Bankers and bourgeois democracy
Some views from Australia
(Compiled by Humphrey McQueen, 21 April 2016)
A fiction on capital – financial and fictitious
House of All Nations, the 1938 novel by Christina Stead, is described by The Oxford Companion to Australian Literature (1994) as “epic in scale, encyclopaedic in detail, cinematic in form, it is a scathing account of the world of international finance …’ Stead extracted the following epigrams from her characters to form an opening “Credo”:
Jules Bertillon, the protagonist and a merchant banker:
No one ever had enough money.
There’s no money in working for a living.
If all the rich men in the world divided up their money amongst themselves, there wouldn’t be enough to go round.
Here we are sitting in a shower of gold, with nothing to hold up but a pitchfork.
Woolworth’s taught the people to live on nothing and now we’ve got to teach them to work for nothing.
Every successful gambler has a rentier sitting at the bottom of his pants.
It’s easy to make money. You put up the sign BANK and someone walks in and hands you his money. The façade is everything.
E. Ralph Stewart:
Of course, there’s a different law for the rich and the poor; otherwise, who would go into business?
The only permanent investment now is in disaster.
Comtesse de Voigrand:
There are poor men in this country who cannot be bought: the day I found that out, I sent my gold abroad.
With the revolution coming, there’s one consolation – our children won’t be able to spend our money.
When I hear anyone talk of ‘culture’ …
Calls for a Royal Commission into the culture of banking are neither new nor confined to one side of the parliamentary circus. In November 1935, the reactionary Lyons administration appointed a Royal Commission
to inquire into the Monetary and Banking Systems at present in operation in Australia, and to report whether any, and if so what, alterations are desirable in the interests of the people of Australia as a whole, and the manner in which any such alterations should be effected.
One modest member of the Commission, J.B. Chifley, entered a six-page dissent of which these extracts give a strong indication:
#2 There is no possibility of the any well-ordered progress being made in the community, under a system in which there are privately –owned trading banks which have been established for the purposes of making profit.
#6 In my opinion the best service to the community can be given only by a banking system from which the profit motive is absent, and thus, in practice, only by a system entirely under national control.
In the aftermath of the great depression there was wide support among Country Party voters for the Commission and even for Chifley’s views. Leaders of neither today’s ALP (Anti-labour Party) nor the misleadingly named National Party wish to be reminded of such antecedents.
A survey of the past helps us to track the shifting role of financial institutions in directing the Australian economy on behalf of global capitals and their compradors. Horror stories abound. They are the tip of the everyday practices of bankers’ fulfilling their role in the expansion of capital out of the exploitation of we wage-slaves. The recitation of previous scandals is useful to counter claims that recent outrages could have been prevented by stricter supervision.
The talk about a new Royal Commission into banks misses a crucial point. What’s wrong with the banks is what is wrong with the capitalist system as a whole. You can’t have capitalism without banks anymore than you can have capitalism without money. You can have capitalism without cash, but not with money in its other forms. Banks are essential if money as credit is to perform its vital functions within the expansion of capital. The culture of the banks is the culture of capitalism: profit-gouging.
Persons of Interest
Experience as a detective taught Inspector Bucket in Bleak House that while most murders are committed by amateurs, thievery takes practice. That practice is the ‘culture’ of financiers, high and low, because it is also the ‘culture’ of every corner and crevice within capitalism.
Rifling through the Panama Papers for ‘names’ is as understandable as it is inadequate. David Cameron’s dad or the prime minister of Iceland deserves exposure. Yet to focus on ‘personalities’ is to fall for the ideology of capitalism as a field for individualists. Not only were that pair no more than bit-players, the former was never more than a personification of capital while the latter was its agent.
Crossing the line between what bourgeois law nominates as beyond the pale and the dodgy doings that the boss class gets up to every spare second is not primarily a consequence of flawed personality, bad character, or evil intent. The crux of materialist dialectics is that we all become what we do, whether as a species or an individual. One such trajectory is illuminated by Gillo Pontecorvo’s 2013 feature film, Capital, where a brilliant young academic from a socialist family in provincial France is partly swept along by events and partly manages those chances until no trace remains of his younger self. When his left-leaning wife asks him why he insists on several more million Euros in salary when they cannot spend the money he already brings home, his reply is incontrovertible: because asking for more money is all that the other bankers respect.
George Soros’s self-defence says most of what there is to know about the ‘culture’ imposed on every one of capital’s personifications and agents by the need to accumulate in order to outlast the competition: ‘If I allowed moral considerations to influence my investment decisions, it would render me an unsuccessful competitor. And it would not in any way influence the outcome because there would be some else to take my place at only a marginally different price.’ (New York Review of Books, 14 January 1999, p. 40.)
Marx traces the development ‘in the breast of the capitalist a Faustian conflict between the passion for accumulation and the desire for enjoyment.’ (Capital, I, Penguin, 1976, p. 741) J. Pierpont Morgan was on the way to blowing the lot on manuscripts for his collection now housed in the eponymous Library. After he died leaving $68.3m in investments against $50m. in art works, his heirs feared that the income from those investments would not cover their patriarch’s debts.
Yet pursuing some of the Big Names is worth doing if their behaviour spotlights how the capitalist system works against our interest. One point of reference for a future Royal Commission, therefore, should be what the current Secretary of the Treasury, John Fraser, was up to during his twenty years as a global wealth manager at Union Bank of Switzerland (UBS). What did he know and when did he know it? Did Hockey pick him as a fox to guard the chickens? UBS is one of the most scandal-plagued off the big banks, but one which keeps avoiding conviction in the U.S. of A. by paying fines in advance of going to judgement.
That slipperiness is not a matter of chance. In August 2009, the Nobel-Peace-Prize-winning war criminal Obama spent five hours playing golf with the UBS honcho for north America, one Robert Wolf, who had been a big donor to Obama since 2006. Days before the pair tee-ed off, UBS had been fined $780m. after one of Wolf’s colleagues, Bradley Birkenhead, blew the whistle on how UBS had set up accounts for 4,500 tax dodgers. As his reward for helping the Internal Revenue Service, Birkenhead got forty months in prison with no golfing privileges and no Presidential pardon.
Don’t pick on bankers
Much of the outrage around the $US700bn bailout in the U.S. of A. after 2008 was aimed at the golden parachutes handed to CEOs tarred with the sub-prime crisis. This moralising is as predictable as it is dangerous. It regurgitates the defence that stockbrokers and police always throw up: the miscreants in their ranks are one or two rotten apples in a barrel of sound fruit – never lemons.
In addition, anti-Semitism taints the anti-banker rhetoric against The Kingdom of Shylock. Excoriating Jews, such as Soros or Lehman Brothers, for the evils of capitalism remains fool’s socialism.
So let’s be clear: all capitalists are parasites, almost all are swindlers, and, if financiers seem to be the worst of the worst that is because they pass around the filthy lucre. For example, who is the biggest parasite – George Soros, Warren Buffett, or Bill Gates? Soros speculates in currencies. Buffett invests in everything from Coca-Cola to mobile homes. Gates sits atop an oligopoly which produces computer software. They represent the spectrum of capitalism. Soros ruined the lives of millions by trading monies accumulated from the exploitation conducted by firms like those presided over by Buffett and Gates.
