Frank Cain
University of New South Wales, Australian Defence Force Academy

Jack Lang would not have been surprised at his government’s win in the NSW general elections of 25 October 1930—it was easily predictable. The surprise lay more in the size of the majority because Labor’s share of the state’s vote increased from 43 per cent in 1927 to 55 per cent in 1930 thereby lifting its majority from 42 seats to 55 in the 90 seat Assembly. Remarkably it also won a brace of 14 rural seats out of a nominal 24 country seats.¹ The cause of this stunning victory is to be found in the deep impact of the Great Depression on the lives of the majority of voters. Tens of thousands of what were then known as male bread winners were unemployed because the loans raised to pay for the large public works programmes on which they found employment had all but ceased. In addition, the prices for all primary production had fallen drastically so that both the rural and urban people collectively faced destitution and in some cases starvation. The Nationalists, led by Tom Bavin, offered no relief and actually told the electors that they had to tighten their belts and put up with even harder times than his government had delivered to them. Bavin gave uncritical support to the proposals of the Sir Otto Niemeyer who led a mission from the Bank of England to Australia in July 1930 to review the Australian economy. Niemeyer’s prescription was contained in his deflationary five-point plan: this included the balancing of all government budgets, stopping overseas borrowings and local loans only for revenue producing schemes. Niemeyer had this plan adopted by all Australian governments in Melbourne in August 1930 to be known as the Melbourne Agreement. Bavin embraced the Agreement, telling NSW electors that their failure to endorse it there would result in three or four becoming unemployed for every one who was then out of work.² Bavin’s government had earned the enmity of many voters. He had restored the 48 hours working week in place of the 44 hours introduced by the Lang Labor government of 1925 to 1927, made widows pensions more restrictive, dismantled the industrial and conciliation arrangements, reduced the wages of public servants, and erected a protective legislative fence to guard the Legislative Council against Labor’s attempt to abolish it.

The Labor Party offered a more adventurous programme. The Legislative Council, that had thwarted Labor since its inception was to be abolished, the 44 hour week returned, interest rates on mortgages controlled, a fairer industrial arbitration system restored and landlord and tenant legislation made equal.³ On the rural front, stabilised wheat marketing was promised along with assistance for the marketing of other primary products and the completion of the bulk wheat handling system. Wide unemployment had occurred in NSW through the reduction in loan raisings for public works by the newly established Loan Council and Labor promised to rectify this.

Australia’s economic problems

At this time Australia was confronted by two important economic developments; one was the stoppage on loans raised in London and the other was the drastic fall in prices obtained in London for Australian primary commodities. From the 1890s the Australian states had raised loans through British banks, the money from which was not shipped to Australia but spent on purchasing a large range of British goods used by state governments such as road making equipment, harbour ferries, railway engines and rolling stock, school books and darning needles. Loans and taxes raised by the Australian governments were used to pay the wages of the people engaged in constructing the public works employing this British equipment. The financing system had developed whereby the states made these purchases through overdrafts, normally from the Westminster Bank in London, and when these amounted to £5 to £10 million a loan would be raised, via the Bank, to pay-out the old overdraft and a have a new overdraft raised. In May 1929 it became impossible to borrow in London partly through the culmination of negative publicity about Australia’s borrowings distributed by journalists and pamphleteers, but mostly through the reluctance of the Bank of England and the British Treasury to endorse continued lending in spite of it benefiting the British financial worlds and British manufacturers. The large overdrafts could no longer be settled with new loans and the Commonwealth sold treasury bills in London to raise the money for settling the overdrafts. Sir Otto Niemeyer’s visit had partly been conducted to establish whether the Bank of England should assist in such re-financing arrangements. His report rejected any such help.

The steep fall in prices for Australian primary products was due to the British policy of free trade. British merchants obtained their imports from the cheapest sources and because the Soviet Union was then exporting wheat, butter and timber at remarkably low prices, the British merchants ceased purchasing Australian production in favour of the Soviet’s. Large stocks of Soviet wheat built up in Britain and Australia’s wheat sold at uneconomic prices. The Scullin government immediately stopped British imports because there were declining sterling credits in London to pay for them. From 4 April 1930 a special duty at the rate of 50 per cent of the existing duties was imposed on 132 items and the importation of special luxury goods was prohibited.⁴ This had two effects. One was a sudden increase in revenue for the Commonwealth government and the other was an expansion in Australian manufacturing to meet import replacement.

Lang’s immediate problem was how to circumvent of the constraints imposed on the state’s borrowing by the Australian Loan Council established in 1928. It was a difficulty he did not have to confront in his previous government of 1925-27. The Council emerged from a long and dedicated campaign of the Bruce-Page government to curb the financial autonomy of the states under the sweeping powers of the Financial Agreement. The urgency of repaying war loans was the ostensible reason for introducing these measures. Under this Agreement, the Commonwealth government took over the states’ debts although the states still had to repay the loans and the interest (Lang later argued that the Commonwealth should also be responsible for these payments). All loans thereafter had to be approved by the Council for which Commonwealth securities (and not state ones) were issued. The Loan Council was incorporated into the Australian constitution at a referendum in November 1928 so that all states were tied to the Council’s chariot wheels and no state thereafter could raise their own loans. The Council was supposed to centralise all borrowings in London and Australia at cheaper rates, but such a grand plan was not realised. Lang had opposed the establishment of the Council as had the Western Australian government and Australia’s London merchant bankers, Nivisons. The raising of one very large loan for six states (in place of the six raising their own small loans), Nivisons declared, was impossible on the London money market as much as it was in Australia. Loans only of a small if frequent nature could be digested by both money markets. The Loan Council failed in what it was supposed to do, that is raise an adequate number of large loans in Australia: in addition it was unwilling to seek ways around the stoppage imposed on London loan raisings. Lang promised to have the Financial Agreement amended and the Council dissolved thereby allowing NSW again to raise it own loans and reinstitute the public works programme, the cessation of which had caused the extensive unemployment in metropolitan and rural areas during the Bavin government’s reign. Lang was often asked how he could finance these promises in the face of the Loan Council’s restrictions. He said that loans must be granted if only to access the potential revenue that would be derived from uncompleted public works such as the city underground railway and rural public works.⁵

