the economic record:december, 1943 : the australian wlet economy, may-november, 1943

THE ECONOMIC RECORD DECEMBER, 1943

THE AUSTRALIAN WLEt ECONOMY, hL4Y~NOVEMBER, 1943

I. Introduction. 11. Prices and Public Finance. 111. Problems of Production. IV. Reconstruction.

I In the year 1943 the Australian economy has become adapted

to war purposes almost to the full limits of its manpower and resources. Henceforth, altbough it may be possible to increase the working population slightly by drawing some more women into industry, the chief increases can come only from young people entering employment forr the first time. But ther services will also claim some of these people, and this is almost the only source from which the numbers in the armed forces can now be increased or maintained. The Prime Minister put it briefly in a speech in the House of Representatives on 31st May last: “Thd proportion of males in Australia in the forces, munitions, and war factories, and other essential industries is approximately the same as that for the United Kingdom. The position in regard to women is slightly less favourable. It is evident from the manpower situation that the Australian war effort has reached saturation point. ” We may assume, therefore, that henceforth we cannot expect to increase to any significant extent in the near future the total volume of production, or the numbers in the fighting forces. We may expect that henceforth the main changes wiU be in the kind of goods produced, and that new types of production or increases in existing types will be achieved mainly a t the expense of reductions in less essential goods, or even by a reduction of the numbers in the armed forces. Already we have by direct rationing of consumers, and by indirect rationing through curtailment of supplies and limitation of production (e.g., tobacco, beer, furniture, transport), made possible the expansion of production for essential needs. No doubt some further diversion of materials and manpower can be effected by transfers of this kind, but we cannot foresee any large-scale

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150 THE ECONOMIC RECORD DEC.

release of resources through curtailment of non-essential production. Consequently, on Ist October, 1943, the Prime Minister announced that War Cabinet had decided that the release of some 20,000 men from the armed forces was necessary for employment in civil industry. In the period following imme- diately upon Japan’s rapid conquests in south-east Asia and the Pacific with the consequent threat of invasion of Australia itself, it was natural that the defence authorities should seek to call up every available man for active service. This process continued through 1942, and the early part of 1943, but it became plain in the course of this year that the process had gone rather too far. Rural industry in particular had been drained of the manpower necessary t o meet our commitments to Britain and‘ our other Allies in the shape of foodstuffs and supplies, and to maintain our own fighting services and civil population. As soon as the defence situation warranted, it became desirable to review the position, and to revise the allocation of manpower between the fighting services and essential production. This position was regched by June of this year, when the Prime Minister announced to Parliament in his review of war operations that “the stage has now been reached when it can be said that the battle of Australia has been won as had the battle for Britain.’’

The danger of invasion past, it then became possible to divert some manpower from the fighting forces to essential production. It might be possible t o obtain more manpower for these purposes by rationalization of industry, concentrating production in the most efficient establishments. Professor Isles has pointed out how manpower could be economized in the bread- making industry in South Australia, by concentrating production in twenty-five of the largest bakeries instead of the existing one hundred and fourteen. (Quoted by Williams and Ramsay, “Australian War Effort, 1943,” in The .Australian Quarterly, June, 1943.) Possibly there is still considerable scope for economp of manpower by means of rationalization of this kind, though ig would need a thorough survey of the field to say how much could be achieved in this way. The Department of War Organization of Industry has not perhaps done as much as ought to be done‘ in this direction, as Williams and Ramsay claim, but the opposition to the elimination of small firms is strong both from consumers and the business world. If there are further gains to be made from this source, it is essential that the Pro-

(22nd June, 1943.)

1943 THE AUSTRALIAN WAR ECONOMY 151

duction Executive should tackle the problem, and that rationing should be further extended t o secure equitable distribution of civilian goods. We have had, in fact, :further extension of rationing to include butter (June, 1943), and rationing of meat will begin in January, 1944. Certainly no efforts should be neglected to adapt our economy for total war, and the limits of sacrifice and privation have not been reached in Australia. But it may be doubted whether any spectacular gains for the war effort still remain to be achieved from diversion of manpower and resources. As the Treasurer put it in his speech to Parliament on 29th September last, the “great aversion of the working population from civil requirements to war needs has about reached its limit.”