To call capitalists parasites is not to speak pejoratively but to state a fact. As the personifications of capital, capitalists contribute nothing to the expansion of values. Of course, if a boss gets down and dirty in the trench with a shovel, as Loui Grollo liked to do, he supplies a mite to his profits. But, in doing so, he has ceased to be the personification of capital and become, for a moment, an embodiment of labour-time alongside that of his employees.
The question of what capitalists-qua-capitalists do for their money became so embarrassing for the academic apologists of capitalism that the subject has fallen out of sight. The English writer, Nassau Senior (1790-1864), offered a once popular defence for profit as the reward for abstinence. He contended that, instead of spending their money on champagne, the capitalists deprived themselves of such pleasures to invest in the expansion of values. Hence, they deserved to be rewarded for a negative capability. When the term ‘abstinence’ provoked too much merriment, the English co-founder of the marginalist school, Alfred Marshall, substituted ‘waiting’. Such are the lofty peaks of bourgeoisie economics.
Property is not all theft. Capitalists, as a class, do not steal from their workers. On the contrary, as Marx revealed, they pay – on average – for the full value for the commodity – labour power – which we wage-slaves are compelled to sell to them if we are to exist. The expropriation of surplus-value follows from that equal exchange. Only then do bankers, lawyers and accountants enter the equation. Some of the services they sell to the other capitalists are essential to their survival. But every cent of their bonuses comes from expropriated surplus value. No matter how much cash sticks to the fingers of financiers, that sum has already been expropriated from wage-slaves by other capitalists. Soros would have nothing to cream off had Buffett and Gates not taken away the surplus value.
The fictitious follies
Gladstone, speaking in a parliamentary debate on Sir Robert Peel’s Bank Act of 1844 and 1845, observed that even love had not turned more men into fools than has mediation upon the nature of money.
In the wake of the financial eruption of 2007-8, sloppy thinking about finance reached plague proportions. Around the Left, ‘fictitious’ became interchangeable with banking, credit, debt, derivatives, financial, Finanzkapital and swindles. Sydney Marxist Dick Bryan protests:
Terms like ‘fictitious capital’ are transformed from their original meaning [in Marx and Hilferding] and given a pejorative twist to depict over-blown finance. The effect is to cast the crisis as a conflict between the real and the financial, not a conflict between classes. (Labour and Industry, 20 (3), April 2010, p. 254.)
Marx would not have been surprised: ‘It is truly wonderful how in this credit gibberish of the money-market all categories of political economy receive a different meaning and a different form.’ (Capital, III, Penguin, 1982, p. 628) Numerous examples show that this wandering is no longer confined to the vulgar political economists. As one instance of ill-considered pronouncements, the On-line Encyclopedia of Marxism: Glossary of Terms states that ‘fictitious capital’
is value, in the form of credit, shares, debts, speculation and various forms of paper money, above and beyond what can be realised in the form of commodities.
The first weakness in this version is that ‘speculation’ is an odd inclusion since it is not any kind of financial instrument. Speculation is what you can do with the other four. Secondly, ‘fictitious’ is presented as value ‘above and beyond what can be realised in the form of commodities.’ This account would have tickled Marx’s fancy as much as did Balzac’s miser, Gobseck, when he enters his second childhood by no longer hoarding gold but ‘begins to pile up commodities’, a true madness. (Capital, I, Penguin, 1976, p. 735, n. 15.) Furthermore, confining realisation to ‘commodities’ leaves us wondering what has happened to money, that universal equivalent of labour-times, that alpha and omega of capital’s expansion. The identification of real capital with commodities is Marxist only if the author treats money as a commodity, as does Suzanne de Brunhoff. (Marx on Money, Urizen Books, 1976.)
(These paragraphs are extracted from my ‘Fictitious Capital’, www.surplsuvalue.org.au )
Parasites, high and low
As a corollary of the confusion about Marx’s views of fictitious capital, vulgar Marxists deem ‘finance’ to be morally inferior to production capital. Money capitals of every stamp are painted as parasitic on the virtuous capitals that expand thanks to their direct exploitation of workers.
Drawing too sharp a line between the forms of capital is one instance of what Marx labeled as vulgar political economy. Financial capital is essential to the expansion of the industrial, in ways he spent twenty years specifying. Bankers’ hoards contribute to the expansion of real capital:
Credit … is the means whereby accumulated capital is not just used in that sphere in which it is created, but wherever it has the best chance of being turned to good account. (Theories of Surplus-Value, II, Progress Publishers, 1968, p. 482; T-SV, I, F.L.P.H., n.d., pp.148-295.)
In so doing, credit goes beyond financing individual capitals to servicing aggregate capital, which is the object of Marx’s critique of political economy.
Crises of over-production erupt in the financial sector because of the structured dynamics of the capitalist system. Money makes that world go around. Each stage depends on access to credit. The expansion of capital is best understood by following the circuit of money-capital: step one, a corporation uses its access to money-capital to buy production goods, including labour-power; in step two, its wage-slaves produce commodities for sale; step three, their sale realises profits from the surplus-value; step four, at least some of those profits must return to the corporation if there is to be the next bout of investment. The circuit of exploitation and expansion needs a drip-feed of funds, every second of every day. That ceaseless flow of credit is maintained via a social division of capital. Banks keep the system of production afloat. Block that flow of credit to production, distribution and consumption and all will seize up. That almost happened in October 2008.
Moneyed-capitalists and production capitalists, Marx writes, ‘are in fact co-partners, one of them being the juridical owner of the capital, and the other, while he employs it, the economic owner.’ Marx is at pains to integrate interest payments into the profit that can come only from the surplus value that is added through the valorisation element of the production process. Production-capitalists separate interest from profit in their minds because, as debtors, their payment of interest encourages them to view their loans as commodities. (TS-V, III, Progress Publishers, 1971, pp. 508-9.) Not surprisingly, ‘illusory, fictitious capital’ nourishes greater absurdities than is usual among capitalists and their apologists. These misapprehensions are not delusional but serve a propaganda purpose.
Marx also recognised the benefits to the expansion of capital from a market in futures since it provides payment to producers in advance of the consumption of the commodities produced by their wage-salves:
Had the linen manufacturer been obliged to wait until his linen had really ceased being a commodity … his process of production would have been interrupted. Or, to avoid interrupting it, he would have had to curtail his operations … and the scale of reproduction would have to be restricted accordingly. (Capital, III, Penguin, p. 387; Capital, II, Penguin, 1978, chapters 5, 6, 7 and 14.)
In the final chapter of volume II, Marx integrates the advantages from credit and futures-trading into his account of the reproduction of aggregate capital on an expanded scale.
In addition, Marx acknowledges the contribution that even speculators can make to recovery after a bout of de-valorisation:
… the period during which moneyed interest enriches itself at the cost of industrial interest … will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners. (TS-V, II, p. 496.)
