credit structure. Therefore, on the premises of the right honorable member for Cowper, Canada should be a country where the budget is being balanced; where credit is available to employ the unemployed, and where there is every facility to guarantee primary producers a prosperous industry, and tide them over their immediate difficulties.

Mr Bayley:

– That was not the only argument of the right honorable member for Cowper.

Mr CURTIN:

– Honorable members opposite are moving from house to house as they discover that the edifice which was sheltering them is becoming honeycombed. All the time they are running away from their arguments. The truth is, of course, as the Treasurer said, . that irrespective of the circumstances of countries, their national policy, or the political complexion of the Government in power, practically all of them find themselves to-day in the same pass as we are in. It is interesting to note that, so far from the remedy lying in the direction indicated by the right, honorable member for Cowper, that is, by conforming to old methods and adhering to orthodox standards, the general opinion among experts now is that no alleviation of the world’s problems can be secured without the adoption of some entirely new plan. So that I may not be accused of putting this forward upon my own authority only, I shall read from a recent issue of the Melbourne Herald part of an article by Gustav Cassell, the eminent Swedish economist, in which he quotes the opinion of Lord D’Abernon in these terms -

At the conclusion of his brief, but striking analysis of the economic position, lie said that he regarded the former handling of the question as wholly ineffective, and emphasized the fact that we can hope for no favorableresults in the future so long as we carry on with the old methods.

That is the - assertion of the principal financial adviser of the League of Nations, and is based on the expression of opinion of Lord D’Abernon, who surely cannot be suspected of being even a robust radical, let alone a Bolshevist. Are we, at this time of crisis, expected to conform to old methods ? The position of Australia economically is much the same to-day as that which confronted her at the outbreak of war, when she was brought abruptly up against a great national emergency. Had Australia at that time conformed to’ the old, orthodox ideas, had she adhered to the “ solid standards of British honesty and commonsense” as advocated by the honorable member for Wilmot (Mr. Lyons), had she continued to rely upon her capacity to meet new expenditure by raising new taxation, as the honorable member for Angus (Mr. Gabb) suggests, her finances must have proved so inadequate to meet the situation that she would have collapsed long before 1918, and any other belligerent country which put its trust in the samo methods must also have collapsed. Is it accepted that in Australia, there must be a gold basis for every fi used in the exchange of commodities?’ The right honorable member, for Cowper- (Dr. Earle Page), in 1924 furnished to Parliament a return »f the legal tender . holdings by1 the banks in proportion to their liabilities. The liabilities of banks for the most part, other than fixed deposits, are on demand, but never in the wholehistory of banking has it been practicable, for the banks to meet, on demand, their - current liabilities.

Mr Latham:

– No one has ever suggested that they should.

Mr CURTIN:

– Very well; it is agreed that it is impossible for this monetary system to meet in actual coin 100 per cent, of the liabilities for which the public has the right to demand immediate settlement.

Mr Latham:

– Not upon a simultaneous demand; but that never occurs.

Mr CURTIN:

– It is therefore recognized that there must be some departure from the principle of 100 per cent, reserve.

Mr Latham:

– That is ordinary banking practice.

Mr CURTIN:

– I propose to show that the percentage of the reserve varies in arbitrary practice, and that it varies as between bank and bank. It is of no use for the right honorable member to say that the average for a given year represents banking practice, because that average is made up by one bank having a percentage reserve which is only half that of the bank at the other end of the scale. What, therefore, arc we to consider a proper minimum in this respect? The average is between the maximum and minimum range, which is so stupendous that one bank at one end of the scale must be either too conservative, or the bank at the other end of the range must be too reckless. Yet the bank which, according to the standards laid down by honorable members opposite, must be acting recklessly and taking improper risks, is under the control of a board of directors who are held up by honorable members as having qualifications for controlling our monetary system superior to those possessed by the representatives of the people delegated by them to manage their affairs. We are told that this Parliament is incompetent to manage the nation’s monetary system, but that a board of directors, elected by bank shareholders, may safely be entrusted with the task. Why should the representatives of one class be regarded as incapable, while the representatives of another class are looked upon as infallible? Who are the shareholders who elect a board of banking directors? They are men like honorable members opposite, or honorable members on this side - farmers, traders, graziers and workmen, who use a portion of their savings, large or small, to buy bank shares. Banking directors are not chosen because they have years of experience. After all, they are merely elected by the shareholders as honorable members are elected by the people.

