the story of the commonwealth bank and money system

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NINTH EDITION

He Storyof the

Commonwealth BankBv I). J. AMOS, F.A.I.S.

The Bank in Mourning for Sir Den ison Miller,

June. 1923.

LTP

332 110994

A m 6 S

All Rights Reserved)

- - - ONE SHILLING

E. J. M cAlister & Co.,

Adelaide.

1940.



The Com monwealth Stories

No. 1.—The Story of tile Commonwealth Bank.

No. 2.—The Slory of the Commonwealth Fleet (of Steamers).

No. — The Story of the Comm onwealth Railway and the N oteIssue.

No. 4.—The Story of tile Commonwealth Woollen Mills.

No. 5.—The Story of the Commonw ealth Oil Refineries and theSearch for Oil.

No. G.—The Slory of the Commonwealth Wireless Service.

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mi 3 a £ -

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PREFA CE TO THE NINTH EDITION.

"The Story of the Commonwealth Bank" was originally

delivered as a lecture before the Sturt Electoral Committee, Adelaide,

and was first prin ted in pam ph let form in 1931. It exhibited the

usual defect of all lectures, namely, condensation of the subject mat-ter to an extreme degree.

The great and unexpected demand which arose for the pamphlet

found me so closely occupied in other work that the second and third

editions had to be printed practically unaltered, and I began to be

more and more sensible of the need for amplifications and additions.

These were accordingly m ade in the fou rth (revised) edition, aft er

which only minor additions, for the sake of clearness, were inserted

in subseq uent editions until the eighth was called fo r. It was then

found necessary to continue the story up to Australia 's entry into the

second world war (1939), and also to include in it a short account

of the no te issue. In the present (n int h) edition it ha s been deemed

advisable to mention very briefly some important paragraphs in the

Report of the Royal Commission on the Australian Monetary andBanking System (appointed in 1935), as this most important report

is now either out of print or has been withdrawn from circulation.

It only remains for me to thank the general public for the cor-

dial reception they gave to all "The Commonwealth Stories," and

which encouraged me to persevere and complete the series.

D. J. AMOS, F.A.I.S.ADELAIDE,

July, 1910.



Lament of the Com monw ealth {Bank

A hand-maiden, where once I ruledA Queen from sea to sea

No task too vile to set me to,Who strove to make you free.

God Did I once stand upright fro mMy frightful servitude,

And wear upon my beaten browThe crown of nationhood?

As in a dream I see them pass,My deeds of long ago,

My bright Homes, filled with happiness,

In peace and comfort glow.

My Credit flows in running streamsTo help you in your need;

It saves you from the usurer's grip,•And private banker's greed.

When Ruin turns his grim face on

Your primal industries,My Ships steam swift, and carry forth

Your produce overseas.

I turn my eyes from what I didTo what I had decreed—

A nation freed from want and debt,Where no man dwelt in need.

"Come, grind this people to the d ust "I bend in slavery;

But once I was a nation's Queeri,And—almost—made it free



The Story of the Com monwealth

BankLet us consider the story of the Com monw ealth Bank. It

merits your attention , fo r if the Commonw ealth Bank had beenallowed to function as it did at the commencement of its career,Australia would have been helped over the years of depression asit was helped over the war period (1914-1918), many prosperousbusiness firms would have been saved from ruin, and somewhereabout one-third of our people would not have had to eat the bitterbread of charity.

THE NOTE ISSUE.

In 191G, the Australian Notes Act called in all notes issued bythe private banks and by the Queensland Government. To allpractical intents and purposes, it confined the power of issuing banknotes to the Comm onwealth Government. But money is alsocreated by banks making advances of credit to people, then enteringthese "advances" upon the opposite side of the ledger as "deposits,"

and telling their "deposito rs" to draw against these credits bymeans of cheques provided by the banks. The money thus broug htinto existence is destroyed whenever a bank chooses to call in its"adv anc es," and by so doing to lessen its "de posits." Money islikewise created every time a bank purchases securities (whetherGovernment stock or shares in private companies), and it is alsodestroyed every time a bank sells them.

The reader must constantly bear in mind that these means ofincreasing or decreasing the currency at will were left in the handsof the private banks. "Th e reason," says M r. Butchart in his nowworld-famous lecture, "why the Government legislated regardingthe bank note, is that they thought they understood it, and thereason why the Government did not legislate regarding the bankdeposit (credit) is because they had no clear understanding aboutit at all." Sm all wonder that this was so in 1910, as we are onlybeginning to realise now (1940) that all money is simply a promise

to pay either goods or services on dem and. W hether that prom iseto pay is stamped on a coin, printed on a note, or simply writtenon the page of a bank's ledger, does not alter the fact that the vitalthing is the promise to pay, and not the mere material upon whichit is written.

Between the years 1914 and 1920 the Commonwealth Govern-ment increased the note issue from , in round figures, £ 9 | million to



£59J million, but all these notes did not go into permanent circula-tion. Sooner or later they fe ll into the han ds of the associatedbanks, who imprisoned in their vaults all of the notes that werenot absolutely necessary fo r the nation 's "sm all cha nge ." Uponthis imprisoned national currency, they based an enormous increasein bank credits—a currency which comes into existence as a debtdue to the banks—for the use of which they charged a heavy rateof interest. By 1920 the banks held nea rly £32 m illion in Aus-tralian notes, and the following table shows clearly what had hap-pened :—

CURRENCY IN CIRCULATION IN MILLIONS OF POUNDS.

(Co pland 's "Currency and Prices in A ustralia." Com monw ealthYear Books).

Year. Australian Notes. Bank' Credit.

1914 11 1151915 9 1171916 13 1331917 16 1231918 18 1401919 20 1771920 22 160

Maximum Increase 11 62

During these same years, the price level index number for foodand house rent in the capital cities of Australia rose from 1140 to1785, and the increase in the note issue is generally said to havebeen the cause. It is very doub tfu l if it was the only cause, sincethere was an actual shortage of many commodities during the waryears, but, in the absence of social machinery for controlling prices,it probably was an important factor.

The Commonwealth notes were issued in the following ways:—

(a ) A considerable quan tity of them was given to the banks inexchange for gold (sometimes £3 in Australian noteswere given fo r £1 in go ld) fo r, by legal enactment, the

Government was compelled to hold a reserve in goldequal to one-fourth of its note issue.

(b) A number of short-term loans at interest were made tothe States.

(c) A number of fixed deposits, bearing interest at 3 to 5%were made in different banks. These fixed depositsamounted in 1920 to £5,426,600.



(d) More than half of the notes were invested in Common-wealth stock and State securities at various rates ofinterest.

The last two items—(c) and (d)—formed the AustralianNotes Account, held in trust for the nation, which amounted in 1920to £37,808,770, and returned an annual income to the Governmentof a little mo re than £ H m illion— the profits on the AustralianNotes Account (Commonwealth Year Book, No. 14, p. 691).

By utilising Australian notes in this manner the CommonwealthGovernment avoided debt, interest-charges and taxation, and, beforeit finally entrusted the Australian Notes Account to the Common-wealth Bank, it made enough money out of that account to paythe greater portion of the construction cost of the East-West Rail-way, the rema inder coining out of revenue. (H ansa rd, Vo l. 129,p. 1930).

THE RISE OF THE BANK.

In October, 1911, the Labor Government of Mr. Andrew Fisherintroduced a Bill to provide for the establishment of a Common-wea l th Ban k , with powe r to carry on all the business generally

transacted by banks, including that of a savings bank, to be adm in is -tered under the control of one man (called the "Governor" of theB an k) , app ointed fo r seven years. The Bank was to have powerto raise a cap ital of £1,000,000 by the sale of deben tures (thesecurity for which was the national credit), and the profits wereto be equally divided into two funds—a reserve fund, to meet anyliabilities incurred by the Bank, and a redemption fund, to redeemthe debentures or other stock issued by the Bank in order to obtain

its ca pi tal ; afterw ards , this half of the profits could be used toreduce the National Debt.

The intention of the Bill was to make the national credit avail-able to anyone with decent security to offer, to reduce the chargesmade on overdrafts, bills of exchange, and current accounts by theprivate banks, to provide a safe investment for savings, and to helpin the reduc tion of the pu blic indebtedness. As soon as the Bankwas firmly established, it was proposed to entrust to it the note issue

—the profits on which were to be paid into the general revenue ofthe Commonwealth—and from the start it was to be the Bank ofthe Commonwealth Government.

The Bill, in spite of bitter opposition, passed through Parlia-ment practically without amendment, and became law.

It should be noted that the very people who are now cryingthat the country will be ruined if there is any relaxation in the



close monopoly that the private banks exercise over the currency,were loudest in their opposition to the formation of the Common-wealth Bank. The country, according to them, was going to beflooded with "Fisher's flimsies"; there were to be "sovereigns for

everybody," prices would rise; the value of money would depreciateto nothing and we shou ld all go very quickly to the dogs. Let ussee what actually happened.

