16 April 1931

12th Parliament · 1st Session

The President (Senator the Hon. W. Kingsmill) took thechair at 3 p.m., and read prayers.

page 874



Senator BARNES:
VicePresident of the Executive Council · Victoria · ALP

by leave - In connexion with the recent negotiations in regard to the war indebtedness of Australia to the Government of the United Kingdom, it has been agreed between the two Governments that the following statement be made: -

When the Prime Minister of Australia attended the Imperial Conference last year, he discussed with the Chancellor of the Exchequer the question of the revision of the terms on which Australia’s war indebtedness to His Majesty’s Government in the United Kingdom was funded in 1921. The negotiations were continued after the Prime Minister’s return to Australia.

The indebtedness funded under the agreement of 1921 represented the advances made by His Majesty’s Government in’ the United Kingdom to His Majesty’s Government in the Commonwealth of Australia for war expenditure and totalled £92,480,156.

At the time when arrangements were made for these advances, His Majesty’s Government in the Commonwealth of Australia expressed the desire that Australia should bear the whole cost of its war effort. Accordingly, it was agreed that the moneys would be lent to Australia at the rates of interest at which His Majesty’s Government in the United Kingdom itself borrowed them. This principle was embodied in the Funding Agreement of 1921, which provided that the average rate of interest on the indebtedness would be £4 18s. 4d. per cent. per annum, representing the cost to Great Britain of raising the loans from which the advances were made.

In addition, the Funding Agreement provided that His Majesty’s Government in the Commonwealth of Australia would make sinking fund payments sufficient to bring the total annual payment for interest and sinking fund up to 6 per cent., and thus provide for the repayment of the total indebtedness during a period of 36 years from 1921.

In the recent negotiations, His Majesty’s Government in the Commonwealth of Australia asked that the rate of interest be reduced, that the period for repayment of the principal sum be extended, and that the half-yearly instalment of £2,774,404 due on the 31st March, 1931, be funded.

In support of this claim, His Majesty’s Government in the Commonwealth of Australia represented that whilst the heavy annual payments under the present agreement had been within Australia’s capacity during years of buoyant revenue, the serious fall in national income had entirely altered the position. Moreover, unemployment, reductions in wages and general governmental expenditure, greatly increased taxation and high exchange charges, had enforced heavy sacrifices on the Australian people, and had considerably increased the relative burden of interest payments, including those under the Funding Agreement.

His Majesty’s Government in the United Kingdom replied that, in their view, the 1921 agreement represented a fair and generous interpretation of the desire expressed by the Commonwealth to bear the whole cost of their war effort. The annuities represented only the actual cost of the advances to Australia, and the reduction of the Australian payments meant throwing an additional burden, at an exceptionally difficult time, on the United Kingdom taxpayers, who had also to face very great difficulties in respect of debt, taxation and unemployment.

At the same time, His Majesty’s Government in. the United Kingdom stated it fully sympathized with the Commonwealth’s present difficulties, and, in spite of Great Britain’s’ grave problems, both financial and economic, was ready to respond to the appeal of the Commonwealth by a substantial temporary reduction of payments due. Accordingly, His Majesty’s Government in the United Kingdom expressed its willingness to agree that His Majesty’s Government in the Commonwealth of Australia should have the option of postponing four half-yearly payments, of £814,200 each, of the sinking fund on- the Australian indebtedness to His Majesty’s Government in the United Kingdom. In postponing these payments, Hia Majesty’s Government in the United Kingdom did not propose to increase the amount of future annuities, but only to prolong the period of repayment by two years. His Majesty’s Government in the United Kingdom hoped this offer would be accepted as a sincere endeavour on its part, despite its own difficulties, to share the burden under which the Commonwealth is labouring.

His Majesty’s Government in the Commonwealth of Australia expressed appreciation of the friendly spirit animating this offer, and, in accepting it, acknowledged that it would give material temporary relief.

The effect of this arrangement will be a reduction of over £1,600,000 per annum in the payments to be made by the Commonwealth to Great Britain under the Funding Agreement during each of the next two financial years, and the extension of the period of repayment of the principal debt by two years. The Commonwealth budget will also be relieved of the exchange charges which would have been payable if the repayments had not been deferred.

His Majesty’s Government in ths Commonwealth of Australia still holds the view that there are good grounds for an extension of the period for the repayment of the Australian debt to Great Britain. His Majesty’s Government in the United Kingdom, on the other hand, considers that as repayments of capital will be entirely suspended for two years, and a further revision of the period of repayment would not afford any immediate relief, consideration of the question is at present neither necessary nor desirable.

His Majesty’s Government in tlie United Kingdom expresses the hope that by 1933 the economic situation m Australia will have so greatly improved that the need for any further revision will not arise.

page 876



Senator FOLL:

– In regard to the money which has been so generously made available by Great Britain by the granting of a moratorium, which Australia, unfortunately, has found it necessary to ask for, I should like to know if the Government will utilize it to enable wheat-growers to plant the coming season’s crop ?

Senator BARNES:

– It is unusual to reply to matters of Government policy in answer to questions.

page 876




– I ask the Minister representing the PostmasterGeneral when the Kingsford Smith issue of O.S. stamps will be made available to honorable senators?

Senator BARNES:

– I have received several personal requests concerning such stamps, which have not yet been supplied to honorable senators. At the moment I do not know when or whether they will be made available.

page 876


The PRESIDENT (Senator the Hon W Kingsmill:

– I have received from Mr. George Armstrong a letter acknowledging with deep gratitude the resolution of sympathy and condolence passed by the Senate on the occasion of the death of his mother, the late Dame Nellie Melba.

page 876



– I have also to inform the Senate that I have received from Mrs. J. H. Chapman an expression of appreciation by herself and her family of the resolution of sympathy and condolence passed by the Senate on the occasion of the death of her husband, the late Senator J. H. Chapman.

page 876



Drovers’ Wages

Senator GREENE:

asked the Minister representing the Minister for Home Affairs, upon notice -

  1. Is it a fact that the rates of pay prescribed under the Northern Australia regulations for aboriginal drovers exceed those paid to white drovers iu Queensland?
  2. Is it a fact that those rates are a most serious embarrassment to settlers in Northern Australia owing to the very low price of cattle ?
  3. Will the Minister at once review the matter with a view to restoring the position as it existed prior to the gazettal of the new regulations ?
Senator DOOLEY:
Assistant Minister assisting the Minister for Works and Railways · NEW SOUTH WALES · ALP

– The answers are -

  1. No.
  2. The Northern Territory Lessees Association has stated that the rates are embarrassing, but I have been advised that the same rates are paid to aboriginal drovers in Queensland.
  3. No.

page 876



Senator PAYNE:

asked the Minister representing the Prime Minister, upon notice -

Is it the intention of the Government to bring in a bill this session to amend the Customs Act so that the duties in force at the time of the discharge of cargo by an overseas vessel at the first port of call will be applicable to that portion of the same cargo which is discharged at later ports of call in the Commonwealth ?

Senator BARNES:

– The matter will receive consideration.

page 876


Motion (by Senator Foll) agreed to -

That the report of Dr. Rivett on fuel oil production from coal, recently laid on the table of the Senate, be printed.

page 876



Senator BARNES:
VicePresident of the Executive Council · Victoria · ALP

– I move-

That in accordance with the provisions of the Commonwealth Public Works Committee Act 1913-21, Senator Daly be appointed a member of the Parliamentary Standing Committee on Public Works.

This motion is submitted for the purpose of filling a vacancy on the Public Works Committee. In order to complete the personnel it is proposed to appoint Senator Daly.

Senator Sir GEORGE PEARCE (Western Australia) [3.16]. - I called “not formal “ to this motion, because I wished to take the opportunity to ascertain whether there is really any necessity for the Public Works Committee, and, in fact, the Public Accounts Committee to function at this juncture. Every one knows that the Commonwealth is experiencing tremendous financial stress. According to press reports the Government will have a deficit of £20,000,000 at the end of the year, and it is obvious that expenditure on public works cannot be undertaken. The Public Works Committee was appointed to inquire into and report upon public works, estimated to cost not less than £25,000, and it seems to me that if no expense is being incurred in this way, it is a farce for the committee to exist. Its work might well be suspended at least for a time. So far as I am aware the only work which the Public Accounts Committee is conducting is an investigation into the financial position of certain of the States.

Senator Foll:

– That has already been done.

Senator Sir GEORGE PEARCE.Yes, more than once. I ask the Government whether in view of the necessity for economy the operations of these two committees should not be suspended at least for a time.

There have been so many gyrations in connexion with appointments to these committees that I must confess I do not know exactly where I am. Let me give a brief outline of the history of these appointments, and state how these vacancies occurred. In the first place, Senator Dooley was a member of the Public Works Committee, and then, owing to some mysterious happening as a result of which there was a re-shuffling of portfolios, he disappeared from that committee and emerged on the ministerial bench. Now Senator Daly, who has disappeared from the ministerial bench, is to emerge on the Public Works Committee. There were other happenings of a most interesting character concerning which we have had no adequate explanation up to date. Surely the Senate has a right to be informed of the reason for these mysterious changes. At the time of which I speak Senator Dunn was Government Whip. I do not know whether it is of any use asking my colleague Senator E. B. Johnston, who has asked several questions on behalf of Senator Dunn, whether he has been authorized by that honorable senator to explain why that honorable senator ceased to be Government Whip.

Senator E B Johnston:

– I have no information on the matter.


– I should not imagine that the honorable senator could explain the position. It is one of those things that is apparently beyond explanation. No one could have carried out the duties of Government Whip more energetically than Senator Dunn, who, indeed, frequently whipped the Government itself. Nevertheless, he does not now occupy that position, and Senator Hoare, an entirely inoffensive senator who has never harmed any one, has been appointed in his stead. Why has Senator Daly’s name been mentioned in connexion with this appointment?

Senator Sampson:

– What has happened to Senator Rae?


– I refer to these other vacancies because they appear to be connected one with the other. Some time ago we were informed, through the medium of the public press, that that august body, the Labour caucus, had decided that Senator Rae should fill the vacancy on the Public Works Committee. At that time Senator Daly’s name was not mentioned. Then something happened, as a result of which Senator Dunn resigned, or was voted out of the position of Government Whip, and we were told that Senator Rae was to occupy this position. No explanation was given why we were not to be given an opportunity to vote for the appointment of Senator Rae as a member of the Public Works Committee. Now, it appears, Senator Daly is the nominee of the Government.

Senator Daly:

– There is no one else to appoint.

Senator Sir GEORGE PEARCE.There are, I understand, certain emoluments attached to these positions. This is one reason, why I suggest that, in view of the difficult times through which we are passing, the activities of the Public Works Committee and the Public

Accounts Committee should be suspended. But I have been informed that certain financial arrangements of a most satisfactory character have been made. I understand, sub rosa, of course, that there is an agreement to pool certain emoluments.

Senator Sampson:

– A compulsory pool?


– I do not know who originated the idea - whether it was Senator Daly or the Leader of the Senate (Senator Barnes).

Senator Daly:

– I have had nothing to do with any pooling arrangement.


– The emoluments, we learn, are now to be pooled. I do not know whether it is within the function of the Senate to decide how that interesting arrangement shall be carried out, but in these days, when we hear so much about up-to-date methods of dealing with financial crises, it would be interesting to know if a financial scheme of a practical character has been evolved by the Labour caucus.

Senator Daly:

– It is hardly cricket for the right honorable gentleman to repeat something which he heard in the Senate club-room.

Senator Sir GEORGE PEARCE.I had hoped that Senator Barnes, who is always willing to furnish information, if it .is in his possession, would have explained the reason for these mysterious changes, and why the Government has taken so long to make up its mind concerning a nominee for this position.

Senator OGDEN:

.- I had intended addressing a question to the Leader of the Senate on this subject, but this motion gives me an opportunity to voice the opinion which I hold with regard to the work done by the Public Works Committee, and, if you, sir, will permit me, the Public Accounts Committee also.

The PRESIDENT (Senator the Hon W Kingsmill:

– I allowed the right honorable the Leader of the Opposition (Senator Pearce) considerable latitude with regard to the matters which might be mentioned by him during the discussion on this motion. I would, however, remind honorable senators that the only question before the Senate is whether Senator Daly should be appointed te a vacancy on the Public Works Committee. I, therefore, must ask them to confine their remarks to the motion.

Senator Daly:

– If honorable senators opposite have any objection to my appointment I am prepared to withdraw.

Senator OGDEN:

– If honorable senators are to confine their remarks within the narrow limits indicated by you, Mr. President, there is very little that one can say. I have no objection to the appointment of Senator Daly to the Public Works Committee. My objection is to the committee itself. I may have another opportunity to deal with that subject. The Government might very well consider the wisdom of suspending both the Public .Works Committee and the Public Accounts Committee. As for Senator Daly, I should be very sorry to see him unemployed, and therefore I offer no opposition to his appointment.

Senator REID:

.- The remarks of the right honorable the Leader of the Opposition (Senator Pearce) with regard to the pooling of certain emoluments have really very little point, because if the Public Works Committee has nothing to do there will be no emoluments to be pooled. For the time being the Public Works Committee is in abeyance, because owing to the present depression, Commonwealth public works activities have been suspended.

Senator GREENE:

– Has the Government representative on the Public Works Committee resigned, and is there a vacancy to be filled? I understood that Senator Rae was to be a member of the committee.


Senator Dooley’s resignation was placed in my hands some time ago, and I made an intimation to the Senate.

Senator DOOLEY:
Assistant Minister · New South Wales · ALP

– I desire to say just one or two words with regard to the question that has been raised by the Leader of the Opposition, but unlike the right honorable gentleman, I do not intend to refer to mere hearsay. I also have heard a lot of unverified gossip, but I refrain from repeating it. Following my appointment to the Cabinet, I resigned my position as a member of the Public Works Committee. As to the objection that, on the score of expense, the committee should not be allowed to function during this period of depression, I may state that it has more than justified its existence. As there is now no money available for Commonwealth public works, there is no work for the committee to do. Therefore, no expenditure is being incurred.

Senator Thompson:

– Perhaps it has spent all the money available.

Senator DOOLEY:

– If the honorable senator desires precise information as to the work done by the committee, it will be an easy matter to obtain it. If he were well informed on this point he would not be so ready to ridicule or criticize the committee which has done excellent work and brought about many savings.

Senator BARNES:
VicePresident of the Executive Council · Victoria · ALP

– I am confident that this matter was not raised because of any antipathy on the part of honorable senators towards Senator Daly.

Honorable Senators. - Hear, hear !

Senator BARNES:

– I have no personal knowledge of the work of the Public Accounts Committee, but I do know a great deal about the Public Works Committee, of which I was a member for some time. I regard that body as one of the most valuable adjuncts of Government. Although the committee has practically no work to do at the moment, there would quickly be work both for it and for the people of Australia, if honorable senators would only give prompt and favorable consideration to the legislative proposals of the Government. However, while it has no work to do, its members, as such, do not draw any pay. At the beginning of each financial year, a certain sum is appropriated for the use of these committees, and if at the end of the year any portion of it remains unexpended, it goes into the Consolidated Revenue. In the circumstances, honorable senators need not become agitated about any appointment to the Public Works Committee. When there is no work for it to do, the country loses nothing in the way of emoluments to its members. When work is made available for it to perform, the committee will again be of great value to Australia.

I do not know that it is within my province to reply to the mysterious rumours and happenings to which

Senator Pearce referred. I cannot blame the right honorablesenator for being curious. He reminds me of a certain little lady who, with her husband, set sail from Cornwall for other shores. During the voyage a great storm arose. The lady was the only one of her sex on deck at the time, and she overheard the captain say to one of his officers, “ The ship is sinking “. Immediately she went below and informed her husband of the fact. He merely replied, “Let ‘oom sink; it doan’t belong to we “. The moral is obvious.

Question resolved in the affirmative.

page 879


Second Reading

Debate resumed from the 15th April (vide page 811), on motion by Senator Barnes -

That the bill be now read a second time.

Senator Sir GEORGE PEARCE (Western Australia) [3.33]. - In the very interesting speech that he made upon the bill yesterday, the Leader of the Government in the Senate (Senator Barnes) appealed to honorable senators in opposition to give the measure serious consideration, and to approach it free from party bias, actuated only by the desire to serve the public interest. I assure the honorable senator that to both of those appeals there will be a ready response from honorable senators on this side. We believe, however, that the bill savours a great deal of party, and very little of public interest. We consider that it has been framed solely as a move in the game of electioneering tactics.

Senator Barnes cited the position of the unemployed in Australia, and appeared to think that only by the passing of this bill would we provide a solution of the unemployed problem. The honorable senator declared that there was no possibility of raising money by any other means. Honorable senators on this side cannot accept that assumption. We contend that there is a possibility of raising whatever money may be required to stimulate the industries of Australia, provided that the Government evinces a sincere desire to keep its national expenditure within its income. By that means alone will confidence be restored in the country, and credits made available to set the wheels of industry revolving once more.

Referring to the causes of the existing depression, and advancing this bill as a palliative, Senator Barnes stated that our troubles arose mainly from the fall in the prices of wool and wheat, our principal primary products. That is quite true. At the same time, I draw the honorable senator’s attention to the fact that Australia is not the only country to suffer from the catastrophic drop in the prices of those commodities. New Zealand, South Africa, and Canada, our sister dominions, are similarly situated. Each of those countries is a big exporter of wool and wheat, and each has felt the pinch because of the fall in prices. Yet the credit of those countries is sound. Quite recently South Africa went upon the British market, and borrowed at the rate of 5 per cent., the loan being subscribed within a very few hours. What then is the reason for the difference between the credit of a country like the Commonwealth of Australia, and that of the Union of South Africa? Australia has no coloured labour problem such as confronts the white community in South Africa, nor has it any racial controversy such as that which threatens to divide our sister dominion. We have a country which enjoys much greater immunity from the pests that threaten animal life than does South Africa, a country with far vaster potentialities in every respect, excepting gold and diamonds. Yet our credit is below that of the Union. The only explanation is that certain happenings that have upset our economic equilibrium are being perpetuated.

