PM Transcripts

Transcripts from the Prime Ministers of Australia

Transcript 18


Photo of Menzies, Robert

Menzies, Robert

Period of Service: 19/12/1949 to 26/01/1966

More information about Menzies, Robert on The National Archive website.

Release Date: 21/03/1945

Release Type: Speech

Transcript ID: 18

The Commonwealth Bank
and the People.
Speech by the
Rt. Hon. R. G. MENZIES, K. C.
In the House of Representatives,
K> Reprinted from " H-ansar~ d,"
21st March, 1945.

by the Leader of the Opposition
( Mr. Menzies)
This bill, and the Banking Bill, introduced by the Treasurer ( Mr.
Chifley) some days ago, represent, in total, probably the most important
domestic measures that will be introduced to this Parliament
during its currency. They are extremely important, from the point of
K view of their supporters, as well as of their opponents. I have given
a good deal of serious thought to the way in which I should address
myself to them. I do not propose to endeavour to discuss both of
them to-night, but I do propose to address my remarks to the Commonwealth
Bank Bill, the first of the two, and the one that is now
before the Chair. It would be possible to discuss these matters, which
have a broad and obvious political significance, in, perhaps, a broad
political fashion. From some points of view, that might be a good
idea. But the bill itself is full, not only of matters which have a broad
political significance, but also of matters which, on the face of them,
are technical; and if I refer to-night to technical considerations, with
Ca ll the tentativeness of an amateur in such matters, it will be simply
because T believe that in some of the technical considerations some
of the more important aspects of the bill may be found concealed.
The measure professes, on the face of it-and, indeed, was so
explained by the Treasurer-to be one that is enlightened and proCasgr,
e ssive, and designed to give increased security to the people, where-
in fact, carefully analysed-and I propose to-night to submit it to
analysis-it is reactionary and unsound, and will increase the insecurity
of the people. As explained by the Treasurer, it professes
to strengthen the central bank. I shall have occasion later to refer to
an observation by the right honorable gentleman on that point. In
reality, it weakens the central bank. It offers to protect the currency
-indeed, its sister bill says sc in terms-but in reality it runs a good
chance of destroying the currency. In saying that, I do not say that
the effects of this legislation will be seen immediately, or very drastically.
I have a shrewd notion that when these bills have reached the
statute-book, it will be remembered that elections are to be held in
eighteen months' time, and there will be a good deal of " soft pedalling"
by some of the advocates of the measures until'those elections
have passed.

How Will This Affect the People?
As a good deal of reference will necessarily be made in the course
of my own remarks, and in this debate, to the trading banks as a part
of the banking structure, I wish to make it clear right away-and I
can say this for every honorable member on this side of the Housethat
I regard the pecuniary interests of the banks and their shareholders
as of minor importance in this matter. The most vital
element in the trading bank structure, I remind honorable members,
is to be found in the depositors in those banks, and the paramount
interest in the consideration of banking is the welfare of the Australian
people as a whole. Therefore, every banking proposal, such as(
the one that is now before the Chair, must be tested by asking not
how it will affect bankers but how it will affect the people.
This bill is an amending, re-enacting and consolidating bill. The
Treasurer has adopted the course that is convenient to all of us, of
embodying the existing law, so far as it is unchanged, in the bill that
is before the House, so that we -: my have the whole picture before us. C
But our attention will be directed primarily, not to the old but to the
new provisions of the banking law. Looking at the bill I have found
-and I daresay it will agree with the judgment of others-that there
are six principal new provisions. The first is the suggested strengthening
of the central banking function of the Commonwealth Bank.
The second is the abolition of the Board of Directors of the Commonwealth
Bank and the substitution of one-man control. The
third is the subordination of that one man-the Governor of the bank
-to the ' government of the day. The fourth is the establishment of
active competition with the trading banks in general banking business.
The fifth is the abolition of Board control of the note issue.
The sixth is the abolition of the currency reserve. There are other
matters ; n the bill. If time permits-which I begin to doubt-I shall
say something about one other aspect before I sit down. In broad
principle, however, those are the six major matters with which the
bill proposes to deal by way of new provisions. I propose, for convenience
and clarity, to take them in that order. So, I take the firstthe
suggested strengthening of the central banking function of the
Commonwealth Bank. If we are to understand that quite clearly, itC
will be necessary to refer-very briefly, of course-to some historical
matter; because these problems are not to be judged except against
the background of the experience wve have had in Australia. Every
honorable member will agree with that. At the present time we have
in Australia, broadly speaking-and I omit some private, semibanking
institutions, such as pastoral companies-banks of three types,
namely, the trading banks, the savings banks, and the Commonwealth
Bank., The trading banks were established very early in the history
of this country on the branch banking system.
Mr. LAZZARINI.-They crashed fairly early, too.
Mr. MENZIES.-In 1893 they encountered some difficulties, but

iot, I am bound to say, as many as they would have encountered had
: he honorable gentleman been in charge of them.
Mr. LAZZARIM.-They had to appeal to the Government to assist
n their rehabilitation. Distributing Risks and Interests
Mr. MENZIES.-The advantage of the branch banking system,
Ls everybody except my friend the Minister for Works will plainly
~ ealise, is that it distributes risks and interests, and is utterly distinct
rom that system of individual banks which was so closely associated
vrith the bank crashes in the United States of America. It is true that
n 1893 there was a bank crisis, following upon the breaking of a
and boom, and that some banks got into difficulties from which a
iumber of them never emerged. But the crisis of 1893 taught some
essons; and it has to be said for the trading banks of Australia that
hey learned their lessons and. can claim to have had a solid record
: ver since. They are not beyond criticism. There are criticisms
vhich may be made of them, as, indeed, there are criticisms which
nay be made of us. But ever since 1893 the trading banks have coninued
to provide, without any question as to their solvency a daily
ervice to more and more people in Australia, until to-day, I suppose,
hey provide a daily service for something over 1,000,000 people in
his country; and they have done so-and it is well, in justice to them,
hat this should be stated-at an uncommonly low rate of profit. In
he report of the Royal Commission on the Monetary and Banking
; ystems-a royal commission, I remind the House, that was assisted
iy one of its members in the person of the present Treasurer of the
, ommonwealth-my friend the Treasurer said in a special personal
nemorandumn that the profits of the trading banks should not exceed
. n amount equal to 5 per cent. of shareholders' funds or 8 per cent.
fthadiaks onishaehlers' fundles amouernte, in 1943to, ft .6e
fhrai als wnhic h ders' henles Them erntage of proitof th6er
ent., and not since 1930 have those banks earned profits as high as
he rate suggested by my friend the Treasurer in the report of the
oyal Commission.
The next kind of bank that we have in Australia is the Savings
lank. It has a long history. Except for the failure of the New South
Vales Government Savings Bank, that history is untarnished by
efault or failure. We can go right back to Campbell's Bank in 1819
) r the history of savings banks in Australia, and except for the one
-istance to which I have referred, we shall find it an unbroken history
f improvement and increasing strength. We now have a chain of
avings banks all over Australia.
The third kind of bank is the Commonwealth Bank. Because a
reat deal of " poppycock" is talked about the origin of the Commonrealth
Bank and what it was designed to do, it is well that we should
e reminded of its origin. The Commonwealth Bank Act of 1911,
rhich established it, set up the Commonwealth Bank primarily as a
ompetitive trading bank. The note issue was not controlled by it,