In June, 1912, Mr. (afterwards Sir) Denison Miller, a promi-nent official of the Bank of New South Wales, resigned his positionand was appo inted G overnor of the Commonw ealth B ank. He issuedno debentures, but opened savings banks throughout Australia, andused the money he obtained in this way as his capital, thus avoiding

being indebted, and paying interest, to anybody but his depositors.The Bank was not opened for general business until January of thenext year, when, in one day, the Commonwealth Government trans-ferred £2,000,000 from private banks to the Commonwealth Bank,without causing any financial disturbance, the cheques being simplycleared through the exchanges "in the ord inary way." Sir DenisonMiller's idea was to make the Bank a Government Bank and SavingsBank, and, for the time being at any rate, to enter into competitionwith the priva te banks as little as possible. Nevertheless, he forcedthem to practically abolish their charges on current accounts, andto keep their charges on loans and overdrafts within reasonablelimits.

Then, in 1914. came the war, and with it an Amending Act (24of 1914), giving the Bank power to raise its capital to £10,000,000,and to take over other banks and savings banks. The Bank did not,at this period, make use of either of these powers, but the services

it rendered to the people of the Commonwealth during the war wereimmense. Under the regime of the private banks, the flotationexpenses of a loan in London, which Australian Governments hadto pav were £ 3 % ; but the Com monwealth Bank floated£350,000,000 of loans (£250,000,000 locally and about £100,000,000overseas) for a charge of 5s. and 7d.%, thus saving Australianssome £6,000,000 in bank charges—and then the Bank made a profitof 2 / % . It saved the Au stralian primary producer fro m stark ruinby financing, with (and sometimes without) the assistance of theprivate banks, pools of wheat, wool, meat, butter, cheese, rabbits,and sugar, to the total amount of £436,000,000; it found £2,000,000for the purchase of the Commonwealth Fleet of Steamers, whichagain saved the primary producer from ruin through lack of trans-portation facilities to his market overseas; and it enabled Australiato transfe r ab road, with the maxim um of efficiency and the m inimumof expense, £3,560,951 fo r the paym ent of her soldiers. ("T he



Commonwealth Bank of Australia," p. 157 and p. 162, by C. C.Fau lkner. Ha nsard , 21 Sept., 1939, p. 976-7 or 103 0-1).

In November, 1920, an Amending Act (No. 43 of 1920) cameinto force, by which the Australian note issue was entrusted to a

departm ent of the Comm onwealth Bank. Th is "No te Issue Depart-ment" was to be kept distinct from al] other departments of theBank, and was to be managed by a board of directors composed ofthe Governor of the Bank, an officer of the Treasury, and two otherdirec tors. These two other directors were J. J. Garvan, Esq., andJ. R. Collins, C.M.G., both members of the financial world; butas they formed only 50 per cent, of the directorate, and the Governorof the Bank possessed a casting vote, power rem ained with theGovernor of the Bank as long as he could rely upon the support

of the Treasu ry official repre sen ting the Government of the cou ntry .Until 1924, when the Bank was effectually strangled, the

benefits conferred upon the people of Australia by their Bank flowedsteadily on. It financed jam and fr u it poo ls to the extent of•CI,500,000; it found £4,000,000 for Australian homes; while tolocal government bodies, for construction of roads, tramways, har-bors, gasworks, electric power pla nts, etc., it lent £9,360,000. Itpaid to the Commonwealth Government between December, 1920,and June, 1923, £3,097,000—the profits of its Note Issue Depart-ment—while by 1924 it had made on its other business a profit of£4.500,000, available for redemption of debt.

When, during an interview in 1921, Sir Denison Miller wasasked if he, through the Commonwealth Bank, had financed Aus-tralia during the war for £350,000,000, he replied: "Such was thecase; and I could have financed the country for a further like sumhad the war con tinued ." Again, asked if that am ount was ava ilablefo r p roductive purpose s in times of peace, he answered in the affirma-

live. ("A us tralia 's Government Bank," p. 275, by L. C. Jauncey,Ph.D . See also Treasu rer Spe nder's speech in Han sard , 21 Sept.,1939).

As a matter of fact, he had just given a striking example ofthe power of the Bank in times of peace. In the latter half of1920, the banks in other parts of the world started their policy ofdeflation, in order to raise the value of currency to such high levelsthat they, who possessed the monopoly of it, could secure the real

wealth of the nations for themselves, and "in the winter of 1920-21,"says Robertson, "the price-level was saying, like Alice as she shotdown the rabbit hole, 'I wonder if I shall fall right through thee a rt h . '" The private banks in Au stralia commenced to follow theexample set by the banks abroad, but Sir Denison Miller broughtthe Commonwealth Bank with a rush to the rescue of the threatenedpeop le. Pa rtly by purch asing Com monw ealth and other Govern-



ment securities, and partly by increasing his advances, he released,between June and December, 1920, £23,000,000 of additional cur-rency, as a slight hint as to what he would do if necessary, anddeflation in Australia was defe rred. (Comm onwealth Bank balancesheets).

Sir Denison Miller has left it on record that the relations be-tween the Commonwealth Bank and the private banks were alwaysof a most cordial character, and doubtless he did all in his powerto render them so; but the fact rem ains that the private banksexcluded the Commonwealth Bank from their Clearing House, andforced it to make its clearings through the Bank of New SouthW ales. We do not know what price the Comm onwealth Bank paidfor even this concession, but we do know that the interest it allowedon its deposits was always lower than that allowed by private banks,and Mr. Bulchart shows conclusively that its banking operations didnot lower the rates that private banks charged upon telegraphictran sfers and overseas dr af ts. In the very na ture of things, theprivate banks must have watched the progress of the CommonwealthBank with ill-concealed rage and fear, which was translated intoaction in 1924—a disastrous year in the annals of Australian eco-nomic history.

During the war, the private banks had been granted the privi-lege of getting three £1 Australian notes for every £1 in gold theydeposited with the Treasu ry, so that they were thus enab led toincrease their cash reserves by three, and therefore their loans, whichwere based on their cash reserves, by a sim ilar figure. Th e privatetrading banks, I might mention, do not lend out their cash depositsat interest. They keep them to meet any demands fo r cash madeupon the banks, and give credit for from nine to twelve times the

amount of these cash deposits. Th erefo re, if the priva te banks got£300 cash in Au stralian notes fo r £100 in gold, they could give ,credit for about £3,000, instead of £1,000, and so earn three timesthe amount of interest they were doing before—a very profitablearrange me nt for the priva te banks. The add itional £2 was treatedas a loan to the banks (at rates varying between 3 % and 4 % ) , andwas repayable not later than twelve months after the end of thewar.

This three-to-one arrangement was later reduced to two-to-one,and war bonds were deposited by the banks as security fo r theadditional £1 loaned; but the banks in many cases did not drawthe additional notes—they traded on their "rights" to these notesas if they actually possessed them, and so avoided paying interestto the Government. These "rig hts to draw ," according to Anstey,amounted to £8,000,000 on June 23, 1923, and the Commonwealth



Bank, which now controlled the note issue, demanded that the banksshould exercise their "rig hts ," draw the notes, and pay interestthereon. With one voice the private banks refused , and preparedfor battle. Sir Denison M iller had died in June , 1923— mourned as

few public men in Australia have been mourned—so that their mostformidable adversary had been removed from their path, while aLiberal Government, the Bruce-Page Administration, was now inpower.

Early in 1924 the private banks demanded that their "rightsto dra w " should be extended by another £3,000,000. The chairmanof the Notes Board of the Commonwealth Bank described the pro-position as "m adne ss," and the Treas urer upheld that view; but

the banks' demand was conceded. The hou r of the private bankshad struck, and they also struck— below the belt. They used theCommonwealth Government to strangle the Commonwealth Bank.

THE STRANGLING OF THE BANK.

In June, 1924, the Bruce-Page Government brought in a Billto amend the Commonwealth Bank Act by taking the control ofthe Com monw ealth Bank out of the hands of the new Governor

and placing it in the han ds of a d irecto rate consisting of theGovernor of the Bank, the Secretary of the Treasury, and six personsactively engaged in agriculture, commerce, finance and industry,to be appointed by the Governor-General (which in practice meantthe Bruce-Page Governm ent) fo r differen t terms of years. TheBill provided that the Governor of the Bank should be merely thechief executive officer of the directo rate , which should elect its owncha irma n, who should have a casting vote. (The effect of theseclauses was to place the Bank absolutely under the control of a

body of men who might be bitterly opposed to any competition withprivate ban king ). The Bill also provided, among other things—

1. That the new directora te should control the Notes IssueDepartment of the Bank.

2. That out of the profits stand ing to the cred it of the Bank,£4,000,000 should be transferred to its Capital Account,which was increased to £20,000,000, of which £6,000,000

might be loaned at interest by the Government, and whatwas needed to make up the £20,000,000 might be raisedby the issue of debentures. One half of any pro fit theBank should make was to be paid into the National DebtSinking Fu nd . (The effect of these "c ap ita l" clauses,when put into effect, would have been to impose such atremendous drain of interest upon the Bank that theywere never carried out in their entirety. The Ca pital



Account of the Bank was increased to £4,000,000, butno money was borrowed from the Government, or raisedby the issue of debentures).