Despite Marx’s acceptance of the contribution of financiers and crooks to the accumulation of surplus-value, he cared no more for Mr Moneybags than for Mr Glass-blowing Capital. Yet, he could not deny the utility of financiers and certain swindlers to the growth of individual or aggregate capital.
Hence, far from always sapping the life out of productive capital, financiers can help to restore its vigour. For instance, early in the twentieth-century, J Pierpont Morgan ‘Morgan-ised’ US businesses from the incompetence of their founding entrepreneurs. He explained that once he had redeemed a firm he felt ‘morally responsible for its management to protect it, and I generally do protect it’. (Ron Chernow, The House of Morgan, Atlantic Monthly Press, 1990, pp. 93 and 152.) A more recent case was the rescue of Swiss watchmakers by a syndicate of investors headed by Nicholas G Hayek who, from 1985, sorted out the account-books of horologists and coined the brand-name Swatch. The role of money-men, therefore, is not confined to the asset-stripping made notorious by the 1987 leveraged management buyout of Nabisco, documented in The barbarians at the gate by Bryan Burrough and John Helvar, Barbarians at the Gate, (Harper Perennial, 1991.)
Of course, not every financier contributes to real capital all of the time. Recently, all manner of capitalists have yet again been overtaken by the fever to make money out of money (M-M’) without the bother of selling commodities, let alone producing them. (Capital, II, Penguin, p. 137.) For Marx, M-M’ was a ‘meaningless condensation’ which encouraged capitalists to congratulate themselves on producing the increment without the intervention of labour. That is impossible. Every swindler needs other capitalists to have gotten down and dirty in the expropriation of surplus value. (Capital, III, Penguin, p. 515; TS-V, III, pp. 462, 466, 486 and 494, and throughout volume 15 of Marx-Engels Collected Works, Progress Publishers, Moscow, 1986.)
Banking capital remains one the least concentrated sections of capital in Australia with four majors and a scattering of minor ones. This apparent competitiveness exists only because the law prevents mergers between the big four. Left to the force of the market, Australians would be free to choose between a bank from the European Union and another out of the U.S. of A. Even without formal foreign ownership, the locally-based institutions depend on credit from the five global giants left standing after 2008. The head count of nominally rival institutions is no guarantee that they are not confirming Adam Smith’s conviction that whenever businessmen socialise they start to conspire against the public. Indeed, the major have just been caught manipulating the inter-bank rate, as is the case in London with LIBOR.
Instead of amalgamating, most of the twenty-two banks operating in 1913, they arranged interest and exchange rates through a cartel known as the Associated Banks, which had started life in Victoria during the 1850s to preserve each other against runs, but was strengthened after their exchange-rate agreement broke down in 1904. ‘The banks meet and fix the rates of exchange and interest.’ (H.L. Wilkinson, The Trust Movement in Australia, Critchley Parker, 1914, p. 15.)
The early opponents of monopolising targeted the ‘money power’, partly because banks owned or held mortgages over so much land. All sections of capital became alarmed after 1910 when Federal Labor held clear majorities in both houses with a mandate to hobble financiers. Fisher’s Commonwealth Bank proved a flimsy affair when it opened for general business in January 1913; its sole director came from the Bank of New South Wales which handled the newcomer’s inter-bank settlements. The commercial houses lost note-issue to the Treasury but otherwise escaped direction from a central bank, which did not appear until the 1920s and remained weak until 1945.
(see L.F. Giblin, The Growth of a Central Bank, The Development of the Commonwealth Bank of Australia, 1924-1945, MUP, Carlton, 1951; I.R. Harper and C.B. Schedvin, ‘Sir Denison Miller’, Australian Financiers, 1988, pp. 206-25; Robin Gollan, The Commonwealth Bank, ANU Press, 1968, pp. 109-27; A.R. Hoyle, King O’Malley, ‘The American Bounder’, Macmillan, South Melbourne, 1981, pp. 123-35.)
The following pages document instances of how financiers have shaped Australian politics. The accounts do not promote a conspiracy theory but present conspiracy fact. There is no over-arching conspiracy by Jewish bankers to rule the world. Rather, there are countless under-the-counter deals every day seeking to extract profits and thereby accumulate capital.
Those objectives cannot be realised without the biggest corporations engaging in dirty tricks. Anyone who thinks that such activities are the stuff of fantasy need to read Bryan Burrough, Vendetta American Express and the Smearing of Banking Rival Edmond Safra, (Harper Collins, London, 1992). American Express paid $US17m. in compensation for its conspiracy against Safra.
Bankers intervene in politics and economics to do more than boost their own bottom lines. They organise their clients either as individual firms, or the entire class of the owners of properties productive of surplus-value through their exploiting of we wage-slaves. J.P. Morgan ‘morganised’ U.S. industry in the era of the Robber Barons leading up to the European slaughter. (See Naomi R. Lameroux, The Great Merger Movement in American Business, Cambridge University Press, 1985; R. Hilferding, Finance Capital, 1910 reprinted Routledge, 2006; N. Bukharin, Imperialism and World Economy, 1915 reprinted Merlin Press, 1972; V.I. Lenin, Imperialism, The Highest Stage of Capitalism, 1917, reprinted Foreign Languages Press, Beijing,1975, and Collected Works, volume 39, ‘Notebooks on Imperialism’, Progress Publishers, 1968; cf. E. Varga and L. Mendelsohn New Data for Lenin’s Imperialism, Modern Publishers, c. 1939, pp. 72-149.)
The ways in which banks organise capital and disorganise labour differ from those of state apparatuses but they mutually reinforce each other’s actions. Nowhere is this intimacy better documented than in the case of Chancellor Otto von Bismark and his banker Gerson Bleichroder in the construction of a German Empire (Fritz Stern, Blood and Gold, Penguin, 1987). Hitler’s reliance on Dr Hermann J. Abs at the Reichsbank and Abs’s post-war prominence in West German finance, politics and culture were for a long time one of the dirty big secrets of the Free World. (see Lothar Gall, ‘Herman Josef Abs and the Third Reich: A man for all seasons?’, Financial History Review, 6 (2), October 1999, pp. 147-202.)
1. Began they meant to go on:
The illegitimacy of the Bank of New South Wales, 1817-27
There’ll always be a Menzies,
For Menzies never fails,
So long as nothing happens to
The Bank of New South Wales.
– Undergraduate Rag
The Bank of New South Wales (now Westpac) was outside the law from its inception in 1817 which is probably why it soon came to be regarded as ‘One of the Most Venerable Institutions in the Country’. Governor Macquarie allowed it to operate against express instructions from the Colonial Office and permitted it to continue despite further instructions to close it down. Before an order reached Governor Brisbane not to renew ‘That Roll of Sheep-skins, Tape and Sealing Wax called their Charter’ he had done so. His successor, Governor Darling declined to accede to the Bank’s request until he heard from London. Professor Butlin summarises the Bank’s decade of extra-legality:
Darling was told that Macquarie had been informed that the charter was null and void, that its renewal by Brisbane was therefore equally invalid, and the bank was a mere partnership. No objection was raised to the bank obtaining more capital provided this was clearly understood. (p. 118)
The partners had to dissolve their limited liability institution and rebirth themselves as a joint-stock company in October 1827 – which means that Westpac’s planned bi-centenary celebrations for next year will fall five percent short of the truth – a reminder of the bank’s relationship to that precious but disposable asset. (see S.J. Butlin, The Foundations of the Australian Monetary System, Sydney University Press, 1953, chapter 5.)