The new government

When Lang gained access to the Treasury books on 3 November, he was alarmed to find the Treasury facing a debit balance of £2,219,895. In addition the state faced immediate obligations in respect to overdrafts and advances by banks in London and Sydney of £9,575,642 to which would be added £3,545,252 for NSW’s share of maturing treasury bills discounted in London by the Commonwealth government thus raising the state’s short-term borrowed obligations to £13,120,894. Lang immediately acted by having the government’s bankers, the Bank of NSW and the Commercial Banking Company of Sydney, finance treasury bills (provided by the Loan Council) to the value of £1 million.⁶ The Bavin government had not produced a budget for the financial year 1929-30 and Lang had to have a special Supply Act passed to extend funding until the end of March 1931 in order to pay the wages and salaries of the government workers in the departments and business undertakings as well as to pay charitable relief. The Nationalists raised no objection to its speedy passage.⁷ Lang’s government was facing a fiscally daunting situation; revenue from its railways and other businesses was falling (a deficit of £7,784,612 was expected) and much of its income (estimated at £18,425,770) from taxation and other sources would not arrive until the second half of the financial year.⁸ The government, nevertheless, sought to bring some cheer to the unemployed by arranging to provide double rations for them over Christmas. With these benefits estimated to cost an additional £30,000 for the metropolitan area and £50,000 for the rural area, the Treasury proposed confining the increase to one-half of the normal ration by providing articles outside the ordinary food ration.⁹

Lang confronts the loan council

It became one of the early aims of Lang to repair the financial damage suffered by NSW through the Loan Council’s restrictions on raising state loans. He attempted to revive NSW’s financial autonomy by appearing at the Loan Council meeting in Canberra on 11 November 1930 and proposing that “the time has arrived for the termination of the prohibition against the State itself borrowing under its original powers”. But an anti-Lang alliance had formed to which the Labor governments in Victoria under EJ Hogan and in South Australia under Lionel Hill subscribed. Lang had to witness these Labor-governed states and Joe Lyons, Federal Labor’s acting Treasurer, joining with the Nationalist states to announce that the Council had no “Constitutional power to grant the request of” NSW. Another of Lang’s proposals was that interest paid on state and federal loans should be subject to state and federal taxation. The matter was deftly side-stepped by postponement to the next Council meeting. Not unexpectedly, Lang then announced that he would withdraw NSW from the Council remarking injudiciously that “New South Wales is going to raise the money to carry out the people’s mandate, and we shall resist with all our force any attempt to obstruct us.”^’ This was an impossible claim, but it probably heartened the state Labor Party and many others in NSW.

Lang’s intention of seeking loans outside the loan council brought a quick response from the trading banks. The banks by then had united under the innocuous sounding title of the Bankers’ Conference and had made the Commonwealth Bank’s Sir Robert Gibson their chairman. Gibson then announced that all banks, including the Commonwealth, had decided that all borrowings by government whether by loans, treasury bills or overdrafts must be covered by treasury bills issued under the authority of the Loan Council. Such a united front under a banking Czar like Gibson signalled not only to Premiers (such as Lang who sought to reinstitute individual loan raisings) but also to the Scullin Labor government that the Commonwealth Bank was no longer an agent of the Australian Government but was part of the private banking community. It was “the practical unification of the finances of the Australian Governments through the creation of the Loan Council”, Gibson blandly explained, as the reason for issuing these commands to the Australian governments.

Curbing the legislative council

Lang had attempted to abolish the Legislative Council by having twenty-five additional Councillors appointed in December 1925, but the plan failed when many of them failed to vote on the abolition bill. The succeeding Nationalist government entrenched the Council by legislating for a referendum to precede any move for its abolition. The new Labor government proposed to rescind this law and Lang asked Governor Game on 5 November (one day after taking office) to appoint Councillors sufficient to achieve the Council’s abolition as promised in his electoral mandate. Game refused although he cabled the British government on 4 December to say that if the Council “throw out the Bill my intention is to agree to additional appointments the Premier may request”.¹⁰ The rescinding and abolition bills were presented to the Council and, as if aware of the Governor’s intentions, the Nationalists speedily passed the bill without a division. Lang was justifiably suspicious of this uncharacteristic behaviour of the Councillors. He had Game cable the British government authorising Game to assent to the two bills immediately. Game added a rider in the cable saying “If you desire my views I see no reason why the advice of my ministers should not be accepted”.¹¹ The strategy of the Nationalist Councillors to counter what appeared as self-destruction soon became evident when they obtained from the Supreme Court an injunction to stop Game assenting to the very abolition bills they had recently passed. As apparently planned, the matter then became bogged down in the courts and Game was spared having to give Lang more Councillors.