3. Tha t it should be obligatory on the Comm onwealth Bank

to fix and publish the rates at which it would discountand re-discount bil ls of exchange. (The effect of thisclause was that the priva te banks—if their nomineeswere in control of the directorate of the CommonwealthBank—could fix the rates of re-discounting the billswhich they had themselves discounted, at a figure veryfavorable for themselves, and so make large profits atthe expense of the Commonwealth Bank).

4. The private banks were permitted to settle the balances oftheir accounts among themselves by means of chequesdrawn upon the Commonwealth Bank, instead of keepinga supply of bank notes in hand fo r that purp ose. Inother words, they were perm itted to make use of theCommonwealth Bank to settle their mutual debts, andso keep all their legal tender currency for their ordinarybusiness.

In introducing this Bill, Dr. Earle Page alluded to the con-ferences which Ministers had held with the general managers of thepriva te banks. M r. Charlton told the House plainly that "the Billwas nothing less than an attempt to kill the Bank"; and Mr. Makinsaid: "The Government undoubtedly desires to place the Bank insubjection to private banking institutions, and to prevent it fromfu lfill ing the real pu rpose fo r which it was established. It is tobe prevented, by unsympathetic administration, from functioning inthe interests of the general com m unity." The debate was a stormyone, and it was only by declaring the Bill "u rgen t," and by aliberal application of the closure, that it was finally forced throughthe House. It was assented to on August 20, 1924, and was to comeinto force on a day to be fixed by proclamation; but the privatebanks wanted it at once. So, in August, 1924, the Associated Banksnotified the Wool Councils that sales would not be financed withoutadd itional notes, or rights to draw them. The Commonw ealth Bankgave them the "right to draw" another £5,000,000, but the Asso-

ciated Banks took it, and then demanded another £10,000,000 beforethey would finance anything . In the me antime "the price of wooldropped, because buyers could not obtain bank credits, no matteron what security."

On October 10, 1924, the new Commonwealth Bank Act wasproclaim ed, and a conference was held between the Bruce-PageGovernm ent, the Associated Banks, and the Com monwealth Bank



Board. The banks were given the right to draw another £10,000,000,no interest to be paid except 4% on the amount actually drawn.

One naturally asks why it was that the Commonwealth Bank

yielded to the demands of the private banks for these "rights todraw" in order to finance the wool sales, when the CommonwealthBank could so easily have financed them itself. That question hasnever been answe red; but the following facts may, or may not,throw some light upon the subject.

Mr. Kell, who succeeded Sir Denison Miller, was only Acting-Governor of the Bank before the Directorate was appointed, and sohad neither the status nor the power of his great predecessor; while

after the appointment of the Directorate, the Governor of the Bankwas merely its executive officer. Moreover, he was persona lly in arather precarious position, for he had previously made things sounpleasant for Mr. M. B. Young, a leading official of the Bank, thatthe latter resigned and bro ught serious accusations aga inst Kell("A rgu s," October 11, 1924, p. 31; September 4, 1925, p. 11) .The Bruce-Page Administration sided with Kell, refused to appointan independent tribun al to deal with the accusations, and uponKell's retirement in 1926, granted him a pension of £1,000 per

annum.

The new Commonwealth Bank Board was composed (in addi-tion to the Governor of the Bank and the Secretary of the Treasury)of the following financial magnates, who were appointed to controlthe destinies of the people's bank, although they might themselvesbe shareholders in private banks, and in spite of the fact that suchinstitutions as those of which they were directors are normallylenders of money at interest on a very large scale:—

John J. Garvan:

M ana ging Director, Mu tual L ife and Citizens' Assu rance Co.,Ltd.; Pastoralist, Rochdale Station, Queensland.

Sir Robert Gibson, K.B.E.:

Vice-President, Associated Chambers of Manufacturers; VictorianRe prese ntativ e, Central Coal Board; Director, Au stral Manu-facturing Co., the Lux Foundry, National Mutual Life Insurance

Co., Un ion T rus tee Co., Robert Harp er & Co., Ltd. (M erchan tsand Manufacturers), Chamber of Manufacturers Insurance Co.

Sir Samuel Hordern, Kt.:

Director, Anthony H ordern & Sons (Universal Provid ers) , A us-tralian Mutual Provident Society, Royal Insurance Co,

Robert Bond W. McComas:

President of various Woolbuyers' Associations; Proprietor ofW illiam Ha ugh ton & Co. (W oolbrok ers). ,



John McKenzie Lees:

Fellow , Institu te of Bankers, London. (Form erly Chairman ofAssociated Banks in Queensland, and General Manager of Bankof Queensland, and of Bank of North Queensland)..

Richard S. Drummond:An inconspicuous gentleman, appointed for inconspicuous reasons.

From the date of the appointment of this Directorate, the Com-monwealth Bank, as a people's bank, ceases to function; it becomesa bankers' bank, an appanage and convenience of the private banks,run for their special benefit. The follow ing exam ple was given byboth M r. Charlton and by M r. Anstey on the floor of the House(Hansard, 1925, vol. 3, pages 1696, 1725, and 1726), to show the

spirit in which the Bank was now administered:—

The rales charged for financing primary produce began at onceto rise, until they had more than doubled; the producers of the1924-25 season had to pay £7,000.000 in bank charges, as against£3,000,000 for the previous year. When the farm ers in WesternAustralia formed a voluntary pool, they applied confidently to theCommonwealth Bank to finance it, as the Bank had done for similarpools in previous years; but it was no longer the same bank, and

both it and the private banks alike imposed conditions which wereintolerable. Finally, when the farm ers, unable to secure the neces-sary money in Australia, obtained it from the Co-operative Whole-sale Society in England, the concerted action of the private banksand their new ally, the Commonwealth Bank, frustrated the scheme.When the Co-operative Wholesale Society paid in the money to theLondon Branch of the Commonwealth Bank, the Bank, instead oftransferring the money to its Perth Branch, transferred it in quotas

of one-fifth to each of the five associated banks (p riva te ban ks)operating in Perth, so that each bank was enabled to exploit thefarm ers by means of tran sfer charges. The trans po rtation of fo urmillion bushels of wheat from Australia to England cost the Co-operative Wholesale Society 1/- per bushel, but for merely trans-mitting the money the banks charged the farmers practically 3jd.per bushel, amounting in all to some £60,000.

The roars of the primary producers, under the gentle treatment

meted out to them by the private banks and the new Directorate ofthe Commonwealth Bank, were so terrific that the Bruce-PageGovernment shifted uneasily on their M inisterial benches. Atleast a pretence of helping them must be made, and if the Common-wealth Bank was damaged in the process—well, that could not behelped . So in 1925 the Comm onwealth Bank (R ur al Credits) B illwas brought forward.



This Bill provided fo r a Ru ral Credits De partmen t of theCommonwealth Bank, to be kept distinct from other departmentsof the Bank. It was empow ered to issue short-term deben tures upto the amount it advanced on prim ary produ ce. These debentures

would form a short-loan ma rket in Au stralia at about 4 % , and bea steady drain upon the profits of the Department, while the moneysubscribed could be utilised by the private banks in their ordinarybusiness, since the Commonwealth Bank, through its Rural CreditsDepartment, was authorised to advance loans to private banks andfinancial com panies, as well as to ru ra l prod ucers. In effect, theBill ensured that a primary producer who owned machinery, land,buildings, and a coming crop, and who wanted a loan to tide him

over until he marketed his produce, would have to go to the privatebanks to get it. Theo retically, he could go to the Comm onwealthBank direc t, but if he did so he would almost certa inly be toldthat the Commonwealth Bank "did not accept that class of busi-ness"; so he would have to lodge his security uith a private bank,which would take it to the Rural Credits Department of the Com-monw ealth Bank, get the money at somewhere about 4 % , a nd thenlend it to the primary producer for as high as he could afford topay—or higher.

"That," said Mr. Anstey in the House, "is the fundamental andiniquitous prin ciple of the Bill. It is outrageous, and cannot bejustified in any way wha tever." It could not. Neither could thefacts that both the Government and the Commonwealth Bank wereempowered to lend money at unspecified rates of interest to thisRural Credits Department, and that £2,000,000 of profits from theNote Issue Department were, by the terms of the Bill, given to the

Department gratis. The Bill was passed on September 14, 1925.