but continued to be controlled by the Treasurer. At that time, most of
the supporters of the Commonwealth Bank quite plainly had not in
their minds any notion of establishing the Commonwealth Bank as a
central bank, but directed their attention to it as an instrument of competitive
trading. But whatever many of its supporters may have
thought, the then Prime Minister, Mr. Fisher, indicated that he was
looking towards two things. One was, that the bank should ultimately
become a bank of banks-that is, the lender of last resort-and the
other was that the control of the bank should be entirely non-political.
In the course of his notable speech at that time, he said-
While the bank may deal in land securities and other security, it
will in time grow to be rather a bank dealing in ordinary bills of exchange
and liquid securities. It will ultimately become a bank of banks, rather
than a mere money-lending institution.
Later a Governor was appointed as the controller of the bank-the
late Sir Denison Miller. Shortly after he became governor, he an-(
nounced in an interview to the press that he wanted the bank to become
like the Bank of England, and be able to stand behind the other
banks in a crisis. There we have two statements, one by the founder
of the bank in the political sense, and the other by the first governor
of the bank, clearly indicating that each of them was looking in the
long run towards the development of the Commonwealth Bank, not as
a mere competitor in the market of the other banks, but as a future
central bank for Australia. This was in line, of course, with the decision
of the Brisbane conference of the Labour Party in 1908, a conference
back to which we must go to find the foundations of the
Commonwealth Bank, because that conference passed resolutions, and
one of them, it is interesting to recall, was that the bank should be
conducted absolutely free from political control.
Control of the Credit Structure
The early reference to the Commonwealth Bank as being a bank
of banks, or a bankers' bank, were, of course, correct. A central
bank is a bankers' bank in the sense that it is the bank of last resort.
It is the controller of the credit structure of the trading banks, and
the bank in which the trading banks keep most of their cash. I refer
to that fact largely for the purpose of pointing out that the tendency
has developed in later years, particularly on the hustings, of saying
that the Commonwealth Bank must be converted from being a bankers'
bank into being a people's bank.
Mr. CALWELL.-Hear hear.
Mr. MENZIES.-I hear it being echoed most ignorantly from
the Government benches. There is no antithesis between a bankers'
bank and a people's bank. A strong central bank, that is, a bank
which has power to exercise by whatever weapons may be appropriate
some authority in the field of credit expansion and credit contraction,

As only to serve the interests of the people. So I line myself
igside the pioneers of this bank in saying-
Mr. LAZZARINI.-What a beauty!
Mr. MENZIES.-It did not occur to me that any of the honorable
tlemen opposite were the pioneers of the bank. All that I am
scious of, when reading this bill, is that they are setting out to
its destroyers. As I do not wish to be associated with the de-
' yers, I line myself with the constructors.
During the first world war, the Commonwealth Bank, which had
: been established, had rapid growth. It had intense experience
he financing of government, but nobody would suggest that it was
Lny sense equipped to be a central bank for Australia. At that
a it had not the necessary technique for the task. In some respects
ad not the necessary power. There was a good deal of confusion
hought, which has not yet entirely disappeared, about the respecfunctions
of the central and the trading banks. That is not to
wondered at, because central banking is a very modern art, and,
he degree that it is a science, a very modern science. It is as well
* ecall that fact to mind, when one hears discussion on what the
nmonwealth Bank and the trading banks should or should not have
e during the last depression. I point out that in 1929-30, when
depression commenced, there were very few central banks in
world, and very little was known about central banking functions.
: he United States of America major reforms of the federal reserve
: em occurred in 1935, as the result of depression experience. The
; erve Bank of India was created in 1934. In New Zealand, the
-rve bank was established in 1933. Canada's central bank came
ife in 1935, and the Central Bank of Argentina also began business
hat year. When we have those dates in mind we shall be forcibly
iinded that it was as the iesult of the depression that the minds oi
ughtful men became directed to how far we could strengthen the
ier to control credit and to the efficiency of controlling credit in
it modern communities. Much thought was directed to the prob-
, and it would be odd, indeed, if, as the result of that, and the
erience in those various countries, we were not immeasurably
: er equipped to deal with the credit problem to-day than we were
.929-30. I ask the House to remember that until central banking
; well established, individual trading banks followed their own
rse in credit control, and, as there was no machinery for making
tcourse cohesive, it stands to reason that varying policies were
sued and that difficulties would arise. At that time the Commonilth
Bank was in no sense adequately equipped for central bankand
many countries were still groping towards this technique.
marvel is, not that mistakes were made during the world depresi,
but that more mistakes were not made, and that recovery in
3tralia came as quickly as it did.
In 1920 the control of the note issue was transferred to a board.
to that time it had been controlled by the Treasurer, but in that

year it was transferred to a board, the chairman of which was the
governor of the bank, ex officio. In 1924, the first legislative proposal
designed to establish central banking in Australia was presented
to this Parliament by the right honorable member for Cowper ( Sir
Earle Page).
Mr. CALWELL.-He sabotaged the Commonwealth Bank. f
Mr. MENZIES.-The Minister may use harsh expressions, but
the bill then introduced, and the speech then made, represented the
first large, scientific and intelligent attempt in this country to estab-f
lish central banking. In the bill which was sponsored by the right
honorable member for Cowper, a board of directors was substituted(
for one-man control and comprehensive central banking powers, in-1
cluding the control of the note issue, were conferred upon the bank.
From that date we may begin to trace out, not all at once, because f
the progress was slow, the development of real central banking in
this country.
I now ask myself, and also invite honorable members to ask,(
what should be the chief functions and powers of a central bank in
this country. The chief function, as I understand it-and I speak with
all the diffidence of a layman on these matters-is the regulation of I
the volume of credit, including currency. That regulation is de-r
signed to achieve, among other things, three results. The first is t
the stabilisation of the internal or domestic value of the currency, I
which is not merely a matter of stabilising things as items in accounts, r
but stabilising the purchasing power of the people's money, the s
people's savings, the people's future money. It is, therefore, a task C
of the first magnitude. The second result is the stabilisation of the c
external value of money, naturally through the exchanges. The third
result is the reduction or elimination of sharp variations in the general t
level of employment and trade activity. If one were asked for a
broad statement of the objectives of a central bank, I believe that f.
would not be an unfair summary. To achieve those results the f.
central hank must be in a position-and I want to emphasise and reemphasise
this throughout my speech-of real strength and real c
authority. The central bank is not to be simply a servant of some
passing movement. It is to be in a position of real strength and real
authority. It is not only to he in a position to control the total volume
of credit, and so affect the entire economy of the nation, but it also
becomes the custodian, as it is in Australia, of the nation's cash reserves,
and the nation's chief monetary adviser. If I may, I emphasise t
the reference to the nation's chief monetary adviser. The adviser to t
any government or to any community should be detached, objective i
and utterly above the storm, because on the skill, honesty and dis-f
interestedness of his advice a great deal will depend. The considera-b.
tion of these things will show that a central bank, adequately equipped I
with brains, scientific knowledge and experience, must be in a position i
to lead banking thought and banking practice. So much for the t
objectives of the central bank. ti