Mr Hawker:

– Because of their experience.

Mr CURTIN:

– There is no such stipulation. The shareholders have absolute discretion, unless, of course, the articles of association are mere window dressings, to use the expression by which honorable members opposite have sought to describe this bill. Why should, a group of shareholders of a bank be better qualified to select representatives to manage the monetary system than, say, the people who elect representatives to this Parliament? The one set of electors corresponds more or less faithfully with the other.

Mr Bell:

– That is not so.

Mr CURTIN:

– Does the honorable member suggest that because a man has £50 invested in bank shares he is better qualified to elect some one to control the monetary policy of the country than is a man with £5,000 invested in mines or in factories?

Mr Latham:

– The real point is that the banks have to keep themselves solvent ; that is the governing consideration.

Mr CURTIN:

– I am now challenging the declaration, first, that the monetary system is working perfectly; secondly, that it is being administered in the interests of the nation; and, thirdly, that any departure from what may be described as orthodox banking practice during this national emergency is going to be productive of worse evils. I am able to quote a speech by the late Mr. Pratten who, subsequent to its delivery, became a member of the Bruce-Page Government. If my recollection of recent political history is reliable, it was this very speech which impressed upon the then Government the importance of having a man with so discerning a mind within its ranks. He pointed out that the banking and monetary system of Australia had not, within a few months prior to the date upon which he made his speech, been administered in the national interests, but that it had been administered in the interests of importers; that the enormous accumulation of Australian credits overseas could not be transferred to Australia for use in this country, for the development of Australian utilities and the expansion of Australian industry, but that it was used solely in developing industries outside of Australia and in making this country a dumping ground for the thus stimulated external industries. He called upon the then Treasurer, Dr. Earle Page, to institute a wellordered research into his accusations, and advised him how to go about it. I quote him merely in order to show that the so-called orthodox authorities cannot be regarded as reliable. Mr. Pratten said -

I hope that my honorable friend, the Treasurer (Dr. Earle Page), will have further consultations with the Commonwealth banking authorities on this matter. I believe that if he wants to do a thing, a way to do it may be found. But if he consults economists of themid- Victorian era, possibly he will find they will he able to give him 50 different reasons why what he may propose to do cannot be done, and should not be done.

Mr Gabb:

– That is the speech which secured for him a place in the Ministry of that day.

Mr CURTIN:

– In that speech he warned the Government that, if it sought from professional economists advice in relation to the realization of governmental policy, all that they would give would be various reasons why nothing should be done. I connect that statement of the late Mr. Pratten with the assertion of Lord D’Abernon, made quite recently, in which he implied that the old order and its upholders are not the foundation upon which can be built a policy to meet a new international difficulty and emergency.

What is wrong with civilization? Without using as an illuminant all the matter that is available upon the subject, and without professing to have any more than a common-sense conception of what is wrong, I believe that the trouble is, not that Governments cannot balance their budgets, but that the means whereby the goods produced by Smith may be exchanged for those produced by Jones repose in an authority that regards itself as sufficiently powerful to dictate the terms upon which that exchange shall be made. Even in the negotiations that have been reported to this Parliament we have been given to understand that the credit necessary to assist the farmers and to stimulate employment will be made available by the banks in Australia if this Government will carry out the ultimatum placed before it by the bankers.

Mr Latham:

– It is only on those conditions that it can be done.

Mr CURTIN:

– Is it a fact that that is the only way in which it can be done; or, is that a declaration that it is the only way in which they are prepared to do it ?

Mr Morgan:

– With your crowd, yes.