The Commonwealth Bank issued no debentures, but, between1925 and 1932, gradually transferred £2,000,000 of its profits onthe note issue to the capital account of its Rural Credits Department,and up to June 30, 1929, it financed the department with creditsfro m the Bank to the extent of £21,000,000. Sir Robert Gibsonstates that this money was loaned by the Department at from 6£%to 5 a n d when the Department deal t d irec t with the producer,

it probab ly charged those rates; but £21,000,000 at this figurewould show a profit of well over £1,200,000, and the profit on theRural Credits Department during these years was only £324,780.As we know from statements made in P arliame nt (Han sard, vol.114, pages 3759, 4297) that the Rural Credits Department generallyacted through the private banks, it is clear that the private banksmust have obtained the amounts they required at a merely nominalrate of interest, but they charged the wretched primary producer



8 % , and sometimes more, for the money that had been ma de avail-able fo r his "re lie f." (Ha nsard , vol. 114, p. 4332.)

Early in 1927 there arrived in Australia Sir Ernest Harvey,

Comptroller of the Bank of England, "for the purpose of advisingthe Commonwealth Bank as to certain phases of Central Banking."In other words, in order to make the Commonwealth Bank, whichwas supposed to be a national bank operating for the good of thepeop le (as it did until pre ven ted), a central bank ope rating forthe benefit of private banks. He fou nd the good work almostaccom plished, but not quite. The general deposits in the Bankamounted approxim ately to £32,000,000, but it also had lodgedwith it roughly £47,000,000 of the people's savings, so that finan-cially it was in a strong position , and if by any chance it couldmanage to release its neck from the strangling clutch of its Direc-torate, it might still be used fo r the pu rpo se fo r which it wasintended. Therefo re, Sir Ernest Harvey "pointed out that thesavings bank business did not come within the ambit of thefunctions of a bank of central reserve," and the Bruce-Page Govern-ment accordingly brought forward a Bill for the CommonwealthBank (Savings Bank) Act, 1927.

By the terms of the Bill, the business of the Savings BankDepartment (over 50% of the total revenue of the CommonwealthBank) was taken away from the Bank, and placed under the controlof three Directors, appointed by the Governor-General (which againmeant, in practice, the Bruce-Page Government), and it was speci-ally provided, by altering the definition of "bank" in the originalAct, that the Commonwealth Bank of Australia "does not include

the Savings Ba nk." Much of the pro fit the Comm onwealth B ankwas still earning was made in this Savings Bank Department; butthe Bill did not merely lessen the Bank's profits, "it took away theBank's cash reserves, which enabled it to com pete with priva tebanks, terminated its trading operations, and reduced it to a bankers'bank—not a reserve bank, because no bank was compelled to keepits reserves there—so that it became neither a trading bank nor asavings bank, nor yet a reserve bank, but a thing of shreds andpatches, at the mercy of private institutions, and which could be

destroyed at any time ." So said M r. Charlton in the Ho use; buthe overlooked two important facts—

1. The ownership of the Bank was still vested in the peop leof Australia.

2. Pow er to create credit, and the sole power of creating lega ltender currency, was still vested in the Bank.



While these facts remain unchanged, the Bank may be strangledand its functions perverted, but it cannot be destroyed, and it maybe delivered.

The Bill specifically provided that the Commonwealth SavingsBank might lend money to private banks, but the paragraph wasobjected to in Committee and omitted, but the Bill also containeda paragraph, couched in general terms, under which the same thingmight be done. When asked if he would also om it this par ag rap h,Dr. Earle Page replied bluntly : "N o." (Ha nsard, vol. 116, page805) .

THE BONDAGE OF THE BANK.The Comm onwealth Bank (Savings B ank) Act became law

December 22, 1927, and between December, 1927, and June, 1928,the Directors of the Commonwealth Bank sold to the CommonwealthSavings Bank £38,000,000 worth of securities, and at the same timecalled in £4,000,000 of advances, thus cancelling £42,000,000 worthof currency, and making inevitable in Australia that "depression"which the bank ing system had already inaugu rated abroad. (Com-monwealth Bank balance sheets).

It commenced in January, 1929, with a constantly acceleratingfall in the monetary value of Australia's exports, a fall out of allpropo rtion to the dro p in the value of her imp orts. This mean tthat there were soon not enough funds available in London to payfo r our imported goods, to say nothing of the interest on ouroverseas debt which stood then at approximately £28 million perannum. In Octobei, the Scullin Labor Adm inistration came intooffice, and the English Banking System p rom ptly closed the London

money market to any fur the r Au stralian loans. The Australianbank s blindly followed the exam ple set abro ad. They began tocontract their advances and call in their overdrafts, even in caseswhere securities had been lodged with them to the value of threetimes the amount of the overdra fts. (H ansa rd, vol. 122, p. 31 3) .They also deflated the currency by selling securities to the extentof £4 m illion. (Aus. Banking Com.'s Rep ort, Pa ra. 18 0). TheScullin Administration found itself faced with unemployment and

poverty at home, and possible default in interest payments abroad.It met the overseas situation by a sort of tacit alliance with themanufacturing, as against the pastoral and importing, interests ofthe country. In October, 1929, and again in A pr il, 1930, it imposedprohibitions upon a number of imports and raised the duties ona still greater number.

The T.T. rate on bills of exchange stood in November, 1930,at 35/-%, but, as Australia had returned to the gold standard in



1925, this rate was above "gold point" (i.e., the point at which itpaid to buy gold instead of bills of exchange with which to settleoverseas debt), and Australian importers began to buy gold andship it abroad (Hansard, vol. 122, pages 4 2 7 /8 ). The Australian

banks held in their reserves at this time some £48 million in gold(Hansard, vol. 122, p. 430), the remaining £20 million being in cir-culation, but they did not want their gold to be used in this way forthe following reasons:—

1. They would lose all their pro fits on the tra de in bil ls ofexchange.

2. They might wan t to use some of the gold themselves inforeign investments, the dividends on which were freefrom Federal Income Tax and formed from about 30%to 60% of the total dividends paid by the banks.(Official Record, M elbourne Stock Exchange, Feb rua ry,1928).

3. The gold might be use ful as an instrumen t of coercionover the Commonwealth Government, if the latter couldnot obtain overseas currency to pay its overseas debt.

So, on November 28, 1929, Mr. Theodore brought in a Billto amend the Commonw ealth Bank Act. "I t was no t initiated bythe Government," said he, "it originated with the Board of Directorsof the (Commonwealth) Bank, and but for their urging would notbe befo re the Ho use." The excuse fo r the Bill was that it hadbecome necessary to safeguard Australia's gold reserves, and it gavethe Commonwealth Bank Board power to commandeer, in exchangefor Australian notes, the total gold supply of Australia, whetherin private hands or in those of institutions; it forbade the export

of gold, without permission of the Board, under heavy penalties.The Bill became law (Act No. 31, of 1929) on December 17, 1929.

The result of this Act w as :— (1) Au stralia was now definitelyoff gold and the Au stralian note was incon vertible; (2) The Com-monwealth Bank possessed a virtual monopoly of all the gold inA us tralia ; (3) Im porte rs were rationed and the rate paid by themfor bil ls of exchange rose from 3 5 /-% to £ 6 /1 0 /- % ; (4) The Com-monwealth Government, if it could not find overseas funds to paythe interest on its overseas debt, would either have to default, or,in order to get the necessary gold, submit to any terms the Com-monwea lth Bank Board chose to dictate. (H ansard, vol. 130, p.2702 to p. 2708).

Having tied its own hands with regard to the overseas positionin this fashion, the Scullin Administration now turned its attentionto hom e affa irs which were going steadily from bad to worse.



Obviously, nothing could be done unless the Government possessedthe power of the purse which was now in the bands of the Com-monwealth Bank Board. W hat the Government had given, theGovernment could take away—if it were not for that unfortunate

majority against it in the Senate—yet even with that majority rulingthe Upper House, if one walked with circumspection, it might bedone.

Since the establishment of the Bank of International Settlementsat Basle, early in 1930, central reserve banks (more or less inde-pendent of the Governments of the countries in which they weresituated) had been springing up like mushrooms all over the world,amid a chorus of approval from deluded Governments and people

whom these banks were intended to reduce into servitude. Whynot, reasoned the Scullin Administration, under cover of establish-ing one of them in Australia, get back into the hands of the Gorern-inent the powers given away in 1920?