Methods of Controlling Credit
We then inquire what instruments the bank can use in order to
eve those objectives, and on that problem it would be idle to
: end that there is unanimity, because central banking is, as I have
, a modern art and science, and there is still room for ample difnce
cf opinion about the value or significance of this instrument
hat; but there is fairly common agreement at least that the foling
are appropriate central banking powers: I am not now rei
ng in particular to Australia, but to countries in general. Those
, ers are the control of the note issue, as in Australia; the control
he exchanges, which the central bank has de facto; the discountand
rediscounting of trade bills; the bank rate; open market
ations; lending to the Government, and the holding of deposits
ai the trading banks. In Great Britain there is an enormous
t-term bill market. Each of these is a method by which the
ral bank can hope to influence and, in suitable cases, -control, the
ine of credit in the country. All we have to do is to watch the
ing and selling of securities on the open market by the central
c to see that it is of their essence that the central bank should
n a highly liquid condition. Let us consider an example of open
ket operations by a central bank. It desires to put more cash into
general banking system so that advances may be made on a more
-al basis. In other words, it desires to initiate an inflationary
ement, to apply a stimulus to trading operations, so it buys
rities in the market, and puts cash into circulation. On another
sion it may believe that a boom is developing, and that credit
it to be restricted. It then sells securities for cash and takes
cash out of the trading system. In order to do that kind of
g a central bank must kceep its assets in a highly liquid condi-
. A trading bank which kept 90 per cent. of its assets in liquid
iwould not be much of a success as a trading bank. It would
down on its job, but a central bank which, in normal circumces
failed to keep its assets 90 per cent. liquid would be in danger
iiing in its duty as a central bank. I mention that merely to
trate a fundamental difference between central banking with its
itive, delicate methods of controlling credit, and the output and
-w of cash, and a trading bank which establishes more or less
lanent relations with its customers over a term of years.
[ believe that the effective weapons of a central bank in Ausi
would be these-and I am not stating them in order of merit:
) ank rate, open market operations, government finance, the leadand
advising of the trading banks, and the taking of deposits
the trading banks. The taking of deposits from the trading
s represents one of the real departures in this bill from the
lation of 1924. Of all those operations I believe that the most
) rtant, having regard to the financial circumstances of Ausi,
is leadership by the Commonwealth Bank in a truly co-operabanking
system, in which the Commonwealth Bank and the

trading banks, accepting a joint responsibility, shall stabilise credit
and trade. All those functions may now be exercised by the Commonwealth
Bank under the existing law, though special legislation
on the subject of deposits may be needed after the National Security
Regulations have ceased to operate. I point out, however, that the
National Security Regulations have not ceased to operate. This
legislation, in so far as it deals with deposits, is anticipating by a long
time the termination of the National Security Regulations. This is
essentially a piece of post-war legislation which will not begin to
operate until after the war, and the termination of the National
Security Regulations. Why it should be brought on at this stage I'
am at a loss to understand. If the National Security Regulations
cease to operate, and Parliament then decides, or if it decides now
in anticipation of such an occurrence, that deposits by trading banks
with the central bank are to continue to be compulsory, whether fixed
or variable, then no doubt legislation is, or will be, required.
I turn at once to that problem because, as I have said, all the
other proper functions of a central bank may already be exercised by.
the Commonwealth Bank under the powers it now possesses. The
real point of departure in this bill is the provision that the trading
banks shall continue to make deposits with the central bank, that
those deposits will continue to be frozen as against the trading banks,
and that, by varying the amount of the cash deposits required from
the trading banks, the total volume of credit may be increased or
reduced. Problem of Variable Deposits
The problem of variable deposits is an extremely difficult and
important one. For my part I have had the greatest difficulty in
completely clarifying my own mind on this intensely teasing subject.
The Royal Commission on Banking recommended in paragraph 589
of its report as follows:
The Commonwealth Parliament should legislate to provide that the
Commonwealth Bank Board, with the consent of the Treasurer, may require
every trading bank to keep with the Commonwealth Bank a deposit(
of an amount not less than a percentage, specified in the requisition, of
the liability of that bank to its depositors in Australia.
That is very much in line with the practice established by one or two
central banks in 1934 and 1935. The next recommendation of the
Banking Commission is as follows:
Each trading bank should be required to keep on deposit the same
percentage. The board should have power at its discretion to vary the
percentage from time to time within the limit fixed by the consent of the
The making of deposits by trading banks with the central bank may
serve several purposes. Thirty or forty years ago, the central bank
in the United States of America took dleposits from the trading banks

manily for the protection of the customers of the trading banks.
tat is not significant now, although it was then. When that is the
rpose in view, the matter has no real relation to central banking.
is really ancillary to trading banking in the ordinary way, and parularly
in the American way. Again, the making of deposits with
central bank might mean very little more than the provision of
! ap funds for the central bank, the deposits also representing the
freserves of the trading banks, other than till money. That was
-purpose for which deposits were made to the central bank in
istralia before the war. The trading banks normally kept their
; h reserves, other than till money, in the Commonwealth Bank. It
d nothing to do with the control of credit. They were free deposits
iich could be withdrawn at will. They formed part of the cash of
! trading banks, and, therefore, were not related to central banking
ntrol. The third system is that in which deposits are taken by the central
nk from the trading banks as part and parcel of a scheme conously
designed to regulate credit. The central bank asks for larger
smaller deposits according as it desires to decrease or increase the
3h holdings of the trading banks, the idea being that if the central
nk takes, say, 15,000,000 from a trading bank, and puts it on fixed
posit with itself, that amount no longer forms part of the trading
3h of the trading bank, which must, therefore, decrease its advances.
ius, the increasing or decreasing of fixed deposits by the trading
nks with the central bank may determine the total amount of cash
ailable to the trading banks, and so govern the amount of credit
ailable. If the control of credit is the dominant purpose of requiring desits
by the trading banks, th~ ere seems to be no escape from the
stem of variable deposits, because it is of the essence * of such a
ieme that the deposits should be adjusted up or down according to
credit policy of the central bank. The question then arises, is
ch a system of variable deposits a better method of achieving credit
ntrol than that employed by the Bank of England, which is still
greatest and most successful central bank. It has a remarkable
-ord, and is the oldest central bank in existence. It has developed
. mendous skill over the years, and to this moment it exercises no
rnpulsory control whatever in its central banking functions. It
erates entirely in co-operation with the trading banks, and it uses
incipally, as it can in London, the method of the bank rate and open
irket operations. Thus, we have to ask ourselves whether the
stem of variable deposits by the trading banks with the central
nk is likely to be more effective than the methods employed in
) ndon. As to that, I do not believe that any man is qualified to
; e a dogmatic reply. I do not believe that any one-not even the
eatest authorities in the world--can say whether this use of variable
posits is a scientifically accurate way to control credit. It is experi-
! ntal, and I shall watch its operation with the greatest interest.