The NSW government engaged Dr HV Evatt to intercede in the injunction hearing and he informed the Court: “You cannot have Parliamentary sovereignty which can define and limit itself. One Parliament cannot substantially shackle or interfere with the discretion of a subsequent Parliament”.¹² But the NSW Supreme Court upheld the injunction on 23 December and the government took the matter to the High Court where by a narrow majority of three to two its appeal was dismissed.¹³ The Dominions Office was surprised at such an outcome and a senior legal officer, Sir H. Batterbee, observed that, “I find it difficult to follow the decision. A subordinate Parliament can be bound by a superior Parliament, but how can a subordinate Parliament, acting in matters which are within its sovereignty, bind its successors?”^’ The government then appealed to the Privy Council where the rejection of its appeal was not handed down until 31 May 1932 after the Lang government had been replaced on 13 May. ¹⁴  Meanwhile the Legislative Council continued to obstruct the government’s legislation which Lang tried to counter by continuing to press Game for the appointment of more Labor nominees, the details of which are outside the 150 days discussed here. The British Labour government under Ramsay MacDonald gave no support to a fellow Labor government. The Secretary of the Dominions Office and former railway union organiser, Jimmy Thomas, tried to frustrate the NSW government. He examined the possibility of using the powers of the Colonial Stock Acts to disallow NSW legislating to abolish the Legislative Council on the grounds that this would be a departure from the arrangements made at the time when the British stock holders purchasing the NSW stock.¹⁵

Relief of poverty

Introducing laws for the relief of unemployment and raising the money to pay for them occupied the early weeks of the NSW government. First it quadrupled the special unemployment tax, already levied by the Bavin government, from 3 pence in the pound to 12 pence in the pound. It was levied on wage and salary earners, investors and companies and expected to raise a maximum £1,500,000 per annum.¹⁶ Funds paid to English and foreign companies in NSW from dividends declared in Britain and the US, which normally escaped taxation in Australia, would be taxed under this measure.¹⁷ Secondly, the low sustenance wage given to the unemployed was raised closer to the award wage for that job; moreover this special employment was rationed so that more people had access to some remuneration if only for part of a period. These funds were to be paid into a specially dedicated Unemployed Relief Fund and not into general revenue. Employment was to be provided, fortnightly-about, for approximately 4,000 to 5,000 men on labouring work for the Water, Sewerage and Drainage Board for approximately 12 months.¹⁸ A further boost to local employment was provided by an instruction of 17 February 1931 for all government departments to give preference to the purchase of goods manufactured in NSW and from firms employing union labour and working less than 44 hours weekly. ¹⁹  Another revenue raiser, introduced on 10 December, was a Winning Bets Tax of ten per cent expected to raise £2 million per annum. Lang wanted this bill in place before the Christmas racing season commenced on 20 December 1930.²⁰

Bookmakers were responsible for the collection and payment of the tax to the NSW Treasury within seven days of the race and their books were to be made available for inspection as required. Establishing a state lottery was another means of boosting revenue with the profits being paid into consolidated revenue to match the existing expenditure on hospitals then amounting to £1.2 million.²¹ Re-introducing the 44-hour working week was another part of the government’s plan for creating more jobs.²² This new legislation also provided for the wider use of the rationing of work, but such proposals from employers had to be approved by an industrial tribunal.

The Nationalist majority in the Council passed these measures not wishing to give an excuse to the government to have more Councillors appointed. However, these Nationalists dug in their heels on matters closer to their hearts such as the new Industrial Conciliation and Arbitration Bill to restore those industrial conditions Bavin had abolished. Instead of defeating these sweeping changes, the Councillors referred the bill to a select committee on 19 March 1931.²³ When the government asked Game for more Councillors on 23 March 1931 to counter this delaying tactic, the Governor predictably rejected the request saying the Council had not acted unconstitutionally or unjustifiably.²⁴ The Nationalists won by their delaying tactics: the legislation was deferred until Game dismissed the government in May 1932.

Landlords, tenants and debtors

The depression impacted harshly on those unable to meet their house rental payments. Stories abound in depression literature of families being evicted onto the street for non-payment of rent. Joseph Lamaro, Minister for Justice, introduced legislation on 11 December 1930 to stop landlords making such evictions and have them meet the same requirements as other creditors by seeking access to the courts to obtain judgements carrying the right to put in bailiffs.²⁵ The bill also provided for tenants to be represented in the courts by agents instead of solicitors in the same fashion as landlords had adopted of hiring organisations for the recovery of their rents.

The better ordering of relationships between debtors and creditors and the reduction of hardship was also arranged by Lamaro with his Moratorium Bill. It was modelled on the Commonwealth’s temporary war-time legislation for handling similar emergencies. This legislation provided that the mortgagee (such as a hire purchase company) was compelled to seek the permission of the court before taking action to recover arrears or making other proceedings. ²⁶

Aid for the farmers

While NSW farmers were not as badly off as the unemployed, the wheat and dairy farmers faced a disheartening future. While wool sales to Britain had declined in price and quantity, the wool grower did not suffer from the loss of the British market to the same extent as the wheat growers. NSW produced 45 per cent of Australia’s wool and estimates of the wool clip for 1931 was 430 million pounds representing a fall of 20 million pounds from the previous year. It was selling for 8.5 pence per pound as against 10.5 pence for the previous season. Income was expected to be £15,230,000 representing a decline of £20,834,000 from the high income three year previously of £36,064,000.²⁷ While NSW produced 36 per cent of the nation’s wheat harvest, Australia’s wheat outlook was gloomy. Some wheat sales had been made to China, but the British wheat merchants continued to purchase the very cheap Soviet wheat in preference to the Australian. British imports of Russian wheat had increased by 300 per cent with 300,000 tons of Russian wheat held in storage in Britain.²⁸