A prime difference with Westpac’s recent team is that the criminals on its staff in 1817 had been convicted, such as the forger and embezzler John Croaker
(John Booker and Russell Craig, John Croaker, Convict Embezzler, 2000;
‘Balancing Debt in the Absence of Money: Documentary Credit in New South Wales, 1817-1820’, Business History, 44 (1), January 2002, pp. 1-20.)
In 1982, the Bank of New South Wales rebranded itself as Westpac to take on the world. Ten years later, the board declared a $1.66 billion loss, five directors resigned including the chairperson. (See Edna Carew, Westpac, the Bank that broke the Bank, Doubleday, 1997.)
2. In for a £: out for a farthing
A Victorian Royal Commission in Victoria in 1887 legalised the banking practices that underwrote grand larceny during the Melbourne Land Boom. One of he biggest crooks, Sir Matthew Davies, M.L.A., chaired that inquiry, hearing from only thirteen witnesses, all but one of whom were bankers or financiers anxious to expand their businesses by making loans against the ‘security’ of land. When the bubbles began to burst in 1891, a Melbourne solicitor disinterred a legal swizz known as ‘Composition by Secret Agreement.’, which the British parliament had closed off as an escape route from the Insolvency Act in 1887, but which survived in Victoria for a further ten years. Under these ‘compotes’, bankrupts settled with covert, stacked and bribed meetings of three-quarters of their creditors for as little as a farthing in the pound, that is to say, one part in every 960 they owed. They drove their carriages away with no stain of insolvency.
(see Michael Cannon, The Landboomers, Melbourne University Press, 1966. The Baillieus – those ‘Partners in Audacity’ – are again trying to block its republication. For the harrowing of the boomers’ victims see John C. Weaver, ‘A Pathology of Insolvents: Melbourne, 1871-1915’, Australian Journal of Legal History, 8 (1), 2004, pp. 109-31.)
3. 1890s Queensland
Victoria’s politicians, bankers and land ‘developers’ had the biggest pot to play with but their ambitions than matched by their counterparts in Queensland, wherethe leader of the pack was the banker and premier, Sir Thomas McIlwraith. Melbourne missionaries might covet Fiji but McIlwraith annexed the eastern half of New Guinea in 1883 until Whitehall told him to put it back. Throughout the 1880s, he led the colony into perhaps the highest per capita debt in the Empire. To meet the interest charges, he proposed to give away vast tracks of land on either side of a railway from Charleville to the Gulf. He had been director of the Queensland National Bank and continued to use its funds to his speculative deals, right up to when his government saved his Bank from collapse in 1893. McIlwraith refused to resign from the ministry after the London partners in his Queensland Investment and Land Mortgage Co. charged him with fraud; Chief Justice Sam Lilley found him guilty, a verdict reversed on appeal. McIlwraith pressured Lilley into standing down from the Bench so that he could replace Lilley with the then premier, Samuel Griffith, godfather of the draft constitution for the Commonwealth, with whom McIlwraith had been in the “Griffilwraith” coalition since 1890.
McIlwraith hightailed it to London early in 1895 where ‘ill health’ prevented his testifying to an inquiry into how he had borrowed £250,000 from his Bank on a security of £60,000. He went to his heavenly reward on 17 July 1900.
Some of the ways in which banks organise capital and disorganise labour is clear from David Kynaston, The City of London, volume II, the Golden Years, 1890-1914, Chatto & Windus, 1995:
Two months later, in May 1891, the Economist … looked ahead to the imminent
Queensland loan on the London capital market. ‘It will not do’, it declared with typical coolness, ‘for the colonies to count as part of their inheritance that their credit, or the price of their stock, should constantly improve.’ A reference to Queensland’s present ‘labour difficulties’, and in particular the existence of ‘camps of riotous men in numerous parts of the colony’, merely added to investor discouragement. Against that background, as well as the City’s generally less than animated spirits, the issue was badly undersubscribed the following week. The Economist now warned Queensland not to take the rebuff as ‘especially personal’, and in its austere way even suggested a silver lining: ‘Possibly the rates of wages in Australasia will suffer by a partial cessation of borrowing, but the trade of that important section of the empire will be far from suffering in consequence. It has been no unmixed advantage to render borrowed money too easily come by, as has been the case at the Antipodes in recent years.’ Thus the City and its commentators regulated the rhythms of economic life down under, and it was perhaps no surprise when a few months later the Queensland Premier, Sir Thos McIlwraith, launched a fierce public attack on the house responsible for bringing out the recent loan: ‘I believe the Bank of England did not behave to the Colony of Queensland in the way that a honest Bank ought to have done.’ Specifically, he accused the Bank of having broken its promise to see the colony through its current financial difficulties. This was a charge wholly denied by Lidderdale [Bank of England] – ‘there is not the slightest foundation for saying that we undertook to find all the money not provided the Public’ – but the upshot was that Queensland, and in time other colonies both in Australia and elsewhere, increasingly looked to different issuers. [pp. 48-9]
The Queensland loan flop of 1891 was a sign of chillier times, and in May 1893 the suspension of many Australian banks prompted a recriminatory mood in the City strongly tinged with schadenfreude. Particularly lacking in compunction was the outburst of the house journal of the London Chamber of Commerce: ‘The colonies have found themselves unable to bear the burden of unproductive public works encouraged and indulged in, for years back, at the dictation practically of the popular vote.’ And again: ‘We learn once more that money is an indispensible commodity and that the nation which has it, and keeps it, remains strong. The Australians thought they had reached the time when they could do without us. They will find the mistake of this belief, and also that they are still controlled by the London money market, whether they like it or not.’ The state of play could hardly have been put more plainly. In the short term most of the Australian banks that survived were the ones with a London base and strong city links; over the medium term it became clear that the price of any further borrowing from London was strict financial orthodoxy, repudiating the dangerously free-spending tendencies of a youthful democracy. [p. 84.]
4: 1900 – Re-writing the Constitution
The agitation to federate coincided with depression in the Eastern colonies and a gold boom in the West. The Barings collapse in 1890, followed by bank failures in Victoria and Queensland, made British investors more anxious to protect their funds. Throughout the 1880s, Australia had attracted a fifth of new issues on the London financial market, and returned to that level in the late 1890s but only because of the gold rushes around Coolgardie; the proportion of loan monies going to the older colonies halved.
Bank crashes in Australia contributed an often overlooked reason for an alliance between the colonies. Melbourne financiers such as the Austro-Hungarian consul, Carl Pinschoff, argued that London would be more willing to lend if the debts of each colony were underwritten in a federation. A crisis in one part of the country could be compensated for by the resources of the rest. That reduction in risk offered the further advantage of lower interest rates. Section 105 allowed the new Parliament to ‘take over from the States their pubic debts.’