The Leader of the Government claimed that if the bill were passed the Government would be able to provide employment for 60,000 additional men. When asked on what they would be employed he indicated, among other things, the construction of sewers in Sydney. Australia requires a revival of productive enterprises, the creation of wealth, the stimulation of businesses that will employ men, not merely for a given number of months or even years, but in perpetuity, and by doing so provide the nation and the Government with the wealth that they need so badly. To put 60,000 men on work that will terminate in a few months, or even in a year or so, is no solution of our difficulties. It is merely a palliative. It cannot do anything to stimulate the production of wealth, and it certainly can do nothing to rectify one of our greatest bugbears; it cannot assist us to export produce to enable us to meet our interest payment on our overseas debts. No doubt the construction of additional sewers is of great assistance to health and sanitation, but it cannot produce anything, nor will it tend to lessen the interest rate by one cent. In no way will it relieve the burden of depression from which Australia is suffering. May I suggest, too, that such an expedient may give rise to difficulties. I understand that the Government proposes to advance a certain portion of this money through the State Governments and to charge interest thereon. If any of the money is to be spent on the construction of sewers in Sydney during the regime of the present Government of New South Wales every precaution should be taken to see that binding arrangements are made, both for the payment of interest and for the redemption of the debt. I put that forward as a helpful suggestion.

The Minister went on to say that the Government could proceed with the construction of additional railways. Such a procedure certainly would be equivalent to “ taking a hair of the dog that bit you “, or of injecting a little more strychnine into an already poisoned body. What is the chief contributor to the financial troubles of every State in Australia to-day? Is it not the deficit in their railway finances? In New South Wales the deficit this year is approaching £5,000,000. In Victoria, I understand, it is somewhere in the vicinity of £2,000,000. In South Australia, I believe, it is just about £1,000,000; and in my own State of Western Australia it is well on towards £1,000,000. The Government activity that is contributing most largely to the deficit in our accounts is the railway activity. Yet the Leader of the Government professes to Bee a way out of our financial depression by the use of these fiduciary notes in the construction of more railways. I suggest that the Government give further thought to the matter before it decides to adopt that course.

The honorable senator went on to make the extraordinary statement that if there is sufficient currency to meet the needs of the country the Government will not issue these fiduciary notes. Is it our trouble that we have not sufficient currency in the country? Is that why this bill has been brought forward? The Government must have that in mind as the cause of our troubles. We are doing probably 25 per cent, less business than we were transacting twelve months ago, and the note issue to-day is greater than it then was. If there was enough currency twelve months ago, surely there ought to be enough now! It is mere humbug, and an absolute throwing of dust in the eyes of the people, to suggest that this bill is brought forward because there is a deficiency in the currency requirements of the country. Nothing of the kind is the case. That statement of the Ministers shows how little consideration the Government has actually given to the matter.

Its incorrectness was shown by almost his next statement; because he said that, of the proposed fiduciary issue, £6,000,000 is to be made available to the wheatgrowers - £3,500,000 in the form of a bounty and £2,500,000 as sustenance. That is not to be issued as currency. In the case of the bounty, it is to be a capital gift; and in the case of sustenance, I understand that it is to take the form of a loan. Neither is the £1,000,000 a month currency that is to be loaned to the States to enable them to provide work for the unemployed; it will merely be the issue of paper money as capital. The Government simply tells the people of this country that it can produce, and that it proposes to produce capital by means of the printing press.

Dealing with the conference of State and Federal Ministers, held at Canberra, the Leader of the Government, after referring to the bounty on wheat and the sustenance that it is proposed to make available to the farmers, said that the Premiers of the States had decided that this was necessary. What really did the Premiers decide was necessary? Certainly not the issue of fiduciary notes; they did not approve of that at all. What they did approve of, and what they said w;i3 necessary, was the giving of assistance to the primary producers. I object to the

Leader of the Government endeavouring in that way to bolster up his claim on behalf of this bill. He has misstated the attitude of the Premiers of the States.

The honorable senator also referred to the criticism that was directed against the establishment of the Commonwealth Bank, and argued that because that criticism had been proved incorrect the criticism directed against these fiduciary notes will eventually prove to be equally incorrect. What sort of logic is that? To argue in such a way would be to say that if any proposition should meet with criticism, that criticism must necessarily be incorrect, because the criticism levelled against some other proposition had been proved to be incorrect. I am surprised that the Leader of the Government (Senator Barnes) should advance such an argument in a chamber of this character.

The criticism against the establishment of the Commonwealth Bank came from two sources. One section argued against the intrusion of the State into business of any kind. As one who spoke and voted in favour of the Commonwealth Bank, I say that that argument is as sound to-day as when it was made, and that one of our troubles in Australia has been the constant intrusion of governments into business. That is a primary cause of the financial position in which we find ourselves to-day. I guarantee that if any States to-day had the opportunity to retrace their steps, it would be mostly in that direction that they would be retraced. The intrusion of governments into business has been fatal to Australia.

Another section opposed the establishment of the Commonwealth Bank merely on political grounds, because it was put forward by the Labour party, and they feared anything that that party might propose. I do not attach any importance to the arguments which they used. But I do say that the arguments used by the first section must be given a great deal of weight in the light of the experience of Australia during the last 25 years.

In justification of this bill, the Leader of the Government fell back, as did the Treasurer in another place, on the fact that the Bank of England has the power to issue fiduciary notes, and has issued such notes to the extent of £260,000,000. But in drawing a parallel between the operations of the Bank of England and our banking and currency position, the honorable senator omitted to point out that the Bank of England is required to hold £1 sterling for every £1 note issued by it, apart from the fiduciary issue. Later, I shall quote figures which show that, taking that into consideration, in conjunction with the total issue of notes, it will be found that the gold reserve of the Bank of England is higher than that of Australia. Another factor is that behind the fiduciary issue of the Bank of England are confidence and credit. Any note issued by the Bank of England is currency in every country, and in the majority of countries it actually is at a premium. Such is the confidence in that institution, not only of the people of Great Britain and the Empire, but also the people of the whole world. But what confidence is there in the fiduciary issue proposed by Mr. Theodore? Obviously it lacks the confidence of the British Empire - that we can see from the comments of responsible journals outside Australia - and obviously it lacks the confidence of Australia. From what we learn of the schisms in the Labour party, I venture to say that it does not even fill the supporters of the Labour party with confidence. The fiduciary issue of the Bank of England is controlled by a non-political body, and has the confidence of the whole of the civilized world. Our fiduciary issue would be controlled not by a government responsible to Parliament, but by a political party. The order to produce these notes came from the Labour party.

Senator Barnes told us that he could never understand why £15,000,000 in gold was held in the vaults of the Treasury.

The only conclusion I can draw from the honorable senator’s remarks is that he has no belief in a gold standard, and I invite him to say what he would put in its place. There is a great deal of criticism of the gold standard as adopted among the nations, but has any one yet found a satisfactory substitute, and, if so, what is it? It is interesting to note that if this bill is passed, and the Government creates capital by means of the printing press, and lends that capital, it will demand interest from the borrower, but pay no interest itself. If that principle is carried far enough, and these notes are really worth their face value, it seems to me an excellent scheme for extinguishing our deficit, and, in time, for paying off the national debt, provided, of course, people will take them at their face value. There is, however, just that little “ if “. People will not take them at their face value; the notes would not maintain their value.

In order to make every political point he could in connexion with this subject, the Leader of the Government introduced the subject of pensions. I do not know whether the idea is that later on pensioners shall be paid in fiduciary notes, but the Opposition has been accused of being in favour of the abolition of pensions. I deny it. No member of the Opposition has ever advocated the abolition of pensions. But what will be the result of the Government’s policy if this bill is passed? If by reason of the issue of these fiduciary notes the value of Australia’s currency is debased, pensions will be paid in debased currency. Unless the amount of the pension is increased, a depreciation of 25 per cent. in the currency will mean a 25 per cent. reduction of pensions, which is actually what the Government contemplates. I can prove it by an indirect statement made by the Treasurer (Mr. Theodore) that one of the virtues of this measure is that it will prevent the deflation of prices. He said that the object to be aimed at is the fixation of prices at the 1929 price level, which was about 20 per cent. higher than the present price level. What is aimed at by the Government is really an increase of to-day’s prices by 20 per cent. But obviously if you increase prices by 20 per cent. you decrease the purchasing power of the currency by 20 per cent.

This Government, which declares that it will not reduce wages or cut pensions, is, by this bill, proposing something which, by raising prices to the 1929 level, will have the effect of reducing wages and pensions by 20 per cent.

In the Argus of the 8th of April last, Mr. Scullin is reported as having said -

Wa are going right ahead with our policy.

He has said on quite a number of occasions, “ We are going right ahead,” but, after saying it, has turned to the right, or the left, or even to the rightabout. He went on to say -

Wo are relying on the Fiduciary Notes Bill to provide us with the money to assist distressed wheat-growers and the unemployed. The bill is now in the Senate, and it will be pushed forward there. If, as is threatened by some who profess to speak for the Opposition in the Senate, it is rejected, it will be sent back after the prescribed period of three months has elapsed, and if the Senate then again rejects it the Ministry will ask for a double dissolution and invite the people to decide whether the Government of this country is to bc denied opportunity to make provision for the unemployed and the distressed wheatfarmers. A dissolution of one House would not determine anything; it would merely put us back again, if we won the election, in the position that we are in to-day. If the Senate rejects the measure it will be the Senate which we will want to bring before the country, and to do that we must go to the country ourselves. I hope, however, that good counsels will prevail in the Senate, and that the majority will realize that we are putting before senators the only practical plan to meet the present situation.

I propose to put before the Prime Minister a challenge which is more weighted against honorable senators of the Opposition than ‘ against Ministers. There are seven Government supporters in this chamber who, in the normal course of events, will not have to go before the electors for the next four years. There are eighteen senators, including the new senator, Senator Kneebone, who will have to go to the country at the first election. If the Government would bring about a dissolution of the House of Representatives, there would be no need to leave the Senate out, so long as the election would not take place before the 1st of July. In that way the country could give its voice long before any three months interval expired. Under the Prime Minister’s proposal, it is probable that no election could be held within the next six months, and by that time the country would be ruined, if the present Government still remained in office. Let Ministers go to the country now and take with them to the electors the seventeen Nationalist senators, and one Labour senator. Having already seven Labour senators, who would not be seeking reelection, to get a majority in this chamber the Government would not have to win more than eleven seats, four States out of six. Believing that popular feeling is behind it, with its bribes to farmers and the unemployed, and knowing the righteousness of its policy, why should it hesitate ?

Senator Sir GEORGE PEARCE.That is so, but if the Government won the eleven seats, it would find no obstruction from the Senate, the country having spoken so decisively. Honorable senators who were defeated, would be under sentence of death. The country would have elected a Labour Senate, and a Labour House of Representatives. I hope that the suggestion I have made will be conveyed to the Prime Minister ; I hope that in the interests of the country he will take his courage in both hands and make an early appeal to the electors. The people have not yet spoken on the question of a fiduciary issue. The course I suggest would be a good opportunity to get the country’s opinion upon the matter.

I want now to deal with the meaning of the term, “ Fiduciary issue “ and, as it is a matter of first-class importance, I make no apology for dealing with the subject fully. The following is an article which appeared in the West Australian on the 11th March last : -

There is still considerable confusion in the public mind as to the meaning of the term “ a fiduciary issue of notes.” A fiduciary issue may be defined briefly as currency based on public credit, as distinct from currency covered pound for pound by gold. For instance, the present note issue in Australia is £45,653,420. Gold held amounts to £15,385,71C. The fiduciary issue is the difference between these two totals, namely, £30,267,710. Because no distinction is made in the wording of the notes, the fact that Australia has a substantial fiduciary issue has never previously been conspicuously before the public. Each note bears the promise of the Commonwealth Treasurer to pay in gold at the head office of the Commonwealth Bank in Sydney. The law only requires, however, that 25 per cent. shall be paid in gold by the Commonwealth Bank. If everyone at the same time wanted gold for notes, only about a quarter could be paid. The remainder of the notes would comprise the fiduciary issue, based on public credit.

It becomes important to-day, says the Melbourne Argus that the meaning of a “ fiduciary issue “ should be understood, in view of the Treasurer’s announcement that it is intended to introduce a Bill to provide for a fiduciary issue of £18,000,000. This simply means super-imposing on the existing fiduciary issue a further issue, but with the important distinction that the new currency cannot be redeemed in gold. As it is intended that it shall be made legal tender, however, the Commonwealth Bank and the trading banks will have to accept the new notes if the Bill is passed by Parliament. The fiduciary issue of Australia is already60 per cent. of the total note circulation. If £18,000,000 is added, as proposed by Mr. Theodore, the percentage will be increased to 76. It should be remembered, however, that the trading banks already have substantial balances at the Commonwealth Bank, which they could take out at any time, and thus materially increase the note issue. It has been calculated that if the banks withdrew their balances and the new issue of notes also took place, the fiduciary issue would represent more than 80 per cent. of the note issue circulation. In Great Britain there is a fiduciary issue of £260,000,000, and, in addition, pound for pound is issued for each sovereign hold. Thus, the total note circulation of the Bank of England to-day is £400,442,597, comprising £260,000,000 fiduciary issue and £140,442,597, based pound for pound on the gold reserve.

The fiduciary issue represents 65 per cent. of the total note circulation. In Great Britain, if the gold reserve rises, more notes can be issued on the pound for pound basis; if it falls, notes of the corresponding value are cancelled. The fiduciary issue remains stationary. The position is different in Australia. As long as the margin of 25 per cent. of gold backing is not invaded, the note circulation rises or falls in accordance with trade requirements. All the banks are unanimous that there is no extra demand for legitimate business purposes for currency in Australia to-day, and that the proposed additional issue of notes is plain inflation. In proof of this, they point to the seasonal expansion of the note issue, which took place as usual last Christmas. This amounted to approximately £3,000,000. After the holiday season notes to the value mentioned returned to the banks, being apparently in excess of ordinary requirements.

That is a plain and very complete comparison between fiduciary bank notes and those at present in circulation.

SenatorO’Halloran. - Were those facts placed before the farmers at the recent meeting at North am?

Under the Commonwealth Bank Act of 1920, the old note issue was placed under the control of the Commonwealth Bank. The present bill, if enacted, would, in effect, reassert Parliament’s control, at the bidding of the Treasurer, over note issues which would be virtually fiduciary throughout when the bulk of the gold reserve of the old issue had been exported. The growing part of the total note issue - the new fiduciary treasury-notes - would be explicitly at the disposal of the Treasurer. The nominal limitation of the amount of the new treasury issue which appears in clause 5 of the bill is, in effect, worthless. The total of £18,000,000 there specified may at any time be doubled or trebled by the same process that is now contemplated by this enactment. The purposes for which the notes are to be issued are not in the least likely to disappear at the end of its first year of operation. On the contrary, both are recurring evils. The proposal of the Government with respect to unemployment is bound to make unemployment a recurring evil. If 50,000 men are employed upon public works, that number must again be thrown upon the unemployment market when the work is completed. In the present unstable and uncoordinated condition of the Australian economic system they seem likely to increase rather than to diminish in urgency. Thus an annual addition to the note issue would be implied in the acceptance of this bill. Why should the bounty of the Treasury be limited to the wheatfarmers and the present or future unemployed ? No logically or politically tenable basis can be established either for limitation of the new issue to £18,000,000, or for its limitation to the relief of wheatfarmers and of those prepared to qualify for government jobs on reproductive work by registering as unemployed. I suggest for the consideration of honorable senators that there are wool-growers, fruitproducers and many others engaged in industry who are in difficult financial circumstances to-day, and for whom a good case could be made out in any attempt to justify an increase in the note issue.

Clause 10 has a certain psychological interest. It puts before the Commonwealth Bank Board two alternatives - either to grant such loans and advances as it is required to do by its political masters, or they take out of its hands the effective decision as to the issue of currency. For the Bank Board the former course would stultify finally its discretionary control of the banking system of Australia. Every reason that, during the second half of last century, led to the acceptance in Britain of the Bank of England as a co-ordinating authority over the other English banks, every reason that during this generation has led to the extension of the system of central reserve banking throughout the world, may be urged against the demolition of the Commonwealth Bank’s prestige and dearly-bought responsibility for the direction of Australian banking. A surrender by the Bank Board of its duty to resist unsound expedients in public borrowing would have the most destructive reaction on the value of the Australian pound. An immediate weakening of the exchanges may be predicted if either of the alternatives which the bill endeavours to force upon the bank and on the Australian public is adopted. In fact, immediately the Treasurer introduced the bill the outside exchange market commenced to show fresh activity, and is now operating at rates slightly higher than that quoted by the banks.

The acceptance of the second alternative would place the Treasury in a position to issue its notes direct to the wheatfarmers or unemployed. Being legal tender in discharge of debts, they would pile up in bank reserves, and thus afford a basis for a credit inflation far greater in volume than the moderate £18,000,000 now suggested. With a collapse of the exchange market, for public confidence in the Australian pound is by no means a sturdy thing nowadays, the gaps in Australian budgets would open still wider, and the call of the Treasury for Commonwealth Bank credit, never yet effectively resisted by the Bank Board, would lead to the creation of cash in the Com monwealth Bank at a steeply accelerating rate. As already mentioned, the very introduction of this bill has already had an adverse effect on the LondonAustralian exchange rate. It will revive the flight of capital from the Australian pound, and at the same time accentuate most markedly the difficulty of balancing budgets in Australia. The tendency will be for price levels to follow the exchange rate, and so to render the yield of taxation less and less effective in meeting expenditure.