The government re-advanced £350,000 to wheat farmers who had made some repayments to the Rural Industries Board and Lang’s government added another £100,000 to assist those wheat farmers outside the Board’s scope to help them plant their next crop.²⁹ On the legislative side, the government raised more funds for wheat farmers using profits from a complex scheme of trading in flour. Under its Flour Acquisition Bill of March 1931, the government compulsorily purchased stocks of flour from millers and sold them back to the millers for sale to bakers and others. Such revenue raising was necessarily tangled to avoid the process being judged as excise which the federal government alone was permitted to collect. A fixed price was thus established for wheat products such as flour, bran or pollard and particularly bread. The programme was expected to raise £400,000 per annum for payments to necessitous farmers.³⁰

Australia’s dairy farmers were also suffering. Whereas importers in London held 661,00 boxes of Australian butter in stock in 1930, by 1931 they reduced their stock to 250,000 boxes mainly on the news that 17,500 tons of Russian butter was soon to arrive in London.³¹ Australia could do little to win Britain back from its cheaper Soviet supplier. There was little consolation in the report of the NSW Agent-General, Sir George Fuller, on his return to Sydney in May 1931. He said that it was the fault of the UK government that it was overseeing the dumping of Soviet imports of wheat, butter and timber to the disadvantage of not only producers in Britain but also the various dominions overseas.³²

As further assistance to dairymen, the NSW government legislated to assist those selling whole milk for households. Many such dairy farmers were forced to sell their milk at low prices to agents who monopolised milk purchasing in a region. The government’s Milk Bill of January 1931 established a new Milk Board through which milk was collected from the dairy farmers at a fixed price and passed to the distributors for sale to the consumers in Sydney. It replaced an earlier Milk Board which tended to be dominated by the distributors’ representative who was to be excluded from the new Board which would then consist of a chairman, a producers’ representative and a consumers’ representative. The consumers were also assured of higher health standards by these changes.³³

The Labor parties fall-out: Federal Labor versus NSW Labor

Much of the term of Lang’s government was occupied in continuing clashes with the Federal Labor party in spite of NSW Labor playing an essential part in having Scullin’s government elected. NSW Labor won more than 51 per cent of the NSW federal vote at the 1929 federal elections and captured five seats from the opposition to add to the fifteen federal electorates it already held. Lacking a majority in the Senate, Scullin’s government was unable to have its several proposals passed for softening the impact of the depression. The Deputy Leader and Treasurer, EG Theodore launched these proposals, but he had to resign over the Mungana affair and retired to the backbench. Scullin’s animosity towards the NSW government had already been demonstrated in his refusal to support Lang when the Premier was attempting to lessen the rigidity of the Loan Council as a measure for reviving the economy. Scullin was responsible for the visit of the mission from the Bank of England and he supported the deflationary tactics recommended by Niemeyer. The economically conventional Scullin rejected the creative proposals of Lang for reflating the economy. On 19 September 1930, Scullin unwisely sailed to London leaving the government in charge of two conservative Labor figures, James Fenton and Joe Lyons. Ideas for change continued to bubble forth from federal caucus, but Fenton and Lyons thwarted them and summoned support from Scullin from distant London via cable and radio telephone.

Like the Nationalist leaders, Scullin believed that state governments should be subordinate to the Commonwealth government and, as with the Nationalists, he believed that the federal Treasury was not obliged to financially assist the states in their delivery and administration of the many public services required by Australian people. He also believed that state Labor Parties should be subordinate to federal Labor even though this placed all parliamentary and rank and file members of the labour movement in a dilemma over where their loyalty lay. Scullin forced division in the labour movement where previously there had been cooperation. Scullin returned from London with deeper animosity towards Lang seemingly encouraged through his discussions with London’s financiers and bankers including those with Sir Montague Norman of the Bank of England. Lang’s exclusion of the Australian Workers Union (AWU) from power in NSW also contributed to his unpopularity in federal politics. The union exercised extensive authority in the federal Labor Party as demonstrated by its success it having its members appointed to federal cabinet. For example thirteen MHRs were returned for Victoria of whom five were elected to cabinet posts while NSW returned twenty MHRs of whom only four were elected to cabinet.³⁴

The Parkes by-election and February Premiers’ Conference

A by-election was called for the federal parliamentary seat of Parkes on 31 January 1931 and the NSW party selected a candidate in preparation for fighting the election in conjunction with the federal party. Scullin opened the campaign with a lacklustre address (later described as a “milk and water speech”) rehearsing his government’s mediocre programme.³⁵  His news about economic thinking in the capital of the Empire was dispiriting. Of all the “leaders of the banking world” he met and the “economic brains” he spoke to, he said, none had a remedy for the depression.³⁶ It was a performance guaranteed to scare away the swinging voters. To make matters worse, Scullin then split his party by having Theodore reappointed as Treasurer which caused the resignation of Fenton, Lyons and two other Labor members. Perceiving a Prime Minister lacking any solutions to the economic problems and leading a disunited federal party, the voters of Parkes understandably returned the non-Labor candidate. The new member of parliament, Major CWC Marr, confessed afterwards that “the re-entry of Mr. Theodore [to the cabinet] made my majority larger”.³⁷