In the U.S. of A., promoters of railroad stock had been swindling British investors. To restore confidence, Congress established an Interstate Commerce Commission in 1887 to regulate the industry. In Australia, governments built the railways, making the loans somewhat more secure. Nonetheless, politicians here defaulted in their personal projects as shown in the preceding sections.
Under these circumstances, British capitalists and their political agents were keen to maintain appeals to Privy Council to protect investments in government and corporate ventures. In 1897, the Colonial Office worried that loans may not be secure if suits for their recovery were to be finalised in the High Court of Australia, as proposed in Section 74 of the draft. ‘Is it likely’, a high official wrote, ‘that the House of Commons where such capital is largely represented will allow the appeal to be swept away?” Worse still, populist politicians might repudiate repayment.
The Secretary for the Colonies, Joseph Chamberlain, conspired with the premier of New South Wales, George Reid, to secure amendments to Australia’s draft Constitution to protect British investors. The Adelaide Convention altered the clause dealing with the Privy Council to allow unfettered appeals on non-constitutional questions. Another result of the Chamberlain-Reid understanding was that the Governor-General could act without the advice of the Executive Council, as Sir John Kerr did on 11 November 1975.
Neither plebiscites among Australian males nor motions in their six colonial parliaments could bring about Federation. That required an Act of the British Parliament. The Australians proposed a draft constitution: Westminster disposed. When the Australian delegates went to London in the summer of 1900 to watch over their draft being turned into the Act of the British parliament that would grant the Commonwealth its legal status, the movement towards Federation almost stalled on the question of appeals. As one of the delegates, Alfred Deakin, put it: ‘The Conservative classes, the legal profession and all people of wealth desired to retain the appeal to the Privy Council and had heartily and openly supported Chamberlain’s proposed abolition of clause 74.’ Those interests wanted an absolute right of appeal in all cases. Chamberlain assured the House of Commons that he was protecting ‘the private interests of investors … a very large class … of British subjects interested in Australia.’ In the end, the Australians agreed to the High Court’s having the power to allow appeals on Constitutional issues. Appeals to the Privy Council continued until 1982. (Based on J.A. La Nauze, The Making of the Australian Constitution, MUP, Carlton, 1972, pp. 172-75 and 263-4.)
The Privy Council was not the money-lenders’ first line of defence. Australian governments had to rely on brokers in The City to make sure that loans were fully subscribed. From the early 1890s, the London broker Robert Nivison (later Lord Glendyne) marshaled the raising of those funds through the London and Westminster Bank. In July 1903, he refused further loans in order to force retrenchments and in 1908 blocked South Australia from dealing with Lloyds Bank. If the Colonials did not behave, Nevison cut off their financial life-lines. (see R.P.T. Davenport-Hines, ‘Lord Glendyne’, R.T. Appleyard and C.B. Schedvin (eds), Australian Financiers, Macmillan, 1988, pp. 190-205.)
5. Queensland, 1915 to 1925
The most radical government which Australia has ever seen set about increasing Queensland’s pastoral rents to break up the big estates. The City of London warned that these moves would make it harder for Queensland to raise loan funds. Premier Theodore denounced ‘the bondage of despotism of the money lenders of London.’ He borrowed from New York where interest rates were higher and so had to retreat.
Tom Cochrane’s Blockade, The Queensland Loans Affair 1920 to 1924
(University of Queensland Press, 1989)
reveals how the direction of society can be altered by a major political crisis. The Queensland loans affair of the 1920s led to just such a change in direction. After four years of economic sanctions by British pastoral interests, the State’s Labor government was forced in 1924 to abandon its action against the low pastoral rents paid by privileged squatting interests. The outcome was seen as a comprehensive victory for capital, and one which left a permanent stamp on the future of Queensland.
The loans affairs heralded the conversion of the radical social thrust of the 1920s into the profoundly conservative political approach that has characterised successive Queensland governments ever since.
(From the Cover blurb)
Cochane explains that his ‘ book inspects the effect of an economic blockade imposed on the State of Queensland in the early 1920s. The blockade was launched in response to the Queensland Labor government’s action against the privileged position of squatting interests in paying low pastoral rentals. Such action had been threatened by previous governments (on both sides of politics), but had been hitherto thwarted, either within Cabinet (as in 1910), or by the Upper House (from 1915 onwards). But in 1920, a newly-acquired Labor majority in the Upper House ensured the passage of the change, and British pastoral interests reacted with this economic sanction.
The impact of this blockade on Queensland’s economic and political affairs is examined; and it is shown that dislocation of the state’s economy, resulting in high unemployment, forced retrenchments and the abandonment or deferral of government schemes, was the result of this depletion of the government’s loan revenue. It is argued that the impact on the economy generally, for which there is wide and diverse evidence, is more readily understood by focusing on two events in particular: the boom and contraction of the cotton industry, and the abandonment of the plans for a large state-owned steel industry. (‘Preface’, Blockade, pp. xi-xii.)
(see also Bernie Schdevin, ‘E G Theodore and the London Pastoral Lobby’, Politics, 6, May 1971, pp. 26-41.)
6. Gold: that barbarous relic
The blockage to the expansion of capital since 208 has brought forth calls for a return to a gold standard. Great powers go on and off that standard to suit their interests, usually coming off in order to wage war. Britain did so in 1797 against post-revolutionary France; by 1971, the U.S. had to abandon its shrinking promise to exchange dollars for gold to pay for its mass slaughter of the people of Indo-China. If the grounds for abandoning gold decide the timing of that shift, knowing when it is safest for capital-in-general, or an economy, to return to the gold standard is several times trickier.
The British Empire took itself off the Gold Standard during the Great European Slaughter and did not return until 1925. These decisions had direct impacts on the Australian economy because the exchange rate of the local currency was tied to sterling. Movements in that rate were stabilised by squeezing the levels of bank lending here, or by exporting more gold bars.
By late 1923, the anti-labour Coalition administration accepted the necessity of reverting to gold to smooth access to credit during the wool auctions for as economy astride the sheep’s back. The Secretary of the Treasury warned the acting prime minister that Australia could not lift its wartime embargo on gold exports unless and until it had been ‘fortified by assent of Banks and financial institutions because if they strongly opposed, position of Commonwealth Ministry would be exceedingly difficult.’ The balance of local political and economic forces had shifted by the start of 1925 to export gold again.
To complicate the situation, financing the war had turned the British Empire into a debtor to Wall Street. The U.S. dollar had become at least as good as sterling. Britain had to borrow US$500 in New York, only to be told that the uses to which the money could be put would need the approval of the U.S. Federal Reserve. Australia’s attempts to borrow in London were caught in the crossfire, as the British Treasury struggled to defend sterling by preventing any depletion of its gold reserves. The Commonwealth responded by following Queensland in raising loans on Wall Street at higher rates of interest than it could expect in The City.
(see Kosmas Tsokhas,’The Australian role in Britain’s return to the gold standard’, Economic History Review, XLVII (1) 1994, pp. 129-46; and Peter Cochrane. ‘Gold: the durability of a barbarous relic ‘, Science & Society, 44 (4), 1980, pp. 385-400.)