Such inflationary proposals are dressed up to make them superficially attractive to the primary producer, and to debtors generally. They are told that the inflated note will make it easier to pay off their debts; in fact, lighten the load of debt. But will it? First of all, our arbitration system will raise wages rapidly; in fact, a wage rate might be declared daily. Secondly, the fear, or rather the certainty, that capital loaned on mortgage will be partly lost through repayment in debased currency, will force up interest rates to tremendous heights. In Germany the law courts accepted 22 per cent, per diem as a reasonable market rate for money at the height of the inflationary period. A deferred, but certain, effect of inflation is to deprive the farmers and producers generally of the possibility of obtaining credit at any price.

As inflation progressed in Germany the return from taxes became so small that the German Government first of all resorted to taxation on a gold basis, and then to anticipatory taxes. Finally, when the crash comes, and reconstruction has to be faced, the heaviest burden of the cost of reconstruction will fall upon those with fixed assets. Of these, the producers, being land-owners, will have to carry practically the whole burden. The last position of the farmer and grazier will, therefore, be far worse than the present.

If this bill is passed there will be two classes of bank notes in Australia, (1) gold notes, and (2) fiduciary notes. There is what is known as Gresham’s law of finance, which, briefly stated, means that where there are two notes of exchange or two standards of value in a country at the one time, the currency or note which represents what the public regards as the safer or more valuable will be hoarded and disappear from circulation. This will produce a harmful effect on business, and accentuate the depression. Whatever the Leader of the Government may think of the gold standard, I venture to say that the public will not hoard fiduciary notes ; but will place in their stocking, so to speak, those which have a gold backing. After the collapse of the German mark through inflation action was taken to create an entirely new currency. This was done by a mortgage on all agricultural properties expressed in terms of gold as of 4 per cent, of the value of such properties. Bonds were made out on these properties, and notes were issued based on these bonds. This was because there was not sufficient gold available. That was not a fiduciary issue, but one based on real property and realizable wealth, and because the public realized that fact the issue was a complete success. The position may be illustrated in this way: By reason of our failure to live within our national income our present note issue is off the gold standard. It can be likened to a first mortgage on a property, the sale of which would not realize sufficient money to discharge the mortgage. The Treasurer now proposes a new note issue, which would be the equivalent of a second mortgage on this property.

The Treasurer, who said that the proposed inflation will result in increased prices, also stated that he should be content if we could get back to the 1929 price levels. Of course, no one can guarantee that we would stop there. It would depend upon the extent to which the currency was inflated. Let us study the position in France. In that country prices reached the peak in November, 1926, just before the stabilization of the franc at one-fifth of its pre-war value. I intend to quote a few examples from the official statistics with respect to the cost of living. Taking the index figure as 100 in July, 1914 - prior to the outbreak of war - we find that in July, 1922, it was 297; in December, 1923, 365; in July, 1925, 421; and in November, 1926, no less than 628. The note issue increased during this period in the proportion of 5 to 1, but the increase in the cost of living was in the proportion of 6i to 1.

Pensions, wages, and salaries showed no corresponding upward movement, and the sufferings of the masses were acute. Even where concessions were made the rising tide of prices left the workers in a worse position than before. The depreciation of the Australian currency to the French basis would mean that old-age, or invalid, or soldiers’ pensions of £1 per week would have to be increased to £6 5s. per week to preserve the same standard of living. I could, if time permitted, furnish examples of a similar condition of affairs in Germany during the period of inflation.

We are told that this proposal will benefit the wheat-farmers; that the Government intends to make available to them £3,500,000 by means of a bounty on production, and £2,500,000 by way of a loan to State Governments for the assistance of necessitous farmers. Let us examine the proposal and see what it really means. I could not do better than quote the opinion of the Premier of Western Australia (Sir James Mitchell), as reported in the West Australian of the 9th April. I may add that there is no stauncher friend of the primary producer in Australia than the Premier of that State. This is what he said - “ It is nonsense to talk of the farmer benefiting from any depreciation of the Australian currency,” said the Premier (Sir James Mitchell), in the course of an interesting talk on inflation last night. “It seems perfectly clear to me that the primary producers would be hardest hit by inflation, and the wage-earners next hardest. Although wheat is ultimately sold overseas, the farmer sells it here, and is paid in depreciated currency. While merchant and storekeeper can give less goods for debased notes, the farmer, selling his wheat for export, must give the same amount of wheat for a pound worth I3s. 4d. as he gave for a pound worth 20s. This diminished return would be paid him, not on his profits, but on his gross production.

The whole thing is reducible to the value of the pound note. The British note is literally as good as gold (when I was in Ceylon they were paying the same premium for British notes as they were for sovereigns), and is, therefore, the best paper currency in the world. The Australian pound note is now valued there at 13s. 4d., and if the printing presses run long enough and fast enough the time will come when it is utterly valueless. Those farmers who believe that the depreciation of the currency will work to their advantage are woefully misled. In my opinion, they will Buffer most from any further inflation.”

SenatorO’Halloran, a few moments ago, appeared to be anxious to know what is the attitude of the farmers of Western Australia to this proposal. A few days ago I received a telegram from a section of the farmers’ representatives in that State - the Wheat-growers Union - in the formation of which the State Labour party took an active part, through one of their organizers, Mr. Hawke, and one of their representatives in the Legislative Council, Mr. W. D. Johnson. The other organization representing the farmers in Western Australia is the Primary Producers Association. The telegram which I received from the Wheat-growers Union read as follows: -

This unionstrongly urges you support Fiduciary Notes Bill to finance Wheat Bill as immediatehelp paramount importance. (Signed) I. J. Boyle,

President, Wheat-growers Union.

To that telegram I sent the following reply: -

Your telegram 7th received. As I am convinced that Fiduciary Notes Bill, if passed, would not assist farmers, but as inflation currency must increase local prices, thereby injuring all producers export commodities, I must, in interests Australia, oppose bill.

It may also interest Senator Daly and Senator O’Halloran if I read a letter which I received from the South Australia Wheat Producers Freedom Association. This opinion comes from much nearer home.

Senator Sir GEORGE PEARCE.Luckily for the Senate, the letter which I received has printed on the margin the names of the executive committee. They are - R. C. Kitto, Moonta; H. T. Gray, Toorak; A. L. McEwin, Hart; A. W. Robinson, Balaclava; J. McInerney, Riverton; J. B. Heddle, Booleroo Centre ; J. A. Sampson, Kimba ; E. J. Turley, Minnipa; T. H. Rodda, Dulwich ; C. T. Chapman, Moonta ; R. C. Pocock, Lameroo; F. W. Lamshed, Maitland; A. W. Wearing, Moonta. They are not King William-street farmers. In his letter to me of the 13th April, the secretary of the association stated -

It Is the unanimous and definite opinion of my executive - reinforced by the opinion of an overwhelming majority of farmers whereever we have been able to test the feelings of wheat-growers on this issue - that the Fiduciary Note Issue Bill must he rejected.

I am instructed to add that under no circumstances whatever will the great majority of wheat-growers in South Australia be bribed by the promise of £6,000,000 in fiduciary notes being made available for distribution between the wheat-growers of Australia.

Senator Sir GEORGE PEARCE.The letter goes on to state -

We recognize only too well the dire necessity and urgency of monetary assistance for the relief of wheat-growers. But we also recognize even more forcibly that currency inflation will make the present serious plight of wheatgrowers infinitely worse.

The fact is inescapable that an addition of £18,000,000 in fiduciary notes, without any backing, will merely increase the nominal value of the total note issue from, say, £47,000,000 to £65,000,000, whereas the purchasing power of the latter sum in notes will remain just the same as the existing £47,000,000. In other words, it would then take approximately 27s. 9d. under a note issue totalling £65,000,000 to buy that which can be purchased for 20s. - under an issue of £47,000,000 to-day - disclosing an inflation of nearly 40 per cent.

Even if inflation could be limited to a 40 per cent. debasement of our currency - which we doubt - it would mean that the value of the proposed bounty of 4½d. per bushel, payable in fiduciary notes on the 1930-31 crop, would have an actual purchasing power of 3¼d., based on to-day’s standard. But the effect of 40 per cent. inflation on our returns from our next crop would probably involve us wheat-growers in a loss of1s. per bushel. Thus, the temporary gain of 3¼d. per bushel bounty on the last crop would be dwarfed into insignificance by the permanent loss of1s. on the next crop.

No, sir, inflation (it matters not what name you give it - fiduciary, or release of credits, means ruin for farmers, and the complete devastation of the great wheat-growing industry. Furthermore, we must regard those senators who support the bill under discussion as being guilty of the basest betrayal of wheat-growing interests conceivable.

Wheat-growers have had so many promises of assistance from the parliamentary authors and sponsors of the already discredited fiduciary note issue scheme repudiated that it has ceased to be a matter for surprise to them that the same Federal Government should refuse to adopt the only real and practicable means of assistance available; that is the imposition of u sales tax, or excise duty, on flour consumed in Australia sufficient to return to the growers of Australia a price equal to the cost of production on the 32,000,000 bushels of wheat required for that purpose.

My executive believe, however, that a change of government is in sight, and that when the change takes place such a tax or duty on flour for home consumption will be imposed, and the proceeds therefrom applied to the practical relief of wheat-growers.

We should, at the earliest possible moment, evolve a practical scheme for the assistance of our primary producers, and. make it possible to absorb the great army of unemployed in Australia. It is of no use to offer them a stone foi bread. Further disappointment at the delay in providing relief will only plunge us still deeper into the financial and economic morass in which we are floundering today. By these glittering promises the Ministry may succeed in fooling a certain section of the people for a time, but I warn the Government that their education is proceeding apace. During the last twelve months, under the influence of this depression, people who never before gave a thought to politics or economics have been closely studying these problems. They are no longer to be gulled by such false promises as are to be found in this bill. They know that it is impossible to create wealth by means of the printing press. They know that this bill will not relieve unemployment. For a time the issue of fiduciary notes might give a temporary stimulus to industry, but the ultimate result will be like the fate which overtakes a patient into whose system a dose of strychnine has been injected - the standard of resistance will be still further lowered. These artificial stimulants to industry are of no avail. There is only one method- by which we can turn our face in the direction of prosperity again. It may be a long and a hard road, but if we wish to surmount our difficulties we must face it. Expedients, such as the bill now under consideration, will only defer for a time the duty which Australia must face eventually. Nothing that this Government or this Parliament can do will avert the day of reckoning. The sooner we take a step in the direction of sane finance, the sooner shall we return to prosperity. Up to the present we have not turned our face in that direction.

None of these artificial devices, none of these proposals to produce wealth by means of the printing press will help us. The one thing to do is to put our house in order ; to live within our income. I recognize, of course, that unpleasant consequences may visit the Government which adopts this policy. Because of the unpopularity of its proposals it will probably be defeated at the next appeal to the people. But if this Government sincerely desires to help Australia it must face the realities of the situation. Even if subsequently it suffers defeat at the polls, it will go down in history as a government that had the courage to do the right thing. For the reasons I have given I must oppose the second reading of the bill.

South Australia

– May I, at the outset, express my sincere regret at the circumstances responsible for my presence in this chamber. The late Senator Chapman, whose place I occupy, was a personal friend and neighbour of mine for several years. I appreciated highly his sterling worth as a citizen and a member, first, of the South Australian Parliament, and later of the Commonwealth Parliament. I feel that if I discharge my duties as a senator with the same integrity and singleness of purpose as he did, I shall have done well. Since my arrival I have been much encouraged by the uniform kindness shown to me by all honorable senators. The only unkind remark I have heard so far was the suggestion from the right honorable the Leader of the Opposition that we should go back to the country at once. I am so convinced of the need for extraordinary and unorthodox action, however, that I am prepared to go to the country at any time and stand or fall by the principles that I shall endeavour to enunciate while I am. a member of the Senate. I recognize that I enter this chamber at a period of extreme crisis in the history of the country. Whether my stay be long or short, I hope that if I am not able to do anything of service to the nation I shall do nothing that will have a detrimental effect on the people of Australia generally.

It is rather significant that, during the first week of my presentation to this Senate, I should speak upon a matter that is of the utmost importance to the people of the Commonwealth; a highly controversial subject, judging by the manner in which Senator Pearce dealt with it. I believe that this bill has been designed by the Government of the day to meet an extraordinary position. Whether it meets with success or not, I give the Government credit for having introduced it for that purpose. It has been admitted that, generally, the most serious problems at present confronting Australia are financial in nature. This bill is mainly financial in character. With all due respect to other authorities, I submit that no purely financial scheme will solve our problems. A plan must be submitted that calls for a nation-wide effort to round the corner to which Senator Pearce referred. Knowing the people of my country as I do, I believe that all sections are prepared to make that effort. The trouble heretofore has been that they have not been sure as to the right step to take. Those in control of the destinies of the nation have been proceeding for some time along certain lines, and I do not think that any one will claim that they have achieved very great success.

I should like to deal with this matter from a nation-wide and not from a purely party political aspect. At times we are prone to resort to the despairing cry that Australia is “ down and out “, that we have defaulted, repudiated, and cannot pay our debts ; that we cannot do this and we cannot do that. I do not subscribe to such views. Just as Australia played its part and won through during the war, so it will do again, during times of peace. But I do believe that we must resort to methods other than those availed of in the past.

It might be out of place at this juncture for me to review Australia’s position, even briefly; but it makes a graphic story. I am of the opinion that we should, on such occasions, review our nation’s wonderful history during the past century, in order to disabuse the minds of those who think that we are down and out, and cannot pay. Until the Great War broke out the Commonwealth Government had incurred practically no national debt. Because of the part that we played in that holocaust it was necessary to establish such a debt, apart altogether from our State debts, but most of it is held in bonds and debentures by the 6,000,000 people who inhabit our country. The major portion of our national debt was advanced to Australia by Australians. I believe that it will be honoured to the last penny. The Leader of the Government yesterday estimated that the private wealth in Australia amounted to some £3,000,000,000. Probably that figure was calculated some months, or even years ago. I suggest that, by a selfimposed process of deflation we have destroyed hundreds of millions of pounds of our national wealth, and made the position worse instead of better.

Senator Foll:

– What does the honorable senator mean by “ self-imposed process of deflation”?


– I contend that there was no need for either the States or the Commonwealth to take up the cry that has proved futile in other countries, and impose slashing cuts in all directions. That process of selfimpoverishment has led us into a worse position than the one in which we originally found ourselves. The wealth of a country is the wealth that it produces. Just prior to the recent depression the bank deposits of Australia increased over a period of five years at the rate of £10,000,000 a year. In 1907 the wealth production of Australia was £188,000,000, or £41 per head of the population. In 1930 it had increased to £450,000,000, or £75 per head. Our power of wealth production was never greater than it is to-day.

The prosperity of a country is not gauged by any measure of currency, but by the actual wealth that it produces. It is an extraordinary fact that this young country of ours, with its remarkable natural resources, the finest race in the world inhabiting it, and a sparse population, should have idle at least 250,000 of the best workers to be found anywhere. That uneconomic position has been aggravated by the policies of past State and Federal authorities. Paper or gold money has no national significance as wealth ; it is merely a medium of exchange between those who produce the wealth and those who use it. In view of the tremendous wealth-creating power that is possessed by the Commonwealth of Australia our present economic position is extraordinary and illogical. Nature has not failed us. We are not suffering from droughts, fire, or flood. Is it not illogical, therefore, that an intelligent people such as ours should allow an unduly high proportion of its kith and kin to go hungry and cold? This cannot be attributable to the failure of the people of Australia to produce. I, and my colleagues, believe that the trouble arises from the breakdown of our monetary system, and so this Government, which was returned eighteen months ago by an overwhelming majority, is applying its theories in an endeavour to solve the problem. They may be right, or they may be wrong. Similar action was taken by other countries in different circumstances, and the results were not always as successful as we would have desired. This bill is submitted as part and parcel of the Government’s financial plan to deal with the position with which Australia is confronted. It is available for comparison with any scheme advanced by any other section of the community. The people of Australia are entitled to select that which they think is the best.

South Australia, whence I have just come, is in the extraordinary position that one-third of its workers are out of employment, another third but partly employed, while the remaining third is unable to bear the burden of the cost of carrying on the State. That community is heading for a financial, social, economic and industrial crisis. In view of the facts, this Government is obliged to take steps which have not hitherto been resorted to by those controlling the affairs of the nation.

The main objection to the bill is embodied in the sweeping statement that it represents “ wild inflation “. In all sincerity, I submit that it’ would be an insult to the intelligence of the people of Australia generally, and of the parliaments of the country particularly, if representatives in this and another place submitted to the introduction of a scheme of “wild inflation”, allegedly aimed at the destruction of Australia’s currency. Any government that advanced such a proposal could not survive for many weeks. I believe that when the facts are placed before the people of Australia, and it is realized that this bill is part of the rehabilitation project of the Government, the measure will be accepted. Charges have been levelled against it similar to those that were made against the Commonwealth Bank Bill, introduced by the Fisher Government. It was said that the Labour government was establishing a bank; that as soon as the administration became impecunious it would rob that bank and print more, but useless, banknotes. Nothing of the kind was done. On the contrary, the Commonwealth Bank saved the nation during its greatest crisis. Well do I remember walking outside Westminster on the fateful 4th of August, 1914, staring up at “ Big Ben “. The clock struck twelve. Germany remained adamant in its decision to violate its pledge: the British nation became a participant in the war. For the next four days the world’s Gibraltar of finance, the Bank of England, dared not open its doors. The doors of the Commonwealth Bank of Australia were open all the time. Why? Because our bank was backed by the confidence of the people of Australia. That was not the case with the Bank of England. The directors of the latter institution waited upon the then Prime Minister and said that they dared not open the doors of the bank, as they could not return to the people the money that they had deposited with it. The people of Great Britain, through their Prime Minister, came to the support of the Bank of England, by extending it an initial loan of some £50,000,000. Immediately its credit was re-established and confidence restored. The crisis was averted, and the bank again opened’ its doors. Not only the Bank of England, but many other private enterprises collapsed temporarily during the war period, and it was necessary to introduce nationalization schemes before the war could be won for the British Empire and the Allies.

Senator Guthrie:

– Some people were not too anxious to win the war.