Following his return from overseas, Scullin called a Premiers’ meeting in February 1931 at which he introduced a discussion on Australia’s economic difficulties. He gloomily outlined how Australia’s national income had declined by 10 per cent or £70 million made up by the fall in primary product prices of £40 million and the stoppage on British loans of £30 million. Theodore followed by proposing the reduction of interest rates saying that “there would be no repudiation of obligation [with such a reduction], but we should bring about equality of sacrifice”.³⁸ He also argued for a return to 1929 prices and the mobilisation of bank credit for national purposes. Lang followed these initiatives by proposing the reduction of interest rates to the figure of 3 per cent. Next he argued for having the British government reduce the interest on Australian loans equal to those given to it by the US on American loans. His final point, of what was to be known as the Lang Plan, was to replace the gold standard with the Australian “paper pound”, or more precisely, the “wealth of Australia, and this to be termed the ‘goods standard’”.³⁹ Lang said there was no alternative to interest reductions on all government loans whether in London or Australia to 3 per cent. “Call it repudiation or partial default” he said, but there is no alternative. “We can assure bond-holders that their money is safe”, he continued, “but it is impossible to pay existing rates, because they are not being earned”.⁴⁰

Theodore agreed with Lang’s analysis. “If you could get all the parties concerned to agree to the proposals, the [Lang] plan would be a solution of the main problems”, Theodore remarked.⁴¹ He saw greater difficulty if NSW ceased payments of the £13 million to the Commonwealth for interest on loans under the Financial Agreement, but he agreed that the gold standard had ended.

The anti-climax of the conference occurred when Lang was absent. With the banks refusing to support Theodore’s reflationary proposals, he obtained endorsement for the Commonwealth to issue fiduciary currency to a maximum of £18 million (to be repaid by loans) for aid to the unemployed and the wheat farmers. Theodore planned for the notes to be new currency and correspond to the British “Bradburys” with the fiduciary bill being drafted along lines similar to existing British financial legislation.⁴² The Conference concluded by rebuking the absent Lang for repudiating interest payments and for misleadingly suggesting that the £36 million Australia annual debt payment to London was for the war debt Australia had incurred in defending Britain in the War.⁴³

The East Sydney by-election and the split in Labor

On 5 February, one day before the Premiers’ Conference opened, the Labor member for the inner-Sydney working class electorate of East Sydney suddenly died requiring a second federal by-election to be held within six weeks of the Parkes by-election. Listing the election for 7 March allowed only four weeks for campaigning and with time being of the essence, the NSW party decided the campaign’s focus would be on Lang’s popularity and his reflationary plan; federal issues were to be ignored. It was a rational decision given that the federal party’s policy had progressed little beyond the “milk and water” proposals of Scullin that had contributed to the loss in Parkes. In addition, the Premiers’ Conference was then only commencing and there was little hope of a plan for rescuing the economy. Theodore’s fiduciary proposal, while then only partly formed, was unlikely to receive the support of the banks and the nine-point plan that did emerge from the Premiers’ Conference (later identified as the Theodore plan) was yet to come. There was also a factor of organisational competency. Having witnessed how the federal party officials had allowed the Parkes by-election to slip through their fingers, the NSW party was keen to take complete control of the East Sydney contest even if it meant shutting out all federal officials and excluding Scullin from the campaign’s opening.

The competency of NSW to conduct the election, and conduct it successfully, was one of the leading reasons for the by- election becoming the focus for Scullin’s anger and his federal Labor Party breaking its links with NSW Labor thereby wrecking political Labor for the next seven years. The attempts by the federal government to prevail over the states and for the federal Labor Party to overrule the state Labor Parties, plus Scullin’s driven need to dominate Lang, were all essential ingredients for the looming split in Labor. On Sunday 5 February, the various political groupings comprising the Federal and NSW Executive members plus Lang, Scullin and Theodore, met in Sydney for an all-day discussion as a means for resolving the disputes. The meeting concluded at 11pm with NSW refusing to back down from promoting its own policies in the by-election.⁴⁴ More Executive meetings, held on the following Monday and Tuesday, reached the same conclusion of the Lang plan prevailing over the Theodore’s. Instead of papering over the differences until after the by-election, the federal officials refused any compromise and initiated movement towards a split. At the Tuesday meeting, the federal officials announced that if the candidate, Ward, advocated other than the Theodore plan he would be rejected as an ALP candidate.⁴⁵

The East Sydney campaign, therefore, was launched by a leading NSW federal Labor member, Jack Beasley, at the Paddington Town Hall on 18 February 1931. Eddie Ward, an alderman of the Sydney City Council, was selected as the candidate. The NSW rhetoric was not dissimilar to that of the backbencher Theodore. It declared the Commonwealth Bank Board plus the directors of the private banks to be the embodiment of “money power” who determined the destiny of Australia more than did Scullin’s government. Where NSW differed from the federal position was in advocating the reduction of interest on all loans, both local and overseas, to three per cent. The NSW party focussed on Australia’s annual interest payments to Britain of £36 million. If Australia could be given a “temporary respite” from those payments, said Lang, “the affairs of our country could be placed upon a sound footing”.⁴⁶ But would the British bond holders forego income during this temporary respite? Would the British government make good the losses? Lang implied a “yes” answer. He pointed to how the British government willingly underwrote the losses it incurred through lowering the interest rates on its large war loans to its war-time allies. “Belgium borrowed money at 5 per cent, she repays it at the rate of 1.5 per cent.” said Lang, “France borrowed at 5 per cent, she repays at the same rate. Italy borrowed at 5 per cent, she repays hers at 0.5 per cent. Australia borrowed at 5 per cent, and is now paying nearly 6 per cent. Is that the sort of thing that an Australian is going to stand for?” Lang asked rhetorically.⁴⁷ Lang’s opponents demonstrated that Britain’s reduced interest applied only to war loans whereas the bulk of Australia’s borrowings were for public works. The war borrowings were a small proportion of the larger sum. Lang ignored such criticisms. He led his audiences to believe that most of the loans from Britain were connected with the expenses of Australia becoming involved in Britain’s Great War. The electoral policy of attacking Britain for not aiding Australia in its hour of financial need as Australia had aided Britain during the recent War, may have been psychologically sound, but it was strategically weak. Imperial affection for Britain was strong in many voters’ minds and Lang’s electoral methods may have been too extreme. East Sydney was won by Eddie Ward on 7 March, but with a reduced majority.