Let us understand that it really is experimental. Let us c
understand that it is a crude method, which might produce i
unexpected results, including the harshest kind of deflation. If the L
central bank can take by compulsion a large part of the cash reserves 1
of a trading bank and freeze them, the trading bank may be forced f
to adopt very harsh methods in order to increase the volume of its L:
liquid assets. If we are to have variable deposits-and this is at the
heart of whatever reform is contained in the bill-will it be achieved
best by some curt compulsion by the Commonwealth Bank without
any kind of consultation with the trading banks, or by close and
friendly co-operation between the central bank and the trading banks,
with the former in a position of acknowledged leadership? We should
think carefully before we introduce methods of authority and cornpulsion
when we have never fully tried out the method of co-operation
and of leadership which has achieved such amazing results in Great
Briti. CALWELL.-Some day the Bank of England will be improved.
Mr. MENZIES.-That may be, but not by the Minister for Information
( Mr. Calwell).
Mr. CALwELL.-It will be done by a Labour Government in
Great Britain.
Mr. MENZIES.-That may happen, because in that country they
might get a good Labour Government. Even at the risk of being
tedious, in order to complete my picture I mention that up to 1924,
when legislation was introduced by the right honorable member for
Cowper ( Sir Earle Page), the then Treasurer, most of the trading
banks held relatively small balances at the Commonwealth Bank, but
after the Act of 1924 was passed, all the trading banks in Australia
have held increasing balances at the Commonwealth Bank. In 1928
the Commonwealth Bank asked the trading banks to keep their reserves
with it, and ever since 1930 the deposits by the trading banks
with the Commonwealth Bank have formed the chief part of their
cash in Australia. Up to that phase, the making of those deposits
had no relation whatever to credit control; it was done primarily for
the convenience of the trading banks. Incidentally, it was a replenishment
of funds and a source of profit to the Commonwealth Bank.
I come now to the war period-a period which we should have in
close memory-because it provides a contrast between the two
methods of approach. Towards the end of 1941 the right honorable
member for Darling Downs ( Mr. Fadden), who was then Prime
Minister, obtained from the trading banks an undertaking which he
read to this House and was recorded in Hansard at the time of the
presentation of the budget in 1941.
Mr. CQNELAN.-The trading banks made an offer.
Mr. MENZIES.-I do not suppose that even the honorable
member for Griffith ( Mr. Conelan) assumes that the arrangement
came out of the air. He might at least assume that it was the out-

e of a great number of discussions between the then Prime Minand
the Treasurer, the Commonwealth Bank, and the trading
cs. It is well that we should remind ourselves of the terms of that
! rtaking before we talk too crudely about compulsion, and there-
I shall read the terms of the undertaking given by the trading
cs-The trading banks have no intention and no desire to make excess
its arising from war conditions.
As a war-time measure and with the object of ensuring that addis
to their funds owing to war conditions will not be used to make
! ss profits or to expand advances in any way contrary to the National
restsuse to ask honorable members to compare that with the bill upon
-h they will soon have to vote-
, agree to place all surplus investable funds accruing in their hands on
) sit with the Commonwealth Bank as special war-time deposits, and
. e to the Commonwealth Bank making appropriate variations in the
of interest thereon to ensure that no excess war-time profits arise.
To achieve the objects set out above, the trading banks give the foling
firm undertaking:-
They will not make new advances or grant increases in existing
ances except in accordance with the policy laid down by the Common-
Ith Bank from time to time and to ensure conformity therewith will
ply to the Commonwealth Bank a monthly analysis of new and insed
advances in a form approved by the Commonwealth Bank.
Before purchasing or subscribing to Government or semierment
loans, the trading banks will obtain the concurrence of the
imonwealth Bank.
The trading banks will make available by way of deposit with the
imonwealth Bank all surplus investable funds accruing in their bands,
all funds over and above those necessary to enable the bank to meet
overdraft requirements of the public in accordance with the advance
cy laid down by the Commonwealth Bank, and those funds necessary
the protection of their depositors. The deposits will be made at such
rates of interest as will avoid the trading banks making excess profits
of war conditions. These rates will be fixed by the Commonwealth
Ik from time to time.
They will advise the Commonwealth Bank periodically what
is become available as above, and the Commonwealth Bank will decide
total amount of deposits required from the trading banks from time
; ime. Such deposits will be made in a special war-time deposit account,
will be for a term of six months. They will be renewed as they
; ure unless, in the opinion of the Commonwealth Bank, they are neces-
7 to the trading banks for purposes mentioned in paragraph ( 3)
Bof. They agree to supply the Commonwealth Bank with such certifi-
! s from the Commonwealth Commissioner of Taxation as will enable
tbank to satisfy itself that the undertaking herein regarding, profits
Peing observed.

Protection for Depositors? b
I point out that no opportunity was given for that voluntary scheme tj
to work; compulsion was at cnce brought in by the present Govern-a
ment. In the bill I find no reference whatever to any power in the t
banks to make advances on overdrafts in accordance with the central i
bank's policy, nor do I find any reference whatever to the protection
of the depositors with the trading banks. I mention these matters b
at this stage because it is so easy to treat the volume of war-timea
deposits in banks as being the property of the banks. Those depositsa
are not the property of the banks; they are liabilities of the banks. 0r
If the depositors who own the rights to those moneys want to drawr b
their moneys, it seems curious that the bank should answer with an c.
emphatic " No; we have no liability to you in this matter. Your de-C
posits have been frozen by the Commonwealth Bank." I ask the ti
Treasurer to consider seriously whether there should not be some pro-tF
vision to give protection to the depositors of the banks, who, after E
all, are the owners, in the broad sense, of the moneys that they have S
deposited with the banks. I ask him to do that, notwithstanding that
the Government has the numbers to carry this bill. The War-time I
Banking Control Regulations threw the undertaking to which I have gn
referred overboard, and set up a compulsory system. As the result of nI
those regulations the funds lodged in ' the special account by the t
trading banks became frozen funds; the banks could not use them or
withdraw them without the permission of the Treasurer. t
Mr. FADDEN.-Except to use them as treasury-bills, which they n
did. g
Mr. MENZIES.-There are no instances of the interest of deposi-t
tors being specially considered. E
Mr. CURTIN.-The deposits of the trading banks with the central b
bank would be liabilities of the trading banks to their depositors. N
Mr. MENZIES.-That is what I have been pointing out, and IF
am glad that the right honorable gentleman agrees with me. These f
moneys are liabilities of the trading banks to their depositors. I re-b
mind the House that when a bank has liabilities to its depositors thel g
depositors have an old-fashioned prejudice in regard to the discharge
of these liabilities when the time for discharge arises. A bank has anI
interest, on behalf of its depositors, in having some flexibility and in
not having its funds frozen; but under these war-time regulations, I1
special accounts and frozen deposits have reached a total of r
1230,000,000, according to the Treasurer's statement. This bill, to-b
gether with the Banking Bill, which also is before the Parliament, s
proposes to make permanent a system which was designed for purely tl
emergency purposes. There is no time limit in the new bill; appar-B
ently, the scheme of compulsory deposits in these special accounts is r
to go on in perpetuity. Clause 18 requires every bank to establish17
with the Commonwealth Bank a special account; clause 19 transfers to
the special account of each bank the amount to the credit of that r(