-That is true, but I am not referring to them. I know that I was not in that category. This measure is a genuine attempt to meet an extraordinary position. It provides for the rehabilitation of our industries, and the re-employment of workers who are now idle.

The most serious problem that confronts Australia is not a financial one, but that of having so many of our people consumers and not producers ; a liability to the nation instead of an asset. That has an entirely demoralizing effect on the economic stability of the nation. So long as it continues, the position must inevitably become worse.

I listened with considerable interest to the Leader of the Opposition’s criticism of this measure, and was utterly disappointed at the fact that the only suggestion which he had to offer was to wait until we had reached the turn in our affairs. If we continue a policy of deflation, we shall never reach the corner. If we allow existing conditions to continue, the position will become steadily worse as the days go by There must be a reversal of policy. It may be said - indeed, the right honorable senator made the suggestion a few moments ago - that a government which resorts to an unpopular policy will go out. I am not concerned as to whether a policy is unpopular or not, so long as it is right. If I can gauge the temper of the people - and I have just come from them - they are calling aloud for a change of policy. In South Australia, in normal times, it takes 10s. out of every £1 of revenue received to pay interest on the national debt. At the present time, I suppose, the amount is 14s. or 15s. In that State there are workers with large families who are working only part time. They would be better off if they ceased work and went on the dole. Yet we hear people slandering the unemployed, and saying that the workers will not work. It is costing the State Government in South Australia £15,000 a week to feed people who are deprived of the right to earn their own living. One person in every ten in that State is to-day living on the dole, and that number is rapidly increasing. Therefore, it is not surprising that the Premier of South Australia should subscribe to this scheme, and that he is waiting for it to go through so that money may be made available to his Government for the assistance of his people.

The right honorable senator said that the proposed fiduciary notes are to be used only for financing sewer works or other public enterprises. That is not the case. If he has read the bill, he must know that this issue may be used at the discretion of the authorities to foster any industry.

Senator Sir William Glasgow:

– It was the Leader of the Government (Senator Barnes) who said that.


– If the Leader of the Government made the statement, he also was wrong. I am not pledged to the voicing of an untruth. If honorable senators read the bill they will find that under it power is given to assist industries. Its main object is to lift industry out of the existing depression. I am unable to see that there is very much difference in the effect on the people of borrowing £18,000,000 from ourselves or borrowing a similar amount overseas, except that when you borrow overseas you have to pay a fixed rate of interest. The position that I, at any rate, am taking up is that, failing a better scheme, we should give this a try-out. I am satisfied that it does not mean purely and simply increasing the note issue. It means giving extra credit to the people of Australia. It has been suggested that by passing this bill we shall show the people outside of Australia that we are lacking in confidence. I believe that it will have the opposite effect. If they are watching us as closely as we are led to believe they are, and they see that we are prepared to finance ourselves, it appears to me that the natural result must be increased confidence in Australia. But, if we take up what I submit is the absurd attitude of saying that the people of Australia are out for a wild, hare-brained scheme of inflation which will destroy everything, I cannot imagine anything that is more likely to damage our prestige as a nation or our credit overseas.

We admit quite frankly that the banks of this country, as of other countries, have played a very important part in its history. By the power that they have obtained they can either accelerate or retard the progress of the country. I believe that they have done either one or the other at different times in our history. A few years ago, before the war, I think, the position became so acute in Great Britain that a Conservative Government appointed a Treasury committee to inquire into the aggregation of power by financial bodies over which the Government then had no control. That committee furnished a report, which said -

Any approach to a banking combine or money trust would undoubtedly cause great apprehension to all classes of the community, and would give rise to a demand for the nationalization of the banking trade.

That demand, I submit, is not confined to the party to which I belong. There is a demand by all sections of the community that the wealth of the country shall be controlled by the people of the country. The nationalization of banking - and this measure is a step in that direction - has been a plank on our political platform for many years. Had it been given effect when the Commonwealth Bank was established, we would not now be faced with a crisis. This committee went further, and said -

The Bank of England has been undermined as the supporter and the regulator of the money market of the world.

It is known that a majority of the directors of the Bank of England are not British subjects.

Senator Foll:

– Who are not?


– About eight of them are Americans, and four are Germans, out of a total directorate of 22. Recently, the present Prime Minister of Great Britain, made the following statement : -

The Bank of England, by a decision taken in secret, without warning or explanation, and without an opportunity being offered for discussion or criticism, created widespread dislocation, the ramifications of which affected the whole of the economic life of the community.

He went further and said -

A handful of financiers determine, as they deem expedient, the rhythm of the economic life of the community.

He went still further and said -

If the nation is to be master of its own house, it is essential that it should bring the larger issues of banking policy under its control.

Senator Payne:

– Has the honorable senator the details of the decision of the directorate of the Bank of England?


– Yes. The policy of deflation that has been carried on in Great Britain emanated from this secret decision; and, as we know to our sorrow, it has had widespread effects throughout the Dominions. In Great Britain the Government stands for the nation controlling its wealth, just as it stands for the nation controlling its coal. The dearest thing in life, it seems to me, is the health of the community. Would anybody suggest that control of the lives of our people should be handed over holus bolus to private enterprise? Certainly not ! The safeguarding of the health of the community is the duty of the Government. We have on our notice-paper at the present time, a bill which seeks to give to the Government of the day the authority to carry out a scheme for the nationalization of banking.

The present Chancellor of the Exchequer in Great Britain deals in a very interesting way with this very question. The position of Australia is relatively easy compared with that of Great Britain, which, as honorable senators know, came out of the last war with a dead weight debt of £7,000,000,000. Previous wars, going back to the Crimea, laid on her the burden of a national debt of something like £900,000,000 ; but when the last war broke out it had been reduced to something like £600,000,000. The Chancellor of the Exchequer says -

No scheme of national financial reform can be effectively carried out without the nationalization of the banking institutions. The war-time experience of borrowing conveys a severe lesson of the power of the private financial interests to exploit public necessities.

Honorable senators know that during the war these banking institutions dictated their own terms and increased the rates of interest. Mr. Snowden says -

The rate of interest had increased from 3 per cent. to 7 per cent. for public borrowing, and a considerable portion of the British national debt is represented by the inflation of credit.

Great Britain is paying interest to-day on an inflated national debt. He goes on to say -

The banking business of Great Britain is rapidly evolving into a great monopoly. Private banking has disappeared and five great banks now control the bulk of the trading business of the country.

Recently, we Lad in Australia a direct representative of those five big banks. Mr. Snowden proceeds -

This money trust, together ‘with the Bank of England, fixes the bank rate, and the rate of discount of treasury-bills, which in their turn, determine the price of money to the traders and borrowers.

Therefore, the essential means of exchange between the producer and the consumer, between one section of the community and another, is controlled, not by the people themselves, but by some private concern.

The right honorable senator in his able address referred, rather flippantly I thought, to the manner in which it is proposed to deal with the currency of the country. But no less an authority than an ex-Chanceller of the Exchequer in Great Britain, Mr. Reginald McKenna, who is a leading financier and chairman of, I think, the Midland Bank - one of the five big banks - says that there is absolute need for something on the lines here proposed. His statement reads -

With a growing population in all trading centres and a progressive improvement in industrial plant, the world is constantly developing in productive power, and, failing further economy in the use of gold, some annual addition to the monetary stock is essential to the maintenance of a stable price level.

Senator R D ELLIOTT:

– As Chairman of the Westminster Bank a few months ago, he said that it could not find an outlet for its resources.


– I shall deal with that point in a moment, if the honorable senator will allow me to complete this quotation -

Although there has been a substantial addition to the gold stocks, more than twice the amount has been absorbed by two countries without any corresponding increase in tha amount of money in circulation. That gold is as barren as when it was down in the mines. There must be an international consciousness in monetary affairs.

In the very able speech that he delivered yesterday, Senator Mclachlan said that we cannot solve this problem in Australia. I do not think that it can be solved even within the Empire. It is a problem that has international dimensions. We are proceeding along right lines in establishing in Australia government control - which is control by the people - of the wealth of the nation, and the medium of exchange between the producer and the consumer. When we, as a component part of the British Empire, have established our part of the structure, it will be comparatively easy for us to fit in with the financial operations of the Empire, and later, to co-operate with an international financial organization to control the finances of the world.

Senator R D ELLIOTT:

– Are we not doing all we can to kill any possibility of Empire finance ?


– I think that we shall do so if we adopt the policy that was outlined by the right honorable the Leader of the Opposition (Senator Pearce) this afternoon, which appeared to me to be to get the people poorer and poorer. Mr. McKenna proceeded to say-

We have only of late years began to realize how important a factor the management of money is in the machinery of our economic and social life. The twentieth century will probably see a development in our monetary ideas and practice, almost, if not quite, as striking as the advance in industrial and trading practices of the past century.

We are on the eve of tremendous changes. The orthodox methods of the past have failed. We are faced with new conditions and for their solution new steps must be taken. Mr. McKenna says -

It is a great mistake to say we are helpless in the face of “ world forces “, over which we have little control. Those world forces are nothing more than the net result of the monetary policies of different countries, and our country is particularly powerful in shaping that net result.

If honorable senators will carefully consider these matters and not view them from the point of gaining party political advantage, they will see that whether the scheme now before us is absolutely right or not, the need exists for something to be done on lines different from those hitherto accepted. Senator Pearce referred to the need for credit or confidence. Fiducia means trust.

Senator Reid:

– No one will trust the present Government.


– I have a better opinion of my fellow countrymen than that. The currency of the day plays a very small part in the monetary transactions of Australia. I suppose that 75 per cent, of them are carried out by the signing of bits of paper. The merchant receives a cheque from a country customer and accepts it, not knowing at the time whether the customer has anything to his credit in the bank on which the cheque is drawn. The banknotes already in circulation play a very small part in the financial transactions of Australia, and it may not be necessary to turn out further notes like sausages from a machine, as one honorable senator has suggested may be done. In my opinion the bill is amply safeguarded in that respect,but, if necessary, it can be made more so. In any case it may not be necessary to issue a single note. The South Australian Government, although pledged to what is known as the Melbourne agreement, that no loans shall be raised overseas until the different States have balanced their budgets, has attempted to do so, but has been turned down by people overseas.

Senator Guthrie:

– Does the honorable senator wonder at that ?


– No ; it is not to be wondered at when there is so much ridicule of a genuine effort to do the right thing. Such talk is likely to bring discredit on Australia. Sir George Paish, One of the leading financiers of the world, speaking on the question of credit and confidence, said -

The chief cause of the present lack of confidence, with its attendant trade depression, is an entire absence of understanding of fundamental conditions on the part of those directly responsible for the affairs of the nations. Never were the underlying conditions more favorable to great prosperity, and never were the policies of the nations more effective in causing severe depression.

I submit that that bears out the statement I ventured to make a few moments ago, that a continuation of the policy pursued in the past will aggravate the depression. Every week potential wealth-producers are being forced through the bankruptcy court, and unless some change is made they will be driven to accept the dole and become a permanent drain on the community. Sir George Paish went on to say -

Thus, the progress of science in farming, in manufacturing, in transportation, and in banking, has given the world far greater powers of wealth production and distribution than it has ever previously enjoyed, and all that is needed to bring about a great expansion of trade and of income is that the nations should take advantage of this progress, but this they are unwilling to do.

Indeed, this progress of science seems to be regarded with feelings of suspicion and anxiety, and vigorous efforts are made to stultify its consequences. Never did science call, as it is calling to-day, for a new system of complete world economy, and never were the nations more determined to maintain its old and inefficient system of national economy.

With such authorities showing us the way we ought to rise above what we, in Australia, have called the pastime of indulging in party political squabbles, and deal with these matters on national lines. I am pledged 100 per cent. to labour. Others are equally pledged to their respective parties, but on occasions like the present, particularly after hearing that we are supplicants at the door of the British Government for financial assistance, we should be prepared to do something as Australians for Australia.

A few months ago any one who dared to suggest that we should approach the British Government and ask for a reconsideration of the 1921 funding agreement would have been dubbed a repudiationist, yet Mr. Bruce in his Joseph Fisher lecture at the Adelaide University in 1927 said-

Since Great Britain came to her arrangement with America for the funding of her debts and for the payment of interest at a rate of from 3 per cent. to 3½ per cent.,I have thought it would be only just and equitable that the arrangement with Australia should be varied, so that we would only pay the average rate of interest paid by Great Britain for her war indebtedness. This point of view I have put to three successive Chancellors of the Exchequer, and have argued strenuously in favor of it. Unfortunately, up to date, I have not been able to induce any of them to share the view which I hold. I am confident, however, that in the future some arrangement will be come to, qualifying the agreement entered into in 1921.

Mr. Scullin is not the first to approach the British Government for assistance, although apparently he has not pressed the question of the reconsideration of the agreement itself. In view of our serious financial position, our Government has merely asked that the payment of interest which we are entitled to pay and which we do not, and I hope never will, want to repudiate, may be deferred until we are in a better position to meet the charge. We know from the statement made by Senator Barnes this afternoon that Great Britain has treated Australia, as it always will treat component parts of the Empire, in a most liberal way.

I recognize that this Fiduciary Notes Bill is unprecedented in Australian history, but a lot of other things we have to do are without precedents. We cannot control this dreadful policy of deflation. The Premiers signed the Niemeyer agreement with the best of intentions, but they must have known that they could not carry it out although they might try their best to do so. People have been sacked and taxed and, in some cases, sent to premature graves, and yet we are as far off balancing our budgets as ever we were. No one would suggest that the power conferred on the present Government by this bill is likely to be made use of to turn out notes like sausages from a machine. I am not concerned with what is taking place in other countries. It is not possible in a democratic country like this. No government could live in Australia and violate principles of democracy for which the people stand. The people have their safeguards. Quite recently an appeal was made on one important question and the people decided intelligently and I believe rightly. The power of control always rests with the electors.

We must look at matters now from a different angle. I was in London at the outbreak of the war. Various estimates were put forth as to how long the war would last. I think Lord Kitchener was the first to say that it would last four years. Economists ridiculed him. They said that a war of such dimensions could not be financed for more than twelve months. So far as finances are concerned the war could have gone on until now without breaking down. It broke down because there was an excess of man power on one side over the other. Currency is only a means of facilitating the exchange of what the country produces.

Senator Barnes:

– In the farming areas to-day people are exchanging their produce without money.


– I hesitate to refer to the condition of the farming industry. I do not like to bring it into the debate; but a fortnight ago delegates from farmers’ organizations asked permission to address a Labour conference in Adelaide. I thought some Labour delegates were pretty “red,” but from what I gathered from the representatives of those farmers’ organiza tions I believe that 80 per cent, of the farmers of South Australia will vote for this fiduciary issue if it is properly explained to them and is properly safeguarded. The only alternative is to go on as we are doing until we turn to the right or to the left or the rightabout.

The objective of honorable senators opposite is that we are so to re-establish the country’s peculiar financial equilibrium that it can borrow some money. I do not think much of that suggestion. The general trend, I think, is for a sensible co-ordination of the accumulated wealth of the country, call it money or capital. First we should have government-controlled central banks throughout the dominions. What would be the use of having a central bank controlled by outside bankers? I believe in the Government controlling the wealth as well as the health of the people of Australia. Side by side we should have the consumers’ and producers’ banks, national institutions. We have one national financial institution now, the Commonwealth Bank. When the private banks fell down on their jobs during the war, when the farmers could not send away a bushel of wheat or the dairy-farmers their butter and cheese, the Commonwealth Bank was the means of bringing £400,000,000 to the producers of Australia. This is shown in the official report of the Commonwealth Bank. According to Sir Denison Miller if the bank could do that in war time it could do ever so much more in peace time when money is advanced for production and not for destruction. We issued paper money during the war for purposes of destruction. The dead weight national debt of Great Britain is £7,000,000,000- whereas only one-third of the Comonwealth national debt is a dead weight liability. As we have assets for every £1 we owe overseas, those who say that Australia is bankrupt are libelling the nation.

Senator Barnes:

– We have £3 for every £1 we owe.


– That is well known.

I am afraid that there is a tendency to study this important proposal too much from a party political viewpoint, and to totally disregard the requirements of those whom it is desired to benefit. It is admitted that in the matter of Empire finance, Australia cannot act independently. In this connexion I quote Captain McDonald, a member of the British House of Commons, who said -

One of the most serious hinderances to national recovery is the chaotic state of Empire finance. There is no common credit or banking system which can bc used to provide the satisfactory nexus between the trading centres of the Empire.

Captain McDonald has suggested that a banking system entirely under Empire control should be established to deal with Australian and other dominions products overseas. I submit in all sincerity that the proposal embodied in this bill will fit in with such a scheme, and that we shall ultimately have linked up throughout the Empire, an Empire organization which will deal with such matters as exchange, and help to stabilize currency throughout the Empire. An honorable senator said this afternoon that an Australian fi note is worth only 13s. 4d. in Colombo, whilst a bank of England note is worth 20s. there. Why should that be so? The assets of the Bank of England, as compared with its liabilities proportionately are no greater than are those of the Commonwealth Bank, and generally speaking, the people of Australia are in a better position financially, industrially, socially and educationally, than are the people of Great Britain. Who decides the relative values of a “ Fisher Flimsy “ of Australia and a “ John Bradbury “ of England? The people themselves, who after all are the real assets of a country should decide and control the rates of exchange, and as a matter of fact the people of Great Britain are struggling as hard as those in Australia to obtain control of the wealth they produce.