Federal Labor was falling apart by this date. The majority of the NSW federal Labor members broke with their parent NSW Labor body. The resignation of Lyons and Fenton from Cabinet on 29 January to be followed by a trickle of other resignations (Gabb, Guy, Price and McGrath) marked the beginning of the decline of Scullin’s party. On 2 March Lyons announced his intention to lead the new composite anti-Labor opposition.⁴⁸ Meanwhile Sculllin had excluded Jack Beasley, the leading NSW Labor spokesman, from Cabinet meetings, although others opposed to Scullin remained as ministers. Scullin’s hatred of NSW Labor became frenetic as he and his inner ministry began wrecking their own federal Labor party to exclude the NSW supporters. Federal caucus agreed to a spill all offices resulting in the supporters of NSW Labor being excluded from the new cabinet. Scullin later denied that an inner ministry group had arranged a voting ticket to exclude particular candidates.⁴⁹ Rather than be greeted as a winner on his arrival in Canberra, at a time when senior members were deserting it and it was becoming a minority government, Ward was excluded from the Labor caucus on 12 March on Scullin’s orders. The caucus supported Scullin and the seven NSW members supporting their state party, consisting of Beasley, Eldridge, Ward and Senators Dunn and Rae, thereupon left to form their own minor party and Scullin thereby lost his majority in Parliament.

Reduction of interest rates

Both Theodore and Lang supported the reduction of interest rates as a measure for ensuring “greater equality of sacrifice” in the face of the depression. Lang had proposed in his “Plan” that all government borrowings in Australia be reduced to 3 per cent and Theodore argued the same by emphasising at that February Premiers’ Conference how the 30 per cent increase in the value of money had largely benefited those deriving their income from interest. Theodore’s introduction of his Bank Interest Bill on 26 March 1931, to establish a Board of advice for the government on interest rates and their reduction, followed the introduction by the NSW government of its Reduction of Interest Bill on 18 March. The NSW bill proposed that the interest on government loans, then averaging 5 per cent, be reduced to 3 per cent, except for interest payable to the Crown or to the Government Savings Bank. Rates for mortgages on property and for hire purchase, then ranging from 7 per cent and more, should be reduced to 5 per cent with second mortgages at 6 per cent. Rates for deposits on short call were to be 1.5 per cent and fixed deposits for more than six months 2.5 per cent.⁵⁰ The NSW government argued that there had been a fall in the national income of £100 million caused by the reduced value of exports and the cessation of loan raising. NSW’s proportion of this depleted income was approximately 40 per cent or £40 million. With the state’s wages bill having fallen by £35 million and prices and farm incomes also declining, it was evident that the workers and farmers bore the brunt of the depression while those receiving incomes from interest enjoyed rising incomes. Financial gains to the state by these interest reductions were calculated by the Treasury at £2,790,000. The Nationalists said the measure would drive local investors interstate to which Lang replied that the economies of other states were as bad as if not worse than NSW’s. To other Nationalists’ complaints that the banks would be deterred from lending to his government, Lang answered that they had not lent to any governments for two years. To soften the bill’s impact it was made operative by proclamation at a future date.

The Nationalist Legislative Councillors were instinctively opposed to the measure, but their financial status precluded them from arguing the undesirability of low interest rates. The Labor President, AC Willis, excited them more by announcing that if the interest rates were not reduced, NSW would have difficulty in meeting interest repayments as well as funding social welfare. “We cannot pay the amount of interest that is falling due and keep our people from starving”, he declared while eschewing the term “repudiation”.⁵¹ Unable to argue that the rentiers should be paid ahead of the local starving, the Councillors resorted to unsettling the standing of the Government Savings Bank. Frank Boyce, a leading Nationalist barrister and Freemason, emphasised the vulnerability of the Bank first by wrongly characterising it as “a sort of milch cow to which Governments go in order to get money” and later as facing financial problems.

Lower interest rates, Boyce and others incorrectly pronounced, would disadvantage the Bank’s larger depositors such as friendly societies and building societies and also slash the income of the Bank itself from £1,555,898 to £876,318.⁵² Provision was made to exclude the State Savings Bank from the Reduction of Interest Bill because, with the measure applying only to institutions under NSW laws, the Commonwealth Savings Bank would gain an advantage. Another clause provided that interest would not to be reduced on money deposited with the Crown or the State Savings Bank.⁵³ This focussing on the Government Savings Bank contributed to it increasing instability. Unwilling to defeat the bill and thereby strengthen the government’s claim for the appointment of more Councillors, they voted on 25 March to defer the bill for six months. But as Willis demonstrated, interest reductions were sought by all including the federal government and “we must recognise it as inevitable”. Indeed by June 1931 the federal government had passed the Debt Conversion Bill by providing for the conversion of the national internal debt of £558 million to lower interest. The states were required to pass complementary legislation which NSW undertook in several stages over the following six months.