In these ,circumstances perhaps the greatest interest has centred during the past six months on monetary and fhancid aspects of the war effort, on checking inflationary tendencies, and on probIems in certain vital industries such as cod, clothing and food production. Problems of hanee, price control, and monetary management cannot, in fact, be separated from those of production, distribution and allocation of resources, but for purposes of convenience we shall thus divide them in order to review developments of the last six months. One other general comment might not be out of place before embarking on discus- sion of details. The results of the Federal elections last August showed that the Cnrtin GovernmenC had only gained! in popular support as a result of the sacrifices it had called upon the Australian people to make. Attempts to make political capital out of butter rationing or the possibility of meat rationing left the public unmoved. Nor were the electors stampeded by the bogey of socialization. The Government is now firmly in power in both Houses of Parliament, and if there are fkm measures that need to be taken fo r the successful conduct of the war, it need not fear to carry them out. The Australian people have shown that they are prepared for sacrific:es provided they are equitably shared.

I1 (a) Price Stabilization: The new policy of price stabiliza-

tion that came into operation on 13th April, 1943, was described in the Ecommk Record for June last, but there have been some interesting developments in the carrying out of the policy since that date. Early criticisms of the new policy were ably answered by the Prime Minister on 11th May, but the best answer to


criticisms has been the success with which the plan has operated since its introduction. Even before the new policy was announced, the grant of a subsidy to prevent price rises had been made to the dairying industry; a subsidy of €1.5m. for nine months as from October, 1942. We may assume that already a t that date the Prices Commissioner was working towards the new policy of price stabilization, and of subsidy where costs could not be kept down by increased efficiency and rationalization. On 11th June, the Prime Minister announced that the dairy subsidy was being increased to S6.5m. a year, to operate as from 1st April, 1943. On .July 20th the Acting Commonwealth Statistician announced that the “ C ” series retail price index showed an increase in the June quarter of 1 .8 per cent. over the March quarter level. This rise represented the rise in costs between the measurement of March quarter prices and the imposition of the ceiling on April 12th; seasonal price rises in potatoes, meat, eggs and clothing ; and certain price adjustments that had to be made during the transition from one form of price control t o another. On the same day, the Prime Minister announced that henceforth tea would be reduced by 1/2 per lb., to its pre-war price, and that the price of potatoes was to be stabilized a t 5 lbs. for Gd., the cost of these reductions in price being met by Government subsidy. At the same time, to offset the increased cost of clothing, sales tax was rduced from the rate of 123 to 74 per cent. for all articles of clothing for which ration coupons had to be given. At the same time the Prices Commissioner, the Director of Clothing and Textiles, and the Acting Director of Ratioaing were constituted a committee t o take measures to increase clothing supplies and to ensure their distribution at a reasonable price. As a result of these measures the cost of living, as measured by the “C” series, fell in the third quarter of the year, and there was a consequential fall in the basic wage in three States. If the cost-of-living, as measured by this index, can henceforth be kept stable, a very important step will have been taken towards carrying out the price stabilization plan. There seems no reason why this should not be achieved. The Treasury, moreover, is thus relieved from making refunds to employers of their increase in wage-bills caused by the rise in basic wage rates, and it may bc assumed that the cost of the direct subsidies is considerably less than the refunds would be.

(b) Budget and Public Finance: When we turn to the


money costs of the war effort we also get the impression that in 1943 Australia practically reached her maximum war effort. When Mr. Chifley presented the Budget to Parliament on 29th September last, he said: “In August, 1943, the war cost €4’7m. compared with E2Om. in August, 1941, and only bllm. in August, 1940. The current rate of outlay represents about half of the entire national income of Australia. ” The Treasurer also mentioned that war expenditure for 1942-43 had greatly es- ceeded the estimate made in the Budget estimates of September, 1942. War expenditure for 1942-43 was then estimated at €440m., but it was revised upwards to f540m. in February, 1943, and to E560m. in June last. The final figures for war espenditure for 1942-43 mere just under E562m. The estimates for 1943-44 show that it is not expected that expenditure for war purposes can be increased much further. for they provicle for an increase of only a m . ; Mr. Chifley anticipates a total war expenditure of E570m. for the whole year, o r about the monthly rate reached in August last. But he was careful t o add that ‘‘time may prove the estimate for 1943-41 to have fallen short of needs.”