' s special account under the regulations; clause 20 provides that
' rading banks shall each month lodge in the special account such
unts as the Commonwealth Bank directs. The fund may be added
* om month to month, according to the direction of the Commnonth
Bank. The amount to be directed has a limit placed upon it:
interesting to discover what that limit is. The amount is not to
uch that the amount to the credit of the bank's special account,
making the new lodgment, exceeds the sum of the original
unt transferred, plus any increase of the bank's assets after the
ation of this new law. The nett effect of this is that the trading
-s are to be confined to their pre-war assets position. Under the
lations they were confined to their pre-war assets position, bee
any increase of their assets was treated as arising from warfinance,
and for the avoidance of secondary inflation, it was said
war-time credits must be passed over to the Commonwealth
and rightly so. Under this new, permanent system, there they
1; and any increase may be called upon by way of further
ment in the special account. The curious thing is that, while the
will confine the trading banks to their pre-war position, the
ral banking department of the Commonwealth Bank will have
uch restriction placed on it; it is to run free. We are told that
is to be competition, and by that I assume that fair competition
tended; yet the first competition that we see provided in this
lation is that no trading bank may expand beyond its 1939 posi-
; every increase of the volume of business arising from the deds
of the business community for banking accommodation must
: the trading division of the Commonwealth Bank. That seems
e a queer form of fair competition. The Commonwealth Bank
which is now before the Chair, professes to attach a safeguard
provision in clause 21-
The Special Accounts established by banks under Division 3 of
IL. of the Banking Act 1945, and the accounts established by banks
; he purposes of section fifty-two of the Banking Act 1945, shall not
ept in the General Banking Division.
' lause 21 says that these special accounts are not to be kept in the
ral banking division. Well, I have had a look at this clause, and
rite other honorable gentlemen to have a look at it, and I do not
-ss to know what it means, if it does mean anything. The
surer was optimistic enough to tell us that that meant that the
! y in this general account cannot be used in the general banking
iess. I find no such language in the clause. It says that the
al accounts shall not be kept in the general banking division, but
is no provision that they shall not be used in the Rural Credits
ich, the Mortgage Bank Department or the Industrial Departand,
as I hope to point out later, the Industrial Division itself
! sents about as bold a piece of concealment as this bill contains.
-e is the alleged safeguard! It is much more apparent than~ it is
The whole thing on this point is a striking example of the

Government's desire to perpetuate in Australia, long after the emergencies
have passed, what has been epigrammatically styled " the servile
state," and the particular weapon here is the weapon of slow
strangulation of the private banking system in favour of a publicly
owned and politically controlled banking system.
Direct Control by Politicians"
It is abundantly clear-at least I hope it will be-that the true
function of the central bank in a system in which there are also
trading banks can never be satisfactorily performed in an atmosphere
of hostility. If any one supposes that in an atmosphere of hostility
in which the private banks and the central bank are at arn's length
any good purpose for Australia can be achieved I beg him to forget it.
We can get good results for this country only by utmost co-operation
and understanding. Therefore every endeavour should be made to
produce understanding, and there should be as little insistence as
possible on the weapon of coercion. But, if there is to be coercion
and if it is really in the minds of the framers of this hill that the
trading bank deposits with the central bank should be used as a flexible
means of regulating credit, it is quite clear that the political, and,
therefore, fluctuating control of the central bank is utterly destructive
of the whole scheme. I say by way of warning to my honorable
friends on the other side that, though they may think that political
control of this bank is a fine thing when they are in office, they will
not always be in office. In fact, they will not be in office very long,
and I venture to believe that when they, or those who are left of them,
are sitting on the left-hand side of the Chair in this chamber, they
will curse the day when they made the central bank a mere fluttering
political instrument.
G overnnment members dissenting.
Mr. MENZIES.-I see. They rely on us doing the right thing
so that for a few years they may do the wrong thing. I always thought
that that was their point of view.
Mr. CALwELL.-The right honorable gentleman is our best frozen
itsset. Mr. MENZIES.-I notice that the Minister for Information
seems a little worried about me. All that means, and perhaps it can
be summed up in this way, that we need in Australia-and I think,
or, at least, hope that we can all agree on this, world experience proves
it-a strong, well-equipped central bank. The Treasurer said so in a
passage which is such a masterpiece of irony that I beg leave to repeat
it. It is one of those things which the people will not willingly let
die when they hear about it. He said-
The Central Banking functions and powers of the Commonw. ealth
Bank are strengthened so as to ensure that the broad lines of its monetary
and financial policy will be in harmony with the economic policy of the
Government and in the interests of the people of Australia. A 9

compliment my honorable friend on that. He says that we are to
-engthen the central bank by making it our servant, by taking it
. t of its non-political atmosphere and making it obey the political
. iim of the moment. Strength in the central bank is essential beuse
the end of the central bank is to produce stability. Weakness
s never produced stability. Strength will. Except to mere specu-
: ors the stability of the currency does matter. If that needs proof,
ery budget presented by the Treasurer has said so. Without
isonable stability of the currency there can be no incentive to save
) ney, there can be no reliance placed on social security, the deferred
y or gratuities of fighting men become a mere gamble, life insurances
come chancey, and general trade, which is an essential element of
neral prosperity, becomes a mere matter of gambling in futures.
ie stability of the currency is of first-class importance to the ordinary
m and women of this country and a strong, independent central
nk is of first-class importance to a stabilised currency.
Mr. SPENDER.-We may see the honorable member for Werriwa
dr. Lazzarini) made Treasurer any day, too.
Mr. MENZIES.-We may indeed! From now on, if this bill
Duld be passed, all the delicate adjustments that have to be made
a central bank charged with this great responsibility will be under
Sdirect control of the Treasurer of the day, whoever he may be,
d he, in his turn, will be under the direct control of politicians like
rselves, and I venture to say with a great respect to all honorable
. mbers, including myself, that we have not the skill, experience or
. ormation necessary for this task. Yet we shall control the
' easurer and the Treasurer will control the bank. I go now to -a
Drt and pleasing task. I intend to quote a passage from an estabhed
authority who will be listened to with great respect by members
the Government. That authority is Professor D. B. Copland,
lose earlier sins appear to have been forgiven. In 1931, my disguished
and able friend wrote a book, What Have the Banks Done!
which he said-
In the controversies that have taken place in the past eighteen
) nths there is sufficient evidence that political control of the currency
Puld destroy confidence, and abolish reasonable checks to the issue of
. dit. We can therefore only reap the benefits of a liberal banking
licy if the control of the currency be free from political interference.
iope that most of the members of the House will agree with that.
when this bill has gone through, what will be the position of a
bour Treasurer who goes to meet his party and to whom his party
is, as I believe it has said on more than one occasion, " We want
5,000,000 for this, that or the other thing." I noticed the other day
Lt my honorable friend the Treasurer, when confronted with such a
-nand, made an impassioned answer-at least, it appeared to be
passioned, in the unofficial press versions-in which he pointed out
tat the taxation was and what the obligations were for the future,
I said, in effect, as any good tory might have said, " I cannot afford