On A pril 2, 1930, Theodore brought forw ard his CentralReserve Bank Bill. The new bank Avas to control the note issueand the gold reserve. All other banks, including the Common-wealth Bank, were to keep 10% of their current accounts and 3%

of their fixed dep osits with it. The cap ital of tho reserve bank wasto be £2 million transferred from the Commonwealth Bank, whichwas to become simply a Government trading and savings bankcom peting with the private banks. The reserve bank was to bethe clearing house of the other banks and it was to be managed bya board appo inted by the Governor-General. Th is boa rd was toconsist of a Governor, two Deputy-Governors, the Secretary of theTreasury, and five other Directors, representing respectively agricul-

ture, commerce, finance, industry, and labor. The Governor was tobe the chairm an of the board and chief executive officer of thebank, and the five other Directors were to retire in rotation . Therewas great diversity of opinion as to the value of such a bank amongLabor members, but the consensus of opinion in the ranks of theOpposition was "that the Government intended to use the centralreserve bank to sup ply large sums of money to carry out theschemes of Labo r Administrations, both Federal and State." (Han-sard, vol. 124, p. 2 68 2/ 3 ). That opinion was proba bly correc t;

if not, it is difficult to understand why the Bill was brought forwardat all. It passed the Representatives in Jun e, 1930, bu t was refe rredto a Committee in the Senate, and finally lapsed in April, 1931.

By February, 1930, the difficulties of finding overseas moneyto cover Australia's payments abroad had become so acute thatthe Commonwealth Government appealed to the British Treasuryfor assistance in finding credit to meet a small loan falling due.



The Chancellor of the Exchequer refer red them to the Bank ofEngland which, apparently, found the necessary credit, but sug-gested sending Sir Otto Niemeyer for a rep ort on the financialposition of A ustralia. (H ansard , vol. 127, p. 38 7) . He arrived inM elbourne on July 19, 1930, where he was m et by Sir RobertGibson, Chairma n of the Comm onwealth Bank Board ("A rgu s,"19 /7 /3 0 , p. 2 2 ). As a result of that meeting, and of another oneheld in Sydney with the managers of the trading banks ("Argus,"2 2/ 7 /3 0 , p. 9 ), it app ears that the Scullin Adm inistration washan dled with velvet gloves and hoodw inked into believing thatNiemeyer and Sir Robert Gibson intended to help it through thedepression. Sir Robert Gibson was re-appointed to the Common-

wealth Bank Board fo r anothe r seven years on August 4, 1930,although his existing appointment did not expire until the follow-ing October. (Han sard, vol. 129, p. 16 10 /16 12 ). This done,Niemeyer attended a meeting of the Loan Council and a Premiers'Conference in M elbou rne (August, 1930) and laid his dem andsbe fore them. The re were five main provisions. (P ar i. Pa pe rs,1929-31, vol. 2, No. 81, p. 45).

1. Budgets to be balanced at any cost in hum an suffering.

2. Cessation of overseas borrow ing un til the then short-termindebtedness had been dealt with.

3. No public works, which would not pay fo r interest andsinking funds on loans, to be put in hand.

4. All interest paym ents to be credited to a special accountin the Commonwealth Bank, to be used only in favor ofthe bond-holders.

5. M onthly accounts to be pub lished in Austra lia and over-seas, showing summaries of revenue and expenditure,also state of short-term debt and loan account.

The Conference seems to have accepted these terms with agood many mental reservations, but, outwardly, at any rate, theirsubmission was complete, not to say abjec t. "To -day ," writes Mr.H. N. Brailsford (quoted in Hansard, vol. 127, p. 576), "you may

behold a continent on its knees. It has bowed to his (N iem eyer's)dictation . It will cut down its im ports. It will lay the axe toall its expend iture on social services, including education. It willreduce the sala ries of its civil servants. It will cut wages all ro und.It is prepared for an increase in unemployment from the present18% to a possible 3 0 % . It is kissing the rod that chastened it.'On all hands,' we read, 'the help of Sir Otto Niemeyer is warmlyappreciated. ' "



In desperation, the Scullin Administration besought Sir RobertGibson to increase the note issue by £20 million so as to enablethem to fight the depression which was now advancing like a land-slide, but Sir Robert, secure in his recent appointment, no longer

troubled to be polite. Said he, "M r. Prim e M inister and M embersof the Cabinet, you ask me to inflate the currency by issuing another£20 million in notes. My answer is that 1 bloody well w on 't."("Sm ith's Weekly," 4 /1 0 / 3 0 ) . It is difficult to believe that theScullin Administration did not know that they had the power todeal with this hectoring individual by other means than getting aBill through the Senate; but if they did know their power, they didnot use it. After some ineffective attem pts at revolt they subm itted,and Sir Robert Gibson, in company with the trading banks, fixedup what is known as the Exchange M obilisation Agreem ent. Th iswas to the effect that each trading bank should hand over to theCommonwealth Bank, out of its sterling receipts in London, monthby month, an amount sufficient to meet the overseas commitmentsof the Australian Governm ent—the rate of exchange to be fixedby the Com monw ealth Bank. Th is agreement eased the overseasposition considerably, so far as the Government and the bondholderswere concerned, and it still exists.

But the position of the Australian importer and exporter becamedesperate. The banks would not sell the importer enough bills ofexchange on London to enable him to pay for his imports, while hecould no longer buy gold and ship it abro ad. As fo r the expo rter,the banks saw to it that he only got the face valu e of his bi ll,although its value was really much higher. Owing to this "pegg ingof the exchange," importers began to approach exporters direct, andto offer them m ore fo r their bills than the banks were doing .

Middlemen sprang up who acted as exchange operators, indepen-dently of the banks, and a free "outside m ark et" was form ed . Itgrew steadily stronger, and in January, 1931, it smashed the bankers'ring and "unpegge d the exchange." Prem ium s on bills of exchangedrawn on London rose to 30%, and, to the great joy of exporters,remained unchanged to December, 1931, when the exchange was"rep egged " at 2 5 % . (Atis. Banking Com mission's Repo rt, para s.117, 118 and 150).

During the year 1931, three banks which set out to fight thedeflation policy pursued by the Australian banking system as awhole, were smashed under that system. The banks in questionwere the Government Savings Bank of New South Wales, the Pri-mary Producers' Bank of Atis. Ltd., and the Federal Deposit BankLtd. The story of the first will serve as a more or less accurateillustration of what befell all three.



In 1930, the Government Savings Bank of New South Waleswas the second largest bank of its kind in the British Empire—the Post Office Savings Bank in England being the largest. Itsassets exceeded £104 million, and it had a net annual income of

£400,000. It was con trolled by the New South W ales Government,and il started to finance homes fo r the peo ple. It also assistedprimary producers by means of advances through a trading branchit possessed known as the Rura l Bank. By doing this, of course, itplaced itself in opposition to the deflationary policy of the Common-wealth Bank and the trad ing banks. It was destroyed and its assetsseized in the following manner:—

The bank was a splendidly solvent institution, but, like any

other bank, its cash in hand and at short call was only a fraction ofits liabilities (£17 million to £71 million), and if a run upon itcould be brought about, it would finally have to borrow Australiannotes from the Comm onwealth Bank or else close its doo rs. Theopportunity to bring about this run came in October, 1930, when, atthe New South Wales State elections, M r. Lang was returne d topower and announced his policy. The three main planks in itwere:—

1. Tha t until Great Britain agreed to fund A us tralia's overseasdebt in the same m anne r as Am erica fun de d that ofGreat Britain, no fu rth er interest upon her overseasdebt should be paid by Australia.

2. That the interest rate on this debt should be reduced to3 % , and that all interest rates on private finance shouldbe correspondingly reduced.

3. Tha t the existing system of currency be altered fr om anominal gold standard to one more suited to modernconditions, preferably the goods standard.

This policy was greeted with a howl of mingled rage and fearfrom the private banks, the insurance companies, and the bond-holders in general. The press denounced Lang, in the most un-bridled terms, as a swindler and thief, whose proper place was gaol.It published "Scare Headings," such as, "Lang will confiscate

Savings Banks deposits," "Lang will smash your bank and seizeyour savings," while politicians vied with each other in prophesyingthe bank's ruin in every newspaper—one Federal Member publiclystated that he gave the bank four days to run . (H ansard , vol.128, p. 1087/8 , 11 81 ). Fina lly, the run upon the bank started.For seven months the bank put up a splendid fight and paid out allits liquid assets—then it appealed to the Commonwealth Bank forassistance. Sir Robert Gibson replied that he was only p repared



to consider merger proposals, and his terms were so harsh that theNew South W ales Government refused to accept them. (H ans ard ,vol. 131, p. 4593-4, 4616).

The Bank closed its doors, 23/4/31, but the run upon boththe Commonwealth Bank and the trading banks which immediatelyfollowed was by no means part of the scheme, and caused gravemisgivings in banking circles generally. So serious did the positionbecome, that Sir Robert Gibson was forced to make a memorableannouncem ent. He made it on Sunday, May 3, 1931, in the for mof a broadcast address in all States simultaneously. Said he : "TheGovernment Savings Bank of New South Wales was forced to close

its doors because the people who had deposited their money in thatbank were led to believe by the foo lish statemen ts of those whoshould have known better, and the statements of those who desiredto bring about disaster, that that bank was not in a safe position. . . The Government Savings Bank of New South Wales was in aperfectly sound position. There was no good reason, on accountof lack of soundness, why it was com pelled to close its do ors ." Hespoke the truth . The reason had nothing to do with the Bank's

soundness, and it was entirely bad.