Loan liability

Lang’s announcement that NSW would be seeking a moratorium for two years (but not defaulting) on its payment of interest for local and London loans was implemented on 23 March 1930. NSW’s taxation was expected to shrink from £7.084 million during 1929-30 to £5.9 million for 1930-31. The annual interest liability was £13,484,123.⁵⁴ and a cash deficit was looming of £15 million.⁵⁵ Lang’s concern was to preserve sufficient funds for sustenance payments to the unemployed.

It was a reflection of the extent of the world’s economic depression as much as Lang’s proposal to cut the state’s interest payments that the Westminster Bank cabled Scullin reminding him of the amount of £854,635 due to it from NSW on 1 April 1931. Scullin telegraphed NSW as a reminder saying that “if [your] funds available are not sufficient to meet the payment in full” his government would “negotiate with the Commonwealth Bank for financial accommodation for this purpose”.⁵⁶ NSW tartly replied that any Commonwealth Bank accommodation would be welcomed, but applied to the “relief of the dire distress” caused by unemployment. The amount of £542,875 due to British bond holders, Lang informed Scullin, would be negotiated by NSW’s new Agent-General in London, AC Willis, and those bond holders.⁵⁷

The press in London and Australia reported these startling events in terms of default. The Westminster Bank immediately warned the Dominions Office of NSW’s actions. The Dominions Secretary, Jimmy Thomas, contacting the Australian High Commissioner, Sir Granville Ryrie, asking him to have the Commonwealth provide “the needful funds” to the bank under the terms of the Financial Agreement and warned that a question in the Commons would be asked the next day.⁵⁸ As if on cue, Leo Amery, the former Dominions Secretary, queried Thomas who answered that NSW’s actions had “caused feelings of painful surprise” but was a matter between the several Australian governments and the bondholders.⁵⁹ The federal government withheld the monthly payment of £243,118 to NSW and Theodore telegraphed Lang that he would ask the Loan Council to issue treasury bills to the Commonwealth Bank for approximately £952,000 to meet NSW’s interest payments.⁶⁰ Meanwhile Scullin sent Lang a letter demanding the settlement of the £435,757 otherwise “legal proceedings would be instituted”. ⁶¹  The matter was resolved by the Commonwealth assuming responsibility for NSW’s payments. But after the Lyons government took office in December 1931, it pursued NSW through court action to recover all payments on NSW’s behalf. This led to Governor Game dismissing the NSW government in what became a most significant event in Australia’s history.

Conclusion

The first 150 days of Lang’s government were like a preview to the main attraction in which the three most dramatic highlights were flashed quickly on the screen. The Great Depression was the dominant theme; it accounted for the election of the Lang government and determined the government’s legislative programme geared to moderating its impact on the NSW people. The political task of removing the dead-hand of the Legislative Council was a problem left over from Lang’s previous government. But the forces dedicated to preserving the Council had more big guns on their side—they had the British Empire’s legal edifice as well. The problem with its Upper House was one NSW shared with Scullin’s government vis-a-vis the Senate. And reducing interest rates was another shared between the two. Theodore and Lang were in agreement on the necessity to reduce interest rates as one measure for lessening the impact of the Depression. It was one of the few things in which the combined forces of state and federal Labor were successful. Lang’s Reduction of Interest Rate bill, while unsuccessful, did create a positive atmosphere for the Commonwealth’s conversion of all local loans to lower interest. But federal/state animosities continued in other areas. Lang’s failure to rally the support of the states for amending the restrictions of the Loan Council was a great opportunity lost in the welter of animosities between NSW and Scullin. Scullin remained determined to assert the Commonwealth’s power over the states, particularly NSW, and also to exercise federal Labor’s interests over the state Labor bodies. The refusal of Lang and the NSW party to subordinate themselves to Scullin’s machinations led to Scullin splitting the Labor Party. Scullin was determined to deflate the economy, cut NSW Labor off from the Australian labour movement and then plunge Australia into an early election. Why he selected a loss in the vote for an adjournment motion (not a critical matter in parliamentary terms) in federal parliament to bring on an election has never been fully explained. The split in the Labor Party, brought on by the uncompromising attitude of Scullin towards NSW labor, has entered the history books as one of the three important splits in the Party’s history.

