This is Chapter Two of the above named book by Jeremy
I have reproduced it here as it contains information that is important to know when
looking at the history of banking in Australia, and the potential it has to do good things.
The book is available from Pickford Productions. ($20 post paid within Australia).
This has been reproduced for educational purposes
I strongly recommend that anyone with an interest in the future of Australia purchase and read this book.
“We have before us the greatest question that has
been submitted for our consideration. It involves Australia's national
supremacy in finance, and the peace, good government and prosperity of
generations yet unborn... "
King O'Malley M.H.R., speaking on the need for a Commonwealth Bank,
House of Representatives, September 1909.
Federation has proved a mixed blessing for Australia. Some of the forebodings expressed at the constitutional conventions in the 1890s have been justified. If the States had between them produced the most prosperous country m the world, with the highest living standards, why add another tier of government? Would it not introduce a competition for power which had not hitherto existed?
It was this possibility, more than anything, which resulted in one of the best Constitutions in the world, based on a monarchical system designed to ensure the separation of powers and strict limits to government. It was left to one of the founding fathers, Australia's second prime minister Alfred Deakin, to point out a major deficiency which would force State dependency on the new Commonwealth Government in the area of finance. Unless rectified, this would so alter the balance of powers between the two tiers of government that the gradual and increasing shift of power to the centre would result. The effect on the Australian people, he claimed, would be tragic, and there is a prophetic ring about his forecast:
". . . The less populous will first succumb, those smitten by drought or similar misfortune will follow; and finally even the greatest and most prosperous will, however reluctantly, be brought to heel. Our Constitution may remain unaltered, but a vital change will have taken place between the States and the Commonwealth. . . "
Immediately after Federation a colourful American-born former banker by the name of King O'Malley sought to eliminate the danger of Australia becoming an indebted nation. His idea was that the founding If Q 'Peoples' bank' able to lend to government and citizen alike at low rates of interest would diminish the need for the country to do as so many of the older countries had done - pile impossible compounding debt on the heads of their own peoples. At the instigation of Alfred Deakin, O'Malley - by then a federal parliamentarian - prepared a report, to be tabled in Parliament on the nature and need for a peoples' bank. Larry Noyes, in his book 'O'Malley M.H.R."` gave this description:
". . . The Parliamentary Paper covered
six and a half
foolscap pages of Print, fully half detailing the revenue of the
their public indebtedness, the interest they paid, and customs and
revenue for both the Commonwealth and the States.
"High rates of interest rapidly increase the indebtedness of the people," the Paper said.
" Their wealth is soon transferred to the few privileged capitalists who are enabled to control the rate of interest, and consequently the market value of Government bonds and property.
“Banks must be established on a Christian basis . Then they could loan credit to assist the productive industry of Australia at low interest rates…”(1)
Speaking in support of such a bank in Parliament in September 1909, O'Malley said.
"We have before us the greatest question that has yet been submitted for our consideration. It involves Australia's national supremacy in finance, and the peace, good government, and prosperity of generations as yet unborn. I have laid down my scheme because I am a banker. If I did not understand it, and if I had not had experience among some of the cleverest financial men that America has ever produced, I should not have presumed to submit it to the House. This is no party matter. I am not speaking as a Labor man, or as a Government man, but as an Australian for the whole Commonwealth, in order to see if we cannot devise some scheme that will overcome the complexity of modern finance with benefit to the people... " (2)
D.J. Amos, in 'The Story of the
Commonwealth Bank", adds:
October 1911 the Labor Government of Mr Andrew Fisher introduced a Bill
to provide for the establishment of a Commonwealth Bank, with power to
carry on all the business generally transacted by banks, including that
Of a savings bank, to be administered under the control of one man
the "Governor" of the Bank) appointed for seven years. The Bank was to
have power to raise a capital of $2 million by the sale of debentures
security for which was the national credit). . . The intention of the
was to make the national credit available to anyone with decent
to offer, to reduce the charges made on overdrafts, bills of exchange,
and current accounts by the private banks, to provide a safe investment
for savings, and to help in the reduction of the public indebtedness...
“In June, 1912, Mr (afterwards Sir) Denison Miller, a prominent official of the Bank of New South Wales, resigned his position and was appointed Governor of the Commonwealth Bank…”(3)
The Bank opened for business in January 1913, only a few months before the outbreak of World War I. It was able to float a loan of $700 million for war expenditure at an interest rate of less than one percent at a time when Australia would have been recruited to pay six-and-a-half percent on the London market. The Bank was able to record a profit on this loan. Furthermore, it played an invaluable part in financing pools for wheat, wool, meat, butter, cheese, rabbits and sugar to the amount of $872 million. It funded $4 million for the purchase of the Commonwealth Fleet of Steamers, and enabled the Government to transfer abroad $7.1 million for the payment of troops overseas. In doing so, it posed a major threat to the private banks, which looked on government borrowing as the safest and most profitable of investments.