7. 1930s depression
Federal Labor returned to office in November 1929 with a majority in the House of Representatives but with only seven out of the thirty-six Senators who blocked its Central Reserve Bank Bill, as Stuart Macintyre writes:
The sovereignty had become painfully apparent. Control over the money supply rested with the Commonwealth Bank as a result of Bruce’s legislation of 1924, was run by a board of business and financial leaders appointed by the government but not responsible to it. The chairman of the Commonwealth Bank Board was Sir Robert Gibson … who brooked no interference in his management of the country’s finances. Behind him stood the private banks, even more hostile to what they described as political interference in financial affairs. They arranged for the Senate to prevent the passage of the Central Reserve Bank Bill, which proposed merely to separate the trading bank activities of the Commonwealth Bank from its limited reserve bank activities, but alarmed the business community because of its provision for the appointment of a new reserve bank board. (Stuart Macintyre, The Oxford History of Australia, volume 4, 1901-1942, OUP, Melbourne, 1986, pp. 256-7.)
Sir Otto Niemeyer arrived on 14 July 1930 from the Bank of England to protect British investments. In August, the Premiers Conference endorsed Niemeyer’s deflationary policy. (see Peter Love (ed.), ‘Niemeyer’s Australian Diary’, Historical Studies, 20 (79), October 1982, pp. 261-77; and Bernard Attard, ‘The Bank of England and the origins of the Niemeyer mission, 1921-1930’, Australian Economic History Review, 32 (1), March 1992, pp. 68-83.)
8. ‘confounded impudence’: the Lang Plan
Federal Treasurer Theodore drew on a decade of international thinking about the virtue of inflationary public spending to stimulate economic recovery. He proposed to issue £18 million. The correctness of this response against demands to cut government spending to balance the budget became orthodoxy during the post-war trough in unemployment. For reasons connected with New South Wales Labor Party machinations, its newly elected Premier Jack Lang had to come up with a popular alternative to Theodore’s Plan and to that of Niemeyer.
Each of the three parts to the Lang Plan was each sensible in itself, and several times more so than the Plan that the zombie professorate, led by Douglas Copland, had come up with under the tutelage of the Bank of England’s emissary. In February 1931, with jobless rates already over 20 percent, Lang called on the conference of the seven governments of Australia to support the following:
1. That the governments of Australia decide to pay no further interest to British bondholders until Britain had dealt with the Australian overseas debt as Britain settled her own foreign debt with America; [extended repayment to sixty-two years, etc.]
2. That, in Australia, interest on all government borrowing be reduced to 3 percent;
3. That immediate steps be taken by the Commonwealth Government to abandon the gold standard of currency, and set up in its place a currency based upon the wealth of Australia, to be termed ‘Goods Standard’.
Australia had de facto left the Gold Standard earlier. Thenm under the leadership of Alfred Davidson, the Bank of New South Wales broke the official exchange rate of parity with sterling early in 1931. (C.B. Schedvin, ‘Sir Alfred Davidson’, Australian Financiers, pp. 346-7.) Since 1933, Australian banknotes have not carried a promise ‘to pay the bearer one pound in gold on demand.’
Two qualifications hover over any endorsement of the Lang Plan. First, Lang had not jumped the gun on Keynes whose prescriptions had been widely understood a decade before he gave them a theoretical foundation in his General Theory in 1936. Secondly, the Lang Plan suffered from an unavoidable weakness. Failure to pay up in full would have shut down all loans. When Lang failed to repay £737,000 to the Westminster Bank, a loan which the Bank had refused to renew, the Commonwealth had to cough up. (David Clark, ‘Was Lang Right?’, Heather Radi and Peter Spearritt (eds), Jack Lang, Hale & Iremonger, 1977, pp. 138-59.)
The difficulties in rolling over loans continued under the anti-Labor government, (see Neville Cain and Sean Glynn, ‘Imperial Relations Under Strain: The British-Australian debt Contretemps of 1933’, Australian Economic History Review, 25 (1), March 1985, pp. 39-58.)
The battle of the Plans raged until the State Governor, Sir Phillip Game, dismissed Lang in May 1932. Since New South Wales was still constitutionally a British colony, Game acted within his powers and betrayed none of the duplicitousness of Kerr in 1975. What the two dismissals do have in common is that both were sparked by challenges to the ‘Money Power’. (John M. Ward, ‘The Dismissal’, Jack Lang, pp. 160-78.)
In reaction to Lang’s alleged ‘repudiation’, R.G. Menzies told a Pleasant Sunday Afternoon in a Melbourne Methodist Church in May 1931:
If Australia were to get through her troubles by abating or abandoning traditional British standards of honesty, or justice, of fair play, of resolute endeavour, it would be far better that every citizen within her boundaries should die of starvation within the next six months. (Argus, 4 May 1931, p. 6.)
We can be confident that Mr Staniforth Ricketson of Capel Court would be among the last survivors along with his clients for whom he had just bought some twenty-three million dollars in U.S. bonds at about 25 to 40 percent of their par value.
9. The House of Were
Staniforth Ricketson descended from gambling with bonds at the stockbroking firm of J.B. Were to rigging governments. Alarmed at the unorthodox views stalking the Federal Labor administration, he held meetings in his offices of ‘the Group’ of six prominent Melbournians to get the ex-Labor premier of Tasmania, Joe Lyons, to rat and accept the leadership of a new political force – which became the United Australia Party. Menzies was ‘the Group’s’ legal legman and political pointsman. (See P.R. Hart, ‘Lyons: Labor Minister – Leader of the U.A.P’, Labour History, 17, 1970, pp. 37-51.)
On 21 December 1932, Menzies used his official stationery as Victorian Attorney-General to appeal to prime minister Lyons on behalf of his brother, Les. The letter began: ‘During our very pleasant political association I have refrained from asking you for any favours because I know from my own experience that the asking of favours can be very embarrassing, but I hope that you will permit me to break the rule just once.’ The phrase ‘our very political association’ was code for how Lyons had got to be prime minister and why Menzies felt confident that his request would be met. On the principle that one good turn deserved another, Menzies continued: ‘There is now an opportunity of rectifying what I consider to have been a real injustice to my eldest brother, by appointing him to a classified position.’ On Les Menzies’ return from the Trade Commission in New York, he had been listed as an
“excess officer” … I have always felt very disturbed about this position, because in a period of retrenchment an “excess officer” may very well find himself an “ex” officer … I hope it would not be asking you too much to request that you should, if you can, further his claims at the present time. In the absence of some ministerial direction he may even now be overlooked, because, unlike myself, he possesses a decent and modest and retiring disposition.
Menzies concluded by assuring Lyons that ‘You may, as usual, rely upon the wholehearted support of myself and those who are politically associated with me’. Was this a promise or a threat? On Christmas Eve, the prime minister replied that the request would be granted.