Meanw hile a comm ittee, known as the Re habilitation Com-mittee, had been formed to represent both the depositors and thecitizens generally . This comm ittee, hav ing verified the solvencyof the bank (Hansard, vol. 132, p. 1326), began to ask such awk-ward questions that it became seriously embarrassing to the moneypow ers; so the Comm onwealth Bank offered amended and m ore

libera l merger terms , which were finally accepted. The SavingsBank was then re-opened, and in a few days was prepared to paydepositors in full, for it was soon discovered that deposits exceededwithdraw als, and that extra bank notes fro m the CommonwealthBank were not needed . Had Sir Robert Gibson chosen, half a yearearlier, to say a few words in support of the bank, the whole sorrybusiness might have been avoided, "but the Rural Bank, with nearly200 branches competing with the private banks in every town in New

South W ales, was endangering their policy. It had to be destroyed,and the Commonwealth Bank was the instrument used to bring aboutthis destruction." ("Australia's Curse," pages 13, 14 and 15, by G.C. Barnes, and also the now famous article in "Smith's Weekly,"8 / 9 /3 4 ) . In November of this year the Western Australian SavingsBank was also absorbed by the Commonwealth Bank under verysimilar circumstances. (Aus. Banking Com mission's Re po rt, pa ra.

71) .



At the beginning of 1931, Australia found herself faced witha complete breakdown in her monetary system owing to thedeflationary action of her financial institutions. The pre vailingdepression was, in fact, world-wide, and had the same root cause,

being entirely independent of government policies, whether freetrade or protectionist, conservative or labor. W ith a vast amountof work waiting to be done, there were hosts of people unemployed.Industries were intact, markets organised, transport services efficient,warehouses and wh arfs in readiness for handling goods. Therewere no devastations by war, pestilence, drought or floods, yet thewhole world was commercially and industrially paralysed throughsheer lack of currency to put the wheels of progress in motion.

On February 6, 1931, a conference of Premiers and Treasurerswas held in Can berra, and the Government placed the followingproposals before the Commonwealth Bank Board and the represen-tatives of the private banks:—

1. Bank credit to be provided fo r the support and extensionof industry and enterprise where sound.

2. Inflation to be prevented by the stabilisation of prices atthe average price level fo r the five years ended 1929(Index 1800) until the new goods, produced as theresult of No. 1, came into the market.

3. Existing Government ov erd rafts to be fun de d. The Com-monwealth Bank to issue against these securities creditor notes to one-third of their value, and to purchaseGovernment securities on the market to the extent neces-sary to bring them up to a reasonable value.

4. On the recovery of the marke t, the Com monw ealth Bankto underw rite a 5 % loan (to be supp orted by thetrading banks) for farmers' relief and for public worksto absorb the unemployed.

5. Substantial reductions to be made on rates of intereet onbank deposits, loans and overdrafts.

6 London exchange to be "unp egge d" and allowed to go toits natural level, but the exchange pool to be maintainedto provide funds for overseas obligations.

7. The ba nks' m argin on exchange transactions to be reducedto 7 /6%.8. An attempt to be ma de at an early date to fund the short-

t erm London debt .

9. In consideration of above items, the Com monw ealth andStates to pledge themselves to rigid economy in expen-diture and elimination o,f duplication in all kinds of

. services.



These proposals were received with hostility by both theComm onwealth and the trading banks. Sir Robert Gibson's replywas that "subject to adequate and equitable reductions in all wages,salaries, allowances, pensions, social benefits of all kinds, interest

and other factors which affect the cost of living, the CommonwealthBank will actively co-operate with the trading banks and theGovernments of Australia in sustaining industry and restoringem ploym ent." The reply of the trading banks, though not so blun t,was to the same effect—"they thought that the Government shouldfollow the advice given by the Committee of Ex pe rts." (Minutesof Conference, pp . 76 /7 ). The comm ittee in question consisted ofthe Under-Treasurers of various States, and three professionaleconom ists, under the cha irmansh ip of Sir Robert Gibson. It hadalrea dy drawn up a scheme of retrenchm ent recomm ending animmediate cut of £15 million per annum—to come out of wages,salaries, pensions, maternity allowances, education, public health,and charities. As, however, the cha irman had eliminated many ofthe suggestions made by the members of the committee from thereport, and would not sign it himself, the conference disregardedit and authorised the Scullin Administration to bring before Parlia-men t a "Fid ucia ry Issue Bill." (Minutes, pp . 13, 14, and 77, appen-

dix 2).On M arch 5, 1931, therefo re, M r. T heodore introduced his

Fiduc iary Notes Bill to the House. It provided fo r a fiduciaryissue of notes by the Commonwealth Bank to the extent of £18m illion , of which £6 million was to be applie d to the relief ofwheat growers, and £12 m illion (at the rate of £1 m illion perm on th) was to be employed on pub lic works. The notes issuedwere to be credited to a Fidu ciary Notes Account which was to

be debited with any amounts raised to redeem and cancel the notes.If the Commonwealth Bank chose to notify the Government thatit was prep ared to advance loans to the extent of the whole orany portion of the total amount of the issue, the issue would becorrespond ingly reduced. (H ansard, vol. 128, p. 30 0) . The Billpassed the Representatives, but, in spite of its conservative andconc iliatory natu re, was thrown out by the Senate on A pril 17,1931. As soon as he was certain of what its end would be, SirRobert Gibson decided that this refractory Labor Government must

be brought to heel and taught to remain there. He had alreadyrequisitioned from the trading banks practically all the gold thatthey possessed, and he had shipped this precious metal, and morealso, abro ad. (Ha nsard , vols. 128 and 129, pp. 519-522, 228 5; Aus.Banking Commission's Report, pp. 324-5).

The Commonwealth Bank Amendment Act of 1929 gave himfirst claim on all the gold that was left in Australia, and the Com-



monwealth Government (destitute of English currency) had to meeta loan of £5 million which was about to fall due in London.(Ha nsard , Vol. 129, p. 1617.) The ba ll was at his feet, and hekicked it.

On April 2, 1931, he notified all the Australian Governmentsthat the sums he had advanced to the Commonwealth Governmentamounted to £51,495,000, while the accommodation he had pro-vided for all the Governments and pub lic bodies of Au straliaamounted to £130,295,000. The fact that it was the Commonwealth'sown credit that lie had made available in the form of money heomitted to mention, but he definitely refused to provide any further

accommodation at all in London, and only another £25 million inAustralia.

Theodore's reply put in the clearest possible light therelationship between representative government and organisedfinance existing in Au stralia to-day. He said, "tha t in F ebr ua ry,1931, he had submitted to the Commonwealth Bank Board compre-hensive proposals adopted by the Government as a means to easethe financial stringency and assist the nation towards budgetary

stability, but the bank had refused to co-operate with the Govern-ment, and now proposed, without any consultation or prior discus-sion, to cut off money supplies to the Government beyond a pointthat would be reached in a day or two. That could only be regardedas an attempt on the pa rt of the bank to arrog ate to itself asupremacy over the Government in the determination of the finan-cial policy of the Commonwealth, a supremacy which had neverbeen contemplated by the framers of the Australian Constitution,nor sanctioned by the Au stralian people. In financial,, as in al lother matters of public policy, the Government was responsible tothe electorate and not to the banks, and it could not change thisresponsibility without exposing to grave danger the dem ocraticprincip les of the nation. The Government would not be a party toany attemp t of the Bank Board, or any other au tho rity, to takefrom the people's representatives in Parliament what had hithertobeen regarded as an essential prerogative of the people—the controlof the public purs e." He went on to point out "that the present

financial difficulties had been b rou gh t about by circum stances overwhich the Government had no control, but which had been largelycaused by the action of the Commonwealth Bank and the privatebanks themselves; for they had blindly followed the overseas banksin pursuing a deflationary policy which had forced down prices theworld over, and brought in its train a collapse of trade, loss ofcomm ercial profits, thousands of business ban krup tcies and thecreation of unemployment on a scale wholly unprecedented in the



history of the coun try. That it was within the power of the banksto remedy this state of things could not seriously be denied. Ina communication from the Commonwealth Bank Board in February,the undertaking was given that, conditional upon wages, salaries,pensions, and social services being adequately reduced, the banks

would provide funds to sustain industry and restore employment.The banks had drained vast sums of money from the Australianpublic by their high charges for their services, doubled theirdeclared annual profit in recent years, and, in addition, built upcolossal inner reserves and palatial premises at the expense of thecom munity. Most of the debt due by the Government to the Com-monw ealth Bank had been incurred by non-Labor Governments,and it was not on record that the Commonwealth Bank hadthreatened arbitrarily to stop their credit unless they agreed to afinancial policy app rove d by the Bank. His Governm ent, the refo re,was not going to be deflected from its definite policy by the un-warranted action of the Bank Bo ard." (Ha nsard , vol. 128, pages

990/993) .