There is another phase of this matter with which I should like to deal. The Leader of the Opposition (Senator Pearce), referred to fluctuating prices levels. This measure is an honest attempt to increase price levels. Whether it will immediately affect beneficially or detrimentally the wage-earners, remains to be seen. Is it not obvious that by reducing price levels, as we have been doing, thousands are thrown out of employment? That is the history of the world. Australia is not the only country which is experiencing depression. It is interesting to note that the International Labour Conference at Geneva, appointed a committee - not a Labour body - which conducted an investigation in seventeen different countries, as to the relative effect of fluctuating prices levels on unemployment. We know what has been the effect in Australia. Some time ago there was in Australia an intensive campaign for increased production. The slogan employed was “Produce, produce, produce.” That was to be the way to national salvation. It was soon found, however, that it did not get us anywhere. Then came the cry, “Reduce, reduce, reduce”, and we are now experiencing the evil results of a full sized dose of reduction. An attempt has been made to stabilize industry, but a different policy will have to be adopted if Australian industry is to be rehabilitated. One of the objects of the bill is to encourage production, and to increase the price of commodities. We are told that that is wholesale inflation, and that the issuing of more notes will tend to destroy their value. The Leader of the Opposition wanted to know how we could fix prices within a given period. Under the existing policy we cannot do anything, but if as the result of this scheme, prices rose unduly, price-fixing commissions could be appointed, as they were during the war, to prevent profiteering. Safeguards could be taken under this bill to prevent profiteering. The report of the International Labour Conference to which I have referred, shows that from 1920 to 1929, in the great majority of the countries where a policy of deflation was adopted unemployment increased, and that where prices were stabilized employment decreased. That has been the experience in many countries. We have been told of what has been done in Germany and other countries under a policy of inflation, but we have not heard anything of the experience of those countries where a policy of deflation was followed by one of inflation. In such countries it was found that inflation is more readily controlled than deflation, and that under deflation unemployment increased, but decreased under inflation.

I ask honorable senators to compare this proposal with what is suggested by the Opposition. What is the alternative?

The only alternative is to continue as at present. I again express disappointment at the statement of the Leader of the Opposition, that there is no course other than that which we are now pursuing. That seems to me to he a hopeless policy for any governing authority to adopt. I suggest that rather than continue a policy of further deflation, reductions and dismissals, and the readjustment of our obligations to the aged, the infirm, the wounded, and the mothers of Australia, or any interference with our present social services, we should attempt to bring about our economic salvation by passing this measure. I think it was Burke who said, “ Government is a human device for providing for human welfare.” I hope that the Senate will assist the Government in providing for the welfare of the community, by giving this measure serious consideration, and passing it into law. If it does, I shall have no fear of the result. I support the bill.

Senator MILLEN:

– I listened with a great deal of interest to the speech made by the Leader of the Government in the Senate (Senator Barnes), who, in introducing this bill, made two or three points which I should like to elaborate. The slogan that he put before the Senate was, “ Give Australia a fighting chance.” Such a slogan, I remind him, connotes a certain amount of sacrifice and a re-orientation of our methods of living. Australia, in common with other countries, has in a sense been living in ease and luxury. In this connexion I should like to quote a few striking figures that I obtained from an American Labour Bureau bulletin indicating the variations in the method of living in that country between 1901-2 and 1918-19. These figures relate to the average annual consumption of staple foods per family, and are as follow: -

Those figures show that there was a very material variation in the mode of living during the period named, but inquiry shows that they indicate a policy not of thrift but rather of luxury. The savings made in this way were used in the purchase of higher powered motor cars and more expensive radio sets. Unfortunately, similar figures with respect to the position in Australia are not available; but an Australian example may be quoted. Two months ago an inspector who visited a metropolitan school one Monday morning asked how many children had come that morning without breakfast. A large percentage signified that they had done so. He then asked how many of them had attended a picture show on the previous Saturday, and, with the exception of two, all signified that they had done so. Such a condition of affairs must be altered.

As Senator Barnes has said, Australia unquestionably wants a fighting chance, but that undoubtedly means that there must be sacrifice. It is regrettable that sacrifices should have to be made, but they are inevitable. Statistics disclose that in 1929 the total capital value of the wealth of the Commonwealth was £3,000,000,000. As against that amount we owed between £500,000,000 and £600,000,000 overseas. I need hardly point out that since 1929 there has been a reduction of at least 33 per cent. in the value of our national wealth; in other words, £1,000,000,000. Calculating that we owe £600,000,000 overseas, that leaves us only £1,400,000,000 with which to carry on. If we further dissect these figures, we find that industry, which is the very life-blood of the country, has only an equity in about £400,000,000 to £500,000,000, which is utterly inadequate to absorb our huge army of unemployed. The remaining £1,000,000,000 covers bonds, mortgages, and bank deposits, and is not available. The great need is to help our secondary industries and to assist our farmers, who are in dire distress. We also need money to purchase goods overseas and to meet governmental requirements.

That brings me to the bill itself. In order to relieve the position, the Government now proposes a fiduciary note issue of £18,000,000. Surely it is not suggested that the issue of notes to that amount will “give Australia a fighting chance “ ! The people of Australia are now awakening to the true position. They never dreamt, nor did others dream, that there was a possibility of such a collapse as has occurred in our primary industries, and in our industrial life generally, with such a collapse as has occurred in commodity prices. Here, in this land of potential plenty, we have people who are on the verge of starvation. Our manufacturers are unable to work their establishments to the full extent of their capacity because the people have not the money with which to buy their products. We produce enormous quantities of wheat in this country, but we cannot move our wheat abroad, and the home price is far below the cost of production. Similarly, wool prices are, in many instances, below production costs.

Senator Guthrie:

– Much below cost.

Senator MILLEN:

– As the honorable senator has interjected, in many cases the price of our wool is far below the cost of production, and consequently the purchasing power of this class is almost paralysed. For the same reason, our secondary industries are in a desperate plight. We see the result in the ominous increase in the ranks of our unemployed.

If I were asked to point to the cause, I should say that we are in our present disastrous position largely owing to the breakdown in the world’s gold currency system. Let me explain what I mean by this. In 1922, it was decided at a conference at Genoa that the currency would be stabilized if it were founded again on a gold basis. Gold could best be relied upon to remain stable in all circumstances, but from 1926 to 1929, there was an appreciation of gold to the extent of nearly 10 per cent. This appreciation is expressed in the fall of the general level of community prices. This fall of prices was accompanied by a large accumulation of unsold stocks of the great staple commodities. It is, I think, clear to all that in order to keep the position stable, the gold reserves had to increase pari passu, with increased production. If the increase of production in the Commonwealth is 2 per cent. at compound interest, in consonance with the increase in the number of inhabitants annually, the increase in gold currency should be in the same ratio. If every country, which subscribes to the gold standard, maintains this equilibrium between production and currency, prices remain stable ; but if in any country the volume of gold currency lags behind the increase in production, obviously it deprives the gold standard world of the additional currency and credit it needs to meet the greater production, with the effect of increasing the value of gold and depressing the general level of community prices. We have also to remember that France demanded all payments of reparation money in gold, and, as the Bank of England had guaranteed these, it had to find gold. Thus, in one year, France and the United States of America sterilized gold to the amount of £110,000,000. In other words, this gold was drawn from countries which needed it to maintain the ratio between currency and production. As a result, there was a catastrophic fall of the general level of prices in 1929 and 1930, and much of the evil that is put down to overproduction is due to the retardation in the medium of exchange, and therefore consumption.

SenatorReid. - The world is suffering from under-consumption.

Senator MILLEN:

– The honorable senator may call it by another name if he wishes to do so. Under-consumption really means that the people have not the money with which to purchase commodities. Thus we have a lowering of price levels, due to an insufficiency of gold currency, and widespread economic disturbances, not only in Australia, but all over the globe.

Let us examine the position in other countries. Great Britain is suffering from an aggravation of unemployment, and, what is perhaps more important, grave troubles in India which are almost beyond the control of man. It may surprise honorable senators to know that one of the causes of the trouble in India is the operation of the seventeen different calendars used by the various races in India. Some of these calendars are based on the lunar month, some on the solar system, some on the semi-lunar, and so on, with the result that every 30 years, when the Mohammedans are observing a period of mourning, the Hindus are indulging in a period of rejoicing with all the consequent trouble that takes place at such times. The position in India is serious not only for the British Empire, but for the world, because it involves the future of the Asiatic peoples. Her boycott of British goods and the inability of her own kin to find money to purchase her manufactures places her in dire straits industrially.

If we turn to Germany we find much the same chaotic condition of affairs. Because of the huge reparation payments demanded of her, Germany is unable to purchase sufficient raw material to keep ner industries going, and the Government of that country is viewing with much anxiety the probable happenings of this winter. Austria also cannot find sufficient money to buy the necessary raw materials for her manufacturing industries, so the problem of unemployment in that country is extremely grave. Italy, in spite of all that Mussolini can do, is passing through a serious crisis due to a reduction in production. Spain is finding it difficult to dispose of the olive production, and the ‘latest cable news tells us that she is in the throes of a revolution. Poland is unable to sell her rye crop, and Sweden is in similar difficulty with regard to the paper-pulp industry. Japan also is in trouble because, owing to the revolution in China, that country is not able to absorb Japan’s surplus products; so that with the drop in the price of silver and the falling off in exports she is going through a serious depression. In the United States of America production is declining, commodity prices are falling, bankruptcies are increasing, agriculture is chaotic and the figures for unemployment are appalling.

Thus we may survey practically the whole of the world and find every country in grave difficulty. It is obvious that the position of all these countries has a very serious bearing on our financial situation. The world is becoming more and more a unit, commercial or industrial disturbances in one country seriously affecting the people of other countries.

Science is playing an important part in recent developments. The application of science to industry has made possible an enormously increased output in primary and secondary industries. It enables production to be carried on upon a large scale at a reduced cost. It has revolutionized transport and other services, but unfortunately it has given the people in all countries an inflated idea of what is necessary for a reasonable standard of living. They have become so accustomed to luxuries that they have come to regard them as necessaries. National boundaries are largely geographical, but, because of the intermeshina of world economic systems, if disaster overtakes one nation its results are reflected in other countries. Any material alteration of the monetary policy or the tariff of one country vitally affects people in other countries.

A tariff policy that does not take into consideration world conditions is an anachronism. The recent prohibition of the importation of Belgian glass into the Commonwealth was felt immediately by cattlemen in the northern part of “Western Australia, because the Belgian Government retaliated by refusing to purchase Australian frozen beef. I could give many other instances. Similar treatment will be meted out to us by every country whose commodities wo prohibit.

Closely associated with the tariff is the question of arbitration. If I were a manufacturer, and found that my wages costs had risen above the economic level, I would immediately appeal to the Tariff Board or the Minister for increased tariff protection. Then what would happen? Very soon after the imposition of increased tariff duties those interested in the conditions of employees would approach the Arbitration Court, and, directing attention to the fact that the industry was more prosperous would demand higher wages for the employees. Thus the vicious circle would be continued. Increased tariff duties would mean increased wages until production costs rose, as they have risen in this country, beyond the purchasing power of the people. I read many years ago in

American Life a short poem which aptly describes what is happening -

The railroad man, ho made a raid -

A dollar more the railroad paid.

The railroad then demanded aid -

More fares, more freight the shipper paid.

The shipper stung the wholesale trade;

It kicked a bit, but still it paid.

The wholesale trade, though sore dismayed,

Promptly bled the retail trade.

The retail trade, as well it can,

Collected from the railroad man. -And so it goes, so wise are men,

The railroad man began again.

That exactly is the position in this Country. I am wondering when the people of Australia will begin to understand what has been happening in recent years. I am wondering when they will realize that neither the Commonwealth Government nor the Arbitration Court can ignore economic laws. I know perfectly well that this is not a popular thing to say. I am only too well aware that at the last election it was most unpopular. Nevertheless, it is truth. Let me illustrate what I mean. On the west coast of Tasmania we have immense deposits of iron ore. While it remains in the earth it has only a potential value. The moment it is dug out of the earth it has an actual value. When it has been transported to industrial establishments and has been treated in the smelters, it becomes pig-iron, and has pig-iron value. Assuming the value of the pig iron to be 100s. per ton this price must include the cost of mining, transport, smelting and marketing, together with interest on capital involved. Should the court award wages that would bring this sum to more than 100s. per ton, it is obvious that the enterprise can only last as long as the capital is found to ‘bolster up the loss? That is what we have to understand. It is no use believing that an arbitration court, or any other tribunal, can award any scale of wages that it has in mind, although some people undoubtedly believe that it can be done. No court can divorce wages from production. One must depend on the other. If not a collapse must come, and the debacle will be overwhelming. This brings us to the question of governmental expenditure which is closely interwoven with this system.

To-day the nations of the world are suffering from an intranquillity largely caused by the borrowing and unproductive expenditure of different governments which have been robbing the markets of money that should have gone into ordinary industrial enterprises, and would have led to the absorption of a considerable number of unemployed. What is the position in Australia? Under present conditions all the Australian governments must reduce their expenditure and live within their incomes. This means a very distinct curtailment of their expenditure. What are our proposals? Mr. Lang comes along with one - and I was very pleased to hear the Minister in charge of the Senate say with what loathing he looked upon that proposal. It is so flagrantly dishonest that it is not worth discussing. But it has an effect upon our exchange, and on the money market. A great many people do not understand the meaning of the word “ exchange “. I shall read an extract that I took from the London Times of the 28th of February last on the subject. To my mind, it sets out the matter very clearly and concisely. Inter alia, it states -

Although governments may temporarily “ peg the exchanges “, in the long run it must work itself out in the natural way. How adverse rates of exchange come about is not very difficult to understand. Let us take an imaginary case by way of illustration. X has surplus corn for sale and sends it to Y in a ship belonging to Y. Y buys it, and X thus creates a credit in Y to the value of the corn. X then purchases machinery from Y, and in part payment for it uses the credit created by the sale of the corn, and brings his machinery home in a ship belonging to Y. The net result is that X gradually becomes indebted to Y for the balance between imports and exports of goods, the use of shipping and for other incidental charges. To balance the account betwen X and Y, it is clear that X must export more to Y than Y does to X. Failing that the debit balance grows until it becomes difficult for X to finance further purchases in Y unless capitalists in Y make investments in X or a loan is arranged. If that is done business proceeds; but now, in addition to the cost of transport and other charges, there is interest to be provided. So that, even if X’s exports to Y exceed the imports in value, there may still be a net debit balance, unless further investments or loans arc made. The procedure continues for some years, Y being agreeable to make loans as required and comforted with the thought that these go out in the form of exports - which it will be seen is only partly true. Ultimately, for some reason, Y ceases to invest in or make loans to X, and a crisis in the trade relations between the two at once arises, because it is clear that the sale of X’s products in Y cannot create enough credit to meet all the maturing liabilities for past and current purchases, freights, interest, and other charges. The sale of goods has been conducted by bills of exchange, but when the position becomes unbalanced nobody in Y is willing to exchange a bill due in X for a bill due in Y. There may be willingness to take it at less than face value, or, in other words, an adverse rate of exchange is quoted which will discourage X from buying from Y and encourage Y to buy from X, and if no other factor intervenes the rate of exchange will gradually correct the balance.

Naturally, the transactions between two countries are not so simple as those described between X and Y. Both have other transactions, and the exchanges of commodities with A and Z may correct the inequalities between X and Y, because A and Z may be glad to take bills payable in X, and Y may be willing to exchange them for bills payable in A and Z. It is one of the functions of the international banking system to provide facilities for this triangular exchange. It will, however, be noticed that the principle is the same, to whatever extent it is complicated, and any country which exports less than enough to provide for its imports, including in both cases invisible items like transport charges, insurance, and interest, must obtain foreign loans to preserve equilibrium. The nature of a country’s balance of trade is thus of the first importance. Other factors, of course, exert their influence on the rate of exchange from day to day. The threat of revolution or the danger of war influences holders of bills. Adverse weather affecting the probable surplus of crops to be sold abroad, and falls in the prices of commodities to be shipped naturally affect the rates for bills. Unbalanced budgets and floating debts are, of course, taken into account by holders of bills, while silly speeches by Ministers and exMinisters naturally have a psychological effect. In fact, the machinery of international finance is so delicately balanced that it responds to every impulse, and a nation’s interest is best served when those who control its destinies follow the example of the statesmen of former days and set a watch on their lips. It is exciting for the ill-informed elector when politicians and others use flamboyant phrases about national finance, toy with false economic doctrines, and suggest that those in control of the nation’s financial interests are stupid or worse, but it is a very expensive amusement. One recalls the observations of Sam Weller when his master entered into an altercation with Messrs Dodson and Fogg: “Battledore and shuttlecock’s a very good game when you ain’t the shuttlecock and two lawyers the battledores, in which case it gets too exciting to be pleasant “.

Prudent men deprecate loose talk about credit and currency, because they know that the needle of a compass is not more sensitive to blows on the instrument than is credit to the tub-thumping of orators in high places. The essential interest of commerce is stability. It will be noticed that a new country in course of development is likely to become a debtor country, but this is natural and right so long as the new country does not attempt to make headway too rapidly - in other words, it must be careful to adopt a policy that does not shake the confidence of its creditors in its capacity and intention to pay. That proviso is fundamental, and, though bad harvests or low prices may affect the rate of exchange temporarily, recovery will be coincident with better times so long as confidence is not impaired. When it is felt that the position is fundamentally sound firms sometimes make no effort to bring home their credits, but employ their funds locally until a more favorable opportunity occurs, but the ordinary trader who does not wish to employ his capital in this way is handicapped by an adverse rate of exchange.

It is perfectly obvious that some of the statements that have emanated from such men as the present Premier of New South Wales, who has denied the debts incurred by his State, have created a very serious position in relation to exchange, so that in Australia to-day overseas exchange can be bought only at about 31 per cent.

Senator Guthrie:

– Some people have been profiteering by it.

Senator MILLEN:

– And many have fallen in pretty badly over it. I have had a good deal to do with exchange matters, and I know the very serious position in which the ordinary legitimate trader is now placed.

Then there is the proposal of the Riverina, coming from a bunch of men who met in conference-

Senator Guthrie:

– Real men, too!

Senator MILLEN:

– Real men, too, who have been very seriously hit and are in grave difficulty. Their proposal to set Australia on its feet again is the abolition of State Parliaments. Will the abolition of State Parliaments reduce our Public Service ? Will it reduce our public debt or make our railways pay? It will not. In my opinion what is required is a reduction of governmental expenditure, both on the part of the States and the Commonwealth.

