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

Central Reserve Bill during Theodore’s first term as treasurer, it was not enough to see the Bill successfully pass through the Senate. The conservative opposition used its numbers to see this sensible—indeed, essential—Bill defeated.

Theodore again argued for reflationary measures at the February 1931 Premiers’ Conference and in a policy paper directed to the Caucus the following month. He became one of the first politicians in the world to refer to the multiplier effect of stimulatory government investment when he told the Caucus that ‘every one hundred men employed upon productive work would necessitate the employ of two hundred additional men in factories, shops and transport services’. In this, he likely drew on eminent economist Lyndhurst Giblin’s early, pre-Keynesian work on fiscal multipliers.31

At the Premiers’ Conference, Theodore also argued for a reduction in interest rates, a halt to wage cuts, the devaluation of the Australian pound, and active intervention by the Commonwealth Bank to increase the money supply. It was a radical plan for its time, but each of his suggested elements would be regarded as prudent interventions by modern standards.

In what appeared to be a significant breakthrough, Theodore’s nemesis, NSW premier Jack Lang, indicated a good degree of support for Theodore’s plan and requested an adjournment of the Premiers’ Conference to consult and further develop his thinking. However, when the conference reconvened, Lang withdrew his support and outlined his own proposals, which were termed the Lang Plan. This hardly constituted a comprehensive plan of action to tackle the downturn. Lang’s key proposal was for Australian governments to repudiate the foreign (British) debts and refuse to make repayments to bond holders. It is not clear how that course of action would have created a single job, quite apart from the crisis of confidence that it caused when Lang attempted it.

As Fitzgerald says: ‘As a comprehensive plan, Lang’s economic plan was hopeless in its simplicity. But as a popular political weapon, it was masterful.’32 Lang had an eye on the upcoming East Sydney by-election.

Labor’s federal MPs decided to campaign in the by-election on a platform of support for Theodore’s plan. The NSW ALP executive, meanwhile, instructed MPs to campaign for Lang’s plan. The position of the pro-Lang Cabinet ministers—Frank Anstey, Jack Beasley and John Daly—was unsustainable and they were replaced with pro-Theodore MPs, including Ben Chifley. The pro-Lang firebrand Eddie Ward won the by-election but was excluded from the federal Caucus, provoking the pro-Lang MPs to resign from it and the NSW branch to expel Theodore. These moves contained the seeds of the eventual fall of the federal government on the floor of the House.

While this was going on, the Commonwealth Bank and the trading banks flexed their muscles and refused to participate in a reflation of the economy. In February 1931, Gibson wrote to Theodore saying the Commonwealth Bank would only cooperate with the government if wages and social benefits were reduced. Then, in April, the bank told Theodore it would not cooperate with the government at all.

Scullin and Theodore faced a threshold decision. Unable to get the agreement of the states or the cooperation of the Commonwealth Bank to implement the policies they believed in, they could either resign and seek a mandate in both houses, or they could capitulate and implement a policy of attrition that they did not believe would work. We are not privy to any records of private conversations between the prime minister and his deputy. We do not know if they considered resigning or calling an election. We do not know if they agreed or disagreed from the outset on the course of action to take. If Scullin was firmly of the view that they should vacate office, it was open to Theodore to resign and/or challenge for the leadership if he felt he could not support his leader’s decision. In the era before opinion polls, we do not know what Scullin and Theodore thought of their chances if they went to the people. However, these two canny and experienced politicians were likely to have realised that their government was not popular. They chose to implement the preferred policy of the banks. Kim Beazley Senior believed that Scullin’s inclination would have been to ‘take the plunge’ and seek a mandate, but that the party as a whole did not want to risk a significant defeat and the loss of many MPs.33

It wasn’t just Scullin and Theodore who signed up to the so-called Premiers’ Plan. Lang also reluctantly supported the orthodox policy, for essentially the same reason as the prime minister and treasurer: the intransigence of the trading banks and the strident resistance of the Commonwealth Bank to participation in expansionary policies.

Although known as the Premiers’ Plan, because it was first adopted at the Melbourne Premiers’ Conference of August 1930, the plan was really Lyons’, based on the recommendations of the Bank of England’s Sir Otto Niemeyer. Niemeyer had been invited by Scullin, at the instigation of Gibson, to advise Australian authorities on the right policy. Academically brilliant but innately conservative, Niemeyer’s recommendations were only ever going to go one way. Famously, he had come first in the 1906 Civil Service examinations, meaning he got the coveted single graduate position in the Exchequer, while the second-placed John Maynard Keynes had to be content with his placement in the India office. Niemeyer had also been instrumental in advising Churchill to re-embrace the disastrous gold standard policy. In what would today be regarded as a highly inappropriate communication, the high commissioner to London, former conservative prime minister Stanley Bruce, wrote to the conservative leader of the British opposition, John Latham, to assure him that Niemeyer’s task would be to advocate for government cuts, without looking like he was dictating to the Australian people.34 Niemeyer’s diary conveys his contempt for Australia and his disgust at the comparatively high living standards of Australians compared with Britons.

Unsurprisingly, it was quite a task for Scullin and Theodore to convince the Labor Party to embrace a policy that no-one thought would work. The