Endnotes

¹ Geoffrey Robinson, The New South Wales State Elections 1930, New South Wales Parliamentary Library and the Department of Government, University of Sydney, 1998, p. 49.
² Sydney Morning Herald, 24 October 1930.
³ The Labor Party’s programme was outlined in the Party’s launch see Sydney Morning Herald, 23 September 1930.
⁴ Tariff Board Annual Report 30 June 1930, CPP, Vol, iii, 1929-31.
⁵ Sydney Morning Herald, 26 September 1930.
⁶ C.R. Chapman, Under Secretary, NSW Treasury, to H.J. Sheehan. Secretary, Australian Loan Council, 28 October 1930, Item 30/5073 A571, National Archives of Australia (hereafter NAA).
⁷ New South Wales Parliamentary Debates (hereafter NSWPD), 27 November 1930, pp. 52-55.
⁸ Memorandum C.R. Chapman, Under Secretary NSW Treasury, to J.T. Lang 7 November 1930, file no. 31/3124, NSW Treasury files, State Records of New South Wales (hereafter SRNSW)..
⁹ Memorandum C.R. Chapman, Under Secretary NSW Treasury, to Under Secretary, Chief Secretary’s Department, 18 December 1930, file P.O.1930/18616, SRNSW.
¹⁰ Cable, Game to Secretary of State for Dominion Affairs, 4 December 1930, DO 35/400/11156/10, Public Record Office (hereafter PRO).
¹¹ Sydney Morning Herald, 27 March 1931.
¹² Labor Daily, 18 December 1930.
¹³ Sydney Morning Herald, 17 March 1931.
¹⁴ Sydney Morning Herald, 1 June 1932.
¹⁵ Letter Snowden to Thomas, 19 December 1930, DO 35/400/11156/10, PRO.
¹⁶ For second reading of bill see pp. 630-32, NSWPD, 17 December 1930.
¹⁷ NSWPD, 18 December 1931, pp. 652.
¹⁸ NSWPD , 25 February 1931, p. 1472.
¹⁹ Instruction in Premier’s Correspondence files, B31/155, SRNSW.
²⁰ NSWPD, 10 December 1930, pp. 414-36.
 ²¹ Records of the Colonial Treasurer, File 31/18183, SRNSW.
²² NSWPD, 18 December 1930, p. 664.
²³ For the second reading of the Industrial Conciliation and Arbitration Bill see NSWPD, pp. 1359-13562, 19 February 1931.
²⁴ Sydney Morning Herald, 27 March 1931.
²⁵ For second reading speech of Landlord and Tenant Amendment (Distress Abolition) Bill see NSWPD, pp. 451-52, 11 December 1930.
²⁶ For second reading speech of Moratorium Bill see NSWPD, pp. 510-12, 11 December 1930.
²⁷ Sydney Morning Herald., 1 March 1931.
²⁸ Sydney Morning Herald 7 March 1931.
²⁹ NSWPD, 24 March 1931, p.2105.
³⁰ For second reading speech on the Flour Acquisition Bill see NSWPD, pp. 1620-23, 3 March 1931. See also Premiers’ Correspondence File, file 31/461, SRNSW. The Act thereafter had to be amended several times.
³¹ Sydney Morning Herald, 20 March 1931.
³² Sydney Morning Herald, 23 May 1931.
³³ For the second reading speech of the Milk Bill see NSWPD, pp. 5691-94, 26 August 1931.
³⁴ C.B. Schedvin, Australia and the Great Depression, Sydney University Press, Sydney, 1970, p. 176.
³⁵ Ross Fitzgerald, “Red Ted” The Life of E.G. Theodore, University of Queensland Press, Brisbane, 1994, p. 232.
³⁶ Sydney Morning Herald, 16 January 1931.
³⁷ Sydney Morning Herald, 2 February 1931.
³⁸ The following quotations are taken from “Conference of Commonwealth and State Ministers. Proceedings and Decisions of Conference”, Commonwealth Papers, 1929-31, Vol, ii.
³⁹ Ibid. p.53.
⁴⁰ Ibid., pp. 54-55.
⁴¹ Ibid., p. 43
⁴² Ibid., pp. 77-79.
⁴³ Ibid,, p. 77.
⁴⁴ Sydney Morning Herald. 16 February 1931.
⁴⁵ Patrick Weller and Beverley Lloyd eds., Federal Executive Minutes 1915-1955, Melbourne University Press, Melbourne, 1978, p. 159.
⁴⁶ Labor Daily, 27 February 1931.
⁴⁷ Labor Daily, 16 March 1931.
⁴⁸ P.R Hart, “Lyons: Labor Minister-Leader of the U.A.P.” in Robert Cooksey, ed. The Great Depression in Australia, Australian Society for the Study of Labour History, Canberra, pp. 44-9.
⁴⁹ Labor Daily, 6 March 1931.
⁵⁰ For the second reading of the Reduction of Interest Bill see NSWPD, pp. 1967-74, 18 March 1931.
⁵¹ NSWPD, p. 2091, 24 March 1931.
⁵² NSWPD, p. 2100, 24 March 1931. On 26 August 1931 Lang promised to present a new Reduction of Interest Bill, but this did not eventuate. NSWPD, p. 5668.
⁵³ H.D. Hall, President of the GSB, wrote to Lang on 16 March asking for the existing interest on government securities to be maintained. Treasury Office Files, Special Bundle, 1932/18084, SRNSW.
⁵⁴ NSW Treasury Correspondence files Statement of Public Debt 1923-24 to 1929-30, file 10/22294, SRNSW.
⁵⁵ Sydney Morning Herald, 23 March 1931.
⁵⁶ Coded telegram Prime Minister to Premier 23 March 1931, Treasury Correspondence files, held in NSW Treasury.
⁵⁷ Memorandum 23 March 1931 Overseas Interest Due End of Current Month, Treasury Correspondence files, held in NSW Treasury.
⁵⁸ Cablegram High Commissioner to Prime Minister, 26 March 1931, Treasury Correspondence files, NSW Treasury.
⁵⁹ Cablegram High Commissioner to Prime Minister, 27 March 1931, Treasury Correspondence files, NSW Treasury.
⁶⁰ Memo 1 April 1931 and telegram Theodore to NSW Treasurer, 8 April 1931, Treasury Correspondence files, NSW Treasury.
⁶¹ Letters Scullin to Lang, 3 and 29 April 1931, NSW Treasury Correspondence files, file A32-292, SRNSW