Senator O’Halloran:

– Will the honorable senator indicate the items on which expenditure could be curtailed?

Senator MILLEN:

– Certainly, and very soon. The Federal Government came forward with a proposal for a fiduciary currency, but quite inadequate proposals for reductions in governmental expenditure. It put forward a financial and economic policy of which the following is a summary -

  1. The maintenance of tariff protection.
  2. Establishment of a central reserve bank.
  3. The extension of the Commonwealth Bank.
  4. The control of rates of interest.
  5. Provision of loan moneys from a fiduciary issue to governments and public bodies, for employment and production.
  6. Taxation of interest on bonds and graduated taxation of public servants’ salaries over £250 per annum.

I need hardly point out how utterly inadequate these proposals are. Let me now give a summary of the report of the committee of experts, which was submitted to the Premiers’ Conference in February last - a very excellent and carefully worded statement, which should receive the careful consideration of members of both chambers. After dealing with the facts surrounding their examination, the committee made an analysis of the position, which may be briefly summarized as follows : -

  1. Owing mainly to the fall in prices of primary products and the cessation of overseas borrowing, there has been a heavy reduction in the national income, and the purchasing power of the community has considerably diminished. Export production is carried on at a loss.
  2. The budgetary position is highly unsatisfactory. Large deficits have been experienced by the Commonwealth and States, and they must face much larger deficits unless action is taken to stop the present dangerous drift.
  3. The gross governmental expenditure is £194,000,000, made up as follows: -

The short term indebtedness of £55,500,000 is a constant menace. Savings bank deposits are shrinking. Cost of living has declined 13 per cent. Unemployment is a serious national problem.

After serious consideration they were forced to the conclusion that a further reduction of £15,000,000 was imperative, and is the key to the whole position, and a lesser reduction would hamper the return to prosperity. This sum represents 13 per cent. of the estimated expenditure of all governments for the current year. It will be remembered the estimated deficits for 1930-31 are £15,000,000. therefore the committee’s suggestion is naturally obvious.

Senator Guthrie:

– The position may be worse now.

Senator MILLEN:

– I do not think that there is any question that it has become worse and will continue to do so, so that it is strikingly evident that at least £15,000,000 should be cut off the Government’s expenditure. The summary continues -

In dealing with the question of social services, which include old-age and invalid pensions, war pensions, maternity allowances, and State expenditure for education, public health, and charitable purposes, involves an annual total of nearly £40,000,000, a sum covering so large a proportion of the community’s taxable income that it must receive the most serious scrutiny.

Further, it is obvious that railway deficits dominate finance and the report shows there was a deficiency for five years of £30,000,000, and the special taxes imposed to provide this annual grant now produce less than half the required sum. The curtailment of road expenditure by the States and the revision of this agreement is imperative. It is necessary that the whole problem of railway and road control and their associated finance calls for an immediate investigation by transport and financial experts.

We are looking for every means to reduce expenditure; yet we have six States, in each of which there is a railway commissioner in charge of a separate department. Can honorable senators understand why there is not a consolidation of those departments, with a consequent cutting down of staffs, and a reduction of the costs? To-day, we have over 200 different types of locomotives, and over 350 different types of rolling-stock. At first glance, there might not appear to be a great deal in that; but, as spares have to be carried for each of those distinct types, the expenditure on stocks runs into millions of pounds, which is utterly unnecessary, uneconomical, and unsound. As much as £4,000,000 a year can be saved in railway administration with very little trouble.

Senator O’Halloran:

– I put it to the honorable senator that if he would assist us to eliminate State Governments he might succeed in his objective.

Senator MILLEN:

– The elimination of State Governments would not make the railways pay, unless all the systems were consolidated. Surely the Federal Parliament has sufficient power, if the people are prepared to support it, to achieve that purpose !

Senator O’Halloran:

– An amendment of the Constitution would be necessary to enable the Commonwealth to take over the railway systems of Australia.

Senator MILLEN:

– This obviously is a direction in which a large amount can be saved immediately. The committee went on to point out that the State expenditure for 1928-29 was as follows: -

During the past five years this “ other expenditure “ has increased by £10,000,000 equivalent to 28 per cent. ; whilst allowing for increased expenditure owing to increased population, this figure still shows 12 per cent. increase.

This committee also draws attention to the duplication and overlapping in Federal and State services, representation in London, transport, air services, railways, subsidized shipping services, taxation, land tax valuation, audit of public accounts, savings banks, public works organization, electoral organization inspection services, and health services. The committee has put forward a scheme of which the Government must take cognizance. It is no use our saying that we are going to maintain existing social conditions in Australia. No one is more anxious than I am to continue them on the present scale ; but we are living in an intermeshed world network, and it is utterly impossible to keep up a social system so much superior to the great bulk of the social systems of the world, and, at the same time, maintain our national solvency. The late Mr. Justice Higgins wrote a work entitled A New Province of Law and Order, in which he dealt with the prevention of disputes. In my opinion, it is utterly impossible to divorce production from wages. You must take into consideration the amount that a man produces. If you are not prepared to do that, I say, very definitely, that, with the material reduction that has taken place in the capital values of industries, it will be absolutely impossible to absorb the unemployed, even with very much greater inflation than is intended by the present Government. It is urgently necessary to take definite action immediately. As the Leader of the

Opposition (Senator Pearce) has said, it would be an exceedingly unpopular move ; but how otherwise is it possible to carry on? Is Australia being given what the Leader of the Government (Senator Barnes) has described as a fighting chance by the issue of fiduciary notes? Certainly it is not. The result will be merely to lead the farmers and the people of Australia generally into a land of promise that has no possible chance of fruition. We are faced with the prospect of conditions that are likely to upset and uproot our entire social system. There is a growing army of unemployed, The people generally are in a fickle mood, and there are present the elements of serious trouble which may disrupt all that we hold sacred. The Government is merely tinkering with the matter. It cannot keep up the social system as it exists to-day. Excessive luxuries cannot continue to be enjoyed. The position must be faced, and sacrifices must be made.

Senator O’Halloran:

– Does the honorable senator say that old-age pensions are a luxury?

Senator MILLEN:

– I do not. Old-age pensions will continue to be paid, though possibly not at the present rate. With the cost of commodities dropping, a correspondingly lower rate could be paid.

In addition to a reduction of government expenditure, there must also be a lowering of interest rates. No adjustment should be one-sided. I am perfectly well aware that the time for it is not ripe at present, but there will have to be a big consolidating loan embracing all the loans that have been issued at 6 per cent., upon which a very much lower rate should be fixed. We have not the money to meet our present interest commitments.

Senator GREENE:

– It cannot be done compulsorily.

Senator MILLEN:

– But these people can be educated into making a sacrifice commensurate with that of the workers.

Senator O’Halloran:

– One must be compulsory, and the other voluntary?

Senator MILLEN:

– I would make them both compulsory as far as possible. Interest rates must come down, because we cannot pay them at their present level.

Private business taking precedence after 8 p.m.,

page 904


Debate resumed from the 4th December, 1930 (vide page 971), on motion by Senator Pearce -

That, in order to assist Australia to redress the overseas trade balance, the Senate is of opinion that the Government should give consideration to the formulation of proposals, by which the manufacturing industries of the Commonwealth could be encouraged to export manufactured goods to overseas markets. and (on motion by Senator O’Halloban) adjourned.

page 904


Second Reading

Debate resumed.

Senator MILLEN:

– At the dinner adjournment I was answering a remark by Senator O’Halloran about a compulsory reduction of interest. I was saying that it was compulsory for Australia to have a reduction of interest, and, of course, that relates not only to interest payable within the Commonwealth, but also to interest payable overseas. But the only possible way in which Australia can deal with interest compulsorily is to restore confidence and credit. Until that is done, we must face a very serious position in relation to interest. Obviously, a reduction will not be brought about by flamboyant statements or financial means that do not appeal generally to the people of the world, and particularly the people of Australia.

In dealing with a fiduciary measure, we have to be extremely careful that we do not come upon a condition of things such as existed in America in 1779. It will be remembered that at that time Washington was experiencing great difficulty in raising sufficient money to carry on. the war. From pages 88 and 89 of Service Trials and Tragedies, by LieutenantColonel F. E. Whitton, I have made the following extract: -

The root cause of this trouble on the Colonial side was the deplorable state of American finance. Credit was at a low ebb. The value of the paper money issued by Congress and by the State Governments had declined in an alarming manner. By January, 1779, the dollar was worth about ten cents, and then “ it began to fall like a collapsed balloon.” In June, 1779, 50 dollars were paid in Philadelphia for two pairs of shoes and 60 dollars for two silk handkerchiefs. Samuel Adams, “ who was not a dressy man,” paid 2,000 dollars for a hat and a suit of clothes. A blight settled down upon all the transactions and the relations of human society. National bankruptcy seemed inevitable. In its alarm, Congress, in September, 1779, proclaimed that “ a bankrupt faithless republic would be a novelty in the political world, and would appear among respectable nations like a common prostitute among chaste nations “ ; nevertheless it was forced to pass a law enacting that 40 dollars in paper were henceforth to be the equivalent of one dollar in specie.

The trouble referred to in the first line of the above extract was the difficulty Washington experienced in keeping his army together in the summer of 1780 during the War of Independence.

Senator Guthrie:

– It is not necessary to go so far back. What has recently happened in Germany?

Senator MILLEN:

– What has happened in Germany has been dealt with so fully that I thought that I would point out that it is not a scheme of recent growth. As a matter of fact, history has repeated itself in continental finance; I sincerely hope that it will not do bo in Australian finance.

In conclusion I would say one great basic fact which underlies all the questions that are discussed on the political platform at the present moment is that nothing is done as it was done twenty years ago. We are in the presence of a new organization of society. We seem to have completely broken away from the past. The old political formulas do not fit present problems; they read now like documents recovered from a forgotten past. Things which used to be put into the party platforms of ten years ago would sound antiquated if put into a platform now. This is nothing short of a new social age, a new era of human relationships, a new stage-setting for the drama of life. Ours is a country which has lifted to the admiration of the world its ideals of absolutely free opportunity, where no man is supposed to be under any limitation, except the limitation of his character and of his mind, a place where men win or lose on their merits. “We must do everything possible to restore confidence in Australia among the people of the world and among our own people. If we break natural laws it entails retrogression or degradation. In the same way, if we break economic laws, it will entail our national degradation. Ralph Hodgson’s poem, Stupidity Street, is most apt -

I saw with open eyes

Singing birds sweet

Sold in the shops

For the people to eat,

Sold in the shops of

Stupidity Street.

I saw in vision

The worm in the wheat,

And in the shops nothing

For people to eat;

Nothing for sale in

Stupidity Street.

I trust that we shall have recovered national sanity long before such a condition of affairs can occur here.

Senator GREENE:

– I have been connected with the Federal Parliament for over twenty years, and I cannot recall the introduction of any measure which has been, in my opinion, of such far-reaching importance as this, or which has called for greater consideration by every honorable senator. I wish it were possible for every honorable senator to put on one side altogether political considerations and think only of the effect this measure is likely to have on his country. It deals with a subject world-wide in its operations. It takes us right down to the bedrock of economic law. There is hardly a point in the whole of our economic life that it does not touch upon. If we were able to give the measure the deep consideration which, I think, it merits, I believe that we should inevitably reject it.

But before I deal with it in what I am afraid will be a very perfunctory way because of the limited time at my disposal, there are one or two things I should like to say to Senator Kneebone. I congratulate the honorable senator as a new member of the Senate on the lucid way in which he put his views before the chamber, “ and on the subject-matter of the address he was good enough to deliver.

One could not take exception to a good deal that he said. Much of it consisted of platitudinous statements to which one could not take serious exception. But some of the honorable senator’s remarks should not pass unnoticed. When he tried to buttress his arguments by references to banking, I was a little astonished at the information he gave. I do not know the source of it, but I propose to show from documents that are beyond all question, that it was entirely inaccurate. He referred to what he termed the “ Gibraltar “ of British finance, and indeed, of the world’s finances - the Bank of England - and said that at the outbreak of the war, it closed its doors for four days. He compared it with the Commonwealth Bank, which he said remained open. Does he for one single moment think that the comparison is fair? The Bank of England is the centre of the world’s finances. In the cataclysm that had fallen on the world like a bolt from the blue, it was necessary for that great institution to have some breathing time in case at the outset it should take some false step.

Senator Kneebone:

– I should have said that it was Bank Holiday at the time.

Senator GREENE:

– That is so. I think that of the four days referred to by the honorable senator there was really only one banking day. At that time the Commonwealth Bank was not performing any of the functions of a central bank; it was only an ordinary trading bank; it was not even controlling the note issue.

Senator Sir George Pearce:

– And it had no foreign relations.

Senator GREENE:

– Except those that every bank has with its foreign agents and correspondents. No single bank in Australia closed its doors at the outbreak of war. There was no analogy at that time between the Bank of England and the Commonwealth Bank. In an endeavour to belittle the Bank of England, Senator Kneebone went on to say that its directorate was composed largely of foreigners. I think he said that eight of the directors were Americans and four were Germans. Where he got that information, I do not know, but I quote the following from Whittaker’s Almanac, 1931 : -

The Eight Honorable Montague Collett Norman, D.S.O. deputy-governor :

Sir Ernest Musgrave Harvey, K.B.E.

Sir Chas. Stewart Addis, K.C.M.G.

Sir Allan Garrett Anderson, K.B.E.

Sir Basil Phillott Blackett, K.C.B., K.C.S.I.

George Macaulay Booth

Lord Cullen, of Ashbourne, K.B.E.

Sir Andrew Rae Duncan

Albert Chas. Gladstone

Kenneth Goschen

Edward Chas. Grenfell, M.P.

Chas. Joselyn Hambro.

Col. Lionel Hy. Hanbury, C.M.G.

Sir Robt. Molesworth Kindersley, G.B.E.

Hon. Roland Dudley Kitson, D.S.O., M.C.

Cecil Lubbock

Sir John Gordon Nairne, Bt.

Robt. Lydston Newman

Edward Robt. Peacock

Hon. Alex. Shaw

Sir Josiah Chas. Stamp, G.B.E.

Frank Cyril Tiarks

Henry Alex. Trotter

Robert Wallace

Walter Kennedy Whigham

Arthur Whitworth.

I went to the trouble to look up the records of every one of those gentlemen in Who’s Who. If Senator Kneebone does the same he will find that two of the directors - Albert Chas. Gladstone and Arthur Whitworth - are not mentioned in Who’s Who.. I am, therefore, unable to say where those gentlemen were born; but their names are a fairly good indication that they come from British stock. Of the remainder there are two who were not born in Great Britain, but, in Canada, and are, therefore, essentially British subjects. All the others were born in Great Britain and of British parents. One has only to read the records as set out in Who’s Who, to find that in every case they were born of British parents and, in most cases, come from some of the oldest families in the Empire. In view of the very definite statement of Senator Kneebone I thought it necessary to make that correction. I do not think that his statement should go unchallenged, and that it should be thought that the members of this chamber believe that the majority of the directors of the Bank of England are foreigners.

Turning to the bill, I invite honorable senators to ask themselves what is the reason for its introduction. Why has it been presented for our consideration? There is a reason. I venture to say that there is not an honorable senator who, if he answers the question honestly, will not say that the real reason for its introduction is political. Honorable senators know perfectly well that had the Prime Minister (Mr. Scullin) stood up to his guns and honored the document to which he affixed his signature in Melbourne in August last, we should not be considering this measure to-day. Why has not Mr. Scullin stood up to his obligations? Every one knows that he failed to honour his promise because caucus would not allow him to do so. Caucus would not allow him to stick to his signature and his bond. The Prime Minister is very fond of talking about honoring bonds - he speaks about honoring the country’s obligations, and I admire him for it - but, after all, the bond of the individual himself is the more important.

Senator Daly:

– He has not broken his bond.

Senator GREENE:

- Mr. Scullin has deliberately broken his bond at the behest of the caucus, and everybody knows it. Why did the caucus, which consists of his masters, insist upon his doing so? I am stressing this point at the outset, not out of any spirit of animosity towards honorable senators opposite, but because I wish to impress upon the Senate the simple fact that the same pressure which made the Prime Minister break his bond quite recently will be exerted in twelve months’ time to make the Government break any promise which it gives to Parliament now. Honorable senators opposite know as well as I do that in the future they cannot stand up against the political pressure that will be exerted, any more than they can stand up against it to-day. I should like to ask them what will happen when the £12,000,000, which is proposed to be made available under this measure, has been exhausted. Are the men for whom employment is to be found with this money to be thrown upon the streets when it is exhausted?

Senator Daly:

– The honorable senator knows that we shall have a majority in this chamber by then.

Senator GREENE:

– If I wanted the fullest possible confirmation of what I have said the honorable senator has supplied it. Senator Daly has said that by that time the Government will have a majority in this chamber, and then, I suppose, it will be able to do just what it likes. The Senate would not then be able to obstruct the policy of the Government, and there would be a further increase in the note issue. I should like Senator Daly to tell us what the Government proposes to do at the end of twelve months.

Senator O’Halloran:

– I should like the honorable senator to tell us what he proposes to do now.

Senator GREENE:

– I shall come to that in good time. I have no doubt as to the course which the Government should pursue at this juncture. I have not the slightest doubt as to what we should do. It cannot be denied that the Government proposes to use this and other complementary measures as pabulum with which to go to the country. This is part of the policy of windowdressing. We know that the £6,000,000 to be spent in relieving necessitous farmers, and the £12,000,000 to provide employment are straight-out political bribes offered in the hope that they will have the effect of returningthe Government to power after the next general election. We are not children; every one understands the tactics of the Government. Every one realizes that the Wheat Bill, now before another place, the measure to reduce interest, and another to free the gold reserves, are pure political propaganda. They are put forward in the hope that the electors will swallow the sugar-coated pill.

