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

as he always called it, very seriously. He did not hide the expensive nature of his promises, and accepted that continuing strong economic growth would be necessary to pay for them. What he didn’t make clear, however, was what would be prioritised if the economic situation required a contraction in the federal Budget, making substantial new spending ill-advised.

Whitlam had also been critical of the economic management skills of the incumbent McMahon government. He asked listeners at his November 1972 Blacktown campaign launch: ‘Will you again entrust the nation’s economy to the men who deliberately, but needlessly created Australia’s worst unemployment rate for ten years? Or to the same men who have presided over the worst inflation for twenty years?’

It was a fair criticism. Mesmerised by the sands of time, many believe that Australia’s economic challenges only began after the election of the Whitlam government, even if they were not directly caused by it. This is not an accurate recollection. There were worrying signs in the economy in the late 1960s, and a disconcerting lack of government action to deal with them. Economic growth in 1968/69 was at 8.6 per cent. By 1970/71, the economic growth rate had fallen to 3.2 per cent. Of most concern, however, was inflation and wages growth. The consumer price index rose by 3.7 per cent in 1969/70. By 1972/73, inflation was at 8.2 per cent. Much of this inflation was driven by wages growth, which had taken off under the previous Liberal government. Average weekly earnings grew by 8.5 per cent in 1969/70, and by 11.3 per cent in 1970/71.

Australia joined the Organisation for Economic Co-operation and Development (OECD) in 1971. The OECD released its first survey on Australia in late 1972, noting that:

In the last two years, after almost a decade of brisk and relatively smooth sailing, the Australian economy has run into troubled waters; domestically, as in most OECD countries, wage–price inflation has sharply accelerated while economic activity has slowed markedly and unemployment has risen.24

The inflation of the late 1960s and early 1970s was brought about by the combination of a tight labour market and an increasingly militant union movement, the latter reflecting union frustration at the lack of implementation of their agenda after a long period of conservative government, and the infectious militant tendencies spreading around the Western world at that time. Another contributing factor was a massive inflow of capital, largely speculative, which further fuelled the inflationary fires.

There were two things the conservative government could have and should have done to deal with this situation. A combination of a contractionary fiscal stance and a revaluation of the Australian dollar were recommended by the Treasury to combat inflation. Prime minister Billy McMahon and treasurer Billy Snedden both supported a revaluation of the dollar. But the Country Party, led by deputy prime minister Doug Anthony, refused to countenance such a move, as it would hurt agricultural exports. The Country Party threatened to leave the Coalition and bring down the government over the issue, hence the dollar remained lower than it should have. Knowing that it was facing its first potential electoral defeat in decades, the government also refused to bring down a contractionary Budget in 1972. Its 1971 Budget had been contractionary, including both tax increases and spending reductions, but it had also been unpopular, and McMahon and Snedden were not going to make the same mistake in an election year. Thus, August 1972 saw Snedden bring down a Budget that he described as ‘taxes down, pensions up and growth decidedly strengthened’.25 Others, however, have described the 1972 Budget as ‘one of Australia’s largest pork-barrels’.26

The Whitlam government inherited an economic situation that could best be described as an inflationary tinderbox. This was, if anything, exacerbated by a global economic upturn, which happened to coincide with Whitlam’s election, and which further contributed to strong Australian conditions in the first six months of 1972. Whitlam appears to have been alive to the inflationary risks, telling his first Premiers’ Conference as prime minister that:

Demand is running high. Growth is proceeding apace—it has been a very long time since the economy has exhibited such robust growth … But we need to be wary, lest in the present expansive situation, strong demands from the public sector do not push the economy so hard against the ceiling imposed by available resources as to give further major impetus to an inflation that is already running far too high.27

While Whitlam’s rhetoric reflected some caution in relation to inflation, his first Budget did not. Spending on housing increased by 300 per cent, and spending on education went up 92 per cent. In addition, the age pension was increased and the pension means test for people over seventy-five was abolished.

The peaceful economic conditions that had prevailed from 1946 onwards were now unravelling. In 1944 the significant Allied nations had agreed on a set of rules of international financial management at Bretton Woods in the United States, based on fixed exchange rates and the primacy of the US dollar. The Bretton Woods settlement had begun to feel pressure in the late 1960s, as inflation in the United States started to strain the system, and increased capital mobility threatened the sustainability of fixed exchange rates. Crunch time for the Bretton Woods system came in 1971 when the British and French governments decided to convert dollars into gold. US president Richard Nixon dramatically curtailed this ability in August of that year. The ‘Nixon Shock’ effectively ended the Bretton Woods system, but the instability it created lasted several years and made the global economy much more volatile. Shortly after the election of the Whitlam government, in January 1973, world share markets collapsed. The London Stock Exchange would lose a staggering 73 per cent of its value between 11 January 1973 and 6 December 1974. The Dow Jones index would crash by 45 per cent over the same period.

The disintegration of the Bretton Woods system, an oil crisis and the stock market collapse collectively triggered a large global