it. You cannot have But I wonder what the position will be
when he goes before caucus after this bill has become law and receives
a demand for f20,000,000. Tempted to say, " I cannot afford
it," he will have them reply, " Of course you can. You are now in
charge of the Commonwealth Bank. You can direct it. You are in
charge of the note issue.
Mr. FADDEN.-" And the sky is the limit."
Mr. MENZIES.-Yes,' '" and the sky is the limit. We have abolished
the reserve. There is no restriction on the note issue."
Mr. HARRISON.-The right honorable gentleman is putting ideas
into their heads.
Mr. MENZIES.-I do not have to put ideas into the head of the
Minister for Works ( Mr. Lazzarini) because that is his style of
finance. That is the very kind of finance that he believes in. If ever
there were something that' put us on the slippery path to real continental
inflation it would be that kind of thing. That is all I desire to
say on the proposal to " strengthen" the central bank.
Advantages of a Board
The second proposal is for the abolition of the Bank Board, and
that, of course, receives griat applause. Yet honorable members
know there are great and obvious advantages to the country in having
a system of controlling the central bank by a board of directors or a
board of governors. Every other country has clearly seen those advantages.
I do not know of any democratic country which has oneman
control of the central bank. The great advantages of a board
are the bringing together of a diversity of experience, the added
judgment produced by frank discussion by competent men, the added
strength involved in joint responsibility, and the publicity which a
board of directors strongly adhering to a view can secure for that
view in the event of great conflict of opinion on a central banking
problem. Under this bill the governor, one man, will conduct
no less than eight institutions; central banking, general
banking, the note issue, the Rural Credits Department,
the Mortgage Bank Department, the Industrial Finance Department,
housing loans, and the Commonwealth Savings Bank.
My only disappointment is that there were not seven instead
of eight, because I should then have been reminded of one of Wordsworth's
poems. When one of those institutions had gone under this
strange system they would say, " One of us in the churchyard lies,
but, master, we are seven." It is interesting to recall that in 1930, a
time when a Labour Government was formerly in office, the then
Treasurer, Mr. Theodore, brought in a bill to establish a reserve
bank, and provided that it was to be controlled by a board consisting
of a governor, two deputy governors, the secretary to the Treasury,
and five other directors, " who are or had been actively engaged in

-iculture, commerce, finance, industry or labour." It is also intering
to recall that the royal commission, so far from reporting in
* our of the abolition of the Bank Board, reported in favour of conuing
the Bank Board. True, the royal commission recommended
Lt the governor should be chairman of the hoard; and the Treasurer
[ I remember that although he was not lacking in courage when he
nted to dissent he did not dissent from that recommendation. At
Lt time he had no quarrel with the board; to-day he proposes to
Mlish it.
Mr. CURTi-.-Why did the Theodore bill fail to pass?
Mr. MENZIES.-I feel no occasion to go into that. Does the
* ht honorable gentleman suppose that it failed to pass because it
wvided for a board of directors; because unless he believes that
, s the reason why it failed to pass his interjection is a mere inter-
Dtion? I know perfectly well that the right honorable gentleman
iuld be delighted if I talked about some other bill, because he will
d this bill difficult to defend at the bar of public opinion.
The third provision in this bill is quite bluntly for the
litical control of the governor and, therefore, of the bank.
ause 9 provides that the bank must give effect to govern-
2nt policy, but honorable members will observe that the
) rd " policy" is not defined. It may apply to matters great or
iall, and, therefore, it is quite clear that the clause provides for com-
-te political control. Everything is policy, and, therefore, on everyng
the Treasurer may give a direction to the governor.
An " Advisory Council"
Clause 28 sets up an advisory council. It is a purely advisory
uncil. I do not want to rake over the ashes of old controversies;
. t it is a purely advisory council, and it consists, mark you, of three
bordinates of the governor in the bank's service, and two Treasury
icers. Such a body cannot be described as in any sense independent,
d, quite clearly, it is mere window-dressing thrown into the bill to
ike it appear that there is some form of check or authoritative con-
Itation. SIR EARLE PAGE-Why does not the governor have a vote in it?
Mr. MENZIES.-I take that to be almost a humorous addendum.
he governor has no vote, but, after all, he will not be bound by any
: cision of the advisory council, and as the other members will be
ider him, the advisory council does not rate very high. In addition,
is interesting to note that most of the senior officers of this bank
ill be politically appointed, namely, the governor and the deputy
) vernor. the secretary of the Treasury, the additional Treasury re-
-esentative on the advisory council, the general manager of the
Ldustrial Finance Department, the chairman of the Promotions
ppeal Board, and so on. The Minister for Information ( Mr. Calwell)

interjected that the royal commission had recommended a method
which is substantially adopted in clause 9.
Mr. CALWELL.-And for which the honorable member for New
England voted.
Mr. MENZIES.-The royal commission recommended that there
should be a method of this kind for reconciling differences not between
the Government and the governor, but between the Government
and a board of directors. There we have a very essential difference.
After all, one man, himself dependent for appointment on
the government of the day, is not in a strong position to resist or
argue about the instruction of a Treasurer or a government; but a
board of directors, consisting of people who are in every other respect
independent of the Government, is in a far better position to say, " We
think this is wrong. We object to it. We are prepared to argue
about it, and, if necessary, to tell the people and Parliament about it."
There is a vital distinction between the recommendation of the royal
commission and what appears in the bill. But I go further and say
that what appears in the royal commission's report is itself open to
very grave question. I am not prepared to accept a state of affairs in
which the Executive, of its own force, is able to override a central
bank on matters of great moment. After all, all matters arising will
be great or small. If they be small the Government should not he
interfering in the control, and if they be large matters Parliament
should attend to them. It is high time that the authority of Parliament
was restored. If there is any major conflict between the central
bank and the Government, then Parliament should be invited by appropriate
means to deal with the matter.
" Competition" with the Trading Banks
The fourth matter is competition with the trading banks. I suppose
that we shall be told that competition between the Commonwealth
Bank in its trading capacity and the trading banks is perfectly fair.
It cannot be fair. The Commonwealth Bank will pay no land tax
or income tax, and it can face losses with equanimity. But, in any
event, competition between the trading banks and a bank whose
primary function is that of a central bank is quite inconsistent with
the atmosphere of wise leadership and co-operation which ought to
exist in a banking system. The royal commission, in paragraph 585
of its report, deals with that matter. In view of the lateness of the
hour, I shall not read that paragraph. but the commission, in a sentence,
One way in which this conformity
( that is conformity between the Commonwealth Bank and the
trading banks-)
can be achieved is by co-operation. This requires wise leadership on the th( int dr;
* bo an wi on
Q th, TI tr, ca. it an de pe w
' C cx ta B is