Let us look for a moment at what the bill provides. I shall deal with the various points involved, and prove, I hope, that its effect will be exactly as I say. First of all this bill involves inflation. When addressing a meeting during the East Sydney by-election, I was asked to give a simple definition of inflation. I asked the questioner if he had ever been supplied with watered milk, and he said that he had. I then informed him that in its effect inflated currency could be compared to watered milk. While the quantity of the liquid was increased the actual milk content remained unaltered. I further explained that by watering milk its nutritive qualities were decreased and that the watering can be used until the nutritive qualities of the milk are entirely destroyed, and that in exactly the same way and to the same extent by inflating the currency its value diminished. This measure, if passed, will make more paper money available; but adopting the same simile the money will be weaker. Our tokens, though of the same denominations, would not be of the same value. Honorable senators know that bank notes are not money, but merely promises to pay money.

Senator O’Halloran:

– In that respect they resemble cheques.

Senator GREENE:

– In dealing with the whole question of currency, which I hope to do, I shall refer to the Treasurer’s theories of a monetary system for this country, and shall show that all credits are simply promises to pay. Although in connexion with the exchange of goods, they accomplish the same purpose as money, notes are actually only a token for which there must be a real basis. One of the effects of this measure if it should become law would be to lower wages.

Senator O’Halloran:

– Does the honorable senator object to that ?

Senator GREENE:

– I strongly object to wages being lowered by trickery. If wages have to be lowered, let us tell the working men that wages must come down, and that the cost of production must be reduced, endeavouring at the same time to maintain the standard of his living, but do not let us “ water his milk “. That is the most pernicious system that could possibly be adopted. By a back-door method the Government is attempting to still lower wages. The effect of this measure, if passed, will be to decrease the value of pensions, and the income of every wage-earner ; to lower the returns of primary producers, the value of every savings-bank deposit, and of every life insurance policy. It will also lower the value of every fixed monetary obligation in this country. But it will do much more than that. It will inevitably raise costs. It will increase governmental expenditure, and must inevitably lead to the ultimate repudiation of all government obligations.

Filially, when it has done all that, this country will have to do what has been done by every other country that adopted this policy - it will be compelled to return once more to the gold standard which this Government deliberately and of set purpose proposes to abandon.

What is the other side of the picture? Suppose we forsake the broad road and take the narrow path, about which Senator ‘ Millen spoke so earnestly towards the close of his address this evening - the path of sanity. Suppose we resolve, by honest finance, once more to restore confidence in Australian finance, not only in Australia, but also throughout the world. Cannot honorable senators supporting the Government see, is it not abundantly apparent to them, that the £1S,000,000 which it is proposed to make available under this bill is an utterly insignificant amount compared to what will be at the disposal of the Commonwealth once confidence is restored? The floating debt of Australia at the moment is £54,000,000. Of that amount I think about £47.000,000 is held either in London or Australia in the form of bank advances, treasury-bills, or shorttermdebts. On the restoration of confidence this floating debt can be funded both in London and Australia. In other words, real credit equal to three times the amount of this proposed £18,000,000 of fiduciary issue will be released immediately confidence is restored. This bill will merely put off that day indefinitely, if not for ever. If passed in its present form, it may mean an addition to the currency of £18,000,000, but it will not create one additional £ of wealth. Honorable senators opposite know, as well as I do, that no financial authority in the world endorses Mr. Theodore’s scheme. They must know, as well as I do, that its adoption will mean the final destruction of confidence in Australia in the world’s financial circles. They know that it will merely postpone the day when Australia must do the things which are so absolutely necessary for its financial salvation. If we choose the clear path of duty, it must be abundantly plain to the Government and its supporters, as it is to me, that credit to the amount of at least £48,000,000 will be available immediately to us.

The Government cannot absolve itself from blame in this regard. I admit that there are the Beasleys and the Langs, who every time they open their mouths make the path of this Government the more difficult. But I will say this of Mr. Lang’s scheme. Bad as it is, and condemn it as one must in unmeasured terms considered from the point of view of pure economics in the abstract, it is sounder than Mr. Theodore’s proposal.

Senator Guthrie:

– And perhaps more honest.

Senator GREENE:

– I do not say that. But I do say that its economic effects on Australia are not so bad as are the possibilities of Mr. Theodore’s scheme.

Perhaps I shall be forgiven if at this stage I place on record Mr. Lang’s views on repudiation, stated on two occasions - once during the last State election campaign, and once, some years ago, in the New South Wales Parliament. During the last State compaign, Mr. Lang said -

Of this the people can be assured. The Australian Labour movement would not permit for one moment any of its leaders to be associated with the policy of repudiation. The pledge to the people from a Labour man is as binding as his pledge to a bondholder. The Labour party sets its face against all repudiation.

Senator Guthrie:

– When did Mr. Lang say that?

Senator GREENE:

– On the 22nd September last. I have no doubt that Mr. Lang believes still that repudiation is abhorrent to all right-thinking people, but he has received his orders, just as Ministers in this Government have received their orders.

Senator O’Halloran:

– From whom?

Senator GREENE:

– They have received their orders. Let us make no mistake about that. I come now to the other occasion when Mr. Lang delivered himself on this subject of repudiation. On the 23rd November, 1927, speaking in the New South Wales Parliament, he said -

I have sufficient British blood in me to refuse to repudiate a contract. An act of repudiation is a thing that has always been held in the greatest abhorrence by all Englishspeaking communities. . . . History has shown that there have been many occasions on which it has been extremely difficult to honour the undertakings made by previous Governments. But in every case the whole object has been to try to find means of honoring contracts and keeping promises to people engaged - to make almost any effort to that end. … No matter how difficult it may he, one should keep one’s promise, and honour one’s contract. The old idea was that no matter how it might incommode a man, if ho enters into a contract, though it might embarrass him financially, though it might make him a very rich or a very poor man, though it might hurt him in many ways, as an honorable man he would say, “ I will keep my contract,I will keep my pledge.” . … Even if the circumstances under which the contract was made were found to be bad, that would not excuse the Ministry for deliberately breaking a contract entered into by the Government of the State. . . . There can be no fine shades of differentiation in these matters. . . So far as the principle is concerned, it does not matter with whom the contract is made; a government contract must be honoured. I have never repudiated any contract entered into, and I never will whilst I have any say in the matter. … I do not believe the people of this State will tolerate this new fangled and communistic idea. I say “ communistic,” because it is supposed to be communistic to repudiate. The people of this State prefer the old idea that a government should bo as good as its word, that a contract with the Government, whether it be Nationalist or Labour, is good, and must not be broken. . . I am very keen on this subject; because I feel that repudiation is a dreadful thing. No matter how great or how small the matter may be, repudiation will establish a precedent that must eventually destroy the st ability of the country.

I think it is desirable that those two definite statements should be placed on record, because I like to be just, even to Mr. Lang.

Let us now turn to Mr. Theodore’s scheme. I do not suppose my honorable friends opposite will deny that Mr. Theodore’s proposal, as outlined in this bill, is a substitute for the Gibbons resolutions. Perhaps I should put those resolutions on record also, because they are a step in the history of this movement by the Labour party to inflate the currency. Although the Labour caucus adopted the resolutions, there has been no attempt to give legislative effect to them. Mr. Theodore’s scheme, as I said has been substituted. The Gibbons plan was set out in the following resolutions : -

  1. That the Commonwealth Bank be required to create sufficient credit as and when required for the following purposes: -

    1. Finance the requirements of the Commonwealth Government in connexion with all services covered by parliamentary appropriations;
    2. Meet that portion of the internal loans maturing during the financial year which has not been otherwise provided for;
    3. Provide for financing State and Commonwealth loan works programmes up to a limit of £20,000,000 ;
    4. Provide financial accommodation through the Commonwealth Bank, trading banks, State financial institutions, and, if necessary, through insurance companies to be used for, productive purposes in primary am] secondary industries.

The ultimate amount of credit to be issued under this head to be determined by the effect upon the commodity price levels.

  1. The credit under the various heads to be made available for interest rate not exceeding 5 per cent. per annum.
  2. An effective exchange pool be continued to provide Australian Governments with the first claim on Australian funds in London. The external exchange rates to be fixed at such rates as will give primary producers the full benefit of the exchange premium on their exports to compensate for the diminished market prices.

There are two points to which I shall draw attention in connexion with those resolutions because they are, to a large extent, embodied in Mr. Theodore’s scheme. One is that the Commonwealth Bank is to create credit, a matter to which I propose to return later. The other is that the amount of the credit to be issued is to be determined by the effect upon commodity price levels. In presenting his proposals, Mr. Theodore has quoted Professor Copland as an Australian authority, and Mr. Keynes and Mr. Reginald McKenna as overseas authorities in support of the basic principles of his scheme. Professor Copland has most indignantly denounced the suggestion that the extract from his document, quoted by the Treasurer in support of his proposals, means what the Commonwealth Treasurer claims it to represent.

Senator Daly:

– Surely the honorable senator would not blame Mr. Theodore for that. It is very difficult to understand what some of these gentlemen do mean.

Senator GREENE:

- Mr. Theodore has used the quotation from Professor Copland’s document in exactly thesame manner as he has the statements of Mr. Keynes and Mr. McKenna. In each case he has alienated the quotation from its context, and omitted all those qualifying remarks which really give to the statements quoted by him an entirely different significance from that which he attributed to them. Naturally, Mr. Theodore found it extremely difficult to persuade any economist of standing to approve the steps that he proposed to take. He, therefore, fell back upon the device of misquoting these gentlemen. I shall refer for a moment to what Professor Copland first said about Mr. Theodore’s scheme. The whole of the statement may be found in the Melbourne Herald of the 27th February. It was made before Mr. Theodore quoted the Professor as a supporting authority to his project, and reads -

Until the full details of the proposal were available it would be impossible to indicate the full effects, but students of the currency would be very interested to ascertain how Mr. Theodore expected to be able to issue £18,000,000 of inconvertible notes without involving the dangers of inflation.

Since then, of course, Professor Copland has fully testified his belief that this is a deliberate act of inflation. The statement continues -

All such proposals in history have been accompanied by pious assertions that they were not inflationist, that the credit of the country was a good asset, and that repayment would be automatically made from the productive resources of the community.

There is, however, no example in history where such results have been realized. On the contrary, they have always involved inflation, and it has been necessary to support them by further measures of the* same kind.

I draw attention to the fact that the statement was made the morning after the Government made its announcement in support of this inflationist issue, and before the scheme had been explained in Parliament. Let me repeat it, “ all such proposals in history have been accompanied by pious assertions that they were not inflationist “. Is that not just what honorable senators opposite are doing to-day? Again, “the credit of the country was a good asset.” Was not that exactly what Senator Barnes told us yesterday? “ Repayment would be automatically made from the productive resources of the community.” Is that not precisely what supporters of the Government are saying ? It is simply history repeating itself. And just as surely as those prognostications of Professor Copland have been realized, so will his final prophecy be proved, “ There is, however, no example in history where such results have been realized. On the contrary, they have always involved inflation, and it has always been necessary to support them by further measures of the same kind.”

I have here a letter that was printed in the columns of the Sydney Morning Herald. It was written by Professor Copland and sets out seriatim the reasons why he considers Mr. Theodore’s scheme’ not only exceedingly dangerous to Australia, but diametrically opposed to the professor’s theories and what he advocated in the memorandum that he submitted to the Government from which Mr. Theodore quoted in support of his scheme. One rather hesitates to accuse any man of deliberately misquoting another, but when one finds this sort of thing thrice repeated, one cannot help thinking that Mr. Theodore has been guilty of deliberate misrepresentation of the views of these gentlemen, in an endeavour to bolster up his scheme. Like a drowning man grasping at a straw, he will do anything to try to inspire the confidence of his colleagues in the monetary theories to which the Labour party has irrevocably committed itself.

I cannot believe that the majority of the members of that party appreciate the dangers of the system to which Mr. Theodore is committing them. In time they will realize what is really happening if they ever are in a position to implement it, and the reckoning will be a bitter one. However, I am afraid that it will then be not only too late for them, but also too late for many thousands of our citizens who have, in the meantime, faced ruin.

Mr. Theodore quoted from an address made by Mr. McKenna in his capacity as Chairman of Directors and Shareholders of the Midland Bank, on the 28th November last. This is important, because the whole of Mr. Theodore’3 theory and policy are directed to what he terms a stable price level. If I have time I shall endeavour to show how impossible it is for these monetary schemes to secure a stable price level. There are quite a number of reasons why that is impossible, though much can be done to regulate prices by the control of currency. What is more important, it is absolutely impossible to establish a stable price level in one isolated country. The only possible solution of this world problem - and I agree with

Senator Millen that the difficulties confronting Australia are common to the world - is to make the attempt on a world-wide basis covering every country whose monetary policy is associated with the gold standard, as you cannot have an absolutely self-contained country. That is demonstrable in the easiest possible way to any one who understands the economic principles underlying the theory of values. Mr. Theodore quoted Mr. McKenna as having said -

A stable price level does no injustice, and in the long run is the most beneficial to trade and employment. However agreeable a falling price level may appear to the individual consumer, it must never be forgotten that inevitably consumers as a whole have less money te spend as a consequence of trade depression. For these reasons a stable price level is of the very first importance in our economic and social life.

And there he left off. He treated Mr. McKenna’s remarks in such a way as to prove that it was possible to bring about this ideal system of the regulation of price levels. I have the full report of Mr. McKenna’s speech and I regret that time does not permit me to read it. Actually, that gentleman went on to say -

Unfortunately, the problem is by no means so simple as a first view would indicate.

And he proceeds to demonstrate that, even with regard to the internal control of the price levels of a country that was selfcontained, there are reasons why it would be extremely difficult to bring about the desired effect. I shall endeavour’ to deal with that aspect later. The statement continues -

The problem of maintaining a stable price level is not then one for us alone, but is a world problem. A stable price level as a world problem means that the real value of gold, that is, its purchasing power over goods and services, should remain constant in all coun-trios using it as a standard. In the legal interpretation of the gold standard, hi no country is this objective specified. All the gold standard means in the legal sense is that the currencies of the countries nominally operating on that basis are denominated in units representing fixed weights of gold. In fact, however, what the gold standard means in its actual operation is that the central banks in all the leading countries of the world strive to acquire and retain such stocks of gold as in their judgment, or by virtue of statutes governing their conduct, are adequate for their supposed requirements.

What Mr. Theodore endeavoured to make Mr. McKenna say was that it was possible in a country like Australia to control price levels by the control of the currency. Mr. McKenna holds an entirely opposite view. Mr. Theodore endeavoured to prove exactly the same thing by quoting from Keynes. As everybody knows who has followed the writings of Keynes during the last ten or twelve years, he started out with the utmost enthusiasm for this idea of controlling price levels by the control of the currency, each country acting independently of all others; but he has now reached an entirely different point of view. Mr. Theodore quotes from one of Keynes’s early utterances - as, T suppose, he was entitled to do; but he is a fairly omniverous reader of this class of work, and must be aware that eventually Keynes came to an entirely different conclusion, although, perhaps, very unwillingly. Keynes has just written a most extraordinary work entitled Treatise on Money. It took him about eleven years to write it, and the extraordinary feature of it is that the last portion entirely contradicts the first. The object of that, I should say, is to show the processes of mind that finally led him to a conclusion at which, I believe, every other monetary authority throughout the world has arrived. I shall read a short extract from the final portion of his work, which gives his view on this very vexed problem. He says -

To-day, the reasons seem stronger in spite of the disastrous inefficiency which the international gold standard has worked since its restoration five years ago …. and the economic losses second only to those of the great war which it has brought upon the world - to reverse the order of procedure; to accept substantially the fait accompli of an international standard; and to hope for progress from that starting point towards a scientific management of central controls - for that is what our monetary system surely is - of our economic life. For to seek the ultimate good via an autonomous national system would mean not only a frontal attack on the forces of conservatism entrenched with all the advantages of possession, hut it would divide the forces of intelligence and goodwill and separate the interests of nations. I am disposed to conclude, therefore, that if the various difficulties in the way of an internationally managed gold standard - to which the resolutions of the Geneva Conference first pointed the way - could be overcome within a reasonable period of time then the best practical objective might be a management of the value of gold by a supernational authority, with a number of national monetary systems cluster- ing around it. each with a discretion to vary the value of its local money in terms of gold within a range of (say) 2 per cent.

Of course, all these expressions of opinion are intensely interesting; but I am afraid that they do not carry us very far. Mr. Theodore cannot find one financial authority in the world who agrees with his monetary policy. He has said that he is introducing a new monetary policy.

Senator Sir William Glasgow:

– It is an old policy; and it has failed.

Senator GREENE:

– There is nothing new about it; it is simply history repeating itself. The reason why Mr. Theodore can find no authority to support him is that the history of the world is against him.

Before I deal with the actual policy itself, let me for a moment or two refer to one aspect of the present position. Mr. Theodore blames the banks for the position in which Australia finds itself. He says that they have been following a policy of deflation, and that they have declined to supply Australia with the necessary credit. He argues that the banks can create credits. The idea underlying the Gibbons resolutions is that it would be perfectly sound for the banks to create something entirely new in the way of credit. The banks cannot do so and remain solvent. The Commonwealth Bank cannot do ‘ it and remain solvent. I do not mean to say that a bank cannot grant an overdraft - of course it can - and that thereby it extends credit to a customer - of course it doe3; but that is not creating credit in the sense of creating something that is new and additional to the existing credit resources.

Senator Daly:

– It is a distinction without a difference.

Senator GREENE:

– I shall show later that there is a great and a fundamental difference between the two. [Extension of time granted.] It is because people do not understand that, that these sort of theories gain currency. If people underStood the fundamental theories which underlie the whole basis of credit there would not be the idea that it is possible for the banks to create in unlimited volume out of thin air something new in the way of credit and to remain solvent. As a matter of fact the banks have stretched their resources to the very limit, and to-day are drawing upon their reserves to such an extent that one wonders that those reserves have not become exhausted. When advances amount, as they do to-day, to 105 per cent, of deposits, the danger line is not very far away.

What is the real reason for the present position? It is that the Governments of Australia have been mopping up every available ounce of credit that the banks have had to give to any body. They are the people who are really responsible for what almost amounts to the paralysis of industry and the bringing of business to an abrupt termination in this country.

