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POLITICAL ECONOMY - xxx |
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Bankers and bourgeois
democracy Some views from Australia 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. 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.
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. 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. 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. 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. Marx, 1859. 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 ) 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.) 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.) 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.)
The illegitimacy of the Bank of New
South Wales, 1817-27 For Menzies never fails, So long as nothing happens to The Bank of New South Wales. - Undergraduate Rag
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.)
(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.) 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] 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.) 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.) 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.) 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.) 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. 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.) 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.) 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.) 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). 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. 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. 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.
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See also Globalisation |