The Money Men by Chris Bowen (superbooks4u .txt) 📕

which were tumbling, and the terms of trade were turning sharply against it. Thus the economic situation inherited by Theodore was already far from good before the tsunami that was the Wall Street Crash.

Despite the international financial calamity, the new government’s attention was at first focused on the industrial crisis that had led to its election. In the time-honoured tradition of a party in opposition, Labor had promised to get the Hunter Valley mines reopened without being prescriptive about its methods. In government, this proved much harder. There was an early indication of how dysfunctional the new government would be, and how much damage would be wrought by the unelected organisational wing now attempting to control the Cabinet. As Young explains:

An agitation … commenced within the NSW Labor Party for the immediate expulsion of Theodore, because he disregarded the NSW ALP’s instruction in relation to the dispute. Secret moves were made to expel him during the metropolitan conference, but the Lang faction opposed the move, knowing that a division in the Party would adversely affect it in the NSW elections.12

The fact that anyone of any consequence could seriously contemplate expelling a recently elected deputy prime minister and treasurer over an industrial dispute did not bode well for the government’s stability and longevity. And although Lang opposed Theodore’s expulsion, the treasurer’s refusal to accept his instructions meant that he became the main target of the NSW premier’s wrath and ambition.13

Theodore turned his mind to recasting the Budget he had inherited from his predecessor Page. Predictably, as a newly elected treasurer, he claimed that the previous government had left misleading accounts and had updated the budget forecast from a surplus to a deficit. He abolished the Amusement Tax on the importation of movies, which had been the cause of at least one of the defections from the Nationalist government. In line with orthodoxy, he also cut expenditure and increased taxes, particularly for high-income earners. Like other governments around the world, the Scullin–Theodore administration regrettably increased tariffs in response to the world economic crisis, although this was welcomed by the business community, particularly manufacturers. In fact, business lobbying for an increase in protectionism was acute. As Theodore’s biographer Ross Fitzgerald notes:

In their first few weeks in office, Theodore and Scullin were besieged by businessmen begging for tariff protection. A Canberra journalist joked that when you see three people huddled together in Canberra, you could bet one was a Labor Member and the other two high tariff advocates.14

Debating a Reserve Bank

Theodore soon prioritised his plans to give Australia a more modern central bank, which he had advocated since at least 1924. He recognised that having a government-owned trading bank also fulfilling the role of the central reserve was anomalous and could give rise to conflict. He was probably strengthened in his resolve by the refusal of both the Commonwealth Bank and the private trading banks to assist the government in dealing with the economic crisis. In early 1930, they had told Theodore that they would not provide further finance to the Commonwealth Government in the absence of cuts and attrition.15

Theodore’s proposal was not radical but was in keeping with common practice around the world. (When Australia did eventually adopt an independent reserve bank under the Menzies government in 1960, the model was almost exactly the same as the one Theodore had proposed three decades earlier.) In introducing the Central Reserve Bank Bill, Theodore noted that of the significant economies, only Australia, Canada and Argentina (which, in the language of the time, he quaintly referred to as ‘the Argentine’) had not yet taken the step of establishing an independent reserve bank. The Economist magazine—then, as now, an advocate for sensible and rational market economics—argued in April 1930 that Theodore’s proposal was ‘an attempt to put an end to a long standing anomalous situation … there is no obvious weakness in the proposal’.16

Theodore argued with passion and command of the facts through a long debate in the House of Representatives, and he accepted sensible opposition amendments. Conservative speakers in the debate indicated they accepted the case for an independent reserve bank, but questioned the timing of the proposal and the method of making appointments. Theodore’s Bill provided that the bank’s governor and directors would be appointed by the government, and the conservatives expressed concern that this would lead to unwarranted government interference. This was, of course, a specious argument. As Theodore and other speakers pointed out, the directors of the Commonwealth Bank were also appointed by the government. Similar logic would have seen opposition to the establishment of the High Court on the basis of government interference because it appointed the judges. Furthermore, almost unbelievably, the opposition argued that at least some of the directors should be directly appointed by the trading banks, which would have led to a much greater conflict of interest than the appointment of directors by the government of the day.

The chair of the Commonwealth Bank, Sir Robert Gibson, told a friend that the legislation was sound. However, Gibson then opposed it before a Senate inquiry. Some have pointed out that this may have been motivated primarily by Gibson’s realisation that the establishment of an independent reserve would inevitably lead to a diminution of his own power, as he would not be able to be chair of both the reserve and Commonwealth banks.

The government’s numbers in the House of Representatives saw the Bill pass with ease. The opposition then referred it to a Senate inquiry. The committee reported back in December 1930, supporting the establishment of a reserve bank in principle but opposing the method of appointing directors and the ability of the putative reserve to lend money to the government. The Senate resolved in April 1931 that the Bill should be read again in six months. It wasn’t. By then, Theodore had become submerged in the biggest corruption scandal to have engulfed any federal government to that point. As he fought for political survival, his sensible plan for a modern