Nor did the Commonwealth Bank cease its activities after the war, playing an invaluable part in post-war reconstruction, until 1924, when it was effectively strangled. According to L.C. Jauncey's book "Australia's Government Bank". Sir Denison Miller was asked if he, through the Commonwealth Bank, had financed Australia during the War for $700 million. He replied "Such was the case; and I could have financed the country for a further like sum had the war continued."
Again, asked if that amount was available for productive purposes in times of peace, he answered in the affirmative.
But this was not to be. Sir Denison Miller died suddenly and unexpectedly, while still a comparatively young man, on June 6, 1923. The one man who might have saved the Bank was gone. Enormous pressure was applied to government members from the world of Private finance. On October 10, 1924 the Bruce-Page government amended the Commonwealth Bank Act, taking responsibility away from the Governor and placing it in the hands of a Board of Directors from the private sector in the fields of commerce, industry and finance.
Although used intelligently during World War II, the Bank was never thereafter allowed to compete against the private banks. Eighty years after its creative and imaginative foundation by the Fisher Labor government, it was gradually sold off by the Keating Labor government in the nineties. Sic transit gloria!
The financial power which found its champion in Lord Bruce was known euphemistically as “the City,” or “the City of London.” It was, and is, an entirely different entity to the British people, or the British Monarchy. In fact, the City is a tiny three-square-mile financial capital within a capital, where even the British Monarch may not enter uninvited. The chief public spokesman post-World War I was Chairman of the Bank of England, Mr Montagu Norman, known colloquially as 'Professor Skinner'. Something of Norman's purpose can be gleaned from evidence he gave to the Macmillan Committee, established to inquire into banking and finance in 1929. Norman told members of the Committee that one of his main ambitions was the establishment of central banks round the world. Of Montagu Norman, more in the next chapter.
Following its emasculation there were still two latent powers m the Commonwealth Bank that presented a foreseeable if miniscule danger to the private banks:
(1) The ownership of the Bank was still vested in the Australian people.
(2) The power to create credit, and the sole power of creating legal tender currency, was still vested in the Bank. There was a third potential danger: the Constitution made a dear provision, subsequently confirmed in a number of High Court decisions, that the States had the power to run their own government banks outside Federal jurisdiction, provided they did not operate outside State borders. The fact that the States have never dared do so in a manner that would offset the interests of the private bankers, is an indictment that has never been fully explained. The former Queensland Premier Sir Joh Bjelke-Petersen was personally very much in favour of a Queensland State Bank, to operate within the provisions of Section 51 (xiii) of the Constitution. He once commentated to me personally that he had been shocked at the extent of the opposition, both nationally and internationally, to this suggestion.
The Australian Labor Party had every right to be outraged at the destruction of the 'peoples bank' in 1924. Under its then leader, Mr Matt Charlton, several speakers spoke of the betrayal and the sellout. Over the next decade it became a Labor dream to restore the Commonwealth Bank to its original charter. The election pamphlet used for the September 15, 1934 Federal election in the seat of Fremantle to elect the future Prime Minister, John Curtin, concentrated exclusively on the Commonwealth Bank. It said, interalia:
“Restrictions imposed upon the Commonwealth Bank in 1924 by the Bruce-Page Government will be removed, and the bank freed to enter into vigorous competition with the private banks to secure for the people the profits and privileges of banking which are now practically monopolised by private banking companies. . . The main purpose of securing national control of banking and credit is to utilise the credit of the nation for the benefit of the people. Why should Governments pay heavy interest charges to private banks for the right to operate on credits which belong to the whole community? Bank advances to Governments or private individuals are secured by public or private assets. Banks merely liquefy these assets and charge high interest rates as though it was the bank's own money or credit which they were advancing... The year 1930-31 was the most disastrous year financially in the history of the world. In Australia and elsewhere the financial position of Governments and private enterprise was so acute that a general collapse was only narrowly averted. In that year private banks called up overdrafts, raised the rate of interest, and enjoyed substantial profits by taking heavy toll of Governments and industry. At the same time they used the financial difficulties of Governments in order to dictate the Government policy. . .”