Menzies never had to ask Ricketson for favours as is obvious from the letter he wrote as he was preparing to go ‘Home’ in February 1935:
I cannot leave Melbourne to go abroad without telling you how much I appreciate all your many acts of kindness and friendship during the past few years … Pat and I will carry with us tangible souvenirs of the generosity of Gwen and yourself and our little group, but I can assure you that the most valuable souvenir will be the constant recollection which we will carry with us of 1000 acts of kindness. (19 February 1935)
Here again is ‘the Group’. The academic biographer of Menzies adds that one kindness was Ricketson’s
readiness to handle aspects of Menzies’ personal finances, in which the latter’s lack of practicality would soon become notorious. To help release Menzies from such worries was perhaps at this point, where political activity was seriously interfering with his professional life, the most practical gift Ricketson could confer on his friend. (A.W. Martin, Robert Menzies, A Life, I, Melbourne University Press, 1993 p. 141.)
Among the ‘details’ which Martin would prefer ‘are no doubt lost for ever’ is that Ricketson in 1936 set up an Investment Trust with nominal capital of one million pounds, with Federal Attorney-General Menzies as a director. There are more ways of rewarding a fox apart from the bribe direct. (Robert Murray and Kate White, ‘Staniforth Ricketson’, Australian Financiers, pp. 320-1.)
10. 1946-49 nationalisation
Full and partial takeovers of banks during the chaos of 2008-9 revived interest in their nationalisation as a good thing in itself. This notion has significance here because the Chifley government’s attempt to do so in the late 1940s served as a sop to ‘true believers’ in Old Labor’s milk-and-water Socialist Objective. Hence, it is important to understand that Chifley was not taking the first step towards socialism. He was capitalising manufacturing capitals. His banking bills organised capital just as his sending the army into the coalmines disorganised labour in 1949.
Chifley had shared the labour movement’s distrust of bankers before an openly anti-labour government appointed him to the Royal Commission on Banking in 1935. His eighteen months as Commissioner allowed him to refine his prejudices as he gathered testimony about the banks’ reluctance to invest in manufacturing. In Britain, the 1931 Macmillan Committee had revealed a comparable problem. (Peter Cochrane, Industrialisation and Dependence, Australia’s Road to Economic Development 1870-1939, UQP, 1980, pp. 55-73.)
As Treasurer from October 1941, Chifley used the Defence Power in section 51(v) of the Constitution to implement many of the Royal Commission’s recommendations. Knowing that those Regulations would lose their force during the transition to peace, Chifley secured Acts in 1945 to make them permanent.
He saw these legal changes as pivotal to the reconstruction of capitalism after the 1930s depression through four interdependent projects: unemployment of no more than 5-7 percent; industrialisation (e.g. General Motors); power from the Snowy Mountains Hydro-Electricity Authority (which would also fuel a nuclear cycle for weapons); doubling the population, half through immigration. Controls over the trading banks seemed essential for this program.
The 1945 Act made State and local governments bank with the Commonwealth, which promised its Trading arm more funds to assist manufacturing. For administrative reasons, this provision could not implemented until May 1947, whereupon the Melbourne City Council successfully challenged its validity in the courts. Only then did Chifley move to nationalise the banks, fearful that reconstruction was being saboutaged. Menzies, for instance, spoke out against the Snowy Scheme.
In 1949, nationalisation was ruled ultra vires under Section 92 which reads that ‘trade, commerce and intercourse … among the States shall be absolutely free.’ A majority of the Bench and at the Privy Council contorted the meaning of ‘free’ from its original intent of not being subject to tariffs into meaning free from government restriction.
(A.L. May, The Battle for the Banks, Sydney University Press, Sydney, 1968; Warwick Eather and Drew Cottle, Fighting from the Shadows: The Private Trading Banks, Political Campaigns and Bank Nationalisation 1930-1949, Australian Centre for Labour and Capital Studies, Shanghai, 2012; Warwick Eather, “Throw out the Socialists … We Hold the Destiny of this Country in Our Hands”; the Australian Women’s Movement Against Socialization in New South Wales, 1947-1960, Australian Centre for Labour and Capital Studies, Shanghai, 2012.)
ALP leaders, notably Whitlam, seized on the judgement to pretend that the socialist objective was impossible without a referendum to alter the Constitution. What is the constitutional position today? The High Court in 1989 overturned the sloppy definition of ‘free’ in a case about undersized crayfish. It appears that Section 92 is no longer an absolute barrier. However, a practical obstacle exists from Section 51 (xxxi) which says that property must be acquired on ‘just terms’. This provision was the deus ex machina in The Castle. If, by some miracle, the banks were to be nationalised, we, the people, would have to pay their shareholders their full market value. The good news is that, if the banks go bust, we could pick them up for a song. The bad news is that before the banks had been devalorised, millions of unemployed would have nothing to sing about.
A government takeover of the banks would buttress the rule of capital by strengthening the state as an executive committee of the global bourgeoisie. Moreover, any benefits from nationalisation would be marginal without reconstituting the regulatory regime over the financial sector dismantled under Hawke-Keating, as shown in section 13 below. (The above is from my ‘Capitalising the banks’, Crickey, 27 October 2008.)
11. Hush money
Throughout the 1950s, Melbourne’s corporate crooks joked that the way to keep their malfeasance out of the Herald was to threaten to chop down a tree along St Kilda Rd. It also helped if you were in bed with the directors of the Herald & Weekly Times, as was the stock-broking merchant banker Ian Potter. Nor was his reputation for probity harmed by his trusteeship of the Liberal Party’s finance committee, or his dealings with another Menzies crony, Sir Frank Richardson of Cox Bros.
What had Potter to hide? Out of yet another Melbourne land boom, a chain of stores – Cox Brothers – went bust for £15 million. Potter had busied himself in propping up its share price so that it could take over the poshist of Melbourne stores, Georges. When the third credit squeeze under the disastrous economic stewardship of Menzies blew the deal out of the water, Potter and Richardson set up a new company named Walana – an indigenous word for boomerang. A State government investigation showed that the company ‘existed to disguise a situation which, if it had not been dressed up, might have detracted from the Cox Finance Corporation’s ability to persuade the public to lend to it.’ The trick worked long enough for those trusting souls to lose the aforementioned £15 million and for Potter to get a knighthood in 1962. His roguery got minimum coverage in the Melbourne Herald perhaps because its parent company had a profitable arrangement with Potter’s merchant bank – Australian United Corporation – to handle over-night trades of the paper’s rivers of gold from advertising. Like so many other crooks, Ian Potter is now remembered as a philanthropist – which is easy when you are generous with the money who have nicked from others. (See Peter Blazey, Bolte, Jacaranda, 1972, pp. 1011-10; National Times, 10-15 May 1976, pp. 45-46.)
12. 1974-75 Loans Affair
Labor Minister for Minerals and Energy Rex Connor attempted to secure control of natural resources and their processing by borrowing petro-dollars. For a brisk overview see Darryl Foster, ‘The Loans Affair’, E.L. Wheelwright and Ken Buckley (eds), Essays in the Political Economy of Australian Capitalism, volume Two, ANZ, 1978, pp. 81-86.