Mr CURTIN:

– I do not accept that observation, however contemptuously the honorable member for Darling Downs (Mr. Morgan) may regard those who sit on this side of the House. It is sufficient for me to say that our title to a place in this Parliament is no different from his. The votes of the people have placed us here. Notwithstanding the influence of wealth, and the mass power of the principal newspapers of this country, we succeeded in satisfying a majority of the people that we were fit and proper in our ideas, our character, and our reasonable manhood, to sit in the same place as the honorable member for Darling Downs.

Mr Latham:

– At the last election the Labour party had at its command tens of thousands of pounds - far more than we had.

Mr CURTIN:

– The honorable member for Darling Downs refers to those who sit on this side as “your crowd.” A few moments ago the right honorable member for Cowper (Dr. Earle Page) referred to us as a “mob.” This “ crowd,” this “ mob,” is asked in the present crisis to bow down before the declaration of the banks, and to say, “ We will cut pensions and wages.” It is claimed that if we do that, all will be well. In reply, I remind the House that after the inflation caused by the war it was urged, particularly in Great Britain - and we are asked Do take Great Britain as our model - that the best plan for a reversion to any sort of normal conditions was to reduce substantially the cost of production. It is common knowledge that every important industry in Great Britain, and even the Government itself, has reduced wages and other expenditure. The budget of the British Government could not, of course, be reduced considerably in the aggregate, because of its enormous interest commitments and its other payments to creditor countries. But the employment payment, which the British Government either directly or indirectly influenced, was reduced. The doctrine that is advanced now by the bankers, as a basis upon which reconstruction is possible, is not novel. It has been tried a dozen times, and has not been any more effective with each successive attempt.

Mr Gabb:

– It has not left behind it the wreckage caused by inflation.

Mr CURTIN:

– Is it argued that there has been inflation in this country since 1925?

Mr Gabb:

– We are suffering from the inflation of the war period, and the honorable member knows it.

Mr CURTIN:

– From 1915 to 1919, inflation went on apace. Our governments inflated, and our bankers collaborated with them in that inflation. The controllers of our monetary policy were quite willing to impose on the nation enormous debts upon the basis of inflation and a paper currency. These orthodox bankers did not conform to safe and sound practices in the presence of an emergency in which their own property, perhaps, was at stake. The fact that there were risks did not weigh with thera when their own assets were affected. But when there is an emergency of another kind, and only the poor are the first and the last to suffer, when their interests alone can be regarded as the paramount issue, the cry is that inflation is risky and that we should conform to safe and sound British practice. I submit that our troubles to-day, if examined in detail, would be found to be due, not to the inflation of the war period, but to the fact that between 1923 and 1926 the controllers of our monetary policy attempted ruthlessly to reverse a practice to which they themselves had given stimulus and momentum. Having gone to one extreme between 1915 and 1919, by means of inflation, and having built up enormous debts upon that basis, they then sought to revert to the method of banking that they followed before the war; irrespective of the consequences to governments and peoples, they endeavoured to restore the proportion of gold to currency that they had abandoned as impossible when the war broke out. Therefore, if any passion is displayed towards the bankers in this crisis, if there is any detestation of their decision, and any unwillingness to be patient with their explanations, the cause is the root belief of communities that they desire governments and peoples to repay upon a gold basis debts that were incurred upon a paper basis. Whatever argument there may be in favour of the desirability of a slow movement back to the gold standard - and I am not prepared to reject wholly, as the honorable member for Werriwa (Mr. Lazzarini) did, the gold standard; I see no reason why the conventional maximum which served civilization down to the period of the war should be regarded as the proper proportion for the future-

Mr Gabb:

– The honorable member is trying to arrest that movement now.

Mr CURTIN:

– I am. I refuse to assist in any way the undue, unwise, and reckless precipitation of civilization back to the gold standard. I believe that the present state of world prices is definitely due to the fact that international bankers attempted too early in the post-war period to revert to the gold standard.