The issue of “poverty in the midst of plenty” had become so intense that governments were forced to address the issue. The Tasmanian Parliament appointed a Select Committee of parliamentarians, headed by the Rev. G.S. Carruthers, on November 28, 1934. It conducted 18 full days of hearings, and took evidence from 24 witnesses, including three Bankers, two Professors of economics, as well as Government Department Directors, Accountants, Commercial leaders and producers. The Report was tabled in the Tasmanian Parliament on October 29, 1935, with the following findings:
“On the evidence placed before it the
that the people are being prevented from possessing, consuming, and/or
utilising and enjoying the increase of wealth and/or the actual or
increase of production over the last 30 years; that the cause of this
shortage of purchasing power in the hands of the community as a whole;
and that this can be effectively remedied only by -
(1) Restoration to the sovereign community of effective control over money in all its forms and:--
(2) The establishment by the Commonwealth Parliament of machinery which would secure regular equation between the community's production and the community's purchasing power.”
This, and the general intensity of the Depression forced the Commonwealth Government to appoint a Royal Commission on Money and Banking in 1937. As with so many Royal Commissions, it was a case of appointing prisoners to investigate the prison system! For any impartial examination of an issue, it is obviously essential to appoint investigators with no vested interest in the outcome.
Nevertheless. the Commission was forced to agree that the Commonwealth Bank was quite capable, legally and constitutionally, of financing all governmental needs in a number of ways. Section 504 of its Report, headed "Creation of Credit", read:
“. . . Because of this power, too, the Commonwealth Bank can increase the cash reserves of the trading banks; for example, it can buy securities and other property, it can lend to the Government or to others in a variety of ways, and it can even make money available to the Governments and to others free of any charge. . .”
As this last clause led to a good deal of controversy as to its exact meaning, Mr Justice Napier, Chairman of the Commission, was asked to interpret it, and his reply, received through the Secretary of the Commission (Mr Harris) was as follows:
“This statement means that the Commonwealth Bank can make money available to Governments or to others on such terms as it chooses, even by way of a loan without interest, or even without requiring either interest or repayment of principal.”
This was simply a confirmation of the powers given to the Commonwealth Government in Section 51 of the Constitution. It was these essential powers which were, and are, being targeted by the private financial world, both nationally and internationally.
On December 7, 1939, the Legislative Assembly of Western Australia unanimously adopted the following resolution:
“In view of the deplorable state of our primary industries and the ever increasing poverty and unemployment in our midst, the national credit of the Commonwealth should be used in the interests of defence, the primary industries, and the general welfare of the people of Australia by and through the Commonwealth Bank without inflation or any charge.”
Had the Depression continued another twelvemonth similar resolutions might have appeared in legislative bodies throughout the commonwealth. Local Councils may well have added their weight. But the outbreak of war cured the Depression! Hundreds of millions of pounds appeared like magic to mobilise the war effort. Unemployment disappeared. Domestic conditions improved dramatically. This development should be put in context with Clyde Cameron's speech, and the Labor Party's Rural Policies, May 1971, dealt with in Chapter Eight.
One might have supposed that, in the Depression situation, the Labor Party could have kept intact a fierce and loyal workers' organisation capable of biding its time until it was again returned to power. But the Party had three major hurdles to confront, over which it was unable to prevail.
First, the stultifying process of party-politics, which subconsciously raises the process of winning votes above the principles of the party itself; secondly, the media have always followed the directions of finance, and is indeed vulnerable to any restriction of advertising revenue, on which it lives; thirdly, an entirely different socialist movement was permeating the old Labour parties round the world, and this was true of the A.L.P. just as the British Fabian movement of the Attlees and Gaitskells had exerted more and more influence in the British Labour movement, gradually replacing the blue-collar workers, so had the same thing happened in Australia. A few of the old breed persisted until the early post-war years, but their days were numbered.
Shortly before the outbreak of World War II there developed almost overnight a scheme for the federation of the western democracies. Called "Federal Union", it proposed an economic and Political merger of fifteen democracies - The United Kingdom, the United States, France, Norway, Sweden, Denmark, Holland, Belgium, Eire (northern Ireland), Switzerland, Canada, Australia, South Africa, New Zealand and Finland. The major impetus for this proposal came in a book, " Union Now", by Clarence Kirshman Streit, the New York Times correspondent in Geneva. His proposal gained a huge press coverage, and hundreds of "chapters" sprang up almost overnight across the United States and the British Empire.
The proposals were expressed by two of its many ardent advocates at the time. The Leader of the British Labour Party, Clement Attlee, said in November 1939:
“. . . There must be acceptance of the principle that international anarchy is incompatible with peace, and that in the common interest there must be recognition of an international authority superior to the individual States, and endowed not only with rights over them, but with power to make them effective, operating not only in the political but the economic sphere.”
At about the same time another advocate, Mr Duff Cooper, said:
“There must be some international centre of authority, some international form of sanctions, some form of international police, something in which the nations will make the sacrifices for liberty that individuals do. It will be difficult to induce free peoples to make the sacrifice of some measure of their sovereignty, but I believe it will come.”