of the Commonwealth Bank and its acceptance by the trading
ise leadership! Acceptance of co-operation !-when with all
extra weights to be carried by the trading banks, the Governsays
that its own central bank is in one of its departments to go
ctive competition with them. There is another point to which I
the attention of the Treasurer. The same man will be controlling
banks. The same governor is responsible for the central bank
he Commonwealth trading bank. To use a fashionable phrase,
sort of a " split personality" will this one man need if he is at
nd the same time to control the central bank and a trading bank,
terests of which must on many occasions be completely opposed?
vhole essence of the central bank is that it may have to control
ig banks. It may decide to sell securities and so reduce their
or buy securities and increase their cash. In the circumstances
, ht be to the interest of the trading bank to hold more cash, but
ity to the economic system to hold less. That, after all, is the
ess of a central bank, to reconcile the interests of trading banks
heir duty to this country; and this unhappy man will have to
e that conflict, which can be resolved only by a strong inde-
-nt central bank.
CALWELL.-And his decision will be the same each time.
MENZIES.-He will need to be a super-man if he can, with
action to every one, occupy two such inconsistent positions at
Line time. The royal commission made a recommendation on this
and that recommendat~ on, on the face of it, is contrary to the
I have been putting. The commission, in paragraph 577 of its
t, states-
WVaer e of opiniion that the use of its trading-bank activities ais an
ict to central bank policy is in keeping with its central bank
ions and is te be approved.
* ut if we go back to paragraph 156 of the commission's report
iall there find explained in much mrjre detail what the commishad
in mind. What it had in mind was the using of its trading
powers as an additional mearis of controlling the volume of
t, not as a mere competitor in the market for business, but by
g business a3 it came along in order to help the Commonwealth
: to perform its central bank function. All that is explained in
3graph 156 af the commission's report.
' he fifth proposal is the abolition of Board control of the note
, and as the hair goes with the hide I do not need to waste time
iis point. ' Ine note issue is now to be controlled by the governor
e bank, and, through clause 9 of the bill, by the Treasurer, and
igh the Treasurer by the caucus, or party, mceting of the day;
if we care to go further back still we might find other people
ig autboricy in the matter.

Currency at the Mercy of Politics
That brings me to the sixth of the proposals to which I have referred,
namely, the abolition of the currency reserve. Here is another
interesting example of how the Government has accepted that portion
of the royal commission's recommendation which suits it, and has
ignored, or discarded, the rest; because the royal commission recommended
the abolition of the currency reserve and the substitution of a
note issue limited by law to a fixed maximum, subject to the right of
the bank to exceed the maximum by a stated amount with the consentof
the Treasurer. What does the Government do? It ignores the
safeguard, the proposition that there should be a fixed maximum, with
limited flexibility, in the note issue, and seizes eagerly upon the proposition
that the currency reserve should be abolished, the effect of
that being this: It is hard to conceive that any issue between the
governor and the Treasurer on the note issue would not be a matter 4
of policy. It would be hard for my friend the Treasurer to think up
a case in which a difference of that kind would not be a difference .3i
policy; and, therefore, this bill places under the political control of the
Treasurer the note issue of the country, and utterly and unconditionally
abolishes all reserves behind that currency. For a long time we
had a currency reserve of 25 per cent. gold, which was later modified
to 25 per cent, gold or English sterling. That is how it stands to-day.
When this bill has been passed no reserve requirement will be provided.
There is nothing whatever on to which any person protecting
the currency can seize as a means of defence. Every Treasurer will
he utterly and literally defenceless in the presence of those who, in
some ignorant clamour, desire to have the note issue expanded for the
purpose of meeting somne passing whim or political demand.
I now desire to discuss very briefly what reazons there are, or(
were, for the provision of a currency reserve, because this is a
profoundly important matter for Australia. As I see it, there are two
principal reasons to which I am disposed to attach weight. The first
of them is a psychological reason. The abolition of all reserve provisions,
when coupled with untrammelled political control of the currency,
might very well produce the most far-reaching results. The
psychological factor in currency matters is not to be ignored. In
Australia we have had painful experience of the effet which a deepseated
public psychology can have on the currency, and on the whole
economic position. I recall having read in a book by D. H. Robertson.
the Cambridge economist, a story which illustrated the psychological
factor in the matter of gold. A goldmine manager in South Africa
had a glass eye, and it was a very ferocious glass eye. as artificial eyes
sometimes are, and it produced, or helped to produce, great discipline
in the mine, so that pilfering and speculation decreased when he was
in the vicinity. Before he went on leave he made a practice of taking
out the artificial eye. and placing it in a prominent place in his office.

he natives, who were employed in the mine, felt that his eye was
ill on them, and they continued to behave until one day one of them
id enough wit to place an empty cigarette tin over the glass eye so
at he could not be seen, and henceforth a good time was had by all
the manager's absence.
Mr. LAZZARINI.-That is only a story.
Mr. MENZIES.-Yes, it is only a story. I do not suppose that
even happened. But then the Minister would, by an Act of Parliaent,
abolish not only all sound banking practice-or at least he
: sires to-but also public psychology. He will not succeed in doing
I venture to say that whether it is soundly based in financial
eory or not, there is a great psychological value for any nation in a
. cked paper currency.
Mr. FADDEN.-Of course there is.
Mr. LAZZARINI.-It was the cigarette tin that " did it."
Mr. MENZIES.-It must have happened before the war, when
npty cigarette tins were still available. The second reason is not
; ychological, but purely practical, and it is mentioned by that very
ΓΈ illiant and progressive writer and thinker, the economist, J. M.
eynes, in Treatise on Money. I can quote J. M. Keynes in any
, mpany on these matters, because if any economist has influenced
odern economic thought, it is he.
Mr. POLLARD.-That is why he was made a director of the Bank
England. Mr. MENZIES.-Yes, and the honorable member will be interted
to know that as a director of the Bank of England, he does not
id himself sitting side by side with a director appointed by the
overnment. He sits on a board of governors, entirely independent
political control, and the bank enjoys no authority of a kind that
e Government proposes, in this bill, to grant to the Commonwealth
ink. Mr. LAZZARINI.-J. M. Keynes has turned a few economic somerults.
Mr. MENZIES.-If the Minister persists in interjecting, I shall
obliged to call him " Chatterini." J. M. Keynes wrote-
What is the object of a gold reserve? Partly to provide liquid reurces
for use in ultimate emergencies partly for merely psycholoical
reasons to promote confidence.
eynes then explained the " ultimate emergency," by saying that-
The reserve is mainly to meet short-period fluctuations in the interitional
balance of indebtedness or, as it used to be called, " the external
. ain." To cope with these factors, he sees virtue in the fixing of " a
inimum absolute figure for the gold reserve and a maximum absote
figure for the note circulation, both these figures being subject