One important feature of the Government’s mar espenditure deserves special mention, that is, reciprocal lend-lease. The great flow of materials and equipment received from the United States on lend-lease is now being fairly matched by our reciprocal supplies. In 1942-43, expenditure was €59m., or 11.4 per cent. of total war expenditure. The percentage in 1943-44 will be very much higher. The budget estimate provicles for E l o h . , but the trends indicate that this figure may be exceeded. In addition to transfers of specific goods and services such as general stores and provisions, technical equipment, motor transport, aircraft stores and equipment, transport and communica- tions, shippings, works buildings and hirings, there are many forms of aid which cannot be expressed :in money values.

More important, perhaps, than the total estimate of war expenditure for the current year are the ways in which it is proposed to provide the finance. In addition to war expenditure the recent Budget provides for other expenditure to the extent of €145m., which represents an increase of B6m. on the previous year. About =Om. of this represents the first payment due to the National Welfare Fund for post-war social security purposes, and the rest mainly for increased expenditure on pmsions, child- endowment and more liberal maternity allowances. The total

154 THE ECONOMIC RECOBD DEC.

Budget expenditure is thus put at €715m. for 1943-44. Of this s u m the Treasurer expects to get B73m. from taxation and S9m. from other receipts, making a total of S12m. As for the remaining f403m., the Treasurer says: “I see no reason why the public of Australia cannot subscribe to public loans an aggregate of BOOm.” This would leave a “gap” of some E100m. to be fhanced by Treasury Bills. What is likely to be the effect of tvs situation upon prices, and how does it compare with last year? Revenue collections last year reached E267m., and of the remaining expenditure of M 3 m . public loans and war savings certificates provided S215m. This left a “gap” of S188m., which was met, escept for Bm., by Treasury Bills. It is anticipated this year that public expenditure will exceed revenue by the same amount (€#3m.), but that the “gap” will be reduced to E10Om. by borrowing BOOm. from the public. The 4th Liberty Loan opened on the 5th October, and when it closed on 16th November the E125m. asked from the public had been over-subscribed. We may assume that the amounts t o be asked for by public loans will be obtained. But as the Treasurer pointed out in his Budget speech, “the danger of treasury bill finance is that it builds up new purchasing-power in the hands of the public at the very time when the Government is acquiring for war purposes an increasing proportion of the productive resources normally devoted to civilian use.” This sets up a pressure on prices, and, despite the success of the Prices Cum- missioner in price stabilization, this pressure is liable to issue in black market operations and other undesirable ways. Thus Mr. Fadden in Parliament on 8th October claimed that “people were hoardkg notes instead of paying their taxes or investing in loans. ” The Federal Taxation Commissioner (Mr. Jackson) agreed with Mr. Fadden that “retention of banknotes by dis- honest traders is an incentive to black-marketing,” and that an increase in the investigating staff would be desirable. “But,’) he added, “we have an effective staff operating and I believe that it still does not pay to try to evade taxation.” (Melbourne Herald, 9/10/1943.) Banknotes held by the public continued to increase up to the end of June last, when they’ totalled E126m., compared with B5m. in 1939. Though this probably does point to a considerable amount of hoarding, and of cash transactions to evade taxation, one may regard with reserve the Sydney estimate (quoted in the Melbourne Herald, 9/10/1943) that S70m. of these notes in the hands of the public represent “hoards of


hidden profit and capital for carrying on illicit transactions.” Mr. Jackson did not believe hoarding was the chief reason for this large sum in the hands of the public, but rather, “the issue of discounted Treasury bills, the presence of Allied defence personnel, and the greater need for legal tender.” In any case the Federal Taxation Department has wide powers to examine the affairs of any persons suspected of using bank notes to avoid taxation ; this even includes access to safe deposits. Our methods of war finance undoubtedly account for much of the increased holding of notes by the public, but although this leads to some undesirable features, price control and monetary control are preventing any disastrous effects. The “surplus investible funds” in the hands of the trading banks that have been trans- ferred to the Commonwealth Bank had risen to over E100m. by the end of June last ; any inflationary effect they might have had has been neutralized.