Mr Gabb:

– That cannot be proved.

Mr CURTIN:

– The other night I quoted what Montague Norman told the Indian Currency Commission in April, 1926 - that he would deliberately work towards the restoration of the gold standard. I judge what he said, and what he intended, by the effects, which have been to increase the disabilities of every debtor country in the world. That is unquestioned.

Mr Maxwell:

– Will the honorable member say that had we not got away from the gold standard and gone in for unlimited credit the war could have been prosecuted to such an enormous extent?

Mr CURTIN:

– Had the controllers of our monetary system not scrapped their banking and monetary practices, they could not have had their war. The honorable member for Fawkner surely realizes that at the present time the disproportion between the prices that the world can pay for production, and those at which production can be carried on, has created not only a national, but also a world emergency? In the economic and social aspect, the effect of that world emergency is as bad for civilization as the economic consequences of the war. It is an historical fact that the national emergency raised by the war, and the economic difficulties connected with it, could not be met upon the basis of orthodox banking practice. Are we going to say that the present world emergency, in its economic aspects and from the standpoint of governments and their necessities, differs from the emergency caused by the war?

Mr Morgan:

– The reply to that is that the world is not at war now.

Mr CURTIN:

– I shall not endeavour to convince the honorable member for Darling Downs of the soundness of my argument; he is beyond redemption. From the stand-point of governments, the late war made the inevitable expenditure far greater than the possible revenue. Furthermore, the possible expenditure of governments from loan or taxation was entirely insufficient to carry on the war on a scale considered requisite for national safety. Therefore, budget equilibrium was impossible. If the only time when credits can be raised is when governments balance their budgets, it should have been impossible for the banks in 1914 to furnish credits to enable the war to be waged. But the banks completely falsified that idea by providing the credits with which the war was financed. The difficulty to-day is that governments cannot balance their budgets, owing to the great difference between expenditure and revenue. The Government of Canada cannot balance its budget this year.

Mr Gabb:

– It is attempting to do so.

Mr CURTIN:

– So are we.

Mr Gabb:

– I did not know it. I have been inside the caucus, and I know how honorable members opposite tried to prevent the balancing of the budget.

Mr CURTIN:

– There are a number of things which the honorable member does not know at the present time; but he will know them, rather to bis discomfort, before many months have passed. The argument used by the Opposition is that, if Governments will balance their budgets, all will be well.

Mr Latham:

– I do not think any member on this side of the House said that that was the only condition to be complied with.

Mr CURTIN:

– The honorable gentleman was not present during the excellent speech delivered by the leader of the Country party (Dr. Earle Page).

Mr Latham:

– I heard part of it; but I find it difficult to believe that any member would say that that was the only condition to be fulfilled to bring about prosperity.

Mr CURTIN:

– It is impossible to pin honorable members opposite down to a definite formula as the basis of their attack on this bill. They say that the measure implies inflation, and that, therefore, it is a terrible measure. Then when they are reminded that the world could face the most tremendous emergency in its history only upon the basis of inflation of credit, they tell us that we are now paying for that; but I have shown that we could not pass through such an experience again except by scrapping orthodox methods of finance. We are now passing through an emergency that is causing as great an economic dislocation of society as was brought about by the late war. Millions are unemployed; homes are being wrecked, and thousands of citizens are to-day in such economic need that they would be in no worse plight if they were paying an indemnity to German conquerors. When we consider the increased taxes that the people of all countries have to pay to those who have fixed titles to interest on the public debt, what would have been the difference economically between paying £55,000,000 in annual indemnity to Germany and £55,000,000 a year in interest to those who now receive it?

Mr Gabb:

– Half our interest is payable within Australia.

Mr CURTIN:

– I admit that; but the honorable member for Angas (Mr. Gabb) apparently wishes to reward the men to whom interest is payable in Australia by giving their money a continuously increasing purchasing power. He scoffs at my proposal for price stabilization. Members opposite tell us that Australia must get down to world price levels ; but, if we do that, what becomes of the gap between the purchasing power of the income of interest receivers and that of all other Australian citizens? There can be no hope of that gap closing, and, therefore, there is no possibility of equality of sacrifice. There is, however, every probability of the gap increasing in proportion as the ideas of honorable members opposite are applied.

