Global Financial Crisis 2008 – Article No 20
by Humphrey McQueen
Capitalising the banks
Full and partial takeovers of banks are reviving interest in their nationalisation as a good in itself. This notion has significance here because the failure of the Chifley government’s failure to do so in the late 1940s served as a sop “true believers” in the ALP’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.
Chifley 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.
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.
This Act was crucial to reconstructing capitalism after the 1930s depression through four interdependent projects: unemployment of no more 5-7%; industrialisation (eg General Motors); powered by the Snowy Mountains Hydro-Electricity Authority, to support a doubling in the population, half through mass migration. Controls over banks was essential for this program.
The 1945 Act made State and local governments bank with the Commonwealth, which gave 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.
In 1949, nationalisation was also ruled ultra vires under Section 92 which reads that “trade, commerce and intercourse … among the States shall be absolutely free.” This decision required a majority of the Bench to contort the meaning of “free” from its original intent of not being subject to tariffs into meaning free from government restriction. ALP leaders seized on the judgement to pretend that socialism 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 had gone bust, we could pick them up for a song. The bad news is that before they 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 its executive committee. However, the effect of nationalisation would be marginal without reconstituting the regulatory system dismantled under the Hawke-Keating.
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