The question remains whether greater sums could be raised by either taxation or borrowing to reduce still further the depen- dence on Treasury Bills to finance the “gap” in the Budget. Because of the steep increases in taxation made early in the present year the Budget contahed no increases in rates of taxation. As the Treasurer said “in general the burden of Australian taxation is now as severe as in any Allied country. ” With regard to borrowing the Treasurer expected to increase the amount raised by public borrowing from €215m. in the last hancial year to €3OOm. in the current one. Possibly a little more could be squeezed from both sources, but it would not be easy to reduce the “gap” to any significant extent except by rates of taxation and compulsory saving that would cause real hardship in many cases. Provided that the direct methods of controlling prices and bank deposits are effective there is no need to be unduly alarmed about the danger of inflation. What about the burden of public debt? Is it likely to absorb an undue proportion of the budget expenditure for debt-service after the war, or is the repayment of loans likely to stimulate a post-war boom and inflation of prices? The Treasurer pointed out that in spite of a war increase in the public debt of S731m. (including Treasury Bills for E259m.) up to 30th June last, “the burden of Common- wealth and State Government debt is lesi now ‘in reIation t o the national income than it has been for the last twenty years.” This happy position is the result of borrowing at comparatively low rates of interest, and of the rise i n the national income.


Provided employment and the national income are maintained there is no cause for anxiety on this score. Another fortunate feature is the fact that there has been no increase in the overseas debt, which has actually been .reduced by €9m. since the outbreak of war, while a loan of E12m. stg. raised by the Menzies Government is being repaid. The other danger‘ that repayment of loans and relaxing of monetary and credit controls might cause inflation of prices is a much more serious one. It points to the need for maintaining controls through the danger years of the post-war period.

I11 In the field of production the main pre-occupation

during the last six months has been with food, coal and transport. The Food Executive set up in April last is a sub-committee of cabinet consisting of the Ministers of Supply, War Organization, Commerce and the Treasurer. On 3rd May the planting target of 202,000 acres of potatoes was announced, an increase of 40,000 acres, to meet civilian and service needs. On 25th Nay the Prime Minister announced that Mr. Sculls, the Minister for Commerce and Agriculture would become Chair- man of the Food Executive, and that Mr. J. F. Murphy, Sec- retary of the Department of Commerce had been appointed Commonwealth Food Controller. Committees associated with food production and supply in future were to function under the Department of Commerce and Agriculture. On 23rd June, Mr. Scully reviewed the food situation and declared that the position in Australia was “essentially good“’ but “not by any means perfect. No country in the world is in a better position . . . . and I doubt whether any other country is in such & sound position. ’ ’ But since Australia normally exports large quan- tities of foodstnffs it is only to be expected that her food position should be better than that of most countries. Wheat presents no shortage; there the problem is rather to divert farmers from wheat to dairy or meat production, and the Government has been assisting by making wheat available a t reduced prices to feed poultry and live stock. Dairy production, however, has been hard put to it to meet domestic demand and export commitments. There was a fall of 8 per cent. in milk production in 1942-43 compared with 1938-39 ; moreover, greatly increased amounts were required for condensing, drying, cheese-making, and raw consumption. This meant a considerable fall (about 18 per cent.) for bntter production, and made it necessary to introduce


butter rationing and to prohibit the consumption of cream. Meat production had been maintained, but demand had so greatly increased, especially for canning, that meat rationing has also become necessary. It is possible, as Mr. Colin Clark thinks, that graziers have been holding back cattle in anticipation of price rises. He has warned them of a probable price slump following upon the war, and urges them to draw upon their breeding herds to reduce cattle numbers in their own and the present national interest (see Economic News, September, 1943). This might do something to improve the position, but not to avoid the necessity for meat rationing. As far as vegetables are con- cerned the pre-war area has been expanded‘ from 244,000 to 400,000 acres, but demands for canning and dehydration have expanded even faster. Householders are urged to "gram. their own” or risk going without, and many of them are getting an inkling of what a specialized and expert job vegetable-growing is.