Mr Bell:

– How are we to get to the markets of the world unless we bridge that gap?

Mr CURTIN:

– There are methods available to us. If it were accepted that the price of wheat abroad would remain permanently at the present level, it would be impossible for Australia to continue long as a wheat-producing country.

Mr Gabb:

– “What is the principal cause of the low price of wheat?

Mr CURTIN:

– There is a combination of causes. Last week wool prices underwent an extraordinary recovery, which cannot be explained by any sudden accession of buying strength to the world’s consumers, but is associated in some way with the mysteries of large-scale buying by interested speculators. It cannot be claimed that the curve downwards and upwards, which wool prices have followed in the present season, represents what would be regarded by any intelligent observer as conforming to the natural movement of the price level. This unnatural trend of prices is attributable to the operation of great cartels, rings and interlocked directorates, in various countries, which exercise a malign influence, to the detriment of the producers. Undoubtedly, the low prices that wool brought about the middle of the curve this season were due to forced selling, and the wool now being sold is being disposed of by those who bought it at the low price.

This Government, through its Prime Minister, spoke this morning of this bill being one of the phases of a general policy to deal with the conditions obtaining in Australia to-day. I pass on by saying that the “Wheat Marketing Bill is another exemplification of the view which the Labour party takes of the problems of this country. There can be no stability if we allow the producers of wool and wheat to be left to the mercies each year of “ rigged “ markets. Under this bill it is proposed to issue £18,000,000 worth of fiduciary notes. In one year, at the rate of £1,000,000 a month, £12,000,000 is to be provided for the purpose of stimulating work for the unemployed, and the other £6,000,000 is to be used as a grant to the wheat-producers in accordance with the terms of the “Wheat Bounty Bill which has just been circulated in the House. The present measure, as I see it, will inflate the currency of this country to the extent of £18,000,000; but let me point out the relationship between the total coin, bullion and Australian notes, and the clearing house returns. In 1925, the coin, bullion and Australian notes held by the banks amounted to £64,979,000, but the clearing house returns showed that the cheque transactions for that year amounted to £2,202,899,000. Owing to the deflation of the note issue by the operations of the Commonwealth Bank Board, the total coin, bullion and Australian notes in 1929 amounted to £43,431,000; but the clearing house returns rose to £2,352,179,000. “With a reduced currency there was an increased aggregate of money turnover. Of course, notes were not used in more than 3 per cent, or 5 per cent, of the total transactions.’ They were employed for the most part for the payment of wages; but in the general ramifications of trade and commerce, the buying and selling of wheat, wool, land and commodities generally, the ordinary currency in the country was not used. Recently the banks went to the Arbitration Court and said that the turnover in 1930 was £2,025,647,000; but owing to the fact that bullioh was exported last year the coin, bullion and notes in circulation, that is, in the hands of the public, aggregated a little under £29,000,000. Consider these proportions !

It is clear that if the proposed fiduciary notes were never issued to the public, and the banks agreed to operate a cheque currency, the inflation would not be apparent to the community. Presuming that we did get the £15,000,000 of gold which the right honorable member for Cowper (Dr. Earle Page) said we could obtain at 4 per cent., and suppose we put it in the bank for the purpose of assisting the wheat-growers, not one sovereign would go into circulation. The wheatgrower would draw a cheque for the amount to which he was entitled, he would then be able to pay for superphosphate, &c, and the merchant would put the cheque into a bank to enable him to pay wages in ordinary notes. Obviously the risk that a debasement of the currency will result from this proposal is infinitesimal. Under a rational banking policy there should be no risk at all. The proper course is for the fiduciary notes to be placed in the bank vaults as security for ordinary bank accounts, and for the usual cheque pounds to be used for all ordinary transactions between debtor and creditor. I do not agree with the proposal of the honorable member for Werriwa (Mr. Lazzarini) chat every bank which issues a chequebook and every client who uses one should be put into gaol. The existence of the cheque system is a supreme demonstration of how small a part gold and government notes play in the total currency of the nation. The greater proportion of the actual currency is not legal tender; it is created by private individuals upon their savings or such bank credits as they have been able to arrange upon the security of land, wheat, buildings, &c. In these transactions no money at all is required. It is all done by cheque accounts. Do not many honorable members of this Parliament go through the year without drawing from their accounts more than £10 to £20 worth of cash? Their hotel bills and all their regular obligations are met without the handling of either minted or governmentally-created money.