These were brave words, but—how was that loan of £5 million,falling due in London, to be met unless he could get hold of somegold to pay it with? Theodore might have the right upon his side,but Sir Robert Gibson had the gold, and wrote again to say, "MyBoard desires me to state that a position may arise in London inthe near future which the bank would be powerless to meet" (ithaving shipped all its gold abroad, except the Statutory Reservewhich it was legally com pelled to hold against the note issu e).(Hansard, vol. 129,"p. 1619).

On March 24, 1931, Theodore brought before the House theCom monwealth Bank Bill of 1931. It gave the Government pow er,in order to pay its commitments in London , to commandeer theCommonwealth Bank's gold reserve which it held (quite unneces-sarily, in view of the fact that the Australian note was now incon-vertible into go ld) again st the note issue. The Bill passed theRepresentatives and, in view of the urgency of the situation, seemedlikely to pass the Senate also, but the ultra-conservative element inthat Chamber summoned Sir Robert Gibson to the Bar of the House,and asked him point blank if there was no alternative to the Billbut de fau lt. He replied, "Th ere is an alternative" (meaning accep-

tance of his ter m s), and the Senate threw the Bill out. WhenSenator Daly said to Gibson, "You might have let the child live,"the grim old man answered, "It is not my child," and departed—the real ruler of Au stralia. (Ha nsard , vol. 129, p. 16 31 ). He isnow dead and gone, but the verdict of history must lay upon hisshoulders, the responsibility for the sufferings of the people duringthe terrible years of the depression.



There was nothing for it but defa ult or surrender, and theScullin Adm inistration chose the latter alternative. They subm ittedto Sir Robert Gibson's terms (Hansard, vol. 130, p. 2708), and at aconference of Commonwealth and State Premiers, held in May and

June, 1931, agreed to bring in immediately the necessary legisla-tion to put these terms (known as the Premiers' Plan) into opera-tion. Then, and not until then, was the Comm onwealth Bank Billof 1931 allowed to become law (Act No. 6 of 19 31 ). It providedthat the bank should accept £5 million worth of CommonwealthSecurities in exchange fo r that amoun t of gold, taken fro m thereserve against the no te issue, to redeem that pressing debt inLondon which had been used to bring a Labor Administration toits knees in utter subservience. Two more measures this unh app y

Government was forced to pass at the bidding of its financialma sters; the "Finan cial Emergency Act" (bringing the Prem iers'Plan into effect) and the "Debt Conversion Acts" (persuading andfinally compelling Australian citizens to renew old loans at a lowerrate of interest—a necessary but unpopular measure), and then itwas swept off the stage into political oblivion (January 6, 1932).

On May 11, 1932, another Commonwealth Bank Bill was intro-duced by Mr. Bruce, to enable the Commonwealth Bank to hold thenote issue reserve either in gold or sterling, or partly in gold andpartly in sterling ("sterling" meant English money or claims to it)."The Bank Board," said he, "has asked for these powers, and theGovernment considers it advisab le to grant them ." It was,apparently, not his Government's business to ask for particularsof the foreign securities the bank intended to purchase with thisAu stralian go ld, or to po int out that if it was used to purchase

Australian securities in this country, the depression might bearrested. The Bill became law (Act. No. 16 of 1932) on 2 1 /5 /3 2 ,and since June, 1933, there has been practically no gold held bythe Commonwealth Bank, either as a reserve against its note issueor for other purpose s. As fo r the private banks, they have beenwithout gold since September, 1930, yet people still say that ourcurrency is "s ou nd " because "it is backed by go ld." (Aus. Bank-ing Commission's Report, pages 324-5).

After the defeat of the Scullin Administration, Australia was,to all practical intents and purposes, governed by the Common-wealth Bank Board, and on November 25, 1938, the Hon. R. G.Casey brought before the House a Bill to further amend the Com-monwealth Bank Act. It represented the final stage in a 15-yearplan to deprive the people of Australia of the power to control



the money supply of their own country. P art V ic provided forthe establishment of a Mortgage Bank Department with a capitalof £28 million, of which £4 million was to come from the profitsof the note issue and of the various other departments of the Bank,and £24 million was to be raised by the issue of debentures and

inscribed stock secured upon the general assets of the Bank. Fromthe inception of the Bank, its profits had returned to the people,in one form or another, as their absolute property; but the proposedlegislation handed most of these profits over to private bondholdersin the form of interest on the debentures and inscribed stock whichit was intended to issue. M oreover, what was infinitely worse, them aj or it y of these securities might be held by inte rna tion al financialinstitutions, which would become in fact, though not in name, there al own ers of the Ban k. It is difficult to see how the Bank co uldbe used for any other purpose than to earn interest for its bond-ho lde rs if it became m ortgaged itself,, in order to start its M ortgag eBank D epa rtm ent. Yet the hop e of the Com mo nw ealth to-daylies in a wise use of its bank, not for the purpose of earning interest,but in order to bring about the welfare of its people.

Fortunately for Australia, the years of the "depression" had

left it honeycombed with small bodies of monetary reformers whowere loosely knit together in an association which supported twoor thre e weekly new spapers. These peo ple organ ised a storm ofprotest against the Bill, protests directed not to the Government,but to the indiv idual m em bers of the differen t constituencies. Theyprinted "demand forms," of a more or less peremptory character,and distributed them in thousands throu gho ut the country. Thepeople signed them and forwarded them to their respective parlia-mentary representatives, who found it advisable to swim with thetorr en t rath er than strug gle against it. Fo r the time being, at least,the Bill was shelved, and Australia entered the war still owningthe Commonwealth Bank.

If the Australian people, therefore, still desire to make a pro-per use of their bank, they can do so, and, in this connection, thefollowing paragraphs from the Report of the Royal Commission on

the Australian Monetary and Banking Systems (appointed by theLyon s A dm inistration in 1935) m ay be studied with adva ntage .The words in parentheses are those of the author.

Paragraph 516.—The general objective of an economic systemfor Australia should be to achieve the best use of our productiveresources, both present and future (i .e. , actual and potential). This



m eans the fullest possible em ployment of power and resourcesunder conditions that will provide the highest standard of living

(i.e., debt-an d-interest-free co nd itio ns ). It m eans, too, the reduc-tion of fluctuations in general economic activity (i.e., no booms and

slu m ps ). Since the mon etary and banking system is an integralpart of the economic system, its objective will be to assist with all

the means a t its disposal in achieving these ends.

Paragraph 503.— The Ce ntral Bank in the A ustr alia n systemis the Com mon wealth Bank of A ust ralia . Th is Bank is a pu blicinstitution engaged in the disch arge of a pu blic trust. As the cen-tral bank, its special function is to regulate the volume of credit

in the national interest, and its distinctive attribute is its control ofthe note issue. W ithin the lim its prescribe d by law (and thoselimits have been extended in the past when circumstances demandedit, and may be extended again), it has the power to print and issuenotes as legal tender money, and every obligation undertaken bythe Com monw ealth Bank is backed by this poiver of creating the

money with which to discharge it.

Paragraph 504.—Because of this power the CommonwealthBank . . . can even make money available to Governments or toothers fr ee of any charg e. (In terp reti ng this last and most vitalstatement, a letter from Mr. Justice Napier, Chairman of the Com-mission, received through Mr. Harris, of the Commonwealth Sub-Treasury, who was Secretary to the Commission, says, "This state-nent means that the Commonwealth Bank can make money availableto Governments or to others on such terms as it chooses—even by

way of a loan without interest, or even without requiring either in-terest or repayment of the principal.").

Paragraph 530.— The Fed eral Pa rliam ent is ultima tely respon-sible for monetary policy, and the Government of the day is theExecutive of Parliament . . . The Government should give the Bankan assurance that it accepts fu ll respons ibility fo r the proposed

policy and is in a position to take, and will take, any action neces-sary to im plem ent it. It is, then, the duty of the Bank to acceptthis assura nce and to carr y out the policy of the Go vernm ent.(Hitherto Governments have evaded this responsibility, but we arenow at war, and if we do not compel our Governments to shapetheir monetary policy by the light of these four paragraphs, wemav win the war, but we will lose everything that we are fightingfo r ) . .



Here ends the story of the Com monw ealth Bank, and three

features in it stand out very clearly:—

1. That if ever there was an Austra lian Government whichinflicted injury upon the country it was appointed to

serve, it was the Bruce-Page Administration of 1923-9.