to reasonable revision from time to time, and so chosen as to allow a
wise discretion to the central bank in its day-to-day and year-to-year t
policies." When he speaks of gold, he includes foreign currency; l:
and speaking from our point of view here, he would include English
sterling with gold when applying the principles to which he had re-a
ferred. But this bill ignores all factors both psychological and prac-I
tical. It does not profess to say that there shall be a maximum to c
the note issue or that we shall have a minimum holding of gold or a
English sterling. It ignores, apparently, the very important fact that s
this country's solvency depends primarily on its avoidance of default C
abroad, and, therefore, reserves to meet the external drain are of , t
first importance. It simply says, without qualification, that there shall
be no reserve of any kind, and the result is that it passes over an unlimited,
unconditional control over the note issue to the central bank
which, for the first time as a central bank, is to be plunged into the
vortex of p~ olitics and day-to-day political direction and control. t
Nationalisation of Industry
Earlier 1 indicated that I should like to say a few words about a seventh
matter, and that is the industrial finance proposals contained in
this bill, because the more one looks at them, the more one finds how
very significant and far-reaching they are. The industrial finance
department is created by Part X. of the bill, beginning with clause 91.
It is to perform-functions, which are not defined, but which, one
gathers from the Treasurer's speech, will have something to do with
industrial development in Australia, whether by government or bys
private enterprise. But when we come to see what its powers andS
resources are, we shall find somnething which to me is as astonishing t
as anything I have ever seen in a bill of this kind. Clause 95 pro-'
vides t
The bank shall have, and may exercise through the industrial finance
department, such powers as are necessary for the exercise of the functions
of the industrial finance department under the last preceding section
and, without limiting the generality of the foregoing may, through the,
industrial finance department lend money; and purchase or other-r
wise acquire shares and securities and sell or otherwise dispose of shares
and securities so purchased or acquired.
Therefore, this new department will be able to lend money and
buy and sell shares. It seemns to be admirably equipped, for example,
to deal with the problem of the nationalisation of the interstate airlines,
or with the nationalisation of anything else which the Govern-f
ment may seek to draw into its net. ' the powers, as the House will
see, are as near as possible unlimited. I turn now to clause 97 toa
discover what financial resources will be available. Briefly, I find
that there is no limit to the financial resources which may be placed r
at the disposal of this new department. Clause 97 provides that the r
Treasurer may make advances to the bank for the purposes of thea

istrial finance department of such amounts and subject to such
is and conditions as are agreed upon by the Treasurer and the
c. That is as broad as it is long. The Treasurer may make ad-
-es to the bank, and clause 98 provides that the bank may make
inces to the industrial finance department, " at no time to exceed
00,000." In order to get away from this rather petty conception
noney, clause 98 provides also that the savings bank may make
inces to the bank for use in the industrial finance department of
amounts and subject to such terms and conditions as the governor
rmines. This is the first time in the history of Australia when
admirable conservatism of the savings banks which have, by law
by practice, confined their investments to government securities
ie past-
M~ r. ABBOTT.-And the land.
~ Ar. MENZIES.-That is so. This is the first time that they have
been told or directed, because that is what it amounts to, that
r money shall be invested in an industrial finance department, the
ness of which will be to lend money on any or no security, and to
and sell shares.
SIR FREDERICK STEWART.-I am reminded of the purchase o~ f
adcasting Station 2HD Newcastle.
Monetary Policy and Future Problems
q4r. MENZIES.-That seems to be a matter of the greatest pos-
. gravity, and if one can discern in this particular department posities
of that kind. I believe that when we have an abundance of
to exam-ine all the minute details of the bill, we shall find that this
ot the only example of utterly unsound methods being grafted on
nstitutions which have stood the test of time, not because they
2gamnbling institutions, but because they were secure institutions.
Ishould like to put it to honorable members and to the people in
! ral in Australia, that we are in grave danger of misunderstanding
ingerously misunderstanding-this whole problem of monetary
rm. The depression with all the wretchedness and suffering that
-ought, the curious reluctance of the trading banks to inform the
ic mind on matters of currency, a reluctance that I have never
iable to understand, and the somewhat tentative position occupied
he Commonwealth Bank for a number of years-all those things
! been emphasised by the apparent phenomenon of war-time
. ice, and they have conspired to -induce in the minds of many
) le a belief that monetary reform, as such, is the be all and end
, f economic reconstruction, and that irrespective of hard work, iniity
and the encouragement of enterprise and thrift, full employt
can be provided without difficulty by central bank action. I do
say that honorable members entertain such a belief, but they know
vell as I do that thousands of people in Australia have come to

entertain it. Some of our economists in this country are by no means
free from blame for this extraordinarily loose and dangerous approach.
Therefore, it is necessary for us to remind ourselves of the
fact that a liberal monetary policy-that is, a policy which is intelligent
and far-seeking and which aims at the full utilisation of our re-
Fsources, human and material--cannot really solve the problem of
production and inequitable distribution.
Mr. McLEOD.-Or want in the midst of plenty.
Mr. MENZIES.-Yes. It cannot do it. I referred a few minutes
ago to the Cambridge economist, D. H. Robertson, and I should like
to quote a very pregnant passage from his book on " Money"
The real economic evils of s ociety-in adequate production and inequitable
distribution-lie too deep for any purely monetary ointment t~ o
cure. An unwise monetary policy can wreak unmerited hardship and
engender unnecessary confusion and waste; not even a wise one can turn
a world which is unjust and poor into a world which is rich and just.
The mending of the road over which the produce passes to market is no(
substitute for the digging and dunging of the fields themselves. No
tinkering with counters will take us-very far towards the discovery of an
industrial system which shall supply both adequate incentives to those
who venture and plan, and peace of mind to those who sweat and endure.
I believe that is the truth and the whole truth of this matter, and
that we should do well to bear it in mind.
A certain sceptism has arisen in Australia in the public mind-I do
not wonder at it-about opposition to bills. Members of the public
have seen bills opposed in Parliament in the past, and after elections
have taken place, they have seen all too frequently these bills left on
the statute-book unamended and untouched. Therefore, on behalf of
my colleagues and myself, I desire to make quite clear to the House
and to the people that if we on this side of the chamber are returned
to office in the future, we shall take prompt steps to restore board
control to the Commonwealth Bank, with political independence for
the Commonwealth Bank functions, and a complete restoration of
parliamentary authority on this matter, and that in every other respect
we shall hold ourselves obliged instantly to review the working
of this legislation with the object of bringing it into line with what we
believe to be the stable re quirements of the people. I make that statement
publicly, here and now, because it will be well that when the
people of Australia come to pass judgment upon this matter, they
should know exactly what is the issue, and where we all stand upon it.
19-47 Jeffeott St., Melb.

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