Clarence Streit's "Union Now" proposed a Constitution, to be binding on all nations signing it for "a World Federal Union". He gave a number of plausible reasons for such a step. The relevant chapter dosed with these words:
“. . . That goal would be achieved by The Union when every individual of our species was a citizen of it, a citizen of a disarmed world enjoying world free trade, a common money and a world communications system. Then Man's vast future would begin. But, first and foremost, let us begin by forming the nucleus of this world government before it is too late. Let us make haste and begin the Union now”.(4)
Ironically, as these words were published, another leader with almost precisely the same view, was rampaging across Europe. Adolph Hitler, who was to wreak so much destruction, was also an advocate of a new international order, starting with the United States of Europe. All advocates of world government imagine its nature according to their own belief system. Of necessity, it must disallow any conflicting point of view. It must disallow also the right of people to direct their own elected parliaments in varying directions. It cannot be anything other than totalitarian. But the concept held a fatal attraction for many different groups. Marx, of course, had outlined his version. The Fabians had made inroads into the labour movements in Britain, Australia and New Zealand. In the United States, the Council on Foreign Relations was wen established. The process of diluting and confusing the old nationalist political parties had wen and truly begun.
The present Member for the seat of Fremantle, once represented by former Prime Minister John Curtin, is current Labor leader Kim Beazley. The Labor party of his era sold into international private hands the Commonwealth Bank Andrew Fisher's government had founded, and Curtin had so strongly fought to put back on its original foundations. It was the outbreak of World War H which arrested an ever-widening and increasingly-knowledgeable understanding that the decade of misery in the Depression had been needless; that the cause was not a natural disaster, but man-made; and that a change in financial rules to make money conform with reality, rather than the reverse, was where the answer lay.
But the world of private finance was not hampered by the War. In fact its opportunities increased. On March 15, 1943, Press reports in Australia said that Lord Keynes and officials of the United States Treasury were working on the concept of an International Monetary Fund and Bank:
“. . . Among the conditions necessary for the working of the plan would be the willingness of participating countries to sacrifice some of their autonomy in monetary affairs”. (5)
It was revealed in April that, with J.M. Keynes in this venture were U.S. Secretary to the Treasury Mr Henry Morganthau, and his assistant Secretary, Mr Harry Dexter White. On July 1, 1944, Mr L.G. Melville from Australia was one of the delegates from 44 nations who met at Bretton Woods in the United States, to consider the scheme. Both Mr Melville at Bretton Woods, and the Australian Prime Minister John Curtin at home, made it dear that Australia was in no way committed to the idea.
Presiding at the meeting was Mr Harry Dexter White, later revealed to have been a member of a Soviet espionage ring in the State Department. The Technical Secretary for the Conference was Virginius Frank Coe, also subsequently exposed as a member of the same ring.
On December 27 1945, 30 out of the 44 nations at the Bretton Woods Conference in July 1944, ratified the Agreements. Among signatories was Britain, where Churchill had just been replaced as Prime Minister by Clement Attlee and Labour. Yet to sign were Australia and New Zealand. They were given until December 31, 1946 to make a find decision.
On November 19,1946, Cabinet Ministers decided, after a ninehour discussion, to recommend to the Labor Caucus that Australia should ratify the Bretton Woods Agreements. Press reports claimed seven of the nineteen Ministers opposed the move. This led to a period of intense lobbying within the Labor Party, m which majority branch opposition was overruled or bought-off by central pressure.
On March 7 the Labor Caucus voted 33 to 24 in favour of ratifying the Bretton Woods Agreement. A motion by two Tasmanian delegates that, when put to Parliament, a conscience vote should be allowed on the issue was defeated. On March 20, 1947, the International Monetary Agreements Bill, formally ratifying the Bretton Woods Agreement, was passed by the House of Representatives, and five days later by the Senate. Australia's constitutional sovereignty over money and banking had been surrendered. Only five Members voted against the Bill in the House of Representatives, and twelve in the Senate.
The name of John Curtin, Australia's great war-time Prime Minister, does not appear in the relevant Hansard. He had died only a short time earlier.
Montagu Norman's dream of a world-wide system of Central Banks, all working under international direction, was under way.
(1) "O'Malley M.H.R.," Larry Noye. 1985, Neptune Press, Geelong. ISBN 0 909131 96 1.
(3) D.J. Amos, THE STORY OF THE COMMONWEALTH BANK, (ISBN 0.9589574.0.1)
(4) C. Barclay-Smith, FEDERAL UNION EXPOSED, Leisure Age Publishing, Sydney. (No date, but in the war years. Barclay-Smith was a former editor of Queensland Country Life)
(5) D.J. Amos, THE STORY OF THE COMMONWEALTH BANK, (p. 44)