But if the problem of food supply was to be solved we could no longec allow rural indbstry to be drained of manpower. On 13th July the Prime Minister announced that “for all purposes of priority the production of eszential food is t o be regarded as a war activity. ” Decisions followed that the Department of Munitions would undertake production of agricultural machinery and food processing plant, and “the principle of the release of manpower from the services for rural purposes” was adopted. This decision had been foreshadowed‘ om 9th June when the Minister of Munitions announced that “Australia would be over- stocked with certain types of munitions if the present rate of production were continued, ” and therefore many munition workers would be diverted to other work such as shipbuilding and ship-repairing. But dissolution of Parliament and a general election followed the decision on principle in July, and it was not till 1st October that Mr. Curtin announced War Cabinet’s decision to seek 100,000 labour units by June, 1944, to expand production in “transport, power, timber, minerals, food, clothing and the like.” It mas hoped to obtain 20,000 from the Services, 20,000 from munitions, 30,000 by routine discharge from the Services, and 30,000 women by diversion from less essential production. There is no doubt of the wisdom of these decisions if essential production is to be maintained, and many thousands of service-men on garrison duty in Australia could now be better employed in production. But reports so far


indicate that service-men are not always anxious to be “released,” and the process of transfer is lagging behind. Of the service “releases” it was decided that 15,000 should be experienced rural workers, and if these are obtained there should be a notice- able improvement of food production.

The other main cause of concern in our war economy has been coal production. The Prime Minister outlined the position in announcing new regulations for the coal industry on 25th July last. He said “the Coal and Shale Miners Federation as a federation, and the officers of the federation have loyally co- operated with the Government in seeking to have the code for the industry observed. The results do not satisfy. In the face of the facts that output is falling behind d‘emand and that the demand for coal must rise as our war offensives gather momen- tum, the Government must insist that the coal miners work the prescribed hours each week.’’ Accordingly regulations were issued to provide for immediate investigation of any stoppage of work and to institute proceedings against individuals responsible. The Prime Minister concluded with the blunt statement “I will regard every coal-miner who stops work as not only a breaker of the law, for vhich he should and will be punished, but also as a factor in giving aid to the enemies of his country.” But in spite of this the position did not improve, and by Sep- tember had become quite acute. On 8th September the Prime Minister announced that there were L‘problems, other than stoppages, which reduce the amount of coal produced. As soon as the new Government has taken office, steps wil l be taken in asso- ciation with miners’ officials, to deal with all the problems which are tending to retard production.” The position, however, grew worse during September largely as a result of further stoppages, upon which press and public criticism naturally concentrated: But as %..Curtin pointed out on 29th September “the problem of coal production is as acute in Britain and in the United States as it is in Australia. . . . This is not a matter for easy generaliza- tion, nor is it easy to decide how best to obtain increased coal production. ” He had already announced, his intention the previous day to consult with both employers and employees “to discover whether or not more coal than we are now getting can be obtained by a further effort, while remembering that we are now getting a larger quantity than we have ever previously obtained.’’ The problem certainly is not simple, but in the meantime restrictions in train services, gas manufacture, and


other uses of coal had to be adopted. In some states these restrictions have been severe, and there appears to be little prospect of their relaxation in the near future. The Coal Commission has undertaken thorough-going measures ,to economize coal consumption, and it is probable that some improvement of coal stocks has taken place in October and November, but no information is available on the subject.

The Department of. War Organization of Industry continues to extend its control over essential materials and commodities, but it is impossible to catalogue the list of those brought under control during the six months under revhew. They range from combustion engines, motor t p e s and tube,s, and asbestos cement sheets to furniture, cocoa, chocolate and confectionery. But war organization measures have not been dlrected merely to restricting use of scarce materials to essential purposes. In July Mr. Dedman announced the appointment of a Civil Requirements Board to be “responsible for organizing production and distribution of necessary goods for civilian use.” Here again we see further evidence of commodity shortages that have resulted from the organization of resources and manpower for a total war effort. Of course many of the commodities which have dis- appeared will not reappear, and many that are in short supply will remain scarce, but every effort wil l be made to ensure that those that are necessary will be produced in adequate amounts.

