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

that Chifley then embarked on was the greatest mistake of his political life, and one of the gravest errors ever committed by an Australian treasurer.

Two days after the High Court decision, Chifley convened his Cabinet to discuss the situation. As he went around the room, minister after minister supported invoking longstanding (but latent) ALP policy to nationalise the existing banks and outlaw the establishment of any private bank in Australia. The Cabinet felt fundamentally that the existence of banks with a profit motive was not consistent with a fair and well-managed economy, and the defeat of an important element of the freshly minted system of bank regulation was not a prospect it was prepared to contemplate. When every minister had spoken, one finally asked the prime minister where he stood on the issue. He simply replied: ‘With you and the boys, to the last ditch.’27

The government erred here in several ways. To begin with, the contention that the existence of private banks is not consistent with a fair and well-managed economy cannot be justified. Private banks, with proper competition between them and appropriately regulated, can and do provide an important source of finance and innovation in a modern economy. Secondly, Chifley over-reacted to the possibility that the requirement on private banks to hold special deposits with the Commonwealth Bank, when requested, would be thwarted. It is true that this was a hard-won reform that was appropriate for the time. But it was hardly worth all the political capital that the government would devote to nationalising the banks. As Selwyn Cornish writes:

Did full employment hinge on the special accounts procedure? It seems unlikely. Full employment depended on a sufficient level of aggregate demand, which could be provided by fiscal policy together with monetary assistance which was now firmly under the control of the government. The special accounts procedure, though a useful supplementary measure to support fiscal policy in the event of a need to boost aggregate demand, had been introduced as an anti-inflationary device—specifically to control the deposit creation process of the banks.28

Finally, even if this move had not been fundamentally bad policy and a massive overreaction, the politics of the government’s announcement had not been thought through. There certainly had been no warning given to the Australian people of the impending big decision, nor an explanation as to the reasons such a change was being contemplated. Indeed, the Cabinet meeting was followed by a press release of a couple of lines announcing that the government had decided to take over Australia’s banks. Not so much as a press conference was called.

Chifley could not understand what all the fuss was about. From his point of view, the private banks contributed very little to the Australian economy, there was little in the way of effective competition between them, and he was offering full compensation to shareholders. He saw it as a benign takeover, saying, ‘No-one would suffer, and the community as a whole would benefit, just as it had many decades ago when the government had taken over and developed the railways as a public instrumentality.’29

This was not the way the banks or Menzies’ opposition saw it. They used the political and media vacuum caused by the government’s failure to explain itself, as well as the long delay in producing the relevant legislation, to mount an effective scare campaign, which saw political support for the government plummet. They did not hold back. Menzies told a public meeting at Sydney Town Hall that ‘the penalty of defeat will be no less surely the loss of liberty than if Hitler had passed triumphantly to London and the swastika had flown over this hall’.30

The political impact of the anti-nationalisation campaign became clear. In November 1947, the Labor government of John Cain Senior in Victoria was defeated, losing half its seats. While it is always dangerous to subscribe federal factors to state defeats—and vice versa—there were few in the former state government who doubted what had happened.

Later in 1947, Chifley lost his seat on the Abercrombie Shire Council. He had served on the council since 1934, had been shire president on more than one occasion, and had continued to serve the council through his treasurership, regularly turning up to meetings even after becoming prime minister. For a sitting prime minister to be defeated for a humble local council seat in his own electorate was a humiliating blow. The Country Party candidate who defeated him had run strongly on the issue of bank nationalisation.

Chifley always knew it was likely that the High Court would overturn his Bank Nationalisation Act 1947 as unconstitutional. Many in the Caucus, bruised by the opposition campaign, hoped the federal government would concede defeat at this point. But by the time the High Court inevitably ruled the Act unconstitutional, Evatt had convinced his prime minister that they stood a good chance of winning on appeal to the Privy Council. Accordingly, two days after the High Court defeat, the government showed a continuing predilection to stick to a losing strategy by launching said appeal. This dragged out the political controversy for several more months, making it even harder for the government to prepare its case for the upcoming election. In June 1949, when the Privy Council rejected the Bank Nationalisation Act, the political damage was complete.

The Chifley government would face the people later in 1949, and bank nationalisation was one of the factors that would contribute strongly to its defeat. Another factor was the ongoing industrial disputation in the coal industry, which brought into question the government’s ability to manage industrial relations.

Chifley vs the Unions: Coal

Chifley had devoted his working career to the labour movement, to improve the lot of working Australians. Towards the end of his prime ministership, however, Chifley’s commitment to economic responsibility and his dislike of communism saw him take on the trade union movement in a way that would cause a significant split in the Labor Party and engage him in a battle that could scarcely have been predicted