The assertion that the proposed infinitesimal addition to the currency would amount to inflation is absurd. The notes and gold in circulation in this country have to be added to the ordinary cheque transactions to arrive at the total volume of currency in use. If the Leader of the Opposition (Mr. Latham) gave me his chorine, would it not be currency as much as the change I received for it from the bank?

Mr Bayley:

– But consider what is at the back of the cheque.

Mr CURTIN:

– What will be at the back nf these fiduciary notes?

Mr Archdale Parkhill:

– That is what we are taking into account.

Mr CURTIN:

– Does the honorable member suggest that, merely because the

Nationalist party is in Opposition, a government note issued in behalf of the Australian people by the lawful executive would be dishonoured by him or anybody else?

Mr Archdale Parkhill:

– Much depends upon the government that issues the notes.

Mr CURTIN:

– By that interjection the honorable member reveals the whole basis of the opposition to this bill. In what way will a fiduciary note differ from the note issue established by Mr. Fisher in 1910, except that there will be no gold backing for it instead of 25 per cent, of gold? It will be a note issued by the Australian nation.

Mr Francis:

– With no backing.

Mr CURTIN:

– The backing will be the whole taxable capacity of the nation.

Mr Francis:

– Which is already overdrawn.

Mr CURTIN:

– It is’ clear that on the hustings honorable members opposite will have but one cry. They will say that the Australian nation is all right, and everything that may be done by a future government will be proper, and that the only thing wrong with Australia is that a Labour government is in power. Do not honorable members realize that the gold backing is equal to not more than 25 per cent, of the present note issue; the other 75 per cent, is backed by faith in the Australian people and the certain knowledge that every note can be honored by the Government by drawing on the taxable capacity of the country. In the last analysis no bank or private person has any security that does not rest finally upon the stability of the country, and upon its continued existence as an organic entity. Both by custom and by law any note issued by the government of an English-speaking community, irrespective of the party that may be in power, becomes legally and in practice a national note. The honorable member for Moreton Mr. Francis), by his interjections, besmirches the credit of this country and depreciates the security of its assets. He becomes a protagonist for those who would destroy the national credit. He and his colleagues adopt that attitude for the sake of their miserable existence as a political party; they hope by this means to get a cry which will serve them at the next election to defeat a party at whose hands they suffered such an astonishing debacle seventeen months ago. I am quite certain that, when this matter is referred to the people for their judgment, they will realize that, and just as the Liberals and Conservatives in this Parliament, who, a little over twenty years ago opposed the establishment of the Commonwealth Bank and the Australian note issue, describing the notes contemptuously as “ Fisher’s flimsies,” and saying that they were worthless, and would involve repudiation, have had to eat their words in the light of history, so will those who are now opposing this bill live to eat the words with which they are condemning the measure now before the House.

Debate (on motion by Mr. Marr) adjourned.

page 511

POST AND TELEGRAPH RATES BILL

Bill returned from the Senate without amendment.

page 511

WINE EXPORT BOUNTY BILL 1931

Bill returned from the Senate without amendment.

House adjourned at 3.40 p.m.

Cite as: Australia, House of Representatives, Debates, 20 March 1931, viewed 22 October 2017, <http://historichansard.net/hofreps/1931/19310320_reps_12_128/>.