Senator Daly:

– The honorable senator admits that we can produce to-day at a profit; but we have not the money with which to produce.

Senator GREENE:

– I cannot see the connexion between the honorable senator’s interjection and the argument that I am using. In the circumstances, the banks have done everything possible and have stretched their resources to the utmost to extend credit; but on the other hand the governments of the day have been responsible for making the position of the banks absolutely untenable.

This is a new monetary policy. But before we abandon the well-worn track over which the world has travelled for centuries, and which is the result of the experience of the world, and adopt a new monetary policy, surely we should make a close scrutiny of it. Mr. Theodore has said quite deliberately that the Australian £1 is no longer to be tied to sterling; in other words, that there is to be an abandonment by Australia of a gold standard. That objective is not disguised in any way. There is to be a regulation of price levels by the management of the currency, and that currency is to be politically controlled.

For a moment, let us examine the gold standard. That standard has three quite distinct uses. First, the mint price of gold is the measure of value. That price, of course, is quite distinct from the market price. &

Senator Kneebone:

– The mint price of gold is not fixed.

Senator GREENE:

– Of course it is fixed throughout the world. In every country which has a gold standard, what is known as the mint price as distinct from the market price is fixed, and it is the measure of value. Secondly, it is the basis of credit andcurrency. And, thirdly, it is the international medium of exchange. Those three are quite distinct; but they are all wrapped up together, and they are all of paramount importance. Take first the measure of value. You must have a measure of value. There are many people who believe in what they call the intrinsic value of gold. Gold, like everything else, cannot have intrinsic value, because value is a ratio. And just as you must have a value so you have to bring to that value everything you sell or exchange. But it is the basisof credit and currency. H. D. MacLeod is probably the clearest writer in the world on these subjects and I quote the following from his Theory and Practice of Banking, Volume 1 -

The whole of the preceding considerations may be summed up in a very simple form. When persons have sold products or done services to other persons, they are entitled to receive either an equivalent product or service at the same time, or the right to demand an equivalent at some future time. Now this right may be in two forms; either that of metallic money, which is a general right to demand any equivalent from the whole mercantile community; or a right to demand an equivalent from the particular person who has received the product or service. This latter species of right is what is usually termed a credit. Hence, in either case, the creditor is entitled to receive a right; the only difference is, that in one case the right is general and permanent, and in the other it is particular and precarious. But, for all that, they are clearly of the same nature. It is therefore, seen that money and credit are homogeneous quantities; and that money is only the highest and most general form of credit. . . . Adopting, then, this definition of currency, or circulating medium, we may enumerate its different forms or species as follows: -

Coined money, gold, silver or copper.

The paper currency, bank notes, bills of exchange and promissory notes in all their varieties.

Simple debts of all sorts; not recorded on circulating paper, such as credits in bankers’ books termed deposits; book debts of traders; and private debts between individuals.

It is obvious that there is no distinction in prinicple between these two latter species. They each denote that a transaction of some sort has taken place, and are a title to future payment. As a matter of convenience some of them are recorded on paper ; but that does not alter their nature. It is perfectly true that some of these descriptions of currency are more eligible and secure than others; and perform their duties with different degrees of advantage. The metallic currency rests upon the good faith of the state that it is the proper weight and fineness, and the universal readiness of the people to receive it in exchange for products and services. Paper currency in this country at least, rests upon private credit; and is of all degrees of security from a Bank of England note down to a private I.O.U. These different forms of currency therefore, though they may possess different degrees of circulating power, though they may be more or less eligible or secure, represent but one fundamentalidea - debt. From these considerations it follows that the amount of currency or circulating medium, in any country, is the sum total of all the debts due to every individual in it - that is all the money and credit in it. Supposing, then, that there was nothing but metallic money in use, the following axiom is evident -

The quantity of money in any country represents the quantity of debt that there would be, if there were no money.

But, as we have seen, that in modern civilized countries these debts or rights are recorded in the simple abstract form of rights against particular persons as well as in metallic coin, which are rights against the general community, the term currency includes these debts or rights in both forms.

Hence it is clear that the currency represents nothing but transferable debt, and that whatever represents transferable debt is currency, whatever its nature or form may be.

Consequently, the proposition necessarily follows - “ Where there is no debt there can be no currency “.

Those last words “ where there is no debt there can be no currency “ answer the question put by Senator Daly just now. The difference between a created credit in the form he was talking about and what I call real credit, is the fact that there is no unsatisfied debt behind the former.

Senator Daly:

– It was real credit the Gibbons resolution was after and not the faked debt the honorable senator is talking about.

Senator GREENE:

– I am afraid my argument is wasted on the honorable senator. The fundamental economic fact in regard to currency is that unless there is an unsatisfied debt which has been created as a result of production, there can be no currency. After all is said and done, what is the crucial test which we have to apply to every currency proposal? Why is it that there is a point beyond which you cannot go without getting inflation? Every one admits that there is a point beyondwhich you cannot go without getting inflation, and there must be a reason, a solid, sound and substantial reason for it. Here it is in words that should be written in gold. “Where there is no debt there can be no currency.” The present proposal is to turn out notes by a printing-press with no debt behind them. As long as that is done, you can go on until you find that all the results of inflation are in front of you, and you will wonder what has happened.

Senator Daly:

– Does the honorable senator claim that you cannot have inflation if there is a debt behind the issue ?

Senator GREENE:

– It would not be inflation, provided it was currency representing an unsatisfied debt arising out of production. If my friends would read the first few chapters in MacLeod’s book they would see the logical sequence which MacLeod builds up to show how every bit of currency represents debt. Currency is unsatisfied debt. If I have produced something and have not exchanged it for something else, I hold a thing called currency. As long as currency is based on production, we can have noinflation.

Senator Sir George Pearce:

– Is that not demonstrated every year when we inflate the note issue for the seasonal requirements of wheat and wool?

Senator GREENE:

– Of course. When the harvest comes in and there is a demand to move it, there is an issue of notes, and that will always happen ; but it is an issue based on production; it all arises from unsatisfied debt. I repeat that where there is no debt there can be no currency. I have not the time to ref er to quite a number of things in connexion with this extraordinarily interesting subject, but because the Government’s scheme violates the fundamental principles of economics that underlie monetary science, I condemn it as absolutely and damnably unsound.

I wish I had the time to deal adequately with the subject of price levels. Notwithstanding all that has been written by the advocates of the control of price levels by the currency, there are certain fundamental difficulties and objections which it is almost impossible to overcome.

The theory known as the quantity theory of money goes back to times earlier than Adam Smith. It is perfectly true, of course, that the abundance or otherwise of the currency must inevitably affect prices. If that were not so, prices would not rise under inflation. Very often it is due to a rise of prices that the first realization comes to a people that inflation is being practised. There are, as I say, quite a number of difficulties. If a country were entirely self-contained, and could regulate the use of money to commodities; if the velocity of the turnover of trade and commerce remained constant, and if the supply of and demand for commodities remained constant - if these three desiderata could be obtained side by side - it is perfectly true that the quantity theory of money would work like a charm. But none of these things can be so controlled. Take, for instance, the use of money. Everybody knows that money is used for quite a number of purposes besides the buying and selling of commodities. Suppose, for the sake of argument, in a country where there was a constant quantity of currency in the channel of circulation and a constant volume of production, a rich gold discovery brought about a wild orgy of speculation, what would happen to the currency which is, of course, used for that sort of thing exactly as it is for the buying of commodities? Recently in America an enormous amount of currency was being used for speculation in shares. Prices fell. If the remedy to have more currency had been applied, it would simply have meant feeding the speculation, the very thing that had to be checked. The remedy eventually applied was to raise the rate of interest, and it achieved its purpose. It is exceedingly difficult to regulate the use of currency. Take the velocity of turnover. All sorts of peculiar conditions give rise to dull or brisk trade. If trade is brisk, the same amount of money will turn over infinitely more commodities than it will when trade is dull. There are, of course, the difficulties associated with supply and demand. No advocate of this scheme of control of price levels by the control of currency proposes that the prices of individual commodities shall be controlled. Surely no one suggests that if Russia, for instance, should decide to throw her surplus supplies of wheat upon the markets of the world we could hope to maintain a reasonably high price for our wheat under any system of control of price levels. The proposal to raise price levels in Australia will affect every security as well as those other items which I enumerated earlier.What is more, the primary producer will be affected more seriously than any one.

I am sorry that I have not sufficient time, even with the extension so courteously granted, to deal further with this important subject. In conclusion, however, I quote the following paragraph from an article which I have written with respect to primary production as it would be affected by this scheme, but whichI have not yet published. It reads -

Now let us examine Mr. Theodore’s scheme from the point of view of the primary producer. Whilst care has to he exercised in regarding any branch of industry economically considered in the abstract, still no one can deny that the primary industries occupy an enormously important position in the economic cosmos of this country, and none can deny, if they are to live and flourish, they must produce at a profit. Further, it has to be admitted that nothing we can do, and certainly no manipulation of the currency in this country, can affect the value of the exportable surplus in the markets of the world. Consequently, the effect of Mr. Theodore’s scheme of monetary control on our chief primary industries becomes of the first importance. Will it help or hinder? Will it make them more profitable or less? Mr. Theodore’s scheme is to return to the price levels of 1929. These, as given in the Commonwealth Year-Book index numbers, are for the years -

The export value of wheat and greasy wool was in -

Mr Theodore says that the benefit of the exchange is going to be the compensating factor. Well, we have an exchange of 30 per cent., with an outside market ranging about 33 per cent. or, roughly, 6s. 8d. in the £1. Granted that Mr. Theodore’s scheme would permanently, until some great rise takes place in the world’s markets, make the exchange rate 50 per cent. or, in other words, that it would cost 30s. in Australian currency to get £1 in

London, and that the primary producer got the benefit of the whole of the additional 17 per cent. over present exchange market rates, that would add something less than1½d. to the present price of wool per pound, and about 4d. to the present export value of wheat. Against these negligible advantages, Mr. Theodore proposes to increase existing costs to the 1929 levels, when wool and wheat export values were just double what they are to-day. Could any policy more certainly bring disaster in its train ? How, in the light of these facts, can any one be so blind as to suggest the return to 1929 price levels as a way out for Australia in the severe economic crisis through which it is passing? Costs of production must come down if our primary industries are to pay.

The same reasoning applies to every branch of primary production, with the exception of some very minor branches which have no exportable surplus.

Mr. Theodore’s monetary policy shows an utter and callous disregard of the parlous position of all our primary industries, or a complete failure to realize what the effect of his policy would be, so far as these industries are concerned, were it put into effect.

Time does not permit me to read the whole of the article. I have endeavoured to cover some aspects of this important subject, which is almost inexhaustible. I am, however, satisfied that Australia could take no more fatal step in an endeavour to recover from the depression which it is now experiencing than to adopt the monetary policy of Mr. Theodore, of which this measure is a part.

Debate (on motion by Senator Poll) adjourned.

page 915


The following paper was presented: -

Conference of Commonwealth and . State Ministers, held at Canberra,6th to 13th February, 1931, and Melbourne, 25th and 26th February, 1931 - Proceedings and decisions of Conference; together with Appendices (in substitution for the paper tabled on the 26th March, 1931).

page 915


Fiduciary Notes Bill: Promise by Government Whip - Customs Act.

Motion (by Senator Barnes) proposed -

That the Senate do now adjourn.

Senator FOLL:

.- When Senator Greene was speaking I arranged with the Government Whip that if two members on this side of the chamber spoke in succession an honorable senator opposite would continue the debate. That was a definite arrangement entered into between the Government Whip and myself as Opposition Whip. When Senator Greene resumed his seat no attempt was made by honorable senators opposite to honour the agreement entered into by their Whip. If this practice is to be continued no further arrangements of this nature will be made between the Government Whip and myself. In the circumstances, I secured the adjournment of the debate in order to prevent the motion being put. There are other honorable senators on this side of the chamber who wish to speak, but who expected the arrangement to be honoured. Perhaps honorable senators opposite are afraid to support the bill.

The PRESIDENT (Senator the Hon W Kingsmill:

– I remind the honorable senator that the matter he is discussing involves a purely private arrangement between the Whips, who are not recognized as such in the proceedings of Parliament. As it is a matter over which the Senate has no jurisdiction, I ask the honorable senator not to pursue it further.

Senator FOLL:

– I should like the people of this country to know that honorable senators opposite have failed to honour an obligation entered into.

Senator DALY:
South Australia

– I know of no such arrangement between the Whips as that mentioned by Senator Foll. We on the back benches are not afraid to discuss the bill. I resent any suggestion that a promise has been broken by any one on this side of the chamber.

Senator HOARE:
South Australia

– It is true, as Senator Foll states, that such an arrangement was made; but he knew that I was endeavouring to arrange for an honorable senator to move the adjournment of the debate.

Senator Foll:

– The honorable senator could himself have moved the adjournment.

Senator HOARE:

– I mentioned the matter to several, including Senator

Duncan, who promised to secure the adjournment, and I waited until the last moment to see if he re-entered the chamber. He did not do so, and before I had an opportunity Senator Foll rose.

Senator DOOLEY:
New South WalesAssistant Minister · ALP

– I do not wish to have any misunderstanding about this matter. The Government Whip approached me and asked me if I would follow Senator Greene, but I informed him that I preferred to speak later. I expressed the view that, as a majority of honorable senators were opposed to the bill, perhaps it would be better if two honorable senators opposite followed each other rather than that alternate speeches should be made from each side of the chamber. I suggested to Senator Hoare that if no one rose to continue the debate after Senator Greene resumed his seat he should move the adjournment. He explained that he had to attend a meeting to-morrow morning, and had arranged for Senator Duncan to either continue the debate or secure the adjournment.

The PRESIDENT (Senator the Hon W Kingsmill:

– I must again remind honorable senators that this is a matter over which the Senate has no jurisdiction. I ask honorable senators not to discuss it further.

Senator PAYNE:

– I direct the attention of the Leader of the Government in the Senate (Senator Barnes) to the following question which I asked the Minister representing the Prime Minister to-day : -

Is it the intention of the Government to bring in a bill this session to amend the Customs Act so that duties in force at the time of the discharge of cargo by an overseas vessel at the first port of call will be applicable to that portion of the same cargo which is discharged at later ports of call in the Commonwealth?

The reply I received was that the matter will receive consideration. I received the same reply to a similar question last year. Even at the expense of taking up the time of the Senate, I feel it my duty to restate the case in support of an amendment of the Customs Act. Only a week or two ago an overseas steamship arrived in Hobart after having discharged the bulk of her cargo, which was subject to the customs duties then in force, at certain ports on the mainland. The day before the vessel arrived at Hobart, a new schedule of customs duties was tabled by the Minister for Trade and Customs, and immediately became operative. The result was that the merchants in Tasmania who supply retailers in competition with Melbourne and Sydney merchants were penalized, and in one particular line to the extent of 45 per cent. as against the duties paid by the importers in Sydney and Melbourne.

Senator REID:

– The same system applies throughout the Commonwealth.

Senator PAYNE:

– Yes ; but it is absolutely un-federal. I have brought this matter forward from time to time, and am tired of asking for its favorable consideration. Last year an overseas vessel arrived in Hobart after calling at several ports on the mainland. She discharged the Hobart portion of her cargo and then left for Launceston. After her departure from Hobart primage duties were imposed. Launceston merchants were obliged to pay the extra duties, but Hobart merchants escaped. In its comments upon the new tariff schedule the Hobart Mercury, of the 28th March last, stated -

Once again Tasmanian importers have been penalized by the revised tariff schedule, which became operative yesterday, and goods to be landed by the SS. Port Adelaide, which is due to arrive at Hobart on Monday, will be subject to the increases in duty, whereas the same class of goods unloaded from the same ship in Melbourne and Sydney have escaped the extra imposition. That is the sixth occasion in recent months on which Hobart merchants have been penalized in the same manner, and although protests have been made to the Federal Government, they have been without avail.

The Constitution authorizes the Parliament to make laws with respect to taxation, but so as not to discriminate between States or parts of States. If the presentadministration of the Customs Act is not discrimination between States or parts of States, I do not know what discrimination means. Section 132 of the Customs Act 1901-10, states that all import duties shall be paid at the rate in force when the goods are entered for home consumption. That provision should be amended so as to make it possible to observe the spirit of the Constitution by providing that the rate of duty applicable to imported goods at the first port of discharge shall be applicable to goods in the ship’s cargo landed subsequently at other Australian ports. Otherwise there will be always be this irritating discrimination between the different States. Last year I directed attention to this unfair treatment of merchants. Again I ask the Minister to take a note of what I have said, and bring it before his colleagues with a view to immediate action being taken by the Government to amend the Customs Act along the lines indicated. If this is done we shall have no more of this unfair discrimination, and Tasmanian importers will be placed on exactly the same footing as importers in the other States.

Senator BARNES:
VicePresident of the Executive Council · Victoria · ALP

Senator Payne being an experienced parliamentarian, must know that government policy is not disclosed in answer to questions. The injustice of which he has complained will, in all probability, be remedied in due time. The tariff must necessarily be imposed in such a way that one person cannot secure an unfair advantage over another. If the honorable senator’s question with regard to customs matters had been answered in the way desired by him possibly some citizens would have benefited at the expense of others. As to the complaint made by Senator Foll, I can only say that if there was a non-observance of any arrangement between the honorable senator and the Government “Whip, I am sure it was unintentional. During my absence from the Senate to-day I had made arrangements with mycolleague, Senator Dooley, to carry on, with relief from me from time to time, and to proceed with the business to-night as long as he deemed desirable. I am sorry if there has been any misunderstanding.


– I again remind honorable senators that arrangements between the whips with regard to Senate business have nothing whatever to do with the Senate itself.

Question resolved in the affirmative.

Senate adjourned at 9.51 p.m.

Cite as: Australia, Senate, Debates, 16 April 1931, viewed 22 October 2017, <>.