New industries essential in war-time have also been fostered. Since October, 1942, no new industry could be established unless essential for war purposes. On 31st August Mr. Dedman announced that “about 300 siibstantial applications to start new manufactures had been dealt with, 70 being rejected and 230 granted.’’ Earlier the same month Mr. Beasley had announced that the Government had deciaed to establish an aluminium ingot industry in Tasmania, and that it was proposed to set aside a m . to establish the industry.

Whatever defects of organization may s t i l l exist there is no doubt that Australian material resourmi have been organized with increasing efficiency for war purposes. The same can be remarked concerning the use of labour. On 29th September Mr. Chifley said “the use of manpower and womenpower is the best evidence of the magnitude of Austra’lia’s war effort. Since the outbreak of war the total working-population has risen from 2,750,000 to 3,370,000 persons, an increase of 620,000. This has been achieved by bringing into work 250,IDOO persons previously

160 THE ECONQMIC RECORD DEC.

unemployed and 220,000 persons who normally do not seek work. The natural growth of the working population accounts for the remaining 150,000. Of the present working population 1,370,000, or over 40 per cent. are now engaged in the fighting forces or in defence construction and the manufacture of munitions.” It can be seen then that in every direction the Australian economy in 1943 has been put on a full war footing. Of course there is not perfection, but a real effort has been made to develop our maximum capacity for war.

IV In all this preoccupation with organization for war

purposes some attention has also been given to the problems of the post-war period, and the transition back from war to peace. So far our Government has treated the suggestions for a post-war International Clearing Union with a cautious reserve. But although Mr. Curtin stressed the fact in April last that “no government has been asked at this stage to commit itself t o them,” we can assume that our government is not insensible of the advantages that may be derived from a satisfactory scheme. On the 11th Jvne last Mr. Curtin announced Aus- tralia’s adherence to the Draft Agreement for the United Nations Relief and Rehabilitation Administration, and Australia was represented at the United Nations Conference on Food and Agriculture at Hot Springs, U.S.A., by the Director-General of Post-War Reconstruction (Dr. Coombs), Messrs. MeDougall and McCarthy, Professor Bridgen and‘ Dr. Burton. In the domestic sphere the Minister for Post-War Reconstruction, Mr. Chifley, has drawn attention to the “new prosperity that has come to country towns as a result of decentralized munitions production,” and claimed that this was “but one of the benefits of regional planning. If this can be achieved under stress of war, a great deal more can be done by an orderly policy of decentra- lizatiod in the post-war period. ” An interesting statement was also made by Mr. Curtin on 7th September when he said that the location of munition factories as between country and capital city areas a t the middle of 1941 was relatively equal, but by the beginning of 1943 the ratio was almost three to one in favour of country areas. The press has recently announced that in accordance with decentralization policy an aluminium plant is to be established at Wangaratta, where abundant electric power will be available. But the bauxite is to come from South


Gippsland-a haul of over 250 miles by land; perhaps South Gippsland will feel that the decentralization might have come in their direction. How much this talk of decentralization will come to when there is no election pending, and how much people will want to be decentralized we do not know. Perhaps there d l be more urgent things to claim our attention in the first place, but the development of large.regiona1 cities mould certainly help to spread amenities and culture more evenly throughout the land. In the sphere of reconstruction also we should not fail to note

the appointment of the Commonwealth Housing Commission “to examine and report upon all aspects of housing within the Commonwealth and to recommend to the Government plans for the provision of housing in the post-war years.” This body appointed last April is to co-operate with existing State housing authorities and other instrumentalities. Whether “ reconstruction” is to become more than a blessed word, however, depends to quite a large extent on the continuance of war-time powers of the Commonwealth Government. As IDr. Evatt said on loth September ‘ ‘ every responsible Australian leader-quite irrespec- tive of party-agreed at the Gmstitutional Convention at Can- berra in 1942, that the power over ‘employment and unemploy- ment’ should be entrusted to the Commonwealth Parliament for the purposes of reconstruction.” But as we all know the majority of the States failed to ratify the agreements reached a t that Convention. “Therefore,” Dr. Evatt added, “the Govern- ment will, a t the proper time, take the question to the people themselves. ’’ Until this has been done nearly all reconstruction planning must necessarily be tentative and half-hearted.

University of Melboztrne. HERBERT BURTON.

the economic record:december, 1943 : the australian wlet economy, may-november, 1943

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