At the bidding of the private banks, it delibe rately

strangled and dismembered an institution which had

stood between Australia and ruin during the war, and

would have performed a like service for the country in

times of peace.

2. That institutions, no matter how excellent they may be, are

of little permanent use to a people which does not under-

stand the value of them. The peop le of Austra lia

should have safeguarded their Bank with the same jeal-

ousy with which they safe guard the righ t to vote. They

did not do this, so when the 1930-3 financial hurricane

burst upon them, they were exposed without defence to

the mercy of domestic and foreign financiers, who knew

no mercy.

3. That the Associated Banks (pr iva te banks) at present con-

trol the Commonwealth Bank and the Commonwealth

Savings Bank by means of Directorates appointed to

them, and can use both their funds and their credit for

the benefit of the priva te banks. They see to it that

the funds and the credit of these institutions are never

used for any purposes which may interfere with the

profits or the policy of the private banks, and that their

policy, whatever it may be, becomes the policy of theGovernment of the Commonwealth.

No Government, whether it be called Labor or Liberal, or any

othe r fancy name," can be fr ee from their dom ination unless it

possesses the power to con trol currenc y, and to do this it must

control the Commonwealth Bank.



P E R S O N N E L O F T H E C O M M O N W E A L T H B A N K . B O A R D O F

D I R E C T O R S , D E C E M B E R , 1 93 9.

Name.

C. H. Reading, Esq.

Position.

Chairman.

A. F. Bell, C.M.G. Director.

J . H . Ash ton , Esq .

Professor L. F. Giblin.D.S.O ., M.C., M J i.

Sir Harry Sheehan,C.B.E.

R. S. Drummond, Esq.

Director.

Direc tor .

Director.

Director.

M. B. D uf fy, Esq . Directo r.

Interests Represented.

Late Director, British TobaccoCo. (Aust. ) Ltd.

„ Direc tor, W . D . & H. O.Wills .„ Director, St at es Tobacco

Co.„ Mem ber, Syd ney Chamber

Commerce.„ Member, Commonwealth

Board of Trade.(Six years in service of

the Union Bank).

M ana ging D irector, Robert Har-per & Co., Ltd. (Pro du ceMerchants and Manufac-turers) .

Victorian Director, AustralianMutual Provident Society.

Late Director, National Bankof Australia, Ltd.

The family is closely connectedwith private banking and in-surance companies , also withpastoral companies , and thesug ar mo nopoly. H e is an ex-pert polo player.

The Private Banking System.He was one of the "experts"responsible for the Premiers'Plan, which definitely subjec-ted Australia to the rule ofinternational financiers.

Governor of the CommonwealthBank.

Political Appointee of theBruce-Page Liberal Adminis -tration.

Political Appointee of the Scul-l in Labor Administration.

Secretary of the Treasury.. G. M cFa rlane, Esq ., Dire ctor.C.M.G., M.B.E.

N O T E . — T h e B o a r d e le c ts i t s o w n C h a i r m a n , w h o p o s se s se sbo th a de l i b e r a t i v e a nd a c a s t i ng vo t e . T he G ov e r no r i s m e r e l y

the exec u t ive o ff ice r o f the Bo ard , a l th ou gh , a s a m em be r o f th e

B o a r d , he ha s a vo t e . D i s r e g a r d ing t he two po l i t i c a l a pp o in t e e s

f r o m riva l pa r l i e s , a nd t he S e c r e t a r y o f t he T r e a s u r y , we m a y s a y

tha t t h i s B o a r d r e p r e s e n t s ( 1 ) t he p r iv a t e ba n ks , ( 2 ) t he i n s u r a n c e

c o m p a n i e s , ( 3 ) t h e t o b a c c o m o n o p o l y , ( 4 ) t h e w o o l a n d p r o d u c e

r ings , ( 5 ) t he b ig pa s to r a l i s t s . Whether the in te res ts of the se

people a r e a l so the in te r es t s o f the Aus t r a l i an c i t i zen , l e t the Aus -

t r a l i an c i t i zen dec ide fo r h imse l f .



SPECIMEN OF DEMAND FOR M)

HANDS OFF THE PEOPLE'SBANK

URGENT

The following matter isof vital concern to everyman, woman, and childin Australia.

The Commonwea l th BankAct Amending Bill , which wasbrought before the House ofRepresentat ives by the Hon. R.G. Casey on 25th November,1938, and which will bedebated shortly, represents the

final stage in a 15-year planto deprive the people ofAustralia of their power tocontrol the money supply oftheir country.

The Bank was formed in1912, without any other capitalthan the confidence of theAustralian people. Since thento June 30, 1938, i t has madein profits (including those onthe note issue) £3 3,5 94 ,94 9,and these profits have returnedto the nation as its absolute

pro pe rty. T h e propo sed legis-lation will hand most of theBank's profits to private finan-ciers, in the form of interest onthe debentures and inscribedstocks which it is proposed to

issue, and the holders of thesesecurities will become in fact,though not in name, the realowners of the Bank.

The hope of Australia

to-day lies in the Common-wealth Bank working for thepeople 's welfare by eliminatingdepressions engineered by pri-vate manipulators of finance.I F W E F O R F E I T T H I SR I G H T , A L L T A L K O F

F R E E D O M , S E C U R I T Y ,and D E M O C R A C Y W I L LBE I D L E A N D F U T I L E .

This matter is of theutmost urgency.

It is essential that elec-tors take immediate stepsto stop the passage ofthe Bill, BEFORE IT ISTOO LATE.

This can only be done bymaking direct demands uponindividual Members of theFederal Parl iament .

YOUR Member o f Pa r l i a -ment is Y O U R Par l i amenta ryRepresen ta t ive—YOUR pol i -t ica l servant—paid by YOU.

Should you fail to tellh im w h a t Y O U w a n t — Y O UBECOME RESPONSIBLE.

Sign and forward form on oppos i te s ide and get your fr iends to do l ikewisc-

T O - D A Y .



To. ., M.H .R., Canbe rra, A.C.T.

Dear Sir,

As my Federal Representative, I desire you to vigorously oppose The Com monw ealth

Bank Act Am ending Bill, introduced by the Hon. R. G. Casey during Novem ber, 1938,

and to press for the elimination of any clause in the principal Act that gives private

interests power over the policy o r profits of our Com monw ealth Bank.

Tours faithfully,

(Address)

(Signed)

(Date)

To Senator Canbe rra, A.C.T.

Dear Sir,

As my Federal Representative, 1 desire you to vigorously oppose The Com monw ealthBank Act Am ending Bill, introduced by the Hon. R. G. Casey during November, 1938,

and to press for the elimination of any clause in the principal Act that gives private

interests po wer over the policy or profits of our Com monw ealth Bank.

Tours faithfully,

(Address)

(Signed)

(Date)



gtalo Library of Victories

Jiuthorities :

T h e C o m m o n w e a l t h R a n k A c t s 1 9 1 1 - 1 9 3 2

O f f ic ia l Y e a r B o o k s 1 9 1 0 - 1 9 3 0

C o m m o n w e a l t h B a n k B a l a n c e S h e e ts 1 9 1 2 - 1 9 3 2

P a r l i a m e n t a r y D e b a t e s 1 9 1 1 - 1 9 3 9

R ep or t of thn Ro ya l Co m m iss ion on the Aus -

t r a l i a n M o n e t a r y a n d B a n k i n g S y s t e m s A p p o i n t e d 1 9 3 5

T h e O f fi ci al R e c o r d , M e l b o u r n e S l o c k E x c h a n g e , F e b r u a r y , 1 9 2 8

P a r l i a m e n t a r y P a p e r s , 1 9 3 0 a n d 1.9 31

" F i n a n c i a l R e q u i r e m e n t s of t h e C o m m o n w e a l t h . "

" C o n f e r e n c e s o f C o m m o n w e a l t h a n d S t a t e M i n i s t e r s . "

" T h e C o m m o n w e a l t h B a n k o f A u s t r a l i a " B y C . C . F a u l k n e r

" A u s t r a l i a ' s G o v e r n m e n t B a n k " B y L . C . J a u n c e y , P h . D .

" F a c t s a n d T h e o r i e s o f F i n a n c e " B y F . A n s t e y , M . P .

" M o n e y , C r e d i t , a n d E x c h a n g e " ( T h e J o s e p h F i s h e r

L e c t u r e , A d e l a i d e U n i v e r s i t y , 1 6 / 5 / 2 3 ) B y J . R u s s e l l B u t c h a r t

" A u s t r a l i a ' s C u r s e " _ B v G . C . B a r n e s

" D u n ' s G a z e t t e " 1 9 2 6 - 1 9 2 9

T h e " A r g u s " N e w s p a p e r 1 9 2 1 - 1 9 2 5 - 1 9 3 0

" S m i t h ' s W e e k l y " 1 9 3 0 a n d 1 9 3 4

the story of the commonwealth bank and money system

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