Any Royal Commission into the financial sector could well devote a chapter to what the global money marketers got up to here in 1974-75, and to the part played by Commonwealth Treasury officials in the downfall of the Whitlam administration. Kerr’s confidant in the coup, that walnut-hearted man, Sir Garfield Barwick, CJ, later told an interviewer that he had acted to save the country ‘from the Jews’. (see Dennis H. Phillips, ‘A timely interview’, Labour History, 46, May 1984, pp. 142-8.) Any inquiry into the financial sector of capitalism must interrogate the legal vultures, led by Barwick, who made tax-paying voluntary for anyone not having deductions made at source (under PAYE).
13. Afloat in the Eighties
The year after P.J. Keating joined that agent of U.S. influence R.J. Hawke to float the Australian dollar in December 1983, he had greatness thrust upon him as ‘Finance Minister of the Year’. It should come as no surprise that Keating’s award for deforming the economy came from Euromoney, the monthly mouthpiece of global plunders. The Hawke-Keating removal of exchange controls threw open the doors and windows to speculators of every shape, size and shadiness, an invasion sped up by allowing the entry of off-shore banks in 1985.
Keating soon found that he could never be supine enough to suit those gougers and got no end of a lesson in 1985 on how financiers take care of the interests of capital, as John Edwards recorded in Keating, The Inside Story, Viking, 1996:
While Keating worked on the Budget, the markets remained nervous and the dollar began to slide. On Friday 25 July, Higgins [Treasury deputy-secretary] reported to Bernie Fraser [Treasury Secretary] a call from Nicolas Sargen, the Salomon Brothers Australia specialist in New York, to Treasury official John Fraser. ‘Sargen said he was having difficulty maintaining his position of support for Australia. An increasing number of their clients are beginning to think of cutting their losses – now some 20 per cent’, John Fraser had recorded. Salomon’s view was that what was needed was a tightening in monetary policy and a statement that the government was going to hold the rate. Higgins reported he had passed the information on to John Phillips at the Reserve Bank straight away.
Foreign holders of Australian dollar assets had been annoyed by Keating’s 1 July decision to impose a 15 per cent tax on their interest and dividends payments before they were remitted abroad. It was a decision pushed hard by Treasury, one which he already regretted. Over the weekend, Keating and (John) Fraser worked on a package to steady the currency. Treasury prepared an announcement that the new withholding tax would be removed and that a rule confining foreign investors to holding a maximum of a half share in real estate developments would be relaxed. (p. 300)
Keating capped his parliamentary career as the creature of low finance by starting the sell-off of the people’s bank from 1990. The founders of the Commonwealth Bank around 1910 had seen it as one way to prevent the scandals that are now sheeted home to its namesake. No wonder that the bank’s erstwhile head, David Murray, is opposed to prison sentences for directors who preside over unconscionable practices.
One result of the Hawke-Keating financial de-regulation was that three ALP State administrations self-destructed through attempting to develop their economies on the twin delusions that you can make money out of money and that their States could beat the global players at Blackjack. Melbourne was also bristling at its demotion to second place behind Sydney as the centre of capitalism in Australia. Meanwhile, South Australia felt humiliated when the collapse of the Bank of Adelaide lead to its merger into ANZ in 1980, followed by a Melbourne takeover of Elders. Victoria’s premier John Cain was so fastidious that he bought his own stamps into work for his personal mail yet he presided over the loss of billions through the State Bank and its merchant banking arm, Tricontinental. (Robert Murray and Kate White, The Fall of the House of Cain, Spectrum, 1992.) South Australia’s scrupulously honest John Bannon went down similar tubes, taking his State Bank with him. The story in the West was different. There, the sleazy premier Brian Burke was in cahoots with a galaxy of other incorrigibles, with ‘Last Resort’ Laurie Connell as their bagman at his Rothwells bank. (Paul Barry, The Rise and Fall of Alan Bond, Bantam, 1990). Thousands of small to medium investors lost their savings as a direct result of the ALP’s conversion to State-funded speculations, and from the collapse of the Pyramid Building Society at Geelong. Several times that number of innocent bystanders lost their jobs, and had to endure more of the hidden injuries of class from the recession we had to have inflicted upon us so that Keating & Co. could flush the excesses which their deforms had made inevitable.
Ever more reading
These case studies are some of the fixes about which we know. How likely is it that there have been no others? J.B. Were published an in-house history with instructions that its existence be kept secret. All the major banks, and several regional and specialist ones, have published official histories. Less respectable sources are Appendices 3, 19 and 20 in Brian Fitzpatrick, The British Empire in Australia, 1834-1939, (Macmillan, 1941 reprinted in 1969) which are rich with dates and statistics. A few later ones are in E.W. Campbell, The 60 Families Who Own Australia, Current Book Distributors, 1963, chapter four.
Who is to be done?
How should Marxists respond to the calls for a Royal Commission? The scandals provide a counter to the assault on the CFMEU and we must continue to build on the public’s outrage. Hence, it is tactically sensible to back demands for a nation-wide Independent Commission Against Corruption to keep the anti-capitalist pot boiling. The fallout from Piketty, Pope Francis, Corbyn and Sanders is melting down barriers that had kept radical ideas for social equality off the agenda for over thirty years.
The welcome given to their criticisms of real existing capitalism is being fed by the on-going implosion in the expansion of capital. Since that actuality will get worse long before it starts to improve, Marxists have ample opportunities to take advantage of the spaces that have opened up to deepen public awareness of how the banks serve global capital. To get those connections across, we need first to listen to how the turmoil is misunderstood. Nothing will be gained from megaphone Marxists who know all the answers without ever having heard any of the questions.
No Royal Commission will deliver much of what wage-slaves need most. No government is going to repeat the mistake that led to the revelation of bottom-of-the-harbour tax schemes, or the Gyles RC into the NSW building unions which ended up with the Master Builders in the dock. Both the Cole and Hayden RCs into the unions had terms of reference framed to protect the guilty. Should public pressure broaden the scope of any inquity, the selection of the Commissioners can keep a tight rein on where the investigation heads.
The first rule for governments in setting up any Royal Commission is to write the findings before the terms of reference – or as the King says in Alice: ‘Sentence First, Verdict later!’ The Report of the 1936 Commission was little more than milk-and-water amendments largely on technical matters. All the inquiries from the Campbell Report in 1980 onwards have had the pre-set purpose of giving open slather to the money-movers and jugglers, like the Victorian one in 1887. David Murray’s recommendations for Abbott-Hockey proved slightly different because, fearful of the coming global shocks, he called on the banks to strengthen their liquidity – a requirement which eats into their profits.
Any reforms out of a Royal Commission, like those from the bigger budget and greater powers for the Australian Investment and Securities Commission, will oblige the agents of capital to find new ways around and through the law, aided by High Court judges and ‘free’-trade Agreements. For the present, we can enjoy watching pressure from social movements trim the ‘culture’ of profit-taking. However, global capital will never break out of its current implosion if shackles on financiers get in the way of the next bout of exploiting wage-slaves, plundering the wealth of nature and swindling customers of every magnitude, whether rival conglomerates or a widow out of her mite.
A truth and justice Commission into every crime under capitalism is called for but not one where the guilty walk away with a cleared conscience and no day in court. No reconciliation is possible with the likes of John Fraser. David Murray, or merchant banker Turnbull.